PLEASURE INTERNATIONAL LTD AND OTHERS v. KAO WAI HO FRANCIS AND ANOTHER

HCA1753/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1753 OF 2008

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JUDGMENT

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1. This is the plaintiff’s application for summary judgment against the 1^st defendant under O.14 RHC by summons dated 29 October 2008.

2. There is also the plaintiff’s summons dated 1 December 2008 to strike out the counterclaim.  However, the parties have in their solicitors’ correspondence agreed that in the event the matter proceeds to trial there should be leave to amend the defence by deleting the counterclaim in the manner suggested by the 1^st defendant’s solicitors.  The only matter outstanding on the summons to strike out is the question of costs.

Background

3. The 2^nd defendant Sunni International Limited (“Sunni”) is a company incorporated in the British Virgin Islands (“BVI”).

4. At all material times Sunni had an issued share capital of 10,310 shares.  The shares of Sunni were held as follows:

(a)  Happy Nation Limited (“Happy Nation”), 5,637 shares, representing 54.675%;

(b) the 1^st plaintiff, 1,977 shares, representing 19.175%;

(c)  the 2^nd plaintiff, 1,741 shares, representing 16.887%;

(d)  the 3^rd plaintiff, 645 shares, representing 6.256%; and

(e)  the 4^th plaintiff, 310 shares, representing 3.007%.

5. As pleaded at paragraph 7 of the statement of claim, Happy Nation as the majority shareholder of Sunni at all material times represented the interest of the 1^st defendant and the interests of his father Michael Kao and his family.  The plaintiffs are in the minority holding 45.325% of the shares in Sunni.

6. Since 8 August 2008 the 1^st defendant was the sole director of Sunni.

7. The plaintiffs’ claim in this action is on behalf of themselves and the other shareholders of Sunni against the 1^st defendant for breach of fiduciary duty.

8. Sunni is an investment holding vehicle for its shareholders.  At all material times Sunni’s major assets comprised of 585,618,505 shares in Imagi International Holdings Limited (“Imagi”).

9. Imagi is a company incorporated in Bermuda whose shares are listed on the Hong Kong Stock Exchange.  It is principally engaged in the production of computer graphics imagery animated motion pictures.

10. The shareholding structure of Imagi is set out in the evidence and it is not necessary to repeat the same here.  It is sufficient to state that as at 3 September 2008 Sunni held 35.57% of the shares of Imagi, the 1^st defendant, together with his father and Happy Nation, held 7.37% and Douglas Glen (“Glen”) held 0.3%.  Also, the 1^st defendant and Glen were the only two executive directors of Imagi.

11. The plaintiffs’ complaints in this action are that the 1^st defendant acting in breach of fiduciary duty tried to give away assets belonging to Sunni namely, shares in Imagi for no consideration and without the consent of the plaintiffs who are the minority shareholders of Sunni.

The 1^st Gift 

12. On 2 September 2008 Imagi entered into a subscription agreement with Smart Will Investments Ltd (“Smart Will”) whereby subject to the terms of the agreement Imagi would issue to Smart Will 90,600,000 new shares in Imagi at the price of HK$0.86 per share on or before 22 September 2008 (“the 1^st Tranche Issue”).

13. On the same day the 1^st defendant executed, on behalf of Sunni, a deed poll pursuant to which Sunni would transfer by way of gift at no consideration 40,000,000 shares in Imagi to Smart Will on or before 22 September 2008) (“ the 1^st Gift”).

14. The effect of the 1^st Tranche Issue and the 1^st Gift if completed is that:

(a)  Smart Will would acquire a total of 130,600,000 share in Imagi at a price of HK$0.5966 per share;

(b) Sunni would lose 40,000,000 shares of and in Imagi;

(c)  Sunni’s shareholding in Imagi would be diluted to a greater extent than the shareholding of the other existing shareholders of Imagi.

The 2^nd Gift 

15. On 5 September 2008 Imagi entered into a subscription agreement with Mehta-Imagi LLC (“Mehta-Imagi”) whereby subject to the terms of the agreement Imagi would issue to Mehta-Imagi 181,200,000 new shares in Imagi at a price of HK$0.86 per share after the fulfillment of certain conditions precedent (“the 2^nd Tranche Issue”).

16. On the same day the 1^st defendant executed on behalf of Sunni a deed poll pursuant to which Sunni would transfer by way of gift at no consideration 140,000,000 shares in Imagi to Mehta-Imagi on or before 30 September 2008 (“the 2^nd Gift”).

17. The effect of the 2^nd Tranche Issue and the 2^nd Gift if completed is that:

(a)  Mehta-Imagi would acquire 321,200,000 Imagi shares at a price of HK$0.4852 per share;

(b) Sunni would lose 140,000,000 shares in Imagi;

(c)  Sunni’s shareholding in Imagi would be diluted to a greater extent than the shareholding of the other existing shareholders of Imagi.

The 3rd Gift

18. On 5 September 2008 the 1^st defendant executed on behalf of Sunni a deed poll pursuant to which Sunni would transfer by way of gift at no consideration 30,000,000 shares in Imagi to Smart Will on or before 22 September 2008 (“the 3^rd Gift”).

19. The combined effect of the 1^st Tranche Issue, the 1^st and 3^rd Gifts, if completed is that:

(a)  Smart Will would acquire 160,600,000 shares in Imagi at a price of HK$0.4852 per share;

(b) Sunni would lose 70,000,000 shares of and in Imagi;

(c)  Sunni’s shareholding in Imagi would be diluted to a greater extent than the shareholding of the other existing shareholders of Imagi.

20. Prior to the making of the 1^st, 2^nd and 3^rd Gifts the plaintiffs had not been informed of or consulted on the same nor did they give their consent to the making of the same.

21. To prevent the completion of the 1^st, 2^nd and 3^rd Gifts the plaintiffs applied for an interlocutory injunction against the 1^st defendant.  This led to the giving of undertakings by the 1^st defendant.

22. Upon the 1^st defendant’s undertaking given to the court that:

(a)  upon completion of the transfer of the 1^st Gift to Smart Will the 1^st defendant would transfer and/or procure the transfer of 40,000,000 shares in Imagi free from encumbrances to Sunni at no consideration; and

(b) upon the completion of the transfer of the 3^rd Gift to Smart Will the 1^st defendant would transfer and/or procure the transfer of 30,000,000 shares in Imagi free from encumbrances to Sunni at no consideration,

Deputy Judge Harris SC on 19 September 2008 made no order on the plaintiffs’ application for an interlocutory injunction to prevent completion of the 1^st and 3^rd Gifts.

23. The 1^st defendant’s undertaking was subsequently complied with and there was no need for any further relief to prevent completion of the 1^st and 3^rd Gifts.

24. By an ex parte order made by Yam J on the plaintiffs’ application on 23 September 2008 the 1^st defendant was restrained from transferring or completing the transfer of the 2^nd Gift to Mehta-Imagi.  

25. At the return date of the ex parte order on 27 September 2008 Burrell J ordered that the ex parte order be continued until trial or further order save that the injunction would be discharged if the 1^st defendant gives an undertaking to transfer and/or procure the transfer of 140,000,000 shares in Imagi free from encumbrances to Sunni at no consideration.

26. In view of the orders made in respect of the 2^nd Gift the subscription agreement with Mehta-Imagi was not completed and the 2^nd Tranche Issue has lapsed.  That being so, there was no further need for any relief to prevent completion of the 2^nd Gift.

The O.14 application

27. Although the plaintiffs in the summons for summary judgment sought final judgment in the terms set out in the summons, Mr Fok SC , with Ms Tsui, for the plaintiffs made it clear that the only relief now sought was in the terms of paragraphs 1(iv); (vi) and (vii) of the summons.  

28. Paragraphs 1(vi) and (vii) are in relation to costs.  

29. The only substantive relief sought is in paragraph 1(iv) namely:

“ an injunction to restrain the 1^st Defendant whether by himself or his servants or agents or otherwise howsoever, from causing or procuring the 2^nd Defendant to transfer or otherwise dispose of or to agree to transfer or otherwise dispose of any shares of and in Imagi held by the 2^nd Defendant at no consideration or otherwise without the unanimous consent of the shareholders of the 2^nd Defendant;”

30. Mr. Fok in his reply submissions submitted that the words “in breach of fiduciary duty” should be added after the words “at no consideration or otherwise”.  This would make it plain that the relief sought is a permanent injunction to restrain the future disposal of Sunni’s shares at no consideration or otherwise in breach of fiduciary duty without the unanimous consent of the shareholders of Sunni.

31. The question to consider is whether the 1^st defendant has shown a triable issue entitling it to leave to defend the plaintiffs’ claim for the relief sought.

32. The 1^st defendant relies on the law of the BVI to support his case that there was no breach of fiduciary duty.

33. The plaintiffs’ pleaded case at paragraph 11 of the statement of claim is that the 1^st defendant as a director of Sunni owed to Sunni fiduciary duties:

(a)  to avoid a situation in which he could have a direct or indirect interest that conflicted or might conflict with the interests of Sunni;

(b) to avoid a situation in which he could owe a duty to another party (in this case, Imagi) that conflicted or might conflict with the interests of Sunni; and

(c)  to act bona fide in the best interests of Sunni.

34. The plaintiffs’ case is that by making the 1^st, 2^ndand 3^rd Gifts the 1^stdefendant has been in breach of the said fiduciary duties.

35. The 1^st defendant’s case is that the making of the 1^st, 2^nd and 3^rd Gifts was in the best interests of Sunni and not in breach of fiduciary duty.

36. As pleaded at paragraph 18 of the defence, it is averred that Imagi was in desperate need for new financing without which its directors would be compelled to commence liquidation processes.  Imagi faced a serious difficulty in raising new finance as it was subject to a lock-up agreement with Winnington Capital Ltd (“Winnington”) until 30 October 2008.  During the lock-up period Imagi could only issue new shares with Winnington’s approval. Winnington approved the 1^st Tranche Issue and the 2^nd Tranche Issue at an issue price of not less than HK$0.86.  That price was a substantial premium to the then trading price of Imagi which no investor was prepared to pay.  The gifting of shares by Sunni would allow the entry price to be averaged down to the market price.  Sunni was the only shareholder with the resources to make the 1^st, 2^ndand 3^rd Gifts.  The gifting was in the best interests of Sunni because otherwise Imagi would likely be placed in liquidation and Sunni’s principal asset, namely, its shares in Imagi, would be rendered worthless.

37. It is averred that the 1^st defendant at all material times acted honestly and in good faith and in what he believed to be in the best interests of Sunni and that there was no unfairness as between Sunni’s shareholders (paragraph 31 of the defence).

38. For the purposes of the O.14 application the plaintiffs do not rely on the duty as set out above in (c) under paragraph 33 in view of the evidence filed by the 1^st defendant in support of his averment that he acted honestly and in good faith and in what he believed to be in the best interests of Sunni.  This is a matter that cannot be resolved summarily by affidavit evidence.

39. For the purposes of the O.14 application the plaintiffs rely only on the breach of fiduciary duties by the 1^st defendant as set out above in (a) and (b) under paragraph 33 by the 1^st defendant by making the 1^st, 2^nd and 3^rd Gifts.

40. It was submitted that no triable issue was shown as to this and that the plaintiff was entitled to judgment as claimed.

41. The fiduciary duties set out above in (a) and (b) under paragraph 33 can conveniently be called the ‘no conflict’ rule.

42. It was submitted that the 1^st defendant was in breach of the ‘no conflict’ rule in two respects:

(1)  he preferred his and his family’s interests as shareholders of Imagi to those of Sunni.  He chose to volunteer Sunni’s shares to be given to Smart Will and Meha-Imagi respectively as an inducement to them to subscribe for new shares in Imagi; and

(2)  as a director of Sunni he was under a duty to preserve the value of its Imagi shares.  He allowed his duty as director of Imagi to outweigh his duty as director of Sunni in that he took steps to secure funding for Imagi by using whatever means was available including procuring one of its shareholders namely, Sunni to give free shares to investors.

43. Mr Strachan, for the 1^st defendant, submitted that a triable issue has been shown in respect of the plaintiffs’ claim and the relief sought against the 1^st defendant. 

44. It seems to me that if no triable issue is shown in respect of the plaintiffs’ cause of action for breach of fiduciary duty, there does not appear to me to be any reason not to grant the plaintiff final judgment for injunctive relief as claimed in the absence of any undertaking by the 1^st defendant in those terms.  None has been proffered by the 1^st defendant.

45. It is trite that at common law a director is subject to fiduciary duties not to put himself in a position where he has or can have a personal interest conflicting or which may possibly conflict with the interests of the company which interests he is bound to protect Regal (Hastings) Ltd v Gulliver and others [1967] 2 AC 134.

46. At page 137 Viscount Sankey said:

“ In my view, the respondents were in a fiduciary position and their liability to account does not depend upon proof of mala fides.  The general rule of equity is that no one who has duties of a fiduciary nature to perform is allowed to enter into engagements in which he has or can have a personal interest conflicting with the interests of those whom he is bound to protect.”

47. It is clear that the fact that a director is acting in good faith intending to act in the best interests of the company is irrelevant to the question of whether there has been a breach of fiduciary duty.

48. As to that, Viscount Sankey said at page 143:

“ We have to consider the question of the respondents’ liability on the footing that, in taking up these shares in Amalgated, they acted with bona fides, intending to act in the interest of Regal.

  Nevertheless, they may be liable to account for the profits which they have made, if, while standing in a fiduciary relationship to Regal, they have by reason and in the course of that fiduciary relationship made a profit.”

49. The ‘no conflict’ rule is applied strictly.  The question of the fairness or the unfairness of the transaction is immaterial.  As was said by Swinfen Eady LJ in Transvaal Lands Company v New Belgium (Transvaal)Land and Development Co. [1914] 2 Ch 488 at page 502:

“ The law was thus stated by Sir Richard Baggallay, in the Privy Council, in North-West Transportation Co. v. Beatty (1): “A director of a company is precluded from dealing, on behalf of the company, with himself, and from entering into engagements in which he has a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound by fiduciary duty to protect; and this rule is as applicable to the case of one of several directors as to a managing or sole director.”

     This was in substance the language of Lord Cranworth in the House of Lords in Aberdeen Ry. Co. v. Blaikie. (2)  It was there decided that directors of a company have duties to discharge of a fiduciary nature towards their principal, and that it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or, which possibly may conflict, with the interests of those whom he is bound to protect: and that so strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into.  It was accordingly held that a director of a railway company was precluded from dealing on behalf of the company with himself, or, with a firm of which he is a partner, and that it makes no difference whether the contract relates to real estate, or personalty, or mercantile transactions, the disability arising, not from the subject-matter of the contract, but from the fiduciary character of the contracting party.  This was a Scottish case, but it was held that therewas no difference between the law of Scotland and the law of England in this respect, both coming from the Roman law; and that the doctrine rested on such obvious principles of good sense that it was difficult to suppose that there could be any system of law in which it would not be found.”

50. And at page 503, Swinfen Eady LJ said:

“ Where a director of a company has an interest as shareholder in another company or is in a fiduciary position towards and owes a duty to another company which is proposing to enter into engagements with the company of which he is a director, he is in our opinion within this rule.  He has a personal interest within this rule or owes a duty which conflicts with his duty to the company of which he is a director.  It is immaterial whether this conflicting interest belongs to him beneficially or as trustee for others.  He is bound to do as well for his cestuis que trust as he would do for himself.  Again the validity or invalidity of a transaction cannot depend upon the extent of the adverse interest of the fiduciary agent any more than upon how far in any particular case the terms of a contract have been the best obtainable for the interest of the cestui que trust, upon which subject no inquiry is permitted.”

51. The strictness of the ‘no conflict’ rule was also emphasized by Fuad J (as he then was) in Man Luen Corp v Sun King Electronic Printed Circuit Board Factory Ltd [1981] HKC 407 at page 413 where he said:

“These equitable rules relating to the duties of directors developed in the cases, are extremely strict.  Their foundation is that directors must not place themselves in a position where a conflict with their private interest might arise and to a certain degree their position is not far different from that of trustees.  As the passages quoted above indicate, the rule is so strict that the court is prohibited from going into the question of the fairness or unfairness of a relevant contract.”

52. There is no dispute that it is the law of the place of incorporation which determines the nature and extent of the duties owed by the directors to the company (paragraph 30-024 Dicey, Morris and Collins on “The Conflict of Laws”14th Edn; paragraph 8.117 Johnston’s “The Conflict of Laws in Hong Kong”).

53. Thus BVI law applies to determine the nature and extent of the duties owed by the 1^st defendant to Sunni.

54. The 1^st defendant’s case is that under BVI law there has been no breach of fiduciary duty on the part of the 1^st defendant in the making of the 1^st, 2^nd and 3^rd Gifts.  He relies on the expert evidence of Mr. Michael J. Fay (“Mr. Fay”) set out in his affidavit.

55. The plaintiffs rely on the expert evidence of Mr. Michael Todd QC (“Mr. Todd”).

56. It is common ground that:

(1)  the BVI Business Companies Act 2004 (“the BCA”), which provides for the incorporation, management and operation of different types of companies in the BVI and which deals with the relationships between the companies and their directors and members, applies to Sunni;

(2)  the common law of the United Kingdom has been extended to the BVI by The Common Law (Declaration of Application) Act;

(3)  the principles of equity developed in England apply in the BVI by the Eastern Caribbean Supreme Court Act.

57. Section 120(1) of the BCA provides:

“Subject to this section, a director of a company, in exercising his powers or performing his duties, shall act honestly and in good faith and in what the director believes to be in the best interests of the company.”

58. Mr. Fay’s opinion at paragraph 14 of his affidavit is that in assessing whether a director has breached his fiduciary duty to act honestly and in good faith and in the best interests of his company, the BVI Court would consider the factual allegations as against an objective assessment of how directors are expected to act and a subjective assessment of what the director believed to be in the best interests of the company.  There is no dispute as to this. However, for the purposes of the O.14 application this does not assist the 1^st defendant.  As I have said, the plaintiffs are not relying on the breach of fiduciary duty set out above in (c) under paragraph 33.

59. The crux of the dispute between the parties on the question of BVI law is the opinion expressed by Mr. Fay at paragraphs 17 and 18 of his affidavit as follows:

“17.   At common law, directors, like all persons that are subject to fiduciary duties, are not allowed to enter into engagements or transactions in which they have or can have a conflicting interest or an interest that may possibly conflict with the interests of those are they are bound to protect.  Section 124 of the BCA sets out the steps that a director is required to take when he becomes aware that he is interested in a transaction entered into or to be entered into by the company in which he has or may have a conflicting interest and provides:

"A director of a company shall, forthwith after becoming aware of the fact that he is interested in a transaction entered into or to be entered into by the company, disclose the interest to the board of the company.”

18.     As a matter of BVI statute then, where a director of a BVI company believes that he is or may have an interest that conflicts with the interests of his company, he resolves this conflict and discharges his obligations of full and frank disclosure by complying with this section.”

60. Mr. Fay’s opinion’s relying on section 124 of the BCA (“section 124”) is that where a director believes that he is or may have an interest that conflicts with the interests of his company, he “resolves this conflict” and discharges his obligation of full and frank disclosure by complying with the section.

61. Mr Strachan submitted that on this evidence of Mr. Fay a director’s duty to avoid conflict is wholly discharged by disclosing his interest to the board.  

62. Mr. Todd agrees that the ‘no conflict’ rule is a common law duty, not a statutory duty under BVI law.  He also agrees that section 124 does not seek to codify the law as it relates to the fiduciary duty of a director to avoid conflict.  He agrees that the common law must be applied and construed subject to the provisions of the BCA.

63. Mr. Todd, however, disagrees with Mr. Fay as to the effect of section 124.

64. It is clear that there is no BVI decision on the interpretation of section 120(1) or section 124 or on the common law duty to disclose interests.

65. Mr Strachan submitted that as there is a difference of opinion as to BVI law between Mr. Fay and Mr. Toddthe matter cannot be resolved by affidavit evidence alone and the matter should go to trial.  I disagree.

66. The court is entitled to look at the evidence of foreign law critically and see whether it is based on sound legal reasoning and analysis.

67. In Full Wisdom Holdings Ltd and others v Traffic Stream Infrastructure Co. Ltd and others [2004] 2 HKLRD 1016 Le Pichon JA said at page 1025:

“In studying the validity of any opinion based on foreign law, the Court does not simply accept any stated conclusions as being correct, even where there may be no legal opinion contradicting it. The Court is entitled to (and indeed must) look at the basis of the legal reasoning as well as the terms of the State Council Notice in determining what weight, if any, should be attached to the Opinion…………………………………….  The Opinion was singularly lacking in legal analysis.  In these circumstances, as a matter of principle, it would be wrong to attach any weight to it.”

68. In my judgment, no weight should be attached to the opinion of Mr. Fay at paragraph 18 that under section 124 the effect of disclosure made by the director is to resolve the conflict of interest of the director.

69. As a matter of plain construction of section 124, as Mr. Todd says at paragraph 28 of his affidavit, it simply sets out the steps which a director is required to take when he becomes aware that he is interested in a transaction entered into or to be entered into by the company in which he has or may have a conflicting interest.  That is all that section 124 does.

70. There is no BVI judicial authority on the interpretation of section 124.

71. As Mr Fok submitted, correctly in my view, there is no evidence that the rules of statutory construction in the BVI are any different to the rules in Hong Kong.  That being so, Hong Kong law is presumed to be the same as BVI law on the question of statutory construction.  

72. It is beyond doubt that the BCA does not codify the law with regard to fiduciary duties of directors.  It seems to me to be plain that section 124 does not contain any provision which displaces or overrides the common law with regard to the fiduciary duties of directors.  On a plain and proper construction of section 124 all that the section does is set out the steps which a director is required to take to disclose his interest.

73. As to section 124, Mr. Todd says at paragraph 32 of his affidavit:

“             But all that the section does is to require disclosure.  What it does not do, or purport to do, is to relieve the director from the duty to serve, in this case, Sunni as if it were the director’s only principal: Bristol and West Building Society v. Mothew [1998] Ch 1, 18.  Further it also does not relieve, or purport to relieve, the director from his duty not to make a profit, whether or not such a profit would have been available to the company, or to account for any profit so made : Regal Hastings v. Gulliver [1967] 2 AC 134, 144.”

74. And at paragraph 33 he says:

“   In my Opinion, therefore, Mr. Fay’s opinion is untenable.  It fails to deal entirely with the accountability, irrespective of any compliance with the duty of disclosure.”

75. In my judgment the view expressed by Mr. Fay at paragraph 18 of his affidavit is, as Mr. Todd says at paragraph 33 of his affidavit, untenable.  In my view it is not based on sound legal reasoning and analysis.  I attach no weight to it.

76. At paragraph 19 of his affidavit Mr. Fay says:

“ The question as to whether a director has breached his duty to avoid a conflict of interest should, in my opinion, be considered in light of the general duty set out in section 120(1) of that Act...... with reference to decided case law precedent.  It will be a question of the Court considering all of the relevant facts in each particular case.”

77. In so far as there is any suggestion there that the common law position has been altered or modified by section 120(1), that suggestion is also not based on sound legal reasoning and analysis and is untenable.  I attach no weight to any such suggestion.

78. Mr. Todd says at paragraph 30 of his affidavit that in his opinion the ‘no conflict rule’ and the ‘no profits rule’ are not subject to or relaxed by reference to what the directors believe to be in the best interests of the company.

79. Mr. Todd also opined that as a matter of the law of the BVI the matters pleaded in paragraph 18 of the defence would not constitute informed consent.  That being so, it would not be open to the majority shareholders of Sunni to authorize or ratify the actions of the 1^st defendant at general meeting.

80. At paragraph 27 Mr. Todd says:

“  27.    In my opinion it would not be open to the majority shareholders of Sunni to authorise or to ratify the actions of [the 1^st defendant].  In Cook v. Deeks [1916] AC 554, the Privy Council said, at page 564:

"If, as their Lordships find on the facts, the contract in question was entered into under such circumstances that the directors could not retain the benefit of it for themselves, then it belonged in equity to the company and ought to have been dealt with as an asset of the company.  Even supposing it be not ultra vires of a company to make a present to its directors, it appears quite certain that directors holding a majority of votes would not be permitted to make a present to themselves.  This would be to allow a majority to oppress the minority.  To such circumstances the cases of North-West Transportation Co. v. Beatty 12 App Cas 589 and Burland v. Earle [1902] AC 589 have no application.  In the same way, if directors have acquired for themselves property or rights which they must be regarded as holding on behalf of the company, a resolution that the rights of the company should be disregarded in the matter would amount to forfeiting the interest and property of the minority of shareholders in favour of the majority, and that by the votes of those who are interested in securing the property for themselves.  Such use of voting power has never been sanctioned by the Courts, and, indeed, was expressly disapproved in the case of Menier v. Hooper's Telegraph Works (1874) LR 9 Ch 350.”

81. Mr Strachan also submitted that the duty to disclose was modified by the Articles of Association of Sunni.  He relied on Articles 119 and 120 as providing a defence to the plaintiffs’ claim.

82. I would observe that Mr. Fay has not expressed his opinion on the effect of the said Articles.

83. Mr. Todd deals with the said Articles at paragraphs 35 and 36 of his affidavit as follows:

“ 35. I have also considered the Articles of Association of Sunni. Articles 119 and 120 are concerned with directors’ conflicts or interest.  They provide:

"119.   No agreement or transaction between the Company and one or more of its directors or any person in which any director has a financial interest or to whom any director is related, including as a director of that other person, is void or voidable for this reason only or by reason only that the director is present at the meetin­g of directors or at the meeting of the committee of directors that approves the agreement or transaction or that the vote or consent of the director is counted for that purpose if the material facts of the interest of each director in the agreement or transaction and his interest in or relationship to any other party to the agreement or transaction are disclosed in good faith or are known by the other directors."

"120. A director who has an interest in any particular business to be considered at a meeting of directors or members may be counted for purposes of determining whether the meeting is duly constituted."

36. In my Opinion, these provisions of Sunni’s Articles of Association, as a matter of the law of the BVI:

(1) do not relieve a director from the duty to serve Sunni as if it were the director’s only principal; and

(2) do not relieve a director from his duty not to make a profit, or to account for any profit so made.

It is clear from their terms that neither purport to do so.  Article 119 is merely concerned with whether or not a transaction is voidable.  Article 120 is merely concerned with whether an interested director can be counted in a quorum.  Neither Article is concerned with accountability.”

84. Mr. Todd’s opinion as set out above is the only evidence on the effect of the said Articles under BVI law.

85. In my judgment the said Articles do not provide a defence to the breach of fiduciary duties relied on.  No triable issue is shown.

Unclean hands

86. Mr Strachan also relied on the matters pleaded at paragraph 37 of the defence and submitted that as the plaintiffs have not come to court with clean hands, a triable issue has been shown.  The allegation is that the plaintiffs have been actuated throughout by a motive of placing pressure on the 1^st defendant and the 1^st defendant’s family so as to force them to purchase their shareholdings at an inflated value.

87. It is well settled that the court declines to intervene by granting equitable relief only if the inequitable conduct in question is shown to have “an immediate and necessary relation” to the relief sought, and the grant of relief is accordingly unconscionable. (Spry on ‘The Principles of Equitable Remedies’ 7th Edn at page 410).  The maxim must not be taken too widely (paragraph 5-15 Snell’s Equity 31^st Edn.).

88. I agree with Mr Fok that the matters complained of do not have anything to do with the transactions impugned in this action and the injunctive relief sought.  I am satisfied that the conduct complained of do not have an immediate and necessary relation to the relief sought and the grant of relief is not unconscionable.  

Conclusion

89. In my judgment the 1^stdefendant has failed to show a triable issue to the plaintiffs’ claim and the relief sought.  I give judgment to the plaintiff for the relief sought namely, for an injunction to restrain the 1^stdefendant whether by himself or his servants or agents or otherwise howsoever, from causing or procuring the Sunni to transfer or otherwise dispose of or to agree to transfer or otherwise dispose of any shares of and in Imagi held by the 2^nd Defendant at no consideration or otherwise in breach of fiduciary duty without the unanimous consent of the shareholders of Sunni.

90. I also make an ordernisi as to costs as follows:

(1)  that the 1^st defendant do pay the plaintiffs the costs of the action including the costs of this application such costs to be taxed (“the taxed costs”); and

(2)  as regards the shortfall between the costs of the action including the costs of this application incurred by the plaintiffs and the taxed costs, that Sunni do indemnify the plaintiffs in respect of such shortfall.

91. As regards the summons to strike out the counterclaim, I make no order as to this save that I make an order nisi that the 1^st defendant do pay the plaintiffs the costs of the application such costs to be taxed.