Shih Hua Investment Co., Ltd (Suing for and on behalf of Itself As Shareholder of Everglory Enerty Ltd v. Zhang Aidong and Others

CAMP 76/2017

[2019] HKCA 219

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 76 OF 2017

(ON AN INTENDED APPEAL FROM HCA NO 2682 OF 2016)

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J U D G M E N T

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

1.This is the plaintiff’s renewed application for leave to appeal to the Court of Appeal against the decision of Harris J given on 26 July 2017 by which he struck out the derivative action brought by the plaintiff (HCA 2682/2016) and discharged the two injunction orders in that action granted ex parte by Lok J on 25 October 2016 and by Deputy High Court Judge Kent Yee on 22 November 2016. The plaintiff brought an appeal against the striking out order as of right (CACV 188/2017) and sought leave to appeal in respect of the discharge of the two injunction orders. The judge refused leave to appeal on 30 November 2017.

2.The present summons seeking leave to appeal (CAMP 76/2107) was issued on 13 December 2017.  The Court of Appeal gave directions on 14 December 2017 that the proceedings in CAMP 76/2017 and CACV 188/2017 be withheld until after the judge handed down the reasons for his decision.

3.Reasons were handed down by the judge on 4 and 13 June 2018 for his decision and the subsequent decision refusing leave to appeal.

4.On 18 July 2018, the plaintiff issued a summons in CAMP 76/2017 for leave to adduce further evidence in support of its application for leave to appeal.  On 19 July, the plaintiff served its statement in support of its application for leave to appeal with an amended draft notice of appeal.  Grounds (2), (3) and (7) in the amended draft notice were not raised in the leave application before the judge, the other grounds of appeal are substantially the same as those considered by him.  The plaintiff also served a supplementary notice of appeal in CACV 188/2017 on the same day.

5.The application for leave to adduce further evidence was refused by this court in a judgment handed down on 7 November 2018 ([2018] HKCA 805).

6.The 1^st to 4^th defendants filed their statement on 27 November 2018 opposing the application for leave to appeal.

7.Having considered the papers, we decided to exercise our power under Order 59 rule 2A(5)(a) to determine this application on paper without an oral hearing.

8.We have taken note of the background matters and do not propose to set them out.  They can be found in several decisions included in the bundles placed before the court[1].

9.The intended appeal is against the exercise of discretion of the judge in discharging the injunction orders and refusing to re‑grant the injunctions.  The judge reached his decision not just because the plaintiff and its legal team were guilty of “conscious and impermissible forum shopping”[2] but also because of a host of other factors: the plaintiff and its legal team manifestly failed in their obligations to make full and frank disclosure in a number of aspects[3]; HCA 2682/2016 should be struck out due to the absence of any wrongdoer in control since 19 January 2017 when the board was re‑constituted by the order of Anthony Chan J in HCCW 198/2016, so the question of re‑granting the injunctions does not arise[4]; even if HCA 2682/2016 had not been struck out, the judge would not have exercised his discretion to re‑grant the injunctions as the evidence failed to show that the 1^st defendant and the entities he controls would divert future payments unless enjoined, there is nothing to suggest that the 1^st defendant intended to divert monies due to the company after the new independent directors have been appointed[5]; the judge was also not satisfied there is sufficient risk of loss to the company and consequently to the plaintiff to make it unjust to refuse to re-grant the injunctions[6].

10.As we have mentioned in our judgment on 7 November 2018 at §18, the plaintiff has a high threshold to surmount to persuade the Court of Appeal there are valid grounds for interfering with the exercise of the judge’s discretion.  It is not necessary to repeat the well-established principles for appellate intervention in circumstances like these (Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 at 220).

11.Seven grounds of appeal were advanced in the draft notice of appeal.  We will deal with each one in turn.

Ground (1)

12.It is contended that the judge erred in law and in principle in striking out the statement of claim in HCA 2682/2016 and dismissing that action.  The plaintiff relies on the grounds of appeal in its supplementary notice of appeal in CACV 188/2017.

13.We do not find it necessary to express a view on any of the grounds of appeal of CACV 188/2017 in the present application.  As mentioned earlier, the judge’s decision was based on a number of grounds, and the striking out of the derivative action is just one of them.  For leave to appeal to be granted, the plaintiff would need to establish reasonable prospects of success in contending that none of the other grounds for the judge’s decision can be justified.  That would depend on the prospect of success of the other grounds of appeal.

Ground (2)

14.It is contended that the judge erred in finding that the plaintiff was guilty of “conscious and impermissible forum shopping” in that he did not give the plaintiff fair opportunity to deal with this and this error was a serious breach of procedural fairness and a serious procedural irregularity.

15.This contention has been rejected in our judgment of 7 November 2018 when we refused leave to adduce further evidence in this application, see §§11 to 16.

Ground (3)

16.The complaint here is that the judge did not hand down the reasons for his decision until almost eleven months later.  It was submitted that due to this inordinate and unjustifiable delay, the Reasons contained “omissions and errors, misunderstandings of the evidence”, and “inconsistencies” with the decision of Anthony Chan J in HCCW 198/2016 on 19 January 2017.  It was contended there is a real likelihood that the judge’s order and the Reasons are flawed, that the Reasons are unsafe and had led to injustice.

17.Delay alone cannot succeed as a ground of appeal. This must have been well recognised by the plaintiff’s counsel, Mr Robert Chan. Hence the words quoted above in this ground of appeal as settled by counsel tracked the wording in Mak Kang Hoi v Ho Yuk Wah (2007) 10 HKCFAR 552 at §57.

18.It is pertinent to bear in mind that the evidence before the judge at the hearing in July 2017 is not “substantially the same” as the evidence before Anthony Chan J in January 2017.  It is not disputed by Mr Chan that there was placed before the judge a forensic report prepared by Briscoe Wong Advisory Ltd dated 24 November 2016, which was not before Lok J, DHCJ Yee or Anthony Chan J (as pointed out by the judge in the Reasons at §57).  The Briscoe Wong report rebutted a number of criticisms and concerns in the report of RSM Corporate Advisory (Hong Kong) Limited, the forensic accountants commissioned by the plaintiff to investigate the affairs of the company, as related in the Reasons at §§56 to 60.  It is unsurprising that the judge arrived at a rather different view on the basis of the evidence he had read.  There is nothing in the contention that there were “inconsistencies” in the Reasons with various paragraphs in the decision of Anthony Chan J as identified by Mr Chan and which appear favourable to the plaintiff.

19.Other than “inconsistencies” with certain parts of the decision of Anthony Chan J, Mr Chan has not identified any specific “omissions and errors, misunderstandings of the evidence” in the Reasons.

20.There is nothing of substance in the complaint of delay.

Ground (4)

21.This ground has been ventilated before the judge[7].  The complaint is that the judge erred in his approach to material non-disclosure in not considering the merits and substance of the case first.

22.The judge had explained his approach fully in the Reasons at §41.  We do not think he has erred. Mr Chan has read the passages he relied upon in the cases cited[8] out of context.

Ground (5)

23.This ground has also been considered and was rejected by the judge[9].  It is contended that the judge erred in law and in principle in finding there was serious material non-disclosure.

24.We do not think there is any valid basis to impugn the finding of serious material non-disclosure.

25.The judge was justified in finding that Lok J was misled by the submissions of Mr Chan at the ex parte application.  We firmly reject Mr Chan’s contention that Lok J was not so misled.

26.Mr Chan did not tell Lok J that the applications before Harris J had been made relying on similar evidence and sought interim relief, albeit in a different form, directed to the complaints said to justify the urgent application for injunction before Lok J[10].  Mr Chan’s explanation of the extent of the overlap between the unfair prejudice petition in HCCW 198/2016 and the derivative action in HCA 2682/2016 was “clearly inadequate”[11].  The impression he gave to Lok J that the plaintiff had obtained a forensic report from RSM which said something new and which caused the plaintiff to issue the derivative action and seek an ex parte injunction before Lok J was “false and misleading”[12].

27.There are other instances of material non-disclosure, dealt with in the Reasons at §§45 to 53.  We do not think there is any or any proper answer to the judge’s view there is “either an indifference to the obligation to consider conscientiously what needs to be disclosed to the court” or “a conscious omission of unhelpful evidence”.

Ground (6)

28.It is contended here that the judge took an erroneous approach in trying the action in effect on conflicting affidavits and forensic reports and it was unjust and disproportionate to discharge and not re‑grant the injunctions.  The decision of Anthony Chan J on 19 January 2017 in HCCW 198/2016 “should be preferred”.

29.We do not think the judge was in effect trying the case on affidavits and forensic reports when he expressed the view on the basis of the evidence he read that he was doubtful whether the plaintiff is able to demonstrate a prima facie case of a material breach of duty of the 1^st defendant, let alone any scheme to defraud the company.  In any event, even assuming that a prima facie case has been demonstrated, the judge declined to exercise his discretion to re‑grant the injunctions for the reasons he gave in §61 of the Reasons.  There is no proper basis to interfere with his discretion.

Ground (7)

30.This seeks to challenge the costs order made by the judge that the plaintiff should pay forthwith the costs of the 1^st to 6^th defendants of the defendants’ application to discharge the injunctions and in respect of the costs of the 1^st to 4^th defendants on an indemnity basis.

31.The argument is that it was “reasonable and justified” for the plaintiff to seek injunctive relief, as the plaintiff has a “good arguable case on the merits”, and that the parties “have incurred substantial costs which are sufficient to sustain the proceedings for the purpose of having such costs determined”.

32.These are clearly not arguable grounds.

33.We decline to grant leave to appeal as the intended appeal clearly has no reasonable prospect of success, nor is there any other reason why in the interests of justice it should be heard.

34.Further, as this application is entirely without merit, we make a further order under Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be considered at an oral hearing inter partes.

35.There is no reason why costs of this application should not follow the event.  We make an order nisi the plaintiff should pay the 1^st to 4^th defendants’ costs of this summons.  We have considered the defendants’ statement of costs for summary assessment seeking costs in the total sum of $364,813.  We bear in mind the application for leave to appeal was made to the judge on similar grounds and the defendants were represented by the same counsel at the hearing before the judge in July 2017.  We assess the amount of reasonable costs at $150,000.

36.The costs order nisi and gross sum assessment will be made absolute if no application for variation is made by any party within 14 days of the handing down of this judgment.

Written submissions by Mr Robert G M Chan, instructed by Wilkinson & Grist, for the Plaintiff (Applicant)

Written submissions by Mr Justin Ho, instructed by Jun He Law Office, for the 1^st to 4^th Defendants (Respondent)