Wah Nam Holdings Co. Ltd. and Others v. Excel Noble Development Ltd. and Others
Read the full judgment text of on BabelCite. was delivered on 14 October 1999.
1. On 1 June 1999, the Plaintiffs applied ex parte on notice to Pang, J. for interlocutory injunctions against the 1st to 7th Defendants, who were the legal holders of certain Convertible Loan Notes, of which the Plaintiffs claim to be beneficial owners (save as to 40% of Convertible Loan Note "A").
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HCA008974B/1999 HCA 8974/99 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 8974 OF 1999 -----------------------------------
Coram: Madam Justice Yuen in Chambers Date of Hearing: 12 October 1999 Date of handing down Decision: 14 October 1999 -------------------- D E C I S I O N -------------------- 1. On 1 June 1999, the Plaintiffs applied ex parte on notice to Pang, J. for interlocutory injunctions against the 1st to 7th Defendants, who were the legal holders of certain Convertible Loan Notes, of which the Plaintiffs claim to be beneficial owners (save as to 40% of Convertible Loan Note "A"). 2. At the same time, the Plaintiffs applied for an interlocutory injunction against the 8th Defendant Company, the issuer of the Convertible Loan Notes. 3. Undertakings in lieu of injunctions were given by the 1st to 7th Defendants that they shall refrain until the determination of the inter partes summons or until further order from dealing with the Convertible Loan Notes (save as to 40% of Convertible Loan Note "A"). 4. As for the 8th Defendant Company, an injunction was granted in the following terms:-
1st to 7th Defendants' application for release of undertakings 5. On 8 July 1999, the 1st to 7th Defendants applied by summons to be released from their undertakings, and for an order that there be an enquiry as to damages which the 1st to 7th Defendants have suffered which the Plaintiffs ought to pay. In that summons, there was also an application for an order that "the interlocutory injunction order of Mr Justice Pang be discharged", which presumably referred to the injunction order made against the 8th Defendant Company. 6. The 1st to 7th Defendants' application for release was made on 2 grounds:- (i) material non-disclosure of the Plaintiffs' financial position and (ii) abuse of process. Decision on application for release of undertakings 7. In my Decision handed down on 21 July 1999, I found that the Plaintiffs' financial state was extremely grim, and that they should have disclosed the materials concerning that position to Pang, J. at the hearing of the ex parte application, so that he could have considered that factor in his decision whether to grant an injunction or to require the 1st to 7th Defendants to give an undertaking in lieu of an injunction, or not. I accordingly released the undertakings on that ground. 8. As to the second ground relied upon by the 1st to 7th Defendants, I found that I could not accept their submission that there was evidence at that stage of a collateral purpose such as to render the proceedings an abuse of process. Position of injunction against 8th Defendant Company 9. In so far as the 8th Defendant Company was concerned, it did not ask for a discharge of the injunction. The 1st to 7th Defendants did ask for the injunction against the 8th Defendant Company to be discharged, but as no submissions had been made to me at that stage on the relevant procedure, I gave leave to all parties to apply. Basis of 1st to 7th Defendants' application to discharge injunction against 8th Defendant Company 10. Mr Houghton, counsel for the 1st to 7th Defendants, has submitted that since the undertakings have been released by reason of the Plaintiffs' material non-disclosure, the Court should also discharge the injunction against the 8th Defendant Company. 11. He has relied on Harbottle Ltd v National Westminster Bank [1978] 1 QB 146 where Kerr J held that:-
12. I respectfully adopt that statement of the law. However, the question here is whether, and if so, how it applies to the facts of the present case. 1st to 7th Defendants not adversely affected by injunction against 8th Defendant Company 13. I deal first with the question whether the 1st to 7th Defendants are adversely affected by the injunction against the 8th Defendant Company. 14. Of the Convertible Loan Notes relevant to this action, 2 Notes (Notes "C" and "D") have been "rescinded" by the 8th Defendant Company. Therefore, no funds would be forthcoming by way of interest on these Notes until the issue of the validity of the "rescission" has been resolved, and the interest on these Notes has not been made the subject-matter of submissions by the parties at this hearing. 15. The remaining 2 Notes are Notes "A" and "B". There is no dispute that the 1st to 7th Defendants (or one or some of them) are beneficially entitled to 40% of Note "A". The interest on 100% of Note "B" and on 60% of Note "A" have been referred to as "the Relevant Interest". 16. In this connection, it is important to note that the 1st to 7th Defendants are not putting forward the case that the 8th Defendant Company should pay the Relevant Interest to them directly at this point in time. 17. The 1st to 7th Defendants accept that the Relevant Interest should be paid into an escrow account, as had been agreed before the injunction. That is also the 8th Defendant Company's position, indicated by its counsel at the hearing before me in July and also at this hearing. 18. That seems a sensible solution, given that (a) a company in the position of the 8th Defendant Company would have been entitled to interplead in the event of rival claims to the funds; and (b) in any event, the status quo before the injunction was that interest had been paid into an escrow account, and not directly to the 1st to 7th Defendants anyway. 19. As I construe the injunction order, there is nothing which prohibits the 8th Defendant Company from making payment of the Relevant Interest into an escrow account. The injunction merely prohibits the 8th Defendant Company from making payment of the Relevant Interestto the 1st to 7th Defendants, and as I have said, the 1st to 7th Defendants are not seeking a discharge on the basis that the 8th Defendant Company should now directly pay them the Relevant Interest. 20. The fact that the 8th Defendant Company has since June 1999 failed to pay the Relevant Interest into an escrow account (despite its stated preparedness to do so) is another matter. The injunction was not couched in positive terms, requiring the 8th Defendant Company to pay the funds into an escrow account. It simply restrained the 8th Defendant Company from paying the interest to the 1st to 7th Defendants directly. What remedies the 1st to 7th Defendants may have against the 8th Defendant Company in relation to this failure are not the subject-matter of the hearing before me now. 21. Mr Houghton submitted that the 8th Defendant Company may be using the injunction order as a "shield" to avoid paying the Relevant Interest into the escrow account. 22. However that is not the 8th Defendant Company's position. At the hearing before me in July, the 8th Defendant Company has through its counsel stated that it was prepared to pay the Relevant Interest into an escrow account. That position was repeated in its solicitors' letter dated 9 October 1999, and again by its counsel at this hearing before me. 23. Mr Houghton has also referred me to the fact that the Plaintiffs have in an announcement dated 23 July 1999 stated that they have put the 8th Defendant Company on notice that if the Company pays any interest on Notes A and B, the Company "may be assisting in breach of trust committed by the 1st to 7th Defendants and may expose itself to legal proceedings by the Plaintiffs if they are able to prove their claims against the 1st to 7th Defendants". 24. That is of course the position of the Plaintiffs, but the 8th Defendant Company has not allied itself with that position. 25. In those circumstances, I do not see how it can be said that the 1st to 7th Defendants are third parties adversely affected by the injunction, since the injunction does not restrain the 8th Defendant Company from paying the Relevant Interest into an escrow account, in accordance with the agreement to which the 1st to 7th Defendants are parties. Accordingly, the 1st to 7th Defendants are not entitled to seek a discharge on this ground. Exercise of Court's inherent jurisdiction 26. I turn then to Mr Houghton's other submission, which was that the Court should in the exercise of its inherent jurisdiction, discharge the injunction against the 8th Defendant Company on the basis that it is just and convenient to do so (Harbottle p.158D-E). 27. In this connection, it should be noted that the matters the non-disclosure of which I found to be material, warranting the release of the undertakings, pertained to the Plaintiffs' financial position, which was relevant to the Plaintiffs' ability to pay damages to the 1st to 7th Defendants. It was not a case of material non-disclosure of facts relevant to the establishment of a cause of action, as in Harbottle. I had not acceded to the application to release the undertakings on the ground of abuse of process. 28. As such, it must be relevant to see what damages the 8th Defendant Company might suffer if the Court finds at the determination of this action that the injunction should not have been granted. 29. Given that the Relevant Interest had, prior to the injunction, been paid into an escrow account by agreement of the parties, and the 1st to 7th Defendants remain content with that position, they could not mount an action against the 8th Defendant Company for its failure to pay the Relevant Interest to them. 30. Thus it is difficult to see how the 8th Defendant Company might incur damages (or a liability to pay damages to others) by reason of the injunction. Accordingly, the ramifications of the Plaintiffs' non-disclosure of their financial situation are of no or minimal significance vis-a-vis the 8th Defendant Company. 31. Hence, when Pang, J. granted the injunction against the 8th Defendant Company, the factor of the Plaintiffs' financial position would have been of no or little weight. That is a matter which I have to take into account in the exercise of my discretion whether to allow the injunction (which had been granted by Pang, J.) to be continued, or to discharge it. 32. Further, the injunction preserves the status quo of the agreement between the parties that the interest be paid into an escrow account. The 8th Defendant Company has been represented by counsel both at the July hearing and at this hearing, and it has not sought a discharge of the injunction. 33. Taking all the above circumstances into account, at this stage, I do not see the need to disturb Pang, J's order and I would therefore in the exercise of my discretion decline to discharge the injunction. Costs 34. The 1st to 7th Defendants having failed in their application, I would give an order nisi that the costs of the application follow the event, i.e. that the 1st to 7th Defendants pay the costs of the Plaintiffs and the 8th Defendant in any event.
Representation: Miss Priscilla Wong instructed by David Lo & Partners for the Plaintiffs Mr Anthony Houghton instructed by Horvath & Giles for 1st to 7th Defendants Mr Benjamin Chain instructed by Siao Wen & Leung for 8th Defendant |