SIKO VENTURE LTD v. ARGYLL EQUITIES, LLC

HCA 3645/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3645 OF 2003

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J U D G M E N T

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1. The plaintiff is a company incorporated in the British Virgin Islands. It has been used by a Mr. Jacky Chim to hold 600 million or 75% of the shares of one Kanstar Environmental Paper Products Holdings Ltd. ("the Company"). The Company is and was at all material times listed in the Growth Enterprise Market of The Stock Exchange of Hong Kong Ltd. ("the Stock Exchange"). The defendant is a company incorporated in Texas, USA. It is and was at all material times in the business of, inter alia, lending on the security of share capital.

2. The defendant has made an application under Order 12 rule 8 of the Rules of the High Court and the inherent jurisdiction of this Court to discharge or set aside an ex parte injunction order, to set aside an order granting leave to the plaintiff to issue and serve a concurrent writ and a concurrent amended writ on the defendant in Texas, USA, to set aside the writ and the amended writ, to set aside the service on the defendant of the writ, the amended writ, the concurrent writ and the concurrent amended writ or alternatively a declaration that the defendant had not been duly served and also a declaration that this court has no jurisdiction over the defendant in respect of the subject matter of the claim in this action. The defendant argues that the courts in Texas, USA have exclusive jurisdiction over the claim in this action. A number of affidavits and affirmations have been filed by the parties setting out their respective versions of the events leading to the dispute.

The plaintiff's version

3. The plaintiff in early September, 2003 through one First Linkage Inc. ("First Linkage") negotiated with the defendant for the advance of a loan. First Linkage was represented by a Mr. Sammy Tse and a Mr. Yu King Kwok. It was only when the loan documentation was nearly finalized that the identity of the defendant was made known to plaintiff. Also involved in the negotiation were two other intermediaries in the USA called Mr Rappaport and Mr Spanier. However, the representative of the plaintiff Mr Ip Kai Cheong all along thought that Mr Rappaport was working for First Linkage in USA and Mr Spanier was working for the defendant. He thought that there was only one intermediary; namely First Linkage. Upon conclusion of the deal, First Linkage would receive a commission from the defendant based on the amount advanced. The plaintiff thus regarded First Linkage (and hence also the other intermediaries) as the agent of the defendant.

4. The negotiation between the plaintiff and the defendant through the intermediaries over the commercial terms reached agreement on about 13th September, 2003. On that day, the plaintiff received a set of draft loan documentation from the defendant through First Linkage. On 15th September, the plaintiff conveyed to First Linkage the comments made by its solicitors on the documentation. At this time, those in control of the plaintiff intended to use a subsidiary of the Company called Modern Lucky International Ltd. as the borrower, but the defendant did not accept this as the shares to be used as security were held by the plaintiff. Thus, the plaintiff was used as the borrower.

5. On 17th September, 2003, the plaintiff was given another set of draft documentation with the plaintiff as the borrower. Ip was told that the defendant would not accept too many amendments and the plaintiff should only propose the crucial ones.

6. On 18th September, 2003, Ip told Tse that he wanted to make three amendments. They were the mistake in the name of the Company in various parts of the documents, the mistake on the bank account into which the funds would be injected and the term of clause 7.2 of the Loan Agreement. Clause 7.2 originally stipulated that the defendant would be entitled to exercise the power to sell the shares to be pledged at any time after the making of the Loan Agreement. That would have empowered the defendant to sell the shares before the loan was advanced. The plaintiff wanted to amend it so that the power would only be exercisable after an event of default has occurred. Mr Ip said that the plaintiff was keen to hold on to the 75% of the shares of the Company as a long-term investment and to control the affairs of the Company. He further said if the plaintiff were willing to forgo the 75% control, it would have sold some of the shares in the market to realize the funds needed instead of incurring expenses to obtain a loan.

7. After Tse had received the three proposed amendments from Ip of the plaintiff, he passed them to Yu who e-mailed them to Rappaport on the same day. Also on the same day, Yu received an e-mail reply from Spanier saying "That is fine." Tse then told Ip to amend the loan agreement in manuscript and to execute the same before a notary. Ip duly carried out the directions and the plaintiff's solicitors sent the documents to First Linkage on 19th September, 2003. First Linkage then faxed it over to the defendant through Rappaport.

8. On 22nd September, First Linkage received by fax from Rappaport the loan documentation duly signed by the defendant. There was no objection or comment to the three manuscript amendments made by the plaintiff. The amendment to clause 7.2 and the particular page of the Loan Agreement that contained this clause were not initialled by the defendant. However, this amendment remained intact and was not crossed out. Furthermore, there was amongst the documents received on 22nd September an authorization to be executed by the plaintiff to transfer 10,000,000 shares of the Company to Merrill Lynch for it to hold for the defendant as a pledge to secure the loan. So the Plaintiff thought that the parties had entered into the Loan Agreement with the amendments as proposed by the Plaintiff.

9. The plaintiff duly transferred 10,000,000 shares of the Company to Merrill Lynch on 24th September, 2003. On 25th September, the defendant through Merrill Lynch sold some of these shares in the Stock Exchange. Ip learnt about this and asked Tse of First Linkage for clarification. There was a further sale of the shares on 26th September and Ip complained to Tse about it. Tse was not aware of any event of default. He told Yu to arrange a telephone conference on 27th September between the representatives of the plaintiff and the defendant. Meanwhile trading of the shares of the Company was suspended from 2:30 p.m. on 26th September to 2nd October, 2003 pending the Company's announcement to the public of the making of the Loan agreement by the plaintiff and for the plaintiff to on-lend the loan to a subsidiary of the Company and further announcement of cancellation of this Agreement.

10. Ip and his fellow representatives of the plaintiff Alex Cheung and Raymond Wong attended the telephone conference on 27th September together with one David Tsang of the plaintiff's financial adviser. Tse, Yu and a Mr. William Lam represented First Linkage in the conference. Yu called Rappaport who in turn joined Spanier into the conference. In the conference, Spanier expressed that he represented the defendant and was still in that capacity. He admitted that the defendant had sold some of the pledged shares. He also said that the defendant would continue to sell the shares once the suspension was lifted. Ip demanded the return of the shares immediately. After some discussion, Spanier suggested to cancel the loan transaction and the parties agreed with this.

11. Pursuant to the verbal agreement made in the telephone conversation, the plaintiff instructed its solicitors to prepare the cancellation documentation. Yu sent them to the defendant through Rappaport on 29th September but the defendant did not respond to them. On 30th September, the plaintiff obtained an injunction from the Honourable Mr Justice Yam restraining the defendant from selling or disposing of the pledged shares or using or dealing with the proceeds of sale.

The defendant's version

12. The defendant has filed an affidavit of Mr William Scott in support of its application. He said that in the course of negotiation, Ip had represented to the intermediaries that the plaintiff was a separate entity from the Company. Ip denied this in his affirmation and replied that the relationship between the plaintiff and the Company was a matter of public knowledge. The information on the relationship could be obtained from the website of the Stock Exchange. The defendant also obtained such information from the Stock Exchange at a later stage. This matter forms the basis of a charge of misrepresentation as will be referred to below.

13. On the terms of the Loan Agreement, Scott said that the defendant had not agreed to the amendment to clause 7.2 of the Loan Agreement and would not have done so for fear of infringement of US Securities Law. He also said that after the defendant had received the three proposed amendments on 17th September, it decided to reject the amendment to clause 7.2. It then communicated with Spanier who in turn through the other intermediaries communicated with the plaintiff on the rejection of this proposed amendment. He however did not state what mode of communication had been used.

14. Despite the defendant's rejection of the proposed amendment to clause 7.2 of the Loan Agreement, the plaintiff still incorporated the same by manuscript into the Loan Agreement, executed all the documents before a notary on 19th September and sent them over to the defendant on 19th September through the intermediaries. They were sent to the defendant's president Mr McClain for execution. McClain executed the documents and initialled every page except the amendment to clause 7.2 or the particular page which contained that amendment. The omission was a deliberate one as he did not accept the amendment. But he did not cross it out. There was also no evidence that he had asked anyone to advise the plaintiff that he had not accepted that amendment.

15. The defendant was advised by Merrill Lynch on 25th September that the pledged shares had been received. It then issued a closing summary on 26th September setting out the calculation of the amount of the loan to be advanced and faxed it to Spanier. Spanier confirmed that the summary had been sent to the plaintiff through the other intermediaries. However, the plaintiff denies on affirmation of having received this summary at all.

16. On 25th September, the defendant sold 150,000 of the pledged shares in the Stock Exchange. On 26th September, it sold a further 1,180,000 shares. Scott said that the purpose of the sale was to test the soundness of the shares. He said because of the sale, the defendant found that the price of the share of the Company had been ramped or maintained at a price higher than its market price. As a result of the suspension of trading, the defendant's concern increased and it issued a Demand Notice on 30th September requiring the plaintiff to explain any event that might adversely affect the pledged shares and warning the plaintiff that irregularities attributable to the plaintiff would constitute a breach of the Loan Agreement. However, the plaintiff denied of any ramping of the share price and produced an airway bill showing that the document was only sent by the defendant to the courier on or after 2nd October, 2004 and it only reached the plaintiff through the courier on 6th October. On 2nd October, the plaintiff's solicitors had already sent the writ of summons, the injunction order and the supporting affirmation of Ip to the defendant by e-mail and by other means. The defendant also responded to the plaintiff's solicitors on the same day by a letter through the e-mail asking the solicitors to provide a written notice by the plaintiff naming the solicitors as the plaintiff's representative. However, the said Demand Notice was only sent by courier and not by e-mail.

17. Regarding the telephone conference on 27th September, Scott said that Spanier had not confirmed that the defendant had sold some of the pledged shares as Spanier had no knowledge of it. He also denied that Spanier had said that he represented the defendant or suggested the cancellation of the loan transaction.

18. After the Demand Notice was received, the plaintiff's solicitors replied to the defendant on 9th October that the suspension was procured by the Company pending the release by the Company of price sensitive information in accordance with the Listing Rules and the suspension was not procured by the plaintiff.

19. On 10th October, the defendant sent the plaintiff a Notice of Events of Default citing the plaintiff's failure to answer the Demand Notice, the plaintiff's negotiation with Spanier to cancel the loan transaction and the plaintiff's claim in this court as events of default. The defendant also said that it had exercised its rights under the Loan Agreement to seize and liquidate the pledged shares and reserved all rights and remedies at law and in equity. Scott has said in his affidavit that in addition to a claim for breach of contract, the defendant may also claim against the plaintiff for tortious interference with business relations, tortious interference with a contract, negligent misrepresentation and fraud. He however did not give any particulars.

20. The e-mail from Spanier saying "That is fine" to the three proposed amendments was produced by the plaintiff in the reply affirmations of Ip and Tse filed on 6th May, 2004. The defendant did not accept this as what happened. It then filed without leave an affidavit of Spanier rather belatedly on 21st July, 2004 saying that the e-mail was a forged document. One wonders why the plaintiff and the representatives of First Linkage would have forged this e-mail reply as it would not have clinched the deal. The e-mail reply could not have compelled the Defendant to accept the amendments when the documentation was to be executed. It was all the more so when it was a forged e-mail. In any case, I do not have to and will not decide this issue here. I also note that Spanier did not in his affidavit refer to the telephone conversation at all. Spanier thus did not support Scott on what he had or had not said in that conference. There was also no affidavit from Rappaport. However, I do not think this should affect my decision. I also do not think the dispute on what had been said in the conference is a matter relevant to the defendant's application save on the question of forum non conveniens and who are the witnesses that may have to attend the trial.

The disputes and rulings

Exclusive jurisdiction

21. The first point argued by the defendant is that the Loan Agreement and the accompanying Pledge Agreement contain terms that give the courts of Texas exclusive jurisdiction. It thus says that the action should be dismissed. Clause 8.14 of the Loan Agreement is relevant to this point. It says:

"Consent to Jurisdiction; Venue; Jury Trial Waiver. Borrower hereby consents to the jurisdiction of the courts of the State of Texas, as well as to the jurisdiction of all courts from which an appeal may be taken from the aforesaid courts, for the purpose of any suit, action or other proceeding arising out of any of Borrower's obligations under or with respect to this Loan Agreement, and expressly waives any and all objections Borrower may have as to venue in any such courts. ...... "

22. Clause 23 of the Pledge Agreement is also relevant and the defendant says that it should be read together with clause 8.14 above. It says:

"23.1 The Pledgor hereby expressly submits to the non-exclusive jurisdiction of all federal and state courts sitting in Kendall County, State of Texas, in connection with any action, suit or proceeding relating to this agreement, any instrument or document referred to herein or related hereto, or any item of pledged collateral, ......

23.2 The Pledgor hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out or relating to this agreement or any instrument or document referred to herein or related hereto brought in any federal or state court sitting in Kendall County, State of Texas and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

23.3 Notwithstanding the foregoing, the Lender may sue the Pledgor in any jurisdiction where the Pledgor or any of its assets may be found and may serve legal process upon the Pledgor in any other manner permitted by law."

23. The defendant has produced a legal opinion by a Mr Nunley of Messrs. Nunley, Davis, Jolley & Hill, L.L.P. to support its contention of exclusive jurisdiction. The Nunley opinion says:

"Texas law views this provision (clause 8.14 of the Loan Agreement) as enforceable and exclusive when coupled with the language in the Pledge Agreement and coupled with the fact that (the plaintiff) deliberately contracted with (the defendant) in the state in which (the defendant) does business and maintains an office. Therefore applying Texas law and requiring exclusive jurisdiction in Texas was reasonable and the choice of law provision would be enforced by Texas courts.

Further, while Section 23.1 of the Pledge Agreement states that "(the plaintiff) expressly submits to the non-exclusive [emphasis added] jurisdiction of all federal and state courts suiting in Kendall County ..." this can only mean non-exclusive in the sense that any federal or state court sitting in Kendall County has appropriate jurisdiction and venue. If (the plaintiff) attempts to opine or assert that "non-exclusive" means non-exclusive in the sense that jurisdiction can be invoked anywhere in the world, then the language of Sections 23.2 and 23.3 have no meaning. It is obvious, pursuant to those two Sections, that the lender, at its option, may sue in another jurisdiction but that (the plaintiff) the pledgor, can only sue in a federal or state court sitting in Kendall County, Texas. If this court gives meaning to all of the language in the contract as is required for contractual interpretation, then the only appropriate interpretation is as stated. Giving credence to all words in the contract and speaking only from the four corners of the contract, there can be no other interpretation.

In effect, (the plaintiff) has contracted to bring any dispute it has solely in Kendall County but (the defendant) has contracted that, at its option, it may pursue (the plaintiff) in other jurisdiction, obviously for the purpose of pursuing assets which (the plaintiff) may have."

24. The plaintiff has also produced a legal opinion by a Mr Wickes of Messrs. Hunton & Williams. Mr Wickes takes a different view from Mr Nunley. He analyzed the two cases cited by Mr Nunley and other cases and highlighted the principle as pronounced in one of the cases that "every forum selection clause relied upon by a Texas court to dismiss an action has contained ... explicit language regarding exclusivity." He also said that properly interpreted, sub-clauses 23.1 and 23.2 of the Pledge Agreement only stipulated that the plaintiff, if sued in Texas, cannot (i) contest jurisdiction, (ii) cannot object to venue, and (iii) cannot argue that the forum is an inconvenient one. Miss Ismail for the defendant submits that I should accept Nunley's opinion and reject that of Wickes as Wickes had not dealt with sub-clause 23.3 and its relationship with sub-clauses 23.1 and 23.2. However, Mr Warren Chan and Mr Jeremy Chan for the plaintiff submit that sub-clause 23.3 was to ground jurisdiction at venues where the plaintiff may have assets, and without this sub-clause, mere existence of assets in a venue may not be enough to ground jurisdiction. I must say the plaintiff's contention is correct. The purpose of sub-clause 23.3 when read with the other two sub-clauses is surely to supply jurisdiction at venues where there may be none. I think it is so plain that Mr Wickes did not think it necessary to spell it out. Since clause 23 of the Pledge Agreement does not create exclusive jurisdiction for the Texas courts, clause 8.14 of the Loan Agreement would certainly not do so whether it is read independently or in conjunction with clause 23 of the Pledge Agreement. I therefore dismiss the defendant's application in so far as it is based on the contention that the Texas courts have exclusive jurisdiction over this action.

Forum non conveniens

25. This is the defendant's alternative argument. Though this issue was argued in the skeleton arguments of the parties, Mr Chan says that the defendant's summons has not asked for a stay on this ground, the court should thus not deal with it at all. He therefore chooses not to elaborate on what he and Mr Jeremy Chan have stated in the skeleton argument. Mr Chan is certainly right and strictly speaking I do not think I need to deal with this issue. However as it has been argued in the skeleton submissions and Mr Chan has not objected to Miss Ismail's verbal elaboration in the course of her submissions, I would prefer to deal with it as well.

26. Miss Ismail reminds me of the three stage test as set forth in paragraph 11/1/10 of the Hong Kong Civil Procedure 2004. She also relies on Jau Hwa Stewart v. E. Excel Ltd. & Others HCA No. 12493 of 2001 and says that if the foreign law is central to the whole case brought in the Hong Kong proceedings, that will be an important consideration upon an application to stay the Hong Kong proceedings to the foreign jurisdiction in question. Jau Hwa was a complicated case fought between two sisters and other members of the family. There were related proceedings already brought in the State of Utah, USA. The core question of law in that case was whether under Utah law, a minority shareholder was able to maintain an action for breach of fiduciary duty in respect of alleged wrongs done to the company by its directors in circumstances where the company itself had, through a court appointed CEO, compromised the cause of the action with the directors. It certainly appears to be a difficult question of law.

27. In the present case, the defendant says that there is an issue of foreign law over the terms of the Loan Agreement. The plaintiff's case is that the Loan Agreement as made contains its amendment to clause 7.2. Miss Ismail says under Texas law, despite McClain having signed the Loan Agreement, his omission to initial the amendment to clause 7.2 as well as that particular page has the effect of excluding this amendment from the Agreement and restoring the original version to it (despite the amendment having been retained and not crossed out and the original version having been crossed out and not restored). This according to the law of Hong Kong is certainly extraordinarily. Mr Chan has in the skeleton submissions referred to Chitty on Contracts 29th Edn., paragraph 2-025 which says "the objective test of agreement applies to an acceptance no less than to an offer." Indeed, paragraph 12-043 also says "the task of ascertaining the intention of the parties must be approached objectively ......" However, I must remind myself that I am not supposed to decide any substantive issue today and the question of what are the terms of the Loan Agreement is one such issue. I therefore express no view on what are the terms of the Loan Agreement whether under Hong Kong law or Texas law.

28. Though I make no finding on what are the terms of the Loan Agreement, the defendant still has to furnish evidence to back up its submission that there is an issue on the terms of the Loan Agreement that has to be decided according to Texas law. On this, the Nunley opinion says:

"Turning now to some of the specifics in regard to the contract between the parties, it is my understanding that (the plaintiff) asserts a breach because (the defendant) traded some of the pledged shares. It is in the course and scope of (the defendant's) business and in the course and scope of the industry, that the collateral shares or a portion thereof may have been traded even prior to funding and what must be delivered after funding of the loan and its repayment is the number of pledged shares and not the exact pledged shares. There is no contractual prohibition against this and Texas law does not prohibit it as a matter of course. By freezing or interfering with (the defendant's) control of these shares, without question (the plaintiff) has breached its contract and agreement with (the defendant). Under Texas law, (the defendant) may pursue claims against (the plaintiff) for breach of contract, tortuous interference with business relations, tortuous interference with a contract, negligent misrepresentation and fraud.

It is further accurate to state that in addition to the laws of Texas which will govern the cause of action (the defendant) has against (the plaintiff), there are multiple involving United States Securities Laws. It will be incumbent upon the parties to plead and prove the specific law upon which they rely in attempting to assert their claims. However, under the facts as they appear now, there is no question that there ahs been an anticipatory breach of the contract by (the plaintiff) and its actions and attempting to divest Texas courts of jurisdiction of this matter are quite possibly sanctionable under Texas law."

29. It can be seen that the Nunley opinion makes a number of assertions in law in favour of the defendant but without providing the basis thereof. It does not refer to any statute or authority to support these assertions. It does not even say whether, under Texas law, the content of clause 7.2 of the Loan Agreement would be in its original form as contended by Miss Ismail or in the form as amended by the plaintiff.

30. The Wickes opinion is quick to point out the vagueness. In relation to the general statement about multiple issues of US Securities Laws, it points out that there was no identification of any particular laws that would be applicable and that the shares were traded in Hong Kong and not in USA. It also highlights the failure of the Nunley opinion to identify and explain the legal basis for the alleged claims for breach of contract, tortious interference with business relations, tortious interference with a contract, negligent misrepresentation and fraud. No specific contract or business relationship was referred to or any misrepresentation or fraud identified. Wickes also opines that the defendant would not have suffered any damages as it had not yet advanced any money to the plaintiff.

31. On this point, I would refer to the Court of Appeal's decision in Full Wisdom Holdings Ltd. & Others v. Traffic Stream Infrastructure Company Ltd. & Others CACV 266/2003 which says in paragraph 23:

"23. In studying the validity of any opinion based on foreign law, the court does not simply accept any stated conclusions as being correct, even where there may be no legal opinion contradicting it. The court is entitled to (and indeed must) look at the basis of the legal reasoning as well as the terms of the State Council Notice in determining what weight, if any, should be attached to the Opinion. ... The Opinion was singularly lacking in legal analysis. In these circumstances, as a matter of principle, it would be wrong to attach any weight to it."

32. Since the Nunley opinion does not state that there is an issue over the terms of the Loan Agreement under Texas law and merely asserted that there was no contractual prohibition against the defendant in trading in the pledged shares and Texas law does not prohibit it as a matter of course, I therefore would not find that there is an issue over the terms of the Loan Agreement under Texas law. The Nunley opinion does not even say under Texas law what will be the terms of the Loan Agreement. On the further question of whether there are other claims that the defendant can raise against the plaintiff under Texas law, I also reject the mere assertions in that opinion.

33. I also reject the suggestion that US Securities Laws can be in issue. There is simply no admissible evidence on this at all. Mr Scott no doubt has referred to it in his affidavit. He, however, is not a lawyer and he has not referred to any statute or judicial decision. Indeed, Dicey & Morris on the Conflict of Laws, 23rd Edn., paragraph 9-013 has pointed out that foreign law must in general be proved by expert evidence. The defendant has filed the Nunley opinion as expert evidence, but it has failed to address this issue properly. There is thus no ground to stay this action for the application of Texas law or US Securities Laws on any issue.

34. I now deal with the other factors put forward by the defendant to justify that Texas is clearly and distinctly a more appropriate forum than Hong Kong. I have decided against issues of Texas law and US Securities Laws, there would thus be no need to have American lawyers as witnesses at the trial. Furthermore, Miss Ismail has also conceded in her oral submissions that the legal issues in Texas law on negotiation and interpretation of contract are not so complicated that the Hong Kong court would have difficulty in resolving them. The Wickes opinion also states that the application of Texas contract law in Hong Kong should be quite straightforward for the Hong Kong court as the Texas law on formation and interpretation of contract has its origins in the English common law. It further states that the common law principles on these matters and on parol evidence apply to Texas. These do not make Texas more appropriate than Hong Kong.

35. Regarding witnesses, all the personnel of the defendant and Messrs. Rappaport and Spaniel reside in USA. All the personnel of the plaintiff and Messrs. Tse and Yu of First Linkage reside in Hong Kong. In the light of this, I cannot say that Texas is clearly and distinctly a more appropriate venue. Even if I am wrong on the legal issues and there will be a need for US lawyers to attend the trial, this merely tilts the balance in favour of Texas. It is enough to make Texas clearly and distinctly more appropriate. There is also no suggestion that any specific document would not be available if the trial should take place in Hong Kong.

36. The plaintiff has also emphasized that the remaining of the pledged shares are still held by Merrill Lynch in Hong Kong and any judgment for delivery up can be enforced efficiently here. It also has an injunction in place prohibiting disposal of these shares and the proceeds of the shares that had been disposed of. The defendant counters this argument by offering an undertaking not to dispose of the remaining shares held by Merril Lynch. However, the defendant is a foreign corporation and it may not be easy to enforce its undertaking. The undertaking as offered also does not cover the proceeds of those shares that had been sold. There is also no similar undertaking from Merrill Lynch. In short, the undertaking as offered by the defendant is not a sufficient answer to the injunction now in place. The defendant also argues that it is a Texas corporation and any judgment on damages from a Texas court can be easily enforced against it. However, damages appears to be of secondary importance when compared with the value of the remaining shares. In these circumstances, I cannot allow the defendant's application for stay on forum non conveniens.

Material non-disclosure

37. The defendant also relies on three allegations of material non-disclosure to argue for the discharge of the ex parte injunction and the ex parte order for service out of jurisdiction. They are:

(i) failure of the plaintiff to inform the court of the material difference between the two copies of the Loan Agreement and Pledge Agreement; namely: in the executed documents, the defendant had not initialled the amendment to clause 7.2 of the Loan Agreement;

(ii) failure of the plaintiff to draw the court's attention to the express term on page 7 of the Loan Agreement that the Agreement would not be binding on the defendant until signed by the defendant, i.e. the Agreement was made when and where it was signed in Texas; and

(iii) failure of the plaintiff to disclose the facts that the defendant was unaware that the plaintiff was the 75% owner of the Company and that Jacky Chim, the chairman and managing director of the Company was the 100% owner of the plaintiff.

38. Miss Ismail also added in her oral submissions the allegation that the plaintiff had wrongly told the court that Mr Spanier was a member of the defendant.

39. Regarding the first allegation, I doubt whether there was any non-disclosure. The defendant had not tempered with the amendment to clause 7.2. There was only an omission to initial. As a matter of fact and not law, it appears more likely to be an omission by oversight rather than a deliberate act to exclude the amendment and to restore the original version. If the amendment should have been crossed out, that would have been different. I do not agree that this was a non-disclosure or that it was a material non-disclosure.

40. On the second allegation, even though on the terms of the Agreement would not bind the defendant until signed by the defendant, it does not mean that the Agreement would become binding on the plaintiff when it was signed by the defendant in Texas. One has to note that First Linkage and the other intermediaries were all to be remunerated by the defendant and not by the plaintiff and the plaintiff's position is that they were all acting as the defendant's agents. If that is true, one wonders whether the agreement was only made upon dispatch of the acceptance by First Linkage to the plaintiff which event took place in Hong Kong. I do not need to make a decision on this, but I do not think that the failure to highlight this clause to the court would amount to a material non-disclosure. Even if the Loan Agreement was made upon the defendant signing it in Texas, it was still not a case where the plaintiff had physically gone over to Texas to make it. If it should indeed be a non-disclosure, it was not a material one.

41. On the third allegation, I am unable to see why Mr Chim's ownership of the plaintiff and his positions in the Company are matters that need to be disclosed to the court at the ex parte application.

42. On the relationship between Mr Spanier and the defendant, Miss Ismail says that it was a matter that the plaintiff could have found out by some simple investigation. However, even the people of First Linkage believed Mr Spanier to be a member of the defendant. I cannot see why the plaintiff should be in doubt so that it should embark on an investigation. It is to be noted that in this kind of business, the lenders wish to remain anonymous until a late stage of the negotiation. It is not surprising that the plaintiff and First Linkage would have made a mistake as to the relationship between Mr Spanier and the defendant.

Irregular service

43. Finally, the defendant has also complained that the plaintiff had attempted to effect service on it in Texas repeatedly but by irregular means as the writ that was served was not for service outside jurisdiction. Mr Chan does seek to argue against this. However, the parties agree that service was properly effected on 9th February, 2004. I do not think the previous irregular service would have any effect on this application.

Conclusion

44. In the circumstances, I would dismiss the defendant's application. I also make an order nisi that the defendant should pay the plaintiff the costs of this application with certificate for two counsel. I am of the view that this is an important application as it strikes not only at the injunction, but also the viability of the action. Furthermore, the value of the shares is substantial. The defendant only offered the undertaking one day before the hearing. In all the circumstances, I think it was necessary and proper for the plaintiff to have engaged two counsel to oppose the application.