Chung Keng v. Pearl Oriental Oil Ltd
Court of First Instance
Miscellaneous Proceedings No 1795 of 2018
Recorder Stewart Wong SC in Chambers
14, 20 November 2018

Company law — statutory derivative action — written notice to company of intention to commence action — bare assertions of breach of fiduciary duties without reasons inadequate under s.733(4) —leave granted to dispense with written notice under s.733(5) — Companies Ordinance (Cap.622) s.733(4), 733(5)

Under s.733(3) of the Companies Ordinance (Cap.622), a member of a company must serve 14 days’ written notice on the company of his intention to apply for leave to commence a statutory derivative action under s.732 and, under s.733(4)(b) the “reasons for that intention”. C, a company, argued that the application for leave by a shareholder under ss.732(1) and 733 should be dismissed for non-compliance with s.733(1)(c) because only one of the complaints set out in the draft statement of claim was stated in the notice served earlier.

Held, granting leave to dispense with the written notice and adjourning the application for leave, that:

  • The purpose of a notice under s.733(4) is to allow the company concerned to consider what to do with the complaints. The notice must include sufficient details and particulars of each of the complaints. What constitute sufficient details and particulars is a question of fact in each case, the test being whether the directors as reasonable commercial persons, with their knowledge of the company’s affairs, would be in a position, when reading the notice, to make a proper informed decision on how to respond (Fong Wai Lyn Carolyn v Airtrust (Singapore) Pte Ltd [2011] 3 SLR 980, Re Up Profit Ltd (HCMP 305/2016, [2016] HKEC 2275) applied). (See paras.13–16.)
  • Here, only one of the complaints was mentioned in the notice. The bare assertion of breach of fiduciary duties without reasons was inadequate. C was not in a position to respond to them. However, the Court would grant leave under s.733(5) to dispense with the written notice as it was just to do so. Section 733(1)(c) allows the dispensation to be granted any time before leave to commence a derivative action is granted. The question is whether, in all the circumstances, including in particular the intended purpose of the written notice and any likely prejudice or wastage of costs one way or another in granting or refusing dispensation, it was just to grant dispensation. The draft statement of claim with particulars of all the complaints was served 22 days before this hearing without any response and the failure to give full details in the notice was immaterial, no prejudice would be caused, and it would be a complete waste of time to dismiss the leave application for all complaints save one and start that whole process afresh (Re China Shanshui Investment Co Ltd (HCMP 360/2015, [2015] HKEC 437) applied). (See paras.17–22.)

Application

This was an application by a shareholder of the subject company for leave to commence a statutory derivative action. The facts are set out in the judgment.

Jurisdictions: 

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