Pacific Telecom & Navigation Ltd v. Ye Lei

HCA 1018/2019

[2020] HKCFI 586

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1018 OF 2019

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Before:  Deputy High Court Judge MK Liu in Chambers

Date of Plaintiff’s Submissions: 16 and 20 March 2020

Date of Defendant’s Submissions:  18 March 2020

Date of Decision:  8 April 2020

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DECISION

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1.By a summons dated 17 June 2019 (“the Summons”), the plaintiff (“P”) seeks the following interlocutory injunctions (“the Interlocutory Injunctions”) against the defendant (“D”):

(1)  a proprietary injunction or preservation order in relation to the shares held by D (“the Subject Shares”) in 泛太通信导航(深圳)有限公司 (“the Company”), to the effect of restraining D from taking any steps to dispose of, deal with, transfer, charge, encumber or diminish the value of those shares (“the Proprietary Injunction”);

(2)  an injunction restraining D from exercising the voting rights attached to his shareholdings in the Company without P’s written consent, and from requisitioning, convening, holding and/or conducting any general meeting of the Company (“the Voting Restraint”);

(3)  an injunction restraining D (a) from inter alia acting or representing, or holding himself out as having authority to act on behalf of, or represent, the Company etc, and (b) from inter alia taking possession, control, or custody of; appropriating; interfering with; encumbering; selling or otherwise disposing of etc the assets or property of the Company (“the “Interference Restraint”).

2.The Summons was heard by Lisa Wong J on 21 June 2019.  In that hearing, D has offered some undertakings to the Court (“the Undertakings”), and the Court has given directions for the disposal of the Summons.  Those directions contain a timetable for the parties to file affidavits or affirmations.  It is also specified in those directions that no affirmation shall be filed without leave of the Court.  Both P and D have filed affidavit evidence within the timetable specified in those directions[1].

3.P has included the 2^nd Affirmation of Chen Shun Tong (“Chen”) dated 9 October 2019 (“Chen 2^nd”) in the hearing bundles.  Chen 2^nd is an affirmation in support of P’s application for a committal order against D and is not an affirmation in support of the Summons. Initially, D’s solicitors raised an objection as to the inclusion of that affirmation in the hearing bundles prepared for the substantive hearing of the Summons.  However, in their letter dated 23 January 2020, they have confirmed that they would not request P’s solicitors to remove Chen 2^nd from the hearing bundles.

4.Apart from the affidavit evidence filed pursuant to the directions given by the Court on 21 June 2019, P and D intends to rely upon further affidavit evidence in relation to the substantive hearing of the Summons.  The further affidavits and affirmations intended to be relied upon by the parties are as follows:

(1)  Affidavit of Koo Hoi Yan Donald (“Koo”) dated 26 February 2020 (“Koo 1^st”) produced by P;

(2)  2^nd Affirmation of D dated 5 March 2020 (“D 2^nd”);

(3)  2^nd Affidavit of Koo dated 10 March 2020 (“Koo 2^nd”)

5.On 26 February 2020, P issued a summons or leave to file Koo 1^st.  On 5 March 2020, D took out a summons for leave to file D 2^nd.  On 10 March 2020, P issued a summons for leave to file Koo 2^nd.  I have to consider and determine these summonses (collectively “the Further Evidence Summonses”)

6.The substantive hearing of the Summons was originally fixed on 6 February 2020.  Due to the General Adjourned Period (“GAP”), the Summons could not he heard as scheduled.  I have consulted the parties and they have agreed that the Summons as well as the Further Evidence Summonses be determined on paper without an oral hearing.

Background

7.The essence of P’s case is as follows:

(1)  In or around April 2015, D approached Koo, proposing to start a business involving the research and utilization of technology concerning satellite communications, global positioning and navigation services, future commercial visualization equipment, and integrated systems.  P was subsequently incorporated in June 2015, with a number of shareholders including Koo and D.  D was appointed the sole director of P upon incorporation, and was also subsequently appointed as the Chief Executive Officer and the Chief Technology Officer.

(2)  To develop P’s business in Mainland China, P decided to set up a subsidiary in Shenzhen, ie the Company, through a trust arrangement.  A written resolution was signed by D as sole director of P on 18 April 2017 (“the Written Resolution”), whereby it was noted and resolved that D and Chen were to establish the Company as a Shenzhen based subsidiary of P, that D was appointed by P as nominee and trustee holding 70% shareholding of and in the Company (which are the Subject Shares), that capital contributions and expenses of shareholder of the Company shall be paid by P, and that D shall execute a declaration of trust.

(3)  The Company was incorporated on 19 April 2017. Pursuant to the Written Resolution, D executed and signed a declaration of trust dated 3 June 2017 (“the Declaration of Trust”), whereby he declared inter alia that he holds the Subject Shares as trustee for P, that he does not own the Subject Shares, that D holds the Subject Shares and “all dividends, rights and interest accruing to or to accrue upon the [Subject Shares] upon trust” for P, and that D shall not transfer, pay or deal with the Subject Shares or the dividends, rights and interests of those Subject Shares “except upon explicit instructions” from P.  An identical declaration of trust was also signed and executed by Chen regarding his 30% shareholding in the Company.

(4)  Due to various acts of serious misconduct and breaches of trust and duties on the part of D, D’s involvement and positions with P and the Company were terminated, and a termination notice dated 11 July 2018 was issued by P to D to such effect (“the Termination Notice”).  By the Termination Notice, D’s employment with P and D’s position as legal representative of the Company has been terminated. D has also been required to transfer the Subject Shares back to P within July 2018.  Proceedings in HCA 1794/2018 were commenced against D by P in August 2018 relating to the said misconduct.

(5)  D however failed to comply with the request in the Termination Notice, and failed to transfer those shares back to P.  Not only that, but in August 2018 he actually indicated to Chen that he had somehow found a purchaser who wanted to purchase the Subject Shares.

(6)  By a letter dated 13 August 2018, P through its solicitors wrote to D requesting D to undertake to, inter alia, take all necessary steps to transfer the Subject Shares to P’s nominee, and to change the legal representative of the Company to Chen.  D through his solicitors wrote back to confirm the giving of such undertaking, after consulting with counsel, by letter dated 20 August 2018 (“the 20 Aug 2018 Undertaking”).

(7)  By letter dated 10 September 2018, P’s solicitors wrote further to D requesting D to comply with all the relevant administrative procedures ancillary to the return of the Subject Shares and relinquishment of his position with the Company.  By letter dated 11 September 2018, D through his solicitors wrote back confirming that he was willing to co-operate to comply with those administrative steps (“the 11 Sep 2018 Undertaking”).

(8)  By a letter dated 27 May 2019, P through its solicitors once again wrote to D requesting D to inter alia, comply with and/or undertake to comply with all the relevant steps for transfer within 14 days. In the absence of any positive reply from D, these proceedings were commenced on 11 June 2019.

(9)  Two days later, D’s solicitors wrote back to P by letter dated 13 June 2019 (“the 13 Jun 2019 Letter”), admitting and acknowledging once again that the Subject Shares were being held on trust for P, yet alleging that somehow those shares could be transferred back to P.

8.P says that after the present proceedings were commenced on 11 June 2019, D suddenly stepped up efforts to usurp control of the Company in breach of the Declaration of Trust, and to interfere with the assets/property of the Company:

(1)  On 11 June 2019, D exerted pressure on Chen through WeChat.  D demanded Chen to hand over the Company’s corporate seal, corporate certificates and documents, and the Company’s bank account security devices to D, alleging that there has been theft of those items.  When making such demands, D alleged that he was entitled to do so since he was not only the legal representative, but also the majority shareholder of the Company.

(2)  On 13 June 2019, D through his solicitors wrote to P asserting that claims have been commenced in the Mainland Court against the Company (“the Tian Mainland Action”).  The claim appears to be based on a purported loan from a Madam Tian (“the Alleged Loan”).  D assert that due to the existence of the Tian Mainland Action, the Company’s account and properties have been restrained, and the shareholdings in the Company cannot be transferred.

(3)  It was only on 22 July 2019 that D through his solicitors sent to P various documents concerning the Tian Mainland Action, including an alleged freezing order dated 5 July 2019 (“the Mainland Freezing Order”).  Yet, the PRC Freezing Order only took effect from 17 June 2019, and was only limited to the sum of RMB 200,000 held in the Company’s bank account, and there was nothing to suggest any order against return of the Subject Shares, which are not assets belonging to the Company.

(4)  Further, on 13 June 2019, D wrote to Chen to give notice to Chen of a proposed shareholders’ meeting of the Company to be convened on 28 June 2019 (“the Proposed EGM”).  The notice of that meeting includes some alarming proposals, inter alia, the proposal to “deal with the conduct, position and shareholding of Mr Chen”, as well as to pass resolution on whether to dissolve the Company.  Such a notice clearly reflects D’s intentions to usurp control and ownership of the Company.

9.The first hearing of the Summons took place on 21 June 2019.  In that hearing, D gave the Undertakings in lieu of the Interlocutory Injunctions sought by P, pending determination of the Summons.  The Undertakings restrained D from, inter alia, taking any steps to take possession, control or custody of, or interfere with, the Company’s documents and from acting or holding himself out as having authority to act on behalf of the Company.  P is saying that despite having offered the Undertakings, D commenced proceedings in the Mainland on 27 August 2019 to obtain the accounting records/books and financial statements/reports of the Company (“the Aug 2019 Mainland Action”), in blatant breach of the Undertakings.

10.D filed his Defence and Counterclaim on 25 October 2019.  In his pleadings, D denies that the Subject Shares are held on trust for P.  D says that the Declaration of Trust was signed due to misrepresentation made by Koo. D claims that Koo told him that the Declaration of Trust has to be made to facilitate the operation, accounting and taxing matters of the Company and to legalize the same.  D mistakenly believed what Koo had told him, and signed the Declaration of Trust.  In a nutshell, D in his pleadings is claiming that the Subject Shares are not held by him on trust for P, but are assets beneficially owned by him.

11.In D’s 1^st Affirmation dated 12 September 2019 (“D 1^st”) filed in opposition to the Summons, D said the following:

(1)  “Pursuant to [the Declaration of Trust], I am still said to be acting as a trustee holding 70% of the shareholdings and I deny any breach of trust at all.”[2]

(2)  “Pursuant to [the Declaration of Trust], I am still said to be acting as a trustee holding 70% of the shareholdings and I deny any breach of trust or at all.”[3]

(3)  “I am prepared to transfer the 70% shares back to [P] at any time to be arranged by the parties.”[4]

12.After the filing of D 1^st, further correspondence was exchanged between the parties’ respective solicitors:

(1)  By letter dated 18 November 2019, D through his solicitors served a purported notice of change of legal representative, whereby D declared that is currently only a shareholder and not the legal representative, and seeking to disavow any liability or responsibility incurred during his period acting as legal representative.  In that notice, D confirms and acknowledges that he is holding shares on trust as and as nominee for P (“根據本人承諾做出的代持協議，本人對公司運營不享有權利...”) Further, by a letter dated 26 November 2019, D through his solicitors requested that Chen should complete relevant electronic procedures for change of the legal representative of the Company.

(2)  In both letters, the actual return of the Subject Shares back to P has not been mentioned.  By a letter dated 29 November 2019, P through its solicitors wrote to D asking D to take steps not only to discharge himself as the legal representative, but also to return the Subject Shares – this was to ensure that everything would be returned and/or relinquished by D in one go.  A follow-up letter was issued on 2 January 2020 asking D to confirm whether D would agree to return the Subject Shares and to facilitate change of the legal representative, so that the matter could be disposed of save any disagreement on costs. There has not been any positive reply from D.

13.Against this background, I have to consider whether I would grant the Interlocutory Injunctions or any of them to P.  In considering P’s application for the Interlocutory Injunctions, I would consider the further evidence covered by the Further Evidence Summonses and Chen 3^rd on de bene esse basis.

The Principles

14.The general principles concerning interlocutory injunctions are trite.  A useful summary of those principles can be found in Wah Nam Holdings Co Ltd v Excel Noble Development Ltd^[5]:-

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

(2)  if so, whether, if the plaintiff were to succeed in obtaining a permanent injunction at trial, it could adequately be compensated by an award of damages in respect of any loss which it might suffer by reason of the defendant continuing to act unrestrained pending the trial;

(3)  if not, whether the defendant would be adequately protected by the plaintiff’s cross-undertaking in damages should it be later found that the plaintiff should not have been granted an interlocutory injunction; and

(4)  if there is doubt as to the adequacy of the respective remedies of damages, where the balance of convenience lies.

15.It is trite that “a serious question to be tried” is not a steep hurdle.  All that has to be shown is that the claimant has prospects of success which in substance and reality exist, and odds against success do not defeat him.  As long as there is a serious question, it matters not whether the court thinks that the chances of success at trial is 90% or 20%[6].  If the opposing party seeks to show that there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out[7].

16.Ms Annie Lai for D submits that the test for “serious question (or serious issue) to be tried” is whether the plaintiff has any real prospect of success in his claim for a permanent injunction at the trial, and counsel refers me to Hong Kong Civil Procedure 2020, Volume 1, para. 29/1/10.  With respect, reading that passage as a whole, the true meaning of “serious question to be tried” should be the one summarized by me in the aforesaid paragraph.  It would not be useful and in fact may be dangerous in saying that “serious question to be tried” means “a real prospect of success” without any further elaboration.  In the context of setting aside a regular default judgment, the defendant has to show “a real prospect of success” of his defence at the trial.  In that context, “a real prospect of success” means a case carrying some degree of conviction, which is very different from the requirement of “a serious question to be tried” in an interlocutory injunction application.  It would be dangerous to mix up the true meanings of the same term in different contexts.

17.As to interlocutory proprietary injunctions, as held by DHCJ Douglas Lam SC in Pacific Rainbow International Inc v. Shenzhen Wolverine Tech Ltd[8]:-

(1)  The principles in American Cyanamid Co v Ethicon Ltd[9] apply, although irremediable damage need not necessarily be shown and the court will readily find that the balance of convenience favours the preservation of the fund pending trial[10].

(2)  The court need only be satisfied that the claim is not frivolous or vexatious, in other words, that there is a serious question to be tried. If the opposing party seeks to show there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out[11].

(3)  It should be noted that the existence of a good arguable defence does not necessarily negate a good arguable case[12].

Serious question to be tried

18.Mr Kerby Lau for P submits that P’s case is simple and straightforward.  P is saying that the Trust Shares are being held on trust by D for P, and are beneficially owned by P.  P’s primary claim is based on an express trust, relying on the Declaration of Trust and the Written Resolution. P’s alternatively case is that there is a common intention constructive trust, relying upon the Declaration of Trust, the Written Resolution, and the letters from D through his solicitors mentioned in the above as evidence showing the common intention.

19.D argues that there is no serious question to be tried.  The main grounds of objection are as follows:

(1)  All the legal issues in these proceedings will be determined in accordance with the Mainland Chinese law.  There is no evidence before the Court on the title to the Trust Shares under the Mainland Chinese law.  D’s willingness to transfer the shares to P does not mean that P has any legal right in those shares under the Mainland Chinese law.

(2)  It is unlikely that P would succeed in its claim for a permanent injunction at the trial.

(3)  D has legitimate reasons for failing to transfer the Subject Shares to P.

(4)  There is no or no sufficient evidence showing that D has committed any breach of trust.

20.As to the first ground, Ms Lai submits that the Company was incorporated in Mainland China and the share register was kept in Mainland China.  As a result, any trust in relation to the Subject Shares would be governed by the Mainland Chinese law.  P has not pleaded Mainland Chinese law and has not adduced any evidence on the relevant Mainland Chinese law governing the ownership of the Subject Shares.  As a result, the trust claim made by P in relation to the Subject Shares must fail.  Ms Lai heavily relies upon the Court of Final Appeal’s decision in Tripole Trading Ltd & Others v Prosperfield Ventures Ltd & Another[13] in support of her submissions.

21.With respect, I am unable to accept these submissions.

(1)  If D intends to rely upon the Mainland Chinese law to defeat P’s claim, D must raise this on his own pleadings.  The burden to plead the foreign law is on D.  This has been made plain by the Court of Appeal in First Laser Ltd v Fujian Enterprises Holdings Co Ltd[14]. See also Hong Kong Civil Procedure 2020, Volume 1, §18/8/14.

(2)  D has never pleaded that the ownership of the Subject Shares is governed by the Mainland Chinese law in his own pleadings.  In his defence, D has merely pleaded that “the [Mainland] has assumed jurisdiction over the [Company] and the most appropriate forum to hear the present dispute is [the Mainland Court]”[15].  Nowhere in the Defence and nowhere in the Counterclaim raises the point that the governing law concerning the trust alleged by P should be the Mainland Chinese law.  Without pleading any foreign law in his own pleadings, the first ground of objection put forward by D, with respect, is a non-starter.

(3)  Further, D has not adduced any evidence on the relevant Mainland Chinese law governing the ownership of the Subject Shares. It is well settled that in the absence of evidence of foreign law, the foreign law is presumed to be the same as Hong Kong law[16]. There is no reason why this presumption should not apply here.  Accordingly, even if the ownership of the Subject Shares is governed by the Mainland Chinese law, in the absence of any evidence showing the relevant Mainland Chinese law, I would have to proceed on the basis that the relevant Mainland Chinese law would be same as the Hong Kong law.

(4)  In respect of the Court of Final Appeal’s decision in Tripole, Mr Lau submits:

(a)  In that case, the alleged trust claim or receipt-based claim in was held to be unmeritorious even if Hong Kong law was applied.  There was no finding that the plaintiff’s claim in that case did not raise serious issue just because evidence of foreign law was not adduced.  The problem in that case was that the plaintiff did not have sufficient evidence to sustain a valid claim under either Hong Kong law or the Mainland Chinese law.

(b)  In brief, one of the plaintiff in that case (Panco) was seeking to assert proprietary interest over certain shares in a Shenzhen listed company, SFC (formerly known as SCIC), allotted to a HK company, CPL (or China Projects), through tracing.  Alternatively, Panco sought a receipt-based (ie restitution) remedy against 2 directors of Panco, Madam Ding and Mr Zheng (also directors of CPL), and/or CPL.

(c)  The joint judgment given by Ribeiro PJ and Litton NPJ did not consider the Mainland Chinese law at all. Rather, at [57] to [58], and [60], they held that “the evidence does not show” any transfer of Panco’s previous shareholdings in SCIC to CPL, and there was therefore no basis to contend for tracing or to allow Panco to establish any title “legal or equitable”, which is clearly an application of HK law.  Then, when considering the alternative receipt-based claim, they held that Panco had failed to establish causation between the directors’ breaches and the profits received: [66].  There was no evidence of loss: [69].

(d)  In Lord Hoffmann’s judgment, he agreed with the finding that there was no evidence of causation or derivation of title by CPL from Panco: [84] – [86].  This meant that Panco’s proprietary claim to those shares could not be established under Hong Kong law.  It was only on that premise that he further stated that the governing law in the receipt-based claim is that of the law of Shenzhen.  More importantly however, Lord Hoffmann went on in [87] to recognize that counsel for Panco actually “fairly acknowledged” that CPL obtained good title to the CPL’s shares (which means it is unencumbered by Panco’s claim, thereby undermining Panco’s claim), and at [88] considered that under the law of Shenzhen, there was no evidence that CPL’s title to the SFC shares was to subject to Panco’s proprietary claim.  Therefore, Panco has simply failed to show how it has a proprietary claim regardless of whichever law applied.

(e) Because of this, the issue as to presumption of application of HK law in the absence of evidence as to foreign law, and on burden of adducing foreign law, never arose.

(5)  Mr Lau’s analysis of the Tripole case is clearly correct.  That case in fact does not lend any support to D.

(6)  With respect, in my judgment, there is no merit in the first ground of objection put forward by D.

22.As to the second ground of objection, Ms Lai submits that P does not have a real prospect of success in obtaining a permanent injunction at the trial.   With respect, as I said in the above, a serious question to be tried is not a steep hurdle.  Based upon the materials now before the Court, including the Declaration of Trust, the Written Resolution, the various admissions made by D in his solicitors’ letter and in his 1^st affirmation concerning the Subject Shares (ie he is holding the Subject Shares on trust for P), I am of the view that P has clearly demonstrated that there is a serious question to be tried.

23.Relying on Tripole, Ms Lai submits that there is a rule that the Hong Kong Court would not grant an injunction to require a party to transfer shares in a Mainland company to another party.  Ms Lai submits that in Tripole, the trial judge considered that an order requiring transfer of shares would infringe the sovereign right of the Mainland to apply Shenzhen law to the ownership of shares in a Shenzhen company[17]. Thus, despite his finding of facts in favour of the plaintiffs, he refused to grant an injunction and order for return of the shares.  The trial judge’s ruling was upheld by the Court of Final Appeal, and was endorsed by the Court of Final Appeal as “based upon sound intuition”[18].  Thus, in Ms Lai’s submissions, it is unlikely that P would obtain a permanent injunction requiring D to transfer the Subject Shares to P at the trial.

24.I am unable to accept Ms Lai’s submissions. With respect, I do not agree with Ms Lai’s interpretation of the Tripole case.  As submitted by Mr Lau, the Tripole case in fact does not support the arguments put forward by D:

(1)  CFI interlocutory injunction judgment[19]: Contrary to what is submitted by D, the expressly stated main reason for refusal to grant the injunction sought was not the location of assets.  Rather, the “main factor” was the real risk of harm to a broad range of interest (including in particular the fact that the shares were those in a listed company), as well as delay of over 10 years: see [46] to [53] of that decision.

(2)  CFI trial judgment[20]: At [15] of the judgment, the trial judge actually recognized that the Court has jurisdiction concerning the shares in a Shenzhen company, although the jurisdiction must be exercised with prudence.  The learned judge said:

“The decisions made in Shenzhen were those of the Shenzhen authorities no order of this court can affect that directly; nevertheless, I do, of course, have jurisdiction over the parties in Hong Kong that is to say the individual defendants, as I do over the activities of the Hong Kong companies even though, as is the case here, some of them own, either directly or indirectly, substantial shareholdings in SFC (a China company) .... In the event that I decide these cases in such a way that it becomes open to me to affect the Hong Kong companies shareholdings in SFC in Shenzhen, I will need to act prudently, and with circumspection whilst at the same time recognizing and giving appropriate effect to the findings that I will have made on the merits of the case.” (Emphasis added)

(3)  The trial judge then went on to consider at [98] that on the specific facts of that case (in particular the fact that the Shenzhen authorities had previously taken those shares away from Mr Peng, the owner/controller of the plaintiff Panco, by way of government-directed restructuring: see [34] – [35]), the “practical realities” were that any order for delivery up of the shares will unlikely be enforced.

(4)  CA judgment[21]: the CA allowed the plaintiff (Panco)’s appeal, and granted the additional relief sought, which is for delivery up and return of the shares.  CA also observed at [41] that it should not be concerned with whether the judgment can take practical effect in the foreign jurisdiction:

(5)  “If by reason of executive or other action beyond the control of this court that cannot happen, so be it.  But that should not cause this court to second-guess what might occur in other jurisdictions.  Nor to foist on some foreign authority the responsibility of affording appropriate and proper relief to which a Hong Kong litigant has been held entitled.”

(6)  CFA judgment: appeal allowed on the basis that the plaintiff Panco had failed to establish the necessary elements for its proprietary and/or receipt-based claim, whether under HK law or PRC law, as discussed above.  CFA never said that injunctions sought could not be granted because the shares were located elsewhere.  Rather, it simply noted the “extreme improbability” of the Shenzhen authorities “being persuaded to approve Panco, controlled by Mr Peng, as a significant shareholder in SFC in the light of the findings of criminal misconduct made against him”: at [59].  Lord Hoffmann’s comment of the trial judge’s “sound intuition” has no negative implication on the Court’s jurisdiction to grant the orders.

25.In my judgment, it is not correct to say that there is any rule preventing Hong Kong Court to grant an injunction to require a party to transfer shares in a foreign company to another party in the proceedings.

26.As to the third ground of objection, D is saying that due to the Tian Mainland Proceedings and the on-going investigation of the Mainland Public Security Bureau concerning the Company’s accounts, D is unable to transfer the Subject Shares to P.  Based upon the evidence before the Court, I do not see anything in the Tian Mainland Proceedings which has ever prohibited D from transferring the Subject Shares to P.  After all, the Subject Shares are not assets belonging to the Company.  As to the alleged investigation by the Mainland Public Security Bureau concerning the Company’s accounts, there is no concrete evidence showing the details of this matter.  It would be sufficient to say that D has not produced any order from any Mainland authority prohibiting the transfer of the Subject Shares from D to P.  No matter what, this objection is irrelevant for the present purpose, for P is not seeking any interlocutory injunction requiring D to transfer the Subject Shares to P at once.

27.As to the fourth ground of objection, I agree with Mr Lau that this ground is misconceived.  P’s cause of action is that the Subject Shares are held on trust by D for P, and D is obliged to return the same to P upon demand.  As the sole beneficiary of the Trust Shares, P is entitled to do so[22].  Up to now, D has not returned the Subject Shares to P.  P has adduced evidence to show that at least there is an arguable case that D is holding the Subject Shares on trust for D.  For the purpose of showing a serious question to be tried, that is sufficient.  Whether D has committed any breach of trust is neither here nor there.  I make no comment on whether D has committed any breach of trust, for I would not make any factual finding and I have no need to resolve the factual disputes between the parties in this interlocutory application.

28.In my judgment, P has shown a serious question to be tried.  As said in the above, for interlocutory proprietary injunctions, this would be sufficient.  There is no need for P to show that damages would not be an adequate remedy[23]. I note that Ms Lai is disputing this.  However, the principle on this point is well-established.  Further authorities on the point are as follows:

(1)  In Sky Motion Holdings Ltd v. China Create Capital Ltd[24], Coleman J said:

“30. A personal claim against a trustee is not as satisfactory as a trust fund maintained intact in his hands, so that such a claim is not an alternative remedy that will defeat a beneficiary’s right to an injunction.”

(2)  See also Lewin on Trusts (19th ed) at §38-014.

29.P is entitled to have the Proprietary Injunction.

30.As to the Voting Restraint, I am of the view that a shareholder’s voting rights stem from the shares owned by him are proprietary in nature.  The Voting Restraint is ancillary to the Proprietary Injunction.  Since P has demonstrated a serious question to be tried on the trust claim, P is also entitled to have the Voting Restraint.

31.Ms Lai submits that the Voting Restraint is not necessary, for D has abandoned the Proposed EGM as a result of P’s complaint.  With respect, as submitted by Mr Lau, the point made by D has conveniently ignored the fact that D has only cancelled the Proposed EGM after the Summons was issued and after the Undertakings were offered to the Court.  Before all these, D was prepared to hold the Proposed EGM and to pass the resolutions proposed by him in that EGM by using the voting rights attached to the Subject Shares.  Contrary to Ms Lai’s submission, I am of the view that the Voting Restraint is clearly necessary.

32.Ms Lai also submits that the Interference Restraint is not necessary, for D is not in possession of any asset of the Company, and would not take any step to take possession of any asset of the Company.  P’s case is that D has interfered the operation and the management of the Company in the past, and has taken documents, corporate seals, and bank security devices of the Company.  I would not resolve the factual disputes between the parties at this stage. However, given those factual disputes, the Court has to impose the Interference Restraint to give interim protection to P.  After all, I am of the view that the Interference Restraint is ancillary to the Proprietary Injunction.  Since P is entitled to have the Proprietary Injunction for the reasons set out in the above, P should also be given the Interference Restraint.

Balance of convenience

33.As said in the above, for the Proprietary Injunction, P has no need to show that damages would not be an adequate remedy.  I am also of the view that the Voting Restraint and the Interference Restraint are ancillary to the Proprietary Injunction and should also be granted together with the Proprietary Injunction.  In other words, in considering the Interlocutory Injunctions, balance of convenience would not be relevant.

34.Even if I were wrong on this and even if I had held that balance of convenience is relevant, I am of the view that damages would not be an adequate remedy if the Interlocutory Injunctions sought by P is not granted, and the balance of convenience is in favour of granting the Interlocutory Injunctions.

(1)  P has shown that there is a serious question to be tried in the trust claim targeting the Subject Shares held by D.

(2)  The Voting Restraint is necessary for D has sought to convene the Proposed EGM to remove Chen and to pass resolutions concerning potential dissolution or winding up of the Company.  Since D is the registered holder of 70% of the shareholdings, D could pass those resolutions he proposed. These would cause irreparable damage to the Company.

(3)  The Interference Restraint is necessary for preserving the value of the Subject Shares and the Company’s assets, and preventing D from encumbering the Company with obligations and liabilities.

(4)  Infringing a shareholder’s voting rights is something which cannot be compensated by damages[25]. Further, in relation to the Interference Restraint, obtaining documents which one is not entitled to could result in irreversible damage[26].

35.Ms Lai submits that P does not have substantial assets and prosperous business.  Further, there is no evidence showing that D would not be in a financial position to pay damages to P.

36.With respect, there is no merit in these points.

(1)  According to P’s audited financial statements, the Company generated revenue of more than HK$1 million in the year ended on 31 December 2018, and has assets of more than HK$6 million.  The Company is a company with substance.

(2)  If D is trying to argue that the balance of convenience is in favour of refusing the Interlocutory Injunctions claimed by P, the burden is on D to adduce evidence in support of his contention.  There is no evidence from D showing that he would be able to pay damages to P if there is no interlocutory injunction but P succeeds at the trial.

37.In my view, if the Interlocutory Injunctions sought by P are refused, damages would not be an adequate remedy in the event that P succeeds at the end of the trial.  If I have to consider the balance of convenience, the balance of convenience is in favour of granting the Interlocutory Injunctions.

Other matters

38.Ms Lai submits that the Interlocutory Injunctions ought to be refused for some other reasons.  With respect, I am of the view that there is no merit in these points.

39.Ms Lai submits that P’s application for the Interlocutory Injunctions ought to be refused, for there has been substantial delay in taking out this application.  Ms Lai argues that on P’s case, P discovered that D intended to sell the Subject Shares to a third party on 13 August 2018.  However, P did not take out apply for any injunction until 17 June 2019.   Ms Lai submits that the delay is substantial.

40.There is no merit in the delay point.  As shown in the indisputable evidence, there has been correspondence passing between P and D since 13 August 2018, and D offered the 20 Aug 2018 Undertaking and the 11 Sep 2018 Undertaking to P, and also admitted that the Subject Shares were held by him on trust for P in the 13 Jun 2019 Letter.  D has only changed his attitude after P commenced these proceedings on 11 June 2019.  In my view, there is no delay in taking out the application for the Interlocutory Injunction.  Further, in respect of an application for an interlocutory proprietary injunction (together with the ancillary orders), the Court would not refuse to grant the injunction because of delay[27].

41.Another point made by Ms Lai is that the Interlocutory Injunctions ought to be refused by P does not come to the Court with clean hands.  The basis of this submission is the complaints and allegations against Koo made by D in his 1^st affirmation, which include (a) unfairly excluding D from the management of P; (b)dissipation of funds of P and mismanagement of P by Koo; (c) dilution of shares in P held by D and his wife; (d) ulterior motive of preventing the accounts of P and the Company from being audited.

42.There is no merit in this submission.  Firstly, the factual basis of this submission is the allegations made by D.  What has been alleged by D may or may not be true.  I would not resolve the factual disputes between the parties in this interlocutory application.  Secondly, the argument amounts to saying that D ought to be able to hold onto the Subject Shares without P’s consent and is entitled to have an unfettered use of the rights attached to those shares for his own interests, as opposed to hold those shares on trust for P.  D in fact is saying that P has no arguable case on the trust claim.  As to this, I have made a ruling that P in fact has demonstrated a serious question to be tried.  Thirdly, it is trite that as a matter of law, “[t]he principle is that in order for the inequitable conduct to bar any claim for equitable relief, the conduct must be legally attributable to the claimant”, such that “the act of [a shareholder] cannot be attributed to that of [the company] which consists of shareholders in addition to [the shareholder]”[28]. Koo only holds about 25% of the shares of P and there are 12 other shareholders besides him, including D.  Even if there is any truth in the complaints made by D, those complaints are against Koo personally.  No inequitable conduct on the part of P as a distinct entity has been identified.

43.Ms Lai also complains that the terms of the Interlocutory Injunctions are too vague and lack the necessary preciseness.  However, there is no elaboration on this point.  I have considered the terms of the injunctions sought by P.  In my view, the terms of those injunctions are sufficiently clear.

44.Nothing advanced by D has merit.

The Further Evidence

45.I now turn to the further evidence sought to be relied upon by the parties.

46.As to Koo 1^st, that affidavit consists of 4 pages together with 2 exhibits.  That affidavit was provided to Court and to D on 26 February 2020.  The purpose of that affidavit is to provide 2 updates:

(1)  The Aug 2019 Mainland Action commenced has been withdrawn or discontinued by D on 4 November 2019.

(2)  The Company’s accounts have been audited in accordance with relevant Mainland Chinese laws and regulations.  The audited accounts of P completed on 7 January 2020 (including the accounts of the Company) are produced.

47.Mr Lau submits that these 2 points are short and simple points.  The first point in fact is not disputed by D.  The second point is something which cannot be disputed.  These 2 points do not warrant any real response from D. They are also clearly relevant for the Court to have a full and updated understanding of the circumstances of the case.  I agree.  I further note that the audited accounts of P were only completed on 7 January 2020.  Obviously, P could not produce these audited accounts at any time earlier than 7 January 2020.  P cannot be criticised of producing Koo 1^st on 26 February 2020.  I grant leave to P to rely upon Koo 1^st in P’s application for the Interlocutory Injunction.  In my view, costs of P’s summons dated 26 February 2020 should be in the cause of P’s application for the Interlocutory Injunctions.  Since P succeeds in obtaining the Interlocutory Injunctions, P should also get costs of P’s summons dated 26 February 2020.  In my view, there is no conceivable ground in support of the objection to this summons.  I would order that costs of the summons be assessed on an indemnity basis.

48.The Court started to discuss with the parties concerning disposing the Summons on paper on 24 February 2020.  On 3 March 2020, P’s solicitors proposed directions for the paper disposal of the Summons.  On the same date, D’s solicitors expressed their agreement to the proposed directions.  On 4 March 2020, I made an order in terms of the proposed directions. Under those directions, P has to provide written submissions to the Court and to D within 7 days.  On 5 March 2020, D provided D 2^nd to the Court and to P.

49.I am of the view that D 2^nd goes much beyond responding to any matters set out in Koo 1^st, or any other matters in Chen2^nd or Chen 3^rd.  Many new matters are raised in D 2^nd, including complaints concerning some funding contracts or arrangements entered into by the Company, alleged irregularities relating to investment capital withdrawal or contribution of the Company, and claims by third party creditors.  Clearly, D 2^nd is not a reply to the existing matters.

50.No explanation has ever been offered by D as to why D 2^nd was not produced at an earlier time but was only produced when P had only 6 remaining days in preparing their written submissions.

51.In the post-CJR era, the threshold for introduction of new evidence in the post-CJR era is high.  In Wise Union Industries Ltd v Hong Kong Science And Technology Parks Corporation[29], A Cheung J (as he then was) said:

“2. We are now in the post-CJR era. A late application to amend or to introduce new evidence has a fairly high threshold to pass.

............

9.  Talking about prejudice, I do not accept that in this new era, the fact that the innocent party can ask for an adjournment (even if one that is to be paid for by the other side) would mean that there is no prejudice.  In my view, at least nowadays, an adjournment itself is a prejudice.  Equally, the fact that a party, not wanting to lose a hearing date, refrains from asking for an adjournment, does not mean that there is no prejudice.  The unenviable position that such a party finds himself in is in itself a prejudice.”

52.Late applications can be dismissed on the basis of lateness alone.  Further, a late application should be accompanied by a full and frank account for its lateness, as the Court would not grant any indulgence (even on terms as to costs) without a satisfactory explanation from the applicant[30].

53.With the aforesaid in mind, I am of the view that it would not be possible for the Court to exercise the discretion in favour of D and to admit D 2^nd into the evidence.  In any event, I am of the view that the matters raised in that affirmation are not relevant for the purpose of determining the Summons.  Nothing stated in that affirmation can show that there is no serious question to be tried in relation to the trust claim mounted by P, and nothing in that affirmation can show that notwithstanding a serious question has been demonstrated, the Interlocutory Injunctions should still be refused.

54.I dismiss D’s summons dated 5 March 2020 for leave to adduce D 2^nd.  Costs of that summons should be paid by D to P.  Since I have refused to admit D 2^nd into the evidence, there would be no need for P to rely upon Koo 2^nd to reply to the matters in D 2^nd.  I would make no order on P’s summons dated 10 March 2020, save that costs of that summons should also be borne by D.  I am of the view that D should also bear the costs of that summons, because that summons was occasioned by D’s application for leave to adduce D 2^nd, and D has failed in that application.  To show the Court’s disapproval on D’s attempt to introduce irrelevant evidence at the eleventh hour, I order that costs of these 2 summonses be summarily assessed on an indemnity basis.

Disposition

55.I grant the Interlocutory Injunctions to P. These injunctions would remain in force until the conclusion of the trial in these proceedings or until a further order made by the Court.

56.There be liberty to apply, so that the parties may seek further directions from the Court for the purpose of executing the injunctions.  Any letter or document to the Court during GAP should be sent to the designated no-reply email address.

57.The Court has a broad discretion as to costs. In an application for an interlocutory injunction, if a party has acted improperly or is in some way to be penalized, or the application is totally baseless, the Court may consider an immediate costs order[31].  In my view, in the circumstances of this application, there should be a costs order against D, requiring D to pay costs of the Summons to P forthwith.  I agree with Mr Lau that D has adopted a scatter-gun approach in opposing the Summons, raising every argument without regard to the relevance or the factual and legal basis.  The objection raised by D is extremely unmeritorious.  Taking into account all these, costs of the Summons should be paid by D to P forthwith.

58.I am further of the view that those costs should be assessed on an indemnity basis.  As observed by the Court of Appeal in Huge Dragon Corp Ltd v Lung Mun Oasis (IO)[32], “where the proceedings in question should never have been brought or defended but the party nevertheless unreasonably and unjustifiably persisted, he may well be visited with indemnity costs”.  In my view, in the light of the various admissions made by D in the letters and in D 1^st as to the trust claim made by P (ie, D is holding the Subject Shares on trust for P), it is inconceivable that D would have any realistic chance in resisting the Interlocutory Injunctions sought by P.  On any view, D’s opposition to the Summons cannot be reasonable.  In these circumstances, indemnity costs are justified.

59.I order that costs of the Summons (including the costs of the Further Evidence Summonses and all costs reserved, if any) be paid by D to P forthwith on an indemnity basis and be summarily assessed on paper. P has provided a bill of costs for summary assessment to the Court.  There be leave to D to provide a written reply to the said bill to the Court and to P on or before 17 April 2020.

60.Lastly, it remains for me to thank counsel for the assistance provided to the Court.

Mr Kerby Lau, instructed by ONC Lawyers, for the plaintiff

Ms Annie Lai, instructed by Damien Shea & Co, for the defendant