Guangwei Worldwide Ltd v. Lam Ping Cheung and Others

HCMP 1480/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1480 OF 2016

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D E C I S I O N

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THE APPLICATIONS

1.These proceedings concern the validity of the annual general meeting (“GAL AGM”) of the 8^th defendant, Mingyuan Medicare Development Company Limited (“Company”), convened by its shareholder, Great Achieve Limited (“GAL”), on 20 May 2016 at 10 am at 30/F, China United Centre, 28 Marble Road, North Point, Hong Kong (“North Point Premises”) and the resolutions passed thereat (“Resolutions”).

2.By the originating summons issued on 13 June 2016, the plaintiff seeks

(1)   a declaration that the GAL AGM and the Resolutions are invalid and not binding upon the Company;

(2)   an injunction restraining each of the 1^st to 7^th defendants (who were elected as directors of the Company at the GAL AGM) from acting, representing himself/herself or exercising any power, as director of the Company pursuant to the Resolutions; and

(3)   an injunction restraining the Company from acting upon the Resolutions.

3.   Before the court are:

(1)   the plaintiff’s application by summons dated 13 June 2016 for interlocutory injunctions against:

(a)  each of the 1^st to 7^th defendants restraining him/her from acting, representing himself/herself or exercising any power, as director of the Company pursuant to the Resolutions; and

(b)  the Company restraining it from acting upon the Resolutions (“Injunctions Application”); and

(2)   the defendants’ application by summons dated 16 June 2016 to strike out the originating summons on the grounds that it discloses no reasonable cause of action and/or is scandalous, frivolous or vexatious and/or an abuse of the process of the court (“Strikeout Application”).  

RELEVANT BACKGROUND

4.In order to properly explain my decisions on these applications, I shall go into the facts and circumstances giving rise to these proceedings in some detail.

The Company and its former management

5.The Company was incorporated in Bermuda under the Bermuda Companies Act 1981 (“Act”) and holds a number of subsidiaries in the British Virgin Islands (“BVI”) and the People’s Republic of China (“PRC”) carrying on business in the provision of medicare solutions in the PRC.

6.The shares of the Company are and were at all material times listed on the Main Board of The Hong Kong Stock Exchange Limited (“HKEx”) (with stock code 233).

7.Prior to the GAL AGM, the composition of the Company’s board of directors changed from time to time but I believe it is fair to say that, at all times material to these proceedings, the management of the Company and its subsidiaries was controlled by, inter alia:

(1)   Mr Yao Yuan (“Y Yao”), Chairman and Chief Executive Officer;

(2)   Y Yao’s brother, Mr Yao Liang (“L Yao”), independent non-executive director[1] as well as member of the Company’s audit committee; and

(3)   another brother of Y Yao, Mr Iu Chung also known as Yao Yong (“Iu”), legal representative / director of some, if not all, of the subsidiaries of the Company in the PRC.

The plaintiff

8.The plaintiff is a corporate holder of 30,149,576 shares (representing a 0.69% shareholding) in the Company.

9.As with most investors in listed companies, the plaintiff was not itself registered as a member of the Company but held its shares via its broker, Haitong International Securities Company Limited (“Haitong”).  HKSCC Nominees Limited is, in turn, the registered member holding shares in the Company for and on behalf of all brokers / Central Clearing and Settlement System (“CCASS”) participants.  On 3 August 2016, presumably in response to the point taken by the defendants that the plaintiff was not a member of the Company and therefore lacked locus to pursue these proceedings, the shares beneficially owned by the plaintiff were transferred into and became registered in the plaintiff’s own name.

10.The deponent who made the affirmations in support of the Injunctions Application and in opposition to the Strikeout Application for the plaintiff is L Yao in his capacity as director of the plaintiff, a position that he notably took up only shortly before the GAL AGM on 12 May 2016.

Problems of the Company

11.L Yao stated in paragraph 29(2) of his first affirmation dated 13 June 2016 that “the existing board of directors, in particular, Mr Yao Yuan as the chairman of the Company, has been running the business and operations of the Company and its subsidiaries successfully for over 10 years”.  The implication is that all was well and good with the Company before the GAL AGM.  I am afraid this is not the impression that I get from the evidence before me, which shows that the Company had been plagued by controversies at least since 2014, if not earlier.

Missing funds resulting in delay in publication of 2014 audited accounts and resignation of auditors

12.In this connection, the Company’s audited financial statements for the year ended 31 December 2014 were not published when due on 31 March 2015.  By a public announcement issued by the Company on 31 March 2015, the shareholders of the Company were informed that the Company’s then auditors (namely Deloitte Touche Tohmatsu) (“Old Auditors”) required additional time to perform and complete the audit in respect of the Company’s bank balance as of 31 December 2014 and that at the Company’s request trading in the shares of the Company would be suspended from 1 April 2015 and would remain suspended pending release of the Company’s 2014 audited financial statements.

13.What prevented the Old Auditors from finalising the Company’s 2014 audited accounts was the disappearance of about RMB420 million (“Missing Fund”) that was supposed to be in a PRC bank account that was supposed to belong to an indirectly wholly owned PRC subsidiary of the Company.  The Old Auditors were unable to verify that the subsidiary owned the Missing Fund and, by a letter dated 8 June 2015, asked the Company to appoint an independent forensic investigator to look into the matter. 

14.By a letter dated 14 July 2015 to the Company, HKEx imposed a number of conditions for the resumption of trading in the Company’s shares (“Resumption Conditions”), one of which was that the Company should conduct a forensic investigation into the Missing Fund, disclose the findings of the investigation, assess the impact of the findings on the Company’s financial and operational positions and take appropriate remedial actions. 

15.The Old Auditors’ request and the Resumption Conditions were not complied with.  The Old Auditors resigned on 21 December 2015.  Despite the Company’s indication in the related public announcement dated 22 December 2015 that it would identify a suitable replacement, no new auditors were appointed prior to the GAL AGM.

Legal proceedings over ownership of certain shares in the Company

16.In the meantime, on 3 July 2015, the Company was served with a writ of summons in HCA 1498/2015 (“HK Action”) issued by Ming Yuan Investments Group Limited (“MYIG”) against, inter alia, GAL, Equity Reward Limited (“ERL”)[2] and the 1^st defendant herein (“Lam”),[3] asserting ownership of the 815,109,075 (18.59%) shares in the Company (“Disputed Shares”) held by GAL initially through CCASS and later under its own name and alleging that GAL, ERL and Lam came into possession of the Disputed Shares through improper and unlawful means. 

17.What happened was that Y Yao and Iu formerly beneficially owned MYIG (a company incorporated in the BVI) through an intermediate holding company. MYIG previously held the Disputed Shares but had charged them as security for loans.  GAL acquired the Disputed Shares by purchase from MYIG’s lenders in exercise of their power of sale.  MYIG challenged the sale by the lenders.

18.I pause to note that the HK Action was instituted by MYIG (controlled by Y Yao and Iu) after the Company had given notice of a special general meeting (“SGM”) to be held on 14 July 2015 to consider an ordinary resolution to appoint Lam (who asserts equitable ownership of the Disputed Shares through indirect ownership of GAL) as an executive director of the Company upon requisition by GAL (see paragraph 24 below).

19.The HK Action was short-lived.  By an order made by consent on 6 October 2015 (which, I pause again to note, was after the Company had, on the ground of the pendency of the HK Action, adjourned the said SGM (see paragraph 24 below)), the statement of claim in HCA 1498/2015 was struck out, and the action dismissed, as against GAL, ERL and Lam.

20.Then, after the commencement of the proceedings to be mentioned in paragraph 25 below which was taken by 3 minority shareholders of the Company (holding altogether 1.19% shares) expressly with a view to eventually removing Y Yao from the board of directors of the Company, on 23 November 2015, Y Yao and Iu:

(1)   issued proceedings (“BVI Proceedings”) in the High Court of the BVI (“BVI Court”) against, inter alia, GAL, MYIG and the Company to seek, inter alia, a declaration that MYIG was the beneficial owner of the Disputed Shares and an order that the Company should rectify its register of members to reflect this; and

(2)   obtained in the BVI Proceedings an ex parte injunction order restraining GAL from in any way dealing with the Disputed Shares or exercising any voting rights or passing any resolutions as a shareholder of the Company (“BVI Injunction”). 

21.The BVI Proceedings and the BVI Injunction and the advantage gained therefrom by Y Yao and Iu were likewise not long lasting. 

(1)   On 15 January 2016, Iu was compelled to discontinue his claim in the BVI Proceedings as a result of his being an undischarged bankrupt[4] which status was not disclosed to the BVI Court at the ex parte hearing. 

(2)   On the same date, the BVI Injunction was discharged with costs by the BVI Court, after hearing inter partes arguments, on the ground of Y Yao and Iu’s “egregious breaches of their duties of full and frank non-disclosure” which were “deliberate and designed to ensure that [Y Yao and Iu] obtained a most distinct advantage against the Defendants and seemingly to prevent the calling of the AGM of the [Company]”.

(3)   On 22 June 2016, Y Yao and Iu’s claim in the BVI Proceedings were struck out by the BVI Court as disclosing no reasonable cause of action and as being an abuse of process.

Failure to convene any annual general meeting and legal proceedings arising therefrom

22.Prior to the GAL AGM, the Company last held an annual general meeting (“AGM”) on 12 June 2014. 

23.Pursuant to

(1)   s 71(1) of the Act which requires a company governed thereby to hold an AGM in every calendar year; and

(2)   Bye-law 67 of the Company’s New Bye-laws (“Bye-laws”) which imposes the same requirement and further provides that not more than 15 months shall lapse between two AGMs, 

the Company should have held, but did not hold, another AGM by 13 September 2015.

24.In this regard, on 26 June 2015, upon requisition by GAL, the Company gave notice of a SGM to be held on 14 July 2015 to consider an ordinary resolution to appoint Lam as an executive director of the Company.  Upon the commencement of the HK Action by MYIG (controlled by Y Yao and Iu) putting into question GAL’s right to requisition the meeting, by an announcement made on 3 July 2016, the Company postponed the SGM pending the determination of the HK Action.

25.Following the consensual dismissal of the HK Action on 6 October 2016, on 12 October 2015, 3 other shareholders of the Company (“Bermuda Applicants”) applied to the Supreme Court of Bermuda (“Bermuda Court”) against the Company pursuant to s 76 of the Act for an order that the Company held an AGM for 2015 to consider resolutions for the removal of all the then existing directors of the Company (including in particular Y Yao and L Yao) and for the appointment of new directors, failing which the Bermuda Applicants be themselves permitted to convene such meeting (“Bermuda Proceedings”).  GAL was joined as an applicant (and is included in “Bermuda Applicants”) later towards the end of February 2016.

26.Section 76 of the Act provides as follows: 

“Power of Court to order meeting

(1) If for any reason it is impracticable to call a meeting of a company in any manner in which meetings of that company may be called, or to conduct the meeting of the company in manner prescribed by the bye-laws or this Act, the Court may, either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting, order a meeting of the company to be called, held and conducted in such manner as the Court thinks fit, and where any such order is made may give such ancillary or consequential directions as it thinks expedient.

(2) Any meeting called, held and conducted in accordance with an order under subsection (1) shall for all purposes be deemed to be a meeting of the company duly called, held and conducted.” (emphasis added)

In short, s 76 authorises the court to order a meeting of the company to be called, held and conducted in such manners as the court thinks fit and to give any necessary ancillary or consequential directions.

27.As noted in paragraph 20 above, Y Yao and Iu instigated the BVI Proceedings against GAL over the ownership of the Disputed Shares on 23 November 2015 and temporarily obtained an injunction restraining GAL from exercising its rights as the holder of the Disputed Shares after the commencement of the Bermuda Proceedings.

28.By an order dated 1 March 2016 (“March Order”), the Bermuda Court ordered the Company to, inter alia:

(1)   convene an AGM for a date between Monday 16 May 2016 and Friday 20 May 2016 (inclusive) (paragraph 2);[5]

(2)   circulate notice and agenda of the AGM to the Company’s shareholders on a date between Monday 4 April 2016  and Friday 8 April 2016 (inclusive) (paragraph 3); and

(3)   include in the agenda any resolutions proposed by GAL which may be properly moved at the AGM in accordance with s 79 of the Act[6] and circulate to members of the Company any statement provided by GAL in accordance with s 79 (paragraph 4).

29.Despite the making of the March Order, the Bermuda Applicants however had to go back to the Bermuda Court in the Bermuda Proceedings on 3 subsequent occasions in April and May 2016.

30.GAL complained that the Company sought to exclude the resolutions proposed by GAL including one for the removal of Y Yao and refused to circulate the accompanying statement to shareholders.  The Company further sought to hold the meeting in Shanghai, which it had never done before.  All previous AGMs of the Company were held in Hong Kong.  Upon the application of the Bermuda Applicants, by an order made in the Bermuda Proceedings on 14 April 2016 (“First April Order”), the Bermuda Court directed the Company to circulate to its shareholders an amended notice of the meeting including all of the resolutions requisitioned by GAL and a copy of GAL’s statement and to convene the meeting in Hong Kong.  Sealed copies of the Second April Order were served on the Company at its registered office in Bermuda on 19 April 2016.

31.The Company did not take steps to comply with the First April Order.  Upon the application of the Bermuda Applicants by ex parte summons dated 26 April 2016 and served on the Company at its registered office on 28 April 2016, by an order made in the Bermuda Proceedings on 28 April 2016 (“Second April Order”), Kawaley CJ, inter alia:

(1)   declared that if the Company purported to hold an AGM in Shanghai, that meeting would be invalid and no resolution passed thereat would be binding on the Company;

(2)   authorised GAL to convene an AGM of the Company and to give instructions in the name of the Company to

(a)    Computershare Hong Kong Investor’s Services Limited (“Computershare”), the Company’s branch share register in Hong Kong;

(b)   Hong Kong Securities Clearing Company Limited (“HKSCC”); and

(c)    HKEx

for circulation of the amended circular (“Supplementary Circular”) containing notice to shareholders in the approved forms appended to the Second April Order which provided for a meeting convened by GAL on 20 May 2016 at 10 am at the North Point Premises;

(3)   permitted Computershare, HKSCC and HKEx to act upon any instruction given by GAL pursuant to the Second April Order without first making any enquiry of the Company; and

(4)   declared any meeting convened by GAL pursuant to the Second April Order valid and any resolutions passed thereat binding on the Company and its board.

32.The effect of the Second April Order was to disentitle the Company to call the AGM.  Kawaley CJ explained in his subsequent ex tempore ruling on 13 May 2016 that he so ordered because “the Company could not be trusted to convene a meeting that fully complied with the previous orders of the Court”.  There was no application by the Company to the Bermuda Court for the discharge or variation of the Second April Order.

33.Sealed copies of the Second April Order were served on the Company at its registered office in Bermuda and Hong Kong office on 28 and 29 April 2016 respectively.

34.Pursuant to the Second April Order, on 3 May 2016, GAL issued the Supplementary Circular, containing an amended notice of meeting.  1,750 hard copies were provided to Computershare for distribution to members whose names appeared in the share register of the Company as well as those who held shares through brokerage firms and CCASS participants.  According to paragraphs 5 and 6 of the 1^st defendant’s 7^th affidavit dated 12 May 2016 in the Bermuda Proceedings:

(1)   Computershare requested sufficient proxy forms for all the registered shareholders (325) and an additional 1,328 circulars for non-registered shareholders and another 50 copies for CCASS participants.

(2)   Computershare had confirmed that it had circulated the Supplementary Circular to all shareholders of the Company, including those whose beneficial interests are held through CCASS, and had sent the proxy forms to the registered shareholders.

35.However, both the Company and HKEx refused to upload the Supplementary Circular onto the Company’s official webpage on HKEx’s news website (www.hksenews.com). It appears from HKEx’s fax dated 13 May 2016 to Lam & Co, solicitors for GAL, that HKEx was questioning whether the Second April Order was a final order or effective or enforceable in Hong Kong and was also concerned that the Company’s shareholders would have received 2 different versions of notices and circulars for two different venues for the AGM.  See also HKEx’s faxes dated 5 and 18 May 2016 to Lam & Co.

36.In the meantime, on 29 April 2016 (i.e. after being served with the summons upon which the Second April Order was made), the Company first announced that it would hold the AGM in Hong Kong.  On 4 May 2016, notwithstanding the Second April Order (see paragraph 31 above) and the absence of any challenge thereto by the Company before the Bermuda Court, the Company published on HKEx’s news website an amended circular giving amended notice of the AGM that it was purporting to convene to be held on 20 May 2016 at 10 am, i.e. at the same time as the AGM convened by GAL but at a different venue namely, Lily Room, Best Western Plus Hotel, 308 Des Voeux Road West, Hong Kong (“Western Premises”).  The proposed resolutions and statements by GAL were included. I note from the accompanying “Letter from the Board” that the then board of directors of the Company expressed the view that the Company had already complied with the March and First April Orders by convening the AGM in Hong Kong so that such AGM would be valid and binding on the Company and that the Second April Order should not be applicable and the directions contained therein not operative as the Second April Order would not envisage two AGMs being held by the Company and by GAL at which resolutions validly passed might contradict each other.  The position adopted by the plaintiff in these proceedings is that this amended circular and notice were issued by the Company in compliance with the March and First April Order.  With respect, as stated in paragraph 32 above, the Company had lost the right to convene the AGM under the Second April Order.

37.The Company’s said action provoked another application by the Bermuda Applicants to the Bermuda Court.  The summons dated 9 May 2016 was served on the Company’s registered office on 10 May 2016 but the Company chose not to attend the hearing on 13 May 2016.  By an order made on 13 May 2016 (“May Order”), the Bermuda Court:

(1)   declared the AGM that the Company had purported to convene for 20 May 2016 at the Western Premises invalid and restrained the Company from holding, or transacting any business at, such meeting or from convening or holding any general meeting of the Company until 21 May 2016, failing which no resolution passed at any such meeting should have legal effect (paragraphs 1-4);

(2)   authorised GAL to forthwith circulate to the Company’s shareholders a circular in substantially the form annexed thereto (“Amended Circular”) and, for that purpose, to give instructions in the name of the Company to Computershare, HKSCC and HKEx to circulate the Amended Circular and to upload the same to the HKEx website in relation to the Company (paragraph 5);

(3)   permitted Computershare, HKSCC and HKEx to act upon any instruction given by GAL pursuant to the May Order without first making any enquiry of the Company (paragraph 6);

(4)   directed the Company to forthwith upload the Amended Circular to the “Investor Relations” page of its own website and the Company’s page on the HKEx website (paragraph 7);

(5)   directed HKEx to forthwith upload the Amended Circular to the Company’s page on the HKEx website (paragraph 8);

(6)   declared that the AGM convened by GAL pursuant to paragraph 2 of the Second April Order would be valid notwithstanding

(a)    any failure by the Company or HKEx to comply with the above directions to them; or

(b)   any failure by HKEx to comply with the instructions given to them under paragraph 2 of the Second April Order (paragraph 10).

38.Kawaley CJ was extremely critical of the then board of directors of the Company.  He said in the ex tempore ruling of the same date as follows:

“9. That Order[7] did have some effect, in that evidence before the Court now shows beyond any doubt that the Company has sought to comply with one aspect of the Order. And that is to acknowledge that the meeting should take place in Hong Kong. However, the Company has, acting by its board of directors has in the most important way defied this Court’s previous Order because the effect of the 28^th April Order was to authorize Greater Achieve to convene the AGM, on behalf of the Company and in the name of the Company, because the Company could not be trusted to convene a meeting that fully complied with the previous orders of the Court.

10. The Company has not instructed new attorneys[8] to come back before this Court and to seek to vary the 28^th April, 2015 Order with a view to re-assuming the right to convene a meeting by itself. It has instead decided unilaterally to convene its own meeting at a different location competing with the meeting authorized by this Court, claiming that the 28^th April Order has effectively fallen away because it is now agreeing to hold a meeting in Hong Kong.

11. It is difficult to imagine, in a commercial context, a more flagrant disregard for Court Orders, or indeed the rule of law, on behalf of a listed company. One of the difficulties with cross-border commerce when one has companies incorporated in one jurisdiction (such as Bermuda) and listed in another jurisdiction (here Hong Kong) is that orders made in Bermuda are not without more effective in Hong Kong. In terms of the ability to take enforcement action, reputable commercial actors will generally be concerned not to do anything in breach of an order of a foreign court; because reputable commercial actors simply do not do this. But the present situation demonstrates the difficulties when a company is in the control of management that has little regards for the rule of law.

…

13. …it is clear on the material available to me that this Court has in substance assumed control over the AGM by, following an inter partes hearing in which the Company was legally represented a proceeding which ended in an order being made which the Company objected to and so although the orders made after 1^st March in aid of implementation of the 1^st March 2016 Order made at hearings in which the Company did not participate. Those hearings were not hearings taking place on an ex parte basis in the traditional sense, in that they were all proceedings of which the Company had notice. Proceedings which the Company could have participated in but proceedings which the Company deliberately elected not to participate in. And so against that background the Court is presented today with a very clear picture indeed of a company under the control of management which can only be described as a rogue management seeking to convene a meeting in clear violation of the Orders of this Court competing with the AGM which has been authorized by this Court.

14. This has the necessary effect that the meeting convened by the Board, if it takes place and is attended by Shareholders, can only result in either Shareholders being confused as which meeting is valid, or, alternatively and perhaps more significantly, the meeting being held on terms that do not include the most important resolutions directed by this Court to be tabled. Resolutions which were designed to give shareholders an opportunity to remove the present management, in particular the current Chair of the Board.

15.  I should add that I have a very clear recollection of saying, when counsel for the Company stood up to respond to Mr. Duncan in the course of the original inter partes hearing, that the information before the Court about the way in which the management had taken steps to avoid the convening of an AGM suggested to me that if the Court where faced with a petition to wind up the company and to appoint independent management, there was at that sufficient information before the Court to justify that course.  The position is getting very close to one where the Court itself might feel obliged to notify the Official Receiver of the way in which this Company’s affairs are being conducted with a view to him considering whether he needs to intervene.  But it does seem to me that the shareholders who are seeking to ensure through proper legal means that the Company’s constitution is honoured and that an AGM takes place so that they can attract the necessary voting support to remove the present management and investigate the serious financial concerns which have been euphemistically referred to as the ‘unresolved matter’.”

39.The Company was served with the May Order on 16 May 2016.  It uploaded the May Order, including as an attachment the Amended Circular which included a revised proxy form, to the HKEx website on 17 May 2016 at 15:41, although it stated in the same announcement that the Company did not endorse the meeting and that it was actively seeking legal advice.

40.On 18 May 2016, GAL advertised the GAL AGM in the newspaper, stressing that the GAL AGM would be the only valid and binding AGM recognised by the court and urging shareholders of the Company to attend the same.

Belated challenge by old board of directors of Company to Bermuda Orders

41.Then, on 18 May 2016, at 19:50 the Company announced that, upon information received from one of the former directors of the Company, it had come to the view that the March, First April, Second April and May Orders (“Bermuda Orders”) had been obtained by GAL by the suspected use of forged documents; that the Company intended to appeal against such orders; and that the Company would not consider the AGM convened by GAL and the resolutions passed thereat to be valid or binding.  The Company also “temporarily adjourned” the meeting announced for 20 May 2016 at the Western Premises in the meantime.

42.On 19 May 2016, the Company issued a writ of summons in HCA 1339/2016 against GAL and Lam for:

(1)   declarations that the Bermuda Orders were unenforceable or otherwise not valid in Hong Kong and that the Amended Notice dated 3 May 2016 was invalid;

(2)   an injunction restraining the holding of the AGM referred to in such amended notice; and

(3)   a declaration that any resolutions passed at such meeting were void.

43.I have reviewed the affidavit evidence filed by GAL in the Bermuda Proceedings. I cannot find any use by GAL of the alleged forged documents in such evidence.

The 2016 AGM and the Resolutions

44.Against this background, the GAL AGM went ahead and was attended by shareholders holding 974,266,390 (or approximately 22.22%) shares in the Company, including the Bermuda Applicants which between them held altogether 19.95% of the Company’s shares.  That is to say, the Bermuda Applicants accounted for almost 90% of attendance at the GAL AGM. 

45.These shareholders passed the Resolutions which, inter alia, removed, or confirmed the retirement of, the entire existing board of directors of the Company including Y Yao and L Yao, appointed the 1^st to 7^th defendants as directors of the Company and Crowe Horwath (HK) CPA Limited (“New Auditors”) as auditors of the Company with immediate effect.

46.The register of directors of the Company in Bermuda has been updated to reflect these changes to the composition of the board resolved at the GAL AGM. 

47.Notwithstanding the issues it raised as to the effect of the Second April and May Orders, HKEx has not taken any action in respect of the GAL AGM or the result of the poll.

PLAINTIFF’S CASE AND FACTUAL AND LEGAL BASIS THEREFOR

48.It is the plaintiff’s complaint that it only received the notices of meeting and proxy forms issued by the Company on 4 April and 4 May 2016 in respect of the AGM it convened. 

49.The plaintiff, however, never received from GAL the notice or proxy form for the GAL AGM.  According to L Yao (as director of the plaintiff), he had made enquiries with the plaintiff’s broker Haitong which had verbally confirmed, without explaining why, it had not forwarded the notices and proxy forms from GAL to the beneficial shareholders it represented.

50.Further, by the time the plaintiff learnt from the Company’s announcement on 18 May 2016 that the Company would “adjourn” the meeting to be held at the Western Premises and that GAL would proceed with the GAL AGM at the North Point Premises, it would have been impossible for the plaintiff to participate in and vote at the latter meeting (though it would very much like to do so) because as a corporate shareholder holding its shares in the Company via a broker, the plaintiff could only exercise its votes by filing in the appropriate proxy form which, to be valid, must be deposited with Computershare not less than 48 hours before the time appointed for the meeting. 

51.The plaintiff therefore claims to have been denied of its right to participate in and vote at the GAL AGM.

52.To advance the Injunctions Application, the plaintiff also adduced affidavit evidence from a number of supporting shareholders all holding their shares via brokers:

Shareholder	Shareholding	Broker
Xue Yue	88,722,391 shares (about 2.02%)	Haitong
Chen Changye	49,620,000 shares (about 1.13%)	China Merchant Securities (HK) Co Ltd (“China Merchant”)
Hu Yanpei	21,410,000 shares (about 0.49%)	China Merchant
CCB International Asset Management Limited (“CCBI Asset”)	152,676,987 shares (about 3.48%)	CCB International Securities Limited (“CCBI Securities”)

53.In summary:

(1)   The proxy of Xue Yue, instructed to vote against the appointment of the 1^st to 7^th defendants, attended the GAL AGM but was denied entry because Xue Yue was not himself registered as a shareholder of the Company and because the proxy form (which Xue Yue obtained and signed on 19 May 2016) had not been deposited with Computershare 48 hours before the time appointed for the holding of the meeting.

(2)   Chen Changye and Hu Yanpei both claimed to have relied on the HKEx website for formal announcement published by the Company.  Both saw from such website the notice of the AGM convened by the Company at the Western Premises on 4 May 2016.  Both obtained the proxy forms from their broker China Merchant and signed them on 10 May 2016 voting, inter alia, for the re-appointment of the existing directors of the Company and against the removal / confirmation of retirement of the existing directors and the appointment of the 1^st to 7^th defendants as directors and of the New Auditors. They did see the subsequent announcements of the “adjournment” of the AGM convened by the Company and of the GAL AGM.  They were “quite confused” but did not take any further action as the Company’s last announcement on 18 May 2016 was that it would not recognise GAL’s meeting as valid or binding.  They later found out that their votes were not counted at the GAL AGM because they had not signed on the revised proxy form issued by GAL or lodged the same with Computershare 48 hours before the meeting.

(3)   CCBI Securities received the “entitlement report” of the GAL AGM at 8:58 pm on 17 May 2016.  Its staff had to obtain a hard copy of the notice in the afternoon on 19 May 2016 as the same was not published on the HKEx website.  This was in turn delivered at around 3:21 pm on 19 May 2016 to CCBI Asset which, however, did not have sufficient time to consider the proposed resolutions and give voting instructions to CCBI Securities as it had been told that the voting system would close at 4:15 pm that day.

54.As a shareholder whose shares are held through a broker / CCASS participant, the plaintiff asserts a right to participate in, and vote at, any general meeting via an authorised representative / proxy.  Such case is made with reference to the following provisions in the Bye-laws which, the plaintiff says, cater for shareholders holding their shares through brokers / CCASS participants:

Bye-law 1 (definition)

“A resolution shall be an ordinary resolution when it has been passed by a simple majority of such members as being entitled to do, vote in person, or in the case of any member being a corporation, by its duly or, in case of a member being a clearing house (or its nominee), by its duly authorized representative(s) or where proxies and attorneys are allowed, by proxy or by attorney at a general meeting held in accordance with these presents.” (plaintiff’s emphasis)

Bye-law 77(A)

“Subject to being permitted by the Statutes, if a clearing house (or its nominee) is a member of the Company, it may, by resolution of its directors or other governing body or by power of attorney, authorize such person(s) as it thinks fit to act as its representative(s) at any general meeting of the Company or of any class of members of the Company provided that if more than one person is so authorized, the authorization shall specify the number and class of shares in respect of which each such person is so authorized. A person so authorized under the provisions of this Bye-law shall be entitled to exercise the same powers on behalf of the clearing house (or its nominee) which he represents as that clearing house (or its nominee) could exercise if it were an individual member of the Company.” (plaintiff’s emphasis)

Bye-law 85(1)

“Subject to any special rights, privileges or restrictions as to voting for the time being attached to any class or classes of shares, at any general meeting on a show of hands every member who (being and individual) is present in person or … …in case of a member being a clearing house (or its nominee), by its duly authorized representative(s), or by proxy shall have one vote for every share of which he is the holder which is fully paid up or credited as fully paid… …” (plaintiff’s emphasis)

Bye-law 90(A)

“Any member of the Company entitled to attend and vote at a meeting of the Company or a meeting of the holders of any class of shares in the Company shall be entitled to appoint another person as his proxy to attend and vote instead of him. On a poll votes may be given either personally (or, … …in case of a member being a clearing house (or its nominee), by its duly authorized representative(s)) or by proxy. A member may appoint more than one proxy to attend on the same occasion”

55.My attention has also been drawn to s 607 of the Companies Ordinance (Cap 622) (“CO”), which allows a recognised clearing house or its nominee to authorise one or more persons to act as its representatives at any meeting of a company.

56.It is said that implicit in the rights of a shareholder whose shares are held through a broker / CCASS participant to participate and vote via an authorised representative / proxy is the right to be properly notified of the meeting in order to enable it to make an informed decision as to whether to exercise the voting right.

57.On the notice required of an AGM, the Bye-laws further stipulate as follows:

Bye-law 71

“An [AGM] … shall be called by twenty-one day’s notice in writing at the least … The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and shall specify the place, the day and the hour of meeting and, in case of special business, the general nature of that business, and shall be given, in manner hereinafter mentioned or in such other manner, if any, as may be prescribed by the Company in general meeting, to such persons as are, under these Bye-laws, entitled to receive such notices from the Company, provided that subject to the provisions of the Statutes, a meeting of the Company shall notwithstanding that it is called by shorter notice than that specified in this Bye-law be deemed to have been duly called if it is so agreed:-

(i)  in the case of a meeting called as the [AGM], by all the members entitled to attend and vote thereat; …”

Bye-law 176

“Any Notice or document … to be given or issued under these Bye-laws from the Company to a Member shall be in writing or by cable, telex or facsimile transmission message or other form of electronic transmission or communication and any such Notice and document may be served or delivered by the Company on or to any Member either personally or by sending it through the post in a prepaid envelope addressed to such Member at his registered address as appearing in the Register or at any other address supplied by him to the Company for the purpose or, as the case may be, by transmitting it to any telex or facsimile transmission number or electronic number or address or website supplied by him to the Company for the giving of Notice to him or which the person transmitting the notice reasonably and bona fide believes at the relevant time will result in the Notice being duly received by the Member or may also be served by advertisement in appointed newspapers (as defined in the Act) or in newspapers published daily and circulating generally in the territory of and in accordance with the requirements of the Designated Stock Exchange or, to the extent permitted by the applicable laws, by placing it on the Company’s website or the website of the Designated Stock Exchange, and giving to the Member a notice stating that the notice or other document is available there…”

58.Ms Joyce Leung (for the plaintiff) describes the 21 days’ notice requirement as being the guaranteed statutory minimum notice requirement for AGM with reference to s 571 of the Ordinance, non-compliance with which is not to be lightly treated as a mere technicality.

59.The said bye-laws on the giving of notice are, for Hong Kong listed companies, further supplemented by the following rules on the giving of notice in the Listing Rules:

Rule 13.71

“An issuer shall send notices to all holders of its listed securities whether or not their registered address is in Hong Kong.” (plaintiff’s emphasis)

Rule 13.72

“Any notice to be given by an issuer under this Chapter shall be in writing and any notice to the holder of a bearer security may be given by being published in accordance with the rule 2.07C.”

Rule 13.73

“In addition to any direction of the court, the issuer shall ensure that notice of every meeting of is shareholder … is published in accordance with rule 2.07C. The issuer shall dispatch a circular to its shareholders at the same time as (or before) the issuer gives notice of the general meeting to approve the transaction referred in the circular. The issuer shall provide its shareholders with any material information on the subject matter to be considered at a general meeting that comes to the directors’ attention after the circular is issued. The issuer must provide the information either in a supplementary circular or by way of an announcement in accordance with rule 2.07C not less than 10 business days before the date of the relevant general meeting to consider the subject matter. The meeting must be adjourned before considering the relevant resolution to ensure compliance with this 10 business day requirement by the chairman or, if that is not permitted by the issuer’s constitutional documents, by resolution to that effect (see also rule 13.41)”

Rule 2.07C(1)(iii)

“All announcements or notices which are published in the newspapers by an issuer pursuant to these Exchange Listing Rules must state that it is available for viewing on the Exchange’s website and the issuer’s own website giving details as to where on these websites it is to be found (to the fullest extent known at the time of publication of the announcement or notice).”

60.It is emphasised by the plaintiff that:

(1)   Rule 13.71 requires the issuer to send notices to all “holders” of securities as opposed to just “members” on the company’s register. 

(2)   Rule 13.73’s publication requirement is made “in addition to any direction of the court”. 

(3)   Where notice is given by way of publication, it should be in accordance of rule 2.07C, which basically requires that any notice / announcement / circular to be published on the HKEx website as well as the company’s own website.

(4)   Notice of the GAL AGM was never published on the websites of either HKEx or the Company until the afternoon of 17 May 2016 (indirectly via the Company’s publication of the May Order).  Therefore, the GAL AGM was convened in breach of the Listing Rules.

61.The plaintiff, as a (beneficial) shareholder of a listed company, asserts a legitimate expectation that the Listing Rules would be complied with.  In this regard, Ms Leung places reliance on Luck Continent Ltd v Cheng Chee Tock Theodore, HCMP 702/2010, unreported, 25 April 2012, which involved a petition under the old s 168A to compel the amendment of the company’s bye-laws to conform with the Listing Rules which had been urged by HKEx.  Barma J (as he then was) held that any company which obtained a listing on HKEx must be understood to have implicitly promised its shareholders that it would comply with the Listing Rules so as not to jeopardise its continued listing, which was the fundamental premises on which its shareholders would have become such.  In agreeing with HKEx to comply with the Listing Rules, the listed company could properly be regarded as having done so for the benefit of its shareholders as much for itself, so as to entitle its shareholders to complain that it was unfair for the company to breach those rules where this would have prejudicial consequences for them.  See [81]-[94].  The Court of Appeal ([2013] 4 HKLRD 181) agreed, at [83], that while the mere breach of the Listing Rules by a public company per se could not automatically give rise to unfair prejudice, it was a relevant circumstance to be taken into account and held unfair prejudice to be established on the facts.  One of the fundamental terms on which parties acquired shares in the company must be that the company should maintain its listing status.  The blocking of the amendment of the bye-law would prevent the resumption of trading of the company’s shares and jeopardise the company’s listing status. The shareholders would be locked into the company with no exit through the market, which was not what they had bargained for.

62.I now turn to the applications before me.  Logically, I shall deal with the Strikeout Application first.

STRIKEOUT APPLICATION

63.It is trite that the summary power and discretion to strike out a case should be exercised only in plain and obvious cases.

64.In my view, this is such a case.  Despite the plaintiff’s attempt to identify various questions of fact said to require investigation, as far as I can see, all the material facts (in many instances, matters of public records) are known and before the court.  While counsel for the parties have not been able to show me any precedent that is on all fours with this case, they have had the opportunity to make full arguments, particularly on the ultimate issue of the validity of the GAL AGM and the Resolutions.  I do not see that a trial of these proceedings would materially advance these arguments.

65.I ask the following questions:

(1)  whether GAL had failed to give notice of the GAL AGM; and

(2)    if so, whether such failure invalidated the GAL AGM and the Resolutions.

66.On the question of notice, Ms Leung reminds me that only shareholders accounting for 22.22% of the shares in the Company attended and voted at the GAL AGM and that at least 19.95% shares were held by GAL and the 3 original Bermuda Applicants.  Counsel invites me to infer that the majority of the shareholders (except GAL and its supporters) did not attend because they did not receive notice of the GAL AGM or because such notice reached them way too late to enable them to exercise their votes by having proxies lodged with Computershare 48 hours before the meeting.

67.I am unable to draw any such inference.  As stated in paragraph 53 above, there is before me evidence from only 5 persons / companies (including the plaintiff) beneficially interested in about 7.81% shares of the Company[9] held through 3 brokers namely, Haitong, China Merchant and CCBI Securities.  According to the CCASS shareholder listing as at 10 June 2016, 78.52% of the Company’s shares (which would have excluded GAL’s shares which had by then been registered in GAL’s own name) are held with CCASS participants, mainly financial intermediaries and brokerage houses and that Haitong, China Merchant and CCBI Securities held altogether only 10.49% of the Company’s shares.[10]  The plaintiff and its supporting shareholders’ positions can hardly be taken as representative.  In the absence of evidence to the contrary, the court is entitled to proceed on the basis that the other CCASS participants would, in accordance with the usual procedure adopted in the CCASS Operational Procedures, share with the persons / entities having beneficial interests in the Company’s shares held by them the notice that they had received of the GAL AGM on or shortly after 3 May 2016 when they received from Computershare hard copies of the Supplementary Circular and that these other beneficial shareholders did not make arrangements for their votes to be cast at the GAL AGM because they were prepared to leave the various resolutions proposed to the majority in attendance or were indifferent one way or the other.

68.Indeed, the turnout for the GAL AGM was not out of line with the turnout for the Company’s preceding four AGMs in respect of which there was no ‘notice’ issue: 

Year	Number of shares held by shareholders in attendance	Percentage of shares held by shareholders in attendance
2011 AGM	1,139,886,190	28%
2012 AGM	304,628,436	7%
2013 AGM	326,366,768	8%
2014 AGM	1,095,811,341	25%

69.The plaintiff also harps on the fact that it and its said 4 supporting shareholders had not received sufficient notice of the GAL AGM to validly appoint proxies to vote on their behalf. 

70.First:

(1)   The correct question to be asked is not whether the plaintiff or any other shareholders actually received, but whether GAL had given, the requisite notice. 

(2)   If the steps taken by GAL in giving notice complied with the Bye-laws (and Listing Rules), the fact that such steps for whatever reasons had not succeeded in bringing notice of the GAL AGM to any individual shareholders is neither here nor there. 

(3)   In this connection, Bye-law 72(A) makes clear, inter alia, that the non-receipt of any notice by any person entitled to receive notice shall not invalidate any resolution passed or any proceeding at any such meeting. 

(4)   Therefore, contrary to the plaintiff’s suggestion, it is, on proper analysis, not necessary to investigate whether all the shareholders of the Company received the Supplementary Circular or the Amended Circular or why Haitong did not pass the same to the plaintiff.

71.Second, I seriously question (although it is not necessary for me to, and I do not, decide), whether the plaintiff did really obtain notice of the GAL AGM at a time that was too late for it to lodge a valid proxy.  L Yao had become a director of the plaintiff on 12 May 2016.  L Yao was an INED of the Company and should, as such, have been fully aware of the steps taken by GAL to make the GAL AGM happen, including the notices that it had given.

72.As for the plaintiff’s other supporting (beneficial) shareholders, they are not before the court.  The plaintiff has not taken these proceedings on behalf of these or other shareholders of the Company.  In any event, it seems clear that Chen Changye and Hu Yanpei consciously decided not to take any action about the GAL AGM because the Company said it would not recognise such meeting.

73.Turning then to the steps taken by GAL in giving notice, GAL first gave notice of the GAL AGM by despatching 1,750 hard copies of the Supplementary Circular to Computershare on 3 May 2016 after having been authorised to convene such meeting by the Second April Order on 28 April 2016.  Therefore, it appears that GAL had not given of the GAL AGM 21 days before the same as required by Bye-law 71 (paragraph 56 above).

74.Further, for reasons beyond GAL’s control, notice of the GAL AGM was not uploaded to the news website of HKEx whether on 3 May 2016 or at all.  Shareholders of the Company would come to know of the GAL AGM from the news website of HKEx only on 17 May 2016 at 15:41 because such notice was attached as part of the May Order received by the Company in the Company’s public announcement of such receipt.  Hence, GAL had not given of the GAL AGM in the manner prescribed by Bye-law 176 (paragraph 56 above).

75.However, it does not follow that the GAL AGM or the Resolutions passed thereat would be invalid.  In my opinion, the following contentions by the defendants in support of the validity of the GAL AGM and the Resolutions are unanswerable by the plaintiff:

(1)   The Company is a Bermudian company. 

(2)   Accordingly, first, the applicable law for determining the validity of its meetings is the law of Bermuda as the law of the place of incorporation: see Konamaneni v Rolls Royce Industrial Power (India) Ltd [2002] 1 WLR 1269, per Lawrence Collins LJ at [50].  The CO provisions on the requirements of meetings, relied upon by Ms Leung, have no application, since the Company is not a company incorporated or registered under the CO or its predecessor.

(3)   Second, the Bermuda court had, and had assumed, jurisdiction over the Company, to which the Company had submitted.

(4)   The GAL AGM was held in accordance with the Second April and May Orders.  GAL had done all it could for giving notices as directed by these orders.

(5)   Such meeting, so held, was declared valid, and the Resolutions passed thereat binding on the Company, by the Second April and May Orders: see paragraph 7 of the Second April Order (paragraph 31(4) above) and paragraph 10 of the May Order (paragraph 37(6) above).

(6)   I note in particular that when he made the May Order, Kawaley CJ was aware of the steps that had been taken, and the difficulties encountered, by GAL to comply with the Second April Order, including the facts that GAL had issued the Supplementary Circular giving notice of the meeting on 3 May 2016 which was just 17 days prior to the date of the meeting and that the Company and HKEx had so far declined to upload such circular onto the news website of HKEx since those matters were addressed in the evidence before the learned judge in the form of the 1^st defendant’s 6^th affidavit filed in the Bermuda Proceedings.  The draft Supplementary Circular and Amended Circular annexed to the Second April and May Orders, by which notice of the GAL AGM was to be given, clearly stated that such meeting would take place on 20 May 2016.

(7)   Indeed, paragraph 10 of the May Order in the following terms expressly anticipated and catered for the possibility that HKEx and/or the Company might continue to decline to assist in circulating the Supplementary Circular and the Amended Circular to the Company’s members:

“the general meeting convened by [GAL] pursuant to paragraph 7 of the [Second April Order] will be valid notwithstanding (i) any failure by the Company or [HKEx] to comply with the orders at paragraph 8 or 9 above, or (ii) any failure by the [HKEx] to comply with any instructions given to them under paragraph 2 of the [Second April Order].”

(8)   Thus, contrary to the submission on behalf of the plaintiff, the Bermuda Court did intend, by the Second April and May Orders, to override both the time and manner of publication requirements in the Bye-laws and the Listing Rules by allowing the GAL AGM to proceed at shorter notice and despite the Company and HKEx’s refusal to co-operate with GAL.

(9)   And the Second April and May Orders were well within the Bermuda Court’s power to make under s 76 of the Act (set out in paragraph 26 above).  Under s 76, the court has a wide discretion as to how a meeting is to be called, held and conducted.  This could involve calling the meeting at shorter notice than that provided for in a company’s bye-laws, or allowing notice to be given otherwise than in accordance with the bye-laws.  This is clear from the language of the section itself.  It is also well established that the contract between the members of a company as created by the articles can be overridden by the court ordering a meeting under such a section.  See, e.g. Harman v BML Group Ltd [1994] 1 WLR 893, per Dillon LJ at 896D that the court could given directions under s 371 of the Companies Act 1985 (which was in the same terms as s 76 of the Act) that override the notice provisions.  See also Union Music Ltd v Watson [2004] BCC 37, per Peter Gibson LJ at [35].

(10)    It cannot be said that the discretion under s 76 had been wrongly exercised.  The Company was in a poor state.  It had not held an AGM for almost 2 years.  Its accounts since 1 January 2014 had not been audited.  It had not had an auditor since 21 December 2015.  A huge sum had disappeared from its subsidiary’s account without any or any adequate investigation.  Trading in its shares had been suspended for more than a year without any sign of resumption in sight.  The existing management did not inspire confidence.  It seemed more interested in stalling an AGM or making it inconvenient to attend.  It had defied the March and First April Orders.  The suitably of the Chairman and CEO (i.e. Y Yao) was questionable.  The Bermuda Court was entitled to take the view that an AGM should, and could, not be delayed any further and that, on balance, the notice that had been given of the GAL AGM through Computershare would have to be sufficient.

(11)  Section 76 expressly provides that a meeting held in accordance with an order made under section (which the GAL AGM was) is a valid meeting.

(12)  There was no appeal by the Company, while still under the control of the old board, to the Bermuda Court against either of these orders.

76.Ms Leung has drawn my attention to paragraph 7 of the 1^st defendant’s said 7^th affidavit in the Bermuda Proceedings to make the point that the May Order was obtained on the basis of such evidence that “all registered shareholders and persons holding beneficial interests in shares in the company through CCASS will have received circular and notice convening [the GAL AGM] in hard copy form (and hence will be able to consider how they wish to direct the shares to which they are entitled to be voted)”.  Such deposition is, however, not untrue.  I repeat paragraphs 34 and 67 above. 

77.As for the non-compliance with the publication requirement in rule 2.07C of the Listing Rules, I have not been shown any authority to the effect that such non-compliance would render the GAL AGM or the Resolutions invalid.  What is theoretically put in jeopardy by a departure from the Listing Rules is the company’s listing status.  However, in the instant case, I do not see how HKEx could reasonably complain given that it was HKEx itself that had prevented GAL from complying with rule 2.07C.

78.Ms Leung has also asked me to note that GAL has failed to secure the registration of the Bermuda Orders in Hong Kong pursuant to the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap 319) under HCMP 976/2016.  HKEx raised the same point when being pressed by Lam & Co to upload the Supplementary Circular (paragraph 35 above).  With respect, the application for registration of the Bermuda Orders was in the first place misconceived as the said Ordinance applies only to foreign monetary judgments.  It was also unnecessary.  GAL did not require the assistance of the Hong Kong courts to enforce the Second April or May Orders. They were self-executing in nature and in terms.  Therefore, there is no issue as to the enforceability of such orders in Hong Kong.

79.Lastly, the plaintiff takes the technical objection that the Bermuda Orders do not bind it as it was not a party to the Bermuda Proceedings.  One would not expect each and every shareholder, registered or beneficial, to be joined as a party to proceedings such as the Bermuda Proceedings.  More importantly, the plaintiff has not persuaded me that the Bermuda Court had erred in any aspect in making the Second April and May Orders.

80.For these reasons, I come to the conclusion that these proceedings are not sustainable and should be struck out.

INJUNCTIONS APPLICATION

81.In view of my decision on the Strikeout Application, it is strictly speaking not necessary for me to deal with the Injunctions Application but to dismiss it as a matter of course.  However, in case these matters should go further, I shall briefly address the Injunctions Application.

Appropriate test for grant / refusal of interlocutory injunctions sought in this case

82.On the test for the grant or refusal of an interlocutory injunction, Ms Leung addresses me with reference to Hong Kong Civil Procedure 2016, volume 1, paragraphs 29/1/8 and 29/1/12 which were essentially based upon Lord Diplock’s speech in American Cyanamid Co v Eithicon Ltd [1975] AC 396 (HL) at 407F-409D which, as explained by the Hong Kong Court of Appeal in Wah Nam Holdings Co Ltd v Excel Noble Development Ltd [2000] 3 HKC 118, per Ribeiro JA (as he then was) at [28]-[32], requires the court to ask the following questions in deciding whether it is just or convenient to grant an interlocutory injunction:

(1)   whether there is a “serious question to be tried” which means that the claim must not be frivolous or vexatious;

(2)   if so, whether, if the plaintiff were to succeed in obtaining a permanent injunction at trial, it could adequately be compensated by an award of damages in respect of any loss which it might suffer by reason of the defendant continuing to act unrestrained pending the trial;

(3)   if not, whether the defendant would be adequately protected by the plaintiff’s cross-undertaking in damages should it be later found that the plaintiff should not have been granted an interlocutory injunction; and

(4)   if there is doubt as to the adequacy of the respective remedies of damages, where the balance of convenience lies.

83.Mr Minju Kim, counsel for the defendants, does not submit otherwise.

84.The principle that when deciding whether to grant or refuse an interlocutory injunction, the court is not concerned with the merits of the plaintiff’s case save to the extent of satisfying itself that it raises a serious question to be tried but should look at the balance of convenience no doubt applies generally in most cases.  There are, however, well-established exceptions to the rule.

85.In this case, the interlocutory injunctions, if granted, would give to the plaintiff the remedy it requires before the trial of these proceedings.

(1)  First, the interlocutory injunctions sought by the plaintiff are in terms identical to the permanent injunctions claimed in the originating summons.  It matters not that the interlocutory injunctions would technically have effect only until the trial of these proceedings.  The 1^st to 7^th defendants were appointed as directors of the Company only until the next AGM which would have to be held not later than 15 months from the date of the GAL AGM. 

(2)  Second, the plaintiff admittedly sides with the ousted directors.  It instituted these proceedings with a view to having them reinstated automatically as a practical consequence of the grant of the interlocutory injunctions sought.  Alternatively, it is hoped that they would be re-elected through another AGM to be called after the grant of such interlocutory injunctions (which the plaintiff undertakes to do within 28 days).  In either case, there would be no reason for the plaintiff to continue with these proceedings.

I am thus not with Ms Leung that the effects of the interlocutory relief sought, if granted, would be short-lived.  To the contrary, they would obviate the need for a trial of these proceedings.

86.The proper approach to be adopted where an interlocutory injunction will, or will practically, have the effect of disposing of a substantive claim in the action has been comprehensively reviewed by Mr Justice Chow in BMC Global Limited v TOR Asia Credit Master Fung LP, HCA 2392/2016, unreported, 14 October 2016.   I gratefully adopt his Lordship’s summary and analysis at [35]-[39] which I set out below:

“35. It is well established that where the grant or refusal of an interlocutory injunction would in effect dispose of the action finally the court will have more regard to the plaintiff’s prospect of success, this being treated as a factor in the consideration of the balance of convenience: see Lai Hoi Ping (suing on his own behalf and on behalf of all other members of Hog Kong Taxi Association) v Persons Occupying Portions of Nathan Road near to and between Argyle Street and Dundas Street to Prevent or Obstruct Normal Vehicular Traffic from Passing and Repassing the Occupied Areas, HCMP 2975/2014, at paragraph 10 per Cheung CJHC.

36. Various tests have been formulated by the courts in relation to this higher regard to the prospect of success, for example-

(2) whether the defendant has “no real chance of succeeding at the trial” (Mak Chi-sing v A & A Continental Commodities Ltd [1983] HKLR 430 at 408 per Roberts CJ, recently applied by Harris J in Speedy Brilliant Investments Ltd v China Health Group Limited, HCCW 816/2016, 2 June 2016 at paragraph 13);

(3) whether the plaintiff is “at least likely to succeed at trial” (Sunlink International Holdings Ltd v Wong Shu Wing [2010] 5 HKLRD 653, at paragraph 10 per Harris J);

(4) whether the plaintiff is “at least very likely to succeed at trial” (Fast - Link Express Ltd v Falcon Express Ltd, HCA 2040/2005, 30 December 2005, at paragraph 9 per Deputy High Court Judge Carlson); or

(5) whether the plaintiff has shown “an overwhelming balance on the merits” in its favour (Cayne v Global Natural Resources Plc [1984] 1 All ER 225, at 236f per Kerr LJ).

37. In my view, it is neither possible, nor appropriate, for the court to seek to formulate a precise threshold that the plaintiff must meet before the court may grant an injunction in his favour in circumstances where the grant of an injunction would in effect dispose of the action finally. The following observation by Butler-Sloss LJ in Lansing Linde Ltd v Kerr [1991] 1 WLR 251 at 269D-E (part of which was quoted with approval by Cheung CJHC in Lai Hoi Ping at paragraph 11) is worth reciting:-

“The jurisdiction to grant the relief sought is, however, statutory, section 37 of the Supreme Court Act 1981 providing for the grant of an injunction in all cases in which it appears to the court to be just and convenient to do so. The speech of Lord Diplock in the American Cyanamid case set out guidelines which could not and, as subsequent decisions of the House of Lords and of this court have shown, did not cover every eventuality. The American Cyanamid case was one in which two large companies were battling over pharmaceutical patents. The interlocutory injunction was granted with the knowledge that the case was unlikely to come to trial for two to three years. In N.W.L. Ltd. v. Woods [1979] 1 W.L.R. 1294 Lord Diplock recognised that American Cyanamid was not dealing with a case in which the grant or refusal of an injunction would have the effect of disposing of the action, and such an exceptional case brought into the balance of convenience an important additional element. In Cayne v. Global Natural Resources Plc. [1984] 1 All E.R. 225, where the grant of an interlocutory injunction would have summarily decided the case in favour of the plaintiffs, Eveleigh L.J. said, at p. 232: ‘this case is one that the court has to approach on a broad principle: what can the court do in its best endeavour to avoid injustice?’

The question arises in each application for an interlocutory injunction as to the point on a broad spectrum at which the particular circumstances of the case in question may fit in, and what additional factors there may be to place into the balance of convenience.”

38.    In other words, the significance of the merits of the plaintiff’s case as a factor in considering the issue of balance of convenience would vary according to the particular context and circumstance of each case.  Ultimately, the court’s task is to arrive at a result which would carry the lowest risk of injustice as a result of the grant or refusal of an injunction.

39.    In this regard, it does not seem to me to matter that the plaintiff has raised other claims or sought other relief in the writ (as in the present case where the plaintiffs also seek declaratory relief in respect of the 2^nd defendants’ appointment as joint and several receivers and managers as well as their appointment as directors of the 3^rd defendant) so that, strictly speaking, the grant of the interlocutory/interim injunction sought would not dispose of the action finally.  In my view, if the interlocutory/interim injunction would have the practical effect of finally disposing of the claim for an injunction, being a substantive claim in the action, the court is entitled to have a higher regard to the merits of the plaintiff’s case so far as relevant to that particular claim.”

87.This is, therefore, one of the rare cases in which the court is obliged to take a closer look at the merits of the plaintiff’s claim.

88.It would have been apparent from the above discussion on the Strikeout Application that I consider the plaintiff’s claim herein to be doomed to fail.  Even if I am wrong in such conclusion, I certainly cannot say that the plaintiff is at least likely or very likely to succeed at trial or has shown an overwhelming balance on the merits in its favour or that the defendants have no real chance of succeeding at the trial, applying the various tests summarised in paragraph 36 of Chow J’s judgment in BMC Global Limited.

Adequacy of damages to either side 

89.Both parties have addressed the adequacy of damages on the premise that any loss that is likely to flow from the grant or refusal of interlocutory injunctive relief in this case would be suffered by the Company and that the Company would not be adequately compensated for such loss by an award of damages.

90.However, what I have to consider is the positions of the parties before me, not the Company.

91.From the plaintiff’s perspective, a loss suffered by the Company would probably be reflected in a drop in the value of its shares in the Company.  A claim for damages for such reflective loss is, subject to limited exceptions, usually precluded by the reflective loss doctrine as explained in Johnson v Gore Wood & Co [2002] 2 AC 1.

92.The same would apply to the 1^st defendant who is the indirect beneficial owner of shares in the Company.

93.On this basis, it could be said that damages would not be an adequate remedy to either the plaintiff or the 1^st defendant.

Balance of convenience

94.Moving then to the balance of convenience, bearing in mind that the court should adopt the course that involves the least injustice, the lack of merits of the plaintiff’s case is, to my mind, the decisive factor that tilts the balance decidedly in favour of the defendants.

95.Another consideration that weighs heavily in my mind is the prospect of reinstatement of the ousted board (particularly Y Yao) which, even for a short while until another AGM could be held, is not palatable, having regard to the Missing Fund issue and their handling of the same, their failure to hold an AGM in breach of the Act and the Bye-laws, the conduct of the HK Action and the BVI Proceedings by Y Yao and the conduct of the Bermuda Proceedings and the disrespect shown to the Bermuda Orders by the Company while under the control of the old board.  I disagree with Ms Leung that the question whether the previous board had mismanaged the business and affairs of the Company is a matter for other proceedings.  In my opinion, it is relevant to how the court should view the balance of convenience.

96.For the sake of completeness, I have not overlooked the criticisms made of the 1^st to 7^th defendants but consider that they either are not made out (e.g. the changes made by them to the management of the Company and its subsidiaries which I am not satisfied, on the material available, is necessarily wrong) or pale in comparison to the issues affecting the suitability of the old board (e.g. the 1^st to 7^th defendants’ relative lack of experience in the medicare industry in the PRC).

ORDERS

97.To conclude, I dismiss the Injunctions Application, allow the Strikeout Application and strike out the originating summons.

98.I also make an order nisi that the plaintiff should pay the defendants costs of these proceedings (including the 2 applications), to be taxed if not agreed, with certificate for counsel.

Ms Joyce Leung, instructed by Victor Chiu Tsang & Partners, for the Plaintiff

Mr Minju Kim, instructed by Lam & Co., for the 1^st to 8^th Defendants