WO YU WAI AND OTHERS v. THE FEDERATION OF HONG KONG CHINESE TRAVEL AGENTS LTD AND OTHERS

HCMP395/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 395 OF 2010

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REASONS  FOR  JUDGMENT

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BACKGROUND

A.      The Executive Committee

1. The applicants are the members and directors of the 1^st respondent, the Federation of Hong Kong Chinese Travel Agents Limited (“the Federation”).  The applicants are also members of its 21^st Executive Committee (“the 21 Exco”).  The 2^nd to 20^th respondents are either other members of the 21 Exco or past Presidents of the Federation.

2. From the Affidavit of the 5^th applicant, Chan Kwai Fun, the 21 Exco on 21 December 2009 discussed the election mechanism of the 22^nd Executive Committee (“the 22 Exco”).  The proposal was that the 21 Exco members should stay in office and be appointed to form the 22 Exco (except the Chairman who had to retire under Art 32(c) of the Articles of Association). 

3. This resolution was passed by a majority of 15 against 3.  The applicants objected to this resolution and instituted these proceedings  (HCMP395/2010) against the respondents on 3 March 2010.  An injunction application was also made on 3 March 2010 and the parties later agreed by consent that the election of members of the 22 Exco would be held at the adjourned Annual General Meeting (“the AGM”).

B.      The Election Committee

4. From the Affirmation of the 2^nd respondent, Tse Kam Shan Ricky, the Election Committee (“EC”) held a meeting on 15 December 2009.  The members of the EC include current and past presidents of the Federation and two other persons. 

5. According to Mr Tse, the rationale for establishing the EC is as follows :

“It has been the practice of the Federation, acting through its Executive Committee (‘Exco’), for the past elections to set up and appoint members to an Election Committee.  The purpose of the Election Committee was to formulate and recommend to Exco a set of fair, just and open rules for the election of members to the Exco.”

6. The EC recommended that the number of members of the 22 Exco shall be 20 (excluding the outgoing president) and that each member shall be entitled to vote for a minimum of one candidate and not more than 10 candidates (“the Voting Mechanism”).  The recommendation of the EC was discussed by the 21 Exco on 24 March 2010 and was adopted by the 21 Exco on that date (“the Voting Resolution”). 

7. Mr Tse explained that the maximum number of votes was fixed at 10 for the following reason :

“11.     With a maximum of 20 votes for each member for 20 seats (as an example), any clique or bloc of members could concentrate their votes on their own bloc of 11 candidates (as an example) and not utilize the remaining 9 votes.  This would enable any clique or bloc of members to be elected to Exco en masse and thereby control Exco.  If the number of maximum votes that can be casted [sic] by each member is limited to half of the seats available for election, the law of averages would mean it would be more difficult for any clique or bloc of members to be voted into the Exco en masse by use of proxies or otherwise.”

8. The 1^st applicant in his second affirmation states that the idea of the Voting Mechanism first came up on 25 December 2009, and that was a meeting purporting to be the first meeting of the 22 Exco.  He produced a document entitled “第二十二屆選舉委員會第一次會議記錄” (B/219 of the Bundle).  The document is dated 15 December 2009.  Mr Colin Shipp for the respondents (except the 1^st, 8^th, 11^th, 15^th, 16^th) pointed out that it is a mistake on the part of the applicants.  It appears that the 1^st applicant made a mistake when translating the document title.  The proper translation should be “Election Committee”, not “Executive Committee” for the words “選舉委員會”.  He also appears to have got the date wrong.  Mr Vincent Lung, who appears for the applicants, also made the same mistake in his submission.  In other words, this apparently was the 1^st Election Committee meeting for the election of the 22 Exco and not the 22 Exco itself, which had not even been elected.

C.      The chronology of events

9. From the documents before me, it appears that the EC resolution on the Voting Mechanism was passed on 15 December 2009, 6 days before the Voting Resolution was passed by the 21 Exco on 21 December 2009.  The EC recommendation was not discussed on 21 December 2009 and it was adopted only at a much later date, on 24 March 2010, after the parties agreed to adjourn the AGM scheduled on 11 March 2010.

10. Neither parties attempted to explain why the EC recommendation was not discussed on 21 December 2009, especially when the current President, Mr Tse (2^nd respondent) was present in both the EC and the 21 Exco meetings.

THE APPLICATION

11. By an inter parte summons the applicants now seek, inter alia, a declaration that the Voting Resolution is invalid, and that “the [maximum] number of candidates elected by each member eligible to vote in the election be the number of 20” instead of 10.

THE ISSUE

12. Regardless of the mistakes mentioned above, it is clear from the parties’ submissions that the primary issue is whether the Voting Resolution was valid.  Mr Shipp submitted that if the Voting Resolution was valid then the court should not interfere with the internal management of the Federation.  Mr Lung conceded that if the Voting Resolution was valid then the application must necessarily fail, but he submitted that the Voting Resolution was not valid because it would offend Article 47(e) of the Articles of Association which provided as follows :

“Article 47.  The election of Executive Committee Members shall take place in the following manner :

(a)       The number of the members of the Executive Committee to be elected in the incoming Executive Committee shall be determined by the outgoing Executive Committee which must be stated in the Notice of Annual General Meeting.

(b)       Any two Ordinary Members of the Association may nominate any Ordinary Member to be elected and serve on the Executive Committee of the Federation at the Annual General Meeting.

(c)       If there is no nomination, then the Executive Committee members retiring shall be deemed to be nominated for re-election.

(d)       In case there shall not be sufficient number of candidates nominated then all the Executive Committee members who have not been so nominated for election shall (unless they otherwise agree among themselves) be determined by lot to fill up the remaining vacancy or vacancies.  All the Executive Committee Members shall retire from the office of the Executive Committee at the Annual General Meeting of the Federation after the expiry of their term of office but shall then be eligible for re-election at the meeting and the retiring Executive Committee Member shall, if offering himself for re-election, be deemed to have been nominated and shall be listed as a candidate for election to be a Executive Committee Member.  A list of nominations of candidates for election to membership of the Executive Committee will be circulated at least 7 days before date of the Annual General Meeting.  The list of nominations will specify the name of the nominee, the corporation or Firm by which he or she is employed and the position which he or she holds therein.  No person, other than the Executive Committee Members retiring at the meeting, may be listed as a nominee unless he or she has caused to be deposited with the Secretary of the Federation not less than 14 days before the date appointed for the Annual General Meeting confirming the consent both of the person in question and the Firm or corporation by which that person is employed that he or she is prepared in the event of election to act as a member of the Executive Committee for the entire term of the Executive Committee.

(e)       Every representative appointed by the company member can vote but the number of vote is limited to one.  Every representative of a Full Member or a proxy holder cannot accept more than one proxy to vote.

(f)        The Company which such new candidate represents must have been a ordinary member of the Federation for two years or more and the candidate him/herself must have no criminal records and have 3 years experience in travel agents management.”

13. Mr Lung’s submission is essentially that Article 47(e), on a true interpretation means that every representative has one vote per seat in the incoming Executive Committee.  His submits that as the size of the incoming Executive Committee (the 22 Exco) is 20 members, each representative should have 20 votes. 

14. Mr Shipp submitted that the interpretation submitted by Mr Lung is wrong because it gives additional meaning to the Article.  He submitted that Article 47(e) only means that a representative cannot give more than one vote to any one candidate. 

15. Mr Lung conceded that Article 47(e) has the effect as submitted by Mr Shipp, namely that a representative cannot give all twenty votes to a single candidate, but he maintained that Article 47(e) also has the meaning that each representative should have one vote per seat in the incoming Executive Committee.

16. In my judgment it is unnecessary to give any determinative meaning to Article 47(e) because it says nothing about adjusting the number of votes according to the size of the incoming Executive Committee.  Suffice it for me to say that the article is silent on the mechanism for adjusting the number of votes according to the seats of the incoming Executive Committee.  I draw support from Article 47(a), which says that the number of the incoming Executive Committee is to be determined by the outgoing Executive Committee.  I believe that it is implicit from Article 47 that the outgoing Executive Committee has the responsibility of determining the size of the incoming Executive Committee and the voting mechanism for that Executive Committee, possibly including the number of votes each representative can have.

S114B OF THE COMPANIES ORDINANCE

17. The applicants in their previous inter parte summons dated 3 March 2010 relied on the following ground :

“3.       a direction regarding the AGM such that there be an election of members of the 22^nd Executive Committee therein, pursuant to section  14B of the Companies Ordinance”

18. This ground did not appear on the inter partes summons dated 29 March 2010 but counsel from both sides in the course of submission argued the applicability of this section to this case.

19. S114B of Cap. 32 Companies Ordinance provided as follows :

“(1)     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 the meeting of the company in manner prescribed by the articles or this 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 1 member of the company present in person or by proxy shall be deemed to constitute a meeting.

(2)       Any meeting called, held and conducted in accordance with an order under subsection (1) shall for all purposes be deemed to be a meeting of the company duly called, held and conducted.

(3)       The legal personal representative of a deceased member of a company shall, for the purposes of this section, be treated in all respects as a member of the company having the same rights with respect to attending and voting at a meeting of the company as such deceased member would, if living, have had.”

20. As Art 47(e) is silent on the relationship between the number of votes each member has and the size of the incoming Exco, the Appointment Resolution does not contravene Art 47(e).  Having decided that there is no irregularity regarding the Voting Resolution, and as the applicants cannot show any ground that may be said to create impracticality in calling or conducting the AGM in the manner prescribed by the Articles of Association, I can see no ground for applying s114B to give any direction as sought by the applicants.

CONCLUSION

21. The Federation has by the resolution of its Executive Committee chosen a course of action for the election of its next Executive Committee and as it cannot be shown that the resolution was unlawful, there is no need for me to interfere with the internal management of the Federation in that resolution.  Accordingly I dismiss the application of the applicants. 

22. The 2^nd to 7^th, 9^th, 10^th, 12^th to 14^th and 17^th to 20^th respondents, who are represented by Mr Shipp, and the 8^th respondent, who is represented by Ms Grace Ng should have their costs in this application, to be taxed, if not agreed, and paid forthwith.

EPILOGUE

23. To prevent similar disputes in the future, the parties may consider holding an Extraordinary General Meeting for the purpose of revising the Articles of Association.  Particularly, the parties should consider setting down a clear election mechanism for their Executive Committee in the Articles of Association instead of leaving it to the hands of the members of the outgoing Executive Committee, who have an interest in the next election.  The Federation has taken a small step in the right direction by setting up an Election Committee with members who have no interest in the next election and hopefully this committee can continue to provide its insight in the amendment of the Articles of Association.