YEUNG WEI SUNG v. LAI CHOR PROFITS LTD AND ANOTHER

HCMP 5059/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5059 OF 2002

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J U D G M E N T

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1. This is an application by Mr Yeung Wei Sung under section 114B of the Companies Ordinance, Cap. 32 for an order that a meeting of Eastern Spark Development Limited ("the Company") be called and a direction that one member of the Company present in person or by proxy shall be deemed to constitute a meeting. Mr Yeung is a director of the Company.

2. The Company is wholly owned by Yau Lee Investments Limited ("Yau Lee"), which is a company incorporated in the British Virgin Islands. 99% of the shares in the Company are held by Yau Lee and the remaining 1% is held by Madam Cheung Mei Shan Charlotte ("Madam Cheung") as the nominee for Yau Lee.

3. Yau Lee is owned as to 50% by Sheraton Management Limited ("Sheraton") and 50% by Lai Chor Profits Limited ("Lai Chor"). Sheraton and Lai Chor are also companies incorporated in the British Virgin Islands. Mr Yeung is a director and major shareholder of Sheraton.

4. Yau Lee was established in these circumstances.

5. On 23 May1992, a joint venture agreement was entered into between a state corporation in the Mainland known as Yue Xiu Land Properties Development Company ("Yue Xiu") and the Company for the construction and development of a property in Guangzhou. The joint venture agreement was for the period of ten years from 23 May 1992 and the funding for the development was to be provided by the Company.

6. In 1993, Mr Yeung, acting on behalf of Sheraton, successfully negotiated with the Company to purchase 50% interest in the Company and paid over HK$131 million for the right to develop the property in Guangzhou, which was to be renamed Eastpark Building. The other 50% of the shares in the Company remained with the previous owners who later incorporated Lai Chor to hold their interest.

7. On 3 August 1993, Sheraton and Lai Chor entered into a shareholders' agreement to regulate their rights in relation to Yau Lee, which was established for the purpose of holding all but one share in the Company. As mentioned before, the remaining share in the Company is held by Madam Cheung as the nominee of Yau Lee.

8. It was provided inter alia in the shareholders' agreement that:

(1) if any provision of the Memorandum and Articles of Association of Yau Lee should conflict with any provisions of the shareholders' agreement, the provisions of the shareholders' agreement shall prevail;

(2) each of the parties shall exercise all voting rights and other powers of control in relation to Yau Lee so as to procure at all times during the term of the shareholders' agreement, the provisions concerning the structure and organization of Yau Lee and the regulation of its affairs set out in the shareholders' agreement are duly observed;

(3) each of the parties shall exercise all voting rights and other powers of control to ensure that any meeting of the board and every general meeting of the Company has the necessary quorum throughout;

(4) the number of directors of the Company shall be not less than four, with two appointed by Sheraton and two by Lai Chor;

(5) all bank accounts of Lau Lee are to be operated by one director appointed by Lai Chor and one director appointed by Sheraton jointly;

(6) the parties shall each use all reasonable endeavours to procure the working capital requirements of Yau Lee or the Company shall be satisfied;

(7) all daily managerial and administrative works of Yau Lee and the Company are to be supervised by the directors appointed by Lai Chor;

(8) any of the parties would be entitled to terminate the shareholders' agreement if there is material breach of any obligation in the agreement committed by the other party, and notice has been served on the party in breach requiring that party to remedy the breach within 30 days, and the breach is not remedied.

9. The joint venture with Yue Xiu had expired on 23 May 2002. The development of Eastpark Building has been suspended. Yue Xiu has raised the question if the joint venture agreement is to be extended. Sheraton is desirous of doing so and for that purpose is willing to inject HK$2 million initially into the Company to finance the joint venture.

10. There are at present four directors of the Company, two appointed by Sheraton, being Mr Yeung and his son, and two appointed by Lai Chor, being Mr Chen Jian Rong and Madam Cheung. In accordance with the shareholders' agreement, the directors appointed by Lai Chor have all along had management of Yau Lee and the Company. All books and records of the Company, its seal and chops were kept at the office of Lai Chor at Shun Tak Centre, Hong Kong.

11. Since about April 2002, Mr Yeung has tried to contact the directors appointed by Lai Chor to seek their views on the extension of the joint venture agreement and injection of capital but was unable to locate them. The office of Lai Chor at Shun Tak Centre was abandoned, the directors did not leave any forwarding address or contact telephone numbers. Enquiries were made through all possible contacts to find them but were met with no success. The operation of the Company has come to a standstill as all its documents, books of account, seal and chops are with Lai Chor.

12. Under the Articles of Association of Yau Lee, it was provided in article 73 that a meeting of members is duly constituted if at the commencement of the meeting, there are present in person or by proxy not less than 50% of the votes of the shares entitled to vote and if a quorum is present, notwithstanding such quorum may be represented by only one person, such person may resolve any matter at the meeting. As Sheraton holds 50% of the shares in Yau Lee, Sheraton is able to constitute a quorum for a meeting of members.

13. Under the Articles of Association of the Company, it is provided in article 8(a) that the quorum for the transaction of business at any general meeting shall be two members present or by proxy. The only two members of the Company are Yau Lee and Madam Cheung. As Madam Cheung cannot be located, it would not be possible to constitute a quorum for a general meeting of the Company.

14. On 10 October 2002, Sheraton served a notice on Lai Chor under the shareholders' agreement informing it of its breaches under the agreement and requiring Lai Chor to remedy the breaches within 30 days thereof. The notice was served on Lai Chor at the address at Shun Tak Centre and on the registered agent of Lai Chor in the British Virgin Islands. No response has been received from Lai Chor to this notice.

15. Also on 10 October 2002, Mr Yeung, as a director of the Company, issued a notice of an extraordinary general meeting of the Company to be held on 15 November 2002 for considering inter alia the following resolutions:

(1) that the Company do continue to honour its obligations under the joint venture and to extend the joint venture for a further term of ten years;

(2) to finance the joint venture, the Company do increase its share capital by HK$2 million by issuing two million shares to be subscribed by Sheraton and to further finance the joint venture, the directors be authorized to increase the capital for such amount and at such time as the directors may think fit;

(3) Mr Yeung be authorized to alter or replace the authorized signatories of the bank accounts of the Company.

16. The notice of an extraordinary general meeting with proxy forms were served on inter alia the following:

(1) Yau Lee, one of the two shareholders, at the address at Shun Tak Centre on 16 October 2002 and at its registered office in care of its registered agent in the British Virgin Islands, HWR Services Ltd, on the same day;

(2) Madam Cheung, the other shareholder, at an address in Concordia Plaza in Tsimshatsui East, being her address provided in the annual return of the Company, which is the same as the registered office of the Company by a Notification of situation of registered office filed in the Companies Registry in July 2001 and on the address at Shun Tak Centre;

(3) Lai Chor, at the address in Shun Tak Centre and at its registered office in care of its registered agent HWR Services Limited on 16 October 2002.

17. No response was received from any of the above and none of these parties turned up at the meeting of the Company on 15 November 2002.

18. The present application was issued on 5 December 2002 as an ex parte originating summons. It came before me on 19 December 2002. I gave leave to substitute Mr Yeung as the applicant in lieu of Sheraton and to amend the originating summons so that it becomes an application made inter partes. Lai Chor and Yau Lee were made Respondents to the originating summons and leave was given for these companies to be served out of the jurisdiction. It would appear from the affirmations of service filed that the Respondents have been duly served with the papers in these proceedings.

19. In my judgment, it would be proper to direct a calling of the general meeting in these circumstances where it is impracticable for such a meeting to be held. Despite efforts made to locate Madam Cheung, it has not been possible to contact her. It is necessary for the Company to make a decision about seeking an extension under the joint venture agreement, which had expired in May 2002, and for that purpose to resolve on raising further capital to finance the development. I am satisfied that proper notice of the extraordinary general meeting and of the present application has been given to all parties who may be affected. I decide to exercise my discretion to order that an extraordinary general meeting be called, held and conducted and to direct that one member of the Company present in person or by proxy shall be deemed to constitute a meeting.

20. I make no order as to the costs of this application.