Great Sea Global Ltd and Others v. Registrar of Companies and Others

Read the full judgment text of HCMP 1939/2018 on BabelCite. This High Court CFI judgment was delivered on 24 July 2020.

1. This is a dispute between shareholders in various companies, including the company joined as the 6 th Respondent (“R6”). The particular issue before the court at present is narrow in scope, being concerned with the validity of certain decisions said to have been taken by the directors of R6 in an EGM which was convened and held on 29 August 2018. Because this issue is no more than a small part of a broader landscape of disputes and litigation between the two principal protagonists, it is nece

Cited by 1 case · Cites 4 cases

Case No.HCMP 1939/2018[2020] HKCFI 1690
Court
High Court CFI
Date24 Jul 2020
Judge
Case Document
100%Judiciary

HCMP 1939/2018

[2020] HKCFI 1690

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1939 OF 2018

________________________

  IN THE MATTER of PACIFIC BULK LINES COMPANY LIMITED
  and
  IN THE MATTER of Section 42 of the Companies Ordinance (Cap 622) and Order 102 Rule 2 of the Rules of High Court (Cap 4A)

________________________

BETWEEN

  GREAT SEA GLOBAL LIMITED 1st Applicant
  LAU WING YAN 2nd Applicant
  SUN MIN 3rd Applicant
  CHANG DAFA 4th Applicant
  and  
  REGISTRAR OF COMPANIES 1st Respondent
  CHU KONG 2nd Respondent
  CONNECT PLUS LIMITED 3rd Respondent
  EAGLE VALOUR LIMITED 4th Respondent
  CHU LAP YIP 5th Respondent
  PACIFIC BULK LINES COMPANY LIMITED 6th Respondent

________________________

Before:  Mr Recorder Houghton SC in Court

Dates of Hearing:  12-14 May 2020

Date of Judgment:  24 July 2020

________________________

J U D G M E N T

________________________


1.This is a dispute between shareholders in various companies, including the company joined as the 6th Respondent (“R6”). The particular issue before the court at present is narrow in scope, being concerned with the validity of certain decisions said to have been taken by the directors of R6 in an EGM which was convened and held on 29 August 2018. Because this issue is no more than a small part of a broader landscape of disputes and litigation between the two principal protagonists, it is necessary to summarise that background, which has given rise to the various disputes and to the division of the shareholders into two main camps.

2.In summary, Mr Chu Kong (“Mr Chu”) and Mr Lau Wing Yan (“Mr Lau”) were business partners operating in the shipping and logistics field.  In or about 2004, they became joint owners of the shares and interests of the several companies generally referred to as the PB Group (in fact a collection of separate companies).  Pacific Bulk Lines Co Ltd (“the Company”) was and is one of the companies within that “group”.

3.Throughout, the registered shareholders of the Company have been Connect Plus Ltd (“Connect Plus”); Great Sea Global Ltd (“Great Sea”); Eagle Valour Ltd (“Eagle Valour”); and Tuoxin Holdings Ltd (“Tuoxin”).  Connect Plus is said to be wholly owned by Mr Chu, Great Sea wholly owned by Mr Lau, and Eagle Valour owned as to one half each by Mr Lau and Mr Chu.  Tuoxin is wholly owned by Mr Yang Hai Tao.

4.It is contended on behalf of the applicants that, although Mr Chu and Mr Lau are each 50% shareholders in Eagle Valour, the actions of that company have been dictated by Mr Chu, and that he has been able to do so because the sole director of Eagle Valour was an employee of Mr Chu’s.

Background

5.The background has been referred to in the judgment of Au-Yeung, J in Connect Plus Ltd v Lau Wing Yan & Ors [2019] HKCFI 70 in which (at paragraphs 16-22) the judge set out an overview of the history of certain EGM’s which took place involving the Company, and certain litigation which has ensued, including this action.

6.Serious conflicts arose between Mr Lau and Mr Chu in 2013 which evidently remain largely unresolved to this day.  At that time, Mr Lau and Mr Chu were said each to be beneficially entitled to a 45% shareholding in the Company; Mr Lau holding shares through Great Sea and Eagle Valour and Mr Chu holding shares through nominees including Connect Plus and Eagle Valour.  An attempt at a resolution of the disputes in 2014 by, in effect, a severing of the business relationship between these two gentlemen was made by way of what has been referred to as the PB Restructuring Agreement, but that in itself has given rise to yet further disputes, including as to whether or not the PB Restructuring Agreement was ever effective.  That is not a matter to be decided in these proceedings.  For present purposes I simply note that the apparent intention of that agreement was for Mr Chu to withdraw from any involvement in the companies in the PB Group in return for a payment of the value of his interests to be determined through a stated valuation mechanism.  The valuation has not been made, it appears.

7.Reflecting this agreement (according to the Applicants), from early 2014 it appears that conduct of the PB Group businesses was in the hands of Mr Lau, while Mr Chu established another shipping group (referred to in the proceedings as “the BBG Group”) operating, in effect, in competition with the PB Group.

Evidence

8.As to the evidence before the Court:

(a)   The OS is supported by the 1st, 2nd, 3rd and 4th Affirmations of Mr Lau dated 5 November 2018, 31 January 2019, 31 January 2019 and 1 March 2019.

(b)   The OS is opposed by the Affidavit of Mr Lam on behalf of Eagle Valour dated 4 December 2018, the Affidavit of Mr Alfred Chu (“Chu Lap Yip”) dated 4 December 2018 and the Affirmation of Mr Chu dated 23 January 2019.

(c)   The 1st Respondent, has also submitted a Statement dated 9 November 2018.

The Calling of the EGM

9.The EGM of 29 August 2018 was convened by one of the registered shareholders issuing on 17 July 2018 a request for an EGM for the stated purpose of considering ordinary resolutions to appoint three additional directors of the Company.

10.At that date there were only two directors of the Company, namely Yan Donghai and Yang Hai Tao.  However, on 28 August 2018 (according to the applicants at least) the two existing directors passed a resolution under article 24 of the Articles of the Company appointing Mr Lau, Ms Sun Min, and Mr Chang Dafa as directors.

11.The principal parties to the present litigation are lined up in three camps.  The applicants are, in effect, the “Lau camp”, and were represented at the hearing by Anson Wong SC (with Martin Kok). Mr Chu and Connect Plus, represented by William Wong SC (with Michael Lok and Jasmine Cheung) comprise the second “camp”, and Eagle Valour and Mr Chu Lap Yip (“Mr Alfred Chu”), represented by Wong Yan Lung SC (with Kevin Hon and Sara Tong) was the third “camp”.  I note that Mr Chu is said to be beneficially entitled via shares in Eagle Valour.  The 2nd to 5th Respondents will be referred to collectively as “R2-R5” where appropriate.

12.In his written submissions, counsel for the applicants submit that for a period of over four years Mr Chu played no part in the management of the Company, concentrating instead on the running of his “competing businesses”.  However, it is said, more recently Mr Chu has taken various steps seemingly intending to take over certain interests in the PB Group and, in particular, seeking to obtain commercially sensitive information belonging to the PB Group which might be used by Mr Chu wrongfully for the benefit of his “competing businesses”.

13.It is noted in those submissions that Mr Chu made an application to the court for the preservation of certain company documents relating to the PB Group, and for an order that he be allowed to inspect such documents, but that while preservation of the documents was ordered, the court declined to order inspection of the documents.  It was on the same day as that decision of the court was made that Connect Plus issued its request for the EGM seeking the appointment of the additional directors.

Leading up to the EGM

14.Two further resolutions were added to the agenda for the EGM pursuant to a request made by Eagle Valour on 8 August 2018, these being that the directors were to provide financial books and records to the shareholders, and that a further director be appointed, being Mr Chu Lap Yip, (R5). 

15.On 10 August 2018 Connect Plus, through Mr Chu, sent out the EGM Notice to the other shareholders and the Board of Directors setting out the intended business of the EGM, namely the three ordinary resolutions proposed by Connect Plus, and the two ordinary resolutions proposed by Eagle Valour.  The date of the EGM was set for 29 August 2018, and the meeting was to be held at the office of the Company Secretary.

16.According to the public records, on 10 September 2018 Yan Donghai reported (via an ND2A form) that on 28 August 2018, and as referred to above, the two existing members of the Board of Directors of the Company had passed a resolution to appoint three additional directors to the board: Mr Lau, Ms Sun Min, and Mr Chang Dafa.  The circumstances of those appointments are not free from controversy, but for present purposes it suffices to say that the Chu camp was unaware of any such appointment until the commencement of the EGM, and that this added to the issues at that meeting.

17.Also on 28 August 2018, Tuoxin (Mr Yang) issued an email to the Company’s shareholders stating that he did not support the proposed resolutions.  He said:

“To my understanding, Mr Chu and Mr Lau have reached a separation agreement in early 2014 in relation to the ownership of Pacific Bulk Group, and PB Lines is one of the companies owned by Mr Lau according to that separation agreement. Starting from 2014, Mr Lau has been operating Pacific Bulk Group, and Mr Chu has left Pacific Bulk Group to establish his own new shipping company. These are all circumstances which almost everyone in the shipping industry in Hong Kong and the mainland knows.

As such, I consider that Mr Chu’s request through Connect Plus Limited to have him and two shareholding companies controlled by him to be appointed as directors of PB Lines to be inappropriate. Therefore, I do not support the proposed resolution and the relevant meeting request made by Connect Plus Limited on 17 July 2018.

Since I live and work in Shanghai, I will not be available to attend the meeting on 29 August called by Mr Chu.  I now express my stance to the shareholders through this letter.”

The EGM

18.It is common ground that what transpired at the EGM on 29 August 2018 is central to the present matters in issue, and it is helpful that the meeting was recorded so that a transcripts are available.  It was attended by the shareholders or their representatives, excluding Tuoxin.  It was also attended and subsequently minuted by the Company Secretary.  The meeting was relatively lengthy, and may be subdivided into four general parts.

19.The first of these parts was the commencement of the meeting at which the appointment of Mr Lau, Ms Sun and Mr Chang as directors was announced to the shareholders and their representatives.  There was some query over this, and the board resolution of the directors was inspected (and dated), following which the directors, including those newly appointed, voted to appoint Ms Sun to chair the meeting.

20.Ms Sun proceeded to conduct the meeting and invited shareholders to speak.  Mr Lau accepted that invitation and spoke at length on a variety of topics, many of which appear to have little relevance to the supposed business of the meeting, and frequently in terms that were highly critical of Mr Chu.  He was interrupted from time to time by Mr Chu, who was, in turn critical of Mr Lau, and who also took issue with Ms Sun’s involvement and appointment as chairman of the meeting.

21.A third stage arrived when Mr Chu proposed to the meeting that he himself be appointed as chairman.  This proposal was rejected by Ms Sun, who pointed out that the vote had already been taken for the appointment of the chairman.  Mr Chu nevertheless proceeded to take the lead in the conduct of the meeting and called votes on the various proposals which were the reason for the meeting having been called one by one.

22.Those votes were taken, and the results recorded. Connect Plus and Eagle Valour voted in favour of the resolutions while Great Sea voted against.  In effect the Lau camp voted against and the Chu camp voted for the resolutions.  The meeting concluded thereafter.

23.While the transcript makes clear the unruly nature of this meeting three things are, in my view, clear.  The first is that, for a considerable period of time Ms Sun was treated as the chair of the meeting.  During that time, she did not call for a vote on any agenda item, nor did she raise any query as to the eligibility of anyone present to vote.

24.Second, Mr Chu did call for a vote on his being the chair of the meeting.  After the meeting had been in process for some considerable time, without any vote being taken, Mr Chu objected to certain comments made by Mr Lau (“However the chairperson allows him to speak like this”), then expressed the opinion that he did not think that “this election or the chairperson of this meeting is valid”.  He then proposed that the shareholders present “… elect the chairperson of this meeting, do the voting, vote on our resolutions”.  Mr Chu overrode an objection by Ms Sun that the Chairperson should be elected by the directors, and he and Mr Chu Lap Yip (for Eagle Valour), voted in favour of his assuming the Chair.

25.Third, votes were subsequently taken at the meeting and these were taken only on matters which were set out in the agenda. They were taken at the direction of Mr Chu.

Post EGM

26.The Company Secretary prepared minutes of the EGM, and these were generally accepted by Ms Sun on 11 September 2018, (Ms Sun said in her email of 11 September 2018 that she did not object to the Company Secretary proceeding with the filing of documents with the Companies Registry regarding the appointment of directors) subject to a caveat that the full discussion had not been set out in the minutes.  The Company Secretary recorded that 5 ordinary resolutions had been passed in the EGM, and these were set out with the voting record for each resolution.  The minutes made no mention of Mr Chu’s vote to assume the Chair, but recorded Ms Sun as having been elected Chairman.

27.The Company Secretary also filed the relevant form (ND2A) recording the appointment of the further directors with the Company Registry [B3/682] (showing the appointment of Mr Chu, Connect Plus, Mr Chu Lau Yip and Eagle Valour as directors) on 13 September 2018.  At the same time, it appears, the Company Secretary resigned from that post.

28.On or about 21 September 2018 Ms Sun signed a version of the Minutes of the EGM in which the course of the voting was summarised, resolution by resolution.  On the same day, Mr Lau, Ms Sun, Mr Chang and Yan Donghai wrote jointly to the Registrar of Companies asserting that no valid resolutions had been put to the vote and/or passed at the EGM, and requesting therefore that the Registrar should refuse to accept the ND2A form and decline to register (or take steps to remove from the register) the relevant Respondents.

29.The specific complaint made was that Mr Chu had acted as Chairman, and had called for various resolutions to be put to the vote, despite strenuous opposition, notwithstanding that the power for directing any vote or for declaring the results of any resolution rested with the Chairman.

30.On 3 October 2018 Mr Chu commenced an action against Mr Yan and the Company seeking the inspection of certain documents.  Directions have been given for that action (HCMP 1600/2018 [A/18]) to be heard not earlier than the conclusion of the present proceedings.  On 5 November 2018, one week prior to the due date for the first hearing of HCMP 1600/2018, the present proceedings were commenced by the applicants.

31.Also in October 2018 Mr Chu Lap Yip (R5) thought better of taking on the role of director of the Company and tendered his resignation.

32.On 1 November 2018 Mr Chu, on behalf of Connect Plus, requested that a further EGM be convened to consider and vote on the removal as directors of Mr Lau, Ms Sun, Mr Chang and any other directors appointed from 28 August 2018 up to the EGM to be held. On 22 November 2018 Mr Yan gave notice that the proposed EGM would be held on 19 December 2018 and that a further resolution would be considered namely “to consider, and if thought fit, declare as an Ordinary Resolution that no valid resolution(s) were voted upon and/or passed” at the [August EGM]”.  In effect, of course, the applicants seek much the same by way of declaratory relief in the present proceedings.

33.The further EGM took place on 19 December 2018, and signed minutes of that meeting were subsequently produced.  At 19 December EGM, Ms Sun was again elected by the directors to act as the Chairman of the meeting.  Eagle Valour were to be represented by a Mr Yip Wai Man Raymond, however a defect in the proxy form was noted and the applicant contend that Mr Yip agreed to attend as an observer and gave up any right to vote.  In any event, Eagle Valour did not vote in the meeting.

34.Ms Sun, as the Chairman purported to exercise her rights as Chairman (Article 68 of Table A Articles) to disallow Connect Plus from voting because of the absence of approval from Mr Lau for Connect Plus to vote.  This decision was premised upon the PB Restructuring Agreement having been effective, meaning that Mr Lau was the beneficial owner of the shares in Connect Plus.  Consequently, therefore Connect Plus also did not vote at this EGM.

35.The motions to remove Mr Lau, Ms Sun and Mr Chang were thereafter voted on and rejected.  The resolution to the effect that there had been no valid resolutions passed at the August EGM was voted on and passed.  The Chu camp and Eagle Valour contest the validity of those decisions, not least on the basis that the 19 December EGM was inquorate.

The Present Application

36.The applicants seek, primarily, a declaration as to the resolutions purportedly passed at the meeting of 29 August 2018, stating that such resolutions were null and void and of no legal effect.

37.Secondly, and consequentially, the court is asked to direct the Registrar of Companies (R1) to make appropriate amendments to the Register, removing the names of Mr Chu, Connect Plus, Eagle Valour and Chu Lap Yip (R2-R5) from the list of registered directors.

38.Finally, an injunction against R2-R5 is sought prohibiting those persons from holding themselves out as directors of the Company.

The Issues

39.It is inherent in the Application that decisions have purportedly been made in the August EGM, which call for correction.  Thus, in broad terms and as identified by counsel for the applicants, the first issue is whether the resolutions at the August EGM were “tainted” such that prima facie at least, they should be set aside.

40.The question that follows on any finding of irregularity is whether any such resolutions can be “cured” by an application of the so called “Irregularity Principle”.

Irregularity

41.It is clear from the authorities that not every irregularity in the conduct of a meeting will render decision taken in the meeting null and void.  The seriousness of the irregularity is fundamental.  So too is the question whether, if the irregularity had not been present, the members at the meeting would, inevitably, have come to the same decision.

42.That latter question presupposes that the persons entitled to vote are engaged in a process whereby their decision may be influenced by events taking place in the meeting, and are not rigidly set on one or other course.  In the latter situation, it may only be an irregularity that affects an entitlement to vote that might be significant.

43.As has been described above, the meeting was rather disorderly, with long diversions away from the business at hand.  The primary problem however, according to the applicants is the way in which Mr Chu is said to have hijacked the meeting, taken on the role of Chairman, and then called for votes on the matters which were on the agenda.

44.It is not in dispute that Art 57 of the Articles of Association of the Company mandate that the Chairman must be elected amongst the directors of the Company.  Nor is it disputed that the role of the Chairman is an important one, which includes the power to make a conclusive determination as to the eligibility to vote in a meeting.  Counsel for Eagle Valour submits that Mr Chu was properly elected as Chairman of the EGM pursuant to Article 63 of Table A, and that there was no irregularity. Without deciding that point I have proceeded on the basis that Mr Chu’s attempt to take on the role of chairman and his moving of the proposed resolutions was done when he was not in fact, the chairman of the meeting.  As is pointed out, on such a basis, Ms Sun remained as chairman throughout the meeting.

45.In Carpathian Resources Ltd v Hendriks [2011] FCA 41 Gilmour J in the Federal Court of Australia was called upon to consider the effect of certain decisions which had been taken in an AGM which he described as “variously intemperate, confused, unruly and disorderly”.  The members present failed, the court held, to choose one of their number to be the chairperson of the meeting, and the meeting proceeded without a chairman.  This was important not least because one such member (“Hammer”) was entitled to exercise certain proxy votes only if he was elected as the chairman, and he proceeded to act as chairman, despite the fact that no vote was taken.

46.The court held that the circumstances were such that Hammer was not in fact elected to chair the meeting.  The court further held that the poll that was taken meeting was “tainted by fundamental procedural irregularity”.  The poll was called by a person who had no authority to do so, and Hammer, and the persons who had given their proxy votes, took no part in the poll.  In consequence the court held that resolutions purportedly carried by the purported poll were of no effect, and the AGM in fact effected no business.

47.Counsel for the applicants stresses the similarities between the (chaotic) factual circumstances in Carpathian Resources Ltd and those of the present case.  The legal conclusions of the court in Carpathian Resources Ltd have to be approached with caution however given that this was a decision under the Australian Corporations Act.  The principles are not dissimilar however, with irregularity being relevant if it has caused substantial injustice.  So far as the factual position is concerned, a significant distinction in my view is that all members were present and eligible to vote when called on to do so in the present case, but not all members participated in the voting in Carpathian.  Ms Sun was elected as Chair, and clearly it was not she who put the agenda items to the vote.  To that extent, the voting was indeed tainted by irregularity because it was for the chair of the meeting to call for any vote.  The initial question is as to whether such irregularity vitiated the votes that were taken so as to make those resolutions of no effect.

48.Unruly or even chaotic meetings of shareholders are not unknown, and the consequence of irregularity in the conduct of proceedings has been considered by the courts in a variety of jurisdictions and in different circumstances.  In Flynn v University of Sydney [1971] 1 NSWLR 857, the court took the view that a rowdy and disorderly meeting of itself would not invalidate decisions taken in a meeting if a clear decision for or against a motion could be ascertained.

49.The principle underlying such an approach may be that enunciated by Mellish LJ in MacDougall v Gardiner (1875) 1 Ch D 13 when he said:

“…if the thing complained of is a thing which in substance the majority of the company are entitled to do, or if something has been done irregularly which the majority of the company are entitled to do regularly, or if something has been done illegally which the majority of the company are entitled to do legally, there can be no use in having a litigation about it, the ultimate end of which is only that a meeting has to be called, and then ultimately the majority gets its wishes. Is it not better that the rule should be adhered to that if it is a thing which the majority are the masters of, the majority in substance shall be entitled to have their will followed? If it is a matter of that nature, it only comes to this, that the majority are the only persons who can complain that the thing which they are entitled to do has been done irregularly; and that, as I understand it, is what has been decided by the cases of Mozley v. Alston 1 Ph. 790 and Foss v. Harbottle 2 Hare, 461. In my opinion, that is the rule that is to be maintained …”

50.That passage was cited by Le Pichon J in Yip Peter v Asian Electronics Ltd. [1998] 2 HKC 96 (at 102-103) where she said:

“The irregularity principle really comes to this: the lawfulness of a decision taken by a meeting of members or board cannot be questioned if the only facts 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.”

51.It is clear that a balance is to be found between circumstances in which the rules have not been adhered to but the decision making process was fundamentally fair and transparent, and circumstances in which a member or group of members might legitimately be said to have been deprived of an opportunity to have their say.

52.Procedural irregularity in the conduct of a poll of members of a company was at issue in Yung Siu Ying v Hong Kong Sailing Federation [2010] 1 HKLRD 801, a case in which the poll was called in advance of an EGM of the company.  That method of calling the poll was not provided for in the articles of association and was a procedural irregularity. However, the court (Kwan JA) held that there had been a reasonable opportunity for the requisitionists in that case to present their arguments, and there was no infringement of the individual rights of shareholders.  Moreover, the wishes of the majority were clear.

53.Most helpfully in the present circumstances, it seems to me, is the analysis by Sarah Worthington QC sitting as a Deputy High Court Judge in the case of Qureshi v Association of Conservative Clubs Ltd [2019] EWHC 1165 (Ch) at paragraphs 52-63.  In summary, the court said that procedural rules such as may be contained in the Articles of a company are important not because they have been set out in such a formal document but because they are intended to regulate the fair and equitable management of the company.  Protection may be conferred as shareholders by way of notice requirements for proposed meetings and a failure to follow any such requirement will likely be “serious” because it may adversely impact the protection sought to be conferred on a shareholder in the first place.

54.Self evidently the Articles (or other procedural provisions) may be infringed in ways which are not prejudicial to the position of any shareholder:

“Since procedural rules are designed to afford protection, the sensible approach when considering the effect of an infringement of such rules is to ask what the rules require, and what adverse effect might be delivered by any particular non-compliance with the rules: see Lewison LJ in Speechley v Allott [2014] EWCA Civ 230 at [28]…” (Qureshi, paragraph 54).

55.In the present case, in my judgment, there has been no prejudice caused to any party by the fact that Mr Chu decided to take over the conduct of the meeting and to proceed with voting on the resolutions before the meeting.  This was a small meeting in terms of the number of participants, and one which was convened in circumstances in which the divisions between the “rival camps” were both stark and well understood.  Without downplaying the importance of rational discussion and compromise in such meetings, this was a situation in which the writing was clearly on the wall, and the identity of the person calling for the vote would most likely not be of significance to the outcome of the vote.

56.The importance of the Chair of the meeting remaining in control of the timing and manner of the voting is nevertheless stressed by counsel for the applicants in submissions.  This is not only a matter of general principle, its relevance is demonstrated by the events that took place in the December EGM in which both Connect Plus and Eagle Valour were unable to vote, having been disqualified by the Chairman.

57.For myself, I do not agree that history can be rewritten in this way however.  There was no attempt made to disqualify anyone from voting in the August EGM, and Ms Sun did not raise eligibility to vote at any stage, even by way of a complaint at the “AOB” stage of the meeting. Eligibility was simply not an issue at the August EGM.  Nor do I agree that the December EGM can say anything meaningful about the majority view when a majority of shares were excluded from voting.

58.Counsel for Eagle Valour and Chu Lap Yip submits, and I agree that the court’s finding in HCMP 2263/2018 that both Connect Plus and Eagle Valour were barred from voting in that EGM is factually correct. Ms Sun, who chaired the December EGM took a zealous approach to her scrutiny of the proxy forms to say the least.  Since her decision excluded 60% of the votes, whether rightly or wrongly, I do not agree that the December EGM is of any assistance in determining what the majority would “inevitably” have done had the August EGM been conduct by Ms Sun without interruption.

The Discretion to Intervene

59.The court is not bound to intervene in a dispute simply because there has been some irregularity of procedure.  An initial question is whether the same result would have been obtained if the correct procedure had been followed, and examples of instances in which the court has applied such a consideration are set out in the judgement of Godfrey Lam, J in Re Dalny Estates [2018] 1 HKLRD 409 (at page 415).

60.The internal management of a company is primarily an internal matter for the company, and many decisions taken by a company in an irregular manner can and should safely be left to the company itself to rectify as appropriate.  The court will not intervene if the result of the irregular conduct would inevitably be confirmed by a regularly conducted re-run of the resolution.  As was said in Browne v La Trinidad (1887) 37 Ch D 1 at page 17 (quoted in Re Dalny Estates):

“…the most that can be said here is that there is or may be some irregularity, but an irregularity (if such it be) which can be cured at any moment. In such case the Court never interferes. I think it is most important that the Court should hold fast to the rule upon which it has always acted, not to interfere for the purpose of forcing companies to conduct their business according to the strictest rules, where the irregularity complained of can be set right at any moment.”

61.In the present case, counsel for the applicants submits that the company has in fact sought to rectify the “null and void” outcome of the August EGM by way of the December EGM which concluded that the appointments of R2-R5 were invalid.  For the reasons given, that was not a like for like re-run of the earlier meeting.

62.Given the seemingly entrenched positions of the parties, and the uncertainty that exists regarding the status of the directors appointed in the August EGM as well as the dispute regarding ownership of shares, I accept that this is a case in which the court might legitimately be asked to intervene.

Conclusion

63.Having considered the background, and the deeply divided camps into which the registered shareholders fall however, it is clear to me that had Ms Sun been the one to put the resolutions to the meeting (as the EGM had been convened to do) the result would certainly have been the same.  The parties’ positions were well known, and had nothing to do with the formality of putting the resolutions before the meeting.

64.For the above reasons I do not accept that such irregularity as has been shown is an irregularity of any significance, that is, one calling for intervention by the Court.  I decline to grant the relief sought by the applicants.  I accept that were all registered shareholders called on to vote again, the result would be the same as in August EGM.

Costs

65.A specific application for costs is made on behalf of R5 Mr Alfred Chu.  It is submitted that he should be entitled to his costs in any event and on an indemnity basis, the basis for this application being the fact that he had tendered his resignation as a director prior to the issue of these proceedings.  It is submitted that he had made it clear that he did not intend to act as director, and had made no decisions in that capacity.

66.The applicants however had acted unreasonably, it is submitted, by insisting that the proceedings would be maintained against Mr Alfred Chu unless he was willing to state in open correspondence that he had never been validly appointed as a director.

67.I agree that the action against Mr Alfred Chu appears to have been effectively academic, but note that he has been represented jointly with Eagle Valour.  It is not clear why or how he may have acted separately to defend the action.  The discrete costs attributable to Mr Alfred Chu do not appear likely to be significant or at least not such as to call for a separate taxation exercise and, in the circumstances I decline to make the order which is sought.

68.I note that all three counsel teams felt it appropriate to engage more than one counsel, and all engaged leading counsel.  Given the matrix of disputes and litigation that lies in the background, this appears to have been a reasonable course to have taken.

69.The costs orders which I make therefore, on an ‘order-nisi’ basis, is that the respondents are to have their costs of the proceedings with, in the case of R2-R5, a certificate for two counsel.

  (Anthony Houghton SC)
  Recorder of the High Court

Mr Anson M K Wong, SC leading Mr Martin Hiu-tin Kok, instructed by DLA Piper Hong Kong for the 1st to 4th applicants

Attendance of the 1st respondent, unrepresented, was excused

Mr William M F Wong, SC leading Mr Michael Hui-yin Lok and Ms Jasmine Wun-yan Cheung, instructed by Sit, Fung, Kwong & Shum, Solicitors for the 2nd and 3rd respondents

Mr Wong Yan-lung, SC leading Mr Kevin Hon and Ms Sara Tong, instructed by Iu, Lai & Li, Solicitors for the 4th and 5th respondents

The 6th respondent was not represented and did not appear

Cited by 1 case

Other judgments that cite this case