SHERRYKNOLL ENTERPRISES LTD AND ANOTHER v. GRAND POWER LTD

HCA 1599/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1599 OF 2009

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BETWEEN

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D E C I S I O N

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1.  This is an application for leave to appeal against my decision handed down on 23 July 2012 (“the Decision”).

APPLICABLE LEGAL PRINCIPLES

2.  It is trite law that leave to appeal against an interlocutory decision under section 14AA(4) of the High Court Ordinance will not be granted unless the court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard. 

3.  In SMSE v KL [2009] 4 HKLRD 125, Le Pichon JA pointed out that such leave to appeal is not lightly granted.  The test of reasonable prospects of success involves the notion that the prospects of succeeding must be reasonable and therefore more than fanciful without having to be probable.

4.  Further, it is well established that the discretion whether to grant or refuse an interim injunction is that of the first instance judge, and will not be interfered with by an appellant court save in the limited circumstances where,

“… it was based upon a misunderstanding of the law or of the evidence before him or upon an inference that particular facts existed or did not exist, which, although it was one that might legitimately have been drawn upon the evidence that was before the judge, can be demonstrated to be wrong by further evidence that has become available by the time of the appeal; or upon the ground that there has been a change of circumstances after the judge made his order that would have justified his acceding to an application to vary it. Since reasons given by judges for granting or refusing interlocutory injunctions may sometimes be sketchy, there may also be occasional cases where even though no erroneous assumption of law or fact can be identified the judge’s decision to grant or refuse the injunction is so aberrant that it must be set aside upon the ground that no reasonable judge regardful of his duty to act judicially could have reached it. It is only if and after the appellate court has reached the conclusion that the judge’s exercise of his discretion must be set aside for one or other of these reasons, that it becomes entitled to exercise an original discretion of its own.” PCCW-HKT International Ltd v New World Telephone Ltd [2001] HKC 416, 424 B-H

5.  In Derby & Co Ltd v Weldon [1990] 1 Ch 28, 58 B-C, Parker LJ said that appeals against injunctions generally should be rare and that courts should be slow to interfere.

THE GROUNDS OF APPEAL

6.  At the outset, I wish to state that paragraph 4 of the skeleton submission of Mr Ho SC and Mr Nip contained the correct interpretation of the Decision.

7.  The grounds of appeal have been set out in the statement in support of the plaintiffs’ application and I shall not repeat the same.  Mr Wong, counsel for the plaintiffs, highlights 2 legal points in his skeleton submission.

(A)    That the court had wrongly conflated the legal test of summary judgment to the legal test of interlocutory mandatory injunction;

(B)    In assessing the relative risk of doing an injustice, it was incorrect for the court to find that any loss to the plaintiffs was compensable by damages.

(A)  That the court had wrongly conflated the legal test of summary judgment to the legal test of interlocutory mandatory injunction

8.  Mr Wong submits that I have wrongly accepted that the fact that the plaintiffs could not apply for summary judgment against the defendant was a consideration that this court should take into consideration when deciding on the issue of whether a mandatory injunction order should be granted.  The plaintiffs were not applying for summary judgment and the test for applying for summary judgment should not even be engaged at all.  The court applied the wrong legal test by requiring the plaintiffs to demonstrate an overwhelming case on the merits.  Mr Wong confirms that he was referring to paragraph 48 of the Decision.

9.  With respect to Mr Wong, his reading of the Decision was taken out of context.  I took the view that there existed serious questions to be tried (paragraph 30, reiterated in paragraph 48).  However, I proceeded to explain why I disagreed with the submission, in paragraph 39 of the skeleton submission of Mr Neoh SC (then leading Mr Wong) dated 13 July 2012, that the plaintiffs’ case against the defendant was “overwhelming” (paragraphs 31-48).  The conclusion in paragraph 48 gave a view on that submission that reflected the sentiments of Deputy Judge Carlson in Fast-Link Express Ltd v Falcon Express Ltd, HCA 2040/2005, 30 December 2005:

“6. Where the contest about the grant or refusal of an interlocutory injunction is effectively the only contest between the parties and it is clear that the action would never proceed to trial the additional considerations set out in the cases of NWL Ltd v. Woods [1979] 3 All ER 614 and Cayne v. Global Natural Resources Plc (1984) 1 All ER 225 and in Hong Kong see also Zheng Lie Lie v. Prosperfield Ventures Ltd (No. 1) (2003) HKC 33 will take effect. These considerations are that in such a case the court should approach the matter on a broad principle of what it could do in its best endeavour to avoid injustice. The matter is more fully expressed in the headdnote to the report in Cayne’s case (supra.) as follows:

‘Where the grant or refusal of an interlocutory injunction will have the practical effect of putting an end to the action, the court should approach the case on the broad principle of what it can do in its best endeavour to avoid injustice and to balance the risk of doing an injustice to either party. In such a case the court should bear in mind that to grant the injunction sought by the plaintiff would mean giving him judgment in the case against the defendant without permitting the defendant the right of trial. Accordingly, the established guidelines requiring the court to look at the balance of convenience when deciding whether to grant or refuse an interlocutory injunction do not apply in such a case since, whatever the strengths of either side, the defendant should not be precluded by the grant of an interlocutory injunction for disputing the plaintiff’s claim at a trial.’

Kerr LJ analysed the matter further in his judgment at 236D-F with reference to the facts of the dispute before him:

‘As was pointed out during argument, if this position were viewed as an application for summary judgment under RSC Order 14, then it would be clear beyond argument that Global must be given unconditional leave to defend because it would obviously be entitled to a full trial.  However, the grant of an injunction would obviously be entitled to a full trial.  However, the grant of an injunction would preclude this so far as can be foreseen at present for the reasons already stated.  In these circumstances it seems to me that it would be wholly wrong for this court, in effect, to decide the entire contest between the parties summarily in the plaintiff’s favour on the untested material before us.  This does not present any overwhelming balance on the merits in the plaintiff’s favour or any other overriding ground for an immediate injunction without a trial.  There is only a triable issue whose outcome is doubtful and that issue should be tried and not pre-empted.’ ”

10.  It was not adoption of a different test from that in Music Advance Ltd. v. Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041, Ma J (as he then was) nor Wu Wei v Liu Yi Ping, HCA 1452/2004, 30 January 2009, per Deputy Judge L. Wong.  Nor was it a conflation of the tests for granting interlocutory mandatory injunction and summary judgment.

11.  As confirmed by Mr Wong, on the issue of serious question to be tried, the first stage assessment, the test in the final analyses has always been whether:

“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.”

12.  That test had been adhered to.  See paragraph 73(7) of the Decision after balancing each party’s view toward performance of the Subject Shares, considering whether damages formed an adequate remedy and the terms of undertaking provided by the plaintiffs.

13.  Mr Wong further submitted that even at the stage of considering whether there was a serious question to be tried, the court had wrongly applied 2 legal principles:

(i)      “[f]inding a time by which or price at which to sell might be feasible having regard to parties’ intention and what is just and reasonable.  That is a matter for the trial judge to decide.” (paragraph 45) That ruling, so Mr Wong submits, ignores the fundamental law point that the defendant has not pleaded or alleged any reasonable period.  As a matter of law, it is not for the trial judge to decide on a reasonable period when the defendant has not even relied on a reasonable period but relied on an indeterminate period, which on any view of the law, is unsustainable.  If this is right legally, the plaintiffs did have an overwhelming case.

(ii)     It was inapt to take into consideration the lack of an alternative plea to demand for sale of the shares.  Such plea was unnecessary in that the plaintiffs have since the issue of the writ in this action already prayed for delivery up of the Share Certificates.

14.  This line of submission boils down to what Mr Wong described in his oral submission today – that the point on the agreements being void of uncertainty was his “killer point” which showed that the plaintiffs had an “overwhelming case on the merits”.  Once the agreements were held to be void and struck down, the shares would have reverted to the plaintiffs, so he submits.

15.  Paragraph 45 of the Decision was discussed in the context of the argument that the oral/written agreements might not necessarily be void for uncertainty in view of the principles in New World Development Co Ltd & ors v Sun Hung Kai Securities Ltd & anor (2006) 9 HKCFAR 403.  This court was aware that the plaintiffs had not pleaded a right to call for sale of the Subject Shares (paragraph 47).  A prayer for delivery of the shares is certainly different from one for sale of the shares.  Viewed against the make-believe version of the Plaintiffs’ case, its inconsistency with prior statutory declarations and a defence capable of belief, I am not satisfied that the plaintiffs have a “killer” point as counsel advanced.

(B)  In assessing the relative risk of doing an injustice, it was incorrect for the court to find that any loss to the plaintiffs was compensable by damages

16.  Mr Wong appears to have confused 2 meanings of the phrase “compensable by damages”:

(i)  whether a party’s loss is calculable in monetary terms; and

(ii)  whether any damages awarded can be successfully recovered in view of the financial condition of the losing party.

I do not see how it can be said that this court has erred on meaning (i), it being always a factor to be considered in the balance of convenience.  Meaning (ii) was what Mr Wong really meant.  However, the fact is that I did take it into account (paragraph 66 on the risk of an empty judgment and consideration of the plaintiffs’ undertaking in paragraphs 63-65).

17.  Mr Wong has, in his submission, referred to 6 matters that I should take into account in assessing the practical realities.  With respect to Mr Wong, those have already been considered in the Decision:

(a)     That the price of the Subject Shares has been consistently falling since the VSA – paragraph 67.  Not only had I considered one period of fall, but I had considered the share prices of 4 years and broken them up into periods of rise, fall and constancy.

(b)     That the lock up period would expire in September 2012 and the price would potentially fall – paragraphs 25 and 51-52.

(c)     That the defendant was a BVI company and there was risk of empty judgment to the plaintiffs – paragraph 66.

(d)     That the defendant could be adequately compensated for by damages by way of the plaintiffs’ cross undertaking as to damages if the share price went beyond 60 cents per share – paragraphs 62-65.

(e)     That there was no evidence that the shares were likely to rise beyond HK$0.60 until trial – paragraph 67 on price fluctuation and paragraph 49 warning against speculating on the trend of share price or taking away a party’s right to decide on the best time to liquidate its shares.

(f)      That if the injunction order were not made, damages could not be an adequate remedy for the plaintiffs whereas if one were made, the defendant could be adequately protected.  See (c) and (d) above.

18.  In asking me to take into account the lack of evidence that the shares are “likely (probably in contrast with possibly)” to rise beyond HK$0.60 until trial, he is acting contrary to paragraph 49 which he does not challenge.  The assertion that I have entered into the arena when facing an expert report from the plaintiffs’ side, is an attack on how the discretion was exercised rather than the proper legal principles to be applied.

OTHER GROUNDS

19.  There are other grounds raised in paragraphs 10-11 of the proposed grounds of appeal which I shall not set out one by one.  Suffice to say that the plaintiffs allege that this court has failed to recognize that they were the legal and beneficial owners, that the burden was on the defendant to prove the authenticity of the written agreements put forth as evidence of the defendant’s alleged rights in the shares, the legal sufficiency of the consideration allegedly given and the failure to recognize that the defendant’s evidence was not credible.

20.  As rightly pointed out by Mr Ho, SC, the question of beneficial ownership was at the heart of the dispute.  Even if I should have considered those allegations at the previous hearing, they were relevant only to the issue of showing serious issues to be tried and I have come to the view that the plaintiffs had not gone beyond showing just this.  I fail to see how the court should be expected to decide summarily on those allegations and matters of credibility in an interlocutory injunction hearing when there were disputes of fact.

CONCLUSION

21.  In summary, the plaintiffs have failed to show that there are reasonable prospects of success in the intended appeal.  I therefore dismiss the application for leave to appeal.  I make an order that costs should be to the defendant.  The defendant has effectively claimed costs for only one counsel and minimal costs for solicitors.  I assess the costs summarily and allow $170,000.