New Sparkle Roll International Group Ltd and Another v. Sze Ching Lau and Another

CAMP 35/2024 & CACV 104/2024, [2024] HKCA 524

On appeal from [2024] HKCFI 419

(Heard together)

CAMP 35/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 35 OF 2024

(ON AN INTENDED APPEAL FROM HCA NO 123 OF 2024)

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AND

CACV 104/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 104 OF 2024

(ON APPEAL FROM HCA NO 123 OF 2024)

________________________

________________________

(Heard together)

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DECISION ON COSTS

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Hon Kwan VP (giving the Decision on Costs of the Court):

1.At a rolled-up hearing on 12 March 2024, we gave leave to the 1^st defendant to appeal against the decision of Lisa Wong J made on 6 February 2024 and allowed his appeal. Reasons were handed down on 15 April 2024 (“CA Reasons”)[1]. We set aside the injunction granted by the judge in terms of §1 of the plaintiffs’ summons dated 19 January 2024 and directed that the costs below of the plaintiffs’ application for interlocutory injunction be dealt with on paper. The parties have lodged their submissions pursuant to our directions.

2.In this decision, we shall adopt the terms defined in the CA Reasons.

3.It is not in dispute that in all cases, including cases of interlocutory injunctions, the court has a broad discretion to exercise whether to make an immediate costs order or some other order as to costs. Each case would depend on all the relevant circumstances (China Medical Technologies, Inc (in liquidation) & Ors v Samson Tsang Tak Yung & Ors [2022] 2 HKLRD 517 at §§10 to 12).

4.The 1^st defendant seeks his costs below of the plaintiffs’ application for interlocutory injunction on a party and party basis, as costs should follow the event, to be summarily assessed by this court. The court should look at the merits of the injunction application. It is contended that even based on the materials before the judge at the return date hearing on 26 January 2024 including his skeleton submissions and the oral submissions of his counsel, §1 of the plaintiffs’ summons had no merit at the time of the application.

5.The 1^st defendant’s contentions are along these lines:

(1)  It should have been apparent that damages would be an adequate remedy for the plaintiffs. The Takeovers Code provides for flexible and extensive powers of the SFC, including the power to request the 1^st defendant to revise the GO by amending the GO price to match the highest price offered through the Alleged Arrangement, or to declare the GO to be void. In any event, the 1^st plaintiff failed to articulate and substantiate any loss which it might suffer.

(2)  The powers of the SFC are an important factor which should have tilted the balance against the granting of the injunction but was not taken into account by the judge.

(3)  It should have been apparent that damages would not be an adequate remedy for the 1^st defendant. He would not be able to make another GO for 12 months and would be stuck with his minority shareholding in the 1^st plaintiff for that period. The plaintiffs’ cross-undertaking in damages is not meaningful. There is a real risk that the 1^st plaintiff’s cross-undertaking would not be enforced to prevent shareholders’ money from being used to meet the 1^st defendant’s loss caused by the wrongful conduct of the board. The 2^nd plaintiff is a small shareholder resident out of the jurisdiction with no evidence of her means.

(4)  The judge should not have held that the heightened merits threshold was satisfied on the basis that the 1^st defendant chose not to adduce evidence without even a bare denial of the allegations.

6.It is further submitted that even though the 1^st defendant was willing to give an undertaking in terms of §§2 and 3 of the plaintiffs’ summons, he did so on the basis that the undertaking simply reflects the prohibition of Rule 25 of the Takeovers Code. This does not mean that the plaintiffs had succeeded in part of their application.

7.As for the costs of the ex parte application on 18 January 2024, the 1^st defendant resists the plaintiffs’ attempt to seek costs against him. The plaintiffs did not fully succeed in the ex parte application, as Anthony Chan J only granted an injunction in terms of §§2 and 3 of the plaintiffs’ summons. The injunctions granted simply restrained the defendants from doing what is already prohibited by the Takeovers Code and serve little purpose. The focus of the plaintiffs’ application was §1 of their summons which would have the effect of putting a halt to the GO and was eventually found to be unmeritorious.

8.The plaintiffs seek an order that they should have the costs of the ex parte application and that the costs of the inter partes application should be in the cause.

9.The arguments advanced for seeking costs of the ex parte application are as follows:

(1)  The plaintiffs’ allegations that the 1^st defendant had instructed his cohorts to make under the table arrangements to procure GO acceptances are not vexatious or frivolous and are prima facie credible. The CA Reasons did not hold that the plaintiffs have no viable cause of action.

(2)  The day before the ex parte application, the plaintiffs had written to the 1^st defendant to invite his response to their allegations and to seek undertakings from him that mirrored the relief sought in their summons. The 1^st defendant responded that the allegations were totally unfounded and declined to give any undertaking. Had he given the undertakings as sought, it would not have been necessary for the plaintiffs to make the ex parte application on an urgent basis.

(3)  If most of the undertakings sought merely reflected the prohibition in Rule 25 of the Takeovers Code, the 1^st defendant should have no difficulty in giving the undertakings. The 1^st defendant’s refusal propelled the plaintiffs to believe the strength and validity of their allegations and that there must be something more than meets the eye.

(4)  The granting of the ex parte injunctions demonstrates that Anthony Chan J was evidently satisfied that the application was justifiably made.

(5)  It took the granting of the ex parte injunctions and the issuance of the inter partes summons for the 1^st defendant to give undertakings subsequently in terms of §§2 and 3 of the plaintiffs’ summons.

10.We are not persuaded that the plaintiffs should be awarded costs of the ex parte application. It is not sufficient that the plaintiffs might have a viable cause of action or that their allegations are prima facie credible. The focus and main thrust of the plaintiffs’ application for interlocutory injunction had always been §1 of the summons, which was aimed at putting a halt to the GO. This was demanded in the letter to the 1^st defendant of 17 January 2024 and sought in the ex parte application. We do not think it unreasonable for the 1^st defendant to refuse to give the undertaking. The plaintiffs had failed to obtain an ex parte injunction in terms of §1. §§2 and 3 of the summons merely reflected what the 1^st defendant was prohibited from doing in Rule 25 of the Takeovers Code, and on their own do not justify an ex parte application.

11.As for the costs of the inter partes summons, the plaintiffs repeated the submission that they had to issue a summons for the 1^st defendant to agree to give undertakings in terms of §§2 and 3 of the summons, and thus the plaintiffs have partly achieved their aim. As for the focal issues ventilated at the inter partes hearing, ie whether the plaintiffs have a valid cause of action, the quality of the evidence in support, and whether the plaintiffs had suffered any damages, they would need to be revisited as part of the substantive dispute and be resolved at the trial.

12.In our view, more weight should be given to the apparent lack of merits of the application for interlocutory injunction in terms of §1 of the summons. We are inclined to agree with the 1^st defendant that even on the materials before the judge at the return date, such an injunction should not have been granted, as explained in the CA Reasons. The new evidence we granted leave to adduce on appeal merely bolstered the 1^st defendant’s position that the heightened merits threshold for a mandatory interim injunction was not met. Further, the judge did not appear to have taken into consideration the extensive and flexible powers of the SFC[2].

13.It is appropriate in this instance to award costs of the inter partes application to the 1^st defendant on a party and party basis, and we so order.

14.We also award the costs of the present application to the 1^st defendant. We do not think this application would reasonably require the participation of more than one counsel.

15.The 1^st defendant seeks summary assessment of the costs below as awarded. We are not minded to do so. We would leave it to the taxing master to assess in one go the reasonable costs of the inter partes application below, the two applications for leave to appeal, the appeal, and the present application.

Ms Sabrina Leung, instructed by Jones Day (up to 19 May 2024) and Sit, Fung, Kwong & Shum (from 20 May 2024), for the 1^st Plaintiff (Respondent)

Ms Sabrina Leung, instructed by Jones Day, for the 2^nd Plaintiff (Respondent)

Mr William Wong SC, Mr Vincent Chiu and Ms Tinny Chan, instructed by Michael Li & Co, for the 1^st Defendant (Applicant)