李明實 AND OTHERS v. ACE LEAD PROFITS LTD AND ANOTHER

HCA 597/2021 [2024] HKCFI 206 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 597 OF 2021 ____________ BETWEEN 李明實, 方壘 AND 史洪源 1st Plaintiffs (SUING ON BEHALF OF THEMSELVES AND THE OTHER EMPLOYEES EMPLOYED BY OR BY THE GROUP OF COMPANIES UNDER 和利時科技集團有限公司） (TRANSLATED AND KNOWN AS HOLLYSYS GROUP COMPANY LIMITED) DR. CHANGLI WANG (王常力博士) 2nd Plaintiff PLUS VIEW INVESTMENTS LIMITED 3rd Plaintiff and ACE LEAD PROFITS LIMITED 1st Defendant SHAO BAIQING (邵柏慶) 2nd Defendant ____________ Before: Deputy High Court Judge MK Liu in Chambers (by Paper Disposal) Date of Written Submissions by the Plaintiffs: 22 December 2023 Date of Written Submissions by the Defendants: 5 January 2024 Date of Reply Submissions by the Plaintiffs: 12 January 2024 Date of Decision: 18 January 2024 ______________ D E C I S I O N ______________ On 21 November 2023, I dismissed the Injunction Summons issued by Ps (“the Decision”). Reasons for the Decision (“the Reasons”) were handed down on 24 November 2023. By a summons dated 5 December 2023 (“Ps’ Summons”), Ps seek leave to appeal from the Decision (“the Leave Application”) as per the grounds set out in the draft notice of appeal annexed to the summons (“the Draft Notice of Appeal”). I have directed that the Leave Application be disposed of on papers, and the parties have provided me their respective written submissions in accordance with the court’s directions. The background has been set out in the Reasons and I shall not repeat the same herein. For ease of reference, the abbreviations used in the Reasons are adopted in this decision. In the intended appeal, Ps are seeking an order in terms of [1(a)] of the Injunction Summons (“the 1(a) Injunction”) only. In other words, Ps does not intend to appeal against the dismissal of the other paragraphs of the Injunction Summons. The principles Leave to appeal would only be granted if the appeal has a reasonable prospect of success (which means that the prospect of success is reasonable and more than fanciful, without having to be probable), or there is some other reason in the interests of justice why the appeal should be heard. What is required is a reasonably arguable appeal. Merely showing that an appeal is “arguable” and “not fanciful” is insufficient. My refusal to grant an order in terms of the Injunction Summons (including the 1(a) Injunction) to Ps is a decision made as a result of an exercise of discretion of the court. The principles concerning an appeal from an exercise of a discretion have been recently summarized by Cheung JA in Tsung Tsin Association v Lai Kwok Wai, in which the learned judge said: “17. The grant or continuation of an interlocutory injunction is an exercise of discretion of the Court. The well-established principle is that the appeal court is not to exercise an independent discretion of its own. Its initial function is one of review only. It may set aside the judge’s exercise of discretion only if it can be shown that the judge was plainly wrong in the sense that, for example, he had acted on wrong principles, taken into consideration irrelevant factors, ignored relevant factors or the decision is outside the generous ambit within which reasonable disagreement is possible.” With these principles in mind, I now turn to the 3 grounds of appeal proposed by Ps in the Draft Notice of Appeal. Ground 1 Under Ground 1, Ps submit that having accepted that Ps have shown a serious question to be tried, I erred in refusing to grant the 1(a) Injunction to Ps. According to Ps, I have failed to distinguish adequately or at all the 1(a) Injunction which is a proprietary injunction to protect and preserve the trust property, namely, the Ace Lead HOLI Shares, and the other injunction orders sought in the Injunction Summons. Ps also say that I erred in holding that the balance of convenience was not in favour of granting the 1(a) Injunction. Ps submit that: Since the 1(a) Injunction is a proprietary injunction, there is no need for Ps to show irremediable damage and the court should readily find that the balance of convenience is in favour of preserving the property pending trial. I failed to appreciate that what was held in Wason Holdings Ltd v BHP International Markets Ltd was that where the proprietary claim of the plaintiff is not to any specific real or personal property but to money, and the plaintiff can be adequately compensated by an award of damages, whereas the defendant might be adversely impacted by the requirement to set aside the sum of money, the court might not grant a proprietary injunction. However, Ps’ proprietary claim in this case is in respect of specific property, namely, the Ace Lead HOLI Shares, and Ds would not be required by the 1(a) Injunction to set aside any sum of money, and hence the balance of convenience should tilt in favour of granting the 1(a) Injunction. In considering the question of the balance of convenience, I failed to consider or assess whether granting or withholding the 1(a) Injunction is more likely to produce a just result or which course is likely to cause the least irremediable prejudice to one party or the other. In this case, I should have held that the granting of the 1(a) Injunction should be more likely to produce a just result and cause the least irremediable prejudice to the parties. I erred in the point set out in [54] of the Reasons. In the Draft Notice of Appeal, it is said that I have failed to consider the following: Ds’ previous unsuccessful attempt on 19 October 2022 to request the Board to allow the Ace Lead HOLI Shares to be traded on the open market without the Restriction (ie the restriction mentioned in [54] of the Reason); that there would be resolutions proposed (“the Proposed Resolutions”) to be passed at the Meeting to be held aiming at, inter alia, appointing additional directors so as to reconstitute the Board of HollySys, and the 6 new additional directors proposed by Ds together with the other 3 registered shareholders of HollySys, if appointed, will form a majority in the Board which will be expected to side or prone to siding with Ds; that, contrary to what I thought at [54] of the Reasons, Ace Lead can sell, transfer or dispose of the Ace Lead HOLI shares by obtaining the Board’s consent, and Ds are likely to be able to obtain the Board’s consent from the reconstituted Board (“the New Board”), bearing in mind that Ds are now acting in concert with the other 3 registered shareholders of HollySys in pushing through, inter alia, the appointment of the 6 new directors proposed by them to form a majority in the Board. In this respect, I erred in thinking at [54] of the Reasons that Ds could only control around 6.69% shareholding in HollySys without regard to the shareholdings of the other 3 registered shareholders of HollySys acting in concert with Ds and the matters set out in (b) above; that it is also intended by Ds and the other 3 registered shareholders of HollySys that the New Board will come to a different conclusion on the acquisition offers (including the Consortium Offer) which is likely to lead to a total buyout of HollySys thereby impacting on the Ace Lead HOLI shares; and/or that in these circumstances, when the Meeting is likely to be held and the Proposed Resolutions are likely to be passed, the granting of the 1(a) Injunction should be even more urgently needed for the protection and preservation of the Ace Lead HOLI Shares. With respect, I am of the view that Ground 1 is not reasonably arguable. As shown in [44] of the Reasons, at the time of the Decision, I was fully aware that in Ps’ application, a proprietary injunction was being sought by Ps. I have given specific reasons to deal with the application for a proprietary injunction in [54] and [55] of the Reasons. At [54] of the Reasons, I said: “…… Ps allege that there would be a new board after the Meeting, which will push through a board resolution to remove the said restriction. As submitted by Mr Ho, this is purely speculative. After all, Ds can only control around 6.69% shareholding in HollySys. As to what resolution would be passed in the Meeting, this is not a matter within Ds’ control.” Ps now suggest that Ds are acting in concert with the other 3 registered shareholders and it is a certainty that there will be a New Board after the Meeting, which will pass a resolution to remove the Restriction. However, Ps have not identified any evidence supporting the aforesaid “acting in concert” theory, which I might have overlooked. In the circumstances, I am not persuaded that Ps would have a reasonable prospect of success in overturning the conclusion in [54] of the Reasons in the intended appeal. Ground 2 In Ground 2, Ps submit that I erred in holding that the delay is a relevant factor and that there was a delay of 2 years and 5 months after the commencement of these proceedings in taking out the Injunction Summons. Ps submit that: I failed to appreciate that in the context of a proprietary injunction and what is sought to be recovered is the trust property, delay may not be regarded as significant as in cases when Mareva or other form of interim injunctions are sought and even where there is delay such that a Mareva injunction would be refused, an injunction based on a proprietary claim may still be granted; Ds have not raised the issue of delay in their opposing affirmations and/or alleged that there was any prejudice caused by the alleged delay; I failed to appreciate that there was no delay on Ps’ part in applying for the 1(a) Injunction in that there was no urgent need to apply for that injunction earlier at the commencement of these proceedings as the trading on the Ace Lead HOLI Shares has been constrained by the Restriction and the Board refusing to uplift the Restriction which is likely to be changed by the New Board to be put in place by the Proposed Resolutions and the acquisition offers (including the Consortium Offer) which are likely to be approved by the New Board resulting in a total buyout of HollySys; and/or it was inconsistent to hold, on the one hand, that it was impossible for Ace Lead to sell, transfer or dispose of the Ace Lead HOLI Shares by reason of the Restriction, and, on the other hand, that the injunction application herein should have been taken out upon commencement of these proceedings. With respect, I am of the view that there is no merit in Ground 2. In [45] and [46] of the Reasons, I held that in an application for a proprietary injunction, the applicant would still need to show that the balance of convenience is in favour of granting the injunction. Each case depends upon its own facts. Having considered Ps’ submissions, it has not been demonstrated that arguably I erred in this ruling. As to Ps’ submission that there would be no prejudice to Ds if the 1(a) Injunction is granted, the point has been dealt with in [35] and [52] of the Reasons. Ps have not explained in what way my ruling in these paragraphs are arguably incorrect. As to the point made by Ps as summarized in [12(3)] above, this point in fact overlaps with Ground 1. As explained in the above, I am of the view that there is no merit in this point. As to the point made by Ps as set out in [12(4)] above, what I said in [55] of the Reasons is as follows: “…… there is really nothing justifying the necessity of having an injunction in terms of the Injunction Summons at this stage. The fact that there has not been any application for an injunction with same or similar terms for almost 2 years and 5 months after the commencement of these proceedings (ie from 21 April 2021 to 11 September 2023), or the delay in taking out the Injunction Summons, speaks for itself.” Reading [54] and [55] of the Reasons together and in context, it is clear that what I have said in the Reasons is that since the Restriction is in place at all times, there is really nothing justifying the necessity of granting the injunction sought by Ps. There is no inconsistency in the ruling as set out in the Reasons. Ground 3 Under Ground 3, Ps submit that in all the circumstances, I erred in refusing to grant the 1(a) Injunction. With respect, while there is no merit in Ground 1 and Ground 2, there cannot be any merit in Ground 3. Leave refused For the reasons above, bearing in mind that the intended appeal is an appeal from an exercise of discretion of the court, I do not think that Ps have overcome the requisite hurdle and demonstrated an appeal with a reasonable prospect of success. As per Ps’ Summons, Ps are also seeking leave to appeal pursuant to the “some other reasons in the interest of justice” limb. However, in the Draft Notice of Appeal, in Ps’ written submissions and in Ps’ written reply submissions, there is no elaboration as to why leave to appeal should be granted under this limb. With respect, I do not see any reason why the proposed appeal should be heard in the interest of justice, while there is no reasonable prospect of success in the appeal. Accordingly, the Leave Application must be refused. Disposition I dismiss Ps’ Summons. Costs should follow the event. There be an order that costs of Ps’ Summons be to Ds forthwith, with a certificate for two counsel. As per Ds’ Statement of Costs for Summary Assessment dated 5 January 2024 (“the Statement of Costs”), the total amount of the costs claimed by Ds is HK$448,704. Ps have set out their objections to the costs claimed by Ds in Ps’ List of Objections dated 12 January 2024. In my view, as submitted by Ps, the amount of costs claimed by Ds should be substantially reduced. No affirmation has been filed by Ds in the Leave Application. Ds’ written submissions are prepared by counsel. In the circumstances, the costs claimed by Ds’ solicitors in Part C and Part D of Ds’ Statement of Costs should be reduced. As to the counsel’s fees set out in Part E of Ds’ Statement of Costs, as submitted by Ps, the two counsel representing Ds in the Leave Application are the counsel representing Ds in the hearing before me on 21 November 2023, and they are familiar with the factual background and the legal issues in Ps’ injunction application. The counsel’s fees claimed by Ds should also be reduced. I accept Ps’ submissions made in Ps’ List of Objections, and I accept Ps’ suggestion that the total of the costs allowed should be HK$248,124. Costs payable by Ps to Ds are summarily assessed at HK$248,124. Lastly, it remains for me to thank all counsel for the helpful assistance provided to the court. (MK Liu) Deputy High Court Judge Mr Ronny Tong SC, leading Mr Kenny Lin and Mr Ronald Ngan, instructed by Alvan Liu & Partners, for the 1st to 3rd Plaintiffs Mr Ambrose Ho SC, leading Mr Jeff Chan, instructed by Gall, for the 1st and 2nd Defendants