Chang Jui-meng v. Long Health International Ltd
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HCA 1822/2008 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1822 OF 2008 ---------------------- BETWEEN
---------------------- Before: Hon Kwan J in Chambers Date of Hearing: 10 December 2008 Date of Decision: 10 December 2008 ------------------------ D E C I S I O N ------------------------ The application 1.This is an application for an interlocutory injunction. The writ was issued with the statement of claim on 24 September 2008. The inter partes summons for this injunction was taken out on 30 September 2008. The plaintiff, Chang Jui-Meng, a Taiwanese citizen, seeks an interlocutory injunction against the defendant, Long Health International Limited (“the Company”) that pending final determination of this action, the Company by itself, its directors, officers, shareholders, servants or agents or otherwise be restrained from:
2.The principles relating to an application for a prohibitive interlocutory injunction are well established. The plaintiff has to satisfy the court there is a serious question to be tried and the balance of convenience lies in favour of granting the injunction pending trial. It should also be borne in mind that these principles in American Cyanamid Co v Ethicon Limited [1975] AC 396 are not rules but guidelines, and there remains the overall discretion to do what is “just and convenient” pursuant to section 21L(1) of the High Court Ordinance, Cap. 4. 3.I will first set out relevant background matters and matters not in dispute. The background 4.The Company was incorporated in Hong Kong on 21 May 1992. It was acquired by the plaintiff’s wife Madam Chang Pei-Chun (“Madam Chang”) and the plaintiff’s nominee Wang Shun-Fu as a shelf company in August 1992. The authorised share capital was HK$10,000 divided into 10,000 shares of HK$1 each. In September 1992, Madam Chang and Wang Shun-Fu each held 5,000 shares of the Company. They were the only directors. 5.In or about September 1992, the Company entered into a joint venture contract with Shanghai Tie Cheng Engineering Corporation (上海鐵城工程實業公司) (“Tie Cheng”). Tie Cheng is a subsidiary of China Railway Construction Corporation. Pursuant to the joint venture contract, the Joint Venture Company was formed, with the Company holding 55% interest in it and Tie Cheng holding 45%. The Joint Venture Company was classified and registered in Shanghai as a sino-foreign joint venture enterprise, with a registered capital of US$12.5 million. Subsequently, the Joint Venture Company acquired a substantial piece of land in Qingpu District, Shanghai and obtained land use rights to construct a major residential complex known as Shanghai International Elite Villas City (上 海國際華城別墅) (“the Project”), phase one of which had been completed in 1996 or 1997. Phase two is under development. 6.Under the articles of association of the Joint Venture Company, the board of directors is made up of three directors, two would be nominated by the Company and one by Tie Cheng. The director nominated by Tie Cheng would be the chairman of the board of directors and the legal representative of the Joint Venture Company. Initially Madam Chang and one Wu Ming-Yi were nominated by the Company as directors of the Joint Venture Company. Wu was replaced by the plaintiff in 1998. 7.On 28 May 1993, the Company entered into an agreement with Tie Cheng for transfer of shares in the Joint Venture Company (“the Joint Venture Share Transfer Agreement”) by which Tie Cheng agreed to transfer its interest of 45% in the Joint Venture Company to the Company for RMB 53,780,000, so the Joint Venture Company would become a wholly owned foreign company. 8.The share capital of the Company was increased to HK$20,000 in 1994. In July 1994, Madam Chang transferred 2,500 shares out of her 5,000 shares to Tan Hong-Khoon and 500 shares to Lin Kuan-Chih. Wang Shun-Fu transferred all his 5,000 shares to Hsieh Hsyang-Guang (“Hsieh”). At the same time, an additional 10,000 shares were issued and allotted and the shares were held by six shareholders as follows:
9.It is not in dispute that Kau held his shares as nominee for Huang Chung-Chien (“Huang CC”). Wang resigned as a director. The four directors of the Company in 1994 were Madam Chang, Hsieh, Kau and Lin Kuan-Chih. 10.There was no change in the composition of shareholders and directors until May 1998 when Kau transferred half of his shares to Huang CC and the other half to the wife of Huang CC, Madam Lin Hsiu-Ting and Huang CC replaced Kau as a director. 11.In May 1999, Lam Siu-Chung transferred all his shares to Lee Yung-Lung. 12.In April 2003, Madam Lin Hsiu-Ting and Lu Jianxin were appointed as additional directors and Chang Tieh-Tien was appointed as the alternate director of Hsieh. The validity of their appointment, by a board resolution of 16 April 2003, is disputed by the plaintiff in these proceedings and by Madam Chang in High Court Action No. 1932 of 2008. 13.In October 2004, Hsieh transferred all his shares to Huang Shih-Tsai (“Huang ST”). In November 2004, Huang CC transferred all his shares to Great China International Investment (Groups) Limited (“Great China”), a company owned or controlled by Huang ST, and Lee Yung-Lung transferred all his shares to Huang ST. In January 2006, Madam Lin Hsiu-Ting also transferred all her shares to Huang ST. The validity of all these share transfers is disputed by the plaintiff and Madam Chang. 14.The registered shareholders of the Company at present are:
15.There are now seven directors of the Company. They are Madam Chang, Lin Kuan-Chih, Huang ST, Great China, Madam Wong Lai-King, Shi Xiaoyu and Liu Zhen. The validity of the appointment of the last five directors is disputed by the plaintiff and Madam Chang. 16.The Company has now come under the control of Huang ST and his associates. The case of the plaintiff 17.The case of the plaintiff as appeared in the statement of claimand his affirmations filed in this application may be summarised as follows:
18.The plaintiff claims a declaration in this action that the Company holds its interests in the Joint Venture Company on trust for him, damages for breach of trust, and an order that the Company is to deliver up its interests in the Joint Venture Company to him or his nominees. The plaintiff also claims an injunction to restrain the Company from engaging in the management and affairs of the Joint Venture Company without his concurrence or of the investors’ committee, including commencing or continuing with the Civil Suit and arbitration and any legal action relating to the Joint Venture Company or Tie Cheng; and an injunction to restrain the Company from dealing with or disposing of the interest in the Joint Venture Company otherwise than by delivery up to the plaintiff or his nominees. The case of the Company 19.The Company has filed a defence in this action and its case may be summarised as follows:
Is there a serious question to be tried 20.The plaintiff produced a number of documents to support his case, including a document dated 26 August 1992 signed by Madam Chang and Wang Fu-Shun on behalf of the Company acknowledging it was the plaintiff who provided funds to invest in the Joint Venture Company in the name of the Company, and that the Company would enjoy no interest in the Joint Venture Company, would bear no risk and would not operate or manage the business; payment slips showing payments made for the investment in the Project out of the plaintiff’s bank account and the account of another under his control; and minutes of meeting of the four investors on 2 June 1993 recording their agreement to determine their interests in the Joint Venture Company based on the capital contribution of each, in that the plaintiff was to have 47.5%, Huang CC 25%, Hsieh 13.75% and Chen Chang 13.75%. Mr William Wong, for the plaintiff, made elaborate submissions in support of his contention why the board resolutions in April 2003, August 2004 and January 2006 were all invalid. It is not necessary to repeat them here. 21.I am mindful of the evidence and submissions made on behalf of the Company. There are unexplained oddities about the allotment of shares in the Company to various individuals who had indisputably invested in the Project, which do not tally with the plaintiff’s case, and it has not been explained satisfactorily why some of the investors were made directors if it was the investors’ committee who was to make decisions in relation to the Joint Venture Company, and why shareholdings and directors were changed from time to time if the Company was merely to lend its name to the plaintiff to enter into a joint venture agreement with Tie Cheng. 22.The documents I have referred to earlier on their face give some support to the plaintiff’s case. A company has a separate legal personality distinct from its shareholders. It does not hold its assets or property on trust or as an agent for its shareholders or anyone else, whether this be a bare trust, a resulting trust or a Quistclose trust as contended on the plaintiff’s behalf, unless there is very clear evidence to establish that is indeed the position. In this application, the plaintiff is only required to demonstrate a real possibility of success, not a probability. A serious question to be tried means something more that the claimant can avoid having the action struck out as frivolous and vexatious in the sense of being one which no reasonable person could treat as bona fide. The plaintiff does not have to show a prima facie case, but only an issue for which there is some supporting material and the outcome of which is uncertain (Snell's Equity,31st ed, para 16-23). 23.Mr Wong submitted that the plaintiff has demonstrated a clear case at this interim stage that the Company holds the interest in the Joint Venture Company on a bare trust for the plaintiff, so there would be no need even to consider the balance of convenience. I do not think the plaintiff’s case is as strong or is clear as contended, but I rule that the plaintiff has surmounted the hurdle of establishing there is a serious question to be tried. Balance of convenience 24.Mr Wong argued the balance of convenience lies in the plaintiff’s favour for these reasons. 25.He contended that if an injunction is not granted, the plaintiff would be exposed to the risk of losing control over the Joint Venture Company, his relationship with Tie Cheng would be strained due to the continuation of the arbitration, he would be exposed to the risk of losing his investment in the Joint Venture Company, his reputation and good relations with government officials in the Mainland would be adversely affected. It was submitted that the loss from the above would be enormous and irreparable and the Company is not in a position to pay damages to the plaintiff. 26.The wrongful acts alleged against the Company in the statement of claim are the removal of the plaintiff and Madam Chang as directors of the Joint Venture Company, the bringing of the Civil Suit and arbitration, and writing to a business partner of the Joint Venture Company informing them that the plaintiff and Madam Chang no longer have authority to represent the Joint Venture Company and any dealings must be made through Huang ST. 27.The evidence before this court is that officers in the Joint Venture Company and Tie Cheng would only recognise the plaintiff and Madam Chang as directors of the Joint Venture Company, notwithstanding resolutions of removal passed by the Company in April 2003 and January 2006. They had persistently refused to act on the Company’s resolutions, hence the Company brought the Civil Suit against the Joint Venture Company to compel it to act. My attention was drawn to a declaration made by the legal representative of the Joint Venture Company on 15 July 2007 stating clearly it has always recognised the plaintiff as the partner to the joint venture. With the Joint Venture Company and Tie Cheng siding w the plaintiff, it does not appear there is a real risk of the plaintiff losing control over the Joint Venture Company or his investment in it. 28.As for the Civil Suit and arbitration, there is evidence from lawyers in the PRC acting for the Company in those proceedings that those proceedings had been concluded and the parties are just waiting for judgment in the Civil Suit and the pronouncement of an award in the arbitration. Five hearings were held in the Civil Suit in 2006 and 2007, the last hearing was on 31 August 2007. The arbitration was concluded on 6 November 2007. There is a puzzling statement in the statement of claimand the plaintiff’s 4th affirmation that the Civil Suit and the arbitration have been “postponed” or “stalled” because the plaintiff had informed the Shanghai court and the arbitration tribunal of his intention to commence proceedings in Hong Kong “to determine the rights and obligations of the Company, and to obtain an injunction against the Company”. I do not know if this communication was in writing; if it were, the plaintiff has not produced it to this court. Nor has the plaintiff mentioned in any of his affirmations when he had so informed the Shanghai court and the arbitration tribunal, or whether the Company being the other party to the litigation was ever told of this. Further, the plaintiff’s communication would appear to be after proceedings had been concluded. I do not know if this kind of communication is permissible under Mainland law and practice. 29.The legal proceedings in the Mainland had been concluded and they should take their course. It has not been suggested by the plaintiff that in defending the Civil Suit and arbitration, the Joint Venture Company and Tie Cheng had not presented the case advanced by the plaintiff in this action that it was the plaintiff who had invested in the Project using the Company as a vehicle. If the Civil Suit and arbitration should be determined against the Joint Venture Company and Tie Cheng, they would have remedies under the law in China to appeal the judgment or set aside the award. I am unable to see how, by virtue of the Civil Suit or the arbitration, the plaintiff would be exposed to the risk of losing control over the Joint Venture Company or losing his investment in the Joint Venture Company. 30.I would attach no weight to vague and bare assertions of adverse effect on the plaintiff’s business reputation and his good relations with Mainland authorities. 31.Additional wrongful acts were alleged against the Company in the plaintiff’s 5th affirmation made on 3 December 2008, in support of the contention that the plaintiff would suffer loss if no interim injunction is granted. There was exhibited a letter dated 28 February 2008 confirming that on 20 January 2008, the Joint Venture Company had entered into an agreement with Shanghai Gaochang Real Estate Development Company Limited and Maple Leaf International (Hong Kong) Company Limited for the sale to these entities of the Project and all the shares of the Joint Venture Company. The plaintiff claimed that the chop of the Joint Venture Company affixed to this letter was forged and that to his knowledge, no payment had been received by the Joint Venture Company. 32.Mr Wong submitted that an injunction should be granted as innocent third party rights might be adversely affected and the plaintiff and his co-investors would be exposed to further complaints and liabilities. 33.Due to the lateness of the plaintiff’s 5th affirmation, the Company has not been able to file evidence to respond to this. I was told by Mr Patrick Fung, SC for the Company that the Company’s solicitors have not been able to contact the PRC lawyer who had allegedly attested the execution of the agreement with the forged chop, and Huang ST who was contacted knows nothing about the agreement allegedly made by the Joint Venture Company. 34.The alleged agreement was entered into in January 2008. It is now too late for any injunctive relief to be granted. Besides, if the alleged agreement was effected with a forged chop, it would have no impact on the rights and interests of the plaintiff in the Joint Venture Company. 35.But even assuming Mr Wong is correct in the above contentions that the plaintiff would suffer irreparable loss if an injunction is not granted, I would also need to consider the other side of the coin, which is in the event that an interim injunction is granted but the Company succeeds at the trial, whether the Company would be adequately compensated in damages which would then have to be paid by the plaintiff and whether the plaintiff would be able to pay those damages under his undertaking as to damages. 36.In the present case, there is doubt as to the adequacy of the remedy in damages available to the Company if the Company were to succeed at the trial. If the Company was wrongly restrained by this court from pursuing the legal proceedings in the Mainland to conclusion, there is no knowing what the Mainland court and arbitration tribunal would do as a result, whether this might result in a judgment or award adverse to the Company, or whether any judgment or award might be delayed until the outcome of the Hong Kong action is known. Damages would be difficult to assess if the outcome or impact of the injunction is not known. The plaintiff has described himself as a businessman doing business in the Mainland, Hong Kong and Taiwan. He has given two addresses in Shanghai as his address. No details have been provided of his business undertakings. There is no evidence as to his ability to meet any undertaking in damages or that he has sufficient assets in Hong Kong to meet that undertaking. 37.I do not think the balance of convenience lies in the plaintiff’s favour of granting interim relief. Discretionary remedy 38.In any event, an interlocutory injunction is a discretionary remedy. For the reason of delay alone, I would have refused the application. 39.The delay in coming to this court to seek an interim injunction is substantial, as submitted by Mr Fung. The plaintiff is fully aware of the attempts made, first by Huang CC in April 2003, later by Huang ST in January 2006,to remove him and his wife as directors of the Joint Venture Company. The Civil Suit was brought by the Company in October 2006 and the arbitration was commenced by the Company in February 2007. The plaintiff had brought an earlier action against the Company in High Court Action No. 2705 of 2006,seeking a similar declaration that the Company holds its interest in the Joint Venture Company on trust for him and an injunction to restrain the Company from dealing with or disposing of the interest in the Joint Venture Company otherwise than by delivery up or transfer to him or his nominee. This writ was issued on 5 December 2006with a statement of claim, but it was never served on the Company. The statement of claim was translated into Chinese and submitted to the arbitration tribunal by the plaintiff’s solicitors on behalf of Tie Cheng with a declaration as to its contents on 7 December 2006. The High Court action was discontinued on 26 September 2008. The plaintiff did not disclose this writ in his initial affirmation in support of the present application. 40.This delay in my view amounted to laches. Laches consists of a substantial lapse of time coupled with the existence of circumstances which makes it inequitable to enforce the claim. And a lesser degree of laches suffices to debar a claimant from interlocutory relief than from obtaining a permanent injunction (Snell's Equity, op. cit., paras 5-19 and 16-25). The plaintiff commenced an earlier action seeking an injunction but it was not served on the Company. He sought to explain in his 4th affirmation although he had every intention to pursue the claim in High court Action No. 2705 of 2006, he was pre-occupied with the Civil Suit and the arbitration and could not devote time to pursue the action in Hong Kong. I do not accept this explanation. His explanation was also at odds with the affirmation made by a paralegal of his solicitors on 12 August 2008in the plaintiff’s application to extend the validity of the writ in High Court Action No. 2705 of 2006, in which it was stated that it was the plaintiff’s intention to wait for the outcome of the arbitration as that could potentially resolve his claim against the Company in the High Court Action and render that action redundant. Plainly, he had chosen to wait until the proceedings in the Civil Suit and the arbitration had concluded with the parties waiting for the pronouncement of the judgment and the award. It would not be equitable in the circumstances to grant interim relief. The status quo should be preserved and no order should be made by this court that might have any impact on the conduct of the legal and arbitration proceedings in China. 41.For the above reasons, I dismiss this application. 42.Mr Fung sought an order that the costs of and incidental to the present application be paid forthwith by the plaintiff to the Company with a certificate for two counsel. Mr Wong did not resist costs, but submitted that it should be costs in any event. 43.I will make a costs order as sought by Mr Fung for two reasons. Firstly, this is a discrete application with no bearing on the subsequent conduct of proceedings in this action. Secondly, there is a lack of merits, this application should not be made in view of the laches that I have found. I also certify the application as fit for two counsel.
Mr William M F Wong, instructed by Messrs Angela Wang & Co, for the Plaintiff Mr Patrick Fung, SC and Mr Ronald Tang, instructed by Messrs Edmund Cheung & Co, for the Defendant |
Further hearings and rulings under HCA 1822/2008