Tyg Capital Fund (in Liquidation) v. Hilda Hor Yee Chan and Others
Read the full judgment text of HCA 1585/2014 on BabelCite. This High Court CFI judgment was delivered on 25 August 2014.
1. This case came before me last Friday. It was the return day of the ex parte order granted by Harris J on 14 August 2014 obtained by the plaintiff against the 1 st to 6 th defendants (“ Ex Parte Order ”). Notices to Act have been filed by all six defendants. The parties have amongst themselves filed 12 inter partes summonses returnable before me. At the hearing on Friday, I have dealt with parts of some of those summonses, and granted case management directions in respect of most of the ot
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HCA 1585/2014 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO 1585 OF 2014 -------------------- BETWEEN
--------------------- Before: Deputy High Court Judge Marlene Ng in Chambers Date of Hearing: 22 August 2014 Date of Decision: 25 August 2014 ------------------------ D E C I S I O N ------------------------ Introduction 1.This case came before me last Friday. It was the return day of the ex parte order granted by Harris J on 14 August 2014 obtained by the plaintiff against the 1st to 6th defendants (“Ex Parte Order”). Notices to Act have been filed by all six defendants. The parties have amongst themselves filed 12 inter partes summonses returnable before me. At the hearing on Friday, I have dealt with parts of some of those summonses, and granted case management directions in respect of most of the other summonses so that the parties can fight on another day. The remaining summonses that were argued before me were between the plaintiff (ie the TYG Capital Fund) and the 1st defendant Hilda Chan and the 2nd defendant Daren Chan respectively. 2.The diligence of counsel presented me with close to 40 authorities and the hearing lasted until 5:30 pm, so I have adjourned the hearing to Monday, ie today, for oral delivery of decision. In view of the urgency of the matter and given that Hilda and Daren Chan have not yet filed any affirmation evidence, I do not propose to go into the detailed background of the case, which for present purposes I only have the Fund’s version. I also do not propose to analyse in detail the many authorities cited by counsel. I will concentrate on giving reasons for my conclusion so that the parties can consider their position both in Hong Kong and in the Cayman Islands accordingly. 3.For convenience, I shall adopt the abbreviations in the affirmation of John Howard Batchelor (“John Batchelor”) filed on 14 August 2014 (“Affirmation”) and in the Draft Affirmation of David Bennett referred to below. I mention here that John Batchelor and Vincent Fok of FTI were appointed as independent directors of the Fund on 7 April 2014, and they were appointed to the Governance Committee of the Fund on 6 May 2014. 4.On 14 August 2014, the Fund commenced the present action against the 1st to 6th defendants. In summary,
5.On the day before the commencement of the present action, the Fund obtained the Ex Parte Order as follows:
6.I now turn to the summonses that have been argued before me. 7.First, the Fund took out a summons dated 14 August 2014 for continuation of the Proprietary and Mareva Injunctions and the Shareholders’ Restraint (“Continuation Summons”). At the hearing on Friday, I have granted interim continuation of the Ex Parte Order (save and except for the Shareholders’ Restraint) pending the substantive hearing of the defendants’ application for discharge. 8.Secondly, Hilda and Daren Chan respectively applied by summons on 19 August 2014 for the Shareholders’ Restraint to be discharged absolutely for material non-disclosure (“Discharge Summonses”). 9.On 21 August 2014, the Fund filed the affirmation of their Hong Kong solicitor Geoffrey Lawrence Wong exhibiting a draft affirmation by David Bennett, one of the two JVLs of the Fund, which contents he has approved and which affirmation will be affirmed and filed when he returns to Hong Kong from a business trip (“Draft Affirmation”). The Draft Affirmation gives an update of the events that have happened since the grant of the Ex Parte Order. 10.In short, the crux of the dispute before me is whether the Shareholders’ Restraint against Hilda and Daren Chan should be continued or discharged. It is necessary to bear in mind that the Shareholders’ Restraint (even if it is to be continued) will only have life up to the determination of the Fund’s application to the Grand Court for court supervision of the Fund’s liquidation, which is due to be heard on 5 September 2014. Background 11.The Fund is a Cayman Islands company and a registered mutual fund. Its directors used to be Hilda Chan, DFG I and DFG II until Vincent Fok and John Batchelor were appointed as directors on 7 April 2014. Hilda Chan resigned with effect on 4 June 2014. 12.TYG Cayman is a Cayman Islands company and the fund manager. Its shareholders are Hilda Chan (62.5%) and Daren Chan (37.5%). Its directors used to be Daren Chan and two employees of DMS Offshore until Vincent Fok and John Batchelor were appointed as directors on 6 Mayl 2014. Daren Chan resigned with effect on 6 June 2014. 13.The investors held the non-voting Participating Shares of the Fund, and TYG Cayman held all of the voting Management Shares of the Fund. The Management Shares have no economic interest in the Fund’s assets. 14.In short, Hilda and Daren Chan hold 100% of the shareholding in TYG Cayman, which in turn holds 100% of the voting shares of the Fund. 15.The following version of events is taken from the Affirmation and Draft Affirmation since Hilda and Daren Chan have not filed affirmations in opposition as yet. 16.The Fund first accepted subscriptions in May 2013, and it published its NAV on a monthly basis. But in the course of preparing the December 2013 NAV in January 2014, DB Singapore raised queries over certain cash payments from the custodian account, and refused to calculate the NAV pending satisfactory explanation. Such explanation was not forthcoming, and in March 2014 they terminated the administration agreement which took effect on 12 June 2014. 17.The Board of the Fund was notified, and John Batchelor and Vincent Fok were appointed as independent directors on 7 April 2014. FTI’s investigations (as summarised in the FTI Report) revealed poor accounting records, incomplete documentation of payments, large payments for certain fees and expenses, and payments to Hilda and Daren Chan, entities connected to them and the Introducers. About half of the net subscriptions have been disbursed by February 2014 with more payments in March to May 2014, but it appears that only a small portion comprised legitimate payments. The Affirmation details the questionable and/or excessive payments. 18.During this time, the Strategy was devised for Hilda and Daren Chan to recover payments from the Fund’s assets and to shift control of the Fund to a Governance Committee. On 6 May 2014, the Board resolved to set up the Governance Committee, to implement the Suspension, and to notify the investors. Hilda Chan transferred her shares in the SPV to the Fund. New custodian and new administrator were appointed. CIMA and the investors were notified. 19.In June 2014, Hilda and Daren Chan signed deeds of undertaking to return relevant monies to the Fund on an ongoing basis with a long stop date by 31 July 2014. Following their resignations as directors of the Fund and TYG Cayman, they countersigned letters to acknowledge their limited role in assisting the Governance Committee to seek repayment of the questionable payments, and that they were not authorised to act for or represent the Fund. 20.However, Hilda and Daren Chan remain as 100% shareholders of the TYG Cayman. Under the articles of association of the Fund and TYG Cayman, it is said they can cause removal of the independent directors by written resolutions without court intervention or filing of any documents. Hence, as part of the control mechanism under the Strategy, Hilda and Daren Chan gave undertakings not to vote their shares in TYG Cayman without provision of 5 days’ notice to John Batchelor. 21.Hilda Chan made some repayments to the Fund. According to the Affirmation, there was a first breakdown of relationship in late May 2014 when it appeared that Hilda Chan did not want to provide requested information and that she wanted to resile from a promise to make payment. But after discussion, Hilda Chan agreed she and Daren Chan would resign as directors and give the deeds of undertaking discussed above. But by June 2014, despite Hilda Chan’s promise, John Batchelor was still not added as signatory to the bank account of TYG HK (which Hong Kong company has received a number of payments and which, according to Mr Ling who appears for the Fund at the hearing on Friday but not at the ex parte stage, is a shadow company whose name bears close resemblance to TYG Cayman), and certain payment was not made. In July 2014, Hilda and Daren Chan proposed to make repayments over 11 months and to provide other deliverables. 22.In late July and early August 2014, John Batchelor became concerned over various developments, including Hilda Chan’s advice that TYG HK’s bank account will be closed, guarantees that had been made by TYG HK that purport to guarantee claims by investors arising out of delay in withdrawal of monies from the Fund, IOU agreements that had been made between TYG HK and certain investors after the execution of the aforesaid deeds of undertaking without the knowledge of the Governance Committee, and certain investors had contacted DB’s lawyers saying they had been asked to re-sign subscription forms, all of which suggested to John Batchelor that Hilda and Daren Chan were acting in relation to the Fund outside the Governance Committee. There was also no response to John Batchelor’s invitation for a meeting. 23.In the emails passing between lawyers from 7 to 11 August 2014, a request was made to Hilda and Daren Chan for (a) the Governance Committee’s consent to be obtained before any changes to the Board of TYG Cayman (and therefore the Fund), (b) the constitutional documents of the related Hong Kong entities, (c) payment of US$3.5 million by 31 August 2014, and (d) information as to the source of funding for the ongoing payment plan. It was explained that proposal (a) was to entrench existing arrangements until Hilda and Daren Chan fulfil their obligations and management control of the Fund can then be returned to them. 24.Hilda Chan’s lawyers queried the need for the proposed control mechanism because they perceived a potential conflict of interest if FTI had a “job security” provision without any “check and balance” mechanism. A counter-proposal was given for an independent or neutral “golden shareholder” whose critical vote would be required to change the Board of TYG Cayman or alter its constitution. In the Affirmation, John Batchelor explains that the proposed control mechanism is to mitigate the risk regarding the voting rights of Hilda and Daren Chan and to entrench existing safeguards to protect the investors and creditors of the Fund. These matters are set out in paragraph 99 of the Affirmation and the relevant emails have been exhibited thereto. There was no response to this suggestion or to the proposal for a meeting. 25.On 11 August 2014, John Batchelor received an email from Hilda and Daren Chan giving him and Vincent Fok 5 days’ notice of the proposed exercise of their power as shareholders of TYG Cayman to remove them from the Board of TYG Cayman and to replace them with new independent directors Michael Chan and Cosimo Borrelli of Borrelli Walsh (“5-days’ Notice”). The 5-days’ Notice also requested John Batchelor and Vincent Fok to voluntarily resign from their positions for transition to the new independent directors. 26.John Batchelor says this development has given rise to concern as it clearly indicates that Hilda and Daren Chan want to take back some control of the Fund, but there is no assurance that the existing control mechanism which has been put in place by delegation of the Governance Committee will be replicated with the new directors, and there is no confirmation that the Fund will be returned to balance sheet insolvency within a short period. John Batchelor expresses concern that the proposal to remove him and Vincent Fok has followed provision of documents by Hilda Chan that reveals an additional entity TYG Services owned by Hilda and Daren Chan that has been used to make an IOU payment and to receive two payments from TYG HK in June 2014. Additional company search has revealed the existence of TYG Advisors and TYG Intl with names that bear striking resemblance to TYG Cayman and TYG HK. TYG Intl was incorporated on 11 June 2014 immediately after entry into the aforesaid deeds of undertaking and after letters were sent to Hilda and Daren Chan restricting their role. John Batchelor fears Hilda and Daren Chan have not been not acting in good faith, and they will continue to take steps outside of the control of any new directors that may be appointed. 27.John Batchelor claims that since (a) the economic interest of the Fund lies with the ordinary shareholders of the Participating Shares and not with TYG Cayman as holder of the Management Shares or with Hilda and Daren Chan, (b) the Fund is manifestly insolvent, (c) Hilda Chan has failed to pay monies agreed under the aforesaid deed of undertaking and has failed to deliver complete records to John Batchelor in relation to TYG HK and her own accounts, and (d) the future repayment plan that Hilda Chan has presented for the next 12 months is not credible, the Board of the Fund has taken the view that the Fund should be put under voluntary liquidation in the Cayman Islands with an application for a supervision order that will convert such voluntary liquidation into a compulsory winding up, and for injunctive reliefs to be sought in Hong Kong with ancillary orders. 28.John Batchelor says he is concerned that in the meantime Hilda and Daren Chan will use their voting powers (as they have indicated by the 5-days’ Notice that they will) to replace the Board of TYG Cayman with new directors by written resolution, and then cause TYG Cayman to vote its shares to change the constitution of the Fund to permit a change of the Board of the Fund by removing any existing director, the Governing Committee or any JVL by ordinary or written resolution without 5 days’ notice. These steps, if taken, may lead to their protection from prosecution unless CIMA or any of the investors in the Fund takes direct action, but to date there is no indication by CIMA or any investor that they will do so. 29.According to the Draft Affirmation, TYG Cayman has passed a resolution on 13 August 2014 to appoint David Bennett and Hugh Dickson of Grant Thornton as the JVLs of the Fund. On the following day, the JVLs petitioned to the Grand Court to seek an order that the liquidation of the Fund be continued under a supervision order since the directors of the Fund declined to provide declarations of solvency. The petition is due to be heard on 5 September 2014. David Bennett explains that at such hearing the Grand Court will consider whether a supervision order ought to be made and also the identity of the liquidator to be appointed. 30.Mr Wong SC acting for Hilda Chan and Mr Lam (and Ms Ho with him) acting for Daren Chan ask for the immediate discharge of the Shareholders’ Restraint on the ground of material non-disclosure on the basis that the Fund has failed to draw the attention of Harris J to matters of facts and law to show lack of basis for the Shareholders’ Restraint:
31.In his written submissions, Mr Ling says that the aforesaid arguments have no substance and there is therefore no material non-disclosure because they overlook the provisions of section 21M of the High Court Ordinance Cap 4 (“HCO”) which enables the court to grant interim relief in relation to proceedings which (a) have been or are to be commenced in a place outside Hong Kong, and (b) are capable of giving rise to a judgment which may be enforced in Hong Kong under any ordinance or at common law. He refers to paragraphs 52 and 58 of the skeleton submissions of the Fund’s counsel before Harris J that alluded to the intended application to the Grand Court for court-supervised liquidation of the Fund, which he says can arguably be read in support of a section 21M application. 32.Mr Wong SC and Mr Lam submit that as a matter of law section 21M of the HCO is not applicable, and there has been no reliance of such provision before Harris J. They contend that reliance on section 21M of the HCO is an afterthought with a view to salvage the Shareholders’ Restraint. Mr Wong goes further to say that should the Shareholders’ Restraint being essentially a domestic injunction and not one in aid of intended foreign proceedings be discharged on the ground of lack of full and frank disclosure, the Fund is barred from invoking the assistance of this court under section 21M of the HCO (see Tsang Tat Investment Company Limited v Hong Kong Tsang Tat Investment Company Limited & anor HCA889/2011, DHCJ Au-Yeung (as she then was) (unreported, 16 November 2011) at para 60). 33.In the course of Mr Ling’s submissions at the hearing on Friday, he produced a typed transcript of the audio recording of the ex parte hearing before Harris J. Although it was prepared by the Fund’s solicitors and not the official transcript, Mr Wong SC and Mr Lam have no objection for this court to consider and take into account such unofficial transcript (“Transcript”). In light of the Transcript, Mr Ling fairly accepts there was no mention of section 21M of the HCO by the Fund’s counsel before Harris J, and he further concedes that the emphasis of the application before Harris J was not on section 21M of the HCO but on the Shareholders’ Restraint being an ancillary relief to complement, support and preserve the integrity of the Proprietary and Mareva Injunctions. In short, Mr Ling accepts that at the ex parte stage essentially the Fund asked the court to consider the domestic rather than international angle of the application. Consequently, Mr Ling’s submissions before me have expanded beyond his written submissions to encompass arguments in this respect. 34.I should mention one further development. In the course of Mr Ling’s submissions before me, he raised the spectre that if the Shareholders’ Restraint is discharged, there is no stopping Hilda and Daren Chan from taking the steps that John Batchelor fears will be taken to derail the liquidation process of the Fund and to prevent any misfeasance actions to be taken against them, and additionally upon seizing control of the Board of the Fund they may cause the Fund being the plaintiff in the present action to terminate the present action and even to concede payment of the costs of the action to them. Mr Ling claims this must be why Hilda and Daren Chan have been so keen to discharge the Shareholders’ Restraint. 35.Mr Wong SC and Mr Lam deny such accusations. They point to the fact that Hilda and Daren Chan (a) have not asked for immediate discharge of the Proprietary and Mandatory Injunctions and has agreed for them to be continued pending a formal discharge application to be heard by the court, (b) have agreed to comply with the disclosure orders under the Ex Parte Order although they need a few more days to do so, and more significantly, they say there is no basis for Mr Ling’s suggestion because the 5-days’ Notice makes it abundantly clear that they do not ask for their own reinstatement to the Board of TYG Cayman and/or the Fund but to ask for replacement of John Batchelor and Vincent Fok of FTI with new independent directors Michael Chan and Cosimo Borrelli of Borrelli Walsh. 36.At the hearing on Friday, Mr Wong SC and Mr Lam confirm that in order to put the matter beyond doubt, Hilda and Daren Chan are willing to and do give their undertaking to the court that should the Shareholders’ Restraint be lifted and should they exercise their shareholders’ voting rights in TYG Cayman and then to take steps to remove John Batchelor and Vincent Fok as independent directors of TYG Cayman and/or the Fund, then up to the time of the final disposal of the summonses that they will shortly take out for discharge of the Ex Parte Order they will not seek to reinstate themselves as directors of either TYG Cayman or the Fund, and they will appoint two or more independent directors to the Board of TYG Cayman and/or the Fund (“Undertakings”). 37.Mr Wong SC and Mr Lam say that if that happens, then it will be for the newly constituted Board of the Fund to decide on the way forward vis-à-vis the voluntary liquidation of the Fund and the application to the Grand Court for court supervision of the liquidation. Mr Ling says that the Undertakings have come too little and too late, and are ineffective to address the concerns that he has raised in his submissions. I will return to this below. Material non-disclosure 38.There is little dispute over the trite principles in respect of the duty of full and frank disclosure in making ex parte applications and in respect of the discharge of ex parte orders for material non-disclosure save that Mr Ling says there is some difference between the duty of full and frank disclosure as to matters of fact in contra-distinction to matters of law. He says that a crisp point of law is either right or wrong, and if it is clarified at the inter partes stage to be unsustainable, this demonstrates that such point need not be disclosed at the ex parte stage. 39.I do not agree with Mr Ling’s proposition. Just to give a brief synopsis of the legal principles, to comply with the duty of full and frank disclosure, the applicant for the ex parte relief has to disclose all matters relevant to the “weighing operation” that the court has to consider in deciding whether or not to grant the ex parte relief, and also to identify matters of fact or law which could reasonably be raised by the defendant against the making of the order had he been present at the application provided that (a) the defence is one which can reasonably be expected to be raised in due course by the defendant or (b) the defence is not one which can be dismissed as without substance or importance (see New Asia Energy Ltd v Concord Oil (Hong Kong) Ltd [2000] 2 HKC 681, 685‑686 and Fenn Kar Bak Lily v Goh Kin Lay & anor [1995] 3 HKC 313, 317). 40.Mr Ling has also draw my attention to the useful summary of the relevant principles by DHCJ Au-Yeung (as she then was) in Velatel Global Communications Inc & anor v Chinacomm Limited & ors HCA1978/2011 (unreported, 26 October 2011) paras 25-27, but they do not support his suggested distinction between facts and law in terms of materiality or his further suggestion that the question of materiality is to be viewed with the benefit of hindsight on the basis of considerations canvassed at the inter partes stage. However, this authority confirms that where there has been material non-disclosure in an ex parte application, the practice of the courts is to discharge the order without further going into the merits. Section 21M of the HCO 41.It is perhaps useful to start with section 21M of the HCO. Mr Ling submits that under section 21M of the HCO the court has jurisdiction to grant a “free-standing” injunction without the need to identify a local cause of action against Hilda and Daren Chan. In his written submissions he states that:
42.Mr Lam submits that to bring the ex parte application for the Shareholders’ Restraint within section 21M of the HCO (ie the equivalent to section 25 of the Civil Jurisdiction and Judgments Act 1982 (“CJJA 1982”)), there has to be (a) “proceedings” which (b) have been or “are to be commenced” in a place outside Hong Kong and (c) “are capable of giving rise to a judgment which may be enforced in Hong Kong under any Ordinance or at common law”. Mr Lam says that the Shareholders’ Restraint falls apart on all three requirements. 43.Mr Wong SC refers me to Fourie v Le Roux & ors [2005] EWCA Civ 204 paras 25-26 in which counsel for the parties accepted the first instance court’s decision that foreign insolvency proceedings by themselves would not constitute “proceedings” for the purpose of section 25(1) of the CJJA 1982, the rationale being that foreign proceedings cannot simply be a springboard for other claims in England, and they must have a claim the equivalent of which in England would be sufficient for the English court to accept jurisdiction for granting a freezing order (which was the interim relief relevant in that case). On such basis, both Mr Wong SC and Mr Lam submit that the then intended application to the Grand Court for court-supervised liquidation of the Fund does not fall within the meaning of “proceedings” under section 21M of the HCO. 44.Mr Ling asks me to place little weight on the above authority since the point was agreed and not argued, and there was no endorsement of this point by the House of Lords which dismissed the appeal from the Court of Appeal ([2007] 1 All ER 1087). However, Mr Ling has not cited any authority in support of his proposition that the intended application to the Grand Court amounts to “proceedings”. Be that as it may, this point pales when compared with hurdle (c) that has to be crossed in order to come within section 21M of the HCO. I shall deal with this quickly because at the hearing on Friday Mr Ling concedes that the application to the Grand Court for court-supervised liquidation of the Fund is probably not “proceedings” under section 21M of the HCO. 45.Assuming that such intended application to the Grand Court amounts to “proceedings” under section 21M of the HCO, there is no doubt that at the time of the ex parte application before Harris J they are about to be commenced. But Mr Lam submits that such intended application is not capable of giving rise to a judgment which may be enforced in Hong Kong under any Ordinance or at common law. Since Cayman Islands judgments are not amenable to reciprocal enforcement in Hong Kong, the key issue is whether such intended application to the Grand Court will give rise to a judgment which may be enforced in Hong Kong under the common law. 46.In Dicey, Morris and Collins on The Conflict of Laws 14th ed paras 14R-018 and 14-020 at pp 574-576, it is said that to be enforced locally the foreign judgment has to be (a) for a debt or definite sum of money (not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or penalty), and (b) final and conclusive. This is also the law in Hong Kong (see Johnston, The Conflict of Laws in Hong Kong 2nd ed para 9.015 at p 611 and Hung Fung Enterprises Holdings Limited & anor v The Agricultural Bank of China HCA16459/1998, To J (unreported, 4 October 2010) at para 198). 47.Plainly, as Mr Lam submits, the then intended application to the Grand Court for court-supervised liquidation of the Fund is not a claim for a definite sum of money and thus cannot be enforced in Hong Kong under common law. 48.Mr Wong SC also refers to JSC BTA Bank v Muktar Kabulovich Ablyazov HCMP341/2004 (unreported, 17 February 2014) at para 27. In that case, the learned judge relied on counsel’s submission that a foreign judgment is conclusive in Hong Kong proceedings if it is (a) final and conclusive on the merits, (b) made by a court of competent jurisdiction over the parties and subject matter, (c) between the same parties or their privies on an identical issue, (d) for a monetary sum where the plaintiff seeks to enforce as well as recognise the foreign judgment and (e) not impeachable according to the rules on conflict of laws of Hong Kong. 49.Mr Wong SC says that the intended application to the Grand Court for court supervision of the liquidation of the Fund will only involve the Fund, and not other parties, and it therefore does not meet requirement (c) above. In the circumstances, such intended application to the Grand Court does not qualify as proceedings under section 21M (1) of the HCO. 50.But Mr Ling argues that the intended application to the Grand Court for court-supervised liquidation of the Fund (which application has since been issued and is due to be heard on 5 September 2014) is not the only “proceedings” that are to be commenced. He says the Affirmation has alluded to an intention that once after the Grand Court grants a supervision order third party misfeasance proceedings may be brought in the course of the liquidation. Since such possible misfeasance proceedings will be for the purpose of recovery of sums of monies, they fall within section 21M of the HCO. 51.I agree with Mr Wong SC and Mr Lam that such contention is not sustainable. Section 21M of the HCO requires that in relation to the foreign proceedings they must have been commenced or “are to be commenced”. As Mr Ling rightly concedes, at the ex parte stage, the Fund has not yet applied to the Grand Court for court-supervised liquidation (although this has been contemplated), so it is unclear whether a supervision order will be made at all let alone whether any misfeasance proceedings may be commenced under any potential court-supervised liquidation. Mr Ling also fairly accepts that even if the Grand Court agrees to grant a supervision order, it is for the liquidators to be appointed by the Grand Court (and not John Batchelor and Vincent Fok or the Board of the Fund or the JVLs) to decide whether and when to take out any misfeasance proceedings. This means that it is uncertain when if at all any misfeasance proceedings will be issued. In my view, the intended misfeasance proceedings are contingent matters and not proceedings which “are to be commenced” that will ground any application under section 21M of the HCO. 52.I come to the conclusion that section 21M of the HCO is not engaged. But if and insofar as the Fund has relied on section 21M of the HCO at the ex parte stage before Harris J (although Mr Ling now concedes that the emphasis then was not on section 21M of the HCO), there is material non-disclosure. In my view, the matters of facts and law discussed above are plainly matters which can reasonably be expected to be raised in due course by Hilda and Daren Chan. As explained above, these matters cannot be dismissed as being without importance or substance. If raised, they will certainly go into the “weighing operation” that the ex parte judge will have to consider whether there is jurisdiction or basis to grant the Shareholders’ Restraint. Ancillary relief 53.Turning to the domestic angle, Mr Ling says that the Shareholders’ Restraint is justified because it is ancillary relief that complements, supports and preserves the integrity of the Proprietary and Mandatory Injunctions. 54.Mr Ling says that because Hilda and Daren Chan are persons presently residing in Hong Kong, this court has in personam jurisdiction over them, and hence in a strict sense this court has jurisdiction to grant the Shareholders’ Restraint (see Fourie v Le Roux & ors [2007] 1 All ER 1097, 1110). 55.But having jurisdiction in the strict sense is only the first step. Mr Wong SC and Mr Lam argue that a right to obtain an interlocutory or interim injunction is not a cause of action and cannot stand on its own without a substantive underlying cause of action of which the defendant is amenable to the jurisdiction of the court. After all, the right to obtain interlocutory injunctive relief is ancillary and incidental to the pre-existing actual or threatened cause of action. They say the question of balance of convenience is not engaged if the material before the court fails to show the plaintiff has any prospect of establishing a permanent injunction at trial. Mr Wong SC and Mr Lam say this is where the Shareholders’ Restraint falls apart because the Fund has no substantive cause of action or legal/equitable right to prevent Hilda and Daren Chan from exercising their rights as shareholders of TYG Cayman to vote as they wish. 56.Mr Wong SC and Mr Lam submit that a quick (or perhaps even careful) perusal of the Indorsement of Claim on the Writ of Summons shows that the Fund seeks declaratory, restitutionary and compensatory reliefs against Hilda and Daren Chan, which have nothing to do with their proprietary rights as shareholders of TYG Cayman. It is said the Indorsement of Claim does not support any injunction in terms of the Shareholders’ Restraint. 57.Indeed, it is suggested that such proprietary rights on the part of Hilda and Daren Chan are recognised by the Fund. First, the underlying theme of the Affirmation in this respect is John Batchelor’s fear that Hilda and Daren Chan may exercise their voting rights as shareholders of TYG Cayman to replace the incumbent independent directors and then to take further steps to deal with the Fund to their own advantage. Secondly, the Fund must have recognised the validity of the voting rights of Hilda and Daren Chan as shareholders of TYG Cayman when they asked for 5-days’ notice to be given to John Batchelor before Hilda and Daren Chan vote their shares in TYG Cayman. Thirdly, such recognition is also implicit in the proposal made between 7 and 11 August 2014 for documentation to amend TYG Cayman’s constitution to have a golden shareholder with voting rights with respect to the appointment or removal of directors and the amendment of TYG Cayman’s constitution so as to ensure non-removal of the Governance Committee and to entrench the control mechanism (“Golden Share Proposal”). 58.Mr Wong SC and Mr Lam say that John Batchelor, Vincent Fok and/or FTI do not have any economic interest in the Fund save and except for their fees. Yet the Golden Share Proposal and the Shareholders’ Restraint not only operate to prevent Hilda and Daren Chan from exercising their proprietary rights as shareholders, but also to entrench John Batchelor and Vincent Fok as independent directors. There are, however, no primary proceedings or cause of action to so restrain Hilda and Daren Chan both in Hong Kong or contemplated in the Cayman Islands, and the Shareholders’ Restraint is therefore not sustainable. 59.Mr Wong SC says that whilst John Batchelor tries to cast a sinister light on the 5-days’ Notice by suggesting that absent the Shareholders’ Restraint Hilda and Daren Chan can and may take steps that will be harmful to the interests of the Fund and its investors, such fears are not supported by the 5-days’ Notice itself which expressly states that Hilda and Daren Chan merely want to exercise their voting rights to replace John Batchelor and Vincent Fok with new independent directors from Borrelli Walsh. Although the Fund places no confidence in such proposal, by paragraph 18 of the skeleton submissions of the Fund’s counsel placed before Harris J, it was “made clear that there is absolutely no suggestion that Messrs Borrelli and Chan are in any way involved in the misconduct of the defendants”. 60.Mr Wong SC cites a trilogy of cases, the first of which is Hiew Fook Siong v Fung Tak Keung & ors [2006] 3 HKLRD 762, to support his proposition that voting rights are proprietary rights, and unlike a director a shareholder has complete freedom to exercise his voting rights in any way he pleases, even when his own selfish interest is opposed to that of the company. DHCJ To (as he then was) noted there was no general requirement that a shareholder must exercise his voting rights bona fide in the interest of the company unless well-recognised exceptions apply, ie alteration of the articles of the company and the majority practising a fraud on the minority. Since a directorship is not a right protected by the articles, and the removal of a director does not involve the alteration of the articles, it was held that such director does not have any entrenched right to remain as director without the mandate of the majority shareholders, and he therefore has no cause of action against such shareholders who exercise their right to vote to remove him. 61.Mr Wong SC fairly refers me to Sunlink International Holdings Ltd v Wong Shu Wing [2010] 5 HKLRD 653 in which Harris J accepted the broad principles stated in Hiew Fook Siong, but disagreed with DHCJ To (as he then was) by saying the authorities demonstrate that the court will intervene to prevent a shareholder voting in a way which will result in the destruction of the economic value of other shareholders’ shares for no rational reason. In that case, Harris J held that the relevant shareholders in exercising their voting rights to vote against a resolution to rescue the listed company from delisting and possible liquidation were not doing so rationally in good faith when considered by reference to the shareholders as a whole (who would lose the economic value of their shares). Harris J considered that such circumstances justified intervention by the court to prevent the relevant shareholders from voting against the resolution. 62.In Kim Lung Transport Co & ors v Ip Man Fai HCA241/2012 and HCMP1002-1003/2012, DHCJ Pow SC (unreported, 6 February 2012), the learned judge referred both Hiew Fook Siong and Sunlink International Holdings Limited. He said the latter case was fact-sensitive, and an irrational decision which has the effect of destroying the economic value of the minority shares can come under the exception of fraud or oppression on the minorities, and on such basis he found it unnecessary to choose between the two authorities. 63.Mr Wong SC argues that since Hilda and Daren Chan are the 100% shareholders of TYG Cayman, and no wrong is alleged to have been or will be done to TYG Cayman, there is no discernible obstacle for them to freely exercise their rights as shareholders of TYG Cayman. Both Mr Wong SC and Mr Lam find it extraordinary that a mere subsidiary company (ie the Fund) would have any basis or locus to interfere in the affairs of its parent company (ie TYG Cayman) or the voting rights of the shareholders of such parent company (ie Hilda and Daren Chan). They say there is simply no substantive cause of action to support the Shareholders’ Restraint which should be discharged. 64.Mr Wong SC and Mr Lam both criticise the Fund for not raising the above point of law with Harris J either by way of the Affirmation or in the written and oral submissions of the Fund’s counsel at the ex parte hearing. They say that under the principles for full and frank disclosure the defence raised above cannot be said to be one without substance or one that can be dismissed, and instead it is one that is reasonably expected to be raised by Hilda and Daren Chan had they been present at the ex parte application. Mr Wong SC and Mr Lam therefore argue that the Shareholders’ Restraint should be discharged for material non-disclosure. 65.Mr Ling in his submissions do not dispute the principles in the above-cited cases nor does he rely on the exception adopted by Harris J in Sunlink International Holdings Limited. Indeed, he cannot so rely because none of the above principles and/or exceptions discussed by Mr Wong SC and Mr Lam has been canvassed in the Affirmation or in the oral and written submissions of the Fund’s counsel at the ex parte stage. 66.Nevertheless, Mr Ling submits that Mr Wong SC and Mr Lam have adopted an erroneous approach. In his view, there is no need for a substantive cause of action to support the Shareholders’ Restraint. He says that Mr Wong SC and Mr Lam have fallen into error by thinking that interim relief by way of the Shareholders’ Restraint should be identical or equated to the final reliefs sought against Hilda and Daren Chan in the Indorsement of Claim. He cites the example that an interlocutory Mareva injunction with an ancillary disclosure order are almost never part of the substantive claim. 67.Mr Ling says it is inappropriate to take a blinkered view of the scope of the interim relief granted, and here the Shareholders’ Restraint is obtained to complement, support and preserve the integrity of the injunction orders granted under the Ex Parte Order, particularly the Proprietary Injunction that restrains any disposal of the Fund’s monies paid to TYG HK by Deutsche Bank AG or its traceable proceeds. Mr Ling says that to ensure the integrity of the Fund’s assets it is necessary to stop Hilda and Daren Chan from regaining control over the Fund and thereby dealing with the assets. It is said that the Ex Parte Order should be viewed as a whole and the Shareholders’ Restraint is the additional protection necessary to ward off the risk that Hilda and Daren Chan can put themselves back in control of TYG Cayman with the stroke of a pen and then snuff out the present action and the liquidation of the Fund. Mr Ling sees the proposal by Hilda and Daren Chan in the 5-days’ Notice to replace John Batchelor and Vincent Fok with Michael Chan and Cosimo Borrelli as an empty promise writ in water. 68.Mr Ling has also brought my attention to the juridical basis for granting ancillary orders to preserve the integrity of interlocutory injunctions, and he says that such ancillary orders are not limited to disclosure orders. 69.The starting point is that an interim injunction is not itself a cause of action and normally will only be granted to protect temporarily a right the infringement of which gives rise to a cause of action or to prevent a breach of the law. As Lord Diplock said in The Siskina [1979] AC 210, 256:
Thus, in American Cyanamid Co Ltd v Ethicon Ltd [1975] AC 396, 406, Lord Diplock said as follows:
70.But the practice regarding the grant of injunctions has not stood still since The Siskina was decided. The Mareva jurisdiction is purely preservative, and its distinguishing feature is that it enables the court to grant the plaintiff an interlocutory injunction restraining the defendant from disposing of, or even dealing with, his assets, being assets over which the plaintiff asserts no proprietary claim but which after judgment may be attached to satisfy a money judgment. Mr Ling says this has been made clear by Ackner LJ in A J Bekhor & Co Ltd v Bilton [1981] 1 QB 923, 941. Lord Mustill in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334, 362 said that “…… the doctrine in the Siskina, put at its highest, is that the right to an interlocutory injunction cannot exist in isolation, but is always incidental to and dependent on the enforcement of a substantive right, which usually although not invariably takes the shape of a cause of action ……” 71.For the purpose of rendering a Mareva injunction effective, the court may also make ancillary orders. Mr Ling again refers me to A J Bekhor & Co Ltd, which held that although there is no specific power to order discovery in aid of a Mareva injunction either under the statute or the court rules there is an inherent power to make ancillary orders, including an order for discovery, as appears to the court to be just and convenient (according to Ackner LJ at p 940) or necessary (according to Griffiths LJ at p 949) in order to ensure that the exercise of the Mareva jurisdiction is effective to achieve its purpose. But whether it is said that it must be just and convenient in the interests of justice to grant relief or that relief should only be granted if it is necessary in the interests of justice to grant it makes little or no difference in substance (see JSC BTA Bank v Ablyazov [2012] EWHC 1252 (Comm) at paragraphs 9-11). 72.Mr Ling says the above provides the juridical basis for the Shareholders’ Restraint in support of and to ensure the effectiveness of the Proprietary and Mareva Injunctions, and therefore there has never been any problem with the validity of the Shareholders’ Restraint. 73.On the other hand, Mr Wong SC says that whilst the disclosure orders embodied in the Ex Parte Order (which Hilda and Daren Chan will comply within the time period extended by this court) can arguably be orders ancillary to the Proprietary and Mandatory Injunctions, the Shareholders’ Restraint is not. Rather, it is a self-standing injunctive order that is not permissible without a primary cause of action as the authorities have shown, and there is no substantive cause of action in the Indorsement of Claim to ground such order for interim injunctive relief. 74.Mr Lam also echoes the submissions of Mr Wong SC and says that the Shareholders’ Restraint is not ancillary to the Proprietary and Mareva Injunctions, and in such circumstances the requirements discussed in The Siskina remain good law. He says it must be remembered that the Mareva injunction is a peculiar type of injunction that is regarded as an exception to the principles in The Siskina, and hence a similar approach must be adopted in respect of any order ancillary to the Mareva jurisdiction, otherwise there will be no limit to what ancillary relief can be purportedly granted in support of Mareva relief. 75.I accept it is not possible to predict all the circumstances that will give rise to a need for an ancillary order to render the Mareva jurisdiction effective, or indeed to predict the types of ancillary orders that may be required for such purpose. In my view, the court upon granting ex parte Mareva relief has to consider whether the ancillary order sought is “just and convenient” in the particular case before the court, and in so deciding the court must first consider whether the proposed order is needed to ensure the integrity or effectiveness of the ex parte Mareva relief. If not, there is no jurisdiction to grant the ancillary relief sought. But even if the relief sought is truly ancillary and there is therefore jurisdiction to grant such relief, the court has to go on to carefully consider all the circumstances of the case, which include any countervailing consideration (eg the rights of the defendant who will affected by the proposed ancillary order) that may reasonably be expected to be raised by the defendant had he been present at the application. This goes into the “weighing operation” by the ex parte judge and brings in the duty of full and frank disclosure. 76.To consider whether the Shareholders’ Restraint is ancillary to the Proprietary and Mandatory Injunctions, it is necessary to the turn to scope of these injunctive reliefs. 77.In respect of the Proprietary Injunction, the defendants are restrained from dealing with “any money paid by or on behalf of [the Fund] to [TGY HK] by Deutsche Bank AG, or its fruits or proceeds, including any interest earned or other income received or derived from the said money”. It will be seen immediately that the scope of the Proprietary Injunction does not cover the whole of the Fund’s assets but is limited to the Fund’s assets that had already been paid to TYG HK via Deutche Bank AG. This concerns proprietary tracing remedies of past payments to a particular entity via a particular conduit. Given (a) the freezing injunction against all the defendants including TYG HK, Hilda and Daren Chan as well as other related Hong Kong companies and (b) the ancillary disclosure orders, I am unable to see how the Shareholders’ Restraint that seeks to restrain Hilda and Daren Chan from prospectively exercising their shareholders’ rights in TYG Cayman (not TYG HK) and thereby causing changes vis-à-vis TYG Cayman and the Fund can in any way be said to be ancillary to the Proprietary Injunction to make such relief effective. 78.In respect of the Mareva Injunction, the connection is even more tenuous. The Mareva Injunction so granted is a freezing injunction over Hilda and Daren Chan’s own personal assets and not assets of the Fund and/or TYG Cayman (apart from disposal of or dealing with their shares in TYG Cayman). In short, the Mareva Injunction has nothing to do with the Fund’s assets. It is even more difficult to understand how the Shareholders’ Restraint that concerns the voting rights of Hilda and Daren Chan as shareholders of TYG Cayman, the potential alteration of the constitution and Board of TYG Cayman and/or the Fund, and the potential removal of the JVLs is going to assist in rendering the freezing injunction over the personal assets of Hilda and Daren Chan effective. 79.I have no hesitation in agreeing with Mr Wong SC and Mr Lam that the Shareholders’ Restraint cannot be said to be ancillary to the Proprietary and Mandatory Injunctions in the sense as explained in A J Bekhor & Co Ltd. It must not be forgotten that in this case the Proprietary and Mareva Injunctions are already bolstered by the disclosure orders under the Ex Parte Order to provide the Fund with information to police such freezing injunctions. These disclosure orders have been partly complied with, and it is expected that they will be complied with within the extended time granted by the court. 80.That being the case the question arises as to whether there is any substantive or primary cause of action to sustain the Shareholders’ Restraint as a free-standing ex parte injunction. Mr Ling has not sought to disagree with the principles in Hiew Fook Siong and the other authorities cited by Mr Wong SC and Mr Lam. In the circumstances, I am not persuaded that the Shareholders’ Restraint is sustainable. 81.I also bear in mind that the present applications for discharge of the Shareholders’ Restraint is premised on material non-disclosure. Although Mr Ling has now put forward the Fund’s case on the basis that the Shareholders’ Restraint is ancillary to the Proprietary and Mandatory Injunctions, that is not how it was dressed in the Affirmation and the skeleton submissions of the Fund’s counsel at the ex parte stage. It is clear from the tenor of the Affirmation that the Shareholders’ Restraint has been sought as an interim safeguard to enable the incumbent directors of the Fund to bring about the voluntary liquidation of the Fund, to ensure secure transition from such voluntary liquidation to court-supervised liquidation by petition to the Grand Court, and eventually perhaps to avoid potential misfeasance proceedings against Hilda and Daren Chan to be swept under the carpet. Indeed, although discussion of the application for the Shareholders’ Restraint is placed under the heading of “Ancillary relief” in the skeleton submissions of the Fund’s counsel for the ex parte hearing, it is expressly stated in such skeleton submissions that such order “is merely intended to hold the position meanwhile and ensure that [Hilda and Daren Chan] are not able to interfere with the process to bring the liquidation of the Fund under the supervision of the Cayman court ……” This is also how Mr Ling puts it in his written submissions as referred to in paragraph 41 above. 82.Given this is how the purpose of the Shareholders’ Restraint was presented to the court at the ex parte stage, the duty of full and frank disclosure requires the Fund to draw the court’s attention to the arguments that may reasonably be raised by Hilda and Daren Chan that there is no legal basis for such restraining order against the exercise of their proprietary rights as shareholders. If, however, it is said that the Shareholders’ Restraint is ancillary to the Proprietary and Mareva Injunctions, the duty of full and frank disclosure also requires the Fund to draw attention to the argument that may reasonably be raised by Hilda and Daren Chan that such restraining order is not ancillary but free-standing. 83.Both Mr Wong SC and Mr Lam submit that the non-disclosure is material and serious since these are obvious defences that go to the “weighing operation”. I agree. Ancillary orders will only be made where it appears just and convenient to ensure the primary injunction is effective for achieving its purpose. In my view, the Shareholders’ Restraint is an independent attempt to restrain the exercise of Hilda and Daren Chan’s voting rights and not ancillary to the Proprietary and Mandatory Injunctions. Cayman Islands vs Hong Kong 84.Mr Ling adds that there is no need for the Fund to first approach the primary court in the Cayman Islands to seek interim relief before it makes the ex parte application to the Hong Kong court. He says the only way to avoid injustice and to maintain the status quo to protect the investors of the Fund is to make a direct application to the Hong Kong court for the Shareholders’ Restraint. 85.However, if the essential concern as alluded to the Affirmation and the skeleton submissions of the Fund’s counsel is the removal of the independent directors and the JVLs of the Fund with consequent risk of derailing the liquidation process of the Fund, then the crux of the matter concerns the Fund directly and TYG Cayman (which is the 100% shareholder of the Fund and the mere conduit through which, it is feared, Hilda and Daren Chan will exercise their voting rights to achieve the aforesaid result) only indirectly. Since both the Fund and TYG Cayman are Cayman Islands companies, if there is legitimate basis to restrain the alteration of constitution and the Board of the Fund or to restrain the removal or replacement of the JVLs of the Fund, question immediately arises as to why the Fund has not applied to the Cayman Islands courts to restrain TYG Cayman being its direct 100% shareholder and a company over which the Cayman Islands courts must have jurisdiction, and instead the Fund has applied to the Hong Kong courts to restrain Hilda and Daren Chan as shareholders of the parent company TYG Cayman to exercise their rights as shareholders of TYG Cayman and then indirectly through newly appointed directors of TYG Cayman to take further steps to achieve the feared objective. 86.Both Mr Wong SC and Mr Lam say this is very much a matter for the Cayman Islands courts and is not a matter which can be slipped in dressed as “ancillary relief” to the Proprietary and Mareva Injunctions. They say it is especially galling for the Fund to seek the Shareholders’ Restraint from the Hong Kong court and then to ask Hilda and Daren Chan to submit to the Grand Court in the Cayman Islands at the hearing of the petition on 5 September 2014 to deal with the issue as to whether they are free to vote. Above all, this shows that the Cayman Islands courts have jurisdiction over this matter. 87.According to the Transcript, this point was presented to Harris J in the following manner:
88.The explanation proffered to Harris J by the Fund’s counsel was that the Fund could not apply to the Cayman Islands courts for personal injunction because such court “do not have general jurisdiction over the directors because the directors are present here in Hong Kong” (my emphasis). This explanation is only relevant to the application for the Proprietary and Mareva Injunctions and is irrelevant to the Shareholders’ Restraint which concerns Hilda and Daren Chan’s prospective rights as shareholders and not directors of TYG Cayman. Indeed, as at the time of the ex parte application, Hilda and Daren Chan were not directors of either the Fund or TYG Cayman. 89.But in respect of the Shareholders’ Restraint, Harris J did raise the concern that “if one of the Cayman Islands judge granted you the order you want, which presumably they could I imagine because it relates to a Cayman Islands company, it would mean that anything the shareholders purported to do would be ineffective”. The only answer offered by the Fund’s counsel was “[possibly], my Lord, yes” and that “…… we believe the Cayman Court would welcome your Lordship’s assistance”. 90.Bearing in mind Mr Ling’s acceptance that the emphasis of the application before Harris J was not on section 21M of the HCO and in light of the aforesaid acknowledgment by the Fund’s counsel that it is possible the Cayman Islands courts may grant an injunction to restrain shareholders of Cayman Islands companies to do what is feared, I am afraid more explanation than just a belief that the Cayman Islands courts will welcome assistance by the Hong Kong courts is required to justify a domestic injunction in the shape of the Shareholders’ Restraint. It is incumbent on the Fund to raise at the ex parte stage objections that may reasonably be raised by Hilda and Daren Chan as explained above. 91.Mr Wong SC characterises such application as an attempt by the Fund to steal a march on Hilda and Daren Chan by dressing the application made to the Hong Kong court as “ancillary relief” when in fact there is no legitimate basis to restrain Hilda and Daren Chan from exercising their voting rights as shareholders. He submits that if there is legitimate basis for any restraining order to preserve the status quo, then application should be made to the Cayman Islands courts to restrain the direct shareholder of the Fund, ie TYG Cayman, from exercising its voting rights to alter the constitution and the Board of the Fund and/or to remove or replace the JVLs. There can be no doubt that the Cayman Islands courts have jurisdiction over TYG Cayman which is a Cayman Islands company. 92.Mr Wong SC refers to Deiulemar Shipping SpA v Transfield ER Futures Ltd [2011] 1 HKLRD 75, in which the plaintiff Italian shipping companies brought proceedings in England against the defendant who vigorously defended the plaintiffs’ claim and counterclaimed. The Hong Kong court refused the plaintiff’s initial ex parte application for a worldwide Mareva injunction in aid the English proceedings. Such application was renewed for Mareva and discovery reliefs. The plaintiff sought to explain that no such application had been brought in the English proceedings because inter alia the Hong Kong bank would not be bound by an order of the English court. The Court of Appeal upheld the first instance judge’s refusal to grant the Mareva relief, and agreed that this whole exercise was no more than a plaintiff trying to steal a march on the defendant. It was noted that the plaintiffs had not adequately explained why such application was not initially mounted in the English court, which was likely to have an excellent “feel” for the case given that it was pleaded there, and there was no good reason why there could not have been “back‑to-back” injunctive relief, and if the English court granted this, it was very doubtful that there would be any reluctance by the Hong Kong court to grant complementary relief in aid of it. 93.I agree with Mr Wong SC that given the then intention of the Governance Committee and the Board of the Fund to take immediate steps to put the Fund (which is a Cayman Islands company) into voluntary liquidation and to apply to the Grand Court for a supervision order, the Fund has not adequately explained why it is just and convenient to come to this jurisdiction to restrain Hilda and Daren Chan from exercising their voting rights when the Fund (if it is able) can just as effectively restrain TYG Cayman (which is another Cayman Islands company) from exercising its rights as 100% shareholder of the Fund to act in any way detrimental to those objectives. As Mr Wong SC reminds, the share registers of those companies are in the Cayman Islands and not in Hong Kong. Lifting the Shareholders’ Restraint 94.Mr Ling raises the spectre of dire consequences if the Shareholders’ Restraint is lifted and Hilda and Daren Chan are allowed to have free rein for the next two weeks before the Grand Court is able to hear the application for court-supervision of the liquidation of the Fund on 5 September 2014. He submits that this court should not discharge the Shareholders’ Restraint which will have life only for two weeks, otherwise the upcoming hearing on 5 September 2014 may be derailed by Hilda and Daren Chan exercising their rights now embargoed by the restraining order. 95.Mr Wong SC and Mr Lam say such fears are overstated, and to allay any concerns Hilda and Daren Chan have given the Undertakings to this court. If the Shareholders’ Restraint is lifted and new independent directors are appointed, it will be up to the Board of TYG Cayman and/or the Board of the Fund (including the new independent directors) to consider what appropriate steps should be taken in the interests of those companies. 96.Mr Lam refers me to the letter by David Bennett to Hilda and Daren Chan’s Cayman Islands lawyers dated 18 August 2014. He says even though Mr Ling submits that practically there is nothing the incumbent independent directors and the JVLs can do if Hilda and Daren Chan take steps to replace them once the Shareholders’ Restraint is lifted, it is evident from such letter that the JVLs take a different view on the basis of Cayman Islands law which is relevant law. In such letter, the JVLs disagree the 5-days’ Notice is a shareholders’ resolution, and even if it is, it is said that such notice is not effective, and instead the meeting of TYG Cayman that passed the resolution to appoint the JVLs is valid and effective as a matter of Cayman Islands law. The letter goes on to say that in the event Hilda and Daren Chan “do commence proceedings against the [JVLs], [the JVLs] intend to vigorously oppose such proceedings and to seek any costs incurred in connection with the same from [them]”. 97.Mr Lam says it is quite evident from such letter that even if the Shareholders’ Restraint is lifted and John Batchelor and Vincent Fok are to be replaced by new independent shareholders, Hilda and Daren Chan will not be able to seize immediate control of the Fund given that the current JVLs who are in control of the Fund have indicated they will oppose any challenge by Hilda and Daren Chan. Mr Lam says that ultimately any such dispute will have to be resolved in the Cayman Islands courts. 98.Mr Ling says that much work has been done by the Board of the Fund and the JVLs, and there is no reason to put such efforts to waste which is what will happen if the Shareholders’ Restraint is lifted and Hilda and Daren Chan have their way in voting their rights as shareholders of TYG Cayman. In my view, this is a poor attempt to justify the Shareholders’ Restraint, and such self-created justification does not stand up in face of the above discussion. 99.In my view, given the material non-disclosure, the appropriate course is to discharge the Shareholders’ Restraint. Re-grant of relief 100.Neither in Mr Ling’s written submissions nor in his oral submissions has he dealt with the issue of re-grant of relief should the Shareholders’ Restraint be discharged. However, it is only proper that I should consider this issue upon the discharge of the Shareholders’ Restraint. 101.Whether to re-grant the relief sought ex parte depends on the circumstances of each case, but such jurisdiction should be exercised sparingly taking into account the “golden rule” for protection of the administration of justice and upholding the requirement of full and fair disclosure in an ex parte application. But the golden rule must not be allowed to become an instrument of injustice in a particular case, and the court has to bear in mind the principle of proportionality in the exercise of its penal jurisdiction to sanction for non-disclosure. Some of the relevant considerations include (a) whether the non-disclosure was innocent or deliberate, (b) the excuse or reason for the non-disclosure, (c) whether the non-disclosure would have resulted in the original order not having been made in the first place, (d) the merits and justice of the grant of the relief sought, and (e) other relevant factors depending in where the justice of the case lays. The court can weigh the merits of the plaintiff’s claim but it should not be a mere balancing exercise in which the strength of the plaintiff’s case is allowed to undermine the policy objective of the golden rule. 102.For all the above reasons, and in particular (a) my conclusion that section 21M of the HCO is not engaged, (b) the absence of primary or substantive cause of action vis-à-vis the subject matter of the Shareholders’ Restraint in Hong Kong, (c) my conclusion that the Shareholders’ Restraint is not ancillary to the Proprietary and Mandatory Injunctions, and (d) my view that the Fund can have recourse to the Cayman Islands courts if there is legitimate basis to support the subject matter of the Shareholders’ Restraint, it is inappropriate to re-grant such ex parte relief. 103.As explained above, there is just the Fund’s version of events before the court. But on the available materials there appear to be matters of concern in respect of past dealings with the Fund’s assets. It is as yet unknown whether legitimate explanations will be forthcoming. Even though this court considers there is insufficient basis for re-grant of the Shareholders’ Restraint, Hilda and Daren Chan should do well to remember that when dealing with their voting rights the circumstances in relation of the Fund have now come under the scrutiny of the Hong Kong and Cayman Islands courts, and their future conduct may also come under such scrutiny. Conclusion 104.In the circumstances, upon the Undertakings given to this court by Hilda and Daren Chan through their counsel, I discharge the Shareholders’ Restraint as against both of them. As regards the formal order, I grant an order in terms of paragraphs 1-2 of each of the Discharge Summonses filed by Hilda and Daren Chan respectively, and I dismiss the Continuation Summons insofar it seeks a continuation of paragraph 9 of the Ex Parte Order. 105.I also grant a costs order nisi that costs of and occasioned by (a) each of the Discharge Summonses and (b) the Continuation Summons insofar as it relates to paragraph 9 of the Ex Parte Order be paid by the Fund to Hilda and Daren Chan respectively to be taxed (if not agreed) and paid forthwith on an indemnity basis, but there is no certificate for two counsel.
Mr C W Ling, instructed by Reed Smith Richards Butler, for the plaintiff Mr William Wong SC, instructed by Bobby Tse & Co (22 August 2014) and Mr Bobby Tse, of Bobby Tse & Co (25 August 2014), for the 1st defendant Mr Douglas Lam and Ms Sabrina Ho, instructed by Lee, Chan & Cheng (22 August 2014), and Ms Sabrina Ho, instructed by Lee, Chan & Cheng (25 August 2014), for the 2nd defendant Mr Kerby Lau, instructed by Tony Kan & Co (22 August 2014) and Ms Daisy Chan, of Tony Kan & Co (25 August 2014), for the 3rd defendant Mr Martin Ho, instructed by Lim & Lok (22 August 2014) and attendance excused for Lim & Lok (25 August 2014), for the 4th to 6th defendants |
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