LEUNG ALFRED CHEUKWAH v. UNITY INVESTMENTS HOLDINGS LTD

HCMP 1885/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1885 OF 2005

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D E C I S I O N

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1.  This is an application for an interlocutory injunction to restrain the defendant from holding an EGM on 13 September 2005 and to postpone that EGM to a later date.  The said EGM is concerned with :

(1)	a proposed shares consolidation;
(2)	change of  board lot size;
(3)	proposed rights issue; and
(4)	amendments to the articles of association.

The defendant is a company listed on the Hong Kong Stock Exchange (“HKSE”).

2.  It is obvious that the plaintiff holds a dim view of the proposed share consolidation and proposed rights issue.  These two matters appear to be the main cause of his dissatisfaction and the primary reason for this application. 

3.  At one stage, the plaintiff contended that the matters to be voted on at the EGM if approved would cause harm to the defendant.  This contention is later abandoned and the plaintiff only argues that an interlocutory injunction should be granted to give time to HKSE and/or the Securities and Futures Commission (“SFC”) to investigate into the question of whether “connected persons” can vote at the said EGM. 

4.  The legal principles relating to the grant of interlocutory injunctions are trite and can be summarized as follows:

(1)	there is a serious question to be tried;
(2)	the balance of convenience is in favour of the grant of an injunction.

5.  In relation to the issue of a serious question to be tried, the plaintiff relies on two matters : 

(1)	there is a breach of fiduciary or other duties by the directors:
	s. 350B(1)(h), Companies Ordinance (Cap. 32);
(2)	there will be a breach of the listing rules in that “connected persons” will vote at the said EGM.

6.   The plaintiff’s case about alleged breach of duties by the directors is in short premised on :

(a)	an alleged constant decline in the share prices of the defendant;
(b)	an alleged decrease in the value of the defendant’s assets.

I do not find that either or both of these matters show that there may have been a breach of duties on the part of the directors.  The directors may not have met the expectations of some of the shareholders when share prices declined or asset value decreased.  But such can occur even without any breach of director’s duties.  There is therefore no serious question to be tried regarding this matter.

7.   The plaintiff’s complaint about “connected persons” voting at the said EGM is basically this.  Some of the shareholders are in reality controlled by the board of directors (or some of the directors on the board) who proposed the matters to be voted on; it is accordingly almost certain that these shareholders would vote in favour of those matters.  The plaintiff complained that this would result in unfairness.  It is a fact of life that directors of companies are often shareholders of that company,  sometimes even majority shareholders. I know of no legal principle which prohibits such shareholders from voting on matters proposed by the board of directors purely because there has been an overlap in identity.  There may be a need for disclosure to be made pursuant to HKSE’s and/or SFC’s rules or directives.  But even if that was the case, the fact that such shareholders may take part in voting is not a ground for bringing this application.

8.    I do not regard the plaintiff’s case concerning giving time to  HKSE and/or SFC to investigate into the “connected persons” complaint, by itself, to justify the grant of an interlocutory injunction. 

9.  Other points have been advanced by the defendant in the skeleton argument in opposition to this application, I also agree with those points save as regards the submissions about the plaintiff’s locus standi to bring this application.  I do not regard it necessary to determine that issue and have proceeded on the basis that the plaintiff has locus to bring this application. 

10.  In the result, the application is refused.