LONG LEAD INVESTMENTS LTD. v. vLINK GLOBAL LTD. AND OTHERS

CACV 1073/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. CACV 1073 OF 2000

(ON APPEAL FROM HCA 10512 OF 2000)

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J U D G M E N T

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Hon Rogers VP :

1. This is an appeal from a judgment of Madam Justice Yuen. The first application before the judge in respect of this matter generally was last Saturday. There was another application on Sunday. Yesterday, Madam Justice Yuen refused to grant an injunction, which is prayed for today, and delivered the reasons for her decision this morning, and such are the law's delays that the matter reached this court at 11:30 or 12:00 today.

2. In short, the plaintiff is an investor in the 1st defendant. The investment came about as a result of a placement which took place in April 2000. Originally the 1st defendant was a freight forwarding company. Evidently, the business was not that successful, and it realized the potential of its listing on the Stock Exchange by an arrangement of what is termed a back door listing.

3. In the course of Mr Poon SC's submissions we have been shown a copy of the circular which was issued at the time of the placement and I will refer to that later. Briefly, however, it can be said that as a result of the placement, there were six groups of shareholders. The first was the former controlling shareholder who owns 5.7% of the shareholding of the company. About 25% of the shares are held by the public. The plaintiff holds 13.9% on behalf of its holding company called Yu Ming. There is a further 20.8% which is held by a GE Technology and 27.7% which is held by Samsung Consortium and a Korean Consortium. The remaining amount, which was 6.9% but we are told has been reduced to something in the order of just over 1%, is owned by a group of investors through a company called Polylink, which is represented by some of the directors.

4. Briefly, what is sought on this application is an injunction to restrain the passing of certain resolutions at a board meeting which was re-scheduled to be held at 2:30 this afternoon and it will subsequently be held no doubt in a few hours' time. That board meeting was to consider a proposal to invest some US$12 million in a Korean venture. The basic structure was indicated to the directors by e-mail with various attachments, which we are told are in Power Point format. Those indicated the sort of venture.

5. It would be inappropriate for this court to describe the investment. Strong criticism was made by Mr Poon, who appeared on behalf of the plaintiff, that the manner in which the proposals were put to the board, the information which was available to the board, the likely progress of the matter in front of the board and the information that would be available to the board as a result of questions and answers which were likely to arise left a great deal to be desired. Be that as it may, this court is not a court to consider good corporate governance, save and insofar as good corporate governance includes matters relating to the law, the Companies Ordinance and the fiduciary duties of the directors. There has been a suggestion that one of the directors may have a conflict of interest in respect of matters arising on the proposed investment. That conflict of interest is, if anything, very indirect, and as Mr Poon has indicated, it is probably not such a conflict of interest as would prevent him voting on any proposal.

6. Whether or not a company should undertake an investment and the decisions of a board on such an investment are, as far as the court is concerned, commercial matters. They may not be called trustee investments nor may they be investments which would be recommended for widows and orphans, but this company, and it is clear from the document to which I have referred, clearly intends to invest in the e-commerce business. As such, it is no doubt a fairly volatile business and recent events have no doubt shown that it is not always profitable. Nevertheless, the board of directors may well in their own view consider that there are good investments to be made at the moment.

7. Mr Bleach SC, on behalf of the defendants, has not been called upon by this court but in the course of Mr Poon's submissions has indicated on the part of the other directors, who are the defendants in this case, that there will be a review of the proper documentation; due diligence will take place at least insofar as the identities and experience of the persons in Korea, who have been a managing the investment, are concerned, and legal advice on matters such as tax will be taken.

8. Mr Bleach has indicated that the money which will be remitted to Korea will be held in a custodian account in the name of a company which is under the control of the 1st defendant and it will not be released until the board is satisfied about those three matters. However, of course no indication could be given as to what time limits would be placed on this, and no doubt there are difficulties even in that arrangement.

9. One of the complaints which is made by the plaintiff is the inability on behalf of both the plaintiff and GE to have appointed more directors, but having considered the terms of the placement circular, which has been shown to us, it can be seen that the composition of the board is the same as is reflected on pages 10 and 11 of that document. Whilst, of course, further directors can be appointed and the composition of the board can change, I for my part can see nothing that has taken place as regards the composition of the board, which is anything other than was contemplated in April when the company decided to enter the e-commerce business.

10. In summary, I consider that the learned judge's reasoning given in the reasons for decision which were handed down this morning, that this was a matter for commercial decision by the board, is correct and I agree with her that I do not consider that the court should interfere in that process. I would therefore dismiss this appeal.

Hon Keith JA :

11. I agree. There is nothing that I can usefully add.

Hon Le Pichon JA :

12. I agree with the judgment of the Vice-President.