Kwok Hiu Kwan v. Johnny Chen and Others

HCMP 41/2018

[2018] HKCFI 2112

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 41 OF 2018

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Before: Hon Harris J in Chambers

Dates of Hearing: 27, 28, 29 August 2018

Date of Decision: 29 August 2018

Date of Reasons for Decision: 13 September 2018

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R E A S O N S   F O R   D E C I S I O N

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Introduction

1.The 5^th Defendant, Convoy Global Holdings Limited (“Company”), is incorporated in the Cayman Islands and was listed on the Main Board of the Stock Exchange of Hong Kong Ltd on 13 July 2010.  The Plaintiff (“Kwok”) is a registered shareholder of the Company.  He acquired his shares during July and August 2017.  By the end of August 2017 he held 29.91% of the Company’s shares.

2.On 30 October 2017 Mr Kwok requisitioned an extraordinary general meeting of the Company to remove the incumbent board and appoint alternative directors nominated by Mr Kwok.  The EGM took place on 29 December 2017.  It was chaired by the 1^st Defendant, Johnny Chen (“Chen”), who had been appointed a director of the Company on 9 December 2017.

3.There is a transcript of the meeting.  Mr Chen addressed the meeting in English.  What he said was interpreted into Cantonese.  It is apparent from the transcript that it is not very accurate. 

4.Mr Chen referred early in the EGM to an unfair prejudice petition issued shortly before the EGM by a shareholder, Madam Zhu, in HCMP 2773 of 2017.  The proceedings were described by the Company’s Cayman legal adviser, Ian Mann.  Mr Mann explained that Madam Zhu made various allegations against, amongst others, Mr Kwok, and Madam Zhu sought, amongst other relief, a declaration that Mr Kwok and another shareholder, Mr Chen Pei Xiong, should not be allowed to vote their shares.

5.Mr Chen then proceeded to deal with procedural matters.  He declared that a quorum was present.  He then dealt with voting procedures; at the end of which Mr Chen dealt with how objections to the qualification of any voter would be dealt with.  At this point a Mr Lam objected to Mr Kwok and Mr Chen Pei Xiong voting.  The transcript records the interpretation of the objection (which was made in Cantonese) as follows:

“Mr. Lam is asking as I know the Company is actually suing a lot of people, according to the writ, a lot of defendants were actually subscribing the Company’s shares with Convoy money in the 2015 placement. And there were lots of shares were eventually sold to Mr. Kwok Hiu Kwan and Chen Pei Xiong. I believed that slot of shares were [sic] problematic from the date they were issued and the trading were actually premeditated so I don’t think they own the voting rights.”

6.Mr Chen conferred with Mr Mann as to how the objection should be dealt with.  Mr Chen is recorded as saying the following:

“Ian just pointed it out base [sic] on article 74 if anyone of the shareholders raised objection to the qualifications of the voters, or any votes have been counted which ought not to have been counted or which might have been rejected; or any votes are not counted which ought to have been counted as chairman, it’s my responsibility to decide unless the same is raised or pointed out at the Meeting.”

7.A lawyer, Mr Wong, who I understand represented Mr Kwok, briefly addressed Mr Chen.  Mr Wong objected to Mr Chen determining the matter and proposed that the controversy be left to the court to resolve.  Mr Chen rejected this proposal and proceeded to deal with the objection.  The transcript records him as doing so in the following terms:

“But I have to say at this point, based on everything I have read, especially what I received this morning, I have to exercise my article 74 right. If any of the shares are deemed questionable, I have to void these shares for allowing to vote for the rest of the resolutions. And with this decision, I deem that to be final and conclusive. So I also advise Tricor by excluding shares of those proxies including any of the parts here represented by directly or indirectly.”

8.Accordingly, Mr Kwok’s shares were not voted, or treated by Tricor who administered the meeting, as having been voted, on the resolutions put to the Company’s shareholders at the general meeting.

9.On 11 January 2018 Mr Kwok issued an originating summons seeking:

(1)  A declaration that Mr Chen’s decision at the EGM that the voting rights in respect of Mr Kwok’s shares would not be counted at the EGM was unlawful, void and/or of no legal effect ([1] of the originating summons).

(2)  A final order that the 1^st to 4^th Defendants (all directors of the Company) and the Company be restrained from refusing to count the votes attaching to Mr Kwok’s shares ([2] of the OS).

(3)  A declaration that Mr Kwok’s shares be counted towards resolutions 1 to 5 and 7 (advocating removal of the current directors) and that the resolutions were duly passed ([3] of the OS).

(4)  A number of other declarations, which have subsequently been abandoned and it is not necessary to describe.

10.When the originating summons came on before me for trial[1] issues arose concerning:

(1)  Whether the originating summons procedure was appropriate for the final order sought in [1] of the originating summons given the underlying dispute between the parties, which the Defendants argue needs to be resolved before such an order can be made.

(2)  The role to be played by the Company in the trial and whether the evidence that it had filed should be struck out.

11.It was agreed that [2] of the originating summons should be adjourned.  Mr Wong explained that the Company’s evidence and intended role at the trial was directed to the relief that should be granted if the court found that Mr Chen’s decision that Mr Kwok’s shares should not be counted was unlawful.  I, therefore, directed, that I proceed to deal with the issues in the following order:

I.   First:

(1)  Did the Chairman (Mr Chen) have the power under article 74 of the articles of association to determine the objection to Mr Kwok’s votes being counted?

(2)  If so, was the determination final and conclusive?  This involves a consideration of different approaches to similar provisions in English and Australian authorities.  There are no Cayman cases on point.

(3)  Alternatively, was the Chairman’s power derived from the common law and challengeable on the grounds either that the Chairman made (a) an error of law or (b) took into account irrelevant matters or failed to take into account relevant matters, or if the decision is one which no reasonable chairman, properly directing himself as to his duties could have reached?

II. Second:

(1)  If the latter, did the Chairman make errors, which justified setting aside his decision?

(2)  If the former, had the decision been made in bad faith, which I understand it to be common ground, would whatever the source of the authority to determine the objection be a ground for setting aside the decision.

III. Third:

(1)  Assuming either of the Second class of issues were determined in Mr Kwok’s favour what relief should be granted.

12.Having heard counsel on the first class of issues on 27 and 28 August 2018, on 29 August 2018 I determined them in the Defendants’ favour.  Mr Sussex sought the adjournment of the second and third class of issues, an order that the action proceed as if begun by writ pursuant to RHC O 28, r 8 and directions for the continuation of the proceedings leading to a trial of the remaining issues.  This was not opposed by the Defendants and I made directions for the progress of the action leading to a trial commencing on 18 March 2019 with eight days reserved.  These are my reasons for the decision given on 29 August 2018.

Cayman Law — Introduction

13.The Company is incorporated in the Cayman Islands and the law of the Cayman Islands governs matters of its internal management.[2]  Mr Kwok, Mr Chen and the Company have all filed opinion evidence from Cayman lawyers[3] to assist the court to determine the legal issues to which I have had regard in determining the first class of issues.  To the extent that the court has to make findings of foreign law, the court is making a finding of fact.  However, the interpretation of a contract governed by foreign law is not a question of foreign law.  I was not addressed by counsel on this issue.  Particularly Mr Kwok’s legal team did not appear to appreciate this and a significant part of Mr Henderson’s evidence purports to tell the court how article 74 should be construed.  This evidence is inadmissible.  Similarly, in relation to the second of the first class of issue the experts’ views on how the issue should be determined is not admissible.  The relevant and admissible opinions are those on the principles of Cayman law, to which a court in the Cayman Islands would have regard in determining the issues.  The correct approach is described in Apple Retail UK Ltd and others v Qualcomm (UK) Ltd [4] by Morgan J:

“44 Both professors then stated their own opinions as to what the relevant provisions of the IPR policy meant and explained their reasoning. Mr Howard QC, on behalf of the Defendants, submitted that these parts of their reports were not admissible and I should attach no weight to them but I should form my own view as to the meaning of the relevant documents, applying the principles of French law for that purpose. He cited paragraph 9‑019 of Dicey, Morris & Collins, The Conflict of Laws, 15^th ed. The Fourth Cumulative Supplement of that work cites the case of Alhamrani v Alhamrani [2014] UKPC 37 at [19] in relation to paragraph 9-019 of the main work. That is a reference to part of the judgment of the Privy Council, given by Lord Clarke, which is in these terms:

‘19 The position is, as ever, put with clarity in Dicey, Morris & Collins on The Conflict of Laws, 15th ed, (2012) at para 9-019:

“The function of the expert witness in relation to the interpretation of foreign statutes must be contrasted with his function in relation to the construction of foreign documents. In the former case, the expert tells the court what the statute means, explaining his opinion, if necessary, by reference to foreign rules of construction. In the latter case, the expert merely proves the foreign rules of construction, and the court itself, in the light of these rules, determines the meaning of the documents.”

See also paras 32-143 to 145. The point was again put with clarity by Lord Greene MR in one of the cases cited in Dicey, Rouyer Guillet & Cie v Rouyer Guillet & Co Ltd [1949] 1 All ER 244 (CA) :

“I must make it clear that the evidence of French law is subject to a certain differentiation as between the evidence of the meaning of the law of 1925 and the evidence of the meaning of the articles. As I understand the law of England, evidence as to the meaning of the statute is to be obtained from the evidence of expert French witnesses and the decisions of the French courts. On a matter of French law the decision of a French court would be most persuasive. On the other hand, evidence on the construction of a private document, such as articles of association, is admissible so far as it deals with French rules of construction or French rules of law or the explanation of French technical terms, but evidence as to its meaning after those aids have been taken into account is not admissible. It is for the court to construe the document, having fortified itself with the permissible evidence.”

See also, to the same effect, two more recent first instance decisions: Svenska Petroleum Exploration AB v Government of the Republic of Lithuania [2005] EWHC 2437 (Comm), per Gloster J at para 29, and Toomey v Banco Vitalicio de Espana SA de Seguros y Reaseguros [2003] EWHC 1102 (Comm), per Andrew Smith J at para 37.’

45  Accordingly, although both sides to the present dispute tendered inadmissible evidence as to the meaning of the IPR Policy and the declarations, I will apply the law as stated in Alhamrani.”

14.That having been said I have read the opinions and in practice treated them as submissions: and they are, unsurprisingly, subsumed into counsel’s submissions in any event.

15.I would note that the Companies Court regularly finds itself faced with an erroneous approach to the introduction of opinion evidence on foreign law, commonly, the law of the Mainland.  One cause of the problem is that the parties do not give proper consideration to the application of part IV of RHC O 38.  If at the outset conventional directions were sought from the court for the introduction of opinion evidence it would tend to tease out issues such as that which I have just addressed, narrow the extent of the evidence and result in it being presented in a more succinct and digestible form.  Instead the court is frequently presented with affirmations exhibiting ‘reports’ prepared by foreign lawyers expressing opinions on the relevant law. Commonly they conflict and the court is invited to prefer one opinion over the other.  The experts have not met to agree as much as is possible and the parties do not tender them for cross‑examination. 

16.When this matter came on before me for a case management conference in March at which I made directions for the progress of the action to trial I assumed that the Cayman law evidence would be quite limited.  I was given no indication that I might receive, as proved to be the case, lengthy opinions exhibiting between them approximately 17 lever arch files of authorities.

Article 74

17.There is no dispute that the articles of association of a Cayman Islands company is contract between the company and its members and between its members or of the approach of the courts of the Cayman Islands to the construction of a contract.  It is convenient to quote Mr Henderson’s summary of the relevant principles, which I accept and find is an accurate summary of Cayman Islands law:

“In construing a provision in the Articles we must ask what the language used, viewed objectively, would mean to a reasonable member of the company (and thus discover his presumed intention upon adhering to the contract). This is a commercial contract so the appropriate standard is what Lord Steyn has described as that of the ‘reasonable commercial person’. His Lordship added: ‘And the standard of the reasonable commercial person is hostile to technical interpretations and undue emphasis on niceties of language’. There is a reluctance to apply to a company’s articles ‘those doctrines of contract law which might result in the articles subsequently being held to have a content substantially different from that which someone reading the registered documents would have understood them to have’. However, the implication of a term may be needed as ‘an obvious and necessary means of giving effect to the contract’. The Articles must be read so as to give them business efficacy, applying the ordinary principles of construction but having regard also to the rules of company law.”

18.It is Mr Chen’s case that he had the authority under article 74 of the Company’s articles of association to determine the objection to Mr Kwok voting his shares at the EGM.  Article 74 is in the following terms:

“ If:

(a) any objection shall be raised to the qualification of any voter; or

(b) any votes have been counted which ought not to have been counted or which might have been rejected; or

(c) any votes are not counted which ought to have been counted;

the objection or error shall not vitiate the decision of the meeting or adjourned meeting on any resolution unless the same is raised or pointed out at the meeting or, as the case may be, the adjourned meeting at which the vote objected to is given or tendered or at which the error occurs.  Any objection or error shall be referred to the chairman of the meeting and shall only vitiate the decision of the meeting on any resolution if the chairman decides that the same may have affected the decision of the meeting.  The decision of the chairman on such matters shall be final and conclusive.”

19.It is argued on behalf of Mr Chen that on its proper construction the chairman is authorised to decide whether the votes of a shareholder should be excluded for the purposes of determining whether a resolution has been passed.  In other words the chairman is authorised to determine whether there is sufficient substance to the objection to justify excluding a shareholder’s votes.

20.It is argued on behalf of Mr Kwok that article 74 only authorises the chairman to determine whether, if an objection is upheld, it will alter the result of a vote on a resolution.  Mr Kwok accepts that at common law the chairman has the authority to determine the substantive issue of whether or not an objection justifies excluding a shareholder’s votes, but that such a decision is reviewable by the court: the second of the first class of issues.

21.Sub-paragraph (a) is most relevant to the objection that Mr Chen was called upon to determine.  How would a reasonable commercial person hostile to technical interpretations and without undue niceties of language, be likely to read article 74 as applying to an objection under sub-paragraph (a)?  In my view the answer is clear.  The first part of the final paragraph, “the objection… shall not vitiate the decision of the meeting… on any resolution unless the same is raised or pointed out at the meeting…” means that an objection should be raised at the relevant meeting and if it is article 74 is engaged.  The objection was raised at the EGM.

22.The penultimate sentence reads: “Any objection… shall be referred to the chairman of the meeting and shall only vitiate the decision of the meeting on any resolution if the chairman decides that the same may have affected the decision of the meeting.”  An objection will only vitiate a resolution if (1) it is upheld and (2) having been upheld results in a resolution that would otherwise have been passed being rejected or vice versa.  Consequently article 74 is to be read as authorising the chairman to decide the objection not just the possible impact the objection might have on the numbers cast in respect of a resolution.  It seems to me that this is clear and that it is the interpretation the hypothetical reasonable business person would be likely to put on article 74.

23.Although it seems to me that the construction of article 74 poses no difficulties I will address the arguments advanced on behalf of Mr Kwok for reading it differently.

24.First, it said that the correct approach is to first ask whether as a matter of Cayman law the chairman has a right at common law to disregard the votes of shareholders at a general meeting.  It does not seem to me that there is a material difference between the experts that such a power exists.  It is then argued that one moves onto the next question, which it is contended is:  “in the light of the chairman’s power at common law” does the right to disregard votes arise from article 74.  I note that Mr Henderson does not suggest that this is the way the construction of article 74 should be approached and this was not the way the questions were formulated for him to consider.  In my view it is wrong.  The starting point is to consider how article should be construed and, as the question put to Mr Henderson assumes, if the answer is that article 74 does not empower the chairman to disregard votes, one then moves to consider what rights exist as a matter of common law.

25.Secondly, it is suggested in [21] of the Plaintiff’s written opening that Mr Chen does not dispute that article 74 does not expressly confer on the chairman any power to disregard a member’s right to vote.  The suggestion is based on the assumption that in his evidence Mr Lowe accepts this.  As I have already mentioned what the experts’ think the article means is inadmissible and irrelevant.  In any event Mr Lowe does not say this expressly and it seems to me that it is not a fair reading of his evidence.  This submission was, however, advanced in answer to the suggestion in Mr Lowe’s evidence that if article 74 did not give the chairman an express right to decide the substantive objection it could be implied.  Mr Maurellet did not advance this argument and, therefore, I do not need to deal with it further.

26.Thirdly, Mr Sussex argued that the decision of the chairman referred to in the penultimate sentence of article 74 is whether because of the number of votes potentially affected the objection makes any difference.  It was argued that this power was necessary, and thus gave article 74 a utility which it might otherwise appear to lack, because of English authorities that the court would not intervene to address the correctness or otherwise of a decision unless the decision made a difference.  I will address the English authorities in the next section of this decision.  For present purposes it is suffice to say that clearly one does not need article 74 to demonstrate that an objection would or would not make a difference.  It is a matter of simple arithmetic.  There is nothing in the authorities to suggest that unless evidence that an objection would make a difference consists of arithmetic undertaken pursuant to an express provision of the articles the evidence is inadmissible and thus it is not possible to prove that the objection made a difference.

27.In my view the construction of article 74 advanced on behalf of Mr Kwok would deprive article 74 of utility.  I find it difficult to see how it can sensibly be suggested that that the hypothetical commercial person would think the construction advanced on behalf of Mr Kwok is a credible reading of the article.  On the contrary it invites the question: why if the drafter thought it necessary to include an article dealing with the narrow and straightforward question of numbers would he not have dealt with the more substantial question of the determination of the objection itself? Self-evidently in my view one would expect the articles to contain a mechanism that allowed the chairman to decide at a meeting the substantive objection and introduce certainty into the status of a resolution, which Mr Sussex accepted in argument was an important consideration.  It seems to me that the natural reading of article 74, mindful of this consideration and the fact that all parties agree that the drafter provided a provision to address the impact of objections on the numbers of votes cast, is that the chairman can decide both the substantive objection and its possible impact on the voting in respect of a resolution.  In practice one would expect the chairman to consider whether the numbers involved are sufficient to make any difference to the result of a vote.  If they do not he might decide not to spend time and invite controversy by deciding the substantive issue; but if it does make a difference article 74 empowers him to do so.

28.Mr Kwok’s final argument was that if I were to conclude that article 74 is open to both constructions, the rules of construction require it to be construed in the way which is the more reasonable.[5]  Mr Sussex argued that the construction he advances is the more reasonable and, therefore, should be preferred.  In my view article 74 is not open to two constructions.  The construction advanced on behalf of Mr Kwok is strained and artificial.  There is no need or justification to rely on this rule.  Further, for reasons explained in the next section of this decision, in my view the result of both constructions are reasonable ways of dealing with objections of the sort arising in the present case, therefore, the rule of construction would not provide any assistance in determining which was to be preferred if I had thought that they were roughly equally plausible readings of the article.

Is article 74 final and conclusive?

29.The final sentence of article 74 provides that “The decision of the chairman on such matters shall be final and conclusive”.  It is common ground that that if the decision was reached in bad faith the court can intervene and set the decision aside.  It is Mr Kwok’s case that even if I find, as I have, that article 74 applies to Mr Chen’s decision I should go onto find that the decision is not final and binding for the reasons I shall explain in the following paragraphs.  As in the case of the construction of article 74 the experts have assumed, erroneously, that their views on the question the court is asked to determine is admissible evidence.  It is not.  I am only concerned with their opinions on the relevant principles.  It would appear that there are no relevant Cayman authorities.  Although I have read the expert evidence and had regard to it, it has been of limited assistance as it does not purport to identify the relevant principles. They are arguments advanced on behalf of the parties. 

30.I shall start with a consideration of the English authorities.

31.The earliest decision is that of North J in the Chancery Division in 1899 in Wall v London and Northern Assets Corporation[6] in which the chairman had declined to disallow a vote to which objection was taken.  The relevant article was number 63:

“No objection shall be made to the validity of any vote excepting at the meeting at which such vote shall be tendered, or at the meeting (if any) to which such meeting shall be adjourned in the regular course of business, and every vote, whether given in person or by proxy, not disallowed at any one of such meetings, shall be deemed valid for all purposes whatsoever.”

32.As is normal in decisions of this vintage the reasons are brief and it is convenient to quote them in full:

“The article in question is not of very general application; it does not go to the extent of making the chairman’s decision final as to a resolution being passed. If he made a mistake in counting, for instance, the article would not apply. All the rule says is that any objections to votes are to be taken at the meetings, ‘and every vote not disallowed at any one of such meetings shall be deemed valid for all purposes whatsoever.’ That is the same as ‘shall be valid,’ or ‘shall be treated as valid.’ I do not agree with the suggestion that such a provision, if it precluded the admission of evidence that the decision of the chairman was mistaken, would apply even in a case of fraud: Young v. South African and Australian Syndicate. Any fraudulent ruling would, I have no doubt, be vacated by a competent Court. If in this case fraud in counting votes could have been shewn, the resolution could not stand. But the utmost that can be said in this case is that the chairman has taken an erroneous view as to the validity of some of the votes. In my opinion, the meaning of the article is that all objections to votes at a meeting must actually be taken and dealt with at the meeting, and the decision as to their validity by the person who presides is to be final on that point. The only difficulty I felt was as to whether the article could not be construed to mean merely that all proceedings founded on the chairman's ruling as to votes are to be deemed valid when they are not challenged by legal proceedings. But I do not think I can come to the conclusion, on the actual words of the article, that the meaning is to be so limited. The motion must be refused.”

33.A decision not to disallow a vote to which objection had been raised at a meeting was treated as final and only open to challenge in the event of fraud.

34.In Wall v Exchange Investment Corporation, Limited,[7] the Court of Appeal reached the same decision.  The relevant article was number 58, but it was in the same terms as the article considered in the earlier decision.  The chairman of the meeting had also declined to disallow a vote to which objection had been taken.

35.Both Pollock MR and Warrington LJ agreed with North J’s reasoning.  Sargant LJ also agreed with the reasoning of North J, but made the following comments on what might be the position if the chairman had disallowed a vote:

“It is obviously desirable that questions of this sort should be determined in a summary way and without the necessity of coming to the Courts. Mr. Swords says that, according to the terms of this article, if the chairman had disallowed a vote, his decision is not conclusive. It may well be that in the case where a vote has been disallowed, the shareholder whose right has been impeached to that extent should have a right to apply to the Courts. Here, all that is done is to take away from a shareholder a right of appeal against a decision disallowing an objection by him against the votes of some other shareholder, and it seems to me quite reasonable that such a question should be allowed to be decided summarily and finally by the chairman, although there should not be the same summary and final effect given to a decision against the right of a shareholder to vote.”

36.Mr Sussex argued that this suggests that a different approach might be taken if an article empowered a chairman to disallow a vote, as I have found article 74 permits.  Sargant LJ does not explain on what basis the court could disregard a decision of a chairman to exclude a vote, absent fraud, if the article empowers him to do so and provides that the decision is final and conclusive.  For reasons discussed more fully in [42]–[43] it seems to me that the court could not.  It also seems to me that the distinction drawn by Sargant LJ between a decision that disallows an objection to votes being counted and a decision that allows an objection and results in votes not being counted is erroneous.  Both decisions impact on the relevant right, namely, the right to have resolutions put to members determined by votes lawfully cast.  A decision to allow votes cast in the face of objection resulting in a resolution being passed that if the objection had been upheld would have been rejected is in my view not materially different in character or content from a decision to disallow a vote with a similar affect.

37.I note in passing that in an earlier case, Colonial Gold Reef Ltd v Free State Rand Ltd [8] Sargant J (as he then was) held that a challenge to a decision by the chairman under the same article could not be sustained.  In that case the chairman had disallowed votes of the plaintiff and allowed votes cast by a proxy who it appeared did not meet the qualification for a proxy, namely, being a member.  The objection was raised after the meeting.  There is no suggestion that the approach would have been different if the decision to disallow votes had been challenged.

38.As I have mentioned more recent authorities in Australia and New Zealand have taken a different approach

39.In Industrial Equity Ltd v New Redhead Estate & Coal Co Ltd,[9] the chairman disallowed some proxies, which it was argued should have been allowed, and allowed other, which it was argued should not have been allowed.  Article 67 (the complete text of which does not appear in the report) provided that in “the case of any dispute as to the admission or rejection of a vote the chairman shall determine the same and such determination made in good faith shall be final and conclusive.”  It is relevant in my view that Street J seems to have taken the view that a genuine determination was not undertaken by the chairman and I would have thought it would have been possible to challenge the purported decision on the grounds that it was mala fides.  However, Street J did not approach the matter in that way, although it may be that it influenced his reasoning.

40.Street J found in respect of this provision:

“This provision is to be considered in the background that s. 141 of the Companies Act 1961, as amended, confers a statutory right upon every member of a company to attend and vote by proxy. This statutory right is, of course, subject to regulation by the terms of the company’s articles. But the regulatory effect of the articles cannot be permitted to frustrate the statutory right of a shareholder. A right to lodge a vote by a proxy is no longer (as it was before the 1961 Act) purely a creature of contract as set forth in a company’s articles.”

41.The statutory right to vote by proxy contained in s141 of the Companies Act 1961 to which Street J refers provides in sub-section (1):

“Proxies. (1) Subject to subsection (2) of this section, a member of a company entitled to attend and vote at a meeting of the company, or at a meeting of any class of members of the company, shall be entitled to appoint another person (whether a member or not) as his proxy to attend and vote instead of the member at the meeting and a proxy appointed to attend and vote instead of a member shall also have the same right as the member to speak at the meeting, but unless the articles otherwise provide a proxy shall not be entitled to vote except on a poll.”

42.It would appear that Street J accepted that article 67 provided for a final determination.  He does not suggest that the Companies Act contained an express prohibition of an article purporting to restrict a person who is a member of a company exercising voting rights derived from the shares in the way, for example, that section s462(1) of the Companies Ordinance, Cap 622, provides that the articles cannot restrict the right of members to remove a director by ordinary resolution.  It is unclear precisely what Street J means by the “regulatory effect of the articles cannot be permitted to frustrate the statutory right of a shareholder” to vote by proxy.  It may be that if an article purports to exclude the statutory right altogether it is unenforceable on the grounds of public policy.  I have not been addressed on this.  Unless an article is unenforceable on grounds of public policy, it is unclear to me on what basis the court can properly decline to enforce it.

43.Mr Sussex argued that the right to vote was a component of the property right represented by shares[10] in the Company and the Chairman’s decision was an interference with the exercise of that right of property.  As I understand the argument it reasons as follows:  First, that it follows that if a determination under articles 74 is final and conclusive, the article frustrates a statutory right and, following Industrial Equity, is objectionable and should not be enforced.  This seems to me wrong.  There is nothing inherently objectionable in a shareholder restricting the exercise of his rights arising from a shareholding.  Shareholders regularly do this when they charge their shares.  It is also not unusual for shares to be acquired on terms that include restrictions on voting rights.  An example can be found in Re Bank of East Asia Ltd.[11] I cannot see anything inherently objectionable in the members by the statutory contract represented by the articles of association agreeing to regulate the process by which the company in general meeting comes to pass resolutions.  It is important here to understand what articles 74 is empowering the chairman to do.  The chairman decides whether a vote should or should not be counted for the purposes of determining whether a resolution has been passed.  The chairman is not determining any underlying dispute, which has given rise to an objection on which he is called to rule.

44.This brings me to the second component of the argument. Mr Sussex argues that the Chairman was deciding the substantive objection.  The transcript records the Chairman as saying “But I have to say at this point, based on everything I have read, especially what this morning, I have to exercise my articles 74 right.  If any of the shares are deemed questionable, I have to void these shares for allowing to vote for the rest of the resolutions.  And with this decision, I deem that to be final and conclusive.  So I also advise Tricor by excluding shares of those proxies including any of the parts here represented directly or indirectly.”  As I have already observed the transcript does not appear to be very accurate and it does not seem to me clear what the Chairman thought he was doing other than disallowing Mr Kwok’s votes.  However, it seems to me that nothing material turns on this when it comes to deciding precisely what decision is final and conclusive under article 74.  In my view, it is whether the votes attaching to particular shares should be admitted for voting purposes at a particular general meeting.  The issue would need to be revisited at each meeting at which the same objection is raised and the chairman would have to determine it on the basis of the information before him at that time.

45.Understanding what is being decided in my view helps explain why there is nothing objectionable in the members agreeing in the articles that in the event of a dispute about whether votes should be recognised the chairman should make a final and conclusive determination, subject to exceptional circumstances, a subject to which I return in [50].  It is desirable, especially in the case of a public company, that so far as possible that following a general meeting there is certainty and finality about the status of resolutions put to members.  If a member aggrieved either by having votes allowed or disallowed can come to court and argue that the decision was in error the general body of members and third parties will be faced with uncertainty.  I note that it is difficult to see why if fettering the right to object to a decision is objectionable, prohibiting an application to set aside a decision to cases in which, if the article so provides, an objection is raised at the meeting should not also be objectionable.  If the grounds for rejecting a provision that provides finality is that this is an improper restriction on an aggrieved party’s rights to seek the assistance of the court, it seems to me far from clear why a member who was not at a meeting personally or only became aware of material matters after the meeting, should not be permitted to seek the court’s intervention if the facts justify it.

46.In ANZ Nominees Ltd v Allied Resources Corporation Limited [12] the plaintiff sought a declaration that certain special resolutions passed at a general meeting of the members of the company were invalid by reason of the chairman of the meeting disallowing the plaintiff’s votes through its proxy.  The relevant article reads as follows:

“Article 71: if a poll is demanded as aforesaid it shall be taken in such manner and at such time and place as the Chairman of the meeting directs and either at once or after an interval or adjournment or otherwise and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The demand of a poll may be withdrawn in case of any dispute as to the admission or rejection of a vote the Chairman shall determine the same and such determination made in good faith shall be final and conclusive.”

47.O’Bryan J says this at pages 12 and 13:

“ I shall now move to the third issue. The question of whether the Chairman’s determination made in good faith pursuant to Article 71 shall be final and conclusive is challenged by Mr. Hayes. The Article read literally operates to oust the jurisdiction of the courts to correct an error of law if made in good faith. The expression ‘in good faith’ in the context of Article 71 means if done honestly and without ulterior motive. There is no material before the Court to suggest that the Chairman’s ruling was made dishonestly or with an ulterior motive notwithstanding that his decision produced a favourable result from the company’s viewpoint.

In these circumstances can the Court intervene to correct the consequences of an erroneous view as to the validity of the plaintiff’s proxy?  The tendency since the Anisminic case in Administrative Law is for courts to rule that their jurisdiction is not ousted, notwithstanding an ‘ouster’ clause in legislation, if error of law causing an injustice is demonstrated.  Anisminic v. Foreign Compensation Commission (1969) 2 A.C. 147.  Be that as it may, I am required to consider the legal effect of an article in Articles of Association which bind members of the company as in a contract.”

48.There is then reference to the English authorities and a discussion of Industrial Equity Ltd v  New Redhead Estate & Co Ltd:[13]

“ The Industrial Equity case is persuasive authority and the reasoning gives effect to the statutory importance of S.245.

The contract between members and the company in the present case expressed in the Articles provided that the Chairman may determine any dispute as to the admission or rejection of a vote and that a determination made in good faith shall be final and conclusive. That is a necessary and useful provision which can regulate the conduct of a meeting. However, members of the company did not, indeed could not, agree to forego a right conferred by statute to vote proxy. Nor did the members agree not to appeal against a ruling which, although made honestly by the Chairman, was plainly wrong in law and operated to deprive a member of voting rights. The jurisdiction conferred on the Chairman by Article 71 is to regulate the conduct of a meeting and to give rulings within jurisdiction. A ruling which is wrong in law is ultra vires.

… A Chairman who makes an error of law which deprives a member of the statutory right to vote proxy may also be corrected by the courts for technical misconduct. In the present case the Chairman ruled a proxy invalid for a reason wrong in law, in my opinion, and thereby repudiated the plaintiff’s right to vote proxy. In these circumstances, the court may itself investigate and determine the validity of the proxy.

In my opinion this court may act to set aside an erroneous determination of a Chairman and correct an injustice which would otherwise follow.”

49.It seems to me that this analysis is subject to the same difficulties that I have identified when considering Industrial Equity. In my view it does not provide persuasive reasons for concluding that it is impermissible for an article such as 74 to be final and conclusive, subject to what I have to say in the next paragraph.

50.It is common ground that the Chairman’s decision can be challenged on the grounds of bad faith.  What I have not be asked to decide, and I invited Mr Sussex to consider arguing at the next hearing, is whether the finality of the decision prevents a challenge on the grounds that it is unreasonable in the Wednesbury sense or something similar.  It seems to me that a qualification to finality on the grounds that it cannot have been intended to extend to serious errors is a more principled and coherent explanation for restricting finality than those advanced in the two decisions that I have just considered.

51.There is a further reason for giving more weight to the agreement contained in the articles than can be found in the Australian authorities, namely, party autonomy.  If members agree to a particular method for regulating the business of the company then in my view I would generally expect the agreement to be respected and enforced.  As the authors of Company Meetings and Resolutions[14] note in a discussion of the different approaches to be found in the Australian and English authorities:

“The authorities that are discussed above from Australia and New Zealand do appear to provide a sensible and reasoned approach to the problem, justifying the intervention of the court when a strict and literal application of the articles would lead to the chairman’s erroneous decision being upheld, perhaps to the acute disadvantage of the shareholders and the denial of their legal and statutory rights. However, in view of the current trend in English law favouring methods of alternative dispute resolution which restrict access to the courts, it may be doubtful that these authorities, although persuasive on their reasoning, would be followed by an English court. It is suggested that the court in England following the precedent set by the Wall cases, is likely to rule that the chairman’s decision on the validity of votes, when taken in good faith and at the correct time, is final and binding. Accordingly, it remains the position that an English court will require cogent evidence of fraud or bad faith before it will be prepared to set aside the chairman’s ruling.”

52.I have no evidence of the weight given by the courts of the Cayman Islands to party autonomy.  It seems to me, unsurprisingly perhaps given Hong Kong law[15], that this is a material consideration and one to which no consideration seems to have been given in the Australian authorities.  In my view it weighs in favour of upholding the finality of a Chairman’s decision.

Conclusion

53.For these reasons in my view Mr Chen’s decision on 29 December 2017 was final and conclusive unless Mr Kwok can demonstrate either that it was reached in bad faith or it is demonstrated that the court should intervene for the reasons referred to in [50]

54.I will reserve the costs.

Mr Charles Sussex SC, Ms Frances Lok and Mr Vincent Chiu, instructed by Clifford Chance, for the plaintiff

Mr José-Antonio Maurellet SC, Mr Jason Yu and Ms Jasmine Cheung, instructed by Charles Chu & Kenneth Sit, for the 1^st defendant

Mr William Wong SC, Mr Michael Lok, Mr Lai Chun Ho and Ms Sharon Yuen, instructed by Charles Chu & Kenneth Sit, for the 5^th defendant