張才奎所託管中國山水投資有限公司股份 AND ANOTHER v. 張才奎 AND ANOTHER

HCMP 2498/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2498 OF 2015

(ON AN INTENDED APPEAL FROM HCA NOS. 1661, 1766, 2191 OF

2014 AND 623, 939, 1564 OF 2015)

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(Consolidated pursuant to the Order of
The Honourable Mr Justice G Lam dated 21 August 2015)

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REASONS FOR JUDGMENT
AND DECISION ON COSTS
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Hon Kwan JA (giving the Reasons for Judgment and Decision on Costs of the court):

1.  We are seized with an urgent application for an interim injunction pending an application for leave to appeal to the Court of Appeal. The matter arose in this way.

2.  On 30 September 2015, Deputy High Court Judge Seagroatt refused the application of the 1^st defendant for an interlocutory injunction to remove two directors (“the Additional Directors”) appointed by the receivers as independent non-executive directors (“INEDs”) to China Shansui Investment Company Limited (“CSI”) or to restrain the Additional Directors from so acting.  The judge handed down reasons for his decision in the early afternoon of 9 October.

3.  By a summons dated 7 October 2015 in HCMP 2498/2015, the 1^st defendant applied to the Court of Appeal for leave to appeal against the aforesaid judgment and for an interim injunction in the following terms, pending final determination of the 1^st defendant’s application for leave to appeal, and if leave is granted, the final disposal of such an appeal or further order:

(1) the Additional Directors be restrained from exercising their powers as directors of CSI (i) “which may in any way affect or disturb the current composition of the board of CSI and China Shansui Cement Group Limited (“CSC”)” and (ii) “not to act in relation to CSI’s bank accounts”; or

(2) alternatively, if any board resolution has been passed by CSI to the effect that CSI shall support the resolutions proposed by Tianrui (International) Holding Company Limited (“Tianrui”) and its affiliate Bliss Talent Investment Limited at the Extraordinary General Meeting (“EGM”) of CSC to be held on 13 October 2015, the receivers who have been appointed to attend the EGM on behalf of CSI “shall be restrained from acting on such resolution”.

4.  The summons was accompanied by a certificate of urgency signed by the three counsel acting for the 1^st defendant, stating that they have prepared the enclosed skeleton argument for the Court of Appeal and that they are satisfied there are “special circumstances which make it impossible or impracticable” to apply to the judge for leave to appeal (under Order 59 rule 2B(2)) and for an interim injunction (under Order 59 rule 14(4)), the particular circumstances being that the board meeting of CSI would be held on 9 October Friday[1], the EGM of CSC would be held on 13 October the following Tuesday, and the judge had indicated that reasons for his decision would be delivered on 8 or 9 October.

5.  Given the circumstances, we made a direction on 8 October that we would hear the 1^st defendant’s summons for an interim injunction on 12 October Monday, on the basis as stated in the 1^st defendant’s skeleton argument that he would not be asking the appeal court to hear his application for leave to appeal on an urgent basis.  If that had not been his stance, we would not have agreed to hear his leave application any way, as there is no justification to dispense with a filtering first tier application before the judge, who would give the appeal court his input to the proposed grounds of appeal and weed out irrelevant issues and unarguable grounds.

6.  In the morning of 9 October, we made a further direction that those are represented and who have been served with the 1^st defendant’s summons (the receivers, the Additional Directors, a director of CSI Yu Yuchuan, and the plaintiffs) should file short submissions indicating their stance and giving an outline of the arguments they sought to advance, by close of business that day.  The deadline would also apply to the 1^st defendant, in case he should wish to make supplemental submissions in light of the reasons for decision to be handed down by the judge.

7.  By the deadline, this court received from all the represented parties their skeleton submissions, in some instances with reference to the reasons for decision that had just been handed down.  The 1^st defendant did not, however, serve any supplemental submission.

8.  At the outset of the hearing, we indicated to all parties that for an interim injunction to be granted pending the application for leave to appeal, the 1^st defendant would have to satisfy the court that he has “a real prospect of success” in the intended appeal (Novartis AG v Hospira UK Ltd [2014] 1 WLR 1264 at §41).  So although we would not be dealing with the leave application in this hearing, to some extent we would still need to look at the merits of the proposed grounds of appeal.  We also told the 1^st defendant’s counsel, Mr Lam, SC, as this is not a full blown hearing for leave to appeal, he should address us on one or two of his best points that he would advance as his grounds of appeal.

9.  Mr Lam then informed the court he would be relying on two broad grounds of appeal, and that they are inter-related.  The first is that the judge was apparently biased.  The second is that he failed to give adequate reasons for his decision.  Prior to the hearing, no indication was given by the 1^st defendant’s legal team to any of the parties or to this court that these would be the grounds of appeal relied upon.

10.  After hearing submissions from all parties, we are not satisfied that the intended appeal would have a real prospect of success.  We refused to grant an interim injunction.  These are the reasons for our judgment.

Apparent bias

11.  Mr Lam identified a number of paragraphs in the reasons for decision that he contended would show apparent bias of the judge.  These are the paragraphs he complained of:

(1) §§34 to 35

The judge mentioned here there is strong evidence, as yet uncontradicted, of a “dirty tricks” brigade at work, for a series of skirmishes between the parties which have taken place and which threaten to continue.

(2) §§42 to 54

In these paragraphs, the judge referred to the involvement of a firm of solicitors which sent pro forma letters purportedly on behalf of 489 plaintiffs in four actions to K&L Gates, the plaintiffs’ solicitors on record, purporting to withdraw the authority of K&L Gates to act on their behalf.  The judge also drew the inference that the 1^st defendant had a part to play in this effort, as the 1^st defendant was the only beneficiary of this activity.

Mr Lam made particular complaint of the first sentence in §42, §52 and §54.  The judge referred to the involvement of that firm of solicitors as “devious, underhand activity which clearly involves criminal aspects”, and expressed agreement with an earlier judgment Godfrey Lam J that this was “a grave and most disturbing matter”.  The judge inferred that the 1^st defendant had a hand in this effort, “cunningly planned, to frighten off his “pursuers” ” and that he must have been directly or indirectly involved in what was “a conspiracy to blackmail and pervert the course of justice”.  The judge expressed the view that “sooner or later, and preferably sooner, the papers must be referred to the Director of Public Prosecutions”.

(3) §§78 and 79

Here, the judge commented on the litigation strategy of the 1^st defendant.  He said the 1^st defendant has “resisted the plaintiffs at every juncture” and “extended the warfare to the Receivers and the independent directors”, and that the strategy was to block any attempt to restrict his overall control of CSI and CSC and pursue his own interests.  The judge emphasised that “interference with the legitimate powers of the Receivers as officers of the court, and attempts to circumvent orders of the court, constitute contempt of court and are punishable as such”.

(4) §§80 and 86

Under the heading of “The thinly veiled threat”, the judge referred to another skirmish in the litigation in which the 1^st defendant sought to pass comments in his affirmation on a digital recording of a speech at a conference organised by the plaintiffs’ solicitors.  The judge inferred that the intention was to leave the plaintiffs with the impression that a “mole” has been able to disclose to the opposition some aspects of the plaintiffs’ case.  He criticised the 1^st defendant and his legal advisers in seeking to comment on the recording without revealing the relevant circumstances in which it was made and how it was handed to the 1^st defendant, and with no essential detail to prove the authenticity of the record.  He expressed surprise at the legal advisers in simply adopting what the 1^st defendant had revealed to them “in all its inadequacy and dubious propriety – source and veracity” of the recording, and the “kindest thing he could say” was that it may have been a case of the “tail wagging the dog” and that the “expected professional judgment and code, has for once, flown out of the window”.

(5) §88

Here, the judge said he had decided on the strength of the material which emerged from the judgments of the judges who had heard other applications involving the 1^st defendant and which led to the summons the judge was dealing with that he was “not prepared to accept any averment by the [1^st] defendant as to fact or truth unless it was confirmed or corroborated by an independent source”.  The judge further stated that the situation revealed in the 1^st defendant’s proposed affirmation “simply hardens [his] approach”.

(6) §§94 to 103

In these paragraphs, the judge criticised the 1^st defendant for making “wild, sweeping, unsupported allegations” against the receivers and the Additional Directors.  He drew the inference in §101 that such allegations are used “as a last resort where no real ground for objection and opposition exists”.  In §102, the judge stated he “will not allow the law of the jungle to prevail, wielded by a powerful shareholder and director in corporate entities who regards such companies as his own fiefdoms”.  In §103, the judge said whilst the 1^st defendant “may think his “feudal writ” runs on the Mainland he should not delude himself into thinking that he can exercise his “feudal writ” in this jurisdiction”.

12.  Mr Lam submitted that applying the accepted test for apparent bias, reading the paragraphs complained of as a whole, a fair-minded and informed observer would come to the view there was a real possibility that the judge was biased.

13.  The judge had criticised the 1^st defendant and his legal advisers heavily in strong and forceful language.  But it cannot be said that his trenchant criticisms were made with no discernible grounds.  Where the criticisms appear capable of justification, an appeal court would be slow to conclude from the mere fact of such criticisms that the fair-minded and informed observer would apprehend a risk of bias.  Judges can generally be expected to exercise proper judicial standards even after they have found it necessary to criticise wayward legal representatives and should feel confident of appellate support if they continue with the case where there are no reasonable grounds for apprehending a risk of bias.  This is not to say apparent bias would not be made out where severe criticisms of a judge would appear capable of being justified.  If the criticisms are couched in such language or made in such a context which would raise a real possibility that the judge would not be able to adjudicate with impartiality, the line would be crossed and there would be disqualifying bias (Falcon Private Bank Ltd v Borry Bernard Edouard Charles Ltd (2014) 17 HKCFAR 281 at §§36 and 38).

14.  The “real possibility” test and the notional “fair-minded observer” are to ensure that there is a measure of detachment in approaching the complaint of bias.  A fair-minded observer is not unduly sensitive or suspicious.  The assumptions of the complainer are not to be attributed to the fair-minded observer unless they can be justified objectively.  The fair-minded observer is not uninformed about the law in general and would be taken to have a fair understanding of all the relevant circumstances.  So in this particular instance, the fair-minded observer would view the paragraphs complained of in the context of the whole of the judgment and in the light of all relevant findings and pertinent observations in the previous judgments of Harris J, Godfrey Lam J and Au-Yeung J as considered by the judge.  The notional observer is also taken to appreciate that a judge has professional training and experience to differentiate between the client, the lawyers and the issues that call for determination in a particular application.

15.  In this application, we are only required to form a preliminary view on apparent bias, as the issue before us is whether there is real prospect of success that apparent bias would be made out in the intended appeal.  Approaching this from the perspective of a fair-minded and informed observer, we are not persuaded the 1^st defendant would have real prospect of satisfying the test that there was a real possibility of bias.

Failure to give adequate reasons

16.  Mr Lam made the point that in the reasons for decision, the first 89 paragraphs were taken up with background matters leading to the 1^st defendant’s application for an interlocutory injunction before the judge.  It was only in §§90 to 111 that the judge considered and discussed the summons before him.  So the first point to note is that the totality of those parts of the judgment concerned with criticising the 1^st defendant and his legal advisers is out of proportion with those parts of the judgment dealing with the discussion of the 1^st defendant’s summons.

17.  Mr Lam submitted there was failure to give adequate reasons why the summons was refused.  The judge did not mention the restriction on the receivers’ powers imposed in §18 of Godfrey Lam J’s decision on 17 June 2015 – that they do not seek to alter the composition of the board of directors of CSC without obtaining further directions of the court (“the §18 direction”).  It was the 1^st defendant’s contention that the receivers had sought to circumvent the §18 direction and that was why the 1^st defendant sought an interlocutory injunction before the judge to restrain the receivers from taking action to change the composition of the board of CSI in the first place and to restrain the Additional Directors from so acting.  Nor did the judge mention the EGM of CSC to be held on 12 October 2015 to consider the removal and appointment of directors, the 3^rd and 4^th reports of the receivers, or the arguments in the written and oral submissions of the 1^st defendant.  Mr Lam contended there was hardly any analysis in the paragraphs of the judgment dealing with the 1^st defendant’s application.  And the judge did not even call on any of the other parties after hearing the 1^st defendant’s submissions and just refused the 1^st defendant’s application with reasons to be handed down.

18.  As in the other proposed ground of appeal, this is another attack on the procedural fairness of the proceedings before the judge rather than the substantive merits of the determination.

19.  This complaint must be looked at in perspective.  As Ms Eu, SC had pointed out, we had distilled before us just three bundles of documents, whereas the judge had placed before him some twenty bundles.  The adequacy of the reasons given in the judgment of 31 pages must be considered in the context that judge had a great deal of materials to digest and consider.

20.  As for the extensive coverage devoted to what appeared to be background matters and the seemingly ‘top-heavy’ structure of the reasons for judgment, the reasons for this are readily discernible.  As mentioned by the judge at the very beginning of his judgment, the considerable background materials and previous judgments formed the factual matrix of his judgment and facilitated his task in dealing with the application before him.  He regarded it necessary to go into the factual matrix “in some detail”[2] and he emphasised that such materials are of “extreme importance”[3] to the application before him.  Hence, the factual matrix he discussed and considered formed an essential and integral part of his reasoning in arriving at his determination[4].  The 1^st defendant might wish to take issue with the judge’s views on the factual matrix, but that is not to say inadequate reasons were given for his decision.

21.  Ms Eu also informed this court that the main focus of the 1^st defendant’s contention before the judge was not quite the same as how the 1^st defendant has sought to argue his case for an interim injunction in the skeleton argument he placed before us.  In the proceedings below, he concentrated his attack on the validity and propriety of the receivers’ appointment of the Additional Directors to the board of CSI.  That was why the judge addressed this primary attack in the final part of his judgment[5].

22.  Although the judge did not mention the §18 direction specifically, it could hardly be suggested that he was not aware of this restriction on the receivers’ powers, as that was the reason for the receivers’ application before Au-Yeung J in late July 2015 and the judge had referred to Au-Yeung J’s decision of 23 July in some detail[6].  The judge was clearly alive to the crux of the application before him[7].

23.  As for the 3^rd and 4^th reports of the receivers, although there was no express mention of these reports, the judge had clearly considered them, as apparent from his judgment[8].

24.  The last complaint was that the judge did not mention specifically the arguments advanced by Mr Lam, which we understand to be the same arguments repeated in the 1^st defendant’s skeleton argument placed before us.  In refusing the 1^st defendant’s application, the judge had obviously rejected all his arguments that the appointment of the Additional Directors to the board of CSI was invalid or improper.  The extent to which the judge should address the arguments specifically must be approached sensibly.  As stated by Li CJ in Oriental Daily Publisher Ltd v Commissioner for Television and Entertainment Licensing Authority (1997-98) 1 HKCFAR 279 at 291F to G, “the reasons may not require great elaboration and they may be brief.  It is only when they are defective in substance that they should be considered inadequate.  Ultimately, what are adequate reasons in the circumstances of a particular case has to be approached sensibly.”

25.  For the above reasons, we do not think this proposed ground of appeal would have a real prospect of success.

Other grounds of appeal

26.  The remaining grounds of the intended appeal are those set out in the skeleton argument of the 1^st defendant, which are basically the arguments advanced before the judge.  In essence, his contention is that the receivers’ appointment of the Additional Directors to the board of CSI was made for the purpose of circumventing the §18 direction, it was invalid and not reasonably necessary to protect the assets in dispute, being CSI’s shareholding in CSC.  He asked the court to draw the “compelling inference” that the appointment of the Additional Directors was for the impermissible purpose of facilitating CSI’s support of Tianrui’s request to reconstitute the board of CSC, and to pave the way for the Additional Directors to be appointed to the board of CSC.  It was contended that the only effective remedy is to order the receivers to take all necessary steps to undo the appointment of the Additional Directors.

27.  We have considered the written submissions placed by the other parties before this court.  They raised a number of formidable arguments why the proposed appeal does not have a real prospect of success.

28.  First and foremost, the appeal is against the exercise of the judge’s discretion in refusing to grant an interlocutory injunction, and the principles are well established as to the limited circumstances in which an appeal court may interfere.

29.  The 1^st defendant’s counsel had expressly told the judge he was not advancing a case of “abuse of process”, “improper and collateral purpose to circumvent the court’s supervision over the Receivers” and “intermeddling”[9].  It would now appear he has back-tracked from his stated position.  If the position was as stated by the 1^st defendant’s counsel before the judge, there would be no allegation of bad faith against the receivers and no ground for removing the Additional Directors.  In any event, the 1^st defendant has not provided any evidence of bad faith, nor has he sought to cross-examine the receivers regarding any allegation of bad faith.

30.  The injunction to restrain the Additional Directors from acting as such and to compel the board of CSI to reverse the appointment of the INEDs would go against the usual rule that the court does not interfere with the exercise of the powers of directors or the internal management of a company.

31.  There is also a jurisdictional hurdle in that the parties sought to be restrained – CSI, the Additional Directors, Yu Yuchuan – have not been joined as parties to any of the actions in which the interlocutory injunction was sought.  And it is not apparent what the underlying cause of action would be upon which the 1^st defendant can properly found his application for an interlocutory injunction.

32.  We are not required to come to a firm view on the merits of the arguments advanced by all the parties.  On a preliminary assessment of all the arguments, we are inclined to think that the proposed appeal, which would advance the same arguments run before the judge, would not have a real prospect of success.

33.  Lastly, the 1^st defendant contended that the Additional Directors are still bound by their undertaking given to the court[10] that they shall not exercise their powers as directors of CSI which may in any way affect or disturb the current status quo of the boards of CSI and CSC “pending the final determination of the [1^st defendant’s] Summons [issued on 8 September 2015]”, which was determined by the judge on 30 September.  We reject the 1^st defendant’s argument that “final determination of the Summons” in this context would denote the exhaustion of all avenues of appeal and there is no final determination until all appeals are disposed of.  The cases cited by Mr Lam in support of this are simply not to the point.

Decision on costs

34.  In the receivers’ written submission, they sought costs of the application before us on an indemnity basis.  This was renewed by Mr Barlow, SC at the conclusion of the hearing when we dismissed the 1^st defendant’s application and the other parties who successfully opposed the application also sought costs against the 1^st defendant on indemnity basis.

35.  In answer to this, Mr Lam submitted there are no special circumstances to justify granting costs to the opposing parties on an indemnity basis.

36.  We think this is an appropriate situation to award costs on an indemnity basis in favour of all the parties who successfully opposed the application.  The serious attacks made against the integrity of the receivers and the Additional Directors, apparently dropped before the judge, are renewed before us.  No stones were left unturned and for good measure attack was made on the procedural fairness of the proceedings below.  We regard the litigation strategy in this application as oppressive.  In the exercise of our discretion, we order the 1^st defendant to pay the costs of this application to all the other parties who appeared on an indemnity basis.

[1] We were subsequently told at the hearing that the board meeting of CSI was postponed to 12 October 5 pm.

[2] Reasons for Decision, §1

[3] Reasons for Decision, §28

[4] Reasons for Decision, §43

[5] Reasons for Decision, §§93 to 110

[6] Reasons for Decision, §§68 to 76

[7] Reasons for Decision, §92

[8] Reasons for Decision, §107

[9] Reasons for Decision, §95

[10] Recorded in the order of To J dated 11 September 2015