KWOK HIU KWAN v. CONVOY GLOBAL HOLDINGS LTD AND OTHERS

HCMP 2151/2020

[2021] HKCFI 814

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2151 OF 2020

________________________

________________________

________________________

________________________

J U D G M E N T

________________________

A.  Introduction

1.  By Originating Summons dated 23 November 2020 (“OS”), the plaintiff (“Kwok”) seeks leave to commence a statutory derivative action (“SDA”) in the name of the 1^st defendant company (“Convoy”) against the 2^nd to 13^th defendants, who are directors and former directors of Convoy (together “Directors”).

2.  The application is made under sections 732(1), 732(2) and 733 of the Companies Ordinance Cap 622 (“Ordinance”).

3.  Kwok’s application for leave to commence the SDA is opposed both by Convoy and by the Directors.

4.  By summons dated 8 March 2021, Kwok sought leave to amend the OS and to revise the attached draft statement of claim.  The summons was not controversial, and I permitted the amendment.  The argument has, therefore, been conducted by reference to the revised draft statement of claim (“SOC”).

5.  At the hearing, Kwok was represented by Mr Richard Khaw SC, leading Ms Bonnie Chang and Mr Keith Chan; Convoy was represented by Mr William Wong SC, leading Mr Lai Chun Ho; and the Directors were represented by Mr José Maurellet SC, leading Mr Jason Yu and Ms Jasmine Cheung.

6.  This is my Judgment.

B.  Some Background and Context

7.  As Mr Khaw submits, this court is no stranger to the litigation surrounding Convoy.  For example, in my previous Judgment [2020] HKCFI 2874 at §§7-28, I set out some context, which can usefully be broadly repeated, albeit revised and updated as follows.

8.  Convoy is a Cayman Islands company, formerly listed on the Main Board of the Hong Kong Stock Exchange.

9.  Kwok is the registered owner of 29.91% of the issued shares of Convoy (“Kwok Shares”).

10.  In other proceedings, HCA 2922/2017 (“Main Action”), Convoy and two other group companies as plaintiffs allege that certain shares allotted by Convoy in October 2015 were void or voidable. Of the over 40 defendants in the Main Action, Kwok is named as the 27^th defendant.

11.  The plaintiffs in the Main Action allege that the Convoy shares that Kwok purchased from the open market via CCASS can be traced from a disputed allotment, and ought to be rescinded as being null and void or invalid.  It is alleged that following a raid conducted on Convoy’s offices by the SFC in June 2017, Kwok knowingly acquired the Kwok Shares from associates, nominees, and/or agents of Roy Cho in July to October 2017.  It is said that although the Kwok Shares were acquired from the open market, there were matching buy and sell orders whereby Kwok’s acquisitions were matched with a co-ordinated disposal by Roy Cho’s associates, nominees, and/or agents (reflected inter alia by the unusual availability of a controlling stake, unusually high trading volumes, and minimal fluctuations in price).

12.  The starting point of the claim is the allegation that over several years up to 2017, Roy Cho as a wrongdoer and fraudster wrongfully and illicitly acquired and maintained secret ownership in and control over Convoy.  In a Court of Appeal Decision [2020] HKCA 537, a description of the main underlying premise for all the claims of the plaintiff Convoy subsidiary in that action was given as that:

... Roy Cho exercised control and acquired ownership in Convoy through appointment of his associates, nominees and/or agents to occupy key positions in Convoy without himself holding a formal position. Through such secret control and ownership, he was able to commit the serious wrongs complained of, which in many respects involved manipulations of the corporate affairs of Convoy and other listed companies in a dishonest manner. As can be seen from the summary above, the scale of these wrongdoings is very substantial and sophisticated. Most of them were carried out through complicated schemes with dishonesty and fraud practised not only against Convoy or CCL, but also the other shareholders of the listed companies involved. In our judgment, the concealment of a person’s actual ownership and control over the affairs of a listed company in the manner that Roy Cho allegedly did in order to evade one’s fiduciary obligations to listed companies and site-step compliance with the rules imposed by regulatory authorities designed for the protection of the general investing public is a serious form of dishonest deception.

13.  The plaintiffs in the Main Action seek various declarations and injunctions so as to restrain Kwok from exercising the voting rights of, or transferring or otherwise dealing with his interest in, the Kwok Shares.  (However, Convoy has never sought an interim injunction in the Main Action or in any other action.)  At §95 of my previous Judgment [2020] HKCFI 2874, I accepted that – even if there is a contrary view that can properly be put forward – there is at least reasonably strong evidence in support of Convoy’s case that Kwok is a fraudster and that the shares of Convoy in his hands are the fruits of a fraudulent scheme and therefore void.

14.  In October 2017, Kwok requisitioned for an EGM to be held by Convoy to reconstitute its board of directors (“Board”).  In November 2017, Convoy gave notice that an EGM would be convened on 29 December 2017 (“2017 EGM”).

15.  On 7 December 2017, the trading of Convoy’s shares was suddenly suspended.  Trading has never resumed.  On 8 December 2017, Convoy announced that three of its executive directors (including its then Chairman) were arrested by the ICAC.  Various new appointments were made to the Board, including the current Chairman, Mr Johnny Chen (“Johnny Chen”).

16.  Kwok refused a request by Convoy to withdraw his requisition for the 2017 EGM, made on or around 18 December 2017.  On the same day, Convoy and two of its subsidiaries commenced the Main Action.  It might be noted that since the inception of the Main Action, Convoy is now alleging that 47.93% (as opposed to the originally pleaded 26.7%) of its total issued shares, namely 7,160,300,000 shares, allotted in the 2015 Allotment are null, void, invalid and/or rescinded.

17.  The 2017 EGM as requisitioned by Kwok took place on 29 December 2017 as scheduled.  Article 63 of Convoy’s Amended and Restated Articles (“Articles”) provides that the chairman of Convoy shall preside as chairman at every general meeting.  The 2017 EGM was chaired by Johnny Chen, then Interim Chairman of Convoy’s Board who was appointed on 9 December 2017.  Kwok gave his proxies for the 2017 EGM which were accepted by Convoy and counted as part of the quorum of that meeting.  But, following a Mr Lam’s objection to Kwok’s voting right, citing the legal actions against him to allege that the Kwok Shares were “problematic”, Johnny Chen relied on Article 74 of the Articles to decide to exclude all of Kwok’s votes in respect of his 4,468,182,000 shares cast in that meeting.  If Kwok’s shares votes had been counted, the proposed resolutions would have been passed (resulting in the removal of, among others, Roy Cho, NWF and Mr Chen from the Board).

18.  On 11 January 2018, Kwok commenced HCMP 41/2018 to set aside Johnny Chen’s decision made in the 2017 EGM and to have his 4,468,182,000 votes counted.  Harris J dismissed Kwok’s application for a declaration that Johnny Chen’s decision was unlawful, void and of no legal effect.  He held that (1) the EGM chairman has the power under Article 74, in the meeting, to rule on a substantive objection to a registered member’s voting right and make a decision to disallow his votes; (2) the EGM chairman’s decision under Article 74 is final and conclusive; (3) so that the decision can be subsequently overturned in a court of law only if it is proved that the chairman made the decision in bad faith, that is, dishonestly, or for ulterior motive; (4) otherwise, the chairman’s decision once made cannot be subsequently overturned in a court of law even if it was wrong as a matter of law, irrational, or Wednesbury unreasonable.

19.  That ruling is, I think, still subject to an application for leave to appeal.  But there was another appeal against a further decision of Harris J given on 20 March 2020 after trial.  In that decision, Harris J rejected any allegation that Johnny Chen’s decision was made in bad faith, and declined to imply a term to include qualifications to the operation of Article 74 as put forward by Kwok.  By its decision of 28 November 2020, the Court of Appeal has dismissed Kwok’s appeal.

20.  In actions numbered HCA 1479/2018 and HCA 1619/2018, Wang Pengying (“Wang”) commenced two common law derivative actions against Convoy and two of its wholly-owned subsidiaries.  By my Judgment dated 17 December 2019 [2019] HKCFI 3074, I ordered both actions to be struck out.  Wang is alleged by Convoy to be implicated in the same fraud as Kwok.

21.  On 24 August 2018, Convoy and a subsidiary had commenced HCA 2000/2018 against Kwok (as 1^st defendant) and Chen Peixiong (“Chen”) (as 2^nd defendant).  Convoy claimed for declarations that Kwok and Chen contravened section 131 of the Securities and Futures Ordinance Cap 571, and a final injunction prohibiting them from exercising the voting rights in their shares.  In my Decision of 10 July 2020, [2020] HKCFI 1496, I struck out the action.  That ruling is also apparently subject to an appeal.

22.  On 28 September 2020, Kwok again requisitioned for an EGM to be convened by Convoy for the purpose of reconstituting the Board.  On 6 October 2020, Kwok wrote to Convoy’s Board to request a confirmation in writing that (1) the requisitioned EGM would be convened by the Board, and (2) Convoy would not, pending the resolution of this Action, whether by itself, its directors, chairman and other officers, agents and servants or otherwise howsoever, interfere with, obstruct, abate, disregard or howsoever prejudice the exercise of rights over Kwok’s shares in respect of the requisitioned EGM, including the rights to attend and to vote at such meeting, and to have the votes of the Kwok’s shares counted, in the absence of an appropriate declaration against Kwok made by a competent court or any court order restraining Kwok and his agents from exercising their respective rights as shareholders of Convoy.  Convoy did not reply.  However, on 18 October 2020, Convoy issued a Notice (signed off by Johnny Chen) that the 2020 EGM would be convened on 26 November 2020.  (The EGM was later delayed until 7 January 2021.)

23.  On 21 October 2020, Kwok issued a Summons in HCMP 1578/2020 seeking a quia timet injunction, on the basis that in light of what happened in the 2017 EGM and Convoy’s reaction in seeking to strike out that action, it was clear that Convoy maintained its position that Kwok is not entitled to vote his shares in Convoy, and it would again disregard his rights as a shareholder in the 2020 EGM.  I dismissed that application in my previous Judgment [2020] HKCFI 2874, given on 13 November 2020.

24.  On 9 November 2020, a common law derivative action in HCA 1897/2020 was issued by Yang Zhi Jun (“Yang”).  Amongst other things, Yang’s claim raises similar disputes as the claim struck out by me in the common law derivative actions brought by Wang.  Yang acquired his Convoy shares close in time to Kwok and Chen and is another suspected privy of Kwok.

25.  On 23 November 2020, the current proceedings were commenced by Kwok.

26.  On 25 November 2020, Chen issued an unfair prejudice petition in HCMP 2178/2020.  As is obvious from what I have already said above, Chen is also suspected by Convoy of having acted in concert with Kwok in acquiring tainted Convoy shares. 

27.  In light of those three actions being commenced within such a short time in November 2020, there is force in the suggestion made by Mr Maurellet that they evidence concerted action, that is steps taken by persons acting in concert.

28.  As already noted above, by its decision of 28 November 2020, the Court of Appeal dismissed Kwok’s appeal from Harris J’s Judgment after trial.

29.  As also earlier noted, suspension of trading in Convoy’s shares occurred on 7 December 2017.  Until very recently in February 2021 (see below), no annual general meeting was convened and no financial results or annual reports were published since 2017.

30.  On 22 March 2018, the Stock Exchange imposed conditions for the resumption of trading in Convoy’s shares.  The conditions (“Resumption Conditions”) included (briefly stated) that there should be (a) disclosure of irregularities (“RC1”); (b) demonstration of adequate internal control systems (“RC2”); (c) no regulatory concern about management integrity (“RC3”); (d) publication of outstanding financial results (“RC4”) and (e) provision to the market of any material information (“RC5”).

31.  The deadline for compliance with the Resumption Conditions was 31 January 2020.  By mid-2020, none of the Resumption Conditions for the resumption of trading in Convoy’s shares, as imposed by the Stock Exchange more than two years beforehand, had been satisfied.  Therefore, on 5 June 2020 the Listing Committee of the Stock Exchange publicly announced its decision made on 29 May 2020 (“Delisting Decision”) to delist Convoy’s shares.

32.  In the Delisting Decision, the Listing Committee noted that Convoy had admitted its failure to have complied with the Resumption Conditions requiring publication of all outstanding results and to address any order qualifications.  As to RC1, it noted that Convoy had failed to assess the impact of the irregularities on its operation and financial position, and had not provided an assessment of the impact, but only limited and generic information. As to RC2, it noted that Convoy had failed to demonstrate that it had in place adequate internal control systems, and had not provided update on progress in rectifying the compliance and control weaknesses previously identified.  It was also noted that there was significant uncertainty as to whether Convoy will be able to publish all outstanding financial results, and the timeline was unclear. Further, Convoy had only disclosed generic rather than clear and concrete information about its state of business operation, and had not provided the required financial information, including management accounts which it was required to publish under the Listing Rules.

33.  On 21 August 2020, PwC resigned as auditor of Convoy.

34.  Subsequently, on 31 August 2020, the Board announced that it had appointed Zhonghui Anda CPA Ltd (“ZACPA”) as the replacement auditor.  Whilst the initially expected publishing date for the accounts was the end of 2020, then the end of January 2021, there was further delay until 17 February 2021.

35.  A Board meeting was held on 17 February 2021 to approve the announcement of the outstanding audited accounts for the 2017, 2018 and 2019 financial years.

36.  On 18 February 2021, the Board published the financial statements and annual reports for the 2017, 2018 and 2019 financial years, as audited by ZACPA, who issued a qualified opinion.

37.  On 23 February 2021, the Financial Reporting Council (“FRC”) – a statutory regulatory body for auditors in Hong Kong – announced that it had initiated an investigation into ZACPA’s audit of the financial statements of Convoy for 2017, 2018 and 2019.  The FRC noted that instead of giving a qualified audit opinion, ZACPA might have had to withdraw from the audit or disclaim their opinion.  The FRC considered there were reasons to inquire into whether ZACPA failed to express an appropriate audit opinion on the financial statements.

38.  On 17 March 2021, two EGMs were held, one of which was requisitioned by Kwok for the removal of the incumbent Board and the appointment of seven other directors.  The other EGM to be held immediately after was to consider the reappointment of all existing directors to the Convoy Board.  The results of the EGMs were that the proposed directors put forward by Kwok were not elected, and the incumbent Board members were appointed as directors.

39.  At the AGM held on 18 March 2021, the now published audited accounts for 2017, 2018 and 2019 were approved.

40.  Very shortly before the AGM, Chen made an ex parte application without notice within HCMP 2178/2020 and obtained from DHCJ MK Liu an ‘interim interim’ injunction restraining the Company from holding the AGM.  The order was apparently made only at the time the AGM was already being conducted.  However, the Company was only served with the injunction after the AGM had been concluded (although Chen’s proxy at the meeting had apparently attempted to notify those present that an order had been obtained).

41.  On 26 March 2021, the return date of Chen’s application, I discharged the ex parte order obtained from the Deputy Judge and I dismissed the application for inter partes relief.  I will shortly hand down the reasons for doing so.

42.  Meanwhile, Convoy has sought a review of the Delisting Decision.  A hearing before the Listing Review Committee was scheduled to take place on 30 March 2021.

43.  It is the position of the current Board of Convoy, that the reconstituted Board inherited a company which fell victim to serious financial wrongdoings which involve losses in the hundreds of millions and the tainting of a significant portion of its shareholdings.  The Board says it has worked tirelessly towards the publication of Convoy’s financial results, the fulfilment of resumption conditions, commencement of litigation and other remedial measures, cooperation with regulatory authorities, and the improvement, rebranding and restructuring of Convoy’s business.

44.  Obviously, that is not accepted by (at least) Kwok.  Hence this application.

C.  Shape of the Argument

45.  Kwok’s argument can be summarized as follows:

(1)  The claims in the intended SDA centre on four main allegations against the Convoy Board, being: (a) the failure to publish any financial statements and reports, audited or unaudited, interim or annual, for the 2017, 2018 and 2019 financial years, and the failure to publish the 2020 interim results and report; (b) the failure to convene and hold any AGM’s since 29 June 2017 for no valid or satisfactory reason, enabling the incumbent directors (i) illegitimately to circumvent requirements for retirement and/or re-election and (ii) to keep shareholders in the dark; (c) the failure to comply with the Resumption Conditions on or before the deadline of 31 January 2020; and (d) the decision to publish a joint announcement with National Arts Entertainment and Culture Group Ltd (“National Arts”) announcing its share exchange offer to acquire all shares of Convoy.

(2)  The detail as to those claims can be found in the SOC, which runs to some 64 pages (though that detail need not be rehearsed in this Judgment).

(3)  Faced with those claims, the Directors have attempted to circumvent the fundamental question, and have engaged in tactical manoeuvres with a view to seeking to remedy or dilute the various egregious breaches.

(4)  However, none of those steps provide any answer to Kwok’s claims, and they cannot reverse incontrovertible facts, including that Convoy remains delisted as a result of the other failures, and there is nothing to suggest that the Delisting Decision will be revoked.

46.  Convoy’s argument can be summarised as follows:

(1)  Because of the terms of Article 164(2) of Convoy’s Articles, Kwok can only sue in the name of Convoy against the directors for fraud or dishonesty.

(2)  However, Kwok has failed to demonstrate a prima facie case of wrongdoing in fraud or dishonesty, and he does not even plead or assert fraud or dishonesty against the directors in relation to the non-compliance of Resumption Conditions or the Listing Rules.

(3)  Kwok has no viable case that the Directors have caused any loss to Convoy.

(4)  Kwok cannot demonstrate that it is in the interests of Convoy to pursue the SDA against the Directors, because there is no attempt to quantify the amount that might be recovered, making it impossible to determine whether any tangible practical financial benefit would result.

(5)  The SDA is premature, in advance of the decision of the Listing Review Committee.

(6)  The SDA would result in circuity of action, as the Directors are entitled to an indemnity (save in cases of fraud or dishonesty).

(7)  The SDA would lead to unmanageable and undesirable problems of conflict of interest and access to privileged documents.

47.  The Directors’ argument can be summarised as follows:

(1)  Against the significant dispute as to whether Kwok is a valid shareholder in Convoy, he now seeks to challenge bona fide efforts of the independent Board to mitigate the damage done by previous management, against whom there is a reasonably strong evidence that they are implicated in the same fraudulent scheme as Kwok.

(2)  Kwok’s speculative complaints amount to little more than a request for the court to micromanage issues of internal management that fall within the remit of the Board, and the shareholders in general meeting could render most of the complaints moot before this application is determined.

(3)  Anyway, the complaints in the SOC have been remedied or will be remedied.

(4)  The complaints are essentially grounded in negligence, but in light of Article 164(2) such a claim does not get off the ground, and the only claims of bad faith or deliberate breach of duty are bare assertions.

(5)  Even assuming the alleged breaches can be made out, there is no reasonable prospect of Convoy obtaining the relief sought in the SOC.

(6)  It is not in the interests of Convoy and its incumbent directors to be inundated with, and to divert time and financial resources dealing with, yet another costly set of proceedings, to be directed by someone who clearly has his own axe to grind, rather than for the shareholders at large.

48.  I can deal with the various aspects of the argument after considering the relevant legal principles.

D.  Applicable Principles

D.1  Directors’ Duties

49.  The duties owed by directors to the company are well-settled, and can be found set out and considered in, for example, China Metal Recycling (Holdings) Ltd v Chun Chi Wai [2021] HKCFI 378 at §§47-63.  The duties owed by a director include (1) the duty to act bona fide in the interests of the company, (2) the duty to exercise the director’s power solely for a proper purpose, (3) the duty not to place himself in a position where there would be or may be a conflict between his own personal and separate interests and the interests of the company, (4) the duty to exercise reasonable care, skill and diligence, and (5) the duty to inform himself about the company’s affairs and to join with co-directors and supervising and controlling them.

50.  As to the duty to act bona fide in the best interests of the company, the duty is generally a subjective one. But, where it is clear that the act or omission under challenge resulted in substantial detriment to the company, the director will have a harder task persuading the court that he honestly believed it to be in the company’s interests.  Further, if there is no evidence that the director gave actual consideration to the interests of the company, the proper test is an objective one, namely whether an intelligent and honest man in the position of a director of the company could have reasonably believed that the transaction was for the benefit of the company.

51.  As to the proper purposes duty, the test is an objective one.  The court must identify the power, the proper purpose for which the power was delegated to the directors, the substantial purpose for which the power was in fact exercised, and decide whether the purpose was proper.  It does not matter whether the director honestly believed that in exercising the power as he did, he was acting in the interests of the company.

52.  As to the no conflict duty, the test is also objective, namely where the reasonable man looking at the relevant facts and circumstances of the particular case would think that there is a real or substantial possibility of conflict.  The duty is strictly enforced even in the absence of conscious wrongdoing.  As it has been described, it is an ‘inflexible rule’ to be applied, regardless of any evidence or argument as to whether the principal did or did not suffer any loss.

53.  As to the duty to exercise reasonable care, skill and diligence, the degree of care required is such care as would be exercised by a reasonably diligent person having both the general knowledge, skill and experience that may be reasonably expected of a person carrying out the functions carried out by the director, and the general knowledge, skill and experience that the director has.  The scope of the duty, and whether it has been breached, requires detailed consideration of all the relevant facts in any case.

D.2  Statutory Derivative Actions

54.  The principles applicable to the grant or refusal of leave to bring an SDA are well-established: see, for example, Re Primlaks (HK) Ltd [2016] 2 HKLRD 31 at §§5-10, 20-22, where Ng J drew on various decisions of judges at first instance.

55.  The applicant must satisfy the two material conditions in section 733 of the Ordinance, namely that (1) there is a serious question be tried and the company has not itself brought the proceedings, and (2) on the face of the application, the intended action appears to be in the interests of the company.

56.  As to the requirement for a serious question to be tried, the threshold is relatively low.  Therefore, the prospects of success on the claim are to be investigated only to a limited extent, and the court should be slow to refuse leave unless the prospects are so slim that the plaintiff cannot be said to have any expectation of success.  The question is whether there can be seen prospects of success which, in substance and reality, exist.  Unless the pleaded claim is demurrable, or there are some easily demonstrated fatal flaws, the merits will not be further investigated. Certainly, at this stage, it is not the court’s function to try to resolve conflicts of evidence or difficult questions of law.

57.  Of course, when considering whether a serious issue to be tried is made out, the court is not obliged to accept whatever evidence the plaintiff chooses to place before it without any critical thinking.

58.  As to the requirement that the intended action appears to be in the interests of the company, again the threshold is low.  In most cases, if a serious question to be tried has been demonstrated, it will follow that it is prima facie in the interests of the company that proceedings are pursued (and, of course, vice versa).

59.  However, in assessing whether it appears to be in the interest of the company that the SDA be pursued, the court should also take into account whether any practical benefit is likely to result.  This involves making some assessment as to whether it appears that the company stands to gain in money or money’s worth in light of the costs to be incurred.  That is not necessarily the same as a cost-benefit analysis of possible outcomes of the prospective litigation, as that assessment may not be possible with any degree of confidence or accuracy.  But the court should be looking to see whether there is a realistic tangible and practical overall benefit which might be obtained.

60.  Ultimately, section 733 provides a discretionary power for the court to grant leave to commence an SDA.  In exercising its discretion, the court is deciding – on the basis of the criteria laid down by statute – whether the plaintiff should exceptionally be allowed to sue in place of the company which is normally the proper plaintiff.  The question to be asked by the court includes the consideration whether the case is a proper case for the court to exercise its discretion.  Part of the reason for the discretion is to act as a safeguard against vexatious and inappropriate proceedings by disgruntled members.  The court can properly be regarded as exercising a ‘gatekeeping’ function.

61.  If the applicant can satisfy the serious question to be tried requirement and the interests of the company requirement, the fact that he may also be engaged in broader disputes and hostile litigation with the intended defendants does not of itself give rise to an inference that the leave application is for an ulterior motive and hence an abuse of process: see, for example, Lau Wing Yan v Pacific Bulk Investment Ltd [2020] HKCFI 769 at §48.  I also see the argument that if something is in the best interests of a company, it does not matter who the shareholders are and the state of the relationship between them.

62.  Nevertheless, the question facing the court on an application such as the present one is (or includes) whether it is in the interests of the company that the proposed action should be brought on behalf of the company by the particular person who seeks leave: see Transmetro Corporation v Kol Tov Pty Ltd (2009) ACSR 582 at §§15 and 22; and Metyor Inc v Queensland Electronic Switching Pty Ltd (2002) 42 ACSR 398 at §17.  Though those cases were decided by reference to the Australian legislation, it seems to me to be obvious that in Hong Kong it is also part of the consideration to ask whether the proposed action should be brought on behalf of the company by the particular person who seeks leave.

D.3  Combining the Principles in this Case

63.  Therefore, in this particular case, the applicable principles identify that the court must answer the following questions:

(1)  Has Kwok demonstrated a serious issue to be tried on the claims as to the particular alleged breaches of directors’ duty as set out in the SOC?

(2)  Has Kwok demonstrated that it is in the interests of Convoy that the action should be brought, including (a) that it will achieve tangible or practical benefit in money or money’s worth as against the costs to be incurred, and (b) that it is in the interests of Convoy for the action to be brought by Kwok in the name of Convoy?

E.  Asserted Serious Questions to be Tried

E.1  Failure/Delay in Publishing Accounts

64.  Mr Khaw submits that the recent and belated publication of the audited results for the 2017, 2018 and 2019 financial years simply do not negate the serious question to be tried in relation to this part of the claim.

65.  First, there can be no dispute that Convoy in fact failed to publish any accounts between 22 August 2017 and 18 February 2021.  Nor were unaudited management accounts published in view of the audited accounts.  This was in breach of various Listing Rules, as well as the Resumption Conditions.  Even as at now, the 2020 interim results and report have still not been published.  There is also a separate breach in that the explanations given in Convoy’s public announcements about the delays were inadequate.

66.  Further, the Directors’ attempt to pin the blame for the failure to publish accounts on the alleged wrongdoings of Roy Cho and his ‘camp’ simply raises questions of causation which could only be properly resolved at trial, after the full interlocutory process on the way to a trial.

67.  Mr Khaw submits that the criticisms made in the Delisting Decision were various and trenchant, and they echo the claims made in the SOC.  Those criticisms are not met by the engagement of ZACPA, who were not an appropriate order to with comparable reputation and standing to PwC, or who did not have sufficient standing to audit a listed company or publish a set of accounts which could withstand the scrutiny of regulators. This is shown by the FRC announcement on 23 February 2021, just five days after publication of the audited accounts.

E.2  Failure to hold AGMs

68.  Mr Khaw points out that it cannot be disputed that the Convoy Board failed to convene or hold a single AGM for over three years between 29 June 2017 and 18 March 2021.  That is a clear breach of Article 56 of Convoy’s Articles requiring such a meeting to be held in each year.

69.  Mr Khaw also refers to Articles 83 and 84 relating to appointment, retirement and election of directors.  He says that by the time the OS was issued, all of the then incumbent directors of Convoy should have been either subject to retirement by rotation or re-election at an AGM.  But none of them had been made subject to retirement or re-election. This enabled them illegitimately to circumvent those requirements, thus entrenching their control of the Board, as well as leaving the shareholders completely in the dark about the financial position and business of Convoy.  Any argument that the AGM can be postponed for as long as it is not possible to issue, or because the company has simply not issued, audited accounts cannot stand.

E.3  Breach of Resumption Conditions

70.  Mr Khaw submits that even if the Delisting Decision was primarily based on the failure to publish audited accounts, that of itself constitutes a serious question to be tried in respect of most of the claims in the SOC.  But, he submits, the Delisting Decision actually contained various criticisms relating to the failure to comply with any of the five Resumption Conditions.  He points to the fact that the latest Monthly Prolonged Suspension Status Report issued by the Stock Exchange dated 1 March 2021 lists all five issues as still outstanding.

E.4  National Arts Offer

71.  As to this point, Mr Khaw submits that the Offer (and subsequent Partial Offer) made by National Arts made no commercial sense and would not have been in the best interests of Convoy or it shareholders for the various reasons set out in the SOC.  Further, the only counter-argument that Convoy was obliged under the Takeovers Code to make announcements regarding the Offer is misconceived as none of the situations requiring it had occurred in the present case.

72.  Anyway, Mr Khaw submits, there is at least a serious question to be tried as to whether the Board was negligent or acting contrary to the best interests of Convoy in doing so.

E.5  Effect of the Pleading

73.  Having carefully reviewed the SOC, with the benefit of the submissions, it seems to me that the bulk of the complaints amount to no more than allegations of mere breach or negligence.  There are numerous references to (a) delay and lack of, or inadequate, explanations, (b) breaches of Listing Rules, and (c) failure to act in a timely manner.

74.  A good example is §61 of the SOC which pleads by way of conclusion that, had its members duly or properly discharged their directors’ duties, the Board should have caused Convoy to publish the outstanding financial results and reports in a timely manner (or failing which, the management accounts) by, when necessary, adopting appropriate treatments and/or adjustments, providing appropriate explanations and seeking appropriate and/or proper and sufficient professional advice.

75.  It seems to me that there is some force in Mr Maurellet’s precis of the SOC as effectively seeking an enquiry as to why, after three years of the new Board being in control, the tide has not been turned.  It is matched by one of the prayers in the SOC which seeks injunctions to restrain the Directors “from continuing their aforesaid respective breaches and/or committing further breaches to the same effect”, which I agree is vague and unduly broad, and lacks any practical utility.

76.  The pleading in the SOC never uses the words “fraud” or “dishonesty”, or directly makes any allegation of something similar.

77.  The only pleading which seems to assert something more than mere breach or negligence are to be found in §75.5 of the SOC, which asserts that in breach of his/her directors’ duties, the Directors caused and/or permitted Convoy not to hold, or prevented Convoy from holding, AGMs for the “improper purpose” of (a) circumventing the requirement for re-election of directors under Article 83(3) and/or retirement and re-election of directors by rotation under Article 84, so as to entrench their own control over Convoy, thereby giving rise to a clear conflict of interest, and (b) doing so to prevent the shareholders of Convoy from being notified of and from assessing the financial position of business of Convoy and/or depriving the shareholders of their right to make direct enquiry with the directors and management of Convoy.  The plea is that the Directors acted in breach of their duties, not for a proper purpose, “when [they] knew or had turned a blind eye to the fact that Convoy’s failure to hold AGMs from June 2017 to early March 2021 was in blatant breach of the Articles”.

78.  In passing, I note that the plea in §76 of the SOC purporting to reserve the right to plead further as to the Directors’ misconduct and/or breaches of duties and/or the particulars thereof seems to me to add nothing to the analysis at this stage.

79.  But it can also be mentioned that a ‘rolled-up’ plea, namely a plea which on its face alleges actual or alternatively constructed knowledge, is not treated as making two alternative allegations. Instead, it is treated as a single allegation that a person ought to have known: see Top Point Ltd v K&L Gates (a firm) [2020] 1 HKLRD 814 at §19.  Therefore, where a claim involves an allegation of dishonesty or fraud which requires a plea of actual knowledge, but contains only a ‘rolled-up’ plea, the claim is liable to be struck out for disclosing no reasonable cause of action or defence or being embarrassing.

F.  Point Possibly Cutting Across Others

80.  Mr Wong submits that there is a fundamental point which cuts across all the other points.  He says that because the main complaint is about the loss of listing status, and the recent involvement of the FRC, it is important to note that any complaint by the FRC is against the auditors ZACPA, and not against Convoy.  Further, the reason why the auditors had to qualify (or even to withdraw from or disclaim) the audit opinion is because of the problems left behind by the previous management (to which Kwok is said to be a privy).  No auditor can quantify the loss the company is going to suffer from the fraudulent scheme (to which Kwok is a party).

81.  Mr Wong says this gives rise to a causation point, because irrespective of the efforts by the Directors that would still leave the problems with the accounts.  If Convoy cannot produce a set of accurate accounts, delisting remains apparently likely, but that problem was caused by (amongst others) Kwok himself.  Further, the complaint is not that if a proper job had been performed, unqualified accounts could be obtained. Therefore, the mere fact of delay, then obtaining qualified accounts, then the involvement of the FRC are all materially irrelevant; the Directors do not act as a guarantor.

82.  Whilst there may be some force in those points, and they are perhaps relevant to context when viewing the criticisms levelled against the Directors, the points do not seem to me to provide a short answer to this application.

G.  Article 164(2)

83.  It is convenient to deal with the point on Article 164(2) next.  For present purposes, it is approached on the basis of Kwok’s claim that he is a duly registered member of Convoy, so he is bound by the Articles.  Of course, if his shares are held to be void, Kwok has no entitlement to bring the present application at all and the point would be moot.

84.  Article 164 as a whole is headed ‘Indemnity’, and it is in the following terms:

164.  (1)  The Directors, Secretary and other officers and every Auditor for the time being of the Company and the liquidator or trustees (if any) for the time being acting in relation to any of the affairs of the Company and everyone of them, and everyone of their heirs, executors and administrators, shall be indemnified and secured harmless out of the assets and profits of the Company from and against all actions, costs, charges, losses, damages and expenses which they or any of them, their or any of their heirs, executors or administrators, shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed duty, in their respective offices or trusts; and none of them shall be answerable for the acts, receipts, neglects or defaults of the other or others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any moneys or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to the Company shall be placed out on or invested, or for any other loss, misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto; PROVIDED THAT this indemnity shall not extend to any matter in respect of any fraud or dishonesty which may attach to any of said persons.

(2)  Each Member agrees to waive any claim or right of action he might have, whether individually or by or in the right of the Company, against any Director on account of any action taken by such Director, or the failure of such Director to take any action in the performance of his duties with or for the Company; PROVIDED THAT such waiver shall not extend to any matter in respect of any fraud or dishonestly which may attach to such Director.

85.  Mr Wong submits that on the clear terms of the Article, if Kwok is to obtain leave to commence the SDA he must show that he has a prima facie case of fraud or dishonesty against the Directors.  To do that, he faces the usual heavy burden of properly pleading facts and matters which if approved at trial would be capable of supporting an inference of serious impropriety – rather than merely a claim raising a ‘fog of conjecture, speculation and suspicion’.  It is impermissible to plead a vague and un-particularised case of fraud in the hope of making it good after discovery.  Further, allegations that acts were not done bona fide are serious allegations, amounting to an allegation of improper purpose.  This means that there must be pleaded facts justifying the inference, and it is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which are consistent with honesty unless there is something tilting the balance so as to justify an inference of dishonesty.

86.  Mr Wong points to the only plea of ‘improper purpose’ in §§75.5-75.7 of the SOC (see above), but submits that (a) it is not pleaded on what basis such serious allegations can be imputed to the Directors, (b) nor is it pleaded that they had any motivation, so that (c) there are no necessary particulars for the serious allegations, which remain bare allegations – constituting a defective plea.

87.  Mr Wong also submits that the pleas are in any event contradicted by evidence.  The AGM was not convened because the accounts were not yet ready.  As soon as they were ready, an AGM was convened. There have, however, been multiple EGMs convened at the request of Kwok. Further, no allegation is made by Kwok that the Directors had any personal benefit to gain from not convening an AGM (except the ability to stay as directors).

88.  Mr Maurellet relies on similar points.

89.  Mr Khaw’s response is to submit that Article 164(2) is contrary to public policy, because it operates as a fetter on the statutory right of a member to bring an SDA in the name of the company under sections 732 and 733 of the Ordnance, so would be void or unenforceable as being contrary to public policy.

90.  Whilst originally referring to section 86 of the Ordinance, I think Mr Khaw accepts that that section is not relevant to a company not incorporated in or resident in Hong Kong (like Convoy).  But, he relies on the common law principle derived from a line of cases from Re Peveril Gold Mines [1898] 1 Ch 122, through Re Greater Beijing Region Expressways Ltd [1999] 4 HKC 807, to Ghossoub v Team Y&R Holdings Hong Kong Ltd (unreported, CACV 6/2017, 21 July 2017).  For example, in the Ghossoub case at §20, reference is made to the GBRE case, summarised broadly as that (1) the provisions protecting shareholders in respect of their interest in a company ultimately turn upon their right to present a petition for winding up or the right to relief for unfairly prejudicial conduct; (2) those rights are statutory rights; (3) any article that sought to preclude such statutory rights is contrary to public policy; and (4) if the matter is contrary to public policy, the court will not give effect to an agreement whether it is constituted by the articles or some outside agreement.

91.  From those cases, Mr Khaw submits that it is settled that any provision in the Articles which is at variance with the provisions of the relevant companies’ legislation, including the Ordinance insofar as it applies to Convoy, is void.  The principle is underpinned by considerations of public policy and is one of general application.

92.  So, says Mr Khaw, because section 732 of the Ordinance which creates the right to bring proceedings does not restrict the circumstances to cases of fraud and dishonesty, public policy renders void and unenforceable an Article which does seek to restrict those circumstances. Further, “misconduct” is expressly defined in section 731 as “fraud, negligence, breach of duty, or default in compliance with any Ordinance or rule of law”, identifying that the purpose of introducing statutory derivative actions in Hong Kong was to do away with the uncertainties associated with the ‘fraud on the minority’ requirement at common law: see Waddington Ltd v Chan Chun Hoo (2008) 11 HKCFAR 370 at §28.

93.  The consideration of the effect of Article 164 also involves a consideration as to the meaning of “fraud” in the Article.  Mr Khaw submits that, in the context of a derivative action, “fraud” and “dishonesty” are not limited to common law fraud in the Derry v Peek sense, but encompass the broader notion of “equitable fraud”, including breaches of fiduciary duty.  Mr Khaw refers to Nocton v Ashburton [1914] AC 932 at 953 and Universal Project Management Services Ltd v Fort Gilkicker Ltd [2013] Ch 551 at §§18 and 54.

94.  Whilst I think that is correct, I do not think that all breaches of fiduciary duty simply equate to “equitable fraud”.  Whilst “fraud” includes a variety of forms of equitable wrong, including some breaches of fiduciary duty, it does not include mere negligence.  It is necessary to look for something amounting to an improper purpose, and the SOC in this case mostly pleads breaches of fiduciary duty which do not amount to an allegation of improper purpose (see above).  In other words, I do not think the bulk of the allegations in the SOC are allegations of equitable fraud.

95.  In this context, it is also necessary to pose the question as to which public policy is applicable, and whether it is the public policy of Hong Kong or that of the Cayman Islands.  Mr Wong submits that it must be the latter, as the question relates to the Articles of a Cayman company.  He points to the case of Goodman v DMS Governance Ltd (CICA 39/2019, 27 April 2020) at §54, where the Court of Appeal of the Cayman Islands held that the articles of a company providing indemnity to the directors were not contrary to public policy.  The court noted that while the practice of providing directors’ indemnities has been criticised and has been prohibited in some other jurisdictions, those examples only emphasise that it is for the relevant legislature and not for the courts to act.  It is not for the court to substitute its views as to policy for those of the legislature.

96.  On that basis, Mr Wong submits that there can be no public policy criticism of Article 164(1), as it is clearly valid – not void – as a matter of the relevant public policy.  On that basis, he says there is no reason why Article 164(2) should be held to be invalid, where the same proviso applies relating to situations of fraud and dishonesty.

97.  This seems a fairly strong point.  But here, whilst Convoy is a Cayman company, it has also been listed in Hong Kong.  On that basis, it may be that Hong Kong public policy is triggered, when there is the suggested curtailment of a right granted (albeit requiring leave) under the Hong Kong statute.  As Mr Khaw reminds me, Part 14 of the Ordinance contains section 722 identifying that the definition of “company” within the Part includes a non-Hong Kong company.  I do not think this question is entirely straightforward.  Therefore, it seems to me that there is a serious question to be tried as to whether Article 164(2) – insofar as it is sought to be construed by Convoy and the Directors – is enforceable or not.

98.  For completeness, I would mention that, in dealing with this point, I have not felt it necessary to become bogged down in the possible question as to who bore the burden of adducing or proving any foreign (Cayman) law.

H.  Circuity

99.  This leads on to the circuity point raised on Article 164(1), where Mr Wong submits that the Directors are entitled to an indemnity in relation to any loss suffered by them in connection with their discharge of duties as director of Convoy (except in cases of fraud or dishonesty).  Therefore, even assuming that Kwok is not barred from bringing the claim in negligence in the name of Convoy against the Directors and Article 164(2), the action would be entirely circular by virtue of Article 164(1).

100.  Mr Khaw submits first that the same public policy points come into play, so that the circuity point is itself circuitous. Further, he submits that anyway the defence of circuity only applies if the claim by the Directors under the indemnity would mirror the exact amount being claimed from them: see Moulin Global Eyecare Holdings Ltd v Lee Sin Mei Olivia [2009] 3 HKLRD 264 at §§20 and 70.  Accepting that there should not be any distinction in the meaning of “fraud” or “dishonesty” between the two parts of Article 164, and assuming Article 164(2) does not exclude claims in negligence, the defence under the indemnity would not mirror the intended claims, so that there would be no circuity.  Further, even if Article 164(2) were valid, that would only mean that claims could lie in fraud or dishonesty, but the indemnity under Article 164(1) would not cover such claims, so no circuity.

101.  Mr Maurellet acknowledges the rights created by the Ordinance, but submits that it is not possible to use the mechanism of the SDA to create a cause of action which does not already exist. It is important, he says, not to elide (a) the right to sue in the name of the company and (b) whether there is a viable cause of action for the company.  But, I think this is another point which is entirely straightforward; indeed, the public policy point seems to me arguably to require elision of, or the resolution of any tension between, the two (what might be thought of as ‘chicken and egg’) points of the right to sue and the viability of action.

102.  I do not think the circuity point removes the serious issue to be tried, if there is otherwise such an issue identified in the SOC.

I.  Locus

103.  The Directors contend that because Kwok’s shares may be held void upon the conclusion of the Main Action, that would deprive him of the necessary locus to bring the SDA.

104.  However, as Mr Khaw points out, Kwok’s shares remain valid unless and until they are declared void by a court, and there has been no such determination as yet.  Further, Kwok acquired a further 2,000 shares registered in his name on 28 October 2020, and the validity of those shares has not been challenged.

105.  For present purposes, it suffices for me to say that I am satisfied that Kwok has the necessary locus.  But, the facts (a) that his main claimed shareholding may later be declared void in the Main Action, and (b) that his other shareholding is a relatively small portion of shares, seem to me to be matters which can be brought into the discretionary mix.

J.  Prematurity

106.  Mr Wong submits that Kwok’s application for leave to commence the SDA is premature, irrespective of any view as to the possible outcome of the review on the Delisting Decision.  Mr Maurellet makes a similar point as to prematurity.

107.  In response, Mr Khaw submits that there is no credible basis to suggest that the review will stand any decent chance of success, especially in view of the background leading to Convoy’s delisting. Further, Mr Khaw says that, even if the Delisting Decision were to be revoked, it remains the case that the Convoy Board was in serious breach of multiple provisions of the Listing Rules, which caused or contributed to a prolonged period of suspension/delisting.  Further, it remains the case that the belatedly produced financial statements have attracted considerable concern (including from the FRC).

108.  I do not think there is much in this prematurity point, and on its own would not much influence the outcome on this application. That the matters underlying complaint may be brought to an end does not necessarily remove the basis of complaint for the interim period before they are brought to an end.

K.  Loss

109.  Both Mr Wong and Mr Maurellet make submissions as to the weakness in Kwok’s case on loss, based (as it is) primarily on loss said to flow from the loss of, or failure to ensure reinstatement of, the listing status.

110.  Mr Khaw submits that there is no basis for demanding a precise quantification of the losses of Convoy, or to insist on some kind of cost-benefit analysis of the possible outcomes of the SDA.  He also says that the damages to be awarded can plainly be assessed later, and if there is a case on liability and quantum which is not demurrable, the court should give leave.

111.  As to the suggestion that the listing status is an asset of no value, Mr Khaw submits that suggestion is at least “rather glib”.  There are cases which have identified the listing status as a valuable asset, something which has been said to be “well-known”: see, for example, Re China Solar Energy Holdings Ltd [2017] 2 HKLRD 1074 at §24.  In Re Plus Holdings Ltd [2007] 2 HKLRD 725 at §9, Kwan J (as she then was) described the relevant company’s listing status as its “most valuable asset”.

112.  However, the Plus Holdings case – and others relied upon for Kwok – were dealing with insolvent companies.  Indeed, in the same §9, Kwan J pointed out the clear evidence that the relevant company was insolvent, and followed it with the reference to the listing status as a valuable asset, effectively the only asset of value.  I do not think the same position arises in relation to companies which are not insolvent.  In any event, those previous cases where there was assumed to be a value of the listing status occurred prior to the change of regulation which now prevents ‘reverse takeovers’.  It is, therefore, extremely unlikely that the listing status of most companies remains a real valuable asset.

113.  Further, even if it is an asset, it is not clear that the asset actually belongs to the company.  There is certainly no such asset reflected in the balance sheet of Convoy.  Even in the ‘reverse takeover’ scenario, the real value was to the creditors or contributors of the insolvent company, as the value was essentially taken as a means of removing or resolving the relevant debts upon the restructuring arising out of the insolvency, and the relevant scheme.

114.  Therefore, I think that the value of the listing status of Convoy as an asset of Convoy itself is at best speculative, and more likely illusory.  Further, any loss suggested as arising from the drawn-out period of suspension also seems to me to be rather amorphous – and not one readily described as ‘tangible’.

115.  There is also force in Mr Wong’s submission that there is no evidence offered by Kwok to support how the loss of the listing status of Convoy may affect its value, but the evidence that is before the court suggests that Convoy has actually become more valuable following the reconstitution of the Board and despite the Delisting Decision.  Mr Wong points to an offer to acquire part of Convoy’s business for a total consideration of US$400 million, which is at a premium of 96.7% to Convoy’s entire market capitalisation.

116.  Nor does the complaint made by Kwok in the SOC about the Directors having procured Convoy to announce that it had received of voluntary conditional cash offer from National Arts really seem to lead to any actionable loss.

117.  My overall view is that the SOC fails to identify a claim with any likely real or tangible practical benefit in money or money’s worth.

L.  Problems of Access to Privileged Information

118.  Both Mr Wong and Mr Maurellet mention that the grant of leave to Kwok on this application may give rise to intractable problems about access to privileged and/or confidential documents.  They refer to authority where a conflict of interest between the relevant company and the shareholder has been recognised as a basis to deny an application for leave to commence a statutory derivative action, and the established principle that a company may assert privilege against a shareholder in respect of company documents, if and insofar as they relate to hostile litigation between the shareholder and the company: see Re NDT (BVI) Trading Ltd [2009] 2 HKLRD 409 at §14.

119.  However, I agree with Mr Khaw that the concern that Kwok would somehow automatically be entitled to Convoy’s privileged information is not well supported.  When the legislature was contemplating the introduction of the SDA as a potential remedy available under the Ordinance, it put in place the mechanisms such as section 737(2), so as to provide the shareholder with avenues of obtaining necessary information, but under the supervision of the court.  Were Kwok to be given leave to commence the SDA, he would likely have to take out a proper application for directions or relief from the court if seeking information or documents (privileged or otherwise).  At that point, Convoy could raise issues of privilege or conflict of interest to be taken into account by the court when reaching its determination.

120.  Of itself, therefore, the potential issue surrounding documentation, privilege and conflict does not seem to me to be an absolute bar to the SDA if otherwise a proper one for the grant of leave.

121.  On the other hand, that the applicant for leave to commence the SDA is Kwok – a man who is engaged in a series of hostile litigation against Convoy or the Board, with the potential for conflict that clearly arises, and at least the need carefully to manage issues which may arise from those circumstances – seems to me to be something else to be taken into the discretionary mix in deciding whether or not to grant that leave.

M.  Best Interests of Convoy

122.  Leaving aside the question of loss, I proceed on the basis that the SOC identifies serious issues to be tried on the underlying complaints.  I take that into account when considering whether to grant of leave to commence the SDA would be in the best interests of Convoy.

123.  However, I have already expressed that there are at least significant doubts as to whether there is any actionable loss which can realistically be expected to be recovered through the SDA.  Whilst the absence of any indication in the SOC on the quantum of the claim may not itself be fatal, nor has there been suggested the likely costs as would be incurred. Nor am I convinced that there is any practical benefit to be obtained from the various forms of (generally vague) injunctive relief proposed to be claimed.

124.  Adopting a pragmatic approach, I conclude that there seems no good reason to commit Convoy’s resources for no apparent realistically possible tangible benefit.

125.  It also seems to me to be likely, as Mr Wong submits, that the various points sought to be taken in the SDA will be canvassed and, so far as necessary, determined in various sets of proceedings including the Main Action.  Indeed, Mr Maurellet also submits that it is undesirable, at least from a case management perspective, to allow Kwok to bring the SDA alongside the proceedings commenced by Chen and Yang and the Main Action.  I agree.  Further, though not mentioned in argument, there do not seem to me to be at present any suggested limitation problems if the claims now sought to be raised are not dealt with by proceedings issued now.  That seems to me to be relevant, although not significantly, to the exercise of the discretion.

126.  Also relevant is the fact that time has moved on since the application was launched.  There have recently been EGMs and an AGM. Hence, some of the relief sought in the SOC, such as a declaration that directors were not validly appointed and injunctions to restrain them from acting, have become otiose (even if they do not have the full effect of making the original complaints disappear).

N.  Conclusion

127.  My conclusion is that even if there is a serious issue to be tried on the various matters put forward in the SOC, the circumstances are not such as should lead the Court to exercise its discretion in favour of granting leave to commence the SDA.

128.  In fact, I have little hesitation in deciding – on the application of the relevant principles, and in the exercise of my discretion – that it is not in the best interests of Convoy for Kwok to be granted leave to commence the SDA.

129.  Therefore, I dismiss the application.

130.  It seems to me that costs must follow the event, and that Kwok must pay the costs of Convoy and the Directors to be taxed if not agreed, with certificate for two Counsel.  But, as I have not heard any argument on costs, I shall first order costs on a nisi basis.  The nisi order will become absolute, unless within 14 days any party applies for variation of it.  Any variation application will be dealt with on the papers.