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So Kuen Kwok v Pearl Oriental Oil Ltd And Others

Judgment Cited authorities 5 Cited in 1 Precedent Map Related
Vincent
Judgment Date19 November 2018
Neutral Citation[2018] HKCFI 2559
Year2018
Judgement NumberHCMP1912/2018
Subject MatterMiscellaneous Proceedings
CourtCourt of First Instance (Hong Kong)
HCMP1912/2018 SO KUEN KWOK v. PEARL ORIENTAL OIL LTD AND OTHERS

HCMP 1912/2018

[2018] HKCFI 2559

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1912 OF 2018

_____________

IN THE MATTER of PEARL ORIENTAL OIL LIMITED (東方明珠石油有限公司)
and
IN THE MATTER of sections 728 – 730 of the Companies Ordinance, Cap 622

_____________

BETWEEN
SO KUEN KWOK Plaintiff
and
PEARL ORIENTAL OIL LIMITED 1st Defendant
FAN AMY LIZHEN 2nd Defendant
TANG YAU SING 3rd Defendant
LIN QING YU 4th Defendant
CHEN XUE HUI 5th Defendant
WU JING 6th Defendant
LV JIA LIAN 7th Defendant
CHEUNG KAM SHING TERRY 8th Defendant

_____________

Before: Mr Recorder Stewart Wong SC in Chambers

Date of Hearing: 14 November 2018

Date of Judgment: 19 November 2018

__________________

J U D G M E N T

__________________


1. On 31 October 2018, the plaintiff issued an Originating Summons against the Pearl Oriental Oil Limited (“the Company”) as the 1stdefendant and its seven directors as the 2nd to 8thdefendants. The plaintiff was and is a 10.01% shareholder of the Company, which is a company incorporated in Bermuda and listed on the Main Board of the Stock Exchange of Hong Kong Limited (“HKEX”).

2. By the Originating Summons, the plaintiff seeks the following substantive reliefs:

“ (1) The 1st Defendant’s directors (including but not limited to the 2nd to 8th Defendants) be ordered to pass a board resolution within 3 business days from the date of order to approve the amendment of the Bye-laws of the 1stDefendant by deleting Bye-Law 86(4) in its entirety and replacing it with the following as new Bye-law 86(4): [the proposed new Bye-law is set out];

(2) The 2nd to 7th Defendants and any of the 1stDefendant’s directors appointed to the board after 3 September 2018 be restrained from acting as the chairman of any special general meeting(s) of the 1stDefendant or any adjourned meeting(s) in which the proposed resolutions for removal of directors as set out in the Plaintiff’s requisition dated 3 September 2018 (‘Requisition’) are to be considered.”

3. The plaintiff was (and presumably still is) not satisfied with the way the Company has been managed, and had in August 2018 raised various complaints with its board, which at the time consisted only of the 2nd, 3rd and 8th defendants. Not receiving any response, on 3 September 2018, the plaintiff’s solicitors, Nixon Peabody CWL (“Nixon”), wrote to the Company with a requisition (“the Requisition”) requesting the Company to convene a special general meeting (“SGM”) to consider and, if thought fit, to pass the following resolutions:

(1) That the 2nd and 3rd defendants, and any directors appointed after 3 September 2018, be removed as executive directors or directors, and any positions in any committees of the board, of the Company.[1] The 2nddefendant is to be removed as the Chairlady of the board as well. These are the proposed resolutions (1) to (3) and are called the “Removal Resolutions”;

(2) That Bye-law 86(4) be amended. This is the proposed resolution (4) and is called the “Amendment Resolution”. Theeffect of the proposed amendment is that under Bye-law 86(4) as amended, a director of the Company can be removed by shareholders in a general meeting by ordinary resolution rather than by special resolution, bringing that Bye-law in line with the Listing Rules.

4. On 28 September 2018, the Company made the following announcement:

“ … The Company has obtained legal advice from Bermuda counsel in respect of the legality and procedural regularity of theRequisition. Bermuda counsel is of the opinion that resolutions (1) to (3) in the Requisition can be properly moved in a SGM. As to resolution (4) in the Requisition, Bye-law 169 provides that no Bye-law shall be rescinded, altered or amended and no new Bye-Law shall be made until the same has been approved by a resolution of the Board and confirmed by a special resolution of the Shareholders. Therefore, the Board’s prior approval of resolution (4) in the Requisition is required for the same to be properly moved at a SGM.

The Board will take steps to call a SGM in respect of resolution (4) in the Requisition to amend Bye-law 86(4) to be in accordance with the requirements of the Listing Rules. For details regarding the proposed amendment of Bye-law 86(4), please refer to the announcement of even date of this announcement.

As the Requisition does not set out any reasons, information and/orgrounds in respect of the proposed resolutions in the Requisition, and the Board is of the view that it is important to retain the existing directors in place for existing operation and management of the Company, the Board considers that it is inappropriate and not in the best interest of the Company to convene a SGM pursuant to the Requisition for resolutions (1) to (3) in the Requisition at this stage.”

5. The aforesaid announcement referred to another announcement of the same date. That announcement stated that:

“ The board of the directors of the Company (the ‘Board’) proposes to amend (the ‘Proposed Amendment’) the bye-laws of the Company (the ‘Bye-laws’) in order to bring the Bye-Laws in alignment with paragraph 4(3) of Appendix 3 of the Listing Rules.”

The announcement then set out the proposed new Bye-law 86(4), which is (subject to one minor and immaterial difference) identical to the one proposed in the Amendment Resolution.

6. No date for the SGM was set in the announcements.

7. In fact, on 28 September 2018, at a meeting attended by all three of its then directors, the board of the Company had approved the proposed amendment of Bye-law 86(4) and to convene a SGM for shareholders to approve the same. According to Mr Yu Ngai, the financial controller of the Company, at the same meeting, the board decided not to call a SGM to consider the Removal Resolutions for various reasons (essentially those stated in the announcement of 28 September 2018 (§4 above)). However, that discussion and decision were not recorded in the minutes of that board meeting.

8. The plaintiff claims that he did not know that the resolution approving the proposed amendment had been passed by the board on 28 September 2018 until Mr Yu filed his affirmation on 13 November 2018, one day before the hearing before me.

9. On 2 October 2018, the HKEX sent a fax to the solicitors actingfor the Company, copied to the 2nd and 3rd defendants. The HKEX referredto the Company’s view that it was inappropriate and not in the best interest of the Company to convene a SGM to consider the Removal Resolutions. The HKEX queried whether under the Bye-laws the Company had a choicewhether to call a SGM upon receipt of a requisition from a shareholder, and whether the Company’s decision was “legal and appropriate”.

10. On 4 October 2018, the Company, in a letter signed by the 3rddefendant, replied to the HKEX as follows:

“ Enquiry 1: whether the Company’s Decision complies with all relevant requirements under the Bye-Laws. If appropriate, please provide a legal opinion to support your view

Pursuant to section 74(3) of the Bermuda Companies Act 1981 and Bye-Law 58, if the Board does not within 21 days from the date of deposit of the requisition proceeds to convene a meeting, the requisitionist may himself convene a meeting, but such meeting so convened shall not be held after the expiration of three months from the date of deposit of the requisition. The requisitionist may also apply to the Bermuda Court for an order requiring the Company to comply with the requisition.

Legal opinion from Conyers Dill & Pearman, the Bermuda counsel, dated 2 October 2018 (the ‘Bermuda Legal Opinion’) is attached.”

11. The enclosed opinion from Conyers Dill & Pearman (“Conyers”), which is dated 2 October 2018, says:

“ Having considered the resolutions set out in the Requisition Notice, we consider that resolutions (1) to (3) can be properly moved at a SGM …

… in the absence of a resolution of the Directors approving the same, Resolution (4) is not capable of being properly moved at an EGM.

The Board shall within 21 days from the date of the deposit of theRequisition Notice proceed to convene a meeting. The meetingshall be held within two months after the deposit of the requisition. If the Board do not within 21 days from the date of the deposit of the requisition proceed to convene a meeting, the requisitionist may themselves convene a meeting, but such meeting so convenedshall not be held after the expiration of three months from the date of the deposit of the requisition (Section 74(3) of the Bermuda Companies Act 1981, also Bye-law 58).”

12. In answering the HKEX, the 3rddefendant had left out the firsttwo sentences of the third paragraph of the opinion of Conyers I quoted above. Those sentences suggest that the Company had no discretion whether to convene a SGM or not.

13. In the meantime, on 3 October 2018, the board of the Company appointed four new directors, namely the 4th, 5th, 6th and 7th defendants (“the new directors”). The 4thdefendant was appointed as an executive director, while each of the 5th, 6th and 7th defendants was appointed as an independent non-executive director (“INED”). The plaintiff challenges the qualifications and experience of those defendants as directors of a listed company but this is not an issue before me.

14. On 5 October 2018, the Company in a letter to Nixon reiterated that it would not be convening any SGM to consider the RemovalResolutions. While the Company stated that it would take steps to convene a SGM to consider the Amendment Resolution, it did not specify a date.

15. The plaintiff then exercised his right...

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    ...especially since Mr William Wong SC submitted that this OS involved only a simple application. In So Kuen Kwok v Pearl Oriental Oil Ltd [2018] HKCFI 2559, 19 November 2018, the defendants had had 14 days to prepare before the OS was 36. This lateness on the Plaintiff’s part had deprived the......

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