SHIH RICK JU FENG AND OTHERS v. LO YUEH-LI AND OTHERS

HCA 1356/2021

[2022] HKCFI 2249

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1356 OF 2021

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DECISION

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A.  LEAVE APPLICATION

1.  My decision of 3 May 2022 (“the Decision”)  dismissed the Plaintiffs’ interlocutory injunction application. The Plaintiffs now seek to appeal.

2.  The 1^st and 2^nd Defendants oppose leave to appeal. As before, the 4^th and 5^th Defendants remain neutral.

3.  The Plaintiffs accept in the light of the Court of Appeal’s decision in Agritrade Resources Limited v Ashok Kumar Sahoo[2022] HKCA 280 at §§19-20 that:

(1)  For leave to appeal to be granted, the Court must be satisfied that the intended appeal has a reasonable prospect of success or that there is some other reason in the interests of justice for the appeal to be heard.

(2)  The grant or continuation of an interlocutory injunction is an exercise of the original Judge’s discretion. The appeal court is not to exercise an independent discretion of its own. Its initial function is one of review only. It may set aside the Judge’s exercise of discretion if it can be shown that the Judge was plainly wrong in the sense that, for example, he had acted on wrong principles, taken into consideration irrelevant factors, ignored relevant factors or the decision is outside the generous ambit within which reasonable disagreement is possible.

4.  The 1^st and 2^nd Defendants further draw attention to Kwan VP’s judgment in Harbour Front Limited v Money Facts Limited and Ors[2019] HKCA 916 at §9, emphasising that in assessing the merits of a proposed appeal for the purpose of leave:

(1)  The mere fact that certain matters are not mentioned in a judgment does not mean that the judge has not taken them into consideration – the judge is not required to address all the points made by counsel be they legal or factual.

(2)  A mere repetition of arguments at first instance without demonstrating how and why the judge went wrong does not begin to make out a case that the judge’s conclusion was plainly wrong.

B.  GROUNDS FOR LEAVE?

5.  I will start with the Plaintiffs’ claim that the Decision was flawed in considering the risk of harm “in isolation” (Ground 2 of their proposed appeal grounds), since that is said to raise a point of principle. The Plaintiffs’ claim is in my view unviable:

(1)  As noted at §7 of the Decision, it was the Plaintiffs’ own case that to succeed in obtaining interim relief they had to show that, if successful at trial, they “would not be adequately compensated by damages for any loss caused by the refusal to grant the injunction”. That is what the Plaintiffs themselves identified at §23(b)  of their original injunction skeleton as one of the requirements for an injunction within the applicable American Cyanimid framework.

(2)  The Plaintiffs’ own position thus required them to show that the denial of interim relief would give rise to the losses they claimed and that damages would be inadequate to compensate for such losses. Failure to sufficiently establish either of these matters would spell failure for the application as a whole.

(3)  The Plaintiffs’ original stance is plainly correct both analytically and in principle. That is presumably why, as recorded at §8 of the Decision, it was accepted by all counsel before me that the requirements flagged by the Plaintiffs for the grant of an interlocutory damages, including the need to show the inadequacy of damages for relevant loss, are cumulative. There is no suggestion that §8 of the Decision inaccurately records the parties’ common position at the time of the hearing, namely that “a failure to show the inadequacy of damages would itself be fatal to the application”.

(4)  As such, there can be no satisfaction of the requirement as to inadequacy of damages for loss as a basis for interim relief where the Court has determined, on the available evidence, that the harm asserted is not made out in the first place. This goes to the very root justification for interim relief pending trial: avoiding harm to claimants that cannot later be remedied by damages should they ultimately prevail at trial.

(5)  For similar reasons, the Plaintiffs’ complaint that the Decision wrongly failed to rule on whether their claim gave rise to serious issues to be tried is misdirected.  If, as I have held, the Plaintiffs have failed to show any inadequacy of damages for losses resulting from the refusal of interim relief should they succeed at trial, a separate finding that there are serious issues for trial cannot shift matters any further in their favour.  In considering whether there would be losses for which damages would be inadequate should the Plaintiffs prevail at trial, it is (for that analysis)  already assumed in their favour that serious issues for trial not only exist but have been resolved in their favour.

6.  Next there is the Plaintiffs’ complaint (Ground 3 of their proposed grounds)  against the logic of refusing relief on the basis that the requisite consent for use of the Synergy Funds is “a far prospect” (Decision §49)  even though it is not as yet established that “the need for unanimous Beneficiary consent itself means that the Interlocutory Injunctions would be necessarily pointless or futile”. The complaint is invalid because:

(1)  There is logically and linguistically a plain distinction between, on the one hand, the stark proposition that the requisite unanimous Beneficiary consent was essentially impossible so as to make interim relief entirely “pointless” or “futile” (this being the 1^st and 2^nd Defendants’ assertion, which I rejected), and on the other hand the recognition that such consent – while not impossible – was and is nonetheless highly unlikely, and thus at best of limited weight.

(2)  The distinction is significant in the context of the discretionary weighing exercise that the Court conducts in terms of the balance of convenience. For the purposes of a global discretionary balancing of factors, there is nothing at all “self-defeating” or “internally inconsistent” (as the Plaintiffs contend)  in taking the remoteness of the prospect of any consent – a factual assessment that is not itself directly challenged in the proposed appeal – as one factor militating against the applicants in the overall balance of factors before the Court.

(3)  The Plaintiffs’ Ground 3 is in any event unviable if I am right about the failure to establish inadequacy of damages as a critical factor in this case. If I am right on that score, then the soundness or otherwise of my observations on the balance of convenience is of no moment. As noted at §42 of the Decision, my observations on the prospect of consent for use of the Synergy Funds in connection with any balance of convenience assessment are strictly unnecessary, given that the application must in any event fail on the inadequacy of damages front.

7.  The Plaintiffs’ remaining grounds / sub-grounds of appeal in substance repeat factual and evidential matters already put before and considered by me for the purposes of reaching the Decision.  As such, having fully considered those grounds, it is appropriate for me to simply state – without engaging the Plaintiffs’ points yet again – that I remain of the view the Decision is correct, for the reasons given there, and that the Decision is not in my view reasonably susceptible to challenge on these same essential points (or slight variations / elaborations of them).

8.  I take this approach bearing in mind (1)  the primary nature of the complaints in the remaining grounds, which largely centre on claims that I was (the Plaintiffs boldly assert)  “ignorant” or otherwise insufficiently attentive as to this or that fact or portion of evidence or submission by counsel for the Plaintiffs, and (2)  Kwan VP’s observation in Harbour Front Limited as set out at §4(1)  above, which strikes me as apt not only in relation to decisions on interlocutory applications but a fortiori as to applications for leave to appeal against such applications, which must be despatched with the interests of speed and procedural economy in close view.

9.  In the same register, having already rendered the Decision, it is in my view neither necessary nor appropriate after the event to catalogue and confirm each and every matter that I took into consideration in determining the Plaintiffs’ application, whether specifically mentioned in the Decision or not. Ultimately the Decision is either sound and sustainable on its own terms or it is not.

C.  APPLICATION DISMISSED

10.  The Plaintiffs’ leave application is therefore dismissed with costs, together with a certificate for two counsel.

Dr William Wong SC leading Mr John Hui, instructed by Fangda Partners, for the Plaintiffs

Ms Sara Tong SC, instructed by Debevoise & Plimpton, for the 1^st and 2^nd Defendants

Mr Tony Ko, instructed by V Hau & Chow Solicitors, for the 4^th and 5^th Defendants

HCA 1356/2021

[2022] HKCFI 1272

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1356 OF 2021

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________________________

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D E C I S I O N

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A.  INTRODUCTION

1.  This interim injunction application features two families: the Shihs and the Hsiehs (“the Two Families”). Between them runs much bad blood, which has boiled over into corporate and other conflicts replete with claims of grave misconduct and criminal complaints.

2.  The focal conflict in this action concerns funds (“the Synergy Funds”) held by the 3^rd Defendant (“Synergy”), a wholly owned subsidiary of the 2^nd Defendant (“Alliance”). Members of the Two Families are the ultimate beneficial owners (“the Beneficiaries”) of the Synergy Funds. The 1^st Defendant undisputedly holds the Alliance shares as sole nominee shareholder for the Beneficiaries and is the sole director of both Alliance and Synergy. The 4^th and 5^th Defendants are the liquidators of Synergy, which is in voluntary liquidation. The 1^st Defendant’s decision to wind up Synergy on 30 August 2021 (“the Resolution”) was the immediate spark to this action, which launched by Writ on 7 September 2021.

3.  The Plaintiffs are from the Shih family. By a Summons filed together with their Writ they seek, pending the action’s final determination, to restrain:

(1)  the 1^st Defendant and Alliance from doing any act or taking any steps in the name of, on behalf of or in relation to Alliance or Synergy; and

(2)  the 4^th and 5^th Defendants from exercising any powers as liquidators of Synergy, including effecting any distribution out of Synergy.

(“the Interlocutory Injunctions”)

4.  The Summons first came up for hearing on 24 September 2021 before DHCJ Paul Lam SC, who granted an interim-interim injunction against the 4^th and 5^th Defendants but refused any interim-interim restraint against the 1^st Defendant and Alliance: see Reasons for Decision at §1, §12 and §22.

5.  At §2 of his Reasons for Decision, DCHJ Paul Lam SC identified the main background features for the purposes of considering interim relief. As succinctly summarised there:

“the Plaintiffs claim that a members’ resolution to wind up [Synergy] was void and invalid…the Plaintiffs claim that the 1^st Defendant is acting as trustee on behalf of the eight beneficiaries. [Synergy] is holding what the Plaintiffs described as the “Corporate Fund”, which must be used for certain agreed purposes…[and] that there are two camps of beneficiaries: one camp is represented by the Plaintiffs whereas the 1^st Defendant is associated with the other camp. [The Plaintiffs] claim that the 1^st Defendant may not act without the unanimous instructions and consent of the beneficiaries. However, the 1^st Defendant passed the Resolution without the consent of the Plaintiffs”.

6.  In reaching this Decision, I have also been much assisted by the written factual summaries (together with legal analysis) prepared by Mr William Wong SC and Mr John Hui for the Plaintiffs, and by Mr Paul Shieh SC and Ms Sara Tong for the 1^st and 2^nd Defendants. Leading counsel on both sides were also very helpful in their focused and responsive oral submissions at the hearing. I am grateful also for the assistance of Mr Tony Ko, who appeared for the 4^th and 5^th Defendants. The 4^th and 5^th Defendants take a neutral stance in respect of the Summons and the underlying substantive disputes between the Plaintiffs and the 1^st to 3^rd Defendants.

7.  There was no dispute between counsel on the principles governing interim injunctions. In particular, as applicants for interim injunctive relief the Plaintiffs must show: (1) a serious issue to be tried; (2) that if they succeed at trial, damages would be inadequate to compensate for loss caused by the refusal to grant the injunction; and (3) if there is doubt as to the adequacy of damages, that the balance of convenience favours the grant of an injunction, the Court’s ultimate concern here being to take the course with the least risk of injustice.

8.  As further accepted by all counsel at the hearing, the requirements for the grant of the Interlocutory Injunctions are cumulative, such that a failure to show the inadequacy of damages would itself be fatal to the application.

9.  I highlight this at the outset since, for the reasons set out below, the Plaintiffs are in my view unable to show that if they succeed at trial, damages would be inadequate to compensate for losses that would be caused by the refusal to grant the Interlocutory Injunctions. So despite the submissions forcefully advanced by their counsel, their application must fail.

B.  NO IRREPARABLE HARM

B1.  The Plaintiffs’ Stance

10.  There are five types of potential harm flagged by the Plaintiffs as being, in their submission, (1) harms that would flow from a refusal to grant the Interlocutory Injunctions; and (2) irreparable, in the sense of not being adequately compensable by damages. The harms in question have been conveniently summarised in the written submissions of Mr Shieh and Ms Tong. The summary is not itself contested, and for convenience I will adopt it here (including where appropriate the footnote references to the relevant affirmation evidence) with a few minor edits.

11.  First, the Plaintiffs contend (their Skeleton §83(a)) that winding up of Synergy would mean that it would cease to exist and the “substratum of [Synergy] will be destroyed” before it is able to fulfil its intended function to maintain the Synergy Funds for certain alleged joint purposes in respect of restructuring, listing and financing matters (“the Alleged Purposes”), and “the Beneficiaries will lose control over [Synergy] and the Corporate Fund in [Synergy’s] Account” (“Dissolution Harm”).[1]

12.  Second, the Plaintiffs suggest (their Skeleton §83(b), (d)) that the restructuring (“the Restructuring”) of the shareholding of a corporate group in which the Two Families are interested (“the UR Group”) (and the subsequent listing of the UR Group’s main operating entity in the PRC) would be hindered if Synergy is wound up, on the basis that the Synergy Funds were (say the Plaintiffs) meant to create a safety net to “meet any unexpected and urgent financial needs related to the Restructuring”, and that this safety net would be gone for good if the Hsieh family receive (and spend) their portion of the Synergy Funds before this action is determined (“Restructuring Harm”).[2] In particular, on the Plaintiffs’ evidence, recourse to the Synergy Funds would be required “imminently” for the acquisition (“the Acquisition”) of Royal Electronic Factory (Thailand) Co. Ltd (“Royal Ohm”) by Royal Technology (Thailand) Co., Ltd (“Royal Tech”), a Thai affiliate of the UR Group. The Acquisition is said to be part of the Restructuring,[3] and the Plaintiffs have estimated the costs of the Acquisition to be above RMB 252 million (or US$39,612,877.67 million).[4] It is further said that these Thai entities have limited access to funds.[5]

13.  Third, the Plaintiffs say that, because the Synergy Funds are to be used as “emergency operating funds” per the Alleged Purposes, to wind up Synergy and distribute the Synergy Funds to the Beneficiaries would destroy the safety net constituted by the Alleged Nominee Arrangement and expose the UR Group to “greater financial and/or corporate risks” (“Emergency Harm”).[6]

14.  Fourth, it is suggested (the Plaintiffs’ Skeleton §83(e)) that the winding up of Synergy may constitute an event of default under charges granted to E Sun Bank over the Synergy Funds, and that the bank may take enforcement actions against the Beneficiaries (creating “spill over effects” on their finance) (“Liquidity Harm”).[7] It will be noted that in the Plaintiffs’ camp only the 2^nd Plaintiff’s owed money to E Sun Bank,[8] so it is the 2^nd Plaintiff’s position that would have to be considered.

15.  Fifth, the Plaintiffs claim (their Skeleton §83(f)) that the Hsieh family would use their portion of the Synergy Funds to fund two businesses allegedly competing with the UR Group (“Alleged Competing Businesses”),[9] and that this would cause loss and damage to the UR Group which is difficult to quantify (“Competition Harm”).[10]

B2.  Unsound premise: wrongful distribution to the Hsiehs

16.  Mr Shieh’s primary line of attack against the Plaintiffs’ case portrays it as resting on a “fundamentally erroneous” and indeed simply “false” premise, namely that absent the Interlocutory Injunctions, the Synergy Funds would be wrongfully distributed to Hsieh family members.

17.  More particularly, Mr Shieh says that the Dissolution Harm, the Restructuring Harm, the Emergency Harm and the Competition Harm are all premised on the assumption that, without the Interlocutory Injunctions, the Beneficiaries in the Hsieh family would receive their portion of the Synergy Funds before this action is determined, but that such a distribution may turn out to be wrongful.

18.  That such a premise permeates the Plaintiffs’ case on harm is (it seems) not itself disputed and in any event plain. But is it fatally flawed?

19.  While one might nitpick over whether the premise can be starkly described as “false”, the premise is in my assessment indeed unsound in being insufficiently supported by the evidence to hand, and is therefore insufficient to support the Plaintiffs’ ultimate contentions on harm.

20.  As the 1^st and 2^nd Defendants noted:

(1)  In the ordinary course of liquidation, any distribution of Synergy’s assets would be to its sole shareholder, Alliance, and not to the Beneficiaries. The 4^th and 5^th Defendants, represented by counsel for this application, have not indicated any intention to directly distribute to the Beneficaries, and any such course would be subject to the Court’s supervisory jurisdiction.

(2)  There is no suggestion that a distribution to Alliance would itself cause any immediate and significant harm to the Plaintiffs, and any such suggestion cannot be sustained on the current evidence.

21.  Against this it might be said that, if Synergy’s assets were distributed to Alliance, there would then be the risk of the 1^st Defendant passing a members’ resolution to wind up Alliance. Given the intense and wide-ranging nature of the conflict between the Two Families, I would not go so far as to brush off any chance of this happening. But the evidence is in my view far from enough to show that any such risk is pressing and substantial. In particular, I see no solid evidential basis for assuming that the 1^st Defendant, as the undisputed nominee shareholder of Alliance, would pass a members’ resolution to wind up the company. I specifically record here the submission made in writing on behalf of the 1^st Defendant by her counsel, that any such suggestion would be “extraordinary” (Skeleton for the 1^st and 2^nd Defendants §68.4); a position further affirmed by counsel for the 1^st Defendant at the oral hearing.

22.  As accepted by all the parties, the applicant has to show that, if he succeeds at trial, damages would not be adequate to compensate for loss caused by the refusal to grant the injunction. In my view, the theoretical possibility of Alliance being wound up further down the line does not on the present evidence warrant the conclusion that there would be irreparable harm should the Injunctive Relief be refused, enabling the liquidation of Synergy to proceed.

B3.  Insufficient evidence for each specific type of harm

23.  In any event, the Plaintiffs’ case on each type of harm is in my judgment not adequately made out on the evidence. I accept in this regard the following points made on behalf of the 1^st and 2^nd Defendants, which have been advanced without prejudice to their primary stance above.

The Dissolution Harm

24.  Synergy does not have any operating business nor goodwill. Its raison d’être is to hold the Synergy Funds. As such, so long as the Synergy Funds are intact, Synergy’s continuing existence has no independent significance and Synergy’s dissolution cannot itself constitute harm to the Beneficiaries, far less irreparable harm.

25.  The “loss of control” over the Synergy Funds harm-scenario is similarly flawed. On the winding up of Synergy, the Synergy Funds will naturally be distributed to Alliance, and will only be distributed to the Beneficiaries in the event of a court order.

The Restructuring Harm

26.  The prospect of any Restructuring Harm may be divided into two parts: pre- and post- judgment.

27.  Any Restructuring Harm between now and judgment, which would appear on the Plaintiffs’ case to cover the costs of the Acquisition (described as being “imminent”), is irrelevant since this cannot constitute harm flowing from a refusal to grant the Interlocutory Injunctions.

28.  As Mr Shieh noted, the matter may be tested by asking: if the present injunction application were allowed, could the Synergy Funds be applied towards pre-judgment restructuring costs which, according the Plaintiffs, is “imminently” required?

29.  The answer is “no”. On the Plaintiffs’ own case, use of the Synergy Funds require unanimous consent from all Beneficiaries. Those in the Hsieh family have already indicated that they would not consent to Restructuring uses because they maintain the view that the Synergy Funds are reserved for their personal use.

30.  As regards post-judgment Restructuring Harm, the Plaintiffs allege that if the relevant portions of the Synergy Funds are wrongfully distributed to the Hsieh family Beneficiaries, they may not be recoverable after judgment, and there may be a permanent loss of those portions of the Synergy Funds for use in the Restructuring.

31.  However, it must be borne in mind that (on this premise) the Shih family would receive their (53.43%) share of the Synergy Funds (ie US$29,093,209.38). It has not been said that this would be insufficient to meet any “unexpected and urgent” costs incurred in the course of the Restructuring. The Plaintiffs have themselves said that “it is expected that the companies involved in the Restructuring process will apply or source their own funds to cover the relevant Restructuring costs”.[11] In other words, recourse to the Synergy Funds would only be made for unexpected and extraordinary expenses, and there is no reason to think that Shih family’s US$29-odd million would not suffice to that end.

32.  Moreover, the Plaintiffs’ essential premise that the Synergy Funds would be required for the Restructuring is open to doubt. In their initial round of evidence in support of the Interlocutory Injunctions, the Plaintiffs mentioned no difficulties in raising funds for the Restructuring. Even in their later evidence, the Plaintiffs only go so far as to suggest that some fundraising methods are unavailable. The viability of certain common avenues of raising funds for the Restructuring has not been addressed in the evidence. For example, while a subsidiary can usually borrow with a guarantee issued by its parent, there is no evidence that this is an unviable course for Royal Tech or Royal Ohm. There is moreover no evidence of the Thai affiliates’ loan applications being rejected.

33.  In all, the Plaintiffs have not shown that recourse to the Synergy Funds (or in any event the Hsieh family’s portion) is necessary or expected. Any interest payable on bank borrowings is easily compensable by damages. The Plaintiffs have provided no evidence of any difficulties, whether as already experienced or reasonably expected, in obtaining loans from banks in order to meet the alleged imminent needs for funds.

The Emergency Harm

34.  Save in the context of the Restructuring (which has already been addressed), no details have been provided in the evidence of what the “emergency” expenditure might involve, which entities would for these purposes be covered by the Synergy Funds, and why such entities do not have (or would otherwise be incapable of seeking) their own independent funding to cover any such urgent expenditure.

35.  Even if as the Plaintiffs assume, the liquidation process results in distribution of the Synergy Funds to the Beneficiaries, the Plaintiffs’ portion of those funds would reach their pockets. Insofar as any relevant emergency arises, the Plaintiffs could simply use their shares of the funds to address it, there being no suggestion that this would be insufficient for emergency “safety net” purposes.

36.  Again, if the Plaintiffs were to borrow the amount which had been distributed to the other Beneficiaries, the loss would simply be the cost of borrowing that amount, which could be easily compensated in damages.

The Liquidity Harm

37.  The Liquidity Harm finds little if any support in the evidence. There is in particular no evidence of any clause in the Bank Charges or any other relevant loan documentation that allows E Sun Bank to go after the 2^nd Plaintiff in the event of Synergy’s winding up. Clause 12 of the Bank Charges[12] is not such a clause: it only allows E Sun Bank to get in its security in the event of Synergy’s winding up and has nothing to do with the 2^nd Plaintiff.

38.  Even if it could be shown that enforcement of the E Sun Bank loans would pose liquidity problems for the 2^nd Plaintiff, the evidence discloses no reason why he could not borrow monies from other banks to resolve them. Any interest payable on such borrowings is easily compensable by damages.

The Competition Harm

39.  The 1^st and 2^nd Defendants complain that this alleged harm was raised for the first time in reply evidence filed by the Plaintiffs on 31 January 2022, more than four months after their Summons was issued, and that they therefore have had no proper opportunity to respond.

40.  Leaving the procedural complaint to one side, the 1^st and 2^nd Defendants rightly note that there is just a bare assertion that it would be “highly likely” that the Hsieh gamily would apply their portion of the Synergy Funds to fund the Alleged Competing Businesses, with no real identification or explanation of the resultant loss (which is simply said to be “difficult to quantify”).[13]

41.  Moreover, this alleged harm ignores the 1^st and 2^nd Defendants’ evidence that their intention has all along been to use the funds for personal investments in financial products. As things presently stand, there is no cogent reason for disregarding this evidence.

C.  BALANCE OF CONVENIENCE AND “FUTILITY”

42.  Given my conclusion on the failure to show irreparable harm in this case, it is strictly unnecessary for me to address whether there is any serious issue to be tried or the balance of convenience.

43.  With the prospect of a full trial on the Plaintiffs’ underlying claims against the Defendants, I propose to say nothing further on the substantive merits of the claims.

44.  As to the balance of convenience, I see some force in the 1^st and 2^nd Defendants’ point that, on the Plaintiffs’ own case, the Synergy Funds could only be used with the unanimous consent of all the Beneficiaries. Mr Shieh submitted that, because of this, it would be “pointless” to seek to “hold the ring” by way of the Interlocutory Injunctions in order to ensure that the full amount of the Synergy Funds would be available for use in the event of the Plaintiffs prevailing at trial.

45.  Mr Shieh relies here on:

(1)  the decision of Madam Recorder Linda Chan SC (as she then was) in Chan Shu Chun & Ors v Right Margin Limited [2015] 3 HKLRD 409 at §26, where her ladyship stated that it is “well established that equity does not act in vain and will not grant an injunction which is futile”; and

(2)  this observation of DCHJ Paul Lam SC at the last hearing of the Summons:

“Now, it's quite clear that there's now a deadlock between the two camps. And the big question is, what should happen to the [Synergy Funds], so to speak? And I think the defendant's point -- I mean, they make various points, but I think there’s a very practical point that ... [the Shih family] need to face somehow someday. That is, on your case how the funds should be used would require the unanimous consent of both camps. So in the light of the present relationship between the parties, it seems quite unlikely that the parties can come -- can reach some sort of agreement. So in the absence of agreement, apart from winding up the company, what alternative solution [is there]?”

46.  The Plaintiffs do not contest the principle stated in Chan Shu Chun. While the learned judge in that case did not say so expressly, it seems to me that where a proposed injunction is shown to be futile on the facts, then that is a matter that could affect the balance of convenience, where that question arises. This broadly aligns with what I understood Mr Shieh to be saying at the oral hearing, when he said that his futility point went into “the discretionary mix”. Put simply, if a proposed restraint would indeed be futile, then the balance of convenience (or any broader discretionary assessment) can hardly be said to favour it. In such a case, the futility factor may well be in itself decisive.

47.  In the present case, however, I am not persuaded that the need for unanimous Beneficiary consent itself means that the Interlocutory Injunctions would necessarily be wholly pointless or futile.

48.  The futility contention rests on the assumption that “it is entirely fanciful”to suppose that the unanimous consent of the Beneficiaries would ever be forthcoming (1^st and 2^nd Defendants’ Skeleton §99.2). While the prospect of any such consent is indeed remote, for present purposes I do not think it can at this stage be entirely excluded such that any interim relief would necessarily be entirely futile. Amongst other things, circumstances between now and any judgment following trial (c.f. the pre-trial position addressed at §§28-29 above) may well yet further shift, such that reasons for consent may emerge – even if driven purely by individual (or familial) interest.

49.  That said, since I agree that as things currently stand, the requisite consent for use of the Synergy Funds seems a far prospect, this would in my judgment be a strong additional factor against the grant of the Interlocutory Injunctions in terms of the balance of convenience and the comparative risk of injustice.

D.  CONCLUSION AND COSTS

50.  For the above reasons, the Plaintiffs’ Summons is dismissed. I make a cost order nisi that the costs of this application be the Defendants’ costs in the cause, to be taxed if not agreed. I also grant a certificate for two counsel in relation to the 1^st and 2^nd Defendants.

HCA 1356/2021

[2021] HKCFI 2896

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1356 OF 2021

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REASONS FOR DECISION

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1.  At the end of the hearing, I gave further directions for the substantive hearing of the Plaintiffs’ summons dated 7 September 2021 (“Ps’ Summons”)  and granted an interim-interim injunction which, in effect, suspends the liquidation process of the 3^rd Defendant. These are my reason.

2.  For the present purpose, it is unnecessary for me to recite the facts in detail. In short, the Plaintiffs claim that a members’ resolution to wind up the 3^rd Defendant (“the Resolution”)  was void and invalid, etc. The 1^st Defendant is the sole shareholder and director of the 2^nd Defendant; the 2^nd Defendant wholly owns the 3^rd Defendant; and the 1^st Defendant is also the sole director of the 3^rd Defendant. The Plaintiffs claim that the 1^st Defendant is acting as trustee on behalf of eight beneficiaries. The 3^rd Defendant is holding what the Plaintiffs described as the “Corporate Fund”, which must be used for certain agreed purposes. The Plaintiffs’ case is that there are two camps of beneficiaries: one camp is represented by the Plaintiffs whereas the 1^st Defendant is associated with the other camp. They claim that the 1^st Defendant may not act without the unanimous instructions and consent of the beneficiaries. However, the 1^st Defendant passed the Resolution without the consent of the Plaintiffs. The 4^th and 5^th Defendants are the liquidators appointed pursuant to the Resolution.

3.  On 10 September 2021 when Ps’ Summons first came before me, I granted an interim-interim injunction restraining the 4^th and 5^th Defendants from making or taking steps to make distribution of any monies, etc., of the 3^rd Defendant unless with the consent of the Plaintiffs or with leave of the Court until 24 September 2021 or further order; and that the Ps’ summons dated 7 September 2021 be adjourned to 24 September 2021.

4.  By a letter dated 16 September 2021, the Plaintiffs’ solicitors asked the 1^st and 2^nd Defendants’ solicitors whether they would agree to the orders and directions proposed therein to be made at this hearing. In short, the Plaintiffs sought a more extensive interim-interim injunction in terms of §§1-2 of the draft order annexed to Ps’ Summons, and further directions for the substantive hearing of the Ps’ Summons. 

5.  On 17 September 2021, the 1^st and 2^nd Defendants’ solicitors replied by saying simply that they did not agree to the Plaintiffs’ proposed directions and orders. They did not explain why they disagreed, or make any counter-proposal.

6.  In the meantime, the 4^th and 5^th Defendants are actively proceeding with the liquidation process of the 3^rd Defendant.

7.  The Court received the Plaintiffs’ skeleton argument on 21 September 2021 before the public holiday on 22 September 2021. On 23 September 2021, one day before this hearing, the 1^st and 2^nd Defendants filed a 35-page Skeleton Submissions. The 4^th and 5^th Defendants also filed a short skeleton argument with an affirmation on the same day.

8.  There were two matters I needed to decide at the hearing:

(a)  Whether I should deal with Ps’ Summons substantively; if not, what directions I should give for the substantive hearing of Ps’ Summons;

(b)  If the substantive hearing of Ps’ Summons should be heard on a later date, whether I should continue or grant any interim-interim injunction.

9.  On the first question, I took the firm view that the Plaintiffs should be given a reasonable time to consider, and respond to, the 1^st and 2^nd Defendants’ very detailed submissions. Further, no evidence has yet been filed by the 1^st and 2^nd Defendants. Although the 1^st and 2^nd Defendants argued that there is not even any serious issue to be tried and the Plaintiffs’ claims are liable to be struck out, they had not suggested that they did not wish or need to file any evidence in opposition to Ps’ Summons. The Court was simply not in a position to consider the substantive merit of Ps’ Summons at the hearing.

10.  That said, I agreed with the 1^st and 2^nd Defendants that it would be in the interests of all parties concerned that an expedited timetable be imposed for the filing of evidence and an early determination of Ps’ Summons. Hence, I accepted the timetable proposed by the 1^st and 2^nd Defendants as set out in §55 of their Skeleton Submissions i.e.:

(a)  The Defendants do have leave to file and serve affirmation evidence in opposition to the Ps’ Summons within 14 days;

(b)  The Plaintiffs do have leave to file and serve affirmation evidence in reply (if any)  within 14 days thereafter;

(c)  P’s Summons be adjourned to an early date for substantive argument with 1 day reserved to be fixed in consultation with counsel’s diaries.

11.  The more difficult and controversial question was whether I should continue or grant any interim-interim injunction.

12.  First, in the light of the evidence put before me, I did not find it necessary to grant any interim-interim injunction against the 1^st and 2^nd Defendants in terms of §1 of the draft order annexed to Ps’ Summons. The 3^rd Defendant is now in liquidation. More importantly, there is no evidence supporting that the 1^st and/or 2^nd Defendant will do anything in the near future to damage the interests of the Plaintiffs.

13.  The real question was what should happen to the liquidation in the meantime. The 4^th and 5^th Defendants offered an undertaking to give the Plaintiffs 30 days’ advance notice in case they intend to make any distribution of the 3^rd Defendant’s funds. As the 1^st and 2^nd Defendants had pointed out (which the Plaintiffs did not seriously dispute), it seems unlikely that the liquidators would be in a position to make any distribution before the disposal of Ps’ Summons. In my view, the true issue was whether the liquidation process should be suspended entirely in the meantime. This was what the Plaintiffs applied for. In contrast, the 1^st and 2^nd Defendants were adamant that the liquidation process should continue. The 4^th and 4^th Defendants adopted a neutral position save that they offered the said undertaking.

14.  The 1^st and 2^nd Defendants complained that the interim-interim injunction sought by the Plaintiffs was more extensive than the one they sought, and granted by me, at the hearing on 10 September 2021. However, the Plaintiffs had made it clear at the end of the hearing on 10 September 2021, and their solicitors’ correspondence, that they would apply for a more extensive interim-interim injunction at this hearing. It was open to them to do so. Whether the Court should allow such an application was another matter. 

15.  The 1^st and 2^nd Defendants then argued that the Plaintiffs were, in effect, seeking the final relief. This was incorrect. The interim-interim injunction sought is §2 of draft order annexed to Ps’ Summons. However, it does not represent the final relief sought by the Plaintiffs in the writ of summons. As mentioned, the Plaintiffs are seeking to invalidate the Resolution, etc.  The interim-interim injunction sought by the Plaintiffs would not have the effect of granting the Plaintiffs’ the ultimate remedies that they are claiming. Furthermore, the interim-interim injunction, if granted, would only be in force for a short period of time till the disposal of Ps’ Summons.

16.  More importantly, the 1^st and 2^nd Defendants submitted that the Plaintiffs had to satisfy the three criteria in American Cyanamid; but they did not satisfy any of them, in particular, they had not even been able to show any serious issue to be tried.

17.  I did not agree with the approach suggested by the 1^st and 2^nd Defendants. In principle, interim-interim relief is meant to be an urgent temporary stop-gap measure and the circumstances are such that the Court has to do practical justice on the balance of fairness even though it may not have sufficient time to consider the matter fully (China Shanshui Cement Group and others v Zhang Caikui[2018] HKCA 409, §13). This is the stage where the parties have not yet completed the filing of evidence, and the Court has not yet had the chance to consider the parties’ submissions in detail. It is impracticable and inappropriate to ask the Court to apply the American Cyanamid guidelines in full force at the present stage.

18.  Having said that, the Court is, of course, entitled to consider the arguability or merit of a plaintiff’s case. However, as the Court of Appeal held in China Shanshui Cement Group, ibid, §17, the extent to which a judge gives weight to the merit on an issue in a particular case depends very much on the context and they are obviously other factors at play including the effect of the grant or refusal of the relief and the subject matter at stake. In a case where the Court sees fit to consider the merit and comes to the conclusion that the plaintiff cannot even establish a serious question to be tried, this must be a good and sufficient reason not to grant any interim-interim injunction (China Shanshui Cement Group, ibid, §19).

19.  However, it does not follow that the Court is obliged to consider the merit of a plaintiff’s case in the present context. Bearing in mind that the matter is still at a very early stage when the Court needs to consider whether to grant any interim-interim relief, I tend to think that, in most cases, the Court would not feel able to form even a provisional view on the merit. I am inclined to the view that, save in clear and obvious cases, the Court should be extremely cautious in forming any view on the merit at such stage of the proceedings.

20.  Having read the evidence and the parties’ submissions put before me, I concluded that the present case was not a case where I felt appropriate to form any view on the merit of the Plaintiffs’ claims. I took the view that the primary considerations should be the effect of the grant or refusal of the interim-interim relief sought by the Plaintiffs, and the subject matter at stake. I bear in mind the important reminder that, generally speaking, “The Court will therefore take whichever course appears to carry the lowest risk of injustice if it should turn out that it is wrong.” (China Shanshui Cement Group, ibid, §18).

21.  The 1^st and 2^nd Defendants submitted that there would not be any irreparable prejudice to Plaintiffs if the liquidation process shall continue in the meantime as their main complaint was that there would be wasted costs and expenses. Although the Plaintiffs stated that they are very concerned about the 4^th and 5^th Defendants’ intention to close the 3^rd Defendant’s bank account where the Corporate Fund was kept, there is little evidence on how that, by itself, may affect the Plaintiffs. But, on the other hand, I failed to see any urgency in pushing the liquidation process forward.  To allow the liquidation process to continue would likely give rise to more conflicts between the parties as evidenced by the correspondence exchanged between the parties since the last hearing. Further, if it turns out that the Plaintiffs succeed ultimately in invalidating the Resolution, it would apparently be more difficult to reverse the liquidation process if it had reached a more advanced stage. And some steps taken in the course of the liquidation might even be irreversible.  The substantive hearing of Ps’ Summons should take place in a few months’ time. Assuming that the Court dismisses Ps’ Summons after the substantive hearing, the liquidation process may resume. The 1^st and 2^nd Defendants have not suggested that they would suffer any material prejudice if the liquidation process is delayed for a few months. Looking at the matter broadly and realistically, I took the view that, pending the disposal of Ps’ Summons, the Court should put on hold what is being done pursuant to the Resolution, the validity thereof is now being seriously challenged.

22.  For these reasons, at the end of the hearing, I granted an interim-interim injunction in terms of paragraph 2 of the draft order annexed to Ps’ Summons.  I also ordered that the costs of the hearing shall be in the cause of Ps’ Summons.