CHENG WAI TAO AND OTHERS v. POON KA MAN JASON (Suing on behalf of himself and all other shareholders in Smart Wave Ltd except the 1st Defendant) AND ANOTHER

FAMV No 22 of 2015

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 22 OF 2015 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL FROM CACV NO 135 OF 2013)

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DETERMINATION

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Mr Justice Tang PJ:

1.  In this application, the defendants asks for leave to appeal on the following questions which are said to be of great, general and public importance:

(1) Whether the “no conflict rule” applies to a director of a chain business where the agreed modus operandi was to have one company for one agreed operation.  The intended appeal concerns the scope and ambit of director’s fiduciary duties as discussed in Bell & Anor. v. Lever Brothers Ltd. & Ors. [1932] AC 161 at 193 to 196 and In Plus Group Ltd. v. Pyke [2002] 2 BCLC 201 §72-§75 (“the Bell v. Lever principle”). The principle is illustrated in the Australian decision of Canberra Residential Developments v. Brendas (2010) 80 ACSR 270 §§36-38.  Where the company was of a “limited nature” as found by the Trial Judge, with the agreed modus operandi of only operating one restaurant, whether the principle set out in In re Duomatic Ltd. [1969] 2 Ch. 365 at 373 and EIC Services Ltd & Anor. v. Phipps & Ors [2003] BCC 931 at §122 (“the Duomatic principle”) applies as found by the CoA [see §4.20 & §4.21 of CoA Judgment];

(2) In the context of a derivative action, where the only nominal representative (namely Jason) bringing the action on behalf of the company (namely, Smart Wave) has himself agreed to the modus operandi of one restaurant per company as the contractual basis for  the company under the Bell v. Lever principle and, where there is no evidence that any shareholder has not agreed to the same, whether that representative in a derivative action can rely on the silence of the other shareholders to assert an inconsistent stance, whether this is sufficient to apply the Bell v. Lever principle, or alternatively if this is sufficient for the Duomatic principle;

(3) In the context of a derivative action, where the only nominal representative has himself agreed to the modus operandi of one restaurant per company, and where he has acted and taken benefit on that basis by signing and suing on the Hero Elegant Agreement, whether he is entitled to rely on a contrary or inconsistent stance at all [Nurcombe v. Nurcombe [1985] WLR 370 at 376G-377D] or without the company calling contrary evidence from other shareholders;

(4) In the context of a derivative action, where counsel representing the company has put the company’s case on the basis that all the shareholders of the company have agreed to the modus operandi of one restaurant per company, whether the company can resile from the same and rely on a contrary or inconsistent stance not taken at the consolidated trial below;

(5) In the context of a derivative action, to what extent is the unclean hands of the only nominal representative relevant, and whether equitable relief should be granted to allow a person with unclean hands to benefit from his own wrong;

(6) In the context of a derivative action, whether the unequitable conduct of the only nominal representative in having unclean hands disqualifies him from purporting to represent the company [Nurcombe v. Nurcombe [1985] WLR 370 at 377B) and/or prevents the granting of equitable relief such as account of profits [Nurcombe v. Nurcombe [1985] WLR 370 at 378D].

2.  We give leave to appeal in respect of  question (1) amended to read:

(1)  Whether the “no conflict rule” applies to a director of a chain business where the agreed modus operandi was to have one company for one agreed operation.  Where the company was of a “limited nature” as found by the Trial Judge, with the agreed modus operandi of only operating one restaurant, whether the principle set out in In re Duomatic Ltd. [1969] 2 Ch. 365 at 373 and EIC Services Ltd & Anor. v. Phipps & Ors [2003] BCC 931 at para 122 (“the Duomatic principle”) applies as found by the Court of Appeal.

3.  Question (2) does not add to question (1) and leave is refused.

4.  We also give leave to appeal in respect of question(3). 

5.  We refuse leave in respect of question(4) because it is not reasonably arguable and is in fact entirely fact sensitive. 

6.  We refuse leave to appeal in respect of questions (5) and (6) because on the facts of this case they have no reasonable prospect of success.

7.  We thank counsel for their helpful submissions.

8.  The appeal will be heard on 1 March 2016.