ONWEL SALES LTD v. SKECHERS S.A.R.L. AND ANOTHER

HCCT 19/2021

[2021] HKCFI 790

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 19 OF 2021

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DECISION

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1.  On 2 March 2021, the plaintiff (“Onwel”) took out an Originating Summons under section 45(2) of the Arbitration Ordinance for an injunction in aid of an arbitration which it says is to be commenced at the Singapore International Arbitration Centre (“SIAC”, and the “Intended SIAC Arbitration”). On that same date, Onwel took out a summons for an interlocutory injunction in the same form. The Summons will have to be adjourned for substantive argument. Pending that, Onwel seeks an interim‑interim injunction to be in place.

2.  Mr Paul Shieh SC leading Ms Elizabeth Cheung and Ms Jennifer Fan appear for Onwel.  Mr John Hui appears for D1.  Although D1 has not yet filed any Acknowledgement of Service, I am informed that service will not be disputed.  Service has been effected upon D2.  D2 does not appear.

3.  The present application is supported by the affirmation of Michael Leung, a director and shareholder of Onwel.  He says that Onwel will be seeking leave from the Companies Court (by an Unfair Prejudice Petition) for leave to commence the Intended SIAC Arbitration in the name of Luen On as Luen On is deadlocked.

4.  Mr David Weinberg, a director of both D1 and D2, has prepared an affirmation in reply (albeit in draft form at this stage).

5.  I state the background leading to the application briefly.

6.  D1 is a party to a joint venture agreement (“JVA”) in respect of D2. The JVA has a dispute resolution clause in favour of SIAC arbitration.  The other equal party is Luen On Investment Holdings Limited (“Luen On”). Luen On is itself held 50‑50 by Luen Thai Enterprises Limited (“Luen Thai”) and Onwel.

7.  Important to the understanding of the present application is Clause 8 of the JVA.  It makes provisions in relation to “Reserved Matters”.  There is a long list of them, which includes any amendment to the memorandum and/or Articles of Association and the borrowing of money save in the ordinary course of business.  The “adoption and/or amendment of any Business Plan” is amongst the list, as stipulated in Clause 8.

8.  Reserved Matters require “the unanimous written consent of all Shareholders (or the Chairman of the Board and President of [D2]), and each of the Shareholders shall procure (so far as it is within its power to do so) that no such actions shall be taken at Board level or, at Shareholders’ level unless such consent has been given”.  The word “Shareholders” is defined in effect as D1 and Luen On.

9.  Under Clause 5.5, Luen On shall have the power to appoint or remove the President.

10.  As described by Mr Shieh, whilst cracks emerged in the parties’ relations since around 2018, three matters occurred in late 2020 and early January 2021 which called for urgent Court intervention.  They are:-

(a)  the circulation by Willie Tan (beneficial owner of Luen Thai and CEO of D2) of various written resolutions, which included Reserved Matters, for board approval;

(b)  the convening of the board meetings of D2 and its subsidiaries on 24 February 2021 (“24 February 2021 Board Meetings”) where:

(i)  the boards of D2, Skechers Singapore, Skechers Malaysia, and Skechers Vietnam purportedly approved of various Reserved Matters, and

(ii)  the Chairman of the boards (a Skechers SARL‑nominee) and Willie Tan as “interim President” (or “acting President”)

purported to approve of such Reserved Matters; and

(c)  Willie Tan’s “self‑arrogation” of the self‑created position of “interim President” with the ability to approve “Reserved Matters” without the participation of or consent from anyone from Luen On or Onwel.

11.  In the course of submissions, Mr Shieh highlighted a letter from Willie Tan dated 11 February 2021 wherein he described himself as amongst other titles “interim President” of D2.  Mr Shieh also brought to my attention that Willie Tan intended to, in that capacity, exercise the powers vested in the President in respect of Reserve Matters.

12.  Mr Shieh submits that those matters demonstrate a pressing need for immediate injunctive relief to:

(a)  enjoin the carrying into effect of various resolutions passed at the 20 December 2019 Board Meeting and 24 February 2021 Board Meetings in respect of Reserved Matters; and

(b)  ensure that Willie Tan (or anyone else) does not continue to act through the title of “interim President” (or “acting” President) to try to approve further Reserved Matters.

13.  The resolutions passed at the 24 February 2021 touched on 4 matters:

(a)  adoption of 2021 “budget and business plans” for Skechers Singapore, Skechers Malaysia, and Skechers Vietnam;

(b)  a loan from Skechers Singapore to Skechers Thailand;

(c)  four Leases by Skechers Malaysia; and

(d)  the Amendment of Skechers Malaysia Articles of Association.

14.  When deciding interim interim relief, the Court has to do practical justice on the balance of fairness even though it may not have sufficient time to consider the matter fully: China Shanshui Cement Group Ltd v Zhang Caikui [2018] HKCA 409,  per Hon Lam VP at §13.

15.  For the following reasons, I decline to grant any interim interim relief.

16.  Absence of any arbitration on foot:

(a)  Section 45(2) of the Arbitration Ordinance applies where “any arbitral proceedings … have been or are to be commenced in or outside Hong Kong”;

(b)  No arbitration has yet been commenced before the SIAC;

(c)  Michael Leung says that Onwel will be seeking leave from the companies Court (by an Unfair Prejudice Petition) for leave to commence the Intended SIAC Arbitration in the name of Luen On as Luen On is deadlocked;

(d)  Relying on Kazakhstan Kagazy plc and others v Zhunus and others [2017] 1WLR 1360 per Longmore LJ §26 in the context of freezing injunctions (applied in Tang Jialin v Sinopac Securities, supra, per DHCJ William Wong SC in §§74‑85), Mr Shieh submits that:

“ At present, Onwel has a right to commence proceedings claiming substantive relief — namely, the intended unfair prejudice petition against Luen Thai, which will result in the Hong Kong Court granting Onwel leave — in turn — to commence the Intended SIAC Arbitration in the name of Luen On to enforce Luen On’s own rights.”

(e)  I italicized the word “will” as I have serious reservation as to whether the position has been put too high thereby;

(f)  This is not the appropriate moment to consider whether, to give a party locus to invoke section 45 of the Arbitration Ordinance, the right to be enforced in arbitration must be vested, or how far he can be removed from the vested right whilst still being entitled to invoke the same;

(g)  Important in my view is, as a matter of the exercise of my discretion at this stage, and as pointed out by Mr Hui, and even with the necessary assumptions made in favor of Onwel:

(i)  Willie Tan has in the letter dated 4 March 2021 issued by Deacons on his behalf indicated that the factual basis of Onwel’s case for any unfair prejudice (the existence of an unwritten “common understanding” between Willie Tan and Michael Leung) is hotly disputed.  His position is that there has been no unfair prejudice, and there is no prospect of Onwel obtaining leave to commence arbitration in the name of Luen On;

(ii)  Indeed, in an affirmation dated 18 February 2021 in HCA 125/2020 (which relevance I will come to later), Willie Tan described the alleged Common Understanding as “a recent fabrication”;

(iii)  Given the dispute, it will take time for Onwel to establish its case before the Companies Court;

(iv)  Even if Onwel could establish its case, the fashioning of the appropriate relief is discretionary, and the Court may order a buy‑out as opposed to granting Onwel the leave it wishes to obtain;

 (v)  It will be highly prejudicial to Ds if in the meantime, they are to be subject to an interim interim injunction for an uncertain period of time.

17.  Failure to establish urgency and delay:

(a)  Onwell has not identified with any specificity how any of the resolutions it is seeking to impugn are not in the interest of Ds and its subsidiaries, or how Onwel is going to suffer any actual harm from their adoption;

(b)  some of the resolutions which Onwel is seeking to impugn were passed during a board meeting that took place on 20 December 2019 (§1.1 of the draft Order);

(c)  another matter which Onwel says triggers this application and requires urgent court intervention is the “self‑arrogation” by Willie Tan as the “interim President” and his intention to utilize the powers vested in the President by Clause 8 of the JVA in relation to Reserved Matters;

(d)  But the evidence suggests that Willie Tan has in effect since 20 December 2019 been assuming all powers and responsibilities as the acting President of D2 upon Vincent Leung’s (the son of Michael Leung) resignation from the office of President of D2;

(e)  According to the minutes of the 20 December 2019 Board Meeting:

(i)  upon the resignation of Vincent Leung as President, the Board resolved to leave the post vacant till Luen On recommended a successor, and that “in the interim, any and all powers and responsibilities previously vested with the President of [D2] would be assumed by Mr Willie Tan…”;

(ii)  that minutes further records that on the same occasion, having reviewed the proposed fiscal year 2020 business plan for D2, and having taken questions, the Board unanimously approved the 2020 business plan for D2;

(f)  It is therefore apparent on the face of that minutes that Willie Tan has since that date been vested with all the powers of the President, which include those under Clause 8.  It appears also that on that same occasion, Reserved Matters, ie 2020 business plan for D2, was dealt with;

(g)  The above is not just apparent from the face of the minutes. Michael Leung appears to understand things as such also.  In HCMP 174/2020, in an affirmation dated 20 January 2020 Michael Leung filed in support of Onwel’s application for an injunction, he pointed to that same board meeting and the minutes as a “recent incident concerning the approval of business plan, which is a matter that requires unanimous approval under Clause 8(t) of the [JVA]”.  He said that that was an example illustrating Onwel’s alleged concerns and complaints that the defendants there had used the pretext that Willie Tan was given the powers as a President of D2 to circumvent the requirement of Clause 8;

(h)  Vincent Leung’s resignation as D2’s President is subject to dispute.  I have however evidence before me that his resignation had in fact been accepted by the relevant parties before he attempted to withdraw it.  But whatever the situation is in law, I am not dealing here with whether Vincent Leung had validly resigned, or whether he had validly withdrawn his resignation.  What I am concerned with is that the matters that Mr Shieh submits that trigger this application, the matters which give it urgency, have been pre‑existing disputes between the parties;

(i)  Mr Shieh’s submits in reply that the scale and nature of things back in December 2019 were different from what things were in early 2021.  In my view, none of those alter the fact that the dispute between the parties on the powers of Willie Tan is a stale one;

(j)  Mr Shieh further submits that Willie Tan had not previously indicated that he would use his power under Clause 8 to trump the absence of shareholders’ consent.  But that was in effect the concerns Michael Leung said he had in his affirmation filed in HCMP 174/2020;

(k)  I also note that during the 14 months when Willie Tan had been vested with the powers of the President, nothing remarkable had occurred which called for any urgent application to the Court;

(l)  The above should also be viewed in conjunction with a number of previous legal actions which Michael Leung or Onwel have started:

(i)  According to the affirmation of David Weinberg filed in opposition, this is the 5^th set of proceedings started by Michael Leung or Onwel in which they have alleged that their rights under the JVA have been infringed upon by Luen Thai and/or D1.  All of them bar one have been withdrawn or discontinued;

(ii)  On 30 December 2019, Onwel took out an Originating Summons and commenced HCMP 2374/2019.  Injunctions were sought to prevent the 20 December 2019 board resolutions and the removal of Vincent Leung as the President of D2 from being given effect.  The Originating Summons was withdrawn in February 2020;

(iii)  On 22 January 2020, Onwel commenced derivative arbitration proceedings before SIAC.  It sought, inter alia, a declaration that Vincent Leung remained the President of D2, that the resolutions passed at the 20 December 2019 board meeting were void, and an injunction restraining D2 and D1 from causing anyone other than Vincent Leung from assuming the role of the President of D2.  The arbitration was subsequently withdrawn in April 2020;

(iv)  On 3 March 2020, Onwel took out HCMP 174/2020 for interim relief under section 45 of the Arbitration Ordinance in aid of the arbitration mentioned above.  That action was withdrawn on 6 May 2020;

(v)  On 23 January 2020, P commenced HCA 125/2020 against inter alios Willie Tan and sought in effect injunctions in the same terms;

(vi)  HCA 125/2020 is still ongoing, under which the substantive hearing of an application for interim relief on matters substantially the same as the present has been fixed to take place on 1 April 2021;

(vii)  Onwel now wants to withdraw the application for interlocutory injunction under HCA 125/2020;

(viii)  In none of those actions has Onwel felt the urgency to seek any interim interim relief.

18.  Given the above, my view is that balance of fairness is firmly against the grant of any interim interim relief.

19.  I proceed to give directions on the substantive hearing of the summons.