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HCMP 183/2011
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO. 183 OF 2011
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IN THE MATTER OF MANDARIN CAPITAL ADVISORY LIMITED |
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IN THE MATTER OF SECTION 114B OF THE COMPANIES ORDINANCE CAP. 32 and 102 RULE 2 OF THE RULES OF HIGH COURT (CAP. 4A) |
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BETWEEN
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ALBERTO FORCHIELLI |
Plaintiff |
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FRANCESCO DELLA VALENTINA |
1st Defendant |
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MANDARIN CAPITAL ADVISORY LIMITED |
2nd Defendant |
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Before: Hon Harris J in Court
Dates of Hearing: 3 March and 15 April 2011
Date of Decision: 15 April 2011
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D E C I S I O N
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Introduction
1. I have before me an Originating Summons for an order convening an extraordinary general meeting of the Company for the purpose of removing the 1st Defendant from the Board of the Company and replacing him with Ms. Gao Zhen, Jenny and also instructing solicitors to represent the Company in High Court proceedings. The Originating Summons also seeks an order that one member of the Company present personally or by proxy do constitute a quorum at the extraordinary general meeting.
2. As the nature of the relief sought suggests the application is necessary because the Company has 2 shareholders, the Plaintiff and the 1st Defendant, who have fallen out. They hold 56% and 44% respectively of the issued share capital. The articles of association provide that the quorum for a general meeting is two members. The Plaintiff anticipates, not unreasonably, that 1st Defendant will not attend an extraordinary general meeting at which the inevitable result is something he objects to, namely, his removal as a director.
3. The Plaintiff says that the necessity for the 1st Defendant’s removal has come about as follows. The Company’s exclusive business is providing advisory services on investment opportunities in the Mainland to Mandarin Capital Management S.A. (“MCM SA”), which is an Italian investment company in which the Plaintiff and the 1st Defendant have indirect minority interests. MCM SA has lost confidence in the 1st Defendant. MCM SA has indicated that it might terminate the investment advisory agreement with the Company if the 1st Defendant remains a director. It is entitled to terminate the investment advisory agreement on 120 days written notice. The 1st Defendant has been offered the opportunity to resign, but has declined to do so. In these circumstances the Plaintiff has concluded he must cause the removal of the 1st Defendant from the Board of the Company.
4. This application is not the first attempt to remove the 1st Defendant. The Plaintiff attempted to do so by an irregularly convened extraordinary general meeting, in respect of which I granted an injunction on the application of the 1st Defendant on 27 January 2011. The Plaintiff then took steps to convene a 2nd extraordinary general meeting to remove the 1st Defendant. The 1st Defendant issued proceedings to prevent this new extraordinary general meeting. In these circumstances the Plaintiff makes the present application.
The Plaintiff’s Case
5. Mr. Anson Wong, who appeared for the Plaintiff, accepts that in order for his client to obtain the order he seeks, he must satisfy the two fold test identified by Yuen J.A. in Success Plan Ltd. [2002] 3 HKLRD 560 at 568C:
(1) The applicant must satisfy the court that it is impracticable to call a meeting.
(2) If it is impracticable, the court must be satisfied that it should exercise its discretion to convene a meeting.
6. I accept, for reasons I address later, that it is impracticable to call an extraordinary general meeting to consider the reconstitution of the board given the 1st Defendant’s refusal to cooperate. The more contentious question is whether or not I should exercise my discretion to order a meeting, which can be conducted if only one member is present. Mr. Wong submits that I should. First, he argues the relief is essential to protect the statutory right of a majority shareholder to remove a director and a quorum requirement does not confer a veto power on a minority shareholder by giving him the ability to prevent the holding of a general meeting: Re Opera Photographic Ltd. [1989] BCLC 763 per Morritt J at 765F-H and Re Success Plan Ltd supra at 568E.
7. Secondly, he argues that the existing deadlock at Board level, which prevents the convening of a meeting has to be removed in order to prevent a log-jam in the Company’s operations: Re Universal Horizon Investment Ltd [2000] 3 HKC 627 per Rogers JA at 630F. I am not persuaded that this is the relevant way of approaching this matter as it is possible for the Plaintiff as a member to cause an extraordinary general meeting of the Company to be convened pursuant to section 113 of the Companies Ordinance. I explained this during the injunction proceedings, but the Plaintiff has not chosen to use that mechanism because he says, and this brings us to the material point, it would be useless if having convened an extraordinary general meeting no business could be conducted because the 1st Defendant absented himself to avoid there being a quorum.
8. Thirdly, Mr. Wong argued that commercial reality requires the 1st Defendant’s removal. If as a result the 1st Defendant thinks that he has a basis for seeking relief from the court in the form, for example, of proceedings under section 168A, so be it, but the immediate problem of MCM SA terminating the investment advisory agreement has to be addressed now. The possibility of the consequence of an order constituting unfair prejudice should not of itself deter the court from granting an order under section 114B: Re Whitchurch Insurance Consultants Ltd. [1994] BCC 51; Re Success Plan Ltd. supra at page 569A-B.
The 1st Defendant’s Case
9. Mr. Maurellet, who appeared for the 1st Defendant, argued that it was not impracticable to convene a meeting, because the Plaintiff could always avail himself of the section 113 procedure. This seems to me to miss the point. The issue is not whether a notice convening a meeting can be validly circulated, it is whether or not it is practicable to “conduct the meeting of the company in the manner prescribed by the articles ….”. In practice this means convene a meeting that could consider and pass resolutions, which necessarily means a meeting at which a quorum is present. In the present case the 1st Defendant has made it clear that he does not intend to attend any meeting at which his removal as a director can be determined and in these circumstances it is not practicable to conduct a meeting to address the business that the Plaintiff wishes to have addressed by the Company in general meeting.
10. Mr. Maurellet argued that even if the impracticability test is satisfied the court should not exercise its discretion to order a meeting. He advanced 4 reasons.
11. First, he submits that the order would override the 1st Defendant’s rights as agreed when the Company was established, namely, that it would be run as a partnership, and which are reflected in the articles, which effectively prevent his removal. The 1st Defendant says that the Company was established as a quasi-partnership. He points to the Plaintiff’s evidence that he cannot currently recall whether there was any discussion about a partnership as indicating that, at the very least, there is an arguable case that the order sought is inconsistent with the basis upon which the parties have agreed to manage the Company. It is correct that the Plaintiff has chosen not to file detailed evidence contesting the 1st Defendant’s case in this regard and that it is plausible that at the time the Company was established the Plaintiff and the 1st Defendant proceeded on the basis that the Company would be jointly managed. Mr Maurellet argued that it is not the function of section 114B to alter the balance of power within a company.
12. Mr. Maurellet cited various authorities that demonstrate that the court will not allow section 114B to be used in a manner which is inconsistent with an agreement between shareholders concerning control of a company: Manfield Coatings Co. Ltd. v Springfield Coatings Co. Ltd [1995] 1 HKC 74 at 78-79; Harman v BML Ltd. [1994] 2 BCLC 674 at 679-680; Re Rich Treasure Enterprise Ltd. [2001] 3 HKLRD 769 at 771-772; Alvona Developments Ltd. v The Manhattan Loft Corporation (AC) Ltd. [2006] BCC 119.
13. I accept that these authorities appear to support a general proposition that where it is demonstrated to the court that the shareholders have agreed how control of a company is to be allocated between them that section 114B should not be used to alter that control: see also my decision in He-He International Holdings Development Limited HCMP 2313/2009 unrep. 15 April 2010, §11. However, for reasons that I address later in this decision what this means in practical terms for the way in which an application of the present sought needs to be argued and determined has to be considered with some care.
14. The problematic situation is of the type that appears to have arisen in Manfield Coatings v Springfield Coatings Co. Ltd., supra, namely, one in which the respondent argues, as in the present case, that it was agreed orally at the time a company was established that it would be operated on the basis of joint control and management, but the agreement was not reduced into writing and the applicant disputes its existence. Cheung J took the view at page 79A-B that “the contended agreement regarding the management and control of the first defendant is a matter I should take into account in the exercise of my discretion. I consider that my discretion should not be exercised...
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