KOO SHING SUN v. HUNG WING SAN, TONY AND ANOTHER
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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)
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BETWEEN
| KOO SHING SUN | Applicant | |
| and | ||
| HUNG WING SAN, TONY | 1st Respondent | |
| CHINA STAR ENTERPRISE HONG KONG LIMITED | 2nd Respondent |
________________________
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
| CHINA STAR ENTERPRISE HONG KONG LIMITED （華星企業香港有限公司） | Plaintiff | |
| and | ||
| HUNG WING SAN, TONY（熊穎申) | 1st Defendant | |
| NG JIN WAI（吳研慧） | 2nd Defendant | |
| CHINA STAR INDUSTRIAL HONG KONG LIMITED （華星泵閥香港有限公司） | 3rd Defendant | |
| 深圳華星恆泰泵閥有限公司 | 4th Defendant |
________________________
(Heard together)
| Before : Hon Cheung, Lunn JJA and McWalters J in Court |
| Date of Hearing : 8 October 2013 |
| Date of Judgment : 1 November 2013 |
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J U D G M E N T
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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 :
‘ (1) Subject to sections 114AA, 155B and 163D, the following provisions shall have effect in so far as the articles of the company do not make other provision in that behalf—
(a) -;
(b) -;
(c) 2 members personally present shall be a quorum;
(d) -;
(e) -.’
6. This provision of ‘members personally present’ is changed to ‘members present in person or by proxy’ by Regulation 55 of Table A :
‘ 55. No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business and continues to be present until the conclusion of the meeting; save as herein otherwise provided, 2 members present in person or by proxy shall be a quorum.’ (emphasis added)
7. Regulation 55 had been replaced with Article 22 of the articles of association of the Company, which is in the following terms :
‘ For all purposes, the quorum for all general meetings shall be two members personally present or by proxy and no business shall be transacted at any general meeting unless the requisite quorum be present at the commencement of business.’
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 :
56. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved; in any other case it shall stand adjourned to the same day in the next week, at the same time and place or to such other day and at such other time and place as the directors may determine, and if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the members present shall be a quorum.’ (emphasis added)
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 :
‘ 77. ...... As Sir Anthony Mason NPJ pointed out in HKSAR v Lam Kwong Wai:59
The modern approach to statutory interpretation insists that context and purpose be considered in the first instance, especially in the case of general words, and not merely at some later stage when ambiguity may be thought to arise (Medical Council of Hong Kong v Chow Siu Shek (2000) 3 HKCFAR 144 at 154B-C; K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 at 315 per Mason J (dissenting, but not on this point); CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384).
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Footnote 59(2006) 9 HKCFAR 574, [63]. Reiterated by Li CJ in HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568, [12]-[13].’
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,
‘ .... and the word “meeting” primâ facie means a coming together of more than one person. It is, of course, possible to shew that the word “meeting” has a meaning different from the ordinary meaning, but there is nothing here to shew this to be the case. It appears therefore to me that this call was not made at a meeting of the company within the meaning of the Act.’
16. Mellish LJ, likewise, held that,
‘ .... It is clear that, according to the ordinary use of the English language, a meeting could no more be constituted by one person than a meeting could have been constituted if no shareholder at all had attended.’
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 :
‘ In the present case I can find no context which enables me to say that a meeting of one member is good enough.’
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 :
‘ The Companies Act, 1929, with regard to company meetings, enacts:-Sec. 115. ‘(1) The following provisions shall have effect in so far as the articles of the company do not make other provision in that behalf:-_(d) in the case of a private company two members_personally present shall be a quorum;_’ A private company passed a special resolution for reduction of capital at what purported to be an extraordinary general meeting. It was provided by the company’s articles of association that two or more members present in person or by proxy should be a quorum for a general meeting. The chairman was the only shareholder present in person at the meeting, but he was also there as a trustee on two trusts which held shares in the company and as a proxy for another shareholder. In a petition by the company the Court declined to confirm the proposed reduction, holding that, unless the word ‘meeting’ could have assigned to it some special meaning, a meeting could not be composed of one individual, and that, while sec. 115(1)(d) of the Companies Act, 1929, authorised a private company by its articles of association to increase the number of two members required by the Act for the forming of a quorum, it did not authorise the reduction of the number required to one.’
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 :
‘ .... where one person only is the holder of all the shares of a particular class, and as that person cannot meet himself, or form a meeting with himself in the ordinary sense, the persons who framed this memorandum having such a position in contemplation must be taken to have used the word “meeting,” not in the strict sense in which it is usually used, but as including the case of one single shareholder.’
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,
‘ There was no appeal against that judgment (i.e. Lightman J’s judgment) and it is accepted by both the counsel before me that the ruling made by the judge is to be regarded as the determination of a point of law pursuant to RSC, O. 14A and is thus binding on the parties as a matter of res judicata. Accordingly, it is a ruling which I am bound to follow and apply even if I had doubts as to its correctness.’
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,
‘ It is necessary to examine in some detail the articles of association, because it was solemnly and persistently argued, amongst other things, that owing to the fact that all the shareholders of the company, other than the secretary, have become alien enemies, he himself, by virtue of his ownership of one share, became, as I understood, while the war continued, the legal entity, the company, or the whole body of the shareholders combined; that he could hold a general meeting himself, take the chair himself over himself, as chairman put any question to himself, decide upon that question by a show of his own hands, and otherwise comply with the requirements of the 62nd and several other of the articles of association.’
42. Lord Atkinson then addressed the argument as follows :
‘ Article 61, taken in conjunction with article 59, is much relied upon by the respondent company. It provides that in the case of a meeting not convened by requisition, if within half an hour from the time appointed for the meeting a quorum be not present, the meeting is to stand adjourned till that day week, at the same time and place, and if at the adjourned meeting a quorum be not present the members who are present shall be a quorum and may transact the business for which the meeting was called. This, it is insisted, shows that one member may constitute a general meeting, because, although the word “members” is used in the article in the plural, the definition clause (article 1) provides that words importing the singular only include the plural, and vice versa. There are several answers to this contention. The first is that article 1 does not provide absolutely that the singular number is always to include the plural and vice versa, but is only to do so where there is nothing in the subject or context inconsistent therewith; and, second, that the succeeding article prescribing what is to be done at the meeting deals with a member or members who may be present not personally but by proxy, as do also articles 63 and 68. The article, in my opinion, obviously means this, that if there be one member personally present, he and the member or members present by proxy may proceed to transact the business. The subject and the context are inconsistent with any other meaning of the word “members”. And, of course, the point remains that the time and place of meeting must be fixed by the directors.’ (emphasis added)
43. In the Singapore case of United Investment and Finance Ltd. v. Tee Chin Yong & Ors. [1967] 1 MLJ 31, the headnote reads :
‘ The plaintiffs claimed payment of the balances due from the defendants to the company for shares in the company upon forfeiture of their shares. The resolution to forfeit the shares and to institute proceedings was taken at a general meeting of the company attended only by two members of whom only one had paid up his shares. The meeting was an adjourned meeting and under article 35 of the company at this adjourned meeting “the members present should be a quorum”.’
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 :
‘ It is to be noted that article 55 says “the members present shall be a quorum”. Learned counsel for the defendants submits that there must at least be two members duly qualified to attend and to vote present before the meeting of the 13th April, 1963, could be held. Learned counsel for the plaintiffs, however, submits that in the special circumstances of this case Wong Hieng Tock alone could validly hold the meeting and validly pass the special resolution.
Learned counsel for the plaintiffs submits that article 55 shows that one member may constitute a general meeting because although the word “members” is used in the plural the interpretation clause (article 2) provides that words importing the singular number only shall include the plural number and vice versa. With all due respect to learned counsel, in my view this contention is erroneous. Article 2 does not provide absolutely that the singular number is always to include the plural and vice versa but it is only to do so if not inconsistent with the subject or context. Studying the provisions of the articles relating to general meetings and the votes of members one sees that there are provisions for members to attend meetings not personally but by proxy and that it was not contemplated that all the shares of the company might fall into the hands of one man. I am of the view that the subject and the context are inconsistent with any other meaning of the word “members”.’
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 :
‘The articles of association of a private company formed in 1959 restricted the transfer of shares and by article 15 required that “on the death of a member his ... shares must be offered to the other “members at par.” K. and N. the sole shareholders and subscribers to the company’s articles, held 250 £1 shares each, and on the death of K. in 1962, N. tendered £250 to K.’s executors and required them to implement the provision in the articles, but they refused. N. brought an action claiming specific performance of the obligation imposed on them: —......’
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 :
‘ It was laid down in Daimler Co. Ltd. v. Continental Tyre & Rubber Co, (Great Britain) Ltd., particularly by Lord Atkinson, that two at least were required to constitute a meeting; but it has now been questioned in Buckley on Companies Act, 13th ed., (1957) at p. 919, in, for instance, the note to article 4 in Part II of Table A, whether one may not constitute a quorum for a meeting where that article appears in a company’s articles of association together with article 54 of Table A, which provides that “if at an adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting the members present shall be a quorum.” In this case, however, although article 54 is incorporated in this company’s articles of association, it is with the amendment that the words “meeting shall be dissolved” shall be substituted for the words “members present shall be a quorum,” and this [amendment] thus abolishes what appears to be the very foundation for the suggestion in Buckley. Even without this amendment, I should find it unnecessary to investigate that suggestion in the circumstances of this case, as it appears to me that other provisions in the Companies Act are directly applicable to the difficulty that may arise if, as the result of such articles as article 15, there is only one surviving member.
Section 131 (2) of the Companies Act, 1948, provides that the Board of Trade can direct a meeting constituted by one member only if there has been default in the holding of an annual general meeting. Section 135 provides for the court directing a meeting constituted by one member only without the requirement which appears in section 131 (2) of there being a default in the holding of the annual general meeting.
It seems to me quite clear, therefore, that under the provisions of section 135 the court could, on proper application being made, direct a one-member meeting and provide in that meeting for any alteration in article 15 should that be considered advisable at that meeting. Section 135 itself expressly contemplates the situation where there is only one member; and, as that section and section 131 (2) envisage that situation andprovide for dealing with it, it appears to me impossible to read article 15 as though the Companies Act did not contemplate that possibility. It does not appear to me that the limitations imposed by the Companies Act where there is only one member in a private company should influence the construction of article 15 when, by the proper procedure, it is contemplated and provided by the Act that that very situation can be dealt with.’ (emphasis added)
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 :
‘ For business to be validly transacted at a meeting the meeting must be quorate. Unless the articles provide otherwise, the quorum for a company is two members personally present but it is common to provide that two members present in person or by proxy will suffice. The question has arisen whether the latter formulation allows one member holding a proxy from another member, or one person holding proxies from two different members, to constitute a quorate meeting. The answer has always been ‘no’, because of the common law rule that there must be at least two people present for a meeting to take place at all and that one person’s presence on behalf of two people does not suffice. It ought to be possible for a company’s articles to exclude the common law rule and to provide instead that one person can constitute a meeting and to provide for a quorum of one. This would not only avoid problems of dual capacity but also remove one of the devices whereby the minority can thwart the wishes of the majority. If, on the other hand, the articles provide for a quorum of more than two members present in person or by proxy, it is thought that, provided there were at least two people present to constitute a meeting at common law, any person present could be counted for the purposes of the quorum as representing the number of members for whom that person held proxies.’ (emphasis added)
48. In Modern Law of Meeting by Davies and others, §7.9, it is stated that :
‘ 7.9 At common law, and under reg 40 of Table A, only persons entitled to vote are counted in a quorum. At common law, proxies may not count in the quorum. However, articles usually override the common law rule and provide that persons holding a proxy for a voting member can vote and therefore count in the quorum (reg 40). So, in a company to which reg 40 applies, whose articles require two persons to constitute a quorum, two proxy holders will be a quorum, even if neither are members. Usually, however, one member cannot constitute a quorum, even if he also holds proxies for other members. Nor can one proxy, such as a company chairman, appointed as proxy by several different members, even though variously instructed to vote both for and against the resolutions under consideration by different appointors, constitute a quorum. It is likely that any attempt to exclude this rule in a company’s articles is invalid. This is because one person cannot generally constitute a meeting at all - if there is no meeting, the question of whether there is a quorum does not arise.’
However, the authors went on at paragraph 7.14 to state that :
‘ 7.14 Old articles (such as regs 53 and 54 of Table A to the Companies Acts 1948-1976), provide that a quorum only needs to be present when the meeting proceeds to business, in any event. They also provide that, if a meeting is adjourned and a quorum is not present within 30 minutes of the time appointed for the adjourned meeting, the members present shall be a quorum. This means that one member may constitute a quorum at the adjourned meeting under those provisions.’ (emphasis added)
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 :
(1) a single member present,
(2) a proxy present,
(3) a single member present with a proxy from another member or a person holding proxies from two different members.
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.
| (Peter Cheung) | (Michael Lunn) | (Ian McWalters) |
| Justice of Appeal | Justice of Appeal | Judge of the Court of First Instance |
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