SAN WANT MEDIA HOLDINGS LTD v. CHA MOU SING, PAYSON AND OTHERS

HCA 317/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 317 OF 2010

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J U D G M E N T

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Introduction

1.  This was the inter partes hearing in respect of two ex parte injunctions obtained by the Plaintiff, San Want Media Holdings Limited (“San Want”) against the Defendants in these proceedings, other than the 4^th Defendant, Antenna Investment Limited (“Antenna”).

2.  The first injunction was obtained against the 1^st to 3^rd Defendants (Mr Payson Cha, Mr Peter Brown and Mr Johnson Cha) on 11 March 2010.  It prevented them from dealing with various convertible bonds with a conversion price of HK$0.28 that had been issued by the 5^th Defendant, Asia Television Limited (“ATV”), whether by themselves or through the 6^th Defendant, Panfair Holdings Limited (“Panfair”), a company owned by the Chas (i.e. the 1^st and 3^rd Defendants, who are brothers), and from causing or procuring ATV to issue further similar bonds.  The first injunction also prevented the Chas from disposing of their interests in Panfair.  Mr Brown is a solicitor who has for some time been the Chas’ legal advisor.

3.  At this time, ATV and Panfair were not yet parties to these proceedings.  They were joined as parties to the proceedings on 22 March 2010, when the second injunction was granted.  The second injunction restrained Panfair from dealing in such bonds as had been or were to be issued to it, and from causing or procuring ATV to issue further similar bonds.  It also restrained ATV from taking any further steps in relation to the bonds that it had issued, or from issuing further similar bonds.

4.  No relief is sought against Antenna, as the Plaintiff claims to bring these proceedings derivatively on its behalf.

5.  The injunctions were obtained on the basis that the issuance of the convertible bonds (and the potential issue of further bonds on similar terms) was (or would be) in breach of a shareholders’ agreement to which ATV, Antenna and Panfair (amongst others) were parties, as the conversion price was set well below an agreed minimum price at which ATV could issue or agree to issue shares in itself.  So far as the Chas and Mr Brown are concerned, the Plaintiffs’ case was that the issue of the convertible bonds was part of a scheme entered into by them to enable the Chas to realise their interests in ATV on favourable terms and in circumstances that would result in detriment being suffered by Antenna, in breach of fiduciary duties owed by them to Antenna, of which they were directors.

6.  San Want seeks the continuation of the injunctions that have been obtained ex parte.  Its counsel, Mr Charles Manzoni, provided a draft order at the beginning of this hearing, setting out the injunctions sought.  Although they are not in precisely the same terms as those granted ex parte, their overall effect is broadly the same.

7.  The applications are resisted by the Chas, Mr Brown and Panfair (all represented by Mr Godfrey Lam, S.C. and Mr Victor Dawes) and by ATV (represented by Mr Daniel Fung, S.C. and Mr Gary Lam). Both Mr Lam and Mr Fung say that San Want has failed to make out a good arguable case for the granting of the injunctions, and that, in any event, the balance of convenience is against the injunctions being granted.  In addition, Mr Lam submitted that the injunctions ought not to be granted because San Want has been guilty of non-disclosure and delay, and Mr Fung argued that the injunctions should be refused because of a want of clean hands on San Want’s part.

The factual background ATV

8.  ATV is the operator of one of Hong Kong’s two free television services, broadcasting two channels (one in Chinese and the other in English) that can be received by any household with a television set and the necessary receiving equipment, at no charge to the viewer.  It operates subject to the regulatory regime contained in the Broadcasting Ordinance (Cap. 562).  In recent years, it has been in need of funds, and there have been changes to its shareholders from time to time, as new investors have come in.

9.  One such investor is Mr Tsai Eng-meng (“Mr Tsai”), a resident of Taiwan, who became an investor in ATV in the first half of 2009, following negotiations that had commenced in late 2008.  In late 2008, ATV was in need of further capital.  One of its major shareholders at that time was ABN Amro N.V. (“ABN Amro”), which had invested in ATV in 2007 with a view to obtaining a listing of ATV’s shares on the Hong Kong Stock Exchange.  As a result of the global financial crisis, ABN Amro wished to exit its investment in ATV, and was unwilling or unable to fund ATV further.

10.  ABN Amro’s stake in ATV was held through a corporate structure that was designed to satisfy the requirements of the Broadcasting Ordinance and had been approved by the Broadcasting Authority.

The Broadcasting Ordinance and ATV’s licence

11.  The Broadcasting Ordinance requires that a company that holds a licence for domestic television broadcasts (i.e. broadcasts within Hong Kong) must not be a subsidiary of a corporation (section 8(3) of the Ordinance and section 2 of Schedule 4 to the Ordinance).  Further, in order to be granted a licence, a company must itself be ordinarily resident in Hong Kong, a requirement that means that a majority of its directors must be individuals who have been ordinarily resident in Hong Kong for at least seven years and that its control and management is bona fide exercised in Hong Kong (section 8(4)(a)(i) of the Ordinance).  There are also other requirements applicable to companies holding a licence, which are not, I think, of immediate relevance to the issues arising in these applications.

12.  Beyond these requirements relating to the licensee itself, there are additional requirements in Schedule 1 to the Ordinance relating to persons or corporations with voting control in respect of the licensee.  Voting control refers to the right to vote attaching to one or more voting shares in the licensee (in this case, ATV).  Where a voting controller (i.e. someone who has voting control as so defined) is an individual who has been resident in Hong Kong for more than seven years, he (or she) is regarded as a “qualified” voting controller (section 1(1) of Schedule 1 to the Ordinance).  In the case of a company, in order to be a qualified voting controller, it must be ordinarily resident in Hong Kong (ibid.) and must, therefore, have the characteristics summarised in paragraph 11 above.   A voting controller who does not have these characteristics is an “unqualified voting controller”, and may not hold, acquire or exercise (or cause or permit to be exercised) 2% or more of the total voting control of a licensee without the prior written approval of the Broadcasting Authority.

13.  Further, under the license granted to ATV, it is required (by condition 10.1) to comply with the Licensee’s Proposal put forward by it in order to obtain the license.  In ATV’s case, the Proposal included shareholder structure charts forming part of its application to the Broadcasting Authority dated 19 February 2009.  Accordingly, any change to ATV’s shareholding structure would require the approval and consent of the Broadcasting Authority.

The shareholding structure adopted when ABN Amro was a shareholder

14.  When ABN Amro acquired an interest in ATV in 2007, as a non-Hong Kong resident company, it would not have been a qualified voting controller.  A shareholding structure was therefore devised which met with the approval of the Broadcasting Authority.

15.  This provided for ABN Amro’s interest in ATV, amounting to a 47.58% stake in ATV’s share capital, to be held through a Hong Kong company called Alnery No. 112 Limited (“Alnery”).  As the holder of a substantial stake in ATV, Alnery would be a voting controller in respect of ATV.  In order to ensure that it would be regarded as a qualified voting controller, Alnery’s share capital was divided into two classes of shares – Class A voting shares, which carried with them voting rights but no interest in the assets of Alnery, and Class B non-voting shares, which had no voting rights, but which did entitle the holder to an interest in Alnery’s assets.  ABN Amro (through a wholly owned subsidiary called Fireworks International Inc. (“Fireworks”)) held 100% of the Class B shares, but only 25% of the Class A shares.  24% of the Class A shares were held by a Mr Louis Page, and the remaining 51% of the Class A shares were held by a company called Pelaka Investments Limited (“Pelaka”), which was owned by the Chas.  A majority of Alnery’s directors were Hong Kong residents who had been ordinarily resident here for at least seven years, and Alnery’s affairs were dealt with in Hong Kong.  Thus, although ABN Amro owned the entire economic interest in Alnery, it did not (whether by itself or in conjunction with Mr Page) have voting control in respect of it.

16.  After ABN Amro acquired its interest in ATV through Alnery, the remaining 52.42% of ATV’s share capital was held by three other shareholders: 10.75% was held by Panfair, which was owned in equal shares by the Chas; 14.81% was held by a company called China Light Group Limited (“CLG”); and 26.85 was held by a company called Dragon Viceroy Limited (“Dragon Viceroy”), which had previously been one of the two most substantial shareholders in ATV.  On 15 June 2007, around or shortly after the time when ABN Amro acquired its interest in ATV, Alnery, Panfair, CLG, Dragon Viceroy and ATV entered into a shareholders’ agreement relating to ATV (“the ATV Shareholders’ Agreement”) which made provision as to various aspects of the shareholders’ relationship inter se and with ATV.  Certain terms of this agreement, to which I shall refer later, are of importance in the context of these proceedings.

Mr Tsai’s investment in ATV

17.  It appears that when ABN Amro wished to dispose of its investment in ATV, Mr Tsai was introduced to Payson Cha as a possible investor.  Following negotiations lasting some months, Mr Tsai decided to invest in ATV.

The Term Sheet

18.  On 23 January 2009, Mr Tsai and Payson Cha signed a Term Sheet, which was marked “Subject to Contract” to record the principal terms on which they had agreed that they should invest in (and in the case of Mr Cha further invest in) ATV.  It envisaged a two stage process.

19.  The first stage involved Mr Tsai making a HK$50 million bridging loan to Panfair for a period of 3 months, with an interest rate of 2% per annum, which Panfair was to on lend to ATV having obtained Mr Tsai’s consent.  As and when ATV repaid Panfair, Mr Cha was to procure Panfair to repay HK$22.5 million to Mr Tsai.  It was envisaged that Pelaka itself would be restructured so that its shareholding structure would reflect that of Alnery, with a shareholders’ agreement being entered into between Mr Tsai and the Chas.  Mr Tsai was also to invest HK$180 million into Pelaka, to be used to acquire all the Class B shares in Alnery held by Fireworks, while Mr Cha was to lend HK$40 million to Panfair to enable Panfair to acquire from Fireworks, for HK$40 million, a HK$200 million ATV convertible bond that was held by Fireworks (the interest on which was to be divided between Mr Tsai and Mr Cha).  Mr Tsai was also to be given a “right of first refusal” to lend money to ATV in the form of a convertible bond carrying interest of at least 8% per annum, and a conversion price of HK$1.37.  It was made clear that Mr Tsai was under no obligation to make any loans to ATV, and that whether or not he did so was entirely a matter for him.  Provision was also made for the composition of Panfair and Pelaka’s boards of directors, with Panfair having a board of two directors, both nominated by Mr Cha, while Pelaka was to have a board of five directors, three of whom would be nominated by Mr Cha and two of whom would be nominated by Mr Tsai.  It was also agreed that ATV should reorganise its human resources in consultation with Mr Tsai, a matter which suggests that Mr Tsai was to have a measure of input into ATV’s affairs.

20.  The second stage envisaged Mr Tsai increasing his interests  in (or at any rate likely influence over) ATV.  It involved Panfair transferring 2.75% of ATV’s shares to a new company to be established by Mr Tsai, or as Mr Tsai might direct, in consideration of a payment of HK$27.5 million (by Mr Tsai releasing the balance of the HK$50 million bridging loan he was to make to Panfair), and Mr Payson Cha transferring 2% of Pelaka’s Class A shares to a nominee of Mr Tsai in consideration for Mr Tsai guaranteeing repayment in full of the HK$200 million ATV convertible bond which Panfair would have acquired from Fireworks for HK$40 million.  Provision was also made for Panfair to be able to sell its remaining shares in ATV to Mr Tsai for a total of HK$110 million if ATV had not gone public within 5 years, subject to the possibility that Mr Tsai might elect to try and find a buyer for both his and Mr Cha’s interests in ATV instead.

21.  If the second stage proceeded as far as the transfers of shares in ATV and Pelaka mentioned above, Mr Tsai and/or persons put forward by him would between them control more than half of Pelaka’s A shares (thus controlling Pelaka), and Pelaka and the person holding the 2.75% of ATV’s shares transferred by Mr Cha would control more than half of the issued shares in ATV.

The investment through Antenna

22.  In the event, as ATV was in urgent need of funds, it was suggested (by Mr Brown and/or the Chas) that a structure similar to that used by ABN Amro should be adopted, as this was thought (rightly, as it turned out) to be more likely to be readily approved by the Broadcasting Authority.  However, the structure adopted was not quite that envisaged by the Term Sheet, in that Pelaka was not used to hold the shareholding in ATV, Antenna being introduced for that purpose.

23.  As a result, Alnery’s shares in ATV were transferred to Antenna.  Antenna’s capital structure closely resembled that of Alnery, with San Want (which is wholly owned by Mr Tsai) owning 49% of its Class A voting shares, and 100% of its Class B non-voting shares.  The remaining 51% of Antenna’s Class A voting shares were owned by Pelaka.  Thus, like ABN Amro in relation to Alnery, Mr Tsai owned (through San Want) the whole of the economic interest in Antenna (consisting of the underlying investment in 47.58% of ATV), but did not have voting control in respect of Antenna.

24.  Notwithstanding this, it is said by San Want that there was an understanding between the shareholders in Antenna that Antenna should play a significant role in the management of ATV as a result of its control of ATV and its representation on ATV’s board.

The Antenna Shareholders’ Agreement

25.  Antenna is itself the subject of a shareholders’ agreement dated 26 March 2009, the parties to which are Mr Tsai, San Want, the Chas, Pelaka and Antenna (“the Antenna Shareholders’ Agreement”).

26.  Clause 7 of the Antenna Shareholders’ Agreement deals with the make up of the Antenna board.  It provides that the board shall consist of between one and five directors (clause 7.1), that San Want is entitled to nominate two directors of Antenna so long as it holds more than 50% of the issued Class B shares (clause 7.2), and that Pelaka is entitled to nominate three directors so long as it is the holder of more than 50% of the issued Class A shares, or one director if it holds more than 25% (but not more than 50%) of the issued Class A shares (clause 7.3).  Also so long as Pelaka is the holder of more than 50% of the Class A shares, the Chas will have the right to appoint and remove the chairman of Antenna’s board of directors (clause 7.13), who does not have a second or casting vote in the event of deadlock (clause 7.14).

27.  Clause 9 of the Antenna Shareholders’ Agreement makes provision for certain matters relating to ATV.  So long as Pelaka holds not less than 50% of the Class A shares in Antenna, it will be entitled to nominate two members (out of the four to be nominated by Antenna pursuant to the ATV Shareholders’ Agreement) to the board of ATV (clause 9.5(a)) and Payson Cha or another member of the Cha family is to be the chairman of ATV’s board of directors (clause 9.5(d)).  On the other hand, so long as San Want holds at least 50% of the Class B shares in Antenna, it will be entitled to nominate two members to the board of ATV as well (clause 9.6(a)).  Apart from the matters provided for in clause 9 of the Antenna Shareholders’ Agreement, all decisions in relation to the exercise of Antenna’s rights in relation to its shareholding in ATV are to be taken by board resolution.

28.  Clause 10 of the Antenna Shareholders’ Agreement provides for certain important decisions and actions in relation to Antenna’s affairs (listed in Schedule 5 to the agreement) to be implemented only with the prior written consent of all shareholders.  Thus, even though the Chas had a majority on Antenna’s board, Mr Tsai was in a position to prevent decisions on these important matters from being carried out without his consent.

The ATV Shareholders’ Agreement

29.  On Antenna acquiring its shareholding in ATV, it became a party to the ATV Shareholders’ Agreement in place of Alnery by way of a Deed of Adherence and Assignment entered into by Antenna, ATV and ATV’s other shareholders.  Thereafter, the ATV Shareholders’ Agreement operated as if Antenna were a party to it.

30.  A number of provisions in the ATV Shareholders’ Agreement are relevant to these applications.  I shall refer to it below on the basis that Antenna has been substituted for Alnery as a party to it.

31.  Clause 3 of the ATV Shareholders’ Agreement deals with the composition of ATV’s board, providing for it to be made up of between three and ten directors (clause 3.1).  Antenna is to be entitled to appoint four directors and the chairman of the board so long as it holds more than 30% of the shares in ATV (clause 3.2 and 3.16), while each of Panfair, Dragon Viceroy and CLG are entitled to appoint two directors so long as they hold more than 10% of the shares in ATV (clauses 3.3 to 3.5).  The chairman of the board is to have a second or casting vote at board meetings, but not at general meetings (clause 3.17).

32.  Parts of clause 11 of the ATV Shareholders’ Agreement are of central importance in these proceedings.  They are as follows:-

(1)     Clause 11.2, which provides that “Subject to clauses 11.3 and 11.6, before issuing any Shares [in ATV], or granting any rights to subscribe for or convert securities into Shares, to any person [ATV] shall offer them to every Shareholder … [such offer] shall remain open for … not less than 14 days.  [ATV] shall issue the Shares or grant the rights to those Shareholders who apply for them and (in the case of competition) as far as practicable in proportion to the number of the Shares held by them respectively …”

(2)     Clause 11.3, which provides that “Clause 11.2 shall not apply:

(a)  To any issue of shares made as part of an initial public offering of shares in [ATV];

(b)   To an issue of shares arising upon the exercise of rights to subscribe for, or convert securities into, those shares;

(c)   To any issue of Shares pursuant to exercise of the Warrant Instruments or pursuant to clause 18.”

(3)     Clause 11.6, which provides that “Save and except for any issues falling within clause 11.3, no Shares shall be issued by [ATV] and [ATV] shall not agree to issue any Shares at a price below HK$2.47 per share … without the prior written consent of all Shareholders who are parties to this agreement.”

33.  Clause 12 places various restrictions on transfers of shares, but clauses 12.3 and 12.10 expressly permit Dragon Viceroy to make transfers of shares to Panfair or Pelaka free of such restrictions.

34.  Clause 25.1 provides that ATV “is excluded from any obligation contained in [the ATV Shareholders’ Agreement] to the extent that such obligation would constitute an unlawful fetter on [its] statutory powers”.

35.  Finally, clause 25.4 provides that the rights of each of the parties to the ATV Shareholders’ Agreement “may be waived only in writing and specifically”, and that “[d]elay in exercising or non-exercise of any such right is not a waiver of that right”.

The Letter of Intent

36.  Finally, shortly after the entry into of the Antenna Shareholders’ Agreement, on 7 April 2009, Mr Tsai, the Chas, Panfair, San Want and Pelaka entered into a Letter of Intent (“the Letter of Intent”).

37.  Clause 2.1 of the Letter of Intent entitled Mr Tsai to request the parties to it to use all reasonable efforts to obtain the consent of the Broadcasting Authority or other authorities needed under the Broadcasting Ordinance or other applicable laws for the transactions mentioned in clause 3.1, while clause 2.2 made similar provision (to take effect after five years) in respect of the transactions mentioned in clause 3.2.

38.  Clause 3.1(a) provides that on such consent being obtained, Panfair should sell to Mr Tsai 36,196,905 shares in ATV for HK$27.5 million, to be transferred to Mr Tsai or his nominee.  This was stated to be the equivalent of 2.75% of ATV’s issued share capital.

39.  Clause 3.1(b) provides that on such consent being obtained, the Chas should transfer to Mr Tsai, or to his nominee, 100 Class A shares in Antenna, in consideration of Mr Tsai guaranteeing repayment to Panfair of the HK$200 million Fireworks convertible bond within a stated period, and agreeing to acquire all of Panfair’s ATV shares (being not less than 105,300,088 shares in ATV) for HK$110 million on demand by Panfair at the end of five years from 26 March 2009.

40.  Clause 3.2 provided for a situation in which the transactions mentioned in Clause 3.1 had not been effected.  In summary, it provided that in such an event, either side could seek to sell their interests in ATV to a third party, but would have to give the other the opportunity to participate by selling its shares as well.  However, where Panfair wished to sell its shareholding, and Mr Tsai did not wish to sell his, Panfair would not be entitled to sell more than 8% of ATV’s issued shares, or 49% of Antenna’s issued Class A shares.

41.  Clause 4 provided that until the necessary consents had been obtained for any of the transactions referred to in clauses 3.1 or 3.2, those clauses should not be legally binding on any of the parties to the Letter of Intent.

The effect of implementation of the Letter of Intent transactions

42.  If the transactions envisaged in Clause 3 of the Letter of Intent were put through, a matter which was, it must be recognised, subject to the necessary consents being obtained, the composition of the boards of Antenna and ATV would potentially be very different.

43.  As at around March/April 2009, as Pelaka owned 51% of the Class A shares in Antenna, the composition of Antenna’s board would, pursuant to the Antenna Shareholders’ Agreement, consist of five members, three nominated by Pelaka (which was owned by the Chas) and two nominated by San Want.  In addition, the chairman of Antenna’s board was to be nominated, and could be removed, by the Chas.  So far as ATV was concerned, given the then shareholdings of the various shareholders, the board would consist of ten members, of which two members would be nominated by each of Panfair, Dragon Viceroy and CLG and four by Antenna.  Of the Antenna nominated directors, two would be nominated by Pelaka and two by San Want.  Finally, Mr Payson Cha, or another member of the Cha family would be chairman of the board of ATV.

44.  If, however, the envisaged transactions went through, Pelaka’s shareholding in Antenna would be reduced to 49% of Antenna’s Class A shares.  This would result in Pelaka being entitled to nominate only one director to Antenna’s board, which would be reduced to three directors.  The San Want appointed directors would therefore be in the majority, and would be able to carry the day on any matters that required the decision of the Antenna board, which, in these circumstances would include the appointment of the two out of the four Antenna nominated directors to the ATV board who were not nominated by San Want, and the nomination of the chairman of the ATV board.  In addition, Panfair’s shareholding in ATV would, as the result of the transfer of shares to Mr Tsai or his nominee, fall below 10% (assuming that ATV’s share capital remained unaltered, and that Panfair had not acquired any other shares in ATV in the meantime), so that Panfair would no longer be entitled to nominate any directors to ATV’s board.  The overall result would therefore be that ATV would have a board of eight directors, of whom four would be appointed by Antenna (two by San Want and two by Antenna’s board, on which the San Want appointees would have a majority), along with ATV’s chairman, who would have a casting vote in the event of a deadlock on the ATV board.

45.  Thus, assuming the transactions envisaged in the Letter of Intent went through, Mr Tsai and persons nominated by him could be expected to have an enhanced and perhaps substantial degree of influence in relation to the affairs of ATV.

The Joint Declaration

46.  At the same time as the Letter of Intent was executed, Mr Tsai and Mr Payson Cha signed a document called a “Joint Declaration of Co-operation”.  This document referred to the intention of Mr Tsai, Mr Cha and their respective companies to cooperate in order to develop ATV’s business successfully, and to Mr Tsai’s intention to provide management and financing to ATV, on terms to be agreed with ATV and approved by ATV’s board.

Developments after Mr Tsai/San Want invested in ATV

47.  Following Mr Tsai’s acquisition of an interest in Antenna, and through it in ATV, San Want nominated Mr Kevin Tsai (Mr Tsai’s son) and Ms Rebecca Huang as directors of Antenna, and also as directors of ATV.  Pelaka nominated the Chas and Mr Brown as directors of Antenna, and Mr Payson Cha and Mr Brown as directors of ATV.  Mr Johnson Cha was also a director of ATV, being one of the two directors nominated by Panfair pursuant to the ATV Shareholders’ Agreement.

48.  In addition, Mr Tsai caused the sum of HK$150 million to be lent to ATV by subscribing, through another of his wholly owned companies called Norwares Overseas Inc. (“Norwares”), for convertible bonds created by ATV on 17 April 2009 (“the Initial CBs”).  The Initial CBs carried interest at a rate of 8% p.a., and could (subject to the approval of the Broadcasting Authority) be converted into ATV shares at a conversion price of HK$1.37 per share.  Although this price was below that stipulated in clause 11.6 of the ATV Shareholders’ Agreement, and it does not seem that these CBs were offered to all shareholders in ATV, as required by clause 11.2 of that agreement, it appears that the Initial CBs were issued to Norwares with the consent of all of ATV’s shareholders.

49.  By about September 2009, however, ATV was in need of further funding.  San Want says that by this point, Mr Tsai felt that there were differences in approach to ATV’s use of funds as between the directors appointed by San Want, and the other directors, and was not inclined to continuously fund ATV.  A proposal was made for Mr Tsai to make (or cause to be made) an unsecured shareholders’ loan to ATV at an interest rate of 8% p.a. if interest were paid, or alternatively at an interest rate of 30% p.a. with accrued interest to be offset against the provision by ATV of advertising airtime at its normal commercial rates.  This offer was rejected by ATV’s board.  San Want says that Mr Tsai then requested that the other shareholders should also share in meeting ATV’s funding needs on a pro rata basis, but that the other shareholders were not willing to do this.  It is said by the defendants that Mr Tsai had reneged on his umdertaking to finance ATV – an undertaking that was said to be evidenced by the Joint Declaration of Co-operation, and various statements made in representation and other letters issued after Mr Tsai invested in ATV.  For his part, Mr Tsai denies being under any obligation to fund ATV, pointing to the terms of the Term Sheet, and the absence of any express obligation to do so in any of the agreements relating to his investment in ATV.  This dispute underlies the problems that arose, which led to the commencement of these proceedings.

The creation and issue of the disputed convertible bonds and the background to these proceedings

The New CBs

50.  On 17 November 2009, ATV’s board approved the creation of 10 series of convertible bonds (identified as Series A to J respectively) each of HK$50 million with a conversion price of HK$0.28 (thus authorising the issue of a total of HK$500 million worth of such bonds).  The board also approved issue of the first such series (identified as A2012) in the amount of HK$50 million, with the conversion price set at HK$0.28 (“the New CBs”).  There is a dispute as to whether the resolution to issue the New CBs was passed unanimously (as the Defendants contend) or by a majority, with the San Want appointed directors abstaining (as San Want contends).  San Want says that notwithstanding that it regarded the issue of the New CBs as being in breach of clause 11.6 of the ATV Shareholders’ Agreement, recognising that ATV was in urgent need of funds, San Want decided to subscribe for the New CBs, although it wished to do so through Norwares rather than through Antenna.  This suggestion met with resistance from the ATV board, including the Chas and Mr Brown.  On about 21 November 2009, San Want indicated that it was prepared to take up any of the New CBs that were not taken up by the shareholder who would otherwise be entitled to them, or to take up such of the New CBs together with any other subscribing shareholders on a pro rata basis.

51.  Initially, each of the ATV shareholders indicated that they intended to take up their share of the New CBs.  However, on 27 November 2009 when payment was imminently required, Dragon Viceroy and CLG indicated that they were not in a position to pay for the CBs which were to be allocated to them.  It appears that Panfair thereupon entered into an agreement with Dragon Viceroy and CLG to pay for their subscription for their pro rata share of the New CBs, in consideration of Dragon Viceroy and CLG agreeing to transfer their pro rata share of the New CBs to Panfair on demand.

52.  At an ATV board meeting on 19 December 2009, the bond certificate for Panfair’s share of the New CBs was issued to Panfair.  Although San Want requested that the bond certificate representing Antenna’s share should be issued to Norwares (which had provided the subscription money), the ATV board declined to do so.  It appears that in the light of objections raised by the San Want appointed directors, the ATV board also decided to withhold the issue to Dragon Viceroy and CLG of the bond certificates relating to their shares of the New CBs.

The Series B CBs

53.  Also on 19 December 2009, the ATV board approved the issue of a further series of convertible bonds (identified as B2012) in a total amount of HK$50 million, again with a conversion price of HK$0.28 (“the Series B CBs”).  The resolution for the issue of the Series B CBs was passed by a majority, with the San Want appointed directors abstaining.  San Want says that, as in the case of the New CBs, it regarded the issue of the Series B CBs as being in breach of clause 11.6 of the ATV Shareholders’ Agreement.  Whereas it had been prepared to subscribe to the New Series CBs, San Want says that it was not prepared to condone a further breach of the ATV Shareholders’ Agreement, particularly in the light of the arrangement which had been made between Panfair, Dragon Viceroy and CLG in relation to the subscription for the New CBs.  In the result, Panfair, Dragon Viceroy and CLG subscribed for their respective pro rata shares of the Series B CBs.  However, at an ATV board meeting held on 4 March 2010, Dragon Viceroy indicated that it did not have the funds to subscribe for the Series B CBs.  The ATV board then approved the issue of any unsubscribed Series B CBs to Panfair, if Panfair paid ATV the subscription monies by 10 March 2010, despite the objections of the San Want appointed directors.  Panfair did pay such funds on 10 March 2010.  No bond certificates have yet been issued in relation to the Series B CBs.

54.  Thus, the present position in relation to the New CBs and Series B CBs is that only the bond certificate relating to Panfair’s share of the New CBs has been issued to Panfair.  Apart from this, no bond certificates have been issued in respect of either the New CBs or the Series B CBs.

Antenna not taking up the New CBs

55.  Meanwhile, at an Antenna board meeting held on 29 December 2009, the Pelaka nominated directors of Antenna (i.e. the Chas and Mr Brown) proposed that Antenna should take up its entitlement to the New CBs.  This proposal was opposed by the San Want directors, who (according to the minutes of the meeting) indicated that they considered that the issue of the New CBs by ATV was a breach of the ATV Shareholders’ Agreement, and that San Want wished to have the New CBs taken up by Norwares instead of Antenna.  The proposal was nonetheless passed by a 3-2 majority.  However, it was recognised that the agreement of San Want would be required if Antenna were to take up its share of the New CBs, as this was a matter that required the agreement of both shareholders pursuant to clause 10 of the Antenna Shareholders’ Agreement.  Such consent was not, in the event, forthcoming from San Want.

The involvement of a potential new investor in ATV – Mr Wong Ching

56.  In addition, it seems that in early 2010, San Want discovered that a new investor, Mr Wong Ching (or Wang Zheng) (“Mr Wong”) was interested in investing in ATV.

57.  It appears that Mr Wong signed a term sheet with Dragon Viceroy and CLG on 12 November 2009, by which it was proposed that he should acquire their shareholdings in ATV for a total of HK$200 million.  Mr Wong appears also to have agreed to fund Dragon Viceroy and CLG in respect of their subscription for the New CBs and the Series B CBs.  In the event, it seems that Mr Wong did not in fact fund them in respect of the New CBs (resulting in the arrangement made with Panfair on 27 November 2009).  It is not clear whether Mr Wong has funded them in respect of the Series B CBs, although the statement by Dragon Viceroy at the ATV board meeting of 4 March 2010 suggests that he has not.

58.  Further, in early March 2010, San Want learnt from press reports that Mr Wong had, on 2 March 2010, entered into an agreement to acquire the Chas’ interests in ATV.  The terms of this agreement (“the Wong Agreement”) are contained in a sale and purchase agreement of that date made between Mr Wong and the Chas, which was subsequently disclosed in the evidence filed for the purposes of these applications.

59.  The Wong Agreement provides for the purchase by Mr Wong from the Chas of the entire issued share capital of Panfair and Pelaka for a total of slightly over HK$83 million (clause 2.2).  In addition, on completion, Mr Wong will transfer the HK$200 million Fireworks convertible bond to the Chas, and will procure that the principal will be paid in full on maturity (clause 2.9.2).  The only conditions precedent are the obtaining of approval from the Broadcasting Authority, and that ATV should not, in the meantime, have gone into liquidation (clause 2.3).  Completion of the transaction is to take place on 2 June 2010 (clause 2.4.1), although there is provision for this to be delayed until a long stop date of 2 August 2010 if such consent is not obtained by the original completion date (clause 2.11.1).

60.  It is clear from the representations and warranties contained in clause 2.5.1(a) of the Wong Agreement that the sale is on the basis that Panfair is the legal and beneficial owner of 10.75% of ATV’s issued shares, of its pro rata share of the New CBs and Series B CBs, of the HK$200 million CBs acquired from Fireworks, rights under the Letter of Intent, and the beneficial owner of Dragon Viceroy and CLG’s pro rata shares of the New CBs.

61.  So far as the Letter of Intent is concerned, clause 2.9 of the Wong Agreement indicates that Mr Wong is aware of the obligations of Panfair and the Chas under the Letter of Intent, but also provides that both before and after completion of the Wong Agreement, Mr Wong shall have the right to decide what (if anything) should be done by Panfair, Pelaka and the Chas with respect to such obligations, and that the Chas shall do whatever is necessary to comply with Mr Wong’s decision in relation thereto, subject to an indemnity from Mr Wong in respect of any liability that they may come under as a result of complying with his decision.

62.  Finally, it is relevant to note that even prior to completion, the Chas agreed to procure that three persons resident in Hong Kong and nominated by Mr Wong should (subject to Broadcasting Authority consent) be appointed as directors of ATV (clause 2.7.1).  In fact, it appears that two relatives of Mr Wong were so appointed by Panfair on 4 March 2010.  It also appears that two other relatives of Mr Wong have been appointed as alternate directors to the directors appointed by Dragon Viceroy.

63.  Since the entering into of the Wong Agreement, there is evidence that Mr Wong’s relatives have taken an increasingly active role in the affairs of the ATV board.  Mr Wong himself has apparently also been actively involved in ATV’s affairs.  Although this was the subject of complaint by Mr Manzoni, both at the second ex parte application and at this hearing, I do not think that this is a matter of immediate relevance for present purposes.

These proceedings

64.  In the light of these developments, San Want brings these proceedings derivatively on behalf of Antenna, against the Chas, Mr Brown, Panfair and ATV.

The relief sought

65.  As against ATV, the claim is based on past and anticipated future breaches of clause 11.6 of the ATV Shareholders’ Agreement, arising out of the issue of the New CBs and the Series B CBs, and the apprehension that ATV may seek to issue further series of convertible bonds with a conversion price of HK$0.28 in order to raise further funds.  The relief sought against ATV consists of:-

(1)     a declaration that clause 11.6 of the ATV Shareholders’ Agreement applies to an issue of shares pursuant to a grant of rights to convert securities (including debt in the form of bonds) into shares in ATV;

(2)     an order requiring ATV to revoke the instrument creating the CBs under which the New CBs and the Series B CBs were issued, and/or to re-purchase any of the New CBs and Series B CBs that have been issued and/or registered in ATV’s register of bondholders;

(3)     an injunction preventing ATV from issuing further shares or CBs at a price or with a conversion price of less than HK$2.47 otherwise than with the agreement of all shareholders of ATV; and

(4)     an injunction preventing ATV from issuing any bond certificates or registering any bondholder on the relevant ATV register of bondholders in respect of the New CBs and the Series B CBs.

66.  As against Panfair, the claim is similarly based on alleged breaches of clause 11.6 of the ATV Shareholders’ Agreement.  In addition, there are claims against Panfair on the basis that Panfair is guilty of procuring ATV to breach the ATV Shareholders’ Agreement, and is guilty of being party to a conspiracy with the Chas and Mr Brown to use unlawful means (i.e., breaches of the ATV Shareholders’ Agreement, and breaches by the Chas and Mr Brown of their fiduciary duties to Antenna) to cause damage to Antenna.  The relief sought against Panfair consists of:-

(1)     An order requiring Panfair to take all necessary steps to set aside the agreement made on 27 November 2009 between itself and Dragon Viceroy and CLG;

(2)     An injunction restraining Panfair from disposing of any of the New CBs or Series B CBs to which it may be entitled;

(3)     An injunction restraining Panfair from voting (through itself or its nominated directors) in favour of ATV issuing further convertible bonds at a conversion price of below HK$2.47 otherwise than with the agreement of all shareholders of ATV;

(4)     An injunction to prevent it from dealing in its (or Dragon Viceroy’s or CLG’s) pro rata entitlement to the new CBs, whether by disposing of such entitlement, or by seeking to exercise the conversion rights thereunder; and

(5)     Damages and interest.

67.  As against the Chas and Mr Brown, there are claims for breach of fiduciary duties owed to Antenna, procuring breach of contract by ATV and/or Panfair, and conspiracy to use unlawful means to cause damage to Antenna.  The relief sought against them consists of:-

(1)     Relief broadly similar to that sought against Panfair;

(2)     A declaration that they have acted in breach of their fiduciary duties owed to Antenna;

(3)     An order for an account of all monies or assets received by them as a result of their breaches of fiduciary duty;

(4)            Equitable compensation or damages, and interest.

The alleged scheme

68.  In essence, the argument as to the alleged breaches of fiduciary duty and conspiracy is that the issue of the New CBs, the entering into of the arrangement by Panfair to fund Dragon Viceroy’s and CLG’s subscription for their respective pro rata shares of the New CBs in exchange for having the New CBs so funded transferred to Panfair, and the issue of the Series B CBs was part of a scheme devised by the Chas and Mr Brown to dilute Antenna’s interest in ATV relative to that of Panfair, and to maintain Panfair’s interest in ATV at a level above 10% of ATV’s issued share capital, thereby frustrating the longer term plans of Mr Tsai to obtain a greater influence or role in ATV’s affairs through the completion of the transactions envisaged by the Letter of Intent, and maintaining a degree of control over ATV through Pelaka/Antenna and Panfair that would make Pelaka and Panfair a more attractive proposition to a potential investor in ATV such as Mr Wong.

69.  By taking up the pro rata share of Dragon Viceroy’s and CLG’s entitlement to the New CBs, Panfair would obtain some 52.42% of the New CBs, while Antenna (or Norwares) would obtain some 47.58% of the New CBs.  At a conversion price of HK$0.28 per share, Panfair would, on conversion, obtain just under 94 million additional shares in ATV, assuming that it converted the whole of its enlarged share of the New CBs.  By contrast, Antenna (or Norwares) would obtain just under 85 million additional shares in ATV.  Although Antenna’s interest in the expanded share capital of ATV (or that of Antenna and Norwares combined) would still be unchanged at 47.58%, that of Panfair would increase from 10.75% to 15.73%.  Thus, even if Panfair were to honour its obligation under the Letter of Intent (and whether it did so by transferring the number of shares specified in clause 3.1(a) of the Letter of Intent (which would be less than 2.75% of the enlarged share capital of ATV) or by transferring a larger number of shares corresponding to 2.75% of the enlarged share capital of ATV (in each case assuming that the necessary consents from the relevant authorities had been obtained), it would still, after such transfer, hold in excess of 10% of the shares of ATV and remain entitled to nominate two directors to ATV’s board under the ATV Shareholders’ Agreement.

70.  On this scenario, if Mr Wong were to acquire Panfair and Pelaka, along with Dragon Viceroy and CLG, he would be in a position to nominate at least six directors out of ten on the ATV board.  Further, having regard to the terms of the Wong Agreement, if the Chas were to comply with a decision by Mr Wong that they should not cause Pelaka to transfer 2% of the Class A shares in Antenna to Mr Tsai or a person nominated by him, the result might be that Mr Wong, upon having acquired Pelaka, would remain entitled to nominate two of the four Antenna nominated directors to the board of ATV, together with the chairman of the ATV board, and thus have eight out of the ten votes on the ATV board (if he also acquired Dragon Viceroy and CLG), or to achieve effective control even without acquiring Dragon Viceroy and CLG by causing further convertible bonds to be issued at the same conversion price so as to further dilute the interests of Dragon Viceroy and CLG (who would seem unlikely to be able or willing to fund their shares of such convertible bonds), reduce CLG’s interest in ATV below 10%, thereby arriving at a situation in which the board of ATV would be reduced to eight directors, of whom Mr Wong would be able to nominate four (two through Panfair and two through Pelaka’s ability to do so through Antenna), with the Chairman’s casting vote.

71.  The devising and implementation of such a scheme is alleged by San Want to involve breaches of the fiduciary duties owed by the Chas and Mr Brown to Antenna, in two main respects.  First, they would thereby have been placing themselves in a situation in which their duties to act in Antenna’s best interests would conflict with their (at least in the case of the Chas) personal interests in being able to dispose of their interests in Panfair and Pelaka more easily or for a better price, by ensuring that they could do so in a way that would enable the purchaser to more easily obtain or maintain control over ATV.  Second, they (or at least the Chas, it being accepted that Mr Brown does not seem to have profited personally) would thereby profit from their position as fiduciaries through the disposal of the Chas’ interests in Pelaka and Panfair.

The ex parte injunctions

72.  On 4 March 2010, San Want commenced these proceedings.  Initially, it only made claims against the Chas and Mr Brown.  On 11 March 2010, I granted ex parte injunctions against them preventing them from causing or procuring ATV’s board from issuing any bond certificates in respect of either the New CBs or the Series B CBs, and preventing the Chas from causing Panfair to dispose of any of the New CBs which had already been issued to Panfair.  An injunction was also granted preventing the Chas from disposing of their shareholding in Panfair, on the basis that this would assist in ensuring that such relief as might be granted in favour of San Want and Antenna at the end of the day would be more likely to be effectual if the Chas remained in control of Panfair – an argument which was based on the principles underlying Mareva relief, where the objective is to avoid the prospect of a defendant taking steps (usually by the dissipation of his assets) to render worthless or ineffective any judgment that might eventually be obtained against him.

73.  On 22 March 2010, San Want applied (again ex parte) for leave to amend the writ and statement of claim to add the claims against ATV and Panfair, and to extend the injunctive relief that had already been granted to ATV and Panfair, and also to prevent ATV from issuing further series of CBs with a conversion price below HK$2.47.

The principles governing the grant of interlocutory injunctions

74.  The question for consideration is whether the injunctions which have been granted should be continued.  The principles applicable to the grant or continuation of interlocutory injunctions are well established have been well established since the decision of the House of Lords in American Cyanamid Co v Ethicon Ltd [1975] AC 396, where three major considerations were identified: whether the plaintiff has a good arguable case to the relief claimed; if so, whether damages would be an adequate remedy for the plaintiff if no injunction is granted and he turns out to be right at the end of the day, or for the defendant if an injunction is granted which it is ultimately found should not have been; and if not, where the balance of convenience lies.

75.  More recently, this approach has been explained by Lord Hoffman in the Privy Council case of National Commercial Bank of Jamaica Ltd v Olint Corporation Ltd [2009] 1 WLR 1405, as follows:-

“16.   …It is often said that the purpose of an interlocutory injunction is to preserve the status quo, but it is of course impossible to stop the world pending trial.  The court may order a defendant to do something or not to do something else, but such restrictions on the defendant’s freedom of action will have consequences, for him and for others, which a court has to take into account.  The purpose of such an injunction is to improve the chances of the court being able to do justice after a determination of the merits at the trial.  At the interlocutory stage, the court must therefore assess whether granting or withholding an injunction is more likely to produce a just result.  As the House of Lords pointed out in [the American Cyanamid case], that means that if damages will be an adequate remedy for the plaintiff, there are no grounds for interference with the defendant’s freedom of action by the grant of an injunction.  Likewise, if there is a serious issue to be tried and the plaintiff could be prejudiced by the acts or omissions of the defendant pending trial and the cross-undertaking in damages would provide the defendant with an adequate remedy if it turns out that his freedom of action should not have been restrained, then an injunction should ordinarily be granted.”

“17.   In practice, however, it is often hard to tell whether either damages or the cross-undertaking will be an adequate remedy and the court has to engage in trying to predict whether granting or withholding an injunction is more or less likely to cause irremediable prejudice (and to what extent) if it turns out that the injunction should not have been granted or withheld, as the case may be.  The basic principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other.  This is an assessment in which, as Lord Diplock said in the American Cyanamid case [at p.408]:

“It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them.””

“18.   Among the matters which the court may take into account are the prejudice which the plaintiff may suffer if no injunction is granted or the defendant may suffer if it is; the likelihood of such prejudice actually occurring; the extent to which it may be compensated by an award of damages or enforcement of the cross-undertaking; the likelihood of either party being able to satisfy such an award; and the likelihood that the injunction will turn out to have been wrongly granted or withheld, that is to say, the court’s opinion of the relative strength of the parties’ cases.”

The injunctions now sought

76.  At the beginning of the hearing, Mr Manzoni handed up a draft of the order which he asked the court to make.  This sought the following injunctions:-

(1)     Injunctions against ATV prohibiting it from:-

(a)   issuing convertible bonds at less than HK$2.47 per share unless this was agreed by all of its shareholders; and

(b)   issuing bond certificates to anyone who had purchased any of the New CBs or Series B CBs, or registering the name of any holder of such CBs on ATV’s register of bondholders;

(2)     Injunctions against Panfair prohibiting it from:-

(a)   disposing of any of the New CBs or Series B CBs issued to it, or to which it is beneficially entitled;

(b)   converting any convertible bonds which it owns or to which it is beneficially entitled into shares of ATV; and

(c)   voting or causing the directors nominated by it to the ATV board to vote in favour either of the matters referred to in sub-paragraphs (1)(a) and (b) above;

(3)     Injunctions against the Chas prohibiting them from:-

(a)   Disposing of their shareholding in Panfair;

(b)   Causing Panfair to do either of the acts mentioned in sub-paragraphs (2)(a) and (b) above; and

(4)  Injunctions against the Chas and Mr Brown prohibiting them from causing ATV’s board from doing either of the matters referred to in sub-paragraphs (1)(a) and (b) above.

The injunctions to preserve the position pending relief being granted to undo the effects of the alleged breach of clause 11.6 and to prevent further breaches from taking place

77.  In the present case, San Want’s contention that the issue of the New CBs and Series B CBs were in breach of clause 11.6 of the ATV Shareholders’ Agreement lies at the heart of the claim.  I therefore propose to consider first whether the interlocutory injunctions sought against the defendants that are aimed at dealing with the effects of such alleged breaches, and the threat of further breaches of clause 11.6, should be granted – this underlies effectively all of the injunctions sought, with the exception of that which seeks to prevent the Chas from disposing of their interests in Panfair, although the breach of contract claim itself applies only to ATV and Panfair as parties to the ATV Shareholders’ Agreement.

Is there a good arguable case?

78.  The first question that arises in this context is whether San Want has established a good arguable case on this point.  This gives rise to the following subsidiary issues:-

(1)     Whether there is a good arguable case that clause 11.6, on its true construction, applies to an issue of convertible bonds.  Mr Manzoni says that it clearly does, while Mr Lam and Mr Fung contend that it just as clearly does not.

(2)     If clause 11.6 arguably applies to an issue of convertible bonds, Mr Fung contends that the restriction is an unlawful fetter on the statutory powers of ATV, so that the restriction is invalid.

(3)     If clause 11.6 arguably applies to an issue of convertible bonds and is (or is arguably) valid, Mr Lam contends that San Want is not entitled to complain about the issue of the New CBs, because its appointed directors on the ATV board voted in favour of the issue.

(4)     Alternatively, Mr Lam contends that San Want is not entitled to complain about the issue of the New CBs having sought to take up its pro rata share of the New CBs through Norwares.

(5)     In any event, Mr Lam also contends that as these proceedings are brought by San Want derivatively on behalf of Antenna, San Want must also demonstrate a prima facie case for derivative relief, and cannot do so since the proceedings are not in fact brought for the benefit of Antenna.

(5) Mr Lam further contends that it is not open to San Want to bring a derivative action in respect of a claim against ATV (or Panfair) for breach of contract, as such claims do not involve misfeasance or breach of fiduciary duty by the Chas or Mr Brown as directors of Antenna.

The construction of the relevant parts of clause 11 of the ATV Shareholders’ Agreement

79.  So far as the construction of clauses 11.2, 11.3 and 11.6 of the ATV Shareholders’ Agreement are concerned, Mr Manzoni submits that clauses 11.2 and 11.3 constitute (along with clause 12) a mechanism by which the shareholders in ATV agreed to maintain their shareholdings relative to each other.  Clause 11.6 embodies a separate and distinct agreement for a floor price below which ATV cannot issue (subject to the exceptions contained in clause 11.3) or agree to issue shares.

80.  Clause 11.2 requires that before issuing shares, or granting rights to subscribe for shares, or to convert securities into shares, ATV must offer such shares, rights to subscribe for shares or rights to convert securities into shares to all of its shareholders pro rata their existing shareholdings.  Mr Manzoni submits that this is designed to ensure that the relative shareholdings of the shareholders in ATV are maintained.  Mr Manzoni points out, however, that clause 11.2 is subject to both clauses 11.3 and 11.6.

81.  Clause 11.3 excludes from the scope of clause 11.2 three categories of issues of shares: (a) shares issued on an initial public offering, (b) shares issued on the exercise of a right to subscribe for shares or to convert securities into shares and (c) shares issued under a specific warrant recognised in the agreement.  The first and last of these exclusions are not relevant for present purposes.  The second is.  It is, as Mr Manzoni suggested, readily understandable why such an exclusion was stipulated.  The shareholders of ATV, having already had the opportunity to acquire, pro rata as between themselves, rights to subscribe for shares or to convert securities into shares, can thereafter have no complaint when shares are in fact issued to one or other of them pursuant to such rights.  They have already had the opportunity to protect their position by taking up their share of the relevant rights when the right was offered.  There is no need to give them a further opportunity to obtain shares pro rata when one (or more) of them exercises such rights.  Indeed, to require shares issued pursuant to the exercise of a right granted to a particular shareholder to be offered pro rata to the others would derogate from the right which had been acquired by that shareholder at the earlier stage.

82.  More importantly, says Mr Manzoni, by being made subject to clause 11.6, it is made clear that any issues of shares, grant of rights to subscribe for shares or to convert securities into shares under clause 11.2 is also subject to the floor price provided for in clause 11.6.

83.  Mr Manzoni submits that clause 11.6 addresses a different issue – the price at which further investment into ATV should be made.  It is designed not so much to protect the size of the shareholders’ respective holdings vis a vis each other, as to protect the value of the shareholdings by requiring a minimum amount of capital to be provided for every new share issued.  The clause applies both to issues of shares, and to agreements to issue shares – of which a convertible bond is an example, since it constitutes an agreement between ATV and the bond holder that at the bond holder’s option, he may convert the amount of the bond into shares in ATV at the price stated in the bond.  The clause also provides that it should not apply to any issues of shares falling within clause 6.3.  Again, according to Mr Manzoni, this makes perfectly good sense.  Having consented to the agreement to issue shares (by way of subscription agreement or convertible bond) at a price lower than the floor price, the ATV shareholders could hardly complain when shares are subsequently issued at the agreed price.  Mr Manzoni says, however, that it is significant that the disapplication of clause 11.6 (contained in its opening words) is limited to issues of shares, and not to agreements to issue shares – the effect of this is that whereas certain issues of shares are taken outside the operation of clause 11.6, all agreements to issue shares, whatever form they may take, fall within it.

84.  On the face of it, this would seem to be an entirely workable and plausible construction of clauses 11.2, 11.3 and 11.6

85.  Mr Lam and Mr Fung, however, contend that it is plain that clause 11.6 does not apply to rights to convert securities into shares (i.e. convertible bonds).

86.  Mr Fung accepted (in his second supplemental written submission) that a convertible bond is one form of an agreement to issue shares.  It was not entirely clear whether Mr Lam expressly accepted this, but I did not understand him to suggest that this was not the case.  In my view, that acceptance was clearly correct.  There can be no doubt that a convertible bond embodies within it an agreement by its issuer to issue shares to the bondholder at the conversion price if called upon to do so in accordance with the terms of the bond.

87.  However, both Mr Lam and Mr Fung suggested that the words “agree to issue shares” in clause 11.6 should not be read as extending to convertible bonds, because convertible bonds (along with rights to subscribe for shares) were expressly recognised and dealt with in clauses 11.2 and 11.3.  This, they submitted, meant that the parties must, having specifically referred to them in the earlier clauses, not have intended to include them in clause 11.6, for otherwise they would simply have used the same wording.  The choice of different wording in clause 11.6 was, they submitted, a clear pointer to it being intended to cover different matters.

88.  In his original written submission, Mr Fung also suggested that clause 11 clearly distinguished between shares and rights to subscribe for or convert securities into share.  Thus, in referring to the issue of shares and agreements to issue shares (my emphasis), clause 11.6 was dealing only with shares and not the other rights referred to in clauses 11.2 and 11.3.

89.  With respect, I do not see that either of these arguments is so strong as to render Mr Manzoni’s interpretation of clause 11.6 such as not to amount to (at least) a good arguable case.

90.  In relation to the first of these arguments, it seems to me well arguable (to put it no higher for the moment) that the fact that clauses 11.2 and 11.3 refer to specific forms of agreements to issue shares throws no relevant light on the meaning of the phrase “agree to issue shares” in clause 11.6.  The phrase used in clause 11.6 would seem to be wider than the specific forms of agreement legislated for in the earlier clauses, in that it would be capable of covering both those forms of agreement, as well as other forms of agreement to issue shares not referred to in clauses 11.2 and 11.3.

91.  As for the second of these arguments, it seems to me that Mr Fung’s later acceptance that a convertible bond is an example of an agreement to issue shares renders the suggested distinction one that is without a difference, and rather than applying the maxim expressio unius est exclusio alterius, as Mr Fung suggested, the more apt notion might be thought to be that the greater includes the lesser.

92.  Further, it seems to me that the fact that clause 11.2 is made expressly subject to clause 11.6 suggests (again, at least well arguably) that all of the matters covered by clause 11.2 (i.e. issues of shares and the two forms of agreements to issue shares that are mentioned) were intended to be covered by the minimum price requirements provided for in clause 11.6, and that the formulation of the exception to clause 11.6 embodied in its opening words was intended to distinguish between issues of shares and agreements to issue shares, so that while certain issues of shares were to be excluded from the operation of clause 11.6, there is no reference to any form of agreement to issue shares being so excluded (the specific warrants mentioned in clause 11.3(c) would not seem to be caught by clause 11.6 in any event, since (having been referred to expressly in the ATV Shareholders’ Agreement) they were presumably issued prior to the entry into of the ATV Shareholders’ Agreement).

93.  Mr Fung also suggested that if it had been intended that convertible bonds were intended to be covered by clause 11.6, it would have been possible to do so by adopting what he said would have been much clearer wording, along the following lines:-

“Save and except for any issues falling within clause 11.3, no Shares or rights to subscribe for or convert securities into Shares carrying a conversion price below $2.47 shall be issued or granted by the Company and the Company shall not agree to issue any Shares or grant rights to subscribe for or convert securities into Shares convertible at a price below $2.47 per Share … without the prior written consent of all Shareholders who are parties to this agreement.”

94.  With respect, it seems to me that by adopting the generic description “agree to issue shares” instead of the suggested specific reference to two forms of agreement to issue shares, the drafters of the ATV Shareholders’ Agreement made the parties’ intention (again, at least well arguably) clear enough.

95.  Finally, Mr Fung submitted that the construction contended for by Mr Manzoni was one which made no commercial sense, as it would hamstring ATV by preventing it from raising funds when needed by issuing convertible bonds at a conversion price reflecting the then value of ATV.  In my view, a court should be slow to second guess the parties’ decision to enter into an agreement in particular terms.  The court may not (and often will not) be aware of all the factors influencing the parties’ decision to agree on particular provisions, or their motivation for doing so.  In any event, it does not seem to me to be inherently commercially nonsensical to have agreed to such a provision.  If the maintenance of a floor price for further investment into ATV was regarded as desirable by ATV’s shareholders, that was a matter for them.  Further, this argument of Mr Fung’s is in reality an argument against any floor price for any future investment in ATV, whatever form it might take.  If it made no sense to prevent ATV from raising funds by offering convertible bonds to a would be lender at a realistic conversion price, there would seem to be equally little sense in mandating that ATV could not raise funds by the straightforward issuing of shares to its shareholders at whatever price it thought appropriate either.

96.  There was, I think, also considerable force in Mr Manzoni’s retort that if one accepted that the shareholders of ATV had a legitimate interest in agreeing a minimum price for future investments into the company, it would make little sense for them to insist on such a minimum price being observed in respect of share issues, but not in respect of issues of convertible bonds, since that would provide an easy escape from the floor price provision by the expedient of issuing convertible bonds and then allowing the bondholder to convert them into shares within a short space of time.

97.  I am therefore satisfied that there is at least a good arguable case that the issue of convertible bonds with a conversion price of below HK$2.47 per share was or would be a breach of clause 11.6 of the ATV Shareholders’ Agreement, if done without the prior written consent of all ATV’s shareholders.  Further, to the extent that it may be necessary (particularly when considering, later in this judgment, where the balance of convenience lies) to express a tentative or provisional view as to the relative strengths of the parties’ cases, I would suggest that the case for the plaintiff in this respect is significantly stronger than that for the defendants.

Is clause 11.6 contrary to public policy?

98.  I turn next to consider Mr Fung’s contention that clause 11.6 constituted an unacceptable fetter on ATV’s statutory powers, and as such was contrary to public policy and unenforceable.  This argument was based on two Hong Kong decisions: Re Greater Beijing Region Expressways Ltd [1999] 4 HKC 807, in which the Court of Appeal held that a fetter in a shareholders’ agreement on a shareholder’s right to present a winding up petition in respect of a company on the just and equitable ground, pursuant to section 177(1)(f) of the Companies Ordinance, was invalid; and Muir v Lampl [2005] 1 HKLRD 388, where Lam J held that an agreement which purported to make it impossible to remove a director of a company was similarly invalid, as it was inconsistent with the right of a company to remove a director by ordinary resolution embodied in section 157B of the Companies Ordinance.

99.  As to this, I am satisfied that it is (at least) well arguable that the principle enunciated in those cases does not apply here.  There does not appear to be any provision in the Companies Ordinance that mandates that a company should be free to raise capital on any terms that it sees fit.  The only provisions that Mr Fung was able to point to were article 9 of ATV’s articles of association, which conferred power on ATV to issue convertible bonds carrying any conversion price, and sections 70 and 74A of the Companies Ordinance which impose an obligation on companies to issue bond certificates once convertible bonds have been subscribed to, and to register the bondholders after the bond certificates have been issued.  Neither of these provisions appear to me to make it so clear that it is contrary to public policy for shareholders to agree not to issue bonds at below a stated floor price.

100.  So far as the articles of association are concerned, these operate as a contract between the shareholders, and I can see no particular reason for concluding that the shareholders should not be able to agree by a separate contract not to exercise their rights under the articles, where that would not be contrary to the policy of the companies legislation.  In particular, had there been a provision in the articles that ATV should not issue convertible bonds at below a price of HK$2.47, this would not seem to be contrary to any provision of the Companies Ordinance.  By contrast, had the companies in the Greater Beijing Region Expressways and Muir v Lampl cases sought to embody the terms there in question in the articles of association (as opposed to a separate shareholders’ agreement), I have no doubt that such a provision in the articles would just as much have been struck down as being inconsistent with the provisions of the Companies Ordinance, which is not the case here.

101.  As for sections 70 and 74A of the Companies Ordinance, what these provisions deal with is the situation after convertible bonds have been validly issued.  They do not seem to throw any light on the question whether or not it is open to shareholders of a company to restrict the situations in which the company should be entitled to issue such bonds in the first place.

102.  I am thus satisfied that, notwithstanding these arguments advanced by Mr Fung, it remains the position that there is a good arguable case for the plaintiff that by issuing convertible bonds with a conversion price of less than HK$2.47, ATV is in breach of clause 11.6 of the ATV Shareholders’ Agreement, and that if it were to seek to issue further such convertible bonds, it would likewise be in breach of that provision.

Did the plaintiff agree to the issue of the New CBs, or waive any breach of the ATV Shareholders’ Agreement?

103.  Mr Lam’s argument that it is not open to San Want to complain in relation to the New CBs because its appointed directors voted in favour of the issue of the New CBs can be disposed of relatively shortly.  The argument is based on the factual premise that the ATV directors appointed by San Want (i.e. Mr Kevin Tsai and Ms Rebecca Huang) voted in favour of the issue of the New CBs at the ATV board meeting on 17 November 2009.  This is disputed by Mr Kevin Tsai in his evidence filed in respect of these applications.  Although the meeting notes kept by Ms Cherry Yuen (ATV’s in house legal adviser who was responsible for keeping minutes of board meetings) and the draft minutes of that board meeting do suggest that the resolution to issue the New CBs was passed unanimously, this was disputed on San Want’s side when the draft minutes were circulated.  San Want’s legal advisers, Messrs Freshfields, made it clear that San Want did not agree that Mr Kevin Tsai or Ms Huang had voted in favour of the resolution to issue the New CBs, and circulated suggested amendments to the minutes (on this and other issues) in which it was stated that they had abstained from voting on this matter.  Given the existence of this factual dispute, which cannot be resolved on the basis of the affidavit evidence, it is not possible to conclude that San Want cannot complain about the breach of clause 11.6 for this reason.

104.  The position is much the same in relation to Mr Lam’s other argument on waiver arising out of San Want’s decision to subscribe for its pro rata share of the New CBs through Norwares.  As Mr Manzoni pointed out, it must be at least arguable that this would not suffice to constitute a waiver of the breach of clause 11.6, as it was neither made specifically in writing (as required by clause 25.4 of the ATV Shareholders’ Agreement), and could well be regarded as equivocal, in that it might be no more than an attempt by San Want to ameliorate the effects of the breach.  It seems to me that both of these points are at least arguable, and it cannot therefore be concluded that San Want has thereby lost its right to complain of the breach.  I would also observe at this juncture that these points would not arise in the context of the application for an injunction to restrain threatened future breaches of clause 11.6 of the ATV Shareholders’ Agreement.

Does the derivate nature of these proceedings remove the good arguable case?

105.  It is also convenient at this point to deal with Mr Lam’s points that arise from the derivative nature of the proceedings.

106.  The first point made by Mr Lam – that this is not a proper case for a derivative action by San Want on behalf of Antenna, since the action is brought not for Antenna’s benefit, but for that of San Want or Mr Tsai – is one which applies to the claims against all of the defendants.  As to this, it seems to me that the response of Mr Manzoni, that it is in Antenna’s interests to prevent any action being taken which might have the result of hampering or hindering the prospects of it or entities or persons that may be associated with it from seeking to exercise greater control over the affairs of ATV, is something that is well arguable.  It is necessary, I think, to bear in mind that the entire economic interest in Antenna is owned by San Want and thus, ultimately, by Mr Tsai.  That being so, Antenna’s interests and those of San Want and Mr Tsai are, at least prima facie, likely to be aligned.  While it may be that it would be in San Want’s or Mr Tsai’s interests to seek to prevent the issue of convertible bonds with a conversion price of HK$0.28 per share (or any price below HK$2.47 per share), it does not follow that this would not also be in Antenna’s interests, in the circumstances of this case.

107.  As to the second point, that a claim for breach of contract against a non-director or shareholder is not a proper subject of a derivative action, it does not seem to me that this is necessarily correct.  While the classic common law derivative action consists of a claim by an aggrieved shareholder or shareholders against wrongdoers who are in control of the company so as to prevent it from suing itself in respect of the wrong done to it, it seems to me to be arguable that in an appropriate case, the aggrieved shareholder can legitimately seek to bring such a claim against other parties as well, where it is the case that the company, being under the control of wrongdoers, will not do so.  The notion of a shareholder bringing a claim on behalf of a company where there is a wrongful refusal to do so by those in control of the company is now specifically recognised as one of the forms of statutory derivative action now provided for in section 168BA to 168BK of the Companies Ordinance.  In particular, section 168BB(1)(b) makes it clear that the statutory derivative action is available to enable proceedings to be brought in relation to any matter, where the failure by the company to bring proceedings is due to some misfeasance committed against it.

108.  I therefore do not think that either of these points provides the defendants with so complete an answer that it would require me to conclude that there is no good arguable case for relief in respect of the alleged breaches of the ATV Shareholders’ Agreement.

109.  So far as potential future breaches of the ATV Shareholders’ Agreement are concerned, in the light of ATV’s admitted financial difficulties, and the evidence introduced by Mr Fung in the course of the hearing to the effect that Mr Wong was ready and willing, if the remaining HK$400 million worth of convertible bonds created on 17 November 2009 were available for issue, to subscribe for all such convertible bonds, subject to and conditional upon any applicable regulatory approval being obtained and the discharge of the ex parte injunctions, it would seem that there is a real risk that unless ATV is restrained from issuing further convertible bonds with a conversion price of HK$0.28 (or any price below HK$2.47), it will seek to do so in order to ease its financial problems.  It is pertinent to bear in mind that if bonds to this value were to be issued, and conversion were in due course to take place, the effect would be that the number of issued shares in ATV would be approximately doubled.  If such shares were in fact issued to Mr Wong or parties associated with him, and not to Antenna or parties associated with Mr Tsai, the impact on Antenna would clearly be extremely substantial.  Its shareholding would be diluted very significantly (by a factor of about 50%) and its ability in the longer run to have any influence over the affairs of ATV would be markedly reduced.

The case based on breaches of fiduciary duty

110.  I consider next whether there is a good arguable case in relation to the alleged breaches on the part of the Chas and Mr Brown of their fiduciary duties owed to Antenna as its directors.  The nature of the scheme that is alleged to have been devised is set out in paragraphs 68 to 71 above.  It is San Want’s case that such a scheme, which was directed at making Panfair a more attractive acquisition for someone interested in taking up a stake in ATV involved breaches of their fiduciary duty requiring them to act in Antenna’s best interests and also of their duty not to place themselves in a position in which their own interests conflicted with their duties owed to Antenna.

111.  Mr Lam argued that there was no good arguable case in any of these respects.  He contended:-

(1)     That the suggestion of a scheme to maintain Panfair’s shareholding in ATV at above 10% by taking up the pro rata entitlement of Dragon Viceroy and CLG to the New CBs was unsustainable, because:-

(a)   The evidence clearly showed that both Dragon Viceroy and CLG initially intended to subscribe for their pro rata shares of the issue of the New CBs, so that, at the time when the ATV board decided to issue the New CBs, there could have been no expectation that Panfair would be in a position to take up the share of the New CBs that were subscribed for by Dragon Viceroy and CLG.

(b)   On the contrary, the evidence showed that Panfair only entered into the arrangement to take up the New CBs as an emergency measure to save ATV from possible liquidation when Dragon Viceroy and CLG indicated, at the last minute, that they would not be able to take up their share of the New CBs.

(c)   The suggestion that the conversion price chosen for the New CBs was arrived at with a view to furthering the alleged scheme was unfounded, having regard to the evidence that had been adduced as to the manner in which the price was arrived at – namely, by reference to the effective acquisition price which Mr Tsai had paid to acquire his interests in ATV, a price which was still approximately double ATV’s asset value per share at the time when it was decided to issue the New CBs.

(d)   The suggestion that Panfair would be more valuable to a new investor with the New CBs was misconceived, since a new investor, such as Mr Wong, could simply acquire Dragon Viceroy and/or CLG along with Panfair, and then transfer sufficient shares from Dragon Viceroy to Panfair to maintain Panfair’s shareholding in ATV at over 10% even if Panfair complied with its obligations under the Letter of Intent, and there was no obligation on Panfair, whether in the Letter of Intent or elsewhere, not to increase its shareholding in ATV so as to maintain its entitlement to nominate two directors to the ATV board.

(2)     Mr Lam also put forward a number of other arguments as to why there was no good arguable case that the Chas and Mr Brown were in breach of their fiduciary duties to Antenna.  These were as follows:-

(a)   San Want’s case was not that Antenna could have benefited by sharing (pro rata with Panfair) the portion of the New CBs that should have been taken up by Dragon Viceroy and CLG – it was clear that San Want did not wish Antenna itself to take up any of the New CBs, insisting instead that Antenna’s entitlement should be taken up by Norwares.  That being so, it could not be said that it was contrary to Antenna’s (as opposed to perhaps Mr Tsai’s or San Want’s or Norware’s) interests for those New CBs to be taken up by Panfair.

(b)   The real complaint was not of damage to Antenna’s interests, but that Mr Tsai (perhaps with persons associated with or nominated by him) would not be able to acquire control of ATV, or at least would find it harder to do so.

(c)   In any event, even if the New CBs had simply been issued to Antenna and Panfair pro rata their respective shareholdings in ATV, Antenna would not have been able to convert the New CBs so obtained into ATV shares, as this would have taken its shareholding over 50%, making ATV its subsidiary – a state of affairs which was prohibited by section 8(3) of the Broadcasting Ordinance.

(d)   Even if one were to proceed on the basis that matters could be arranged so that no one party would hold more than 50% of the shares in ATV, the suggestion that Antenna and other parties allied to Mr Tsai should be able to obtain effective board control in ATV by means of the transactions envisaged by the Letter of Intent was flawed – even if such transactions went through so as to reduce Panfair’s shareholding below 10%, as Antenna would have control over the board of ATV (by having four out of eight directors and the casting vote), ATV would still be regarded as a subsidiary of Antenna.  This was because pursuant to sections 2(4)(a)(i) and 2(5) of the Companies Ordinance, where a company is able to control the composition of the board of another company (which will be the case where it can appoint or remove all or a majority of that other company’s directors) that other company is deemed to be a subsidiary of the first company.  Mr Lam contended that the reference in section 2(5) of the Companies Ordinance to “a majority of the directors” was a reference to the voting rights rather than to a numerical majority.

(e)   There was also an argument, which was not pursued at the end of the day, that if the shares that would have been issued if Norwares exercised its conversion rights under the HK$150 million convertible bond which it had taken up shortly after Mr Tsai invested in ATV in April 2009 were factored in, Panfair would not have been in a position to maintain its shareholding above 10% had the New CBs been issued pro rata to all the ATV shareholders and the Letter of Intent intended transactions been put through.  This argument was not persisted in as the New CBs were not, as a result of the arrangement made between Panfair, Dragon Viceroy and CLG on 27 November 2009, to be issued pro rata to each of the four shareholders.  If Panfair obtained the New CBs that would otherwise have been issued to the other two shareholders and had exercised its conversion rights in respect of those and its own allocation of CBs, the number of new ATV shares that it would have obtained would have been sufficiently large that its shareholding would remain at over 10% even if the Letter of Intent intended transactions were effected.

112.  With respect, I am not persuaded that there is no good arguable case in relation to the breach of fiduciary duty allegations.

Whether there is a good arguable case as to the alleged scheme

113.  So far as the alleged scheme to maintain Panfair’s shareholding in ATV at above 10%, so as to defeat the objective of the transactions envisaged in the Letter of Intent and make Panfair a more attractive proposition for an intending buyer, is concerned, it does not seem to me to be possible to conclude, at this early stage of the proceedings, that it is one which is unsustainable.  Much will depend on an assessment of the evidence at trial.

114.  Thus, while it is fair to say that the evidence on behalf of the Chas and Mr Brown at this stage is that Dragon Viceroy and CLG were believed to have intended to subscribe for their shares of the New CBs, there is also evidence to indicate that by the time the ATV board resolved to issue the New CBs, Mr Wong had already signed a term sheet with the owners of Dragon Viceroy and CLG, to acquire those companies.  There is evidence also that suggests that the owners of those companies were expecting to be put in funds by Mr Wong to enable them to subscribe for their respective shares of the New CBs, but that this did not happen.  Mr Manzoni suggests that Mr Wong’s failure to fund Dragon Viceroy and CLG may well have been the result of a realisation (prompted by the Chas and Mr Brown) that it might be possible for him to acquire a sufficient degree of control over ATV by acquiring only Panfair’s interests in circumstances in which Panfair could be expected to maintain its shareholding in ATV at over 10%.  There is at present little evidence as to whether or not the Chas were aware of the entry into of the term sheets between Mr Wong and the owners of Dragon Viceroy and CLG.  If it turns out that they were, this might well lend support to the plaintiff’s contention that the alleged scheme did, in fact, exist.

115.  The same point would also go some way to answering Mr Lam’s second point, as the sudden crisis that is said to have emerged on 27 November 2009 was due to the inability of Dragon Viceroy and CLG to come up with the funds to subscribe for their respective pro rata shares of the New CBs – an inability that was itself apparently caused by Mr Wong’s failure to put them in funds for this purpose.

116.  Moreover, there is a further point that can be made in relation to the suggestion that it was in order for Panfair to simply take up for itself the pro rata shares of Dragon Viceroy and CLG in respect of the New CBs – given that San Want had made it clear some days earlier that it was prepared (albeit through Norwares rather than Antenna) to take up any unsubscribed for New CBs, or at least a pro rata share of such unsubscribed for New CBs along with any other shareholder who was taking up its own share, it would seem very well arguable that this behaviour in itself involved a breach of the Chas’ fiduciary duties to Antenna, provided that it could be said that it was in Antenna’s best interests for the New CBs that should have gone to Dragon Viceroy and CLG to be allocated pro rata to Norwares and Panfair rather than to Panfair alone.  Further, it would seem to me to be well arguable that in these circumstances, any such CBs subscribed for by Panfair as could or should have been subscribed for by Antenna or an associate of Antenna’s should be regarded as being held by Panfair on constructive trust for Antenna, to be dealt with in accordance with Antenna’s directions.

117.  As to the reasons for the conversion price chosen by the ATV board, the affidavit evidence suggests that the conversion price was worked out by directors of ATV associated with the Chas the day before the ATV board meeting on 17 November 2009, and presented to the ATV board at the meeting.  While an explanation for the conversion price has been provided, it is one that has yet to be tested by cross-examination.

118.  So far as the argument based on the ability of Panfair to acquire ATV shares from Dragon Viceroy is concerned, it seems to me that this is not a complete answer to the allegations.  As I have explained in paragraph 70 above, the case for the plaintiff is that it might well suffice for Mr Wong to acquire Panfair and Pelaka from the Chas, as long as each remains able to nominate two directors to the ATV board.  So far as Panfair is concerned, it will be able to do this by maintaining its shareholding in ATV at above 10% (which it would seem able to do if it is permitted to take up all the New CBs other than those that may eventually be taken up by Norwares from Antenna’s entitlement, quite apart from taking up some or all of the Series B CBs).  So far as Pelaka is concerned, it will be able to do this by refusing to transfer 2% of its shareholding in Antenna to a nominee of Mr Tsai’s – a matter which, on the wording of the Letter of Intent, would involve a possible breach of the Letter of Intent by the Chas (assuming Broadcasting Authority consent for the transfers is obtained), but which does not (at least on the arguments presently advanced) on the face of it involve a breach of any obligation on Pelaka’s part under the Letter of Intent, since the obligation to make the transfer appears (on the wording of the relevant clause) to rest with the Chas, rather than Pelaka itself.

119.  In any event, even if at the end of the day Mr Wong or some other intending investor in ATV might be able to achieve control despite the provisions of the Letter of Intent by acquiring Dragon Viceroy and/or CLG in addition to Panfair in a manner that would not involve any arguable breach of the ATV Shareholders’ Agreement or any arguable breach of fiduciary duty owed to Antenna by the Chas and Mr Brown, I would have thought that that is an argument for leaving them to pursue that route if it is truly available to them, rather than condoning at this stage of the proceedings what are said to be (at least to the extent of being a good arguable case) breaches of that agreement and those duties.

Whether there was a conflict with Antenna’s interests as opposed to those of San Want or Mr Tsai

120.  So far as the argument that the complaint made in these proceedings is not directed towards Antenna’s true interests, but those of San Want and/or Mr Tsai is concerned (see paragraphs 111(2)(a) and (b) above), this is an argument which has been considered in a slightly different context in paragraph 106 above.  For the reasons there explained, I consider that there is at least a good arguable case that Antenna’s interests would be best served by seeking, so far as possible, to preserve the benefits that were stipulated for in the ATV Shareholders’ Agreement, and the Letter of Intent, notwithstanding that Antenna was not a party to the latter.  Given the substantial identity between Antenna’s economic interests and those of San Want and Mr Tsai, it seems to me to be well arguable that it would be in Antenna’s interests for ATV to be influenced by (if not controlled by) persons sharing a similar approach to ATV.

Whether Antenna had no relevant interest because of the provisions of the Broadcasting Ordinance

121.  As for the suggestion that Antenna could not have achieved the degree of control suggested, because of the Broadcasting Ordinance prohibition on ATV being a subsidiary of another company (see paragraphs 111(2)(c) and (d) above), I do not think that the argument based on the projected shareholding is an insuperable one.  San Want and Mr Tsai were seeking, on their case, to advance Antenna’s interests by causing its entitlement to the New CBs (whether its own share or its proportionate share of any unsubscribed New CBs) to be taken up by Norwares.  Had this been done (and recognising that any conversion of the New CBs so as to give rise to new shares being issued to the holder would have been subject to Broadcasting Authority approval), Antenna would not have held more than 50% of the shares in ATV, and ATV would not have been its subsidiary on this basis.  In any case, as Mr Manzoni pointed out, had the conversion price for the New CBs been set at HK$2.47 as provided for in clause 11.6 of the ATV Shareholders’ Agreement, this problem would not have arisen at all, since the number of new shares issued to Antenna would not have taken it past 50% of the shareholding in ATV.

122.  As for the argument based on control of the board of ATV (assuming a board reduced to eight directors on which Antenna appointed four directors including the chairman with a casting vote), this is premised on control of the composition of the board being assessed by the ability to appoint or remove directors with a voting majority (rather than a numerical majority) on the board.  However, the authority cited by Mr Lam in support of that proposition (Enviroco Limited v Farstad Supply A/S [EWCA Civ 1399]) was based on the provisions of sections 736 and 736A of the UK Companies Act 1985 as amended by the UK Companies Act 1989.  Those provisions replaced the former provisions of section 736 of the Companies Act 1985, and are different from the provisions in Hong Kong’s Companies Ordinance, sections 2(4) and (5) of which are very similar to the replaced section 736.  The amendments introduced in the UK in 1989 (unlike the provision they replaced, and the Hong Kong provisions) expressly referred to the appointment or removal of directors holding a majority of the voting rights at board meetings, an expression that did not appear in the old wording.  In those circumstances, it is well arguable that the amendment was intended to, and did, effect a change in the law by introducing the concept of voting rights as relevant to the issue of control.  By implication therefore, the old section 736, to which our statutory provisions are very similar, did not refer to a majority by voting rights as opposed to a numerical majority.

123.  Further, as Mr Manzoni submitted, the terminology of sections 2(4) and (5) of the Companies Ordinance, referring as it does to the “composition of the board” and appointment and removal of “directors” would appear to be more naturally understood as a reference to the natural persons serving as directors, and hence to a numerical majority rather than a majority by reference to voting rights.

124.  Finally, as Mr Manzoni also pointed out, section 2B of the Companies Ordinance introduces the concept of a “subsidiary undertaking”, a term which is defined in Schedule 23 of the Ordinance.  This includes subsidiaries as defined in section 2(4) of the Ordinance, but also includes other undertakings, including the situation where the parent undertaking is a member of the subsidiary undertaking and has the right to appoint or remove a majority of its board (section 2(i)(a)(ii)(B) of the Schedule).  That right is further defined in section 4 of the Schedule as being a reference to the right to appoint or remove directors holding a majority of the voting rights at meetings of the board.  Mr Manzoni submitted that the existence of this widened definition for the purposes of Schedule 23 carries with it the implication that the wider definition does not apply to section 2(4) and (5) of the principal Ordinance.  It seems to me that this is (at the least) well arguable, so that board control of ATV by Antenna would not necessarily render ATV a subsidiary of Antenna for the purposes of section 8(3) of the Broadcasting Ordinance.

125.  I am therefore of the view that notwithstanding the submissions made by Mr Lam, it remains the position that there is a good arguable case in relation to the allegations of breach of fiduciary duty.

The other claims

126.  Lastly, so far as the allegations of inducing breach of contract and conspiracy are concerned, I do not think that these add significantly to the claims already made for the purposes of these applications.  It seems to me that the claims already considered are sufficient to justify the making of most of the injunctions sought (with the exception, which I shall consider separately below, of the injunction in relation to the Chas’ disposal of their interests in Panfair), provided that it would be appropriate to grant injunctive relief on the basis of the American Cyanamid principles.  If, applying such principles, injunctive relief should not be granted in respect of those claims, I cannot see that it would be appropriate to grant the relief on the basis of these further allegations.

Conclusions on the good arguable case point

127.  Thus, to take stock at this point, it seems to me that there is a good arguable case made out for relief against all defendants both in respect of the alleged breaches of the ATV Shareholders’ Agreement and in respect of the allegations of breach of fiduciary duty against the Chas and Mr Brown.  That is not to say that the case is equally strong in all respects, and in particular, I would accept that the case in respect of alleged breaches of fiduciary duty based on the alleged scheme (as opposed to specifically in respect of the taking up by Panfair of the allocation of the New CBs which should otherwise have been made to Dragon Viceroy and CLG), although in my view one which satisfies the “good arguable case” threshold, is probably less strong than that in relation to the specific breach identified in paragraph 116 above, and also less strong than the claim for breach of the ATV Shareholders’ Agreement.

Would damages be an adequate remedy?

128.  This leads on to a consideration of whether damages would be an adequate remedy.  In my view, damages would clearly not be an adequate remedy for the plaintiff if it is ultimately successful in its claims.  I think that Mr Manzoni is right to say that the damages which Antenna would suffer as a result of the loss of the opportunity to control ATV would be incapable of sensible or precise quantification, and that it would not, therefore, be just to leave Antenna to its remedy in damages.  In addition, while the damage which would be caused if the bond certificates in respect of the New CBs and Series B CBs were issued would be hard enough to quantify, I think it relevant to consider also the very significant further damage that would be caused to Antenna if ATV were to continue to issue further series of CBs with a conversion price of HK$0.28, particularly if these were to be issued to Mr Wong.  If this were to happen, the harm to Antenna would not just be that its opportunity to obtain control of ATV would be hindered or perhaps thwarted, but it would also find itself diluted in a very significant way if such further CBs were to be converted into new ATV shares.  This further damage would clearly be substantial, but would be equally difficult to quantify.

Balance of convenience

129.  It therefore remains to consider where the balance of convenience lies.  As to this, both Mr Fung and Mr Lam urged me to consider what were said to be the very serious consequences that might befall ATV if the injunctions were granted.  Mr Lam also referred me to the problems that would be caused in terms of the potential damage to be suffered by the Chas if they were prevented from disposing of their stake in Panfair, and the damage that would be done to the rights of Mr Wong under the Wong Agreement if that agreement were not allowed to proceed.

ATV’s position in respect of the injunction to prevent the further issue of convertible bonds

130.  I shall deal first with the position of ATV.  It was common ground that ATV was, and for some months has been, under very real financial strain.  According to the evidence filed on its behalf, its available funds as at the end of March 2010 were expected to be sufficient to see it through a period of perhaps three to four months further operations, after which it would be in need of further funding.  Evidence was also placed before me as to the difficulties that ATV has had in relation to renewing its existing banking facilities or seeking new facilities, and as to the pressure that it is facing from creditors whose debts are overdue to pay its outstanding debts.  Since the conclusion of the hearing, my attention has also been drawn to the presentation of a winding up petition against ATV by an unpaid creditor.

131.  I accept that ATV is in straitened financial circumstances, and that if it is unable to raise further funds, there is a risk that it will not be able to continue operations.  I accept also that this will cause hardship to many persons, including its staff.

132.  However, as Mr Manzoni pointed out, this is not a new development.  ATV has been in some financial difficulty for some time. Until the submission of the 2^nd affirmation of Ms Cherry Yuen on the second day of this application, there was no indication that ATV had any real prospect of raising any new funds, whether by commercial loan, shareholders’ loan or the issue of further series of convertible bonds.

133.  The plaintiff has proposed (in Mr Kevin Tsai’s 5^th affirmation) to fund ATV to the extent of HK$150 million for a six month period, by way of an unsecured loan by Norwares to be paid out in equal monthly instalments but subject to an option to convert the loan into a convertible bond carrying the right to convert the loan into shares of ATV at HK$1.37 if the plaintiff’s arguments on construction of clause 11.6 of the ATV Shareholders’ Agreement are correct, or at HK$0.28 if the defendants’ arguments on the construction of that provision are upheld at the end of the day.  This proposal was criticised as being unworkable or unrealistic by both Mr Fung and Mr Lam.

134.  It was said, in particular, that this would simply add to the debt of ATV, leading it to fall into a situation where it had an excess of liabilities over assets.  However, it seems to me that this would be the result of any loan, whatever its source, if ATV continues to incur net cash outflows every month.  It was also said that the proposal in relation to the option to convert the loan into a convertible bond was not one which would be agreed to by the other shareholders.

135.  At the end of the day, the position is this.  Absent any other proposal for funding for ATV, it does not appear that ATV has alternative sources of funds open to it.  It is of course a matter for its board to consider whether or not to accept a loan on the terms offered by the plaintiff, or to seek to negotiate alternative terms that might be regarded as more workable or more acceptable.  If no agreement can be reached, the consequence may be that ATV will not have much in the way of further funds available to it.  But that is not really any different to the position in which it now finds itself.  Thus, the grant of the injunctions sought against it, which prohibit the issue of further convertible bonds with a conversion price below HK$2.47 and the delivery and registration of the New CBs and Series B CBs would not seem to make its position any worse.

136.  What, if any, difference does the latest evidence of Ms Yuen make?  That evidence indicates that Mr Wong is willing to subscribe for up to HK$400 million worth of further convertible bonds, subject to Broadcasting Authority approval, if ATV is not enjoined from issuing them.  Thus, the only other source of funding that may now be open to ATV (apart from the plaintiff’s proposal) involves the doing of the very acts that the plaintiff seeks to restrain, and which I have concluded are very well arguably breaches of contract.

137.  In my view, it would not be right to permit ATV to proceed to further breach (or at least, commit what may well prove to be further breaches of) the ATV’s Shareholders’ Agreement simply because it is in (possibly dire) financial difficulties.  In coming to this view, I have had particular regard to the fact that I consider (as I have already indicated) that the arguments in favour of the conclusion that the issue of convertible bonds at a conversion price of HK$0.28, without the consent of all of ATV’s shareholders, would be a breach of clause 11.6 of that agreement, is one which is significantly stronger than the arguments to the contrary.  Moreover, the arguments as to consent or waiver that have been made in relation to the issues of convertible bonds already resolved upon do not apply to this situation.  I am also conscious of the very significant additional damage that would be done to the interests of Antenna by the issue of further convertible bonds to the extent that Mr Wong appears willing to take up, a matter which I have also mentioned earlier in this judgment, and the difficulties of meaningfully quantifying such damage.  In the event that the plaintiff turns out to be wrong in relation to the construction argument, I acknowledge that the damage to ATV (and by extension to the interests of the Chas and the other shareholders) could be very serious.  However, I do not think that this is sufficient to outweigh the factors that point in favour of the injunction being granted.  To allow ATV to continue to issue convertible bonds at a conversion price of HK$0.28 would, as Mr Manzoni put it, amount to sanctioning a restructuring of ATV by breach of the ATV Shareholders’ Agreement.  I do not think that this would be an appropriate exercise of the court’s discretion.

The other injunctions relating to the convertible bonds

138.  It seems to me also to be appropriate and desirable, in order to hold the position as best it can be held pending the trial of these proceedings, to grant the other injunctions sought, other than the injunction restraining the Chas from selling their interests in Panfair.  To do so will improve the prospects of the court being able to make appropriate orders to undo, so far as possible, the effects of the breaches that have already occurred, in the event that the plaintiff is successful at the end of the day.  As I have already indicated, it seems to me that there is a good arguable case in relation to the claims based on breach of fiduciary duty.  Further, and in any case, if ATV is itself restrained from issuing further convertible bonds, and from taking steps to deliver and register the New CBs and Series B CBs, the only additional restraints imposed on the other defendants will relate to the prohibition against Panfair seeking to dispose of or exercise its conversion rights in relation to the New CBs certificates for which have already been delivered to it.  These are matters in respect of which the status quo should be maintained pending the trial of these proceedings.  They are not matters which are, in my view, likely to cause significant additional damage to the defendants.

The position of the Chas and Mr Wong

139.  From the point of view of the Chas and Mr Wong, while it is fair to say that the grant of these injunctions might cause damage the extent of which may be difficult to assess, I am of the view that this is not sufficient to outweigh the other factors which I have identified in favour of granting the injunctions (other than that restraining the disposal of Panfair itself by the Chas).  While the cross-undertaking in damages may not provide perfect relief, I am satisfied that the better course is to grant the injunctions in question and leave the defendants to their remedies under the cross-undertaking.

The injunction to restrain the Chas from disposing of Panfair

140.  However, I have come to the conclusion that the position is different in relation to the injunction against the Chas disposing of their interest in Panfair to Mr Wong.  Given the thrust of the complaints in these proceedings, which are focussed entirely on the issue of the New CBs and Series B CBs and the threatened issue of further convertible bonds on similar terms, and given that injunctions will be kept in place to prevent the convertible bonds already offered from being dealt with and to prevent further convertible bonds being issued, it seems to me that there is no real need for the injunction preventing the Chas from disposing of their interest in Panfair to Mr Wong, if they still wish to do so, and he still wished to acquire it.  I am conscious of the fact that it has not been submitted that there is any basis arising from the relationship between the parties to restrain such a disposal.  The basis on which this injunction was initially sought was that it would render the other relief sought more efficacious, and would prevent the 1^st to 3^rd Defendants from somehow rendering any judgment that might be obtained nugatory.  However, with the addition of ATV and Panfair as parties, and the grant of the other injunctions against them, it seems to me that there would be no real risk of any judgment that the plaintiff might obtain being rendered nugatory or illusory just because the Chas have disposed of their interest in Panfair.  Panfair (and ATV) will remain subject to the other injunctions sought, whoever may be the owner of Panfair.  If Mr Wong chooses to go ahead with the acquisition of Panfair and Pelaka notwithstanding such injunctions, that, it seems to me, is a matter for him.

141.  I therefore think that it would not be appropriate to continue the injunction against the Chas disposing of their interest in Panfair, and I decline to do so.

Non-disclosure, delay and lack of clean hands

142.  Finally, I should just deal briefly with a number of other arguments that were raised:-

(1)     Mr Lam submitted that the injunctions sought should be refused because of alleged material non-disclosure at the ex parte stage by the plaintiff.  Five points were made, but I do not consider they make it appropriate to withhold the injunctions which I am minded to grant:-

(a)   As to the first two points, these relate to the fact that Mr Tsai wished to subscribe for the New CBs and Series B CBs through Norwares rather than Antenna.  For the reasons which I have explained in this judgment, I do not consider this to be a point of great significance in terms of its impact on the plaintiff’s ability to bring these proceedings.

(b)   As to the third point, which relates to the HK$150 million convertible bond acquired by Norwares earlier, this was not a point that was pursued at the hearing.

(c)   As for the fourth point, it does not seem to me of great importance for the court to have been told of the possibility that Dragon Viceroy could have sold some shares in ATV to Panfair to enable Panfair to remain at over 10% in terms of its shareholding in ATV – the fact is that this was not what had happened.

(d)   As to the fifth point, relating to the inability of Antenna to hold more than 50% of ATV’s shares, this was not a point of much significance, having regard to the views that I have expressed in relation to it above.

(2)     Mr Lam also contended that San Want had been guilty of delay in applying for the injunctions sought, and should on that ground too, be denied relief.  With respect, however, bearing in mind the fact that San Want brought proceedings promptly after learning of the intended sale by the Chas of their interests in Panfair and Pelaka to Mr Wong, and also the fact that there were discussions between the parties in the month or two before that, I do not think that this affords a basis for refusing the injunctions sought.

(3)  Finally, Mr Fung suggested that the plaintiff was guilty of a lack of clean hands, in that the problems which led to the issue of the New CBs and Series B CBs were brought about by the refusal of Mr Tsai to further fund ATV in accordance with the understanding of the other shareholders.  However, the question of whether or not Mr Tsai was actually under an obligation to fund ATV (as opposed to having the option to do so if he wished to) is a matter of dispute, on which there is (to put it most favourably to the defendants) a real conflict of evidence, which cannot be decided at this stage.

Disposition and outstanding matters

143.  I therefore grant the injunctions set out in the draft order submitted by Mr Manzoni as an annexure to his written submission, other than the injunction restraining the Chas from disposing of their interests in Panfair.

144.  This leaves a number of matters for consideration.  These include the question of whether or not further fortification should be ordered in respect of the cross-undertaking, directions for the further conduct of these proceedings, and questions of costs.  So far as these matters are concerned, I direct that the parties should fix a further hearing before me as soon as convenient, so that these matters may be dealt with as may be appropriate in the light of this decision.

145.  It remains only for me to thank counsel for their industry and their very considerable assistance.