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HCAL 250/2017 B

IN THE HIGH COURT OF THE C

HONG KONG SPECIAL ADMINISTRATIVE REGION

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COURT OF FIRST INSTANCE
CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 250 OF 2017 E

__________________________
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IN THE MATTER OF an Application by
TELEVISION BROADCASTS LIMITED for
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leave to apply for Judicial Review pursuant to
Order 53, rule 3 of the Rules of the High Court,
Cap 4A H

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BETWEEN
TELEVISION BROADCASTS LIMITED Applicant
And J
THE TAKEOVERS AND MERGERS PANEL 1st Putative Respondent
SECURITIES AND FUTURES COMMISSION 2nd Putative Respondent
THE TAKEOVERS EXECUTIVE Putative Interested Party
__________________________ L

Before: Hon Lisa Wong J in Court M

Date of Hearing: 26 and 27 September 2017

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Date of Judgment: 4 October 2017
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_________________
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JUDGMENT
_________________
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Overview R
1. By public announcements made on 24 January and 13 February
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2017 (Announcements), Television Broadcasts Limited (TVB), a
company listed on the Main Board of the Stock Exchange of Hong Kong, T
announced an offer to repurchase up to 120 million of its shares at
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HK$35.075 per share for a total consideration of up to HK$4,209 million B

(Offer). 120 million shares represented 27.4% of the total issued shares of
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TVB and HK$35.075 per share represented a premium of 15.6% to the
closing price of TBV shares on the last trading day before the second- D

mentioned announcement.
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2. TVBs largest shareholder1 and parties regarded as acting in

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2
concert with it (Concert Group) have an aggregate 29.9% stake in the
company. They intend not to take up the Offer in respect of any of their G

shares. If other shareholders tender the maximum number of shares, the

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Concert Groups holding may rise to as much as 41.19%.
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3. As the Concert Group has 4 representatives sitting on TVBs
board as non-executive directors, the increase in their holding in TVB in J

consequence of TVBs buy-back of its own shares would be treated as an

acquisition of voting rights for the purposes of the Codes on Takeovers and
Mergers and Share Buy-backs (Codes collectively and Takeovers Code L

and Buy-backs Code respectively) issued by the Securities and Futures

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Commission (SFC). See Rule 32.1 of the Takeovers Code read together
with Note 2 thereto. N

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4. And under Rule 26.1 of the Takeovers Code, crossing the
holding threshold of 30% would oblige the Concert Group to make a P

mandatory general offer to all TVB shareholders to buy all their shares on
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equal terms, unless the Takeovers Executive (Executive) should grant a
waiver of such obligation commonly known as a whitewash waiver. R

1
Young Lion Holdings Ltd beneficially holding 113,888,628 shares representing a 26%
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stake.
2
Including Ms Mona Fong who has a 3.9% stake (17,096,200 shares) including a T
beneficial interest in shares held through The Shaw Foundation Hong Kong Limited.

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5. In this connection, the Offer is expressly made conditional

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upon, inter alia, (1) it being approved by an ordinary resolution by the
independent shareholders4 at an extraordinary general meeting (EGM); D

and (2) a whitewash waiver being granted, and not having been withdrawn,
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by the Executive. The former condition, i.e. approval of the Offer by a
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shareholders resolution, is required as a matter of law by s 238(1) of the
Companies Ordinance (Cap 622) (CO). G

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6. On 27 January and 15 February 2017, TVB submitted to the
Executive respectively an application and a supplemental application for a I
whitewash waiver on behalf of certain members of the Concert Group.
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7. On 16 March 2017, the Executive referred a number of issues

arising from TVBs application for a whitewash waiver for ruling by the
5 L
Takeovers and Mergers Panel (Panel), a committee established by the
SFC under s 8(1) of the Securities and Futures Ordinance (Cap 571) with M

members from the financial and investment community.

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3
Who is the Executive Director of the Corporate Finance Division of the SFC and its
delegates. The Executive undertakes the investigation of takeovers, mergers and share P
buy-backs and monitors related dealings in connection with the Codes, and it is available
for consultation and gives ruling on all matters to which the Codes apply: paragraph 5.1
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of the Introduction to the Codes.
4
Meaning shareholders other than (1) the Concert Group, (2) shareholders who are R
involved in and/or interested in the whitewash waiver and/or the Offer, and (3)
shareholders who have material interests in the whitewash waiver and/or the Offer which
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is different from the interests of all other shareholders.
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Which the Executive is authorised to do under paragraph 10.1 of the Introduction to the T
Codes when he considers that there is a particularly novel, important and difficult point at
issue.
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8. One of the matters raised for the Panels ruling was, if a B

whitewash waiver should be granted, whether [the provisions in s 19 of

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Schedule 1 to the Broadcasting Ordinance (Cap 562) (BO)] make any
difference in the light of General Principle 1 (GP1) of the Codes. This D

question arose as follows.

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9. Pursuant to Rule 32.1 of the Takeovers Code, the Executive
treats an application for a waiver from the requirement to make a mandatory G
offer in the case of a share buy-back by general offer or an off-market share
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buy-back in accordance with Rule 26 as if it were an application for a
whitewash waiver in accordance with Note 1 on dispensations from Rule 26. I

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10. Note 1 on dispensations from Rule 26 stipulates, inter alia, that
the Executive will normally waive the obligation to make a general offer if
there is an independent vote (i.e. one by shareholders not involved, or
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interested, in the transaction) at a shareholders meeting.
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11. Paragraph 2(e) of the Whitewash Guidance Note under

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Schedule VI to the Codes (which sets out the conditions for the grant of a
whitewash waiver) also stipulates that the grant of a whitewash waiver will O

be subject to
approval of the proposals by an independent vote at a meeting of the holders of P
any relevant class of securities, whether or not such meeting needs to be convened
to approve the issue of the securities in question.
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12. In fact, the Offer is made subject to the passing of an ordinary

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resolution to approve the whitewash waiver by the independent shareholders
of TVB at the EGM. This condition and those for the approval of the Offer S

by an ordinary resolution of the independent shareholders and the grant and

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subsistence of the whitewash waiver (paragraph 5 above) are expressly made
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not waivable so that, if any of them is not satisfied, the Offer will not B

proceed.
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13. However, an issue was raised as to how votes at the EGM

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should be counted if a whitewash waiver be granted (on the usual condition)
and put to the vote. E

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14. On one hand, GP1 embodies the principle: All shareholders
are to be treated even-handedly and all shareholders of the same class are to G

be treated similarly.
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15. On the other hand, TVB, as a domestic free television

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programme service licensee under the BO, is subject to the regime of special
controls under the BO which includes s 19 of Schedule 1 (scale-back J

provision):
(1) Subject to subsection (2), notwithstanding anything contained in the
articles of association of a licensee or any provision of any law apart from this
section, where any question or matter is to be determined by a poll at any general L
meeting of the licensee, the following shall apply

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(b) where the total voting control exercised by unqualified voting controllers
would otherwise exceed, in the aggregate, 49% of the total voting control
exercised on the poll by both qualified and unqualified voting controllers, N
the votes cast on the poll by unqualified voting controllers shall, for the
purpose of determining the question or matter, be reduced by multiplying
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those votes by the percentage determined by the formula specified in
paragraph (c);
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(2) Notwithstanding anything contained in the articles of association of the
licensee, this section shall not apply
(a) where the question or matter which is to be determined by a poll at any Q
general meeting of the licensee is the creation of different classes of shares
in the licensee; or R
(b) where the share capital of the licensee is for the time being divided into
different classes of shares, to the variation, including abrogation, of any
special rights attaching to any such classes of shares. S
(emphasis added)
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The terms voting control, voting controller, qualified voting controller B

and unqualified voting controller are defined in s 1(1) of Schedule 1. For

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present purpose, it is sufficient to say that qualified voting controller and
qualified voting controller mean respectively a shareholder who is D

ordinarily resident in Hong Kong and has been so for 7 years and one who is
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not ordinarily resident in Hong Kong and has not been so for 7 years.
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16. The formula in s 19(1)(c) is a scaling back mechanism. In G

short, the votes of all non-Hong Kong resident shareholders at any general
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meeting are capped at 49%. And if they represent more than 49%, their
votes will be scaled back proportionately. In other words, the votes cast by I
Hong Kong resident shareholders (regardless of the size of their aggregate
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holdings) will collectively carry 51% weight.

17. TVBs second largest shareholder, Silchester International

Investors LLP (Silchester), is a London-based investment fund holding a L

stake of over 14%. As a non-resident shareholder, Silchester is an

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unqualified voting controller so that its votes are, if necessary, subject to the
scale-back provision. N

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18. Given the special interest of the Concert Group (comprising of
qualified voting controllers) in the matter, they have to abstain from voting P

at the EGM with the result that there would be a higher proportion of votes
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from unqualified voting controllers. In view of past voting patterns from
2012 to 2016, the votes to be cast by unqualified voting controllers are R

expected to exceed 49% of the total votes cast and therefore stand to be
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scaled back pursuant to the scale-back provision.
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19. On 3 March 2017, Silchester through its solicitors wrote to the B

Executive, contending that the scale-back provision is inconsistent with, and

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should be overridden by, GP1. The Executive was urged, should a
whitewash waiver be granted, to require the vote for Code purposes on the D

Whitewash Waiver to be conducted on the basis of equal voting power on a

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poll basis (i.e. one share one vote).
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20. Following a hearing attended by representatives of the G

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Executive and TVB on 27 April 2017 (Hearing), the Panel, by a ruling
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given orally at the end of the Hearing and later in writing (in paragraph 35)
on 10 May 2017 (Ruling), ruled that a whitewash waiver (Whitewash I
Waiver) should be granted conditional on:
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(1) firstly, that the majority of votes cast (without adjustment under
the scale-back provision) at the general meeting of TVB should
be in favour of the resolution to approve the Offer (Majority
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Vote Condition); and
(2) secondly, that the question of whether or not there should be a
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whitewash waiver should not be put to a vote of TVBs
shareholders in general meeting (No Vote Condition). N

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21. The Panels thinking as reflected by the Ruling is that the
independent shareholders of TVB would not vote on the Whitewash Waiver. 7 P

They would vote just on whether to approve the Offer. They would do so
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once only. However, their votes on the Offer would be counted twice, once
with application of the scale-back provision and once without. The former R

count in accordance with the scale-back provision will determine whether

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6
Chaired by the Panels Acting Chairman, Mr David Webb.
7
Which is in departure from Note 1 on dispensation from Rule 26 of the Takeovers Code T
and paragraph 2(e) of the Whitewash Guidance Notes quoted in paragraphs 10 and 11
above.
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TVBs shareholders sanction the Offer. And there would be a whitewash B

waiver only if the latter count without any scaling-back should also yield a
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majority approving the Offer.
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22. On 30 April 2017, TVB asked for the Executives consent to
lapse the Offer on the basis that the condition for the passing of an ordinary E

resolution to approve the Whitewash Waiver by the independent

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shareholders at the EGM would no longer be satisfied because of the No
Vote Condition. The Executive did not agree with this argument and so G

informed TVB on 15 May 2017. The Executive, however, indicated that it

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might revisit the issue if leave for judicial review of the Ruling should be
granted. I

23. On 26 May 2017, upon TVBs application on 16 May 2017, the J

Executive extended the deadline for the publication of the Offer Document
to a date 7 days after the court has ruled on the TVBs intended application
for leave for judicial review on the conditions that the application be made L

on or before 29 May 2017 and that TVB would facilitate a speedy

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determination of the application.
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24. By a notice in Form 86 dated 29 May 2017 (Form 86), TVB
applies for leave for judicial review of the Ruling, seeking an order of O

certiorari to bring up and quash the Ruling and a declaration that the scale-
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back provision in s 19 of Schedule 1 to the BO apply for and to the
shareholders approval of the Whitewash Waiver. TVB has made it clear Q

that it is not asking the court to judge whether a whitewash waiver should be
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granted, which question remains one for the Executive and TVBs
shareholders. If TVB succeeds in this application for judicial review, the S

matter of whether a whitewash waiver should be granted will have to be

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remitted back to the Executive.
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B
25. On 19 June 2017, Mr Justice Au directed a rolled-up hearing of
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TVBs application for leave as well as the substantive judicial review.
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26. SFC has entered an appearance. SFC also represents the Panel
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and the Executive whose attendance has been excused by the court.
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27. Before I turn to TVBs grounds for judicial review of the

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Ruling, to put the parties respective arguments thereon in context, it is
necessary to take a more comprehensive look at: H
(1) the scheme of ownership and voting controls over non-Hong
Kong resident shareholders of domestic free television licensees I

prescribed by the BO and the policy rationale behind the same;

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(2) the relevant provisions of the Codes and their purposes; and
(3) the Panels reasons for the Ruling.

The BO L

28. I have already set out s 19 of Schedule 1 to the BO in paragraph

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15 above. In addition, my attention has been drawn to the following
provisions in the BO affecting a domestic free television licensee:8 N

(1) s 8(4)(a)(i) under which such a licensee must itself be ordinarily

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resident in Hong Kong;
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(2) s 8(4)(a)(iv) under which the majority of its directors and
principal officers must each be ordinarily resident in Hong Q

Kong and has been so resident for at least one continuous

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period of not less than 7 years;
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8
The restrictions in s 8(4)(a) apply equally to a domestic pay television licensee. T

9
This must be annually updated with the Communications Authority: see s 39(1).
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(3) s 8(4)(a)(iii) under which there must be, at every directors B

meeting, a quorum that has a majority of directors who is each

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ordinarily resident in Hong Kong and has been so resident for at
least one continuous period of not less than 7 years; and D

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(4) s 20 of Schedule 1 which prohibits any unqualified voting
controller (i.e. non-Hong Kong resident shareholder) from F
holding, acquiring or exercising or causing or permitting to be
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exercised 2-6%, 6-10% or 10%, in the aggregate, of the total
voting control of a licensee without the prior written approval H
of the Communications Authority. Subsection (2) goes on to
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provide:
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If an unqualified voting controller holds more than 10% in the
aggregate, of the total voting control of a licensee in contravention
of subsection (1)(a), notwithstanding anything contained in the
articles of association of the licensee or any provision of the laws
of Hong Kong apart from this section, he shall not exercise or
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cause or permit to be exercised, in relation to any question or
matter arising at a general meeting of the licensee, voting rights
exceeding, in the aggregate, 10% of the total voting control of the M
licensee. (emphasis added)

29. It is plain from the restrictions on ownership and voting control O

prescribed by these provisions of the BO, and the Panel does not dispute,
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that their purpose is to ensure that decisions of a licensee, whether at board
meetings or shareholders meetings, are made and approved by a majority of Q

those ordinarily resident in Hong Kong.

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30. Although the BO came into operation only on 7 July 2000,
similar provisions entrenching control of a domestic television licensee in S

the hands of Hong Kong resident principal officers, directors and T

shareholders could be found in the now repealed Television Ordinance. In
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particular, s 19 of Schedule 1 to the BO is modelled on s 17D of the earlier B

Ordinance.
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31. This policy is rooted in the belief that television is a powerful D

medium which has the potential to influence a large proportion of the

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population; that domestic television services should cater for the local
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interests and tastes and that persons who are ordinarily resident in Hong
Kong may be expected to be responsive to and reflect local tastes and G
culture. See Legislative Council Official Report of Proceedings, 17 July
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1991, pages 91-92; Provisional Legislative Council Brief (Ref:
BCSB(CR)9/11/2(97)), 5 December 1997, Part 7, paragraph 15; and The I
1998 Review of Television Policy: A Consultation Paper, 3 September 1998,
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paragraphs 11.8 and 11.10.10

32. That the shareholders of TVB should be aware of the provisions

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of the BO that apply to TVB, including the scale-back provision, is
acknowledged by the Panel in paragraph 30 of the Ruling. M

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The Codes
General O

33. Turning then to the Codes, as stated in paragraph 1.2 of the

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Introduction to the Codes, the primary purpose of the Codes is to afford fair
treatment for shareholders affected by takeovers, mergers and share buy- Q

backs. The Codes seek to achieve fair treatment by requiring equality of

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The Communications Authoritys website also explains that domestic free television
programme service has extensive reach and the potential to influence a large proportion
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of the population and as such, there is a need to ensure that such services remain firmly
rooted in the hands of persons ordinarily resident in Hong Kong who are more likely to
have the best interest of Hong Kong at heart. T

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treatment of shareholders and provide an orderly framework within which B

takeovers, mergers and share buy-backs are to be conducted.

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34. Paragraph 1.3 of the Introduction makes it clear that the Codes
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do not have the force of law, but represent a consensus of opinion of those
who participate in Hong Kongs financial markets and the SFC regarding E

standards of commercial contract and behaviour considered acceptable for

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takeovers, mergers and share buy-backs. This consensus of opinion is
reflected in rulings made by the Panel when interpreting the Codes given the G

diverse range of interests represented by the Panels members. Similar

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standards of commercial conduct and behavior are applied in other leading
financial centres. I

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35. Paragraph 2.1 of the Introduction sets out the way in which the
Codes are to be interpreted: firstly with reference to the General Principles
which are essentially statements of good standards of conduct, and then to
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the specific Rules which expand on the General Principles. Both the
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General Principles and the Rules are to be interpreted to achieve their
underlying purposes. N

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36. This paragraph also expressly allows the Executive and the
Panel to modify or relax the effect of the language of the General Principles P
to achieve their underlying purposes. Likewise, they each has the discretion
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to modify or relax the application of a Rule if it considers that strict
application would in the particular circumstances of the case operate in an R
unnecessarily restrictive or unduly burdensome or otherwise inappropriate
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manner.
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GP1
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37. GP1 has been set out in paragraph 14 above. B

38. It is stressed on behalf of the SFC that TVB has only one class C

of shares, even though there are 2 classes of holders of such shares namely,
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qualified voting controllers and unqualified voting controllers who are
differentiated by the BO based on whether they are ordinarily resident in E

Hong Kong or not.

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Mandatory general offer & whitewash waiver G

39. I have already explained in paragraphs 2 to 5 above the

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circumstances giving rise to TVBs application for a whitewash waiver on
behalf of the Concert Group. I

40. Dealing with this in more general terms, the mandatory general J

offer obligation is triggered once certain ownership thresholds are crossed. 11

It is imposed to reflect and ensure the fair and equal treatment of
shareholders by providing all shareholders with the opportunity to L

participate in the change of control through selling their shares at the highest
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price paid by the offeror for acquiring control. This is articulated in General
Principle 2: If control of a company changes or is acquired or is N

consolidated, a general offer to all other shareholders is normally required.

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41. It is therefore emphasised on behalf of the SFC that: P

(1) A whitewash waiver is a dispensation from one of the most
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important obligations under the Takeovers Code.

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The obligation under Rule 26.1 to make a mandatory general offer is typically triggered
11

when a person (or a group of persons acting in concert) (1) becomes interested in 30% or
more of the voting rights of a company or (2) who is already interested in 30%, but not T
more than 50%, acquires more than 2% in a 12-month period.

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(2) There is no automatic right to a whitewash waiver. The B

Executive and the Panel have the discretion not to waive a

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general offer obligation where the circumstances merit it.
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42. TVB does not contend otherwise before the Panel or in the
Form 86. This judicial review application is not concerned with whether or E

not a whitewash waiver ought to be granted in this case.

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43. TVBs position, both before the Panel and in this application,
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has always been that a whitewash waiver should either be granted on the
usual condition of approval by an independent vote at a shareholders H

meeting (to which the scale-back provision would apply) or not at all.
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44. Where a whitewash wavier is granted, it is unusual for the same
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to be not put to the vote fro approval by companys shareholders. Indeed, it
is unprecedented.

The Panels reasons for the Ruling L

45. Before I set out the Panels reasons for the Ruling, I should for
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the sake of completeness mention that, prior to the Hearing, the Panel sought
and obtained advice from Mr John Scott SC on the following 2 questions N

(which I slightly rephrase for presentation purpose):

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(1) Are there any provisions under the BO that prevent or restrict
the Panel from stipulating further conditions for granting a P
whitewash waiver, in addition to that of a resolution of
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shareholders at a general meeting determined by applying the
necessary capping and scaling back to the votes cast by the R
unqualified voting controllers as required by the scale-back
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provision?
(2) If not, can those additional conditions include a condition that
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the majority of all votes cast on the same resolution, without
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capping or scaling back, must also be in favour of the B

whitewash waiver pursuant to GP1?

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46. By his Opinon and Advice dated 25 April 2017 (a copy of

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which was provided to TVB before the Hearing), while observing that the
scale-back provision clearly has priority over GP1 (paragraph 17) and that it E

would be contrary to the scale-back provision if apart from the majority of

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qualifying votes required by [the scale-back provision], the whitewash
waiver would only be granted if, on a separate resolution, the majority of G

votes cast on such a resolution (irrespective of whether or not they were

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qualifying votes) were in favour (paragraph 20(ii)), Mr Scott SC advised
the Panel: I
(1) in paragraph 21(iv):
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If, however, the whitewash waiver was not put to the shareholders
of [TVB] for approval by way of a separate shareholders vote /
resolution and the shareholders were instead only asked to vote on
one resolution, namely the [Offer], then provided the [scale-back
provision] was satisfied, I do not believe there could be any L
reasonable objection to the Panel, in considering the application
for a whitewash waiver, attaching a condition that it would only
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grant a whitewash waiver if, in passing the [Offer] resolution, a
majority of the independent shares voted approved that resolution,
irrespective of whether or not they were qualifying shareholders N
under the BO.

(2) in paragraph 21(vii): O

If the Panel is satisfied that there exists exceptional circumstances
justifying the denial to shareholders of a vote on the whitewash P
waiver, but instead vesting the decision as to the grant of a
whitewash waiver solely in the hands of the Panel (conditional
upon the majority of independent shares voted being in favour of Q
the [Offer]), I believe such a decision (whilst it might still be
challenged by an application for Judicial Review) can be justified R
as not constituting any breach of the overriding requirements of
[the scale-back provision].
S
47. At the Hearing, Mr Scott SC further explained:
What we are discussing now is a situation where the shareholders would be T
consulted and asked to vote only on the buy-back.

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The use of the analysis of the votes on that resolution to determine whether or not B
the Panel will grant its whitewash waiver by looking at the composition of the
votes does not, , amount to the Panel trying to find out what the shareholders
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are thinking. That isn't the correct approach. The Panel, in that situation, would
be deciding whether, in its discretion, it is deciding to grant the whitewash waiver,
having regard to the level of support of the buy-back resolution. D

And in that situation, I think it is important to bear in mind the limits of [the
scale-back provision], and it is confined to the situation where any question or E
matter is to be determined by a poll at a general meeting.
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The question of a whitewash waiver on this scenario is not to be determined by a
poll at any general meeting of the licensee. It is instead a decision vested only in
the Panel. G

48. It is clear from the Panels reasoning at paragraphs 20-36 of the H

Ruling that it accepted Mr Scott SCs advice. As summarised by Mr

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Benjamin Yu SC and Mr Jonathan Chang, counsel for the SFC, in paragraph
34 of their Skeleton Argument, the Panel came to the conclusion that a J

whitewash waiver should be granted subject to the Majority Vote Condition

and No Vote Condition through the following reasoning:
(1) The Codes should be interpreted and applied so that TVB is L

treated, so far as possible, like any other company (paragraph

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24).
(2) The Codes exist, at their core, to require that when a person N

acquires or consolidates control of a company, then a general

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offer must be made to all shareholders, regardless of their
residency (paragraph 26). P

(3) It is only under stringent conditions that such an obligation can

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be waived, because it results in a person obtaining or
consolidating control without making a general offer (paragraph R

27).
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(4) Accordingly, the Codes include provisions to ensure that
independent shareholders have an adequate opportunity to T

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consent or object to the acquisition of control without the B

making of a general offer. This does not necessarily involve a

C
12
shareholder vote in a general meeting (paragraph 28).
(5) A whitewash waiver is not a right or a privilege. D

Shareholders of a company in a general meeting cannot order

E
the Executive or the Panel to do anything. Rather, the
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Executive or the Panel, in its discretion, may grant a waiver on
such terms and conditions as it thinks fit to achieve the G
underlying purposes of the Codes (paragraph 29).
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(6) Whilst TVB is subject to the BO including the scale-back
provision, neither the Executive nor the Panel is under any duty I
to submit a whitewash waiver to a vote at a general meeting if it
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would be inappropriate to do so or would not achieve the
underlying purposes of the Codes (paragraph 30).
(7) The provisions of the BO, with potentially highly
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disproportionate voting weights based on residency and turn-
out of voters, are fundamentally at odds with the requirements M

of the Codes, particularly the requirement of GP1 that all

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shareholders of the same class are to be treated similarly.
Accordingly, a waiver cannot be granted on the normal O

12
The Panel was referring to the Takeovers Codes approach to partial offers. Unlike a
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share buy-back offer which involves the company offering to repurchase some of its
shares from all of its shareholders, a partial offer is made by a shareholder, its concert
parties or a third party to shareholders to buy a specified number of (but not all) shares in Q
a company. Whitewash waivers do not apply to partial offers. If a partial offer could
lead to the offeror acquiring control of the company, the partial offer is usually made
conditional on the approval by shareholders holding over 50% of the total voting rights R
(not held by the offeror), and not just those shareholders electing to vote. No
shareholders meeting is required to be held to approve partial offers. Instead, S
shareholders indicate their approval by filling in a special approval and acceptance form.

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condition under paragraph 2(e) of Schedule VI to the Codes B

(namely approval by an independent vote with the adjustment

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by operation of the scale-back provision at a meeting of
shareholders of TVB) (paragraph 31). D

(8) The Panel was fully aware that regardless of the Codes, it is a
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statutory requirement (under s 238(1) of the CO) that the Offer
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itself must be approved by an ordinary resolution of
shareholders in general meeting, the voting on which must be G
subject to the scale-back provisions (paragraph 34).
H
(9) The Panel thus decided that in addition to the approval of the
Offer by an ordinary resolution of TVB shareholders in a I
general meeting (to which the scale-back provision would
J
apply), the grant of the Whitewash Waiver is conditional upon
the Majority Vote Condition (paragraph 35.1) and the No Vote
Condition (paragraph 35.2).
L

TVBs grounds for judicial review M

49. TVB advances the following 6 grounds for judicial review of the
N
Ruling:
(1) Ground 1 - The Ruling was ultra vires in that the Panel does not O

have jurisdiction or power to disregard or direct others to

P
disregard provisions of the BO;
(2) Ground 2 - The Panel erred in law in misconstruing the true Q

meaning and effect of the scale-back provision;

R
(3) Ground 3 - The Ruling was made for an improper purpose and
was an abuse of the Panels power in that the Panel is S

attempting to circumvent the scale-back provision;

T

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(4) Ground 4 - The Panel misconstrued GP1, and thus erred in law, B

took into account an irrelevant consideration, and failed to take

C
into account a relevant consideration;
(5) Ground 5 - The Ruling ignored the requirement in Schedule VI D

of the Codes that a whitewash waiver should be subject to

E
approval by shareholders. The Panel thus erred in law, took
F
into account an irrelevant consideration, failed to take into
account a relevant consideration, acted unreasonably, and did so G
for an improper purpose; and
H
(6) Ground 6 - The Ruling went beyond the factual limits of the
case; the Panel failing to recognise that the Offer by its terms is I
and must be conditional upon any whitewash waiver (if
J
granted) being put to a vote by shareholders of TVB. The Panel
thus erred in law, took into account an irrelevant consideration,
failed to take into account a relevant consideration, acted
L
unreasonably, and did so for an improper purpose.
M

Grounds 1, 2 & 3
N
50. The first 3 grounds can be considered together.
O
Legal principles
51. A person exercising public authority has a duty to promote and
P
must not act to undermine the public policies behind his authority: Padfield
v Minister of Agriculture, Fisheries, and Food [1968] AC 997 at 1030B-D Q

per Lord Reid; Backhouse v Lambeth London Borough Council, The Times,
R
14 October 1972; and R v Home Secretary, Ex p Fire Brigades Union [1995]
2 AC 513 at 552B-E and 554F-H per Lord Browne-Wilkinson. The S

principle applies equally to any decision maker who acts to frustrate the
T
policy of a statute even if not a statute from which he derives his power: R
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(OneSearch Direct Holdings Ltd) v City of York Council [2010] PTSR 1481 B

at [24] per Hickinbottom J; and Spectrum Resources v Minister of

C
Conservation [1989] 3 NZLR 351 at 372(4)-(19). As Mr Gerard McCoy SC
and Mr Laurence Li for TVB put it, a decision-maker shall not exercise his D

power to circumvent any law or to thwart the objectives of any law.

E

F
TVBs case
52. It is TVBs case that the Ruling is an attempt to circumvent the G
scale-back provision, which defines the different voting rights of
H
shareholders (albeit holding the same class of shares) of a domestic free
television licensee. By the Ruling, the Panel imposes its views on I
shareholder equality which is in conflict with the scale-back provision
J
giving primacy to the Hong Kong resident shareholders of a domestic free
television licensee. In doing so, the Panel acted ultra vires and for an
improper purpose. It has also made an error of law in missing the true effect
L
of the statutory regime under the BO.
M

SFCs case
N
53. In opposition, it is contended on behalf of the SFC that:
(1) The BO does not provide for the grant of a whitewash waiver.
O
Whether to grant a whitewash waiver (and if so, on what
conditions) is not a matter governed by the BO or the P

provisions in the BO relied on by TVB. Nor is there any

Q
requirement in the BO or other legislation for a whitewash
waiver to be put to a vote at a shareholders general meeting. R

Rather, the grant of a whitewash waiver subject to shareholders

S
approval in general meeting is prescribed by the Takeovers
Codes. T

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(2) Whether a whitewash waiver should be granted (and if so, on B

what conditions) is not a matter for decision by TVB, whether

C
at board level or at shareholder level. The power to make that
decision is not vested in the shareholders of TVB. It is a matter D

within the province of the Panel. The Panel derives its powers
E
not from the BO but under the Codes under which it is given
F
the powers to modify or relax the application of a Rule if it
considers appropriate. G
(3) The scale-back provision applies only where any question or
matter is to be determined by a poll at any general meeting of H

the licensee. It does not apply when the Panel merely decides
I
as a condition for the grant of the Whitewash Waiver that it
should accord with the wishes of all of TVBs shareholders J

(regardless of residency) on the Whitewash Waiver without

requiring the matter to be put to a vote at a general meeting, in
much the same way in which shareholders approval is L

ascertained in the context of partial offers. The recount of the

M
votes on the Offer without applying the scale-back provision is
simply a way of ascertaining shareholders wishes without a N

shareholders meeting. In other words, the Majority Vote

O
Condition does not require any corporate act on TVBs part that
triggers the scale-back provision. P

Q
Discussion
54. The starting point is, I believe, the supremacy of the scale-back R

provision, if engaged. The scale-back provision operates notwithstanding

S
anything contained in the articles of association of a licensee or any
provision of any law. T

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55. The overriding effect of the scale-back provision was B

recognised by the Panel which expressly acknowledged, in paragraph 34 of

C
the Ruling, that the voting by TVB shareholders on the Offer in compliance
with s 238 of the CO must be subject to the scale-back provisions. D

56. Mr Yu SC also accepts that if the Whitewash Wavier be put to a E

vote by TVB shareholders (as is usually the case), that vote would have to be
F
counted with adjustment in accordance with the scale-back provision and
that the Panel imposed the No Vote Condition precisely because of that. G

H
57. Mr Yu SC, however, stresses that the Panel is not obliged by
law to put the Whitewash Waiver to TVBs shareholders for a vote at general I

meeting. I am afraid that is beside the point. The BO is not concerned with
J
what questions or matters are to be put to shareholders of a domestic free
television licensee. As submitted by counsel for TVB, [t]he BO is agnostic
as to the source of the requirement for a determination by shareholders, the
L
identity of the person or body requiring it, or the stage at which such is
M
required. The scale-back provision applies where any question or matter
is to be determined by a poll at any general meeting of the licensee N
(emphasis added). It does not just apply where the question or matter put
O
to shareholders is required by law to be placed before shareholders.

58. The question to ask is simply whether the Panel did by the
Q
Ruling in fact put the Whitewash Waiver to a determination by TVBs
shareholders at the EGM. R

S
59. No doubt the imposition of the No Vote Condition (which in
terms forbids a vote on the Whitewash Waiver) was intended to induce a T

negative answer to this question in favour of the Panel. And Mr Yu SC does

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invite me to answer this question in the negative in reliance on the No Vote B

Condition.
C

60. With respect, one looks at substance and reality, and not just D

form.
E

F
61. The focus of the Ruling is the Majority Vote Condition which
directs a recount of the votes on the Offer without applying the scale-back G
provision.
H

62. I have great difficulty with the SFCs suggestion that the I
exercise of recounting the votes on the Offer without applying the scale-back
J
provision is simply a way of ascertaining TVBs shareholders wishes on the
Whitewash Waiver without a shareholders meeting. Such suggestion might
have some validity in the hypothetical situation where a whitewash waiver is
L
sought after the shareholders meeting on the buy-back offer13 and the
Executive consults the votes supporting the offer which were cast without M

the shareholder having in mind a whitewash waiver before deciding whether

N
or not to grant the waiver.
O

63. Such difficulty is not removed by the SFCs further point that
P
the Panel did not grant the Whitewash Waiver, but only directed that it
should be granted conditional on the Majority Vote Condition and the No Q

Vote Condition. Once the Panel made the Ruling, the question of whether to
R
grant the Whitewash Waiver reverts back to the Executive who would grant
the Whitewash Waiver after the EGM having regard to the level of support S

13
Which I am told is never done.
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for the Offer. This has provoked an argument between the parties as to B

whether or not the Whitewash Waiver has been granted.

C

64. In my view, it does not matter. Even if the Panel were D

technically reserving to the Executive the formal decision of whether to

E
grant the Whitewash Waiver after TVB shareholders have voted on the Offer
F
(as contended by the SFC), the Panel has directed the Executive to exercise
its powers to grant the waiver in a particular way. It cannot be, and it is not, G
suggested that the Executive, having been so directed by the Panel, could
H
and would exercise its discretion in a manner at variance with the Panels
direction. I

J
65. What therefore matters is that the Majority Vote Condition
requiring a recount of the votes on the Offer without applying the scale-back
provision has been imposed, which raises the issue whether such condition
L
effectively puts the Whitewash Wavier to a determination by a poll at the
EGM, thereby triggering the scale-back provision. M

66. I do not see how this question can be answered in the negative. N
Even though the voting is not on the Whitewash Waiver as such, the votes of
O
TVB shareholders at the EGM will determine the grant or otherwise of the
Whitewash Waiver (or, put differently, the outcome of the waiver would P
depend on the vote).
Q

67. The only point that can be taken on behalf of the EGM is that R
the vote will not be on the Whitewash Waiver, but on the Offer.
S

68. The situation must, however, be viewed with regard to reality. T

The Panel is setting the conditions for the Whitewash Waiver before the vote
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and telling TVB shareholders how their votes will be counted and used. The B

Ruling is public and has been widely reported in the media. TVB will also
C
be obliged to explain the Ruling to its shareholders in the Offer Document so
that they appreciate the full significance of their votes on the Offer. So even D

assuming that, notwithstanding the express conditions of the Offer which

E
require shareholders approval of a whitewash waiver and in compliance
F
with the No Vote Condition, the Whitewash Waiver is not put to a vote of
TVBs shareholders at the EGM and the shareholders are asked to vote G
ostensibly just on the Offer, shareholders voting on the Offer will know that
H
their votes will be recounted as votes on the Whitewash Waiver. With that
knowledge, one would expect them to vote in a way that reflects their views I
14
on the Whitewash Waiver.
J

69. In these circumstances, by requiring a recount of the votes on

the Offer for the purpose of granting the Whitewash Waiver, the Panel is in
L
my opinion in substance and in effect directing there to be a vote on the
waiver. The analogy with the approval of partial offers without M

shareholders meetings is therefore inapt.

N
70. I agree with counsel for TVB that the Majority Vote Condition
O
in substance and in effect puts the Whitewash Waiver to a determination by
TVBs shareholders albeit not by a vote on the Whitewash Waiver as such P
(see Form 86 paragraph 55). The scale-back provision is therefore engaged.
Q

14 S
In the usual situation, the market practice is in fact to include both approval of the
underlying transaction and approval of the whitewash waiver in a single resolution for a
single vote. T

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71. Compliance with the Majority Vote Condition would, in B

substance and in effect, call for a vote by the independent shareholders of

C
TVB on the Whitewash Waiver but without applying the scale-back
provision. The dis-application of the scale-back provision is not permissible D

under the BO.

E

F
72. In including the Majority Vote Condition for the grant of the
Whitewash Wash, the Panel misconstrued the true meaning and effect of the G
scale-back provision and disregarded and attempted to circumvent such
H
provision. The Ruling was ultra vires.

I
73. TVB has therefore made out Grounds 1, 2 and 3.
J
74. In light of my conclusion on TVBs Grounds 1, 2 and 3, it is
unnecessary for me to address the other grounds for judicial review.

L
75. Before I leave this judgment, I should for the sake of
M
completeness state that I have not overlooked Mr Yu SCs submission that
while decisions of the Panel are amenable to judicial review, the courts have N
long recognised that such decisions should only be interfered with in very
O
limited circumstances. In support, Mr Yu SC refers to Lord Donaldson
MRs judgments in R v Panel on Take-overs and Mergers, ex p Datafin Ltd P
[1987] QB 815 at 841D-G and R v Panel on Take-overs and Mergers, ex p
Q
Guinness Plc [1990] 1 QB 146 at 159C-G for the following general
propositions: R
(1) First, the court gives considerable latitude to the Panel on Take-
overs and Mergers interpretation of the City Codes on Take- S

overs and Mergers because, as legislator, it can properly alter

T
them at any time and because the rules take the form of
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principles to be applied in spirit as much as in letter in specific B

situations. (Mr Yu SC is fair to point out that unlike the City

C
Codes of Take-overs and Mergers which is promulgated by the
Panel on Take-overs and Mergers in the City of London, in D

Hong Kong, the Codes are issued by the SFC, though in

E
consultation with the Panel.)
(2) Second, even where it is thought appropriate to quash an F

interpretative decision of the Panel, it might well be more

G
appropriate for the court to declare the true meaning of the rule,
leaving it to the Panel to promulgate a new rule accurately H

expressing its intentions.

I
(3) Attacks on the Panels dispensing powers, the exercise of which
is fettered only by the overriding obligation to seek equity J

between shareholders, would be successful only in wholly

exceptional circumstances and, even then, the proper form of
relief might well be declaratory rather than substantive. L

M
76. While one may have to look at these principles if it should be
necessary to deal with, for example, Ground 4 which on its face goes to the N

Panels interpretation of GP1, insofar as Grounds 1, 2 and 3 are concerned, I

O
note that neither of the cases from which the principles relied upon by Mr Yu
SC are derived involved the dimension of operation of a general law which, P

if triggered, has priority over the Codes. The crux of the present case is
Q
whether the general law (namely, the scale-back provision) is triggered or
not. R

S
Disposition
77. I grant TVB leave to apply for judicial review of the Ruling. T

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78. I further allow TVBs application for judicial review of the

C
Ruling and make:
(1) an order of certiorari to bring up and quash the Ruling; and D

(2) a declaration that the scale-back provision in s 19 of Schedule 1

E
to the BO apply for and to the shareholders approval of the
F
Whitewash Waiver.
The declaration is made on the basis that the Ruling, by the Majority Vote G
Condition and despite the No Vote Condition, in effect requires TVBs
H
shareholders approval of the Whitewash Waiver but in disregard of the
scale-back provision. I

J
79. The question of whether to grant a whitewash waiver to TVB
should be remitted back to the Executive.

L
80. I also make an order nisi that the SFC should pay TVBs costs
of these proceedings, to be taxed on a party and party basis if not agreed, M

with certificate for two counsel.

N

81. Last but not least, it remains for me to thank counsel for both O

parties. I have been greatly assisted by their able arguments.

P

T
(Lisa Wong)
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Judge of the Court of First Instance B

High Court
C

Mr Gerard McCoy SC and Mr Laurence Li, instructed by Freshfields Bruckhaus

J
Deringer for the applicant
Mr Benjamin Yu SC and Mr Jonathan Chang, instructed by the Securities
and Futures Commission for the 2nd putative respondent
Attendance of the 1st putative respondent and the putative interested party L
excused.
M