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Recent Developments in the Convoy saga

26 Nov 2020

To recap, the present case arises out of a number of legal proceedings stemming from the “allegation that over several years up to 2017, a wrongdoer and fraudster called Roy Cho wrongfully and illicitly acquired and maintained secret ownership in and control over” Convoy Global Holdings Limited (“Convoy Global”), per Coleman J in Re Convoy Global Holdings Ltd [2020] HKCFI 2874.

Convoy Global is a Cayman Islands company, which was formerly listed on the Main Board of the Hong Kong Stock Exchange. The plaintiff, Kwok Hiu Kwan (“Mr Kwok”), is the registered shareholder of 4,468,182,000 ordinary shares in Convoy Global.

At an extraordinary general meeting held on 29 December 2017 (“EGM”), which was chaired by Mr Johnny Chen (“the Chairman”), in response to an objection raised, the Chairman decided that Mr Kwok’s shares shall not be counted, pursuant to Article 74 of the Articles and Restated Articles.

Mr Kwok commenced proceedings to challenge the Chairman’s decision.

On 13 November 2020, in [2020] HKCFI 2874, Coleman J dismissed Mr Kwok’s application for (urgent) injunctive relief in respect of an upcoming extraordinary general meeting of Convoy Global.

On 24 November 2020, in Re Convoy Global Holdings Limited [2020] HKCA 972, the Court of Appeal (per Kwan VP, with whom Barma JA and G Lam J agreed) affirmed the decision of Harris J on the proper construction of the power conferred on the chairman of a general meeting pursuant to Article 74.

At first instance, the application was dealt with in two parts, resulting in two separate decisions: [2018] 6 HKC 394 and [2020] 3 HKC 403.  In the latter decision, Harris J considered, inter alia, (1) what constitutes bad faith; (2) whether it is sufficient to show something less than bad faith, and if so what, in order to overturn the Chairman’s decision; and (3) has bad faith been proved. This is the decision which forms the subject matter of the latest appeal in [2020] HKCA 972.

As to (1), it was held that it is bad faith knowingly to exercise a power for an improper purpose and Harris J accepted that if it is demonstrated that the Chairman’s decision was motivated by a desire to ensure that one camp of shareholders retained control over the board, the Chairman would have acted in bad faith and the Chairman’s decision should be set aside. Regarding (2), the learned Judge held that any suggested qualification to the finality of the Chairman’s decision should be founded on established contractual or company law principles. On (3), Harris J found on the evidence that Mr Kwok had failed to prove that the Chairman’s decision was made in bad faith.

On appeal, Mr Kwok primarily contended that Article 74 should, contrary to the decision of Harris J, be read subject to certain implied qualifications, such that something less than bad faith (i.e. unreasonableness in the Wednesbury sense) would suffice to disturb the Chairman’s decision.

In affirming the first instance decision, the Court of Appeal applied well-established principles on the implication of terms. It was emphasised that whether there should be any such implication is a matter of “value judgment”. The Court of Appeal agreed with the learned Judge’s view that, having regard to the “particular context of article 74”, it is not “necessary or obvious that such a restriction should be implied” (para. 48).

On what is inherently a question of Cayman law, the Court of Appeal was also referred to, and cited, the decision of Segal J (sitting in the Grand Court of the Cayman Islands) in Re China Agrotech Holdings, FSD 68/2019, 16 July 2019. The decision post-dated the first decision of Harris J, but preceded the second. However, Segal J came to the same view as Harris J subsequently did on the proper construction of Article 74 (while noting that this is a point which requires full argument and citation of authority).

The Court of Appeal further addressed questions as to whether there is any significance in the fact that Convoy Global had not previously applied for an interim injunction to restrain Mr Kwok from voting the shares.

DVC’s involvement in [2020] HKCFI 2874 and [2020] HKCA 972:

Johnny Mok SC and Frances Lok acted for Mr Kwok.

José-Antonio Maurellet SCJason Yu and Jasmine Cheung acted for the Chairman (in [2020] HKCA 972 only).

William Wong SCChristopher Chain (in [2020] HKCFI 2874 only), Michael Lok (in [2020] HKCA 972 only), Lai Chun Ho acted for Convoy Global.