TRADEPOWER (HOLDINGS) LTD v. TRADEPOWER (HONG KONG) LTD AND OTHERS

HCA1796/2005
& HCMP2540/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1796 OF 2005

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BETWEEN

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AND

MISCELLANEOUS PROCEEDINGS NO. 2540 OF 2008

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BETWEEN

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(Heard together)

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D E C I S I O N

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Introduction

1. This is an application by the plaintiff (now in liquidation) for an order :

(1)     an EGM of the 1^st defendant to be held pursuant to section 114B of the Companies Ordinance, Cap. 32 (“the Ordinance”) whereby the plaintiff attending alone shall constitute sufficient quorum for the purpose of passing the resolutions set out in the schedule to the summons, including the removal of the 4^th and 5^th defendants as directors and the 3^rd defendant as secretary;

(2)     the defendants do forthwith deliver to the plaintiff all books, records, documents and other properties of the 1^st defendant;

(3)     the defendants be restrained from taking any steps to dispose of or otherwise encumber the landed Properties of the 1^st defendant; and

(4)     the 2^nd defendant be restrained from taking any steps to proceed with HCA2288/2008 until the order in paragraphs 1 and 2 have been fully complied with. 

Background

2. The background circumstances of the present action were well summarized in the judgment of the Court of Appeal in CACV101/2008, unreported, 5 November 2008.  I shall not repeat theme here.  In short, the plaintiff sued the defendants to set aside a deferred scheme effected by them in September 1999 whereby the 3^rd defendant gained control of the 1^st defendant from the plaintiff.  The plaintiff’s claim failed before Recorder Jat, SC.  But it won on appeal.  The Court of Appeal declared that the scheme had been set up with the intention of defrauding the plaintiff’s creditors and ordered it to be set aside (“the Order”).  The defendants then applied for a stay of the Order pending appeal to the Court of Final Appeal.  That was refused by the Court of Appeal on 11 February 2009.  The defendants’ application for leave to appeal to the Court of Final Appeal against the Order was also refused by the Court of Appeal on 6 March 2009. 

3. The defendants remain undeterred.  On 10 March 2009, they applied to the Court of Final Appeal for leave to appeal against the Order and a stay of its execution. 

4. Separately, the 2^nd defendant commenced HCA2288/2008 against the 1^st defendant claiming that it is the beneficial owner of the shares in question.  The writ has yet to be served. 

5. I will deal with the relief that the plaintiff seeks in turn. 

Convening the EGM

6. Section 114B(1) provides :

“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…the court may…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 1 member of the company present in person or by proxy shall be deemed to constitute a meeting.”

By invoking section 114B(1), the plaintiff is in effect trying to enforce the Order. 

7. The plaintiff first needs to demonstrate that it is impracticable to call a meeting of the 1^st defendant.  Mr Toms, for the defendants, argued that there is no evidence to show that it is impracticable to call a meeting because the plaintiff has not asked the current directors, the 4^th and 5^th defendants, to call one or requisitioned a meeting to be called under section 113 of the Ordinance. 

8. I disagree.  Whether or not it is impracticable to call a meeting must depend on the circumstances.  The refusal by the directors to call a meeting is one way of proving impracticability but not the only one.  Here, by letters dated 20 and 24 November 2008, the plaintiff had requested the 3^rd to 5^th defendants to sign a set of resolutions pursuant to section 116B of the Ordinance.  These resolutions were just the same as those which would be placed at the section 114B meeting.  The request was refused.  That being the case, no reasonable person would imagine that the 4^th and 5^th defendants as current directors would be prepared to accede to any request to call a meeting to pass exactly the same set of resolutions, which they had already refused to sign.  In reality, asking them to calling a meeting for that very purpose is simply meaningless.  The only inference to be drawn in these circumstances is that it is impracticable to call a meeting through them. 

9. As to section 113, I agree with the submission of Mr Wong for the plaintiff that an application under section 114B is not conditional upon any failure or inability to call a meeting under section 113.  Further, as I have observed in the course of submissions, it would be a recipe for further dispute if the plaintiff were to follow section 113.  For the defendants, who refused to accept that the plaintiff is the beneficial and majority shareholder of the 1^st defendant despite the Order, would certainly dispute the validity of the meeting and the resolutions passed at that meeting. 

10. For the above reasons, I am satisfied that the plaintiff has passed the first hurdle of proving impracticability of calling a meeting. 

11. I next turn to consider if I should exercise my discretion in favour of the plaintiff after taking into account of all the circumstances.  As noted, the plaintiff by invoking section 114B seeks to enforce the Order.  In the absence of a stay, the plaintiff is quite entitled to the fruits of the judgment without ado.  Mr Toms submitted that if a meeting is to be ordered, the court will be prejudging the stay application now pending before the Court of Final Appeal.  I disagree. 

12. Mr Toms agreed that the stay application will be premised on the ground that in the absence of a stay, the appeal to the Court of Final Appeal will be rendered nugatory.  But as rightly pointed out by the Court of Appeal in refusing the stay application, the appeal to the Court of Final Appeal will not be rendered nugatory.  The circumstances have not changed since then and Mr Toms has not advanced any argument to support his mere contention that the Court of Appeal was wrong in refusing the stay application. 

13. Further, when the matter is viewed practically, the stake of the parties’ dispute is in real terms the landed properties held by the 1^st defendant.  Any change in the beneficial ownership of the majority shareholding in the 1^st defendant, even assuming that the Court of Final Appeal in the end allows the defendants’ appeal, will not impact on those landed properties for the time being.  It is because the plaintiff has given an undertaking to give 14 days’ notice of any sale of the properties, which will give the defendants sufficient time (if they consider appropriate) to apply for an injunction. 

14. Having considered all the circumstances, I think it is fair and just to order a meeting.  And I so order. 

Delivery up

15. I next turn to the relief for delivery up.  It is really a consequential direction upon the holding of the EGM under section 114B.  In principle, I will allow it subject to three adjustments. 

16. First, the word “properties” in paragraph 1(2) above is too wide.  It should be revised to read “company seals, chops and cheque books”. 

17. Second, there is no evidence before me to show that the 2^nd defendant is in possession of the items concerned.  So no order should be made against it for the time being. 

18. Third, the items should be delivered to the newly constituted board of directors after the holding of the EGM and not the plaintiff. 

19. Subject to the above, I will order the delivery up within 7 days after the holding of the EGM under section 114B. 

Disposal of the landed properties and the restraint against the 2^nd defendant from taking steps in HCA2288/2008

20. These matters are disposed of by Mr Toms giving an undertaking in terms of paragraphs 1(3) and (4) above until the holding of the EGM, which was accepted by Mr Wong. 

21. Finally, I need to deal with the following matters which may have a bearing on costs.

22. First, Mr Wong accepted and rightly so in my view that the court has no jurisdiction to make an order pursuant to section 114B under paragraph 1 of the summons filed in HCA1796/2005. 

23. Second, I agree with Mr Wong’s submission that all the parties to HCMP2540/2008 are properly joined.  The 1^st defendant, being the company in question, is a nominal defendant.  The 2^nd defendant is the beneficial owner of the 1 share held in the name of the 3^rd defendant.  So in their respective capacity as the beneficial and legal owner of that share, they need to be joined.  The 4^th and 5^th defendants are the current directors.  They must be made a party to these proceedings. 

24. I will now hear the parties on the terms of the order and costs.