Acropolis Ltd Suing on behalf of Itself and All Other Shareholders in Aeso Holding Ltd and Another v. W&Q Investment Ltd and Others

CACV 276/2017 &

CACV 277/2017

[2018] HKCA 379

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 276 & 277 OF 2017

(ON APPEAL FROM HCA 1496/2017)

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(Heard together)

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D E C I S I O N

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Hon Chow J (giving the decision of the court):

INTRODUCTION

1.On 26 March 2018, this Court handed down its reasons for the judgment (“Reasons for Judgment”) given on 2 March 2018 allowing the 1^st to 4^th Defendants and 5^th to 9^th Defendants’ respective appeals against the Order of Madam Justice B Chu made on 31 August 2017 upon certain undertakings given by the 1^st to 4^th Defendants and 5^th to 9^th Defendants respectively (“the Judgment”).

2.On 9 April 2018, the Plaintiffs filed, in each of the appeals:-

(1)  a notice of motion (“the Motion”) seeking leave to appeal the Judgment to the Court of Final Appeal; and

(2)  a summons (“the Stay Summons”) seeking a stay or suspension of execution of the Judgment until: (i) in the event that leave to appeal is granted, the determination of the appeal by the Court of Final Appeal, or (ii) in the event that leave to appeal is refused, the final determination of the Plaintiffs’ renewed application to the Court of Final Appeal for leave to appeal.

3.On 9 May 2018, the Plaintiffs filed, in each of the appeals, a further summons (“the Evidence Summons”) seeking leave to file and serve the Affirmation of Chan Siu Chung affirmed on 9 May 2018 in support of the Stay Summons.

4.Pursuant to directions given by the Court, the parties have filed submissions (including reply submissions by the Plaintiffs) in support of or against the Motion, the Stay Summons and the Evidence Summons.

THE MOTION

5.The basic facts of this matter have been set out in paragraphs 4 to 35 of the Reasons for Judgment and shall not be repeated here.  In this Decision, unless the context indicates otherwise, we shall continue to use the expressions and abbreviations as defined in the Reasons for Judgment.

6.By the Motion, the Plaintiffs seek leave to appeal the CA Judgment to the Court of Final Appeal on 3 Questions which are said to be questions of great general or public importance, namely:-

(1)  In a case where there is overwhelming evidence that certain shareholders of a listed company obtained their shares by way of deception and/or a fraudulent scheme (the “Disputed Shareholders”), whether, and if so, under what circumstances and to what extent, the directors procured to be appointed by the Disputed Shareholders should be allowed to manage and control the listed company pending trial, regardless of whether wrongdoings or breaches of the directors can be established separately? (“Question 1”)

(2)  In determining whether interlocutory injunctions ought to be granted in the context of a derivative action for a listed company, and where the substantive case is that the defendants had wrongfully procured or caused the listed company to breach its legal and/or regulatory obligations, thereby endangering the company’s listed status, whether the Court should disregard the harm caused to shareholders in the form of effective diminution of voting rights as a result of the wrong committed against the Company? (“Question 2”)

(3)  Whether there is a blanket rule against interlocutory injunctions which would have the effect of “freezing” the board of directors of a listed company temporarily? (“Question 3”).

7.In respect of Question 1, we consider the fact that there is a complaint of fraud or deception, the alleged fraud or deception relates to the obtaining of the shares of a company, the company in question is a listed company, and/or the evidence in support of the alleged fraud or deception is strong (or even overwhelming) should not change the basic applicable legal approach for determining whether to grant an interlocutory injunction to restrain a member or some members of the board from acting as director(s) of the company.  The weight that may be attached to any of the aforesaid matters for the purpose of the court’s exercise of its discretion whether to grant such interlocutory injunction would depend on the facts and circumstances of the case, including the consideration of what, if any, safeguards can be provided to protect the interests of the company during the period up to the trial of the action.  We do not consider Question 1 raises a question of principle, or is a question of law of great, general or public importance.  On the contrary, we consider that it raises a fact-sensitive question which could not be answered in the abstract.  Generally, fact-sensitive complaints relating to the specific circumstances of the case, or questions which cannot be answered in the abstract without relying on the facts, are not questions of great general or public importance (see Safder Tehseen v Permanent Secretary for Security (2014) 17 HKCFAR 567, at §14 per Fok PJ; Tsang Chiu Wing Florence v Li Kin Kan Samathur, FAMV 38 & 39/2014, 10 February 2015, at §12 per Ribeiro PJ).

8.In respect of Question 2, as noted in paragraph 46 of the Reasons for Judgment, the Plaintiffs did not file any Respondent Notice to seek to affirm the Judge’s order on the basis of any personal causes of action which the Plaintiffs might have against the alleged wrongdoers, and thus the appeals fell to be considered on the basis of a derivative action brought by the Plaintiffs on behalf of Aeso only.  Hence, at paragraph 47 of the Reasons for Judgment, the Court stated that –

“Accordingly, under the rubric of balance of convenience, the court should consider, amongst other matters, (i) what harm would be caused to Aeso if the injunction sought is refused and whether such harm could adequately be compensated by an award of damages, (ii) what harm would be caused to the parties to be restrained if the injunction sought is granted and whether such harm could adequately be compensated by an award of damages, and (iii) other relevant considerations. Ultimately, the guiding consideration is that the court should adopt a course which appears to carry the lower risk of injustice if it should turn out to be wrong.”

9.In so far as the Plaintiffs’ voting rights are concerned, they were considered by the Court in paragraph 64 of the Reasons for Judgment.  In particular, the Court pointed out that the Plaintiffs’ allegation of fraud remained an allegation yet to be tried (in other words, whether the Plaintiffs had suffered any harm in the form of diminution of voting rights as result of any wrong committed against Aeso remained an issue to be determined), and considered that the undertakings offered by the Defendants would provide sufficient safeguards to Aeso’s interests as well as “proper checks and balances of the competing interests of the parties” pending the trial of the action.  Again, we consider Question 2 to be fact-sensitive and one that does not raise any question of law of great general or public importance.

10.Lastly, in respect of Question 3, implicit in it is the suggestion that the Court laid down or applied a blanket rule against interlocutory injunctions which would have the effect of “freezing” the board of directors of a listed company temporarily.  However, no such rule was laid down or applied by the Court in the Reasons for Judgment.  At paragraph 51 thereof, the Court commented on the fact that the Judge, in deciding to grant the Injunction Order, apparently did not consider the freezing of the board of directors of Aeso to be harmful to it.  We consider it to be obvious that having a functioning board of directors for a listed company is a matter of importance having regard to (amongst other things) the whole raft of statutory and regulatory obligations to be observed or complied with by the listed company.  How much weight one should accord to this factor when considering whether to grant an injunction which would have the effect of freezing the board of directors of a listed company must, of course, depend on the facts and circumstances of the case.  We do not consider it to be arguable that the freezing of the board of directors would result in no harm at all to the listed company, and we consider that the Judge was wrong not to take proper account of the damage or harm that would be caused to Aeso by freezing its board of directors (which would inevitably be the consequence of the grant of the injunction) in her consideration of the issue of balance of convenience.

11.In all, we do not consider that there is any question of great general or public important involved in the proposed appeal which ought to be submitted to the Court of Final Appeal for decision under Section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance, Cap 484.  Neither do we see any basis to grant leave to appeal on the “or otherwise” ground.

THE STAY AND EVIDENCE SUMMONSES

12.Having reached the conclusion that there is no proper ground to grant leave to appeal in the present case, we do not consider that there is any proper basis to stay or suspend the execution of the Judgment pending appeal, or admit new evidence in support of the stay application.

13.Further, we have been informed by the Plaintiffs that provisional liquidators over Aeso and Aeso HK were appointed by the court on 31 May 2018 in a winding up petition presented by the 1^st Plaintiff (HCMP 218/2017).  With the appointment of the provisional liquidators, there would plainly be no need to stay or suspend the execution of the Judgment pending appeal.  Indeed, the interlocutory injunction sought by the Plaintiffs has also become academic as a result of the appointment of provisional liquidators over Aeso.

14.In passing, we note that in respect of the Evidence Summons, the Plaintiffs also argue that no leave is required for filing an affidavit in support of an application for a stay of execution.  If so, the Evidence Summons would plainly be misconceived and ought to be dismissed in any event.

DISPOSITION

15.For the foregoing reasons, the Motion, Stay Summons and Evidence Summons are dismissed with costs to the 1^st to 4^th Defendants and 5^th to 9^th Defendants.

16.The 1^st to 4^th Defendants have lodged 2 statements of costs dated 7 May 2018 and 30 May 2018 respectively.  The first one relates to the Motion and the Stay Summons and is for the amount of HK$648,600.  It includes the fees of 3 counsel in the total sum of HK$390,000 and solicitors’ costs of HK$258,600.  The second one relates to the Evidence Summons and is for the amount of HK$236,650.  It includes the fees of 2 counsel in the total sum of HK$150,000 and solicitors’ costs of HK$86,650.  The applications are, in our view, straightforward and we would only allow the fees of 1 counsel.  Solicitors’ costs and counsel’s fees are also on the high side.  We would assess the 1^st to 4^th Defendants’ costs in the sums of HK$300,000 and HK$120,000 for the first and second statements of costs respectively.

17.The 5^th to 9^th Defendants have lodged 2 statements of costs dated 7 May 2018 and 30 May 2018 respectively.  The first one relates to the Motion and the Stay Summons and is for the amount of HK$371,050.  It includes the fees of 3 counsel in the total sum of HK$250,000 and solicitors’ costs of HK$121,050.  The second one relates to the Evidence Summons and is for the amount of HK$201,610.  It includes the fees of 2 counsel in the total sum of HK$100,000 and solicitors’ costs of HK$101,610.  As mentioned above, we would only allow the fees of 1 counsel. Solicitors’ costs claimed in the first statement of costs are generally reasonable, but are on the high side in relation to the second statement of costs.  We would assess the 5^th to 9^th Defendants’ costs in the sums of $200,000 and HK$120,000 for the first and second statements of costs respectively.

Mr Clifford Smith, SC and Mr Kerby Lau, instructed by Titus & Co, for the 1^st and 2^nd Plaintiffs

Mr Anson Wong, SC, Mr Richard Yip and Ms Tara Liao, instructed by Bond Ng Solicitors, for the 1^st to 4^th Defendants

Mr Denis Chang, SC, Mr Jeffrey Tam and Mr Ian Chau, instructed by Alex To & Co, for the 5^th to 9^th Defendants