XCHRX SUMMIT VICTORY (HONG KONG) LTD. v. MA ON SHAN WHITEHEAD GOLF CENTRE LTD.

HCMP 5136/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5136 OF 2001

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D E C I S I O N

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1. This is an application by way of Originating Summons under s.114B of the Companies Ordinance, by a shareholder of a company for an order that an Extraordinary General Meeting of the Company be convened as soon as practicable for the purposes of considering, and if thought fit, passing a resolution to appoint solicitors to act on behalf of the company to defend a particular action, and that one member holding less than 51% of the paid up share capital of the Company, present in person or by proxy, shall be deemed to constitute such a meeting.

2. S114B Companies Ordinance provides that if for any reason it is impracticable to call a meeting of a company in any manner in which meetings of that company may be called, or to conduct a meeting of the company in the manner prescribed by the articles or the Ordinance, the court may, either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting, order a meeting of the company to be called, held and conducted in such manner as the court thinks fit and where any such order is made, may give such ancillary or consequential directions as it thinks expedient, including a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting.

3. S.114B is usually applied for where there is an insufficient quorum of shareholders for a meeting. That insufficiency of quorum may be intentional, for example, where shareholders deliberately refuse to attend meetings, or it may be incidental, for example, where shareholders have died or are unable to attend.

4. In the present case, Summit Victory (Hong Kong) Limited and Wandex Limited are equal shareholders in a company by the name of Ma On Shan Whitehead Golf Centre Limited (the Company). Summit Victory and Wandex are equally represented on the Board of Directors. At the moment there is an unfair prejudice petition before the court and indeed there are a number of other proceedings between these two camps.

5. The land occupied by the Company is held from the Government by a company called Pacific Drayage Co Ltd. It is a company that controls Wandex. The Company has not paid rates, and Pacific Drayage has issued proceedings against the Company. Summit Vicotry is now asking for a s.114B order to enable a meeting to be attended by only itself to take place, and it has been submitted on behalf of Summit Victory that Wandex should be conflicted out of voting at that meeting because it is controlled by Pacific Drayage.

6. In my view, the present application is misconceived. A shareholder's right to attend a shareholders' meeting is a right under the articles of association. S.114B is not to be applied for the purpose of defeating that class right. Wandex can attend and vote at that meeting as it considers it appropriate (subject of course to its duties in law and in equity). Indeed Wandex may not be acting entirely selfishly if it were to vote against defending the action, given that the Company is indisputably in occupation of the property, that rating in Hong Kong is an occupier's rate and it has not been suggested by Summit Victory that there is any agreement between the Company and Pacific Drayage to the contrary.

7. If Summit Victory considers that a deadlock at that meeting may not be in the best interests of the Company, or that the Board of Directors is not in a position to act in the best interests of the Company, there are other measures that Summit Victory can take. In the course of submissions this morning, I have mooted with those acting on behalf of Summit Victory measures such as applying to court for the appointment of a receiver or for provisional liquidators, but that has not been adopted by Summit Victory.

8. As I have indicated, asking a court to order a one-shareholder meeting under s.114B is, in my view, not the appropriate measure to take for the purposes of resolving what is considered to be a deadlock situation. It has been well established in cases that s.114B is not an appropriate vehicle for resolving deadlock between two equal shareholders since this section does not empower the court to break a deadlock whether of a board meeting or a general meeting. Accordingly, I take the view that this Originating Summons ought to be dismissed with costs.