WONG WAH ON v. TSUNG TSIN ASSOCIATION AND OTHERS

HCMP 2056/2018

[2019] HKCFI 3030

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2056 OF 2018

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D E C I S I O N

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1.  On 20 November 2018 the Petitioner issued a petition pursuant to section 724 of the Companies Ordinance (Cap 622), seeking various relief against the 2^nd to 10^th Respondents who have been holding themselves out as officers of the 1^st Respondent, which is a company limited by guarantee for the purpose of promoting the interests of the Hakka community in Hong Kong.

2.  It is the Petitioner’s case that on 22 May 2018 an extraordinary general meeting of the Company was convened at which members voted for the appointment of 95 members of the Company as the new “Executive Committee” of the Company.  The Respondents have failed to recognise this resolution and continued to hold themselves out as office holders of the Company and retained control of the Company’s books and records.

3.  The Petition sought in the prayer declarations and orders confirming that the members appointed by the resolution constituted the Executive Committee and consequential orders.

4.  The Petition came on before me on 10 January 2019. The Respondents did not appear.  I was satisfied that the Petition had been properly served.  Having read the evidence I made an order substantially in the terms sought in the Petition.

5.  On 4 March 2019 the Respondents issued a summons to  set aside the Order.  There is no dispute that the Order is regular. On 26 April 2019 the Respondents issued an application for a  stay of execution pending the hearing to set aside. This was refused by Recorder Linda Chan SC on 15 May 2019. The Respondents sought  leave to appeal, which was dismissed by the Recorder. On 9 July 2019 the Respondents’ application to the Court of Appeal for leave to appeal was also dismissed.  Lam VP gave reasons on behalf of the court on  18 July 2019. In those reasons Lam VP made the following observations about the application to set aside:

“13. In the present case, the judgment of Harris J was given after a trial of the petition which the 2^nd to 10^th Respondents chose to be absent and filed no evidence in opposition. Mr Khaw readily accepted that it was a regular judgment. There was no reason why these Respondents could not have filed the evidence (which they now relied upon in the setting aside application) to oppose the petition before the hearing before Harris J on 10 January 2019.

…

20. The evidence of the respondents (filed in the application for setting aside the judgment) which was placed before us consisted mostly of assertions and bare statements.

…

22. Mr Khaw submitted that the Recorder did not address the merit of the setting aside application.  This was hardly surprising in light of the way in which the case was argued by Mr Koo before the Recorder.  According to the transcript, Mr Koo did not advance any substantive submissions on the merit.  In any event, as we have seen above, we do not see any strong merit in the setting aside application.”

6.  The application to set aside was listed for hearing before me on 24 July 2019.  It was only listed for 30 minutes and by agreement of the parties it was adjourned until 3 December 2019; although I would note  in passing that although the parties requested that it be adjourned for two hours argument; it ended up taking a full day.

7.  There is no dispute about the principles by reference to  which the court determines applications to set aside a regular judgment after trial pursuant to Order 35 Rule 2.  They are summarised in  Lau Kam Chuen v Lee Ching [i].

“(1) Where a party with notice of proceedings has disregarded the opportunity of appearing at and participating in the trial, he will normally be bound by the decision.

(2) Where judgment has been given after a trial it is the explanation for the absence of the absent party that is most important: unless the absence was not deliberate but was due to accident or mistake, the court will be unlikely to allow a rehearing.

(3) Where the setting aside of judgment would entail a complete retrial on matters of fact which have already been investigated by the court the application will not be granted unless there are very strong reasons for doing so.

(4) The court will not consider setting aside judgment regularly obtained unless the party applying enjoys real prospects of success.

(5) Delay in applying to set aside is relevant, particularly if during the period of delay the successful party has acted on the judgment, or third parties have acquired rights by reference to it.

(6) In considering justice between parties, the conduct of the person applying to set aside the judgment has to be considered: where he has failed to comply with orders of the court, the court will be less ready to exercise its discretion in his favour.

(7) A material consideration is whether the successful party would be prejudiced by the judgment being set aside, especially if he cannot be protected against the financial consequences.

(8) There is a public interest in there being an end to litigation and in not having the time of the court occupied by two trials, particularly if neither is short.”

8.  The most important consideration is the reason why a defendant did not appear at the trial.  If it was the result of an unfortunate mistake for which a defendant has little culpability, for example, a mistake by legal advisers, that may, subject to the other considerations referred to in the previous paragraph, be sufficient.  It is not enough, however, for a defendant to explain that it was something more than indifference.  It must be something, which the court concludes represents a full and accurate explanation and one which justifies depriving a plaintiff of a regular judgment and putting a plaintiff to the trouble of proceeding to prove a case, which he had thought had been successfully concluded in his favour.

9.  I now turn to consider the Respondents’ explanation for not appearing at trial.  Before doing so I note that the reason for quoting from the Court of Appeal’s reasons is that Lam VP’s observations must be assumed to have put the Respondents on notice that the evidence that had been filed by 9 July 2019 was incomplete and unpersuasive.  I would also note that Mr Singh had served his comprehensive submissions in advance of 24 July 2019 hearing and, therefore, the Respondents have also had ample notice of his forensic critique of their explanation for not appearing at the trial and ample time to address it by filing further evidence, which addressed the critique if such evidence is available.

10.  Before turning to the Respondents’ evidence it is helpful to summarise the background against, which the Respondents’ response to service on them of the Petition falls to be considered.

11.  Article 34 provides that members of the Executive Committee shall hold office for three years, and be eligible for re-election.   On 28 October 2008 a general meeting took place for the election of a new Executive Committee.  The way in which the meeting was conducted was controversial, but even on the Respondents own evidence it seems to  me clear that no resolutions were passed re-appointing members of  the Executive Committee and that from that date onwards there was  no lawfully appointed Executive Committee, no Executive Standing Committee and, in so far as either the members of the Executive Committee or ESC were directors, no de iure directors of the Company.

12.  The Petition is not the only litigation in which questions concerning the governance of the Company have recently come before  the court.  In July 2018 a writ was issued by seven members of the Company (none being the Respondents) against the Petitioner and  the Company seeking orders that resolutions passed at an extraordinary general meeting convened on 24 September 2017 at the instigation of  the Petitioner are null and void.  The Statement of Claim shows that  the Plaintiffs’ solicitors were Liu, Choi & Chan (“LCC”) and counsel is recorded to be KM Chong and KW Lai.  I am told a defence has been served, but the proceedings have not progressed beyond that stage.

13.  There is no dispute that the Respondents were well aware before service of the Petition that the Petitioner takes the position that a new Executive Committee had been appointed and have disputed the validity of the resolutions the Petitioner contends were passed on 22 May 2018.

14.  The Company was formed on 2 May 1959.  Its articles have been amended overtime and are inelegant and in some respects obscure and clumsy.  The articles do not provide expressly for directors. Instead article 38 provides for an Executive Committee.  In its original form the articles provided in article 39 for a Standing Committee (known as the Executive Standing Committee “ESC”), which would be elected by members of the Executive Committee.  This was amended by a special resolution on 19 January 1982.  The revised article provides for a Standing Committee of 31 members and for the Committee to be known as the Executive Standing Committee.  Article 44 provides for appointments of Chairman and Vice Chairman.  It is unclear whether or not the ESC are intended to be directors within the meaning of the Companies Ordinance.  The Company is required to have directors and it seems to me that the articles are probably inconsistent with the Companies Ordinance and any of the versions enforce since 1959 and need review.  It would, however, appear that the parties have proceeded on the basis that members of the ESC are directors.

15.  Article 15 deals with the requisitioning of general meetings.

“The Executive Standing Committee may, whenever they think fit, convene an Extraordinary General Meeting, and Extraordinary General Meetings shall also be convened on the requisition in writing of 10 Members of the Executive Committee or 50 Members of the Association or on such requisition as provided by Section 113 of the Ordinance.”

16.  It seems to me that Article 15 allowed 50 members to requisition a general meeting by the ESC or to convene one themselves under section 113(3) of the Companies Ordinance (in its previous version) if the ESC did not do so.

17.  The Respondents’ initial round of evidence was filed in early March 2018.  It consisted of an affirmation of the 3^rd Respondent and affirmations from two solicitors.  It is only necessary for me to deal with the 3^rd Respondent’s evidence, which addresses the non-appearance on 10 January, although I note in passing that in attempting to describe the history of the matter, the 3^rd Respondent states in my view, almost certainly incorrectly, that the Petitioner is seeking to replace the duly elected and appointed 36^th Executive Committee and ESC: incorrect in that it seems in my view that as a result of the conduct of the 2010 AGM and the failure of the Executive Committee to convene any subsequent annual general meetings or other general meeting to resolve the re-appointment of the Executive Committee, there was no duly appointed Executive Committee at the time of the general meeting in May 2018.

18.  The 3^rd Respondent deals with the reasons for the  non-appearance in paragraphs 50 onwards.  He explains that after service of the Petition the Respondents agreed that the 3^rd Respondent should pass the Petition to Foo Tak Ching of LCC, who he says had acted for the Company in a number of matters over the years including HCA 1276 in which he acted for the Company.  He says “we contacted Mr. Foo and requested him to be our legal representative to oppose the Petition herein, and we were told by Mr. Foo and verily believe that he would do so  for us.”: paragraph 52.  The next thing that happened according to  the 3^rd Respondent was receipt by him and some other Respondents of a letter from my Clerk dated 1 February 2019 informing them of my judgment.  In paragraphs 54 to 55 the 3^rd Respondent explains:

“54. Upon our enquiry upon Mr. Foo, I was then informed by Mr. Foo and verily believe that since LCC had represented the 7 Plaintiffs in HCA 1276, in which the Association was named as the 2^nd Defendant, he was advised by counsel that it would be more appropriate for another legal team to act for the Respondents herein so as to avoid any possible conflict of interest. As a result, Mr. Foo found one Mr. Roger Leung (‘Mr. Leung’) of Messrs. Foo, Leung & Yeung (‘FLY’) to be the solicitor acting for us. Nevertheless, Mr. Leung was also advised by counsel that even FLY, of which Mr. Foo is a partner thereof, should not act for the Respondents for the reason of conflict of interest. Then, due to misunderstanding, Mr. Leung mistook that he was no longer instructed to act for the Respondents and thus did not take any step to oppose the Petition or attend the hearing on 10 January 2019 on behalf of the 2^nd to 10^th Respondents.

55. On the other hand, we all along presumed that Mr. Foo of LLC would oppose or handle the Petition on behalf of the Respondents, and did not know that in fact no one was representing us in the Petition.”

19.  Self-evidently, the 3^rd Respondent’s affirmation is short of the obvious detail one would expect such as when precisely Mr Foo was contacted, how, was there a retainer letter as the Law Society regulations require, was there any discussion about how the matter should be progressed, was there any discussion about the hearing on 10 January and why the 3^rd Respondent did not think to contact Mr Foo and ask about the progress of the matter prior to the hearing on 10 January or shortly thereafter.

20.  In his affirmation Mr Foo explains that he is 84 and a partner in LCC and also Foo, Leung & Yeung.  He confirms that he has acted  for the Company on a number of occasions.  He says that in or about November 2018 he was contacted by some of the Respondents who told him that they had received the Petition.  He was asked to oppose it to which  he agreed.  He then says he liaised with Lai Kam Wah.  There is no reference to precise dates, retainers, money on account, instructions from  the Respondents confirming authority to instruct counsel and agree fees or any document other than the Petition.  Mr Foo does not even tell the reader whether he received the Petition.  What Mr Foo does tell us is that counsel advised him that since LCC acted for the Company in HCA 1276 it was conflicted and could not act for the Respondents.  He explains what he did next in paragraph 6:

“… As a result, I found another partner in another firm of solicitors (FLY), Mr. Roger Leung (‘Mr Leung’), to take over the matter with an intent that FLY would become the firm of solicitors representing the Respondents in the Petition. Thereafter, LLC delivered to Mr. Leung of FLY various papers for him to take steps to oppose the Petition. Accordingly, I presumed that Mr. Leung of FLY would oppose the Petition on behalf of the Respondents, and thereafter I left all matters regarding the Petition to him.”

21.  Mr Foo does not tell us when he contacted Mr Leung. He does not explain why he did not think it is necessary to speak to the Respondents and confirm that they were happy for him to pass to Mr Leung the “various papers”, which he fails to describe.

22.  Mr Foo says that he had no further involvement with  the matter until early February when he was contacted by the  2^nd to 4^th Respondents, who told him about the Order.  He does not explain what he told the 2^nd to 4^th Respondents, who one would have thought would have asked Mr Foo to explain what had happened.  He then goes on  to explain that he contacted Mr Leung who told him that he had been  advised by counsel that his firm had a conflict and that he assumed Mr Foo would find another firm of solicitors.  Mr Foo exhibits no documents at all to his affirmation corroborating anything that he says.

23.  Mr Leung in his affirmation says that in or about December 2018 he was asked by Mr Foo to represent the Respondents  and thereafter LCC delivered to me “various papers”.

24.  In paragraph 3 he says having read the papers he found that Mr Lai had been instructed by LCC to give advice.  I note that Mr Leung does not exhibit any documents to his affirmation or explain what he had done with them.  He says he contacted counsel and was told that he also had a conflict by virtue of Mr Foo also being a partner in his Firm.   Mr Leung goes onto say this in paragraphs 3 to 5:

“3. … and that another firm of solicitors was to be arranged to act for the Respondents’ behalf.

4. Having heard that, I mistook that another firm of solicitors would be arranged to act for the Respondents’ behalf, and hence I took no further step to act on behalf of them in the Petition, and accordingly I did not attend the hearing of the Petition on 10^th January 2019 on behalf of any of the Respondents.

5. I have misunderstood from counsel’s words that some one or Mr. Foo would make arrangement for another firm of solicitors to act for the Respondents…”

25.  The implication of this poorly written evidence is that counsel had said that he would contact Mr Foo and tell him to find someone else.  Mr Lai had filed no evidence.

26.  Clearly the evidence that I have referred to is unsatisfactory.  As I have already noted the Court of Appeal in its July decision and Mr Singh through his skeleton argument filed for the 24 July 2018 hearing drew attention to the inadequacies of the evidence and one would have expected that in the period between July and December of this year  the Respondents would have taken steps to remedy this problem and they did file additional to which I now turn.

27.  The 4^th Respondent has filed an affirmation. The 4^th Respondent says that he was responsible for liaising with Mr Foo.   He says that that he had noted from the indorsement on the Petition that there was a hearing on 10 January 2019 and contacted Mr Foo a couple of times to enquire if anything needed to be done before the hearing and was told there was nothing and he would inform the 4^th Respondent if there was anything to be done.  The 4^th Respondent does not explain why he would have been talking to Mr Foo on a couple of occasions if this was the case and he does not explain how Mr Foo came to instruct counsel.   In paragraph 8 he goes onto explain that in early January 2019 he visited Mr Foo in his office to talk about the hearing and was told that it would  be a simple matter mainly for directions and that a lawyer would appear for the Respondents.  Mr Foo made no reference to such a meeting and  Mr Foo’s evidence is inconsistent with that of 4^th Respondent, because  he says that by January he had passed the matter to Mr Leung.   The 4^th Respondent goes on to say that on 9 January 2019 the Respondents were served with further papers (which was the Petitioner’s affirmation confirming the contents of the Petition).  He was surprised and sent a fax to Mr Foo and the 2^nd Respondent asking whether they needed to be sent to Mr Foo and also asking them to make arrangements for the hearing.   In paragraph 15 the 2^nd Respondent says that he was surprised to learn from Mr Foo that he and Mr Leung had the misunderstandings that led to the lack of representation.  He does not explain what he was told about  Mr Leung’s involvement, which if the earlier paragraphs of his affirmation are correct must have come as a surprise and annoyance to him.

28.  The final affirmation has been filed by the 2^nd Respondent, who is an 86 years old solicitor and considers himself the Chairman of the Executive Committee.  In paragraphs 9 and 10 of his affirmation the  2^nd Respondent says this:

“9. In respect of the Petition, I recalled that Mr. Lo sent a fax message addressed to me and Mr. Foo of Messrs. Liu, Choi and Chan (‘LCC’) on 9 January 2019, regarding the Association’s receipt of court documents served by the solicitors of Wong Wah On (i.e. the Petitioner herein), and seeking instruction as to whether it was necessary to send to the office of Mr. Foo a copy thereof. There is now produced and shown to me a true copy of the Fax Message dated 9 January 2019 (together with its English translation), being an exhibit marked ‘LKM-1’.

10. After I read the said fax message, I misplaced the copy thereof, and I am unable to locate the faxed copy.”

29.  The 2^nd Respondent does not say what he did after receiving the fax.  Neither he nor the 4^th Respondent have exhibited transmission reports.  Mr Foo has not filed a further affirmation confirming receipt of the fax and neither the 2^nd nor 4^th Respondents have explained whether  Mr Foo replied and, on the assumption that he did not, why they did not phone him.  As Mr Foo has not dealt with the fax in his affirmation the only inference that can sensibly be drawn is that he did not receive it.

30.  In my opinion the explanation proffered by the Respondents is manifestly incomplete.  It is very difficult to believe, for example, that no written communication or record has been kept by any of the Respondents, Mr Foo or Mr Lai.  The 4^th Respondent is a solicitor and presumably he must understand that the evidence adduced in the affirmations to which I have referred begs as many questions as it answers.  It is a fairly compelling inference that the Respondents have chosen not to explain precisely on what basis Mr Foo and Mr Lai were instructed and the full extent of the communications between the Respondents and Mr Foo. This invites the inference that if the court was told the full story it would be unhelpful to the Respondents.

31.  As I have explained the first criteria that the Respondents must satisfy is demonstrating through credible evidence an adequate explanation for their failure to attend trial.  If the evidence is clearly incomplete and invites scepticism the criteria has not been met.  That in my view is the position in the present case and for this reason I will dismiss the application to set the Order aside.

32.  Before turning to the subject of costs I would deal briefly with two further matters.  First, Mr Khaw argued that, on the assumption that  I was satisfied that an adequate explanation had been given, the criteria that there was merit in the defence was also met.  There were various limbs to this submission.  The Respondents say that they were not served with the requisitions or subsequent notices convening the May 2018 extraordinary general meeting.  Given the evidence of postage and the fact that so many members did receive notices I view this evidence with some scepticism. I accept that, as in my view there was no Executive Committee at the relevant time, the attempts to convene a meeting by requisition to the Executive Committee was probably ineffective.  However, it seems to me that there being no Executive Committee it was probably open to  the Petitioner to convene a meeting pursuant to the relevant provisions of the Companies Ordinance, regardless of whether section 113 of the Companies Ordinance (Cap 32), or section 568 of the new Ordinance (Cap 622), applies[1] as the Petitioner clearly had sufficient members supporting a requisition, and in the absence of an Executive Committee could have used the provisions of the Companies Ordinance to, as he did, convene a meeting himself. Mr Khaw argued that the notice of the  meeting was defective as it did not identify the relevant resolutions to be put before members.  It is correct that the notice only talks in general terms about the business to be conducted at the meeting and it is arguable that it was defective. However, the controversy is largely an exercise in futility. Clearly, the Petitioner or any other member able to gather the support  of 5% of members, which I assume includes the Respondents, although at the hearing neither counsel knew the precise number of members,  can convene a meeting and put to it an ordinary resolutions for the removal or addition to the Executive Counsel [2].  It follows that the Respondents could have done this following the January Order.  It is a matter for the members to decide who the Executive Committee consists of not the court and not a self-appointed group of elderly members such as the Respondents.   The Respondents would have more sensibly spent the relatively large sums of money incurred in the various applications to court including the completely unnecessary instructing of three counsel to appear before me, on convening an extraordinary general meeting.

33.  I will dismiss the application to set aside the Order. I will make a costs order nisi that the Respondents pay the Petitioner’s costs on a common fund basis to reflect what in my view has been an unnecessary and wasteful application.