Hong Kong Estates Ltd and Others v. San Imperial Corporation Ltd
Read the full judgment text of CACV 62/1980 on BabelCite. This Court of Appeal judgment was delivered on 6 June 1980.
1. On the 13th May this year the Official Receiver was appointed provisional liquidator of the San Imperial Corporation Ltd. San Imperial does not carry on business in its own right. It works through, and keeps its assets in, subsidiary companies.
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CACV000062/1980
----------------- Coram: Cons, J.A., Yang and Bewley, JJ. Date of Judgment: 6 June 1980 (reduced to writing 23rd June, 1980) ----------------- JUDGMENT ----------------- Cons, J.A.: 1. On the 13th May this year the Official Receiver was appointed provisional liquidator of the San Imperial Corporation Ltd. San Imperial does not carry on business in its own right. It works through, and keeps its assets in, subsidiary companies. 2. The appellant companies are three wholly owned subsidiaries of San Imperial. The bulk of the shares are held directly by San Imperial, the small remainder in trust for them by one James Coe. He and three other persons form the board of directors of each of the three companies. 3. On the day following his appointment, the Official Receiver wrote to the board of each company requiring the board forthwith to call a meeting of the company for the purpose of passing certain resolutions which would have the effect of replacing each board with nominees of his own. The Official Receiver was entitled to make that demand by virtue of section 113 of the Companies Ordinance, for he then held more than one-tenth of the paid up capital of each company. If the directors did not comply with the demand within twenty-one days, which would have been about the 5th June, the Official Receiver would have been entitled to convene the meetings himself. 4. Long before that, on the 20th May, he took out an originating summons under section 114(2), asking the court to convene the meetings, on the ground that it was impracticable to call or conduct them in any manner prescribed by the articles or the Ordinance. The affidavit in support suggested that the directors were unlikely to comply with the earlier requisitions, and that even if they did, it was unlikely that Mr. Coe would attend the meetings, thereby precluding a valid quorum. 5. The summons eventually came on for hearing on the 3rd June. At the eleventh hour Mr. Coe filed an affidavit showing that the directors had by then convened the necessary meetings, for the 20th June, and undertaking himself to be present at them. We understand that counsel confirmed the undertaking at the hearing. Nevertheless the judge made an order that the three meetings should be held that very afternoon and that one member in person or by proxy should constitute a valid quorum. 6. The companies appeal against that order. They argue that once the initial objections raised to the calling under section 113 had been disposed of, it could no longer be described as impracticable. 7. The Official Receiver stresses the urgency of the situation. He had realized from the beginning the need to get in the assets of the three companies otherwise they might well be lost to San Imperial. He viewed the conduct of Mr. Coe and his fellow directors with suspicion, in particular their initial lack of reaction to his requisitions and what he considered their pointless appeal in these proceedings. He fears that they are clinging to office for as long as possible with some ulterior motive. 8. It would seem that the judge below was influenced by these considerations to conclude that immediate meetings were necessary. Once that is accepted, it is argued, section 114(2) is needed, for it was impracticable to call or conduct immediate meetings, particularly as Mr. Coe was not in Hong Kong at the time; the words "a meeting" must be taken to mean "the meeting which is intended". 9. In my view that is a distortion of the language of the section. I see no reason to restrict the indefinite article chosen by the Legislature or to insert "immediate" or other words before "meeting". In the present instance it was practicable to call meetings. Some had just been called. If immediate action were necessary, other courses were open to the Official Receiver. In my view section 114(2) was not appropriate and the order of the judge ought to be set aside. Yang, J.: 10. It is with diffidence that I dissent from the judgments of the learned President and my brother Bewley. 11. Though the ground of appeal which has been argued on behalf of the appellant companies has concentrated on the issue of whether or not the judge had the jurisdiction to make the order under section 114(2) of the Companies Ordinance, the real issue is, as I see it, whether or not the judge properly made the order on the basis that it was impracticable to call meetings. 12. General meetings of each of the appellant companies could not conduct business without a quorum of at least two members. The respondent company is a member of each of the companies and James Coe was the other member. Any meetings under section 113(1) therefore required the co-operation of James Coe. 13. In deciding whether it was impracticable to call a meeting, it is necessary first to consider the sequence of events in the present case. 14. On the 14th May, 1980 the Official Receive wrote to the directors of each of the appellant companies requiring them "forthwith to convene an Extraordinary General Meeting" and also to "convene the meeting at the earliest possible date". On the 16th May the Official Receiver spoke to James Coe on the telephone and asked him how long it would take to convene a board meeting of each of the appellant companies. James Coe said that he would find out when such board meetings could be convened and he would give the Official Receiver an answer. On the 19th May, the Official Receiver took out an Originating Summons under section 114(2) asking the court to convene the meetings. The parties appeared before the judge on the 28th May, and the matter was adjourned to the 3rd June. It would appear from the affidavit of the Official Receiver sworn on 3rd June and his letter dated 29th May attached thereto that the adjournment was necessary because of certain confusion in the instructions given to counsel for the appellant companies. 15. On the 29th May the Official Receiver wrote the letter referred to above, addressed to the appellant companies' solicitors, again calling on James Coe to forthwith convene the extraordinary general meetings. James Coe was instructed to waive the usual requirement of notice for such meetings. The propriety of that instruction has not been challenged. In his letter the Official Receiver also complained that he had not as yet received a reply from James Coe as to when meetings of the appellant companies could be convened. 16. From the Official Receiver's letter of the 14th May, and from his telephone conversation on the 16th May, James Coe could not have been unaware of the urgency of the situation. 17. It was however not until 2nd June, eighteen days after the Official Receiver's letter of the 14th May, that James Coe made the first attempt to comply with the Official Receiver's wishes. On that day he filed an affidavit in which he gave an undertaking to attend, either personally or by proxy, the extraordinary general meetings to be held on 20th June. On the 3rd June, notices convening the meetings of the appellant companies were given. On the same day the matter again came before the judge, who made the order which is the subject matter of this appeal. 18. Certainly on the 28th May, when the parties first came before the judge, there were ample grounds for the judge to make an order under section 114(2). The question is: Could the judge have properly made the order at the adjourned hearing on the 3rd June? I think he could. On that day, the judge had before him James Coe's undertaking referred to above, fortified by a similar undertaking by the appellant companies' counsel. The judge was also informed of the notices convening the meeting, given on the same day. It was, in my view, nevertheless open to him to say that having regard to James Coe's past conduct, as well as the situation as it stood on 3rd June, it was still impracticable to call a meeting of each of the appellant companies in a manner in which meetings of that company might be called. The delay was still there, and there was added to the delay James Coe's disobedience of the Official Receiver's instruction to him to waive the usual requirement of notice for the meetings. Clearly, it was impracticable, on the 3rd June or on 28th May, to call a meeting under section 113(1). 19. It was argued on behalf of the appellant companies that as the meetings were convened only nineteen days after the Official Receiver's letter of the 14th May, the directors of the appellant companies were well within the twenty-one days given them under section 113(3). Section 113(3) provides:
20. In my judgment section 113(3) was not designed to give the directors a period of grace lasting twenty-one days. If a period of grace had been intended, the word "forthwith" would not have been inserted in section 113(1), which requires the directors on requisition to "forthwith proceed duly to convene an extraordinary general meeting". In the present case there was a delay of nineteen days, for which no explanations have been offered. 21. I would dismiss the appeal. Bewley, J.: 22. I agree with the reasons given by the President of this court and would also set the judge's order aside. 23. Section 114 provides for the calling of company meetings and the making of voting arrangements where there is no provision in the articles (SS1), and also empowers the court to give directions for the calling of a meeting when it is impracticable legally to do so (SS2). 24. It is coincidental that this section immediately follows section 113, which deals exclusively with the calling of extraordinary general meetings on requisition. Section 114, on the contrary, applies to all meetings of a company. 25. The court must consider the question of "practicability" at the time the order is made. In the instant case it is 3rd June. The court need not concern itself with the situation when the summons was issued, or even on 28th May, when it was adjourned. 26. By 3rd June, it should have been apparent to the learned judge that it was not impracticable to call a meeting in terms of section 113: a meeting had already been legally called. The manner of its calling was not to the liking of the Official Receiver, but that is not something with which section 114(2) is concerned. 27. I respectfully agree with my brother Yang that it is not the intention of section 113 that the directors should have a twenty-one day period of grace. The word "forthwith" has a specific meaning and it should not be ignored. 28. Section 113(3) provides a last resort mechanism for the calling of a meeting if the directors disobey, or are unable to obey, the requisition to call a meeting forthwith. 29. Meanwhile, it is open to the aggrieved voting members to take action. In an appropriate case, an application to the court under section 114(2) may be made. This court has, by a majority, decided that this was not such a case. 30. Alternatively, it is open to the voting members, or in this case the Official Receiver, to apply to the court for a mandatory injunction, directing the board to call a meeting. See Palmer's Company Law, 21st Ed., page 470 and the cases referred to therein. 31. Had such an application been made, it would have been open to the court to have made an order without any reference to section 114(2). Representation: R.A.K. Wright, Q.C., and Andrew Li (T.S. Tong & Co.) for the appellants. C. Ching, Q.C., and Patrick Fung, Official Receiver, for respondent. |