AUDREY PF CHOW & CO (A FIRM) v. YING KAI LEUNG AND ANOTHER
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HCMP000087A/1973
IN THE SUPREME COURT OF HONG KONG
(ORIGINAL JURISDICTION)
MISCELLANEOUS PROCEEDINGS NO.87 OF 1973
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| BETWEEN | ||
| AUDREY P.F. CHOW &CO. (a firm) | Plaintiff | |
| and | ||
| YING KAI LEUNG | 1st Defendant | |
| JARDINE MATHESON & CO. LTD. | 2nd Defendant |
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Coram: Cons, J.
Date of Judgment: 19 February 1976
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JUDGMENT
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1. In January 1972 the plaintiff firm, which is a firm of stock brokers, obtained judgment against the 1st defendant in a sum of $46,865.25 and costs. It was claimed that he had capitalised upon an error made by the plaintiff firm in its accounting system. Despite the efforts of the plaintiff firm the judgment remained unsatisfied. Eventually it was made apparent to the Registrar of this Court that the 1st defendant had a beneficial interest in some two hundred shares in the 2nd defendant company, which shares were registered in the name of a third party. Due proceedings were taken and on the 8th of March 1972 the Registrar made a charging order absolute upon that interest.
2. In May 1973 the plaintiff firm took out an originating summons against both the 1st defendant and the 2nd defendant company to enforce that charging order. The summons was amended and an order for substituted service on the 1st defendant had to be made and it was not until the 3rd of July that the summons first came before me. The 1st defendant did not appear. The plaintiff firm and the 2nd defendant company were then represented by counsel, but not by those counsel who have appeared before me in the present proceedings. I was asked to approve a draft order drawn up, as I understood with the assistance of counsel for the 2nd defendant company but which was not, strictly speaking, a consent order. That order was divided into three parts which may be briefly paraphrased as follows:-
| Para. 1 | a declaration that the interest of the 1st defendant in the two hundred shares stood charged in favour of the plaintiff firm. As such it merely repeated the order of the Registrar made earlier in March. | |
| Para. 2 | an order that the charged property be sold and applied according to certain named priorities. | |
| Para. 3 | directions for carrying out that sale, namely that the name in which the shares were entered in the share register of the 2nd defendant company should be altered to that of Miss Chow, who is the proprietress of the plaintiff firm, and sold by her through a recognised stock exchange due notice to be given to the Registrar of companies with liberty to apply to all parties and certificates for counsel. |
| A further order made provision for casts against the 1st defendant. |
3. The difficulties inherent in the directions that were given were not realised for some time. The 2nd defendant company altered the name in its register and issued certificates in the new name. There had also been some transactions in respect of bonus shares and dividends but it is not necessary to go into the details. They do not alter the general position. The 2nd defendant company applied ex parte for leave to issue an inter partes summons to vary. The application was filed and dealt with on the same day. I granted leave and at the same time made a preservations order under O.29 r.2 with regard to the newly issued share certificates and granted an injunction against dealing with them or the shares they represented. This action was necessary because the plaintiff firm refused voluntarily to stay its hand.
4. The inter partes summons was in due course returned before me. Counsel for the plaintiff firm immediately objected that I had no jurisdiction to entertain this summons. It was agreed that this objection should be dealt with as a preliminary point, the summons itself to stand adjourned and the preservation order and injunction to continue meanwhile. After hearing argument I rejected the objection. My decision was handed down in October 1973. Natters rested there until the summons was restored before me a few days ago.
5. The summons as it now stands asks that the directions given in the order for sale be carried out so as to effect the restoration of the share register to its original state and that the plaintiff firm return the new share certificates that have been issued to it; or that the directions be completely rescinded. The objection taken by counsel to the directions that were originally approved rests entirely on the ground that compliance with the directions would effect the sale of the legal interest in the shares whereas all that the plaintiff firm is entitled to under the order is a sale of the beneficial interest. This seemed to me at one stage an elementary proposition but further research and consideration have convinced me that that is too narrow a view. In appropriate circumstances the court will enforce the sale of the shares themselves. There are many examples in the books. The latest that I know of is Daponte v. Schubert and Roy Nominees, Ltd.(1). And circumstances will be appropriate at least where the judgment debtor is the sole beneficiary and under no disability. As such the beneficial interest is not limited to a right to receive profits as and when they become due. It includes the right to have the legal interest transferred on demand. It is only a matter of formalities that separates the beneficial owner from legal ownership. The judgment creditor may take the benefit of the first right by means of a charging order in the action wherein he obtained judgment. To obtain the benefit of the second right he must initiate separate proceedings: Leggott v. Western(2) and Kolchmann v. Meurice(3). The distinction between these two interests was perhaps clouded by the request in the originating summons that "the charged property be sold". It might have put matters in a clearer perspective had it asked for the sale of the particular shares.
6. Although the Court may order sale of the shares, unless and until they are actually sold, the interest with which the Court has to deal is still an equitable interest. In that case the practice is to require that the legal owner of the property be before it: E.M. Bowden's Patents Syndicate, Ltd. v. Herbert Smith & Co.(4). Prima facie in the present case the legal owner is a Mr. Ching Tan, the person in whose name the shares are, or rather were, registered. But some qualification of the practice is necessary in relation to the sale of shares. The usual manner by which these are traded, as I understand it, is by delivery of the share certificate together with a transfer document signed by the registered owner. This document is usually signed in blank in order to enable the purchaser to resell speedily, as often he does, without the need to have the share register amended. There may of course be several resales before any particular holder elects to have the share registered in his own name. He then completes the blank transfer document and presents it with the share certificate to the registrar of the particular company.
7. Changes in the registration are effected at the instance of the holder of the shares, not the current registered owner. Thus once the registered owner has handed over the certificate and signed the transfer document he has done all that is necessary on his part and all that any purchaser or subsequent holder could require of him. A subsequent removal of his name from the register at the instance of a third party would not affect him in any way. On the other hand the purchaser or subsequent holder would be vitally affected. If he presented the document for registration it would be vitally affected. If he presented the document for registration it would be refused, thus depriving him of any dividend or bonus shares that might be issued. Or if he had already traded the shares he would find himself liable to his purchaser or subsequent holder in damages. It is thus to my mind essential that the actual holder of the shares should be made a party of the action or, if the shares are in more than one lot and they have been separately traded, all the holders. It may or may not be necessary to join the registered owner, depending on the circumstances. Usually there will be no point in dragging him into proceedings. But there may be exceptions. In the present case, for example, it is suggested that for reasons into which it is not necessary now to go, the original transfer document signed by the registered owner is no longer valid. If that is so, although I express no opinion, then the registered owner will have to be made a party so that he can be required to complete a replacement document. The simplest way then to state the position is to say that where it is sought to enforce the sale of shares in which the interest of the judgment debtor has been charged it is necessary to join the person or persons who are able, either singly or jointly to cause a good title to be given.
8. It is possible that in the present case it will only be necessary to join the registered owner and the Wing Hang Bank (Nominees) Ltd. But the evidence as to their holdings is now several years old and much has happened since in the local market. However it is not for me to speculate. It is for the plaintiff to find out who the appropriate parties are. It is sufficient to say that at present this Court is not in a position to make any order for the sale of the shares in question. Nor indeed has it ever been. To my mind the order made on 3rd July 1973 if it extends to the actual shares was made in error. I have of course no power to alter that order but in the interests of unrepresented and possibly as yet unknown third parties I think it my duty to stay all action under that order until this Court is satisfied that the appropriate persons have been made parties before it. This can, I think, be achieved by revoking the directions given on 3rd July 1973 and by further directing that the share register be restored, so far as the shares in question are concerned, to the state in which it was immediately prior to that order and that the plaintiff firm return to the 2nd defendant company the certificates that have been issued. The plaintiff firm have leave to join such other parties as is thought appropriate and there shall be general liberty to apply.
Representation:
Charles Ching, Q.C., and C.Y. Lee (T.P.F. Chow & Co.) for plaintiff.
Denis Chang (Deacons) for 2nd defendant.
(1) [1939] Ch. 958
(2) [1884] 12 Q.B. 287
(3) [1903] 1 K.B. 534
(4) [1904] 2 Ch. 86