WONG LUEN HANG AND ANOTHER v. CHAN YUK LUNG AND OTHERS

HCMP 2481/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2481 OF 2015

(RENEWAL EX PARTE APPLICATION FROM HCA NO. 1265 OF 2015)

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REASONS FOR DECISION
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Hon Cheung JA :

Background

1.  On 24 September 2015, the plaintiffs applied exparte for the appointment of interim receivers and managers (‘interim receivers’) to protect and preserve the assets of three limited companies, namely, Topmix (International) Company Limited (‘TICL’), Topmix Industrial Limited (‘TIL’) and Faithful Rainbow Limited (‘Faithful Rainbow’) pending the final determination of the present action.

2.  On 25 September 2015, FungJ gave the following directions on paper:

‘ Application should be heard inter parties since

(1)on-going civil action between the parties

(2) order to appoint interim receiver cannot to be effect [sic] even if urgency and will be argued on return date

(3)earliest date possible.’

3.  Pursuant to Order 59, rule 14(3) of the Rules of the High Court, the plaintiffs renewed their exparte application for the interim relief before this Court. This Court refused the application. I now give reasons for our decision.

Order 59, rule 14(3)-(4)

4.  Order 59, rule 14(3) provides that ‘where an exparte application has been refused by the Court below, an application for a similar purpose may be made to the Court of Appeal exparte within seven days after the date of the refusal’.

5.  The following provisions are also relevant:

‘ (3A) Where an application made to the Court of Appeal ex parte under paragraph (3) is granted, notice of the order granting the application must be served on the party or parties affected.

(3B) A party on whom a notice has been served is entitled, within 7 days after service of the notice, to apply to the Court of Appeal to have the order granting the application reconsidered inter partes in open court.

(4) Wherever under these rules an application may be made either to the court below or to the Court of Appeal, it shall not be made in the first instance to the Court of Appeal, except where there are special circumstances which make it impossible or impracticable to apply to the court below.’

Principles

6.  Kwan JA observed in Pioneer Iron and Steel Group Co Ltd (in liquidation) v Chen Ningning (unreported, HCMP1827 of 2013, Decision, 31 July 2013):

‘ 10. ...We wish to make clear that in the event an application is taken out under rule 14(3B), the issue before this court is not whether we ought to appoint an interim receiver as if we were hearing an inter partes summons for interlocutory relief. That summons is to be heard by the Court of First Instance. Order 59 rule 14(4) provides that wherever under these rules an application may be made either to the court below or to the Court of Appeal, it shall not be made in the first instance to the Court of Appeal, except where there are special circumstances which make it impossible or impracticable to apply to the court below.

11. The role of the appeal court in an application under rule 14(3B) is restricted to a re-consideration of the order granted by this court in the ex parte application - whether it is appropriate to grant relief on ex parte basis, and whether the terms of the order made are appropriate. The order of the appeal court is purely to preserve the status quo pending the determination of the inter partes application by the court below. This court should not and would not be concerned with any grounds of opposition on the basis it is inappropriate to grant interim relief at all, whether the application be made ex parte or inter partes. That is a matter for the court below in the hearing of the inter partes summons.’

7.  The application before us is, of course, not concerned with rule14(3A) or rule14(3B) but it is worth restating the principle that the role of the Court of Appeal in an exparte application of this type is really to preserve the interim position of the parties pending the determination of the issues in an interpartes hearing. The exceptional nature of applications for exparte injunctive relief is such that an applicant must justify such an application; for example, either because delay would cause injustice or the respondent would take action that might nullify the effect of the relief.

8.  Where an application is made for appointment of interim receiver, the principles in American Cyanamid Co. v. Ethicon Ltd [1975] A.C. 396 will apply, namely,

1) whether there is a serious question to be tried;

2) whether there is a real risk of dissipation of assets;

3) whether there is no or no current effective protective regime, and some form of interim protection should be given to preserve the status quo; and

4) the risk of damage to the company if the appointment is made, and whether it can be adequately compensated by a cross-undertaking in damages. Seeparagraph 30/1/1A Hong Kong Civil Procedure 2016.

The plaintiffs’ case

9.  Without going into details, the plaintiffs claimed that they are the minority shareholders of TICL and TIL, each of them holds 25% of the issued shares in each of these two companies while the 1^st and 2^nd defendants also each holds 25% of the issued shares in these two companies. The plaintiffs claimed that the 1^st and 2^nd defendants controlled these two companies and they together with the other defendants had conspired to cause assets and business of these two companies to be transferred to the 3^rd defendant which is a company under the 1^st and 2^nd defendants’ control.

10.  The plaintiffs further claimed that the 1^st and 2^nd defendants had also fictitiously caused these two companies to be indebted to a company called Myers Management Consulting Limited (‘Myers’). This resulted in Myers petitioning for the winding-up of these two companies in January 2015. The plaintiffs discovered the petitions in mid-January 2015. Thereafter, they conducted investigation and discovered the transfer of assets and business to the 3^rddefendant.

11.  The plaintiffs complained that the transfer had been carried out by the 1^st and 2^nd defendants since 2011. A factory in China which is one of the major asset of TIL was transferred in June 2014.

12.  Mr Ronald Tang (together with MsCarmen Kei) for the plaintiffs submitted that the present exparte application was brought not on the basis of urgency but in order to preserve the confidential nature of the application because in view of the 1^stand 2^nd defendants and their conspirator’s low commercial morality, particularly in the light of their scheme to wind up TICL and TIL, if they were given advance notice of this application, there would be a real risk that they would remove or destroy the books, records and documents of TICL, TIL and Faithful Rainbow, so as to delay, obstruct or even frustrate any investigation that the interim receivers may carry out into the affairs of those three companies.

Discussion

13.  The starting point is that the appointment of a receiver is an extremely drastic remedy, the Court should be vigilant that the relief would only be granted in appropriate circumstances. In this case, even according to the plaintiffs’ allegations, the assets of TICL and TIL had been transferred since 2011. The attempt to wind-up these two companies had already occurred at the beginning of this year. There really is no urgency involved for the Court to appoint receivers upon an ex parte basis. The confidential nature of an application and the question of urgency are not always separate issues. In this instance, to preserve confidentiality by way of exparte application may be justified if there is urgency involved, for example, by the discovery of more transfer of the assets of the two companies. However, this is not the case here. Bearing in mind that the plaintiffs had already been engaged in two other separate actions against the defendant, I am of the view that the plaintiffs should proceed by way of inter partes application for the appointment of the receivers.

14.  Accordingly, the application was refused with no orders as to costs.

15.  In order to ensure that arguments on confidentiality were fully ventilated, this Court had directed that the name of the case was to be listed simply as ‘ReA’ in the Daily Cause List of 27 October 2015.

Hon Kwan JA:

16.I agree with the reasons for decision of Cheung JA.