Boardroom battles are becoming more common in Hong Kong, particularly in a listed company context. A boardroom can be a place where individuals with the best intentions for a company can exchange views, but it can also be a hotbed for conflict when disagreements arise. A recent Court of First Instance judgment sets out some reminders of the cardinal principles which an applicant in a boardroom battle should observe in an ex parte application, particularly those involving an order restraining another party from exercising voting rights at a company’s general meeting.
- Ex parte injunction applications are exceptional, and the Court would not entertain such applications unless there are cogent justifications showing (1) extreme urgency and/or (2) need for secrecy. Where there is no such justification to make an ex parte application, the Court can set aside any order obtained on that ground alone.
- Injunction applicants are reminded of the duty to make full and frank disclosure in ex parte applications, i.e. that they must disclose all the facts and points of law relevant to the application even if these may not be in their favour.
- All reasonable means should be taken to notify a counterparty of an injunction application. Where appropriate, telephone calls or emails should be made to parties who might be affected by the application. Notices should be made at the earliest opportunity and should not be left to the last moment. Otherwise, the applicants might have to face a real risk of having the ex parte order discharged, with unfavourable cost orders to follow.
- In respect of injunctions sought to affect exercise of voting rights, such applications typically do not call for secrecy. Applicants are encouraged to seek an injunction at the earliest opportunity with notice to all parties concerned.
- “Duty judge shopping” should be discouraged. Where appropriate, parties involved in a series of linked litigation should attempt to identify the judge or judges with prior involvement in the serial litigation.
In more detail
The Petitioner claims to be a shareholder of the Company, the 1st Respondent. The 2nd to 12th Respondents are directors of the Company. The 13th to 15th Respondents are shareholders of the Company. On 18 February 2021, an AGM was called to be held at 5 pm on 18 March 2021.
Minutes before the start of the AGM on 18 March 2021, the Petitioner took out an ex parte application seeking urgent interlocutory injunctive relief. The primary relief was that the Company be restrained from counting shares held by the 13th to 15th Respondents at the AGM. Alternatively, the Petitioner requested that the Company be restrained from convening and proceeding with the AGM. As a further alternative, the Petitioner requested an interim interim injunction restraining the Company from holding the AGM until an early date with filing directions.
The Petitioner’s request for an interim interim injunction was initially granted at the ex parte hearing but was subsequently discharged by Mr. Justice Coleman on the basis of “grave errors and egregious abuse”. His Lordship confirmed that as a matter of principle, ex parte orders are only made “where the situation is of such extreme urgency that there is literally no time to warn the defendant of what is proposed or where the purpose of the injunction will or may be frustrated if the defendant is informed”. His Lordship also found that the Petitioner failed to provide reasonable notice to the parties concerned and found that the material non-disclosure on the ex parte application was massive and serious.
The following are some of Coleman J’s findings in relation to the Petitioner’s errors and abuse.
- The time pressure in taking out the application was self-induced.
- The Petitioner’s shares were already disqualified at the EGM held on 7 January 2021, i.e. more than two months before the AGM. If the Petitioner were genuinely concerned that the shareholding would be disqualified, he should have made the application earlier. However, the application was taken at the very last moment, in the afternoon of the AGM, with the hearing commencing just 12 minutes before the start of the AGM. By the time the hearing ended, the AGM was already about to finish.
- The notices purportedly given by the Petitioner were unsatisfactory and there was no need for any secrecy in this case.
- The Petitioner’s solicitors only sent a letter to the Company and its solicitors at 4:38 pm, namely just 22 minutes before the AGM was due to commence. Despite the terms of the draft injunction order already presented at the initial ex parte application, the letter did not suggest that any application was being made against the Company, or that there was any application to prevent or to interrupt the holding of the AGM. The letter also did not provide any detail and/or materials in relation to the ex parte application. Even if the recipient of the letter had wished to rush to the Court, there was simply no information as to when or where to go.
- In respect of the shareholders including 13th to 15th Respondents (whose voting rights were the focus of the ex parte application), letters similar to that sent to the Company were only sent to them by post. It was clearly impossible for them to have been notified of the ex parte hearing before it began (in particular the letters were sent by post to a PO Box address in the British Virgin Islands for 13th and 14th Respondents). Coleman J went further to say that he refused to “accept that anyone could have honestly believed these letters were giving any prior notice, let alone any proper notice, to any of those defendants of the hearing. Simply telling someone in a letter to be sent by post that you are in the process of applying for some form of injunction against them, is frankly, ridiculous. The letters were utterly pointless, and can only be described as a complete charade.”
- The Petitioner’s solicitors were instructed to make the ex parte application at around 12 noon, and a trainee solicitor of the Petitioner’s solicitors had telephoned the Deputy Clerk at around 12:30 pm seeking an urgent ex parte injunction hearing no later than 4 pm that day. There were also three further follow up calls with the Deputy Clerk between 2 pm to 3 pm. Coleman J commented, among other things, that a deliberate decision was made not to telephone any party who might be affected by the application, and to wait until almost the last moment before purporting to give notice of the hearing.
- The Petitioner fell short of its full and frank disclosure obligations.
- The judge at the initial ex parte application was not informed that the Petitioner was not a registered member of the Company and that there was an extant application to strike out his Petition, including on the basis that he has and had no locus standi to bring the unfair prejudice proceedings.
- By the time the ex parte application was being heard, the AGM had been validly called and commenced. However, the judge was not informed of the principle that once an AGM is validly called, it is no longer competent for the Company or its directors to postpone the meeting except as per the prescribed procedures in the articles of association.
- While the application was due to Petitioner’s belief that the Company would act in bad faith and discount his votes in the AGM, a majority of his votes could not have been cast in the AGM as a matter of fact. The Petitioner instructed his solicitor as the proxy relating to voting of a majority of his alleged shareholding at the AGM. However, his solicitor, instead of participating in the AGM, chose to attend the ex parte hearing in the courtroom. Therefore, the Petitioner’s votes could not have been precluded from being counted in the AGM as they would not be cast in the AGM at all.
- Coleman J concluded that the application was an “intended ambush” of the AGM and ordered costs on indemnity basis against the Petitioner and left open the possibility of ordering wasted costs order against Petitioner’s solicitors personally.
- By way of closing remarks, Coleman J recommended that, in other similar series of linked litigation, applicants might identify to the Deputy Clerk at the time of seeking an urgent hearing the specific identity of the judges who might be well-placed to deal with the hearing in light of their previous involvement in the related litigation. For instance, given that he has already been involved in the serial of litigation concerning the Company, he might well have been able (or have felt obliged) to make time to have heard this application and had he done so, it may have saved considerable amount of court time and parties’ expenses.