CHAN CHOI WAH v. RING SOUND CO. LTD. AND ANOTHER

IN THE COURT OF APPEAL

1992, No 142
(Civil)

(ON APPEAL FROM THE HIGH COURT

MISCELLANEOUS PROCEEDINGS NO 1085 OF 1992)

______________

_______________

J U D G M E N T

_______________

Kempster, J.A.:

1. This is an appeal by Madam Cheng Yuk-lin ("the second respondent") from the reserved judgment and order made by Deputy Judge Jones on 18 August 1992 requiring that a general meeting of Ring Sound Company Ltd ("the first respondent") should be held, that one member, in person or by proxy, should constitute a quorum and that the meeting should be held at the offices of the solicitors for Madam Chan Choi-wah ("the applicant") who is both a director and, being the registered owner of 75% of the issued share capital, a member of the first respondent.

2. The order was made by the judge, in the exercise of his discretion, pursuant to s 114B of the Companies Ordinance (Cap 32) following the anxiety caused to the applicant on learning of large loans made by the first to the second respondent and her subsequent failure, for want of a quorum, to convene an effective general or extraordinary meeting of the first respondent or of its directors in order to appoint a third director and to exercise her responsibility for the affairs of the first respondent. The second respondent, the only other director and registered shareholder, had declined to attend. The section in question reads:

"114B (1) If for any reason it is impracticable to call a meeting of a company in any manner in which meetings of that company may be called, or to conduct the meeting of the company in manner prescribed by the articles or this Ordinance, the court may, either of its own motion or on the application of any director of the company or of any member of the company who would be entitled to vote at the meeting, order a meeting of the company to be called, held and conducted in such manner as the court thinks fit, and where any such order is made may give such ancillary or consequential directions as it thinks expedient, including a direction that 1 member of the company present in person or by proxy shall be deemed to constitute a meeting.

(2) Any meeting called, held and conducted in accordance with an order under subsection (1) shall for all purposes be deemed to be a meeting of the company duly called, held and conducted.

(3) The legal personal representative of a deceased member of a company shall, for the purposes of this section, be treated in all respects as a member of the company having the same rights with respect to attending and voting at a meeting of the company as such deceased member would, if living, have had."

The applicant also complained of the second respondent's failure to allow her access to the first respondents' books of account as provided by s 121(3) of the Ordinance. Through Mr. Ronny Wong QC the second respondent has now undertaken to allow the applicant to inspect and copy such books.

3. As is particularly clear from the affidavit sworn by the applicant's solicitor on 3 June 1992 the primary issue arising on the affirmations filed by the parties was whether or not the applicant was the beneficial owner of the shares standing to her name in the first respondent's register of shareholders. With a view to determining this issue orders had been made by Jones J for the cross-examination of deponents to affidavits and affirmations and for discovery.

4. At a certain stage in the cross-examination of the applicant, during the hearing of her originating summons Deputy Judge Jones called a halt on grounds of irrelevance; rightly in my view. Much of the written evidence filed by the second respondent, subsequently to the orders of Jones J, was objectionable not only as irrelevant but also as being scandalous and argumentative. Her counsel was canvassing matters which, while relevant to other current proceedings between the parties, went way beyond what was legitimate to impugn the applicant's credit on the hearing of the originating summons. However, the terms of the judge's ruling barred further cross-examination not as to extraneous matters but as to the primary issue of the applicant's title to the shares she claimed to own which, in the circumstances, can only have meant beneficial title. There was no issue as to the applicant's legal title. Thus the judge debarred himself from determining that issue which was critical to the exercise of the discretion afforded him by s 114B. He left it to be resolved, at additional expense, in such fresh proceedings as the second respondent should see fit to institute.

5. That the judge had jurisdiction to make an order under the section and that it was impracticable to conduct a meeting of the first respondent in a manner prescribed by the articles or the Ordinance were not matters disputed before us but the distinction between beneficial ownership and the legal ownership material to relations between the applicant and the second respondent on the one hand and the first respondent on the other, as appears from ss 28, 95, 100 and 101 of the Ordinance, for example, may have been blurred below. If the second respondent is, as she claims, the beneficial owner of the shares registered in the applicant's name she would be entitled to mandate the applicant's votes at any general meeting of the first respondent and, subject to certain formalities, to remove the applicant as a director by invoking s 157B of the Ordinance. Inherent, therefore, in the order made by the judge without prior determination of the key issue was, at the very least, a potential injustice to the second respondent. He failed to take this consideration into account and his exercise of discretion is vitiated accordingly even though, prima facie, properly exercised so as to enable an effective board to be brought into being. Re Sticky Fingers Restaurant Ltd [1991] BCC 754 at p 758 per Mervyn Davies J. The first respondent had failed to hold an annual general meeting since 1990 and the accounts for 31 May 1991 had not been adopted.

6. I would allow this appeal, set aside the order of the Deputy Judge and restore the originating summons to him with a direction that he determine the issue of beneficial ownership before exercising his discretion under s 114B. I would also make an order nisi that the second respondent should have the costs of the appeal. The costs so far incurred below should abide the final outcome of the hearing before Deputy Judge Jones.

Power, J.A.:

7. I agree.

Nazareth, J.A.:

8. I also agree.