CHEN PAO TZU v. CHEN SHENG KUEI AND OTHERS

HCMP 2174/2017 and
HCA 735/2019
(Heard Together)

[2020] HKCFI 1518

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2174 OF 2017

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ACTION NO 735 OF 2019

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(Heard Together)

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DECISION

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INTRODUCTION

1.  This Court is faced with a case management decision which arises out of the background as set out below.

2.  PT Chen and CF Chen are defendants (“the HCA Defendants”) in HCA735/2019 (“the HCA”). They are seeking a stay of the HCA pending the final determination of HCMP 2174/2017 (“the HCMP”) [1].

3.  PT Chen is the plaintiff in the HCMP.

4.  SK Chen on the other hand sought to convert the HCMP into a conventional High Court Action, and then to have the two proceedings heard together.

5.  Mr Benny Lo (appearing together with Mr Lawrence Pang) persuasively sought to argue that the HCMP could be dealt with conveniently and expeditiously first.

6.  In the event his clients were to succeed, he submits this would deal a knock-out blow to SK Chen and therefore bring a swift end to the HCA, since SK Chen would be shown not to have any locus as a director to pursue the HCA, and this would thus for practical purposes determine the HCA.

7.  There was no need to waste time and costs on the HCA when this could be disposed of finally in the HCMP which he submitted could be determined summarily at a hearing with one day reserved (if not shorter) which could be fixed for (hopefully) sometime in this calendar year.

8.  What led to the present litigation was a purported extraordinary general meeting on 14 July 2017 (the “EGM”) of Fully Hong Kong Ltd (“the Company”).

9.  The Company owns a number of mainland Chinese subsidiaries which operate a fertilizer and chemicals business. There is some disagreement as to which camp controls those subsidiaries but this is not something which is of significance for today’s purposes.

10.  At that EGM, a number of resolutions were passed whereby (a) PT Chen was removed as a director and (b) SK Chen and HC Chen were appointed as new directors.

11.  On 9 October 2017, PT Chen took out the HCMP to challenge the validity of the resolutions passed at the EGM as well at the registration of the ND2A form which was filed on 18 September 2017. It is fair to say that the HCMP did not proceed speedily. Mr Lo explained this was partly due to the need to serve on various parties.

12.  In so far as the HCA is concerned, an unless order was made by Master Chow on 20 November 2019 for the defendants therein including PT Chen and CF Chen to file a defence but this was not done by the deadline of 18 December 2019 (“the Deadline”).

13.  I understand that HCA Defendants have apparently taken the view that as they have already applied prior to the Deadline for a stay of the HCA pending the determination of the HCMP, this would have effectively “varied” the Master’s Order. Since there is no formal application by either party seeking a determination on this specific matter I will refrain from saying anything more about it.

APPLICABLE PRINCIPLES

14.  There Court is expressly empowered pursuant to RHC O1B r1(2)(e) to order that the whole or part of any proceedings be stayed either generally or until a specified date or event.

15.  In addition, RHC O4 r9 also expressly empowers the Court to stay one of two pending causes or matters until after the determination of the other cause or matter.

16.  I specify that those are express instances where the Court is empowered to stay proceedings or part of proceedings, in contradistinction to where the Court can pursuant to its inherent jurisdiction stay proceedings, to prevent for example an abuse of process, in which case different principles would apply.

17.  The correct approach in an application such as the present was conveniently set out by Kwan J (as Kwan V.P then was) in Re Chime Corporation Limited & Anon (unrep judgment dated 11^th March 2005) at paragraph 14:

“14.  The correct approach…in an application for a temporary stay of proceedings is “to consider the balance of convenience and fairness as between the parties” (Alfred McAlpine Construction Ltd. v Unex Corporation Ltd. (1994) 70 BLR 26 at 45C to D, per Glidewell LJ; applied in Clinton Engineering Ltd. v B-Tech (Holdings) Ltd. [2001] HKCU 1002 at para. 9 and SWE Ltd. v Chong Lai Fun, HCA No. 1064 of 2004, 28 October 2004, Reyes J, pages 5 and 6; see also Halsbury’s Laws of Hong Kong, Vol. 5(2), footnote 7 to para. [90.0938]) and the court should exercise its discretion in such a manner “to ensure that its procedures are used in a logical, fair and cost-efficient manner” (SWE Ltd., page 5). The question at hand is not a question of deprivation of the right of a litigant to proceed altogether, but a question of case management.”

18.  It seems to me that whenever the Court is considering the exercise of such case management powers, the Court of course always has to balance the interests of the parties before it, but also take into consideration the resources of the Court as this would have an impact on other litigants.

DISCUSSION

19.  Mr Lo fairly recognizes that the HCMP as originally framed would probably not have been suitable for summary determination.

20.  In his skeleton he submitted that it was indeed the position that “‘at one stage’ PT Chen had sought to impugn the validity of the September 2017 resolution by challenging Full Kang’s authority to issue the notice of the shareholders meeting dated 25 August 2017..however [PT Chen] clarified in [his 4^th affirmation] the specific legal grounds he relies upon are only those” which have to do with either (1) quorum (2) failure to give sufficient notice under S.462 of the Companies Ordinance (Cap.622).

21.  At paragraph 4 of that affirmation it was affirmed that:

“But after having taken further legal advice on the matter, I wish to state that the legal grounds I specifically rely on include:

(a) First, the General Meeting was inquorate. As the purported minutes of the 914 General Meeting show, only proxies representing one member, namely Full Kang Co Ltd, attended the meeting. This fell foul of the quorum requirement of 2 members under Article 6 of the [Company]’s Articles of Association…

(b) Second, as one of the purported resolution...was to remove me as director of [the Company] a special notice was required to be given to me pursuant to section 462..and at least 28 days notice for passing the same was required. However, as the relevant notice of the “914 General Meeting” shows ...only 20 days notice was given i.e 8 days short of the requirement.”

22.  In the light of this fine tuning (as Mr Lo suggests) or a change of position, as Mr Benjamin Lam who ably represented SK Chen suggests, the attraction of dealing first with the HCMP substantively therefore significantly increased. This clear indication also meant that it was more realistic for the matter to come on for substantive determination earlier.

23.  As a result of this development, while Mr Lam submitted that his primary position was for both proceedings to proceed by way of pleadings and that there should be no stay, he very fairly and properly accepted that given the indication regarding the limited scope of the HCMP, the idea of a short case management stay would be harder to resist.  He also submitted that notwithstanding he accepted that if the HCMP were determined against his client this would have a significant impact, he intimated this may not be the end of the matter.

24.  It seems to me that balancing the considerations as set out in Re Chime and in light of the indication given by Mr Lo’s client, the Court should exercise its case management powers to stay the HCA for a short period of time.

25.  I should further point out that while the “indication” is not one set out in the form of an undertaking to the Court, should there be any attempt to resile from it later I have no doubt that this would be reflected in consequences in terms of costs and in the exercise of other case management powers to make up for the lost time.

26.  It seems to me that upon the determination at the Substantive Argument of the HCMP, the Court will be in much a better position to case manage these proceedings and determine what would be the most cost effective and efficient case forward.

27.  Should there be any material change of circumstances SK Chen (and other interested parties) would obviously be at liberty to seek an uplift of this short stay.

DISPOSITION

28.  For these reasons, I will make the following directions:

(1)   In so far as the HCMP is concerned:

(a)   Leave be granted for the defendants to file evidence within 28 days from today;

(b)   Leave for PT Chen to file evidence 21 days thereafter;

(c)   No further evidence to be filed without leave of the court;

(d)   Leave to set down the matter immediately for substantive argument before a Judge with 1 day reserved, in consultation with counsel’s diaries if possible, not earlier than 1 October 2020 (“the Substantive Argument”);

(2)   The HCA be stayed pending the determination of the Substantive Argument or further Order of the Court; save that the HCA Defendants be at liberty to, if so advised to deal with such applications they see fit regarding their failure to comply with the Order of Master Chow dated 20 November 2019;

(3)   There be liberty to apply in both proceedings.