W & Q INVESTMENT LTD suing on behalf of itself and all other shareholders in AESO HOLDING LTD (“THE COMPANY”) v. CHAN SIU CHUNG AND OTHERS

HCA 1357/2017

[2018] HKCFI 248

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1357 OF 2017

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D E C I S I O N

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Introduction

1.  This is the 1^st to 5^th defendants’ application (“defendants”) for the discharge of an ex parte injunction and for the costs thereof to be paid forthwith.  It is opposed by the plaintiff.

Background

2.  This action stems from an internal dispute between two hostile rival camps of a publicly listed company, Aeso Holding Ltd (“Aeso”) (the 6^th defendant herein).

3.  The plaintiff appears to reflect the interest of a Mr Liu (“Liu”).  Liu is said to be a professional investment who became Aeso’s shareholder since March 2016.

4.  Similarly, the defendants’ camp seems to reflect the interest of the 1^st defendant (“D1”), the largest shareholder, and founder, of Aeso (Aeso’s property fitting-out or renovation business was founded in 2008).

5.  The plaintiff’s case put forth at the ex parte hearing (9 June 2017) was that:

(a) the first 3 named defendants acted in concert to approve the publication of an inaccurate announcement, which may expose Aeso to regulatory or legal risks;

(b) the first 3 named defendants voted in a purported directors’ meeting purportedly to appoint the 4^th and 5^th defendants as independent non-executive directors.

The plaintiff contended that the above was in disregard of proper procedure and a breach of directors’ fiduciary duty.  It also contended that the above was for an improper motive and intended as a means to disrupt or derail the extraordinary general meeting (“EGM”) seeking in effect to removing D1’s control of Aeso.  The EGM was scheduled for 12 June 2017 (about 3 days after the ex parte hearing).

6.  Consequent upon the grant of the ex parte injunction, the defendants were retrained from exercising their directors’ powers at the EGM.  The ex parte injunction (having served its stated purpose) was discharged at the inter partes hearing on 16 June 2017 (some 4 days after the EGM).

Defendants’ case

7.  For the reasons summarized below, (as stated above) the defendants seek the discharge of the ex parte injunction, with costs to be awarded in their favour.

8.  They first allege that the plaintiff attempted in April 2017 to take control of Aeso through a number of requisitionists (Aeso was publicly listed in January 2017).  Their belief of such an attempt was reported to the authorities in May 2017, but no definitive decision has yet been reached by the authorities regarding the report.

9.  Further, during June 2017, a number of directors’ meetings were held.  To put it as mild as can be, the meetings concerned matters related to the scramble for the control of Aeso’s board between the two rival camps (as well as about other matters).  There was also a dispute concerning the authority for making (and/or the accuracy of) public announcements which touched on the said dispute.

10.  Among various events which took place after the ex parte injunction, receivers have been appointed by the court over a wholly owned company which operates Aeso’s actual business.

11.  It is against such summary of background that the defendants complain in this application:

(1) there has been non-disclosure of material facts by the plaintiff when the ex parte application was made;

(2) the ex parte injunction should have been sought by way of an inter partes application because there was no need for secrecy, nor was it of such urgency as to justify an ex parte application;

(3) there is no actionable cause of action against (at least) the first 3 defendants;

(4) there was no evidence to show that the defendants would, or intended to, cause harm to the plaintiff.

Plaintiff’s case

12.  The main plank of the plaintiff’s case is that the defendants’ application to discharge the ex parte injunction is academic and serves no meaningful purpose (as stated above, the ex parte injunction was already discharged on 16 June 2017).

13.  Of the alleged material non-disclosure, one matter is the defendants’ accusation that the plaintiff has “colluded” with the requisitionists to commit a “securities listing fraud”.  The plaintiff argues that this a fact-sensitive accusation which is already the subject-matter of another legal action (HCA 1496/2017).  It is (so the plaintiff argues) inappropriate for the defendants to rely on a matter, which is yet to be tried, as a matter of material non-disclosure.

14.  Essentially similar argument is relied on by the plaintiff as regards other matters of alleged non-disclosure.

The discharge application

15.  It can be seen from the contemporaneous correspondence that differences between the two rival camps already became apparent since early May 2017.

16.  In a letter dated 5 May 2017 (when the defendants’ camp was still on Aeso’s board) Aeso’s financial advisers stated that they were investigating into the requisition and had brought the matter to the authorities’ attention (the letter was copied to Aeso’s board).  Further, according to meeting notes of a meeting held on 17 May 2017, where the financial advisers of the plaintiff’s camp took part, the same matter was raised and discussed.

17.  In a letter dated 18 May 2017 from Liu to the authorities, Liu lodged complaints against D1 and Aeso’s financial advisers for misconduct and/or breach of the listing rules.

18.  The line of correspondence in which cross-complaints were made carried on until several days before the ex parte injunction.

19.  For the purpose of the application to discharge, it is unnecessary to decide whether any of the cross-complaints were meritorious.  What is important is whether:

(a) the ex parte injunction should have been sought at an ex parte hearing (or by way of an inter partes application (or at least ex parte on reasonable notice));

(b) the matters canvassed in the above-mentioned correspondence should have been drawn to the attention of the judge who granted the ex parte injunction (“the ex parte judge”).

20.  In the affirmation supporting the ex parte injunction, the defendants’ contention that the requisition was a “collusion” was casually (and economically) mentioned in one sentence:

“[D1] perceived the requisition for EGM as a plot by independent shareholders and the Plaintiff … ” (para 14 thereof).

A similarly concise account was given about one of the public announcements:

“… the publication of the 6 June Announcement [by the defendants’ camp] saying that the placees may not be independent carries serious negative consequence for the [Aeso] … ” (para 32 thereof).

21.  The plaintiff’s skeleton submissions presented to the ex parte judge was not any better in regard to full and frank disclosure (para 23, 25 and 26 thereof).  Further, the skeleton submissions mentioned that:

“… the Plaintiff is not currently aware of any concrete agenda of acts that [the defendants] may carry out ahead of the EGM which may harm [Aeso], but this is due to the secretive way in which they carry out their agenda” (para 41 thereof).

The dispute and the correspondence referred to in para 15 to 18 (especially para 16) above were not emphasised (if touched upon at all).

22.  The ex parte judge was not informed of:

(1) the parties’ dispute became apparently at least about one month before the ex parte hearing;

(2) alleged lack of independence of the requisitionists;

(3) the financial advisers’ investigation against the requisitionists;

(4) the authorities’ indication that the matter was still being investigated,

(whether under the heading “Background” or “Full and frank disclosure”).

23.  The law regarding material non-disclosure is trite, and has been summed up in Hong Kong Civil Procedure 2018 Vol 1:

“… The plaintiff should give particulars of his claims against the defendant, stating the grounds of his claims and the amount thereof and, in addition, should fairly state the points made against him by the defendant … ”;

“The plaintiff should also bring to the court’s attention any points that could have been made by the defendant, even if not yet made, at the time of the ex parte application … ”;

“Materiality is to be decided by the court and not by the assessment of applicants or their advisers … ”;

“[quoting from Intergraph Corp v Solid System CAD Services Ltd [1993] FSR 617] ‘It is of course the duty of legal advisers and counsel to call the judge’s attention to everything that he must see [for example, matters only disclosed in exhibits, but not in the body of the supporting affidavit] if there is a mass of material’”.

(para 29/1/51 (p 724))

24.  The plaintiff has failed to make proper disclosure in not drawing the attention of the ex parte judge to the matters set out in para 22 above.

25.  Further, the “urgency” was at least arguably brought about by the plaintiff’s failure to seek the quia timet injunction earlier.  At the time of the ex parte application (9 June 2017) the plaintiff was already aware of the allegedly inaccurate (and unauthorized) public announcement (since Aeso’s directors’ meeting on 5 June 2017); on the other hand, the EGM was scheduled to be held on 12 June 2017.

26.  The matters set out in para 24 to 25 above are material in the circumstances of this application; it is far from certain the ex parte judge would nevertheless have concluded:

(a) it was appropriate for the plaintiff to proceed with the injunction application by way of an ex parte hearing;

(b) the ex parte injunction should still be granted,

if those matters had been properly brought to his attention.

Conclusion

27.  The court retains a discretion as to whether to discharge an ex parte injunction when there has been failure to make full and frank disclosure and/or to proceed other than by way of an ex parte application.

28.  I find it appropriate to discharge the ex parte injunction because:

(1) the undisclosed matters were not peripheral or trivial matters such as could reasonably have escaped the plaintiff’s attention;

(2) there has been no meritorious or innocent explanation for the plaintiff’s failure to make full and frank disclosure;

(3) the ex parte injunction was in substance a final relief, leaving no meaningful matter to be tried afterwards.

Other matters

29.  Because I have been able to decide in the defendants’ favour on the grounds summed up in para 11(1) and (2) above, it is unnecessary to consider those summed up in para 11(3) and (4) above, save to the extent that neither the merits of cause of action relied upon, nor the risk of harm which the defendants would allegedly cause to the plaintiff are, whether singularly or cumulatively, matters which would sufficiently tip my discretion in the plaintiff’s favour.

30.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its easier comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order nisi

31.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this application be paid by the plaintiff to the defendants to be taxed if not agreed.