SCIC LTD AND ANOTHER v. TOMEI INTERNATIONAL (HOLDINGS) LTD AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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DECISION

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1. This is an application for an interlocutory injunction by the Plaintiffs, SCIC Limited and Semi-tech (Global) Company Limited. It is an application primarily against the 1st and 2nd Defendants. The 1st Defendant is Tomei International (Holdings) Limited and the 2nd Defendant is the Chairman and founder of that company, Mr. Johnny Lau Wing Hung.

The history of the case.

2. The relevant narrative can be commenced in 1987 when the 1st Defendant's predecessor went public. In early 1990, Mr. Lau, the 2nd Defendant, approached Mr. Ting who is the leading light of the Plaintiffs, whose interests for these purposes are regarded as coincident. Mr. Lau wanted Mr. Ting to invest in Tomei. In April 1990, an agreement was reached between Tomei and one of the Semi-Tech companies, Semi-Tech Microlon Electronics Far East Limited. There was an extraordinary general meeting of the Tomei Company and the placing was approved whereby Mr. Ting directly or through his companies obtained a shareholding of 120,120,000 shares which was equivalent to approximately 25% of the company. As may be supposed with a shareholding of that nature, there was at least a legitimate expectation that Mr. Ting or perhaps one of his nominees would be given a seat on the board of the 1st Defendant and so he was. Indeed he so remained until earlier this year.

3. In July of 1991, the business which is now that of the 1st Defendant was redomiciled. The original company, which was called Tomei Industrial Holdings Limited, in effect ceased to operate and Tomei International Holdings Limited, which is a Bermudan company, came into existence and took over the whole business.

4. It seems that by 1991, the Ting camp shareholding in Tomei had slipped somewhat from 25% down to 7 1/2%. Mr. Ting still remained a Director.

5. By July 1992, the Ting shareholding in the 1st Defendant, which as I have said had dropped to 53 million shares, was increased by a swap of shares with Mr. Lau and, as a result, the Ting camp gained 130 million shares, bringing the shareholding up to 183,120,000 shares. It is noteworthy that the capital of the 1st Defendant had been increased considerably since 1990 and it was then somewhere in the region of 50% more than it was in 1990.

6. Come the middle of last year, there was something of a financial set back looming, as regards the 1st Defendant. Mr. Clark, an expert witness on behalf of the Plaintiffs, gave evidence that he considers that steps should have been taken to address the issue as far back as then.

7. It seems, however, that matters carried on and it was not until the middle of this year, specifically in relation to the results up to June of this year, that it became apparent that a loss had occurred in the first trading half of this year. I do not consider it is necessary for me to go into the details of the reasons for that loss. There is no one single reason as I see it. There are a number of reasons. There is cause to believe that that matter has been addressed but it is that factor which has primarily precipitated the events which give rise to this Action.

Mr. Ting's directorship of the 1st Defendant.

8. On 12th April of this year, notice was given to Mr. Ting that there was to be a directors' meeting on 21st April. Nothing happened until 21st April on which date a very short letter was written addressed to the directors of the 1st Defendant, signed by Mr. Ting saying that:

"Due to my busy business engagements, I would like to tender my resignation as Director of your company and nominate Mr. Paul Lam to replace me."

He went on to say it had been a pleasure to serve on the board and he would like to take the opportunity to wish the company every success in the coming year.

9. The proposal to replace Mr. Ting by Mr. Lam did not find favour with the directors of the 1st Defendant and indeed primarily with Mr. Lau. Mr. Lau was very concerned that Mr. Ting, who was a prominent businessman with a considerable reputation, should remain on the board of the 1st Defendant. It is true that Mr. Ting, according to the evidence, does not appear to have attended many of the board meetings of the 1st Defendant but his position as a director seems to at least have given some kudos and standing to the 1st Defendant which Mr. Lau regarded as important.

10. It is at that stage that communication seems to have started to go slightly awry. However, even then, Mr. Lau was able to speak to Mr. Ting. He eventually persuaded him, over the telephone, to remain a director. Unfortunately, the documents for the Annual General Meeting which was to take place on the 30th May had already been prepared and from what I can determine, probably had already been sent out or were about to be sent out. Those documents announced the resignation of Mr. Ting. However, it seems to have been agreed between the two of them that Mr. Ting would be co-opted onto the board by the directors after the meeting and therefore be reinstated. Nevertheless, there would be that interim period of a resignation and re-appointment.

11. On 3rd June of this year, there was a press announcement of Mr. Ting's retirement. A copy of that was faxed over by Mr. Richard Lee of the 1st Defendant to the Plaintiffs. He sent it to Mr. Paul Lam and he carbon copied it to Miss Clara Loh who is one of the directors of the Plaintiffs and indeed appears to be the right-hand person of Mr. Ting. In that fax on 6th June, it is stated:

"We are now preparing the documents regarding the appointment of Mr. Ting as director and shall furnish you the same next week for arranging signature."

12. On 8th June, there was apparently a meeting at the offices of the Defendants' solicitors which Mr. Lam attended. At that meeting he was told that the documents were being prepared. The documents were indeed duly prepared and dated 10th June but it appears from the date chop, which is on a copy which the Plaintiffs received, that they were received on 9th June. What is more they were not addressed to the Plaintiffs. They were addressed to Mr. Ting personally. Mr. Ting never signed them nor did he return them. It appears, according to the Plaintiffs' evidence, that for some reason he never saw them, nor did Miss Clara Loh see them until the end of October. Why he never saw them, I do not understand. His failure to see them can only be laid at the Plaintiffs' door and on the Plaintiffs' own organization. It is certainly no fault of the Defendants, on the face it, having hand-delivered documents addressed to Mr. Ting and not to the company that those documents did not come to Mr. Ting's attention. It seems that until the events which gave rise to this Action that Mr. Ting never took any further interest in his re-appointment to the board of the 1st Defendant. He, for one, never mentioned it to Mr. Lau, nor it seems, did he ever cause inquiries to be made.

13. There were apparently a number of follow-up telephone calls from the Defendants' organization to the Plaintiffs' inquiring about the documents. It seems that there might have been some misunderstanding possibly as to what documents were being referred to. But again there appears to have been attempts by Mr. Lau to contact Mr. Ting on the telephone at various stages, even through July and August; Mr. Ting was away for much of the time but even when he was back the calls were never returned.

14. Mr. Lau says in his evidence that he gained the impression that really Mr. Ting had lost interest in the 1st Defendant and I can see some force in his assertion. There was apparently a meeting on 11th July between Mr. Lau and Mr. Ting. That was to discuss a take over of a Japanese company. There is some difference in the evidence as to whether it was to be the 1st Defendant who would be taking it over or whether Mr. Lau was introducing it as a potential take-over for the Semi-Tech Group of companies. Given the financial straits of the 1st Defendant, I can hardly imagine that it was the 1st Defendant that was seriously contemplating taking over another company at that stage. In the knowledge that the Semi-Tech Group of companies had itself already acquired a substantial interest in a notable Japanese company earlier this year and did indeed acquire further interests in at least one other company in August, I consider it quite likely that the introduction was to the Plaintiffs to purchase it.

15. Be that as it may, events then come to September of this year. It is then that it became clear to the management of the 1st Defendant that the 1st Defendant was to have to report a trading loss and a substantial trading loss. This was going to be the first time since Tomei was quoted on the Stock Exchange. It was clearly a serious matter. The 1st Defendant indeed was a substantial borrower from at least 13 banks and its viability and the handling of the reporting of the loss was clearly to be an important matter.

16. On 3rd September, the Defendants' organization, in particular Mr. Richard Lee who is in charge of the Finance Division of the 1st Defendant, conceived an idea that there should be a rights issue. That matter was then discussed internally and by the middle of September, the financial and legal advisers of the 1st Defendant were brought in. By the end of September, the matter was ready to go to the public. The intention was that in the evening of the 28th September, in addition to the loss being reported, the steps to retrieve the situation, namely the rights issue would be announced at the same time. That was done.

17. This caused slight consternation. When Mr. Ting returned from Japan as he did on the day following the press announcement, namely on 30th September, there were internal discussions in the Ting camp and it was decided almost immediately that an offer to purchase Mr. Lau's shares would be made. That in turn would then trigger a general offer. During the course of the following week, steps were taken, advisers were brought in and two offers were prepared; one to be a friendly offer which was designed to be accepted by Mr. Lau and one to be a hostile offer.

18. In the end, after discussions on 6th October, the take-over did not go ahead, ultimately because Mr. Ting could not extract from the Defendants, and primarily Mr. Lau, an undertaking as to the financial status of the company that was satisfactory to both sides and which Mr. Lau was prepared to give. The matter was dropped. It seems that the Plaintiffs' intention of a take-over has since lapsed. I say "it seems", because the underlying suspicions harbored by the Defendants are now no doubt still there that there is perhaps an intention that there will be a hostile take-over.

19. During the course of the meeting on 6th October at which the takeover was discussed, one of the matters which Mr. Ting raised with Mr. Lau was as to why Mr. Ting had not been reappointed a director. Mr. Lau's response to Mr. Ting's query was that he could be a director at any time. The meeting, of course, was primarily about a take-over and it appears that, as one could imagine, the take-over not having succeeded in the circumstances which I have outlined, matters were perhaps a little heated and certainly one cannot expect that friendly relations were maintained, albeit one hopes that polite ones were.

20. Following the 6th October, little was heard from the Plaintiffs until 23rd October. On that day, the Plaintiffs' then solicitors wrote to the 1st Defendant for the attention of Mr. Lau. They first outlined the circumstances of Mr. Ting's resignation from the Board and then followed it up saying the company had failed to comply with the assurance, namely to reinstate Mr. Ting and no explanation had been offered for this default. The letter claimed that the failure to reappoint Mr. Ting and/or to comply with Tomei's commitment to ensure the presence of a Semi-Tech representative on the Board was a clear breach of the earlier agreement and Tomei's obligations thereunder. The letter goes on to complain of the announcement of the rights issue and to emphasize that Semi-Tech would be willing to advance funds by way of loan. The concern is expressed that the failure to process Mr. Ting's re-appointment to the Board, was an attempt to prevent him from objecting to the rights issue arrangements which would allow Mr. Lau who is known to be wanting to increase his stake in the company an opportunity to do so at the time when the share price was depressed.

21. The letter then demands that 2 matters should be provided by 5:30 p.m. the following day:

22. Finally the letter threatens that unless the client is satisfied that the proposed rights issue is in the best interests of the company and shareholders, the client would take such action as he considers necessary to protect his interests and those of the shareholders generally, including formal reports to the Stock Exchange and the Securities and Futures Commission. (It is to be noted that there is no reference to court proceedings, but it was hardly a friendly letter.)

23. The response was fairly immediate, given the circumstances. There was an initial holding response on the following day. On 26th October a full response from the Defendants' solicitors was forthcoming. I do not propose to go through that but I observe that in the meantime the formal documents relating to the rights issue were issued on 25th October and the rights issue went ahead. That entailed the nil-paid rights being available on the stock market from 27th October being traded until 10th November.

24. The response of the 26th October drew the Plaintiffs' attention, first of all, to the documents which had been delivered in June and which had never been returned. It then goes on to say that the Defendants' representatives had repeatedly tried to contact the Plaintiffs to inquire what had happened and then that the impression had been given that Mr. Ting no longer wished to be a director and would not be signing any documents in relation to his re-appointment to the board. The letter concludes that accordingly the board discontinued its efforts and treated the invitation to Mr. Ting as having been rejected.

25. My reading of the letter does not reveal that the Defendants, given appropriate circumstances, would not have been prepared to reappoint Mr. Ting or an acceptable representative of his, to the 1st Defendant's board. Although that is the reading which I have been invited to give to it, given amicable circumstances, one would expect that a suitably worded response to that letter might have resulted in Mr. Ting's reappointment to the 1st Defendant's board. Such a conciliatory response was not forthcoming. About 10 days later on 8th November, these proceedings were commenced in which a specific claim for re-appointment of Mr. Ting was made together with a claim to set aside the rights issue and for consequential relief for breach of duties of the directors in respect of the rights issue.

26. By summons issued on 8th November and returnable on 10th November, it was originally sought to stop the rights issue in toto. However, the subsequent amendments to the inter-partes summons and as the case proceeded, the subsequent changes in the relief which was being sought have now led to this application being directed solely to restricting the exercise of voting rights by Mr. Lau and those acting under his direction in respect of what have been categorized as "excess shares", namely, those shares which Mr. Lau and those acting under him have been able to acquire since the announcement on 28th September of the loss and the rights issue.

27. At the root of that is the contention that the voting rights between the respective camps of the Plaintiffs and the Defendants should be maintained, so that the Plaintiffs maintained a 9%, or more, advantage. Prior to September this year, the Plaintiffs had a 24% stake in the 1st Defendant and Mr. Lau and those acting under him had a 14.2% stake.

28. There was a drop in the price of the shares of the 1st Defendant on the stock market, on the announcement of the loss and the measures on 28th September. This is hardly to be surprised at. A drop in the price of shares could only be expected on the announcement of a significant loss. As a result of purchases in the market, starting on 29th September and continuing for a few days thereafter, Mr. Lau was able to increase his stake by approximately 4%.

29. I do not attribute, as has been attempted to do, the drop in the price of the shares to the rights issue. It seems to me that the rights issue was an attempt to ameliorate the effects of the loss and to try and put the 1st Defendant back on track. Part of the $100 million that was to be raised in the rights issue was to be put into new production facilities and the rest was to be used as working capital. In the course of argument some criticism was made of the use of the expression "working capital". I see nothing untoward in that if the proceeds were to be used in some way to finance the existing debt which by any standards was considerable.

30. I consider there is no need to go into many of the cases and that it is settled law that if the primary or substantial purpose of a rights issue is for an improper motive or to benefit one or more Directors, e.g. so that they could maintain or gain control, then the rights issue may be set aside.

31. I caution here, however, that many of the cases have been in respect of private companies and not in respect of public companies and different considerations clearly arise in respect of public companies where shares can easily be obtained on the market. In respect of private companies, the only means of obtaining shares would, of course, be either from existing shareholders through private treaty or through rights issues or allotment.

32. In the case of Issroff and Another v. Dragonpark Limited, 29th September 1990, the Court of Appeal, Staughton and Beldam L.JJ, granted an interlocutory injunction to prevent the exercise of voting rights in shares issued on a rights issue. That was in circumstances whereby there was a new rights issue designed to generate funds to pay off a debt under threat of appointment of a receiver. The application that was being considered by the Court of Appeal was an appeal on very short notice from a refusal of an ex parte application which had been made on notice to the Judge after hours on the previous evening.

33. There had been previous interlocutory injunction proceedings before Scott J. He had made an order in respect of a previous rights issue, which had been designed to maintain the delicate balance of power in the voting rights between 2 competing groups of a private company. The Court was there looking to maintain that status quo and on the face of the decision was not considering the question of irreparable damage.

34. The question of the appropriateness of an interlocutory injunction and the need to maintain the existing balance of power in the company had already been decided by Scott J. who must have come to the conclusion on the facts in that case that it was necessary to preserve the relative status quo.

The present case.

35. The Plaintiffs seek to establish an arguable case that the rights issue announced on 28th September 1995 was an improper exercise of the powers of the directors. The basis on which it is sought to be said that the rights issue was improper is that the primary or a substantial purpose was to benefit the directors, namely, Mr. Lau and to enable him to increase his shareholding, vis a vis the Plaintiffs and Mr. Ting.

36. It is important to note at the outset that there is no direct evidence that the purpose of the rights issue was other than in the proper course of business by the directors using their powers bona fide in the interest of the company.

Whether inferences should be drawn.

37. The Plaintiffs wish me to reach the conclusion of improper purpose not on the basis of direct factual evidence but on the basis of inferences which they wish me to draw from other facts. It is important therefore to see what those facts are and then to determine whether the inferences which are sought to be drawn are inferences which should be drawn.

38. Included in the Plaintiff's arguments is what, in my respectful view, is a confusion of ideas. The fact that it might be arguable that an inference may be drawn from primary facts does not necessarily dictate that the Plaintiff has established an arguable case. What the Court must do is to determine whether the inferences sought to be drawn are proper inferences which in the circumstances should be drawn. Once that has been done the Court must consider those inferences which it has drawn and determine whether the Plaintiff has established an arguable case.

39. In the case of Re Lord Cable [1976] 3 All ER 417 at 413, Slade J. considered the question of the Plaintiff establishing an arguable case. The Judge highlighted the need for the Plaintiff to adduce sufficiently precise factual evidence to satisfy the Court that he has a real prospect of succeeding in his claim at trial. In a case where that evidence consists of inferences, the Plaintiff fails to adduce that evidence unless it establishes that the inferences are proper inferences to be drawn. It may be that looking at the basic facts of a case, the Court may consider that although it would not be proper to draw individual inferences of fact, it would nevertheless be correct to draw the inference that a particular fact or state of affairs existed based on a conclusion from a number of primary facts.

40. It is argued, as I have said, that the rights issue is unfairly prejudicial to the interests of the Plaintiffs because the Plaintiffs had prior to September this year an interest in the company of some 24% whereas Mr. Lau, the 2nd Defendant, had only an interest of some 14.2%, thus the Plaintiffs had approximately a 9% difference in their favour. It is said that the Plaintiffs were unable to go to the market to buy shares or subscribe for excess shares on the rights issue to the same extent as the 2nd Defendant because that would mean that they might be forced above the 35% trigger point which would require a general offer. It is said that the Defendants being well aware of this have as the primary or substantial purpose of the rights issue to increase the 2nd Defendant's own shareholding at a cheap price.

41. When I asked Mr. Mok, counsel on behalf of the Plaintiffs, what facts he relied upon to establish the proposition of the alleged purpose of the rights issue, he gave the following points:-

42. It seems to me that the correct view of those points is as follows:-

1. The size of the rights issue.

43. This is clearly a question for those who are in control of the management of the company. I have no reason at this stage to doubt that those who took the decision about the size of the rights issue did so in the belief that it was adequate. In particular,

2. The commitment of the parties to the rights issue.

44. The concern of the Underwriters as expressed by Mr. David Law at paragraph 12 of his affidavit was that the Chairman of the company, who had founded it and had at one time been the largest shareholder but had reduced the level of his shareholdings, should be seen to be supporting the rights issue. As Mr. Law said,

"Generally speaking, the market would expect to see the Directors undertaking to accept their rights if they were substantial shareholders."

45. The investing public invests in management. Who the other shareholders are and what their intentions are, are matters of side importance when it comes to a shareholder of a listed company deciding whether to commit further funds in an investment in a company which has just announced a loss.

46. In my view it is, perhaps, regrettable that in the offer documents Mr. Lau was described as being principal shareholder and that might have given a misleading impression. I have no doubt, however, that the purpose of stating his support of the company was that he was the primary person in control of the management of the company and indeed as it has been said was the founder.

3. Mr. Lau's own purchases.

47. Clearly Mr. Lau must have made preparations to purchase shares in the market. It seems that he was probably in Japan during the time of the purchase of the shares. However, I can see nothing untoward in the Chairman of a company which has made a loss standing in the market as a buyer on the day the loss is announced. It demonstrates that he has at least some confidence in being able to achieve a turnaround. Mr. Lau had been the subject of adverse criticism in 1992 for reducing his shareholding and I can see no reason to believe that such an experience was not in his mind when it came to supporting the Company's public image at that time of distress. As Mr. Lau said the time had come when he, as founder and still the guiding light of the company, had to reassure the public, the bankers and even the management of the company.

48. The fact that Mr. Lau was ready to buy shares on the announcement does not, in my view, dictate that I should draw the inference that the reason for the rights issue was to enable him to buy shares cheaply. In all the circumstances I hold that it is not correct to draw that inference.

4. The size being below the size of the rights issue being below 50% of the issued share capital.

49. The point as to size is one which I have said is a matter of judgment. Clearly it causes less problems not to have a company meeting to ratify the rights issue and again I draw no adverse inference from the selection of the size.

5. The previous course of raising capital by the company.

50. On the papers that are present before the Court I do not know whether there has been a previous rights issue by the Company. There was, as I have previously stated, a substantial increase in the capital of the Company between 1990 and 1992. Some of that seems to have been by means of a placement but I do not know whether there ever was a rights issue before. I would add that I note from the papers that Firstone Limited, in which the 1st Defendant has a substantial shareholding, also had a rights issue in September this year.

6. The stated intention of Mr. Lau to take up excess shares.

51. The fact that Mr. Lau was prepared to support the rights issue and increase his shareholding does not in the circumstances of this case dictate to me that it is right to hold that the proper inference to be drawn is that even a substantial purpose of the rights issue was to enable him to buy shares cheaply. This may be something that could be argued but I decline to draw that inference. As I have stated Mr. Lau purchased shares on the market on 29th September and thereafter when the share price dropped on the announcement of the loss and the rights issue. The fact that his support of the company and the rights issue would take his shareholding near the trigger point does not mean that I should infer that a purpose of the rights issue was to enable Mr. Lau to increase his percentage holding cheaply.

7. The popularity or otherwise of rights issues.

52. Although it does seem that rights issues are not popular with the market, nevertheless they remain a viable means of raising capital and I do not consider that I should draw any inference particularly in the light of the evidence from the underwriters and the merchant banker who gave evidence on behalf of the Defendants. I can hardly see that the suggestion that was at one stage uppermost in the Plaintiffs' submission that the Defendants should have approached the Plaintiffs who would have been able to solve the 1st Defendant's problems by providing loans is a solution that I should hold would have been the appropriate course. If it was a short term debt that was contemplated by the Plaintiffs, that would only have exacerbated the situation. If it were to have been a long term debt that would have altered the position of the 1st Defendant, vis a vis the bankers.

53. In summary, therefore, although the points made by the Plaintiff are arguable in themselves they do not, in my view, amount to facts whether individually or collectively that I should draw the inference that by arranging for a rights issue by the 1st Defendant, the 2nd Defendant has acted in the manner alleged by the Plaintiffs, namely to further his own interest or to damage the Plaintiffs' interest.

54. Neither do I consider that the rights issue is unfairly prejudicial to the Plaintiffs. The Plaintiffs had just as much opportunity as the Defendants to purchase excess shares. Admittedly they could only purchase shares which represented approximately 11% of the company but it seems to me on simple arithmetic that the rights issue would have to have been undersubscribed by over 40% for that amount of extra shares to have been available for purchase both by Mr. Lau's camps and the Plaintiffs'. On the face of it given the discount at which the rights issue was pitched that would seem to have been unlikely. As things have turned out only 2.9% of the rights issue are available as excess shares and on my calculation that is about 1% of the future capital of the company.

Appropriateness of Interlocutory Injunction.

55. Even if I were wrong about the inferences to be drawn and the purpose of the rights issue, I have no doubt that in the circumstances of this case I should not intervene by way of injunction.

56. The primary purpose of an interlocutory injunction is to ensure that when matters come to trial, justice can be done between the parties. Hence if irreparable damage is likely to be occasioned to one party or the other that is a powerful factor in deciding whether to grant or refuse an injunction. As Hoffman J. said in Films Rover v. Cannon Film Sales [1986] 3 All ER 772 at 781, the principle dilemma about the grant of an interlocutory injunction whether it be prohibitory or mandatory is that there is by definition a risk that the judge may make a wrong decision, meaning that the judge may grant an injunction which at trial would be held to have been wrongly granted or to have refused an injunction which at trial may be held should have been granted. A fundamental principle is therefore that the Court should take whichever course appears to carry the lower risk of injustice if it should turn out to be wrong.

57. The starting point must be, it seems to me, the questions when is a trial likely to take place and what is likely to happen in the meantime. Here as I indicated last night, when at the request of the parties, I indicated what my decision would be, although I would give my reasons today, I intend making an order that this trial will take place at the end of February of next year. That gives the parties little excess time for preparation but it gives them enough in my view.

58. This case concerns the market and a threat to the rights issue which has now gone ahead. It is wrong that any threat to the shares that have been traded should remain any longer than is necessary. Unlike other cases where the Court should take a more relaxed attitude as regards the pace at which parties are prepared to proceed here, there is a strong public interest in the early resolution of the dispute.

59. The shares of the 1st Defendant are, as I have said, market securities. They can be purchased at any time. The excess rights issue, as I have indicated, is minimal. The Plaintiffs are clearly in a position to go into the market and buy shares enough to redress any voting imbalance which has arisen or is foreseeably likely to occur without triggering a public offer.

60. Running through the Plaintiffs' submissions have been guarded references to voting at company meetings and veiled suggestions that the Plaintiffs may seek Mr. Ting to be restored to directorship. In my view, it would be wrong, at the moment, to make any order designed to facilitate that. As I have indicated Mr. Ting hardly attended board meetings and it is primarily his fault that he finds himself not on the board of the 1st Defendant today. Having resorted to litigation, it can hardly be supposed that he would be a welcome addition to the board until the litigation is resolved. If he can persuade a company meeting to appoint him so be it. If he is prepared to increase his shareholding by purchases in the market, then again so be it. But between now and the end of February, there is nothing as things stand at present which seems to me to dictate that it is necessary for the Court to impose an order which would prevent Mr. Lau exercising his newly acquired voting rights. "Acquired", as I have said, primarily through market purchases which, again, were open to the Plaintiffs and in my view, were not attributable at any rate as regards price to the rights issue so much as to the loss which the 1st Defendant has suffered.

61. I therefore propose to dismiss this application.

62. [Argument as to costs.]

63. I have heard perhaps a slightly extensive argument as to costs, long enough no doubt to increase slightly the costs of the application but really it turns out to be what should a proper order be in the circumstances of this case.

64. It is very difficult to lay down general rules on interlocutory injunctions. The rule that I have been laying down on many interlocutory injunctions is this. The winning party gets his costs in the cause, save in circumstances where the Plaintiff does not make out an arguable case or in colloquial terms as I have put it "reached first base". In such a case, I see no reason why the costs should not follow the normal course that they do on ordinary interlocutory applications in any other type of situation other than an injunction. The reason I so think is this: that an injunction is a case of an exercise of a discretion. If the Court exercises a discretion one way or the other, it is right it seems to me that caution be taken because, after the trial, the Court may well come to a view that the injunction should or should not have been granted. But in a situation where a Plaintiff has not established an arguable case, the Court does not exercise its discretion. It has, in effect, no power to grant an injunction because the first and basic premise of the grant of an injunction has really not been made out. I have held in this case that the Plaintiffs have not established an arguable case, by reason of the fact that they have not shown that it is right to draw the inferences or appropriate to draw the inferences which I have been invited to draw. However, there are more serious matters than that in this case.

65. Primarily, the Plaintiffs came to Court for a very wide order indeed. They came to Court for an order to stop the rights issue after the nil-paid rights had been in circulation and had been traded for nearly two weeks. That would have caused grave difficulty in the market place and grave consequences to those who had dealt with the nil-paid rights. I find it very difficult to see how I could have granted such relief in any event even on the basis of uncontested evidence. Nevertheless, the Plaintiffs went ahead and opened their application and proceeded a very long way down that path. They chose to do so before they had seen the Defendants' evidence. When the Defendants' evidence came in they abandoned that part of their case. It seems to me that really the bulk of the Defendants' affidavits were prepared at a stage when the Plaintiffs were maintaining a very broad case which they then subsequently abandoned. I see nothing unfair, therefore, in the circumstances that the Defendants should get their costs on this application in any event. That will mean, of course, that the costs are not taxed until after the trial. The Defendants have not asked for immediate taxation and clearly that would be very disruptive if it were to happen.

66. The Plaintiffs have raised a number of points in the submission. One of which is that in preparing their evidence, that is now to be treated, according to directions they have prepared which are likely to be made, as evidence in the trial. I see no reason why if the Plaintiffs win at trial, they should not recover the costs of preparing the affidavits. There may be difficulties as regards questions of costs by reason of the derivative action, but then making, again the best assessment I can of the case at this stage and the relief that was sought at this stage and what has happened at this stage, I see nothing wrong as to why the Plaintiffs should not be primarily responsible for those costs. If it transpires they can show that the bringing of these proceedings was right and proper and that those are costs which should be payable by damages by one or other of the Defendants or future Defendants, then so be it. But at the moment, the order that I propose to make is that the Defendants should have their costs in any event.