MILLENNIUM & COPTHORNE HOTELS NEW ZEALAND LTD AND OTHERS v. CHENG PING KWONG

HCA520/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.520 OF 2010

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REASONS  FOR  JUDGMENT

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The Application

1. On 15 April 2010, Poon J, upon an ex parte application of the plaintiffs, granted injunction against the defendant restraining him from :

(a)  acting as the legal representative of 13 companies in the Mainland[1] (“the 13 Companies”); and

(b) using the company stamps of 14 companies in the Mainland (including the 13 Companies) (“collectively the Mainland Companies”). 

2. The plaintiffs also applied to Poon J for a mandatory injunction ordering the defendant to return the Mainland Companies stamps.  This application was adjourned to the inter parte hearing now before me. 

3. In short there are now two summonses before the court, namely :

(1)  the plaintiffs’ summons for :

(i)    continuation of the ex parte injunction, and

(ii)   the aforesaid mandatory injunction; and

(2) the defendant’s summons for stay of the action herein pursuant to section 6 of the Arbitration Ordinance, Cap. 341 for arbitration in Beijing by the China International Economic and Trade Arbitration Commission. 

4. On the date of hearing, I have :

(a)  granted in terms of in injunction summons as in§3(1) above; but

(b) adjourned the summons for stay of the action for arbitration in§3(2) sine die with liberty to restore. 

I now set out my reasons hereinbelow. 

Background

5. According to the affirmation of one “Neo” Teck Phang (_梁德平) of the plaintiffs, the 1^st and 2^nd plaintiffs (“P1” & “P2”) and the defendant (“D”) are described as follows :

“4.   Hong Leong Investment Holdings Pte. Ltd. 豐隆集團 (‘Hong Leong’) is a private company incorporated in Singapore and engaged in international business comprising of property trading and development, hotel investment and management, finance and industries.  Many of its subsidiaries and associate companies are public companies listed on the world’s leading stock exchanges.  I am the senior vice-president (Investment) of Hong Leong Management Services Pte. Ltd, which is a subsidiary of Hong Leong. 

5.    The 1^st Plaintiff is a subsidiary of Hong Leong.  It is a New Zealand company listed in the New Zealand Stock Exchange.  It is the largest Hotel group in New Zealand. 

6.    The 2^nd Plaintiff is a subsidiary of Tai Tak Estates Sdn Bhd.  Tai Tak Estate Sdn Bhd is the third largest shareholder of United Overseas Bank Limited in Singapore. 

7.    The Defendant is a resident in Hong Kong.  Through his sister who is a PRC citizen, the Defendant controls a PRC company known as廣東慧谷集團有限公司 (later changed its name to廣東慧盈集團有限公司) (‘舊慧谷’), which was originally engaged in amongst others, the business of property trading and development in PRC.  Their main assets comprised of, inter alia, the shares in 8 PRC companies and interests in 4 development projects in the Guangdong province, PRC. (the ‘12 Assets’)”

6. On 27 September 2007, by a Strategic Cooperation Agreement (“SCA”) P1 and P2 on the one hand, and D on the other hand entered into a Joint Venture (“JV”) in order to operate a number of hotels and real estate projects in the Mainland. 

7. Pursuant to the SCA, one Idea Valley Investment Holdings Limited (“IVIHL”) was set up as the main JV vehicle with P1 and P2 holding 60% and the defendant’s nominee company, one Summit Million Limited (“SML”) holding 40% of its shares.  The Mainland companies were set up or acquired as envisaged under the SCA.  P3 to P6 are 4 holding companies of the Mainland Companies. 

8. The defendant was appointed the legal representative of the 13 Companies.  Under Clause 3.3.3 of the SCA, D was given the right to run and manage P7 and the Mainland Companies beneficially owned by P7 for 7 years.  At the same time, D’s right to run and manage the Mainland companies was subject to him fulfilling the condition of capital contribution by him under the SCA as follows :

(1) Under Clause 5.1.2, D should contribute a total sum of RMB318,219,000.  The payment mechanism is set out in Clause 5.3 in that D was obliged to sell 12 assets to the JV, the value of 5 of which would add up to RMB318,219,000. 

(2) D would receive the value of those 5 assets upon selling them to the JV.  Clause 5.3.2 provided that D should within 6 months upon completion of sale of those assets inject the value that he received back to the JV.  D has accepted this in paragraph 11 of his affirmation. 

(3) D has sold 11 of the 12 assets, including 4 of the 5 assets as set out in Clause 5.4.1(1)-(5), to the JV, and received the total value thereof.  The last one of the 4 assets was sold in January 2009.  Thus D ought to have contributed the sum of 262,709,000 (i.e. the total value of those 4 assets sold) to the JV within 6 months, i.e. by July 2009 at the latest.  However the plaintiffs alleged that D has only contributed about RMB128.5 M being :

(i)  USD40 in cash on 22 October 2007 and

(ii)  RMB128,494,463 as evidenced by the allotment of shares in IVIHL to SML :

Date of allotment	Number of shares allotted (at US$1@)	Value of shares allotted in RMB
24/1/2008	5,543,934	41,284,463
25/3/2009	12,766,798	87,210,000
Total	US$18,310,732	RMB128,494,463

9. Thus the plaintiffs alleged that the total amounts of the defendant’s capital contribution is substantially less than the total value of assets he sold (about RMB262.7 million), as required by Clause 5.3.2.  

The Defendant’s Case and the Plaintiffs’ Reply

10. The defendant’s case is that there is a Confirmation Agreement dated 28 March 2009.  He claimed that the plaintiffs have acknowledged in that agreement that he had already fulfilled his capital contribution obligation. 

11. The plaintiffs however submitted the Confirmation Agreement confirmed and acknowledged that the parties had performed SCA Clauses 2, 3, 4, and 5.4 only.  It only confirmed that the defendant had sold 11 out of 12 assets to the JV and had received full consideration when the aforesaid clauses were referred to.  There is no mention at all that the defendant has fulfilled his capital contribution under Clause 5.3.2.  If he had done so, Clause 5.3.2 would have been specifically stated in the Confirmation Agreement.  

Material non-disclosure on the part of the plaintiffs

12. By mentioning the Confirmation Agreement, the defendant, apart from alleging that he had fulfilled his capital contribution obligation, he is also alleging that there was material non-disclosure at the stage of the ex parte application of the plaintiffs in applying for the injunction against him. 

13. The bone of contention here is that the defendant said he has already fulfilled his capital contribution as evidenced by the Confirmation Agreement and the plaintiffs had failed to disclose the same to Poon J, on their ex parte application. 

14. The plaintiffs submitted that the defendant has not provided any evidence to support his bare assertion that he has already injected the total sum of RMB262.709 million.  The plaintiffs relied on the number of shares in IVIHL allotted to him as the best evidence of his actual amount of contribution.  The defendant did not suggest that his capital contribution has not been correctly reflected in his shareholding (through SML or otherwise) in IVIHL. 

15. The plaintiffs further relied on their e-mail dated 2 March 2010 which clearly stated that the defendant has breached Clause 5.3.2.  The defendant did not even reply to such an allegation by referring to the Confirmation Agreement or otherwise. 

16. At this interlocutory stage, I consider that it is more probable that the plaintiffs’ construction of the Confirmation Agreement is more acceptable than the defendant’s version.  I would not go into the details of the analysis of them.  Suffice it for me to say that there is a serious issue to be tried and the plaintiffs have a strongly arguable case.  Further, this issue is also fact-sensitive.  Thus, whether the Confirmation Agreement is material enough to require disclosure or not is an issue to be tried. 

17. In any event, even if there was material non-disclosure on the part of the plaintiffs here, I would have continued or re-granted the injunction in the circumstances of this case as will be explained hereinbelow. 

The fall-out of the defendant with the plaintiffs

18. The defendant admitted in his affirmation (para. 42(b)) that since mid-2009, he has considered leaving the JV because he and P1 and P2 held different views about the prospect of the JV.  He was considering a possible buy-out of his interest by one new CEO Chan. 

19. On 20 November 2009, P7 held a board meeting in which the defendant was present.  He was removed as the CEO of P7, to be replaced by one CEO Chan.  It was further resolved that the stamps of the Mainland Companies shall be kept by one CFO Low of P7.  The stamps were kept in accordance with the aforesaid resolution between 26 November 2009 and 15 March 2010.  D admits in §42(e) of his affirmation that since the appointment of CEO Chan, D took an inactive role in the management of the JV and the Mainland Companies.  He was hoping to sell his interest in due course. 

20. On 29 December 2009, additional shares in the total value of US$28 million was allotted to one PSCL which is the vehicle of P1 and P2.  It was done, according to the plaintiffs, as a result of D’s breach of Clause 5.3.2 and pursuant to Clause 5.3.3.  The defendant’s beneficial interest in the JV was thereby reduced from 40% to 25%.  The defendant complained that he had not received notice of the meeting.  The plaintiffs said that it is an unfounded allegation and submitted that, for present purposes, it is irrelevant. 

The Defendant’s Misconduct

21. On 1 March 2010, D threatened by e-mail that he would take steps to “safeguard his own interest” unless the matter was resolved by 15 March 2010.  P1 and P2 by e-mail dated 2 March 2010, maintained that what they did was lawful but in any event they invited D to discuss the matter in Singapore.  However D rejected the invitation and nothing was resolved by 15 March 2010.  

22. Whatever versions are advanced by the parties in respect of the defendant’s dismissal from the Mainland Companies, the following happenings are agreed between the parties except that each side has a different explanation thereof.  The plaintiffs described them as a series of wrongful acts on the part of the defendant.  The defendant described them as his steps taken to “safeguard his own interest”. 

23. On 16 March 2010, the defendant obtained re-possession of the Company stamps of the 13 Companies.  The plaintiffs said it was obtained by tricks and by force. 

24. On 17 March 2010, the defendant unilaterally dismissed the chief administrative officer and chief financial officer of the 7^th plaintiff.  

25. On 22 March the defendant held a working meeting of the 7^th plaintiff and he ordered the sale of some of the Mainland Companies or their assets.  That was done in the absence of any representatives of the 1^st and 2^nd plaintiffs.  

26. On 25 March 2010, P1 and P2 decided to protect their interests by taking the following actions :

(a)  the boards of P3-P6 resolved to remove D as the legal representative of the 13 Companies and to require him to deliver up the company stamps;

(b) the Main Companies (expect the aforesaid 4 Companies) resolved to remove D as their legal representative and director. 

27. Here, there is a dispute between the defendant and the plaintiffs as to whether sufficient notices of the Board meetings were given to him. 

28. On 30 March 2010 the Mainland Companies made public announcements of the aforesaid resolutions in local newspapers.  But it was also reported in the press that the defendant said that his position could not be removed. 

29. What is clear is that the defendant sent a number of Short Message Service (“SMS”) messages between 27 March and 8 April 2010 and stated unequivocally that he would retaliate against what he perceived to be attacks on him by P1 and P2.  The last message of the defendant on 8 April 2010 is as follows :

「王总：我和梁德平之间的矛盾越来越激烈.他一定要将我赶尽杀绝.我快要给他逼疯了.我只能采取行动去保护我的权益.今日我已将海南的酒店卖了.他再逼我.我只有去攻你成都的项目.有所得罪地方.見谅！」

30. In fact, on 8 April 2010, the defendant went to Hainan Hotel and obtained the company stamp of 海南駿軒酒店有限公司.  The plaintiffs alleged that the defendant obtained the same by force. 

Sale of the plaintiffs’ assets by the defendant

31. In the same period of time between late March and early April, the plaintiffs sold the following 4 properties of the plaintiffs as follows :

	Subject Matter	Date of Sale	Alleged Sale Price (RMB)
1	海南駿軒酒店有限公司	26/3/2010 (completed by 8/4/2010): Neo 1st, §66 [A/9/81-82]	157,000,000: D§42(n) [A/12/127-128]
2	惠州康協實業發展有限公司	5/4/2010 (completed on 9/4/2010): Neo 1st, §68 [A/9/82-83]; [B2/49/411-413]; and [B3/67/600-603]	31,150,000: D§42(o)(1) [A/12/128]
3	東莞慧谷房地產開發有限公司	1/4/2010 (completed by 2/4/2010): Neo 3rd, §61[A/13/177];[B3/68/605-608]	About 200,000,000: D§42(o)(2) [A/12/128]
4	廣州加勒比園林工程有限公司	Unknown, by 9/4/2010	2,800,000: D§42(o)(3) [A/12/128]

32. The plaintiffs contended that the defendant’s aforesaid sale of the 4 valuable assets and companies of the Group is only for retaliation by causing damage to the Group rather than for any other purposes for the following reasons, namely :

(1) First, the defendant had no right to sell those properties because :

(i)  His duty was to “run” or “manage” the Mainland companies.  The underline purpose of the SCA was a long-term project and it is against his duties to sell off the companies or their major assets.

(ii) Article 15 of the 7^th plaintiff Articles of Association provides that important decisions require the consent of all the directors and there are similar articles in the other Mainland Companies.  Selling subsidiary companies or their assets is an important decision which requires the consent of all the directors and there was none in any of aforesaid sales.

(iii) The defendant has no authority to sign any agreement involving a sum of more than RMB2 million by reason of the resolution 8.1.6 of IVIHL board which was passed on 23 September 2009.

(iv)    The 1^st and 2^nd plaintiffs had already made clear in their e-mail dated 22 March 2010 that the defendant should not dispose of any subsidiaries or their assets.

(v) The defendant had already been removed from the board of the Mainland Companies and his position as the legal representative of 10 of them on 25 March 2010, although there is a dispute by the defendant as to whether that removal was valid or not.

(2) Secondly, although the defendant alleged that he was, in the aforesaid sale of assets, acting in good faith and in the best interest of the companies, the plaintiffs alleged that he was bound by fiduciary duties even when he had the power to sell the subsidiaries or their assets.  Here, by reason of the aforesaid SMS messages, such actions, according to the plaintiffs, was just a retaliation and it would not benefit the Mainland Companies nor even the defendant himself.  The evidence before the court is that the defendant sold those assets in a hurried manner as follows:

(i)  The sales were concluded within days or at most a few weeks between mid or late March and early April 2010.

(ii) The plaintiffs intended to hold their assets as long-term investment and the defendant knew full well of the same.  The plaintiffs themselves had no plan to sell them.  The JV was financially healthy and did not need any cash urgently.  In fact the defendant did not suggest otherwise here.

(iii) The defendant justified the urgency of the sales by relying on the change of policy on real estates development by the Mainland government.  However in any event, two of the four properties are not real estates projects and therefore are not relevant to the alleged change in the Mainland government policy.

(iv)    The defendant also suggested that the land development rights of some of the lands would expire soon but he had not produced any evidence to support this allegation.  In any case this would not be a problem so long as some construction works had already commenced before the expiry date and the plaintiffs have the intention and the financial resources to complete the construction.

(3) Further, the defendant had not given any reason why he sold these major assets without even informing, let alone consulting the 1^st and 2^nd plaintiffs beforehand.  The inference is that he had sold them secretly.  He did not even invite representatives of the 1^st and 2^nd plaintiffs to attend the meeting on 22 March 2010 where he announced his decision to sell the properties.  He even claimed that Neo was likely to delay and complicate the matters.

(4) Thirdly, the plaintiffs took very strong objection to the sales because of the fact that all the properties were sold at undervalue and some of them were even sold at below cost as follow :

(i)  Property 1 was valued by one DTZ on 22 January 2010 at more than RMB200 M and the previous valuation on 12 May 2009 was RMB172 M.  The defendant was aware of that.  The defendant produced a valuation report supporting a valuation of RMB147 M with a discount of 20% to reach the figure of RMB118 M with no reason given.  The defendant’s valuation in any event has not taken into account the value of a favourable arbitral award in the sum of RMB25.6 M in favour of the company.

(ii) In respect of Property 2 the defendant relied on the figure of RMB28 M in the audited financial statement.  But that figure is the historic cost less depreciation rather than market value of the property.  Bearing in mind the rising property market since 2009 in the Mainland, the defendant actually sold Property 2 below cost. 

(iii) In respect of Property 3 the valuation report produced by the defendant is below cost and the 7^th plaintiff’s internal valuation which has already been accepted by its auditor.

(iv)    In respect of Property 4 the defendant relied on the figure in the audited statements which is based on cost but not the market value.  The internal valuation of the company supports a much higher value. 

33. What is more significant is that there is no sufficient evidence that the sale proceeds had been fully paid and kept by P7 as alleged in the defendant’s affirmation.  On the contrary apparently some money said to be sale proceeds had been received by P7 but most of them, if not all, were subsequently transferred away to some unknown third parties or, as alleged by the plaintiffs, in dubious circumstances. 

34. The defendant admitted that he has paid a sum of RMB8.56 M to his sister’s company and claimed that it was a repayment of a purported loan.  The plaintiffs’ counsel submitted that this was contradicted by the board resolution of P7 passed on 20 November 2009.  By that it probably meant the resolution was passed by the majority directors. 

35. On the other hand, the defendant contended that at the meeting, Neo contended that only RMB6 M odd was due and owing to the defendant’s sister’s company.  But the defendant did not agree and therefore he did not sign the board resolution of the board minute on 20 November 2009 [see B1/281].  

36. But in any event the alleged repayment of RMB8.56 M is an unauthorized payment contrary to Clause 1.1.19 and 3.34 of the SCA in that it exceeded RMB2 M and therefore required a board resolution.  In particular the alleged amount of RMB8.56 M is disputed by all other and majority board members including Neo as aforesaid. 

Material non-disclosure of the Mainland proceedings

37. The defendant further alleged that the plaintiffs failed to disclose both before Poon J at the time of the ex parte application on 15 April 2010 and the return day before Suffiad J on 23 April 2010 that the plaintiffs had already commenced proceedings in the Mainland.  

38. Neo in his 3^rd affirmation [A/13/152-157] and one Mr Li Ning Zi’s affirmation (being the plaintiffs’ trainee lawyer in the Mainland [paragraphs 29-57 at A/14/197-205] (the plaintiffs’ submissions have mistakenly reversed the aforesaid two citations) explained that their failure to inform the court of the Mainland proceedings was solely due to a communication problem between the plaintiffs’ lawyers in the Mainland and the plaintiffs, and between the plaintiffs and their Hong Kong lawyers as follows :

(i)    On 14 April 2010, Neo had filed all the applications to institute actions against the defendant for, inter alia, the return of all the company stamps.  However the plaintiffs could only obtain a new business registration certificate of P7 which reflected the change in its legal representative.  For the four remaining Dongguan companies, the defendant was still their legal representative under the respective registration certificate. 

(ii)  Thus there is a problem of irregularity for these four companies to commence a Mainland action where the legal representative stated in the writ is different from that of the business registration. 

(iii)    Thus, they proposed to consult the Registrar Court (_{法院立案庭}) to see if all their intended actions would fulfill the procedure requirements.  Accordingly Neo, at the advice of Mr Li, pre-signed all five Interim Injunction applications (_{先予執行申請書}) and one Interim Preservation of Asset application (_{財產保存申請書}) and the six writs in the event that any of the courts approved any of their intended actions. 

(iv) On 20 April 2010, the Mainland lawyers received notices from the court for the prepayment of court fee of 4 intended actions.  They therefore on the same day paid the court fee accordingly and thereafter received on the same day Notice of Acceptance (_{受理案件通知書}) after the assignment of a court case number.  The pre-signed interim relief application was therefore filed with the Registrar Court.  After the filing at the東莞市第一人民法院 (“No.1 Court”), Mr Li had completely forgotten to inform Neo of their acceptance of these 4 cases. 

(v) On 22 April 2010, the Mainland lawyers again received from the Intermediate Peoples’ Court a notice for prepayment of court fee.  The court fee for the action was a princely sum of RMB1,396,800 as the court fee (which is compared to RMB50 for each of the 4 cases in the No.1 Court), as the relief involved the return of shares in the company with land parcels with the estimated value of about RMB200 M.  Thus Neo was informed to make the arrangement for payment through the internet.  It was only by then that Neo was informed of the acceptance of the 4 cases by the No.1 Court. 

(vi) After Neo paid the Intermediate Peoples’ Court by way of internet transfer on 22 April 2010, the Intermediate Peoples’ Court issued the court fee receipts dated 23 April 2010.  It did not occur to Neo that he should inform the plaintiffs’ lawyer in Hong Kong.  He said it was purely an oversight on his part. 

39. In my view, even if these proceedings were disclosed, i.e. the pre-signed applications, original application to the Registrar Court and the filing of the pre-signed writs on 12 April 2010, and the notice of acceptance of the No.1 Court on 20 April 2010 and the notice of prepayments of court fee on 22 April 2010 from the Intermediate Peoples’ Court, it would not have made any difference.  There is nothing improper for the plaintiffs to commence concurrent proceedings in the Mainland and Hong Kong in order to safeguard their interests.  The Mainland proceedings cannot affect the outcome of the plaintiffs’ present application for injunction since in the first place, no fruitful result has been obtained in those proceedings yet.  (At the time of the hearing I was informed that similar interim relief would be heard in No. 1 Court in the Mainland on 3 June 2010.)  

40. Secondly, in any event, even if it were a case of material non-disclosure, I would exercise my discretion not to discharge the injunction or otherwise re-grant a new one in the circumstances of this case, and in particular, in light of the retaliation actions of the defendant as aforesaid. 

The new company stamps

41. The plaintiffs had made 6 new company stamps for the 6 Mainland companies.  One of these new stamps was that of P7.  This was approved by Dongguan Public Security Bureau on 31 March 2010.  The other 5 Mainland companies are subsidiaries of P7.  Four of them were approved on 12 April 2010 and the last one on 23 April 2010.  

42. On 27 April the defendant complained to the Dongguan Public Security Bureau about the approval of the new stamp.  In the afternoon Neo brought along the six new company stamps to the Dongguan Public Security Bureau.  The Bureau retained the 6 new stamps overnight for investigation.  Neo stayed in the Bureau until about 1 a.m. the next day.  He was told to go back at 9 a.m. when a meeting with the defendant would be held.  At 9 a.m. on 28 April 2010, Neo saw the defendant at the Bureau.  However upon his arrival, the officers of the Bureau returned forthwith all six new stamps to him without any further question.  Neo considered that the Dongguan Public Security Bureau therefore endorsed all the six new stamps issued and found the defendant’s challenge to the Bureau about the six new stamps was unfounded. 

43. In the end the defendant is still in possession of all the old stamps and he does not accept that validity of any of the new stamps. 

44. However the plaintiffs are still unable to use the new stamps effectively and cannot regain effective control over the Mainland companies. 

The Mandatory Interim Injunction

45. Under section 21 High Court Ordinance, Cap. 4, the court may grant mandatory interim injunctions if it appears to be just and convenient to do so.  There is no distinction between prohibitory and mandatory injunctions in this respect. 

46. The court will take whichever course appears to carry the lower risk of injustice if this should turn out that it is wrong.  Music Advance Ltd v Incorporated Owners of Argyle Centre Phase 1, HCA2574/2002, per Ma J (as he then was). 

47. I accept the plaintiffs’ submissions that it is plainly just and convenient to continue the prohibitory injunction and grant the mandatory injunction for the following reasons :

(1) the plaintiffs have a strongly arguable case on the merits for reasons stated above;

(2) from the practical viewpoint, it is undesirable that neither party can exercise effective control over the Mainland companies pending the final resolution of dispute. 

48. When either one of them should be given the power to do so in the meantime, the plaintiffs should be given the power of running the Mainland companies as this will carry a far lower risk of injustice :

(1) The 1^st and 2^nd plaintiffs are the majority shareholders contributing the vast majority of the capital to the JV. 

(2) The defendant admitted in his affirmation [A/123-124 at para. 42(b)-(c)] that he intended to exit from the JV since mid-2009 and since November 2009 he took an inactive role in the management of the JV.  It appears that his interest in managing the companies only “resumed” as a result of the present dispute, as submitted by the plaintiffs. 

(3) There is cogent evidence to suggest that the defendant has committed various wrongful acts just for retaliation as stated by the defendant in his aforesaid SMS messages.  The behaviour of the defendant also suggested that he was pursuing the wrongful acts so as to cause maximum damage and disruptions to the plaintiffs and the Mainland Companies. 

(4) On the other hand there is no suggestion that the representatives of the 1^st and 2^nd plaintiffs will do anything improper or harmful against the interest of the JV as a whole.  Indeed, this is quite unlikely given that the plaintiffs are the majority shareholders. 

(5) Lastly, since the defendant is under the prohibitory injunction restraining him from using the old stamps, he would have no use of them anyway. 

Stay of the action in favour of arbitration

49. In respect of the application of the defendant to stay this action in favour of arbitration because of the arbitration clause in the SCA, the plaintiffs pointed out that only P1 and P2 are parties to the SCA whereas the other plaintiffs are not.  Thus there is no ground to stay the action insofar as P3 to P7 are concerned. 

50. On the other hand, P1 and P2 insisted on their entitlement to 60 days consultation period according to Clause 14 in the SCA.  It is only upon the expiration of the 60 days consultation period that the defendant could rely on the arbitration clause.  For the aforesaid reasons I have acceded to the plaintiffs’ request to adjourn the summons for arbitration sine die with liberty to restore. 

Conclusion

51. Accordingly I have reached the following conclusions on the date of the hearing :

(1) the plaintiffs have a strongly arguable case against the defendant;

(2) there was no material non-disclosure in respect of the Confirmation Agreement and the Dongguan Court proceedings and the 6 new stamps of the 6 companies;

(3) if I am wrong in respect of any of the allegations of material non-disclosure, this is a case I should either continue the injunction or otherwise re-grant the same;

(4) the material consideration in this case is the defendant's alleged misbehaviour after he was removed as director and legal representatives of the Mainland Companies, rightly or wrongly, (bearing in mind here that the 1^st and 2^nd plaintiffs are the majority shareholders of the JV company) by selling four companies with no reasonable explanation apart from his SMS messages between 27 March and 8 April that the defendant would retaliate against the other parties to the JV.  It is expedient therefore that the defendant should be restrained by injunction;

(5) this court is not taking over the power of the Dongguan court proceedings as it cannot do so in the first place.  The Dongguan court will only hear the matter on 3 June 2010.  Until Dongguan court had effectively took over the control of the defendant in this matter, the Hong Kong court could and should restrain the defendant even for a short period of time before the Mainland court can decide on any interim measure to be taken.  In fact both courts in both jurisdictions and, in appropriate circumstances, could and as far as I am concerned, should make concurrent decision to restrain the defendant;

(6) the defendant, after being restrained by an injunction from using the old company stamps, will have no use of them at all.  Consequently a mandatory interim injunction should also be granted for the delivery up of the company stamps forthwith to the plaintiffs' solicitors;

(7) lastly there should be an adjournment of the defendant’s application for arbitration sine die with liberty to restore as P1 and P2 are entitled to the 60 days' consultation period according to the terms of the SCA.  P3 to P7 are not subject to the terms of the SCA as they are not parties to it. 

52. The aforesaid prohibitory and mandatory injunction is not a pre-emptive determination of the defendant’s right.  If the defendant is proved to be right at the trial, damages is adequate to the defendant.  The evidence before this court is that the plaintiffs are able to pay those damages.  The reverse is not true for the plaintiffs if the defendant is proved to be in the wrong. 

53. The service and filing of the defendant's defence shall also be extended to 14 days after the expiration of the 60 days’ consultation period. 

54. In respect of costs, it shall be the plaintiffs’ costs in the cause with certificate for two counsel. 

Epilogue

55. This is not an application by the defendant to stay the action on the ground of forum inconveniens.  Even if it were, the Hong Kong court should also deal with injunction proceedings against a Hong Kong resident by exercising concurrent jurisdiction to restrain him from doing further harm to the Mainland companies or to handover the stamps of the Mainland companies to the plaintiffs' solicitors.  Otherwise even if the Mainland court granted the same prohibitory and mandatory injunction against the defendant, he can hide in Hong Kong without paying any regard to the Mainland orders.  Similarly the reverse may also be true in that he can hide in the Mainland without paying any regard to the orders of Hong Kong court.  Concurrent jurisdiction is therefore useful and constructive in these circumstances. 

[1]   The plaintiffs' counsel described these companies as “PRC Companies”.  Since Hong Kong and Macau SAR are parts of the PRC, the description is not quite correct.  They should be described as “the Mainland Companies”.  This is not for political reason.  This is just more accurate Chancery drafting.