Case Document

100%Judiciary

HCA 1496/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1496 OF 2017

________________________

BETWEEN

	ACROPOLIS LIMITED suing on behalf of itself and all other shareholders in AESO HOLDING LIMITED	1^st Plaintiff
	CHAN SIU CHUNG	2^nd Plaintiff
	and
	W&Q INVESTMENT LIMITED	1^st Defendant
	LIU CHANG KIEN	2^nd Defendant
	ZHANG QI	3^rd Defendant
	LAW WING KIT	4^th Defendant
	TO LUNG SANG	5^th Defendant
	CHAN KOOI POR BENJAMIN	6^th Defendant
	CHEUNG DENISE	7^th Defendant
	CHAN HIN HAI HENRY	8^th Defendant
	KORT WING HO	9^th Defendant
	KO KWOK FAI DENNIS	10^th Defendant
	TO MAN CHOY JACKY	11^th Defendant
	TSANG KWOK SHAN SANDY	12^th Defendant
	DANIEL KAN PUI KEI	13^th Defendant
	AESO HOLDING LIMITED	14^th Defendant
	AESCHYLUS LIMITED	15^th Defendant
	AESO LIMITED	16^th Defendant

_______________________

Before: Hon B Chu J in Chambers

Date of Hearing: 25 September 2017

Date of Decision: 28 September 2017

________________

D E C I S I O N

________________

Introduction

1.These are applications for leave to appeal by the 1^st to the 9^th defendants against a judgment handed down by this court on 31 August 2017 (“31.08.17 Judgment”), and in this decision I shall follow the definitions therein, save otherwise stated.

2.Essentially, I granted the injunctions sought by Ps (“Injunctions”), to restrain Liu’s Camp (D1-D4) and the Disputed INEDs (D10-D12 defendants), until the determination of the parties’ dispute or further order, from relying on and/or carrying into effect:

(i) The Disputed EGM Resolutions purportedly passed at the Disputed EGM,

(ii) The resolutions purportedly passed by the purported New Board in reliance of the Disputed EGM Resolutions,

(iii) The resolutions purportedly passed and/or to be passed by the New Directors and by the purported board of Aeschylus and Aeso HK, in reliance on or deriving their authority from whether directly or indirectly, resolutions passed purportedly by the New Directors.

Save and Except any resolutions passed for the Company to continue to defend HCMP 1647/2017 and in particular the Receivership Summons, and also to continue HCA 1737 of 2017.

(“31.08.17 Order”)

3.Liu’s Camp (D1-D4) now seek leave to appeal and Mr Ronny Tong SC appeared with Mr Richard Yip and Ms Tara Liao for them. The Requisitionists (D5-D9) are also seeking leave to appeal and Mr Jeffrey Tam and Mr Ian Chau appeared for them.

4.Mr Clifford Smith SC and Mr Kerby Lau appeared for Ps or Chan’s Camp.

Liu’s Camp’s Grounds of Appeal

5.There are essentially 5 grounds of appeal set out in the draft notice of appeal of Liu’s Camp, namely this court erred in:

(1) Finding that there was a serious issue to be tried;

(2) Failing to identify what irreparable harm Ps would suffer if the injunction was not granted;

(3) Failing to carry out the balance of convenience analysis from the perspective of shareholders of the Company;

(4) Failing to sufficiently take into account the prima facie case of fraud and breach of fiduciary duties against Jones Chan in the balance of convenience analysis;

(5) Making the order which gave partial effect to the EGM.

Ground (1)/Merits Ground

6.Mr Tong takes a pleading point for the first time, in complaining that there is failure to “particularise the facts” relied on for the alleged fraud. Suffice to say that although the statement of claim has not yet been filed, there is no dispute that an interlocutory injunction can be granted at any stage of the proceedings and further, as pointed out by Mr Smith, Liu’s Camp is well aware of the particulars of Ps’ case concerning the fraudulent scheme.

7.Essentially, Mr Tong’s argument is that notwithstanding the voluminous evidence filed, none goes to what Ps’ case is and that the SVAL Reports only point to the possibility that the defendants all know each other but that is not fraud nor an unlawful act. Further, the alleged combination of W&Q and Wilson Liu, and the Requisitionists to wrestle control from Ps, as complained by Ps is not per se illegal nor would it give rise to a cause of action of conspiracy to injure/defraud by unlawful means. There is a lack of any loss to the Company, and further for the cause of action of tort of deceit, a key element is false representation, and there was no false representation.

8.This Court has set out in paragraphs 80-129 why this court is of the view that there is a serious issue to be tried. As pointed out in paragraph 80, in the 30.06.17 Ruling of Au Yeung J, she also was satisfied at the hearing on 30 June 2017 that there was a serious issue to be tried.

9.I have considered Mr Tong’s arguments but am not persuaded that this Court had erred in finding that there was a serious issue to be tried.

Ground (2)/Adequacy of Damages Ground

10.Mr Tong submits that Ps’ real complaint is the diminution of Ps’ voting powers or that Jones Chan has lost control of the Company. Ps have failed to identify what damage would be suffered by Acropolis as a shareholder of the Company which could not be compensated by damages should the injunction not be granted, whereas the rights of W&Q and the Requisitionists as shareholders of the Company would be unjustifiably infringed in that they would be prevented from participating in the management and affairs of the Company which damage cannot be compensated by damages to be paid by Ps.

11.This Court have considered the inadequacy of damages in paragraphs 158-161 of the 31.08.17 Judgment in that if the orders sought by Ps are refused this cannot be in the interest of Aeso HK, nor the shareholders of the Company. The action is a derivative action and is being brought on behalf of all the shareholders and it is their interests that ought to be considered. As Mr Smith pointed out, the likelihood of a company’s business deteriorating due to a potentially unjustified change of management had been held to be something that cannot be adequately compensated by damages, eg Shoichiro Satake v Fu Chu, Yun Chung Joan HCAP 2/2015, unreported 13 July 2015, at paragraphs 71-72. As Au Yeung J had also recognized in the 30.06.17 Ruling, “the potential damage that may be done to the company if fraudsters were put on the board cannot be compensated for by damages”.

Ground (3)/Damage to the Company Ground

12.Mr Tong submitted that this Court wrongly assumed by granting the Injunctions and rendering the board of the Company completely paralyzed is in the interest of either the parties as shareholders or the Company itself in that such outcome would inevitably have a direct adverse impact on the ability of the Company to remain listed on the GEM Board and cause irreparable damage to the Company and its shareholders.

13.As pointed out by Mr Smith, the arguments put forward by Mr Tong in relation to the GEM Listing Rules are new matters which were not previously raised at first instance and also Ps have been deprived of the chance to file relevant evidence in this regard, namely concerning the approach of concerns of the Hong Kong Stock Exchange and its flexibility when dealing with such cases.

14.As further pointed out by Mr Smith, there is nothing to prevent Liu’s Camp from making applications in these proceedings in order for the Company to pass specific resolutions to comply with the GEM Listing Rules. Also, the 3 INEDs have not raised any objections in this regard previously.

15.There was no evidence before this Court at the hearing for the Injunctions, that if the orders sought were not granted, the Company’s shares could have resumed trading soon.

16.At the hearing for the present leave application, Mr Tong produced a letter dated 22 September 2017 to the Company from the Hong Kong Stock Exchange in relation to the conditions for resumption of trading. Taking this on de bene esse basis, one of the conditions is clearly that the Company has to address the allegation about the lack of an open market in the Company’s shares required under GEM Rule 11.23(7), and this would be a matter for the trial in any event.

Ground (4)/Overall Interest Ground

17.Under this ground, Mr Tong argues that (1) that it would not be contrary to the interests of the Company to refuse the Injunctions, since there is no allegation of mis-management against Liu’s Camp, and (2) this Court overlooked the vesting of the control back solely in the hands of Jones Chan is plainly against the interest of the Company and its shareholders.

18.Suffice to say that the arguments are really a re-run of the arguments at the earlier hearing. Since this Court’s 31.08.17 Judgment, Au Yeung J has handed down her judgment in relation to the Receivership Summons in Dragon Success Enterprises Ltd v Aeso Holding Ltd HCMP 1647/2017 in which she had considered the evidence raised by Liu’s Camp on behalf of the Company regarding the fraud between Jones Chan and Dragon Success and held in paragraph 41 that the defence remains only arguable at this stage and that there was nothing to show that Dragon Success was acting in collusion with Jones Chan. The Learned Judge in the end appointed receivers over the one share held by the Company in Aeschylus subject to the conditions stated therein.

Ground (5)/Selective Effect Ground

19.Mr Tong argues that the 31.08.17 Order gives selective and partial effect to Disputed EGM Resolutions and this provides a wrong premise in the exercise of balance of convenience.

20.The 31.08.17 Order does not mean that the Injunctions have nullified or unwound the Disputed EGM Resolutions or the resolutions which were passed in reliance on or deriving authority from the Disputed EGM Resolutions. There is also no suggestion that any of the directors who have been purportedly removed by the Disputed EGM Resolutions have taken any steps to assume directorship of the Company since the Injunctions were granted.

The Requisitionists’ Grounds of Appeal

21.The Requisitionists’ Grounds are substantially the same as those of Liu’s Camp, save for a point concerning non-joinder of parties, namely that this Court had failed to address the fact that Ps did not name or join the 3 Minority Shareholders, Wang Kie, Lam Cheuk Yu and Zhang Chenwei, as defendants.

22.Mr Tam adopts Mr Tong’s submissions, which I have dealt with earlier.

23.In any event, the main objection from Mr Smith is that there is a lack of legitimate interest, since the Injunctions do not concern them.

24.Mr Tam submits that it was Ps who had served their Injunction Summons on them, and that they did not object to the locus of the Requisitionists at the hearing, and thus the Requisitionists have a legitimate interest in launching this appeal, as there were findings against them.

25.Mr Smith submits that the authorities say one cannot appeal against findings only. The Injunctions do not concern the Requisitionists, and in my view, they have no locus to appeal.

Conclusion

26.Under section 14AA of the High Court Ordinance Cap 4, leave will not be granted unless the court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard. As submitted by Mr Smith, such leave to appeal is not lightly granted.

27.Liu’s Camp and the Requisitionists are essentially seeking leave to appeal against the discretion of this Court. Having considered their Grounds, I am not satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard. I decline to grant leave.

Order

28.The Summons issued on 7 September 2017 by D1-D4 is hereby dismissed with Ps’ costs to be paid jointly and severally by D1-D4. The Summons issued on 14 September 2017 by D5-D9 is also dismissed with Ps’ costs to be paid jointly and severally by D5-D9. The costs are to be taxed if not agreed, with certificate for two Counsel.