Read the full judgment text of CAMP 95/2022, CAMP 99/2022, CAMP 114/2022 & CACV 55/2023, CACV 56/2023, CACV 61/2023 on BabelCite. This Court of Appeal judgment was delivered on 19 May 2023 before Chu VP, Cheung JA, G Lam JA.
Company law – derivative action – common law derivative action by shareholder for the benefit of company – company joined as defendant – account of profits ordered against wrongdoer director – sanctioned payment into court by wrongdoer and associated companies – director shareholder sells almost all his shares to two other shareholders at a discount shortly after being diagnosed with terminal cancer – director as sole director approves registration of share transfers – EGM votes to accept sanctioned payment – whether transfers valid for voting – whether director breached fiduciary duties in approving registration – whether company (defendant) can accept sanctioned payment under Order 22 – whether court has power to order payment out under Order 22A – Share Transfers not invalid for voting because registration was voidable not void, and any conflict of interest on the part of the transferor director did not nullify the registration where the sale was genuine and the transferees were existing shareholders – No breach of duty to act for improper purpose because the judge made no such finding and the relevant inquiry into the dominant or causative purpose was not undertaken – No positive finding of breach of duty to act in the best interests of the Company given the subjective nature of the duty – Court has no jurisdiction under Order 22 to permit the Company, a defendant, to accept the sanctioned payment, because Order 22 is framed in terms of the plaintiff and the defendant and the shareholder plaintiff is the one who controls the derivative action and bears the costs sanctions under rule 23 – Court has wide unfettered discretion under Order 22A rule 1(1) to order payment out of any money in court, and the court would exercise that discretion to order payment out to the Company in full and final settlement – Independent shareholders' votes at EGM were not vitiated by lack of bona fides or improper purpose – appeals allowed, paragraphs 1 to 3 of the judge's order set aside, leave granted for $40 million to be paid out to the Company or its solicitors in full and final settlement – costs of Summons below and of Mak and Wong's appeal to be paid by Jason on an order nisi basis with certificate for two counsel; no order as to costs of the Company's appeal and of Ricky and D3–D31's appeal on an order nisi basis – written submissions directed on the costs of the accounting stage
Legal issues: Whether the Share Transfers were invalid for the purposes of voting at the EGM due to Ricky's breach of fiduciary duty in approving registration as sole director · Whether the judge erred in finding a breach of the duty to act for an improper purpose · Whether the judge found a breach of the duty to act in the best interests of the Company · Whether the court has jurisdiction under Order 22 of the Rules of the High Court to give leave for the Company (a defendant) to accept a sanctioned payment · Whether the court has jurisdiction under Order 22A to order payment out of the sum in court to the Company · Whether the votes of the independent shareholders at the EGM were valid such that the Company had duly resolved to accept the sanctioned payment
Outcome: Appeals allowed. The Court of Appeal set aside paragraphs 1 to 3 of the judge's order dated 18 April 2019 and granted leave for the sum of $40 million standing in court to be paid out to the Company or its solicitors in full and final settlement of the claim in the Action.
Cited by 12 cases · Cites 10 cases