TSAI SHUI SHENG AND OTHERS v. HO HONG CHU

                                                                                           HCA662/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 662 OF 2007

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REASONS  FOR  DECISION

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The ex parte Order

1. By an Order (“the ex parte Order”) dated 30 March 2007 made on the ex parte application of the plaintiffs, Kwan J granted an injunction against the defendant.  The ex parte Order, as drawn up by solicitors for the plaintiffs, reads as follows (written exactly as in the original) :

“1.   The Defendant, whether acting by herself or her servants agents trustees or any of them or otherwise howsoever, be restrained and an injunction is hereby granted until the returns date of the Inter partes Summons restraining her/them from:

(a)   entering, remaining or trespassing onto any site of the Company in Hong Kong, save as expressly permitted or authorised or invited by the Plaintiffs, their servants or agents;

(b)   destroying or removing there from any papers documents records accounts and/or information of the Company;

(c)   calling any general meeting or directors’ meeting of the Company or voting at any general meeting except as a holder of 2,000 shares;

(d)   acting as a director of the Company;

(e)   changing the shareholders’ registration or information at the Companies Registry;

(f)    dealing with, transferring, dissipating, selling the Company's assets or interfering with the Company's affairs by any means.

2.    Costs of this application reserved.

3.    Liberty to apply.

4.    Liberty to apply.”

The applications and the Order made

2. The summons dated 31 March 2007 issued by the plaintiffs for the continuation of the ex parte Order came before me on 30 August 2007. 

3. Mr Ernest Koo, counsel for the defendant, applied for leave to rely on the 3^rd affirmation of the defendant filed and served on 29 August 2007.  With due diligence on the part of the defendant's legal advisers, the copy documents which the defendant sought to rely on could and should have been produced much earlier on.  Five months had elapsed since the making of the ex parte Order and the issue of the inter partes summons.  Whether the ex parte Order should be continued or discharged should be dealt with sooner rather than later.  I saw no reason to waste the Court's time by allowing the defendant to put in affidavit evidence at that late stage which would invariably result in an adjournment to give the plaintiffs an opportunity to respond to the defendant's evidence.  I dismissed the defendant's application. 

4. Mr Albert Poon, counsel for the plaintiffs, then applied for continuation of the ex parte Order.  After hearing him, I discharged the ex parte Order. 

5. I made the following Order :

(1)   The defendant's summons dated 29 August 2007 for leave to rely on the 3^rd affirmation of the defendant be dismissed with costs in any event. 

(2)   The Order of Kwan J dated 30 March 2007 be discharged. 

(3)   The defendant's costs of resisting the plaintiffs’ application for continuation and of applying for its discharge, including costs reserved, be taxed and paid by the plaintiffs to the defendant forthwith. 

(4)   The defendant be at liberty to proceed with an inquiry as to damages. 

6. Reasons for my decision to discharge the ex parte Order follow. 

The Statement of Claim

7. The Statement of Claim reads as follows (written exactly as in the original) :

“1.  At all materials times :

Dramatis Personae

A.    The Plaintiffs the Tsais

(a)    The Plaintiffs are of the same family (‘the Family’) and the Family runs one California Poly Hong Kong Limited a company incorporated in Hong Kong and registered under the Companies Ordinance Cap.32 of Laws of Hong Kong (‘the Company’);

(b)    The 1^st Plaintiff is the father, the 2^nd Plaintiff the mother and the 3^rd and 4^th Plaintiffs the children and sons.  The 3^rd Plaintiff had already passed away on/around 25 April 2005.

B.    The Defendant Ho

(c)     The Defendant is the mistress of the 1^st Plaintiff since or around 1987 and had been responsible of the day to day business of the Company and/or its subsidiary (外商獨資企業:寶力化工(深圳)有限公司; ‘Poly Chemicals’) in the PRC since 1991.

2.     The Defendant had by fraud and forgeries transferred part of the 1^st Plaintiff's shares in the Company to her at least on 2 occasions.

Particulars of Fraud

            (a)   She had forged the 1^st Plaintiff's and/or all other Plaintiffs’ signatures on the Company's Returns at least for the years and minutes including at least the AGMs in 2004 and 2006.  The 3^rd Plaintiff's purported signature(s) on those documents purportedly signed after 25 April 2005 also could not possibly have been true because the 3^rd Plaintiff had already passed away on that date.

            (b)   She had unbeknown to all other shareholders and/or directors of the Company and in the absence of any proper resolutions and/or meetings in which the same transfers had been raised/discussed; resorted to forgeries to transfer the 1^st Plaintiff's 2 lots of shares to herself : 10,000 and 21,000 respectively.

            (c)  Her shareholdings thus had been illegally/improperly increased from 2,000 to 33,000 (2,000 + 10,000 + 21,000).

            (d)  She had also transferred fraudulently and without the consent of any other shareholder/director nor pursuant to any proper resolution/meeting/board of directors’ meeting or at all nor legally/properly a property of Poly Chemicals namely a property situated at 深圳市褔祥AB住宅樓B棟 (‘the Property’) to an accountant/book-keeper [a named person] at an undervalue;

            (e)  the Plaintiffs also surmise that the transaction is sham and that [the named person] is only holding the Property on trust for the Defendant.

3.         The fraud was reported to the Hong Kong police at Yau Ma Tei Police Station on or around 29^th March 2007.  The report number is YMT RW 07009997.

4.         Both the uniformed branch and Divisional Investigation Team (DVIT) of the Criminal Investigation Department thereat had accepted the Plaintiffs’ complaints and had taken statement(s) from the Plaintiffs/their representative(s); and they are now investigating and monitoring the matter.

5.         The Plaintiffs thus aver that by reason of the matters aforesaid :

(a)   unless restrained by the Court, the Defendant and/or her servants/agents including the said [named person] would continue with/ repeat her/their fraudulent and wrongful conduct on the Company and/or its subsidiary and/or the assets of the same;

(b)   accordingly, the Plaintiffs may suffer irreparable and irrecoverable losses; the Defendant's behaviour may also affect the Company/its subsidiary's goodwill;

(c)   if the Company's/its subsidiary's factories/properties are sold/transferred to bona fide purchasers, the Plaintiffs may not be able to buy them back.

AND the Plaintiffs therefore claim :

(1)   A declaration that :

(a)   the Defendant is in breach of the express/implied terms of her employment/director's contract and/or her director's and/or fiduciary duties;

(b)   the Defendant should be barred from running the Company;

(c)   the Defendant is not entitled to call any meeting and/or to vote therein except as a 2,000 shares holder;

(d)   the Defendant is not the majority shareholder of the Company;

(e)   the Company Registry's shareholders’ records ought to be rectified;

(f)    the Defendant should remain only a 2,000 shares-holder;

(g)   that either the Plaintiffs or the Defendant should buy out each other's shares at a reasonable price/price to be agreed or set by an independent accountant/CPA;

(2)   An injunction restraining the Defendant howsoever from :

(a)   transferring out/selling/dissipating/dealing with the Company's or its subsidiary's assets and real properties especially by any illegal or improper means;

(b)   entering the Company's premises in Hong Kong unless invited by the Plaintiffs; and/or destroying or removing any documents/papers/books/ records/evidence therein/therefrom;.

(c)   calling any meeting of the Company or voting thereat except as a 2,000 shares holder;

(3)   Damages;

(4)   Interest;

(5)   Costs;

(6)   Further and/or other relief.”

Pleading a cause of action

8. A right to obtain an interlocutory injunction is not a cause of action.  It cannot stand on its own.  It is dependent upon there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened by him, of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the court.  The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action.  It is granted to preserve the status quo pending the ascertainment by the court of the rights of the parties and the grant to the plaintiff of the relief to which his cause of action entitles him, which may or may not include a final injunction, per Lord Diplock in Siskina (Cargo Owners) v. Distos S.A. [1979] AC 210 at p. 256. 

9. I asked Mr Poon what cause of action had been pleaded.  He pointed to the prayer for a declaration that the defendant was in breach of terms of employment or director's or fiduciary's duties.  He was, however, unable to point to any allegation of fact in support of the plaintiffs’ right to the judgment of the court.  Moreover, neither California Poly Hong Kong Limited nor寶力化工(深圳)有限公司is a party to this action. 

10. Paragraph 2 makes a bare assertion of a fraudulent transfer of part of the 1^st plaintiff's shares, followed by what purports to be “particulars of fraud” :

(a)   Sub-paragraph (a) makes no sense.  Shares in a company are not transferred by that company's annual returns.  Nor are they transferred by the minutes of its annual general meetings.  

(b)   By sub-paragraph (b), the pleader alleges a transfer of 10,000 shares and another transfer of 21,000 shares and repeats the bare assertion of forgery.  Significantly, like sub-paragraph (a), there is no allegation of any forgery of any instrument of transfer or bought and sold notes. 

(c)   Sub-paragraph (c) contains no particulars of fraud. 

(d)   Sub-paragraph (d) alleges a fraudulent transfer of a property of 寶力化工(深圳)有限公司.  Plainly, this cannot possibly constitute particular of fraud in respect of the transfer of the 1^st plaintiff's shares.  Further, as noted above, neither California Poly Hong Kong Limited nor寶力化工(深圳)有限公司is a party to this action. 

(e)   I do not see how the pleader could possibly deem it proper or appropriate to plead the plaintiffs’ “surmise” as a particular of fraud.  

11. Mr Poon asked for leave to amend the Statement of Claim.  The plaintiffs had five months since obtaining the ex parte Order to frame their cause(s) of action.  In the absence of any draft amended pleading and in the exercise of my discretion, I declined to entertain Mr Poon's application.  

12. The Statement of Claim discloses no reasonable cause of action and the injunction must be discharged. 

13. That was not the only ground for discharging the injunction. 

14. The 2^nd plaintiff asserted two transfer of shares by the 1^st plaintiff to the defendant :

(a)   10,000 shares on 20 July 2000; and

(b)   21,000 shares on 28 December 2005. 

15. Although the plaintiffs had a copy of the annual returns up to and including the 28 October 2006 return, the plaintiffs omitted from their exhibits the 28 October 2005 return and the 28 October 2006 return.  No explanation had been offered for the failure to make full or frank disclosure. 

16. The 2^nd plaintiff alleged that the defendant forged the 1^st plaintiff's signature on the 28 October 2004 return, see paragraph 2(a) of the Statement of Claim and paragraph 39 of her grounding affirmation in support of the plaintiffs’ ex parte application. 

17. Up to and before the 28 October 2000 return, the defendant was a holder of 2,000 shares. 

18. Buried in the stack of copy documents exhibited is the 28 October 2000 return signed by the 1^st plaintiff.  By this return, the 1^st plaintiff reported a transfer by him to the defendant of 10,000 shares on 20 July 2000 and that the defendant's then “current holding” was 12,000.  There is no allegation of forgery of the 1^st plaintiff's signature on this return.  There is no allegation of anything untoward in procuring the 1^st plaintiff's signature on this return.  Absent such allegations, there is no serious question to be tried in respect of the allegation of fraudulent transfer of 10,000 shares.  

19. This also reminded me of what Woo J (as he then was) said in Standard Chartered Securities Ltd v. Lai Arthur and others [1993] 1 HKC 375 at p. 388 on material disclosure :

“It is extremely important for the litigant and members of the legal profession who represent him to bear always in mind the duty to disclose all material facts for the judge to consider and weigh for deciding whether to grant or refuse ex parte relief. Such disclosure includes undoubtedly all the points in favour of the respondent who has not the opportunity of being heard and all the points that are to the disadvantage of the applicant himself. The duty to disclose cannot simply be fulfilled by exhibiting voluminous documents covering the points to the supporting affidavit but without making any distinct reference to the points in the body of the affidavit itself or when addressing the judge at the often short hearing, for it would then impose upon the judge the impossible task of reading and digesting all the materials in the exhibits in the often short time available before the hearing of the application, which impossibility must have been reasonably appreciated or anticipated by the applicant's legal advisers.”

20. The plaintiffs asserted that the transfer of 21,000 shares took place on 28 December 2005.  There is no explanation for the failure to exhibit the 28 December 2005 return.  There is no allegation of any forgery of any signature (if any) by the 1^st plaintiff on this return.  Although the 2^nd plaintiff asserted that the 1^st plaintiff's signature on the 28 December 2006 return was forged, she chose not to exhibit a copy of such return and offered no explanation for her failure to do so.  In view of the material non-disclosure on the part of the plaintiffs, I was not satisfied that there was a serious question to be tried in respect of the allegation of fraudulent transfer of 21,000 shares. 

21. I was very uncomfortable with the plaintiffs’ conduct of their ex parte application and their application to continue the injunction.  By paragraph 2(a) of the Statement of Claim, the plaintiffs asserted that the minutes for the annual general meetings in 2004 and 2006 were forged.  When I looked at the copies in the stack of documents exhibited, I found that exhibits “TTT-8”, “TTT-9” and “TTT-10” were copies of the same document, i.e. the minutes of the annual general meeting in 2006.  The minutes had nothing whatsoever to do with any transfer of shares.  I do not see how the pleader could possibly deem it proper or appropriate to plead forgery of the minutes of the 2004 and 2006 annual general meetings as a particular of fraud in respect of the transfers of shares by the 1^st plaintiff to the defendant. 

Conclusion

22. The ex parte Order must be and was discharged.