IP PUI LAM ARTHUR AND ANOTHER v. HO YUK WAH DAVID (a bankrupt) AND OTHERS

CAMP 114/2018

[2018] HKCA 604

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 114 OF 2018

(ON AN INTENDED APPEAL FROM HCA NO 2587 OF 2017)

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the court):

1.  In a decision handed down on 20 April 2018 (“the Decision”), Deputy High Court Judge Kent Yee discharged an ex parte injunction obtained by the plaintiffs, who are the trustees in bankruptcy of Ho Yuk Wah David (“Ho”), for material non‑disclosure and abuse of the ex parte procedure for failing to give notice to the 3^rd defendant, Grassmere Services Limited (“Grassmere”). He exercised his discretion to re‑grant the injunction, restraining the 5^th defendant, who is the escrow agent, from disposing of or dealing with a sum of $75 million in an escrow account (“the Sum”).

2.  Grassmere sought leave before the judge to appeal to the Court of Appeal.  This was heard on 21 June 2018 with further written submissions on 22 June.  The judge refused leave in a decision handed down on 3 July 2018 (“the Leave Decision”).

3.  By a summons issued on 16 July 2018, Grassmere renewed its application for leave to appeal before the Court of Appeal.  The draft notice of appeal annexed to its summons contained the same grounds as those submitted to the judge in the leave application he heard.  Grassmere requested an oral hearing “so as to enable all relevant matters to be fully and fairly canvassed before this Court.”

4.  The grounds of appeal in the draft notice were numbered I to VII, with paragraphs and sub‑paragraphs.  They took up 13 pages. Other than the fact that no authorities were cited for the propositions advanced, they read like a full submission.  A statement in the nature of submissions was filed by Grassmere in compliance with Order 59 rule 2A(1), setting out the reasons why leave to appeal should be granted.  Authorities were cited in this submission and in compliance with Practice Direction 4.1 §8, it did not exceed five pages.  Even if the present application were the appeal itself and not an application for leave to appeal, the skeleton argument would not have exceeded 15 pages under the Practice Direction.

5.  We have no reason to think that all pertinent matters relevant to this application for leave to appeal have not been fully and fairly canvassed in the draft grounds of appeal and the submissions filed on behalf of Grassmere.  We do not think any useful purpose would be served by holding an oral hearing.  In accordance with the underlying objectives in Order 1A rule 1, we think it appropriate to exercise our power under Order 59 rule 2A(5)(a) to determine this application without a hearing on the basis of written submissions only.

6.  The principles for granting leave to appeal under section 14AA of the High Court Ordinance, Cap 4 are well established.  The court must be satisfied that the intended appeal has a reasonable prospect of success or there is some other reason in the interests of justice that the matter should be heard by the appeal court.  Reasonable prospect involves the notion that the prospect must be more than fanciful without having to be probable.  The re‑grant of an interlocutory injunction involves the exercise of discretion of the court, so the established principles in Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 at 220 would apply for an appeal court to interfere with the exercise of the judge’s discretion.

7.  We note that the submission was made by Mr William Wong, SC (appearing with Mr Martin Kok for Grassmere throughout) before the judge[1] that where it appears whether a re‑grant of an interlocutory injunction should be ordered was not “an open and shut case”, the Court of Appeal should grant leave to appeal so it could “consider this difficult question afresh”.  This would appear to have informed Mr Wong’s approach in the present application and the intended appeal.  As noted by the judge, the draft notice of appeal “merely rehashes all the arguments previously advanced to [the judge].”[2]

8.  This is not the right approach.  In the exercise of discretion, the court may not be dealing with an “open and shut case” or that the question under consideration may not be free from difficulty, and often, in a particular situation, there may not be only one correct way in which the discretion is to be exercised.  The appeal court will only interfere where the conclusion reached by the judge in the exercise of his discretion was “outside the generous ambit within which a reasonable disagreement is possible.” (Hong Kong Civil Procedure 2018, vol 1, §59/0/54)  It is not the function of the appeal court to consider the exercise of discretion afresh, by hearing substantially the same or additional arguments, whenever some difficulty is raised as to how that discretion should be exercised.

9.  It is unnecessary to relate the background facts.  They are found in the Decision at §§1 to 33.  Two broad issues are involved in the intended appeal.  The first relates to the question whether there is a serious issue to be tried.  The second relates to matters concerning the exercise of discretion in ordering a re‑grant of the injunction.  On both issues, Mr Wong has considerable hurdles to surmount.

10.  The central issue in the present action is the beneficial ownership of 5% shares in Dan Form International Limited (“DFIL”), held by Grassmere as the registered shareholder (“the DFIL Shares”).  The plaintiffs’ case is that the DFIL Shares are beneficially owned by Ho and that Grassmere merely holds them on trust for him as his trustee or nominee.  In support of their case, they rely heavily on the Joint Announcement referred to in the Decision at §§15 to 19.  Grassmere was not privy to the Joint Announcement but it was a party to the Escrow Agreement, to which the Joint Announcement was appended.

11.  Grassmere’s case is that neither Grassmere nor the DFIL Shares is owned or controlled by Ho.  Alternatively, even if Ho owns or controls Grassmere, Grassmere would not as a matter of law hold the DFIL Shares on trust for Ho[3].

12.  For the reasons in §§56, 58 to 76, the judge held at §84 that the plaintiffs have an arguable proprietary claim over the DFIL Shares though further evidence should be amassed to support the same, and that they have also shown a sufficiently arguable case for a proprietary remedy.  The Sum represents the sale proceeds of the DFIL Shares and hence is the property of the genuine beneficial owner of the DFIL Shares.

13.  For a party seeking an interlocutory injunction, it is not a high threshold to show a serious issue to be tried, as “it is no part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations” (American Cyanamid Co v Ethicon Ltd [1975] AC 396 at 407H).  And as Lord Diplock went on to say at 407G: “The court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried.”

14.  Conversely, if the opposing party seeks to show there is no serious issue to be tried, the threshold for him to succeed is high, as it would be necessary for him to demonstrate that the claim should be struck out (Yifung Properties Ltd & Ors v Manchester Securities Corp & Ors, CACV 258/2015 and 259/2015, §§11 and 20 and the cases there cited[4]).

15.  Mr Wong contended, as he did before the judge, there is no serious issue to be tried that Ho is the beneficial owner of the DFIL Shares.  We are not persuaded he has reasonable prospect of meeting the high threshold in this regard.

16.  We do not think the inability of the plaintiffs to identify the legal basis upon which, and the circumstances under which, a trust is said to arise between Ho and Grassmere in respect of the DFIL Shares, or how Grassmere has become the nominee of Ho regarding those shares, is fatal to the plaintiffs.  At this stage, it would suffice if there is sufficient evidence from which an inference may be drawn to support a serious issue that Grassmere holds the DFIL Shares as trustee or nominee for Ho (XY, LLC v Jesse Zhu & Anr, CACV 11/2016, 29 March 2017, §§15 to 17; FAMV 21/2017, 15 August 2017, §8).  And the judge is correct to hold that, as a matter of law, it is permissible for Grassmere to hold the DFIL Shares on trust for Ho under particular circumstances.

17.  As for the adverse inference against Grassmere by reason of “its tacit acceptance of the historical facts stated in the preamble of the Escrow Agreement and the contents of the Joint Announcement appended thereto”[5], we are not persuaded that this is not a possible inference.  We have considered the evidence relied on by Mr Wong to support his contention to the contrary.  Such evidence was not overlooked by the judge[6]. As stated in the Leave Decision at §15, such evidence was cogently presented to the court by Mr Wong at the first hearing and the judge did not find it necessary to set them out in the Decision.  In any event, the plaintiffs are not required to establish at this stage that it must be correct to draw this adverse inference.

18.  The arguments raised as to whether Grassmere held the DFIL Shares directly on trust for Ho, or whether it could only be suggested that Ho indirectly owned the shares are of little significance.

19.  We agree with Mr David Chen for the plaintiffs that properly understood, the judge did not misread or had failed to take note of an express caveat in the Joint Announcement that the directors of Tian An China Investments Co Ltd (“Tian An”) would not accept responsibility for the accuracy of the information “relating to the Vendors”, and the term Vendors was defined to include DFIL.  The judge did not find that Tian An had accepted responsibility for the accuracy of the information in the Joint Announcement relating to the Vendors.  What the judge regarded as significant was that Tian An had stated, to the best of the knowledge, information and belief of its board of directors, that having made reasonable enquiries, “each of the Vendors and their respective ultimate beneficial owner” are third parties independent of and not connected with Tian An or the offeror which is a wholly owned subsidiary of Tian An, and their respective connected persons and not a party acting in concert with any of them[7]. For the reasons given in §66 of the Decision, the judge took the view it is unlikely that the information about DFIL and its ultimate beneficial owners turned out to be incorrect. We do not think Mr Wong’s criticism in this regard is warranted.

20.  The judge has dealt with adequately the arguments about a proprietary injunction over the Sum[8], as opposed to the shares, when the mandatory redemption of the DFIL Shares has yet to take place and the shares have not been turned into the Sum.  We do not propose to add anything to his reasons save to say that the court clearly has jurisdiction to grant interim injunctive relief to protect a party where his right to relief is contingent upon an event that has not yet occurred, to prevent injustice where the right is clear and the danger is clear (DJ Rowland v Gulfpac Ltd [1999] Lloyd’s Rep Bank 86 at 99).

21.  The other broad issue in the intended appeal is concerned with the exercise of discretion in re-granting the injunction.  The judge was guided by the approach in Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642 at §§56 to 58.  Mr Wong’s complaint is that the exercise of discretion was plainly wrong.  In essence, he asked this court to look again at the matters he raised before the judge (sparing exercise of the discretion to re‑grant injunction; material non-disclosure was not innocent but deliberate; no credible undertaking as to damages; undue and unexplained delay of over ten months; fortification of the undertaking in damages) and to exercise the discretion in the opposite way.

22.  We do not think the exercise of discretion was plainly wrong or outside the generous ambit within which a reasonable disagreement is possible.  It does not appear to us there are reasonable prospects that the appeal court would interfere with the exercise of discretion in these circumstances.

23.  For all the above reasons, we are of the view that the intended appeal does not have reasonable prospect of success, nor is there any other reason in the interests of justice that the matter should be heard by the appeal court.  We dismiss the application for leave to appeal.

24.  As this application is wholly without merit, we further order pursuant to Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be considered at an oral hearing inter partes.

25.  There is no reason to depart from the usual rule that costs should follow the event.  We make an order nisi that Grassmere should pay the costs of the plaintiffs of this application.

26.  Having considered the statement of costs of the plaintiffs for summary assessment, and taking into account that the same grounds of appeal are relied on as those before the judge in the leave application, we assess reasonable costs to be paid in the sum of $111,610.

27.  The costs order nisi and gross sum assessment will be made absolute if no application for variation is made by any party within 14 days of the handing down of this judgment.