XCHRX WAH NAM HOLDINGS CO. LTD. AND OTHERS v. EXCEL NOBLE DEVELOPMENT LTD. AND OTHERS

HCA 8974/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8974 OF 1999

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DECISION

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1. This is an application on the part of the 1st - 7th Defendants that they be released from the undertakings they had given to the Court in lieu of interlocutory injunctions and recorded in the Order of Pang, J. dated 1 June 1999 (as amended on 8 June 1999), that the said interlocutory injunction order of Pang, J. be discharged, that there be an inquiry as to the damages suffered by these Defendants and that they be paid costs.

2. The Order of Pang, J. was made on an application made by the Plaintiffs ex parte on giving less than an hour's notice to solicitors for the 1st to 7th Defendants. This was notwithstanding the fact that there had already, for some time, been correspondence between the parties' respective solicitors on the subject-matter in dispute.

Issue

3. The issue between the Plaintiffs of the one part and the 1st - 7th Defendants of the other part is as to the beneficial ownership of 4 Convertible Loan Notes issued by the 8th Defendant ("the Company").

4. The ownership and value of these Convertible Notes are closely connected with the fate of the Company, as will be seen later.

Parties

5. The 8th Defendant Company is a listed company, although trading in its shares has been suspended since 2 July 1999.

6. The 2nd Plaintiff is the single largest shareholder in the Company. He is the Chairman of the Board of Directors and the Managing Director. At least some of the directors of the board are his associates. The 1st Plaintiff and the 3rd Plaintiff are private companies controlled by him.

7. The 5th Defendant was an accountant who later turned to business. He used to be the Chief Executive Officer of the Company until he was relieved of this position by the 2nd Plaintiff in March this year, which decision was later ratified by the Board, although he remains, for the present at least, a director of the Company. He controls the 1st Defendant and the 3rd Defendant, a B.V.I. company.

8. The 6th Defendant is a certified public accountant who used to be the Finance Director of the Company, until he too was removed from that post by the Board in March. He remains for the present a director of the Company. He controls the 2nd Defendant and the 4th Defendant, a B.V.I. company. He has a minority interest in the Company under his own name.

9. The 7th Defendant is a company controlled by the 5th and 6th Defendants. By a Deed of Settlement bearing the date 9 July 1998, certain shares in an Australian company called IAL were transferred by amongst others, the Company, the 1st Plaintiff and the 3rd Plaintiff to the 7th Defendant. (The 2nd Plaintiff has disavowed this Deed of Settlement as he says he had been unaware that he had signed this document and that his execution could have been procured by misrepresentation by the 5th and 6th Defendants). The ownership of the shares in IAL is relevant to the issue between the Plaintiffs and the 1st- 7th Defendants, as it is said that the proceeds of sale were treated as subscription monies for some of the Notes.

Convertible Loan Notes

10. In June 1997, the Company issued 2 Convertible Loan Notes in the amount of $15m. each in favour of the 1st and 2nd Defendants respectively (these have been referred to as Convertible Notes "A" and "B").

11. In June 1998, a year later, the Company issued 3 additional Convertible Loan Notes, in the amount of $28.7m each, in favour of the 1st Defendant, the 2nd Defendant and the 2nd Plaintiff (Convertible Notes "C", "D" and "E" respectively). These proceedings are concerned with Notes "A" - "D".

12. These Convertible Notes were issued pursuant to Subscription Agreements made with the noteholders, and notice thereof had been given to the public and to the Stock Exchange.

13. Apart from some doubts recently expressed by the Company as to a sum of $10.5m relating to Convertible Notes C and/or D, it accepts that it has received payment for these Convertible Notes.

14. As can be seen, the face value of the 4 Convertible Notes amount to a total sum of $87.4m. Mr. Barlow counsel for the 1st - 7th Defendants says that with interest accrued, the value of the subject-matter in dispute is $92m.

Plaintiffs' claim

15. The Plaintiffs say that even though Convertible Notes "A" - "D" were issued to the 1st and 2nd Defendants, they (the Plaintiffs) owned the Convertible Notes as they had paid for them.

16. The 2nd Plaintiff claims to be the beneficial owner of 60% of Convertible Note A, and the beneficial owner of the entirety of Convertible Note B. The 1st and 3rd Plaintiffs claim to be the beneficial owners of Convertible Notes C and D.

Plaintiffs' case

17. The Plaintiffs say that although the Convertible Notes were issued in the names of the 1st and 2nd Defendants, it was the 2nd Plaintiff and his private companies who had paid for them. The Plaintiffs' case is set out mainly in two Affirmations of the 2nd Plaintiff.

18. Primarily the 2nd Plaintiff says that he wished to subscribe for the Notes to retain his control over the Company, but he was advised by the 5th and 6th Defendants that in respect of Convertible Notes A and B, his acquisition would constitute "connected transactions" under the Listing Rules; and in respect of Convertible Notes C and D, that his effective shareholding would exceed the percentage requiring him to make a general offer for the remaining shares of the Company. It was therefore agreed that the 5th and 6th Defendants would cause their companies to subscribe for the Notes on his behalf.

19. The 5th and 6th Defendants paid for Notes "A" and "B", and the 2nd Plaintiff caused his private companies to make certain payments to the 5th and 6th Defendants (save as to $6m for Note "A"). As for Notes "C" and "D", at least a substantial portion thereof had been paid from the proceeds of sale of the IAL shares, which the Plaintiffs say were owned by the 1st Plaintiff contrary to the provisions of the Deed of Settlement.

20. There is no documentary evidence of the trust agreement alleged by the 2nd Plaintiff. It would also be noted that in January this year, the Company agreed to the transfer of Notes "B" - "D" to the 3rd and 4th Defendants, which are BVI companies.

Action by 3rd and 4th Defendants against the Company

21. In April this year, the 3rd and 4th Defendants instituted proceedings against the Company for interest on Notes "C" and "D". Order 14 proceedings were issued.

22. This was followed by substantial correspondence between solicitors for the Plaintiffs of the one part and the 1st - 7th Defendants of the other part on the issue of beneficial ownership of the Notes. It would appear that the parties were attempting to resolve this question between them privately and without recourse to the Court, until 1 June 1999 when the Plaintiffs launched a pre-emptive strike by applying ex parte to the Duty Judge for various injunctive relief.

Application for ex parte injunctive relief

23. The Plaintiffs' case before the Duty Judge was that not only were the 5th and 6th Defendants acting in breach of the alleged trust, the imminent danger was that the Company was in financial difficulties and might not be able to pay the interest under the Notes.

24. The 2nd Plaintiff was concerned that the 5th and 6th Defendants might seek to wind up the Company. He has expressed his concern that the 5th and 6th Defendants might cause their companies to convert the Notes into shares. That would have the effect of making the 5th and 6th Defendants' companies the controlling shareholders of the Company, in place of himself.

25. In his own words, "this would have an irreversible effect on the management of the 8th Defendant and the interest of the shareholders. The damages suffered by the 1st Plaintiff and I would be difficult to assess".

26. Although apparently not disclosed to the Duty Judge, it would appear that towards the end of May, the directors of the Company led by the 2nd Plaintiff were contemplating a re-structuring plan whereby the Company would sell off a substantial portion of the Company's operating assets. There is at least a possibility that this would result in the Company being de-listed. An Extraordinary General Meeting was (and remains) scheduled for August.

Undertaking as to Damages

27. The ex parte application was for orders to restrain the 1st - 7th Defendants from converting the Convertible Notes and from dealing with the Notes or rights resultant therefrom. There was also an injunction against the Company paying interest on the Notes.

28. The 2nd Plaintiff's Affirmation in support of this relief stated at paragraph 21:- "the Plaintiffs have been advised by their solicitors that for the Court to grant an order of the kind being sought, the Plaintiffs must be prepared to give an undertaking in damages to the Court which must be honoured in the event the Court decides that the Order was wrongly obtained and that the Defendants have suffered damages thereby. I confirm that the Plaintiffs are willing to give such an undertaking".

29. No evidence was produced to the Duty Judge as to the financial worth of the Plaintiffs. As will be seen below, it would appear from the materials now before the Court that the Plaintiffs are in a parlous financial state.

Ex parte Order of Pang, J.

30. At the ex parte hearing, the solicitors who appeared for the 1st to 7th Defendants gave undertakings in lieu of an injunction that the 3rd- 6th Defendants would refrain from converting Notes "C" and"D" into shares of the Company and from dealing with the Notes or rights resultant therefrom. The 1st, and 4th - 6th Defendants gave a similar undertaking in respect of 60% of Note "A" and the whole of Note "B".

31. Solicitors appeared for the Company and indicated to the Duty Judge that they would neither consent nor object to the injunction sought against the Company. An injunction was granted.

32. There was liberty for the Defendants to apply on 48 hours written notice to the Plaintiffs.

Hearing on 11 June 1999

33. On 11 June 1999 the parties appeared before the Summons Judge, Yeung J. An order was made by consent for directions for the filing of evidence for the Inter Partes hearing and for dates to be fixed for the hearing to take place during Vacation. It was also ordered by consent that the 1st - 7th Defendants "shall continue to give their undertakings as set out in the Amended Order made by Pang, J. dated 1 June 1999 until the hearing of the Inter Partes Summons", and that the Amended Order made by Pang, J. on 1 June 1999 against the 8th Defendant be continued until the hearing of the Inter Partes Summons.

34. There was no express reference to liberty to the Defendants to apply for discharge.

35. On 2 July, the 5th and 6th Defendants filed their Affirmations in opposition for the Inter Partes Summons, asserting their claims to the beneficial ownership of the Notes in question, and exhibiting amongst other documents in support of their case, two agreements in Chinese purportedly signed by the 2nd Plaintiff, and which the 2nd Plaintiff since says are forged.

Company's avoidance of Notes "C" and "D"

36. On 7 July, the Company gave notice of a directors meeting the next day at which it was to be proposed that Notes "C" and "D" were to be avoided. On 8 July, the meeting was held and the resolution passed.

37. On the same day, the Company's solicitors wrote to the noteholders stating that as a result of investigations made by the ad hoc committee of the Company and on legal advice, the Company considered that Notes "C" and "D" were void or voidable in that the 5th and 6th Defendants had acted in breach of their fiduciary duties in procuring and/or causing the Company in issuing Notes "C" "D" and "E", and that such breaches were known to the noteholders. Insofar as the Notes were voidable, they were thereby avoided.

38. The Company's solicitors also wrote to the 7th Defendant stating that in respect of the Deed of Settlement (for the transfer of the IAL shares), the 2nd Plaintiff "did not have proper authority to execute the said Deed" on behalf of the Company, and the Company thereby avoided the Deed.

D1 - D7's Summons

39. Upon the Company's avoidance of the Notes, the 1st - 7th Defendants issued a summons seeking (1) the striking-out of the Writ and dismissal of the action on the grounds that it was vexatious and an abuse of the court's process, (2) that they be released from their undertakings given to the Court given in lieu of interlocutory injunctions and recorded in the Order of Pang, J. dated 1 June 1999 (as amended on 8 June 1999), (3) that the said interlocutory injunction order of Pang, J. be discharged, (4) that there be an inquiry as to the damages suffered by these Defendants and that (5) they be paid the costs.

40. Evidence of the 6th Defendant and of his solicitors were filed, deposing amongst other things to the change of circumstances by reason of the Company's avoidance of the Notes and the restraint imposed by the undertakings given by the 1st - 7th Defendants. This summons was returnable on 15 July 1999, but it appeared to me that 1 day would clearly be insufficient.

41. On 12 July 1999, I gave directions that due to time constraints in the Court's diary, the 1st - 7th Defendants' application for release from the undertakings would be heard on 16th and 19th July but only on two grounds raised by Mr Barlow:- material non-disclosure of the Plaintiffs' financial position, and abuse of process.

42. It is in my view clear that if it is established that a plaintiff has obtained injunctive relief by one or other (or both) of these means, the Court should not permit any injunctions so granted to stand, and should discharge them at once. Similarly, any undertakings given in lieu of injunctions should be immediately released.

Nature of hearing on 11/6/1999

43. One of the arguments of Mr Tang SC counsel for the 1st - 7th Defendants, which it is convenient to deal with first, is the technical point that the 1st - 7th Defendants are bound by the undertakings given at the hearing before Yeung, J. and the Court is no longer concerned with Pang, J.'s ex parte order.

44. Mr Tang's submission was put in his skeleton thus:- "11/6/99 was the occasion for argument regarding the propriety of the ex parte order to be raised. That would include e.g. whether the ex parte order was rightly made, and more importantly, whether rightly made or not, whether an order should be made on the hearing of the inter partes summons. No reservation of that right on 11/6/99 [was made]. Instead an undertaking was given on the inter partes Summons".

45. In my view, it is clear from the directions given at the hearing before Yeung, J. that the parties were agreed that they were, at that hearing, only obtaining directions for arguments to be made at the hearing of the inter partes Summons, which was adjourned to a date to be fixed. Pang, J.'s ex parte order was intended to continue to operate until that hearing.

46. This can be seen from the fact that paragraph (5) refers to the 1st - 7th Defendants continuing to give their undertakings as set out in Pang J.'s order, and more explicitly, paragraph (6) refers to Pang J.'s order against the 8th Defendant being continued until the hearing of the Inter Partes Summons. It is reasonable to assume that the same approach was taken vis-a-vis all defendants at the hearing, and paragraph (6) makes it crystal clear that Pang, J.'s ex parte order was intended to continue to operate.

47. This is distinguishable from the "Chanel trap" (from Chanel Ltd v F.W. Woolworth & Co Ltd [1981] 1 WLR 485) where a party was held to have debarred himself from seeking a discharge if, at the interlocutory hearing, he does not seek an adjournment for argument, but agrees to give an undertaking in lieu until trial or further order.

48. In the present case, the hearing of the inter partes Summons on 11 June 1999 was adjourned for the parties to prepare their evidence. This procedure was explained thus by Nourse LJ in Butt v Butt [1987] 1 WLR 1351, 1354B: -

" ... if a motion is adjourned it is, in terms, not dealt with and disposed of. The very expression contemplates that there may thereafter be an application for the status quo to be reopened and for the matter to be dealt with in some other way before trial."

49. In my view, where a party is subject to injunctive relief or its equivalent, unequivocal conduct or very clear words on its part would have to exist before a court should debar him from applying to set aside an ex parte order for an injunction or its equivalent. No such unequivocal conduct or clear words were shown here; the order of 11 June 1999 cannot be said to evidence any such unequivocal conduct.

50. I find therefore that it remains open to the 1st - 7th Defendants to seek a release of the undertakings given in the ex parte order.

Material Non-disclosure

51. The first ground on which the 1st - 7th Defendants seek a release of their undertakings arises from the non-disclosure of the Plaintiffs' parlous financial circumstances.

52. It is well-established that facts are material and should be disclosed if they are "relevant to the weighing operation" which the court has to make in deciding whether or not to grant the ex parte order (Citibank N.A. v Express Ship Management Services Ltd [1987] HKLR 1184, 1190, applying Thermax v Schott Industrial Glass [1981] FSR 289, 298).

53. If a plaintiff has financial difficulties affecting its ability to honour its undertaking, that is a material fact that ought to be disclosed to the ex parte judge. If a plaintiff does not refer to his financial substance, it is assumed by the ex parte judge that it is adequate to support the undertaking as to damages, as the ex parte judge depends upon the plaintiff making full and frank disclosure. If there has been such material non-disclosure, then the court ought to discharge the ex parte order without going into the merits (Manor Electronics Ltd v Dickson [1988] RPC 618, 624-5).

54. Scott. J. rejected the proposition that there could be, as it were, ex post facto justification of the order obtained by a party guilty of material non-disclosure. He said :-

"The practice of the courts when material non-disclosure has attended the obtaining of the ex parte injunction is to discharge the order without going into the merits. That is a salutary and necessary rule of practice ... The financial worth of a company applying for what I would call commercial injunctions, interfering with the manner in which the defendants carry on their commercial affairs, is always crucial. Otherwise the cross-undertaking, if subsequently it transpires that the defendants are entitled to a remedy under it, beats the air".

55. In the present case, the Plaintiffs disclosed nothing of their financial circumstances to the ex parte judge. However I find on the evidence now before me that the Plaintiffs' financial state is extremely grim.

1st Plaintiff

56. The 1st Plaintiff is substantially indebted to a company called Panbillion. The amount outstanding was originally $185m. but after the sale of a property in Hong Kong, the 1st Plaintiff still owes Panbillion at least $88m.

57. It would appear that the 1st Plaintiff has two investments on the Mainland (although I have to say paragraph 10.5 of the 2nd Plaintiff's 2nd Affirmation is somewhat confusing and difficult to understand). It would appear that there is one property and an interest in a joint-venture, but these have been charged to Panbillion. The 1st Plaintiff has put an estimate of RMB30m as the net value of its assets in the Mainland (there being no valuation provided), but it is not suggested that Panbillion would be compelled to first realise these charges should it wish to call in its loan. Panbillion does not appear to be a friendly party. A letter of demand with draft writ had one time been sent to the 1st Plaintiff by it.

58. The 1st Plaintiff asserts that its main assets are Notes "C", "D" and "E". However, it is meaningless for the 1st Plaintiff to rely on Notes "C" and "D" to show its worth - since it would be called upon to honour its undertaking in damages when the Court finds that those Notes belong beneficially to the 1st - 7th Defendants, and not to the 1st Plaintiff.

59. There is also Note "E", but it is not denied that the 1st Plaintiff is indebted to the Company's subsidiary Wah Nam Infrastructure in the sum of some $60m. so there would be nothing left of that Note to cover any damages which the 1st Plaintiff would have to pay.

60. I find therefore that there is nothing of any real worth in the 1st Plaintiff should the Court hold after trial that its case fails and orders it to pay damages to the 1st - 7th Defendants.

2nd Plaintiff

61. The 2nd Plaintiff owns 305,987,750 shares in the Company (according to Mr Barlow's table, to which there was no disagreement). According to the 2nd Plaintiff's 2nd Affirmation, the shares were being traded at $0.041 a share on 6 May 1999, being the last trading day before 1 June 1999. That may be one indication of the value of the shares ($12,545,497.75) as at that time.

62. The 2nd Plaintiff owns a property in Hong Kong, the value of which equity has been put at negative by the 1st - 7th Defendants, and by the 2nd Plaintiff's valuer at $8m.

63. There are also some assorted investments in the Mainland, the value of which has not been disclosed by the 2nd Plaintiff. The accounts exhibited (which appear out of date) do not appear to have been audited. It is also not known to what extent these investments are realisable.

64. The 2nd Plaintiff has substantial financial obligations. He is indebted under a personal loan from a bank for $5.2m., and he is the guarantor of the 1st Plaintiff's said $60m. debts to the Company, as well as the guarantor of the 1st Plaintiff's said $88m. debt to Panbillion.

65. In the circumstances, it would appear to me that the 2nd Plaintiff is not in a position to honour his undertaking to pay damages of any sizable amount such as would be likely to be ordered by the Court should the Plaintiffs fail in this action.

3rd Plaintiff

66. At the time of the ex parte application, the 3rd Plaintiff, a securities company, was suspended from trading on the Stock Exchange for failure to comply with solvency requirements. It had been so suspended for 1 year prior to the ex parte application (although apparently it has within the past few days received approval for resumption of business).

67. The 3rd Plaintiff's suspension was not disclosed to the ex parte judge. Although the 3rd Plaintiff has paid-up capital of $39m and the value of its seats on the exchange is said to be $10m., it has not denied that it is indebted to a bank to the tune of some $20m since last year. Further, it is owned as to 93% by the 1st Plaintiff, so the 1st Plaintiff may well look to the 3rd Plaintiff to meet its financial obligations.

Amount of likely damages

68. Mr Tang SC first submitted that the amount of damages would be small, so he says the Plaintiffs would be able to honour their undertaking despite the downturn in their fortunes. He refers to correspondence shortly before the ex parte application when the parties were considering a proposal that interest be paid into an escrow account pending investigation by an independent accountant into the issue of beneficial ownership of the Notes. He says the 1st - 7th Defendants did not make any threats then to convert the Notes into shares, so the only loss that would be suffered by the 1st - 7th Defendants would be interest.

69. I cannot accept that submission. There was no promise by the 1st - 7th Defendants, express or implied, that they would not convert the Notes into shares, and in any event, there was never an agreement, just proposals passing between the parties when they were still trying to find a way towards a private resolution of the issue.

70. Further the Plaintiffs' case as presented to the ex parte judge was that there was a danger that the 1st - 7th Defendants might convert the Notes into shares, and the ramifications were listed out in paragraphs 17.4-17.5 of the 2nd Plaintiff's Affirmation. In paragraphs 18-19, he expressly referred to the request his Solicitors made to the 1st - 7th Defendants for an undertaking not to convert the Notes, and the fact that none was given.

71. On the evidence, there is at least a real likelihood that, should the Court find that the 1st - 7th Defendants are the beneficial owners of the Notes, the damages which they may suffer from the undertakings not to convert or deal with the Notes would be substantial.

72. The Company's fate is to be decided in the near future. The Company has operating assets (viz. a toll road and a toll bridge) on the Mainland. But the 2nd Plaintiff has proposed a restructuring plan whereby these assets would be sold.

73. If these assets are sold (and it is not clear what the proceeds would be) it is uncertain what assets would be available in the Company should the 5th and 6th Defendants call in the loans subsequently.

74. The sale of those substantial portions of the Company's assets may further result in a de-listing of the Company, which would affect the value of its shares. That would be detrimental to the 5th and 6th Defendants should they decide to convert the Notes into shares.

75. Accordingly it seems to me that the damages that may be suffered by the noteholders will be substantial, and may even be as great as the face value of the Notes (should they turn out to be valueless). On the assumption of conversion into shares, the value of the shares as at 1 June 1999 would have been $14.4m. and as at 2 July 1999, $26.4m. I am not satisfied on the evidence that the Plaintiffs would even be able to honour undertakings to pay either of those amounts. No offer has been made by the Plaintiffs to fortify their undertakings to any extent. No updated audited financial statements have been produced.

76. None of these matters had been brought to the notice of the ex parte judge. He should have been given these materials so that he could have made the decision for himself (Lock International Plc v Beswick [1989] 1 WLR 1268,1279C).

Discretion based on strength of plaintiff's case

77. Mr Tang's further submission was that when the Court considers the sufficiency of particular undertakings, it should not consider itself to be bound by definite rules, and in every case, it requires the particular undertaking that appears to be the most appropriate by reference to the probability with which it appears that the plaintiff will ultimately succeed at the final hearing, the desirability that the court should be able to grant adequate final relief and the balance of justice between the parties (Spry, The Principles of Equitable Remedies, 4th ed. p.476).

78. Mr Tang put forward the example of an impecunious beneficiary who would be left remedy-less if he was unable to provide an undertaking in damages for an injunction against a trustee blatantly acting in breach of trust.

79. I accept that the Court has a wide discretion when considering the appropriateness and sufficiency of an undertaking in damages, and in the example postulated, it may well be that a court may grant an injunction with a minimal undertaking, or in an extreme case, without an undertaking at all.

80. But that is not this case. Mr Tang has sought to advance the argument that the Plaintiffs' case is bound to succeed (or nearly so). It will be remembered that the payment for Notes "A" and "B" was made to the Company by the 5th and 6th Defendant's companies. The Plaintiffs pointed to certain cheques which they have paid the 5th and 6th Defendants, and alleged that these were payments for the subscription money for the Notes.

81. The 5th and 6th Defendants have denied that these cheques were the Plaintiffs' payments for the subscription moneys. They say that certain moneys were owed by the 2nd Plaintiff to the 6th Defendant from advances to the 2nd Plaintiff from profits made by a company called Charmlink and which should have been equally shared between them.

82. The Plaintiffs have sought in turn to attack this case of the 1st - 7th Defendants by providing evidence that the alleged profits of Charmlink were actually only its receipts, and that it was unlikely to have made profits of anything like the amounts alleged. It is the Plaintiffs' case that Charmlink may only have been used as a means of obtaining short-term financing from banks issuing letters of credit for bogus transactions.

83. On the other hand, the 5th and 6th Defendants have exhibited two agreements written in Chinese and on its face signed by the 2nd Plaintiff in which he acknowledges as profits the amounts said by the Plaintiffs to have been receipts. The 2nd Plaintiff says these agreements were forgeries.

84. It will also be noted that the 2nd Plaintiff has alleged that his signature on the Deed of Settlement transferring shares in IAL to the 7th Defendant was procured by misrepresentation.

85. It would thus be seen that this is a case where there are numerous factual issues. I do not think that it would be possible for the Court on the affirmation evidence to determine the issue in isolation whether the amounts were profits or merely receipts, and from that, to determine that the Plaintiffs' case on beneficial ownership of the Notes is so strong that a substantially reduced undertaking would be sufficient.

Conclusion on material non-disclosure

86. In conclusion on this issue, I find that there has been material non-disclosure to the ex parte judge by the Plaintiffs of their parlous financial state, and applying the principles established in Citibank and Manor Electronics and in the exercise of my discretion, I would release the 1st - 7th Defendants from the undertakings they have given and give an order in terms of paragraph (2) of the Summons of 8 July.

87. I have not been asked by the 8th Defendant to discharge the ex parte injunction made against it, although I have been asked by the 1st - 7th Defendants to do so, on the basis that the injunction affects their interests. I have not been brought to the relevant procedure which would enable me to do so. Insofar as necessary on this aspect, I would give all parties leave to apply to myself or to another judge.

88. I would also give a consequential order for an inquiry into damages.

Fresh application for injunction

89. At the end of Mr Tang's submission, he asked the Court to take the approach that if it is minded to release the 1st - 7th Defendants from their undertakings, to treat the Plaintiffs as having made a fresh application for injunctive relief.

90. I do not see how that assists him when the Plaintiffs have not come forward with any new evidence or security to support their worthiness to honour the undertakings as to damages that they would have to give for any new injunction.

Abuse of process: collateral purpose

91. That is not the end of the matter because the 1st - 7th Defendants have also sought the release of the undertakings on the ground of abuse of process. Mr Barlow has submitted that the only reasonable inference from the fact that the Company has on 8 July purported to avoid Notes "C" and "D" is that the Plaintiffs commenced these proceedings with no case and no evidence, in order to prevent the noteholders converting their Notes into shares, and so that in the interim the Company would avoid the Notes.

92. Mr Barlow submits that this is a collateral purpose outside the legitimate scope of the legal process. Such a "collateral advantage" has been defined as a situation where a litigant is pursuing an ulterior purpose unrelated to the subject-matter of the litigation, where but for his ulterior purpose, he would not have commenced proceedings at all (Goldsmith v Sperrings Ltd [1977] 1 WLR 478, 503).

93. Put so high, I cannot accept the submission that there is evidence at this stage of a collateral purpose such as to render the proceedings an abuse of process on that score.

94. Mr Barlow has ventured quite considerably in the hearing before me into the merits (or rather his attack on the lack of merits) of the Plaintiffs' case. I do not think it would be appropriate or proper for me to deal with those submissions at this stage, given that paragraph (1) of the summons of 8 July 1999 is not being heard.

Abuse of process: the Company's avoidance of Notes

95. Finally there is the question of the Company's avoidance of the Notes. The 1st - 7th Defendants' argument is that that shows that the Plaintiffs have colluded with the Company, in that the Plaintiffs obtained injunctive relief against the 1st - 7th Defendants so that the Company could avoid the Notes.

96. I accept that some of the actions taken by the Company appear to show a preference for the 2nd Plaintiff against the 5th and 6th Defendants. In particular, actions for breach of fiduciary duty have been brought against the 5th and 6th Defendants, but not the 2nd Plaintiff. Further there is the statement in the Affirmation of Mr Lee Hoong Seun, a member of the ad hoc committee of the board of directors, that the "personal dealings between the 2nd Plaintiff and the 5th and 6th Defendants" justified, amongst other things, the Company's avoidance of the 1998 Notes.

97. However allegations of collusion between parties are serious accusations, and on the present state of the evidence, I am unable to find such a clear case that the ex parte application was for this reason an abuse of process.

Costs

98. In light of my order releasing the 1st - 7th Defendants from their undertaking by reason of material non-disclosure by the Plaintiffs, I would make an order nisi that the costs should follow the event, i.e. that the costs of the ex parte hearing and of this hearing of the Summons of 8 July 1999 be paid by the Plaintiffs forthwith. I will hear the parties at a later stage if required as to whether there ought to be certificate for two counsel.