Luck Continent Ltd v. Leonora Yung and Others

CACV 42/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 42 OF 2010

(ON APPEAL FROM HCA NO. 2246 OF 2009)

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BETWEEN

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Before: Hon Rogers VP and Le Pichon JA in Court

Date of Hearing: 22 October 2010

Date of Judgment: 22 October 2010

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J U D G M E N T

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Hon Rogers VP:

1.This is an appeal from a decision of Deputy High Court Judge Carlson given on 13 January of this year. On that occasion, the defendants in this action had applied to set aside the ex parte order which had been granted on 10 November 2009.

2.I do not propose to give a very long judgment in this case because, in my view, the matter is fairly clear.  What is at issue is whether proper notice should have been given of that ex parte application.

3.It is relatively clear that there was a dispute between the major shareholders of CY Foundation Group Limited (“CY Foundation”), which is a company which is listed on the Hong Kong Stock Exchange.  The company is described in not particularly complimentary terms in the affirmations, but that does not matter.

4.Notice had been served that a special general meeting had been called for 13 November.  That did not find favour with Mr Poh, who one way or another owned not only the beneficial interest in the plaintiff, which had a substantial interest in CY Foundation because altogether he owned a total of something over 40 per cent of CY Foundation shares. He caused his solicitors to write to the chairman and executive director, who he described as also being a substantial shareholder on 30 October, which was some 10 days after the meeting had been called.

5.The letter concluded by requesting, first, that there should be a postponement of the special general meeting to be held on 13 November until after the completion and issuance by an independent committee and independent financial advisers as to the advisability of the transaction which that meeting was to confirm.  Then he requested an undertaking to form this independent committee and appoint independent financial advisers as soon as practicable within 14 days, and undertake not to exercise the right to allot additional shares under the general mandate which had been given until the issues had been resolved.  It was quite clear that this was a matter of internal management of the company, because the letter concluded:

“…failing which, our client will have no alternative but to commence the appropriate legal proceedings (whether by way of a derivative action (statutory or common law) or proceedings under section 168A of the Companies Ordinance, for unfair prejudice or otherwise) and apply for appropriate interlocutory injunctions and other orders as our client may see fit without further notice.”

6.There then followed a series of correspondence which I do not propose to recite at length, but the plaintiff’s solicitors first of all wrote to the chairman’s wife and Mr Lau Ying Kit and claimed back a parcel of share certificates, together with warrants.  These were all in the name of the plaintiff. Mr Lau replied copying the letter to the chairman’s wife that the documents had never been in his possession and that he had never allowed the chairman’s wife to take it from him as alleged. When the second defendant was written to on 5 November, there was a reply by the third defendant, both by fax and by post, which confirmed that the third defendant was in possession of the share certificates, which the plaintiff was seeking, and also held the warrants.  The letter then continued:

“We hereby inform you that you are in contact with Mr Poh Po Lian, a shareholder and director of Luck Continent Limited.

Mr Poh Po Lian is indebted to our company in the sum of HK$5,000,000.

We hereby demand from Mr Poh Po Lian, through your firm, the repayment of the said sum of HK$5,000,000.00 within 14 days from the date hereof.

Unless, therefore, we receive from Mr Poh Po Lian the said $5,000,000.00 within 14 days from the date hereof, legal proceedings (including instituting bankruptcy proceedings against Mr Poh Po Lian) will be instituted against Mr Poh Po Lian for the recovery of the said sum of $5,000,000.00, without any further notice.”

7.That was then followed by a letter of 6 November to all the defendants. That letter referred to the letter of 30 October with its reference to the internal management of the company and that continued:

“Unless by 5:00 pm today, i.e. Friday, 6^th November 2009, you give the following undertakings to the court, that is to say:-

1. not to, whether by yourselves, your employees, agents, nominees (and in the case of Feng Well, its directors and/or officers) or otherwise howsoever dispose of the said Certificates, the said Shares and/or the said Warrants (or any part thereof) and/or the shares of Feng Well, and

2. to forthwith deliver up the said Certificates to an independent and reputable firm of Certified Public Accountants designated by our client pending the determination of the above action or until further order,

our client will have no alternative but to apply for the appropriate interlocutory injunctions and interim orders as our client may see fit without further notice to you.

Kindly also take notice that we shall shortly add Feng Well as the 3^rd defendant in the above action.”

Then the letter concluded:

“As regards the loan of HK$5 million, we are instructed that Dato Poh will arrange for repayment of the same within the 14 days’ period. Please specify the account details of Feng Well for the purpose of such repayment.”

8.The reply to that was on the same day and that was that:

“We refer you to your letter dated 6^th November 2009, and to the amended Writ in the captioned action.

There is no substance whatsoever of your client and your firm’s alleged fear of the Shares being transferred to parties acting in concert with Ms Yung and Mr Theodore Cheng. Our company has no intention of being implicated in such act. If you seek to apply interlocutory reliefs based on the figment of your imagination, kindly place this letter before the Judge seized of the matter.

You can conduct litigation with aggression, but you cannot conduct litigation on baseless assertions and our company is really tired with pages after pages of ludicrous correspondence from you. Needless to say, the captioned suit will be strongly contested.”

9.6 November was a Friday.  One then goes to 10 November, which was the following Tuesday, when the plaintiff by then had had an affirmation affirmed in Singapore by Mr Poh and had it sent by email to Hong Kong and it arrived, apparently, by 2 pm.  The plaintiff’s solicitors then set about obtaining an appointment before the Duty Judge, and were told initially that it would be at 4.30.  Later, that was brought forward to 3.30.

10.Now, in all that time between 6 November and 10 November, the plaintiff’s solicitors had seemingly made no effort whatever to inform the defendants of their intention of applying for an ex parte injunction.  They had not sent any draft affidavit.  They had not sent any draft summons.  They had not sent any draft order which they sought.  They simply set about, at around about 2 o’clock, to draft a letter which would then be delivered at the company’s offices.

11.The first defendant is simply a shareholder of the company.  She is not, apparently, a director, and neither is the second defendant a director; she is an employee.  It is, of course, evident that that correspondence came from the company’s address.

12.But the real question in this case is: was the matter so urgent that inadequate notice was given to the defendants, because as it transpired, the hearing time was brought forward.  By the time the letter that was being sent to the defendants had arrived at CY Foundation’s address, the hearing was commencing or just about to commence.

13.In my view, taking all the matters in this case into consideration, that was wholly inadequate.  If the plaintiff considered it needed urgent attention to its request to have the share certificates returned, given what had happened, given the fact that on 6 November, CY Foundation had admitted in a public statement that the plaintiff owned the relevant shares, given the possibility of applying under Order 50 for a stop notice in respect of both the shares and the warrants, there was absolutely no possibility, in my view, or realistic possibility, of anything untoward ever happening to the shares or the warrants.

14.All the plaintiff can say is that it wanted the warrants so that it could exercise the warrants.  Well, the exercise of the warrants, if all the warrants were to be exercised, was going to precipitate a general offer.  That was not made clear to the judge, as far as I can see, and it caused the plaintiff to consider very carefully what it should do.  In the end, it appears that it only exercised the full amount of warrants when they were about to expire.

15.Given that, and that the real reason for the urgency was the need to exercise the warrants, which in any event could not have been exercised effectively before 13 November, because the shares, or the share certificates in respect of them, would never have been issued in time, but given that that was the case, it seems to me to be absolutely no reason why a summons should not have been taken out returnable on the next summons date, 13 November.  That should have been served properly on the defendants, together with a letter saying, “We need the warrants as soon as possible, and if you are not prepared to give them up, please come along to court and we will together go before the judge.”

16.What happened was the plaintiff waited until the last possible minute, when they were ready, and when they knew it would have been, or should have known, that it would have been impossible for the defendants to have their own lawyers there.  Then, unfortunately, the application before the judge was not made on notice; in my view, it was made without notice and that was wrong.

17.The whole matter seems to me, in reality, to be a push by the plaintiff to get some kind of victory under its belt as quickly as possible against the other parties or the other shareholders in CY Foundation, with whom it appears to be at loggerheads.  If this matter had been properly handled, it probably never would have come to court at all.

18.The question has been raised as to whether or not the third defendant had a lien over the shares.  Whether or not there was a legal right to that lien is again an academic question.  However, it can be observed that there was a consent order made on 13 November that the $5 million would be paid to the third defendant.  That was money owing, not by the plaintiff, of course, but by the person who owned the plaintiff - in other words, Mr Poh.  The shares and warrants would not be released from the plaintiff’s solicitors until that money was paid; that is a fair indication to me that there was some relation between the retention of the share certificates and the warrants and this $5 million.

19.In those circumstances, it seems to me that the inevitable conclusion is that the application made on 10 November was made in undue haste and without proper notice where proper notice should have been given, and it should have been set aside.  The judge on 13 January expressed the view that he considered it could have been made ex parte. Well, it might have been possible to make it ex parte on proper notice, but not on five minutes’ notice, but on what I regard as being proper notice, which is giving everybody a chance to be there and to think about it carefully and, quite frankly, not bother the courts with applications like this when they were probably unnecessary in the first place.

20.I would therefore set aside the ex parte injunction and allow this appeal.

Hon Le Pichon JA:

21.I agree.

(Submissions on costs)

22.Costs are always a difficult matter.  In this case, we consider that the defendants should have their costs.  I do not consider this case so egregious that the costs should be on the highest scale, but I do consider that the defendants should have their costs here and below, that would include the ex parte application and that should include two counsel below.  They will obviously get their order for two counsel in this court.

23.I do make it clear that my view of the matter is that it is not simply that notice given at 3 o’clock for an application at 4.30 would have been adequate.  Clearly there were preparations being made for the application well before 2 o’clock that afternoon.  Notice should have been given as soon as the draft affidavit was ready, as soon as the draft orders were ready.  I think it is sufficient penalty in this case that the plaintiffs have to pay all the costs.

Mr Benjamin Yu SC and Ms Sara Tong, instructed by Messrs Henry Wai & Co, for the Plaintiff/ Respondent

Mr Winston Poon SC and Ms Linda Chan, instructed by Messrs Peter K S Chan & Co, for the 1^st to 3^rd Defendants/Appellants