XCHRX HINTON HOLDINGS INC. v. LEUNG TZE HANG DAVID

HCA21538/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 21538 OF 1998

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J U D G M E N T

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1. The Plaintiff applied for an interim injunction restraining the Defendant whether by himself or by his servants, agents or otherwise howsoever from acting in the capacity of director or Chairman of the Board of Directors of AWT Holdings Co. Ltd., except those acts necessarily done for the purpose of performing his obligations under the Collateral Contract dated 7th November 1998; and for costs.

2. I heard and refused the application. I now give my reasons.

3. As appears from the affirmations of Mr Yeung Wing Keung, Wilson, and the Defendant himself, the background to the application is as follows.

4. The Defendant himself is the Chairman of the Board of Directors of AWT Holdings Co. Ltd., ("AWT") which is a company incorporated in Bermuda, with shares listed on the Hong Kong Stock Exchange. AWT pledged 119,802,450 of its shares, which represented about 13.5% of the total shareholding, to one Sunford Finance (HK) Ltd. ("Sunford"), which became entitled to enforce its rights and powers of sale in the shares, and sold the shares to the Plaintiff on 9th November 1998.

5. Mr Yeung Wing Keung, Wilson is a director of the Plaintiff. It is his evidence that prior to the sale of the shares in AWT to Sunford, on 7th November 1998, the Defendant, in order to persuade the Plaintiff to buy the shares, represented and assured that upon the Plaintiff entering into the agreement to buy the shares, he would on the following day convene a board meeting of AWT, at which Mr Yeung and his nominees would be appointed directors of AWT. He would at the same meeting procure the resignations of the other existing directors and himself resign as director and Chairman of the Board.

6. Mr Yeung says that this pre-contractual assurance or representations gave rise to a collateral contract between the Plaintiff and the Defendant. However, though a Board meeting was held, he and his nominees were not appointed, and the Defendant neither procured the resignations of the other existing directors nor resigned himself. The Plaintiff has accordingly issued a writ endorsed for specific performance of the collateral contract, a permanent injunction against the Defendant acting as director or Chairman of the Board of AWT, damages, interest and costs.

7. Mr Yeung also says that the Plaintiff wrongfully remains as the director and Chairman of AWT with a view to procure the sale of a property owned by AWT, which sale Mr Yeung says is at an undervalue. The Plaintiff commenced proceedings against, inter alia, the Board of AWT to restrain them from selling this property, and obtained an ex parte injunction; but later when it became apparent that the sale was subject to approval by resolution of a general meeting of AWT - which Mr Yeung says was only arranged after the ex parte injunction was obtained - the proceedings were discontinued. Nevertheless, Mr Yeung says that the Defendant has wrongfully caused an extraordinary general meeting of the shareholders to be arranged, to decide on the sale of this property.

8. The Defendant denies the existence of the Collateral Contract. I will not go into his evidence in detail because the matter was argued on the basis that on the face of the Plaintiff's evidence, there are no good grounds for an interim injunction.

9. The principles to be applied in deciding whether to order an interim injunction are set out in the case of American Cyanamid Co. v. Ethicon Ltd. [1975] A.C. 396. The first requirement is that the Plaintiff must show "a serious question to be tried" which is "not frivolous or vexatious" and has "a real prospect of success" on the claim for a permanent injunction. See the Supreme Court Practice, 1999 Edition, Para. 29/L/4. If there is a serious question to be tried, then it is necessary to consider whether damages would be an adequate remedy for a party injured by the court's grant of or failure to grant an injunction, and if not, where the balance of convenience lies.

10. The alleged collateral agreement was never reduced into writing. Although written requests were made by the Plaintiff's solicitors to the Board of AWT on 10th November 1998, requesting that Mr Yeung and his nominees be appointed executive directors, no reference was made to any collateral contract or indeed any kind of earlier promise by the Defendant that this would be done. Indeed there seems to be no mention of any collateral contract or representation of the kind alleged by Mr Yeung in any of the correspondence. This is somewhat strange given that the correspondence emanated from a firm of solicitors whose principal was alleged by Mr Yeung to have been present at the meeting at which the Defendant made the alleged representations.

11. Further, the alleged collateral agreement was not referred to at all in the evidence placed before the court in the action for injunction against the sale of the property, that is HCA No. 21538 of 1998.

12. The only piece of correspondence which supports Mr Yeung is a letter in Chinese written by him to the managing director of Sunford, dated 24th November 1998. This is hardly reliable as any kind of support for the allegations made by Mr Yeung, but in any event it does not refer to any agreement but rather to an expectation of what the Defendant would do.

13. I have to say that this whole story of a collateral contract appears incredible. If it was made in a meeting with a solicitor present, one would have expected some record to have been made of it. If it was made, one would have expected to see it referred to in correspondence between the parties and especially one would have expected to see some reference to it in the evidence put before the court in support of the earlier application for injunction against the sale of the property. In fact in his affirmation in support of that application Mr Yeung merely referred to requests made by the Plaintiff for himself and his nominees to be appointed to the Board.

14. Further, it is difficult to understand what value the alleged representation might have to the Plaintiff so as to induce it to enter into the contract to buy the shares. It is alleged that the Defendant undertook not only to resign from the Board himself, but to procure others to do so. There is no evidence before me to show that he had the power to do that. If this representation was ever made, one might have expected that the Plaintiff would have raised this issue at the meeting at which, according to Mr Yeung, it was made. This is particularly so when one considers that the Plaintiff had legal representation at the meeting.

15. The whole story seems to me to have all the hallmarks of something which has been made up after the event.

16. I have investigated the Plaintiff's prospects of success to a limited extent and have come to the conclusion that they are so small that they lack substance and reality. I conclude that there is no serious case to be tried.

17. In case I am wrong in this, I must still go on to consider whether damages would be an adequate remedy for a party injured by the court's grant of or failure to grant an injunction, and if not, where the balance of convenience lies.

18. Counsel for the Defendant seemed to accept that damages would not be an adequate remedy, though it is difficult, if not impossible, to see at this stage what the damages might be. I will assume that damages would not be an adequate remedy and look at the balance of convenience.

19. The problem here is that it is difficult to see what loss might be avoided, in the Plaintiff's interests, if the injunction were to be granted. From the affirmation of Mr Yeung it seems that what he is chiefly worried about is the sale of the Kwun Tong property at what he claims is an undervalue. However, it will be for a general meeting of the company to decide whether this goes ahead. There is no evidence before me as to whether the Defendant is a shareholder, or if he is, how much of a holding he has. But in any event, if he is a shareholder, he can presumably vote for the sale to go ahead whether or not he is a director and Chairman of the Board.

20. In any event the Plaintiff seems to have accepted that the Defendant and the other directors will not be able to decide whether or not the sale should go ahead, because Mr Yeung says that the other action against them was discontinued on the basis that the interests of the members could be protected, given that an extraordinary general meeting had been arranged.

21. There does not seem to be any evidence before me of any other possible loss which the Plaintiff might suffer through the Defendant's remaining as director and Chairman of the Board pending the trial of the action.

22. I conclude that the balance of convenience is in favour of the Defendant.

23. These are my reasons for refusing the interim injunction. Costs will follow the event. I understand that the Defendant seeks costs on an indemnity basis, and against the Plaintiff's solicitor personally. The Plaintiff opposes this but accepts that it should pay costs on the usual party and party basis. In case the application for indemnity costs is not to proceed, and so as to obviate the need, in that event, for any further hearing, I order nisi that costs be to the Defendant to be taxed if not agreed. If the Defendant wishes to proceed with his application, it will of course be reserved to me, and arrangements may be made for me to hear it at the District Court.