In the recent Hong Kong case of Chen Ming v Chen Jiagan, the Court dismissed a director’s claim that a resolution of the board removing him as chairman of a Company was in breach of the Company’s articles. This decision confirms the well-established principle that a director is not a party to the articles of a company and has no locus  to complain about its breach.

The Plaintiff, a director of a Company incorporated in the Cayman Islands and listed in the main board of the Stock Exchange of Hong Kong, commenced proceedings by way of writ of summons (the Writ) against 6 directors and the company secretary of the Company. The only cause of action pleaded was that the resolutions passed at a board of directors meeting on 17 December 2024, in removing him as chairman of the Company and from the nomination committee (the Resolutions), were passed in breach of the articles of the Company. The relief sought only pertained to the same Resolutions.

The Plaintiff also issued a summons seeking, inter alia, an interim injunction to restrain the Defendants from acting upon the Resolution, allotting new shares and changing the composition of the board (the Summons).

The Court struck out the Writ on the ground that they are plainly demurrable and unsustainable.

In doing so, the Court confirmed the principle that the articles of association is a statutory contract between the company and its members and it regulates the rights between the company and its members and the members inter se. The rights and liabilities of the members under the articles can only be enforced by or against the company or its members, citing English authority London Sack & Bag Co Ltd v Dixon & Lugton Ltd  [1943] 2 All ER 763 and the Hong Kong case of Newmark Capital Corp Ltd v Coffee Partners Ltd  [2007] 1 HKLRD 718.

The Court also confirmed that, under the laws of the Cayman Islands, a company’s articles of association constitute a multi-party, statutory contract between the company and its members and the members inter se. And that while directors are obliged to act in accordance with a company’s articles of association, it does not render the directors parties to the articles or provide them with the requisite standing or right to complain about any breach of the articles against fellow directors.

The Plaintiff argued that his standing arose by virtue of being a director removed by the Resolution. This argument was rejected by the Court.

The Plaintiff also contended that the Resolutions were invalid as they were made in breach of the directors’ fiduciary duties. The Court found that such contention was wholly misconceived – it is long recognised in common law that save in exceptional circumstances, directors owe their fiduciary duties to the company alone (and not to fellow director). Where the company suffers any loss as a result of an actionable wrong, the cause of action vests in the company and the company alone can sue. The Court further commented that even for a member to bring a claim for breach of fiduciary duties against the directors, the member must do so by way of a common law or statutory derivative action in the name of the company.

It was held that, as the Plaintiff was not a shareholder of the company, he had no cause of action against the Defendants for any breach of the articles (to which none of them were parties). Further, he had no right to commence any derivative action on behalf of the Company against other directors.

The Court also dismissed the Summons – there is no basis to grant any “interim-interim” relief sought by the Plaintiff even if, contrary to the Court’s view, the Plaintiff does have any cause of action against the Defendants. The Court highlighted that no relief is sought in respect of the allotment of shares or the change of the board in the Writ.