SILVER CITY INTERNATIONAL (HOLDINGS) LTD v. SINO LUCK INVESTMENT LTD

HCMP5412/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.5412 OF 2003

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REASONS FOR DECISION

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1. On 18 March 2004 Deputy Judge Poon after a contested hearing made an order ("Order"), pursuant to sections 111(2) and 114B of the Companies Ordinance for convening an annual general meeting of the 2nd defendant to be held within 28 days, and for the purpose of passing various resolutions as set out in paragraph 1 of the Order. The 1st defendant is appealing against the Order.

2. One of the proposed resolutions to be resolved at the meeting, which for present purposes I will call "Resolution 4(c)", is for the appointment of a Mr Xiong Zheng Feng to be the President (General Manager and Managing Director) of the 2nd defendant. Mr Xiong is nominated by the plaintiff. The current holder of that position is Mr Chan Wai Sun of the 1st defendant. This resolution, if passed, will have the effect of replacing Mr Chan as the President (General Manager and Managing Director) of the 2nd defendant, a position he has held since 1988 to date.

3. The 1st defendant applied to Deputy Judge Poon to stay the execution of the Order in so far as Resolution 4(c) was concerned. Deputy Judge Poon was not available for the hearing and the matter came to me on short notice. I was, however, helpfully assisted by counsel who also appeared before Deputy Judge Poon. At the end of the hearing I refused the application for stay with costs to the plaintiff. I now give my reasons for that decision.

4. The relevant background has been set out in the judgment of Deputy Judge Poon dated 18 March 2004 and I will not repeat them here. The parties are also in agreement as to the relevant applicable principles, which are clearly set out in the judgment of Ma J (as he then was) in Wenden Engineering Service Co. Ltd v. Lee Shing Yue Construction Co. Ltd, unreported, HCCT90/1999, 17 July 2003.

5. In short, Mr Jonathan Wong for the 1st defendant contended that the 1st defendant had an arguable appeal in relation to Resolution 4(c) and if the execution of the Order was not stayed the appeal might be rendered nugatory. In relation to the merits of the appeal, he submitted that it was arguable that the learned Deputy Judge was wrong, in paragraph 36 of his judgment, to reject the 1st defendant's case that the parties' agreement was that the 1st defendant would be responsible for the management of the 2nd defendant and its hotels during the entire period of the joint venture, and that to remove the 1st defendant's representative from that position would be to rewrite the parties' agreement.

6. It was further submitted that if the plaintiff were allowed to take over the management of the 2nd defendant (and with it the management of the hotel in Chengdu owned by the 2nd defendant) irreparable harm might be caused to the 1st defendant and the 2nd defendant. It was in particular emphasised by Mr Wong that the plaintiff had presented a creditors winding-up petition against the 2nd defendant on 12 March 2004 (i.e. after the hearing before Deputy Judge Poon and before his judgment was handed down), so evidently the plaintiff intended to terminate rather than continue the 2nd defendant's business, whereas the 1st defendant intended to continue the 2nd defendant's business. Mr Wong, however, was not able to assist me on what sort of conduct on the part of the plaintiff he had in mind. Mr Wong also placed reliance on the alleged delay on the part of the plaintiff in commencing the action, in that on the evidence the parties had not been in communication with each other since 1998 but the plaintiff did not apply for relief until 2003.

7. On behalf of the plaintiff Miss June Wee contended that the appeal is hopeless, in that the contentions of Mr Wong were contrary to the express provision of clause 3 of the Shareholders Agreement and in any event unsupported by any evidence. Moreover, she submitted that 1st defendant has not made out any case for granting a stay. It was not sufficient for the 1st defendant merely to allege, but without evidence in support, that the plaintiff might do something bad to the 2nd defendant once it had control over the 2nd defendant's management. There was no reasonable ground in support of that mere suspicion.

8. In this connection, she relied on the 3rd affirmation of Mr Huang Zhouchang filed (with leave of this court) on behalf of the plaintiff in opposition to the present application wherein Mr Huang stated in unequivocal terms that the plaintiff intended to conduct the business of the 2nd defendant properly and in its best interest, and undertook on behalf of the plaintiff not to proceed further in the winding-up petition or to vote at any meeting concerning the winding-up of the 2nd defendant pending the resolution of the appeal.

9. Miss Wee further submitted that there was no reason to read into the presentation of the winding-up petition any nefarious intent on the part of the plaintiff. It was submitted that such step was a legitimate step taken by the plaintiff on advice to protect its legitimate interest before the result of the hearing before Deputy Judge Poon was known.

10. I have carefully considered the submissions advanced to me in the light of the relevant legal principles. In my view, the 1st defendant's purported appeal in relation to Resolution 4(c) must be considered to be barely arguable at best. I consider that there is much force in Miss Wee's contention, accepted by the learned Deputy Judge, that the 1st defendant's contention flies in the face of the express terms of clause 3 of the Shareholders Agreement. However, I am not prepared to say at this stage that the appeal is wholly unarguable. In any event, I do not understand Mr Wong to be contending that the merits of the appeal are strongly in his favour, but merely that he has an arguable appeal.

11. Turning then to the other relevant factors, I am not persuaded by the materials placed before me that the appeal would be rendered nugatory if no stay is ordered. It seems to me reasonably clear that the plaintiff commenced these proceedings to obtain control of the 2nd defendant from the 1st defendant because there were legitimate grounds to believe that the 1st defendant had mismanaged the 2nd defendant's business. I also have the clear statement from Mr Huang that the plaintiff intends to conduct the 2nd defendant's business properly. I am unable to find from the fact of presentation of a creditors winding-up petition that the plaintiff's stated intention is untrue.

12. In relation to the question of delay, the materials before me was not sufficient to indicate that the plaintiff had been dilatory. There was certainly nothing close to showing that the plaintiff should not be entitled to enjoy the rights associated with its majority shareholding in the 2nd defendant. Moreover, if the plaintiff or its appointed President and Managing Director should do or threaten to do anything which may be considered to amount to unfair and prejudicial conduct against the minority, no doubt the 1st defendant would be the first one to run to court for appropriate protection.

13. For these reasons I was not satisfied that the 1st defendant has made out a proper case for granting a stay. I therefore refused the application with costs to the plaintiff.