Kwok Hiu Kwan v Johnny Chen And Others

HCMP 41/2018

[2018] HKCFI 2112

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 41 OF 2018

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R E A S O N S F O R D E C I S I O N

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Introduction

1. The 5^th Defendant, Convoy Global Holdings Limited (“Company”), is incorporated in the Cayman Islands and was listed on the Main Board of the Stock Exchange of Hong Kong Ltd on 13 July 2010. The Plaintiff (“Kwok”) is a registered shareholder of the Company. He acquired his shares during July and August 2017. By the end of August 2017 he held 29.91% of the Company’s shares.

2. On 30 October 2017 Mr Kwok requisitioned an extraordinary general meeting of the Company to remove the incumbent board and appoint alternative directors nominated by Mr Kwok. The EGM took place on 29 December 2017. It was chaired by the 1^st Defendant, Johnny Chen (“Chen”), who had been appointed a director of the Company on 9 December 2017.

3. There is a transcript of the meeting. Mr Chen addressed the meeting in English. What he said was interpreted into Cantonese. It is apparent from the transcript that it is not very accurate.

4. Mr Chen referred early in the EGM to an unfair prejudice petition issued shortly before the EGM by a shareholder, Madam Zhu, in HCMP 2773 of 2017. The proceedings were described by the Company’s Cayman legal adviser, Ian Mann. Mr Mann explained that Madam Zhu made various allegations against, amongst others, Mr Kwok, and Madam Zhu sought, amongst other relief, a declaration that Mr Kwok and another shareholder, Mr Chen Pei Xiong, should not be allowed to vote their shares.

5. Mr Chen then proceeded to deal with procedural matters. He declared that a quorum was present. He then dealt with voting procedures; at the end of which Mr Chen dealt with how objections to the qualification of any voter would be dealt with. At this point a Mr Lam objected to Mr Kwok and Mr Chen Pei Xiong voting. The transcript records the interpretation of the objection (which was made in Cantonese) as follows:

“Mr. Lam is asking as I know the Company is actually suing a lot of people, according to the writ, a lot of defendants were actually subscribing the Company’s shares with Convoy money in the 2015 placement. And there were lots of shares were eventually sold to Mr. Kwok Hiu Kwan and Chen Pei Xiong. I believed that slot of shares were [sic] problematic from the date they were issued and the trading were actually premeditated so I don’t think they own the voting rights.”

6. Mr Chen conferred with Mr Mann as to how the objection should be dealt with. Mr Chen is recorded as saying the following:

“Ian just pointed it out base [sic] on article 74 if anyone of the shareholders raised objection to the qualifications of the voters, or any votes have been counted which ought not to have been counted or which might have been rejected; or any votes are not counted which ought to have been counted as chairman, it’s my responsibility to decide unless the same is raised or pointed out at the Meeting.”

7. A lawyer, Mr Wong, who I understand represented Mr Kwok, briefly addressed Mr Chen. Mr Wong objected to Mr Chen determining the matter and proposed that the controversy be left to the court to resolve. Mr Chen rejected this proposal and proceeded to deal with the objection. The transcript records him as doing so in the following terms:

“But I have to say at this point, based on everything I have read, especially what I received this morning, I have to exercise my article 74 right. If any of the shares are deemed questionable, I have to void these shares for allowing to vote for the rest of the resolutions. And with this decision, I deem that to be final and conclusive. So I also advise Tricor by excluding shares of those proxies including any of the parts here represented by directly or indirectly.”

8. Accordingly, Mr Kwok’s shares were not voted, or treated by Tricor who administered the meeting, as having been voted, on the resolutions put to the Company’s shareholders at the general meeting.

9. On 11 January 2018 Mr Kwok issued an originating summons seeking:

(1) A declaration that Mr Chen’s decision at the EGM that the voting rights in respect of Mr Kwok’s shares would not be counted at the EGM was unlawful, void and/or of no legal effect ([1] of the originating summons).

(2) A final order that the 1^st to 4^th Defendants (all directors of the Company) and the Company be restrained from refusing to count the votes attaching to Mr Kwok’s shares ([2] of the OS).

(3) A declaration that Mr Kwok’s shares be counted towards resolutions 1 to 5 and 7 (advocating removal of the current directors) and that the resolutions were duly passed ([3] of the OS).

(4) A number of other declarations, which have subsequently been abandoned and it is not necessary to describe.

10. When the originating summons came on before me for trial[1] issues arose concerning:

(1) Whether the originating summons procedure was appropriate for the final order sought in [1] of the originating summons given the underlying dispute between the parties, which the Defendants argue needs to be resolved before such an order can be made.

(2) The role to be played by the Company in the trial and whether the evidence that it had filed should be struck out.

11. It was agreed that [2] of the originating summons should be adjourned. Mr Wong explained that the Company’s evidence and intended role at the trial was directed to the relief that should be granted if the court found that Mr Chen’s decision that Mr Kwok’s shares should not be counted was unlawful. I, therefore, directed, that I proceed to deal with the issues in the following order:

I. First:

(1) Did the Chairman (Mr Chen) have the power under article 74 of the articles of association to determine the objection to Mr Kwok’s votes being counted?

(2) If so, was the determination final and conclusive? This involves a consideration of different approaches to similar provisions in English and Australian authorities. There are no Cayman cases on point.

(3) Alternatively, was the Chairman’s power derived from the common law and challengeable on the grounds either that the Chairman made (a) an error of law or (b) took into account irrelevant matters or failed to take into account relevant matters, or if the decision is one which no reasonable chairman, properly directing himself as to his duties could have reached?

II. Second:

(1) If the latter, did the Chairman make errors, which justified setting aside his decision?

(2) If the former, had the decision been made in bad faith, which I understand it to be common ground, would whatever the source of the authority to determine the objection be a ground for setting aside the decision.

III. Third:

(1) Assuming either of the Second class of issues were determined in Mr Kwok’s favour what relief should be granted.

12. Having heard counsel on the first class of issues on 27 and 28 August 2018, on 29 August 2018 I determined them in the Defendants’ favour. Mr Sussex sought the adjournment of the second and third class of issues, an order that the action proceed as if begun by writ pursuant to RHC O 28, r 8 and directions for the continuation of the proceedings leading to a trial of the remaining issues. This was not opposed by the Defendants and I made directions for the progress of the action leading to a trial commencing on 18 March 2019 with eight days reserved. These are my reasons for the decision given on 29 August 2018.

Cayman Law — Introduction

13. The Company is incorporated in the Cayman Islands and the law of the Cayman Islands governs matters of its internal management.[2] Mr Kwok, Mr Chen and the Company have all filed opinion evidence from Cayman lawyers[3] to assist the court to determine the legal issues to which I have had regard in determining the first class of issues. To the extent that the court has to make findings of foreign law, the court is making a finding of fact. However, the interpretation of a contract governed by foreign law is not a question of foreign law. I was not addressed by counsel on this issue. Particularly Mr Kwok’s legal team did not appear to appreciate this and a significant part of Mr Henderson’s evidence purports to tell the court how article 74 should be construed. This evidence is inadmissible. Similarly, in relation to the second of the first class of issue the experts’ views on how the issue should be determined is not admissible. The relevant and admissible opinions are those on the principles of Cayman law, to which a court in the Cayman Islands would have regard in determining the issues. The correct approach is described in Apple Retail UK Ltd and others v Qualcomm (UK) Ltd [4] by Morgan J:

“44 Both professors then stated their own opinions as to what the relevant provisions of the IPR policy meant and explained their reasoning. Mr Howard QC, on behalf of the Defendants, submitted that these parts of their reports were not...