SHIH HUA INVESTMENT CO., LTD (suing for and on behalf of itself as shareholder of EVERGLORY ENERGY LTD v. ZHANG AIDONG AND OTHERS

HCA 2682/2016

[2019] HKCFI 1118

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2682 OF 2016

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D E C I S I O N

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The Applications

1.  The 1^st, 2^nd, 3^rd and 4^th Defendants (for convenience I shall refer to them collectively as the “Defendants”) have applied by summons dated 10 October 2017 to enforce undertakings as to damages given by the Plaintiffs in Schedule 2 of injunction orders granted by Lok J on 25 October 2016 and DHCJ Yee on 22 November 2016. The Defendants seek an immediate summary assessment of damages, alternatively an inquiry as to damages.

2.  There are also two summonses before me issued by Everglory (Macau) International Co, Ltd and E G Investment Holdings Limited respectively seeking to intervene and be joined in these proceedings and have leave to make the same applications as the Defendants.  Everglory Macau’s application is made as an alternative to the 1^st Defendant’s primary position that the Court should assess Everglory Macau’s loss as his own as he is the ultimate bearer of the loss. 

Background

3.  On 26 July 2017 I made an order that the Action be struck out and the injunctions discharged on the grounds, amongst others,      of abuse of process and material non-disclosure.  My reasons for so ordering were reserved and handed down after this summons came on before me[1].  It is not necessary to repeat here the reasons why I struck out the action and discharged the injunctions.

The Plaintiff’s Position Summarised

4.  The Plaintiff initially agreed to an inquiry as to damages.  Subsequently it changed its mind.  It now argues that the decision whether not to order an inquiry should await the outcome of its appeal of my decision.  As I understand the Plaintiff’s position it argues that the outcome of the appeal may have a bearing on the decision whether to order an inquiry. There are two elements to this argument.  First, the appeal in respect of both the strike out and the setting aside of the injunctions if successful would necessarily result in the inquiry becoming otiose.  Secondly, even if the Court of Appeal agrees that the action was correctly struck out it may express the view that the injunction was properly granted.

5.  The Plaintiff further argues that an inquiry should not be granted in the light of the findings of Anthony Chan J in his decision dated 19 January 2017.

6.  Finally, the Plaintiff argues that even if I am against it and consider that an inquiry should be ordered, I should not hear argument on causation and quantum now and determine the matter on a summary assessment basis as suggested by the Defendants.

7.  In respect of the application issued by the intended Intervenors the Plaintiff argues that this was the first hearing of the summonses and it should be adjourned for argument with directions for the filing of evidence in opposition.

Decision Summarised

8.  I shall start with my decision and then explain my reasons.  In my opinion an inquiry should not be ordered until the appeal has been determined.  This case is not suitable for a summary assessment and the inquiry should be conducted by a Master.  Therefore, if the appeal is unsuccessful directions should be made for conduct of the assessment and inquiry.

9.  The intended Intervenors should be joined now and directions made. 

The Inquiry as to Damages

10.  The Plaintiff argues that whether the undertaking should be enforced is a separate question from the question whether or not the injunction should be discharged[2] and that consequently it does not follow ipso facto that discharge of the injunction results in an inquiry as to damages[3].  However, the Plaintiff acknowledges that an undertaking will normally be enforced unless there are special reasons to do otherwise[4].

11.  The Plaintiff also argues that it has not yet been conclusively decided that the injunction was wrongly granted because the appeal has not been determined.  This in my view is to misunderstand the effect of the discharge and the relevance of the appeal.  As things stand at present it has been conclusively decided that the injunction should be set aside and not re-granted.  This remains the case unless and until the Court of Appeal sets-aside the present order and replaces it with a different one.  What is relevant is whether or not the outcome of the appeal may have a bearing on the decision to order an inquiry.

12.  Mr Joffe submits that the normal practice in Hong Kong,     at least in respect of Mareva injunctions, is to order an inquiry even if the action is going to trial and that this illustrates that there is, without more, no reason to delay an inquiry until after the ultimate determination of the case.  It follows, says Mr Joffe, there is no reason to delay an inquiry simply because of an appeal[5].

13.  As a very general proposition I agree, but in my view whether or not an inquiry should await the outcome of a trial or an appeal will depend on whether or not the decisions and reasons to be made at trial or on an appeal might have a bearing on the decision to order an inquiry.  It could be relevant in the following ways.  Matters might, for example, be established at trial that demonstrate that the complaints that led to the application were well founded and that in the circumstances it would not be appropriate to enforce the undertaking. In the case of an appeal if the Court of Appeal disagrees with a judge that an order was wrongly granted and reinstates the order, it is likely to follow that the undertaking should not be enforced.  It follows that it is a matter in each case of deciding whether or not the outcome of the trial or the appeal may have a bearing on the decision to order an inquiry.

14.  It seems to me that the reasons for the practice of generally not waiting until trial before ordering an inquiry do not apply with equal force in the case of an appeal of the setting-aside of an injunction. If the court’s decision to set aside an injunction is appealed it is likely that the appeal will come on for determination earlier than a trial might reasonably be expected to.  Secondly, it is the correctness of the decision itself which leads to enforcement of the undertaking which is under review in an appeal.  At trial the correctness of granting or setting aside an injunction is unlikely to be addressed.

15.  In the present case it seems to me that the correct approach is to wait for the outcome of the appeal before ordering an inquiry.

16.  The Plaintiff also argues that in any event the undertaking should not be enforced because of the Defendants’ inequitable conduct.  In particular it relies on the judgment of Anthony Chan J dated 19 January 2017.  It seems to me that this is little to the point.       Chan J was persuaded on the basis of the evidence before him, which did not include some of the evidence before me, which he had declined to allow the Defendants to adduce, that the board of the Company should be reconstituted.  He was critical of some of the Defendants’ conduct.  However, I do not see any reason why this should deprive the Defendants of recovery of any loss that was caused by injunctions having been wrongly granted.  They are two discrete matters. Chan J’s decision does not suggest that the Plaintiff inadvertently misled Lok J or DHCJ Yee as a result of the Defendants conduct.  I reject this argument as a ground for declining to order an inquiry if the appeal is unsuccessful.

Intervenors’ Application

17.  The Plaintiff wishes to file evidence in respect of the Intervenors’ application.  It seems to me that this is unnecessary.  The application is straightforward.  All that is sought is that the Intervenors are joined in order that if the Defendants’ primary position is shown to be incorrect, namely, that Everglory Macau’s loss can be assessed as part of the 1^st Defendant’s loss, Everglory can seek recovery directly.  In the case of the 2^nd Intervenor, it seeks its loss because although not named in the injunction it says accounts with HSBC and BOC were frozen since around November 2016 because of its perceived association with the Everglory Group.  It is likely, the 2^nd Intervenor further argues, that it was the Plaintiff’s habit of broadly disseminating the injunction orders that led to HSBC and BOC being given notice of them and acting as they did.  If this is shown to be the case the 2^nd Intervenor should be able to claim for use of the money that was frozen.

18.  The Plaintiff had received the application and supporting evidence eight weeks before it came on and as it was listed with      the Defendants’ substantive application it does not seem to me that it was legitimate to proceed on the basis, as it claims to have done, that the summons would come on for a call over.  If it had doubts its lawyers should have checked with the Intervenors’ solicitors what was intended or with the court if they received an unsatisfactory response. On the basis of the evidence filed by the Intervenors its seems to me that they should be joined and I so order.

Conclusion

19.  I shall reserve the costs of both applications and grant liberty to apply.