SYMPHONY PARTNERS LTD AND OTHERS v. FULLERTON BAY INVESTMENT LTD AND OTHERS

CAMP 101/2018

[2018] HKCA 505

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 101OF 2018

(ON AN INTENDED APPEAL FROM HCCT 31/2018)

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REASONS FOR JUDGMENT

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Hon Lam VP (giving the Reasons for Judgment of the Court):

Introduction

1.  On 10 July 2018, after hearing counsel, we dismissed the application of the Plaintiffs for appointment of receivers in respect of certain shares held by the 3^rd Defendant in a Thai renewable energy company called Wind Energy Holding Company Limited [“the WEH shares”].

2.  The application was based on two Partial Awards by an arbitral tribunal in Singapore in favour of the Plaintiffs.

3.  The underlying disputes arose from two share purchase agreements made in June 2015: one made between Symphony Partners Limited, the 1^st Plaintiff as vendor, and Fullerton Bay Investment Limited, the 1^st Defendant as purchaser [“the Fullerton Agreement”]; and the other one made between Next Global Investments Limited and Dynamic Link Ventures Limited, the 2^nd and 3^rd Plaintiffs as vendors, and KPN Energy Holding Company Limited, the 2^nd Defendant as purchaser [“the KPN Agreement”].  The subject matters under both agreements were shares in a Thai company called Renewable Energy Corporation Company Limited [“REC”].  The Fullerton Agreement was in respect of 49% of the share capital of REC whilst the KPN Agreement was in respect of a further 49.94% of REC’s share capital.  The total price to be paid under these agreements was US$700 million.

4.  At the time of these agreements, the main asset of REC was a 59.4% shareholding in WEH.  Pursuant to the agreements, the shares in REC were transferred to Fullerton and KPN before the price was fully paid.

5.  The Plaintiffs alleged there were defaults in payment of the price and commenced two sets of arbitration proceedings in Singapore pursuant to the arbitration clauses in the agreements.

6.  For reasons which will become apparent below, it is not necessary for us to set out the details of the disputes and the arbitration proceedings.  It suffices to state that the arbitral tribunal gave two Partial Awards on 22 September 2017 in favour of the Plaintiffs.  Mr Smith SC (appearing with Mr Lam for the Plaintiffs) summarized the two Partial Awards as follows at paragraph 14 of their skeleton submissions of 11 May 2018 placed before the court below:

“ 14. On 22 September 2017, the Tribunal rendered two Partial Awards in respect of the first phase:

(1) In relation to Symphony, the Tribunal found, inter alia, that Fullerton breached the relevant SPA by not paying the First Fullerton Instalment, but that Symphony did not, from a procedural point of view, properly notify Fullerton of the rescission of the SPA (the Tribunal held that the notice period was too short to allow Fullerton to pay). Nevertheless, the Tribunal held that the First Fullerton Instalment is payable, together with interest.

(2) In the NGI & DLV arbitration proceedings, the Tribunal dismissed NGI and DLV’s claims for payment of the shortfall under the First KPN EH Instalment.  Nevertheless, the Tribunal held that KPN EH was required to pay interest on the KPN EH First Instalment.”

7.  The Plaintiffs also obtained injunctive relief, which was summarized at paragraph 12 of counsel’s of submissions as follows:

“ 12. Crucially for present purposes:

(1) Symphony became aware that Fullerton and/or KPN EH were attempting to dispose of the REC shares to a third party. As a result, Symphony sought and obtained emergency measures before the ICC emergency arbitrator, who granted the order (“the Emergency Arbitrator Order”) on the basis that there was a substantial risk that Fullerton or KPN EH would try to dispose of the share in REC.

(2) The Emergency Arbitrator Order provided inter alia that Fullerton was prohibited from disposing, transferring or taking “any other action having an economic effect similar to the disposal and/or transfer and/or encumbrance” of the REC shares and KPN EH was ordered “not to pledge, encumber or dispose of” its REC shares.

(3) Similarly, Symphony sought and obtained an ex parte interim injunction from the BVI court whereby Fullerton was prohibited from inter alia “selling pledging, dealing with, charging or otherwise disposing of the shares in [REC].”

8.  Counsel also highlighted the confirmation of the injunctive relief in the Partial Awards at paragraph 16 of their submissions:

“ 16. Crucially for present purposes:

(1) In both Partial Awards, the Arbitral Tribunal reconfirmed the Emergency Arbitrator Order (on the freezing of the REC Shares) and further ordered Fullerton and KPN EH “not to dispose of the WEH Shares in any manner until the Global Purchase Price is paid to Symphony, NGI and DLV, subject to the Arbitral Tribunal’s findings in the second phase of this arbitration” as this may cause “irreparable or substantial harm” to Symphony, NGI and DLV.

(2) There was no suggestion at the arbitral hearing that Fullerton and KPN EH no longer held the WEH Shares through REC and it was on this basis that the Arbitral Tribunal made this further order to preserve the status quo pending the second phase of the arbitration.”

9.  Whilst the shares of REC remained held by Fullerton and KPN, the Plaintiffs discovered in October 2017 that REC had disposed of its holding in WEH to an unnamed third party in 2016.  The Plaintiffs further learnt that some WEH shares (representing 37.9% of the shareholding in WEH) were transferred to the 3^rd Defendant.

10.  On 11 May 2018, the Plaintiffs obtained ex parte injunction in Hong Kong against the 3^rd Defendant to restrain the latter from disposing of the WEH shares.  That injunction was continued at an inter partes hearing on 18 May 2018.

11.  On 27 June 2018, the Plaintiffs made an ex parte application on notice for a receivership order in respect of the WEH shares to reinforce the injunction in light of certain developments in respect of the shareholders of the 3^rd Defendant.  In view of our decision based on the jurisdiction point under Order 59 rule 14(3), we shall not go into the details of these developments.  The application came before M Chan J [“the Judge”], the judge in charge of the Construction and Arbitration List.  After hearing counsel for the Plaintiffs and counsel for the 3^rd Defendant, the Judge decided to adjourn the application and gave directions for evidence to be filed and an early date be fixed for arguments.

12.  Instead of proceeding in accordance with the directions of the Judge, the Plaintiffs chose to make a renewed application for the same relief in this Court, purportedly under Order 59 Rule 14(3), Rules of the High Court, Cap 4A.  By taking such a step, up to the time when the matter was heard by us on 10 July 2018, the Plaintiffs did not attend to the fixing of the date for the inter partes hearing as envisaged by the Judge.

13.  The papers were first placed on 29 June 2018 before Kwan JA who gave a direction that the matter be listed for hearing before 2 judges on a date between 4 and 13 July 2018.

14.  On 5 July 2018, the Court notified the parties that the hearing would be held on 10 July 2018.  Initially, the case was listed under HCCT 31/2018.  On 6 July 2018, pursuant to the direction of Lam VP, the matter was relisted under CAMP 101/2018.  This being an application before the Court of Appeal as opposed to an application before the Court of First Instance, it should not be listed under its original action number.

15.  On 9 July 2018, the Court raised the following concerns with the parties:

(1)  Does the Court of Appeal have any original jurisdiction as opposed to appellate jurisdiction?

(2)  Can the jurisdiction of the Court of Appeal be expanded by the rules made under Section 54 of the High Court Ordinance, Cap 4 (“HCO”)?

(3)  If the jurisdiction is appellate in nature, is leave required under Section 14AA of HCO?

(4)  If the jurisdiction is original in nature, why should the law provide for two levels of courts exercising the same original jurisdiction on the same application?

(5)  Can there be an appeal arising from the decision of the Court of Appeal? If so, to which court?

(6)  And would there be any difference in the approach to be adopted by the Court of Appeal in exercising such original jurisdiction as opposed to its approach in exercising an appellate jurisdiction?

(7)  If the jurisdiction is original, should it be heard by one, two or three judges?

(8)  Bearing in mind that there is now in place a mechanism for entertaining urgent appeals (provided for in PD4.1), what is the rationale for having an alternative under Order 59 Rule 14(3)?

(9)  There are different kinds of ex parte applications, many of which should be challenged by way of ordinary ex parte appeals (such as refusal of leave to apply for judicial review, Order 11 applications). What criteria should be applied in considering if the mechanism under Order 59 Rule 14(3) can be utilised? What is the basis for imposing these criteria?

16.  Since these are questions of some importance and this appeared to be the first occasion where the scope of Order 59 Rule 14(3) has been considered in Hong Kong, the Court decided to list the matter before three judges instead of two.

17.  On 10 July 2018, after hearing counsel, we dismissed the application of the Plaintiffs with costs.  We now give our reasons for our decision.

Order 59 Rule 14(3)

18.  We have had the benefit of arguments of three teams of counsel in respect of the above concerns and we are indebted to their assistance.  Though there were references to Order 59 Rule 14(3) in earlier cases[1], suggesting that Rule 14(3) provides an alternative route for coming to the Court of Appeal for ex parte relief, there had not been any in-depth discussion in those cases of the jurisdictional basis for so doing.

19.  After some diligent research, all counsel appearing before us agreed that Rule 14(3) does not confer any original jurisdiction on the Court of Appeal.  The exercise of power under that rule is the exercise of an appellate jurisdiction.

20.  This, we accept, must be the correct analysis. Rule 14(3) is a rule under Order 59.  Order 59 Rule 1 stipulates that the rules in Order 59 apply to “every appeal to the Court of Appeal”.  Hence, on a proper construction, there has to be an extant appeal before the power of Rule 14(3) can be engaged.  In other words, the power exercisable under Rule 14(3) is incidental to the appellate jurisdiction of the Court of Appeal.

21.  This construction of Rule 14(3) is entirely consistent with the general statutory scheme concerning the Court of Appeal’s jurisdiction under HCO.  The civil jurisdiction of the Court of Appeal is set out in Section 13(2) of the High Court Ordinance.  It is entirely appellate in nature though incidental to an appeal this Court may exercise certain ancillary powers as provided under Sections 13(4) and 35(1) of the High Court Ordinance, see Great Perfect Investment Ltd v Leung Yat Wah [1990] 2 HKC 219; TCWF v LKKS CACV 166/2012, 24 December 2012.

22.  An example of the exercise of such incidental power in the context of an appeal, or in the context of an application for leave to appeal, is an application for interim interim relief pending the determination of the leave application, see the recent case of China Shanshui Cement Group Ltd v Zhang Caikui [2018] HKCA 409 at [5].  That decision was made on 18 May 2018 though the reasons for judgment were only handed down on 19 July 2018, and hence was not referred to at the time of the hearing of this application.  But we see no reason why we cannot refer to it as an illustration of the legitimate operation of Rule 14(3). 

23.  Though there were dicta in some English cases suggesting that the jurisdiction is original in nature (see Ketchum International plc v Group Public Relations Holdings Ltd [1997] 1 WLR 4), the better view is that, as held by the House of Lords in In re Racal Communications Ltd [1981] AC 374, the Court of Appeal has no original jurisdiction.  See also Kemper Reinsurance Co v Minister of Finance [2000] 1 AC 1 at p.16H to 17C.  On the facts of Ketchum International, what was done in that case was an exercise of the incidental power in a pending appeal.

24.  Given the nature of the jurisdiction under Rule 14(3), it cannot be invoked, as the plaintiffs did here, to renew a failed application before the Court of Appeal. The only way to bring the matter to the Court of Appeal is to appeal against the judge’s order.  It has to be an appeal against an interlocutory decision.  As such, Section 14AA of HCO is engaged and it is necessary for leave to be sought before an appeal can be brought. 

25.  Mr Smith submitted that Rule 14(3) provides a special route for this kind of appeal as an alternative to the usual mode of appeal subject to Section 14AA.  He relied on the observations of Lord Hoffmann in Kemper Reinsurance, supra, at p.17D to E:

“ At any rate, [Rule 14(3)] appears to their Lordships to be entirely procedural. In the case of an appeal against the refusal of an application ex parte, it is plainly inappropriate to follow the ordinary procedure of giving notice of appeal to the other party.”

And at p.18B:

“ Their Lordships therefore consider that a renewed application to the Court of Appeal under RSC Ord 59 r 14(3) is a true appeal with a procedure adapted to its ex parte nature.”

26.  Kemper Reinsurance was an appeal from the Court of Appeal of Bermuda to the Privy Council and it was a case concerning an application for judicial review. Counsel did not address us on the extent to which the procedural mechanism for civil appeals in Bermuda at that time differs from our current system.  As far as the inappropriateness of giving of notice of appeal is concerned, observations on ex parte appeals were made in the Hong Kong context in Park Lomen Inn Ltd v Appeal Board [2015] 4 HKLR 506.

27.  In Hong Kong, ex parte appeals are brought by the lodging of Notice of Appeal with the appeal registry.  The requirements of Order 59 rule 5 in terms of lodging of other documents for the purpose of setting down an appeal are applicable to such appeals.  Further, for ex parte appeals brought on account of urgency, our Practice Direction 4.1 Section D contains guidance on the procedure to be followed.  It is not necessary to cater for such appeals by means of Order 59 Rule 14(3).

28.  On the requirement of leave under Section 14AA, we cannot find anything in that section or Rule 14(3) to suggest that ex parte interlocutory appeals shall be exempted.  Order 59 Rule 21(1) does not provide for such exception.  Nor can we find anything in the judgment in Kemper Reinsurance, supra, supporting such an exception.

29.  Perhaps some support can be mustered from the two judgments cited in footnote 1 above.  However, as we have said, the jurisdiction issue was not considered in those cases.   

30.  On more mature reflection with the benefit of submissions from counsel in the present case, for the reasons set out below, we are of the view that Order 59 Rule 14(3) does not provide for an alternative route for ex parte appeals and leave is required for the bringing of an ex parte interlocutory appeal:

(a)  As we have explained, Rule 14(3) is only engaged if there is an extant appeal or an intended appeal with extant proceedings for leave to appeal (if leave is required).  It is not meant to be a procedure on its own;

(b)  The High Court Rules Committee does not have the power to enact rules which are inconsistent with Section 14AA.  Hence, Rule 14(3) cannot have the effect of obviating the need to comply with Section 14AA;

(c)  Rule 14(3) does not explicitly provide for exemption from seeking leave and there is no rational basis for creating such exemption as a matter of policy.  The purpose of filtering out unmeritorious interlocutory appeals is equally applicable to ex parte interlocutory appeals as the fair distribution of judicial resources is one of the objectives to be served by the leave requirement.  It would indeed be incongruous if leave to appeal is required for an appeal against an interlocutory decision after an inter partes hearing whilst an applicant can bring an appeal without leave if the decision is made on ex parte basis;

(d)  The practical concern for the cumbersome nature of the usual mode of bringing ex parte appeal involving leave application is perhaps more illusory than real.  If the Court considers the circumstances of the case require the determination of an ex parte interlocutory appeal on an urgent basis, the procedure in Section D of Practice Direction 4.1 (which embodies a rolled-up hearing for the leave application as well as the appeal proper) is equally effective as compared with the procedure in Rule 14(3).  Furthermore, if the Court deems appropriate, it can grant interim relief pending the determination of the appeal proper in very urgent situation, even before the grant of Section 14AA leave;

(e)  An important measure to protect the misuse of judicial resources in unmeritorious applications is the option of refusal of leave without any oral hearing if the application is totally without merit.  There is no reason why the Court should not have this option in respect of an unmeritorious ex parte interlocutory appeals;

(f)  In Hong Kong, the Court of Appeal processes appeals from different courts.  Apart from interlocutory appeals from the Court of First Instance, we also have appeals from the District Court and the Lands Tribunal for which leave is required before such appeals can be brought.  If Rule 14(3) permits appeal to be brought without leave being sought, it would be a charter for circumventing the leave requirements and subverting the rationale for such requirements in the District Court Ordinance and Lands Tribunal Ordinance as well;

(g)  The expression “ex parte application [that] has been refused by the court below” in Rule 14(3) encompasses a large variety of cases.  There are all kinds of ex parte applications, including applications the appeals from which do not justify any urgent processing by this Court.  For example, applications for leave to effect service outside jurisdiction, applications under Order 73 Rule 10(1); applications under Order 80 Rules 11 and 12; applications by a committee for directions under part II of the Mental Health Ordinance; some applications for directions on administration of trust by a trustee; applications for leave to commence committal proceedings.  There is no rational basis for providing an alternative route of appeals which can circumvent the safeguards in the usual mode of bringing an appeal.

31.  For the sake of completeness, we would mention that in the recent judgment of another division of this Court in MI v Secretary for Security [2018] HKCA 419 (handed down after our decision in this case), it was held that leave to appeal has to be sought in respect of an ex parte interlocutory decision in terms of refusal of extension of time to apply for judicial review.  As that decision was published after our decision, we did not rely on it in determining the present application.

The present case

32.  For the reasons discussed above, properly construed, Order 59 Rule 14(3) relates only to ex parte applications for relief incidental to an extant appeal or a pending application for leave to appeal. It cannot be invoked in the present circumstances.  Though it was brought by the plaintiffs as a renewed application under Rule 14(3), in substance the present application is an appeal against the decision of the Judge refusing to proceed on an ex parte basis and directing the parties to proceed inter partes.  Hence, we held that the Plaintiffs cannot avoid the leave requirement under Section 14AA by proceeding under Order 59 Rule 14(3).  We treated the application before us as an application for leave.

33.  Since the Court is exercising an appellate jurisdiction, and the subject decision under appeal is the decision of the Judge refusing to grant ex parte relief and directing the parties to proceed on an inter partes basis, this Court will only grant leave if there is some reasonably arguable ground for holding that the Judge erred in the exercise of her discretion.  The criteria for appellate interference with an exercise of discretion by a first instance judge are well settled, see Hadmore Productions Ltd v Hamilton [1983] 1 AC 191.  In the context of ex parte relief as a stop-gap measure, it has been said that this Court will only intervene on the rare occasion where it is extremely plain that the judge had erred, see NPYJ v SMRC [2018] 1 HKLRD 573 and China Shanshui Cement Group Ltd v Zhang Caikui [2018] HKCA 409.  This Court will not entertain an appeal simply because an applicant wishes to regurgitate arguments already considered below with the hope that this Court may come to a different assessment of the situation. 

34.  In the present case, Mr Smith has not placed before us the reasons for the Judge’s refusal to proceed on ex parte basis.  On the arguments set out in the materials before us (including the skeleton submissions before the Judge and those before us), we cannot find any reasonably arguable basis for this Court to come to the conclusion that it was extremely plain that the Judge erred in the way in which she exercised her discretion.  Secrecy is not a concern as the ex parte application was brought on notice.  In terms of urgency, the Plaintiffs are already protected by injunctions and we are not persuaded that the Judge did not duly consider their arguments for further protection by way of appointment of receivers.  The Judge had to strike a fair balance and adjourning the matter for inter partes argument at an early date was a reasonable option open to the Judge in the present circumstances. 

35.  Moreover, as submitted by Mr Manzoni SC (appearing with Mr G Lam for the 3^rd Defendant), the present proceedings are brought pursuant to section 45 of the Arbitration Ordinance, Cap 609.  There is a serious issue regarding the power of the court to make a Chabra order against a party who is not a party to the arbitration.  We need not resolve this issue in this judgment. 

36.  More fundamentally, Mr Manzoni drew our attention to section 45(10) of the Arbitration Ordinance which provides that a decision of the Court of First Instance under the section is not subject to appeal.  Mr Smith was not able to advance any argument to counter the effect of section 45(10).  In the circumstances, the intended appeal cannot be entertained.

37.  For these reasons, we refused to grant leave under Section 14AA and the application was dismissed with costs accordingly.