Yan Kwok Kin, Julian v. Yan Kwok Kee, Gay and Others

1997, No.A1005

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H E A D N O T E

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Death of shareholder - whether administratrix entitled to attend and vote at meetings without being entered on register of members

Permanent proxy - validity - articles of company providing that proxies be in a prescribed form or in any other form as the Directors may approve - no other form approved by the Directors - prescribed form contemplated a particular meeting and any adjournment thereof and not any meeting of the company

Held :

(1) An administratrix of a deceased shareholder does not ipso facto become a member of the company and is not entitled to attend meetings and vote unless and until registration has been effected;

(2) Whilst a general form of proxy may be valid, whether it is so depends on the articles of the company.

(3) If the form is mandatory rather than merely directory, a proxy which does not comply with the prescribed form is invalid.

1997, No.A1005

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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Coram: The Hon Mrs Justice Le Pichon in Court

Dates of hearing: 6 and 7 October 1997

Date of judgment: 7 October 1997

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J U D G M E N T

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1. This is an action about the validity of a proxy and its effect upon resolutions passed at board meetings and general meetings subsequent to its execution and at which the proxy was used. There are two issues of law which may conveniently be dealt with as preliminary issues. I first turn to the background facts.

Background facts

2. In 1965, the 3rd Defendant ("the Company") was incorporated by the late Mr Yan Choi Yuen ("the founder"). 400 shares were issued of which 300 were held in the name of the founder. In March 1970, the founder died. At the date of his death, 300 shares were registered in his name, 98 in the name of one of his daughters, Yan Wai Yin Pearl, and 2 in the name of the Plaintiff. Letters of Administration were granted to the administratrix Madam Leung. There is no evidence as such as to the date of the grant but the Court has been informed that that occurred in about 1974. It is common ground that the administratrix was never registered as a member in the Company's Register of Members.

3. On 26 October 1995, it would appear that the administratrix executed an instrument described as a "permanent proxy". This instrument itself bore the date 21 October 1995, but its execution was apparently witnessed on 26 October. It is in the following terms :

"I Leung Lin Siu being the administrator of the late Yan Choi Yuen hereby appoint Mr Yan Kwok Kee Gay ... as my permanent proxy to attend and vote for and on my behalf at any shareholders meetings of the Company and at any adjournment thereof until further notice."

4. The two preliminary issues which arise are :

1. whether the administratrix, not having been registered as a member of the Company, was entitled to vote at shareholders' meetings of the Company; and

2. whether the instrument described as a permanent proxy was valid at law.

The first issue

5. When a shareholder dies, the position at law is stated in Palmer's Company Law 29^thed. 1992 at para.6.635 in the following terms :

"Where a member of a company dies, his shares vest in his executors or administrators, and the estate is liable for calls if the shares are not fully paid. The executors or administrators, in whom shares have so become vested, are entitled to be registered as the holders of the shares, in the absence of provisions in the articles to the contrary; but the executors or administrators do not ipso facto become members of the company, nor is the company entitled, without their consent, to register them as members. Such registration (as members) may involve them in personal liability, and to justify it there must be a distinct request for registration on their part."

Gore-Browne on Companies 44th ed. at para.20.4 is in similar terms :

"On the death of a shareholder the membership, of course, ceases, but his estate remains entitled to the benefits and subject to the burdens arising from his membership until some other person is entered in the register in respect of his shares. An executor or administrator, however, does not become a member unless he consents to be treated as such and to be entered in the register."

If authority were required, it may be found in the decision of the Court of Appeal in In Re Bowling and Welby's Contract (1895) 1 Ch.633 at 670. In that case, Lindley LJ when considering whether the executor of a deceased member was a member of the company said :

"The purchaser ... says that the executor of a deceased member is not a member. That is perfectly correct. You cannot look upon the executors and administrators of a deceased member as being "members" unless they become such."

The Articles of the Company

6. Article 10 provides :

"The Company shall be entitled to treat the person whose name appears upon the Register in respect of any Shares as the absolute owner thereof and shall not be under any obligation to recognise any trust or equity or equitable claims to or partial interest in such Shares, whether or not it shall have express or other notice thereof."

Article 23 went on to provide :

"On the death of any Member (not being one of several joint Holders of a Share) the legal personal representatives of such deceased Member shall be the only person recognised by the Company as having any title to such Share subject always to Articles 22 and 25 hereof."

It is relevant now to turn to the terms of Articles 22 which reads :

"The Directors may in their absolute discretion refuse to register the transfer of any Shares. ..."

Those are the only Articles that I need to refer to.

7. It is clear from the above that the Articles reflected the position at law and the administratrix, not having been registered as a member, is not a member of the Company and is not entitled to vote.

8. Counsel for the Defendants submitted that first, this is a family company and leniency has been shown by the courts in the application of the rules and the matter can be dealt with informally. As to this submission, I say this : no authority has been cited to support that statement of principle. It is, in my judgment, unsustainable. When one considers the ramifications of the submission, one has to ask - what degree of leniency has to be shown, what are the parameters? If I were to accede to that submission, severe inroads would be made into the framework of the company law of Hong Kong. No one would know when dealing with a family company, what, if any, of the provisions will have to be complied with. I know of no separate regime or set of rules that applies when dealing with a so-called family company.

9. The Defendants' second submission is that the court should draw an inference from the conduct of all the members of the Company at the material time, that is to say the Plaintiff and Pearl, that the administratrix be entitled to vote without being registered. Counsel for the Defendants referred to a special resolution dated 31 July 1987 which was allegedly passed by "all the shareholders". It would appear that the administratrix attended this meeting and the resolution was signed by her, the other signatories being the Plaintiff and Pearl. Then there is another special resolution passed on 16 June 1992 and appearing on that resolution is the statement "being all the members for the time being of the Company". The administratrix's signature was one of the ones appended to this special resolution.

10. In addition there are Minutes of EGMs held on 11 September 1992 and 8 November 1992 and an AGM held on 31 December 1992 which show that the administratrix was present at those meetings and was described as a "shareholder".

11. On 23 September this year, the Defendants sought to amend their Re-amended Defence. They wished to introduce into their defence, inter alia, the matters that I have just set out. That application to amend was refused. There has been no appeal against that ruling and it would appear that there is before me an ill-disguised attempt to resuscitate what had already been rejected by this court.

12. Although, on that ground alone, I need entertain the submission no further, I will state my reasons why, in any event, the point taken is thoroughly bad.

13. When one looks at the provisions of the Companies Ordinance, as regards the obligation to maintain a register of members under s.95 and who is considered a member of the Company under the provisions of s.28, it is quite clear that only those persons whose names appear on the register can be so treated. Pender v. Lushington (1877) 6 Ch.D.70 is authority for the view that the register is the only evidence by which the rights of members to vote at a general meeting could be ascertained.

14. Counsel for the Defendants conceded that there is no authority for the proposition that the court has power to treat someone as a member who is not on its register. He relied on Cane v. Jones [1980] 1 WLR 1451. But that case dealt with a different point, that is to say, the amendment of the company's articles through the agreement of all the shareholders. Here there is no evidence of any agreement between the parties. The court was asked to infer that there was such an agreement. So in fact the Defendants are going one step beyond Cane v. Jones. But what is the ambit of the agreement that is to be inferred? What are its terms? Who were the parties to it? All that is at large.

15. The fact that the administratrix had been invited to attend meetings of the Company, although she was not a member, and had voted at those meetings does not mean that she is forever more entitled to attend and vote at meetings of the Company. Here we are not concerned with the validity or otherwise of decisions taken at the meetings referred to above, assuming that the administratrix attended them as described. It may well be that decisions taken at those meetings cannot now be challenged or questioned as a result of the administratrix having been present. But that is a different issue altogether and different from the proposition that I should infer, from conduct, the existence of some agreement that would confer a right on the administratrix that she does not have at law.

16. So, on the first issue, I conclude that the administratrix, not having been registered on the Register of Members, is not entitled to vote at meetings of the Company.

The second issue

17. In view of the conclusions reached on the first issue, the second issue does not really arise. I will nevertheless deal with the second issue, in case I were wrong on the first issue.

18. Was the instrument described as a permanent proxy a valid proxy? The Defendants submitted that the instrument was valid as a proxy and they rely on the decision in Isaacs v. Chapman (1916) 32 T.L.R.183. In that case, at an extraordinary meeting of the company, a resolution was declared lost on the ground that the proxies for certain votes which were recorded in favour of the resolution and without which it would not have received a majority were for voting at any meeting and not at the particular meeting only. The learned judge held that the proxies were perfectly valid and ought to have been admitted. It appears that the basis of this holding turned on the fact that under the articles the form of proxy was merely directory. The relevant article in that case, Article 60, reads :

"Any instrument appointing a proxy shall as nearly as circumstances will admit be in the following form : ..."

19. Counsel for the Plaintiff had originally contended that the permanent proxy was invalid in that it was repugnant to the proxy device provided for under the Companies Ordinance. In view of the decision in Isaacs v. Chapman, it would appear that at law there is nothing intrinsically invalid about a general form of proxy.

20. It does not follow, however, that the permanent proxy that is before me is necessarily valid. Whether it is so depends on the terms of the articles of the Company. Article 52 provides :

"An instrument appointing a proxy shall be in the following form, or in any other form of which the Directors shall approve :-

YAN CHIM KEE COMPANY LIMITED

I of being a Member of YAN CHIM KEE COMPANY LIMITED, hereby appoint of , and failing him, of as my proxy to vote for me and on my behalf at the Ordinary (or Extraordinary, as the case may be) General Meeting of the Company to be held on the day of 19 , and at any adjournment thereof.

As witness my hand this day of 19 Directors" (emphasis added)

It is common ground that there is no evidence that the directors ever approved of any form that is different from that set out in Article 52. It is clear from looking at Article 52 that it is not "merely directory". Rather, it is mandatory. That is a crucial difference. The permanent proxy was not in the form set out in Article 52. That being the case, Isaacs v. Chapman is distinguishable on the facts and can render little assistance to the Defendants. In my judgment, the permanent proxy is invalid.

21. I will now hear counsel as to whether there are any live issues remaining in the proxy action.

Representation:

Mr C.Y. Li and Mr Lee Tung Ming, inst'd by M/s Ricky Ma & Co., for the Plaintiff

Mr Wong Hay Yiu, inst'd by M/s C.Y. Lam & Co., for the Defendants