Woo Wai King v. Cheung Siu Kam and Another

HCMP 1910/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO1910 OF 2014

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Before: Hon G Lam J in Court

Date of Hearing: 22 January 2015

Date of Decision: 22 January 2015

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D E C I S I O N

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1.This is a hearing of an originating summons taken out by the plaintiff on 4 August 2014 seeking a declaration that the plaintiff be recorded in the Register of Members of the 2^nd defendant, Shun Kee Amusement Company Limited as a member in respect of 16.3% of the issued share capital of the company, equivalent to 1,630 shares, and an order that the register of members of the company be rectified accordingly.

2.The company was incorporated in Hong Kong on 23 July 2010.  The register of members, as it now stands, shows the 1^st defendant to be the sole holder of 10,000 shares, being all the issued shares of the company.  The plaintiff seeks rectification of the register so as to be registered as the holder of 1,630 shares.

3.The case is, in my view, straightforward, and I can give my reasons now briefly.

4.Much of the background is common ground.  There is no dispute that in about late 2010 or early 2011 there was an agreement among nine persons, including the plaintiff and the 1^st defendant, to invest together in a business to be run by the company.  The business was the operation of boat restaurants in typhoon shelters in Hong Kong.  The 1^st defendant and one Mr Lam Yiu-kwong appear to be the persons who first came up with the business concept.

5.There is no dispute that the plaintiff injected HK$450,000 into the business and was entitled, initially, to a 15% stake in the venture – to use a neutral phrase – later increased to 16.3% when 8% out of the 1^st defendant’s holding was redistributed amount the investors.

6.It is common ground that the 1^st defendant has, by and large, been the one who was actually operating the business on a day-to-day basis.  The business was fairly successful and there had been four distributions of dividends in proportion to the investors’ stakes in the business.

7.The dispute is this.  The plaintiff contends the 1^st defendant has wrongfully failed and now refused to recognise the plaintiff as a holder of 1,630 shares of and in the company and to register her name in the register of members accordingly.  The 1^st defendant accepts that the plaintiff is a 16.3% investor, but contends that it was an arrangement agreed to by all concerned that the 1^st defendant alone would be registered as a shareholder and member of the company, with the other investors being beneficial owners only of the shares.

8.In my view, the 1^st defendant’s allegation, which first emerged some time in 2013, when the plaintiff invoked the provisions of the Companies Ordinance to seek inspection of the accounts and records of the company, does not bear scrutiny against the contemporaneous documents.

9.First, there is a document which is expressly called the “Articles” of the company, which refers to various people (of which two appear to have dropped out since) as “shareholders” of the company.  Mr Derek Chan, who appears for the defendants, refers to an English document also called “Articles of Association” of the company, which he says is the formal articles of the company.  That, however, does not seem to me to prevent the Chinese document from being at least a shareholders’ agreement among the investors.  Mr Chan also refers to a letter from the 1^st defendant’s solicitors dated 18 July 2014 in which it is denied that the Chinese document was ever accepted by the investors or put into operation.  But the 1^st defendant’s own affirmation, which was affirmed later in October 2014, does not deny that the document was the basis on which the investors agreed to invest.  There, at paragraph 17, she only says:

“本人在此澄清該份文件並不是該公司的正式組織章程細則，該份文件只是我們籌組公司時作為各投資者預算出資的金額及避風塘美食經營模式的一份紀錄。”

(Translation: “I hereby clarify that that document is not the formal articles of association of the company, but only a record at the time when we prepared for setting up the company, which contained the amounts that the investors intended to contribute and the mode of operation of [the boat restaurants].”)

Quite clearly the document in its contents deals not only with operational matters, but many corporate matters as well.

10.Secondly, a share certificate was actually issued to the plaintiff in respect of 1,500 shares (that being before the increase of her interest from 15% to 16.3% in 2013).  The 1^st defendant’s affirmation at paragraph 14 asserts that the share certificate was given merely as proof of the investment, but gives no explanation whatsoever why such proof had to be given in this peculiar way.  If the investor wanted a receipt, I would have thought it would be far simpler directly to issue a receipt to the investor stating the amount of investment injected by that particular individual.  The share certificate, in contrast, did not state the amount paid.  Instead, it stated (1) the number of shares said to be held by the person in question, (2) the certificate number, being number 7 in the case of the plaintiff, and (3) the share numbers, being 7101 to 8600 in the case of the plaintiff.  Finally, in compliance with the requirements of the Companies Ordinance, the share certificate was sealed with the company seal.  As stated in section 137 of the Companies Ordinance, Cap 622:

“In the absence of evidence to the contrary, a certificate issued by a company specifying any shares held by a member in the company is proof of the member’s title to the shares.”

In my judgment, what the 1^st defendant said is far from sufficient to disprove the prima facie effect of the share certificate sealed with the company seal and issued to the plaintiff. Moreover, to the extent that the 1^st defendant meant to say that the share certificate was a sham, I find that assertion, taken in the context of all the evidence, to be quite incredible. 

11.Thirdly, in May 2013, the 1^st defendant’s solicitors wrote in their letter to the plaintiff’s solicitor stating that the plaintiff’s rights as shareholder of the company are, under section 129G of the (previous) Companies Ordinance, Cap 32, limited to obtaining copies of the audited balance sheet and directors’ report of the company.  That seems to me to be a clear admission of the plaintiff’s status as a shareholder for which there has been no satisfactory explanation by the 1^st defendant.

12.Fourthly, there are a number of minutes of meetings, including those held on 18 March 2013, 25 April 2013 and 11 June 2013, prepared by the 1^st defendant herself.  There the meetings were unequivocally referred to as “general meetings of the company” and various investors unequivocally referred to as “shareholders”.  The minutes also contain references to the legal quorum which seems to me to indicate quite clearly that it was understood by all attending that the meetings were meetings of the company.

13.Fifthly, in September 2013 Mr Lam Yiu-kwong made a request to the 1^st defendant to rectify the register of members as soon as possible so as to add all investors onto the register as actual holders of shares.  In response, the 1^st defendant did not allege that there was any agreement that she alone would be and remain the registered holder of all the shares issued by the company.  Instead she stated in a letter dated 23 September 2013, signed by herself as chairman of the board and copied to all shareholders, that:

“待信記的賬目全面完成審計核數後，公司自當安排股東大會，交代情況，並進行更新股東名冊所需之程序。”

(Translation: “After the full completion of the audit on the accounts of Shun Kee, the company would arrange for a shareholders’ meeting to account for the situation and would proceed with the necessary procedures for updating the register of shareholders.”)

14.In my judgment, these contemporaneous documents overwhelmingly support the plaintiff’s case.  The 1^st defendant’s assertion is, in my opinion, not believable in the context of the undisputed background and the contemporaneous documents. 

15.In these circumstances, as shown by the case of King Wong Development Ltd v Yat Fat Ltd & Ors (HCMP 658/2013, 9 January 2014) and the authorities cited in paragraphs 53 to 62 of the judgment of Deputy Judge M. Ng there,the court is entitled to dispose of the matter on the hearing of the originating summons without calling for cross-examination of the deponents of the affirmations or directing the action to proceed as if begun by writ. 

16.I shall therefore make an order in terms of paragraph 1 of the originating summons pursuant to section 633 of the Companies Ordinance, Cap 622.

Mr Alexander Tang, instructed by Leung & Associates, for the plaintiff

Mr Derek J Y Chan, instructed by Fan Wong & Tso, for the 1^st and 2^nd defendants