Power of Chairman at General Meeting to Disallow a Member’s Vote12May2020
The general rule under the Companies Ordinance (Cap. 622) subject to the provisions of a company’s articles is that every member present in person or by proxy is entitled to vote at a general meeting.
This general rule was tested in the case of Kwok Hiu Kwan v Johnny Chen and Others,  HKCFI 2112 and  HKCFI 324). In that case, the Plaintiff, Kwok was a registered shareholder of a Cayman Islands-registered company (“Company”) which was listed in Hong Kong, while Chen was a director of the Company and chairman (“Chairman”) of an extraordinary general meeting (“EGM”) of the Company. At the EGM, Kwok’s qualification to vote was challenged by an attendee, on the basis that Kwok was alleged to be part of a conspiracy whereby shares were wrongfully allotted and subscribed to using resources of the Company, and that Kwok’s holding of shares was the result of wrongful allotment. Relying on the Company’s articles, the Chairman disallowed Kwok from voting at the EGM. Kwok subsequently issued an originating summons, seeking, inter alia, a declaration that the Chairman’s decision was unlawful, void and/or of no legal effect.
The Company’s articles provides that:
“If…any objection shall be raised to the qualification of any voter….Any objection…shall be referred to the chairman of the meeting and shall only vitiate the decision of the meeting on any resolution if the chairman decides that the same may have affected the decision of the meeting. The decision of the chairman on such matters shall be final and conclusive.”
The court considered the issues in this case at two hearings resulting with two written decisions. In the first decision dated 13 September 2018, the court considered the issues of whether the Chairman had the power under the Company’s articles to determine an objection to a member’s votes being counted, and if so, whether that decision is final and conclusive.
Based on Cayman principles of construction, the court found that the Company’s articles should be interpreted from the view of a reasonable commercial person. On that basis, the court found that the Company’s articles allow the Chairman to decide on an objection to a member’s qualification to vote. The court further found that unless the decision was made in bad faith, the decision by the Chairman is final and conclusive. In reaching this conclusion, the court stated that it is not unusual for shares to be acquired on terms that restrict the voting rights attached.
In the second decision dated 4 March 2020, the court considered the issues of whether the Chairman’s decision to disqualify Kwok’s votes should be set aside on the basis of bad faith. Furthermore, the court considered whether the Chairman’s decision may be challenged on the ground that it was manifestly wrong.
On the first issue, the court stated that bad faith is a serious allegation and must be clearly identified and proved, and that inferences of bad faith may only be drawn if such inferences are compelling. On the facts of the case, the court found no compelling inference can be drawn that the Chairman acted in bad faith.
On the second issue, it was argued on behalf of Kwok that that the Company’s articles gave the Chairman a discretion to decide whether to exclude a member’s votes, and that such discretion must not be exercised unreasonably, arbitrarily, capriciously, or irrationally. It was also argued that the articles of the Company contain the implied condition that the Chairman’s decision is not final and conclusive if it is manifestly wrong.
The court found that the articles of the Company do not give the Chairman a discretion to decide whether to exclude a members’ vote. Furthermore, the final and conclusive nature of the Chairman’s decision was not qualified by an implied condition that if such decision was manifestly wrong, it would not be final and conclusive. Accordingly, the court dismissed Kwok’s originating summons.
Although this case concerns a company registered in the Cayman Islands, from the two decisions discussed above, it appears that the Hong Kong courts’ general approach to companies’ articles empowering the chairman of a general meeting to determine if a member’s vote is counted can be summarised as follows:
- There is nothing objectionable in a company’s articles giving the chairman of a general meeting the power to determine an objection to a member voting with respect of his shares.
- The company’s article may provide that the chairman’s decision with regard to a member’s qualification to vote to be final and conclusive.
- The decision by the chairman may be set aside if it is made in bad faith.
Eddie Look and Raymond Ko
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
 Section 588 of the Companies Ordinance.