Koo Shing Sun v. Hung Wing San, Tony and Another
Read the full judgment text of CACV 241/2012 on BabelCite. This Court of Appeal judgment was delivered on 1 November 2013 before Cheung JA, Lunn JA and McWalters J.
Company law – construction of articles of association – quorum – Regulation 56 of Table A of the First Schedule of the Companies Ordinance (Cap 32) – whether plural 'members' should be read as singular 'one member' at adjourned meeting – two-member private company – one shareholder failed to attend EGM and adjourned meeting – sole attending member purported to appoint his son as additional director – resolution validity – common law principle that a 'meeting' requires more than one person – purposive and contextual approach to legislative interpretation – whether Regulation 56 abrogates the common law rule – section 7 of the Interpretation and General Clauses Ordinance (Cap 1) – distinction between Daimler Co Ltd v Continental Tyre & Rubber Co [1916] 2 AC 307 and Jarvis Motors v Carabott [1964] 1 WLR 1101 – legislative history of Table A and 1984 amendments – whether deliberate omission of 'or member' in Regulation 56 is significant – section 114A(1)(c) and section 114AA of the Companies Ordinance – striking-out application dependent on validity of resolution – appeal dismissed with provisional costs to applicant
Legal issues: Construction of 'members' in Regulation 56 of Table A of the Companies Ordinance
Outcome: Appeal dismissed; the judgment of Harris J is affirmed. The resolution of 18 October 2011 appointing Gudy Koo as a director of the Company is valid and effective. Consequently the Company's authority to commence the High Court action in CACV 41/2013 is upheld.
Cites 5 cases
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CACV 241/2012 & CACV 41/2013 CACV 241/2012 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 241 OF 2012 (ON APPEAL FROM HCMP NO. 189 of 2012) ________________________ BETWEEN
________________________ AND CACV 41/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 41 OF 2013 (ON APPEAL FROM HCA NO. 162 of 2012) ________________________ BETWEEN
________________________ (Heard together)
________________________ J U D G M E N T ________________________ Hon Cheung JA : The appeal 1.These two appeals deal with a common issue, namely, the construction of Regulation 56 of Table A of the First Schedule of the Companies Ordinance (Cap. 32). Specifically the issue is whether the word ‘members’ in Regulation 56 should be construed in the context of the case as ‘one member’. Harris J held that it should be so constructed and found in favour of the applicant (‘Mr Koo’). The 1st respondent (‘Mr Hung’) now appeals. Facts 2.The facts are straightforward and are succinctly summarised by the Judge. Mr Koo and Mr Hung are the registered shareholders of 60% and 40% respectively of the 2nd respondent’s (‘the Company’) issued capital. They are both directors of the Company. On 21 September 2011 Mr Koo gave notice to Mr Hung to convene an extraordinary general meeting on 11 October 2011 pursuant to Regulation 51 of Table A, which is adopted by Article 1 of the Company’s articles of association. Mr Koo attended the meeting, but Mr Hung did not. As a result, a quorum was not present and pursuant to Regulation 56, the meeting was adjourned to the same time the following week. There is no dispute that the meeting was properly convened and properly adjourned to 18 October 2011. Mr Hung did not attend the adjourned meeting. Mr Koo argues that pursuant to Regulation 56, after 30 minutes the meeting was deemed quorate and he was entitled to, as he in fact did, pass a resolution tabled for consideration by members for the appointment of his son, Gudy Koo as an additional director. 3.Mr Koo issued an originating summons, and asked for a declaration that the resolution passed at the meeting on 18 October 2011 appointing his son, Gudy Koo, as a director is valid and effective. In the alternative he seeks an order under section 114A of the Companies Ordinance for the convening of a meeting of the Company to consider a new resolution for Gudy Koo’s appointment. Mr Hung, on the other hand, issued an application to strike out the High Court Action commenced by the Company against him, on the grounds that the Company was not properly authorised to commence the proceedings. 4.The Judge dealt with the two applications and held that the result of the striking out application was dependent on the outcome of Mr Koo’s application. If Mr Koo were correct in his assertion that his son was properly appointed as a director of the Company in October 2011 the striking out application fell away. The Judge found for Mr Koo. Quorum for meetings 5.Section 114A(1)(c) of the Companies Ordinance provides that :
6.This provision of ‘members personally present’ is changed to ‘members present in person or by proxy’ by Regulation 55 of Table A :
7.Regulation 55 had been replaced with Article 22 of the articles of association of the Company, which is in the following terms :
8.The change is simply that, instead of requiring a quorum of two members to be present throughout the meeting as in Regulation 55, under Article 22, the quorum of two members is only required at the commencement of the meeting. 9.Regulation 56 provides that :
Purposive and contextual interpretation 10.Mr Patrick Chong, counsel for Mr Hung, relying on the recent Court of Final Appeal judgment of Vallejos Evangeline Banao v Commissioner of Registration & Another [2013] 2 HKLRD 533 at §§75-77 which affirmed the purposive and contextual approach in legislative interpretation, argued that, in the light of the law on meetings and the history of legislation, it is not permissible to construe the word ‘members’ in Regulation 56 in the singular. As a result the resolution appointing the son as a director was invalid and the Company did not have the authority to commence the High Court action and hence it should be struck out. 11.In Vallejos, the Court of Final Appeal reaffirmed the approach set out in previous decisions of that Court :
12.This is, of course, an approach that this Court will follow. Law on meetings 13.In respect of the law on meetings, Mr Chong relied upon the general principle (which he described as the cardinal principle) that the word ‘meeting’ prima facie means a coming together of more than one person. For that reason the courts have held that a ‘meeting’ of a company involving one person is invalid and ineffectual. 14.This general principle was discussed in Sharp v Dawes (1876) 2 QBD 26 where only one shareholder was present at a general meeting of a mining company, although the secretary was in attendance. This shareholder took the chair, approved a resolution making a call, approved the accounts and changed the bank mandate and passed a vote of thanks to himself as chairman. The secretary, in the name of the company, instituted an action to enforce the call, but it was held that as there was only one person present at the meeting, he could not constitute a meeting, and the call was therefore invalid. 15.Coleridge CJ held that,
16.Mellish LJ, likewise, held that,
17.This principle was applied in In re Sanitary Carbon Company [1877] WN 223 where a shareholder, present by himself but holding proxies for the other shareholders, approved of a resolution to wind up the company voluntarily. The resolution was set aside. 18.Another example is In re London Flats Ltd [1969] 1 WLR 711 where the liquidator of a private company in voluntary liquidation died and a meeting of shareholders was called to consider and pass a resolution appointing a successor. One of the only two shareholders present (being the only persons entitled to vote) was proposing to amend the resolution by substituting his own name for the person named therein when the other shareholder left the meeting, pointing out that there was then no quorum. The remaining shareholder then purported to appoint himself as liquidator. It was held by Plowman J that :
19.See also Palmer’s Company Law Vol 2 §§7.601 and 7.603; Shackleton on the Law and Practice of Meetings, 12th ed., para 6-03 and Annotated Ordinances of Hong Kong, Companies Ordinance (Cap 32) by Tomasic, Tyler and Scott paragraph 111.03. 20.This general principle is extended to the situation where the single member present is there in more than one capacity, namely, holding proxy for another member as illustrated by In Re James Prain & Sons [1947] STC 325. The headnote states :
21.See also Re Shergold & Another; Ex parte McInnes & Another (1986) 68 ALR 127. 22.There are, of course, exceptions, such as where the shares of a particular class were held by one member, it was held that a ‘meeting’ of that person who signed a resolution constituted a meeting of the class. Hence in East v Bennett Brothers Ltd [1911] 1 Ch 163, Warrington J at 170 held that :
23.In Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1995] 1 BCLC 352. Lightman J held that for the purposes of Regulation 84(1) of Table A and section 317 of the Companies Act 1948, the word ‘meeting’ must, in the case of a company having a sole director entitled to exercise all the powers of the board and to vote in respect of contracts in which he was interest, have a meaning different from its ordinary meaning of a ‘coming together of more than one person’ and could extend to a ‘meeting’ of that sole director. 24.It should be observed that when the matter finally came to trial(Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald (No.2) [1995] BCC 1000), the judge, A G Steinfeld QC at 1003E-F stated that,
Legislative history of Table A 25.Mr Chong summarised the legislative history of Regulations 55 and 56 and the changes that have been made since the original model. 26.Table A was substantially amended in 1984 and there has not been any substantial amendment after that. 27.A good summary of the history of the legislative amendments of the Ordinance is found in the speech by the then Secretary for Economic Services when he moved the Companies (Amendment) Bill 1983. [Hong Kong Hansard, 25 January 1984] 28.The predecessor of Regulation 55 was the old Regulation 45 of the 1932 edition and 1964 edition. As observed by the Judge, Table A was amended in 1933 and 1974, but the amendments did not concern Regulations 55 and 56. By the Companies (Amendment) Ordinance of 1984 the entire Schedule 1, which contained Table A, was repealed and replaced with new Regulations, which contained Regulations 55 and 56. The amendments in 1984 made three changes : 1) In the old Regulation 45, it provided that three members shall be a quorum. In the present Regulation 55, two members shall be a quorum. 2) In the present Regulation 55, the words ‘and continues to be present until the conclusion of the meeting’ were added. 3) In the present Regulation 55, the words, ‘present in person or by proxy’ replaced the word ‘personally’ which appeared in the old Regulation 45. 29.The old Regulation 45 was identical to United Kingdom from 1906/1908 to 1980 (see Table A: Articles of Association, 1997, R Nicholson at p.97). 30.In England, those articles were amended in December 1980, which is similar to our present Regulation 55 except the words ‘and continues to be present until the conclusion of the meeting’ do not appear in the English equivalent. 31.The old Regulation 46 is the equivalent of the present Regulation 56. It would appear that there was one amendment made to Regulation 46/56 in 1984. In the new Regulation 56, the words ‘or to such other day and at such other time and place as the directors may determine’ were added. The old Regulation 46 was identical to England’s 1906 to 1929. 32.Mr Chong submitted that before the 1984 amendment, section 114(d) of the Companies Ordinance provided that the quorum for a private company shall be two and for a public company shall be three. It therefore explains why the standard Table A then provided that the quorum shall be three. Prior to the amendment, the intention was clear: Regulation 46/56 intended at least two members to be present as the then quorum was three. Despite the amendments in 1984, the legislature did not see fit to change the wordings in Regulation 56 notwithstanding the quorum was reduced to two. He submitted that it is not possible that the drafter had in mind that the word ‘members’ in Regulation 56 would include the singular, and hence it was not necessary to make any corresponding amendment when one considers the corresponding changes made to Regulation 102, which deals with directors meeting. 33.The old Regulation 83 is the equivalent of the present Regulation 102. The old Regulation 83 provides that the continuing directors may act if and so long as their number is reduced below the number, ‘the continuing directors may act for the purpose of increasing the number of directors to that number, or of summoning a general meeting of the company, but for no other purpose’. After the 1984 amendment, the legislature saw fit to amend this article as follows: ‘the continuing directors or director may act for the purpose of increasing the number...’ The legislature in 1984 saw fit to add the words ‘or director’ to Regulation 102. 34.Mr Chong submitted that although the legislature did make an amendment to Regulation 56 in 1984, yet it did not see fit to add the words ‘or member’ in Regulation 56. Both regulations deal with proceedings of a meeting, albeit one deals with directors’ and the other one deals with members. He submitted that it was deliberate on the part of the legislature not to insert ‘or member’ in Regulation 56. This is significant. He said that the long established company practice throughout the whole Commonwealth is being preserved by the legislature. 35.Mr Chong further referred to other regulations in Table A in support of his argument. Regulation 58 provides that if the chairman of the board of directors is not present and cannot be appointed as the chairman of the general meeting, ‘the members present shall choose one of theirnumber to be chairman of the meeting’. This Regulation obviously has in mind that there shall be at least two members present as one member cannot ‘choose one of their number to be chairman of the meeting. In Regulation 60(c) and (d), the words ‘any member or members present’ and ‘a member or members holding shares’ are noticeably used. Article 22 provides that ‘for all purposes’ the quorum for ‘all’ general meetings shall be two members. He submitted that the word ‘meeting’ has always been understood to mean the coming together of at least two persons. If it were intended that the general principle should be varied, one would have thought clear words would be required. Article 22 does not suggest that the ‘two-persons’ rule would not apply to the meeting held under Regulation 56 or subject to Regulation 56. Instead, Article 22 expressly preserves the general principle applying to ‘all’ general meetings and ‘for all purposes’. No exception was created. 36.Mr Chong further submitted under the Companies Ordinance, the general principle is enshrined in section 114A(c) even though the section is subject to the articles. Moreover, under section 114AA, the legislature clearly provided that when a company has only one member, one member present in person or by proxy shall be a quorum of a meeting of the company. The legislature did not authorize a ‘one member quorum’ when the company has two or more members. My view 37.Applying the purposive and contextual approach in legislative interpretation, one must, of course, take into consideration the established law on meetings and the legislative history of Regulation 56. At the same time one must also take into consideration that Regulation 56 is adopted by the Company in this case which is a two-member company. 38.The general principle that a meeting necessarily involves two persons can be abrogated by legislation. The clearest example is section 114 B of the Companies Ordinance which empowers the Court to order a meeting where it is impracticable to do so and the Court may direct that one member of the company present in person or by proxy shall be deemed to constitute a meeting. 39.The question is whether Regulation 56 has the like effect. If one adopts the provision in section 7 of Interpretation and General Clauses Ordinance(‘IGCO’) (Cap. 1) that words in the plural include the singular, then the plural ‘members’ in Regulation 56 is to be read as a singular ‘member’ and a quorum was properly constituted by the presence of Mr Koo and the meeting was properly transacted. 40.Mr Chong relied heavily on Daimler Company, Limited v. Continental Tyre And Rubber Company (Great British), Limited [1916] 2 AC 307. In that case a company had six shareholders. Five of them were residents in Germany. The remaining one, who was also the secretary of the company resided in England. Before the outbreak of war between England and Germany, the secretary commenced an action against the defendant. The defendant challenged the secretary’s authority to commence the action. The House of Lords found for the defendant and the action was struck out on this ground. The evidence showed that under the articles of association of the company, the directors had to convene general meetings and two members personally present at these meetings constitute a quorum. Due to the war between England and Germany, the directors who resided in Germany became alien enemies by virtue of a legislation and their rights, powers and duties were suspended and in abeyance. The directors had not properly delegated authority to the secretary to commence the action before their authority was suspended by reason of them becoming alien enemies. The judgment can be rested on this ground. 41.An argument was raised by the secretary on his authority to hold a general meeting himself. Lord Atkinson first referred to the secretary’s arguments at page 323, namely,
42.Lord Atkinson then addressed the argument as follows :
43.In the Singapore case of United Investment and Finance Ltd. v. Tee Chin Yong & Ors. [1967] 1 MLJ 31, the headnote reads :
44.The quorum of the company was not less than ten members. Chua J adopted the reasoning of Lord Atkinson in response to the following arguments :
45.A different approach was, however, taken in Jarvis Motors (Harrow) Ltd. and Anothers v. Carabott and Anothers [1964] 1 W.L.R. 1101. Ungoed Thomas J construed the words ‘other members’ in the article of a company in the singular in the light of the Interpretation Act. The headnote of the case reads :
46.Ungoed Thomas J discussed two issues. First, the effect of Daimler Co. Ltd and second, the provision for a one member meeting under the English Companies Act 1948 :
47.The possibility of the exclusion of the general principle by the provisions in the articles of the company has been recognized by other textbooks. Farrar’s Company Law, 4th ed., p.317 stated that :
48.In Modern Law of Meeting by Davies and others, §7.9, it is stated that :
However, the authors went on at paragraph 7.14 to state that :
49.It is of note that two other Hong Kong judgments, namely, Re Goldsort Co Ltd [2011] 6 HKC 46 and Zhong Zhirong v Bold Pacific Ltd HCMP 548/2013 [Judgment dated 12/9/2013] had, althoughwithout discussion of the law, applied the same approach as the Judge in this case. 50.The application of IGCO is, of course, subject to contrary intention either from that Ordinance or from the context of any other ordinance (section 2). In my view in the specific context of this company which has only two shareholders, I do not find any contrary intention in Regulation 56 or in Companies Ordinance which precludes the application of section 7 of IGCO. Regulation 56 clearly is to override the two member quorum provision and to prevent deadlocks from being perpetuated where there is only one member present at the original meeting and later at the adjourned hearing. Properly interpreted, Regulation 56 enables one member to constitute a quorum. I do not regard the 1984 amendment of Regulation 56, which did not amend the word ‘members’ and the inclusion of member or members in other provisions as a clear indication that the legislature intended the quorum at the adjourned meeting should be more than one member. To adopt this interpretation will render Regulation 56 otiose which was the precise point raised by the Judge and to which Mr Chong could not provide any answer. 51.The legislature could, of course, use the words ‘a member or members’ in Regulation 56. But to maintain the word ‘members’ in Regulation 56 while allowing it to be construed in the singular where the context requires will still provide it with a degree of flexibility. After all Regulation 56 may be adopted by companies with different number of members and with different quorum provisions. Daimler Co. Ltd and United Investment and Finance Ltd are decisions which may be appropriate in their context. 52.In this appeal Mr Chong relies on a fall back position that Regulation 56 can only allow for the situation which is previously prohibited, namely, to allow one member holding a proxy from another member, or one person holding proxies from two different members, to constitute a quorate meeting. Mr Chong argued that this relaxes the restriction that there must be two individuals attending the meeting under Regulation 55, while at the same time, ensures that the single person attending represent members under Regulation 56, thus avoiding the need to do violence to the deliberate and specific word of ‘member’ chosen by the draftsmen. 53.I fail to see the logic of this. According to Mr Chong’s arguments, an inquorate meeting will occur in either of the following situations :
54.Why then only single out the last situation as being covered by Regulation 56? In my view this is a strained interpretation of Regulation 56. On the contrary it should apply to all the three inquorate meeting situations. Conclusion 55.In my view the Judge was correct and the appeal is to be dismissed with a provisional costs order in favour of Mr Koo. Hon Lunn JA : 56.I agree with the judgment of Cheung JA. Hon McWalters J : 57.I agree with the judgment of Cheung JA.
Ms Ebony Ling, instructed by Marie Tsang, Dustin Chan & Co., for the applicant in CACV 241/2012 and plaintiff in CACV 41/2013 Mr Patrick Chong, instructed by Eversheds, for the 1st respondent in CACV 241/2012 and 1st Defendant in CACV 41/2013 |
Cases cited in this judgment
Further hearings and rulings under CACV 241/2012