MERCURY (LONDON) LTD AND ANOTHER v. MERCURY SHIPPING & TRADING LTD AND OTHERS

[A solicitor who claims to be acting in legal proceedings for a limited company will be held personally liable to indemnify an opposing party for its costs of the proceedings if the solicitor does not have a proper authority to act on behalf of the company]

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. In this action there are two plaintiffs, mercury (London) Ltd., the 1st plaintiff, and Mercury International (Hong Kong) Ltd., the 2nd plaintiff. The defendants, the plaintiffs say, have stolen the plaintiffs' business (the individual defendants having been previously employed by the plaintiffs).

2. There are presently before me four summonses. I shall mention them in chronological order.

3. The first summons is the plaintiffs' summons dated 9th April 1991, asking for an order that, unless the defendants comply with the terms of an order made on 4th March 1991, the defendants' defence should be struck out. By the order made on 4th March 1991 (and under a subsequent arrangement made between the parties) the parties were to exchange witness statements by close of business on 8th April 1991. The trial is due to commence on 2nd May 1991. The defendants have not tendered these statements.

4. The second summons is the defendants' summons dated 10th April 1991, asking for the action to be discontinued (more accurately, dismissed) relying upon an alleged compromise of the action made by one Asif (a director and major shareholder in the plaintiffs) with the defendants. The defendants rely on a document dated 25th March 1991, signed by Mr Asif as "Director for and on behalf of "the plaintiffs. The plaintiffs say that Mr Asif had no authority to make on behalf of the plaintiffs the compromise which the defendants say was effected by the 25th March 1991 document. so, there is a dispute between the parties as to whether or not the action has been compromised and this summons raises that dispute.

5. The third summons is the defendants' summons dated 11th April 1991. This is a summons asking that the action be dismissed or stayed on the ground of the want of authority of the solicitors purporting to be acting for the plaintiffs to maintain it. I shall come back to this in a moment.

6. The fourth summons is the defendants' summons dated 12th April 1991, asking for security for costs, on the ground that the 1st plaintiff is out of the jurisdiction.

7. I return to the third summons, the defendants' summons dated 11th April 1991. If the defendants' contentions are correct and this action is being prosecuted without authority, that is an end of the action. It must be dismissed and the solicitors who have claimed to be acting on behalf of the plaintiffs must bear the defendants' costs personally. If that happens there is no point in the court giving further consideration to any of the other summonses, because the action will have been stopped in its tracks and there will be nothing further to consider. It is, therefore, appropriate, in my judgment, for the court now to consider this third summons and decide it first.

8. So far as the 1st plaintiff is concerned, it now appears from the evidence that the 1st plaintiff's board of Directors has ratified the prosecution of the action and so far as the 1st plaintiff is concerned, therefore, that is the end of the matter; see Danish Mercantile Co. Ltd. and Others v. Beaumont and Another [1951] 1 Ch. 680.

9. But so far as the 2nd plaintiff is concerned; the position remains unclear. The 2nd plaintiff has an issued and paid up capital of HK$lm. divided into 100,000 shares of H K$10 each. These shares are held as follows:-

Mr Asif - 51,000 shares

Mr Mulrooney (the 2nd defendant) - 20,000 shares

Mrs Mulrooney - 2,000 shares

Mr J. Nall - 3,000 shares; and

Mr C. Allen - 24,000 shares.

10. Mr Mulrooney and Mr Nall are in the defendants' camp. Mr Asif and Mr Allen are in the plaintiffs' camp. Mrs Mulrooney, everyone seems to agree, cannot be found; so no one knows in whose camp she is. The secretary of the company is a company called Horwarth Management Services Limited. The directors of the 2nd plaintiff are Mr Asif and Mrs Mulrooney.

11. Article 81 of the Articles of Association of the 2nd plaintiff provides that, unless and until otherwise determined by an ordinary resolution of the company, the directors shall be not fewer than two in number.

12. Article 92 provides that the company may from time to time, by ordinary resolution, appoint new directors.

13. Article 95 provides that the continuing directors may act, notwithstanding any vacancy in their body, but if and so long as the number of directors is reduced below the number fixed by or pursuant to the Articles as the necessary quorum of directors, the continuing directors may act for the purpose of increasing the number of directors to that number or of summoning a general meeting of the company, but for no other purpose. And it provides that if there are no directors able or willing to act, then any two members may summon a general meeting for the purpose of appointing directors.

14. There is no vacancy in the body of the directors. Mr Asif and Mrs Mulrooney are both directors. It matters not that Mrs Mulrooney cannot be found. Articles 97 provides for the vacation in certain circumstances of the office of director, but merely being unable to be found is not one of the disqualifying events. However, the position is that the directors are not able to act in the present circumstances because it is impossible for a quorum to be constituted while Mrs Mulrooney cannot be found. Accordingly, under Article 95, as it seems to me it is appropriate for any two members to summon a general meeting of the 2nd plaintiff for the purpose of appointing directors.

15. The solicitors claiming to act for the plaintiffs have realised that something needs to be done about all these. On 15th March 1991, the secretary of the 2nd plaintiff sent to the two directors, Mr Asif and Mrs Mulrooney, copies of requisitions dated 13th March 1991, filed with the company on 14th March 1991 by Mr Asif and Mr Allen, requisitioning an extraordinary general meeting for the appointment of Mr Allen and a Mr Jackson as new directors of the company. For the reasons which I have endeavoured to explain, that could not in practice be effective, since the directors were unable to meet to convene the requisitioned meeting, Mrs Mulrooney being unavailable. So, on 6th April 1991, Mr Asif and Mr Allen themselves convened an extraordinary general meeting, to be held on 23rd April 1991. They say that they gave notice accordingly of the extraordinary general meeting to all the shareholders, though they appear to have sent the notice addressed to Mr Mulrooney to the address he had left with the company rather than to the address at which, it is suggested, then knew he was actually living.

16. The matters to which I have referred emerged only at a late stage of the present hearing, when, despite having had an opportunity over the course of an adjournment to file evidence in this connection, the plaintiffs, although filing some evidence, did not file evidence about these matters. I was shown the letters of the 15th March 1991 and the notices of 6th April 1991 for the first time only in the course of the hearing. Mrs Kaplan, for the defendants, very properly took no objection to my looking at this material, but said (again very properly), and Mr Maxwell-Lewis for the other side accepts it, that it must be put in evidence. For the moment I intend to proceed on the footing that what appear to be the appropriate documents for the convening of an extraordinary general meeting of the 2nd plaintiff to be held on the 23rd April 1991 have been brought into existence and that such a meeting is likely to take place accordingly.

17. If the result of that meeting is to constitute a board of directors capable of acting on behalf of the 2nd plaintiff, that board will be able (as was the board of the 1st plaintiff) to pass a resolution authorizing the further prosecution of this action on behalf of the 2nd plaintiff by the solicitors instructed by the 1st plaintiff.

18. The 23rd April 1991 is a Tuesday. It seems to me appropriate to give the 2nd plaintiff a couple of days or so thereafter to get its affairs into order. By close of business on the 26th April, Friday, one should know whether or not the further prosecution of this action on behalf of the 2nd plaintiff is justified. If it is, then it will be necessary for the court further to consider the other three summonses to which I have made reference. If it is not, then the action will have to be dimissed and the solicitors who brought it will have to bear all the costs personally. I say that because it seems to me impossible, since plaintiffs cannot sever their representation, to allow the action to continue; at any rate without radical amendment. When one plaintiff is competent but the other is not, the incompetent one must be removed from the scene.The claims are intermixed; and there is no way of making a clean break between the first (competent) plaintiff and the second (currently incompetent) second plaintiff.

19. I have not ignored, in arriving at these conclusions, the submission of Mr Maxwell-Lewis that in reality Mr Asif is in charge; he is the majority shareholder in the 2nd plaintiff and can do what he likes. But what Mr Asif like seems to vary from day to day; and I say that because there is evidence that at one stage he was disposed to agree to a compromise of this action, and at another stage to repent of having done so. But, more than that, there is no way in which, simply because Mr Asif is the majority shareholder in the 2nd plaintiff, he can be allowed to override the principles for the regulation of companies contained in the Companies Ordinance in general and in the Memorandum and of Articles of Association of this company in particular.These rules are meant to be observed. It is on that basis that companies are granted corporate status; and they cannot be treated as really of no significance.

20. For these reasons, therefore, I propose to stay this action; but to give the plaintiffs liberty to apply, after 26th April 1991, to lift the stay in the event that by then a properly constituted board of directors of the 2nd plaintiff has authorized the continuance of the action in  the name of the 2nd plaintiff. Similarly, the defendants will be given liberty to apply, after 26th April 1991, for an order, dismissing the action (until then only stayed) on  the footing if it be the case, that the necessary resolution of a duly constituted board of directors of` the 2nd plaintiff, authorizing the continuance of this action, has not been passed. The plaintiffs will be at liberty after 26th April 1991, if the action is to continue, to apply to restore their summons of 9th April 1991, and the defendants will then be at liberty to apply to restore their summons of 10th April 1991 (asking that the action be "discontinued" on the basis of the alleged compromise) and their summons of 12th April 1991 (asking for security for costs). That frame-work will do justice to the parties' respective contentions as at present before the court. I regret that it may be necessary, in these cirucmstances, to vacate the trial date; but about this I propose to say absolutely nothing more at this stage. If it be possible to maintain that date, so much the better. But if it is not possible, then some other judge, at some other time, can say so; and the date can be vacated accordingly.

21. For the moment then, I deal only with the 3rd summons to which I have referred, that is to say, the defendants' summons dated 11th April 1991; and on it I propose to order, as I have indicated already; that the action be stayed, with liberty to the plaintiffs to apply to lift the stay after 26th April 1991 if the 2nd plaintiff shall by then have authorized the further prosecution of the action. The defendants will have liberty to apply to dismiss the action in the event that the 2nd plaintiff has not by then authorized the continuance of the action. All that remains to be dealt with (apart from adjourning the other three summonses generally with liberty to restore in the circumstances I have mentioned) is the costs of this present summons, upon which I shall order that the costs of the defendants to date be taxed on the indemnity basis and paid by Sinclair Roche to the defendants in any event.