Alexander Ward & Co Ltd v. Samyang Navigation Co Ltd and Another

CACV000020/1971

IN THE SUPREME COURT OF HONG KONG

APPELLATE JURISDICTION

CIVIL APPEAL NO. 20 OF 1971

(On appeal from O.J. Action No.291 of 1971)

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Coram: Blair-Kerr, S.P.J. and McMullin J. (Full Court)

Date of Judgment: 25 November 1971

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JUDGMENT

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Blair-Kerr, S.P.J.:

1. This is an application for leave to appeal to the Privy Council from a decision of the Full Court upholding a decision of Mr. Justice Pickering which was given in chambers on 10th May 1971 whereby it was ordered that the conditional appearance entered on behalf of the 6th defendant company be struck out.

2. The history of this matter as disclosed in the affidavits appears to be as follows: The 6th defendant company (hereinafter referred to as "the company") was incorporated in Hong Kong under the Companies Ordinance Cap.32 on 22nd March 1967, the authorised capital being $100,000 divided into 100,000 shares of $1 each. The first directors were the 1st defendant and a firm called Veritatem & Co., a nominee of Peat Marwick Mitchell & Co., the well-known chartered accountants and auditors. Veritatem & Co. and Peat Marwick Mitchell & Co. both carry on business at Prince's Building, 8th floor; and this is the registered address of the company.

3. At a directors' meeting held on 16th May 1967, a Mr. Y.Z. Choung was also appointed a director of the company. At that meeting, each of the two subscribers transferred his own share to the 1st defendant; and the following further shares (all said to have been paid for in cash) were allotted:-

A return of allotments, signed on behalf of Veritatem & Co. as Secretaries of the company, was filed by the Registrar of Companies.

4. Mr. Y.Z. Choung died on 4th October 1967; and on 23rd June 1969 Veritatem & Co. filed a notice purporting to indicate that they had resigned their directorship with effect from 20th June 1969.

5. On 17th November 1970, a document purporting to have been prepared pursuant to s.158 of the Companies Ordinance and signed by the 1st defendant was received for filing by the Registrar of Companies. In this document the 1st defendant described himself as a director and the 2nd, 3rd, 4th and 5th defendants are shown as being directors of the company as from 13th January 1970. On the same day, the Registrar received what purported to be the minutes of an Extraordinary General Meeting of the company held "at the Tokyo office of the company" viz. 12-2 2 Chome, Ishikawa-cho, Tokyo, on 14th November 1970. So far as relevant to these proceedings, this document reads:-

Proxy vote held by Alexander Ward from the following director members:

The minutes of the last meeting were read and approved. .............................................................

It was put before the meeting that:

the action of directors to regain losses sustained in the transactions involving Samyang Navigation Co. Ltd. be continued with the members approval, and was agreed by all members.

It was put before the meeting that:

the share capital of the company be raised to 1,000,000 HK dollars in ordinary shares ranking pari passu with present issued shares, and was agreed by all members.

The meeting then terminated and the company secretary requested to register same with the Companies Registrations (sic) in Hong Kong within 7 days.

(Sgd.) Alexander Ward Chairman and Director."

6. The writ of summons in this case was issued on 15th February 1971. The plaintiffs seek, inter alia:-

Service of the writ on the company was effected by service on Veritatem & Co. and on Peat Marwick Mitchell & Co.

7. On 24th February, a conditional appearance was entered on behalf of the company. The company then took out a summons for an order setting aside service of the writ; and the plaintiffs then took out another summons for an order that the conditional appearance entered for the company be struck out on the ground that such appearance was entered without the authority of the company in that it had no directors properly appointed and capable of giving instructions to a solicitor. The plaintiffs also sought an order that the costs of their application be borne by the solicitors purporting to act on behalf of the company.

8. Both summonses came before Mr. Justice Pickering on 10th May 1971. The solicitor appearing for the company endeavoured to persuade the learned judge to adjourn the hearing of the summonses until the trial of the action itself on the ground that the issue involved in the action and in the plaintiffs' summons was one and the same viz. whether as from 13th January 1970 there were any validly appointed directors, and that if the judge ordered the company's conditional appearance to be struck out, the other defendants would be unable to defend the action.

9. The judge refused to adjourn the summonses. In giving his ruling he said:-

"The whole purpose of the plaintiffs' summons is to ascertain whether or not (the company) has any locus standi and that must be determined before it can be said whether or not ...... they may file a defence."

10. In resisting the plaintiffs' summonses, the solicitor for the company could only say that although the company may have had no directors at the end of 1969, directors "could" have been appointed by the shareholders in general meeting; and that the 1st defendant, who was then in the United Kingdom, had been unable to swear an affidavit as to events occurring in 1969, 1970 and 1971 because of the postal strike in the United Kingdom at the beginning of 1971.

11. The learned judge made an order in terms of the plaintiffs' summons and dismissed the company's summons with costs.

12. The company appealed to the Full Court against the order striking out the conditional appearance. (There was no appeal from the dismissal of the summons to set aside service of the writ.) The company's argument before this court was in essence a repetition of the argument before the judge in the court below in support of the application for the adjournment of the summonses. The ground of appeal as filed reads:

"...... the judge ...... prejudged the main issue in the writ of summons ......"

13. On 5th October 1971 the Full Court dismissed the company's appeal without calling upon counsel for the plaintiffs.

14. When the application for leave to appeal to the Privy Council came on for hearing, counsel for the company immediately applied to have it adjourned till after the trial of the action. In addition to repeating the argument that Pickering J. had in effect prejudged the issue involved in the writ of summons, reference was made to another action which had been instituted on or about 5th November 1970 by the company against the 1st plaintiff in the Court of Session in Scotland; and it was argued that the plaintiffs' object in instituting the Hong Kong action was really to obtain a declaration by this Court to the effect that at the material times the company did not have any directors who were capable of giving proper instructions to solicitors in Scotland to institute an action there so that an application could then be made for the Scottish action to be dismissed.

15. Counsel for the plaintiffs frankly admitted that if judgment were given in favour of the plaintiffs in the Hong Kong action, his clients would certainly seek to have the Scottish action dismissed. But I do not think that this Court should concern itself with the fact that litigation between the company and the plaintiffs may be pending before the courts of another country. We are concerned only with the Hong Kong action.

16. Article 48 of the Articles of Association of the company provides as follows:-

"48. A General Meeting of the company shall be held in each calendar year at such time and place as the Directors shall appoint. In default of a General Meeting being so held a General Meeting may be convened by any two members in the same manner as nearly as possible as that in which General Meetings are to be convened by the Directors ......"

17. Article 51 provides that at least 7 days notice of all General Meetings shall be given to the members of the company. Article 54 provides as follows:-

"54. No business shall be transacted at any General Meeting unless a quorum of members is present at the time when the meeting proceeds to business; and such quorum shall consist of not less than two members personally present or by proxy."

Article 80 provides that at the Ordinary General Meeting in the year 1948 and at the Ordinary General Meeting in every subsequent year, all the directors for the time being shall retire from office.

18. There was affidavit evidence before Mr. Justice Pickering that the statutory books of the company are in the possession of the auditors (Peat Marwick Mitchell & Co.). These would, of course, include the minute book and the share register. According to the affidavit evidence, there is nothing in the books of the company to indicate that any directors were appointed after the death of Mr. Choung or after the resignation of Veritatem & Co.; nor is there any record of any meeting of directors (other than the meeting held on 15th May 1967). It also appears that no Annual General Meeting of the company has been held since incorporation.

19. That being so, it would appear that the 1st defendant and Veritatem & Co. ceased to be directors, if not as from 1st January 1968, certainly as from 1st January 1969. As Sargent J. said in In re Consolidated Nickel Mines Ltd.⁽¹⁾:-

"A director on his appointment does not ordinarily step into an office which is perpetual unless terminated by some act, but into an office the holding of which is limited by the terms of the articles. The meaning of article 101 is that the holding of the office of director was only to last until the end of 1906, or until the earlier date on which the ordinary meeting for that year was held."

20. If the 1st defendant and Veritatem & Co. ceased to be directors as from 1st January 1968, or 1st January 1969 as the case may be, and there has been no other directors appointed, it would appear that the company has had no directors at any rate since 1st January 1969. In the light of all the other affidavit evidence before him, clearly the learned judge was perfectly correct in placing no weight upon the unsworn allegation of the 1st defendant in the statutory form filed by him 12 days after the institution of the Scottish action to the effect that he was a director and that the 2nd, 3rd, 4th and 5th defendants had been directors since 13th January 1970. How, where and when did they, or any of them, become directors?

21. Of course, it is not for us when dealing with this interlocutory matter to express any view as to the probable result of the trial. But clearly so far as the evidence goes at present, there appears to have been only one member present at the Tokyo meeting on 14th November 1970 viz. the 1st defendant himself; and as at present advised, I am unable to see how the defendants can successfully defend this action unless they can produce some evidence acceptable to the court such as that at a validly convened Extraordinary General Meeting the 1st, 2nd, 3rd, 4th and 5th defendants, or some of them, were appointed directors and that they have not ceased to be directors. But if such evidence is available now (and, if it is bona fide, it should be available now) why was it not produced before Mr. Justice Pickering? It is ludicrous to suggest that because of the postal strike in Britain in January 1971, the 1st defendant was unable to file an affidavit in these courts before May 1971! Not only that. On the hearing of the appeal before this Court, no application was made for leave to file any affidavit; and we still have nothing from the defendants. All they can say in effect is: Please do nothing until after the trial of the action. We hope to have some evidence to produce at the trial.

22. In my view that is simply not good enough. The plaintiffs are entitled to have a decision now as to whether or not the company has any locus standi in these proceedings. To adjourn the application for leave to appeal till after the trial of the action would leave matters in a most unsatisfactory state. The application to adjourn is therefore refused.

23. We also refuse leave to appeal to the Privy Council. As I have said, there is not a scrap of evidence as to how the 2nd, 3rd, 4th and 5th defendants became members or how they and the 1st defendant became directors other than an unsworn statement to this effect by the 1st defendant in a statutory form filed by himself 12 days after the institution of the action in Scotland. Indeed, the solicitor purporting to act for the company has never suggested that he received instructions from a director of the company. In his affidavit he says:-

"I ...... have been instructed by a member of (the company) to represent (the company) in these proceedings ........... it may well be that upon inquiry the court may be satisfied that there are no directors of this company through a failure to convene a meeting of the members thereof."

Counsel for the company frankly admitted that he could find no authority for the proposition that "a member" may validly instruct a solicitor to act on behalf of a limited company.

24. Counsel's argument in support of the application for leave to appeal was nothing more than a repetition of his proposition that it was wrong for the judge to have acceded to the plaintiffs' summons to strike out the company's conditional appearance because it prejudged the issue in the action and rendered it impossible for the defendants to file a defence. I express no view as to how the defendants should defend the action. But, as I have said, the plaintiffs were perfectly entitled to seek the Court's ruling on the locus standi of the company at this stage; and if the 1st defendant now finds it difficult to defend the action he has only himself to blame. If any bona fide evidence exists that he, or any of his co-defendants, were at the material time directors of the company and capable of giving instructions to a solicitor on behalf of the company and did, in fact, as a director or directors, instruct Johnson, Stokes and Master to enter a conditional appearance and to defend this action, he has had ample opportunity to produce it.

25. There is nothing in the proceedings to date which could conceivably form the subject matter of an appeal to the Privy Council under rule 2(b) of the Rules regulating appeals to that tribunal.

26. The plaintiff's costs in regard to this application will be paid for by Messrs. Johnson, Stokes and Master.

Representation:

R. Wei (Johnson, Stokes & Master) for the Appellant

Arculli (Lo & Lo) for the Respondents

Judgment of the full court down.

(1) (1914) 1 Ch. p.883 at p.888.