CHING SHING TRADING CO LTD v. LEE SIP HOP AND OTHERS

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HEADNOTE

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                On its true construction Article 83 of Table A (old numbering) empowers a surviving director to appoint a new director where the surviving director does not constitute a quorum, even though the Board itself, is not empowered to appoint addition directors or to fill a casual vacancy.

IN THE COURT OF APPEAL

(ON APPEAL FROM HIGH COURT ACTION NO. A2286 OF 1985)

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BETWEEN

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JUDGMENT

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Hunter, J.

1. Ching Shing Trading Company Limited, plaintiff in this action was incorporated in 1981. By its Articles of Association it embraced Table A of the Companies Ordinance with certain exceptions. One of the articles which it so embraced and adopted was Article 83 of the old Table A.

2. I say old Table A because last year the latest Companies Ordinance was enacted which adopted a totally new Table A and without the benefit of any sort of comparative schedule. This has now created something of a trap for the unwary.  It is going to be very easy for people to look at a Company's Articles; see that they have adopted Table A of Cap. 32; then look up Cap. 32 thinking they are looking at the right Table A, and without discovering they are looking at wrong one. I think it is very unfortunate that the legislature has adopted this course, which I fear will mislead both lawyers and businessmen.

3. As I say this company adopted Table A with certain exclusions; one of the Articles they adopted was Article 83; and the only issue which arises on this appeal is the true construction of that article.

4. The matter arises in this way. The company was a two man company. It had two shareholders and two Directors. One of the shareholders and Directors was the 1st defendant. The other was a gentleman by the name of Lui. The first defendant on the 13th of October of last year, pleaded guilty to a number of charges of 'procuring the execution of a valuable security by deception', as it is alleged in this action to the detriment of the plaintiff company. The action is brought to recover damages for conspiracy against the 1st defendant and against the two other persons which it is said where parties to this deception.

5. The effect of that conviction was that the 1st defendant ceased to be a Director because the Articles expressly adopted by the company included these; first, Article 9 which said that there should be not less than two Directors; Article 13 which provided two as the quorum for a Director's Meeting and Article 14 which said the office of a director "shall be vacated if he is convicted of an indictable offence". So that as a result of that conviction, this company was left with one Director, Mr Lui.  As a result of that, he called what he called a Director's Meeting on the 11th of November 1984, and appointed a clansman of his, Lui Yuk Lu, as a Director. Those two gentlemen thereafter purported to act as a board and to authorise the institution of the present proceedings.

6. That step is challenged by the defendant.  He has put in a defence to the proceedings denying any question of fraud or conspiracy and indeed asserting that what he did was done for the benefit of the company. But apparently he prefers to stop the action in limine if he can. Therefore he has coe before the Court and asks for the action to be dismissed as incompetent, upon the basis that the action is not properly authorised by the company because the company has no effective board. That summons was dismissed by Master Crawshaw on 23rd June. The appeal against the dismissal was likewise rejected by Deputy Judge Betts on 20th September. It is against the judges' determination that this appeal is brought.

7. The short point is this. If Article 83 means what it apparently says, then the appointment of this addition Director by Mr Lui was plainly valid.  What Article 83 says is this, "The continuing Directors may act notwithstanding any vacancy in their body but, if and so long as their number is reduced below the number fixed by or pursuant to the regulations of the company as a necessary quorum of Directors, the continuing Directors may act for the purpose of increasing the number of Directors to that number, or of summoning a General Meeting of the company, but for no other purpose". The judge concluded that what happened here falls four square within the plain words of that Article. The quorum as I said was two. The conviction of the 1st defendant has reduced the number below two. The continuing Director, Mr Lui, is empowered to act for the purpose of increasing the number of Directors to that number, two, and for no other purpose. This is exactly what he has done.

8. Mr Chain, who appears for the appellant and has said everything that could possibly be said on his behalf has advanced a very complex argument as to the meaning of this Article.   He starts by saying first of all, that the Article is part enabling part disabling. It is enabling he says first, because the continuing Directors "may act notwithstanding any vacancy". This enables the continuing Directors or Director to do anything which the full board could do notwithstanding the vacancy. That he says is the prima facie meaning of the first few words. With that I agree. But he labels the second part disabling, and insists that it must cut down the full breadth of the first part. This leaves it with no meaning on his construction. He points out that the continuing Director here, apart from this Article, would have had no power to fill a casual vacancy, or appoint an additional Director to the Board because this company did not in fact, adopt Articles 78 or 79 of the old Table A. Therefore, because he says the second half is disabling, there can be no way of adding that power. But there is no justification as we see it, for labelling the second part disabling. In the circumstances of this company, it is perfectly true that the continuing Director would have had no power to appoint an additional Director apart from Article 83. But Article 83 is in fact, a fall back position. Article 83 is intended to ensure that the company is not paralysed if for any reason the Directors are reduced below the quorum. It is there precisely to fit the present contingency. It is that which gives the continuing Director power to act for the purpose of increasing the number. Those words have meaning. Those words would be given no meaning at all on Mr Chain's construction, which accordingly we have no hesitation in rejecting.

9. It seems to us that there is no merit in this appeal which must be dismissed with costs.