KOMAL PATEL AND OTHERS v. CHRIS AU AND OTHERS

HCA 183/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 183 OF 2014

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DECISION

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1.  This is an application by the 1^st defendant for leave to appeal against this Court’s decision dated 28 July 2015 granting an injunction order and for a stay of execution of the order.

2.  The 1^st defendant appeared in person having been previously represented by various different solicitors and counsel.  On the morning of the application, the 1^st defendant filed a written submission together with annexures, consisting of flow charts and other documents.  It transpired that the 1^st defendant’s submission sought to reargue the grant of the mandatory interlocutory injunction by relying on previous points and submitting new ones.  He made a number of allegations against the plaintiffs in which he questioned their truthfulness about certain matters that have been put before the Court and their tactics in making various interlocutory applications.  He submitted that he is financially drained because of the proceedings and now has to represent himself. 

3.  I should state from the outset that it was apparent that most of the points the 1^st defendant made were either new ones or did not address the application. 

4.  At the close of argument at the hearing of the injunction order, Mr Christopher Chain, who was then representing the 1^st defendant, informed the Court, having taken instructions from the 1^st defendant, that it made eminent sense that the two Retribution directors on the board of KDT BVI be the 1^st defendant and one of the plaintiffs.  Even though no consensus was reached between the parties, Mr Chain indicated that on behalf of all three defendants that they would be prepared to consent to an order that the 2^nd and 3^rd defendants be ordered to exercise Retribution’s appointment rights to appoint the 1^st defendant and one of the plaintiffs as the two Retribution appointed directors of KDT BVI.  He explained that as Retribution’s shares were subject to a BVI stop notice, there was no risk that its shares would be transferred, and as its role was the appointment of directors to the board of KDT BVI, it was pointless for the directorship of Retribution to change.  Mr Chain further explained that the reason why this proposal was made was to ensure parity between the parties and to protect the interests of them and in this regard the 1^st defendant should remain on the board because of his expertise.  Mr Martin Ho, for the 2^nd and 3^rd defendants, agreed with Mr Chain’s proposal. 

5.  I mention this because some of the arguments in support of the application before me seemed to move away from the stance taken by Mr Chain on behalf of the 1^st defendant at the injunction hearing. It was clearly recognised and conceded by the 1^st defendant at the injunction hearing that there should be parity between the parties and that the commercial interests in dispute should be protected in the meantime.

6.  The 1^st defendant seeks leave to appeal my decision and order granting a mandatory interlocutory injunction to the plaintiffs on three grounds.  In deciding whether or not to grant leave, I have to be satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.

7.  The first ground is that I wrongly held that there was sufficient new evidence or material change in circumstances such that issue estoppel would not operate to bar the plaintiffs from pursuing the application when identical relief had been previously sought by them and dismissed by me in my decision of 11 July 2014. 

8.  I do not intend to repeat the points that have been made in my decision.  I found on the basis of the three matters raised by the plaintiffs that there were circumstances that warranted my intervention by granting the application.  As I explained in my decision, as the case had progressed matters had come into sharp focus and had acquired a higher degree of significance than previously appreciated as seen with the entire agreement clauses, and that there were, more importantly, other matters that evidenced conduct by the 1^st defendant that put the plaintiffs’ interests at serious risk which was heightened by the 2^nd defendant’s tendency to act on the instructions of the 1^st defendant. 

9.  All the matters mentioned, raised circumstances that warranted a reconsideration of the mandatory interlocutory relief previously sought by the plaintiffs.  As stated in paragraph 26 of my decision, when I previously considered a similar application it was at a different stage of the proceedings but I nevertheless appreciated at the time that given the acrimony between the parties there was a likelihood that tensions would develop or issues would arise that would bring about a change of circumstances. 

10.  There has been a lot taking place between the parties during the currency of this litigation and I have been constantly required to deal with applications in order to preserve the commercial interests in dispute, but unfortunately the situation had reached a point where I felt I had to intervene by granting the order sought. 

11.  I mention the key matters that I felt warranted granting the application in paragraphs 27 and 54 of my decision. 

12.  I do not see any reasonable prospect of success on this ground.

13.  The second ground is that I failed to appreciate that the application by the plaintiffs rested on the erroneous legal basis that the mandatory injunctive relief did not mirror the pleaded causes of action of the plaintiffs and was not ancillary to them. 

14.  I discussed in my decision the relevant legal principles that apply when deciding whether or not to grant a mandatory interlocutory injunction.  I also referred to my previous decisions where I addressed the relevant legal principles.  It is worth noting the comments in Gee, Commercial Injunctions, 5^th Edition, at paragraph 2.001, that:

“In a case concerning an application for a mandatory interim injunction before trial in a commercial dispute, the concern of the court is to arrive at an order which carries with it the least overall risk of injustice at the end of the day. The principles to be applied cannot be divorced from the nature of the rights claimed, the stage of the proceedings in which the application is made, and the purpose for which an injunction is being sought, and the foreseeable effects of granting or refusing it.”

15.  Such relief primarily concerns considering where the justice of the case lies, and in making such an assessment it requires taking into account all relevant matters including the practical realities of the case before the court and weighing the harm that the injunction would produce by its grant against the harm that would result from its refusal.  See Films Rover International v Cannon Film Sales Ltd [1987] 1 WLR 670. 

16.  A passage that is commonly relied upon, as was in argument before me, comes from the speech of Lord Diplock in Siskina v Distos Compania Naviera SA [1979] AC 210, where he said at page 256:

“A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent upon there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened by him, of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the court. The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action. It is granted to preserve the status quo pending the ascertainment by the court of the rights of the parties and the grant to the plaintiff of the relief to which his cause of action entitles, which may or may not include a final injunction.”

17.  I note that the last sentence from this passage was not included in the written submissions submitted to me.  It is an important point in that injunctive relief seeks to preserve the status quo by protecting the interests in dispute so that justice can be done when the case is finally determined. 

18.  The Re-Amended Statement of Claim of the plaintiffs is extensive and sets out detailed particulars.  As I explained in my decision, I was satisfied that the interlocutory injunctive relief was ancillary and incidental to the pre-existing cause of action.

19.  I should point out that this argument was mounted by the 2^nd and 3^rd defendants, but was not advanced or adopted by the 1^st defendant at the hearing.  Mr Martin Ho, for the 2^nd and 3^rd defendants, stated that his submissions were confined to the position taken by the 2^nd and 3^rd defendants and in relation to the third injunctive relief to appoint the 1^st and 3^rd plaintiffs on the board of Retribution.  He submitted that the mere fact that the plaintiffs are the beneficial shareholders or owners of Retribution did not entitle them to be appointed directors of Retribution.  His point was that the entitlement to be a shareholder was pleaded but the entitlement to be appointed a director was not.  This ground needs to be considered against the background and circumstances of the dispute, the cases pleaded by the parties, the position taken by the parties in the proceedings, the commercial interests in dispute and what is just and convenient to protect such interests in the meantime. 

20.  It has always been the plaintiffs’ case that the 2^nd defendant is the sole director and shareholder of the Retribution under the Bare Trust agreement as a nominee for the 1^st plaintiff, the 3^rd plaintiff and the 1^st defendant who have beneficial ownership of the shares equally.  This was subject to the L Capital acquisition and the change in beneficial shareholding in Retribution as set out in the Representation Letter signed by the 2^nd defendant dated 29 January 2014.  The plaintiffs pleaded that the 2^nd defendant is under the control and direction of the 1^st defendant and that she is his nominee contrary to the Bare Trust agreement.  As a result, it is claimed the 2^nd defendant has breached her fiduciary duties and has acted contrary to the 1^st and 3^rd plaintiffs’ instructions and their best interests as beneficial owners. 

21.  The relief sought by the plaintiffs is that 1^st and/or 2^nd defendants transfer to the 1^st and 3^rd plaintiffs and the 2^nd plaintiff their respective shareholdings in Retribution.  See paragraph 40 of the Re-Amended Statement of Claim. 

22.  It is also the plaintiffs’ case that the defendants have conspired to injure the plaintiffs and/or cause loss to them by unlawful acts and means and have caused or intended to cause breaches by L Capital of the agreements and to interfere with the performance by L Capital and the plaintiffs under the agreements.  It is claimed by the plaintiffs that the 2^nd defendant acting on the instructions of the 1^st defendant wrongfully requested the removal of the 1^st and 3^rd plaintiffs from the board of KDT BVI who nominated the 1^st defendant and Teeka instead, which was contrary to the 1^st and 3^rd plaintiffs’ contractual rights as the majority beneficial shareholders in Retribution.  See paragraph 62 of the Re-Amended Statement of Claim. 

23.  It is the case that the 1^st and 3^rd plaintiffs were previously appointed as directors to the board of KDT BVI and were removed by the 2^nd defendant as a result of this action and they seek to be reinstated in order to return the situation back to its original position. 

24.  The 1^st defendant argued that the appointment of the 1^st and 3^rd plaintiffs was in anticipation of his interest being bought out by the plaintiffs and he further argued that he should not be removed because until this dispute was resolved he still has a substantial interest in KDT BVI which entitles him to sit on the board, even though his case is that the plaintiffs agreed to purchase his interest and have failed to pay the agreed consideration.  However, it was noted that the 1^st and 3^rd plaintiffs were removed as directors at his instigation when they represented a substantial interest in KDT BVI.  The reasons for the removal of the 1^st defendant from the board were explained specifically in paragraph 54 of my decision.  I note however that the 1^st defendant at the leave hearing put forward fresh arguments against his removal as a director of KDT BVI.

25.  I do not see any reasonable prospect of success in this ground. 

26.  The third ground is that I wrongly held that the balance of convenience favoured granting the application.  It should be noted that whilst I granted the application, I did so by making certain amendments to the original terms which took into account the practical realities of the situation and sought to protect the interests at stake until the final determination of the case.  I made my decision applying the relevant legal principles in relation to granting a mandatory interlocutory injunction.  I have explained my position in paragraphs 51 and 53 and why I considered that there would be a greater risk of injustice if the injunction was refused.  My decision took into account non-compliance of the current injunctive order by the defendants and the deteriorating situation within the KDT structure as a result of the 1^st defendant’s conduct. 

27.  The 1^st defendant took issue with any failure on his part to comply with the current injunctive order.  He said he did not interpret the relevant term of the order to place on him an obligation to inform the plaintiffs of matters arising in his capacity as a director of KDT BVI.  The relevant term reads:

“(c) Acting in a manner which is contrary to the interests of the 3^rd Defendant, Kudeta BVI, and the Kudeta business, and not in accordance with the written intentions and instructions of all the beneficial shareholders of the 3^rd Defendant, including the 1^st to 3^rd plaintiffs, such shareholders being identified in the representation letter signed by the 2^nd Defendant as the then sole director of Kudeta BVI to L Capital dated 29 January 2014 pursuant to the ARCLA (at Schedule 5), having regard to:

(i) The 2^nd Defendant’s responsibilities as bare trustee, nominee shareholder, and director of and for, all the beneficial shareholders in the 3^rd Defendant; and

(ii) The 1^st Defendant’s responsibilities as a current director of Kudeta BVI in his capacity as a representative of and for, all beneficial shareholders of the 3^rd Defendant and as shadow and/or de facto director of the 3^rd Defendant;”

28.  I am of the view that there is no reasonable prospect of success in relation to the three grounds for which leave to appeal is sought and that there is no other reason in the interests of justice why the appeal should be heard.  The dispute between the parties has reached a point where the commercial interests involved are at risk and the terms of the order that I have made are in my view necessary to protect those interests and to try to preserve as much as possible a state of affairs to ensure that the court will be able to do justice to the case once it is decided on its merits. See paras 39 to 44 of my judgment dated 1 April 2014.

29.  It appeared from comments made by the 1^st defendant to the Court that the purpose of seeking leave to appeal and a stay of execution was to put the injunction order in abeyance pending the final determination of this dispute which is due to be heard in September of this year.

30.  For the foregoing reasons, I refuse the application for leave to appeal and to stay the order. 

31.  I should add as a postscript that during the course of the hearing the 1^st defendant put forward a number of fresh arguments in opposition to the injunction order that has now been granted which he said he would consider as to whether they constituted a material change of circumstances to warrant an application to revisit the granting and/or the terms of the order.