LAU CHI YAN ROGER AND OTHERS v. TUNG KA HUNG AND OTHERS

HCCW001097A/2002

HCCW1097/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO.1097 OF 2002

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	IN THE MATTER OF SECTIONS 168A & 177 (1)(f) of the COMPANIES ORDINANCE, Cap.32
	AND
	IN THE MATTER of GRAND SKY HOLDINGS LIMITED ("the Company")

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BETWEEN
	LAU CHI YAN ROGER	1st Petitioner
	KO HUNG CHUN	2nd Petitioner
	CHENG CHUNG MAN	3rd Petitioner
	LEE YICK MO OWEN	4th Petitioner
	CIBA INTERNATIONAL LTD	5th Petitioner
	AND
	TUNG KA HUNG	1st Respondent
	WONG CHI SANG NAVIS	2nd Respondent
	LI TAK YAN	3rd Respondent
	KWOK WAI YI	4th Respondent
	HO HOI TUNG	5th Respondent
	NG KAI YAN	6th Respondent
	CHUI WAI LEUNG	7th Respondent
	WATERMARK GROUP LTD	8th Respondent
	RICH RIDER LTD	9th Respondent
	INCORPORATED NOMINEES LTD	10th Respondent
	GRAND SKY HOLDINGS LIMITED	11th Respondent
	GRAND WORLD TECHNOLOGY LTD	12th Respondent
	GRAND BOND (ASIA) LIMITED	13th Respondent
	ROCKENT ELECTRONICS LIMITED	14th Respondent
	CHANCE STAR LIMITED	15th Respondent
	CYBERONIC INTERNATIONAL LTD	16th Respondent
	BONDWAY INDUSTRIAL LIMITED	17th Respondent
	RATONAL INDUSTRIAL LIMITED	18th Respondent
	KARSON CIRCUITS LTD	19th Respondent

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Coram: Deputy High Court Judge Poon in Chambers

Date of Hearing: 21 February 2003

Date of Decision: 21 February 2003

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D E C I S I O N

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1. This is an application to continue the ex parte injunction obtained by the petitioners before Woolley DJ on 2 October 2002, restraining the 1st and 2nd respondents and the 11th respondent from carrying into effect of any resolutions made at the extraordinary general meeting of the 11th respondent held on 2 October until further order and restraining the 1st and 2nd respondents from procuring the 11th respondent to change the present board members of the 12th respondent until further order.

2. On the return date, that is, 11 October 2002, Cheung DJ continued the injunction, leaving open the question whether the ex parte order should be discharged on the ground of material non-disclosure of determination of the judge hearing the inter partes summons. The matter now comes before me.

Background

3. The background leading to this application can be briefly stated as follows. The protagonists were involved in the business of manufacturing and trading of printed circuit boards. The petitioners' case is that in about March 1999 merger discussions began, and in the course of such discussions, various representatives were made by the 1st and 2nd respondents. The discussions resulted in a merger exercise. But after the merger, the petitioners found out that the said representations by the respondents were untrue. The parties then agreed to demerge, pursuant to an agreement made in October 2001 and January 2002. However, the 1st and 2nd respondents were unco-operative. The dispute eventually gave rise to a series of litigations in court, including the present winding-up petition filed on 2 October 2002.

4. On the same day, the respondents' camp of shareholders purported to hold an EGM with the intention to increase the number of directors of the 11th respondent to a total of 11 and appoint additional directors to fill up the vacancy. The reconstituted board purported to pass resolutions to remove the petitioners' camp of directors from the board and management of the 11th respondent and all the subsidiaries within the group. The petitioners took out the ex parte application and an injunction was granted by Woolley DJ.

Material non-disclosure

5. In light of the submissions advanced before me today, it is, I think, logical to first deal with the question of material non-disclosure. It is argued on behalf of the respondents that the petitioners were guilty of material non-disclosure when their legal representatives appearing before Woolley DJ at the ex parte hearing failed to disclose to the court a letter of the same day from the respondents' solicitors advising them, inter alia, that the EGM was purported to be convened pursuant to section 114A of the Companies Ordinance. The petitioners' case advanced before Woolley DJ was that the meeting was purported to be convened under section 13 of the same ordinance. It should be noted from the submissions filed with the court in support of the ex parte application, illegality of the notice was one of the grounds relied on by the petitioner before the deputy judge.

6. The handling solicitor now justifies the non-disclosure by saying that he was unable to make sense of this particular letter which was shown to him in the course of submissions made to the court.

7. At first glance, it appears that the failure to disclose this letter is material. Indeed, in the course of submissions, I might have given the impression to those appearing before me that the failure amounted to a material non-disclosure. I have even invited submissions on the question whether, if I were to discharge the injunction on material non-disclosure, I should nevertheless exercise my discretion to re-grant a fresh injunction in the terms of the ex parte order. But over the short adjournment and having further considered the submissions in this regard, I am persuaded by Ms Liu that this is not a material point after all.

8. It can be clearly seen from the transcript of the ex parte hearing that the deputy judge granted the injunction in order to preserve the status quo of the company in question and also the balance of the power in the board, pending the resolution of all the disputes between the parties. Even if the letter had been disclosed and the deputy judge accepted that the meeting was regular, in my view, he would have come to the same conclusion by granting the injunction to preserve the status quo. Thus the failure is not material. I should, however, add that, as a matter of prudence, the solicitor ought to have shown this letter to the deputy judge. I accept that it is an innocent mistake on his part, and perhaps an error of judgment.

9. Even if I were wrong on the material non-disclosure point, I would nevertheless still exercise my discretion to re-grant a fresh injunction in terms of the ex parte injunction. In this regard, the reasons are just the same for continuing the ex parte injunction.

Continuing the ex parte injunction

10. There is no dispute that there are serious questions to be tried. The debate that took place before me related solely on the question of balance. I agree with Ms Liu that an injunction is appropriate in the circumstances of this case to preserve the status quo, pending the resolution of all the factual disputes which will be hotly contested at trial.

11. The present composition of the board of the 11th respondent was agreed to by the parties before any dispute arose. The respondents, who are the majority, say that they have now lost confidence in the board and, as the majority, they should be able to control the company by changing the composition of the board. In my view, it is not a sufficient ground to disrupt the status quo. The wish of the majority should not be given too much weight in the particular circumstances of this case. If they were able to change the composition of the board, then the petitioners' camp of directors would certainly be removed from management. That is something which should not happen at this stage of affairs.

12. Mr Lo, counsel for the respondents, took a further point. He submitted that looking at the petition and the prayer, the petitioners are only interested in three of the companies. The scope of the injunction, even if granted, should only be confined to those subsidiaries. The others, including the 11th respondent which the respondents' camp of shareholders are interested in, should be controlled by them. In my view, in light of the allegations and factual disputes regarding the merger and demerger, it is too simplistic to just divide the companies into two groups and then assigning the companies to the respective camp of protagonists.

13. Further, the injunction is limited to the board of the 11th and 12th respondents. On its face, it does not effect the composition of other subsidiaries within the group which the respondents may or may not be interested in. In any event, as I have mentioned earlier, if the status quo is to be preserved, then the status quo regarding the subsidiaries and the group as a whole should be preserved as well.

14. The respondents complain that there are risks of further unauthorised sale and dissipation of funds by the petitioners if they were allowed to remain in control of the company. These allegations, of course, are denied and they cannot be resolved here. I note, however, there is no evidence to suggest that alleged misconduct will happen again. The alleged unauthorized sale took place in early 2002, whereas the alleged dissipation of funds took place in January and February 2002, long before the presentation of the winding-up petition and the application for ex parte injunction. The respondents have failed to adduce evidence to show that after the alleged wrongful disposal of assets and funds the petitioners did or attempted to repeat the same misconduct before or after the presentation of this petition.

15. Mr Lo then complained that damages may not be adequate as a remedy in the event that the respondents win at the end of the day. But the same can be said regarding the petitioners' position as well. That is why the status quo should be preserved.

16. Mr Lo also queried about the adequacy of undertakings as to damages offered by the petitioners. There is, however, no evidence to suggest that the offer was not good or that the petitioners were not able to make good the offer in the event that the injunction is to be discharged later. The suggestion that the shares in the company may fall after the disposal of the petition is, at this stage, speculative.

17. For these reasons, the balance of convenience tilts strongly in favour of continuing the ex parte injunction or, alternatively, re-granting the injunction in the terms of the ex parte injunction.

[Submissions on costs]

18. The costs will be the petitioners' costs in the cause.

	(J. Poon)
	Deputy High Court Judge

Representation:

Ms Elaine Liu, instructed by Messrs Or, Ng & Chan,for the 1st and 5th Petitioners

Mr Tommy Lo, instructed by Messrs Keith Ho & Co.,for the 1st, 2nd and 18th Respondents

HCCW001097/2002

HCCW 1097/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP NO. 1097 OF 2002

____________

	IN THE MATTER OF SECTIONS 168A and 177(1)(f) OF THE COMPANIES ORDINANCE, CAP. 32
	AND
	IN THE MATTER OF GRAND SKY HOLDINGS LIMITED

____________

BETWEEN
	LAU CHI YAN ROGER	1st Petitioner
	KO HUNG CHUN	2nd Petitioner
	CHENG CHUNG MAN	3rd Petitioner
	LEE YICK MO OWEN	4th Petitioner
	CIBA INTERNATIONAL LTD	5th Petitioner
	AND
	TUNG KA HUNG	1st Respondent
	WONG CHI SANG NAVIS	2nd Respondent
	LI TAK YAN	3rd Respondent
	KWOK WAI YI	4th Respondent
	HO HOI TUNG	5th Respondent
	NG KAI YAN	6th Respondent
	CHUI WAI LEUNG	7th Respondent
	WATERMARK GROUP LTD	8th Respondent
	RICH RIDER LTD	9th Respondent
	INCORPORATED NOMINEES	10th Respondent
	GRAND SKY HOLDINGS LIMITED	11th Respondent
	GRAND WORLD TECHNOLOGY LTD	12th Respondent
	GRAND BOND (ASIA) LIMITED	13th Respondent
	ROCKENT ELECTRONICS LIMITED	14th Respondent
	CHANCE STAR LIMITED	15th Respondent
	CYBERONIC INTERNATIONAL LTD	16th Respondent
	BONDWAY INDUSTRIAL LIMITED	17th Respondent
	RATONAL INDUSTRIAL LIMITED	18th Respondent
	KARSON CIRCUITS LTD	19th Respondent

____________

Coram: Deputy High Court Judge A Cheung in Chambers

Date of Hearing: 11 October 2002

Date of Judgment: 11 October 2002

 

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J U D G M E N T

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1. This is the return day of an ex parte order made by Deputy High Court Judge Woolley on 2 October 2002 restraining the 1st and 2nd Respondents, as well as Grand Sky Holdings Limited (the 11th Respondent), from carrying into effect any resolutions made at an extraordinary general meeting of the company held on 2 October 2002, and restraining the 1st and 2nd Respondents from procuring the company to change the present board composition of the 12th Respondent.

2. On 9 October 2002, the 1st Respondent filed and served a very lengthy affirmation comprising bulky exhibits in opposition to the continuation of the injunction. At today's hearing, Ms Liu, appearing for the 1st and 5th Petitioners, asks for directions for the filing of further evidence in reply in support of her clients' application to continue the injunction. She asks that the ex parte injunction be continued in the meantime pending the adjourned hearing of the two Petitioners' summons to continue the injunction. This is opposed by Mr Wong, appearing for the 1st, 2nd and 18th Respondents.

3. Mr Wong essentially argues that the ex parte injunction should be discharged. He points out that the main ground of the application before Deputy High Court Judge Woolley was that the extraordinary general meeting and the notice calling for the holding of the extraordinary general meeting were irregular, as being in contravention of the provisions of Section 113 of the Companies Ordinance, Cap. 32. Mr Wong points out that in fact as is apparent from the notice itself as well as a letter written by those instructing him to the two Petitioners' solicitors on the very day when the two Petitioners went before Deputy High Court Judge Woolley for the ex parte injunction, the EGM was called not pursuant to the provisions in Section 113 but instead those in Section 114A(1)(b), and there was no irregularity whatsoever in relation to the notice so issued and thus the EGM so held. Mr Wong argues that the main plank of the application for the ex parte injunction is gone. Moreover, it is accepted by Ms Liu that the letter of 2 October 2002 was indeed received by the two Petitioners' solicitors whilst they were making their application before the learned judge on 2 October 2002, but the solicitors at that time had some difficulty in truly understanding the meaning and implications of the content of the letter. Mr Wong argues that that notwithstanding, this is also a case of material non-disclosure, in that the two Petitioners' solicitors never informed the learned judge whether at the hearing or after the obtaining of the ex parte injunction about the true basis of the notice in question as well as the EGM. Mr Wong therefore asks me to discharge the ex parte injunction. He adds that if the two Petitioners think that they have a good case for an injunction, they could apply for a fresh one later; that would be another matter.

4. The facts involved in the underlying petition are obviously very complicated. There are serious disputes between the parties involved. This can be easily seen from the very detailed affirmation filed by the 1st Respondent. Ms Liu, very understandably informs me that her clients substantially dispute the content of the 1st Respondent's affirmation and would require an opportunity to put in evidence to demonstrate the falsity of the content of the 1st Respondent's affirmation.

5. So far as the present dispute between the parties before me is concerned, I am clearly of the view that but for the point taken by Mr Wong relating to the discharge of the ex parte injunction on the ground that I have described above, the two Petitioners should be given a chance to respond to the 1st Respondent's affirmation and the injunction should be continued pending the filing of evidence and the substantive hearing of the summons of the two Petitioners.

6. The question for me to decide is whether I should now decide on the point made by Mr Wong and here and now set aside or discharge the ex parte injunction (if I am with Mr Wong), or whether I should leave it to be argued and decided by the judge who eventually hears the summons. In deciding this issue, I bear in mind two matters in particular. Firstly, regarding the true basis of the notice and the EGM, I agree that this was one of the reasons used by the two Petitioners to obtain the ex parte injunction from the learned judge. But as can be clearly seen from the skeleton argument used at the hearing before the learned judge, the application was based also on the alleged agreements between the parties and the need to preserve the status quo pending the resolution of the disputes between the parties. While I would not say that the basis of the notice and the basis of the EGM were not material matters for the court to take into account in deciding whether to grant the ex parte injunction, I am not sure, at this particular stage, whether in the exercise of my discretion, I should base on this ground alone - assuming that there was a material miscomprehension of the situation - discharge the ex parte injunction.

7. As I said, certainly, apart from the true basis of the notice and the EGM, there were and still are pending before the court important matters concerning the disputes between the parties for the court to consider in order to decide whether any interim injunctive relief should be granted or continued.

8. So in short, even assuming that Mr Wong is correct relating to the basis of the notice and the EGM, I am not prepared at this stage, in the exercise of my discretion, to set aside or discharge the ex parte injunction on this ground. That said, I am not saying that this ground would not be sufficient, whether by itself or when taken together with other relevant matters, to entitle the court not to continue the injunction. This is left to the judge who is going to hear the summons of the two Petitioners to continue the injunction to decide. All that I am saying is that at this interim stage, I am not prepared to discharge the injunction on this ground. I should add, whilst I am on this ground, in all fairness to the two Petitioners' solicitors, that in all likelihood, in my judgment, their misapprehension, if any, of the true basis of the notice and the EGM was an innocent mistake on their part. Their failure to comprehend the meaning and implications of the content of the letter of 2 October 2002 whilst they were on the feet before the learned judge is, in my judgment and subject to further evidence to be filed (if any), rather understandable, based on the material that is before me and based on what I have heard thus far. As I say, I am leaving all this to the judge who is going to hear the summons to decide (if necessary).

9. Secondly, I bear in mind whether there is any real prejudice to the clients of Mr Wong if I do not discharge the injunction now on the ground argued by Mr Wong, and leave the matter to the judge hearing the summons to decide. The difference is between discharging the injunction now and discharging the injunction after a full hearing by the judge hearing the summons. One would be talking about a difference of several weeks or a month or so. Mr Wong, despite his able submission, is unable to persuade me that there is any real and substantive prejudice to his clients if I refuse to discharge the injunction now and leave it to the judge hearing the summons to decide whether he or she should discharge the injunction in several weeks' time.

10. The clients of Mr Wong were and are still directors of the boards of the two companies in question. It is true that they were not and they are not in control of the boards, but as directors, they are entitled to attend the meetings of the boards and they are, as a matter of law, entitled to access the minutes and documents of the companies. If their rights as directors were or are infringed, there are avenues in law available to them to redress the wrongs; if necessary, they can go for injunctions or other appropriate relief. So in those circumstances, in my judgment, the overall objective of the court in this sort of situations must remain the preservation of the status quo. This is of course said without prejudice to the substantive hearing of the summons in question. That said, I believe that this consideration which was also relied on by the two Petitioners when they went before the learned Deputy Judge, was also on the forefront of the learned Deputy Judge's mind when he granted the ex parte injunction.

11. So for all these reasons and bearing in mind the overall circumstances of this case, I am not prepared to discharge the ex parte injunction at this stage. Instead I would give directions for the filing of evidence and the hearing of the summons. Mr Wong, very fairly and reasonably accepts that in the event he is not successful in persuading me to discharge the ex parte injunction on the ground argued by him this morning, the ex parte injunction should be continued pending the hearing of the summons. I agree that that is the fairest way to proceed with the application.

12. As regards the directions to be made, having heard the parties further, I give leave to the 1st and 5th Petitioners to file and serve their evidence in reply by 4:00 p.m. on 21 October 2002, and I order that the hearing of the summons of the two Petitioners be adjourned to 25 October 2002 at 10:00 a.m. before the summons judge. I further order that the ex parte injunction granted by Deputy High Court Judge Woolley on 2 October 2002 be continued to 25 October 2002 or until further order. Costs reserved.

	(Andrew Cheung)
	Deputy Judge of the Court of First Instance
	High Court

Representation:

Ms Elaine Liu, instructed by Messrs Or, Ng & Chan, for the 1st and 5th Petitioners

Mr H Y Wong, instructed by Messrs Keith Ho & Co., for the 1st, 2nd & 18th Respondents