HONG KONG RACING PIGEON ASSOCIATION LTD. AND OTHERS v. LAM KOON NAM AND OTHERS

HCA18376/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 18376 OF 1999

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J U D G M E N T

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1. The 2nd - 5th Plaintiffs are subscribers, members and directors of a company limited by guarantee in the name of Hong Kong Racing Pigeon Association Limited which is named as the 1st Plaintiff by lawyers for the 2nd - 5th Plaintiffs. I shall refer to the 2nd - 5th Plaintiffs collectively as "the Plaintiffs" , an expression excluding the 1st Plaintiff. The lawyers for the Plaintiffs put down the identity card numbers of the 3rd to 13th Defendants in the title of this Action and their identity card numbers appear in the Writ and other documents filed in this Action. I shall hear Counsel for the parties on why the identify card numbers should not be struck out from the title of this Action.

2. On 26 November 1999, Mr. George Chu, instructed by Messrs. B. C. Chow & Co. on behalf of the Plaintiffs made an ex parte application before Le Pichon J. and obtained an interim injunction restraining the 3rd - 13th Defendants from acting as directors of the 1st Plaintiff; convening and/or conducting any Board of Directors meeting of the 1st Plaintiff; filing any Form D3 or any other forms to the Company Registry as Directors of the 1st Plaintiff; and from opening any bank account by using the name of the 1st Plaintiff ("the ex parte Order").

3. The grounding affirmation was made by the 2nd Plaintiff who deposed, inter alia, that (emphasis added):-

"4. On or about 12th April 1999, I have a dispute with the 1st and 2nd Intended Defendants as to the proper running of the 1st Intended Plaintiff. The 1st Intended Plaintiff has been run by me since 1975 and over the years, I have put in about no less than HK$1 million of funds to support the running of the 1st Intended Plaintiff.

...

8. The said Mr. Lam Koon Nam, the 1st Intended Defendant, in association with Mr. Tse Ping, the 3rd Intended Defendant, who is a director of various agricultural and health related products companies, who have substantial agricultural business interests in China. The intention of them was to snatch the controlling power of the 1st Intended Plaintiff from myself and my fellow subscribers, the 2nd to 5th Intended Plaintiffs herein.

9. If they are successful, they would have been in control of a Licence which is worth millions of dollars. That also explains why in between 1984 to 1995 the company had not filed its Annual Return and having not very active activities. As a result of that dispute, I have commenced an action against them in another High Court Action No. HCA No. 14948 of 1999, ("the 1st Action"). That action has gone on for some time and it will be not heard, as I was advised from my legal adviser for a long time.

10. Despite all these litigation going on, the 1st to 13th Defendants purportedly, through the purported 66 new members, demand to have an Extra General Meeting ("EGM") to be held on 13th November 1999 in a Luk Yuen Seafood Restaurant in Kowloon City on Saturday evening 13th November 1999. I asked my lawyer, to write to them to seek clarification of the qualification of the 66 members who initiated the said meeting whom I have never met.

11. I doubted their memberships were not approved by the Board of Directors pursuant to the Articles of Association herein. Since I have no knowledge of any board meetings purportedly to accept these 66 members. A copy of the said correspondence is now produced and shown to me marked as "HCP-3".

12. Despite all these queries, the said 66 purported members of the 1st Intended Plaintiff issued a demand for convening an extra general meeting as set forth which I say is either unlawfully convened or without authority.

13. A copy of the said letter purportedly demand to have a meeting convened under Sections 113 and 114 Companies Ordinance is now produced and shown to me marked as "HCP-4".

...

19. On or about 22nd November 1999, I received a Notice to convene a Board Meeting and the Resolutions purported to be passed in that meeting on the 26th of November 1999 and I also received a copy of the letter from Messrs. Van Langenberg & Lau to address to the Companies Registry as to filed the papers for the purportedly convened EGM. I also received a notice to a Board Meeting along with the Resolutions to resolve that the business address of the 1st Intended Plaintiff should be moved to Room 4109, Convention Centre, Wanchai, Hong Kong. A copy of the said letter is now produced and shown to me marked "HCP-6".

20. I then cross (sic) a check to that premises, it is an office, I believed, occupied by the 3rd Intended Defendants or his agricultural business companies. I verily believe that if the acts of the Intended Defendants could not be restrained by an injunction, it will bring some irreparable damages to myself and the Company after the purported meeting on the 26th November, 1999.

21. In the premises, I humbly crave leave to this Honourable Court that the said "New" Board should be restrained from conducting for the reasons aforesaid. I also crave leave to this Honourable Court for an injunction as attached in the draft Order thereto."

4. The Plaintiffs' case before the ex parte judge was presented Mr. Chu in his written skeleton submission in these terms:

"3. An EGM was purported convened on 13th November, 1999 and there are subsequent actions to file the same to the Company Registry. P's case was that the purported 66 members were not a member because no Board Meeting was conducted to that effect. Alternatively, P2-P5 having no notice of these Board Meetings and were not invited to participate to those meetings which were unlawful. D's solicitors could not supply a proper answer supported with documents.

4. In any event, all EGM business is deemed to be Special Resolution under Art. 9, Table C which requires a 75% vote to support including that of increasing the number of directors and consequential appointment. Further, the power of deciding the number of Directors vested in the subscribers of the Company, Article 13.

5. In breach of the Articles, after the purported EGM, there are 11 "new" directors and they sought to:

i. Employ a new Chief Executive

ii. Open a new Bank accounts

iii. Removal of Office

6. All of the above acts are effectively removing P2-P5 from having a control of the Company and in breach of the Company's Article and Table C. The subscribers power, (P2-P5), to control the Company is now stripped.

Injunction and Interim Preservation (sic)

7. The law of injunction and interim preservation (sic) is succinctly stated in the White book §§29/L/2 - 29/L/3. In general, Court will exercise its discretion to preserve status quo in view of the time element for any civil action. A have urgency due to the time for completion is forth coming (sic). Further, in the White book §§29/8A/9 says.

"The court will not be deterred from making an order for preservation of property because a party against whom the order is sought has a proprietary interest in it."

8. According to Hoffman, J. as he then was, in Films Rover Ltd. v Cannon Film Sales Ltd. (1987) 1 WLR 670 at 682F that should mandatory (sic) injunction not granted, there is a much greater risk of causing injustice by withholding an injunction. Court will grant injunction to restrain Company matters. Penningtons (at 768).

9. The balance of convenience is clearly in favour of restraining Ds. It is noted that interlocutory injunction and preservation (sic) is not to put Ps in a better position than prior to litigation. Interlocutory relief is to do equity when necessary after balancing all the factors.

Present Application

10. The basis of the present application is based upon the keeping of status quo and equity assist those come in clean hands. The Court has a wide power of discretion to grant equitable remedies if the American Cyanamid's guideline is met, namely:-

i. A serious question to be tried;

ii. Damages is irreparable; and

iii. Balance of convenience is on P's side.

P seeks to have such equitable relief to right the wrongs and prevent any further irreparable damages.

11. The Company might suffer:-

i. Loss of some valuable assets;

ii. A further damage to the Company's goodwill;

iii. It follows that damages is not adequate if Preservation Order (sic) is not granted;

12. It is further submitted that the balance of convenience is clearly on the side of Ps. Damages will not be adequate."

5. There is nothing in the papers before me to indicate why the word "new" was in quotation marks in §21 of the grounding affirmation and in §5 of Mr. Chu's written submission. If Mr. Chu had said anything on "new" before the ex parte judge, lawyers for the Plaintiffs should have filed an affidavit stating what the ex parte judge had been told. In any event, the Plaintiffs had ample opportunity to deal with this in their evidence in reply but they have not done so.

6. The Plaintiffs issued an inter parte summons on 30 November 1999 seeking an order continuing the ex parte Order. On the return date of the Summons, 3 December 1999, Yeung J. adjourned the Summons for argument to a date to be fixed with 1/2 day reserved, gave directions for filing of evidence and continued the ex parte Order "until further order or until disposal of the matter".

7. On 25 January 2000, the Plaintiffs issued a Summons seeking, inter alia, the vacating of the hearing date of 14 March 2000 and "to fix for a 3 days hearing ... upon Consultation of Counsel's Diary". This Summons came before Mr. Recorder Edward Chan SC on 16 February 2000 and the learned Recorder vacated the hearing date but directed that a 2 day hearing be fixed "at the earliest possible dates without reference to Counsel's Diary".

8. The hearing was fixed for 13 and 14 April 2000. The matter came before me on 13 April 2000. Mr. Timmy C. H. Yip, Counsel for the Defendants, stood up and was about to open. I asked him why he was opening as I thought that the Plaintiffs should open. Mr. Yip sat down. I called on Mr. P. C. Lee, Counsel for the Plaintiffs. Mr. Lee said Le Picheon J. had already granted the order and such order had been continued. The ex parte order was clearly only intended to have effect until no later than the determination of the inter parte summons. Yeung J. was giving directions on the inter parte summons and his order continuing the ex parte order was clearly intended to clearly only intended to have effect until no later than the disposal of the inter parte summons. I told Mr. Lee that if he was saying that the Defendants should open, he should cite authorities to persuade me. Mr. Lee said nothing further about who should open and opened.

9. The Defendants filed evidence opposing the injunction on the merits and accused the Plaintiffs of material non-disclosure.

10. On law, Mr. Lee cited American Cyanamide Co. v Ethicon Limited [1975] AC 396, Brink's Mat Limited v Elcombe [1988] 1 WLR 1350, and Pacific Base Services Limited & Another v Silver Gain Development Limited & others [1996 1 HKC 610 {it is reported in [1996] 2 HKLR 26} and Mr. Yip cited Standard Chartered Securities Limited v Lai Arthur and others [1993] 1 HKC 375.

11. As Keith JA, said in New Asia Energy Limited v Concord Oil (Hong Kong) Limited, CACC 347 of 1998, CA, 3 November 1999:-

'The law is well established, but it is sensible to remind oneself of those principles which are relevant to the issues raised in the present appeal. I take them from Gee, "Mareva Injunctions and Anton Piller Relief", 4th. ed., pp.128 and 131:

"The duty extends to placing before the court all matters which are relevant to the court's assessment of the application, and it is no answer to a complaint of non-disclosure that if the relevant matters had been placed before the court, the decision would have been the same. The test as to materiality is an objective one, and it is not for the applicant or his advisers to decide the question; hence it is no excuse for the applicant subsequently to say that he was genuine unaware, or did not believe, that the facts were relevant or important. All matters which are relevant to the 'weighing operation' that the court has to make in deciding whether or not to grant the order must be disclosed ....

The plaintiff must also identify any defences, which, although not yet taken, would have been available to be taken by the defendant had he been present at the application, provided that:

(1) the defence is one which can reasonably be expected to be raised in due course by the defendant;

(2) the defence is not one which can be dismissed as without substance or importance ...."

Although these observations were made in the context of ex parte applications for Mareva injunctions and Anton Piller orders, they apply to all ex parte applications, and in my view they represent the current state of the law both in England and in Hong Kong. To take two local cases as examples, in Citibank N.A. v. Express Ship Management Services Ltd. [1987] HKLR 1184, Fuad J.A. (as he then was) said at p.1190C-E:

"The cases show what are to be regarded as material facts in this context: 'all facts that are relevant to the weighing operation which the court has to make in deciding whether or not to grant the order': per Browne-Wilkinson, J. (as he then was) in Thermax v. Schott Industrial Glass [1981] FSR 289, 298. His test has been applied in several cases. I find the decision of Goulding, J. in Wardle Fabrics Ltd. v. G. Myristis Ltd. [1984] FSR 263 to be particularly helpful for in that case the judge emphasized that the correct test is not simply whether, if the non-disclosure had not occurred, the ex parte judge would, nevertheless, have made the order, but whether the facts not disclosed, being relevant, should have been in the scales."

And in Fenn Kar Bak Lily v. Goh Kim Lay [1995] 3 HKC 313, Mortimer J.A. (as he then was) said at p.317B-C:

"... the plaintiff must put before the judge the grounds for his claim, the amount of the claim and any obvious matters of fact or law which could be raised by the defendant against the making of an order."'

12. The test which Keith JA applied was that if it could reasonably have been expected that the defendants would in due course raise or argue a defence, it was incumbent on the plaintiffs to draw that fact to the attention of the ex part judge.

On material non-disclosure, the 1st Defendant said in his Affirmation that:-

"26. As stated above, when the Association was set up initially, the directors were the 8 subscribers. Gradually, as more members joined and the activities of the Association increased, there was a need to have more directors to handle the affairs of the Association.

27. As a result of a discussion with two other associations, Hong Kong Pigeon Association (香港養鴿會) and Hong Kong Birds and Animals Association in 1983 and 1984, the members of two associations were invited to close their associations and to join the Association. Consequently, there was a sharp increase in the membership of the Association, indeed on the basis of which the Association resolved to increase the number of its members to unlimited.

28. Therefore, as early as in the late 1983 and in a meeting of the Association on 21st January, 1984, the then directors, subscribers and some members began to have discussions on appointing additional directors to the Association. There are now produced and shown to me marked "LKN-10" true copies of the records of the two meetings respectively held on 30th October, 1983 and 21st January, 1984 together with their English translations. Hui Chun Ping also signed and confirmed the records of the meetings.

29. The discussion continued and on 4th and 17th March, 1984, it was resolved to increase the number of directors and 9 additional directors were elected and duly appointed. There are now produced and shown to me marked "LKN-11" true copies of the records of the two meetings held on 4th and 17th March, 1984 together with their English translations. It can be seen from the records that immediately after their appointments, duties were assigned to the additional directors. Pursuant to the appointments of these 9 new directors, the Association had file a new Particulars of Directors dated 9th May, 1984 to the Companies Registry, a copy of which is now produced and shown to me marked "LKN-12".

30. Thereafter, the new directors actively participated in the management of the affairs of the Association. There are now produced and shown to me marked "LKN-13" true copies of a bundle of record of meetings of the Association showing the participation of the "new directors" together with the subscriber directors in the affairs of the Association.

31. Throughout these years, nobody has complained about the appointment of these "new directors". Many important decisions regarding the Association have been made by other existing directors in conjunction with these "new directors" since their appointment.

32. As a matter of fact, in the filed annual returns of the Association for the years of 1995 and 1996, it is recorded that there were 17 directors in the Association. These annual returns were confirmed and signed by Hui Chun Ping. There are now produced and shown to me marked "LKN-14" true copies of the aforesaid annual returns.

33. Recently, Hui Chun Ping had disagreements with the other directors over the affairs of the Association. The other Plaintiff directors then unilaterally insisted that the affairs of the Association should be returned to the hands of the subscribers.

34. As stated above, the appointment of the 9 additional directors has always been regarede (sic) as valid by the members and directors of the Association. Even now, accordingly to my knowledge, the majority of the members has no objection to these additional directors remaining in their office. In view of the recent challenge by the Plaintiffs to their appointment, an Extraordinary General Meeting was convened on 13th November, 1999 to confirm their appointment and to put the matter beyond doubt.

...

72. In the circumstances, I am advised and verily believe that the Intended Plaintiffs, especially Hui Chun Ping, have not made a full and frank disclosure of all material facts in obtaining the Injunctions in question, and that the Injunctions so obtained herein are not justified. Accordingly, I respectfully ask this Honourable Court to discharge all the Orders granted on 26th November, 1999 with costs to the Intended Defendants."

13. The Plaintiffs' case before the ex parte judge was that the purported appointments on 13 November 1999 of the 3rd - 13th Defendants as directors of the 1st Plaintiff was invalid and on this basis sought and obtained an an ex parte order that they be restrained from acting as directors of the 1st Plaintiff, and that they be restrained from filing company returns asserting their directorship. The Plaintiffs' case is one of "snatching" control. The gist of the material non-disclosure alleged by the Defendants is that (a) of these 11 defendants, 9 of them, i.e. with the exception of the 4th and 13 Defendants, had been working with the Plaintiffs as co-directors of the 1st Plaintiff for 15 years since 1984 and (b) the 2nd Plaintiff himself co-signed the company returns for 1995 and 1996 stating that these Defendants and the subscribers were directors of the 1st Plaintiff.

14. To illustrate the point, Mr. Yip took me through 5 of the records of meetings forming part Exhibit "LKN-13".

15. The record of the meeting on 19 May 1984 recorded that that meeting was attended by the 2nd Plaintiff and the 3rd, 12th, 7th, 11th, 6th and 8th Defendants and that it was resolved that the new board of directors "新董事局承認 ..." would recognise the matter stated therein. This record was signed by the 2nd Plaintiff.

16. The record of the meeting on 21 March 1986 of the annual meeting of the directors "董事年會" recorded that the meeting was attended by the 2nd and 5th Plaintiffs and the 4th, 2nd, 3rd, 12th, 10th, 11th, 7th, 8th 9th and 5th Defendants. This record was signed by, inter alia, the 2nd and 5th Plaintiffs. It recorded that the 2nd Plaintiff and 4th and 3rd Defendants had been nominated as candidates for chairmanship in the coming year and that the 2nd Plaintiff seconded the nomination of the 13th Defendant as a director.

17. The record of the meeting on 12 May 1986 recorded that it was attended by the 2nd and 3rd Plaintiffs and the 3rd, 4th, 1st, 10th, 2nd, 12th, 5th, 8th, 7th and 9th Defendants. This record was signed by, inter alia, the 2nd Plaintiff. It recorded that the 12th directors attending the meeting unanimously agreed that the 13th Defendant should join the board and become a new director. Thus, by May 1986, the 13th Defendant joined the other 9 defendants (3rd, 5th - 12th Defendants) as directors or de facto directors. He became a director or de facto director with the blessing of the 2nd and 3rd Plaintiffs, and possibly also with the blessing of the 5th Plaintiff.

18. The record of the meeting on 3 May 1988 recorded that it was attended by the 2nd Plaintiff and the 1st, 13th, 12th, 7th, 11th, 8th, 5th, and 10th Defendants. This record was signed by the 2nd Plaintiff. It recorded, inter alia, the election of the 3rd and 8th Defendants as vice-chairmen and some of the other Defendants as other officers.

19. The record of the meeting on 11 June 1986 recorded that it was attended by the 2nd Plaintiff and the 4th, 2nd, 10th, 8th, 13th, 11th, 1st and 12th Defendants. This record was signed by the 2nd Plaintiff.

20. I turn now to the companies returns co-signed by the 2nd Plaintiff. The 1995 return was filed at the Companies Registry on 29 February 1996 and 10 of the 3rd - 13th Defendants were stated to be directors. The 1996 return was filed at the Companies Registry on 2 January 1997 and the same 10 of the 3rd - 13th Defendants were stated to be directors.

21. The question whether the Plaintiffs had been working with 9 of the 3rd - 13th Defendants since 1984 and 10 of them since May 1986 as directors of the 1st Plaintiff is a question of fact which the Plaintiffs required no document before they could admit or deny that it was a fact. The Defendants presented a case which cried out for an account from or explanation by the Plaintiffs, particularly if there was an innocent explanation and if there was no intention to mislead the ex parte judge. I turn now to the 2nd Affirmation of the 2nd Plaintiff, affirmed on 2 February, 2000, almost 2 months after the Defendants' affidavit evidence affirmed on 8 December 1999. The 2nd Plaintiff said, inter alia:-

"14. ... Concerning the two meetings mentioned in paragraph 28 in 30th October 1993 and 21st January 1994, I say that those are not a valid meeting as it is neither stated as either a board of director's meeting or a general meeting. In those circumstances, we cannot confirm or deny whether such a meeting is a valid meeting. I am advised and verily believed that is a not valid meeting as the purpose of the meeting and the nature of the meeting cannot be ascertained. Therefore, it was not a proper meeting with proper resolution made thereto.

15. Concerning paragraphs 32 to 34 of Mr. Lam's Affirmation stated that I agree to the 17 directors as filed in the Annual Return of the Association. I disagree to that contention because there are no subscriber's meeting to legally and formally pass a resolution to increase the number of directors pursuant to the Memorandum and Articles of Association of the 1st Plaintiff.

16. In those circumstance, I say those Annual Returns are not evidence to suggest that there were 17 directors in the 1st Plaintiff. Concerning paragraph 36 of Mr. Lam, in the interpretation of Article 22 of the Association of the Memorandum and Articles of Association, I say that there are no valid documentary evidence to record increase of number of Directors in any general meeting save and except those purported meeting held by the 13 Defendants which its central to the present dispute which I could issue."

22. I hope I am not doing the Plaintiffs an injustice by saying that they were being technical. The Plaintiffs are entitled to be technical if so advised, provided that they had presented their case in writing to the ex parte judge on the clear basis that they were being technical despite the fact that they had been working with 10 of the 11 Defendants as co-directors since May 1986 and despite the fact that the 2nd Plaintiff had co-signed returns for 1995 and 1996 stating that these 10 were directors.

23. On the basis of the materials before me, I find, for the purpose of these interlocutory proceedings, that the Plaintiffs had been working with 9 of the 11 Defendants as co-directors since 1984 and with 10 of the 11 Defendants as co-directors since May 1986 and that the 2nd Plaintiff had co-signed returns filed for 1995 and 1996 stating that these 10 were directors. I also find that there was non-disclosure by the Plaintiff.

24. I turn now to the question whether the non-disclosure was material.

25. The Plaintiffs was seeking an ex parte injunction restraining the 3rd - 13th Defendants from acting as directors. The fact that 9 of them had been working as directors for 15 years; the fact that 10 of them had been working as directors for 13 years; the fact that the 2nd Plaintiff seconded the nomination of the 13th Defendant as a director and the 2nd and 3rd Plaintiffs agreed to his appointment; and the fact that these 10 Defendants had been working together with the Plaintiffs until at least 1999 as co-directors are on any reckoning matters which should be in the scales. It could reasonably have been expected that the Defendants would raise these defences in due course.

26. The Plaintiff was seeking an ex parte injunction restraining the 3rd - 13th Defendants from filing any company return asserting their directorship. The fact that the 2nd Plaintiff himself co-signed the returns filed for 1995 and 1996 stating that 10 of these 11 were directors is on any reckoning a matter which should be in the scales. Again it could reasonably have been expected that the Defendants would raise such defence in due course.

27. For reasons I have given I find that there is clear material non-disclosure. The breach of the duty to make full and frank disclosure is in my judgment flagrant. The 2nd Plaintiff asserted in §7 of the grounding affirmation that "that also explains why in between 1984 to 1995 the company had not filed its Annual Return ..." If the Plaintiffs should allege that they had not got the returns for 1995 and 1996 at the time of the grounding affirmation, they had a duty to find out by making searches at the companies registry.

28. There was a grave and serious abuse of process when the Plaintiffs applied for the ex parte Order with the non-disclosure which I have found.

29. As I said earlier, if the Plaintiffs had no intention to mislead the ex parte judge, they should and would have said so in their affidavit evidence in reply. The Plaintiffs remain unrepentant, both in the affidavit evidence in reply and in their submission through Mr. Lee to me.

30. Having found such flagrant and unrepentant breach of the duty to make full and frank disclosure, I discharge the ex parte order without going into the merits. I adjourned so as to give judgment in open court to remind litigants and lawyers of the well-established law on non-disclosure.

31. Mr. Lee asked me to make a fresh order in the event of the ex parte order being discharged. I decline to do that. The Plaintiffs had been working with 10 of the 11 Defendants as co-directors for 13 years. There is simply no reason why I should rewrite the status quo by restraining them pending trial. If the Defendants should wish to outvote the Plaintiffs, they, together with the 1st and 2nd Defendants who the Plaintiffs accept are valid directors, could have done so all these years. No personal misconduct has been alleged against the 4th Defendant and Mr. Lee has not argued that the Plaintiffs' application for an injunction against the 4th Defendant should not fall with their application against the other Defendants. I decline to grant any fresh injunction.

32. I was at one stage attracted to the idea that I should on my own motion direct a speedy trial of this matter. However, I have decided not to do so on my own motion. If the Plaintiffs or the Defendants wish to have a speedy trial, they should take out such application before a Master.

33. I order that the ex parte order be discharged. I shall now hear the parties on costs. I understand that Mr. Yip will not be asking for costs against the 1st Plaintiff. As I said, I shall hear the parties on costs and on the title of this Action.