Whc Ltd t/a Wine High Club and Others v. Hong Kong Wine Chamber of Commerce Ltd and Another
Read the full judgment text of HCMP 758/2019 on BabelCite. This High Court CFI judgment was delivered on 24 October 2019.
1. The plaintiffs are members of the 1 st defendant company (“Company”). The proceedings have been brought by them to challenge certain resolutions (“Challenged Resolutions”) passed at the annual general meeting (“AGM”) on 18 February 2019, which related to the appointment of 15 new members (“New EC”) of the Company’s Executive Committee (“EC”). The plaintiffs argue that the Challenged Resolutions were and are invalid, and seek declarations accordingly.
Cited by 2 cases · Cites 7 cases
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HCMP 758/2019 [2019] HKCFI 2548 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 758 OF 2019 ________________________
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___________________ J U D G M E N T ___________________ A. Introduction 1.The plaintiffs are members of the 1st defendant company (“Company”). The proceedings have been brought by them to challenge certain resolutions (“Challenged Resolutions”) passed at the annual general meeting (“AGM”) on 18 February 2019, which related to the appointment of 15 new members (“New EC”) of the Company’s Executive Committee (“EC”). The plaintiffs argue that the Challenged Resolutions were and are invalid, and seek declarations accordingly. 2.The 2nd defendant (“Ho”) opposes the application and contends that the election and appointment of the New EC was and remains valid. Ho counterclaims for declaratory and injunctive relief in relation to activity conducted by previous members of the EC (“Old EC”) since the date of the AGM. 3.It can be noted at once that the plaintiffs’ challenge is not to the validity of the entire AGM, but just to the validity of the election and appointment of the New EC. The main thrust of the complaint is that, when acting as Chairman at the AGM, Ho exercised his powers unreasonably and unlawfully by using an inaccurate list of members, which contained persons not eligible to vote and excluded persons who were eligible to vote. Hence, it is said that the AGM was “rigged”, and the irregularities meant that the Challenged Resolutions did not reflect the will of the majority of the members who attended the AGM. 4.Mr Richard Yip (assisted by Ms Tara Liao) was Counsel for the plaintiffs, and Mr Joshua Kanjanapas Wong was Counsel for Ho. The matter was argued over a full Court day. I wish to record that both Mr Yip and Mr Wong argued their cases demonstrating considerable oral advocacy skills. B. Factual Background 5.Most of the factual matters are not in dispute. What is in dispute is what to make of those facts on the application of the appropriate principles of law. 6.The Company is limited by guarantee and was incorporated in Hong Kong in May 2014. Essentially, its objects are to promote the wine industry, business and trading in Hong Kong, as well as to promote Hong Kong as a hub for the global wine business. 7.All of the plaintiffs, except the representative of the 3rd plaintiff, were members of the Old EC prior to the AGM. Ho was also a member of the Old EC, and was its Chairman (or President). 8.From March 2017, Antony Li was employed as the Secretary to the Company. Amongst his duties was maintaining the Register of Members of the Company. The version of the Register of Members provided in the evidence for this hearing, and dated as at 18 February 2019, has 338 members listed. 9.The Company has Articles of Association (“Articles”) with provisions material to present considerations.
10.In passing, I would note that there is an apparent conflict between Article 37(a)(ii), which identifies the election of the EC at each AGM, and Articles 20 and 22 which identify that other than until the close of the Company’s second ever AGM, the term of the Executive Committee shall be for three years. This apparent conflict is not material for present purposes, and it seems that the practice has been to follow the annual election of an EC under Article 37(a)(ii). 11.Notwithstanding the terms of Article 7, a practice developed whereby applications for new membership were not formally considered and approved by the EC. In the evidence produced for the hearing, there are minutes of an EC meeting dated 22 November 2016, which simply noted under the heading “New Members” that “A total of two new members in the month of October 2016”. There is also the agenda for a meeting dated 4 October 2018 with item 3 headed “Secretary’s report” and stating “3.1 Antony report the working progress (from July to September has 9 new members). 3.2 List of new members ...”. This is to be distinguished from another part of the agenda which identifies matters for discussion. 12.How best to describe that apparent developed practice, and the legal consequences of it will be considered elsewhere. Nevertheless, there is a mismatch between those minutes and agenda and the Register of Members. The Register does not identify any members having joined in October 2016, nor any with a joining date between July and September 2018. Of the nine new members said to have joined in that period, who can be identified from some accounting documents, seven are recorded as having a joining date of December 2018, and two are recorded as having a joining date of June 2018. 13.At the meeting of the Old EC on 14 January 2019, the matters resolved included that the Company would waive the 2018 annual membership fees, the AGM would be held on 18 February 2019 at 4pm at which members for the New EC would be elected, and a sub-committee (“Sub-Committee”) would be set up to prepare for the AGM. In the evidence there was some argument as to whether the Sub-Committee was properly called the “election sub-committee” or the “preparation sub-committee”, but that label seems to me to be irrelevant; what is important is what it was entrusted to do. The Sub-Committee members used a WhatsApp chat group, and comprised Gary Wan and Andrew Ho of the plaintiffs’ ‘camp’ and Patrick Chow of Ho’s ‘camp’, as well as Jackel Ho. 14.Following the meeting of the Old EC on 14 January 2019, Antony issued invoices to all members of the Company for the annual membership fees for the year 2019. On 25 January 2019, Antony sent out a notice of the AGM to members. There is no dispute that proper notice was given, and the AGM was properly called, and in due course commenced. 15.At its meeting on 30 January 2019, the Sub-Committee resolved that “the deadline for all membership applications, application for election and registration of proxy would be on or before 6pm on February 11, 2019”. That decision was circulated to the Old EC members via a WhatsApp chat group used for communication amongst all its members. Seven members of the old EC, including Ho, indicated agreement or no objection to the proposed arrangement. 16.Between the date of the Old EC meeting on 14 January 2019 and the deadline of 11 February 2019, there were applications for new membership from 77 persons or bodies (“the 77 New Members”). From the evidence, it seems that their names were entered into the Register of Members by Antony, all on 11 February 2019. It also seems the new membership subscription fees which accompanied the applications for new membership were all banked on or by11 February 2019. 17.Ho asked to see the Register of Members on 11 February 2019, and though Antony was initially reluctant to show it to him (or, he says, to any other member of the EC) Ho did see it, and made a copy of it. Ho did not explain in his evidence why he chose to look at the Register on that day, but it seems unlikely to be a coincidence that that was the date of the deadline set by the Sub-Committee, of which he had been informed and to which he had signified agreement. At that point in time, Antony had only entered a few of the new membership details, which he continued to enter and completed only later in the day. Therefore, Ho could not have known of the sudden influx of intended new members just in advance of the deadline. 18.Though it is probably not fair to describe the sudden influx of the 77 New Members as a coup d’état (which was Mr Wong’s submission), I do accept that this was a very large number of applicants for membership, wholly outside what the evidence shows as the normal incidence of such applications, apparently engineered by one ‘camp’, deliberately not disclosed to and probably deliberately concealed from the other ‘camp’. 19.The Company’s usual honorary accountants/auditors, CCT & Partners CPA Ltd (“CCT”) were asked to verify and compile a list of all members entitled to vote at the AGM. CCT provided its voting rights report (“VRR”) on 14 February 2019. It is headed “Report of Factual Findings to the Executive Committee”, and identifies that CCT had performed the procedures agreed and enumerated in the VRR with respect to verifying the members list with voting rights for the AGM on 18 February 2019. CCT made no representation regarding the sufficiency of the procedures described either for the purpose of the VRR or any other purpose. CCT also identified that it was for the EC and other intended users to assess both the procedures and its factual findings to determine whether they provide, in combination with any other information the EC had obtained, a reasonable basis for any conclusions which the EC wished to draw on the subject matter. 20.On its face, therefore, the VRR specifically identified that CCT’s conclusions were simply based on what it had been asked to do, but what it had been asked to do and the results would need to be considered by the EC and anyone else in deciding whether they form the reasonable basis to draw any conclusions. 21.The procedures performed by CCT were described as follows:
22.Based on the information and documents made available to CCT, the report of CCT’s findings was as follows:
23.The Appendix to the VRR (“Verified List”) set out the 160 members which CCT identified as being eligible to vote at the AGM. They are set out in alphabetical order but there is no indication which of the companies were pre-existing or new members. In fact, 77 of the 160 were the 77 New Members. 24.A firm of solicitors was also instructed to cross-check the proxy forms with the Verified List as against the deadline of 11 February 2019. On 15 February 2019, they reported (“Proxy Report”) to the Old EC that there were 105 valid, and 36 invalid, proxy forms. 25.On 15 February 2015, Antony sent an email to all members enclosing the VRR and the Proxy Report. 26.On 17 February 2019, the Sub-Committee identified and designated certain key responsible persons for the election process at the AGM, including an election ‘host’, vote scrutineer, vote count helpers, recording secretary and registration helper. The list of these persons was notified to the Old EC. No one took issue with that list before the AGM, except that on the morning of 18 February 2019 (the day of the AGM), Ho sent a WhatsApp message to the Sub-Committee identifying that as President of the Company, and under Article 36(j), he was authorised to hold the AGM and would like to appoint different persons to serve different functions in the AGM. It is the plaintiffs’ complaint that he appointed persons from his own ‘camp’, and therefore “unilaterally” took control of the electoral process. 27.The AGM took place in the afternoon of 18 February 2019. The divisions between the two ‘camps’ was evident from the start, when the plaintiffs’ ‘camp’ and Ho’s ‘camp’ set up two different counters for registration. The plaintiffs used the Verified List based on the VRR and Proxy Report. Ho used a different list, apparently based on the list of 253 members identified as such in a Company publication, being a booklet titled “Hong Kong Wine Chamber of Commerce 7th Anniversary 2017-2018”. The plaintiffs say 48 persons attended in person, and 86 by proxy, totalling 134. Of those 48 persons, 8 were new members not appearing on Ho’s members list. 28.The first three items on the agenda for the AGM passed without untoward incident. But when it came to the election of the New EC, significant disagreements surfaced. Ho has produced as an exhibit to his evidence the Chinese language statement which he says he read out at the AGM to explain the basis of determining the eligibility of members to vote. In essence, he referred to Article 7 requiring membership applications to be approved by the EC before the applicant becomes a valid member of the Company; the waiver of the 2018 annual membership fees; the invoices issued to all members for the 2019 annual membership fees; Article 38(a) which requires payment of all monies due from a member in order for him to be entitled to vote at a meeting; and that the VRR contained 77 cases of new member applications made after the last EC meeting on 14 January 2019, which could not have been approved by the EC under Article 7, so that they were not eligible to vote at the AGM. 29.Disagreement as to the use of Ho’s membership list as opposed to the VRR led 30 persons who were in personal attendance at the AGM, together with 86 attending by proxy, to leave the AGM in protest. (A suggestion previously made that there was an immediate calling of an EC which resolved to adjourn the AGM is no longer pursued, and I do not consider that point any further.) 30.Ballot papers were issued to the remaining members. 30 members voted at the EGM in the EC election. Ho has subsequently compiled a list of those members to demonstrate that all were in fact members who had paid their subscription fees, so were eligible to vote. I do not think it is in dispute that they were indeed eligible to vote. 23 out of the 30 also appear on the Verified List. I also do not think it is in dispute that the number of members remaining at the AGM continued to provide a quorum for the proper conduct of business at the AGM. 31.The votes were counted under scrutiny by the persons appointed by Ho, and 15 persons were elected to the New EC. This voting is what constitutes the Challenged Resolutions the subject of the plaintiffs’ claim. The limit of membership of the EC is 15, so no member could vote for more than 15 candidates. Mr Wong’s analysis has identified that each of the 15 elected members of the New EC received at least 25 votes, whereas the next highest number of votes was 2, received by the individual behind the 1st plaintiff, the main deponent for the plaintiffs. It is clear that those who became the members of the New EC stood and were elected en bloc. 32.The Old EC, or at least those in the plaintiffs’ ‘camp’, did not accept the result of the Challenged Resolutions. They therefore opposed the New EC’s attempt to change the records at the Company Registry to reflect the particulars of the new directors. An impasse has been reached because the Company Registry has returned the Form ND2A pending resolution of the dispute between the parties. The Old EC has also continued to issue statements in the name of the EC of the Company, and on 1 March 2019 held a meeting at which they resolved to remove Ho as a member of the Company. It is these matters which have triggered the declaratory and injunctive relief sought by Ho. C. The Issues 33.The plaintiffs make their claim on three main bases. First, they say that Ho’s decision to use his own member list is at the very least Wednesbury unreasonable, if not in bad faith. Secondly, they say that the 77 New Members were wrongfully excluded from attending and voting at the AGM. Thirdly, they say that Ho’s unilateral removal of key personnel designated by the Sub-Committee and replacement with his own personnel was in breach of the Articles and unlawful. 34.Ho denies all averments made against him, but also says the case is not one where the Court would or should interfere to require the AGM election to be held again. D. Legal Principles D.1 Contract on Articles of Association and Membership 35.A company’s articles of association provide a contract under seal amongst its members, enforceable by one member against the company and each other member. 36.Members of a company exercise their powers in general meetings and express their will by a simple majority of votes (or such other majority as may be prescribed by the company’s articles of association). In general, in the exercise of a member’s voting right, which is a proprietary right, the member owes no duty to anyone other than himself and may vote in his own self-interest. D.2 Establishing Membership 37.In determining the membership of the company, the starting point is section 112 of the Companies Ordinance, which provides in subsection 112(3) that any person who agrees to become a member of a company and whose name is entered, as a member, in the company’s register of members is a member of the company. Nevertheless, in the absence of a proper and reliable register of members, the burden is on the applicant to satisfy the court that the requirements for admission as a member under the articles are complied with. In consideration of that question, the court will take into account primary facts established by direct evidence as well as facts supported by such inference as it considers might properly be drawn. 38.But where membership in a company is different from a contractual relationship between contracting parties, instead creating a relation between members who are otherwise not in a contractual relationship with one another, the question arises as to whether the principle of estoppel can be applicable. DHCJ To considered this question in Hong Kong Racing Pigeon Association Ltd v Lam Koon Nam [2002] 3 HKLRD 133, on which Mr Wong relied. There, the Deputy Judge held (at §23) as a matter of law that the principle of estoppel cannot be extended to membership in a company, as to hold otherwise would enable members or directors who are not members of a company, to rewrite the articles of association without having to comply with the articles of association or the Companies Ordinance. 39.The case related to the circumstances under which a person could qualify as a member under one of the articles of the company. DHCJ To identified (at §8) that, under the relevant article, a person could only qualify as a member if: (1) his membership was proposed by at least two existing members; (2) the Board of Directors formed an opinion that his admission is in the interests of the objects of the Association; (3) the board issued a notice of acceptance to membership; (4) he paid the entrance fees within the time stipulated in the notice of acceptance; and (5) his name was entered in the register of members. 40.On the facts of the case, certain purported members had not satisfied those qualifications. But, it was argued that a convention or practice had arisen that an applicant could join the Association by filling in an application form and paying the annual subscriptions, and this practice had been known to all, without anyone raising complaint since the Association’s inception. DHCJ To held (at §16) that the first three conditions for an estoppel by convention to arise had been satisfied, namely that there was a common mistaken assumption by both parties as to the existence of a state of affairs or as to the construction of a document; that the mistaken assumption must have been communicated to each other; and that both parties must have conducted themselves on the basis of such a mistake. However (at §18), on the facts of the case and by reference to the fourth condition, he did not think it would be unfair or unjust that the Association should be allowed to go back on the assumption and insist on the proper admission procedures as provided by the relevant article of association. 41.The Deputy Judge went on (at §20) to state that in any event he did not think that estoppel by convention could apply to confer membership on persons who are not eligible for admission to membership in an incorporation. He drew what he saw to be a significant distinction between cases where estoppel by convention arose in contracts between two contracting parties, and a case about membership in a company. He pointed out what he saw as the fallacy of an argument based on the former type of case, becoming apparent if one bears in mind three principles. Firstly, estoppel only applies as between parties to a relationship creating the estoppel. Secondly, a company is distinct from its members. Thirdly, the board of directors acts as agent of the company and not as agents of its members. As he identified (at §21), an estoppel operates between parties to a contract or a relation. It does not affect non-parties. So whilst the conduct of accepting annual subscriptions and permitting purported members to participate in the activities of the Association might create an estoppel preventing the Association denying their membership, no estoppel could operate to bind the members of the Association who are distinct from the Association and who are not parties to the relationship creating the estoppel. DHCJ To further stated (at §23) that if the principle of estoppel were to be extended to membership in a company, it would have the effect of affecting non-parties to the relationship creating the estoppel. It would force on the members a relationship with pseudo-members as if they were also members of the Association. It would dilute the members of their membership rights in terms of voting power and control, and would also diminish their share in the assets of the Association. This led to his conclusion. 42.Mr Wong also referred me to United Muslim Association of Hong Kong v Yusuf Yu (unreported, HCA 640/2012, 14 May 2015, Recorder Teresa Cheng SC), which was a case in which one of the articles of association provided that all applications for membership shall be considered by the Council of Management in a Council meeting and if approved by a majority of its members present, the application shall be approved. I do not think this decision greatly assists, as it does not concern any question of a developed practice inconsistent with the articles. Rather, on the facts, the Recorder simply held that some candidates could not possibly have been approved by any Council of Management so as to become members qualified or entitled to vote. 43.I acknowledge the force of the reasoning adopted by DHCJ To, but it seems to me to be capable of being affected by the individual facts of particular cases. Even on the facts of the Hong Kong Racing Pigeon case, and on the facts of the current case, where the relevant practice which did not comply with the Articles seems to have been followed since inception of the Association and Company respectively, it seems difficult to draw a legitimate distinction between prior members and new members. If no member was ever admitted in strict accordance with the Articles, all members might be regarded as ‘pseudo-members’. 44.Hence, and to echo the language of the Deputy Judge, if no person was ever properly admitted to membership in accordance with the Articles, so that all members might be regarded as ‘pseudo-members’, there would be no ‘true member’ whose interest might be protected from ‘pseudo-members’, and no forcing on the members a relationship with pseudo-members as if they were also members of the Company. Nor would there be dilution of ‘true members’ of their membership rights in terms of voting power and control, nor diminishing their share in the assets of the Company (as strictly they would have none). 45.Where this analysis leads will be dealt with below. 46.Mr Wong submitted that the inability to rely on estoppel, if he is right, would also defeat Mr Yip’s attempt to rely on the Duomatic principle, which is a form of estoppel. 47.The Duomatic principle is, of course, well-known. The essence of the principle, as described by Neuberger J (as he then was) in EIC Services Ltd v Phipps [2003] EWHC 1507 (Ch) (at §122) is that, where the articles of a company require a course to be approved by a group – in that case, a group of shareholders at a general meeting – that requirement can be avoided if all members of the group, being aware of the relevant facts, either give their approval to that course, or so conduct themselves as to make it inequitable for them to deny that they have given their approval. Whether the approval is given in advance or after the event, whether it is characterised as agreement, ratification, waiver, or estoppel, and whether members of the group give their consent in different ways at different times, does not matter. 48.The principle extends to decisions of directors: see, for example, Runciman v Walter Runciman plc [1993] BCC 223, where Simon Brown J held (at 230B) that directors can act informally provided they act unanimously, and informal acquiescence by other board members in an otherwise unauthorised agreement by one of their number binds the company. D.3 Interfering with Chairman’s exercise of power at general meeting 49.A chairman’s conduct and decision at a general meeting can be challenged on the grounds of bad faith: see, for example, the recent decision of Harris J in Kwok Hiu Kwan v Johnny Chen and others (unreported, HCMP 41/2018, 13 September 2018) at §50. 50.That case concerned the challenge to the finality and conclusiveness of a decision made by a chairman of a meeting in determining an objection raised as to the qualification of a voter to be able to vote. In the same paragraph (§50), Harris J also recognised the possibility of an argument that the finality of the decision might be challenged on grounds that it was unreasonable in the Wednesbury sense or something similar, and that that might be a more principled and coherent explanation for restricting finality than had been advanced in two English and Australian decisions, the reasoning of which he considered and rejected. 51.The question of Wednesbury unreasonableness in the context of a chairman’s decision was considered in Byng v London Life Association Ltd [1990] 1 Ch 170. That case concerned the exercise of a chairman’s power to adjourn the meeting, which was held to be a residual power exercisable only when the machinery provided by the articles had broken down, and one itself tightly circumscribed by reference to the objects for which it exists. Sir Nicholas Browne-Wilkinson V-C, referring to an old case and an old text, identified (at 188G-H) the power as one to regulate proceedings “so as to give all persons entitled a reasonable opportunity of voting” and that the chairman must “do the acts necessary for these purposes”. 52.On that basis, the Vice-Chancellor held (at 189A) that it was inconsistent with the view that the exercise of the power can only be impugned on the ground of lack of good faith. Rather, the chairman’s decision must also be taken reasonably with a view to facilitating the purpose for which the power exists. He further held (at 189C) that the chairman’s decision would not be declared invalid unless on the facts which he knew or ought to have known he failed to take into account all the relevant factors, took into account irrelevant factors, or reached a conclusion which no reasonable chairman, properly directing himself as to his duties, could have reached. In other words, the test is the same as that applicable on judicial review in accordance with the principles in the case of Wednesbury. 53.The need to have regard to the nature of the power being exercised, and to use the power for the purpose for which it was given, was echoed by Woolf LJ in the Byng case (at 194G). A similar point was made in the Victorian Court of Appeal in Link Agricultural Pty Ltd v Shanahan [1998] VSCA 3 (at §40), which stated that the purpose of the powers conferred upon the chairman with respect to the conduct of polls was to facilitate the voting and the counting of votes upon the relevant resolutions in order that the will of the majority members, eligible to vote and voting, should be reliably ascertained. 54.In a case such as the present case, where Mr Yip did not really press an allegation of bad faith, I agree that the decisions made by Ho as chairman of the AGM can nevertheless be tested by reference to Wednesbury unreasonableness, and that test will be considered in the context of the nature and purpose of the relevant powers being exercised. D.4 The Irregularity Principle 55.The irregularity principle is a well-settled principle that the court may decline to interfere despite procedural irregularities in the operation of a company. As it was put by Le Pichon J in Yip Peter v Asian Electronics Ltd [1998] 2 HKC 96 (at 102I-103B), the principle really comes to this: the lawfulness of a decision taken by a meeting of members or board cannot be questioned if the only fact alleged to make it unlawful is a mere informality and irregularity and the intention of the meeting is clear. This is particularly so if there is no evidence that the decision of the meeting would have been different if the correct procedure had been observed. Essentially, this is because equity will not interfere where an irregularity has been permitted if it is within the power of the persons who permitted the irregularity at once to correct it by calling a fresh meeting and dealing with the matter with all due formalities. 56.In the Court of Appeal decision of Re Dalney Estates Ltd [2018] 1 HKLRD 409, Godfrey Lam J (at §§19-25) identified the four-fold rationale of the irregularity principle. First, there is the notion that if there was an irregularity in the making of decisions for the company, it is the company which has been done a wrong and the company alone who is the proper plaintiff to bring a suit for redress. Secondly, the court’s traditional policy in the area of company law is that, generally, matters of internal management should be left to the company to be dealt with by its proper organ. Thirdly, when exercising its equitable jurisdiction, the Court generally does not act in vain, so that if what has been done irregularly is capable of being and will inevitably be confirmed by the majority, the Court will not interfere. Fourthly, there is a concern that courts would be unnecessarily inundated with internal disputes of companies if each and every breach of the articles in the conduct of the affairs of the company might be the subject of an action by any shareholder. 57.In Re Hong Kong Sailing Federation [2010] 1 HKLRD 801, Kwan JA explored the scope of exceptions to the irregularity principle. She endorsed the view (at §§48 and 49) that the law will not bother about irregularities at meetings unless there is a chance that they have influenced the result of a vote, and that in addition intervention must be appropriate. The pertinent question was whether a particular dispute was appropriate for determination by an ordinary majority. Thus, a shareholder was allowed to sue where acts were beyond the competence of an ordinary majority, as in the case of ultra vires, illegality or fraud on the minority, or where it was impossible or impracticable for members to sort things out for themselves. D.5 Interaction between the Irregularity Principle and Wednesbury Unreasonableness 58.Mr Wong and Mr Yip disagreed in their submissions as to the interaction between these two principles. 59.Mr Wong submitted that even if Wednesbury unreasonableness has been established, it is still open to the party whose unreasonableness has been established to invoke the irregularity principle, so as to persuade the court not to interfere. As Mr Wong put it, the two principles are different. The Wednesbury unreasonableness principle is a way to challenge a decision, whereas the irregularity principle permits the court, after considering all matters, to decide not to interfere. As such, he says, almost by definition there is no reason why the irregularity principle cannot save an AGM even if it is found that there was some Wednesbury unreasonableness. 60.On the other hand, Mr Yip submitted that if a finding of Wednesbury unreasonableness has been made, that must negate any suggestion that there was a mere irregularity. 61.I agree with Mr Yip. Any finding of Wednesbury unreasonableness must amount to a finding of a significant error in the relevant process. Interfering in cases of ultra vires, illegality or a fraud on the minority (which the authorities show as apt) seems at a level entirely consistent with interfering in cases of Wednesbury unreasonableness. I would not go so far as to say that the irregularity principle could never save circumstances which are been found to be Wednesbury unreasonable, but the circumstances when that might happen must be extremely limited. Ordinarily, where Wednesbury unreasonableness has been established, the irregularity principle would not contra-indicate interference. 62.Of course, the corollary of that view is that if something is thought to amount to a mere irregularity, it will not amount to Wednesbury unreasonableness (or, at least, it is highly unlikely to). In essence, therefore, it seems to me that the two principles are essentially, though perhaps not entirely, mutually exclusive. E. The Use of Ho’s Members List 63.The challenge to Ho’s use of his own members list as opposed to the Verified List appended to the VRR was the main argument put forward by Mr Yip. However, his second and third headline points relating to the exclusion of new members and the replacement of election helpers, as well as being put forward as stand-alone points, were also deployed as support for his first challenge. 64.Mr Yip’s first submission is that Ho’s use of his own member list was in blatant breach of Article 38(a) which provides that no member shall be entitled to vote at any meeting unless all moneys due to the company have been paid. On the arithmetic that Ho’s member list contained around 253 members, whereas the VRR stated that only 160 members had paid so as to be eligible to vote at the AGM (77 of which were new members not on Ho’s list), there must have been members on Ho’s list who were not eligible to vote at the AGM. 65.That may be right, but it seems to me to miss the real point, because it ignores an analysis of which people actually came to the AGM, and who actually voted. There is no suggestion that when the vote was taken on the election item that any member who voted was not eligible to do so. Further, I do not think it would have been objectionable for any member to have attended the AGM, albeit without voting if he was not eligible to vote at the AGM. Indeed, the arithmetic also suggests that there were other eligible voters present who could have but did not actually vote. 66.Mr Yip says that when Ho was challenged on the basis of using his list at the AGM, he failed to provide a clear explanation as to (a) what was the basis of his list, (b) what steps he had taken to verify that payment of the 2019 membership fees by 11 February 2019 and so eligibility to vote, (c) the inconsistency between his list and the VRR to which he had raised no objection and which every member had been sent, and (d) the inconsistency between his list and the Register of Members maintained by Antony. However, Ho has in fact produced in evidence the statement which he used to give the explanations, which I have already canvassed above. Whilst a fuller explanation might have been offered, I do not think that explanation was insufficiently clear. Nor, for the reasons which follow, do I think that this is particularly material to present considerations. 67.Mr Yip also says that but for Ho’s unreasonable insistence on using his own list, 49 members who were on his list would also have voted instead of leaving the AGM in protest, which might or would likely have changed the outcome. But, first, it is open to any member to be present or absent for all or part of any AGM, and to choose to vote or not to vote on any resolution put to the AGM. It cannot realistically be said that Ho made any member leave the AGM without first voting. Each of the members who left and failed to vote must be taken to have chosen to have left and chosen not to have voted. They may have felt that that was the right thing to do for whatever were their own personal reasons, but they must be taken to have voluntarily assumed the relevant risk when they chose not to vote at the ballot box but vote with their feet. 68.Anyway, I do not think the arithmetic is as clear as Mr Yip suggests. Of the 86 proxies, 52 of them were from new members. On that basis, the validity of arithmetic turning on including those 52 depends upon the issue relating to the 77 New Members. Of the remaining 34 eligible proxies, Mr Wong’s analysis has identified that they were apparently nearly evenly split between the 15 proxies held by the plaintiffs’ ‘camp’ and 19 held by Ho’s ‘camp’. Though it is an odd feature of this case that none of the proxies, even those held by Ho himself, were voted at the AGM, had all the proxies been voted it seems unlikely to have changed the voting result (unless the new member proxies should have been counted). The proxies held by the plaintiffs’ ‘camp’ were held by three people, and if those three people had stayed and voted that would apparently not have changed the result. Of course, there were others who left, but how other people may have voted starts to become speculative. 69.Mr Yip’s third submission was that the use of Ho’s list was an unlawful interference with members’ voting rights, in that it excluded the 77 New Members who were entitled to vote. His fourth submission wraps up a number of other points in the allegation that Ho failed to follow the purpose of his power, which was to facilitate the voting and counting on the EC election so as reliably to ascertain the will of the majority of the members. 70.I also take into account Mr Wong’s submission that the VRR and Verified List have themselves been shown to be inaccurate. The names of seven members who voted at the AGM, whose eligibility has not been challenged on the basis either that they were not properly admitted as members or had not paid their 2019 fees before 11 February 2019, are not to be found on the Verified List. Hence, if the Verified List had been adopted at the AGM without being double-checked, those seven eligible voters would have been disenfranchised. 71.Mr Yip has asserted bad faith, but has not pushed the point as he says he does not need to prove bad faith, it being sufficient to prove that Ho’s conduct was unreasonable and/or constituted a serious irregularity. But, for the avoidance of any doubt, I do not think bad faith has been established in any event. 72.Nor does Mr Yip’s point that the biggest complaint of the plaintiffs is as regards the U-turn by Ho regarding his previous decision really take the matter any further. It is correct that Ho did not immediately make any challenge to the Verified List, but that list only identified 160 eligible voters, and did not identify which amongst them were said to be new members. Once Ho appreciated that almost half of the voters said to be eligible were the 77 New Members, it may not be surprising that he took a view towards the Verified List that might have departed from his initial view. Though that departure might have taken the plaintiffs’ ‘camp’ by surprise, I do not think that amounts to Wednesbury unreasonableness. 73.At the end of the day, the important point as to voting at the AGM seems to me to be that those eligible to vote were permitted to participate and vote, and that those ineligible were not permitted to vote. The Articles do not specify any particular procedure by which eligibility should be determined. Whilst there may be some general good sense or benefit in having an independent third-party assess eligibility, no third-party assessment could enfranchise an ineligible voter, nor disenfranchise an eligible voter. Ultimately, the question of eligibility is simply one determined by reference to objective fact. The two relevant objective facts in this case were (a) was the person or body properly admitted as a member and (b) had that member paid the 2019 fees, before the deadline set. 74.Of course, as Mr Yip says, one way of proceeding at the AGM might have been to take the Verified List and make additions or removals from that list. But another way might have been to start with a previous list of membership, such as that based on one of the Company’s own fairly recent publications, and to make additions to or removals from that list. Surely, it is the end point, not the starting point, of the consideration which is the most important point. 75.Therefore, any complaint that there was Wednesbury unreasonableness simply because a different list was used at the AGM rather than the Verified List cannot succeed. 76.In conclusion on this point, unless I accept the plaintiffs’ point relating to exclusion of 77 New Members (see below), I do not think there was any Wednesbury unreasonableness in the use of the different member list. F. Exclusion of the 77 New Members 77.Mr Wong fairly, and to my mind correctly, accepts that if I were to find that the exclusion of the 77 New Members from voting was wrong, that would be a basis requiring the election exercise to be dealt with again at a fresh general meeting. But, applying the irregularity principle, Mr Wong does not accept that any other error, even if proved, would require or justify the court’s interference. 78.As set out above, there is no dispute that the 77 New Members applied to join and tendered their 2019 membership fees between 14 January 2019 and 11 February 2019, which fees were banked by the Company (apparently through the Secretariat in the person of Antony). I have already accepted that this sudden influx of applications for new membership was completely outside the ordinary incidence of such applications, and appears to have been specifically engineered by one ‘camp’, not disclosed to or concealed from the other ‘camp’. 79.In those circumstances, Mr Wong suggests that the plaintiffs’ ‘camp’ were trying to take unfair advantage of any past practice under which membership applications need not be formally approved, and had done so taking further advantage of the use of the Sub-Committee in setting the 11 February 2019 deadline. 80.Mr Yip relies on the point that the names and particulars of the 77 New Members were entered on the Register of Members. But, it is common ground between Mr Yip and Mr Wong that that is merely the starting point. If, for example, it can be shown that the Register was inaccurate or had not been properly maintained, then the identity of members would have to be determined by looking elsewhere. Hence, the Register really begs the question as to whether or not the names of the 77 New Members were properly entered on it. 81.Mr Yip says that they were. He says there is clear evidence of their membership and entitlement to vote. He relies on what he says was past practice and the Duomatic principle. Under that practice, he says, matters of admission of members were always delegated by the EC to the Secretariat, which would add new members to the Register upon receipt of application forms and payment of membership fees. The forms and fees for all 77 New Members were received by 11 February 2019, and Antony updated the Register to reflect that. 82.As to the Duomatic principle, Mr Yip says it is still applicable notwithstanding that the relevant approval when talking about the Articles is the approval of the members, because in this case Article 7 gives the relevant power of approval to the EC, and how the EC exercised its power is also open to application of the Duomatic principle. So he says that the old EC, including Ho, being aware of the relevant circumstances, either gave their approval to the admission of the 77 New Members, or so conducted themselves as to make it inequitable to deny they have given their approval. 83.Mr Wong makes a number of responses to Mr Yip’s submissions. First, he says that the departure of members from the AGM in itself does not constitute an irregularity at the AGM, even if the departure was one made in protest. I agree. 84.I also agree with Mr Wong that there is nothing to be made of the way in which attendance was taken at the AGM. I have already noted the fact that two attendance lists were taken, and that fact is probably just evidence of the extant dispute between the two ‘camps’. Insofar as some people who attended the meeting did not sign on the plaintiffs’ list, they did sign on the other list, and that was used by Ho as chairman at the AGM to note who was in attendance. Using that list, but excluding the controversial new members, it seems 40 eligible voters attended. 85.Mr Wong acknowledges that there are differences between Ho’s members list (which had 254 names) and the Verified List (which had 160 names) annexed to the VRR. But his key submission, based on the Hong Kong Racing Pigeon case, is that the principle of estoppel cannot be extended to membership in a company. Mr Wong submits that the underlying rationale of that decision must be right. He says it is a legitimate aim to protect the voting rights and control of existing members, rather than to allow a flood of new members to gain membership rights before an AGM and usurp the decision of the majority of existing members. As he puts it, otherwise any group of persons can buy their way into control of the Company and existing members are left with no protection of their rights at all. 86.To an extent, that seems to me to be a circular argument. If persons have properly become new members, they are entitled to vote in a way which (if they vote in sufficient numbers with others) takes control of the Company, or puts their candidates into control. In so doing, they would merely be exercising their membership rights, and the fact that members who became members earlier might have lost control is beside the point. To cast paying membership fees as somehow “buying” into control is inaccurate and unhelpful. 87.If the Duomatic principle applies at the members level, it would seem obvious that the actions of only some members (even if they were also some of the members of, or even formed the entirety of, the EC) would not allow the invocation of that principle. As there is no evidence that any of the new membership applications dated after 14 January 2019 have been approved by the EC, at a meeting or otherwise, the real question is whether they needed to be so approved, or whether a more informal prior practice sufficed. 88.For those reasons, it is necessary first to be rigourous about what the past practice was. It seems clear that there was no actual formal approval by the EC of past membership applications. That much is common ground. So, in this case, no member of the Company – however long a member – has been admitted upon compliance with the Articles. 89.Mr Wong says that the past practice, at its highest, could be said to evidence no formal ‘approval’, but that the Register of Members was historically updated to include new members only after their applications had been brought before the EC and there had been no objection to the applications. He says this is in line both with the Articles and with the ruling in the Hong Kong Racing Pigeon case, which emphasises the importance of the Articles in protecting the rights of existing members from being diluted. 90.From the relatively limited evidence, which I have canvassed above, it is difficult to draw any firm conclusions. However, where some members’ date of joining as member pre-dates their membership even being mentioned at an EC meeting, I do not think the evidence can be said to support the idea that new members were only ever added to the Register after their applications had been brought before the EC and no objection was made. In any event, the meeting and agenda documents to which I have referred above actually suggest that membership was in effect dealt with by the Secretariat, and the EC’s interest was simply to be told how many new members there were in each relevant period, no doubt partly to understand the financial position of the Company. Even if the EC were said to approach ‘approval’ by way of ‘non-objection’, the EC would need to know to whom it was not objecting. There is no indication in the evidence that the identity and characteristics of membership applicants was told to the EC for it to make any kind of informed decision whether to object or not to object. This points to membership being acquired upon application and payment of the necessary fees, effected by the Secretariat and notified to the EC. There is also no suggestion in the evidence that any of the 77 New Members’ membership fees, which were accepted and banked, have been returned. 91.There is also the factual point which I have already made that all existing members might be termed ‘pseudo-members’, because none of them were admitted in accordance with the Articles. Hence, whilst I accept the general proposition that estoppel would not extend to matters of membership of a company, that fact takes this case out of the general situation where the underlying rationale would be applicable. Existing members can hardly complain about being ‘short-changed’ or prejudiced from the application of the process by which they themselves were admitted as members. 92.Added to that is the fact that the members of the EC were all themselves members of the Company (unlike many other situations where directors of companies – or at least some of them – are not shareholders of that company). Also, in advance of the AGM, members were sent the Verified List with the VRR and the Proxy Report, without any adverse comment on them, and may fairly have expected the meeting to be conducted on the basis of the content of those reports. 93.I acknowledge that some might find it distasteful the way in which the 77 New Members were generated as an unusual influx on a secret basis. Nevertheless, there is no suggestion that any of those 77 New Members was not otherwise suitable as a member of the Company, or otherwise not the kind of person or body that one might expect to seek membership of the Company. Even though they were apparently introduced to membership by the plaintiffs’ ‘camp’, and even if it might realistically be thought that they would perhaps be sympathetic to that ‘camp’, they might not necessarily have voted for that camp’s views on any particular issue at the AGM. In any event, there was nothing to have prevented Ho’s ‘camp’ from seeking to recruit new members who might be sympathetic to them. Perhaps their real complaint boils down to being out-manoeuvred. 94.At bottom, in all the circumstances, it seems to me that the exclusion of the 77 New Members was perhaps understandable, but it was wrong. 95.There is a small issue relating to two prior members of the Company, and whether they were to be treated as new members because they changed their name. More specifically, the individuals who represented the prior members notified the Company that they wished to change the name under which they traded and to have their existing membership changed to the new trade name. 96.There is no dispute that membership applications for these two companies were submitted after 14 January 2019, but before 11 February 2019, and that they both paid their membership fees in 2019 prior to the AGM. There is a dispute as to whether the individuals cease to be employees of the prior members, so that they should be treated as entirely new members. Mr Yip says that this is the position, though there is no clear evidence on the point. If so, Mr Yip says that Ho demonstrated inconsistency in excluding the 77 New Members but including these two other members. 97.On the basis of the evidence, I do not accept that these two members were anything other than new trading names or companies for the particular individuals behind the previous members. Nor do I accept that this is, at worst, anything other than a mere irregularity which would not justify interference by the Court. G. Replacement of Election Helpers 98.Mr Yip submits that when the Sub-Committee had decided the key personnel for the AGM, and notified that decision on 17 February 19 to the Old EC, Article 35 was triggered. As set out above, under that article any decision made by a subcommittee is valid and binding and this over-ruled by a decision of the EC. As there was no overruling decision, Ho’s overturning of the decision relating to election helpers was in breach of Article 35 and unlawful. 99.Mr Yip submits that it appears the sole purpose of this last-minute decision was to enable Ho to have full control of the voting process and to manipulate the process. That would be a misuse of Ho’s power as chairman and a serious irregularity. However, I do not think there is any evidence supporting any manipulation of process. In fact, other than criticism of using the wrong members list, and excluding persons who the plaintiff say were eligible to vote, no other criticism is actually directed at the way the election of the EC members was conducted. 100.In addition, I accept Mr Wong’s submission that at least one of the persons identified as a helper by the Sub-Committee was ineligible to act in that position, as the Articles require the position to be occupied by a member of the Company, and the Sub-Committee nominated the honorary auditors. Article 30 supports Ho’s position. 101.In any event, even if this was a breach of Article 35, where no particular criticism is directed at any of the persons appointed by Ho to act as vote counters and scrutineers and the like, this is not a situation where I think the Court would interfere. H. Conclusion on Plaintiffs’ Complaints 102.The criticism of the way in which the AGM was conducted which I have accepted as well found is limited to the exclusion from voting of the 77 New Members. Mr Wong accepts that would lead to the need to hold a new election process at a reconvened general meeting. 103.For the avoidance of doubt, I reject the suggestion that Ho acted in bad faith. Instead, many might have some sympathy with the situation in which Ho found himself at the AGM. Against what was evidently an already extant dispute between the two ‘camps’, Ho faced the late realisation that an unprecedented number of new members had been added in a way which it might be anticipated would or could ‘skew’ the result from what otherwise might have been achieved. To me, it is not surprising that the late realisation took a day or two after receipt of the Verified List, which did not identify new members, and where the membership drive appears to have been conducted in secret. 104.So, that I have found for the plaintiffs on this limited basis should not be taken by them as a resounding endorsement of the way in which they have behaved. Because of the peculiar factual history in this case as regards the way in which admission to membership was actually obtained, I have found for the plaintiffs on a technical basis. But I do not think the plaintiffs’ ‘camp’ has dealt with matters in the most attractive manner. Though it is not necessary for me to answer the question, it might also be asked whether Antony has behaved with the degree of studied neutrality which one might expect of a member of the Secretariat. 105.Nevertheless, I make an order in terms of paragraph 1 of the originating summons. I. The Counterclaim 106.Ho seeks a declaration that the plaintiffs’ EC representatives were no longer EC members after the AGM on 18 February 2019. In the light of my finding as regards the incorrect exclusion of the 77 New Members, I do not grant that declaration. 107.Ho also seeks a declaration that any alleged EC meetings of the Company attended by the plaintiffs’ EC representatives were invalid and any resolutions made therein were ineffective. For similar reasons, and subject to what I say below, I do not grant that declaration. Similarly, I do not grant an injunction prohibiting the plaintiffs’ EC representatives from continuing to act in the name of the company and the EC, but on condition that they act as members of the EC (as constituted by the members of the Old EC) in accordance with the rules governing the conduct of the EC. 108.However, against my view of the competing merits, and the qualities of the actions taken (on which I have commented above), I have wondered whether it would be right to proceed on the basis that no EC has been in place since the AGM on 18 February 2019. But that may place third parties with whom the Company has had any dealings in a difficult position, even taking account of the principle of ostensible authority. 109.In any event, it seems to me to be the logical consequence of setting aside the result of the EC election at the AGM is that the voting on the new EC is deemed not to have taken place at the AGM. As an AGM is supposed to conduct such business under Article 37(a)(ii), and as an AGM is supposed to be held within 15 months of the date of the previous AGM, there is now deemed to be a failure to have conducted such business within the specified time. 110.In the circumstances, I direct a new AGM or EGM to be called within the next 60 days. 111.On the assumption that the Company will now wish to ensure that any future members will be admitted only in strict accordance with the terms of the Articles, and that a line will be drawn under the previous practice applicable to the existing members (including the 77 New Members), the Company should make it clear to its members and potential new members how membership admission will be conducted. 112.In that way, it is hoped that the election of a new EC at the coming AGM/EGM will be by reference to a clear membership and voting eligibility. 113.In the meantime, though I have been told little of the basis upon which a resolution has apparently been passed to remove Ho as a member of the Company, in the overall circumstances that are demonstrated to me on the evidence, I have no hesitation in setting aside that resolution. Therefore, save insofar as any individual member of the Old EC has resigned, or wishes to resign from membership of the EC, until the outcome of the voting at the AGM/EGM to be held as directed, it is the members of the Old EC (including Ho) who comprise the current EC. J. Costs 114.In the light of the above findings and comments, it will not surprise the reader to learn that I have in mind that the appropriate costs order in this case is no order as to costs. However, because I have heard no cost submissions as yet, I shall make that order on a nisi basis. Unless any party applies to vary the order nisi within 14 days, the costs order will become absolute. If application to various made, it can be made by letter identifying the proposed alternate costs order and the reasoning for it, and the other party (or both parties, if both apply for variation) shall have seven days within which to make any response. I will then deal with costs on the papers. K. Postscript 115.It is often unfortunate when factions develop within any organisation, commercial or otherwise. It is perhaps particularly unfortunate that factions have developed in the Company, whose objects are to promote the interests of Hong Kong as a global wine trading hub. It might be thought that the members of the Company would, in accordance with those objects, be seeking to promote interests much broader than their own. So, whilst it might be a general principle that members of a company can vote at general meetings in their own self-interest, the members of this Company might consider whether that is wholly appropriate. 116.Of course, it might also be recognised that different views might legitimately be formed as to the way in which the Company should promote its objects. Those views might be firmly held. Nevertheless, it might also be hoped that the members of the Company join together in promoting the overall objects by way of consensus, which on occasions will require compromise. 117.The evidence does not reveal what any fundamental difference might be between the two ‘camps’, nor why the dispute between them has arisen and come to this litigation. Nevertheless, perhaps this litigation might be regarded as an opportunity for the members of this Company to achieve something of a “reset”.
Mr Richard Yip, instructed by Christine M Koo & Ip, Solicitors & Notaries LLP, for the 1st to 6th plaintiffs Mr Joshua S Kanjanapas Wong, instructed by Vincent Mak & Co, for the 2nd defendant The 1st defendant was not represented and did not appear | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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