WONG TAI SIN YUEN CHING KWOK v. CHEUK WING CHEUNG AND OTHERS

HCA 2762/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2762 OF 2016

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J U D G M E N T

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Introduction

1.  This is the Plaintiff’s application by Summons dated 25 October 2016 for the following orders against the 1^st to 4^th Defendants, that:‑

a)  the Defendants be restrained from dealing with and/or parting with the assets, books and accounts of the Plaintiff;

b)  the Defendants should deliver up to the Plaintiff its office premises, and deliver to the Plaintiff’s solicitors the assets, books and accounts of the Plaintiff;

c)  the Defendants be restrained from

i) dealing with or holding out to deal with the business of the Plaintiff;

ii) holding out as members of the Executive Committee or directors of the Plaintiff;

iii) holding out as representing the Plaintiff in whatever capacities other than as members of the Plaintiff.

Background

2.  The Plaintiff is a Taoist charitable organisation founded in 1942. In 1978, it was incorporated as a company limited by guarantee.

3.  Articles 33 and 35 of the Articles of Association of the Plaintiff provided that the management body of the Plaintiff is the Executive Committee which has a fixed and non‑extendable term of two years. Article 1 provided that the Executive Committee of the Plaintiff is its Board of Directors. This means the elected executive members for that term will become the directors of the Plaintiff.

4.  The four Defendants were four of the elected members (out of 14) which formed the 14^th Executive Committee of the Plaintiff at the AGM held on 9 December 2012 and who were subsequently appointed directors on 20 December 2012 pursuant to the Plaintiff’s constitution.

5.  There is no dispute that their term of office had expired on 21 December 2014.

6.  The Plaintiff is now acting through 9 of the 15 executive committee members elected at the AGM held on 25 June 2016. The Defendants said their elections were invalid.

7.  In about December 2014, the Defendants (of the 14^th Executive Committee) issued an AGM notice notifying the members that an AGM would be held on 3 January 2015.

8.  However, since then, disputes arose, inter alia, as to the identities of some of the newly admitted members, such that the AGM had to be postponed a few times. In short, it was the Plaintiff’s allegation that the Defendants had acted contrary to the Articles of Association by monopolizing the power to admit new members to the Board of Directors. The Defendants made no admission and said the purported admissions had subsequently been rectified.

9.  Eventually the Defendants had to apply to the Court for directions on the election of the 15^th Executive Committee under s 570 of the Companies Ordinance.

10.  After a few adjournments, on 4 May 2016, Harris J ordered, inter alia, that the election of the Plaintiff’s 15^th Executive Committee should be held on or before 30 June 2016.

11.  Paragraph 4 of the Order of Harris J states as follows:‑

“At the general meeting of the company to be held on or before 30^th June 2016 the following motions be put to its members:‑

(1)  An election of the Executive Committee be conducted at the general meeting in the following manners:‑

(a)  Each and every existing member of the Company is eligible to be elected individually;

(b)  Each and every member present and each and every proxy they hold is entitled to vote, and vote individually, for any member(s) they prefer to be appointed as a member of the Executive Committee;

(2)  The election of members of the Executive Committee be conducted in accordance with Section 460 of the Companies Ordinance, Cap 622.

(3)  The elected Executive Committee shall serve a term of 2 years from the date they are elected.” [Emphasis added]

12.  s 460 of the Companies Ordinance applies to a company limited by guarantee of which the Plaintiff is one. The relevant part of the section says:‑

(2)  At a general meeting of the company, a motion for the appointment of 2 or more persons as directors of the company by a single resolution must not be made, unless a resolution that it may be so made has first been passed at the meeting without any vote against it.”

13.  The Defendants then issued an AGM Notice dated 3 June 2016 to convene the AGM on 25 June 2016. It appears this June 2016 Notice was the source of complaint by the Plaintiff.

14.  The Plaintiff took great exception to Motion 4 of the AGM Notice which says as follows:

4.  討論及通過沿用第十四屆董事局成員選舉之方式，作為選舉第十五屆董事局成員選舉之方式。

15.  Motion 5 provides:

5.  如上述第4事項獲得通過，將即時舉行第十五屆董事局成員選舉。

16.  The evidence seems to suggest that the election method adopted for the 14^th Executive Committee was the mode stipulated under Article 47 of the Articles of Association by a single resolution: see para 12 Affirmation of Chong Shun Yee.

17.  The relevant parts of Article 47 of the Articles of Association which governs the election of the executive committee reads,

“47. ...Seven days before the General Meeting, the Election Committee shall send to every member of the Association, together with the notice of the meeting, a copy of the membership list and request him to mark on the list nine or up to 15 Executive committee members and then cast the list into the polling box specially installed by the Association. The polling box shall be opened only at the General Meeting where the votes shall be counted. Those who receive the highest number of votes shall become the Executive Committee Members and those with the second highest number of votes the Reserve Committee Members. In the event of a tie in votes, the decision shall be made by drawing lots.”

18.  The Plaintiff took the view that the notice was not in line with s 460 of the Companies Ordinance not to appoint multiple directors by a single resolution unless unanimous approval by members was obtained and so alienated paragraph 4 of the Harris Order.

19.  Thus, on 24 June 2016 at about 5.30 pm, a group of members including Chong Shun Yee (one of the elected executive members of the 15^th Executive Committee), through their solicitors, wrote to the Defendants’ solicitors putting on record, in gist, that

(a)  Motion 4 was in contravention of the Harris Order;

(b)  pursuant to s 460 of the Companies Ordinance, Chong Shun Yee and his allies would veto Motion 4;

(c)  they would propose under Motion 6 of the notice, namely Any Other Business, election of the Executive Committee members on an individual basis, as required by the Harris Order; and

(d)  they would propose candidates as per the enclosed list for the election, individually, as members of the 15^th Executive Committee.

20.  At the AGM held on 25 June 2016, upon the proposal of D3, and with the agreement of the Defendants and the majority of the members present, the AGM was chaired by Mr B K Ho. It was confirmed by Mr Wong (together with Mr Lam), counsel for the Defendants, that the Defendants accept that Mr Ho was validly appointed as chairperson of the meeting.

21.  According to the Affirmation of Mr Ho, D1 attempted to close the meeting after Motion 4 was vetoed. Mr Ho then put to the members for voting by show of hands a motion as to whether the election of the Executive Committee should be continued. The show of hands voted in favour of the meeting to continue. Mr Ho then declared the motion was passed, whereupon the Defendants left the AGM.

22.  There seems no dispute that even after the Defendants had left, 32 members were still present, thus sufficiently constituting the quorum for the General Meeting, requiring the presence of only 15 members: Article 22 of the Plaintiff’s constitution.

23.  As regards the 15 election Motions, paragraphs 9 to 11 of Mr Ho’s Affirmation described as follows how they were passed:‑

“9.  ...I confirm that the election voting method, for each and every of the 15 election Motions, was by show of hands. As chairperson of the 25 June AGM, I made this decision for voting by show of hands because:

There was no demand made by any members or proxy at the meeting demanding a poll to be taken;

From the number of proxy forms received by the Company, and the result of Motion 4, I was of the opinion that the result on a show of hands will not be different from that on a poll;

There was no ballot form prepared by the Defendants, as the conveners and organisers of the General Meeting, for the election to be conducted in the manners as directed by the Order.

10.  When the meeting resumed, I first asked for a member to propose the name of a member for nomination, then asked for a member to second the nomination, then asked all the members who were in favour of the Motion to raise their hands, and then asked all the members who were against the Motion to raise their hands. I then caused the count of hands voted for and against each and every of the 15 Motions to be recorded.

11.  All the 15 election motions received unanimous support. I had therefore declared each and every of the 15 election Motions passed by the voting of show of hands.”

24.  As a result, 15 members of the 15^th Executive Committee were elected, and became directors of the Plaintiff. Subsequently 5 of the elected members resigned and one did not consent to become a director. This, however, does not have any effect on the validity or otherwise of the election itself.

25.  Expectedly, the dispute leading to the present proceedings arose because the Plaintiff submitted the executive members of the 15^th Executive Committee were validly elected whereas this was not accepted by the Defendants.

26.  The current nine members of the Board of Directors were of the firm view that they were properly elected members of the 15^th Executive Committee and were rightly entitled to demand the Defendants to deliver up the premises and assets, etc of the Plaintiff to them. On the other hand, the Defendants denied their status. Thus, one of the main issues which the Court at trial will have to resolve appears to be the validity of the election results which took place on 25 June 2016.

The law on injunction

27.  The parties do not dispute the trite principles governing the granting of interlocutory injunctions which require:

(a)  A serious issue to be tried in respect of the claim;

(b)  The plaintiff will suffer irreparable damage if the injunction is refused;

(c)  The defendant will not suffer irreparable damage if the injunction is granted;

(d)  If (b) and (c) are inconclusive, a proper consideration of the balance of convenience favours the grant of an injunction.

Hong Kong Civil Procedure 2017 at 29/1/9 to 29/1/17.

28.  As seen above under para 1, the Plaintiff also prays for a mandatory injunction for delivery up of premises and books, etc.

29.  One of the reliefs claimed by the Plaintiff is the delivery up of premises and books of accounts etc and is thus a mandatory injunction. In Music Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2012] 2 HKLRD 1041 at para 12, Ma J (as he then was) gave the following guidance on mandatory injunctions:

“12.  ...Where, as in the present case, the plaintiffs seek an interlocutory mandatory injunction (that is, an order requiring the defendant to do something, in contrast to a prohibitory injunction which restrains the defendant from doing something), the following matters should be borne in mind as being the Court’s approach:

(a)  In the case of interlocutory mandatory injunctions, it is often said or assumed that a court will not grant one unless it feels a high degree of assurance that at the trial of the action, it will be shown that the injunction was rightly granted: see Shepherd Homes Ltd v Sandham [1971] Ch 340, 351. This has been explained and sometimes understood as meaning that in the case of an interlocutory mandatory injunction, the applicant's case on the merits has to be made out to a higher standard of proof than in the case of prohibitory injunction: see the Court of Appeal's observations in TKI Ltd v New Happy Ltd [1995] 1 HKC 551, 554B‑D.

(b)  Broad statements such as the above must, however, be properly put in context.

(c)  The basic approach to interlocutory injunctions, whether mandatory or prohibitory, is the same. Section 21L of the High Court Ordinance (Cap 4) makes no distinction between these two types of injunctions and simply states that interlocutory injunctions may be granted if it appears to be just or convenient to do so.

(d)  At the interlocutory injunction stage, the principal concern of the court is that it might make a wrong decision in the sense that after trial, the party to whom an interlocutory injunction has been granted may lose or the party who has been refused one, may win. The Court will therefore take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong. This "fundamental" principle is the source of the guidelines that have evolved for the determination of interlocutory injunctions (included are, of course, the American Cyanamid guidelines) and therefore, in the application of any guidelines, sight must not be lost of this principle. See: Films Rover International Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670, 680D‑G, in a passage from the judgment of Hoffmann J which was approved by the House of Lords in R v Secretary of State for Transport, ex p Factortame Ltd (No 2) [1991] 1 AC 603 and recently reiterated in the English Court of Appeal decision of Zockoll Group Ltd v Mercury Communications Ltd [1998] FSR 354 (which Mr Au was kind enough to place before me).

(e)  Two common guidelines are of course the consideration of the merits of the plaintiffs' claim and the balance of convenience. Here, it is of course easy to see at once how they are linked to the fundamental principle: there must be a risk of injustice if the plaintiff cannot even establish a serious question to be tried or that one or the other party will be put to substantial inconvenience or prejudice if an interlocutory injunction were or were not granted.

(f)  In the case of interlocutory mandatory injunctions, the risk of injustice (being wrong in the sense referred to above) can be quite acute. In Films Rover International Ltd v Cannon Film Sales Ltd, it was put thus by Hoffmann J at p 681B‑E:

In Shepherd Homes Ltd v Sandham, Megarry J spelled out some of the reasons why mandatory injunctions generally carry a higher risk of injustice if granted at the interlocutory stage: they usually go further than the preservation of the status quo by requiring a party to take some new positive step or undo what he has done in the past; an order requiring a party to take positive steps usually causes more waste of time and money if it turns out to have been wrongly granted than an order which merely causes delay by restraining him from doing something which it appears at the trial he was entitled to do; a mandatory order usually gives a party the whole of the relief which he claims in the writ and makes it unlikely that there will be a trial. One could add other reasons, such as that mandatory injunctions (whether interlocutory or final) are often difficult to formulate with sufficient precision to be enforceable. In addition to all these practical considerations, there is also what might be loosely called a "due process" question. An order requiring someone to do something is usually perceived as a more intrusive exercise of the coercive power of the state than an order requiring him temporarily to refrain from action. The court is therefore more reluctant to make such an order against a party who has not had the protection of a full hearing at trial.

(g)  This passage in my view explains just why it is that generally a court will have to feel a high degree of assurance that at the trial of an action it will be shown that the interlocutory injunction was rightly granted before an interlocutory mandatory injunction will be given; all this being an exercise in assessing the strength of the plaintiffs' case: see sub‑para (a) above. However, I emphasise that this is only generally the court's approach. Where it is shown, as an exception to this general approach, that the case is one in which the withholding of on interlocutory mandatory injunction "would in fact carry a greater risk of injustice than granting it even though the court does not feel the high degree of assurance" as aforesaid, it would be right to grant an interlocutory mandatory injunction, see Films Rover International Ltd v Cannon Film Sales Ltd, p 681A‑B.

(h)  This of course brings into focus the balance of convenience. Thus, if a plaintiff in seeking an interlocutory mandatory injunction cannot demonstrate more than a serious question to be tried, it will have to show that the balance of convenience tilts so much in its favour that justice requires such an injunction to be granted, even taking into account those aspects of an interlocutory mandatory injunction expressed by Hoffmann J in Films Rover International Ltd v Cannon Film Sales Ltd.

(i)  At no stage, however, in the consideration of the matter does the court lose sight of the practical realities of the situation to which the injunction will apply: see NWL Ltd v Woods [1979] 1 WLR 1294, 1306C per Lord Diplock.

30.  With the principles in mind, I now turn to the discussion of the main issues.

Discussion

31.  The two main considerations for or against the granting of an injunction, more specifically a mandatory injunction, generally involve the considerations of the strength of the plaintiff’s claim and the balance of convenience, particularly given that there is insufficient evidence before me as to the irreparable damage each party would suffer if the injunctive reliefs sought were granted or refused.

32.  Mr Lau, on behalf of the Plaintiff, submits that the 15^th Executive Committee was validly elected. Mr Wong says no.

33.  Without disrespect to both counsel’s submissions on other points addressing the merits of the Plaintiff’s claim, it transpired at the hearing that the most important issue (amongst those identified by the parties at this stage) which affects the validity of the 15 elections is whether there is a breach of Article 47 of the Articles of Association of the Plaintiff, the relevant parts of which have been cited above under paragraph 17.

34.  There seems little dispute that the 15 elections were passed without complying with the requirements of Article 47. I asked Mr Lau at the hearing whether he agreed this was the case and he confirmed it was.

35.  Mr Lau, however, argued that the Harris Order had the effect of modifying and superseding the operation of Article 47.

36.  I disagree. As pointed out at the hearing, all that paragraph 4 of the Harris Order stipulated was that motions should be put at the general meeting as regards matters described under sub‑paragraphs (1) and (2) thereunder, ie, motions for members to vote on (a) eligibility of members to be elected individually as executive member; (b) entitlement of members present and members present with proxies to be elected individually; (c) whether the meeting should be conducted in accordance with s 460 Companies Ordinance; and (d) whether the Executive Committee should serve two years. The Order did not supplement, modify, nor supersede Article 47. In other words, the Harris Order only had the effect of asking the members of the Plaintiff to vote and decide the manner of election at the general meeting. Other than that, it does not dictate in any sense how that private meeting was to be conducted.

37.  In fact, when asked further, Mr Lau fairly accepted that to alter or modify the constitution of the company, more than simple majority is required. A special resolution, with notice specifying the intention to propose the resolution as a specific resolution, by a majority of at least 75% is required: see ss 88 and 564 of the Companies Ordinance.

38.  Mr Lau emphasized the practical difficulties facing the company at the AGM. He submitted that the Defendants were in fact doing their best to prevent the election of the next Executive Committee even though their term of office had long expired. He pointed out that the Defendants knew full well that Motion 4, the election method used at the 14^th Executive Committee, was a motion to elect by a single resolution. The Defendants were aware that it only took one single vote to veto Motion 4. If Motion 4 was vetoed, there would be no election as stated under Motion 5, and thus they could continue with their office, at least that would be the practical effect of non‑election of the 15^th Executive Committee. The obvious intention of the Defendants to delay the election is reinforced by the fact that the Defendants had had no contingency plan in case Motion 4 was vetoed. Indeed, the only result would be that there would be no election of the 15^th Executive Committee by virtue of Motions 4 and 5.

39.  I share some sympathy with Mr Lau’s submission. However, in my view, the significance of this point lies not in bolstering the strength or merits of the Plaintiff’s case but rather when the question of balance of convenience comes to be considered, which I shall take into account when exercising my discretion.

40.  I take the view that in the absence of a court order or a special resolution, Article 47 remains the governing provision for the election of Executive Committee members.

41.  In light of this observation, Mr Wong urged me to make a finding that the 15 elections were invalid. He said this would dispose of the entire matter. The upshot of this is that the Plaintiff now acting through 9 members purportedly elected at the 15^th Executive Committee would have no locus whatsoever to bring the present action.

42.  I am not inclined to do so. I bear in mind that this is an interlocutory matter. The case will have to proceed to trial and further evidence may be filed. Indeed, pleadings have not even been exchanged. Nor do I think it is necessary for me to arrive at a conclusion at this interlocutory stage as to the validity of the 15 elections. All that is required at this stage is to assess whether there is a serious issue to be tried. Moreover even assuming that I made a finding on the validity of the 15 elections, the matter does not end here. I should still look at where the balance of convenience lies, which is what I am going to do next.

43.  But before that, I shall say that although the Article 47 issue throws doubt on the validity of the 15 elections, I cannot and am not in a position to conclude at this stage that the elections are invalid. There is as yet no evidence of prejudice, complaint or dissatisfaction at all from any members who were absent from the AGM. There may be arguments that the non‑compliance of Article 47 can be rectified by members’ resolution. Parties have not made submissions on the consequences of breach of Article 47 including the impact of the breach on the election outcome, such as whether or not the breach would invalidate the election results, the status of elected members, etc. I have heard no evidence and certainly there may be more legal arguments for or against each party. I cannot discard the possibility that the trial judge, after hearing evidence and full arguments including all the other points made by Mr Lau on the merits of the Plaintiff’s case, may come to a different view as regards this Article 47 issue and the strength of the Plaintiff’s case.

44.  I am satisfied that the Plaintiffs have shown a serious issue to be tried.

45.  On balance of convenience, Mr Lau submits that the balance clearly tilts in favour of the Plaintiff. He submits that other issues aside, the 15 elections were clearly passed by a majority. As recorded in the minutes prepared by Mr Ho, the number of members whose interest aligned with the Plaintiff present at the AGM was 180 (including the proxies), and the number of members against or aligned with the Defendants was 105. The total number of members of the Plaintiff was 465, so 180 members were absent and did not even bother to give proxy and therefore uninterested in taking part in the AGM. Mr Ho’s minutes also suggested that the 15 elections were passed by 188 votes, clearly by a majority. The fact that Article 47 allows every one of the current 465 to be voted as director does not diminish the strength of this point. It remains that despite the eligibility of the absentees, they were content to leave the decision on the election outcome to those present or present with proxies.

46.  It has also come to my attention, and confirmed by Mr Wong, that there is as yet no action taken by the Defendants or any member to challenge the election outcome. Mr Wong submits that the Defendants are challenging it now in these proceedings and this is enough.

47.  I do not agree. There is no application before the Court to deal with the Defendants’ challenge of the validity of the elections. At this stage, their challenge only takes the form of a dispute on facts in these interlocutory proceedings to resist the Plaintiff’s injunctive relief, which this court does not even need to resolve at this interlocutory stage.

48.  I am of the view that at this interlocutory stage, granted that the 15 elections were supported by the majority at the general meeting and no member of the Plaintiff including the Defendants have taken any action to formally challenge the outcome of the election is a weighty factor which I should take into account when considering that the balance of convenience lies in favour of the Plaintiff.

49.  Furthermore, it cannot be gainsaid that the tenure of the Defendants had expired for 26 months, more than a fixed term of office, which was only two years and non‑extendable. I think implicit in Mr Lau’s submission is that the sheer fact that the Defendants had not discharged their duty within their term to secure the proper election of the 15^th Executive Committee is a factor which I should consider when exercising my discretion. I agree. As I said above, I also take into consideration the combined effect of Motions 4 and 5 is that one single veto vote would produce the unsatisfactory result of no election for the 15^th Executive Committee. The Defendants had not explained whether on affidavit or by letter how and why they would allow this to happen. I also bear in mind that Article 20 stipulates that one of the businesses of the general meeting shall be to elect members of the Executive Committee. Clearly, the Defendants, who were in de facto control of the Board, should ensure that Article 20 was implemented.

50.  Mr Lau further submits, and it is not disputed by the Defendants, that notwithstanding the order of Deputy Judge Yee of 28 October 2016, the Defendants had breached their undertaking to provide 48 hours prior notice before making necessary payments. He submits that they cannot be trusted to provide proper management nor do they adopt a serious attitude towards their own undertaking to the Court, which is as good as a court order.

51.  Mr Wong, on the other hand, submits that the Defendants were properly elected as the 14^th Executive Committee and they had continued the management of the Plaintiff with no evidence of complaint whatsoever.

52.  On the first point that they were properly elected. That may be so. But I cannot disregard the fact that their office had long expired. What is more important is that they continued being the de facto board of directors without the blessing of the members’ majority.

53.  As regards the second point, I can see that there is at least one complaint that they had not properly served the 48 notice requirement before payment was made, not to mention there were numerous complaints about the delays and non‑compliance with company constitution in the admission of new members. Whilst I see the Defendants are not conceding they had acted other than prudently, I do not accept the Defendants’ submission that there was no complaint about their management. Quite the contrary, there were complaints.

54.  To ensure the least risk of injustice to the Defendants, the Plaintiff has offered like undertakings which the Defendants gave to Deputy Judge Yee, save that in lieu of giving 48 hours before payment was made, the Plaintiff undertakes to supply the Defendants with the monthly management accounts on the 15^th day of each month. I consider this will provide sufficient safeguard against any injustice which may visit the Defendants pending trial.

55.  For the reasons articulated above, I am satisfied that the balance lies in favour of the Plaintiff upon undertakings given by the nine members as stated.

Disposal

56.  I grant an order in terms of paragraphs 1 and 3 of the Plaintiff’s summons dated 25 October 2016.

57.  Pending further order, and Upon the undertakings of the 9 members elected at the 15^th Executive Committee, namely, Yung Siu Yin, Chow Sau Chung, Chau Hon Pun, Ho Bing Kwan, Chong Shun Yee, Tsang Chuen On Winston, Pang Hung Fai, Tsang Kwok Man Raymond and Lau Kwok Keung, that they would be restrained whether by themselves, their employees, servants or agents or any of them or otherwise, from

(a)  dealing with and/or parting with the assets, books and accounts of the Plaintiff save and except cheque books for purpose of making necessary payments for the daily operation of the Plaintiff and to supply the Defendants with monthly management accounts on the 15^th day of each calendar month; and

(b)  dealing with or holding out to deal with any affairs/business of the Plaintiff, holding out or continuing to hold out as the member of the Executive Committee or director of the Plaintiff, holding out or continuing to hold out as being authorised to represent the Plaintiff in whatever capacities other than as member of the Plaintiff save and except for purpose of the matters set out in the preceding paragraph,

I make an order in terms of paragraph 2 of the Plaintiff’s summons.

Costs

58.  The decision is made based my evaluation of the merits of the Plaintiff’s case, and more importantly, on the balance of convenience. It is just and fair that costs should be reserved, with certificate to one counsel. The costs order will remain nisi within 14 days after which it will become absolute.

59.  I thank counsel for their able assistance.