Excel Courage Holdings Ltd and Another v. Wong Sin Lai and Others

CACV 28/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 28 OF 2014

(ON APPEAL FROM HCA NO. 1827 OF 2013)

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BETWEEN

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Hon Kwan JA (giving the judgment of the Court):

1.This is an interlocutory appeal of the plaintiffs against the orders made by Deputy High Court Judge Mayo on 18 and 21 October 2013, brought with the leave granted by this court (Kwan and Macrae JJA) on 11 February 2014.  In essence, the plaintiffs’ contention is that the judge erred in the exercise of his discretion to refuse to grant a fresh Mareva injunction in favour of the 1^st plaintiff, Excel Courage Holdings Limited (“Excel”), after he discharged the ex parte Mareva injunction in favour of the 2^nd plaintiff, Hung Ka Leung (“Hung”) for material non-disclosure of fact and law.

2.At the conclusion of the hearing, we allowed the appeal in part and reserved our decision on costs.  These are the reasons for judgment.

Background

3.The relevant background matters will first be related.

4.Hung is a business man who has been investing in the property and stock market in Hong Kong.  He comes from a well-off family and his father is a person of influence in Xiamen, China.  He has a good personal friend Lau Chi Yuen Joseph (“Lau”) who has been assisting him in making investment decisions and managing his portfolio.

5.The 1^st defendant, Wong Sin Lai, is a professional accountant and business consultant.  Lau has known the 1^st defendant for several years and introduced him to Hung in early 2011.

6.In 2010, Lau arranged for the purchase of Excel, a shelf company incorporated in the British Virgin Islands, as an investment vehicle.  At all times, only one share in Excel was issued.  Lau arranged for the 1^st defendant to be its sole shareholder and sole director.  On 21 February 2011, the 1^st defendant executed three documents: a declaration of trust in respect of Excel’s sole issued share, in which the name of the beneficiary was left blank; a blank undated share transfer form for Excel’s sole issued share; and an undated letter of resignation of himself as the sole director of Excel.

7.In March 2012, Lau arranged for the 1^st defendant to open a securities account in the name of Excel with a securities firm Fulbright Securities Limited (“Fulbright”).  The 1^st defendant was the sole signatory of this account.

8.During March 2012 to February 2013, on the recommendation of Lau, a substantial amount of shares were acquired by Excel in two penny stocks traded in the Hong Kong Stock Exchange, being a total of 974,180,000 shares in Luxey International (Holdings) Limited (“Luxey”) and 147,000,000 shares in China Railsmedia Corporation Limited (“Railsmedia”) (collectively “the Shares”).  The Shares were held in the name of Excel and were placed in the custody of Fulbright.

9.It is the plaintiffs’ case that Lau was acting as the ‘front man’ of Hung in setting up Excel as an investment vehicle for Hung and in communicating with the 1^st defendant on the investment activities carried out through Excel.  At all material times, Hung was and is the sole beneficial owner of Excel.  The acquisition of the Shares was partly funded by Hung and partly funded by external financiers through the liaison of Lau, one of them being Howard Jiang Qi Hang who provided a loan of $61.9 million to Excel through his company Fully Wealthy Inc.  The 1^st defendant did not contribute any money for the purchase of the Shares.

10.It is the case of the 1^st defendant (the 2^nd to 5^th defendants did not file any evidence in the proceedings) that he held the sole issued share in Excel as the ‘front man’ for Lau.  He had never entered into any business co-operation with Hung and Hung has never had any interest in Excel or the Shares.  He had never agreed to hold any asset as the bare trustee of Hung.  Nor did he have any idea how Hung obtained possession of the declaration of trust, the share transfer form or the director resignation letter executed by him in respect of Excel.  He had an arrangement with Lau in February 2012 to invest together in securities using Excel as the corporate vehicle and the total investment fund would be $60 million.  Each was to contribute half to the investment fund and he would be entitled to 50% of the shares held by Excel.  The securities portfolio would be managed by Lau and he would carry out the trading of securities as the sole shareholder and director of Excel.  In April 2012, Lau obtained a loan of $61.9 million for Excel from Fully Wealthy Inc.  The 1^st defendant paid his share of the contribution of $30 million to Lau in cash in three tranches in April 2012.  By reason of these matters, he and Lau each owned 50% of the Shares which were held by Excel.

11.During February to August 2013, the 1^st defendant allegedly had discussions with Lau about his suggestion to sell some of the Shares.  No agreement was reached between them.  Lau had told the 1^st defendant on 16 September 2013 there was no rush to sell the shares in Luxey.  The 1^st defendant alleged he had found an investor in the PRC who proposed to him on 20 September 2013 to acquire the Shares at 40% of the closing price of the Shares on the date immediately before the receipt of the Shares by the investor.

12.On 24 September 2013, without prior notice to Lau or any one, the 1^st defendant opened an account in the name of Excel with another securities firm, CLC Securities Ltd (“CLC), supplying his former address as the residential address in the account document.  Also on the same day, Tsang Man Ho Alvin and Wong Tsz Kin, the 3^rd and 4^th defendants herein, set up their new accounts at CLC.

13.On 25 September 2013, Luxey’s annual result was announced.  The share price of Luxey at close of trading on this day was $0.08 per share and that of Railsmedia was $0.465 per share.

14.On this same day, the 1^st defendant on behalf of Excel directed Fulbright to transfer all of the Shares from its account in Fulbright to the new account of Excel at CLC.  Immediately thereafter, the 1^st defendant directed CLC to transfer the Shares into the accounts held by the 2^nd to 5^th defendants with CLC as follows: 243,000,000 shares[1] in Luxey to the 2^nd defendant Sun Xiao Xiang; 243,000,000 shares in Luxey to the 3^rd defendant; 243,000,000 shares in Luxey to the 4^th defendant; and 245,180,000 shares in Luxey and all of the 146,472,000 shares in Railsmedia to the 5^th defendant Tsang Wing Ho Ringo.  The 3^rd, 4^th and 5^th defendants provided residential addresses in public housing estates in their account documents with CLC.  The 2^nd defendant opened his securities account with CLC on 9 September 2013 and had issued a cheque of $4 million in favour of Excel dated 25 September 2013, alleged by the 1^st defendant to be the deposit of the PRC investor for the purchase of the Shares.

15.Immediately after the Shares were transferred to the accounts of the 2^nd to 5^th defendants, further sales and transfers were carried out on 25 September 2013 as follows.  The 2^nd defendant sold all the 243,000,000 shares in Luxey, at the approximate price of $0.048 per share and the proceeds thereof were and still are held by CLC because of the Mareva injunction granted and the discharge of which has been stayed pending this appeal.  The 3^rd defendant also sold all the 243,000,000 shares in Luxey, at the approximate price of $0.033 per share, and the proceeds thereof were and still are held by CLC.  The 4^th defendant transferred all the 243,000,000 shares in Luxey to his account with KGI Securities (Hong Kong) Limited (“KGI”).  The 5^th defendant sold 115,600,000 shares in Luxey and 78,538,000 shares in Railsmedia and the proceeds thereof were and still are held by CLC.

16.Between 26 September 2013 and 3 October 2013, it would appear that the 4^th defendant had disposed of the 243,000,000 shares in Luxey on the open market and by transfer to an account maintained with China Rise Securities Limited.

17.The bought and sold notes for the shares in Luxey, signed by the 1^st defendant on behalf of Excel and by the 2^nd to 5^th defendants, stated that the shares in Luxey were sold by Excel at $0.08 per share.  Other than a cheque of $4 million from the 2^nd defendant to Excel dated 25 September 2013, which has never been cashed by Excel, no monies have ever been received by Excel for the alleged sale of the Shares.

The application for a Mareva injunction

18.In the afternoon of 25 September 2013, Hung checked his mobile device to track the price movement of the Shares as part of his daily routine.  To his surprise, he discovered the share prices of both Luxey and Railsmedia dropping rapidly and significantly.  As both stocks were thinly traded, such movement in stock price and volume was most unusual.  After enquiries with Fulbright, Hung found out that on 24 September the 1^st defendant had instructed Fulbright to transfer all of the Shares to CLC, a securities firm Hung had no dealings with.  He was unable to contact the 1^st defendant as the latter had switched off his mobile telephone.  Based on the information disclosed by the Stock Exchange, by the time the stock market closed on 25 September, some 107,000,000 shares in Railsmedia and 845,000,000 shares in Luxey had been traded, pushing the closing price of Railsmedia from $0.465 to $0.241 and that of Luxey from $0.08 to $0.027, representing a drop of 48.172% and 66.25% respectively, and about 80% of the sell orders of the Shares were placed through CLC.

19.At about 6 pm on 25 September, Hung went to see his lawyers to seek urgent advice.  A decision was made to seek a Mareva injunction to restrain disposal of the proceeds of sale and what remained of the Shares that had not been sold at the first opportunity on 26 September, before the stock market was to open for trading at 9:30 a.m.  In support of the application, an affirmation was prepared for Hung (“Hung’s 1^st affirmation”) in the early hours of 26 September.

20.In Hung’s 1^st affirmation, he deposed to a “trust arrangement” in respect of the sole issued share of Excel.  He asserted that the 1^st defendant had agreed to be his nominee to hold the share and become a director, for which the 1^st defendant was remunerated with $200,000.  He exhibited the declaration of trust, the share transfer form and the director resignation letter executed by the 1^st defendant.  In respect of the declaration of trust, he stated that it was “executed by [the 1^st defendant] in [Hung’s] favour in respect of the one share in Excel dated 21 February 2011”.  The judge held on a fair reading of this affirmation, it is clear what Hung was saying was that when the declaration of trust was signed by the 1^st defendant on 20 February 2011[2], it was clear on the face of that document that Hung was the beneficial owner of the share.  It is accepted in this appeal that that is a fair reading of Hung’s 1^st affirmation.

21.Hung further deposed that in respect of the undated share transfer form and the resignation letter, he had on 25 September filled in the effective date as 25 September 2013, thereby transferring the sole issued share in Excel to himself, removing the 1^st defendant as the sole director and appointing himself as the director.  Hung stated that “at all material times, all the Shares were held in the name of Excel” and “in principle, all the proceeds of sale ought to be paid to Excel, who was the registered owner and supposedly the seller of both stocks”.  Under the section headed “full and frank disclosure”, he deposed that there is “no direct evidence that the Sale Proceeds, if paid, have been transferred to [the 1^st defendant] from Excel” and “Excel is the legal owner of the unsold public stocks maintained in CLC’s account, and there may be argument that Excel should be joined as an additional defendant”.

22.The writ that was to be issued in this action was to be issued by Hung as the plaintiff with just the 1^st defendant as the only defendant, as the further sales to the 2^nd to 5^th defendants were not known to Hung at the time.  The indorsement of claim sought a declaration that “Plaintiff”, i.e. Hung, holds as a constructive trustee the sale proceeds of the Shares, all beneficially owned by the Plaintiff, caused by the Defendant to be sold on 25 September 2013 without the Plaintiff’s knowledge and consent in breach of the fiduciary duties owed by the Defendant to the Plaintiff.  This is obviously an error, as appeared on the case asserted in Hung’s 1^st affirmation and in the skeleton submission placed before the court in the ex parte application, which stated clearly that Hung is “the sole beneficial owner of the Sale Proceeds and the public stocks” and Hung, “as the property owner, applies for an injunction in respect of these trust properties”.  In counsel’s skeleton submission, he also mentioned that “Excel is the legal owner of the unsold public stocks maintained in CLC’s account, and there may be argument that Excel should be joined as an additional defendant” but this is none of the business of the 1^st defendant as to who should be sued.

23.Hung appeared by counsel before To J at 8 a.m. on 26 September 2013 and obtained an ex parte Mareva injunction against the 1^st defendant, restraining him from disposing of assets up to the value of $146, 289,400 and of any part of the Shares.

24.On 2 October 2013, the 1^st defendant filed an affirmation (“the 1^st defendant’s 1^st affirmation”) for the return date of the ex parte injunction on 4 October 2013, in support of his application to discharge the Mareva injunction for material non-disclosure, which was that the declaration of trust executed by him on 21 February 2011 had the name of the beneficiary left blank.  As mentioned earlier, he denied that Hung is the beneficial owner of Excel.  Further, there were “legal limitations” to Hung’s claim, which would be addressed by his counsel.

25.On 3 October 2013, Hung made another ex parte application to join the 2^nd to 5^th defendants as defendants in this action and for a Mareva injunction against them, in support of which he filed his 2^nd affirmation (“Hung’s 2^nd affirmation”).  In that affirmation, under the section of “full and frank disclosure”, Hung stated that he had read the 1^st defendant’s 1^st affirmation, in which the 1^st defendant applied for discharge of the Mareva injunction against him, and he summarised the 1^st defendant’s allegations.  Hung said in light of the time constraints, he had been unable to provide a full response to each and every allegation and he and Lau would make affirmations subsequently to answer the allegations.  In paragraph 17 of Hung’s 2^nd affirmation, he alluded to “the blank declaration of trust” executed by the 1^st defendant as admitted by the latter, and made the point that the declaration of trust, with the blank share transfer form and director’s resignation letter, all indicated that the 1^st defendant was well aware at all material times, he was meant to be merely a nominal shareholder and director of Excel.

26.On 3 October 2013, Deputy High Court Judge Mayo granted leave to add the 2^nd to 5^th defendants as parties to this action and made a Mareva injunction against each of them to restrain them from disposing of the such of the Shares that had been transferred to them and/or the proceeds of sale of such of the Shares that had been transferred to them, as the case may be.

The judge’s decision of 18 October 2013

27.On 4 and 10 October 2013, the judge heard the summons of the 1^st defendant for the discharge of the Mareva injunction and Hung’s summons for the continuation of the injunction against the 1^st defendant.  There was also before him Hung’s summons for the continuation of the injunction against the 2^nd to 5^th defendants granted on 3 October.

28.At the adjourned hearing on 10 October 2013, the leading counsel of the plaintiffs was changed to Mr Charles Sussex, SC.  He applied to re-amend the writ and indorsement of claim by adding Excel as a plaintiff in this action.

29.The 2^nd defendant was absent at the hearings.  The 3^rd to 5^th defendants appeared by counsel but did not apply to discharge the Mareva injunction against them.

30.Between the hearings, further evidence was filed by the plaintiffs, including the 3^rd affirmation of Hung, an affirmation of Lau and an affirmation of Sum Chun Ho (“Sum”), a certified public accountant who prepared and attended to the execution of the declaration of trust, the share transfer form and the director’s resignation letter by the 1^st defendant.  Whilst admitting that his name was only inserted as the beneficiary of the declaration of trust on 25 September 2013, Hung asserted that even if the 1^st defendant did not know he was the true beneficiary, the 1^st defendant was always aware of his role as a bare trustee in respect of Excel.  Lau supported Hung’s assertion that Excel was set up as an investment vehicle for Hung and that he had never entered into any investment arrangement with the 1^st defendant as alleged.  Sum affirmed that Lau was acting on behalf of the beneficial owner of Excel when Lau gave instructions to him to prepare and attend to the execution of documents by the 1^st defendant in early 2011.

31.The judge handed down his decision on 18 October 2013 in respect of the injunction granted against the 1^st defendant.  He agreed with the submissions of the 1^st defendant’s counsel, Mr Clifford Smith, SC that it should be drawn to the attention of the ex parte judge that in respect of the claim for a declaration that each of the 1^st to 5^th defendants is a constructive trustee of the sale proceeds of the Shares and/or the unsold parts of the Shares, Excel should be the proper plaintiff as the Shares are the assets of the company and Hung would have no locus standi to sue.  If the principle of no reflective loss should apply, this would provide the 1^st defendant with material to strike out Hung’s claim.  The duty of full, fair and accurate disclosure in an ex parte application extends to significant legal and procedural aspects of the case (Memory Corporation Plc v Sidhu (No 2) [2000] 1 WLR 1443 at 1454H to 1455E and 1460A; East Asia Satellite Television (Holdings) Ltd v New Cotai LLC [2011] 3 HKLRD 734 at §82).

32.The judge also held there was a material non-disclosure of fact in that it was accepted in Hung’s subsequent affirmations that it was not the case his name appeared as the beneficiary when the 1^st defendant executed the declaration of trust and his name was only inserted as the beneficiary on 25 September 2013 when Hung realised the Shares had been sold.  The judge noted that “no satisfactory explanation has been forthcoming as to how or why this came about”.

33.The judge then considered the consequences flowing from the serious and material non-disclosures of fact and law.  He gave “anxious consideration” to the submissions on both sides, and attempted to “weigh the nature of the non disclosure against the possible serious consequences which may ensue if [he orders] that the Ex parte injunction should be discharged”.  He considered the guidance in Cheung Kam Wah v Cheung Hon Wah & Ors [2005] 1 HKC 136 at §§43 to 45, in which the Court of Appeal considered a number of relevant English authorities including Bank Mellat v Nikpour [1985] FSR 87, Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350, Behbehani & Ors v Salam & Ors [1989] 1 WLR 723 and Tate Access Floor Inc v Boswell [1991] Ch 512.  He stated his conclusions as follows:

“64. I have come to the conclusion that the non disclosure was indeed serious and to an extent went to the root of the claims being made by [Hung].

65. I have also borne in mind that it was only D1 that has made an application for the injunction to be discharged.

66. The other Defendants have not done so and therefore the injunction will remain effective against them.

67. The result of all this is that I order that the injunction is to be discharged as against D1.

68. I also accept the validity of the submissions made by Mr Clifford Smith that this is not a case where it would be appropriate to permit [Hung] to regrant a fresh injunction even if it is made pursuant to the re amended Statement of Claim which was produced by Mr Sussex at the commencement of the hearing on the 10 October.

69. However leave is granted to re amend the Statement of Claim as drafted but as the Ex parte injunction has been discharged clearly neither [Hung] nor Excel are able to avail themselves of the injunctive relief which was obtained.”

34.The judge made an order nisi that the costs of the hearings on both days and incidental thereto should be borne by Hung.

35.As the summons for the continuation of the injunction against the other defendants had not been heard, the parties went back before the judge on 21 October to deal with that summons and other consequential orders.

The judge’s decision of 21 October 2013

36.At the hearing on 21 October 2013, the judge was seized with a number of applications and made a number of orders.  He did not give a reasoned decision in writing.  This court was provided with a transcript of the proceedings on that day from which we are to deduce what were the applications before the court (as no summons was issued by any of the parties in respect of the applications he dealt with), what orders were made, and what reasons were given.  This is not satisfactory. Apart from adding to the workload of the appeal court, it just generates argument which should be avoided.

37.No separate order was drawn up in respect of the orders made by the judge in his decision on 18 October.  Instead, the 1^st defendant’s solicitors drew up a composite order dated 21 October 2013 purporting to record some of the judge’s orders made on 18 and 21 October 2013.  That order, which was approved by the court on 31 October 2013, was the subject of an application under the slip rule.  Having studied the decision of 18 October and the transcript of proceedings on 21 October, we are quite satisfied that the order dated 21 October 2013 does not accurately record the orders actually made.  The slip rule application came before another judge on 22 January 2014 and was adjourned.  Notwithstanding leave to appeal was given by this court on 11 February 2014, none of the solicitors saw fit to restore the slip rule application so that two accurately drawn up orders in respect of the judge’s decisions on 18 and 21 October could be placed before us for the appeal to be heard in three months’ time.  Order 59 rule 5(1), which requires the appellant to lodge with the Registrar a copy of the sealed order within seven days after the date on which service of the notice of appeal was effected, was not complied with.

38.We wish to take this occasion to remind judges below that it is important to ensure that draft orders submitted for their approval should be properly checked.

39.Moreover, solicitors acting for a party in an application should prepare a draft order for approval as soon as practicable. The observance of this duty is particularly important in respect of hearings before deputy judges.  Disagreement on the wordings of a draft order must be resolved expeditiously usually by the judge who made the order.  In any event, an order should be finalized and sealed in good time to facilitate the compliance with Order 59 rule 5(1).

40.We also take this opportunity to remind the Registry of the requirements of Order 59 rule 5.  The Registrar should not allow an appeal to be set down when the appellant has not fully complied with rule 5(1).

41.The first application the judge dealt with was Mr Sussex’s application for a new Mareva injunction in the name of Excel alone.  This was refused by the judge, whose reasons may be summarised as follows:

(1) The judge did not agree with the submission that because the application was made by a different plaintiff, it does not matter who lies behind it, or that the non-disclosure was “all past history”[3].  He declined to draw any distinction between Hung and Excel for present purpose, so that any advantage as to the timing of the injunction gained by the non-disclosure would not go to Excel[4].

(2) It was right to deprive Hung of the benefit of the injunction obtained as a result of non-disclosure and not to allow Excel to benefit from the injunction as he had held in §§63 to 69 of the earlier decision.  He had made an adjudication earlier that the injunction should be discharged and “there should not be a fresh injunction put in place of it because it was on that basis that [he] allowed the amendments [to the writ and indorsement of claim].” [5]  He would not have made the order granting leave to include Excel as a plaintiff if he had realised that the consequence of that was that he would be facing a situation exactly contrary to the view he took of the matter in §69 of the earlier decision[6].  If the plaintiffs sought to vary his earlier decision, they should appeal to the Court of Appeal[7].  It was not open to him to reverse his decision[8].

(3) In any event, he formed the view that as the non-disclosure was so serious, it would not be right to allow the plaintiffs to go “relatively unpunished except only for costs”, or it would lead to a situation of “just throwing any old rubbish at a judge in an emergency, not even making out the case of the parties and everything, and then proceeding and then saying, well, now we can get our house in order and proceed on the basis that the injunction holds notwithstanding the unsatisfactory state of affairs initially.”[9]

42.The judge then heard Mr Sussex on his application for leave to appeal against his refusal to grant a fresh Mareva injunction in favour of Excel in the earlier decision and in the ruling on 21 October.  He refused leave to appeal as he was not persuaded on the established principles relating to appeals against the exercise of discretion that the plaintiffs would have reasonable prospects of success.  He granted a stay of the order discharging the injunction against the 1^st defendant pending the plaintiffs’ application to the Court of Appeal for leave to appeal.

43.Lastly, the judge turned to the application for the continuation of the ex parte injunction he granted in Hung’s favour against the 2^nd to 5^th defendants on 3 October.  The 2^nd to 5^th defendants appeared by counsel on 21 October and lodged a written submission seeking a discharge of the injunction although they did not issue a summons for that purpose or file any evidence in support.  Mr Sussex on the other hand applied for Excel to be “added as a plaintiff in the injunction”[10].

44.The judge refused the application of Mr Sussex, adopting the same stance that so far as Excel is concerned, it does not get the benefit of the injunction against the 2^nd to 5^th defendants and he is not prepared to grant a fresh one[11].  He also refused leave to appeal on this point.

45.As for the application of the 2^nd to 5^th defendants to discharge the injunction, the judge took the view as this injunction is “intricately intertwined with what is going to happen with … the orders in relation to D1”, he should defer dealing with that application until the outcome of the plaintiffs’ intended appeals is known[12] and adjourned the application for continuation of the ex parte injunction sine die[13].  So the injunction granted in Hung’s favour against these defendants stands.

The ambit of this appeal

46.The subject orders that are challenged by the plaintiffs in this appeal in the two decisions of the judge on 18 and 21 October 2013 are as follows:

(1) the order refusing to re-grant a fresh Mareva injunction in favour of Excel against the 1^st defendant on the same terms as the injunction in favour of Hung against the 1^st defendant, which the judge has ordered to be discharged;

(2) the order refusing to re-grant or amend the Mareva injunction in favour of Hung against the 2^nd to 5^th defendants so that the injunction is granted in favour of Excel, and not Hung; and

(3) the order that the plaintiffs should bear the costs of the hearings on 4, 10 and 21 October 2013.

47.The plaintiffs have not sought to challenge on appeal the order to discharge the injunction in favour of Hung against the 1^st defendant.

48.It is appropriate to deal with the appeal against the order in (2) first.  We cannot see how the order seeking to substitute Excel as the party in whose favour the injunction is to be granted can be made without first discharging the original injunction in favour of Hung against the 2^nd to 5^th defendants.  Besides, there is an extant application for discharge of the original injunction that is yet to be dealt with by the court below.  These defendants did not apply for discharge of the original injunction at the hearings on 4 and 10 October when the judge heard the 1^st defendant’s application for discharge.  They only applied on 21 October after the judge had ruled in the 1^st defendant’s favour.  The belated application of these defendants was then deferred by the judge until the outcome of the plaintiffs’ appeal is known and he adjourned the application to continue the original injunction sine die.  Until the applications regarding the original injunction whether for discharge or continuation has been dealt with one way or other, it would be precipitate for the court to consider a re-grant of an injunction on the same terms in favour of Excel.

49.The 2^nd to 5^th defendants have not sought to challenge the judge’s decision on the way he handled their application for discharge of the original injunction.  Miss Rachel Lam[14] acknowledged on their behalf that they do not seek to cross-appeal the judge’s decision on 21 October, but submitted that if the plaintiffs accept that the original injunction ought to have been discharged against these defendants, it is all the more apparent that the plaintiffs would have no grounds for asking this court to re-grant or amend the injunctions against these defendants, as the non-disclosures of Hung of material points of fact and law were “even more heinous” when he made the ex parte application against these defendants on 3 October 2013, in view of the fact that the 1^st defendant’s grounds of discharging the ex parte injunction for material non-disclosure had by then been provided to the plaintiffs.  Counsel submitted that the only rational explanation must be that the plaintiffs made a “deliberate or reckless decision” to suppress the material non-disclosures of fact and law in the hope that they could obtain the ex parte injunction against these defendants.

50.On the other hand, Mr Sussex[15] submitted that insofar as the 2^nd to 5^th defendants are concerned, Hung did not commit any material non-disclosure of fact as Hung had stated in his 2^nd affirmation the declaration of trust signed by the 1^st defendant had the name of the beneficiary left blank.

51.These arguments should be addressed in the application for discharge of the original injunction against the 2^nd to 5^th defendants, which has yet to be heard by the court below.  There is no exceptional reason why they should be resolved for the first time on appeal, quite apart from the fact there is no respondent’s notice of the 2^nd to 5^th defendants seeking to support the judge’s decision on 21 October on the ground that the judge should have found there was material non-disclosure at the time of the ex parte application on 3 October.

52.So for reasons different from those given by the judge, we decline to set aside the order he made refusing to re-grant or amend the original injunction against the 2^nd to 5^th defendants.  We make no order as regards the injunction in Hung’s favour against the 2^nd to 5^th defendants, pending determination of the applications for continuation and discharge of the injunction in the court below.  We wish to state for the avoidance of doubt that no point on issue estoppel should be taken against the 2^nd to 5^th defendants in the restored applications.

53.We leave aside the appeal against the judge’s order relating to costs and turn to the main focus of this appeal, which is the refusal to re-grant a fresh Mareva injunction against the 1^st defendant in favour of Excel.

Appeal against the exercise of discretion

54.As this is an appeal against the exercise of discretion of the judge, we bear in mind the limited function of an appeal court in an appeal of this kind according to established principles.

55.An interlocutory injunction is a discretionary relief and the discretion whether to grant it is vested in the judge of the court below who heard the application.  The appeal court must defer to the judge’s exercise of his discretion and must not interfere with it merely on the ground that it would have exercised the discretion differently.  The function of the appeal court is initially one of review.  It will not disturb the judge’s exercise of discretion unless the judge had misdirected himself with regard to the principles or the evidence in accordance with which his discretion had to be exercised; or he had wrongly taken into account irrelevant matters or failed to take into account relevant matters; or his exercise of discretion was plainly wrong.  It is only if and after the appeal court has reached the conclusion that the judge’s exercise of discretion must be set aside for one or other of these reasons, that it becomes entitled to exercise an original discretion of its own (Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 at 220B to F; The Abidin Daver [1984] 1 AC 398 at 420A to C).

Applicable principles on the discretion to re-grant injunctions

56.The parties have cited to us quite a number of authorities on the relevant principles governing the court’s discretion whether to re-grant an interlocutory injunction where the injunction is discharged for material non-disclosure.  The principles are well established and well recognised.  As with all discretionary considerations, each case turns very much on its facts.  So we do not propose to quote extensively from these authorities except for one of them, which is an unreported decision of Deputy Judge Alan Boyle, QC in The Arena Corporation Ltd v Schroeder [2003] EWHC 1089 (Ch), in which he carried out a thorough review of the authorities in this area.  This decision has since been cited in a number of cases.  At §[213] he made a useful summary of the main principles which should guide the court in the exercise of its discretion as follows:

“(1) If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial.

(2) Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order.

(3) That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.

(4) The court should assess the degree and extent of the culpability with regard to non-disclosure. It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order. Equally, there is no general rule that a deliberate breach will attract that sanction.

(5) The court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court. In making this assessment, the fact that the judge might have made the order anyway is of little if any importance.

(6) The court can weigh the merits of the plaintiff’s claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff’s case is allowed to undermine the policy objective of the principle.

(7) The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice.

(8) The jurisdiction is penal in nature and the court should therefore have regard to the proportionality between the punishment and the offence.

(9) There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the court should take into account all relevant circumstances.”

57.There is a tension between two kinds of public interest in this situation (Sita UK Group Holdings Ltd & Anr v Serruys & Ors [2010] EWHC 698 (QB) at §[15]).  The first is that the court should take account of the need to protect the administration of justice and uphold the requirement of full and fair disclosure in an ex parte application.  So if material non-disclosure is established, the court will be astute to ensure that a plaintiff who obtains an ex parte injunction without full disclosure is deprived of any advantage he may have derived by that breach of duty, to bring home to litigants the serious consequences of non-disclosure.  This is what was described as “the golden rule” in some cases.  The other public interest is the general duty to do justice so that the application of the golden rule must not be allowed to become the instrument of injustice in a particular case.  So the court would have regard to the principle of proportionality in the exercise of its penal jurisdiction to impose sanctions for non-disclosure.

58.As Christopher Clarke J said in Re OJSC Ank Yugraneft [2009] 1 BCLC 298 at §[103], in exercising this discretion, the court, like Janus, looks both backwards and forwards.  The overriding question for the court is what is in the interests of justice in the particular circumstances of the case.

The judge’s exercise of the discretion

59.There is no criticism about the judge’s exercise of the discretion to discharge the injunction Hung obtained against the 1^st defendant and to refuse to re-grant an injunction in his favour.  What is challenged in this appeal is his refusal to re-grant an injunction in favour of Excel, having allowed Excel to be added as a plaintiff in this action.

60.Mr Smith[16] recognised realistically that insofar as the non-disclosure of law is concerned, this in itself would not be a material consideration when one comes to consider Excel’s position.  With the judge’s decision of 18 October 2013, the plaintiffs recognised that Excel is the proper plaintiff to bring the claim against the defendants for recovery of the Shares and the proceeds of sale.  With the leave granted by the judge on 18 October, Excel has been added as a plaintiff to advance a proper claim against the defendants.  The judge mentioned that had he known of Excel’s further application for re-grant of an injunction in its favour, he would not have allowed it to be added as a plaintiff.  We think that is wrong.  Allowing a party to be added as a proper and necessary plaintiff should not be bound up with the question whether the discretion to re-grant an injunction should be exercised in favour of the added plaintiff.  These are two separate questions.  Mr Smith accepted it would have made no difference to the exercise of discretion to re-grant an injunction to Excel if, instead of seeking to be added as a plaintiff to this action, Excel had started a new action against the defendants.

61.Mr Smith sought to defend the judge’s exercise of the discretion by laying emphasis on two matters.

62.Firstly, there was material non-disclosure of fact on the part of Hung, as held in the decision of 18 October.  This was a misstatement to bolster Hung’s assertion that the 1^st defendant was his bare trustee in holding the share in Excel and his allegation that he was the beneficial owner of Excel.  Mr Smith also drew our attention to other parts of Hung’s 3^rd affirmation, in which he admitted other errors in the 1^st affirmation regarding one of the two earlier holders of the share in Excel.  Hung had alleged in his 1^st affirmation that the first holder Choi Chiu Fai Stanley (“Choi”) was a nominee appointed by him.  In his 3^rd affirmation, he made a correction and said Choi sold Excel as a shelf company to him through Lau and this was supported by the affirmations of Lau and Sum.  Hung’s explanation in the 3^rd affirmation for this error was that he did not remember every single detail when he prepared his 1^st affirmation in the early hours of 26 September.

63.Mr Smith submitted the above indicated that the untrue statement about Choi was made intentionally and there was no room for honest mistake.  All these added to the seriousness of the deliberate non-disclosure or misstatement of material facts.

64.Secondly, Mr Smith submitted the judge was correct in treating Hung and Excel as the same in the exercise of his discretion as it is the plaintiffs’ case pleaded in §7 of the statement of claim that the interests of Excel and Hung would be identical at all times and their interests could never conflict.  He was not asking this court to pierce the corporate veil but he contended that Excel could be regarded as Hung’s agent for present purpose.

65.In our judgment, in assessing the seriousness and significance of the non-disclosure of fact and the degree of culpability, the judge had failed to consider the non-disclosure in the proper context of the overall situation, in the very special circumstances of this case.

66.Firstly, it must be noted that on the 1^st defendant’s case, he accepted and acknowledged he was a bare trustee as regards the issued share he held in Excel.  The declaration of trust he executed in blank stated that the share does not belong to him and he held it on trust for the beneficial owner and agreed to transfer the share in such manner as the beneficial owner may from time to time direct.  There was no dispute that he also executed a blank share transfer form and an undated director’s resignation letter.

67.Secondly, the only person alleged by the 1^st defendant to be the beneficial owner of the issued share in Excel was Lau.  Lau has filed an affirmation refuting that he was the beneficial owner and supporting Hung’s assertion that Hung was the beneficial owner.  Lau’s affirmation was supported by Sum, who attended to the preparation and execution of the declaration of trust and other relevant documents by the 1^st defendant.

68.Thirdly, on 25 September 2013, Hung filled in the blanks in the declaration of trust, the share transfer form and the director’s resignation letter of the 1^st defendant thereby assuming full ownership and control of Excel.  No other person has since come out to dispute his interest in Excel.  There is no dispute that all along Hung has retained custody over the company kit of Excel.

69.Viewed in the proper context, it should be apparent that Hung’s non-disclosure of fact or misstatement as found by the judge (even assuming it was not innocent) was nowhere as egregious as contended by Mr Smith.  As for Hung’s error about Choi (for which the judge made no finding), we do not agree with the submission of Mr Smith that it should be reasonably inferred Hung was deliberately dishonest in making this other error.

70.As for the non-disclosure of law, insofar as the judge had relied on this as a factor in refusing to re-grant an injunction to Excel, we think he was wrong to take this into account.  The effect of non-disclosure of law was spent by the time Excel sought a re-grant of the injunction.  In any event, we are inclined to agree with Mr Sussex that the non-disclosure of law would appear to be the result of ‘cock-up’ of Hung’s lawyers, as they were aware all along that the Shares were registered in the name of Excel.  They even had in mind an argument of joining Excel as an additional defendant.  We do not think this is a case of deliberately misleading the court to gain some forensic advantage.

71.The judge’s exercise of discretion was in error in that he had failed to take into account relevant matters and took into account an irrelevant matter.  We therefore set aside his exercise of discretion and exercise the discretion afresh.

The fresh exercise of discretion

72.On the evidence before the court, we are satisfied that the plaintiffs have made out a good arguable case of fraud against the 1^st to 5^th defendants.

73.The investor from the PRC has not been identified by the 1^st defendant.  As rightly pointed out in the submission of Mr Sussex, no or no proper explanation has been given why the alleged sale had to be completed within a single day at the significant undervalue of 60% discount from the previous day’s closing price or that it should involve the 2^nd to 5^th defendants with newly opened accounts at CLC.  No explanation has been given why the terms of the alleged sale contradicted the bought and sold notes signed by the 1^st defendant for Excel and by the 2^nd to 5^th defendants as purchasers.  And no explanation has been proffered why the 2^nd, 3^rd and 5^th defendants would immediately on-sell the shares they obtained within the same day incurring significant losses in doing so.

74.The risk of dissipation without a Mareva injunction is apparent.  It would leave Excel with no protection for its claim of $149 million.

75.We have concluded earlier that looking at the matter in all the relevant circumstances, the non-disclosure or misstatement of fact was not as egregious as made out by Mr Smith.  And the non-disclosure of law, the effect of which was spent, was the result of ‘cock-up’ of Hung’s lawyers.

76.Standing back and viewing the matter as a whole, although the non-disclosure of Hung was serious, we do not think it would be a proportionate response to deny injunctive relief to Excel.  We think the interest of justice would be served by re-granting an injunction on the same terms to Excel, but Hung should be penalised in costs occasioned by his non-disclosure.

77.We therefore allow the appeal in part and set aside the judge’s order refusing to re-grant a Mareva injunction in favour of Excel against the 1^st defendant.  In lieu thereof, we order that a Mareva injunction be granted to Excel against the 1^st defendant on the same terms as the injunction that was discharged by the judge, with suitable alteration relating to the duration of the order in that it will remain in force until trial of this action unless before then it is varied or discharged by a further order of the court.  There may be other consequential alterations as a result of substituting Excel in place of Hung in the injunction.  Any disagreement arising from this should be referred to the court below.

Costs on appeal and below

78.Lastly, we turn to the question of costs, for which we have heard arguments.

79.As between the plaintiffs and the 1^st defendant, we will not disturb the judge’s order that the costs of the hearings on 4 and 10 October 2013 are to be paid by Hung forthwith, with certificate for two counsel.  This is the sanction imposed on Hung for his non-disclosure.  As for the costs of the hearing on 21 October 2013, we order that these be the plaintiffs’ costs in the action.

80.Mr Smith did not resist the costs of the appeal.  We make an order that as between the plaintiffs and the 1^st defendant, the costs of the appeal be to the plaintiffs with a certificate for two counsel.

81.The judge did not make any order of costs as between the plaintiffs and the 2^nd to 5^th defendants.  This outstanding order should be dealt with by the court below when the applications for discharge and continuation of the injunction against these defendants are to be restored in the court below.

82.Ms Lam sought the costs of the appeal for the 2^nd to 5^th defendants.  She submitted that the plaintiffs have not achieved what they sought on appeal as regards these defendants, they were served with the notice of appeal and it was not their fault they were brought into the appeal.  Ms Sussex submitted that the costs as between the plaintiffs and the 2^nd to 5^th defendants should be costs in the cause.  We think it would be fair to order the costs of the appeal to be the 2^nd to 5^th defendants’ costs in the action and we so order.

Mr Charles Sussex SC & Mr Christopher Chain, instructed by ONC Lawyers, for the 1^st & 2^nd Plaintiffs (1^st & 2^nd Appellants)

Mr Clifford Smith SC & Ms Sabrina Ho, instructed by Cheung & Liu, for the 1^st Defendant (1^st Respondent)

Ms Rachel Lam & Mr Jason Yu, instructed by S.T. Poon & Wong, for the 2^nd to 5^th Defendants (2^nd to 5^th Respondents)