CONVERSANT GROUP LTD AND ANOTHER v. CAMTRON DEVELOPMENT LTD AND OTHERS

HCA 2243/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2243 OF 2008

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D E C I S I O N

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1.  There are four applications before me this morning.  After discussion with counsel, I am only required to deal with the plaintiff’s application (1) to strike out the 5^th defendant’s defence and counterclaim; and (2) to dismiss the summons taken out by the defendants (which asks for interim injunctive relief against the 2^nd plaintiff) summarily without a substantive hearing. 

2.  I will first deal with the striking out application and the application to dismiss the 5^th defendant’s summons.  The point taken by the plaintiff is very simple, which is this.  The defence and counterclaim filed by the 5^th defendant and its summons for interim injunctive relief against the 2^nd plaintiff were taken out without authority.  Under Article 7 of the 5^th defendant’s articles of association, at the ordinary general meeting to be held next after the adoption of these articles and every succeeding ordinary general meeting, all directors shall retire from office and shall be eligible for re-election.  On the disputed evidence before me, there was no AGM since March 2003.  Thus all the directors, including the 2^nd plaintiff, the 3^rd and 4^th defendants would have retired by June 2004.  Since no AGM had been convened thereafter there was no valid appointment of any director to the board of directors of the 5^th defendant.  This proposition is well supported by authorities cited by Mr Poon SC, appearing for the 2^nd plaintiff, including a recent decision of Kwan J in Re Boldwin Construction Co. Ltd & Others [2003] 2 HKLRD 237.

3.  In answering Mr Poon’s submissions, Mr Yuen SC, appearing for the 5^th defendant, raised three points.  First, ratification.  It is common ground that if the board is functus, the shareholders can act, but the acts taken by the shareholders have to be ratified.  On the evidence before me there is no ratification.  So I do not think the 5^th defendant can rely on this point. 

4.  The second point is about the interpretation of Article 7.  Mr Yuen relied on an Irish case Phoenix Shannon plc v. Purkey [1998] 4 IR 597.  I do not think that case assists the 5^th defendant because there the court was concerned with a co-opted director appointed under different articles from what we are having — that is Article 7 — in these proceedings. 

5.  The last point relied on by Mr Yuen is that the conduct of the plaintiff amounted to acquiescence, waiver and laches : Villatte v. 38 Cleveland Square Management Ltd [2002] EWCA Civ. 1549.  He referred me to the statement of claim filed by the plaintiffs, in which reference was made to the 2^nd plaintiff, the 3^rd and the 4^th defendants as directors of the 5^th defendant.  The 3^rd defendant, in his second affirmation, also gave particulars as to how the plaintiff, how the 2^nd plaintiff, the 3^rd and the 4^th defendants conducted themselves in the past in their capacity as purported directors of the 5^th defendant. 

6.  In the striking-out application the court will strike out only in a clear and obvious case.  I think the point raised by Mr Yuen on laches, waiver and acquiescence certainly has some merits to it.  And it can be reasonably argued that by conduct, or estoppel by conduct, the 2^nd defendant is now debarred from raising this authority point based on lack of appointment of directors.  It follows that the resolutions passed by the 3^rd and 4^th defendants, in their capacity as purported directors of the 5^th defendant, authorising the commencement of this action and appointment of lawyers in this regard, are arguably valid.  So it is not a case for striking out. 

7.  So for these reasons I would decline the application for striking out or the application to dismiss the 5^th defendant’s summons.

8.  I now turn to the plaintiff’s application to dismiss the summons taken out by the individual defendants.  The first point taken is this.  There is no defence and counterclaim filed yet, so there is no basis to ask the court to grant any interim relief.  But I think it is not unusual that in appropriate cases the parties can come to court to ask for interim relief even before the filing of pleadings or even before the issuing of any writ.

9.  The second point taken by the 2^nd plaintiff is that there is no cause of action that they can possibly raise against him. 

10.  In his first affirmation, the 3^rd defendant refers to the so-called “August agreement” and indicates that he and the 4^th defendant would counterclaim against the 2^nd plaintiff to enforce that Agreement.  The 3^rd defendant also refers to the resolutions passed on 28 October 2008 and says that they would be seeking to enforce the resolutions by way of counterclaim in these proceedings.  Although I accept there is no formal pleadings or no formal counterclaim filed by the individual defendants yet, the basis of the cause of action that they propose to rely on has been spelled out in the 3^rd defendant’s affirmation.  The summons should proceed in the usual matter, and it is not appropriate to dismiss it without any substantive hearing.  So that application is also dismissed.

[Submissions on Costs]

Costs order

11.  I will formally dismiss the plaintiff’s summons dated 4 December 2008 asking for striking out of the 5^th defendant’s defence  and counterclaim and its summons with costs to the 5^th defendant against both plaintiffs, with a certificate for two counsel, and costs to be taxed if not agreed.  I will also give costs to the 1^st to 4^th defendants for the plaintiff’s failed application to dismiss their summons summarily, to be taxed if not agreed.