Edward Seky Soeryadjaya and Another v. Vickers Ballas Hong Kong Ltd. and Others
Read the full judgment text of on BabelCite. was delivered on 9 December 1996.
1. On 4 October 1996, the plaintiffs obtained an order, ex parte on notice to the first, second, third and fifth defendants, from Patrick Chan, J relating to 770,469,230 shares in the fifth defendant. The order restrained the first defendant, to which the shares had been pledged by the second defendant, from disposing or dealing with the shares, restrained the second and third defendants from procuring the transfer of the shares to the fourth defendant, which was the purported purchaser of the s
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HCA011360A/1996 1996, No A11360 IN THE SUPREME COURT OF HONG KONG HIGH COURT
Coram: the Hon Mr Justice Findlay, in Chambers Date of hearing: 4 December 1996 Date of handing down judgment: 9 December 1996 --------------- J U D G M E N T --------------- Background 1. On 4 October 1996, the plaintiffs obtained an order, ex parte on notice to the first, second, third and fifth defendants, from Patrick Chan, J relating to 770,469,230 shares in the fifth defendant. The order restrained the first defendant, to which the shares had been pledged by the second defendant, from disposing or dealing with the shares, restrained the second and third defendants from procuring the transfer of the shares to the fourth defendant, which was the purported purchaser of the shares under an agreement dated 29 August 1996, and restrained the fifth defendant from registering any transfer of the shares. 2. This injunction was granted "upon the Plaintiff by Counsel undertaking . . . To abide by any Order this Court may make as to damages in case this Court shall hereinafter be of the opinion that the Defendants or any of them shall have sustained any by reason of this Order which the Plaintiffs ought to pay." 3. On 10 and 11 October 1996, I heard applications to discharge and continue the injunctions. On 14 October 1996, I handed down a written judgment. I concluded that judgment by saying -
4. The plaintiffs wished to have the injunction on the condition mentioned. I then heard submissions on the amount of the fortification. Mr Scott proposed a figure of $75 million on the basis of possible damages based on a fall in the value of the shares concerned. Mr Garland, who then appeared for the second defendant, which, it was alleged, was then under the control of a different faction of directors, proposed, as I remember, $175 million, also based on possible damages arising from a loss in value of the shares. I told Mr Garland that the figure I had had in mind was, in fact, somewhat lower than that proposed by Mr Scott. In the result, I set the figure at $75 million. The order was that the injunction be continued -
5. The plaintiffs had difficulty in supplying the letter of guarantee. On 25 October 1996, I extended the time within which it was to provided by 14 days. 6. On 8 November 1996, Patrick Chan, J. ordered that, unless the plaintiffs provide fortification in the sum of US$5 million within 7 days and the balance within 14 days, the injunction be discharged and there be an enquiry as to damages. 7. On 15 November 1996, the first plaintiff issued a notice of payment into court of US$5 million. This, I am told, was by way of a bank draft, but the Registrar's account has not yet been credited with the proceeds. 8. On 19 November 1996, Patrick Chan, J. ordered that the injunction granted by him on 4 October 1996, and continued by me on 14 October 1996, "be reinstated", because, presumably, the injunction had lapsed. He also ordered that the "unless order" do stand with the variation that a bank draft issued by a Hong Kong bank be acceptable in lieu of a bank guarantee. 9. On 29 November 1996, on the application of the plaintiffs, the injunction made and 4 October 1996 and continued on 14 October 1996 was discharged by Cheung, J. The order made no mention of the reinstatement of the injunction by Patrick Chan, J. on 19 November 1996. Cheung, J. also ordered that the requirement to provide "the balance of the fortification" be extended until the determination by me of the plaintiff's summonses dated 27 and 28 November 1996. The Summons 10. The plaintiffs' summons of 27 November 1996 is the one dealt with by this judgment. The summons of 28 November 1996 concerns amendments to the pleadings to remove the second plaintiff, which is the majority shareholder in the second defendant, and to move the second defendant into the vacated slot. This second summons has been dealt with in part, leaving some questions stood over. 11. The summons of 27 November 1996 asks for orders that the injunction of 4 October 1996, continued on 14 October 1996, be discharged. This was dealt with on 29 November 1996. Mr Huggins raised some doubt as to whether, in effect, an injunction remained in operation because, he argues, the original injunction had already fallen, and what should have been discharged was the reinstatement by Patrick Chan, J. on 19 November 1996. To settle this doubt, and on the understanding that this would not affect the arguments in relation to the other relief sought by the plaintiffs, I discharged what might have remained of the injunction. 12. The other relief sought by the plaintiffs in their summons of 27 November 1996 is that they "be relieved from and from the obligation to fortify the cross undertaking in damages" provided by my order of 14 October 1996, and that the payment into court of US$5 million be paid out to the first plaintiff. The Issues 13. Mr Scott submits that the issues raised are -
14. Mr Huggins, on the other hand, poses the question for me in a different way -
15. Mr Cheung uses a similar approach. Both counsel suggest that the answer to this question should be 'no'. Mr Scott's First Question 16. As to Mr Scott's first question, I do not see the matter as me requiring the security to stand as fortification of the plaintiffs' undertaking to pay damages. That is what it presently does. That requirement has already been undertaken by the plaintiffs and embodied in an order of this Court. If I made no order on this summons, the security would stand for this purpose. If, in due course, it is found that the injunction should not have been obtained and that the defendants have suffered damages thereby, and the plaintiffs fail to pay these damages, the defendants will be able to have recourse to the security. That is the present position, and is not altered one jot by the fact that the injunction has been discharged. In other words, I do not think that there is any change in the nature of the security because the injunction not longer exists. 17. In Commodity Ocean Transport Corp. v. Basford Unicorn Industries Ltd. [1987] Vol. 2 197, the plaintiff obtained a Mareva injunction and the plaintiff gave an undertaking in the usual form. The injunction was discharged and the defendants applied for an order that the plaintiffs give security for their undertaking. Hirst, J. refused this because it would involve requiring the plaintiffs to pay an "extra price" for their injunction, which they might have declined to pay in order to obtain the injunction if this option had been before them at the time. This I understand, but it has no application to the case before me. Hirst, J. does make some remarks that seem to indicate that there is some difference between fortifying an undertaking and giving security for the undertaking, but, if there was a difference on the facts of that case, it does not seem to me that there is a difference on the facts of the one before me. In the case before me, the fortification that the plaintiffs undertook to give was security for the defendants damages. The Second Question 18. The second question, as I see it, is, given that the undertaking by the plaintiffs to fortify their undertaking as to damages by security stands, do I have jurisdiction to change that situation. 19. I was referred to the decision of Millett, J. in In re D.P.R. Futures Ltd. [1989] 1 W.L.R. 778 in which he said, at page 786E, referring to an undertaking as to damages -
20. The way in which the fortification would be reviewed, with a view to increasing it, would be indirectly, by considering it as a condition for the continuance of the injunction. It could not be done directly because the court could not require the plaintiff to give an undertaking in isolation; only as a "price" for continuation, which the plaintiff would be free to accept or reject. 21. What would be the situation, as here, if the plaintiff no longer wishes to have the protection of the injunction; it had served its purpose? How could a court effectively require further fortification? If the court said that, for continuation of the injunction, you must provide further fortification, the plaintiff would say - "Thank you, but I do not want a continuation, so I will not provide further fortification". That, in my view, would be the end of the matter. And this is so even with the express provision in my order that "There be liberty for any party to apply in relation to the said fortification upon reasonable notice.". If a defendant had applied for further fortification, I would have been restricted to imposing the requirement as a condition of further continuance of the injunction. 22. That seems to me to be the situation when further fortification is sought. What about the situation in which a diminution of the fortification is sought? In a situation in which there is no express provision for liberty to apply to vary the fortification, I would have thought that a court could not grant a reduction in the fortification. One cannot carry the contractual analogy too far. The parties did not agree on fortification so that it might be said that the court should not interfere in that agreement. But the situation is that I said to the plaintiffs, in effect - "You may have your injunction if you undertake to provide fortification by way of this security for the defendants damages," and they said, "Thank you; will take the injunction and meet the condition.". Having got what they wanted, and paid the price, normally a court, I apprehend, should not renegotiate the "deal". But here, at the time, the parties asked me to include a special provision regarding liberty to apply because it was thought that there might be unforeseen circumstances that could require changes, and this was incorporated into the order. 23. The situation before me, as I see it, is similar to that before the English Court of Appeal in Chanel Ltd. v. Woolworth & Co. [1981] 1 W.L.R. 485. There, Buckley, L.J. said, speaking of a consent order -
24. Buckley, L.J. went on to say -
25. Here, we do not have an order by consent, but the plaintiffs consented to give the undertaking in return for the injunction. There was no statement expressly that the order was until further order, but the express provision for liberty to apply has, in my view, an identical effect. The parties agreed to this provision, and the application before me is in accordance with it, just as would have been an application by the defendants for further fortification as a condition of continuance of the injunction. 26. Accordingly, I hold that I am able to vary the undertaking given by the plaintiffs if there are good grounds for doing so. By good grounds, I mean, following Buckley, L.J., some significant change of circumstances. It is not suggested by Mr Scott that the unknown facts ground exists here. Are There Good Grounds? 27. Mr Scott, of course, says there such good grounds. Mr Huggins and Mr Cheung say there are not. 28. Mr Scott argues that any loss suffered by the defendants would have been caused, not by the injunction, but by the attitude of the first defendant, which had said that it was going to hang onto the shares until the situation was sorted out. I do not intend to take this factor into account. That is for whoever conducts any inquiry into damages. It is not, in any event, a significant change of circumstances. 29. Mr Scott then says that the third defendant cannot say that he has suffered any damages arising from the injunction. The injunction is not, of course, directed at the third defendant, although the undertaking is in favour of all the defendants. I agree that is difficult to see what damages the third defendant could have suffered by a transfer of the shares being prevented. He, himself, disavows any interest in the shares or the fourth defendant to which they are said to have been sold. But this is not a new circumstance. What is being said now could have as easily been said at the earlier hearing. In any event, for reasons that I do not think are the fault of the third defendant or his advisers, he did not come to court anticipating that he might be expected to show that he has suffered damages. 30. A new circumstance, says Mr Scott, is the fact that the majority share-holder, the second plaintiff, has now regained control of the board of the second defendant, which was the owner of the shares. Is this a significant change of circumstances in itself? I think not. I test this by asking whether it would made any difference to what happened on 14 October 1996 if the second defendant had been a party seeking the injunction. The answer to that must be 'no'. I assumed in my judgment that control of the second defendant would change. What has happened was foreseen. 31. Another new circumstance, according to Mr Scott, is that we now know that the restraint is at an end. He points out that the injunction was in force only from 4 October 1996 until 29 November 1996. Mr Huggins, as I have already said, maintains that an injunction, with a short interregnum, was in force from 4 October 1996 until 4 December 1996. On either version, there was an injunction in force for some 8 or 9 weeks. I do think this is significant. It results in a situation in which the defendants can claim, if they succeed, that they were wrongfully locked out of the shares by the injunction only until, at the latest, 4 December 1996, as opposed to a situation in which they might have been so restrained until after the trial, a very long time away. I stress here that I am, to honour Mr Scott's concession, treating the matter as if I were dealing with the matter of the variation of the fortification at the same time as a discharge of the injunction. But the fact that the restraint no longer exists cannot be ignored. 32. It must be so that the chances of a significant drop in the value of the shares is greater over a longer period than a shorter period. The amount of the fortification was set on the basis of a possible drop in the value of the shares. The trading in the shares was suspended at the commencement of these proceedings. During the few days before this suspension, the shares traded for between 22.6 cents and 25.5 cents as compared with the price at which they were purportedly sold by the second defendant to the fourth defendant of 13 cents. There are 770,469,230 shares. At 13 cents, the value of the shares was $100,160,999.90. At 25.5 cents, the value was $196,469,653.65. It seems to me that, certainly in the short term, the probability is that the shares will retain the value they had, or will rise. This also seems likely on the basis of the assessment of both sides involved in this case; they would not be fighting so vigorously for possession of them if they did not believe that. 33. Another significant change of circumstance is that now only the third and fourth defendant are concerned about the matter of fortification. The first defendant takes a neutral stance. The second defendant is now a plaintiff, although this is not of significance in the sense that it was not anticipated. The proceedings are to be discontinued against the fifth defendant. This means that there are now fewer participants to share the pie of the fortification provided by way of the security. The Amount 34. I believe these significant changes of circumstances justify a fresh look at the fortification provided by way of security. The amount provided so far, or which is in the process of being provided, is US$5 million. This is a very large sum of money, and, in my assessment, is adequate security for any damages likely to have been suffered by the third and fourth defendants. I told the parties on 14 October 1996 that Mr Scott's offer of HK$75 million was more than I had in mind, but, having made the offer, Mr Scott could hardly resile from it. The figure I had in mind at that time was more in the region of HK$50 million. Taking into account the changed circumstances I have mentioned, I think US$5 million as security for the fortification is reasonable. The Result 35. Accordingly, I refuse the application that the plaintiffs be relieved of their obligation to fortify, and I refuse the application for the US$5 million be paid out to the first plaintiff. I do, however, order that the plaintiffs be relieved of their obligation to fortify beyond that sum of US$5 million. The Costs 36. As to costs, it seems to be agreed on all sides that the costs should be reserved to the trial judge. Mr Huggins does say that the costs of the summons of 29 November 1996 should be paid by the plaintiffs in any event, but I think these would be better dealt with by the trial judge as well. He will have a better over-view of the whole case than is possible now. I order that the costs be reserved to the trial judge.
Representation: Mr John Scott, QC, instructed by Messrs Robertson, Double & Lee, for the plaintiffs. Ms Fiona Wong of Messrs Charles Yeung & Co, for the first defendant. Mr William Stone, QC, instructed by Messrs Richards Butler, for the second defendant. Mr Adrian Huggins, QC, instructed by Messrs Carey & Hui, for the third defendant. Mr Andrew Cheung, instructed by Messrs Baker McKenzie, for the fourth defendant. Mr Crook, of Messrs Simmons & Simmons, for the fifth defendant. |