WILLIAM THOMSON v. UNITED LAND NETWORK TECHNOLOGIES LTD

HCMP 4574/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4574 OF 2003

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D E C I S I O N

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1. On 12 November 2003, I made an order on the originating summons issued by Mr William Thomson under section 114B of the Companies Ordinance, Cap. 32, giving him leave to convene a general meeting of United Land Network Technologies Ltd ("the Company") and that one member of the Company personally present is to constitute a quorum. After the decision was given, Mr Alan Maxfield arrived in court indicating that he wished to be heard in opposition, notwithstanding that he is not a party to the application. I gave directions that the order I made on 12 November 2003 should not be sealed and perfected, and the decision on 12 November 2003 is not to be released for publication, pending a further hearing to resolve if Mr Maxfield does have locus to be heard on the application and, if so, whether the order on 12 November 2003 should be set aside. I also gave directions for Mr Maxfield to file evidence if he so wished.

2. The only respondent in the originating summons is the Company, and the originating summons and supporting evidence were served at its registered office in Pokfulam Road, being the property purchased in the name of the Company with an equal contribution of funds by Mr Thomson and Miss Unsay, the other shareholder and director of the Company.

3. Mr Maxfield claims to be the alternate director of Miss Unsay. As such, and provided it is established to the satisfaction of the court he has been validly appointed, he has a right to be heard on this application. Mr Maxfield has produced:

(i) a notification of changes of secretary and directors appointing him as alternate director with effect from 13 November 2003 signed by Miss Unsay and registered at the Companies Registry on the same say (Form D2);

(ii) a consent to act as the alternate director for Miss Unsay with effect from 13 November 2003 signed by him and also registered in the Companies Registry (Form D3); and

(iii) a resolution dated 11 November 2003 purported to be passed under article 17(c) of the Articles of Association signed by Miss Unsay alone resolving that he be appointed as her alternate director under article 16 with immediate effect.

4. I understand the above documents were prepared by the company secretary as well as a resolution to be signed by Mr Thomson resolving that Mr Maxfield was to be appointed as the alternate director of Miss Unsay but Mr Thomson had refused to sign that resolution.

5. Article 16 of the Articles of Association is in these terms:

"A Director who is abroad or about to go abroad may appoint any person to be an alternate or substitute Director during his absence abroad, and such appointment shall have effect, and such appointee whilst he holds office as an alternate Director shall be entitled to notice of meetings of Directors, and to attend and vote thereat accordingly; but he shall not require any qualification, and shall not be entitled to receive any remuneration from the Company, and he shall ipso facto vacate office if and when the appointor returns to Hong Kong or vacates office as a Director, or removes the appointee from office, and any appointment or removal under this Article shall be effected by notice in writing sent to or left with the Company under the hand of the Director making the same."

6. It is clear from the above that it is not necessary to have the consent of Mr Thomson for Mr Maxfield to be appointed as the alternate director of Miss Unsay. All that is required is that Miss Unsay is abroad or is about to go abroad and the appointment is to be effected by notice in writing sent to or left with the Company under the hand of the director making the appointment.

7. Mr Thomson challenges the authenticity of the documents signed by Miss Unsay appointing the alternate director and queries if she is resident abroad. He alleges that an e-mail of Miss Unsay dated 8 October 2003 was not in fact received by his solicitors, further the documents presented to the Companies Registry for registration purported to be presented by the company secretary when that was not the case.

8. On 11 December 2003, I adjourned the hearing to today for Mr Maxfield to file further evidence to satisfy the court that Miss Unsay has been and still is residing abroad and for details to be provided of her residential address and the relevant documents to be exhibited.

9. Mr Maxfield has filed an affidavit on 2 January 2004 exhibiting a letter from Miss Unsay posted in Guam, USA dated 15 December 2003 and various personal documents of Miss Unsay, being her passport, her marriage licence and her visa, certified by a notary public in Guam to be true copies of the original documents. It would appear from these documents that Miss Unsay has left Hong Kong on 4 November 2002 and she got married in USA on 16 November 2002. She has been residing in an address in Guam and is not able to return to Hong Kong at present as she has to look after her infant child.

10. I am satisfied that Article 16 has been complied with in that since November 2002 Miss Unsay has been and is residing abroad and her appointment of Mr Maxfield as her alternate director in November 2003 during her absence abroad is valid.

11. Section 114B is a procedural section, it does not enable the court to resolve a deadlock between the shareholders by allowing one 50% shareholder to override the wishes of the other shareholder. The question here is whether it is impracticable for a general meeting to be held. It is Mr Thomson's case that it is necessary to hold a general meeting to appoint an additional director so that the Company can function. If an alternate director has been validly appointed, there would be quorum for a directors' meeting and it may not be necessary to hold a general meeting for the purpose of appointing an additional director.

12. Although the alternate director was appointed belatedly in this instance, this would appear to resolve the problem of a lack of quorum for a directors' meeting to be held. I note that there is no indication in Mr Maxfield's latest affidavit that he will not attend any board meeting that may be convened, provided he is given proper notice of it and he has related the wishes of Miss Unsay to be given a proper agenda so she can give him instructions on how he should vote at such meeting. Mr Maxfield has also given the e-mail address of Miss Unsay in the event that Mr Thomson should wish to serve notice on Miss Unsay of any general meeting by e-mail. He also indicated that notification given to Miss Unsay of any general meeting would give her the opportunity of appointing a proxy to attend the general meeting.

13. In the circumstances, it does not appear to me to be impracticable for a directors' meeting or a general meeting to be held and a case is not made out for relief under section 114B of Cap. 32. I was asked by Mr Thomson's solicitor to stand over the application to see whether Miss Unsay would attend the general meeting to be convened in person or by proxy, after notice of the general meeting is to be served on her. It seems to me there is no point in dragging the matter on. In any event, the message to Miss Unsay is clear, she must by now realise that if the other shareholder should find it impracticable to hold a general meeting due to lack of quorum, the Court has power under section 114B to resolve the procedural deadlock. Hence, provided proper notice of the general meeting is given to her, she should attend in person or by proxy.

14. For the above reasons, I set aside the order I made on 12 November 2003 which has not been sealed or perfected. I dismiss the originating summons issued by Mr Thomson.

15. The steps taken by Miss Unsay to appoint an alternate director were only taken after the Company was served with the originating summons. I am not satisfied she had made any serious attempts to communicate with Mr Thomson before that. Miss Unsay did not give any or any proper notice to the Company or to Mr Thomson of her residence abroad. The affairs of the Company were left unattended when she left Hong Kong. Mr Thomson was, in my view, justified in issuing the application. However, I do not think he is justified in persisting with the application or in disputing the validity of the appointment of the alternate director. In the circumstances, I accede to the submission of Mr Thomson's solicitor that an appropriate order in this instance is to make no order as to the costs of his application.