STUART JAMES BROMLEY AND ANOTHER v. CIC HIGHTIME RESOURCES LTD

HCMP 2623 /2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2623 OF 2005

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D E C I S I O N

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1.  I have three applications before me: an application to continue in a varied form an interlocutory injunction granted ex parte on 28 November 2005, an application to strike out certain parts of an affidavit on the ground that they are scandalous, irrelevant or otherwise oppressive, and an application for specific discovery and inspection under Order 24 rules 7 and 11A of the Rules of the High Court.  I propose to deal with them in the order mentioned.

2.  I will first set out the relevant background matters necessary to the understanding of the application for the interlocutory injunction.

3.  The company in question and the defendant herein, CIC Hightime Resources Limited (“CICH-HK”), is a Hong Kong company.  Its sole shareholder is CICH Resources Limited (“CICH”).  Before the events giving rise to the dispute, there were three directors in CICH-HK, they were Mark Bojanjac, Lee Cowan and Stuart Bromley, who is the 1^st plaintiff herein.

4.  CICH is a company registered in British Columbia, Canada.  50% of its shares is owned by Hawkeshead Investments Limited (“Hawkeshead”), a company formed in the United Kingdom and of which Robert Gardner is a shareholder.  The other 50% is owned by CIC Resources Limited (“CIC”), a Hong Kong company.  CIC is the 2^nd plaintiff herein, it is owned by Bromley.  Bromley was a director in CICH until he resigned in October 2005.  The other directors of CICH at the time before the events in dispute were Bojanjac and Rick Lu.

5.  CICH was formed in 2003 when Gardner and Bromley agreed to co-operate to prospect for gold in Gansu province, the People’s Republic of China (“the PRC”).  As a result, CICH-HK was formed in January 2004 and it became the wholly owned subsidiary of CICH.

6.  CICH-HK holds a 90% interest in two joint venture companies in the PRC, Gansu Long-Jin Mining Resources Company Limited (“Long-Jin JV”) and Gansu Long-Ao Mining Company Limited (“Long-Ao JV”).  Bromley was and is the chairman and legal representative of the two joint venture companies.  For present purpose, it is immaterial how he came to occupy the positions.

7.  In June 2005, Hawkeshead brought proceedings in British Columbia against Bromley, CIC and others regarding the affairs of CICH, claiming that they had wrongfully attempted to transfer to another entity assets in which CICH holds an interest, being 2 mining leases in the PRC and their conduct was unfairly prejudicial and oppressive to Hawkeshead.  Hawkeshead claims relief to prohibit any further dealings with the assets in question, to remove Bromley as a director of CICH, and damages.  Bromley and CIC filed a defence and counterclaim in that action, they counterclaim for damages against the companies in which Gardner holds an interest, and repayment of the debts owed to them by CICH-HK.  I shall refer to this litigation as “the BC Action”.

8.  It is material to note that on 7 December 2005, Bromley and CIC presented a petition in British Columbia naming as the respondents CICH, Hawkeshead and Bojanjac, claiming that the affairs of CICH were conducted in a manner unfairly prejudicial to them.  They seek, inter alia, declarations that the requisition of an extraordinary general meeting of CICH-HK for the purpose of removing Bromley as a director of CICH-HK is unfairly prejudicial (I will come back to this requisition) and that the requisition is invalid, and an order enjoining CICH from voting its share at the extraordinary general meeting of CICH-HK to be convened.  It is alleged in that petition there was an understanding and expectation between the parties of the type in Ebrahimi v Westborne Galleries [1973] AC 360, that Bromley would serve as the chairman and legal representative of the two joint venture companies and it would be wrong to seek to remove him as a director of CICH-HK and the chairman and legal representative of the two joint ventures in the extraordinary general meeting and the directors’ meeting of CICH-HK to be convened.  I shall refer to this petition as “the BC petition”.

9.  I resume the narrative of events in chronological order.  Hawkeshead applied to the court in the BC Action to remove Bromley as a director of CICH on 18 October 2005 and, as mentioned earlier, Bromley resigned as director on 19 October 2005.  On 3 November 2005, Mel Ashton was appointed a director of CICH.  So from that time, the directors of CICH are Bojanjac, Lu and Ashton.

10.  On 11 November 2005, the directors of CICH wrote unanimously to the board of CICH-HK requesting to convene an extraordinary general meeting to consider a resolution to remove Bromley as a director of CICH-HK.

11.  On 16 November 2005, the directors of CICH unanimously passed a number of resolutions to facilitate the removal of Bromley as a director of CICH-HK.  I will return to these resolutions.

12.  Also on 16 November 2005, Bojanjac on behalf of CICH requisitioned an extraordinary general meeting of CICH-HK to be held on 16 December 2005 in Perth, Australia to consider the removal of Bromley as a director of CICH-HK.

13.  On 22 November 2005, a notice was given to the directors of CICH-HK to hold a directors’ meeting in Perth, Australia on 29 November 2005 for the purpose of considering the said requisition for the extraordinary general meeting; the removal of Bromley as chairman and legal representative of Long-Jin JV and of Long-Ao JV and the appointment of Terry Moylan as his replacement; the return by Bromley of the official company chops of Long-Jin JV and Long-Ao JV and all corporate records of the two joint ventures and of CICH-HK; and the termination of all executive duties of Bromley as a director of CICH-HK.  This notice was signed by Ashton as a director of CICH-HK.  I shall refer to it as “the Notice”.  It is of crucial importance to these proceedings, and I will return to it.

14.  On 28 November 2005, Bromley and CIC applied ex parte before me and I granted an injunction until the return date of the inter partes summons to restrain the holding of the directors’ meeting of CICH-HK on 29 November 2005.  It is provided in the injunction that CICH-HK must not permit the holding of the directors’ meeting as set out in the Notice and that no further directors’ meeting is to be held unless or until all directors of CICH-HK for the time being have been given reasonable notice of the same and such notice has been duly signed by at least one current director and/or the company secretary if so requisitioned by such a director.

15.  On 28 November 2005, Bromley and CIC issued the originating summons in these proceedings against CICH-HK seeking the following orders:

(1)  CICH-HK is not to convene or hold any directors’ meeting without giving notice of the same to all directors of the company;

(2)  CICH-HK do cause any written notice of such meeting to be issued only by a director, the directors or the company secretary if requisitioned to do so by a director; and

(3)  CICH-HK is not to recognise the directors’ meeting purportedly held pursuant to the Notice.

They also seek a declaration that the Notice is invalid and of no effect.

16.  The application for the ex parte injunction was put on the basis that it is tolerably clear that the Notice to convene the directors’ meeting must be invalid for two reasons.  Firstly, the Notice was signed by Ashton who was not a director, the only directors were Bromley, Bojanjac and Cowan.  Secondly, the Notice was addressed to Bojanjac, Ashton and Bromley, so Cowan, who was a director, did not receive the Notice.

17.  From the evidence filed since the ex parte hearing on behalf of CICH-HK, it seems that Cowan is no longer a director.  There is no affidavit from Cowan, just a letter from him in which he stated that he had resigned with effect from 11 May 2005 and he gave written notice to the company secretary in July 2005 by fax and by post, he had also re-sent the notice to the company secretary on 26 November 2005.  On the side of Bromley, it was contended that Cowan gave notice to resign only on 26 November 2005 and hence his resignation should take effect on that date, which was after the Notice was sent.

18.  The resignation of Cowan seems to have suited the purpose of Bromley.  He has all along contended that Ashton is not a director of CICH-HK.  With the resignation of Cowan, that would leave him and Bojanjac as the only directors and the board would be in deadlock if Ashton is not allowed to act as a director.

19.  So Bromley sought a continuation of the ex parte injunction with an added term to provide that the only directors permitted to attend directors’ meetings, during the continuation of the interlocutory injunction, should be himself and Bojanjac.  Mr Carolan for Bromley clarified that the purpose of this injunction as varied is that in the interim period, CICH should be prevented from using the voting power of Ashton on the board of directors of CICH-HK to remove Bromley as the chairman and legal representative of the two joint ventures.

20.  The first question to consider in granting or refusing the interlocutory injunction is whether there is a serious question to be tried in that the Notice to convene the directors’ meeting issued by Ashton was invalid.  This turns on the issue if Ashton’s appointment as a director of CICH-HK is valid.  Mr Carolan says there are serious doubts about the validity of his appointment, so an interlocutory injunction should be granted to maintain the status quo until the dispute is resolved in the BC petition.  As he has put it, the injunction sought in Hong Kong is a form of ancillary relief to the BC petition.

21.  The facts relating to the Ashton appointment are as follows:

22.  By the resolutions of the directors of CICH on 16 November 2005, they unanimously resolved, inter alia, to adopt an ordinary resolution of CICH-HK to appoint Ashton as a director of CICH-HK with immediate effect until the next annual general meeting of CICH-HK or until he ceases to hold such office, whichever is earlier.  The directors’ resolutions exhibited bore the signatures of Bojanjac, Ashton and Lu.

23.  On 16 November 2005, CICH as the sole shareholder of CICH-HK in a written resolution made under section 116BC of Cap. 32 resolved that Ashton be appointed as a director of CICH-HK with immediate effect until the next annual general meeting or until he ceases to hold such office, whichever is earlier.  This resolution was signed by Bojanjac as a director on behalf of CICH in its capacity as sole shareholder.  Also on 16 November 2005, Ashton signed Form D3, which is a consent to act as director of CICH-HK, with effect from that date.

24.  On 17 November 2005, Bojanjac caused an e-mail to be sent to the company secretary of CICH-HK enclosing inter alia the resolution of CICH as the sole shareholder of CICH-HK dated 16 November 2005 and Ashton’s consent to act.

25.  Mr Carolan submitted that the steps taken as described above are deficient, he contended there is still no valid appointment of Ashton as a director of CICH-HK unless there is a board meeting of CICH-HK making the appointment or a written resolution signed by the majority of directors of CICH-HK (either of these methods would be impossible now with the resignation of Cowan), or the company in general meeting may by an ordinary resolution appoint a director.

26.  Mr Carolan contended that although article 25 of the articles of association provided that a resolution in writing signed by all shareholders shall be as valid and effectual as a resolution passed at a general meeting duly convened and held, it would not assist here because the only relevant power is under article 14 of the articles of association which requires a meeting for its exercise.  He also referred to section 116B(11) of Cap. 32.  I doubt if article 14 or section 116B(11) is relevant to this situation.

27.  Mr Manzoni for CICH-HK relied on regulation 99 of Table A, which had been adopted by CICH-HK.  This provided inter alia that the company in general meeting may appoint any person to be a director to fill a casual vacancy or as an additional director, without prejudice to the powers of the directors under regulation 97 to do so.  I am inclined to think that this reliance on regulation 99 may well be right.  CICH is the sole shareholder of CICH-HK, its directors had resolved unanimously on 16 November 2005, among other things, to adopt the ordinary resolution of CICH-HK to appoint Ashton as a director of CICH-HK.  The resolution to appoint Ashton would seem to me to be a valid resolution of CICH under section 116B(1) and article 25, whatever may be the applicability of section 116B(11) to the other resolutions to facilitate the removal of Bromley as a director.

28.  Section 116BC(1) envisages that section 116B(1) would apply to sole shareholder companies.  Mr Carolan contended that to comply with section 116BC(1) this must be a members’ resolution not a resolution of directors, so the directors’ resolution of CICH would not qualify, but there is still the written resolution of CICH as the sole member of CICH-HK.

29.  I am not persuaded that there is a serious question to be tried that the Notice served by Ashton to hold a directors’ meeting of CICH-HK is invalid or that the appointment of Ashton as a director of CICH-HK is invalid.  As for the fact that Cowan was not served with the Notice, I am also not persuaded that there is a serious question to be tried that his resignation had not taken effect before 22 November 2005.

30.  As for the new basis relied on for seeking the interlocutory injunction as a form of ancillary relief to the BC petition, it does not appear to me appropriate to apply to this court for this form of relief.  The effect of the interlocutory injunction is to restrain CICH from exercising its rights as the sole shareholder of CICH-HK in a way contrary to the alleged expectation and understanding, which is one of the core allegations in the BC petition.  The appropriate forum to raise this is in the court in British Columbia, where the real battle is fought.  CICH is not a defendant in this court.

31.  I decline to grant the interlocutory injunction sought for the above reasons.  There is no need, in my view, to go into the merits of removing Bromley as the chairman and legal representative of the two joint ventures.

32.  I turn to the strike out application.  The parts sought to be struck out by CICH-HK are in a draft petition to be presented to the court in British Columbia exhibited to Bromley’s first affidavit sworn on 3 December 2005.  The BC petition has since been filed on 7 December 2005.  The offending parts relate to certain allegations against the former Prime Minister of Australia, Bob Hawke, at a settlement discussion he had with Bromley in Singapore on 31 October 2005.  CICH-HK says that the entire BC petition is irrelevant to the Hong Kong action.  Bromley and CIC have contended otherwise.  I decline to exercise my discretion to strike out.  If any complaint is to be made to this part of the BC petition, it should be made to the court in which the petition was filed.

33.  The application of CICH-HK for specific discovery and inspection relates to documents concerning the transfer of assets allegedly belonging to CICH to another entity.  I agree with Mr Carolan that the application is premature.  I do not see the relevance of the documents sought to the action at the moment.  Mr Manzoni accepted that the discovery is unnecessary if the court is inclined to agree that the Notice convening the directors’ meeting is valid.  This action was commenced by originating summons, no pleadings have been filed as yet.  If the issue relating to the transfer of assets should become relevant if and when the pleadings are filed, discovery will be given in due course.  Besides, as this issue is raised in the BC action, CICH could seek discovery there.  I dismiss the application for specific discovery and inspection.

34.  I turn to the other directions sought in the summons filed by Bromley and CIC on 30 December 2005, to provide for directions for the further conduct of these proceedings.  I understand from Mr Manzoni he has no objection to the directions sought, without prejudice to any application CICH-HK may bring to stay the proceedings on any jurisdictional basis.  I therefore grant an order in terms of paragraphs 3, 4, and 5 of that summons.

35.  Having heard submissions on costs, I am not persuaded it is appropriate to exercise my discretion to order costs to be paid to CICH-HK forthwith in relation to the unsuccessful application for interlocutory injunction.  These are the orders I make on costs in respect of each of the applications.

36.  For the summons issued by Bromley and CIC for continuation of the interlocutory injunction and directions for the further conduct of the proceedings, I order the plaintiffs to pay the costs of CICH-HK in any event.  These costs would also include the costs of the hearing before me on 8 December 2005, which I have reserved.

37.  On the applications of CICH-HK for striking out and specific discovery, I see no reason why I should depart from the usual rule that the unsuccessful party should pay the costs of the successful party.  I order CICH-HK to pay the costs of the plaintiffs in these applications in any event.