李明實 and Others v. Ace Lead Profits Ltd and Another
Read the full judgment text of HCA 597/2021 on BabelCite. This High Court CFI judgment was delivered on 21 November 2023.
1. By a summons dated 11 September 2023 (“the Injunction Summons”), the plaintiffs (“Ps”) seek an interlocutory injunction against the defendants (“Ds”). At the end of the hearing, upon the undertaking proposed by Ds that they would abstain from voting on the Proposed Resolutions at the Meeting (“the Proposed Undertaking”) [1] , I dismissed the Injunction Summons with costs. I also granted a certificate for two counsel. There be liberty to apply. I now give my reasons for the decision.
Cited by 2 cases · Cites 13 cases
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HCA 597/2021 [2023] HKCFI 3038 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 597 OF 2021 ____________
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________________________________ REASONS FOR DECISION ________________________________ 1.By a summons dated 11 September 2023 (“the Injunction Summons”), the plaintiffs (“Ps”) seek an interlocutory injunction against the defendants (“Ds”). At the end of the hearing, upon the undertaking proposed by Ds that they would abstain from voting on the Proposed Resolutions at the Meeting (“the Proposed Undertaking”)[1], I dismissed the Injunction Summons with costs. I also granted a certificate for two counsel. There be liberty to apply. I now give my reasons for the decision. 2.In the hearing before me, Mr Kenny Lin (together with Mr Ronald Ngan) represented Ps, and Mr Ambrose Ho SC (leading Mr Jeff Chan) represented Ds. Both Mr Lin and Mr Ho have provided me detailed and helpful submissions. A. BACKGROUND A1. The parties 3.HollySys Automation Technologies Ltd (“HollySys”) was incorporated under BVI law on 6 February 2006. Its shares have been listed on Nasdap Stock Exchange in 2008. 4.The 1st plaintiffs are employees (“HollySys Employees”) employed by, or by the group of companies under, HollySys Group Company Limited (“HollySys Group”). HollySys Group is an indirectly wholly-owned subsidiary of HollySys. In this case, the 1st plaintiffs are represented by Mr Li Mingshi (李明實) (“Li”), Mr Fang Lei (方壘) (“Fang”), and Mr Shi Hongyuan (史洪源) (“Shi”). Li, Fang and Shi have been the employees of HollySys at all material times. 5.The 2nd plaintiff, Dr Wang Changli (王常力) (“Wang”), is an engineer and a founder of Beijing HollySys Co Ltd (“Beijing HollySys”), a company incorporated in Mainland China specialising in industrial automation and railway transport automation. Beijing HollySys became a subsidiary of HollySys in 2007. 6.The 3rd plaintiff, Plus View Investments Limited (“Plus View”), is a company incorporated in the BVI. Mr Luo An (羅安) (“Luo”) is the sole shareholder and sole director of Plus View. 7.The 1st Defendant (“Ace Lead”) is a company incorporated in the BVI. Wang was the sole shareholder and sole director of Ace Lead from its incorporation. On 12 August 2016, Wang transferred his one share of Ace Lead (“Ace Lead Share”) to the 2nd defendant, Mr Shao Baiqing (邵柏慶) (“Shao”) and resigned as director of Ace Lead. Shao has since been the sole shareholder and sole director of Ace Lead.8.As to the shares of HollySys (“HOLI Shares”), Ace Lead and Plus View were allotted 2,904,204 HOLI Shares (“Ace Lead HOLI Shares”) and 2,016,648 HOLI Shares (“Plus View HOLI shares”) respectively. Ace Lead HOLI Shares constitute around 6.69% of the entire shareholding of HollySys. 9.Shao served as the Chief Executive Officer (“CEO”) of HollySys since 2013 and the chairman of the board of directors of HollySys (“Board”) since 2016 until 7 July 2020, when he was removed from both positions. The validity of the removal of Shao’s positions in HollySys is disputed by Ds. A2. Ps’ case 10.Ps claim that Ace Lead and Plus View are holding the Ace Lead HOLI Shares and the Plus View HOLI Shares respectively on trust. For the purpose of the Injunction Summons, it would not be necessary to discuss the Plus View HOLI Shares. 11.Ps also claim that the Ace Lead Share is being held by Shao on trust for Wang. 12.According to Ps:
13.Subsequent to the removal of Shao as CEO and chairman of the Board on 7 July 2020 and as president of the Committee on 30 December 2020, Shao was demanded, inter alia, to transfer the Ace Lead Share to a person nominated by Wang. Ps’ case is that Ds were in breach of trust and their fiduciary duties by, inter alia, wrongfully claiming that the Ace Lead HOLI shares were beneficially owned by Ace Lead and that the Ace Lead Share was beneficially owned by Shao. 14.Ps claim, inter alia, the following substantive reliefs in this case:
A3. Ds’ case 15.Ds deny that the Ace Lead HOLI Shares and the Plus View HOLI Shares are held by Ace Lead and Plus View respectively on trust for the HollySys Employees. 16.According to Ds:
A4. Procedural history 17.Ps commenced these proceedings against Ds on 21 April 2021. 18.On 21 January 2022, Ds made an application for an order to stay these proceedings. The stay application was dismissed by K Yeung J on 4 November 2022. 19.Ps’ case is that the Injunction Summons is triggered by a letter dated 23 August 2023 (“the 23.08.2023 Letter”) from Messrs Conyers Dill & Pearman (“Conyers”) issued on behalf of an aggregate of 32.3% of the shareholders of HollySys (including Ace Lead holding 6.69%) (“Requisitioning Shareholders”), the Requisitioning Shareholders request the Board to convene a shareholders’ meeting (“the Meeting”) to discuss and to pass the resolutions proposed (“the Proposed Resolution”) in the notices (“Notices”, including the notice given by Ace Lead, “the Ace Lead Notice”) enclosed in the letter. 20.Under Article 10.2 of the articles of association of HollySys (“HollySys Articles”), shareholders together having not less than 30% shareholding would have the right to request for a shareholders’ meeting to be convened. 21.According to Ds, the background leading to the 23.08.2023 Letter is a series of acquisition offers received by HollySys in respect of the publicly held HOLI shares and the Board’s refusal to consider the same.
22.The Proposed Resolutions concern, inter alia, appointing additional directors to the Board so that the acquisition offers (including the Consortium Offer) to HollySys can be considered by a board with new members, and the new board may come to a different conclusion and an acquisition offer may be put to the shareholders for their consideration. 23.On 11 September 2023, Ps took out the Injunction Summons against Ds. By the Injunction Summons, Ps seek the following interlocutory reliefs against Ds pending trial:
24.On 18 September 2023, Ds offered an undertaking that they would not vote on the Proposed Resolutions at the Meeting. Details of that undertaking (ie, the Proposed Undertaking) have been set out in Shao’s 3rd Affirmation at [117] and the exhibit mentioned in that paragraph. The Proposed Undertaking was rejected by Ps. Ps insisted to seek an interlocutory injunction in terms of the Injunction Summons. 25.On 2 October 2023, the Board issued an announcement, in which the Board stated the formation of a special committee of the Board to conduct a formal sale process and to engage in discussion with the Consortium. It is also stated in the announcement that the special committee will “begin an expedited process to solicit additional serious and compelling offers”. 26.On 24 October 2023, the Board issued another announcement, in which the Board referred to the Notices and said that the Board was evaluating the materials received and would provide shareholders with timely updates on the process. 27.Also on 24 October 2023, HollySys announced that it received a proposal from representatives of the management team, Fang and Xu, to acquire all of the outstanding shares of HollySys at US$25 per share. Fang is one of the representative representing the HollySys Employees in this case, and Xu is one of the HollySys Employees. 28.On 30 October 2023, the Board announced that HollySys “will re-assess promptly whether to convene a special meeting” following the hearing of the Injunction Summons. 29.On 6 November 2023, Ascendent Capital Partners (“Ascendent”) announced that it has acquired a 13.7% shareholding in HollySys, making it the single largest shareholder. In Ascendent’s public letter dated 6 November 2023, Ascendent proposed an offer of US$26 per share to acquire all the outstanding shares of HollySys. Further, Ascendent stated that it supports the request for the Meeting and requests that it be held no later than 1 December 2023. 30.Ds’ case is that given the stance of Ascendent as stated in their announcement, it is now indisputable that the total percentage of shareholding in support of the Meeting is now more than 30%. Even putting aside the Ace Lead HOLI Shares, the total percentage of shareholding in support of convening the Meeting is now 39.31%. 31.On 8 November 2023, the Consortium announced that it has submitted an increased offer of US$26.5 per share to acquire the outstanding HollySys shares and reaffirmed the Consortium’s request for the Meeting to the convened. B. THE PRINCIPLES 32.The general principles concerning interlocutory injunctions have been succinctly summarized by Ribeiro J (as hen then was) in in Wah Nam Holdings Co Ltd v Excel Noble Development Ltd[3]:
33.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%[4]. 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[5]. 34.However, if the interlocutory injunction sought by the plaintiff has a mandatory element, the following would need to be borne in mind:[6]
35.Further, in China Vered Financial Holding Corporation Ltd v Central China Dragon Growth Fund SPC[7], K Yeung J said (footnote omitted):
36.Whether the injunction sought is in fact futile is a factor which could affect the balance of convenience. In Shih Rick Ju-Feng and Others v Lo Yueh-Li and Others[8], Mr Recorder Abraham Chan SC said:
37.Delay in taking out the application is a relevant factor which has to be taken into account. In Gee on Commercial Injunctions (7th Edition) at §2-032, it is stated:
38.In the consideration of an application for an interlocutory injunction, the court should not lose sight of the practical realities of the situation to which the injunction will apply.[9] C. DISCUSSION C1. Injunction with a mandatory element 39.There is no dispute that §2 of the injunction sought by Ps is a mandatory injunction. That being the case, the principles in Music Advance have to be considered. 40.Ds’ case is summarized in [16] above. In my view, in view of Clause 1.6 of the DoT, the SPA and Wang’s Confirmation, the defence put forward by Ds is an arguable defence.
41.Both Mr Lin and Mr Ho have made detailed submissions regarding the merits of the parties’ respective cases. With no disrespect to counsel, I am not prepared to address each and every point submitted by counsel here. Suffice for me to say that all the points made by counsel have been duly considered. 42.Having considered the evidence before me and the parties’ respective submissions, while I accept that Ps have shown a serious question to be tried, I am of the view that Ps have not demonstrated a high degree of assurance that they would succeed at the trial. All Ps have demonstrated is no more than a serious question to be tried. That would have a negative impact on Ps’ application for the mandatory injunction (ie §2 of the Injunction Summons). C2. Balance of convenience 43.As to balance of convenience, in his oral submissions, Mr Lin has clarified his position. Mr Lin accepts that Ps would need to show that the balance of convenience is in favour of granting the injunction. However, Mr Lin submits that in an application for an interlocutory proprietary injunction, the court would readily find that the balance of convenience favours the preservation of the trust assets pending trial. Mr Lin is relying upon Heitkamp & Thumann KG v Living Profit Trading Development Ltd[11] in support of his submission. Mr Lin is also relying upon Pacific Telecom & Navigation Limited v Ye Lei[12]. 44.Mr Lin submits that the Ace Lead HOLI Shares and the Ace Lead Share in fact are properties being held by Ds on trust. Ps are seeking an injunction to preserve the trust properties, and the injunction sought is a proprietary injunction. Accordingly, the court would readily find that the balance of convenience is in favour of granting the injunction. 45.Mr Ho submits that in an application for a proprietary injunction, the applicant would need to show that the balance of convenience is in favour of granting the injunction. Each case depends upon its own facts. Mr Ho has referred me to the following:
46.I agree with Mr Ho. As shown in the authorities, in an application for an interlocutory proprietary injunction, the applicant would need to demonstrate (inter alia) that the balance of convenience is in favour of granting the injunction. In my view, whether the court would readily find that the balance of convenience is in favour of granting the injunction depends upon the facts in the case. 47.As rightly point out by Mr Ho, in Pacific Telecom, the discussion therein only concerned whether it is necessary for an applicant for a proprietary injunction to show that damages would not be an adequate remedy. That case should not be understood as saying that an applicant for an interlocutory proprietary injunction would have no need to demonstrate a balance of convenience in favour of granting the injunction, or that a balance of convenience in favour of the injunction would be presumed. In any event, the legal position has been clearly stated by the Court of Appeal in Wason Holdings, which is an authority binding upon this court. 48.Having considered the evidence and the submissions, I am of the view that the balance of convenience is not in favour of granting the injunction sought by Ps. 49.Mr Lin submits that the balance of convenience is in favour of granting the injunction. Mr Lin submits that:
50.With respect, I am not persuaded by these submissions. 51.First, as rightly pointed out by Mr Ho, the Board is mandated by Article 3.7 of the HollySys Articles not to take notice of any trust behind the Ace Lead HOLI Shares.[16] In other words, there is no room for the Board to say that the Ace Lead Notice is invalid. Ps are now trying to seek an injunction to compel Ds to withdraw or revoke the Ace Lead Notice. I have to consider whether it would be just and convenient to grant this injunction. Given now that (a) Ascendent has clearly stated that they are in support of having the Meeting to discuss the Proposed Resolutions; (b) Ascendent is now a 13.7% shareholder of HollySys; and (c) the total percentage of shareholding in support of having the Meeting is now no less than 39.31% (even putting aside the Ace Lead HOLI Shares), I am of the view that it would not be just and convenient to compel Ds to withdraw or revoke the Ace Lead Notice. Even if such an injunction is granted, there is nothing preventing the 39.31% shareholders to issue another notice demanding for a shareholders’ meeting. 52.Mr Lin submits that according to Ds, even without Ace Lead HOLI Shares, there are already shareholders having not less than 30% of the shareholding in HollySys in support of having the Meeting. That being the case, granting the injunction sought by Ps would not cause any prejudice to Ds. With respect, I am unable to accept this submission. As stated by K Yeung J in China Vered[17] at [11(b)], the grant of an injunction by the court is always a serious matter which must be fully justified. The court should not grant an injunction merely because it may be said that the defendant would suffer no prejudice. 53.Second, Ds have offered the Proposed Undertaking, by which Ds have promised that they would abstain from voting when the Proposed Resolutions are voted in the Meeting. With the Proposed Undertaking in place, there is no basis to say that the injunction sought by Ps is urgently called for. 54.Third, according to Ps’ own evidence, it is impossible for Ace Lead to sell, transfer or dispose of the Ace Lead HOLI shares by reason of the restriction that consent from the Board is necessary before the shares could be freely traded in the open market. Ps allege that there would be a new board after the Meeting, which will push through a board resolution to remove the said restriction. As submitted by Mr Ho, this is purely speculative. After all, Ds can only control around 6.69% shareholding in HollySys. As to what resolution would be passed in the Meeting, this is not a matter within Ds’ control. 55.Fourth, the matters concerning the Meeting and the Proposed Resolutions have been dealt with in the above. Putting aside these matters, there is really nothing justifying the necessity of having an injunction in terms of the Injunction Summons at this stage. The fact that there has not been any application for an injunction with same or similar terms for almost 2 years and 5 months after the commencement of these proceedings (ie from 21 April 2021 to 11 September 2023), or the delay in taking out the Injunction Summons, speaks for itself. 56.Fifth, in assessing whether it is just and convenient to grant the injunction sought by Ps, the fact that Ds have demonstrated an arguable defence to Ps’ claim in this case would need to be borne in mind. 57.Taking into account all the aforesaid, in my view, the balance of convenience is not in favour of granting the injunction application. It is also not just and convenient to grant the injunction sought by Ps. DISPOSITON 58.For the reasons above, upon the Proposed Undertaking offered by Ds, I dismissed the Injunction Summons at the end of the hearing. There be liberty to apply. 59.At the end of the hearing, Mr Ho sought costs of the Injunction Summons, with a certificate for two counsel. Mr Lin did not oppose this. I therefore ordered that costs of the Injunction Summons (including costs reserved) be paid by Ps to Ds forthwith, with a certificate for two counsel. Those costs be summarily assessed. I granted leave to Ds to file and serve a bill of costs for summary assessment within 7 days, and leave to Ps to file and serve a written reply to the said bill within 7 days thereafter. 60.Lastly, I have to thank all counsel for the helpful assistance rendered to the court.
Mr Kenny Lin and Mr Ronald Ngan, instructed by Alvan Liu & Partners, for the 1st to 3rd Plaintiffs Mr Ambrose Ho SC, leading Mr Jeff Chan, instructed by Gall, for the 1st and 2nd Defendants [1] Definitions of the abbreviations used are set out in the paragraphs below. [2] SPA, Clause 2.1 [3] CACV 241/1999, 23 December 1999, [28] - [30] [4] Re Full Billion Shipping Ltd [2003] 2 HKLRD 674, [28]; Hong Da Development & Investment Holdings Co Ltd v China Aoyuan Property Group Ltd (HCA 1377/2011, 10 December 2011), [19] [5] Yifung Properties Ltd v. Manchester Securites Corp (CACV 258/2015, 9 September 2016), [20] [6] Music Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041 [9] Music Advance, supra, [12(i)] [10] Supra [11] [2018] HKCFI 1006, [55] [12] [2020] HKCFI 586, [28] [14] Supra [15] Supra [16] Clause 3.7 of HollySys Articles: “Except as required by [the BVI Business Companies Act 2004], no Person shall be recognised by the Company as holding any Share upon any trust, and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any Share or any interest in any fractional part of a Share or (except as provided by these Articles or by the Act) any other rights in respect of any Share except any absolute right to the entirety thereof by the registered holder.” [17] Supra | ||||||||||||||||||||||||||||||||||
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