TUENBO CO LTD v. CHEUNG SUNG LAM AND OTHERS

HCA 2095/2016 and HCA 566/2019

[2022] HKCFI 3251

HCA 2095/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2095 OF 2016

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BETWEEN

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AND

HCA 566/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 566 OF 2019

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BETWEEN

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D E C I S I O N

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A. INTRODUCTION

1.  The Plaintiff is part of the New World Group acting through its project company (“Steadfast”). The 2^nd to 4^th and 6^th to 7^th Defendants in the 2095 Action and the 1^st to 4^th Defendants in the 566 Action are collectively called “Tuenbo Parties”. The 1^st Defendant (“TCL”) is a limited company joined for it to be bound by the Court orders.

2.  There are 4 summonses before the Court. Two summonses, “566 Summons” and “2095 Summons” respectively, filed on 17 May 2021, seek directions as to trial of the 2 Actions. The other two Summonses, filed on 12 April 2022 in each Action, are to amend the first two Summonses. The amendments are not contested and so I proceed on the bases of the 566 Summons and 2095 Summons as amended. In essence, the Tuenbo Parties seek an order, in order of preference:

(i) To stay HCA 566/2019 pending the determination of HCA 2095/2016 which will resolve the authority to sue issue (“the Authority Issue”);

(ii) For trial of a preliminary issue on the Authority Issue in HCA 566/2019 and have it tried together with HCA 2095/2016; or

(iii) To have both Actions tried together.

3.  In mid-2016, Steadfast purported to enforce a Share Charge (by which the Tuenbo Parties charged their shares in TCL to Steadfast), and appointed Steadfast’s nominees to the board of TCL in the place of the Tuenbo Parties (“Purported Board”).

4.  HCA 2095/2016 was commenced by Steadfast for declarations to confirm the validity of its purported enforcement of the security. The Tuenbo Parties deny that there was valid enforcement and contend that they are entitled to redeem the security and hence regain control over TCL’s Board.

5.  HCA 2095/2016 was commenced by the Purported Board purportedly on behalf of TCL against the Tuenbo Parties, seeking recovery of TCL’s books and records. Given their stance in HCA 2095/2016, the Tuenbo Parties dispute the authority of the Purported Board to commence HCA 566/2019.

6.  In the present applications, the Tuenbo Parties contend that the Authority Issue is a common major issue in both Actions, which justifies the directions sought in paragraph 2 above.

7.  In sum, the grounds in opposition of TCL and Steadfast are that:

(1) Tuenbo Parties’s challenge to TCL’s authority to sue has been dismissed by DHCJ Stock SC. It is an abuse of process for the Tuenbo Parties to seek to relitigate the Authority Issue by the route of a preliminary issue or a main trial to be heard with HCA 2095/2016;

(2) No preliminary issue should be ordered; and

(3) In any event, the 2 Actions are separate and should not be tried together, which would result in resolution of HCA 566/2019 being significantly delayed.

B. BACKGROUND

B1. General background

8.  The underlying dispute between the New World Camp and Tuenbo Parties concern a secured loan arrangement arising out of a joint venture to develop residential properties in the Mainland known as the Golden Lake Project.

9.  TCL is a company established by the 1^st and 2^nd Defendants in 1977 and has at all material times been the corporate vehicle of the Tuenbo Parties. Until 21 July 2016, the 1^st to 3^rd Defendants were the former directors of TCL, and the 4^th Defendant its former company secretary.

10.  In September 1989, TCL and Zhongguo Guangzhou Bairun Properties Company (“Bairun”) incorporated a PRC company abbreviated as “GLRN” to hold the development interest in the Golden Lake Site.

11.  In 1992, the New World Group (of which Steadfast is a member) entered into collaboration with the Tuenbo Parties over the Golden Lake Project. As a result, a series of agreements including Shareholders’ Agreement (“SAs”) and Share Charges for Phases I and II of the Great Lake Project were entered into.

12.  In broad terms, Steadfast would enter into a joint venture with TCL, whereunder Steadfast would provide funding for the construction costs of the Golden Lake Project and manage the construction. On completion, the units of the Golden Lake Project would be sold offshore through 2 sole agents (Holicon and Jorvik) for each of Phases I & II. Proceeds received by Holicon and Jorvik would then be distributed, first to repay Steadfast for the “Shareholders’ Loans” together with interest; then to pay taxes, imposts, levies or duties; and the balance was to be distributed to Steadfast and TCL in equal shares.

13.  More specifically, Steadfast agreed to advance 4 loans to various entities as follows, namely, an “Initial Loan” to TCL of HK$50,000,000; a “Further Loan” to TCL of HK$50,000,000; and a “Shareholder’s Loan” to each of Holicon and Jorvik.

14.  At all material times, Steadfast has been in control of the construction and the management of the Golden Lake Project.

15.  As security for Steadfast’s funding, the Tuenbo Parties executed 2 Share Charges over their shares in TCL in favour of Steadfast, respectively in 1992, as security for, amongst others, the due and punctual payment to Steadfast of the “Indebtedness”. It was the 2^nd Share Charge which Steadfast has purported to enforce. Indebtedness was defined to mean all money payable by TCL and all parties to whom, at TCL’s request, Steadfast has advanced money under any of the Agreements. On Tuenbo Parties’s case, advances by Steadfast to Holicon and Jorvik did not constitute lending at the request of TCL. Thus in practical terms, what constituted the “Indebtedness” were the Initial Loan and the Further Loan but not either Shareholders’ Loan (“Secured Amount”).

16.  Apart from “Indebtedness”, the 2^nd Share Charge also secures “Obligations”, including the obligation of TCL to pay any shortfall under Phase I should the proceeds be insufficient to cover the Shareholders’ Loans, taxes, imposts, levies and/or duties, and the Initial and the Further Loan (“Deficit”).

17.  Given the priority in distribution of the proceeds, if the Project was sufficiently profitable so that there was no Deficit, it would follow that there would be no Secured Amount. In issue at the trial would be whether there was any outstanding secured liability or Deficit.

18.  The SAs expressly provided for the equity of redemption.

19.  The 2^nd Share Charge was enforceable upon occurrence of an Event of Default as defined in the SAs.

B2. HCA 2095/2016

20.  On 18 May 2016, Steadfast purportedly declared an Event of Default under the SAs on the basis that TCL and Bairun have failed to extend the operation period of GLRN; and subsequently purported to exercise its rights under the 2^nd Share Charge to convene an EGM of TCL.

21.  On 21 July 2016, at a purported EGM of TCL (“EGM”), Steadfast purportedly resolved to remove the 2^nd, 3^rd and 7^th Defendants from the board of TCL and appoint 2 representatives of Steadfast in their place (collectively, “Resolutions”). Such Resolutions, if valid, would seize TCL away from the Tuenbo Parties altogether.

22.  On 11 August 2016, Steadfast commenced HCA 2095/2016 seeking, amongst others, declarations confirming that the EGM was validly convened and the Resolutions were validly passed. Steadfast also sought a permanent injunction restraining the Tuenbo Parties from asserting or acting as directors of TCL.

23.  On 19 August 2016, Steadfast obtained an interlocutory injunction in HCA 2095/2016 from DHCJ Wilson Chan (as he then was) to restrain the Tuenbo Parties from, amongst others, holding themselves out as directors of TCL until judgment (“the Injunction”). The effect of this Injunction is that the entire Golden Lake Project has become wholly under Steadfast’s control, whether at the TCL, Holicon, Jorvik and/or GLRN level.

24.  In their defence, the Tuenbo Parties pleaded, amongst others, that:

(a) There was no Event of Default;

(b) Steadfast was not entitled to convene the EGM. Steadfast’s enforcement was not in good faith to preserve the value of its security (as demonstrated by the fact that the net assets of GLRN upon liquidation, after expiry of its operation period, was sufficient to repay any Secured Amount to Steadfast) but to gain absolute control of TCL and appropriate profits accruing from Phases I and II to the exclusion of the Tuenbo Parties.

(c) Steadfast had committed a multitude of wrongful acts against the Tuenbo Parties, but for which any outstanding Secured Amount on 18 May 2016 would have been much less than what was alleged to be owed. Steadfast could not rely on its own wrongs to justify the enforcement of the 2^nd Share Charge.

(d) The Tuenbo Parties counterclaim for, amongst others, declarations and injunctions that are effectively the diametrical opposite to those sought by Steadfast; an account from Steadfast and redemption of the Charged Shares.

(e) Further, the Tuenbo Parties contend that after taking into account the sales proceeds received upon the sale of the properties in Phases I and II in 2019 and 2020, there is currently no longer any outstanding Secured Amount. In the premises, the Tuenbo Parties are further entitled to redeem the Charged Shares and Steadfast is liable to pay TCL a substantial dividend.

25.  The Tuenbo Parties took out a partial summary judgment application before Wilson Chan J for the redemption of the Charged Shares but failed as the learned judge did not consider the matter appropriate for summary judgment: judgment dated 11 March 2022.

B3. HCA 566/2019

26.  About 3 years after commencement of HCA 2095/2016, the Purported Board commenced HCA 566/2019 purportedly on behalf of TCL, seeking recovery of TCL’s books and records from the Tuenbo Parties. Steadfast is not a party to this action.

27.  In their statement of claim, the Purported Board pleaded the background to the cooperation between the 2 camps as set out above, including the EGM and the Resolutions. Given the underlying dispute as to validity of appointment of the Purported Board and the Resolutions, the issue of whether HCA 566/2019 was commenced and/or is maintained with the proper authority of TCL arose.

28.  Accordingly, on 13 August 2019, the Tuenbo Parties issued a summons to strike out HCA 566/2019 on the ground that the Action was commenced without authority of TCL (“Strike-out Summons”). The Strike-out Summons was dismissed by a Master on 30 September 2020.

29.  The Tuenbo Parties’s appeal against the Master’s decision was dismissed by DHCJ Stock SC, from which there has been no further appeal.

30.  At the hearing before DHCJ Stock SC, the Tuenbo Parties proceeded on one summarily determinable point for the purpose of the Strike-out Summons concerning appointment of the Purported Board. The Tuenbo Parties assumed that an Event of Default had occurred (“Assumption”) and expressly reserved their right to rely on other non-summarily determinable points (“Reservation”), which overlapped with those taken in the HCA 2095/2016, to be ventilated on another occasion, such as a trial of a preliminary issue. See §§13 and 14 of DHCJ Stock SC’s Decision dated 11 June 2011 in HCA 566/2019 (“Decision”).

31.  Also by the same Decision, DHCJ Stock SC granted the interlocutory relief sought by TCL (under control of the Purported Board) and ordered the Tuenbo Parties to produce for inspection and copying certain of its books and records (§98). DHCJ Stock SC observed that:

(a) The Court must surely proceed on the basis that it was desirable for TCL to comply with its statutory obligations in respect of the profit tax returns, and with the requests and requirements of the Inland Revenue Department in this regard (§79);

(b) In view of the Injunction, the position arrived at in HCA 2095/2016 at that juncture was that the Purported Board was left to control TCL for the time being. Maintaining the status quo, the task of submitting TCL’s profit tax returns should lie with TCL under the control of the Purported Board, as a ring-holding measure (§91-92).

32.  The 566 Summons and 2095 Summons now before me first came before DHCJ Leung for directions (see [2021] HKCFI 2742). They were then stayed before DHCJ Stock SC. Upon dismissal of the appeal by DHCJ Stock SC, the Tuenbo Parties restored the two Summonses so that the non-summarily determinable points on the Authority Issue could be properly determined. The basis for their application is that the Authority Issue in HCA 566/2019 needs to be resolved (and resolved first) and that Issue engages precisely the same issues as those raised in HCA 2095/2016.

C. LEGAL PRINCIPLES

33.  The present Summonses are taken out under the inherent jurisdiction of the Court, Order 4, rule 9 and Order 33, rule 3 of RHC. Order 4 rule 9 provides that: where two or more causes or matters are pending, and if

(a) some common question of law or fact arises in both of them;

(b) the rights to relief claimed therein are in respect of, or arise out of the same transaction or series of transactions; or

(c) for some other reason it is desirable to make an order under that rule,

the Court may order those matters to be tried at the same time.

34.  Under Order 33, rule 3 of RHC, the Court may order any issue arising in a cause to be tried before, or after the trial of the cause and may give directions as to the manner in which the issue shall be stated.

D. COMMON ISSUE OF FACT AND LAW

35.  The Authority Issue is the common issue on the pleaded cases in both Actions. However, that Issue has been definitively determined by the Decision in HCA 566/2019, on the principles of the leading case of Kammy Townv Super Glory Corporation Ltd, HCA 3524/2003, 14 January 2015, §§11-19, 21 and 35, A Cheung J (as the Chief Justice then was), cited with approval by the Court of Appeal in Mok Mei Ling Rekei v Lau Muk Fat[2021] HKCA 706, §37. It is an abuse of process for the Tuenbo Parties to re-open the Authority Issue.

36.  Mr Man contends to the contrary. He relies on the Assumption and the Reservation. He also contends that, DHCJ Stock SC had expressly rejected the submission that the Authority Issue had already been determined in the Purported Board’s favour:

“64. …TCL argued that the dismissal of Ds’ Appeal on strike-out should result in the grant of the injunctive relief sought, without any need to consider the balance of convenience.

65. That was because, said TCL, the correct procedure for Ds to ventilate their complaint of lack of authority was at the outset of proceedings and by way of strike-out summons: see Kammy Town v Super Glory Corporation Limited (supra). It was not open to Ds to issue a strike-out summons, but reserve for later determination by preliminary issue a raft of other matters going to authority, should the summons fail. Further, Ds’ attempt to do so was an abuse of process since it entailed inconsistent positions, and vexing TCL twice on the same matter in these proceedings.

66. Accordingly, said TCL, if Ds’ strike-out summons was dismissed, that entailed the conclusive determination of Ds’ complaint of lack of authority for the purposes of these proceedings; with the result that TCL should plainly be entitled to its books and records.

…

68. However, for present purposes – and without of course deciding those summonses [i.e. the original Summonses now before this Court] – I am not attracted to TCL’s said position.

69. Given the approach and rationale in Kammy Town Limited, there would not seem to be anything objectionable in a defendant taking out a summons to strike-out for want of authority, on the basis that some of the points run are summarily determinable, but others would require directions for oral evidence. Once that is accepted, the complaint appears to lie only with Ds’ intended formula – which Ds flagged at the outset – of using the Order 33 procedure (trial of a preliminary issue) rather than an adjourned strike-out summons with directions, for the resolution of any such points which are not summarily determinable.

70. But, as Mr Man submitted, that appears to be a difference of form only; particularly given the special character of strike-out proceedings contemplated in Kammy Town within which oral evidence may be received and factual disputes determined.

71. Accordingly, I proceed for present purposes on the basis that, notwithstanding the dismissal of Ds’ Appeal, the entirety of Ds’ authority objection in these proceedings [ie HCA 566/2019] has not, necessarily, been resolved against Ds.”

(underlines added)

37.  With respect, I do not accept Mr Man’s contentions for the following reasons:

38.  Firstly, the Decision (without appeal) is final in determining TCL’s substantial right, ie authority to sue: Qiyang Ltd & Ors v Mei Li New Energy Ltd & Ors (CACV 146/2016, 11 April 2017), §9, Lam VP (as he then was); 惠陽市新墟合興製衣廠 v Elbex Video (Hong Kong) Ltd (HCMP 2432/2015, 5 November 2015) at §10, Poon JA (as he then was). There is either authority to sue or there is not: Kammy Town, §21. It is inappropriate for the Court to dismiss the application on the basis that it is not a plain and obvious case of lack of authority: Kammy Town, §§11-19 & 35.

39.  In the present case, once DHCJ Stock SC dismissed the Strike-out Summons, TCL must be taken to have authority to sue on all aspects of HCA 566/2019. It could not be that TCL has authority on some aspects of the case, at some stage, but not on others.

40.  In fact, the Tuenbo Parties’ own intention to have the Authority Issue decided once and for all was clear. It took out the Strike-out Summons on 13 August 2019. The present 2095 Summons and 566 Summons were only taken out on 17 May 2021, 8 months after the hearing before the Master and a week before the hearing before DHCJ Stock SC.

41.  Secondly, the Court should consider and decide for itself whether an authority issue raised by the applicant can be summarily disposed of on the affidavit evidence and, if not, how the objection can be determined, giving the necessary directions for cross-examination of a deponent or for trial of preliminary issue: Kammy Town at §§14, 18 , 35-37.

42.  The Tuenbo Parties have divided the issues relevant to the Strike-out Summons into summarily determinable and non-summarily determinable ones, but consciously reserved the latter for another occasion instead of seeking directions for oral evidence. That approach went against established authorities. In the end, DHCJ Stock SC did not just adjourn the Strike-Out Summons for oral evidence but proceeded to dismiss it without giving liberty to restore.

43.  Thirdly, as a matter of general principle, it is the duty of every litigant to bring forward his whole case at once and not to bring it forward piecemeal as he found out the objections on his way: Citic Pacific Ltd v Secretary for Justice [2012] 2 HKLRD 701 at §90 per Hartmann JA (as Hartmann NPJ then was); and Chan Chi Wai v Chan Sau Wah [2019] 3 HKLRD 330 at §27 per Kwan VP.

44.  Where the relevant authority challenge could or should have been raised but consciously not taken in a strike-out application, it is an abuse “to raise this issue again at the beginning of the trial in the guise of a preliminary issue when as a matter of law it could not have raised this issue by way of defence”. It is not necessary for the plaintiff to show further prejudice in objecting to the issue being raised again: Liquidation Committee of Foshan Hongda Development Ltd v East Legend Investment Ltd, [2009] 1 HKLRD 169, §§19, 22 per Cheung JA.

45.  It is simply not permissible for the Tuenbo Parties to re-open the Authority Issue in HCA 566/2019 under the guise of a preliminary issue or to deal with non-summarily determinable issues.

46.  Fourthly, having made an attempt to reserve an issue despite having the opportunity to put it forward but chose not to do so, a litigant is not permitted afterwards to put the issue before another tribunal: SCF Finance Co Ltd v Masri & Anor (No 3) [1987] QB 1028, 1049C, Ralph Gibson LJ.

47.  Accordingly, the Reservation could not legitimize the abuse of process of the Tuenbo Parties.

48.  Fifthly, a litigant cannot proceed on an assumed basis, obtain a decision for or against him, and then proceed to raise a matter inconsistent with that assumption in a subsequent proceeding. In Berthier Godown Ltd v E Wah Realty Ltd [1986] HKC 8, Mortimer J (as he then was) had this to say at p.14A-C; H-I:

“Here, the plaintiffs have made a fundamental assumption that they were not entitled to remain in occupation of the premises and therefore, they applied for a vesting order. They have now obtained such an order in separate proceedings. It is not open to them to seek in these proceedings to raise a matter inconsistent with the assumptions and the approach which they made then. Nor can they raise new legal issues in these proceedings which could have been raised and still can be raised in those other proceedings. It is undoubtedly the law that a person who takes proceedings must take all the points that are available to him in those proceedings and not in other proceedings…

… if the party seeks to raise new matters in separate proceedings or seeks to reverse a previous assumption that has been the basis of earlier proceedings in new proceedings, that amounts, first of all, to an abuse of the process and second, he is estopped from doing so.”

49.  Accordingly, the Assumption, likewise, could not legitimize the abuse of process of the Tuenbo Parties.

50.  Sixthly, the Purported Board instituted and maintains HCA 566/2019 whilst the Injunction was and is in force. The Tuenbo Parties’ application to discharge the Injunction was dismissed. Their challenge to the authority of the Purported Board in commencing and maintaining HCA 566/2019 is a collateral attack upon the Injunction, which is an abuse of process: Ms Yuen Oi Yee Lisa v Mr Ngai Ngok Leong[2022] HKCFI 1828, HCMP 1936/2021, 16 June 2022, §12, Au-Yeung J.

51.  Seventhly, §66-71 of the Decision cited above do not advance the Tuenbo Parties’ position. DHCJ Stock SC was aware of the stay of the 566 Summons and 2095 Summons (§68). §71 was placed in the context of deciding the proper merits threshold for granting mandatory relief, not re-litigation of the Authority Issue. All that §71 meant was that the underlying dispute that gave rise to the Authority Issue could still be fully ventilated in HCA 2095/2016. That was quite different from the situation in Tremendous Success Holdings Ltd v Sinosoft Technology Group Ltd, HCA 2345, 1613, 2423/2013, 11 July 2016, DHCJ Anita Yip SC, where it was held that the subsequent stay application that could have been taken out earlier on had merits. The plaintiffs there should not profit by shutting the defendants out on grounds which have not been previously determined and merely as a result of the defendants’ failure to bring them within one summons. In fact, neither Steadfast nor TCL have ever advanced the position that the Decision bars the Tuenbo Parties from pursuing the Authority Issue so in HCA 2095/2016.

52.  For the above 7 reasons, it is an abuse of process for the Tuenbo Parties to raise the Authority Issue again in HCA 566/2019.

53.  Mr Man relies on Mok Mei Ling, which involved 2 related cases like the present. One case, by originating summons (“OS”) involved the plaintiff demanding the defendant to withdraw registration of certain instruments at the Lands Registry; and the defendant challenged the plaintiff’s authority to sue due to the underlying land transactions being allegedly sham and fraudulent (§§ 2, 32(4)). The other case raised squarely the issue as to whether the land transactions were invalid and void for being sham and fraudulent transactions (§§24-25). The Court of Appeal observed that the locus issue under the OS raised substantial factual issues that could not be resolved by affidavits and would require viva voce evidence for proper determination (§57). Accordingly, it ordered that the OS do continue as if the cause had begun by writ, and directed the parties to seek directions on, amongst others, whether and, if so, how the OS should be tried together with the other action (see §58).

54.  However, Mok Mei Ling is distinguishable from the present case in that the Court of Appeal did not rule on the authority issue at all before directing the parties to seek directions from the Court of First Instance. There was no question of abuse of process in Mok Mei Ling.

55.  For the reasons given in Section D, it is an abuse of process to retitigate the Authority Issue in HCA 566/2019. There is no common issue in the 2 Actions.

56.  I now turn to the directions sought by the Tuenbo Parties.

E. STAY OF HCA 566/2019 PENDING DETERMINATION OF HCA 2095/2016

57.  The Court has power to stay proceedings where it thinks it fit to do so, including staying the whole or part of any proceeding pending resolution of another set of proceedings: Order 1B, rule 1(2)(e) of RHC and section 16(3) of the High Court Ordinance, Cap 4.

58.  Order 4, rule 9, RHC also empowers the Court to stay one of two pending causes or matters until after the determination of the other cause or matter.

59.  In Eastman Chemical Ltd v Heyro Chemical Co Ltd [2012] 2 HKLRD 135 §29, DHCJ Lisa Wong SC (as she then was) set out the relevant principles for stay as follows:

(a) The Court must consider what would serve the ends of justice between the parties to the litigation and the administration of justice generally;

(b) A stay should not cause an injustice to the plaintiff/claimant;

(c) The applicant for a stay must satisfy the Court that continuing the proceedings would be unjust; and

(d) Where a plaintiff commences proceedings as of right, he should not be deprived of the right to continue those proceedings in the absence of very good reasons to the contrary.

60.  Ultimately, the question is a matter of sensible case management, to be decided with the objectives in mind of what is fair and just, balancing, amongst others, possible wastage of time and resources, parties’ time and costs, and possible delay to proceedings: Xiamen Xinjingdi Ltd v Eton Properties Ltd & Others[2018] HKCFI 910, §§24-28, Mimmie Chan J; Poon Ka Man Jason v Cheng Wai Tao[2018] HKCFI 771 §§36-39, Au Yeung J.

61.  Tuenbo Parties’ case is that it would be time and cost effective for HCA 2095/2016 to be determined first because there is an extant Authority Issue in HCA 566/2019 that needs to be resolved first, which should be dealt with in HCA 2095/2016. “Other issues” in HCA 566/2019 (such as whether the books and records sought by the Purported Board exist) that do not overlap with those in HCA 2095/2016 can be resolved by an order for interim relief to hold the ring and resolved on a subsequent occasion if the Authority Issue is determined in HCA 2095/2016 against the Tuenbo Parties.

62.  With respect, given my analyses in Section D above, the existence of the Authority Issue in HCA 566/2019 falls away. Stripped of the Authority Issue, there is not much left in the HCA 566/2019. The suggested “other issues” are not really issues as the Tuenbo Parties have purportedly complied with the Injunction and the books and records do appear to exist. However there is a strange paper for equitable or common law damages.

63.  More importantly, the issues in the 2 Actions are different:

(1) HCA 2095/2016 is a complex commercial dispute with multifarious issues. It will involve investigation of the whole relationship between the 2 camps, including management of the Great Lake Project, sale of properties, application of sale proceeds, construction costs, a series of alleged wrongdoings of Steadfast, complicated calculations predicated upon the parties’ different counterfactuals, in order to arrive at a conclusion of whether the security has been discharged.

(2) HCA 566/2019 is only a claim by TCL as a company for the return of its books and records from its former directors and company secretary. Regardless who should remain in the Board after trial of HCA 2095/2016, it would still be the company, TCL, which will be entitled to those books and record: Unimax Property Consultancy Ltd v Ng Lai Ching[2019] HKCFI 45, §7, DHCJ William Wong SC. Meanwhile, in view of the Injunction, the Tuenbo Parties are not entitled to hold onto the books and records.

64.  For the reasons given above, there is reason for saying that staying HCA 566/2019 may cause injustice to TCL in delaying quick disposal of that Action.

65.  That said, one can see that the main dispute of the parties is the HCA 2095/2016 and it is always good to decide the main dispute first to avoid satellite litigation that diverts the parties’ attention. In respect of HCA 566/2019:

(1) It is not clear what sort of investigation is called for in respect of the claim for equitable and common law damages in HCA 566/2019. Given the size and complexity of the claim in HCA 566/2019, those damages could not be the real focus of the parties’ battle.

(2) The books and records sought are in fact historical records of the period when the Tuenbo Parties were on the Board of TCL. For 6 years since the EGM in 2016, the Purported Board has taken over management of TCL.

(3) TCL had wanted the books and records in order to discharge its duties to file profits tax return and employer’s return of remuneration and pensions; and to discharge its statutory duty of keeping the statutory records at its registered office. To meet that need, there is already an interim order for preservation of the books and documents for inspection and copying by TCL.

(4) There is little prejudice shown from failure of TCL to keep the historical books and records at its office.

66.  As a matter of case management, it would meet the ends of justice and avoid possible wastage of Court time, efforts of the parties and costs to deal with the main dispute first, staying HCA 566/2019 pending outcome of HCA 2095/2016. Given the interim order of DHCJ Stock SC to preserve the books and records, it is in the interest of the Tuenbo Parties to be compliant with that order or else TCL can come back on a liberty to apply provision to uplift the stay. I therefore order a stay with a liberty to apply provision; the findings in HCA 2095/2016 shall bind the parties in HCA 566/2019.

F. ORDER PRELIMINARY ISSUE IN HCA 566/2019 AND HAVE IT TRIED TOGETHER WITH HCA 2095/2016

67.  The general rule is that all disputes should be tried together, and an order for separate trial for separate issues should only be made in exceptional circumstances or on special grounds. An “issue” which involves dealing with the whole subject-matter of the action without any evidence (or, in my view, even with evidence) is not a preliminary point and should not be ordered to be tried as such. See Ng Fuk Shing v Ng Fuk Nam[2018] HKCFI 2528, §36, DHCJ Marlene Ng (as she then was).

68.  No exceptional circumstances or special grounds have been shown for trial of a preliminary issue.

69.  Applying Foshan, it is an abuse of process to disguise the Authority Issue (which has been finally determined) as a preliminary issue.

70.  In any case, the Authority Issue virtually deals with the whole subject matter of HCA 566/2019. Applying Ng Fuk Shing, the Court would not direct trial of such a core issue separate from other issues.

71.  Mr Lin further submits that granting the direction sought by Tuenbo will create a substantial practical difficulty as to how the trial can be properly conducted with different plaintiffs in the 2 Actions represented by 2 different law firms and TCL as the plaintiff in HCA 566/2019 but a defendant in HCA 2095/2016: Lewis v Daily Telegraph Ltd (No2) [1964] 2 QB 601, at 620-621, Pearson LJ.

72.  I do not consider that to be a practical difficulty as the Tuenbo Parties are not seeking an order for consolidation. TCL is only a nominal party in the HCA 2095/2016, not expected to take an active role or incur substantial cost. Its major role in the trial together, if ordered, will be in the HCA 566/2019.

73.  For the reasons given in Section F, I decline to order a preliminary issue to be tried together with HCA 2095/2016.

G. HAVING BOTH ACTIONS TRIED TOGETHER

74.  The relevant principles for ordering separate proceedings to be heard together have been set out in Re Winscore International Ltd[2021] HKCFI 3563 §§11-12, Recorder Dawes SC:

(a) The Court has a wide and unfettered discretion under O.4 r.9. There is no hard and fast rule on how this discretion ought to be exercised, but the Court should take a practical and common sense approach to ensure justice is best served.

(b) Even though the Court’s discretion should be exercised flexibly, it must be satisfied that it would be proper and expedient to make such an order, having regard to all the circumstances. It should consider, amongst other things, that the objective of the rule is to save time and costs, and where there is a substantial overlapping of issues and parties, it is desirable to resolve the disputes in different actions on one occasion before the same judge.

(c) Following the Civil Justice Reform, the emphasis is on ensuring the efficient and just resolution of disputes before the Courts.

75.  Given that the 2 Actions involve substantially different issues as described in paragraph 63 above, Steadfast should not be unnecessarily dragged into HCA 566/2019; and I decline to so order. I decline to make an order for trial together.

H. CONCLUSION

76.  It is an abuse of process to have the Authority Issue relitigated in HCA 566/2019. There are no exceptional or special grounds to order trial of a preliminary issue. As the issues in the 2 Actions are different, ordering them to be tried together is inappropriate. But staying HCA 566/2019 pending trial of HCA 2095/2016 will serve the ends of justice.

77.  Accordingly, I order as follows:

(1) There be leave to amend the Summonses dated 17 May 2021 as per the Summonses dated 12 April 2022.

(2) Pursuant to the Amended 566 Summons, all further proceedings in HCA 566/2019 be stayed pending resolution of HCA 2095/2016.

(3) Findings in HCA 2095/2016 shall bind the parties in HCA 566/2019.

(4) Liberty to apply.

78.  As the Amended Summonses involve a case management matter with each party succeeding on some but not all arguments, I make an order nisi that costs should be in the cause of both Actions with certificates for 2 counsel.

79.  I thank counsel for their assistance.

Mr Kenny Lin and Mr Jeffrey Lee, instructed by Simmons & Simmons, for the Plaintiff in HCA 2095/2016 (Steadfast)

Mr Victor Joffe SC and Ms Natalie So, instructed by Grandall Zimmern Law Firm, for the 1^st Defendant in HCA 2095/2016 and the Plaintiff in HCA 566/2019 (TCL)

Mr Bernard Man SC, Mr Danny Tang and Mr Brian Lee, instructed by Edmund Cheung & Co., for the 2^nd to 4^th, 6^th and 7^th Defendants in HCA 2095/2016 and the 1^st to 4^th Defendants in HCA 566/2019 (Tuenbo Parties)

HCA 566/2019

[2021] HKCFI 2532

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 566 OF 2019

________________________

________________________

________________________

DECISION ON COSTS

________________________

1.  I refer to my Decision in this action dated 11 June 2021 (the “Decision”), whereby I: (i)  dismissed the appeal of the 1^st to 4^th defendants (“Ds”)  in respect of their summons seeking to strike out these proceedings; and (ii)  granted to the plaintiff (“TCL”)  an order for the preservation of certain documents held by Ds and their inspection and copying by TCL.

2.  The background and substantive issues are out in the Decision. I will not here repeat them, and I adopt the terminology in the Decision.

3.  At §§98(1)  and 99 of the Decision, I pronounced costs orders nisi that: (i)  Ds pay the costs of their appeal to be taxed if not agreed; and (ii)  the costs of TCL’s Summons be in the cause.

4.  Subsequently, TCL applied by summons (the “Costs Summons”)  to vary the costs orders nisi to provide that Ds pay TCL’s costs of both D’s Appeal and of TCL’s Summons, forthwith with certificate for two counsel, to be summarily assessed if not agreed.

5.  Directions were made for the exchange of written submission on the Costs Summons, which I have now received and considered.

6.  By their submissions, Ds indicated that they did not oppose the proposed variations to the costs order for Ds’ Appeal. The main item of controversy is therefore the appropriate costs order for TCL’s Summons, in particular whether it should be costs in the cause as per the nisi order, or whether this should be varied such that Ds pay TCL’s costs.  

7.  The principles on the award of costs where a plaintiff is successful in obtaining interlocutory injunctive relief, were considered by Au-Yeung J in Hengshi International Investments Limited v Bayspring International Limited, HCMP 1916/2015, 10 March 2016, at §§38-43. I take the principles to be as summarised in that decision[1].

8.  Where a plaintiff successfully obtains interlocutory injunctive relief despite a defendant’s opposition, the court has a broad discretion on costs, considering what is fair and just in the circumstances, by reference to the various considerations summarised in Hengshi International Investments. The approach is not mechanistic. The following may be relevant: (i)  the merits of the injunction application itself at the time it was made and considered, as a matter distinct from the possible outcome at trial; (ii)  the risk of injustice to the defendant in making a final costs order in the plaintiff’s favour, when upon mature consideration at trial a different view might be taken; (iii)  the countervailing risk of injustice to the plaintiff in delaying the issue until conclusion of trial, which might have the practical effect of depriving the plaintiff of some or all costs which it should in fairness have been awarded (eg if a trial never materialises).

9.  Further, a costs order should be made against an unsuccessful defendant in an application for an interlocutory injunction where: (a)  the outcome of the hearing might be so plain that the court should conclude that an order should be made against the defendant for wasting time and money in fighting the issues; or (b)  where the substantive merits were very plain and the court did not expect the case to go any further: Hengshi International Investments at §43, citing Picnic at Ascot v Kalus Dergis [2001] FSR 2.   

10.  Despite TCL’s detailed submissions, I am not persuaded that TCL should now be awarded the costs of TCL’s Summons, irrespective of the outcome of the action. I remain of the view that the fairest order is costs in the cause, for the following main reasons. 

(1)  I do not accept TCL’s arguments that the summons falls within the classes of cases described at §9 above.  Whilst I ultimately granted to TCL some relief under its summons, I do not think that this outcome was plain and obvious from the outset, and I consider that Ds levelled at least some reasonable arguments in opposition to TCL’s Summons.

(2)  I am also not persuaded by TCL’s arguments to the effect that the merits and outcome of its summons were plain or inevitable given a company’s prima facie entitlement to its own books and records. Rather, the Decision proceeds on the basis that Ds’ complaint of lack of authority remains (at least potentially)  to be finally resolved at a later stage (Decision §§71 and 75), and that the injunctive relief granted is a ring-holding measure (Decision §92).

(3)  I take the view that it would be substantially unfair if Ds/the Tuenbo parties were to ultimately succeed in establishing an entitlement to control TCL at the present time, but Ds were nevertheless left bearing the costs of TCL’s Summons. On the facts of this case, I consider that this potential unfairness outweighs countervailing considerations of the nature summarised at §8 above.

11.  As to the costs of Ds’ Appeal, as noted above, the variations sought were ultimately not opposed. Further, I am satisfied that it is appropriate to grant a certificate for two counsel and for the costs to be summarily assessed and paid forthwith.

12.  The written submissions also addressed the costs of TCL’s Costs Summons, and I have considered the parties’ various arguments on point.

13.  In my view, the most significant matter raised by the Costs Summons was TCL’s argument that the costs of TCL’s Summons be to TCL rather than in the cause; upon which TCL has not prevailed. The other matters raised by the Costs Summons appear comparatively minor, and indeed turned out to be uncontroversial.

14.  Accordingly, taking a broad-brush approach, I will order that TCL pay 75% of Ds’ costs of the Costs Summons forthwith, to be summarily assessed if not agreed.

Conclusion and disposition

15.  In conclusion:

(1)  the costs order nisi pronounced at §98(1)  of the Decision will be varied to provide that Ds pay TCL’s costs of Ds’ Appeal forthwith, to be summarily assessed if not agreed, with certificate for two counsel;

(2)  the costs order nisi pronounced at §99 of the Decision will not be varied save that I will indicate a certificate for two counsel in respect of both sides’ costs;

(3)  TCL will be ordered to pay 75% of Ds’ costs of the Costs Summons forthwith, to be summarily assessed if not agreed.

16.  I also give the following directions for the summary assessments of costs referred to at §§15(1)  and (3)  above:

(1)  within 14 days from the date hereof, TCL and Ds are each to lodge and serve a succinct statement of costs in support of their respective claims for costs, pursuant to Practice Direction 14.3;

(2)  within 14 days thereafter, TCL and Ds are each to lodge and serve a succinct summary of objections (if any)  to the opposing parties’ statements of costs;  

(3)  the summary assessments of costs will be disposed of on paper (unless otherwise directed).

Mr Kenny Lin and Ms Natalie So instructed by Messrs Jones Day for the Plaintiff

Mr Danny Tang and Mr Brian Lee instructed by Messrs Edmund Cheung & Co for the 1^st, 2^nd, 3^rd and 4^th Defendants

HCA 2095/2016 & HCA 566/2019
(Heard together)
[2021] HKCFI 2742

HCA 2095/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2095 OF 2016

_________________

____________________

AND

HCA 566/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 566 OF 2019

____________________

____________________

(Heard Together)

____________________

DECISION

____________________

1.  The only difference for today’s purpose is whether the defendant in the 2019 action should have stay of the time for filing and service of the defence until the determination of the 2019 summons. I do not agree that such time should be stayed and that the defendant be allowed to withhold the filing of the defence.

2.  The circumstances of this case are such that whether and, if yes, what other substantive defence in the 2019 action would likely be relevant to the question of whether there should be an order for the preliminary trial of the issue of authority.  In particular, there are two questions: first, whether the issue of authority is the only defence or whether there are other substantive defence, the trial of which may be said to be saved by the preliminary trial of the issue of authority; second, whether the other substantive defence is so intertwined with the authority issue so that preliminary trial of the authority issue will not materially differ from a full trial. 

3.  In the circumstances, I give further directions as follows (and I am using the proposed directions set out in Mr Lee’s skeleton argument subject to the necessary adjustments).

4.  For the 2016 summons, there will be leave to the plaintiff to file and serve affidavit in opposition to the 2016 summons within 28 days of this order.  There will be leave to the 2^nd to the 4^th and 6^th to 7^th defendants to file and serve affidavits in reply, if any, within 28 days thereafter.  There will be no further affidavit without leave of the court.  The 2016 summons shall be adjourned to a date to be fixed in consultation with counsel’s diaries for substantive argument, with 1 day reserved.  The 2016 summons shall be heard together with the 2019 summons.  Costs are reserved.

5.  In respect of the 2019 summons, there will be leave to the plaintiff to file and serve affidavit in opposition to the 2019 summons within 28 days.  There will be leave to the defendants to file and serve affidavit in reply, if any, within 28 days thereafter.  There will be no further affidavit without leave of the court.  The 2019 summons shall be adjourned to a date to be fixed in consultation with counsel’s diaries for substantive argument, with 1 day reserved.  The 2019 summons shall be heard together with the 2016 summons.  Costs are reserved. 

[Discussion re filing of defence and further affidavit]

6.  For the purpose of the 2019 action, the direction will also include that the time for filing and service of the defence be extended to 28 days from today, and time to run during vacation.

Mr Cheng Sui Kit, of Simmons & Simmons, for the plaintiff in HCA 2095/2016

F Zimmern & Co, for the 1^st defendant in HCA 2095/2016, absent

Mr Brian Lee, instructed by Edmund Cheung & Co, for the 2^nd to 4^th, 6^th and 7^th defendants in HCA 2095/2016 and the 1^st to 4^th defendants in HCA 566/2019

The 5^th defendant in HCA 2095/2016 was not represented and did not appear

Mr Kenny Lin and Ms Natalie So, instructed by Jones Day, for the plaintiff in HCA 566/2019

HCA 566/2019

[2021] HKCFI 1620

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 566 OF 2019

________________________

________________________

________________________

DECISION

________________________

1.  There were two matters before me for substantive determination:

(1)  An appeal (“Ds’ Appeal”) of the 1^st to 4^th defendants (“D1 to D4” and collectively, “Ds”), from an order of Master Kenneth Lee dated 30 September 2020, which order dismissed Ds’ summons seeking to strike out this action; and

(2)  An amended summons (“TCL’s Summons”) taken out by the plaintiff (“TCL”) seeking interim relief against Ds, in the form of an order for the delivery to TCL of certain of its books and records, pending trial.

2.  TCL was represented by Mr Victor Joffe (leading Mr Kenny Lin and Ms Natalie So)[1]. Ds were represented by Mr Bernard Man SC (leading Mr Danny Tang and Mr Brian Lee).

3.  At the conclusion of the hearing I reserved my decision on the two matters referred to above, which I now give.

A.  BACKGROUND

4.  In these proceedings, TCL seeks an order for the return and delivery of its books and records said to be in Ds’ possession, custody and control, and/or damages.  The claim is brought on the basis that D1-D3 are former directors of TCL, and D4 is its former company secretary.

5.  The background to the proceedings is related, however, to HCA 2095 of 2016 (the “2016 Action”), commenced by Steadfast International Limited (“SF”). SF is not party to the present proceedings.

6.  The underlying dispute has been described in terms of two “camps”, namely: (i) the “Tuenbo parties” (including the Ds herein); and (b) the “New World parties” (including SF)[2].

7.  The brief history can be summarised as follows:

(1)  TCL is a Hong Kong company established by D1 and D2 in 1977.

(2)  In 1989, TCL entered into a cooperative contract with Guangzhou Bairun Real Estate Co Ltd (“Bairun”) for the development of the “Golden Lake Site” in the Mainland, upon which residential properties were to be constructed.  For the purposes of this joint venture, TCL and Bairun incorporated Golden Lake Residential Neighborhood Development Company Limited (“GLRN”) in the Mainland in 1991, with TCL and Bairun as its sole shareholders.

(3)  Starting around 1992, the New World Group and the Tuenbo parties entered into a collaboration for the Golden Lake project. There were various agreements between inter alia TCL, SF and GLRN, including two shareholders agreements: (i) 1992 Shareholders agreement between (inter alia) SF, TCL and Holicon Holdings Ltd (“Holicon”, in which SF and TCL were each 50% shareholders); (ii) 1993 Shareholders agreement between (inter alia) SF, TCL and Jorvik International Ltd (“Jorvik”, in which SF and TCL were each 50% shareholders).

(4)  The arrangement, broadly, was that the New World Group through SF, was to provide financing for the development of the Golden Lake project, including by loans to TCL, Holicon and Jorvik.

(5)  To provide security for SF’s said loans, the Tuenbo parties charged their shares in TCL in favour of SF, by two share charges executed in 1992 (“1^st Share Charge”) and 1993 (“2^nd Share Charge”), respectively.

(6)  By letter dated 18 May 2016, SF/the New World parties alleged an event of default under the share charges, on the basis that TCL had failed to comply with their requests to take steps to extend the operating period of GLRN, which operating period was due to expire.

(7)  Following a requisition for and notice of EGM (discussed below), a (purported) EGM (the “EGM”) of TCL was held on 21 July 2016. At the EGM resolutions were (purportedly) passed to, inter alia, to remove D1-D3 as directors of TCL and appoint instead Mr Chen Guanzhan and Mr Wong Man Hoi (the “New Directors”).  The validity of the EGM and the said resolutions, is one of the central issues in dispute.

(8)  On 11 August 2016, SF commenced the 2016 Action against inter alia TCL and D1-D3. The relief sought includes declarations that SF was entitled to enforce its security under the 2^nd Share Charge, and that the EGM and resolutions passed were valid.

(9)  On 19 August 2016, SF obtained in the 2016 Action an interlocutory injunction (the “Injunction”) from Deputy High Court Judge Wilson Chan (as he then was), restraining the defendants (including D1-D3 herein) pending trial from inter alia: (i) obstructing the extension of the operating period of GLRN; (ii) obstructing the New Directors from acting as TCL’s directors to so extend that operating period; and (iii) asserting or acting as directors of TCL.

(10)  The present proceedings were commenced in April 2019 by TCL (then, and currently, under the control of the New World parties, following the Injunction). TCL complains that following the EGM, D1-D4 have failed to deliver to TCL various of its books and records, despite repeated requests.

8.  The pleadings in the 2016 Action are lengthy and complex. The Tuenbo parties say, inter alia:

(1)  There was no event of default under the 2^nd Share Charge, including because there was no obligation on TCL/the Tuenbo parties to procure the renewal of the operating period of GLRN. Accordingly, SF was not entitled to exercise its security under the 2^nd Share Charge.

(2)  In any event, SF did not validly exercise rights under the 2^nd Share Charge in convening the EGM: see further below.

(3)  Further, in the long period between the shareholders agreements and 2016, SF committed a variety of wrongful acts against the Tuenbo parties.  But for these acts, SF’s loans would have been discharged long before the purported event of default. SF cannot rely on its wrongful acts to justify enforcement of the 2^nd Share Charge[3]. 

9.  By summons dated 1 March 2021 in the 2016 Action, the Tuenbo parties sought leave to re-amend their Defence and Counterclaim, summary judgment, and discharge of the Injunction. The basis for these applications, which are due to be heard later this year, include that: (i) by 2019/2020 GLRN had sold all of the units in the development; (ii) whatever the position previously, the sale proceeds, if properly applied, must now be sufficient to discharge SF’s loans[4]; and (iii) accordingly, the charged shares now fall to be redeemed, such that control of TCL must revert to the Tuenbo parties.

B.  Ds’ APPEAL: STRIKE OUT

10.  In the present proceedings, Ds have not filed a defence.  Instead, Ds took out a summons dated 13 August 2019 seeking to strike out the action, on the basis that it was commenced without TCL’s authority.  That summons was dismissed by Master Kenneth Lee, an appeal from which dismissal came before me by way of re-hearing.

11.  It is Ds’ position that for the same reasons as given in the 2016 Action, the EGM and the resolutions passed were not valid, such that the New Directors were not validly appointed, and the present action was not commenced with the proper authority of TCL.

12.  For the proper approach to taking points of this nature, Ds cited Kammy Town Limited v. Super Glory Corporation Limited HCA 3524/2003, Hon A Cheung J (as he then was), 14 January 2005 at §§11-19[5].  In summary, as set out in Kammy Town:  

(1)  A complaint of lack authority must be taken by a defendant at the earliest opportunity.  It should not be raised as a defence, for it is not a defence. It should not be left to be determined at trial together with the other substantive issues. 

(2)  The procedure for raising such a point is an application to strike out the plaintiff’s name under the inherent jurisdiction of the court. However, unlike an ordinary application to strike out, the question of authority must be definitively determined one way or another by the court seised of it.  It is accordingly inappropriate for the court to dismiss such an application on the basis that on the affidavit evidence, it is not a plain and obvious case of lack of authority.

(3)  The burden lies with those suing in the plaintiff’s name to prove authorisation. 

(4)  The court seised of such an application should ascertain whether it can be summarily disposed of one way or another, on the basis of the affidavit evidence filed.  If it cannot be, the court should not attempt to resolve disputed facts on affidavit, without cross-examination.  Rather, the proper course is then to adjourn the matter with appropriate directions, such as for the cross-examination of deponents on their affidavit evidence, and such that the oral evidence can be heard and tested.

13.  On their strike-out application Ds’ position was that there was one summarily determinable point, which demonstrated that the New Directors were not validly appointed, and that accordingly the action failed for want of authority: see below.

14.  However, even if that one point were not accepted, said Ds, there were a multitude of other reasons why the action failed for want of authority, which were not summarily determinable, and hence would still need to be determined even if the strike-out application failed[6].  Such points overlapped with those taken in the 2016 Action.

15.  In this regard, there were also returnable before me: (i) Ds’ summons dated 17 May 2021 seeking (without prejudice to Ds’ appeal on strike-out), a stay of these proceedings pending the resolution of the 2016 Action, or alternatively, directions for the trial of a preliminary issue on authority in these proceedings, to be tried together with the 2016 Action; and (ii) a similar summons taken out by the Tuenbo parties in the 2016 Action. At the outset of the hearing I made orders, by consent, that the said summonses be stayed pending the determination of Ds’ Appeal. 

Ds’ summarily determinable strike out point

16.  The “one point” which Ds alleged to be summarily determinable for the purposes of striking-out, relates to a requisition dated 14 June 2016 (the “Requisition”) for the EGM.

17.  As to the facts:

(1)  The Requisition was sent to TCL under cover of letter from SF’s solicitors stating, inter alia, that there was enclosed a requisition by SF for an EGM.

(2)  The Requisition stated that it is a Requisition for Extraordinary General Meeting of TCL, and was addressed to the board of directors of TCL. The first two paragraphs read as follows:

“Reference is made to the Second Share Charge dated 30 September 1993 (the “Second Share Charge”) entered into by Tuenbo (Holdings) Company Limited …, Ideal Win Company Limited …, [D1], [D2] and Cheung Wai Kwan … as chargors, [TCL] as company and [SF] as lender pursuant to which 12,790,000 shares of TCL (the “Charged TCL Shares”), being 94.05% of the issued share capital of TCL, have been charged in favour of [SF].

Pursuant to Clause 8.02(b) of the Second Share Charge, [SF] hereby exercises all powers and rights of the Charged TCL Shares as if [SF] was the outright and absolute owner thereof to request pursuant to Section 566 of the Companies Ordinance (Cap. 622) that an extraordinary general meeting of the Company be called within 21 days after the date hereof the following purposes: …”

(3)  The Requisition was signed, at the end “For and on behalf of [SF]”, and bore the name and signature of Mr Chen Guanzhan, as authorised signatory of SF.

(4)  By letter from their solicitors dated 4 July 2016, the Tuenbo parties objected to the Requisition on the grounds that SF was not a registered member of TCL, and could not requisition under section 566 of the Companies Ordinance (Cap.622) (the “CO”).

(5)  On 6 July 2016, a notice of EGM (the “Notice”) was sent to TCL and its shareholders, pursuant to section 568 of the CO, in respect of the EGM. The Notice was signed in a similar manner to the Requisition, save that it (twice) expressly identified SF as the “irrevocably appointed attorney” of inter alia TCL and D1-D3.

18.  Ds’ arguments proceeded on the assumption - said to be adopted only for the purposes of striking-out - that at the time of the Requisition there had been an event of default for the purposes of the 2^nd Share Charge. Even on that assumption, Ds argued that the EGM and resolutions were invalid, for the following reasons:

(1)  Under section 566 of the CO, only a member can raise a requisition for an EGM. Under section 2 of the CO, a “member” means a person entitled to be and in fact registered in the company’s register of members. 

(2)  SF was not, and has never been, registered in TCL’s register of members. It could not therefore itself requisition under section 566. 

(3)  Accordingly, even if there had been an event of default, the Requisition could only have been validly raised by SF in its capacity as agent/attorney for the parties who had charged their shares under the 2^nd Share Charge (the “Chargors”).

(4)  Whilst it was assumed for the purposes of the strike-out that SF had actual authority to do this on the Chargors’ behalf (following the assumed event of default and under the terms of the 2^nd Share Charge), that is not what SF purported to do in the Requisition. Rather, SF purported to issue the Requisition in its own capacity (rather than qua agent or attorney of the Chargors).

(5)  It is a fundamental tenet of agency law, and a requirement for the exercise of powers by an attorney under the Powers of Attorney Ordinance (Cap.31) (the “PAO”), that an agent or attorney must purport to act on the principal’s behalf.

(6)  Since SF acted on its own behalf in issuing the Requisition, rather than as agent/attorney for the Chargors, the Requisition was not valid under section 566 of the CO. 

(7)  The position can be contrasted with the Notice under section 568 of the CO, which SF did purport to issue as attorney for the Chargors. However, since the validity of a section 568 notice is itself dependent on a previous valid requisition under section 566, the reference to SF’s capacity as attorney in the Notice cannot avail SF.

(8)  Accordingly, the EGM was not validly convened, and the resolutions were not validly passed.

19.  TCL’s main points of response were, in summary, as follows:

(1)  TCL did not (clearly) concede that there was an absolute rule that an agent or attorney must purport to act on its principal’s behalf in order for the principal to be bound.

(2)  However, even assuming such a requirement, there was no need for any such purporting to be express, nor for any particular form of words to be used.  Rather, the whole document, context and facts should be considered, in determining whether the agent purported to act as such.

(3)  It was in this case clear from wording of the Requisition, its context and the known background facts, that SF was and must have been exercising rights in its capacity as attorney/agent for the Chargors, rather than in its personal capacity. This was sufficient to fulfil any requirement of purporting to act as agent or referring to such capacity. 

(4)  Further, emphasis was placed on the wide wording of the powers and authority given to SF under clauses 8 and 9 of the 2^nd Share Charge, following an event of default.  

(5)  Accordingly, the Requisition was validly issued by SF as agent or attorney for the Chargors, and the EGM and resolutions passed were valid.  

(6)  Further/alternatively, the Tuenbo parties had ratified the Requisition and/or were estopped from denying its validity.

Authorities

20.  As noted above, Ds asserted a fundamental tenet of agency law that the agent must purport to act as agent on the principal’s behalf. The heart of the argument was that, even if there is actual authority, if the agent does not purport to act as agent, then he does not and cannot act as agent.

21.  In support of this principle Mr Man, for Ds, cited Bowstead and Reynolds on Agency (22^nd Ed) at §8-002.  This deals with the rule that a disclosed principal, whether identified or unidentified, may sue or be sued on any contract made on the principal’s behalf by an agent acting within the scope of the agent’s actual authority or whose acts are validity ratified. The authors state that the rule:

“…applies only where the agent acted as such. It is not always clear on the facts whether this is so. If the agent acts specifically, whether orally or in writing, on behalf of a principal whom the agent names, then the conclusion inherent in the principle will normally follow. If the principal is unidentified, it may be necessary to prove who the principal was and that the agent intended to act for that person. If a person who might be an agent is simply named without more in a contract … the first assumption will usually be that that person is in fact acting as a party to the contract and will be liable and entitled on it. It is possible, however, that that party may, despite lack of indication in the writing, be acting not as principal but as agent; and it may be argued that the contractual matrix surrounding the agent’s dealing with the third party gave the third party reason to know that the agent dealt only as the principal’s representative. Even if the parol evidence rule were applied to the document, evidence may be given as to the capacity in which the parties acted. Clear evidence would be required of the understanding of the parties and of the identity of the principal for whom the agent was acting”[7].

22.  Mr Man also relied on the decision of the Court of Appeal in Au Wai Ming v. Kam Tze Ming Alfred [2010] 1 HKLRD 198.

23.  The Court was there concerned with the validity of execution of a deed of release from mortgage, in the context of a conveyancing dispute.

24.  AIG had been appointed as attorney of the mortgagee (M).  AIG had executed the deed of release twice: once expressly in its capacity as M’s attorney, and once as servicer. It was common ground that M could only execute the deed by way of a composite signature comprising its common seal and its officers’ signatures.  The potential defect raised by requisition on title, was that the common seal of AIG had only been affixed to the servicer execution, and not to the attorney execution.

25.  At first instance, Deputy High Court Judge Gill held that the deed of release was nevertheless validly executed, relying on section 6 of the PAO, which materially provides:

“6.  Execution of instruments, etc. by donee of power of attorney

(1)  The donee of a power of attorney may, if he thinks fit -

(a)  execute any instrument with his own signature and, where sealing is required, with his own seal; and

(b)  do any other thing in his own name,

by the authority of the donor of the power; and any document executed or thing done in that manner shall be as effective as if executed or done by the donee with the signature and seal, or, as the case may be, in the name, of the donor of the power …”.

26.  The learned Deputy Judge concluded that section 6 enabled an attorney to sign an instrument with or without reference to this having been performed as attorney of the donor.  Accordingly, the servicer execution was a valid execution of the deed of discharge on M’s behalf, despite the absence of any express reference to AIG’s capacity as attorney.

27.  In the Court of Appeal, Yuen JA disagreed with this analysis at §§24-26, citing Clauss v. Pir 1988 Ch 267 per Mr Francis Ferris QC at 272F-273A.  Her Ladyship held that the common law position was that where an attorney (A) was to execute a deed on behalf of the donor (P), A was required to execute the deed signing “P”.  The effect of section 6 of the PAO was simply to provide an alternative method of execution, so that A could execute the deed by signing “A”.  However, that did not mean that A could execute an instrument without reference to his capacity as attorney. Section 6 did not have the effect of enabling an attorney to execute an instrument qua attorney, but without referring to that capacity.

28.  In light of this, and on the facts of the case, the decision at first instance was overturned by a majority in the Court of Appeal[8].

29.  Mr Man cited Au Wai Ming to support Ds’ argument that an attorney - in this case SF - must purport to act as such in order for the principles of agency to bite.

30.  In response, Mr Joffe for TCL argued that there is nothing in Au Wai Ming which requires an express reference to acting as attorney; and in fairness to Mr Man, I do not think that he so contended.  Mr Joffe further relied on Yuen JA’s statement at §26 of Au Wai Ming that “Execution is a matter of intention”, to argue that the decision in that case was ultimately fact-sensitive, and that the exercise of ascertaining such intention should include a consideration of the whole document, background facts and context.

31.  Mr Joffe also argued that Au Wai Ming concerned questions of title in a conveyancing context; which was a point of distinction from the present case, in terms of the strictness of the approach applied to the scrutiny of execution. 

32.  I think there is some force in this point, though it may not detract per se from the applicability of the reasoning in §§25 and 26 of Au Wai Ming.  When it comes to the stringency of scrutiny of the execution requirements themselves (and application of the principles to the facts), it is notable that the Court in Au Wai Ming was concerned with the execution of a deed, with its consequent requirements for formal execution including by signature and seal[9].  By contrast, the present case concerns a request from members to directors for a general meeting pursuant to section 566 of the CO, the formal requirements for which are less onerous.

33.  Mr Joffe placed particular reliance the decision of the Court of Appeal of Queensland, in Nielsen v. Capital Finance Australia Ltd [2014] QCA 139.  As Mr Man pointed out, the facts of that case are not directly comparable to the present case. The Court there considered whether an attorney’s execution of a deed bound the donor, where the mode of execution was “signed, sealed and delivered by [the donor]”, with the attorney’s signature there affixed, as well as in other places in the deed in different capacities[10]. The Court was concerned with the validity of execution at common law[11], and under section 69 of the Powers of Attorney Act 1998 applicable in Queensland[12]. 

34.  Notwithstanding these points of distinction, Mr Joffe cited dicta in Nielsen that in considering compliance with the requirements for execution by attorneys, there was not necessarily any express form of words required. Rather, the court should or could consider the whole of the document, the circumstances of the case and the mode of execution, to ascertain whether the position was otherwise made clear from these aspects: see §§24 and 25 per Margaret McMurdo P[13].

Analysis

35.  Given the authorities referred to above, I consider that the strike out issue can be resolved by a consideration whether there is sufficient indication in the Requisition, including by reference to the entire document, and its relevant known context and background, that SF was in sending it acting (and purporting to act) on the Chargors’ behalves. 

36.  I did not understand an approach along these lines to be in serious dispute between the parties[14].

37.  On the application of this approach to the facts, I am ultimately persuaded to accept Mr Joffe’s arguments, for the following key reasons.

(1)  The Requisition is addressed to TCL’s board of directors (in accordance with section 566 of the CO, which provides for a request to the directors).

(2)  TCL was party to the 2^nd Share Charge.  TCL and its board were or must be taken to have been aware of all of the terms of the 2^nd Share Charge. 

(3)  TCL and its board must also have been aware of the letter dated 18 May 2016 by which SF alleged (around one month prior to the Requisition) that an event of default had occurred under inter alia the 2^nd Share Charge.

(4)  The Requisition starts with an express reference to the 2^nd Share Charge.

(5)  Although the Requisition states that “[SF] hereby exercises …” and is signed “for and on behalf of [SF]”, it also expressly states that SF is acting pursuant to clause 8.02(b) of the 2^nd Share Charge. The reader’s attention is therefore directed to that provision.

(6)  Clause 8.02(b) of the 2^nd Share Charge is, like other sub-clauses of clause 8.02, governed by the first four lines of clause 8.02, which provide: “At any time after the security hereby constituted has become enforceable and without further notice or authorisation, [SF] may in the name of the Chargors or otherwise”, perform certain acts (emphasis added). The emphasised words raise, at the least, the spectre of SF acting on the Chargors’ behalves.

(7)  Clause 8.02(b) provides for SF to exercise voting rights in respect of, and all other powers and rights incidental to, the charged shares, “as if it were the outright and absolute owner thereof”. That wording is mirrored in the Requisition itself, which states that SF “hereby exercises … powers and rights of the [charged shares] as if [SF] was the outright and absolute owner…” (emphasis added).  There is accordingly a clear recognition, at least by implication, that SF is not purporting to exercise rights in a capacity as outright or absolute owner of the shares.

(8)  The Requisition states that SF is exercising rights under section 566 of the CO; which an informed reader knows can only be exercised by registered members.  This, coupled with points above, must make clear to the informed reader (ie the directors) that SF is and can only be exercising its rights as agent/attorney[15].

(9)  In addition, clause 9 of the 2^nd Share Charge confers upon SF a widely worded power of attorney in respect of the charged shares; and it is undisputed that on the facts assumed for present purposes, clause 9 is sufficiently wide to grant to SF actual authority to issue the Requisition on the Chargors’ behalves.  It is true that clause 9 is not expressly referred to in the Requisition, but it is an important and prominent part of the mechanism for the enforcement of the security created under the 2^nd Share Charge, of which TCL and its directors would have been aware.  This is a further pointer towards the conclusion that the directors (and an informed reader of the Requisition) would/must have been aware that SF was purporting to act as agent or attorney.

38.  In response to this line of reasoning, Mr Man made a number of compelling arguments, though I do not, ultimately, accept them.

39.  First, it was argued that the starting point must be the natural and ordinary meaning of the express words of the Requisition, and that TCL’s position amounted to a construction which that wording was incapable of bearing (ie tantamount to holding that black means white).  Given that the Requisition would have been drafted by experienced professionals, it was said that added weight should be given to the express wording.

40.  However, whilst I accept that there are certain portions of the express wording of the Requisition[16] which support Ds’ argument, there are also features of the express wording which support a contrary construction or understanding of the document: see §§37(5), (6) and (7) above.

41.  Second, it was argued that TCL’s approach falls into an error of striving to construe in favour of validity, which flawed approach would lead to different results in cases such as Au Wai Ming.  Instead, said Mr Man, the correct approach is to construe the Requisition and the intention behind it objectively; and bearing in mind that what was actually so intended - in this case, a requisition by SF - may lead to invalidity[17].

42.  However, I do not think that the above approach falls into such an error.  Rather, I consider that the matters at §37(8) above can and should in this case be considered as one part of the background factual matrix relevant to ascertaining the objective meaning of the Requisition and how it would have been understood.

43.  Finally here, both sides placed some reliance on events after the Requisition, in particular: (i) correspondence following the Requisition (referred to at §17(4) above); and (ii) the wording of the Notice, with its express reference to SF’s capacity as attorney (see §17(5) above).

44.  However, I do not think that these matters assist one way or another, including because the meaning of the Requisition, the capacity in which it was sent and its validity, should be ascertained at the time of the Requisition rather than by reference to subsequent events.

Ratification and estoppel

45.  Given the conclusions above, it is unnecessary to deal with TCL’s fallback submissions on ratification and/or estoppel.

46.  However, I will briefly indicate that had I acceded to Ds’ arguments on the issue canvassed above, I would not have accepted that the position could be cured or saved on the basis of ratification or estoppel.

47.  TCL’s ratification argument relied on the final sentence of clause 9 of the 2^nd Share Charge: “Each of the Chargors hereby ratifies and confirms and agrees to ratify and confirm any document, instrument, assurance, act or thing which any such attorney may lawfully execute and do”.

48.  Mr Joffe argued that pursuant to this provision the Chargors: (i) ratified the Requisition; and/or (ii) were contractually obliged to do so.

49.  However, I accept Mr Man’s submission that ratification is retrospective, so there can be no ratification in advance[18].

50.  More fundamentally, I accept Mr Man’s submission to the effect that the ratification argument can add nothing; since if SF was all along acting and purporting to act in its own capacity, then there is nothing for the Chargors to ratify.  It cannot be that by clause 9, the Chargors ratified or agreed to ratify any act of SF’s whatsoever.

51.  In this regard, similar clauses are discussed in Aldridge: Powers of Attorney 11^th Ed. at page 44, which casts doubt on their scope and effectiveness, stating inter alia: “The attorney must also have done the act ratified on behalf of the donor, and not on his own account”[19].

52.  Further, I consider that TCL’s arguments based on estoppel - which in essence rely on an undertaking or representation as to ratification in clause 9 - run into the same difficulty. 

Conclusion on strike out

53.  For the above reasons, I do not accept Ds’ arguments on the single point raised in support of their strike-out summons.  I will accordingly dismiss Ds’ Appeal.

C.  TCL’s SUMMONS: DELIVERY OF BOOKS AND RECORDS

54.  By TCL’s Summons, TCL seeks an order that Ds deliver up to TCL various specified documents that are said to be within Ds’ possession, custody, power or control, to be retained by TCL pending trial.

55.  There is an alternative form of relief, namely, that Ds retain and preserve such documents pending trial, and produce them for inspection and copying by TCL.

56.  The documents sought are said to comprise that portion of TCL’s books and records required for the preparation of TCL’s accounts from 1 April 2014 to 31 March 2016, which in turn are said to be required to enable TCL to complete its profit tax returns (“PTRs”) for 2014/15 and 2015/16 (respectively, “2015 PTR” and “2016 PTR”).

57.  It is common ground that the assessable periods for the 2015 and 2016 PTRs cover (at least predominantly) the period before the EGM, ie a time when on both sides’ cases, the Tuenbo parties were in control of TCL[20].

58.  I will not here canvass all of the detail in the parties’ evidence. In summary, TCL says:

(1)  Following the EGM in 2016 up to 2021, there was detailed correspondence between the parties whereby TCL sought the return of its books and records from Ds; and in relation to various requests and notices received by TCL from the Inland Revenue Department (“IRD”) regarding the submission of TCL’s PTRs and payment of profits tax.

(2)  Ds have, however, refused to return TCL’s books and records.

(3)  TCL has proposed to the IRD that it withhold action against TCL for not filing PTRs until after the determination of these proceedings, but the IRD did not agree.  TCL had no alternative but to submit qualified PTRs for 2019 and 2020, but the IRD has not indicated whether this is acceptable.

(4)  On 12 November 2020, TCL received from the IRD re-issued versions of the 2015 and 2016 PTRs[21], requiring TCL to submit them by 9 December 2020.

(5)  On 4 December 2020, TCL wrote to the IRD explaining why the 2015 and 2016 PTRs could not be submitted, informing the IRD of its intended application by summons, and requesting a two-month time extension for those PTRs[22].  The IRD has not responded to that letter.

(6)  TCL argues that there can be no serious dispute that the books and records sought belong to TCL; and that they are in Ds’ possession, custody or power. A company is plainly entitled to delivery up of its books and records from its former officers.

(7)  Further, TCL is legally required to submit its PTRs on time, and failure to do so without reasonable excuse is an offence: see sections 51(1), 57(1) and 80(2)(d) of the Inland Revenue Ordinance (Cap. 112) (“IRO”).  The documents sought are required to enable TCL to comply with its statutory obligations.

59.  In summary, Ds say:

(1)  The merits threshold for obtaining an interlocutory injunction granting mandatory or final relief is high, and cannot be met, such that the application fails at the first hurdle: see below.

(2)  In any event, even if one considers the balance of convenience, TCL has failed to demonstrate any irreparable damage should the injunction be refused.  Notably:

(i)  The IRD has been demanding the PTRs since 2017 without any enforcement action to date;

(ii)  In respect of the 2015 PTR, the 6-year period for penalty under section 80(3) of the IRO has already expired, and will expire for the 2016 PTR on 31 March 2022.  

(iii)  Ds filed opinion evidence from an independent tax expert (“Mr Chung”), including that it is likely that the IRD has already considered the costs and benefits of further follow up action for the 2016 PTR, and has decided not to take such action[23].

(iv)  TCL is able to submit qualified PTRs with explanatory notes, explaining any deficiencies in the available information. TCL has done so in the past, which the IRD does not appear to have rejected.  Mr Chung did not consider that the IRD would reject the returns with a suitable qualification[24].

(v)  Liability under section 80(2) of the IRO attaches only where there is a failure “without reasonable excuse”.  It is difficult to see how this could be so if any failure stems from a lack of available information, or if qualified PTRs are submitted with suitable explanatory notes.

(vi)  Even if financial penalties were levied on TCL by the IRD, the Tuenbo parties have consistently agreed to shoulder such penalties, and have done so on previous occasions. The Tuenbo parties confirmed their willingness to do so subject to a right to seek compensation for the wrongful acts of the purported board.

(vii)  The lack of prejudice is fortified by the Tuenbo parties’ willingness to themselves arrange submission of the 2015 and 2016 PTRs on TCL’s behalf.  In this regard, Ds proposed an arrangement (the “Tuenbo Parties’ Proposal”) whereby the (purported) board of TCL consent to a variation of the Injunction to the limited extent of allowing the Tuenbo parties to act as alternative director(s) of TCL, with limited authority to engage an auditor, furnish information and letters of representation to the auditor, and sign off on the audited accounts and PTRs.  Mr Chung opined that there is no reason why the IRD would not accept PTRs submitted under such an arrangement.

(3)  TCL has delayed in its application, without sufficient explanation. Such delay is indicative of a lack of irreparable damage and a lack of need for relief, and further renders the injunction sought unjust or unreasonable.

(4)  TCL’s application should not be permitted to be used as a backdoor for attempts by the New World parties to obtain discovery of documents for the purposes of the 2016 Action. Such attempts should properly be pursued, if at all, by appropriate applications in the 2016 Action.

Merits threshold

60.  The parties differed as to the appropriate approach to and relevance of the “merits”, for the purposes of TCL’s Summons.

61.  As noted above, Ds argued that: (i) since the summons seeks mandatory relief pending trial, the court generally requires a high degree of assurance that the plaintiff will succeed at trial; and (ii) since interlocutory relief is sought that will effectively dispose finally of the claim, the court generally requires the plaintiff to show that it is “at least likely to succeed at trial”.  Ds cited Brave Venture Ltd v. Xinhua New Media Holdings Ltd [2017] 5 HKLRD 153 per Mimmie Chan J at §20.

62.  Ds further argued that, even if their single summarily determinable strike-out point failed (see above), it was still open to Ds to seek the determination in these proceedings of other points which went to TCL’s authority but which were not summarily determinable: see §§8, 9, 14 and 15 above.  Accordingly, the merits of the present proceedings included myriad complex issues going to the question of authority, which overlapped with issues to be determined in the 2016 Action[25].

63.  Given the said extant (and complex) issues of authority, submitted Ds, TCL could not possibly meet the high merits threshold set out above, such that TCL’s Summons must fail on this basis alone. 

64.  In contrast, TCL argued that the dismissal of Ds’ Appeal on strike-out should result in the grant of the injunctive relief sought, without any need to consider the balance of convenience.

65.  That was because, said TCL, the correct procedure for Ds to ventilate their complaint of lack of authority was at the outset of proceedings and by way of strike-out summons: see Kammy Town Limited v. Super Glory Corporation Limited (supra).  It was not open to Ds to issue such a strike-out summons, but reserve for later determination by preliminary issue a raft of other matters going to authority, should that summons fail.  Further, Ds’ attempt to do so was an abuse of process since it entailed inconsistent positions, and vexing TCL twice on the same matter in these proceedings.

66.  Accordingly, said TCL, if Ds’ strike-out summons was dismissed, that entailed the conclusive determination of Ds’ complaint of lack of authority for the purposes of these proceedings; with the further result that TCL should plainly be entitled to its books and records. 

67.  The debate on this issue has a bearing on the summonses dated 17 May 2021, which are presently stayed: see §15 above. 

68.  However, for present purposes - and without of course deciding those summonses - I am not attracted to TCL’s said position. 

69.  Given the approach and rationale in Kammy Town Limited, there would not seem to be anything objectionable in a defendant taking out a summons to strike-out for want of authority, on the basis that some of the points run are summarily determinable, but others would require directions for oral evidence.  Once that is accepted, the complaint appears to lie only with Ds’ intended formula – which Ds flagged at the outset - of using the Order 33 procedure (trial of a preliminary issue) rather than an adjourned strike-out summons with directions, for the resolution of any such points which are not summarily determinable.

70.  But as Mr Man submitted, that appears to be a difference of form only; particularly given the special character of strike-out proceedings contemplated in Kammy Town within which oral evidence may be received and factual disputes determined[26].

71.  Accordingly, I proceed for present purposes on the basis that, notwithstanding the dismissal of Ds’ Appeal, the entirety of Ds’ authority objection in these proceedings has not, necessarily, been resolved against Ds. 

72.  As to the merits threshold itself, I do not accept that it is as inflexibly high as Ds contend.  As discussed in Hong Kong Civil Procedure 2021 at §29/1/29, the more stringent threshold sometimes propounded for mandatory injunctions depends on the more onerous effect of a mandatory injunction rather than its mere classification as mandatory; and the ultimate question is what is the course to adopt that involves the least risk of injustice.  A strong prima facie case on the merits is not a necessary pre-requisite for the grant of mandatory relief in all cases.  See also: Unimax Property Consultancy Ltd v Ng Lai Ching[2019] HKCFI 45per Deputy High Court Judge William Wong SC at §§8 and 9 (in the context of interlocutory relief which is finally dispositive of the dispute); Re Wako Giken (HK) Co Ltd [2010] 4 HKLRD 121 per Harris J at §22.

73.  On the facts of this case, I do not think that the relief sought by TCL is particularly onerous to Ds. On the contrary: see below. 

74.  Accordingly, I do not think it appropriate to apply inflexibly a very high merits threshold as a re-requisite to relief; though the merits, and the mandatory nature of relief, must be taken into account in the discretionary exercise.

75.  As to the merits themselves, I proceed on the assumption that it is still potentially open to Ds to rely in these proceedings on the remainder of their objections based on authority (ie the various points in issue in the 2016 Action); and further that there is no basis for me to make any serious assessment of the competing merits of those objections, beyond observing that there would appear to be serious and complex issues to be resolved.

Balance of Convenience

76.  I take into account the position on the merits (above), and the parties’ evidence and arguments on the balance of convenience.

77.  I consider that the balance of convenience and the competing risks of injustice, favour granting some of the relief sought. In other words, such relief is just and convenient in all the circumstances. 

78.  My key reasons are, in brief, as follows.

79.  First, the court must surely proceed on the basis that it is desirable for TCL to comply with its statutory obligations in respect of the PTRs, and with the requests and requirements of the IRD in this regard.

80.  As to Ds’ submissions and evidence that the risk of criminal penalty is low: (i) even a low risk of such consequences should be avoided, particularly where there is little or no countervailing prejudice (see below); (ii) more importantly, even if correct, this does not answer the point in the preceding paragraph[27].

81.  In other words, there are good reasons for granting relief pending trial, which cannot be fully answered by compensation in damages. 

82.  Second, and importantly, there is either nothing, or very little indeed, to balance against the first factor.

83.  I do not think that Ds have raised any serious argument for prejudice resulting from the relief sought, as an interim measure pending the final resolution of these proceedings.

84.  The only real argument is the suggestion that TCL is seeking discovery for the 2016 Action through the back door, and should not be permitted to gain an unjustified litigation advantage.

85.  I do not accept this argument. The documents sought are either relevant, or irrelevant, to the 2016 Action.  If relevant, they are or will be discoverable under general discovery obligations in that action; hence there is no prejudice.  If irrelevant, there is also no prejudice.  I do not think that Ds were able to answer this point.

86.  Accordingly, I do not think that there is any good reason not to grant relief; and I find this factor highly persuasive in this case[28].

87.  Third, I accept TCL’s submissions that there are various (at least potential) difficulties with the Tuenbo Parties’ Proposal, and that the formula is convoluted and unattractive, when compared to the relief sought by TCL. 

88.  Amongst other things, the proposal requires an agreement to vary the Injunction which was granted in other proceedings with different parties. Further, it assumes continued co-operation between the present parties and others on point, which I do not think can be safely assumed.  It is unnecessary to adopt this more complicated and uncertain approach, particularly where no serious prejudice to Ds arises from TCL’s simpler proposal: see above.

89.  Fourth, I have considered Ds’ arguments on delay, but am not persuaded that they should alter the conclusion that I would otherwise reach. TCL has in its evidence offered at least some reasonable explanation for the timing of the application, by reference to correspondence with the IRD and with Ds in relation to the PTRs.  I do not consider that there has been delay of a nature that would render it unjust or unnecessary to grant the relief sought, in light of the other circumstances.

90.  Fifth, and as a collateral matter, the relief sought is in my view consistent with the status quo, given the Injunction granted in the 2016 Action.

91.  Ds argued to the effect that the Injunction was irrelevant, but I do not agree.  By the Injunction, D1-D3 have been restrained from (inter alia) acting or purporting to act as directors of TCL, such that the position arrived at in the 2016 Action is, as at this juncture, that the New Directors are left in control of TCL for the time being. 

92.  It is consistent with this approach, which represents the current status quo, that the task of submitting TCL’s PTRs should lie with TCL under the control of the New Directors, again as a ring-holding measure.

93.  In any event, even if I had not considered this fifth factor, I would have reached the same conclusion.

Form of relief

94.  As to the precise form of relief, I prefer to grant TCL’s alternative form, namely, an order for preservation of the documents and production for inspection and copying by TCL.  This has a more neutral flavour than the primary formulation of delivery up, and Mr Joffe essentially accepted that it would suffice for TCL’s purposes.

95.  There was some argument by Ds that an order for inspection is unavailable where the target is the content of documents rather than their form (citing Hong Kong Civil Procedure 2021 at §29/8/8). However, the documents are sought not because their content is said to be relevant to the issues in these proceedings per se, but because they are part of the subject-matter of the proceedings themselves, and there is good reason why TCL should have access this juncture.  I do not accept that the court lacks power to make an interim order of this nature in such circumstances, and I will make such an order. 

96.  Since Ds have filed affirmation evidence to the effect that there are not in existence documents in categories 4 to 7 of the Schedule to TCL’s Summons[29], these categories should be removed from that Schedule.

97.  Further, I will lengthen the period for compliance to 14 days from the order, and grant liberty to apply.

D.  DISPOSITION

98.  For the above reasons, I:

(1)  Dismiss Ds’ Appeal, with an order nisi that Ds pay the costs of that appeal to be taxed if not agreed;

(2)  Make an order in terms of paragraphs 2 and 3 of TCL’s Summons (subject to the variations at paragraphs 96 and 97 above, and the removal of references to “such other period as the Court thinks fit” and “such place as the Court thinks fit”).

99.  As to the costs of TCL’s Summons, I make an order nisi that those costs be in the cause, which seems to be the fairest order in all of the circumstances[30].

100.  Finally, I thank all counsel for their helpful submissions.

Mr Victor Joffe, Mr Kenny Lin and Ms Natalie So instructed by Messrs Jones Day for the Plaintiff

Mr Bernard Man SC, Mr Danny Tang and Mr Brian Lee instructed by Messrs Edmund Cheung & Co for the 1^st, 2^nd, 3^rd and 4^th Defendants