GE QINGFU AND OTHERS v. L & A INTERNATIONAL HOLDINGS LTD AND OTHERS

HCMP 2222/2016

[2019] HKCFI 786

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2222 OF 2016

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DECISION

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1.  This court handed down a judgment in favour of the plaintiff on 17 December 2018 (“the judgment”). The 3^rd to 7^th defendants were adjudged to have committed breaches of fiduciary duties owed towards the company. They were ordered, inter alia, (1) to pay to the 1^st plaintiff damages for the sum of HK$18,669,420 with interest at commercial rate from 9 September 2016 to date of judgment and thereafter at judgment rate until payment; and (2) to pay to the 3^rd plaintiff in sums that would become ascertained upon taxation of the costs order made by Harris J, as mentioned in paragraph 109 of the judgment, with interest at judgment rate from the date of the allocatur to the date of the judgment.

2.  The 3^rd, 4^th, 6^th and 7^th defendants issued a notice of appeal against the judgment.  The two grounds of appeal are:

   (1)   that under sections 728 to 730 of the Companies Ordinance (“the Ordinance”), this court has no general power to award damages when there is no prospect that an injunction will be granted.  That is the jurisdiction ground; and

   (2)   that this court erred in assessing damage with reference to the actual amount incurred by the 1^st plaintiff in purchasing shares of the company when the plaintiffs only needed to acquire a lesser number of shares in the company so as to counteract the diluting effect on their voting rights occasionedby the wrongful allotment of shares procured by the defendants. This is the quantum ground.

3.  By a respondents’ notice, the plaintiffs put forward further support for the judgment.  In respect of the jurisdiction ground, the plaintiffs argue that:

   (1)   the court had previously granted an interlocutory injunction in favour of the plaintiffs which was later substituted by an undertaking from the 3^rd to 7^th defendants;

   (2)   the court granted the relief of damages instead of the mandatory injunction prayed by the plaintiffs at the invitation of the defendants; and

   (3)   independent of the court’s statutory jurisdiction, the court has original or inherent jurisdiction to award equitable compensation.

4.  In respect of the quantum ground, the plaintiffs argue that therespective defendants were found to have committed breaches of fiduciary duties and the court’s award of damages is justified, having regard to the principles expounded in the Court of Final Appeal case of Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 on equitable compensation.

5.  The 3^rd, 4^th, 6^th and 7^th defendants now apply for stay of execution of the judgment.  They argue that they have strong grounds of appeal and hence a good prospect of success in the appeal.  They also argue that if stay is not granted, their appeal would be rendered nugatory on the basis that:

   (1)   the plaintiffs live in the PRC;

   (2)   their assets are shares in the company which is a listed company that can be easily and swiftly disposed of; and

   (3)   the 1^st and 3^rd plaintiffs did not attend the trial and it appears that they did not wish to appear in Hong Kong.  They argue that there is appreciable risk that the plaintiffs would not be able to repay in the event of a successful appeal.

6.  The application is opposed by the plaintiffs who argue that: (1) the jurisdiction ground is not even reasonably arguable; and (2) the quantum ground, though arguable, is actually very weak.  On the nugatory point, the plaintiffs emphasise that:

   (1)   the 1^st and 3^rd plaintiffs did not avoid coming to Hong Kong at all.  They were legally advised that their attendance would not be required for properly running the plaintiffs’ case;

   (2)   the plaintiffs have complied with costs order within this litigation and there is no evidential basis to suspect that they would not comply with any order of the Court of Appeal and honour their financial obligations;

   (3)   on balance of prejudice, there are no good reasons to deprive the plaintiffs of their fruit of success, particularly in the light ofthe fact that the defendants never offered to pay the judgment debt into court pending the outcome of the appeal; never offered any security; and have not suggested any financial difficulty or hardship.

7.  It is not in dispute that the court’s power to grant stay of execution pending appeal is discretionary and the well-established principles for the exercise of this discretion have been succinctly set out in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at paragraphs 7 – 10.  Mr Lam referred me further to a more recent Court of Appeal decision of Song Lian Zhong v Chan Sze Wan [2018] HKCA 359 at paragraph 7.  I do not consider that it alters or adds to the principles expounded in Star Play which I will apply in the exercise of my discretion.

8.  Firstly, I do not find that the jurisdiction ground can be said to be a strong ground.  It is basically a rerun of the arguments made by Mr Lam, counsel for the defendants at the trial, which I rejected for reasonsdetailed in my judgment.  Mr Lam relies on further authorities on statutory interpretation which is merely a refinement of the arguments he made at the trial and which I rejected on the basis of clear wordings of the new statutory scheme.  I am, however, prepared to accept that the jurisdiction ground is reasonably arguable, particularly in light of the fact that my judgment is the first occasion on which the new sections 728 to 730 are thoroughly interpreted.  I would, however, add that the arguments raised by the plaintiffs in the respondents’ notice are also arguable, to say the very least. 

9.  On the quantum ground, I also agree with Mr Barlow SC, counsel for the plaintiffs on this application, that it is strongly arguable that the award of damages can be justified on the authority of Libertarian in cases involving dishonest breaches of fiduciary duties.  The quantum ground is at best arguable and I shall approach this application on this basis.

10.  It is not in dispute that the plaintiffs are residing in the PRC.  It is also true that their assets in Hong Kong consist of listed company shares which can be readily disposed of.  However, one must note that there is absolutely no evidence or basis to suggest lack of commercial morality on their part.  I also accept their explanation that the 1^st and 3^rdplaintiffs did not personally attend the trial on the basis of the legal advice they received.  The case of Song Lian Zhong v Chan Sze Wan is clearly distinguishable.  There is no basis to suggest that the plaintiffs have been avoiding Hong Kong.  In Song’s case, the plaintiff first put forward himself as a Hong Kong resident, but the evidence showed that he is a Chinese national residing in the mainland.  In his affirmation, he did not state his address of residence as required by Order 41, rule 1(4).  This, in my view, added to the appreciable risk factor against the plaintiff.  Each case has to be judged on its own facts.

11.  On the contrary, the defendants had been found by me to be dishonest and unreliable witnesses at the trial.  I had also concluded that they had committed dishonest breaches of fiduciary duties. There is no appeal against my assessment of credibility and fact findings.  They have not suggested any difficulty or hardship in satisfying the judgment debt.

12.  I appreciate that simply by reason of the plaintiffs’ residence outside Hong Kong and their lack of fixed or permanent assets in Hong Kong,one can properly assume some risk that they may not repay the defendants in the event of a successful appeal. The level of risk differs in each case.  I have to consider all available factors.  Furthermore, I must balance that risk against the right of the plaintiffs not to be deprived of or delayed in enjoying the fruit of their success unless there are good reasons so to do.

13.  In the course of the hearing, Mr Lam informed me that the defendants are prepared to pay into court the amount of HK$7,349,040 as a security for the stay of execution.  This is the inevitable amount of damages that the defendants would have to pay upon the success of the quantum ground.  Mr Barlow disagreed and required the defendants to put in the full judgment sum as a condition for the grant of stay.  There is no reason to act only on the assumption of the defendants succeeding in the quantum ground. The defendants had failed to establish strong grounds of appeal on the quantum ground.  I prefer the submission of Mr Barlow.

14.  Having considered all factors, I have decided that there should only be a stay of execution upon the condition that the 3^rd, 4^th, 6^th and 7^th defendants do pay into court the sum of HK$18,669,420 within 21 days from the day hereof which shall remain with the court pending the outcome of the defendants’ appeal and the court’s further order.

15.  On the question of costs, Mr Barlow asked for costs of the application.  Mr Lam asked that costs of the application be made in the cause of the appeal.  Mr Barlow mentioned the lack of offer of payment-in and provision of security in his skeleton.  Mr Lam only offered the provision of some security in the course of his submission.  In any event,the sum offered is considered by me to be inadequate and I ordered the full judgment sum to be paid into court as a condition.

16.  In the circumstances, I order that costs of this application be in the cause of the appeal save that costs of the hearing today shall be paid by the 3^rd, 4^th, 6^th and 7^th defendants to the plaintiffs.