李明實 AND OTHERS v. ACE LEAD PROFITS LTD AND ANOTHER

CAMP 20/2024, [2024] HKCA 523

On Appeal From [2023] HKCFI 3038

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 20 OF 2024

(ON AN INTENDED APPEAL FROM HCA 597 OF 2021)

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JUDGMENT

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Hon Anthony Chan J (giving the judgment of the Court) :

INTRODUCTION

1.  This is the Plaintiffs’ Summons filed on 29 January 2024 for leave to appeal against the order (“Order”) of Deputy High Court Judge M K Liu (“Judge”) dated 21 November 2023 by which the Plaintiffs’ Summons for interlocutory injunction against the Defendants filed on 11 September 2023 (“Injunction Summons”) was dismissed.  The reasons for dismissal were set out the Judge’s Reasons for Decision dated 24 November 2023 (“Decision (1)”).

2.  The Plaintiffs made an application for leave to appeal against the Order to the Judge pursuant to their Summons filed on 5 December 2023.  It was dealt with on paper.  By a Decision dated 18 January 2024 (“Decision (2)”), the leave application was dismissed.

3.  The background facts of this case, the parties’ respective case and the procedural history were set out in Decision (1), [3]-[31].  They will not be repeated here.

4.  Having consider the papers before the Court, we believe that it is appropriate to deal with the present application on the basis of written submissions only pursuant to O 59, r 2A(5)(a) of the Rules of the High Court (“RHC”) despite the Plaintiffs’ request for a rolled-up hearing. 

DISCUSSON

5.  The test for granting leave to appeal against an interlocutory order of the Court of First Instance is trite.  Under s 14AA(4) of the High Court Ordinance, Cap 4, leave to appeal shall not be granted unless the court is satisfied that the appeal has a reasonable prospect of success, or there is some other reason in the interest of justice why the appeal should be heard.  In this application, the Plaintiffs are not relying on the “some other reason” limb.  Reasonable prospects of success means that the prospects of success must be reasonable, ie, more than fanciful, without having to be probable. 

6.  In respect of an appeal against an exercise of discretion by a judge at first instance, this Court will not lightly interfere with a discretionary decision unless it is based on some error of principle, or reliance on irrelevant considerations, or disregard of relevant considerations, or the decision is plainly wrong.

7.  Before referring to the grounds of appeal, it should be noted that the proposed appeal is confined to challenging the Judge’s refusal to grant the relief sought under para 1(a) of the Injunction Summons (“Para 1(a)”), namely, “selling, transferring, assigning, charging, diminishing the value of or otherwise dealing with any of the [Ace Lead HOLI Shares[1]]” (see Decision (1), [23]). 

8.  The Plaintiffs’ draft notice of appeal contains 3 grounds of appeal.  The third ground can be put aside as it adds nothing to the first two.  Both the first and second grounds of appeal seek to challenge the Judge’s exercise of discretion in declining to grant the injunction sought. 

9.  Ground 1 contains two complaints: (a) the Judge failed to consider adequately or at all that the injunction sought under Para 1(a) was a proprietary injunction; and (b) the Judge erred in holding that the balance of convenience was not in favour of granting the injunction.  There are various contentions advanced under (b).  They will be dealt with below. 

10.  By ground 2, it is said that the Judge erred in holding that the delay in taking out the Injunction Summons was a relevant factor.  Again, the contentions under this ground will be addressed below. 

GROUND 1(A)

11.  To begin, the Judge was well aware of the proprietary nature of the injunction sought under Para 1(a): see Decision (1), [44] and Decision (2), [11(1)]. 

12.  Secondly, we agree with the Defendants that there is a serious dispute on what constitutes the trust property held in favour of the HollySys Employees, which can only be determined at trial.  The Defendants’ case that the trust property only consists of the economic interests and rights of the Ace Lead HOLI Shares is supported by contemporaneous documents (Decision (1), [16(4)]). 

13.  The Judge was entitled to hold that: “Based upon the materials now before the court, in my view, each party has put forward a case which is reasonably arguable” (Decision (1), [40(2)]). 

14.  We do not believe that a case of proprietary interest will in the circumstances necessarily carry the day.  Much will depend on the balance of convenience dictated by the case before the Judge.  In short, we see no adequate reason to interfere with the Judge’s decision under this ground, and do not regard this ground as reasonably arguable.

GROUND 1(B)

15.  The Plaintiffs do not dispute the need to satisfy the balance of convenience test for the purpose of obtaining a proprietary injunction.  However, they contend that the court should readily find that the balance of convenience favours the preservation of trust property pending trial.  They rely on 3 cases: Heitkamp & Thumann KG v Living Profit Trading Development Ltd & Ors [2018] HKCFI 1006, [55]-[58]; A v C [1981] QB 956, 959B-D; and Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd & Ors, HCA 3023/2016, 2 May 2017, [37].

16.  The two Hong Kong cases involved email fraud in which foreign plaintiffs were defrauded into transferring large sums of money to the defendants.  A v C was about the exercise of the court’s ancillary power to order discovery in aid of mareva injunction granted to protect trust property.  We do not believe that these cases had established any principle of general application that in an application for proprietary injunction the court should readily find the balance of convenience in favour of the applicant after a serious issue to be tried is made out.  We agree with the Judge that it depends on the facts of the case (Decision (1), [46]). 

17.  We are unable to understand the Plaintiffs’ criticism of the Judge’s reliance on Wason Holdings Ltd v BHP International Markets Ltd [2018] HKCA 113 (Decision (1), [45(1)]).  Wason was one of a trilogy of cases referred to the Judge by the Defendants on the proposition that in an application for proprietary injunction the applicant would need to show that the balance of convenience is in favour of granting the relief.  As stated above, the Plaintiffs take no issue with that requirement.   

18.  Equally, we cannot understand the criticism that the Judge failed to consider whether granting or withholding the injunction was more likely to produce a just result.  In Decision (1), [57] the Judge held that: “Taking into account all the aforesaid, in my view, the balance of convenience is not in favour of granting the injunction application.  It is also not just and convenient to grant the injunction sought by [the Plaintiffs]” (see also Decision (1), [51]).

19.  The Plaintiffs contend that a change of the composition of the Board (of HollySys) would necessarily result in disposal or sale of the Ace Lead HOLI Shares either by (i) lifting the restrictive legend or (ii) a total buyout of HollySys.  This is the main thrust of the Plaintiff’s challenge on balance of convenience.

20.  The Judge rejected the Plaintiffs’ argument that a new Board would push through a board resolution to remove the restrictive legend as “purely speculative” (Decision (1), [54]).  It appears to this Court that the argument indeed involves a number of speculative elements : 

(1)  On the evidence before the Judge, the Meeting had not been held.  It appears from the parties’ submissions that this remains the position.  It must follow that whether there will be any change to the composition of the Board is unknown.  Apart from the Defendants’ undertaking not to vote at the Meeting, given that they only control 6.69% of the shareholding in HollySys there is no sufficient basis to suggest that the Defendants could influence the outcome of the Meeting.  We note that the proposed new directors were nominated not only by the Defendants but a significant number of other shareholders. 

(2)  None of the Proposed Resolutions concerns the lifting of the restrictive legend.  Any change to the restrictive legend will have to be approved by the Board.  There is no sufficient basis to suggest that the Board (assuming different composition) would not discharge their duties properly or would simply act as directed by the Defendants.

(3)  As to the Plaintiffs’ suggestion that the Defendants are acting with 3 other shareholders, the Judge pointed out in Decision (2), [11(3)], that the Plaintiffs had not identified any evidence in support of the “acting in concert” theory which he might have overlooked.  We are unable to see any sufficient evidence in support of that theory.  On the contrary, with the “bidding war” over HollySys and the attractive price premium offered for its shares, it is hardly surprising that there would be other shareholders supporting the Meeting.

21.  As to the Plaintiffs’ contention that the Defendants would suffer no prejudice or damage in the event of an injunction being granted, the Judge (agreeing with China Vered Financial Holding Corporation Ltd v Central China Dragon Growth Fund SPC [2023] HKCFI 2727) took the view that the grant of an injunction by the court is always a serious matter which must be fully justified (Decision (1), [52]). 

22.  It is clear from Decision (1) that the Judge had considered the evidence before him and took into account a number of considerations, including whether the Defendants would suffer any prejudice, in carrying out the balance of convenience exercise.  We are not persuaded that it is reasonably arguable that the Judge had erred in the exercise of his discretion. 

GROUND 2

23.  First, it is not the Plaintiffs’ case that delay is irrelevant to their application.  Their argument is that existence of delay is less significant in an application for a proprietary injunction. 

24.  Second, as pointed out by the Judge in Decision (2), [13(3)], there is overlap between some of the contentions under Ground (1)(b) and Ground (2).  We shall not repeat what has been said above on the former. 

25.  Third, paras 54 and 55 of Decision (1) have to be read together and properly understood (see Decision (2), [13(4)]).  Having rejected the Plaintiffs’ submissions that a new Board would push through a board resolution to remove the restrictive legend as speculative, the Judge went on to hold that: “… there is really nothing justifying the necessity of having an injunction in terms of the Injunction Summons at this stage.  The fact that there has not been any application for an injunction with same or similar terms for almost 2 years and 5 months …, or the delay in taking out the Injunction Summons, speaks for itself.

26.  The view taken by the Judge was logical in light of his rejection of the Plaintiffs’ arguments based on a differently constituted Board.  We see no error which may undermine the Judge’s exercise of discretion.

27.  In all, none of the Grounds is reasonably arguable.  We are not satisfied that the intended appeal has any reasonable prospect of success.

DISPOSITION

28.  The Plaintiffs’ Summons is dismissed with a costs order nisi in favour of the Defendants.  Such costs are to be summarily assessed.  The Defendants are to lodge and serve on the Plaintiffs their statement of costs within 14 days from today.  The Plaintiffs are to lodge and serve their objections thereto, limited to 2 pages, within 7 days thereafter. The assessment will then be made on paper.

29.  Lastly, as the intended appeal is totally without merit, we make an order that no party may request the present determination to be reconsidered at an oral hearing inter parte pursuant to O 59, r 2A(8) of the RHC.