HCMP1259/2021 HUANGFU CHUANGXIN v. NI YONGKANG AND OTHERS - LawHero
HCMP1259/2021
高等法院（雜項）Mr Recorder Jason Pow SC15/6/2022[2022] HKCFI 1721
HCMP1259/2021
A A
HCMP 1259/2021
B [2022] HKCFI 1721 B
C IN THE HIGH COURT OF THE C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D D
COURT OF FIRST INSTANCE
E MISCELLANEOUS PROCEEDINGS NO 1259 OF 2021 E
______________________
F F
IN THE MATTER OF VOGSUN
G INTERNATIONAL (HK) CO., G
LIMITED (吾尚國際(香港)有限公
H 司) H
I
and I
IN THE MATTER OF Order 102 of
J J
the Rules of the High Court (Cap 4A)
K and K
L IN THE MATTER OF Section 42 of L
the Companies Ordinance (Cap 622)
M M
______________________
N BETWEEN N
O HUANGFU CHUANGXIN (皇甫創新) Plaintiff O
P and P
Q
NI YONGKANG (倪永康) 1st Defendant Q
CHEN JINSHOU (陳金壽) 2nd Defendant
R YU JUN (于軍) 3rd Defendant R
XU ZHONGQING (胥忠慶) 4th Defendant
S VOGSUN INTERNATIONAL (HK) CO., LIMITED 5th Defendant S
(吾尚國際(香港)有限公司)
T THE REGISTRAR OF COMPANIES 6th Defendant T
______________________
U U
V V
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A A
B Before: Mr Recorder Jason Pow SC in Chambers B
Date of Hearing: 18 January 2022
C C
Date of Decision: 16 June 2022
D D
_____________________________
E E
DECISION ON COSTS
_____________________________
F F
G G
1. By an Originating Summons dated 31 August 2021 (the
H H
“OS”), the Plaintiff (“P”) seeks declaratory and other consequential reliefs
I that the following resolutions concerning Vogsun International (HK) Co., I
Limited (the “Company”) are invalid and of no legal effect:-
J J
K (1) An ordinary resolution passed on 21 February 2021 removing K
the Plaintiff as a director of the Company (the “Director
L L
Removal Resolution”).
M M
(2) A special resolution passed on 24 January 2021 amending the
N N
Company’s Articles of Association (the “Articles
O Amendment Resolution”). O
P P
2. The P’s complaint, in gist, concerned various alleged
Q irregularities affecting the notices of the respective meetings for the Q
Director Removal Resolution and the Articles Amendment Resolution.
R R
S 3. Subsequently, P discontinued the present proceedings under S
Order 21 Rule 3. The only outstanding matter between the parties is the
T T
costs of these proceedings.
U U
V V
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A A
B B
4. As P has applied to discontinue the present proceedings
C without going to trial, both counsel agreed that this Court will not be asked C
to determine disputes of fact at the present hearing. I will therefore merely
D D
set out a brief background.
E E
Background
F F
5. the shareholding and corporate structure of the Company may
G G
be summarized in table form below:
H H
Shareholders Directors
I I
P 25% (2,125,000 On 21 February 2021, P was
J J
shares) removed as a director pursuant to
K the Director Removal Resolution K
L D1 40% (3,400,000 D1 L
shares)
M M
D2 20% (1,700,000 D2
N shares) N
D3 10% (850,000 D3 is not a director of the
O O
shares) Company
P P
D4 5% (425,000 On 21 February 2021, D4 was
Q shares) appointed as a director of the Q
Company.
R R
NI KAN is not a shareholder of the NI KAN
S S
Company.
T T
U U
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A A
6. The Company has a wholly-owned subsidiary, Hangzhou
B B
Wushang Biotechnology Co. Ltd. (“Wushang Biotechnology”), a
C company incorporated in the PRC. Wushang Biotechnology in turn wholly C
owns Hangzhou Wushang Food Co. Ltd. (“Wushang Food”), also a
D D
company incorporated in the PRC.
E E
F 7. The following is a chronology of key events:- F
G G
6 Mar 2013 D1, P, D2, D3 and D4 agreed to an “Investment
H Shareholding Agreement”, pursuant to which the H
Company was formed.
I I
J 25 Apr 2015 At the 4th Shareholder’s Meeting of the Company J
(“2015 Amendment Meeting”), P forcibly1 requested
K K
to amend the Articles and required all decisions made
L by the directors of the Company to be made with L
unanimous consent (the “2015 Amendment”).
M M
The notice for the 2015 Amendment Meeting did not
N N
specify the contents of the 2015 Amendment or
O provide any draft of the 2015 Amendment before the O
meeting.
P P
Q The 2015 Amendment was ultimately effected by, Q
inter alia, amending Clause 6 of the Articles,
R R
requiring directors’ decision to be reached
S unanimously. S
T 1
This is the case of the Defendants. The Plaintiff’s case is that he was entitled to do so because there was T
a common understanding that the Company would be run collectively. This is thus a matter in dispute if
the matter goes to trial.
U U
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A A
B B
31 Mar 2018 It is Ds’ case that at the 8th Shareholder’s Meeting of
C the Company, D1 requested that the Articles be C
amended to reverse the 2015 Amendment on the
D D
grounds that the requirement of unanimous consent
E was (i) contrary to law and (ii) causing substantial E
delay and disruption to the Company’s affairs. This
F F
request was refused by P. P denied there were such
G discussions. G
H H
11 May 2019 It is Ds’ case that at the 9th Shareholder’s Meeting of
I the Company, D1 again requested that the Articles be I
amended to reverse the 2015 Amendment for the same
J J
reasons. This was again refused by P. P’s case is that
K there were no such discussions. K
L L
24 Jan 2021 At the 10th Shareholder’s Meeting of the Company
M (the “Articles Amendment Meeting”), there were M
discussions on amending Clause 6 of the Articles
N N
reverting to majority decision of the board. There was
O no draft alterations on the table. It is D’s case that a O
valid special resolution was made, i.e. the Articles
P P
Amendment Resolution. P seeks a declaration of its
Q invalidity. Q
R R
2019 – 2021 It is Ds’ case that P carried out numerous obstructive
S acts which harmed the Company during this period of S
T T
U U
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A A
time, leading to the Director Removal Resolution.
B B
This is a matter in dispute.
C 21 Feb 2021 C
It is Ds’ case that at this Shareholder’s Meeting, the
D D
Director Removal Resolution was passed. P
E challenges this purported meeting saying he was not E
given notice and thus did not attend. P said he was
F F
deprived of the right to make representations to the
G shareholders. P seeks a declaration of its invalidity. G
H H
8 Oct 2021 After the issuance of the OS on 31/8/2021, Ds issued
I a Special Notice of a proposed resolution at a General I
Meeting to remove P as director. D12 explained that
J J
after obtaining legal advice, Ds understood that the
K procedure for the removal of P as director “…可能出 K
現了瑕疵, 為了及早確認[P]在[Company]並沒有董
L L
事的身份,我們認為[Company]應盡早從新發出特
M M
別 通 知 …”. P argues that to be an admission of
N irregularity. Ds argues that they were only acting out N
of prudence in the light of P’s continued obstructive
O O
behaviour.
P P
9 Oct 2021 P was delivered a copy of the special notice
Q Q
[B2/72/669-672].
R R
10 Nov 2021 At the Shareholders’ Meeting, P was removed as
S S
director by ordinary resolution (the “Subsequent
T T
2
In §70 of his affirmation [A/78]
U U
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A A
Director Removal”). P did attend this meeting and
B B
made his case opposing his removal.
C C
D 8. Against the above background, P’s case against Ds is as D
follows:-
E E
F (1) Director Removal Resolution – no special notice was given F
prior to the Director Removal Resolution as required under
G G
section 462 CO.
H H
(2) Articles Amendment Resolution:-
I I
J (a) The Articles Amendment Resolution was inconsistent J
with the agreement and/or mutual understanding of the
K K
shareholders of the Company that the Articles may only
L be altered with the unanimous consent of all the L
M
directors-cum-shareholders (the “Unanimous Consent M
Argument”).
N N
O
(b) The notice for the Articles Amendment Meeting (the O
“Articles Amendment Meeting Notice”) did not
P P
specify that the Articles Amendment Resolution was
Q intended to be a special resolution, as required under Q
section 564(4)(a) CO (the “Lack of Specification
R R
Argument”).
S S
(c) The Articles Amendment Meeting Notice did not
T T
record the text of the Articles Amendment Resolution,
U U
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A A
as required under section 564(4)(b) CO and no draft text
B B
was tabled at the relevant meeting (the “Lack of Text
C Argument”). C
9. P applies for costs against Ds on the following grounds3:
D D
(1) The Director Removal Resolution and the Article
E Amendment Resolution were indeed invalid; E
F
(2) The discontinuance was due to Ds’ acts subsequent to the OS F
rendering it unnecessary or academic for P to proceed with the
G G
OS;
H
(3) On 20 December 2021, Ds unreasonably rejected P’s offer of H
“no order as to costs”; and
I I
(4) On 22 and 24 December 2021, Ds unreasonably refused P’s
J request for statement of costs for P’s consideration of J
potential settlement of costs.
K K
L 10. On the other hand, Ds insisted that P should pay for the costs L
of discontinuance.
M M
N Applicable legal principles N
O O
11. Generally speaking, upon an application for leave to
P discontinue, the discontinuing party will be required to pay the costs of the P
other party.
Q Q
R 12. Whilst costs is ultimately within the discretion of the Court, R
there are well established principles governing the award of costs in the
S S
T T
3
As stated in §4 of P’s Skeleton
U U
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A A
context of discontinuance of proceedings. As summarized in Hong Kong
B B
Civil Procedure 2022 at §21/5/12A:
C “The burden of persuading the court to depart from the general C
rule rests on the party who seeks to withdraw. Good reason
D ought to be shown for departure.” D
E 13. In China Baoli Technologies Holdings Ltd. v. Orient Equal E
International Group Ltd. & ors., CACV 34/2018, [2021] HKCA 1609, at
F F
§17, the Court of Appeal held that “exceptional circumstances” need to be
G shown to justify a departure from the general rule. The fact that the G
discontinuance was caused by the issues becoming academic does not by
H H
itself justify departure from the general rule. The dicta of Recorder Shieh
I SC in Anmol Kumar Sawlani v. Yeshma Gobindram Sawlani, unreported I
HCA 2231/2011, 9 May 2013, at §§10 to 15 were approved.
J J
14. In the Anmol case, Recorder Shieh SC quoted the dictum of
K K
Mortimer VP in Ta Chung China and Arts Limited v. Fontana Restaurant
L Limited [1999] 1 HKLR 404, at 406:- L
“There is no doubt that there are two ways in which a party can
M M
have the matter of costs determined if the liability issues of the
action have become academic. First, he may apply for leave to
N discontinue the action and ask for costs to be determined. In N
those circumstances, although it would not be impossible for the
plaintiff to ask for an order for the payment of costs by the party
O O
against whom he is discontinuing, it undoubtedly would be most
unusual. For my part, I have never come across such a case.”
P P
Q There was an attempt on the part of counsel to argue that the above dictum Q
of Mortimer VP did not survive after the CJR. At §14, the learned
R R
Recorder rejected such argument. Then the learned Recorder concluded in
S §15:- S
T
“…if the parties were not to go to trial to resolve a costs dispute T
in an application for leave to discontinue, then the normal rule
should apply, namely a discontinuing plaintiff should pay costs
U U
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A A
unless it can be demonstrated, without the need to go to trial, that
B
his case is so strong that he is bound to win had it gone on a trial B
and therefore he was justified in commencing the action in the
first place. I cannot see how a lesser standard such as he may be
C 70 per cent right would suffice, because at the end of the day to C
award costs to a party is to recompense him for the fact that he
was justified in issuing the writ in the first place.”
D D
E E
15. Mr Mok for P argued, similar to counsel in Anmol’s case, that
F the dictum of Mortimer VP in Ta Chung’s case did not survive the CJR. I F
reject Mr Mok’s argument in the same way as Recorder Shieh SC did in
G G
Anmol. I am comforted by the fact that the dicta of Recorder Shieh SC had
H received endorsement by the Court of Appeal by which I am bound. In any H
event, the basis of P’s application for costs is that the subject resolutions
I I
were “indeed invalid”. In my view, in order to persuade this Court to
J exercise its discretion to order costs of discontinuance in P’s favour, P has J
to satisfy me that it is bound to win in the first place.
K K
16. Mr Mok relies on Re Peaktop Technologies (USA) HK Ltd.
L L
[2007] 4 HKLRD 207. In that case, the plaintiffs (directors) applied for
M leave to discontinue the originating summons which sought inspection of M
books and records of the Company. The plaintiffs applied for
N N
discontinuance because subsequent to the originating summons, they were
O removed from directorship and hence lost locus. Barma J (as he then was) O
granted leave and awarded costs in favour of the plaintiffs. His Lordship
P P
said:-
Q Q
“7. …It is clear from O.21 r.3(1) of the Rules of the High
Court (Cap.4, Sub.Leg.) that the court has a wide discretion as to
R what, if any, terms should be imposed when giving leave to R
withdraw. The court also has a wide discretion as to costs. It
seems to me that if the circumstances are, exceptionally, such
S S
that a costs order should be made in favour of an applicant who
has obtained leave to withdraw his application, there is no
T jurisdictional bar to the court making such an order. T
U U
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A A
8. Further, it seems to me that when an applicant’s
B
application is doomed to failure by reason not of anything which B
he has done or not done, but because of an act of the respondent
which is within its control and out of the hands of the applicant
C and is, further a step which could have been taken either prior to C
the application being made or at an earlier stage in the
application so as either to obviate the possibility of the
D D
application being made, or to minimize the cost associated with
it, it may well be appropriate to recognize this by an appropriate
E costs order. E
9. I therefore turn to consider whether or not there are, in
F this case, grounds for making an exceptional costs order in F
favour of the applicant…” [emphasis added]
G G
H
17. Mr. Mok seemed to read Re Peaktop as saying that once the H
situation mentioned by Barma J in §8 has arisen, the party seeking
I I
discontinuance is automatically entitled to a costs order in its favour. With
J respect, that is an erroneous reading of the case. It is important to note that J
in Re Peaktop, Barma J was satisfied, based on the materials and arguments
K K
before him, that but for the removal of the applicants as directors of the
L Company, it would have been appropriate to make an order substantially L
in terms sought (see §37). In other words, there is no real conflict between
M M
the Anmol’s case and Re Peaktop.
N N
18. Finally, in respect of the analysis as to whether a plaintiff or a
O defendant is bound to win in a postulated trial, both counsel agreed that O
this court can and should take a broad brush approach as enunciated by To
P P
J in Re Fook Lam Moon Restaurant Ltd. (unreported HCMP 438/2010, 8
Q December 2015) at §41. Q
R R
Discussions
S S
The Director Removal Resolution
T T
U U
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A A
19. Mr Mok submitted that P was bound to succeed (but for the
B B
Subsequent Director Removal) since Ds had admitted that there was flaw
C in the procedure adopted. In D1’s affirmation4 , he effectively admitted that C
no notice of shareholders’ meeting was given to P.
D D
20. Firstly of all, Mr Lai, Counsel for Ds submitted and I accept
E E
that the Defendant’s letter dated 18 Oct 2021 5 does not constitute
F admission that the Director Removal Resolution was invalid. It was made F
clear in the said letter that the Notice for EGM dated 8 Oct 2021 (seeking
G G
ratification of the earlier removal) was issued with a view to avoiding
H further dispute. H
I
21. Secondly, Mr Lai submitted that even if there were flaw in the I
procedure, P’s case is not bound to win (but indeed doomed to fail) because
J J
of the “irregularity principle”. Mr Lai relied on Lam Hon Keung Keith v.
K Dalny Estates Ltd & ors [2018] 1 HKLRD 409 at §18 per G Lam J (as he K
then was):-
L L
“Notwithstanding a breach of the articles, however, there is no
M
dispute that in general, the court may refuse to intervene in an M
internal dispute and set aside the proceeding in question as null
and void merely because of an irregularity such as in the conduct
N of a general meeting, if the same result would have obtained had N
the correct procedure been followed. Thus the irregularity
principle has been applied in Hong Kong in relation to an
O O
inquorate general meeting, so that the court refused to declare
that the directors there elected were invalidly appointed: Lim
P Jonathan v She Wai Hung [2011] 1 HKLRD 305; to a general P
meeting of which requisite notice had not been given, so that the
court refused to strike down resolutions passed there to authorise
Q specified directors to handle legal proceedings against the Q
plaintiff: Re Green Valley Investment Ltd [2003] 2 HKLRD 915;
R to a general meeting where the chairman wrongly called for a R
poll a day before the meeting, so that the court refused to declare
void the resolutions passed there: Re Hong Kong Sailing
S Federation [2010] 1 HKLRD 801.” S
T T
4
§§68 to 70 at A/78
5
C/1062 at 1064
U U
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A A
B B
22. Mr Mok then submitted that the “irregularity principle”
C C
cannot apply in this case because the irregularity was one of “substance”
D
instead of a mere procedural irregularity. Mr Mok relied on sections 462(1) D
and (4) of the Companies Ordinance (Cap. 622) which provides that a
E E
company may by an ordinary resolution remove a director, and a special
F notice is required for such a resolution. Section 463 further provides that F
the company must send a copy of such notice to the director concerned who
G G
is entitled to be heard on the resolution at the said meeting and to make
H representations. Mr Mok further relied on Yeung Bing Kwong Kenneth v H
Mount Oscar Ltd [2019] 3 HKLRD 575 to demonstrate that section 463
I I
guaranteed certain protections to a director who faces removal. Mr Mok
J submitted that the failure to give notice of the Shareholders’ Meeting to P J
was an irregularity of substance for which the “irregularity principle”
K K
could not apply.
L L
23. When being challenged by Mr Lai as to the lack of authority
M to support his limitation of the application of the “irregularity principle”, M
Mr Mok relied on one paragraph in Law of Companies in HK, 3rd ed, Lo
N N
and Qu, pg. 414, where the author said "Where the matter in question is
O not merely an irregularity in the internal management of the company but O
one of substance, and tintured with oppression, the irregularity principle
P P
does not apply." The case of Baillie v. Oriental Telephone and Electric Co
Q Ltd [1915] 1 Ch 503 was quoted in support of that proposition. Q
R 24. In Baillie, company X wholly owned a subsidiary Y. In 1907, R
directors of X (in exercise of the voting powers of X in Y) obtained the
S S
passing of resolutions whereby the articles of Y were altered so as to
T increase the fixed remuneration of the directors. In 1913, an EGM of X T
U U
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A A
was convened by the directors with the object of passing special resolutions
B B
ratifying what had been done by the directors in 1907, authorizing them to
C retain all remunerations received and to be received by them as per the C
1907 articles modification. The notice convening the EGM and an attached
D D
circular set out the proposed resolutions but did not give particulars as to
E the amount (which was very large) of the remunerations which had been E
received by the directors. The resolutions were passed by the requisite
F F
majority and subsequently confirmed. A shareholder (by way of a
G derivative action) sought a declaration that the resolutions were not binding G
on the ground of insufficient notice of the meeting. The evidence revealed
H H
that at the meeting, the chairman gave no detailed information as to the
I directors’ remunerations from Y but merely stated that the directors’ fees I
had averaged since 1881 the sum of £320 per annum for each director. No
J J
statement was made at the meeting by the chairman as to the amount of the
K sums of the payment of which was proposed to be confirmed by the K
resolutions. In fact, some shareholders had previously made objections and
L L
sought for information. One of them even wrote to the directors
M complaining that no full disclosure had been made and that the real amount M
of the remunerations asked to be voted was so concealed and wrapped up
N N
that no one could know what it really was. The chairman did not in his
O reply disclosure the figures, but informed the meeting that he had sufficient O
proxies to carry the resolutions and proceeded to put them to the meeting.
P P
25. In the judgment of Lord Cozens-Hardy MR, his Lordship
Q Q
held6, that if any attempt is to be made by the directors to get the sanction
R of the shareholders, it must be made on a fair and reasonably full statement R
of the facts upon which the directors are asking the shareholders to vote.
S S
On the facts of that case, his Lordship held that the notice and the
T T
6
At page 514
U U
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A A
accompanying circular was “not open, not clear and not in any way
B B
satisfactory”. His Lordship even described the notice and the circular as
C “tricky” by reason of its suppression of information. His Lordship then held C
that the resolutions, obtained by means of a notice which did not
D D
substantially put the shareholders in the position to know what they were
E voting about cannot be supported. E
F 26. It can be seen from all 3 judgments given in Baillie’s case that F
there was no discussion at all on the irregularity principle let alone the
G G
proper limits of such a principle. It was simply a case on whether a
H shareholders’ resolution, obtained through trickery or suppression of H
relevant information by the directors, can be sustained. When I put this
I I
observation to Mr Mok, he fairly accepted that. In my judgment, Baillie’s
J case does not support the aforesaid proposition made by the learned authors. J
Having said that, I of course agree with the proposition that if the effect of
K K
applying the irregularity principle (i.e. by the majority shareholders)
L amounts to an oppression of the minority shareholders, the court will not L
uphold its application. This will be incidental to the court’s equitable
M M
jurisdiction of protecting minority shareholders from oppressions by the
N majority, see Re Green Valley Investment Ltd. [2003] 2 HKLRD 915, §49- N
53. Yet, this was neither the argument of Mr Mok nor the case of P. Mr
O O
Mok argued that the irregularity principle has no application simply on the
P basis that the irregularity was a matter of “substance”. In my view, there is P
no basis for such a distinction. I agree with the submission of Mr Lai, who
Q Q
relied on the Dalny’s case, that the sole question is whether the same result
R would have been obtained had the correct procedure been followed. The R
majority shareholders can validly exercise their voting powers to ratify an
S S
irregularity, whether or not it is trivial or of substance, so long as they
T T
U U
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A A
exercise their voting power fully aware of the nature of that irregularity
B B
and in circumstances that do not involve an oppression on the minority.
C C
27. Mr Lai further relied on Tam Tak Yam v. Man Shing Textiles
D
Ltd. [2019] HKCFI 1449 which is a case specifically on the application of D
the irregularity principle in a situation where no special notice of EGM was
E E
given in relation to a resolution to remove a director. It was also argued in
F that case that such irregularity deprived the said director of his right to F
protest against removal under section 463. DHCJ Patrick Fung SC rejected
G G
the argument that the irregularity principle only applies to “a mere
H formality and irregularity” (see §§53-55) which I respectfully agree. H
I
28. In any event, Mr Mok has failed to persuade me that P is I
bound to succeed on its argument that the irregularity principle has no
J J
application to the facts of this case. On the contrary, I agree with Mr Lai
K that P’s case is bound to fail by reason of the irregularity principle. The K
events leading to the 21 Febuary 2021 Director Removal Resolution were
L L
explained in §60-68 of the D1’s affirmation 7. D1 described the various
M disruptive conducts of P since around May 2019. These allegations are of M
course denied by P8. I am in no position to resolve such factual disputes.
N N
Yet, it is clear that the schism between P and his fellow directors were open,
O full blown and had lasted for quite some time. There were a number of O
direct altercations or clashes between them. It is inconceivable that either
P P
side would not have known exactly the differing points of view of the other.
Q It must have been apparent to P that his fellow shareholders were Q
determined to remove him from the board. P should have realized that even
R R
if he could point to some irregularities in the process, that could not alter
S Ds’ determination to remove him. Consequently, at the 10 Nov 2021 S
T T
7
A/75
8
A/135
U U
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A A
Shareholders’ Meeting, P did attend the meeting to fully make his case
B B
opposing his removal and the majority shareholders nonetheless ratified
C the 21 Feb 2021 Director Removal Resolution. C
D
29. In the circumstances, Mr Lai reminded me of the following D
dictum of Keith J in Trend Publishing (HK) Ltd. v. Vivien Chan & Co.
E E
[1996] 2 HKLR 227 at 231:-
F “In the final analysis, I do not see why a defendant should be F
deprived of costs of an action which it was bound to win, merely
G because the plaintiff discontinued the action for reasons G
unconnected with the likelihood of ultimate success or failure in
the action. If a plaintiff starts an action which is bound to fail, it
H would be wrong to deprive a defendant of its legal costs of the H
action simply on the basis that, irrespective of the merits, it made
commercial sense for the action to be discontinued at an early
I I
stage.”
J J
K The Articles Amendment Resolution K
L
30. In the OS, P relied on 3 grounds to attack the validity of this L
resolution. The first ground is the “Unanimous Consent Argument”. This
M M
argument is based on P’s factual assertion that there was all along an
N
agreement and/or mutual understanding of the shareholders of the N
Company that the Articles may only be altered with the unanimous consent
O O
of all the directors-cum-shareholders. Ds’ case is that factually, there was
P never such agreement or mutual understanding. This is a dispute that can P
only be resolved after trial. P has chosen not to take the matter to trial. I
Q Q
agree with Mr Lai that this issue has simply not been rendered academic.
R Mr Mok tried to argue that the Subsequent Director Removal rendered this R
issue academic in that P is no longer a director and he is no longer
S S
concerned with the amendments to the Articles. I agree with Mr Lai that
T this argument is unmeritorious. Although P has been removed as a director, T
he is still affected by the Articles Amendment Resolution as a shareholder.
U U
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A A
Therefore, P’s unilateral decision to discontinue these proceedings should
B B
be regarded as “having been made out of his private pragmatic
C consideration”. This is insufficient to displace the normal incidence of C
costs (see Re China Solar Energy Holdings Ltd., HCCW 108/2015, 1
D D
March 2016, per DCHJ Le Pichon at §17).
E E
31. As for the other 2 arguments, i.e. the “Lack of Specification
F Argument” and the “Lack of Text Argument”, they are equally covered by F
the irregularity principle. The fact is: given that the Articles Amendment
G G
Resolution was passed as a special resolution by 75% of shareholders, the
H result of the Articles Amendment Meeting would be the same if the alleged H
proper procedure was followed. P has thus wholly failed to demonstrate
I I
that he is bound to win. In fact, there is positive evidence that P clearly
J J
knew that Ds were seeking to revert to the majority rule (the situation prior
K
to the 2015 change). At B2/608 is an explanatory letter circulated to all K
shareholders including P. This letter, though dated 24 January 2021 (the
L L
intended date of the meeting) was in fact circulated on 4 January 2021 as
M shown by a WeChat record at B2/598-599). D1’s Affirmation at §§43-449 M
also deposed that this explanatory letter was actually sent out to
N N
shareholders including P together with the Notice of EGM. This has not
O been disputed in P's reply affirmation. It is also clear from the Minutes of O
the meeting on 24 January 2021 10 that the resolution sought to revert the
P P
Articles back to original position and so as to conform with the Companies
Q Ordinance. It was recorded that P disagreed with the amendment. Q
R 32. These reasons are sufficient to dispose of the matter and it is R
unnecessary for me to resolve those other arguments arising out of certain
S S
T T
9
A/70
10
B1/330
U U
V V
- 19 -
A A
emails exchanged in relation to the 2015 Amendment Meeting Notice
B B
which involve disputed issues of fact. It is obvious that in the light of the
C factual disputes, P cannot possibly demonstrate that he is bound to win. C
D Disposition D
E E
33. In the premises, P has failed to persuade me to depart from the
F general rule that P, being the party seeking to discontinue these F
proceedings, should pay costs to Ds. There is nothing unreasonable in Ds’
G G
rejection of P’s offer of “no order as to costs”. Neither do I find that Ds’
H refusal to provide a statement of costs has any material bearing. H
I I
34. I therefore order that P do pay Ds costs of the action, including
J the costs of discontinuance and the costs of this hearing, to be taxed if not J
agreed.
K K
L L
M M
N N
(Jason Pow SC)
Recorder of the High Court
O O
P P
Mr Billy Mok, instructed by Grandall Zimmern Law Firm, for the Plaintiff
Q Mr Lai Chun Ho, instructed by Nixon Peabody CWL, for 1st to 4th Q
Defendants
R The 5th Defendant: Vogsun International (HK) Co. Limited, was not R
represented and did not appear
S The attendance of the 6th Defendant was excused S
T T
U U
V V
A A
HCMP 1259/2021
B [2022] HKCFI 1721 B
C IN THE HIGH COURT OF THE C
HONG KONG SPECIAL ADMINISTRATIVE REGION
D D
COURT OF FIRST INSTANCE
E MISCELLANEOUS PROCEEDINGS NO 1259 OF 2021 E
______________________
F F
IN THE MATTER OF VOGSUN
G INTERNATIONAL (HK) CO., G
LIMITED (吾尚國際(香港)有限公
H 司) H
I
and I
IN THE MATTER OF Order 102 of
J J
the Rules of the High Court (Cap 4A)
K and K
L IN THE MATTER OF Section 42 of L
the Companies Ordinance (Cap 622)
M M
______________________
N BETWEEN N
O HUANGFU CHUANGXIN (皇甫創新) Plaintiff O
P and P
Q
NI YONGKANG (倪永康) 1st Defendant Q
CHEN JINSHOU (陳金壽) 2nd Defendant
R YU JUN (于軍) 3rd Defendant R
XU ZHONGQING (胥忠慶) 4th Defendant
S VOGSUN INTERNATIONAL (HK) CO., LIMITED 5th Defendant S
(吾尚國際(香港)有限公司)
T THE REGISTRAR OF COMPANIES 6th Defendant T
______________________
U U
V V
- 2 -
A A
B Before: Mr Recorder Jason Pow SC in Chambers B
Date of Hearing: 18 January 2022
C C
Date of Decision: 16 June 2022
D D
_____________________________
E E
DECISION ON COSTS
_____________________________
F F
G G
1. By an Originating Summons dated 31 August 2021 (the
H H
“OS”), the Plaintiff (“P”) seeks declaratory and other consequential reliefs
I that the following resolutions concerning Vogsun International (HK) Co., I
Limited (the “Company”) are invalid and of no legal effect:-
J J
K (1) An ordinary resolution passed on 21 February 2021 removing K
the Plaintiff as a director of the Company (the “Director
L L
Removal Resolution”).
M M
(2) A special resolution passed on 24 January 2021 amending the
N N
Company’s Articles of Association (the “Articles
O Amendment Resolution”). O
P P
2. The P’s complaint, in gist, concerned various alleged
Q irregularities affecting the notices of the respective meetings for the Q
Director Removal Resolution and the Articles Amendment Resolution.
R R
S 3. Subsequently, P discontinued the present proceedings under S
Order 21 Rule 3. The only outstanding matter between the parties is the
T T
costs of these proceedings.
U U
V V
- 3 -
A A
B B
4. As P has applied to discontinue the present proceedings
C without going to trial, both counsel agreed that this Court will not be asked C
to determine disputes of fact at the present hearing. I will therefore merely
D D
set out a brief background.
E E
Background
F F
5. the shareholding and corporate structure of the Company may
G G
be summarized in table form below:
H H
Shareholders Directors
I I
P 25% (2,125,000 On 21 February 2021, P was
J J
shares) removed as a director pursuant to
K the Director Removal Resolution K
L D1 40% (3,400,000 D1 L
shares)
M M
D2 20% (1,700,000 D2
N shares) N
D3 10% (850,000 D3 is not a director of the
O O
shares) Company
P P
D4 5% (425,000 On 21 February 2021, D4 was
Q shares) appointed as a director of the Q
Company.
R R
NI KAN is not a shareholder of the NI KAN
S S
Company.
T T
U U
V V
- 4 -
A A
6. The Company has a wholly-owned subsidiary, Hangzhou
B B
Wushang Biotechnology Co. Ltd. (“Wushang Biotechnology”), a
C company incorporated in the PRC. Wushang Biotechnology in turn wholly C
owns Hangzhou Wushang Food Co. Ltd. (“Wushang Food”), also a
D D
company incorporated in the PRC.
E E
F 7. The following is a chronology of key events:- F
G G
6 Mar 2013 D1, P, D2, D3 and D4 agreed to an “Investment
H Shareholding Agreement”, pursuant to which the H
Company was formed.
I I
J 25 Apr 2015 At the 4th Shareholder’s Meeting of the Company J
(“2015 Amendment Meeting”), P forcibly1 requested
K K
to amend the Articles and required all decisions made
L by the directors of the Company to be made with L
unanimous consent (the “2015 Amendment”).
M M
The notice for the 2015 Amendment Meeting did not
N N
specify the contents of the 2015 Amendment or
O provide any draft of the 2015 Amendment before the O
meeting.
P P
Q The 2015 Amendment was ultimately effected by, Q
inter alia, amending Clause 6 of the Articles,
R R
requiring directors’ decision to be reached
S unanimously. S
T 1
This is the case of the Defendants. The Plaintiff’s case is that he was entitled to do so because there was T
a common understanding that the Company would be run collectively. This is thus a matter in dispute if
the matter goes to trial.
U U
V V
- 5 -
A A
B B
31 Mar 2018 It is Ds’ case that at the 8th Shareholder’s Meeting of
C the Company, D1 requested that the Articles be C
amended to reverse the 2015 Amendment on the
D D
grounds that the requirement of unanimous consent
E was (i) contrary to law and (ii) causing substantial E
delay and disruption to the Company’s affairs. This
F F
request was refused by P. P denied there were such
G discussions. G
H H
11 May 2019 It is Ds’ case that at the 9th Shareholder’s Meeting of
I the Company, D1 again requested that the Articles be I
amended to reverse the 2015 Amendment for the same
J J
reasons. This was again refused by P. P’s case is that
K there were no such discussions. K
L L
24 Jan 2021 At the 10th Shareholder’s Meeting of the Company
M (the “Articles Amendment Meeting”), there were M
discussions on amending Clause 6 of the Articles
N N
reverting to majority decision of the board. There was
O no draft alterations on the table. It is D’s case that a O
valid special resolution was made, i.e. the Articles
P P
Amendment Resolution. P seeks a declaration of its
Q invalidity. Q
R R
2019 – 2021 It is Ds’ case that P carried out numerous obstructive
S acts which harmed the Company during this period of S
T T
U U
V V
- 6 -
A A
time, leading to the Director Removal Resolution.
B B
This is a matter in dispute.
C 21 Feb 2021 C
It is Ds’ case that at this Shareholder’s Meeting, the
D D
Director Removal Resolution was passed. P
E challenges this purported meeting saying he was not E
given notice and thus did not attend. P said he was
F F
deprived of the right to make representations to the
G shareholders. P seeks a declaration of its invalidity. G
H H
8 Oct 2021 After the issuance of the OS on 31/8/2021, Ds issued
I a Special Notice of a proposed resolution at a General I
Meeting to remove P as director. D12 explained that
J J
after obtaining legal advice, Ds understood that the
K procedure for the removal of P as director “…可能出 K
現了瑕疵, 為了及早確認[P]在[Company]並沒有董
L L
事的身份,我們認為[Company]應盡早從新發出特
M M
別 通 知 …”. P argues that to be an admission of
N irregularity. Ds argues that they were only acting out N
of prudence in the light of P’s continued obstructive
O O
behaviour.
P P
9 Oct 2021 P was delivered a copy of the special notice
Q Q
[B2/72/669-672].
R R
10 Nov 2021 At the Shareholders’ Meeting, P was removed as
S S
director by ordinary resolution (the “Subsequent
T T
2
In §70 of his affirmation [A/78]
U U
V V
- 7 -
A A
Director Removal”). P did attend this meeting and
B B
made his case opposing his removal.
C C
D 8. Against the above background, P’s case against Ds is as D
follows:-
E E
F (1) Director Removal Resolution – no special notice was given F
prior to the Director Removal Resolution as required under
G G
section 462 CO.
H H
(2) Articles Amendment Resolution:-
I I
J (a) The Articles Amendment Resolution was inconsistent J
with the agreement and/or mutual understanding of the
K K
shareholders of the Company that the Articles may only
L be altered with the unanimous consent of all the L
M
directors-cum-shareholders (the “Unanimous Consent M
Argument”).
N N
O
(b) The notice for the Articles Amendment Meeting (the O
“Articles Amendment Meeting Notice”) did not
P P
specify that the Articles Amendment Resolution was
Q intended to be a special resolution, as required under Q
section 564(4)(a) CO (the “Lack of Specification
R R
Argument”).
S S
(c) The Articles Amendment Meeting Notice did not
T T
record the text of the Articles Amendment Resolution,
U U
V V
- 8 -
A A
as required under section 564(4)(b) CO and no draft text
B B
was tabled at the relevant meeting (the “Lack of Text
C Argument”). C
9. P applies for costs against Ds on the following grounds3:
D D
(1) The Director Removal Resolution and the Article
E Amendment Resolution were indeed invalid; E
F
(2) The discontinuance was due to Ds’ acts subsequent to the OS F
rendering it unnecessary or academic for P to proceed with the
G G
OS;
H
(3) On 20 December 2021, Ds unreasonably rejected P’s offer of H
“no order as to costs”; and
I I
(4) On 22 and 24 December 2021, Ds unreasonably refused P’s
J request for statement of costs for P’s consideration of J
potential settlement of costs.
K K
L 10. On the other hand, Ds insisted that P should pay for the costs L
of discontinuance.
M M
N Applicable legal principles N
O O
11. Generally speaking, upon an application for leave to
P discontinue, the discontinuing party will be required to pay the costs of the P
other party.
Q Q
R 12. Whilst costs is ultimately within the discretion of the Court, R
there are well established principles governing the award of costs in the
S S
T T
3
As stated in §4 of P’s Skeleton
U U
V V
- 9 -
A A
context of discontinuance of proceedings. As summarized in Hong Kong
B B
Civil Procedure 2022 at §21/5/12A:
C “The burden of persuading the court to depart from the general C
rule rests on the party who seeks to withdraw. Good reason
D ought to be shown for departure.” D
E 13. In China Baoli Technologies Holdings Ltd. v. Orient Equal E
International Group Ltd. & ors., CACV 34/2018, [2021] HKCA 1609, at
F F
§17, the Court of Appeal held that “exceptional circumstances” need to be
G shown to justify a departure from the general rule. The fact that the G
discontinuance was caused by the issues becoming academic does not by
H H
itself justify departure from the general rule. The dicta of Recorder Shieh
I SC in Anmol Kumar Sawlani v. Yeshma Gobindram Sawlani, unreported I
HCA 2231/2011, 9 May 2013, at §§10 to 15 were approved.
J J
14. In the Anmol case, Recorder Shieh SC quoted the dictum of
K K
Mortimer VP in Ta Chung China and Arts Limited v. Fontana Restaurant
L Limited [1999] 1 HKLR 404, at 406:- L
“There is no doubt that there are two ways in which a party can
M M
have the matter of costs determined if the liability issues of the
action have become academic. First, he may apply for leave to
N discontinue the action and ask for costs to be determined. In N
those circumstances, although it would not be impossible for the
plaintiff to ask for an order for the payment of costs by the party
O O
against whom he is discontinuing, it undoubtedly would be most
unusual. For my part, I have never come across such a case.”
P P
Q There was an attempt on the part of counsel to argue that the above dictum Q
of Mortimer VP did not survive after the CJR. At §14, the learned
R R
Recorder rejected such argument. Then the learned Recorder concluded in
S §15:- S
T
“…if the parties were not to go to trial to resolve a costs dispute T
in an application for leave to discontinue, then the normal rule
should apply, namely a discontinuing plaintiff should pay costs
U U
V V
- 10 -
A A
unless it can be demonstrated, without the need to go to trial, that
B
his case is so strong that he is bound to win had it gone on a trial B
and therefore he was justified in commencing the action in the
first place. I cannot see how a lesser standard such as he may be
C 70 per cent right would suffice, because at the end of the day to C
award costs to a party is to recompense him for the fact that he
was justified in issuing the writ in the first place.”
D D
E E
15. Mr Mok for P argued, similar to counsel in Anmol’s case, that
F the dictum of Mortimer VP in Ta Chung’s case did not survive the CJR. I F
reject Mr Mok’s argument in the same way as Recorder Shieh SC did in
G G
Anmol. I am comforted by the fact that the dicta of Recorder Shieh SC had
H received endorsement by the Court of Appeal by which I am bound. In any H
event, the basis of P’s application for costs is that the subject resolutions
I I
were “indeed invalid”. In my view, in order to persuade this Court to
J exercise its discretion to order costs of discontinuance in P’s favour, P has J
to satisfy me that it is bound to win in the first place.
K K
16. Mr Mok relies on Re Peaktop Technologies (USA) HK Ltd.
L L
[2007] 4 HKLRD 207. In that case, the plaintiffs (directors) applied for
M leave to discontinue the originating summons which sought inspection of M
books and records of the Company. The plaintiffs applied for
N N
discontinuance because subsequent to the originating summons, they were
O removed from directorship and hence lost locus. Barma J (as he then was) O
granted leave and awarded costs in favour of the plaintiffs. His Lordship
P P
said:-
Q Q
“7. …It is clear from O.21 r.3(1) of the Rules of the High
Court (Cap.4, Sub.Leg.) that the court has a wide discretion as to
R what, if any, terms should be imposed when giving leave to R
withdraw. The court also has a wide discretion as to costs. It
seems to me that if the circumstances are, exceptionally, such
S S
that a costs order should be made in favour of an applicant who
has obtained leave to withdraw his application, there is no
T jurisdictional bar to the court making such an order. T
U U
V V
- 11 -
A A
8. Further, it seems to me that when an applicant’s
B
application is doomed to failure by reason not of anything which B
he has done or not done, but because of an act of the respondent
which is within its control and out of the hands of the applicant
C and is, further a step which could have been taken either prior to C
the application being made or at an earlier stage in the
application so as either to obviate the possibility of the
D D
application being made, or to minimize the cost associated with
it, it may well be appropriate to recognize this by an appropriate
E costs order. E
9. I therefore turn to consider whether or not there are, in
F this case, grounds for making an exceptional costs order in F
favour of the applicant…” [emphasis added]
G G
H
17. Mr. Mok seemed to read Re Peaktop as saying that once the H
situation mentioned by Barma J in §8 has arisen, the party seeking
I I
discontinuance is automatically entitled to a costs order in its favour. With
J respect, that is an erroneous reading of the case. It is important to note that J
in Re Peaktop, Barma J was satisfied, based on the materials and arguments
K K
before him, that but for the removal of the applicants as directors of the
L Company, it would have been appropriate to make an order substantially L
in terms sought (see §37). In other words, there is no real conflict between
M M
the Anmol’s case and Re Peaktop.
N N
18. Finally, in respect of the analysis as to whether a plaintiff or a
O defendant is bound to win in a postulated trial, both counsel agreed that O
this court can and should take a broad brush approach as enunciated by To
P P
J in Re Fook Lam Moon Restaurant Ltd. (unreported HCMP 438/2010, 8
Q December 2015) at §41. Q
R R
Discussions
S S
The Director Removal Resolution
T T
U U
V V
- 12 -
A A
19. Mr Mok submitted that P was bound to succeed (but for the
B B
Subsequent Director Removal) since Ds had admitted that there was flaw
C in the procedure adopted. In D1’s affirmation4 , he effectively admitted that C
no notice of shareholders’ meeting was given to P.
D D
20. Firstly of all, Mr Lai, Counsel for Ds submitted and I accept
E E
that the Defendant’s letter dated 18 Oct 2021 5 does not constitute
F admission that the Director Removal Resolution was invalid. It was made F
clear in the said letter that the Notice for EGM dated 8 Oct 2021 (seeking
G G
ratification of the earlier removal) was issued with a view to avoiding
H further dispute. H
I
21. Secondly, Mr Lai submitted that even if there were flaw in the I
procedure, P’s case is not bound to win (but indeed doomed to fail) because
J J
of the “irregularity principle”. Mr Lai relied on Lam Hon Keung Keith v.
K Dalny Estates Ltd & ors [2018] 1 HKLRD 409 at §18 per G Lam J (as he K
then was):-
L L
“Notwithstanding a breach of the articles, however, there is no
M
dispute that in general, the court may refuse to intervene in an M
internal dispute and set aside the proceeding in question as null
and void merely because of an irregularity such as in the conduct
N of a general meeting, if the same result would have obtained had N
the correct procedure been followed. Thus the irregularity
principle has been applied in Hong Kong in relation to an
O O
inquorate general meeting, so that the court refused to declare
that the directors there elected were invalidly appointed: Lim
P Jonathan v She Wai Hung [2011] 1 HKLRD 305; to a general P
meeting of which requisite notice had not been given, so that the
court refused to strike down resolutions passed there to authorise
Q specified directors to handle legal proceedings against the Q
plaintiff: Re Green Valley Investment Ltd [2003] 2 HKLRD 915;
R to a general meeting where the chairman wrongly called for a R
poll a day before the meeting, so that the court refused to declare
void the resolutions passed there: Re Hong Kong Sailing
S Federation [2010] 1 HKLRD 801.” S
T T
4
§§68 to 70 at A/78
5
C/1062 at 1064
U U
V V
- 13 -
A A
B B
22. Mr Mok then submitted that the “irregularity principle”
C C
cannot apply in this case because the irregularity was one of “substance”
D
instead of a mere procedural irregularity. Mr Mok relied on sections 462(1) D
and (4) of the Companies Ordinance (Cap. 622) which provides that a
E E
company may by an ordinary resolution remove a director, and a special
F notice is required for such a resolution. Section 463 further provides that F
the company must send a copy of such notice to the director concerned who
G G
is entitled to be heard on the resolution at the said meeting and to make
H representations. Mr Mok further relied on Yeung Bing Kwong Kenneth v H
Mount Oscar Ltd [2019] 3 HKLRD 575 to demonstrate that section 463
I I
guaranteed certain protections to a director who faces removal. Mr Mok
J submitted that the failure to give notice of the Shareholders’ Meeting to P J
was an irregularity of substance for which the “irregularity principle”
K K
could not apply.
L L
23. When being challenged by Mr Lai as to the lack of authority
M to support his limitation of the application of the “irregularity principle”, M
Mr Mok relied on one paragraph in Law of Companies in HK, 3rd ed, Lo
N N
and Qu, pg. 414, where the author said "Where the matter in question is
O not merely an irregularity in the internal management of the company but O
one of substance, and tintured with oppression, the irregularity principle
P P
does not apply." The case of Baillie v. Oriental Telephone and Electric Co
Q Ltd [1915] 1 Ch 503 was quoted in support of that proposition. Q
R 24. In Baillie, company X wholly owned a subsidiary Y. In 1907, R
directors of X (in exercise of the voting powers of X in Y) obtained the
S S
passing of resolutions whereby the articles of Y were altered so as to
T increase the fixed remuneration of the directors. In 1913, an EGM of X T
U U
V V
- 14 -
A A
was convened by the directors with the object of passing special resolutions
B B
ratifying what had been done by the directors in 1907, authorizing them to
C retain all remunerations received and to be received by them as per the C
1907 articles modification. The notice convening the EGM and an attached
D D
circular set out the proposed resolutions but did not give particulars as to
E the amount (which was very large) of the remunerations which had been E
received by the directors. The resolutions were passed by the requisite
F F
majority and subsequently confirmed. A shareholder (by way of a
G derivative action) sought a declaration that the resolutions were not binding G
on the ground of insufficient notice of the meeting. The evidence revealed
H H
that at the meeting, the chairman gave no detailed information as to the
I directors’ remunerations from Y but merely stated that the directors’ fees I
had averaged since 1881 the sum of £320 per annum for each director. No
J J
statement was made at the meeting by the chairman as to the amount of the
K sums of the payment of which was proposed to be confirmed by the K
resolutions. In fact, some shareholders had previously made objections and
L L
sought for information. One of them even wrote to the directors
M complaining that no full disclosure had been made and that the real amount M
of the remunerations asked to be voted was so concealed and wrapped up
N N
that no one could know what it really was. The chairman did not in his
O reply disclosure the figures, but informed the meeting that he had sufficient O
proxies to carry the resolutions and proceeded to put them to the meeting.
P P
25. In the judgment of Lord Cozens-Hardy MR, his Lordship
Q Q
held6, that if any attempt is to be made by the directors to get the sanction
R of the shareholders, it must be made on a fair and reasonably full statement R
of the facts upon which the directors are asking the shareholders to vote.
S S
On the facts of that case, his Lordship held that the notice and the
T T
6
At page 514
U U
V V
- 15 -
A A
accompanying circular was “not open, not clear and not in any way
B B
satisfactory”. His Lordship even described the notice and the circular as
C “tricky” by reason of its suppression of information. His Lordship then held C
that the resolutions, obtained by means of a notice which did not
D D
substantially put the shareholders in the position to know what they were
E voting about cannot be supported. E
F 26. It can be seen from all 3 judgments given in Baillie’s case that F
there was no discussion at all on the irregularity principle let alone the
G G
proper limits of such a principle. It was simply a case on whether a
H shareholders’ resolution, obtained through trickery or suppression of H
relevant information by the directors, can be sustained. When I put this
I I
observation to Mr Mok, he fairly accepted that. In my judgment, Baillie’s
J case does not support the aforesaid proposition made by the learned authors. J
Having said that, I of course agree with the proposition that if the effect of
K K
applying the irregularity principle (i.e. by the majority shareholders)
L amounts to an oppression of the minority shareholders, the court will not L
uphold its application. This will be incidental to the court’s equitable
M M
jurisdiction of protecting minority shareholders from oppressions by the
N majority, see Re Green Valley Investment Ltd. [2003] 2 HKLRD 915, §49- N
53. Yet, this was neither the argument of Mr Mok nor the case of P. Mr
O O
Mok argued that the irregularity principle has no application simply on the
P basis that the irregularity was a matter of “substance”. In my view, there is P
no basis for such a distinction. I agree with the submission of Mr Lai, who
Q Q
relied on the Dalny’s case, that the sole question is whether the same result
R would have been obtained had the correct procedure been followed. The R
majority shareholders can validly exercise their voting powers to ratify an
S S
irregularity, whether or not it is trivial or of substance, so long as they
T T
U U
V V
- 16 -
A A
exercise their voting power fully aware of the nature of that irregularity
B B
and in circumstances that do not involve an oppression on the minority.
C C
27. Mr Lai further relied on Tam Tak Yam v. Man Shing Textiles
D
Ltd. [2019] HKCFI 1449 which is a case specifically on the application of D
the irregularity principle in a situation where no special notice of EGM was
E E
given in relation to a resolution to remove a director. It was also argued in
F that case that such irregularity deprived the said director of his right to F
protest against removal under section 463. DHCJ Patrick Fung SC rejected
G G
the argument that the irregularity principle only applies to “a mere
H formality and irregularity” (see §§53-55) which I respectfully agree. H
I
28. In any event, Mr Mok has failed to persuade me that P is I
bound to succeed on its argument that the irregularity principle has no
J J
application to the facts of this case. On the contrary, I agree with Mr Lai
K that P’s case is bound to fail by reason of the irregularity principle. The K
events leading to the 21 Febuary 2021 Director Removal Resolution were
L L
explained in §60-68 of the D1’s affirmation 7. D1 described the various
M disruptive conducts of P since around May 2019. These allegations are of M
course denied by P8. I am in no position to resolve such factual disputes.
N N
Yet, it is clear that the schism between P and his fellow directors were open,
O full blown and had lasted for quite some time. There were a number of O
direct altercations or clashes between them. It is inconceivable that either
P P
side would not have known exactly the differing points of view of the other.
Q It must have been apparent to P that his fellow shareholders were Q
determined to remove him from the board. P should have realized that even
R R
if he could point to some irregularities in the process, that could not alter
S Ds’ determination to remove him. Consequently, at the 10 Nov 2021 S
T T
7
A/75
8
A/135
U U
V V
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A A
Shareholders’ Meeting, P did attend the meeting to fully make his case
B B
opposing his removal and the majority shareholders nonetheless ratified
C the 21 Feb 2021 Director Removal Resolution. C
D
29. In the circumstances, Mr Lai reminded me of the following D
dictum of Keith J in Trend Publishing (HK) Ltd. v. Vivien Chan & Co.
E E
[1996] 2 HKLR 227 at 231:-
F “In the final analysis, I do not see why a defendant should be F
deprived of costs of an action which it was bound to win, merely
G because the plaintiff discontinued the action for reasons G
unconnected with the likelihood of ultimate success or failure in
the action. If a plaintiff starts an action which is bound to fail, it
H would be wrong to deprive a defendant of its legal costs of the H
action simply on the basis that, irrespective of the merits, it made
commercial sense for the action to be discontinued at an early
I I
stage.”
J J
K The Articles Amendment Resolution K
L
30. In the OS, P relied on 3 grounds to attack the validity of this L
resolution. The first ground is the “Unanimous Consent Argument”. This
M M
argument is based on P’s factual assertion that there was all along an
N
agreement and/or mutual understanding of the shareholders of the N
Company that the Articles may only be altered with the unanimous consent
O O
of all the directors-cum-shareholders. Ds’ case is that factually, there was
P never such agreement or mutual understanding. This is a dispute that can P
only be resolved after trial. P has chosen not to take the matter to trial. I
Q Q
agree with Mr Lai that this issue has simply not been rendered academic.
R Mr Mok tried to argue that the Subsequent Director Removal rendered this R
issue academic in that P is no longer a director and he is no longer
S S
concerned with the amendments to the Articles. I agree with Mr Lai that
T this argument is unmeritorious. Although P has been removed as a director, T
he is still affected by the Articles Amendment Resolution as a shareholder.
U U
V V
- 18 -
A A
Therefore, P’s unilateral decision to discontinue these proceedings should
B B
be regarded as “having been made out of his private pragmatic
C consideration”. This is insufficient to displace the normal incidence of C
costs (see Re China Solar Energy Holdings Ltd., HCCW 108/2015, 1
D D
March 2016, per DCHJ Le Pichon at §17).
E E
31. As for the other 2 arguments, i.e. the “Lack of Specification
F Argument” and the “Lack of Text Argument”, they are equally covered by F
the irregularity principle. The fact is: given that the Articles Amendment
G G
Resolution was passed as a special resolution by 75% of shareholders, the
H result of the Articles Amendment Meeting would be the same if the alleged H
proper procedure was followed. P has thus wholly failed to demonstrate
I I
that he is bound to win. In fact, there is positive evidence that P clearly
J J
knew that Ds were seeking to revert to the majority rule (the situation prior
K
to the 2015 change). At B2/608 is an explanatory letter circulated to all K
shareholders including P. This letter, though dated 24 January 2021 (the
L L
intended date of the meeting) was in fact circulated on 4 January 2021 as
M shown by a WeChat record at B2/598-599). D1’s Affirmation at §§43-449 M
also deposed that this explanatory letter was actually sent out to
N N
shareholders including P together with the Notice of EGM. This has not
O been disputed in P's reply affirmation. It is also clear from the Minutes of O
the meeting on 24 January 2021 10 that the resolution sought to revert the
P P
Articles back to original position and so as to conform with the Companies
Q Ordinance. It was recorded that P disagreed with the amendment. Q
R 32. These reasons are sufficient to dispose of the matter and it is R
unnecessary for me to resolve those other arguments arising out of certain
S S
T T
9
A/70
10
B1/330
U U
V V
- 19 -
A A
emails exchanged in relation to the 2015 Amendment Meeting Notice
B B
which involve disputed issues of fact. It is obvious that in the light of the
C factual disputes, P cannot possibly demonstrate that he is bound to win. C
D Disposition D
E E
33. In the premises, P has failed to persuade me to depart from the
F general rule that P, being the party seeking to discontinue these F
proceedings, should pay costs to Ds. There is nothing unreasonable in Ds’
G G
rejection of P’s offer of “no order as to costs”. Neither do I find that Ds’
H refusal to provide a statement of costs has any material bearing. H
I I
34. I therefore order that P do pay Ds costs of the action, including
J the costs of discontinuance and the costs of this hearing, to be taxed if not J
agreed.
K K
L L
M M
N N
(Jason Pow SC)
Recorder of the High Court
O O
P P
Mr Billy Mok, instructed by Grandall Zimmern Law Firm, for the Plaintiff
Q Mr Lai Chun Ho, instructed by Nixon Peabody CWL, for 1st to 4th Q
Defendants
R The 5th Defendant: Vogsun International (HK) Co. Limited, was not R
represented and did not appear
S The attendance of the 6th Defendant was excused S
T T
U U
V V