BILLION EXPRESS INDUSTRIAL LTD v. TSANG HUNG KONG

HCA 2740/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2740 OF 2008

____________

____________

_____________

D E C I S I O N

_____________

APPLICATION

1. The Writ of the present action (“the Action”) was issued on 27 December 2008.  The Defendant claims that the Action was purportedly issued by or in the name of the Plaintiff without proper authority.  By a summons dated 19 January 2009, the Defendant applied for an order, inter alia, that the Plaintiff’s name and the Action be struck out for lack of authority to sue.

2. The summons (“the Summons”) was heard by Fung J. on 8 May 2009.  By a Decision dated 29 May 2009, the learned Judge directed that there should be a separate trial on the issue of authority to sue.  Fung J. also reserved the costs of the Summons.

3. The trial as directed by Fung J. came before me on 19 September 2011. The trial took 3 days to complete and oral evidence was heard.  This is my decision on the issue of authority to sue.

BACKGROUND

4. The Plaintiff is a limited company incorporated in Hong Kong on 6 October 2006.  In this Decision, I shall refer to the Plaintiff either as “the Company” or as “the Plaintiff”.  The Company has 4 shareholders, being the Defendant, one Mrs Ming Lai Siu Fun (“Ming”), one Lai Yu Sum (“Lai”) and one Yan Tak Sing Stephen (“Yan”).  The Defendant and Ming are the largest shareholders, each holding 3,600 shares of the Company.  Lai and Yan, on the other hand, each holds 600 shares of the Company.  All 4 shareholders are also directors of the Company.

5. Ming is the sister of Lai, and they are both relatives of the Defendant.  Yan is a common friend of the Defendant and Lai.

6. The Plaintiff’s sole business is in a joint venture in China, which is being operated by a mainland company called “台山市漁港物業發展有限公司” (“Yue Kong”).  Yue Kong was set up to exploit a government licence that permits the operation of a fishery market business in Tai Shan harbour, Jiangmen, China, together with the attendant right to certain real estate development there.  The Plaintiff owns 90% of the shares of Yue Kong, while the remaining 10% is owned by a Chinese party called “江門市蓬江超峰科技發展有限公司” (“Chiu Fung”).

7. Under the relevant provisions in the Articles of Association of Yue Kong, the board of directors of Yue Kong consists of 3 directors, of which 2 are to be appointed by Chiu Fung and 1 by the Plaintiff. Further, under Article 18 of Yue Kong’s Articles of Association, the Chairman cum Legal Representative (法定代表人) of Yue Kong is to be appointed by the Plaintiff.  The Defendant has been appointed by the Plaintiff to be the said director and Legal Representative of Yue Kong.  As such, the Defendant is holding the relevant corporate documents and articles of Yue Kong. 

8. Disputes have arisen amongst the shareholders and directors of the Plaintiff, particularly in regard to the state of Yue Kong’s accounts and the question of its meeting the requirements of “capital examination” in China.  Basically the shareholders are divided into 2 rival camps, with the Defendant and Yan in one camp and Ming and her brother, Lai in the other.  Each camp therefore controls the same amount of shareholding and has 2 members on the board of the Plaintiff.  Subject to the question of casting vote to be mentioned below, this is likely to result in a deadlock both at the level of the board as well as in general meetings.

9. Article 1 of the Articles of Association of the Plaintiff provides that the regulations contained in Table A in the First Schedule of the Companies Ordinance (“Table A”) shall apply to the Plaintiff save insofar as they are expressly excluded or modified. 

10. Article 4 of the Plaintiff’s Articles provides, inter alia, as follows:

“The Directors may elect a chairman of their meetings, and determine the period for which he is to hold office, and unless otherwise determined the chairman shall be elected annually.....”

11. Article 11 of the same Articles provides further that:

“The Directors may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they think fit and determine the quorum necessary for the transaction of business. Until otherwise determined, two Directors shall constitute a quorum....”

12. Regulation 100 of Table A provides for the chairman having a casting vote in case of an equality of votes in directors’ meeting, as follows:

“The directors may meet together for the dispatch of business, adjourn and otherwise regulate their meetings, as they think fit. Questions arising at any meeting shall be decided by a majority of votes. In case of an equality of votes, the chairman shall have a second or casting vote. A director may, and the secretary on the requisition of a director shall, at any time summon a meeting of the directors. It shall not be necessary to give notice of a meeting of directors to any director for the time being absent from Hong Kong.”

13. Since the Plaintiff was formed, the Defendant has been acting as the Chairman of the board of directors (until his purported removal allegedly by a resolution passed at a meeting held on 4 August 2008, the circumstances of which will be mentioned in greater detail below).  That this is the position is not disputed, although there is no evidence before me of any formal election having been held to elect the Defendant to the chairmanship of the board.

14. Mrs Ming gave notice on 28 July 2008 for a directors’ meeting to be held on 4 August 2008.  Amongst the matters mentioned in the notice raised for discussion at the proposed meeting were:

(a)  removal of the current Chairman of the board;

(b)  election of a new Chairman;

(c)  appointment of the Plaintiff’s representative in Yue Kong.

15. However, one day before the proposed directors’ meeting (i.e. on 3 August 2008), the Defendant, Yan and Lai met at the Pacific Club in the absence of Ming.  It is not disputed that no notice had been given to Ming of this meeting.  It is the case of the Defendant that at this meeting Yan, Lai and himself agreed that the directors’ meeting originally scheduled to be held on 4 August 2008 would be adjourned, and that Lai had agreed to inform Ming of the same.  This is however denied by Lai.

16. On the next day, the directors’ meeting summoned by Ming on 28 July 2008 was held, with Ming and Lai as the only 2 directors attending.  Both the Defendant and Yan were absent.  It is the case of the Defendant that he and Yan did not attend the meeting as they considered that the meeting had already been adjourned on 3 August.  Be that as it may, resolutions were passed, or purportedly passed, at the meeting of 4 August whereby it was resolved that:

(a)  the Defendant was removed as the Chairman of the Plaintiff’s board;

(b)  Ming was elected as the new Chairman; and

(c)  Ming was appointed to act on behalf of the Plaintiff in respect of all matters of Yue Kong.

17. Minutes of the meeting held on 4 August 2008 were provided to the Defendant.  On 12 August 2008, the Defendant issued a notice to Ming, Lai and Yan stating that he rejected the minutes of, and the resolutions passed or purportedly passed at that meeting.  No reason was however given by the Defendant in the notice for his alleged rejection.

18. By a letter dated 5 September 2008, Chau & Associates (“C&A”) claiming to have instructions to act for the Plaintiff, wrote to the Defendant and asserted that “by a directors’ meeting of the Company duly convened on 4 August 2008, [the Defendant has] been removed as the Chairman of the Company with immediate effect by resolution passed by the said meeting” and that “it has also been resolved, inter alia, that [Ming] be appointed as the Chairman of the Company and be responsible for the certification of the capital contribution of [Yue Kong] and dealing with all the affairs of [Yue Kong]”.

19. A notice dated 12 September 2008, signed by Ming, was issued in the name of the Plaintiff to Yue Kong.  The notice purportedly stated that the Defendant has been removed as a director of Yue Kong and that Ming has been appointed to act as Yue Kong’s director.

20. By a letter dated 18 September 2008, To, Lam & Co. (“TL”), acting on behalf of the Defendant and Yan, wrote back to C&A and challenged the authority of C&A to act for the Plaintiff. TL also demanded C&A, inter alia, to identify the persons who gave them instructions.  C&A then wrote back to state that they were instructed that “the directors’ meeting of the Company on 4 August 2008 was duly convened and the resolution were duly passed therein are binding on the Company so the Company was entitled to notify all the relevant parties.”  C&A also added that they “have no instructions to reply to [TL’s] further enquiry and any further correspondence on the matter will not be entertained”.

21. On 5 December 2008, Ming gave notice for a directors’ meeting to be held on 10 December 2008.  This was followed by a further notice dated 8 December 2008 (which raised a further matter for discussion at the meeting of 10 December 2008).  The directors’ meeting was duly held on 10 December 2008 and attended by all 4 directors.  Purportedly exercising her casting vote as the Chairman, the following resolutions were passed, or purportedly passed, at the meeting, inter alia:

(a)  removing the Defendant as the director and legal representative of Yue Kong was confirmed;

(b)  appointing Ming as the director and legal representative of Yue Kong;

(c)  directing the Defendant to deliver up the documents and articles of Yue Kong within 7 days.

22. By a Chinese letter dated 10 December 2008 Anthony Siu & Co (“AS”) wrote to the Defendant and stated, inter alia, that resolutions had been duly passed at the directors’ meetings of 4 August and 10 December 2008, and that Ming had been elected as the Chairman of the board.  This was followed by an English letter dated 11 December 2008 by which AS, after referring to the resolutions passed “in the board meeting of [the Plaintiff] on 11 December 2008 [sic.]”, demanded the Defendant to confirm in writing that he would comply with the resolutions and that he would not purport to act as a director or the Legal Representative of Yue Kong.

23. By a letter dated 12 December 2008,  TL acting on behalf of the Defendant replied to AS and claimed that “at least two of the four directors of [the Plaintiff] confirm[ed] that the resolutions alleged in [AS’s] letter was never passed”.

24. AS replied to TL’s letter on 13 December 2008 and, referring to the meeting that was held on 10 December 2008, stated, inter alia, as follows:

“During the board meeting of 10 December 2008, your client and the other director of the Company, [Yan], have openly admitted that they had received the notices of the board meeting of 4 August 2008. But, your client and [Yan] had chosen not to attend the said board meeting of 4 August 2008. [Ming] has therefore been duly appointed chairman of the board of directors of the Company by the resolutions passed at the board meeting of 4 August 2008.....”

25. By notice dated 17 December 2008, Ming summoned a directors’ meeting to be held at 4 pm on 22 December 2008.  The notice stated, inter alia, that a resolution was proposed to be passed to authorize Ming to represent the Plaintiff to instruct lawyers to take legal action against the Defendant to enforce the resolutions passed at the meeting held on 10 December 2008.

26. On 19 December 2008, the Defendant summoned another directors’ meeting also to be held on 22 December 2008, but at 10 am in the morning.  The notice stated, inter alia, that a resolution was proposed to be passed to authorize the Defendant to represent the Plaintiff to instruct lawyers to take legal action against Ming to restrain her from falsely claiming herself to be the Chairman of the board of the Plaintiff. 

27. The meeting summoned by the Defendant at 10 am on 22 December 2008 was attended by the Defendant and Yan.  Ming and Lai were absent.  Resolutions were passed, or purportedly passed, inter alia, on the following:

(a)  the Defendant was authorized to instruct lawyers to take legal action against Ming to restrain her from falsely claiming herself to be the Chairman of the board of the Plaintiff;

(b)  the notice for the meeting summoned by Ming to be held at 4 pm on 22 December 2008 was invalidated.

28. Despite what happened in the morning, Ming and Lai attended the meeting summoned by Ming at 4 pm on 22 December 2008.  The Defendant and Yan were absent.  At this meeting, resolutions were passed, or purportedly passed, inter alia, to:

(a)  authorize Ming to instruct lawyers to take legal action against the Defendant to enforce the resolutions passed on 10 December 2008;

(b)  revoke all resolutions passed at the earlier meeting at 10 am on 22 December 2008.

29. 5 days after the two meetings held on 22 December 2008, the Action was brought in the name of the Plaintiff.  In the Statement of Claim, the Plaintiff claimed, inter alia, for the following relief:

(a)  an injunction restraining the Defendant from purporting to act as and/or to exercise the powers of a director and/or the Legal Representative of Yue Kong;

(b)  an injunction directing the Defendant to deliver up to Ming the documents and articles of Yue Kong;

(c)  an injunction directing the Defendant to perform all necessary procedures to effect registration of the change of Legal Representative of Yue Kong, and to give full effect to the removal of the Defendant and appointment of Ming as director and Legal Representative of Yue Kong.

30. As pointed out above, the Defendant responded by taking out a summons to strike out the Action for lack of authority to sue. 

31. It can be readily seen from the above that the authority to sue the Defendant was based upon the resolution purportedly passed at the meeting held in the afternoon of 22 December 2008.  That resolution passed at that meeting purported to authorize Ming to represent the Plaintiff to instruct lawyers to take legal action against the Defendant to enforce the resolutions passed at the meeting held on 10 December 2008.  It may be noted that the passing of the resolutions at the meeting on 10 December 2008 were effected through the use of a casting vote by Ming purporting to act as the Chairman of the board.  The Chairmanship of Ming is however disputed by the Defendant.  Ming was purportedly appointed as the Chairman by resolutions passed at an earlier meeting held on 4 August 2008. That meeting, the Defendant says, was not validly held and should not have taken place as it had already been adjourned by the meeting held at the Pacific Club the day before.  Accordingly, the Chairmanship of Ming depends on whether the meeting was validly held on 4 August 2008, and this depends in turn on whether it had been lawfully adjourned by an alleged decision made at the meeting of 3 August 2008.

32. Hence, as pointed out by Fung J in paragraph 33 of his Decision dated 29 May 2009, in considering the issue of the authority to sue:

“....... It is relevant to consider whether the Defendant was replaced as the Chairman of the directors by [Ming], as the authority to sue was to enforce the resolution passed by the casting vote [Ming] on 10 December 2008. In any case, the casting vote of the Chairman is the only measure to save the Plaintiff from otherwise being a deadlock company. In reality, if the Defendant has remained the Chairman, any authority to sue can be revoked at any time.”

33. Accordingly it is agreed by all the parties before me that the issue of authority to sue depends ultimately on whether the meeting of 4 August 2008 had been validly adjourned. If that meeting had been validly adjourned, it should not have been held, and Ming would not have been properly elected as Chairman.  It would then follow that the  resolutions purportedly passed on 10 December 2008 were not valid, and the resolutions passed (at the meeting held in the afternoon of 22 December 2008) to authorize legal action against the Defendant for the purpose of enforcing the resolutions passed on 10 December would also fall away.  In any event, as rightly pointed out by Fung J, as a matter or reality, if the Defendant lawfully remains as the Chairman of the Plaintiff’s board, any authority to sue previously given can be revoked at any time.

THE ISSUES

34. It is the Plaintiff’s case that the meeting of 4 August 2008 was validly held.  It had not been validly adjourned by the meeting held on 3 August 2008 because:

(a)  the meeting held on 3 August 2008 was not intended to be, and was not, a board of directors’ meeting of the Plaintiff;

(b)  in any event, no resolution was passed at that meeting to adjourn the meeting of 4 August 2008;

(c)  further, the failure to give notice of the meeting of 3 August 2008 to Ming renders any resolution passed at that meeting invalid.

35. On the other hand, the Defendant’s case is that the meeting of 4 August 2008 was not validly held as it had been adjourned by the meeting held between Yan, Lai and the Defendant the day before.  It is the Defendant’s case that:

(a)  the meeting held on 3 August 2008 was intended to be, and was a directors’ meeting of the Plaintiff;

(b)  a resolution was validly passed at the meeting of 3 August 2008 to adjourn the directors’ meeting originally scheduled to be held on the next day;

(c)  although Ming had not been given notice of the meeting of 3 August 2008, and she was absent, the resolution passed by the other 3 directors at the meeting is nonetheless valid by virtue of the “irregularity principle”.  The failure to give notice to Ming is a mere “irregularity” and does not affect the lawfulness of the decision made at the meeting of 3 August 2008.

36. Hence the following issues are relevant to my decision on the question of authority to sue, namely:

(a)  whether the meeting of 3 August 2008 was, or was intended to be, a directors’ meeting of the Plaintiff;

(b)  if the answer to (a) is “yes”, whether a resolution was in fact passed at the meeting of 3 August 2008 to adjourn the meeting of 4 August 2008;

(c)  whether the irregularity principle applies even if the answers to both (a) and (b) are “yes”.

37. I would deal with these issues in turn.  Before I do so, I would point out, for the avoidance of doubts, that there is now no dispute that between the parties that a meeting may be adjourned before it is held.  At the hearing before Fung J., the Plaintiff had contended that a decision of adjournment could only be validly made at the very meeting to be adjourned.  Fung J decided against this contention, and the Plaintiff has expressly confirmed at trial that it does not dispute Fung J’s conclusion on this point.

THE BURDEN OF PROOF

38. There were some arguments before me on the burden of proof, and it is convenient for me to dispose of the point briefly as a preliminary.

39. The Plaintiff accepts that it carries the legal burden of proving the authority to sue (c.f. Kammy Town Ltd v super Glory Corporation Ltd, HCA3524 of 2003, 14 January 2005).  Mr Chan SC, who leads Mr Paul Lam acting for the Plaintiff, however contends that the Plaintiff seeks to discharge such legal burden by adducing evidence of the minutes and resolutions passed at the meetings of 4 August, 10 December and 22 December 2008, which shows that, prima facie, the Action has been duly authorized.  As it is the Defendant who asserts that the resolutions passed at these meetings were invalid on the ground that the meeting of 4 August 2008 had been adjourned by an informal meeting held on 3 August 2008, the Defendant bears the evidential burden - “he who asserts must prove”.  It is Mr Chan SC’s contention that only if the Defendant can prove that the meeting of 4 August 2008 had been so adjourned would the Plaintiff fail to discharge the legal burden of proving the authority to sue. Conversely, if the Defendant cannot prove this, the Plaintiff must be taken to have discharged its legal burden of proving authority to sue.

40. Mr Chiu, who acts for the Defendant, does not appear to dispute that the Defendant bears the evidential burden.  He argues however that evidential burden must not be conflated with legal burden in that evidential burden is no more than a burden to adduce evidence which is sufficient to go to the jury, i.e. that it is on its face believable.  This does not mean that the party bearing the evidentiary burden has to prove the matter asserted by him on the balance of probabilities and certainly does not mean that the legal burden has been shifted to him.

41. I am of no doubt that Mr Chiu is right.  As pointed out  by Phipson on Evidence (17^th edition, para 6-02), the evidential burden is “the duty of passing the judge”, or “the burden of adducing evidence”:

“[The evidential burden] obliges the party on whom the burden rests to adduce sufficient evidence for the issue to go before the tribunal of fact. In criminal cases, or in civil jury cases such as libel cases, the judge is obliged to withdraw an issue from the jury where the party on whom the evidential burden rests has failed to satisfy the burden. In other civil cases, the evidential burden may have significance where, by statute, presumption or otherwise, a presumption arises in favour of one party, or certain facts are treated as being prima facie evidence....

Where a party has an evidential burden, it may be satisfied either by adducing evidence himself, or by eliciting from the witnesses of his adversary.  It is wrong to speak of the persuasive burden shifting during the course of the trial, but writers sometimes speak of the evidential burden shifting during the course of a trial as evidence is led.”

42. The legal burden does not shift.  In this case, the legal burden always rests with the Plaintiff and not the Defendant.  That the Defendant bears the evidential burden is simply a shortcut for saying that if he does not produce sufficient evidence to show that what he asserts (namely that the 4 August 2008 meeting had been adjourned by the meeting the day before) is at least believable, there is nothing to contradict the prima facie effect of the evidence adduced by the Plaintiff based on the resolutions of the meetings of 4 August, 10 August and 22 August 2008.  This is not quite the same as saying that the Defendant bears the burden of proving the alleged adjournment on the balance of probabilities.  So long as the Defendant is able to show that there is believable evidence of such an adjournment, it is ultimately for the Plaintiff to prove, on the balance of probabilities, that the meeting of 4 August 2008 had not in fact been lawfully adjourned.  The evidential burden is, as Phipson rightly describes, a mere “burden of adducing evidence”, not an ultimate burden of proof.

WITNESSES

43. As the Defendant bears the evidential burden, at trial I directed that he should call his evidence first.  He called Yan as his witness, and gave evidence himself.  The Plaintiff called only one witness, namely Lai.  Ming did not give any evidence at trial.

44. I have closely observed the demeanor of the witnesses when they gave evidence.  I regret to say that neither Yan nor the Defendant has impressed me as reliable witnesses.  Yan appeared to be an evasive witness and at times, rather defensive too.  Particularly during cross-examination, Yan did not appear to be willing to give straightforward answers to simple questions asked of him.  The Defendant, on the other hand, appeared to be rather ignorant of the relevant events, which is surprising, for he is the primary protagonist in this case and has been actively involved in the running of the business of the Plaintiff and Yue Kong.  Lai, on the other hand, is much more straightforward as a witness and I find his evidence more reliable.  Where there is conflict between his evidence and that of Yan and the Defendant, I would, subject to considerations of matters of inherent probabilities and contemporaneous documents, generally prefer the evidence of Lai.

45. Having said this, however, I am aware of the danger of relying solely on my impression of the witnesses’ demeanors and behaviour in the witness box in resolving factual disputes.  As Mr Chiu eloquently pointed out in his Closing Submissions: 

“Some witnesses appear intrepid and confident, and some appear to be squeamish and withdrawn. Some are skillful in expressing himself clearly, and some are less able to do so. Personalities vary infinitely. Yet it does not mean that the former type of witnesses are telling the truth or the latter type is telling lies.”

46. I agree with Mr Chiu that appearance can sometimes be deceptive, and the apparent evasiveness of a witness may simply be due to his being not an articulate person or is in the habit of speaking in a roundabout way.  I have reminded myself of this.  Yet, it is the unique advantage of a trial judge to observe the flow of evidence from the mouth of the witnesses, and in deciding whether a witness’s evidence is reliable or not, plainly what I saw and heard as the evidence was given is important.  I do not say that a witness is evasive merely because he appears to be not expressing himself well and clumsy in giving his evidence, and I do not say that he is defensive merely because he appears to be supportively of the case of the party who calls him.  I form the view only after witnessing the whole process of evidence played out in Court.

47. In considering the evidence in this case, I have not only taken into account of my assessment of the demeanor of the witnesses. I have considered the oral testimony against the inherent probabilities of the relevant events, together with what appears from the contemporaneous documents. I will deal with the relevant evidence in my discussion of the issues below.

WHETHER THE MEETING OF 3 AUGUST 2008 WAS A DIRECTORS’ MEETING

48. It is accepted by Mr Chiu that if the meeting of 3 August was a directors’ meeting, it was an informal one.  There was no written notice given of the meeting and Lai was only notified to meet Yan and the Defendant at the Pacific Club by a telephone call of Yan.  Ming was not even notified.  It is not disputed by Yan that when he telephoned Lai to ask him to come out to meet him and the Defendant, he did not tell Lai that he was to attend a board meeting.  However, he did tell Lai that he and the Defendant would like to meet him to discuss about the business of the Plaintiff.  Lai admitted in his evidence that when he attended the meeting at the Pacific Club, he anticipated that the matters proposed to be considered at the meeting on the next day would be discussed.

49. The meeting was held over either lunch or dinner.  Lai said it was a lunch gathering but Yan claimed that it was a dinner meeting.  It is not important whether it was a lunch or dinner meeting.  If necessary, I would prefer the evidence of Lai and hold that it was a lunch meeting. 

50. What is, however, important is the fact that Ming was not notified of the meeting, and according to the Defendant’s case, this was deliberate.  In the words of Yan (see, para. 12 of his Affirmation filed on 12 October 2010):

“... we spent a large part of the dinner time in discussing about the differences between Ming and Tsang, and about the proposed resolution of Ming which was doomed to be defeated, and what that would entail to the parties relationship and the business. We explored the best way to get the Plaintiff to return to the right-track, and how Lai might help in resolving the differences between Ming and Tsang. It would have been obvious that Ming’s presence would be inappropriate given the topic that we discussed.” (underline added)

51. It is the Defendant’s case that Ming was deliberately not notified to attend the meeting.  There is no evidence - and no suggestion - that Ming was not in Hong Kong or any other reason why it would have been impractical or impossible to notify her.  She was not notified simply because the Defendant and Yan took the view that it would be counterproductive or “inappropriate” for her to be present.

52. In these circumstances, was the meeting held on 3 August 2008 a directors’ meeting of the Plaintiff?  It is agreed by Counsel that the answer to that question depends on whether it was intended that the meeting to be held was a directors’ meeting.  Whether a meeting is a directors’ meeting does not depend on any particular formality.  Unlike shareholders’ meetings there is no law - and rarely is there regulation in the articles of association  - governing the length and form of notice to be given for directors' meetings.  In the present case, there is no provision in the Articles of the Plaintiff to prescribe for any particular formalities for directors’ meetings. 

53. It is also agreed by Counsel that the relevant intention has to be ascertained objectively.

54. It is however not very clear when Counsel spoke of the relevant intention, whose intention precisely were they referring to. Mr Chan SC seems to suggest in his Closing Submission that what is required is the intention of all the directors of the Plaintiff (including Ming).  In this connection, he cited Potter v Berry [1914] 1 ch 895 where it was held that:

“A board meeting of directors can be held under any informal circumstances, but the casual meeting of two directors even at the office of the company cannot be treated as a board meeting at the option of one against the will and intention of the other, and it makes no difference that a notice convening a board meeting has been sent by the one to the other if such notice has not in fact been received by the other.”

55. It is plain that because Ming was never notified of the meeting, and never attended the meeting, she could not possibly, on any view, have intended that meeting to be a directors’ meeting, as she was not even aware of the same when it was held.  If a meeting can only be intended to be a directors’ meeting when all the directors of the company (including those who had not received notice of the same and were not present) had the common intention of treating the meeting as a director’s meeting, then in the present case the mere fact that Ming could not possibly have so intended would necessarily mean, without more, that the meeting of 3 August 2008 was not intended to be a directors’ meeting.

56. Although Mr Chan SC contended in his Closing Submission that whether a meeting is to be treated as a directors’ meeting “must be based upon the directors’ consensus”, and referred to the absence of such intention on the part of Ming, he stopped short of submitting that the lack of intention of Ming would mean, without more, that the meeting could not be a directors’ meeting.  Such a submission would not, in my view, be correct.

57. If the relevant intention required is the common intention of all the directors, including those who were not aware of the holding of the meeting and were not present, I dare say that in almost all cases the directors who had not received notice would not have the common intention required, and it would then follow that the meeting in question could not be a directors’ meeting for that reason alone.  This cannot be right.  A director may not have received notice of meeting for any number of reasons (he may be away, or may have changed his address, or the notice may have been too short to reach him in time etc.).  The lack of intention on the part of such a director cannot be determinative of the question whether the meeting was intended to be a directors meeting or not.

58. Nor do I think that Potter v Berry supports the contention of Mr Chan SC that the common intention of all the directors are required.  It should be noted that in that case the company only had 2 directors. Warrington J held that one director cannot be made to attend the board or to convert a casual meeting into a board meeting, and that a casual meeting of the 2 directors could not be converted into a board meeting at the option of one against the will of the other.  This is plain common sense and does not support the much wider proposition advanced by Mr Chan SC that a common intention of all members of the board is required before a meeting can be treated as a directors’ meeting.

59. In my judgment, in a case such as the present, the relevant intention is the intention of the persons who attended the meeting in question.  Do they intend to attend the meeting as directors of the company?  Or to ask the question in another way, do they intend that any decision made at the meeting would be treated as decision of the board binding upon the company?  If the answers to these questions are yes, they would have intended to treat the meeting that they were attending as a directors’ meeting.  As agreed by Counsel, the intention was to be objectively ascertained having regard to the circumstances surrounding the holding of the meeting.

60. As a starting point, it is difficult to see how the persons attending the meeting of 3 August could have intended the meeting to be a directors’ meeting.  They knew very well that one of their fellow members on the board, namely Ming, had not been informed of the holding of the meeting.  Lai stated in his evidence that when Yan rang him and asked him to meet him and the Defendant for lunch at the Pacific Club, he was not told that this was going to be a directors’ meeting.  As already pointed out above, this was not disputed by Yan.  Lai’s evidence was that he did not intend the gathering on 3 August 2008 to be a board meeting. Otherwise he would have requested Yan to call Ming to attend, or would have fetched Ming himself, and he would not have attended the meeting on 3 August 2008 "alone". 

61. I believe the evidence of Lai.  There was no reason why Lai would have agreed to attend a directors’ meeting of the company knowing that his sister would be excluded.  Even though the Defendant and Yan were friends (Yan was an old classmate of Lai at college in Canada), or even good friends of him, there was no reason why he would want, or agreed to have, a directors’ meeting held behind the back of his sister.  That the Defendant and Yan were also his friends had not made him their followers.  Instead he supported his sister’s position as far as the running of the business of the Plaintiff was concerned.  It would be very strange for Lai to have agreed to any arrangement whereby decisions would be made binding on the Company in the absence of his sister.  This is particularly so when he was fully aware that the stance of Yan and Lai was probably rival to that of his sister.

62. Mr Chiu invited me to have regard to the evidence that suggests that there were informal directors’ meetings held prior to 3 August 2008.  I have no doubt that there were these informal directors' meetings - as is common in many small companies - informal in the sense that there were no formal written notices given, and no agenda provided for the meetings.  For example, there was a directors’ meeting held on 7 March 2008.  There was written notice of meeting given by Ming for it to be held on 9 March 2008, but the meeting was in fact held  2 days earlier on 7 March 2008 at a venue different from that stated in the notice of meeting.  There was no written notice for the change of time and venue, but it is plain that all the directors must have been notified orally.  Although Lai did not attend this meeting, he had appointed Ming as his proxy to attend the meeting on 7 March 2008.  The other 3 directors also attended the meeting and obviously had notice of the change of time and place.  Hence, although the time and venue of the meeting had been changed informally, all directors had been notified.

63. There were two other informal directors’ meetings held after the meeting of 7 March 2008 and before 3 August 2008.  One was held in a restaurant called “小白鹭”, and the other at the Club House of Hong Lok Yuen in Tai Po.  There was no evidence of any written notice given for these meetings, but since all 4 directors attended the meetings, the only inference must be that they had been given notice (albeit informal) of the same.

64. There might be occasions when some of the directors had not attended some of these informal directors’ meetings - there is no clear direct evidence of this but this is clearly possible.  Mr Chiu has pointed to the evidence of Lai, given upon cross-examination, when he stated that he was not aware of certain matters concerning the Company such as who were the authorized signatories of its bank accounts.  Mr Chiu asked me to infer from this that Lai must have been absent from the directors’ meetings that resolved on these matters.  I am not sure that this was a justifiable inference but I shall assume that to be so.  However, merely because some directors might not have attended directors’ meetings from time to time does not mean that they had not been given notice of the same.  They might not attend the meetings for one reason or the other but I cannot draw inference from their mere absence that they had not been notified of the meetings, and certainly I cannot draw the inference that it had been the practice of this company to withhold giving notice to directors, or some of them, of the holding of directors’ meetings.  Notice may be informal or oral, but it would be most extraordinary that the board of this company would have adopted a practice of holding directors' meetings without giving notice to all its members.  There is no evidence before me to show that there was any occasion when directors were not notified, let alone deliberately not notified, of the directors’ meetings of the Plaintiff.  Indeed Yan told me that he had never thought that the other directors would deliberately not notify him of a board meeting.  Plainly Yan himself expected that all directors would be notified of meetings of the board.

65. As pointed out above, when Yan called Lai to come out for lunch (or dinner) he did not tell him that they were going to hold a directors’ meeting.  As he and Yan and the Defendant were good friends, it had been quite common for them to meet each other over lunch or dinner socially.  Yan himself stated in his affirmation filed on 12 October 2012 (see para. 2(1) thereof) that “Lai, Tsang and I frequently met for meals and socialized together”. 

66. It is true that Lai had anticipated that when he met up with Yan and the Defendant, they would talk about the affairs of the Plaintiff.  But that, in my view, is not sufficient to show that the meeting of 3 August 2008 was intended to be a directors’ meeting.  A lunch or dinner meeting could not, without more, be turned into a directors’ meeting merely because affairs of the Plaintiff were discussed. 

67. Mr Chiu submits that the purpose of the meeting of 3 August 2008 was “to try to get Lai to discuss on how best to mediate the possible direct confrontation between [the Defendant] and Ming which would occur the next day if nothing was done about it”, and doubted that “[h]ad notice been given to Ming .... whether any meaningful discussion to mediate the conflict could possibly have taken place”.  If the purpose of the meeting was as submitted by Mr Chiu, then in my judgment it would lie ill in the mouth of either the Defendant or Yan to say that they intended that the meeting was to be a directors’ meeting.  A directors’ meeting is held for the purpose of discussing and deciding the affairs of the company, not to mediate confrontation between directors (even if the confrontation relates to the company).  It may well be that for the purpose of mediation, it was better, as Mr Chiu submits, not to have Ming’s presence; and indeed the Defendant and Yan might have bona fide taken the view that it would facilitate the mediation by not meeting Ming face to face to avoid the possibility of a showdown.  All these are perfectly understandable if the purpose of the meeting was to discuss the ways to mediate the confrontation between Ming and the Defendant.  But a meeting held for such a purpose can hardly be intended as a directors’ meeting of the Company.  As a company, the Plaintiff is entitled to the advice of its board as a whole and the collective wisdom of its board.  In these circumstances, it is difficult to see how Yan and the Defendant could have genuinely intended the meeting of 3 August 2008 to be a directors’ meeting when the reason why they decided to exclude Ming was to facilitate discussion of “how best to mediate the possible direct confrontation between [the Defendant] and Ming”.  Objectively assessed, they clearly did not intend that the meeting was to be a directors’ meeting.

68. Indeed, if the Defendant and Yan had genuinely thought that they were holding a directors’ meeting, I see no reason why Yan should not tell Lai expressly when he telephoned him to ask him to meet at the Pacific Club. 

69. I also accept Mr Chan SC’s submission that the conduct of the Defendant and Yan after the meeting of 3 August 2008 was such as to suggest that their present assertion that the meeting was intended to be a directors’ meeting was in fact an afterthought.  As pointed out above, the Defendant was provided with the minutes of the meeting of 4 August 2008 and was notified with the resolutions purportedly passed in that meeting.  One would have thought that if the Defendant had truly believed that the meeting of 3 August 2008 was a directors’ meeting, he would have jumped at the minutes and would have responded by immediately raising the objection that the meeting of 4 August 2008 was wrongfully held as it had already been adjourned by a directors’ meeting held the day before.  This was however not what happened. Although he gave notice on 12 August 2008 that he did not accept the minutes and the resolutions, he gave no reason at all for his alleged non-acceptance.  Yan was also completely silent on the matter.  When he was cross-examined on this, the only explanation that he offered was that he trusted the Court would determine the validity of the meeting of 4 August 2008 in due course.  This was hardly a convincing explanation of his total lack of response to what was supposedly a shocking discovery. 

70. Further, when C&A wrote to the Defendant by their letter dated 5 September 2008, they expressly alleged that at the directors’ meeting of 4 August 2008, resolutions were passed to remove the Defendant as the Chairman and appointing Ming in his stead.  The response of the Defendant, through his solicitors, TL, was merely to challenge the authority of C&A to issue the letter.  Nothing was said by TL in their reply letter to C&A about the meeting of 3 August 2008, and nothing was said about the meeting of 4 August 2008 having been adjourned by a previous directors’ meeting.  Mr Chiu, in a very able submission, sought to explain this by submitting that it was correct for TL to dispute the authority of C&A.  To this extent, Mr Chiu is correct as there was, by that time, no resolution passed by the board of the Plaintiff to authorize C&A to issue the letter.  Mr Chiu went on to submit that it was also right for TL to refuse to deal with the allegations about the resolutions passed at the meeting of 4 August 2008, “no doubt out of concern that it might be construed as accepting the authority of [C&A]”.  I do not, however, accept this submission.  If indeed the Defendant’s position was that the meeting of 3 August was a directors’ meeting, it is extraordinary that in the light of what was said by C&A, he or his solicitors would have chosen to keep silent and not openly stating his stance on the matter.  I do not see how coming into the open on his stance would amount to accepting the authority of C&A - any concern in that regard could have been easily removed by stating expressly in the reply letter that nothing therein should be construed as the Defendant’s acceptance of C&A’s authority, or words to that effect.

71. In this regard, I would gratefully adopt a comment made by Ackner LJ in the oft-quoted case of Banque de Paris v de Naray [1984] 1 LLR 21 at 23, when the learned judge observed that it was incredible for an experienced businessman to have failed to raise a defence known to him when facing a demand that he genuinely believes to have been wrongfully made against him:

“A businessman of the experience of the defendants, faced with a demand under a guarantee of ... any significant sum, knowing that he had only signed the guarantee on an assurance that it did not render him under any obligation at all, would not have waited for his lawyers to express his indignation, let alone his appreciation of the substance of the defence which he must have....”

72. In the present case, as far as the correspondence between the parties is concerned, the first time when the Defendant expressly raised his case based on the meeting of 3 August was in a letter dated 16 December 2008 of TL.  This was more than 4 months after the Defendant had notice of the fact that resolutions had purportedly been passed in the meeting of 4 August removing him as the Chairman.  Mr Chan SC also pointed out that when the Defendant made his affirmation filed in support of his summons to strike out the Action, he made no mention of the meeting of 3 August 2008 at all. This is very strange, to say the least, as the whole basis of the Defendant’s application as presently advanced is grounded upon the meeting of 3 August 2008 as a directors’ meeting.  It is not necessary for me to speculate why the Defendant would have failed to mention the 3 August meeting at all in his own affirmation, suffice to say that the explanation he offered in cross-examination that he was not aware of the omission and had left the matter in the hands of his lawyers is not acceptable - the affirmation had been explained to him before he swore it.

73. In these circumstances I accept the submissions of Mr Chan SC that the objective circumstances strongly suggest that the present contention of the Defendant that the meeting of 3 August 2008 was a directors’ meeting is an afterthought.

74. During the cross-examination of the Defendant on what happened at the meeting of 10 December 2008, the Defendant claimed that at the meeting he had protested against the Chairmanship of Ming by pointing out that the meeting of 4 August 2008 had been adjourned by the meeting of 3 August 2008.  It was alleged that Ming response at that time was to say that “oral notice did not count” (“口頭通知唔算”).  Mr Chiu relies on this evidence to submit that this shows that Ming must have been aware, before 10 December 2008, of the meeting of 3 August 2008 and the adjournment of the meeting scheduled for the next day.  I do not believe the Defendant in this regard.  The allegation that he had made such a protest at the meeting of 10 December 2008 was never raised before in his evidence - certainly not in his affirmation which was adopted as his evidence-in-chief. The Defendant’s allegation is not supported by the evidence of Yan.  If what the Defendant claimed was true, it is difficult to understand why he would have failed to mention it in the contemporaneous correspondence (there is no mention of this in TL’s letter of 16 December 2008), or in his own affirmation; and did not ask his witness, Yan, to confirm it.  When asked about this, Lai told me that he could not remember the Defendant saying what he alleged he had said at the meeting of 10 December 2008. 

75. Having considered the evidence before me, for the reasons set out above I am not satisfied that the meeting of 3 August 2008 was intended by the persons attending the same, namely Yan, Lai and the Defendant, as a directors’ meeting. 

76. In any event even assuming that Yan and the Defendant genuinely intended (which I find they did not), as they now claim, that the meeting to be a directors’ meeting, it is plain that Lai did not attend the meeting intending it to be a directors’ meeting.  On the authority of Potter v Berry (supra), Yan and the Defendant could not unilaterally convert the meeting with Lai into a directors’ meeting, against the will or intention of Lai.

77. As the persons attending the meeting on 3 August 2008 did not intend the meeting to be a directors’ meeting, the meeting could not objectively be regarded as such.  It follows that whatever decision made or agreement reached at the meeting by the 3 persons present cannot be regarded as the lawful resolution of the Plaintiff’s board.  It follows that even if it was agreed at the meeting of 3 August 2008 that the directors’ meeting on the following day should be adjourned, it is not a decision binding upon the Company to have any legal effect.

78. My findings above would be sufficient to dispose of the Summons.  However, for completeness’ sake, and in deference to the arguments of Counsel, I would also deal with the other 2 issues mentioned above.

WAS A DECISION MADE AT THE MEETING OF 3 AUGUST TO ADJOURN THE MEETING OF 4 AUGUST 2008?

79. There is a direct contradiction between the evidence of Lai and the evidence of Yan and the Defendant on this issue. 

80. Yan and the Defendant maintained that at the end of the meeting of 3 August 2008, a decision was made that the directors’ meeting scheduled for the next day would be adjourned.  This is denied by Lai, who maintained that the question of adjournment was never raised or discussed at the meeting, let alone any decision made.

81. All the witnesses agreed that the meeting of 3 August lasted for quite a long time.  After a long discussion on the differences between the Defendant and Ming, and their confrontation on various matters relating to the business of the Plaintiff and Yue Kong, a proposal was made by the Defendant that he would step down from his Chairmanship and that Yan would be appointed as the temporary Chairman of the board.  According to Yan, he was originally reluctant to agree to become the Chairman, but eventually was persuaded by the Defendant to agree to do so.  Lai agreed to convey the proposal to Ming.  He was however very firm in his evidence that there was no discussion or agreement to adjourn the meeting of 4 August 2008.

82. I have considered the inherent probabilities of the matter.  There does not appear to be any good reason why Lai would have agreed to have the meeting of 4 August 2008 adjourned - even if it had been raised by the Defendant and Yan - behind the back of Ming when he was clearly aware that the meeting of 4 August 2008 was summoned by his sister, who was obviously keen to proceed with the meeting as her discontent with how the business of Yue Kong was being run was brewing up.  Lai had never allowed his personal friendship with Yan (and the Defendant) to detract his support of his sister.  At the meeting held on 7 March 2008, which was summoned by Ming, Lai had appointed his sister as his proxy to attend the meeting and vote on his behalf.  The evidence shows that the meeting of 7 March 2008 was called by Ming as she was having dispute with the Defendant over the accounts of Yue Kong and the question of its capital examination.  It is clear that Lai had been siding with his sister, and inherently it is most unlikely that he would have agreed to an adjournment of the meeting of 4 August 2008 without even consulting his sister’s view.

83. Moreover, if indeed Lai had agreed to the adjournment, why did he attend the meeting on the following day?  No plausible explanation has been suggested for such strange behaviour.

84. There is however another side of the coin to consider.  It may be asked why, if the Defendant and Yan had not obtained an agreement from Lai to adjourn the meeting the next day, they would have failed to attend that meeting when they could, acting together, defeat any proposed resolution to displace the Defendant from his Chairmanship.  By using his casting vote as the incumbent Chairman and voting together with Yan against any such resolution, the Defendant would be able to refute any attempt to unseat him if he and Yan attended the meeting.

85. It is possible, as suggested by Mr Chan SC, that the Defendant and Yan did not know at that time that the Defendant had a casting vote under Article 100 of Table A of the Companies Ordinance.  Upon cross-examination Yan told the Court that while he had read the Articles of Association of the Plaintiff, he had not read Table A.  The casting vote was only exercised for the first time at the meeting of 4 August 2008, and it is possible that Yan and the Defendant were not aware of it at that time.  I do not agree with Mr Chiu insofar as he suggested that it was only common sense that the Chairman would have a casting vote, and that it was impossible for the Defendant and Yan be unaware of such a right.  I do not think that the right to a casting vote as provided in Article 100 of Table A is a matter of common sense.  However, I do not think that this in itself is sufficient to explain why the Defendant and Yan did not attend the meeting of 4 August 2008.  For even assuming that the Defendant and Yan was unaware of the right of the Chairman to a casting vote, they must have known that by voting together, they would be able to engineer a deadlock  at the directors’ meeting to prevent a resolution from being passed to displace the Defendant’s Chairmanship.

86. The undisputed evidence is that Yan was scheduled to leave Hong Kong on 4 August 2008 for a business trip to Chengdu. Although Yan now claims that he could have rescheduled his trip if Lai did not agree to the adjournment, I am of the view that at the relevant time Yan was not sufficiently motivated to reschedule his business trip to give priority to the Plaintiff’s affairs.  It is clear from Yan’s evidence that he was not keen to get involved in the dispute between Ming and the Defendant as he considered that he was merely a small shareholder.  When the schedule of his own business conflicted with that of the Plaintiff, I think it was likely that Yan would have given priority to his own business schedule, despite what he now claims he would have done if Lai had not agreed to an adjournment.  And if Yan was not prepared to reschedule his business trip, there was no point for the Defendant to attend the meeting of 4 August 2008 as he alone would not be able to repel the proposal to displace him. 

87. I have already indicated that in case of conflict I prefer the evidence of Lai to that of the Defendant and Yan, as I consider Lai to be a more reliable witness.  Having considered the inherent probabilities of the matter and the evidence of Lai, Yan and the Defendant, I find on the balance of probabilities that there was no agreement reached at the meeting of 3 August 2008 to adjourn the meeting of 4 August 2008.

APPLICABILITY OF THE IRREGULARITY PRINCIPLE

88. The irregularity principle is explained by Le Pichon JA, as she then was, in the case of Yip Peter v Asian Electronics Ltd [1998] 2 HKC 96 at 102I -103A as follows:

“The irregularity principle really comes to this: the lawfulness of a decision taken by a meeting of members or board cannot be questioned if the only facts alleged to make it unlawful is a mere informality and irregularity and the intention of the meeting is clear. This is particularly so if there is no evidence that the decision of the meeting would have been different if the correct procedure had been observed.”

89. Given my findings on the 2 issues discussed above, there is no room for the application of the irregularity principle in this case.  On my findings the meeting of 3 August 2008 was not a directors’ meeting and there was no decision taken at the meeting to which the irregularity principle may apply.

90. Even if I were wrong on the 2 issues discussed above, I am of the firm view that the irregularity principle, as explained in Asia Electonics, cannot apply to the present case.  For the purpose of the discussion below, I shall assume, contrary to my findings above, that the meeting of 3 August 2008 was indeed a directors’ meeting and that a decision was in fact made at that meeting to adjourn the meeting of 4 August 2008. 

91. The irregularity principle, as explained by by Le Pichon JA, applies where the only facts alleged to make a decision taken at a meeting unlawful is a “mere informality and irregularity”.

92. As already pointed out above, in the present case the decision not to notify Ming of the meeting of 3 August 2008 was deliberate.  In my judgment, even if the meeting were to be treated as a directors’ meeting, the deliberate withholding of notice to Ming of the holding of such a directors’ meeting was more than a “mere informality and irregularity”, rendering the irregularity principle inapplicable.

93. In this regard, it is in my view necessary to draw a distinction between a directors’ meeting and a shareholders’ meeting. There is a fundamental difference between the two, and in considering whether the irregularity principle applies to a given situation, one must not overlook the difference between these 2 types of meetings.

94. One particular difference between a directors’ meeting and a shareholders’ meeting arises from the fact that the board of directors is charged with the power and duty to manage the company.  Unlike shareholders of a company, who are entitled to vote at general meetings solely in accordance with his own self-interest, directors are in a very different position.  As observed by Deputy Judge To in the case of SEG Investment Ltd v SEG International Securities (HK) Ltd and others (unreported, HCMP 4211 of 2003, 14 October 2005, at para 11):

“Directors are agents of the company, they act in the interest of the company and less in the interest of those whom they represent or those who appointed them. The purpose of a notice is to enable directors to attend the meeting so that the company may have the benefit of receiving the collective wisdom and contribution of all directors before deciding its action...”

95. The fact that the company is entitled to have the collective wisdom and contribution of all directors is an important point that must be emphasized.  The powers of management are delegated, not to individual directors, but to the board of directors as a whole. As pointed out by the learned authors of Company Directors: Law and Liability by Sinclair, Vogel and Snowden:

“The powers of management are usually delegated to the board of directors as a whole and not to individuals. The directors should therefore act collectively as the board (D’Arcy v Tamar, Kit Hill and Calligron Railway Co. (1867) LR 2 Ex 158, Re Haycraft Gold Reduction & Mining Co. [1990] 2 Ch 230). In the absence of such a delegation of authority it is not appropriate for a number of directors to act without meeting or at a meeting of which notice has not been given to the whole body of directors (Re Portuguese Consolidated Copper Mines (1889) 42 ChD 160, CA; Re Homer Gold Mines (1888) 39 Ch D 546; Re Bank of Syria [1990] 2 Ch 272; [1901] 1 Ch 115). Decisions of a majority of the directors which were not made at a duly convened board meeting will be invalid (Barber’s Case (1877) 5 Ch D 963, CA).”

96. As the board of directors act collectively as a whole, a director is generally entitled to attend at meetings of directors, not merely to vote, but also to provide his views to the board and persuade his fellow directors on any matters that are raised for discussion in directors’ meetings.  This contrasts sharply with the position of a shareholder, who is entitled to vote according to his self-interest, but at the same time has no right to insist on an opportunity to persuade other shareholders to take his view.  The law is settled by the case of MacDougall v Gardiner [1875] 1 Ch D 13, where James LJ expressly rejected a submission that a shareholder is entitled to have a meeting held in strict form in order that he can persuade other shareholders to take his view:

“Has a particular individual the right to have it [a meeting held in strict form in accordance with the articles] for the purpose of using his power of eloquence to induce the others to listen to him and to take his view? That is an equity which I have never yet heard of in this Court, and I have never known it insisted upon before; that is to say, that this Court is to entertain a bill for the purpose of enabling one particular member of the company to have an opportunity of expressing his opinions viva voce at a meeting of the shareholders. If so, I do not know why we should not go further, and say, not only must the meeting be held, but the shareholders must stay there to listen to him and to be convinced by him. The truth is, that is only part of the machinery and means by which the internal management is carried on.”

97. Given this difference between the position of a director and a shareholder, a director has a much greater right than a shareholder to insist on participation in board meetings not merely to vote, but also to express his views on any matters to be discussed in the meetings. His contribution as director is not limited to his vote, but extends to his providing his opinion to the board as part of the collective wisdom that the company is entitled to obtain from its board. 

98. This being the position, it is necessary, in a case where a decision made allegedly in a directors’ meetings is challenged on the ground that notice has not been properly given to a director, to examine the facts carefully in order to determine whether the defect in giving notice is truly a “mere informality and irregularity”.  In my judgment, where the lack of notice is the result of a deliberate decision to withhold notice from  a director so as to prevent him from attending the meeting, it is generally wrong, barring exceptional circumstances, to regard the deliberate attempt to exclude a director’s participation as a mere informality or irregularity.  The meeting so held is not merely informal or irregular but fundamentally defective.

99. I would gratefully adopt the words of Kwan J in the case of Active Base Ltd v Roderick John Sutton and others (HCCW 470/2005, unreported, 4 June 2008, Kwan J, as she then was), where the learned judge held, at para. 104 of her judgment:

“Notice of a meeting of the board of directors must be given to all the directors, for business done at a meeting of which some of the directors had no notice is invalid (Re Portuguese Copper Mines (1889) 42 Ch D 160; Young v Ladies’ Imperial Club [1920] 2 KB 523). Proper notice is a prerequisite of a validly constituted meeting (Barren v Potter [1914] 1 Ch 895)....”

100. Mr Chiu submits that in the present case, although the decision not to notify Ming of the meeting of 3 August 2008 was deliberate, the decision was taken in good faith by the Defendant and Yan in order to avoid a personal showdown with Ming at the meeting.  It was submitted by Mr Chiu that in the light of the circumstances and the background of confrontation between the Defendant and Ming, the Defendant and Yan had good reasons to think that the presence of Ming at the meeting would be counterproductive and “inappropriate”.  I cannot accept Mr Chiu’s submission.  If the meeting of 3 August 2008 was indeed a directors’ meeting (and that is the assumption made for the purpose of the present discussion), I do not think that it is up to the Defendant or Yan to decide for themselves whether it is appropriate for Ming to attend the meeting or not.  So long as a director remains lawfully as a member of the board, he is entitled to be given notice of directors’ meeting and to attend the same.  The authorities cited by Kwan J in the case of Active Base Ltd v Roderick John Sutton and others are clear and are well-settled.  It is not up to the other directors - not even a majority of them - to decide that a fellow director should be excluded from board meetings.  If they should take the view that it is not in the interest of the company for a director to remain on the board, what they could do is to remove him as a director by following the proper procedure.

101. One may test the matter as follows.  If it be right that the irregularity principle should apply despite the deliberate exclusion of Ming, should the principle not equally apply if, for whatever reason, Yan and the Defendant should decide that both Ming and Lai should be excluded from the directors’ meetings of the Plaintiff and not be notified of the holding of such meetings? Can they not say that even if Ming and Lai are notified of the meetings and attend, they would surely be voted down by their joining hands and the Defendant exercising his casting vote?  If they can, it would mean that a majority of directors - even a bare majority - can work together to deprive the other directors of their right to participate in directors’ meeting, and their opportunity to air their views to persuade others to agree with them.  This cannot be right.  I do not think that our law permits such tyranny in corporate governance.

102. I will now turn to examine the authorities.

103. Mr Chiu has drawn my attention to the case of Re Hong Kong Sailing Federation [2010] 1 HKLRD 801.  The case involves an irregularity in the method of voting relating to an extraordinary general meeting requisitioned by certain members of a company.  It was held by Kwan JA that the irregularity principle applied.  The learned judge held that, in considering whether the irregularity principle applies, the pertinent question to ask was “whether a particular dispute was appropriate for determination by an ordinary majority” (para 48).  Hence a shareholder would be allowed to sue “where acts were beyond the competence of an ordinary majority, as in the case of ultra vires, illegality or fraud on the minority, or where it was impossible or impracticable for members to sort things out for themselves” (see Headnote).

104. I have no doubt that the principles enunciated by Kwan JA in the Re Hong Kong Sailing Federation case are entirely correct.  But it is important to bear in mind that in that case the learned judge was dealing with a case of members’ meeting, and she was not addressing a case of the deliberate exclusion of a director from directors’ meeting like the present.  In any event, I find nothing in that case to constrain me from taking the view, as I do, as set out above.

105. In my judgment, the application of the irregularity principle to a case of directors’ meeting involves considerations rather different from a case of members’ meeting.  Directors cannot be equated to shareholders.  The authorities that were decided on the application of the irregularity principle to general meetings (e.g. MacDougall v Gardiner, supra, Browne v La Trinidad (1888) 37 Ch D 1, Re Green Valley Investment Ltd [2003] 2 HKLRD 915 and Re Hong Kong Sailing Federation, supra) must be read in their proper context and should not be blindly applied to situations that involve different considerations.

106. The case of Peter Yip v Asia Electronics, supra, is a case relating to directors’ meeting.  However, unlike the present case, notice was in fact sent out to the director in question (the plaintiff) but the notice was short.  Le Pichon JA was prepared to proceed on the assumption that the length of the notice was inadequate (at p.98I).  There is, however, no evidence in that case of any deliberate attempt to withhold notice from the director.  Moreover, the articles of the company (article 88) in question included a special provision expressly providing that a resolution agreed upon by at least 75% of the directors shall be valid and effectual whether or not it shall be passed at a meeting of the directors duly convened and held.  On the facts of the case, article 88 was satisfied.  It was in these circumstances that the learned judge dismissed the challenge by the plaintiff based on lack of notice.  The case is plainly distinguishable from the present case.

107. I have also considered the case of Re Datacom Cable System Company Limited, HCCW 347 of 200, unreported, 6 April 2001, Yuen J (as she then was).  One of the issues raised in that case was the authority of the solicitors to represent the company in the winding-up proceedings issued by the petitioner.  The petitioner and her husband were both directors of the company and they alleged that they had not received notice of the directors’ meeting which purported to appoint solicitors to represent the company.  There is nothing in the judgment of Yuen J to suggest any attempt to deliberately withhold notice to the petitioner and her husband, or to exclude them from the directors’ meeting.  More importantly, Yuen J took the view that the issue of lack of authority in that case was sterile as it was plain that any lack of authority could be ratified in that case.  The present case is of course very different, as it is now impossible to ratify the decision purportedly made in the meeting of 3 August 2008.  The issue of lack of authority in the present case, unlike the Datacom Cable case, is not sterile.

108. No authority has been cited by Mr Chiu to support the proposition that the irregularity principle applies to a case where the failure to give notice was deliberate.  I would be surprised to find such a case.  As pointed out above, barring exceptional circumstances, it is difficult to see how a deliberate attempt to exclude a fellow director from board meetings could be regarded as a mere informality or irregularity.

109. For reasons above, even if I were wrong on the first 2 issues, I would still hold against the Defendant on the 3^rd issue.  In my judgment, even if the meeting of 3 August 2008, contrary to my finding above, was a directors’ meeting, the Defendant cannot rely on the irregularity principle as the deliberate withholding of notice from Ming is not a “mere informality or irregularity” upon which the irregularity principle may be engaged.

CONCLUSION

110. I hold against the Defendant on all the 3 issues identified above.  The Summons to strike out the Action on the ground of lack of authority to sue is dismissed.

111. As to costs, I see no reason why costs should not follow the event.  I would make a costs order nisi that the costs of the Summons (previously reserved by Fung J.) and the costs of the trial before me be paid by the Defendant to the Plaintiff, to be taxed if not agreed.

112. I thank Counsel for their helpful assistance in this case.