Zhu Jiang Finance Ltd v American Dream in Guangzhou Ltd and Others

• Jurisdiction: British Virgin Islands
• Court: High Court (British Virgin Islands)
• Judge: HARIPRASHAD-CHARLES J
• Judgment Date: 13 November 2006
• Docket Number: Claim No. BVIHCV2003/0121
• Date: 13 November 2006

THE EASTERN CARIBBEAN SUPREME COURT

IN THE HIGH COURT OF JUSTICE (CIVIL)

Before: Her Ladyship Honourable Justice Hariprashad-Charles

Claim No. BVIHCV2003/0121

BETWEEN

Zhu Jiang Finance Ltd

Claimant

and

American Dream in Guangzhou Ltd

Tony Hon Pong Chu

Pak Tao Fung

Defendants

Appearances:

Mr. Paul Dennis and Mr. Malcolm Arthurs of O'Neal Webster for the Claimant

Mr. Richard Evans of Conyers Dill & Pearman for the Defendants

Cases referred to and considered in the judgment:

1. Young v Ladies' Imperial Club Ltd. [1920] 2 K.B. 523.

2. Re Homer District Consolidated Gold Mines Exparte Smith [1883] Ch. D. 546.

3. Smyth v Darley [1849] H.H.L.C. 769.

4. Browne v La Trinidad (1877) 37 Ch. D. 1.

5. Leary v National Union of Vehicle Builders [1970] 2 All E.R. 713.

CATCHWORDS:

Commercial Law — Whether Directors' Meeting was validly held — Notice of Meeting sent but not received — Section 49 (3) of the IBC Act considered — Notice sent to address for director that was in register of directors and which was correspondence address for other director — Notice was sent with knowledge that the directors were not located at that address — Whether address where notice was sent was appropriate — Whether the motive for holding the meeting is important.

HEADNOTE:

The Claimant is an IBC registered in the BVI. At all material times, Ms. Chou and Mr. Lin equally owned the issued shares in the Claimant. They were also its directors. The First Defendant (‘the Company’) is also a BVI IBC. It has a share capital of $50,000, divided into 50,000 shares of par value of $1.00 each. In March 2000, the Claimant acquired the 1,000 issued shares of the Company and thus became its sole shareholder. In or about June 2001, the Company commenced the University Project. This project was to be divided into different phases. It was estimated that the first phase would cost approximately RMB 80M.

The Claimant through its principals, Mr. Lin and Ms. Chou agreed with the Second Defendant (‘Mr. Chu’) and the Third Defendant (‘Mr. Fung’), that in consideration of the said Defendants contributing 10% of the estimated cost of the project, the Claimant would transfer to each of them 10% of its issued shares in the Company. The Claimant subsequently transferred 100 of the 1000 issued shares to Mr. Chu and 100 to Mr. Fung through their respective companies. After the transfer of the shares, Mr. Lin, Ms. Chou, Mr. Chu and Mr. Fung were directors of the Company.

The first phase of the University Project was completed and the University opened its doors to the first set of students in September 2002. The cost of the first phase had escalated to RMB 92M. Subsequently the relationship between Mr. Lin and Ms. Chou on one hand and Messrs Chu and Fung on the other deteriorated.

On 30 January 2003, Mr. Chu instructed a Mr. Lam to send notices of the Directors' Meeting to be held on 10 February 2003. The notices for Mr. Lin and Ms. Chou were sent to Mr. Fung's business address in Hong Kong. Both Messrs. Chu and Fung knew that the other two directors spent most of their time at the University in China. Mr. Lin and Ms. Chou did not receive the notice of the meeting. At that meeting Messrs Chu and Fung passed a resolution whereby the Company's 49,000 un-issued shares were issued to their companies, and to individuals who were either employees or personal friends of Mr. Chu. At that meeting four new directors were appointed. This allotment of shares had the effect of diluting the shareholding of the Claimant from 80% to 1.5%. At a subsequent meeting, the board of directors passed a resolution removing Mr. Lin and Ms. Chou as directors of the Company.

On the 11 June 2003, Messrs. Chu and Fung with the assistance of private security guards entered the administration building of the University and purported to take control claiming to be majority shareholders of the Company and asserting that Mr. Lin and Ms. Chou were no longer directors. Mr. Chu indicated that he had valid reasons for calling the meeting on 10 February 2003 and for the removal of Mr. Lin and Ms. Chou as directors of the Company.

HELD:

• 1. The purpose or reason for calling the directors' meeting is irrelevant to the issue of whether the directors' meeting was validly held. A meeting that is invalidly held cannot be allowed to stand because the motive for holding the meeting might have been honourable.

• 2. The Notices were in fact sent to Mr. Fung's address for Mr. Lin and Ms. Chou. Neither of them received the Notice.

• 3. The address where the Notices were sent was not an appropriate address. Though the address is the address of Mr. Lin in the register of directors and is the correspondence address for Ms. Chou,, it is not an address where they could reasonably be contacted. Mr. Chu knew that Mr. Lin and Ms. Chou would more often than not, be spending a significant amount of time in China running the University. He also knew that they were not present in Hong Kong at the material time. Mr. Chu was in a position to contact them in China where they spent most of their time.

• 4. By virtue of the Article 73 of the Company's Articles of Association and Section 49 (3) of the IBC Act, the fact that the director does not receive the notice does not invalidate the meeting. However these provisions do not apply to situations where the notices were intentionally not sent. It follows that they do not apply to those circumstances where they were sent and the sender knew that they would not be received.

• 5. The Notices to Mr. Lin and Ms. Chou of the Directors' Meeting held on 10 February 2003 were sent in bad faith. They were sent knowing that they would not be received and this equates to intentionally not sending notice. As a result, Mr. Chu cannot rely on Article 73 or Section 49(3) of IBC Act.

• 6. The purpose for the Directors' Meeting is of paramount importance. The Meeting was held to remove Mr. Lin and Ms. Chou from their majority position in the company. The meeting whittled their interest in the Company from 80% to 1.5% and stripped them of their powers in the Company. It is clear that both Messrs. Chu and Fung knew that if Mr. Lin and Ms. Chou had had notice of the Meeting, they would have been there and would have objected to the resolution. Therefore, what was done at the meeting were not acts of the directors and did not bind the Company. The resolution passed at that meeting is therefore invalid and of no effect.

• 7. The purported issue of the un-issued shares, the appointment of new directors and the subsequent purported removal of Mr. Lin and Ms. Chou as directors are invalid.

HARIPRASHAD-CHARLES J

1 The preliminary issue for determination is whether the Directors' Meeting of the First Defendant held on 10 February 2003 was valid?1 In order to answer this question, it is necessary to set out the background facts. Some of what I now outline reflects uncontradicted and unchallenged evidence of the parties. To the extent that there is a departure from any agreed facts, then what is expressed must be taken as positive findings of fact made by me.

Background Facts

2 The Claimant (‘Zhu Jiang’) is an International Business Company (‘IBC’) registered in the British Virgin Islands (‘BVI’) on 28 January 2000. At all material times, the issued shares in Zhu Jiang were equally owned by Ms. Charlotte Chou (‘Ms. Chou’) and Mr. Lin Yong Ping (‘Mr. Lin’). They were the only directors.

3 The First Defendant (‘The Company’) is also an IBC incorporated in the BVI on 21 June 1995. In May 1996, it merged with another BVI IBC. The surviving entity of the merger was the Company. Its share capital is and was at all material times $50,000.00, divided into 50,000 shares of par value $1.00 each.

4 The Company was originally formed for a Chinese joint venture project in Guangzhou, the People's Republic of China. Its then sole shareholder was American Dream Parks and Entertainment Ltd, also a BVI IBC. The Chinese joint venture project was aborted and in or about March 2000, Zhu Jiang acquired the 1,000 issued shares of the Company and thus became its sole shareholder.

5 In or about June 2001, the Company commenced another project which involved the establishment of a University in Guangzhou (‘the University Project’). The University Project was to be divided into different phases. It was estimated that the first phase would cost approximately 80 million Renminbi (RMB).

6 Zhu Jiang through its principals Mr. Lin and Ms. Chou agreed with the Second Defendant (‘Mr. Chu’) and the Third Defendant (‘Mr. Fung’), that in consideration of the said Defendants contributing 10% of the estimated cost of the project, Zhu Jiang would transfer to each of them 10% of its shares in the Company. On 8^th February 2002, Zhu Jiang transferred 100 of the 1,000 issued shares of the Company to Mr. Chu and 100 shares to Mr. Fung through their respective companies Cumena Ltd and DDK (BVI) Ltd. As such, the shares in the Company were, after 8 February 2002, held as to 80% by Zhu Jiang, as to 10% by Cumena Ltd and as to 10% by DDK (BVI) Ltd.

7 By virtue of their ownership and control of Zhu Jiang, Mr. Lin and Ms. Chou owned 80% of the Company's shares while through Cumena Ltd and DDK (BVI) Limited, Mr. Chu and Mr. Fung controlled 20%. After the transfer of the shares to Messrs. Chu and Fung, the duly appointed directors of the Company were Mr. Lin, Ms. Chou, Mr. Chu and Mr. Fung.

8 The first phase of the University Project was completed and the University opened its doors to the first batch of students in September 2002. By this time the total cost of the first phase of the project had escalated to RMB 92 million. Zhu Jiang made arrangements to cover the difference.

9 On 11 June 2003, some 9 months after the University Project commenced its operation, Messrs. Chu and Fung with the assistance of private security guards entered the...