KWOK SHUN ON v. WONG SAI WING, JAMES AND OTHERS

HCA 4344/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4344 OF 2001

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REASONS FOR DECISION

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1. This is an application for: first, a prohibitory injunction restraining the Defendants from acting on a resolution of the board of the 4th Defendant company (hereafter referred to as the Company), such resolution having been passed on 25 September 2001 for a placement of the Company's shares, on the basis that the resolution is invalid; and secondly, a mandatory injunction to order the Company to hold its annual general meeting and special general meetings (which have been requisitioned by other parties) within this month, instead of in December.

2. At the end of the hearing, in the late afternoon of Friday 12 October 2001, I dismissed the summons and said that due to time constraints, the reasons for my decision would be reduced to writing and handed down shortly. I do so now.

Parties

3. The Plaintiff, Mr George Kwok Shun On, controls 14.6% of the shareholding of the Company through a company by the name of New World Trading Limited and in his own name. He was a director of the Company until he was removed by a resolution of the board of directors on 16 July 2001. His sister Melissa Kwok Lai Sheung has, however, remained on the board of directors.

4. The 1st Defendant, James Wong Sai Wing, controls 25.1% of the shareholding of the Company through Chinney Alliance Group Limited. He is the chairman of the board of directors.

5. The 2nd Defendant, Roger Ou Ka Chi, is the Company Secretary as well as its Chief Financial Officer. He was purportedly appointed a director of the Company by a board resolution of 13 June 2001, the validity of which is disputed by the Plaintiff in other proceedings. The 2nd Defendant was authorized by the board resolution of 25 September 2001 to implement the placing of the Company's shares.

6. The 3rd Defendant, Stephen Yu Sek Kee, is also a director of the Company. He was also authorized by the board on 25 September 2001 to implement the placing of the Company's shares.

7. The 4th Defendant Company is incorporated in Bermuda but is listed on the Stock Exchange of Hong Kong. It is the holding company for a number of companies operating in Hong Kong carrying on, amongst other things, the business of building services contractors.

8. Apart from the 1st, 2nd and 3rd Defendants, the directors of the Company who were present and who voted at the board meeting on 25 September 2001 were Zuric Chan Yuen Keung and Frank Au Shiu Wai. Another director who was present at the meeting but who did not vote was Melissa Kwok, the Plaintiff's sister who has filed evidence on his behalf in this action.

Representation of 4th Defendant Company

9. The Company was represented at this hearing by counsel and solicitors. Counsel for the Plaintiff in his submissions in reply suggested for the first time that there was no resolution of the board of directors of the Company authorizing those solicitors to act for it. It is unfortunate that this point had been raised so late because any challenge to a legal adviser's authority to act in legal proceedings should be taken right at the start of the hearing.

10. That the Plaintiff's legal advisers did not make this objection earlier was understandable because the present proceedings were intricate enough as they were, and in the heat of battle, a point may not be so apparent to those joined in the battle as to a disinterested observer. However it is unfortunate that the challenge to the authority of the solicitors acting for the Company was taken so late because if there were no authority to act, I should not have heard counsel for the Company at all.

11. In the event, the parties returned late on Friday afternoon with a written resolution from the 4th Defendant's board ratifying its solicitors' authority to act which resolution was accepted by the Plaintiff's counsel, the said resolution having been passed by directors who were not parties to this action. The board meeting at which this resolution was passed was quorate.

12. As for the submission made by the Plaintiff's counsel earlier in the afternoon, that it was obvious that the 1st to 3rd Defendants had taken part in instructing legal advisers on behalf of the Company notwithstanding their personal involvement in this action, there was no evidence before the Court that showed that the non-party directors have not functioned independently in ratifying the solicitors' authority to act.

Background

13. It is necessary for an understanding of these proceedings to consider the events that have occurred in the course of the past few months.

14. In September 2000, the Company in General Meeting gave a general mandate to the Board to allot and issue up to 20% of the shares of the Company ("the General Mandate"). It appears to be not disputed that the Plaintiff voted in favour of the General Mandate at the time.

15. On 13 June 2001, there was a board meeting of the Company, the validity of which has been disputed by the Plaintiff, authorizing a placement pursuant to the General Mandate and also appointing the 2nd Defendant a director of the Company.

16. The next day, 14 June 2001, Vickers Ballas were appointed placing agents of the Company for the placing of 75m shares at $0.20 each.

17. Two days before the completion of that placement, on 11 July 2001, the Plaintiff obtained an injunction in High Court Action No. 3112 of 2001 whereby the defendants in that action were restrained until trial or further order from acting on resolutions which purported to approve the placement and to authorize the 2nd and 3rd Defendants in this action to complete the same.

18. On 13 July 2001, the Vickers Ballas placing agreement lapsed. No completion took place due to the injunction. The injunction was discharged on the undertaking of the defendants in that action not to act on the resolution.

19. The next day, 14 July 2001, a company by the name of vLink Global Ltd made a general offer to acquire all the shares of the Company at $0.01. The Plaintiff has denied in this action that he caused vLink to make the general offer although he has accepted that he did hold discussions with vLink about the possibility of his obtaining or consolidating control of the Company through vLink's offer. He said that these discussions took place between 17 July 2001 and 7 September 2001.

20. vLink's general offer brought rule 4 of the Hong Kong Takeover Code into play. Rule 4 is to the effect that once an offer has been communicated to the board of an offeree company, no action which would effectively result in the offer being frustrated shall be taken by the board of the offeree company in relation to the affairs of the company without the approval of the shareholders of the offeree company in general meeting. In particular, the board of the offeree company should not, without such approval, issue any shares.

21. In the event, on 21 September 2001, the vLink offer lapsed without acceptance.

22. Two days after the vLink general offer was made, on 16 July 2001, the Plaintiff was removed as a director of the Company by the board. The validity of that removal has not been challenged by any proceedings brought by the Plaintiff so far.

23. On 20 July 2001, a requisition was lodged, not by the Plaintiff but by companies with which he is apparently associated, for a special general meeting of the Company for the purpose of appointing more directors and increasing the maximum number of directors of the Company from 20 to 45.

24. On 9 August 2001, the Company issued a notice of a Special General Meeting to be held on 14 December 2001.

25. On 30 August 2001, that first requisition was followed by another requisition for the incorporation of a proposed resolution to be put at the AGM.

26. On 3 September 2001, there was another requisition for the holding of a Special General Meeting to consider the revocation of the General Mandate which had been given, as stated earlier, on 12 September 2000.

27. On 20 September 2001, HSBC, being one of the major bankers of the Company, cancelled banking facilities of $35m with immediate effect.

28. The next day, 21 September 2001, the Plaintiff made a general offer to acquire the shares of the Company at $0.02. It should be noted that this general offer was made on the same day as the lapse of the vLink offer. Again, the making of this general offer brought rule 4 into play.

29. On 22 September 2001, there was issued a notice of an emergency board meeting of the Company to be held on 25 September 2001:

"(1) to discuss the vLink voluntary conditional offer;

(2) to consider the appointment of directors; and

(3) to discuss [the] Company's fund requirements."

30. On 24 September 2001, the Plaintiff withdrew his general offer to acquire the shares of the Company at $0.02. On the same day, the 2 independent non-executive directors of the Company handed in their notices of resignation. One was to take effect immediately and the other was to take effect the next day.

31. On 25 September 2001, the Board Meeting which is relevant to the proceedings in this action took place. It was attended by 6 directors, namely the 1st to 3rd Defendants, Zuric Chan, Frank Au and Melissa Kwok.

32. Minutes of that meeting were taken by 2 lawyers from the firm of Appleby Spurling and Kempe, Bermudan attorneys to the Company.

33. A document prepared by the 2nd Defendant as Chief Financial Officer on the Company's Fund Requirements was prepared and tabled for consideration by the directors at the meeting. There were discussions, amongst other things, on the Company's fund requirements and how they were to be met, and the attitude of the Company's bankers to the Company's affairs. The resolution proposed by Zuric Chan was for "the placing of up to a maximum of 20% and a minimum of 10% of the issued share capital of the Company, pursuant to the General Mandate, at a minimum price of HK$0.18 per share be and is hereby approved". The resolution was unanimously carried, Melissa Kwok not voting. It was also proposed and carried in the same way that "[the 3rd Defendant] and/or [the 2nd Defendant] be and are/is hereby authorised to take all necessary steps and execute all necessary documents in connection with the proposed placement of shares".

34. Pursuant to those resolutions, subscription agreements for the placing of shares were entered into between the Company and 3 investors, viz. Kingsway Lion Spur Technology Limited ("Kingsway") as to 45m shares at HK$0.20 per share, Choi's International Limited as to 16m shares at the same price and Linkful Strategic Investment Limited also for 16m shares at the same price. The subscription agreements were signed on 25 September 2001.

35. A few days later, on 4 October 2001, the Plaintiff issued the present writ and on 5 October 2001 sought an ex parte injunction. It was under these circumstances that the matter came before me on 11 October 2001. The 6 November 2001 is the deadline for completion of the placement, and the Annual General Meeting and the Special General Meetings to revoke the General Mandate and to elect additional directors have been scheduled for 7 December 2001 (being one day after the last extension date for the vLink offer which had in the event lapsed without an extension on 21 September 2001). The other Special General Meeting has been scheduled to be held on 14 December 2001.

Proceedings

36. As I have indicated above, the writ herein was issued on 4 October 2001. It is clear from the submissions made on behalf of the Plaintiff that as this action now stands, it is not a derivative action in the sense of an action brought by a shareholder on behalf of a company for a wrong done against the company.

37. It is a personal action brought by the Plaintiff as shareholder on the ground that there has been an abuse of the directors' fiduciary powers, such being, as he alleges, an infringement of his rights as a shareholder under the articles (see Re Sherborne Residents Park Co Ltd (1986) 2 BCC 99, 528). In other words, the Plaintiff's case is that he is simply enforcing his rights as a shareholder under the Articles of Association.

38. Therefore, it is necessary to examine (as I do below) whether there has been any breach of the Articles of Association. If there had not been any breach of the Articles of Association, there would be a question of the Plaintiff's locus to pursue these injunctions as this action is not a derivative action.

39. I would record as a matter of completeness, that in his reply Plaintiff's counsel indicated that an amendment could be made to make the action both a derivative action and a personal action, but in the event, no application for amendment was made.

Approach

40. The summons before me on 11 and 12 October 2001 was for first, a prohibitory injunction against the Defendants from:

"(a) acting on the resolution authorizing the placement of new shares equivalent to 10% to 20% of the issued share capital of [the Company] at the price of HK$0.18 per share ("the Placement Resolution") purported to have been passed by the Board of Directors of [the Company] at a meeting of the Board of Directors held on 25 September 2001;

(b) taking, causing or permitting any steps to be taken by or on behalf of [the Company] for the purpose of proceeding with or completing the placement of new shares of [the Company] until the holding of the general meetings described in [the application for a mandatory injunction]; and

(c) taking, causing or permitting any steps to be taken by or on behalf of [the Company] for the purpose of changing the control of [the Company] until the holding of the general meetings."

41. Secondly, the summons was for a mandatory injunction to order the Defendants to "forthwith take all steps necessary for the purpose of convening the Annual General Meeting for the year of 2001 and the Special General Meetings requisitioned by the shareholders on 18 July 2001 and 4 September 2001 as soon as possible and in any event not later than 26 October 2001 (for the Annual General Meeting) and 19 October 2001 (for the Special General Meetings)".

42. It would be seen from the summons that this is not an interlocutory injunction as such because the prohibitory injunction has not been sought only until trial of the action. Therefore, as with the mandatory injunction, the Court's decision on this would in effect dispose of the Plaintiff's claim.

43. In those circumstances, it may not be right to adopt the approach set out in the American Cyanimid case for orders of an interlocutory nature pending the full determination of the plaintiff's claim at the trial of the action. In cases where the grant of an injunction would have the effect of disposing of the claim, the Court has to consider the plaintiff's likelihood of success (see N W L Ltd v Woods [1979] 1 WLR 1294 quoted in Cayne v Global National Resources plc [1984] 1 AER 225 and Mak Chi Sing v A&A Continental Commodities Ltd [1983] HKLR 403). The approach that should be adopted by the Court should be the question whether the granting of the injunctions in these such circumstances would

do an injustice, see Cayne at page 238 and Mak at page 408.

44. The Plaintiff's counsel accepts that may well have to be the Court's approach but I have in any event also considered the question whether the Plaintiff has satisfied the test for interlocutory injunctions on the American Cyanamid principles, namely:

(a) whether the Plaintiff has established a serious question to be tried;

(b) if he has, whether damages would be an adequate remedy for either of the parties and whether the parties are good for the cross-undertakings; and

(c) if damages were not an adequate remedy for either of the parties and everything else was even, where the balance of convenience lay.

Prohibitory Injunction against acting on placement resolution

Grounds

45. Five grounds were relied upon by the Plaintiff for his application for a prohibitory injunction against acting on the placement resolution. I shall deal with each in turn. The grounds are:

(1) that there has been inadequate notice of the matters to be discussed at the board meeting on 25 September 2001;

(2) that Melissa Kwok should have been allowed to vote, and that she did not do so was in breach of the Company's articles, namely By-law 98(K);

(3) that the resolution was engineered by the 1st Defendant in order to gain control of the Company;

(4) that the 1st Defendant had a material interest in the resolution, so that he ought not to have voted and that he had done so in breach of By-law(s) 98(G), (H) and (K);

(5) that the resolution was ineffective because there was no resolution of the board as to the timing of the placement, the volume of shares to be placed or the identity of placees, and because the minimum placement price of $0.18 was fixed without reference to the net worth of the shares (which apparently is $0.32) and the trading price (which was $0.27 as at the last trading date), it being alleged that these were in breach of By-law(s) 3, 8 and 11 which require the determination on these issues of the board of directors.

(1) Inadequate notice of matters to be discussed at Board Meeting

46. The law appears to be that in relation to meetings of directors as contrasted with meetings of shareholders, in principle it is not necessary to set out the nature of the business to be conducted at meetings of directors because the directors of a company are meant to deal with all of its business whenever arising (see La Campagnie de Mayville v. Whitely (1896) 788, at p.797, which has been followed in two Australian cases, being Toole v Flexihire Pty Ltd 6 ACSR 455 and Eastern Resources of Australia Ltd v Glass Reinforced Products (10 ACSR 496).

47. I have been referred by counsel for the Plaintiff to Re Portuguese Mines Ltd. (1889) 42 ChD 160 and Re Homer District Consolidated Gold Mines (1888) 39 Chancery Division 546. However, I do not read the judgments in these two cases as stating any principle to the contrary to that set out above. These two cases are about the giving of sufficient time to enable directors to attend a board meeting, and are not about the adequacy or otherwise of the notice of the business to be discussed at the board meeting.

48. The principle in law that it is not necessary to set out the business to be discussed in a notice of a board meeting is, however, subject to any articles of the company to the contrary. In this Company, however, there are no By-laws to the contrary. Indeed By-law 121 of the Company (when compared with By-law 63) makes it quite clear that it is not necessary to set out the nature of business in a notice of a board meeting. By-law 121 provides amongst other things that a director may and on the request of a director, the secretary shall, at any time, summon a meeting of the board which may be held in any part of the world and notice thereof shall be given to each director and alternate director either in person, in writing or by telephone etc. This is to be contrasted with By-law 63 which provides that amongst other things: "the notice of an Annual General Meeting and of a meeting called for the passing of a special resolution and a meeting of the Company other than its Annual General Meeting or a meeting for the passing of a special resolution shall be called by at least 14 days notice in writing...the notice shall specify the place, the day and the hour of meeting and in case of special business, the general nature of that business and shall be given in the manner set out in the By-laws".

49. The Plaintiff also submitted that the notice to convene the board meeting given in this case was invalid because it was deliberately drafted in such a way so as to mislead the directors in that it failed to state with sufficient fullness or at all the unusual business intended to be transacted, namely the issue and placement of new shares by the Company. That may also be read as a submission that those responsible for the notice to be issued in those terms had not been acting bona fide.

50. Looking at the matters objectively and particularly in the context of the background of this Company and the course of events in recent months, I do not accept the Plaintiff's contention.

51. The agenda for this meeting (for which 2 clear days notice had been given) included as item 3 "to discuss the Company's fund requirements". In my view, it would not have been necessary to add words such as: "and methods to be adopted to satisfy those fund requirements" because all directors of this Company knew in September 2001 that:

(1) the board had a General Mandate from the Company in General Meeting to raise funds required by way of placement;

(2) the board had sought in June 2001, 3 months earlier, to raise funds by placements which attempt was thwarted by an injunction in the first action 2 months ago;

(3) there were then 2 consecutive general offers in the last 2 months which brought rule 4 into play;

(4) so that once the last general offer i.e. the Plaintiff's general offer was withdrawn, the way was open again to the board to issue and place new shares, as had been its intention 3 months back before the injunction and the 2 general offers.

52. Against this background, it would have been obvious to any director when he or she saw that the Company's fund requirements would be discussed at the board meeting that placement as a means of satisfying such requirements would be discussed.

53. I note that even for shareholders meetings, the rationale behind the principle that adequate notice of business to be conducted should be given is to enable the shareholder to decide whether or not he would attend.

54. Here, all directors of the company attended the meeting on 25 September 2001. Although I note that the resolution took place during "the interregnum" as the Plaintiff's counsel put it, when Mr Bernard Pouliot and Mr James Blake, the independent non-executive directors had resigned and the 2 new independent non-executive directors, Mr Sinclair Lee and Mr Kenneth Yuen had yet to be appointed to take their place, the Plaintiff's counsel has not taken any point that the absence of the independent non-executive directors affected the validity of the resolution passed.

55. What is of relevance is that none of the directors attending (including Melissa Kwok) asked for an adjournment to further consider this item on the agenda, or queried the veracity or accuracy of the document on fund requirements which was presented by the Chief Financial Officer, or the source materials behind it, or objected to the discussion of placement as a means of satisfying the fund requirements (see Browne v La Trinidad (1888) 37 ChD 1, at 17).

56. In the light of that, it is artificial for a shareholder to start questioning the adequacy of the notice of that meeting after the event, when the directors who had attended the meeting had raised no such objection and had proceeded to discuss and deal with the business substantively.

57. This, together with my finding that there was no breach of By-law 121, has led me to conclude that there is no merit in this ground.

(2) Breach of By-law 98(K)

58. Melissa Kwok has said in her affirmation filed on behalf of the Plaintiff that the 1st Defendant said that she could not vote, and that she was not permitted to vote (see paragraphs 24 and 25). The Plaintiff says that this was in breach of By-law 98K which provides that if any question shall arise at any meeting of the board as to the materiality of the interest of a director, or as to the entitlement of any director to vote or to be counted in the quorum and such question is not resolved by his voluntarily agreeing to abstain from voting and not to be counted in the quorum, such question shall be referred to the chairman whose ruling in relation to the director shall be final and conclusive.

59. The 1st Defendant denies that he told Melissa Kwok that she could not vote. He said that he did say that perhaps she should abstain from voting given her interest in one of the requisitionists, and that in the event she abstained. The minutes taken by the Bermudan lawyers show that Melissa Kwok abstained from voting, not that she was prohibited from voting purportedly under the provisions of By-law 98(K).

60. Melissa Kwok has not challenged the competence or the integrity of the Bermudan lawyers, nor has she explained why they have recorded her as having abstained if she had not in fact abstained but had been prohibited from voting. In any event, even if she had voted against the resolution, she would have been in a minority because the resolution was passed unanimously by the other directors who had attended (see Bentley-Stevens v Jones [1974] 1 WLR 638, at 641). It has not been suggested that she had not been allowed to present her views to the rest of the directors. Indeed the minutes show that she had participated in the debate prior to the voting, at which she had objected to placement as the means of raising the funds required.

61. In the circumstances, I find that there is no breach of By-law 98(K) and there is nothing in this ground.

(3) Resolution engineered by 1st Defendant to gain control of the Company

62. This submission involved the following allegations: (1) an assertion that the Company did not in fact need funds, or at least not such as to require a placement; and (2) the 1st Defendant was connected with the placees such that he could gain control of the Company after the placement.

63. The Company's need for funds was put to the board by the 2nd Defendant as the Chief Financial Officer. The Funding Requirement document that he produced showed that there was $31.9m available to the Company by way of cash and deposits and pledged overdraft facilities, but that $32m was outstanding for Trust Receipt Loans and Letters of Credit.

64. The value of contracts on hand were $258.75m, so that there would be a funding requirement of $25.88m on the basis of 10% which was said to be the requirement in the board's experience, which was not challenged during the board meeting.

65. The Company's subsidiaries, Shun Cheong Electrical Engineering (SCEE) and Westco which accounted for 90% of the group's turnover and 82% of the profit from the operations for the financial year ended 31st March 2001 needed about $4m to remain on the list of tenders for projects of the Works Bureau and the Housing Authority.

66. HSBC who had been one of the Company's major bankers had on 20 September 2001, i.e. 5 days before the resolution, withdrawn with immediate effect its financial support for the Company. It had required the Company to withdraw its fixed deposits and had cancelled banking facilities with immediate effect. Concern was expressed at the board meeting that other banks might follow suit once they were made aware of HSBC's action.

67. It was also important that SCEE and Westco had to keep up the tender status with Government and the Housing Authority.

68. Based on the above information, the Chief Financial Officer's paper to the board indicated that there were immediate funding requirements of $22.34m.

69. As noted above, the document was not queried by any of the directors including Melissa Kwok as to the veracity or accuracy of the contents, nor were any source materials sought by any of the directors. Melissa Kwok's objection was not to the raising of funds but to the method of doing so by way of a placement. She suggested a rights issue or approaching new banks for further facilities.

70. The Plaintiff has now sought to throw doubt on the need for raising capital. The Plaintiff says that income was not expressly included in the Chief Financial Officer's document. That is correct as there is no specific evidence from the Defendants to say income had indeed been included in the computation. However, if the Plaintiff is suggesting that the funding requirements could have been satisfied or reduced by receivable income, there is no evidence before the Court of the quantum of such receivables or when they would be available.

71. It is to be noted that Melissa Kwok, who as a director of the Company has access to its books, has not adduced any evidence that the Company would indeed be receiving such income within the near future that the Company's needs for funds would be reduced or satisfied.

72. Further, there is before the Court professional support from Pricewaterhouse Coopers that the Company did in fact require funds to be raised. There are 2 affidavits filed by Mr Nicholas Allen who has been engaged by the Company to review and report on the working capital position of the Company as at 24 September 2001, to review the immediate funding requirements of the Company, to express an opinion on the possible impact on the principal operating subsidiaries of the group should the Company, as holding company, not be able to meet those requirements and to comment upon whether the proposed share placement was necessary for the continuation of the business of the group. Mr Allen's conclusions were that the principal operating companies of the group were short of normal working capital levels by an amount in excess of $35m. He concluded that since those companies formed a very significant proportion of the group's business, failure to address the shortfall was likely to result in significantly reduced activity levels and might threaten the viability of the group as a whole. If the proceeds of the proposed share issue were applied to SCEE and Westco for the purposes of working capital, it would rectify the immediate funding requirement and go some way to addressing the depleted working capital position. He also noted that the funding requirement of SCEE and Westco was addressed by management excluding working capital relating to private sector contracts or variation orders. The Plaintiff has not challenged those conclusions.

73. Once it is shown that the Company does need funds, it is a matter for the management and its commercial decision whether those funds should be raised by way of placement or by other methods (see Howard Smith Ltd v Ampol Ltd (1974) AC 821, at 832). In the House of Lords, Lord Wilberforce was of the opinion that matters "such as the raising of finance is one of management, within the responsibility of the directors... It would be wrong for the Court to substitute its opinion for that of the management, or indeed to question the correctness of the management's decision, on such question, if bona fide arrived at. There is no appeal on merits from management decisions to courts of law, nor would courts of law assume to act as a kind of supervisory board over decisions within the powers of management honestly arrived at". The principle of judicial non-interference with bona fide management decisions is well established and has been applied often in the Courts here.

74. In any event, even if the Court were to consider or reconsider the management decision taken (which as seen above it ought not ), in this case the Plaintiff's suggestion of the use of rights issue or convertible bonds in place of placement has been refuted by the evidence of the opinion from DBS Asia Capital, such opinion having been taken by the Company after the Plaintiff indicated that it would challenge the board resolution of 25 September 2001. It is the professional opinion of DBS Asia Capital that a rights issue would be more time consuming, and it would be more complex in that it would be more difficult in market conditions after 11 September 2001 to find interested underwriters. Market conditions were also against debt financing, which would cause additional financial burdens upon the Company, as opposed to equity financing.

75. Furthermore, there is no evidence to show that the placees were connected with the 1st Defendant. The Plaintiff's counsel pointed to evidence from a previous action in which the 1st Defendant was alleged to have indicated that he could suggest some names who could be approached for that placement. The 1st Defendant in that action has since deposed that after he was advised that that was inappropriate, that proposed course of action was not pursued. That sort of evidence could only be of peripheral relevance to this action.

76. The Plaintiff had also pointed to the speed with which the subscription agreements were signed and he asks the Court to infer from that that the 1st Defendant was in some way connected with the placees.

77. The placement was indeed effected very speedily after the board resolutions. The directors put in charge of the placement, the 2nd and 3rd Defendants were, of course, aware that the board's previous attempt at placement had been thwarted, first by the injunction taken out by the Plaintiff in the previous action, and then by the general offers made by vLink and by the Plaintiff.

78. In light of Melissa Kwok's objection at the board meeting to this proposed placement, no doubt the 2nd and 3rd Defendants were anxious to effect the placement before any further new attempts were made to thwart the implementation of these resolutions.

79. However, that is not equivalent to evidence that the placees were associated with the 1st Defendant. The signing of the subscription agreements on the same day as the board resolution has been explained in the 2nd affirmation of the 3rd Defendant. He says on affirmation that he first approached Vickers Ballas, which would have been the natural choice because it had been involved in the attempted placement 3 months previously. After Vickers Ballas indicated that they were not interested, he approached Kingsway because it was the independent financial adviser of Chinney when Chinney acquired the Company's shares last year, and was therefore aware of the business and performance of the Company.

80. At Kingsway, after negotiations the 3rd Defendant managed to place 45m out of the 77m shares with Kingsway itself and another 16m (half of the balance remaining), with the family company of Michael Choi, a director of Kingsway. That left only a balance of 20% odd for the relatively small amount of $3.2m, which he managed to place with the third company, Linkful, which is a subsidiary of a listed company.

81. The 3rd Defendant has given an account on affirmation of how he worked until 11p.m. that night which gave him some 6 hours after the board meeting finished, to obtain signed subscription agreements. This account was contained in an affirmation which was only provided to the Court at the hearing on 11 October, but the Plaintiff has not sought an adjournment to adduce any evidence to the contrary. The documentation was done by Kingsway itself and there is no suggestion that the documentation was anything other than conventional.

82. Accordingly in relation to this ground, I can see no or no sufficient evidence to support the Plaintiff's suggestion that the Company did not in fact need funds or that the 1st Defendant was connected with the placees so as to support the contention of the Plaintiff that the resolution was engineered by the 1st Defendant in order to gain control of the Company.

(4) 1st Defendant had material interest such as to be in breach of by-law 98(G), (H) and (K)

83. By-laws 98(G) and (K) deal with the material interest of a director. By-law 98(G) provides that a director who is to his knowledge in any way whether directly or indirectly interested in a contract or arrangement or proposed contract or arrangement with the company shall declare the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration if he knows his interest then exists.

84. By-law 98(H) provides that a director shall not vote on any resolution of the board in respect of any contract or arrangement or proposal in which he is to his knowledge materially interested and if he shall do so, his vote shall not be counted.

85. By-law 98(K) has been referred to earlier in these Reasons for Decision. In this respect the Plaintiff relies on the same evidence as set out under ground (3) above. I have discussed above the lack of any or any adequate evidence of the 1st Defendant's interest in the placees. I will not repeat them here save to observe that even if (contrary to the evidence of the 3rd Defendant in his 2nd affirmation) the speed with which the subscription agreements were entered into were to be taken as some evidence that the directors or some of them had made enquiries earlier amongst the potential investors of their interest in the placement, that is not equivalent to evidence that the 1st Defendant personally had any material interest in the arrangements or proposed arrangements. Therefore, I see no merit in this ground.

(5) Resolutions ineffective because no resolution of the board as to timing, volume, identity of placees and fixing of minimum placement price.

86. It has been alleged by the Plaintiff that the resolution was ineffective because it was in breach of By-laws 3, 8 and 11 which require the determination by the board on the issue of shares.

87. By-law 3 provides that a share may be issued upon such terms and conditions, etc., as the board may determine. By-law 8 provides that any new share shall be issued upon such terms and conditions as the board shall determine.

88. By-law 11 provides that all unissued shares shall be at the disposal of the board and it may allot them to such persons at such times for such consideration and generally on such terms as it in its absolute discretion thinks fit.

89. As far as the timing of the placement is concerned, it is clear from the emergency board meeting on 25 September 2001 and the discussion thereat of the withdrawal of facilities by HSBC, and the fear that the other banks might do the same, that the placement should be implemented and completed as soon as possible in the best interests of the Company. An express board resolution to that effect would not have been necessary.

90. As far as the volume of shares to be placed is concerned, the board had resolved expressly that a volume between 10% and 20% at the discretion of the 2nd and 3rd Defendants (who had been delegated that authority) should be placed. In relation to the delegation of authority, I note that By-law 124 of the Company provides that the board may delegate any of its powers to a committee consisting of such member or members of its body and such other persons as the board thinks fit, and By-law 125 provides that all acts done by any such committee in conformity with any regulations imposed upon it by the board and in fulfillment of the purposes for which it is appointed shall have the like force and effect as if done by the board.

91. As far as the identity of the placees were concerned, the board at the meeting on 25th September 2001 did not resolve to seek to restrict the identity of potential placees, and it was clearly left to the discretion of the committee.

92. As to the minimum price, the Board had expressly resolved that the placing should be at a minimum price of $0.18 per share. Even though there was no formal meeting of the committee, the evidence filed by the 2nd and 3rd Defendants show that they were acting together on 25 September 2001 when they agreed to place on behalf of the Company, the shares with the three placees at $0.20. Indeed, even if there was no meeting of the 2nd and 3rd Defendants as such, the resolution of the board was drafted sufficiently widely to cover the actions of one director acting singly.

93. As far as the placing at $0.20 is concerned, DBS Asia capital in its opinion has stated that that pricing was appropriate, and that the discount from the last trading day price of $0.27 was modest when compared with other comparable company placements. No contrary professional evidence has been provided by the Plaintiff. Indeed it should be noted that vLink's offer was at $0.01 which apparently the Stock Exchange refused to decide was not a bona fide price, and the Plaintiff himself offered $0.02 only, being 1/10th of the placement price, although I note that that was by way of a general offer.

94. It also should be noted that the 2 new independent non-executive directors have indicated on 28 September 2001 that they support the price of the placing.

95. In the course of his submissions, counsel for the Plaintiff criticized the fact that the professional opinions of Pricewaterhouse Coopers and of DBS Asia Capital now adduced in support of the Defendants' case are obtained ex post facto when they ought to have been available to directors at the meeting. However the fact remains that even if the resolution were somehow invalid for any of the reasons above, the evidence that is before the Court now is that, notwithstanding the Plaintiff's challenge in this action, all the other directors, save Melissa Kwok, but including the 2 new independent non-executive directors, have supported the placement resolutions. If a new notice were given for the same resolution to be passed, it is clear that the same resolution would be passed. As such, it is difficult to see any purpose that would be served by the grant of the prohibitory injunction sought, even if any of the grounds was established, simply for the parties to go through the motions of giving the requisite notice, attending the meeting to consider the same matters, and to vote again to achieve the same result.

96. I have set out above my views on the grounds relied upon by the Plaintiff. For the reasons discussed above, the Plaintiff has failed to satisfy even the lower threshold test as set out in American Cyanamid of a serious question to be tried, let alone the higher test set out in N W L v woods, Cayne and Mak.

97. I shall however carry on to consider whether damages would be an inadequate remedy if I am wrong in the above conclusions. It is, in my view, clear that damages would be an adequate remedy for the Plaintiff because even if the Plaintiff's shareholding were to be diluted by the placement, the difference could be compensated by the acquisition of shares on the market. There is no evidence that the individual Defendants are not good for the money required to pay for the shares, even if it is said that the Company is suffering from a cash flow shortage.

98. Damages would however not be an adequate remedy for the Company. Its principal subsidiaries SCEE and Westco generate about 90% of the turnover of the group and 80% of the profit from operations. If these 2 companies are not given adequate working capital now by way of the placement, they may well have to cease business, with consequences to the 250 employees on its payroll, which apparently is some $3.5 m a month.

99. If other banks were to withdraw credit facilities following HSBC's lead, it is at least possible that the cancellation of facilities would result in the liquidation of the Company based on insolvency on the cash flow basis test. Damages therefore would clearly not be an adequate remedy for this Company.

100. The balance of convenience test would not really be relevant because this decision would in effect be the final disposition of the issue. However, even if the balance of convenience were to be considered, the balance would be in favour of continuing the placement, subscription agreements having been entered into and third parties having been involved.

101. In conclusion, I took the view that the Court should not be taking a management role or even a supervisory management role in considering what was the best way to raise funds for the Company, once there is evidence, now professionally supported, that the Company did indeed need funds.

Mandatory Injunction

102. Counsel for the Company has said that this Court, a Hong Kong Court, should not compel the board of the Company, being a foreign company, to convene its Annual General Meeting and Special General Meetings because that would be an interference by a Hong Kong Court with the corporate governance of a foreign company. He has drawn my attention to Pergamon Press Limited v Maxwell [1971] WLR 1167 a case where an English shareholder applied to the English Court for an order to compel the board of a New York company to convene a Special General Meeting. He has also referred to me to a passage in Dicey & Morris at paragraph 30-024.

103. I find that to be an artificial argument, with respect to Mr Wong, because in truth this Company is managed in Hong Kong, the placement was effected in Hong Kong, and the purpose of the placement was the funding of businesses operating in Hong Kong.

104. I now deal with the substance of the application for a mandatory injunction. The Plaintiff said that the convening of the Annual General Meeting and the Special General Meetings to be held in December was a deliberate effort on the part of the directors of the Company to delay the holding of those meetings. However the problem with the Plaintiff's case is that he is not even a requisitionist for those meetings. His locus to sue and to seek a mandatory injunction must therefore be based on whether he can show that any clause in the Articles of Association has been breached to his detriment.

105. By-law 60 however provides that it is lawful for the company to hold its Annual General Meeting within 15 months of the last Annual General Meeting, which would take it to December. It is also stated in the opinion of the Bermudan lawyers that that is acceptable under Bermudan law. Under Bermudan law, according to the legal opinion of the Bermudan lawyers (which is not disputed), it would be adequate if the directors of the company in the exercise of their powers and discretion in deciding the dates for the Special General Meetings, to act honestly and in good faith with a view to the best interests of the company in the light of factual or commercial factors in the circumstances. The question therefore is whether the directors were acting honestly and bona fide when they convened the meetings to be held in December. The Plaintiff's counsel said that the period of delay was unreasonable and he has referred me to the case of McGuinness v Bremner plc (1998) BCLC 673. At 679, it was held that a delay in holding a General Meeting could constitute an act of unfair prejudice. However, it would be noted that that was in the context of proceedings under section 459 of the Companies Act on a petition on the basis of unfair prejudice.

106. Here, I do not find any or any adequate evidence to the effect that the directors' giving of notice of the meetings to be held in December was mala fides. The requisition for the first Special General Meeting was lodged on 20 July 2001. At that time, the vLink offer had been made to acquire all the shares of the company at $0.01. The vLink offer was subject to extension and the last extension date for that offer was 6 December 2001. In my view, it was acceptable for a responsible board of directors to wish to remain when the Company was facing this extremely low general offer. It was therefore in my view acceptable for the board to issue the notice on 9 August 2001 (before it was known that the vLink offer would not be extended) to convene the first Special General Meeting on 14 December 2001, which would have been one week after the last extension date for the vLink offer. As to the requisition of the 4 September 2001, notice to convene the second Special General Meeting and the AGM was given on 21 September 2001, the same day when the vLink general offer lapsed but the Plaintiff's general offer was made. As noted above, the Plaintiff's general offer was for $0.02, also far below the trading price and the net asset value of the shares.

107. In any event, even if the Annual General Meeting and the Special General Meetings were to be put forward to the end of October as the Plaintiff seeks by this summons, the meetings would not be able to retrospectively revoke the General Mandate on which the directors had based their authority when they passed the placement resolution, effecting placement to the three placees on 25 September 2001 prior to the issue of these proceedings.

108. I would also note that there has been no allegation of lack of bona fides against the other directors on the board of the Company apart from the three individual Defendants in this action.

109. In the circumstances, I would dismiss the Summons for both the prohibitory injunction and the mandatory injunction, and I would make an order nisi that the costs of and occasioned by the Summons be paid by the Plaintiff to the Defendants, save that in relation to the time spent as a result of the ratification of the Company's solicitors' authority to act, that those costs ought to be borne by the Company as that was a matter that should and could have been dealt with before appearing in Court.