LAM KIN CHUNG v. SOKA GAKKAI INTERNATIONAL OF HONG KONG LTD

HCMP 1002/2017

[2018] HKCFI 747

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1002 OF 2017

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D E C I S I O N

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Introduction

1.  On 28 April 2017, the applicant Lam Kin Chung issued an originating summons seeking leave under section 733 of the Companies Ordinance, Cap 622 (“Ordinance”), to issue a statutory derivative action against 19 former and present members of the Committee of the Company. The Company is a charitable company formed to promote Buddhism.  It is incorporated by guarantee with limited liability.  The Committee is the name given to what conventionally is called the board of directors, and members of the Committee are the Company’s directors.  I will therefore refer to members of the Committee of the Company as directors in this decision and the Committee itself as the board.

2.  On 31 May 2017 I gave interlocutory leave to issue a writ for the reasons explained in my decision of that date. On 1 November 2017, I heard an application by way of summons issued by the Company on 25 May 2017 for the determination of a preliminary issue which I decided on 2 November 2017 in Mr Lam’s favour, which, in short, concerned whether a member of a company incorporated by guarantee for charitable objects had sufficient interest in the company in invoke sections 732 and 733 of the Ordinance.  I heard yesterday the originating summons in order to determine whether leave should be granted or my order of 31 May 2017 set aside. 

3.  I also had before me an application for leave to appeal my order of 2 November 2017 which I will deal with in the final section of this decision.  

4.  The application was supported, as is the present normal practice, by a draft statement of claim which, interlocutory leave being granted, is now endorsed on the writ that was issued on 1 June 2017 against 19 defendants but not served. There are four claims pleaded:

(i)  On 11 August 2011, the defendants, in breach of duty, caused the plaintiff to sell property in Chai Wan for HK$80 million which was worth at least HK$127 million, causing substantial loss to the Company.

(ii)  On 25 August 2011, the defendants, in breach of duty, caused the Company to acquire property in Sai Wan Ho Street in consideration of a purchase price of HK$23.8 million which was worth no more than HK$18.5 million.

(iii)  Between about June 2011 to January 2014, the 1^st, 2^nd, 3^rd, 5^th, 6^th, 13^th, 15^th, 16^th, 17^th and 18^th defendants received remuneration from the Company in breach of clause 6B of the Memorandum of Association and clause 24 of the Articles of Association.  The directors who received these payments profited wrongly to the extent of the sums paid to them, in breach of the aforesaid provisions, and section 162(1) of the Companies Ordinance, Cap 32, and their fiduciary duties as directors, and are liable to account for those payments.

(iv)  During the period from about 2011 to the end of 2013, the Company entered into contracts for repair and maintenance works with Hang Foong Mechanical and Electrical Limited (“Hang Foong”) of which the 4^th defendant was a director and owned at least 66.67% of its issued shares.  This was in breach of section 162(1) and the 4^th defendant’s fiduciary duties to the Company, and he is liable to account for the payments he received.

Principles relevant to granting leave

5.  Section 733(1) specifies the circumstances in which the court may grant leave for the purposes of section 732(1). The two subsections state as follows:

“732. Member of company or of associated company may bring or intervene in proceedings

(1) If misconduct is committed against a company, a member of the company or of an associated company of the company may, with the leave of the Court granted under section 733, bring proceedings in respect of the misconduct before the court on behalf of the company.

…

733. Leave of Court to bring or intervene in proceedings

(1) On application by a member of a company or of an associated company of a company, the Court may grant leave for the purposes of section 732(1), (2) or (3) if it is satisfied that—

(a) on the face of the application, it appears to be in the company’s interests that leave be granted to the member;

(b) in the case of—

(i) an application for leave to bring proceedings under section 732(1) or (2), there is a serious question to be tried and the company has not itself brought the proceedings; or

(ii) an application for leave to intervene in proceedings under section 732(3), the company has not diligently continued, discontinued or defended the proceedings; and

(c)  except where leave is granted by the Court under subsection (5), the member has served a written notice on the company in accordance with subsection (3), and the notice complies with subsection (4).”

Before granting leave the court must, therefore, be satisfied principally that the proposed proceedings raise a serious issue to be tried, and that it appears to be in the Company’s interests that it be tried.  The issues are normally considered in that order.  The correct approach to determining whether they have been satisfied has been considered in a number of authorities and I do not understand the principles to be controversial.  They have been most recently summarised by the Court of Appeal in Zhang Heng v Kingstone International Wealth Management Limited:[1]

“11. There is no dispute about the law on the correct approach regarding the exercise of discretion to grant leave. This has been covered in a number of cases, including an earlier decision of the judge mentioned in the Judgment, namely, Hao Xioying v Green Valley Investment Ltd, HCMP 1394/2015, 10 August 2016, which quoted from relevant passages of the decision of Ng J in Re Primlak (HK) Ltd [2016] 2 HKLRD 31 and Ng J in turn drew on various decisions of judges at first instance[2]. The relevant legal propositions have been summarised by the judge in Green Valley Investment Ltd at §§10 and 11:

     ‘10. On serious question to be tried:

(a) The threshold is relatively low. The prospects of the company’s success are to be investigated only to a limited extent, and the court should be slow to find against the applicant unless such prospects are so slim that the company cannot be said to have any expectation of success. See Re Primlaks (HK) Ltd, HCMP 1789/2015, unrep, 28 January 2016, §§7-8 per Ng J.

(b) At the leave stage, it is not the court’s function to try to resolve conflicts of evidence or difficult questions of law which require substantial argument and deliberation. In practice, if the applicant is able to produce a draft pleading that sets out a case with some prospect of success when only the allegations contained in the pleading are considered, the criteria will be satisfied unless the respondent can demonstrate fairly readily that there is a serious flaw in the claim and that it has no real substance[3]. See Re Primlaks (HK) Ltd, §9.

     11. As regard the interest of the company:

(a) Again, the threshold is low. In deciding whether it is prima facie in the interest of the company for leave to be granted, the court should have regard to the fact that “there should not be a trial within a trial and the court should not be forced to enter into the merits of claims where there are serious disputes”. See Re Primlaks (HK) Ltd, §21.

(b) If a “serious question to be tried” has been demonstrated, in most cases it will follow that it is prima facie in the interest of the company that proceedings are pursued. See Re Primlaks (HK) Ltd, §§20-21.

(c) In assessing whether it appears to be in the interest of the company that the derivative action be pursued, the court ought to take into account whether any practical benefit is likely to result, even in circumstances where it may be clear that, eg, a director has breached his duties to the company. This essentially involves assessing whether it appears that the company stands to gain in money or money’s worth in light of the costs which will have to be incurred. See Swansson v RA Pratt Properties Pty Ltd (2002) 42 ACSR 313 at [56] to [60][4] per Palmer J; Pang Yong Hock v PKS Contracts Services Pte Ltd [2005] 2 LRC 72 at [21] per Tay Yong Kwang J (giving the judgment of the Singaporean Court of Appeal).’

12. The court would usually consider the serious question requirement first, because if this requirement is not satisfied, it would be difficult to see how it could be in the company’s interest to bring a derivative action. This was the approach adopted by the judge.

…

19. The words of Megarry V-C in Mothercare Ltd v Robson Books Ltd [1979] FSR 466 at 474 quoted by Harris J in Re Li Chung Shing Tong (Holdings) Ltd at §33 bear special mention:

‘… the prospects of the plaintiff’s success are to be investigated to a limited extent, but they are not to be weighed against his prospects of failure. All that has to be seen is whether the plaintiff has prospects of success which, in substance and reality, exist. Odds against success no longer defeat the plaintiff, unless they are so long that the plaintiff can have no expectation of success, but only a hope. If his prospects of success are so small that they lack substance and reality, then the plaintiff fails, for he can point to no question to be tried which can be called “serious”, and no prospect of success which can be called “real”.’ ”

6.  I do not understand the Company to oppose the application on the grounds that Mr Lam has failed to demonstrate a serious issue.  It is opposed principally on the ground that the independent directors of the board and the members of the Company have decided it is not in the Company’s interests for the proceedings to continue.  Mr Ho SC reminded me of what I said in my decision in Re Li Chung Shing Tong (Holdings) Ltd:[5]

“27. There will, however, be cases in which a serious question to be tried is established, but it may not be in the interest of the company that proceedings are commenced. One can imagine, for example, cases in which it is established that the company has a claim against a person with which it regularly does business, however, the board has taken the view that proceedings would damage the business relationship with the other party and that the maintenance of the relationship is more valuable to the company than any likely recovery in the contemplated proceedings.

28. In cases in which the board of the company has made a bona fide commercial decision that it is not in the interests of the company that proceedings are commenced generally the Court will be slow to override that decision. In Bellman v Western Approaches Ltd, the court was of the view that provided the directors of the company felt, in their honest and impartial opinion, that it was not in the company’s interests to bring an action that decision would operate as a bar to a member’s derivative action. Nemetz CJBC, speaking for the Court, had this to say at p.203:

How is a Court to exercise its discretion in coming to a determination that it is satisfied that ‘it appears to be in the interests of the corporation’ to allow the derivative action to be brought? The discretion is a wide one. However, despite its breadth, nowhere does Parliament say, nor, in my opinion, was it intended, that the logic of the common law in cases of this kind be disregarded. One must first look to the decision of the directors who, having been given reasonable notice by a complainant in good faith, decide not to assert a corporate right of action.

29.       As Nemetz CJBC recognised there is a danger in giving determinative, or close to determinative, weight to the views of the board as there will be cases in which the complaint relates to their own conduct and in such circumstances the impartiality of their decision is inevitably raised. In my view the position in Hong Kong can be summarised as follows. In cases in which a prospective claim is not against the directors the board’s view of what is in the commercial best interests of the company should generally be given considerable weight. In cases in which the prospective claim is against a director, the board’s view is of less significance; although each case will turn on its individual facts.”

This, Mr Ho argued, is consistent with the established principle of company law that the court will not override a decision made by a board that is within the board’s discretion: Re Dalny Estates Ltd [6] per Godfrey Lam J at [21]:

“21. Another rationale is the Courts’ traditional policy, from the earliest days of company law that, generally, matters of internal management should be left to the company to be dealt with by its proper organ: see Kwok Ping Sheung Walter v Sun Hung Kai Properties Ltd [2009] 2 HKLRD 11 at [19]–[20], citing Carlen v Drury (1812) 1 V & B 154; Burland v Earle [1902] AC 83, 93.”

7.  I accept that as general principle the court will take into account in considering what is in the Company’s best interest the views of the board, and depending on the facts, the court may give considerable weight to its view.  However, in this case the Company says that not only should the court have regard to the views of the board, but also the views of the members as expressed at an extraordinary meeting held on 13 October 2017 (“EGM”) in which they were called on to vote on four resolutions relating to the four claims that I have described earlier.  For ease of reference, I have appended to this decision the body of the English version of the notice convening the EGM which includes the resolutions.  Four hundred and fifty-three votes were cast in person or by proxy (284) and each resolution was passed with the following percentages in favour of each resolution respectively: 91.65%, 91.87%, 91.43% and 91.78%.

Ratification

8.  Both parties’ cases in respect of the legal effect, if any, of the resolutions of the members at the EGM are in my view unclear.  There is a distinction between a resolution by which the members express a view on a matter, but which has no legal effect and one which does have a precise legal consequence such as ratification of an unauthorised transaction.  I shall start by considering the various ways in which ratification can operate.  A convenient summary of the law is to be found in Nordic International Ltd v Morten Innhaug [2017] 3 SLR 957. In [91] to [92] Steven Chong J explains the distinction between ratification of an impugned transaction and breach of duty arising from a director authorising an impugned transaction:

“91. It is important to distinguish between ratification of the transaction which was brought about by a breach of fiduciary duty and ‘ratification’ of the director’s breach of duty. The latter instance of ‘ratification’ is more appropriately understood as a ‘release’ from liability. As to that, the general principle is that, as noted by the Court of Appeal in Scintronix ([52] supra) at [59], ‘directors may be released from their obligations to the company by unanimous, or at the very least majority agreement of the shareholders’ [emphasis in original]. But just because a company ratifies or adopts the transaction in question does not mean it has released the errant director from liability for breach of duty (see Hans Tjio, Pearlie Koh & Lee Pey Woan, Corporate Law (Academy Publishing, 2015) at para 9.116; Paul L. Davies and Sarah Worthington, Gower and Davies: Principles of Modern Company Law (Sweet & Maxwell, 9th Ed, 2012) at para 16-188). This is a specific application, in the context of companies and their directors, of a rule pertaining to principals and agents: a principal may choose to ratify an unauthorised transaction that the agent entered into with a third party without exonerating that agent of any breach of duty (see Goh Kim Hai Edward v Pacific Can Investment Holdings Ltd [1996] 1 SLR(R) 540 at [80]).

92. While the ratification of the unauthorised transaction may be implied from ‘the mere acquiescence or inactivity of the principal’ (see Eng Gee Seng v Quek Choon Teck [2010] 1 SLR 241 at [35]), care must be taken not to equate that with ratification of the breach. It has been suggested that the director should go about obtaining ratification ‘by making a full and frank disclosure and calling together the general body of the shareholders’ to ask that the breach be ratified (see Bamford v Bamford [1970] Ch 212 at 237, cited in Scintronix at [59]). In other words, the informed consent of the shareholders is required. It appears that such consent of the shareholders need not always be given formally, by way of a resolution, although the shareholders must at minimum know of and consent to the breach. In Chin Siew Seng v Quah Hun Kok Francis [2010] SGCA 44, the director was allegedly in breach of his fiduciary duties in diverting commissions due to the company as well as its ship-brokering business to a company he incorporated. The Court of Appeal found that the director did not breach his fiduciary duty as all the directors and shareholders ‘knew and consented’ to the latter company’s receipt of the ship-brokering commissions (at [29]). However, the court reached this conclusion having found that (a) the other shareholders did not at any time object to the diversion of commissions; and (b) there was an agreement that the businesses of the company would be split up and that the director would be free to pursue his own ship-brokering business (at [27]–[28]).”

9.  As can be seen from resolutions 1, 2 and 3, the members resolved to ratify the transactions, not any breach of duty.  Resolution 4 is different: it purports in its introductory wording to ratify “alleged wrongdoings”, but in fact the resolution approves the decision of the board that it is not in the best interest of the Company to pursue the relevant directors for repayment of their salaries.

10.  In [33] and [34] of the Company’s skeleton, it is argued in respect of ratification as follows:

“33. As for the claims against David Choy/Hang Foong and the ‘employed’ committee members, given that the contracts are voidable and not void (see §18 above), it was clearly open to the Company in general meeting to elect to affirm those contracts instead of seeking rescission, with the result that any claim which the Company would otherwise have against the individuals in question would be extinguished.

34. It is therefore clear that as between the Company and David Choy/Hang Foong and the ‘employed’ committee members, the ratification at the 13 October EGM was undoubtedly effective to extinguish the causes of action against them with the result that the intended claims are bound to fail.…”

This is wrong.  None of the resolutions are worded as a release of the directors’ liabilities and none extinguish such cause of action as exists.  The Company’s case is also self-contradictory.  I asked Mr Ho if it was suggested that as a consequence of the resolutions there was no longer a serious issue to be tried, which would seem to follow from [33] and [34], and he replied in the negative, which in my view was in fact correct, albeit inconsistent with the Company’s skeleton argument.

11.  The way in which Mr Ho advanced the Company’s case before me was that the resolutions were an expression of opinion by the members on whether it was in the Company’s interest that the actions proceed, and was relevant under section 734(1), (2) and (3) which provide:

“734. Approval or ratification of conduct does not bar derivative action

(1) If a company’s members approve or ratify any conduct, the approval or ratification—

(a) does not prevent a member of the company, or of an associated company of the company, from—

(i) bringing proceedings under section 732(1) or (2);

(ii) intervening in proceedings under section 732(3); or

(iii) applying for leave for the purposes of section 732(1), (2) or (3);

(b) is not a ground for the Court to refuse to grant leave for the purposes of section 732(1), (2) or (3); and

(c) is not a ground for any court to determine the proceedings brought or intervened in by the member in favour of the defendant.

(2) Despite subsection (1), the court may, after having regard to the matters specified in subsection (3), take the approval or ratification into account in deciding what judgment or order to make in respect of—

(a) any proceedings brought or intervened in under section 732(1), (2) or (3); or

(b) an application for leave for the purposes of section 732(1), (2) or (3).

(3) The matters are—

(a) whether the members were acting for proper purposes, having regard to the company’s interests, when they approved or ratified the conduct;

(b) to what extent those members were connected with the conduct, when they approved or ratified the conduct; and

(c)  how well-informed about the conduct those members were, when they decided whether or not to approve or ratify the conduct.”

12.  I will return to the question of the significance of the resolutions in assessing what is in the Company’s interests having first considered Mr Lam’s case on the effect of the resolutions. Mr Wong SC submitted that unlike shareholders in a company founded for commercial objects, members of a company limited by guarantee and formed for charitable objects must exercise their votes in the best interests of the charity.  Mr Wong referred me to the decision of Sir Geoffrey Vos C in The Children’s Investment Fund Foundation (UK) v AG:[7]

“141. Mr Henderson and Mr Crow referred me to Northern Counties Securities Ltd v. Jackson & Steeple Ltd [1974] 1 WLR 1133, where Walton J at pages 1144-5 reiterated that, when a shareholder is voting for or against a particular resolution, he is voting as a person owing no fiduciary duty to the company and who is exercising his own right of property to vote as he thinks fit. But that was neither a charity case, nor a case where the company was limited by guarantee with no share capital. It is, I think, relatively clear that a member of a charitable company limited by guarantee without a share capital voting in the charity’s general meeting is not a ‘person exercising his own right of property, to vote as he sees fit’. Unlike the member of a trading company who has a proprietary interest in his shares, the member of the charitable company has powers that are all directed at aspects of the management and administration of the charity designed to achieve the charity’s exclusively charitable objects. The most important power in such cases, as in this case, is the appointment of trustees to manage the charity’s affairs.

…

144. In my judgment, a member of a company limited by guarantee without a share capital with exclusively charitable objects is bound in to the regime now contained in the Charities Act 2011, the whole thrust of which is to ensure that the assets of the company are used for its exclusively charitable objects and for no other purpose.…

145. … ‘members [of CIFF] have an obligation to use their rights and exercise their vote in the best interests of the charity for which they are a member’. It would be contrary to the whole regime established by the increasingly prescriptive legislative regime reflected in the Charities Act 2011 if the member of a company such as CIFF could vote in his own interests or in a manner detrimental to the charitable objects of the company.”

13.  Mr Wong argued that this being the case approval by members of an impugned transaction should be given limited weight and the proper person to consider whether a transaction should be challenged was the Secretary for Justice as the parens patriae of charities.

14.  Accepting, without deciding, that these general principles are applicable in Hong Kong to the exercise of voting rights by a member of a company incorporated by guarantee for charitable purposes, it does not seem to me that they prevent members either ratifying a transaction or excusing a breach of duty as long as any recommendations to do so advanced by the board are framed with regard to relevant considerations and the members are given sufficient accurate and relevant information.  Mr Wong accepted in answer to a question from me that if ratification was resolved by members having regard to the relevant criteria, it would legally be effective. Mr Wong did not, in my view, explain how if this is the case, the Secretary for Justice’s right as parens patriae of charities operated to extinguish or qualify the legal effect of ratification.  In my view, it does not.  And Mr Wong did not cite any authority or advance any reason or argument for any other conclusion.

15.  Section 734(2) permits the court to take into account the approval or ratification of “any conduct” (sub‑section (1)) having regard to the matters stated in sub‑section (3). Sub-section (3) engages, in the consideration of the weight to be given to the ratification, criteria similar to that which applies to ratification generally, such as the need for full and frank disclosure, and in the case of a charity a proper assessment of the relevant interests of the company.  The court must be satisfied that the ratification is effective.  If it is there may be no serious issue to be tried.    

16.  In my view, the issues were not adequately or accurately explained to members and they did not reach a well-informed decision.  This in my view is apparent from the notice of general meeting which does not, for example, explain Mr Lam’s complaints fully, and in particular refer to the valuations he obtained for the two properties in issue.  The notice contains insufficient information and it is clearly slanted in favour of the resolutions.  I would have expected a properly advised board to have proceeded as follows: to have formed a committee of independent directors who would have obtained independent advice in order to determine whether or not it was in the Company’s interests to proceed with any of the claims.  They would have prepared a paper for the board, and the board would have been called upon to vote in favour of the committee’s recommendation.  It might have been thought desirable that a meeting of members should then be convened, at which resolutions could be put before them to ratify the transactions, or to pass resolutions excusing any breach of duty that had taken place.  The notice of general meeting would have been accompanied by the recommendations prepared by the committee of the board which I would have expected to have contained relevant documents such as the statement of claim.  If this had occurred, I anticipate I would have given considerable weight to the views of the Company as expressed by its board and its members in general meeting, even if I had taken the view that there was a serious issue to be tried in respect of the legal effect of the ratifications if Mr Lam had contended that the resolutions were not effective ratifications of the impugned transactions and alleged breaches of duty. 

17.  Having said that, it seems to me that in respect of the claims against the 4^th defendant, and in respect of the payments received by Hang Foong and the salaries received by the 1^st, 2^nd, 3^rd, 5^th, 6^th, 13^th, 15^th, 16^th, 17^th and 18^th defendants, if the matter had been properly explained, the members would have released the directors from liability for the breaches.  I say this for the following reasons.  In the case of Hang Foong, the company had been providing services to the Company for a long period before the 4^th defendant became a director.  There is nothing to suggest that the 4^th defendant’s acceptance of appointment to the board in 2011 and the continuation of Hang Foong providing services to the Company were anything other than an oversight and a technical breach.  Similarly, the employed defendants had all worked for the Company for lengthy periods prior to their appointment and there is nothing to suggest that their continued employment after accepting appointment to the board was anything other than inadvertence.  If they and the board had been aware of the restrictions on their appointment, it is a compelling inference that they would not have been appointed, but would have continued as employees.  It seems to me that it is not in the interest of the Company to allow those claims to proceed which I think it is probable most members, having regard to the charitable objects of the Company, would consider objectionable and that most third parties would consider ethnically questionable, particularly having regard to the charitable Buddhist objects of the Company.

Conclusion

18.  I will, therefore, allow the action that has been issued to continue in respect of the claims relating to the two property transactions but not in relation to the other two claims.

Costs

19.  The originating summons seeks as is conventional an order that the applicant be indemnified his costs of the proceedings to be commenced on behalf of the Company.  This application I will adjourn until I have information about the likely costs and the ability of the Company to indemnify the applicant.  The parties should agree directions for the determination of this issue. 

20.  So far as the costs of the originating summons are concerned in my view the applicant has been substantially successful.  I determined the application in November 2017 in his favour and he has obtained leave to continue with the proceedings in respect of the two major claims.  The two claims in respect of which I have refused leave would have added little to the costs of the action.  I will make an order nisi that 95% of the costs of the originating summons be paid by the Company to the applicant with a certificate for two counsel.

Order of 2 November 2017

21.  The Company wishes to appeal my decision of 2 November 2017 and an issue has arisen as to whether leave to appeal is required and, if so, whether time for making the application has expired.  The issue that I decided is one of some general importance and on the assumption that it is necessary I will grant leave and extend the time for appealing until 12 clear days after the handing down of this decision.  The costs of the leave application be costs in the appeal.

Appendix

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of the Company will be held at its registered office of No. 101-109 Boundary Street, Kowloon Tong, Kow1oon, Hong Kong on Friday, 13^th October 2017 at 4:00 p.m. for the purpose of considering the following matters.

Background

1.   An application in HCMP1002/2017 has been taken out by Mr. Lam Kin Chung, a member of the Company, in his capacity as a member of the Company, for leave of the Court to bring a derivative action in the name of the Company against 19 individuals who were appointed to the office of Committee members and sat on the Committee of the Company as such in 2011 (“the 2011 Committee”) in a proposed action by the Company in respect of wrongs allegedly done to the Company, namely:-

(1)  The sale of the Eastern Culture Centre at an undervalue and purchase of the Sai Wan Ho Culture Centre at an overvalue (alleging a breach of the duty of care and skill owed by the 2011 Committee to the Company but not dishonesty or misappropriation of assets of the Company);

(2)  A failure on the part of one of the Committee members on the 2011 Committee, Mr. Choy Yuen On, David, to disclose his interest in the contracts entered into between his company and the Company; and

(3)  Payments to members of the Committee in breach of provisions in the Memorandum.

2.   The said Mr. Lam Kin Chung has also on 28^th August 2017 circulated amongst members of the Company inviting them to requisition on the Company to convene an extraordinary general meeting for the purpose of passing the following resolutions:-

(1)  the Committee shall within one month submit to all members of the Company in writing proposed rules and regulations for the nomination of committee members of the Company; and

(2)  the Company’s total salary to the staff of the Company per year shall not exceed 20% of the net income/donation of the preceding financial year.

3.   Members of the Committee currently in office (i.e. the 2017 Committee of the Company) have collectively decided, having taken legal advice on the matters set out in paragraphs 1 and 2 above, that:

(1)  it is not in the interest of the company to pursue the proposed action by the Company for which leave to bring a derivative action has been sought in HCMP1002/2017;

(2)  there is no possibility of payments to members of the 2011 Committee in breach of provisions in the Memorandum inasmuch as any member of the Committee would automatically lose his office pursuant to Article 28(b) if he accepts a salary from the Company;

(3)  it is unnecessary to make further rules and regulations for the nomination of committee members of the Company as the matter is already governed by existing provisions in the Articles of the Company relating to Notice of General Meetings and Proceedings at General Meeting; and

(4)  in light of the existing provisions in the Articles of the Company which provide that the affairs of the Company should be managed by the Committee, the amount of salaries to be paid to the staff of the Company is in the discretion of the Committee which cannot be fettered without an alternation of the Articles of the Company by a special resolution.

Proposed Action

4.   For the purposes of assisting Court in deciding the application in HCMP1002/20l7 and responding to Mr. Lam Kin Chung’s circular to members dated 28^th August 2017, the Committee has decided to hold the Extraordinary General Meeting to consider the above matters and to invite members, if they think fit, to approve, confirm and ratify the following.

ORDINARY RESOLUTIONS

Without prejudice to the Company’s primary position that the decision on whether to pursue the alleged wrongdoings to the Company for which leave to bring a derivative action has been sought in HCMP 1002/2017 is for the Secretary of [for] Justice, IT IS RESOLVED THAT:-

(1) Insofar as it is within the competence and powers of the Company in General Meeting to ratify the alleged wrongdoings to the Company for which leave to bring a derivative action has been sought in HCMP 1002/2017, the sale of Shop No. 90 on Ground Floor of Block B, the First Floor of Block B and Portions on Ground Floor and the First Floor of Block B of Walton Estate, Nos. 341-343 Chai Wan Road & Nos. 1-3 Yee Shun Street, Hong Kong (“the Eastern Culture Centre”) at the consideration of HK$80,000,000.00 on 31 October 2011 by the Company to one Million Power Limited is hereby confirmed approved and ratified by the Company and the said transaction be valid effective and binding on the Company as if the approval of the members of the Company had been duly sought.

(2)  Insofar as it is within the competence and powers of the Company in General Meeting to ratify the alleged wrongdoings to the Company for which leave to bring a derivative action has been sought in HCMP 1002/2017, the purchase of Office A on First Floor with its Entrance Hall on the Ground Floor Level to the First Floor Lavatories staircases landings and passages therein and Flat Roof A adjacent thereto, and Office B on First Floor and Flat Roof B adjacent thereto of Hand Cheong Court (formally known as Foo Cheong Court), Nos. 22-28 Sai Wan Ho Street, Hong Kong (“the Sai Wan Ho Culture Centre”) at the consideration of HK$23,800,000.00 on 25 October 2011 by the Company from one Bright Rich Industries Limited is hereby confirmed approved and ratified by the Company and the said transaction be valid effective and binding on the Company as if the approval of the members of the Company had been duly sought.

(3)  Insofar as it is within the competence and powers of the Company in General Meeting to ratify the alleged wrongdoings to the Company for which leave to bring a derivative action has been sought in HCMP 1002/2017, notwithstanding that Mr. Choy Yuen On, David (“Mr. Choy”), one of the Committee members in the Committees of the years 2010 to 2013 who had failed to declare his interest in a company known as Hang Foong Mechanical and Electrical Limited, which is either wholly owned or substantially owned by Mr. Choy, to the committees of the Company, entered into various contracts with the Company including the provision of mechanical ventilation and air conditioning system maintenance to various centres of the Company, it is hereby confirmed approved and ratified by the Company that the aforesaid contracts be valid effective and binding on the Company as if Mr. Choy had duly made such declarations to the committees of the Company at the material times.

(4)  Insofar as it is within the competence and powers of the Company in General Meeting to ratify the alleged wrongdoings to the Company for which leave to bring a derivative action has been sought in HCMP 1002/2017, and insofar as it may be necessary to do so (notwithstanding what is stated in paragraph 3(2) above), it is hereby confirmed approved and ratified by the Company that it is not in the best interest of Company to pursue against the relevant committee members (for repayments of salaries paid to them) given that their offices have already been duly vacated.

(5)  No further action be taken in respect of the matters raised in Mr. Lam Kin Chung’s circular to members dated 28^th August 2017.