Dennis Kwok Hon Ming v. Poon Sui Cheong Albert and Others

CACV 9/2017
and CACV 169/2017

[2021] HKCA 1629

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 9 AND 169 OF 2017

(ON APPEAL FROM HCMP NOS 1526, 1527 AND 1528 OF 2013)

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(ON APPEAL FROM HCMP NO 1526 OF 2013)

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AND

(ON APPEAL FROM HCMP NO 1527 OF 2013)

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AND

(ON APPEAL FROM HCMP NO 1528 OF 2013)

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(Actions consolidated by the Order of the

Honourable Mr Justice Harris dated 27 January 2015)

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Before:  Hon Cheung JA, Barma JA and Harris J in Court

Date of Decision: 3 November 2021

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D E C I S I O N

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Hon Barma JA (giving the Decision of the Court):

1.On 24 April 2019, this court handed down its judgment in CACV 9/2017, CACV 74/2017 and CACV 169/2017 allowing the appeal of the Majority Shareholders against the judgment of Deputy High Court Judge R Ismail SC (“the judge”) dated 14 December 2016, and dismissing the petition. We also made costs orders nisi that the costs of the appeals in CACV 9/2017 and 169/2017 be paid by the petitioner to the Majority Shareholders, and that there be no order as to the costs of CACV 74/2017.

The Notice of Motion

2.On 22 May 2019, the petitioner filed a Notice of Motion in CACV 9/2017 seeking leave to appeal our judgment to the Court of Final Appeal.

3.The essential facts of this matter were set out in [5] to [14] of our judgment and will not be repeated here.  In this Decision, we use the same expressions and abbreviations as were used in our judgment.

4.By his Notice of Motion, the defendant seeks leave to appeal to the Court of Final Appeal on the following grounds:

(1)  Exclusion of managers from management is illegal; (“Ground 1”)

(2)  CA should not intervene highly fact sensitive decision made at court below; (“Ground 2”)

(3)  Inappropriate removal of buyout remedy due to misconduct; (“Ground 3”)

(4)  Majority do have obligations to sell noncore lands.” (“Ground 4”)

Ground 1

5.The complaint under Ground 1 relates to the question of the removal of the petitioner and the 5^th respondent as managers, which is dealt with in our judgment at [53] to [64]. We found that:

(1)  there must be implied into the Shareholders’ Agreement a term entitling the shareholders to terminate the appointment of a manager for cause; and 

(2)  the termination of the petitioner’s position as manager in this case was for cause and did not amount to a breach of the Shareholders’ Agreement or unfairly prejudicial conduct.

6.This is clearly an issue arising from the specific context of the Shareholders’ Agreement and the conduct of the parties (especially that of the petitioner) in this case. It is well-established that fact-sensitive complaints relating to the specific circumstances of the case, or questions which cannot be answered in the abstract without retrying the facts are not questions of great general or public importance: Safder Tehseen v. Permanent Secretary for Security (2014) 17 HKCFAR 567, at §14; and Tsang Chiu Wing Florence v Li Kin Kan Samathur (FAMV 38 & 39/2014, 10 February 2015), at §12.

7.Further, we do not think that the petitioner’s proposed ground of appeal has any reasonable prospect of success:

(1)  His contention that the three managers who collectively held 64.3% of the shares at the time would never have agreed on their removal for any cause is not to the point. Even if a manager would be unlikely to agree to his/her own removal in a particular case, it does not follow that in his capacity as a shareholder, he would oppose the notion that a manager could be removed for a sufficiently serious cause. As we held at [58] of our judgment, it would be surprising if a manager could not be removed even for misconduct which would have the effect of undermining the trust and confidence of the shareholders.

(2)  The petitioner relies on the prevention principle to argue that the Majority Shareholders’ removal of him as manager prevented him from complying with other provisions of the Shareholders’ Agreement and to earn entitlement to bonuses. His reliance on the principle is misconceived. The essence of the prevention principle is that a person is not permitted to take advantage of his own wrong (see Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 §§96-98). But given our finding that there was an implied term entitling the shareholders to terminate the appointment of a manager for cause, and that such cause existed in this case, no question of the Majority Shareholding taking advantage of their own wrong arises, and the prevention principle has no application.

(3)  The petitioner also contends that the withdrawal of funds from the account of Top Master to his personal account did not amount to misconduct which was serious enough to justify his removal as manager. We dealt with this in detail at [60] of the judgment.

8.Ground 1 therefore does not raise any question of law of great general or public importance and is merely an attempt to retry the facts.

Ground 2

9.Under Ground 2, the petitioner contends that we erred in intervening in the judge’s factual findings in relation to his misconduct.

10.No question of law of great general or public importance arises from this ground. The approach of the appellate court in the intervention of findings of fact is very well known: see for example Young Ivy Shui Heung v Yau koon Sum [2019] HKCA 221 at §12, Ting Kwok Keung v Tam Dick Yuen (2020) 5 HKCFAR 336, at §§32-47, and So Kai Hau v YSK2 Engineering Co Ltd [2019] HKCA 617 §72 citing Todd v Adams [2002] CLC 1050 §§60-64. Appeals against findings of primary fact are approached differently from appeals against findings of inferences or conclusions drawn as a result of findings of primary fact. In principle, it is less difficult for an appellate court to interfere in the latter situation.

11.This court did not overturn the judge’s findings of primary fact. The judge found at [146] to [147] and [168] to [170] of the judgment below that the petitioner transferred more than HK$1.2 million of the funds received from the unilateral acceptance of the Government’s resumption offer to his personal account without the knowledge or approval of the other shareholders. We proceeded on the basis of such findings when concluding that the petitioner’s misconduct was serious enough to justify his removal petitioner as manager ([60] of our judgment), and were entitled to do so where the judge had reached a conclusion which she could not have properly reached in light of the primary facts: see Todd v Adams at [61].

12.Ground 2 therefore also does not raise any question of law of great general or public importance.

Ground 3

13.Under this ground, the petitioner contends that this court erred in setting aside the buy-out remedy granted by the judge on account of the petitioner’s misconduct.

14.Again, this is a fact-sensitive complaint relating to the specific circumstances of the case, which cannot be answered in the abstract without retrying the facts.

15.Further, any buy-out remedy is premised upon a finding of unfair prejudice. Ground 3 proceeds on the erroneous assumption that the Majority Shareholders were guilty of unfairly prejudicial conduct. This is not what we held, and does not arise from our judgment.

16.We in fact found at [65] to [66] of our judgment that, as the judge’s two principal findings of unfairly prejudicial conduct (i.e. failure to approve the sale of Non-Core Land and termination of the petitioner’s position as manager) could not stand, the two remaining complaints (failure to agree to the distribution of the resumption compensation monies and the complaint to the police) did not amount to unfairly prejudicial conduct. There being no finding of unfair prejudice, no question of a buy-out remedy could arise. Consequently, no question of “forfeiting” the buy-out remedy on account of the petitioner’s misconduct arose.

17.In the circumstances, Ground 3 also does not raise any question of law of great general or public importance.

Ground 4

18.Ground 4 relates to the question of “whether the majority have the obligations to cooperate in approving the sales of noncore lands for shareholders to recuperate their initial investment that they have agreed to dispose at a price higher than valuation necessary for business efficacy” (as the petitioner puts it in his written submissions).

19.Again, the formulation of this ground is heavily fact-specific and particularly relates to the construction of Clause 6(2) of the Shareholders’ Agreement, as analysed at [41] to [52] of our judgment. The question itself has no universal or general application and raises no question of great general or public importance.

20.This court read the term “the shareholders will have to approve the sale first” as a precondition to be satisfied before the remaining provisions of the Clause 6(2) could take effect, rather than an obligation on the shareholders to approve such sales, explaining that otherwise the wording would be otiose.

21.Moreover, this proposed ground of appeal has no reasonable prospect of success.

22.The petitioner contends that given the stated purpose in Clause 6[1] of selling Non-Core Lands to recoup the initial investment, there should be an express or implied obligation on the shareholders to approve the sales as a matter of business efficacy or by virtue of a duty to co-operate/act in good faith.

23.Business efficacy does not assist the petitioner, as the Shareholders’ Agreement is effective without such an implied term: see the analysis at [41] to [52] of our judgment. Further, even if a duty to co-operate/act in good faith did arise in this case, it does not follow that the shareholders had no choice but to approve a sale; it is perfectly possible that, acting in good faith, they might still have valid reasons to oppose a sale.

24.Further, the petitioner’s contention that “business judgment cannot be used to override an express term in a unanimous shareholders agreement” is irrelevant. We found that Clause 6[2] is an express term of the Shareholders’ Agreement providing that the shareholders’ approval is a precondition of any sale therein, and that it does not impose any obligation on the shareholders to approve the sale of noncore land ([52] of our judgment). That being the case, no issue of business judgment being used to override an express term arises.

25.Therefore, Ground 4 also does not raise any question of law of great general or public importance.

The “or otherwise” limb

26.The usual practice of this court is not to grant leave on this limb but to leave the question for the Appeal Committee of the Court of Final Appeal to decide. There are no special circumstances in the present case that warrant departure from the usual approach.

27.For the foregoing reasons, the Notice of Motion is dismissed, with costs to the Majority Shareholders, to be taxed on the party and party basis with certificate for 2 Counsel.

Variation of costs order nisi

28.By two summonses (“the Variation Summonses”) filed in CACV 9/2017 and CACV 169/2017 respectively, and both dated 8 May 2019, the Majority Shareholders seek to vary the costs order nisi at [82] of the our judgment (summarised in [1] above) to the effect that:

(1)  In relation to CACV 9/2017:

(a)   costs of the appeal and all costs below including reserved costs be paid by the petitioner to the Majority Shareholders with certificate for 2 Counsel, on a party-to-party basis, to be taxed if not agreed;

(b)   costs of the summons (“the Stay Summons”) filed on 18 April 2017 seeking a stay of execution and the summons dated 22 January 2018 seeking to restore the Stay Summons be paid by the petitioner to the Majority Shareholders with certificate for 2 Counsel, on a party-to-party basis, to be taxed if not agreed;

(2)  In relation to CACV 169/2017, costs of the appeal be paid by the petitioner to the Majority Shareholders with certificate for 2 Counsel, to be taxed if not agreed.

29.The petitioner indicates in his written submissions dated 19 June 2019 that in respect of the variations sought by the Variation Summonses, he only objects to the following:

(1)  In respect of CACV 9/2017, he opposes awarding reserved costs to the Majority Shareholders, on the basis that the proceedings had concluded and the Majority Shareholders had not previously raised the question of reserved costs.

(2)  In respect of CACV 169/2017, he objects to the granting of certificate for two counsel, on the basis that this was a simple appeal regarding damages for breach of the Shareholders’ Agreement which did not require the participation of two counsel.

30.These objections are without merit.

31.As for the reserved costs in CACV 9/2017:

(1)  One of the purposes of the Variation Summons is to raise the question of reserved costs, and for this purpose the proceedings are not yet concluded. It is not suggested that the Majority Shareholders should or could have done so at an earlier stage, nor does it appear to us that there was any suitable opportunity for them to have done so.

(2)  Most of the reserved costs relate to or are dependent on the valuation of the petitioner’s shares and/or the petitioner’s interim payment application. The Majority Shareholders being the successful parties in the action are prima facie entitled to these costs, and the petitioner has not put forward any valid reason to deprive the Majority Shareholders of them.

32.As to the question of a certificate for two counsel in CACV 169/2017, CACV 169/2017 was heard together with CACV 9/2017, and matters raised in the Notice of Appeal in CACV 169/2017 were also raised in the petitioner’s Respondent’s Notice in CACV 9/2017. The petitioner does not dispute that certificate for two counsel in CACV 9/2017 is justified. It would be unrealistic and artificial to seek to segregate the two appeals, which had such substantial overlap, when dealing with costs. It follows that certificate for two counsel in CACV 169/2017 should also be granted. That said, the fact that there are overlapping issues in the two appeals and therefore potential duplication of work is matter that can, and no doubt will, to be taken into account in taxation to the extent that may be appropriate.

33.Accordingly, the Variation Summonses are allowed with costs to the Majority Shareholders, to be summarily assessed on paper. The Majority Shareholders lodged their Statement of Costs in connection with the Variation Summonses for summary assessment on 26 June 2019. The petitioner is hereby directed to file and serve his List of Objections (if any) within 35 days of the date hereof, to which the Majority Shareholders may file and serve a response (if any) within 14 days thereafter. This court will then assess the costs on a gross sum basis and notify the parties of the outcome of such assessment.

Re: Leave to appeal to the Court of Final Appeal (CACV 9/2017)

Written submissions by the petitioner, acting in person

Written submissions by Mr Victor Joffe, Mr Justin Ho and Mr Tom Ng, instructed by Lo & Lo, for the 1^st to 4^th and 6^th to 8^th respondents

No written submissions by the 5^th respondents

Re: Variation of costs order nisi (CACV 9/2017 and CACV 169/2017)

Written submissions by the petitioner, acting in person

Written submissions by Mr Victor Joffe, Mr Justin Ho and Mr Tom Ng, instructed by Lo & Lo, for the 1^st to 4^th and 6^th to 8^th respondents

No written submissions by the 5^th respondents

No written submissions by the 9^th respondent in HCMP 1526/2013, 1527/2013 and 1528/2013