SHIN RICK JU-FENG AND OTHERS v. LO YUEN-LI AND OTHERS

HCA 1356/2021

[2021] HKCFI 2896

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1356 OF 2021

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REASONS FOR DECISION

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1.  At the end of the hearing, I gave further directions for the substantive hearing of the Plaintiffs’ summons dated 7 September 2021 (“Ps’ Summons”)  and granted an interim-interim injunction which, in effect, suspends the liquidation process of the 3^rd Defendant. These are my reason.

2.  For the present purpose, it is unnecessary for me to recite the facts in detail. In short, the Plaintiffs claim that a members’ resolution to wind up the 3^rd Defendant (“the Resolution”)  was void and invalid, etc. The 1^st Defendant is the sole shareholder and director of the 2^nd Defendant; the 2^nd Defendant wholly owns the 3^rd Defendant; and the 1^st Defendant is also the sole director of the 3^rd Defendant. The Plaintiffs claim that the 1^st Defendant is acting as trustee on behalf of eight beneficiaries. The 3^rd Defendant is holding what the Plaintiffs described as the “Corporate Fund”, which must be used for certain agreed purposes. The Plaintiffs’ case is that there are two camps of beneficiaries: one camp is represented by the Plaintiffs whereas the 1^st Defendant is associated with the other camp. They claim that the 1^st Defendant may not act without the unanimous instructions and consent of the beneficiaries. However, the 1^st Defendant passed the Resolution without the consent of the Plaintiffs. The 4^th and 5^th Defendants are the liquidators appointed pursuant to the Resolution.

3.  On 10 September 2021 when Ps’ Summons first came before me, I granted an interim-interim injunction restraining the 4^th and 5^th Defendants from making or taking steps to make distribution of any monies, etc., of the 3^rd Defendant unless with the consent of the Plaintiffs or with leave of the Court until 24 September 2021 or further order; and that the Ps’ summons dated 7 September 2021 be adjourned to 24 September 2021.

4.  By a letter dated 16 September 2021, the Plaintiffs’ solicitors asked the 1^st and 2^nd Defendants’ solicitors whether they would agree to the orders and directions proposed therein to be made at this hearing. In short, the Plaintiffs sought a more extensive interim-interim injunction in terms of §§1-2 of the draft order annexed to Ps’ Summons, and further directions for the substantive hearing of the Ps’ Summons. 

5.  On 17 September 2021, the 1^st and 2^nd Defendants’ solicitors replied by saying simply that they did not agree to the Plaintiffs’ proposed directions and orders. They did not explain why they disagreed, or make any counter-proposal.

6.  In the meantime, the 4^th and 5^th Defendants are actively proceeding with the liquidation process of the 3^rd Defendant.

7.  The Court received the Plaintiffs’ skeleton argument on 21 September 2021 before the public holiday on 22 September 2021. On 23 September 2021, one day before this hearing, the 1^st and 2^nd Defendants filed a 35-page Skeleton Submissions. The 4^th and 5^th Defendants also filed a short skeleton argument with an affirmation on the same day.

8.  There were two matters I needed to decide at the hearing:

(a)  Whether I should deal with Ps’ Summons substantively; if not, what directions I should give for the substantive hearing of Ps’ Summons;

(b)  If the substantive hearing of Ps’ Summons should be heard on a later date, whether I should continue or grant any interim-interim injunction.

9.  On the first question, I took the firm view that the Plaintiffs should be given a reasonable time to consider, and respond to, the 1^st and 2^nd Defendants’ very detailed submissions. Further, no evidence has yet been filed by the 1^st and 2^nd Defendants. Although the 1^st and 2^nd Defendants argued that there is not even any serious issue to be tried and the Plaintiffs’ claims are liable to be struck out, they had not suggested that they did not wish or need to file any evidence in opposition to Ps’ Summons. The Court was simply not in a position to consider the substantive merit of Ps’ Summons at the hearing.

10.  That said, I agreed with the 1^st and 2^nd Defendants that it would be in the interests of all parties concerned that an expedited timetable be imposed for the filing of evidence and an early determination of Ps’ Summons. Hence, I accepted the timetable proposed by the 1^st and 2^nd Defendants as set out in §55 of their Skeleton Submissions i.e.:

(a)  The Defendants do have leave to file and serve affirmation evidence in opposition to the Ps’ Summons within 14 days;

(b)  The Plaintiffs do have leave to file and serve affirmation evidence in reply (if any)  within 14 days thereafter;

(c)  P’s Summons be adjourned to an early date for substantive argument with 1 day reserved to be fixed in consultation with counsel’s diaries.

11.  The more difficult and controversial question was whether I should continue or grant any interim-interim injunction.

12.  First, in the light of the evidence put before me, I did not find it necessary to grant any interim-interim injunction against the 1^st and 2^nd Defendants in terms of §1 of the draft order annexed to Ps’ Summons. The 3^rd Defendant is now in liquidation. More importantly, there is no evidence supporting that the 1^st and/or 2^nd Defendant will do anything in the near future to damage the interests of the Plaintiffs.

13.  The real question was what should happen to the liquidation in the meantime. The 4^th and 5^th Defendants offered an undertaking to give the Plaintiffs 30 days’ advance notice in case they intend to make any distribution of the 3^rd Defendant’s funds. As the 1^st and 2^nd Defendants had pointed out (which the Plaintiffs did not seriously dispute), it seems unlikely that the liquidators would be in a position to make any distribution before the disposal of Ps’ Summons. In my view, the true issue was whether the liquidation process should be suspended entirely in the meantime. This was what the Plaintiffs applied for. In contrast, the 1^st and 2^nd Defendants were adamant that the liquidation process should continue. The 4^th and 4^th Defendants adopted a neutral position save that they offered the said undertaking.

14.  The 1^st and 2^nd Defendants complained that the interim-interim injunction sought by the Plaintiffs was more extensive than the one they sought, and granted by me, at the hearing on 10 September 2021. However, the Plaintiffs had made it clear at the end of the hearing on 10 September 2021, and their solicitors’ correspondence, that they would apply for a more extensive interim-interim injunction at this hearing. It was open to them to do so. Whether the Court should allow such an application was another matter. 

15.  The 1^st and 2^nd Defendants then argued that the Plaintiffs were, in effect, seeking the final relief. This was incorrect. The interim-interim injunction sought is §2 of draft order annexed to Ps’ Summons. However, it does not represent the final relief sought by the Plaintiffs in the writ of summons. As mentioned, the Plaintiffs are seeking to invalidate the Resolution, etc.  The interim-interim injunction sought by the Plaintiffs would not have the effect of granting the Plaintiffs’ the ultimate remedies that they are claiming. Furthermore, the interim-interim injunction, if granted, would only be in force for a short period of time till the disposal of Ps’ Summons.

16.  More importantly, the 1^st and 2^nd Defendants submitted that the Plaintiffs had to satisfy the three criteria in American Cyanamid; but they did not satisfy any of them, in particular, they had not even been able to show any serious issue to be tried.

17.  I did not agree with the approach suggested by the 1^st and 2^nd Defendants. In principle, interim-interim relief is meant to be an urgent temporary stop-gap measure and the circumstances are such that 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 and others v Zhang Caikui [2018] HKCA 409, §13). This is the stage where the parties have not yet completed the filing of evidence, and the Court has not yet had the chance to consider the parties’ submissions in detail. It is impracticable and inappropriate to ask the Court to apply the American Cyanamid guidelines in full force at the present stage.

18.  Having said that, the Court is, of course, entitled to consider the arguability or merit of a plaintiff’s case. However, as the Court of Appeal held in China Shanshui Cement Group, ibid, §17, the extent to which a judge gives weight to the merit on an issue in a particular case depends very much on the context and they are obviously other factors at play including the effect of the grant or refusal of the relief and the subject matter at stake. In a case where the Court sees fit to consider the merit and comes to the conclusion that the plaintiff cannot even establish a serious question to be tried, this must be a good and sufficient reason not to grant any interim-interim injunction (China Shanshui Cement Group, ibid, §19).

19.  However, it does not follow that the Court is obliged to consider the merit of a plaintiff’s case in the present context. Bearing in mind that the matter is still at a very early stage when the Court needs to consider whether to grant any interim-interim relief, I tend to think that, in most cases, the Court would not feel able to form even a provisional view on the merit. I am inclined to the view that, save in clear and obvious cases, the Court should be extremely cautious in forming any view on the merit at such stage of the proceedings.

20.  Having read the evidence and the parties’ submissions put before me, I concluded that the present case was not a case where I felt appropriate to form any view on the merit of the Plaintiffs’ claims. I took the view that the primary considerations should be the effect of the grant or refusal of the interim-interim relief sought by the Plaintiffs, and the subject matter at stake. I bear in mind the important reminder that, generally speaking, “The Court will therefore take whichever course appears to carry the lowest risk of injustice if it should turn out that it is wrong.” (China Shanshui Cement Group, ibid, §18).

21.  The 1^st and 2^nd Defendants submitted that there would not be any irreparable prejudice to Plaintiffs if the liquidation process shall continue in the meantime as their main complaint was that there would be wasted costs and expenses. Although the Plaintiffs stated that they are very concerned about the 4^th and 5^th Defendants’ intention to close the 3^rd Defendant’s bank account where the Corporate Fund was kept, there is little evidence on how that, by itself, may affect the Plaintiffs. But, on the other hand, I failed to see any urgency in pushing the liquidation process forward.  To allow the liquidation process to continue would likely give rise to more conflicts between the parties as evidenced by the correspondence exchanged between the parties since the last hearing. Further, if it turns out that the Plaintiffs succeed ultimately in invalidating the Resolution, it would apparently be more difficult to reverse the liquidation process if it had reached a more advanced stage. And some steps taken in the course of the liquidation might even be irreversible.  The substantive hearing of Ps’ Summons should take place in a few months’ time. Assuming that the Court dismisses Ps’ Summons after the substantive hearing, the liquidation process may resume. The 1^st and 2^nd Defendants have not suggested that they would suffer any material prejudice if the liquidation process is delayed for a few months. Looking at the matter broadly and realistically, I took the view that, pending the disposal of Ps’ Summons, the Court should put on hold what is being done pursuant to the Resolution, the validity thereof is now being seriously challenged.

22.  For these reasons, at the end of the hearing, I granted an interim-interim injunction in terms of paragraph 2 of the draft order annexed to Ps’ Summons.  I also ordered that the costs of the hearing shall be in the cause of Ps’ Summons.