CHAN KWOK KUEN v. LAI YAT HO AND OTHERS

HCMP 300/2025

[2025] HKCFI 4942

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 300 OF 2025

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REASONS FOR DECISION

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I.  INTRODUCTION

1.  On 25 February 2025, upon hearing of the Plaintiff’s application (the “Ex Parte Hearing”), Barnes J (the “Ex Parte Judge”) granted an ex parte Order (the “Ex Parte Order”):-

(1)  To restrain the 1^st Defendant from acting in the capacity of the director of New Grand Coach Limited (大新旅運有限公司) (the “Company”);

(2)  To restrain the 1^st, 2^nd and 3^rd Defendants from participating in the management of the Company;

(3)  Of proprietary injunction against the 1^st, 4^th and 5^th Defendants in the respective sums of HK$2,145,062.30, HK$4,230,000.00 and HK$21,287.15; and

(4)  Of Mareva injunction against the 1^st, 2^nd, 3^rd and 4^th Defendants in the respective sums of HK$7,725,062.30, HK$7,725,062.30, HK$7,725,062.30 and HK$4,230,000.00.

2.  Disclosure order (the “Disclosure Order”) was also granted.

3.  It is noteworthy that while none of the respective sums was anywhere near HK$30,000,000.00, the security provided in the exception for the Ex Parte Order was one single flat sum of HK$30,000,000.00 for the “Defendants”.

4.  By inter partes Summons filed on 27 February 2025 (the “Summons”), the Plaintiff applied to continue the Ex Parte Order. On 14 March 2025, without objection, I granted an interim injunction. The Summons was fixed to be heard on 14 August 2025, but due to inclement weather, the matter was refixed to be heard on 24 September 2025. Unfortunately, another general adjournment was put in place on 24 September 2025 again due to inclement weather. Seeing that the matter should not be delayed further, I directed further written submissions. Having considered the written submissions, on 3 October, I dismissed the Summons and discharged the Ex Parte Order, and only granted a limited injunction against the 1^st Defendant (see §31 below). Here are my reasons.

II.  PARTIES

5.  The Plaintiff had been in school bus business for decades.

6.  So had been the 2^nd and 3^rd Defendants, who were husband and wife. They owned respectively 90% and 10% of the 5^th Defendant.

7.  The 1^st Defendant was their son, and was at all material times the sole shareholder and sole director of the 4^th Defendant.

8.  The Company was a joint venture set up by the Plaintiff and the 1^st to 3^rd Defendants in 2012 to provide school bus services for a secondary school in Shatin. Each of the Plaintiff and the 1^st Defendant owned 50% of the shares in the Company, and they were the only directors of the Company. The Company was not and is not a party to the present proceedings.

III.  THE PLAINTIFF’S CLAIM

9.  By the Ex Parte Hearing, he discovered that:-

(1)  48 Company cheques in the total sum of HK$1,345,062.30 signed solely by the 1^st Defendant had been deposited into the 1^st Defendant’s private bank account;

(2)  141 Company cheques in the total sum of HK$4,230,000.00, signed solely by the 1^st Defendant had been deposited into the 4^th Defendant’s bank account;

(3)  2 Company cheques in the total sum of HK$800,000.00 signed by the 1^st Defendant and the Plaintiff had been deposited into the 1^st Defendant’s private bank account;

(4)  1 Company cheque in the sum of HK$300,000.00 signed by the 1^st Defendant and the Plaintiff had been deposited into an account whose holder was identified after the Ex Parte Hearing to be the 2^nd Defendant;

(5)  1 Company cheque in the sum of HK$3,050.00 drawn in favour of the 2^nd Defendant; and

(6)  1 Company cheque in the sum of HK$21,287.15 drawn in favour of the 5^th Defendant.

10.  While it was the Plaintiff’s own case that he did not participate in the operation of the Company and entrusted the daily operation of the Company to the 1^st, 2^nd and 3^rd Defendants, his case presented at the Ex Parte Hearing was a case of misappropriation of the Company’s funds on the ground that he found no good reason for the payments. It was not in dispute that the mandate for drawing Company cheques was that for cheques for or over HK$30,000.00, both the Plaintiff and the 1^st Defendant should co-sign the cheques, while for cheques below HK$30,000.00, the 1^st Defendant alone could sign. On that the Plaintiff pointed out that there were a substantial numbers of cheques below HK$30,000 which the Plaintiff said were deliberately split to avoid seeking the Plaintiff’s signature.

11.  Upon the disclosure pursuant to the Disclosure Order, the Plaintiff said that more misappropriations had been discovered. It is not necessary for me to detail the further discovery here.

IV.  BASIS OF THE ORIGINATING SUMMONS

12.  On 25 February 2025, the day when the Ex Parte Hearing was to take place, the Plaintiff issued the Originating Summons herein (the “Originating Summons”). The margin of the Originating Summons stated in unequivocal terms “IN THE MATTER of Sections 728 to 730 of the Companies Ordinance, Cap.622”. In the Originating Summons, the Plaintiff set out briefly the basis of his claim, like a general endorsement of claim in a Writ of Summons. Again, in unequivocal terms, the Plaintiff’s claim was made pursuant to Sections 728 to 730 of the Companies Ordinance, Cap.622 (the “Ordinance”). The relief sought by the Plaintiff in the Originating Summons could broadly be categorised into the following:-

(1)  Injunction against the 1^st to 3^rd Defendants that they should not act as director and/or participate in the management of the Company (Relief (1) – (2));

(2)  “Damages pursuant to s.729(1)(b) of the [Ordinance]” (Relief (5)); and

(3)  Declaration that the transfers by way of cheque payments be “void ab initio and the aforesaid receiving person to repay/restitute/account to the Company… pursuant to s.729(1)(c) of the [Ordinance]” (Relief (6) – (11)).

13.  It is clear that Sections 728-730 of the Ordinance were the only basis for the Originating Summons. Neither any court’s inherent jurisdiction nor any other statutory provisions were relied upon, whether in the Originating Summons, the Plaintiff’s affirmations or the Plaintiff’s counsel submissions.

V.  SECTIONS 728-730 OF THE ORDINANCE

14.  Sections 728-730 of the Ordinance fall under Division 3 – “Remedies for Others’ Conduct in relation to Companies etc” of Part 14 – “Remedies for Protection of Companies’ or Members’ Interests”. Part 14, together with the availability of the common law derivative actions, is a well-considered product to provide remedies in various circumstances to protect members’ interests. In certain circumstances, members may commence proceedings in their own names; in others, they may commence proceedings in the name of the company. The circumstances are well defined. The power to award monetary order under Section 729 is not a standalone power to do so but ancillary in that it could be awarded in lieu of injunction, and Sections 728-730 are not intended to create any cause of action for a member of a company to claim monetary award from the wrongdoer: see Re L& A International Holdings Ltd [2020] 4 HKLRD 544 at §§56-79 per Kwan VP, Barma JA and Godfrey Lam J.

VI.  NO BASIS FOR PROPRIETARY AND MAREVA INJUNCTION ON (ALLEGEDLY) MISAPPROPRIATED SUMS

15.  Put shortly, the purpose of a proprietary injunction or a Mareva injunction is to preserve the Defendant’s assets so that any order in respect of the specific assets under the proprietary injunction could be performed and any monetary judgment would be made good. For that, there must be a serious issue to be tried (for a proprietary injunction) or a good arguable case (for a Mareva injunction) that at the end of the trial, the Defendant would be ordered to carry out certain steps on the assets preserved.

16.  In the present case, assuming that there were misappropriations, the funds misappropriated were the Company’s funds. It was the Company who had suffered loss, and its members at most suffered reflective loss the recovery of which was not legally permitted. So, any restitution of the funds or any damages for the misappropriations must be to the Company and the Company only. As confirmed by the Plaintiff in §42 of the reply written submissions dated 2 October 2025, “the Defendants would not be liable to pay any monetary compensation to [the Plaintiff] under the [the Originating Summons]”.

17.  Therefore, assuming that there were misappropriations as alleged, in finally disposing of the Originating Summons herein, the Court would have no jurisdiction to order the 1^st to 5^th Defendants to the Company (as this was not provided for in Sections 728-730 of the Ordinance) or the Plaintiff (as this would be impermissibly for reflective loss).

18.  Insofar as there is any argument that monetary damages would be awarded in lieu of injunction, the injunction in question is (1) the injunction to preserve assets; and (2) the injunction restraining the 1^st Defendant from acting as director and the 1^st to 3^rd Defendants from participating in the management of the Company. Any damage suffered if no injunction would be granted would still be suffered by the Company. It is not like Re L & A International Holdings Ltd, supra, where the member would suffer loss as a result of the infringement of his personal contractual right in relation to the wrongful allotment of shares, which loss was independent of the loss suffered by the company in that case.

19.  In other words, there was no serious issue to be tried, let alone a good arguable case, that the 1^st to 5^th Defendants would be liable to make any payment on the Originating Summons.

20.  On this basis alone, the proprietary injunction and the Mareva injunction in the Ex Parte Order was discharged. I discharged it also on the ground of material non-disclosure of this jurisdictional point.

21.  It remains for me to say that the 1^st to 5^th Defendant’s counsel, Mr Lavesh Kirpalani, raised this jurisdictional point at the adjourned return date hearing on 14 March 2025, and repeated this point again in his skeleton submissions filed for the substantive hearing originally scheduled for 14 August 2025, adjourned to 24 September 2025 due to the inclement weather on 14 August 2025. Upon another adjournment on 24 September 2025 again due to inclement weather, Mr Kirpalani cited Re L & A International Holdings Ltd, supra in his supplemental written submissions dated 22 September 2025 to reinforce his position that Sections 728-730 of the Ordinance do not provide for monetary damages in the present case. That Mr Kirpalani cited that case in his supplemental written submissions does not alter the fact that this point had been raised months ago, and in any event, this jurisdictional point has been well-established and there has been nothing novel about it. Despite the Defendant’s such repeated position made well in advance and in any event being a well-established legal position, the Plaintiff had made no attempt to amend the Originating Summons and/or issue new proceedings under proper basis for the claim for the misappropriated sum. In the reply written submissions dated 2 October 2025, the Plaintiff only mentioned that he could commence derivative actions and/or unfair prejudice proceedings for monetary damages to the Company, and the Court’s jurisdiction to grant an injunction under Sections 728-730 of the Ordinance would be wide enough to grant an injunction in terms of a Mareva injunction and/or proprietary injunction. However, this was not the point – on the present state of the matter, any Mareva injunction and/or proprietary injunction would serve no purpose. Assuming that I had greatest sympathy to the Plaintiff, I simply was not in any position to re-grant any proprietary injunction and/or Mareva injunction because on the current Originating Summons, I found not a slightest basis for a re-grant. It would be inappropriate for me to grant any injunction on some general submissions in the Plaintiff’s reply written submissions that the Plaintiff could commence derivative actions and/or unfair prejudice proceedings. On the evidence before me, if the Plaintiff’s claim was constituted properly, I might re-grant the injunction provided that the Plaintiff himself was not the one to be blamed for the legal mistake. That said, the Court can only consider the matter properly there and then if there was such a proper application.

VII.  NO BASIS FOR INJUNCTION RESTRAINING ACTING AS DIRECTOR AND PARTICIPATION IN MANAGEMENT OF THE COMPANY

22.  As regards the injunction restraining the 1^st to 3^rd Defendants from acting as a director of the Company and participating in the management of the Company (as the case may be), this injunction was in terms of the final relief in Reliefs (1)-(2).

23.  The injunctive remedies enumerated in Section 729 of the Ordinance was in Section 729(1). It is worth quoting Sections 728(1) and 729(1)(a) and (4) here:-

728. Application of section 729

(1) Section 729 applies if, in relation to a company –

(a) a person has engaged, is engaging or is proposing to engage in conduct that constituted, constitutes or would constitute –

(i) a contravention of this Ordinance;

(ii) a default relating to a contravention of this Ordinance; or

(iii) a breach specified in subsection (4); or

(b) a person has refused or failed, is refusing or failing, or is proposing to refuse or fail, to do an act or thing that the person is required by this Ordinance to do

….

729. Court may order remedies

(1) The Court may, on application by a member or creditor of the company whose interests have been, are or would be affected by the conduct or by the refusal or failure, do any or all of the following –

(a) grant an injunction, on the terms that the Court thinks fit –

(i) in the case of section 728(1)(a) or (2), restraining the person from engaging in the conduct or requiring the person to do any act or thing; or

(ii) in the case of section 728(1)(b) or (3), requiring the person to do any act or thing;

…

(4) The Court may grant an injunction under subsection (1)(a) or (2)(a) requiring a person to do an act or thing –

(a) whether or not it appears to the Court that the person intends to refuse or fail again, or to continue to refuse or fail, to do the act or thing;

(b) whether or not the person has previously refused or failed to do the act or thing; and

(c) whether or not there is an imminent danger of substantial damage to any other person if the person refuses or fails to do the act or thing.” (emphasis added)

24.  Although a wide jurisdiction was conferred upon the Court to grant a prohibitory or mandatory injunction: see Sanju Environmental Protection (Hong Kong) Ltd v Wang Lishan [2023] 2 HKLRD 242 at §40 per Recorder Jin Pao SC, it is clear from the statutory wording above that the injunction granted under Section 729(a) must correspond to “the conduct” in Section 728(1)(a) or the “refusing or failing… to do an act or thing” in Section 728(1)(b). This reading would just be consistent with the general principle that an injunction should be granted only when it is necessary. If certain conduct would give rise to the need for the injunction, the injunction should in general target at that certain conduct only.

25.  In the present case, the interlocutory injunction should not be as wide as prohibiting holding out as directors and participating in the management. I take this view for the following reasons:-

(1)  The alleged misconduct was the 1^st to 3^rd Defendants’ misappropriation of the Company’s funds and put more broadly in favour of the Plaintiff, also misuse of the Company’s bank account and its information;

(2)  Therefore, the corresponding injunction should only be restraining the 1^st to 3^rd Defendants from accessing the Company’s bank accounts probably with exceptions for expenses and payments in the ordinary course of business;

(3)  A blanket injunction restraining acting as a director or participating in the management of the Company would not correspond to the misappropriation and the misuse of the Company’s bank account, and thus in my view, was not an injunction provided for by Section 729(1);

(4)  Even worse, such a blank injunction would significantly prejudice the Company’s business ultimately at the expense of all the shareholders including the Plaintiff himself; and

(5)  Therefore, even if there were jurisdiction to grant such blanket injunction, the balance of convenience clearly would lie in a more limited order rather than such a blanket injunction.

26.  These matters should have been, in my view, obvious to the Plaintiff at the Ex Parte Hearing. However, at the Ex Parte Hearing, none of these were drawn to the Court’s attention. Instead, the Plaintiff’s submissions were that the Court had wide jurisdiction to grant injunction and the injunction being sought was justified, without any explanation as to why misappropriations should lead to injunction restraining the 1^st to 3^rd Defendants from participating in the management of the Company during the interlocutory period: see §§13-21 of the Plaintiffs’ skeleton submissions for the Ex Parte Hearing, when the obvious measure to address the misappropriations would be to stop the 1^st to 3^rd Defendants’ free access to the Company’s bank accounts. The material non-disclosure was, in my view, very serious. Further, although this material non-disclosure was already raised in the Defendants’ skeleton submissions for the hearing originally scheduled for 14 August 2025 §§33 and §§118-119, the Plaintiff had still not sought thereafter to give any explanation.

27.  In the circumstances, I discharged the injunction restraining the 1^st Defendant from acting as a director and the 1^st to 3^rd Defendants from participating in the management of the Company on the ground that there was serious material non-disclosure and in any event the injunction should not have been granted on merits.

28.  The question then was whether I should grant an interlocutory injunction on narrower terms along the line that the 1^st Defendant should not sign Company cheques or withdraw cash without the Plaintiff’s consent or at all.

29.  In my view, as regards the 1^st Defendant, being the other 50% registered shareholder and director of the Company, there was serious issue to be tried that the 1^st Defendant breached his duties by misappropriation, in that instead of asking the Plaintiff to co-sign cheques for sums over HK$30,000.00 (which would require both the Plaintiff and the 1^st Defendant to sign), there was evidence showing that for no good reasons, a substantial number of cheques below HK$30,000.00 were drawn by the 1^st Defendant alone. In my view, the 1^st Defendant’s explanation of the transactions was not complete answers to all the cheques.

30.  In the Plaintiff’s skeleton submissions for the present application, the Plaintiff did not seek to give any explanation and did not seek to explain why the wide injunction was justified, and did not seek to put forward any alternative or narrow terms of injunction in the event of a discharge. The Plaintiff only sought a total re-grant in the event of a discharge.

31.  I bore in mind that the serious material non-disclosure here, legal rather than factual, was probably the Plaintiff’s legal advisers’ fault rather than the Plaintiff’s own, and therefore, the Plaintiff himself should not lightly be met with adverse consequence of his legal advisers’ fault. I was also aware of the 1^st to 5^th Defendants’ fair submissions (see §119 of the Defendants’ skeleton submissions) that if any injunction should be granted, it should be along the line that the 1^st Defendant cannot draw any cheques (including those for the sums below HK$30,000.00) without the Plaintiff’s consent, which should not be unreasonably withheld. Taking into account that the Company would, according to the 1^st Defendant, still have business to carry on, I granted a limited interlocutory injunction that the 1^st Defendant shall be retrained from drawing Company cheques for sums below HK$30,000.00 without the Plaintiff’s consent, which the Plaintiff should give within 3 working days unless he has good reason to withhold. As some guidance, which should be obvious, to determine whether consent was unreasonably withheld, one would look at whether there was any explanation from the 1^st Defendant as to why the cheque would have to be drawn, and if possible, any supporting documents. To facilitate the process, the 1^st Defendant may well be advised to compile a list of usual expenses in the ordinary course of business, like that for an application for a validation order in a just and equitable winding-up proceedings, for the Plaintiff to approve, so that at least for those usual expenses, the process of obtaining the Plaintiff’s approval could be expedited. If the parties would have to resort to the Court for adjudication of whether consent was unreasonably held, the Court should be ready to impose adverse costs orders on the losing party.

32.  The injunction sought as against the 2^nd and 3^rd Defendants was a totally different animal. First, the 2^nd and 3^rd Defendants were not directors. Second and in any event, even on the assumption, as the Plaintiff suggested, that they were shadow directors or somehow participated in the management of the Company, they had no authority to draw cheques at all. Given that the Plaintiff’s complaint was misappropriation by way of drawing Company cheques by the 1^st Defendant, with the limited injunction I granted against the 1^st Defendant, I saw no need to grant any injunction to restrain the 2^nd and/or 3^rd Defendants’ participation (if there had been any) in the Company. In the circumstances, I refused to grant or re-grant any injunction against the 2^nd and 3^rd Defendants.

VIII.  OTHER MATERIAL NON-DISCLOSURE

33.  The 1^st to 5^th Defendants submitted that there were quite a number of other material non-disclosures. It was unnecessary for me to form any view on all of those given my ruling above. At least in respect of the jurisdictional point under Sections 728-730 of the Ordinance and the width of the injunction concerning the 1^st to 3^rd Defendants, in my view, these were legal points based on well-established legal principles which should have been, but were not, disclosed to the Ex Parte Judge. The non-disclosures, in my view, were serious.

34.  I would also like to mention one more, namely, the material non-disclosure of the amount of security provided for in the exception to the Ex Parte Order.

35.  As mentioned above, the amount of security was a lump sum of HK$30,000,000.00. However, the respective sums of the proprietary injunction and the Mareva injunction were never any amounts near this sum, even if costs would be factored in. Insofar as it would be suggested that the HK$30,000,000.00 was a rough sum of all the sums of the injunction, there was no reason why one Defendant would have to pay the other Defendants’ amounts before the injunction against him or her specifically would be discharged under the exception. Insofar as it would be suggested that costs were included into this HK$30,000,000.00, there was no explanation of how the costs were estimated. was All these were obvious matters that should be pointed out at the Ex Parte Hearing with some good explanation. None was given. This material non-disclosure alone may not be sufficient to discharge any part of the Ex Parte Order, given that there was no evidence before me that any of the Defendants would otherwise have paid the security. However, this material non-disclosure added to the serious material non-disclosures above in my decision to discharge.

IX.  SUMMONSES FOR ADDITIONAL EVIDENCE

36.  Lastly, both side filed summonses for leave to adduce additional evidence. The 1^st to 5^th Defendants filed a Summons on 21 July 2025 for leave to adduce the Affirmation of Ng Man Wah. The Plaintiff filed a Summons on 2 October 2025 for leave to adduce the Affirmation of Chan Cheuk Yau dated 1 October 2025, the Affirmation of To Yi Li dated 2 October 2025 and the 4^th Affirmation of Chan Kwok Kuen dated 8 August 2025. In the light of my ruling on the jurisdictional point above, the evidence, largely on alleged misappropriations, was unnecessary for the Mareva and proprietary injunction. In relation to the scope of the injunction restraining the 1^st to 3^rd Defendants, despite the evidence, the complaint would still rest on unauthorised cheques, and therefore, similarly, would not affect the terms of the injunction I narrowed down. I note that in the very late Affirmation of Chan Cheuk Yau, it was alleged that there was missing cash revenue, but in my view, such evidence just came too late and in any event, this missing cash revenue would go more to the Mareva and proprietary injunction rather than the 1^st to 3^rd Defendants’ participation in the management of the Company. It was highly unsatisfactory that the Plaintiff would be permitted to file evidence at the very last minute when the matter would have been heard on 14 August 2025 later postponed to 24 September 2025. Therefore, I dismissed the Summonses filed on 21 July and 2 October 2025, and on a broad brush approach, ordered no order as to costs on the Summonses.

X.  COSTS

37.  As regards costs of the Summons, I made a costs order nisi that the 1^st to 5^th Defendants costs of and occasioned by the Summons (including all costs reserved) should be paid on an indemnity basis, to be summarily assessed on paper. The discharge of the Ex Parte Order and the dismissal of the Summons was in my view caused by legal errors (error as to the jurisdiction and material non-disclosure of well-established legal points) rather than any factual errors or errors of any kind that could be attributed to the Plaintiff himself as a lay client. While I would understand the immense pressure on the legal team acting for the Plaintiff for preparing and making the ex parte application, in the present circumstances, on the evidence before me, I really fail to find any reason why the Plaintiff as lay client would have to bear the costs, unless the Plaintiff himself, well knowing all the legal points, still insisted on his legal team going ahead (but this would also beg the question why the legal team did not discharge their duty to the Court to make proper disclosure). Therefore, I also make an order nisi that the Plaintiff’s solicitors to show cause why they should not be personally liable. For this purpose, upon the order nisi becoming absolute, the Plaintiff’s solicitors shall file and serve Affirmation within 28 days from today, with written submissions within 14 days thereafter. Unless otherwise directed, I would dispose of the matter on paper.

38.  Further, upon the order nisi becoming absolute, the 1^st to 5^th Defendants shall lodge and serve a statement of costs within 7 days, and the Plaintiff shall lodge and serve a list of objections within 7 days thereafter.

39.  Lastly, I thank counsel for their assistance.