SU SU v. LI WING CHIU

HCA 2225/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2225 OF 2013

________________________

_______________________

_________________

J U D G M E N T

_________________

Introduction

1.  There were 4 matters before this court which followed from this court’s judgment handed down on 18 February 2014 (“Main Judgment”), and I shall adopt the same legend herein as in the Main Judgment.

2.  The 4 matters were :-

(i)   P’s summons, and D’s summons, for variation of the costs order nisi made in the Main Judgment (“Costs Summonses”);

(ii)   D’s summons dated 3 March 2014 for leave to appeal against the Main Judgment (“Leave Summons”);

(iii)           P’s amended summons dated 28 April 2014 (“Variation Summons”) for variation of the Mareva Injunction, as granted under the Ex-Parte Order and varied on 22 November 2013 (“Mareva Order”);

(iv)           D’s summons dated 24 April 2014 (“Release Summons”) for the release of a sum of HK$680,000 from the sum of HK$17,680,000 paid by D into court.

3.  I propose to consider the Leave Summons first, followed by the Variation Summons and the Release Summons.  I will then deal with the Costs Summonses.

Leave Summons

4.  Regarding applications for leave to appeal in interlocutory appeals, Section 14AA (4) of the High Court Ordinance (Cap 4) provides that:-

“Leave to appeal for the purpose of subsection (1) shall not be granted unless the court hearing the application for leave is satisfied that –

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard”.

5.  To meet the “reasonable prospect of success” test, the applicant is required to show more than just an arguable case, but an appeal that has merits and ought to be heard, although he does not have to demonstrate that the appeal will probably succeed[1].

6.  The phrase “reasonable prospect of success” in this context has also been explained by Le Pichon JA in SMSE v KL [2009] 4 HKLRD 125 (at §17):-

“Leave to appeal under Order 59 rule 2B is not lightly granted. The relevant test appears in section 14AA (4) of the High Court Ordinance. In granting leave, the judge must have considered that the test set out in section 14AA (4) had been met. The section requires that the court be satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard before granting leave. Reasonable prospects of success involves the notion that the prospects of succeeding must be ‘reasonable’ and therefore more than ‘fanciful’, without having to be ‘probable’.”[2]

7.  In the context of interlocutory injunctions, it has been said that the Court of Appeal will generally be slow to interfere with the decision of a judge on an application for an interlocutory injunction in view of the wide discretion given to the judge.  The burden of proof is on the applicant and the burden can be discharged by the applicant showing an arguable case or mere possibilities of success[3].

8.  As submitted by D’s Counsel, Mr Chan, the grounds set out the draft Notice of Appeal (“Draft Notice”)[4] could be summarized into four broad grounds:-

(a)    The court erred in failing to hold that there were non-disclosures and misstatements on the part of P (see Ground nos 1, 2, 3, 10 and 12 of the Draft Notice ) (“Non-disclosure Ground”);

(b)   The court erred in ruling that the P had established a good arguable case by ignoring the Chen Agreement, and the failure of the P’s to fulfil and/or discharge her obligations under the Transfer Agreement, 1^st Consultancy Agreement and the 2^nd Consultancy Agreement (see Ground nos 4, 5, 6, 7, 8, 9, 11 and 13 of the Draft Notice ) (“ Good Arguable Case Ground”);

(c)    The court erred in finding that there was a real risk of dissipation of assets by the D (see Ground no 14 of the Draft Notice) (“ Risk of Dissipation Ground”);

(d)   The court erred in holding that further fortification of HK$1.5m would be adequate without giving due regard of the damages suffered or would be suffered by the D due to the Mareva Injunction (see Ground no 15 of the Draft) (“Fortification Ground”).

Non Disclosure Ground

9.  As mentioned in the Main Judgment, P’s case was a simple one and was based on the Transfer Agreement she signed with D.  It was stated in the opening paragraph of the Transfer Agreement that, in view of the expiry of the 1^st Exclusivity Agreement entered into by Neuf Capital and the Provisional Liquidators in relation to the Restructuring Project for the re-listing of the Company, the parties, namely P and D, agreed that :

i. the Restructuring Project would be continued by a company solely owned by D called Thousand Jade;

ii. P was to transfer to D all her rights and interests in her investments in the Restructuring Project at the consideration set out in the Transfer Agreement.

10.  D’s complaint was that when applying for the Ex-Parte Order, P had failed to disclose various agreements pursuant to which P had disposed of the entire portfolio, or a substantial part, of her right and interest in her investments in the Re-structuring Project held by Golden Winner in Neuf Capital.  As a result of P’s disposals aforesaid, D’s case was that the Transfer Agreement would have been rendered void and null for non-existence of subject matter.

11.  As stated in paragraphs 8 and 9 of the Main Judgment, there were originally 3 investors in the Re-structuring Project for the re-listing of the Company, namely P, D and Chan.  Neuf Capital was the corporate investment vehicle used by them to sign the 1^st Exclusivity Agreement for the Re-structuring Project.  The interests of P, D and Chan were in turn represented by 3 offshore companies, one of which was Golden Winner, and P was the 67% beneficial owner of Golden Winner.

12.  Each of the 3 investors was responsible for contribution of capital, to be paid by instalments, and that each would be entitled to subscribe for and to be allotted certain number of shares after the completion of the Restructuring Project and re-listing of the Company.

13.  Further, it was not disputed by D that he was aware of P having to raise funds for her share of the capital from various persons in Mainland China, who were her sub-investors/financiers.  Thus, for such purposes, P had had entered into various agreements, including the Chen Agreement, the Miao Agreement, and the Zheng Agreements under which sums/loans were extended to P by those sub-investors/financiers in return  for shares in the Company after re-listing. 

14.  These various agreements which P entered into with the sub-investors/financiers were not disclosed by P to DHCJ Lok at the time of her application for the Ex-Parte Order, although by the time of the inter-partes hearing, D had referred to the Chen Agreement in support of his application for discharge, which was considered by D to be the most material of those various agreements.

15.  At the respective dates of those agreements, what P held, through Golden Winner and Neuf Capital was only a right/entitlement to subscribe for and to be allotted certain number of shares in the Company, after its re-listing.  Some of the agreements did not seem to make this clear, but notwithstanding this, in effect P could only transfer the shares set out in the various agreements to the sub-investors/financiers, after re-listing of the Company.

16.  As set out in the Main Agreement, I was of the view that the various agreements with sub-investors/financiers entered into by P should not affect the validity of her agreement with D, namely the Transfer Agreement pursuant to which D was to buy out P’s interest in the Re-structuring Project, which was held through her shareholdings in Neuf Capital through Golden Winner.  

17.  As a result of the Transfer Agreement, P agreed to Neuf Capital dropping out of the Re-structuring Project upon expiration of the 1^st Exclusivity Agreement, and Neuf Capital was replaced by Thousand Jade of which D was the sole beneficial owner, and it was Thousand Jade which signed the 2^nd Exclusivity Agreement with the Provisional Liquidators.  Thousand Jade was eventually successful in re-listing the Company.

18.  I have set out in paragraphs 43-70 of the Main Judgment that I concluded that the Chen Agreement, whether superseded by the Undertaking or the 2^nd Chen Agreement or not, was not relevant in the weighing operation at the ex-parte hearing, and in my view the non-disclosure of those documents was not material.  I had also considered those other agreements with sub-investors/financiers, and did not consider the non-disclosure of those agreements material.

19.  In my view, by raising all those agreements with the sub-investors/financiers, D was only clouding the main issue, which was his own obligations towards P under the Transfer Agreement.  I am not satisfied that D has a reasonable prospect of success of the appeal on this ground.

Good Arguable Case Ground

20.  The submissions by D’s Counsel Mr Chan on the Good Arguable Case Ground was based mainly again on the Chen Agreement.   I stated in paragraph 65 of the Main Judgment that if the Chen Agreement was a valid and effective agreement, Golden Winner would then be holding 70 m shares (or whatever the amount after consolidation) in trust for Chen, and Mr Chan submitted that that this indicated that this court recognized that Chen became the beneficial owner of 70m shares of the Company immediately upon his entering into the Chen Agreement.

21.  P could not have given away what she herself or Golden Winner had not got.  As mentioned earlier, what P had at the time of the Chen Agreement through Golden Winner/Neuf Capital was only a right or entitlement to subscribe for and to be allotted certain number of shares in the Company after re-listing, and what Golden Winner purported to transfer to Chen, or to hold in trust for him, was, if anything, that right to subscribe for or be allotted 70m shares after re-listing. 

22.  Anyway, what this court said in paragraphs 64 and 65 of the Main Judgment concerned only Chen and Golden Winner, and further in paragraph 108, this court had said in the event that the Chen Agreement was eventually held to be a valid and effective agreement, Chen’s recourse would be against Golden Winner and/or P, and I was of the view that this should not affect D’s obligations towards P under the Transfer Agreement.

23.  In the above circumstances, I am not satisfied that there is a reasonable prospect of success on this ground.

Risk of Dissipation Ground

24.  I have set out my reasons in paragraphs 110 to 117 of the Main Judgment on why there was a real risk of dissipation.  I am not satisfied that there is a reasonable prospect of success on this ground.

The Fortification Ground

25.  Again I have set out my reasons in paragraphs 119-123 of the Main Judgment on why I increased the fortification to HK$2m.  I am not satisfied that there is a reasonable prospect of success on this ground.

Conclusion

26.  In light of what I have said above, I decline to grant leave to appeal.

P’s Variation Summons

27.  Paragraph 1 of the Mareva Order restricts D from removing from Hong Kong or dealing with his assets up to HK$17m, and in particular, if the total unencumbered value of D’s assets in Hong Kong exceeds HK $17m, he may remove, dispose of, or deal with those assets, so long as the total unencumbered value of his assets still in Hong Kong remains above HK$17m[5] (“Paragraph 1”).

28.  Under paragraph 2 of the Mareva Order[6], D must file an affidavit within 14 days confirming his disclosure of all his assets of an individual value of HK$50,000 or more which are within Hong Kong, whether in his own name or not, and whether solely or jointly owned, giving the value, location and details of all such assets (“Paragraph 2”).

29.  On 10 December 2013, about 18 days after the inter-partes hearing, D’s solicitors wrote to P’s solicitors indicating that D was ready and willing either to secure HK$17 m until the substantive hearing on 10 January 2014 as to whether the Mareva Order should be discharged (“Substantive Hearing”), or to pay the amount of HK$17 m into court.

30.  There was some delay on P’s side, and it was not until 16 December 2013 that P’s solicitors wrote to say, subject to P’s liberty to apply for further variation, if necessary, the sum of HK$17m should be paid into court pending the outcome of the Substantive Hearing, and that D should pay a further sum of HK$680,000, being 2 months’ interest at 2 % per month.  D said he had no alternative but to agree.  A consent summons was later signed by the parties, and an order was made on 19 December 2013 (“Consent Order”).

31.  It is clear that the Mareva Order only sets out the sum of HK$17m as a ceiling, with no mention of interest.  In the Variation Summons, P sought a variation to the following effect:

(i) There be added after every reference to HK$17m, the amount of interest thereon at 2 % per month since 9 November 2013;

(ii) D to make a further provision of security of HK$680,000, being 2 months’ interest at 2 % per month on the sum of HK$17m from 9 January 2014 to 9 March 2014;

(iii) D to pay a monthly sum of HK$340,000, by way of monthly interest on the sum of HK$17m, at 2 % per month on 9^th day of each month commencing from 9 April 2014;

(iv) In default of the above, D to comply with Paragraph 2 within the days as set out.

Legal Principles

32.  P’s Counsel, Mr Liang had referred this court to paragraph 5.002 in Gee on Commercial Injunctions (5^th).  It is stated therein :-

“In Mareva cases, the limit of the injunction will be assessed on the basis of the amount for which the claimant has a good arguable case together with an allowance for interest and costs: Mayor and Burgesses of the London Borough of Lambeth v Clarke. Likewise, if the defendant wishes to substitute security for assets caught by the Mareva injunction, then in principle he is free to do so, by providing security in an amount equivalent to the value of the assets released. If the assets are earning interest (eg bank accounts), then it is to be expected that the substitute security will include an appropriate uplift to put the claimant in the same position as if interest had continued to accrue on assets caught by the injunction…

  However, the limit to a Mareva injunction can be raised or a new injunction granted before judgment when it is just to do so.  If an earlier injunction has been varied or discharged by agreement, it is material to take into account the terms of that agreement, including whether it was part of the contract that no new Mareva relief would be sought by the claimant against the defendant pending judgment.  Such a promise, if given, will provide a strong reason for the matter not being reopened.  But it is not conclusive.  The question is whether it is just in all the circumstances which have arisen that the new relief should be granted to the claimant.  Even if such a promise has been given stron reason might be shown by the claimant for not giving effect to that promise.  If such a promise has not been given then whether it is just to grant the new relief still depends on the particular circumstances.[7]”

33.  As seen from Charles Church Development Plc v Cronin [1990] FSR 1, the court can add interest to the amount of the claim in a Mareva injunction, and further the figure in the Mareva injunction can be varied on application.

34.  It is, however, stated in paragraph 29/1/34 of the Hong Kong Civil Procedure2014 Vol 1 that where an interim order has been made by consent, or following a full inter partes hearing, the person seeking to discharge or vary the order is not entitled to do so as of right or to re-argue it as if it were a re-hearing.  The court would generally only consider varying or discharging an interim injunction on good grounds or due to a change in circumstances or facts coming to light that could not reasonably have been found out before hand.  Further, an application to vary or discharge may be made where the injunction by its terms shows that the application was not substantially disposed of, but adjourned sine die with liberty to apply[8].

Whether there was any basis for variation 

35.  There was no real dispute between the parties in relation to the above general principles on variation of a Mareva injunction, but the   main issue raised by Mr Chan was that the Mareva Order had in fact ceased to have effect upon D’s provision of security by way of payment of HK$17m into court and there was thus no basis for any variation.

36.  In the Mareva Order, at the ex-parte stage, under the heading “Duration”, the order was to remain in force up to and including the return date, unless D paid the sum of HK$17m into court or made provision for security in that sum.  The effect of the Mareva Order being continued on the return date was that the order was to remain in force until further order, until D paid the sum of HK$17m into court or made provision for security in that sum.

37.  The wording of paragraph (3) of the Mareva Order under “Exceptions To This Order” was also quite clear, namely the Mareva Order was to cease to have effect if D provided security by paying the sum of HK$17m into court. 

38.  The Substantive Hearing was in relation to P’s summons dated 18 November 2013, which sought an order that the Mareva Order was to continue until further order, which was opposed by D.  There had been no summons issued by or on behalf of D to either set aside or to discharge the Mareva Order, although it seemed clear in Mr Chan’s skeleton submissions at that time, what D was seeking was a discharge of the Mareva Order.

39.  The issue of whether Mareva Order had ceased to have effect was not raised during the Substantive Hearing, nor was the effect of the Consent Order, or any issue over payment of further interest or variation. 

40.  As a result of the Substantive Hearing, this court ordered that the Mareva Order was to continue until further order as sought by P, subject to the top up of the P’s fortification as to damages.

41.  At the present hearing, Mr Liang submitted that the effect of the Consent Order was to have varied the Mareva Order, but as there was a clause providing to liberty to apply, P could apply to vary the Mareva Order to seek security for payment of interest.

42.  The Consent Order states that, among other things, D shall pay the sum of HK$17m into court within 7 days, together with HK$680,000, being 2 months’ interest at 2 % per month, and :-

“All other obligations on the part of the Defendant under the Mareva Order including but not limited to the filing of the affirmation for disclosure of information under paragraph 2 of the Mareva Order shall be stayed pending the outcome of the hearing of the Plaintiff’s Summons for continuation of the Mareva Order dated 18 November 2013 on 10 January 2014. …”

43.  At the inter-partes hearing, the time for D to comply with his obligations under Paragraph 2 was extended to 16 December 2013.

44.  D’s solicitors first wrote to P’s solicitors on 10 December 2013 proposing the security for HK$17m or payment into court, and pointing out that the Mareva Order was to cease to have effect, and that all directions under the Mareva Order concerning, inter alia, filing of affirmation for disclosure of information etc was to be dispensed with upon such provision of security.  It then went on to say that, for avoidance of doubt, D would oppose the continuation of the Mareva Order notwithstanding any provision of security.

45.  D’s solicitors did not respond substantively until the actual day of the deadline, namely 16 December 2013, and they replied to state that under clause 6 of the Transfer Agreement, P was entitled to interest on the outstanding sum of HK$17m at 2% interest per month as a result of D’s default, and they had standing instructions to apply to vary the Mareva Order to freeze D’s assets up to value of HK$21.08m, being HK$17m plus one year’s interest of HK$4.08m, and that P would only agree to D’s proposal subject to D paying HK$21.08m into court, failing which P would apply to court to vary the Mareva Oder accordingly.

46.  It was in D’s above letter that interest was first raised and as stated therein D indicated that they would to apply to vary the Mareva Order, if P was not to agree to pay interest for 12 months.  A flurry of letters then followed.

47.  D said due to the deadline and the shortage of time, and to save time and costs, he had no alternative but to propose to pay 2 months’ interest until the Substantive Hearing and his solicitors then responded to the above letter by proposing that the sum of HK$17m and 2 months’ interest of HK$680,000 be held in escrow by them.

48.  D’s proposed payment of 2 months’ interest was accepted by P who, however, insisted on payment into court of the sum of HK$17,680,000, and P stated that the acceptance was subject to P’s liberty to apply for further variation, if necessary.

49.  This resulted in the present form of the Consent Order, and so far as the liberty to apply clause, those words “for further variation, if necessary” had been, however, omitted.

50.  The effect of the Consent Order was no doubt to vary the Mareva Order, as stated in paragraph 1 of the Consent Order itself.

51.  There were 2 main obligations imposed on D under the Mareva Order, namely restrictions on movement/dealings of his assets under Paragraph 1 and disclosure of assets under Paragraph 2.  In my view, sub-paragraphs (1) (a), (1) (b) and (2) of Paragraph 1 were varied  by paragraphs 1 (a) and (b) of the Consent Order, to the extent only to allow D to procure a company Astrum Capital Management Limited, which was holding the sum of HK$17m, to pay that sum into court, and further to allow D to make a further security of payment of HK$680,000 into court for 2 months’ interest.  Subject to these variations, the rest of Paragraph 1 remained unaffected.

52.  Hence, upon payment of the sum of HK$17m, plus the agreed further security of HK$680,000 into court, the restrictions in Paragraph 1 of the Mareva Order would be uplifted and ceased to have effect, as provided under paragraph (3) under “Exceptions”.  The parties’ then intention can also be gleaned from paragraph 1 (d) of the Consent Order, which seemed to provide for the D’s spending limits on his ordinary and proper business expenses to be discharged. 

53.  Although the restrictions in Paragraph 1 were uplifted and Paragraph 1 ceased to have effect, this would only be while the agreed security was in place.  

54.  The parties also clearly did not agree to a discharge of the Mareva Order.  There was no provision for discharge in the Consent Order and indeed had this been the parties’ intention at that time, there would not be any need for the Substantive Hearing.  Further, under paragraph 1 (c) of the Consent Order, the parties agreed to “allother obligations” being stayed pending the Substantive Hearing.  Although this seemed to refer to D’s disclosure obligations under Paragraph 2 of the Mareva Order, such obligations are only ancillary to render the Mareva Order effective, as can be seen from paragraph 29/1/74 of Hong Kong Civil Procedure 2014 Vol 1.  On my understanding of the Consent Order from the letters between the parties, the common intention of the parties at the time of the Consent Order was in my view only a temporary arrangement pending the result of the Substantive Hearing, and it was also clear from the correspondence that P had the liberty to apply for a variation. In the circumstances, I do not accept Mr Chan’s submission that there was no basis for any variation.

Whether P entitled to the variation sought

55.  I am satisfied on the authorities and on the evidence before the court that P is entitled to vary the Mareva Order to raise the ceiling of HK$17m to take into account of interest.

56.  Mr Chan submitted that the authorities referred to by Mr Liang did not involve an unlimited amount in a Mareva injunction. In particular, he referred to Mayor and Burgesses of the London Borough of Lambeth Court of Appeal (Civ Div) Transcript No 1563 of 1993 ( December 22, 1993) where the Court found that the claim by the plaintiff for a £4m limit including interest and costs was “clearly excessive” and the limit was eventually allowed at £250,000.

57.  I understand that P has taken out an Order 14 summons for summary judgment which has been adjourned on 7 April 2014 to a date to be fixed for substantive arguments.  It is not clear at this stage whether D intends to proceed further in light of my decision  not to grant leave to appeal.

58.  Having considered all the circumstances of the case so far, I am only prepared at this stage to vary the Mareva Order, to raise the ceiling of HK$17m referred therein to a total amount to include interest at 2 % per month since 9 November 2013 for a total of 12 months.  Thus, the new ceiling will be HK$21.08m.  I do not see any need to make any other orders regarding payments of various sums for interests as sought by P in the Variation Summons, save that, under Paragraph 2, I will allow D an extension of time of 14 days from this order to meet his obligations thereunder, in the event of there being no additional security provided by D.  So far as D’s spending limits under “Exceptions”, I will again leave this to the parties’ agreement, failing which D is at liberty to apply.

D’s Release Summons

59.  As a result of my above orders, D’s Release Summons must fail.

60.  In any event, D had agreed to make the payment of HK$680,000 under the Consent Order, and he had had a stay of his obligations under Paragraph 2, and there are no sufficient grounds as to why the HK$680,000 interest he agreed to pay should now be returned to him.

Costs Summonses

61.  In the Main Judgment, I made an order nisi for D to pay P’s costs of and incidental to her inter-partes summons for continuation of the Mareva Order (“Order Nisi”).

62.  P issued a summons to vary the Order Nisi, to also include the costs of and incidental to her summons issued on 8 January 2014 which was for leave to file her 3^rd affirmation, and also for costs to be summarily assessed and paid forthwith by D.  She was represented by her solicitor Mr To on this application.

63.  D did not apply for any variation of the Order Nisi within time, but the day before the P’s summons was due to be heard, D issued a summons for extension of time for him to apply for variation of the Order Nisi.  Although it was late, and out of time, I saw no prejudice to P, and gave leave accordingly.

64.  In D’s skeleton submissions, Mr Chan asked for costs to be in the cause, or alternatively the costs in relation to further fortification be to D or in the cause.

65.  On the general approach towards costs in interlocutory applications, both Mr To and Mr Chan had referred this court to the pre CJR judgment of the then Chu J in Golite International Limited v Golden Power Industries Limited, HCA 2262/2005, 18/03/05.  It is clear from the judgment and the authorities referred therein that while the court will not investigate the merits of a case at the interlocutory application stage, it does not mean that the court cannot make a final costs order, and that the court in exercising its discretion on costs at an interlocutory stage should bear closely in mind the need to balance the two risks of injustice[9].

66.  After CJR, Order 62 rule 3(2) of Rules of the High Court now states that if the court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to Order 62, order the costs to follow the event or make such other order as it sees fit.

67.  Further, Order 62 rule 5 of the Rules of the High Court now also sets out special matters to be taken into account, as appropriate, by the court in considering costs.

68.  Mr Chan had also referred this court to paragraph 29/1/55 in Hong Kong Civil Procedure 2014, Vol 1.  As stated therein, for many years, it has been the normal practice for a successful plaintiff granted an interlocutory injunction to be granted his costs in the cause and for a successful defendant to be granted his costs in the cause, but the rationale of that practice is perhaps not clear and the courts are showing a greater willingness to depart from it.  It is further stated therein that when deciding on costs, the court should consider the merits of the injunction application. 

69.  In the present case, Mr To agreed that costs of the ex-parte application should be costs in the cause, and only sought costs of the inter-partes summons.

70.  Mr To referred this court to 4 unreported post CJR judgments in relation to costs ordered against the defendant who failed in his opposition/discharge application against a Mareva injunction, namely (i) Falcon Private Bank Ltd v Borry Bernard Edouard Charles Ltd & Anor, HCA 1934/2011, 09/07/12, (ii) Velatel Global Communications INC Trussnet Capital Partners (HK) Ltd v Chinacomm Ltd & others, HCA 1978/2011, 26/10/12, (iii) BITH, LCC v GCA Forex Corp, HCA 1743/2008, 06/05/09, (iv) Hornor Resources (International ) Co Ltd v Savvy Resources Ltd, HCA 335 /2010, 23/03/10.

71.  Mr Chan tried to distinguish those cases by pointing out that in none of those 4 cases in relation to a Mareva injunction was there a fortification of the undertaking as to damages ordered.

72.  Mr Chan further tried to distinguish Falcon from the present case, as in that case, the court held the view that most of the grounds relied on by the defendants’ application to discharge the ex-parte injunction were frivolous and the proceedings were conducted by the defendants and their legal team in an abusive matter.  I accept there were no such critical comments in the Main Judgment.

73.  However, as pointed out by Mr To, in BITH, even though the limit of the Mareva injunction was reduced, the court applied the normal rule of costs to follow the event and the defendant was ordered to pay the plaintiff’s costs for continuation.

74.  This was also the case in Hornor, when the defendant failed in its opposition to the continuation of the Mareva injunction and its application for discharge, the court ordered the defendant to pay the costs of the discharge application.

75.  In Velatel, the plaintiffs’ summons for continuation of the injunction orders was granted and that the defendants’ application to discharge was dismissed.  DHCJ Au Yeung, as she then was, took the view that notwithstanding there was an argument about the capacity to sue in relation to one of the plaintiffs, the time taken for argument on this issue was relatively short, and the plaintiffs were the overall winners, she made an order nisi that the defendants were to pay the plaintiffs’ costs of both summonses, to be taxed and payable forthwith.

76.  Although D did succeed in raising the amount of fortification, the total amount of HK$2m ordered was far from the amount of HK$10m submitted on his behalf, and the time spent on this issue was relatively short.  Having considered all the circumstances of this case, I am of the view that P was the overall winner and D should pay P’s costs of and incidental to her inter partes summons for continuation of the Mareva Order.  Such costs should include her summons for leave to file her 3^rd affirmation, which was in reply to new matters raised by D in his 2^nd affirmation, and also costs of the Costs Summonses.

77.  As for whether costs should be ordered to be summarily assessed, I see no reason as to why such costs should not be summarily assessed.

78.  As to whether such costs should be paid forthwith, Mr Chan relied on China Agri-Products Exchange Limited v Wang Siu Qun & Anor HCA 1807/2011, 16/01/14, namely the court should have regard to the effect on the respective parties’ cash flow and unfairness of hampering the further conduct of the action by the unsuccessful party when determining a costs order.

79.  Mr Chan also referred to the Court of Final Appeal decision in The Liquidator of Wing Fai Construction Company Ltd (in compulsory liquidation) v Yip Kwong Robert & Others, FACV 3 /2011, 24/05/12 that it was necessary to factor in any possible unfairness or prejudice which the party against whom an order for immediate payment of costs was sought might suffer in consequence of such an order.

80.  According to Mr Chan, the Mareva Order had already caused tremendous adverse effect on D’s cash flow as deposed to in his affirmations and that further costs obligation on D at this preliminary stage would certainly hamper D in the further conduct in defending P’s various interlocutory applications.

81.  D obtained about HK$46m from his sale of shares in November 2013.  D had referred to his alleged commitments under an investment agreement and a loan agreement.  Apart from forfeiture of a deposit, and likelihood of being sued or having to attend arbitration under those agreements, there was no sufficient evidence from D as to what adverse effect on cash flow he was facing.

82.  Having considered all the above, I am of the view that the costs should be summarily assessed with a certificate for Counsel, save for the Costs Summonses, and be paid forthwith by D.  Mr To submitted a statement of costs for P.  I direct that D to submit his list of objections , if any, to the quantum within 14 days, and leave for P to reply within 7 days thereafter, if any.  Costs will be summarily assessed and will be paid forthwith.

Orders

83.  In light of what was said above, my orders in respect of the 4 matters are as follows:

(1)   D’s summons dated 3 March 2014 for leave to appeal is dismissed;

(2)   The Mareva Order is varied as follows:

(i)   The ceiling of HK$17m referred therein be raised to HK$21.08m

(ii)   The time for D to comply with paragraph 2(1) and (2) be extended to 14 days from the date of this order

(3)   D’s summons dated 24 April 2014 for release of a sum of HK$680,000 from the sum of HK$17, 680,000 paid into court is dismissed.

(4)   As for the costs of the Main Judgment, I order D to pay P’s costs of and incidental to her inter-partes summons issued on18 November 2013 and her inter-partes summons issued on 8 January 2014, with certificate for Counsel, such costs to be summarily assessed and paid forthwith by D.  I also order D to pay P’s costs of and incidental to P’s inter-partes summons issued on 11 March 2014 and D’s inter-partes summons issued on 7 April 2014, such costs also to be summarily assessed and paid forthwith by D.  D to submit a list of objections, if any, to P’s statement of costs within 14 days, and leave to P to submit any reply within 7 days thereafter, if any. 

Costs of (i), (ii) and (iii) above

84.  D is to pay P’s costs of his summons for leave to appeal.  D is also to pay P’s Variation Summons and D’s Release Summons, with certificate for Counsel.  These are all costs orders nisi which shall be made final after 21 days.

HCA 2225/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2225 OF 2013

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

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

J U D G M E N T

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

Introduction

1.  The issue before this court is whether the Mareva Injunction granted to the plaintiff (“P”), as subsequently varied, should be continued.

2.  The Mareva Injunction was granted initially on ex-parte basis on 16 November 2013 by DHCJ Lok (“Ex-Parte Order”).  On the return hearing of P’s inter partes summons on 22 November 2013, despite the opposition of the defendant (“D”), DHCJ Seagroatt ordered the Ex-Parte Order to continue in the interim until further order, subject to D’s level of spending being increased to HK$40,000 per month, and P’s inter-partes summons adjourned for a substantive hearing.

3.  On 19 December 2013, an order was made by consent under which D agreed to pay HK$17m into court and a further amount of HK$680,000, being security of 2 months’ interest at 2% per month, and all obligations on D’s part under the Mareva Injunction were to be stayed pending the substantive hearing of P’s inter-partes summons.

Background

4.  P was/is a Mainland citizen engaged in the business of import and export of different kinds of merchantable goods in Xiamen.  P said she knew D in Xiamen when they were young.  D said P was introduced to him by his sister.

5.  D was a Mainland citizen, but he became a permanent Hong Kong resident in 2007 and at that time, according to him, he was a shareholder of an investment company.

6.  On about 13 May 2008, a winding up petition was presented against a company listed on the GEM Board of the Hong Kong Stock Exchange then known as China Medical and Bio Science Limited, but now called Oriental Unicorn Agricultural Group Limited (“Company”). Provisional liquidators were appointed for the Company on 3 December 2008 (“Provisional Liquidators”).

7.  D said he was introduced to the restructuring plan of the Company through his friend Chan Ka Chung (“Chan”).  D was advised to identify an appropriate person to, among other matters, take care of the Company’s investments in Fujian Province, and to develop the Company’s business there, as part of the restructuring plan of and the re-listing of the Company (“Restructuring Project”).

8.  In about 2009, D approached and invited P to join as an investor in the Restructuring Project to which P agreed.  For the purpose of carrying out the Restructuring Project, a corporate investment vehicle in the British Virgin Islands called Neuf Capital Limited (“Neuf Capital”) was incorporated in July 2009.  There were 3 shareholders of Neuf Capital, namely 3 other offshore companies representing ultimate beneficial ownerships of D, P and Chan, Chan’s interest being represented by a Mr Leung (“Leung”). The 3 companies were :

(i) Golden Winner Investments Limited (“Golden Winner”)

(ii) Mack Capital Partners Inc (“Mack Capital”)

(iii) Cheerise Development Limited (“Cheerise”)

9.  There was no dispute that P was initially the majority beneficial shareholder of Golden Winner, holding 67% of its shares, and her beneficial interest in the Company was held through Golden Winner only.

10.  On 28 July 2009, Neuf Capital entered into an exclusivity agreement with the Provisional Liquidators (“1^stExclusivity Agreement”), whereby it was agreed that Neuf Capital would be exclusively responsible for the Restructuring Project and the investment of the capital in relation thereto.

11.  It was not disputed by D that P would have to approach other persons/investors in order to finance her share of the investment capital in the Restructuring Project.  It would now appear that for such purposes, P had entered into various agreements with various persons in PRC. 

12.  It was not denied by P that on 28 July 2009 she had entered into an agreement with a person called Miao Peng Fei (“Miao”)whereby she agreed to transfer 10m shares in the Company to him in return to an investment of RMB 5m[1] (“Miao Agreement”).

13.  It was further not denied by P that on 3 September 2009 she had signed an agreement on behalf of Golden Winner on 3 September 2009 (“Chen Agreement”)[2] with a person called Chen Jianlin (“Chen”).   It was stated in the Chen Agreement that Golden Winner was the controlling shareholder in Neuf Capital and it agreed to transfer 70m shares in the Company to Chen at the consideration of HK $1.

14.  It was P’s case that the Miao Agreement and the Chen Agreement had been superseded by further agreements, and these will be referred to later in this judgment.

15.  Then on 16 January 2010, P entered into a loan agreement for a sum of RMB 30m from one Zheng Zhenxin (“Zheng”) to be paid to Neuf Capital for the purpose of the Restructuring Project[3] with a subsequent Supplemental Agreement revising the loan maturity date from 30 June 2010 to 30 September 2010[4] (“Zheng Agreements”).  Neuf Capital and D were both guarantors to the loan.  The loan was to be repaid to Zheng by the transfer of 690,000,000 shares in the Company by Neuf Capital to Zheng.

16.  Thereafter, on 6 July 2010, to facilitate further development of the Company’s business after re-listing, Golden Winner had further entered into a share transfer agreement with a PRC company known as 台科加丹(福建) 乳豬營養有限公司 (“Tai Ke”), under which Golden Winner agreed to purchase 60% interest in Tai Ke at a consideration of RMB 33m to be paid by following instalments:

(i) RMB 4.32m within 5 days of the agreement;

(ii) RMB 3.68m within one month after re-listing of the Company;

(iii) RMB 5m within six months after re-listing of the Company;

(iv) Balance of RMB 20m within 13 months after re-listing of the Company.

(“Tai Ke Agreement”)

17.  According to D, on 20 December 2010, P, D and Leung had signed an agreement stating that each of them had different responsibilities in the Restructuring Project, and that P was responsible for raising investment capital of HK $48m from two other persons, namely Zheng and another person called Wu Shan (“Wu”), towards the parties’ payment for 480,000,000 shares in the re-listed Company (“Confirmation Agreement”)[5].

18.  The 1^st Exclusivity Agreement expired in about March 2011, and the Provisional Liquidators requested the execution of another exclusivity agreement.

19.  It was P’s case that in about March 2011, she discovered the misappropriation of funds from Neuf Capital to a company incorporated in Hong Kong by D and Leung on 4 September 2009 called Neuf Investment Limited (“Neuf Investment”), to settle certain what she said were inexplicable expenses from September 2009 to February 2011 which they were not entitled to.  According to P, the funds in the banks account of Neuf Capital should only be used for the carrying out of the Restructuring Project, but from time to time, various sums were “diverted” from Neuf Capital to Neuf Investment, without P’s knowledge nor consent.

20.  In the above circumstances, P said she lost faith and confidence in D and Leung and wished to sell her stake in the Restructuring Project.  This resulted in an investment transfer agreement being signed between P and D on 23 April 2011 (“Transfer Agreement”)[6].

21.  The Transfer Agreement was in Chinese.  Under the terms of the Transfer Agreement, a new BVI company called 千玖國際有限公司 was to be formed to be wholly owned by D and which would be responsible for the continuation of the Restructuring Project.  D was to pay P a total of HK $32m under the Transfer Agreement, and the final amount of HK $17m was to be paid by D to P within one week upon the expiry of what the parties called the “black-out period” (“Black OutPeriod”), upon the successful re-listing of the Company.  The English name of the new company千玖國際有限公司 turns out to be Thousand Jade International Limited (“Thousand Jade”).  P had referred to the new company being called Neuf International Limited in her 1^st affirmation which was in English, which D said never existed.  It seems clear to this court what P was referring to in her 1^st affirmation was 千玖國際有限公司, the English name of which turned out to be Thousand Jade.

22.  Thereafter, on 29 April 2011, a new Exclusivity Agreement was entered into by Thousand Jade with the Provisional Liquidators[7] (“2^nd Exclusivity Agreement”).

23.  At the time of the signing of the Transfer Agreement, the parties were still on amicable terms, and on the same day they signed the Transfer Agreement, they also signed a consultancy service agreement whereby P would become a director of Thousand Jade and would continue to facilitate the financing by Zheng and Wu in the Company, and if Zheng and Wu changed their minds, it was stated in the agreement that P could look for other investors (“1^st Consultancy Agreement”)[8]. It was further stated in the 1^st Consultancy Agreement that upon P completing her work under the agreement, she would be entitled to 50m shares in the re-listed Company at no consideration.

24.  Then about 3 months later, the parties entered into a further agreement dated 20 July 2011(“2^nd Consultancy Agreement”)[9]. It was stated therein that upon re-listing, the shares of the Company would be consolidated, in that 40 old shares would become 1 new share, and thus the parties entered into the 2^nd Consultancy Agreement to revise the terms in the 1^st Consultancy Agreement, in particular the number of shares which P would receive.  Under the 2^nd Consultancy Agreement, among other things, P would be entitled to 16,500,000 shares in the Company after it was re-listed, and such shares would be transferred to P or her nominee within one week after expiration of the Black Out Period.

25.  The Restructuring Project was successful.  The winding up petition was dismissed on 28 October 2011 and the Provisional Liquidators were discharged with effect on the same day, and the Company was relisted on the GEM board on 1 November 2011.

26.  Under clause 6 of the Transfer Agreement, the Black Out Period expired on 1 November 2013, and the sum of HK $17m would be payable to P by D on or before 8 November 2013.  D had failed to pay her the said sum.  D was also to transfer to P 16,500,000 shares on or before 8 November 2013 under the 2^nd Consultancy Agreement, which he also seemed to have failed to do.

27.  P then said she and her husband Lin came to Hong Kong in early November 2013 to try to look for D.  On 13 November 2013, P read an announcement issued by the Board of the Company in relation to a placing agreement for the placing of a maximum of 200,000,000 shares owned by the controlling shareholder of the Company, Thousand Jade.  The following day, on 14 November 2013, a large block of shares of the Company was sold in open market, which P said should have come from D and/or Thousand Jade.

28.  On 16 November 2013, P applied for and obtained the Ex-Parte Order and she issued the writ herein against D on 18 November 2013. 

D’s Grounds of Opposition

29.  By the time of the hearing before this court, D had filed 2 affirmations, and P was granted leave to file a 3^rd affirmation in addition to her earlier 2 affirmations, in relation to new matters raised in D’s 2^nd affirmation, which I gave him leave to file.

30.  D opposed the continuation of the Ex-Parte Order on mainly the following grounds :

(i) There were material non-disclosure and misstatement on the part of P in her affirmations;

(ii) P had failed to establish a good arguable case by failing to disclose the Chen Agreement, which voided the Transfer Agreement, and further that she had failed to fulfill and/or discharge her obligations under the Transfer Agreement;

(iii) There was a lack of solid evidence from P to show a real risk of dissipation of assets on the part of D

The Legal Principles

31.  It is trite law that for a domestic Mareva injunction, the applicant /plaintiff must show that:

a. That he has a good arguable case claim over which the court has jurisdiction;

b. That there are assets within the jurisdiction;

c. That the balance of convenience is in favour of a grant;

d. That there is a real risk of dissipation of assets, or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect;

e. The plaintiff must comply with a strict duty of full and frank disclosure[10].

32.  In respect of full and frank disclosure, the material facts to be disclosed are all matters which are material for the judge to know and which are necessary to enable him to exercise his discretion properly.  The plaintiff should give particulars of his claims against the defendant, stating the grounds of his claims and the amount thereof and, in addition, should fairly state the points made against him by the defendant.[11]

33.  This court was referred to Citibank NA v Express Ship Management Services Ltd [1987] HKLR by P’s Counsel, Mr Liang. As set out in the judgment of Fuad JA, what are to be regarded as material facts are, “all facts that are relevant to the weighing operation which the court has to make in deciding whether or not to grant the order”[12].  The Court of Appeal then held that the facts not disclosed by the plaintiff in that case, namely all its efforts it was undertaking which might lead to recovery from third parties of some of the money it was claiming from the defendants, were not facts which would go to the weighing operation at the ex parte hearing, and that failure to disclose them did not vitiate the injunctions.

34.  Mr Chan, D’s Counsel, had referred the court to a recent unreported judgment of DHCJ Ng in Sin Yuk Hung v Sin Tung San, HCA 474/2013, 18 December 2013, where it was held that the court was 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[13], and that the proper test was whether the court should have these matters in the weighing scales.  DHCJ Ng had quoted from Kwan J (as she then was) in the case of Securities and Futures Commission v “A”[14] who, when dealing with an application for discharge on material non-disclosure had summarized as follows :

“40. For information to be material for this purpose, it must be something which would have affected the judge’s decision on the application. It is a matter relevant to the weighing operation which the court has to make (Thermax v Schott Industrial Glass [1981] FSR 289 at 298, per Browne-Wilkinson J; Director of the Serious Fraud Office v A [2007] EWCA Crim 1927 at paragraph 18, per Hughes LJ). Unless the courts use the sanction only when the non-disclosure is of matters which are relevant to the ex parte judge’s weighing operation, an impossible burden would be placed on applicants and their advisers and the court may get itself in a position of what might be called ‘counter-abuse’ (Wo Fung Paper Making Fty Ltd v Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346 at 357H to J, per Hunter JA; Citibank NA v Express Ship Management Services Ltd & Anr [1987] HKLR 1185 at 1190 H to I, per Fuad JA).

41. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or its relevance was not perceived, is an important consideration whether the ex parte order should be discharged, although it is not decisive (Brink’s Mat Ltd v Elcombe & Ors [1988] 1 WLR 1350 at 1357D, per Ralph Gibson LJ). In practice it would be extremely difficult for a defendant applying for discharge to show that the matters which were not disclosed were the subject of a decision not to disclose made in circumstances where it was appreciated there should have been disclosure. In the majority of cases, the matter has to be approached on the basis of considering the quality of the material which was not disclosed without making any final decision whether or not there has been bad faith in the failure to disclose (Behbehani v Salem [1989] 2 All ER 143 at 149a to b, per Woolf LJ).

42. Even if it is established there was material non-disclosure which justifies discharge of the ex parte order, the court has a discretion to continue the order or make a new order on terms.  The court must assess the degree and extent of the culpability, the importance and significance to the outcome of the application of the matters which were not disclosed, and whether the punishment of discharging the ex parte order would be out of proportion to the failure of the applicant to make full and frank disclosure (Brink’s Mat Ltd, supra. at 1359B to F, per Slade LJ; Behbehani v Salem, supra. at 149g; Arab Business Consortium International Finance and Investment Co v Banque Franco-Tunisienne [1996] 1 Lloyd’s Report 485 at 492, per Waller J; Director of the Serious Fraud Office v A, supra. at paragraph 18).”

35.  With the above principles in mind, I will turn to the present case.

Material non-disclosure

36.  The matters complained by D included:

(i) P had given an incorrect residential address to the court in her affirmations and there was abundant evidence to show that P had been cutting her ties from her previous residence and location of business;

(ii) P failed to disclose the Chen Agreement which was highly material to her alleged claim under the Transfer Agreement;

(iii) P failed to disclose the existence of  the Confirmation Agreement and the Consultancy Agreements;

(iv) P failed to disclose her breach of the Transfer Agreement, among other things, her failure to recover the deposit of HK$4.32m from Tai Ke paid under the Tai Ke Agreement, and her failure to perform her duties under the Confirmation Agreement;

(v) P failed to disclose to the court that she should have received a substantial sum out of the HK$10m loan repayment by Thousand Jade to Neuf Capital, a fact which would be relevant to the actual amount of claim;

(vi) P failed to disclose the Zheng Agreements and her failed to repay the loan therein in full, as a result of which Zheng was about to issue proceedings in PRC against P, her husband Lin, Neuf Capital and also D for the balance.

P’s Address

37.  It is stated in O 41 r 1(4) of the RHC that unless the court otherwise directs, every affidavit must state the place of residence of the deponent, unless the deponent who is giving evidence in a professional, business or other occupational capacity, and in such a case, the deponent may state the address at which he/she works.

38.  D complained that the address given by P in her 1^st and 2^nd affirmations was not a proper address, and that the address given by P would not be an address at which P was residing.  D had engaged an express courier service to deliver a blank envelope to the address given by P, and the courier was unable to deliver the envelope to the address given by P.

39.  It was further D’s case that P and her husband Lin Yuman (“Lin”) used to own a residential property, where they once resided, and also a commercial property in Xiamen, where P used to work or conduct her business.  D said he had visited P at both these addresses recently, but found that both properties had been sold, and that D alleged that various other people were trying to locate P to recover money due and owing from her. 

40.  In P’s 3^rd affirmation, she confirmed that the address given by her in her affirmations was/is a valid “service address”, and that all along, she had used that address as her usual correspondence and service address and the address to which her lawyers corresponded with her.  The address given by P was the address of a village called Group 9, Yannei Village, with no number.  P said Lin was born in the village and that Lin had inherited a property there from his father, and that P and Lin had lived in the village since their marriage in 2005.  According to P, she claimed that there was no specific number assigned to the property.  P further produced copies of documents to show the address given by her, such as her PRC identity card issued on 17 April 2006, Lin’s household register issued by the local authority on 2 March 2012, and a letter dated 31 December 2013 from a securities company in Hong Kong at which she had maintained an account.  Further, on the register of directors of Thousand Jade, the address given by P in her affirmations was stated to be her residential address.

41.  P admitted that she and Lin had sold their residential property in Xiamen in late 2012, and that they had moved out of their commercial property in about March 2013.

42.  Having considered P’s explanations, there seemed to be no sufficient evidence at this interim stage to show that the address given by P was not her residential address. 

P’s Failure to disclose the Chen Agreement

43.  There was no dispute the Chen Agreement was not disclosed to DHCJ Lok by P in her 1^st affirmation filed in support of her ex-parte application.  The issue is whether this was a material non-disclosure.

44.  The parties to the Chen Agreement were Golden Winner and Chen.  It was not disputed that P was the majority shareholder in Golden Winner.

45.  Upon signing of the Chen Agreement, Chen was to become the beneficial owner of those shares held by Golden Winner in the Company, and that Golden Winner was to hold those shares in trust for Chen in the interim pending the completion of the Restructuring Project and the re-listing of the Company, and that Golden Winner undertook to deliver/transfer the 70m shares to Chen upon the completion of the Restructuring Project.

46.  In P’s 2^nd affirmation, she explained that since the funds to be injected into the Restructuring Project were very substantial, totaling about HK$20m, she had sought assistance from other financiers/investors, and Chen was interested.  At that time, P said as she (presumably through Golden Winner) would be allocated about 42.18% of the shares in the Company, which was equivalent to about 231,990,000 shares, she therefore signed the Chen Agreement to transfer 70m shares in the re-listed Company to Chen in consideration of his financial support.  She further explained that it was not her, nor Chen’s intention for the 70m shares to be transferred right away, but instead the shares were to be transferred after the re-listing.  She further explained it was certainly not her intention to dispose of any of D’s interest in the Company.

47.  P then said that subsequent to the Chen Agreement, which was signed on 3 September 2009, there had been two further documents signed by her and Chen:

(i) An undertaking which she signed on 30 September 2009 in favour of Chen[15], to confirm that she would transfer only 2.35m shares in the Company to Chen or Chen’s nominee/s upon the successful re-listing of the Company, in exchange for Chen’s investments of a total of RMB 4.7m; and in the event of the re-listing being unsuccessful, Chen agreed to waive the repayment by P of his said investment capital together with interest, and that this undertaking was to supersede any previous agreement/s signed by P and Chen over the shares in the Company, and any such previous agreement/s would be void (“Undertaking”). The Undertaking appeared to have been signed by Chen signifying his agreement to the contents thereof.

(ii) Then, on 23 October 2013, she, in her personal capacity, and Chen had signed a further agreement (“2^nd Chen Agreement”)[16].  In the 2^nd Chen Agreement, P had agreed to transfer 2.35m shares in the Company to Chen’s securities account on or before 8 November 2013, and that upon such transfer, Chen would have no other claims against P.

48.  To summarise, it was P’s case that the Chen Agreement had been superseded by the Undertaking and the 2^nd Chen Agreement and that prior to the Ex-Parte Order, she was to transfer only 2,350,000 shares in the Company to Chen, on or before 8 November 2013.

49.  P said as D had failed to transfer to her the 16,500,000 shares in the Company which she was entitled to under the 2^nd Consultancy Agreement, she therefore had to purchase 2,350,000 shares of the Company in open market in November 2013, in order to honour her obligation to Chen under the 2^nd Chen Agreement.  P had produced a copy of a delivery instruction dated 4 November 2013 to a securities company Haitong International Securities Company Limited duly signed by her and Chen evidencing the transfer in question[17].

50.  P’s Counsel, Mr Liang, had submitted on behalf of P that the Chen Agreement was irrelevant.    

51.  According to D, after the Ex-Parte Order was served on him, he received an enquiry from a PRC law firm acting for Chen in relation to the Chen Agreement, and D was then provided with a copy of the agreement[18].  D said that was the first time he found out about the Chen Agreement, and that as a shareholder and director of Golden Winner, he had no knowledge of this agreement.  D complained that P had not disclosed to him the existence of the Chen Agreement.

52.  However, it was also D’s case the Chen Agreement was not valid or effective, as there was no board resolution for Golden Winner to enter into that agreement, in which case the agreement would not be binding on Golden Winner.  D had also produced a minute of the shareholders’ meeting of Neuf Capital on 10 October 2009 (“Minute”)[19].  It was resolved during that shareholders’ meeting that none of the shareholders had the authority to make any public announcement or to sign any agreement, and any agreement signed with any third party without the authorization and the proper chop of the Company would be invalid.  It was D’s case that the Chen Agreement was not disclosed by P at that meeting and thus would not be binding on Neuf Capital.

53.  Both the Undertaking and the 2^nd Chen Agreement were executed before the Ex-Parte Order.  P did not disclose these documents in her 1^st affirmation nor the related transactions. 

54.  D had also produced a letter from Chen’s PRC lawyers dated 27 December 2013 who were said to be conducting investigations over Chen’s involvement with Golden Winner (“Enquiry Letter”)[20].  This letter stated, according to Chen:

(i) P had on 15 July 2009 through Golden Winner authorized Chen and another to act as directors of Golden Winner and on 3 September 2009 P had signed the Chen Agreement with Chen; 

(ii) Thereafter, during a period of two odd years, Chen had on behalf of Golden Winner entered into agreements with other investors in relation to the capital investments into the Company.

(iii) All capital raised by Chen and/or other investors had been remitted to P and her family members and this totalled at least RMB 5m;

(iv) Chen and his other investors had understood that they had shares in the Company and that P’s shares and their shares had been held in trust by the Thousand Jade, and that such shares could only be formally transferred to them after the expiration of the Black Out Period;

(v) All along, initially, Chen had understood that P was the majority beneficial shareholder of the Company and that D was only a trustee

(vi) On 7 November 2013, Chen had received 2,350,000 shares in the Company from P, which had been purchased by P from open market, and which were then worth less than HK$200,000, and such shares were not allotted by the Company.

55.  The enquiries raised by Chen’s PRC lawyers with D were:

(i) Whether Golden Winner was an investor in the Restructuring Project of the Company?  Whether P held any interest in Thousand Jade?

(ii) Whether D and Golden Winner, or P or Chen and his investors, had any trust arrangement as to the shares in the Company?  What was the proportion of the shareholding? And how could Chen and his investors obtain their allocated shares?

(iii) Whether the Chen Agreement could be regarded as Golden Winner holding in trust for Chen shares in the Company? Now the Black Out Period had expired, how could the shares be transferred to Chen legally, and how soon could D arrange?

56.  In fact, the same PRC law firm had also sent to D another letter of enquiry on behalf of Chen’s other investors earlier on 22 December 2013 in relation to the relationship between Golden Winner and the Company and raising similar queries[21].

57.  D’s latest case was that P was engaged in “fraudulent conduct and wrongful behaviour”.

58.  As mentioned earlier, it had not been disputed by D that P had to borrow or raise funds from other persons in order to come up with her share of the investment capital in the Company through Golden Winner, and D was aware of this.  It had also been admitted by D that the Transfer Agreement was a “buy-out transaction”, namely D buying out all P’s rights and interest in the Restructuring Project of the Company[22].  Even though D seemed to have challenged the actual amount of capital injected by P being HK $20m, according to him, the HK $15m paid to P under Clauses 2 and 3 of the Transfer Agreement was for P to recover a substantive part of the amount previously invested by her in the Restructuring Project, in which case what P had invested must be more than HK$15m[23]. 

59.  P had in her 3^rd affirmation provided evidence that her investment in the Restructuring Project was about HK$ 22.9m in total, but D pointed out that these documentary evidence was self-serving.

60.  It was anyway clear that D had considered the provisions in Clauses 1, 2 and 3 performed and fulfilled in entirety and he had paid P the said HK$15m[24].  

61.  As D himself had pointed out, P/Golden Winner appeared to have no authority from the shareholders of Neuf Capital to enter into the Chen Agreement and thus the Chen Agreement would not be valid or binding on Neuf Capital or its other shareholders.

62.  P had said she was investigating if D had played any role in causing the Enquiry Letter to be issued.

63.  I accept that P did not seem to have denied that Chen had allegedly paid her and her family members RMB 5m odd.  Whether she was engaged in any wrongful conduct towards Chen and/or the Investors was in my view a separate matter to D’s obligations under the Transfer Agreement.

64.  All those transactions covered by the Chen Agreement, the Undertaking and the 2^nd Chen Agreement were quite separate from the Transfer Agreement which was freestanding.  All those transactions only showed that even if the Chen Agreement was a valid and effective agreement and not superseded by the Undertaking or the 2^nd Chen Agreement, Golden Winner would then be holding 70m shares (or what the amount after consolidation) in trust for Chen.

65.  The Transfer Agreement was entered into by P in her personal capacity.  It may well be, that if the Chen Agreement was eventually held to be a valid agreement, any amounts P was paid by D or recovered from D under the Transfer Agreement, she would have to account to Golden Winner, and Golden Winner as trustee would then have to account to Chen. All these matters were in my view not relevant to P’s application for the Ex-Parte Order.

66.  After the signing of the Transfer Agreement, it was Thousand Jade which was solely involved in the Restructuring Project, and not Neuf Capital.  It was Thousand Jade which had replaced Neuf Capital as the “Investor” in the 2^nd Exclusivity Agreement, and Thousand Jade was to continue to provide further capital, and according to the Company’s public announcement on 13 July 2011, Thousand Jade had agreed to subscribe for and the Company agreed to allot to it 240,000,000 of the Subscription Shares as set out therein[25].

67.  According to D, Thousand Jade had undertaken to repay on behalf of the Company the amount due and owing by the Company to Neuf Capital[26]. 

68.  Thus, Neuf Capital dropped out of the picture in the Restructuring Project after the 2^nd Exclusivity Agreement.  Thousand Jade was the controlling shareholder of the Company at the time when it was re-listed, and was described as such at the time of the placement on 13 November 2013.

69.  Having considered the evidence, I do not find that the Chen Agreement, or the Undertaking or the 2^nd Chen Agreement were relevant  in the weighing operation at the ex parte hearing or that they would have affected DHCJ Lok’s decision, and I do not consider the non-disclosure of these documents material.

70.  There had also been an inter-partes hearing before DHCJ Seagroatt and one day prior to that hearing, D had filed his 1^st affirmation setting out the Chen Agreement and claiming that the Transfer Agreement was arguably not enforceable.  D’s Counsel Mr Wong had made submissions to the court to dismiss P’s inter-partes summons to continue the Ex-Parte Order, based on those matters set out in D’s 1^st affirmation including the Chen Agreement.  The Learned Judge declined to do so and continued the injunction saying that he was not satisfied that there had been material non-disclosure.

P’s Failure to disclose the Confirmation Agreement and the Consultancy Agreements

71.  The Confirmation Agreement set out that P was to raise capital of HK$48m from two persons, namely Wu and Zheng. The Confirmation Agreement was entered into 3 months prior to the Transfer Agreement.  Under the 1^st and the 2^nd Consultancy Agreements, P had agreed to continue to facilitate or to complete the injection of investment capital by Wu and Zheng for the Restructuring Project.  The Restructuring Project had already been completed.  D was alleging P had breached of the Confirmation Agreement, and the Consultancy Agreements. 

72.  Those agreements were quite separate from the Transfer Agreement and the non-disclosure of these documents was in my view not material.

P’s failure to disclose her breach of the Transfer Agreement

73.  Under Clause 4 of the Transfer Agreement, P was responsible for seeking a return from Wu an outstanding amount of RMB 334,000, to reduce what seemed to the outstanding sum of RMB 300,000 which should have been paid by D by the 5^th stage of the injection of the investment capital in the Restructuring Project.

74.  Under Clause 5 of the Transfer Agreement, P was responsible for seeking the return of a deposit of RMB 4.32m paid to Tai Ke under the Tai Ke Agreement to repay to D.

75.  D’s present case seemed to be that the sum of RMB 4.32m should be set off against the sum of HK $17m payable under Clause 6.

76.  There was no stipulation in Clause 6 of the Transfer Agreement that the payment by D to P of HK $17m was conditional upon P being successful in seeking the return of those sums mentioned in Clauses 4 and 5. 

77.  So far as Tai Ke is concerned, D himself had raised a number of “problems” with the Tai Ke Agreement and according to him, upon becoming aware of the problems, P had agreed to negotiate with Tai Ke to terminate the Tai Ke Agreement and to recover the refund of the deposit of RMB 4.32m.  P denied D’s allegations.  In any event, the Tai Ke Agreement was also signed by D.

78.  There was no guarantee by P in the Transfer Agreement that she would be successful in recovering the payments set out in Clauses 4 and 5. 

79.  In my view, Clause 6 was independent of Clauses 4 and 5.

80.  In P’s 1^st affirmation, she had set out the terms of the Transfer Agreement in full and DHCJ Lok was fully aware of such terms.  

81.  P denied any breach of the Transfer Agreement. Again, the non-disclosure of the Tai Ke Agreement was in my view not material.

P’s Failure to disclose that she should have received a substantial sum out of the HK$10m loan repayment by Thousand Jade to Neuf Capital

82.  D had also said that Thousand Jade’s repayment Neuf Capital of the HK $10m loan took place quite some time ago and that he himself had not yet received his part of HK $1,650,000 from Neuf Capital. 

83.  There was no provision in the Transfer Agreement that there should be any set off of any amount P was to receive from Neuf Capital against the HK $17m.

84.  Again, I am of the view that P’s failure to disclose this was not material.

P’s Failure to disclose the existence of the Zheng Agreement

85.  According to D, P had repaid Zheng about RMB 28.8m  under the Zheng Agreement, around 10 March 2011, but it seemed the amount had come from Neuf Capital’s bank account[27]. 

86.  P said she understood that on 10 March 2011, D and Zheng had visited HSBC together and arranged for the release to Zheng sums held in Neuf Capital’s HSBC bank accounts.  P had produced copies of transaction advices from HSBC on which Zheng had duly signed and acknowledged receipt in the presence of P, her husband Lin and D, as P and Lin were in Hong Kong at the time.  According to P, the common understanding between P, Lin, D, and Zheng was that any liability under the Zheng Agreement of her, D and Neuf Capital had been discharged on that day.

87.  D, however, claimed that due to the exchange rate and interest, P now owed Zheng about RMB 10m and accrued interest of some RMB 8m.  D had exhibited a draft writ[28] which he claimed would be issued shortly by Zheng against P, Lin, Neuf Capital and D.  There was no sufficient evidence that P was aware of this prior to applying for the Ex-Parte Order.

88.  Anyway, the Zheng Agreement is a separate matter from the Transfer Agreement, and the non-disclosure of the Zheng Agreement would not be material.

Miao Agreement

89.  According to P, she had already bought back all Miao’s right to shares by a further agreement with Miao dated 25 March 2012[29].

90.  Thus, the non-disclosure of the Miao Agreement was not material.

Conclusion

91.  D had raised many allegations of non-disclosure of various agreements/transactions entered into by P with third parties, and it may well be that these third parties will have claims against P, but this should not affect D’s obligations towards P under the Transfer Agreement.  

92.  Whatever the reasons were for P’s decision to pull out in March 2011, D had admitted that the Transfer Agreement was a buy-out arrangement, that he had agreed to buy out all P’s interest in the Restructuring Project.  It was stated quite clearly in Clause 1 of the Transfer Agreement, for any liabilities incurred by P without the signature or confirmation of D, P was to be personally liable. 

93.  Following the Transfer Agreement, and pursuant to the 2^nd Exclusivity Agreement, Thousand Jade had become the only “Investor” in the Restructuring Project, and as I have said earlier Neuf Capital was out of the picture.  There had also been part performance of the terms of the Transfer Agrement, in that D had already paid HK $15m to P upon the events in Clauses 2 and 3 being completed.

94.  Having considered all D’s allegations and P’s explanations so far, I am of the view that there had not been material non-disclosure on P’s part and that the Ex-Parte Order should not be discharged on this ground.

95.  I am further of the view that even had there been any material non-disclosure on the part of P, such non-disclosure was innocent in that the relevance was not perceived by P at the time of her application and that the Ex-Parte Order should not be discharged on this ground.

96.  D had also complained that there were various misstatements in P’s 1^st affirmation, such as referring to the new company being called Neuf International Limited, and giving the impression that D was not a resident of Hong Kong.  I am also satisfied that such misstatements were not material.

Whether P had a Good Arguable Case

97.  It is trite that there is no need for P to show that her case against D is so strong that she is likely to obtain summary judgment, and the test is whether P has a “good arguable case”[30].

98.  Mr Wong submitted that P had no good arguable case, and this seemed to be based on mainly:

(i) By reason of the Chen Agreement, the subject matter of the Transfer Agreement was simply non-existing, in that the Transfer Agreement had been voided by P having entered into the Chen Agreement;

(ii) P was in breach of the Confirmation Agreement, the Transfer Agreement and the two Consultancy Agreements;

(iii) There was no sufficient evidence produced by P to show her alleged total investment of about HK$22.8m .

99.  The recital of the Transfer Agreement stated that upon  expiration of the Exclusivity Agreement, the parties agreed to co-operate to continue to carry forward the Restructuring Project in the name of Thousand Jade, and for D to be transferred all P’s rights in the Restructuring Project and the consideration was then set out thereafter.

100.  Under Clause 1 the Transfer Agreement, P agreed to the following :

(i) To carry out audit and confirmation of the parties’ investment accounts as at the 5^th instalment stage, and to transfer all such accounts to D or his nominee;

(ii) To carry out confirmation of all liabilities during P’s appointment as “legally appointed representative” and/or direct of the relevant companies, and if there were any liabilities which were not confirmed and signed by D, including and not limited to any guarantee or loans, such should be borne permanently by P unilaterally.

101.  Clause 2 provided for payment of HK $8m by D to P upon the Hong Kong Stock Exchanging agreeing to extend the Exclusivity Agreement.

102.  Clause 3 basically provided for the payment of HK $7m by D to P upon P ceasing to be the legally appointed representative, shareholder and director of 3 related PRC companies.

103.  P’s claim was simply based on the Transfer Agreement. D was satisfied with the events in Clause 2 and 3 had taken place, and he had paid the HK $15. 

104.  There was no evidence at this stage that the audit and confirmation set out in Clause 1 had not been carried out, or that P’s investment accounts as at the 5^th instalment payment stage of the  Restructuring Project under the 1^st Exclusivity Agreement had not been transferred to D.  Further, as mentioned earlier, Clause 1 made it clear any liabilities incurred by P without D’s signature or confirmation was to be borne personally by her, and thus any liabilities incurred by P under the Chen Agreement should be a matter between P and/or Golden Winner and Chen.

105.  I have said earlier that there were no conditions precedent set out in Clause 6.  Clause 6 stated clearly that within one week upon expiration of the Black Out Period, D was to pay P HK $17m; and if the re-listing was to fail, this amount would be cancelled automatically and would not be payable; but if re-listing was successful and D failed to pay within time, such sum would be regarded as a debt carrying monthly interest of 2%, and P could institute proceedings in the Hong Kong courts against D to claim such sum.

106.  As has been said, in an application for Mareva injunction, the court will take into account the apparent strength or weakness of the respective cases in order to decide the applicant’s case, on the merits, is sufficiently strong to reach the threshold, and this will include assessing the apparent plausibility of statements in affidavits[31].

107.  D had relied heavily on the Chen Agreement, which according to him, he only found out after the Ex-Parte Order was served on him, namely after 16 November 2013.  It was not apparent clear what reasons he had for failing to pay D HK $17m on or before 8 November 2013, the deadline set out in the Transfer Agreement.

108.  As I have said, even if the Chen Agreement was a valid and effective document, all this would mean would be that Golden Winner could be holding certain shares in trust for Chen, and Chen’s recourse would be to sue Golden Winner to recover such shares and/or damages.  This should not affect D’s obligations towards P under the Transfer Agreement.

109.  Having considered the evidence put before this court at this interim stage, I am satisfied that P has established a good arguable case against D.

Risk of Dissipation

110.  According to D, he has been a permanent Hong Kong resident since about 2007. 

111.  D said that the disposal of the shares by Thousand Jade was no more than a normal investment activity in the ordinary course of business.  Further, according to D, he held other valuable assets in Hong Kong including his residential property.

112.  D had, however, said in his affirmations that he procured Thousand Jade to place the shares so as to repay existing debts and meet financial needs of investments, and he had also stated that he was under financial pressure to make payments under an agreement which I will call Tianfeng Investment Agreement which he entered into on 5 August 2013[32], and a loan agreement dated 28 July 2011[33] with almost RMB 15m outstanding. 

113.  Both the Tianfeng Investment Agreement and the loan agreement were entered into by D after the Transfer Agreement. 

114.  I accept that there is no requirement for P to show that D intends to deal with his assets with the purpose of ensuring that any judgment will not be met[34].  P had, however, in her 1^st affirmation set out the evasive attitude of D when P tried to contact him from 1 November 2013 onwards, and there seemed to be no satisfactory explanation by D to P’s allegations.

115.  Thousand Jade entered into a placing agreement after trading hours on 13 November 2013 for a placement of a maximum of 200,000,000 shares.  As noted in the public announcement made by the Company, Thousand Jade was then holding 219,356,000 shares, and thus the placement seemed to be about 91% of Thousand Jade’s holding, which was substantial.  It would appear from the transcript of the hearing before DHCJ Seagroatt on 22 November 2013, the entire 200m shares had been placed and the sale proceeds would be about HK $46m.  There did not seem to be any dispute about this from D’s Counsel[35].

116.  This amount did not seem to be sufficient for D to meet his alleged obligations under the Tianfeng Investment Agreement and the loan agreement.  Further, his intention in using the HK $46m, or whatever net sale proceeds there were, to meet such obligations would mean that the funds would be transferred out of jurisdiction.  D has a residential property in Hunghom, Kowloon which he bought for $5.25m in April 2008 with no mortgage at that time.  It was then mortgaged in October 2011.  It is not clear what other assets he has within the jurisdiction.

117.  I am satisfied that in light of the information available there is a real risk of dissipation.

Whether “just and convenient”

118.  Having regard to all the circumstances of this case, on a balance of convenience, I am of the view that it is just and convenient that the Ex-Parte Order should be continued subject to such variations as ordered.

Undertaking as to Damages

119.  Mr Chan had submitted that in the event that the Ex-Parte Order is to be continued, P’s undertaking to damages should be fortified and he proposed that the present HK$500,000 be increased to HK$ 10m, being 50% of HK $20m which D had to pay under the loan agreement, and also loss of profits in the Tianfeng Investment Cooperation Agreement.

120.  The Tianfeng Investment Agreement seemed to have already been temporarily suspended by Tianfeng[36].  In any event, under the agreement, if D failed to pay the further instalments, the deposit already paid by D seemed likely to be forfeited.  The deposit was HK $1m.  D said the investment was a good and timely investment, and his failure to complete the transaction would result in “substantive loss of profit”.  There were, however, no details given by D as to this alleged substantive loss of profit.

121.  As for the loan agreement, it appears if D should fail to repay on time, further interest would be payable and he could face litigation.

122.  P is a PRC citizen ordinarily residing in Xiamen.  In the draft writ exhibited by D, the residential address of her husband Lin stated therein was still the residential property which had been sold[37].  According to P, this residential property was sold by her and Lin on 22 December 2012 for RMB 2.6m as they were facing financial difficulties.  She also said she and Lin used to run a business of import and export business at the commercial property but they had moved out there from in about March 2013.  It is not clear at what address P and/or Lin are now carrying on their business.  There is little information about P’s present financial situation or where her assets are, save that she seems to have a securities account in Hong Kong.  The evidence indicates that P herself may have some financial difficulties, and if D’s allegations proved correct, P would no doubt face litigation from at least Chen and Zheng. 

123.  Having considered all the available information, I am of the view that P’s undertaking as to damages should be fortified.  The amount she has paid into court should be topped up to a total of HK $2m, to be paid within 14 days.

Order

124.  My order is thus as follows:

(i) The Order made on 16 November 2013, as varied on 22 November 2013, shall continue until further order, subject to the amount in paragraph (2) of Schedule 2 to be topped up to HK$2m, with the difference of HK$1.5m to be paid by P into court within 14 days of this order.

125.  I further order that D shall pay P’s costs of and incidental to the inter-partes summons.  This is a costs order nisi, which shall be made final after 21 days.

126.  Lastly, I thank both Counsel for their submissions and assistance to the court.

(Bebe Pui Ying Chu) Deputy High Court Judge