XCHRX EDWARD SEKY SOERYADJAYA and Another v. VICKERS BALLAS HONG KONG LTD. and Others

1996, No A11360

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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The Applications

1. On 4 October 1996, the plaintiffs obtained an order, ex parte on notice to the 1st, 2nd, 3rd and 5th defendants, from Patrick Chan, J relating to 770,469,230 shares in the 5th defendant. The order restrained the 1st defendant, to which the shares had been pledged by the 2nd defendant, from disposing or dealing with the shares, restrained the second and 3rd defendants from procuring the transfer of the shares to the 4th defendant, which was the purchaser of the shares under an agreement dated 29 August 1996, and restrained the 5th defendant from registering any transfer of the shares. The plaintiffs were to issue an inter partes summons returnable on 11 October 1996.

2. On 8 October 1996, the 2nd defendant issued an inter partes summons praying for the discharge of the ex parte order and an inquiry into damages. I commenced hearing this matter on 10 October 1996, but this spilled over to 11 October so, in essence, I heard the application for discharge and that to continue the order together.

The Evidence

3. According to Mr Barry Hoy, the solicitor for the plaintiffs, in an affidavit filed in support of the injunctions, the 1st plaintiff, who is a director of the 2nd plaintiff, Mr Andreas Tjahjadi and Mr Sandiaga Uno, who are directors of the 2nd defendant, are normally resident in Singapore. The 3rd defendant is also normally resident there, although he has been living in Hong Kong recently. The 2nd plaintiff is a company incorporated in the British Virgin Islands and has an issued capital of US$20,000. The 1st plaintiff and Mr Kiem Thio are the sole directors of the 2nd plaintiff. The 2nd plaintiff is entirely owned by Asia Treasure Limited, a company also incorporated in the British Virgin Islands. The 1st plaintiff, Mr Thio and Mr Tjahjadi are the directors of Asia Treasure.

4. The 1st plaintiff says that he is the owner of 61% of the issued shares of the 2nd defendant, which is incorporated in Bermuda and quoted on the Alberta Stock Exchange. This is said to be valued at around US$13 million, being 17,500,000 shares at a value of 13 cents Canadian per share, but are subject to a pledge to secure the sum of US$5 million.

5. Mr Hoy says that, so far as the 2nd defendant is concerned, the proceedings are by way of a derivative action by the plaintiffs as a shareholder on behalf of the 2nd defendant.

6. Mr Hoy says that the 2nd defendant owns 770,469,230 shares in the 5th defendant, which is listed on the Hong Kong Stock Exchange. These shares are subject to a pledge in favour of the 1st defendant. The 2nd defendant's shares in the 5th defendant are one of its two assets; the other being a 20 % interest in a Mongolian company. The shares represent about 33% of the net worth of the 2nd defendant.

7. A board meeting of the 2nd defendant was held on 28 August 1996 by way of a telephone conference. Those taking part in this meeting were the five directors of the 2nd defendant - the 3rd defendant, Mr Christopher Nightingale, Mr Tjahjadi, Mr Ed Story and Mr Uno - and the 1st plaintiff. The board discussed the sale of the 2nd defendant's shares in the 5th defendant. At that meeting, it was resolved, in the words of Mr Wong, to which all agreed, that Mr Tjahjadi and Mr Nightingale "be appointed to negotiate the final disposal of the investment of Seaunion and that I would be at the negotiations and any proposals would be put forth to" Mr Tjahjadi and Mr Nightingale. The minutes of the meeting record -

1. That the Company proceed with the sale of its interest in Seaunion Holdings Limited; and

2. That the Chairman should lead the negotiation with prospective purchasers,

3. That a committee consisting of Messrs Tjahjadi and Nightingale be authorised to consider the terms of the sale and to decide on such terms, and,

4. That any director authorised by the above committee be authorised to sign any sale agreement and to do all such things or execute all such documents on behalf of the Company (either under hand or under seal) as may be necessary or advisable to give effect to the above or matters contemplated thereby.

(The parts in italics and struck-through show the hand-written amendments to the typed copy.)

8. Mr Hoy produces an offer letter by the 4th defendant dated 28 August 1996. It is addressed to the 2nd defendant, for the attention of Mr Nightingale and Mr Wong. This offers to buy the Seaunion shares at a price of HK$0.13 per share, amounting to HK$100,160,999.90. It offers a deposit of HK$5,000,000 to be paid to the 1st defendant within 3 days, HK$55,000,000 to be paid to the 1st defendant, or such other party as the 2nd defendant may direct, within 60 days of acceptance in exchange for delivery of the shares together with negotiable executed transfers in favour of the 4th defendant or in favour of its nominees. The balance of HK$40,160,999.90 was to be paid within 150 days of acceptance "to be secured by a Banker's Guarantee issued by a Prime Bank issued your favour at completion". The offer is signed by Catherine Chiang on behalf of the 4th defendant. This offer was accepted by Mr Nightingale on behalf of the 2nd defendant. Mr Hoy says that the shares were trading "at or around" 14 cents per share at this time, but the price had risen to about 30 cents per share on 4 October 1996. In a later affidavit, Mr Hoy produces a trading history of the shares in the 5th defendant for the period from 19 August to 7 October 1996. This shows closing prices of 13.5 cents on 28 August rising to a high of 27 cents on 1 and 2 October before falling to 25 cents on 7 October.

9. Mr Hoy says that Mr Tjahjadi says that Mr Nightingale telephoned him about this offer. Mr Tjahjadi said that the offer should be rejected. Mr Nightingale, and Mr Wong, who was also on the telephone line, voted to accept the offer.

10. There was another board meeting of the 2nd defendant on 4 September 1996, again conducted over the telephone. Again, the five directors and the 1st plaintiff were present. At this meeting there was a dispute about the authority to accept the offer. Mr Wong proposed that the board "ratify and confirm the sale of the Seaunion shares and the acceptance of the authority given to - to authorise Mr Nightingale to accept the offer". Mr Wong, Mr Nightingale and Mr Story voted in favour of this motion. Mr Uno and Tjahjadi voted against it. At this same meeting, the board considered a requisition dated 3 September 1996 by the 2nd plaintiff, claiming to hold 53,953,698 shares (69.61%) in the 2nd defendant, to convene a shareholders meeting to remove Mr Wong and Mr Nightingale from the board, but it was not acted upon because it was said that time to think about it was required and that legal advice should be taken.

11. Mr Uno and Mr Tjahjadi voted against the motion because they did not like the offer and did not know anything about the 4th defendant. They, through solicitors, tried to obtain this information from Mr Wong and Mr Nightingale about the 4th defendant, but none was given. This was so in spite of the fact that it was pointed out that the 4th defendant could not be contacted at the address and communication numbers given on its letter-head.

12. Another board meeting was held over telephone links at 12.45 am on 3 October 1996. Taking part were Mr Wong, Mr Nightingale and Mr Story. The minutes recorded that Mr Uno and Mr Tjahjadi could not be contacted. At this meeting, Mr Uno's authority to deal with the 1st defendant was revoked, and it was resolved that the money paid by the 4th defendant be paid to the 1st defendant to reduce the 2nd defendant's indebtedness.

13. In a statutory declaration, Mr Alan Tsang, who was financial controller of the 5th defendant until 30 September 1996, says that he believes that Mr Wong is closely related to the 4th defendant. He says this because -

1. About two weeks before 3 October, the former corporate manager of the 5th defendant, Ms Winnie Lau, told him she saw Mr Wong carrying the corporate kit of the 4th defendant into his office.

2. He was aware that Mr Wong prepared the statutory declaration of interest to be filed by the 4th defendant with the Hong Kong Stock Exchange.

3. This declaration was signed by Ms Chelsea Ho, who is associated with Mr Wong.

4. The 5th defendant has paid some expenses incurred by Ms Ho, including her name cards as director of the 4th defendant.

5. During a telephone board meeting of the 2nd defendant on 4 September 1996, Mr Loo Choon Beng, a substantial shareholder in the 5th defendant, was in the same room as Mr Wong and Mr Nightingale.

14. Mr Hoy draws attention to two further board meetings of the 2nd defendant. These are said to have taken place at 9.00 pm and 9.30 pm on 3 October 1996 at 16 Collyer Quay, Singapore. The minutes of both meetings record that Mr Uno, Mr Tjahjadi and Mr Nightingale were present, but that attempts to notify Mr Wong and Mr Story were unsuccessful. The minutes of the 9.00 pm meeting record that the meeting was called because of the resolutions passed earlier that day. Those resolutions were rescinded and it was resolved that only Mr Uno "and/or" Mr Tjahjadi were authorised to deal with the 1st defendant. The minutes of the 9.30 meeting record that a dispute involving the 2nd plaintiff and two other companies had been resolved on 3 October 1996 according to an agreement attached. It was said that Mr Nightingale "informed the Company that he would have no further interest in the company save being a shareholder". The meeting resolved that approval be given for the appointment of Mr Kiem Thio as a director immediately, that Mr Wong's powers as director be suspended and that Mr Nightingale's resignation as director be accepted. The minutes of both meetings purport to be signed by Mr Nightingale as secretary and Mr Uno as Chairman. The agreements attached are dated 3 October 1996 and purport to be signed by Mr Nightingale and Mr Thio. They speak about Mr Nightingale resigning as director of the 2nd defendant.

15. Mr Christopher Nightingale has made an affidavit. He is a solicitor in England and Wales and Hong Kong, but he is no longer in practice. He says he is a director of the 2nd defendant and authorised to make an affidavit on its behalf.

16. Regarding the agreements attached to the minutes of the 9.30 pm meeting on 3 October 1996, Mr Nightingale says that it was agreed that they were not to become effective until he was satisfied as to certain matters. He says that the original agreements are being held to his order by Messrs Sinclair Roche and Temperley. Mr Nightingale goes on to say that the minutes of the 9.00 and 9.30 pm meetings of 3 October 1996 are totally false; he was not present, did not sign them and did not approve them in any other way. He says he was, at the time, at home with his family at 106 Bukit Teresa Road, Singapore. He also says that the agreements were dated without his authority. He denies that he has resigned as a director of the 2nd defendant. He says that he has tried to contact Mr Uno and Mr Tjahjadi about these meetings, and implies that they have been avoiding him.

17. Mr Nightingale says that he called a board meeting on 5 October 1996, and gave notice to all the directors. That meeting was held at 11.00 am on 5 October 1996. Mr Wong and Mr Nightingale were present and Mr Story was on a telephone line. Mr Uno and Mr Tjahjadi were absent. The meeting resolved that the purported meetings at 9.00 and 9.30 pm on 3 October 1996 were of no effect and appointed solicitors to act on behalf of the 2nd defendant. Mr Nightingale then instructed Messrs Allen & Overy to apply to set aside the interim injunctions.

18. Mr Uno and Mr Tjahjadi received notice of this meeting. Their solicitors wrote to Messrs Wong, Nightingale and Storey on 5 October 1996. They queried the legitimacy of the meeting in view of Mr Nightingale's resignation and Mr Wong's suspension, and complained about the short notice.

19. Mr Nightingale says that all the directors had agreed that the shares be sold in order to repay the 1st defendant. The 4th defendant was the only potential purchaser. He says the terms were satisfactory and the price was consistent with the average market price of the shares over the previous 30 days. The 2nd defendant stood to make a profit of over US$1 million having held the shares for only about four months. He agrees that he was asked for information about the 4th defendant, but says there was then no allegation that any director was wrongfully involved and there was no reason to pass information to the plaintiffs, who were not entitled to it and asked for it aggressively. He says the proper place for the questions was a board meeting. Mr Nightingale does not, even at this stage, provide any further information about the 4th defendant. Mr Nightingale says that he put the allegations of interest in the 4th defendant to Mr Wong and Mr Storey at the board meeting of 5 October 1996. They both denied any such interest. He says he regarded the statutory declaration by Mr Alan Tsang as insufficient to rely upon in the face of Mr Wong's denial. He asked the 1st plaintiff on 5 October 1996 to provide him with any further information he had regarding Mr Wong's interest in the 4th defendant. He heard nothing in answer. Mr Nightingale says that the plaintiffs have no reasonable causes of action against any of the defendants.

20. Regarding the undertaking as to damages, Mr Nightingale says that the security offered is totally inadequate. The shares in the 2nd defendant offered are subject to pledges in favour of two companies. The 2nd plaintiff pledged 60,377,448 shares in 2nd defendant to Société Générale to secure US$5,000,000, and it granted a fixed charge in favour of Broad Street Limited over the same shares to secure US$7,000,000.

21. Mr Hoy has made a second affidavit. He says that Mr Tjahjadi and Mr Uno have confirmed to him that Mr Nightingale did attend the 9.00 and 9.30 pm meetings on 3 October 1996, took part in the meetings, signed the minutes and retained the originals. He says that the 1st plaintiff says that he saw Mr Nightingale attend these meetings. An affirmation by Mr Uno has now been filed in which he confirms this.

22. There is a letter dated 7 October 1996 from a firm of bank and corporate finance advisers to the 2nd defendant, for the attention of Mr Tjahjadi that states that "Madame Caterine Chiang is also know as Chiang Siang Kiow" and that "she has given birth on 24 September 1994 to a baby girl whose father is identified as Mr Loo Choon Beng".

23. According to a corporate services company in Singapore revealed in a letter dated 8 October 1996, and based on information provided by the 1st plaintiff himself, published market reports and the valuation of properties, the 1st plaintiff has a net asset worth of about US$76.6 million.

Forgery and fraud?

24. Mr Garland says that the plaintiffs' case is based on fraud and forged documents, that I should find that Mr Nightingale is telling the truth about the 9.00 and 9.30 pm meetings on 3 October 1996 and that I should discharge the injunctions on this basis alone. He says that this is the "over-riding" point.

25. There is, of course, an irreconcilable conflict of fact about these meetings. There are lies being told. There is no way in which I can find the facts without a full trial of the issue. The law says that I should not attempt to do this. Mr Garland says that there is "overwhelming" evidence that the minutes were forged. I do not think there is.

26. It is argued that for Mr Nightingale to be supportive of Wong-Nightingale-Storey camp of directors both before and after the disputed meetings, but to desert them for these meetings is improbable. On the face of it, this is strange, but the fact of the matter is that we do not yet know all the facts, and it could be that Mr Nightingale saw some advantage at the time that did not come to fruition.

27. Mr Garland says that Mr Nightingale could not have dated the agreements because the originals were, and still are, in the custody of Messrs Sinclair Roche. This is not so. Mr Nightingale had the means to produce further originals of the agreements.

28. Mr Nightingale was in court and he was tendered for cross-examination. No one wished to cross-examine him. Mr Uno and Mr Tjahjadi were not in court, although they said that they were willing to come to Hong Kong for cross-examination on reasonable notice. Mr Scott explained that he did not wish to cross-examine an experienced practitioner with all the facts at his fingertips when he had not had the time to adequately prepare. I understand this attitude. In any event, if I were to order cross-examination, this would have to include the other witnesses and the grant of time to arrange this.

29. Mr Garland said that Mr Nightingale is a solicitor of this court. The implication is that he would be unlikely to lie. I do not think I can favour Mr Nightingale in this way. I have to assume also that it is unlikely that the other witnesses would lie. On the face of it, it is improbable that Mr Uno and Mr Tjahjadi would undertake this extraordinary conspiracy when they knew that it was certain that their acts would be challenged immediately.

Control of 2nd defendant

30. The evidence is that the 2nd plaintiff holds 53,953,698 shares (69.61%) in the 2nd defendant. Late in the day, Mr Garland challenged this, pointing out that, if the agreements were dated and made effective by Mr Nightingale at the 9.30 pm meeting on 3 October 1996, the 2nd plaintiff had agreed to sell 30 million shares to Broad Spread Limited. But this sale has not been carried into effect if only because part of the consideration for this sale is that a letter of resignation by Mr Nightingale as director of the 2nd defendant should be delivered, and, as I understand the position, Mr Nightingale has no intention of signing any such letter. Accordingly, as things presently stand, the 2nd plaintiff is still the majority shareholder. With such a status, no one challenges that the 2nd plaintiff can control the composition of the board of the 2nd defendant. The 2nd plaintiff issued a requisition for a meeting of shareholders on 3 September, but Mr Wong and Mr Nightingale are stalling on this, although it is clear from a transcript of discussions at a meeting of the board that Mr Wong was placed on the board as a nominee of the 2nd plaintiff. If the board had called the meeting of shareholders in accordance with the requisition, it is probable that the plaintiffs would now control the board of the 2nd defendant and the situation we have would not have arisen.

Serious Question To Be Tried

31. Broadly, the plaintiffs rest their case on the basis that the sale of the shares to the 4th defendant was disadvantageous to the 2nd defendant and that Mr Nightingale and Mr Wong were in breach of their fiduciary duties as directors in entering into it.

32. It is not obvious to me that the deal was disadvantageous to the 2nd defendant looking at it, as I must, at the time it was entered into. The price was at, or about, the current market value, and the deal was binding at that price. The price was payable over an extended period of time, but it was adequately secured against transfer, and one has to bear in mind that this was large block of shares that could not easily be sold in lots without driving down the price. It may be that the price was being artificially deflated, but there is no evidence of this. It may also be that someone had some insider knowledge that would indicate that the price would rise, but this is also speculation.

33. Putting disadvantageous terms aside, there is no evidence that Mr Nightingale was in breach of his fiduciary duties. There is some evidence that Mr Wong was connected to, and had some interest in, the 4th defendant. If this is so, the plaintiffs and the 2nd defendant have a case to set aside the deal. I have already described this evidence. It is not strong standing alone, but it gains additional credence from the failure of Mr Wong to give information about the 4th defendant when asked for it and by his failure to file an affirmation dealing with the specific allegations against him and providing information about the 4th defendant . I am left with the impression that Mr Wong did not, and does not, wish to reveal details about the 4th defendant. Mr Nightingale says that "In view of the allegations (which are denied) against Mr Wong, Mr Wong has not provided any instructions to Allen & Overy". If this is meant to explain why Mr Wong has not provided any evidence, it is inadequate. I have not been given any satisfactory reason why Mr Wong himself has not dealt with the allegations against him or provided information about the 4th defendant.

34. I know that it is said that Mr Wong was only served with the papers on the morning of 10 October 1996, but, in my view, this allowed time for Mr Wong to deal with the specific allegations regarding his alleged interest in the 4th defendant, to give a rational explanation for why he did not give information regarding the 4th defendant when reasonably asked and now to tell what he knows about the 4th defendant.

35. On this basis, I find that the plaintiffs have raised a serious question to be tried.

Balance of Convenience

36. If the injunctions are continued, the implementation of the sale of the shares to the 4th defendant will be effectively blocked, which may or may not expose the 2nd defendant to liability for damages. In addition, the 2nd defendant may have difficulty in meeting its liabilities elsewhere. But the board dispute should not last much longer. Sooner or later, probably sooner rather than later, the will of the 2nd plaintiff should prevail; it should already have prevailed if the board had done what it should have done - called a meeting of shareholders to decide the matter of the composition of the board. Once the board of the 2nd defendant is constituted as the majority shareholder wishes, the 2nd defendant will be able to look after its own interests.

37. If the injunctions are discharged, the shares may be transferred and lost to the 2nd defendant.

38. In my view, the balance of convenience lies, marginally, with continuing the injunctions.

Representation of the 2nd defendant

39. In addition to Mr Garland and Ms Jennifer Tsang, instructed by Messrs Allen & Overy, Mr David Morrison of Messrs Richards Butler claimed that he was instructed to represent the 2nd defendant. Which of them was entitled to represent the 2nd defendant depended upon whether or not Mr Nightingale had resigned from the board. I have held that I cannot resolve this issue at this stage, but, in the event, it is not necessary to do so for this purpose. Mr Morrison, as one might expect, sides with Mr Scott in the argument, and, in my view, Mr Scott's arguments prevail.

Right to Bring Derivative Action

40. Mr Bartlett, who appeared for the 3rd defendant, argued that the plaintiffs were not entitled to bring a derivative action on behalf of the 2nd defendant. He said that this right is restricted to minority shareholders who were not able to control the company concerned. I do not accept this. Of course most derivative actions are brought by minority shareholders because it is in that circumstance that the shareholder cannot protect his interests in the company in any other way. But I do not believe that where a majority shareholder is effectively and temporarily locked out of control, he cannot bring a derivative action. It is so that a majority shareholder can, in the long run, regain control, as is the case here, but, until that happens, it is my view that he can seek to protect his interests temporarily by a derivative action.

Resignation of Mr Nightingale

41. The bye-laws of the 2nd defendant say that "The office of director shall be vacated . . . if he resigns his office by notice in writing delivered to the Registered Office or tendered at a meeting of the Board". Mr Garland says that, even if Mr Nightingale was present at the disputed meetings and purported to resign, this was not effective because of the terms of this bye-law. My inclination is to think that, if the resignation is recorded in the minutes of a board meeting and the minutes are signed by the resigning director, this is sufficient notice in writing. But, in the event, it is not necessary to resolve this issue here and now. For the purposes of my conclusion, it does not matter whether or not Mr Nightingale remained a director of the 2nd defendant.

Non-disclosure of Second Pledge

42. As I already recited, it appears that the plaintiffs did not disclose to the ex parte judge the existence of the second pledge mentioned. Mr Garland argues that this, in itself, is sufficient to justify a discharge of the injunction. I do not agree. The second pledge should have been disclosed, but failure to do so, having regard to urgency under which the papers were prepared, is understandable. I decline to discharge the injunctions on this basis.

Fortification

43. I have not found this an easy matter to resolve, and I am by no means confident that my conclusion is the right one, especially on the point of balance of convenience. I have done the best I can in the limited time available to me. The plaintiffs are pressing for continuation of the injunctions, and should, in my view, as it is said, put their money where their mouth is. In these circumstances, I intend to make it a condition of the continuation of the injunctions that the plaintiffs fortify their undertakings as to damages with substantial security. I will leave the details of this open in the hope that counsel and solicitors can reach agreement.

Result

44. In the result, it is my intention to continue the injunctions on condition that the plaintiffs provide substantial fortification of their undertakings as to damages. If necessary, I will hear the parties on fortification. I will also hear the parties on costs.