STANDARD CHARTERED EQUITOR TRUSTEE HK LTD. v. GEORGE ZEE & CO. LTD.

MP No. 1248 of 1994

H E A D N O T E

S.114B of the Companies Ordinance - Court's power to call a meeting - Meeting sought to be called by a trustee holder of all shares - purpose of meeting to remove beneficiaries from directorship - Trustee likely to benefit from fees which otherwise would not be chargeable - resistance by beneficiaries - Offer to trustee of seat on the Board - Refusal of Order in Court's discretion.

MP No. 1248 of 1994

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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D E C I S I O N

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1. This is an application under S.114B of the Companies Ordinance for an order requiring first of all that a meeting of the company George Zee & Co. Ltd. be ordered. The purposes of the meeting are set out in an affirmation of Elisa Chan Yee Fong and what is intended is set out in para. 16. First of all that the transfer of one of its shares to one of the nominees of the trustee be effected; secondly that the trustee appoints two of its own nominees as directors of the company; thirdly that all directors of the company are removed other than the permanent directors, and fourthly that the trustee appoints one of its nominees as the company's secretary.

2. The company itself has a long history. Although nothing turns on it, it was founded by the late Mr. George Zee and it traded until a few years ago. The late Mr. George Zee died in 1967. Thereafter and certainly up until recently the company has been operated by all the directors of the company: the children of the late Mr. George Zee plus his widow.

3. There have not been company meetings in recent years and that is not altogether surprising. First of all, the major asset which that company now has is a substantial property at 83 Hung To Road and since the company is now no longer trading. that property or parts of it are rented out. Hence there is not very much for the company to do apart from receiving the rental income. In the second place, all the directors, apart from Mr. Albert Zee, are resident overseas and so all the other children of the late Mr. George Zee have not been in Hong Kong except, I suspect, from time to time and certainly not on a regular basis.

4. There was a suggestion that the property would be redeveloped. That has now been reconsidered and I am informed that all the directors now consider that the appropriate step to take is that the property be sold.

5. The Applicant in this case however considered that it was not in a position to supervise the redevelopment. So it wrote on the 30th March of this year to all the directors of the company, a letter of that date which is exhibited at CYFE-6 to Miss Chan's affirmation. It says in the 3rd paragraph:-

"The property at Hung To Road represents a substantial asset, the sale of which will result in a significant dividend or distribution back to the Estate and, through the Estate, to the beneficiaries. In these circumstances, the trustee considers that it is obliged to take control of the affairs of the company, so that the trustee itself can be assured that the interests of all beneficiaries of the Estate are properly represented and that the assets of the company are realised and distributed in an appropriate manner."

And then it says:-

"Notwithstanding the foregoing, the trustee is also sensitive to the wishes of those present at the recent meetings in our office that the company should continue in existence and that the existing family members who are directors of the company should continue in that capacity."

6. That is apparently an opinion from which the Applicant now resiles, since it is now proposing to remove all the existing directors that it can other than the permanent directors.

7. The letter of the 30th March, then goes on to make a number of suggestions including the fact that the trustee will obtain valuations from particular valuers which it names, and that it will appoint the particular companies to conduct the sale and it will appoint their own solicitors to be the solicitors for the sale. It then sets out in paragraph 7 that it considers that:-

"The trustee would be entitled under the terms of its appointment to charge a special management fee of 1% on the consideration involved in respect of the sale of the property and a withdrawal fee of 1.5% for distributions through the Estate."

8. That would therefore give a figure of 2.5% and as I understand it, the property is worth well over $200 million at today's levels. It would therefore give the trustee a very substantial remuneration, both on the sale of the property which would be a sale by the company and not by the trustee, and upon the distribution of the dividends which would of course be a distribution from the trust. No satisfactory explanation has been given to me as to why the trustee is entitled to charge fees for the sale of piece of property owned by company.

9. The letter then says that:-

"... the trustee intends to charge the withdrawal fee of 1.5%, the existing entitlement, at the time of distribution of the sale proceeds through the Estate to the beneficiaries, and reduce the special management fee to HK$100,000 for all work associated with the sale of the Hung To Road property provided that said distribution is made within 3 months from the date of completion of the sale. If said distribution is not made within 3 months from the date of completion of the sale, the trustee intends to charge the special management fee of 1% on the consideration at the end of the three month period in addition to the fee of HK$100,000 and will reduce the withdrawal fee to 0.5% upon distribution of the sale of proceeds."

10. One of other surprising matters about this letter, however, is the sting which seems to be in the tail. The trustee concludes the letter by saying that:-

"We believe these arrangements will be effective to achieve the desired result of a sale of Hung To Road property on a basis which will demonstrably ensure that the interests of all beneficiaries are fully protected. We would accordingly be grateful if you would acknowledge your acceptance of these arrangements by signing and returning the attached copy of this letter by fax and by mail on or before the 18th April. Unless such an acknowledgment is received from all the beneficiaries who are directors of the company, the trustee will have no choice but to use its shareholding to reconstitute the Board of the Company and to proceed unilaterally with the above-mentioned programme. In these circumstances, the fee waiver mentioned in paragraph 7 will not necessarily be preserved."

11. This seems to me to be a clear threat that unless the directors of the company who constitute all but one of the children of the deceased, the one not included Elvira Chan, who has unfortunately died, agree to what the trustee wants the trustee will seek to remove them all as directors, except of course for Louisa Chan who is a permanent director, and to charge fees both on the sale of the property and on the distribution of the assets. These are of course not fees which are based on an assessment of the work, time and cost involved, but fees which are based upon what the trustee considers it is entitled to charge under its appointment.

12. This matter has been hotly contested by the company and all the surviving children of the late Mr. George Zee have come back to Hong Kong as a result. I have been informed by Counsel for the company that he is taking instructions from each one of them and the company undertakes that they will all make affirmations or affidavits in the form which has been put in front of me which starts by confirming their opposition to the application and in particular to the removal of themselves as one of the directors and they confirm that it is their wishes to remain directors of the company and that none of their co-directors should be removed. They also confirm that the property will be sold by the existing Board of Directors and they welcome a representative of the Applicant to sit on the Board in order that the Applicant will be kept informed and/or be able to participate in the sale. Then they go on to say that they wish to participate in all relevant discussions and decisions to be made in relation to the proposed sale of the property, notwithstanding that they are not ordinarily resident in Hong Kong and they believe they can be consulted and take an active part in those discussions through fax and telephone communications and further confirm that if the circumstances should arise that require their personal attendance in Hong Kong, they would be in a position to do so and will be willing to travel to Hong Kong to attend to the same.

13. Miss Louisa Zee will make a corresponding affirmation, but of course there was no threat to remove her because she is a permanent director and undertakings will likewise be given in respect of Mr. Albert Zee but of course he is not ordinarily resident outside the jurisdiction and so the paragraphs relating to that would not apply to him.

14. In my view, the Court should exercise its discretion not to order the holding of the meeting. In the circumstances of this case, I can see no justification for removing all the directors of the company; indeed, I consider it would be quite wrong. It was in part this aspect of the application together with the threat to charge hefty fees which prompted me to remark that it was necessary in this case to protect the beneficiaries from the trustees. In the circumstances of this particular company and in the circumstances of the appointment of the trustee under the Deed of the 15th July 1988 which I have been shown, which refers to the directors of the company and refers to the sale of the property by them on the demise of the widow by the company, I consider that the control of the company should be left where it is. I consider that the trustee can adequately perform its function in relation to the trust as the company is prepared to give an undertaking to allow and to procure the appointment as a director of a nominee of the trustee onto the Board of the Directors. If anything untoward were to take place, I have no doubt the matter can be referred back to the Court at very short notice, but I cannot see that there is an likelihood of that. I cannot see any justification in these circumstances for the trustee, so the speak, hijacking the company and removing the control of the whole of the company to itself. I consider that is unjustified particularly in view of the threat which is contained in the final paragraph of the letter to which I have referred. In those circumstances and under those undertakings, this application is refused.

[After argument as to costs]

15. In this case one of the difficult aspects is the Order as to costs. I consider that the Trustee had no business coming to Court seeking the removal of all of the Directors. It is true that it was not until recently that an offer was made to have a representative of the Trustee on the Board. I consider that the way this application was made was wholly wrong and in so far as I have a power to do so I propose to make an order disallowing the recovery of the costs by the trustee from the trust fund or the beneficiaries in relation to this application.