CHOI CHING YUEN v. CHOI KA LING AND OTHERS

HCMP 1935/2021

[2022] HKCFI 3645

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1935 OF 2021

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REASONS FOR JUDGMENT

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1.  By originating summons issued on 30 November 2021 (“OS”) the plaintiff, Mr Choi Ching Yuen (“P”), applies for:

(1)  Declarations that the resolutions purportedly passed at the general meeting of Bluetroz Technology Ltd (“Company”)  held on 12 January 2021 (“1^st Meeting”), the general meeting held on 18 January 2021 (“2^nd Meeting”)  and the board meeting held on 30 June 2021 (“3^rd Meeting”)[2] are invalid;

(2)  an Order to remove or rectify the 3 Forms ND2A filed at the Companies Registry (“CR”)  giving notice of changes in directors of the Company pursuant to the resolutions purportedly passed at the 1^st Meeting on 21 January 2021 (“1^st Form”); the 2^nd Meeting on 3 February 2021 (“2^nd Form”)  and the 3^rd Meeting on 30 June 2021 (“3^rd Form”); and

(3)  an Order against each of the 1^st defendant, Ms Choi Ka Ling (“D1”)  and the 2^nd defendant, Ms Wong Pui Sze (“D2”), for return of HK$108,765.01 to the Company; and a further order that D1 and D2 do jointly and severally return HK$204,045 and US$1,248.18 to the Company. 

2.  The last relief sought in the OS (§1(3) above) is misconceived.  The OS is issued by P in his personal capacity.  He has no right to apply for any relief in relation to the return of monies belonging to the Company.  The suggestion by Mr Tony Lo, counsel for P, to the effect that the court can somehow treat the application as a derivative action is misplaced as the OS is not commenced as a derivative action. In any event, P would not be able to show “wrongdoer control” given that on his own case, he was and still is the sole director of the Company.   

3.  After hearing the parties’ arguments, this Court made a declaration to the effect that the 1^st, 2^nd and 3^rd Meetings and the resolutions purportedly passed thereat are invalid and of no legal effect, and ordered the 1^st, 2^nd and 3^rd Forms to be removed from the CR. 

4.  As for costs, D1 is ordered to pay costs assessed at $45,000 to P, which represents approximately 40% of the costs stated in its statement of costs for gross sum assessment.  This reflects the fact that P is only partly successful in the application against D1, and part of the costs were incurred in respect of the (unsuccessful)  application against D2. 

Background

5.  The Company is incorporated under the Companies Ordinance (Cap. 622)  (“CO”)  in August 2015 and engages in the business of programming and reselling semi-conductor products.  The Company has 9,000 issued shares which were until 12 January 2021 held by P, D1 and D2 as to 3,000 shares each. 

6.  D2 sold and transferred her 3,000 shares to D1 on 12 January 2021.  Mr Lo confirms that P does not take issue with the validity of the transfer of shares from D2 to D1, notwithstanding the fact that such transfer was purportedly approved by a resolution passed at the 1^st Meeting.  As a result of the stance taken by P, there is unanimous consent amongst the shareholders on the transfer of 3,000 shares from D2 to D1, which assent is as binding as a resolution passed at a general meeting (EIC Services Ltd v Phipps [2003] BCC 931, §§121-122, per Neuberger J (as he then was)).   

Discussion

7.  The application is made under s.42 of the CO, which provides as follows:

“The Court may, on application by any person, by order direct the Registrar to rectify any information on the Companies Register or to remove any information from it if the Court is satisfied that -

(a)  the information derives from anything that -

(i)  is invalid or ineffective; or

(ii)  has been done without the company’s authority; or

(b)  the information -

(i)  is factually inaccurate; or

(ii)  derives from anything that is factually inaccurate or forged.”

8.  Section 42(4) provides:

“The Court must not order the removal of any information from the Companies Register under subsection (1) unless it is satisfied that -

(a)  even if a document showing the rectification in question is registered, the continuing presence of the information on the Companies Register will cause material damage to the company; and

(b)  the company’s interest in removing the information outweighs the interest of other persons in the information continuing to appear on the Companies Register.”

9.  The principles governing an application under s.42 of the CO have been stated by Godfrey Lam J (as he then was) in Re China Nice Education Research Publishing Investment and Management Co Ltd [2016] 3 HKLRD 525, §§15 – 20, and may be summarised as follows:

(1)  Section 42(4) prescribes and restricts how the court’s power to order removal of information may be exercised.  Removal is to be ordered only if (a) the plaintiff has shown that registration of a document showing the rectification is not good enough; the continuing presence of the incorrect information will cause material damage to the company; and (b) the company’s interest in removing the information outweighs the interest of other persons in the information continuing to appear on the register (§§16 – 17).

(2)  The fact that the information is incorrect, or relates to an invalid or ineffective transaction, or has been filed without proper authority of the company in question or that a document is a nullity or is one that should never have been registered, is not in itself a sufficient reason for removing it as opposed to rectifying it (§18).

(3)  The order made by the court is to be registered, so that the basis of the rectification (or removal) ought to be apparent from an inspection of the record (§20).

10.  P’s case is very simple.  Until the 1^st Meeting, he was a shareholder and the sole director of the Company.  As such shareholder, P was entitled to receive notices of the 1^st Meeting and the 2^nd Meeting but he did not receive any such notices.  At the hearing, D1 says that she left all matters concerning the changes of directors to a company secretary provider, and she does not know whether any notice of the 1^st and 2^nd Meetings was given to P.  Whether D1 did entrust the matter to the company secretary provider is neither here nor there.  The fact remains that in D1’s affirmation filed in opposition to the OS (when she was represented by Messrs. WT Law Offices), she is not able to adduce any evidence to show that the Company had issued any notice of the 1^st Meeting or the 2^nd Meeting to P.

11.  It is well-established that a resolution passed at a general meeting would be invalid if the meeting had not been convened by a valid and regular notice issued to all the shareholders.  A valid notice must (1) state the correct date, time and place of the meeting; (2) state the purpose of the meeting; (3) give notice of any special business; (4)  comply with all legal rules and statutory requirements; (5) be clear and explicit in its contents; (6) be given with due and proper authority; (7) allow the correct period of time between service and the date of the meeting; and (8) be sent to all those persons who are entitled to receive it (Kosmin & Roberts, Company Meetings and Resolutions, 3^rd ed., §2.01). 

12.  In the present case, no notice was issued to P prior to the 1^st and 2^nd Meetings.  It follows that the 1^st and 2^nd Meetings and all the resolutions passed thereat are invalid and of no legal effect.  

13.  In coming to the above conclusion, I have considered whether there is any basis for D1 to invoke the “irregularity principle” to cure the defects in the resolutions purportedly passed to appoint and remove any directors of the Company.  This is because the court may not interfere with the resolutions passed at a meeting if the challenge only goes to minor irregularities (as opposed one of substance)  in the notice or if the defect in the notice could be remedied by issuing another notice and that a majority of members support the resolution that has been passed at the meeting (Kosmin & Roberts, §§2.130 & 2.132; Re Legal Costs Negotiators Ltd [1999] 2 BCLC 171 (CA); Bentley-Stevens v Jones [1974] 1 WLR 638).  I do not think that there is any basis for D1 to rely on the irregularity principle for the following reasons:

(1)  The failure to give any notice of the 1^st and 2^nd Meetings to P is a substantive defect, rather than a minor irregularity.  P was entitled to be notified that a general meeting would be held for the purpose of considering resolutions to reconstitute the board.

(2)  P was the sole director of the Company prior to and at the time of the 1^st Meeting.  Only P had the power to issue a notice on behalf of the board to convene the 1^st Meeting. There is nothing to suggest that D1 had issued any requisition to the Company to convene a general meeting to be held and the Company failed to convene such meeting within the time limited to do so.

(3)  The 2^nd Meeting and the resolution purportedly passed to remove P as a director falls foul of the requirement of s.462(4) of the CO, which provides that special notice of a resolution to remove a director or to appoint somebody in place of a director to be removed at the meeting must be given to the director to be removed.  Section 578 of the CO further provides that if special notice is required to be given of a resolution, the resolution is not effective unless notice of the intention to move it has been given to the company 28 days before the meeting at which the resolution is moved, and the company must give its members notice of the resolution at the same time and in the same manner as it gives notice of the meeting.  No special notice has ever been given to P or the Company.

14.  As the 1^st and 2^nd Meetings and the resolutions purportedly passed thereat are invalid and of no legal effect, P was and still is the only director of the Company, and D1 and her husband, Mr Chow Ho Yin Cecil (“Chow”), were not properly appointed as directors of the Company.  It follows that D1 and Chow could not convene or hold any valid board meeting for the purpose of appointing Ms Choi Kit Hing (“Choi”)  as a director of the Company at the 3^rd Meeting. 

15.  It is not in dispute that the continuing presence of the 1^st, 2^nd and 3^rd Forms at the CR has caused material damage to the Company as third parties dealing with the Company would be confused as to the identity of the directors of the Company.  It is in the interest of the Company to remove the 1^st, 2^nd and 3^rd Forms from the CR.

16.  I made the following order at the hearing:

(1)  A declaration that the 1^st, 2^nd and 3^rd Meetings and the resolutions purportedly passed thereat for the purposes of removing P as director and appointing D1, Chow and Choi as directors of the Company are invalid and of no legal effect.

(2)  The 1^st, 2^nd and 3^rd Forms filed at the CR be removed.