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CACV 26/2019
[2019] HKCA 688
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO 26 OF 2019
(ON APPEAL FROM HCMP NO 773 OF 2018)
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IN THE MATTER OF Mount Oscar Limited (the “Company”) (Company Number: 97596) |
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and |
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IN THE MATTER OF Sections 462 and 463 of the Companies Ordinance (Cap 622) |
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| BETWEEN |
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YEUNG BING KWONG KENNETH |
Applicant |
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and |
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MOUNT OSCAR LIMITED |
Respondent |
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Before: Hon Kwan VP, Yuen JA and Au JA in Court
Date of Hearing: 11 June 2019
Date of Judgment: 11 June 2019
Date of Reasons for Judgment and Decision on Costs: 26 June 2019
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REASONS FOR JUDGMENT
AND DECISION ON COSTS
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Hon Kwan VP (giving the Reasons for Judgment and Decision on Costs of the Court):
1. This appeal is brought by the applicant, Yeung Bing Kwong Kenneth, against the judgment of Ng J on 24 December 2018 ([2019] 1 HKLRD 572). The judge dismissed his originating summons for a declaration that the ordinary resolution passed at the Extraordinary General Meeting of the respondent company, Mount Oscar Ltd (“the Company”), on 9 March 2018 to remove him as a director is invalid or otherwise null and void, and for an injunction that the Company be restrained from implementing or otherwise acting upon the resolution.
2. On 4 March 2019, the judge ordered the applicant to pay the costs of the originating summons on an indemnity basis, including the costs of the hearing before Anthony Chan J on 12 June 2018 and the costs of the hearing on 4 March 2019, as the judge had taken the view that the originating summons is wholly unmeritorious and should never have been brought, and there is no legal basis whether statutory or otherwise in support of the application[1]. This costs order is also the subject of appeal, irrespective of the outcome of the appeal against the judgment.
3. At the conclusion of the hearing, we dismissed the appeal against the judgment and reserved our decision on the appeal against indemnity costs and the costs of the appeal. These are the court’s reasons for judgment and the decision on costs.
This appeal and the applicant’s arguments
4. The question of law raised in this appeal is whether, as a matter of construction of sections 462 and 463 of the Companies Ordinance, Cap 622 (“the CO”), a director faced with a proposed resolution to remove him and who has the right to protest against his removal under these provisions is entitled to be provided with the reasons for his removal. Whilst there are express provisions in section 463 that the affected director is entitled to be heard on the resolution at the meeting at which the resolution is voted on, and that he may make representations in writing to the company not exceeding a reasonable length, there is nothing in sections 462 or 463 which expressly provides for reasons to be given to this director. It is the applicant’s contention that a requirement to give reasons should be read into these statutory provisions by necessary implication.
5. The applicant’s case was argued before the judge and on appeal solely on the basis of the asserted entitlement as a matter of statutory interpretation. It was emphasised by Mr Ambrose Ho SC[2] on the applicant’s behalf that the court in this instance is not concerned with “making a decision that would suit the circumstances of an individual case”. And it is “beside the point” whether the applicant will be subjected to a fresh proposed resolution to remove him, and whether a fresh resolution would be passed if all the statutory requirements had been complied with.
6. The arguments made before us are essentially the same as the arguments before the judge. In essence, Mr Ho submitted that the director’s right to protest against his removal must carry with it the right to be informed of the reasons for his removal, so that his right to be heard and make representations can be exercised in a meaningful manner. Otherwise, the director would be “boxing at shadows”. The procedure concerning the director’s right to protest is not confined to private or family companies. It has to be followed by companies irrespective of their size, the complexity of their structures, the volume of their business. When members propose a resolution to dismiss a director, the director may have no inkling of the complaint and must not be left to guess what could be the reasons.
7. Closely associated with the director’s right to be heard and make representations is the right of the shareholders to be meaningfully informed before they decide how to cast their votes at the meeting. The fact that it is for the shareholders to decide underscores the significance that the process of making representation is meant to be followed in a meaningful way to enhance good governance, instead of following the process to the letter in a manner that is open to abuse and would lead to defeat of its intent and purpose.
8. Last but not least, the statutory provisions should not be construed as taking away the fundamental principles of natural justice and/or audi alteram partem when there is nothing in the language or the context to compel such an interpretation. The courts will lean against construing the statutory provisions as having the effect of overriding fundamental human rights unless clear language dictates otherwise.
The background
9. As there is no need to go into the facts, we will just mention briefly the background and adopt for this purpose the narrative in the judgment:
“6. The Company is a private limited company incorporated under the laws of Hong Kong. Its 2 registered shareholders are and at all material times were Yeung Chi Shing Estates Limited (“YCSEL”) holding 199 shares and Tim Yu Investment Company Limited (“Tim Yu”) holding 1 share as YCSEL’s nominee. In effect, the Company is beneficially owned by YCSEL solely.
7. Prior to the EGM, the Applicant was one of 4 directors of the Company. After his removal, the current board of directors consists of Yeung Ping Leung Howard (“Howard”), Yeung Ho Wai Ping (“Julia”) and Yeung Luk Pui Lan Agnes (“Agnes”).
8. On 26 January 2018, YCSEL, as the Company’s majority shareholder, requested the board of directors to call an EGM to consider the removal of the Applicant as a director and gave special notice of the proposed resolution to remove him as a director of the Company with immediate effect.
9. On 27 January 2018, the Company secretary, Ms Cheung Kit Man (“Ms Cheung”) issued a Notice of Directors’ Meeting to all directors of the Company to inter alia consider YCSEL’s aforesaid request to call an EGM and to give special notice of the proposed resolution to remove the Applicant as a director of the Company with immediate effect.
10. On 31 January 2018, the Company’s board of directors resolved to convene the proposed EGM. At that meeting, the Applicant questioned the reason behind the proposed resolution to remove him. He also asked Howard to state the grounds of removal, but none were given to him.
11. On 5 February 2018, Ms Cheung issued a Notice of EGM to be held on 9 March 2018 for the purpose of considering and, if thought fit, passing an ordinary resolution to remove the Applicant as the Company’s director with immediate effect.
12. On 8 February 2018, the Applicant issued an email to inter alia Howard, Julia, and Agnes and Howard on behalf of YCSEL in which the Applicantcomplained that he had not received the grounds of his removal as requested in his letter dated 1 February 2018 and requested for the grounds of removal immediately.
13. By a letter dated 26 February 2018 (“26 February Letter”) to Howard, Julia, and Agnes, YCSEL and Tim Yu, as well as Ms Cheung, the Applicant reiterated his complaint that the Company and Howard had failed to state the grounds of his removal despite his repeated requests. Nevertheless, the Applicant went on to set out his objections to the proposed removal of him as a director.
14. By a further letter dated 3 March 2018 (“3 March Letter”) to Howard, Julia, and Agnes, YCSEL and Tim Yu, as well as Ms Cheung entitled “My Section 463(3) Representation to the Notice of the Removal of Directorship”, the Applicantreiterated verbatim his representations set out in the 26 February Letter. The 26 February Letter and the 3 March Letter (“Written Representations”) were circulated to members of the Company.
15. At the EGM held on 9 March 2018:
(1) Ms Cheung confirmed that the Written Representations had been circulated to members of the Company.
(2) The Applicant queried why the reasons for his removal were not given, in response to which the Company’s legal adviser replied that the reasons for the removal of a director were not required to be provided by YCSEL or the Company under the CO.
(3) The Applicant read out a statement alleging illegality and irregularity of the proposal to remove him as a director of the Company under section 462(1) of CO.
(4) The resolution to remove the Applicant was duly passed as an ordinary resolution.”
10. Other than not providing the grounds of his removal to the applicant, all the express statutory requirements in the CO for removing the applicant as a director have been complied with. The resolution to remove the applicant was passed unanimously by YCSEL (holding 199 shares) and Tim Yu (holding the remaining share as YCSEL’s nominee).
The statutory provisions
11. Sections 462 and 463 of the CO are derived from section 157B of the former Companies Ordinance, Cap 32. When section 157B was first introduced in 1984, the right of shareholders to remove directors was to be exercised by way of a special resolution. This was...
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