BRAVE VENTURE LTD v. XINHUA NEWS MEDIA AND OTHERS

HCMP 2267/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2267 OF 2017

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DECISION

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Introduction

1.  Brave Venture Limited (“BVL”) commenced these proceedings by Originating Summons dated 16 October 2017 and made this application on an ex parte on notice basis on 17 October 2017. These proceedings are closely related to another High Court action brought by BVL last month under HCMP1901/2017 (“the Earlier Action”).

2.  In the Earlier Action, on 12 September 2017, Mimmie Chan J granted the application of BVL for interlocutory injunctive relief by summons dated 7 September 2017 (“the Summons”) and handed down the “Reasons for Decision” on 18 September 2017 (“the Reasons”). Mimmie Chan J in the Reasons noted that the parties agreed at the hearing of the Summons that the orders made on the Summons would effectively dispose of the entire action and no further directions as to the conduct of the Earlier Action was required.

3.  In this Decision, this court shall adopt the abbreviations used in the Reasons, unless otherwise stated. This court shall further refer to the Reasons for the background facts leading to the issue of the Summons. Due to the serious time constraint, this court can only outline the essential background facts for the understanding of this Decision.

4.  On the Summons, the judge granted the following mandatory injunctions to compel the defendants including the Company to:

(1)   forthwith take all necessary steps to enable and facilitate the election of Proposed Directors to be considered at the Annual General Meeting of the 1^st defendant scheduled to take place on 29 September 2017 (“29 Sept AGM”) (“the 1^st Injunction”); and

(2)   forthwith (and in any event no later than 5 pm on 14 September 2017) issue all necessary announcements, notices and/or circulars as required under the Listing Rules in relation to the election of the Proposed Directors at the 29 Sept AGM (“the 2^nd Injunction”).

5.  All of the defendants in the Earlier Action are the defendants in these proceedings. There are two additional defendants, namely, the 11^th defendant and the 12^th defendants, who were appointed as directors of the Company after the grant of the Injunctions.

This application

6.  The gravamen of the complaint of BVL is that the defendants in the Earlier Action have failed or refused to comply with the 1^st Injunction by unlawfully adjourning the relevant resolutions relating to the election of the Proposed Directors (“the Election Resolutions”) as well as some other resolutions (“Other Resolutions”) originally scheduled to be considered at the 29 Sept AGM to the adjourned AGM to be held on 20 October 2017 (“the Adjourned AGM”) by an announcement issued at 10:59 pm on 28 September 2017, just about 12 hours before the 29 Sept AGM (“the Adjournment Announcement”).

7.  Mr Coleman SC, appearing with Ms Tong for BVL again, submits that the purported adjournment is a breach of the 1^st Injunction. BVL has made an ex parte application for leave to commence contempt proceedings against the Company and its directors in respect of their breach of the 1^st Injunction. BVL is still awaiting the determination of the said application.

8.  Whilst Dr Wei (the 5^th defendant herein) purportedly made the Adjournment Announcement on behalf of the board of directors of the Company (“the Board”), Dr Lo (the 3^rd defendant herein) was the chairman of the 29 Sept AGM and he concluded the meeting without dealing with the Election Resolutions at all.

9.  By the Adjournment Announcement, the Board also purportedly withdrew certain resolutions (Nos.7 to 9) from consideration at the 29 Sept AGM (“the Withdrawn Resolutions”). In his skeleton submissions, Mr Coleman also complains about the alleged illegality and invalidity of the withdrawal of the Withdrawn Resolutions by the Board. However, he confirms that the Withdrawn Resolutions are not the subject matter of this application. 

10.  The injunctions presently sought by BVL on an urgent basis are:

(1)   The defendants (whether by themselves or by their nominees, agents, officers, employees or servants or any of them or otherwise howsoever) be restrained from taking any steps to proceed with the Adjourned AGM; and

(2)   The defendants do forthwith issue or cause to be issued   all necessary announcements, notices and/or circulars as required under the Listing Rules (or otherwise) to inform the shareholders of the Company and the public that the Adjourned AGM shall be postponed pending the determination of the claims of BVL or further order of the court.

11.  The nub of the submissions of Mr Coleman is that neither the Company nor the directors have power/authority to unilaterally decide on or procure such adjournment by the Adjournment Announcement. Absent such power/authority, the Adjourned AGM cannot be validly convened and the Company should be enjoined from holding the same on 20 October 2017.

The Alleged Continued AGM

12.  Before I consider the validity of these submissions, I should first set out the evidence of BVL in respect of the purported disposal of the Election Resolutions and the Other Resolutions on 29 September 2017 despite the Adjournment Announcement. The following is extracted from the written submissions of Mr Coleman which I believe to be an accurate summary of the affirmation evidence of Wong King Tak Brian adduced in support of this application:  

(1)   Representatives from, inter alia, Messrs. Baker & McKenzie (“B&M”), the solicitors for BVL, and Messrs. Harney Westwood & Riegels (the advisers of BVL on Cayman Islands law) attended the 29 Sept AGM as the representatives of BVL.

(2)   The 29 Sept AGM commenced at around 11am at 23/F, 381 Queen’s Road East, Wan Chai, Hong Kong (the “1^st Venue”).

(3)   Dr Lo was appointed as the Chairman, and he only allowed Resolutions Nos. 1 and 6 to be considered and put to a vote.  The voting forms distributed at the meeting also only contained Resolutions 1 and 6.

(4)   The specific requests by Mr Lee Kam Hung Lawrence of B&M (“Mr Lee”) that Dr Lo should put Resolution Nos. 10-14 to a vote was ignored/refused.

(5)   After the voting of Resolutions 1 and 6 was completed, Dr Lo purportedly declared the meeting as closed and the directors proceeded to leave the stage. 

(6)   As Mr Lee’s protests were ignored, and there were no other directors willing to take the chair, a new Chairman Mr Chui Man Lung (“Mr Chui”) (one of the representatives of BVL and a member of the Company) was chosen as Chairman. The attendees of the 29 Sept AGM were asked by the security guards to leave the 1^st Venue. It was announced (by Mr Chui or the representatives of BVL) to all those present that the annual general meeting was to continue at 14/F Hutchison House, 10 Harcourt Road, Central, Hong Kong (which was B&M’s offices) (the “2^nd Venue”).

(7)   BVL avers that the 29 Sept AGM was continued at the 2^nd Venue from around 2:48pm and concluded at around 3pm. During the proceedings, the Election Resolutions, the Withdrawn Resolutions and the Other Resolutions were considered and put to a vote by poll.

(8)   As a result, Resolution nos. 2, 7 to 14 including all the Withdrawn Resolutions and the Election Resolutions were duly passed while other resolutions were not passed.

13.  On the basis of what transpired at the allegedly continued 29 Sept AGM, BVL takes the position that all the Proposed Directors were validly appointed.

14.  Mr Coleman indicates that BVL would not be seeking any interlocutory relief in respect of the allegedly continued 29Sept AGM and the resolutions purportedly passed thereat. Mr Coleman expressly reserves the right of BVL to file further evidence to support its claims made out of the allegedly continued 29Sept AGM in the present proceedings. 

15.  Dr Wei on behalf of the Board published an announcement setting out the poll results for Resolution Nos.1 and 6 on 29 September 2017 (“the 29/9 Announcement”). In the same document, it was also announced that the Adjourned AGM would be held at the 1^st Venue on 20 October 2017 and that the Company would issue a notice of the Adjourned AGM together with all other relevant documents in due course in accordance with the articles of association of the Company (“the AA”).

16.  On the following day, Mr Chiu as the Chairman of the allegedly continued 29 Sept AGM published the poll results on, among other resolutions, the Election Resolutions (“the BVL’s Poll Results”) in two local newspapers.

17.  In the 29/9 Announcement, it can be seen that members holding 1,149,984,290 out of 1,444,927,040 total shares of the Company (approximately 79.6%) voted on the resolutions at the 29 Sept AGM.

18.  On the other hand, the published BVL’s Poll Results show that members holding only 219,380,000 out of 1,444,927,040 total shares of the Company (approximately 15.2%) voted on the resolutions at the allegedly continued 29 Sept AGM. In the Reasons (§6), BVL is stated to hold approximately 11.97% of the total issued share capital of the Company.

19.  Subsequent correspondence between B & M on behalf of BVL and the Company clearly shows the differences of the parties. BVL cannot accept the validity of the purported adjournment and the Company cannot accept the validity of the allegedly continued 29 Sept AGM and the BVL’s Poll Results.

Analysis on merits of the claim of BVL

20.  I should first focus on the validity and/or legality of the purported adjournment by the Adjournment Announcement. Mr Coleman submits that BVL has an overwhelming case against the validity of the purported adjournment.

21.  Since the interlocutory injunctions presently sought by BVL if granted would effectively render most of the reliefs claimed under the Originating Summons otiose and academic, this court would require a higher evidential burden to be placed on BVL to the extent that this court should be satisfied that it is at least likely to succeed at trial: Sim Kon Fah v JBPB & Co [2011] 4 HKLRD 45.

22.  By reason of the following incontrovertible documentary evidence, I am satisfied that the threshold is met.

23.  Mr Coleman duly brought to my attention the relevant passages in Shackleton on The Law and Practice of Meetings 14^th Edition (§§6-15-6.18, 14-29) and Kosmin & Roberts: Company Meetings and Resolutions, Law, Practice and Procedure 2^nd Edition (§§12.01-12.47). I am satisfied that an adjournment of a general meeting of the companymay only be brought by a resolution of the meeting, the action of the chairman of the meeting or by order of the court. The purported adjournment by the Adjournment Announcement plainly does not fall within any of these three categories.

24.  According to the Adjournment Announcement, the purported adjournment was announced pursuant to a resolution of the Board prior to the 29 Sept AGM.

25.  In the 29/9 Announcement, there is no mention of any resolution of the members present nor any decision of the chairman of the 29 Sept AGM, namely, Dr Lo, to adjourn the meeting. The chairman simply concluded the meeting without dealing with the Election Resolutions and the Other Resolutions notwithstanding the protests of the representatives of BVL apparently pursuant to the Adjournment Announcement.

26.  Mr Coleman pertinently invites my attention to the following dictum of Barrett J in McKerlie and Anor. V Drillsearch Energy Ltd and Ors. [2009] 72 ACSR 288 (§§37-38):

“[37] A general meeting is the means by which one organ operates. That a director — part of the other organ — is given by the constitution the role of chairing a general meeting does not mean that there is some blurring of the distinction between the two instrumentalities. On the contrary, the identified director acts as chairman not because he or she is a director or because to do so is part of the functions of a director; he or she is chairman as persona designata. This is emphasised by the fact that the chairman need not be a director at all. As has been mentioned, “a person” may be chosen by the members present to chair a general meeting if no director is able or willing to do so.

[38]It follows from the nature of the chairman’s role and the responsibilities and expectations it entails that it is foreign to the chairman’s function to exercise the power of adjournment to further some personal preference of the chairman or some policy of a body of which the chairman is a member. It is thus foreign to the chairman’s function, when the chairman is a director, to exercise the chairman’s powers to implement some policy or decision of the board of directors.”

27.  It is thus clear that Dr Lo, though being a member of the Board himself, could not simply exercise his powers as the Chairman of the 29 Sept AGM to implement the decision of the Board.

28.  The circumstances under which the chairman of a general meeting may exercise his power to order an adjournment are prescribed by Article 75 of the AA. It provides,

“The Chairman may, with the consent of any general meeting at which a quorum is present, and shall, if so directed at the meeting, adjourn any meeting from time to time and from place to place as the meeting shall determine……No business shall be transacted at any adjourned meeting other than the business which might have been transacted at the meeting from which the adjournment took place.”

29.  Mr Coleman further cites to this court some relevant authorities on how the power of a chairman to order an adjournment of the meeting should be exercised in good faith and for proper purposes. For the present purposes, I do not think it is necessary to set out the relevant principles here. Suffice it to say, there is no evidence that the Chairman ever exercised this power at the 29 Sept AGM at all.

30.  Mr Coleman also makes a cogent submission on the inadequacy of the reasons given for the purported adjournment by the Board in the Adjournment Announcement. Again, since the Board does not have the power to pass a resolution to adjourn a meeting in the first place, I do not find the reasons given to be relevant for present purposes.

Adequacy of damages as remedy and balance of convenience

31.  Being satisfied with the merits of the claim of BVL, I should proceed to consider whether damages would be a sufficient remedy for either party and the balance of convenience.

32.  The irreparable damage that BVL would suffer if the Adjourned AGM is allowed to be held is, in the submission of Mr Coleman, that there may be conflicting voting results on the Election Resolutions at the Adjourned AGM inconsistent with the BVL’s Poll Results. Any such conflicts would cause confusion in the management of the Company. Therefore, Mr Coleman submits that to maintain the status quo, the Adjourned AGM should not be held.

33.  Indeed, the complication is the alleged continued AGM and hence the BVL’s Poll Results. Though Mr Coleman reminds this court that the validity of the alleged continued AGM may not be able to be determined at this stage pending further evidence to be filed by BVL, I am of the view that the alleged continued AGM cannot, by any stretch of the imagination, be regarded as a valid meeting of the Company in compliance with the requirements of the Listing Rules, bearing in mind the fact that it is a public company in Hong Kong.

34.  It should also be borne in mind that an adjournment of a meeting includes a change of the venue: Shackleton on The Law and Practice of Meetings, supra, at §6-15. The evidence of BVL could hardly convince this court that Mr Chui was validly appointed the Chairman and validly made the decision to continue the AGM at the 2^ndVenue in light of the authorities cited to this court.

35.  In the premises, I am unable to give any significant weight to the BVL’s Poll Results.  I am not satisfied that, because of the BVL’s Poll Results, BVL would suffer any irreparable damage if the Election Resolutions could not be passed at the Adjourned AGM.

36.  Clearly, maintaining the status quo is a major consideration of this court. The starting point is that BVL always wants the Election Resolutions to be put to a vote in the AGM in 2017. It has succeeded in obtaining the Injunctions to compel the Company to include the Election Resolutions to be tabled at the 29 Sept AGM. I do not think BVL will simply abandon the Election Resolutions if they were not put to a vote on the exact date of 29 September 2017. I do not think BVL would not accept any adjournment of the AGM lawfully and validly made so as to let the members consider the Election Resolutions. There is no reason why BVL does not want the Election Resolution to be tabled at the Adjourned AGM but for the BVL’s Poll Results. For the reasons given, I do not accept that the status quo should include the BVL’s Poll Results, which do not appear to be supported by any sound legal and evidential basis.

37.  The Company’s dim view on the Election Resolutions is obvious. In the wake of its failure to oppose the Summons before Mimmie Chan J, in its letter to the members dated 14 September 2017 that was included in a supplementary circular of the 29 Sept AGM, the Board made strong advice against the nomination of the Proposed Directors. Be that as it may, there is no evidence that there is any material change of circumstances which may cause the members to vote differently in the Adjourned AGM.

38.  I also note that there is no evidence of any objection raised by other members to the purported adjournment. On the evidence of BVL, its representatives’ protests at the 29 Sept AGM were not echoed by any other members bearing in mind that the same was indeed well attended and members holding a vast majority of the issued shares were present and voted on the two resolutions. 

39.  Despite the apparent problems with the validity of the purported adjournment made by the Adjournment Announcement, in the absence of any complaint about the sufficiency of the notice of the Adjourned AGM, I do not see any valid justification to enjoin the members of the Company from voting on the Election Resolutions at the Adjourned AGM.  

40.  Even if the defendants in the Earlier Action are in breach of the 1^st Injunction by reason of the purported adjournment, this does not mean that the Election Resolutions should never be put to a vote at a general meeting. I should make it clear I express no view on the alleged breach, which is being under consideration by another judge.

41.  Moreover, one must not lose sight of the well-established irregularity principle, which was explained by Le Pichon J (as she then was) in Yip Peter v Asian Electronics Ltd [1998] 2 HKC 96 at pp.102I-103A in the following terms:

“The irregularity principle really comes to this: the lawfulness of a decision taken by a meeting of members or board cannot be questioned if the only facts alleged to make it unlawful is a mere informality and irregularity and the intention of the meeting is clear. This is particularly so if there is no evidence that the decision of the meeting would have been different if the correct procedure had been observed.”

42.  In a recent judgment, Harris J in Lam Hon Keung Keith v Dalny Estates Limited and Ors., unreported, HCMP182/2016, 6.4.2017, after reviewing the relevant authorities including Yip Peter and MacDougall v Gardiner (1875) 1 Ch D 13, had this to say,

“However, what is clear is that a procedural failure alone in convening a meeting and putting a resolution to shareholders will not justify the court after the event setting aside a resolution that the requisite majority of shareholders wish to have passed.”

43.  By the same token, if the majority of the members approve the purported adjournment, there is no reason why the resolutions passed at the Adjourned AGM should not be given any effect.

44.  Mr Coleman submits powerfully that the Company could not possibly suffer any prejudice if the Adjourned AGM is not proceeded with to consider the Election Resolutions. I am aware that there are the Other Resolutions to be considered at the Adjourned AGM and in any event to justify an interlocutory injunction the onus is on the applicant to show irreparable damage in the first place. I am not convinced that BVL is able to discharge this burden.

Conclusion

45.  For the reasons given above, I come to the conclusion that I should not exercise my discretion to grant the injunctions sought by BVL. Accordingly, I dismiss the application.

46.  I should show my disapproval of the way this application was made. Plainly BVL is not happy with the Adjournment Announcement. If it was to take any legal action to avoid the Adjourned AGM to be held on the specified date, it should have acted promptly. It should not have waited until these few days to take out an inter partes summons, only to find that its summons could not be listed to be heard in good time before the Adjourned AGM, allegedly as informed by the listing officer. 

47.  Instead of asking for abridgement of time in a summons, it saw fit to make the present application on an ex parte basis. The Originating Summons and the supporting affirmation were served around noon on 17 October 2017 and this court was informed of the application at about 3:30 p.m.. After this court had indicated that it was available to hear the application at 5:30 p.m., the skeleton submissions and the notice of the hearing were given to the defence by email. None of the defendants, however, appeared.

48.  As a result, neither this court nor the defence was given a proper time to prepare for the application whilst BVL took all the time to prepare this application. Unjustified pressure has been heaped on both this court and the defence, particularly given the urgent need for a determination on the application and the hearings already fixed to be dealt with in this court today.  

49.  Much as I am displeased with this, I make it clear that this does not form any part of my decision not to exercise my discretion against the grant of the injunctions.   

50.  I make no order as to costs in respect of the application of BVL.

51.  Lastly, I thank Mr Coleman and Ms Tong for their assistance in this matter.