Wong Luen Hang and Another v. Chan Yuk Lung and Others

HCMP 2906/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 2906 OF 2016

(ON AN INTENDED APPEAL FROM HCA NO 1265 OF 2015)

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BETWEEN

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J U E G M E N T

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Hon Kwan JA (giving the judgment of the Court):

1.On 11 March 2016, Deputy High Court Judge Le Pichon handed down a decision (“the Decision”) dismissing the plaintiffs’ application to appoint interim receivers and managers in respect of the 3^rd, 10^th and 11^th defendants after an inter partes hearing on 25 February 2016[1].

2.The plaintiffs’ hearing for leave to appeal against the Decision was heard by the judge on 14 October 2016 and dismissed on the same day.  The judge handed down the reasons for that decision on 19 October 2016 (“the Leave Decision”).

3.The plaintiffs renewed their application for leave to appeal to the Court of Appeal by a summons issued on 28 October 2016.  They rely on the same grounds of appeal in a draft notice of appeal that had been considered by the judge.

4.Having considered the papers, we think it appropriate to determine this application on the basis of the written submissions without a hearing.

5.Section 14AA(4) provides that leave to appeal shall not be granted unless (a) the appeal has a reasonable prospect of success; or (b) there is some other reason in the interests of justice why the appeal should be heard.  It is well established that reasonable prospect for this purpose involves the notion that the prospects of succeeding must be reasonable, and therefore more than fanciful, without having to be probable.  Further, as the appeal is against the exercise of discretion of the judge, the well known principles in Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 at 220B to F apply.

6.For convenience, we will use the same abbreviated terms in the Decision and the Leave Decision.  It is unnecessary to recite the factual background, the chronology and the matters leading to the application for interim receivers set out in detail in §§2 to 61 of the Decision.

7.The judge applied the legal principles for the appointment of interim receivers, based on the principles in American Cyanamid Co v Ethicon Ltd [1975] AC 191.  She considered these four aspects as mentioned in the Hong Kong Civil Procedure 2017, vol 1, §30/1/1A:

(1)  whether there is a serious question to be tried;

(2)  whether there is a real risk of dissipation of assets;

(3)  whether there is no or no current effective protective regime, and some form of interim protection should be given to preserve the status quo; and

(4)  the risk of damage to the company if the appointment is made, and whether it can be adequately compensated by a cross-undertaking in damages.

8.The judge considered that the plaintiffs have shown there are serious issues to be tried as to:

(a) whether D1 and D2 –

(i) acted in breach of fiduciary duties, breach of trust, breach of obligations as trustee in causing the assets and business of D10 and D11 to be transferred to D3;

(ii) procured D10 and D11 to enter into sham transactions with Myers that caused debts to arise in favour of Myers designed to bring about the demise of D10 and D11 by procuring Myers to petition for the winding up of D10 and D11;

(iii) procured D10 and D11 to pay the personal legal expenses of D1 and D2 in the 2007 and 2011 actions as well as in the present action;

(b) whether D3 holds the assets transferred to it as a constructive trustee for D10 and D11; and

(c) whether D4 to D9 are liable to account to or compensate D10 and D11 as constructive trustee for dishonest assistance in the breach of fiduciary duties, breach of trust, or breach of obligations as trustee on the part of D1 and D2.

9.Although there are past questionable transactions, the judge was not persuaded there is “solid evidence” of a real risk of dissipation of assets on the facts as presented, as distinct from inferring such a risk from the conduct or commercial morality of the defendants.

10.The judge took into account the undertakings of the defendants not to deal with the assets of D10, D11 and D3 other than in the ordinary course of business and for fair market value until the final disposition of this action or further order of the court and considered that the undertakings would offer adequate protection.

11.As for the risk of damage to the companies if the appointment is made, the judge took the view that the loss or damage to goodwill and reputation sustained as a result of the receivership and loss of business opportunities are not readily quantifiable and D3 would not be adequately compensated by the plaintiffs’ cross-undertaking as to damages.  If no receiver is appointed, and if there should be further dissipation of assets, more legal costs might be incurred if further proceedings are brought to recover dissipated assets, and, on that basis, the loss sustained is compensable.

12.The plaintiffs sought to attack all of the findings in respect of (2), (3) and (4) in prolix grounds of appeal which took up 26 paragraphs and grouped under 6 broad grounds, as summarised in the Leave Decision at §3.  Mindful of the hurdle they need to surmount in making out a case for the appeal court to interfere with the exercise of discretion of the judge, the plaintiffs’ counsel repeatedly mentioned in their submission that the judge’s reasoning was wrong in principle, or was contrary to the evidence, or had misunderstood the evidence, or had taken into account irrelevant matters.

13.Having considered the grounds of appeal, we are satisfied that the plaintiffs’ contentions cannot be made out.

14.On the risk of dissipation of assets (ground 1), we agree with the judge for the reasons given in the Leave Decision at §§5 to 9 that the submissions in §§1 to 9 of the draft notice of appeal must be rejected.  We would add the following.

15.We do not think the points made about past dissipation of assets and the appointment of receivers to recover such assets would assist.  There is nothing to indicate that the judge had not taken these matters into account.  The fact remains that for assets already dissipated, they are not assets at risk of dissipation if a receiver is not appointed, leaving aside the question of taking proceedings to recover such assets, see §70 of the Decision.  Besides, these factors singled out by the plaintiffs must be balanced against other relevant matters, such as the absence of solid evidence of assets at risk of dissipation.  As stated in §9 of the Leave Decision, it is necessary to engage in a balancing exercise of an array of relevant factors in the exercise of the discretion.  Nor do we think it irrelevant for the judge to take into consideration the possibility of a receivership order extending over assets of D3 other than those belonging to D10 and D11 and the potential damage to D3, as there is some indication of business dealings between D3 and the other 2 companies prior to the impugned transfers in 2014, see §86 of the Decision.

16.On the finding of adequacy of the defendants’ undertakings (ground 2), the points made in §§12 to 14 of the draft notice of appeal merely repeated the plaintiffs’ earlier arguments before the judge, see §11 of the Leave Decision.  We agree with the reasons in §§76 to 79 and 84 of the Decision.  We reject the contention that in §84 of the Decision the judge had misunderstood the plaintiffs’ case or had asked an irrelevant question.  The judge had borne in mind the plaintiffs’ contention there might be further dissipation of assets by D1 and D2 and rejected that contention as not making sense when D1 and D2 have a 50% stake in the assets transferred.

17.We do not think the judge was in error in finding that there would be a risk of loss that could not be compensated if receivers were appointed (ground 3).  We reject the contention that the judge’s conclusion in this regard was fanciful or speculative.  We find the reasons in §§86 to 94 of the Decision compelling.

18.Likewise, there is no basis to attack the judge’s finding that the losses of D10 and D11 could be compensated if no receivers were appointed (ground 4).

19.The plaintiffs contended that the judge was wrong in principle to hold that interim receivers should be appointed only if the court is convinced of its necessity and not otherwise (ground 5).  They submitted this is far too stringent and the test is not necessity but whether it is “just or convenient” to do so, applying the wording in section 21L(1) of the High Court Ordinance, Cap 4.

20.We do not accept this submission.  Section 21L(1) is a general provision relating to the granting of an injunction and the appointment of receivers, whether on an interlocutory or final basis.  For further guidance on the application of this provision to specific situations, it is necessary to look to decided cases.  We are here concerned with the appointment of an interim receiver, not of a particular asset, but over the entire assets and undertaking of 3 companies and at least one of them is a trading company.  It is well established by authorities that for such an extremely drastic remedy to be granted, the court’s jurisdiction is to be exercised with great circumspection and only when it is convinced of the necessity of making such an order instead of other forms of less intrusive and more reversible relief. Bond Brewing Holdings Ltd v National Australia Bank Ltd (1990) 1 ACSR 445 at 456 to 458 has often been cited by our courts in this regard.  See also Macau First Universal International Ltd v Ding Xiaohong & Ors, CACV 193/2011, 31 July 2012, §42; Wong Luen Hang & Anr v Chan Yuk Lung & Ors, HCMP 2481/2015, 5 November 2015, §13.

21.Lastly, the plaintiffs complained that the Decision was made in breach of natural justice in that the judge had practically rejected every argument put forward by the defendants at the hearing in February 2016 and never required the plaintiffs’ counsel to address any of the points which she held against the plaintiffs in the Decision (ground 6).

22.We do not think this complaint can be justified. It is the duty of counsel to make such submissions as he thinks appropriate to advance the case of the party he represents.  Whatever comments made by the judge in the course of argument cannot be taken as the decision or the unalterable view of the court.  What matters is whether counsel has been given the opportunity to advance his argument.  The plaintiffs’ counsel had made two written submissions for the hearing in February.  The first was 24 pages and the second being a reply was 22 pages, supplemented by an oral reply which lasted 20 minutes.  There is no cause for complaint.

23.We dismiss the plaintiffs’ application for leave to appeal.  As the application is wholly without merit, we further order pursuant to Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be reconsidered at an oral hearing inter partes.

24.Costs of this application should follow the event.  We make an order nisi that the plaintiffs are to pay the costs of D1 to D6, D10 and D11 of this application and we assess the costs payable on a gross sum basis.  We take into account that the same grounds of appeal are relied on as before the judge.  We reduce the costs claimed at $53,105 to $47,105.  Any party who seeks to vary the costs order nisi and gross sum assessment shall lodge a written submission within 7 days hereof, failing which the order shall become absolute.

Written submissions by Mr Ronald Tang and Ms Carmen Kei, instructed by King & Wood Mallesons, for the Plaintiffs (Applicants)

Written submissions by Mr Solomon Lam, instructed by Cheung & Liu, for the 1^st to 6^th, 10^th and 11^th Defendants (Respondents)