Samuel Tak Lee v. Chou Wen Hsien and Others
Read the full judgment text of HCCL 19/1982 on BabelCite. This HCCL judgment was delivered on 24 May 1982.
1. The matter before me arose in this way. Ocean Land Development Limited is a public company which was incorporated in Hung Kong in August 1972. Under the Articles one of the circumstances in which the office of a director is vacated is if he is requested in writing by all his co-directors to resign. At about 10 o'clock in the morning of the 15th May 1982, Mr. Samuel Tak Lee, who had been on the Heard of directors since the incorporation of the Company, received a notification dated 12th May si
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HCCL000019/1982
Company law - articles stating that office of director is vacated if all co-directors combine to request his resignation in writing - once complied with the director's office is ipso facto vacated - where he acknowledges event but seeks declaration that he remains a director the action will be struck out under 0.18 r.19.
IN THE SUPREME COURT OF HONG KONG HIGH COURT _________ BETWEEN
________ Coram: Hon. Fund, J. Date: 24 May 1982 _______ ORDER _______ 1. The matter before me arose in this way. Ocean Land Development Limited is a public company which was incorporated in Hung Kong in August 1972. Under the Articles one of the circumstances in which the office of a director is vacated is if he is requested in writing by all his co-directors to resign. At about 10 o'clock in the morning of the 15th May 1982, Mr. Samuel Tak Lee, who had been on the Heard of directors since the incorporation of the Company, received a notification dated 12th May signed by all seven of his co-directors requesting Trim to resign his office. Mr. Lee immediately sought legal advice, and some time in the afternoon o_° the 15th May issued a writ against the remaining seven directors, with the Company as the 8th defendant. The Writ was endorsed with claim for declarations that the notice requesting his resignation under the Articles was null and void and consequently he remained a director of the company. Further declarations and orders were sought based on the principal claim for relief. 2. On an ex - parte summons heard by the Chief Justice at his home in the early evening of the 15th May, the plaintiff obtained various injunctions against all the defendants and the return date for the hearing of the inter - partes summons for interim relief was Fixed as the 19th May. On that date the defendants tonic out summonses under 0.18 r.19 applying for orders that the Writ be struck out, and the action be dismissed, on the grounds that the action had beer irregularly constituted; the Writ disclosed no reasonable course of action; and the action was frivolous, vexatious and otherwise an abuse of the process of the Court. Counsel representing the parties agreed that I should deal with the 0.18 r.19 summons first, and after a hearing which tuck just over one day, I granted the application and ordered the endorsement on the Writ to be struck out and the action dismissed, giving brief oral reasons so that Counsel who had to return to the United Kingdom could give their clients the benefit of their advice before they left Hong Kong. I promised to give more detailed reasons in writing later. I now do so. 3. The plaintiff is at present the registered holder of 248,000 shares in the Company. The 1st defendant, who is Chairman and Managing Director, has a 20% holding, as has the 2nd defendant: The 6th defendant owns 600,000 share. The Articles do not require a director to be a shareholder. They contain common form provisions relating to the rotation of directors, variations in the number of directors and the circumstances in which alternate directors can be appointed. Article 85 provides that the Company may remove a director by an ordinary resolution before the expiration of his period of office and by the same method appoint another person in his stead. As 'regards disqualification, Article '73 is in the following terms -
4. It is common ground that the plaintiff did receive a document, dated the 12th May 1982, signed by all the directors who are the 1st to the 7th defendants. This notice is addressed to Mr. Lee and is as follows: -
5. Counsel appearing before me acknowledged that provisions identical to Article 73(d) were by no means uncommon in Hong Kong whatever might be the position in the United Kingdom. Mr. Richard Scott, on behalf of five of the directors and the Company (Mr. Charles Ching adopted Mr. Scott's arguments for the two directors he represented), submitted that if any of the six events expressed in Article 73 occurred then, ipso facto, the office of the director concerned was vacated. The language was clear and as a matter of construction, the only inquiry that could be made was to determine whether or not a particular event set out in the Article had, in fact, happened. Mr. Scott suggested that this was a perfectly sensible provision and the formula adopted was a necessary way of framing the Article to achieve .the result aimed at so that the Board could know who was, and who was not, a director at any given moment. The matter was not capable of challenge; litigation might take many months and during all .t hat time there would be uncertainty as to the position of the director who sought to deny the express words of the Article. All the leading text books without exception accepted the law to be that upon the happening of any of the specified events which lead to disqualification of a director, his office is ipso facto vacated, as demonstrated by Re Bodega Co., [1904] 1 Ch. 276. Of course, a director whose office was so vacated could be re-elected provided the grounds for his disqualification did not continue to subsist. 6. Mr. Scott anticipated Mr. Goldblatt's contentions (that this was the exercise of a power by the directors and therefore it had to be shown that they had acted bona fide in .the interests of the Company) and submitted that even if-one were able to describe the request to resign as the exercise of a power, that did not change the character of the article. He pointed out that it was plain that even on the plaintiff s own case the facts had been accepted, and therefore the office of his directorship had been vacated. If this argument did not find favour with the Court, he submitted that in a case where there was an all eyed breach of duty by a director, the duty was-awed not to the shareholders, not to fellow directors, but to the Company and so .the proper plaintiff was the Company any. This basic principle had been re-stated in Prudential Assurance v. Newman (No.2) [1982] 2 W.L.R. 31. The instant case was not a minority shareholders action but a personal action brought by the plaintiff, and if he were right in saying that when they signed the notice his co-directors were not acting in the interests of the Company, then the proceedings were plainly improperly constituted and wholly misconceived. 7. Mr. Goldblatt, for the plaintiff, characterised Mr. Scott's contentions as plausible but wrong. He contended that it would be highly dangerous to treat the present application as if it were a hearing on a preliminary point of law which had not been pleaded and could not properly be argued out. He accepted that the Court could look at the affidavits filed in relation to the interlocutory reliefs that had been sought, but submitted that this was not a plain and obvious ease for the plaintiff had a serious case to argue. He argued that the directors had clearly been exercising a power when they had sent their request in writing to the plaintiff to resign his office. What, he asked, were the directors doing if they were not exercising a power? That being so, each director was required to carry out his fiduciary duties to the Company and he must therefore have acted in good faith in its best interests. The law could not permit the request to resign to be treated as valid if the directors had acted not in good faith but for their own private interests, in defiance and in fraud of the Company's interests. If the document was bad in law, then the event which was said to have caused the office as director of the plaintiff to be vacated had not happened. 8. There was, Mr. Goldblatt argued, a presumption that every power of the directors (including that far which provision is mad? in Article 73(d)) had to be applied in the interests of-the Company unless that presumption was totally inconsistent with the language used. If the Article had been employed as part of a fraudulent design, surely, he contended, in such circumstances a director who was aggrieved had a personal remedy. He put his argument another way - if the power was exercised in bad faith, then the piece of paper on which the resignation was called for 'was not a Company document and had no effect. Mr. Goldblatt suggested that the Court had to ask itself whether the other directors had succeeded in silencing a director who was asking too many questions. The mere coming into existence of the document was not enough for it had to come into existence bona Fide. Were this not the position, there would be a great temptation to directors to abuse powers such as those given by Article 73(d) and would, he argued, be tantamount to a licence to commit Fraud by getting rid of the one man who stood in the way. Why should the plaintiff pursue other remedies that he might have and not proceed with his personal action to uphold his status as a director? It was merely fortuitous that he happened also to be a shareholder. The position of a director who did not own shares in the Company had to be borne in mind. Mr. Goldblatt contended that if the Court were to construe the Article so 'that the Company could be cheated, as a matter o￡ public policy, great mischief would result. He summarised the plaintiff s case as being in essence an argument that if the defendants act had not been done bona fide, then it was done without jurisdiction and, as would be the case if a Court acted without jurisdiction, what was done would be a nullity. 9. The principles upon which a Court may properly eicercise its discretionary power to strike out a pleading (or an endorsement on a Writ) under 0.18 r.19 are too well known to require setting out. Of course, it is a power and must be sparingly exercised and only in "plain and obvious cases. It is a serious matter indeed to close the doors of the Court in the face of a plaintiff before his complaints are heard out on their merits.' On the other hand, I think the principle is equally clear that the Court must not refrain from exercising this salutary power if a claim as formulated and which no reasonable amendment can poi in order) is doomed to failure. The interests of justice so demand because the defendants should not be subjected to unnecessary anxiety and expense. Since my decision in effect involves the construction of a document, clearly it would be wrong to strike out the endorsement if the language to be construed was reasonably open to more than one interpretation, for it is well established that the hearing of a summons under 0.18 r.19 is not the proper occasion to go into complicated and difficult points of law. 10. It need hardly be said that a company is entitled to adopt any provisions it considers desirable in its Articles to regulate its internal administration. This, of course, is subject to any overriding provisions of applicable Companies legislation and the general principles of Company law laid down in the oases. It must be said that the legislature has not been slow to intervene in the Company law area. I do not think it is open to a Court to say that, this provision or that provision should not have appeared in the Articles, and refuse to apply it If clear and unequivocal language is used, language which is capable of only one meaning, then in mg judgment the Court is bound to give effect to the provisions of an Article however harsh the results might be. 11. It may perhaps be said that paragraph (d) of Article 73 Lies somewhat uncomfortably with the specific events set out in the other paragraphs, but the paragraph is firmly placed within the paramenters of a provision which stipulates when the office of a director shall be vacated. It is to be noted that paragraph (d) does not say, as it may well have said, that the request to resign must only be made on reasonable grounds, nor does the paragraph require (as does, for example, s.184 of the United Kingdom Companies Act) that the director whose removal is contemplated is to be given an opportunity to make representations. There will be cases, and there have been cases, where a Court is called upon to adjudicate on facts to determine whether ox not a specified event leading to disqualification has occurred, but here it has beer expressly accepted that all the directors presently in office have subscribed their signatures to a paper in writing requesting the plaintiff's resignation as a director. One can imagine circumstances which do not obtain here, in which the issue might be whether or not a director had the mental capacity to sign his name, or whether he knew what he was signing and, indeed, whether his signature was obtained by fraud. In the instant case, once it is acknowledged that the document complied with the provisions o￡ Article 73(d); I do not think it could reasonably be argued, with the utmost respect to Mr. Goldblatt's arguments, that the Court is free to permit the directors who made the request to be examined as to their motives or reasons for taking the course that they did. No cases have been Found directly in point, but in my view the ordinary principle that directors must exercise their powers bona fide .in what they believe to be in the interests of the Company cannot be prayed in aid to investigate the deliberations of .the directors which led to the making of their decision. 12. If the plaintiff were able to allege fraud he will, no doubt, have a personal action in tort, but nothing of the kind has been alleged here. One has only to look at the plaintiff's first affidavit to see how slender and uncertain is the basis upon which he alleges (para, 20) that "the notice cannot have been signed by the several personal defendants each acting bona fide in what he believes to be the best interests of Ocean Land". In paragraph 21, he says that the lst defendant's motives are clear and "he wants to gag me". He also suggests, after stating certain facts, that the matters which prompted the lst defendant to act are likely to effect the 2nd defendant too. He says, in respect of the 2nd defendant, "He has his own reason to gag me. He is acting in bad faith", (para. 22), As regards the 3rd defendant (para. 23) he states certain facts after which he says "His natural instinct would be to support 'the 1st defendant and to believe whatever he was told by him." That defendant might for all he knew not have recovered from an illness of which he learned during a telephone conversation. He adds "It is clear that he has not exercised an independent judgment in signing the notice and he has totally lest sight of 'the point that, before asking a fellow director to leave, you should hear what he has to say, As regards the 4th defendant (para. 24) he speaks of a quarrel last year and adds "He would be glad, of an opportunity to do me doom". He describes the 5th defendant as " the 1st plaintiff's man", for he and his immediate family owed their whole livelihood to him "And he would not dare to stand oat against a request or direction by Mr. Chou to sign the notice" (para. 25). I do not wish to be unkind to the plaintiff but on the material before me 1 have to say that it seems that he has allowed his suspicions to let hypothesis turn in his mind into fact. I do not need here to consider how far the plaintiff might have disobeyed the rules relating to the proper contents of affidavits. 13. I am bound to say that by the endorsement on his Writ, the plaintiff is claiming declarations that in my jugement no Court could, on tae facts he himself has accepted, grant him. It seems to me, too, that all the other reliefs owe so much to the principal reliefs that he claims that they cannot possibly stand alone. It was for all these reasons that I concluded that as presently formulated the endorsement on the plaintiff's Writ was, in the terms of the Order, "Frivolous and vexatious". The plaintiff might well have a number of other equitable, common law or statutory remedies but I was firmly of the opinion that as presently conceived and put forward he did not have a grievance which he was entitled to bring before the Court.
Representation: Mr. Simon Goldblatt, Q.C., Mr.-Henry Litton, Q.C., and Mr. John Bleach instructed by peter Mark & Co. for plaintiff. Mr. Charles Ching, Q.C., Mr. A. Sakhrani, Q.C. and Mr. R. Wong instructed by Robert W.H. Wang & Co. for 1st defendant and 2nd defendant. Mr. Richard Scott, Q.C. and Mr. Denis Chang, Q.C. and Mr. Robert Kotewall instructed by J.S.M. for 3rd to 8th defendants. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||