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HCMP 1455/2017
[2019] HKCFI 1465
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO. 1455 OF 2017
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IN THE MATTER of the Articles of Association of YEUNG WING BUN FOUNDATION LIMITED
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and
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IN THE MATTER OF COMPANIES ORDINANCE (CAP 622)
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and
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IN THE MATTER of Order 15 Rule 16 of the Rules of High Court (Cap 4A)
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BETWEEN
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YEUNG BING KWONG, KENNETH |
Plaintiff |
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and | |
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YEUNG PING LEUNG |
1st Defendant |
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YEUNG ENG YEE |
2nd Defendant |
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YEUNG BICK YEE |
3rd Defendant |
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YEUNG WING BUN FOUNDATION LIMITED |
4th Defendant |
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Before: Hon Anthony Chan J in Chambers
Date of Hearing: 04 June 2019
Date of Decision: 04 June 2019
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J U D G M E N T
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1. The Originating Summons (“OS”) before the court raises one issue of construction over the meaning of the phrase “admitting to membership” used in Article 41 of the Company’s (4th Defendant) Articles of Association (“AA”).
Background
2. As the name of the Company suggests, it was founded by the late Mr Yeung Wing Bun (“Father”) in 1974. He had 9 children who were the first Voting Members (“VMs”) and members of the Board of Governors (in which the management power is vested) (“Board”) for life. The relevant provisions of the AA are as follows.
3. There are 2 classes of Members: VMs and Non-Voting Members (NVMs). The former are entitled to attend General Meetings and vote, whereas the latter are not.
4. The number of Members shall be no more than 21, unless the Board agrees to increase the number with the support of a Special Resolution from the VMs.
5. The number of VMs shall be no more than 21, unless the Board determines otherwise.
6. Admission of new Members (including VMs and NVMs) is at the absolute discretion of the Board, subject however to two conditions (both of which pertain to new VMs): (a) the maximum number as authorized from time to time; and (b) new VMs must be “lineal male descendants of [the Father], who shall not change their surname Yeung or Young by statutory means or otherwise” (Art 7).
7. The number of Board Members shall be not less than 5 or more than 21.
8. There are 2 eligibility criteria for Board Members: (a) they must be VMs; and (b) where they are to be elected by the General Meeting, they must be recommended by the Board.
9. There are two methods by which new Board Members can be appointed: (a) by the Board to fill a casual vacancy, in which case the appointee’s term will end by the next Annual General Meeting (Art 31); and (b) by the VMs in General Meeting, whereby the appointee’s term will be 3 years (Art 32 and 33).
10. Some of the members of the Board had passed away over the years. Presently, there are only 4 Board Members, namely, the Plaintiff and the 1st to 3rd Defendants. The number is therefore less than the minimum specified in the AA.
Article 41
11. Art 41 provides as follows :
“The continuing members of the Board may act notwithstanding any vacancy in their body, provided always that in case the members of the Board shall at any time be reduced in number to less than five, it shall be lawful for them to act as the Board for the purpose of admitting to membership a Voting Member or Voting Members, or for summoning a General Meeting but not for any other purpose.” [emphasis added]
The rival interpretations
12. The Plaintiff contends that the phrase in question means that, despite being inquorate, ie, having less than 5 members, the Board is entitled to admit additional persons to Voting Membership under Art 7.
13. Both the 1st and 2nd Defendants maintain that the phrase means that, despite being inquorate, the Board is entitled to admit VMs as additional members of the Board. In other words, the Board is entitled to exercise its power to appoint VMs to fill casual vacancies under Art 31.
14. The position adopted by the 3rd Defendant this morning is one of neutrality.
Legal principles
15. I have been reminded of the following principles:
(1) A company’s Articles is a contract between the company and each member, and between a member and each other member: s.86 of Companies Ordinance, Cap 622.
(2) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract (Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896).
(3) There is the overall importance of context when construing contractual terms (Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, 296D-E; Fully Profit (Asia) Ltd v SJ (2013) 16 HKCFAR 351, [15]).
(4) In an interpretation of a commercial document, business common sense is an important consideration (Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [21]).
(5) A company’s Articles is a business document and should be construed so as to give its provisions reasonable business efficacy (Holmes v Keyes [1959] 1 Ch 199, 215).
(6) When what is being interpreted is taken from a standard form, the standard form can be taken into account in an exercise of interpretation (Bogg v Raper [1998] EWCA Civ 661, [26]).
(7) Given the public nature of Articles and the possibility of public reliance on them, it is generally not appropriate to take into account extrinsic evidence when interpreting such document (Bratton Seymour Service Co Ltd v Oxborough [1992] BCLC 693).
Analysis
16. Bearing in mind the above principles, the interpretation exercise in question is reasonably straightforward.
17. With respect to the attractive submissions advanced by Mr Scott SC, who appeared with Mr Ng for the Plaintiff, they focused excessively on the language used in the AA. I do not believe that one can say with confidence that the term “member” was designed to refer to member of the Company as opposed to member of the Board. One must see the context in which the term was used to determine its meaning.
18. Art 41 provides specifically for the situation where the number of Board Members fell below the minimum. In such situation, the Board cannot act for any purpose, save for two exceptions: (a) “admitting to membership a Voting Member or Voting Members” or (b) “summoning a General Meeting”.
19. I agree with Mr Tang, who appeared for the 2nd Defendant, that the pertinent question must be this – in the context, what is the practical object which the two exceptions are intended to achieve (see Jumbo King cited above)?
20. The answer must be that those exceptions allow the Board to rectify the problem it is facing, ie, a shortfall in Board Members. In this regard, the only 2 Articles which allow for the increase of Board Members are: (a) under Art 31, the Board may appoint a qualified person (a VM) to fill a casual vacancy; and (b) under Art 32, which allows the General Meeting to appoint Board Members.
21. In the premises, the phrase in question must mean the appointment of additional Board Members, not VMs generally.
22. Viewed another way, admitting further VMs would not fulfil the purpose behind Art §41, whereas while admitting further Board Members would.
23. I should add that, appeared on behalf of the 1st Defendant, Mr Joffe had provided the court with a helpful and detailed analysis on the proper interpretation of Art 41. I agree with the analysis but it is unnecessary to set them out because it leads to the same conclusion as above.
24. For completeness, the OS also seeks direction for Board meeting to be held, with the aim to consider an intended application of the Plaintiff’s son to the Board for membership as a VM. As analysed above, whilst inquorate, the Board does not have the power to do so and the application must fail in limine.
25. In any event, firstly, it is trite that the manner of exercise of a power conferred upon the Board by the Articles is a matter of internal management, with which the court will not interfere (Kwok Ping Sheung Walter v Sun Hung Kai Properties Ltd [2009] 2 HKLRD 11, [19]-[20]). The proposition of the court compelling the Board to convene a Board meeting, and to mandate directors to attend such meeting, is unsupported by authority.
26. Secondly, I am not satisfied that the Board is unable to function (once the construction of Art 41 is resolved) or unwilling to do so.
Disposition
27. For these reasons, the OS is dismissed with costs to the Defendants, save that there is no reason why a junior counsel of limited call should not be instructed by the 3rd Defendant instead of a very experienced junior, her costs are therefore confined accordingly.
28. I am grateful to counsel for their assistance.
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(Anthony Chan) |
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Judge of the Court of First Instance
High Court |
Mr John Scott SC and Mr Felix Ng, instructed by Pang Wan & Choi, for the Plaintiff
Mr Victor Joffe, instructed by Tanner De Witt, for the 1st Defendant
Mr Alexander Tang, instructed by Bruno Yiu & Co, for the 2nd Defendant
Ms Priscilla Wong, instructed by Iu, Lai & Li, for the 3rd Defendant
The 4th Defendant was not represented and did not appear
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