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

HCA 597/2021

[2023] HKCFI 3038

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 597 OF 2021

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REASONS FOR DECISION

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1.  By a summons dated 11 September 2023 (“the Injunction Summons”), the plaintiffs (“Ps”) seek an interlocutory injunction against the defendants (“Ds”). At the end of the hearing, upon the undertaking proposed by Ds that they would abstain from voting on the Proposed Resolutions at the Meeting (“the Proposed Undertaking”)[1], I dismissed the Injunction Summons with costs. I also granted a certificate for two counsel. There be liberty to apply. I now give my reasons for the decision.

2.  In the hearing before me, Mr Kenny Lin (together with Mr Ronald Ngan) represented Ps, and Mr Ambrose Ho SC (leading Mr Jeff Chan) represented Ds.  Both Mr Lin and Mr Ho have provided me detailed and helpful submissions.

A.  BACKGROUND

A1.  The parties

3.  HollySys Automation Technologies Ltd (“HollySys”) was incorporated under BVI law on 6 February 2006.  Its shares have been listed on Nasdap Stock Exchange in 2008.

4.  The 1^st plaintiffs are employees (“HollySys Employees”) employed by, or by the group of companies under, HollySys Group Company Limited (“HollySys Group”).  HollySys Group is an indirectly wholly-owned subsidiary of HollySys.  In this case, the 1^st plaintiffs are represented by Mr Li Mingshi (李明實) (“Li”), Mr Fang Lei (方壘) (“Fang”), and Mr Shi Hongyuan (史洪源) (“Shi”).  Li, Fang and Shi have been the employees of HollySys at all material times.

5.  The 2^nd plaintiff, Dr Wang Changli (王常力) (“Wang”), is an engineer and a founder of Beijing HollySys Co Ltd (“Beijing HollySys”), a company incorporated in Mainland China specialising in industrial automation and railway transport automation.  Beijing HollySys became a subsidiary of HollySys in 2007.

6.  The 3^rd plaintiff, Plus View Investments Limited (“Plus View”), is a company incorporated in the BVI.  Mr Luo An (羅安) (“Luo”) is the sole shareholder and sole director of Plus View.

7.  The 1^st Defendant (“Ace Lead”) is a company incorporated in the BVI.  Wang was the sole shareholder and sole director of Ace Lead from its incorporation.  On 12 August 2016, Wang transferred his one share of Ace Lead (“Ace Lead Share”) to the 2^nd defendant, Mr Shao Baiqing

8.  As to the shares of HollySys (“HOLI Shares”), Ace Lead and Plus View were allotted 2,904,204 HOLI Shares (“Ace Lead HOLI Shares”) and 2,016,648 HOLI Shares (“Plus View HOLI shares”) respectively.  Ace Lead HOLI Shares constitute around 6.69% of the entire shareholding of HollySys.

9.  Shao served as the Chief Executive Officer (“CEO”) of HollySys since 2013 and the chairman of the board of directors of HollySys (“Board”) since 2016 until 7 July 2020, when he was removed from both positions.  The validity of the removal of Shao’s positions in HollySys is disputed by Ds.

A2.  Ps’ case

10.  Ps claim that Ace Lead and Plus View are holding the Ace Lead HOLI Shares and the Plus View HOLI Shares respectively on trust.  For the purpose of the Injunction Summons, it would not be necessary to discuss the Plus View HOLI Shares.

11.  Ps also claim that the Ace Lead Share is being held by Shao on trust for Wang.

12.  According to Ps:

(1)  In order to share the success of enterprise with the HollySys Employees, Wang and Luo decided to use the HOLI Shares held by Ace Lead and Plus View for the purpose of setting up a trust scheme for rewarding the HollySys Employees (“Trust Scheme”).  The Ace Lead HOLI Shares and the Plus View HOLI Shares (“Trust Shares”) would be held by Ace Lead and Plus View respectively on trust for the HollySys Employees.

(2)  On 27 August 2009, a committee known as the HollySys Trust Committee (“Committee”) was set up to implement, regulate and operate the Trust Scheme.  The Committee and the Trust Scheme were regulated by the articles of the Committee (“Committee Articles”), which came into effect on 27 August 2009 and were amended on 11 October 2012.  Shao was nominated as the first president of the Committee and responsible for supervising the operation of the Trust Scheme.

(3)  The HollySys Employees participated in the Trust Scheme by, inter alia, executing various declarations of trust (“DoTs”) which set out their particulars and the number of shares they subscribed for.

(4)  As to the Ace Lead Share:

(a)  The beneficial ownership of the Ace Lead Share was never intended to be transferred to Shao absolutely.

(b)  Shao executed a declaration of trust dated 25 November 2016 (“the 25.11.2016 Declaration”) and gave the same to Wang.  According to that declaration, Shao acknowledged that he held the Ace Lead Share on trust for the Committee.

(c)  Shao is holding the Ace Lead Share on constructive or resulting trust for Wang for the purpose of the Trust Scheme and/or on behalf of the HollySys Employees under the Trust Scheme.

13.  Subsequent to the removal of Shao as CEO and chairman of the Board on 7 July 2020 and as president of the Committee on 30 December 2020, Shao was demanded, inter alia, to transfer the Ace Lead Share to a person nominated by Wang.  Ps’ case is that Ds were in breach of trust and their fiduciary duties by, inter alia, wrongfully claiming that the Ace Lead HOLI shares were beneficially owned by Ace Lead and that the Ace Lead Share was beneficially owned by Shao.

14.  Ps claim, inter alia, the following substantive reliefs in this case:

(1)  a declaration that the Ace Lead HOLI Shares are held by Ace Lead on trust for the HollySys Employees;

(2)  a declaration that the Ace Lead Share is held by Shao on trust for Wang for the Trust Scheme and/or for the HollySys Employees under the Trust Scheme and/or under the DoTs;

(3)  an injunction restraining Ds from selling, assigning, disposing of, transferring, charging or diminishing the value or in any way howsoever dealing with any of the Ace Lead HOLI Shares except with the Committee’s approval and in accordance with the Committee Articles; and

(4)  an injunction restraining Ds from, selling, assigning, disposing of, transferring, charging or diminishing the value or in any way howsoever dealing with any of the share(s) in Ace Lead without the written consent of Wang and/or the Committee and/or the HollySys Employees.

A3.  Ds’ case

15.  Ds deny that the Ace Lead HOLI Shares and the Plus View HOLI Shares are held by Ace Lead and Plus View respectively on trust for the HollySys Employees.

16.  According to Ds:

(1)  The Trust Scheme was devised to replace the original trust scheme, which was an arrangement by which Wang and Luo held shares in the predecessor of Beijing HollySys as nominees for the original employees who provided part of its registered capital (“Original Trust Scheme Employees”).

(2)  Shao was the de facto trustee of the Trust Scheme and has been responsible for receiving all subscription monies from employees with his personal bank account(s) and paying out all redemption monies from his personal bank account(s) to the employees.

(3)  The allotment of the Ace Lead HOLI Shares and the Plus View HOLI Shares was to give effect to the rights that the Original Trust Scheme Employees were deemed to have in HollySys pursuant to a resolution passed by the previous committee of the original trust scheme on 19 August 2009.

(4)  In accordance with the terms of the Committee Articles and the DoTs, only the interests and rights, including the right to dividend, redemption, further offerings and allotment, of the Trust Shares (“Interests and Rights”) are held on trust by Ace Lead and Plus View for the HollySys Employees who had entered into the DoTs (“Employees with DoTs”).  In particular, Clause 1.6 of each of the DoTs expressly provides that:

“1.6  “股票权益”：信托人的信托资产，不是股票，是因HoLi股票而产生的利益，即利益价值。”

(5)  Ds claim that the Ace Lead are only holding the Interests and Rights as derived from the Ace Lead HOLI Shares on trust for the Employees with DoTs. Subject to this, the Ace Lead HOLI Shares are being held by Ace Lead beneficially and absolutely.

(6)  As to the Ace Lead Share:

(a)  The transfer of the Ace Lead Share from Wang to Shao was to give effect to or formalise the de facto arrangement that had been in effect since the formation of the Trust Scheme.

(b)  Wang in fact did intend to transfer the Ace Lead Share to Shao absolutely.  They entered into a written Share Sale and Purchase Agreement dated 12 August 2016 (“SPA”), in which it is stipulated, inter alia, that the Ace Lead Share was sold by Wang to Shao free from any encumbrances[2]. Wang himself, in the document provided to the US Securities and Exchange Commission dated 26 September 2016, confirmed that he had sold and transferred the Ace Lead Share to Shao for US$1 (“Wang’s Confirmation”).

(c)  The 25.11.2016 Declaration was never introduced by Ps in various litigations (including this case) until Ps filing their Reply herein on 7 August 2023.  Shao denies signing the said declaration.

A4.  Procedural history

17.  Ps commenced these proceedings against Ds on 21 April 2021.

18.  On 21 January 2022, Ds made an application for an order to stay these proceedings.  The stay application was dismissed by K Yeung J on 4 November 2022.

19.  Ps’ case is that the Injunction Summons is triggered by a letter dated 23 August 2023 (“the 23.08.2023 Letter”) from Messrs Conyers Dill & Pearman (“Conyers”) issued on behalf of an aggregate of 32.3% of the shareholders of HollySys (including Ace Lead holding 6.69%) (“Requisitioning Shareholders”), the Requisitioning Shareholders request the Board to convene a shareholders’ meeting (“the Meeting”) to discuss and to pass the resolutions proposed (“the Proposed Resolution”) in the notices (“Notices”, including the notice given by Ace Lead, “the Ace Lead Notice”) enclosed in the letter.

20.  Under Article 10.2 of the articles of association of HollySys (“HollySys Articles”), shareholders together having not less than 30% shareholding would have the right to request for a shareholders’ meeting to be convened.

21.  According to Ds, the background leading to the 23.08.2023 Letter is a series of acquisition offers received by HollySys in respect of the publicly held HOLI shares and the Board’s refusal to consider the same.

(1)  On 7 December 2020, Shao and Ace Lead proposed to have a consortium to acquire all publicly held HOLI shares at US$15.47 per share.  The Board rejected the offer on 7 January 2021.

(2)  On 29 January 2021, Shao and Ace Lead revised the proposal with a higher acquisition price at US$17.10 per share.

(3)  On 2 August 2021, Wang, Fang and Mr Xu Yue (徐悅) (“Xu”) made an offer to purchase all publicly held HOLI shares at US$23 per share.

(4)  On 3 December 2021, a consortium led by Recco Control Technology Pte Ltd (“Recco”) made an offer to purchase all publicly held HOLI shares at US$25 per share.

(5)  On 24 January 2022, the Board suspended further evaluation of all unsolicited buyout proposals.

(6)  On 8 July 2022, a buyer consortium led by Recco and Dazheng Group (Hong Kong) Investment Holdings Company Limited (“Consortium”) reaffirmed the US$25 per share offer (“Consortium Offer”) and asserted that the Board’s decision to suspend evaluation of all offers to be contrary to the shareholders’ best interests in view of the attractive premium (the share price on that day being US$15.30).

(7)  As stated in the Consortium’s press release dated 24 August 2023, the Consortium remains interested in pursuing the Consortium Offer and engaging with the Board.

(8)  According to Shao, the Board has never convened any shareholders’ meeting in the 15 years since the listing of HollySys in 2008.  

22.  The Proposed Resolutions concern, inter alia, appointing additional directors to the Board so that the acquisition offers (including the Consortium Offer) to HollySys can be considered by a board with new members, and the new board may come to a different conclusion and an acquisition offer may be put to the shareholders for their consideration.

23.  On 11 September 2023, Ps took out the Injunction Summons against Ds.  By the Injunction Summons, Ps seek the following interlocutory reliefs against Ds pending trial:

“(1) [Ds] be restrained and an injunction be granted restraining each of them until the judgment of this action or until further order …… from doing and/ or attempting to do and/ or causing, procuring, approving and/ or authorising to be done the following acts or any of them:

(a) Selling, transferring, assigning, charging, diminishing the value of or otherwise dealing with any of [the Ace Lead HOLI Shares];

(b) Voting for or taking any step to vote for or otherwise causing the passing of any of the proposed resolutions set out in [the Ace Lead Notice];

(c) Taking any step to or otherwise causing or procuring Hollysys to change the Articles of Association of Hollysys;

(d) Taking any step to or otherwise causing or procuring Hollysys to change the constitution of the Board or add new directors to the Board or replace the existing directors of Hollysys;

(e) Causing or procuring the Board to convene any meeting of the members of Hollysys; and

(f) Exercising or taking any step to or causing or procuring [Ace Lead] to exercise any right of [Acer Lead] as a shareholder of Hollysys without the prior approval of the Court;

(2) There be an Order that:

(a) [Ace Lead] shall forthwith withdraw or revoke its request for a special meeting of the members of Hollysys as set out in [Ace Lead Notice] and [Shao] shall forthwith procure [Ace Lead] to withdraw or revoke its request for a special meeting of the members of Hollysys as set out in [the Ace Lead Notice]; and

(b)   [Ds] shall forthwith cause [Ace Lead Notice] to be withdrawn or revoked.”

24.  On 18 September 2023, Ds offered an undertaking that they would not vote on the Proposed Resolutions at the Meeting.  Details of that undertaking (ie, the Proposed Undertaking) have been set out in Shao’s 3^rd Affirmation at [117] and the exhibit mentioned in that paragraph.  The Proposed Undertaking was rejected by Ps.  Ps insisted to seek an interlocutory injunction in terms of the Injunction Summons.

25.  On 2 October 2023, the Board issued an announcement, in which the Board stated the formation of a special committee of the Board to conduct a formal sale process and to engage in discussion with the Consortium.  It is also stated in the announcement that the special committee will “begin an expedited process to solicit additional serious and compelling offers”.

26.  On 24 October 2023, the Board issued another announcement, in which the Board referred to the Notices and said that the Board was evaluating the materials received and would provide shareholders with timely updates on the process.

27.  Also on 24 October 2023, HollySys announced that it received a proposal from representatives of the management team, Fang and Xu, to acquire all of the outstanding shares of HollySys at US$25 per share.  Fang is one of the representative representing the HollySys Employees in this case, and Xu is one of the HollySys Employees.

28.  On 30 October 2023, the Board announced that HollySys “will re-assess promptly whether to convene a special meeting” following the hearing of the Injunction Summons.

29.  On 6 November 2023, Ascendent Capital Partners (“Ascendent”) announced that it has acquired a 13.7% shareholding in HollySys, making it the single largest shareholder.  In Ascendent’s public letter dated 6 November 2023, Ascendent proposed an offer of US$26 per share to acquire all the outstanding shares of HollySys.  Further, Ascendent stated that it supports the request for the Meeting and requests that it be held no later than 1 December 2023.

30.  Ds’ case is that given the stance of Ascendent as stated in their announcement, it is now indisputable that the total percentage of shareholding in support of the Meeting is now more than 30%.  Even putting aside the Ace Lead HOLI Shares, the total percentage of shareholding in support of convening the Meeting is now 39.31%.

31.  On 8 November 2023, the Consortium announced that it has submitted an increased offer of US$26.5 per share to acquire the outstanding HollySys shares and reaffirmed the Consortium’s request for the Meeting to the convened.

B.  THE PRINCIPLES

32.  The general principles concerning interlocutory injunctions have been succinctly summarized by Ribeiro J (as hen then was) in in Wah Nam Holdings Co Ltd v Excel Noble Development Ltd^[3]:

(1)  whether there is a serious question to be tried;

(2)  if so, whether, if the plaintiff were to succeed in obtaining a permanent injunction at trial, it could adequately be compensated by an award of damages in respect of any loss which it might suffer by reason of the defendant continuing to act unrestrained pending the trial;

(3)  if not, whether the defendant would be adequately protected by the plaintiff’s cross-undertaking in damages should it be later found that the plaintiff should not have been granted an interlocutory injunction; and

(4)  if there is doubt as to the adequacy of the respective remedies of damages, where the balance of convenience lies.

33.  A serious question to be tried is not a steep hurdle.  All that has to be shown is that the claimant has prospects of success which in substance and reality exist, and odds against success do not defeat him.  As long as there is a serious question, it matters not whether the court thinks that the chances of success at trial is 90% or 20%^[4].  If the opposing party seeks to show that there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out^[5].

34.  However, if the interlocutory injunction sought by the plaintiff has a mandatory element, the following would need to be borne in mind:[6]

(1)  In general, the interlocutory mandatory injunction will not be granted unless there is a high degree of assurance that at the trial of the action, it will be shown that the injunction was rightly granted.

(2)  Where it is shown, as an exception to this general approach, that the case is one in which the withholding of an interlocutory mandatory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel the high degree of assurance as aforesaid, it would be right to grant an interlocutory mandatory injunction.

(3)  If a plaintiff seeking an interlocutory mandatory injunction could not demonstrate more than a serious question to be tried, it would have to show that the balance of convenience tilted so much in its favour that justice required the injunction to be granted.

35.  Further, in China Vered Financial Holding Corporation Ltd v Central China Dragon Growth Fund SPC[7], K Yeung J said (footnote omitted):

“11. On the principles applicable to the grant of mandatory injunctions, I have been cited Music Advance Ltd v IO of Argyle Centre Phase I [2010] 2 HKLRD 1041 and Wu Wei v Liu Yi Ping (HCA 1452/2004, 30 January 2009). I respectfully agree with Deputy Judge Lisa Wong SC (as her Ladyship then was) that the need to show a high degree of assurance is linked to the issue of which course being of the lower risk of injustice. I further respectfully agree with the observations made by Chow J (as His Lordship then was) in BMC Global Ltd v Tor Asia Credit Master Fund LP (HCA 2392/2016, 14 October 2016) (a) at §39, that if the interlocutory injunction would have the practical effect of finally disposing of the claim for an injunction, being a substantive claim in the action, the court is entitled to have a higher regard to the merits of the plaintiff’s case so far as relevant to that particular claim, and (b) at §42, that the grant of an injunction by the court is always a serious matter that must be fully justified, and that the court should not grant an injunction merely because it may be said that the defendant would suffer no prejudice. The absence of prejudice is only one factor in the overall assessment of the balance of convenience.”

36.  Whether the injunction sought is in fact futile is a factor which could affect the balance of convenience.  In Shih Rick Ju-Feng and Others v Lo Yueh-Li and Others[8], Mr Recorder Abraham Chan SC said:

“45. [Counsel] relies here on:

(1) the decision of Madam Recorder Linda Chan SC (as she then was) in Chan Shu Chun & Ors v Right Margin Limited [2015] 3 HKLRD 409 at §26, where her ladyship stated that it is “well established that equity does not act in vain and will not grant an injunction which is futile”; and

(2) this observation of DCHJ Paul Lam SC at the last hearing of the Summons:

“Now, it's quite clear that there's now a deadlock between the two camps.  And the big question is, what should happen to the [Synergy Funds], so to speak? And I think the defendant's point -- I mean, they make various points, but I think there’s a very practical point that ... [the Shih family] need to face somehow someday.  That is, on your case how the funds should be used would require the unanimous consent of both camps.  So in the light of the present relationship between the parties, it seems quite unlikely that the parties can come -- can reach some sort of agreement.  So in the absence of agreement, apart from winding up the company, what alternative solution [is there]?”

46. The Plaintiffs do not contest the principle stated in Chan Shu Chun. While the learned judge in that case did not say so expressly, it seems to me that where a proposed injunction is shown to be futile on the facts, then that is a matter that could affect the balance of convenience, where that question arises. This broadly aligns with what I understood [counsel] to be saying at the oral hearing, when he said that his futility point went into “the discretionary mix”. Put simply, if a proposed restraint would indeed be futile, then the balance of convenience (or any broader discretionary assessment) can hardly be said to favour it. In such a case, the futility factor may well be in itself decisive.” (Emphasis added)

37.  Delay in taking out the application is a relevant factor which has to be taken into account.  In Gee on Commercial Injunctions (7^th Edition) at §2-032, it is stated:

“Delay in the claimant applying for an interim injunction is relevant because it is liable to affect the practical doing of justice on the application, and whether the claimant has acted fairly. It raises question about whether the claimant really needs an injunction pending trial, the quality of the claimant’s case and whether the delay has affected the defendant.”

38.  In the consideration of an application for an interlocutory injunction, the court should not lose sight of the practical realities of the situation to which the injunction will apply.[9]

C.  DISCUSSION

C1.  Injunction with a mandatory element

39.  There is no dispute that §2 of the injunction sought by Ps is a mandatory injunction.  That being the case, the principles in Music Advance have to be considered.

40.  Ds’ case is summarized in [16] above.  In my view, in view of Clause 1.6 of the DoT, the SPA and Wang’s Confirmation, the defence put forward by Ds is an arguable defence.

(1)  Regarding the point as summarized in [16(4)] above, conceptually, it is possible to separate the economic interests and rights derived from a share from the other rights stemmed from the share, for example, voting right.  An example on the point given by Mr Ho in his submissions is China Vered[10], in which K Yeung J said:

“14(o) In any event, the alleged lack of economic interest in Ds’ part is in my view neither here nor there. It is not unusual for a trustee or manager of a fund to have no economic interest in the assets of the funds (save for professional fees, which may or may not be payable out of the funds’ assets). That does not by itself [give] the fund-holders, or Shareholders in the present case, any managerial power or power to direct the manager on how voting rights should be exercised.” (Emphasis added)

(2)  Regarding the points summarized in [16(5)] and [16(6)] above, I appreciate that Ps’ case concerning the Ace Lead Share is supported by the 25.11.2016 Declaration.  However, on the other hand, Ds’ case is also supported by documents, ie the SPA and Wang’s Confirmation.  Based upon the materials now before the court, in my view, each party has put forward a case which is reasonably arguable.

41.  Both Mr Lin and Mr Ho have made detailed submissions regarding the merits of the parties’ respective cases.  With no disrespect to counsel, I am not prepared to address each and every point submitted by counsel here. Suffice for me to say that all the points made by counsel have been duly considered. 

42.  Having considered the evidence before me and the parties’ respective submissions, while I accept that Ps have shown a serious question to be tried, I am of the view that Ps have not demonstrated a high degree of assurance that they would succeed at the trial.  All Ps have demonstrated is no more than a serious question to be tried.  That would have a negative impact on Ps’ application for the mandatory injunction (ie §2 of the Injunction Summons).

C2.  Balance of convenience

43.  As to balance of convenience, in his oral submissions, Mr Lin has clarified his position.  Mr Lin accepts that Ps would need to show that the balance of convenience is in favour of granting the injunction.  However, Mr Lin submits that in an application for an interlocutory proprietary injunction, the court would readily find that the balance of convenience favours the preservation of the trust assets pending trial.  Mr Lin is relying upon Heitkamp & Thumann KG v Living Profit Trading Development Ltd[11] in support of his submission.  Mr Lin is also relying upon Pacific Telecom & Navigation Limited v Ye Lei[12].

44.  Mr Lin submits that the Ace Lead HOLI Shares and the Ace Lead Share in fact are properties being held by Ds on trust.  Ps are seeking an injunction to preserve the trust properties, and the injunction sought is a proprietary injunction.  Accordingly, the court would readily find that the balance of convenience is in favour of granting the injunction.

45.  Mr Ho submits that in an application for a proprietary injunction, the applicant would need to show that the balance of convenience is in favour of granting the injunction.  Each case depends upon its own facts.  Mr Ho has referred me to the following:

(1)  In Wason Holdings Ltd v BHP International Markets Ltd[13], Barma JA has set out the general principles and said:

“37. …… [counsel] further submitted, and I accept, that as the injunction sought was proprietary, it was also unnecessary to show that damages would not be an adequate remedy. However, it remains necessary to demonstrate that the balance of convenience favours the granting of the injunction, and that it would be just and convenient to do so.” (emphasis added)

(2)  In Heitkamp & Thumann KG[14], DHCJ Marlene Ng (as she then was) in fact said:

“58(3) …… on the matter of balance of convenience, “[what] is involved is an exercise in salvage, pending and for the purpose of, the ultimate determination. It is, therefore, relevant to consider what will be involved in that determination, and how it relates to the property sought to be preserved, and what justice demands in the way of making an order for the preservation of the property so as to prevent a determination one way or the other proving abortive.””

(3)  In Sky Motion Holdings, Coleman J said:[15]

“28. The applicable principles for the grant of a preservation order or proprietary injunction are also well established. The plaintiff must show (a) a serious issue to be tried that there is property which is bona fide the subject matter of the cause or matter; (b) the balance of convenience is in favour of granting an injunction; and (c) it is just and convenient to grant the injunction.”

46.  I agree with Mr Ho.  As shown in the authorities, in an application for an interlocutory proprietary injunction, the applicant would need to demonstrate (inter alia) that the balance of convenience is in favour of granting the injunction.  In my view, whether the court would readily find that the balance of convenience is in favour of granting the injunction depends upon the facts in the case.

47.  As rightly point out by Mr Ho, in Pacific Telecom, the discussion therein only concerned whether it is necessary for an applicant for a proprietary injunction to show that damages would not be an adequate remedy. That case should not be understood as saying that an applicant for an interlocutory proprietary injunction would have no need to demonstrate a balance of convenience in favour of granting the injunction, or that a balance of convenience in favour of the injunction would be presumed.  In any event, the legal position has been clearly stated by the Court of Appeal in Wason Holdings, which is an authority binding upon this court.

48.  Having considered the evidence and the submissions, I am of the view that the balance of convenience is not in favour of granting the injunction sought by Ps.

49.  Mr Lin submits that the balance of convenience is in favour of granting the injunction.  Mr Lin submits that:

(1)  Ascendent’s announcement does not assist Ds.  Ascendent is not one of the Requisitioning Shareholders.  Further, prior to 28 September 2023 and at the time of the Notices, Ascendent was only holding 0.56% of HollySys’ issued shares.  The Board set 6 September 2023 as the time for determining the Requisitioning Shareholders’ entitlement to demand for a shareholders’ meeting.  Before the said deadline, Ascendent was merely a 0.56% shareholder. In these circumstances, Ascendent’s announcement does not assist Ds at all.

(2)  The recent “bidding war” is irrelevant insofar as the Injunction Summons is concerned.  Ps are not asking this court to regulate the affairs of HollySys, which is a matter between HollySys and its shareholders.  The need and importance for the injunction sought by Ps is to protect and preserve the trust properties pending final determination of the proprietary ownership. Whether there is any genuine commercial interest from various parties to buy out HollySys is neither here nor there.  That should not be a factor to be taken into account for the purpose of this application.

(3)  That whether the Notices are valid is also irrelevant for the purpose of the Injunction Summons.  The question before the court is simply whether Ds should be restrained as sought in the Injunction Summons but not whether the Meeting can be held.

(4)  It should go without saying that it is urgent and necessary to restrain Shao from treating the trust properties as his own and making use of them via Ace Lead for his own purpose.  In view of the unscrupulous and dishonest conduct of Shao in betraying the trust placed on him by Ps and the Trust Scheme, the injunction are plainly and urgently called for.

50.  With respect, I am not persuaded by these submissions.

51.  First, as rightly pointed out by Mr Ho, the Board is mandated by Article 3.7 of the HollySys Articles not to take notice of any trust behind the Ace Lead HOLI Shares.[16] In other words, there is no room for the Board to say that the Ace Lead Notice is invalid.  Ps are now trying to seek an injunction to compel Ds to withdraw or revoke the Ace Lead Notice.  I have to consider whether it would be just and convenient to grant this injunction.  Given now that (a) Ascendent has clearly stated that they are in support of having the Meeting to discuss the Proposed Resolutions; (b) Ascendent is now a 13.7% shareholder of HollySys; and (c) the total percentage of shareholding in support of having the Meeting is now no less than 39.31% (even putting aside the Ace Lead HOLI Shares), I am of the view that it would not be just and convenient to compel Ds to withdraw or revoke the Ace Lead Notice.  Even if such an injunction is granted, there is nothing preventing the 39.31% shareholders to issue another notice demanding for a shareholders’ meeting.

52.  Mr Lin submits that according to Ds, even without Ace Lead HOLI Shares, there are already shareholders having not less than 30% of the shareholding in HollySys in support of having the Meeting.  That being the case, granting the injunction sought by Ps would not cause any prejudice to Ds.  With respect, I am unable to accept this submission.  As stated by K Yeung J in China Vered[17] at [11(b)], the grant of an injunction by the court is always a serious matter which must be fully justified.  The court should not grant an injunction merely because it may be said that the defendant would suffer no prejudice.

53.  Second, Ds have offered the Proposed Undertaking, by which Ds have promised that they would abstain from voting when the Proposed Resolutions are voted in the Meeting.  With the Proposed Undertaking in place, there is no basis to say that the injunction sought by Ps is urgently called for.

54.  Third, according to Ps’ own evidence, it is impossible for Ace Lead to sell, transfer or dispose of the Ace Lead HOLI shares by reason of the restriction that consent from the Board is necessary before the shares could be freely traded in the open market.  Ps allege that there would be a new board after the Meeting, which will push through a board resolution to remove the said restriction.  As submitted by Mr Ho, this is purely speculative.  After all, Ds can only control around 6.69% shareholding in HollySys.  As to what resolution would be passed in the Meeting, this is not a matter within Ds’ control.

55.  Fourth, the matters concerning the Meeting and the Proposed Resolutions have been dealt with in the above.  Putting aside these matters, there is really nothing justifying the necessity of having an injunction in terms of the Injunction Summons at this stage.  The fact that there has not been any application for an injunction with same or similar terms for almost 2 years and 5 months after the commencement of these proceedings (ie from 21 April 2021 to 11 September 2023), or the delay in taking out the Injunction Summons, speaks for itself.

56.  Fifth, in assessing whether it is just and convenient to grant the injunction sought by Ps, the fact that Ds have demonstrated an arguable defence to Ps’ claim in this case would need to be borne in mind.

57.  Taking into account all the aforesaid, in my view, the balance of convenience is not in favour of granting the injunction application.  It is also not just and convenient to grant the injunction sought by Ps.

DISPOSITON

58.  For the reasons above, upon the Proposed Undertaking offered by Ds, I dismissed the Injunction Summons at the end of the hearing.  There be liberty to apply.

59.  At the end of the hearing, Mr Ho sought costs of the Injunction Summons, with a certificate for two counsel.  Mr Lin did not oppose this.  I therefore ordered that costs of the Injunction Summons (including costs reserved) be paid by Ps to Ds forthwith, with a certificate for two counsel.  Those costs be summarily assessed.  I granted leave to Ds to file and serve a bill of costs for summary assessment within 7 days, and leave to Ps to file and serve a written reply to the said bill within 7 days thereafter.

60.  Lastly, I have to thank all counsel for the helpful assistance rendered to the court.