FONG YOCK YEE v. HONG KONG CHUNG SHAN LUNG CHAN CLAN ASSOCIATION

HCA 2883/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2883 OF 2003

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J U D G M E N T

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1. On the plaintiff's application made ex-parte on notice to the defendant on 4 August 2003 Hartmann J granted the plaintiff an interlocutory injunction against the defendant. The order he made was as follows :

“ The Defendant, whether by itself, its servants and/or agents, be restrained from implementing and/or enforcing the resolution nos. 3 to 6 inclusive purportedly passed at the Defendant's board meeting held on 18th July 2003 (as contained in the draft minutes exhibited as "FYY-3" to the said Affirmation of Fong Yock Yee) whereby the Defendant, inter alia, sought to :

(a) remove the Plaintiff as a director and the Chairman of the Defendant and

(b) expel the Plaintiff as a member of the Defendant."

2. On the return date on 8 August 2003 an order was made by consent by Hartmann J that the ex-parte order made on 4 August 2003 do remain in force until otherwise varied or discharged by further order of the court. The plaintiff's summons for the continuation of the injunction was adjourned for argument and directions were given for the filing of evidence by the parties.

3. This is the adjourned hearing of the plaintiff's summons for a continuation of the interlocutory injunction until trial or until further order.

4. The defendant is a clansman association of natives of Chung Shan Lung Chan. The defendant is a company limited by guarantee. The plaintiff's complaint is that until the resolutions purportedly passed by the defendant on 18 July 2003 he was a member, director and Chairman of the defendant. By the resolutions purportedly passed on 18 July 2003 he was expelled as a member of the defendant and was also removed as the Chairman of the Board of Directors and as a director.

5. The draft minutes supplied to the plaintiff by the secretariat of the defendant show, inter alia, that it was resolved on 18 July 2003 to expel the plaintiff as a member of the defendant and to remove him as Chairman. It follows that if he is expelled as a member he can no longer be a director of the defendant. He cannot also be the Chairman of the defendant. It is only members of the association who have been members for two years who are entitled to stand for election to the Board of Directors at the Ordinary General Meeting (Article 27 of the Articles of Association of the defendant).

6. It is not disputed by Mr. Lam, counsel for the defendant, that the Articles of Association of the defendant ("the Articles") contain the constitution or the rules governing the rights and liabilities of its members. Also by section 23 of the Companies Ordinance, Cap. 32 the Articles constitute a contract among the members of the defendant as well as between the defendant and its members. It is also not disputed by Mr. Lam that the defendant has no inherent power to expel a member. The power to do so is to be derived from the Articles.

7. The plaintiff complains that he was not given any due notice of the intention to terminate his membership. He was thus deprived of a real chance to be heard.

8. I was referred by Mr. Yuen, S.C., for the plaintiff, to para. 4.7.1. of West on "Companies Limited by Guarantee" (2000) where it is stated :

“ The resolution removing a director does not need to give the reasons for removal, but the director has the right to be notified of the proposal to remove him as a director and to be heard at the meeting at which the resolution is to be proposed."

9. It is stated at para. 132 of Vol. 6 Halsbury's Laws of England (4th Edn.) (2003 Reissue) that a power of expulsion must be exercised in strict conformity with the rules by which it is given, otherwise the purported expulsion will be inoperative. And at para. 133 of Vol. 6 Halsbury's Laws of England, it is stated that :

“ The principles of natural justice must also be observed in exercising a power of expulsion, unless it plainly appears, on the true construction of the rules, that the power was intended to be absolute. If the rules refer the consideration of questions concerning the conduct of members to the committee, the committee is in a quasi-judicial position, and must give reasonable notice to any member whose conduct is impugned, and also a reasonable opportunity of defending himself and meeting the accusations brought against him, and it should not act on ex parte evidence."

10. It is also to be observed, as stated at para. 135 of Vol. 6 Halsbury's Laws of England, that :

“ Where the rules providing for expulsion have been strictly observed, and the committee or the members have otherwise acted properly, the court has no jurisdiction to interfere, even though it considers that the committee, or members voting for the expulsion, have in fact come to a wrong conclusion."

11. There were two matters of complaint against the plaintiff. The first related to a donation of $300,000 made by the defendant to the Yan Chai Hospital. The second related to the 2001 inauguration ceremony of the defendant whereby a deficit of $1,050,677.80 was incurred by the defendant.

12. As to the first complaint, the allegation against the plaintiff is that in 1999 as the Chairman of the Yan Chai Hospital the plaintiff directed that the donation of $300,000 made by the defendant to the Yan Chai Hospital be applied towards payment of administrative expenses which the plaintiff personally incurred in taking up the post of director of the Yan Chai Hospital. So instead of a chartable donation of $300,000 for the purposes of the Yan Chai Hospital the plaintiff directed that it be used as his personal administrative expenses. These matters are denied by the plaintiff. It is his case that the donation of $300,000 made by the defendant was indeed for charitable purposes. He denies that it was used for his personal administrative expenses.

13. As to the second complaint, the allegation against the plaintiff is that in arranging the inauguration and elderly fun fair ceremony held in March 2001 at the Hong Kong Convention and Exhibition Centre large items of expenditure were incurred by the plaintiff without approval of the Board of the defendant resulting in a serious deficit to the detriment of the defendant. Again, this is denied by the plaintiff. His case is that the income and expenditure statement of the inauguration ceremony was discussed and approved by the 27 members being the majority of those present at the meeting of the Board of Directors of the defendant on 29 May 2001. This is disputed by the defendant. The evidence filed on the defendant's behalf shows that the accounts were not approved at the said meeting. It is alleged that after the meeting at a dinner at the Shamrock Restaurant the plaintiff obtained 27 signatures from the members on "some plain papers". These are the 27 signatures in the attendance book relied on by the plaintiff as signifying the passing of the accounts at the said meeting. These are matters in dispute between the parties and cannot be resolved on affidavit evidence at this stage. They can only be resolved at trial.

14. The evidence shows that the board meeting held on 18 July 2003 was convened pursuant to the requisition dated 4 July 2003 ("the requisition"). This gave notice of the convening of the special board meeting to the Chairman and the Board of Directors. This provided as follows :

“ We, in accordance with Article 23 of the constitution of the Association, jointly demand for the holding of a special board meeting, fixed to be held on the 18th day of July, 2003 (Friday) 6:00 p.m. at the hall of the Association, and the agenda of the special board meeting to be held on that date is as follows.

(1) The Election Committee report on the progress of planning for the election of the new board of directors, and proposing for discussion to fix the date of members' meeting and the date of election.

(2) Discuss the letter received from the Tsim Sha Tsui Police Station, with contents concerning the permanent honorary chairman of the Association Mr. Liu Kam Kee "in breach of the Companies Ordinance" matter.

(3) The permanent honorary chairman Mr. Chan Iu Seng of the Association wrote to the Association showing concern for the recent situation of the Association, and demanded the Association to explain on the relevant matters.

The following are the signatures of those of us consenting to the convening of the special board meeting, and would the secretary please forthwith issue letter to inform all directors. "

15. It is to be observed that nowhere in the requisition is there any notice of a resolution to oust the plaintiff as a member of the defendant or to remove him as a director and the Chairman of the defendant. Also, although resolution (3) stated that Mr. Chan Iu Seng ("Mr. Chan") of the defendant wrote to the defendant showing concern for the recent situation of the defendant it is clear on the evidence that by the date of the requisition, i.e. 4 July 2003, Mr. Chan had not yet written to the defendant. His letter to the defendant was only dated 14 July 2003.

16. There is a dispute of fact between the parties as to whether the plaintiff was given a copy of Mr. Chan's letter before the meeting or whether it was simply presented to him at the meeting. This is not a matter that can be resolved on affidavit evidence alone. This is a dispute of fact which can only be resolved at trial.

17. Mr. Lam submitted that Article 23 of the Articles was strictly complied with by the defendant. This provided as follows :

“ The Chairman may, when he thinks fit or at the written request, which shall specify the proposed agenda, of not less than 25 Directors shall, at any time convene an Extraordinary General Meeting. In addition, it shall not be required to notify the Directors who are not within Hong Kong."

18. It is accepted by both parties that the reference to Extraordinary General Meeting should be a reference to a special Board of Directors' meetings as Article 23 is to be found under the heading "Directors' Meetings". Nothing turns on that on this application. It is important to note that by Article 23 the written requisition "shall specify the proposed agenda". As I have said, the expulsion of the plaintiff as a member of the defendant was not specified as one of the items in the agenda set out the requisition. I am unable to accept the submission that the provisions of Article 23 were strictly complied with.

19. Mr. Lam also relied on La Compagnie de Mayville v. Whitley [1896] 1 Ch. 788 where it was held that directors of a company can deal with all affairs of the company and previous notice of the special business of the company is not a necessary condition of the proceedings being valid. That case is, in my view, clearly distinguishable. There the directors were dealing with resolutions to appoint a director, solicitors, bankers and to accept an offer for the use of offices. Those were resolutions concerning the business of the company. There was no question there of any breach of the rules of natural justice.

20. It was also submitted by Mr. Lam that on the evidence the plaintiff knew of the complaints against him in respect of both matters of complaint as these were discussed at board meetings well before the 18 July 2003 Board meeting. That may well be so, but nowhere in any of the previous board minutes is there any suggestion that the plaintiff ought to be expelled as a member of the defendant or be removed as the Chairman and a director.

21. I am unable to accept the submission that the plaintiff was given every opportunity to answer the complaints against him at the meeting. It is important to bear in mind that before the meeting of 18 July 2003 he was never informed of the intention to expel him as a member or to remove him as the Chairman and a director of the defendant.

22. The letter from the defendant's solicitors, Messrs Shamson Zeall & Co., dated 21 July 2003 informed the plaintiff that certain matters were investigated and proved against him. One of the matters referred to by the solicitors was the investigation of Mr. Fong Yuk Kee, a certified practicing accountant, into the books and accounts of the defendant for the years 2001 and 2002 contained in his report dated 18 July 2003 and that the plaintiff was found to be in serious breach of Article 46 and Article 41 of the defendant thereby incurring a substantial deficit balance for the defendant.

23. The plaintiff was not supplied with a copy of the accountant's report and I am told by Mr. Yuen that even up to now he has not seen a copy of it. Although the plaintiff did attend the meeting on 18 July 2003 it seems to me that there is a serious question to be tried as to whether he was given a real opportunity of defending himself. It appears that he was not supplied with all the evidence compiled against him.

24. Whether or not the defendant was justified in expelling the plaintiff as a member and removing him as the Chairman and a director of the defendant it is important to bear in mind that the rules of natural justice have to be observed. Where there has been a breach of the rules of natural justice the court will intervene. On the material before the court I am satisfied that there is at the very least a serious question to be tried as to whether or not the rules of natural justice had been observed by the defendant before expelling the plaintiff as a member of the defendant and removing him as the Chairman and a director of the defendant.

25. I turn to the balance of convenience. As to that, it seems to me that damages would not be an adequate remedy for the plaintiff. The defendant has made very serious allegations of misconduct against the plaintiff whilst he was in office as a director and the Chairman of the defendant. These include allegations of dishonesty and abuse of power. The power of expulsion was a penal power. By expelling him as a member and removing him as the Chairman and a director of the defendant his reputation has been seriously tarnished.

26. Furthermore, if the interlocutory injunction is not continued until trial the plaintiff will not be able to partake in the defendant's affairs as a member and as a director and the Chairman thereof. He cannot also seek a re-election at the next General Meeting as only members who have been members for two years shall be entitled to stand for election at the next election of the Board of Directors (Article 27(c)). He would also thus be deprived of seeking re-election as a director.

27. It seems to me that if the plaintiff were to succeed at trial in establishing his right to a permanent injunction the plaintiff would not be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant's acts.

28. It was submitted by Mr. Lam that the defendant would not be adequately compensated by the plaintiff's undertaking in damages if the defendant were to succeed at trial. He referred to two instances after the making of the order of 4 August 2003. One concerned the refusal of the plaintiff to hand over the defendant's official chop to the opposing camp of directors so that cheques could be issued for payment of legal fees of the defendant in defending this action. The other was in relation to a notice of a meeting of the Board of Directors on 19 August 2003 sent by the plaintiff. Included in the agenda was an item to discuss a resolution for the payment of legal fees to the defendant's solicitors, Messrs Shamson Zeall & Co. Also included in the agenda was an item "Absentee shall be regarded as to oppose the deposit of the said fund to Shamson Zeall & Co.". Both of these matters are the subject of disputed facts between the parties.

29. On the question of the defendant's chop, Deputy Judge Muttrie has on 11 March 2004 granted the defendant a mandatory injunction ordering the plaintiff to deliver up the official chop of the defendant to its Board of Directors. That order has been complied with. As regards the item in the agenda for the meeting on 19 August 2003, this was a mistake and the defendant was informed that the plaintiff no longer pursued the same.

30. It seems to me that both of the said matters have now been resolved. If the interlocutory injunction is to continue until trial the plaintiff will have to act in accordance with the Articles. I accept that it may not be an entirely harmonious relationship between all the directors of the defendant if the interlocutory injunction is to continue until trial. However, that does not mean that damages would not be an adequate remedy for the defendant if the defendant were to succeed at trial. It seems to me that this is an appropriate case to make an order for an early trial so as to shorten the period between now and trial. I am, however, satisfied that damages would be an adequate remedy for the defendant if the defendant were to succeed at trial.

31. I am satisfied that the interlocutory injunction should be continued until trial or further order.

32. I would also add that if, however, there is doubt as to the adequacy of damages to the defendant and where other factors appear to be evenly balanced, it is a counsel of prudence to take such measures as are calculated to preserve the status quo (American Cyanamid Co. v. Ethicon [1975] AC 396 at 408). The status quo is the state of affairs that existed immediately before the defendant purportedly passed the resolutions on 18 July 2003.

33. In the circumstances I make an order that the order of Hartmann J made on 4 August 2003 be continued until trial or until further order. I also make an order that there be an early trial of this action.