WONG YAT FAN v. DIGITAL WORLD HOLDINGS LTD

HCA3542/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3542 OF 2002

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J U D G M E N T

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1. The appellant is the plaintiff appealing against Master Kwang's order of 2 April 2003 striking out his Statement of Claim and the action herein on the defendant's application that the claim did not disclose any reasonable cause of action and/or is frivolous and/or scandalous and/or otherwise an abuse of the process of the court.

2. The defendant is a company incorporated with limited liability under the laws of Bermuda and its shares are and were at all material times listed on the Stock Exchange of Hong Kong Limited ("the Stock Exchange").

3. The directors of the defendant, on 31 July 2002, announced in The Standard and the Hong Kong Economic Times in English and Chinese respectively, that it proposed to effect a "Capital Reorganization". In effect, the defendant proposed to consolidate every 80 issued shares of HK$0.01 each into one Consolidated Share. Upon the consolidation becoming effective, the directors proposed to effect a "Capital Reduction" under which the paid up capital of the issued shares would be reduced from HK$0.80 to HK$0.01 each by the cancellation of HK$0.79 paid up on each issued Consolidated Share. As a result of the Capital Reduction, based upon the then number of issued shares, an amount of approximately HK$78,054,541.99 from the share capital amount of the defendant would be cancelled and would be applied to eliminate the accumulated losses of the defendant.

4. A circular ("the Circular") dated 14 August 2002 both in English and Chinese providing detail information as to the Capital Reorganisation and the associated Capital Reduction under the said reorganization, was sent to every registered shareholder of the defendant on 14 August 2002 by ordinary post. One of the registered shareholders was Hang Seng (Nominee) Limited (恒生(代理人)有限公司).

5. Further, a notice ("the Notice") also dated 14 August 2002 was incorporated in the Circular and sent to all the registered shareholders of the defendant informing them that a Special General Meeting ("the SGM") of the defendant was to be held on 9 September 2002 at 43rd Floor, Gloucester Tower, The Landmark, 11 Pedder Street, Central, Hong Kong for the purpose of considering and, if thought fit, passing the Special Resolution, approving the Capital Reorganisation and Capital Reduction.

6. The SGM was eventually held at the aforesaid Venue on 9 September 2002 with the necessary quorum. The Special Resolution was passed at the SGM by all the shareholders present thereat. By a further Result Notice ("the Result Notice") dated 9 September 2002, the directors of the defendant announced and published the aforesaid result of the SGM which was sent to the defendant's registered shareholders by ordinary post.

7. The Capital Reorganisation and the Capital Reduction with the necessary consolidation and issue of the New Shares as defined in the Special Resolution had been approved by the listing committee of the Stock Exchange and were in compliance with and valid under the laws of Bermuda.

8. Consequently, the Capital Reorganisation and the Capital Reduction with the necessary consolidation and issue of the new shares as defined in the Special Resolution became effective on 10 September 2002. The new share as defined in the Special Resolution started to trade publicly on 10 September 2002 in the Stock Exchange.

9. Before the aforesaid Capital Reorganisation and Reduction, the plaintiff had purchased 6,500,000 shares of the defendant in April and May through the Hang Seng Bank and Wing Lung Bank and the shares were placed in the custody of the Hang Seng (Nominee) Limited. Consequently, the plaintiff's shares originally at par value of HK$0.01 had been devalued after the aforesaid Capital Reorganisation and Reduction by 98.75%. The plaintiff in this action alleged that such a reorganisation and reduction are unlawful, wrongful, illegal and/or otherwise improper in whatever ways and also in breach of the Basic Law of the HKSAR.

10. Basically, the plaintiff submitted that special resolution for reduction of share capital should be subject to confirmation by the court pursuant to the section 58 of the Companies Ordinance, Cap.32 ("the Ordinance").

11. However, Mr Alan Ng, counsel for the defendant, submitted that section 58 was not applicable to the defendant company since the defendant company was an oversea company which would only be governed by Part XI of the Ordinance. I accept the submission of the defendant. The defendant, being a Bermuda company, would not require the confirmation of the court in its Capital Reorganisation and Reduction. It only required the approval of the listing committee of the Stock Exchange in the aforesaid Special Resolution. In this respect, the plaintiff did not point out any irregularity in the approval of the aforesaid Capital Reorganisation and Reduction by the listing committee of the Stock Exchange.

12. The reality of the present case was that the company suffered heavy losses and the share capital was applied to set off all these losses up to 98.75% of the share capital. That is an indication of the reduction in the worthlessness of the shares in the hands of the plaintiff.

13. Accordingly, I entirely agree with the learned Master below that the plaintiff's claim did not disclose a reasonable cause of action and the action should therefore be struck out. This appeal must be dismissed with costs to the defendant, to be taxed if not agreed.