KWOK HIU KWAN v. JOHNNY CHEN AND OTHERS

CACV 202/2019

[2021] HKCA 1145

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 202 OF 2019

(ON APPEAL FROM HCMP NO 41 OF 2018)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  This is an application for leave to appeal to the Court of Final Appeal. The question said to be of great general or public importance is stated in §10 of the Notice of Motion filed by the plaintiff on 22 December 2020. In gist, the question is whether Article 74 of the articles of association of a listed company incorporated in the Cayman Islands (as properly construed) is subject to a limitation or implied term mirroring the Wednesbury rationality test, such that the decision of the chairman of a general meeting on an objection raised to the qualification of any voter may be challenged in court on the ground that it was manifestly wrong or Wednesbury unreasonable, notwithstanding a provision in the article that the chairman’s decision on such matter shall be “final and conclusive”.

2.  In two decisions of Harris J^[1], he held against the plaintiff that the article should be construed in the manner as stated above.  He ruled that the article should not be read as subject to the limitation or implied term and that the chairman’s decision can only be overturned if it was made in bad faith.  We upheld the judge on the proper construction of the article and rejected the plaintiff’s contention on implied term^[2].

3.  We decide to exercise our discretion to grant leave to appeal to the Court of Final Appeal on the question in the Notice of Motion.  Our reasons are as follows.

4.  The arguments proposed to be advanced for the plaintiff in the intended appeal are stated in §8 of the Notice of Motion.  They are in essence the arguments made to the judge and this court and rejected for the reasons given in the three judgments.  It does not appear to us the citation of further authorities would make any material difference.  That said, we do not think it could be said that the plaintiff’s contentions are not reasonably arguable, despite the arguments of the 1^st defendant to the contrary.  In deciding that the court will only set aside the chairman’s decision under Article 74 for fraud or bad faith, we have followed the approach of the English courts.  A different approach has been adopted in a number of Australian and New Zealand authorities.  The position was encapsulated in a passage in Company Meetings and Resolutions by Kosmin and Roberts (3^rd ed) at §9.85 quoted by Harris J^[3]:

“The authorities that are discussed above from Australia and New Zealand^[4] do appear to provide a sensible and reasoned approach to the problem, justifying the intervention of the court when a strict and literal application of the articles would lead to the chairman’s erroneous decision being upheld, perhaps to the acute disadvantage of the shareholders and the denial of their legal and statutory rights. However, in view of the current trend in English law favouring methods of alternative dispute resolution which restrict access to the courts, it may be doubtful that these authorities, although persuasive on their reasoning, would be followed by an English court. It is suggested that the court in England following the precedent set by the Wall cases^[5], is likely to rule that the chairman’s decision on the validity of votes, when taken in good faith and at the correct time, is final and binding. Accordingly, it remains the position that an English court will require cogent evidence of fraud or bad faith before it will be prepared to set aside the chairman’s ruling.”

5.  We recognise that the articles of association of the company are governed by Cayman law and that a decision on foreign law is not a binding precedent as foreign law is a fact that can be disputed anew in each case.  Nevertheless, a determination on foreign law may give rise to a rebuttable presumption if the requirements in section 59(2) of the Evidence Ordinance, Cap 8 are satisfied, and a decision of the Court of Final Appeal is plainly highly persuasive.

6.  We note also as of 2019, of a total of 2071 listed companies in Hong Kong, 1,084 were incorporated in the Cayman Islands^[6]. According to the searches of the plaintiff’s solicitors, as at 23 December 2020 of the listed companies in Hong Kong incorporated in the Cayman Islands, 766 have clauses in their articles of association identical to Article 74 and 708 have similar clauses.

7.  Given the prevalence of clauses identical or similar to Article 74, we are satisfied that the determination of the question in the intended appeal would have wide impact on corporate governance of Cayman companies as well as companies in other common law jurisdictions.

8.  It is therefore appropriate to grant leave to appeal in this instance and we so order.  We make an order nisi that costs of this application are to be in the cause of the appeal.