Chan Kai Hon and Another v. Chan Kam Wah and Another

HCMP001681/1983

BETWEEN:-

Coram: The Honourable Mr. Justice Jones in Chambers

Date: 11th November 1983

Miss Mary Ho instructed by W.S. Lo & Co. for plaintiffs

Miss H. Li of Alfred Lau & Co. for defendants

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JUDGMENT

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1. The second defendant Art Textile Converting Limited (the Company) was incorporated in Hong Kong as a private Company on the 4th January 1977. It is a family business having been founded by Chan Yim. The plaintiffs are the sons of Chan Yin and the 1st defendant is one of his daughters.

2. These proceedings have arisen as a result of disagreements between Chan Yim, the let defendant and another daughter, Chan Kit Wah on the one hand and the plaintiffs on the other. The subscribers to the Memorandum of Association and the original directors were the plaintiffs and Chan Yim. Chan Kit Wah was appointed to be a director on the 12th March 1977. The dispute relates to a directors meeting held on the 30th March 1982 when the 1st defendant was appointed to be a director, and to the allotment of 2,000 shares to Chan Yim at a subsequent meeting that was held on the 24th June 1982.

3. The plaintiffs seek declarations that the appointment and the allotment were void on the grounds that the meetings were held without a quorum. Article 12 of the Articles of Association provides that three directors shall form a quorum for any meeting of directors. The plaintiffs allege that they did not attend either of the two meetings with the result that in the absence of a quorum the appointment of the 1st defendant and the allotment to Chan Yim were void.

4. On the 10th September 1980 a directors meeting was held which approved the resignation of Chan Yim as a director. It appears that Chan Kai On another son of Chan Yim was appointed as a director at this meeting in his place, but this fact was not included in the written minute. Later it was discovered that the resignation of Chan Yim was invalid for by Article 14 he was appointed to be a permanent director. Accordingly at a meeting held on the 18th December 1980 Chan Yim was repainted and Chan Kai On resigned.

5. According to the evidence for the defence Chan Yim, Chan Kit Wah and the two plaintiffs were present at the meeting on the 30th March 1982 whereas the plaintiffs allege that they neither received notice nor attended the meeting. Chan Yim testified that he informed both plaintiffs by telephone about three days beforehand that a meeting would be held on the 30th March 1982 at 3.00 p.m. at the factory to discuss the financial difficulties of the Company. I was told that the indebtedness of the Company at this time amounted to about $800,000.00. The plaintiffs replied that they were going to China, but would be back to attend the meeting.

6. At the meeting the plaintiffs said that in view of the Company's financial situation Chan Yim would be empowered to make all future decisions. Chan Yim claimed that he informed the plaintiffs of his intention to appoint the lot defendant as a director, but the plaintiffs made no reply. Chan Kit Wah confirmed that the plaintiffs attended the meeting when it was unanimously agreed that the 1st defendant should be appointed as a director.No minutes were kept of the meeting.

7. In their evidence the plaintiffs said they went to China on the 28th March 1982 and returned to Hong Kong on the 30th March 1982 at about 5.00 p.m. However, during the hearing it was agreed as a fact that the plaintiffs arrived in Hong Kong on the morning of the 30th March 1982 before 8.00 a.m.

8. On the 16th June 1982 the 1st named plaintiff Chan Kai Hon wrote a letter to Chan Yim by registered post to convene a meeting of shareholders to discuss the following matters:-

Whether the reference to Chan Kit Wah was a mistake for the 1st defendant was not explained.

9. No meeting was held for Chan Yim denied receiving this letter. No evidence was produced by the plaintiffs to establish that the letter was sent by registered post. I am not satisfied upon the evidence that Chan Yim received this letter if in fact it was sent.

10. Meanwhile Chan Yin with the 1st defendant and Chan Kit Wah held a meeting on the 24th June 1982 when a resolution was passed for the allotment of 2,000 shares to Chan Yim.

11. Chan Kit Wah filed exhibit P2 form X with the Companies registry which lists the names of the directors of the Company at the end of 1982. According to this document the plaintiffs resigned as directors on the 31st December 1982. However, it is agreed that the plaintiffs did not resign. Chan Kit Wah explained that she believed the plaintiffs had resigned when they became inactive. I find nothing sinister in her actions which I believe were done as a result of an honest belief, but mistakenly held.

12. It was urged on behalf of the defendants that the plaintiffs had abdicated their responsibilities during 1982, whilst the plaintiffs maintained that they had been refused access to the factory, and to the books and documents of the Company. I prefer the evidence of the defence witnesses that the plaintiffs became inactive rather than that they were refused access to the factory and to the documents. They were probably concentrating their energies on their other business ventures when the Company's affairs were in a parlous state.

13. Chan Kai Hon in his evidence said that when he visited the Company in May 1982 he saw form X which disclosed that the 1st defendant had been appointed as a director on the 30th March 1982. However a search that was subsequently made in the Company's registry revealed that form X had not been filed. Chan Kai Hon made no further search until May 1983 when he ascertained details of the 1st defendant's appointment.

14. I did not find this evidence convincing whilst the explanation for a delay of one year on the grounds that he could do nothing about it did not bear the hallmark of truth. His evidence and general demeanor in the witness box and the letter of the 16th June 1982 to which I have already referred gave me the impression that he is a man who is well versed in matters of business, and is not the sort of person who would resign himself to a position of being unable to do anything. If he had been telling the truth I am sure  he would have made further Enquirer much earlier. I therefore reject his evidence that he saw form X in May 1982 in the manner that he described.

15. Both sides are at loggerheads and feel very bitter towards each other. However, the crucial issue to be decided in this case is whether the plaintiffs did attend the meeting on the 30th March 1982 and agreed to the appointment of the 1st defendant as a director. Both plaintiffs were emphatic in their evidence that they arrived in Hong Kong from China in the evening which was later demonstrated to be untrue. I consider that it was very unlikely that both plaintiffs could be mistaken on such a vital matter with the result that I have come to the conclusion that they were deliberately lying. They did so to deceive the Court into believing that they could not have attended the meeting because they were travelling from China at the time. Although the evidence of Chan Yim was somewhat vague in certain respects I attribute this to his age. However, I accept his evidence that the plaintiffs attended the meeting. The plaintiffs had little or no interest in the Company, and I am satisfied that they endorsed the appointment of the let defendant as a director.

16. Understandably minutes of meetings were not always kept by the Company as it is a family concern. Miss Li who appeared for the defendants argued that that this was not fatal end cited In re Fireproof Doors, Limited (1916) 2 Ch. 142 where it was held that:-

"The minutes of a meeting are not exclusive evidence of what takes place there. An unrecorded resolution may be proved aliened."

and In re Great Northern Salt And Chemical Works Ex prate Kennedy (1890) 44 Ch. 472 where Starling J. said at page 483:-

"It is true that there is no record of any board or committee meeting having been held on that day; but the minutes ceased to be kept after the 20th August. The admission of Mr. Kennedy, coupled with the entry in the book, constitutes prima facie evidence of the allotment, although there is no record of a board or committee meeting; and it has been held, among other cases, in Knight's Case, that the entry of a resolution in a minute is not essential to the validity of a resolution which is proved aliened, even in a case of forfeiture, which, as we well know, must be proved in the strictest manner."

I am satisfied upon the authorities that although desirable it was not obligatory for the Company to keep minutes of meetings. Accordingly I find that the appointment of the 1st defendant on the 30th March 1982 as a director was valid. I further hold that there was a valid allotment of 2,000 shares to Chan Yim at the meeting on the 24th June 1982. The Originating Summons will therefore be dismissed with costs to the defendants.

Representation:

Miss Mary Ho instructed by W.S. Lo & Co. for plaintiffs

Miss H. Li of Alfred Lau & Co. for defendants