JESSOP & BAIRD (HONG KONG) LTD v. NEO HWEE KHIM AND OTHERS

HCA 2572/2016

[2020] HKCFI 2264

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2572 OF 2016

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D E C I S I O N

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INTRODUCTION - APPLICATIONS BEFORE THE COURT

1.  On 30 September 2016, upon the ex parte application on notice by the plaintiff Jessop & Baird (Hong Kong) Limited (“JBHK”) and after hearing Mr Barrie Barlow SC instructed by PC Woo & Co (“PCW”) for the 3^rd defendant Mr Ng Man Choong Robert (“Robert”) and the 5^th defendant PD Clothing & Textiles (Zhongshan) Limited (“PD Zhongshan”)[2], Deputy High Court Judge R Ismail SC granted an interim injunction (“1^st Injunction Order”) requiring Robert and PD Zhongshan to, inter alia[3],  “within 2 days return and deliver up all properties belonging to [JBHK], including but not limited to, the machineries, the raw materials, the work-in-progress goods, the finished goods, the inventories, the computers, the hardware, the purchaser order information of [JBHK] which are in their possession, custody, power or control” (“Subject Properties”)[4].

2.  On 5 October 2016, JBHK issued an inter partes summons for the continuation of the 1^st Injunction Order until further order (“1^st Continuation Summons”).

3.  Then, by a summons dated 11 October 2016 (“1^st Discharge Summons”), Robert applied for the discharge of the 1^st Injunction Order.

4.  On 14 October 2016, Madam Justice Au-Yeung adjourned the 1^st Continuation Summons and the 1^st Discharge Summons for substantive argument and, in the meantime, continued the 1^st Injunction Order until further order.  The judge further extended the time for performance of the mandatory aspect of the 1^st Injunction Order to 5 pm on 18 October 2016.

5.  Robert claimed in paragraph 19 of his 4^th affirmation dated 9 June 2017 that JBHK’s representatives including Harvey and his son, arrived at the Zhongshan Factory at 5:35 pm on 18 October 2016.  At about 6 pm, the computers had been brought to the office building (of the Zhongshan Jiemin Factory) to be collected.  JBHK’s representatives’ cars were driven up to the front of the office building where the computers were loaded onto the cars.  During the loading process, JBHK’s representatives asked to test the computers.  As there was no power socket outside the office building, it was suggested that the computers be offloaded and moved to the guardhouse where power points would be available.  After some discussion amongst themselves, JBHK’s representatives decided not to check the computers.  

6.  The original 4^th defendant Chan Man Ping Anita (“Anita”) also alleged in paragraph 7(5) of her affirmation filed herein on 16 January 2017 that between 19 September and 26 October 2016, JBHK’s staff and lawyers had visited the Zhongshan Factory (as defined in [24] below) on 19 occasions, sometimes for the whole day, to take stock and make copies of various accounts and documents relating to JBHK.  The computers, hardware and purchase order information of the Subject Properties had already been recovered by JBHK during such visits, leaving only “the machineries, the raw materials, the work-in-progress goods, the finished goods [and] the inventories” still outstanding. 

7.  Such evidence was not accepted by JBHK. According to paragraph 10 of Harvey’s 6^th affirmation herein dated 11January 2017, JBHK’s representatives had been denied access to the Zhongshan Factory since it was shut down on 28 September 2016.  While they had collected some computers that had been dumped outside the outdoor gate of the Zhongshan Factory, those computers had all been wiped clean with all data kept thereon deleted.

8.  This is not a dispute that the court can resolve on bare assertions on affidavits, though it is noted that in support of his account, Robert produced to his 4^th affirmation dated 9 June 2017 a one-page document entitled “JB搬運物品出廠清單” dated 18 October 2016 and signed by an unidentified “搬運負責人”[5]. It sought to record that 19 computers (including central processing units, monitors, keyboards and mouses etc) had been moved out of the Zhongshan Jiemin Factory and handed over to JBHK.  According to Robert, the signature was that of a representative of JBHK.  That person signed the release form but added a handwritten notation that the computers had not been checked.  To complete the picture, PD Zhongshan’s personnel also added a comment that JBHK’s representatives were offered the opportunity to power up the computers to check their functionality but the offer was however ignored.  In contrast, JBHK had not say taken a photograph of each of the computers dumped outside the Zhongshan Factory. 

9.  Anyway, it is pleaded in paragraph 33 of the Amended Statement of Claim (“ASOC”) that some computers have been returned to JBHK.  Save as aforesaid, neither Robert nor PD Zhongshan had otherwise complied with the 1^st Injunction Order whether within the original or extended time or at all.  On 7 November 2016, Madam Justice Au-Yeung granted leave to JBHK to issue committal proceedings against Robert for breach of the 1^st Injunction Order.  Pursuant to such leave, JBHK commenced committal proceedings against Robert by an originating summons issued on 18 November 2016 under HCMP 3216/2016.  Apart from contesting HCMP 3216/2016, by a summons issued on 19 April 2017, Robert also sought to set aside the leave to commence committal proceedings against him on the ground of material non-disclosure by JBHK and/or on the ground that the 1^st Injunction Order ought to be discharged and/or set aside (“Contempt Leave Set Aside Summons”).

10.  In the meantime, on 20 October 2016, upon JBHK’s ex parte application on notice, Mr Justice Wong granted another interim injunction (“2^nd Injunction Order”), this time, requiring the 7^th defendant Acorn Apparel (HK) Limited (“Acorn”) and the 8^th defendant PD Garments Limited (“PD Garments”) to, inter alia[6], cause PD Zhongshan to return and deliver up the Subject Properties within 1 day.

11.  On 24 October 2016, JBHK issued an inter partes summons for the continuation of the 2^nd Injunction Order until further order (“2^nd Continuation Summons”).

12.  On 28 October 2016, Deputy High Court Judge Kent Yeeadjourned the 2^nd Continuation Summons for substantive argument and, in the meantime, continued the 2^nd Injunction Order until further order.

13.  Save for the said recovery of computers, the 2^nd Injunction Order remained unfulfilled.  Instead, by a summons issued on 14 March 2017 (“2^nd Discharge Summons”), Acorn and PD Garments sought to discharge the 2^nd Injunction Order as continued. 

14.  For the sake of completeness, the plaintiff has also obtained leave for, and has taken, committal proceedings by an originating summons issued on 10 January 2017 under HCMP 60/2017 against Anita for breach of the 2^nd Injunction Order in her capacities as Acorn’s director and PD Garments’ sole director.

15.  Before the court now are:

(1) the 1^st Continuation Summons;

(2) the 1^st Discharge Summons;

(3) the Contempt Leave Set Aside Summons;

(4) the 2^nd Continuation Summons; and

(5) the 2^nd Discharge Summons

(“applications” collectively).  Only Robert, Acorn and PD Garments (“defendants” collectively) appeared and were represented.  I was told that as at the date of the hearing, PD Zhongshan, a PRC company, had not yet been served with these proceedings[7].

FACTUAL BACKGROUND

16.  At the centre of the dispute giving rise to the myriad of litigations of which this action is but one are Robert and one Harvey James Jessop (“Harvey”) and their joint venture through JBHK (“JV”).

Irrelevant matters

17.  For the purposes of supporting/opposing the applications, the parties had placed before the court 11 hearing bundles comprising the pleadings, affidavits, exhibits and earlier submissions/skeleton arguments filed, not just in this action, but also in a number of related proceedings.  Allegations and cross-allegations were made to put numerous aspects of the JV in dispute.  Many such matters (to which the court’s attention had been drawn at length both in written and oral submissions) are, in my view and on proper analysis, of no or peripheral relevance to the applications, which are all concerned with JBHK’s claim to an immediate right to possession of the Subject Properties, premised upon its beneficial ownership of such properties.  Examples of such irrelevant matters include but are not limited to:

(1) whether the JV was a quasi-partnership and whether Robert was to play the role of an active partner or a passive investor in the management and operation of JBHK’s business and affairs;

(2) why and how the relationship between Robert and Harvey turned sour and eventually broke down;

(3) whether there were irregularities in JBHK’s accounts for 2014 which Harvey had signed off as director of JBHK and, if so, what were the irregularities and who (Harvey or Robert) had caused and was responsible for the same;

(4) whether the price offered by the corporate vehicle used by Harvey for his investment in JBHK Tangiers Holdings Limited (“Tangiers”) to purchase the 50% shares in JBHK held by Robert’s investment vehicle Marrakesh Investments Limited (“Marrakesh”) in May 2016 (HK$3,049,830) was a fair price or an undervalue based on accounts that had been manipulated (with the profits artificially depressed) by Harvey;

(5) whether Neo Hwee Khim (“Khim”), the original 1^st defendant, an accountant and Robert’s sister-in-law, resigned as director of JBHK on 19 July 2016 voluntarily or under coercion from Harvey and then withdrew her resignation later on the same date out of her own free will or under pressure exerted by Robert;

(6) the removal of Anita as the company secretary of JBHK on 19 July 2016;

(7) JBHK’s change of its registered office address from Unit 1001, 10/F, Star House, 3 Salisbury Road, Tsimshatsui, Kowloon, Hong Kong[8] to Room 303, 3/F, St George’s Building, 2 Ice House Street, Central, Hong Kong at Harvey’s behest with providing Robert any keys or access to the new office also on 19 July 2016;

(8) the signing by Harvey as sole director of JBHK of a board resolution to change with immediate effect the authorised signatories for JBHK’s only bank account, account numbered 491-xxxxxx-838 (“HSBC Account”) with The Hongkong and Shanghai Banking Corporation Limited (“HSBC”), to just himself and his associate Hatim Allam (by removing Khim and the original 2^nd defendant Lee Wai Ling (“Elsa”)) on 20 July 2016;

(9) the suspension of the HSBC Account by HSBC upon being informed by Khim that her resignation as director of JBHK was forced and that the bank should not allow any change of mandate for the HSBC Account without her consent;

(10) the 2 remittances totalling US$950,000 from the HSBC Account to PD Zhongshan’s account on 27 July 2016 which Harvey said was effected without his authority as the sole director of JBHK;

(11) Robert’s demand on 29 July 2016 that Harvey appointed him onto the board of JBHK by 1 August 2016;

(12) the issue of the writ of summons on 12 August 2016 under HCA 2100/2016 by JBHK against Khim, Elsa, Robert, Anita, PD Zhongshan and PD Garments for reliefs similar to those claimed herein;

(13) whether JBHK’s notice dated 15 August 2016 to its customer Eastside Holdings Limited that payment due to JBHK should from then onwards be made to the account of Harvey and his son Benjamin Jessop’s company Fully Plan Ltd was given honestly to overcome the difficulty caused by the suspension of the HSBC Account or dishonestly with a view to misappropriating JBHK’s funds;

(14) Marrakesh’s petition dated 31 August 2016 against Tangiers under HCCW 307/2016 for inter alia an order that Tangiers should buy out Marrakesh’s interest in JBHK at a fair value to be determined by the court or an independent valuer (which petition was subsequently converted into HCMP 2693/2016 given that it did not claim for the winding-up of JBHK);

(15) JBHK’s interlocutory summons dated 1 September 2016 in HCA 2100/2016 for, inter alia, the delivery up of JBHK’s corporate documents and accounting records;

(16) JBHK’s originating summons also dated 1 September 2016 against HSBC under HCMP 2296/2016 to revoke the existing mandate relating to the HSBC Account and recognise the new mandate signed by Harvey, to update the particulars of the HSBC Account to recognise the current directorship of JBHK (i.e. with Harvey as sole director); and to re-activate the HSBC Account;

(17) Marrakesh and Khim’s application to intervene in HCA 2100/2016 at the first hearing thereof on 22 September 2016;

(18) whether the price at which Robert demanded Tangiers to purchase Marrakesh’s 50% shares in JBHK on 23 September 2016 (US$2.9 million) was inflated or realistic; and

(19) Marrakesh’s petition dated 3 October 2016 under HCCW 352/2016 to, inter alia, wind up JBHK on the “just and equitable” ground.  

I shall not clutter up this decision by going into these matters in any further detail.  However, the parties can be assured that the court was at all times aware of these other disputes between the parties and has reviewed these matters to the extent that they had been gone into by the parties.

18.  Stripped of these irrelevant matters on which all parties had to a greater or lesser extent dwelt, I think the background material to JBHK’s claim to beneficial ownership and possession of the Subject Properties at this stage of the proceedings can be simply yet fairly summarised as follows.  Where facts were in dispute, I shall also outline the different accounts.

The establishment of JBHK and its investors

19.  Harvey’s family company, Jessop & Baird, specialises in the application of lamination and moulding techniques to the manufacture of laminated fabrics and moulded cups for the making of brassieres. In particular, it has a unique hot melt laminating technique that has been crucial to its success over the years.  This company is well established in the UK, France and Morocco.

20.  As a step in Jessop & Baird’s entry and expansion into the Asian market, more specifically, the Greater China region, on 6 August 2004, JBHK was incorporated in Hong Kong with 2 shareholders, Tangiers and Marrakesh, each holding 1 ordinary share of HK$1 each.  

21.  Focusing for the time being on ownership:

(1) Harvey has a 50% shareholding in Tangiers.  There are 2 other shareholders each holding 25% of Tangiers’ remaining shares. 

(2) Marrakesh is owned as to 50% by one Alwero Holding (HK) Limited (“Alwero”) and as to 50% by Acorn. 

(3) Alwero is in turn held as to 99.999% by Robert and 0.001% by one Ng Man Woh.  

(4) Acorn is as a matter of record owned as to 50% by Anita and as to 50% by her sister-in-law Chan Yuk Kan.  In other words, on the record, Anita and her sister each indirectly, through Acorn, owns 12.5% of JBHK.

22.  Turning then to the control and management of these companies:

(1) JBHK initially (i.e. since 13 September 2014) had 2 directors namely, Harvey and Khim, until Khim resigned[9] on 19 July 2016, leaving Harvey the sole director of JBHK.  Harvey has also been JBHK’s chief operating officer since 13 September 2014.  Anita was JBHK’s company secretary from 13 September 2014 until her removal on 19 July 2016.

(2) Harvey claims to have been entrusted by the other two 25% shareholders in Tangiers to be the sole director of Tangiers. 

(3) Marrakesh has Robert and Anita as its directors.

(4) Robert and Ng Man Woh are the only directors of Alwero. 

(5) Anita and Chan Yuk Kan, as a matter of record, form the board of directors of Acorn.

JBHK’s manufacturing operation

23.  JBHK itself did not at any material time have any manufacturing capability, whether in Hong Kong or the PRC.

24.  Up until 28 September 2016, JBHK carried out its manufacturing operation through PD Zhongshan at 2 PD Zhongshan manufacturing plants at (1) 7 Jinshan Dadao East Road, San Jiao Town, Zhongshan, Guangdong and (2) 19 Di Yuan Road, Jie Min Village New Area, San Jiao Town (“Zhongshan Main Factory” and “Zhongshan Jiemin Factory” respectively and “Zhongshan Factory” collectively).

25.  According to JBHK, the Zhongshan Factory is ultimately owned and controlled by Robert.

(1) , the Zhongshan Factories were owned and controlled by RobertThe Zhongshan Factory is directly owned and operated by PD Zhongshan.

(2) PD Zhongshan PD Zhongshan is wholly owned by PD Garments and has 3 directors, Detlev Uwe Dieter Fehmer (“Fehmer”), Lee Shiuan Yen (“SY Lee”) and Anita.  Fehmer, a German, is also PD Zhongshan’s the legal representative (法人代表).

(3) PD Garments is wholly owned by Acorn.   Anita is the sole director of PD Garments.

(4) I have already mentioned above that Anita and her sister-in-law each holds 50% of Acorn and they form the board of directors of Acorn.  That is to say, Anita and her sister-in-law are together on the record through Acorn and PD Garment the indirect 100% owners of PD Zhongshan and the Zhongshan Factory.

JBHK claimed that despite what appears on the record, Anita and SY Lee habitually take, and act in accordance with, Robert’s instructions so that Robert is effectively in control, and is the directing mind and will, of Acorn, PD Garments, PD Zhongshan and the Zhongshan Factory.

26.  In contrast, it is Robert and Anita’s case that:

(1) Anita used to be Robert or his company’s employee.

(2) In 2007, Robert wished to divest himself of his “China assets”, which included 3 factories producing intimate apparel, one in Taiping, another one in Henggang and the Zhongshan Factory, allegedly to concentrate his attention on developing his business interests in Sri Lanka.

(3) Speaking of the Zhongshan Factory, it was then owned by PD Clothing & Textiles Limited which first sold the Zhongshan Factory to PD Garments for HK$98,000,000.  PD Garments then resold the Zhongshan Factory to Acorn on 15 April 2009.

(4) Robert explained why the transaction was structured as aforesaid in paragraph 9 of his 4^th affirmation as follows:

“Prior to the sale, PD Zhongshan was owned by PD Clothing and Textiles Limited, and carried on the business as “Pacific Dunlop Garments Ltd”.  To create the impression that the new company was in fact still the old company, for purposes of assuring suppliers and customers that there was continuity of service, I first created a new company, “PD Garments Limited” and transferred the business of PD Zhongshan Limited to this new shell.  By these means, I was able to sell PD Garments to Acorn in a manner which enabled it to continue trading under the “PD Garments” name.   My role with PD Zhongshan thereafter was nominal, appearing in an   occasional advisory capacity to meet customers and to show that whilst the company may have new management, I was still able to assist, thereby giving the impression of continuity for customer relationships. I have not owned any shares in PD Zhongshan, whether beneficially or otherwise, since the date of the sale.”

(5) It appears from the annual return of PD Garments for the period ending on 20 June 2009 that its original sole shareholder was another company called PD Enterprise Limited (“PD Enterprise”).  On 15 April 2009, PD Enterprise transferred all its shares in PD Garments to Anita and Chan Yuk Kan’s company, Acorn.  

(6) The 2 ladies have since 15 April 2009 become the ultimate beneficial shareholders of PD Zhongshan.

(7) PD Zhongshan has therefore ceased to be an entity controlled or owned, whether beneficially or otherwise, by Robert since 15 April 2009.

(8) While Anita respects for Robert as her ex-employer, she does not take or act on instructions from Robert since she effectively purchased PD Zhongshan. 

(9) After the said change of hands of PD Zhongshan, Robert was required by PD Garments to give an undertaking that he would underwrite the manufacturing activities of JBHK at PD Zhongshan.

27.  Anyway, it is common ground that prior to 29 September 2016, PD Zhongshan produced the goods that JBHK marketed at the Zhongshan Factory, although the parties disagreed as to certain aspects of the precise relationship between JBHK and PD Zhongshan. Insofar as we are only concerned with JBHK’s immediate right to possess the Subject Properties, it is sufficient to mention the following 4 matters. 

28.  First, according to Harvey, PD Zhongshan designated the following areas/spaces in the Zhongshan Factory (collectively “JBHK Areas”) exclusively for the production of JBHK products:

(1) an enclosed space of approximate 500 square metres on the 4^th floor of the Zhongshan Main Factory, housing:

(a) JBHK’s office which stored all computers, hardware, files and administrative documents;

(b) the lamination area which stored a hot melt laminating machine; and

(c) racks for storage of the work-in-progress goods; and

(2) a total area of approximately 10,000 square metres in 4 out of the 5 buildings forming the Zhongshan Jieman Factory as follows:

(a) 2 manufacturing buildings (the foam moulding building and the fabric moulding & bonding building) where most of the work-in-progress and finished goods were stored;

(b) half of the office buildings; and

(c) half of the warehouse building segregated from the remaining half used by entities in the PD group by a wire mesh partition.

29.  The JBHK Areas were physically well demarcated.  At the front door of the buildings rented by JBHK were plates showing JBHK’s Chinese name.  Such buildings were exclusively used by JBHK.  It was a significant point in JBHK’s case that, through the clear physical delineation of the JBHK Areas, there was and always had been a clear separation between the Subject Properties and PD Zhongshan’s own properties.

30.  While there is no question that JBHK rented some parts of the Zhongshan Factory, Robert recalled that only 2 out of 6 buildings at the Zhongshan Jiemin Factory were used exclusively by JBHK; that JBHK also rented part of the warehouse building; and that JBHK’s presence in the Zhongshan Main Factory was limited to a small designated lamination area.

31.  It is unnecessary to resolve this argument.  What is material for present purpose is that the areas occupied by JBHK were so enjoyed exclusively by JBHK.  It is also common ground that JBHK paid PD Zhongshan rental for the occupation and use of the JBHK Areas as well as other outgoings attributable to the JBHK Areas, such as utilities, maintenance and security guards, cleaning etc.  These expenses would be recorded in the monthly statements sent by PD Zhongshan to JBHK and be reimbursed by JBHK.

32.  Second, PD Zhongshan purchased and imported the machineries and equipment used in JBHK’s manufacturing operations at the JBHK Areas (“Machineries”). There was however some disagreement as to what JBHK paid for the Machineries. 

(1) On one hand, JBHK claimed that it provided the funds used to acquire the Machineries, which were therefore purchased and held by PD Zhongshan as trustees on behalf of JBHK.

(2) On the other hand, it was the defendants’ case that PD Zhongshan purchased the Machineries, presumably with its own money, and charged JBHK “rental, operating and maintenance costs” for the use of the same.  Such expenses would be recorded in the monthly statements sent by PD Zhongshan to JBHK and be reimbursed by JBHK. 

I find both versions not entirely consistent with the documents before me. 

33.  On one hand, if it is contended by JBHK that it paid for all the Machineries, at pages 15 and 16 of hearing bundle B1 is a schedule of machineries[10] which shows that JBHK and PD Zhongshan had respectively paid HK$3,980,363.10 and HK$3,763,975 for the machineries shown.  (The same applies to the computers included in the Subject Properties.  At page 12 of the same bundle is a schedule of computers which shows that JBHK and PD Zhongshan had respectively paid HK$246,931.02 and HK$137,246.37 for the computers shown.)

34.  On the other hand, the following documents suggest that JBHK did not have to pay any rental for the use of the Machineries:

(1) Exhibit “NHK-1” to Khim’s affirmation dated 8 September 2016 in HCA 2100/2016 is a document entitled “Cashflow Projection of JB China Operation for Jul 16 & Aug 16”.  One can see from the various charges under the column headed “JB China Operation Cost” that JBHK did not in fact incur any rental payments for the Machineries. 

(2) Exhibit “AC-3” to Anita’s affirmation made herein on 16 January 2017 is a spreadsheet purportedly showing the account balance between JBHK and PD Zhongshan from July 2016 onwards.  It can be seen that the expenses payable by JBHK to PD Zhongshan from month to month did not include rental for the Machineries.  As far as I can see, the only items of expenditure possibly relating to the Machineries were “Maintain fee for Machine service in north 4 floor”, “Depreciation payable by JB” and “Maintenance and Machine Service for JBHK Equipment”.

35.  Third, PD Zhongshan also sourced and imported the raw materials used in the manufacture of JBHK’s orders (“Raw Materials”).  Apart from the costs of such materials, PD Zhongshan also paid custom duties on the Raw Materials where the same was payable.  These expenses would also be recorded in the monthly statements sent by PD Zhongshan to JBHK and be reimbursed by JBHK on costs basis.

36.  Fourth, the monthly statements from PD Zhongshan to JBHK would also show the latest net amounts due from JBHK to PD Zhongshan, Acorn and PD Garments and vice versa.

The breakdown of relationship between Robert and Harvey

37.  There were unsurprisingly different accounts of the reasons for the deterioration of the relationship between Harvey and Robert.  However, the facts material for present purposes are that such relationship turned sour from about April/May 2016 and completely broke down in the third quarter of 2016, culminating in PD Zhongshan’s termination of the employment of all the staff and workers engaged to work at the Zhongshan Factory for the production of JBHK’s goods on 28 September 2016 and the cessation of all production activities for JBHK at the Zhongshan Factory at 5 pm on the same date.

38.  There were also different accounts as to how the closure of the Zhongshan Factory came about.  Harvey saw that a move by Robert to sabotage JBHK’s business with a view to blackmailing Harvey into buying him out at the price he demanded whereas according to Robert and Anita, it was Anita who made the decision to close down JBHK’s operation at the Zhongshan Factory after Robert formally confirmed to her on 28 September 2016 that he could no longer underwrite the JBHK production after his relationship with Harvey had broken down.   As a result, Anita laid off all 200 workers engaged by PD Zhongshan for JBHK’s production on 28 September 2016.

PRINCIPLES FOR GRANT OF INTERLOCUTORY INJUNCTIONS

39.  On the principles for the grant or refusal of an interlocutory injunction, a good starting point is Lord Diplock’s speech in American Cyanamid Co v Eithicon Ltd [1975] AC 396 (HL) at 407F-409D which, as explained by the Hong Kong Court of Appeal in Wah Nam Holdings Co Ltd v Excel Noble Development Ltd [2000] 3 HKC 118, per Ribeiro JA (as he then was) at [28]-[32], requires the court to ask the following questions in deciding whether it is just or convenient to grant an interlocutory injunction:

(1) whether there is a “serious question to be tried” which means that the claim must not be frivolous or vexatious;

(2) if so, whether, if the plaintiff were to succeed in obtaining a permanent injunction at trial, it could adequately be compensated by an award of damages in respect of any loss which it might suffer by reason of the defendant continuing to act unrestrained pending the trial;

(3) if not, whether the defendant would be adequately protected by the plaintiff’s cross-undertaking in damages should it be later found that the plaintiff should not have been granted an interlocutory injunction; and

(4) if there is doubt as to the adequacy of the respective remedies of damages, where the balance of convenience lies.

40.  Where, as in here, the orders sought by the plaintiff are mandatory in terms, the modern approach is not to get bogged down by the question whether or not an injunction should be classified as prohibitive or mandatory.  What matters is the practical consequence of the injunction sought.  The underlying principle is that the court should take “whichever course seems likely to cause the least irremediable prejudice to one party or the other”.  See National Commercial Bank Jamaica v Olint Corpn [2009] 1 WLR 1405 (PC) per Lord Hoffmann at [19]-[20], which was cited with agreement in Hong Kong by Re Wako Giken (HK) Co Ltd [2010] 4 HKLRD 121 per Harris J at [22] and Shih-Hua Investment Co Ltd v Zhang Aidong, HCCW 109/2016, unreported, 19 January 2017, per Anthony Chan J at [66].  See also Music Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041, decided before National Commercial Bank Jamaica, in which Ma J (as the Chief Justice then was) also held at [12(c)]-[12(d)] that the law “makes no distinction between these two types of injunctions”, and that the court will “take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong”.

41.  However, not only were the Injunction Orders couched in mandatory terms, they would effectively give to JBHK the final order for the delivery up of the Subject Properties it claimed in prayer paragraph (6) of the ASOC.  The proper approach to be adopted where an interlocutory injunction will, or will practically, have the effect of disposing of a substantive claim in the action has been comprehensively reviewed by Mr Justice Chow in BMC Global Limited v TOR Asia Credit Master Fung LP, HCA 2392/2016, unreported, 14 October 2016.   I adopted his Lordship’s summary and analysis at [35]-[39] in In re Mingyuan Medicare Development Limited, HCMP 1480/2016, unreported, 22 May 2017, at [86].  In short, where the grant of an interlocutory injunction would in effect dispose of the action or part thereof finally, the court will have more regard to the plaintiff’s prospect of success or lack thereof, as a factor in the consideration of the balance of convenience.

SUMMARY OF DEFENDANTS’ GROUNDS OF OPPOSITION

42.  In opposition to the Continuation Summonses and in support of the Discharge Summonses (and the Contempt Leave Set Aside Summons), the defendants contended that it was incumbent upon JBHK to demonstrate, but it had not demonstrated, substantially more than just a serious issue to be tried in consequence of a number of flaws in its case or the presentation of it case on the ex parte occasions:

(1) First, JBHK was unable to identify or specify with sufficient clarity or particulars what properties or classes of properties would have to be delivered up.

(2) Second, JBHK has not adduced any evidence that proves that it has ownership interest in the Subject Properties.

(3) Third, the Subject Properties were located at the Zhongshan Factory which is owned and controlled by PD Zhongshan.  Robert he did not have any control over PD Zhongshan and should not have been ordered to deliver up the properties.

(4) Fourth, a party cannot through applying for an interlocutory remedy achieve what it would not be able to obtain by way of final relief.  In this regard, Acorn and PD Garments took the point that JBHK’s causes of action (which are (a) conversion, (b) conspiracy to harm JBHK and (c) breaches by Robert of a master agreement between JBHK and Robert and by PD Zhongshan of an agency Agreement between JBHK and PD Zhongshan, all committed by, inter alia, the retention of the Subject Properties) are sound in damages only and do not, as a matter of law, provide for any option to JBHK for the delivery up of the Subject Properties as a final remedy.  And it is not suggested that the defendants would not be good for the money in the event an award of damages was made in JBHK’s favour after trial.

(5) Fifth, given that the Subject Properties were situated in Zhongshan, the proper law governing JBHK’s interest in such properties should be PRC law, i.e. the law of the lex situs of the Subject Properties.  See Dicey, Morris & Collins on the Conflict of Laws, 15^th edition, Volume 1, Rule 133[11] at p 1336.  Insofar as JBHK’s claim for the return of the Subject Properties is based on an implied trust, such claim is unsustainable under PRC law, which does not know the common law concept of trust. 

(6) Sixth, as at 21 October 2016, JBHK owed PD Zhongshan sums adding up to HK$4,876,025.64 (“Alleged Debt”), after giving JBHK credit for the total sum of HK$15,343,220.43 owed by Acorn and PD Garments to JBHK.  PD Zhongshan is entitled to, and does claim, a lien for such indebtedness over the Subject Properties.

(7) Seventh, on 28 October 2016, PD Zhongshan actually commenced proceedings against JBHK (“PRC Action”) in the Zhongshan 2^nd People’s Court (“PRC Court”) to recover the Alleged Net Debt.  Upon PD Zhongshan’s application, the PRC Court further granted an asset preservation order over the Subject Properties to the value of HK$4,267,985.25 (“APO”).  See the civil judgment of the PRC Court dated 8 November 2016.  An application was subsequently made by JBHK’s PRC lawyers to seek to substitute JBHK as the “custodian” of the Subject Properties under the APO.  The application was resisted by PD Zhongshan.  JBHK has not succeeded in persuading the PRC Court to change the custodian of the Subject Properties to JBHK.  As a result, PD Zhongshan remains obliged under the APO not to deal with the Subject Properties in any way.

(8) Eighth, parts of the Subject Properties were “trade/import processing goods” under PRC custom law and could not be removed from their designated locations and delivered up without violating such law and/or the relevant administrative provisions made thereunder.  These are the Raw Materials that were imported under PD Zhongshan’s ‘contract book’.  The finished goods made from such raw materials should be exported under PD Zhongshan’s contract to JBHK as has happened hitherto.  PD Zhongshan could not under PRC custom law otherwise freely remove or even move these raw materials or finished goods.

(9) Ninth, JBHK had failed to adduce any evidence in support of any risk of dissipation of any of the Subject Properties in Zhongshan, pending trial of this action. 

(10) Tenth, JBHK had not justified the urgency that required it to make the application ex parte either.  There is evidence from PD Zhongshan, in the form of an emailed letter from PD Zhongshan to Harvey dated 8 October 2016 (exhibit “JHJ-9” to Harvey’s affirmation) that there was in fact no outstanding orders of customers of PD Zhongshan which would need to be met.

(11) Eleventh, Harvey (and not JBHK in which Robert (through Marrakesh) is also interested and which should thus remain neutral) should personally provide the cross-understanding as to damages.  Not only was this not offered, there is not a single piece of evidence of Harvey’s financial standing.

(12) Twelfth, JBHK had entirely misrepresented to Wong J the PRC legal opinion that it relied on by asserting that the PRC customs requirements could be “easily lifted”, when, in fact, JBHK’s PRC legal advisors had said no such thing.

(13) Thirteenth, JBHK was guilty of the following material non-disclosure at the ex parte hearings:

(a) the higher threshold for merits that JBHK had to pass;

(b) the lack of extra-territorial jurisdiction over PD Zhongshan, a PRC company, which had not been served and had not submitted to the Hong Kong court’s jurisdiction;

(c) the company search records of PD Zhongshan, PD Garments and Acorn which show that Robert was not at the material time a director or shareholder or the legal representative of PD Zhongshan or its holding company and ultimate holding company so as to inform the court that Robert has no power or control over PD Zhongshan;

(d) the unavailability of injunctive relief as a final remedy;

(e) the applicability of PRC law and the unsustainability  of JBHK’s claim to the beneficial ownership of the Subject Properties under such law;

(f) the applicability of the doctrine of double actionability and the unavailability of JBHK’s causes of action in tort (conversion and conspiracy) under PRC law;

(g) the applicability of PRC customs law and/or other administrative provisions which would prevent the delivery up by PD Zhongshan of the “trade processing goods” components of the Subject Properties; and

(h) the lack of urgency for the Injunction Orders.

(13) Fourteenth, having obtained the Injunction Orders, JBHK failed to prosecute this action diligently.

I list out all of the defendants’ objections to JBHK’s case that I can gather from the defendants’ affidavit evidence and submissions to give the parties peace of mind that the court has not overlooked any of their contentions.  It is, however, unnecessary to deal with each and every of these objections in order to dispose of the applications.  Where I consider a point, save for the issue of material non-disclosure, I shall do so with regard to all the pleadings, evidence and submissions before me. 

MERITS OF CLAIM FOR RETURN OF SUBJECT PROPERTIES

Sufficient identification of Subject Properties

43.  It is true that DHCJ Ismail and Wong J were not provided with an itemised list of the Subject Properties. 

44.  JBHK argued that the wordings of the Injunction Orders were clear enough.  The broad categories “machineries”, “raw materials”, “work-in-progress goods”, “finished goods”, “inventories”, “computers”, “hardware”, “purchaser order information” were preceded by the words “all properties belonging to [JBHK]” and followed by the words “in their possession, custody, power or control”.  Having regard to the demarcation of the JBHK Areas (see [28]-[31] above), the defendants could not have any misunderstanding as to, or difficulty in understanding, what “all properties belonging to [JBHK], … in their possession, custody, power or control” referred to.  To ascertain and return the Subject Properties, the defendants simply had to retrieve all the “machineries”, “raw materials”, “work-in-progress goods”, “finished goods”, “inventories”, “computers”, “hardware”, “purchaser order information” and all other moveable properties located at the JBHK Areas at 5 pm on 28 September 2016 when the Zhongshan Factory were shut down.

45.  JBHK would be right if it had indeed paid for all the moveable properties situated at the JBHK Areas, a premise underpinning JBHK’s assertion of beneficial ownership of the Subject Properties.  In this connection, in prayer paragraphs (5) and (6) of the ASOC, JBHK claimed respectively for an account, and an order for the delivery up, of “the Plaintiff’s chattels which are in [Robert’s] and/or [PD Zhongshan’s] possession, custody, power and/or control”.  The expression “the Plaintiff’s chattels” was not defined.  However, paragraph 18(8) of the ASOC coined another term “JBHK’s Properties” to denote “all properties belonging to JBHK, including but not limited to the machineries, the raw materials, the work-in-progress goods, the finished goods, the inventories, the computers, the hardware and the purchase order information of JBHK which are in the possession, custody, power or control of PD Zhongshan”, i.e. the Subject Properties as defined above.  On a fair reading of the ASOC, I take “the Plaintiff’s chattels” to mean “JBHK’s Properties” and is therefore the same as the “Subject Properties” as used in this decision.

46.  The basis upon which JBHK asserted an entitlement to an account, and the return, of the Subject Properties is that it was at all material times (and still is) the beneficial owner of the same. See paragraph 20 of the ASOC.  Such beneficial ownership apparently arose from (1) PD Zhongshan having purchased the Machineries and Raw Materials, and having produced the work-in-progress and finished goods as JBHK’s agent according to JBHK’s instructions; (2) JBHK having provided the funds for PD Zhongshan to do so or had reimbursed PD Zhongshan for the costs of doing so; and (3) PD Zhongshan having agreed with JBHK to immediately return the Subject Properties to JBHK upon JBHK’s request.  See paragraphs 18(3), (4), (6), (7) and (10) of the ASOC.  See also paragraph 4(3) to (9) of the Reply to Robert’s Defence.

47.  I also refer to Harvey’s 2^nd affirmation dated 30 September 2016 in HCA 2100/2016, where he said in paragraph 4 that:

“JBHK operates two de facto factories in Zhongshan via [PD Zhongshan] as its trustee. [PD Zhongshan] on paper is (i) the employer of 200 workers on the Zhongshan Factory (ii) the purchaser of the raw materials from the suppliers (iii) the purchaser of machineries in the Zhongshan Factory. JBHK would pay [PD Zhongshan] for the monthly salary of factory workers, the invoices of suppliers for raw materials and invoices of acquisition of machineries at costs. The accounts of JBHK, as prepared by Khim and audited by Eric Cheung & Co. (under Robert’s control) booked the factory workers’ costs, the raw materials and machinaries in its balance sheet and P/L.” (emphasis added)

This paragraph was materially repeated in paragraph 5 of the skeleton argument placed by JBHK before DHCJ Ismail on 30 September 2016.

48.  An essential element of JBHK’s claim to the beneficial ownership of the Subject Properties is therefore that it had paid for all of them.  I have already identified in [33] above evidence suggesting the contrary, i.e. that PD Zhongshan had purchased at its own expense at least some of the Machineries and computers at the JBHK Areas.  Leading counsel for Robert also pointed to documents showing that the payment for the purchase of the hot melt laminating machine was made by PD Clothing & Textile Limited[12]. If the costs of some of the moveables found at the JBHK Areas had been borne by PD Zhongshan, to identify what belonged to JBHK would require a process of separation of which company paid for what chattels.

49.  This alone, however, does not prevent the continuation of the Injunction Orders because the defendants should be under no misapprehension as to what properties belonging to JBHK are in PD Zhongshan’s possession, custody, power and/or control.  In this connection, Robert volunteered in paragraph 26 of his 4^th affirmation that the documents that will shed light on the ownership of the Machineries are likely to be in the possession of PD Zhongshan.  Further, in support of the APO application, PD Zhongshan apparently had no difficulty in compiling a list of JBHK assets in its hands to be preserved[13].

50.  In summary, in the circumstances of this case, the wordings of the Injunction Orders sufficiently identify the Subject Properties.

Sufficient proof of JBHK’s ownership interests in Subject Properties

51.  In addition to the schedules mentioned in [33] above to the effect that JBHK had paid for at least some of the Machineries and computers, I also refer to the accounting documents described in [34] above which further show that PD Zhongshan did claim reimbursements from JBHK for the payments that it had made to suppliers of the Raw Materials.

52.  Such documents, in my opinion, constitute sufficient evidence of ownership of the Subject Properties at this interlocutory stage.  

Robert has retained control over PD Zhongshan

53.  In his 1^st affirmation dated 5 October 2016 filed in intended action 111/2016 (which became this action after JBHK issued the writ of summons herein on 5 October 2016), Robert first said in paragraph 9, “I cannot speak for [PD Zhongshan].”  He further pointed out in paragraph 11 that he is neither a director nor other officer of [PD Zhongshan]. 

54.  Counsel for Robert repeated the same assertions at the hearing before Au-Yeung J on 14 October 2016.  Before continuing the 1^st Injunction Order on 14 October 2016, by a written decision of the same date, Au-Yeung J dismissed Robert’s claim that he lacks control over PD Zhongshan and found it clear that Robert has power over PD Zhongshan.  See [6]-[14].

55.  Then, in his 1^st affirmation herein dated 28 October 2016, not only did Robert question the basis for suggesting that he is personally in possession or control of the Subject Properties but also expanded that insofar as JBHK appears to suggest that he somehow controls PD Zhongshan, Robert again stressed that he is not a director nor a shareholder nor the legal representative of PD Zhongshan.  Whilst he used to have an indirect beneficial interest in PD Zhongshan’s sole shareholder which was PD Garments (through PD Enterprise), he had ceased to have any interest, let alone control, when he sold all of PD Enterprise’s shares in PD Garments to Acorn in April 2009; and Anita and Chan Yuk Kan are at present the 2 shareholders and directors of Acorn.   

56.  This theme was reiterated by Robert and echoed by Anita in the many more rounds of affidavits to come: see paragraphs 34, 39, 45 to 53 of Robert’s 2^nd affirmation also dated 28 October 2016, paragraphs 7(2), 9(5), 11 and 19 of Robert’s 3^rd affirmation dated 19 April 2017, paragraphs 4 to 12, 21 and 24 of Robert’s 4^th affirmation.   In particular, in his 4^th affirmation, Robert elaborated that he decided to divest of his China assets including the Zhongshan Factory.  See [26] above.

57.  It is worthy of note that only copies of the updated company search records of PD Zhongshan, PD Garments and Acorn have been produced.  There is not before the court a single transaction document, such as professionally prepared reports on the valuation of shares, agreements for sale and purchase of shares, bought and sold notes, instruments of transfer, stamped (where required) or otherwise.  One would have expected all these usual transaction documents to exist given the high value of the deal (HK$98 million).  While the public company records no doubt serve to reinforce the appearance intended to be created by the transfers of shares effected, they are however not necessarily proof that the changes in the registration of shares did bring about a conveyance of the beneficial ownership.   

58.  Robert and his associates have made too many statements on too many occasions that are plainly more consistent with his having de facto control of PD Zhongshan and therefore the Zhongshan Factory despite the appearance of the lack of a formal legal relationship.

(1) On 19 July 2016, when Anita refused to let Harvey’s son Benjamin Jessop retrieve JBHK’s company kit from its then registered office, Anita kept on telling Harvey’ son to talk to her boss Robert as they were merely acting on Robert’s instruction. 

(2) By his letter dated 29 July 2016 to Harvey, Robert demanded his appointment to board of directors of JBHK by 1 August 2016, failing which “the China operations will cease within 2 to 3 hours as we pay people and escort them off the premises. Final payments have been prepared and notifications to customers… are ready and waiting to be sent. All customers will be simultaneously notified and a petition will be filed in Hong Kong to wind up [JBHK]”.

(3) In her affirmation dated 8 September 2016 filed in HCA 2100/2016, Khim stated in paragraph 10 that PD Zhongshan was controlled by Robert.  And Robert adopted the content of this affirmation in paragraph 5(3) of his affirmation dated 22 September 2016 in HCMP 2296/2016.

(4) By PCW’s letter dated 23 September 2016, Robert/ Marrakesh demanded Harvey/Tangiers to buy out its 50% interest in JBHK at US$2.9 million, failing which Robert would shut down the Zhongshan Factory on 28 September 2016.  The same letter also mentioned that the agreement for the JV included the term that Robert would “through his PRC companies, providing upon an agency basis, [JBHK]’s office, factory and manufacturing facilities (the “Zhongshan Factory”)” (emphasis added).

(5) It was pleaded on behalf of Marrakesh in paragraph 11 of the petition under HCCW 307/2016 that Harvey and Robert agreed that Robert would provide factory space as well as manpower to the JV through PD Zhongshan “(a company in which [Robert] was at all material times and is indirectly beneficially interested)”.

(6) On 28 September 2016, when it was announced that the Zhongshan Factory would be closed, Anita told the laid off workers that it was the decision of Robert.

(7) At paragraph 14 of his 2^nd affirmation dated 29 September 2016 in HCCW 307/2016, Robert called PD Zhongshan “my company”.

(8) In paragraph 14 of his 2^nd affirmation dated 30 September 2016 in HCA 2100/2016, Robert said, “I did what I informed [Harvey] I would do – I closed the Zhongshan Factory”.

(9) At the hearing of HCMP 2296/2016 before DHCJ Ismail on 30 September 2016, Mr Barrie Barlow SC informed the court, “It is common ground that Robert is the beneficial owner of PD Zhongshan.” Further, counsel never disputed that PD Zhongshan had possession custody power or control of certain assets of JBHK but only argued that it would take time (4 weeks) to ascertain and deliver up such chattels as they had somehow been mixed up with PD Zhongshan’s own assets.

(10) In paragraph 25 of the original version of the petition dated 3 October 2016 under HCCW 352/2016, Anita was included in the expression “employees of [JBHK] loyal to [Robert]”.

(11) In his email dated 8 October 2016 to Harvey, SY Lee said on behalf of PD Zhongshan, “You need to understand, now that you are at war with Robert and hated by our staff, we will not allow you to step foot in our factory”.

59.  I have not lost sight of Robert’s attempt to explain in his 2^nd affirmation dated 28 October 2016 herein why the abovementioned statements did not mean or should not be taken to mean that he still has any present interest in PD Zhongshan.  In short, Robert said these statements should be read as referring to the situation existing at the beginning of the JV and/or before he disposed of his interest in PD Zhongshan in April 2009.  I have reviewed each of the statements in question in context. With respect, the interpretation suggested by Robert does not make sense.  It is obvious to me that the makers of the statements, including Robert himself, intended to talk about the present time.

60.  Another aspect which has piqued my curiosity is how Anita (who had hitherto occupied an employed position under Robert) and her sister-in-law (on whose background or means there is no evidence) afforded and paid for the price of HK$98 million (assuming that there was no mark-up in the sale of the PD Garments shares from PD Enterprise to Acorn).  Further, I have already stated in [26] above that round about the same time, Robert also disposed of his factories in Taiping and Henggang.  He did so for the respective considerations of US$675,000 and HK$13,500,000.  Acorn also turned out to be the ultimate purchaser of the Taiping and Henggang factories.  These additional purchases brought the total purchase price payable by Anita and her sister-in-law to HK$116,765,000.

61.  On the evidence before me, I do not accept that Robert has genuinely relinquished beneficial ownership of or control over PD Zhongshan.

JBHK’s cause of action for recovery of Subject Properties in specie

62.  The 4^th and 5^th objections set out in [40] above can be conveniently dealt with under this heading.

63.  The following questions or arguments are, with no disrespect to leading counsel (for whose able assistance I am grateful), red herrings:

(1) whether JBHK’s causes of action in conversion, unlawful means conspiracy or breaches of contract can lead to the recovery of the Subject Properties as a final remedy after trial;

(2) whether the tort of conversion has developed to such a state in Hong Kong to enable the court to grant the remedy of  delivery up of the chattel converted;

(3) whether the ASOC, which does not allege that Acorn or PD Garments are themselves in possession of the Subject Properties, can support an alternative claim in detinue against Acorn and PD Garments;

(4) whether the torts of conversion and unlawful means conspiracy complained of by JBHK were in substance committed in the PRC and, if so, whether such torts are actionable under PRC law (where the torts were committed) so as to be actionable in Hong Kong (which is the forum court) under the doctrine of double actionability (see Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5) [2002] 2 AC 883); and

(5) whether the defendants can rely on Xiamen Xinjingdi Group v Eton Properties Ltd [2016] 2 HKLRD 1106, per Yuen JA at [262] as evidence of the non-existence of the economic tort of conspiracy under PRC law.

64.  I say so because of the discussion of JBHK’s cause of action for recovery of the Subject Properties in specie in [45]-[47] above.

65.  Reliance was placed by the defendants on the holdings in Waxman v Li Fai Yu [2013] 3 HKLRD 711, per To J at [49] & [58], Xiamen Xinjingdi Group v Eton Properties Ltd, HCCL 13/2011, unreported, 14 June 2012, per Stone J at [194]-[199] and Xiamen Xinjingdi Group v Eton Properties Ltd, supra, per Yuen JA at [270]-[272] that PRC law (which, as the law of the lex situs in this case is the law governing the interest in the Subject Properties claimed by JBHK) does not recognise the beneficial ownership under a trust.

66.  To counter the finding of PRC trust law in these cases, leading counsel for JBHK tried to disavow any reliance on a breach of trust in JBHK’s case (see paragraph 13 of JBHK’s reply submission dated 9 October 2017).  This, I am afraid, is disingenuous.  Again, I repeat [45]-[47] above.  It can be seen that quite apart from being an independent standalone cause of action, JBHK’s assertion to be the beneficial owner of the Subject Properties under a trust at the same time underpins its claims in conversion, unlawful means conspiracy and breaches of contract as these wrongs were all said to have been committed by, inter alia, the retention of the Subject Properties.  And the retention of the Subject Properties was wrongful only because its beneficial owner JBHK had demanded for their return but to no avail.

67.  For the sake of completeness, in response to the defendants’ reliance on Xiamen Xinjingdi Group v Eton Properties Ltd as evidence of the non-existence of the economic tort of conspiracy under PRC law, while accepting that a finding on foreign law in a court decision can be evidence of foreign law, leading counsel took issue with the defendants’ failure to give notice of their intention to rely on the aforesaid case law as required by s 59(3) of the Evidence Ordinance (Cap 8) and Order 38, rule 7 of the Rules of the  High Court (Cap 4A). 

68.  I assume that the same point would have been taken in response to the defendants’ reliance on Waxman v Li Fai Yu and Xiamen Xinjingdi Group v Eton Properties Ltd as evidence of the non-recognition of an interest under a common law trust under PRC law.

69.  The short answer is that apart from relying on the findings on relevant PRC law in the cases, Robert has adduced a PRC legal opinion dated 27 October 2016 by Guangdong Sun Law Firm that the trust of the Subject Properties alleged by JBHK did not fulfil a numbers of requirements of a valid trust (e.g. the requirement of writing) under the Law of Trusts of the PRC.   I accept the opinion expressed in such report, especially in the absence of a contrary view.  In other words, on the PRC law evidence before me, under the law governing JBHK’s interest in the Subject Properties, the beneficial ownership asserted by JBHK is not sustainable.   

ADEQUACY OF REMEDY OF DAMAGES TO EITHER PARTY

70.  In view of my last conclusion, it is strictly speaking unnecessary to examine whether either party would be adequately compensated by an award of damages.  Nevertheless, I shall for the sake of completeness do so briefly.

JBHK

71.  Had JBHK crossed the merits hurdle, it would have found itself in the following peculiar position.

72.  By the time of the hearing before this court, more than 1 year had lapsed after JBHK’s initial attempt to recover the Subject Properties. While Harvey has deposed to some efforts by JBHK to attempt to mitigate its loss, he has not shared with the court whether the mitigating measures were successful or not.  However, in view of the great urgency with which JBHK went before DHCJ Ismail and Wong J, the kinds of commercial and reputational loss and damage that JBHK spoke of and sought to prevent by applying for and obtaining the Injunction Orders would have already occurred to some extent by the time of the hearing before this court. 

73.  That is to say, even if the Injunction Orders were continued, with a new provision of time for compliance at the hearing before me and, for the sake of argument, even if the Injunction Orders so continued were complied with, the need for JBHK to claim damages against the defendants and PD Zhongshan would not have been obviated. 

74.  Anyway, the Subject Properties are now subject to the APO, which JBHK seems to have accepted as binding on it.  In this connection, I note that JBHK had, presumably on advice, applied to the PRC Court, not to set aside the APO but only to be substituted as the “custodian” of the Subject Properties, pending the trial and determination of the PRC Action.  I have been given to understand that even if the PRC Court should accede to such application by JBHK, JBHK would be permitted to have the custody, but not the use, of the Subject Properties under the APO, the bulk of which are raw materials.  This appears to me to be a meaningless exercise. owever,

PD Zhongshan

75.  PD Zhongshan held onto the Subject Properties and went to the length of applying for and obtaining the APO because it claims a lien over the Subject Properties for Alleged Debt due from JBHK to it.

76.  Assuming that the claimed lien is sustainable as a matter of PRC law, the loss and damage that PD Zhongshan would suffer as a result of the return of the Subject Properties would be the loss of the security of the lien, meaning that it would be left with the personal remedy of enforcing a judgment for the Alleged Debt against JBHK.  It is not suggested that JBHK would not be good for the money.  Indeed, the evidence is that JBHK had a substantial credit balance ($2,575,708.84)[14] when HSBC suspended the HSBC Account.

77.  This is also the convenient point to dismiss Robert’s complaint that JBHK (in which Robert is also interested), and not Harvey personally, was made to give the cross-undertaking as to damages.  I see no injustice when the possible damage to the relevant defendant, i.e. PD Zhongshan, is the loss of a security for JBHK’s alleged indebtedness to PD Zhongshan.

78.  I have not dealt with the Alleged Debt above under the heading of merits.  In proof of the existence of the Alleged Debt, both Robert and Anita have exhibited as “NMC-16” and “AC-3” respectively a spreadsheet purportedly showing the account balance between JBHK and PD Zhongshan from July 2016 onwards (see also [34(2)] above).  The calculations shown thereon started with an opening debit balance of HK$16,773,983.76 against JBHK as at 30 June 2016.  However, there is nothing to show how this amount had accrued.  As mentioned in [36] above, the monthly statements from PD Zhongshan to JBHK would also show the latest net amounts due from JBHK to PD Zhongshan, Acorn and PD Garments and vice versa. The best evidence of the true state of account between JBHK and PD Zhongshan would, in my view, be say the last 6 to 12 monthly statements from PD Zhongshan to JBHK.  For reasons not gone into, such evidence was not placed before the court.  Had it been necessary for me to come to a view on the Alleged Debt and the claim to a lien based thereon, I would have considered the defendants’ evidence in support flimsy.

Other defendants

79.  It is not suggested that Robert, PD Garments or Acorn would suffer any loss or damage whether the Injunction Orders are continued or discharged.

BALANCE OF CONVENIENCE

80.  I am of the view that the balance of convenience lies in favour of leaving the Subject Properties where they are, in light of the following circumstances:

(1) JBHK’s failure to establish a high degree of assurance that it is likely to succeed at trial in its assertion to the beneficial ownership of the Subject Properties;

(2) that the Subject Properties are now subject to the restraint of the APO with only a possibility of switching the “custodian”; and

(3) that the loss and damage that JBHK sought to prevent by obtaining the Injunction Orders had probably occurred by the time of the hearing before me.

81.  For these reasons, the Injunction Orders should be discharged or not continued.

MATERIAL NON-DISCLOSURE

Principles

82.  The fact that the legal representatives of Robert (and PD Zhongshan) were present at the hearing of the ex parte application 30 September 2016 did not transform the ex parte hearing into an inter partes one, nor does it relieve JBHK of the obligation to make full and frank disclosure to the Court:  see, e.g., Muginoho Co Ltd v Vimiu HK Co Ltd, HCMP 107/2012, unreported, 24 February 2012, per DHCJ Mimmie Chan (as she then was) at [4]-[5].

83.  When seeking an ex parte injunction, the applicant must proceed with the utmost good faith and make full and frank disclosure of all material facts.   Materiality is to be decided by the court, and not by the applicant or his legal advisors.  The test is whether the facts are relevant to the exercise of the court’s discretion.  Whether the fact go to the merits or would have caused the court to refuse the injunction is not determinative: Velatel Global Communications Inc v Chinacomm Limited, HCA 1978/2011, unreported, 26 October 2012, per DHCJ Au-Yeung (as she then was) at [26] and [27].

84.  The applicant must identify any defences, which although not yet taken, would be available to be taken by the defendant.   Hence, the applicant must make all proper and necessary inquiries before making the application.  What inquiries are proper and necessary would depend on all the circumstances of the case including the nature of the case which the applicant is making, the order for which the application is made, and the probable effect of the order on the defendant (see, e.g., Falcon Private Bank Ltd v Borry Bernard Edouard Charles Ltd, HCA 1934/2011, unreported, 9 July 2012, per To J at [52]-[55]; and Universal Exports Group Ltd v Zechin Technology Co Ltd, HCA 2613/2016, unreported, 24 October 2016, per Deputy High Court Judge Kwok SC at [11]-[13]).

85.  The duty to disclose cannot be fulfilled by simply exhibiting voluminous documents without making distinct reference to the points in the affidavit itself or when addressing the judge at the hearing.  See, e.g., Tiong King Sing v Sam Boon Peng Yee [2011] 5 HKLRD 651 at [14].

86.  The duty of full and frank disclosure covers not just matters of fact but extends also to material points of law.  See, e.g., Memory Corporation Plc v Sidhu [2000] 1 WLR 1443 at 1454C-G; and Cheer Signal Development Limited v Wong Siu Fan, HCA 780/2015, unreported, 26 October 2015, per Au-Yeung J at [10].

87.  An applicant has a duty to inform the court as soon as he becomes aware that the court has been misinformed or given incomplete information at the time of the ex parte application (see, e.g., Cargill International Trading Ptd Ltd v Loyal Base Development Ltd, HCCL 12/2015, unreported, 24 November 2015, per Mimmie Chan J at [50]).

Matters that should have been, but were not, disclosed

88.  Applying the above principles, I see at least the following problems in the presentation of JBHK’s case before DHCJ Ismail and Wong J:

(1) Paragraph 38 of JBHK’s Skeleton before DHCJ Ismail described the test for merits as being only one of a “serious issue to be tried”.  This is clearly an understatement of the burden on JBHK.  See [40] and [41] above.

(2) The legal issue of whether a concept similar to a common law trust exists under PRC law was not mentioned in either of the ex parte applications.  Inquiries should have been made about applicability and contents of PRC trust law given that the Subject Properties were located in Zhongshan.

(3) JBHK’s skeleton submission before Wong J did not brief the judge on any of the requirements for the grant of an interlocutory mandatory injunction that would have the effect of disposing a substantial part of the action.  On that occasion, JBHK’s case was made simply on the basis that the 1^st Injunction Order, having been made and continued, had been breached by Robert; that Robert had sought to excuse himself by claiming that he was powerless over PD Zhongshan; that PD Garments and Acorn, as the holding company and ultimate holding company of PD Zhongshan were necessary and proper parties to be joined as defendants to this action; and that they should further be made subject to an injunction in the terms as the 2^nd Injunction Order as a matter of urgency.

(4) Further, paragraph 14 of such submission stated that JBHK’s PRC lawyers had produced an opinion on PRC customs law (which, I believe, referred to the PRC Legal Opinion dated 20 October 2016 by Yangsan Law Firm of Guangdong) that was contrary to that compiled by Robert’s PRC lawyers (which, I believe, referred to the PRC Legal Opinion dated 16 October 2016 by Zhong Yuan Law Firm).  This is a misrepresentation.  In fact, Yangsan Law Firm agreed with Zhong Yuan Law Firm that the relevant statutory/ administrative regulations cited by the latter are clear and that PD Zhongshan would be in breach of such regulations if it relocated the import processing goods of the Subject Properties without first applying to the customs department for permission.  Yangsan Law Firm then proceeded to come up with a number of ways to comply with the law which all required PD Zhongshan’s co-operation.  Even if JBHK is right that permission would be granted, a correct presentation of the legal opinion on PRC customs law would render the 1 day time limit allowed under the 2^nd Injunction Order unrealistic and oppressive.

89.  For the added reason of misrepresentation and material non-disclosure, the Injunction Orders should be discharged.

CONTEMPT LEAVE SET ASIDE SUMMONS

90.  The power of a judge of civil jurisdiction to imprison a litigant is by any account one of his most draconian, branding the contemnor who is found guilty a criminal.  See RACP Pharmaceutical Holdings Ltd v Li Xiaobo, HCA 490/2007, unreported, 14 April 2008, per Deputy High Court Judge Gill at [3].

91.  Leave to commence committal proceedings against Robert was granted on the basis that he had acted in contempt of court by breaching the mandatory part of the 1^st Injunction Order.  Upon the discharge of the 1^st Injunction Order, the further prosecution of the committal proceedings against Robert (HCMP 3216/2016) would be oppressive and would not serve any legitimate objectives and have no sense of proportionality (see Sectorguard Plc v Dienne Plc [2009] EWHC 2693 (Ch), per Briggs J at [44]-[47])

DISPOSITION

92.  For the reasons stated above, I dismissed the Continuation Summonses, allowed the Discharge Summonses and the Contempt Leave Set Aside Summons.

93.  Robert has invited the court to make costs orders against Harvey personally and not JBHK.  Otherwise, with his interest in JBHK, Robert would effectively have had to share in such liability.  I adjourn the issue of costs to allow Harvey an opportunity to deal with this application.