Keep Bright Ltd v. Super Auto Investments Ltd and Others

HCCT 16/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 16 OF 2010

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BETWEEN

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Before: Hon Au J in Chambers

Date of Hearing: 29 November 2011

Date of Decision: 12 January 2012

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D E C I S I O N

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A. Introduction

1.This is the application of the 1^st to 3^rd Defendants (collectively, “the Defendants”) to vary certain paragraphs of the interlocutory injunction order (“the Injunction Order”) granted by Saunders J on 31 May 2010.

2.The Defendants and the Plaintiff were parties to a letter of intent dated 12 April 2006.  For convenience, the parties refer to this as “the Agreement”.  I would adopt the same herein.

3.The subject matter of the Agreement is the sale and purchase of the shares in the 2^nd Defendant (a Hong Kong company) by the Plaintiff for a consideration of HK$208,000,000.00.   The 1^st Defendant owns the 2^nd Defendant, which in turns owns the 3^rd Defendant (a Zhuhai, Mainland company).   The underlying purpose of the sale and purchase is for the Plaintiff to acquire a hotel complex (“the Assets”) situated in Zhuhai in the Mainland.  The intention was to have the Assets eventually transferred to and owned by the 3^rd Defendant.  By this and when completed, the Plaintiff would eventually acquire the Assets by indirectly acquiring the shareholding and control in the 3^rd Defendant through the 2^nd Defendant.

4.However, disputes subsequently arose between the parties in early 2010 principally on whether the Agreement had expired by its own terms.   The Defendants say it had.  The 1^st Defendant even sought to return the Plaintiff HK$100,000,000.00 as the sum the Plaintiff had by then already paid under the Agreement.  The Plaintiff refused and insists that the Agreement is still valid and should be completed.

5.The Injunction Order effectively and in short restrain the Defendants from disposing of the shares in the 2^nd Defendant and changing or replacing the legal representative, registered address, memorandum and articles and the seal of the 3^rd Defendant until their dispute on whether the Agreement has expired is resolved by the relevant Zhuhai Court or by way of arbitration.   I will deal with the terms of the Injunction Order in greater details below.

6.In their Summons, the Defendants originally asked to delete paragraphs (d) to (h) on pages 2 to 3 and paragraphs (d) to (h) on pages 4 to 5 (which are of the same term as those at pages 2 to 3) of the Injunction Order.  Towards the end of the hearing, the Defendants say they would be contended to ask to vary the terms of these paragraphs to the extent as they through Counsel submitted to the Court.  In the circumstances, I would consider this application under this latest position.

B. The terms of the Injunction Order and the variations sought

7.The existing terms of the Injunction Order are as follows:

“AND UPON the 1^stand 2^ndDefendants and the 3^rdDefendants (without prejudice to question as to the person having the authority to represent the 3^rdDefendant) undertaking to the Court until the determination of whether the Agreement had expired by the Intermediate People's Court of Zhuhai or by the Arbitration or until further order that they (whether by their directors, legal representatives, officers, subsidiary companies, associated companies, servants or agents or any of them or otherwise howsoever) will not do and/or attempt to do and/or cause, procure, approve and/or authorise to be done the following acts or any of them:

(a) selling, charging, transferring, disposing of and/or otherwise dealing with any of the shares in the 2^ndDefendant;

(b) entering the name of any party other than the Plaintiff into the register of members of the 2^ndDefendant;

(c) selling, charging, transferring, disposing of and/or otherwise dealing with any of the shares in and/or the registered capital (註冊資本) of the 3^rd Defendant and/or applying to any Mainland government department and/or authority for the same;

(d) changing, replacing and/or appointing any legal representative (法定代表人) and/or executive director (執行董事) of the 3^rd Defendant in place of or in addition to Mr. Geng Shusen 耿樹森 and/or applying to any Mainland government department and/or authority for the same;

(e) changing and/or altering the Mainland registered address of the 3^rdDefendant and/or applying to any Mainland government department and/or authority for the same;

(f) changing, amending, replacing, revising and/or altering the memorandum and articles (公司章程) of the 3^rd Defendant and/or applying to any Mainland government department and/or authority for the same.

(g) making, changing and/or replacing any seal, stamp and/or chop of the 3^rd Defendant and/or applying to any Mainland government department and/or authority for the same;

(h) changing, amending, replacing, revising and/or altering any business licence (營業執照), organisation code certificate (組織機構代碼證), PRC Investment Enterprise Approval Certificate for overseas investors from Taiwan, Hong Kong and Macao (中華人民共和國台港澳僑投資企業批准證書), and/or Taxation Registration Certificate (稅務登記證) of the 3^rd Defendant and/or applying to any Mainland government department and/or authority for the same; and/or

(i) selling, charging, transferring, disposing of and/or otherwise alienating the Property (including its land use right) known as the Greenery Hotel (including the 6 buildings thereon) situated in Yuan Lin Road, Jida Xiangzhou District, Zhuhai, Guangdong Province, PRC (土地使用權的《國有土地使用權出讓合同書》編號為珠國土合字(1995)第25號、國有土地使用權證的編號為珠國用(1996)字第0402號；六處房產的編號分別為：粵房地證字第1145551號、粵房地證字第1145552號、粵房地證字第1125497號、粵房地證字第4230263號、粵房地證字第4230264號、粵房地證字第4230265號) and/or applying to any Mainland government department and/or authority for the same either in Hong Kong or in any part of the world.”

8.As it can be seen, this part of the Injunction Order was made by incorporating an undertaking given by the Defendants collectively in those terms.  But as I mentioned above, there is a further separate order set out at pages 3 and 4 of the Injunction Order imposed specifically on the 3^rd Defendant in exactly the same terms as quoted above.  I was told that this was done to reflect the concern as to who had proper authority to act for the 3^rd Defendant to agree to give an undertaking in those terms.  The dispute as to who can properly act for the 3^rd Defendant would become clearer below when I set out the background.

9.The Defendants now seek to vary paragraphs (d) to (h) of these terms as follows (the proposed changes are either deleted or underlined):

“(d) changing, replacing and/or appointing any legal representative (法定代表人) and/or executive director (執行董事) of the 3^rd Defendant in place of or in addition to Mr. Geng Shusen 耿樹森 Madam You Hualin (尤環琳) and/or Mr Sou Chi Wun (蘇枝桓) and/or applying to any Mainland government department and/or authority for the same;

(e) changing and/or altering the Mainland registered address of the 3rd Defendant now situated at (珠海市香洲海港路70號恒景花園11、12棟商舖二層A區201室) and/or applying to any Mainland government department and/or authority for the same;

(f) changing, amending, replacing, revising and/or altering the memorandum and article (公司章程) of the 3^rd Defendant and/or applying to any Mainland government department and/or authority for the same, save and except for the purpose of reflecting the approved changes as stated in the document entitled ‘關於外資企業珠海市四寶諮詢有限公司章程修改之三的批覆’ and issued by the Science, Industry & Trade Information Bureau of Zhuhai on or above 9^thFebruary 2010;

(g) making, changing and/or replacing any seal, stamp, and/or chop of the 3^rdDefendant and/or applying to any Mainland government department and/or authority for the same, save and except those approved by the Sectional Bureau of the Public Security Bureau in Xiangzhu District (珠海市公安局香洲分局) on or about 28^thJune 2010;

(h) changing, amending, replacing, revising and/or altering any business licence (營業執照), organisation code certificate (組織機構代碼證), PRC Investment Enterprise Approval Certificate for overseas investors from Taiwan, Hong Kong and Macao (中華人民共和國台港澳僑投資企業批准證書), and/or Taxation Registration Certificate of the 3^rd Defendant and/or applying to any Mainland government department and/or authority for the same, save and except for the purpose of reflecting the approved changes as stated in the document entitled “關於外資企業珠海市四寶諮詢有限公司章程修改之三的批覆” and issued by the Science, Industry & Trade Information Bureau of Zhuhai on or above 9th February 2010;”

10.In order to better understand the Defendants’ bases in support of the application, it pertinent for me to also set out the relevant undisputed (unless otherwise stated) background below.

C. BACKGROUND

C1. The Agreement, the disputes and the Injunction Order

11.As mentioned above, the parties entered into the Agreement in April 2006.

12.In simple terms, under the Agreement, the 1^st Defendant contracted to sell to the Plaintiff the entire shareholding in the 2^nd Defendant, which would be holding the 3^rd Defendant, which would by various future steps to be taken own the Assets with a change of user and plot ratio.

13.The Agreement provides that Hong Kong law governs, and any disputes are to be resolved by the court in the jurisdiction in which the Assets are situated or by an arbitral tribunal in Hong Kong.

14.Clauses 6.1 and 7.3 of the Agreement further provide effectively that if, within 360 days of the Agreement, a formal agreement is not signed or the transaction is not completed (even after a formal agreement is signed) with no fault on the part of the Plaintiff, the 1^st Defendant shall refund all amounts and interests paid to the Plaintiff.

15.Although no formal agreement was ever signed, up to January 2010, the parties had taken the following steps under the Agreement:

(1) The Plaintiff had paid a total of $100 million as part of the purchase price (although apparently it was not contractually obliged to do so under the terms of the Agreement).

(2) The company documents, seals and chops of the 2^nd and 3^rd Defendants had been passed over to the Plaintiff.

(3) On 19 January 2010, with the consent and cooperation of the Defendants, the Plaintiff’s nominee, one Mr Geng Shusen (“Mr Geng”), was appointed to be the legal representative and executive director of the 3^rd Defendant to replace its former legal representative, Mr Lam Siu Fung.

(4) The registered address of the 3^rd Defendant was changed to a place designated by the Plaintiff.

(5) Approval of the change of user and plot ratio of the Assets had been obtained.

(6) The parties executed the bought and sold notes for the sale of the 2^nd Defendant’s shares to the Plaintiff.

(7) The parties executed the property transfer agreement on 25 September 2009 which was to effect the transfer of the Assets to the 3^rd Defendant.

16.It is thus the Plaintiff’s case that by January 2010, what were left to be done under the Agreement were all matters of formality, such as the formal transfer of the Assets to the 3^rd Defendant and the formal transfer of the shares in the 2^nd Defendant to the Plaintiff, and the payment of the balance of the purchase price.

17.However, on about 20 January 2010, the 1^st Defendant through its solicitors wrote to the Plaintiff stating that the 1^st Defendant terminated the Agreement as, despite two previous extensions of time, the transaction had still not been completed by having the entire Assets transferred to the 3^rd Defendant.  The 1^st Defendant sought also to return the $100,000,000.00 (as part payment under the Agreement) to the Plaintiff with interest.  It did so by another letter dated 29 January 2010 enclosing a cheque of $122,969,855.00.

18.On 12 February 2010, the 1^st Defendant further informed the Plaintiff by a letter that it had already transferred its interest in the 2^nd Defendant to a third party.  In this letter, the 1^st Defendant further stated that the termination of the Agreement was based on clauses 6.1 and 7.3 of the Agreement.  

19.At the same time, the 3^rd Defendant applied to the Administration for Industry and Commerce of Zhuhai (“AIC”) on 4 February 2010 (a) to change the legal representative of the 3^rd Defendant to one You Huanlin (“Madam You”)[1], (b) to change the registered address of the 3^rd Defendant[2], and (c) to change and amend the memorandum and articles of the 3^rd Defendant. An approval of the same by the Science, Industry & Trade, Information Bureau of Zhuhai (“SITB”) was obtained on 9 February 2010.   Meanwhile, the Defendants were also preparing various meetings or resolutions of the 2^nd Defendant to remove Mr Geng as the legal representative of the 3^rd Defendant, and to replace him by Madam You.

20.The Plaintiff says these were all done at that time without its knowledge or consent.

21.On 3 March 2010, the Plaintiff gave a notice of arbitration to the Defendants in relation to their purported termination of the Agreement, thereby commencing an arbitration (“the Arbitration”) in Hong Kong.

22.On 11 March 2010, the Plaintiff issued the Originating Summons under these proceedings and applied to the Court for an interlocutory injunction on the basis of the Arbitration.  An ex parte interim injunction order was granted by Saunders J on 12 March 2010 to restrain the Defendants from, inter alia, changing the 3^rd Defendant’s legal representative, memorandum and articles, seal and registered address and/or applying to any Mainland government department and authority to effect the same.

23.On 19 April 2010, the 1^st and 2^nd Defendants took out an application to stay the proceedings on the grounds that the dispute between the parties ought to be resolved by the Zhuhai Court and not in the Arbitration. 

24.On the return day on 20 April 2010, Saunders J ruled against the 1^st Defendant’s then application to discharge the interim injunction order and for a change of the legal representative of the 3^rd Defendant. The learned Judge adjourned the substantive hearing of the injunction and the stay application to the end of May 2010, and continued the interim injunction in the interim.

25.On 31 May 2010, at the full hearing, the Defendants gave an undertaking to the Court in similar terms to the interim injunction order until the determination of the question of whether the Agreement had expired by the relevant Zhuhai Court or in the Arbitration or until further order.  This is the Injunction Order.   At that hearing, the 1^st and 2^nd Defendants also withdrew their stay application.

26.However, on 11 August 2010, Madam You and the 3^rd Defendant issued HCCT 47/2010 and applied for an injunction to restrain Mr Geng from holding out as the legal representative of the 3^rd Defendant and a declaration to the effect that Madam You was the legal representative of the 3^rd Defendant.

27.This application was heard and refused by Reyes J on 20 January 2011.  I was informed by the Plaintiff’s leading counsel that the learned Judge (after hearing arguments) refused to grant the applicant and adjourned it sine die on the basis that he could not make the orders sought in light of the Injunction Order and also without a substantive determination of the disputes between the parties concerning the validity of the Agreement.

28.On 26 May 2011, the 1^st and 2^nd Defendants further issued HCCT 24/2011 seeking an anti-arbitration injunction against the Plaintiff from continuing the Arbitration.  On 4 November 2011, Deputy High Court Judge G Lam dismissed the application after a substantive hearing^[3].

C2. The Arbitration

29.As mentioned above, the Plaintiff commenced the Arbitration in Hong Kong on 3 March 2010 to determine the disputes between the parties as to the continued validity of the Agreement.

30.The Arbitration Tribunal has been constituted with the appointment of 3 arbitrators.   Since then, there have been a number of hearings held dealing with various procedural matters and the Defendants’ jurisdiction challenge and stay application.  These applications were dismissed eventually, and the Arbitration is still on foot.  By now, the relevant pleadings in the Arbitration have been filed.  No hearing dates have yet been fixed for the substantive hearing.

C3. Various Mainland proceedings

31.At the same time, various Mainland proceedings have been commenced respectively by the Plaintiff and the various Defendants, as well as Mr Geng concerning, inter alia, the question as to who has been validly appointed as the legal representative of the 3^rd Defendant under PRC law.

32.I do not intend to refer in details to them, as there are quite a number.  However, as the Defendants rely on some of the results from these Mainland proceedings in support of the present application, it is necessary for me to set out those that are relevant and relied on by the Defendants as follows.

C3.1 Mainland proceedings commenced by or on behalf of the Plaintiff

33.In April 2010, Mr Geng acted on behalf of the 3^rd Defendant commenced an administrative action to request the SITB to revoke its approval for the change of legal representative, registered address and memorandum and articles of the 3^rd Defendant (“Case 41/2010”).   The Zhuhai Xiangzhou District Court by a judgment dated 27 May 2010 rejected the case on the basis that it was not satisfied that Mr Geng had standing to act for the 3^rd Defendant, as he had already been removed by the 2^nd Defendant.

34.On 7 June 2010, Mr Geng appealed this judgment to the Zhuhai City Intermediate People’s Court (“Appeal Case 16/2010”).   

35.At the same time, on about 11 June 2010, the AIC approved, inter alia, the change of legal representative of the 3^rd Defendant to Madam You.

36.This appeal was on 26 August 2010 rejected by the Zhuhai City Intermediate People’s Court on the basis that Mr Geng had been validly removed by the 3^rd Defendant and thus had no standing to represent it.

37.On 6 September 2010, Mr Geng commenced another administrative action (“Case 89/2010) in his own name against the SITB seeking similar reliefs as sought in Case 41/2020.

38.This was dismissed by the Zhuhai Xiangzhou District People’s Court on the basis that it had been issued out of time.  Mr Geng’s appeal against the dismissal (“Appeal Case 1/2011) was again rejected by the Zhuhai City Intermediate People’s Court on 5 May 2010.

C3.2 Mainland proceedings commenced by the 3^rdDefendant or related proceedings

39.On the other hand, on about 19 March 2010, the AIC had made a proposal to the SITB for temporary suspension of the 2^nd Defendant’s application to change the 3^rd Defendant’s legal representative and amend its memorandum and articles.

40.The 2^nd Defendant on 19 April 2010 thus commenced an administrative action against the AIC in the Zhuhai Xiangzhou District People’s Court against such a proposal (“Case 54/2010’).

41.On about 22 March 2010, the 3^rd Defendant (represented by Ms You) also commenced a civil claim against Mr Geng for, inter alia, restraining him from using the company chop and all corporate information of the 3^rd Defendant, and for Mr Geng to return the same to the 3^rd Defendant (“Case 1379/2010”).

42.By a judgment dated 18 April 2011 in Case 1379/2010, the Zhuhai Xiangzhou District People’s Court allowed in part the 3^rd Defendant’s said civil claim against Mr Geng and ordered him not to hold himself out as representing the 3^rd Defendant, and to return the seals and various certificates held by him back to the 3^rd Defendant.   This was on the basis that he had been so removed by the 2^nd Defendant.

43.On 24 May 2010, Mr Geng appealed against this judgment under Case 1379/2010 to the Zhuhai City Intermediate People’s Court. 

44.On 15 July 2011, Mr Geng further applied for “judicial review” of the decision of the Zhuhai City Intermediate People’s Court and to ask for a rehearing of the administrative action in Case 89/2010 and Appeal Case 1/2011.

D. THE PRESENT APPLICATION

D1. Applicable principles

45.There are no real controversies between the parties as to the legal principles applicable to an application to vary an interlocutory order.  They could be summarized as follows:

(1) The Court would only generally consider varying or discharging an interim injunction or an undertaking on good grounds or change of circumstances being shown: Chanel v FW Woolwich & Co Ltd [1981] 1 WLR 485 at 492D-E.

(2) Further, in an interim order where it is made effectively by consent, or following an inter-partes hearing when both parties were legally represented and had full opportunities to bring to the court’s attention matters relevant to the making of the order, the person seeking to vary the interim order is not entitled to do so as of right or to re-argue it as if it was a re-hearing. The burden is on the party seeking to vary the order to show either there has been some significant change of circumstances or it has become aware of facts that it could not have reasonably found out at the time of interim order: Dynamic Creations Ltd v Mint Gem & Jewelry Manufacturing Co Ltd (unrep., HCA 378/2006, 12 April 2006) at paras 42 & 44 per Chu J (as she then was); Butt v Butt [1987] 1 WLR 1351 at 1353F-G per Nourse LJ.

(3) However, the position may be different if the parties had contemplated at the time of the interim order that the issues thereunder would be revisited or where the injunction by its terms show that it was not substantively disposed of but adjourned sine die generally with liberty to apply. The parties may be able in those circumstances to re-open the arguments afresh: Butt v Butt, supra, at 1353H-1354D, 1354F-G (Nourse LJ), 1355 (Mustill LJ); Gantenbrink v BBC [1995] FSR 162 at 164-165 (Sir Donald Nicholls VC).

D2. The Defendants’ grounds in support of the application to vary the Injunction Order

46.Mr Samuel Chan for the Defendants contend that the Court should vary the Injunction Order as sought.  Counsel’s principal arguments run as follows:

(1) Although the Injunction Order was effectively one made by consent and in accordance with the Defendants’ undertaking, looking at the transcripts of the hearings before Saunders J relevant to the making of the Injunction Order, it was clear that the parties expected and intended that the Defendants would come back to apply for variation when circumstances arose. Thus, they should be entitled to re-argue the appropriateness of the existing terms of the Injunction Order afresh.

(2) In light of the followings, it is clear that, as a matter of balancing exercise, the terms of the Injunction Order should be varied to the extent as sought:

(a) The various judgments given under the various Mainland proceedings set out above show that the Mainland Courts have decided that Madam You has been properly appointed as the legal representative of the 3^rd Defendant upon the removal of Mr Geng, and that the change of its registered address and the amendments to its memorandum and articles have been approved by the Mainland authorities. In the circumstances, the present terms under paragraphs (d) to (h) of the Injunction Order restraining the Defendants from implementing these changes are incorrect and inappropriate.

(b) Moreover, these changes all relate to a matter of formality and procedures concerning the 3^rd Defendant company, and have nothing to do with the underlying disputes on the validity of the Agreement.

(c) Further, since these changes had all occurred before the Plaintiff has taken out these proceedings and obtained the injunction, the acts now sought to be incorporated in the proposed variations of the Injunction Order would not cause any prejudice to the Plaintiff. This is further so, as the Plaintiff is still protected under paragraph (i) of the Injunction Order which restrains the Defendants from disposing of the Assets. The present terms are therefore unnecessary.

(3) In any event, even if the Court is to apply the principles under the Chanel case (as summarized at paragraphs 45(1) and (2) above) in determining this application, these same reasons still apply and amount to new circumstances and/or good reasons for varying the Injunction Order as sought^[4].

D3. Discussion

47.With respect, I disagree with Mr Chan’s above submissions.  My reasons are as follows.

D3.1 Do the principles under Chanel case apply to the present application

48.The Injunction Order was made on 31 May 2010 pursuant to the undertaking given by the Defendants on that day.  That hearing was intended to be a substantive hearing of the Plaintiff’s application to continue the injunction (in similar terms) it had previously obtained, first ex parte on 12 March 2010 and then continued by the order of Saunders J made on 20 April 2010.   Under the order dated 20 April 2010, the injunction order was continued until the determination of the Plaintiff’s Originating Summons under these proceedings and the 1^st and 2^nd Defendants’ stay Summons dated 19 April 2010.

49.In the premises, as pointed above in the background, the hearing on 31 May 2010 was intended to deal with substantively the Plaintiff’s application for the injunction under the OS, and the 1^st and 2^nd Defendants’ stay application.  The parties were at that hearing represented by leading counsel.  In other words, the parties had full opportunity to present their case for and against the injunction with legal representation.

50.It was under these circumstances at the hearing on 31 May 2010 that the Defendants offered the undertaking which was reduced into the Injunction Order. Reading the transcript of the hearing on 31 May 2010, nothing that was said at the hearing indicated that it was intended by the parties and the Court that the Defendants were entitled to in the future re-open afresh on arguments that were already available to them at that time in relation to issues relevant to the making of the Injunction Order.   This in my view is future underlined by the preamble of the Injunction Order which was set out above.  Objectively and properly read (and even together the transcript of that hearing), the preamble shows that the terms of the injunction were to continue until determination of the issue on the validity of the Agreement (whether by the Arbitration or the Mainland proceedings) or any further order of the Court (which in the context must mean when there are new justifications to vary the order).

51.In relation to this, Mr Samuel Chan (for the Defendants) has drawn my attention to certain parts of transcript of the hearing on 20 April 2010^[5].  It shows that there were exchanges between the bench and Defendants’ then counsel amounting to the Court expressly reserving leave to the Defendants to enable them to apply to vary the terms of the injunction if, in a few weeks’ time, the Mainland court did determine that Madam You was validly appointed in replacement of Mr Geng.  

52.Mr Chan submits that the Court should read this together with the transcript of the hearing on 31 May 2010. In doing so, it is clear (Mr Chan further submits) that the Defendants had all along taken the stance that they would apply to vary the terms of the injunction or undertaking if the issue of the validity of the appointment of Madam You as the legal representative of the 3^rd Defendant had been determined by the Mainland court.   He therefore says the Injunction Order is one where the Chanel principles do not apply, and the Defendants are entitled to argue it afresh.

53.However, the hearing on 20 April was where the parties were seeking to continue the ex parte injunction in the interim until the substantive hearing (which was adjourned to 28 and 31 May) to enable the Plaintiff to file its reply evidence.  At that time, the first instance decision by the Mainland court on the 3^rd Defendant’s action (brought by Mr Geng)  (i.e, Case 41/2010) to challenge the validity of the change of legal representative to Ms You had not yet been made.

54.The judgment under Case 41/2010 was then given on 27 May 2010, dismissing effectively Ms Geng’s said challenge.  In other words, by the time when it came to the hearing on 31 May 2010, there was already a judgment by the Mainland court dismissing Mr Geng’s challenge to the validity of the appointment of Madam You as the legal representative, on the basis that Mr Geng had already been validly removed.  This was of course known to the parties, in particular the Defendants.

55.Despite this, and that the evidence had by then been completed in relation to the application to continue the injunction, the Defendants still decided to give the undertaking and have it reduced into the Injunction Order. Further, as said above, in addressing the Court on this on 31 May 2010, the Defendants no longer made any submissions or indications that they were reserving the rights to make application to vary the injunction in relation to any rulings by the Mainland courts as to the validity of Ms You’s appointment (understandably so, as by then, they had already had in their hands a judgment in their favour).

56.Under these circumstances, the Injunction Order made by way of incorporating the undertaking is not one where the parties intended to allow it to be re-argued afresh in the future.   I therefore do not agree with the Defendants that, for the purpose of their application to vary the Injunction Order, the principles laid down in the Chanel case to show new circumstances or good grounds do not apply.  

57.Thus, in order to succeed in this application, the Defendants must satisfy the Court that there are new circumstances or good grounds to justify the exercise of discretion to vary the terms as sought.

D3.2 Are there such new circumstances or good grounds

58.In my view, there are none.

59.First, none of the matters raised by the Defendants in support of the application as summarised in paragraph 45(2) above can be properly considered as “new” circumstances arising after the Injunction Order.  These are all matters and arguments that were available to the Defendants at the hearing on 31 May 2010, when they gave the undertaking and agreed to the Injunction Order. 

60.For the same reason, I do not see how these matters can alternatively be considered as good grounds to support varying the terms of the Injunction Order as now sought.

61.Secondly, the contention that all the proposed changes to the Injunction Order are matters happened before the Injunction Order is one, in my view, against the present application.  If that is the case, it is not necessary for the Defendants to make this application, since according to their own case, these changes have already taken effect before the injunction, and they would not be caught by it.  This therefore could not constitute a good reason or new circumstances to justify the variations.

62.Thirdly, in the pleadings filed in the Arbitration, one of the matters raised in Plaintiff’s case is that the purported removal of Mr Geng and appointment of Madam You as the 3^rd Defendant’s legal representative, and the changes made to its registered address, the company articles and memorandum, are all conducts on the part of the Defendants amounting to breaches of the Agreement.  This is denied by the Defendants.  In such a case, whether these changes (even if they are valid procedurally under the PRC law) constitute breaches of the Agreement would depend on, inter alia, whether by the time they were made, the Agreement was already terminated by expiration of time as the Defendants say. 

63.In relation to this, I note Mr Samuel Chan contends that the Agreement, even if valid, does not provide any contractual right to the Plaintiff to appoint the legal representative and to dictate the registered address and the company articles of the 3^rd Defendant.  This contention may be right and may be wrong, and it also may be related to (as Mr Edward Chan SC for the Plaintiff argues) the question as to whether these acts were all important constituent parts of the substantial performance of the Agreement resulting in the Plaintiff paying $100,000,000.00 as part payment to the 1^st Defendant.  However, if the Defendants’ said argument is incorrect, then whether these conducts amounted to breaches of the Agreement would depend also alternatively on whether the Agreement was still valid at that time.   These are matters and questions that are interlinked, and should be resolved in the Arbitration or the Zhuhai Court dealing with the substantive claims, but not by this Court at this stage.

64.The validity of the Agreement is the main issue to be resolved under the Arbitration or the relevant Mainland proceedings.   The Injunction Order has specifically provided that the injunction shall remain until such a determination. 

65.In the circumstances, the contention that the Mainland Court has now confirmed the validity of the appointment of Madam You as the 3^rd Defendant’s legal representative per se cannot be a valid or good ground to vary the terms of the Injunction Oder.

66.For these reasons, I am not satisfied that the Defendants have shown good grounds to support the present application to vary the terms of the Injunction Order as sought.

D3.3 Even if the Chanel principles do not apply

67.Assuming I am wrong above and that the Defendants are entitled to argue afresh as to whether the terms of the Injunction should be varied, in the exercise of the discretion, I would still have rejected it for the same reasons set out above, coupled with the following.

68.Mr Edward Chan, SC for the Plaintiff submits that it is commonly understood that the legal representative of a Mainland company, such as the 3^rd Defendant, occupies a very important position of the company under PRC law.  The same goes to the use of the company chop and maintaining the registered address.   The Defendants has not suggested otherwise.

69.At the same time, as mentioned in the background above, in the course of the Agreement before the dispute arose, even though it was not contractually provided to do so, the Defendants changed the legal representative to the ones as nominated by the Plaintiff.  Parallel to that, the Plaintiff had paid $100 million to the 1^st Defendant as part of the purchase price when there was also no contractual obligation to do so. 

70.Looking at these together, it is at least seriously arguable that the position of the legal representative of the 3^rd Defendant is regarded as an important one for the purpose of gaining its control.  And one of the consequences of the Agreement when completed is to have the Plaintiff becoming the indirect sole shareholder of and gaining control of the 3^rd Defendant.   

71.The importance of having the right to nominate the legal representative is also underlined by the Defendants’ own evidence at paragraphs 82 and 83 of Mr Xu’s Affirmation, which say as follows:

“82. After the signing of [the Agreement] and in the spirit of trust and cooperation, Super Auto had changed the legal representative and executive director of Four Treasure Zhuhai from me to Mr. Lam Siu Feng, who had been nominated by Keep Bright [i.e., the Plaintiff]. As I am not based in Zhuhai, this would facilitate the annual audit and reporting to the tax authorities.

83. To the best of my recollection, in around the end of December 2009, I made an application with the relevant authorities to change the legal representative of Four Treasure Zhuhai from Mr. Lam to [Mr Geng]. [Mr. Geng] was also someone nominated by Keep Bright.” (emphasis added)

72.Mr Xu was until 26 January 2010 the sole shareholder of the 1^st Defendant, which in turn is the sole shareholder of the 2^nd Defendant, which holds the 3^rd Defendant.  

73.At the same time, after alleging that the Agreement had expired, Mr Xu had purportedly sold the entire shareholding in the 1^st Defendant to a Mr Sou in January 2010 and had then sought to replace the Plaintiff’s nominate (Mr Geng) as the legal representative of the 3^rd Defendant by Madam You.

74.In my view, Mr Xu’s emphasis that the vesting of the legal representative in someone nominated by the Plaintiff was done in the spirit of “trust and cooperation” in the performance of the Agreement, together the fact that he sought to immediately replace the legal representative by someone else once the Defendants claimed that the Agreement had been terminated, shows that it is at least seriously arguable that the right to nominate the legal representative is an important step to vest the control of the 3^rd Defendant into a party.

75.It is thus also seriously arguable that any such change of the legal representative of the 3^rd Defendant, and its registered address together with amendments to the company articles may divest the control of 3^rd Defendant from the Plaintiff (or the 1^st and 2^nd Defendants) to someone else not party to these proceedings and not bound by the Injunction Order.  In which case, even if at the end of the day it is determined in the Plaintiff’s favour that the Agreement is still valid, the Plaintiff may not have sufficient protection or remedy to regain the control over the 3^rd Defendant. 

76.In the circumstances, and coupled with my reasons set out in section D3.2 above, I am of the view that the existing terms of the Injunction Order are necessary to protect the Plaintiff’s interest until the substantive issue as to whether the Agreement is still valid is determined.

77.I would therefore not exercise my discretion to vary the terms as sought by the Defendants.

E. CONCLUSION

78.The Defendants have failed to satisfy me that the terms of the Injunction Order should be varied as sought.  I will therefore dismiss their application. 

79.There is no reason why costs should not follow the events.  I further make an order nisi that costs of the application be to the Plaintiff with certificate for two counsel, to be taxed if not agreed.

Mr. Edward CHAN, S.C, leading Mr. Kenny LIN, instructed by Messrs Robertsons,  for the Plaintiff.

Mr. Samuel CHAN & Mr. Keith LAM, instructed by Messrs Christine M. Koo & Ip, for the 1^st to 3^rd Defendants.