IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO. 20 OF 2008
Coram : H H Judge Mimmie Chan in Chambers (Open to the public)
Date of Hearing : 18 January 2008
Date of Decision : 18 January 2008
D E C I S I O N
1. This is the plaintiff’s application for the continuation of an ex parte injunction granted on 3 January 2008, restraining the 1stand 2nd defendants named in the action from removing, disposing of or dealing with or diminishing the value of their assets in Hong Kongup to the value of HK $938,864.50.
2. The 2nd defendant, Mr. Kong, is a director of the plaintiff as well as a director of the 1st defendant. In opposition to the plaintiff’sapplication, Mr. Kong claims that as a director of the plaintiff, he never received notice of any meeting of the directors of theplaintiff, and never attended any meeting to discuss or to approve the commencement of the present action, the application for theinjunction granted on 3 January 2008, or the giving of the usual undertaking to the court to pay damages to the defendants if anyare sustained by them as a result of the making of the injunction order.
3. According to the latest annual return filed on behalf of the plaintiff at the Companies Registry for the year made up to 8 January2007, there were three directors, being Mr. Shek, Mr. Kong, and Miss Ng.
4. The plaintiff has not filed evidence to show that Mr. Kong has either resigned or been removed as a director of the plaintiff. Noris there evidence to show that another director was appointed upon Mr. Kong vacating his office as director.
5. Mr. Shek, who made the affirmations in support of the application for injunction on 3 January 2008 and for its continuation, onlyclaims that he, as a director of the plaintiff, held a meeting with another director, Miss Ng, on 28 December 2007, at which theypassed a resolution to take action against Mr. Kong and his company, the 1st defendant. He claims that Mr. Kong was not asked toattend the meeting because the action contemplated by the plaintiff was against Mr. Kong for his breach of fiduciary duties, andhe obviously had a conflict of interest. Mr. Shek also claims that since June 2007, Mr. Kong had not “reported for duty”, and hehad became the only person taking charge of the plaintiff’s business as a de facto managing director. However, on Mr. Shek’s ownadmission, Mr. Kong had represented the plaintiff at various hearings involving the plaintiff. Mr. Shek further claims that fromthe incorporation of the plaintiff, directors’ meetings had been attended by only two directors.
6. The articles of the plaintiff clearly provide that unless otherwise determined by the company in general meeting, the number of directorsof the plaintiff shall not be less than three. The articles also provide that unless otherwise determined by the directors, thequorum of a directors meeting shall be three directors. There is no evidence that the directors of the plaintiff had, at any boardmeeting held at any time, determined otherwise. Nor is there any evidence of Mr. Shek having been appointed managing director, orhaving been delegated with any authority over and above other directors in relation to acting for the plaintiff. Even if Mr. Shekwere managing director as he appears to suggest, there is nothing in the articles of the plaintiff to which I have been referredwhich confers on the managing director any authority over and above other directors, or any authority on his own to commence proceedingsin the name of the plaintiff.
7. Mr. Shek’s reference to article 17 clearly cannot assist. It refers to the power of “the directors” to bring action, but it canonly mean the directors acting pursuant to a properly constituted board meeting or otherwise authorized by the board. The powersunder article 17 are exercisable by the board of directors as a whole, and article 17 does not empower a single director, or 2 directors(as the plaintiff claims), to institute proceedings or do any of the acts referred to in article 17 without reference to the otherco-directors.
8. On the face of the evidence filed, I can only rule that the meeting of the directors of the plaintiff allegedly held on 28 December2007 was not properly convened for lack of notice served on Mr. Kong, one of its directors entitled to receive notice, and for lackof quorum. Mr. Shek’s claim that notice of the meeting need not be served on Mr. Kong because of his conflict of interest cannotbe right. As a director, he is entitled to notice. If he refuses to approve of the plaintiff’s proposed action against himselfand the second defendant, and it can be established that the plaintiff has a valid claim against Mr. Kong for breach of directors’or fiduciary duties, the proper course should be for a derivative action to be brought by Mr. Shek against Mr. Kong, joining theplaintiff as a party. Counsel for the defendants also referred to other alternative courses of action. However, none of these courseswere taken.
9. As the meeting of the directors held on 28 December 2007 was not properly convened, the resolution purportedly passed by Mr. Shekand Miss Ng at the meeting is invalid. Hence the proceedings commenced in the name of the plaintiff on 3 January 2008 were not properlyauthorized and cannot be proceeded with. The injunction granted on 3 January 2008 must be discharged with costs. There is no seriousquestion to be tried or any good arguable case. The summons issued on 4 January 2008 is similarly dismissed, with costs to the defendants.
(Further argument on order to show cause on costs.)
Mr Lawrence Hui, instructed by Messrs C.Y. Lam & Co., for the Plaintiff
Mr. Derry Wong and Mr. Dan Chung, instructed by Messrs Johnnie Yam, Jacky Lee & Co., for the 1st and 2nd Defendants