DU SHUI WING AND OTHERS v. FU KIN FUNG AND OTHERS

HCMP 846/2019

[2023] HKCFI 2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 846 OF 2019

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DECISION ON COSTS

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1.  By summons filed on 25 April 2023, the 1^st to 7^th Petitioners (“Ps”)  applied for leave to discontinue the Petition presented on 11 June 2019 (as amended on 13 January 2020)  (“Petition”)  with costs against the 1^st to 4^th Respondents (collectively “Rs”). Leave was granted to Ps to discontinue the Petition in the circumstances described in §§21-33 below.

2.  Ps contend that although they discontinued the Petition, this was not an acceptance of defeat.  Rather, it was as a result of the resolutions passed at the extraordinary general meeting (“EGM”)  of Kwai Ching United Green Public Light Bus Company Ltd, the 5^th Respondent herein (“Company”), held on 28 March 2023 (“2023 EGM”)  that the board was re-constituted with some of Ps having been elected as directors.  This rendered it unnecessary for Ps to pursue the reliefs sought in the Petition.  Had Ps pursued the Petition at trial, they would have succeeded in proving the matters complained of against Rs. 

3.  On the other hand, Rs say that they should not be ordered to pay costs as they had not done anything wrong which justified the commencement of these proceedings. 

(1)  Rs say that while there was a dispute between them and Ps on the manner in which the Company should be managed, both camps refused to cooperate with the other after they had obtained control over the board.  There was no unfairness in the conduct of the affairs of the Company. 

(2)  Since Ps have taken control over the board after the 2023 EGM, they have conducted the affairs of the Company to the prejudice of Rs by not allowing the public light buses owned by Rs to be used by the Company to generate revenue for Rs.  This is a matter of concern but Ps, through counsel, confirm to the court that they will allow Rs’ minibuses to operate on the Routes (as defined in §10 below)  so long as they comply with the requirements of the Transport Department.

(3)  In addition, R3 points out that he has through a without prejudice letter dated 27 January 2023 offered to pay $360,000, being 80% of ¼ of the $1,800,000 costs said to have been incurred by Ps, in full and final settlement of all the claims against him (“Offer”), but Ps never replied to the Offer.

4.  The issue is whether Ps are entitled to seek costs against Rs notwithstanding the discontinuance of the Petition.

Applicable Principles

5.  The approach of the court in determining costs where the proceedings have become academic are sufficiently stated in Glory Empire Global Ltd v Bateson Investment Limited, HCA 866/2017, 17 August 2017, §44, per Chow J (as he then was)  as follows:  

“(1)  The judge has a wide discretion not only as to the manner by which the issue of costs is to be determined, but also what evidence should be received and what findings to make.

(2)  In a simple case where the issue of liability is clear on the face of the pleadings or existing affidavit evidence already filed, it would be open to the judge to determine the issue of costs without receiving any further evidence.

(3)  Where the issue of liability is not so clear, the judge may direct evidence to be filed and the witnesses to be cross examined. The judge may also confine the evidence to be filed, and cross examination of the witnesses, to a particular issue or some particular issues.

(4)  In determining the issue of liability for the purpose of deciding costs, the court may adopt a broad brush approach and does not necessarily have to conduct a trial to determine the substantive issues.

(5)  Where it is impossible for the court, on the existing materials, to say what the likely outcome would be, the court may, in appropriate circumstances, decide to make no order as to costs.

(6)  Ultimately, the objective is to do justice between the parties without incurring unnecessary court time and consequently additional costs.”

6.  The court may adopt a broad approach in deciding within a comparatively short time where the merit is likely to lie.  How far the court should investigate into the unresolved factual dispute depends on the circumstances of the case, including the amount of cost at stake and the conduct of the parties.  The overriding principle is what fairness and justice require in the circumstances (Re Fook Lam Moon Restaurant Ltd, HCMP 438/2010, 8 December 2015, §§45, 49, 51-52, per To J).

7.  In my view, the starting point is that a petitioner which seeks leave to discontinue the proceedings should be ordered to pay the costs of the proceedings.  This accords with the usual principle that costs should follow the event.  Generally, there are the following scenarios:

(1)  Where the parties reached a settlement on the underlying dispute and costs.  The court would normally make the costs order as agreed between the parties.   

(2)  Where the parties reached a settlement on the underlying dispute but unable to agree on costs, they cannot expect the court would agree to determine the question of costs summarily.  This is because far from saving time, the court would have to go through the respective cases of the parties and their evidence and come to a view on the merit, without the benefit of being able to see the witnesses and the full submissions of counsel. 

(3)  Where the proceedings have become academic as a result of the conduct of the parties, the court may take into account the conduct of the party responsible for bringing the proceedings to an end and decides who should be liable to pay costs. 

(4)  Where the reason for the proceedings coming to an end was the result of subsequent events which are not attributable to the parties, ordinarily there should be no order as to costs as it cannot be said that either party is at fault for bringing about or defending the proceedings. 

(5)  In the context of an “unfair prejudice” petition, if the petitioner considers the petition has become academic but contends that it should be entitled to costs, it bears the burden of satisfying the court that had the petition proceeded to trial, it would have succeeded in establishing all the complaints and the court would grant the reliefs sought in the petition.  This is because even if the petitioner is able to establish the complaints, it would not be regarded as the successful party if the relief sought is not one which the court would grant under s.725 of the Companies Ordinance (Cap. 622)  (“CO”). 

8.  The present case falls within the last scenario. 

9.  There are 2 further points relevant to the court’s consideration of the merit of the complaints where the petitioner has discontinued the petition:

(1)  First, the court would only consider the complaints pleaded in the petition.  This accords with the principle that the petitioner’s complaints are defined by and limited to the matters pleaded in the petition (In re Fildes Bros. Ltd[1970] 1 WLR 592 at 597G-598C; Re Tourmaline Ltd [2000] 4 HKC 348 at 354C-D, per Chu J (as she then was)). 

(2)  Second, the court would only consider the evidence which is not in dispute or is indisputable. It is the petitioner’s own decision to discontinue the petition thereby depriving the respondent the opportunity to challenge its evidence at trial.  The petitioner cannot be heard to say that the court would necessarily determine the factual dispute in its favour at trial. 

Factual Background

10.  The Company was incorporated in July 2003 with 23 “founding shareholders”.  Each founding shareholder held one share and was entitled to operate the minibuses owned by him/her on the 6 routes in Kwai Ching area designated by the Transport Department (“Routes”). 

11.  There is no dispute that:

(1)  The shares held by the shareholders can only be transferred if (a)  the transferee is an immediate family member or a “Recognised Shareholder”[1], and (b)  the transfer is approved by a majority of the Recognised Shareholders;

(2)  As and when a Recognised Shareholder ceases to own any minibus, he/she will not be entitled to exercise his right as shareholder (according to Ps)  or has to give up his/her share (according to Rs); and

(3)  By the time the Petition was presented, the Company had 13 shareholders, and each of P1-P4 and P6 held one share.

12.  The matters set out in §§10-11 above (collectively “Agreed Matters”)  formed part of the “Mutual Understanding” (according to Rs[2])  or the “Agreement” reached orally between the 18 remaining founding shareholders in August 2005 (according to Ps[3]).

13.  At the time the Petition was presented, the Company employed approximately 70 drivers to drive 32 minibuses operating on the Routes.

14.  The modus operandi of the Company has been as follows:

(1)  The Company employs all the drivers and has the obligation to pay the wages and MPF payable to the drivers.

(2)  The shareholders (by themselves or through their corporate vehicles)  own the minibuses. 

(3)  The revenues generated by the minibuses which operate on the Routes, in the form of cash and payments collected through Octopus, are collected by the Company and paid into the Company’s bank account at Hang Seng Bank (“Bank Account”).

(4)  The Company apply the monies in the Bank Account to defray (a)  the direct expenses incurred by the minibuses including the wages payable to the drivers, and (b)  the indirect administrative and operating expenses for managing the minibuses and maintaining the operations of the Company.  The indirect expenses include the rent of the registered office used by the Company (“Office”)  and the 5 staff employed by the Company.  One of the staff is Madam Choi, a bookkeeper (“Choi”).  

(5)  The revenue generated by each minibus, after deducting the direct expenses attributable to that minibus and the proportionate share of the indirect expenses, will be paid to the owner of the minibus concerned. 

(6)  The Company’s staff are responsible for dealing with the administrative matters which include (a)  collecting all the revenues generated by the minibuses and depositing the same into the Bank Account; (b)  paying the direct and indirect expenses of the Company; (c)  calculating the revenue attributable to each  minibus; and (d)  distributing the net revenue to each owner of the minibus once every 2 weeks.

15.  According to the tables of shareholders and the information submitted by Ps’ solicitors on 23 and 27 February 2023 and by Rs on 22 and 27 February 2023 (at the request of this Court)  and taking into account the Agreed Matters, it is indisputable that as at 28 February 2023, the Company has 14 shareholders and each of them holds one share in the Company (representing 7.1% of the total voting rights):

(1)  Du Shui Wing (P1);

(2)  Yau Hon Man (P2);

(3)  Ho Sze Wah (P3);

(4)  Lee Lai Sheung (P4);

(5)  P5 (deceased)’s share was transferred to her 3 sons, Wu Wai Man, Wu Wai Fung and Wu Wai Kwong (collectively “Joint Executors”), on 15 May 2020 in their capacity as joint executors of her estate;

(6)  Du Cheun Kuen (P6);

(7)  Tsang Lam Mei Kwan (P7);

(8)  Yip Tai Tai (represented by her step-son, R1);

(9)  Chak Kwan Ying (represented by her husband, R2);

(10)  Fu Yuk Hang (R3);

(11)  Chin Nai Man (R4);

(12)  Chong Ching Han;

(13)  Wong Shiu Yin; and

(14)  Wong Kam Chee.

16.  These 14 shareholders have the right to attend any general meeting to be convened by the Company and to vote on any resolutions concerning the appointment or removal of directors.  

Ps’ Case

17.  Ms Tessa Chan submits that each of Ps “directly and/or indirectly, and individually and/or jointly with others”, owns minibuses operating on the Routes.  There is a reason why Ms Chan puts the ownership of the minibuses in such uncertain term as one of the issues between Ps and Rs, which was also the source of their dispute, is whether some of Ps and the persons associated with them were entitled to deploy their minibuses to operate on the Routes.   

18.  Until the matters complained of by Ps:

(1)  P1-P3 together with the son of P4, Wong Chi Kwan (“Wong”), were directors of the Company;

(2)  P1-P3 were authorised signatories of the Bank Account;

(3)  Wong is not a shareholder, but owns a minibus which had been operating on the Routes; and

(4)  P1-P3 and Wong qua directors permitted all the 18 minibuses owned or controlled by Ps (collectively “Ps’ Minibuses”)  to operate on the Routes and caused the Company to employ 41 drivers to drive Ps’ Minibuses (“Ps’Drivers”).   

19.  In the Petition, Ps made 4 complaints against Rs:

(1)  At the EGM held on 4 October 2018 (“2018 EGM”)  at which Ps did not attend, resolutions were passed to (a)  appoint Rs as directors and (b)  remove P1-P3 and Wong as directors of the Company (together “2018 Resolutions”).  Ps dispute the validity of the 2018 EGM and the 2018 Resolutions on the ground that they were passed in breach of the requirements under ss.462(4), 463 and 578 of the CO (2018 EGM Issue).

(2)  Rs have since their appointment as directors at the 2018 EGM “committed acts amounting to negligence and/or serious mismanagement of the Company and/or breaches of their fiduciary duties as de facto directors”.  The impugned acts include (a)  removing P1-P3 as authorised signatories of the Bank Account in January 2019; (b)  failing to cause the Company to pay the wage of Ps’ Drivers and the wage of Choi on a timely basis; and (c)  failing to cause the Company to pay the revenues generated by Ps’ Minibuses to Ps once every 2 weeks (Mis-management Issue).

(3)  At the EGM convened by Ps to be held on 7 March 2019 (“2019 EGM”)  for the purposes of electing directors and resolving the Mis-management Issue, which was attended by Ps, resolutions were passed to appoint P1-P4 as directors (“2019 Resolutions”). However, Rs refused to acknowledge the validity of the 2019 Resolutions on the ground that R2 and R4 had been wrongfully denied the right to attend the 2019 EGM and as a result, Ps were not able to file any record at the Companies Registry to show the change in directors or to change the signatories of the Bank Account (2019 EGM Issue).

(4)  Rs continued to mis-manage the affairs of the Company by (a)  failing to cause the Company to pay (i)  the double-pay to Ps’ Drivers who worked on public holiday from January 2019; (ii)  the MPF in respect of all the drivers employed by the Company; (iii)  the indirect expenses of the Office and the wage of Choi, which were subsequently paid by Ps, (iv)  the monthly management fee of $5,000 payable to P1 since January 2019; (b)  failing to file the tax return; and (c)  directing the Company’s mails to another address (Ongoing Mis-management Issue).

20.  Ps say that the above acts are “unfairly prejudicial conduct” and seek the following reliefs under s.725 of the CO:

(1)  a declaration that the 2018 EGM and the 2018 Resolutions “are void and/or invalid and of no legal effect”;

(2)  an injunction to restrain Rs from acting as directors of the Company;

(3)  an order for appointment of receiver and/or manager over the Company for a period as the court sees fit;

(4)  an order for a general meeting to be held to elect the directors;

(5)  an order to reinstate P1-P3 and Wong as directors;

(6)  an order that Ps “be reimbursed of [sic] any expenses paid by them on behalf of the Company”; and

(7)  damages[4].

Procedural History and Interlocutory Skirmishes

21.  On 26 November 2019, Ps issued a summons for an injunction to restrain Rs from proceeding with an EGM convened to be held pursuant to the notice dated 5 November 2019 for the purpose of ratifying the 2018 Resolutions (“Injunction Summons”).  In response, Rs gave an undertaking to postpone the EGM until determination of the Injunction Summons.

22.  By another summons issued on 11 May 2020, Ps applied for an order to appoint Mr Alvin Wan Tin Yau of Moores Rowland (HK)  CPA Ltd (“Wan”)  as receiver and manager of the Company pending determination of the Petition (“Receiver Summons”). 

23.  At the hearing of the Injunction Summons on 6 July 2020, Rs gave an undertaking to the court that they would not call or hold any general meeting of the Company for the purpose of approving, ratifying or confirming the 2018 Resolutions until determination of the Petition. No order was made on the Injunction Summons save that the costs of the Summons was ordered to be in the cause.   

24.  On 24 November 2020, DHCJ Patrick Fung SC appointed Wan as receiver and manager (“Receiver”)  at a fixed fee of $48,000 per month, to be borne by and paid out of the funds of the Company, failing which the fees are to be paid by the shareholders in proportion to their shareholding.  Costs of the Receiver Summons was ordered to be in the cause of the Petition.

25.  By summons filed on 25 August 2021, the Company (acting by the Receiver)  sought an order to compel R4 to provide information and documents relating to the cheques drawn out of the Bank Account (“Production Summons”).  Upon the joint application of Ps and Rs, on 20 September 2021, Master Lai ordered R4 to provide the particulars and documents sought in the Production Summons with costs of the Production Summons be paid by Rs to the Company, to be taxed if not agreed. 

26.  At the CMC on 24 September 2021, the Petition was set down for trial with 6 days reserved. 

27.  Until 4 April 2022,  Rs were represented by solicitors. 

28.  At the PTR on 7 February 2023:

(1)  Upon this Court’s enquiry, Ps and Rs confirmed that no annual general meeting (“AGM”)  was convened or held by the Receiver.  Nor did the Receiver provide any financial statements of the Company to the parties.  This was despite the fact that the appointment order states that the Receiver is “to manage and conduct the ordinary business of the Company” pending determination of the Petition.  The ordinary business must include holding AGM and preparing financial statements as required by the CO.

(2)  Neither Ps nor Rs were able to assist the court as to why the Receiver did not take step to convene and hold any AGM.

(3)  The state of affairs was unsatisfactory as it means that the Company would have to continue to pay the fees of the Receiver while the parties remain embroiled in the proceedings which, even if determined, would not resolve the impasse between Ps and Rs.  If and to the extent that the Receiver considered that there were any difficulty in convening or holding any AGM, the proper course should be to seek directions from the court but he never did.  Consequently, the Receiver was directed to provide a report on the receivership to the court and the parties by 7 March 2023.

(4)  As regards the holding of an AGM, Ps and Rs both said that the Company presently has 14 shareholders although they differed on the names of some of the shareholders.  Directions were given requiring Ps and Rs to provide to the court by 14 February 2023 the names of the shareholders, the date when they became or ceased to be shareholders and the reasons therefor (if any).

(5)  Ps’ counsel referred to the POD (§6)  and the POR (§6)  and pointed out that Rs had disputed Ps’ right to attend and vote at the general meeting, and reiterated Ps’ complaint about the invalidity of the 2018 EGM and 2019 EGM (together “EGMs”).

(6)  This Court indicated to the parties that it was minded to direct the Receiver to convene and hold a general meeting to be held by 30 March 2023 for the purpose of considering and, if thought fit, passing resolutions for inter alia, appointment of directors.  If resolutions are passed by a majority of the shareholders to elect Rs as directors, Ps’ challenge on the validity of the EGMs must fail in line with the irregularity principle.  On the other hand, if Ps are re-elected as directors, the reliefs sought in the Petition would become academic. 

(7)  Ps were reminded that some of the reliefs sought in the Petition (such as §20(2), (4)  & (5)  above)  are not ones which the court would grant, as the court would not normally interfere with the management of the Company, and it is a matter for the shareholders, not the court, to decide who should be appointed as directors.   

29.  Upon considering the parties’ respective submissions on the names of the shareholders, the report of the Receiver and the pleadings filed, by letter dated 28 February 2023, this Court pointed out the matters stated in §§10-11 and 28 above and directed the Receiver to convene and hold an EGM of the Company to be held by 30 March 2023 for the purpose of considering and, if thought fit, passing resolutions for inter alia the appointment of directors.

30.  Thereafter, the Receiver convened and held the 2023 EGM on 28 March 2023 which was attended by 8 shareholders (including Ps)  but not Rs.  Resolutions were passed to appoint P1-P3 and Wong as directors, and Rs were not re-elected as directors. 

31.  On 3 April 2023, the Receiver reported the result of the 2023 EGM to the court.

32.  By summons issued on 25 April 2023, Ps sought leave to discontinue the Petition with costs to be paid by Rs (“Discontinuance Summons”).  The Discontinuance Summons was listed before this Court on 28 April 2023 but adjourned to 2 May 2023, after Rs stated that they would like to appeal although they did not identified which order they would like to appeal against. 

33.  At the hearing on 2 May 2023:

(1)  Ms Chan submitted that Ps had achieved substantially what they sought in the Petition and should be entitled to costs, relying on Perrine Chamonix Ltd v Star League Ltd & anor, HCA 1139/2017, 13 September 2017, §§23-28, per DHCJ William Wong SC.  Ms Chan urged the court to deal with the parties’ arguments on costs summarily at a 3-hour hearing on the basis that Ps would invite the court to determine the 2018 EGM Issue, and it was not necessary for the court to determine the other issues.  Ps have no objection to the discharge of the Receiver. 

(2)  Rs submitted that there should be no order as to costs. They have no objection to the court determining the question of costs summarily and they agreed that the Receiver should be discharged. 

(3)  Leave was granted to Ps to discontinue the Petition.  Directions were given on the arguments on costs at the first day fixed for the trial.  An order was made to discharge the appointment of the Receiver. 

Discussion

34.  Contrary to her representation made at the hearing on 2 May 2023, Ms Chan puts forward a 47-page submissions and argues that Ps should be regarded as the winner in respect of all issues. 

35.  In my view, Ps should not be regarded as the successful party and should be required to pay 60% of the costs incurred by Rs in defending the Petition for the following reasons. 

36.  First, it is difficult to see why Ps chose to present the Petition and seek relief under ss.724-725 of the CO on the basis of the 4 complaints set out in §19 above.  The complaint about the validity of appointment of directors, which is the main complaint, is one which should and could have been redressed through one or more of the avenues available to Ps.  These include:

(1)  To request Rs to call a general meeting under s.566 of the CO, whereupon Rs would come under a duty to call a meeting within 21 days thereof to be held on a date not more than 28 days after the date of the notice as required by s.567.

(2)  If Rs fail to call a general meeting as required by s.567, Ps could either enlist the support of another shareholder (so as to increase their total voting right to over 50%)  and call a general meeting pursuant to s.568 of the CO or apply to the court for an order to compel Rs to abide by their obligation under s.567 of the CO. 

(3)  At the general meeting convened under either avenue, Ps would be able to re-constitute the board without commencing any legal proceedings. 

37.  Second, if there were any proper basis to suggest that Rs would not act in accordance with the resolutions passed at the general meeting convened under ss.566 or 568 of the CO (none has been suggested), the proper course should be for Ps to commence summary proceedings, by way of originating summons, to seek injunctive relief under ss.728-729 of the CO to compel Rs to act in accordance with the resolutions passed at the general meeting.  It is a waste of time and costs for Ps to commence an “unfair prejudice” petition to pursue a complaint of such nature.

38.  Third, it was wholly unnecessary for Ps to present the Petition to challenge the validity of the 2018 EGM.  This is because by the time the Petition was presented (11 June 2019), Rs had already retired as directors as required by article 7 of the Articles of Association of the Company (“AA”), which provides that “at every succeeding Ordinary General Meeting all directors, except Permanent Directors if any are appointed, shall retire from office and shall be eligible for re-election”.  As the Company was required to hold an annual general meeting every year, there was no properly constituted or elected directors since 31 December 2018, being the last day on which the 2018 AGM should have been held (In re The Bodega Co Ltd [1904] 1 Ch 276; In re Consolidated Nickel Mines Ltd [1914] 1 Ch 883).

39.  Fourth, even if Ps were able to identify any reason or justification to justify the need to commence proceedings to resolve the dispute on the 2018 EGM and 2019 EGM (none has been suggested), the obvious course would be to issue an originating summons and ask the court to determine the issues summarily.  Such proceeding could have been resolved within 6-9 months even if contested by Rs.  If Ps prevail on either the 2018 EGM Issue or 2019 EGM Issue, the so-called mis-management of the Company would naturally come to an end. 

40.  Fifth, I do not think that the Mis-management Issue and the Ongoing Mis-management Issue, even if established, are conduct which would justify the commencement of an “unfair prejudice” petition under ss.724-725 of the CO given that:

(1)  Ps did not have any personal right to remain as authorized signatories of the Bank Account.  The change of authorized signatories of the Bank Account is a management matter, and the court would not interfere with such matter unless such change would prejudice the interest of the Company; and

(2)  The other complaints concern with the manner in which the affairs of the Company was conducted.  No allegation of impropriety is made against Rs.  In any event, the matters complained of should be redressed by re-constituting the board.  

41.  Sixth, on the basis of the undisputed evidence, Ps have not shown that the complaints under the Mis-management Issue and the Ongoing Mis-management Issue are unfair, still less unfairly prejudicial:

(1)  It is not in dispute that P1-P3 and Wong had refused to handover the Company’s documents and information after Rs had taken control over the board. Rs say that it was owing to the lack of information and documents that they were not able to cause the Company to pay the wages, double pay and MPF to Ps’ Drivers in good time or to file the tax return on behalf of the Company. Ms Chen does not dispute that; and

(2)  It is not disputed that the Office and Choi were also used by Ps and/or their companies for their own benefit.  It was for this reason that Rs refused to cause the Company to pay the Office expenses and Choi’s wage.   

42.  Lastly, for the same reasons set out in §§28, 36 - 41 above, I do not think that the reliefs sought in §(2)-(6)  of the Petition are appropriate or that they are ones which would be granted by the court.

43.  For completeness, I will deal with Ms Chan’s submissions on the 2018 EGM Issue and explain why Ps should not be regarded as the successful party in respect of that Issue.   

44.  Ms Chan submits that on the basis of the “largely undisputed” evidence, the 2018 EGM was invalid because:

(1)  The notice dated 11 September 2018 to convene the 2018 EGM to be held on 4 October 2018, which was signed by 7 shareholders and another person (who Ps claim to have no knowledge of)  (“2018 Notice”)  was not given to P7, who was a “shareholder” of the Company;

(2)  The 2018 Notice did not contain any proposed resolution to remove P2, P3 and Wong as directors;

(3)  Ps did not attend the meeting;

(4)  No special notice, as required by ss.462(4), 463 and 578 of the CO, was given to Wong, who was one of the directors proposed to be removed at the 2018 EGM;

(5)  No minutes or resolutions were prepared by Rs in respect of the 2018 EGM;

(6)  The Agreed Matters stated in the court’s letter confirmed that the 14 shareholders included Ps; and

(7)  In Wong Man Yin v Ricacorp Properties Ltd (2003)  6 HKCFAR 265, §§44, 50-51, 64-66, the Court of Final Appeal held that failure to serve notice of meeting should not be treated as mere technicality, and it was unfair to the petitioner to be deprived of his right to receive notice of the general meeting at which the impugned resolution was passed.   

45.  There is no dispute that the 2018 Notice was delivered to P1-P6 and the Company on 11 September 2018.  The 2018 Notice states as follows:

“ 葵青聯運專線小巴有限公司

公司註冊號碼854693

——————————————————————————————

提議罷免董事

近年因持牌人刁瑞榮先生管理不善，葵青聯運專線小巴有限公司連遭運輸處以及乘客投訴服務水平下降，業績明顯下滑。刁先生因事務繁忙，難以兼顧，令眾股東無故蒙受損失。為此，大多數股東決定通過投票重選董事，望提升現有服務水平，現誠邀閣下出席並參與是次董事選舉。

持牌人選舉將於下列時間地點舉行，望眾股東踴躍參與。

日期：2018年10月4日

時間：下午二時正

地點：葵芳葵芳閣龍堡酒家”

46.  First, there is no merit in Ps’ complaint about the inadequacy of the 2018 Notice or lack of special notice to the directors (§44(2)  & (4)  above)  given that:

(1)  At the time the 2018 Notice was issued, P1-P3 and Wong were directors.  All 13 shareholders were aware of the purpose of the 2018 EGM proposed to be held.

(2)  Although only the name of P1 was mentioned in the 2018 Notice, the words “重選董事” (re-elect directors)  are sufficiently clear to convey to the shareholders that the purpose of the 2018 EGM was for the shareholders to decide, through voting, who should be elected as directors for the stated purpose of improving the management of the Company. 

(3)  Sections 462(4)  and 578 of the CO only require the notice of the intention to move a resolution to remove director has been given (a)  to the company at least 28 days before the meeting at which it is moved, and (b)  to the shareholders at the same time and in the same manner as it gives notice of the meeting. 

(4)  There is no dispute that the 2018 Notice was given to the Company and all the shareholders entitled to receive notice as required by ss.462(4)  and 578.  As Wong was not a shareholder, there is no requirement under ss.462(4)  or 578 of the CO to give any special notice to him. 

(5)  It is not open to Ps to complain about the lack of special notice given by the Company to the directors concerned.  This is because at the time the 2018 Notice was issued, only the incumbent directors (i.e. P1-P3 and Wong)  could act on behalf of the Company and caused a special notice to be sent to themselves.  I do not think it is open to Ps to rely on P1-P3’s and Wong’s own inaction in sending the special notice as the basis for challenging the validity of the 2018 Meeting and the 2018 Resolutions. 

47.  Second, contrary to Ps’ contention, there was no requirement to give the 2018 Notice to P7 (§44(1)  above)  as P7 was not a shareholder at the time the 2018 Notice was given:

(1)  Ms Chan argues that P7 was a shareholder at the time the 2018 Notice was issued, relying on (a)  a written board resolution dated 9 July 2018, where it was resolved that the transfer of 1 share of Lam Po Cheung (deceased)  to P7 be approved subject to the Instruments of transfer being stamped, and that the name of P7 be entered in the register of members.  The Instruments of Transfer dated 15 October 2018 was signed by P7 as the transferor (on behalf of the estate of Lam Po Cheung (deceased)), and as transferee in her personal capacity.  Rs never raised any issue as to the authenticity or contents of these documents but merely asserted that P7 was not entitled to receive the 2018 Notice as she had not been registered as a shareholder as at 11 September 2018.  However, as a matter of law, P7 should be entitled to receive the 2018 Notice qua personal representative of the estate of Lam Po Cheung (deceased)  (Karupayee Ammal v G-Toys Manufacturing Ltd [2020] 6 HKC 59, 63B-D at §26). 

(2)  I am unable to see how Ps can contend that P7 was a shareholder as at 11 September 2018, given that the resolution approving the transfer was expressly stated to be conditional upon the lodgement of the Instrument of Transfer, and the Instrument of Transfer could only have been lodged with the Company after the date it was created (15 October 2018).  As the condition for approving the transfer was only met by P7 on or after 15 October 2018, there is simply no basis for Ps to suggest that P7 was a shareholder at the time the 2018 Notice was given. 

(3)  Neither the Agreed Matters nor the fact that 14 shareholders were identified by this Court in March 2023 (§44(6)  above)  would alter the fact that P7 only became a shareholder on or after 15 October 2018 at the earliest. 

48.  Third, the fact that no minutes of the 2018 EGM or copies of the 2018 Resolutions were provided to Ps (§44(5)  above)  would not render the meeting or the resolutions to become invalid.  Nor the fact that Ps did not attend the 2018 EGM (§44(3)  above)  would render the meeting and the 2018 Resolutions to become invalid.

49.  Lastly, it is not open to Ms Chan to rely on the alleged breach of the various articles in the AA[5] as such matters have not been pleaded in the Petition. 

50.  As regards the 2019 EGM Issue, it is Rs’ evidence (not challenged by Ps)  that R2 and R4 were denied entry to the venue at which the 2019 EGM was held. In my view, this is sufficient to render the 2019 EGM to be not properly held such that the 2019 Resolutions are invalid.

51.  Ms Chan tries to salvage the complaint by relying on the irregularity principle as discussed inHuangfu Chuangxin v Ni Yongkang & Ors[2022] HKCFI 1721, §§21-27. She submits that even if R2 and R4 were allowed to attend the 2019 EGM, the result of the voting would have been the same. However, the point has never been raised by Ps in pleadings and, therefore, neither party has adduced any evidence to deal with such point. In any event, I do not think the irregularity principle can be used by Ps to justify their act in denying the right of R2 and R4 in attending the 2019 EGM.

52.  In coming to the conclusion that Ps should pay 60% of the costs incurred by Rs in defending the Petition up to the date of the discontinuance of the Petition, I have taken into account the fact that (1)  part of the costs incurred by Rs could have been saved had the parties and their legal representatives paid heed to the pleadings and identified the Agreed Matters at a much earlier stage; (2)  substantial time and costs were incurred by both parties in dealing with various interlocutory applications and it was only at the eve or on the dates of the hearings of the applications that Rs gave the undertakings to the court; and (3)  amongst the matters complained of by Ps under the Mis-management Issue and Ongoing Mis-management Issue, the delay in paying wages, MPF and other legitimate expenses could have been addressed and resolved earlier had Rs acted reasonably by requesting Ps and Choi to provide the requisite information and documents.  

53.  As for the fees of the Receiver, it seems to me that his fees should be paid out of the assets of the Company given that (1)  the Receiver did manage most of the affairs of the Company during the period when neither side was able to deal with such affairs effectively; and (2)  the Company did benefit from the work performed by the Receiver.   

54.  For the above reasons, I make the following costs order:

(1)  Ps do pay to Rs 60% of the costs of and occasioned by the Petition up to the date of the discontinuance of the Petition including the costs of (a)  all the interlocutory applications ordered as part of the costs of the Petition, and (b)  all the costs reserved, to be taxed if not agreed.

(2)  The monthly fees of the Receiver be paid out of the assets of the Company.   

55.  As for the costs of the argument on costs including the hearing on 11 May 2023, they were incurred as a result of Ps’ stance, despite Rs’ suggestion that there should be no order as to costs in respect of the Petition.

56.  Ps should be ordered to pay the costs incurred by Rs in dealing with the arguments on costs. I make a costs order nisi that Ps do pay the costs of Rs in dealing with the arguments on costs at $200/hour for 20 hours in respect of each respondent.

57.  As Ps have failed to beat the Offer, they should be ordered to pay the legal costs incurred by R3 from the date they could have accepted the Offer (i.e. 3 February 2023)  to the date of the discontinuance of the Petition, if any, on an indemnity basis, to be taxed if not agreed.

Ms Tessa Chan, instructed by Simon C.W. Yung & Co., for the 1^st – 7^th Petitioners

The 1^st Respondent, Fu Kin Fung (傅建峰), appears in person

The 2^nd Respondent, Chung Hung Lik (鐘雄力), appears in person

The 3^rd Respondent, Fu Yuk Hang (傅玉恆), appears in person

The 4^th Respondent, Chin Nai Man (錢乃民), appears in person

Chui & Lau, for the 5^th Respondent, is absent

HCMP 846/2019

[2020] HKCFI 2924

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 846 OF 2019

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D E C I S I O N

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The Application

1.  Before me is an application by summons issued by the petitioners on 11 May 2020 (“the Summons”) for the appointment of a receiver/manager for the 5^th respondent company (“the Company”).

2.  The petitioners appeared by their counsel, Mr Erik Shum and Ms Christy Wong, on the instructions of Messrs Simon C W Yung & Co.

3.  As at the date of the hearing before me on 14 October 2020, the 1^st to 4^th respondents were acting in person.  The 1^st, 2^nd and 4^th respondents were present in Court and made submissions.  The 3^rd respondent was absent.  I shall say more about their legal representation below.

4.  The Company was absent and unrepresented at the said hearing.

5.  To begin with, the 1^st, 2^nd and 4^th respondents applied to me for an adjournment of the hearing.  That was objected to by the petitioners.  After having heard their respective submissions, I dismissed the application for an adjournment and proceeded to hear the application under the Summons.

The Amended Petition

6.  The petition was first presented on 11 June 2019.  It was subsequently amended on 13 January 2020 by the Order of Master J Wong dated 19 December 2019.

7.  The main facts as set out in the amended petition can be summarized as follows : -

(i)       The Company was originally incorporated in 2003 under another name.

ii)      The petitioners and the 1^st to 4^th respondents are all shareholders amongst other shareholders in the Company.

(iii)     The principal business carried on by the Company has been to manage 6 routes of green mini buses in the Kwai Chung area.

iv)     There are 32 mini buses in operation under the Company.  Such mini buses are either legally or beneficially owned by individual shareholders and/or shareholders jointly and/or limited companies set up by various shareholders.

v)      The Company is responsible for, inter alia, the distribution of passenger fares collected to the mini bus owners and the payment of wages to the drivers and staff of the Company.  Thus, it would appear that the function of the Company is actually that of a manager.

vi)     The 1^st, 2^nd and 3^rd petitioners and one Wong Chi Kwan (“Wong”) who is the son of the 4^th petitioner were the directors of the Company until the 1^st to 4^th respondents purported to replace them on 4 October 2018.

vii)    On 4 October 2018, the 1^st to 4^th respondents held a purported general meeting of the Company (“the Purported Meeting”) and purported to pass resolutions (“the Purported Resolutions”) to the effect that they had been appointed as new directors of the Company in place of the 1^st to 3^rd petitioners and Wong.

viii)   As the requirements of giving notice for convening a general meeting had not been complied with, the petitioners did not attend the said meeting.

ix)     By a letter dated 1 February 2019 and sent by their solicitors, Messrs Simon C W Yung & Co, the petitioners challenged the validity of the Purported Meeting and the Purported Resolutions and requested the 1^st to 4^th respondents to, inter alia :

(a)  provide the petitioners with the notice, minutes and other documents relating to the Purported Meeting;

(b)  refrain from carrying out acts as directors of the Company and from obstructing the 1^st, 2^nd and 3^rd petitioners and Wong from acting as directors of the Company;

(c)  reinstate the 1^st, 2^nd and 3^rd petitioners and Wong as directors of the Company and procure the filing of documents in the Companies Registry to record the directorship of the 1^st to 3^rd petitioners and Wong in the Company.

(x)      Up to the date of the petition, the 1^st to 4^th respondents had not replied to that letter or acceded to the said requests contained therein.

(xi)     As a result of the improper acts of the 1^st to 4^th respondents, since January 2019, the 1^st to 3^rd respondents could no longer access the Company’s bank account and what is known as the ‘Octopus Account’, because the signatories had been changed to the 1^st to 4^th respondents.

(xii)    Consequently, the Company failed to pay wages to the 41 drivers and salary to staff members for sometime.

(xiii)   On 7 March 2019, the petitioners sought to remedy the situation by calling an Extraordinary General Meeting (“EGM”) of the Company. After that, they still failed to change the Companies Registry record and the bank signatories.

8.  The petitioners claim that as a result of the conduct of the 1^st to 4^th respondents the details of which will be set out below, the Company and the petitioners have been seriously and unfairly prejudiced.

9.  In the prayer in the amended petition, the following reliefs, inter alia, are claimed : -

(i)      a declaration that the Purported Meeting and the Purported Resolutions are void and/or invalid and of no legal effect;

(ii)     an injunction retraining the 1^st to 4^th respondents whether by themselves or their servants or agents from acting as directors of the Company;

(iii)    the appointment of a receiver and/or manager of the Company;

(iv)   an order for the reinstatement of the 1^st to 3^rd petitioners and Wong as directors of the Company.

The Relevant Procedural History  

10.  Seeing that they were unable to remedy the situation and resolve the difficulties faced by the Company, the petitioners had no alternative but to apply to Court for interim relief.

11.  The petitioners issued a summons dated 26 November 2019 (“the November 2019 Summons”) seeking various injunction orders against the 1^st to 4^th respondents in relation to an Extraordinary General Meeting of the Company proposed by the latter to be held (“the Proposed EGM”).

12.  At the hearing of the November 2019 Summons, Ng J adjourned it to an early date to be fixed and gave directions for the filing of evidence upon the undertaking given by the 1^st to 4^th respondents that they would not proceed with the Proposed EGM until after the determination of the November 2019 Summons.

13.  On 11 May 2020, the petitioners issued the Summons now before me.

14.  The Summons first went before Linda Chan J who adjourned it for substantive argument and gave directions for the filing of evidence.

15.  On 6 July 2020, the November 2019 Summons also went before Linda Chan J who made no order on it upon the undertaking given by the 1^st, 2^nd and 4^th respondents that, until the determination of the petition filed on 11 June 2019 or further order of the Court, they would not call or hold any general meeting of the Company for the purpose of approving, ratifying or confirming the resolutions passed at the Purported Meeting.

16.  The Summons is supported by the 3^rd Affirmation of Du Shui Wing (the 1^st petitioner) filed on 11 May 2020 and his 4^th Affirmation filed on 8 October 2020.

17.  The respondents have not filed any evidence at all.

18.  It transpired that by a letter dated 3 July 2020 addressed to the Court by Messrs Jimmie K S Wong & Partners (“JKSW”), the then solicitors on the record acting for the 1^st to 4^th respondents, JKSW informed the Court that, inter alia, they had no further instructions to act for their clients and, further, that they had been told by their clients that their clients would file in Court Notices To Act In Person.

19.  In fact, by the time of the hearing before me, no Notice To Act In Person had been filed by any of the 1^st to 4^th respondents.

20.  Since after I had finished the hearing and reserved my Ruling on 14 October 2020, it has appeared on the Court record that another firm of solicitors, Messrs Chak & Associates LLP, has filed Notices Of Change Of Solicitors on 3 November 2020 to put itself on the record as acting for the 1^st to 4^th respondents in place of JKSW.

21.  According to the affirmation evidence of the 1^st petitioner filed in Court, the unfairly prejudicial conduct and mismanagement of the Company on the part of the 1^st to 4^th respondents are very substantial.  They have been summarized in the very helpful Skeleton Submissions by counsel for the petitioners as follows : -

“(1) Invalidly holding the Purported Meeting on 4 October 2018 and invalidly claiming to be the new directors of the Company after holding the Purported Meeting

(2) Preventing the Petitioners from accessing the Company’s Bank Account and Octopus Account since January 2019

(3) Failure to distribute in a timely manner the Octopus Fares to the Petitioners as owners of the Petitioners’ Mini Buses since January 2019

(4) Failure to provide the schedules setting out calculations of the Octopus Fares to the Petitioners as owners of the Petitioners’ Mini Buses since January 2019

(5) Failure to provide the Petitioners with Octopus Reports since about June 2019

(6) Failure to pay the wages of the Petitioners’ mini bus drivers and their MPF contributions, including holiday entitlements since January 2019

(7) Failure to pay due wages of Madam Choi and her MPF contributions since January 2019

(8) Failure to pay the terminus supervisors’ MPF contributions since January 2019

(9) Failure to file tax return for the period from 1 April 2018 to March 2019 and from 1 April 2019 to March 2020

(10) Failure to provide the Transport Department with Annual Financial Account of the Company of 2018 to 2019

(11) Failure to submit relevant documents in relation to the Government Public Transport Fare Concession Scheme for Elderly and Eligible Persons with Disabilities which was due on 13 March 2020

(12) Failure to appear in Court proceedings to defend actions bought [sic] against the Company

(13) Failure to distribute to the Petitioners the Transport Department Subsidies

(14) Failure to pay expenses related to daily operation of the Company since January 2019

(15) Attempt to gain further control of the Company, in breach of the Oral Agreement made between the Founder Members of the Company, including redirection of Company mail since January 2019

(16) Attempt to convene the Proposed EGM to be held on 5 December 2019

(17) Failure to Respond to the Petitioners’ Attempt to Settle the Disputes between the Parties

(18) Failure to carry out other management and operational matters.”

22.  The simple fact is that there is no evidence whatsoever filed by the 1^st to 4^th respondents to refute the allegations made by the petitioners.

The Law

23.  The Court is empowered to make an order for the appointment of a receiver and manager for a company under both section 21L of the High Court Ordinance and sections 724 (1) and 725 (2)(a)(iii) of the Companies Ordinance in a case where the company’s affairs are being conducted in a manner which is unfairly prejudicial to the interests of its members generally or of one or more of its members.

24.  It is well-established that the considerations for whether such an order should be granted are similar to those set out in the case of AmericanCyanamid Co v Ethicon Ltd [1975] AC396.

25.  In the case of Re Zealot [2008] 1 HKLRD 386, Kwan J (as she then was) applied by analogy the principles enunciated in the AmericanCyanamid case and held that, in determining whether interim receivers should be appointed, the Court would have to consider the following questions : -

(i)    whether there was a serious issue to be tried;

(ii)   whether there was a proper basis for appointing receivers, such as jeopardy to assets and

(iii)  the balance of convenience.

Disposition

26.  Applying the abovementioned principles to the present case, first, there must be serious issues to be tried in light of the allegations made by the petitioners on affirmation which have not been refuted by any evidence from the 1^st to 4^th respondents.

27.  Secondly, in light of the complaints made by the petitioners which have not been denied by the 1^st to 4^th respondents, the Company is facing difficulties in its management and operation.  That must constitute a proper basis for the appointment of a receiver and manager for the Company.

28.  Thirdly, for the above reasons, the balance of convenience must also tilt towards such as appointment; otherwise the petitioners may suffer damage to their interests which may not be quantifiable in damages.  The petitioners have offered to give the usual undertaking as to damages.

29.  The petitioners have put forward the names of two certified public accountants for the proposed appointment.  After having considered the information provided to the Court, I have come to the conclusion that Mr Alvin Wan Tin Yau should be appointed.

Conclusion

30.  I therefore make an order in the following terms : -

Upon the usual undertaking as to damages given by the petitioners,

(1)     Mr Alvin Wan Tin Yau of Moores Rowland (HK) CPA Limited be appointed the receiver/manager of the Company (the 5^th respondent) pending the final determination of the amended petition, to manage and conduct the ordinary business of the Company including but not limited to calculating and distributing passenger fares to each mini bus owner operating under the licence of the Company, payment of operation expenses of the Company, salaries and MPF contributions of drivers and staff, rents and utilities of premises used by the Company, filing of the tax return of the Company and ensuring that the Company is properly represented in legal proceedings.

(2)     The appointed receiver/manager be authorized to charge a fee at the flat rate of $48,000 per month and take any steps including engagement of lawyers which may be necessary to assist him in the exercise of his powers and duties as receiver/manager of the Company.

(3)     The fees of the appointed receiver/manager are to be borne by and paid out of the funds of the Company, failing which such fees are to be paid by the shareholders of the Company according to the proportion of their shareholdings.

(4)     There be liberty to the parties and the appointed receiver/manager to apply.

(5)     The costs of the Official Receiver relating to this application be paid out of the assets of the Company in any event.

31.  Regarding the question of costs, since this is an application for the grant of interim relief, I make an order nisi that the costs of and incidental to this application be costs in the cause of the amended petition.