PENG YINGZHEN v. ABSOLUTE SKILL HOLDINGS LTD AND OTHERS

HCA 641/2022
HCMP 526/2022
[2022] HKCFI 3328

HCA 641/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 641 OF 2022

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AND

HCMP 526/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 526 OF 2022

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D E C I S I O N

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1.  There are 3 applications before the court:

(1)  The originating summons dated 4 May 2022 in HCMP 526/2022 (“OS”)  issued by Absolute Skill Holdings Ltd (“Absolute”)  against the 1^st to 7^th defendants (“D1-D7”)  and Zioncom Holdings Ltd (“Company”)  for declaratory and injunctive relief in relation to the resolutions passed at the 1^st extraordinary general meeting held on 29 April 2022 at 8am (“1^st EGM”)  and the 2^nd extraordinary general meeting held on 29 April 2022 at 9am (“2^nd EGM”);

(2)  The summons dated 7 June 2022 in HCA 641/2022 (“HCA”)  issued by Mr Peng Yingzhen (“Peng”)  (on behalf of himself and 23 beneficial owners of the shares held by Absolute in the Company)  (together “Ps”)  for continuation of the interlocutory injunction granted by Keith Yeung J on 10 June 2022 (“10 June Injunction”); and

(3)  The summons dated 18 July 2022 issued by Absolute and Ms Sui Xiaohe (“Sui”)  in HCA for discharge or variation of the 10 June Injunction.

2.  Although extensive submissions have been made by counsel for Absolute, D1-D7 and Ps, their arguments may be summarised as follows:

(1)  Absolute contends that (a)  as the legal owner of the “Shares” (as defined in §10(1)  below), it was entitled to and did exercise the voting right on such Shares at the 1^st EGM.  It was wrongful for D7 to disallow Absolute from voting at the 1^st EGM.  If D7’s decision was invalid, the resolutions to remove D1-D6 as directors and to appoint the “Proposed Appointees” (as defined in §22 below)  as directors would have been passed.  (b)  In any event, resolutions were passed at the 2^nd EGM to remove D1-D6 as directors and to appoint the Proposed Appointees as Independent Non-Executive Directors (“INEDs”). 

(2)  D1-D7 argue that (a)  D7’s decision to disallow Absolute from voting at the 1^st EGM was made in good faith as there was “significant doubt” over the true legal and beneficial ownership of the Shares in view of the allegations then made by 3 persons claiming to be victims of a fund-raising scam (“3 Claimants”).  (b)  The 2^nd EGM and the resolutions passed thereat were invalid as notice of meeting as required by the Amended and Restated Memorandum Articles of Association of the Company (“AA”)  was not given.  (c)  In any event, at the annual general meeting held on 30 June 2022 (“AGM”), the board was re-constituted by re-electing D1, D4-D6 as directors and not re-electing the Proposed Appointees as directors. 

(3)  Ps contend that they are the beneficial owners of, and have a proprietary claim over, the Shares.  They never authorised Absolute to exercise the voting right on the Shares, whether at the 1^st EGM, the 2^nd EGM or the AGM.  The court should continue the 10 June Injunction which gives effect to their proprietary right over the Shares.   

3.  Accordingly, the issues which require determination of the  court are as follows:

(1)  whether D7’s decision to disqualify Absolute’s exercise of voting right in respect of the Shares at the 1^st EGM (“Decision”)  was valid;

(2)  whether the 2^nd EGM and the resolutions passed thereat were valid;

(3)  whether the AGM and the resolutions passed thereat were valid and, if so, whether they have the effect of ratifying the appointment of D1, D4-D6 as directors of the Company and superseding the resolutions appointing the Proposed Appointees as directors; and

(4)  whether the 10 June Injunction should be discharged or continued pending determination of Ps’ claim in HCA.

A.  BACKGROUND

4.  Save otherwise stated, the following facts and matters are not in dispute or are indisputable. 

A1.   Parties

5.  The Company was incorporated in the Cayman Islands and its shares have since 18 January 2018 been listed on the GEM board of The Stock Exchange of Hong Kong Limited (“SEHK”).  The Company engages in manufacturing and sale of wired and wireless networking products for home use and small scale commercial applications and its operations are mainly based in the Mainland and Vietnam[1].

6.  D1-D7 were directors of the Company at the time the 1^st EGM and 2^nd EGM were held.

7.  Ps are residents in the Mainland and each of them claims to have entered into an “股票投资代持协议书” (translated as Share Investment Holding Agreement)  (“SIHA”)  with Sui whereby Sui agreed to acquire shares in the Company and to hold such shares on trust for each of Ps. 

8.  Absolute is a Samoa company incorporated on 12 October 2018 and is wholly owned by Sui.  Absolute has 4 directors namely, Sui, Mr Mao Jie (“Mao”), Mr Zhao Xiuming (“Zhao”)  and Mr Wu Jun (“Wu”), the latter 2 having been appointed on 4 February 2022[2].  Mao has since July 2019 been dealing with the Company as director and authorised representative of Absolute in that:   

(1)  The joint announcement made by the Company and Absolute dated 22 July 2019 and all subsequent announcements in relation to the general offer to acquire all the shares held by the other shareholders during the period from July 2019 to October 2019 (“GO”)  were made by Mao on behalf of Absolute; and

(2)  According to the record kept by the Company’s share registrar in Hong Kong, Mao was listed as the authorised signatory of Absolute. 

9.  In September 2019, Absolute acquired 264 million shares in the Company (equivalent to 40% shareholding)  from Lincats (BVI)  Ltd (“Lincats”)  for HK$73.2 million.  In October 2019, Absolute acquired a further 37,180,000 shares (equivalent to 5.63% shareholding)  pursuant to the GO, thereby increased its shareholding to 45.63%.  In November 2019, Absolute disposed of 4.2 million shares (0.63% shareholding)  so as to maintain the 25% public float requirement[3]. 

10.  Following completion of the aforesaid sale and disposal:

(1)  Absolute held 296.98 million shares (“Shares”)  representing 45% of the Company’s issued shares.  At the date of the 1^st EGM and the 2^nd EGM, 100 million shares were held in the name of Absolute and 196.98 million shares were held by HKSCC Nominee Ltd (“HKSCC”)  on behalf of Absolute[4];

(2)  Lincats held 198 million shares representing 30% issued shares in the Company.  Lincats has 3 directors and shareholders, who are Mr Kim Byung Kwon (“Kim”), D1 and D2, holding 81.8%, 9.1% and 9.1% respectively[5].

(3)  The Company’s board comprised of 3 INEDs (including D6 appointed on 24 September 2021)  and 5 executive directors (“EDs”)  namely, Kim, D1, D2, D3 and Zhao[6].

(4)  D7 is and has since April 2018 been the compliance director, in-house counsel and assistant company secretary of the Company[7].

11.  In early September 2021, Lincats disposed of all the shares in the Company[8] and ceased to have any interests in the Company.

12.  The financial state of the Company was not strong inasmuch that Absolute had to advance an unsecured interest free loan of HK$10 million to the Company for 12 months pursuant to a loan agreement dated 27 February 2020.  The loan agreement was later amended by a supplemental loan agreement dated 12 January 2022 whereby Absolute agreed to allow the Company to repay the loan in 2 tranches of HK$5 million on 31 January 2022 and 28 February 2022[9]. Both agreements were signed by D1 on behalf of the Company and Mao on behalf of Absolute.   

A2.   1^st Requisition

13.  In the end of December 2021, Absolute (through Mao)  became aware of the board’s proposal to approve at the meeting of 3 January 2022 (1)  the sale of part of the Company’s interest in an operation in Vietnam at what it considered to be an unreasonably low price; (2)  the resignation of Kim as ED; (3)  the appointment of D5 as ED whom Absolute considered to be not qualified; and (4)  the voluntary announcement on the strategic cooperation with an entity in the Mainland which Absolute considered would give a wrong impression to the public on the Company’s business development (“Voluntary Announcement”).  The proposed board meeting was later cancelled[10]. 

14.  By requisition notice dated 14 January 2022 (signed by Mao)  issued pursuant to Article 64 of the AA, Absolute requested the board to convene an EGM for the purpose of considering resolutions (1)  to remove all directors other than D1, Zhao and Cai; and (2)  elect new directors[11] (“1^st Requisition”).   

15.  At the meeting held on 14 January 2022, the board approved (1)  the resignation of Kim (and another INED), (2)  the appointment of D5 as ED; (3)  the appointment of D4 as INED; and (4)  the Voluntary Announcement.[12]  After this meeting, the board comprised of 8 directors:

(1)  EDs: D1, D2, D3, D5 and Zhao.

(2)  INEDs: D6 and Ms Cai Peiyao (“Cai”)  both appointed on 24 September 2021, and D4.

16.  At the board meeting on 31 January 2022, it was resolved inter alia that the Company should seek (1)  external legal advice on the 1^st Requisition; and (2)  the agreement of Absolute to postpone the first tranche of loan due on 31 January 2022 to February 2022. 

17.  The board did not convene an EGM by 4 February 2022 as required by Article 64.  Instead, D7 (qua compliance director and legal counsel)  notified Absolute by email dated 18 February 2022 that it would seek external legal advice on the 1^st Requisition and respond within next week.

A3.   Proposed Rights Issue and 1^st Complaint

18.  Meanwhile on 23 February 2022, D7 (qua assistant company secretary)  gave notice to the directors that at a board meeting would be held on 25 February 2022 to consider a proposed rights issue (on a non-underwritten basis)  (“Rights Issue”)  and the draft announcement prepared for such purpose.  Although Zhao raised many questions about the proposed Rights Issue both before and at the board meeting which remained unanswered and he alongside with Cai both objected to the proposal, the proposed Rights Issue was approved by a majority with D1-D6 voted for the resolution. 

19.  In the announcement dated 28 February 2022, the board stated that the Company needed to raise fund urgently through the Rights Issue which, if fully subscribed and paid by the shareholders, would raise net proceeds of HK$21.6 million by mid-April 2022. 

20.  By letter dated 1 March 2022 addressed to the Company and copied to SEHK, Zhao complained against the proposed Rights Issue. 

21.  By another letter dated 7 March 2022 to the Company (and copied to SEHK), Absolute repeated the complaints about the proposed Rights Issue and alleged that D1-D6 had not exercised their power in good faith in that they did not convene an EGM in accordance with the 1^st Requisition, and took steps to change the board and push through the proposed Rights Issue in the meantime (“1^st Complaint”).

A4.   2^nd Requisition and dispute on Absolute’s authority

22.  On 15 March 2022, Absolute issued another requisition (signed by Wu)  to the Company and D7 (as company secretary)  pursuant to Article 64 requiring the board to convene an EGM within 21 days for the purpose of considering resolutions to (1)  remove D1-D6 as directors, and (2)  appoint Mr Ng Thiam Chye and Mr Wang Yao Hsiong as INEDs (“Proposed Appointees”)  (with their particulars attached), both pursuant to Article 114 of the AA (“2^nd Requisition”)  . 

23.  The matter then took a complete turn.  Instead of taking step to convene an EGM requisitioned by Absolute, D1-D7 caused the Company to instruct Messrs. Cedric & Co (“C&C”)  to issue a letter to one Mr Zhang Pei-ying dated 16 March 2022 (“C&C’s 1^st Letter”)  to “put on record” that:

(1)  Mao had never been the contact person of Absolute, and the Company was “confused as to whether [Mao] was conferred with the authority to issue the [1^st Requisition] on behalf of [Absolute]”;

(2)  the board had not been able to contact Absolute “through formal channels of communication for an extensive period of time” and requested for documents of Absolute; and

(3)  in view of COVID, they proposed to incorporate the proposed resolutions at the AGM to be held in May or June 2022. 

24.  By email dated 21 March 2022, Absolute (through its lawyers in Mainland)  notified the Company that the 1^st Requisition was superseded by the 2^nd Requisition.

25.  In response, D1-D7 caused the Company to publish an announcement dated 23 March 2022 stating that the Company had received the 1^st and 2^nd Requisitions signed by 2 different persons, and neither of them were the contact persons or authorised representatives of Absolute.  The Company currently engaged in a “vigorous verification process” of the contents of the 1^st and 2^nd Requisition and obtaining legal advice on the appropriate course of action.

26.  In view of the fact that the Company had been dealing with Mao as Absolute’s authorised representative (as described in §§8-9 &12 above), the assertions that Mao was not the contact person or that the board had not been able to communicate with Absolute could not have been made by D1-D7 in good faith.  They go to show that D1-D7 only wanted to find excuses to delay convening an EGM requisitioned by Absolute. 

A5.   2^nd, 3^rd and 4^th Complaints

27.  Absolute then wrote to the Company (and copied to SEHK)  on 28 March 2022 to complain about the board’s conduct in disregarding the 1^st and 2^nd Requisitions, disputing the authority of Mao to act on behalf of Absolute and issuing incorrect and misleading announcement about the 1^st and 2^nd Requisitions.  The board was requested to convene an EGM by 4 April 2022 failing which Absolute would convene and EGM pursuant to Article 64 of the AA (“2^nd Complaint”).

28.  D1-D7 claimed to have received an email (sent at 2:39pm on 28 March 2022)  attaching a letter signed by Sui in which she stated that she had never authorised anyone to issue the 1^st and 2^nd Requisitions on behalf of Absolute, and requested the board to convene an EGM for the purpose of considering resolutions to remove all directors and auditor of the Company (“Purported Email”).

29.  This prompted Sui to send an email to the Company (and copied to SEHK)  at 9:14pm on 28 March 2022 stating that (1)  the Purported Email was a forgery and she had never used the email account in question; (2)  at the time the Purported Email was sent, she was meeting with 3 directors of the Company to urge them to convene an EGM as soon as possible; and (3)  Mao had been duly authorised by all directors of Absolute and had authority to represent Absolute (“Sui’s Email”).  A video clip made by Sui together with documents in support proving her identity were attached to Sui’s Email.  The alleged forgery was later reported to the Police.

30.  Further, by letter dated 31 March 2022 to C&C, Messrs. Michael Li & Co (“MLC”)  on behalf of Absolute, stated that pursuant to Article 64 of the AA, the Company shall convene an EGM within 2 months after deposit of the requisition, and there was no requirement for Absolute to prove the authority of its representative. Without prejudice thereto, they attached minutes of board meeting of Absolute held on 28 March 2022 (1)  approving, confirming and ratifying the 1^st and 2^nd Requisitions, and (2)  authorising any director to act on behalf of Absolute in connection with the 1^st and 2^nd Requisitions.   

31.  D1-D6 caused the Company to issue an announcement dated 31 March 2022 stating that pursuant to Article 105(h)  of the AA, Zhao and Cai had been removed as ED and INED respectively owing to “some disagreements” between them and the Company in respect of the Company’s business interests.  As a result of such removal, the Company failed to comply with the requirement of rules 5.05(1)  and 5.28 of the GEM Listing Rules with regard to the minimum number of INED and members of audit committee.

32.  By email dated 4 April 2022 to the Company (and copied to SEHK), Absolute complained about D1-D7’s conduct in failing to convene an EGM pursuant to the 1^st and 2^nd Requisitions and seeking to entrench their control over the board by removing Zhao and Cai as directors of the Company.  Absolute requested an undertaking from D1-D6 (1)  to convene an EGM on or before 5 April 2022 to be held by 15 May 2022; (2)  if the board fails to convene the EGM by 5 April 2022, not to take any action to interfere with the EGM to be convened by Absolute pursuant to the 2^nd Requisition; and (3)  not to obstruct the passing of resolutions proposed under the 2^nd Requisition, and to recognise the voting rights of Absolute in respect of the Shares (“3^rd Complaint”). 

33.  D1-D6 caused the Company to issue an announcement dated 4 April 2022 stating that the Company had received (1)  the 1^st Requisition; (2)  the 2^nd Requisition; (3)  the email of 21 March 2022 stating that the 2^nd Requisition had superseded the 1^st Resolution; (4)  the Purported Email; and (4)  Sui’s Email claiming that the Purported Email was a forgery.  The Company believed that “there just be some fraudulent activities taken part [sic] by these FOUR parties”, and once the identity of the 4 persons allegedly representing Absolute is verified, it would forthwith convene an EGM in accordance with the AA (“4 April Announcement”).

34.  By another announcement dated 4 April 2022, the Company announced that Union Registrars Ltd had been appointed as its new branch share registrar (replacing Computershare Hong Kong Investor Services Ltd).

35.  On 6 April 2022:

(1)  Absolute issued the 4^th complaint to the Company (copied to SEHK)  complaining about D1-D6’s conduct in (a)  failing to convene an EGM pursuant to the 1^st and 2^nd Requisitions; (b)  challenging the authority of the persons who signed the 1^st and 2^nd Requisition as part of their tactic to obstruct convening an EGM; and (c)  issuing incomplete and misleading announcement on 4 April 2022 about the authority of the persons acting on behalf of Absolute.  The board was requested to issue a clarification announcement by 7 April 2022 (“4^th Complaint”). 

(2)  MLC issued a letter to the Company and MLC stating that in light of the Company’s failure to convene an EGM by 5 April 2022, Absolute would exercise its right under Article 64 to convene an EGM and enclosed a draft circular with a notice to convene an EGM.  The board was requested to confirm by 7 April 2022 that it would (a)  publish the circular on GEM’s website and the Company’s website, and (b)  instruct the Share Registrar to render all necessary services at the request of Absolute for convening the EGM including to dispatch the circular, collecting the proxy forms and acting as scrutineer at the EGM.

36.  The Company did not respond to the 4^th Complaint or MLC’s request for administrative assistance.

A6.   Absolute’s Circular and D1-D6’s Circular

37.  On 12 April 2022:

(1)  Absolute issued a circular with notice to convene an EGM to be held on 29 April 2022 at 9am (i.e. 2^nd EGM)  in the form of a hybrid meeting with an interactive platform for shareholders to attend remotely.  In the letter appended to the circular, Absolute recited the history of the 1^st and 2^nd Requisitions and the responses of the board and set out the proposed resolutions to remove D1-D6 as directors and appoint the Proposed Appointees as directors both pursuant to Article 114 of the AA (“Absolute’s Circular”).   

(2)  MLC circulated Absolute’s Circular to SEHK and the Company at 2:40pm, and informed them that the same had been despatched and would be published in 2 newspapers[13].

(3)  Absolute presented a petition in HCMP 326/2022 pursuant to ss.724-725 of the Companies Ordinance (Cap. 622)  (“CO”)  against D1-D6 and the Company essentially repeating the complaints about D1-D6’s failure to convene an EGM in accordance with the 1^st or 2^nd Requisition and the proposed Rights Issue.  The relief sought include (a)  an order that the Company do take action to facilitate or assist the EGM to be convened pursuant to the 2^nd Requisition; (b)  an order that D1-D6 be restrained from obstructing, interfering with the convening of the EGM and the resolutions proposed to be passed thereat, and interfering with Absolute’s exercise of  voting rights at the EGM; and (c)  an order that the proposed Rights Issue be terminated (“Petition”).

38.  In the same evening on 12 April 2022, at 10:58pm, D1-D6 caused the Company to issue a circular to convene the 2^nd EGM to be held on 29 April 2022 at 8am (“D1-D6’s Circular”).  It is obvious that the 1^st EGM was convened by the board in great haste as the date of D1-D6’s Circular was mis-stated as “22 April 2022”[14] and the venue was mis-stated as “The Centre”[15].  It is also clear from the contents of the letter from the board (appended to D1-D6’s Circular)  that:  

(1)  D1-D6 would not accept any persons as having authority to represent Absolute as they repeated the same allegations contained in 4 April Announcement;

(2)  D1-D6 convened the 1^st EGM to pre-empt the 2^nd EGM “In order to avoid any confusion among shareholders and disputes over the legitimacy of the [2^nd EGM]”; and

(3)  D1-D6 considered that 1^st EGM “shall be the only one recognised by the Company as valid”.   

39.  That D1-D6 would not accept any persons as having authority to act on behalf of Absolute is reinforced by the clarification announcement dated 13 April 2022 (issued on 14 April 2022)  where D1-D6 referred to Absolute’s Circular received by the Company and stated that:

“As at the date of this announcement, Party 1, Party 2, Party 3, Party 4, and the person(s)  representing the Requisitionist, have yet to verify their identities to the Board. In view of the above, the Board has deemed the Requisition Documents from the persons who purportedly are [sic] on behalf of the Requisitionist to be invalid.”

A7.   Summons for interlocutory injunction vs D1-D6

40.  On 19 April 2022, Absolute issued a summons (in the Petition)  to seek an interlocutory injunction against the Company and D1-D6 from (1)  proceeding with the proposed Rights Issue; (2)  convening the 1^st EGM and obstructing Absolute from convening the 2^nd EGM; and (3)  disallowing any votes casted by Absolute at the 1^st EGM or the 2^nd EGM.

41.  The summons came before this Court on 22 April 2022.  At the hearing, both Absolute and the Company were represented by senior and junior counsel[16] while D1-D6 were represented by Messrs. Johnnie Yam, Jacky Lee & Co. 

(1)  It was submitted on behalf of Absolute that in view of the history of delay and the many excuses deployed by D1-D6 in not convening an EGM in accordance with the 1^st and 2^nd Requisitions, Absolute was concerned that D1-D6 would not allow Absolute to vote at the 1^st EGM and the 2^nd EGM, and would push through the proposed Rights Issue which, it was said, would have the effect of diluting Absolute’s shareholding. 

(2)  On the other hand, the Company argued that (a)  the 1^st and 2^nd Requisitions were “suspicious” as they had been signed by different persons and in particular, Mao had never been Absolute’s representative[17]. The Company received the Purported Email which suggested that Absolute had never issued the 1^st and 2^nd Requisitions and Sui’s Email claiming that the Purported Email was a forgery[18]; (b)  it was unnecessary for the court to determine the validity of either EGM or to grant any injunction as  shareholders could at the 2^nd EGM pass resolutions to “undo whatever is resolved in the [1^st EGM]”; and (c)  the proposed Rights Issue was to raise fund to finance the Company’s operation and there was no time table for its implementation.  It was premature for Absolute to seek an injunction for that purpose. 

42.  I did not consider that it was just and convenient for the court to grant the injunction sought by Absolute, let alone on an urgent basis for the following reasons:

(1)  While there was delay in convening an EGM, the fact remained that after much debates in correspondence, the Company and Absolute had convened the 1^st EGM and 2^nd EGM to be held in less than a week at which the shareholders (including Absolute)  would be able to consider and vote on the proposed resolutions. 

(2)  The evidence then before the court did not support Absolute’s contention that D1-D6 or the Company would interfere with Absolute’s right to vote at the 1^st EGM.

(3)  Even if D1-D6 were to disallow Absolute from voting at the 1^st EGM, there was nothing to prevent Absolute from voting on the same proposed resolutions at the 2^nd EGM. 

(4)  There was no proper basis to suggest that the proposed Rights Issue was improper or that it would result in dilution of Absolute’s shareholding, given that (a)  the Company was obliged but failed to repay the loan to Absolute; and (b)  Absolute has the right to participate in the Rights Issue and subscribe for shares in proportion to its 45% shareholding.

43.  Nevertheless, this Court reminded the parties that the directors owed duties to act in the best interests of the Company, and one way to put an end to the litigation would be for the 1^st EGM to be chaired by an independent third party to ensure that the meeting would be conducted in a fair and proper manner and avoid any dispute on the validity of the decision to be made by the chairman.  In response, the Company through leading counsel stated that it needed to seek legal advice on whether an independent third party could act as chairman in light of Article 70 of the AA, which lists out the persons who may act as chairman of a general meeting. It was made clear to the parties present that if anyone tried to come up with “a clever idea to disallow the vote cast by [Absolute]” [19] at the 1^st EGM, Absolute could come back to this Court for urgent injunctive relief. 

A8.   Appointment of D7 as chairman of 1^st EGM

44.  From 22 to 27 April 2022, extensive correspondence were exchanged between MLC and Messrs. Jones Day (“JD”), solicitors for the Company, about the appointment of an independent third party as director and chairman of the 1^st EGM.  In summary:

(1)  The Company’s position was that, subject to Cayman Islands’ legal advisers confirming that it could be done, it would appoint a representative from the auditors as director for the limited purpose of acting as chairman of the 1^st EGM provided that Absolute would cancel the 2^nd EGM.  

(2)  Absolute did not agree to withdraw the 2^nd EGM and proposed various qualified accountants who had no previous dealings with the parties to act as chairman and agreed to pay the reasonable costs for seeking advice from Cayman Islands’ lawyers.

45.  No agreement was reached between the parties. 

46.  On 28 April 2022:

(1)  JD informed MLC that the auditors had declined the invitation to be appointed as director, and the Company would proceed to appoint the company secretary or assistant company secretary as director for the purpose of the 1^st EGM. 

(2)  An announcement was made by the Company that Ms Wong Ngar Lai (“Wong”)  and D7 had been appointed as non-EDs for the purposes of the 1^st EGM.  Both of them would not receive any fees from the Company and would tender their resignation after the 1^st EGM.

47.  It is D1-D7’s case that on 28 April 2022 (not before), the Company received 3 letters from the Claimants making the following allegations against Sui and Absolute (collectively “Allegations”):

(1)  A handwritten letter (in Chinese)  from Ms Huang Shimei (“Ms Huang”)  dated 15 April 2022 alleging that Sui and Mr Cao Yu (“Cao”)  had lured her into investing HK$5,675,369 (equivalent to RMB 5 million)  in the shares in the Company on the terms that the shares would be held by Absolute on her behalf, there would be a guaranteed return of 20% per annum and the shares would be transferred to her within one year.  She had been looking for Sui and Cao for 3 years but to no avail.  She did not want such fraudsters to represent her or to manage the Company.  Enclosed to the letter were (a)  a SIHA dated 18 January 2019 made between Ms Huang and Sui; (b)  the annual return dated 26 September 2019 of Pai Pai Supply Chain Ltd owned by Ms Huang; (c)  remittance advice showing that Pai Pai Supply Chain Ltd remitted HK$5,675,369 to Absolute’s bank account; and (d)  the identification documents of Ms Huang.

(2)  A typed letter (in Chinese)  dated 26 April 2022 from Mr Lin Yong Ciang (“Mr Lin”)  in which he claimed that he had been lured into investing HK$5,675,369 to acquire 20,460,000 shares in the Company (equivalent to 3.1% shareholding)  and the amount was remitted through Tai Cheng Art Construction HK Ltd to Absolute’s bank account on 24 January 2019. He alleged that it was illegal for Absolute to raise HK$90 million from over 30 individuals to fund the acquisition of shares in the Company and requested the board to investigate the source of Absolute’s funds and cancel its voting right on the basis that he and the other victims were the true beneficial owners of Absolute.  Mr Lin enclosed a copy of SIHA dated 20 January 2019 made between him and Sui and the remittance advice showing the fund transferred to Absolute’s bank account.

(3)  An email (in Chinese)  sent from Mr Zhao Yong to D1 on 28 April 2022 at 4:34pm in which he alleged that he had been lured by Sui and Cao into investing RMB 5 million on the bases that the amount would be used to acquire shares in the Company to be held by Absolute on his behalf and the shares together with a guaranteed return of 20% would be returned to him after one year.  He remitted the fund in tranches to Absolute’s and other bank accounts specified by Sui.  Despite his chaser from February 2020, Sui failed to honour her promise.  He had reported the matter to Public Security Bureau in Jiayu County (中国嘉鱼县公安厅)  on 23 April 2022, which accepted the case as an alleged deception by Sui in respect of shares in Absolute.

48.  D1-D7 say that an urgent board meeting was held in the evening of 28 April 2022 (“28 April Board Meeting”)  at which the 3 letters from the Claimants were considered and it was resolved that the Company should take steps to investigate the Allegations and approved the draft “28 April Announcement” (as defined in next paragraph).

49.  At 7:45am on 29 April 2022, D1-D7 caused an announcement dated 28 April 2022 to be uploaded to SEHK (“28 April Announcement”), which stated inter alia as follows: 

“On 28 April 2022 after trading hours, the Company was informed by different parties complaining against the substantial shareholder of the Company, [Absolute] being not the legal and true beneficial owner of the shares of the Company.  [Absolute] is allegedly involved in unlawful fund-raising activities cross-border and a scam to defraud the public to obtain its existing shareholding in the Company (“Stock Investment Scams”).

The Board held an urgent Board meeting on 28 April 2022 and resolved to investigate the Stock Investment Scams. 

Based upon the information presently made available to the Board, steps have been taken to contact the relevant law enforcement agency, which has confirmed to the Board that criminal investigations have been conducted regarding the Stock Investment Scams.  The Company is currently seeking legal advice in respect of the Stock Investment Scams and will take appropriate actions to protect the interest if all shareholders of the Company.”

50.  It is not clear, as D1-D7 have not explained (1)  which law enforcement agency they had contacted in the evening of 28 April 2022 and how they managed to speak to them in the late hours; (2)  whether they took any legal advice from Cayman Islands’ lawyers (or any lawyers)  about the Allegations and what effect (if any)  they have on the 1^st and 2^nd EGM and, if so, when did that take place; (3)  why they did not make any enquiries with Absolute about the Allegations; (4)  why having made extensive enquiries with Absolute about the identity of the persons who signed the 1^st and 2^nd Requisitions and taken a long time to consider the issue, they suddenly acted in a complete opposite manner by accepting all the Allegations and requests made by the Claimants without any question; and (5)  taking the Allegations at their highest, the Claimants only had 18.9% interest in Absolute or the Shares held by Absolute (equivalent to 9.3% shareholding in the Company), why they considered it appropriate to disallow Absolute from voting on all the Shares.   

51.  The lack of evidence and explanations on the above questions must be viewed against the history of the events leading to the 1^st and 2^nd EGM as described in sections A2 – A8 above.  It shows that D1-D7 were prepared to deploy any tactic to ensure that Absolute would not be able to vote on the proposed resolutions to remove D1-D6 or to appoint the Proposed Appointees as directors of the Company. 

A9.   1^st EGM and 2^nd EGM

52.  At the 1^st EGM which began at 8am on 29 April 2022 and finished at 8:13am, shareholders holding 397.07 million shares attended including the Shares (of which 196.98 million shares were held by HKSCC on behalf of Absolute and 100 million shares held by Absolute):

(1)  D7 qua chairman stated that the Company had made the 28 April Announcement on the allegations made by certain persons claiming to be the legal and beneficial owners of Absolute’s Shares.

(2)  A shareholder then raised objection on the admissibility and qualification of Absolute to vote.

(3)  One of Absolute’s proxies, Mr Michael David Lamb, queried the basis of the serious allegations made against Absolute.

(4)  In response, D7 said that based on the information available to the board and the objection raised by the shareholder, all the votes casted by the Shares would not be counted.  There was no mention of the AA or any legal advice having been obtained, whether prior to or at the meeting[20]. Nor did D7 say that he had taken into account any other matters when making the Decision.   

53.  The voting results on the resolutions to remove D1-D6 as directors and appointment of the Proposed Appointees as INEDs, with and without the votes casted by the Shares, were as follows[21]:

Resolutions	Without Shares		With Shares
	For	Against	For	Against
Remove D1-D6 as directors	5,000,000 (5%)	95,090,000 (95%)	301,980,000 (76%)	95,090,000 (24%)
Proposed Appointees be appointed as INEDs	5,000,000 (5%)	95,090,000 (95%)	301,980,000 (76%)	95,090,000 (24%)
Total shares allowed for voting	100,090,000		397,070,000

54.  At the 2^nd EGM held between 9am and 9:43am on 29 April 2022[22]:

(1)  D5-D7 and Wong (together with other unidentified persons)  attempted to attend the meeting.  Only D5-D7 and Wong were allowed to attend the meeting. Absolute’s legal representatives (MLC and Messrs Conyers), the share scrutineer, Messrs. CL Partners, and other shareholders were also present.

(2)  The same proposed resolutions concerning the removal and appointment of directors were put to the shareholders for voting.  Shareholders holding 346,130,000 shares voted on the resolutions. 

(3)  The voting results on the resolutions to remove D1-D6 as directors and appointment of the Proposed Appointees as INEDs were as follows:

Resolutions	For	Against
Remove D1-D6 as directors	306,380,000 (88.52%)	39,750,000 (11.48%)
Proposed Appointees be appointed as INEDs	306,380,000 (88.52%)	39,750,000 (11.48%)
Total shares allowed for voting	346,130,000

A10.   OS and 13 May Injunction against D1-D6

55.  On 4 May 2022, Absolute issued the OS to seek declarations to the effect that (1)  D7’s Decision was made in bad faith and/or for ulterior motive and is void; (2)  the 2^nd EGM and the resolutions passed thereat are valid; and consequential injunction against D1-D6.  On the same day, Absolute applied for interlocutory injunction enjoining D1-D6 from (i)  acting or holding out as directors, and (ii)  inhibiting the Proposed Appointees from acting or holding out as directors.

56.  As the summons was not one which should be heard on ex parte or extremely urgent basis, directions were given for the parties to file affirmations and with substantive hearing fixed for 13 May 2022.  Having regard to the fact that all the allegations were made against D1-D7, the Company was directed not to take part in the proceedings without leave of the court.

57.  At the hearing, Absolute and D1-D6 were both represented by leading and junior counsel[23]. 

(1)  It was submitted on behalf of Absolute that its concern about being disallowed from voting had been vindicated.  As a matter of law, the Company takes no notice of any beneficial interest of the shares issued (citing Universal Horizon), and Article 16 of the AA makes it clear that no person shall be recognised by the Company as holding any share on trust.  There was thus no proper basis for D1-D6 or D7 to treat the Claimants as beneficial owners of the Shares or to cause the Company to investigate or take side with the Claimants.   

(2)  On the other hand, D1-D7 argued that it was entirely proper for D7 qua chairman to take note of the dispute in beneficial ownership over the Shares, citing Convoy (CFI)  §§29, 64 Convoy (CA)  §§29, 39-42 and Qiyang §§35, 41-43.  Further, the Company was obliged to investigate ownership of interest in relation to its shares, relying on s.329 of the Securities and Futures Ordinance (“SFO”).

58.  After hearing submissions from counsel, this Court considered that Absolute had shown a good arguable case that the board had been re-constituted, with D1-D6 removed as directors and the Proposed Appointees appointed as INEDs, given that (1)  the Company should not take notice of any dispute in beneficial ownership of, or any trust over, the shares issued; and (2)  there was no dispute that the resolutions to re-constitute the board had been passed at the 2^nd EGM.  However, to preserve the status quo of the Company, an interim injunction pending determination of the OS was granted against D1-D6 to enjoin them from (1)  inhibiting the Proposed Appointees from acting and holding out as directors; and (2)  exercising their power as directors to procure the Company from disposing of or diminishing the value of its assets other than the transactions, business and payments specified in the order (“13 May Injunction”).  Directions were given for the parties to file evidence on the basis that the court would make a final determination on the OS at the hearing on 6 July 2022. 

A11.   HCA and 10 June Injunction

59.  The matter took another turn, this time with Peng commencing HCA on 30 May 2022 against Absolute, Sui and the Company.  The 24 persons (23 of whom are from the Mainland including the Claimants and Peng, and one from Taiwan)  were described in the writ as “Intended beneficial owners of the shareholding of [the Company] registered and/or held in the name of [Absolute]”. 

60.  It is not clear why the 24 persons whose claims arose out of different facts are not named as plaintiffs.  What is clear is that other than Peng, the material facts in relation to Ps’ claims against the defendants have not been pleaded.  This is particularly so in relation to the so-called “Representations” (as defined in footnote 24 below)  said to have induced Ps in entering into the SIHAs, and the steps taken by Ps in demanding Sui and/or Absolute for return of the amounts invested.    

61.  In the statement of claim endorsed on the writ (“SOC”), the following facts are pleaded:

(1)  Ps share “the common interest and common grievance of being the victims (the “Victims”)  of an elaborate cross-border investment fraud (“Stock Investment Scams”)  relating to the shares of [the Company]” (SOC §1(1));

(2)  Peng was induced by and relied on the “Representations”[24] made by Sui on diver dates in 2018 and 2019 and entered into the SIHA dated 25 May 2019 for the purchase of 22,813,934 shares in the Company for RMB 5.7 million (SOC §7);

(3)  There is a general plea, without any particulars, that Ps “acting in reliance on the Representations”, were “similarly induced into participating in the Investment Arrangement by entering into SIHAs with [Sui]” (SOC §9);

(4)  The SIHA contains the following terms (as translated in SOC §10):

(a)  “In the spirit of friendly negotiation, [Sui] and [Peng] made this agreement pursuant to which [Sui] shall hold all the share investment of [Peng] on behalf of [Peng] as nominee” (recital 2);

(b)  “[Peng] shall inject RMB 5,700,000 (….“Investment Amount”)  into [Sui] and her companies to invest in and purchase the shares as selected by [Sui] and listed on [SEHK], code 8287.hk” (i.e. the Company)  (clause 1(a));

(c)  “The Investment Amount shall be used for purchasing the shares of [the Company].  The reference price shall be determined by both parties on the market conditions, which is HK$0.2773 per share (…“Reference Price”)” (clause 1(b));

(d)  By dividing the total Investment Amount of [Peng] by the Reference Price, it can be concluded that with the Investment Amount, [Peng] can obtain 22,813,934 shares (….“Total Shares”)  of [the Company] (clause 1(c));

(e)  “[Peng] shall not sell or pledge all or any part of the Total Shares without authorisation within 12 months from the date of signing this agreement (….“Holding Period”).  [Peng] is the ultimate beneficial owner of all the shares, whereas [Sui] shall only carry out capital operations for the holder as nominee.  [Sui] shall not sell or pledge all or part of the Total Shares without authorisation.  Without the written consent of [Peng], [Sui] shall not exercise any rights of the ultimate beneficial owner on behalf of [Peng], including voting as a shareholder” (clause 1(d));

(f)  “The Total Shares held by [Sui] on behalf of [Peng] as nominee are deposited in [Absolute], a company of [Sui] located in the Independent State of Samoa, with the company number 83520” (clause 1(e));

(g)  “When [Peng] receives the shares upon the expiry of the Holding Period, the closing price of the shares of [the Company] shall be referred to as the “Later Reference Price”.  If the Later Reference Price is equal to 120% of the Reference Price ([Sui] guarantees to [Peng] that the net return for investment in the shares shall be at least 20%), all the profit received out of such increase in price shall belong to [Peng].  If the Later Reference Price is more than 150% of the Reference Price (i.e. 50% of [Peng’s] net profit), the excess shall be shared equally by both parties (…“Profit”)” (clause 1(f));

(h)  “[Sui] shall use her best endeavours to fully perform her obligations in accordance with the terms of this agreement, and shall endeavour to maximise benefits for [Peng], which are not limited by the provisions of this agreement” (clause 3(c));

(i)  “After the signing of this agreement and before the expiry of the Holding Period, [Sui] shall at all times and any time hold without any encumbrance a sufficient number of shares of the [Company], which shall be delivered to [Peng] upon the expiry of the Holding Period” (clause 3(d));

(j)  Each provisions can be enforced independently of the other provisions (clause 7(c)); and

(k)  The agreement is governed by and shall be constructed in accordance with the laws of the People’s Republic of China (clause 8(a)). 

(5)  The SIHA established an express trust between Peng as beneficiary and Sui as trustee (“SIHA Trust”), which similarly apply to Ps (SOC §11);

(6)  Sui owes fiduciary duties to Peng and Ps (SOC §12);

(7)  Peng rely on the presumption of similarity that the laws of the PRC are the same as the laws of Hong Kong (SOC §13);

(8)  On 27 May, 21 June and 24 June 2019, Peng transferred RMB 5.7 million in 3 tranches to 3 bank accounts held by different entities in Shenzhen, to purchase 22,813,934 shares in the Company (SOC §14);

(9)  Ps similarly paid their “Investment Amounts” into Absolute’s bank account in Hong Kong and/or various designated bank accounts in directed or controlled by Sui and/or Absolute and/or their associates as particularised in Annex 2 pursuant to the “SIHAs” (SOC §15);

(10)  Under “Discovery of the Stock Investment Scams”, the following facts are pleaded:

(a)  Absolute acquired the Shares from Lincats and through the GO.  By 2020, the Holding Period expired but neither Sui nor Absolute returned the “Subject Shares” to Peng or Ps (SOC §§16-20);

(b)  The Company made the 28 April Announcement (SOC §21);

(c)  Upon further investigation, it transpired that on 4 December 2018, Zhao and Cao as representatives of 百家安 group hosted an investment promotion function and “several times of the numbers of” Ps were induced to advance money to Sui and/or Absolute and the total shareholding purportedly forming the subject matter of all “SIHAs” were 365,132,379 shares representing 55.32% of the Company’s issued shares (SOC §22);

(d)  Sui became uncontactable and/or refused to communicate with Peng or Ps and neither she nor Absolute returned the “Subject Shares” or accounted for any profits to Peng or Ps; the share price of the Company plummeted (SOC §23); and

(e)  In the premises, it is to be inferred that Sui and/or Absolute all along intended to defraud Peng and Ps and have in fact defrauded them into making the “Investment Amounts” and deprived them of their rightful entitlement to the “Subject Shares” (SOC §24).

62.  On the basis of the above pleaded facts, 7 causes of action are pleaded:

(1)  Breach of SIHAs against Sui whereby Ps have suffered loss and damage (SOC §§25-26);

(2)  Breach of fiduciary duties against Sui whereby Ps have suffered loss and damage (SOC §§27-28);

(3)  Absolute has induced and/or procured and/or facilitated Sui to breach the SIHAs whereby Ps have suffered loss and damage (SOC §§29-32);

(4)  Further, Absolute dishonestly assisted Sui’s breach of duties whereby Ps have suffered loss and damage (SOC §§33-34);

(5)  Further or alternatively, Absolute is a knowing recipient of the “Subject Shares” (which have not been defined or particularised)  “or any part thereof or any traceable proceeds thereof” and is liable to account to Ps for the same (SOC §35);

(6)  Ps, as beneficiaries under the SIHA Trusts, are the beneficial owners of the “Investment Amounts” and are entitled to trace into their proceeds including the “Subject Shares” and claim equitable title thereof, which are held by Sui and/or Absolute for Ps (SOC §36); and

(7)  Further or alternatively, by reason of Absolute’s dishonest assistance, Sui and/or Absolute are “fraudulent recipients of the Investment Amounts”, and Ps are entitled to trace any traceable proceeds of the “Investment Amounts” including the “Subject Shares” and claim equitable title thereof, which are held on constructive trust by Sui and/or Absolute for Ps (SOC §37).

63.  On the basis of the above causes of action, Ps claim (1)  declarations that they have proprietary interest in the “Subject Shares” and any traceable proceeds thereof, which have been held by Sui and/or Absolute on constructive trust for Ps; (2)  injunctive relief to enjoin Sui and Absolute from disposing of or dealing with the “Subject Shares” and/or their traceable proceeds and exercise the shareholders’ rights attached thereto including voting rights; (3)  accounts and inquiries to enable Ps to trace and recover the “Subject Shares” and/or their traceable proceeds; and (4)  damages or equitable compensation. 

64.  It can be seen from the SOC that although the pleader used the label “Stock Investment Scams” to describe the investments, no particulars have been pleaded in respect of the alleged “Stock Investment Scams”, still less the basis for alleging that the investments are “scams”.  Indeed, it is difficult to see how Ps can allege that the investments they were asked to make are “scams”.  This is because on Ps’ pleaded case (1)  they entered into the SIHAs (which they do not seek to unwind)  and paid the “Investment Amounts” pursuant to the SIHAs to purchase shares in the Company, and Sui did purchase the shares through the use of their monies.  In other words, Sui did exactly what the parties had agreed albeit that she  failed to comply with her obligations under the SIHAs; and (2)  Ps knowingly participated in the “scams” by remitting funds from the Mainland to Hong Kong for the purpose of purchasing shares in the Company.  The so-called “scams” seems to be no more than a label used the pleader to bolster Ps’ case against Sui and Absolute.

65.  On 7 June 2022, Ps applied for an “urgent” injunction against Absolute and Sui to enjoin them from exercising the voting rights on, and holding out as beneficial owners of, the Shares, and an order for substituted service of the writ on Sui, returnable on 10 June 2022.  Neither Absolute nor Sui were able to file any affirmation in opposition to the application.  

66.  After hearing arguments from counsel[25], Keith Yeung J adjourned Ps’ application for substantive arguments with one day reserved but granted the 10 June Injunction as an “interim-interim” injunction primarily on the bases that (1)  Absolute and Sui had not filed any evidence to state their case that Sui’s signatures on some of the documents had been forged; (2)  the uncontradicted evidence showed that (a)  the SIHAs imposed upon Absolute and Sui obligations to purchase the shares in the Company as trustee for Ps; (b)  the investment funds had indeed been applied by Sui through Absolute to purchase some of those shares in the Company; (c)  Absolute holds the subject shares as trustee, and it is not entitled to exercise any voting rights in them without the consent of the beneficiaries; and (d)  the suggestion that Absolute would be prejudiced by the interim-interim injunction in their fight for control over the Company at the coming AGM had not been particularised.  The Judge was aware of the substantive hearing of the OS and made clear in his ruling that the interim-interim injunction was to last until any further order so that the Companies Judge would not feel constrained in varying the same upon considering any further evidence. 

A12.   AGM and continuation of 13 May Injunction

67.  On 2 June 2022, D1-D6 gave notice to convene the AGM to consider, inter alia, resolutions (1)  to approve the audited financial statements of the Company for the year ended 31 December 2021 (“2021 AFS”); (2)  to re-elect D1, D4-D6 and the Proposed Appointees as directors; and (3)  to give a general mandate to the directors to issue new shares up to 20% of the issued shares of the Company.   

68.  At the AGM:

(1)  None of the Shares were able to vote at the AGM as the 10 June Injunction remained in place,

(2)  Only 93,280,000 shares voted at the meeting;

(3)  All resolutions for re-election of D1, D4-D6 as directors and other proposed resolutions were passed unanimously; and

(4)  95.7% of the shareholders present and voting voted against the resolutions for re-election of the Proposed Appointees as directors. 

69.  At the substantive hearing of the OS on 6 July 2022, D1-D7[26] sought to put in further evidence to “update” the court on the results of the AGM which, it was said, support their arguments that even if the 1^st EGM were invalid and the resolutions passed at the 2^nd EGM were valid, the impugned resolutions had been ratified or superseded by the latest resolutions passed at the AGM, and the court should not grant any relief sought by Absolute.   

70.  The objective facts show that there had been much collaboration between D1-D7 and the Claimants/Ps to ensure that the Shares could not vote at the 1^st EGM and subsequently, at the AGM.  It would be unfair to allow D1-D7 to rely on the new evidence without giving an opportunity to Absolute to respond to such evidence. Therefore, the hearing of the OS was adjourned to 14 September 2022 to be heard together with Ps’ summons for continuation of the 10 June Injunction and any further application relating to the Company to be issued by any party or related party.  The 13 May Injunction was continued in the meantime.

71.  On 8 August 2022, D1-D6 caused the Company to issue an announcement on the implementation of the proposed Rights Issue, which required acceptance of and payment for the rights shares by 6 September 2022, followed by placing the unsubscribed rights shares on 13 September 2022, that is, one day before the adjourned hearing of the OS on 14 September 2022.

72.  By letter dated 15 August 2022, Absolute sought an urgent hearing for variation of the 10 June Injunction to allow it to participate in the Rights Issue.  On 16 August 2022, this Court varied the 10 June Injunction (without prejudice to the parties’ arguments on the extant summonses)  such that it does not prohibit Absolute to subscribe for any shares in the Rights Issue, having regard to the following facts and matters:

(1)  The consistent stance of D1-D7 that it would be in the interests of the Company to implement the Rights Issue as it required new funds to finance its business and repay the debts fallen due.

(2)  The stated stance of Ps that they wanted to preserve the Shares over which they claim to have proprietary right. It was inconceivable that Ps would object to Absolute subscribing for the rights shares so as to preserve its 45% shareholding, particularly when the subscription price would be paid by Absolute.

(3)  The irreversible prejudice which would be suffered by Absolute if the 10 June Injunction were not varied in that it would lose the opportunity to subscribe for the new shares.  This, in turn, would dilute Absolute’s shareholding from  45% to 30%.  This was not a loss which could readily be assessed or compensated by damages.  There was no evidence to suggest that Ps had assets within the jurisdiction to compensate Absolute if the 10 June Injunction was later found to have been wrongly granted. 

73.  I turn to consider the issues.

B.  DISCUSSION

B1.   Whether D7’s Decision was valid

74.  Mr Victor Dawes (leading Mr Mike Yeung and Mr Tom Ng), counsel for Absolute, submits that to succeed in the OS, Absolute has to show that:

(1)  D7’s Decision was made in bad faith or for improper purpose; or

(2)  the 2^nd EGM was valid; and

(3)  D1-D6 cannot rely on the results of the AGM.

75.  Mr Dawes submits that D1-D7’s evidence boils down to the assertion that the Decision was made in good faith because Absolute allegedly holds the Shares “as nominee” on trust for the alleged “victims”.[27]  This is clearly a desperate last-minute attempt to prevent Absolute from exercising its right to vote at the 1^st EGM given that:

(1)  It is well-established that the Company takes no notice of any alleged trust or beneficial interest behind the shares (Re PCCW Ltd, CACV 85/2009, 11 May 2009, §66, per Rogers VP; Re Universal Horizon Investment Ltd [2000] 3 HKC 627, at 630C-E, per Rogers JA).  This is particularly so in view of Article 16 of the AA, which states that:

“except as otherwise expressly provided by these Articles or as required by law or as ordered by a court of competent jurisdiction, no person shall be recognized by the Company as holding any Share upon any trust and, except as aforesaid, the Company shall not be bound by or be compelled in any way to recognize (even when having notice thereof)  any equitable, contingent, future or partial interest in any Share or any interest in any fractional part of a Share or any other right or claim to or in respect of any Shares except an absolute right to the entirety thereof the registered holder”.

(2)  The assertion that Absolute would be exposed to criminal allegations of dealing in securities without the requisite licence contrary to the provisions of the SFO[28] does not take the matter any further.  Whether Absolute would be criminally liable is a matter for Absolute, not D1-D7. 

(3)  In any event, it is a bad point.  In Convoy Global Holdings Ltd v Kwok Hiu Kwan [2021] HKCA 1594, the CA held (§47)  that “if an interested party can come to court to ask for pronouncement of the validity of the votes cast or to be cast by a substantial shareholder, this would be usurping the role of the SFC as the regulator.” On that basis, the CA struck out Convoy’s action seeking a declaration that a substantial shareholder acted in breach of the SFO and hence should be restrained from voting (§5).  It would be absurd if D1-D7 can achieve what is impermissible by “disqualifying” Absolute from voting at the 1^st EGM.

76.  On the other hand, Mr Justin Lam (appearing with Mr Sim Jing En), counsel for D1-D7, contend that:

(1)  D7 was independent, his Decision was made in good faith as there was “significant doubt over the true legal and beneficial ownership” of the Shares due to the Allegations. The Allegations suggest that “Absolute engineered an unlawful cross-border fund-raising scam to defraud the public and used such proceeds to purchase the [Shares]”. 

(2)  The allegation that D7’s Decision was not made in good faith or for an improper purpose is a serious allegation which needs to be proved by cogent evidence.  The same applies to an application for interlocutory injunction (Gentle Soar Ltd v CMBC Capital Finance Ltd and Others [2021] HKCFI 3450, 22 November 2021,  §§37, 70 per Keith Yeung J).  The inference can only be drawn from proven facts which make the inference compelling (Chinaculture.com Ltd v Lam Ting Ball, Paul and Others [2022] HKCFI 1114, 20 April 2022, §23, per Harris J, citing Nina Kung v Wong Din Shin (2005)  8 HKCFAR 387, §§185 & 187 per Ribeiro PJ).

(3)  In the absence of cross-examination, there must be sufficient justification of an inference of bad faith solely by way of affidavit evidence (Re Wing Fai Construction Company Limited (in liq), HCCW 735/2002, 11 January 2017, §6; Re Smith & Fawcett Ltd [1942] Ch 304, 308).

(4)  The only basis to substantiate Absolute’s serious allegation and for the court to disbelieve D7’s evidence on oath is through the documentary evidence. There is clearly insufficient documentary evidence to satisfy the high threshold required to justify an inference of bad faith.

B1.1   Power to disqualify right to votes

77.  D7’s Decision was made pursuant to Article 84 of the AA, which provides as follows:

“No objection shall be raised to the qualification of any person exercising or purporting to exercise a vote or the admissibility of any vote except at the meeting or adjourned meeting at which the vote objected to is given or tendered, and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection made in due time shall be referred to the chairman of the meeting, whose decision shall be final and conclusive”.

78.  A similar clause was considered by the court in Kwok Hiu Kwan v Johnny Chen & Ors [2020] 3 HKC 403 where the plaintiff (Kwok)  challenged the chairman’s decision made pursuant to article 74 to disallow his shares from voting on the ground that those shares had been acquired as part of an unlawful scheme to vest and retain control of Convoy in Roy Cho, and Kwok was not the beneficial owner, or the ultimate controller, of the voting rights of the shares (§7).  It was common ground that if the decision of the chairman had been made in bad faith, it should be set aside (§10).  At §16, Harris J explained what constituted bad faith in this way:

“By its nature bad faith is not capable of precise definition and what constitutes bad faith will very much depend on the subject matter. Certain criteria do emerge from the cases. It involves personal fault that goes beyond an error of law or of fact. It is a serious allegation and it must be clearly identified and proved[29]. It is bad faith knowingly to exercise a power for an improper purpose and it is ‘capable of embracing a failure to act in a commercially acceptable way and sharp practice of a kind that falls short of outright dishonesty as well as dishonesty itself’[30]. It is Mr Kwok’s case that if [the chairman] made the decision not to count the Shares for voting purposes for an improper purpose, and he was motivated by a desire to ensure that the Tsai Brothers retained control over the board of the Company. I accept that if this is demonstrated, [the chairman] will have acted in bad faith, the Decision was unlawful and should be set aside”.

79.  As regards the scope of the chairman’s power under article 74 and the effect and implications of the decision made under that article, Harris J said (§§43-45)  this:

“43. The chairman decides whether a vote should or should not be counted for the purposes of determining whether a resolution has been passed. The chairman is not determining any underlying dispute, which has given rise to an objection on which he is called to rule.”

“44. [as to] deciding precisely what decision is final and conclusive under article 74. In my view, it is whether the votes attaching to particular shares should be admitted for voting purposes at a particular general meeting. The issue would need to be revisited at each meeting at which the same objection is raised and the chairman would have to determine it on the basis of the information before him at that time.”

“45. Understanding what is being decided in my view helps explain why there is nothing objectionable in the members agreeing in the articles that in the event of a dispute about whether votes should be recognised the chairman should make a final and conclusive determination, subject to exceptional circumstances, a subject to which I return in [50]. It is desirable, especially in the case of a public company, that so far as possible that following a general meeting there is certainty and finality about the status of resolutions put to members. If a member aggrieved either by having votes allowed or disallowed can come to court and argue that the decision was in error the general body of members and third parties will be faced with uncertainty. …”

80.  On appeal, it was argued on behalf of Kwok that (1)  the power under article 74 gave the chairman a contractual discretion, which must be exercised honestly and in good faith, and must not be exercised unreasonably, arbitrarily, capriciously or irrationally; and (2)  article 74 should be read as subject to an implied qualification that a decision is not final and binding if wrong in the way described above (Re Convoy Global Holdings Ltd [2020] HKCA 972, §28).  The Court of Appeal upheld Harris J’s holding on the scope of the power under article 74 and his reasons for rejecting Kwok’s contention that article 74 was subject to the implied qualification (§§40-42, 50).  In particular, the Court of Appeal stated that the approach of the Judge:

“is consonant with the approach in old English authorities (Wall v London and Northern Assets Corporation [1899] 1 Ch 550; Wall v Exchange Corporation Ltd [1926] 1 Ch 143)[31] that in the absence of fraud or mala fides, a chairman’s decision not to allow a vote to which objection had been raised at a meeting was treated as final, pursuant to an article which provided that votes tendered at a meeting and not disallowed should be deemed valid for all purposes.” (§42)

81.  It seems to me that the power given to the chairman under Article 84, like all the powers given to the directors under the articles of association, is a fiduciary power.  The exercise of such fiduciary power is governed by the general principles expounded in Howard Smith Ltd v Ampol Ltd [1974] AC 821, at 834A-H, per Lord Wilberforce[32] namely:

(1)  The exercise of a fiduciary power may be attacked on the ground that it was not exercised for the purpose for which it was granted;

(2)  Where self-interest of the directors is involved, they will not be permitted to assert that their action was bona fide thought to be, in the interest of the company; and

(3)  Self-interest is only one instance of improper motive and, before one can say that a fiduciary power has been exercised for the purpose for which it was conferred, a wider investigation may have to be made (at 834G-H).  This was described by Viscount Findlay in Hindle v John Cotton Ltd (1919)  56 ScLR 625, 630-631[33]:

“Where the question is one of abuse of power, the state of mind of those who acted, and the motive on which they acted, are all important, and you may go into the question of what their intention was, collecting from the surrounding circumstances all the materials which genuinely throw light upon that question of the state of mind of the directors so as to show whether they were honestly acting in the discharge of their powers in the interests of the company or were acting from some bye-motive, possibly of personal advantage, or for any other reason.”

B1.2   Company takes no notice of trust

82.  Mr Lam does not dispute that a company and the court generally takes no notice of any trust or beneficial interest behind the shares; and the register of members serve as prima facie evidence and the court should proceed on that basis (Universal Horizon, 630C-E).  However, he contends that where the company has knowledge of someone who claims to have legal or beneficial interest in the shares, it comes under an obligation to give effect to such interest.  The argument is put as an exception to or departure from the general rule and principle in this way:

(1)  “this rule does not mean that the company, with the knowledge of the rights of other people, can ignore the rights of which it has knowledge for the company is not relieved from the obligation of giving effect to equitable rights of which it in fact has notice” (Gore-Browne on Companies, Volume 1, 45^th ed, 2022, at §10B[2]);

(2)  “a company cannot abuse this principle to protect itself from its own wrongful acts or fraud.  If a company actively participates in a breach of trust by a trustee of its shares, it will be liable to the beneficiaries in the same way as any other person (e.g. by a claim in dishonest assistance)”: Qiyang Ltd v Mei Li New Energy Ltd [2016] 4 HKLRD 790, §41 per To J; Butterworths Hong Kong Company Law Handbook, 24^th ed, 2022, [634.03]. 

83.  I am unable to agree with the contention that the Company has  obligation to recognise the rights or equitable interest of other people who claim to have such rights and interest in the shares issued.  None of the authorities cited supports Mr Lam’s contention.

84.  The passages in Gore-Browne start by emphasising the principle “that companies have nothing whatever to do with the relation between trustees and their cestuis que trust in respect of the shares of the company”.  They go on to discuss the 2 situations where the court will intervene to protect equitable rights by injunction:

(1)   The first concerns transfer of shares:

“Where a company had notice of a transfer to trustees for creditors or others, it was held that it was justified in refusing to give effect to a subsequent transfer by the debtor to a purchaser for value[34]. When a company upon receiving a transfer has notice of an adverse claim it usually gives notice to the claimant that it will register the transfer unless he takes proceedings within a specified time. But a company is not concerned to inquire whether trustees who are registered as shareholders are acting within their powers in dealing with the shares[35], and can enforce its own rights against the actual holders of shares irrespective of the rights of the persons for whom they are trustees[36]” (underlined added)

(2)   The second concerns priority of a company’s lien over the shares held by the shareholder.  If a company advances loan to a shareholder with the knowledge that a third party has a charge over the shares held by such shareholder, the company’s lien will not take precedence over the charge.   

85.  Far from supporting Mr Lam’s argument, the passages in Gore-Browne are consistent with the principle expounded in Universal Horizon and PCCW. 

86.  As regards Butterworths Hong Kong Company Law Handbook, [634.03], it makes the same point that a company takes no notice of any trust over, and is not bound to recognise any equitable interest in, the shares issued as follows:

(1)  While s.634 of the CO[37] does not expressly prevent the company from receiving notice of a trust on which shares are held, it has been held that this is its effect (Societe General de Paris v Walker (1885)  11 App Cas 20 (HL)  at 30, per Lord Selbourne).

(2)  In Re Kowloon Container Warehouse Co Ltd [1981] HKLR 210, at 216-271, Fuad J expressed the view that the object of s.101 is to prevent the entering of trusts on the register so that it is at all times clear, he considered that a company could recognise an equitable interest in its articles if it chose to do so, although the section would preclude its registration. 

(3)  Section 634 operates to protect the company from liability to the owners of equitable interests since the prohibition has been construed as deeming the company not to have notice of such equitable interest even though it actually has knowledge of their existence and content[38].  A company is not liable to the owners of equitable interests in shares for registering improper dispositions of the shares although, on receiving notice of an equitable claim, the company may decide against registering a competing transferee[39].

(4)  The authorities all go one way except Qiyang which the editor cited as authority for the proposition that if a bankrupt shareholder voted without the consent of the trustee in bankruptcy to the knowledge of the company, then the company is regarded as participating in the bankrupt’s fraud against the trustee in bankruptcy and the bankrupt shareholders’ votes will be invalid.  Where a company actively participates in a breach of trust by a trustee of the shares issued by the company, it will be liable to the beneficiaries in the same way as any other person. 

87.  Mr Lam relies heavily on Qiyang (§§41-43)  in support of his contention that a company will be liable if it participates in any breach of trust in respect of the shares, and the votes casted by a shareholder in breach of trust would render the resolution invalid.  I disagree.  In my view, Qiyang is a case decided in the context of bankruptcy in circumstances where upon a bankruptcy order made against the bankrupt, ss.12 and 58 of the Bankruptcy Ordinance (Cap. 6)  operate to vest the shares held by the bankrupt, including all the rights attached thereto, on the Official Receiver qua provisional trustee of his property.  It was in this context that To J held that the bankrupt had no authority to vote (§43), and the company could not give effect to such vote.  The holding has no application outside the bankruptcy context.  My view is fortified by the fact that, so far as counsel’s researches go, Qiyang has not been cited or applied as authority for the proposition that a company has to recognise any trust or equitable interest in the shares issued or that the votes casted by a shareholder in breach of trust would be invalid. 

B1.3   Present case

88.  I turn to the facts of this case.  In my view, D7’s Decision was made in bad faith and for the collateral purpose of entrenching D1-D6’s control over the board of the Company for the reasons explained below.

89.  First, as an experienced solicitor and in order to perform his role as compliance director, in-house counsel and assistant company secretary of the Company,  D7 must be familiar with the principle that a company takes no notice of trust or beneficial interests in the shares issued and the requirements of the AA. 

(1)  As stated in §§50 and 52 above, the objective facts show that D1-D7 did not take any legal advice prior to the 1^st EGM on Article 16 or Article 84, still less any advice which suggested that the Company should recognise or give effect to the rights and equitable interests of the Claimants. 

(2)  A person with the knowledge and experience of D7, acting in good faith, would have no difficulty in concluding that the Allegations were not valid grounds to disqualify the Shares from voting at the 1^st EGM, given that the Company had no obligation to take notice of the Claimants’ claims, still less to deprive Absolute’s voting right on the Shares.  To the contrary, if Absolute were denied the right to vote at the 1^st EGM, D1-D7 and the Company would face further litigation including application for injunction against them. 

(3)  It has not been explained by D7 as to how, with his knowledge and experience, he could have come to the view that it was proper to recognise or give effect to the rights and equitable interests of the Claimants and denied Absolute from voting on the Shares. 

(4)  In his affirmation, D7 asserts that prior to the 1^st EGM, he “was advised by the Company’s Cayman Islands legal representatives as to the potential decisions that [he] had to make as Chairman of the [1^st EGM] if there should be an objection to Absolute’s votes at the [1^st EGM]” and he was reminded of the power under Article 84[40]. It is notable to see that D7 does not say the date when the advice was rendered or why he thought that an objection would be raised to Absolute’s right to vote. Nor does he produce any document evidencing the advice despite its obvious importance.  In the circumstances, it is open to the court to draw an adverse inference against D1-D7 that if the advice were produced, it would not support their case: either no such advice was rendered to the Company or that the advice was obtained by D1-D7 before 28 April 2022 and with that advice, D1-D7 then devised a scheme to ensure that the Allegations would reach the Company at the 11^th hour before the 1^st EGM so that D7 could use that as the basis for disqualifying Absolute from voting. 

90.  Second, as can be seen from the events set out in sections A2-A6 and A8 above, D7 had always been acting in concert with D1-D6 and was not independent.  As compliance director, in-house counsel and assistant company secretary of the Company, D7 was intimately involved in dealing with the 1^st and 2^nd Requisitions, both at board meetings or through advices rendered to the board.  He was privy to (1)  the grounds deployed by the board to delay convening an EGM pursuant to the 1^st and 2^nd Requisitions; (2)  the stance taken by the board on the validity of the 2^nd EGM; and (3)  the reasons for accepting the Allegations.  Having been intimately involved in the entire process, I do not think it is open to D7 to say that he was “independent” of the board or that his Decision was not in any way affected by the stance adopted by D1-D6 as against Absolute. 

91.  Third, on D1-D7’s case, the Claimants were complete strangers, and the Allegations were only made known to them in less than a day before the 1^st EGM.  A person acting in good faith in the position faced by D7 would be not have accepted the Allegations at their face value given that:

(1)  he had not even verified the identity of the Claimants or the veracity of the documents appended to the letters;

(2)  the Allegations are very serious, involving allegations of fraud and scams;

(3)  the Allegations were very stale.  The alleged breach of SIHAs had taken place more than 2 years before the letters.  Why the Claimants were content to allow Absolute to continue to hold and exercise the rights attached to the Shares but suddenly wanted the Company to deny Absolute from voting, and why such denial of right would be in their interests; and

(4)  whether the Claimants had brought any claim against Absolute or Sui in the Mainland as (a)  the alleged illegal cross-border investments took place in the Mainland and involved breach of the PRC laws; (b)  the SIHAs are governed by PRC law; and (c)  the Claimants are residents in the Mainland.  If claims were brought, what were the results. 

92.  It was perfectly reasonable and, indeed, necessary for D7 to ask these questions before accepting the Allegations, as it had been the consistent stance of D1-D7 that any assertions made by Absolute had to be substantiated, followed by obtaining legal advice and detailed consideration by them.  There was no reason, and none has been put forward by D7, as to why when it came to dealing with the Allegations made by complete strangers (i.e. Claimants), he adopted an approach which was so different from his usual sceptical approach when dealing with any matters raised by Absolute (a long time shareholder)[41].

93.  Fourth, even if (which I do not think is the case)  D7 considered that the documents provided by the Claimants support the Allegations, a person acting in good faith would have provided the Allegations to Absolute to see if it had any explanation for them.  This was never done.  Instead, D1-D7 decided to spend all the time in the evening of 28 April 2022 to hold board meeting only to resolve that the Company should investigate the Allegations, disallow Absolute from voting on the Shares and approve the 28 April Announcement.  The only inference which can be drawn from such conduct is that D1-D7 wanted to use the Allegations as the reason for disallowing Absolute from voting on the Shares at the 1^st EGM. 

94.  Fifth, even if (which I do not accept)  there were any basis for D7 to accept the Allegations at their face value, at the highest, the Claimants only claimed to have interest in 9.3% shareholding in the Company.  There was no basis for D7 to disallow all the Shares from voting at the 1^st EGM.  In his affirmation D7 asserts, for the first time, that he “noted that the alleged victims may not be limited to just [the Claimants] and may extend to potentially many more alleged victims of the same alleged fraudulent investment scheme”, relying on one sentence in each of the letter of Mr Lin and Ms Huang and a post in Baidu dated back to December 2021 which referred to Cao and 百家安.[42]  I am unable to see how a person with the knowledge and experience of D7 acting in good faith could have accepted such serious and stale Allegations without asking any question.  In any event, I do not accept that this was a matter actually considered by D7 at the time he made the Decision as such matter never featured in any of the contemporaneous documents or mentioned at the 1^st EGM.  It seems to me that it is only an ex post facto justification created by D7 to justify his Decision. 

95.  Sixth, the objective facts show that the Decision was made prior to the 1^st EGM, but was dressed up as a decision made by D7 upon an objection raised by a shareholder having regard to the following facts:

(1)  at the board meeting held on 28 April 2022, at which D7 was present, a decision was already made not to allow Absolute from voting at the 1^st EGM;

(2)  the 28 April Announcement was only uploaded to website 15 minutes before the 1^st EGM, and D7 was one of the directors who approved this Announcement;

(3)  D7 read out the 28 April Announcement at the 1^st EGM, which suggested to the shareholders present that he agreed with its contents. Immediately thereafter, without asking any question, a shareholder raised an objection to Absolute’s qualification to vote.  It seems to me that the so-called objection was pre-arranged by D1-D7 as an ordinary shareholder attending the meeting would not be able to digest the contents of the 28 April Announcement without asking any question, let alone to the “qualification” of Absolute in voting, which is not a term commonly used by layman.  Not surprisingly, there is complete silence on the part of D1-D7 as to who that shareholder was, and whether he was related to D1-D7; and

(4)  Although the 28 April Announcement stated that “[f]ollowing due consideration and consultation with the Company’s legal advisors, the Chairman declared that the voting rights purportedly held by [Absolute] should not be counted in the EGM”, in fact, no such consultation took place at the meeting which was concluded in 13 minutes.   

96.  Further, as submitted by Mr Dawes, there are other facts which suggest that D7’s Decision was made in bad faith and with a view to entrenching control of D1-D6:-

(1)  The objective effect of disqualifying Absolute from voting is that the resolutions to remove D1-D6, which would have been passed, were “defeated”. 

(2)  Previously, D1-D6 with the assistance of D7 declined to act in accordance with the 1^st and 2^nd Requisitions and, instead, proposed the Rights Issue which but for the variation of the 10 June Injunction granted by this Court, would have diluted Absolute’s shareholding from 45% to 30%.[43]

(3)  Zhao and Cai were removed as directors of the Company, even though such removal left the Company with insufficient number of INEDs as required by the GEM Listing Rules[44].

(4)  Prior to the 1^st EGM, the idea of appointing an independent third party as chairman for the 1^st EGM and/or the 2^nd EGM was raised with a view to avoiding the parties having to return to court, but to no avail.[45]

(5)  Indeed, after the grant of the 13 May Injunction, D1-D6 “decided” to hold an AGM on 30 June 2022 in an attempt to “short-circuit” the OS.[46]  Any sensible and impartial professional would have advised against the holding of the AGM prior to the substantive hearing, for the power of D1-D6 is in dispute and it is not in the best interest of any party other than D1-D6 to re-elect them as directors in the interim.

97.  The timing of the Rights Issue, which was to complete before the substantive hearing on 14 September 2022[47] (when Absolute was still restrained from exercising any rights on the Shares), reinforces my view that D1-D7 were prepared to deploy every possible means to entrench D1-D6’s control over the board while seeking to dilute Absolute’s shareholding in the Company.

98.  For the above reasons, I hold that D7’s Decision was made in bad faith and for the improper purpose of entrenching D1-D6’s control over the board of the Company.  The Decision was invalid and should be set aside.  As the Shares should have been allowed to vote at the 1^st EGM, (1)  all the resolutions to re-elect D1-D6 as directors would have been defeated, and they ceased to be directors of the Company after the 1^st EGM; and (2)  the resolutions to appoint the Proposed Appointees as INEDs would have been passed. 

B2.   Whether the 2^nd EGM was valid

99.  As stated in section A4 above, resolutions to remove D1-D6 as directors and to appoint the Proposed Appointees as INEDs were passed at the 2^nd EGM. 

100.  Mr Dawes submits that the 2^nd EGM was properly convened in that notice of the 2^nd EGM was given by advertisement in English and Chinese newspapers[48].  Article 180(b)  of the AA provides that any notice to be given to any person pursuant to the AA may be given “by publishing it by way of advertisement in the Newspapers”.

101.  Mr Lam argues that the 2^nd EGM was not properly convened because:

(1)  Absolute failed to notify all shareholders of the Company in that (a)  “majority of the shareholders”, who hold their shares through nominee companies, were unable to receive the relevant information in relation to the 2^nd EGM[49]; (b)  there is no evidence to show that circulars with notice convening the 2^nd EGM were dispatched to all shareholders, not just registered shareholders[50]; and (c)  Absolute has not exhibited the advertisements in its evidence.

(2)  Notices of the 2^nd EGM was not published on the GEM website in compliance with rules 16.04 and 17.46 of the GEM Listing Rules.[51]

(3)  The Company’s “lawful representatives” were denied access and were unable to verify the votes casted at the 2^nd EGM[52].

102.  None of the arguments have any merit. 

103.  So far as giving notice of the 2^nd EGM is concerned:

(1)  In Wu 1^st filed in support of the OS, Absolute already stated that the circular containing notice to convene the 2^nd EGM had been despatched to the registered shareholders, and the same had been circulated to SEHK and the Company.  In the Letter from Requisitionist appended to the circular, it was stated that notice to convene the 2^nd EGM and been published in SCMP and Hong Kong Economic Times on 12 April 2022.  

(2)  Even if (which is not the case here)  there is any proper basis to suggest that the circular was not despatched to all the shareholders, it would not render the 2^nd EGM invalid as it is indisputable that Absolute had given notice of the 2^nd EGM by way of advertisements in accordance with Article 180(b)  of the AA.

(3)  The suggestion that notice of the 2^nd EGM had to be given to persons who are not registered shareholders including those who hold their shares through nominee companies cannot be right.  There is no such obligation under the AA and none has been identified by Mr Lam. 

(4)  The circular with notice was circulated to SEHK.  If the notice were not published on GEM’s website, it was not the fault of Absolute.  In any event, a breach of GEM Listing Rules would not have the effect of rendering the 2^nd EGM to become not properly convened.   

104.  As to the suggestion that the “lawful representatives” were denied access to the 2^nd EGM, it is clearly wrong.  As stated above, the directors were allowed to attend the 2^nd EGM but they decided to leave the meeting on their own accord.  I am unable to see how D1-D7 can rely on their decision to leave the meeting as a ground for challenging the validity of the 2^nd EGM. 

105.  As there is no valid ground to challenge the 2^nd EGM, I hold that the 2^nd EGM and the resolutions passed thereat were valid and should be given effect. 

B3.   Whether the resolutions passed at the AGM could ratify the appointment of D1, D4-D6 as directors and superseded the appointment of the Proposed Appointees

106.  Mr Dawes’ arguments may be summarised as follows:

(1)  Where, as here, D1-D7 wish to rely on the resolutions to ratify the invalid resolutions passed at the 1^st EGM, the burden is on them to satisfy the court that the AGM was valid. 

(2)  It is well-established that general meeting can only be convened by directors acting as a board.  The secretary had no power to issue the notice. There was no ratification of his act and the so-called resolution of the company was invalid, applying the principle in Re Haycraft Gold Reduction and Mining Co [1900] 2 Ch 230 (Re State of Wyoming Syndicate [1901] 2 Ch 431). 

(3)  If the resolutions appointing the directors were invalid, they have no legal effect and any resolutions purportedly passed by such directors would be invalid (Liao Zhiqiang v Cheung Sin Ling Vickki [2022] HKCFI 892). 

(4)  In the present case, the AGM was convened by a notice issued by the board.  However, D1-D6 had, in the eyes of the law, had already been removed and were not directors.  They had no authority to convene or issue any notice convening the AGM given that the power to convene general meeting (under Articles 62 and 65 of the AA)  can only be exercised by the board. 

(5)  Further, D1-D6 exercised their power to convene the AGM for the improper purpose of entrenching their control. There was no imminent need to hold the AGM by 30 June 2022 as long as it was held by 28 August 2022.  Where the directors exercised their power for an improper purpose, their act is void and of no effect (Roadchef (Employee Benefits Trustees)  Ltd v Hill [2014] EWHC 109 (Ch)  at §§126-127 and 130-131).

107.  Mr Lam submits that the court cannot grant the relief sought in the OS for 2 main reasons. 

108.  First, equity does not act in vain.  Declaratory or injunctive relief should be refused if it is certain that compliance with the order of the court would be rendered nugatory and futile and such relief would not serve any practical purpose (Spry on The Principles of Equitable Remedies, 9^th ed, 2014, at 419 to 420; Chan Shu Chun and Others v Right Margin Ltd and Others    [2015] 3 HKLRD 409 at §23; Equis (Hong Kong )  Ltd v George Allen Cowan [2021]   HKCFI 768, 23 March 2021, §39).

109.  Second, the irregularity principle applies.  As summarised in Ng Tai Joo v The Registrar of Companies and Ors [2021] HKCFI 1510, 21 May 2021, at §§30-33:

(1)  The court may decline to interfere despite procedural irregularities in the operation of a company.    

(2)  The lawfulness of a decision taken by a meeting of members cannot be questioned if the only fact alleged to make it unlawful is a mere informality and irregularity and the intention of the meeting is clear.   

(3)  This is particularly so if there is no evidence that the decision of the meeting would have been different if the correct procedure had been observed.   

(4)  Equity will not interfere where an irregularity has been permitted if it is within the power of the persons who permitted the irregularity at once to correct it by calling a fresh meeting and dealing with the matter with all due formalities.

110.  Mr Lam argues that the results of the AGM supersede the dispute on the validity of the 1^st EGM.  Irrespective of the court’s determination in the OS, D1, D4-D6 were properly appointed by resolutions passed at the AGM because:

(1)  The superseding results of the AGM remain valid notwithstanding any mere informality and/or irregularity, which is insufficient to invalidate any resolution passed at the AGM (Boschoek Proprietary Co v Fuke [1906] 1 Ch 148 at 162, distinguished Re State of Wyoming Syndicate and Re Haycraft Gold Reduction and Mining Co).

(2)  Liao Zhiqiang is distinguishable as the impugned resolutions were passed by the directors whose appointment was found to be void.  Here, the superseding results of the AGM reflect the separate and independent democratic will of the shareholders, which “trumps” the dispute in the OS. 

(3)  There was a clear need for D1-D6 to convene the AGM as rule 18.03 of the GEM Listing Rules provides that the directors must lay the Company’s 2021 AFS at its annual general meeting by 30 June 2022.

(4)  There is no evidence to suggest that the decision of the AGM would have been different if it were held by 28 August 2022.[53] This is especially so in light of the 10 June Injunction which remains in force. 

111.  I do not think that the resolutions passed at the AGM were valid or that such resolutions (even if valid)  would render the relief sought by Absolute to become futile or of no practical utility. 

112.  First, as pointed out by Mr Dawes, Boschoek Proprietary Co v Fuke [1906] 1 Ch 148 is clearly distinguishable. The general meeting in that case was convened for the specific purpose of confirming “the acts theretofore done by persons purporting to act as directors” (at 162). It was on this basis that the court was prepared to overlook “any informality in convening the meeting as a mere irregularity”.  By contrast, the AGM was not convened for the purpose of ratifying any defects or invalidity in the appointment of D1-D6, and no such ratification was proposed or made at the meeting.  In light of my holding that the resolutions re-electing D1-D6 as directors were invalid, they were not directors at the time the notice convening the AGM was issued.  It follows that the AGM was not properly convened and was invalid.   

113.  Second, the AGM was convened by D1-D6 for the improper purposes of entrenching their control over the board and frustrating the proceedings in the OS.  This was despite the 13 May Injunction granted by this Court to preserve the status quo. 

(1)  Even if (which has not been made out)  there was an imminent need to approve the 2021 AFS by 30 June 2022, it did not require D1-D6 to propose, still less ask the shareholders to vote on the proposed resolutions to re-elect any directors at such meeting. 

(2)  It is no answer to say that the proposed resolutions were set out in the notice convening the AGM. The proper thing to do would be for the chairman to adjourn those proposed resolutions which concern re-election of directors after the court’s determination on the OS and the summonses in HCA. 

(3)  As pointed out by Mr Dawes, it is inexplicable that the Proposed Appointees were retired as directors.  Article 108(a)  requires not less than 1/3 of the directors to retire by rotation at each annual general meeting, but those directors appointed under Article 112 shall not be taken into account for this purpose.  Article 108(b)  sets out the directors required to retire.  As the Proposed Appointees were appointed on 29 April 2022, they should not have been required to retire.[54]

(4)  The timing of the AGM shows that D1-D6 wanted to hold the meeting at the time when the 10 June Injunction remained in place such that Absolute could not vote on the Shares, and immediately before the original substantive hearing of the OS (on 6 July 2022)  so that they could use the results of the AGM to defeat Absolute’s claim in the OS. This is reinforced by the candid submissions of D1-D7’s leading counsel, who acknowledged that the result of the AGM were an “answer” to the OS, which was the reason why D1-D7 had to wait until the result was known on 30 June 2022 before seeking to rely on such result at the original substantive hearing of the OS.  This confirms that D1-D6 abused their power qua directors by convening and holding the AGM and obtained the result they foreseen as a “weapon” to short-circuit and “answer” the OS, rather than a genuine platform for shareholders’ democracy.

(5)  The only inference I can draw from the acts of D1-D6 in acting in this way is that they exercised their power to convene the AGM for the improper purposes of entrenching their control over the board and frustrating these proceedings. 

114.  Third, I do not think that the irregularity principle applies given that the invalidity of the AGM stems from D1-D6’s exercise of power for an improper purpose, which was not a mere informality and irregularity.  In any event, it has not been demonstrated that the same resolutions would have been passed by the shareholders at another general meeting in light of Absolute’s stance to remove D1-D6 as directors and to appoint the Proposed Appointees as directors. 

B4.   Whether the 10 June Injunction should be continued

115.  The main thrust of Ps’ argument is that as beneficial owners of the Shares, Ps have proprietary rights over the Shares and are entitled to direct their trustee, Absolute, to act in the way they wish.  Ps did not authorise and do not want Absolute to vote on the Shares, and the court should give recognise and effect to their wish by continuing the Injunction. 

116.  On the other hand, Absolute/Sui contend that the 10 June Injunction should be discharged for the following reasons:

(1)  Ps’ proprietary claim over the Shares has no merit.  PRC laws, which is the governing law of the SIHAs, do not recognise the concept of trust, let alone constructive trust as pleaded in the SOC;

(2)  There was inexplicable delay on the part of Ps in making the alleged proprietary claim or seeking the 10 June Injunction on an “urgent” basis;

(3)  Balance of convenience is against the grant and continuation of the 10 June Injunction given that:

(a)  it causes irreparable harm to Absolute from exercising any rights over the Shares which is neither necessary nor expedient;

(b)  there is no evidence to suggest that the undertaking as to damages offered by Peng would be enforceable against Ps, and Ps have not offered any fortification in respect of their undertaking despite the obvious loss inflicted on Absolute; and

(c)  Absolute/Sui are prepared to give an undertaking to the court (i)  not to encumber or dissipate any of the Shares including any new shares subscribed under the Rights Issue, until determination of the action (“1^st Undertaking”), and (ii)  not to vote (save as allowed as per the order to be made)  on the newly subscribed shares if and when the 10 June Injunction is in force and is continued (“2^nd Undertaking”); and

(4)  There was material non-disclosure at the time Ps applied for the 10 June Injunction.

B4.1   Applicable principles

117.  The principles are not in dispute.  As submitted by Mr Barlow:

(1)  Where moneys are provided to an agent by his principal for a specific purpose, the agent as a trustee is bound to apply those moneys for the purpose specified, failing which the defaulting trustee will be liable for breach of trust (e.g. Snell’s Equity, 34^th ed, §23-03; Typhoon 8 Research Ltd. v Seapower Resources International Ltd [2002] 2 HKLR 660 per Le Pichon, JA at §§16-22).

(2)  A defaulting trustee or fiduciary of the property of another person will be treated by the court (in the exercise of its equitable jurisdiction)  as holding that property on constructive trust for the other person, who is entitled to have the property restored to him in specie (Snell’s Equity, §26-011). 

(3)  Any property acquired by a defaulting trustee with misapplied trust property is held by him on trust for the c’estui que trust (Fosket v McKeown [2001] 1 A.C. 102, 130A-C, per Lord Millett).

(4)  The court, in the exercise of its equitable jurisdiction, will always be astute to provide interim protection  of property in respect of which a plaintiff asserts a reasonably arguable case of proprietary entitlement and/or trust/fiduciary obligations of the defendant in respect of the property concerned (A v C [1981] 1 QB 956 per Robert Goff, J. at 958E-959D).

(5)  In considering whether to grant an interim injunction to protect a claim for trust property, irreparable damage need not necessarily be shown, and the court will readily find that the balance of convenience favours the preservation of the fund pending trial (Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd & ors, HCA 3023/2016, 2 May 2017, §37).

(6)  Where, as here, “a defendant is proposing to act in breach of an express negative stipulation binding upon him, he will normally be enjoined from doing so, and, save in exceptional cases, damages will not be regarded as an adequate remedy” (The Incorporated Owners of South Seas Centre, Mody Road v Great Treasure Development Ltd [1994] 2 HKLR 197 per Godfrey JA at 202C).   

(7)  In order to obtain the continuation of the injunction, it is necessary for Ps to show that the SOC raises one or more serious questions to be tried, that is, the claim is not frivolous or vexatious (Yifung Properties Ltd v Manchester Securiteis Corp, CACV 258 & 259/2015, 9 September 2016, §19). 

118.  I deal with the issues relevant to the continuation or discharge of the 10 June Injunction in turn. 

B4.2  Serious issues to be tried

119.  Mr Barlow submits that Ps’ case, as pleaded in the SOC, raises serious issues to be tried.  Although Absolute/Sui dispute this in their affirmations, at the hearing, Mr Dawes accepts that for the purpose of the summonses, there are serious issues to be tried in respect of Ps’ non-proprietary claims. 

120.  As regards Ps’ proprietary claim over the Shares, Ps’ case is encapsulated in §§4-5 of the Skeleton Arguments of Mr Barlow:

“4. However, the substantive issue raised in this Action concern the beneficial ownership of those shares – to which [Ps] assert (and have prima facie demonstrated)  their proprietary and contractual entitlements, including their proprietary rights to direct their trustee/nominee, Absolute, as to how and when the rights and/or rights of action attached to those shares are to be exercised – see [SOC].

5. In particular, as pleaded in the SOC, [Ps] assert their beneficial ownership of the property now representing their Investment Funds (totalling RMB 85 million)  which [Sui], who is the legal owner of all of Absolute’s shares, had caused [Ps] to transfer pursuant to their [SIHAs] to accounts designated by her (including Absolute’s Hong Kong bank account)  in order to purchase 365,132,379 shares in the Company, which property now includes (a)  Absolute’s 45% shareholding in the Company (the “Subject Shares”)  plus all shareholders’ rights of action in respect of the Subject Shares; and (b)  the unused balance of the Investment Funds.”

121.  Mr Dawes submits that Ps’ pleaded case is that the SIHAs, which are governed by PRC law, give rise to an express trust.  Properly characterised, the issue concerns the contractual relationship arising out of the SIHAs, rather than enforcement of proprietary rights over the Shares.  Similar arguments raised by Ps to the effect that their claims are proprietary in nature and hence not governed by PRC law was rejected by Keith Yeung J in Chen Hongqing v Jinan Industrial Development Investment Group Co Ltd [2019] HKCFI 2121, §§78, 129-130.

122.  Mr Dawes submits that as far as PRC law is concerned:

(1)  The court has held that “it is well-established that the concept of trust assets as understood in common law jurisdictions does not exist under PRC law” (GM Commercial Consultants Corp v Euro-Asia Zhong Ji (HK)  Ltd [2021] HKCFI 1378, §66, per DHCJ Le Pichon; Waxman v Li Fei Yu [2013] 3 HKLRD 711, §§49, 58, per To J).

(2)  Under s.59(2)  of the Evidence Ordinance (Cap. 8), these Hong Kong decisions on PRC law are admissible, and should be taken as conclusive unless the contrary is proved.

(3)  Accordingly, as a matter of PRC law, contrary to P’s pleaded case, the SIHAs do not give rise to any express trust.

(4)  Although Ps now seek to rely on constructive trust[55] and the analysis in 廈門新景地集團有限公司v Eton Properties Ltd (2020)  23 HKCFAR 348, §§174-180, the result would have been the same (i.e. no trust). This is because a contract concerning listed shares are not specifically enforceable and hence cannot give rise to a constructive trust (Zheng Li Feng v Super Worth International Ltd [2018] HKCFI 1578, §25; 廈門新景地集團有限公司v Eton Properties Ltd, §174).

123.  In any event, the PRC law evidence adduced by Absolute/Sui shows that:

(1)  Neither Sui nor Absolute has the necessary qualification to be an authorised institution for operation of entrustment business under PRC Trust Law, which stipulates that a trustee must be an authorised institution having a registered capital (paid-up)  of not less than RMB300 million, and cannot be a natural person.

(2)  The SIHAs do not satisfy the contents requirements in connection with entrustment agreement under PRC Trust Law.

(3)  Even if Absolute is adjudged to liable to Ps for Sui’s breach of the SIHAs, the relationship between Absolute and Ps would be one of debtor and creditor.  Ps would not be entitled to replace Absolute to become the registered holder of the Shares or to enforce any contractual obligations under the SIHAs against Absolute.

(4)  The PRC law evidence adduced by Ps cannot be relied upon, as it is only a “preliminary” analysis. Ps’ expert expressly prohibits the court from relying on the opinions without the expert’s consent; and the report has not been verified by any Statement of Truth or expert declaration. 

124.  Mr Barlow does not dispute that the SIHAs are governed by PRC law.  He submits that Absolute/Sui’s expert opinions are “unreliable” for the reasons stated in §A9 of his Annex and the opinions of Ps’ expert are preferred.  He relies on the presumption of similarity that PRC law are the same as Hong Kong law as pleaded in §13 of SOC.

125.  The question is whether as the matter now stands, Ps’ plea on presumption of similarity between PRC law and Hong Kong law gives rise to a serious issue to be tried.  I do not think it does.  No matter how Mr Barlow puts it, he is unable to articulate any basis as to why this Court should not follow the decisions where the court held that the concept of trust assets as understood in common law jurisdictions does not exist under PRC law.  Indeed, it is clear from the experts’ opinions adduced by the parties that neither expert states that PRC law and Hong Kong law are similar when it comes to trust.  There is therefore no evidence in support of Ps’ plea that under PRC law, the principles discussed in §117 above apply such that Ps have a proprietary claim over the Shares.   

126.  I should add that in his Annex[56], Mr Barlow seeks to rely on various parts of Ps’ expert opinions to the effect that Sui and Absolute “can be regarded as the same person in law”; Ps can demand Absolute “to perform the obligations of the agent pursuant to the SIHA with [Sui]”; and the “close parallels between the characteristics of the SIHAs under Mainland law as identified in the 2^nd JHL Opinion”.  I do not think that it is open to Ps to rely on such parts of the opinions, which are matters of foreign law but have not been pleaded in the SOC. 

127.  In any event, I agree with Mr Dawes’ submissions that the principle expounded in 廈門新景地集團有限公司v Eton Properties Ltd(§§175-176)  does not assist Ps given that PRC law and Hong Kong law are not similar and the subject matters of Ps’ claim are shares in a listed company, which are not specifically enforceable. 

128.  For the above reasons, I do not think that Ps’ proprietary claim over the Shares, as pleaded in the SOC, raises a serious issue to be tried.   

129.  It follows that, subject to the 1^st Undertaking, which is accepted by this Court, the 10 June Injunction should be discharged. 

B4.3   Balance of convenience

130.  If, contrary to my view, Ps have raised a serious issue to be tried in respect of their proprietary claim over the Shares, it is necessary to consider whether balance of convenience is in favour of the continuation of the 10 June Injunction. 

131.  For the reasons explained below, I do not consider that it is just and convenient for the 10 June Injunction to be continued. 

132.  First, there was a very substantial and inexplicable delay on the part of Ps in commencing HCA  and applying for an injunction to enjoin Absolute from exercising the rights on the Shares. 

(1)  It is well-established that unexplained delay can be fatal to an application for interlocutory injunction because it reflects lack of irreparable damage, cause prejudice to the person who will be affected by the injunction, render it unreasonable or unjust to grant an interlocutory injunction, and in a bad case of unexplained delay, can constitute an abuse of process (Dorshare Ltd v Shun Pong Ltd, HCA 1823/2012, 4 January 2013, §12-16, per Anthony Chan J; Zhang Yan Yin v Korchina Culture Investment Ltd, [2018] HKCFI 2764, 18 December 2018, §§22-24, per Mimmie Chan J).

(2)  Self-induced urgency can be fatal (Ip Pui Lam Arthur v Ho Yuk Wah David [2018] HKCFI 455, §77).

(3)  On Ps’ own case, the alleged “scams” and the breach of SIHAs took place more than 3 years and 2 years respectively before the commencement of HCA and application for the 10 June Injunction.  Such delay must on any view be inordinate.  It militates against Ps’ argument that they required the 10 June Injunction to protect their rights or that irreparable damage would be suffered by Ps if the 10 June Injunction is discharged. 

(4)  The objective evidence shows that despite the alleged breach of SIHAs, neither Absolute nor Sui has taken any step to encumber, dissipate or mis-manage the Shares.  To the contrary, the entire block of Shares remain held by Absolute and it continues to exercise its rights qua shareholder including to requisition an EGM to be held to re-constitute the board.  There is no evidence to suggest that Absolute or the directors nominated by it has acted in any way to harm or prejudice the Company or the value of the Shares. 

133.  Second, the course which would lead to the less harm to the parties is to preserve the status quo ante, that is, to allow Absolute to hold and exercise the rights attached to the Shares. It is indisputable that until Ps suddenly applied for an “urgent” injunction, they were content to allow Absolute to remain as holder of and exercise all the rights attached to the Shares. Ps have not been able to point to any change in circumstances, let alone any harm caused to the value of the Shares or the Company before they applied for an “urgent” injunction.   

134.  Third, if the 10 June Injunction were continued, irreparable and substantial prejudice would be suffered by Absolute as it would not be able to exercise its rights in the Shares including the right to vote.  As Mr Dawes submits, the court would take into account the prejudice to a shareholder if he is prohibited from constituting or re-constituting a board at a general meeting, particularly if that shareholder is a major shareholder.  The risk of injustice to the major shareholder would be greater as it would lose the opportunity to vote at the critical time of the company (Crown Master International Trading Co Ltd v China Solar Energy Holdings Ltd [2015] 4 HKC 505, §§81, 84-90).  In the present case, the objective evidence shows that D1-D6 have already taken steps with a view to dilute Absolute’s shareholding which, but for the variation made by this Court, would have been achieved.  It is difficult to assess or quantify the loss of control which would be suffered by Absolute if its controlling stake in the Company were diluted.  

135.  Fourth, it would not be in the interests or for the benefit of Absolute or Ps or indeed the Company to enjoin Absolute from exercising the rights attached to the Shares in light of the following objective facts:

(1)  The Company, under the stewardship of D1-D6, has not been in a healthy financial state or performed well.  None of D1-D6 holds any significant shares or that they have any economic interest in the Company.

(2)  D1-D6 have exercised their fiduciary power for the improper purposes of entrenching their control over the board and diluting the shareholding of Absolute in the Company. 

(3)  Absolute has advanced a $10 million loan to support the Company’s operation.  No other shareholder has provided any such financial support to the Company.  As the single largest shareholder and a creditor of the Company, it is plainly in Absolute’s interest to see the Company prospers, and to exercise the voting rights to promote, rather than hamper, the best interests of the Company.  There is no evidence to show that Absolute would exercise its voting rights to the detriment of the Company or Ps or otherwise diminish the value of the Shares.  As to the conjecture that Absolute/Sui would take advantage of the Company once they are allowed to exercise the rights on the Shares, it is wholly without basis. In any event, the Company is subject to the regulations of the SFC and the SEHK and the GEM Listing Rules, which provide safeguards  against any self-dealing transactions. 

(4)  It seems to be the antithesis of shareholder democracy to deprive the controlling shareholder of their right to reconstitute the board particularly when their performance cannot be said to be satisfactory. 

136.  Fifth, as submitted by Mr Daws, there is a lack of meaningful cross-undertaking as to damages in that:

(1)  The cross-undertaking was only provided by Peng. Order 15 rule 12(5)  provides that “Notwithstanding that a judgment or order to which any such application relates is binding on the person against whom the application is made, that person may dispute liability to have the judgment or order enforced against him on the ground that by reason of facts and matters particular to his case he is entitled to be exempted from such liability.”

(2)  In any event, Ps are located in the Mainland or Taiwan.  There is no evidence to show that Ps have any valuable assets within the jurisdiction.  Nor have they filed any foreign law evidence to show that a Hong Kong judgment enforcing the cross-undertaking could be enforced in the Mainland or Taiwan.

(3)  The lack of a meaningful cross-undertaking in damages alone is a ground for varying (or even discharging)  the injunction.  This was the approach adopted by Barma J (as he then was)  when he refused to restrain a shareholder from voting in Leung Pik Wa v Poh Po Lian, HCA 681/2011, 4 July 2011 §§46-48.

137.  Lastly, with the 1^st Undertaking offered by Absolute and accepted by this Court, Ps’ claims are sufficiently protected as it means that the Shares said to have been acquired with the use of Ps’ funds are preserved pending determination of Ps’ claim. 

138.  For these additional reasons, I do not consider that it is just and convenient to continue the 10 June Injunction.

B4.5   Material non-disclosure

139.  Mr Dawes submits that Absolute/Sui were only given 2 clear days to deal with P’s “urgent” application for injunction.  Ps were obliged to give full and frank disclosure to the court (Muginoho v Vimiu, HCMP 107/2012, 24 February 2012, §§3-6).  Ps accept that they were duty-bound to make full and frank disclosure at the hearing on 10 June 2022, and attempted to do so in §§56-59 of Peng 1^{st .}

140.  In my view, there were material non-disclosures on the part of Ps when they made their “urgent” application for injunction against Absolute/Sui in respect of the following facts and matters:

(1)  The requirements for creating a trust under PRC Trust Law, which is the governing law of the SIHAs.

(2)  The presumption of similarity between PRC law and Hong Kong law, as pleaded in the SOC, is against the court’s findings in earlier decisions that the concept of trust assets as understood in common law jurisdictions does not exist under PRC law.

(3)  Under the GEM Listing Rules, Absolute/Sui had no way of “taking advantage” of the Company, even if they wanted to.

(4)  The alleged contravention of the SFO is a matter for the SFC, not Ps.  

(5)  The lack of any meaningful cross-undertaking in damages.

141.  The above non-disclosures were material and could only have been deliberate.  Ps were very much alive to the fact that their claims are based on the SIHAs which are governed by PRC law.  They specifically dealt with the issue by pleading presumption of similarity of PRC law and Hong Kong law in §10 of the SOC.  Having decided to rely on such presumption, Ps ought to have disclosed to the court that such presumption was against the findings made by the court in the earlier decisions.  There is no explanation as to why no such disclosure was made by Ps at the time they applied for the “urgent” injunction.

142.  If, contrary to my view, Ps have a serious issue to be tried in respect of their proprietary claim over the Shares and that balance of convenience was in favour of granting the 10 June Injunction, I would exercise the discretion to discharge the 10 June Injunction on the ground that Ps had failed to discharge their duty of making full and frank disclosures to the court and the non-disclosures were deliberate.

C.  DISPOSITION AND COSTS

143.  In summary, I find that:

(1)  The Decision was made by D7 in bad faith and for the improper purpose of entrenching the control of D1-D6 over the board.  This renders the 1^st EGM and the resolutions passed thereat to be invalid and should be set aside. 

(2)  The 2^nd EGM and the resolutions passed thereat were valid.

(3)  The AGM and the resolutions passed thereat insofar as they relate to the re-election or retirement of directors, were invalid, and should be set aside. 

(4)  The 10 June Injunction should not be continued.

(5)  Ps were guilty of material non-disclosures when applying for the 10 June Injunction on an “urgent” basis, and the same should be discharged. 

144.  I make the following order:

(1)  There be an order substantially in terms of §§1-4 of the OS. The wordings should be revised to reflect the findings set out in this Judgment. Absolute should submit a draft order to the Court, taking into account any comment which may be made by D1-D7, for approval.

(2)  The summons for continuation of the 10 June Injunction is dismissed.

(3)  The 10 June Injunction is discharged. 

145.  As for costs, I make a costs order nisi that:

(1)  The costs of and occasioned by the OS, including all costs reserved, should be paid by D1-D7 to the Company and Absolute, to be taxed if not agreed and with certificate for 2 counsel.

(2)  The costs of and occasioned by the summonses for continuation and discharge of the 10 June Injunction, be paid by Ps to Absolute/Sui on an indemnity basis, to be taxed if not agreed and with certificate for 2 counsel.