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HCMP 435/2013
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 435 OF 2013
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IN THE MATTER OF E-HARBOUR SERVICES LIMITED |
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and |
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IN THE MATTER OF section 114B of the Companies Ordinance, Cap. 32 |
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BETWEEN
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J T LIMITED |
Plaintiff |
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and
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KUNG TAT CHOW |
Defendant |
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Before: Hon Ng J in Chambers
Date of Hearing: 31 October 2013
Date of Decision: 27 August 2014
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D E C I S I O N
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Introduction
1. This is an application by the Plaintiff (“JT”) for an Order under section 114B of the Companies Ordinance, Cap. 32 (“Ordinance”) that an extraordinary general meeting (“EGM”) of e-Harbour Services Limited (“Company”) be convened and that one member of the Company present in person or by proxy at the meeting be deemed sufficient to constitute the required quorum. According to JT, the purpose of the EGM is to:
(1) remove the Defendant (“Kung”) as a director;
(2) appoint Ms Lo Wing Yan Gloria, the present wife of Mr Tso Hiu Chi Jimmy (“Tso”), as a director;
(3) determine whether legal proceedings should be brought in the name of the Company against Kung, Leaguer Shipping Limited and nine ex-employees of the Company;
(4) discuss the financial loss and damage suffered by the Company as a result of Kung's alleged breaches of duties and wrongdoings.
2. The application is opposed by Kung.
Background
3. The Company was incorporated on 4 July 2001. Initially, it was based in Hong Kong and engaged in the business of providing shipping and associated services. In or about July 2006, the Company set up a representative office in Shanghai. In or about August 2009, a joint venture in the name of e-Harbour Services Limited Shanghai, in which the Company had a 49% stake, was registered in Shanghai.
4. The share capital of the Company is HK$200,000.00 divided into 200,000 shares of HK$1.00 each, of which 175,000 shares have been issued and credited as fully paid up. As at 2 November 2007, Tso was its sole shareholder holding all the 175,000 shares in his own name. At that time, the Company’s three directors were Tso, Lam Cho Yu (“Josephine”) Tso’s wife at the time, and Chan Hiu Kwong (“Chan”).
5. In about May and June 2008, Tso and Kung were in negotiations about selling 30% of Tso’s shares in the Company to Kung (“Negotiations”). As will be seen later in this Decision, what was eventually agreed between the two is a matter of contention. By an Instrument of Transfer and Bought and Sold Notes dated 3 September 2008, Tso transferred his 52,500 shares in the Company to Kung. On the same day, Kung was appointed a director of the Company. At that time, Josephine and Chan remained directors of the Company – they only resigned as directors in July 2009.
6. Subsequently, on 24 June 2011, Tso transferred his remaining 122,500 shares in the Company to JT, of which Tso is a director and shareholder.
7. Presently, the Company has two shareholders: JT is the registered holder of 122,500 shares i.e. 70% of the issued share capital, while Kung is the registered holder of 52,500 shares i.e. 30% of the issued share capital. The only two directors of the Company are Tso and Kung.
8. According to Tso’s first affirmation filed in these proceedings, what appears to have triggered the present application by JT are the following events.
9. On 4 September 2012, nine employees of the Company suddenly resigned by letter with immediate effect without any prior notice. They included inter alia several managerial/ senior staff: (i) Cheng Wai Chung Tyler (“Cheng”), Regional Director and Branch Manager, (ii) Yu Wai Cheung Coins (“Yu”), Manager; (iii) Lai Ho Wang Larry, Senior Boarding Officer; (iv) Man Yuen Ki Kawaii, Assistant Logistics Manageress. All the nine employees were subsequently found to be working for Leaguer Shipping Limited, a company in which Yu and his wife are directors.
10. Since 4 September 2012, Kung has not returned to the Company’s office.
11. In that evening, none of the remaining staff could receive any emails from the Company’s email domain viz. e‑harbour.biz. Later that evening, the Company was informed by its customer that Cheng, via the domain “e-harbour.biz” had sent an announcement to all customers that Cheng and Yu had been newly appointed as general managers in Hong Kong and Shanghai respectively.
12. On 6 September 2012, Techson Consultants Limited (“Techson”), the company secretary, resigned without giving any reason or written notice. Tso subsequently found out that Kung was a director of Techson. On or about 5 or 6 September 2012, the Company’s accountants, M. H. Hung & Company, sent a notice of resignation to the Company.
13. Tso says in his first affirmation he believes Kung is the boss of Leaguer Shipping Limited and the mastermind of all the aforesaid incidents. Tso further says that he believes Kung has been in breach of his fiduciary duties to the Company for inter alia (i) enticing away the nine employees to work for Leaguer Shipping Limited; (ii) operating the business of Leaguer Shipping Limited in a way which targets the Company’s customers in direct competition with it; (iii) interfering and tampering with the Company’s communication system. According to Tso, a total of 139 customers have stopped dealing with the Company since September 2012 - only four customers maintain their business relationship with it.
14. It is not seriously in dispute that Tso and Kung have fallen out since September 2012 and whatever mutual trust and co‑operation there might have been is now replaced by mistrust and suspicion. On 28 October 2013, Kung presented a section 168A Petition in HCMP 2857 of 2013 against JT, Tso and the Company.
The Law
15. Section 114B is a procedural section intended to enable company business which needs to be conducted at a general meeting of the company to be so conducted. The thinking behind it is that a company should be allowed to get on with managing its affairs and that should not be frustrated by the impracticability of calling or conducting a general meeting in the manner prescribed by the articles and the Ordinance: Union Music Ltd v Watson [2004] BCC 37, 44G-H.
16. In order to obtain an Order under section 114B, the applicant must satisfy the two-fold test explained by Yuen JA in Success Plan Ltd. [2002] 3 HKLRD 560, 568C:
(1) First, it is “impracticable” to call a meeting.
(2) Second, the court must be satisfied that it should exercise its discretion to convene a meeting.
17. In Re El Sombrero[1958] Ch 900, 904, Wynn-Parry J concluded that the question raised by the word “impracticable” is simply whether, in the circumstances of the particular case, the desired meeting of the company can, as a practical matter, be convened, held or conducted in the manner prescribed by the articles. In practice, this means convening a meeting that can consider and pass resolutions, which necessarily means a meeting at which a quorum is present: Re Mandarin Capital Advisory Ltd. [2011] 2 HKLRD 1003 at [9].
18. The refusal of another shareholder to form a quorum for a meeting is a classic example of a situation where it would be impracticable to call a meeting of the company: Re Success Plan Ltd supra at 568E.
19. A quorum requirement in the articles does not confer on a minority shareholder some form of veto in relation to the company’s business by giving him the ability to prevent the holding of a general meeting: Re Opera Photographic Ltd. [1989] 1 WLR 634, 637B; Re Success Plan Ltd supra at 568E-F. However, if there is an arrangement between the shareholders which effectively gives a right in the nature of a class right to the minority shareholder, then the court may refuse to make an Order under section 114B if the result of that Order would be to infringe that class right: Harman v BML Group Ltd [1994] 1 WLR 893 at 898F‑H.
20. The mere existence of a concurrent section 168A petition, while a matter to be taken into account, is not necessarily a bar to an application under section 114B. Further, the possibility that ordering a meeting under section 114B may result in unfair prejudice proceedings, again a matter to be taken into account, should not of itself deter the court from granting the Order: Re Whitchurch Insurance Consultants Ltd. [1994] BCC 51, 53H-54A; Re Success Plan Ltd. supra at 569A-B.
21. Section 157B of the Ordinance gives a majority shareholder a right to remove directors and appoint others in their place – this must be borne in mind in considering the exercise of the discretion under section 114B: Re Woven Rugs Ltd [2002] 1 BCLC 324 at [14].
Impracticability of calling/ conducting a meeting
22. Under article 10(b) of the Articles of Association of the Company (“Articles”), the quorum for the transaction of business at any general meeting shall be two members present in person or by proxy. Similarly, pursuant to article 31(d) of the Articles, the quorum for the meeting of directors shall be two. In the absence of Kung, neither shareholders meetings nor board meetings can be held.
23. Tso anticipates, not unreasonably, that Kung will not attend any EGMs at which resolutions for the purpose referred to at paragraph 1 above will be proposed and passed by virtue of JT’s majority shareholding. This is borne out by the evidence which reveals that JT/Tso has convened or tried to convene an EGM on 30 October 2012 and another EGM on 20 February 2013. Both EGMs were inquorate due to the absence of Kung. According to the notice of EGM dated 22 January 2013, the business proposed at the 20 February 2013 EGM was precisely for the purpose referred to at paragraph 1 above.
24. The evidence also reveals that, pursuant to a notice dated 3 June...
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