POON KA MAN JASON v. CHENG WAI TAO AND OTHERS

CAMP 95/2022, CAMP 99/2022, CAMP 114/2022 &
CACV 55/2023, CACV 56/2023, CACV 61/2023

[2023] HKCA 676

(Heard together)

On Appeal From [2019] HKCFI 1141

CAMP 95, 99 & 114/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 95, 99 AND 114 OF 2022

(ON INTENDED APPEAL FROM HCA NO 304 OF 2011)

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CACV 55, 56 & 61/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 55, 56 AND 61 OF 2023

(ON APPEAL FROM HCA NO 304 OF 2011)

____________

____________

(Heard Together)

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J U D G M E N T

_________________

Hon G Lam JA (giving the Judgment of the Court):

I. Introduction

1.  The underlying proceedings are a common law derivative action (“Action”) brought by the plaintiff, Mr Poon Ka Man Jason (“Jason”), for the benefit of Smart Wave Ltd, the 2^nd defendant (“Company”), against the 1^st defendant, Mr Cheng Wai Tao (known as “Ricky”), in relation to Ricky’s conduct in setting up a number of restaurants each held by one of the companies joined in the Action as the 3^rd to 31^st defendants (“D3” to “D31”).

2.  In the Action, Jason obtained on behalf of the Company an order for an account of profits made by Ricky and D3–D31. Whilst the account had yet to be taken, Ricky paid $40 million into court as a sanctioned payment, and sold most of his shares in the Company to two other shareholders. The transfer of shares to those two shareholders was entered in the register of members, with approval from Ricky as the sole director. The question of whether to accept the sanctioned payment was considered by the Company at a subsequent general meeting. If the shares acquired by those two shareholders were counted, the majority’s decision was to accept the sanctioned payment; if those shares were excluded, the result was the opposite.

3.  A summons was then issued in the name of the Company for leave of the court for the sanctioned payment to be accepted and for the money to be paid out to the Company in full and final settlement of the claim. In his judgment dated 18 April 2019 (“Judgment”),[1] Coleman J, after hearing oral evidence, dismissed the summons, essentially on the grounds that (i) there was no jurisdiction for the court to permit the Company (as opposed to Jason as the plaintiff) to accept the payment; and (ii) the transfer of shares by Ricky to the two shareholders should not be recognised for voting at the meeting.

4.  Having failed to obtain leave to appeal from the judge, the defendants renewed their application for leave to appeal in this court, contending that the two grounds on which the judge founded his decision are incorrect. At the end of the rolled-up hearing, we granted the defendants leave to appeal and reserved our judgment on the appeals. This is our judgment.

II.  Background

5.  Since around 1996, Jason, his sister Daisy (“Daisy”), Ricky and a Japanese gentleman called Shigemitsu Katsuaki (“Shigemitsu”), who was the Chairman of the Ajisen group in Japan, had been shareholders in a group of companies that ran a business of Japanese noodle restaurants in Hong Kong under the trade name “Ajisen Ramen”. In 2004, the shareholders of the Ajisen group in Hong Kong decided to expand into the sushi restaurant business. The Company was set up in 2004 and was the first to operate a sushi restaurant under the name “Itamae” (板前). Apart from the four individuals mentioned above, five others were brought in as shareholders of the Company at the outset, namely: Mak Kin Shing (“Mak”) and Wong Yui To (“Wong”), both of whom had been colleagues of Ricky in a Japanese restaurant in 1987 and had subsequently worked in the Ajisen group from 1997 onwards; Sato Akira (“Sato”) and Teraguchi Tadayoshi (“Teraguchi”), both of whom were Japanese food suppliers; and Kong Yiu Wai (“Kong”), a kitchenware supplier in Hong Kong.

6.  Subsequently, Ricky set up D3 to D10 each of which operated a sushi restaurant or connected business under the same name of “Itamae”, and also D11 to D31 each of which operated a sushi restaurant or connected business under the name “Itacho” (板長). Ricky was the sole beneficial owner of D3–D31. Disputes arose between Ricky and Jason and Daisy in relation to the interests in these businesses, which eventually led to the Action being commenced by Jason on behalf of the Company in 2011.

7.  At that time, and up to 3 August 2017, the shares in the Company were held as follows (with Shigemitsu having transferred his 15% shareholding to Ricky in 2007):

Name	Number of shares	Percentage
Jason	1,000	10%
Daisy	2,400	24%
Ricky	3,800	38%
Kong	1,000	10%
Mak	800	8%
Wong	200	2%
Sato	400	4%
Teraguchi	400	4%
Total	10,000	100%

8.  The Action went to trial in 2013. The trial judge held that Ricky had breached his fiduciary duties as a director of the Company by operating the Itacho restaurants, but the claim in connection with the Itamae restaurants was dismissed.[2] The Court of Appeal allowed Jason’s appeal, holding that Ricky’s operation of both the Itacho and Itamae restaurants constituted breaches of his fiduciary duties and that Jason was entitled, on behalf of the Company, to elect between (i) an account of profits up to 2010 (when the Company ceased to operate its restaurant) made by Ricky and D3–D31 as a result of his breaches of fiduciary duties, and (ii) damages or equitable compensation up to 2010.[3] That decision was upheld, on further appeal, by the Court of Final Appeal on 1 April 2016.[4]

9.  On 27 April 2016, Jason elected an account of profits on behalf of the Company. In June 2016, directions were given for evidence to be filed and discovery to be given for the taking of the account. In August 2016, Ricky and D3–D31 filed evidence and a list of documents for the account. In November 2016, Jason filed a notice setting out his objections to the various amounts mentioned in Ricky and D3–D31’s account. It is clear from these documents that the parties’ positions as regards the accountable profits were very wide apart and that further substantial litigation was likely to be required to resolve their differences.

10.  On 25 April 2017, Ricky and D3–D31 filed a Notice of Sanctioned Payment, stating that they had paid $40 million into court in settlement of the whole claim. That notice followed Form No. 23 in Appendix A to the Rules of the High Court (Cap 4A) and was addressed to the plaintiff’s solicitors, T H Koo & Associates.

11.  On 16 May 2017, the court gave further directions for the taking of the account, including the appointment of an assessor and the provision of access to the relevant books and records. On 25 May 2017, Ricky and D3–D31 filed a further list of documents for the account. By then, the 28 days prescribed for accepting the sanctioned payment without leave of the court had expired.[5]

12.  On 20 June 2017, Jason made a request to the board of the Company (consisting only of Ricky) to convene an extraordinary general meeting (“EGM”) for the purpose of considering two proposed resolutions as follows:

“ 1. To consider and accept/reject the Sanctioned Payment made by the 1^st and 3^rd to 31^st Defendants in HCA 304/2011 as set out in the Notice of Sanctioned Payment filed therein on 25 April 2017.

2. To authorise Poon Ka Man Jason (‘Jason’) to indemnify himself out of the assets of the Company, or alternatively to make an application to the Court authorising him to indemnify himself out of the assets of the Company for:

(a) the shortfall of all the costs of and incurred by him in pursuing HCA 304/2011 and the subsequent appeals in CACV 135/2013, FAMV 22/2015 and FACV 17/2015 to the extent that the same cannot be recovered by Jason from the 1^st and 3^rd to 31^st Defendants; and

(b) all the costs of and incurred by Jason in pursuing the account of profits ordered by the Court of Appeal on 21 January 2015 and affirmed by the Court of Final Appeal on 1 April 2016.”

13.  On 4 July 2017, the Company responded to Jason, agreeing to convene an EGM. In relation to the proposed Resolution 2, the Company accepted that Jason was entitled to be indemnified against all costs reasonably incurred by him and awarded in his favour taxed on a common fund basis that were not recovered by Jason from the defendants ordered to pay his costs. It was stated, however, that should the ultimate award after taking the account fail to beat the sanctioned payment, the Company would not indemnify him against the costs consequences of the refusal to accept the sanctioned payment.

14.  At around the same time, according to Mak, he and Wong considered the settlement sum acceptable but were worried that the remaining shareholders would be outvoted by Jason and Daisy (it being common ground that Ricky would be ineligible to vote on whether or not to accept the sanctioned payment) and that the resolutions would give Jason a carte blanche to continue the proceedings, which would probably go on for a further lengthy and indefinite period of time with substantial costs being incurred which could eat up the assets of the Company. Mak and Wong therefore contacted Kong and also tried to get in touch, through Shigemitsu, with Sato and Teraguchi, to ascertain their position. Mak and Wong also approached Ricky in early July 2017 with the idea of purchasing his shares in the Company so that they could vote those shares at the EGM.

15.  On 7 July 2017, Mak sent a letter to the Company to propose an additional resolution for the EGM as follows:

“ 3. That this Company shall indemnify Mr Poon Ka Man Jason the difference between (1) the amount of the cost and disbursements in respect of HCA 304 of 2011 and any appeal therefrom paid by the said Poon Ka Man Jason to be taxed on common fund basis and (2) the amount recovered by the said Poon Ka Man Jason from the 1^st and 3^rd to 31^st Defendants in respect of the aforesaid action:

Provided that nothing herein shall require the Company to pay the said Poon Ka Man Jason any amount which the said Poon Ka Man Jason is ordered by the Court to pay to the 1^st and 3^rd to 31^st Defendants or any of them in HCA 304 of 2011 or to the Company as a result of the said Poon Ka Man Jason’s failure to accept any sanctioned offer made by the 1^st and 3^rd to 31^st Defendants or as a result of the said Poon Ka Man Jason’s voting in Resolution #1 herein in such a way that in consequence of which this Company will have resolved not to accept the sanctioned offer made by the 1^st and 3^rd to 31^st Defendants.”

16.  On 11 July 2017, the Company’s secretary issued a notice of the EGM, to be held on 8 August 2017, for the purpose of considering and, if thought fit, passing Resolution 1 (which had been amended to read “That to accept the Sanctioned Payment …”) and Resolution 2, as proposed by Jason, and Resolution 3, as proposed by Mak.

17.  According to Mak, he and Wong offered to buy Ricky’s shares at $4,500 each in July 2017 but Ricky was on an overseas trip then and only said he would revert to them. The judge accepted Ricky’s evidence that he was originally not keen about selling his shares, as he regarded the Company as his “baby”, but that everything changed when, shortly after the trip, he was diagnosed with advanced-stage pancreatic cancer on 24 July 2017 and immediately admitted into hospital, resulting in a strong desire on his part to bring the litigation to an end.[6]

18.  Accordingly, out of his 3,800 shares in the Company, Ricky agreed to sell 1,999 shares to Mak and 1,800 shares to Wong, leaving himself with only one share. He also agreed for the sale to be at a discount, for Mak and Wong to have the profit derived as a gift in appreciation for their long services to his business. He told them about his illness, but asked them to keep it confidential. The transaction was done in some haste, with the documents (bought and sold notes and instruments of transfer) being signed at Ricky’s hospital on 3 August 2017 and stamped on the next day. At the price of $4,500 per share, Mak had to pay $8,995,500 and Wong $8,100,000, which was to be paid by instalments. Mak and Wong obtained a loan from a finance company on the security of their shares in the Company for the purpose of paying the first instalment. We shall refer to the transfers of these 3,799 shares to Mak and Wong respectively as the “Share Transfers”.

19.  At the same time, Sato transferred his 400 shares to Mak and Shigemitsu, 200 shares each. This came about as follows. When Mak tried to contact Sato and Teraguchi through Shigemitsu to seek to secure their support for accepting the sanctioned payment, Shigemitsu told him that Sato was in deep financial trouble and wanted to liquidate his shareholding at the same price of $4,500 per share. Mak then persuaded Shigemitsu to assist by buying Sato’s shares together with him, thinking that Shigemitsu could help if necessary in the plan to accept the sanctioned payment. The documents for these share transfers were also signed on 3 August 2017. We shall refer to them as the “Sato Transfers”.

20.  On 3 August 2017, solicitors for Ricky and D3–D31 wrote to the other parties stating that their clients agreed to extend the time for acceptance of the sanctioned payment to 15 August 2017 and also agreed that the plaintiff would be entitled to the costs of the proceedings up to 15 August 2017.

21.  Ricky was at the material time the sole director of the Company. In that capacity he passed a written resolution dated 4 August 2017 that these transfers of shares be approved and that the details be entered in the register of members of the Company. Entries were made in the register accordingly. Taking into account these transfers, the shareholdings were as follows:

Name	Number of shares	Percentage
Jason	1,000	10%
Daisy	2,400	24%
Ricky	1	0.01%
Kong	1,000	10%
Mak	2,999	29.99%
Wong	2,000	20%
Shigemitsu	200	2%
Teraguchi	400	4%
Total	10,000	100%

22.  At the EGM on 8 August 2017, two solicitors attended as proxies for Jason and Daisy respectively; Mak, Wong and Teraguchi attended in person, and Mak also held proxies from Kong and Shigemitsu. Ricky did not attend or vote. When the Share Transfers and Sato Transfers were revealed at the meeting, there was a dispute as to whether the 3,799 shares transferred by Ricky to Mak and Wong could be voted by them. On the basis that those shares were counted, Resolutions 1 and 3 were passed and Resolution 2 was defeated. If those shares were not counted, the result would be the opposite.

III.  The proceedings and findings below

23.  On the back of those resolutions, a summons was issued on 18 September 2017 by solicitors acting for the Company (“Summons”), seeking an order that (1) leave be granted to the Company to accept the sanctioned payment in full and final settlement of the plaintiff’s claim; (2) alternatively, leave be granted to the plaintiff to accept the sanctioned payment in full and final settlement of the plaintiff’s claim; (3) leave be granted for the sum of $40 million be paid out to the Company in full and final settlement of the plaintiff’s claim.

24.  By order dated 8 February 2018, on their application, Mak and Wong were joined respectively as D32 and D33 in the Action, solely for the purpose of supporting the Summons.

25.  Jason opposed the Summons. He was, not surprisingly given the history of his hostile litigation with Ricky, deeply suspicious of the bona fides of the Share Transfers. By affirmations and submissions he advanced a raft of grounds for impugning the Share Transfers, which may be broadly summarised as follows:

(1)  The Rules of the High Court do not allow the Company, a defendant, to accept the sanctioned payment whether under Order 22 or otherwise.

(2)  The other shareholders, or at least Mak, Wong and Teraguchi, were Ricky’s nominees or close business associates and perpetuated the “wrongdoer’s control” at the EGM, so that their votes should not be counted.

(3)  The Share Transfers were a sham deployed by Ricky to circumvent his inability to vote his shares in the EGM.

(4)  The sanctioned payment was grossly inadequate.

(5)  Mak’s and Wong’s votes were officiated because they had entered into a private bargain with Ricky through the Share Transfers and made substantial profits for themselves. As such, their interests in, and their votes cast on, those shares could not bind the other shareholders.

(6)  The majority shareholders who passed Resolution 1 (namely, Mak, Wong, Teraguchi, Kong and Shigemitsu) only wanted to support Ricky by putting an end to the litigation and they failed to act bona fide in the interests of the shareholders as a whole.

(7)  Ricky abused his power as sole director in approving the Share Transfers for registration for his own benefit.

26.  For the determination of the Summons, Coleman J heard oral evidence from Ricky, Mak, Wong, Kong, Shigemitsu and Teraguchi. Two camps, i.e. Ricky and D3–D31, and Mak and Wong, appeared by counsel in support of the Summons, while Jason opposed it.

27.  At the end of the 4-day trial, on 18 April 2019, the judge gave his Judgment ex tempore, identifying the following matters as the issues requiring determination, which corresponded to Jason’s grounds of opposition: (1) the jurisdictional question of whether the Company could accept the sanctioned payment under Order 22 of the Rules of the High Court; (2) whether Mak and Wong and others were Ricky’s nominees and/or close associates; (3) whether the Share Transfers were a sham; (4) the adequacy or sufficiency of the sanctioned payment; (5) whether the nature of the private agreement between Ricky and Mak and Wong meant that Mak and Wong could not bind the other shareholders; (6) whether the votes of the majority who passed Resolution 1 were invalid through those voters’ lack of bona fides; and (7) whether Ricky’s “approval” of the Share Transfers as the sole director of the Company was valid.

28.  Although the judge did not accept each and every aspect of the defendants’ evidence, he made a number of findings favourable to them, rejecting the contrary allegations made by Jason. Thus, first, the judge rejected Jason’s contention that Mak and Wong were Ricky’s nominees in holding the shares originally allotted to them in the Company or in relation to the Share Transfers. His Lordship held that they were genuine shareholders, and that none of the other shareholders (Kong, Teraguchi and Shigemitsu) was to be regarded as nominees of Ricky. He accepted the evidence that Mak and Wong were, like those others, allotted their shareholdings in the Company at the beginning because of what they were expected to bring to the Company. He accepted that as trusted working colleagues, they were close associates of Ricky and owed him some loyalty, but he did not see anything necessarily nefarious in their tendency to support Ricky. The judge considered that it could not properly be said that Ricky’s “control” as sole director extended to the shareholders in general meeting simply because of the relationships between him and other shareholders.[7]

29.  Secondly, the judge held that the Share Transfers were not sham transactions. Jason had asserted that there was no apparent reason for Ricky to sell his shares, that neither Mak nor Wong could have afforded the price, that the sale was at a substantial discount with unusually attractive payment terms, and that the lender financing Mak and Wong in their purchase was a company owned and controlled by a friend of Ricky. But the judge rejected Jason’s contention that the Share Transfers were shams and that Mak and Wong were merely Ricky’s puppets in pretending to acquire the shares. Instead, the judge held that they were persons well able to exercise their own will on the basis of their own opinions, and that the shares were “genuinely transferred” from Ricky to Mak and Wong. Although Ricky regarded the Company as his “baby” and was reluctant to sell his shares, he was eventually willing to do so because of his serious, life-threatening illness and the consequent strong desire to bring the litigation to an end.[8]

30.  Thirdly, as regards Jason’s allegation that the amount of the sanctioned payment was grossly inadequate, the judge did not think it necessary for the purpose of determining the Summons to decide whether the amount was sufficient or not. He took the audited accounts of D3–D31 showing a profit of around $125 million over the relevant period as the starting point. He noted that there were five deductions that, according to Ricky, needed to be made, which, as summarised by the judge, comprised: (1) trademark/image rights usage fee (adjusted to cut-off and without factory/other business), calculated at 6% of turnover, in the amount of $66,641,921; (2) Ricky’s management remuneration of $14,416,112; (3) Ricky’s services on the setting up of the restaurants of $12,326,332; (4) year-end bonuses paid to staff of $8,150,994; (5) theft loss of $34,100,543; together totalling $135,635,902. If these deductions were accepted, there would be a net loss of $10 million instead of a profit. Jason contended that these deductions had been manufactured by Ricky for the purpose of avoiding the liability to account for profits. The judge thought that Jason “might be more suspicious than is ultimately warranted” and there seemed to be “some force in the criticism of at least some of Jason’s objections”, but also that the court was entitled to bring some “healthy scepticism” to bear on the explanations offered by Ricky.[9] The judge concluded:

“ So there is room to think that the Court may not ultimately accept Ricky’s case on the account, and may give a higher figure than that argued for by him. That higher figure may be, but only may be, considerably so.”

31.  This is further elucidated by what the judge said in other sections of the Judgment. Thus, the judge said:

“ there was at least a significant risk (including just the litigation risk) that [Ricky] would be required to account for a figure rather in excess of HK$40 million. Indeed, there must be a real risk that the figure is inadequate, perhaps significantly so”[10]

32.  But the judge also thought that the litigated result could turn out to be lower than $40 million, saying:

“ as must in any event be obvious, it is at least possible that the dollar figure for which Ricky and D3–D31 might be required to account after a trial of the account would end up lower than HK$40 million”.[11]

33.  Fourthly, the judge did not consider that the nature of the private agreement between Ricky and Mak and Wong meant that they could not bind the other shareholders.[12]

34.  Fifthly, the judge concluded that the votes of the majority at the EGM could not be impugned for lack of bona fides.[13] The judge observed from the oral evidence that Mak, Wong, Shigemitsu and Teraguchi were all persons well able to exercise their own will on the basis of opinions formed by themselves.[14] The judge also accepted their individual explanations for voting as they did,[15] which may be broadly summarised as follows:

(1)  Mak and Wong voted in favour of accepting the sanctioned payment because, inter alia, they wished to take the return from their shareholdings, to take the additional reward flowing from the 3,799 shares acquired from Ricky, and to have the assets of the Company distributed to shareholders without waiting indefinitely for the conclusion of the litigation which was in any event inherently uncertain. They considered the settlement sum ($40 million) acceptable which together with the existing cash of $20 million in the Company would give them a profit. They were also concerned that the resolutions proposed by Jason would give him a carte blanche in spending the Company’s assets in legal costs in the continued litigation with Ricky, which meant there would be a high chance that the proceedings would continue for another lengthy and indefinite period of time and that the costs would eat up the assets of the Company.

(2)  Shigemitsu believed the Company should accept the sanctioned payment as it was a fair amount for settling Ricky’s liability to the Company. His decision was based not so much on obtaining a return for himself, but rather that as a friend and long-time business partner of both Ricky and Jason/Daisy, he considered that the protracted dispute between them should come to an end as soon as possible, particularly having regard to the serious medical condition Ricky was suffering. He also considered that the shareholders should be able to obtain the return from their investment without further undue delay.

(3)  Kong believed the Company should accept the sanctioned payment which was a fair amount for settling Ricky’s liability. He was not so much concerned with how the settlement sum was arrived at, as how to obtain and make good use of his share of the assets of the Company as soon as possible. He was tired of waiting for the conclusion of the protracted litigation between Ricky and Jason/Daisy.

(4)  Teraguchi explained that the main reason for his vote to accept the sanctioned payment was that he believed the amount was adequate, and he could receive a fair return from his shareholding without further delay, especially because of his advanced age and poor health condition. He rejected the suggestion that he was a nominee or puppet of Ricky, and stressed that he voted of his own free will and in his own interest.

35.  The judge noted that shareholders do not owe any fiduciary duty to the company and are, in general, free to vote their shares in the way they wish, subject to limited exceptions including that the majority may not practise a fraud or oppression on the minority. He noted that in Sunlink International Holdings Ltd v Wong Shu Wing [2010] 5 HKLRD 653 Harris J held that the court will intervene to prevent a shareholder voting in a way which will result in the destruction of the economic value of other shareholders’ shares for no rational reason. Taking into account that the Company was no longer trading and had had no business operation since 2010, the judge stated:

“ I reject Ms Chan’s submission that the voting [was] not rational because those voting to accept the sanctioned payment had not looked at the relevant materials in the account, but had merely relied upon what Ricky told them, or ignored the question altogether. I also reject the idea that there was ‘no downside’ in rejecting the sanctioned payment. Whilst there might not be downside relating to the cost of continuing the action for the account, clearly there is no guarantee that the amount of the sanctioned payment is the bottom line of recovery. As at least Mak and Teraguchi said in evidence, and as must in any event be obvious, it is at least possible that the dollar figure for which Ricky and D3-D31 might be required to account after a trial of the account would end up lower than HK$40 million.”[16]

36.  At the end the judge concluded that the explanations given by Mak, Wong, Shigemitsu, Kong and Teraguchi were neither irrational nor a fraud on the minority, but rather “perfectly comprehensible individual differences in points of view”, noting that it was “wholly understandable that shareholders might prefer a ‘bird in the hand over two in the bush’.” The judge also rejected any suggestion that the fact that those shareholders voted in accordance with the rationale explained could properly be described as vitiating the decision-making process as being directed to an improper purpose.[17]

37.  On the basis of the above findings, Mak, Wong, Shigemitsu, Kong and Teraguchi were, in Mak’s words, “innocent passers-by caught in the cross fire” between Ricky and the Poons, each wanting, for legitimate and permissible reasons, an early exit through acceptance of the sanctioned payment.

38.  Having ruled in favour of the defendants in the above aspects, however, the judge dismissed the Summons on two grounds which may be summarised as follows:

(1)  There is no jurisdiction under the Rules of the High Court for the court to give leave to the Company – a defendant rather than the plaintiff in the Action – to accept the sanctioned payment.[18]

(2)  Ricky was placed in a conflict between his own interests and his duty to act in the interests of the Company when he as director approved the Share Transfers for registration. The shares had not therefore validly been transferred to them as at the date of the EGM and their votes ought not to have been counted for the purposes of voting on the resolutions.[19]

IV.  The appeals

39.  Following the Judgment, Ricky and D3–D31 as well as Mak and Wong applied to the judge for leave to appeal. The Company also applied for leave to appeal, even though it had not appeared before the judge. Unfortunately, due to an administrative error, these applications lodged in 2019 did not come to the attention of the judge, and none of the parties made any enquiry with the court, until the papers eventually “resurfaced” in around October 2021. Following some correspondence, the judge determined the applications on paper, dismissing each of them, in his ruling given on 18 March 2022.[20]

40.  Ricky and D3–D31, Mak and Wong, and the Company then applied to this court for leave to appeal. Directions were given for a rolled-up hearing of the applications for leave and, if leave be granted, the appeals themselves. The two points relied on by the judge in dismissing the Summons are attacked by all three camps of defendants. We shall discuss the submissions made on their behalf without distinction between the three camps unless it is necessary to do so. For his part, Jason seeks to uphold the Judgment on the basis of the judge’s reasons. He does not challenge any of the judge’s findings in favour of the defendants mentioned above; nor does he contend that the Summons should be dismissed on any alternative or additional ground. As mentioned above, at the hearing we granted leave to appeal.

41.  We shall deal first with the validity of the Share Transfers, before turning to the question of the jurisdiction to direct payment out.

V.  The Share Transfers

(1)  Views of the independent shareholders

42.  Before dealing with the validity of the Share Transfers, it is convenient to put the EGM in its proper context. The shareholder plaintiff’s control of a common law derivative action brought by him on behalf of the company is not absolute. Inasmuch as the derivative action has been devised to enable proceedings to be brought by a shareholder for the company where the wrongdoer is in control of the company, its pursuit is subject to the decisions of an “appropriate independent organ” of the company if one is available: see e.g. Smith v Croft (No. 2) [1988] 1 Ch 114, 185B-E.

43.  Thus where there is an appropriate independent organ in the form of a body of independent shareholders, in an appropriate case the court can adjourn the proceedings in a derivative action in order to ascertain whether the independent shareholders consider that it is in the interests of the company to pursue the claim: Waddington Ltd v Chan Chun Hoo (2008) 11 HKCFAR 370 at §53; Prudential Assurance Co Ltd v Newman Industries Ltd (No. 2) [1982] 1 Ch 204, 222A-B.

44.  In particular, where a shareholder plaintiff has pursued a derivative action on behalf of the company and obtained, as in this case, a judgment on liability leaving outstanding an assessment of the monetary relief, a majority of the independent shareholders may (i) leave the plaintiff to continue to pursue the quantum stage of the action, or (ii) decide to bring the proceedings to an end, or (iii) procure the company to carry on the next stage by itself. These three options were set out and explained in the English Court of Appeal’s judgment in Prudential at p 220, as follows:

“ [After the court found Newman, the company, was entitled as against Mr. Bartlett and Mr. Laughton to damages for conspiracy and breach of fiduciary duty and directed an inquiry as to damages subject to a stay in case of an appeal], Newman had three choices, subject to the operation of the stay. First, it might do nothing. In this case the plaintiffs would be entitled, if they so desired, to issue a summons to proceed with the inquiry. Secondly, Newman might decide for some proper reason, assuming that a proper reason might exist, and duly resolve at a proper board or general meeting, to proceed no further with the claim against Mr. Bartlett and Mr. Laughton. In this event, assuming that the resolution of the board or of the company in general meeting was in all respects proper, the plaintiffs would be unable to proceed with the inquiry because a valid release could be pleaded by Mr. Bartlett and Mr. Laughton. Thirdly, Newman might adopt the order which the plaintiffs had obtained on its behalf and pursue the inquiry accordingly. This would occasion no procedural problem nor even any special procedural step. Any party, plaintiff or defendant, can issue a summons to proceed upon an order. It would not be necessary for Newman to apply to be made a plaintiff, or to start a fresh action and rely upon the principle of res judicata, as was suggested at one time in the course of the argument. The order has been made. Newman is a party to the action. Newman can enforce the order. If this course were adopted, the rule in Foss v. Harbottle is irrelevant. The rule has no room to operate where the company itself is proceeding with an action, or to enforce a judgment, pursuant to a valid board or company resolution.”

45.  These principles are not in dispute. The judge set out two questions that arose in their application to the present case: whether (1) the Company had decided for some proper reason, and (2) had duly resolved at a proper general meeting, to accept the sanctioned payment and thus proceed no further with the claim to an account.[21] On the former question, as explained above, the judge concluded that the reasons of Mak and Wong, Shigemitsu, Teraguchi and Kong could not be impugned (see §§34-36 above).

46.  The latter question turned on whether Mak and Wong were entitled at the EGM to vote the shares newly acquired by them. There is apparently no dispute that Mak and Shigemitsu were entitled to vote the shares they acquired from Sato. But since those shares alone would not affect the outcome of the EGM, the focus has been on the Share Transfers.

(2)  The right of transfer and the power to refuse registration

47.  The question depends on whether Mak and Wong were members of the Company in respect of those shares, since every member has one vote for each share of which he is the holder.[22] On the judge’s findings, the sale of the relevant shares by Ricky to Mak and Wong were not a sham. The requisite documents were duly executed and stamped. To become members in respect of those shares, however, Mak and Wong had to be entered as members in relation to those shares in the register of members. Thus section 112(3) of the Companies Ordinance (Cap 622) provides:

“ (3) Any other person [i.e. other than a founder member] who agrees to become a member of a company and whose name is entered, as a member, in the company’s register of members is a member of the company.”

48.  Shares in a company are of course private property which is prima facie freely transferable, though there will be restrictions on the transfer of shares in a private company. Thus, as with many private companies, art. 7 of the articles of association of the Company confers a discretionary power on the directors to refuse to register a transfer of shares. It provides:

“ The Directors may in their absolute discretion and without assigning any reason therefor, refuse to register a transfer of any share. If the Directors refuse to register a transfer they shall within two months after the date on which the transfer was lodged with the Company, sent to the transferee notice of the refusal as required by Section 69 of the Ordinance.”

49.  Section 69 referred to in art. 7 is the provision in the previous Companies Ordinance (Cap 32), which has been replaced by section 151 of the Companies Ordinance (Cap 622) which regulates the registration of transfer and refusal of registration as follows:

“ (1) The transferee or transferor of shares in a company may lodge the transfer with the company.

(2) Within 2 months after the transfer is lodged, the company must either—

(a) register the transfer; or

(b) send the transferee and the transferor notice of refusal to register the transfer.

(3) If a company refuses registration, the transferee or transferor may request a statement of the reasons for the refusal.

(4) If a request is made under subsection (3), the company must, within 28 days after receiving the request—

(a) send the person who made the request a statement of the reasons; or

(b) register the transfer.

……”

50.  It is well established that a transferee’s right to be registered remains unless and until the directors positively exercise the power to refuse registration, and that the mere failure to resolve to approve or refuse registration is not a formal active exercise of that power: Moodie v W & J Shepherd (Bookbinders) Ltd [1949] 2 All ER 1044; Re Redford International Ltd [2016] 2 HKLRD 27. If the company does not refuse registration within a reasonable time, taken to be the two months prescribed by section 151 (and here also by art. 7), the transferee’s right to be registered becomes absolute: In re Swaledale Cleaners Ltd [1968] 1 WLR 1710; In re Zinotty Properties Ltd [1984] 1 WLR 1249, 1261; Re Inverdeck Ltd [1998] BCC 256. In the present case, it is submitted on behalf of Jason that Mak’s and Wong’s “right to be registered would only accrue by effluxion of time, after the expiry of the 2 months (as per art. 7)”.[23] This is significant because by the time of the hearing before the judge in April 2019, the 2-month period had long expired so that even on the basis of Jason’s submission, Mak and Wong had a right to be registered as members in relation to those shares.

51.  On 4 August 2017, Ricky as sole director passed a written resolution resolving that the Share Transfers and the Sato Transfers “be approved and the details be entered in the Register of Members and Register of Transfers” of the Company. Since art. 7 does not refer to any need for the directors to approve a transfer of shares, it has been argued by the appellants that no board approval was required for registering the Share Transfers. It would appear, however, that board approval is necessary for making entries in the register of members, as it is not something within the competence of the secretary acting by himself, at least so long as the board has not resolved not to refuse to register the transfer and the two months for the board to make a decision have not yet expired: In re Zinotty Properties Ltd, p 1261. On this analysis, Ricky’s decision may be seen as both a decision not to refuse to register the transfers and an authorisation to the secretary to make the relevant entries in the register of members.

(3)  The judge’s findings

52.  The judge concluded that the shares were not validly transferred to Mak and Wong. His reasoning is contained in the section of the Judgment headed “Whether Ricky’s ‘approval’ of the Shares Transfer was valid”. We set it out below as questions have been raised as to what specific breaches of duty had been found.

“ 194. Ricky emphasises in his evidence that he did not see, and still does not see, any reason or possible justification for him as a director to exercise the discretion to refuse to register the transfer of the shares. Ricky said that even if he had thought that Mak and Wong would vote in favour of accepting the sanctioned payment, that would be in the interest of the Company. …

195. Indeed, as noted above, it was Mak’s own evidence that he and Wong approached Ricky and expressly told him that the purpose behind the proposal to purchase sufficient shares in the Company was so that they could pass the resolution approving the sanctioned payment, and that as the proposed share purchase was for that particular purpose, Ricky should consider giving some discount over the price. In other words, the discount was asked for and it was agreed in consideration for the ability to effect approval of the sanctioned payment.

196. It may be, therefore, that it does not matter that the transaction was not itself a sham. The transaction was clearly intended to provide the circumstances in which shares which otherwise could not have been used to vote for the sanctioned payment were put into the hands of persons who clearly would have exercised a vote in that way.

197. Put another way, the price to Ricky (HK$5.7 million) of ensuring that shares which otherwise he could not vote were voted to accept the sanctioned payment was potentially hugely less than the benefit to him as sole or main shareholder of D3-D31 if a full account required payment of many millions more.

198. Ricky himself admits that the Shares Transfer was at least in part motivated by a desire to procure acceptance of the sanctioned payment and to end these proceedings. Indeed, he apparently told Mak that his determination to sell the shares in the Company was because of the hope that the litigation would end. Undoubtedly, Ricky knew that Mak and Wong would vote the shares in favour of accepting the sanctioned payment if he was to effect the Shares Transfer. I reject the suggestion that against everything discussed between them that Ricky might seriously have thought that they might ultimately not vote to accept the sanctioned payment and to bring the proceedings to an end.

199. As sole director of the Company, Ricky continued to owe fiduciary duties to it. Irrespective of what he thought was the correct figure for the account, Ricky must have understood that there was at least a significant risk (including just the litigation risk) that he would be required to account for a figure rather in excess of HK$40 million. Indeed, there must be a real risk that the figure is inadequate, perhaps significantly so.

200. Hence, in approving the Shares Transfer knowing that the shares would be voted in favour of accepting the sanctioned payment, it can be said that Ricky failed to act in the best interest of the Company.

201. The argument deployed by Ricky in response is that no “approval” was required; the relevant article of the Company’s constitution merely provided the director a discretion to refuse to register shares after transfer.

202. I do not think this argument helps Ricky, if his fiduciary duty was to act in the best interests of the Company, that would require him to exercise his discretion for that purpose. The director cannot do nothing; he must either refuse to register the transfer or choose not to exercise a refusal. If it was in the best interests of the Company to refuse to register the shares, the discretion should have been exercised by giving that refusal. Further, as a matter of fact, the Board resolution signed by Ricky recorded that the Board had “approved” the Shares Transfer, as well as the transfer of shares from Sato, so it is difficult for Ricky to say he did not actually approve the transfer. For this factual reason, it is not open to Ricky to suggest that any default position might have been reached on an assumption that he might have not exercised his discretion to refuse to register the transfer.

203. Of course, the other factual problem which arose is that Ricky was the sole director, so he constituted the entire Board, and it was in precisely that capacity that he has already been found to be in breach of his duties and to have put himself in a position of conflict. That is the context, and I accept Ms Chan’s submission that the rule to avoid conflict of interest is strict and inflexible. Even if a director is acting in good faith intending to act in the best interests of the company, that is irrelevant to the question of whether there has been a breach of fiduciary duty.

204. Therefore, the question of the fairness or unfairness of the transaction is immaterial: see, for example Pleasure International Ltd v Kao Wai Ho Francis (HCA 1753/2008, 25 June 2009) at §§45-51.

205. This is perhaps a short answer to the arguments about whether or not HK$40 million is a fair and appropriate amount for the Company to accept from Ricky and D3-D31 as an account of profits payable by them as a result of his breach of fiduciary duty owed to the Company.

206. Mr Chan has himself placed emphasis on the point that in the present case Resolution 1 was not a resolution to absolve Ricky from his wrongdoing, as the CFA has already confirmed that Ricky is liable to account. Instead, Mr Chan says, it is a question of whether the court could refuse to recognise a decision by the Company to enter into a contract with Ricky to settle the amount of the liability and put an end to the litigation.

207. This point seems to me to emphasise the existence of the conflict. So, whilst there may be (as Mr Chan also submits) nothing unattractive or wrong on the part of other innocent minority shareholders who thought that the litigation should end to acquire as many shares as possible so as to achieve what they considered to be for the benefit of the company to end the litigation with the early distribution of assets, that does not get around the fundamental problem that they could only have done so if the purchase of the shares was made the subject of a transfer effective to permit them to vote. As Ricky acknowledged in oral evidence, no transfer would have been effective but for his approval of the transfer, or the exercise of his discretion not to refuse the registration.

208. I consider that Ricky’s desire to bring this litigation to an end was a perfectly natural desire in the context of his serious illness. It is wholly understandable that Ricky would wish not to leave any litigation in which his wife might have to become embroiled. But, it seems to me that point only tends to amplify the fact of the conflict in which Ricky was placed.

209. I therefore hold that the shares were not validly transferred under the Shares Transfer. Necessarily, this means that so many of the shares held by Mak and Wong were held by them as a result of the Shares Transfer ought not to have been counted in the voting on Resolution 1 (and indeed the other Resolutions 2 and 3).”

53.  In the conclusion at §210, the judge, summarising his reasons, said that the Share Transfers were invalid to have permitted Mak and Wong to have voted the 3,799 shares at the EGM “because the exercise by Ricky of his discretion whether or not to refuse to register, and his factual decision and resolution to ‘approve’ registration, was an abuse of his power”.

54.  It was not specified in the Judgment precisely which duty or duties Ricky was found to have breached as director in approving the registration of the Share Transfers. On behalf of Jason, Ms Sit SC and Mr Tang, who did not appear at the trial, submit that the judge found breaches of three fiduciary duties by Ricky: (i) that he acted for an improper purpose; (ii) that he failed to act in the best interests of the Company; and (iii) that he had a conflict of interests. For our part, while (iii) seems clear to have been a finding made by the judge, as explained below we have some doubt whether his Lordship actually found (ii) and we take the view that he did not find (i).

(4)  No finding of acting for improper primary purpose

55.  As to (i), Jason complained that Ricky exercised this power qua director for the sole improper purpose of pretending that the shares had been properly transferred to Mak and Wong.[24] Whilst there were various observations in the Judgment about various persons’ purposes, it does not seem to us that ultimately the judge’s conclusion rested on this particular allegation. Referring to the descriptions of the purpose of the Share Transfers in various parts of the Judgment, as Ms Sit has done, is with respect not to the point, for it elides the distinction between Mak’s and Wong’s purposes on the one hand and Ricky’s purposes on the other, and also between Ricky’s purposes as shareholder in deciding to sell his shares and his purposes and reasons as director in approving registration of the transfer. Only the latter is relevant to the present inquiry – anyone can buy or sell shares for any reason he sees fit. The Company’s articles make no provision for pre-emption rights upon transfer of shares, and shareholders are not otherwise precluded by law from trading their shares for the purpose of altering the balance of voting power. There is no passage in the Judgment that Ms Sit can point to where the judge actually found the alleged breach.

56.  Further, to find that a director breached his fiduciary duty by exercising a power for an improper purpose, one would expect the court to examine the scope of the proper objects of the power in question, and find the purpose for which the power was actually exercised. Where there may be more than one purpose, the cases traditionally suggest it is necessary to ascertain what has been variously described as the primary, substantial, principal, or dominant purpose: Passport Special Opportunities Master Fund LP v eSun Holdings Ltd [2011] 4 HKC 62, §57; Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 at 832F-G & 835G; Tsang Wai Lun Wayland v Chu King Fai [2009] 5 HKLRD 105, §73; Fountain II Ltd v Ping An Securities (Holdings) Ltd [2020] 1 HKLRD 429, §41(3). More recently, in Eclairs Group Ltd v JKX Oil & Gas plc [2016] BCC 79 at §§21-22, Lord Sumption said that acting for an improper purpose, be it a minor or major purpose, is impermissible, but the act may be valid unless the improper purpose was causative in the sense that but for its presence, the power would not have been exercised in that way.[25]

57.  For the purposes of these appeals it is unnecessary for us to decide whether Lord Sumption’s approach in Eclairs Group (based in part on the statutory formulation of the duty in section 171(b) of the Companies Act 2006) should be adopted because it seems to us that the judge did not base his reasoning on a breach of duty by acting for an improper purpose. Whilst the judge noted that Ricky himself admitted that “the Shares Transfer was at least in part motivated by a desire to procure acceptance of the sanctioned payment and to end these proceedings”,[26] that evidence did not focus on Ricky’s capacity as director in approving the transfer as opposed to his capacity as seller of the shares, and also suggested there were multiple concurrent purposes. The discretion to refuse to register a transfer, though wide, must be exercised for the purposes for which it is conferred, such as (without limitation) to exclude undesirable or objectionable persons from membership. Qua director, Ricky’s evidence was that he considered that unless there was a good reason for refusing to register, the directors should respect the proprietary rights of shareholders and approve a transfer. He could not see any objection to Mak and Wong holding additional shares as they were already existing shareholders. He did not see any possible justification for him to refuse to register the Share Transfers. On the contrary, he considered it to be in the interest of the Company not to refuse registration. To register the Sato Transfers but refuse to register the Share Transfers would be illogical and capricious. The judge noted that evidence without rejecting it.[27] Indeed, given the judge’s findings that Mak and Wong were existing shareholders in their own right and not Ricky’s nominees and had purchased Ricky’s shares for consideration in a genuine transaction for legitimate purposes, that it is not disputed the transfer of shares by Sato to Mak (and Shigemitsu) was properly approved for registration, and that the Company had long ceased all business operations so that the financial standing of a transferee is of little significance, it is not easy to think of any reason for which a reasonable board acting bona fide in what they conceive to be the Company’s interests could refuse to register the Share Transfers. Deciding to register a transfer of shares on the ground that there is nothing objectionable about the transferee is, in our view, not an improper reason for exercising the power.

58.  Against this background, there did not appear to be an investigation into, and there was no finding by the judge of, either the primary purpose or reason for which Ricky acting as director approved the registration of the Share Transfers, or whether but for the desire to procure acceptance of the sanctioned payment he would not have approved it. These would have been pertinent inquiries and necessary alternative findings had the judge meant to find that Ricky breached his fiduciary duty under this head. Accordingly, we do not accept Ms Sit’s contention that the judge found a breach of duty by acting for improper purpose.

(5)  Finding of failure to act in the best interests of the Company?

59.  As regards (ii), whilst reference is sometimes made to a director’s “duty to act in the (best) interests of the company”, this is a mere shorthand. In the classic words of Lord Greene MR in Re Smith & Fawcett Ltd [1942] Ch 304, 306 – which incidentally was a case on the power to refuse to register a transfer of shares – directors are bound to exercise the powers conferred on them “bona fide in what they consider – not what a court may consider – is in the interests of the company” (see also Simon Fireman v Golden Rice Bowl Ltd [1987] HKLR 981). Consistently with its general approach, the court does not substitute itself for a company’s management and decide what is best for the company. That is a matter for the appropriate organ of the company. Directors owe a fiduciary duty, but the essence of that duty here is loyalty; it is not a warranty that a director’s act is necessarily the best possible course for the company, viewed objectively or even retrospectively. To find a breach of this duty requires the court to conclude that the director did not subjectively believe that his act was in the interests of the company, or, where the director did not give any actual consideration to the question, that a reasonable director in his position could not have reasonably believed that it was for the benefit of the company: see e.g. Wang Pengying v Ng Wing Fai [2021] 1 HKLRD 997, §§67-74. In the present case, the evidence appears to suggest that Ricky considered that approving the registration of the Share Transfers would be in the Company’s interests.[28] In any event, it is clear that the judge did not make any finding that Ricky did not honestly believe the resolution was in the Company’s interests or that a director in Ricky’s position could not reasonably have held such belief.

60.  Furthermore, even if one assumes a director’s duty was to act in what was objectively the best interest of the company, we do not see that the judge had found that the Company’s interests were best served by a refusal to register the Share Transfers. Ms Sit relies on §§199-200 of the Judgment, but we are not convinced that by saying “it can be said that Ricky failed to act in the best interests of the Company”, the judge actually made a finding to that effect, especially because his Lordship had found that it was obviously at least possible that the ultimate order upon taking the account would fall below $40 million (see §32 above), in which case it can also be said to be in the best interests of the Company to approve the Share Transfers so as to bring about the acceptance of the sanctioned payment. It may also be noted that in §202 of the Judgment, the judge said: “If it was in the best interests of the Company to refuse to register the shares …” (italics added), which seems to us to suggest that the judge made no positive finding. For these reasons we doubt that the Judgment should be construed as finding a breach of a duty to act in the Company’s best interests simpliciter. The judge clearly did not find a breach by Ricky of his duty to act bona fide in what he considered was in the interests of the Company.

(6)  Breach of the duty to avoid a conflict of interests

61.  What the judge did undoubtedly find, as can be seen from §§203–208 of the Judgment, was that, in exercising the power as director to approve the Share Transfers for registration, Ricky was in a conflict of interests, and that as a result the shares were not validly transferred and ought not to have been counted at the EGM.

62.  A number of arguments raised by the appellants are relevant to this conclusion, which may be summarised into the following (partially overlapping) points: (1) the Share Transfers did not need to be approved by the board before they were registered; even if there was no valid approval, the Share Transfers were registered by default; (2) there was no conflict of interests since there was no finding that it was in the interests of the Company to refuse registration of the Share Transfers; further, Ricky had no control over how the transferees, Mak and Wong, were to vote the shares; (3) under art. 29 of the Company’s articles of association, a director is entitled to vote in respect of any arrangement in which he is interested; (4) upon registration in the register of members, Mak and Wong had acquired the status as members in respect of the shares in question, and should be treated as such unless and until the register was rectified; (5) even if the registration of the Share Transfers were tainted by Ricky’s conflict of interests, the registration was merely voidable and not void, and had not been avoided, so that Mak and Wong were entitled to vote the shares at the EGM; and (6) Mak and Wong were bona fide purchasers of the shares in good faith without notice of any breach of duty on Ricky’s part, and were not affected by any deficiency internal to the Company in relation to the registration of the shares they had purchased.

63.  We are unable to accept the argument in (1) above that Ricky’s resolution was superfluous and that the Share Transfers would have been validly registered by the secretary even without board approval. As explained in §§50-51 above, this argument might have more force when two months had elapsed after 3 August 2017, but before then the registration of the Share Transfers required board approval.

64.  Nor can we accept the argument in (2) that there was no conflict or potential conflict. Ricky was the seller and transferor in the Share Transfers. He was hoping that Mak and Wong would vote the shares in favour of accepting the sanctioned payment, which could be beneficial to Ricky since his liability to account, if ultimately determined by the court, could exceed the amount of that payment. He was as such properly to be regarded as interested in their registration. This could potentially conflict with his duty to act bona fide in the interests of the Company in deciding whether to register them. Reasonable people looking at the facts would think that there was a real sensible possibility of conflict: Bhullar v Bhullar [2003] 2 BCLC 241.

65.  It does not however necessarily follow that a director in such a situation may not vote on a proposal to register the transfer. The question depends on the company’s constitution. In the Company here the question of voting at board meetings is provided for in art. 29 of the articles, which states:

“ A Director shall be entitled to vote as a Director in respect of any contract or arrangement in which he is interested or upon any matter arising thereout, and if he shall so vote his vote shall be counted, and he shall be taken into account in determining the quorum for the meeting at which any such contract or arrangement is to be considered.”

66.  Ms Sit submits that art. 29 is subject to art. 27 which provides:

“ A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest in accordance with the provisions of the Ordinance. A general notice given to the Directors by a Director to the effect that he is a member or a director of a specified company or firm, and is to be regarded as interested in any contract, arrangement or dealing which may, after the date of the notice, be entered into or made with that company or firm, shall, for the purpose of this Article, be deemed to be a sufficient disclosure of interest in relation to any contract, arrangement or dealing so entered into or made. Without prejudice to the generality of the foregoing, a Director shall give notice to the Company of such matters relating to himself as may be necessary for the purposes of Sections 155B, 158, 161 and 161B of the Ordinance.”[29]

It is further submitted that Ricky did not make such declaration of interest and that, in any event, there being only one director, it would be meaningless for him to do so (Movitex Ltd v Bulfield (1986) 2 BCC 99403, 99428-99429) and that therefore arts. 27 and 29 are altogether inapplicable.

67.  It seems to us that the two articles make provisions for different matters. Art. 29 deals with voting, and provides that a director is entitled to vote in respect of any contract or arrangement in which he is interested, without laying down any pre-conditions. Art. 27, on the other hand, is concerned with disclosure of interest in relation to a contract or proposed contract with the company. Such disclosure is relevant for the purposes of the well-established rule in equity for fiduciaries, such as was stated in Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461, “that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.” With proper disclosure made in accordance with the articles of the company, it may be permissible for a director to enter into a transaction with the company without infringing the no-conflict rule or attracting its consequences.

68.  The declaration under art. 27 is concerned with contracts or proposed contracts with the Company. Here the sale and purchase of shares was entered into between Ricky and Mak and Wong, not with the Company. Even on the footing that the resolution did involve the Company entering into a contract of membership with Mak and Wong[30] and that a declaration by Ricky to the board was required even though he was the sole director, the failure to make such a declaration would not render the contract void, but simply voidable under the general law at the instance of the Company: Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549, 585, 589-591. Even where there is a breach of fiduciary duty by exercising a power without giving consideration to clearly relevant factors, it has been said that the consequence is that the exercise of the power would be voidable and not void: Passport Special Opportunities Master Fund LP v eSun Holdings Ltd, §§149, 155-156; likewise for a breach of fiduciary duty by exercising a power for an improper primary purpose: Gower: Principles of Modern Company Law (11^th ed), §10–022; Gore-Browne on Companies, §15[9A].

69.  Mak and Wong had been entered on the register of members in relation to the shares in question. The sale and purchase of shares was found to be genuine and bona fide. They had also pledged their shares to a finance company as security. We do not think that the presence of the conflict on the part of Ricky as director resulted in their registration as members being null and void. By being entered in the register of members with authority from the board, Mak and Wong acquired the status of members with respect to those shares: Re Coroin Ltd [2014] BCC 14, §§89-90. As mentioned in §57 above, nothing has been said as to why they should be objectionable as holders of the shares. There is no finding that they had notice of the absence of a declaration of interest by Ricky. There was no attempt to rectify the register by expunging their names. In any event, given the absence of any reason to refuse registration and of any refusal, and that the 2-month period under art. 7 had long lapsed when the matter came before the judge, any application to set aside their membership would, it seems to us, not be promising.

70.  Ms Sit submits that where there was an abuse of power, the state of affairs brought about by the abuse vis-à-vis the company is invalid. With respect, this is much too vague and general to be used as a guiding principle. It is necessary to have regard to what specific duty is breached as well as the circumstances of the case. Relying on Bennett’s case (1854) 5 De G M & G 284 and Re Mitre Assurance Co, Eyre’s Case (1862) 31 Beav 177, Ms Sit submits that the Share Transfers should be disregarded for the purposes of the EGM. But they are very different cases from the present one. The salient facts of Bennett’s case can be seen from the headnote:

“ Some of the shareholders threatened to take proceedings to set aside a purchase and lease for fraud, whereupon the directors agreed with them that they should be allowed to transfer the shares on payment to the company of a sum, out of which a claim of one of the directors against a company should be satisfied. The money was paid and acclaim satisfied out of it, and shares transferred to nominees of the directors for a nominal consideration.”

On these facts, it was said that the directors had sought “to sell their right of objecting to a person proposed to become a new shareholder” for “a price on the deliverance of shareholders”, and that the arrangement was “a fraud upon the company on the part of all concerned in it”. It was a case where the directors acting for a sole improper purpose gave requisite assent for a transfer of shares, and upon the winding up of the company the court held that the transferor should, despite the transfer, be included in the list of contributories, effectively setting aside the transfer.

71.  The facts of Eyre’s Case may also be seen from the headnote, which reads:

“ A shareholder presented a petition to wind up a company; the directors, to stifle inquiry, bought him off by taking a transfer of his shares to a nominee of their own. The company having been ordered to be wound up within two years afterwards, it was held that the transfer was not bona fide, and that such shareholder was a contributory.”

Not surprisingly, it was said to be a case of “culpable participation between a shareholder and the directors for the purpose of preventing a public exposure of the affairs” of the company, where a sum was “paid in the shape of hush money for the purpose of stifling further inquiry into, and preventing a disclosure of, the affairs of the company”. Upon the company being subsequently wound up on another petition, the court held that the shareholder should be included in the list of contributories.

72.  Neither case, in our view, supports the proposition that because of the conflict on the part of Ricky, Mak and Wong could not vote the shares acquired at the EGM. On the judge’s findings, this is a case where those two existing shareholders had genuinely purchased shares from another shareholder who would not himself be able to vote the shares, in the hope that their votes, which were bona fide and for commercially legitimate reasons, would prevail if Kong, Teraguchi and Shigemitsu voted in the same way. (Mak and Wong held 49.99% and could be outvoted if those shareholders sided with Jason and Daisy.) For the above reasons, we take the view that Mak’s and Wong’s votes based on the shares registered in their names pursuant to the Share Transfers should not be excluded. It follows, on the basis of the judge’s other findings, that the independent shareholders had resolved at the EGM that the sanctioned payment should be accepted in full and final settlement of the claim being made in the Action on behalf of the Company.

73.  It is unnecessary to deal with Mr C Y Li SC’s argument on behalf of Mak and Wong that the no conflict rule does not apply where the director is simply exercising a power, such as making a call or declaring a dividend, instead of procuring the company to enter into a contract (see Hunter v Senate Support Services Ltd [2005] 1 BCLC 175 at §§105 et seq) or his argument that the duty under section 536 of the Companies Ordinance to declare interests does not apply to a sole director of a company that is not required to have more than one director. Nor is it necessary to deal with his argument on Turquand’s rule.

VI.  Jurisdiction as regards the payment into court

74.  It remains to be determined whether the court has power to allow the Company to accept the payment in court. The question of jurisdiction may be divided into two issues: (1) whether there is jurisdiction to give leave for the Company to accept the sanctioned payment under Order 22; and (2) if not, whether there is jurisdiction under Order 22A to order payment out to the Company.

(1)  Order 22

75.  We start with the terms of the rules themselves. It can be seen from an examination of Order 22, which is divided into five parts, that so far as relevant for present purposes the rules are framed in terms of the “defendant” making a sanctioned payment and the “plaintiff” accepting it.

76.  Part I, which deals with preliminary matters, consists of rules 1 and 2. Rule 1 defines “defendant” to include “where the context so permits or requires, a defendant to a counterclaim”, and “plaintiff” to include “where the context so permits or requires, a counterclaiming defendant”. This modifies the meaning of “plaintiff” as defined in section 2 of the High Court Ordinance (Cap 4) which includes “every person asking any relief (otherwise than by way of a counter-claim as a defendant) against any other person by any form of proceeding, whether the proceeding is by action, suit, petition, motion, summons or otherwise”.

77.  Rule 2 provides:

“ 2. Offer to settle with specified consequences (O. 22, r. 2)

(1) A party to an action containing a money claim or a non-money claim or both arising from any cause or causes of action may make an offer to settle the whole claim, a part of it or any issue arising from it in accordance with this Order.

…

(3) An offer made under paragraph (1) has the consequences specified in rules 20, 21, 22, 23 and 24 (as may be applicable).

(4) Nothing in this Order prevents a party from making an offer to settle in whatever way he chooses, but if that offer is not made in accordance with this Order, it does not have the consequences specified in this Order, unless the Court so orders.”

78.  Part II, containing rules 3 to 14, deals with the manner of making a sanctioned offer or sanctioned payment.

(1)  Rule 3(2) provides:

“ Where an offer by a defendant involves a payment of money to the plaintiff, the offer must be made by way of a sanctioned payment.”

(2)  Rule 8(2) provides that a defendant who makes a sanctioned payment shall file with the Court a notice in Form No. 23 in Appendix A. Form No. 23 is a notice addressed “To the plaintiff(’s solicitor) …”, with a note at the end stating:

“ Note: To the plaintiff

If you wish to accept the payment made into court and the Court’s leave for acceptance is not required, you should complete Form No. 24, send it to the defendant and file a copy in the Registry of the High Court.”

(3)  Rule 9 provides:

“ A defendant who makes a sanctioned payment shall—

(a) serve the sanctioned payment notice—

(i) on the plaintiff; and

(ii) where the plaintiff is an aided person, on the Director of Legal Aid …”

79.  Part III, containing rules 15 to 19, deals with the acceptance of a sanctioned offer or sanctioned payment.

(1)  Rule 15 provides as follows:

“ 15. Time for acceptance of defendant’s sanctioned offer or sanctioned payment (O. 22, r. 15)

(1) Subject to rules 7(3) and 10(2), a plaintiff may accept a sanctioned offer or a sanctioned payment made not less than 28 days before the commencement of the trial without requiring the leave of the Court if he files with the Court and serves on the defendant a written notice of acceptance not later than 28 days after the offer or payment was made.

(2) If—

(a) a defendant’s sanctioned offer or sanctioned payment is made less than 28 days before the commencement of the trial; or

(b) the plaintiff does not accept it within the period specified in paragraph (1),

then the plaintiff may—

(i) if the parties agree on the liability for costs, accept the offer or payment without the leave of the Court; and

(ii) if the parties do not agree on the liability for costs, only accept the offer or payment with the leave of the Court.

(3) Where the leave of the Court is required under paragraph (2), the Court shall, if it grants leave, make an order as to costs.

(4) A notice of acceptance of a sanctioned payment must be in Form No. 24 in Appendix A.”

(2)  Form No. 24 is a form addressed “To the defendant(’s solicitor) and to the Director of Legal Aid (if applicable)”, stating:

“ Take notice that the plaintiff accepts the payment(s) into court … in settlement of (the whole of) (part of) (certain issue(s) arising from)* the plaintiff’s claim as set out in the notice of sanctioned payment received on … (and abandons the other part(s) of or issue(s) arising from the plaintiff’s claim).”

The form is to be signed in the box above the words “Plaintiff(’s solicitor)”.

(3)  Rule 17 provides:

“ 17. Payment out of a sum in court on acceptance of sanctioned payment (O. 22, r. 17)

Subject to rules 18(4) and 19 and Order 22A, rule 2, where a sanctioned payment is accepted, the plaintiff may obtain payment out of the sum in court by making a request for payment in Form No. 25 in Appendix A.”

(4)  Form No. 25 is to be signed in the box under the words “Plaintiff or solicitor’s full name/Director of Legal Aid”.

(5)  Rule 18 applies “where the plaintiff wishes to accept a sanctioned offer or a sanctioned payment made by one or more, but not all, of a number of defendants”, and makes provision as to when “the plaintiff” may accept the offer or payment without requiring the leave of the court or with the leave of the court respectively.

(6)  Rule 19(2), (3) and (4) deal with several situations where “a plaintiff” accepts a sanctioned payment but requires a court order before the money may be paid out.

80.  Part IV, containing rules 20 to 24, deals with the consequences of a sanctioned offer or sanctioned payment.

(1)  Rule 20 sets out the costs consequences of acceptance of a defendant’s sanctioned offer or sanctioned payment and provides for “the plaintiff” being entitled to his costs of the proceedings where the relevant conditions apply.

(2)  Rule 22 provides that if a sanctioned offer or sanctioned payment relates to the whole claim and is accepted, the claim is stayed.

(3)  Rule 23 applies where “a plaintiff” fails to do better than the sanctioned offer or sanctioned payment. It enables the court to disallow interest on any sum of money awarded “to the plaintiff”, to order “the plaintiff” to pay any costs incurred by the defendant after the latest date for acceptance without leave, and to order that “the defendant” is entitled to indemnity costs after that date and interest on costs.

81.  The judge accepted that if the account of profits were to lead to an order that a particular sum of money should be accounted for, it would be the Company to which that money should be paid, but he considered that this did not deal with whether the Company should be treated as the “plaintiff” under Order 22. The judge accepted the submission made on behalf of Jason that if he refused to settle and eventually failed to obtain a better judgment, he alone would face the costs sanctions under rule 23. The judge considered the case to be in the first category referred to in Prudential (see §44 above) and that Jason remained the plaintiff with the power to decide whether or not to accept the sanctioned payment, which decision he made at his own risk as to costs. His Lordship concluded that the Company is not a party within the meaning of the provisions in Order 22 that can accept the sanctioned payment.

82.  The appellants contend that the judge was wrong. They submit that the word “plaintiff” is only inclusively defined in section 2 of the High Court Ordinance and in Order 22 rule 1, which do not exclude the possibility of any other class of parties being a “plaintiff”. On the proper construction of Order 22, bearing in mind its purpose of promoting settlements, saving costs and avoiding the uncertainties of litigation, in a common law derivative action, “plaintiff” includes the company, which is the real plaintiff to whom the cause of action belongs. The shareholder who is the named plaintiff merely sues on behalf of the company, and any damages recoverable are payable to the company. The company is joined as a “defendant” to receive any damages that may be awarded, as explained in Waddington (CFA) at §§47-51. It is also submitted that a sanctioned payment is not only an offer to the named plaintiff personally, but is an offer made with reference to and for satisfaction of the particular cause of action: Toprak Enerji Sanayi AS v Sale Tilney Technology plc [1994] 1 WLR 840, and should be capable of acceptance by the person in whom the cause of action is vested. The provision in Order 22A rule 2(2) that “payment shall be made to the party entitled or to his solicitor” is said to reinforce the appellants’ construction. As to the forms referred to in the rules, the appellants point out that by virtue of Order 1 rule 9, the forms are used where applicable “with such variations as the circumstances of the particular case require”. Accordingly, they submit, the court has power under Order 22 rule 15(2)(b) & (ii) to give leave for the Company to accept the payment (leave being required as more than 28 days had elapsed and there was no agreement on the liability for costs).

83.  The appellants also rely on Waddington Ltd v Chan Chun Hoo [2019] 1 HKLRD 271 (CFI). In that case, after judgment had been given against D1 in the multiple derivative action brought by the plaintiff for the benefit of D5, the subsidiary company in question, D1 paid money into court. D5 subsequently applied for payment out of the money. The plaintiff opposed the application on the ground, inter alia, that it had a claim for indemnity of costs against D5. In his reasons, Chow J stated (at §15):

“ There is currently sitting in court the total sum of HK$57,399,164.92 (as at 12 September 2018) which it cannot be disputed was paid into court for the benefit of the 5^th Defendant. It is also indisputable that the money in court belongs to the 5^th Defendant, being the fruits of this multiple derivative action brought by the Plaintiff on behalf, and for the benefit, of the 5^th Defendant. That being the position, the 5^th Defendant is, prima facie, entitled to be paid the money now in court.”

In the result, Chow J made an order for $50 million to be paid out to D5, with the balance to remain in court pending the taxation of costs.

84.  With respect, we agree with the judge’s interpretation of Order 22. The Order is worded in terms of “plaintiff” and “defendant”. The fact that “plaintiff” is defined to include a counterclaiming defendant suggests that it refers to the party bringing a claim. We do not think that “the plaintiff” in Order 22 rule 15(2) can be interpreted in the way suggested by the appellants so as to apply to the Company, which is the 2^nd defendant in the Action.

85.  It is significant to bear in mind that Order 22 is envisaged to operate mechanically, without judicial involvement, where the parties act within the time prescribed and use the correct forms. Thus after a defendant has made a sanctioned payment and served notice in the specified form on the plaintiff not less than 28 days before trial, the plaintiff may accept it within 28 days without leave of the court by giving notice of acceptance in another specified form, and may obtain payment out simply by filing yet another specified form of request for payment, and become entitled to his costs of the proceedings up to the time of acceptance: rules 15(1), 17 & 20(1). Even after the prescribed time has elapsed, the Court’s leave is not required for acceptance of the payment if “the parties” agree on the liability for costs: rule 15(2)(i).

86.  On the appellants’ construction of Order 22, it would not be clear who the “plaintiff” is in a common law derivative action. Mr Norman Nip SC, appearing for the Company, submits the plaintiff is the company to the exclusion of the shareholder plaintiff. Mr Edward Chan SC, appearing for Ricky and D1–D31, submits that it depends: in the first of the three scenarios referred to in Prudential (see §44 above), the shareholder plaintiff is the plaintiff, but where the company has made a decision to accept the sanctioned payment, i.e. the second category, then the company is the real plaintiff and only it can accept the sanctioned payment. It seems to us highly unlikely to be the legislative intention in such a scheme that there should be scope for debates as to whether some party other than the party named as the plaintiff is the “real plaintiff” who alone may accept the sanctioned payment and request for payment out. It would also be unclear, on the appellants’ construction, who “the parties” are whose agreement on the liability for costs may render the Court’s leave unnecessary even after 28 days have elapsed since the payment in.

87.  Order 22 makes detailed provisions for what offers and payments come within its scope so as to engage the potential consequences provided for in Part IV of the Order. Rule 2(4) makes clear that if an offer is not made in accordance with that Order, it does not have those consequences (unless the court so orders). One of the main features of Order 22 is the special consequences for a plaintiff who has refused to accept a sanctioned payment but fails in the end to obtain a better judgment. This is aimed at encouraging the plaintiff to give serious consideration to the payment in as a means of settlement and to avoid unproductive prolongation of the litigation.[31] This purpose is premised on the “plaintiff” being the person who controls the conduct of the litigation as well as the person on whom adverse costs consequences can be visited.

88.  In the case of a common law derivative action, which is brought by a shareholder albeit for the benefit of the company and on a cause of action belonging to the company, the shareholder plaintiff is in general in the driving seat, like an ordinary plaintiff. His position as regards costs, vis-a-vis the defendant, is the same as that of any other plaintiff: Wallersteiner v Moir (No 2) [1975] 1 QB 373, 399C. The company for whose benefit the action is brought, which is joined as defendant, is not in general directly liable for adversarial costs. The judge is in our view correct to accept that the plaintiff in a derivative action will alone face the costs sanctions under Order 22 rule 23 should he fail to beat the proposed settlement.

89.  The appellants argue that the company may also be at risk because the plaintiff shareholder may seek an indemnity from the company as to costs. But there is no automatic entitlement to an indemnity. As the judge observed, if the sanctioned payment is not bettered by the judgment ultimately obtained, that may show that continuing to pursue the proceedings after the payment was not the reasonable and prudent course to take in the interests of the company,[32] thus undermining the basis on which the plaintiff may seek to be indemnified by the company in respect of costs.

90.  The fact that the money is paid into court for the purpose of satisfying the company’s cause of action and, if accepted, should be paid to the company is consistent with the judge’s construction. Order 22 rule 17, which provides for payment to be requested by lodging a form, is expressly subject to Order 22A rule 2, sub-rule (2) of which provides that payment shall be made to “the party entitled or to his solicitor”. The fact that the company is to be the recipient of the money does not mean that it must also be the party capable of “accepting” the sanctioned payment under Order 22.

91.  The appellants also rely on the fact that a common law derivative action is generally framed as an action by the plaintiff shareholder “on behalf of himself and all other shareholders in the company except the defendants”. But this is merely a traditional practice in nomenclature. No one should be misled into thinking that it is a representative action being brought on behalf of all the innocent shareholders: see Wallersteiner v Moir (No 2) [1975] 1 QB 373, 391C.

92.  Nor do we think that it follows from the objects of Order 22 that it should be applied even in situations which are difficult to fit within the language of its terms. Order 22 is simply one way of reaching a settlement. Rule 2(4) expressly states that the Order does not prevent a party from making an offer to settle in whatever way he chooses. As between defendants, for example, Order 16 rule 10 makes provision for a written offer of contribution outside the machinery of Order 22.

93.  The appellants submit that in a derivative action, where the company has been able to come to a decision through an appropriate independent organ, such as a meeting of the independent shareholders untainted by the wrongdoer’s votes, that a sanctioned payment should be accepted, it would be wrong to allow the shareholder plaintiff to insist on the continued pursuit of the litigation. We see the force of this argument, but in our view the answer is not to perform a major linguistic operation on Order 22 so as to read “plaintiff” as meaning or including the company defendant. A possible solution, as Ms Sit points out, is for the company to adopt the action and apply for itself to be substituted as the plaintiff and then apply for leave to accept the sanctioned payment. But this is not the only way. Another solution, in our view, is for an order for payment out to be sought under Order 22A without making the company the plaintiff, to which we now turn.

(2)  Order 22A

94.  Order 22A contains a number of further provisions regarding payment into court which have been taken from the old Order 22 that existed before the Civil Justice Reform in 2009. Order 22A rules 1 and 2 (which correspond to rules 5 and 10 in the old Order 22) provide as follows:

“ 1. Money remaining in court (O. 22A, r. 1)

(1) Subject to Order 22, rule 17, any money paid into court in an action (whether or not in accordance with Order 22) may not be paid out except in pursuance of an order of the Court which may be made at any time before, at or after the trial or hearing of the action.

(2) Where an order under paragraph (1) is made before the trial or hearing and the money in court is a sanctioned payment made in accordance with Order 22, the money may not be paid out except—

(a) in satisfaction of the cause or causes of action in respect of which it was paid in; or

(b) to the extent to which the sanctioned payment may be withdrawn or diminished pursuant to Order 22.

2. Person to whom payment to be made (O. 22A, r. 2)

(1) Where the party entitled to money in court is a person in respect of whom a certificate is or has been in force entitling him to legal aid under the Legal Aid Ordinance (Cap. 91), payment shall be made only to the Director of Legal Aid without the need for any authority from the party.

(2) Subject to paragraph (1), payment shall be made to the party entitled or to his solicitor.

(3) This rule applies whether the money in court has been paid into court under Order 22 or under an order of the Court or a certificate of the Registrar.”

95.  Order 22A rule 1(1) is a provision of general application, regardless of whether the money has been paid into court under Order 22. It confers a power on the court to order “at any time before, at or after the trial or hearing of the action” the payment out of “any money paid into court in an action (whether or not in accordance with Order 22)”: Hong Kong Karaoke Licensing Alliance Ltd v Neway Music Ltd [2020] 4 HKLRD 854, §§22, 25-26. The provision is expressed to be subject to Order 22 rule 17, which makes clear that an order of the court is not required where a plaintiff may by rule 17 obtain payment by simply filing a form of request. But subject to rule 1(2), the rules do not otherwise impose any fetter on the court’s discretion under Order 22A rule 1(1). Rule 1(2) does not preclude payment out in this case since it is to be in satisfaction of the cause of action in respect of which the money was paid in.

96.  As Barma JA observed in Lehman & Co Management Ltd v Effiscient Ltd [2021] HKCA 1657 at §7:

“ The principles governing the court’s powers under O. 22A are well-established:

(1) The court has wide powers and an unfettered discretion over money paid into court to achieve justice between the parties on the facts and in the circumstances of the case.

(2) It is always necessary to consider the purpose of the initial payment into court, and where the applicant for release of the payment is in principle entitled to the money, then the respondent must demonstrate good reasons to justify why the court should retain the money instead of releasing it.”

97.  The judge likewise noted that Order 22A rule 1 “provides for an unfettered discretion, which it might be said must be exercised judicially and so as to achieve justice between the parties in the individual circumstances of any particular case”, but he did not think that the rule helped to answer the jurisdictional question.[33] Whilst we agree that Order 22A does not assist in determining whether there is jurisdiction to give leave for the Company “to accept the sanctioned payment” pursuant to Order 22 as prayed for in the Summons, there is a separate relief sought under Order 22A[34] for the sum in court to “be paid out to the [Company] in full and final settlement of the Plaintiff’s claims”. There is power under Order 22A to grant that relief. It is unnecessary for the Company to apply to be substituted as the plaintiff in order to receive the payment out (see Prudential, p 220, quoted in §44 above). Under rule 2(2), payment is to be made to “the party entitled” which is, in this case, the Company, or to its solicitor. In fairness to the judge, the defendants’ primary contention was based on Order 22, and Order 22A rule 1 as a separate source of jurisdiction for making an order for payment out was only peripherally touched upon before his Lordship, and was considered irrelevant as the judge thought that the Company had not made an independent decision via the EGM to accept the payment.

98.  We note that in Waddington (CFI), the summons for payment out of the money in court to the company (D5 in that case) was also issued under Order 22A rule 1, though the money had been paid into court not as a sanctioned payment but by order of the court after judgment.

99.  By making the payment into court Ricky and D3–D31 have offered to settle the action on terms provided for in the rules. That payment was not accepted by Jason, and the money remains in court. For its part, the Company, acting by an appropriate independent organ as described above, wishes to be paid the money in full and final settlement of the claim. The payers are agreeable to the payment out of the sum on that basis. We do not think the court is powerless to facilitate a settlement on this basis without the Company having first been substituted as the plaintiff. The payment into court, which was made for satisfying the Company’s cause of action, is not personal to Jason: Toprak Enerji Sanayi AS, p 860G. Other than the matters raised in the court below which were eventually rejected by the judge, Jason has not been able to point to any reason why payment out should not be permitted. In the circumstances of this case, we consider it appropriate for an order to be made for payment out to the Company or to its solicitors.

VII.  Costs of the Action

100.  Because of the outcome below, there was no discussion of the incidence of costs of the accounting stage of the proceedings generally having regard to the Company’s acceptance of the payment into court (as opposed to the costs relating to the Summons). As mentioned in §20 above, Ricky and D3–D31 had in correspondence agreed that Jason should have his costs of the Action up to the extended date of 15 August 2017. For its part, as mentioned above, the Company has agreed that it should keep Jason indemnified in terms set out in Resolution 3 passed at the EGM.

101.  Subject to the above, and in so far as those costs may still require further determination, the relevant parties should make written submissions for that purpose. We direct that Ricky and D3–D31 and the Company lodge written submissions within 21 days hereof, that Jason do so within 14 days thereafter, and that Ricky and D3–D31 and the Company reply within 7 days thereafter. We do not think that separate submissions from Mak and Wong are called for in this context.

VIII.  Conclusion and costs of the Summons and the appeals

102.  For the above reasons, we would respectfully allow the appeals and set aside paragraphs 1 to 3 of the judge’s order dated 18 April 2019. In substitution, we make an order on the Summons that leave be granted for the sum of $40 million standing in court to be paid out to the Company or its solicitors in full and final settlement of the claim in the Action.

103.  At the hearing, we already ordered that the costs of the applications for leave to appeal (both in this court and below) be in the cause of the appeals. As to the costs of the Summons below and the costs of these appeals, we make an order nisi that:

(1)  The costs of Ricky and D3–D31 and of Mak and Wong of and relating to the Summons below be paid by Jason, with certificate for two counsel.

(2)  There be no order as to the costs of the Company of and relating to the Summons below. The Company did not take part in the argument, and the costs it incurred, relating mainly to the preparation and filing of the Summons and the affirmations of the secretary, may fairly be borne by the Company itself.

(3)  The costs of Mak and Wong of and relating to their appeal (CACV 56/2023) be paid by Jason, with certificate for two counsel.

(4)  There be no order as to the costs of and relating to the appeals of Ricky and D3–D31 (CACV 55/2023) and of the Company (CACV 61/2023). We make this order nisi because, as at present advised, it seems to us that the appellants’ arguments largely overlap and that it may not be justified to require Jason to pay more than one set of costs. In fact, Mr Chan said at the hearing that his clients’ role in the appeals was very limited.