Golden Screen Ltd v. Village Cinemas Australia Pty Ltd and Another

HCCW 368/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 368 OF 2005

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BETWEEN

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Before: Hon Kwan J in Chambers

Date of Hearing: 28 June 2007

Date of Decision: 28 June 2007

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D E C I S I O N

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1.This is a summons for an interlocutory injunction issued by Village Cinemas Australia Pty Limited, the 1^st respondent in a petition for winding up on the just and equitable ground and for relief under section 168A of the Companies Ordinance, Cap. 32.

2.The company concerned is Dartina Development Limited (“the Company”), and the petition was brought by Golden Screen Limited.  The petitioner and the 1^st respondent are equal shareholders of the Company.  The 1^st respondent seeks dismissal of the petition.  In the event that the court should find complaints in the petition established, it will ask for an order to buy out the petitioner, as it wishes to continue running the Company.

3.For the background of the petition, I refer to the decision I gave in dismissing the application to strike out the petition on 12 October 2005, paragraphs 1 to 9.  The petition has been set down for trial, with 15 days reserved.  The trial is to commence on 11 January 2008.

4.The Company operated its cinema development business in Singapore through Golden Village Multiplex Pte Limited (“GVM”).  GVM is a wholly owned subsidiary of Golden Village Holdings Pte Limited (“GVH”), and GVH is in turn wholly owned by the Company.  Pursuant to a shareholders agreement, each of the petitioner and the 1^st respondent has nominated three directors to the board of directors of the Company and of GVM.

5.The petitioner’s complaints in the re-amended petition are founded to a large extent on allegations concerning Kenneth Tan Chih-Sien (“Mr Tan”).  I have summarised the original complaints in paragraph 10 of my earlier decision.  The petitioner has contended that Mr Tan was in breach of his employment contract with GVM and should have been dismissed summarily, and that the 1^st respondent was in breach of the shareholders agreement by condoning Mr Tan’s conduct.

6.Mr Tan was employed as the managing director of GVM for a term of four years commencing on 1 September 2003.  So his term is due to expire on 31 August 2007, less than five months before the trial of the petition.

7.Under clause 4 of the employment contract, GVM has the option to extend Mr Tan’s employment for a further four years or such other period as agreed between them.

8.The 1^st respondent proposed to the petitioner to extend Mr Tan’s employment until 30 days after the final ruling, including appeal, on the issues in the petition.  Mr Tan is agreeable to this proposal.  A resolution to this effect was proposed at a board meeting of GVM on 18 May 2007.  It was not passed as the three directors nominated by the 1^st respondent voted in favour and the three directors nominated by the petitioner voted against it.

9.On 4 June 2007, the 1^st respondent issued the present summons seeking an interlocutory injunction.  The terms of the injunction sought have been modified in a draft order submitted to the court this morning.  I have given leave to amend the summons and the injunction sought is as follows:

“The petitioner whether acting by its directors or employees or by any other agent, including its agents who are directors appointed by or on behalf of the Petitioner herein to be directors of Golden Village Multiplex Pte Limited (“GVM”) or otherwise howsoever be restrained from disputing or challenging or otherwise calling into question, outside of the trial of the Re-Amended Petition herein, which is fixed to take place in January 2008, any exercise by the Chief Executive of the 1^st Respondent pursuant to Clause 20.1 of the Shareholders Agreement dated 24 February 2000 to which the petitioner, the 1^st Respondent, the 2^nd Respondent and GVM are parties, of GVM’s option to extend the employment of Mr Kenneth Tan as the Managing Director of GVM until 30 days after the final determination (including appeal) of the Re-Amended Petition herein or until further order of the Court.”

10.The material change in the terms of the injunction sought is to change this from a mandatory injunction to a prohibitive injunction.  Further, the manner in which GVM is to be procured to exercise the option to extend Mr Tan’s employment is specifically spelt out in that the procedure under clause 20.1 of the shareholders agreement is to be invoked.

11.The case for seeking an interlocutory injunction to extend Mr Tan’s employment has been put in this way:

(1)     GVM needs to have a managing director to take care of day-to-day business and lead its staff.  The business cannot be properly run by the board of directors, not least because the GVM directors generally reside outside Singapore and travel extensively.

(2)     The performance of the business of GVM has been positive under Mr Tan.  According to the monthly managing director’s report for April 2007, the business has consistently hit budget.  The opening of the new cinema at Vivo City has exceeded expectations.  Corporate sales are up, and GVM’s box office market share has increased to almost 50%.  Staff turnover is almost zero.

(3)     It would be impracticable to find a suitable candidate to replace Mr Tan while the present litigation subsists, in view of the uncertainty regarding the future ownership of the business and the current widely publicised shareholders’ dispute.

(4)     Without a leader to guide the staff, there would be disruption to the operation of the business of GVM which could cause under-performance of the business and a diminution in value of GVM.  Possible adverse publicity and loss of goodwill would be difficult to reverse and not easily quantifiable in financial terms.  The 1^st respondent does not want GVM’s business to be damaged with a change in management which might be proved to be totally unnecessary.

(5)     If Mr Tan’s employment is not extended, the reality is that GVM will lose his services as he would most likely move on to another role.  It may not be possible to re-employ him after the determination of the petition.

(6)     The business of the Company and GVM and the value of the shares should be preserved pending trial.  Depending on the evidence that emerges at trial, the court may order the 1^st respondent to buy out the petitioner’s shares in the Company or the petitioner to buy out the 1^st respondent’s shares.  Even if the petitioner’s complaints are made out, the 1^st respondent may end up with all the shares in the Company.

(7)     If Mr Tan is to remain in place pending trial, in light of the positive business performance of GVM, it is unlikely that the petitioner would suffer prejudice.

(8)     The 1^st respondent is willing to provide the usual undertaking as to damages.  It is a wholly owned subsidiary of Village Roadshow Limited and has the financial means to satisfy an order for damages.

12.Before I consider the legal arguments raised by the petitioner in opposing the application, it is pertinent to note these matters in the evidence filed by the petitioner:

(1)     The petitioner has invoked the shareholders agreement, which provided that for the appointment or dismissal of the chief executive officer or general manager of GVM (this is the post occupied by Mr Tan as managing director), which is a “unanimous issue” as defined, this must be approved by both the nominated directors of the 1^st respondent and the petitioner.  I will come back to the question of unanimous consent in view of the terms of the injunction sought as modified.

(2)     The petitioner does not wish to extend Mr Tan’s employment because he has lost the petitioner’s trust and confidence.  The petitioner alleges that the 1^st respondent wishes to retain Mr Tan as a puppet through which the 1^st respondent can continue to control GVM to the exclusion of the petitioner.

(3)     The petitioner has not adduced contrary evidence regarding the business performance of GVM, claiming that it has not verified the managing director’s report for April 2007, but asserts that business could perform better than it has under Mr Tan.

(4)     At the board meeting of GVM on 18 May 2007, the petitioner proposed a resolution that GVM was to identify and engage a head hunter or recruitment agency to commence recruitment of the general manager.  That resolution was not passed as the petitioner’s nominated directors voted in favour and the 1^st respondent’s nominated directors voted against it.  So the 1^st respondent has blocked the petitioner’s attempts to find a replacement general manager.

(5)     In any event, the petitioner does not believe that a replacement general manager is required pending the determination of the petition, as the heads of department in GVM could report directly to the board of directors.

13.Insofar as the petitioner has raised allegations that Mr Tan did not perform well in his job and the petitioner is concerned there is lack of integrity on the part of both Mr Tan and the 1^st respondent, these are matters that go to the merits of the substantive issues in the petition.  I am satisfied there are serious issues to be tried and they should be dealt with at the trial.  It is no part of the function of this court at the present stage to resolve the conflicts of evidence on affidavit as to such disputes.  This is accepted by Mr Westbrook, SC for the petitioner.

14.The test I apply is the test in American Cyanamid v Ethicon Limited [1975] AC 396, with necessary adjustments, as I should not be asking whether damages would be an adequate remedy to the 1^st respondent in the context of this petition, but whether the 1^st respondent can be adequately compensated by an order for financial compensation or if this can be adequately reflected in the valuation of the Company’s shares in the event of a buy-out (Re Posgate & Denby (Agencies) Ltd. [1987] BCLC 8 at 15d to e).

15.I first ask whether there is any jurisdictional bar to this application.

16.Mr Barlow, SC for the 1^st respondent submitted there is none.  By the petitioner’s petition, the petitioner has sought to invoke class remedies which, should the court after trial decide to grant them, whether or not in the form sought by the petitioner, would alter the existing legal rights of all members of the class.  By the 1^st respondent’s summons for an interlocutory injunction, the 1^st respondent seeks interim protection of its class rights pending the trial of the petition.  Mr Barlow acknowledged that unusually here, the court is asked to provide interim injunctive relief by a party who has not expressly applied for substantive or final relief in the petition.  He pointed out that there is no procedural provision for the bringing of a counterclaim to a petition.  In any event, no such provision is needed in the case of a petition of this kind, because upon the presentation of a petition by a member of the class concerned, the substantive rights of all members of the class are put in issue.  If those substantive rights may be detrimentally affected by actions or omissions of any other party to the substantive litigation, jurisdiction exists for the court to provide interlocutory protection by an interim injunction (Re Ravenhart Service (Holdings) Limited [2004] 2 BCLC 376 at 395g to h).

17.I agree with those submissions.  Here, the right to an interlocutory injunction is incidental to and dependant on the enforcement of a substantive right, being the substantive right of each of the shareholders placed in issue by the presentation of the petition.  Mr Barlow says that the 1^st respondent has a cause of action as defined in Letang v Cooper [1965] 1 QB 232 at 242, being simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another.  In any event, the substantive right for the purpose of seeking an interim injunction may not invariably take the shape of a cause of action although it usually does (Channel Tunnel Group Limited v Balfour Beatty Construction Limited [1993] AC 334 at 362C, per Lord Mustill).

18.Before the summons was amended, Mr Westbrook argued for the petitioner that the injunction sought should be refused, because according to the express provisions of the shareholders agreement, the petitioner is entitled to block the resolution to extend the employment of Mr Tan, this being a unanimous issue which would require unanimous consent.  The powers given to the court under section 168A enables the court to give full effect to the terms and understandings on which members of a company became associated, it does not enable the court to rewrite them (Re Posgate & Denby, supra. at 14f).

19.In the light of that objection, the 1^st respondent has modified the terms of the injunction in its amended summons.  The 1^st respondent now seeks to rely on clause 20.1 of the shareholders agreement, which provides that in the event the shareholders are in dispute regarding any matter relating to GVM, any shareholder may by notice in writing refer the dispute to the chief executive of each shareholder who shall consult with each other in good faith and use their best endeavours to resolve the dispute, and if the matter relates to a “management issue”, that is other than a unanimous issue, the chief executive of the 1^st respondent may decide the matter.

20.The 1^st respondent contended that the exercise of GVM’s option to extend the employment of Mr Tan under his contract is not a unanimous issue but a management issue, as this is not an appointment but an extension of the appointment of an existing chief executive officer/general manager.  So the issue on the dispute may be decided by the chief executive of the 1^st respondent.  The 1^st respondent now seeks an interlocutory injunction to restrain the petitioner from disputing or challenging any exercise of GVM’s option by the chief executive of the 1^st respondent pursuant to clause 20.1.

21.The 1^st respondent may or may not be right about its interpretation of management issue and other relevant provisions in the shareholders agreement.  I think that is a respectable argument and in any event it could be decided at the trial if the petitioner wishes to argue the matter.

22.Mr Westbrook submitted that the application for this injunction should be refused as this is premature.  There are a number of prerequisites for the procedure in clause 20.1 to be invoked, they are a dispute arising, a notice in writing to be given by one shareholder to the other, consultation between the chief executives of the petitioner and the 1^st respondent, before the chief executive of the 1^st respondent may decide the matter.  Mr Westbrook contended that these prerequisites have not been met.  Mr Barlow has taken me to the correspondence between the parties in May 2007 and the minutes of the board meeting of 18 May 2007.  He submitted the prerequisites have in effect been met.  In any event, the court has jurisdiction to grant a quia timet injunction in an appropriate situation.  I do not think the argument that the application is premature is a valid one.  Nor do I think there is substance in Mr Westbrook’s technical objection that the injunction should not be granted as GVM is not before this court.

23.Mr Westbrook has referred the court to the decision of Ma J, as he then was, in Music Advance Ltd & Another v The Incorporated Owners of Argyle Centre Phase I, HCA No. 2574 of 2002, 30 August 2002, in which Ma J gave a useful and comprehensive analysis of the applicable principles for granting a mandatory interlocutory injunction in paragraphs 12(1) to (9).  I do not propose to set out the relevant extract.  As Ma J has explained, properly understood, the basic approach to interlocutory injunctions, whether mandatory or prohibitory, is the same.  Applying those principles, the approach I take in carrying out the balancing exercise is that I should take the course which appears to carry the lower risk of injustice if it should turn out that I may make the wrong decision on this application, in the sense that the party to whom an interlocutory injunction has been granted may lose at the trial, or the party who has been refused an injunction may win.

24.Here, I am persuaded that the course which would carry the lower risk of injustice is to grant the injunction sought.  If Mr Tan’s employment were not extended, the disruption to the operations of GVM, the adverse publicity, and the loss of goodwill are losses not easily quantifiable, and are matters which the 1^st respondent may not be adequately compensated by the relief that may be granted on the hearing of the petition.  If the injunction was wrongly granted, any possible damage to the petitioner or the Company can be taken into account in assessing the fair price for the Company’s shares.  I find that the balance of convenience is firmly in favour of granting the injunction, to preserve the status quo pending trial.

25.I will therefore make an order in terms of the injunction as sought.

26.Mr Westbrook has sought the costs of this application up to yesterday in view of the amendment to the summons.  I am persuaded that the change from seeking a mandatory injunction to a prohibitive one does not alter substantially the merits of that application.  The fair order to make in the circumstances is that costs of the application be in the cause of the petition.

Mr Simon Westbrook, SC, instructed by Messrs Clifford Chance, for the Petitioner

Mr Barrie Barlow, SC, instructed by Messrs Lovells, for the 1^st Respondent