MA PO CHIM, PERCY AND OTHERS v. LEE TUNG HAI, LEO AND OTHERS

HCMP 3253/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3253 OF 2004

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D E C I S I O N

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1.  This is a summons issued by three of the petitioners who are members of the Chungshan Commercial Association, Hong Kong (“the Association”).  The summons was made under the provision of liberty to apply in an order by consent I made on 7 November 2005 (“the Consent Order”).

2.  I will state briefly the relevant background matters giving rise to this summons.

3.  The petitioners had brought a petition under section 168A of the Companies Ordinance, Cap. 32.  They were embroiled in a dispute with the 1^st and 2^nd respondents over the conduct of the affairs of the Association, which is the 3^rd respondent in the proceedings.  One of the disputes related to the passing of new memorandum and articles of association for the Association.  The petitioners’ stance was that the new memorandum and articles were not validly passed for a number of reasons.  They contended that the valid memorandum and articles are the memorandum and the articles as amended by special resolutions passed on 5 December 1981, 23 August 1991 and 20 June 2001 (“the Existing Articles”), and that the notice of the annual general meeting dated 5 December 2003 and the voting tickets for the election of the 18^th term directors were not in accordance with the Existing Articles.

4.  When the petition came up for trial on 7 November 2005, the petitioners, the 1^st and 2^nd respondents compromised their differences, so the Consent Order was made.  That order recited an admission by the 1^st and 2^nd respondents that the notice of the annual general meeting dated 5 December 2003 had not been accompanied by any voting tickets in accordance with the practice and pursuant to article 18 of the Existing Articles.  So there is acknowledgment in the order that the Existing Articles should prevail.

5.  By the Consent Order, it was ordered that an extraordinary general meeting and/or annual general meeting be held on 18 February 2006 with the agenda as stated and not otherwise.  One of the items on the agenda was to elect and appoint the 18^th term directors of the Association.  It was provided in the order that for the purpose of giving effect to and for the preparation of convening the above meeting, a Preparatory Working Committee was to be formed consisting of the persons as stated.  In paragraph 3 of the order, it was provided as follows:

“The said Preparatory Working Committee shall within 2 months from the date of Order:

(i) verify the Register of Members of the 3^rd Respondent;

(ii) prepare a list of candidates in accordance with the provision of the Articles for election of directors; and

(iii) convene the said Extraordinary General Meeting and/or Annual General Meeting by giving notice of the Meeting with accompanied voting tickets.”

6.  On 17 February 2006, I made an order appointing Horwath Corporate Advisory Services Limited (“Horwath”) to replace the Preparatory Working Committee to carry out the functions in paragraph 3 of the Consent Order.  I need not go into the reasons, they are set out in full in the decision I gave when I made the appointment.

7.  The matter came back before me in 2 hearings on 24 May 2006 and 20 September 2006, due to difficulties encountered and disputes that arose in verifying the register of members of the Association for the purpose of convening the meeting in the Consent Order.  The Association was incorporated as a company limited by guarantee in 1967.  Since 1997, the annual returns of the Association filed with the Companies Registry have been returned without any list of members.

8.  In the order made on 24 May 2006, I had directed Horwath to compile first a preliminary list and then a finalised list of members of the Association, and provided for notification of these lists to all members and those who claimed to be members.  The order also provided that any interested person whose name was not included in the finalised list may apply to court for determination of their status within the stipulated time, failing which they may not be allowed to vote at the meeting to be convened.

9.  The 1^st to 3^rd petitioners took issue with the finalised list.  They asserted that the list has wrongly included 116 persons who are not valid members.  So they issued the present summons on 23 August 2006, seeking an order that the eligibility of membership in the finalised list should be verified in accordance with the provisions of the Existing Articles, alternatively they seek a determination of the membership status of the 116 persons.

10.  When the summons first came before me on 20 September 2006, I adjourned it sine die with liberty to restore and gave leave to amend the summons.  I took the view that the grounds for objection to the inclusion of the 116 names should be clearly stated in the summons and that notice of it should be given to the 116 persons whose interest is affected by the application.  I also gave leave to the 116 persons to intervene if they wish and be heard on the application, and provided for any party wishing to intervene to file evidence in response.

11.  The directions given on 20 September 2006 have all been complied with by the petitioners.  The 116 persons were duly served with a copy of the amended summons and the order made on 20 September 2006.  Only three persons have responded by letters, which are identical or similar in content.  All three reiterated they are valid members and should not be excluded from the finalised list, and that the Association is estopped from denying their rights as members.  However, they made clear in their letters they did not intend to intervene in the present application whilst reserving their rights.  They have not filed any evidence in response in this application.

12.  Other than the 3^rd respondent, which is the Association, all 5 respondents have indicated they take a neutral position in this application.  Horwath stated by its solicitors’ letters as it is an independent professional appointed by the court and not a party to the proceedings, it is not in a position to give consent.  Horwath has filed evidence to explain why it saw fit to include the 116 names in the finalised list.

13.  On paragraph 1 of the amended summons, I see no difficulty in making an order that the eligibility of membership in the finalised list should be verified in accordance with the provisions of the Existing Articles.  As mentioned earlier, it was acknowledged in the Consent Order that the Existing Articles should prevail.  It does not appear from the evidence filed by Horwath that it has taken a contrary view.

14.  I turn to the grounds on which the petitioners say the 116 persons are not valid members.  In short, this is because provisions in the Existing Articles for admission of members have not been complied with.

15.  The relevant provisions in the Existing Articles are articles 3(b), 3(d) and 5(a), and they read as follows:

“3(b) Any person who is a Chungshan native, residing in Hong Kong with proper occupation and integrity and whose age is between 18 and 70, recommended by an existing member and seconded by a present or past director or supervisor may apply to become a member of the Association and the membership fee is HK$300…

3(d) All applications for membership shall be posted up to the Association’s notice board for at least 14 days.  Objection thereto (if any) shall be delivered to the Board of Directors within this period.

5 Every member who has been a member for more than one year shall be entitled to the following:

(a) The right to cast vote and to elect officers; however, he must have become a member for more than two years before he can be elected as an officer, provided that he has to serve initially as:

(i) a Director for one term before becoming an Executive Director …”

16.  The petitioners have particularised the following breaches of the Existing Articles regarding the 116 persons:

(i) 19 persons either had no seconder in their applications, or that their applications were not seconded by a present or past director or supervisor – in breach of article 3(b);

(ii) 26 persons were not recommended by an existing member – in breach of article 3(b);

(iii) 3 persons were over the age of 70 at the time of their applications – in breach of article 3(b);

(iv) 5 persons were students at the time of their applications, they could not be considered as having proper occupation – in breach of article 3(b);

(v) 1 person is not a native of Chungshan – in breach of article 3(b);

(vi) for all the 116 persons, their applications for membership had not been posted on the Association’s notice board for at least 14 days – in breach of article 3(d).

17.  For present purpose, the petitioners’ counsel, Mr Alexander Wong, indicated that he would not argue on the ground in (iv) and he is content to rely on the other grounds.

18.  I have considered the position of Horwath set out in its affidavit, I am satisfied the grounds in (i), (ii), (iii) and (vi) are established.  There is no evidence to dispute the ground in (v), so that is also established.

19.  The contention was put forward by Horwath that notwithstanding the contravention of the requirement of a seconder and the age requirement, the applications of such members have been approved in various meetings of executive directors.  I agree with Mr Wong the executive directors have no power to approve applications for membership under the Existing Articles.  Under article 3(d), the power of hearing objection to applications for membership vested in the board of directors, not the executive directors.

20.  As for the contention of Horwath that notwithstanding the applications for membership had not been posted on the Association’s notice board for at least 14 days, this failure was rectified when Horwath published its preliminary list on the notice board in June 2006, I would also reject this contention.  The requirement in article 3(d) of posting the application for membership for 14 days served a purpose, it is to give an opportunity for objections to be made and considered by the board of directors.

21.  Of the 116 names, those whose applications were recommended by Cheung Chi Kiang are not valid members.  Cheung was not a member when he was purportedly appointed as executive director in the extraordinary general meeting on 1 December 2001.  His application form for membership was only received by the Association on 10 April 2002.  His appointment as director and executive director would also appear to be invalid and ultra vires of article 5(a), as a director has to be a member of 2 years’ standing and an executive director has to serve at least one term as a director.

22.  I hold that the 116 persons are not valid members as they had failed to comply with the relevant provisions in the Existing Articles on the procedure for admission of members.

23.  I do not propose to consider if the 116 persons can invoke estoppel by convention.  None have appeared on this application notwithstanding the notice and the invitation given to them.  Only 3 have responded by letter but they made clear they have no intention to intervene.  I agree with Mr Wong that in these circumstances, estoppel by convention is an academic point.

24.  If it were necessary to rule on the applicability of estoppel by convention to confer membership on persons who are not eligible to become members in an incorporation for failure to comply with the requirements in the articles of association, I am inclined to agree with the decision of Deputy Judge To in Hong Kong Racing Pigeon Association Limited & Others v Lam Koon Nam & Others [2002] 3 HKLRD 133 that estoppel by convention would not apply in this situation (see paragraphs 20 to 23 at 142F to 143J).  The decision in Chan Ho Har Wane Daisy & Another v Clearwater Bay Golf and Country Club [1992] 2 HKC 604 cited by Horwath seems to me distinguishable, as ultra vires was not an issue in that case, which was concerned with the transfer of membership by a member and that the procedure and requirement of which was a matter of the club’s internal management.

25.  I order the 116 names set out in the schedule to the amended summons be removed from the finalised list of Horwath.  These individuals are not entitled to vote at the meeting to be convened.

26.  I would give one other direction on the convening of the meeting.  The order of appointment of Horwath has not specifically provided that it should attend and conduct the meeting.  It is desirable that an independent professional should chair and conduct the meeting, given the history of the disputes among the members.  I make an order in these terms:  Horwath do attend and conduct the extraordinary general meeting and/or the annual general meeting provided for in the Consent Order and that the costs, charges and expenses of Horwath in relation thereto are to be taxed and paid by the Association, pursuant to paragraph 10 of the order dated 24 May 2006.

27.  Regarding the costs of this application, I make an order that the costs of the 1^st to 3^rd petitioners and the 4^th to 6^th respondents, who have appeared in this application, are to be paid by the Association on a common fund basis.  The costs of these parties for the hearing on 20 September 2006, which have been reserved, are to be dealt with on the same basis.  Mr Wong has asked me to make no order regarding the costs of Horwath incurred in this application, as I have found against them for including the 116 names in the finalised list.  I see no reason to deprive the independent professional of the costs incurred in carrying out the functions they are asked to carry out by an order of the court, short of any misconduct on their part.  I will order that the costs of Horwath in the application, being the costs of today and the costs reserved on 20 September 2006, are also to be paid by the Association on a common fund basis.