Broadview Commodities Pte Ltd v. Broadview Finance Ltd

HCA003123/1983

Action No. 3123 of 1983

IN THE HIGH COURT OF JUSTICE

BETWEEN

Coram: Mr. Commissioner Chang, Q.C.

Date: 15th August 1983

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JUDGMENT

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1. The Defendant seeks to strike out the Plaintiff's name on the ground that the solicitors who commenced this action did so without the necessary authority. The learned Master dismissed the application and this is an appeal from his decision given on 6th July 1983.

2. The writ was taken out in the name of the Plaintiff, a Singapore company, and served on the Defendant, a Hong Kong company, on 17th March 1983. The summons to strike out was issued on 30th March.  On 9th April, a Board Meeting of the Plaintiff was held in Singapore at which a resolution was passed ratifying all steps taken by a permanent director of the Plaintiff, Mr. Loh Shak Mow ("Mr. Loh"), to recover debts owing to the company, including the institution of this action. Mr. Loh is based in Singapore. There is another director in Singapore, a lawyer by the name of Mr. Wong Hoi Ping ("Mr. Wong") who chaired the meeting and voted with Mr. Loh in favour of the resolution (Exh. LSM-16).

3. This case turns on whether or not the Board resolution is a good one. Mr. Yu, Counsel for the Defendant, says it is bad. He submits that insufficient notice of the Board meeting was given to one Mr, Lee Kwong Fai ("Mr. Lee"), the remaining director of the company who happens also to be the Managing Director and controlling shareholder of the Defendant. Mr. Lee is based in Hong Kong. He says he received notice of the meeting (Exh. LSM-14) in the afternoon of the 6th April. The Notice is dated 2nd April and, according to Mr. Loh, was sent on the same day. Mr. Yu also submits that the decision to sue or not to sue should have been made at a general meeting. Mr. Burns, solicitor for the respondent, says that neither point has any merit: he contends that the Board was quite capable of ratifying, the authority to sue and has in fact validly done so. So long as the resolution stands, he submits the Plaintiff must be allowed to proceed with the legal steps taken to recover its debts without delay. This particular debt, he points out, has not even been disputed by the Defendant.

4. The Defendant is, of course, not entitled to any notice of the meeting: it is not a director of the Plaintiff.   It is not a shareholder either, but since Mr. Lee has in the correspondence made it clear that he is supporting and is willing to join in the application, no point has been taken of the Defendant's locus standi to complain.  It is therefore unnecessary for me to consider the interesting point made by Lord Kilbrandon in Alexander Ward v Samyang Co. [1975] 1 W.L.R. 673 at p. 683 B-C when he doubted whether the validity of the company's act

"resting as it must on a construction of the contract with the shareholders can in such a matter be challenged by someone whose only relationship with the company is one of indebtedness."

5. An E.G.M. of the Plaintiff was purportedly held on 30th April 1983 at which, according to Exh. LSM-18, the institution of the present proceedings was again ratified. Mr. Burns, however, tells me that he does not think he can, nor is he relying, on that E.G.M. the validity of which is also challenged by the Defendant on the ground that although prior notice thereof was received by Mr. Lee, the meeting was not convened by any Board Meeting. Mr. Loh has sworn an affirmation in Singapore on 3rd May (filed in these proceedings on 5th May) in which he says, inter alia, a that the E G M. was requisitioned and held "to anticipate any further technical objections by the Defendant company." He further states that the "whole issue" turns on the E.G.M.: this view, however, is not shared by Mr. Burns who made it clear to the learned Master that he was resting his case on the Board meeting and the matter was dealt with accordingly.

6. In my judgment, the Board was perfectly entitled to ratify the institution of the proceedings.

7. Article 120 of the Plaintiff's Articles of Association confers on the Board of Directors powers of management in terms identical to Article 67 of Table A of the Companies' Ordinance Cap. 32 Quite clearly, the raising of legal proceedings for the recovery of a debt is an act of managment within such an article : see Lord Kilbrandon in Alexander Ward & Co. v  Samyang Co supra at pp. 682-683. The passage in Halsbury's Laws 4th Edition (Vol.  7 para 766) quoted by Mr. Yu does not contradict what I have said. It recognises that "as regards litigation by an incorporated company as a rule the directors are the persons who have authority to act for the company" and what follows concerning the powers of the majority of the members to overrule the directors is qualified by the phrase "in the absence of any contract to the contrary in the articles of association." The weight of authority is in favour of the view that the general meeting cannot. short of altering the articles. usurp the function of the directors or such of them as are vested with powers of management thereunder : see John Shaw & Sons (Salford) Ltd. v. Shaw (1935) 2 K.B. 113 at 134 (per Greer L.J.) and at 143 (per Slesser L.J.).

8. In any event, we are not concerned here with an actual conflict between the decisions of the two organs, or with a situation where the Board is unable or unwilling   to act by reason of dead-lock or otherwise, or with a case where the cause of action sued upon by the Plaintiff is dependant on what happens at the general meeting e.g. where the very matter complained of by the Plaintiff can be ratified or otherwise put right at the general meeting as in Bamford v Bamford [1970] 1 Ch. 212 (C.A.) where the action was stopped to give effect to the resolution of the company in general meeting, for what was at issue there was not the authority to sue but the right to sue.

9. The present action is for the recovery of certain margin deposits placed by the Plaintiff pursuant to an Agreement between the patties dated 28th April. 1981 (Exh. LSM-2). On 19th January 1983 M/S Lee & Lee, a firm of lawyers in Singapore, wrote to the Defendant saying that it was doing so on Mr. Loh's instructions given on the Plaintiff's behalf and terminating the Agreement with effect from 19th February 1983 and demanding the return of the monies (Exh. LSM-5).  The letter was acknowledged, first, by Ms. Sylvia Leong, a director of the Defendant and by M/S Tai Tang & Chong, the Defendant's solicitors, who also confirmed the termination (Exh. LSM-6).  When, however, the margin deposits were not returned Mr. Loh again instructed M/S Lee & Lee who in turn instructed M/S Johnson. Stokes & Master, to demand payment, which they did (see, for example, Exh. LSM-12). Nothing however came of it and the writ was issued. This writ, therefore, is but a further step in the debt-recovery action begun when M/S Lee & Lee on Mr. Loh's instructions first demanded repayment of the monies. This further step, of course, required the sanction of the Board, the merits of the action being one thing and the authority to sue quite another.

10. Mr. Yu invites me, in effect, to by-pass the directors. He refers me to Marshall's Valve Gear Co. Ltd. v Manning, Wardle & Co. Ltd. [1909] 1 Ch. 267 at 272, a decision of Neville J. There the court refused to stop an action commenced by a majority shareholder in his company's name to restrain another company from infringing a patent.  The Board consisted of four directors, of whom he was one. The other three directors had earlier declined to approve "suing the Defendant company, in whom was vested a competing patent in which these three directors were interested. I am of the view that, even if the case was rightly decided (which I respectfully doubt), it does not assist the Defendant here. I am here faced with a Board resolution that does sanction the proceedings, passed by two directors not shown to be in any position of conflict of interest and duty and objected to by one who is in such a position of conflict .

11. Mr. Lee, in fact, does not hold a majority of the Plaintiff's shares. The company was formed on 20th April 1981 some three years after the Defendant. He was a founding member and is still a permanent director and he used to hold 50% of the issued shares of the Plaintiff, the other 50% being held by his co-subscriber. Mr Loh. By virtue of his casting vote as Chairman he was in a position to control the Plaintiff.  In December 1981, however, Mr. Wong joined the company. According to the m minutes, Exh. LSM-4, signed by Mr. Lee as Chairman, an E.G.M. was held on 16th December 1981 at which Mr. Wong was appointed director and chairman of the Board and transfers to him of 100.000 shares of $1.00 each from Mr. Lee and another 100,000 shares from Mr. Loh were approved. The shares transferred represented 10% of the issued capital. Mr. Lee alleges that Mr. Wong has "failed and refused to pay the purchase price" [Exh. LKF-4] but this is disputed on affidavit. He says he is still Chairman under the Articles but has chosen to remain silent about the E.G.M. of the 16th December 1981.

12. The position, therefore, is that Mr. Loh no longer controls the Board. He is, further, not in a position to control the company in general meeting unless (1) the purchase price of the 100.000 shares has not been paid as he alleges (2) he is able to direct Mr. Wong to vote in accordance with his instructions at the general meeting in respect of those shares and (3) he chairs the meeting (and is able to exercise his casting vote). I should add that Article 127 of the Plaintiff's articles provides "That Mr. Lee Kwong Fai shall be elected as permanent Chairman of the company, who shall preside at all meetings of directors and shareholders." Mr. Yu tells me that it is not part of his case that Mr. Lee must be present and preside at a meeting of the company before it can be a duly constituted and valid meeting. He submits, however, that the article recognises Mr. Lee's special position and that the other directors should respect this and should, therefore, try to accommodate his wishes in relation to such things as to whether or not a particular matter should be dealt with at a Board Meeting or at a General Meeting. I can understand these sentiments but I must not put Mr. Lee in a privileged position at the expense of his colleagues, or ignore the rest of the Articles or the fact that there have been changes since that particular Article was inserted Mr. Lee, after all, has, by his own voluntary act, lost control of the Board and he has sold and transferred 10% of the shares originally allotted to him. The transfer still stands despite the dispute over the purchase price.

13. I turn next to the Notice of Board Meeting dated 2nd April. Was it a sufficient notice?

14. The Articles of the Plaintiff do not specify the length of notice required. A director may, by himself or through the Secretary of the company, at any time summon a Board meeting by notice served upon the members of the Board: see Article 126.  As a matter of common sense, such notice should be given to the directors sufficiently early to enable them to attend. What is sufficient notice depends on the facts of each case.  Re Homer District Consolidated Gold Mines Ltd. ex parte Smith (1888) 39 Ch. D. 546 is an example of a case where the notice, given a few hours before the meeting and which did not reach one of the diractors until the next day (although that was not the only thing wrong with it), was regarded by the court in all the circumstances as "about as irregular as anything could be" and it was held that the meeting, attended by two out of five directors and which proceeded to business at two o'clock despite notice received form one of the directors that he could not attend until three, was "not an act of the Board and did not bind the company". This is hardly surprising: the whole thing was apparently engineered by the two directors in an attempt to overturn a previous resolution of the full Board, they well knowing "that if the others had had notice and been able to be there they would have objected" (North J.).

15. A notice can be held to be insufficient and bad in law even if there was never any intention to overreach any particular director. However, the court should always look at a notice in the light of all the circumstances.

16. In the present case, Mr. Loh received the notice, he says, in the afternoon of the 6th. He consulted solicitors. They wrote the next day (Exh. LSM- 15). They said Mr. Lee was objecting to "the short notice" and wanted an adjournment but they made plain that he was also, at the same time. objecting to the matter being decided by any Board Meeting at all, contending that the decision to sue or not to sue should be made at a general meeting. He made no distinction between the question of recovery of the debt from the Defendant and recovery of debts from other persons (the agenda stated in the Notice of Meeting was not confined to any particular debt). No alternative date was suggested for the holding of any meeting for any purpose. The solicitors simply stated that "due to short notice" Mr. Lee would "not be available to attend the proposed meeting."  Nothing more was or has been said about his unavailability. There is, for example, no suggestion that he had any difficulties in getting a seat on the plane or that his travel documents were not ready.  In fact, we know from his first affirmation (filed herein on 30th April) that he had so organised his business affairs in Hong Kong and in Singapore that he had, to use his own words, "to do a lot of travelling between the two lands" and judicial notice can be taken of the fact that the two cities are well served by quite a few scheduled airlines and are only a few hours away from each other. Anyway there is no suggestion that Mr. Lee could not get to or into Singapore for the meeting apart from his alleged unavailability.

17. In considering the sufficiency of the Notice I take into account all the circumstances, including the points I have mentioned concerning the Notice and Mr. Lee's response through his solicitors. It may well be the case that there was no legal obligation as such on the part of Mr. Lee to volunteer information as to his commitments or time schedules; whether he chose to do so or not was, I think, a matter for him. But if he chose to say as little as possible and if he took the stance, as he did, that no Board meeting should be held to decide the question, I am of the view that in all the circumstances he had, and has, no grounds for complaint if, as it happened, his colleagues parted company with him and proceeded to hold the meeting to ratify all steps taken to recover debts here in Hong Kong, and also in Singapore against other debtors Such steps already been gathering momentum and it was quite reasonable for the other directors to want to get rid of an open challenge to the authority to sue that the Defendant had by then launched in Hong Kong.

18. Mr. Lee, incidentally, might or might not have a good reason or excuse for not attending (so that he could not be said to be in dereliction of duty for failing to turn up) but it would not follow that if he had a good reason or excuse the Notice was or was thereby automatically rendered bad. Godd reasons for not attending and good notices can very well co-exist.

19. I should perhaps add that both sides have apparently presumed, and have addressed me on the assumption that, the solicitors letter Exh. LSM-15 was in fact received before the meeting. However, whether it was received or not prior to the meeting, I am of the view that the Notice was a sufficient one and that the Board Meeting held on 9th April was in no way vitiated by short notice as alleged or at all.

20. I would now like to say something about the question of conflict of duty and interest on which both sides have addressed me at some length.

21. Mr. Yu argues that because Mr. Lee (in view of the conflict) would not be able without risking a breach of fiduciary duty to vote qua director he should be given a chance to vote qua  shareholder at a general meeting. With respect, I disagree. Quite apart from the division of powers between the Board and the general meeting, I see no reason why his fellow directors should be obliged to bend over backwards to enable him to vote at a general meeting in a manner presumably contrary to what they considered to be in the interest of the company.

22. Mr. Burns, for his part, seeks to rely on the conflict for the purpose of showing the utter futility of giving notice to Mr. Lee in the first place or of adjourning the meeting since, he says, Article 111(1) of the Plaintiff's articles disqualifies a director, subject to exceptions, from voting in any "contract or arrangement" in which he is interested. There is a difference of judicial opinion on whether it is necessary to give notices of aboard meeting to a director who, under the articles, has no vote thereat: John Shaw & Sons (Salford) Ltd. v. Shaw, supra per Greer L.J. at 13 and per Slesser L.J. at 138, 144. I am however of the view that Mr. Lee was entitled to notice so long he was entitled to attend, irrespective of whether he was entitled to vote on any particular question. I am also of the view that Mr. Lee was not entitled to any less notice merely because he was in a position where his duty and interest conflicted.

23. Indeed, I am not persuaded that the prohibition in Article 111(1) applies at all, particularly in view of one of the exceptions which says that it has no application to "any contract or arrangement with any other company in which he is interested only as a director or as an officer of the company or as a holder of shares or other securities." Whether it applies or not, however, is academic. The practical reality is that whether Mr. Lee attended the Board Meeting or not and voted or not, the outcome was not going to be any different (assuming Mr. Loh and Mr. Wong stuck to their guns). Furthermore, once Mr. Lee took the point that no Board Meeting should be held anyway to decide the question, he was not likely to be there even if the Board Meeting was adjourned and would probably not have been there even if the notice. had been a longer one. Nevertheless although I think his fellow directors would be quite entitled to take into consideration the points I have just mentioned (concerning the inevitable or likely outcome of any Board Meeting whatever happened) in deciding whether or not they should accommodate Mr. Lee, I am of the view that the Notice was, and is, a good one even apart from such considerations.

24. I would dismiss the appeal.

25. I should add that had I come to the conclusion that the notice was insufficient I would have been minded to stay the action pending the outcome of a Board Meeting, at least upon an undertaking or sufficient indication that such a Board meeting would be duly convened and held without delay.  This would be in line with my judgment that the Board is the proper organ to decide and with the practical reality that a Board meeting can at any time even now be summoned by the directors by proper notice: see Pennington's Company Law 4th Edition p.p. 525-526,

26. As regards costs, Mr. Yu submits that at the time when the application was taken out it was proper because there was then no meeting of any kind but, on reflection, I think the applicant took the risk that the authority might be ratified with retrospective effect. However, I think some unnecessary costs must have been incurred by the fact that Mr. Loh in his affirmation focused wrongly on the purported E.G.M. of 30th April 1983 and this was not corrected until the hearing before the learned Master. What if any items should be disallowed as a result is, I think, a matter for the taxing matter and subject to that, I would order that the learned Registrar's order for costs do stand and that the Defendant do pay the costs of this appeal.

27. I am indebted to both Mr. Yu and Mr. Burns for their able submissions in this case.

Representation:

Mr. S.A. Burns of Johnson, Stokes & Master for Plaintiff/Respondent

Mr. Benjamin Yu (Tai, Tang & Chong) for Defendant/Appellant