In Chen Ming v Chen Jiagan [2025] 2 HKLRD 66, Linda Chan J dismissed an interim injunction application by the plaintiff, who was an executive director and former chairman of Xin Yuan Enterprises Group Limited (a listed company) but not its shareholder, and struck out the writ.
By the application, the plaintiff sought an injunction against other directors of the board for passing resolutions to remove him as chairman and allot shares in the company, allegedly in breach of the articles of association and their fiduciary duties.
The judge held that the articles of association are a statutory contract between the company and its members, not between directors or between directors and the company. Only members can enforce the articles of association or claim for their breach. As the plaintiff is not a shareholder, he has no standing to sue for breach of the articles of association.
Furthermore, directors owe fiduciary duties to the company, not to each other or to non-shareholder directors. If the company suffers a loss due to a director’s breach, the proper claimant is the company itself, typically via a derivative action brought by a shareholder. The plaintiff, not being a shareholder, cannot bring such an action.
Sections 728-729 of the Companies Ordinance (Cap. 622) allow members or creditors to seek injunctions for breaches of the Companies Ordinance or the articles of association. However, as the plaintiff is not a member, he cannot rely on these provisions. Section 729 does not create a free-standing right to relief; it is only available where there is a substantive cause of action, which the plaintiff lacks.
In any event, the judge found no urgency or risk of injustice justifying interim relief. In particular, the plaintiff’s own conduct in e.g. convening meetings on short notice and contravening corporate checks and balances undermined his claim to equitable relief.
This case underlines the importance of properly identifying and formulating claims by directors with reference to applicable company law principles to obtain relief from the Companies Court.
For a related discussion on the jurisdictional limits of Sections 728-730 of the Companies Ordinance on damages claims by shareholders, please click here.
Read the judgment here at: https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=166618&QS=%2B&TP=JU
Mr Justin Lam was instructed by Stephenson Harwood for the 1st and 3rd Defendants.
