SCE CONSTRUCTION MATERIAL LTD v. CHOI CHUNG BUN VINCENT AND ANOTHER

bjbj ment: 8 February 2011 ______________ J U D G M E N T ______________ Trial of preliminary issue On 21 January 2010, Mr Justice Au ordered that the question whether the proceedings herein were instituted without the authority of the Plaintiff be tried as a preliminary issue. The Plaintiff The Plaintiff, SCE Construction Material Limited, was incorporated on 7 June 1995 under the International Business Companies Act of 1984, Cap.291 ( IBCA 1984 ), which has since been repealed by the Business Companies Act 2004 ( 2004 ), in the Territory of the British Virgin Islands. The authorized capital of the Plaintiff is US$50,000.00, comprising 50,000 shares with a par value of US$1.00 each. The first directors of the Plaintiff were Chiu Sang ( Nelson Chiu ) and Choi Chung Vincent ( Vincent Choi ), the 1st Defendant. At a meeting of the first directors of the Plaintiff held on 22 June 1995, it was resolved that 1,000 shares of US$1.00 each in the Plaintiff be issued to SSI China Enterprises Ltd. The issuance of the 1,000 shares in the Plaintiff to SSI China Enterprises Ltd was evidenced by Certificate No.1 dated 22 June 1995. SSI China Enterprises Ltd is a company listed in Australia. It has changed its name on a few occasions in the past, including:- (1) Sino Consolidated Enterprises Ltd ; (2) Sun Consolidated Enterprises Ltd ; (3) Suntech Environmental Group Ltd ; and (4) Australia China Holding Limited ACHL ), the current name. For the sake of convenience, SSI China Enterprises Ltd in its various names will hereinafter be referred to as ACHL in this judgment. ACHL remained as the sole shareholder of the Plaintiff up to 8 March 1999, when it transferred the 1,000 shares in the Plaintiff to a company called New Tech Pacific Limited, also a BVI company, at the stated consideration of US$1,000. On 8 March 2000, New Tech Pacific Limited transferred the 1,000 shares in the Plaintiff back to ACHL at the stated consideration of US$1,000. In or about February 2001, negotiation was ongoing between Nelson Chiu and a person called Fu Rong Lin ( ) for the sale of a number of subsidiaries of ACHL (including the Plaintiff) to Fu. On 28 February 2001 ACHL transferred the 1,000 shares in the Plaintiff to Total Linus Solutions Ltd ( Total Linus ), a BVI company and a subsidiary of ACHL, at the stated consideration of US$1,000. This transfer of shares was apparently carried out in preparation for the sale of Total Linus (and other subsidiaries of ACHL) to Acepec International Investment Holdings Limited ( Acepec ), a company beneficially owned by Fu. On 27 March 2001, ACHL transferred a total of 5 companies, including Total Linus, to Acepec. Finally, on 1 August 2003, Total Linus transferred the 1,000 shares in the Plaintiff back to ACHL at the stated consideration of US$1.00. The validity of this transfer is disputed by the Defendants. In the Statement of Claim, it is pleaded that on 21 January 2008, the 1st Defendant was removed as director by the board of the Plaintiff. It is further pleaded that, prior to a resolution of the sole shareholder of the Plaintiff dated 30 July 2009 removing all the existing directors on its board, the following were the directors of the Plaintiff:- (1) Nelson Chiu, appointed as earlier mentioned on 22 June 1995; (2) Fu, appointed on 4 July 2002; (3) Chai Meen Foh Michael ( Chai ), appointed on 21 January 2008. Also, Nelson Chiu, Fu and Chai were re-appointed as directors of the Plaintiff by this resolution of the sole shareholder of the Plaintiff. The validity of the removal of Vincent Choi as director, and appointment of Fu and Chai as directors, of the Plaintiff is disputed by the Defendants. The Defendants also contend that Nelson Chiu ceased to be a director of the Plaintiff on 27 March 2001. At this juncture, it may be noted that on 1 November 2001, the Plaintiff was struck off the BVI register of companies for non-payment of annual fees, but was restored on 14 August 2009, at which time the IBCA 1984 had been repealed. According to the unchallenged expert evidence of Mr Victor Joffe QC on BVI law, the effect of restoration is that the Plaintiff will be treated as if it had never been struck off. It is not suggested by counsel for the parties that the striking off and subsequent restoration of the Plaintiff has any legal consequence bearing on the issues to be determined by the court in this trial. However, the striking off of the Plaintiff on 1 November 2001 is relevant to the consideration of Vincent Choi s conduct in purporting to continue to act on behalf of the Plaintiff after he had come to know of that fact. I shall return to this matter later in this judgment. Tan Kin George ( s indebtedness to the Plaintiff The Plaintiff used to be in the business of, inter alia, manufacturing and trading construction chemicals and materials. On 23 January 2001, the Plaintiff commenced legal proceedings in Hong Kong, HCA 423/2001, against Tan and Cheung Hon Wa Dicto as guarantors of a loan of HK$4,000,000 advanced by the Plaintiff to a company called Theodore Developments Ltd in 1998. On 13 December 2002, the Plaintiff obtained judgment against Tan for the sum of HK$7,285,393 together with further interest and costs. On 26 March 2003, Tan was adjudged bankrupt upon the Plaintiff s petition in HCB 1873/2003. On 25 August 2006, at a meeting of the creditors of Tan, Messrs Huen Ho Yin and Huen Yuen Fun ( the Trustees ) were appointed joint and several trustees in bankruptcy of the estate of Tan. Outline of Plaintiff s claim against the Defendants The Plaintiff alleges, inter alia, as follows: (1) The 2nd Defendant, Liu He Enterprises (Hong Kong) Limited, is a company incorporated in Hong Kong on 2 January 2003. (2) The 2nd Defendant was at all material times controlled by, inter alia, Vincent Choi. (3) On 22 February 2008, the 2nd Defendant changed its name to SCE (Nominees) Limited. (4) On 3 December 2008, the 2nd Defendant further changed its name to SCE Construction Company Limited, a name identical to that of the Plaintiff. (5) On an unknown date, Vincent Choi procured a board minutes of the Plaintiff dated 27 March 2001 ( the Resignation Minutes ) purportedly signed by Nelson Chiu, and gave a copy of the Resignation Minutes to the Trustees. In the Resignation Minutes, it was stated that Nelson Chiu resigned, and Fu was appointed, as director of the Plaintiff on 27 March 2001. The validity of the Resignation Minutes is disputed by the Plaintiff. According to the Plaintiff, Nelson Chiu never resigned as director, whether on 27 March 2001 or otherwise, and Fu was appointed as director of the Plaintiff on 4 July 2002, not on 27 March 2001. (6) On or about 3 January 2008, Vincent Choi wrongfully informed the Trustees that the Plaintiff s correspondence address and email address were changed respectively to Flat B, 13th Floor, Kiu Yin Commercial Building, 363 Lockhart Road, Hong Kong and HYPERLINK "mailto:leecfiris@yahoo.com" leecfiris@yahoo.com , and asked the Trustees not to send any further correspondence to the old address of the Plaintiff. In fact, there was never any change of correspondence address or email address of the Plaintiff as alleged by Vincent Choi. (7) On or about 22 December 2008, Vincent Choi requested, caused, induced and/or procured the Trustees to pay the first dividend in the bankruptcy of Tan in the sum of HK$1,647,029.89 to the 2nd Defendant, then bearing a name identical to that of the Plaintiff, which sum of money was received by Vincent Choi for his personal use and benefit. (8) Vincent Choi and/or the 2nd Defendant have wrongfully misappropriated the first dividend of HK$1,647,029.89 belonging to the Plaintiff. (9) The Plaintiff only discovered the wrongdoings of Vincent Choi and the 2nd Defendant in or about August 2009. On 21 August 2009, the Plaintiff commenced the present action against the Defendants for recovery of the sum of HK$1,647,029.89 as well as various ancillary relief. The Defendants case The Defendants accept that the 2nd Defendant has received the sum of HK$1,647,029.89 representing the first dividend in the bankruptcy of Tan payable to the Plaintiff from the Trustees, and Vincent Choi used the 2nd Defendant, bearing a name identical to that of the Plaintiff, as the means to receive the dividend. Vincent Choi says he did this in view of the fact that, at the time of the payment by the Trustees, the Plaintiff had been struck off from the BVI company register, and he was unable to obtain a certificate of incumbency of the Plaintiff, which was a requirement for opening a new bank account in Hong Kong for a BVI company. The Defendants deny that the receipt of the money by the 2nd Defendant in the aforesaid circumstances was wrongful. In summary, the Defendants case is as follows:- (1) In June 1995, Nelson Chiu and Vincent Choi were appointed the only directors of the Plaintiff, which was at that time wholly owned by ACHL, then known as SSI China Enterprises Ltd. It was agreed between Nelson Chiu and Vincent Choi that the latter was to receive HK$15,000 per month as remuneration for acting as a director of the Plaintiff. However, he received no payment at all from the Plaintiff. (2) In March 2001, Vincent Choi agreed with Nelson Chiu (and Fu) that he would take over the responsibility for chasing after Tan and the other co-defendant in HCA 423/2001 for repayment of the outstanding loan due to the Plaintiff, and any money recovered could be used to settle the outstanding remuneration owed to him by the Plaintiff. (3) At a board meeting of the Plaintiff on 27 March 2001, a resolution was passed accepting Nelson Chiu s resignation as director and a further resolution was passed appointing Fu as new director of the Plaintiff with effect from 27 March 2001, but Fu never accepted the appointment. The Defendants deny that Fu was appointed as director of the Plaintiff on 4 July 2002 (as alleged by the Plaintiff). (4) On 4 April 2001, Vincent Choi, in his capacity as the sole director of the Plaintiff (Nelson Chiu having resigned and Fu not having taken up the appointment), passed a board resolution allotting 4,000 new shares in the Plaintiff to Metropolis Enterprises Ltd ( ), a company beneficially owned by him. The consideration for the allotment of the 4,000 shares was the settlement of his claim against the Plaintiff for the outstanding director s remuneration. Further, the allotment of the 4,000 shares was, according to the Defendants, done with the knowledge and consent of Fu, then the ultimate beneficial owner of the Plaintiff (through Total Linus and Acepec), or without objection by Fu. (5) On 11 January 2006, Vincent Choi on behalf of the Plaintiff executed an Engagement Letter with the Trustees whereby the Plaintiff agreed to engage the Trustees to act as the trustees in bankruptcy of the estate of Tan (in place of the Official Receiver) in order to speed up the recovery process. According to Vincent Choi, after the appointment of the Trustees, he would from time to time liaise with them and assisted them in the recovery process. He also attended creditors meetings and signed creditors resolutions, and corresponded and dealt with the Trustees at all material times on behalf of the Plaintiff, up to at least June 2009. (6) On 5 March 2008, MEL transferred 2,000 shares in the Plaintiff to the 2nd Defendant. (7) On 30 December 2008, Vincent Choi arranged for two written resolutions of the shareholders of the Plaintiff to be passed by MEL and the 2nd Defendant. Together, they held 80% of all the issued shares in the Plaintiff. The first resolution authorised the 2nd Defendant to receive dividends from the Trustees in bankruptcy of Tan for and on behalf of the Plaintiff, and the second resolution authorised the 2nd Defendant to pay, out of the dividends so received, the outstanding director s remuneration of HK$15,000 per month due to Vincent Choi for the period from 1 April 2001 to 31 December 2008 (in the total amount of HK$1,395,000), and the outstanding director s fees of HK$12,000 per annum due to Vincent Choi and Yang for the periods from (i) April 2001 to 31 December 2008 and (ii) February 2008 to 31 December 2008 (in the total amounts of HK$93,000 and HK$10,241 respectively), with any balance to be retained by the 2nd Defendant for and on behalf of the Plaintiff until further resolution. On the issue of whether this action was instituted without the authority of the Plaintiff, the Defendants case is that:- (1) Two companies, namely, MEL and the 2nd Defendant, both of which are represented by Vincent Choi, are currently in control of 80% of all the issued share capital of the Plaintiff. (2) Vincent Choi and Yang Pang ( Yang ), appointed on 23 February 2008, are the only validly appointed directors of the Plaintiff at present. (3) The alleged current directors of the Plaintiff, namely, Nelson Chiu, Fu and Chai are not directors of the Plaintiff and have no authority to institute these proceedings against the Defendants. It may be noted here that, according to the Defendants, Fu was removed as director of the Plaintiff on 23 February 2008 out of an abundance of caution, their case being that Fu had in fact never taken up his directorship in the first place. (4) The institution of this action has never been authorised by the true current directors (namely, Vincent Choi and Yang) or controlling shareholders (namely, MEL and the 2nd Defendant) of the Plaintiff. Vincent Choi has commenced an action in the BVI court (Claim No. 2009/0296) on 27 August 2009 to resolve the disputes regarding the shareholding and directorship of the Plaintiff. In my view, the following major issues have to be resolved in this trial of preliminary issue:- (1) Whether Nelson Chiu resigned as director of the Plaintiff on 27 March 2001; (2) Whether there was any outstanding director s remuneration due and owing to Vincent Choi by the Plaintiff as at 4 April 2001; (3) Whether Fu had prior knowledge of and consented to the allotment of 4,000 shares to MEL on 4 April 2001; (4) Whether the purported board resolution of the Plaintiff dated 4 April 2001 was valid; (5) Whether MEL has validly become a shareholder of the Plaintiff as a result of the allotment of 4,000 shares to it pursuant to the said board resolution dated 4 April 2001. Witnesses At the trial, the Plaintiff called Nelson Chiu and the Defendants called Vincent Choi to give evidence. They adopted their respective affirmations as evidence in chief and were cross examined. In addition, the expert reports of Mr Victor Joffe QC (for the Plaintiff) and Mr Lau of Harney Westwood & Riegels (for the Defendants) on BVI law were admitted as evidence without cross examination. Neither Nelson Chiu nor Vincent Choi has come across as impressive witness. I shall refer to some of the unsatisfactory aspects of their evidence in my discussion of the issues below. In relation to Vincent Choi, I would also mention a couple of disquieting aspects of his evidence here. First, it seems to me clear that he deliberately changed the name of the 2nd Defendant to that of the Plaintiff in order to enable the 2nd Defendant to receive the dividend properly payable to the Plaintiff by the Trustees. That Vincent Choi would resort to such manoeuvres to effectively intercept the dividend payable to the Plaintiff shows not only a high degree of sophistication but also, in my view, a lack of commercial probity on his part. Second, on his own evidence, after the appointment of the Trustees in or about August 2006, he would from time to time liaise with them and assist them in the recovery process, attend creditors meetings and sign creditors resolutions on behalf of the Plaintiff, and generally correspond and deal with the Trustees on behalf of the Plaintiff, up to at least June 2009. It will be recalled, however, that the Plaintiff had been struck off from the BVI company register on 1 November 2001 for non-payment of annual fees, a fact which Vincent Choi admits he knew in 2002 or some time later. It follows that when Vincent Choi dealt with third parties (including the Trustees) purportedly on behalf of the Plaintiff, he knew full well that the Plaintiff was no longer in existence or at least had been struck off, without disclosing this fact to those third parties. Vincent Choi s failure to make disclosure is not, it seems to me, compatible with honest commercial dealings. In this regard, it may be noted that Vincent Choi was obviously a man of experience in the business world, as shown by the fact that he had been an executive director of a listed company, ACHL, for many years. I pause to mention that Vincent Choi said, in his affirmation filed in the bankruptcy proceedings of Tan (HCB 1873/2003) on 17 August 2009, that he knew that he could restore the Plaintiff by paying back the outstanding fees, but decided not to do so in order not to waste money. I do not regard this to be an acceptable excuse for Vincent Choi to purportedly act on behalf of the Plaintiff and dealt with third parties as agent for the Plaintiff when he plainly knew that it had already been struck off. In the circumstances, the approach that I would adopt in this judgment is to examine the oral evidence of Nelson Chiu and Vincent Choi critically against those contemporaneous documents which either are not in dispute or appear to me to be authentic and credible, and the inherent probabilities of the matters. Whether Nelson Chiu resigned as director of the Plaintiff on 27 March 2001 According to Nelson Chiu, although there was a transfer of Total Linus (and indirectly the Plaintiff) to Acepec (beneficially owned by Fu) on 27 March 2001, in view of the fact that the litigation against Tan was still on-going, Fu decided not to make any change to the board of directors, and thus both Nelson Chiu and Vincent Choi remained as directors of the Plaintiffs after the transfer. On the other hand, Vincent Choi s evidence is that Nelson Chiu resigned as director of the Plaintiff on 27 March 2001, and he relies on the Resignation Minutes, which stated that the resignation of Nelson Chiu was accepted by the board of directors of the Plaintiff. In the minutes, it was further stated that both Nelson Chiu and Vincent Choi were present at the meeting, and the minutes bore a purported signature of Nelson Chiu as the chairman of the meeting. Nelson Chiu says that he never tendered any resignation as director of the Plaintiff, there was no board meeting of the Plaintiff held on 27 March 2001, and the signature on the aforesaid minutes was not his signature. In my view, the clear pointer in the evidence on whether Nelson Chiu ceased to be a director of the Plaintiff comes from Nelson Chiu s own witness statement dated 16 November 2001 filed in HCA 423/2001. He stated, in paragraph 1 thereof, that he was a director of the Plaintiff during the period between June 1995 to March 2001 . It seems to me that this statement is a clear recognition by Nelson Chiu that he was a director of the Plaintiff up to March 2001 only, and is consistent with him having resigned as director on 27 March 2001. Nelson Chiu tried to give an explanation of this sentence in his witness statement in paragraph 26 of his second affirmation filed in HCB 1873/2003 on 24 October 2009. Essentially, Nelson Chiu s explanation is that all he was doing in that witness statement was to inform the court that he was a director of the Plaintiff during the period between June 1995 and March 2001, but that did not mean that he was not a director after March 2001. I do not accept this explanation of Nelson Chiu. He is a qualified and experienced professional accountant, and has for many years been an executive director of a listed company (ACHL). At the trial, Nelson Chiu gave evidence in English fluently. His explanation is inconsistent with what I consider to be the natural and ordinary meaning of a simple sentence in his witness statement. I find as a fact that Nelson Chiu ceased to be a director of the Plaintiff after 27 March 2001 by resignation, which was accepted by the board of directors of the Plaintiff at a meeting held on that date. Whether there was any outstanding director s remuneration due and owing to Vincent Choi by the Plaintiff as at 4 April 2001 Vincent Choi s evidence is that he was not paid any director s remuneration by the Plaintiff for the entire period from June 1995 to March 2001, and the outstanding remuneration due and owing to him amounted to HK$1,039,500 as at 4 April 2001. Nelson Chiu, however, says that Vincent Choi was fully paid his director s remuneration up to March 2001 (at the rate of HK$10,000 per month up to 1999 and thereafter at the rate of HK$15,000 per month), after which no more remuneration was payable in view of the fact that the Plaintiff had no more business activities. In support of his evidence, Nelson Chiu refers to various bank statements, payment vouchers and cheques of the Plaintiff showing that payments were made by the Plaintiff to Vincent Choi. Although the documents produced by Nelson Chiu do not constitute a complete record, they do show that monthly payments in the amount of HK$15,000 were made by the Plaintiff to Vincent Choi. The earliest cheque produced by Nelson Chiu was dated 30 June 1998 and the last one was dated 29 March 2000. The relevant payment vouchers described the payments as Director s remuneration to Vincent Choi (or VC) . It may be that Nelson Chiu is mistaken as to the date on which the director s remuneration of Vincent Choi was first increased to HK$15,000 per month. What is significant, though, is that these documents are inconsistent with Vincent Choi s allegation that he was not paid any directors remuneration for the whole period from June 1995 to March 2001. Vincent Choi has given a convoluted explanation of these payments by the Plaintiffs in his Third Affirmation filed in HCB 1873/2003 dated 19 November 2009. In brief, Vincent Choi says that he was entitled to be paid a total remuneration or fee of HK$900,000 per annum (i.e. HK$75,000 per month) by ACHL and its subsidiaries since 1999. Out of the said remuneration or fee of HK$75,000 per month, ACHL was responsible for HK$45,000 per month and two subsidiaries (one of which was the Plaintiff) were responsible for HK$15,000 per month each. Vincent Choi says that this arrangement was devised by Nelson Chiu for accounting and tax reasons. Vincent Choi further says that there was agreement that he would not receive the full payment of HK$75,000 each month, but would only receive HK$30,000 each month. The balance would be carried forward and paid depending on the cash flow of the ACHL Group. Vincent Choi also says that since ACHL did not have any bank account in Hong Kong, the payments made by the subsidiaries, including the Plaintiff, to him were treated as being made for and on behalf of ACHL. There is, in my view, no sound basis, other than Vincent Choi s bare assertion, to conclude that the payments made by the Plaintiff should be treated as discharging the obligations of ACHL instead of its own obligations. Also, the relevant payment vouchers do not say that the payments of HK$15,000 were made for and on behalf of ACHL. I reject Vincent Choi s explanation of the monthly payments of HK$15,000 made by the Plaintiff. In support of the allegation that the Plaintiff was indebted to him for outstanding director s remuneration, Vincent Choi also refers to two blank cheques signed by Nelson Chiu. Vincent Choi says that the blank cheques were given to him by Nelson Chiu on 27 March 2001 so that he could get paid as and when the Plaintiff had money. Nelson Chiu, on the other hand, says that these blank cheques were given to Vincent Choi because he often had to travel overseas and they were intended for settling outgoings and daily expenses of the Plaintiff while he was away. If the purpose of the two blank cheques was as alleged by Vincent Choi, I see no reason why Nelson Chiu did not fill in the name of the payee on the cheques. I do not accept Vincent Choi s evidence in respect of the two blank cheques. In all, I accept Nelson Chiu s evidence that the Plaintiff had fully settled the director s remuneration payable to Vincent Choi up to the end of March 2001, and decline to find that the Plaintiff was indebted to him in respect of outstanding director s remuneration in the total amount of HK$1,039,500 or any amount as at 4 April 2001. There is one other matter that I should mention in passing. In support of his evidence that he was entitled to be paid a total remuneration or fee of HK$900,000 per annum by ACHL and its subsidiaries since 1999, Vincent Choi produces a letter dated 9 November 1999 signed by Nelson Chiu as Chairman of Sino Consolidated Enterprises Limited. In that letter, it was certified that Vincent Choi s annual income was HK$900,000. Nelson Chiu, in his Third Affirmation filed in these proceedings on 13 January 2010, said that this letter was written and signed by him at Vincent Choi s request to enable him to get a housing loan, and said that there was in fact no agreement whatsoever entered into between him (or ACHL) and Vincent Choi that the latter was entitled to receive HK$900,000 annually from ACHL. This is an admission on Nelson Chiu s part that he produced a false document to mislead banks or financial institutions to assist Vincent Choi to obtain a housing loan. For the purpose of this trial, it is not necessary for me to make any finding on the true remuneration package that Vincent Choi was entitled to receive from ACHL in November 1999, but this admission by Nelson Chiu indicates a generally low commercial morality on his part. Whether Fu had prior knowledge of and consented to the allotment of 4,000 shares to MEL As at 4 April 2001, the Plaintiff had only 1 shareholder, ie Total Linus, which was beneficially owned by Fu. According to Vincent Choi, after the board meeting of the Plaintiff held on 27 March 2001, he called Fu many times in 2001 (and 2002) to attend board meetings of the Plaintiff or otherwise discuss various matters relating to the Plaintiff including the outstanding director s remuneration due to him, but Fu could not care less and did not turn up at any meeting. In particular, on an occasion after 27 March 2001, he contacted Fu to hold a board meeting and told Fu that he intended to allow new shares in the Plaintiff to himself to set off the outstanding director s remuneration. Vincent Choi says that Fu did not care about this and simply replied that he had not consented to act as director of the Plaintiff and thus would not attend any board meeting of the Plaintiff. Fu also told Vincent Choi to focus on the recovery of the receivables due to the Plaintiff and said that the money recovered could be used to settle the outstanding director s remuneration due to him. It is on this basis that the Defendants contend that Fu either consented, or at least did not object, to the allotment of the 4,000 shares in the Plaintiff to MEL on 4 April 2001. The above is a bare assertion of Vincent Choi. The Defendants have produced no evidence from Fu, or any other credible and contemporaneous evidence, to support this assertion. It is accepted by the Defendants that Fu was the ultimate beneficial owner of the Plaintiff between 27 March and 4 April 2001. What Vincent Choi says regarding Fu s disinterested attitude towards the affairs of the Plaintiff makes no commercial or common sense. If Fu was no longer interested in the affairs of the Plaintiff, he could easily procure a transfer of the 1,000 shares in the Plaintiff to Vincent Choi. There was no particular reason why he would want to remain as a minority shareholder of the Plaintiff. Nelson Chiu has produced a Chinese witness statement apparently made by Fu to rebut Vincent Choi s aforesaid allegations. However, Fu was not called to give evidence at the trial, and I place no weight on the witness statement. Overall, I reject Vincent Choi s evidence that Fu had prior knowledge of or consented to the allotment of the 4,000 shares in the Plaintiff to MEL on 4 April 2001. Whether the purported board resolution of the Plaintiff dated 4 April 2001 was valid According to the minutes of a meeting of the sole director (ie, Vincent Choi) of the Plaintiff held on 4 April 2001, the following resolution was passed:- In satisfaction of outstanding director remuneration of HK$1,039,500 for the period from 22 June 1995 to 31 March 2001 based on the rate of HK$15,000 per month payable to Mr. Chung Bun Vincent CHOI, IT WAS RESOLVED THAT 4000 fully paid ordinary shares of US$1.00 each be issued to Metropolis Enterprises Limited ( ). It was declared that Mr. CHOI is a director and a beneficial shareholder of MEL. And that the share certificate be issued under the common seal of the Company and be signed by any one director. As mentioned above, I find that as at 4 April 2001:- (1) The Plaintiff had only 1 shareholder, ie Total Linus, which was beneficially owned by Fu. (2) The Plaintiff had only 1 director, ie Vincent Choi. (3) The Plaintiff was not indebted to Vincent Choi in respect of outstanding director s remuneration in the amount of HK$1,039,500 or any amount. Also, I am not satisfied that Fu had knowledge of, or had given his consent to, Vincent Choi allotting shares in the Plaintiff to himself or his company. The effect of the aforesaid resolution was to vest majority ownership and control of the Plaintiff to Vincent Choi. Although Vincent Choi, by virtue of his position as sole director of the Plaintiff, had power to allot shares under Article 6 of the Plaintiff s Articles of Association, the exercise of power by Vincent Choi to allot the 4,000 shares in the Plaintiff to his own company was, by reason of the above findings, wrongful and improper and, vis- -vis the Plaintiff, not binding on it. Whether MEL has validly become a shareholder of the Plaintiff According to the undisputed evidence of Mr Victor Joffe QC, expert on BVI law, a person who is not on the register of members (whether or not he has applied to be added) is not a shareholder, in the sense that he does not have legal title to the shares. He has, at best, a beneficial interest and a right (enforceable by way of application to rectify the register) to be so entered. Also, a person who is not on the register of shareholders would have no right to take part in company meetings, and were he to do so the effectiveness of any resolution might subsequently be challenged in legal proceedings. The Plaintiff has produced the original company kit, including the register of members of the Plaintiff, as an exhibit at the trial. I consider the register of members to have been produced from proper custody, and accept it as being the original and authentic register. It is clear that MEL s name has not been entered on the Plaintiff s register of members. Also, the purported transfer of 2,000 shares in the Plaintiff by MEL to the 2nd Defendant on 5 March 2008 has never been registered. At the trial, the Defendants also produced a copy of a register of members of the Plaintiff. It is apparent from Vincent Choi s evidence that this register of members was prepared by an employee of a friend of Vincent Choi in or about March 2008 (save that the information relating to the date of appointment of Fu as director of the Plaintiff was filled in subsequently) based on information provided by Vincent Choi. The register of members produced by the Defendants has no greater weight than the oral evidence of Vincent Choi. I do not regard the register of members produced by the Defendants as being the true register of members of the Plaintiff. It follows from the above that I do not consider MEL and the 2nd Defendant to be shareholders of the Plaintiff. ACHL is the only current shareholder of the Plaintiff By an instrument of transfer dated 1 August 2003, Total Linus transferred to ACHL (then known as Suntech Environmental Group Limited) 1,000 shares in the Plaintiff. This transfer was apparently carried out pursuant to a written Share Sale Agreement dated 1 August 2003 entered into between Total Linus and Suntech Environmental Group Limited, and duly entered in the Plaintiff s register of members. There is also in evidence a Share Certificate No. 5 dated 1 August 2003 showing Suntech Environmental Group Limited as the registered holder of 1,000 shares in the Plaintiff. The transfer of shares was apparently approved at a board meeting of the Plaintiff held on 1 August 2003, at which Fu and Nelson Chiu were present as directors. In view of my finding that Nelson Chiu had resigned as director of the Plaintiff on 27 March 2003, it may be that the resolution of the board approving that transfer was not valid. Nevertheless, the transfer was approved by the sole shareholder of the Plaintiff (ie Total Linus) and would, in my view, be valid. The Defendants have questioned the consideration for this transfer, which was for US$1.00 only. I do not think the full picture relating to this transaction between ACHL and Total Linus (and possibly Acepec) is before the court. I decline to speculate as to why the consideration for the transfer of the 1,000 shares in the Plaintiff by Total Linus to ACHL was for US$1.00 only. The adequacy or otherwise of the consideration would not affect my findings on the primary issues in this judgment. I find that Total Linus did transfer 1,000 shares in the Plaintiff to ACHL on 1 August 2003, and the only current shareholder of the Plaintiff is ACHL, as stated in its register of members. Conclusion On 30 July 2009, ACHL as sole shareholder of the Plaintiff passed a written resolution to remove all the existing directors on its board and re-appoint Nelson Chiu, Fu and Chai as its directors. If Nelson Chiu, Fu and Chai have been the lawful directors of the Plaintiff since 30 July 2009, which I find to be the case, it is not suggested by the Defendants that this action was commenced without authority of the Plaintiff. In his final submissions, Mr Suen for the Defendants has raised a large number of questions relating to the conduct of Nelson Chiu and various transactions which he submits are suspicious or questionable. I do not consider it necessary for me to attempt to answer all those questions, not least because I have not seen all relevant documents relating to the underlying transactions. Also, I do not consider Nelson Chiu or Vincent Choi to be reliable witnesses, and I do not think it is satisfactory for me to make findings on collateral issues based on their oral evidence without testing them against contemporaneous documents. For the purpose of this trial, all I need to do is to making findings on issues which are essential to a proper determination of the preliminary issue. To conclude, I find that the present action was commenced with the authority of the Plaintiff. Lastly, I make an order nisi that the costs of this trial are to be paid by the Defendants to the Plaintiff, to be taxed if not agreed. 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