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HCMP 2840/2012
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 2840 OF 2012
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IN THE MATTER of Section 168A of the Companies Ordinance, CAP 32 of the Laws of Hong Kong |
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and |
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IN THE MATTER of ASIA TELEVISION LIMITED |
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| BETWEEN |
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ANTENNA INVESTMENT LIMITED |
Petitioner |
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and |
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ASIA TELEVISION LIMITED |
1st Respondent |
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JAMES PAN YU SHING |
2nd Respondent |
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WONG CHING |
3rd Respondent |
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PANFAIR HOLDINGS LIMITED |
4th Respondent |
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DRAGON VICEROY LIMITED |
5th Respondent |
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CHINA LIGHT GROUP LIMITED |
6th Respondent |
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| Before: Hon Harris J in Court |
| Dates of Hearing: |
25 – 29 November, 2 – 6, 9 – 10 and 13 December 2013 and 4 September, 25 – 28 November 2014 |
| Date of Judgment: 8 December 2014 |
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J U D G M E N T
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Introduction
1. I have before me a Petition presented by the Petitioner seeking an order for the appointment of managers over the 1st Respondent, Asia Television Limited (“ATV”), and for an order for the sale by the 4th Respondent, Panfair Holdings Limited (“Panfair”) of its shares in ATV. During the trial ATV was represented by Chua Guan- Hock SC, Timothy Harry and Alexander Tang, the 4th to 6th Respondents by Chan Chi Hung SC, Samuel Chan and Keith Lam and ATV by Victor Joffe and Frederick Chan. The 2nd Respondent, James Shing, and the 3rd Respondent, Wong Ching, did not attend the trial and were not represented at it. The trial commenced on 25 November and finished on 13 December 2013. In circumstances which I explain later in this judgment it was reopened on 25 November 2014. ATV was not represented at the second part of the trial.
2. The Communications Authority informed ATV on 5 September 2014 that it intended to recommend to the Chief Executive in Council (“Chief Executive”) that the Licence which currently allows ATV to operate a free to air television station should not be renewed when it expires on 30 November 2015 and, for reason that will become apparent, I assume that that recommendation has now been formally given. In these circumstances it seems to me that it is desirable that I give my judgment as soon as possible in order to assist the shareholders in ATV in formulating proposals to the Communications Authority or the Chief Executive for renewing the Licence notwithstanding the current recommendation. I am, therefore, giving an oral judgment which will be reduced into writing and circulated to the parties in due course.
3. In the first section of the judgment I shall explain the circumstances in which the current dispute arises.
Background
4. ATV is one of Hong Kong’s two free to air television stations. From June 2007 to March 2009 ATV had four shareholders. They were Panfair, Alnery No. 112 Limited (“Alnery”), Dragon Viceroy Limited (“Dragon Viceroy”) and China Light Group Limited (“China Light”). Panfair owned 10.75% of the Company and was itself owned by the Cha brothers. Alnery owned 47.58% of the Company and had three shareholders: Pelaka, owned by the Cha brothers, which holds 51%, ABN AMRO NV, through a special purpose vehicle (“ABN”), held 25% and Louis Page held 24%. Dragon Viceroy owned 26.85% and was itself owned by Tin Yee, Li Hui, Vital Media Holdings Limited and Liu Changle. China Light owned 14.81% of the Company was owned by Guoan Elstrong Limited. The shareholders had entered into a comprehensive agreement governing their rights on 15 June 2007 (“Shareholders Agreement”). The Shareholders Agreement provided in clause 3 that the board should have no less than 3 and no more than 10 directors. Each shareholder was entitled to nominate a certain number of directors: Panfair 2, Alnery 4 (Alnery could also nominate the chairman, the chief executive officer and chief financial officer), Dragon Viceroy 2 and China Light 2.
5. In late 2008 ABN wished to sell its shares. The Chas invited the Tsai family to acquire ABN’s interest. Mr. Tsai Eng-Ming has substantial business interests in Taiwan including television stations and newspapers. On 23 January 2009 the Chas and the Tsais entered into a non-binding term sheet recording an agreement that the Tsais would acquire ABN’s indirect interest in ATV. It also envisaged the Chas transferring control of ATV to the Tsais through the following mechanism.
6. Under the Term Sheet dated 23 January 2009 (“Term Sheet”), it is stipulated that the investment by Mr Tsai would take place in two “steps”. First, the Petitioner’s investment in the Company was to be implemented by replacing Alnery as a shareholder in the Company with 47.58% shareholding interest, and Mr Tsai owning, through San Want, 49% of the Petitioner’s voting rights and 100% of the Petitioner’s economic interest. Second, there would be a transfer to Mr Tsai, or a person proposed by him, of 36,196,905 of the Company’s shares (being the equivalent of 2.75% of the Company’s issued share capital) from Panfair, and of 2% of Pelaka’s Class A voting shares in the Petitioner (“Intended Transfers”).
7. The consequence of the Intended Transfers at the level of the Board would be that Panfair’s shareholding in the Company would fall below 10% and so, in accordance with Clause 3.3 of the Shareholders Agreement, Panfair would lose its right to appoint two directors onto the Board. Without Panfair’s right to board representation, the size of the Board would fall to eight directors. As the Antenna is entitled to (a) appoint four directors onto the Board pursuant to Clause 3.3 of the ATV Shareholders’ Agreement and (b) appoint the Chairman of the Board pursuant to Clause 3.16 of the ATV Shareholders Agreement, there would be a relative increase in the representation of Antenna on the Board and Antenna would be able more effectively to participate in, and influence, management decisions of the Company.
8. The in-principle deal was approved that day, 23 January 2013, by the board of ATV. The Term Sheet recorded the Tsai’s agreement to provide short term finance to ATV to address its immediate cash flow problems, but contained no commitment to provide long term finance. In February 2009 ATV applied to the Broadcasting Authority (a statutory body, whose function was taken over by the Communications Authority (“CA”) on 1 April 2012) for approval of a change in the shareholding structure of ATV. For convenience I shall refer throughout this judgment to both the Broadcasting Authority and Communications Authority as “the CA”. The application stated that Mr Tsai was expected to “bring to ATV substantive management know-how, financial expertise and market insight.” On 26 March 2009 the Chas and Mr Tsai entered into a subscription and shareholders agreement to set up Antenna Limited. Antenna replaced Alnery as an ATV shareholder with Antenna becoming a party to the Shareholders Agreement. The Tsais held their interest in Antenna through San Want Media Holdings Limited (“San Want”). On 7 April the Chas and the Tsais entered into a joint declaration of co‑operation which provided that Tsai Eng Meng was to provide management expertise and finance to ATV. On 23 June 2009 the Tsais subscribed for HK$150 million worth of convertible bonds. However, by September 2009 no agreement had been reached between them on the terms on which the Tsais were to provide the necessary medium and long term funding for ATV.
9. As a result of their failure to secure funding from the Tsais, the Chas looked for an alternative source. The person they identified was a businessman resident in the Mainland, namely, Mr. Wong Ching. Before describing how matters developed thereafter it is necessary to understand the regulatory scheme within which ATV operates.
10. The regulation of broadcasting in Hong Kong is governed by the Broadcasting Ordinance, Cap. 562 (“Ordinance”). Broadcasting is currently supervised by the CA in accordance with the provisions of the Ordinance. Since 1 December 1988 ATV has been the holder of a domestic free television programme service licence (“Licence”). The Licence was renewed on 12 November 2002 and remains valid until 30 November 2015. The CA has to advise the Chief Executive one year prior to the expiration of the Licence whether or not it recommends the renewal of the Licence. As I have already mentioned the CA indicated to ATV on 5 September 2014 that it intended to recommend that the Licence should not be renewed for reasons that I shall explain later in this judgment. Self-evidently this has major commercial ramifications for ATV.
11. Under clause 10.4 of the Licence ATV is obliged to inform the CA of any change in its shareholding in excess of 10%. Importantly the Ordinance contains restrictions on who may own and direct a broadcasting company. Paragraph 20 of Part 1 of Schedule 1 to the Ordinance prohibits a person not ordinarily resident in Hong Kong, and who has not been so for one continuous period of 7 years, from controlling more than 2% of a licence without the CA’s prior approval. Section 8 of the Ordinance contains restrictions on the corporate character and control of a licence holder. The relevant restrictions are:
(1) A licence holder must be ordinarily resident in Hong Kong.
(2) The majority of its directors must actively participate in its direction.
(3) The majority of its directors must be ordinarily resident in Hong Kong.
(4) Its articles of association must comply with the Broadcasting Ordinance and the terms of the Licence.
12. Additionally, section 21 of the Ordinance requires a licencee to be a “fit and proper” person to operate a broadcasting company:
“(1) A licensee and any person exercising control of the licensee shall be...
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