Irregularity principle clarified: no distinction between “minor” irregularities and “substantive” defects; only question is inevitability

Zhong Da Mining Holding Limited v Lam Wo Ping & Ors [2024] HKCFI 1613

This decision is now reported in [2024] 3 HKLRD 365.

Ms. Deanna Law and Ms. Nicole Chui (acting for D1-D3) successfully resisted P’s s.42 Companies Ordinance (Cap. 622) (“CO”) application for a declaration that certain filings at the Companies Registry are null and void and an order that they be removed.

The dispute concerned control over P’s Hong Kong subsidiary (“HKCo”).  D1 (sole director of P, a BVI company), had signed various resolutions and forms to remove a director, change the company secretary and registered address of HKCo and to allot additional shares in HKCo to D2 (diluting the P’s shareholding in HKCo) in a manner that did not comply with HKCo’s articles and/or provisions of the CO.

However, D1-D2 relied on the irregularity or Duomatic principle (premised on the assumption that D1/D2 are the beneficial owner(s)).

Importantly, Deputy High Court Judge Sara Tong SC agreed with D1-D2 that there is no proper basis for distinguishing between “minor” irregularities and “substantive” defects in applying the irregularity principle:

• The correct legal position was set out by the Court of Appeal in Re Dalny Estates Ltd [2018] 1 HKLRD 409 – the only question is whether the same result would inevitably have been obtained had the correct procedure been followed (§43).
• A closer examination of the 3 first instance authorities cited by P (Lohas Holding Ltd [2022] 5 HKLRD 653, Re Bluetroz Technology Limited [2022] HKCFI 3645 and Cyntia Hendrayani v Oligo Asia Environmental Group Limited [2023] HKCFI 3080) revealed that they do not support this distinction (§§36-38).
• By contrast, certain cases recognised the correctness of applying the irregularity principle to the removal of directors in situations which, on P’s case, would be a “substantive” defect (Tam Tak Yam v Man Shing Textiles [2019] HKCFI 1449 and Huangfu Chuangxin v Ni Yongkang & Ors[2022] HKCFI 1721) (§§39-42).

Since the application of the irregularity principle was premised on the determination of the beneficial ownership of P which were subject to a pending BVI Appeal and there were substantial disputes of fact, DHCJ Sara Tong SC ordered that P’s originating summons continue as if begun by writ.

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