Your World of Legal Intelligence
 Hong Kong | 1-800-335-6202

Zpmc Offshore Service Co Ltd Formerly Known As Shanghai Zhenhua Heavy Industries Shipping Co Ltd) v Philip Jeffrey Adkins

Judgment Cited authorities 15 Cited in Precedent Map Related
Vincent
Judgment Date17 September 2021
Neutral Citation[2021] HKCFI 2660
Judgement NumberHCMP1124/2020
Citation[2021] 4 HKLRD 559
Year2021
Subject MatterMiscellaneous Proceedings
CourtCourt of First Instance (Hong Kong)
HCMP426A/2017 ZPMC OFFSHORE SERVICE CO LTD (Formerly known as SHANGHAI ZHENHUA HEAVY INDUSTRIES SHIPPING CO LTD) v. PHILIP JEFFREY ADKINS AND OTHERS

HCMP 426/2017 & HCMP 1124/2020

(HEARD TOGETHER)

[2021] HKCFI 2660

HCMP 426/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 426 OF 2017

________________________

IN THE MATTER of ZPMC-Red Box Energy Services Limited （振華海洋能源（香港）有限公司）
and
IN THE MATTER of sections 728 and 729 of the Companies Ordinance (Cap 622) and Inherent Jurisdiction

________________________

BETWEEN

ZPMC OFFSHORE SERVICE CO LTD
(Formerly known as SHANGHAI ZHENHUA
HEAVY INDUSTRIES SHIPPING CO LTD)		 Applicant

and
PHILIP JEFFREY ADKINS 1st Respondent
RBF HK LTD 2nd Respondent
LIHUA LOGISTICS CO LTD 3rd Respondent
ZPMC-RED BOX ENERGY SERVICES LIMITED
（振華海洋能源（香港）有限公司）		 4th Respondent

________________________

AND

HCMP 1124/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1124 OF 2020

________________________

IN THE MATTER of an application of the Plaintiff ZPMC OFFSHORE SERVICE CO LTD (formerly known as SHANGHAI ZHENHUA HEAVY INDUSTRIES SHIPPING CO LTD) against the Defendant PHILIP JEFFREY ADKINS for an Order for Committal for Contempt of Court
and
IN THE MATTER of Order 52 rules 1, 2 and 3 of The Rules of the High Court (Cap 4A) and Inherent Jurisdiction of the Court

________________________

BETWEEN

ZPMC OFFSHORE SERVICE CO LTD
(Formerly known as SHANGHAI ZHENHUA
HEAVY INDUSTRIES SHIPPING CO LTD)		 Plaintiff

and
PHILIP JEFFREY ADKINS Defendant

________________________

(HEARD TOGETHER)

Before: Hon Harris J in Court

Dates of Hearings: 25 – 26 August 2021

Date of Decision: 17 September 2021

________________________

D E C I S I O N

________________________


1. On 24 February 2017 the Applicant, ZPMC Offshore Service Co Ltd (“ZPMC”) issued an originating summons seeking declarations that a board meeting of the 4th Respondent (“Company”) that took place on 14 February 2017 and resolutions purportedly passed at it, amongst other things, removing the 1st Respondent, Philip Jeffrey Adkins (“Adkins”) as the chief executive officer (“CEO”) of the Company were valid and seeking orders that, amongst other things, Mr Adkins not hold himself out as the CEO. I will refer to these proceedings as “426”.

2. Also on 24 February 2017 ZPMC applied ex parte on notice to Louis Chan J for an order prohibiting, amongst other things, Mr Adkins holding himself out as the CEO of the Company. Chan J granted the order (“Order”). It was continued by me without opposition on 3 March 2017 and 11 April 2018. It would appear that Mr Adkins was aware of the Order and subsequently breached it on more than one occasion. On 24 August 2020 I granted leave for ZPMC to apply for an order of committal and an originating summons was issued on 31 July 2020 seeking an order for committal (“contempt proceedings”). This was subsequently met with three applications issued by Mr Adkins:

(1) A summons in 426 to strike out 426 issued on 3 March 2021.

(2) A summons in 426 dated 9 June 2020 to discharge the Order.

(3) A summons in the contempt proceedings seeking to set aside the leave and have the originating summons dismissed on the grounds that its prosecution would be oppressive and disproportionate in the circumstances and that there had been material non-disclosure on the leave application.

3. On 25 August 2021 the contempt proceedings and Mr Adkins’s three summonses came on before me. I dealt with the summons to strike out 426 first. After hearing the summons, on 26 August 2021 I struck out 426 and discharged the Order. Having done so I concluded that the leave to issue the contempt proceedings should be set aside and the originating summons dismissed. It was not practical to deliver ex tempore reasons. My reasons are set out below.

4. The originating summons contained applications for relief pursuant to sections 728 and 729 of the Companies Ordinance, Cap 622 (“Ordinance”). These sections along with section 730 provide, and I quote from the heading to Division 3 of Part 14, “Remedies for others’ conduct in relation to companies”. Section 729(1) provides that a member “whose interests have been, are or would be affected by...” conduct falling within section 728(1)(a) can seek a final injunction or a declaration. Section 728(1)(a)(iii) includes “a breach specified in subsection (4)”. Subsection (4) includes breach of a person’s fiduciary duties owed to the company in question both as a director and in any other capacity.

5. To the extent that these sections allow a member to commence proceedings seeking relief section 729(1) provides that the relief can include an injunction, declaring a contract to be void or voidable or damages. The Division, therefore, is a statutory exception to the well-known Rule in Foss v Harbottle[1], which provides that the proper plaintiff in proceedings to remedy a wrong to a company is the company itself, because it is in the company that the cause of action is vested[2]. Therefore, if a director breaches his or her fiduciary duties owed to a company it is for the company to take action to remedy the breach. Without Division 3 a member of a company incorporated in Hong Kong would not be able to take action in their own name to remedy a breach done to the company. It would be necessary for them to bring either a common law or statutory derivative action if they could satisfy the requirements for doing so. In the case of a statutory derivative action those requirements are set out in Division 4. This is different to a member’s personal right to enforce a company’s constitution by, for example, taking action to prevent a breach of the articles of association. Similarly, a member may have personal rights under a shareholder agreement against other members or the company, which can be enforced by action. There is no suggestion that the rights ZPMC seek to exercise in 426 are in this sense personal. The only rights relied on are those provided for in Division 3.

6. Division 3 has to be read and understood against this background. It would, for example, be surprising if section 729 allowed a member to commence an action for a breach of fiduciary duty by a director, which a company is quite capable of commencing. It will be recalled that there are exceptions to the Rule in Foss v Harbottle. The one with which practitioners are most familiar is what is commonly referred to as a “fraud on the minority”. Put broadly the expression describes a situation in which a wrong is done to a company, which the company will not take action to remedy because the wrongdoers are in control of the company[3]. In these circumstances the common law permitted a minority to commence an action on behalf of the company to remedy the wrong done to it. It seems to me that section 729 is intended to permit and facilitate a member to remedy a wrong, which a company cannot or will not take steps to remedy itself. Otherwise it would be possible for both the company and a member to commence proceedings to seek, for example, to remedy a breach of fiduciary duty by a director.

7. Section 729 avoids this possible conflict and duplication by limiting a member’s right to commence an action to situations in which his “interests have been, are or would be affected”. This must mean interests qua member. If a company refuses to take action to remedy damage done to a company, which impacts on the value of member’s economic interest in a company, section 729 is likely to be engaged. If the company itself is willing and able to take the necessary action it seems to me that a member’s interests will not be impacted in a relevant way. The principal considerations in determining whether a member’s interests are affected in a relevant way will commonly be whether: (1) the member is likely to be worse off if the matter of which he complains is not remedied; (2) the matter is something the company has a right to remedy; and (3) if it is something the company has a right to remedy, the shareholder cannot cause the company to take remedial action. In formulating a claim under Division 3 it is necessary to be alive to these distinctions and address them. Unfortunately as I will demonstrate ZPMC was not. It is to that subject that I now turn.

8. The Company has three shareholders: ZPMC, which holds 51% of the Company, the 2nd Respondent RBF HK Ltd (“RBF”), which holds 32.5% and the 3rd Respondent Lihua Logistics Company Limited (“ZHLG”), which holds the remaining 16.5%. The Articles provide for the Company to have seven directors of which four are appointed by ZPMC. There were four in February 2017. It is clear from Articles 117 to 119 and Clauses 6.13 and 6.14 of the Shareholders Agreement that it was possible for ZPMC to convene a board meeting to pass any resolution it likes other than in relation to reserved matters, albeit it may, because of the way which the Articles operate, initially have required the initial meeting of the Board to have been adjourned because the quorum requirements required a director representing each member to be present. However, if the initial meeting was inquorate it could, as is commonly provided in articles, be adjourned for 10 days at which if any four directors were present the board meeting would become quorate. Therefore, as the wrongs of which ZPMC complain were clearly done to the Company and ZPMC could cause the Company to take action to remedy them on the face of the matter it was unnecessary for ZPMC qua member to take action.

9. Mr Li’s two affirmations filed in support of the originating summons and the injunction...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT