Case Detail

HCA 2012/2018

[2021] HKCFI 982

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2012 OF 2018

______________

BETWEEN
	CHEN LINGXIA（陳玲霞）	Plaintiff
and
	中國金谷國際信託有限責任公司	1^st Defendant
	銀建國際資產投資有限公司	2^nd Defendant
	廣東金恒資產管理有限公司	3^rd Defendant
	HAINE INTERNATIONAL INVESTMENT CONSULTANTS LIMITED （海納國際投資顧問有限公司）	4^th Defendant
	廈門力智合管理咨詢有限公司	5^th Defendant
	廣州萬幣投資有限公司	6^th Defendant
	SOUTH ASIA GROUP (H.K.) LIMITED	7^th Defendant
	THE REGISTRAR OF COMPANIES	8^th Defendant

______________

Before: Hon K Yeung J in Chambers

Dates of Hearing: 9‑10 December 2020

Date of Decision: 14 April 2021

______________

DECISION

______________

The Summonses

1. There are two Summonses before me:

(a) the summons of 12 December 2018 taken out by the 3^rd to 6^thdefendants (“D3” or “Guangdong Jinheng”, “D4”, “D5”, “D6”, and “D3‑6’s Summons”); and
(b) the summons of 20 December 2018 taken out by the 1^stdefendant (“D1” or “Jingu International”, and “D1’s Summons”).

2. Mr Jonathan Wong with Ms Nicole Li appeared for the plaintiff (“P” or “Chen”), Mr Laurence Li SC[1] leading Ms Esther Mak for D1, and Mr Ambrose Ho SC leading Mr Gary C C Lam for D3 to D6.

3. In §1 of D1’s Summons, a declaration is sought that in the circumstances of the case the Court has no jurisdiction over D1 in respect of the subject‑matter of P’s claim or the relief sought. At the commencement of the hearing, Mr Li confirmed that that declaration would no longer be pursued. Both Summonses hence now raise the same point, namely the present action be stayed on the ground of forum non conveniens in favour of the Xicheng Court in Beijing.

The pleadings and affirmatory evidence

4. The Writ of Summons was issued on 27 August 2018. The Statement of Claim (“SOC”) is dated 13 September 2018.

5. P has filed one affirmation, which is her 4^th one filed on 22 May 2019 (“P/4”).

6. On behalf of D1 there are:

(a) the affirmation of Ji Yuen filed on 27 December 2018 (“Ji” and “Ji/Aff”);
(b) 2 affirmations of Luo Jianwen filed on 20 December 2018 and 30 December 2019 (“Luo”, “Luo/Opinion1” and “Luo/Opinion2”), Luo being the Mainland law expert engaged by D1.

7. On behalf of D3 to D6, there are:

(a) the 2^ndaffirmation of Zhang Yunfei filed on 12 December 2018 (“Zhang” and “Zhang/2”);
(b) the 3^rdaffirmation of Lin Rongwei filed on 31 January 2019 (“Lin” and “Lin/3”);
(c) the 3^rdaffirmation of Zhang filed on 15 October 2019 in reply (“Zhang/3”);
(d) the 2^ndaffirmation of Lai Richeng filed on 15 October 2019 (“Lai” and “Lai/2”), Lai being one of the directors of the 7^thdefendant (“D7” or “South Asia”);
(e) the 2^ndaffirmation of Lo Hoi Ki Adrian filed on 18 October 2019 in respect of the status of an appeal in the Mainland (“Lo” and “Lo/2”); and
(f) the 4^thaffirmation of Zhang filed on 28 July 2020 giving an update of the facts (“Zhang/4”).

8. At different places of the hearing bundles there are altogether 10 legal opinions on Mainland law. Parties have in the course of the hearing informed me that only the following are relevant:

(a) For P, the opinions of Ms Xu Qianzhen (“Xu”) of
(i) 19 February 2019^{^[2]} (“Xu/Opinion1”) and
(ii) 25 April 2019^{^[3]} (“Xu/Opinion2”)
(b) For D1, Luo/Opinion1 and Luo/Opinion2 mentioned above; and
(c) For D3 to D6, the legal opinions of Mr 鄧乃文(“Deng”) of:
(i) 7 December 2018[4] (“Deng/Opinion1”),
(ii) 11 October 2019[5] (“Deng/Opinion2”) and
(iii) 17 July 2020[6] (“Deng/Opinion3”).

9. Both in his written submissions[7] and in the course of the hearing, Mr Wong suggested that D3 to D6 had withdrawn their reliance upon Deng/Opinion3. Mr Ho has informed this Court in clear terms that they have not. I proceed on the basis that they have not been.

The parties

10. P’s claim concerns 2,550,000 shares in D7 (the “Subject Shares”), being 51% of the shareholding in D7.

11. P is a businesswoman and resident in Xiamen[8].

12. D1 is a company incorporated in Xicheng, Beijing.

13. The 2^nddefendant (“D2” or “Silver Grant”) is a Hong Kong company. It has been acting as D1’s nominee in respect of the Subject Shares.

14. D3 is a company incorporated in Guangzhou. D4 is a Hong Kong company. D5 is a company incorporated in Xiamen. D6 is a company incorporated in Guangzhou. D4, D5 and D6 have been acting as D3’s nominees in respect of the Subject Shares.

15. D7 is a Hong Kong company. Its key asset is a wholly owned subsidiary set up in the Mainland called香山國際遊艇俱樂部（厦門）有限公司 (“XS International”). XS International was incorporated in Xiamen on 4 July 2005. It was set up as a corporate vehicle in the form of a wholly owned foreign enterprise (“WOFE”) for D7’s plan to develop a yacht club in Xiamen under the project of 香山遊艇俱樂部項目 (the “Project”).

16. In respect of the shareholding in D7:

(a) P claims[9] that D7 has issued and allotted 5,000,000 shares of $1.00 each, and that she and her husband, Mr Fang Dongluo (“Fang”) became its only shareholders on around 14 December 2006, each holding at that stage respectively 4,000,000 and 1,000,000 shares;
(b) in around early 2009, as a result of certain credit arrangement, P and Fang transferred a total of 2,450,000 shares in D7 to one Wu Jiancheng (“Wu”). Upon the transfer, the shareholding in D7 became:
(i) P holding 2,050,000 shares (41%);
(ii) Fang holding 500,000 shares (10%); and
(iii) Wu holding 2,450,000 shares (49%).

17. P was at the material time also a director of D7, and a director and the legal representative of XS International.

P’s pleaded case

18. P’s pleaded claim, as summarized in the SOC[10], goes as follows:

(a) on around 31 December 2010, P pledged the Subject Shares to D1, which nominated D2 to hold the same on its behalf (the “Share Pledge Arrangement”);
(b) The Share Pledge Arrangement was entered into as part of a series of arrangement (the “Loan Arrangements”) between inter alios D1 and P, whereby D1 undertook to advance loans to XS International to finance the Project (the “Loans”);
(c) It was the agreement and understanding between the parties that:
(i) The legal title to the Subject Shares was transferred to D2 only as security for XS International’s liability under the Loan Arrangements;
(ii) The said legal title to the Subject Shares would be transferred back to P or her nominees upon repayment of the Loans;
(iii) In about 2015 or 2016, D1 alleged breach of the Loan Arrangements and unilaterally tried but failed to execute against the security concerned;
(iv) In or about late 2017, as it was unable to successfully execute against XS International and related parties, D1 wrongfully and in breach of the Share Pledge Arrangement (or alternatively in breach of the charge/mortgage/trust arrangement in relation to the Subject Shares) purported to auction the Loans on Taobao (the “Taobao Auction”). D3 bid on and purportedly won the auction;
(v) D1 then wrongfully caused D2 to transfer the Subject Shares to D3’s nominees, namely D4 to D6 (the “Purported Transfer”);
(vi) The Taobao Auction and the Purported Transfer were carried out without P’s knowledge or consent, were neither legitimate nor bona fide, and were in breach of Mainland law and/or alternatively in breach of the charge/mortgage/trust arrangement in relation to the Subject Shares;
(vii) As at the date of the Writ, P is ready, willing and able to settle the Loans, and thus is entitled to redeem the legal title to the Subject Shares. P thus disputes the relevant Ds’ alleged entitlement to or interest in the Subject Shares and their dealings in the same;
(viii) D3 to D6 have procured D7 to call for EGMs to pass resolutions which would cause irreparable damage to P’s interests in the Subject Shares;
(ix) P claims declarations that P was and is the beneficial owner of the Subject Shares and that the Purported Transfer was in breach of the Share Pledge Arrangement, or alternatively, in breach of charge/mortgage/trust, and thus is void and of no effect, redemption of the Subject Shares, and rectification of the register of members of D7.

The Agreements between the parties

19. To understand what the Loan Arrangements and the Share Pledge Arrangement as pleaded by P in the SOC were (or were not), it is important to go to the agreements that the parties have reached. There are quite some of them. §11 of Zhang/2 contains a table which usefully sets them out with some brief descriptions of their main effects. Set out below are the main ones that are material to this hearing.

20. In early 2010, D7 and XS International required funding for the development of the Project. A series of agreements were subsequently entered into between variably D1, D7, XS International, P, Fang and Wu. At its core, it was a financing loan in the sum of RMB 2,300,000,000 from D1 to XS International, with shares in D7 as guarantee.

21. The first and main agreement was the “戰略合作協議” dated 15 January 2010 between D1 (as “甲方”), XS International (as “乙方”) and D7 (as “丙方”)[11] (“SCA”). Under the same:

(a) In the preamble, it is stated that agreement was based upon (“依據”) a number of statutes in the Mainland;
(b) D1 would in stages and via various means advance the Loans to XS International;
(c) XS International agreed to transfer the right to earnings in respect of the yacht piers under the Project to D1;
(d) D7 would transfer 51% of its shareholder in XS International to D1 as security (Clause 2.1[12]);
(e) Clause 2.3[13] is material. It stipulates that:
「乙方未發生遊艇泊位收益權轉讓合同項下的嚴重違約情形時，甲方及其指定的相關方不得處分該等股權，並且在乙方履行完畢遊艇泊位收益權轉讓合同項下的全部債務後，甲方及其指定的相關方應及時將該等股權無償回轉給丙方；乙方發生遊艇泊位收益權轉讓合同項下的違約情形時，甲方及其指定的相關方有權處分該等股權並以公開方式處分該等股權所得款項為限代乙方履行遊-艇泊位收益權轉讓合同項下的債務，剩餘款項歸屬丙方。」
(f) Clause 5.1 provides that the governing law shall be Mainland law (the “Choice of Law Clause”), that:
「本協議的訂立、效力、解釋、履行及爭議的解決均適用中華人民共和國法律。」
(g) Clause 5.2 is the jurisdiction clause (the “Jurisdiction Clause”), that:
「在協議履行期間，凡由本協議引起的或與本協議有關的一切爭議、糾紛，當事人應協商解決。協商不成，任何一方均有權將爭議提交甲方所在地人民法院審理。」
(h) As D1 is a company incorporated in Xicheng, Beijing, “甲方所在地人民法院” in effect means the Xiching Court in Beijing.

22. On 26 May 2010, pursuant to the SCA, D1 and XS International entered into an earning assignment agreement (遊艇泊位收益權轉讓合同)[14] (the “EAA”). The following clauses are material:

(a) the preamble, which records that the parties entered into the EAA based on (“根據”)《中華人民共和國合同法》and other related law, rules and regulation;
(b) Clause 8[15], that:
「 8 違約責任
8.1 轉讓方違約
8.1.1 發生以下情況之一的視為轉讓方違約，違約事件發生之日為違約日:
(1) 轉讓方未按時、足額劃轉遊艇泊位收益或者未按時足額支付遊艇泊位收益權回購承諾費、遊艇泊位收益權回購價款的;
…
8.1.3 當轉讓方嚴重違約，或者轉讓方一般違約但未在受讓方要求的期限內採取經受讓方認可的補救措施的，受讓方有權選擇或同時採取以下救濟措施:
(1) 要求轉讓方立即無條件回購遊艇泊位收益權，回購價款＝本合同第2.2條項下受讓方已經支付的遊艇泊位收益權轉讓價款＋本合同第2.2條約定的遊艇泊位收益權轉讓價款x【15】% x受讓方受讓遊艇泊位收益權之日至轉讓方支付完畢回購價款之日的天數/360 - 受讓方已經收到的遊艇泊位收益權回購承諾費及各期遊艇泊位收益之和;
…
(4) 行使擔保權利或者處分轉讓方的股權；」
(c) Clauses 13.1 and 13.2, which are the choice of law clause and the jurisdiction clause. Their terms and effects are materially the same as those in the SCA.

23. Also on 26 May 2010, Fang executed a保證合同in respect of the indebtedness of XS International[16]. Clauses 11.1 and 11.2 are the Choice of Law Clause and the Jurisdiction Clause. Their terms and effects are materially the same as those in the SCA.

24. Under the SCA, as mentioned above, it was contemplated that D7 would transfer 51% of its shareholder in XS International to D1 as security. As things turned out, and because of XS International’s status as a WOFE, parties encountered difficulties in effecting the transfer as contemplated. On 24 December 2010, D1, D7, XS International and P entered into an agreement to supplement the SCA — the《〈戰略合作協議〉之補充協議》(the “SCA/S1”)[17]. There is no dispute that the only material change effected thereby was that P was to, in lieu of the transfer by D7 contemplated by the SCA, transfer her 51% shareholding in D7 to D1 as guarantee. The net effect so achieved would be the same.

25. The following terms of the SCA/S1 are material (“甲方” being D1, “乙方” being XS International, “丙方” being D7, and “丁方” being P):

(a) Clause 2, that:
「 1、丁方同意在本補充協議生效之日起【30】日內將其所持有的丙方51%的股權轉讓給甲方指定的相關方，有關股權轉讓的具體事宜由相關方另行簽訂相關協議。
2、甲方和丁方確認，上述51%的股權轉讓僅為擔保乙方履行[EAA]之目的，為此:
(1) 丁方承諾並授權，當乙方發生[EAA]項下的違約情形時，甲方及甲方指定的相關方有權處置上述51%的股權，包括但不限於向第三方轉讓該等股權等並以處分該等股權所得款項為限代乙方履行[EAA]項下的債務，剩餘款項按照比例歸屬丁方，以保證[EAA]項下的債權的實現；
(2) 乙方未發生[EAA]項下的嚴重違約情形時，甲方及其指定的相關方不得處分該等股權，並且在乙方履行完畢[EAA]項下的全部債務後，甲方及其指定的相關方應及時將該等股權無償回轉給丁方。
(3) 各方同意並確認，在本協議生效後的合理期限內簽署完畢上述丁方51%股權轉讓的相關法律文件，以及乙方履行完畢[EAA]項下的全部債務時甲方及其指定的相關方將該等股權無償回轉給丁方的相關法律文件，包括但不限於相關董事會決議、股權轉讓協議等，並將上述法律文件提交【廈門市鷺江公證處】，委托並授權【廈門市鷺江公證處】在滿足相關條件時辦理相關股權轉讓事宜，但當乙方發生[EAA]項下的違約情形時，甲方及其指定的相關方有權直接處分相關股權。」
(b) Clause 3.1 (the “SCA/S1 Legal Effect Clause”), that:
「本補充協議為[SCA]及系列合同的補充協議，與[SCA]及系列合同具有同等法律效力，但[SCA]及系列合同與本補充協議約定不一致的，按照本補充協議的約定執行，本補充協議未約定事項按照[SCA]及系列合同的約定執行。」

26. According to an Instrument of Transfer dated 31 December 2010[18], P transferred 2,550,000 shares in D7 (ie the Subject Shares) to D2 as nominee for D1. According to §22 of the SOC, 2,050,000 of those shares came from P, while the balance of 500,000 came from Wu who had transferred the same back to P on 30 December 2010.

27. On 4 January 2011, the transfer of the Subject Shares to D2 was approved by the board of D7.

28. On 12 January 2012:

(a) D1 and XS International entered into the《〈遊艇泊位收益權轉讓合同〉》之補充協議》^{^[19]} (the “EAA/S1”) and《〈遊艇泊位收益權轉讓合同之補充協議〉之具體補充協議（一）》[20] (the “EAA/S1(1)”). The repurchase date of the EAA was extended thereby to 31 December 2012, and the repurchase price increased by RMB 150 million;
(b) Clause 4 of the EAA/S1 (the “EAA/S1 Legal Effect Clause”) provides that:
「本補充協議為[EAA]的補充協議，與[EAA]具有同等法律效力，[EAA]的約定適用於本補充協議，但[EAA]與本補充協議約定不一致的，按照本補充協議的約定執行，本補充協議未約定事項按照[EAA]的約定執行。」
(c) Clause 5 of the EAA/S1(1) similarly provides that:
「本補充協議為[EAA/S1]的附件，本補充協議未約定事項按照[EAA/S1]的約定執行。」

29. In January 2012, D1 (as “甲方”), XS International (as “乙方”), D7 (as “丙方”), Wu (as “丁方”), P and Fang (P and Fang together as “戊方”) entered into a second agreement to supplement the SCA (“SCA/S2”). It became necessary for Wu to be supplemented a party as he had provided 500,000 of the 2,550,000 Subject Shares. The following clauses in SCA/S2 are material:

(a) Clause 2 thereof, that, inter alia:
「 … 當乙方發生[EAA]、[EAA/S1]或者項下的具體補充協議、債務確認協議項下的違約情形時，甲方及甲方指定的相關方有權以任何方式直接處置上述丙方15%及36%股權，包括但不限於向第三方轉讓該等股權等並以處分該等股權所得款項為限代乙方履行[EAA]、[EAA/S1]或者項下的具體補充協議、債務確認協議項下的債務，剩餘款項按照比例歸屬丁方和戊方，以保證[EAA]、[EAA/S1]或者項下的具體補充協議、債務確認協議項下的債權的實現。」
(b) Clause 3.1 thereof, which effects are materially the same as the SCA/S1 Legal Effect Clause.

30. In addition to the above, various security agreements and confirmation agreements had also been entered into. These agreements all contain clauses similar to the Choice of Law Clause and the Jurisdiction Clause (§§25 to 28 of Ji/Aff).

Enforcement of the Loans, and the legal proceedings in the Mainland that ensued

31. On 10 April and 15 May 2015, D1 issued to XS International, D7, P and Fang 2 Debt Repayment Notices. According to the one dated 15 May 2015[21], XS International as at 30 April 2015 owed D1 under the various agreements RMB 1,909,932,541.62.

32. On 26 May 2015, and upon D1’s application, the Beijing Notary Public granted in favour of D1 a certificate of enforcement[22](the “Certificate of Enforcement”) against inter alios XS International, P and Fang.

33. Upon the Certificate of Enforcement, the Higher People’s Court of Fujian Province (the “Fujian Court”) on 5 and 10 June 2015 granted a Notice of Enforcement in favour of D1 as the “申請執行人” and against inter alios XS International, P and Fang as the “被執行人”[23].

34. On 4 August 2015, P (amongst others) applied to the Fujian Court for non‑execution of the Certificate of Enforcement (the “Non‑Execution Application”)[24].

35. On 15 December 2015, the Fujian Court handed down its decision[25] refusing the Non‑Execution Application.

36. P appealed. On 28 October 2016, the Supreme People’s Court handed down its decision[26] setting aside the Fujian Court’s refusal of the Non‑Execution Application. The matter was remitted back to the Fujian Court for a re‑determination.

37. On 7 November 2018, by《執行裁定書》of the Intermediate People’s Court of Xiamen City, Fujian Province, D3 was allowed to substitute D1 as the “申請執行人”[27], which was immediately enforceable.

38. On 26 December 2018, the Fujian Court upon a re‑determination dismissed the Non‑Execution Application[28].

39. On 12 January 2019, P applied to the Supreme People’s Court again for a review[29].

40. By its decision dated 11 November 2019 (the “SPC Decision”), the Supreme People’s Court dismissed P’s application for review[30]. It is material to note that in the decision, D3 was named as the “申請執行人”.

41. P has exhausted her appeal in relation to the Non-Execution Application.

42. At §§35 to 39 of the SOC, P, with reference to her Non‑Execution Application, pleads that the matter was pending retrial, that that D1 “was and is not entitled to dispose of or otherwise deal with inter alia the Loans, the underlying security, and by reason thereof, the Subject Shares”.

43. That plea has been superseded by events, and has been put to rest by the SPC Decision.

The auction of the Subject Shares

44. In the meantime, between 22 and 23 November 2017, D1 on the Taobao website auctioned off inter alia the debts owed to it by XS International under the EAA (as subsequently supplemented) together with its incidental rights under it, SCA/S1 and SCA/S2. The successful bidder was D3 at RMB 2,839,910,000.

45. Subsequently, D1 (together with another entity) by an agreement signed on 29 November 2017[31] (the “Debt Assignment Agreement”) transferred their rights in the Loans to D3. Pursuant to the same, D2 transferred 850,000 of the Subject Shares to each of D4, D5 and D6 as D3’s nominees.

46. Clauses 13 and 14 of the Debt Assignment Agreement are the choice of law clause and the jurisdiction clause. Their terms and effects are materially the same as those in the SCA.

Other relevant legal proceedings in the Mainland

47. On 9 July 2018, P filed a《民事起訴狀》in the北京市西城區人民法院 (the “Xicheng Court” and the “Xicheng Proceedings”).

48. In respect of the Xicheng Proceedings:

(a) P was the plaintiff;
(b) D1 to D7 of the present proceedings were named the defendants;
(c) P based her case on Mainland law[32];
(d) P claimed that her transfer of the Subject Shares to D2 as nominee of D1 was only by way of security, but was not a normal or real sale and purchase of shareholding;
(e) P sought a declaration that the transfers of the Subject Shares by D1 and D2 to D4 to D6 were invalid. She relied essentially on the same facts as she is relying on in the present action;
(f) The Xicheng Court on 9 July 2018 “立案”;
(g) P however subsequently withdrew the case.

49. P claims in P/4[33] that the Xicheng Proceedings were taken out in urgent circumstances when she was not familiar with Hong Kong law and had not instructed Hong Kong lawyers. I note that by that stage, P had already undertaken multiple legal steps in respect of the Certificate of Enforcement. She had had ample time to consider the legal steps she might take. I accept Mr Ho’s submission that P’s purported explanation in this regard is not credible at all.

50. Further, according to Zhang/3[34], P commenced another action in June 2019 before廣東省廣州市中級人民法院against, inter alios, D1, D3 and D7 in relation to the transfer of the debt package and alleged tortious action (the “GZIPC Action”). Zhang described that action as being the same as the present action.

The concept of “alienation guarantee”

51. The parties have adduced before me expert evidence on various aspects of Mainland law. One aspect relates to the concept of “alienation guarantee”.

52. According to the SCA and SCA/S1, the Subject Shares were transferred as security for the Loans. The general consensus amongst the experts is that the orthodox principles on guarantee under Mainland law do not apply. Rather, the transfer was in the form of an “alienation guarantee”.

53. The issue then arises as to, according to the Mainland law governing “alienation guarantee”, what the transferee’s interest was in the Subject Shares.

54. The issue is not a straightforward one. To start with, an alienation guarantee is not regulated, created or catered for by any statutory provision , but have been developed as a matter of practice of the Judges in the Mainland[35]. An alienation guarantee is lawful if that is the real intention of the parties[36].

55. The issue is further complicated by the fact that there have been two transfers in the present case: the transfer by P to D2 as D1’s nominee, and the further transfer via the Taobao Auction by D2 to D4 to D6 as the nominees for D3. The rights, obligations and interests of D1 and D2 of the one part, and D3 to D6 of the other are different.

56. The experts’ views on the effects of an “alienation guarantee” and the rights of the assignees thereunder differ:

(a) According to Xu[37], D1 only has the right to security, but not ownership;
(b) Luo agrees that if D1 or D2 had purported to exercise any ownership rights over the Subject Shares, that would have been a contravention of the Mainland law[38]. He however opines that what they did was not exercise of ownership rights, but was the assignment of D1’s assignable contractual debt and the incidental rights thereto (including its right to the alienation guarantee), which is lawful[39]. As the lawful and rightful assignee of D1, D3 was bound by and could be entitled to the same rights which D1 originally enjoyed[40];
(c) Deng goes further, opining that[41] D1 was entitled, without seeking a Mainland court order, to dispose of the Subject Shares upon XS International’s default, that D1 did dispose of the Subject Shares by way of the Taobao Auction, and D3 has become the absolute owner of the Subject Shares. He does not agree with Luo’s opinion expressed at §36 of Luo/Opinion2.

The intended defence of D1 and D2

57. As can be gleaned by the expert evidence adduced by D1 and D2, their intended defence is that what they have done was not any exercise of ownership right in the Subject Shares, but was lawful and permissible assignment of the contractual debt and the incidental rights thereto (including its right to the alienation guarantee).

The intended defences of D3 to D6

58. At §15 of Zhang/2, Zhang outlines the intended defences of D3 to D6, as follows:

(a) D1 and D2 were entitled to sell or transfer the Subject Shares to D3 to D6;
(b) Further or alternatively, because XS International defaulted in repayment on 26 December 2013, D1 and D2 (and their transferees, namely D4 to D6) were entitled to exercise rights over the Subject Shares;
(c) Further or alternatively, in any event D3 to D6 were honest or acted bona fide in acquiring the Subject Shares;
(d) D3 successfully obtained on 7 November 2018《執行裁定書》of the Intermediate People’s Court of Xiamen City, Fujian Province allowing D3 to substitute D1 as the “申請執行人”, which was immediately enforceable.

Legal principles relating to forum non conveniens

59. The applicable legal principles are not in dispute. I have been cited Spiliada Maritime Corp v Cansulex Ltd[1987] AC 460 at 476-478 per Lord Goff, and the summary at Hong Kong Civil Procedure 2021 Vol 1 §11/1/66. I shall not repeat them, save that I remind myself that the onus is on the defendant to show not merely that Hong Kong is not the natural or appropriate forum for the trial, but that there is another available forum which is clearly and distinctly more appropriate than the Hong Kong forum. The standard of proof is one of “good arguable case”: China Reliance Finance Co Ltd v China Three-Gorge Economic Development Corp, Guangdong Corp, unrep, CACV 296/2004, 25 May 2005, §6 per Rogers VP.

Parties’ submissions

60. Mr Li highlighted the following points in support of D1’s stance, that:

(a) P’s case is, and is pleaded to be contractual in nature;
(b) The contractual documents between parties all contain either expressly or by implication choice of law clauses and jurisdiction clauses;
(c) If exclusive jurisdiction has thereby been conferred upon the Mainland Courts, D1 is entitled to hold P to the contracts;
(d) Even just on P’s pleaded case, Mainland law applies, and applying VTB Capital plc v Nutriek International Corporation [2013] 2 AC 337 at §46, that is an important factor in favour of an order that the action be stayed in favour of the Mainland Courts (and in particular the Xicheng Court);
(e) The dispute between D1 and P in relation to the Enforcement Notice has been finally decided upon by the Supreme People’s Court;
(f) Mr Li refers to a table[42] setting out the various legal actions that P (together with others) has started in the Mainland in relation to the Subject Shares. He refers in particular to the GZ IPC Action, which is Action 6 on the table. He submits that P may continue to litigate in the Mainland.

61. Mr Ho summarized his grounds in support as follows:

(a) P has submitted herself to the jurisdiction of Mainland Courts, having pursued her claim all the way to the Supreme People’s Court;
(b) By the SPC Decision, the Supreme People’s Court has already decided against P;
(c) P and D1 have agreed to an exclusive jurisdiction clause in favour of the Mainland Courts, and D3‑6 have stepped into the shoes of D1;
(d) The case concerns the concept of “alienation guarantee”, which is a developing aspect of the Mainland law and practice. It is inappropriate for the Hong Kong Court to deal with a developing area of the Mainland law and practice.
(e) The dispute is closely connected to the Mainland in that the governing law is the Mainland law, the relevant events took place in the Mainland and the relevant witnesses are in the Mainland;
(f) Whilst the relief sought herein involves an order to transfer shares in D7, it is not necessary to commence a substantive action against D1‑7 in Hong Kong, because if P were to succeed in her substantive action in the Mainland, she could enforce the judgment in Hong Kong.

62. Mr Wong’s main submissions may be summarized as follows:

(a) the overarching governing law is Hong Kong law, by reason of the fact that property and contractual claims to shares in a company should be determined by the lex situs, and that the Subject Shares have their situs in Hong Kong;
(b) P was not a party to the SCA, and was not subject to the contractual bargain of the exclusive jurisdiction clause. The SCA/S1 does not contain any jurisdiction agreement;
(c) As regards the connecting factors, a close examination of the disputed issue reveal that the importance of Hong Kong law far outweighs the significance of Mainland law.

Discussion

63. I deal first of all with and get out of the way the term “Share Pledge Arrangement” used by P in the SOC:

(a) At §§21, 29 and 31 of the SOC, P pleads the term “Share Pledge Arrangement”. In particular, at §29 of the SOC[43], P avers that the nature of the Share Pledge Arrangement is governed by Hong Kong law, as it is a matter concerning the property in the shares of D7 which is a company incorporated in Hong Kong.
(b) Properly understood, the Subject Shares were pledged pursuant to the SCA supplemented by the SCA/S1. There is no separate Share Pledge Arrangement.
(c) In this regard, Mr Wong, in his usual fairness, accepted in the course of the hearing that there is no document which records any separate Share Pledge Arrangement, and there is no evidence of it being the subject matter of any oral agreement different from the SCA/S1.
(d) The use of the term “Share Pledge Arrangement” hence adds nothing to the analysis, and cannot assist in advancing P’s case in any way.

64. Mr Wong’s main submission is that the overarching governing law is Hong Kong law, by reason of the fact that property and contractual claims to shares in a company should be determined by the lex situs.

65. On 15 February 2019, Mimmie Chan J handed down her Decision[44] allowing P’s application for an injunction relating to the Subject Shares. At §17 of the Decision, in the course of considering whether there was any serious issue to be tried, Her Ladyship observed that:

“ There are accordingly competing claims to the proprietary rights in the Subject Shares, which are shares in a company incorporated under the laws of Hong Kong. Property and contractual claims to shares in a company should be determined by the lex situs, and shares have their situs in the place of incorporation of the company (Chen Hongqing v Ds, [2018] HKCFI 1170 at paras 33-45, Dicey, Morris & Collins, The Conflict of Laws, 15^th ed, para 22-044).”

66. Mr Wong relies on those observations.

67. In context, Mimmie Chan J was there not deciding the governing law. That becomes quite clear when §17 is read together with §§16 and 18 of the Decision, where Her Ladyship recited also the parties’ stances under Mainland law, and what the position would be if Mainland law applied.

68. But in any event, the mere fact that there are competing claims to the Subject Shares is not conclusive on the governing law. It remains relevant to consider the bases of the competing claims. I accept Mr Ho’s submission[45] that this Court cannot decide the question of ownership in a vacuum.

69. To determine the applicable law, the courts adopt the three‑stage approach set out in Macmillan Inc v Bishopsgate Investment Trust Plc (No 3) [1996] 1 WLR 387, at 391 per Staughton LJ (as adopted by the Court of Appeal in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd [2011] 2 HKLRD 45 (CA) at §49), that:

“ First, it is necessary to characterise the issue that is before the court. Is it for example about the formal validity of a marriage? Or intestate succession to moveable property? Or interpretation of a contract?
The second stage is to select the rule of conflict of laws which lays down a connecting factor for the issue in question. Thus the formal validity of a marriage is to be determined, for the most part, by the law of the place where it is celebrated; intestate succession to moveables, by the law of the place where the deceased was domiciled when he died; and the interpretation of a contract, by what is described as its proper law.
Thirdly, it is necessary to identify the system of law which is tied by the connecting factor found in stage two to the issue characterised in stage one. Sometimes this will present little difficulty, though I suppose that even a marriage may now be celebrated on an international video link. The choice of the proper law of a contract, on the other hand, may be controversial.”

70. I first of all characterize the issues before the court.

71. Having considered the pleadings and the expert evidence that has been placed before me, I agree with Mr Li[46] that the issues may be framed as follows:

(a) Whether D1 was entitled to assign the debt and the alienation guarantee to D3 under the SCA and SCA/S1;
(b) Whether P is entitled to redeem the Subject Shares by repaying the Loans to D1;
(c) Whether there is any breach of the SCA and SCA/S1 by D1; and
(d) Whether the transfer of the Subject Shares from D1 to D3 was valid, and whether they constituted illegitimate means of enforcement and execution.

72. The consideration and resolution of those issues involve the consideration of the agreements between the parties, and in particular the SCA and SCA/S1. Those issues are in my view contractual in nature.

73. I bear in mind also the opinion of Deng, that the intention of the parties as ascertained from the SCA and SCA/S1 is also relevant when it comes to consider the lawfulness of the “alienation guarantee”.

74. I move to the second and third limbs in Macmillan.

75. The transfer of the Subject Shares by P to D2 as D1’s nominee was done pursuant to the SCA and SCA/S1. I have dealt with the term “Share Pledge Arrangement” pleaded in the SOC. I have stated my view that the use of that term adds nothing to the analysis.

76. In the SCA, there is both the Choice of Law Clause and the Jurisdiction Clause.

77. According to the expert evidence before me, under Mainland law, the Jurisdiction Clause is an exclusive jurisdiction clause.

78. Mr Wong relies on the fact that while the SCA contains the Choice of Law Clause and the Jurisdiction Clause, P is not a party to SCA. The SCA/S1, of which P is a party, does not contain any such clauses. He also submits that the change of transferor from D7 to P was an uncontemplated event which should be taken into account. He submits that the Choice of Law Clause and the Jurisdiction Clause are not binding on P.

79. I do not accept Mr Wong’s submissions in this regard. I have set out the SCA/S1 Legal Effect Clause above. I accept Mr Ho’s submission that the parties must have intended that the same Choice of Law Clause and Jurisdiction Clause were applicable to SCA/S1, as by SCA/S1, the parties merely changed the identity of the transferor due to difficulties which XS International’s WOFE status had given rise to.

80. As submitted by Mr Li[47], which I accept, and bearing in mind the similarity between the Rome I Regulation and the rules on choice of law developed under common law[48], where a right to be assigned was created by a contract, the mutual obligations of the assignor and assignee are governed by the law which applies to the contract[49].

81. As I have observed above, any competing claims over the Subject Shares cannot be considered in vacuum. Any assertion of a proprietary right over the same can only be decided upon with reference to the underlying agreements.

82. In my view, there is no merits in Mr Wong’s submission that Hong Kong law is to apply merely because the shares of a Hong Kong company are involved.

83. In this regard, I also accept Mr Li’s submissions that even if this Court applies the lex situs of the Subject Shares, Mainland law will still be engaged. As explained in Briggs, Agreements on Jurisdiction and Choice of Law (2008) at §10.76:

“ If, however, the courts at the situs of the land, or of the place of the chattels at the time of the event which was supposed to affect title to them, would look to the law of the parties’ contract to answer a question (for example) of when property was to pass, or not pass, then the contract will answer the question, and the lex contractus will be applied in order to find it.”

84. Hence, even if the lex situs of the Subject Shares is technically to be applied, the issues remain engaged as to whether the parties had intended the SCA and SCA/S1 to be an “alienation guarantee”, and if so, its effect under Mainland law.

85. Related to the concept of “alienation guarantee” are the following matters:

(a) It is one area of the law in the Mainland which is still being developed;
(b) I note the disagreement between the experts on its scope and effects;
(c) I do not see the need at this stage to resolve the differences, as Mr Wong apparently has invited me to note and consider[50];
(d) but the above does impact upon Mr Wong’s alternative submissions that even if Mainland law is to apply, Hong Kong Courts will have no difficulty, adopting the approach set out in Shenzhen Development Bank Company Limited and New Century Int’l (Holdings) Limited & Anor, HCA 2976/2001, 31 July 2002 at §§25-27[51], in resolving the differences;
(e) I bear in mind the fact that the principles relating to “alienation guarantee” are not regulated, created or catered for by any statutory provision, but have been developed as a matter of practice of the Judges in the Mainland. In my view, it is not an area which this Court would suitably take it upon itself to rule on.

86. I also accept Mr Ho’s submission that in so far as the Taobao Auction is concerned, it is indeed P’s own case that Mainland law applies, to the extent that she took the challenge all the way up to the Peoples’ Supreme Court.

87. In all the circumstances, I am of the view that the governing law of the issues identified above is Mainland law.

88. P has herself started the Xicheng Proceedings before the Xicheng Court. Although she has withdrawn the claim, the expert evidence suggests that she is entitled to relaunch it.

89. Other connecting factors also point to the Xicheng Court being a forum that is clearly and distinctly more appropriate than the Hong Kong forum:

(a) P and D1 are domiciled and resident in the Mainland;
(b) The underlying agreements and related contracts were executed in the Mainland, written in Chinese, and governed by Mainland law;
(c) The agreements were substantively performed in the Mainland;
(d) In relation to the enforcement of any judgement that may be obtained in the Mainland, Mainland law provides sufficient constraints to compel Mainland entities such as D3 to comply with a Mainland court order for transferring the Subject Shares back to P, and it matters not that a party must perform acts outside of the Mainland in compliance of a Mainland court order[52]. I accept also Mr Ho’s submission[53] that P would have the option of seeking to enforce any judgment which P might obtain by a common law action.

90. On the evidence before me, and given in particular the SPC Decision dismissing P’s appeal in relation to the Non‑Execution Application, I accept also Mr Li’s submission[54] that P’s initiation and pursuit of present action is forum shopping.

91. P has not pointed to any material juridical advantage which she may lose if the claim is stayed. As Mr Ho and Mr Li have submitted, P has herself commenced multiple actions in the Mainland in relation to the Subject Shares, and she has submitted to the jurisdiction of the Mainland Courts.

92. In all the circumstances, I conclude that D1, and D3 to D6, have successfully discharged the burden of showing not merely that Hong Kong is not the natural or appropriate forum for the trial, but that the Xicheng Court as a forum which is clearly and distinctly more appropriate than the Hong Kong forum.

Disposition

93. For reasons set out above, I grant an order:

(a) in terms of §1 of D3‑6’s Summons;
(b) in terms of §3 of D1’s Summons.

94. I make a costs order nisi that P shall bear the costs of both Summonses, with certificates for two counsel.

(Keith Yeung)
Judge of the Court of First Instance
High Court

Mr Jonathan Wong and Ms Nicole Y T Li, instructed by Tung, Ng, Tse & Lam, for the Plaintiff

Mr Laurence Li SC, leading Ms Esther H K Mak, instructed by Fangda Partners, for the 1^st Defendant

The 2^nd Defendant, was not represented and did not appear

Mr Ambrose Ho SC, leading Mr Gary C C Lam, instructed by Lo Lau Lawyers, for the 3^rd to 6^thDefendants

F. Zimmern & Co for the 7^thDefendant did not appear

Attendance of the 8^thDefendant was excused

[1] The written submissions filed were signed by Mr Victor Dawes SC and Ms Esther Mak, which Mr Li adopts.

[2] [B4/1322-1361].

[3] [B4/1362-1394].

[4] [B1/1-72].

[5] [B5/1608‑2046].

[6] [B7/2594‑2636].

[7] §17(6).

[8] §1 of SOC.

[9] §11 of SOC.

[10] The executive summary at§13.

[11] [B1/110-121].

[12] [B1/114].

[13] [B1/114], D1 being “甲方”, XS International “乙方”, and D7 “丙方”.

[14] [B1/122-141].

[15] [B1/134, 136].

[16] [B1/188-203].

[17] [B1/204-207].

[18] [B2/567].

[19] [B1/212-217].

[20] [B1/221-230].

[21] [B2/580].

[22] [B1/313-322].

[23] [B1/323].

[24] [B1/326-332].

[25] [B1/333-342].

[26] [B1/345-361].

[27] [B1/381-384], and see Deng/Opinion1 §§3.17 to 3.18 [B1/25].

[28] [B4/1561-1576].

[29] [B4/1578-1585].

[30] [B7/2554-2569].

[31] [B2/526-544].

[32] See in particular the last paragraph of the《民事起訴狀》at [B1/378].

[33] §33 [A/164].

[34] §12 [A/178].

[35] Deng/Opinion2, §§2.2 to 2.4 [B5/1616-1618].

[36] Deng/Opinion2, §2.3 [B5/1616].

[37] Xu/Opinion1 at [B4/1328].

[38] Luo/Opinion2, §32 at [A/207].

[39] Luo/Opinion2, §§23-25, 33-34 at [A/204-206, 208].

[40] Luo/Opinion2, §36 at [A/209].

[41] Deng/Opinion1, §§2.12 & 3.10 at [B1/16 & 23].

[42] [B5/2085], produced at Zhang/3, §13(e).

[43] [A/38].

[44] [2019] HKCFI 379.

[45] At §53 of his written submissions.

[46] §35 of his written submissions.

[47] §39 of his written submissions.

[48] Dicey, Morris & Collins on the Conflict of Laws (15^th edn) §24-051 at p 1356.

[49] Dicey §§24R-050, 24-062 and 24-063.

[50] §17 of his written submissions.

[51] Namely that the Court is entitled and indeed obliged to use its legal training in so far as it may have a bearing on the resolution of dispute.

[52] Luo/Opinion2, §78 at [A/225].

[53] §73(2) of his written submissions.

[54] §64 of his written submissions.

HCA 2012/2018

[2019] HKCFI 913

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2012 OF 2018

____________

BETWEEN
	CHEN LINGXIA （陳玲霞）	Plaintiff
and
	中國金谷國際信託有限責任公司	1^st Defendant
	銀建國際資產投資有限公司	2^nd Defendant
	廣東金恒資產管理有限公司	3^rd Defendant
	HAINE INTERNATIONAL INVESTMENT
	CONSULTANTS LIMITED	4^th Defendant
	（海納國際投資顧問有限公司）
	廈門力智合管理咨詢有限公司	5^th Defendant
	廣州萬幣投資有限公司	6^th Defendant
	SOUTH ASIA GROUP (HK) LIMITED	7^th Defendant
	THE REGISTRAR OF COMPANIES	8^th Defendant

____________

Before: Hon Mimmie Chan J in Chambers (open to public)

Dates of Written Skeleton Submissions: 5 & 13 March 2019

Date of Decision: 9 April 2019

_____________________

D E C I S I O N

_____________________

1. On 15 February 2019, this Court handed down its decision on the Plaintiff’s application for interlocutory relief against the named Defendants (“Decision”). The abbreviations in the Decision are adopted.

2. The 1^st Defendant (JI), the 3^rd to 6^th Defendants (JH and its nominees), and the 7^th Defendant (South Asia), have applied to vary the costs orders made in the Decision.

3. JI seeks to “clarify” and/or “rectify” the orders for costs, seeking orders that its costs of and occasioned by the Summons be borne by Chen and be paid forthwith, to be taxed if not agreed.

4. The costs orders made in the Decision, and in particular the order made in paragraph 55, are costs orders nisi under Order 42 rule 5B. No clarification is necessary.

5. The order made in paragraph 55 already provides for “the costs of and occasioned by the initial grant” of the Interim Injunctions. The Summons was Chen’s application for the grant of the Interim Injunctions. It is accordingly not necessary to vary the costs order nisi to state that the costs of and occasioned by the Summons should be paid by Chen.

6. By reason of the discharge of the Interim Injunctions for deliberate and material non-disclosure on Chen’s part, of the fact that she was prohibited from acting as a director, supervisor or senior manager of any company, and that to her knowledge, XS had received the written Notification from the Authority of such prohibition, I am prepared to vary the order nisi to order that the costs of and occasioned by the initial grant and the discharge of the Interim Injunctions pursuant to JH’s summons dated 13 September 2018 are to be borne by Chen and paid to the Defendants, with certificate for two Counsel, to be taxed forthwith if not agreed, and paid forthwith. I will order that such costs are to be taxed and paid on indemnity basis.

7. On the part of the 3^rd to 6^th Defendants, they seek variation of the costs order nisi to provide for the costs ordered to be summarily assessed on an indemnity basis, payable forthwith.

8. The costs of and occasioned by the Summons, and the application made by JH for discharge involved 3 hearings, different teams of lawyers and different grounds argued by the Defendants for the discharge and to oppose the continuation of the Interim Injunctions. It would not in my view be appropriate in this case for the costs of the 3 camps, likely to be substantive, to be summarily assessed on broad brush basis. I decline to make an order for summary assessment, but will order that the costs should be taxed forthwith and paid forthwith, with certificate for two counsel.

9. By reason of the deliberate and material non-disclosure which led to the discharge of the Interim Injunctions, I further vary the costs order nisi to provide for the costs of and occasioned by the grant and discharge of the Interim Injunctions to be paid by Chen to the Defendants on indemnity basis.

10. However, the application made by JH and its nominees on 5 March 2019 to amend their summons issued on 26 February 2019 for variation of the costs order nisi, to include orders for costs on an indemnity basis and to set out an alternative ground for review of the costs order should be paid by JH and the 4^th to 6^th Defendants to Chen, on the usual party and party basis. They are the party seeking the amendment and the indulgence of the Court for leave to amend and include the additional variation.

11. On the part of South Asia, its application is for the same variation sought by the 3^rd to 6^th Defendants, namely for costs to be summarily assessed and payable forthwith, on indemnity basis. For the same reasons set out in paragraphs 8 and 9 above, I make the same order for variation in favour of South Asia.

12. The costs of the Defendants’ applications for variation (save for the 3^rd to 6^th Defendants’ application for amendment, provided for in paragraph 10 above) are to be paid on the same basis, namely, by Chen on indemnity basis, to be taxed forthwith and paid forthwith.

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

Ms Cherry Xu, instructed by Wilkinson & Grist, for the plaintiff

Fangda Partners, for the 1^st defendant

Mr Gary Lam, instructed by Jones Day, for the 3^rd to 6^th defendants

Ms Sharon Yuen, instructed by Ambrose Lam & Co, for the 7^th defendant

HCA 2012/2018

[2019] HKCFI 379

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2012 OF 2018

____________

BETWEEN
	CHEN LINGXIA （陳玲霞）	Plaintiff
and
	中國金谷國際信託有限責任公司	1^st Defendant
	銀建國際資產投資有限公司	2^nd Defendant
	廣東金恒資產管理有限公司	3^rd Defendant
	HAINE INTERNATIONAL INVESTMENT	4^th Defendant
	CONSULTANTS LIMITED
	（海納國際投資顧問有限公司）
	廈門力智合管理咨詢有限公司	5^th Defendant
	廣州萬幣投資有限公司	6^th Defendant
	SOUTH ASIA GROUP (HK) LIMITED	7^th Defendant
	THE REGISTRAR OF COMPANIES	8^th Defendant

____________

Before:

Hon Mimmie Chan J in Chambers (open to public)

Dates of Hearing:	25 & 26 October 2018
Date of Decision:	15 February 2019

___________________

D E C I S I O N

___________________

1. On 27 August 2018, the Plaintiff (“Chen”) issued these proceedings and, at the same time, applied by summons (returnable on 31 August 2018) (“Summons”) for interlocutory relief against the named Defendants.

2. Chen is resident on the Mainland and claims to be the beneficial owner of 51% of the shareholding in the 7^th Defendant (“South Asia”), a company incorporated in Hong Kong. South Asia’s key asset is its wholly owned subsidiary on the Mainland, 香山國際遊艇俱樂部(厦門)有限公司(“XS”). XS is South Asia’s corporate vehicle to hold and develop a yacht club in Xiamen on the Mainland by the name of 香山遊艇俱樂部項目(“Project”). At the material time when South Asia was incorporated, Chen and her husband (“Husband”) were the holders of 80% and 20% respectively of the shares in South Asia. Chen was a director of South Asia, and the legal representative and director of XS.

3. In around 2010, to obtain funding for the development of the Project, a series of agreements were made, whereby a financing loan of a total of RMB 2,300,000,000 (“Total Loan”) was to be extended to XS, and provided by a Mainland company, which is the 1^st Defendant in these proceedings, Jiangsu International (“JI”). The Total Loan included a financing loan of RMB 700 million, in consideration of the transfer by XS to JI of the right to the earnings from the yacht piers under the Project. The assignment of earnings was evidenced by or contained in an Assignment Agreement made between XS and JI (“Assignment Agreement”). A Strategy Cooperation Agreement (“SCA”) was also made on 15 January 2010 between South Asia, XS and JI. Under a Supplemental Agreement to the SCA dated December 2010 (“Supplemental Agreement”) which was made between South Asia, XS, Chen and JI, Chen agreed to transfer her 51% shareholding in South Asia (“Subject Shares”) to JI or its nominee, as security for the obligations of XS under the Assignment Agreement.

4. It is not disputed that pursuant to the SCA and the Supplemental Agreement, the Subject Shares were transferred from Chen to JI’s nominee, a Hong Kong company and the 2^nd Defendant in these proceedings (“Silver Grant”), which executed a declaration of trust in favor of JI in respect of its holding of the Subject Shares. With Chen’s approval, JI’s nominees were appointed to the board of South Asia.

5. In about 2015, JI alleged and purported to rely upon XS’ breach of the agreements relating to JI’s loans to XS, including breach of the Assignment Agreement. It attempted to enforce its rights under the SCA and the Supplemental Agreement, by applying to the Beijing Notary Public for a certificate of enforcement/execution to enforce its rights. A Certificate of Enforcement was granted by the Beijing Notary Public on 26 May 2015 (“Certificate of Enforcement”). JI then applied to the Higher People’s Court of Fujian Province (“FJ Court”) for an order for enforcement, which was granted by the FJ Court. In August 2015, Chen applied to the FJ Court for “non-execution of the Certificate of Enforcement” (“Non-Execution Application”), but this was declined by the FJ Court on 15 December 2015. Chen successfully appealed to the Supreme People’s Court (“SPC”), and by its decision dated 28 October 2016, the SPC allowed the appeal, set aside the FJ Court’s decision, and ordered a retrial of the matter by the FJ Court. These proceedings in the FJ Court are still pending.

6. In the interim of the Non-Execution Application, the appeal and the pendency of the retrial by the FJ Court as ordered by the SPC, in late 2017, JI sold the outstanding loans due from XS by way of auction on Taobao (an online auction platform) (“Taobao Sale”) to the 3^rd Defendant 廣東金恒資產管理有限公司, Guangdong Jinheng (“JH”), a Mainland company. The outstanding loan was RMB 2,702,633,995.02, comprising the principal debt of RMB 1,073,250,000 and outstanding interest of RMB 1,629,383,995.02, and JH as the winning bidder allegedly paid RMB 2,389, 882, 297.52.

7. Pursuant to the Taobao Sale, JI assigned to JH all its rights in the debt due from XS, under a Debt Assignment Agreement dated 29 November 2017. The rights assigned include the collateral and security in the debt assigned (including the Subject Shares). Chen claims that she only received notice of assignment of XS’s debt to JI in early January 2018. In October 2016, she had filed notice of objection when she became aware of JI’s announcement of its intention to dispose of the debt due from XS, but there was no indication then of any dealings in the Subject Shares.

8. In purported exercise of the rights in the Subject Shares, JI’s appointees on the board of South Asia called for a meeting of the directors on 9 August 2018, to approve their resignation as directors and the appointment of 5 new directors nominated by JH. The new directors also called for: (1) a board meeting to be held on 14 August 2018 to discuss whether to raise capital for South Asia by allotting new shares; and (2) an EGM to be held on 14 September 2018 to approve the removal of Chen as a director of South Asia.

9. Chen claims that her transfer of the Subject Shares to Silver Grant as nominee of JI was only by way of security to guarantee XS’s obligations under the Assignment Agreement, and was not an outright transfer of her beneficial interests in the Subject Shares. She claims that she was ready, able and willing to pay the outstanding debt due from XS to JI, which she claims is RMB 1,726,348,867. She further relies on expert evidence on PRC law, that the Taobao Sale was illegal and void, being improper circumvention of the necessary execution and enforcement procedures of the Mainland court which are required, such that there was no valid sale to JH. Chen claims that at all material times of the Taobao Sale, JH had express notice of Chen’s claims in the Non-Execution Application, and was not a bona fide purchaser without notice. It should take subject to her beneficial interests in and claims to the Subject Shares.

10. On the basis of these claims, Chen applied by the Summons for firstly, injunctions to restrain JI, Silver Grant, JH and JH’s nominees (the 4^th to 6^th Defendants, in whose names the Subject Shares are currently registered, pursuant to the Taobao Sale to JH) from: (1) taking any steps to dispose of, deal with, transfer, charge, encumber or diminish the value of the Subject Shares (“Disposal/Diminishing Injunction”); and (2) exercising any power or right attached to the Subject Shares to increase the share capital of South Asia, remove Chen from the Board of South Asia, or take steps to effect the change of the legal representative and directors of XS (“Voting/Exercise of Rights Injunction”).

11. By the Summons, Chen further sought interim orders, pending the hearing and determination of the Summons, for South Asia to adjourn the meetings called for August and September 2018; and to be restrained from convening any further general meeting to increase the share capital, change the composition of its board, or to effect the change of the legal representative and directors of XS.

12. On 31 August 2018, substantive argument on the Summons was adjourned, but the Court granted interim injunctions (“Interim Injunctions”), substantially in terms of those sought against the 1^st to 6^th Defendants. As against South Asia, the Court restrained it, until the determination of the Summons or further order, by its officers and agents, from convening or holding any general meeting for the purposes of: (1) resolving on the issue and allotment of new shares or otherwise diluting the shareholding of the Subject Shares; (2) removing Chen from the board of directors; and/or taking any further steps to effect the change of the legal representative and directors of XS (South Asia’s wholly-owned subsidiary), or from carrying such resolution into effect.

13. On 13 September 2018, JH applied for the Interim Injunctions to be discharged, and alternatively for Chen’s cross-undertaking in damages to be fortified. Its grounds are that there is no serious question to be tried at all on Chen’s claims against JH, that JH was entitled to deal with the Subject Shares upon Chen’s default in payment, and further, that there had been material non-disclosure in Chen’s application for the Interim Injunctions.

14. At the hearing of the substantive arguments on the Summons, South Asia also opposed the continuation of any injunction against it. It did not issue any summons for discharge of the Interim Injunctions, but argued that the Interim Injunction should never have been made against South Asia, against which Chen has not asserted any cause of action.

15. As for JI, its stance is that it is “nugatory and useless” for Chen to seek any injunction against JI, when (as Chen knew at the time of the issue of the Summons) the Subject Shares were no longer in the possession or control of JI.

Whether any serious question to be tried on Chen’s claims against the defendants

16. The claims and evidence relied upon by Chen are that the Subject Shares were only transferred, or pledged, to JI as security under and pursuant to the SCA and the Supplemental Agreement, to guarantee the indebtedness and obligations of XS under the Assignment Agreement. She claims that she remains the beneficial owner of the Subject Shares, and further alleges that JI’s attempts to enforce the security by sale of the Subject Shares to JH on the Mainland are illegal under PRC law. On its part, JH claims that it was the bona fide purchaser of the debt and the security, being the Subject Shares, and that it was entitled to exercise all its rights as legal and beneficial owner of the Subject Shares. JH highlighted the fact that all the relevant agreements between Chen and JI are governed by PRC law.

17. There are accordingly competing claims to the proprietary rights in the Subject Shares, which are shares in a company incorporated under the laws of Hong Kong. Property and contractual claims to shares in a company should be determined by the lex situs, and shares have their situs in the place of incorporation of the company (Chen Hongqing v Ds, [2018] HKCFI 1170 at paras 33- 45, Dicey, Morris & Collins, The Conflict of Laws, 15^th ed, para 22-044).

18. I accept the submissions made by Leading Counsel on behalf of Chen, that under Hong Kong law, the arrangement and the transfer of shares evidenced by the provisions of the SCA and Supplemental Agreement support a charge, legal mortgage or trust created in the Subject Shares. Even if PRC law should apply, the expert evidence produced by Chen is that the effect of the relevant agreements is that the transfer from Chen to Silver Grant was in the nature of a guarantee arrangement, that true ownership of the Subject Shares remained with Chen, and that in the absence of any demonstrated serious breach, JI and Silver Grant were nominal holders of the Subject Shares, and obliged to act in accordance with Chen’s direction and interests.

19. JH has pointed out that Chen does not dispute the fact of XS’ default in payment under the Assignment Agreement. Under the express terms of the Supplemental Agreement (namely, clause 2.2 (1) thereof), JI/Silver Grant as JI’s nominee are entitled upon XS’ breach of the Assignment Agreement to deal with or dispose of (處置) the Subject Shares, including the right to transfer same to a third party. Clause 2.3 of the Supplemental Agreement also refers to the right of JI to “directly deal with” (直接處分) the Subject Shares in the event of XS’ breach of the Assignment Agreement. It was emphasized that even if the Subject Shares had only been offered as security under a charge/guarantee, JI was entitled to exercise its contractual rights to enforce the security, as it did when it sold the Subject Shares, together with the debt due from XS, by the Taobao Sale to JH.

20. According to Chen’s PRC expert, upon a debtor’s default or failure in compliance with its obligations, a creditor may apply to the court for enforcement, and in the event of a security provider failing to pay the debt due, the security holder may agree with the security provider to sell the security, and in default of agreement, the security holder may commence legal proceedings. The PRC Notary Law and the Guarantee Law are cited by the expert, in support of the view expressed that when the conditions for the exercise of any security rights are satisfied, the holder of the security cannot directly sell the security, and must apply to the Mainland court for enforcement of the rights in the security. According to the expert, any direct sale of the security by the security holder, other than by way of enforcement proceedings through the Mainland courts, constitute self-help, is contrary to PRC law, and is invalid.

21. On behalf of JH, Leading Counsel referred to and relied upon the Acknowledgment of Indebtedness dated 26 May 2010 (“Acknowledgment”) which was signed by XS and JI, and an Acknowledgment of Indebtedness Supplement dated 12 January 2012 (“Supplemental Acknowledgment”) signed by the same parties. Under the Acknowledgment, XS (inter alia) acknowledged its indebtedness under the Assignment Agreement. Under the Supplemental Acknowledgment, the parties apparently agreed (clause 2.1) to process a notarial certificate for the enforcement of the Acknowledgment. Under clause 2.2, XS and JI agreed that the Acknowledgment was a document which could be enforced. In the same clause, XS further agreed that in the event of its non-compliance with the obligations under the Acknowledgment: it “accepted enforcement by the judicial authorities” (自願接受司法機關的強制執行), without the need of legal proceedings (無需經過訴訟程序); that JI would be entitled in accordance with the Law of Civil Proceedings (民事訴訟法) to “directly apply to a People’s Court with jurisdiction for enforcement”, and that XS would forgo its defence.

22. Clause 2.4 of the Supplemental Acknowledgment provides that if XS should fail to comply with a document which has been notarized as enforceable, JI should notify XS in writing that if such breach was not rectified within 5 working days, JI would apply to the notary for an “enforcement certificate” (申請出具執行証書).

23. Notarial certificates had been issued by the Beijing Notary Public in February and December 2012, in respect of the Acknowledgment and Supplemental Acknowledgment and their being enforceable(賦予強制執行效力).

24. According to Chen’s PRC expert, any notarized documents of indebtedness only enable the creditor to proceed directly to court enforcement, without the necessity of a trial of the underlying debt. The expert maintains that this does not mean that the creditor has the right to seize or directly sell the property of the debtor, without going through the courts or a sale by the courts. Chen has highlighted the fact that the Taobao Sale was not conducted through the judicial sale/auction platform.

25. The PRC expert’s opinion, that as a creditor and holder of security under the Assignment Agreement with XS and the Supplemental Agreement with Chen and XS, JI had to apply to the Mainland court for enforcement of its rights to sell the Subject Shares, is in fact supported by the actions taken by JI itself. In May 2015, JI applied to and obtained from the Beijing Notary Public the Certificate of Enforcement in respect of the relevant agreements made with XS and Chen, including the Acknowledgment and the Supplemental Acknowledgment, which Certificate of Enforcement was issued against identified property of XS and Chen, including the land owned by XS, and all the personal property of Chen.

26. Pursuant to and on the basis of the Certificate of Enforcement issued by the Beijing Notary Public, JI then applied to the FJ Court in May 2015 for enforcement (“FJ Enforcement Proceedings”), and on 10 June 2015, the FJ Court issued a decision, determining that the property of XS and Chen be seized, frozen, auctioned and sold. However, that was set aside by the SPC on 28 October 2016, on Chen’s appeal. Following the FJ Court’s decision for enforcement in June 2015, Chen had applied to the FJ Court for “non-execution”, which was dismissed by the FJ Court in December 2015. On her appeal, the SPC ordered a retrial of the FJ Enforcement Proceedings, and in its decision dated October 2016, the SPC pointed out that the court should (inter alia) verify the matters referred to in the notarized documents and the subject liabilities of the guarantor.

27. It is not disputed that the FJ Enforcement Proceedings are still ongoing and have not been determined. According to Chen’s PRC expert, the status and validity of the Certificate of Enforcement awaits determination and verification by the FJ Court in the FJ Enforcement Proceedings (as ordered by the SPC).

28. On behalf of JH, Mr Ho SC argued that the reference to and any necessity for an application to the Mainland court is for an order for “execution”, similar to an order for execution by a writ of fi fa in our jurisdiction, but that any such requirement does not prevent a creditor from exercising its rights to “enforce” the debt due.

29. On reviewing the Certificate of Enforcement issued by the Beijing Notary Public, the notice and the decision issued by the FJ Court in the FJ Enforcement Proceedings, I fail to see any clear distinction between “enforcement” and “execution”, which is sought to be made by Mr Ho. There is no expert evidence before me in that regard. On a plain reading of the relevant provisions of the Supplemental Acknowledgment, which refer to enforcement by the judicial authorities (司法機關強制執行) and application to the court for enforcement (直接向法院申請強制執行), the parties had contemplated enforcement of the acknowledged debt by an application to the relevant court. The Certificate of Enforcement issued by the Beijing Notary Public in May 2015 referred to assets of XS and the assets of Chen, to be enforced (可供執行). The notice and the decision issued by the FJ Court similarly refer to enforcement (強制執行), with express reference to such enforcement by way of auction or sale.

30. In the light of all the evidence filed, and despite the suggestions made by JH that Chen’s PRC law expert is not truly independent, there is in my view a serious question to be tried: as to the nature of JI’s rights to the Subject Shares under the Supplemental Agreement, and in particular, as to the manner of its exercise of any of its security rights to the Subject Shares by way of enforcement, whether such enforcement/execution otherwise than under an order of the Mainland Court is permissible, and in particular, whether the Taobao Sale was valid under PRC law and capable of conferring on JH any interest in and claims to the Subject Shares - when such sale was made otherwise than under or pursuant to an order of the Mainland court for enforcement.

31. On the evidence, express notice of the disputes raised as to JI’s rights to the security in the debt offered to be sold, Chen’s opposition to the FJ Enforcement proceedings and the fact that such dispute had remained unresolved by the court, had been given in the notice of and documents relating to the Taobao Sale. I do not accept that JH had acquired the Subject Shares without notice of Chen’s claims and disputes. Further, on the evidence filed by Chen, as to the possible relationship between JH and Silver Grant/its majority shareholder (Silver Grant at all material times being a nominee only of JI), there is a serious question to be tried as to whether JH can indeed be said to be a bona fide purchaser which is truly unrelated to JI/Silver Grant.

32. As for Chen’s claims against South Asia, it seeks in the Indorsement and Statement of Claim an order for rectification of the register of members. In the Summons, Chen seeks interim orders that South Asia should adjourn the extraordinary general meetings called for 31 August 2018 and 14 September 2018, as well as interim injunctions to restrain South Asia from convening any further general meetings to increase its share capital, change the composition of its board of directors, or to effect the change of the legal representative and directors of XS (South Asia’s subsidiary).

33. Counsel for South Asia argued that none of the directors of South Asia have been made defendants, and there was no basis to seek an injunction against the company itself, South Asia.

34. Being satisfied on 31 August 2018 that there was a serious question to be tried as to whether JI’s interests in the Subject Shares are in the nature of security interests only, and that Chen would suffer irreparable damage either if her shareholding was to be diluted, or if she was to lose her representation on the board of South Asia, the Interim Injunctions made by the Court were directed at the officers and agents of South Asia. These Interim Injunctions restrained South Asia by its officers and agents, until the determination of the Summons or further order of the Court, from convening or holding any extraordinary general meeting for the purposes only of resolving on the issue and allotment of new shares or diluting the holding of the Subject Shares currently held in the name of JH’s nominees (the 4^th to 6^th Defendants), from removing Chen from the board of directors, and from effecting any change of XS’ legal representative and directors (which included Chen). That was necessary to preserve the status quo ante as well as to preserve the subject matter of these proceedings. There was no order prohibiting South Asia from raising capital, or seeking such funds or making such payments as it may require, for the purposes now said to be necessary to continue the operations or for the survival of South Asia/XS.

35. Chen has valid causes of action against JI, JH and their respective nominees. The cause of action against South Asia is for rectification of its share register. South Asia may have been joined as a defendant in these proceedings simply to ensure that it is bound by any order which the Court may make as to the shareholding, and the validity of the transfers of shares made from one of the other defendants to another of them, but it cannot be said that the Court has no power to make an interim injunction against the company in order to give full effect to the orders which the Court makes against the other parties to the action, and for the interim preservation of the subject matter of the proceedings.

Whether there was material non-disclosure in the application for the Interim Injunctions

36. On the return day of the Summons, when Chen applied for the Interim Injunctions, she dealt with the Special Notice which had been issued by and on behalf of South Asia for a general meeting to be held to remove Chen and Husband as directors of South Asia. In her affidavit in support of the application for the injunctions, Chen disclosed the fact that in November 2017, she had been found by the People’s Court of Xiamen to be guilty of unlawfully soliciting public funds. She explained that this was a result of JI’s failure to meet its obligations under the loan arrangements with XS. She claimed that the Xiamen Court had expressly acknowledged that her unlawful fundraising was conducted for the development of the Project, and had accepted her defence that the private fund raising was a last resort because of JI’s refusal to provide further funding for the Project. She pointed out that as a large part of the funds raised by her had already been repaid, the Xiamen Court had imposed a lesser punishment on her. On the evidence, she had been sentenced to 3 years’ imprisonment (suspended for 3 years), fined RMB 250,000, and ordered to pay compensation of RMB 82,072,000.

37. On the evidence filed by South Asia in September 2018, it is disputed that Chen’s acceptance of deposits from the public only took place after JI had failed to provide funds to XS.

38. The fact of Chen’s conviction was disclosed to the Court when the Interim Injunctions were granted, to preserve her beneficial interest in the Subject Shares and her status as director and legal representative of South Asia and XS. What Chen failed to disclose, and as now emphasized by South Asia, is that she was subject to restrictions under PRC law, and cannot as a result of her conviction by the Xiamen Court act as a director or legal representative of XS. South Asia also referred to instances of Chen’s breach of duties to XS, but these are disputed facts.

39. According to the evidence of South Asia, XS had received written notification from the relevant regulatory authority of Xiamen (“Authority”) on 1 March 2018 (“Notification”), that both Chen and Husband were prohibited under the PRC Company Law from acting as a director, supervisor or senior manager of any company as a result of their conviction for soliciting public deposits. XS was required, under the Notification, to undertake the necessary procedures within 30 days to effect the changes in the registered particulars of XS. Chen had in fact signed on 8 March 2018 to acknowledge receipt of the Notification.

40. The legal principles are clear as to an applicant’s duty to make full and frank disclosure in its application to the Court for discretionary relief, in circumstances when the Court only has the evidence presented by one side, and the other parties who may be notified and are present at the hearing of the application have not had the fair and reasonable opportunity to present their evidence and arguments in opposition (Muginoho v Vimiu unreported, HCMP 107/2012, 24 February 2012, Relevant Employees v Zhang Caikui[2018] HKCFI 194).

41. The Summons was an inter-partes summons, giving the requisite 2 clear days’ notice of the hearing of the application for relief (as required under Order 32 rule 3 RHC). The intention of the rule is to ensure that the respondents to an application have proper notice of both the hearing and the material upon which the applicant intends to rely (para 32/3/1 HK Civil Procedure, PCCW-HKT Telephone Ltd v Telecommunications Authority, unreported, CACV 274/2003, 7 September 2004). By the time of the hearing on 31 August 2018, JI, JH, the 4^th Defendant, South Asia and the 8^th Defendant had been served with the Summons and attended by their lawyers (save and except the 8^th Defendant whose attendance was excused), but none of the Defendants had been able within the limited time to prepare any evidence in opposition.

42. Although the Summons was inter-partes, Chen was not absolved from her duty to make frank disclosure of all facts known to her and which are material to the Court’s determination of whether to exercise its discretion to grant the interim relief which she sought, on the evidence she presented unilaterally. Chen’s withholding of the fact that she was, by reason of her conviction by the Xiamen Court, disqualified and not able under PRC law to remain as a director and legal representative of XS was deliberate, since she had knowledge of the Notification which required XS to effect the change of directors and supervisor by reason of Chen’s and Husband’s conviction. Even by the time of the substantive hearing of the Summons in October 2018, Chen has not offered any explanation as to why the fact of the Notification and her inability to continue to act as director and legal representative of XS was not disclosed in her affidavit filed in support of the Summons. By presenting a partial picture of the criminal charge and proceedings before the Xiamen Court, disclosing only the facts which were helpful to and in mitigation of her case, but withholding other material facts relating to her disqualification to act and remain as a director and legal representative of XS, she had knowingly misled the Court into granting the Interim Injunctions in her favor, on the incomplete information which she presented. The matter of her fitness and qualification to act is clearly relevant and would have weighed in the scales in the exercise of the Court’s discretion whether or not to grant the Interim Injunctions (Citibank NA v Express Ship Management Services Limited [1987] HKLR 1184).

43. I agree that in considering the balance of convenience as to whether the injunctive and other relief sought in the Summons should be granted, it is relevant to bear in mind the public policy considerations (Love & Lugg v Herrity (1991) 23 HLR 217 at 222) of permitting Chen to remain as director, senior manager or supervisor of XS, contrary to the provisions of and requirements under PRC law as to her qualification and fitness to act as such. XS has been required by the Authority to remove Chen as a director, on the basis that she is no longer fit to act. The directors of South Asia collectively exercise direct control over XS, and have the duty to act in the best interests of XS. They cannot ignore the Notification and fail to take the appropriate steps and also ensure that XS takes the necessary steps to comply with the Notification, including the removal of Chen as a director of South Asia, and as a director, senior manager and legal representative of XS. According to the evidence of South Asia, if XS fails to comply with the Notification to remove Chen and Husband as directors, legal representative or senior manager of XS, the Authority may take enforcement action against XS, including a fine and the revocation of XS’s business registration.

44. Having regard to all the foregoing matters, I discharge the Interim Injunctions for Chen’s material non-disclosure of material facts which had misled the Court in making the orders on 31 August 2018.

The relief sought in the Summons

45. Despite the discharge of the Interim Injunctions on the ground of material non-disclosure, the Court should still consider whether it should, on review of all the evidence made available at the substantive hearing of the Summons, exercise its discretion to grant the Disposal/Diminishing Injunction and the Voting/Exercise of Rights Injunction sought against JI, its nominee Silver Grant, JH and its nominees (the 4^th to 6^th Defendants). In this regard, I accept that there are serious questions to be tried, as outlined in the earlier parts of this Decision. The key issue to be tried relates to whether Chen has retained proprietary interests in the Subject Shares, whether JI is entitled to enforce its rights and remedies in respect of the Subject Shares without the appropriate order from the Mainland Court, and whether JH is indeed a bona fide purchaser of the Subject Shares without notice.

46. JI and JH emphasize the fact that Chen does not dispute that a debt (in the region of RMB 1.7 billion, on her case) is due and payable by XS to JI, as guaranteed by her, and that only the amount of indebtedness is disputed, to be resolved in the FJ Enforcement Proceedings. On her part, Chen claims that the debt and the underlying security including the Subject Shares had been sold by JI at over RMB 2.38 billion, such that her indebtedness has been discharged with a surplus to be accounted to her - which has never been acknowledged by JI.

47. Chen objects to the proposal for the shareholders of South Asia to vote on the allotment of new shares, claiming that once her 51% shareholding in South Asia is diluted, it would be extremely difficult to reverse the position, and damages would not adequately compensate her for such loss. South Asia holds a unique asset, by virtue of its shareholding in XS, which in turn holds the development rights and interests in the Project. It would be difficult to have a reliable valuation of the lost investment which is still in the course of development.

48. On the balance of convenience, JH claims by reference to various matters that there is urgent need for South Asia to raise capital to enable XS to repay its debts and to complete the Project, that Chen’s speculation of dilution is groundless, and it undertakes (together with the 4^th to 6^th Defendants) to take up any offer by South Asia to subscribe for new shares to be allotted, to avoid the possibility of the 51% shareholding falling into the hands of unrelated parties. In the event that the Court finds that Chen is entitled to the Subject Shares, JH and its nominees undertake to return to Chen the Subject Shares, and any new shares allotted under the capital increase, provided that Chen would pay back to them the money for the subscription. In the meantime, both Chen and JH would benefit if the value of the Subject Shares is preserved.

49. In view of the evidence of Chen’s questionable fitness and qualification, as a result of her criminal conviction, to be a director of XS, I decline to grant any injunction to restrain the Defendants from exercising their power or rights to remove Chen from the board of directors of South Asia, or to effect the change of legal representative and directors of XS, which is sought in the Summons as part of the Voting/Exercise of Rights Injunction.

50. In view of the undertaking offered by JH and its nominees (the 4^th to 6^th Defendants) as recorded in paragraph 48 above, which is accepted by the Court, the balance of convenience is against the grant of an injunction to restrain or restrict the Defendants’ exercise of their voting and other power or rights to increase the share capital of South Asia. However, in view of the serious questions to be tried as to the validity of the transfer of the Subject Shares from JI to JH (as I have found), and to preserve the status quo and the subject matter of these proceedings, the balance of convenience is in favor of the grant of an order in terms of the Disposal/Diminishing Injunction against JH and the 4^th to 6^th Defendants.

51. In considering the balance of convenience, I bear in mind that when JH accepted the assignment of the debt from JI, after its bid for and purchase of the debt and underlying security in the Taobao Sale, it had been given notice and had knowledge of the dispute in the Non-Execution Application, and of the “serious defects” in the debt as described in the Debt Assignment Agreement between JI and JH, which defects included the opposition to enforcement made by Chen as guarantor, and the risk of the security being invalid, or refused enforcement by the court. JH had accepted the risk of these claims made by Chen.

52. Leading Counsel for Chen also pointed out that JH, as purchaser of the underlying security for the debt, is still entitled to look to other assets of XS for enforcement of its rights acquired in the debt. It is also entitled to pursue the necessary enforcement proceedings in the Mainland courts.

53. Since the Taobao Sale, JI had transferred the debt due from XS and the Subject Shares to JH/its nominees. At the meeting of the board of directors of South Asia held on 26 June 2018, resolutions were passed to approve the transfer of the Subject Shares, the resignation of all the directors who had been appointed by JI to the board of South Asia, and the appointment of 5 new directors nominated by JH. By the time of the Summons, JI had relinquished its rights to the Subject Shares, which have been held in the names of the 4^th to 6^th Defendants. As Counsel for JI pointed out, as from 26 June 2018, JI no longer controlled the conduct and affairs of South Asia and there is no evidence from Chen, and no basis to suggest, that JI has any further power to convene or hold any general meeting of South Asia, or to dispose of, deal with, transfer, charge, encumber or diminish the value of the Subject Shares. I agree, that there is no basis to grant either the Disposal/Diminishing Injunction or the Voting/Exercise of Rights Injunction against JI.

Disposition of the injunctions sought

54. For the above reasons, I grant on the Summons the Disposal/Diminishing Injunction against JH and the 4^th to 6^th Defendants. For the avoidance of doubt, the injunction granted does not restrain JH, the 4^th, 5^th and 6^th Defendants from voting, requisitioning meetings and/or proposing resolutions to increase the share capital of South Asia or to raise funds for South Asia. There will be the usual order of costs in the cause.

55. Since the Interim Injunctions are discharged for material non-disclosure, the costs of and occasioned by the initial grant and their discharge (pursuant to JH’s summons dated 13 September 2018) are to be borne by Chen and paid to the Defendants, with certificate for two Counsel.

Fortification

56. On the question of the fortification sought by JH and the 4^th to 6^th Defendants for any injunction that is granted against them, it is clear that a cross-undertaking in damages from the applicant is a necessary part of the mechanism for granting interlocutory injunctions (see paragraph 32 of the judgment in Wah Nam Holdings Company Limited v Excel Noble Development Limited CACV 241/1999, 23 December 1999). The judgment of North J in AG v Albany Hotel Co [1896] 2 Ch 696 was cited in the judgment in Wah Nam:

“In considering whether an interlocutory injunction should be granted or not, at a time when the case is only in an early stage of development, the Court aims at keeping matters in status quo, as far as possible, without prejudicing the rights of the parties; and it is often induced to make in favor of the plaintiff, in the belief that the defendant will be sufficiently protected against damage by the undertaking, an order which the Court would not have made if the defendant had been left without such a protection and there was a reasonable probability that he might sustain serious damage if the injunction should be ultimately discharged.”

57. In the case of Wah Nam Holdings Company Limited v Excel Noble Development Limited itself, Ribeiro J (as His Lordship then was) stated at paragraph 40 of the judgment:

“For the protection given to the Defendant by the cross- undertaking to be real and not illusory, the Plaintiff must obviously be able to honour it if required. In American Cyanamid (at p 408), Lord Diplock saw the need for a realistic ability to meet any liability in damages as a symmetrical requirement applying both to the Plaintiff and the Defendant when considering the adequacy of damages and the cross- undertaking in damages, as follows:-
‘If damages in the measure recoverable at common law would be an adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage. If, on the other hand, damages would not provide an adequate remedy for the plaintiff in the event of his succeeding at the trial, the court should then consider whether, on the contrary hypothesis that the defendant were to succeed at the trial in establishing his right to do that which was sought to be enjoined, he would be adequately compensated under the plaintiff’s undertaking as to damages for the loss he would have sustained by being prevented from doing so between the time of the application and the time of the trial. If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason upon this ground to refuse an interlocutory injunction.’ (Italics supplied)”

58. In the more recent authorities, it has been emphasized that like the grant or refusal of a freezing order itself, the question of the extent of the cross-undertaking is a matter of discretion for the judge who grants the injunction. In JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 139, the English Court of Appeal highlighted that so far as the cross-undertaking in damages is concerned, the “default position” is that an applicant for an interim injunction is required to give an unlimited cross-undertaking in damages, and it is not for the defendant to show that the freezing order is likely to cause him a loss before a cross-undertaking of an unlimited amount is required (see paragraph 78 of the judgment). On the question then of whether fortification is required of the cross-undertaking, Lewison LJ referred (at paragraph 89 of his judgment) to Tarasov v Nassif (unreported) 29 June 1994 where Dillon LJ stated:

“It is quite correct that normally fortification of the cross- undertaking is only required on a foreign plaintiff who has no assets here. That is quite correct in the sense that the majority of applications for fortification of a cross-undertaking are likely to be applications where the plaintiff is a foreign plaintiff with no assets here… The essential question is whether there are assets readily available to satisfy any liability under the cross- undertaking… The key question is whether there are assets within the jurisdiction…”

Lewison LJ emphasized, however, that that is not the end of the inquiry because in Tarasov v Nassif the court had proceeded to consider whether the defendants had shown any risk of loss and since they had not, there was no need for the fortification.

59. The requirements for an order for fortification, as set out in Harley Street Capital Ltd v Tchigirinski [2005] EWHC 2471 (Ch), are then referred to in Lewison LJ’s judgment:

“first, that the court has made an intelligent estimate of the likely amount of loss which might result to a defendant by reason of the injunction; secondly, that the applicant for fortification has shown a sufficient level of risk of loss to require fortification; and, thirdly, that the contemplated loss would be caused by the grant of the injunction.”

60. In the present case, the Defendants claim in their evidence filed for the substantive hearing of the Summons that Chen, who is resident outside Hong Kong, is heavily indebted not only to JI, but to other creditors under loans and judgments said to be for over RMB 2.4 billion. She has also been declared a “person lacking credibility” by reason of her failure to satisfy more than 15 monetary judgments against her on the Mainland. It has not been shown that Chen has any assets in Hong Kong.

61. Much of the evidence which has been adduced of the likely loss and damage that may be sustained by South Asia and JH, relate to their alleged possible damage if South Asia and JH should be restrained from raising capital, or making payments required for XS and for the continuation of development of the Project, or if the change of directors and senior management of South Asia/XS should be prohibited. No such injunction has now been granted.

62. On its own evidence, JH is a special purpose vehicle for specific projects and to carry out investments. However, the only investment which has been identified is its acquisition of the debt and security from JI, and there is no other evidence of JH’s activities, the nature of the deals or investments it has made and is likely to make, any indication of its investment patterns or asset portfolio, to show the likely damage that it may incur as a result of the injunction against its further dealings in the Subject Shares. The assets of XS have apparently been frozen by the Mainland court, and any loss caused by JH’s inability to realize those assets would not be the result of the Disposal/Disposition Injunction.

63. On the entirety of all the evidence, I agree that Chen’s offer of HK$2.5 million by way of fortification of her cross-undertaking as to damages would be sufficient. That amount has to be paid into Court within 21 days from the date of the handing down of this Decision. In the alternative to a payment into Court, Chen shall within the same period of 21 days cause a written guarantee in favor of JH, the 4^th to 6^th Defendants to be issued from a bank having a place of business in Hong Kong, such guarantee being in respect of any order the Court may make pursuant to the cross-undertaking as to damages, and Chen shall forthwith upon such issue cause a copy of the guarantee to be served on JH, and the 4^th to 6^th Defendants.

64. The costs of the application for fortification should be in the cause.

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

Mr Anson Wong, SC, Ms Rachel Lam, Ms Cherry Xu & Ms Tiffany Chan, instructed by Wilkinson & Grist, for the plaintiff

Mr Alex Tang, instructed by Peter Yuen & Associates (name changed to Fangda Partners since 3 December 2018), for the 1^st defendant

The 2^nd defendant was not represented and did not appear

Mr Ambrose Ho, SC and Mr Gary Lam, instructed by Jones Day, for the 3^rd to 6^th defendants

Mr William Wong, SC, Mr Allen Lam and Ms Sharon Yuen, instructed by Ambrose Lam & Co, for the 7^th defendant

Attendance of the 8^th defendant was excused

CHEN LINGXIA v. 中國金谷國際信託有限責任公司 AND OTHERS

Related cases with same parties

Files (3)