Bmc Global Ltd and Another v. Tor Asia Credit Master Fund Lp and Others
Read the full judgment text of HCA 2392/2016 on BabelCite. This High Court CFI judgment was delivered on 30 September 2016.
1. I have before me the plaintiffs’ summons dated 27 September 2016 seeking various injunctive relief against the 1 st and 2 nd defendants, in particular:-
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HCA 2392/2016 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO 2392 OF 2016 ____________ BETWEEN
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________________________ REASONS FOR DECISION ________________________ INTRODUCTION 1.I have before me the plaintiffs’ summons dated 27 September 2016 seeking various injunctive relief against the 1st and 2nd defendants, in particular:-
2.The plaintiffs’ summons came before me on 30 September 2016. At that hearing, Mr Chong (for the plaintiff) indicated he would seek the following interim relief pending the substantive hearing of the summons, namely, an interim injunction to restrain the 1st and 2nd defendants from:-
3.The plaintiffs’ application was opposed by the 1st defendant. After hearing Mr Chong (for the plaintiff) and Mr Charles Sussex SC (for the 1st defendant), I made an order that the plaintiffs’ application for the interim injunction be dismissed with costs to the 1st defendant (with certificate for 2 counsel), with reasons to be given later. This I now do. Background facts 4.The 1st plaintiff was incorporated in Hong Kong on 27 January 2014. Yip Hei Man (“Mr Yip”) was originally the sole registered shareholder of the 1st plaintiff holding 100 issued shares in it, of which 55 shares were held on trust for the 2nd plaintiff (Lim Ho Sok) and 45 shares for Pang Ngoi Wah (“Mr Pang”). 5.The 1st defendant is a Cayman Islands exempted limited partnership. 6.In around March 2014, the 1st plaintiff acquired 858 shares[1] in the 3rd defendant, which represented approximately 83.7% of the total issued share capital of the latter. According to the 2nd plaintiff:-
7.On or about 31 August 2015, the 1st plaintiff borrowed from the 1st defendant the sum of US$15 million (“the Loan”) pursuant to a “USD15,000,000 Senior Secured Term Loan Facility Agreement” dated 31 August 2015 (“the Facility Agreement”). Various securities were provided by the 1st plaintiff, the 3rd defendant and Mr Yip (as trustee for the 2nd plaintiff and Mr Pang) to the 1st defendant for the Loan pursuant to a number of documents described in the Facility Agreement as the “Transaction Security Document”, including:-
8.Under the Facility Agreement, the Loan was to be repaid on the “Repayment Date”, which was defined to mean the date falling 12 months following the “Utilisation Date”. It is not in dispute that the original Repayment Date was 31 August 2016. 9.Apparently, the 1st plaintiff was unable to repay the Loan on the due date. In or about August 2016, the 1st plaintiff requested the 1st defendant to extend the Repayment Date of the Loan. There were a number of meetings between the 1st plaintiff and the 1st defendant in August 2016 during which the proposed extension was discussed. According to the 2nd plaintiff, at a meeting held on 31 August 2016 (attended by the 2nd plaintiff and various representatives of the 1st defendant), an oral agreement was reached under which the 1st defendant agreed to extend the repayment date to 30 November 2016 and would not take enforcement action in respect of the securities for the Loan in the meantime. The alleged oral agreement is disputed by the 1st defendant. I shall come back to this matter later in this decision when I consider the merits of the plaintiffs’ claim against the 1st defendant. 10.On 1 September 2016, the 1st defendant sent a default notice to the 1st plaintiff. On 12 September 2016, the 1st defendant appointed the 2nd defendants as the joint and several receivers and managers of the assets of the 1st plaintiff and the 3rd defendant under the Borrower Debenture and Guarantor Debenture respectively. Currently, the 2nd defendants are in the process of selling the 1st plaintiff’s shareholding in the 3rd defendant, which the plaintiffs seek to restrain by the present application. 11.The writ in this action was issued on 15 September 2016 and amended on 27 September 2016. In the amended indorsement of claim, the plaintiffs seek, inter alia:-
12.As earlier mentioned, the plaintiffs took out the present summons on 27 September 2016, which was supported by the affirmation of the 2nd plaintiff filed also on that date. 13.In opposition to the plaintiffs’ application, the 1st defendant has filed two affirmations on 29 September 2016:-
14.In his affirmation, Mr Fung states that the 2nd defendants adopt a neutral position in relation to the plaintiffs’ application. 15.For the sake of completeness, I should mention that, as stated in paragraph 62 of the 2nd plaintiff’s affirmation, the 3rd defendant has been joined as a nominal defendant in this action. Neither the 2nd nor the 3rd defendants participated at the hearing on 30 September 2016. merits of plaintiffs’ claim 16.The plaintiff’s case is based entirely on a bare assertion by the 2nd plaintiff that there was an oral agreement reached at the meeting on 31 August 2016 that the Repayment Date would be extended to 30 November 2016. As I understand it, Mr Sussex accepted that there is a serious issued to be tried in respect of this matter. With some reservation, I am prepared to accept this concession made by experienced counsel on behalf of the 1st defendant. 17.Nevertheless, for reasons which I shall explain below, this is a case where the court is entitled to examine the merits of the plaintiffs’ claim a little more closely. I bear in mind that the court should normally not undertake a detailed examination on the merits or conduct a mini‑trial on affidavit evidence in an application for an interlocutory/interim injunction. However, the court is not bound to accept the 2nd plaintiff’s bare assertion at face value. I also consider that, in a commercial setting, the court is entitled to examine a deponent’s assertion in a robust manner. 18.In the present case, I consider the 2nd plaintiff’s assertion of an oral agreement reached at the meeting on 31 August 2016 to be highly questionable, for the following reasons. 19.First, the context of the relevant transaction is important. I am here dealing with a substantial commercial transaction between two apparently substantial business enterprises. In relation to the Loan, they entered into a series of complicated written agreements which obviously were carefully negotiated and drafted. An allegation that they would enter in an oral agreement to vary an important provision in the Facility Agreement (namely, one relating to the Repayment Date) without any written note, memorandum or record of the oral agreement is inherently improbable. 20.Second, the alleged oral agreement is a complicated one containing many detailed terms set out in nearly 5 typed written pages in the affirmation of the 2nd plaintiff. It is highly unlikely that the parties could have agreed those terms orally without any written note, memorandum or record. If some such note, memorandum or record exists, it has not been produced or mentioned by the plaintiffs. 21.Third, on 1st September 2016 (the day immediately after the making of the alleged oral agreement), the 1st defendant sent a default notice to the 1st plaintiff and the 3rd defendant. The 1st defendant’s conduct was inconsistent with the alleged oral agreement having been reached on 31 August 2016. The 2nd plaintiff’s explanation for this default notice is another assertion that Mr Sweeney told him orally at the said meeting that a notice of default would be sent to the 1st plaintiff and the 3rd defendant as a matter of “formality” which “would not be taken seriously since the [1st defendant] would not be enforcing its rights under the security documents in relation to the Loan in the absence of a fresh event of default”. The allegation that the default notice was sent as a matter of “formality” is difficult to understand, there being no suggestion that there was any internal or external rule, regulation or practice which required a default notice to be issued by the 1st defendant in the circumstances of this case. 22.Fourth, upon receipt of the default notice, the 2nd plaintiff replied in an email dated 1 September 2016 stating simply: “Well Noted”. His email went on to state that “[w]e look forward to receiving the Extension Termsheet as we agreed in the meetings earlier”. This email from the 2nd plaintiff was heavily relied upon by Mr Chong in support of the plaintiffs’ case of the alleged oral agreement. In my view, far from supporting the plaintiffs’ case, this email in fact suggests that no binding agreement for an extension of the Repayment Date was reached at the meeting on 31 August 2016. At the highest, this email is evidence that what had been agreed between the parties at the meeting was that the 1st defendant would send an “Extension Termsheet” to the 1st plaintiff. As a matter of fact, a draft termsheet dated 25 August 2016 had previously been sent by the 1st defendant to the 1st plaintiff. It is plain on the face of that draft termsheet that it was meant to set out only “indicative terms and conditions for the potential extension” of the Loan facility which “[were] not exhaustive and [were] indicative and subject to relevant internal approvals … of the Lender and should not be construed as a commitment from the Lender to provide any extension of the financing”. There is nothing on the evidence to show that the “Extension Termsheet” that the parties referred to at the meeting was intended to be fundamentally different in nature from the previous one that the 1st defendant had sent to the 1st plaintiff. 23.Fifth, in none of the contemporaneous emails that the 2nd plaintiff has produced in his affirmation was there any reference to the alleged oral agreement having been reached at the meeting. 24.In all, while I am prepared to accept the 1st defendant’s concession that there is a serious issue to be tried in respect of the alleged oral agreement, the plaintiffs’ case is, in my view, a weak one. This has an important bearing on the issue of the balance of convenience which I shall deal with later in this decision. ADEQUACY OF DAMAGES 25.It has not been suggested by the Mr Sussex that damages would be an adequate remedy for the plaintiffs in the event that the interlocutory/interim injunction sought by the plaintiffs is refused, although he did not accept the plaintiffs’ suggestion that if the 3rd defendant’s mining titles are sold off, the 1st plaintiff and the 3rd defendant would be “completely ruined”. Mr Sussex relied on the evidence of Mr Fung which suggests that the 2nd defendants’ ongoing sale process is anticipated to take several months, and that completion of any sale may take place as late as February 2017. From this, Mr Sussex argued that the refusal of the interlocutory injunction would not have a material or detrimental impact on the 1st plaintiff or 3rd defendant at all, or lead to any “irreparable damage” suffered prior to 30 November 2016. However, it is at least possible, on the basis of the current timetable relating to the proposed sale of the 1st plaintiff’s shares in the 3rd defendant, that a contract may be concluded prior to 30 November 2016. Once a contract for the sale of the shares in the 3rd defendant is made with a third party, it may not be easy to rescind the contract. There would also be difficulties in assessing damages arising from the sale of the shares in the 3rd defendant should the plaintiffs be able to prove, ultimately, that there was an oral agreement to extend the Repayment Date and hence the appointment of the 2nd defendants as receivers and manager was wrongful. I therefore consider that damages would not be an adequate remedy as far as the plaintiffs are concerned. 26.On the other hand, it may be argued that damages would be an adequate remedy for the 1st defendant because all that the 1st defendant is interested in would be the recovery of the outstanding Loan. However, an award of damages in the 1st defendant’s favour may well be an empty award, having regard to the fact that that 1st plaintiff plainly has difficulty in meeting its repayment obligation under the Facility Agreement. For this reason, Mr Sussex submitted that should the court be minded to grant the injunction sought by the plaintiffs, it should be conditional upon fortification of the undertaking in damages in the sum of US$15 million. When this matter was raised with Mr Chong in the course of his reply submissions, he informed the court that the plaintiff could only make payment of US$2 million into court within 7 days. 27.There are two other matters relevant for the purpose of the present discussion. First, the 1st defendant is holding various securities for the Loan. The major security would appear to be the shares in the 3rd defendant held by the 1st plaintiff, or the mining titles held by the 3rd defendant. In paragraph 115 of Mr Sweeney’s affirmation, he explains why PwC’s valuation of the mining titles in its report dated 8 June 2016 is not reliable. Although the concerns about PwC’s valuation were specifically raised in paragraph 47(4) of Mr Sussex’s skeleton submissions, Mr Chong did not make any submission to address those concerns. In this regard, it is also relevant to note that, according to the 2nd plaintiff:-
28.I consider that they are many questions regarding the value of the shares in the 3rd defendant held by the 1st plaintiff, or the mining titles held by the 3rd defendant, which have remained unanswered. For the purpose of the present application, I am not prepared to give any weight to PwC’s valuations referred to in paragraph 8 of the 2nd plaintiff’s affirmation. 29.Second, the 1st plaintiff has apparently entered into a Funding Agreement with the provincial government of the Jianyan District of Taizhou Jiangsu Province (“the Taizhou Government”) dated 24 August 2016, under which the Taizhou Government agreed to subscribe for an interest in the “Battery Park Fund” and commit to making a capital contribution of US$200 million no later than 30 November 2016. It is, however, apparent from the copy of the Funding Agreement produced by the 2nd plaintiff that the proposed funds to be provided by the Taizhou Government are meant to be used to “finish construction of lithium processing plants located in Salta, Argentina and Taizhou City, China, of 40,000 tonnes capacity each”, instead of for repayment of any loan due from the 1st plaintiff to the 1st defendant. In an attempt to get around this obvious difficulty, the 2nd plaintiff alleges that there was an agreement with or consent by the Taizhou Government that a portion of the funds to be injected could be applied to discharge the Loan and other charges due to the 1st defendant. He has not, however, produced any evidence originated from the Taizhou Government in respect of this “agreement”. In this regard, it is of note that clause 6.1 of the Funding Agreement expressly provides that any waiver or consent given by any party under the agreement would only be effective and binding if it is given or confirmed in writing, and clause 6.4 further provides that no amendment to the agreement will be effective unless it is in writing and executed by all the parties. In any event, it is questionable whether the funds made available under the Funding Agreement could be utilised by the 1st plaintiff to honour its undertaking in damages. 30.In all, I consider that, on the basis of the existing materials before me, damages would not be an adequate remedy for either the plaintiffs or the 1st defendant. BALANCE OF CONVENIENCE 31.Mr Chong submitted that the 1st plaintiff and the 3rd defendant would suffer catastrophic and irreparable harm should the court deny the interim relief sought by the plaintiffs, in that if the shares in the 3rd defendant or the mining titles are sold by the 2nd defendant, the 1st plaintiff and 3rd defendant’s business would effectively be extinguished. On the other hand, it is said that the 1st defendant would suffer very little (if any) damage should the injunction sought by the plaintiffs turn out to have been wrongly granted, because (i) the securities held by the 1st defendant are worth over US$260 million, which is more than sufficient to cover the amount of the Loan, and (ii) the injunction would only cause a 2-month delay in the realisation of the secured assets. 32.I have already dealt with the value of the securities above. In so far as the delay in the realisation of the secured assets is concerned, Mr Fung has explained that the granting of an injunction will likely depress the value of the shares in the 3rd defendant due to the likelihood of potential purchasers withdrawing their offers or willingness to continue to participate in the process for the sale of the shares, resulting in a reduction in the number of bids offered from potential purchasers and lowering of the realisation value of the shares, the extent of which is difficult to predict at this stage. 33.Taking everything into account, if this were an ordinary application for an interlocutory injunction, I would hold that the balance of convenience lies in favour of granting the injunction sought by the plaintiffs. 34.However, it is obvious that the purpose, or at least a major purpose, of this action by the plaintiffs, of which the present application forms a part, is to obtain an extension of the Repayment Date to 30 November 2016. If the court grants the interlocutory injunction sought by the plaintiffs, they will substantially achieve their purpose or major purpose of this action. This can be seen clearly from the fact that the relief sought in the plaintiffs’ summons is in all respects the same, or materially the same, as the relief sought in paragraphs 7, 8 and 9 of the amended indorsement of claim. In view of the fact that the alleged extension of the Repayment Date would expire on 30 November 2016, there is no realistic prospect that the trial of this action can take place and conclude before that date. 35.It is well established that where the grant or refusal of an interlocutory injunction would in effect dispose of the action finally the court will have more regard to the plaintiff’s prospect of success, this being treated as a factor in the consideration of the balance of convenience: see Lai Hoi Ping (suing on his own behalf and on behalf of all other members of Hog Kong Taxi Association) v Persons Occupying Portions of Nathan Road near to and between Argyle Street and Dundas Street to Prevent or Obstruct Normal Vehicular Traffic from Passing and Repassing the Occupied Areas, HCMP 2975/2014, at paragraph 10 per Cheung CJHC. 36.Various tests have been formulated by the courts in relation to this higher regard to the prospect of success, for example-
37.In my view, it is neither possible, nor appropriate, for the court to seek to formulate a precise threshold that the plaintiff must meet before the court may grant an injunction in his favour in circumstances where the grant of an injunction would in effect dispose of the action finally. The following observation by Butler-Sloss LJ in Lansing Linde Ltd v Kerr [1991] 1 WLR 251 at 269D-E (part of which was quoted with approval by Cheung CJHC in Lai Hoi Ping at paragraph 11) is worth reciting:-
38.In other words, the significance of the merits of the plaintiff’s case as a factor in considering the issue of balance of convenience would vary according to the particular context and circumstance of each case. Ultimately, the court’s task is to arrive at a result which would carry the lowest risk of injustice as a result of the grant or refusal of an injunction. 39.In this regard, it does not seem to me to matter that the plaintiff has raised other claims or sought other relief in the writ (as in the present case where the plaintiffs also seek declaratory relief in respect of the 2nd defendants’ appointment as joint and several receivers and managers as well as their appointment as directors of the 3rd defendant) so that, strictly speaking, the grant of the interlocutory/interim injunction sought would not dispose of the action finally. In my view, if the interlocutory/interim injunction would have the practical effect of finally disposing of the claim for an injunction, being a substantive claim in the action, the court is entitled to have a higher regard to the merits of the plaintiff’s case so far as relevant to that particular claim. 40.For this reason, the plaintiffs’ position in the present application is not improved by Mr Chong’s indication at the hearing that the plaintiffs intended to further amend the writ to include a claim for damages arising out of POSCO’s notice of termination dated 26 September 2016 in respect of the licence agreement with the 3rd defendant. I should add that, in any event, it is plain on the face of POSCO’s notice that the termination was, apparently, the consequence of the 3rd defendant’s breach of contract which was the subject matter of an earlier notice dated 23 August 2016, and had nothing to do with the 1st defendant’s breach of the alleged oral agreement. The proposal to include this claim in the writ is, in my view, a desperate attempt on the plaintiffs’ part to salvage their application for the injunction. 41.As explained above, I consider the plaintiffs’ case based on the alleged oral agreement to be a weak one. If it had been necessary to apply one or another of the tests mentioned in paragraph 36 above, I would have no difficulty in rejecting the proposition that the 1st defendant has “no real chance of succeeding at the trial”, or the plaintiffs are “at least likely/very likely to succeed at trial”, or the plaintiffs have shown “an overwhelming balance on the merits” in their favour. 42.In the context of the present application, I consider the weakness of the plaintiffs’ case to be an important, and ultimately decisive, factor in the overall assessment of the justice of the case. At the hearing, Mr Chong repeatedly emphasised that the grant of the injunction sought by the plaintiff would cause no prejudice to the 1st defendant, as if that factor of itself would be sufficient to justify the court granting the injunction. In my view, such approach is wrong in principle. The grant of an injunction by the court is always a serious matter and must be fully justified. The court should not grant an injunction merely because it may be said that the defendant would suffer no prejudice. The absence of prejudice is only one factor in the overall assessment of the balance of convenience. 43.In all, I decline to exercise my discretion to grant the interim injunction sought by the plaintiffs in view of the fact that the grant of the injunction would have the practical effect of finally disposing of a substantive claim of the plaintiffs in this action while their case is patently weak. I do not consider that justice would be served by granting an injunction in such circumstances. DISPOPSITION 44.For the foregoing reasons, I dismiss the plaintiffs’ application for the interim injunction. I also order that the 1st defendant shall have the costs of that application, to be taxed if not agreed, with certificate for 2 counsel. 45.I shall leave it to the parties to agree on the further conduct of the plaintiffs’ summons dated 27 September 2016, which technically has not yet been disposed of, with liberty to apply in the event of disagreement. 46.Lastly, it remains for me to thank counsel for the assistance that they have rendered to the court.
Mr Patrick Chong and Mr Terrence Tai, instructed by Howse Williams Bowers, for the 1stand 2nd plaintiffs Mr Charles Sussex, SC and Ms Rachael Lam, instructed by Herbert Smith Freehills, for the 1st defendant The 2nd to 3rd defendants being absent |
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