Kwok Hiu Kwan v. Johnny Chen and Others

CACV 202/2019

[2020] HKCA 972

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 202 OF 2019

(ON APPEAL FROM HCMP NO 41 OF 2018)

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BETWEEN

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Before:  Hon Kwan VP, Barma JA and G Lam J in Court

Date of Hearing:  17 November 2020

Date of Judgment:  24 November 2020

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J U D G M E N T

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Hon Kwan VP:

Introduction

1.This is an appeal of the plaintiff, Kwok Hiu Kwan (“Mr Kwok”), a registered shareholder of 4,468,182,000 ordinary shares[1] (“the Shares”; representing 29.91% of the issued share capital of the company) of the 5^th defendant, Convoy Global Holdings Limited (“Convoy Global”) against the dismissal by Harris J of his originating summons (“the Judgment”).  Mr Kwok sought these declarations by his originating summons issued on 11 January 2018:

(1)  that a decision made by the 1^st defendant Johnny Chen (“Mr Chen”), in his capacity as chairman of an extraordinary general meeting held on 29 December 2017 (“EGM”) that the Shares would not be counted (“the Chairman’s Decision”) was unlawful, void and of no legal effect;

(2)  that the Shares should be counted for the purposes of six ordinary resolutions requisitioned by Mr Kwok put to the EGM for the reconstitution of the board of directors of Convoy Global and that the resolutions were passed; and

(3)  that the Shares should be counted for the purposes of two ordinary resolutions appointing two non-executive directors of Convoy Global and that the resolutions were not passed.

2.The trial of the originating summons before the judge was in two parts, from 27 to 29 August 2018 and on four days in March 2019.  The judge directed that the issues before him were to be dealt with in this order:

“I. First:

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

(2)  If so, was the determination final and conclusive?

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

II.  Second:

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

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

III. Third:

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

3.The judge gave his decision at the conclusion of the first part of the trial in August 2018 and his reasons were handed down on 13 September 2018 (“2018 Reasons”)[2]. The decision at the first part of the trial dealt with (1) and (2) in the First Class of issues, which were determined in the defendants’ favour.  The judge held that the Chairman did have the power under article 74 to determine the objection to Mr Kwok’s votes being counted at the EGM and that the Chairman’s Decision was final and conclusive.  As for (3) in the First Class of issues, the judge invited Mr Kwok’s counsel to make submissions at the adjourned hearing “whether the finality of the decision prevents a challenge on the grounds that it is unreasonable in the Wednesbury sense or something similar”[3]. He ordered that the proceedings by originating summons should continue as if begun by writ and that the second part of the trial should deal with the remaining issues.

4.For the second part of the trial in March 2019, the judge gave his decision on 29 March 2019 and handed down his reasons on 4 March 2020 (“the 2020 Reasons”)[4].  The decision in the second part of the trial dealt with inter alia (1) what constitutes bad faith; (2) whether it is sufficient to show something less than bad faith, and if so what, in order to overturn the Chairman’s Decision; and (3) has bad faith been proved.

5.As to (1) of the remaining issues, the judge held it is bad faith knowingly to exercise a power for an improper purpose and accepted that if it is demonstrated that the Chairman’s Decision was motivated by a desire to ensure that the Tsai Brothers (who held 29.98% of the issued shares) retained control over the board, Mr Chen would have acted in bad faith and the Chairman’s Decision should be set aside[5].  

6.Regarding (2), the judge held that any suggested qualification to the finality of the Chairman’s Decision should be founded on established contractual or company law principles and rejected the arguments advanced for Mr Kwok that “in substance involved practically wholesale importing of administrative law concepts dealing with the review of administrative decisions into company law”.  Applying the principles that determine the implication of terms into a contract, he ruled that article 74 should not be read as subject to an implied qualification that it is not final and conclusive if the decision was one that no reasonable chairman could have reached if he properly directed himself as to his duties and had regard to all the facts he knew or should have known.  He held that the Chairman’s Decision can only be overturned if it was made in bad faith[6].

7.In respect of (3), the judge found on the evidence Mr Kwok had failed to prove that the Chairman’s Decision was made in bad faith[7]. It was not necessary to consider further whether, if the decision was in bad faith and should be set aside, the court should make a declaration effectively reversing the result of the EGM and change the constitution of the board[8]. The judge dismissed the originating summons and ordered Mr Kwok to pay the costs of Mr Chen and Convoy Global.

8.In this appeal, Mr Kwok sought to challenge the holding that article 74 is not subject to the qualifications contended for on his behalf and that the Chairman’s Decision can only be set aside for bad faith.  There is no challenge to the finding of fact that it has not been established that the Chairman’s Decision was made in bad faith.

9.In gist, it was submitted for Mr Kwok that it should be implied into article 74 that the decision thereunder can be set aside for unreasonableness in the Wednesbury sense, which has two limbs: (i) whether the right matters have been taken into account in reaching the decision; or (ii) whether the decision is one that no reasonable decision-maker could have reached.  It was contended that applying that standard, the Chairman’s Decision should be set aside as Wednesbury unreasonable.

10.As for the reliefs that should be granted by this court in the event the Judgment is set aside, Mr Kwok would not seek declarations regarding some of the resolutions passed at the EGM as claimed in the re-amended statement of claim as those resolutions have been overtaken by events between December 2017 and the present.  He would merely seek declarations that the resolutions removing four of the directors (who still remain on the board) were passed.

Factual background

11.The disputes between Mr Kwok and Convoy Global have come before the courts in quite a number of proceedings.  For present purpose, I gratefully adopt the summary in the judgment of Coleman J in the recent proceedings brought by Mr Kwok against the company in HCMP 1578/2020[9], supplemented by details in the 2018 Reasons and the 2020 Reasons of Harris J.

12.Convoy Global is a Cayman Islands company, formerly listed on the Main Board of the Hong Kong Stock Exchange[10]. As mentioned earlier, Mr Kwok is the registered owner of the Shares, being 29.91% of the issued share capital.

13.In other proceedings, HCA 2922/2017 (“Main Action”), Convoy Global and two other group companies as plaintiffs allege that certain shares allotted by Convoy Global in October 2015 were void or voidable.  Of the 41 defendants in the Main Action, Mr Kwok is named as the 27^th defendant.

14.The plaintiffs in the Main Action allege that the Shares, purchased by Mr Kwok from the open market via CCASS, can be traced from the disputed allotment, and ought to be rescinded as being null and void or invalid.  It is alleged that following a raid conducted on Convoy Global’s offices by the SFC in June 2017, Mr Kwok knowingly acquired the Shares from associates, nominees, and/or agents of a wrongdoer and fraudster called Roy Cho Kwai Chee in July to October 2017.  It is said that although the Shares were acquired from the open market, there were matching buy and sell orders whereby Mr Kwok’s acquisitions were matched with a co-ordinated disposal by Roy Cho’s associates, nominees, and/or agents (reflected inter alia by the unusual availability of a controlling stake, unusually high trading volumes, and minimal fluctuations in price).

15.The starting point of the claim is the allegation that over several years up to 2017, Roy Cho wrongfully and illicitly acquired and maintained secret ownership in and control over Convoy Global.  In a recent decision of the Court of Appeal in CACV 197/2020 ([2020] HKCA 537), a description of the main underlying premise for all the claims of the plaintiff in that action (a subsidiary of Convoy Global) was given in §64 as that:

“... Roy Cho exercised control and acquired ownership in Convoy through appointment of his associates, nominees and/or agents to occupy key positions in Convoy without himself holding a formal position. Through such secret control and ownership, he was able to commit the serious wrongs complained of, which in many respects involved manipulations of the corporate affairs of Convoy and other listed companies in a dishonest manner. As can be seen from the summary above, the scale of these wrongdoings is very substantial and sophisticated. Most of them were carried out through complicated schemes with dishonesty and fraud practised not only against Convoy or CCL, but also the other shareholders of the listed companies involved. In our judgment, the concealment of a person’s actual ownership and control over the affairs of a listed company in the manner that Roy Cho allegedly did in order to evade one’s fiduciary obligations to listed companies and side-step compliance with the rules imposed by regulatory authorities designed for the protection of the general investing public is a serious form of dishonest deception.”

16.The plaintiffs in the Main Action seek various declarations and injunctions so as to restrain Mr Kwok from exercising the voting rights of, or transferring or otherwise dealing with his interest in, the Shares.  But, it is to be noted that Convoy Global has never sought an interim injunction in the Main Action or in any other action.

17.On 30 October 2017, Mr Kwok requisitioned for an EGM to be held by Convoy Global to reconstitute its board of directors.  On 20 November 2017, Convoy Global gave notice that the EGM would be convened on 29 December 2017.

18.On 7 December 2017, the trading of Convoy Global’s shares was voluntarily suspended at the request of the company. Trading has not resumed to date.  On 8 December 2017, Convoy Global announced that three of its executive directors (including its then Chairman) were arrested by the ICAC.  On 9 December 2017, various new appointments were made to the board, including the current Chairman, Mr Chen.

19.On 18 December 2017, Convoy Global and two of its subsidiaries commenced the Main Action. 

20.On 19 December 2017, Mr Kwok’s solicitors wrote to enquire whether Convoy Global would apply for an injunction against him.  The answer was no.  The writ in the Main Action was served on Mr Kwok on 20 December 2017.

21.The EGM as requisitioned by Mr Kwok took place on 29 December 2017 as scheduled.  Article 63 of Convoy Global’s Amended and Restated Articles (“Articles”) provides that the Chairman of Convoy Global shall preside as chairman at every general meeting. The EGM was chaired by Mr Chen, then Interim Chairman of the board who was appointed on 9 December 2017.  Mr Kwok gave his proxies for the EGM which were accepted by Convoy Global and counted as part of the quorum of that meeting. But, following a Mr Lam’s objection to Mr Kwok’s voting right, citing the legal action against him (being the Main Action) to allege that the Shares were “problematic”, Mr Chen conferred with the company’s Cayman legal adviser, Ian Mann, as to how the objection should be dealt with. Mr Chen is recorded as saying:

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

22.A solicitor, Mr Stephen Wong of Stephenson, Wong & Co, represented Mr Kwok and briefly addressed Mr Chen.  Mr Wong objected to Mr Chen determining the matter and proposed that the controversy be left to the court to resolve. 

23.Mr Chen rejected this proposal and proceeded to deal with the objection.  The transcript records him as doing so in the following terms:

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

24.The reference of Mr Chen as to what he had received in the morning of the EGM was an unfair prejudice petition issued by a shareholder Madam Zhu Xiao Yan in HCMP 2773/2017. Madam Zhu has the same residential address in Hong Kong as Ng Wing Fai, an executive director and the group president of the Convoy group. The Zhu petition repeated the complaints in the Main Action.

25.Thus according to the Chairman’s Decision made under article 74, all of Mr Kwok’s votes in respect of the Shares cast in the EGM were excluded. If the votes in respect of the Shares had been counted, the proposed resolutions would have been passed, resulting in the removal of, among others, Roy Cho, Ng Wing Fai and Mr Chen from the board.

26.Article 74 provides as follows:

“If:

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

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

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

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

27.On 11 January 2018, Mr Kwok commenced the present proceedings in HCMP 41/2018 to set aside the Chairman’s Decision.

The arguments for Mr Kwok on appeal

28.Before the judge, Mr Johnny Mok, SC advanced the argument on behalf of Mr Kwok that the Chairman’s Decision could be challenged on the grounds it was manifestly wrong or Wednesbury unreasonable in the sense that the decision was one that no reasonable chairman could have reached if he properly directed himself as to his duties and had regard to all the facts he knew or should have known.  There were two components to this argument. The first was that article 74 gave the Chairman a contractual discretion and that such a discretion must not only be exercised honestly and in good faith, but also it must not be exercised unreasonably, arbitrarily, capriciously or irrationally.  The second was that article 74 should be read as subject to an implied qualification that a decision is not final and binding if wrong in the way as described above[11].

29.Mr Mok[12] essentially maintained the same stance on appeal. His primary contentions are encapsulated in §8 of his submission in which he mounted an attack on the judge’s ruling in that:

“(1)  voting right is an incident of shareholding, which is a property interest; and the Judgment (if it stands) would allow a chairman (who is not a tribunal; nor has it any judicial function) to summarily restrain a registered shareholder from exercising his voting right on the flimsy pretext of some bare allegations made against the shareholder (albeit that they are incorporated in a writ or petition), even though the votes, if counted, would have changed the outcome of the meeting;

(2)  it reverses the burden of the objector or other claimants against the shareholder of having to apply to court for an interim injunction by satisfying the well-established requirements, including (i) good arguable case; (ii) balance of convenience; (iii) undertaking as to damages; (iv) fortification;

(3)  it is contrary to the fundamental principles of fairness and natural justice under which a property owner (i.e. the shareholder) against whom a claim is made is entitled to the due process of the law, with evidence properly adduced and arguments properly presented before an independent tribunal before his property interest is summarily curtailed or restricted;

(4)  there is simply no basis upon which the chairman was able to rationally determine whether or not the unsubstantiated claims made against the shareholder should or should not be allowed to override the property interest in his shares, thus his determination (based on no more than his absence of bad faith) is wholly arbitrary and un-principled;

(5)  it allows absurd decisions to be made by the chairman, in the sense that they are decisions which no reasonable chairman would rationally have made by taking into account all relevant considerations and disregarding all irrelevant considerations;

(6)  it “weaponizes” Art 74, in that it allows those in control of the company to circumvent a resolution to oust them or otherwise improve the governance of the company (e.g. by changing its directors) by engineering an objection to a shareholder’s shares and putting in place a chairman who is prepared to act on the bare allegations of the objection at face value;

(7)  it would negate the principle, recognised at common law and Art 14 of the Company’s Articles, that a company takes no cognizance of any trust (whether express, implied or constructive) (“the Non-recognition of Trust Principle”); and

(8)  it would inevitably result in abuses of Art 74 (or even a floodgate of abusive practice) which subverts the principle that a company is to be governed on the basis of decisions made by the shareholders (as reflected in the majority of votes cast referable to their respective shareholdings) and by the directors who are properly appointed by shareholders by such procedure.”

30.Mr Mok relied heavily on the decision of the English Court of Appeal in Byng v London Life Association Ltd [1990] Ch 170, a case he cited to Harris J but which was not referred to by the judge in the 2020 Reasons.  The court in that case was concerned with the residual power at common law[13] of the chairman of a meeting to adjourn the meeting to another time and place where, to his knowledge, it could not be attended by a number of the members who had taken the trouble to attend the original meeting and could not even lodge a proxy vote.  It was held that although the chairman acted in good faith, he was under a duty to act reasonably with a view to facilitating the limited purpose for which the residual power to adjourn the meeting existed.  As the chairman had failed to take into account relevant factors (that there was no compelling time factor for the meeting to continue that day and that members unable to attend the afternoon meeting could not arrange proxies for the adjourned meeting in the time available), his decision to adjourn the meeting to another venue was invalid.

31.In allowing the appeal and declaring the meeting was not validly adjourned, Browne-Wilkinson V-C had this to say at 188G to 189D:

“This residual common law power is itself tightly circumscribed by reference to the objects for which it exists. … The power is to regulate proceedings “so as to give all persons entitled a reasonable opportunity of voting.”  The chairman must “do the acts necessary for these purposes.”  The power to adjourn is only validly exercised if “no injurious effect were produced.”  I would add that at a company meeting a member is entitled not only to vote but also to hear and be heard in the debate.  Therefore it is the very purpose of the power to facilitate the presence of those entitled to debate and vote on a resolution at a meeting where such debate and voting is possible.  To my mind, this is inconsistent with the view that the exercise of the power can only be impugned on the ground of lack of good faith.  In my judgment the chairman's decision must also be taken reasonably with a view to facilitating the purpose for which the power exists.  Accordingly the impact of the proposed adjournment on those seeking to attend the original meeting and the other members must be a central factor in considering the validity of the chairman's decision to adjourn.

… The chairman's decision will 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, i.e. the test is the same as that applicable on judicial review in accordance with the principles of Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 K.B. 223. This was the approach adopted by Uthwatt J. in Second Consolidated Trust v. Ceylon and Amalgamated Tea and Rubber Estates Ltd. [1943] 2 All E.R. 567 where he held a chairman's decision invalid on the grounds that he had failed to take into account a relevant factor.”

32.Woolf LJ agreed with Browne-Wilkinson V-C that the chairman in exercising his discretion did not take into account considerations which he was required to take into account, with the result that the adjourned meeting was invalid. But he would not categorise the chairman’s conduct as Wednesbury unreasonable (at 196H).

33.Mr Mok submitted that Byng is in line with well-established principles that an apparently unqualified power or discretion given to a party to a contract should generally be construed as being subject to some implied restriction that the power or discretion can only be exercised in good faith, rationally and for a proper purpose, and not arbitrarily or capriciously or in a manner which is not bona fide.  Such restriction is implied to give effect to the reasonable expectations of the parties to the contract.  The limits against abuse of power apply to a decision of contractual power or discretion which is “final and binding on the other party in the sense that a court will not substitute its own judgment for that of the party who makes the decision” and “on its face is unqualified”.  In support of the above propositions, he cited among other cases[14] Horkulak v Cantor Fitzgerald International [2005] ICR 402 at §§27 to 30; Brogden v Investec Bank Plc [2014] EWHC 2785 (Comm) at §§91, 95 to 100; Braganza v BP Shipping Ltd [2015] UKSC 17 at §§18 to 30, 102 to 103; Tadjudin Sunny v Bank of America, National Association, CACV 12/2015, 20 May 2016, at §§46 to 55.

34.It was contended that the implied restriction as submitted would satisfy the requirements for the implication of terms in a contract as adopted by the Court of Appeal in Lo Yuk Sui v Fubon Bank (Hong Kong) Limited, CACV 47/2017, 1 March 2019[15], which followed the well-established test for the implication of terms in a long line of authorities[16]. Mr Mok prayed in aid one of the comments of Lord Neuberger of Abbotsbury PSC on the summary given by Lord Simon in the BP Refinery case, that necessity for business efficacy involves a value judgment, that the test is not one of “absolute necessity”, and that “a term can only be implied if, without the term, the contract would lack commercial or practical coherence” (Marks & Spencer plc v BNP Paribas Securities Services at §21).  He postulated that if the Chairman’s decision under article 74 may be challenged for bad faith as an implied restriction to his power, there is no reason why other manifestations of abuse of power, such as an irrational, capricious or unfair decision, should not also qualify as implied restrictions, as in the case of Byng.

35.Mr Mok argued that the judge was in error in holding that an implied restriction of the power in article 74 along the lines as he had submitted is neither necessary nor obvious, as the judge had failed to address the essential issue, which is whether the Chairman had the power to “summarily decide” under article 74 that the Shares should not be counted on the ground that there were claims being made in legal proceedings which, if successful, might invalidate the Shares, “where no interim injunction had been sought to restrain Mr Kwok from voting his shares.”  Counsel again emphasised that the chairman of a meeting is not suited to the task that is akin to determining an application for an interim injunction to restrain a shareholder from voting his shares.  And in purporting to exercise his discretion under article 74, Mr Chen had no legal or evidential basis for reaching a “rational and principled decision” in determining that Mr Kwok’s votes should not be counted.

Analysis

36.A convenient statement of the relevant principles on the implication of contractual terms is found in the judgment of Lord Hughes in Nazir Ali v Petroleum Company of Trinidad and Tobago at §7[17]:

“It is enough to reiterate that the process of implying a term into the contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated.  A term is to be implied only if it is necessary to make the contract work, and this it may be if (i) it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, “Oh, of course”) and/or (ii) it is necessary to give the contract business efficacy. Usually the outcome of either approach will be the same.  The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition.  The fairness or equity of a suggested implied term is an essential but not a sufficient pre-condition for inclusion.  And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement.”

37.One must bear in mind that “whatever term may be implied will depend upon the terms and the context of the particular contract involved” (Braganza v BP Shipping Ltd, per Lady Hale at §31).  For this purpose, it is of vital importance to understand precisely what article 74 empowers the Chairman to do.

38.As the judge has held, article 74 contains a mechanism that allows the Chairman to decide at a meeting the substantive objection and its possible impact on the voting in respect of the resolution.  “In practice one would expect the chairman to consider whether the numbers involved are sufficient to make any difference to the result of a vote.  If they do not he might decide not to spend time and invite controversy by deciding the substantive issue; but if it does make a difference article 74 empowers him to do so”[18].

39.Whilst noting that the right to vote is a component of the property right represented by the shares in a company, the judge found nothing inherently objectionable in a shareholder restricting the exercise of his rights arising from a shareholding or in the members by the statutory contract represented by the articles of association agreeing to regulate the process by which the company in general meeting comes to pass resolutions[19]. I think that must be right.  The judge described the scope of the Chairman’s power under article 74 and explained the effect and implications of the Chairman’s decision made under that provision in this manner:

“The chairman decides whether a vote should or should not be counted for the purposes of determining whether a resolution has been passed. The chairman is not determining any underlying dispute, which has given rise to an objection on which he is called to rule.”[20]

“[as to] deciding precisely what decision is final and conclusive under article 74. In my view, it is whether the votes attaching to particular shares should be admitted for voting purposes at a particular general meeting. The issue would need to be revisited at each meeting at which the same objection is raised and the chairman would have to determine it on the basis of the information before him at that time.”[21]

“Understanding what is being decided in my view helps explain why there is nothing objectionable in the members agreeing in the articles that in the event of a dispute about whether votes should be recognised the chairman should make a final and conclusive determination, subject to exceptional circumstances, a subject to which I return in [50]. It is desirable, especially in the case of a public company, that so far as possible that following a general meeting there is certainty and finality about the status of resolutions put to members. If a member aggrieved either by having votes allowed or disallowed can come to court and argue that the decision was in error the general body of members and third parties will be faced with uncertainty. …”[22]

“Article 74 does not give the Chairman a discretion whether or not to allow or disallow votes. It requires him to decide at the meeting whether votes should be allowed or disallowed on the basis of the information he has at the time”.[23]

40.There is no serious criticism to the above description given by the judge, which I accept is correct.

41.It was in light of the above context that the judge considered whether article 74 should be read as subject to the kind of implied qualification as contended by Mr Mok.  It is best to set out his reasoning in the 2020 Reasons in full:

“23.  There is something immediately attractive in the argument that the shareholders and the Company must have envisaged when agreeing the articles that a manifest mistake by the Chairman exercising his right under Article 74 to determine an issue arising during the course of a general meeting would be rectifiable. It seems unlikely, it might reasonably be suggested, that in the event of a chairman inadvertently making an obvious error, which he acknowledges when after a meeting has been concluded it is pointed out to him, a shareholder cannot ask the court to rectify the mistake. I agree that it seems unlikely that such an error could not be rectified. The starting point in exploring this issue is to consider whether there are existing mechanisms for remedying indisputable mistakes. It seems to me that there are. First, that in the case of a manifest and undisputed factual error such, for example, as a chairman announcing that a resolution has been passed, when it had not, because of an arithmetical mistake in counting votes, there is nothing to stop a chairman revising his decision. In other cases, which may be less straightforward and the subject of some controversy, another meeting convened for the resolution to be considered afresh, subject to any provision in the articles that requires a period to elapse before the same resolution can be put to shareholders from fresh consideration. This is a more practical and quicker ways of remedying a manifest error than going to court.

24.  In obvious cases it does not seem to me that the implication of a term is either necessary or obvious because a chairman’s decision is not binding save for the purposes of a particular resolution put to shareholders at a particular meeting and any error is always open to correction. In any event even if one takes the view that Article 74 is subject to qualification in the case of a manifest error this is not such a case in my view and it is of no assistance to Mr Kwok. What is required is a right to seek rectification by the court of a decision that is made in good faith and not indisputably wrong, but can be demonstrated to be sufficiently bad to justify the court intervening. Is it necessary to imply such a right or obvious that if when the articles were being prepared shareholders, who understood the issue and argument, had been asked if there was such a right of review they would have said “obviously”.

25.  It is uncontroversial that Mr Chen’s decision can be challenged if made in bad faith and, further, does not determine whether or not Mr Kwok is entitled to vote the Shares registered in his name at future general meetings. Whether or not Mr Kwok is the beneficial owner of the Shares, bought them as a genuine investment and is entitled to vote them is a question ultimately to be determined by the court and will be determined in the Principal Action. In considering whether or not a term should be implied that permits Mr Kwok to challenge Mr Chen’s decision it is necessary to consider whether, against this background, a right to ask the court to consider whether or not Mr Chen’s decision was manifestly bad has any utility.

26.  It seems to me that it does not. In most cases in which there is a dispute as to whether or not a registered shareholder is entitled to vote I doubt if there would be much difference in terms of bringing the dispute on to trial, between (1) a case in which the court is being asked to determine if the registered shareholder was entitled to vote the shares and (2) a case in which the court is asked to consider whether or not a decision by the chairman of a meeting not to admit the shares for voting purposes was manifestly bad. The present case, although more complex than most, is an example. The Company filed extensive submissions before trial arguing that in the event that I took the view that Mr Chen’s decision should be overturned it should be allowed to be heard on the question of relief and, in particular, address Mr Kwok’s claim that the resolutions should be reversed thus changing the constitution of the board. As I understand the Company’s case, it wishes to argue that the Court should not change the present constitution of the board until after the trial of the Principal Action. It is these kinds of complexities that are likely in many cases to mean that reading Article 74 as subject to an implied qualification that the Chairman’s decision is not final and conclusive if it can be demonstrated that it is manifestly bad, is not going to achieve its intended effect, namely, allowing a dissatisfied shareholder to quickly overturn an erroneous decision.

27.  A further complication is that given the circumstances in which such decisions have to be made, it may be difficult to assess whether the decision, which it must be assumed for these purposes was made in good faith, fell within or outside the range of decisions a chairman might reasonably have been expected to be make. Once again the present case demonstrates the complexities.  It seems to me that it is arguable that amongst the range of reasonable decisions that might have been made was not to put to the vote any resolution, which the Chairman, Mr Chen, understood to be controversial and adjourn the meeting until either the parties had obtained a court order, which provided the Chairman with a direction as to how to determine the issue or allowed Mr Kwok to provide an answer to the objection to the Shares being voted.  This is not, it will be appreciated, what Mr Kwok wants.  He says that the hypothetical chairman should have allowed him to vote the Shares, which in my view it cannot sensibly be said was the only reasonable decision open to the Chairman in the circumstances.”

42.I think there is much to commend in the judge’s reasoning.  It is consonant with the approach in old English authorities (Wall v London and Northern Assets Corporation [1899] 1 Ch 550; Wall v Exchange Corporation Ltd [1926] 1 Ch 143)[24] that in the absence of fraud or mala fides, a chairman’s decision not to allow a vote to which objection had been raised at a meeting was treated as final, pursuant to an article which provided that votes tendered at a meeting and not disallowed should be deemed valid for all purposes.  Pollock MR had this to say in Wall v Exchange Corporation Ltd at 146 to 147:

“The chairman is to exercise his power and come to a decision whether votes which are in question shall be disallowed or not. … He acts in effect as if he was an arbitrator chosen by the parties concerned and whose decision is to bind the parties on the question whether these votes are to be treated as valid votes or not. … it appears to me that, in the absence of any charge of fraud or misconduct which would be sufficient to invalidate the award of an arbitrator, Mr Okell, as chairman of the meeting, was entrusted with the power under art. 58, and, for the purpose of getting through the business of the meeting, was entrusted with powers which required him to decide whether or not the votes should be disallowed. He has come to the conclusion that they ought not to be disallowed, with the consequence that they are to be deemed to be valid, and that decision by him cannot now be set aside, because the article makes his decision binding upon the parties who were attending at the meeting.”

43.Mr Mok referred us to the judgment of Sargant LJ in that case at 148, in which the judge drew a distinction between a decision that disallows an objection to votes being counted and a decision that allows an objection and results in votes not being counted.  I agree with Harris J that this distinction is erroneous, as both decisions impact on the right to have resolutions put to members determined by votes lawfully cast[25].

44.As Harris J has stated, if members of a company have agreed to a particular method of regulating the business of the company, the court should give weight to the agreement contained in the articles in light of party autonomy and this should weigh in favour of upholding the finality of a chairman’s decision[26].

45.In contrast, Byng was not concerned with the effect of a “final and conclusive” provision such as article 74, but the residual power of a chairman to adjourn meetings at common law.  The case of Second Consolidated Trust v. Ceylon and Amalgamated Tea and Rubber Estates Ltd. referred to in Byng contained a clause that “unless a poll is demanded by the chairman … a declaration by the chairman that a resolution has been carried … or lost or not carried … shall be conclusive evidence of the fact …”.  What was reviewed by Uthwatt J in that case was not the chairman’s declaration, which was deemed to be conclusive by the relevant clause, but the prior exercise of the chairman’s power not to demand a poll (at 569H to 570A).

46.Mr Maurellet, SC, who appeared for Mr Chen[27], drew our attention to a decision of the Grand Court of the Cayman Islands in Re China Agrotech Holdings Ltd, FSD 68/2019, 16 July 2019.  This case is of some significance as the articles of association of Convoy Global are governed by Cayman law and the provision considered by Segal J in Agrotech is identical to article 74.  Segal J’s judgment was given prior to the 2020 Reasons but he had considered the 2018 Reasons and noted that Harris J had not yet decided whether a challenge would be permitted on the basis of Wednesbury unreasonableness.  He came to the same view as Harris J subsequently did and held that it has not been established by the shareholder that Wednesbury unreasonableness as a basis for setting aside the chairman’s decision is sufficient in law, albeit noting that this is a point which requires full argument and citation of authority (§§77 and 79(e)).

47.The context of the authorities cited by Mr Mok in support of his contention that there should be an implied restriction on the Chairman’s power on the basis of Wednesbury unreasonableness is very different. Horkulak v Cantor Fitzgerald International, Brogden v Investec Bank Plc, Braganza v BP Shipping Ltd and Tadjudin Sunny v Bank of America, National Association were all concerned with provisions in a contract of employment.  As explained by Lady Hale and Lord Hodge in Braganza, an employment contract is of a different character from an ordinary commercial contract and any decision-making function entrusted to the employer has to be exercised in accordance with the implied obligation of trust and confidence.  The personal relationship which employment involves may justify a more intense scrutiny of the employer’s decision-making process than would be appropriate in some commercial contracts (at §§32 and 55).

48.Mr Maurellet made the point that unlike cases where a contracting party is empowered to decide on a particular state of affairs, the Chairman who exercises the power under article 74 is not the primary decision-maker.  The impact of his decision at any given meeting is temporary and can be reversed at another meeting.  His decision does not tie the hands of the court and the court is the final arbiter of the substantive dispute as to the right to vote.  He submitted that the context of this situation is akin to the provision in an agreement that an adjudicator’s decision “shall be binding until the dispute is finally determined by legal proceedings, by arbitration … or by agreement” (Bouygues UK Ltd v Dahl-Jensen UK Ltd [2001] CLC 927).  It was held in that case that the parties had provided a method of summary procedure for the enforcement of payment provisionally due under a construction contract and the adjudicator’s decision is binding on the parties notwithstanding a manifest error in calculations until the dispute is finally determined by legal proceedings, arbitration or by agreement.  This seems to me to be a valid point.

49.Much was made on behalf of Mr Kwok that the company has not applied for an interim injunction in the Main Action or in any other action to restrain him from voting the Shares.  I do not think this is a point of substance[28]. It may equally be said that Mr Kwok has not applied for appropriate relief from the court, whether interim or final, based on the establishment of the premise that he is a duly registered shareholder of the Shares.  I note that Convoy Global had argued before Coleman J if Mr Kwok were to apply for an interim injunction against the company to compel it to recognise his voting rights, the ‘finality’ effect of such an injunction would mean that Mr Kwok would have to establish that the company has no realistic prospect of successfully invoking any ground to refuse to recognise his votes[29].

50.Whether a restriction should be implied in the manner as contended by Mr Mok is a matter of value judgment.  The judge has considered the particular context of article 74 and was not persuaded that it is necessary or obvious that such a restriction should be implied.  I agree with the judge’s reasoning.  I do not think without the proposed restriction, article 74 would lack commercial or practical coherence.  There is sufficient protection against abuse in that the Chairman’s decision may be challenged for bad faith and if it is exercised knowingly for an improper purpose.

51.It is not necessary to consider the further arguments that if the Chairman’s Decision could be challenged on the basis of Wednesbury unreasonableness, whether that would be met on the facts of this case.  Nor is it necessary to deal with the question of relief.

52.I would dismiss the appeal of Mr Kwok.  There is no dispute that costs should follow the event.  I would order him to pay the costs of Mr Chen and Convoy Global in this appeal.  In his costs order nisi, Harris J certified the matter as fit for two counsel.  I propose to do likewise and make a certificate for two counsel in this appeal in respect of Mr Chen and the company.

Hon Barma JA:

53.I agree with the judgment of Kwan VP.

Hon G Lam J:

54.I also agree.

Mr Johnny Mok SC and Ms Frances Lok, instructed by, and Mr Frederick Hui (Solicitor Advocate) of, Zhong Lun Law Firm, for the Plaintiff (Appellant)

Mr José Maurellet SC, Mr Jason Yu and Ms Jasmine Cheung, instructed by Charles Chu & Kenneth Sit, for the 1^st Defendant (1^st Respondent)

Mr William Wong SC, Mr Michael Lok and Mr Lai Chun Ho, instructed by Charles Chu & Kenneth Sit, for the 5^th Defendant (2^nd Respondent)