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Wang Pengying (王鵬英) (Suing On Behalf Of Herself And All Other Shareholders In Convoy Global Holdings Limited And Convoy Finance Limited) v Ng Wing Fai And Others

Judgment Cited authorities 10 Cited in Precedent Map Related
Vincent
Judgment Date17 December 2019
Neutral Citation[2019] HKCFI 3074
Year2019
Judgement NumberHCA1619/2018
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA1479/2018 WANG PENGYING v. NG WING FAI AND OTHERS

HCA 1479/2018

[2019] HKCFI 3074

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1479 OF 2018

________________________

BETWEEN

WANG PENGYING (王鵬英)
(suing on behalf of herself and all other
shareholders in Convoy Global Holdings Limited
and Forthwise International Limited)		 Plaintiff

and
NG WING FAI 1st Defendant
CONVOY GLOBAL HOLDINGS LIMITED 2nd Defendant
FORTHWISE INTERNATIONAL LIMITED 3rd Defendant

________________________

AND

HCA 1619/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1619 OF 2018

________________________

BETWEEN

WANG PENGYING (王鵬英) Plaintiff
(suing on behalf of herself and all other
shareholders in Convoy Global Holdings and
Convoy Finance Limited)

and
NG WING FAI 1st Defendant
YAP E HOCK 2nd Defendant
CONVOY GLOBAL HOLDINGS LIMITED 3rd Defendant
CONVOY FINANCE LIMITED 4th Defendant

________________

(Heard together)

Before: Hon Coleman J in Chambers (Open to Public)
Date of Hearing: 17 December 2019
Date of Judgment: 17 December 2019

_____________________

J U D G M E N T

_____________________

Introduction

1. These two sets of proceedings are in the form of common law derivative actions, which (as the titles identify) have been launched by the plaintiff suing on behalf of herself and all other shareholders in the relevant companies.

2. In HCA 1479/2018, the relevant two companies are the 2nd defendant company (“Convoy Global”), which is a company listed on the Hong Kong Stock Exchange, and the 3rd defendant company (“Forthwise”), one of its wholly owned subsidiaries. In HCA 1619/2018, the relevant two companies are the 3rd defendant Convoy Global, and the 4th defendant company (“Convoy Finance”), being another of its wholly owned subsidiaries.

3. Other than the statements of claim dated 27 June 2018 and 11 July 2018 respectively, both of which were amended on 18 October 2019, no other pleadings have yet been filed.

4. By summonses dated 18 December 2018, the 1st defendant in HCA 1479/2018 (“Ng”) and the 1st and 2nd defendants in HCA 1619/2018 (“Ng” and “Yap” respectively) have applied to strike out the present proceedings on the asserted basis that the plaintiff has no locus standi to bring or continue the actions derivatively and/or has failed to plead and prove an arguable case of wrongdoer in control and/or actual fraud by or personal benefit to Ng and Yap.

5. Mr José Maurellet SC, appearing with Mr Jason Yu and Ms Jasmine Cheung, as counsel for Ng and Yap, says that this is not a procedural or technical objection. It goes to the substantive rule that the proper plaintiff for a wrong done to a company should be the company itself. It is only if a shareholder can get him or herself within the narrow confines of well-established categories that an exception can be invoked.

6. The amendments made to the statements of claim in each action were made in the face of the strike out applications, and primarily relate to further allegations as to why it is said that Ng and Yap were and remained in de facto control over the Board of Directors of Convoy Global, essentially by pleading a conspiracy between them and the other directors – defined as the “Conspiring Directors” – so that they did not, or because they did not, exercise independent judgment and/or act independently as regards the affairs of Convoy Global.

Refusal of Interrogatories

7. In support of the strike out applications affirmations have been filed by each of Ng and Yap, and by a number of other directors of Convoy Global. Each of the directors’ affirmations or affidavits contains a common paragraph in which the director asserts that at all material times he or she exercised and still exercises independent judgment as regards the affairs of Convoy Global, including with respect to the complaints against Ng and Yap which comprise the subject matter of the complaints against them in the proceedings. In the affidavit of Johnny Chen, the executive director and chairman of Convoy Global, he asserts that he exercised his independent judgment as chairman at the particular EGM in relation to the exercise of his powers under Convoy Global’s articles of association, free from the influence of Ng or others.

8. On 16 September 2019, I heard Ng’s and Yap’s application for the withdrawal of interrogatories served by the plaintiff. Those interrogatories served by the plaintiff concerned and surrounded those allegations of the exercise of independent judgment. As explained by Mr Alex Fan, counsel for the plaintiff then and today, the gist of the interrogatories targeted: (1) the process and circumstances of the alleged exercise of independent judgment; and (2) the information taken into account by the relevant director when he or she allegedly exercised the independent judgment.

9. I ordered the interrogatories to be withdrawn, as I considered that they were not necessary. I held, first, that they were not necessary for the purposes of saving costs; rather, they would cause incurring further costs. Secondly, it did not seem to me to be necessary for the fair disposal of the strike out application that the interrogatories be answered. I agreed that the interrogatories were making a backdoor attempt at cross-examination, and in any event the strike out application would be determined on the evidence presented to the Court, where it would be open to one party or the other to urge caution on the Court in applying weight to a particular piece of evidence which has not yet been tested.

10. I also thought that there was something in the reversal of burden point. The plaintiff has voluntarily assumed the burden of establishing wrongdoer control to the standard necessary to avoid her claim being struck out. She must be taken to have pleaded the material facts, and all the material facts, which she considers appropriate as enabling her to meet her burden. Those assertions can be tested against contrary evidence, weighed in the usual way of an interlocutory application.

11. In opposition to the strike out applications, the plaintiff has filed an affirmation which largely repeats the allegations made in the amended statements of claim.

12. I have already noted that the amendments to the statements of claim in each of the actions, to which I have already made reference, were made after the issue of the strike out applications, but it may also be noted they were made after I ordered the withdrawal of the interrogatories.

Applicable Principles

13. It is a fundamental principle of company law – expressed as part of the rule in Foss v Harbottle – that where a wrong has been done to a company, it is the company itself which is the proper plaintiff. That principle admits of certain exceptions, the exception generally relevant to derivative actions being the “fraud on the minority” exception.

14. Where a wrong is alleged to have been done to a company and a minority shareholder purports to bring a derivative action on the company’s behalf, it is incumbent on the shareholder to show that the general “proper plaintiff” rule is displaced and that the case falls within the relevant exception.

15. A derivative action is a procedural device invented by the courts to afford protection to minority shareholders. Whilst procedurally there is no requirement at common law for a person seeking to sue derivatively first to obtain the leave of the court, there is nevertheless a threshold requirement to be met by the plaintiff. Substantively, such an action is only permitted where it can prima facie be shown that there exists a viable cause of action or equitable claim vested in the company which, if made good, would establish a fraud on the minority, as well as control of the company by the alleged wrongdoers such as to enable them to stifle any proposed action against themselves: see Waddington Limited v Chan Chun Hoo (2008) 11 HKCFAR 370 at §§11-13.

16. It is therefore necessary for a plaintiff to plead (a) that there is a viable cause of action vested in the company, and (b) that the cause of action if made good would establish a fraud on the minority, and (c) that the wrongdoers are in control of the company, and that they have prevented an action being brought in the name of the company, and that the plaintiff could not by reason of the defendants’ opposition obtain the name of the company to issue proceedings.

17. The Waddington case, at §14 and §§17-20, makes it clear that a challenge to the plaintiff’s standing generally takes the form of an application to strike out the claim or to have the court determine as a preliminary issue that the plaintiff has no standing to sue on the company’s behalf. By either procedural route, it is the prima facie test which is applied, in what has been described as a “halfway house for this very special type of case”, where the legal issues are sufficiently well defined for the parties to be able to argue them.

18. The burden of proving wrongdoer in control remains with the plaintiff, even where the defendant seeks to strike out a derivative action on the ground of lack of standing: see, for example, Melvin Waxman v Li Fei Yu (unreported, HCA 1973/2012, 23 August 2013, To J) at §23. To achieve the standard of showing a prima facie case, the party which bears the burden of proof has to adduce sufficient evidence to satisfy the court that there are reasonable grounds for believing that his case or the issue in question is well-founded, so that it becomes one fit for the tribunal of fact to adjudicate upon it.

19. The burden of proving a...

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