SHIH RICK JU FENG AND OTHERS v. LO YUEH LI AND OTHERS

CAMP 286/2022 and CACV 50/2023, [2024] HKCA 317

On Appeal From [2022] HKCFI 1272

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 286 OF 2022

(ON AN INTENDED APPEAL FROM HCA NO 1356 OF 2021)

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 50 OF 2023

(ON APPEAL FROM HCA NO 1356 OF 2021)

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DECISION ON COSTS

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Hon Au JA (giving the Decision on Costs of the Court):

A.  Introduction

1.  By his decision dated 3 May 2022 (“the CFI Decision”), Recorder Abraham Chan SC dismissed the 1^st to 5^th plaintiffs’ summons dated 7 September 2021 (“the Summons”)  seeking various interlocutory injunctions against the defendants, with the defendants’ costs in the cause.  By way of his further decision dated 1 August 2022 (“the CFI Leave Decision”), the Recorder further dismissed the plaintiffs’ application for leave to appeal the CFI Decision.

2.  Under CAMP 286/2022, the plaintiffs sought leave from this court to appeal against the order dismissing the Summons. At the end of the rolled-up hearing on 16 February 2023 and after hearing the parties, this court made the following orders (“the First Orders”):

(1)  Leave to the plaintiffs to appeal on the grounds set out in the draft Notice of Appeal be granted;

(2)  The plaintiffs shall issue an appeal by 17 February 2023;

(3)  The parties shall by 21 February 2023 provide to the court a set of agreed undertakings to be given by the 1^st defendant, and 4^th and 6^th defendants (in HCA 1356/2021)[1], failing agreement the parties shall submit their own drafts, for the approval of the court; and

(4)  The parties shall lodge their written submissions on costs below, the application for leave to appeal here and below, and the appeal.

3.  Pursuant to this order, the plaintiffs issued their appeal under CACV 50/2023 on 17 February 2023, and the court later approved the undertakings (as amended by the court)  given by the 1^st defendant, and the 4^th and 6^th defendants (in HCA 1356/2021)  and made the following orders on 10 March 2023 dismissing the appeal (“the Second Order”):

“AND UPON the 1^st Defendant’s undertaking as set out in Schedule 1 annexed hereto, and the undertaking of the 4^th and 6^th Defendants (in HCA 1356/2021)  as set out in Schedule 2 annexed hereto

IT IS ORDERED that the appeal herein be dismissed”

4.  Pursuant to the First Orders, the parties have also since lodged their skeleton submissions on costs.  This is our decision on costs.  This should be read together with the CFI Decision and the CFI Leave Decision, and unless the context otherwise dictates, we adopt the abbreviations used in the CFI Decision.

B.  Brief background

5.  The brief background leading to the Summons has been usefully and succinctly summarized by the Recorder at [1] ‑ [5] of the CFI Decision, which we gratefully adopt.  For present purpose, we would highlight the following.

6.  The interim injunction application under the Summons features two families: the Shihs and the Hsiehs (“the Two Families”). Between them runs much bad blood, which has boiled over into corporate and other conflicts replete with claims of grave misconduct and criminal complaints.

7.  The focal conflict in this action concerns funds (“the Synergy Funds”)  held by the 3^rd defendant (“Synergy”), a wholly owned subsidiary of the 2^nd defendant (“Alliance”).  Members of the Two Families are the ultimate beneficial owners (“the Beneficiaries”)  of the Synergy Funds.  The 1^st defendant holds the Alliance shares as sole nominee shareholder for the Beneficiaries and is the sole director of both Alliance and Synergy.  The 4^th and 5^th defendants are the then liquidators of Synergy, which is in voluntary liquidation.  The 1^st defendant’s decision to wind up Synergy on 30 August 2021 (“the Resolution”)  was the immediate spark to this action, which was launched by Writ on 7 September 2021.

8.  The plaintiffs are from the Shih family.  In gist, it is the plaintiffs’ claim that the members’ resolution to wind up Synergy was void and invalid.  This is so as the Synergy Funds held by Synergy is what the plaintiffs described as the “Corporate Fund”, which must be used for certain agreed purposes.  Further, by agreement, the 1^st defendant is acting as trustee on behalf of the eight Beneficiaries from the Two Families, and may not act without the unanimous instructions and consent of the Beneficiaries. However, in breach of her duties as trustee and the agreement, the 1^st defendant passed the resolution to voluntarily wind up Synergy without the consent of the plaintiffs.  It is the plaintiffs’ further case that the winding up of the Synergy is a way engineered by the Hsieh family together with the 1^st defendant to distribute the Synergy Funds to the Beneficiaries without the consent and agreement of the Shih family, and is thus wrongful.

9.  By the Summons, which was filed together with the Writ, the plaintiffs seek, pending the action’s final determination, to restrain:

(1)  The 1^st defendant and Alliance from doing any act or taking any steps in the name of, on behalf of or in relation to Alliance or Synergy; and

(2)  The 4^th and 5^th defendants from exercising any powers as liquidators of Synergy, including effecting any distribution out of Synergy.

(“the Interlocutory Injunctions”)

10.  The Recorder dismissed the application for the Interlocutory Injunctions by way of the CFI Decision for the following main reasons:

(1)  The plaintiffs proceeded on the “unsound premise” that the Synergy Funds would be at risk of being distributed to the Beneficiaries without the injunction at this stage as, given the evidence as it stood, they would only be distributed to Alliance upon the winding up of Synergy “in the ordinary course of liquidation” (“the Unsound Premise Reason”)[2].

(2)  The plaintiffs in any event would not suffer any harms that were not compensatable by damages even if the Synergy Funds was distributed without the injunction (“the No Irreparable Reason”)[3].

(3)  Further, if the court were to consider the stage of balance of convenience, there was a “strong additional factor” against the grant of the injunction as it would be “futile” to do so, since it would be pointless to “hold the ring” by way of the Interlocutory Injunctions “in order to ensure that the full amount of the fund would be available for use in the event of the plaintiffs prevailing at trial”.  This was so as it was the plaintiffs’ own case that the funds could only be used with the unanimous consent of all the Beneficiary, and the chance of this being obtained was “remote” albeit not entirely fanciful (“the Balance of Convenience Reason”)[4].

11.  In the Notice of Appeal, the plaintiffs challenged all the above three reasons of the Recorder for dismissing the Summons.

12.  As the end of the rolled-up hearing of the application for leave to appeal before this court, the 1^st defendant indicated through counsel that she (as the sole director of Alliance)  would be prepared to give undertakings to the effect that Alliance would direct the liquidators (“the Liquidators”)  to pay the Synergy Funds only to Alliance’s joint account upon the winding up of Synergy, with the exact terms of the undertakings to be agreed between the parties and approved by the court.  This led to the court making the First Orders.

13.  Thereafter, the court approved the following undertakings (collectively, “the Undertakings”):

(1)  The 1^st defendant’s undertakings (“D1’s Undertakings”)  as follows:

“1. The 1^st Defendant, Lo Yueh-Li (羅月麗)  in HCA 1356/2021 undertakes to request the joint and several liquidators of the 3^rd Defendant, i.e. the 4^th and 6^th Defendants in HCA 1356/2021, Yeo Boon Ann (楊文安)  and Kong Chi How, Johnson (江智蛟)  to distribute and deposit all funds of the 3^rd Defendant (‘Synergy Funds’)  into the following bank account of the 2^nd Defendant [ie, Alliance] maintained with Citibank N.A. Hong Kong Branch (‘D2’s Citibank Account’):

  [details of the account]

2. The 1^st Defendant undertakes, until final determination of the proceedings in HCA 1356/2021 or further order of the Court, not to carry out any acts to cause the Synergy Funds or any part thereof to be paid out of D2’s Citibank Account without leave of the Court or the Plaintiffs’ consent.”

(2)  The Liquidators’ undertakings as follows:

“The current joint and several liquidators of the 3^rd Defendant, i.e. the 4^th and 6^th Defendants in HCA 1356/2021, Yeo Boon Ann (楊文安)  and Kong Chi How, Johnson (江智蛟), undertake that in the event that there is distribution of any funds of the 3^rd Defendant, they shall pay such distribution into the following bank account of the 2^nd Defendant maintained with Citibank N.A. Hong Kong Branch, unless otherwise directed by the Court:

[details of the account]”

14.  Based upon the Undertakings, the court made the Second Order and dismissed the appeal.

C.  The costs

15.  The plaintiffs now seeks an order that theirs and the liquidator’s costs of the appeal and below (including the costs of the leave to appeal applications)  should be borne by the 1^st defendant.

16.  In support, Mr Wong SC for the plaintiffs submits that given the Undertakings, the plaintiffs have in substance and effect achieved what they sought to achieve by applying for the Interlocutory Injunctions.  They are effectively successful and are the overall winner in their application, and which could only be achieved by bringing the appeal.

17.  Ms Tong SC for the 1^st and 2^nd defendants however submits that they shall have the costs of the appeal, and that the costs before the Recorder should be upheld as the appeal was dismissed.

18.  In this respect, counsel emphasized that although the dismissal of the appeal was made upon the Undertakings, those undertakings were only proffered by the 1^st defendant in response to the following two questions / observations raised by the court:

(1)  In the absence of an injunction, there was a risk that the Synergy Funds would be distributed to the Beneficiaries as the 1^st defendant (que director of Alliance)  could give instructions to the Liquidators to pay the Synergy Funds to the Beneficiaries instead of depositing them into Alliance’s own joint account (ie, D2’s Citibank Account as defined in D1’s Undertakings)  (“the Risk Question”);

(2)  Given that the plaintiffs sought in the Statement of Claim for, among others, a permanent injunction restraining the defendants from doing anything in relation to Synergy and Alliance for the purpose of preventing the Synergy Funds from being distributed without unanimous consent, they would suffer irreparable damage if the Synergy Funds were indeed paid out to the Beneficiaries before trial as the principal subject matter of the action would be gone.  Further, this would also be a weighty factor in the balance of convenience consideration (“the Irreparable Damage / Balance of Convenience Question”).

19.  In relation to these two questions (collectively “the Court’s Questions”), Ms Tong contends that they did not arise from the grounds of appeal in the Notice of Appeal, and were different from how the plaintiffs argued before the Recorder on the issues of risk, irreparable harms and balance of convenience.  In the circumstances, the plaintiffs should not be permitted to advance such arguments in the appeal, as it would be wholly unfair to the 1^st defendant as she was not given the opportunity to file evidence to respond to the alleged risk that she would direct the Liquidators to pay the Synergy Funds to the Beneficiaries directly.

20.  In the premises, had the appeal been decided on merits based solely on the grounds of appeal, the plaintiffs would plainly fail as the Recorder was correct in his reasons for dismissing the Summons.  The plaintiffs should therefore bear the costs of the appeal and the leave to appeal applications.

21.  With respect, we are not persuaded by Ms Tong’s submissions.

22.  First, in our view, the Court’s Questions are covered by the following grounds of appeal set out in the Notice of Appeal:

(1)  At paragraph 3, that the Recorder erred under the “Unsound Premise Reason” as, among others, he failed to consider the 1^st defendant’s argument that the Synergy Funds would only be distributed to Alliance upon liquidation is contrary to (a) the evidence of the Hsieh family’s consistent course of conduct in trying to distribute the Synergy Funds for the Beneficiaries’ personal use; and (b)  the 1^st defendant’s evidence that the reason for the winding up was to resolve the “deadlock” between the Beneficiaries and let the Liquidators investigate and determine the entitlement to the Synergy Funds and to whom they should be distributed.

(2)  At paragraphs 6(a)  and (b), that the Recorder erred under the No Irreparable Damage Reason as, among others, (a)  his conclusion that the Synergy Funds would be “intact” if the liquidation of Synergy was to proceed was inconsistent with the evidence of a real risk that the fund would be so distributed, and (b)  he failed to consider that no amount of damages can restore the parties to their original pre-breach position where the nominee arrangement between the Two Families represents a carefully crafted balance of power, which will be destroyed by the liquidation of Synergy.

(3)  At paragraphs 12 and 13, that the Recorder erred under the Balance of Convenience Reason as, among others, (a)  he failed to consider that the grant of the Interlocutory Injunctions would preserve the status quo so that the plaintiffs would not be deprived of the remedy of permanent or restorative injunction sought at trial; and (b)  this would render the final injunctive reliefs sought futile.

23.  Second, Ms Tong’s contentions summarized at [19] above were indeed already advanced by her at the rolled-up hearing when we raised the Court’s Questions. As we had already indicated at the hearing, counsel’s complaints are without merits as the observations made under the Court’s Questions:

(1)  Arose objectively from the following evidence filed by both parties:

(a)  the Hsieh family’s previous unsuccessful attempt to remove the 1^st plaintiff as a signatory to the joint account of Synergy[5];

(b)  the Hsieh family’s repeated indications that it was in the best interest of the parties for the Synergy Funds to be distributed to the Beneficiaries[6]; and

(c)  the 1^st defendant’s own position[7] that when Synergy was wound up, it would be for the Liquidators to “investigate and determine” entitlement to the funds and “to whom they should be distributed”.

(2)  Represent an objective and logical assessment from the above evidence and the context that the winding up of Synergy served no apparent useful purposes other than as part of the process to facilitate the distribution of the Synergy Funds.

(3)  Arose objectively from the fact that the plaintiffs specifically seek, among others, a permanent injunction in the Statement of Claim to restrain the 1^st to 3^rd defendants from doing any act or taking any steps in the name, on behalf of or in relation to the 2^nd and / or 3^rd defendants without the consent of the plaintiffs[8].

24.  We therefore reject Ms Tong’s submissions.

25.  For all these reasons, we accept the plaintiffs’ submissions that they should be regarded in substance as being successful in the application, and they could only achieve that by bringing the appeal.

26.  Taking into account all the circumstances, we consider it just and fair to order that the plaintiffs’ costs in the appeal (including the applications for leave to appeal)  and before the Recorder be in the cause of the trial.

27.  As to the costs of the Liquidators, their counsel Mr Tony Ko submits that as they had been neutral to all the applications, there should be no order as to costs.

28.  On the other hand, the plaintiffs in their written submissions have submitted that they are “concerned” with the Liquidators’ conduct in relation to their “hitherto lack of constructive actions” in seeking to maintain the status quo of either Synergy or the Synergy Funds, while at the same time recognise that, but for the 1^st defendant’s persistent unreasonable refusal to give any undertakings, the Liquidators would not need to take part in the injunction application and appeal[9].  Mr Wong SC therefore submits that the 1^st defendant should pay for the Liquidators’ costs or, alternatively, that the Liquidators’ costs be reserved to be determined by the trial judge.

29.  We are unable to agree with Mr Wong’s submissions.  The plaintiffs have not established on the evidence of the Liquidators alleged questionable non-neutral conduct.  Further, as there are no pleas made in the Statement of Claim against the Liquidators for misconduct and nothing would turn on this at the trial, it is also inappropriate to reserve the costs to the trial judge.  In the premises, in our view, a fair and just order in relation to the Liquidators is that there be no order as to costs in this appeal (including the leave to appeal applications)  and before the Recorder.

D.  Dispositions

30.  In the premises, we make the following costs orders:

(1)  The plaintiffs’ costs of the appeal (including the costs of the leave applications under CAMP 286/2022 and below)  and below be in the cause of HCA 1356/2021, to be taxed if not agreed, with certificate for two counsel.

(2)  There be no order as to costs in relation to the Liquidators’ costs of the appeal (including the costs of the leave applications under CAMP 286/2022 and below)  and below.