HANSEN INTERNATIONAL LTD v. HIGH FASHION APPAREL LTD AND OTHERS

HCA 1724/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1724 OF 2014

____________

______________

D E C I S I O N

______________

Introduction

1. I have before me three applications:

(1)  the plaintiff’s summons dated 3 September 2014 (“the 1^st injunction summons”) seeking interlocutory injunctive relief against the 2^nd and 3^rd defendants;

(2)  the plaintiff’s 2^nd summons dated 4 September 2014 (“the 2^nd injunction summons”) seeking additional interlocutory injunctive relief against the 2^nd and 3^rd defendants; and

(3)  the 1^st to 3^rd defendants’ summons dated 4 September 2014 (“the discharge summons”) seeking the discharge of an earlier ex parte injunction order made by Au‑Yeung J on 2 September 2014 (“the Ex Parte Injunction Order”).

2. Although the orders sought under the 1^st and 2^nd injunctions summonses are stated to be against the 2^nd and 3^rd defendants only, as stated in paragraph 24 of the written skeleton submissions of Mr Johnny Mok SC (for the plaintiff) dated 27 October 2014, the plaintiff now seeks orders against all four defendants in the present action.

3. Neither Mr Russell Coleman SC (for the 1^st to 3^rd defendants) nor Mr William Wong SC (for the 4^th defendant) has raised any specific objection at the hearing on 28 October 2014 to the plaintiff’s attempt to expand on the scope of the 1^st and 2^nd injunction summonses. 

4. Having regard to the following matters:

(i)  the orders sought by the plaintiff under the 1^st and 2^nd injunction summonses would plainly affect the position of the 1^st and 4^th defendants;

(ii)  the 1^st and 4^th defendants had notice prior to the hearing on 28 October 2014 that the plaintiff intended to seek relief under the 1^st and 2^nd injunction summonses also against them;

(iii)  the points which Mr Coleman has raised to resist the 1^st and 2^nd injunction summonses would appear to apply equally to all three defendants represented by him; and

(iv)  Mr Wong has adopted the submissions made by Mr Coleman and has not advanced any additional submissions in relation to the 1^st and 2^nd injunctions summonses,

I shall proceed on the basis that 1^st and 2^nd injunction summonses are pursued against all four defendants.

5. Further, as made clear in the course of the oral submissions by Mr Mok, the plaintiff now pursues only paragraph 1(a) and (b) of the 1^st injunction summons, but not paragraphs 1(c) or 3 thereof.  In so far as paragraph 2 of the 1^st injunction summons is concerned, Mr Mok stated that the order sought under that paragraph was covered by an earlier order made by Recorder L Wong SC on 11 September 2014.

6. By paragraph 1(a) and (b) of the 1^st injunction summons, the plaintiff seeks the following order:

“An interim injunction be granted restraining the 2^nd and 3^rd Defendants, whether by themselves or their proxy or agent or servant or howsoever, until judgment in this Action or until further order, from:

(a) acting on, implementing or carrying into effect the resolution purportedly passed by the 2^nd and 3^rd Defendants to remove Ms Leong Ma Li as CEO of the 4^th Defendant on 22 August 2014 (the ‘Purported Resolution’) during the purported meeting of the board of directors of the 4^th Defendant on 22 August 2014 (the ‘Purported Meeting’);

(b) procuring the removal of Ms Leong Ma Li as the CEO of the 4^th Defendant in breach of the terms of the Joint Venture Agreement dated 26 November 2013”.

7. The additional relief sought by the plaintiff under the 2^nd injunction summons has been described by Mr Mok as being ancillary to the injunctive relief sought under the 1^st injunction summons.

8. On the other hand, in support of (a) their opposition to the 1^st and 2^nd injunction summonses and/or (b) the discharge summons, the 1^st to 3^rd defendants and the 4^th defendant respectively rely on the following grounds:

(i)  serious and deliberate material non‑disclosure;

(ii)  no serious issue to be tried in respect of the plaintiff’s causes of action; and

(iii)  the balance of convenience being tilted strongly against the grant of any interlocutory injunctive relief.

Summary of Hansen’s case

9. The plaintiff, Hansen International Limited (“Hansen”), is a company incorporated in Hong Kong and indirectly owned by Ms Leong Ma Li Mary (“Leong”), who is also its director.

10. The 1^st defendant, High Fashion Apparel Limited (“HFA”), is a company incorporated in the British Virgin Islands and a wholly owned subsidiary of High Fashion International Limited, which is a company listed on the Stock Exchange of Hong Kong.

11. The 2^nd defendant, Lam Foo Wah (“Lam Senior”), beneficially owns a majority shareholding interest in High Fashion International Limited, and is also a director of High Fashion International Limited.

12. The 3^rd defendant, Lam Gee Yu Will (“Will Lam”), is the son of Lam Senior.  Lam Senior and Will Lam will hereinafter collectively be referred to as the “Lams”, and HFA and the Lams will hereinafter collectively be referred to as the “HFA Parties”.

13. The 4^th defendant, High Fashion New Media Corporation Limited (“New Media”), a company incorporated in Hong Kong, is the joint venture company referred to in a joint venture agreement entered into between HFA and Hansen dated 26 November 2013 (“the JV Agreement”).

14. HFA and Hansen hold 65% and 35% respectively of the entire issue share capital of New Media.

15. New Media has three directors, namely, Leong, Lam Senior and Will Lam.

16. A summary of the plaintiff’s case is set out in an earlier decision of Deputy High Court Judge B Chu given on 8 September 2014 (“the Decision”) in this action, which I gratefully adopt.  Paragraphs 17 to 30 below are taken largely from the Decision.

17. According to Leong, she had extensive experience in business management and marketing operation, especially in e‑commerce, and it was against such background that the Lams solicited her help in 2013 to set up a joint venture for the purpose of developing, managing and operating an e‑commerce platform for the retail of apparel and other related merchandise under the brands owned by the High Fashion Group.

18. As a result, the JV Agreement dated 26 November 2012 was entered into between Hansen and HFA, under which a joint venture company in Hong Kong and a wholly foreign owned enterprise in the PRC were to be established. 

19. New Media, the joint venture company referred to in the JV Agreement, was in fact incorporated in Hong Kong on 24 September 2013.  Longford Information and Technology Co Ltd (“Longford”) is the wholly foreign owned enterprise in the PRC set up under the JV Agreement.

20. HFA and Hansen contributed HK$26 million and HK$14 million respectively to the share capital of New Media.  Pursuant to Clause 4.3 of the JV Agreement, Leong was appointed the first chief executive officer (“the CEO”) of New Media.

21. Leong was appointed a director of New Media, at the same time as the Lams on 18 December 2013.

22. According to Leong, as further agreed, the joint venture took over the management, operation and development of the “brand centre” of the High Fashion Group, which stands for the entire retail and e‑commerce business for a few lines of clothing under the brands “Theme”, “CSLR”, “AS Cluny”, “acelledesoie”, “Silk One” and “August Silk” (“Brand Centre”), which had been making losses for a long period of time.  Leong was appointed the chairman of the group of companies within the Brand Centre, and in this respect, Lam Senior, on behalf of the High Fashion Group had issued a circular dated 29 October 2013 to all Brand Centre staff in relation to Leong’s appointment.

23. New Media subsequently also acquired Will Top Resources Limited (“Will Top”), the holding vehicle of various companies within the Brand Centre from Theme International Holdings (BVI) Limited by an agreement date 26 February 2014 (“Will Top Agreement”). 

24. After the Will Top Agreement, New Media became the parent company of both Will Top and Longford, holding 100% of the shareholding of both companies.

25. Under Will Top, there are a number of companies, in particular (i) a PRC company called Shenzhen Huijian Fashion Co Ltd深圳市慧簡服飾有限公司 (“Huijian”) and (ii) a BVI company (“the BVI Company”) called Theme (SZ) Limited, the Chinese name of which is榮暉服飾 (深圳) 有限公司.

26. It may be noted at this juncture that there is another PRC company with the same Chinese name of 榮暉服飾 (深圳) 有限公司 (“the Shenzhen Company”).

27. Leong said that since the inception of the joint venture in late 2013, the New Media team and Leong had strived for reorganizing and resuscitating the Brand Centre toward a profitable trend, but unfortunately, areas of conflict began to surface, including:

(1)  The Lams did not respect the fact that Hansen had also made financial contributions to New Media or the need for New Media to have financial independence from the High Fashion Group, and the finance team of the Brand Centre, headed by Angela Yau (“Angela Yau”), remained unchanged after New Media had taken over the Brand Centre. Even after Leong had become the chairman of the Brand Centre, the board of directors never instructed Angela Yau to execute Leong’s directives and instead Angela Yau carried out the directives of the High Fashion Group.

(2)  Under the direction of Lam Senior, the accumulated revenues of the Brand Centre were transferred to the High Fashion Group.

(3)  Revenues from the “Theme” and “CSLR” flagship online shops, which had been transferred to New Media pursuant to the agreement and understanding in the JV Agreement, were still going into the bank accounts of High Fashion (China) Co Ltd (“HF China”), a company within the High Fashion Group, with the result that New Media bore the costs and yet the revenues went to HF China.

(4)  During a meeting on 12 August 2014, Leong talked about a new IT system, which required the accounting and finance functions of the Brand Centre to be integrated into it. However, when Lam Senior realised that the new IT accounting system required the accounting and finance functions of the Brand Centre to be integrated into the new IT system, he categorically refused to have it installed.

(5)  After that meeting, Leong discovered that other garment units in the High Fashion Group were preparing for their own online sales points in competition with New Media.

28. Leong sent emails to the Lams setting out her complaints but did not receive any satisfactory response.  Thus she felt that she had no option but to re‑organize the finance arm of the Brand Centre herself. She issued a circular on 22 August 2014 to disengage three of the finance team personnel, including Angela Yau.  They left office and withheld the finance chops, the USB tokens and bank account pass codes, and the Brand Centre was left without those items and information necessary for operating its bank accounts.

29. On or shortly after 22 August 2014, the Lams took a series of retaliatory steps, including the following:

(1)  The Lams purported to hold a meeting (“the Purported Meeting”) and pass a resolution (“the Purported Resolution”) to remove Leong as the CEO of New Media.  By a circular issued on the same day, the Lams notified all the staff of New Media of Leong’s removal from the position of CEO.

(2)  The Lams further purported to dismiss one Daniel Lee (Special Assistant to CEO) and Jiang Junhui (Finance Manager) on the same day, and Kelvin Shen, the Head of IT, the following day.

(3)  Various other steps were taken including placing additional locks on Longford’s warehouse in Hangzhou to prevent the staff of Longford from gaining entry and access to Longford’s inventory and computer system.

(4)  Shutting down of New Media’s IT system.

(5)  Refusing to deliver goods ordered by New Media from another subsidiary, Yihao Fashion Co Ltd (“Yihao”), of the High Fashion Group.

(6)  Siphoning the Brand Centre’s cash (amounting to some RMB10,800,000 in total) to Yihao’s bank account.

(7)  Refusing to hand over finance chops and other items.

30. Hansen challenged the validity of the Purported Meeting and the Purported Resolution on the grounds that:

(1)  no prior notice was given to Leong of the meeting, and the Purported Meeting was passed in her absence and without her consent; and

(2)  there was no prior written approval by the shareholders of New Media for the removal of Leong as the CEO of New Media,

in breach of Clauses 5.2, 5.3 and 7 of the JV Agreement.

The Ex Parte Injunction Order of Au‑Yeung J

31. On 2 September 2014, Hansen applied to Au‑Yeung‑J for an ex parte injunction against the Lams with notice to them.  The application was supported by the 1^st affirmation of Leong affirmed on 2 September 2014.  The learned judge granted, inter alia, an interim injunction in the same terms as paragraph 1(a) and (b) of the 1^st injunction summons (as set out in paragraph 6 above).

32. The Ex Parte Injunction Order also contained, under paragraph 1(c) thereof, an interim injunction restraining the Lams from:

“taking any action or continuing to take any action to prevent, obstruct or delay [Leong] or the staff of [New Media] and its subsidiaries [with a list of names given] from having full access to [the New Media] group’s online information technology system and network, including email accounts, computer and information network and system, and access to the work email network ‘@theme.com.hk’ (‘Network’)”.

33. At this juncture, it may be noted that the subsidiaries, or alleged subsidiaries, of New Media named in paragraph 1(c) of the Ex Parte Injunction Order included the Shenzhen Company.

34. On 3 September 2014, Hansen took out the 1^st injunction summons, returnable on 5 September 2014.

The Order of Deputy High Court Judge B Chu dated 8 September 2014

35. As mentioned in paragraph 23 of the Decision, after Hansen had obtained the Ex Parte Injunction Order on 2 September 2013, Leong discovered that she was not able to operate or access the bank accounts of Longford, Huijian and the Shenzhen Company due to notice given by the Lams to the banks that she had been removed as the CEO of New Media.  As a result, Leong was not able to pay the salaries of employees and expenses including rents and taxes.

36. The led to the 2^nd injunction summons taken out by Hansen on 4 September 2104, which was supported by the 2^nd affirmation of Leong filed on 4 September 2014.

37. HFA and the Lams took out the discharge summons also on 4 September 2014

38. Both the 1^st and 2^nd injunction summonses and the discharge summons came before Deputy High Court Judge B Chu on 5 September 2014.  By that stage, the Lams had not yet filed any evidence.  It was agreed by Mr Mok (for Hansen) and Mr Maurellet (for the HFA Parties) that the three summonses should be adjourned to another date to be fixed for substantive argument.  The main issue before Deputy High Court Judge B Chu was what interim order (if any) should be made pending the substantive hearing of the three summonses (see paragraph 5 of the Decision).  It would seem that Deputy High Court Judge B Chu treated the matter as still being at an ex parte stage (see paragraph 27(3)(a) of the Reasons for Decision of Recorder L Wong SC dated 11 September 2014).

39. By the Decision given on 8 September 2014, Deputy High Court Judge B Chu continued paragraph 1(a) and (b) of the Ex Parte Injunction Order.  The learned judge also granted an interim injunction in the same terms as paragraph 1(c) of the Ex Parte Injunction Order, save that the reference to the Shenzhen Company was changed to the BVI Company.  The reason for this change, as explained in paragraph 78 of the Decision, was that on the information then available to Deputy High Court Judge B Chu, it appeared that the Shenzhen Company was not “part of the Corporate Structure of New Media, nor does it appear to be part of the ‘Group Companies’ under the Will Top Agreement, or the ‘Group’ [or] ‘Group Company’ under the JV Agreement”.  The learned judge considered that there was a clear dispute as to the lawfulness or validity of Leong’s appointment as the legal representative of the Shenzhen Company on or about 1 July 2014 and was not prepared to grant any injunction order in respect of the Shenzhen Company (see paragraphs 79 and 80 of the Decision).

40. In addition to continuing the Ex Parte Injunction Order (modified as aforesaid), Deputy High Court Judge B Chu also granted further interim relief to Hansen (see paragraphs 2, 3 and 4 of the learned judge’s order dated 8 September 2014).

Summary of the case of the HFA Parties

41. In paragraph 14(2) of the skeleton submissions of the HFA Parties dated 24 October 2014, it is stated that the conflicts between the parties arose from Leong’s dishonest and clandestine acts vis‑à‑vis the Shenzhen Company, which they contend was (and is) wholly owned by HFA.  On 21 August 2014, Angela Yau discovered that Leong illegally and secretively changed the legal representative of the Shenzhen Company to herself, so as to obtain sole control over its properties in Shenzhen worth about RMB200 million without the authorization of the Lams.  Thereafter, Leong immediately retaliated by dismissing Angela Yau and attempted (unsuccessfully) to seize the chops and documents of the Shenzhen Company from her possession.  It was in light of Leong’s deceitful conduct that the Lams passed the resolution on 22 August 2014 to remove Leong as the CEO of New Media.

42. In addition to the aforesaid wrongful conduct of Leong in changing the legal representative of the Shenzhen Company to herself, the HFA Parties also complain of other wrongful acts committed by Leong, including:

(1)  failing to implement an agreed protocol relating to the signing arrangement in respect of Longford’s bank account at ICBC known as the “Longford ICBC Capital Account” and making herself the sole signatory of that account since 28 April 2014;

(2)  attempting to withdraw RMB300,000 and RMB10 million from the Longford ICBC Capital Account on 25 and 26 August 2014 respectively without the knowledge or consent of the HFA Parties; and

(3)  entering into two significant contracts on behalf of New Media without notifying her fellow directors (ie the Lams) and concealing them when they inquired about it.

43. The parties have filed many affirmations with voluminous exhibits seeking to support their respective allegations against, and/or explain or refute the counter allegations raised by, the opposite parties.  It is plainly not possible for the court in these interlocutory applications to resolve the numerous disputes of fact arising from those allegations and counter allegations based on affidavit evidence alone.  For reasons appearing below, it is not necessary for the court to do so in order to dispose of the applications now before it.

Further orders granted by Recorder L Wong SC on 11 September 2014 and Deputy High Court Judge B Chu on 8 October 2014

44. On 10 September 2014, the HFA Parties took out a summons (“the leave summons”) seeking leave to appeal against the order of Deputy High Court Judge B Chu dated 8 September 2014 and a stay of execution of the said order pending appeal.

45. On 11 September 2014, Recorder L Wong SC, upon the Lams’ ex parte application with notice to Hansen, granted an interim suspension of paragraphs 2 and 3 of Deputy High Court Judge B Chu’s order of 8 September 2014 subject to certain conditions to be complied with, and upon certain undertaking given, by the Lams, pending the determination of the leave summons.

46. On 30 September 2014, the HFA Parties took out a further summons (“the variation/suspension summons”) seeking a variation of paragraph 2, and an interim suspension of paragraphs 3 and 4, of the order of Deputy High Court Judge B Chu dated 8 September 2014 pending the substantive hearing of the 1^st and 2^nd injunction summons and the discharge summons then scheduled to be heard on 28 October 2014.

47. Both the leave summons and the variation/suspension summons came before Deputy High Court Judge B Chu on 8 October 2014, who made (inter alia) the following orders:

(1)  the leave summons be adjourned sine die with liberty to restore; and

(2)  paragraph 2 of the order of Deputy High Court Judge B Chu dated 8 September 2014 be varied, and the operation of paragraph 3 of the said order be suspended upon certain undertaking given by the Lams.

48. For the present purposes, it is not necessary for me to set out the full terms of the orders granted by Recorder L Wong SC on 11 September 2014 and Deputy High Court Judge B Chu on 8 October 2014 in view of the reduced scope of Hansen’s applications as mentioned in paragraph 5 above.  I shall, however, need to come back to those orders later in relation to paragraph 2 of the 1^st injunction summons.

Applicable principles

49. The applicable principles for granting or refusing to grant an interlocutory injunction are well established.  The court has to consider whether there are serious issues to be tried, whether damages would be an adequate remedy for either side, and if damages would not be adequate, where the balance of convenience lies in terms of whether or not to grant an interlocutory injunction pending the trial of the action.

50. When considering the balance of convenience, it is important to bear in mind that the court is not concerned with balancing the “convenience” of the parties as such.  Instead, it carries out a balancing exercise in respect of:

“the respective risks that injustice may result from [the court] deciding one way rather than the other at a stage when the evidence is incomplete. On the one hand, there is the risk that if the interlocutory injunction is refused but the plaintiff succeeds in establishing at the trial his legal right for the protection of which the injunction had been sought he may in the meantime have suffered harm and inconvenience for which an award of money can provide no adequate recompense. On the other hand there is the risk that if the interlocutory injunction is granted but the plaintiff fails at the trial, the defendant may in the meantime have suffered harm and inconvenience which is similarly irrecompensable”: see NWL Ltd v Woods [1979] 1 WLR 1294 at 1306, per Lord Diplock.

51. When considering the question of material non‑disclosure, the test of “materiality” is not whether there would have been a different outcome had the fact in question been disclosed, but whether the fact not disclosed is relevant to the “weighing operation” that the court has to make in deciding whether or not to grant the order: see Gee QC, Commercial Injunctions, 5^th Edn, paragraph 9.002.

The invalidity of the Purported Meeting and Purported Resolution

52. The JV Agreement provides, inter alia, as follows:

(1)  At least 48 hours’ notice of each board meeting shall be given to each director (wherever he may be) unless in any particular case all the directors otherwise agree (Clause 5.2).

(2)  Unless otherwise expressly provided for in the JV Agreement, the quorum at meetings of the board shall be two directors, of which at least one shall be a representative of HFA and at least one shall be a representative of Hansen (Clause 5.3).

53. It is not in dispute that the Purported Meeting was held without any prior notice to Leong, contrary to Clause 5.2 of the JV Agreement.  Also, it can be seen from the minutes of the Purported Meeting that it was attended by the Lams only, without the participation of Leong (being the representative of Hansen), contrary to Clause 5.3 of the JV Agreement.  It is accordingly clear that the Purported Meeting was not properly convened and was inquorate as a matter of contract between Hansen and HFA.

54. From the perspective of company law, generally speaking, notice of any board meeting ought to be given to all the directors, unless the articles of association of the company provide otherwise.  There is no suggestion here that the failure or omission to give notice of the board meeting held on 22 August 2014 to Leong was accidental, or that there was any legal justification for not giving her notice of the board meeting.  Accordingly, the Purported Meeting and the Purported Meeting are also invalid under general company law.

55. At the hearing on 28 October 2014, Mr Coleman on behalf of the HFA Parties accepted that the Purported Meeting was not properly convened in accordance with the notice requirement contained in the JV Agreement and that the Purported Resolution was invalid unless ratified.  Mr Coleman further stated that the Purported Resolution had not been ratified, and would not be implemented.

56. In these circumstances, I consider it to be clearly established that both the Purported Meeting and the Purported Resolution are not valid or binding on Hansen.  At the very least, Hansen has established a serious issue to be tried that the Purported Meeting and the Purported Resolution are not valid or binding on Hansen.

Whether Leong can never be removed as CEO of New Media without the approval of Hansen?

57. It is Hansen’s contention that the JV Agreement, properly construed, has the effect that Leong, as a matter of contractual right, can never be removed or replaced as CEO of New Media unless she agrees (see paragraph 28 of the written skeleton submissions of the Hansen Parties dated 27 October 2014).  It is this contractual right that Hansen seeks to protect by paragraph 1(b) of the 1^st injunction summons which, it will be recalled, seeks an interlocutory injunction to restrain the Lams from “procuring the removal of [Leong] as the CEO of [New Media] in breach of the terms of the Joint Venture Agreement dated 26 November 2013”.

58. This absolute and unqualified contractual right is, according to Mr Mok, the result or effect of Clause 7 of, and paragraph (k) of Schedule 3 to, the JV Agreement, to which I shall now turn.

59. Clause 7 of the JV Agreement provides that:

“The provisions of the schedule headed ‘Reserved Matters’ shall apply.”

60. Schedule 3, headed “Reserved Matters”, to the JV Agreement provides, relevantly, as follows:

“Each of the Shareholders and the Company, respectively, covenants that they shall procure that the Company and the PRC Company and any other Group Company shall not do any of the matters listed in this schedule without the prior written approval of all the Shareholders.

The matters are as follows:

(k)  change of the CEO or the business direction of the Company.”

61. It is not in dispute that the expression “Company” in the JV Agreement should be read as a reference to New Media.

62. Under Clause 4.3 of the JV Agreement, Leong is appointed as the first CEO of New Media.

63. Accordingly, Mr Mok submits that Leong’s position as the CEO (or first CEO) of New Media cannot be “changed” without the prior written approval of Hansen, being one of the shareholders of New Media.

64. If Mr Mok’s argument is correct, it would mean that Leong cannot be removed even if she has clearly committed some dishonest or fraudulent conduct against the interests of New Media, a conclusion which Mr Mok accepts would follow from his interpretation of the JV Agreement.

65. Mr Mok further submits that the above interpretation of the JV Agreement would make eminent commercial sense in the context of the present case, having regard to the following matters:

(1)  Leong was brought in specifically to act as the CEO of New Media;

(2)  Leong is the only one who has the experience and expertise to successfully run New Media; and

(3)  Leong is not remunerated for her work as CEO and the only way she obtains any return from Hansen’s investment of HK$14 million and her own investment of time and effort in New Media is through New Media’s growth and success.

66. Mr Mok says that, against this background, it is eminently sensible for the parties to have agreed to provide a degree of protection of Leong’s CEO position, particularly given that Hansen is only a minority shareholder of New Media.

67. In my view, this interpretation of the JV Agreement fails to take into account a number of other significant provisions therein, including:

(1)  Clause 3.2(b), which provides that each of the shareholders undertakes to each of the other shareholders “to procure, so far as it is able to do, that any Director appointed by it pursuant to the exercise of any right under this Agreement or otherwise shall so act and vote in relation to the affairs of the Group (subject always to the fiduciary duties of such Director to the Company) to ensure that the Business and all the affairs of the Group are carried on in a proper manner and bona fide in the best interests of the Group”;

(2)  Clause 4.4, which provides that New Media shall have one CEO “who shall be appointed by the Board (with the corresponding right of removal) and shall be responsible for the Group’s day‑to‑day operations and management in accordance with the authorization of the Board …”;

(3)  Clause 4.14, which provides that “[t]he business of the Group shall be managed by the Directors who may exercise all the powers of the Company save as otherwise provided in this Agreement, the Memorandum of Association or the Articles of Association”;

(4)  Clause 4.15, which provides that, for the avoidance of doubt, “in exercising his powers any Director … shall be obliged to act in the best interests of the Group which shall prevail in the event of any conflict between that Director and the interests of the Shareholder who appointed him”; and

(5)  Clause 5.1, which provides that “[a]ny material issues relating to the Company must be approved by the Board …”

68. It seems to me clear that the above provisions impose an obligation on every shareholder to procure that any director appointed as that shareholder’s representative shall exercise his/her powers in good faith and in the best interests of New Media.  This obligation on the part of the shareholder overrides any private or personal interest of the shareholder or director concerned and may, depending on the circumstances, require it to give the necessary approval and procure the director appointed as that shareholder’s representative to vote in favour of a change or removal of an existing CEO if that course of action is in the best interests of New Media.

69. In other words, I do not accept that, under the JV Agreement, Leong’s position as CEO of New Media is so entrenched that she can never be removed whatever the circumstances.

70. In this regard, it should be noted that neither New Media, nor the directors (ie Leong and the Lams), are parties to the JV Agreement.  They are not, therefore, personally bound by the terms of the JV Agreement.  On the other hand, the directors are under a fiduciary duty to exercise their powers as directors in good faith and in the best interests of New Media.  If the circumstances are such that it is in the best interests of New Media that Leong be removed as its CEO, the directors would be duty bound to so act to effect her removal.  It is no answer for any individual director who refuses to exercise his/her powers in good faith and in the best interests of New Media to say that he/she is constrained or directed by his appointing shareholder to act otherwise.

71. In all, I do not consider that Hansen has established a serious issue to be tried that, as a matter of contract between Hansen and HFA, Leong’s position as CEO of New Media is absolutely protected such that, as contended by Mr Mok, she “can never be removed or replaced as CEO of New Media unless she agrees to be” whatever the circumstances.

72. In any event, whatever may be the contractual position between Hansen and HFA under the JV Agreement, the Lams and New Media are not personally bound by that agreement, and I am unable to see any basis for Hansen’s contention that they too would be under an obligation to see that Leong “can never be removed or replaced as CEO of New Media unless she agrees to be” whatever the circumstances.

Adequacy of damages and balance of convenience

73. In respect of the Purported Resolution passed on 22 August 2014 for the removal of Leong as the CEO of New Media, as earlier mentioned, I consider its invalidity to be clear.  If the Purported Resolution is carried out such that Leong is removed as the CEO of New Media, I do not consider damages to be an adequate remedy for Hansen’s loss caused by the refusal to grant an interlocutory injunction in terms of paragraph 1(a) of the 1^st injunction summons.  On the other hand, having regard to the indication given by Mr Coleman on behalf of the HFA Parties that they do not intend to implement the Purported Resolution, I do not see what damage the HFA Parties would suffer should the court grant an interlocutory injunction in those terms.  In these circumstances, the balance of convenience is also clearly tilted in favour of granting the interlocutory injunction.

74. Paragraphs 1 and 2 of the 2^nd injunction summons are ancillary to the interlocutory injunction sought under paragraph 1(a) of the 1^st injunction summons.  Subject to the issue of material non‑disclosure which I shall consider below and replacing the reference to the Shenzhen Company in paragraph 1 of the 2^nd injunction summons by the BVI Company, I am minded to grant an interlocutory injunction in terms paragraph 1(a) of the 1^st injunction summons and paragraphs 1 and 2 of the 2^nd injunction summons.

75. In respect of paragraph 1(b) of the 1^st injunction summons, as earlier mentioned, I do not consider that Hansen has established a serious issue to be tried against HFA, the Lams or New Media that Leong can never be removed as the CEO of New Media whatever the circumstances.

76. In any event, even if Hansen is able to establish a serious issue to be tried, it seems to me that whether an interlocutory injunction ought to be granted to preserve Leong’s position as the CEO of New Media should be considered in light of the actual circumstances pertaining to her removal.  It is not possible at this stage to form any clear view on the issues of adequacy of damages or balance of convenience should another board resolution be passed by New Media in the future for the removal of Leong as its CEO.  If, for example, there should be clear evidence of acts of dishonesty or fraud committed by Leong against the interests of New Media, it may well be right in the circumstances to refuse to grant any interlocutory injunction.  I should make it clear that I am not making any finding that Leong has committed acts of dishonesty or fraud against the interests of New Media.  I am not, however, prepared to make a blanket order at this stage which would prevent the board of New Media from acting in the best interests of New Media as may be required by future circumstances.

77. I am fully aware of the fact that a refusal to grant an interlocutory injunction in terms of paragraph 1(b) of the 1^st injunction summons may give rise to further disputes and litigations between the parties, in view of the numerous sets of legal proceedings already commenced by the parties against each other.  I can only hope that the parties will act sensibly pending the trial of the various actions already commenced.

78. In passing, I wish to record that, on the issue of balance of convenience, Mr Mok also prays in aid the contractual remedies available under Clauses 14 and 15 of the JV Agreement, under which a “Defaulting Party” (meaning a shareholder who has committed an “Event of Default” as specified in Clause 14.2(a) to (c) thereof) may be subjected to various sanctions, including an exclusion from voting in any shareholder meeting or board meeting (by its representative on the board) under Clause 15.1 of the JV Agreement, and a forced sale of its interest in New Media to the other shareholder at a price to be calculated in accordance with the provisions in Clause 15.4 of the JV Agreement.  Hansen invoked those contractual remedies by letter dated 20 October 2014. Hence, as submitted by Mr Mok, although HFA is currently the majority shareholder of New Media, Hansen may eventually be held entitled to sole ownership of New Media.  These having been said, Hansen’s invocation of the contractual remedies is hotly disputed by HFA, which forms the subject matter of another action brought by HFA against Hansen in HCA 2160/2014.  HFA has also invoked the same contractual remedies under Clause 15.1 and 15.2 of the JV Agreement against Hansen by letter dated 27 October 2014.  In all the circumstances, I do not see how the possibility that Hansen may eventually own the entirety of New Media can turn the scale in favour of granting an interlocutory injunction in terms of paragraph 1(b) of the 1^st injunction summons.

Material non‑disclosure

79. In his written skeleton submissions dated 24 October 2014, Mr Coleman refers to many instances of alleged material non‑disclosure on the part of Hansen when it applied for the Ex Parte Injunction Order from Au‑Yeung J. However, in his oral submissions, Mr Coleman made it clear that he was concentrating on two aspects only.

80. First, in paragraphs 53 to 57 of Leong’s 1^st affirmation, a complaint was made that the total sum of RMB10,800,000 was transferred from the bank accounts of Huijian and the Shenzhen Company on 25 August 2014 to Yihao, with the result that the balance of those accounts was reduced to RMB1,274,444.68 only.  Leong said that she had never authorised those payments, and said that she:

“would never have approved such a wholesale depletion of the brand centre’s cash reserve. Even if the brand centre is to repay the debt owed to Yihao, I would have negotiated a repayment by instalment or some other arrangement that would not cause the brand centre to be completely depleted of its working funds”.

81. The HFA parties complain that Hansen failed to disclose that:

(a)  the transfer of funds from Huijian was to settle outstanding trade debts for goods already sold and delivered under credit terms of payment within 60 days of delivery; and

(b)  the transfer of funds from the Shenzhen Company was only an inter‑company transaction in the High Fashion Group.

82. In this regard, Leong did mention, in paragraph 49 of her 1^st affirmation, that the Brand Centre owed a debt of some RMB10 million (including an old debt of some RMB9 million incurred prior to New Media’s takeover of the Brand Centre) to Yihao.  Leong’s position is that she did not know that the payment of RMB10,800,000 was to settle such debt.  She said that the practice between the Brand Centre and Yihao had always been that the Brand Centre would pay 30% of a shipment upon delivery and the rest in stages.  Her complaint was that the payment was never approved by her in accordance with an internal control protocol in respect of substantial expenditures of the Brand Centre.  She also said that there had never been any unilateral transfer of funds until this incident.  In so far as the Shenzhen Company is concerned, Leong said that that it was part of the Brand Centre holding the leases to 34 “Theme” retail shops and 19 “CSLR” retail shops (albeit that its properties were not part of the New Media Group), and she could not know that the payments between the Shenzhen Company and Yihao were intra‑group transactions as alleged.

83. There is, on the evidence, a dispute on whether the Shenzhen Company was part of the Brand Centre such that the business (but not the properties) of the Shenzhen Company should, as agreed, be transferred to New Media.  There is also a dispute on whether Leong knew that the transfer of the RMB10,800,000 was to settle any debt owed by the Brand Centre to Yihao and/or represented intra‑group transactions between the Shenzhen Company and Yihao.

84. In all, I do not consider that the allegation of material non‑disclosure in respect of the first matter highlighted by Mr‑Coleman is made out.

85. In passing, it may be noted that Deputy High Court Judge B Chu was prepared to continue the Ex Parte Injunction Order even though she was not satisfied, on the evidence, that the Shenzhen Company was one of the companies agreed to be transferred to New Media under the JV Agreement.  Instead, the learned judge merely varied the injunction order by deleting the reference to the Shenzhen Company and replacing it by the BVI Company.

86. Second, in paragraph 40 of Leong’s 1^st affirmation, a complaint was made that the shutting down of New Media’s IT system by the Lams on or about 25 and 26 August 2014 paralyzed the entire business operations of New Media, in that the e‑commerce operation was suspended, the other retail and supply chain functions of the Brand Centre came to a complete standstill and halt, and the staff were not able to receive, view or respond to any emails, whether from customers, suppliers, potential clients or the like.  The HFA parties complain that Hansen failed to disclose that the employees of New Media were able to access emails from their webmail accounts on the internet and that the online sales functions were not affected by the alleged failure of the IT system.

87. In answer to this complaint, Mr Mok submits that Peaky Yu of the High Fashion Group has admitted that the Lams had ordered the “blockage of the email accounts” of Daniel Lee (Leong’s special assistant) and Phoebe Cai (Leong’s secretary).  There is also evidence that even their webmail accounts could not be used.  These having been said, Hansen now accepts that the wider effect of the lock down of the IT system was in fact caused by Kevin Shen giving instruction to “unplug” the intranet connection cable, because of his concern that the High Fashion Group might attack or paralyze New Media’s IT System.  Kevin Shen was the head of the IT of New Media, and has filed an affirmation on behalf of Hansen in these proceedings.

88. I accept Mr Coleman’s complaint of material non‑disclosure under this head, in particular:

(i)  the employees of New Media (other than Daniel Lee and Phoebe Cai) were able to access emails from their webmail accounts on the internet; and

(ii)  the lock down of the IT system was in fact caused by Kevin Shen and not upon the instruction or order of the Lams. 

These matters would, in my view, be relevant to the weighing operation which Au‑Yeung J had to carry out in deciding whether to grant paragraphs 1(c) and 2 of the Ex Parte Injunction Order.  However, they are not relevant to the interim injunction granted under paragraph 1(a) and (b) of the Ex Parte Injunction Order, and should not cause me to refuse to grant the interlocutory injunction sought under paragraph 1(a) of the 1^st injunction summons and paragraphs 1 and 2 of the 2^nd injunction summons.  In all, I would order paragraphs 1(c) and 2 of the Ex Parte Injunction Order to be discharged on the ground of material non‑disclosure.

89. In respect of other allegations of alleged material non‑disclosure referred to in Mr Coleman’s written skeleton submissions, I accept Mr Mok’s argument that they relate essentially to details and aspects of the HFA Parties’ case which Hansen disputes as a matter of fact.  That being so, I do not consider that they can properly be relied upon to discharge the Ex Parte Injunction Order on the ground of material non‑disclosure.

Disposition

90. For the above reasons, I grant an order in terms of paragraph 1(a) of the 1^st injunction summons and paragraphs 1 and 2 of the 2^nd injunction summons (save that the reference to the Shenzhen Company in paragraph 1 of the 2^nd injunction summons should be changed to the BVI Company).

91. In respect of the paragraph 2 of the 1^st injunction summons, I shall hear the parties further on the question of whether, and if so how, paragraph 2 of the order of Recorder L Wong SC dated 11 September 2014 and/or paragraph 3 of Deputy High Court Judge’s order dated 8 October 2014 should be continued.  These paragraphs of the said orders shall remain in force in the meantime.

92. Save as aforesaid, I am not prepared to grant any further relief sought under the 1^st and 2^nd injunction summonses.

93. In respect of the discharge summons, I order that paragraphs 1(c) and 2 of the Ex Parte Injunction Order be discharged on the ground of material non‑disclosure

94. I shall hear the parties on the exact form of the orders to be made under the three summonses before me.

95. The parties are agreed that the question of costs and a number of applications in other related proceedings should be dealt with in a further hearing.

96. Lastly, I wish to thank counsel for their helpful assistance rendered the court.