Top One International (China) Property Group Co Ltd and Another v. Top One Property Group Ltd and Others

HCA 1244/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1244 OF 2009

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BETWEEN

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Before : Hon To J in Chambers (Open to Public)

Date of Hearing : 12 May 2011

Date of Decision : 7 September 2011

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D E C I S I O N

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INTRODUCTION

1.There are four interlocutory applications before me in this matter.  In the following three applications, the 2^nd Defendant seeks:

(1)  by summons dated 15 October 2010, pursuant to Order 102 of the Rules of the High Court (“RHC”) and inherent jurisdiction of the Court, to vary the powers of the receivers (“Receivers”) of the 1^st Plaintiff (“Top One A”) so as to enable him to represent Top One A in legal proceedings in the People’s Higher Court of Chongqing City (“2^nd Chongqing Proceedings”) in the People’s Republic of China (“PRC”) (“Representation Application”);

(2)  by summons dated 19 November 2010, pursuant to Order 20 of the RHC, leave to re-amend his Amended Defence in the form of the  draft annexed to the summons (“Amendment Application”); and

(3)  by summons dated 19 November 2010, pursuant to Order 29 of the RHC, an injunction requiring the Receivers to enable the 2^nd Defendant to represent Top One A in the 2^nd Chongqing Proceedings (“Injunction Application”).

2.The fourth application was taken out by the Plaintiffs by summons dated 25 February 2011 for leave to withdraw their claims against the 2^nd Defendant, without prejudice to their defence to the 2^nd Defendant’s counterclaim (“Withdrawal Application”).  The 2^nd Defendant consented to this application.  This application was granted with costs to the 2^nd Defendant.

The background

3.The background to this action was summarised in the decision of Poon J dated 16 October 2009 whereby he continued certain orders that had been made by Kwan J (as she then was) on 22 May 2009 and Saunders J on 5 June 2009 in favour of the Plaintiffs against the Defendants. Insofar as is relevant to the present applications, the background facts, which are either common ground or incontrovertible, are as follows.

4.The 3^rd Defendant is and was the sole director and shareholder of Thumb (China) Holdings Group Limited (“Thumb China”) which is a British Virgin Islands investment holding company.  Thumb China was formerly the majority shareholder of Sino-Environment Technology Group Limited (“Sino-Environment”) and Radiance Electronics Limited listed on the Stock Exchange of Singapore. 

5.The 3^rd Defendant is also the sole shareholder and director of the 1^st Defendant (“Top One B”), which is a company incorporated in Hong Kong on 25 March 2008 with a name remarkably similar to Top One A.  

6.At some stage and initially, the 3^rd Defendant and his brother had 70% and 20% shareholding respectively in Fujian Dahong Investment and Development Company Limited (“Fujian Dahong”), a PRC company.  On 14 April 2009, the 3^rd Defendant’s brother became a 90% shareholder  in Fujian Dahong with the remaining 10% shareholding held by an unknown person.

7.The 2^nd Defendant is a close business friend of the 3^rd Defendant.  He is and was the sole registered shareholder and director  of Top One A.  The primary asset of Top One A was its 100% shareholding in Chongqing Dading Property Company Limited (“Chongqing Dading”),  a wholly foreign owned enterprise in the PRC and the parent company of the Dading Group, which owns numerous properties and resorts in the PRC.  Despite that effectively he was the sole owner of Chongqing Dading, its numerous properties and resorts in the PRC, the 2^nd Defendant lives in  a unit in a public housing estate in Hong Kong.

8.In early July 2007, Ivory Capital Asia Pte Ltd, a corporate advisory firm in Singapore, approached Stark Investments (Hong Kong) Limited (“Stark”), a global investment group, for provision of financing to Thumb China.  After a series of discussions and negotiations, the   3^rd Defendant on 19 July 2007 signed the Financing Term Sheet, setting  out the broad terms upon which Stark would make financing of SGD120 million available to Thumb China to be secured by its shares in Sino-Environment.  The Financing Term Sheet specifically provided for a “topping up” requirement should the value of the collateral fall below the stipulated level.  After further discussions, Thumb China, the 3^rd Defendant and the 2^nd Plaintiff as trustees on behalf of the noteholders (“Noteholders”) entered into a Notes Trust Deed dated 13 August 2007 (“Deed”).  Pursuant to the Deed, Thumb China issued the notes (“Notes”) to the Noteholders on 15 August 2007.  The Noteholders provided financing of SGD120 million to Thumb China, secured by a share charge in favour of the 2^nd Plaintiff over Thumb China’s shareholding in Sino-Environment.  Throughout all these discussions and negotiations, Thumb China was represented by reputable law firms in both Singapore and Hong Kong,

9.In August and September 2007, the value of the Sino-Environment shares plummeted below the stipulated level, which triggered the “topping up” provisions in the Deed.  After discussions, the parties entered into an Amendment and Accession Deed dated 5 March 2008 under which further security by a charge over the shares in Top One A was to be provided.  Further negotiations took place in March and April 2008 on the precise term of the charge.  Eventually, on 30 April 2008, a Share Charge (“Share Charge”) was executed under which the 2^nd Defendant charged all his shares in Top One A in favour of the 2^nd Plaintiff as security trustee and custodian.  Top One A, the 2^nd Defendant and the 3^rd Defendant were parties to the Share Charge.  Top One A warranted under clause 6.1 of the Share Charge that it and its subsidiaries hold good title to the assets they held, including all property constituting the Dading Group and that there were no encumbrances over all or any part of their assets.  Under clause 7, Top One A and the 2^nd Defendant gave numerous undertakings,  in a nutshell, to the effect that they would not dispose of or encumber  any shares in Top One A’s subsidiaries or its and its subsidiaries’ assets.    It was around that time, the 3^rd Defendant incorporated Top One B with   a remarkably similar name as Top One A.

10.Thumb China subsequently defaulted on the Notes. The 2^nd Plaintiff then took enforcement action by selling the shares of Sino-Environment.  After the disposal of those shares, a principal sum of   some SGD50 million remained outstanding as at 31 August 2009.

11.On 29 April 2009, the 2^nd Plaintiff enforced the Share Charge by appointing the Receivers as joint and several receivers of the 2^nd Defendant’s shareholding in Top One A.  The Receivers then removed the 2^nd Defendant from the board of directors and appointed two of  their corporate directors in his place.  The Receivers assumed control of Top One A.

12.Within three weeks of the receivership, the Receivers learnt from the PRC authority that Top One A had sold all its shares in Chongqing Dading to Top One B, which was the alter ego of the   3^rd Defendant, pursuant to a share transfer agreement dated 7 July 2008   for a consideration RMB200 million (“1^st Transfer Agreement”).  That transfer was effected in less than three months after the Share Charge was executed and despite the various undertakings given by Top One A, the   2^nd and 3^rd Defendants.  Unbeknown to the 2^nd Plaintiff and the Noteholders, Top One A’s shares in Chongqing Dading, the very security in substance under the Share Charge, was siphoned off from Top One A to Top One B, and effectively to the 3^rd Defendant.

13.On 26 April 2009, which was just three days before the Receivers were appointed, Top One B and Fujian Dahong entered into another share transfer agreement to transfer the shares in Chongqing Dading to Fujian Dahong for RMB200 million (“2^nd Transfer Agreement”).  The transfer was approved by the PRC authority.  Thus, by the 2^nd Transfer Agreement, the shares in Chongqing Dading were further removed from the reach of the 2^nd Plaintiff and the Noteholders.

14.On 21 May 2009, Top One A commenced the present action.  On 13 July 2009, the 2^nd Plaintiff joined as a party.

15.In the meantime, on 22 May 2009, the Receivers obtained an order from the Court appointing them also as interim receivers of Top One B.  The interim appointment was made permanent on 9 December 2010.  The Receivers also procured the same two corporate directors of Top One A to be appointed as directors of Top One B. 

16.On 24 May 2010, the 2^nd Plaintiff authorised FTI Consulting (Hong Kong) Services Three Limited (“FTI”) to commence the 2^nd Chongqing Proceedings against Top One A, Top One B, the 2^nd and 3^rd Defendants, Chongqing Dading and Fujian Dahong as defendants and two other members of the Dading Group as third parties.  FTI sought to   set aside the 1^st Transfer Agreement, the 2^nd Transfer Agreement, the disposition of the shares in Chongqing Dading to Fujian Dahong, related property transfers involving the third parties and restoration of the shares   in Chongqing Dading to Top One A.

A summary of the present circumstances

17.In summary, in August 2007, in consideration of Stark financing SGD120 million to Thumb China, the 3^rd Defendant executed the Deed, secured by Thumb China’s shares in Sino-Environment.  A month later, the value of the shares in Sino-Environment fell below the stipulated level which triggered the “topping up” provision under the Deed.  After seven months’ negotiation, the 2^nd Defendant provided the “topping up” security by executing the Share Charge charging all his shares in Top One A in favour of the 2^nd Plaintiff as security on 30 April 2008.  The  2^nd Defendant and 1^st Plaintiff warranted, inter alia, that Top One A held good title to the assets of Chongqing Dading and undertook not to dispose of those assets without the prior consent in writing of the 2^nd Plaintiff.  In preparation for the breach of those undertakings, the 3^rd Defendant incorporated Top One B one month before the execution of the Share Charge, to whom the 2^nd Defendant subsequently procured Top One A to sell all its shares in Chongqing Dading within less than three months of execution of the Share Charge.  Within ten months thereafter, Top One B under the control of the 3^rd Defendant sold the shares in Chongqing Dading to Fujian Dahong, which is a company in which the 3^rd Defendant had once held 70% of its shareholding which shareholding was then transferred to his brother.

18.On the other hand, Thumb China defaulted on the Notes.  The 2^nd Plaintiff enforced the Notes and the Share Charge by appointing  the Receivers as joint and several receivers of the 2^nd Defendant’s shareholding in Top One A, pursuant to the terms of the Share Charge.  The same Receivers were also appointed receivers of Top One B, pursuant to the order of the court.  The Receivers appointed the same two corporate directors as directors of Top One A and Top One B and removed the 2^nd and 3^rd Defendants of their directorship in Top One A and Top One B respectively.  Then, the 2^nd Plaintiff caused FTI to commence the 2^nd Chongqing Proceedings against the various parties including Top  One A, Top One B, the 2^nd and 3^rd Defendants.  FTI as well as the Receivers who are in control of Top One A, Top One B and their corporate directors are all appointed by the 2^nd Plaintiff.

19.On 9 December 2010, Fok J, as he then was, granted the Plaintiffs default judgment against Top One B and the 3^rd Defendant, pursuant to an unless order of Registrar Au Yeung and dismissed their application for reinstatement upon the Plaintiffs’ undertaking to withdraw their claims in this action against the 2^nd Defendant.  At this hearing,  with the consent of the 2^nd Defendant, I granted the Plaintiffs’ application to withdraw their claims against the 2^nd Defendant with costs to the 2^nd Defendant.

THE AMENDMENT APPLICATION

20.It is convenient to deal with the Amendment Application first, as it would give a feel of the 2^nd Defendant’s case in all the three summonses.  It is conceded by Mr Kwong, counsel for the 2^nd Defendant, that the draft Re-Amended Defence and Counterclaim of the 2^nd Defendant as it now stands may need further improvement.  It is common ground that the Representation Application and Injunction Application do not depend on whether the draft Re-Amended Defence and Counterclaim is allowed, but on the substantial merits of the 2^nd Defendant’s case.  I agree.  I now deal with the Amendment Application and turn to the draft Re-Amended Defence and Counterclaim as it now stands.

21.The 2^nd Defendant seeks to introduce three amendments, the purpose of which is to bring a counterclaim against the Plaintiffs.  Firstly, he seeks to add an averment to paragraphs 8 and 9 of the Amended Defence that certain matters pleaded in paragraph 8 had been concealed from Thumb China and the 3^rd Defendant who were misled into the belief that Morgan Stanley was the principal lending the SGD120 million loan. As a result, he seeks an amendment to paragraph 9 that the Notes were void against the Thumb China and the 3^rd Defendant and along with that the Share Charge subsequently executed by the 2^nd Defendant is also void, unenforceable and/or liable to be vitiated by reason of misrepresentation.  The Share Charge and the Notes are different documents executed by different parties on different occasions.  Such a plea is absurd. Even if the Notes are vitiated, it does not necessary follow that the Share Charge made under totally separate circumstances must also be vitiated for the same reason.  Mr Kwong does not press for the amendment.  This proposed amendment must be dis-allowed.

22.Paragraph 20, the original pleading and the proposed amendment, which is underlined, read as follows:

“However, in about March 2008 Stark approached [the 3^rd Defendant] through Mr U. They asked if [the 3^rd Defendant] could provide more security for the loan. At the same time, they assured [the 3^rd Defendant] that the then existing security was already sufficient and they just wanted some additional security “as a matter of formality”. Upon receiving the said assurance, [the 3^rd Defendant] made known and/or convey the same to [the 2^nd Defendant].”

In paragraph 22, the 2^nd Defendant seeks to insert the following amendment:

“… Insofar as may be necessary, it is expressly averred that but for his genuine belief, that the additional security was only provided as a matter of formality and that the same would never be enforced, [the 2^nd Defendant] would not have executed the Share Charge.”

There are other consequential amendments in paragraphs 21 through to 26.  The effect of the amendments is to turn the expression “as a matter of formality” into a misrepresentation, introduce another misrepresentation that the additional security would never be enforced and a plea that but for the misrepresentation the 2^nd Defendant would not have executed the Share Charge.

23.Mr Lam, counsel for the Plaintiffs, submits that it is not clear who Mr U and “they” referred to in paragraph 20 were.  “They” must by inference mean staff or agents of Stark, while Mr U must be the partner of the Singapore law firm representing the 3^rd Defendant as revealed in the 3^rd Defendant’s affirmation.  These ambiguities are not fatal and could be clarified.

24.Mr Lam’s more substantial objection is that it is trite that only misrepresentation of fact is actionable and not misrepresentation of opinion or future intention, unless such statement of opinion is published  as a statement of fact or such statement of future intention is not honestly held.  In order to turn a statement of opinion or future intention into a statement of fact, so that such misrepresentation is actionable, a lot more has to be pleaded including dishonesty: see Chitty on Contracts 30^th edition at paragraphs 6-006 to 6-017.  Allegations of dishonesty must be pleaded with sufficient particularity and clarity.  On the pleading and proposed amendments as they now stand, there is no way that I could read the expression “as a matter of formality” as anything other than a statement of opinion of the legal effect of the Share Charge and the expression “would never be enforced” as a statement of future intention.  The amendments sought to be introduced contain no misrepresentation of fact.

25.Mr Kwong admits the deficiency in the amendment but   argues that the pleading may nevertheless be perfected and what is important is the substance of the proposed amendments.  He argues that generally speaking, all such amendments ought to be made for the purpose of determining the real question in controversy between the parties to any proceedings or correcting any defect or error in any proceedings.  I have  no quarrel with such principle.  Leave should readily granted to amend the pleading before the trial.  Though very minimal is required of a pleading, the pleading must be adequate having regard to the cause of action pleaded.  For reasons as explained in paragraph 24, the plea of misrepresentation  in its present form is bad as a matter of law.  It is bound to be struck out and cannot be allowed: see Natamon Protakorn and Citibank NA [2009] 1 HKLRD 455 at paragraphs 25 and 26. 

26.The 2^nd Defendant seeks to introduce an alternative and additional plea of estoppel in the proposed paragraph 26A and new paragraphs 72 to 75 with a prayer for relief.  However, the plea of   estoppel and counterclaim are premised on the above proposed amendments being allowed. Since those proposed amendments are not allowed, these proposed amendments also cannot be maintained. 

27.Accordingly, the Amendment Application is refused with  costs to the Plaintiffs.

THE REPRESENTATION APPLICATION

28.The Representation Application is the first of the three summonses issued by the 2^nd Defendant.  By this summons, the 2^nd Defendant seeks to invoke the Court’s inherent jurisdiction and jurisdiction under Order 102 of RHC to vary the powers of the Receivers  so as to enable him to represent Top One A in the 2^nd Chongqing Proceedings.  Then, a month later, the 2^nd Defendant issued the Injunction Application seeking a mandatory injunction against the Receivers which has the same effect as the relief sought under the Representation Application.  Mr Kwong submits that the injunction sought under the Injunction Application is an alternative to the relief sought under the Representation Application.  At the hearing, his arguments were focussed at the Injunction Application, probably to avoid the technical objection raised by Mr Lam to the Representation Application. 

29.It is not clear which rule in Order 102 the 2^nd Defendant is relying on in support of the Representation Application.  The Receivers of Top One A were appointed by the 2^nd Plaintiff pursuant to its contractual powers under the Share Charge.  As submitted by Mr Lam, they were not appointed by the Court and are not officers of the Court: Picarda: The Law Relating to Receivers, Managers and Administrators 4^th edition at pp 9-10 and 111.  I therefore agree with Mr Lam that it is not open to the  2^nd Defendant to apply to Court to carve out certain powers of the Receivers and to revert them to the 2^nd Defendant.  The Court has no power to re-write the contract which the 2^nd Defendant has entered into with the 2^nd Plaintiff.

30.Mr Lam properly accepts that the Receivers are nevertheless under a duty to the mortgagor whose property they manage and anyone  else interested in the equity of redemption of the property to act in good faith and to manage the property with due diligence, subject to his primary duty of attempting to create a situation where the interest of the secured debt can be paid and the debt itself repaid: Picarda: The Law Relating to Receivers, Managers and Administrators 4^th edition at pp 144 to 146.  If  the Receivers have acted in breach of their duty, the proper remedy is for the 2^nd Defendant to commence proceedings against them.

31.Mr Kwong argues, quoting Le Tu Phuong And Another and Director of Immigration And Another, CACV 164/1993, that the   2^nd Defendant is seeking to invoke the Court’s inherent jurisdiction to prevent abuse of process, to do justice between the parties and to secure a fair and just determination of the real matters in controversy.  The abuse   he is referring to is that the Receivers on the one hand instituted the  2^nd Chongqing Proceedings against Top One A and on the other hand caused Top One A not to defend the proceedings. He also refers to the   fact that the address of service of Top One A, Top One B and FTI are the same as that of the Receivers.

32.There is no dispute that the Receivers are in control of Top One A and Top One B, are associated with FTI and that both FTI and the Receivers were appointed by the 2^nd Plaintiff.  The 2^nd Plaintiff is the entity behind the 2^nd Chongqing Proceedings and the party to benefit from those proceedings.  But despite that, FTI which commenced the 2^nd Chongqing Proceedings is nevertheless distinct from the Receivers who are in control of Top One A and Top One B.  On the undisputed evidence, this situation was prima facie caused by the 2^nd Defendant’s flagrant breach of his undertaking under the Share Charge to siphon off the assets in Top One A in collusion with the 3^rd Defendant.  The 2^nd Defendant’s new defence of mistake and unjust enrichment is only known to himself.  In dealing with interlocutory applications in a situation such as this, it must be accepted that some conflict of interest could not be avoided.  The questions are how real is the conflict and how are the interests of the various parties balanced. 

33.These questions could only be answered by looking at what the Plaintiffs seek to achieve by the 2^nd Chongqing Proceedings.  As can be seen from the statement of claim in the 2^nd Chongqing Proceedings,  those proceedings are similar to the present action and the remedy sought are essentially the same.  FTI, on behalf of the 2^nd Plaintiff, seeks to avoid the 1^st Transfer Agreement and the 2^nd Transfer Agreement so as to have the ownership of the Chongqing Dading shares restored to Top One A.  There is no substantive relief sought against Top One A.  On the face, restoring the shares in Chongqing Dading to Top One A will be to the advantage to Top One A.  It is difficult to see what detriment will be suffered by Top One A as a corporate entity distinct from the 2^nd Defendant.  Of course, if successful, the 2^nd Chongqing Proceedings will ultimately benefit the 2^nd Plaintiff, but will be detrimental to the interest of Top One B and Fujian Dahong, which are owned or controlled by the 3^rd Defendant.  Whether the 2^nd Chongqing Proceedings will be beneficial or detrimental to the 2^nd Defendant depends on the truth behind the 1^st Transfer Agreement and the 2^nd Transfer Agreement, which this Court needs not be concerned.  In any event, being a party to the proceedings, the 2^nd Defendant can look after his own interest.  His personal interest should be kept distinct from that of Top One A.  It is the interest of Top One A in the very particular situation which it finds itself in that the Court needs to focus its attention on.

34.Mr Kwong argues that there are serious allegations made against Top One A in the 2^nd Chongqing Proceedings, including conspiracy and damage to the interest of the state etc, which Top One A under the control of the Receivers would be unable to defend itself.  To that argument, Mr Lam’s reply is that the allegations of wrongdoing by Top One A  are directed at the time when Top One A was under the control of the   2^nd Defendant and possibly also the 3^rd Defendant and there are no allegations of wrongdoing since it was under the control of the Receivers.  As the 2^nd and 3^rd Defendants are parties to the proceedings, they will be in a position to answer those allegations.  I agree.

35.As I see it, Top One A is a necessary party to the 2^nd Chongqing Proceedings because it was a party to the 1^st Transfer Agreement and the relief sort is in fact for the benefit of Top One A.    It does not matter that it is named as a defendant.  The wrong complained of is directed at the time when Top One A was under the control of the  2^nd and/or 3^rd Defendants. The interests of Top One A and the Receivers are the same but are inconsistent with those of the 2^nd and/or 3^rd Defendants.  There is no reason to believe that in the conduct of the 2^nd Chongqing Proceedings the Receivers will do anything to damage the interests of Top One A.  On the other hand, the interests of Top One A and the   2^nd Defendant are diametrically opposed.  I have asked Mr Kwong what would be the 2^nd Defendant’s position in the 2^nd Chongqing Proceedings.  At first he says he had no instruction, but after much consideration   he confirms that the 2^nd Defendant adopts the same line as in these proceedings, which is to resist restoring the shares in Chongqing Dading to Top One A.  The 2^nd Defendant is in a real position of conflict of interest with Top One A.

36.The 2^nd Defendant has advanced no other arguments of conflict of interest or mala fides on the part of the Receivers.  Having considered  all the circumstances, I come to the conclusion that in substance the   2^nd Chongqing Proceedings are instituted in the interest of Top One A and the 2^nd Plaintiff. There is no real conflict of interest between Top One A and the Receivers.  On the other hand, the interests of Top One A and the 2^nd Defendant are diametrically opposed.  The 2^nd Defendant is in a real position of conflict of interest with Top One A.  It would be detrimental to the interests of Top One A, if the 2^nd Defendant is to represent Top One A in and to have the conduct of the 2^nd Chongqing Proceedings on behalf of Top One A. 

37.As for the second question about balancing the interests of the various parties, I think the balance could be struck if Top One A is to be represented by a legal team which is separate and independent from that   of FTI in the 2^nd Chongqing Proceedings.  Accordingly, the Representation Application is refused with costs to the Plaintiffs, upon the Receivers’ undertaking to provide funds and to retain a separate and independent legal team from the one representing the 2^nd Plaintiff to represent Top One A with strict instructions to defend the 2^nd Chongqing Proceedings.  The funds incurred are recoverable as a first charge on the assets of Top One A.

THE INJUNCTION APPLICATION

The applicable legal principles

38.The principles applicable to the grant of interlocutory injunction has been well settled since the House of Lord’s decision in American Cyanamid Co v. Ethicon Ltd [1975] AC 396 per Lord Diplock at 406-409 and as further refined in a number of subsequent leading cases.  These principles have been summarised in Hong Kong Civil Procedure 2011, paragraphs 29/1/8 to 29/1/17.  The plaintiff’s first hurdle is to satisfy the court that his claim is not frivolous or vexatious; in other words, that there is a serious issue to be tried.  At the interlocutory stage, it is no part of the court’s function to try to resolve conflicts of evidence on affidavits as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations.  These are matters to be dealt with at trial (American Cyanamid at 407).  In this context, it is irrelevant whether the court thinks that the plaintiff’s chances of success in establishing liability are 90 percent or 20 percent: Alfred Dunhill Ltd v. Sunoptic SA [1979] FSR 337 per Megaw LJ at 373.  Second, if satisfied that there is a serious issue to be tried, the court shall go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought by considering the possible result of a postulated trial, first one way and then the other.  Usually, if damages are adequate to the applicant and the unsuccessful party is in a position to pay the damages, no interlocutory injunction will be granted.  Lastly, as the grant or refusal of the injunction is an exercise of the court’s discretion, at the balancing stage, the court may take into account the strength or weakness of the parties’ case in the exercise of its discretion:Centalic Technology Development Ltd v. Worldwide Industrial Ltd [1996] 3 HKC 498.

39.Mr Kwong advances nine reasons why balance of convenience is in favour of grant of the injunction.  His ninth reason is directed at the legal principles applicable to balancing of convenience.  I shall deal with it here to set out the correct principles.  The court conducts the balancing exercise by considering the possible result of a postulated trial, first one way and then the other.  In American Cyanamid, Lord Diplock said at 408:

“As to that, the governing principle is that the court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant's continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage. If, on the other hand, damages would not provide an adequate remedy for the plaintiff in the event of his succeeding at the trial, the court should then consider whether, on the contrary hypothesis that the defendant were to succeed at the trial in establishing his right to do that which was sought to be enjoined, he would be adequately compensated under the plaintiff's undertaking as to damages for the loss he would have sustained by being prevented from doing so between the time of the application and the time of the trial. If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason upon this ground to refuse an interlocutory injunction.”

(My emphasis underlined)

40.The first question the court asks is whether damages would be a sufficient remedy to compensate the plaintiff for his loss during the intervening period before trial and whether the defendant would be good for the damages if the plaintiff succeeds in obtaining the injunction at trial but was denied the interlocutory injunction.  If damages are adequate and the defendant is in a position to pay, usually no interlocutory injunction will be granted.  Mr Kwong’s argument is directed at this principle.  If damages are not adequate or that the defendant is not in a position to pay, then the court considers the contrary scenario that the interlocutory injunction was wrongly granted and the plaintiff is unsuccessful in obtaining the injunction at trial and asks itself the same question whether damages would be a sufficient remedy to compensate the defendant for being enjoined from doing what he may lawfully do and whether the plaintiff’s undertaking is good for the damages.  Whatever the answer, the court will have to undergo a careful balancing exercise.  Lord Diplock did not suggest any usual consequence in this scenario other than saying that if the plaintiff would be in a financial position to pay damages to the defendant, there would be no reason upon this ground to refuse an interlocutory injunction.  The remedy is a discretionary remedy.  In the exercise of its discretion the court will have to consider all the circumstances, including its assessment of the strength and weakness of  the parties’ case.  The guiding principle is, as Ma J (as he then was) succinctly put it in Music Advance Limited & Another and The Incorporated Owners of Argyle Centre Phase I, HCA 2574/2002, that  the court will take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong.

41.Mr Kwong argues that it is unjust to allow a wrongdoer, the Receivers in the present case, to continue their wrongful acts simply because they have the financial resources to pay damages.  The proper course to take is to stop their wrongdoings forthwith.  He refers to Kelsen v Imperial Tobacco [1957] 2 QB 334 at page 345, as an authority suggesting that it is impermissible for a party to ask the court to sanction its wrongdoing and/or wrongful conducts by purchasing the other party’s rights by means of paying damages.  In Kelsen, the defendant erected a  sign protruding into the airspace of the plaintiff.  The defendant argued that the proper remedy was in damages and not by way of injunction.  It was in that contest that the court held it was impermissible to ask the court to sanction the defendant’s wrongdoing by purchasing the plaintiff’s rights by means of paying damages.  That was a case before American Cyanamid.  Also, it was not a case on interlocutory injunction.  In any event, the principle in that case was not inconsistent with those decided in American Cyanamid.  If Kelsen were a case of interlocutory injunction, any court after a balancing exercise would reach the same result.

42.In my view, Mr Kwong’s argument is based on his misunderstanding of Lord Diplock’s dicta in American Cyanamid I quoted above.  It should be noted that under the first scenario Lord Diplock was careful in qualify his dictum with the word “normally”.  Lord Diplock did not go that far as to say that a refusal of the interlocutory injunction must necessarily follow in all cases where damages are an adequate remedy for the defendant.  Similarly, under the second scenario, Lord Diplock left the position open where damages are an adequate remedy for the plaintiff.  It is all a matter of balancing convenience or injustice to the parties in the event that the grant or refusal of an injunction at the interlocutory stage turns out to be wrong.  It is important to remember that an injunction is an equitable remedy.  In the exercise of this equitable jurisdiction, the court has discretion to grant or to refuse an interlocutory injunction.  The court has to take into account all the circumstances of the case as known to the court at that stage.  The guiding principle is that the court will take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong.  There are no fixed rules as to whether an injunction should be granted or refused.  I must emphasise that, even Lord Diplock has qualified his general rule that injunction should be refused if damages are adequate and available by the word “normally”. At page 409, Lord Diplock also reminds us of the importance that there may be many other special factors to be taken into consideration in the particular circumstances of the individual case.  One most important factor is merit.  While merit has no bearing in determining whether there are serious issues to be tried, it is important in determining how the court’s discretion is to be exercised, once that hurdle is passed.  If the merit or lack of merit is so obvious, the discretion must usually be exercised in favour of where the merit lies as such a decision carries the least risk of the decision being wrong and occasioning injustice.  Thus, the principle to be adopted in the balancing exercise is that the court shall take into account all the circumstances, including the merits of the parties’ case and adopt whichever course which appears to the court to carry the least risk of injustice if it should turn out to be wrong.  The general rule of convenience is that if damages are adequate for the defendant, no interlocutory injunction will be granted.  But this is not an inflexible legal principle.  This is the way Lord Diplock’s dicta in American Cyanamid should be understood.

The 2^nd Defendant’s case

43.The 2^nd Defendant seeks a mandatory injunction requiring the Receivers to enable him to represent Top One A in the 2^nd Chongqing Proceedings.  His case for the injunction is based on the draft Re-Amended Defence and Counterclaim, which I have dis-allowed.  Be that as it may,  I accept Mr Kwong’s submission that for the purpose of the Injunction Application, the 2^nd Defendant may advance any case based on evidence supported by the affirmations filed in support of the application and leave the pleading to be perfected at a later stage.  The 2^nd Defendant did not file any affirmation, but relied on three affirmations filed by his solicitors,  Mr Ho and one affirmation filed by the 3^rd Defendant previously.

44.The 2^nd Defendant’s case is that he has a good defence to the present proceedings based on misrepresentation, mistake and restitution on the ground of unjust enrichment which would enable him to have the Share Charge set aside and the shares in Top One A restored to him.  Hence, the appointment of the Receivers as joint and several receivers of Top One A would be set aside and he would be able to represent Top One A in the 2^nd Chongqing Proceedings.  He argues that there are serious issues to be tried and the balance of convenience lies in favour of granting an interlocutory injunction to enable him to represent Top One A in the  2^nd Chongqing Proceedings.

Serious issues to be tried - misrepresentation and promissory estoppel

45.As submitted by Mr Kwong, one of the key issues for the Court to determine in this application is whether the 2^nd and 3^rd Defendants entered into the Share Charge as a result of the misrepresentation of Mr U and whether Mr U suggested to the 2^nd and 3^rd Defendants that the   2^nd Plaintiff would not take enforcement action against his shares in Top One A.  Mr Kwong further submits that, if yes, it must follow that the Share Charge is unenforceable and/or liable to be vitiated and the  2^nd Plaintiff is estopped from enforcing the Share Charge.

46.The only evidence in support of the misrepresentation comes from paragraphs 10 and 12 of the 3^rd Defendant’s 2^nd Affirmation, in which he said:

“10. At the time, people from [Stark] asked me through Mr U(余先生)whether more collateral could be provided, so that they could better report to their superior. They stressed that the collateral was only a formality and would be put on the sides just for making reports to the superior, and that the Sino-Environment shares were actually sufficient as security.

…

12.  … I asked [the 2^nd Defendant] whether shares of [Top One A] could be used as collateral and that would be just for certain formality procedure.  He agreed to that very quickly.”

Mr Lam submits that there is just no evidence in support of a case of misrepresentation of fact.  The 2^nd Defendant is faced with two difficulties, firstly, what the 3^rd Defendant was told and, secondly, what he told the  2^nd Defendant.

47.In respect of his first hurdle, it is not clear what the word “formality” means.  Signing documents and providing security with the intention that they will be enforced is also a formality.  The word “formality” is equivocal and does not by itself only imply that the security will not be enforced.  Even if it does by reading it in its proper context,  as I have already held, the expression, “only a formality and would be put on the sides just for making reports to the superior” is no more than a statement of opinion or of future intention.  The reference to the Sino-Environment shares being sufficient as security must mean they were sufficient at the then price level. That suggests that the representor’s future intention will change if the price level will not be maintained.  To turn that representation into a misrepresentation of fact, evidence of dishonesty or that the opinion was not honestly held is required.  There is a total lack of such evidence.  Mr Kwong argues that that is a matter to be explored at trial or that the evidence could be perfected later.  I do not accept that.  That may be sufficient for an application to amend the pleading but not acceptable in an application for interlocutory injunction.  The 2^nd Defendant has to put his best case forward which includes the minimal of such evidence, whilst whether such evidence is to be expanded or believed is a matter for trial.  There are no particulars as to what was precisely said, how the misrepresentation was made, when it was made and a total lack of evidence in support of the misrepresentation as a misrepresentation of fact. 

48.Secondly, the same deficiency is also carried over to what the 3^rd Defendant allegedly told the 2^nd Defendant and what the 2^nd Defendant understood of what he was told by the 3^rd Defendant.  There is simply no evidence from the 3^rd Defendant of precisely what he told the 2^nd Defendant.  What is contained in paragraph 12 of the 3^rd Defendant’s 2^nd Affirmation   is lacking in particulars.  The word “collateral” in that paragraph carries with it the implication that the collateral will be enforced if certain conditions are satisfied.  The expression “formality procedure”, without more, is in my view neutral as to whether the collateral will be enforced  if the conditions are met.  Most fatally, there is also no evidence whether the misrepresentation was operative on the mind of the 2^nd Defendant.

49.The evidence is, as Mr Lam submits, glaringly lacking in particulars.  This is the 2^nd Defendant’s application.  He is resident in   Hong Kong.  There is no explanation why he did not file any affirmation in support of his application.  He relied on the 3^rd Defendant’s 2^nd Affirmation, the relevant part of which I have already analysed.  That affirmation is not sufficient to support his case of misrepresentation.  He also relied on the three affirmations filed by his solicitor, Mr Ho.  Mr Ho’s affirmations were carefully drafted not to involve himself or the 2^nd Defendant in any factual issues.  His 1^st Affirmation was filed in support of the Representation Application.  He mainly set out the background and understandably mentioned nothing about the misrepresentation.  His 2^nd Affirmation was filed in support of the Injunction Application.  He averred that there was definitely issues to be tried which involved questions as to credibility of witnesses and factual disputes which are to be resolved at trial.  He dealt with the proposed amendments, but mentioned nothing to the effect that   he was informed by the 2^nd Defendant that the misrepresentation was   made, which is the crux in this application.  His 3^rd Affirmation contained his observations of the key issues for the Court to determine which   is whether the 2^nd Defendant entered into the Share Charge as a result  of representation of Mr U.  He mentioned nothing to confirm the misrepresentation, that he verily believed the misrepresentation was made and his source of belief.  He did not verify the facts pleaded in the draft  Re-Amended Defence and Counterclaim were true and correct.  There is  no question of the Court being asked to resolve conflicts of evidence.  There is just no proper evidence before the Court of any misrepresentation of fact to support the 2^nd Defendant’s application.

50.Mr Kwong argues that under the principle of promissory estoppels, where a party to a contract makes a representation to the other that he will not enforce his strict legal rights against that other party, and the other party acted on that representation to his detriment, then the former party would be barred from enforcing his legal rights.  For the same reason, Mr Kwong’s argument fails for lack of supporting evidence.

Serious issue to be tried - restitution claim based on unjust enrichment

51.The 2^nd Defendant included a claim for unjust enrichment in his draft Re-Amended Defence and Counterclaim.  Mr Kwong submits, quoting Graham Virgo, The Principles of the Law of Restitution,  2^nd Edition at page 9, that this restitutionary remedy is available if a claimant can prove:

(1)  the recipient must have received an enrichment;

(2)  the enrichment must have been received at the claimant’s expense;

(3)  the enrichment must have been received in circumstances of injustice, meaning that the claim falls within one of the recognized grounds of restitution; and

(4)  the recipient is not able to rely on a defence which defeats or reduces the claim.

Mr Kwong also referred to other authorities.  Mr Lam does not dispute the above principle of law.

52.Mr Kwong argues that the Share Charge and the 2^nd Defendant’s shares in Top One A transferred to the 2^nd Plaintiff was the enrichment received by the 2^nd Plaintiff at the expense of the 2^nd Defendant and that the 2^nd Plaintiff is not able to rely on any defence which defeats or reduces the claim.  Hence, conditions (1), (2) and (4) above are satisfied.  He argues that the 2^nd Defendant relies on mistake as a ground of restitution.  However, no mistake has been expressly pleaded in the Amended Defence as it now stands or in the draft Re-Amended Defence and Counterclaim.  Giving him the widest latitude in this application, I assume the mistake relied on by the 2^nd Defendant is the representation made by Stark through Mr U to the 3^rd Defendant which was then conveyed to the 2^nd Defendant.  There is still a total absence of any evidence from the 2^nd Defendant in support of his case that the mistake was operative or causative, as a result of which he executed the Share Charge.  There is therefore no serious issue to be tried in respect of the 2^nd Defendant’s case of restitution based on mistake.

Serious issue to be tried - valuation of the shares in Sino-Environment

53.Mr Kwong argues that the circumstances of the case included, inter alia, whether the value of the Sino-Environment shares pledged were 250% of the outstanding balance of the loan owed by Thumb China to the 2^nd Plaintiff in most of the relevant times before March 2008.  This issue is relevant to the question whether the shares in Sino-Environment were sufficient security as suggested by Stark to Mr U such that the 2^nd and 3^rd Defendants believed the representations of Mr U.  Mr Kwong submits that the determination of this matter may require valuation evidence from experts.  With respect, this argument is non-sense.  Sino-Environment is a listed company on the Stock Exchange of Singapore.  If the 2^nd Defendant was serious in pursuing his application on this ground, he should have obtained a record of the balance of the outstanding loan at the relevant times from the 3^rd Defendant and the price of Sino-Environment from   the Stock Exchange of Singapore at those times and exhibited them in   an affirmation.  There is nothing to suggest that such information is unavailable.  The suggestion of calling for expert evidence and going to trial is just non-sense.  Mr Kwong’s argument showed a total lack of good faith in the prosecution of this application.   

Serious issues to be tried - conclusion

54.In conclusion, the 2^nd Defendant has failed to show any serious issue to be tried.  His case is just frivolous.  As there are no serious issues to be tried, it is not necessary to consider the issue of balance of convenience: Hong Kong Civil Procedure 2011, paragraph 29/1/31.  This conclusion is sufficient to dispose of the 2^nd Defendant’s Injunction Application.  However, for completeness, I shall take a step further to consider balance of convenience assuming that I were wrong in finding there are no serious issues to be tried.  I shall first state my view on (1) the merit of the 2^nd Defendant’s case; (2) the adequacy of damages to the Plaintiffs if the interlocutory injunction is wrongly granted; (3) the adequacy of damages to the 2^nd Defendant if the interlocutory injunction application is wrongly refused; and lastly (4) the 2^nd Defendant’s argument on the balance of convenience.  Then I shall consider where the balance of convenience lies.

Merit of the 2^nd Defendant’s case

55.For the purpose of determining whether there are serious issues to be tried, the prospect of an applicant’s success at trial is of minor significance.  However, when it comes to the question of balancing where the convenience lies, the court is entitled to and in fact should take into account the strength and weakness of the parties’ case, particularly the applicant’s, in determining how its discretion is to be exercised.

56.I have already mentioned the very careful way in which Mr Ho’s three affirmations were drafted, that he did not verify the truthfulness of the draft Re-Amended Defence and Counterclaim and the alleged misrepresentation or mistake and that he mentioned nothing about the basis of his belief that the same were true.  I have mentioned about the total lack of particulars from the 3^rd Defendant as to the misrepresentation. I have also mentioned the total lack of any affirmation in support filed by the 2^nd Defendant.  It impressed me as though he was not at all concerned about the application, leaving it to his solicitors and the 3^rd Defendant to fight his claim of over a hundred million dollars.  It may well be that he is just the front man of the 3^rd Defendant.

57.The 3^rd Defendant’s allegation about misrepresentation is also remarkable.  In his 2^nd Affirmation quoted above, he said that people from Stark told him through Mr U that the additional collateral was only a formality, without giving particulars of who Mr U was. As the evidence turned out, Mr U was a partner of Shook Lin & Bok LLP, a reputable Singapore firm of solicitors whom the 3^rd Defendant instructed in negotiating with Stark for the financing to Thumb China.  If the misrepresentation had been made, there was no reason why he  did not obtain an affirmation from Mr U giving full particulars of the misrepresentation and assurance made by Stark.  Furthermore, if the Share Charge was not intended to be enforced, it is incredible that the parties would have spent seven months engaging their respective legal teams in negotiation and drafting the very comprehensive documentation.

58.The 2^nd Defendant was legally represented by Messrs Hastings & Co (“Messrs Hastings”) in the negotiation.  At least six weeks prior to the execution of the Share Charge, all correspondence was copied to Messrs Hastings.  None of the documents suggest that the Share Charge was not to be enforced.  It is incredible that the 2^nd Defendant did not know what was going on during the negotiations or that Messrs Hastings did not advise him of the nature and effect of the Share Charge.  In particular, on 30 April 2008, Messrs Hastings issued a legal opinion to the 2^nd Plaintiff confirming the enforceability of the Share Charge.  This is the clearest evidence that the 2^nd Defendant’s solicitors were fully aware that the parties’ intention was that the Share Charge would be enforced if the conditions were met.  That weighs heavily against the 3^rd Defendant’s allegation that Mr U told him otherwise and that he related the same to the 2^nd Defendant.  It is incredible that the 2^nd Defendant had not been kept informed by Messrs Hastings of what was going on in the negotiations and did not know that the Share Charge was intended to be enforced.  Had it been represented to him that the Share Charge would not be enforced, he must have discussed such an important issue with Messrs Hastings.  He had the opportunity to deal with all these matters, but he chose not to file any affirmation.  His motive and conduct in this litigation is extremely doubtful.

59.Mr Kwong argues that the legal opinion from Messrs Hastings suggested that Messrs Hastings was acting for the 2^nd Plaintiff.  He relied on the Confidentiality Notice in the legal opinion which reads:

“This communication is intended only for the use of the addressee and may contain information that may be privileged and confidential. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, copying or otherwise using the information of this communication is not permitted and may be unlawful. If you have received this communication in error, please notify us immediately by telephone or fax and return this communication to us by post and please do not read the contents hereinafter contained. Thank you.”

There was no dispute that Messrs Hastings was retained by the 2^nd Defendant.  In the circumstances, it is difficult to draw the inference which Mr Kwong asks me to draw.  On the contrary, it is more likely than not that Messrs Hastings was asked by the foreign lending bank to provide a legal opinion to ensure the lending bank that the Share Charge was enforceable according to Hong Kong law.  The argument that  Messrs Hastings was acting for the 2^nd Plaintiff is just absurd.

60.In summary, the 2^nd Defendant’s case is wholly devoid of merit.  This weighs heavily against him in the balancing exercise.

Adequacy of damages to the Plaintiffs if interlocutory injunction is wrongly granted

61.The purpose of the 2^nd Defendant in seeking the interlocutory injunction is to enable him to represent Top One A to resist the 2^nd Chongqing Proceedings and to affirm the 1^st Transfer Agreement and the 2^nd Transfer Agreement.  In deciding whether damages are sufficient, I must assume the worst scenario for the Plaintiffs, i.e. The 2^nd Defendant succeeds in the 2^nd Chongqing Proceedings, Top One A will not be able to recover the shares in Chongqing Dading and the 2^nd Plaintiff will lose its security under the Share Charge.  The measure of damages will be in the region of SGD50 million.  The 2^nd Defendant has offered no evidence of his financial worth, not to mention that he lives in a public housing estate.  Obviously, he will not be good for this measure of damages.

Adequacy of damages to the 2^nd Defendant if interlocutory injunction is wrongly refused

62.Likewise, I assume the worst scenario for the 2^nd Defendant if the interlocutory injunction is wrongly refused, i.e. the 2^nd Defendant loses in the 2^nd Chongqing Proceedings, the 1^st Transfer Agreement and   the 2^nd Transfer Agreement will be set aside and the shares in Chongqing Dading will be restored to Top One A when they should not.  If the interlocutory injunction is wrongly refused, it must be on the premise that the Share Charge is found to be invalid when it is valid.  In that case, the 2^nd Defendant could suffer no damage because the value of his shares in Top One A will be increased with the return of the shares in Chongqing Dading.  If he really wants to complete the 1^st Transfer Agreement, he may still do so then.  He could suffer no monetary damage.  Even if he does, there is nothing to suggest the 2^nd Plaintiff, being a bank in New York,   will not be good for the damages.

63.Mr Kwong argues that the 2^nd Defendant would be entitled to the remedy of restitution and damages would be inadequate.  However,   Mr Lam argues that restitution does not give the 2^nd Defendant a proprietary remedy.  He relies on the same passage in Graham Virgo quoted by Mr Kwong in which the learned authors continued to submit:

“If the first three requirements are satisfied, and the defendant does not have a defence which extinguishes the claim, a restitutionary remedy will be awarded to enable the claimant to recover the value of any enrichment which had been received by the defendant. The only remedies which are available for actions founded on the reversal of unjust enrichment are restitutionary remedies and, even then, only personal restitutionary remedies are available.”

Hence, Mr Lam submits that even if restitution is available to the 2^nd Defendant he is not entitled to the return of the shares in Top One A, but only to its value.  I agree.

64.Next, Mr Kwong argues that in view of the very serious allegations raised against Top One A in the 2^nd Chongqing Proceedings, including conspiracy, dishonesty and receiving unlawful interest, the reputation of Top One A would be at stake if the 2^nd Chongqing Proceedings would be allowed to proceed when they should not.  Furthermore, he argues that such damages are impossible to quantify. But, as Mr Lam submits, Top One A is just a holding company for the shares of Chongqing Dading and did not engage in any trading activities, there is no question of damage to goodwill or reputation or that such loss could not be compensated by an award of damages.  As such, damages are unlikely to be substantial.  Difficulties in quantifying damages have little bearing under such circumstances.

65.To sum up, damages are an adequate remedy for the 2^nd Defendant, if interlocutory injunction is wrongly refused

Balance of convenience

66.Mr Kwong advanced nine reasons why the balance is in  favour of granting an interlocutory injunction.  They are all repetitive and about conflict of interest.  Firstly, he relies on the fact that the Receivers consented to the 3^rd Defendant to be authorised to defend the 2^nd Chongqing Proceedings on behalf of Top One B.  He argues that the 2^nd Defendant is in a similar position and there is no bona fide reason why the Receivers should object to the 2^nd Defendant being authorised to defend Top One A.  Mr Lam has already pointed out the distinction between the two cases is that the Receiver’s appointment as receivers of Top One A was pursuant to the Share Charge and they are not officers of the Court whereas their appointment as receivers of Top One B was pursuant to an order of the Court. 

67.I think the more critical consideration is that the wrongful act complained of against Top One B is quite different from that complained of against Top One A.  Top One B was just a third party purchasing the shares in Chongqing Dading, whereas Top One A was selling the shares in breach of an undertaking in the Share Charge given by the 2^nd Defendant personally and on behalf of Top One A.  As I have already analysed in paragraphs 34 to 36 above, the 2^nd Defendant’s personal interest in defending his breach of undertaking conflicts with the interest of Top One A in recovering the shares.  There is no such conflict of interest between the 3^rd Defendant and Top One B, though the 3^rd Defendant’s personal interest as the sole shareholder of Top One B conflicts with the interest of the 2^nd Plaintiff as creditor for whose benefit the Receivers were appointed as receivers of Top One B.  The 2^nd Defendant’s position vis-à-vis Top  One A is clearly distinguishable from the 3^rd Defendant’s vis-à-vis Top  One B.  I have carefully considered the question of the 2^nd Defendant’s conflict of interest when considering the Representation Application.  For the same reasons, I reject Mr Kwong’s argument based on conflict of interest.

68.The second reason advanced by Mr Kwong is that it is an affront of justice if the Receivers are allowed to start the 2^nd Chongqing Proceedings against Top One A, but deliberately caused Top One A not to defend the same.  I have also very carefully considered this issue in paragraphs 34 to 37 above when refusing the Representation Application.  The 2^nd Defendant is in a position of real conflict of interest with Top One A.  The conflict of interest between the Receivers and Top One A is more apparent than real and the interest of Top One A would be safeguarded by separate and independent legal representation.  With that safeguard, the interest of Top One A is adequately protected.

69.The third reason advanced by Mr Kwong is that no prejudice would be caused to any party if the interlocutory injunction is granted but the interest of Top One A would be harmed if it is refused.  For the same reasons as above, I come to an opposite view.  The 2^nd Defendant’s personal interest in defending his breach of undertaking in the Share Charge clearly conflicts with Top One A’s interest in recovering the shares in Chongqing Dading.  If the injunction is granted, Top One A and the 2^nd Plaintiff will be seriously prejudiced.

70.The fourth reason advanced by Mr Kwong is that the 2^nd Defendant being the sole person in control of Top One A at the  material time is the most appropriate person to defend the 2^nd Chongqing Proceedings on behalf of Top One A.  This argument is only to be dismissed because of conflict of interest.

71.The fifth reason advanced by Mr Kwong is that FTI made very serious allegations of conspiracy against the 2^nd Defendant in the 2^nd Chongqing Proceedings.  The position of the 2^nd Defendant in this action may be prejudiced if Top One A does not properly defend the 2^nd Chongqing Proceedings.  This issue has been considered in paragraphs 34 to 36 and 64 above.  The 2^nd Defendant is a party in the 2^nd Chongqing Proceedings and would be able to defend issues of conspiracy.  Besides,  the safeguard of separate legal representation would address his concern about prejudice.

72.The sixth reason advanced by Mr Kwong is that since the 2^nd Defendant would contest the 2^nd Chongqing Proceedings, there is no reason why he should not at the same time contest the same on behalf of Top One A which he controlled at the material times.  The simple answer  is again conflict of interest.

73.The seventh reason advanced by Mr Kwong is that while it is accepted that the interlocutory injunction sought by the 2^nd Defendant is mandatory in nature, the authorities show that the approach to mandatory and prohibitory injunction is the same.  I agree.  That the Receivers have to take some positive steps to comply with the mandatory injunction is not anything that I take into consideration whether to grant or refuse the Injunction Application.

74.The eighth reason advanced by Mr Kwong is that in fact an answer to Mr Lam’s complaint of delay in taking out the application. The Injunction Application was not made until October 2010 despite that the documents relating to the 2^nd Chongqing Proceedings had been served upon the 2^nd Defendant in August 2010.  I would not take this issue   against the 2^nd Defendant.

75.The ninth reason advanced by Mr Kwong is that damages are unlikely to be adequate remedy for the 2^nd Defendant.  I have already dealt with those arguments.

76.On the fact, I find that there is no merit in the 2^nd Defendant’s case of misrepresentation, mistake and restitution. The 2^nd Defendant is  the plaintiff in the counterclaim and is seeking an interlocutory injunction.  In the balancing exercise, I find that damages to the 2^nd Defendant are an adequate remedy if the interlocutory injunction is wrongly refused.   I find that none of the arguments put forward by Mr Kwong supports his argument that the 2^nd Defendant will suffer injustice and prejudice if  his application for interlocutory injunction is refused.  The 2^nd Defendant has utterly failed to show why damages would not be an adequate remedy to him.  There is also no question that the 2^nd Plaintiff, a reputable bank in New York, will be unable to meet any damages assessed.  In fact, my finding is to the contrary.  If the injunction is granted, the Plaintiffs will suffer prejudice and the 2^nd Defendant has no means to satisfy the measure of damages which may be awarded against him.  I find that the balance is heavily in favour of refusing the 2^nd Defendant’s application for interlocutory injunction than granting it.  

77.The 2^nd Defendant has failed to show a serious issue to be  tried.  Even if there is, the balance of convenience is heavily in favour of refusing than granting the interlocutory injunction.  Accordingly, the 2^nd Defendant’s Injunction Application is refused with costs to the Plaintiffs.

CONCLUSION

78.The Plaintiffs’ Withdrawal Application was granted with costs to the 2^nd Defendant.

79.The 2^nd Defendant’s Representation Application by summons dated 15 October 2010, his Amendment Application by summons dated   19 November 2010 and his Injunction Application by summons dated 19 November 2010 are all refused upon the Receivers’ undertaking to provide funds and to retain a separate and independent legal team from the one representing the 2^nd Plaintiff to represent the 1^st Plaintiff with strict instructions to defend the 2^nd Chongqing Proceedings.  The funds incurred are recoverable as a first charge on the assets of the 1^st Plaintiff.  The 2^nd Defendant shall pay the Plaintiffs’ costs of these three applications with certificate for counsel.  Such costs are to be taxed if not agreed and to be paid forthwith.

Mr Douglas Lam, instructed by Messrs Hogan Lovells, for the Plaintiffs

Mr Alan Kwong, instructed by Messrs Alan Ho & Co., for the 2^nd Defendant