DOLLFUS MIEG & CIE v. CDW INTERNATIONAL LTD.

HCA 3517/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3517 OF 2002

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J U D G M E N T

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The Application

1. By this application, the Plaintiff, Dollfus Mieg & Cie ("DMC"), seek mandatory interlocutory injunctions requiring the Defendant, CDW International Ltd ("CDW"), to take steps to procure the revocation of certain resolutions passed on 6 September 2002 by the directors and shareholders of three joint venture companies in which both DMC and CDW are interested, namely CDW International (BVI) Ltd ("CDW BVI"), China Dyeing Holdings Ltd ("CDH") and CDP Textiles Ltd ("CDP"). A prohibitory injunction restraining CDW from doing any acts in furtherance of such resolutions is also sought.

2. In brief, DMC contend that the passing of such resolutions, at meetings of the directors and shareholders of the respective joint venture companies which were attended by representatives of CDW but not by representatives of DMC, were breaches of a joint venture agreement entered into between DMC and CDW regulating their relationship in respect of, and the affairs of, such joint venture companies. DMC contend that the breach is a clear one, for which no defence or justification has been (or could be) advanced, and that the Court should, almost as a matter of right, grant the injunctions which it seeks. It is DMC's case that the passing of the resolutions complained of are part of an attempt by CDW to terminate the joint venture relationship so as to enable CDW to acquire certain joint venture assets at an advantageous price.

3. CDW accepts that DMC has a case that is at least arguable. However, it contends that the position is not as clear cut as DMC suggest, and that DMC was, at the time when the resolutions in question were passed, itself in breach of the joint venture agreement between the parties, to such an extent that CDW was not in breach in passing such resolutions. CDW suggests that the dispute is simply about money, in that DMC itself recognises that the relationship between them is not salvageable, and that DMC's objective is simply to extricate itself from the relationship on the best possible terms from its own point of view. CDW submits that if the injunctions sought are not granted, DMC will not suffer any loss that cannot be compensated for by an award of damages, and that the balance of advantage and disadvantage comes down against the grant of the injunctions sought by DMC.

The Parties and their joint venture

4. DMC is a French public company. Its principal business is the manufacture and distribution of high quality fabrics. It has no place of business, and no assets, in Hong Kong. CDW is a Cayman Island company, registered in Hong Kong as an oversea company under Part XI of the Companies Ordinance (Cap. 32). It is ultimately owned by the family of Cha Chi Ming. CDW, through companies in which it is interested or with which it is associated, is also involved in the textiles business.

The joint venture agreement

5. On 31 July 1996, DMC and CDW entered into a joint venture for the manufacture and marketing of certain fabrics. The arrangements for the joint venture were put into effect by three written agreements of that date. In essence, the joint venture arrangements provided for the setting up of two joint venture entities, known as the JV1 Group and JV2 respectively. The JV1 Group is the manufacturing arm, and consists of CDW BVI (which is also known as JV1), its wholly owned subsidiary CDW Industries Ltd ("CDWI"), and CDWI's wholly owned subsidiary CDH. CDH owns the principal manufacturing asset of the joint venture, a factory in Yuen Long. CDW BVI was formerly an indirect wholly owned subsidiary of CDW, in which DMC acquired a 49% interest pursuant to one of the agreements entered into on 31 July 1996. JV2 is the marketing arm, and consists of a single company, CDP, which is owned as to 51% by DMC and as to 49% by a subsidiary of CDW. Fabric produced by the Yuen Long factory (JV1) was sold to CDP (JV2) for on sale to customers of the joint venture within a defined territory, or to DMC for on sale to its customers outside that territory. Pursuant to another of the agreements entered into on 31 July 1996, CDW and other companies controlled by the Cha family acquired a 17.3% shareholding in DMC.

6. The third of the agreements entered into on 31 July 1996 was the joint venture agreement itself. This is a detailed agreement, regulating almost all aspects of the joint venture, making provision for the resolution of disputes which might arise between DMC and CDW as to the affairs of the joint venture and the various joint venture companies through which it was to be operated, and providing for mechanisms by which and terms upon which the relationship could, if necessary, be brought to an end. The requirement for cooperation between the DMC and CDW interests is apparent from many of the terms of the joint venture agreement. Thus, for example, a variety of specific matters (defined as "Reserved Shareholder Matters") relating to important aspects of the organisation, business and financing of the joint venture companies require the approval of both DMC and CDW (clause 4.2); no decisions on Reserved Shareholder Matters can be taken either generally (clause 4.1) or by the board of directors of any of the joint venture companies (clause 3.1) without the prior approval of both DMC and CDW; the membership of the boards of directors of the joint venture companies is equally divided between representatives of DMC and CDW (clause 3.2); the quorum for board and shareholder meetings requires the attendance of both parties (clauses 3.12 and 4.3 respectively); cooperation is required in relation to taxation affairs (clause 6); DMC and CDW must act in good faith towards each other to promote the success of the joint venture (clause 8.3). Even in the event of termination of the joint venture the parties are required to cooperate with each other in the liquidation of the relevant joint venture companies (clause 10.2).

7. For present purposes, the most important provisions of the joint venture agreement would appear to be clauses 4.1, 4.2, 6, 8.3, 10.2, 10.3 and 11.1 to 11.4 of the agreement, paragraphs 3.3 to 3.7 of Schedule 1, and Schedule 2.

8. Clause 4.1 provides that:-

"No decision relating to any of the matters specified in Clause 4.2, in relation to any of JV1, the other members of the JV1 Group or JV2 ... shall be taken unless the requisite prior approval has been given."

9. Clause 4.2 provides that each of the matters enumerated in sub-paragraphs (a) to (t) thereof:-

"... shall require either (i) prior approval by resolution of the Shareholders at a meeting at which each of the Shareholders is present in person or by proxy and votes in favour of the relevant resolution or (ii) prior written approval of each of the Shareholders."

10. Of the various matters then set out, the most pertinent for the purposes of this application are those in sub paragraphs (p) and (t):-

"(p) the approval of the statutory accounts and any change in the principal accounting policies." and

"(t) subject to Clause 11 and Schedule 1, any proposal relating to its winding-up or liquidation."

11. Clause 6 requires each of CDW and DMC to

"... co-operate ... to such extent as may be reasonably requeted in connection with the making of any returns claims or elections for taxation purposes by JV1 (or any member of the JV1 Group) and JV2 in relation to the taxation affairs of the JV1 Group and JV2."

12. Clause 8.3 provides that:-

"The parties confirm their intention to promote the best interests of the JV1 Group and JV2 and to consult fully on all matters materially affecting the development of the business of JV1 Group and JV2. Each party shall act in good faith towards the other in order to promote the success of the JV1 Group and JV2."

13. Clause 10.2 relates to the consequences of liquidation of either CDW BVI or CDP. It provides that:-

"This Agreement shall ... terminate upon a resolution being passed for the winding up of JV1 or JV2 (whether pursuant to a deadlock in accordance with clause 11 or otherwise). In such event, CDW and DMC shall endeavour to agree on a suitable basis for dealing with the interests and assets of the JV1 Group and JV2, but subject thereto:

(a) CDW and DMC shall co-operate ... for the purpose of enabling all existing obligations of the company which is being wound up to be completed insofar as such company's resources allow;

...

(c) unless otherwise agreed between CDW and DMC, the parties shall procure that the company which is being wound up shall as soon as practicable be wound up;

...

(g) subject to paragraph 3.5 of Schedule 1, on any liquidation of JV1 or JV2, CDW and DMC shall make such arrangements as are necessary to procure that CDW and DMC (or the relevant member of their respective Groups) share equally in the surplus assets of JV1 and JV2, as the case may be, and in all distributions which may be made in connection with the liquidation of either of them irrespective of the actual shareholdings of CDW or DMC (or the relevant members of their respective Groups) in JV1 and JV2."

14. Clause 10.3(a) provides that the termination of the joint venture agreement shall not:-

"relieve any party from any liability or obligation in respect of any matters, undertakings or conditions which shall not have been done, observed or performed by that party prior to such termination."

15. Clause 11 relates to the settlement of disputes between the parties. It distinguishes between disputes in relation to Reserved Shareholder Matters and other disputes. In relation to disputes concerning other matters, clause 11.1 requires CDW and DMC to attempt to resolve the matter on an amicable basis. It also provides for a procedure by which formal written notice of such a dispute may be given, which has the effect of imposing a 30 day time limit for a resolution to be achieved, failing which the matter should be referred to the respective chairmen of CDW and DMC. Clause 11.1 goes on to provide that this:-

"shall not affect a party's right, where appropriate, to seek an immediate remedy for an injunction, specific performance or similar court order to enforce the obligations of the other party."

16. Where a dispute arises concerning a Reserved Shareholder Matter, clause 11.2 applies. Clause 11.2 refers to such disputes as "Material Disputes", and provides for a deadlock procedure to come into operation where a Material Dispute cannot be resolved within a specified time frame. In summary, clause 11.2 provides that where a Material Dispute is not resolved within 30 days of its being referred to the parties' respective chairmen, either party may, within 14 days thereafter serve a Warning Notice informing the other party that it intends to implement the Clause 11.2 procedure. If the Material Dispute remains unresolved 30 days later, there is a further 14 day period within which either party may serve on the other a Deadlock Option Notice, stating either that it wishes to sell its shares in JV1 to the other party at the Exit Price (determined in accordance with Schedule 2), or that it wishes to buy the other party's shares in JV1 at the Exit Price, or that it is prepared to do either of these things, at the other party's option. The other party then has 21 days to respond, and failing a positive response, either party can within 14 days thereafter give notice that it intends to look for a third party purchaser of its shares. If this produces no result, the parties are obliged to put JV1 and JV2 into liquidation, whereupon the provisions of clause 10.2 apply. It is material to note that clause 11.2 provides (after reference to the service of a Warning Notice) that:-

"In the circumstances contemplated in this clause 11.2 the provisions of clause 11.1 shall not apply."

17. This sentence is somewhat curious, since it is not clear from clause 11.2 how the Material Dispute which it envisions is to reach the parties' respective chairmen, since clause 11.2 does not (unlike clause 11.1) provide for such disputes to be referred to the chairmen, but instead assumes that such a reference has taken place.

18. Clause 11.3 provides as follows:-

"If there is a breach of any of the Reserved Shareholder Matters, such breach shall be deemed to be a Material Dispute and the provisions of clause 11.2 shall apply."

19. Clause 11.4 prohibits the parties from creating an "artificial deadlock" by voting against any issue or proposal the approval of which is required to enable the JV1 Group and JV2 to carry on its activities properly and efficiently in accordance with the then current approved Business Plan and Budget.

20. Paragraphs 3.3 to 3.7 of Schedule 1 define Default Events and provide for their consequences. By paragraph 3.3(c), it shall be a Default Event in relation to CDW or DMC if:-

"CDW or DMC, as the case may be, commits a material breach of any of the material provisions of this Agreement".

21. If a Default Event takes place, the non-defaulting party is entitled (by paragraph 3.4) to serve a Default Notice specifying the breach, and requiring the defaulting party immediately to cease the breach and make it good to the extent possible within 45 days. Paragraph 3.5 provides that if the breach is still continuing at the end of the 45 day period, the non-defaulting party can within 15 days thereafter serve a notice requiring the defaulting party to purchase the non-defaulting party's interest in JV1 at the Exit Price plus a premium of 15%, or alternatively call for the dissolution of JV1 and/or JV2, in which case they must be dissolved, and their assets distributed between the parties, subject to a liability on the part of the defaulting party to pay the non-defaulting party an amount equal to 15% of the amount distributed. By paragraph 3.7, the operation of these provisions does not prevent the non-defaulting party from claiming damages for the breach or, where appropriate, seeking immediate remedies of injunction, specific performance or similar court orders against the defaulting party.

22. It will be apparent from the terms of clause 11.2 and those of paragraph 3.5 of Schedule 1, that there is a significant difference between the procedure in the event of a deadlock, and that which applies in the event of a default. In the event of a deadlock, the clause 11.2 procedure gives the party serving a Deadlock Option Notice a choice between offering to sell its shares, offering to buy the other party's shares or giving the option to do either to the other party. However, there is no obligation on the other party to accept any of these choices. The party serving the Deadlock Option Notice cannot insist on selling his shares to the other party, and may, at the end of the day be left with recovering whatever can be recovered through a dissolution of the various joint venture companies. On the other hand, a party serving a Default Notice can, if the default continues, insist on being bought out by the other party.

23. There is also a substantial difference in the amount recoverable by the party serving the Deadlock Option Notice or Default Notice, as the case may be. Under clause 11.2, the amount recoverable by operating the Deadlock Option Notice procedure is either the Exit Price (in the event that a sale from one party to the other takes place) or the amount distributed on dissolution. By contrast, under the Default Notice provisions in paragraph 3.5 of Schedule 1, the non-defaulting party is entitled to a 15% premium over the Exit Price, or the amount distributed on dissolution, as the case may be.

24. I also note at this stage a complication caused by clause 11.3, which provides that a breach of a Reserved Shareholder Matter shall bring the clause 11.2 procedure into play. The relationship between this provision and the Schedule 1 paragraph 3 procedure applicable to a Default Event is not entirely clear.

25. Schedule 2 fixes the formula by which the Exit Price is calculated. In summary, it provides for the Exit Price to be the higher of a sum calculated as 50% of a multiple of the average aggregate net profit after tax (consisting of the average consolidated net profit of the JV1 Group and the average net profit JV2 based on their respective audited accounts for the three financial years immediately preceding the offer to sell), or 50% of the aggregate net asset value of the JV1 Group and of JV2. However, in defining the aggregate net asset value, Schedule 2 somewhat surprisingly refers only to the audited accounts of JV2, but not of the JV1 Group, by defining aggregate net asset value as:-

"the aggregate value of the consolidated fixed and current assets of the JV1 Group less the aggregate amount of the consolidated liabilities of the JV1 Group plus the aggregate value of the fixed and current assets of JV2 less the aggregate amount of the liabilities of JV2 calculated by reference to the audited accounts of JV2, in each case, for the last financial year ended prior to the date of the Transfer Notice/the offer to sell the JV2 shares."

(It is also somewhat curious that this definition and the definition of aggregate average net profit after tax refer only to a transfer notice or offer to sell in relation to the JV2 shares).

The evidence

26. The principal evidence filed by the parties in relation to this application consisted of five affirmations filed by Mr Daniel Dehaye, the General Counsel of DMC, on behalf of DMC, and an affirmation of Mr Shen Tai Hing, a director of CDW, chairman of CDW BVI, CDH (both part of the JV1 Group) and a director of CDP (JV2), on behalf of CDW. DMC's case as to the factual background is largely set out in Mr Dehaye's first affirmation, supplemented slightly by his second affirmation. CDW's response is contained in Mr Shen's affirmation, and this is replied to by Mr Dehaye in his fourth affirmation, filed on 4 November 2002, shortly before the commencement of the hearing. The fifth affirmation of Mr Dehaye, filed shortly before the resumption of the hearing in December 2002 refers to certain events that took place after the adjournment of the hearing when it could not be completed in the time originally allocated for it. There were also affidavits filed by the solicitors handling the matter for the respective parties, which dealt with various discrete matters.

27. It is clear from the affirmations of Mr Dehaye and Mr Shen that there is a substantial divergence between the parties' positions as to many of the underlying facts and the impact of such facts on their respective rights and obligations. In order to resolve these differences, and to come to final conclusions as to their effect on the parties' rights and obligations, it will be necessary to hear evidence from the persons involved. It is neither possible nor appropriate to attempt any such resolution at this stage, nor, in my view, is it necessary to do so, for reasons which will become clear later in this judgment. However, it is necessary to set out a summary of the events which have led to the present application, and the parties' respective positions in relation to them, and this I now do.

The background to this application

28. In the early stages, the joint venture relationship appears to have been relatively uneventful, although even as to this period there is a difference of view between the parties. Thus, for example, Mr Dehaye says that DMC provided technical know how and assistance to CDH, a claim which is not accepted by Mr Shen, in his evidence for CDW. Mr Shen suggests that the joint venture has never really achieved its objects, with CDH earning only modest profits until 2000, after which it has incurred losses, and with CDP incurring losses from the outset. Mr Shen also says that DMC never placed the amount of orders that it had been envisaged would be placed with CDP.

29. It seems that at some point between 1999 and 2001 (the parties' versions as to this differ), negotiations commenced between DMC and CDW with a view to putting the joint venture on a different footing, by making use of manufacturing facilities in Hangzhou on the mainland, in the hope that this would provide a lower cost manufacturing base than could be provided by CDH's Yuen Long factory in Hong Kong. The proposed new joint venture became known as Project Platform. Whatever the origins of the negotiations, it seems to be common ground that they progressed until about March 2002. At this time, DMC appears to have believed that an agreement in principle had been reached, and produced a draft Memorandum of Understanding which reflected what it says was the understanding between the parties. CDW then suggested revisions to the draft, which disclosed a very different approach to Project Platform on its part. The result was that the Project Platform negotiations broke down in April 2002. They never revived, and the failed negotiations are now the subject of litigation between DMC and CDW in the French courts, in which DMC brought an action in August 2002, claiming damages for losses arising out of the breakdown in negotiations, which DMC claims was unwarranted a situation which apparently gives rise to a claim under French law.

30. CDW says that soon thereafter, DMC decided that it would seek to withdraw from the joint venture on the best terms that it could obtain. CDW claims that this is reflected in comments made by Mr Boubal (DMC's Executive Chairman) to DMC's shareholders in the latter part of April 2002, and again in a letter to shareholders of 2 August 2002. This is not accepted by DMC in its evidence.

31. CDW also says that in about mid-April 2002, Mr Boubal told Mr Charles Lip of Deloitte Touche Tohmatsu ("Deloittes") (the auditors of the joint venture companies, and, it seems, of DMC) that DMC would not approve the draft financial statements of the joint venture companies for the financial year ended 31 December 2001. This allegation is denied by DMC, which says that Mr Boubal was referring only to what DMC perceived as a need to take account of certain related party transactions involving the placing of a value on the technology which DMC says that it has provided to the joint venture, and which is said by DMC to have been made available to the Hangzhou mill, which is owned by CDW interests.

32. The next important development arose in May 2002. It seems that on 8 May 2002, CDH received from one of its bankers a copy of a valuation report in relation to the Yuen Long factory, which ascribed to the factory a value considerably below that at which the factory had been carried in CDH's accounts. Shortly afterwards, on 16 May, CDH received drafts of the audited accounts of the joint venture companies for the year ending 31 December 2001from Deloittes, in which the value of the factory remained unchanged from previous years. These accounts contained a note which referred to impairment of assets, and prompted by this, says Mr Shen, the directors of CDH appointed by CDW (who were the persons having charge of the day to day management of the JV1 companies), thought that it would be desirable to seek professional advice as to whether or not anything needed to be done about the value at which the factory was carried in CDH's accounts. Instead of seeking such advice from Deloittes, however, an approach was made to Ernst & Young for advice on this matter. Mr Shen says that this was because Deloittes had already approved DMC's accounts on the basis of unimpaired values in relation to the joint venture companies as at 31 December 2001, and it was thought that Deloittes might be in a somewhat embarrassing position as a result.

33. The CDH accounts were sent on to DMC on 16 May 2002. Meanwhile, as a result of the approach to Ernst & Young, a draft engagement letter was prepared with a view to instructing Ernst & Young to advise on the impairment issue. The question of impairment of assets was then added, on Mr Shen's instructions, to the agenda for a forthcoming series of board meetings of the joint venture companies, which were then scheduled for 4 June 2002. Other matters to be considered at the board meetings included approval of the accounts, the joint venture companies' budget, a proposal to permit the appointment of alternate directors, and (in apparent response to a matter raised by DMC) transactions involving the Hangzhou mill. The amended agenda was sent to DMC on 24 May 2002, together with a copy of the valuation and the draft Ernst & Young engagement letter. DMC's response on 29 May 2002 was to express concerns about the valuation, and to question the need for the appointment of Ernst & Young. DMC proposed instead a series of board consultations with a view to deciding how the matter should be progressed.

34. On 30 May 2002, a member of CDW's staff sent DMC drafts of proposed resolutions to amend CDH's articles to permit the appointment of alternate directors. However, at the CDH board meeting on 4 June 2002, DMC's representatives requested time to consider and take legal advice on the terms of the proposed amendments to the articles. This resulted in the chairman of the meeting (a CDW representative) adjourning the meeting, and the remaining board meetings that were to take place following the CDH board meeting. As a result, the asset impairment issue was not discussed on 4 June 2002. The next day, 5 June 2002, CDW issued a Warning Notice to DMC, purportedly under clause 11.2 of the joint venture agreement, alleging that there was a dispute in relation to the amendment to CDH's articles, and in relation to the asset impairment issue. DMC responded to this by denying that CDW was entitled to issue a Warning Notice, but agreeing to the amendments to the articles of CDH. In the event, the Warning Notice was withdrawn following the conclusion of the adjourned board meetings on 26 June 2002. On 13 June 2002, CDH appointed Ernst & Young to advise on the asset impairment issue and other issues concerning the joint venture companies' accounts. Notwithstanding that this had not been agreed to by DMC, the appointment was ratified at the adjourned board meeting on 26 June 2002, in which DMC representatives participated.

35. It seems that on 18 June 2002, DMC served a Default Notice claiming that CDW was attempting to terminate the joint venture, in breach of clause 8.3 of the joint venture agreement. However, as with CDW's Warning Notice dated 5 June 2002, no further action appears to have been taken in relation to this notice.

36. On 26 June 2002, the adjourned board meetings took place, apparently without incident. The appointment of Ernst & Young was ratified, and various other matters dealt with. The next day, however, DMC commenced proceedings in the English Commercial Court, claiming damages for alleged breaches of the joint venture agreement by CDW. These appear to relate to the activities of the Hangzhou mill, and a threatened refusal by CDH to supply fabric to CDP on other than COD terms. Further claims in relation to a subsequently threatened withdrawal by CDW of guarantees that it had provided in support of the joint ventures banking facilities were also made when the Claim Form in respect of those proceedings was filed. Further English litigation was instituted, this time by CDW and related parties against DMC, on 19 and 22 July 2002, claiming negative declarations in relation to the collapse of the Project Platform negotiations. This was perceived by DMC as an attempt to pre-empt their French proceedings, in relation to which a letter before action had by that time been issued. In the event, it does not appear to have had that effect, since the French proceedings, were, as I have mentioned above, issued by DMC in August 2002.

37. The Ernst & Young report was received by CDH on 10 July 2002, and was sent on to DMC. The report concluded that the value of the Yuen Long factory had been impaired. This conclusion was reached on the basis of projections as to CDH's lack of profitability which had been supplied by CDH management. It is not surprising to note that DMC complains that it was not consulted in relation to such projections before they were supplied to Ernst & Young. This and other complaints in relation to the handling of the asset impairment issue were set out in a letter from DMC to CDW dated 24 July 2002. The Ernst & Young report was, it seems, also provided to Deloittes, who (also on 24 July 2002) raised a number of issues in relation to the report, indicating that CDH's directors should review and come to a view on the asset impairment issue.

38. Also on 24 July 2002, CDH notified DMC of further board meetings of the joint venture companies, to be held on 15 August 2002, enclosing agendas for such meetings. It seems that the date was fixed in part at least because of impending deadlines for the finalisation of the joint venture companies' accounts, which were required in order to enable them to file their tax returns on time. This date did not suit the DMC representatives, as they would be on leave during August, and it was eventually agreed that the meetings should take place on 6 September. An application for an extension of time for the filing of the joint venture companies' tax returns was, however, rejected by the Inland Revenue Department.

39. On 17 August 2002, revised agendas for the board meetings were sent to DMC, which included consideration of the asset impairment issue and a proposal for the winding up of CDW BVI. Shareholders' meetings were also convened for the same day, at which the winding up of CDW BVI was to be considered.

40. On 22 August 2002, DMC sought a response from CDW to DMC's comments on the Ernst & Young report, and proposed a preliminary meeting between the two sides, Deloittes and Ernst & Young the day before the board meetings. On 28 August 2002, CDW suggested that the meetings should be held on a without prejudice basis, and that CDW's legal advisers should also be present. This proposal was rejected by DMC.

41. On 2 September 2002, DMC received the board papers for the 6 September meetings, including further asset valuation reports in respect of plant and machinery, and providing details of the proposed impairment adjustments to the joint venture companies' accounts. The next day, DMC proposed that the board meetings should be adjourned for three weeks, but this request was rejected by CDH. It seems that at about this time, the DMC appointed directors of CDH cancelled their travel arrangements to Hong Kong. Offers by CDH to arrange video conferencing facilities to enable the DMC appointed directors of CDH to participate at the board meeting were rejected.

42. In the event, the meetings went ahead on 6 September 2002 without the attendance of the DMC appointed directors of the joint venture companies at their board meetings, and without DMC's attendance at the shareholder meetings.

43. Resolutions were passed adopting the financial statements of the joint venture companies on the basis of substantial provisions for asset impairment. The impact of such provisions was significant, as a charge of HK$211 million odd was made to the profit and loss account of CDH in respect of asset impairment. The result was that CDH's loss for the year ended 31 December 2001 was in excess of HK$237 million, resulting in its accumulated profits which had stood at some HK$54 million as at the end of 2000 being wiped out, and giving rise to an accumulated loss of some HK$183 million. In relation to CDW BVI, the effect was to reduce its capital and reserves from some HK$341 million to HK$158 million.

44. In relation to CDW BVI, its shareholders meeting (which was attended by CDW alone) passed a resolution for the winding up of the company.

45. Further, in relation to CDH, its directors resolved, in the absence of the DMC appointees to its board, to demand repayment of all sums that were outstanding from CDP to CDH for over 30 days. For its part, the CDP board (also in the absence of the DMC appointees) resolved to repay such outstanding sums to CDH.

46. CDW advised DMC of the resolutions passed at the various meetings by a letter to DMC dated 6 September 2002. In that letter, CDW offered, in settlement of the disputes which had arisen, to acquire DMC's interests in the joint venture at a price which was equivalent to 50% of the net asset value of the joint venture companies (base d on the accounts approved at the meetings) plus a 15% uplift, to be paid in the form of DMC shares. DMC contends that by offering the additional 15%, CDW is implicitly accepting that it has breached the joint venture agreement, as a 15% uplift is provided for by paragraph 3.5 of Schedule 1 which applies where a party is in default. This is denied by CDW, which says that the offer was put forward as an overall settlement of all claims between the parties, including those in the English and French proceedings, and does not constitute any admission of liability on their part.

47. Also on 6 September 2002, DMC wrote to CDW, alleging that the passing of the resolutions at the various meetings constituted a breach of the joint venture agreement, and threatening to seek injunctive relief if steps were not taken to unravel the resolutions. DMC also wrote to Deloittes disputing the validity of the meetings held and of the resolutions passed at them.

48. On 9 September 2002, DMC provided to CDH alternative financial projections in response to those which CDH had provided to Ernst & Young for the purposes of their report. These were provided to Deloittes, who requested that they be considered. It appears that CDH's responses to the DMC projections, which CDW contend were unrealistic, were discussed with Deloittes at a meeting on 16 September 2002.

49. Having been advised of the dispute between the parties as to the validity of the resolutions passed at the 6 September 2002 meetings, Deloittes informed the directors of the joint venture companies on 17 September 2002 that as the validity of the approval of the accounts of the joint venture companies at those meetings was the subject of dispute, it could not provide its audit opinion in relation to such accounts. Deloittes also mentioned that in the light of recent developments, it was not clear whether the going concern basis of preparation of such accounts continued to be appropriate.

50. However, on 19 September 2002, Deloittes wrote to the directors of CDH and CDW BVI stating that in Deloittes' opinion the draft accounts approved at the 6 September 2002 meetings provided a true and fair view of the companies' financial position, subject only to the question of a going concern qualification, and that Deloittes would have issued its audit opinion to this effect, subject only to such adjustments which might be necessary to reflect the fact that the financial statements were not prepared on a going concern basis, or that might be needed as a result of any other subsequent developments.

51. Meanwhile, Articles of Dissolution in respect of CDW BVI were filed in the British Virgin Islands on 11 September 2002. This resulted in the bringing of the present proceedings by DMC, coupled with the present application for interlocutory injunctive relief, on 13 September 2002, and the bringing of similar proceedings in the British Virgin Islands. The latter proceedings have now been compromised, but on terms which would not prevent CDW from procuring the passing of fresh resolutions for the winding up of CDW BVI. Whether or not such fresh resolutions are sought to be passed is likely to depend on the outcome of the present application.

52. By their summons of 13 September 2002, DMC sought the following interlocutory injunctions:-

(1) requiring CDW to take the necessary steps to procure the revocation of the resolutions passed and the board and shareholder meetings of the joint venture companies on 6 September 2002;

(2) restraining CDW from filing or procuring the filing of Articles of Dissolution in respect of CDW BVI in the British Virgin Islands; and

(3) restraining CDW from doing, or procuring the joint venture companies from doing any acts in furtherance of any of the matters approved by the resolutions passed at the board and shareholder meetings of the joint venture companies on 6 September 2002.

53. As a result of the compromise of the British Virgin Islands proceedings, the second of these injunctions is no longer sought by DMC.

54. After the commencement of this action and the making of this application, CDW, on 8 October 2002, proposed that the clause 11.2 deadlock procedure should be put into effect. It appears that DMC has agreed to this, and in the first part of the hearing, I was informed that the parties were trying to agree how the procedure should be put into effect.

55. In addition, CDW also served, at the same time, a Default Notice on DMC under paragraph 3.4 of Schedule 1 to the joint venture agreement. It appears that on about 5 November 2002, shortly before the commencement of this hearing, DMC served its own Default Notice on CDW.

The parties' respective positions

56. Against this background, DMC contends that CDW is in clear breach of the provisions of clause 4.2 of the joint venture agreement, in particular in respect of clauses 4.2(p) and 4.2(t), as a result of its passing resolutions for the winding up of CDW BVI and in relation to the approval of the joint venture companies' accounts at the board and shareholder meetings of the joint venture companies on 6 September 2002 without the agreement of DMC, which was not present at the meetings. DMC's case is that CDW's conduct demonstrates that it is trying to terminate the joint venture in a manner that is designed to enable it to acquire the business of the JV1 Group on favourable terms, either by attempting to avoid the operation of clause 11.2 by the expedient of passing a winding up resolution in respect of CDW BVI, or alternatively by putting itself in a position to acquire DMC's interest at an unjustifiably low price by virtue of obtaining audited accounts for the financial year ending 31 December 2001 based on accounts approved by the joint venture companies' directors on the basis of impaired asset values.

57. CDW denies that it is in breach of the joint venture agreement. Its position is that DMC had, by April 2002, decided that it wished to terminate the joint venture agreement on the best terms obtainable for itself, and that it has thereafter acted in a manner calculated to frustrate CDW in its operation of the JV1 companies and their business. CDW argues that DMC's refusal to consider the accounts of the joint venture companies since at least June 2002 onwards was a breach of DMC's obligations of good faith under clause 8.3 of the joint venture agreement, and its obligations under clause 6 in relation to cooperation in respect of tax matters. CDW contends that the decision by DMC that its directors should not attend and participate in the 6 September 2002 board and shareholder meetings was deliberate and also constituted a breach of these provisions, with the result that CDW was entitled (without being itself in breach of the joint venture agreement) to carry on with those meetings in DMC's absence.

58. Although there are a number of statements in the evidence filed on behalf of DMC to the effect that DMC wishes to maintain the joint venture agreement on foot, at the hearing, Mr Harris, who appeared for DMC, said that DMC now accepted that the relationship had (at least by the time of the hearing) broken down to such an extent that the joint venture could no longer continue. However, he maintained that DMC was entitled to the injunctions sought, and (if necessary) that they would serve a useful purpose. Mr Kat, who appeared for CDW, disputed this, submitting that given the acceptance that the relationship could not continue, there was no purpose to be served by the injunctions, particularly since DMC could, if it was right as to liability, be compensated for any losses it might suffer by reason of CDW's alleged breaches of contract by an appropriate award of damages.

The applicable legal principles

59. The parties were not in agreement as to the approach which the court should take to the granting of an interlocutory mandatory injunction in respect of a breach of a negative covenant. Mr Harris submitted that where there is an undisputed breach of a negative covenant, or where the court is satisfied that it is likely that such a breach has occurred, the plaintiff is entitled to an interlocutory injunction unless the defendant could establish exceptional circumstances which would render it unjust to grant the injunction sought. He relied on Doherty v Allman (1878) 3 App Cas 709, and the decision of the Court of Appeal in Incorporated Owners of South Seas Centre v Great Treasure Development Ltd (unreported, CACV 191/93 and 8/94, 9 February 1994).

60. The South Seas Centre case concerned an application for an interlocutory injunction in relation to an alleged breach of the provisions of the Deed of Mutual Covenant in respect of South Seas Centre by the erection of certain signs on an external wall of the building. Although the signs had already been affixed, the Court of Appeal granted an interlocutory injunction which would appear to have had the effect of requiring the removal of the signs, so that the injunction was mandatory. In that case, Godfrey JA, delivering the judgment of the Court, suggested that the principle applicable to interlocutory injunctions sought to restrain a breach of a negative covenant could be reformulated in the following terms (at pp.5-6 of the judgment):-

"... Where a defendant is proposing to act in breach of an express negative stipulation binding upon him he will normally be enjoined from doing so, and, save in exceptional cases, damages will not be regarded as an adequate remedy; but the defendant may nonetheless be able to establish special circumstances of such a nature that the hardship that the making of the order would cause him would so far outweigh the inconvenience to the plaintiff through denying the plaintiff specific relief that the court considers that its intervention would be unjust. In additional, general discretionary considerations, such as unfairness, acquiescence or delay, may make the grant of an interlocutory injunction inappropriate."

61. Mr Kat, however, pointed out that this approach, if applied to the grant of an interlocutory mandatory injunction, did not appear to take account of the fact that it is generally thought that an unusually strong and clear case is needed for the grant of such an injunction. He noted that the Court of Appeal in the South Seas Centre case did not appear to have had cited to it Shepherd Homes Ltd v Sandham [1971] 1 Ch 340, where Megarry J stated (at p. 351) that:-

"... on motion, as contrasted with the trial, the court is far more reluctant to grant a mandatory injunction than it would be to grant a comparable prohibitory injunction. In a normal case the court must, inter alia, feel a high degree of assurance that at the trial it will appear that the injunction was rightly granted; and this is a higher standard than is required for a prohibitory injunction."

62. This test has been applied in Hong Kong in TKI Ltd v New Happy Ltd [1995] 1 HKC 551.

63. Mr Kat submitted that the appropriate principles to apply were those explained in detail by Hoffman J in Films Rover Ltd v Cannon Film Sales Ltd [1987] 1 WLR 670 at 680, and later summarised by Chadwick J in Nottingham Building Society v Eurodynamics Systems [1993] FSR 468 at 474, where he said:-

"In my view, the principles to be applied are these. First, this being an interlocutory matter, the overriding consideration is which course is likely to involve the least risk of injustice if it turns out to be 'wrong' in the sense described by Hoffman J.

Secondly, in considering whether to grant a mandatory injunction, the court must keep in mind that an order which requires a party to take some positive step at an interlocutory stage, may well carry a greater risk of injustice if it turns out to have been wrongly made than an order which merely prohibits action, thereby preserving the status quo.

Thirdly, it is legitimate, where a mandatory injunction is sought, to consider whether the court does feel a high degree of assurance that the plaintiff will be able to establish this right at a trial. That is because the greater the degree of assurance the plaintiff will ultimately establish his right, the less will be the risk of injustice if the injunction is granted.

But, finally, even where the court is unable to feel any high degree of assurance that the plaintiff will establish his right, there may still be circumstances in which it is appropriate to grant a mandatory injunction at an interlocutory stage. Those circumstances will exist where the risk of injustice if this injunction is refused sufficiently outweigh the risk of injustice if it is granted."

64. These principles were approved by the English Court of Appeal in Zockoll Group Ltd v Mercury Communications Ltd [1998] FSR 354, at 365-366.

65. In my view, the approach which I should adopt is that summarised by Chadwick J in the Nottingham Building Society case. It seems to me that this approach encapsulates the nature of the exercise which the court has to perform when considering whether or not an injunction, whether prohibitory or mandatory, should be granted on an interlocutory basis. Whatever decision the court reaches is attended by a measure of risk that injustice will be done to one or the other party in the event that the injunction sought turns out at the end of the day to have been wrongly granted, or wrongly withheld, as the case may be. In the case of a prohibitory injunction to restrain an intended or continuing breach of a negative covenant, it seems to me that where the court is satisfied that there is a good case shown that such a breach is threatened or continuing, the grant of an injunction on an interlocutory basis in the normal case is likely to be the course which gives rise to the least likelihood of injustice, particularly having regard to the fact that the behaviour to be prevented is something which the parties have expressly agreed should not be done. However, for the reasons given by Chadwick J, the position will often be different in the case of a mandatory injunction, so that the application of the same principles could lead to a different result where what is sought is a mandatory injunction to undo the effects of a breach which has already taken place.

66. So approached, I do not regard the South Seas Centre case as laying down a different principle that would be likely to produce a different result. It is also to be noted that in that case, it appears to have been expressly agreed between the parties that the court should proceed on the basis that, notwithstanding that the signs complained of had already been erected, the status quo should be treated as the state of affairs which obtained before the signs were erected (see p. 6 of the judgment of Godfrey JA). Thus, the parties in that case appear to have invited the court to approach the matter on the basis that what was sought was in effect a prohibitory interlocutory injunction.

Where the balance lies

67. I turn now to consider which course would, in this case, involve the least risk of injustice.

Adequacy of damages

68. In my view, the most important factor in this consideration is the recognition by both parties that the joint venture relationship is effectively at an end, and that the relations between the parties are now so strained that they cannot realistically be expected to continue in business together. This means that whatever course is adopted, the end result will be the dissolution of the joint venture. DMC's concern is to achieve this result in a way which it perceives is likely to produce the best return for it, by invoking the default procedure under paragraph 3 of Schedule 1 to the joint venture agreement.

69. On the face of it, this would suggest that the question is ultimately one of the financial terms on which the joint venture between the parties is to be terminated, a matter which would seem in principle to be capable of being adequately addressed by an appropriate award of damages if CDW are found, after trial, to have been in breach of contract in procuring the passing of the resolutions to wind up CDW BVI and approve the accounts of the various joint venture companies at the board and shareholder meetings of 6 September 2002. Mr Kat contends that this is the correct conclusion to draw. Mr Harris, however, while acknowledging, I think, that his client's objective is to extricate itself from the joint venture on the best financial terms achievable, has argued that damages would not, in the circumstances of this case, be an adequate remedy.

70. In relation to the winding up of CDW BVI, it is said that this will result in DMC being left with a 51% interest in CDP, the marketing arm of the joint venture, without any ownership interest in or management into the manufacturing arm, CDH. In relation to the approval of the accounts, it is said that this produces an artificially low net asset value by wrongly taking account of the asset impairment provision, and that this will either prejudice, or at least unduly complicate, any assessment of damages that may have to take place. The former point appears to be one which is not likely to arise, given the attitude of both parties that the joint venture will have to be terminated. The latter point is one which I consider below.

71. In the course of argument, Mr Harris explained that DMC's concern was that, given the complexities of the joint venture agreement, failing to turn the clock back by rolling back the resolutions passed on 6 September 2002 would be prejudicial to its interests. He suggested that if the resolutions were unravelled by the grant of the injunctions sought, DMC would be enabled to bring into play the default procedure laid down by paragraph 3 of Schedule 1 of the joint venture agreement. On the other hand, a failure to unravel the resolutions would (or at least would arguably) mean that by virtue of clause 10.2, the joint venture agreement was terminated with effect from 6 September 2002 as a result of the passing of the resolution to wind up CDW BVI, and that even if clause 10.3 preserved DMC's right to claim damages if it were able to establish that the winding up resolution were passed in breach of the terms of the joint venture agreement, the assessment of such damages would be complicated, and DMC might be prejudiced by the fact that they had not, at that point in time, sought to make use of the default procedures. He suggested that this would involve giving up a degree of certainty the ability to bring the default procedures into operation in exchange for a "whole lot of arguments", and that this was itself a form of prejudice that cannot adequately be compensated by an award of damages. His argument in relation to the prejudice that would be caused by a failure to roll back the resolutions approving the accounts of the joint venture companies was, I think, to the same effect.

72. Mr Kat's response was that this approach was mistaken. If the passing of either the resolution to wind up CDW BVI, or the resolutions approving the financial statements of the joint venture companies was a breach of the joint venture agreement, there was no reason in principle why the court could not calculate the financial loss that would accrue to DMC as a result. While not, I think, suggesting that the calculation would be an easy one, Mr Kat maintained that it was one which the court could, and if necessary, would be able to do.

73. I think that in principle, Mr Kat is right in this submission. It seems to me that, while the exercise may not be an easy one, it should be possible for the court, if provided with appropriate evidence, to ascertain reasonably accurately the amount which DMC will recover from a dissolution of the joint venture, on the basis of the accounts of the joint venture companies as approved, and to compare this with the amount that it might have recovered had it been entitled to, and been afforded the opportunity to, invoke the default provisions in the joint venture agreement. To the extent that the net asset value of the joint venture requires reconsideration of the accounts approved by the CDW appointed directors of the joint venture companies, this too, could be done with appropriate evidence.

74. Dealing first with the position in relation to the alleged breach of the joint venture by the passing of the resolution to wind up CDW BVI, it seems to me that while this might, pursuant to clause 10.2, have the effect of terminating the joint venture agreement, clause 10.3 does appear to preserve the right of the injured party to claim damages arising out of such breach. In these circumstances, it would seem open to DMC to establish the steps that it would have taken, had the joint venture agreement remained on foot notwithstanding the passing of the resolution to wind up CDW BVI.

75. There are three possibilities. DMC would either have invoked the default procedure under paragraph 3 of Schedule 1, or invoked the deadlock procedure under clause 11.2, or done nothing. The last possibility is one which is inherently improbable. In fact, it appears that DMC has invoked the default procedure, by a notice which, although not in evidence, seems to have been served shortly before the commencement of this hearing (although it is not in evidence, it is referred to in a helpful chronology that Mr Kat prepared during the adjournment of the hearing, so that it appears to be common ground that it exists).

76. DMC's entitlement to invoke the default procedure may not go unchallenged. In the course of his submissions, Mr Kat drew my attention to clause 11.3, and suggested that its effect was that any breaches in relation to Reserved Shareholder Matters automatically brought the deadlock procedures under clause 11.2 into play, to the exclusion of the default procedures under paragraph 3 of Schedule 1. While this might seem a surprising conclusion to reach where there has been a breach of a material obligation, it is not a construction of the joint venture agreement that can be ruled out. However, it seems to me that whether Mr Kat's proposed construction is right or not does not make any difference. If, on the proper construction of the joint venture agreement, it is open to DMC to invoke the default procedures under paragraph 3 of Schedule 1, the court would, in assessing damages, consider how such procedures would play out in terms of the monetary recovery that DMC would have been able to achieve. Assuming that the breach was one which could not be (or would not be) remedied within the specified time frame, DMC would have an option to exercise, and it would be for DMC to establish which way it would have exercised that option. Depending on the court's finding, on the basis of the evidence, as to how such option would be exercised, it could go on to assess what would be the amount of DMC's monetary recovery. On the other hand, if, on the true construction of the joint venture agreement, the clause 11.2 procedure is exclusively applicable in the event of a breach, DMC's damages would have to be assessed by reference to the likely outcome of the procedure under that clause. The fact that this would be likely to provide a lower level of recovery (whether because of the absence of the 15% uplift or premium payable, or because of the inability to force CDW to proceed in a particular way) is not, to my mind something that would amount to an injustice rather, it would follow from the correct construction of the joint venture agreement which the parties have entered into. I do not think that the application by the court of the terms which the parties had entered into could properly be said to be something that would be unjust to DMC, if those terms were applicable notwithstanding that the other party was in breach of its obligations.

77. So far as the alleged breach in relation to the approval of the accounts of the joint venture companies is concerned, it seems to me that this, too, is a matter that can be appropriately adjusted for by the court if it should be necessary to do so. I note first that Schedule 2, in establishing the formula for the Exit Price, does not appear to require reference to be made to audited accounts in relation to the JV1 Group. Thus, on the face of it (as noted by Mr Kat, and by Mr Shen in para 115 of his affirmation), the approval of the accounts of CDW BVI and CDH on an impaired assets basis would not, of itself, prevent the court from considering whether or not such a basis was the appropriate basis to adopt, having regard to such evidence (including expert evidence) as might be put forward in relation to whether or not any adjustment to asset values was required by reason of impairment, and if so, the extent of any such adjustment as might be appropriate. Even if it were otherwise, and the Exit Price were required to be calculated by reference to the audited accounts, it seems to me that if CDW were in breach in approving the accounts which were eventually audited, CDW would not be entitled to rely on their own breach to establish the binding or conclusive nature of those accounts for the purpose of this exercise. DMC would, in my view, be entitled to put forward their own version of the accounts which they say should have been approved, and the court would have to determine which set of accounts best reflected the financial position of the joint venture companies.

78. I therefore conclude, notwithstanding Mr Harris' argument to the contrary, that DMC can be compensated for the consequences of the alleged breach by an appropriate award of damages. It therefore seems to me that there would be unlikely to be any significant injustice to DMC if I were to refuse to grant the injunctions sought.

Other factors

79. So far as the merits of the underlying dispute are concerned, while I accept (as does Mr Kat) that DMC has demonstrated that it has raised a serious question to be tried, given the state of the evidence and the factual disputes as to the background and the reasonableness of each parties' behaviour, I am unable to say that I feel a high degree of assurance that DMC will succeed in establishing its case for breach at trial.

80. Mr Kat submitted that, apart from the fact that damages would be an adequate remedy for DMC, it would be inappropriate to grant the injunctions sought for a number of reasons:-

(1) it would be inappropriate to grant the injunctions and to keep the parties yoked together in a business relationship when the trust which underlies that relationship has broken down;

(2) the terms of the agreement, in particular clauses 11.2 and 11.3 show that the agreed mechanism for the resolution of fundamental disputes such as these is the deadlock procedure, rather than having resort to injunctions and similar relief;

(3) even if the injunctions were granted, and the parties were left to try to implement the contractually agreed mechanisms for termination or dissolution of the joint venture relationship, these mechanisms themselves involved an element of cooperation that could no longer be expected, so that it was far from clear that these mechanisms could be operated effectively;

(4) the effect of granting the injunctions in relation to the approval of the accounts would leave the joint venture companies with no accounts, and in breach of their statutory obligations in relation to accounts and filing of tax returns, which would expose the directors (of whom the CDW appointees were the only ones in Hong Kong) to potential penalties;

(5) the joint venture companies are operating at a loss, and that CDW and its shareholders are providing their financing, so that the continued operation of the companies would merely increase such losses, which would in the main be thrown upon CDW, which is providing the bulk of their financing.

81. While the first of these reasons would, I think be a strong argument against the grant of the injunctions sought if it were DMC's intention to try to keep the joint venture alive and in operation, it seems to me that the reality of the situation is that the joint venture will have to be terminated, and the dispute is as to whether that termination should be achieved by the attempted operation of the contractually agreed mechanisms for doing so. As to this, as I consider that DMC can be adequately compensated by an appropriate award of damages, I can see no compelling reason for requiring the joint venture to be kept alive, even if only for a limited period, to allow the contractual termination mechanisms to be brought into play.

82. The second point requires consideration of the terms of clause 11.2 and 11.3 of the joint venture agreement, and their contrast with clause 11.1 and paragraph 3.7 of Schedule 1. The argument here is that whereas clauses 11.1 and paragraph 3.7 of Schedule 1 expressly preserve the right of an aggrieved party to seek the intervention of the court by way of injunctive or other specific relief, clauses 11.2 and 11.3 make it clear that this course is not available in relation to breaches of Reserved Shareholder Matters. Reliance is placed on the sentence in clause 11.2 which states that clause 11.1 shall have no application where clause 11.2 applies. Mr Harris pointed out that the last sentence of clause 11.1, which preserves the right to apply for injunctive or other relief does not give a right which would not otherwise exist, but merely preserves an existing right which any party to a contract has. Thus, he says, the fact that clause 11.1 is expressed not to apply in relation to breaches of Reserved Shareholder Matters does not mean that such remedies are not available, since they arise under the general law and not by virtue of clause 11.1. I accept this submission. While I can see an argument that the express reservation in respect of such remedies in clause 11.1 and paragraph 3.7 of Schedule 1 indicates that, as a matter of construction, their non-reservation by clause 11.2 was intentional, so that clause 11.2 should be construed so as to exclude them, I would have expected that if it were intended to exclude the parties from exercising the legal remedies that would normally be available to them, this would have been done explicitly.

83. I think that the third point made is a valid one. Given that the parties have served default notices on each other, and that CDW have sought to bring into play the clause 11.2 deadlock procedure, it is far from clear that any attempt to operate the contractual mechanisms for disengagement will proceed smoothly. In particular, the parties' inability to agree on any form of accounts for the joint venture companies is likely to make it difficult if not impossible to establish the Exit Price which will be needed whichever procedure, default or deadlock, is properly applicable. Moreover, there may well be a dispute as to which procedure applies in the situation which has arisen, where there is a alleged breach of a Reserved Shareholder Matter. This being so, any attempt to operate the contractual mechanisms for termination of the joint venture is likely to be fraught with difficulty. This militates against the grant of the injunctions sought.

84. Although the fourth point has some force, it is one which could be overcome by an undertaking on the part of DMC (which Mr Harris indicated would, if necessary, be forthcoming) to agree to the accounts for the limited purpose of enabling these obligations to be complied with, without accepting their correctness for the purposes of litigation between the parties. I therefore do not regard it as a particularly strong factor against the grant of the injunctions sought.

85. The final point is, in my view, a valid one. It seems to me that if the injunctions were granted, there would, having regard to the difficulties that might arise in relation to seeking to operate the contractual mechanisms for termination, be a risk that the joint venture would have to remain on foot for some period of time, during which it would continue to operate at a loss and incur expenditure to no useful end, in circumstances where such loss and expenditure appears likely to fall on CDW. While an appropriately fortified cross-undertaking in damages (and I would have regarded fortification by cash or bank guarantee as the appropriate form of fortification in this case) would go some way towards mitigating this, it seems to be that this would not completely compensate CDW for the time and effort that would have to be spent managing the affairs of the joint venture companies in Hong Kong for an uncertain period during which the parties might try to operate the termination provisions of the joint venture, when there is, ultimately, no prospect of their continuing in operation.

86. I have therefore reached the conclusion that there is little or no significant risk of injustice to DMC if the injunctions turn out to have been wrongly refused, as damages would in my view provide DMC with an adequate remedy, but that there is a risk of injustice to CDW if they turn out to have been wrongly granted. I therefore decline to grant the injunctions sought. The consequence is that the resolutions passed at the meetings of 6 September 2002 will stand. Notwithstanding that they may have been passed in breach of the joint venture agreement or in breach of the quorum requirements agreed to thereunder, they will be valid resolutions of the companies concerned, since they comply with the requirements as to quorum and voting under the articles of association of the various joint venture companies (see Re Greater Beijing Region Expressways Ltd [1999] 4 HKC 807).

87. I therefore dismiss DMC's application. So far as the costs of the application are concerned, I shall make an order nisi that the costs should be to the Defendant, CDW, in the cause.