YUK WAH HO DAVID v. GAO JIAREN AND ANOTHER

CACV 164/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 164 OF 1999

(ON APPEAL FROM HCCW 399 OF 1999 AND HCA 7720 OF 1999)

----------------------

----------------------

J U D G M E N T

----------------------

Rogers, J.A. :

Introduction

1. These are appeals in relation to identical applications which had been made in two separate actions. The applications were heard by Mrs. Justice Le Pichon on the 3rd June this year and from her decision these appeals are made.

2. The first action is a winding-up petition presented on behalf of Miracle Chance Ltd ("Miracle") against Greater Beijing Region Expressways Limited ("GBRE"). That petition was presented on 5th May 1999.

3. Secondly, there is an action by Mr. David Ho, commenced by writ issued on the 11th May against Gao Jia Ren who was also known as Gao Kun and also as Karl Golden, as the 1st Defendant, and Miracle, as the 2nd Defendant.

Background

4. These proceedings form part of an extended history of litigation between Mr. Ho and Mr. Gao. Mr. Gao Jia Ren holds 65% of the shares of Miracle, which is a BVI company. He is a director of that company. Mr. Ho is the only other director and shareholder holding 35% of its shares. Miracle was intended to be the joint venture vehicle for the transactions between Mr. Ho and Mr. Gao. There is a Joint Venture Agreement dated 16th August 1996. The parties to the original Joint Venture Agreement were Mr. Gao, Carnation Developments Limited and Miracle. Carnation Developments Limited was the alter ego of Mr. Ho. By a later agreement, Mr. Ho was substituted for that company.

5. The joint venture was to develop expressways and bridge projects in the northern region of the People's Republic of China and such other parts of the country as became feasible. Under Article 2(a), Miracle was to hold a controlling stake in GBRE which was to be the main holding company of the joint venture. It was envisaged that GBRE should have under it various wholly-owned intermediate holding companies and below them various wholly-owned direct investment companies for the purpose of holding the relevant expressway and bridge projects of the joint venture.

6. Disputes arose between Mr. Gao and Mr. Ho over the affairs of Miracle and those of GBRE more than two years ago. Mr. Ho commenced proceedings in Singapore against Mr. Gao for breaches of the Joint Venture Agreement. Those have been stayed on the grounds of forum non conveniens. In April 1998, proceedings were commenced by Miracle against Mr. Ho for breach of fiduciary duties and breach of the Joint Venture Agreement. The claim was substantial. It totalled almost US$60 m and damages to be assessed.

7. Prior to the commencement of those proceedings, Mr. Gao had tried to convene a director's meeting to consider the institution of proceedings by Miracle against Mr. Ho. Mr. Gao had also given notice with a view to convening a shareholder's meeting of Miracle. Mr. Ho refused to attend any such meetings Hence, there had been no board resolution authorising the institution of the proceedings by Miracle against Mr. Ho. Application was taken out in those proceedings (High Court Action 5544 of 1998) to dismiss the Plaintiff's claim on the ground that the action had been commenced in the name of Miracle without authority. That application had been successful in front of the Master and before the Judge on appeal, but when the matter reached this Court (Civil Appeal 298 of 1998), events took a different turn. In this Court, at the hearing of the appeal on the 4th May this year, Miracle relied upon the fact that because the board of directors of Miracle was clearly ineffective, the powers of management of the business and affairs of the company which are given to the directors under Article 93 reverted to the members of the company itself. Generally speaking, that power to control the exercise of the management of the business and affairs of the company would have to be exercised by the members in general meeting. However, there had been no general meeting. The Court of Appeal was informed that there was a resolution which had been signed by Mr. Gao as the holder of the majority of the shares ratifying the commencement of the Action. Under the terms of Article 1 of the Articles of Association of Miracle, a resolution of members is defined as :-

"(b) a resolution consented to in writing by

(1) an absolute majority of the votes of shares entitled to vote thereon, or

(2) an absolute majority of the votes of each class or series of shares entitled to vote thereon as a class or series and of an absolute majority of the votes of the remaining shares entitled to vote thereon."

8. A point was then taken that the action was nevertheless in breach of Articles 17(c) and 18(f) of the Joint Venture Agreement. Since it was by no means clear that this was so, this Court considered that Action No. 5544 of 1998 should not be struck out. The Order made allowed the appeal; the Action was stayed pending service of a copy of what was said to be the resolution of Miracle ratifying the commencement of the action. Since that document had not been seen or considered by anyone, no-one knew what its wording was, whether the document had been duly executed and whether the wording was effective and sufficient. The Order thus contemplated that there might be proceedings contesting the "validity or effectiveness of such resolution" and further provided that "(such proceedings to be commenced within 14 days of the service of the document) or until further order".

9. The petition in this case was presented on the 5th May, that is the day immediately following the decision of the Court of Appeal. It was presented, as I have indicated, by Miracle and sought the compulsory winding-up of the GBRE on the just and equitable ground.

10. The Action in this case, High Court Action 7720/1999 was commenced by Mr. Ho against Mr. Gao and Miracle and sought, first of all, a declaration that, pursuant to Article 18 of the Joint Venture Agreement, Mr. Gao was not entitled to procure Miracle to take any steps to wind-up GBRE without approval of the Plaintiff and in particular was not entitled to pass the resolution of the 5th May 1999 to present a petition and appoint solicitors to act on behalf of Miracle. By later amendment, the Plaintiff sought an injunction to restrain the 2nd Defendant from commencing or pursuing winding-up proceedings against GBRE.

11. By orders made on 20th May 1999, the Judge below ordered that summonses taken out in the winding-up proceedings by GBRE and by Asia Pac Expressways Investment Management Limited and Mr. Ho in Action No. 7720/1999 be heard on the 3rd June and that the Court should determine and decide as necessary the following preliminary issues, namely "whether the resolution dated 5th May 1999 exhibited to the affirmations of David Yuk Wah Ho in 'DYWH-2' filed in the winding-up proceedings is valid and effective in the winding-up proceedings."

12. The further relief sought in the winding-up proceedings was that if the issue was decided in the applicant's favour, the petition should be struck out as an abuse of the process of the court.

13. The Judge below decided the preliminary issue in favour of Miracle and held that the resolution was valid and effective.

14. The question for this Court therefore is whether the resolution, being a resolution signed by Mr. Gao alone, is valid and effective.

The Articles of Miracle

15. Both Miracle and indeed GBRE are BVI companies. There has been no evidence as to the law of the British Virgin Islands. It was therefore not in dispute that this Court must proceed upon the basis that the law of the British Virgin Islands is the same as the law of Hong Kong.

16. The public documents in relation to a company are, of course, its Memorandum and Articles.

17. There is no dispute in this case that the board of Miracle was ineffective. The same conditions prevailed as were relevant in respect of Civil Appeal No. 298/1998 to which I have referred above. It was further assumed in argument that the powers of the directors reverted to the members.

18. The point was taken in argument that the use of the words "consented to" in sub-paragraph (b) of the definition of resolution of members in the Articles of Miracle meant that at least two members must be in agreement because the word "consent" implied more than one person. In my view, the definition should not be so construed. Sub-paragraph (a) relates to resolutions in meetings, and sub-paragraph (b) relates to resolutions in writing. In relation to resolutions at meetings, a simple majority of the "votes" present will suffice since what is important is the exercise of votes of the shares which were represented at the meeting. The holders of the shares who do not attend the meeting thus have no right to be considered as to whether a majority has been reached.

19. In relation to resolutions in writing, the Article requires that there be an absolute majority of the shares voted in favour of a resolution. Thus, irrespective of how any other shares were voted, the resolution would be passed if the absolute majority of the votes of shares of the company go in a particular way.

20. The word "consent" although often used to imply an agreement to a suggestion from some other person, in my view, is not limited to situations where two persons agree to a course of conduct.

21. "Consent" can simply mean a course or state of affairs, which a particular person deems appropriate, considers should be followed or is prepared to bind himself to.

22. In my view, in considering the question as to whether an act of the company is valid and effective, it is the regulations of the company to which the Court must have regard. In this respect, it is the regulations of Miracle which are in point. The regulations of the company are its Articles. In the case of a company limited by shares, it may register Articles of Association which are signed by the subscribers of the Memorandum which prescribe the regulations for the company: see section 9, Companies Ordinance, Cap. 32. Where Articles of Association are not registered or if Articles are registered insofar as they do not exclude or modify the regulations in Table A, those regulations (so far as applicable) are the regulations of the company in the same manner and to the same extent as if they were contained in duly registered Articles : see section 11 of the Companies Ordinance.

23. It is said that the Joint Venture Agreement to which Mr. Gao, Carnation and later Mr. Ho and Miracle were signatories, somehow affect the powers of Miracle. In my view, this is a misconception. The point was clearly and succinctly dealt with by Lord Davey, in his speech in the House of Lords in Welton v. Saffery [1897] A.C. 299 at p.331 when he said :-

"Of course, individual shareholders may deal with their own interests by contract in such way as they may think fit. But such contracts, whether made by all or some only of the shareholders, would create personal obligations, or an exceptio personalis against themselves only, and would not become a regulation of the company, or be binding on the transferees of the parties to it, or upon new or non-assenting shareholders." (Emphasis added.)

This statement by Lord Davey has never been doubted. Indeed, it was cited with approval by Lord Jauncey in Russell v. Northern Bank Corporation Ltd [1992] 1 W.L.R. 588 at p.593.

24. The same point as was made by Lord Davey was made by Lord Halsbury, L.C. at the foot of page 305 of the Welton case. In referring to a contract which all the shareholders might make amongst themselves, he referred to it as something done in their individual capacity which might have rights but it would not be in their capacity as shareholders.

25. It is vitally important in company law that the Articles constitute the regulations of the company to which the rest of the world may have regard in considering the validity and effectiveness of the acts of a company.

26. I will consider the proper interpretation of Article 18(d) of the Joint Venture Agreement below. Nevertheless, at this stage, it can be pointed out that the validity and effectiveness of acts of Miracle could not be left to be determined according to whether or not the provisions of Article 18 of the Joint Venture Agreement had been complied with. The Joint Venture Agreement is not entirely precise as to what is a "Relevant" Company but Article 18(a) clearly indicates that Miracle can be, at least for some purposes, a "Relevant" Company. Regard may be had to Article 18(e), which requires that in respect of each Relevant Company the approval of both Mr. Gao and Mr. Ho and their respective assigns is required for :

"any material decision or exercise of rights by the Relevant Company in respect of its stake in a cooperative joint venture in the PRC which materially affects the rights of the Shareholders, including but not limited to matters set out above applied mutatis mutandis save as may be contemplated by the cooperative joint agreement previously approved hereunder or accepted pursuant to Article 3(a), except in respect of a disposal of assets back to the PRC in accordance with the terms of any concession agreement binding on the cooperative joint venture".

27. To say that the validity and effectiveness of any such act could only be determined in the light of that provision, contained in a private agreement between the Shareholders and Miracle, would be simply untenable.

28. Even more obscure are the provisions of Article 18(f) which refers to "all other important matters bearing on the operation or management or structure of the Relevant Company which have a material effect on Shareholders or their ownership rights including those from time to time reflected in the statements of the full Board of Miracle or GBRE."

29. The question before the Court is whether there has been a valid resolution that a petition for the winding-up of GBRE on the just and equitable grounds be presented and that solicitors be instructed. For that, the Court looks to the regulations of the company. The matter, in my view, can be disposed of as such. That should be sufficient to dispose of the appeal on the basis that the resolution was valid and effective on the part of Miracle to sanction the presentation of a Petition to wind up GBRE and to instruct solicitors.

30. It is only if the word "effective" is understood to mean that, notwithstanding Miracle might pass a resolution sanctioning the presentation of a winding Petition in respect of GBRE, it was not entitled to so present such a Petition because it was debarred in relation to its standing as a contributory of GBRE, that it is necessary to go further and consider the further points which have been argued.

The meaning of Article 18(d)

31. I turn then to the other points. In my view, they make the objections raised even more untenable. Article 18(d) reads as follows :-

"For each Relevant Company the following shall be matters which require the approval of both Shareholders :

(d) The winding-up of the Relevant Company (except upon expiration of the relative concession rights) or its merger or amalgamation with another company or the disposal of substantially all its assets."

32. The first question which arises here is to what does this relate? In my view, it is important to bear in mind the manner in which a company may be wound up. Section 169 of the Companies Ordinance provides that the winding-up of a company may be either (a) by the Court or (b) voluntary. There are then separate provisions in the Ordinance for compulsory winding-up by the Court and a voluntary winding-up.

33. Voluntary winding-up is governed by sections 228 and 228A of the Ordinance. In effect, these provisions permit the winding-up of a company either under section 228(1)(a) where there has been an ordinary resolution of the company, where a period fixed for the duration of a company or a particular event has occurred; or under sub-section (b) where there has been a special resolution that the company be wound up voluntarily or under sub-section (c) where there has been a special resolution in circumstances where the company cannot continue its business because of its liabilities and finally under sections 228(1)(d) and 228A, a resolution by the directors recorded in a statutory declaration.

34. All these methods of voluntary winding-up require either the approval of a majority or more of the shareholders or of the directors. In those circumstances, approval of shareholders is clearly relevant apart, of course, from the provisions relating to the directors' powers under sub-section 228(1)(d) and section 228A.

35. Compulsory winding-up by the Court, however, is quite different. Here, the provisions of section 177 of the Ordinance are pertinent. Only section 177(1)(a) relates to a situation where the approval of shareholders may be relevant. That sub-section deals with a situation where there has been a special resolution that the company be wound up. It might also be mentioned that section 177(2) relates to applications by the Registrar for the winding-up of a company in a number of different situations.

36. In relation to compulsory winding-up under section 177, the approval or otherwise of any shareholders thus seems to me to be irrelevant and impertinent. Naturally, of course, in considering the provisions of section 177(1)(f), the conduct of shareholders and directors may be called into question. Nevertheless, the exercise of the Court's power to order compulsory winding-up of a company under section 177 can in no way be dependent upon, affected, or fettered by any outside approval. This is in stark contrast to the powers of the shareholders and directors under sections 228 and 228A.

37. In my view, therefore, Article 18(d) has no application in relation to compulsory winding-up by the Court. It relates to voluntary winding-up of the Relevant Companies.

38. The only possible way in which it could be said that Article 18(d) of the Joint Venture Agreement could be relevant would be if it were read to mean that "no petition for the winding-up of a Relevant Company may be presented without the approval of the Shareholders". This would entail a re-wording of Article 18(d). That, in my view, would be impermissible. As was pointed out by Mr. Poon, S.C. on behalf of the Respondents, the draughtsman of the Joint Venture Agreement has demonstrated in Article 28 that he is well able to distinguish as a matter of drafting between compulsory winding-up and the procedure therefor, on the one hand, and voluntary winding-up, on the other.

39. If that be correct, that would mean that even if the Joint Venture Agreement were to be read as if it were part of the Articles of Miracle and GBRE or in some other way binding on Miracle, it would not prevent the presentation of a petition by Miracle for the winding-up of a Relevant Company, namely GBRE.

Fetter upon Miracle's statutory right

40. The final point which falls to be considered is whether even if Article 18(d) of the Joint Venture Agreement were by some stretch of interpretation to apply to prevent a resolution being validly and effectively passed by Miracle that a winding-up petition be presented in respect of GBRE, that would be a fetter upon Miracle's statutory right as a contributory of GBRE to petition for the winding-up of GBRE.

41. We have been told that there is now some doubt as to whether Miracle is a contributory of GBRE. We have been informed that evidence has been filed on behalf of Mr. Ho to show that all shares in GBRE previously held by Miracle have been disposed of. That is a matter which falls to be determined at a later date. These proceedings have been conducted and have to be decided upon the basis that Miracle is a contributory of GBRE.

42. The Companies Ordinance gives to a contributory the right to present a petition to wind-up the company. This right is an important right held by a contributory. In most instance, a contributory has little control over the conduct of the day to day affairs of a company. His right to attend meetings and vote on resolutions, important though it is, gives a contributory little power within the company. The provisions protecting shareholders in respect of their interest in a company ultimately turn upon their right to present a petition for winding-up under section 177(1) and their right to relief under section 168A. That right to present a petition under section 177 is given by section 179(1) to the company, creditors and contributories.

43. In referring to section 82 of the Companies Act, 1862, which corresponds to section 179, Byrne, J. said in the case of In re Peveril Gold Mines, Ltd [1898] 1 Ch. 122 at p.124 :-

"I am of opinion that, although s.82 only says that a contributory 'may' present a petition, it confers a right upon every shareholder just as much as if the terms of the section had been that every contributory should have 'the right to present a petition'. Apart from the question of public policy, I consider that the terms of the section are intended to confer a right of which a contributory cannot be deprived, either entirely or in a modified way, by the terms of the articles of association, unless upon the footing that by becoming a shareholder the petitioner has done what is equivalent to validly releasing an individual legal right, and I am of opinion that he has not done so."

44. When that case reached the Court of Appeal, Lindley, M.R. said :-

"Any article contrary to these sections - any article which says that the company is formed on the condition that its life shall not be terminated when any of the circumstances mentioned in s.79 exist, or which limits the right of a contributory under s.82 to petition for a winding-up, would be an attempt to enforce on all the shareholders that which is at variance with the statutory conditions, and is invalid."

45. Chitty, L.J. said that :-

"In my opinion, this condition is annexed to the incorporation of a company with limited liability - that the company may be wound up under the circumstances, and at the instance of the persons, prescribed by the Act, and the articles of association cannot validly provide that the shareholders, who are entitled under s.82 to petition for a winding up, shall not do so except on certain conditions."

46. It is clear that the reason why the Articles of Association of a company cannot preclude the statutory rights of the contributories to present a petition for winding-up is that it is contrary to public policy that the contributory's right be fettered. As Chitty, L.J. made clear that policy applies even where the preclusion is only effective in particular circumstances.

47. I should add that Vaughan Williams, L.J. concurred with the judgments.

48. Both Lindley, M.R. and Chitty, L.J. both left open the question as to whether an individual shareholder could by contract fetter his personal rights.

49. The present case is not a case where it can be said that the individual shareholders have entered personal contractual obligations to exercise their rights in particular way. Article 28 of the Joint Venture Agreement is designed to ensure that any subsequent owner of shares in Miracle is bound by the Joint Venture Agreement. Article 2 of the Joint Venture Agreement provides that Miracle must hold a controlling stake in GBRE. In those circumstances, if Mr. Gao's and Mr. Ho's approval was required for the presentation by Miracle i.e. by the controlling shareholder, of a petition to wind up GBRE, this would be to fetter the statutory right of Miracle as the controlling contributory of GBRE. This, as it seems to me, would be just as much contrary to public policy when it is contained in the Joint Venture Agreement as it would if there were contained in the Articles of GBRE a provision that the controlling shareholders might not present a winding-up petition without the consent of Mr. Gao and Mr. Ho or whoever bought their shares in Miracle. In this regard, I am fortified by the passage in the judgment of Russell, L.J. in Bushell v. Faith [1969] 2 Ch. 438 at p.447H where he said :-

"Mr. Dillon argued by reference to section 10, and the well-known proposition that a company cannot by its articles or otherwise deprive itself of the power by special resolution to alter its articles or any of them. But the point is the same one. An article purporting to do this is ineffective."

50. That passage was cited with approval by Lord Jauncey in the Russell v. Northern Bank Corporation Ltd case to which I have already referred. The point is the same : if a matter is contrary to public policy, the Courts will not will give effect to an agreement whether the agreement is constituted by the Articles or whether it is constituted by some outside agreement.

51. This Court was urged by Mr. Kotewall, S.C. that Russell, L.J.'s statement went beyond anything supported by authority. I can only say that whilst Homer might, on occasions, nod the precision of that learned Judge's expression and his accuracy as to the law is a matter which commands profound respect. In my view, the Judge below was correct in holding that if Article 18(d) had the meaning argued, it was of no effect.

52. In those circumstances, it is unnecessary to deal with the further points raised by Mr. Poon, on behalf of the Respondents, that the Court should strive to avoid a construction of the contract which flouts common-sense and that Article 18(d) should not be construed in a way which would, in effect, deprive one of the parties in the contract of redress for misfeasance of a subsidiary company of Miracle. These points are dealt with at pages 9 and 10 of the judgment below. I do not intend to lengthen this judgment in any way by going into the matters in great detail. In my view, they might have force were it not for the fact that my construction of the agreement would mean that they are otiose.

53. It only remains for me to say that in view of the allegations which have been made in the various proceedings and in particular, are contained in the petition to wind up GBRE, the sooner these matters are dealt with as a matter of substance, the better. The parties, in particular Mr. Gao and Mr. Ho have been engaged in litigation for two years. That litigation has extended to at least two jurisdictions. So far, the proceedings have reached no further than skirmishes as to whether the proceedings should be permitted. The allegations are serious and have caused counsel to make trenchant criticisms of the conduct of an officer of the Court. In my view, the time has come when the skirmishes should stop and the matters of substance should be addressed.

54. I would therefore dismiss these Appeals. Accordingly, in the normal way, the Respondents to these Appeals would be entitled to their costs. At the close of submissions, it was indicated on behalf of the Respondents that should they succeed they would ask for an order that the costs be paid by David Yuk Wah Ho. Since the whole of this litigation appears to be a dispute between the only 2 shareholders and directors of Miracle, namely Mr Ho and Mr Gao, it would appear to be correct that the costs should fall on one or other of those parties in the first instance rather than on any other party or any of the companies. In the circumstances, the Order Nisi I propose is that the costs of the Appeal be paid by Mr Ho.

Cheung J. :

Background

55. Gao Jiaren ("Gao") and David Ho ("Ho") are the two shareholders in a company called Miracle Chance Limited ("Miracle"). Miracle together with other entities are shareholders in a company called Greater Beijing Region Expressways Limited ("Greater Beijing").

56. Miracle presented a petition to wind up Greater Beijing. Under the Articles of Association ("the Articles") of Miracle, a resolution of members includes either "a resolution approved at a duly convened meeting" : Article 1(a), or "a resolution consented to in writing by an absolute majority of the votes of shares entitled to vote thereon" : Article 1(b)(i).

57. Article 82 provides that :

"An action that may be taken by the members at a meeting may also be taken by a resolution of members consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication, without the need for any notice, but if any resolution of members is adopted otherwise than by the unanimous written consent of all members, a copy of such resolution shall forthwith be sent to all members not consenting to such resolution. The consent may be in the form of counterparts, each counterpart being signed by one or more members."

58. The resolution by Miracle to wind up Greater Beijing in fact was a resolution by Gao who holds 65% of the shares made pursuant to Articles 1(b)(i) and 82.

Ho's argument

59. Ho and other interested parties argued that Miracle cannot present the petition because under Article 18(d) of a Joint Venture Agreement ("the Agreement") made between Gao, Carnation Development Limited ("Carnation") (a company controlled by Ho and which was replaced later by Ho himself) and Miracle, the winding up of Greater Beijing requires the approval of both Gao and Ho.

Article 18(d)

60. Article 18(d) of the Agreement provides that :

"For each Relevant Company the following shall be matters which require the approval of both Shareholders :

...

(d) The winding-up of the Relevant Company (except upon expiration of the relative concession rights) or its merger or amalgamation with another company or the disposal of substantially all its assets ..."

61. The Relevant Company referred to in the Agreement includes Miracle and a member of the GBRE Group : Article 17. Greater Beijing is a member of the GBRE Group. The shareholders referred to in the Agreement are Gao and Carnation (later replaced by Ho).

Gao's argument

62. Gao argued that Article 18(d) is a fetter on the right of Miracle which is a contributory of Greater Beijing to petition for its winding up and is therefore invalid for being against public policy. If Article 18(d) is unenforceable, then Miracle's resolution to wind up Greater Beijing is a valid one.

The decision

63. At a trial on a preliminary issue, Le Pichon J. found that Article 18(d) is invalid and the resolution to wind up Greater Beijing is valid. Ho and others now appeal against that decision.

Requirement of consent

64. Although Mr Kotewall S.C., Counsel for Ho, argued that the words "consented to" in Article 1(b)(i) indicate the agreement of two shareholders, clearly this argument is contrary to the intention of the article which provides an alternative method of passing resolution. If a shareholder indeed holds an absolute majority of the votes of shares, then such a resolution can be passed without the consent of any other shareholder.

Public policy

65. The real issue concerns the construction of Article 18(d). The legal principle is clear : provisions in the articles of association of a company limiting a contributory's right to petition to wind up the company are invalid as being contrary to the provisions of the company's legislation and public policy, Re Peveril Gold Mines Limited [1898] 1 Ch.122. Lindley M.R. left open the question whether a valid contract may or may not be made between the company and a individual shareholder that he shall not petition for the winding-up of the company.

66. In Bushell v. Faith [1969] 2 Ch 438 Russell L.J. at pp. 447-448 held that :

"Mr. Dillon argued by reference to section 10, and the well known proposition that a company cannot by its articles or otherwise deprive itself of the power by special resolution to alter its articles or any of them. But the point is the same one. An article purporting to do this is ineffective." (emphasis added)

67. In Russell v. Northern Bank Development Corporation Limited [1992] 1 WLR 589, Lord Jauncey of Tullinchettle extended the invalidity to provisions agreed to by a company not to exercise its statutory power in a shareholder agreement. He referred to the words "articles or otherwise" in Russell L.J.'s dictum and held that :

"... These words appear to recognise that it is not only fetters on the power to alter articles of association imposed by the statutory framework of a company which are obnoxious."

Construction of Article 18(d)

68. In construing the effect of Article 18 of the Agreement, a distinction must be drawn between Miracle on the one hand, and Gao and Ho on the other.

Position of Miracle

69. Greater Beijing is, of course, not a party to the Agreement. The Agreement also does not expressly prohibit Miracle from petitioning for Greater Beijing's winding-up. However, if the words in Article 18(d) "The winding-up of the Relevant Company" are construed as meaning petitioning for winding-up, as argued by Ho, then this Article requires the approval of Gao and Ho if Miracle wishes to do so. There is no such requirement in the Articles of Miracle if it wishes to exercise this statutory right. In the usual circumstances, so long as the requirements in the Articles are complied with, then this right can be exercised. However, the Agreement imposes a further requirement on Miracle which it has agreed to bind itself before it can exercise this right. This restriction will continue to apply under the Agreement even after Gao and Ho had ceased to be its shareholders. In my view, this is clearly a fetter on Miracle from exercising its statutory right and is invalid for being contrary to public policy. The exercise of its right is subject to the decision of its own two shareholders. If they do not agree, then the statutory right would never be exercised. On the authorities of Bushell and Russell, this is clearly not permissible. Although the fetter is not contained in its Articles but in the Agreement, in my view the authorities are too well entrenched to be departed from. The parties have referred to the academic discussions on this issue but in my view, it is not necessary to go into them in the light of the authorities.

Position of Gao and Ho

70. As far as Gao and Ho are concerned, I had initially some reservation whether this Agreement between the two of them is invalid. Chitty L.J. in Re Peveril Gold Mines Limited left open the question whether an individual shareholder can or cannot bind himself not to petition for the winding-up of the company.

71. In Welton v. Saffery [1897] A.C. 299, Lord Davey at p.331 stated that :

" Of course, individual shareholders may deal with their own interests by contract in such way as they may think fit. But such contracts, whether made by all or some only of the shareholders, would create personal obligations, or an exceptio personalis against themselves only, and would not become a regulation of the company, or be binding on the transferees of the parties to it, or upon new or non-assenting shareholders." (emphasis added)

72. Lord Halsbury L.C. drew a distinction between the capacity in which the shareholders agreed on how their rights are to be treated. He referred to their capacity as individuals and shareholders respectively. He held that :

"... The liquidator can only recognise shareholders, and their relation to the company of which they are shareholders must be regulated by the Act of Parliament."

73. In Russell, Lord Jauncey adopted the approach of Lord Davey in Welton and upheld an agreement between shareholders on how their voting rights in relation to the creation or issue of shares in a company was to be exercised on the basis that the agreement was purely personal to themselves. He only held invalid the part of the agreement in which the company itself was a party.

Agreement has the status of a regulation

74. In this case, under Article 26 of the Agreement, it is a condition precedent to the transfer of shares in Miracle that the transferee must "agree to be bound by and shall be entitled to the benefit of the Agreement" as if he is an original party. The mischief envisaged by Lord Davey as far as non-assenting shareholders are concerned is, of course, not present. However, the Agreement clearly intends to bind future shareholders, not merely in their capacity as individuals, but as shareholders. In my view, this Agreement is being elevated to the status of a regulation of a company. This goes beyond merely creating a personal obligation between individuals. On the authority of Lord Davey in Welton, the Agreement should not be upheld.

Other authority

75. Mr Kotewall relied on Breckland Group Holdings Limited v. London and Suffolk Properties Limited & Others [1989] BCLC 101 where Harman J. held that where a company had adopted the relevant provisions of Table A, the jurisdiction to conduct the business of the company was vested in the board of directors and this was not a matter that the general meeting could intervene. The judge further relied on an agreement of the shareholders that in certain proceedings the consent of directors from the two groups of contributories was required.

76. It is apparent from the judgment that the judge had not gone into the issue of the validity of such an agreement now canvassed in our case and the case is not helpful for our present purpose.

Voluntary or compulsory winding-up

77. As Article 18(d) imposes a fetter on how Miracle should exercise its statutory right of petition for winding-up of Greater Beijing, Miracle was clearly entitled to present its petition. This being able to dispose of the appeal, it is not necessary for me to express an opinion on whether Article 18(d) is intended to cover only voluntary winding-up and not compulsory winding-up.

Conclusion

78. Accordingly, I too will dismiss the appeal and agree with the order of costs made by Rogers J.A.