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BCI & BIMC Ascertainment Cases ▍Hong Kong: Issue on the Effect of Acts by Entrusted Agent and Legal Representatives of the Company after Company Restoration

Come from:BCI&BIMC    Date:2018.04.13 Hits:27 

I. Facts

On September 26, 2009, Weimei Group Co., Ltd. (hereinafter referred to as “Weimei Company”) as the purchaser (Party A) and Shenzhen Chuangxin Plastic Products Co., Ltd. (hereinafter referred to as “Innovation Company”) (Party B) signed the Contract of Purchase and Sale, Mold order, and Purchase order. Weimei Company is registered in Hong Kong. Subsequently, after several rounds of negotiation, both parties agreed on the appearance of the final product, and reached the Supplementary Agreement on June 21, 2010, which states that except for the purchase agreement, mold order and bottle purchase order, any other documents signed before June 21, 2010, are invalid.

On July 9, 2010, due to a product defect, Weimei Company emailed Innovation Company on July 13 to request suspension of all production, and received a reply from Innovation Company. Since neither party provided any information on whether the product would be improved nor whether the production would be continued, and that Weimei Company had taken away the last batch of eggshell toys, Innovation Company posits that all contracts and agreements between it and Weimei Company should be terminated in time, on which the parties to this dispute disagreed. Weimei Company then brought an action against Innovation Company, which was heard in the Court of First Instance on May 17, 2011.

The counsel for Weimei Company’s submitted that Weimei Company is entitled to damage on two grounds: (i) the quality of products provided by the Innovation Company was below standard; and (ii) the Innovation Company ceased delivery. The Court of First instance rejected both grounds, and ordered Innovation Company to return the balance of deposit to Weimei Company, and Weimei Company to compensate the losses suffered by Innovation Company. Weimei Company appealed. Appeal accepted. The case was heard in the Court of Second Instance on February 27, 2012. The court held that the unilateral termination of contract by Innovation Company constitutes a breach of contract, and ruled that Innovation Company shall return the balance of deposit, and Weimei Company shall compensate Innovation Company. The court rejected all other claims by the two parties.

At the retrial stage, Innovation Company submitted evidence that during the second instance trial, Weimei Company was deregistered on April 13, 2012, the date of publication of the Hong Kong Government Gazette, and the company was dissolved. Innovation Company’s counsel submitted that according to the laws of HKSAR, Weimei Company ceased to exist since April 13, 2012, and from that date onwards, any acts done by any person in the name of the company is invalid, thereby making the second instance decision invalid. Weimei Company responded that it has restored its registration by then, and according to the laws of HKSAR, Weimei Company shall be deemed to have never been de-registered, and all acts of its agent so far represented the true intention of Weimei Company. The two parties are in dispute on this.

II. Key Issues in This Case

1. Whether a Hong Kong Company is deemed to have never been deregistered after the restoration of registration;

2. After the restoration of its registration, whether the acts of the entrusted agent and the legal representative of a Hong Kong company are valid during the period of deregistration;

3. After the restoration of a Hong Kong company, whether it can ratify in writing the acts of its entrusted agent and legal representative during the period of deregistration.

III. Law Ascertainment

During the retrial, both Weimei Company and Innovation Company agreed to entrust BCI & BIMC to ascertain the key legal issues involved in this case. The ascertainment report was approved and cited by the court. The law ascertainment report issued by BCI & BIMC states:

1. A Hong Kong company shall be deemed to have never been deregistered after its restoration;

When the company is officially deregistered, does it mean that the company has been officially dissolved and no longer exists? The answer to this question is yes. Does it follow that there is no way to restore the company’s registration? The answer to this question is No.

In accordance with the latest version of Hong Kong Companies ordinance (Cap 622), companies dissolved due to deregistration can apply to the Court of First Instance for restoration of registration, which usually takes around 2-4 months, and only private companies and companies limited by guarantee can apply for deregistration. In addition, the Hong Kong Companies ordinance provides that the liability (if any) of officers, such as directors, and shareholders of the company shall continue and may be enforced. Once re-registered, the company will be deemed to have existed as if it had never been deregistered.

Although Weimei Company was deregistered on April 13, 2012, it was re-entered into the company registers of the Company Registry according to the order of the High Court of the Hong Kong Special Administrative Region. Therefore, Weimei Company should be regarded as having always been in normal operation.

2. Under the common law, except the parties themselves, only their solicitor or barrister can engage in the litigation on behalf of the litigant. However, since the dissolution of the company, the authorization by the company to the lawyers shall become invalid or automatically revoked. Therefore, during the period from deregistration to the restoration of registration of the Hong Kong Company, the acts of the lawyers on behalf of the company are invalid;

3. After the Hong Kong company restored its registration, there was no relevant provision for ratification of acts. The company was dormant during the period from the deregistration to the restoration of registration of the company. It is not until the court issues an order declaring the company’s deregistration invalid that the company ceases to be dormant.

With regard to the first controversial key issue, that is, whether Weimei Company is qualified to be the subject of litigation in this case, the court held upon re-examination that, although Weimei Company was deregistered on April 13, 2012, it was re-entered in the company registers of the Company Registry in accordance with the order of the High Court of the Hong Kong Special Administrative Region; therefore with reference to the first item of the law verification report issued by BCI & BIMC (which states that Hong Kong company shall be deemed as having never been deregistered after its restoration), Weimei Company, after re-entered into the company registers, is qualified to be the subject of civil litigation, and is the adequate litigation subject of this case.

According to the Companies ordinance of HKSAR, after the deregistration of Weimei Company, the authorization of Weimei Company to its lawyers shall be invalid or automatically revoked. During this period, the acts of its lawyers on behalf of Weimei Company shall be invalid. If Weimei Company has been in the state of deregistration, the above provisions shall apply. However, in this case, the deregistration status of Weimei Company has changed, and it has been re-entered into the company register and its civil capacity has been restored. After the restoration of registration of Weimei Company, it is deemed that the company has never been deregistered, and the period from the de-registration to the restoration of Weimei Company is similar to a dormant state. Therefore, during the above period, whether the legal effect of the acts of its lawyers on behalf of the company on Weimei Company should be decided according to the intention of Weimei Company after its restoration. Notwithstanding that there is no relevant Hong Kong provision on the act of ratification after the restoration, by Article 10, paragraph 2 of the Law of?the?Application?of?Law?for?Foreign-related?Civil?Relations?of?the People’s Republic?of?China, if?Foreign laws?cannot?be ascertained or if there?are?no?provisions?in?the?laws of?this?country, the?laws?of?the?People’s?Republic?of?China?shall?apply. In addition, the act of Weimei Company’s lawyer on behalf of the Company took place in Shenzhen. Therefore, the law of the people’s Republic of China shall also apply in the determination of the effectiveness of the agent’s litigation acts. According to Article 66 of the General?Principles?of?the?Civil?Law?of?the?People’s?Republic?of?China, the?principal?shall?bear?civil?liability?for?an?act?performed by an agent with?no authority, performed outside the?scope?of its authority,?or?after his?authority?has?expired, only?if?he?recognizes?the?act retroactively. In this case, Weimei Company has ratified in writing all acts and statements made by its lawyers in the relevant cases during the deregistration period, which is its true intention and has legal effect on Weimei Company. Therefore, during the second instance trial of this case, the acts made by Weimei Company’s agents in connection with this case are legally valid.

Read the original: 藍海查明案例 ▍香港:公司恢復注冊后,委托代理人和法定代表人的行為效力問題

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