CHAN CHUN CHIU AND OTHERS v. IP KWOK CHUNG AND OTHERS

HCMP 837/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 837 OF 2006

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D E C I S I O N

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1.  I have before me an amended originating summons under section 114B of the Companies Ordinance, Cap. 32.  I am concerned only with paragraphs 5 to 7 of the originating summons, which are for an order that an annual general meeting (“AGM”) of Yaumati Kai Fong Welfare Advancement Association Limited (“the Association”), the 9^th defendant herein, be convened and that consequential directions be given.  The Secretary for Justice was joined as the 8^th defendant as the Association is a charitable organisation.

2.  The 1^st to 7^th defendants seek dismissal of the application.  The Secretary for Justice appeared by counsel and initially informed the court that the Secretary takes a “neutral” stance.  However, Mr Ling who appeared for the Secretary for Justice, later clarified that it is his position that the court has no jurisdiction to order a meeting under section 114B because it has not been shown that it is impracticable to convene an AGM.  Hence the discretion of the court under that provision does not come in.  I would come back to the question of jurisdiction.

3.  I first set out the background matters leading to the issue of the originating summons and the first hearing of the application before me on 26 October 2006.

4.  The Association is a company limited by guarantee and was incorporated on 8 January 1964.  It is the sponsoring body of Yaumati Kai Fong Association School.  There are over 800 members of the Association, most of them are not active.

5.  On 18 September 2004, the 31^st AGM of the Association was held.  A circular letter to convene this meeting was sent to members, asking them to elect not more than 80 “executive and supervisory members” [理監事].  This term “executive and supervisory members” [理 監事] is not found in the memorandum and articles of association at all, it seems to be an amalgamation of membership of the executive committee and the supervisory committee. 

6.  Under article 31 of the articles of association, it is provided that the Association shall have the following committees :

(a)	an executive committee consisting of 101 members;
(b)	an executive standing committee consisting of 39 members; and
(c)	a supervisory committee consisting of 25 members.

7.  In article 32, it is provided that the executive committee shall have ten reserve members, and the supervisory committee shall have five reserve members.  In the case of casual vacancy occurring in the executive committee or in the supervisory committee, such vacancy shall be filled by a reserve member of the particular committee concerned, as stipulated in article 33.  The term of office of a member of the executive committee and the supervisory committee is two years, and a member is eligible for re-election, as stated in article 35.

8.  By virtue of these articles, there is clear differentiation in the membership of the executive committee and the supervisory committee.

9.  The functions of these two distinct committees are clearly provided in the articles.

10.  The relevant provisions for the executive committee are in articles 39, 40, 41, 42, 43 and 44.  In summary, the management of business and control of the Association shall be vested in the executive committee.  The members of the standing committee of the executive committee are elected by members of the executive committee from their own body.  The executive committee is responsible for the general policy of the Association, and the standing committee is responsible for carrying out such policy and for the execution of all powers and duties vested in the executive committee. 

11.  The relevant provisions for the supervisory committee are found in articles 56 and 57.  The function of the supervisory committee shall be to supervise the management of the Association, and the committee shall have the right to check the Association’s accounts.

12.  There is provision in the articles of association for a joint meeting of the supervisory committee and the executive committee.  This is found in article 64, which provides that a joint meeting of the supervisory committee and the executive committee may be convened by the chairmen of the two committees and held at such time and place as they may direct.

13.  The functions and business of such a joint meeting are found in articles 69 and 71.   Article 69 relates to the election of the president and vice-president of the Association by the joint meeting.  Article 71 provides for the election of members to the election committee.  It is provided that 21 members of the executive committee and the supervisory committee shall be elected at a joint meeting of the two committees to form the election committee, and that the election committee shall be responsible for all matters pertaining to the election of members of the executive committee and of the supervisory committee as provided in article 70.

14.  A joint meeting of the executive committee and the supervisory committee should not be confused with joint or amalgamated membership of these two committees.

15.  At the AGM on 18 September 2004, the 1^st plaintiff, the 2^nd  plaintiff and 78 other members were elected “executive and supervisory members”.  These executive and supervisory members held a joint meeting on 5 October 2004, during which the 1^st plaintiff was elected chairman of the executive committee.  The 2^nd plaintiff, the 2^nd defendant and the 4^th  defendant were elected vice chairmen of the executive committee.  The 3^rd defendant, the 5^th defendant and the 6^th defendant were elected vice chairmen of the supervisory committee.  However, of the 80 “executive and supervisory members”, it is not known how many were members of the executive committee [理事] and how many were members of the supervisory committee [監事].

16.  On 11 January 2006, the 1^st plaintiff received a letter from the 2^nd defendant asking that an AGM be called. 

17.  Under article 13, it is provided that a general meeting shall be held once in every calendar year at such time and place as may be appointed by the executive committee.  The plaintiffs took legal advice. They were advised it is not possible to follow the procedure in article 13, as there was no properly appointed executive committee so the Association is unable to call and hold an AGM under this article.  The plaintiffs’ solicitors wrote to the members of the Association to explain these difficulties in a letter dated 28 March 2006.  This was one of the reasons for the originating summons issued on 27 April 2006.

18.  A special meeting of the “executive and supervisory members” was convened by the 2^nd, 4^th, 5^th and 6^th defendants on 11  April  2006, and a resolution was passed to hold an AGM on 16  May  2006.  I understand from the evidence filed by the plaintiffs that no AGM was subsequently held on 16 May 2006.

19.  Correspondence was exchanged between solicitors and the parties tried to resolve their differences through an intermediary, but this was to no avail.

20.  On 27 September 2006, a letter was signed by 42 members, including the 2^nd to 6^th defendants.  They requisitioned an extraordinary general meeting (“EGM”) of the Association pursuant to article 15.  Under this article, an EGM may be convened by one of three methods.  One of them is upon the requisition in writing of not less than 40 members of the Association.  According to the requisition, the business to be transacted at the EGM was as follows :

(1)	to resolve that the Association was to enter into election period, pursuant to article 73, during such time the affairs of the Association should continue to be looked after by outgoing committee until such time when the inauguration of new committees took place;
(2)	to decide on a date for holding a joint meeting of the supervisory committee and the executive committee, to form the election committee and to elect the chairman of the election committee; and
(3)	to form a group to amend the constitution of the Association.

21.  The plaintiffs took out a notice of appointment to hear the originating summons and this came before me on 26 October 2006.

22.  The defendants submitted at the hearing that the EGM was requisitioned in the hope of putting right the irregularities that the plaintiffs complained of.  Without making a definite ruling at that stage, I indicated to the parties that the plaintiffs might have a point about the impracticability of calling an AGM under article 13, but the defendants were proposing to hold an EGM instead.  Holding an EGM upon the requisition of members under article 15 did not require any prior meeting or action on the part of the executive committee.  A notice for the EGM could be issued by the 1^st plaintiff in his capacity as chairman of the executive committee and the EGM would be chaired by the 1^st plaintiff as he was responsible for chairing all general meetings.  I did not think it necessary or appropriate for the court to intervene at that stage and make an order to convene a general meeting, as an EGM was apparently practicable.  I therefore adjourned the originating summons sine die with liberty to restore, and reserved the costs of that hearing.

23.  What happened after that was a litany of errors, which led to the restoration of the application before me on 29 March 2007 and the adjournment of that hearing to today.

24.  In summary, what happened was as follows.

25.  On 11 November 2006, a notice signed by the 1^st plaintiff was issued to convene a meeting on 28 November 2006.  This meeting was not an EGM, but a “joint meeting of executive and supervisory committees”, with an enclosed agenda which was to enter into the election period to form the election committee, and to form a committee to amend the constitution.  The 1^st plaintiff issued a circular letter to all members of the executive and supervisory committees on 18 November 2006 stating that he signed the notice of the aforesaid joint meeting under protest, as the meeting was not in compliance with the articles of association.

26.  On 28 November 2006, a joint meeting of the executive and supervisory committees was held, and the matters set out in the agenda were all passed.

27.  On 5 December 2006, a notice was issued by the 1^st defendant as chairman of the election committee to convene the first meeting of the election committee on 14 December 2006.  The agenda of the meeting to be convened was to resolve on a date for election, and to resolve on a date to hold a general meeting.  The agenda of the general meeting included receiving financial reports and considering a resolution to amend the constitution, and to establish rules for election.

28.  On 14 December 2006, the first meeting of the election committee was held.  The election committee resolved to hold a general meeting on 8 January 2007.  It also resolved that the election date was to be 10 March 2007. 

29.  The election committee has no power to convene a general meeting under the articles of association, whether this be an AGM or EGM.  Under article 71, the election committee is responsible for all matters relating to the election and nothing else.  There is no explanation in the evidence filed by the defendants why an EGM was not convened pursuant to the requisition dated 27 September 2006, in view of the clear indication of the court.

30.  On 8 January 2007, an EGM was held according to the minutes.  This was the meeting convened by the election committee which has no power to convene the meeting.  The meeting resolved to amend 14  provisions in the articles of association and to hold an AGM on 10  March 2007.  Annexed to the minutes were the amendments to the articles of association.  Nothing was done to rectify the omission that no provision was made in the memorandum or articles for an amalgamation of membership of the executive and supervisory committees.  The defendants said in an affirmation that as early as 1990, there were 80  joint members of the “executive and supervisory committees”, that the minutes recording the decision to change the composition of the committees to 80  members cannot be located now due to long lapse of time, and that it was resolved at a joint meeting of the “executive and supervisory committees” on 5  October 2004 to “follow up” the matter at the next AGM and to re-print the memorandum and articles to “record” the matter.  All this is irrelevant.

31.  The fact remains that under paragraph 9 of the memorandum of association, no addition, alteration or amendment shall be made to or in the memorandum or articles of association unless the same shall have been previously submitted to and approved by the Registrar of Companies in writing.

32.  On 7 February 2007, a notice was issued by the chairman of the election committee for the 34^th general meeting to be held on 10  March 2007, and the business of the meeting was to receive financial reports, to appoint auditors, and to elect the 20^th session of “executive and supervisory members”.

33.  On 10 February 2007, the election committee wrote to all members of the Association to the same effect as the notice issued on 7  February 2007.  Enclosed to that letter was a voting ticket for a joint committee of executive and supervisory members, which is not provided for in the constitution.

34.  On 10 March 2007, the AGM convened by the election committee was held, notwithstanding it is not within the power of the election committee to convene the AGM.  The meeting approved the financial reports, resolved on the appointment of auditors, and declared that 80 “executive and supervisory members” were elected by the ballots cast in the voting tickets.  This meeting was not convened in accordance with the articles of association.  The election of members to the amalgamated executive and supervisory committee was also not in compliance with the articles.

35.  On 29 March 2007, the executive and supervisory committee purportedly elected on 10 March 2007 held its first meeting and voted various persons to the offices of chairman, vice chairman and other positions.

36.  The plaintiffs seek an order under section 114B to convene an AGM to transact the following businesses :

(1)	to consider the accounts and balance sheet of the Association, pursuant to article 86;
(2)	to consider the report, if any, of the executive committee;
(3)	to consider the report of the auditors;
(4)	to elect members to the executive committee, pursuant to article 31(a);
(5)	to elect members to the supervisory committee, pursuant to article 31(c); and
(6)	to appoint auditors and fix their remuneration, pursuant to article  90.

37.  The defendants’ primary position is to seek dismissal of the amended originating summons.  Alternatively, if the court should order an AGM be convened, the defendants would seek to hold an AGM to “rectify” (I think this should be “ratify”) all the resolutions passed at the EGM on 8  January  2007, the AGM on 10 March 2007, and the joint meeting of the “executive and supervisory committees” on 27 March 2007.

38.  I would deal with the question of jurisdiction first.  It is only if I am satisfied I have jurisdiction can I consider whether I should exercise my discretion to order an AGM be convened.  The question I need to ask is whether it is impracticable, in the circumstances of this case, that an AGM be convened in the manner as prescribed by the articles of association.

39.  I think it is helpful to bear in mind what Wynn-Parry J said about impracticability to hold a meeting in the present context in In re E1 Sombrero Ltd [1958] 1 Ch 900 at 904 :

“

It is to be observed that the section opens with the words ‘If for any reason,’ and therefore it follows that the section is intended to have, and, indeed, has by reason of its language, a necessarily wide scope.  The next words are ‘…… it is impracticable to call a meeting of a company ……’.  The question then arises, what is the scope of the word ‘impracticable’?  It is conceded that the word ‘impracticable’ is not synonymous with the word ‘impossible’; and it appears to me that the question necessarily raised by the introduction of that word ‘impracticable’ is merely this : examine the circumstances of the particular case and answer the question whether, as a practical matter, the desired meeting of the company can be conducted, there being no doubt, of course, that it can be convened and held.  Upon the face of the section there is no express limitation which would operate to give those words ‘is impracticable’ any less meaning than that which I have stated, and I can find no good reason in the arguments which have been addressed to me on behalf of the respondents for qualifying in any way the force of that word ‘impracticable’ or the interpretation which I have placed upon it, and therefore upon that point I am in favour of the applicant.”

40.  I note that the section is intended to have a wide scope.  Further, the court should examine the circumstances of the particular case and ask, as a practical matter, if the desired AGM could be conducted.  I bear in mind that “impracticable” does not mean impossible in this context.

41.  It was submitted by Mr Ling that the defect in the authority of the election committee to convene the EGM is capable of being cured by a majority of the general meeting.  Similarly, for the AGM on 10  March  2007, Mr Ling submitted that an EGM, properly convened, can pass a resolution to “condone” the want of authority on the part of the election committee to convene the AGM, and an EGM is capable of electing an executive committee and a supervisory committee without the need for intervention of the court.

42.  Here, the only attempt at ratification of the EGM on 8  January 2007 and the AGM on 10 March 2007 was a “resolution” dated 2 April 2007 by the 42 members who had requisitioned an EGM.  This is wholly inadequate.  The defendants have been given more than sufficient time to take such measures as necessary to rectify omissions, errors and irregularities.  This application was twice adjourned, in October 2006 and in March 2007.

43.  The defendants have in their latest affirmation sought ratification of all the resolutions passed at the EGM on 8 January 2007, the AGM on 10 March 2007, and the joint meeting of the executive and supervisory committees on 29 March 2007.  But ratification is not possible if this is ultra vires the Association.  Here the problem is that there is no provision in the articles of association for an amalgamated committee of executive and supervisory members.  Without amendment of the articles of association to cure that omission, the amendment to the numbers of members in an amalgamated executive and supervisory committee purportedly passed in the EGM on 8 January 2007 was of no avail, the election of the 80 members to the amalgamated committee at the AGM on 10 March 2007 was invalid, the election of individuals to various offices at the joint meeting of the executive and supervisory committees on 29 March 2007 was likewise invalid.

44.  If the defendants had been following proper legal advice, it might not be impracticable for irregularities to be rectified and that an AGM be properly convened.  Regrettably, this has not happened, despite the ample opportunities given to the defendants.  On the present evidence, notwithstanding the submission of the defendants’ counsel Miss Lau, I cannot but think that if the matter were left wholly to the defendants, no or no proper steps would be taken for an AGM to be properly convened and for the members of the executive committee and the supervisory committee to be properly elected.

45.  I hold in the very peculiar circumstances of this case that it is impracticable to convene an AGM.  It is appropriate in this situation that the court should take a firm line, exercise its discretion to order an AGM to be held under section 114B, to transact the six items of business sought by the plaintiffs as set out earlier.

46.  I have considered the draft order submitted by the plaintiffs.  Subject to what the parties have to say, other than paragraph 1 of the draft order, I am prepared to make an order as per paragraphs 2, 3, 4 and 10.

47.  The plaintiffs seek an order that the 1^st to 6^th  defendants do pay their costs in these proceedings from and after the hearing on 26  October 2006 and that there be no order as to costs as between the plaintiffs and the 8^th defendant.  Mr Ling seeks an order that the costs of the 8^th defendant be borne by the 1^st and 7^th defendants.  I think these orders are justified. 

48.  I reject Miss Lau’s application that the plaintiffs should pay the costs of the 7^th defendant.  The 7^th defendant was a necessary party before October 2006.  As for what happened after October 2006, nothing specific was done as regards the 7^th  defendant and I do not think the plaintiffs have behaved unreasonably.  As I have said, the plaintiffs do not seek costs against the 7^th plaintiff.  Justice will be met by making no order as regards the 7^th defendant in so far as the plaintiff’s costs are concerned.  Miss Lau submitted that the plaintiffs should not have their costs against the 1^st to 6^th defendants on the grounds that the plaintiffs are not members of the Association and have no locus standi to bring this application and that the 1^st plaintiff has not been doing his job as the chairman.  I reject all these contentions. 

49.  I make an order in terms of paragraphs 11 to 14 of the draft order save that in paragraph 11, it is provided that only the 1^st to 6^th defendants are to pay the plaintiffs’ costs.