Samlane Development Ltd v. Fung Chi Fai and Another

HCA 2102/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2102 OF 2005

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BETWEEN

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Before: Deputy High Court Judge Saunders in Chambers

Date of Hearing: 23 January 2006

Date of Judgment: 23 January 2006

Date of Reasons for Judgment: 24 January 2006

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REASONS  FOR  JUDGMENT

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1.This application for interim injunction came before me on 23 January 2006.  After hearing from counsel for Samlane I dismissed the application without calling upon counsel for the defendants, and indicated that I would give my reasons later.  These are my reasons.

2.Samlane was incorporated in January 1994, and carries on business providing transportation and logistics services.  Mr Fung was, and still as, a director of Samlane.  In April 2005, Jumbo Faith was incorporated by Mr Fung’s son, Sam Fung.  Prior to the end of February 2005, Sam Fung was employed by Samlane.  Sam Fung is the sole shareholder and director of Jumbo Faith.

3.Park’n Shop engaged Samlane to provide transportation and logistics services, in particular in a business involving containers and trays used by Chinese vegetable suppliers to Park’n Shop.  There was a written agreement between the two companies under which Samlane provided trays to Park’n Shop at $5.20 per tray.  The agreement was due to expire on 30 April 2005.  In November 2004, there were negotiations between Samlane and Park’n Shop, those negotiations being conducted by Mr Fung for Samlane, as a result of which the service fee to be charged was to be reduced to $4.70 per tray from 1 March 2005, onwards for one year.  It is apparent from that agreement that although the principal agreement between the parties was due to expire on 30 April 2005, it was anticipated between the two that it would continue beyond that date.

4.It is contended that on 14 April 2005, Samlane was informed that Mr Fung reached agreements directly between the vegetable suppliers for the provision of trays, to the exclusion of Park’n Shop, and, effectively, Samlane.  As Park’n Shop would no longer be involved in payment for the trays, they did not extend the agreement with Samlane beyond 30 April 2005.  On 26 April 2005, Mr Fung is said, in the presence of his son Sam Fung, to have openly declared to Samlane’s employees that he had taken over the tray business from Samlane, and, apparently successfully, induced those employees to join his new company, Jumbo Faith.

5.In these circumstances Samlane contends that Mr Fung is in breach of his fiduciary duty as a director of Samlane.  Samlane further contends that Jumbo Faith, although not in a fiduciary relationship with Samlane is liable by virtue of its connection with Samlane through Sam Fung and Mr Fung, in breach of confidence, and participation in breach of fiduciary duty: see Crown Dilmun & Anor v Sutton & Anor [2004] 1 BCLC 468.  If the facts are established as they are asserted by Samlane, there appear to be good grounds to contend for liability on the part of the defendants.

6.Five months after these events, on 26 October 2005, Samlane issued a writ, with a statement of claim, seeking damages and an injunction against both defendants.  At the same time an inter partes summons for an interlocutory injunction was sought restraining both defendants from soliciting, entering into, performing, or continuing to perform any contract with Park’n Shop or any of the vegetable suppliers who supplied Chinese vegetables to Park’n Shop.  The interlocutory injunction sought would have effectively required Jumbo Face to terminate the business it had established in relation to the supply of trays.

7.At the same time as the summons was filed three affidavits in support were filed.  The summons for the interlocutory injunction was returnable on 11 November 2005. There were apparently discussions between the solicitors for Samlane and the solicitors for the two defendants, for on 10 November 2005, a consent summons was filed adjourning the summons for the interlocutory injunction to a date to be fixed, and requiring the defendants to file and serve their affidavits within 14 days.  Notwithstanding that time requirement, and apparently without objection, affidavits were filed by Mr Fung and Sam Fung on 1 December 2005.

8.Of particular relevance is 28 of the affidavit of Mr Fung.  That says, (inter alia):

“In any event, according to him, Samlane knew that the vegetables suppliers had used the service of Jumbo Faith (or as he claims, my service which is denied) since May, this year.  He did not take this action until late October 2005.” (sic)

Thus the issue of delay was directly raised in the affidavits.  An affidavit was filed in reply but there was no response on the question of delay.

9.When the matter came before me for hearing I asked Mr Ma, on the assumption that in all other respects he was entitled to the injunction he sought, what explanation there was for the delay.  Mr ma first sought to refer to matters not in evidence.  Mr Lin opposed that I and required Mr Ma to deal with the evidence that had been filed.  Mr Ma’s response was that it was necessary for Samlane to make inquiries of the vegetable suppliers to ascertain the circumstances in relation to the tray business, following the non-renewal of the contract with Park’n Shop at the end of April 2005.  Mr Ma accepted, as he was obliged, that all the information required to seek the interim injunction was available to Samlane at least by May 2005.  There was no explanation at all for the delay between May 2005, and the issue of the writ in October 2005, a period of five months.

10.In the injunction sought was one which would have effectively required Jumbo Faith to terminate its business pending the resolution of the action.  The normal purpose of an interim injunction is to preserve the status quo.  By the time the matter came before the court, whether it be at the time of filing of the writ, or the hearing of the application for interlocutory relief, the status quo was that Samlane’s contract with Park’n Shop had long terminated, and no other contract had been established in its place.  At the same time Jumbo Faith had established a new business, directly with the vegetable sellers, albeit a business which had been previously undertaken in the contract Samlane had with Park’n Shop.

11.There is a heavy burden on a plaintiff in circumstances such as these, where it is contended that its business has been unfairly or illegally taken from it by some other party.  If a plaintiff wishes to restrain that other party, pending trial, from undertaking its business, the plaintiff must move with all due expedition.  The courts will certainly allow a plaintiff a period of time to investigate the matter, as the even greater burden in seeking ex parte relief is fully appreciated.  But once the plaintiff has its information to hand it must move immediately, or be prepared to explain any delay.

12.In the present case there is no explanation of the delay of five months from the cause of action arising and Samlane learning of the basis for the cause of action, and the issue of a writ.  Samlane has not proceeded with all due expedition.  Once the writ was issued Samlane has taken a leisurely approach to bringing the interlocutory injunction proceedings on for hearing.  Although agreeing to time to the defendants to file affidavits Samlane allowed greater time without objection.  When responding to those affidavits it has elected not to respond at all on the issue of delay.

13.The question of delay was put the following way in Carlton and United Breweries (NSW) Pty Ltd v Bond Brewing New South Wales Ltd (1987) 76 ALR 633:

“In our opinion, CUB (NSW)’s delay in bringing these proceedings is, of itself, a sufficient reason for declining to grant an interlocutory injunction.  Put differently, the failure by CUB (NSW), without reasonable excuse, to institute this action with some measure of expedition is, we think a decisive factor against the grant of the urgent, interim relief now sought.”

14.The proposition is entirely apposite here.  Assuming, without deciding, that there is a serious question of law or fact or both to be decided, I am satisfied that in this case the interim injunction should be refused because of discretionary considerations, namely the long and unexplained delay in seeking interim relief, following Samlane becoming fully aware of the basis upon which it believed it was entitled to relief.

15.Neither the interim injunction, nor the permanent injunction sought can restore Samlane’s contract with Park’n Shop.  They can only exclude Mr Fung and Jumbo Faith from the tray market.  Samlane has dallied too long to now demand that Jumbo Faith cease business.  They have an adequate remedy in damages.

16.For these reasons I exercised my discretion against the grant of interim relief.  There will be an order nisi that costs on the application for interim relief will be to the defendants, in the cause, on a party and party basis.

Mr Johnny K C Ma, instructed by Messrs John Ho & Tsui, for the Plaintiff

Mr Kenny C P Lin, instructed by Messrs B Mak & Co., for the Defendant