TIONG KING SING v. SAM BOON PENG YEE AND ANOTHER

HCA 1517/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1517 OF 2011

____________

BETWEEN

	TIONG KING SING	Plaintiff
	and
	SAM BOON PENG YEE	1st Defendant
	NEW SUNSHINE INVESTMENTS LIMITED	2nd Defendant

____________

Before:  Hon To J in Chambers

Date of Hearing:  23 April 2015

Date of Decision:  23 April 2015

Date of Reasons for Decision: 6 May 2015

______________________________

REASONS FOR DECISION
______________________________

Introduction

1. This is the Plaintiff’s application for leave to appeal my decision made on 21 January 2015 (the “Decision”) dismissing the Plaintiff’s application by summons dated 30 July 2014, seeking:

(1) to strike out or expunge parts of Cheng’s 12^th Affirmation filed on behalf of the Defendants in support of a statement in an ex parte application for leave to issue committal proceedings against the Plaintiff; and

(2) to set aside the ex parte leave granted to the Defendants on 4 June 2014 to issue the said committal proceedings.  

At the conclusion of the hearing, I refused the Plaintiff’s application and reserved my reasons for the decision. Hereunder are the reasons for my decision.

2. Counsel are in agreement that under section 14AA of the High Court Ordinance (Cap 4), leave to appeal shall not be granted unless “the appeal has a reasonable prospect of success” or “there is some other reason in the interests of justice why the appeal should be heard”. “Reasonable prospect of success” requires more than showing that the appeal is “arguable” and “not fanciful”: see Ho Yuen Ki Winnie v Ho Hung Sun Stanley[1] and SMSE v KL[2].

3. The background of the case is set out at paragraphs 5 to 20 of the Decision.

The draft grounds of appeal

4. The Plaintiff advanced four grounds of appeal. These are:

(1) that I erred in holding that the requirements under Order 41 rule 5(2) of the Rules of the High Court are not applicable to an application for ex parte leave to issue committal proceedings and setting aside of the same; 

(2) that I erred in failing to strike out or expunge parts of  Cheng’s 12^th Affirmation for breach of Order 41 rule 5(2);

(3) that I erred in holding that the Defendants have pleaded sufficient particulars in the Statement; and

(4) that I erred in holding that the matters disclosed in the two letters from Messrs Wilkinson & Grist (“W&G”), the Plaintiff’s solicitors, were not material information which ought to have been disclosed to the court.

Grounds (1) and (2)

5. Mr Shieh SC, counsel for the Plaintiff, deals with these two grounds as one composite ground.  In my view, these grounds are premised on one proposition, which is that the requirements under Order 41 rule 5(2) apply to all affidavits to be used in any interlocutory proceedings, regardless of the purpose for which they are to be used.  The arguments advanced in support of these grounds are based on Mr Shieh SC’s obstinate refusal to accept the purpose of the two stage procedure in committal proceedings under Order 52 rule 2(1) and his misinterpretation of the authorities.

6. In paragraphs 21 to 30 of my Decision, I summarised Mr Shieh SC’s arguments about the application of Order 41 rule 5(2) and my reasons for dismissing the same.  It is very well established by the authorities that Order 52 provides a two stage process in committal proceedings, the ex parte stage in which the applicant seeks leave for issue of motion of committal and the inter parte stage in which the motion is heard in a substantive hearing.  The ex parte stage is a filtering process which filters out oppressive applications, or applications which have “some suspicion of oppression” or those which obviously have no chance of success.  The Statement under the ex parte stage serves as an indictment in criminal proceedings.  It sets out the particulars of the offence: see Grand Union Insurance Co Ltd v Clyde & Co[3] and Aqua-Leisure Industries, Inc and another v Aqua Aplash Ltd[4].  At this stage of the proceeding, the court is not concerned with questions of admissibility of evidence, or proof of the charge, or viability of the defence.  This proposition is supported by two Court of Appeal authorities: Anthony Eric Ryan Hotung v Ho Yuen Ki[5] and Secretary for Justice v Choy Bing Wing[6].  It would be convenient to quote the following passage from paragraphs 61 to 73 of the judgment of Yeung JA in Choy Bing Wing, which set out all the principles relevant to the disposal of this application for leave:

“61.  The supporting statement clearly set out such ground and the facts relied on. The affirmation of Wong Kin Man also verified those facts.

62. …

63.  At this early stage, the court is not concerned with the admissibility of evidence or whether the Applicant can successfully prove her allegations against the Respondent nor is the court concerned with the possible defence of the Respondent or whether such defence will succeed.

64. Order 52 Rule 2 stipulates the requirement to obtain leave to apply for committal in the following terms:

“An application for such leave must be made ex parte to a judge, and must be supported by a statement setting out the name and description of the applicant, the name, the description and address of the person sought to be committed and the grounds on which his committal is sought, and by an affidavit, to be filed before the application is made, verifying the facts relied on.”

65. The purpose of the statement in support of an application for leave is simply to provide the person sought to be committed with enough information to enable him to meet the charge. Sir John Donaldson MR said in no uncertain terms in Chiltern D.C. v Keane [1985] 1 WLR 619 at 622 C:

“Every notice of application to commit must be looked at against its own background. The test, as I have said, is: does it give the person alleged to be in contempt enough information to enable him to meet the charge?”

66. In Aqua-Leisure Industries, Inc and another v Aqua Aplash Ltd HCA 18928 of 1998, it was accepted that “the statement in support of an application is to be treated in similar manner as an indictment in criminal proceedings, having regard to the criminal nature of the sanctions for contempt”.

67. The Indictment Rules under Cap 221 provide under Rule 3 that “every indictment shall contain, and shall be sufficient if it contains, a statement of the specific offence with which the accused is charged describing the offence shortly, together with such particulars as may be necessary for giving reasonable information as to the nature of the charge”.

68. …

69. In the verifying affirmation of Wong Kin Man affirmed on 23 October 2003, court documents such as pleadings, affirmations, judgments and transcripts of hearings were exhibited together with news reports and magazine articles. It is such documents that the Respondent objects to on the basis that they are hearsay documents.

70. Technically, there was no need for the Applicant to exhibit those documents in the verifying affirmation. Order 52 Rule 2(2) only obliges the Applicant to verify the facts relied on, i.e. the contents of the statement containing the information to enable the Respondent to meet the charge.

71. The exhibited documents, including the newspaper reports and the magazine articles, contain further details of the Applicant’s allegations against the Respondent. The Applicant was only trying to provide the Respondent with as much information as possible.

72. How such allegations are to be proved and whether evidence tending to prove those allegations are admissible, as with all evidence in a criminal case, can and should only be dealt with at the substantive hearing.

73. Without commenting on their merits, the suggested defence that he had not been warned not to make the contemptuous remarks; that they were made with the permission of Rogers VP; that he had not been warned by Rogers VP not to make such remarks; that they were made in the course of an application in a judicial proceeding; or that the Respondent was exercising his right of free speech are all matters that can only be properly dealt with at the substantive hearing.”

(My highlighting underlined.)

7. In Choy Bing Wing, similar objection was raised as to the reference to newspaper reports and magazine articles.  As was held by Yeung JA, technically there was no need for the applicant to exhibit those documents in the verifying affirmation as Order 52 rule 2(2) only obliges the applicant to verify the facts relied on, ie the contents of the statement containing the information to enable the respondent to meet the charge.  The same applies in the present case.  The purpose of Cheng’s 12^th Affirmation was to verify the facts relied on in the Statement to enable the Plaintiff to meet the charge.  At that stage, ie the ex parte stage, of the process, I was not concerned with admissibility or otherwise of the allegations in the affirmations.  Hence, the requirements under Order 41 rule 2 have no application to an affirmation used to verify the statement used in support of an application for ex parte leave.  Alternatively, another way of expressing the same is that the requirements were met for the purpose of an affirmation verifying the statement.  It identified the source of Cheng’s belief, which is the employees present at the scene, though not in Mr Shieh SC’s words, “who said what” which is a matter to be determined at the substantive hearing.

8. Mr Shieh SC submits that my Decision that the requirements under Order 41 rule 2 do not apply to an affirmation verifying a statement filed for the purpose of making ex parte leave application totally ignored well established authorities, such as Savings and Investment Bank Ltd v Gasco Investments (Netherlands) BV (No 2)[7]; Citybase Property Management Ltd v Kam Kyun Tak (No 1)[8];and Sino Wood Investment Ltd v Wong Kam Yin[9].  I did not.  Rather and with the greatest respect, it is Mr Shieh SC’s obstinate refusal to acknowledge the filtering purpose which the ex parte application is designed to serve as established by well established Court of Appeal authorities which resulted in his misinterpretation of the above three cases. 

9. First, Savings and Investment Bank was quoted by Mr Shieh SC as a case in support of his proposition that defects in the verifying affidavit can and should be disposed of before the substantive hearing.  While that is absolutely correct, that case was not about striking out an affidavit filed for the purpose of obtaining ex parte leave to issue a notice of motion or setting aside such leave.  Leave had been granted. The respondents were not seeking to set aside the ex parte leave.  The proceedings had entered into the substantive hearing stage.  The short point which was raised as a preliminary point on the motion was whether an affidavit to be used at the hearing of the motion (even thought it might be the same affidavit filed for the ex parte application) complied with the equivalent of our Order 41 rule 2[10]. Properly understood, that challenge was actually part of the substantive hearing. 

10. Second, Citybase Property Management Ltd was a decision at the substantive hearing in which Ma J, as he then was, found the respondent liable for contempt of court by reason of her breach of interim injunction.  It was not a case about striking out an affidavit filed for the purpose of obtaining ex parte leave to issue a notice of motion or setting aside such leave. 

11. Lastly, Sino Wood Investment Ltd was a case which is similar in nature to the present one, in that the respondent sought to strike out or expunge the offending part of an affirmation filed in support of an application for ex parte leave to issue committal proceedings and to set aside the leave granted.  The offending part contained obviously hearsay allegations that the respondent had through others made murder threats to the ultimate beneficial owner of the applicant company.  Andrew Cheung J, as he then was, expunged the offending part of the affirmation but did not set aside the ex parte leave.  Though one of the objections to the offending part was the hearsay nature of the allegation, the principal reason for expunging it was irrelevancy and prejudice, rather than the hearsay nature of the allegation or non-compliance with the requirements under Order 41 rule 2.  The learned judge said at paragraph 10 of his decision:

“To allow the allegations to remain in evidence at this stage would, amongst other things, only serve to widen rather unnecessarily the scope of evidence and controversies that the court may be faced with at the substantive hearing, not to mention the allegations’ obvious prejudicial effect.”

12. The learned judge gave no consideration to the question of hearsay.  The requirements under Order 41 rule 2 was not mentioned at all in the decision.  While the adequacy of the affirmation as a verifying affirmation in support of the statement filed in the application for ex parte was considered, the focal point was relevancy and not credibility or whether the contempt could be eventually established by the evidence in the affirmation.  In striking out the offending part, the learned judge was doing what he would be required to do at the substantive hearing, though he conveniently did it in the course of hearing an application to set aside the ex parte leave.  Though without actually saying so, the learned judge was performing a filtering process, filtering out irrelevant evidence which would tend to make the application oppressive or clothe it with suspicion of oppression.  Thus, Sino Wood Investment Ltd supports rather than undermines the approach I adopted in the present case.

13. In accepting Cheng’s 12^th Affirmation as a verifying affirmation, I was doing no more than what Yeung JA said in Choy Bing Wing that an ex parte judge is entitled to do, ie accepting it as an affirmation verifying the facts relied on in the Statement containing the information to enable the Plaintiff to meet the charge.  For the purpose of the ex parte stage, there is no need for me to satisfy myself that the allegations contained therein are true.  That is something to be decided at the substantive hearing, for which directions will be given, and were indeed subsequently given, as to filing of evidence in support of and in opposition to the application for committal.  At that stage and prior to the actual hearing, the Plaintiff may, as did the respondents in Savings and Investment Bank Ltd, apply as a preliminary issue to strike out such affirmations filed by the Defendants on such grounds as are appropriate; or to renew their application to strike out Cheng’s 12^th Affirmation if no supporting evidence has been filed.  But as the matter now stands, I can see no reasonable prospect of success of an appeal based on these two grounds.

Ground (3)

14. By this ground, the Plaintiff alleges that I erred in holding that the Defendants have pleaded sufficient particulars in the Statement to sustain a reasonable cause of action that the “men” and “males” mentioned therein were acting in concert in pursuing a joint enterprise and under the instructions of the same group of which the Plaintiff formed part.  Mr Shieh SC argues that at the hearing, no argument was advanced by the Defendants on the basis that the Plaintiff and “the Plaintiff’s men” or the “males”, or the “men” were jointly liable on the basis of “joint enterprise” or “concerted” action.  He submits that it is well established that the “common design” itself and the defendants’ knowledge thereof must be pleaded and there is no sustainable plea of joint responsibility on the basis of “joint enterprise” or “concerted action”.

15. In my view, the authorities do not require any magic words to be used in pleading “joint enterprise” or “concerted action”. As submitted by Mr Coleman SC, counsel for the Defendants, the necessary facts have been stated in the Statement and Cheng’s 12^th Affirmation with sufficient detail and particularity to enable the Plaintiff to meet the charge. Those particulars are adequate.  What inferences to be drawn from such facts as will be proved at the substantive hearing are matters to be decided on another occasion.  Whether Mr Coleman SC had used the words “joint enterprise” or “concerted action” at the hearing is neither here nor there, the essence conveyed by these expressions was contained in his arguments and submission.  In my view, this ground of appeal is extremely artificial and has no reasonable prospect of success.

Ground (4)

16. By this ground, the Plaintiff alleges that I erred in holding that the matters disclosed in W&G’s two letters need not be disclosed to the court at the ex parte stage.  In gist, having regard to the nature of the ex parte application, I found that the information contained in the two letters were not material information which needs to be disclosed for the purpose of the filtering process: see paragraphs 39 to 44 of my Decision. 

17. Mr Shieh SC referred to Citibank NA v Express Ship Management services Ltd[11] and submits that the court is not concerned with whether the matters not disclosed would, if they had been disclosed, have caused it to refuse to grant the ex parte order.  The test is whether the court should have those matters in its weighing scale.  I have no quarrel with these legal principles.  Mr Shieh SC then quoted Fabrique Ebel SA v MBO Far East[12] and Anthony Eric Ryan Hotung v Ho Yuen Ki[13] and further submits that in the context of committal applications, one important matter in the “weighing scales” is the chance of success of the application.  The thrust of Mr Shieh SC’s argument is that the Plaintiff’s allegation of his involuntary presence at the Defendants’ office is material information which the Defendants should have disclosed when making the ex parte application.

18. I have no disagreement with the authorities and principles quoted by Mr Shieh SC above, but disagree with how he applies them and his conclusion.  Facts are material if they are relevant to the weighing operation which the court has to make in deciding the issue before it.  But these authorities did not spell out what is material in deciding an ex parte application for leave to issue committal proceedings.  In particular, I am unable to read from the passages in Fabrique Ebel SA v MBO Far East[14] and Anthony Eric Ryan Hotung v Ho Yuen Ki[15] which Mr Shieh SC quoted above that the chance of success of the application is one important matter to be put in the weighing scale.  Indeed, Anthony Eric Ryan Hotung v Ho Yuen Ki provides a good demonstration of how the court approaches an application for leave to issue committal proceedings.  In that case, the Plaintiff made an ex parte application for leave to issue committal proceedings against his trustees.  The application was turned inter parte by an order of the court to be heard before two judges of the Court of Appeal. The trustee opposed the application advancing some defences.  In my view, the fact that the application was heard inter partes has no bearing on the approach of the court in considering an ex parte application.  The considerations are the same.  None of the defences advanced by the trustee were considered by Yuen JA.  They were not put in the weighing scale as suggested by Mr Shieh SC.  Rather, upon satisfying herself that the plaintiff has demonstrated a prima facie case, Yuen JA granted leave to issue proceedings.  She said in paragraph 15 of the judgment:

“As to the points made by counsel for the Trustee, I think first that it is at least arguable that at least those parts of the Gill Order which were varied by this court were orders of this court.  Secondly, the order of this court referred expressly to s152FA proceedings if the companies failed to provide the documents requested by the Trustee.  Thirdly, counsel for the Trustee accepted that she was obliged by order of the court to make a diligent demand for those documents which were not available to her.  Given the trustee’s actions and omissions set out in para. 10 above, I do not think it can be said that the application is “obviously unfounded or oppressive” or which have “some suspicion of oppression about them”.  Whether committal proceedings are “appropriate” or not is a matter to be dealt with on the substantive application.”

This passage in no way suggests that Yuen JA had considered any defence or weighed the chance of success of the application. She was just performing the filtering process, satisfying herself that the application was not obviously unfounded; was not oppressive or had any suspicion of oppression; or was not one which obviously had no chance of success.  That was the approach taken by Yuen JA when considering the application.  I have no reason to depart from that approach.  The alleged defence is usually not anything to be put in the weighing scale.

19. In my view, what is material depends on the nature of the application.  The obligation of disclosure imposed on an applicant in an ex parte application calling for more draconian restraints on the respondent’s right must be more onerous than that on an applicant seeking ex parte leave as part of the filtering process before some other proceedings may be commenced.  In this regard, I am in general agreement with Mr Coleman SC.  Most of these applications for leave are disposed of without a hearing and, if granted, create no restraint on the respondents other than the obligation to answer the allegations upon issuance of the notice of motion. Hence the obligation of disclosure on the applicant must be less stringent than upon an applicant seeking, for example, a Mareva injunction order.  As the application serves as a filtering process, the court’s primary concerns are that the applicant has shown a prima facie case justifying the issue of the motion; that there is no oppression or suspicion of oppression in the making of the application; and that the motion is not one which obviously has no chance of success.  The court is not concerned with whether the respondent has a defence, even a good defence except if it raises suspicion of oppression or shows that the application obviously has no chance of success.  I therefore disagree with Mr Shieh SC’s submission that the chance of success and hence the defence is something to be put in the weighing scale. 

20. Mr Shieh SC also relies on Gee, Commercial Injunctions[16]. He submits that an applicant’s obligation of disclosure is to identify any defences which, although not yet taken, would have been available to be taken by the opponent had he been present at the application.  As the applicant’s obligation of disclosure depends on the nature of the application, the obligation suggested by Gee applies only to ex parte applications seeking some relief or remedies against the respondent, particularly if those remedies impose draconian restrictions on the rights of the respondent.  The obligation does not apply to an ex parte application which seeks no relief or remedy other than requiring the respondent to answer to the allegation.  Thus, the above paragraph provides a complete answer to Mr Shieh SC’s argument based on Gee.

21. Furthermore, insofar as the English position is concerned, according to the learned author, the Practice Direction[17] giving effect to that obligation is no longer in force[18].  In Hong Kong, paragraph 26(4) of Practice Direction 11.1 requires that an affidavit in support of an ex parte application seeking interim and substantive relief should disclose any answer asserted or likely to be asserted by the respondent.  That obligation is imposed on an applicant seeking some interim and substantive relief, such as a Mareva injunction order.  As an ex parte application for issue of committal proceedings does not seek any relief against the respondent, Practice Direction 11.1 does not apply.  Thus, the approach I adopted above is also consistent with the practice direction.

22. In the present case, the defence of involuntary presence falls far short of suggesting oppression or suspicion of oppression or that the application obviously has no chance of success.  It is not material information which needs to be disclosed.  The truth or otherwise of the allegation is a matter to be determined at the substantive hearing.  The Statement as verified by Cheng’s 12^th Affirmation has made out a prima facie case of contempt against the Plaintiff.  He has to answer to the charge.  In my view, this draft ground of appeal also has no reasonable chance of success.

Conclusion

23. For the above reasons, I reach the conclusion that the Plaintiff’s draft grounds of appeal have no reasonable chance of success. Accordingly, I refuse the application for leave to appeal with costs to the Defendants and certificate for two counsel.

	( Anthony To )
	Judge of the Court of First Instance
	High Court

Mr Paul Shieh, SC and Mr Harry Liu, instructed by Wilkinson & Grist, for the plaintiff

Mr Russell Coleman SC and Mr Tony Chow, instructed by CL Chow & Macksion Chan, for the defendants

HCA 1517/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1517 OF 2011

____________

BETWEEN

	TIONG KING SING	Plaintiff
	and
	SAM BOON PENG YEE	1st Defendant
	NEW SUNSHINE INVESTMENTS LIMITED	2nd Defendant

____________

AND

HCMP 1404/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1404 OF 2014

____________

	IN THE MATTER of an application by SAM BOON PENG YEE and NEW SUNSHINE INVESTMENTS LIMITED against TIONG KING SING for an order of Committal
	and
	IN THE MATTER of an application for an Order for committal pursuant to Order 52, rule 3 of the Rules of the High Court, Cap 4A

____________

BETWEEN

	SAM BOON PENG YEE	1st Plaintiff
	NEW SUNSHINE INVESTMENTS LIMITED	2nd Plaintiff
	and
	TIONG KING SING	Defendant

____________

Before:  Hon To J in Chambers

Dates of Hearing:  19 December 2014

Date of Decision: 21 January 2015

________________

D E C I S I O N

________________

Introduction

1. There are four summonses before the court: three issued under HCA 1517/2011 and one under HCMP 1404/2014. 

2. On 13 May 2014, the defendants in HCA 1517/2011, made an ex parte application for leave to issue committal proceedings against the plaintiff by filing a statement (the “Statement”) and a supporting affirmation (“Cheng’s 12^th Affirmation”) pursuant to Order 52 rule 2 of the Rules of the High Court.  On 10 June 2014, pursuant to the ex parte leave granted by this court, the defendants issued an originating summons under HCMP 1404/2014 applying for an order of committal against the plaintiff (the “Contempt Summons”).  For easy reading, the plaintiff in HCA 1517/2011 who is the defendant in HCMP 1404/2014 shall be referred to as the “Plaintiff”; while the defendants in HCA 1517/2011 who are the plaintiffs in HCMP 1404/2014 shall be referred to as the “Defendants”, or the “1^st Defendant”, or the “2^nd Defendant” as appropriate.

3. In the first summons dated 30 July 2014 under HCA 1517/2011, the Plaintiff seeks to strike out Cheng’s 12 Affirmation filed on behalf of the Defendants (the “HCA Summons”).  In the second summons dated 1 September 2014, the Defendants seek leave to adduce expert evidence.  In the third summons dated 1 December 2014 under HCA 1517/2011, the Plaintiff seeks an unless order requesting provision of certain documents by the Defendants.  In the fourth summons dated 30 July 2014 under HCMP 1404/2014, the Plaintiff applies to dismiss the Defendants’ Committal Summons (the “HCMP Summons”).  The HCA Summons and the HCMP Summons were ordered to be heard together. 

4. The second and third summonses have been disposed of at the hearing.  As the conduct of the HCMP Summons and its outcome depend largely on my decision on the HCA Summons, counsel sensibly agree that the hearing of the HCMP Summons be adjourned and be resolved among the parties, if possible, after my decision in the HCA Summons has been delivered. Accordingly, the HCMP Summons is adjourned sine die with liberty to restore.

The Plaintiff’s application under the HCA Summons

5. In the HCA Summons, the Plaintiff seeks:

(a) to strike out or expunge parts of Cheng’s 12^th Affirmation filed in support of the Statement as being defective or inadmissible; and

(b) to set aside the ex parte leave granted to the Defendants on 4 June 2014.

6. The Plaintiff’s application under the HCA Summons is based on the following grounds:

(1) that Cheng’s 12^th Affirmation filed in support of the Statement is defective;

(2) that the Statement disclosed no reasonable cause of action; and

(3) breach of duty of full and frank disclosure in respect of two letters dated 16 May 2014 (the “First Letter”) and 3 June 2014 (the “Second Letter”) from the Plaintiff’s solicitors, Messrs Wilkinson & Grist (“W&G”).

The background

7. The Plaintiff sold Wijaya International Investment Limited, later renamed as “W International Investment Group Limited” (“Company”) to the Defendants.  That Company is the holding company of Chongqing Wijaya Realty Limited (“Chongqing Wijaya”) which owns a building project known as the Ba Nan Project.  The Plaintiff then complained of fraud and that he had not been paid the full purchase price.  In 2011, he commenced this action against the Defendants and applied for a Mareva injunction to restrain the Defendants’ disposition of certain properties.  On 22 January 2012, upon the parties’ cross-undertakings, Louis Chan J dismissed the Plaintiff’s application for Mareva injunction. 

8. The Defendants undertook: (1) to maintain a deposit of RMB45 million at a bank in Chongqing as agreed by the parties; (2) to report disposal of properties within the Ba Nan Project; (3) not to dispose of the shares of W International Investment Group Limited and the shares of Chongqing Wijaya; and (4) to allow the Plaintiff inspection of the books of Chongqing Wijaya.

9. The Plaintiff undertook to refrain whether by himself his servants agents or otherwise howsoever from causing any harassment to the Defendants or Chongqing Wijaya and/or any interference and disruption to the Defendants’ carrying on with the development of the Ba Nan Project.

10. On the morning of 4 May 2014, the Plaintiff and a group of men (the “Plaintiff’s men”) entered and occupied the office of Chongqing Wijaya and allegedly harassed the 1^st Defendant and his staff.  The Plaintiff’s men stayed overnight in the office.  On the afternoon of that day, two males caused disturbance in the showroom inside the site of the Ba Nan Project.  The 1^st Defendant telephoned his solicitor, Mr Cheng of Messrs CL Chow & Macksion Chan (“CLCMC”), for help.

11. On the following day, Cheng went to Chongqing to take instructions from the 1^st Defendant and interviewed nine other witnesses of the Defendants.  At the same time, CLCMC wrote to W&G to complain about the incident on 4 May 2014 and demanded the Plaintiff to stop the harassment.

12. On 6 May 2014, some men distributed materials in Chongqing city containing a picture of the 1^st Defendant and accusation that he was an international swindler.

13. On 7 May 2014, upon his return from Chongqing, Cheng wrote to W&G demanding an explanation for the incident.

14. On 13 May 2014, CLCMC filed Cheng’s 12^th Affirmation in support of the Statement seeking leave to issue an originating summons for an Order that the Plaintiff be committed to prison for contempt of court in respect of his wilful breach of his undertaking pursuant to the order of Louis Chan J.

15. On 16 May 2014, W&G replied that the Plaintiff was on business trip and they were not able to take full instructions from him.  On the basis of brief instructions, they denied on behalf of the Plaintiff that he had ever breached his undertaking.  They admitted that the Plaintiff was in Chongqing on 4 May 2014 when he met several of his co-investors in the Ba Nan Project.  He informed the co-investors that he had not been paid the full purchase price of the Ba Nan Project by the 1^st Defendant. As result of repeated requests and insistence of the co‑investors, he was obliged to accompany them to the office of Chongqing Wijaya to demand the Defendants to pay up the full purchase price or to provide the co‑investors with the accounts relating to the Ba Nan Project.  The 1^st Defendant then called several gangsters to remove the co-investors from the office.  The Plaintiff left the office of Chongqing Wijaya and flew back to Kuala Lumpur on the same day.

16. On 3 June 2014, after taking full instructions, W&G further wrote to CLCMC.  They confirmed that the Plaintiff denied having caused any harassment to the Defendants.  In essence, they repeated what was said in their First Letter, but provided more particulars.  They said that the Plaintiff was urged by one of his co‑investors, Zhang, to present himself at the office of Chongqing Wijaya.  Upon arrival, two or three other co‑investors escorted him into the office.  He was asked by the co‑investors to confirm in the presence of the 1^st Defendant that the 1^st Defendant had not paid him the purchase price in full or afforded him full and timely access to the accounts of Chongqing Wijaya.  He did as he was told.  But the 1^st Defendant refused to confirm what he said.  Later, two teams of police officers arrived, but they left without taking any action.  Then the Plaintiff left.  Later in the afternoon, he was summoned by his co‑investors to go back to the office of Chongqing Wijaya.  There, his co‑investors asked him to remain in the office until the 1^st Defendant verified what he had said.  He was also required by the fifth team of policemen who arrived to stay there in the course of their inquiry of the 1^st Defendant’s complaint.  His co‑investors insisted on staying in the office because the 1^st Defendant had asked his staff to delete all the accounting records from the computer in his office and to remove documents.  The Plaintiff denied that he or any of his servants or agents made any allegations against the 1^st Defendant or Chongqing Wijaya at all.  A fax copy of this letter arrived at the office of CLCMC at 6:30 pm.

17. On the following day, 4 June 2014, I granted leave to the Defendants to issue the Contempt Summons.  A copy of my order was faxed to CLCMC at 11:00 am.  CLCMC then informed W&G of the ex parte leave granted.

18. On 5 June 2014, W&G wrote to CLCMC demanding them to immediately withdraw the contempt proceedings against the Plaintiff for their failing to disclose the contents of their First Letter.  CLCMC refused.

19. On 30 June 2014, W&G wrote to CLCMC again requesting them to set aside the ex parte leave granted and to discontinue the Contempt Summons.  They gave further explanations for the Plaintiff’s presence at the office of Chongqing Wijaya.  In gist, his explanation is that he flew to Macau to attend a meeting of the World Zhang Clan Association of which he is the president.  There, he met Zhang who is a member of the association and a co‑investor in the Ba Nan Project.  Zhang told him that the co‑investors were frustrated about the delay in this litigation, were sceptical of the Plaintiff and were anxious about the possibility of losing their investment.  Zhang urged him to go to Chongqing with the co‑investors to verify that he had not been paid the full purchase price.  Zhang also accused him of having something to hide from them.  He was reluctant to go and told Zhang about his undertaking to the court.  Eventually, he agreed to go on Zhang’s insistence and assurance that the co‑investors would not cause any trouble.  At the office of Chongqing Wijaya, he told the 1^st Defendant that the co‑investors wanted to chop off the Plaintiff’s neck because he had not been able to return their investments or allow them to reap any profit.

20. The 1^st Defendant had been prohibited by the Chongqing Public Security Bureau from leaving Chongqing since 2012 to facilitate their investigation in relation to the Plaintiff’s complaints of fraud.  He was placed under house arrest on 16 April 2013.  He was released in about June 2014.  That explains why he was unable to file any affirmation in reply to the Statement.  On 10 September 2014, he filed his 3^rd and 4^th Affirmations in support of the present application.

Striking out or excluding parts of Cheng’s 12^th Affirmation

21. Mr Shieh SC attacks Cheng’s 12^th Affirmation on two fronts.  First, he argues that it was inappropriate for Cheng to make an affirmation on behalf of the Defendants on matters which are highly controversial.  This is because Cheng did not have personal knowledge of the matters in dispute and his affirmation has the effect of shielding the Defendant behind his solicitors.  The general rule is that solicitors should only give evidence on behalf of their clients as a matter of exception which has to be justified.  It would be a fault for a solicitor to make affirmations on behalf of his client where the contents are highly controversial.  Where the client is abroad and his affidavit could not be perfected in time, a draft of the same could be exhibited to the solicitor’s affirmation to be followed by filing of the client’s sworn copy[1]. The contents of Cheng’s 12^th Affirmation are highly controversial.  However, at the time when the ex parte application for leave was made, the 1^st Defendant, who is the controlling mind of the 2^nd Defendant, was under house arrest and could not come to Hong Kong to make an affirmation or do so in Chongqing.  Cheng had been to Chongqing to take instructions from the Defendants and had interviewed nine other witnesses.  For Cheng to make an affirmation to verify the Statement was the only way the application for leave to issue the Contempt Summons could be made.  As the 1^st Defendant was placed under house arrest at the material time, Mr Shieh SC does not take issue with the 1^st Defendant’s failure to file an affirmation in support of the Statement.  In any event, the 1^st Defendant has made affirmations in September 2014 affirming the contents of Cheng’s 12^th affirmation.  This is a case in which filing of an affirmation by solicitor is justified.

22. Second, Mr Shieh SC relies on the principle that an allegation of civil contempt must be proved strictly to the criminal standard, ie the applicant must prove beyond reasonable doubt both the act claimed to constitute the contempt and the alleged contemnor’s requisite state of mind[2]. He also relies on Order 41 rule 5(2) which requires an affidavit sworn for the purpose of being used in interlocutory proceedings containing statements of information or belief to state the sources and grounds of that information or belief.  This requirement has to be strictly complied with where objection is likely to be taken, and especially where it is an objection of substance and not a mere technical and frivolous one[3].

23. Against this principle and requirement under Order 41 rule 5(2), Mr Shieh SC criticises the vague and general nature of Cheng’s 12^th Affirmation.  A wide range of allegations are contained in the affirmation in relation to matters which Cheng could not have personal knowledge of.  He relied on his interviews of the 1^st Defendant and nine of his employees.  The contents of the affirmation are all hearsay. Though hearsay evidence is admissible, Cheng failed to specify the sources of information for each allegation individually.  Cheng did not say in Cheng’s 12^th Affirmation which of the ten interviewees saw what each of the Plaintiff and his men did in harassing the Defendants.  Mr Shieh SC argues that even if the interviewees were either at the scene “and/or” witnessed the relevant incidents, it does not necessarily mean that all matters they allegedly conveyed to Cheng were derived from their personal knowledge. For example, one interviewee could have told Cheng simply what another interviewee had told him.

24. Mr Sheih SC further argues that albeit admissible in contempt proceedings, the court retains the discretion to exclude hearsay evidence on affidavit under Order 38 rule 2.  He refers to the following observation of Ma J, as he then was, in Citybase Property Management Ltd v Kam Kyun Tak & Ors (No.1)[4]:

“Affidavit evidence is invariably used in committal proceedings unless otherwise directed by the court: see Order 38, rule 2(3); Hong Kong Civil Procedure 2002 at paragraph 52/6/3. Furthermore, hearsay evidence is permissible: see Hong Kong Civil Procedure 2002 at paragraph 52/6/3; Savings & Investment Bank Ltd v Gasco Investments (Netherlands) B.V. No.2 [1988] Ch 422. The court obviously has a discretion whether or not to disregard such evidence and is certainly duty bound to consider carefully the quality of such evidence. I would, however, make this observation: where contempt proceedings are involved, although affidavit evidence is both admissible and normal, it is important that as much first hand evidence of the actual contempt is adduced or if not, an explanation given as to why such evidence is unavailable. This is not to fetter a court’s consideration of hearsay evidence where appropriate, but no court would wish to make a finding of contempt unless the evidence to support such a finding was good.”

Based on the above observation, Mr Shieh SC submits that upon a careful consideration of the quality of the evidence, Cheng’s 12^th Affirmation should be excluded under Order 38 rule 2(3).

25. Mr Coleman SC has no dispute with these trite principles of law which are hardly controversial, but argues that they are not applicable to an application for ex parte leave to issue committal proceedings and setting aside of the same.

26. I think Mr Coleman SC is plainly correct.  Order 52 rule 2(1) to 2(4) provide as follows:

“(1) No application for an order of committal against any person may be made unless leave to make such an application has been granted in accordance with this rule.

(2) An application for such leave must be made ex parte to a judge, and must be supported by a statement setting out the name and description of the applicant, the name, description and address of the person sought to be committed and the grounds on which his committal is sought, and by an affidavit, to be filed before the application is made, verifying the facts relied on.

(3) The applicant must give notice of the application for leave not later than the preceding day to the Registrar and must at the same time lodge with the Registrar copies of the statement and affidavit.

(4) The judge may determine the application for leave without a hearing, unless a hearing is requested in the notice of application, and need not sit in open court; and in any case the Registrar shall serve a copy of the judge’s order on the applicant.”

27. Under these rules, there are two stages in a committal proceeding.  First, an applicant applies for leave under Order 52 rule 2(1) to make an application for an order of committal.  Under rule 2(2), such an application must be made ex parte to a judge and must be supported by a statement setting out the name and description of the applicant, the name, description and address of the person sought to be committed and the grounds on which his committal is sought and by an affidavit to be filed before the application is made, verifying the facts relied on.  The judge may determine the application for leave without a hearing.  A hearing is rarely required.  As in the present case, leave was granted without a hearing.  This ex parte stage is a filtering process.  The leave requirement filters out oppressive applications for committal or those which have “some suspicion of oppression about them” or those which obviously have no chance of success.  If leave is granted, the applicant proceeds to the second stage.  He may make an inter partes application for an order of committal by taking out an originating summons under rule 3.

28. The statement under the ex parte stage is to be treated in a similar manner as an indictment in criminal proceedings setting out the particulars of the offence: see Grand Union Insurance Co Ltd v Clyde & Co[5]. The purpose of the supporting affidavit is to verify those facts relied on in the statement.  It needs not contain the evidence in support of the order for committal, though it usually does.  How the facts relied on in the statement are to be proved and whether the evidence thereof is admissible or sufficient, are issues to be decided at the substantive hearing at the inter partes stage: see Fabrique Ebel SA v MBO Far East[6] and Anthony Eric Ryan Hotung v Ho Yuen Ki[7].  The requirements of the supporting affidavit are succinctly stated in Hong Kong Civil Procedure 2015 as follows[8]:

“ The affidavit in support should verify the statements of fact in the statement supporting the application. The necessary particulars should be provided in the statement rather than the affidavit (Incorporated Owners of United Building v Ng Yuk Ming [1994] 3 HKC 637 at 639, per Yam J.). The affidavit may contain hearsay evidence even for criminal contempts. How the allegations are to be proved, and whether the evidence thereof is admissible, are issues to be decided at the substantive hearing (Secretary for Justice v Choy Bing Wing, unreported, CACV 11 of 2004, December 3, 2004, §§63-79).”

29. At this stage of the proceeding or for the purpose of setting aside the ex parte leave granted, the court is not concerned with questions of admissibility of evidence, or proof of the charge, or viability of the defences.  As was held by the Court of Appeal in Secretary for Justice v Choy Bing Wing[9], those matters can and should only be dealt with at the substantive hearing.  I therefore agree with Mr Coleman SC that the principles relied on by Mr Shieh SC are not applicable to an ex parte application for leave or for setting aside of the leave granted.  They may be applicable at the substantive hearing of the application for an order of committal.

30. Given the purpose of the supporting affirmation and the nature of the proceeding at this stage, all the objections raised by Mr Shieh SC about the defects of Cheng’s 12^th Affirmation collapse.  Cheng interviewed ten potential witnesses, including the 1^st Defendant.  They were at the scene and/or witnessed the incidents.  Cheng has sufficiently verified the facts as particularized in the Statement.  The 1^st Defendant has now filed his 3^rd Affirmation confirming that the account of the incidents described in Cheng’s 12^th Affirmation is the same as that which he saw or was reported to him by his staff at the material time of the incidents.  There was no concealment by Cheng and the 1^st Defendant of their reliance on hearsay evidence in their affirmations.  The court can assess the veracity of the hearsay evidence at the substantive hearing.  It is also open to the 1^st Defendant to make good his case by filing evidence from any of the other nine interviewees whose particulars and whereabouts are known to him.  This is not a case in which the court entertains any suspicion of oppression or can say with absolute certainty that it has no chance of success.  There is no reason to strike out or expunge any part of Cheng’s 12^th Affirmation under Order 41 rule 5(2) because of his failure to state the sources and grounds of his information or belief, or to exercise my discretion to exclude it under Order 38 rule 2.

Whether the Statement disclosed reasonable cause of action

31. Under this ground, the Plaintiff attacks the Statement as disclosing no reasonable cause of action.  This attack is premised on two principles.  First, since the liberty of the alleged contemnor is in issue, the notice which is given to the alleged contemnor must contain all the particulars which the court ordinarily demands before depriving a person of his liberty: see Churchman v Joint Shop Stewards’ Committee of the Workers of the Port of London[10].  There is no dispute about this principle.

32. Second, as the Defendants’ case is premised on the wrongs committed by agents, servants or others (ie “otherwise howsoever” under the Plaintiff’s undertaking) for whom the Plaintiff is responsible, the Defendants have to establish some relationship, such as principal and agent, between the Plaintiff and the wrongdoers; and this relationship can only be established by mutual consent, express or implied: see Garnac Grain Co Inc v Faure & Fairclough Ltd[11]. Hence, Mr Shieh SC argues that the Plaintiff must plead facts which establish such relationship or consent.  He quotes the following dicta from Stockwell v Victoria[12]:

“ … it is necessary for the Plaintiff in his pleading to identify by name or office, or other circumstances, an employee, agent or independent contractor who was responsible for the tortious conduct. First, because that is the matter that has to be proven; secondly, to enable the Defendant to know the case it has to meet, and, in particular, to assist it in preparing its defence to the case; and thirdly, and just as importantly, to focus the minds of the Plaintiff and his advisers as to the matters that have to be proven in the case.

…

  If the Plaintiff fails to identify such a person by name, then the Plaintiff assumes a heavy burden of persuading the Court that some unidentified employee, agent or independent contradctor was responsible for the damage.”

33. On the strength of these dicta, Mr Shieh SC argues that the Statement is defective in the following respects.  On the Defendants’ case, the Plaintiff was only involved or present in the first out of the thirteen acts of harassment pleaded in the Statement. The other occasions were allegedly attended by the Plaintiff’s men or just two males.  The Defendants have not pleaded that any of the “Plaintiff’s men” or “males” mentioned in the Statement was the Plaintiff’s agent, servants, or other persons for whom the Plaintiff was responsible or named them.  Mr Shieh SC submits that even allowing for the fact that the Defendants cannot be expected to know their names if the 1^st Defendant and the other nine interviewees had not met them before, it would be far‑fetched to suggest that simply by his presence with  those “men” or “males” on the occasion identified in the Statement, those “men” or “males” must automatically become the Plaintiff’s agents, servants or other persons for whom the Plaintiff was responsible for the purpose of carrying out the acts now complained of.

34. With respect, this objection is rather artificial.  What have to be pleaded in the Statement are facts and not evidence.  In the Statement, the Defendants have pleaded the Plaintiff’s presence and the acts committed by the “Plaintiff’s men” who came with him and was aware that those “men” stayed overnight.  They have pleaded the “two males” who pursued a similar course of conduct in the showroom on 4 and 5 May 2014 and the handing out of defamatory materials in Chongqing City from 6 May 2014.  Given the proximity in time and location of the incidents in the office of Chongqing Wijaya and the showroom, the irresistible inference is that those “men” and the “males” were acting in concert in pursuing a joint enterprise and under the instructions of the same group, of which the Plaintiff formed part.  Their agreement or consent in pursuant to this common course of conduct could be readily inferred.  Whether those “men” or “males” are co‑investors as the Plaintiff alleges, relatives and friends of the Plaintiff or people brought along by them fall within the wordings of “otherwise howsoever” in the undertaking.  For the purpose of this filtering process, at least, a reasonable cause of action has been disclosed by the Statement.

Whether there was breach of duty of full and frank disclosure

35. The strongest ground, according to the Plaintiff, is material non-disclosure.  It is well established principle under Order 32 rule 6 that an ex parte order may be set aside if an applicant failed to make full and frank disclosure of all material facts. Facts are material and should be disclosed if they are relevant to the weighing process which the court has to make in deciding whether to grant the order: see paragraph 52/2/4 of Hong Kong Civil Procedure 2015.  A party’s duty of full and frank disclosure continues as long as the proceedings remain on an ex parte basis: see paragraph 32/6/16 of Hong Kong Civil Procedure 2014.  The duty applies also to the situation where material information only comes to light after leave has been granted, but before the hearing of the substantive application for committal: see RACP Pharmaceutical Holdings Ltd v Li Xiaobo[13]. The Plaintiff relies on the First Letter dated 16 May 2014 and the Second Letter dated 3 June 2014 as material facts which should have been disclosed as relevant to the court’s weighing process in deciding whether to grant the ex parte leave.  The principles quoted above are trite principles.  The issues are whether either of the two letters contained materials relevant to the court’s weighing process.

36. In the First Letter, W&G admitted on behalf of the Plaintiff that he accompanied his co-investors, albeit under some moral obligation or coercion, to the office of Chongqing Wijaya to demand the 1^st Defendant to pay up the full purchase price or to provide the co‑investors with the accounts relating to the Ba Nan project, but denied he had ever breached his undertaking.  Though denying any breach of the undertaking and asserting that he left Chongqing later that afternoon, this letter corroborated the Defendants’ case that the Plaintiff was with the Plaintiff’s men in the office of Chongqing Wijaya.  In summary, the First Letter offered a brief explanation of the Plaintiff’s presence at the office of Chongqing Wijaya.

37. In respect of the Second Letter, there was an argument by W&G that the Second Letter only arrived at their office after office hours at 6:30 pm on 3 June 2014; that on the following day the handling solicitor was attending a case management conference scheduled for 10:30 am; and my order granting leave arrived at the office at 11:00 am by fax.  Hence, by the time the handling solicitor had notice of the Second Letter, leave had been granted.  The purported explanation was not made on oath.  There is no explanation as to why the handling solicitor could not have attended to that letter between 9:00 am and 10:30 am or could not have made disclosure to the court before having the order sealed.  In any event, this attempt to water down the material non-disclosure must fail as the obligation of full and frank disclosure survives the order grant leave: see RACP Pharmaceutical Holdings Ltd v Li Xiaobo[14] and China North Industries Investment Ltd v Ronald Chum[15].  Mr Shieh SC argues that despite the issue of material non-disclosure was raised in the Second Letter, W&G still did not see fit to disclose the Second Letter to the court.  He submits that such conduct must be taken as intentional and contumelious.

38. On the other hand, Mr Coleman SC submits that the Second Letter simply contained denials and representations by the Plaintiff’s solicitors; they are not relevant materials, for otherwise the courts would be bombarded by being copied on all solicitors’ correspondences and asked to constantly review its decision after every exchange, every time an ex parte order was granted until inter partes hearing.

39. I would not treat a solicitor’s representation on behalf of his client in a serious matter such as this so lightly.  Here, in the First Letter and Second Letter, CLCMC tendered what purported to be an innocent explanation on behalf of his client for his presence during the incident, in respect of which ex parte leave to issue committal proceedings was granted and protested about material non-disclosure.  Whether the two letters should be taken seriously depends on what is the substance in the letters, particularly in the Second Letter.  Were the materials disclosed relevant to the court’s weighing process?

40. In the Second Letter, W&G repeated what was said in the First Letter and provided more particulars.  The Plaintiff denied he was in breach of his undertaking and denied that the co‑investors were his servants or agents.  He was urged by one of his co‑investors, Zhang, to present himself at the office of Chongqing Wijaya.  He explained how he was being accompanied by two or three other co-investors to confront the 1^st Defendant in the office of Chongqing Wijaya in the morning and again later in the afternoon.  He impliedly confirmed that the “Plaintiff’s men” were his co‑investors who urged him to confront the 1^st Defendant.  Again, this corroborated the Defendants’ case insofar as the Plaintiff’s presence with the “Plaintiff’s men” is concerned.  He added that he was required by the fifth team of policemen who arrived to stay there in the course of their inquiry of the 1^st Defendant’s complaint of harassment.  This allegation does not damage the Defendants’ case.  The Plaintiff further asserted that his co‑investors insisted on staying in the office because the 1^st Defendant had asked his staff to delete all the accounting records from the computer in the office and to remove documents.  Though this assertion explains the reason why the “Plaintiff’s men” brought mattresses to stay in the office of Chongqing Wijaya, it is at least consistent with the Plaintiff’s case insofar as the “Plaintiff’s men” stayed overnight in the office is concerned. What is left in dispute is what the Plaintiff’s men did in the office and whether what they did amounted to harassment.  Again, the Second Letter offered a fuller explanation of the Plaintiff’s presence at the scene.

41. The function of the court at the ex parte stage is to filter out obviously unfounded or oppressive applications for committal or those which have some suspicion of oppression about them.  It is not concerned with finding whether committal proceedings are appropriate, which is a matter to be dealt with at the substantive hearing.  It is not concerned with admissibility of evidence or whether the applicant can successfully prove his allegations against the alleged contemnor nor is the court concerned with the possible defence of the alleged contemnor or whether such defence will prevail: see Secretary for Justice and Choy Bing Wing[16]. What the court has to do in this weighing exercise is to satisfy itself that the applicant has shown a prima facie case and that the application was not oppressive or has any suspicion of oppression.  That is what this weighing exercise is all about.  It does not require the court to weigh the relative strength of the parties’ case and make finding of fact and credibility of witnesses.  Indeed, the court should not engage itself in a mini trial on affidavit evidence. 

42. There is not much the First and Second Letters could have added to Cheng’s 12^th Affirmation or the Statement, except an explanation of the Plaintiff’s involuntary presence at the office of Chongqing Wijaya.  Whether the explanation is to be believed boils down to finding of fact and credibility to be determined at the substantive hearing of the application for committal.  These are not matters to be determined at the ex parte stage.  Furthermore, the explanation does not go that far as to destroy the fundamental basis of the Defendants’ case such that the ex parte application may be filtered out as having no chance of success.  The explanation has nothing to add to the weighing process at the ex parte stage.

43. I was referred to the case of RACP Pharmaceutical Holdings Ltd v Li Xiaobo[17] in which the ex parte leave for issue of a notice of motion for committal for alleged breach of a Mareva order was set aside on the ground of material non‑disclosure.  The information which was not disclosed was the applicant’s knowledge that his witness was not reliable and that the contemnor had purged the contempt which he might have been found guilty of and which effectively removed all risks of dissipation of assets prior to judgment under the Mareva order.  That case is clearly distinguishable from the facts of the present case.  The applicant should have alerted the ex parte judge of the inherent risk in his own case and that the contempt had been purged which rendered the proceeding oppressive.

44. On the evidence before me, the Plaintiff has amply demonstrated a prima facie case.  There is nothing to suggest oppression in the taking out of the application for leave.  That an alleged contemnor has an explanation is something to be tested at the hearing of the substantive application.  Taking out an application for ex parte leave, even with knowledge of such an explanation, which is disputed, does not amount to oppression.  Not even Mr Shieh SC has suggested otherwise.  In the circumstances, the information disclosed in the First Letter and Second Letter are not material or not relevant for the court’s consideration at the ex parte stage.

Conclusion

45. In conclusion, I find that the ex parte leave was rightly granted in the first place.  The First Letter and Second Letter issued by the Plaintiff’s solicitors after the application was filed do not undermine the Defendants’ case or render it obviously unfounded or oppressive.  Accordingly, the Plaintiff’s HCA Summons dated 30 July 2014 to strike out or expunge parts of Cheng’s 12^th Affirmation and to set-aside the ex parte leave granted on 4 June 2014 is dismissed with costs with certificate for two counsel.

46. The Plaintiff’s HCMP Summons dated 30 July 2014 was adjourned sine die with liberty to restore.

	( Anthony To )
	Judge of the Court of First Instance
	High Court

Mr Paul Shieh, SC and Mr Harry Liu, instructed by Wilkinson & Grist, for the plaintiff in HCA 1517/2011 and the defendant in HCMP 1404/2014

Mr Russell Coleman SC and Ms Elizabeth Yang, instructed by CL Chow & Macksion Chan, for the defendants in HCA 1517/2011 and the plaintiffs in HCMP 1404/2014

HCA 1517/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1517 OF 2011

________________________

BETWEEN
	TIONG KING SING	Plaintiff
and
	SAM BOON PENG YEE	1st Defendant
	NEW SUNSHINE INVESTMENTS LIMITED	2nd Defendant
________________________

Before: Deputy High Court Judge Leung in Chambers

Date of Hearing: 18 July 2013

Date of Decision: 3 December 2013

________________________

D E C I S I O N

________________________

1.  In 2009, the plaintiff (“Tiong”) agreed to sell his shares in Wijaya International Investment Group Limited (“W”), a Hong Kong company, to the 1^st defendant (“Yee”). The 2^nd defendant (“New Sunshine”) was Yee’s nominee to take up the shares. The shares were transferred and partly paid for. Tiong now alleges fraud and wants his shares back; and claims for his loss and damage. Yee and New Sunshine counterclaim for specific performance or alternatively money back and, in any event, damages.

BACKGROUND

2.  Tiong is a Malaysian.  He started W in about 2006.  Through holding all the shares in W, which in turn owns all the share capital of Chongqing Wijaya Realty Limited, later known as Chongqing Wijaya Whittier Homes Limited (“Chongqing W”), Tiong owned the major commercial and residential property development of Chongqing W in Ba Nan District in Chongqing, the Mainland (“the Ba Nan Project”).

3.  Yee is Malaysian and a United States citizen. He has been acting as the general manager of Chongqing W since September 2009.

4.  By an offer letter dated 14 November 2009 (‘the Offer Letter”), Tiong offered to sell to Yee his shares in W (“the Shares”), and thus the Ba Nan Project of Chongqing W, at RMB 300 million.  This was accepted by Yee.

5.  The parties later entered into the following agreements dated 30 December 2009:

(1) By a formal sale and purchase agreement, Tiong agreed to sell and Yee agreed to buy the Shares at RMB 333.5 million, payable by 7 instalments spread over a period until 1 March 2012.

(2) By a custodian agreement, the parties agreed that the new share certificates (for the Shares) to be issued to Yee’s nominee, New Sunshine, would be held by Yee’s solicitors pending instruction.

(3) By a deed of tax indemnity, Tiong agreed to indemnify Yee and New Sunshine against the tax liability of Chongqing W prior to completion of the sale and purchase of the Shares.

6.  The major differences between the terms of the Offer Letter and those of the subsequent written agreements lie in the restriction on encumbering the land of Chongqing W and in the retention of beneficial interest in the Shares in Tiong, pending full payment of the purchase price by Yee.  These provisions, which existed in the Offer Letter, no longer existed in the written agreements.

7.  Tiong has paid the first 3 instalments of the purchase price for the Shares.

8.  Subsequently, Tiong, through his representative, and Yee entered into 2 variation agreements, the first one dated 22 January 2011 and the second one dated 27 March 2011.  As a result, the RMB 250 million balance for the purchase of the Shares was rescheduled to become payable by 3 annual instalments between February 2012 and February 2014.

9.  By the variation agreements, an additional sum of RMB 300 million became payable by 6 equal half-yearly instalments spread between July 2011 and January 2014 (“the Additional Sum”).  Yee and New Sunshine described that as Tiong’s share of the anticipated profits from the Ba Nan Project.  Tiong described that as compensation for the postponement of the payment of the purchase price for the Shares.

10.  In any event, the variation agreements provided for the inspection of the accounts of W by Tiong’s representative.

11.  There is no dispute that Yee has paid RMB 5 million towards the Additional Sum.

12.  As at today, there is an outstanding balance of the purchase price for the Shares in the sum of RMB 250 million and (possibly payable) an outstanding balance of the Additional Sum in the sum of RMB 295 million.

Application in HCA 1069/2011

13.  On 28 June 2011, Tiong commenced HCA 1069/2011.  The action was then commenced in aid of arbitration proceedings in Singapore.  On the same day, Tiong applied ex parte for mareva injunction to restrain Yee and New Sunshine from disposing of the Shares and the assets of W and Chongqing W.

14.  The ex parte application came before Poon J, who at the end of the hearing made no order.

The letter dated 5 July 2011

15.  By letter dated 5 July 2011, Tiong, through his then solicitors, communicated to his opponents his stance that he considered Yee to be in repudiation of the agreement (which, he says, included the terms of the Offer Letter). Tiong thereby accepted such repudiation and thus terminating the agreement.  Tiong demanded, among other things, the return of the Shares.

Application in HCMP 1089/2011

16.  On 8 July 2011, Tiong commenced originating proceedings HCMP 1089/2011 essentially for similar injunctive relief against Yee and New Sunshine as before.  On the same day, Tiong applied ex parte for mareva injunction, which he succeeded before To J.

17.  Tiong then discontinued HCA 1069/2011 on 26 July 2011.

18.  At the inter partes hearing on 12 August 2011, Chung J discharged the ex parte mareva injunction on the ground of material non-disclosure and Tiong’s failure to establish a real risk of dissipation of assets of W or Chongqing W. The learned judge refused to re-grant the injunction inter partes.  He handed down his reasons for decision on 19 August 2011 (“the HCMP 1089/2011 Decision”).

19.  HCMP 1089/2011 was subsequently discontinued.

The present action

20.  In September 2011, Tiong commenced the present action.

21.  Tiong contends that the terms of the Offer Letter, whether by way of incorporation or collateral contract, were binding on the parties notwithstanding the subsequent written agreements.  On that basis, Tiong made multiple complaints about fraud and breach on the part of Yee, including the follows:

(1) Yee delayed in his payment of the purchase price for the Shares.

(2) The Shares were transferred to New Sunshine without the knowledge or consent of Tiong.

(3) The Shares and the land in the Ba Nan Project were pledged as security for loans.

(4) Yee utilised the loans so obtained for his personal purpose including funding his purchase of the Shares and purchase of land other than for Chongqing W.

(5) Yee also caused Chongqing W to incur higher than normal construction cost to the construction contractor and got Chongqing W into dispute with the contractor.  The project was delayed and thus resulting in financial loss.

(6) All those led to the depletion of the assets of Chongqing W and the dilution of the value of the Shares, in which Tiong retains beneficial interest.

(7) Access to the company accounts for inspection by Tiong’s representative was denied.

22.  Tiong then contends that he was induced to enter into the above written agreements as a result of fraudulent misrepresentation by Yee, including that in respect of his intention and ability to pay for the Shares.  Yee is also accused of seizing control of Chongqing W by submitting forged statutory forms to the authority for the removal of Tiong as the executor director and the legal representative of the company.

23.  At that stage, the pleaded case of Tiong was that Yee has repudiated the parties’ agreement or evinced the intention not to be bound.  By letter dated 5 July 2011, as mentioned, Tiong sought to terminate the agreement.  New Sunshine was said to be liable as a constructive trustee of the Shares.

24.  Yee and New Sunshine denied the claim.  Yee contends that the Offer Letter was superseded by the written agreements subsequently signed by the parties.  They were not subject to any restriction against transferring the Shares to New Sunshine and encumbering the assets of Chongqing W in the course of its business.  They counterclaimed for specific performance of the agreements for the sale and purchase of the Shares as well as damages for Tiong’s breach.

Application in January 2012

25.  On the basis of the then pleaded case, Tiong applied by summons filed on 10 January 2012 for mareva injunction against Yee and New Sunshine or alternatively an order that the two paid into court the sum of RMB 245 million (ie, the outstanding balance of the price of the Shares).  This was by then the third attempt of this sort by Tiong.

26.  While the application was adjourned for argument, an interim order was made on 13 January 2012 (“the 13/1/12 Interim Order”) essentially as follows:

(1) Yee and New Sunshine had to pay RMB 45 million into a designated bank account as agreed by the parties by 20 January 2012.

(2) Yee and New Sunshine were restrained from disposing of or encumbering the Shares or the shares of Chongqing W.

(3) Yee should report to Tiong the sale, disposal or encumbrance of the units and land in the Ba Nan Project weekly.

27.  After hearing, Deputy Judge L Chan reserved his decision.  In the meantime, the 13/1/12 Interim Order continued.

28.  Pending the decision of the learned judge, Tiong changed his legal representatives and amended his pleading, first in May 2012 and then in November 2012.  The last of these amendments took the form of substitution of the existing pleading.  The significant amendment was that Tiong now primarily claims for rescission of all the agreements between the parties and the reinstatement of his position as the registered holder of the Shares.  Termination of the agreement as a result of Yee’s wrongful repudiation has become his alternative case.

29.  On 22 February 2013, L Chan J (as he has become) handed down his decision (“the 22/2/13 Decision”).  The learned judge dismissed Tiong’s application with costs.  In summary, the learned judge did not accept the multiple complaints by Tiong suggested a real risk of dissipation of assets by Yee or New Sunshine.  Nor did the complaints amount to new circumstances materially different from those already canvassed by Chung J in the HCMP 1089/2011 Decision.

30.  The learned judge also refused to order Yee and New Sunshine to pay into court the outstanding purchase price for the Shares on the ground that this would be inconsistent with Tiong’s (then) pleaded claim for the return of the Shares and damages consequential upon termination of the parties’ agreements.  Tiong was not entitled to compel his opponent to pay the purchase price for the Shares.

31.  Upon the dismissal of Tiong’s application, the 13/1/12 Interim Order also lapsed.  But the learned judge noted that the parties’ cross-undertakings would take effect upon that until the final determination of this case.  As noted in the 22/2/13 Decision, the undertakings mirror the terms of the lapsed interim order (“the Undertakings”):

(1) Tiong undertakes to refrain whether by himself his servants agents or otherwise howsoever from causing any harassment to Yee, New Sunshine and Chongqing W and/or any interference and disruption to their carrying on with the development of the Ba Nan Project.

(2) In return, Yee and New Sunshine undertake:

(a) to maintain the deposit of RMB 45 million at a bank in Chongqing and to provide to Tiong’s solicitors weekly report issued by the bank on the status of the deposit;

(b) to provide Tiong’s solicitors weekly report of the sale and/or disposal and/or creation of encumbrance on the units and landed properties comprising the Ba Nan Project;

(c) not to dispose of or encumber the Shares that are now registered in the name of New Sunshine; and

(d) to allow Tiong’s representative and no more than 3 accountants to inspect the books and accounts of Chongqing W upon reasonable prior notice.

32.  The Undertakings are in force as at today.

The present applications

33.  Prior to the handing down of the 22/2/13 Decision, and notwithstanding the Undertakings, Tiong took out the summons on 14 February 2013 seeking the following relief:

(1) the appointment of receivers and managers over the entire shareholding of W presently registered in the name of New Sunshine until the final determination of this action or further order; and the terms of the order sought, including the powers of the receivers, are set out in the schedule to the draft order attached to the summons;

(2) order that Yee and New Sunshine do deliver to the receivers all effects, books, records, accounts, seals and chops of W and provide to the receivers such information as the receivers shall require regarding the assets and liabilities of W and shall, if requested to do so by then, make affirmations confirming the same; and

(3) order restraining Yee and New Sunshine from taking any steps to cause or procure the transfer, charge or assign the Shares or otherwise encumbering or dealing with the Shares until trial or further order save for complying with the requests of the receivers.

34.  Tiong also repeated his application for an order that Yee makes payment into court, but this time the sum of RMB 545 million (being the outstanding balance purchase price of the Shares and that of the Additional Sum).

35.  By this summons, Tiong also applied to vary the 13/1/12 Interim Order by the following injunctive relief with effect pending the determination of this very summons:

(1) order restraining Yee and New Sunshine from dealing with the assets of W or Chongqing W where the value of any single transaction exceeds RMB 300,000 unless 14 days advanced written notice and statement has been provided to Tiong’s solicitors;

(2) order that Yee and New Sunshine shall provide to Tiong’s solicitors true and accurate monthly management accounts of W and Chongqing W; and

(3) order that Yee and New Sunshine shall allow Tiong’s representatives (not exceeding 7) to inspect the books, records and accounts of W and Chongqing W at their respective premises and to make copies thereof upon at least 48 hours advance notice.

36.  As mentioned, upon the dismissal of Tiong’s summons dated 10 January 2012 for mareva injunction, the 13/1/12 Interim Order lapsed; but the cross undertakings of the parties came into effect.  In view of that, Tiong applied for leave to amend the new summons.

37.  On 27 February 2013, the summons came before L Chan J, ie, 5 days after the 22/2/13 Decision.  L Chan J adjourned this summons dated 14 February 2013 as amended on 27 February 2013 for argument.  This becomes the first summons before me (“the Receivership Summons”).

38.  On 2 July 2013, Tiong took out another summons, this time for an injunction essentially in terms of the interim relief sought under the Receivership Summons set out in §35(1)-(3) above.  This becomes the second summons before me (“the Injunction Summons”).

39.  At the hearing on 18 July 2013, Mr Shieh SC (with Mr Douglas Lam and Mr Harry Liu) appeared for Tiong; and Ms EU SC (with Mr Tony Chow) appeared for Yee and New Sunshine. Mr Shieh made the following clarification:

(1) As far as the Receivership Summons is concerned, I only need to consider the application for the relief summarised in §33(1) to (3) above.

(2) The Injunction Summons is meant to be his client’s fallback, in the event that the court is not inclined to order the receivership.

(3) The application for payment into court is not pursued.

40.  In other words, Tiong is applying for an order restraining Yee and New Sunshine to deal with the Shares notwithstanding their undertaking to like effect.  Further, in view of the inconsistency between his primary case for rescission of the agreements and that for the amount payable for the Shares under the agreements, Tiong, in my view, really should not have taken out the repeated application for payment into court of the amount.

Thereafter

41.  After the decision of this court has been reserved, Tiong took out yet another summons on 23 September 2013 (“the 23/9 Summons”).  This summons consisted of 2 parts.  First Tiong applied for an interim order pending this court’s decision in respect of the Receivership Summons and the Injunction Summons.  The relief sought, though not identical in terms, were similar enough to the interim injunctive relief first sought under the Receivership Summons and then under the Injunction Summons mentioned above.  Second, Tiong applies for case management directions, including those for split trial and speedy trial as well as leave to set down.

42.  The 23/9 Summons was heard before this court on 4 October 2013.  Though counsel for Tiong[1] pressed ahead, that the 30 minutes reserved simply would not suffice should have been obvious.  The summons was therefore adjourned for argument on 12 November 2013.

43.  Upon this court’s subsequent indication of the handing down of this decision soon and thus the need to consider the true interim for the purpose of the 23/9 Summons, Tiong sought to withdraw this most recent application.  I gave leave to do so during the hearing on 12 November 2013.  I also adjourned the part of that summons for case management directions for being premature.

ABOUT THE EVIDENCE

44.  To oppose the 2 summonses in question, Yee has prepared an affirmation dated 20 May 2013.  It was signed in Chongqing but the same contains no jurat or notarisation.  It actually took the form of an exhibit to the affirmation of his solicitor.

45.  The explanation given was that Yee has been subject to ‘monitored residency’ in Chongqing since April 2013 as a result of the authority’s investigation into his affairs following Tiong’s report.  Yee was not permitted to leave Chongqing, and thus could not go to Chengdu, Sichuan, for making his affirmation at the United States Consulate.

46.  On Tiong’s behalf, doubt was cast as to whether Yee could have had his affirmation notarised in Chongqing.  Yee explained in the negative, because he was not allowed to go to places other than the office of Chongqing W.  Nor could he meet people other than the staff and relatives without the permission of the authority.

47.  Whether or not Yee’s explanation is true, the circumstances are such that his affirmation, on its own, is inadmissible for non-compliance with O.41 of the RHC. As an exhibit to his solicitors’ affirmation, the contents of his affirmation are effectively instruction and information received by his solicitors, who were in a position to verify to such extent.

48.  I must also mention that the parties have produced further documentary evidence time and again since the hearing on 18 July 2013.  This started with Tiong whose solicitors wrote to the court on 5 August 2013 and produced documentary evidence said to be discovered after the hearing.  Further correspondence between the parties and between them and the court followed.  Yee and New Sunshine also produced their further documentary evidence in response.  There were of course the further documentary evidence in support of the 23/9 Summons.

49.  As mentioned, the interim injunction part of the 23/9 Summons was withdrawn during the hearing on 12 November 2013.  Mr Shieh asked this court to nevertheless take into account the new evidence in my deliberation on the Receivership Summons and the Injunction Summons.  He explained that they consisted of evidence of new discoveries and developments not known by the time of the hearing in July.

50.  Mr Shieh referred to the test in Robin Colin Foster & Anor v Action Aviation Limited & Ors [2013] EWHC 2930, a recent decision of the Queen’s Bench Division in UK.  That was an application to adduce further evidence after trial and pending judgment.  Before me remains an interlocutory application where no final determination has been or would be made.

51.  Nevertheless Miss Eu was fair in not disputing the discretion of the court in receiving the new evidence.  Indeed she sought leave to formally adduce the new documents disclosed by her clients in response, which I gave.  But she objected to any attempt to make factual allegations beyond what the documents say or to rehearse the arguments in the July hearing.  Mr Shieh responded also fairly by limiting his submission on the new documents to what could be made out of them and their relevance to the Receivership Summons and the Injunction Summons.

52.  I shall approach all the evidence so presented accordingly.

THE RECEIVERSHIP SUMMONS

53.  To recapitulate, I am asked to put the Shares now registered in the name of New Sunshine into receivership and managership by the persons nominated by Tiong pending the determination of this action.  Terms of the appointment are set out in the schedule to the draft order submitted.

Principles

54.  Section 21L of Cap 4 provides that the court may appoint a receiver in cases in which it appears to be just and convenient to do so.  An order may be made unconditionally or on terms.

55.  It is recognised that the principles for granting interlocutory injunction in American Cyanamid v Ethicon Ltd [1975] AC 396 apply by analogy: see Re Niceline Co Ltd [2003] 2 HKLRD 725 (at §§50-54).  The following questions need to be answered:

(1) whether there is a serious question to be tried;

(2) whether the assets are in jeopardy or risk of dissipation warranting interim protection;

(3) where the balance of convenience lies.

The applying party must also show that the appointment is appropriate because other less invasive remedies would be inadequate: Re Zealot & Co Ltd [2008] HKLRD 386 (at §§30; 35).

56.  On behalf of Yee and New Sunshine, it was emphasized that appointment of receivers and managers is an invasive measure, and the court always recognises the need for greater circumspection in granting such relief than an interlocutory injunction: see Re Chime Corporation, HCMP 4146/2001 (25 June 2003) (at §§39-41; 63); Re Niceline Co Ltd (at §§71-75); Re Zealot & Co Ltd (at §34); Re Full Billion Shipping Ltd [2003] 2 HKLRD 674 (at §§50; 56).

57.  The applicant is expected to provide appropriate undertaking as to damages: Re Niceline (at 744D-745I); Re Chime (at §75); Re Full Billion (at §56).

58.  On behalf of Tiong, it was pointed out that an interim receiver could be appointed to preserve and protect the value of the shares of a company until such time that the dispute as to their ownership has been resolved at trial: see Re HK Sindy Footwear Ltd [2007] 1 HKC 64 (at §§22-24).  As mentioned, Tiong’s case for the preservation and protection of the value of the Shares is essentially built on alleged dissipation of assets of the company by Yee.

59.  In view of the unsuccessful attempts in previous sets of proceedings, Tiong applied for mareva injunction in the present action in January 2012 on the basis of alleged change in circumstances since his last attempt.  L Chan J noted that in the 22/2/13 Decision.  Likewise, the present applications by the Receivership Summons and the Injunction Summons were based on what was said to be change in circumstances since the application before L Chan J in early 2012.

60.  Mr Shieh referred to Wu Wei v Liu Yi Ping, CACV 47/2005 (at §40) and submitted that in the context of interlocutory application, it will not be unjust or unreasonable to allow a second application to be heard, for what is involved is not re-litigation of an identical issue of law or fact if:

(1) the ruling on the first application was not based on the merits of the issue but on a technical objection;

(2) upon the first application the applicant had failed to prove essential facts from mistake or inadvertence;

(3) there is new evidence that seriously justifies reconsideration of the issue; or

(4) there is a material change of circumstances of a non-evidentiary nature.

See also Spencer Bower & Handley on Res Judicata (4^th ed) (at §§5.31-5.32); Hui Chi Ming v Koon Wing Yee & Ors [2011] 1 HKLRD 260 (at §27).

61.  Mr Shieh submitted that the ex parte injunction in HCMP 1189/2011 was discharged on the ground of material non-disclosure.  This was a technical objection not touching on the merits: see Wu Wei (above) (at §41).  As I understand, Chung J indeed considered and decided not to grant the injunction afresh inter partes.  I therefore would not categorise that as a decision merely on technical ground.

62.  For his purpose, Tiong must show significant change in circumstances that suggest new real risk of dissipation of assets since his last application in early 2012.

Serious question to be tried

63.  Much of Tiong’s case rests upon the alleged binding effect of the terms of the Offer Letter, particularly the restriction against encumbrance on the assets of Chongqing W prior to full payment for the Shares.  When the written agreements were signed, Tiong was advised by his own Malaysian lawyer.  Ms Eu also referred to the sequence of events and documents after the Offer Letter which showed that Tiong has accepted his client’s performance (ie payment) with knowledge that the restriction pursuant to the Offer Letter did not form part of the written agreements signed.  The right of Tiong to rescind was thus doubted.  At this preliminary stage, I can see the force of that.

64.  On behalf of Tiong, handwriting expert evidence was adduced in support of the alleged forgery of the statutory forms submitted by Yee to the authority to remove Tiong from Chongqing W.  It was also pointed out that the forms were submitted on the day after the Offer Letter was signed, though formal agreement between the parties was contemplated.  Before the formal agreement, Yee also entered into an agreement with a third party committing to charge the land in the Ba Nan Project as securities for funds, which was restricted pursuant to the Offer Letter.  The explanation of Yee that he did not know Chinese and was merely deceived into signing that agreement may not at once be readily acceptable (particularly in view of the numerous Chinese documents that Yee had signed in the course of the company’s business).

65.  The above are mere examples of the extensive dispute between the parties.  For the present purpose, I understand that there is no real dispute that there are indeed serious questions to be tried in the present case.

Asset in jeopardy and risk of dissipation

66.  Tiong seeks to justify the present application, by the Receivership Summons, on the basis of discovery of new evidence not before Chung J in HCMP 1089/2011 or L Chan J in the present action; as well as the events occurring since the 22/2/13 Decision.  Yee and New Sunshine argue that the new evidence reveals nothing materially new; and that this is nothing but another attempt of Tiong to bite the cherry.

67.  What Tiong referred to as the new discoveries may be summarised as follows:

(1) Tiong managed to obtain from the Chongqing Public Security Bureau (“PSB”) and its forensic accountants (“the Forensic Accountants”) access to the books and records seized from Chongqing W and the Forensic Accountants’ draft report.

(2) Tiong appointed his accountant, KPMG, to meet with the Forensic Accountants and to inspect the books and records in question.  KPMG produced its first report in February 2013 (“KPMG’s 1^st Report”).

(3) The reports are said to suggest that Yee had siphoned off massive sums from Chongqing W for his personal purpose on various occasions since the end of December 2010.

(4) In the premises, the audited reports of Chongqing W in 2010 and 2011 relied on by Yee in resisting previous applications were said to be false.  So was his affirmation evidence.

(5) Further Yee was said to have been in breach of the 13/1/12 Interim Order in various respects:

(a) New charges created over the landed properties of Chongqing W were not reported to Tiong.

(b) The sum of RMB 45 million deposited into the designated account in fact did not belong to Yee for his use but Chongqing W.

(c) Yee had significantly under-reported the sales of the units in the Ba Nan Project.  Whether the proceeds of sale of those units had been paid into the account of Chongqing W is unclear.

(6) After inspecting the further books and records of Chongqing W disclosed by Yee by mid-2013, KPMG produced its adjusted report in June 2013 (“KPMG’s 2^nd Report”).  The following breach of the 13/1/12 Interim Order and subsequently the Undertakings was allegedly found:

(a) Yee was not forthcoming with supply of accounting documents and has refused inspection on one occasion.

(b) Pledge and charges of landed properties of the Ba Nan Project were not reported.

(7) That Yee has been adjudged bankrupt during the last decade had been concealed from the court.  He remained an un-discharged bankrupt in Malaysia at the time of the parties’ agreement for the sale and purchase of the Shares as well as today. Yee first disputed; but subsequently admitted his bankruptcy status, yet explained that he was made bankrupt without his knowledge.

(8) It was recently discovered that Yee has created further encumbrances for loans at very high interest rates (though at one point misread) without reporting the same.  The timing and frequency of such conduct were said to cause concern.

(9) Yee has never actually put in his own funds into the business.

68.  Yee allegedly owes Chongqing W not less than RMB 93 million.  The alleged drain of assets and money from Chongqing W by Yee has allegedly rendered the financial position of the company dire.

69.  On behalf of Yee, it was denied that there was significant change in circumstances that suggest new and real risk of dissipation of assets.  He gave, among others, the following explanations:

(1) The reliance on the documents seized by PSB from Chongqing W is itself objectionable, as access to the documents was restricted and disclosure to third party was not authorised.  The circumstances in which Tiong managed to obtain from PSB access to the documents and to come up with the 1^st KPMG Report were suspicious.

(2) The 1^st KPMG Report did not give a fair picture.  There was admittedly lack of full scale analysis of the operations and financial position of Chongqing W.  The alleged illiquidity of the company lacked fair and objective treatment of the assets and receivables as well as loan repayments.  There were also examples of Chongqing W following common business practices in the Mainland.  The revision and acknowledgement in the 2^nd KPMG as a result of the books and accounts supplied by Yee evidences that.

(3) If any, the Forensic Accountants’ report actually showed that injection of funds since Yee took over had increased substantially to RMB 900 million.  In line with his case that there was no restriction in the parties’ agreement against obtaining finance on the security of the assets of Chongqing, Yee had managed to finance and bring about the actual completion of the first phase of the development of Ba Nan Project for sale.

(4) The dispute with the contractor had been settled and a new contractor was appointed.  Construction of the second phase of the development was underway with a view to another RMB 500 million’s worth of units becoming available for sale this year.  The 2^nd KPMG Report did not suggest otherwise.

(5) The revisit to the sum of RMB 45 million paid into the bank pursuant to the 13/1/12 Interim Order (now the Undertakings) led to nowhere as the same is subject to weekly report by the bank pursuant to the Undertakings.

(6) Omissions in the weekly reports were inadvertent and have been explained in the contemporaneous correspondence.  In any event, allegation of breach of existing order should be made and properly proved in committal proceedings.

(7) As to the alleged refusal of inspection, the correspondence demonstrated that he had acted reasonably about arrangement.

(8) He was made bankrupt without his knowledge, as he only travelled to Malaysia every now and then since becoming a United States citizen.  He has never experienced difficulty that would have been expected in entry to or departure from Malaysia as a result of the bankruptcy proceedings or order.  In any event, the arrangement for settlement with the debtors and thus discharge of the bankruptcy orders has been progressing.

(9) The recent encumbrances at high interest rates, even if true, could be explained by the nature of the bridging loans for relatively short term.  In any event, inference of any risk of dissipation of assets of the company from that would not be justified as a matter of fact.

(10) Whilst Yee was being criticised for having put in none of his own funds in the business, he has indeed made an open offer in writing to settle this action by paying Tiong a sum of RMB 245 million, ie the outstanding balance of the purchase price for the Shares.

70.  Along the above lines, counsel have respectively dealt with each allegation and answer meticulously.  The allegations against Yee and New Sunshine should also be assessed with reference to what they might well consider themselves to be entitled to do in the operation of Chongqing W, which was and still is very much a going concern.

71.  It remains for Tiong to establish significant change in circumstances that suggest new and real risk of dissipation of assets on the part of Yee and New Sunshine since the last failed attempt to obtain mareva injunction.  I find it hard in all the circumstances to draw such a conclusion.

Balance of convenience

72.  But the major reservation I have really lies in the balancing the risk of injustice to the parties if the interim relief sought is granted or not.

73.  In his submissions, Mr Shieh set out an overview of the potential outcomes of the present action.  They may be summarised as follows:

(1) If Tiong succeeds in his claim for rescission, he would be entitled to the return of the Shares and to claim for damages for the loss of the value of the Shares, subject to the return of the amount paid by Yee to Tiong.

(2) If Tiong succeeds in his alternative claim for breach on Yee’s part instead of rescission, the agreements would be terminated.  Tiong would be entitled to damages, which would likely be measured as the value of the Shares at the time of the contract less the amount paid by Yee, together with any other loss suffered by Tiong including possibly loss from the non-payment of the Additional Sum.

(3) If Yee and New Sunshine succeed in their counterclaim for specific performance, Yee would have to pay the outstanding balance of the purchase price for the Shares and possibly the balance of the Additional Sum, subject to any damages payable by Tiong for breach[2]. In default, Tiong would become entitled to terminate the agreements once again; and in that event, he should be entitled to the return of the Shares and forfeiture of 20% of the purchase price already paid, pursuant to the default provisions of the formal sale and purchase agreement.

(4) If Yee and New Sunshine succeed in their alternative claim for termination of the agreements upon Tiong’s breach, the pleaded claim is for the return of the amount paid and damages for loss.  Presumably the claim for money back would have to come hand in hand with the return of the Shares.

74.  In the premises, it was submitted that irrespective of which of the above potential outcomes materialises at the end of the day, the protection and preservation of the value of the Shares remain critical and paramount to the protection of Tiong’s interest.  In court, Mr Shieh added that the protection and preservation of the value of the Shares could also have a bearing on the financial ability of Yee to pay Tiong, be it for the outstanding purchase price for the Shares or damages.

75.  There does not seem to be real dispute as to the above projection of the potential outcomes.  Having said that, I have no reason to doubt that the above premises (or those available by pleading at the relevant times) were not appreciated by the court during their deliberation on the previous applications, though for mareva injunction instead of receivership.  I would not consider this to be a new consideration.

76.  Ms Eu submitted that the court should be alert about the sensitivities and complexities in relation to the property development business in the Mainland. Appointment of receiver or manager might not be practical or effective: Re Niceline (at §§61-68); Re Full Billion (at §§49-52).

77.  Mr Shieh pointed out that receivers would be appointed in respect of the Shares, not Chongqing W or its shares.  It would be unlikely that the appointment would result in any stigma of insolvency as mentioned some of the authorities cited above.  He also submitted that the receivers would probably not seek to manage the day to day operation of Chongqing W; but would retain some, if not most, of the existing staff.  The receiver, he submitted, would only be concerned about the honest and competent management of the company.

78.  Ms Eu disagreed.  She pointed out the reality that W is indeed the 100% owner of the shares of Chongqing W.  Chances are that the receiver, once appointed, would remove Yee from control of the management of Chongqing W.  Judging from the terms of the appointment set out in the schedule to the draft order, I share Ms Eu’s scepticism about the extent of intervention intended by the appointment sought.

79.  Ms Eu added that the risk of concern and hesitation among the members of the general public arising out of the appointment of receiver would be real in the circumstances of the present case.  As far as what Yee asserts in his affirmation (and to the extent the evidence is admissible), he mentioned the possibility of government action in relation to the land.  As far as the documents show, the loan facility agreement between Chongqing W and the China Construction Bank in 2010 apparently provided that the bank would be entitled to stop the credit line or call loan in the event of receivership (“接管”) or change of de facto control(“實際控制人變更”).  The loan in question amounted to about RMB 138 million. The risk could not be brushed aside as being unreal.

80.  Another essential condition for making the order for the appointment of receiver that is not forthcoming is the applicant’s undertaking as to damages, Ms Eu submitted.  Indeed it was only in counsel’s submission was it suggested that Tiong would be willing to give such undertaking, if necessary.  In offering the undertaking, Mr Shieh nevertheless referred to the outstanding amount that Yee would have to pay to Tiong for the Shares, which would be available for set off as sufficient protection.  In court, he further suggested that if necessary, direction could be made for the filing of evidence and argument on fortification of undertaking.

81.  Mr Shieh submitted that each case should be decided on its own facts.  This must be right.  Considering the applications whilst the (cross) Undertakings are in force and all the circumstances, including the extent of intervention intended by Tiong by the receivership and the risk of impact on various lifelines of the company as a going concern, I refrain from acceding to the application.

THE INJUNCTION SUMMONS

82.  By the Injunction Summons, Tiong seeks the following interlocutory relief against Yee and New Sunshine:

(1) order restraining them from disposing or causing the disposition of the assets of W and/or Chongqing W where the value of any single transaction exceeds RMB 300,000 without 10 days advance notice to Tiong;

(2) order compelling them to provide monthly management accounts of W and Chongqing W to Tiong;

(3) order compelling them to allow Tiong’s representatives (not exceeding 5 individuals) to attend the premises of W and Chongqing W during business hours to access, inspect and take copies of the books and accounts as particularised in the schedule to the Receivership Summons.

83.  I am considering this summons against the background where the Undertakings are in force and the receivership sought is refused.

84.  Ms Eu emphasized from the outset that the 2 summonses now before this court were taken out by Tiong when the Undertakings were in force.  He must justify the present applications to go much further than the existing protection regime.  This must be right.

85.  Further, the undertakings by Yee and New Sunshine to provide weekly report and allow inspection of the books and accounts of Chongqing W upon reasonable prior notice, among others, were given in return for Tiong’s undertaking to refrain, whether by himself or agents, from causing any interference or disruption to Yee’s carrying on with the development of the Ba Nan Project.  The cross undertakings could not be enforced without reference to each other.  Accommodation of the parties’ right under the respective undertaking already necessitates a balancing exercise at all times.

Pre-disposition reporting

86.  As far as W is concerned, the real assets are the Shares, which represent Chongqing W and its assets.  The Shares, now registered in New Sunshine, are already subject to the undertaking of no disposition or encumbrance.  The other real assets of Chongqing W comprise the assets in the Ba Nan Project, which are subject to the undertaking of weekly report of any sale, disposal or encumbrance.  These undertakings for the present purpose are broad and not lacking in substance.

87.  I agree with Ms Eu that an order for advance notice of the disposition of the assets of Chongqing W as requested, which would include the units in the development, would likely be impractical in view of how sale and purchase of such units in the development are expected to be transacted.  The downside of undue hindrance to the sale must be avoided.

Monthly accounts and inspection

88.  Ms Eu submitted that whilst the Injunction Summons was described as the fallback of Tiong, the exact legal basis for such interlocutory relief was not really identified. I share her scepticism.

89.  Inspection originated from the variation agreements between the parties for the purpose of profits adjustment.  Now that the primary case of Tiong is that all the agreements between the parties were rescinded ab initio.  Tiong himself put the contractual basis for such right in doubt.

90.  The relief could have been granted in aid of mareva injunction.  But Tiong has failed to obtain such injunction despite repeated attempts.  Now the failure to succeed on the Receivership Summons does not help him either.

91.  I shall not repeat what was said above about accommodating both parties pursuant to the cross undertakings at the same time is a balancing exercise whenever every request for inspection is made.

92.  It was acknowledged on behalf of Tiong as well as in the KPMG’s 2^nd Report that he or his accountants were allowed to inspect.  There was indeed argument; and I am not surprised, in view of the broad terms of the cross undertakings mentioned above.  However any argument on whether the specific arrangement, be it to do with the time or mode, would be within the ambit of the cross undertakings, if not resolved despite genuine effort, should be referred to the court for direction.  Any alleged breach of the undertaking should be a matter for committal proceedings.  That Yee’s present circumstances due to the Mainland authorities’ investigation and directives

93.  As far as the documents being sought are said to be relevant to the present action, they could well form the subject matter of discovery.

94.  Considering the history and the prevailing circumstances, I see no sufficient justification for effectively going behind the Undertakings by granting the relief sought under the Injunction Summons.

ORDER

95.  The Receivership Summons and the Injunctions Summons are dismissed with costs to Yee and New Sunshine with certificate for 2 counsel.  Costs shall be taxed, if not agreed.

96.  When giving leave to amend the Receivership Summons on 27 February 2013 and adjourning the argument of the same as amended, L Chan J awarded costs of that hearing to Yee and New Sunshine but reserved the question of certificate for counsel, if any, to this court.

97.  Considering how the proceedings, both previously and herein, have been conducted, I would be slow in picking on the reasonableness of Yee and New Sunshine in instructing the same team of counsel to appear at the hearing before the learned judge on 27 February 2013, though the same ended with an amendment to the Receivership Summons and adjournment.  I therefore make a nisi order certifying the engagement of 2 counsel for that hearing as well.

98.  The nisi costs order shall become absolute in the absence of application in 14 days to vary.

	(Simon Leung)
	Deputy High Court Judge

Mr Paul SHIEH SC, Mr Douglas LAM and Mr Harry LIU, instructed by Wilkinson & Grist for the plaintiff

Ms Audrey EU SC and Mr Tony CHOW, instructed by C L Chow & Macksion Chan for the 1^st and the 2^nd defendants

HCA 1517/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1517 OF 2011

____________

BETWEEN

	TIONG KING SING	Plaintiff
and
	SAM BOON PENG YEE	1st Defendant
	NEW SUNSHINE INVESTMENTS LIMITED	2nd Defendant

____________

Before: Deputy High Court Judge L Chan in Chambers

Date of Hearing: 2 March 2012

Date of Decision: 22 February 2013

____________

D E C I S I O N

____________

1.  The plaintiff applies for a Mareva injunction against the defendants.

2.  The plaintiff issued a summons on 10 January 2012 for a Mareva injunction with an alternative relief requiring the 1st defendant to make certain payment into court pursuant to an agreement for the sale and purchase of shares of a company W International Group Limited (formerly called “Wijaya International Investment Limited”) (“W International”).

3.  I granted an interim order on 13 January 2012 requiring the 1st and/or 2nd defendant to pay RMB45 million on or before 20 January 2012 into a designated bank account as may be agreed by the parties.  I also granted an interim injunction against the 1st and 2nd defendants from disposing of or encumbering the shares of W International or its mainland subsidiary Chongqing Wijaya Realty Limited (“Chongqing Wijaya”) (later named Chongqing Whittier Homes Limited).  I further required the defendants to inform the plaintiff’s solicitors on a weekly basis of the sale, disposal or encumbrance of units and landed properties of a development project in the Ba Nan District in Chongqing, China (“the Ba Nan Project”) which is owned by Chongqing Wijaya.  The order was to last until 2 March 2012 when the application was to be fully argued after filing of evidence.  I extended the order on 2 March until further order.

The statement of claim

4.  The plaintiff has filed a statement of claim on 30 September 2011.  He pleaded that he is a Malaysian citizen.  He used to own all the shares of W International.  This company owns the entire issued and paid up capital of Chongqing Wijaya.  Chongqing Wijaya is the developer of the Ba Nan Project.  Chongqing Wijaya owns the land use rights on several plots of land in the Ba Nan District on which the project is developed.

5.  The 1st defendant was employed as the general manager of Chongqing Wijaya from September 2009 onwards.  The 2nd defendant is owned by the 1st defendant and is used as his nominee in purchasing the shares of W International from the plaintiff. 

6.  By an offer letter dated 14 December 2009, the plaintiff offered to sell all the shares of W International (“the sale shares”) to the 1st defendant for RMB300 million.  The offer was accepted by the 1st defendant.  The plaintiff and the 1st defendant then entered into a formal sale and purchase of shares agreement dated 30 December 2009.  Under this agreement, the purchase price was increased to RMB333.5 million and was payable in 7 instalments as follows:

(a)  RMB30,000,000 payable on the Completion Date (as defined in the Formal Agreement);

(b)  RMB20,000,000 payable on or before 8 March 2010;

(c)  RMB33,500,000 payable on or before 15 June 2010;

(d)  RMB50,000,000 payable on or before 20 December 2010;

(e)  RMB50,000,000 payable on or before 20 May 2011;

(f)  RMB50,000,000 payable on or before 1 September 2011; and

(g)  RMB100,000,000 payable on or before 1 March 2012.

7.  The plaintiff, the two defendants and the 1st defendant’s solicitors also entered into a custodian agreement dated 30 December 2009 whereby they agreed that the new share certificate for the sale shares to be issued by W International to the 2nd defendant pursuant to the formal sale and purchase agreement would be held by the solicitors as custodian pending the joint instruction of the plaintiff and 1st defendant for its release.

8.  The plaintiff also executed a deed of tax indemnity dated 30 December 2009 in favour of the defendants. 

9.  It is the plaintiff’s case that the terms of the sale and purchase agreement are contained in the offer letter, the formal agreement, the custodian agreement and the deed of tax indemnity (para 14 of the statement of claim).  The defendants dispute this.  They say that the offer letter is no part of the terms of the sale and purchase (para 13 of the defence). 

10.  The 1st defendant paid the plaintiff the 1st, 2nd and 3rd instalments.

11.  The plaintiff through his representative Wong Aik Loung (“Wong”) and the 1st defendant then entered into a variation agreement dated 22 January 2011.  This agreement rescheduled the remaining four instalments totalling RMB250 million and provided for the payment of a further RMB300 million to the plaintiff as profit of the development.

12.  These payments were rescheduled again by a 2nd variation agreement made between Wong on behalf of the plaintiff and the 1st defendant and dated 27 March 2011.  The balance of purchase price of RMB250 million is to be paid in three installments and the profit of RMB300 million in six installments as follows (A2/353-357)”

Balance of purchase price

1.  A sum of RMB100 million shall be paid before 15 February 2012

2.  A sum of RMB100 million shall be paid before 15 February 2013

3.  A sum of RMB50 million shall be paid before 15 February 2014

Profit

1.  A sum of RMB50 million shall be paid on or before 15 July 2011

2.  A sum of RMB50 million shall be paid on or before 15 January 2012

3.  A sum of RMB50 million shall be paid on or before 15 July 2012

4.  A sum of RMB50 million shall be paid on or before 15 January 2013

5.  A sum of RMB50 million shall be paid on or before 15 July 2013

6.  A sum of RMB50 million shall be paid on or before 15 January 2014

13.  Regarding the profit to be shared, the 2nd variation agreement also provided that the on the basis that the Ba Nan Project could produce a profit of RMB600 million, the parties on 25 March 2011 agreed after discussion that RMB300 million of it would be distributed to the plaintiff in six installments of twice a year (clause B); and the amount of payment should be according to the profit of the company for the current year according to the annual accounting report filed with and approved by the Taxation Bureau (clause E).

14.  Wong was also authorised by the two variation agreements to inspect the current accounts of W International on behalf of the plaintiff. 

15.  The plaintiff then pleaded various breaches of the terms of the sale and purchase agreement allegedly committed by the 1st defendant.  The plaintiff pleaded that the 1st defendant had refused inspection of the accounts of W International by Wong.  He had wrongfully transferred the sale shares to the 2nd defendant on 5 January 2010.

16.  He obtained a loan of RMB30 million at an unusually high interest rate of 42.58% per annum on 19 May 2010 by pledging 40% of the sale shares.  He further procured Chongqing Wijaya to apply in conjunction with the builder of the development Chongqing Yiping Construction Group Company Limited (“Yiping”) to a bank for a loan of RMB77 million on 24 May 2010.  The loan was secured by the mortgage of the land use rights of Chongqing Wijaya and Yiping. 

17.  He procured Chongqing Wijaya to enter into a contract with Yiping also dated 19 May 2010 and agreed to pay Yiping a high rate of construction costs contrary to the usual custom and norm of trade in the area which would result in paying RMB200 million more to Yiping. 

18.  He caused Chongqing Wijaya to be indebted in RMB127 million to others despite the company’s income being at RMB283 million.  Part of a debt at RMB90 million was secured by a pledge of 80% of the sale shares.

19.  He also caused Chongqing Wijaya to be indebted to Yiping the builder which resulted in substantial delay in the development.

20.  He also used funds of Chongqing Wijaya to purchase a piece of land in Guangdong province.

21.  He had therefore encumbered the assets of W International and diverted the funds of W International and Chongqing Wijaya to his project in Guangdong province.  He thereby denuded W International and Chongqing Wijaya of their resources and encumbered the land use rights and the sale shares which should have been held by the custodian without encumbrance.  He also thereby diluted the value of the sale shares.  He also failed to pay the plaintiff the purchase price or profit according to the schedule of payments in the 2nd variation agreement.

22.  The plaintiff’s solicitors then issued a letter dated 5 July 2011 (B. 350-351) which purported to accept the 1st defendant’s repudiation of the sale and purchase agreement.  The letter cited the following as grounds of breaches of agreement:

(i)  raising loans totalling at least RMB127 million by mortgaging some of the landed properties of the Ba Nan Project to third parties contrary to the offer letter and the use of the loan or part of it as purchase price for the sale shares.  The offer letter prohibited encumbrance to be created on the Ba Nan Project until after full payment of purchase price;

(ii)  transferring the sale shares to the 2^nd defendant contrary to the offer letter; and

(iii)  refusing access and inspection by the plaintiff’s or his representatives of the books and accounts of W International and Chongqing Wijaya.

The plaintiff’s solicitors also demanded in the letter the return of the sale shares to the plaintiff, inspection of the books and accounts of W International and the Ba Nan Project, and full settlement of all loans and discharge of all mortgages. 

23.  The plaintiff also had a misrepresentation claim against the 1st defendant.  He pleaded that the 1st defendant had represented to him that the 1st defendant had resources to pay him the RMB333.5 million revised purchase price for the sale shares and to defray at least 30% of the construction costs of Phase I of the project without encumbering the sale shares or the assets of Chongqing Wijaya.  He was induced by these representations to enter into the formal agreement and the custodian agreement.  But these representations were false as the 1st defendant intended to and did encumber the sale shares and the assets of Chongqing Wijaya.

The defence and counterclaim

24.  The defendants in their defence dated 28 October 2011 denied of having refused inspection of accounts by Wong, but admitted the refusal to allow him to make copies of the documents. 

25.  Regarding the transfer of the sale shares to the 2nd defendant, they relied on the terms in the formal agreement and documents signed by the plaintiff which effected the transfer of the sale shares to the 2nd defendant.  They also said that the shares certificates of the sale shares issued to the 2nd defendant were still held by the custodian.

26.  Regarding the RMB30 million loan, they pleaded that it had been repaid.  They also denied that pledging the land use right or the sale shares to secure the RMB77 million loan (with only RMB50 million outstanding) was a breach of the terms of sale and purchase.

27.  Regarding the building contract with Yiping dated 19 May 2010, they did not admit that the rate of costs was high and contrary to the custom and norm of trade or would result in paying Yiping an extra RMB200 million.  They further pleaded that Chongqing Wijaya became indebted to others for developing the project and raising debt finance was not a breach of the terms of sale and purchase.  They also denied of being indebted to Yiping which resulted in delay in the development.

28.  Regarding the piece of land in Guangdong, they said that it was purchased in the name of Chongqing Wijaya.

29.  They therefore denied of having breached the sale and purchase agreement.  They also denied the misrepresentation claim.

30.  They further pleaded that the 1st defendant had paid on 19 May 2011 RMB5 million as advance part payment of the RMB50 million installment due on 15 July 2011.  The balance of RMB45 million of that installment however could not have been duly paid on 15 July 2011 because of a Mareva injunction obtained by the plaintiff in HCMP 1289/2011 on 8 July 2011 which frozen the assets of the defendants and Chongqing Wijaya. 

31.  They counterclaimed specific performance of the agreement for sale and purchase of the sale shares with an alternative claim for damages for breach of the agreement by the plaintiff and return of all monies already paid plus interest.

The plaintiff’s affirmation in support

32.  The plaintiff filed an affirmation on 10 January 2012 in support of the application.  He basically repeated his allegations already made in the statement of claim with some minor variations.  He also said he had sent in a team of accountants to check the books and accounts of Chongqing Wijaya in mid-July 2011, but the 1st defendant refused them access to the books and accounts.  He said that was a delaying tactic to prevent him from finding out the actual financial position of the company. 

33.  He also said that the 1st defendant had been using the assets of Chongqing Wijaya to pay for his purchase of the sale shares as the 1st defendant had admitted on oath that he had only about RMB200,000 as at 11 August 2011.  He also said the pledge of the sale shares was a breach of the custodian agreement. 

34.  He also referred to his having been removed from the position of the statutory and legal representative of Chongqing Wijaya.  He said the 1st defendant procured his removal by forging his signature on a document filed with the mainland authorities.  He therefore said that there was an imminent risk of dissipation of assets by the defendants which justified the granting of a Mareva injunction against them.

The interim order

35.  I have already referred to the interim order I made on 13 January 2012 which I extended until further order.

HCA 1069/2011 and the application for Mareva injunction

36.  This is in fact the plaintiff’s third application for Mareva injunction against these defendants.  The plaintiff made the first application on 28 June 2011 by an ex parte summons in HCA 1069/2011.  The action was issued for a Mareva injunction against the defendants in aid of arbitration to be conducted in Singapore. 

37.  The endorsement in the writ in HCA 1069/2011 also sought an alternative of return of the sale shares to the plaintiff with inquiry of damages.  The ex parte summons sought an order to restrain the defendants from disposing of assets up to RMB333.5 million which included the sale shares and the properties and assets of Chongqing Wijaya.  The application was supported by an affirmation of the plaintiff affirmed on 27 June 2011.  That was before his purported acceptance by his solicitors’ letter dated 5 July 2011 of the alleged repudiation of agreement by the 1st defendant.

The supporting affirmation in HCA 1069/2011

38.  He said in the supporting affirmation that the 1st defendant had delayed payments of the purchase price of the sale shares to him.  He discovered sometime in mid-June 2011 that these shares had been transferred to the 2nd defendant on 5 January 2010 which was without his knowledge or consent.  He asserted that the unauthorized transfer of shares was the reason for the 1st defendant not to allow him inspection of the books and accounts of W International and Chongqing Wijaya.

39.  He also discovered that the 1st defendant had in early June 2011 obtained a mortgage loan of RMB77 million by using part of the land as security through the contractor Yiping at a high rate of interest of 36% to 40% pa.

40.  He also referred to the building contract between Chongqing Wijaya and Yiping dated 19 May 2010 which allegedly gave Yiping very high rate of construction costs comparing to the normal rate and would result in extra payment of at least RMB300 million to Yiping.

41.  He also said that Chongqing Wijaya had become indebted to others at RMB127 million despite having an income of at least RMB283 million. However, Chongqing Wijaya’s loan liability before 30 December 2010 was negligible.  Hence, he said that the 1st defendant must have used the land and the sale shares to secure loans which the 1st defendant had applied for purposes other than paying him for the sale shares. He said this was a breach of the offer letter and the agreement of sale and purchase and a disregard of his beneficial interest in these shares.

42.  He also said that the 1st defendant had used funds to join in the purchase of a piece of land in Guangdong and the funds came from loans secured by the sale shares and the Ba Nan assets.

43.  He concluded that the 1st defendant would deplete all assets in Chongqing Wijaya and not pay him for the purchase of the sale shares.

No order was made on the first application

44.  The ex parte application went before Poon J who did not make any order on it.

HCMP 1289/2011 and the second application for Mareva injunction

45.  The plaintiff then instituted HCMP 1289/2011 for Mareva injunction against the defendants from disposing of assets up to RMB245 million, the sale shares and all the properties and assets of Chongqing Wijaya.  These proceedings were also launched in aid of the arbitration to be conducted in Singapore.  These proceedings were instituted in place of HCA 1069/2011 because the originating summons should be used in such application. 

46.  The plaintiff again issued an ex parte summons for a Mareva injunction in terms similar to the previous one but with a lower ceiling of prohibition at RMB245 million.  The application was made on 8 July 2011 and was supported by the same affirmation evidence filed in HCA 1069/2011.  By this time, the plaintiff’s solicitors had already issued the letter dated 5 July 2011 which purported to accept the alleged repudiation of agreement by the 1st defendant.

Ex parte Mareva injunction order granted

47.  To J granted an ex parte order in terms as sought by the plaintiff with minor amendments. 

Discharge of the ex parte Mareva injunction order and no regrant

48.  The inter parte summons to continue the ex parte order and the defendants’ application to discharge the same went before Chung J.  The learned Judge discharged the ex parte injunction and refused to make a regrant. 

49.  The learned Judge said in his reasons dated 19 August 2011 that the plaintiff in making the ex parte application before To J, was guilty of material non-disclosure on several significant matters.  The first matter was the plaintiff’s failure to disclose to To J his unsuccessful application for ex parte injunction on the same grounds before Poon J in HCA 1069/2011. 

50.  Secondly, the learned Judge identified several clauses in the agreement for sale and purchase and custodian agreement which appeared to provide that the 1st defendant was entitled to have the sale shares transferred to the 2nd defendant, his nominee.  But these provisions were not drawn to the attention of To J.  These provisions are material in relation to the plaintiff’s complaint of unauthorised transfer of the sale shares to the 2nd defendant.

51.  The third matter was the prohibition against the defendants’ use of the assets of W International (subject to one exception) as security for lending.  The fact that the agreement did not contain any such prohibition was again not drawn to the attention of To J.  The absence of such prohibition in the agreement is material to the plaintiff’s complaint against the 1st defendant’s use of the sale shares and the land of Chongqing Wijaya as security for lending.

52.  Apart from material non-disclosure, the learned Judge also considered the merits of the plaintiff’s claim of risk of dissipation of assets by the defendants.  The learned Judge agreed with the defendants that mere breach of contract does not provide the basis for alleging such risk. 

53.  Regarding the transfer of the sale shares to the 2nd defendant, the defendants relied on the provisions in the agreement for sale and purchase and the custodian agreement and denied any breach by virtue of such transfer.  They further offered an undertaking not to further deal with these shares.

54.  Regarding the loans raised on the security of the sale shares and the assets of Chongqing Wijaya, they were kept by the 2nd defendant.  The learned Judge found that there was no proper basis for thinking that substantial assets had been siphoned off.

55.  Regarding the alleged refusal of inspection (which was denied by the defendants who also offered an inspection by the plaintiff on 8 August 2011), the learned Judge opined that such could not properly ground a real risk of dissipation of assets.

56.  Regarding the real property project in Guangdong, the learned Judge found evidence showing that it was acquired for W International.

57.  On the whole, the learned Judge also found against the plaintiff on the issue of risk of dissipation of assets.

58.  The plaintiff did not appeal against the discharge of the ex parte injunction and the refusal to regrant.  The parties later also consented to have HCMP 1289/2011 discontinued or stayed permanently as they had agreed to submit to the jurisdiction of Hong Kong.

The third application for Mareva injunction in this action

59.  The plaintiff then started the present action on 6 September 2011.  On 10 January 2012, they issued the present summons for a Mareva injunction in similar terms as the previous ones and with the ceiling of prohibition at RMB245 million.  The draft order provided an alternative relief which required the 1st defendant to pay the balance of the purchase price at RMB245 million into court in two instalments of RMB145 million forthwith and RMB100 million on or before 1 March 2012. 

60.  I have already referred to the affirmation in support which essentially repeated the complaints in the statement of claim in this action.  The complaints are similar to the previous ones made in the applications for injunctions in HCA 1069/2011 and HCMP 1289/2011. 

61.  Leading counsel for the plaintiff submitted that the application was made in the light of recent changes in the circumstances of the unlawful dealings of the Ba Nan Project.  Leading counsel summarised the plaintiff’s complaints as follows.

62.  Leading counsel referred to the 1st defendant’s failure to pay the instalments of purchase price and profit on time or at all.  He also complained that the 1st defendant had unlawfully transferred the sale shares to the 2nd defendant and had dealt with the assets of W International without authority so as to strip it of all value. Moreover, the defendants have refused inspection of the books and account of Chongqing Wijaya by the plaintiff.  Counsel also submitted that there is cogent evidence of the defendants’ dissipation of assets and an imminent risk that they were in the process of disposing or alienating the entire Ba Nan Project to 3rd parties.

63.  Regarding the complaint of non-payment of purchase price and profit, since the plaintiff has by his solicitors’ letter of 5 July 2011 purportedly accepted the alleged repudiation of the agreement of sale and purchase by the 1st defendant, there is no basis for him to demand payment of the remaining instalments under the agreement of sale and purchase as varied by the 1st and 2nd variation agreements. 

64.  Even if the 1st defendant should offer to pay him money per the agreement as varied, he would not be in a position to accept the same as the receipt of the remaining purchase price as purchase price would prejudice his claim for the return of the sale shares.  I therefore see no basis for this complaint or any argument that the failure of the 1st defendant to tender payment per the agreement can be construed as risk of dissipation when the plaintiff is not in a position to demand or accept the same pursuant to the agreement.  This is also one of the main grounds advanced by leading counsel for the defendants in opposition to the application for continuation of the ex parte injunction and I agree with it.

65.  Regarding the transfer of the sale shares to the 2nd defendant, that is prima facie blessed by a number of provisions in the agreement of sale and purchase and the custodian agreement.  I do not think the transfer can be used to suggest a risk of dissipation.

66.  Regarding the arguments about using the sale shares and underlying assets as security for loans at high interest rate and the entering into building contracts with Yiping at unusually favourable terms to Yiping, these are issues that had been canvassed before Chung J and are nothing new.

67.  In connection with the allegation of raising loans, the plaintiff also alleged that the securities for the loans were the sale shares and underlying assets.  Since the 1st defendant used such loan to pay him the purchase price, he therefore submitted that the 1st defendant had contravened section 47A of the Companies Ordinance by causing W International and its subsidiary to provide financial assistance for the 1st defendant’s acquisition of the sale shares.  However, this again is not evidence of risk of dissipation of assets and Mareva injunction is not the appropriate remedy.

68.  The plaintiff also relied on the purchase of land in Guangdong province which the plaintiff said was done in June 2011 in the name of the 1st defendant and was only transferred to Chongqing Wijaya upon enquiry by the plaintiff.  That is a matter that had been relied on in the two previous applications.

69.  The plaintiff also complained about the defendants’ refusal of inspection despite his having sent a team of auditors from Ernst & Young to Chongqing who waited there from 13 to 18 July 2011 fruitlessly.  Chung J has already decided that this did not amount to a risk of dissipation.  Furthermore, the defendants’ solicitors have already written to the plaintiff’s solicitors on 8 August 2011 offering inspection by Mr Wong upon reasonable notice but not to allow copies of documents to be made.  Hence, inspection is not refused absolutely. 

70.  The defendants have now further offered to allow Mr Wong and no more than three accountants to inspect the books and accounts of Chongqing Wijaya upon reasonable notice having been given.

71.  I therefore do not think that the dispute over the inspection of books and accounts is a ground for alleging dissipation of assets.

No significant change of circumstances and dismissal of the application

72.  Leading counsel for the defendants also presented a formidable argument to oppose this application.  Leading counsel submitted that this is the third application for Mareva injunction and there is no basis for the plaintiff to make this third bite of the cherry.  Counsel referred to Re The Prudential Enterprise, HCCW 594/1999 where Chu J referred to the general principle that when an interlocutory application is dismissed, whether on procedural ground or merits, it is not permissible to make a fresh application for the same relief on the same ground except perhaps with a significant change of circumstances (paras 12 and 13).

73.  Counsel pointed out and I agree that there is no significant change of circumstances since the first application before Poon J and there is no basis for the plaintiff to apply for the injunction for the third time. 

74.  In the premises, I see no basis for this application and I dismissed it. 

Dismissal of alternative relief

75.  The plaintiff’s summons also prays for an alternative order that the 1st defendant be required to pay RMB245 million into court.  However, I have refused the application for a Mareva injunction.  I also cannot order the 1st defendant to pay this sum into court as security for judgment for the plaintiff.  The reason being that the plaintiff has purportedly accepted the alleged repudiation of the agreement for sale and purchase and is claiming the return of the sale shares.  He is not seeking performance of the agreement or a judgment in the action for payment by the defendant according to the sale and purchase agreement.  I therefore dismiss this alternative relief as well.

Summons for payment into court for admission by the 1st defendant

76.  There is also a summons for an order requiring the defendant to pay into court the remaining instalments of the purchase price according to the sale and purchase agreement.  However, I repeat that it is the plaintiff’s case that the agreement has been repudiated and the repudiation accepted.  On his case, the agreement is no longer in existence.  I therefore cannot order the 1st defendant to pay into court monies as security for a judgment that the plaintiff is not seeking.  I have already dismissed this summons with costs at the end of the hearing.

Summons to amend the defence and counterclaim

77.  The defendants have also filed a summons to amend the defence and counterclaim.  That summons was adjourned and has been disposed off now.

The cross-undertakings

78.  The parties have offered cross-undertakings which are to have effect upon dismissal of the application for Mareva injunction.

79.  The plaintiff undertakes to refrain whether by himself his servants agents or otherwise howsoever from causing any harassment to the defendants and Chongqing Wijaya and/or any interference and disruption to the defendants’ carrying on with the development of the Ba Nan Project.

80.  In return for the plaintiff’s said undertaking, the defendants undertake:

(1)  to maintain a deposit of RMB45 million at a bank in Chongqing and to provide to the plaintiff’s solicitors a weekly report issued by the bank on the status of the deposit;

(2)  to provide the plaintiff’s solicitors weekly reports of the sale and/or disposal and/or creation of encumbrance on the units and landed properties comprising the Ba Nan Project.

(3)  not to dispose of or encumber the sale shares that are registered in the 2nd defendant’s name; and

(4)  to allow Wong and no more than three accounts to inspect the books and accounts of Chongqing Wijaya upon reasonable prior notice.

Lapse of the order of 13 January 2012

81.  The first three undertakings mirrored the terms of my order given on 13 January 2012 and order is to lapse now.

Costs order nisi

82.  Finally, I make a costs order nisi that the plaintiff do pay the defendants the costs of this application to be taxed.  I also certify the matter fit for two counsel.

(L Chan) Judge of the Court of First Instance High Court

Mr Clive Grossman, SC and Mr Hylas Chung, instructed by Huen & Partners, for the plaintiff

Ms Audrey Eu, SC and Ms Elizabeth Yang, instructed by C L Chow & Macksion Chan, for the 1st and 2nd defendants

HCA1517/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1517 OF 2011

------------------------

BETWEEN
	TIONG KING SING	Plaintiff
and
	SAM BOON PENG YEE	1st Defendant
	NEW SUNSHINE INVESTMENTS LIMITED	2nd Defendant
------------------------

Before : Hon Poon J in Chambers

Date of Hearing : 26 June 2012

Date of Decision : 26 June 2012

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D e c i s i o n

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1. This is the defendants’ application for leave to amend the defence and counterclaim filed on 28 October 2011. Given the fact that the issue before me is extremely discrete and narrow, I think I will be forgiven if I do not recount in detail the background leading to these proceedings.

2. Of all the new amendments proposed, the plaintiff only objects to paras 26E(vii) and 38A.  To put these amendments in context, one has to start with para 26D of the defence and counterclaim.  And I quote :

“26D. It is an implied term of the Formal Agreement, the First Variation Agreement and/or the Second Variation Agreement that:

(a) The Plaintiff, whether by himself, his servants and agents or otherwise, shall not interfere with the Defendants’ performance of the said contracts:

(b) The Plaintiff, whether by himself, his servants and agents or otherwise, shall not interfere with the Defendants’ development of the Ba Nan Project, including but not limited to its financing and construction; and

(c) The Plaintiff, whether by himself, his servants and agents or otherwise, shall not interfere with or obstruct the Defendants from generating the Anticipated Profits from the Ba Nan Project within the Expected Completion Period.

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26E(vii). In about February 2012, the Plaintiff lodged another malicious report with Chongqing Public Security Bureau by making false allegations of fraud against the 1^st Defendant in relation to the transfer of the Company shares to the 2^nd Defendant, as a result of which the 1^st Defendant was subjected to ‘border control’ (邊控) preventing him from travelling out of the Mainland China during the investigations.

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38A.  Paragraphs 26A-H hereinabove are repeated.  The Defendants avers the Plaintiff’s Acts constituted a breach of the implied terms as pleaded in paragraph 26D hereinabove.”

3. Mr Lam, for the plaintiff, argued that the matter complained of in para 26E(vii) took place in February 2012, some four months after the filing of defence and counterclaim.  It raised a new cause of action and therefore offends the well established rule of relation back.  He would have no objection to para 38A if the reference to para 26E(vii) is deleted.  Mr Lam, in the course of his submissions, placed heavy reliance on Lark International Finance Ltd v Lam Kim Marisa [2000] 4 HKC 688.

4. Ms Eu, SC, for the defendants, submitted that para 26E(vii) did not raise any new cause of action as such.  It only pleaded a further act to support the cause of action based on interference with and obstruction of performance of the contract, which had already accrued at the time of the filing of defence and counterclaim.  In support of her submissions, she referred me to Hong Kong Jie Hing Trading Company Limited v Pacific Commercial Co Ltd, HCA2167/2005, unreported, 18 October 2006, Deputy Judge Gill and Dornan v JW Ellis & Co Ltd [1961] 1 QB 583.

5. In my view, upon a closer analysis of paras 26D and 26E, the cause of action based on breach of the implied term that the plaintiff should not interfere with or obstruct the defendants from performing the contracts had accrued at the time of the filing of defence and counterclaim.  Para 26E(vii) did not raise a new cause of action as such.  It is a further act complained of, which took place after the defence and counterclaim.  The cause of action remains the breach of the implied term of not interfering with or obstructing the performance of the contract. 

6. The Court of Appeal decision in Lark can be distinguished in that the post-writ non-payment there did raise a new cause of action whereas the act complained of in para 26E(vii) here did not.

7. I will therefore allow the amendments in paras 26E(vii) and 38A.

[Submission on costs]

8. I think costs should follow the event.  Costs of and occasioned by the amendment will be borne by the defendants in any event, to be taxed if not agreed.  Costs of today should be borne by the plaintiff, to be paid forthwith and to be taxed if not agreed.  The defendants’ application for a certificate for two counsel is refused.  This matter is simple and straight forward. Appearance by two counsel is not warranted.  I will only grant a certificate for one counsel.

	(J Poon)
	Judge of the Court of First Instance High Court

  

Mr Douglas Lam, instructed by Wilkinson & Grist, for the plaintiff

Ms Audrey Eu, SC leading Mr Tong Chow, instructed by C L Chow & Macksion Chan, for the defendants