Deacon To Ken Chiu v. Edward G. Harshfield and Others

HCA000931/1979

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Coram: McMullin J.

Date of Judgment: 21 May 1979

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JUDGMENT

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1. The hearing of this application by the plaintiff for interim relief having occupied 3½ hearing days spread over 2½ months I deemed it prudent to adjourn over the weekend to consider an extensive note of the arguments in deference to the industry of counsel lest any point raised on either side should be seen, on reflection, stand in the way of the conclusion towards which I confess my mind had moved at the termination of the hearing on Saturday. On a full consideration of the various arguments however I can find nothing to disturb the view that the plaintiff must have the order which he seeks.

2. The plaintiff is the founder of the Far East Bank. In 1969 the affairs of the Bank had fallen into disarray the nature of which is not now of any concern. The powerful American Corporation Citibank N.A. came to the rescue on terms of becoming, by a large margin, the majority shareholder in Far East Bank upon purchase of 76% of the share capital. Mr. Deacon Chiu retained 24% of the shares which were however for some years held upon trust for Citibank until the plaintiff's debt to Citibank had been discharged. He is at the present time the beneficial owner of this minority holding. The arrangements between the plaintiff and Citibank in 1969 are embodied in a Deed Clauses 10 and 11 of which are in the following terms:

Pursuant to this agreement the Articles of the Bank were amended by the addition of a clause - Clause 77 - which is in the following terms:

"77. Mr. Deacon Te-Ken Chiu shall be the Permanent Chairman of the Bank until his death or resignation. Upon Mr. Deacon Chiu ceasing to be Chairman, Mr. Dick Chiu, his son shall automatically become the Permanent Chairman of the Bank until his death or resignation."

Personnel from Citibank were seconded to assist in the running of Far East Bank and so matters continued for some eight years. In what manner frictions began to develop between the majority of the Board of Directors of Far East and its Chairman I do not know but it is clear that by 1978 comity between majority and minority owners was under considerable strain. In 1978 and 1979 Mr. Chiu instituted a series of actions the principal purpose of which was to challenge the manner in which F.N.C.B. had conducted the affairs of Far East Bank. At a meeting of the Board of Far East Bank on the 15th of February 1979 the third defendant Mr. Harshfield, who is the Vice-Chairman of the Board, proposed a number of resolutions. Among these was a resolution to appoint an executive committee of Directors to conduct the day to day business of the Bank in order, so it was said, that that business should not be "confused with or interrupted by discussion of disputes between Mr. D. Chiu and Citibank N.A.". This was strenuously opposed by the plaintiff and his two sons, also members of the Board, who were present at the meeting and after a stormy interchange the three withdrew leaving the field in possession of the remaining Directors. who are the first five named defendants in this action all of whom are employees of Citibank, N.A. After the departure of Mr. Chiu and his sons Mr. Harshfield proposed a further resolution - which was carried unanimously - to call an extraordinary general meeting of the Board on 16th of March for the express purpose of deleting Article 77 of the Bank's Articles. It was to prevent this move that the plaintiff sought and obtained an ex parte injunction on the 7th of March. Consequently the meeting scheduled for the 16th March 1979 has not been hold and the present inter partes hearing which commenced on the 26th of March 1977 was concerned with whether a similar order should be made preventing the defendants from pursuing this course of action until the conclusion of the trial of the present action which seeks various declarations, all of which are supportive of the central plea that the defendants be prevented from taking any action to remove the plaintiff as Chairman in breach - as it is claimed - of the solemn undertaking embodied in Clause 11 of the Deed.

3. Mr. Allman-Brown for the defendants contends that the question is one to be resolved by reference to the balance of convenience and that, he says, is overwhelmingly on the side of the defendants. As he puts it the plaintiff's present activities are analogous to the acts of a titular head of state who has fallen into treason against the very polity he is presumed to represent. A less heated and perhaps more accurate figure compares the present situation to a state of civil war between opposing factions each professing to represent the true interests of the company. At all events, counsel says, relations between the Chairman and the Board have so completely broken down that to continue Mr. Chiu in the Chair in the shadow of the various skirmishes publicized in the current litigation will be so clearly damaging to the interests of the Bank that the court should, at this stage, uphold the right of the majority on the Board to vote the Chairman out of office under the enabling powers in the Articles and notwithstanding the covenanted promise to keep him there for life. Counsel stresses the fact that the Deed itself only secures a right to the plaintiff to assist in the management of the Far East Bank if called upon by Citibank N.A. to do so (Clause 10). In those circumstances he says the plaintiff could at best be entitled to nominal damages for his ouster even if his action succeeds; alternatively, if more than nominal damages be appropriate the defendant bank has ample resources to cover even the most generous award conceivable. He does not deny that a strong element of status and "face" is involved in the plaintiff's claim but as to that he suggests that, if successful, the plaintiff would return to his position of honour with redoubled esteem in the eyes of the public though wearing the laurels of the victor. It was an able and thorough argument but the answer from the other side appears to me to be conclusive. Mr. Chang was right, I think, in his primary contention that the question is not one of the balance of convenience at all. What the defendants propose is a clear breach of covenant. What contest exists in this action will not - and this is common ground - turn upon the fact of that covenant. The deed itself is not impugned in any way. What is said is that the plaintiff is not entitled to enforce it against the defendants because he has failed in certain particulars to carry out his duties as Chairman. What is said to support that view is, firstly, that not being entitled as of right to intervene in the management of the Bank he has fallen into contention with its lawful managers and has embarrassed them by litigation; secondly he has impeded the business of the Bank as far as he is able by refusing on one occasion to sign and approve minutes of a meeting of the Board. As I understand it that was an extraordinary general meeting called upon the 19th December 1978 at which a resolution to amend Art. 77 had also been passed. The purpose was to remove the right of Mr. Dick Chiu to succeed the plaintiff (his father) as permanent Chairman. The plaintiff's refusal to sign the resolution is scarcely surprising in view of the provisions of Clause 11 in the Deed and the refusal to sign the minutes is explained by the plaintiff in his second affidavit as due to his denying the accuracy thereof. I think therefore that the principle on which Mr. Chang  relies and which is set out at p. 473 of the Annual Practice 1979 opposite the side note 29/1/11C must be applied in this case. The attempt to remove the plaintiff is not for any one of the three causes provided in Clause 11 as justifying removal. Mr. Allman-Brown argues that there must be implied into that clause further terms of defeasance upon the showing of wilful misconduct. It may be that upon the trial of the action the defendants can succeed in showing misconduct in the plaintiff in discharge of his office of Chairman of a kind so grave as disentitle any claim to enforce that covenant against the defendants. That will involve considerations both of fact and law. No defence has yet been filed and I cannot say what prospect of success is likely to attend upon any such pleading. What has been put before me however falls far short of showing - as counsel has contended - that the plaintiff has himself been so gravely in breach of his obligations as to disentitle him to rely on the principle (resting upon the authority of hamnstoad & Suburban Properties Ltd. v. Diomedous⁽¹⁾) which is stated in the White Book, at the place I have earlier referred to, in the following terms:

"But where there is a plain and uncontested breach of a clear covenant, the defendant should be compelled by interlocutory injunction to perform his obligation without regard to the balance of convenience."

In view of the suggestion that the detriment to the plaintiff can only be of a nominal kind, a second authority referred to in the same passage is especial interest. In Woodford v. Smith⁽²⁾ Megarry J. was considering an application to prevent by way of interlocutory injunction an allegedly wrongful deprivation of certain members of ratepayers and residents association of their right to vote at a meeting of the association.

4. In granting the order sought he said:

"In breach of their contract, the defendants and others have been excluding the first plaintiff and others from the benefits of membership to which they are entitled. No doubt the value of any property rights of a member are small, the perhaps negligible; but the case is one which has manifestly aroused strong feelings amongst a large number of those affected, and the association is concerned with matters of public importance in the district. It accordingly seems proper that the matter should be resolved at the earliest possible moment. Further, unless the court intervenes, the first plaintiff and the others of the 57 will be denied their rights as members at the adjourned annual general meeting. The wrongful deprivation of a right to vote even at a meeting of a mere private association is, in my judgment, no trivial matter. It may not be possible to put any real monetary value on it, any more than it may be possible in the case of a Parliamentary vote (see Ashby v. White); but that does not mean that the court must abstain from intervention."

Perhaps I should add that if - contrary to what has been said so far - the balance of convenience is a relevant consideration I am in no doubt that the defendants have failed to show - at this stage - anything in the nature of a detriment so grave deriving from the continued presence of Mr. Chiu in his somewhat nominal role as Chairman to oblige me - at this stage - to disturb the status quo.

5. Order in terms of paragraphs 1 and 2 of the inter partes summons as amended by inserting the words "originally" and "as now adjourned" after the words "7th defendant" and the words "March 1979" respectively.

6. In addition there will be an order that 6th defendant whether by itself or by its agents or servants be restrained from removing or from purporting to remove the plaintiff as permanent Chairman or Director of the 7th defendant in breach of the provisions of Clause 11 of the Deed of 4th June 1969 made between the plaintiff and the 6th defendant.

Costs

7. Mr. Allman-Brown suggests I have costs of full day in which question of adjournment was fought (26th March) and that costs of remainder of application be reserved.

Chang: we had to work overnight on late affidavit which was deleted on 26th March.

8. Costs of 26th to be costs of defendants in any event. Otherwise costs of inter partes summons and having to be those of plaintiff in any event.

9. Certificate for one counsel (as regards both aspect of this order).

Representation:

Jackson-Lipkin Q.C., & D. Chang (K.K. & Winston Chu) for plaintiff.

Allman-Brown (Wilkinson & Grist) for defendants.

(1) (1969) 1 Ch. 248.

(2) (1970) 1 All E.R. 1091.