TSOI CHIK SANG LAWRENCE v. TASTY CATERING GROUP LTD AND OTHERS

HCMP 823/2018

[2019] HKCFI 82

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS No 823 OF 2018

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D E C I S I O N

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1.  I have two summonses before me: the Conversion Summons and the Injunction Summons.

2.  The present proceedings were commenced on 1 June 2018 by way of Originating Summons to determine the question of the validity of a general meeting of D4 (“the Company”) held on 28 May 2018 (“EGM”) and consequential reliefs should the EGM be found invalid.

3.  After commencement of the OS, the plaintiff filed challenges to the Companies Registry and the Bank of China (Hong Kong) Limited (“BOC”), relying on the present disputes.  As a result of the plaintiff’s complaints, the Companies Registry refused to register the forms submitted for recording the change in constitution of the board as per the resolutions passed at the EGM.  The Companies Registry has also put down a note to alert the public as to the dispute over directorship.

4.  Although the originating summons did not seek an injunction, the BOC accounts have been frozen and remain in the status of “debit not allowed” pending resolution of the OS.  The Company cannot utilise the funds in the BOC accounts and has to resort to shareholders’ loan in order to meet its business obligations.

5.  The plaintiff took out the Conversion Summons, alleging that, as disclosed from the affirmations filed, there were disputes of facts which warranted the conversion of the OS into a writ action. 

6.  The Company, on the other hand, took out the Injunction Summons so as to reactivate the BOC accounts.

The Conversion Summons

7.  The plaintiff’s solicitors are still on record as of today, although an application for them to cease to act is due to be heard on 23 November 2018.  The plaintiff is personally absent and he seeks an adjournment by letter until he comes back on 13 November 2018.  As of today, no position has been put forward by the plaintiff in support of the conversion summons.

8.  I see no valid reason to adjourn the conversion summons, which was taken out on 27 September 2018.  There has been ample time for the plaintiff to prepare for today’s hearing.  Any last-minute disagreement between the plaintiff and his own solicitors is not a reason to adjourn the present application.  I therefore proceed in the absence of any substantive arguments from the plaintiff’s side.

9.  No supporting affirmation has been filed by the plaintiff.  I can only decide the summons on the basis of the materials before me.

10.  The hearing of the originating summons has been fixed for 30 January 2019, ie in two months’ time.  This is a milestone date that should not be moved, except for good reasons.

11.  One can only have a glimpse of the plaintiff’s possible reasons in support and they have been helpfully set out in the affirmations of counsel for the defendants.  I will adopt the summary of Miss Joyce Leung and Miss Winnie Li for the Company.

12.  The issues of the originating summons are:

(1)  whether proper notice was given by the requistionists to the Company to requisition for a general meeting to consider the removal of directors;

(2)  whether the relevant procedures in sections 462, 566, 568 and 574 of the Companies Ordinance, Cap 622 (“the Ordinance”), had been complied with for convening the EGM;

(3)  whether the disputed status of Tasty (D1) and Federal (D2) as the Company’s shareholders would have affected their rights to requisition for the EGM and to vote therein.

13.  The scope of the OS is therefore very narrow.

14.  The grounds for challenging the validity of the EGM are confined to those in paragraphs 74 and 83 of the plaintiff’s affirmation.  Again, counsel had very ably summarised them into three matters: (1) lack of requisition notices and special notices under the Ordinance; (2) lack of registration of allotment of shares to D1; and (3) ownership of shares held by D1 and D2 is subject to challenge in other proceedings.

15.  The plaintiff and defendants have so far set out in the affidavits their respective evidence on the giving of notices and requisitions.  As regards the issue of whether or not there was lack of requisition notice and special notices, that is a question of law.

16.  The second and third issues as to registration of allotment of shares and ownership of shares being subject to challenge are also issues of law rather than of facts.

17.  The plaintiff has not made any submission as to how further exchange of pleadings, discovery, witness statements will further advance each party’s case and what advantage that will bring.

18.  In the premises, I see no reason why the originating summons procedure should be converted into a writ action.

19.  Incidental to this summons, the plaintiff has asked for directionsthat, if the summons is dismissed, the plaintiff do have leave to file and serve his affirmations in reply in the originating summons proceedings within 28 days of the date of such dismissal.

20.  Again, I am unable to see why the court should entertain this request.  This is a late application for conversion. There are no good reasons to affect the milestone date.  There has already been one extension of time for the plaintiff to file and serve its affirmation in reply by 27 September. There is no explanation by the plaintiff as to why he needs further time.

21.  The defendants have reasonably made a suggestion that there be an extension of 14 days, but on an unless order basis.  This, in my view, is a more than generous offer.

22.  Accordingly, I dismiss the conversion summons and make an order that unless the plaintiff shall file and serve his affirmation in reply by 4 pm on 26 November 2018, he shall be barred from doing so.

23.  Costs of the conversion summons should be to the defendants.

The Injunction Summons

24.  D4 seeks an interim injunction so as to reactivate its BOC account in order to meet its financial obligations.  The summons was taken out on 6 November 2018.  Today is the first call-over.  Although the plaintiff appears by solicitors still on record, no case has been put forward nor has any affidavit been filed.

25.  I am told that there is no dispute amongst the defendants as regards the application taken out by the Company and so the summons was not served on those defendants.

26.  The only dispute is between the plaintiff and the Company.  The dispute is narrow.  What the plaintiff is seeking is an interim measure. 

27.  As I have indicated, today is the first call-over.  The plaintiff should be given a chance to respond by way of affidavit and arguments, and there will be a return date on 21 November 2018 at 10 am. However, interim measures ought to be put in place if deemed appropriate, so that the Company can function.

28.  In this respect, for injunctions of this kind, the relevant legal principles are those set out in Music Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041.  The applicant must show that there are serious issues to be tried, the balance of convenience lies in favour of granting the injunction sought and that damages are not adequate remedy.  The court should take whatever course that appears to carry the lower risk of injustice, if it should turn out that it is wrong.

29.  It is evident from the affidavits filed and the correspondence that there are serious issues to be tried as to the validity of the resolutions of the EGM.  It appears that the plaintiff does not dispute that there are such serious issues in the correspondence or in its position taken so far.

30.  The bank account being frozen, it would affect the bank’s obligations to its customers, suppliers and even employees, and it may bring about damage to the Company, and the balance of convenience lies in favour of some measures to be taken in the interim.

31.  Damage to the Company may be more than what damages can remedy.  By way of example, it can damage the business reputation and, if the Company cannot meet its obligations in terms of payment of employees’ salary, that may even end the Company up in criminal sanctions.

32.  Miss Leung has ably in her submission summarised the stance taken by the plaintiff.  The plaintiff does not in principle object to the reactivation of the BOC account. The only thing is the mechanism and that is divided into four limbs:

(1)  The Company considers that the plaintiff should be informed and be asked to sign the relevant cheques if the amount is over $100,000, but the plaintiff wants it to be $50,000.

(2)  The plaintiff does not want Ricky Wong to be one of the authorised signatories but no explanation has been given.  Presumably it is because he objects to the appointment of Ricky Wong.

(3)  The plaintiff does not want to authorise salary payments to three employees who he thinks should be fired.  That dispute with those employees is the subject of proceedings in HCMP 478/2018, in turn relating to the board meeting in March 2018 of the Company.  That set of proceedings has been stayed pending determination of the present proceedings.

(4)  The plaintiff agrees to sign cheques relating to major transactions of the Company but he would not undertake to sign within specified or short time periods.

33.  Dealing with these objections of the plaintiff one by one, as regards the first objection, as the interim measure the court is going to take will cover a period of less than seven days, I am inclined to go for the greater figure suggested by the defendants, ie that only in relation to cheques of more than $100,000 would the mechanism imposed by the court as an interim measure apply.

34.  As regards the second objection, although the plaintiff has not given any explanation as to why he did not want Ricky Wong to be one of the authorised signatories, however, in the proposal given by the Company, Ricky Wong is one of the signatories in the group A.  Another signatory’s approval is required before a cheque can be issued.  There is thus check and balance provided by the Company to ensure that Ricky Wong will not abuse his position.

35.  As to the third objection, pending dismissal of employees, the Company has obligations towards them.  If the Company does not pay these employees, there may be criminal sanctions under the Employment Ordinance.

36.  On balance, it is important for the Company to keep its obligations towards the employees in the interim pending resolution of this originating summons.  If it is found that these employees were wrongly retained or had committed any misconduct that they should have been fired, there may be possibility of seeking recovery from the employees later on.  After all, the originating summons will be heard in January 2019 and one is talking about obligations towards employees in the next two or three months only.  The balance of convenience plainly is for the Company to meet those obligations.

37.  As to the fourth objection, it is important in order to keep the business smoothly running that the plaintiff should be asked to sign the relevant cheques within specified timeframes.

38.  Having considered the four grounds of objections by the plaintiffdisclosed in correspondence, I am of the view that they are not strong enough to displace the need for the smooth operation of the bank accounts in the meantime from now until the next return date on 21 November.

39.  Applying Music Advance, it is appropriate for the court to grant the interim measures sought by the defendants.

40.  I have gone through the draft order in the course of discussion with counsel this morning and they appear to me to be appropriate measures to be given.  I therefore give an order in terms along the lines suggested by Miss Joyce Leung in her draft order, subject to the amendments I have made.