LI TIN KUEN v. CHUNGSHAN COMMERCIAL ASSOCIATION, HONG KONG

HCA1861/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1861 OF 2010

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JUDGMENT

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1.  This is an application by the plaintiff for an interlocutory injunction pending trial. An interim injunction was granted by To J on 21 January 2011 in the following terms :

“… the Defendant, whether by itself or its servants, agents or otherwise, be restrained until the adjourned hearing of the Plaintiff’s Summons or until further order of the Court, from implementing and/or otherwise enforcing the resolution purportedly passed at the 14^th meeting of the 19^th Board of Directors of the Defendant on 29^th November 2010 whereby the Defendant sought to :-

(1) expel the Plaintiff as a member of the Defendant pursuant to Article 7 of the Defendant’s Articles of Association; and

(2) thus remove the Plaintiff as a Director, an Executive Director and a Deputy Administrator of the Social Section of the Defendant; …”

2.  The defendant is a large organization with many members who are all natives of Chungshan.  The plaintiff was one of its 99 Directors.  

3.  As part of his duties as Deputy Administrator of the Social Section the plaintiff in 2009 provided a quantity of red wine for consumption at board meetings and at the New Year celebrations.  

4.  He purchased the wine himself and was reimbursed a total $49,400 on the production of 4 invoices.  The invoices, which have been referred to as “blank invoices” were ordinary stationery not bearing any company name or details of the supplier. 

5.  The cost per bottle of the red wine was approximately $166.  Because some fellow clansmen suspected that the wine could be purchased for considerably less the plaintiff was asked to provide information as to the wine’s source and price.  These inquiries were made at various board meetings between late 2009 and November 2010.  The minutes of those meetings do not specifically record that the plaintiff was asked the simple question : where did you get this wine from and how much did you pay for it?  However, the nature of the allegation and the information required was clear from any normal reading of the minutes. 

6.  The high water mark of the plaintiff’s response was that he had purchased the wine from a friend whose night club business was closing down and that the price was the amount he had reclaimed. 

7.  The defendant’s board was not satisfied with the response.  They wanted particulars and evidence of the source of and amount paid for the wine. 

8.  The plaintiff protested that the allegations were unjust and unfair and that he had been properly reimbursed for expenditure made on the defendant’s behalf.  The particulars requested however were not forthcoming.  During 2010 a report was made to the ICAC who reported back that no action would be taken due to “a lack of evidence”. 

9.  After the 12^th meeting in September 2010 the board sent the plaintiff a letter confirming its resolution to suspend him which had been passed almost a year earlier at the 2^nd meeting in November 2009. 

10.  The injunction however was sought as a result of what happened at the 14^th meeting, in November 2010, when the plaintiff was expelled as a member with immediate effect after a vote was taken.  The matters which are relevant to the procedure followed resulting in expulsion come from the 13^th and 14^th meetings.

13^th meeting

11.  At the conclusion of this meeting the matter was raised again.  The plaintiff repeated his account of supplying the wine. He stressed that the ICAC had taken no action and implied that that should be the end of the matter. 

12.  Finally, a lawyer named Mr Ho Kwan Yiu spoke.  He said that he had been invited to the meeting specifically because of this issue and that he needed time to consider all the evidence and that he would “submit a report to everyone in the next meeting”. 

14 ^th meeting

13.  The final item on the agenda of the 14^th meeting was “Provisional Motion”.  This was a standard item which appeared at the conclusion of most agendas.  It was under this item that the issue was invariably raised. Unfortunately the lawyer, Mr Ho, did not attend this meeting.  The reference to Mr Ho in the minutes comes from the Vice Chairman Mr Kan Chik Hong :

“Vice-Chairman KAN Chik Hong states: Last time the Board has already decided to pass this to a law firm for follow up. I have checked with Lawyer Ho. His opinion is simple: the Board should follow the mechanism laid out in Article VII. The most important thing is we need to make sure the procedures are clear, such as whether you have questioned and whether you have given a chance to the party to respond. These things should be decided by the Board.”

14.    Whatever the adequacy of this “opinion” in my judgment it falls short of what was reasonably expected when Mr Ho had said at the 13^th meeting that he would “submit a report to everyone”. 

15.  The plaintiff was ultimately expelled under Article VII of the Articles of the Association which states :

“If any member or employee of the Association shall willfully commit a breach of the Association’s Articles or byelaws, or an act of gross misconduct likely to be injurious to the Association, or intentional fraud in connection with the Association’s money, such member or employee shall be liable to expulsion from the Association by a resolution of the Board of Directors after due investigation into and satisfactory evidence of the offence committed; however, he shall have an opportunity to explain or defend himself within a certain time specified by the Board of Directors. It shall not be necessary for the Association to disclose to the members or make known to the public any reason for such expulsion, nor to return to him the prepaid subscription.”

16.  An exchange of views covering 4 pages (in the English translation) of the minutes preceded a resolution to put his expulsion to the vote.  

17.  By this time about 30 of those in attendance had decided to leave.  Why is not known.  The remaining 46 voted 43 in favour, 2 against and 1 abstention.  

18.  The voting was by ballot on pre-typed voting forms which set out the precise motion as follows :

“ VOTING FORM

Date : 29^th November 2010 (Monday) at 6:00 p.m. sharp

Place : This Association’s hall at 3^rd Floor, Yip Fung Building, 2-12 D’Aguilar Street, Hong Kong

Vote to expel Mr. Li Tin Kuen as a member of the Association according to Article 7 of the Association’s Articles of Association re Li Tin Kuen’s injury to the Association’s interest by using ‘white’ invoices for payment for his purchase of red wine.”

19.  As to the procedure of his expulsion the plaintiff’s complaints may be summarized as follows :

(1) The resolution was not on the agenda.  It was merely raised under “Provisional Motion”.  The plaintiff therefore had no prior specific notification that his expulsion would be on the agenda at that meeting. 

(2) As a result he had no opportunity to prepare to defend himself.  Previous meetings concerned his suspension.  This was the first time he was faced with the possibility of immediate expulsion. 

(3) The fact that pre-typed voting forms had been prepared is an indication that the defendant knew in advance what was intended to happen but the plaintiff did not.  The plaintiff had not seen the forms until they were distributed.

(4) The 11^th meeting in August 2010 had resolved to set up a sub-committee to investigate the matter.  No sub-committee had been set up by the time of the 14^th meeting.  It was reasonable to assume that further investigations were still outstanding. 

(5) Mr Ho’s absence from the 14^th meeting amounts to a failure on his part to “submit a report to everyone”.  The oral summary of Mr Ho’s opinion was insufficient.  

20.  In short, it is submitted that there are at least serious issues to be tried that Article VII was breached in a number of ways.  

21.  In this context Mr Joseph Vaughan reminds the court of remarks made by To J in SEG Investment Ltd v SEG International Securities (H.K.) Ltd, HCMP4211/2003.  

“… If there are important or extraordinary business which is proposed to be transacted at the meeting, some notice of the nature of the business to be transacted must be given. As I said in The Grande Properties Management Limited and Sun Wah Ornament Manufactory Limited HCA 4741/2001, it is a cardinal principle in the law of meetings that notice of meeting must be sufficiently detailed to enable a member who knows nothing of the matter to decide whether he needs to attend the meeting, or whether he can safely let the resolution be passed without further inquiry. Adapting that principle to a board meeting, the principle is that the more important is the business to be transacted, the greater is the need to state the nature of the business to be transacted in the notice.” [Emphasis added]

The proper test to be applied in this application

22.  Mr Anderson Chow SC, leading counsel for the defendant, submits that as the injunction being sought is, in reality, a mandatory injunction a more stringent test should be applied.  He argues that the injunction is mandatory in nature because it requires the defendant to re-instate the plaintiff as a member and consequently as a director as well. Where a mandatory injunction is sought the plaintiff must demonstrate a high probability of success and the court must feel a “high degree of assurance” that the interim injunction was correctly ordered. 

23.  I do not agree with this analysis in this case.  The defendant is not being asked to do a positive act should the injunction be granted such as re-building a wall or a door.  The defendant is being asked to live with the situation which existed prior to the expulsion, which is said to be invalid, pending trial.  The injunction is to prohibit the defendant from acting on the resolution to expel him.  A preservation of the status quo.  In such circumstances the proper test is that the plaintiff must demonstrate a serious issue to be tried. 

24.  Prima facie this test appears to have been made out.  Evidence exists which is capable of constituting a breach of Article VII.  The court is careful at this stage to make no findings of fact and to avoid a mini trial on affirmation evidence.  Questions such as : why did the plaintiff never provide the name of the supplier or the price he paid?  What more investigation, if any, could have been made?  What is the relevance of the ICAC investigation?  Was Mr Ho’s hearsay report in fact adequate in the circumstances?  Should the plaintiff have come to the 14^th meeting prepared to defend himself? will be questions the plaintiff will have to deal with at trial. 

Balance of convenience

25.  Having determined that there is a serious issue to be tried the final consideration is the “balance of convenience’. This issue may determine the form of the injunction to be granted.  The injunction sought appears on page 1 of this decision.  

26.  The defendant submits that an important factor in the balance of convenience issue is the fact of the forthcoming elections in about June 2011.  These elections are likely to pre-date the trial of this action. 

27.  In normal circumstances the plaintiff would stand for re-election as a director in the elections (which are conducted every two years), he would lobby for support, he would continue to carry out the duties of his directorship and he would vote in the elections. 

28.  If, it is submitted, the injunction is granted in the terms that it is sought his chosen conduct in the course of the elections could have serious and difficult ramifications should he subsequently lose at trial and be expelled after the elections. 

29.  There is merit in this submission.  However I do not think that the answer to the submission is to refuse the injunction.  Rather, I think the answer is to grant the injunction on conditions.  

Order

30.  The interlocutory injunction is granted pending trial of this action or until further order in terms subject to the following conditions :

(1) The plaintiff shall not stand for election as an officer of the defendant association at the forthcoming 2011 election.  

(2) The plaintiff shall not perform any duties arising from his current directorships within the association. 

(3) The plaintiff shall not lobby for any candidate at the forthcoming 2011 elections.  

31.  For the avoidance of doubt the plaintiff thus remains a member of the association, he retains his directorships in name only until the forthcoming elections and he is eligible to vote at the elections. 

32.  I make a costs order nisi that the costs of this application be in the cause.