SKY MOTION HOLDINGS LTD v. CHINA CREATE CAPITAL LTD

HCA 1151/2019

[2024] HKCFI 1123

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1151 OF 2019

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J U D G M E N T

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Introduction

1.  The Defendant has, in breach of a written agreement, failed to transfer certain shares and notes to the Plaintiff despite the Plaintiff’s full payment of the purchase price.  The Plaintiff has obtained judgment on liability for damages to be assessed.  This is the consequent assessment of damages. 

Background

2.  The Plaintiff and the Defendant are both companies incorporated in the BVI.  Jiayuan International Group Limited (“Jiayuan International”)  was at the material time a company listed on the Hong Kong Stock Exchange (stock code: 2768). 

3.  By a written agreement dated 25 October 2018 (“Agreement”), the Plaintiff agreed to transfer HK$343,912,270 (“Sum”)  to the Defendant and/or parties designated by the Defendant, and the Defendant agreed to transfer to the Plaintiff:-

a.  US$35,000,000 12.0% Senior Secured Notes due 2020 issued by Jiayuan International on or around 23 October 2018 (“Subject Notes”);

b.  5,450,000 shares in Jiayuan International; and

c.  85,760,000 shares in Jiayuan International (“Subject Shares”).

4.  On or before 25 October 2018, the Plaintiff made various transfers to the Defendant and its designated parties in the total sum of HK$455,662,270, comprising the Sum and a balance of HK$111,750,000 for the repayment of loans due from the Plaintiff to the Defendant under a separate transaction. 

5.  On or around 31 October 2018, the Defendant transferred 3,450,000 shares in Jiayuan International to the Plaintiff.  On or around 8 November 2018, the Defendant transferred another 2,000,000 shares to the Plaintiff.  However, despite the Plaintiff’s demands, the Defendant has failed to transfer the remaining 85,760,000 shares (i.e. the Subject Shares)  and the Subject Notes to the Plaintiff. 

Procedural History

6.  As will become clear, the procedural history of this case has some bearings on the assessment of damages, in particular the date of assessment, as well as two ancillary applications made by the Plaintiff for release of monies paid into court.  It is thus necessary to briefly set out the history of the proceedings. 

7.  Prior to commencing this action, the Plaintiff obtained on an ex parte basis a Mareva and proprietary injunction against the Defendant on 24 June 2019 (“Injunction Order”).  The Mareva injunction restrained the Defendant from disposing of assets up to the value of HK$343,912,270 (ie the value of the Sum)  whereas the proprietary injunction restrained the Defendant from dealing with the Subject Shares and Subject Notes. 

8.  The Plaintiff subsequently issued the Writ of Summons on 26 June 2019. In the prayer for reliefs in the Statement of Claim dated 13 September 2019, the Plaintiff sought specific performance of the Agreement and/or damages and/or equitable compensation. 

9.  The Injunction Order was continued on 5 July 2019, when the Plaintiff was ordered to provide fortification in respect of its cross-undertaking as to damages in the sum of HK$10,000,000 by way of payment of cash into court.  The Plaintiff made the payment into court on 19 July 2019.  The Injunction Order was subsequently continued again on 25 September 2019 until trial or further order. 

10.  Separately, on 2 December 2019, by consent, the Plaintiff was ordered to pay into court a sum of HK$1,800,000 as security for costs.  The Plaintiff made the payment into court on 19 December 2019. 

11.  On 7 May 2020, the Plaintiff filed a summons (dated 7 April 2020)  seeking summary judgment on liability for damages to be assessed, and it filed an Amended Statement of Claim with no change to the prayer for reliefs.  After the hearing before the Court of First Instance on 5 January 2021, the Defendant was granted unconditional leave to defend.  On the Plaintiff’s appeal, the Court of Appeal on 16 June 2021 set aside the order below and granted the Defendant conditional leave to defend instead – the condition being the Defendant’s payment of HK$295,014,400 into court within 28 days, failing which the Plaintiff would be at liberty to enter judgment on liability with damages to be assessed. 

12.  Eventually the Defendant did not make the payment into court.  On 23 March 2022 the Plaintiff entered judgment against the Defendant on liability with damages to be assessed. 

The Hearing

13.  For the purpose of this hearing, the Defendant has filed two witness statements of Ms Wang Tao, the sole director and shareholder of the Defendant. Ms Wang was not called to testify in court, and it is common ground that as a result her two statements are not admissible evidence. 

14.  The Plaintiff has filed two witness statements of Mr Yang Chen, the president of the Plaintiff.  Mr Chen’s evidence relates mostly to the undisputed background and procedural history of the case, as well as the market price of the shares of Jiayuan International and of the notes issued by Jiayuan International at various points of time. 

15.  During cross examination, Mr Chen accepted that he joined the Plaintiff as its president in June 2019 and so he did not have personal knowledge of the matters pertaining to the negotiation and performance of the Agreement that took place in 2018.  He also accepted that since 21 December 2018, Ms Xie Xinhong had become the sole shareholder and director of the Plaintiff, so it was Ms Xie who would make the final decision relating to the Plaintiff’s affairs. 

16.  Nothing really turns on Mr Chen’s evidence.  At the hearing, the main bone of contention between the parties was the legal argument as to the date of assessment of damages. 

Date of Assessment

17.  Mr Patrick Chong, counsel for the Plaintiff who appeared with Mr Michael Ng, submitted that the date of assessment should be fixed on 7 April 2020, ie the date when the Plaintiff applied for summary judgment where the relief for specific performance was aborted. 

18.  In this connection, Mr Chong relied on the English House of Lords decision in Johnson v Agnew [1980] AC 367, where it was held that the date on which the remedy of specific performance became aborted should be fixed as the date for assessing damages.  Lord Wilberforce said the following at 401D:-

“In the present case if it is accepted, as I would accept, that the vendors acted reasonably in pursuing the remedy of specific performance, the date on which that remedy became aborted (not by the vendor’s fault)  should logically be fixed as the date on which damages should be assessed. Choice of this date would be in accordance both with common law principle, as indicated in the authorities I have mentioned, and with the wording of the Act ‘in substitution for … specific performance.’”

19.  In Lau Suk Ching Peggy v Ma Hing Lam also known as Wingo Ma (2010)  13 HKCFAR 226, the Court of Final Appeal has considered Johnson v Agnew in relation to the issue of assessment of damages.  Lord Millett NPJ said at §61 that:-

“61. … The House of Lords held (i)  that it was a case for common law damages, not damages under Lord Cairns’ Act; (ii)  that the measure of damages in the two cases was the same; (iii)  that the breach of contract was the purchaser’s failure to complete on the date for completion fixed by the contract, notwithstanding that this was not a repudiatory breach since time was not of the essence of the date; and (iv)  that although the general rule was that damages for breach of contract are assessed as at the date of breach, where a party brings an action for specific performance but elects (or is forced to elect)  for damages they should be assessed at the date when the contract was lost. Damages therefore fell to be assessed at the date when the vendors’ mortgagees sold the property.”

20.  Mr Chong submitted that when the Plaintiff took out the summons for summary judgment on 7 April 2020, it only sought judgment on liability with damages to be assessed, thereby having aborted the claim for specific performance. 

21.  The Plaintiff’s decision to abandon the relief for specific performance was prompted by the Defendant’s own disclosure – when the Defendant opposed the continuation of the Injunction Order, it filed an affirmation of Ms Wang dated 16 August 2019 where she deposed that “the Defendant does not currently hold any of the Notes and is only holding a small amount of shares of Jiayuan International”.   Mr Chong thus submitted that it was not unreasonable for the Plaintiff to initially pursue the remedy of specific performance but ultimately abandon it when it applied for summary judgment. 

22.  Mr Howard Chan, Solicitor Advocate for the Defendant, submitted that the date of assessment should be fixed on 23 March 2022, ie the date on which the Plaintiff entered judgment against the Defendant on liability with damages to be assessed, after the Defendant failed to fulfill the condition imposed by the Court of Appeal for leave to defend. 

23.  Mr Chan’s arguments, in sum, are that the date for assessment of damages should be fixed on the date when specific performance became impossible.  In the present case, before 23 March 2022, there was no certainty that specific performance would not be awarded by the court:-

a.  On 7 May 2020, when the Plaintiff filed the Amended Statement of Claim, specific performance was still claimed in the prayer for reliefs.

b.  At the hearing of the summary judgment application in the Court of First Instance, the court granted the Defendant unconditional leave to defend, and did not enter judgment with damages to be assessed.

c.  Even in the judgment dated 16 June 2021, the Court of Appeal only ordered damages to be assessed if the Defendant could not satisfy the condition imposed.

d.  It was only on 23 March 2022 when the Court of Appeal invoked its equitable jurisdiction in awarding the Plaintiff damages to be assessed in lieu of specific performance.

e.  Before 23 March 2022, assuming the Defendant had fulfilled the condition imposed by the Court of Appeal and the case had gone on to trial, it would have been possible for the court to order specific performance after trial in accordance with the relief claimed in the Amended Statement of Claim.

f.  Even though at the relevant time the Defendant did not have the requisite number of shares and notes to perform its obligations under the Agreement, it could have acquired the same from the market and transferred them to the Plaintiff. 

24.  With respect, I am unable to agree with Mr Chan.  The whole basis of Mr Chan’s arguments is that the Plaintiff was at all material time still pursuing the remedy of specific performance, and only obtained damages in lieu when the Court of Appeal entered judgment in its favour, rendering specific performance impossible.  He therefore relied on authorities such as Wroth v Tyler [1974] Ch 30 at 60E-F and Radford v De Froberville [1977] WLR 1262 at 1286E-F to contend that the appropriate date of assessment should be the date of judgment. 

25.  That, however, is not what actually happened in this case.  The Plaintiff did not press ahead with its claim for specific performance and did not seek damages in lieu only when performance of the Agreement became impossible or when specific performance was not granted by the court because of some discretionary bars.  Rather, when the Plaintiff took out the summons for summary judgment, it clearly opted only for the relief of damages.

26.  Properly analyzed, the Plaintiff was seeking common law damages, having elected to abandon the claim for specific performance.  As Mr Chong has rightly pointed out, a party who has chosen to put an end to a contract by accepting the other party’s repudiation cannot afterwards seek specific performance.  Thus, the Defendant’s breach of the Agreement must be taken to have been accepted and the remedy of specific performance must be taken to have been aborted when the Plaintiff sought damages in its summary judgment application, notwithstanding that the relief of specific performance had somehow not been crossed out in the Amended Statement of Claim.  

27.  In any event, even assuming the Plaintiff obtained damages in lieu of specific performance, there is no inflexible rule that the date of assessment has to be the date of judgment.  As the learned authors of Hong Kong Conveyancing Law and Practice (rev. 2024)  observed at [1555]-[1600] (a passage cited with approval in Kwai Tak Ming v KS Capital One Limited (unrep., HCA 679/2012, 21 October 2014)  at §10):-

“Previously, the date of assessment for common law damages was the date of breach of the contract. In equity the date of assessment, being a date which was just and equitable, was either the date the specific performance became impossible, or the date of judgment or some other date fixed by the court.

There now seems to be a convergence of the two dates, so that common law damages are awarded as at a date the court thinks just in the circumstances.”

28.  The Plaintiff has completed its side of the contract by paying the Sum in full to the Defendant.  It was reasonable for the Plaintiff to seek specific performance when it first commenced proceedings (which was also accepted by Mr Chan), as there was nothing to suggest that the Defendant could not perform its obligations under the Agreement.  It was also reasonable for the Plaintiff to subsequently seek damages only, after being alerted to the fact that the Defendant did not actually possess the requisite number of shares and notes for it to perform the Agreement. 

29.  The date of assessment should therefore be fixed on the date when the Plaintiff aborted the claim for specific performance.  In the normal course of event, I would have agreed with Mr Chan that the date of the summons for summary judgment, ie 7 April 2020, should not be adopted for the purpose of assessment.  Rather, it is the date when the Plaintiff filed the summons, ie 7 May 2020, thereby making its stance known, that matters.  However, I was informed at the hearing that the Plaintiff actually did serve the summons on the Defendant on 7 April 2020, and the summons could not be filed until a month later only because of the closure of the High Court Registry due to the coronavirus pandemic at that time.  In the circumstances, I would fix the date of assessment at 7 April 2020. 

Value of the Subject Shares and Subject Notes

30.  Mr Chong for the Plaintiff submitted that the starting point for assessment of damages for breach of contract is that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed: Johnson v Agnew at 400H.  Where the breach of contract consists in a failure to transfer property, the basic loss is the market value of the property, minus the contract price if not already paid: McGregor on Damages (21^st Ed 2021)  at §4-004. 

31.  The Defendant did not dispute that the market price should be taken for the valuation of the Subject Shares.  However, for the Subject Notes, Mr Chan submitted that if the assessment date was to be fixed at 23 March 2022, the Subject Notes would have already matured so there would be no secondary market value for them; their face value should be adopted.  Since I have ruled that the assessment date should be 7 April 2020, this concern does not arise. 

32.  I would therefore adopt the market value of the Jiayuan International shares and its notes in valuing the Subject Shares and Subject Notes.  There is no dispute that the share price of Jiayuan International as of 7 April 2020 was HK$3.19 per share.  As to the Subject Notes, the secondary market price of the notes as of 7 April 2020 was US$0.95917 per US$1. 

Quantum and Interest

33.  Applying the market price of the shares and notes as at 7 April 2020 to the actual number of Subject Shares and Subject Notes, the damages payable in respect of the Subject Shares and the Subject Notes are HK$273,574,400 (HK$3.19 x 85,760,000)  and HK$261,181,991 (US$35,000,000 x 0.95917 x 7.78)  respectively, with the total sum being HK$534,756,391.

34.  For the sake of completeness, I would set out below what the quantum of damages would have been if I had chosen other assessment dates (for the record, the Plaintiff fairly did not propose adopting the date of breach or the filing date of the summons, which would have resulted in a higher sum of damages):-

a.  Date of breach: The Subject Notes and Subject Shares were due to be transferred to the Plaintiff on 2 and 23 November 2018 respectively.  The market prices of the notes and the shares on those dates were US$0.99976 per US$1 and HK$14.12.  The damages would have been HK$272,234,648 (US$35,000,000 x 0.99976 x 7.78)  and HK$1,210,931,200 (HK$14.12 x 85,760,000), totaling HK$1,483,165,848.

b.  Filing date of the summons for summary judgment (ie 7 May 2020): The damages payable in respect of the Subject Shares and the Subject Notes would have been HK$273,574,400 (HK$3.19 x 85,760,000)  and HK$262,821,237 (US$35,000,000 x 0.96519 x 7.78)  respectively, with the total sum being HK$536,395,637.

c.  Date of the interlocutory judgment (ie 23 March 2022): The market price of the shares on that date was HK1.78, and the damages in respect of the Subject Shares would have been HK$152,652,800 (HK$1,78 x 85,760,000).  The notes would have matured, and in such a scenario it is common ground that the value of the Subject Shares should be the face value of the notes plus interests.  The face value was US$35,000,000, and the interests payable over the two-year period would be US$8,400,000 (US$35,000,000 x 12% x 2), with the total being HK$337,652,000 ((US$35,000,000 + US$8,400,000)  x 7.78).  The total damages would have been HK$490,304,800.  

35.  The Plaintiff also sought pre-judgment interest at 1% over the HSBC prime rate, and did not pursue the pleaded claim for pre-judgment interest at the contractual rate of 0.5% per day. 

36.  The Defendant opposed the award of pre-judgment interest, praying reliance on Horace Yao Yee Cheong v China Technology Global Corporation (formerly known as DF China Technology Inc and Dransfield China Paper Corporation) (unrep, HCA 1284/2004, 2 April 2007).  In that case, the plaintiff claimed remuneration payable in the form of shares and contended that he was entitled to damages in lieu of specific performance.  Reyes J awarded damages in lieu to the plaintiff but did not award pre-judgment interest, one reason given at §47 being that if the plaintiff had been paid the shares by the defendant and disposed of them on the same day, the share price might have fluctuated downwards.  Hence, “[denying] pre-judgment interest would cater for and counter-balance against the possibility of a greater downward fluctuation.”  

37.  Each case would depend on its own facts, and I do not consider that the aforesaid observations apply to the present case.  The Plaintiff here is claiming damages under common law.  Thus, in assessing damages, this court is to put the Plaintiff in the same position as of 7 April 2020 in monetary terms as if the Defendant had performed the Agreement.  It would seem irrelevant to consider the possible impact on the market price of the shares and notes in the hypothetical situation where the Plaintiff was given the Subject Shares and Subject Notes to be disposed of on 7 April 2020.  

38.  I would therefore award interest at 1% over the HSBC prime rate, which is the usual pre-judgment interest rate, from 7 April 2020 to the date of this judgment, and thereafter at judgment rate until payment.  

Release of Monies Paid into Court

39.  As noted above, the Plaintiff has paid into court a sum of HK$10,000,000 as fortification monies and a sum of HK$1,800,000 as security for costs.  The Plaintiff relied on Order 22A of the Rules of the High Court to apply for the release of those two sums back to the Plaintiff.  Rule 1(1)  of Order 22A provides that:-

“(1)  Subject to Order 22, rule 17, any money paid into court in an action (whether or not in accordance with Order 22)  may not be paid out except in pursuance of an order of the Court which may be made at any time before, at or after the trial or hearing of the action.”

40.  As held in MGA Entertainment Inc formerly known as ABC International Traders, Inc doing business as MGA Entertainment v Toy and Trends (Hong Kong)  Limited (unrep, HCA 2152/2002, 15 July 2014)  at §§16-17, the court has an unfettered discretion under Order 22A which should be exercised so as to achieve justice between the parties.  The discretion should be exercised on a case by case basis, depending on all the circumstances of the case before the court. 

41.  The Defendant did not object to the release of HK$1,800,000 to the Plaintiff.  At the hearing, I was satisfied that the Plaintiff’s application relating to this sum was governed by Order 22A and I ordered by consent that the sum together with the interest accrued thereon be paid out to the Plaintiff through its solicitors.  

42.  The Defendant objected to the release of the fortification monies of HK$10,000,000, arguing that the Injunction Order was still in force and, in the absence of material change of circumstances, the Plaintiff’s liability arising from its cross-undertaking as to damages was not affected.  I was not persuaded by this argument.  The fortification was ordered to afford protection to the Defendant in the event that the Injunction Order turned out to be wrongly granted and the Defendant suffered damages as a result.  Interlocutory judgment has now been entered against the Defendant, and even the Defendant’s proposed quantum of damages of HK$ HK$490,304,800 was larger than the restrained sum. It is unreal to suggest that the Defendant may somehow enforce the Plaintiff’s cross-undertaking as to damages. 

43.  That said, the fortification monies were paid into court pursuant to the order of Mimmie Chan J when she continued the Injunction Order.  Seeking a release of the fortification monies is tantamount to seeking a variation of the Injunction Order, and I did not think I had jurisdiction to deal with such an application.  Having noted my concern and seeing the necessity for the Plaintiff to apply to extend the Injunction Order before a judge in any event, Mr Chong for the Plaintiff did not press ahead with the application for the release of the fortification monies and indicated that the Plaintiff may make the application in an appropriate occasion. 

Disposition

44.  I make the following orders:-

a.  Final judgment for the Plaintiff be entered against the Defendant in the sum of HK$534,756,391; and

b.  Interest on the sum of HK$534,756,391 be awarded at the HSBC prime rate +1% per annum from 7 April 2020 to the date of this judgment and thereafter at judgment rate until payment. 

45.  During the hearing, I heard the parties’ submissions on costs.  Mr Chan for the Defendant sensibly conceded that the Plaintiff should be awarded costs if I am to accept the Plaintiff’s proposed valuation date, which I do.  I therefore make an order that costs of the action (including the assessment of damages)  be paid by the Defendant to the Plaintiff, to be taxed on a party to party basis if not agreed, with certificate for one counsel.

Mr Patrick Chong and Mr Michael Ng, instructed by Au & Vrijmoed, for the Plaintiff

Mr Howard Chan, Solicitor Advocate of Fangda Partners, for the Defendant

HCA 1151/2019

[2021] HKCFI 405

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1151 OF 2019

________________________

________________________

________________________

DECISION

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1.  On 5 January 2021, I heard an application made by P against D for summary judgment under Order 14. At the end of the hearing, I granted unconditional leave to defend to D and ordered that costs of the application be in the cause of the proceedings (“the O14 Decision”). Reasons for the O14 Decision were handed down on 7 January 2021. On 18 January 2021, P took out a summons for leave to appeal against the O14 Decision (“the Leave Summons”). The subject matter now before the court is the Leave Summons. This decision should be read together with the Reasons. For ease of reference, the abbreviations used in the Reasons are adopted herein.

2.  I have directed that the Leave Summons be determined on paper without an oral hearing.  The parties have provided me written submissions pursuant to the directions given by this court.  I have considered those written submissions.

The principles

3.  Leave to appeal would only be granted if the appeal has a reasonable prospect of success (which means that the prospect of success is reasonable and more than fanciful, without having to be probable), or there is some other reason in the interests of justice why the appeal should be heard^[1].

4.  Granting unconditional leave to defend is a decision within the discretion of the court and would rarely be interfered by the Court of Appeal.  This is especially so if the trial issue is on a question of fact.  As said by Kwan JA (as she then was) in Chu Yin Fan v. Inter Rivers[2]:

“9. The decision whether to dismiss an application for summary judgment, or to grant unconditional leave, or conditional leave is a matter within the discretion of the judge. In an appeal against the granting of unconditional leave, the Court of Appeal will examine whether the judge’s reasons disclose any errors of law or misapprehension of material fact, or whether it can be said that the order granting unconditional leave was so plainly wrong that an appeal court had to interfere with the judge’s exercise of discretion (Shek Sau Mui v Poon’s (Sun Kee) Co Ltd, HCMP 1397/2008, 13 August 2008, Yuen JA).

10.     Where the triable issue is on a question of fact (as opposed to a question of law), it would be most unlikely for the Court of Appeal to interfere (Ng Lung Sang Anita v Lam Yuk Lan [1999] 4 HKC 106 at 109I to 110F; Treewell Development Ltd v Tsang Chun Wah [2003] 4 HKC 401 at §§10 to 11), as an appellate court would rarely disturb the decision of a lower court on matters of fact as long as a judge had arrived at a reasonable view and it had to be an exceptional case before an appellate court would disturb the order.”

5.  In order to overturn a decision made by the court as a result of exercise of a discretion, it has to be shown that the relevant decision exceeded the generous ambit within which reasonable disagreement is possible, and not merely that the appellate court would prefer a solution which the court below had not chosen.  The Court of Appeal’s function is not to exercise the discretion afresh, but will only interfere if it is shown that the discretion was wrongly exercised on principle or the court below had taken into account irrelevant consideration or had ignored relevant consideration^[3].

6.  Counsel for P refer me to some English authorities.  In my view, the approach as set out in those English authorities is same as the one set out by the Court of Appeal in Chu Yin Fan.  For example, in Alliance & Leicester Building Society v Ghahremani[4], Hirst LJ said:

“… on an Order XIV application a judge at first instance decides in the exercise of his discretion that unconditional leave to defend should be granted on the ground that a triable issue dependent on questions of fact, the Court of Appeal will not interfere unless they are satisfied there is no fair or reasonable probability of the defendant having a real and bona fide defence, for example because the evidence on which the defendant relies is inherently incredible, or because it is inconsistent with contemporary documents or other compelling evidence. In its evaluation the court must look at the overall situation and at the evidence as a whole, and not merely confine its attention to the conflicting affidavits …”

7.  In any event, if there is any difference between the approach mentioned in the English authorities cited by P and the approach set out by the Court of Appeal in Chu Yin Fan, I am bound to adopt and to follow the latter. 

Merits of the leave application

8.  As set out in the Reasons, I am of the view that the “no full payment” defence is an arguable defence.  For this reason, I have granted D an unconditional leave to defend.

9.  With no disrespect to counsel for P, notwithstanding the various grounds set out in the Draft Notice of Appeal annexed to the Leave Summons and the points made in P’s written submissions, counsel for P are merely trying to rerun the submissions before the court in the Order 14 application.  I have explained in the Reasons as to why I am unable to accept those submissions.  I am not prepared to repeat what I have said in the Reasons.

10.  The O14 Decision is a decision made by me as a result of the exercise of the discretion vested in this court.  I am not persuaded that P has shown any ground upon which the Court of Appeal may interfere and overturn the O14 Decision.  In my view, there is no reasonable prospect of success in the appeal proposed by P.

11.  Counsel for P are not relying upon the “some other reason in the interest of justice” limb to seek leave to appeal.  In any event, I do not see any reason to grant leave under this limb.

12.  In my judgment, P’s leave application is devoid of merits.

Disposition

13.  I dismiss the Leave Summons.

14.  There be a costs order nisi that costs of the Leave Summons be paid by P to D forthwith and be summarily assessed.  There be leave to D to file and serve a bill of costs for summary assessment within 7 days after the costs order nisi becoming absolute, and leave to P to file and serve a written reply to the said bill within 7 days thereafter.

15.  I thank all counsel for the assistance rendered to the court.

HCA 1151/2019

[2021] HKCFI 54

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1151 OF 2019

________________________

________________________

________________________

REASONS FOR DECISION

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1.  There were 2 summonses before me in the hearing on 5 January 2021, namely, (a) the plaintiff (“P”)’s summons for summary judgment on liability; and (b) the defendant (“D”)’s summons for leave to amend the Defence. At the end of the hearing, I granted unconditional leave to defend to D and ordered that costs of P’s summons be costs in the cause of these proceedings, with a certificate for 2 counsel. I also granted leave to D to amend the Defence in the manner as shown in the draft Amended Defence annexed to D’s summons and ordered that costs of and occasioned by the amendments be to P in any event, to be taxed if not agreed. These are my reasons for the decision.

The parties’ respective cases

2.  At the material times, Ms Wang Bingqin (“WBQ”) was the sole shareholder and the sole director of P.

3.  D was and is controlled by Mr Zhang Wei (“Zhang”) and his wife Ms Wang Tao (“WT”).  At the material times, Ms Huang Xuli (“Huang”) was WT’s assistant.

4.  P’s case is that in or around 2017, one Ms Cheuk Hiu Nam (“Cheuk”) introduced D’s controllers, Zhang and WT, to WBQ, the then sole shareholder and the sole director of P.  Since then, P and D had several dealings with each other.

5.  P’s claim in these proceedings is based upon a written agreement entitled “借款协议” signed by P and D on 25 October 2018 (“the Agreement”).  According to the Agreement:

(1)  P is obliged to pay a sum of HK$343,912,270 by 25 October 2018 (“the Payment Obligation”) to the bank account(s) specified by D.

(2)  Upon P’s discharge of the Payment Obligation, D is obliged to transfer to P (“the Transfer Obligation”) the following notes (“the Subject Notes”) and shares (“the Subject Shares”):

(a)  US$35m 12% Senior Secured Notes due 2020 (stock code: 5190) by 2 November 2018;

(b)  5.45m shares of Jiayuan International Group Limited (Stock Code: 2768) (“Jiayuan”) by 2 November 2018; and

(c)  85.76m shares of Jiayuan by 23 November 2018.

6.  Clause 2(4) of the Agreement provides:

“[P]保证相关借款金额于2018年10月25日支付至[D]指定账户，如果未及时到账，[P] 应2018年10月26日起，按千分之五／日的标准向[D]支付赔偿金，同时[D]会将 [the Transfer Obligation] 顺延至对应的工作日。”

7.  P’s case is that it has fully discharged the Payment Obligation.  However, in breach of the Agreement, D has only partially but not fully performed the Transfer Obligation.  P’s case as pleaded in the Amended Statement of Claim is as follows:

“C. [P’s] Full Performance of the Agreement

7. On 25 October 2018 (i.e. the date of the Agreement), Ms. Huang Xuli (“Huang”), the assistant of [WT] at the time, provided [WBQ] of [P] with the details of the bank accounts designated by [D] in accordance with clause 2(4) of the Agreement (“D’s Designated Accounts”).

8. Pursuant to [D’s] instructions given through Huang, [P] were to transfer to [D] and/or its designated parties HK$455,662,270 in total, which included the Sum of HK$343,912,270 under the Agreement. The remaining HK$111,750,000 was for the repayment of certain loans granted by [D] to [P] prior to the Agreement.

9. The details of the account holders of D’s Designated Accounts and the sums to be transferred to the respective D’s Designated Accounts were as follows: -

Name of Account Holders	Amount
Ai Yangxu	HK$20,000,000
Silver Power Enterprise Limited	HK$20,000,000
New Merit Group Limited	HK$110,000,000
Blooming Balance Limited	HK$40,000,000
Cai Lintan	HK$40,000,000
Shi Sujun	HK$32,500,000
Lin Lifen	HK$40,000,000
China Create Capital Limited (i.e. the Defendant)	HK$153,162,270
Total	HK$455,662,270

10.  In full performance of the Agreement on the part of [P], the Sum had been transferred to D’s Designated Accounts on or before 25 October 2018 in accordance with [D’s] instructions.

11.  In the premises, [D] has since 25 October 2018, or alternatively since 2 November 2018 and/or 23 November 2018 respectively (being the respective dates of transfer of the Subject Notes and the Subject Shares pursuant to the Agreement), been holding the Subject Notes and/or the Subject Shares on constructive trust in favour of [P].

Particulars

(1)  The Agreement is a valid, binding, and specifically enforceable contract which the Plaintiff has fully performed;

(2)  Upon receipt of the Sum in full, [D] was, and still is, under a mandatory and unconditional personal obligation to transfer, inter alia, the Subject Notes and the Subject Shares to the Plaintiff on or before 2 and 23 November 2018 respectively.

D.  [D’s] Breach of the Agreement / Constructive Trust

12.  On or around 31 October 2018, in part performance of the Agreement, [D] transferred 3,450,000 ordinary shares in Jiayuan International (of the 5,450,000 shares due on 2 November 2018 pursuant to the Agreement) to the Plaintiff.

13.  On 2 November 2018, in breach of clauses 2(1) and 2(2) of the Agreement, [D] failed to transfer the Subject Notes and 2,000,000 ordinary shares in Jiayuan International (or any part thereof) to [P].

14.  On or around 8 November 2018, [D] transferred 2,000,000 ordinary shares in Jiayuan International due on 2 November 2018 to [P]. Despite repeated demands by [P], [D] still failed and/or refused to transfer the Subject Notes (or any part thereof) to [P] in breach of the Agreement.

15.  On 23 November 2018, in further breach of the Agreement, [D] wrongfully failed and/or refused to transfer the Subject Shares (or any part thereof) to [P].

16.  Since November 2018, [P] repeatedly demanded [D] to transfer the Subject Shares and the Subject Notes to [P].  Despite [P’s] repeated demands, in breach of the Agreement, [D] still wrongfully fails and/or refuses to transfer the Subject Shares and the Subject Notes (or any part thereof) to [P].

17.  Further, in paragraph 42 of the affirmation of [WT] filed on 16 August 2019 in these proceedings, she deposed that on a date or dates unbeknownst to [P], [D] disposed of the Subject Notes and the Subject Shares (or part thereof) in breach of trust.”

8.  On 24 June 2019, P obtained an ex parte Mareva and proprietary injunction from DHCJ Leung to freeze D’s assets up to the value of HK$343,912,270.  On 25 September 2019, after a contested interpartes hearing before Coleman J, P obtained an order continuing the injunction until the trial herein or a further order made by the court with some variations (“the Injunction Ruling”[1]).  One of the variations is that the amount being frozen by the injunction has been increased to HK$500,000,000.

9.  In the Amended Statement of Claim, P claims for specific performance of the Agreement, alternatively damages.  In P’s application for summary judgment, Mr Patrick Chong (together with Mr Michael Ng), counsel for P, has made it clear that P is no longer making any proprietary claim or seeking specific performance of the Agreement, for D has confirmed that it no longer holds the Subject Notes and the Subject Shares.

10.  For the purpose of considering P’s summons and D’s summons, I have taken the matters set out in the draft Amended Defence into account on de bene esse basis.  Mr Chong has no objection to this approach.

11.  D denies that apart from the Agreement, P and D have any other dealings.  D has raised various defences to P’s claim, namely:

(1)  P has not yet made full payment under the Agreement, and hence the Transfer Obligation has not yet arisen (the “no full payment” defence).

(2)  According to P’s case, the instructions given by D through Huang to P as pleaded in [8] of the Amended Statement of Claim are contained in a Fund Arrangement Table.  The authenticity of the Fund Arrangement table is disputed by D.

(3)  Without prejudice to the above, Huang does not have the authority to send the Fund Arrangement Table on behalf of D to P.

(4)  There is an oral agreement reached by Cheuk on behalf of P and WT on behalf of D in early November 2018, by which the original timetable in the Agreement for the performance of the Transfer Obligation has been postponed.

(5)  There is another oral agreement reached by Cheuk on behalf of P and WT on behalf of D on 4 November 2018, by which the Agreement has been amended.

(6)  Under the Agreement, D is required to pay interest to P if D has failed to discharge the Transfer Obligation on time.  It is D’s case that the interest rate imposed is too high and the interest clause is a penalty clause, and hence that clause should not be enforceable.

12.  I would focus on the “no full payment” defence.  For the reasons set out below, I am of the view that the “no full payment” defence is an arguable defence.  D is saying that P has only paid HK$153,162,270 to D pursuant to the Agreement.  The sum paid to D is less than half of the consideration specified in the Agreement.  As a result, D is not obliged to perform the Transfer Obligation in accordance with the original timetable set out in the Agreement. 

The principles

13.  The principles concerning applications under Order 14 have been succinctly summarized by DHCJ Wilson Chan (as he then was) in Li Chuen Kwai v Po Lam Construction Development Ltd[2].  In that case, the learned judge said:

“11. As far as the plaintiff’s claim is concerned:

(1) An application for summary judgment must be supported by an affidavit verifying the facts on which the claim is based [Order 14, rule 2(1), Rules of the High Court].

(2) The Statement of Claim must be good and complete in itself; any defect or omission in the Statement of Claim cannot be corrected or supplemented by the plaintiff’s affidavit. If the defect is one of substance, the application for summary judgment will be dismissed [see: Hong Kong Civil Procedure 2014 at Practice Note 14/1/5].

(3) This means that an Order 14 application has to proceed on the case as pleaded, and it is those facts (as pleaded) which have to be verified on affidavit.

(4) Where the assertions in the plaintiff’s affirmation constitute a material deviation from the plaintiff’s pleaded case, the plaintiff will have failed to verify his claim as pleaded, and summary judgment should not be granted [Lin Jan v Long Xiaobo, HCA 1516/2012 (Judgment dated 4/09/2013)].

(5) Equally, summary judgment will not be granted where the plaintiff’s affidavit evidence is materially different from and inherently inconsistent with his/her case in the Statement of Claim [see: Sin Yuk Hung v Sin Tung San, HCA 474/2013 (Judgment dated 18/12/2013)].

12. As far as the defendant’s defence is concerned:

(1) The defendant shoulders the burden to satisfy the court that he has a real or bona fide defence (ie that there are triable issues), or that there ought for some reason to be a trial of the plaintiff’s claim.

(2) However, a complete defence need not be shown. The defence set up need only show that there is a triable issue or question or that for some other reason there ought to be a trial; and leave to defend ought to be given unless there is clearly no defence in law and no possibility of a real defence on the question of fact.

(3) Although the mere assertion in an affidavit does not, ipso facto, provide leave to defend, the court will not embark upon a mini trial of the action on paper and leave to defend will be granted unless the defence raised is so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that the defence is a sham.

(4) The test is not whether the defendant’s assertions are to be believed, rather it is whether those assertions are believable, ie capable of being believed. If so, the defendant must have leave to defend.

(5)  Whether the defendant’s assertions are believable is a question that should be answered not by taking those assertions in isolation bur rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.”

14.  Order 14 proceedings are only for clear and obvious cases. The reminder given by Roger JA (as he then was) in Ng Lung Sang Anita v Lam Yuk Lan[3] should always be borne in mind:

“Those advising clients ought to be very cautious before commencing O86 and O14 proceedings. They are there only for clear and obvious cases. The old adage that if you have to sit down, it is not a case for O14 is equally applicable today as it was when it was first coined.”

The “no full payment” defence

15.  Among the 8 sums set out in the table in [9] of the Amended Statement of Claim (“the Table”), by [20] and [21] of the Affirmation of WBQ dated 26 March 2020, P has clarified that the HK$20,000,000 to Ai Yangxu was transferred on 23 October 2018 and that sum does not concern the Agreement.  In respect of the 7 remaining sums, D says that only the HK$153,162,270 transferred to D’s account is the payment made to D pursuant to the Agreement.

16.  Mr Chong submits that the “no full payment’ defence is contradicted by (a) the contemporaneous and circumstantial evidence and (b) D’s own evidence and part performance of the Agreement.  Mr Chong argues that:

(1)  P’s transfer of the sum of HK$455,622,270 on 25 October 2018 is supported by contemporaneous banking records.  This was more than the sum specified in the Agreement, and the transfer was in strict accordance with the Fund Arrangement Table given by D through Huang.

(2)  Further, after the transfer of HK$455,622,27, D had all along treated the sum specified in the Agreement as having been fully paid.  On 31 October 2018 and 8 November 2018, D partly performed the Agreement by transferring a total of 5.45 million Jiayuan shares to P.  Such conduct plainly shows that the sum specified in the Agreement had indeed been fully paid. Otherwise, D would not have partly performed the Agreement, given that no obligation would have arisen in the absence of full payment.

(3)  WT never complained about any lack of full payment.  If full payment really had not been made, D would have had raised this with P.

(4)  The above should be considered against the background that on 24 October 2018 and 25 October 2018 (the date when the Agreement was signed after 3:45pm):

(a)  P had repeatedly told D that the money was ready to be transferred and wanted to sign the Agreement as soon as possible.

(b)  Under the Agreement, P was required to pay hefty interest if there was any delay in payment.

(c)  At the time, D and WT desperately wanted the money as soon as possible.

(5)  It is therefore inconceivable that P had not transferred the money in full to D and that on the other hand D would not repeatedly chase after P for the full payment.

(6)  Instead, D simply acknowledged the liability to transfer the Subject Shares and the Subject Notes, and never for once made any protests upon demands.  For instance:

(a)  On 30 October 2018, Cheuk urged WT to transfer the Subject Shares and the Subject Notes to P.  In response, WT confirmed that D was working on it (“已经在办”).  WT therefore did not make any protest that P had not made payment in full.

(b)  On 1 November 2018, Cheuk urged WT again to transfer the shares/notes.  In response, WT told Cheuk that she could rest assured that WT was making sure the transfers would be made (“ok我已经盯着办了 你放心”).

17.  Mr Clark Wang, counsel for D, submits that the “no full payment” defence is an arguable defence.  Mr Wang submits:

(1)  No combination of any sums in the Table could add up to the amount of HK$343,912,270.  Further, in respect of the remaining amount, ie the HK$111,750,000 mentioned in [8] of the Amended Statement of Claim, no particulars have been provided by P notwithstanding that D has made a request for such particulars.  P claims that the remaining $111,750,000 is “for the repayment of certain loans granted by [D] to [P] prior to the Agreement”[4] or “concerned other dealings between [P] and [D]”[5]. However, no particulars concerning these other dealings have been provided, let alone evidence.  In particular, it has not been explained by P:

(a)  who were the parties to these loans;

(b)  when were these loans incurred;

(c)  what were the terms of each loan; and

(d)  what was the outstanding amount payable under each loan.

(2)  It is D’s case that apart from the Agreement, there has never been any other dealings between P and D.  WT as the sole shareholder and the sole director of D at all material times does not even know many of the recipients such as Silver Power Enterprise Ltd, Shi Suijun and Cai Lintan.  Company search also shows that none of the recipient companies has any relationship with D.

(3)  WT explained that from D’s perspective, there was already partial payment, the adjournment of the original timetable was the agreed theme throughout the subsequent negotiations, and the subsequent transfer of Jiayuan shares were out of repeated requests from Cheuk.  According to the Agreement, the original timetable for the performance of the Transfer Obligation would be automatically postponed as a result of no full payment from P as scheduled.  Even though only partial payment was made, the deferment of the timetable means that there was not much financial prejudice to D and there has already been at least a substantial sum of money paid.  From a commercial point of view, there is no need for D to push P.  It is therefore understandable that during the subsequent conversations, WT and Cheuk were more concerned with subsequent arrangements than the Agreement itself.

(4)  On the other hand, no complaint has been made by P to D in respect of the alleged breaches either.  Even though WBQ alleges that she personally chased Huang for performance of the Agreement, such allegation is unsustainable for the following reasons:

(a)  No particulars have been provided.

(b)  The allegation is inconsistent with P’s own pleading.  In P’s Further and Better Particulars of the Amended Statement of Claim (“the FBP”), it is averred that the demands were made during face to face meetings on several occasions between Cheuk and WT at Conrad Hotel in Hong Kong from in or around November 2018 until in or around April 2019.

(c)  Despite clear pattern of communications between the parties through WeChat messages and WhatsApp messages, no complaint can be found in writing or through any kind of message at all.

18.  Mr Chong refers to some whatsapp messages from Cheuk to Huang in late October and in November 2018, showing that Cheuk did ask D to transfer the Subject Shares to P.  Mr Chong says that these are complaints made by P concerning D’s breach of the Agreement. Mr Wang submits although there have been some requests from Cheuk concerning the transfer of shares, there has never been any complaint from P alleging that D has breached the Agreement.

19.  Having considered the evidence adduced by the parties and the submissions made by Mr Chong and Mr Wang respectively, I am of the view that the “no full payment” defence put forward by D is an arguable defence.

(1)  P says that apart from the Agreement, there are some other dealings between P and D.  This is the reason for paying the HK$111,750,000 pleaded in [8] of the Amended Statement of Claim.  These other dealings are denied by D.  Bearing in mind that the sum involved in these other dealings is a very substantial sum, if P’s case on this point is true, there must be documentary evidence in support of these other dealings.  However, as to these other dealings, P has chosen not to provide any particulars, let alone evidence.

(2)  Mr Chong submits that the other dealings are irrelevant in these proceedings and P should not trouble the court by producing documents concerning the other dealings in these proceedings.  With respect, I am unable to accept the submission made by Mr Chong.  The existence or the non-existence of the other dealings is a contested issue in these proceedings, and the answer on this issue would have a direct impact on the strength of the parties’ respective cases.  Further, as submitted by Mr Wang, even if the other dealings exist, the total amount involved in the other dealings would also be a material issue.  If the total involved in the other dealings is more than HK$117,750,000, by paying HK$455,622,270 to D, P may have only paid off the total owed to D in the other dealings and part of the sum (not the full sum) specified in the Agreement.

(3)  Mr Chong submits that in [16] of WT’s Affirmation dated 16 August 2019, WT has admitted that she knows New Merit Group Limited (“NM”), Blooming Balance Limited (“BB”) and Lin Lifen (“LL”).  Mr Chong submits that these are D’s friends, and the payments to NM, BB, and LL should be treated as payments to D under the Agreement.  I am unable to accept these submissions.

(a)  WT in the same paragraph of her affirmation denied that she had ever given any instruction to P to transfer any sum to NM, BB and LL.  There is no admission from WT that D has instructed P to pay parts of the sum specified in the Agreement to NM, BB and LL.

(b)  It is P’s case that the HK$455,622,270 paid to D is the sum specified in the Agreement plus the amounts payable to D in some other dealings.  There is no plea in P’s pleadings saying that the sums paid to NM, BB and Lin Lifen are solely for the Agreement and not for the other dealings.  There is also no evidence on this point.

(4)  Taking all the aforesaid into account, I am driven to the conclusion that D’s denial of the existence of the other dealings is believable.

(5)  While the non-existence of the other dealings is believable, whether P’s case is true would become a triable issue.  If the other dealings in fact do not exist as alleged by D, applying common and commercial sense, there would be no reason for P to pay D HK$455,662,270, when the payable sum specified in the Agreement is only HK$343,912,270.  It is arguable that the actual amount paid by P to D under the Agreement may only be HK$153,162,270 as alleged by D, and all the other amounts as shown in the Table are not related to D and the Agreement.

(6)  Mr Chong submits that D’s conduct and part performance of the Agreement constitute circumstantial evidence showing that full payment has already been made by P.  Mr Wang has made a reply to these submissions.  I am persuaded by Mr Wang’s submissions.

(7)  In particular, I have to mention that as to the alleged complaints made by P to D concerning D’s breach of the Agreement, P is bound by its own pleading, ie the FBP.  “Summary judgment, if it is to be given, is to be given on the pleaded case.”[6] In its application for summary judgment, P is not entitled to put forward a case which is inconsistent with the FBP[7].

(8)  With all the aforesaid in mind, in my view, it cannot be said that it is clear and obvious that full payment must have been made by P.

20.  I note that P has successfully obtained a Mareva injunction against D.  That means P has shown a good arguable case against D[8].  However, it is trite that the existence of a good arguable defence does not necessarily negate a good arguable case[9].  In this case, although P has a good arguable case against D, I am of the view that D also has an arguable defence to P’s claim.  The controversies in these proceedings have to be resolved at trial and cannot be resolved summarily.

21.  Since I have concluded that the “no full payment” defence is an arguable defence and this case would proceed to trial, I refrain from making any comments on the other defences put forward by D.  I am of the view that D should be given unconditional leave to defend. While unconditional leave to defend is given, the usual costs order is that costs be in the cause[10]. Since a substantial amount is at stake in these proceedings, it would be appropriate for me to grant a certificate for 2 counsel.

22.  Since this case would proceed to trial and the proceedings are still at an early stage, there is no reason to refuse D’s application for leave to amend the Defence.  Mr Chong has agreed that leave to amend the Defence should be given to D in these circumstances.  In accordance with the normal practice, costs of and occasioned by that application should be to P in any event.

Disposition

23.  For the reasons set out in the above, I made the order as set out in [1] above.  I thank all counsel for the assistance rendered to the court.

HCA 1151/2019

[2019] HKCFI 2408

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1151 OF 2019

________________

________________

___________

R U L I N G

___________

Introduction

1.  The dispute in this action arises out of the terms of a written agreement dated 25 October 2018 (“Agreement”), made between the plaintiff (“Sky Motion”) and the defendant (“China Create”). There is no dispute as to the existence of the Agreement, nor the fact that it has been at least partially performed.

2.  On 24 June 2019, Sky Motion applied ex parte for a Mareva and proprietary injunction order, which was granted by DHCJ Leung (“Order”). The application was supported by the affirmation of Xie Xinghong (“Xie”), who has since filed two further affirmations.

3.  On 5 July 2019, Mimmie Chan J gave directions for filing evidence, and continued the Order until the determination of matters on an inter partes basis. She also ordered Sky Motion to provide fortification in respect of its undertaking as to damages in the sum of $10 million by payment into court.

4.  Originally, today’s hearing was fixed for the substantive argument on three summonses. However, a fourth summons has been issued on short notice. The four summonses are:

(a)     Sky Motion’s summons dated 25 June 2019 (“Continuation Summons”) seeking the continuation of the Order;

(b)    Sky Motion’s summons dated 2 July 2019 (“Variation Summons”) seeking to vary the amount injuncted from HK$343,912,270 upwards to HK$566,264,400;

(c)     China Create’s summons dated 16 August 2019 (“Fortification Summons”) seeking further fortification of the cross-undertaking in damages in the further sum of HK$40 million in addition to the HK$10 million already paid into Court by Sky Motion; and

(d)    China Create’s summons dated 23 September 2019 (“Leave Summons”) seeking leave to file and rely on the 3^rd affirmation of Wang Tao, which is said only to reply to new matters raised in the 3^rd affirmation of Xie.

Leave Summons

5.  Before dealing with some background, it is convenient to deal with the Leave Summons first. I was invited by Mr Clark Wang, Counsel for China Create, to read and deal with the materials in the 3^rd affirmation of Wang on a de bene esse basis, which I have done. Mr Patrick Chong and Mr Michael Ng, Counsel for Sky Motion, were content that I should treat that material on that basis, but formally objected to this new and late affirmation.

6.  Mr Chong objects specifically on the basis that the 3^rd affirmation is far too late, without any proper explanation as to its lateness, which means there is no proper basis on which to exercise a discretion to afford China Create further time to file evidence. He also submits that much of the content of the 3^rd affirmation is irrelevant and disputed, some of it could have been produced much earlier, and some of it seems to be having a second bite of the cherry after sight of the skeleton argument filed for Sky Motion for this hearing. As Mr Chong put it, this is an attempt to “top up” the evidence recognised to be otherwise insufficient.

7.  Mr Wang submits that the timing of the 3^rd affirmation is self-evidently the result of the production of new matters and evidence in Xie’s 3^rd affirmation. Hence, the necessity to reply to that material lies from the failure of Sky Motion to have provided it earlier. Some other matters dealt with arise from documents newly found, not the fault of China Create. Mr Wang further submits that there is no real prejudice to Sky Motion, and no specific prejudice has even been alleged. He says there is no conscious flouting of court rules or practice directions, and no deliberate manoeuvring, but the 3^rd affirmation will assist the Court in securing the just resolution of disputes in accordance with the substantive rights of the parties.

8.  The timing of the 3^rd affirmation, and whether its contents are genuine responses to new material which might not otherwise have been anticipated, and the fact that some of it is not accepted and has not been answered, seem to me matters which I can take into account in the weight that I afford the contents. But I am not persuaded that it would be right to exclude the material altogether. I therefore permit the 3^rd affirmation of Wang.

Background

9.  Both Sky Motion and China Create are companies incorporated in the British Virgin Islands.

10.  The Agreement was one of several dealings between Sky Motion and China Create since in or around 2017. Those dealings began after China Create’s controllers, Zhang Wei (“Zhang”) and his wife Wang, had been introduced to Sky Motion’s then sole shareholder and director, Wang Bingxin (“WB”), by a Cheuk Hiu Nam (“Cheuk”). At the material time, Cheuk was the CEO and an executive director of Jiyuan International Group Ltd (“JIGL”).

11.  Zhang was China Create’s sole shareholder and director until 10 March 2018, when he transferred his shares to Wang and resigned his directorship.

12.  The Agreement was signed on behalf of Sky Motion by WB, and on behalf of China Create by Huang Xuli (“Huang”), the then assistant to Wang.

13.  Under the Agreement, Sky Motion was obliged to transfer the sum of HK$343,912,270 (“Sum”) to China Create on or before 25 October 2018. In return, China Create was obliged to transfer to Sky Motion (a) 5.45 million ordinary shares in JIGL on or before 2 November 2018; (b) US$35 million of JIGL 12% Senior Secured Notes due 2020 (“Notes”) on or before 2 November 2018; and (c) 85.76 million shares in JIGL (“Shares”) on or before 23 November 2018.

14.  The agreement is called a ‘Loan Agreement’, and certain aspects of its terms might indicate some lending arrangement. But much of the Agreement appears to be one for the sale and purchase of shares and notes. Indeed, in her 1^st affirmation, Wang describes how China Create had taken part in two placements of JIGL shares, and how with various other parties China Create had subscribed for Notes with a total face value of US$70 million. Wang then describes how she was approached by Cheuk who had “arranged someone to acquire from [her] the Subject Notes and shares of [JIGL]. She suggested that an agreement be signed upon which payment could be made to [her]. The subsequent arrangements and logistics were all handled by … Huang.”

15.  Similarly, in the WeChat exchange between WB and Huang, the latter made it clear that her understanding was that they were not engaged in making a loan agreement, but putting into place a sale and purchase agreement.

16.  Subject to a disagreement as to whether the full amount of the Sum was paid, or whether it was short by HK$20 million (as to which, see below), there is evidence that on 25 October 2018 Sky Motion transferred the Sum to accounts designated by China Create. In other words, it seems by that date Sky Motion had either fully or very substantially performed its obligations under the Agreement.

17.  On 31 October 2018 and 8 November 2018, China Create transferred 3.45 million and 2 million shares respectively (totalling 5.45 million shares) to Sky Motion. Although not in accordance with the timetable provided under the Agreement, the transfer of those shares was plainly pursuant to the terms of the Agreement. In other words, China Create partially performed its obligations under the Agreement.

18.  However, China Create failed to transfer the Notes to Sky Motion on or before 2 November 2018. Further, China Create failed to transfer the Shares to Sky Motion on or before 23 November 2018. Despite repeated demands, no part of the Notes or the Shares has subsequently been transferred to Sky Motion.

19.  Zhang was arrested in April 2019, apparently on allegations of unlawfully defrauding public investors, false imprisonment, extortion, false litigation, and fraud. One newspaper article identifies that China Create has been described by the Shenzhen police as “a Mafia-style gang involved in illegal fundraising, harassment, blackmail, illegal detention of people and the possession of firearms”. There is also evidence that Wang has been formally listed by the Chinese Public Security Bureau as a wanted person on allegations of false litigation. As I understand it, Zhang and Wang reject these allegations.

20.  However, it does not seem to be in dispute that from May 2019, Wang was not contactable by either WB or Cheuk, at least not directly. Prior to that date, there had been some discussions between the parties (see below). Wang’s first substantive response after that date was in her 1^st affirmation filed in these proceedings.

Applicable Principles

21.  There is, and there can be, little dispute between Mr Chong and Mr Wang as to the main applicable legal principles.

22.  The principles applicable to applications for a Mareva injunction over Hong Kong assets are well-settled. The plaintiff must establish (a) that it has a good arguable case on its substantive claim; (b) that the defendant has assets within the jurisdiction; (c) that there is a real risk of dissipation or removal of assets from the jurisdiction which would render a judgement in favour of the plaintiff of no effect; and (d) that the balance of convenience is in favour of granting the injunction.

23.  Mr Chong accepts that for the purposes of a Mareva injunction, the plaintiff needs to show a good arguable case in the sense of a case which is more than barely capable of serious argument, but yet not necessarily one which the judge believes to have a better than 50% chance of success.

24.  Nevertheless, there should be no attempt to persuade a court to resolve disputed questions of fact, whether relating to the merits of the underlying claim or relating to elements of the Mareva jurisdiction, nor should there be detailed arguments on difficult points of law on which the claim of either party may ultimately depend. The existence of a good arguable defence does not necessarily negate a good arguable case.

25.  As to the real risk of dissipation, courts have been stringent as to the necessity of sufficiently clear and solid evidence to prove such a risk. This is, in part, recognition that careful scrutiny is required before encumbering a respondent to an injunction application with an order that might seriously disadvantage it from the start and from which it may never recover.

26.  Too ready an inference of real risk of dissipation from a defendant’s conduct or commercial morality is to be avoided. Mere incantations of “unacceptably low standards of commercial morality” do little to assist the process of consideration, and mere propensity evidence is unlikely to be sufficient to infer a real risk of dissipation. It is also worth remembering that allegations of dishonesty or low standards in one context may not always fairly lead to inferences of dishonesty or low standards in another context.

27.  Therefore, the relevant dishonesty upon which a plaintiff wishes to rely must be sufficiently proximate to the plaintiff’s claim and surrounding circumstances before it is sufficient to give rise to an inference of risk of dissipation. The court should scrutinise with care whether what is alleged to have been the dishonesty of the person against whom the order is sought in itself really justifies the inference that that person has assets which he is likely to dissipate unless restricted.

28.  The applicable principles for the grant of a preservation order or proprietary injunction are also well established. The plaintiff must show (a) a serious issue to be tried that there is property which is bona fide the subject matter of the cause or matter; (b) the balance of convenience is in favour of granting an injunction; and (c) it is just and convenient to grant the injunction.

29.  However, it is not necessary to demonstrate any risk of dissipation of assets. Further, even if there has been delay in making an application which may lead to the refusal of a freezing injunction, a proprietary injunction may nonetheless be granted. An enquiry into the relative merits of rival claims is not necessary.

30.  A personal claim against a trustee is not as satisfactory as a trust fund maintained intact in his hands, so that such a claim is not an alternative remedy that will defeat a beneficiary’s right to an injunction.

31.  Of course, since the purpose of a proprietary injunction is to preserve the very property over which the plaintiff makes proprietary claim, any such injunction would only be in respect of such property in the hand of the defendant.

32.  In general, a contract for the sale of shares in a publicly quoted company will not be specifically enforceable. This is because such shares are normally freely available on the market, so that generally damages will be an adequate remedy. However, if the quantity of shares in a listed company (such as JIGL) contracted for is a quantity not readily obtainable in the market, it may be that not only specific performance can be obtained of a contract to sell them, but that the title to the shares passes in equity to the buyer: see, for example, Mills v. Sportsdirect.com Retail Ltd [2010] 2 BCLC 143, at §§74-75; Lewin on Trusts 19^th Ed at 10-009.

33.  The conditions for establishing a constructive trust are stricter than the mere existence of a specifically enforceable contract. Although the vendor-purchaser constructive trust arises almost exclusively in the context of contracts for the sale of land, it is arguable that it ought to apply also in other limited circumstances, to sales of personal property. In such a scenario, the transferee will only become the equitable owner of property belonging to the transferor if the transferor is under a (i) mandatory and (ii) unconditional personal obligation to transfer (iii) identifiable assets to the transferee: see, for example, Bridge on The Law of Personal Property 2^nd Ed at 14-001.

34.  In the context of interlocutory ex parte applications, the courts have frequently recognised the difficulty in the task at the inter partes hearing of resolving disputed facts. To discover whether an ex parte order has been improperly obtained, the court first has to consider the evidence as it was at the time of the application for the ex parte order and then a mass of evidence designed to demonstrate that the evidence was misleading or failed to make full disclosure. The real question at the time of the inter partes hearing should not be what has happened in the past, but what should happen in the future. At the hearing, it is impossible to make any concluded findings of fact, yet the court is being asked to reach a conclusion on the issue of non-disclosure without full knowledge of the circumstances. This is why it is frequently that applications for discharge of ex parte orders are left to be dealt with at trial.

35.  Nevertheless, courts are well used to identifying circumstances in which materially relevant matters were not properly disclosed, materiality being judged by whether the facts would be relevant to the weighing process as to whether or not grant the injunction.

The Outline of the Argument

36.  Sky Motion’s claims are straightforward. The matter has now been fully pleaded in a statement of claim, and the claims are for (a) breach of the Agreement in failing to transfer to it the Notes and the Shares; and (b) a constructive trust claim over the Notes and the Shares.

37.  In her affirmation, Wang relies on three main grounds to deny liability under the Agreement. They are: (a) Wang has not herself seen the Agreement, and had no idea that Sky Motion was a party to it or of its terms; (b) Sky Motion has failed to pay the full Sum by 25 October 2018 (being short by HK$20 million) so that China Create’s obligations to transfer the Notes and the Shares has been postponed accordingly; and (c) the Agreement has been amended as a result of Cheuk’s request that the shares should be transferred in paper form rather than electronic, and by reason of Wang’s further assistance in relation to the issue of a second tranche of Senior Notes.

38.  Mr Wang in submission describes these three points (though phrased differently by him) as showing arguable defences. In addition, Mr Wang submits that the continuation of the Order should be refused on the basis that: (a) there is no proprietary claim; (b) there is no risk of dissipation; (c) the balance of convenience is against an injunction; and (d) there has been extensive and material non-disclosure.

Knowledge of the Agreement

39.  It is fair to say that in her evidence, Wang has sought to distance herself from her husband Zhang, emphasising that none of the events the subject matter of this claim have anything to do with him. On the other hand, she asserts that she had no idea that Sky Motion was a party to the Agreement or of the terms of the Agreement. These two assertions are somewhat in tension, and the latter assertion is at least difficult to reconcile with other parts of the evidence.

40.  First, Wang accepts Huang was her then assistant, and there is no suggestion that Huang was not authorised to act for and bind China Create. In any event, it is unlikely that Huang would have conducted negotiations and entered an agreement without clear instructions and authority, and to the knowledge of, Wang. Wang herself says (in the context of distancing Zhang) that the dealings in relation to the Agreement had always been handled by her.

41.  Secondly, there is no dispute that China Create received more than HK$153 million directly from Sky Motion on 25 October 2018. After that, on her own evidence, Wang personally procured China Create to transfer the 5.45 million shares in JIGL to Sky Motion.

42.  Thirdly, Wang’s case that certain amendments were made to the Agreement around early November 2018 presupposes that she knew what were the original terms of the Agreement.

43.  I consider the fact that Wang has been less than frank in relation to her knowledge is relevant to the question of risk of dissipation.

Payment in Full

44.  The details of the destination accounts and respective sums to be transferred by Sky Motion pursuant to its obligation to pay the Sum under the Agreement were provided to Sky Motion by Huang. Payment was made accordingly, and there are also contemporaneous banking and WeChat records which support that fact. Whilst Mr Wang has described Sky Motion’s case on the payments made under the Agreement as “most suspicious”, the payment was as directed.

45.  It is, however, correct that the total amount transferred by Sky Motion on 25 October 2018 was $455,622,270. The additional sum approaching $112 million is said to have been repayment of loans previously granted by China Create to Sky Motion. I have taken into account the criticism that no particulars or evidence has been provided to show and prove what those loans were, and how they arose. But, of that total sum of over $455 million, only $20 million has not been supported by indisputable documentary evidence. The amount wholly supported by documents is over $100 million in excess of the Sum.

46.  The late production of material relating to that $20 million, and the appearance that it may have been paid in advance of the date of the Agreement, and not from Sky Motion, raises some questions. But these are matters capable of exploration in the process towards any trial. Part of that exploration may be by reference to the schedule of payments provided by Huang, which identified the particular $20 million payment as the first in the list and in red, rather than in black, which might indicate a recognition that the $20 million was part of the schedule but had already been paid.

47.  But I also accept that full payment of the Sum is potentially supported by the surrounding circumstances. Following the transfer by Sky Motion, China Create immediately transferred the first tranche of 3.45 million shares, and transferred a further 2 million shares within the next few days, making the total of 5.45 million shares which China Create was obliged to transfer as its first obligation under the Agreement.

48.  Also, there is no suggestion of any contemporaneous complaint as to lack of full payment of the Sum. I do not lose sight of the fact the amount of $20 million and identity of the payee, which Sky Motion says it has paid to that payee, was dictated by Huang on behalf of China Create.

49.  So whilst there may be something showing an arguable defence on this point, I do not think that removes the existence of the sufficiently arguable claim.

Amendments to the Agreement

50.  As Mr Chong submits, if China Create wishes to assert the existence of amendments to the Agreement, that is something which must be strictly proved: see, for example, China Life Insurance (Overseas) Co Ltd v. Li Xiaoming (HCA 570/2017, 11 December 2017, Lisa Wong J) at §71. But, as Mr Chong also submits, there is no contemporaneous documentary support for the allegation that the Agreement was in some way amended, and the contemporaneous documents tend to contradict such an allegation.

51.  There is also force in Mr Chong’s submission that it would seem to make little commercial sense for Sky Motion to have agreed to the alleged amendments, after it had already transferred the Sum to China Create (to the accounts as designated), and without insisting on definite dates for transfer of the Notes and the Shares. Leaving indefinite delay seems at least unlikely.

52.  I note the point made by Mr Wang that the request for physical certificates is capable of being evidenced by the provision of physical certificates, when otherwise there was no duty to transfer physical stock under the Agreement. But as Mr Wang accepts, it is not possible fully to investigate the merits of the proposed defence on this factual dispute, which may depend very much on oral evidence.

53.  I also note Mr Wang’s point that no evidence has been adduced from Cheuk directly to refute the allegations of amendments. But that seems to me to identify the need for oral evidence which would be investigated at trial.

54.  Even if there is an arguable defence, of which I am not actually persuaded on current materials, that does not mean that there is not a sufficiently arguable claim.

Proprietary Claim

55.  Mr Wang submits that no evidence has been adduced to indicate that the Shares or the Notes cannot be readily obtained from the market. Indeed, he says there is positive evidence which shows the contrary. First, the Shares the subject matter of the Agreement are about only 3% of the entire issued shares in JIGL. Secondly, the daily trading volume of between 2 million and 400 million shares in the period from August 2018 to June 2019 suggests that the shares under the Agreement may easily be obtained from the market within weeks or days. As to the Notes, they are only about 8.75% of the notes issued and listed.

56.  Mr Wang says these facts are very different from those in the case relied on by Mr Chong, where the relevant portions of shares were significant strategic stakes in thinly traded stocks, which the Court held to be highly unlikely to be readily available through normal trading activity, if at all.

57.  Whilst I see the force of those points, they seem to me to be ultimately issues for a trial. I do not think that those arguments of themselves remove or negate the serious issue to be tried on the proprietary claim.

58.  Mr Wang’s alternative position is that if any proprietary injunction is to be ordered, it should be limited to the proportion of JIGL shares currently held by China Create, being the total of 7,951,226 shares (identified by Wang in her 3^rd affirmation). He also submits that there could be no injunction in respect of the Notes, as no Notes are held by China Create at the moment (as also identified by Wang in her 3^rd affirmation).

59.  The problem with that submission is the state of the evidence produced by China Create. So heavily redacted are the various brokerage statements which are exhibited, it is difficult to place any particular reliance on the unredacted elements.

60.  The imprecision adopted by China Create is understandable. As I read Wang’s evidence, her explanation for the existence of the Agreement was that someone had been found to acquire from China Create the Shares and the Notes which it held as a result of share placements and subscriptions for notes. Hence, if the Shares and the Notes are no longer held by China Create, there was deliberate dissipation of those assets notwithstanding having received the money from Sky Motion to acquire them. On the other hand, if the Shares and the Notes are still held, so much stronger is the claim to those actual Shares and Notes.

Threshold on Merits

61.  In the above circumstances, it seems to me that Sky Motion has satisfied the necessary threshold requirements as to the merits of the underlying claims.

62.  None of the points raised on behalf of China Create seem readily credible at this stage, and in any event none of them contradict that Sky Motion has established that it has at least a strongly good arguable case on the merits capable of supporting a Mareva injunction, and at least a serious issue to be tried capable of supporting a proprietary injunction.

Risk of Dissipation

63.  As I have already noted, in her evidence, Wang has asserted that as a matter of fact China Create does not currently hold any of the Notes and is only holding a small quantity of the Shares. I accept Mr Chong’s submission that, if this is true, this identifies direct evidence of dissipation, whereas if it is false then Wang has lied on affirmation evidencing low commercial morality about this particular dealing and a real risk of dissipation.

64.  I take Mr Wang’s point that this submission was made only in Mr Chong’s skeleton argument for this hearing, and so may not be fair to think that it has not been properly addressed in evidence from China Create. Actually, the point was taken in Xie’s 3^rd affirmation, and if regarded as a new point might have been answered by Wang’s 3^rd affirmation which was filed for that purpose. But anyway, as I have also already noted, it seems to me the obvious reading and inference from the way in which Wang described the Agreement coming into being that its purpose was for Sky Motion to acquire from China Create the Shares and the Notes which China Create had obtained through share placements and subscription for notes. It may be that the terms of the Agreement permitted time within which China Create might obtain shares or notes to transfer under the Agreement. But that is not how the genesis of the Agreement was described.

65.  Mr Chong is also on firm ground when he criticises China Create for blowing hot and cold, when it says on the one hand that it did not have the shares in the first place but on the other hand that the reason why it only has so few shares is as the result of a margin cut. Those two points do seem to me to be inconsistent. I also have some difficulty in understanding how a drop in the value of the JIGL shares, held as part of a basket of other shares within a securities account, can have led to a margin cut resulting in a 90% reduction in the number of JIGL shares held.

66.  I also do not accept Mr Wang’s submission that there could not be any real risk of dissipation where China Create has retained some millions of the Shares. The submission proceeds on the basis that if, in the period of months since the alleged breach of the Agreement, a real intention to defeat any claim had existed, then China Create would have disposed of all of the Shares. I do not think that necessarily follows, and in any event it is just one factor which would go into the consideration of risk. Further, it is settled that if a real risk of dissipation is found, it may be a consequence that only part protection is provided by an order made on that finding.

67.  The apparent deliberate dissipation of the very subject matter of the Agreement seems to me to be an important point from which one can readily draw the inference of a real risk of dissipation. There are a number of other additional matters which also come into the picture.

68.  Though it may not be a matter of great weight bearing in mind its hearsay (perhaps multiple hearsay) nature, I also take into account the newspaper report of the police allegations relating to Zhang and a related China Create company, and the content of the underlying official police notice. Further, it does not seem to be disputed that Zhang was arrested on allegations of various false and fraudulent activity. Those matters seem to me properly to give rise to an inference of real risk of dissipation. I do not think it is necessarily an answer to that inference to point out that if Zhang is in custody he is in no position to exert any influence over China Create, which requires a different inference. Nor in the circumstances where Zhang and Wang are not just husband and wife but apparently business partners, that the police notice focuses on Zhang alone.

69.  Of course, the other point of referring to Zhang’s apparent difficulties with the police authorities ties in with the other aspects of evidence which show financial difficulties being encountered, as might be expected, in a connected business such as that of China Create.

70.  I also accept that where China Create’s main assets appear to consist of shares in public companies, they are susceptible to easy disposal, in other words are at real risk of dissipation. In this context, it seems to me to be something to be taken into account that Wang originally claimed to have practical difficulties in retrieving records to confirm the amount of JIGL shares held by China Create. This is perhaps particularly so where another part of Wang’s initial evidence emphasises the difficulty in obtaining paper shares to replace electronic shares, the holding in which must be readily identifiable from brokerage accounts. Even the disclosure which has been given provides no historical context for the snapshot now shown.

71.  Mr Wang criticises what he describes as the “significant mutation” of Sky Motion’s case on risk of dissipation between the ex parte hearing and this inter partes hearing. He says that mutation is a signifier of material non-disclosure (which I deal with below), but he also says that it signifies the lack of solid evidence to prove a real risk of dissipation.

72.  I do not agree. The main changes in the points made as to risk of dissipation arise as a result of the filing of Wang’s evidence. Of course, at the ex parte hearing Sky Motion was not able to rely as evidence of real risk of dissipation things which were yet to be said in evidence filed by China Create. But that does not preclude it from relying on that material at the inter partes hearing, now that such evidence has been filed.

73.  Mr Wang says that, whilst there is no evidence to show the full size and operation of China Create at the moment, the available evidence is already sufficient to show that it has substantial assets and operations, pointing against a real risk of dissipation. He relies on what he says is the disparity between the total assets owned by China Create and the disputed sum, as an important factor against the finding of risk of dissipation. However, on the materials currently available (which on China Create’s own case are by no means full materials), I do not think that the sizeable assets as might be held by China Create on balance remove a reasonable apprehension of a real risk of dissipation.

74.  I have also taken into account that in a letter from solicitors on behalf of a securities company, intimating that its client might wish to intervene in these proceedings, reference is made to a significant margin loan facility provided to China Create on which a margin call in a sum exceeding $116 million has been unsatisfied since demand on around 10 May 2019. There is also another set of proceedings in which a Mareva injunction was granted by DHCJ Field against China Create arising from another claim in excess of $300 million.

75.  I am wholly satisfied of the risk of dissipation justifying the continuation of the Order.

76.  I might add that the terms of the Order, and the likely terms of any continuation of the Order, specifically identify that the freezing aspect would be suspended if the injuncted sum is paid into court. Whilst I specifically acknowledge that no obligation to make the payment into court is triggered unless the court has already been satisfied of a real risk of dissipation, which I am, on Mr Wang’s submissions China Create would have no difficulty in paying in the relevant amount and/or the figure frozen would have little impact on its other activities.

77.  That a defendant has other assets in excess of the injunction ceiling sum is not a reason to refuse the injunction if a real risk of dissipation has been found. But the defendant is entitled to use those assets, as the standard form of the Mareva order identifies. Indeed, that is one reason why the typical disclosure orders ancillary to Mareva orders are required, and why such disclosure may be of assistance to both parties.

Balance of Convenience

78.  I do not think that China Create has raised any real credible defence to the strong case on breach of contract which Sky Motion can assert on the undisputed facts.

79.  Further, where there is at least a serious issue to be tried on the proprietary claim, the balance of convenience would normally favour the preservation of the subject matter of the action at an interlocutory stage. Into the mix might be added that the subject matter are tradable assets, hence the real risk of dissipation, and that China Create is an overseas company, whereas the Notes and the Shares are listed on the Hong Kong Stock Exchange.

80.  Mr Wang relies on the significant prejudice which he says China Create now faces from the Order, which would only be exacerbated if it were to be continued, and in particular against the recent significant market losses. He says the practical reality is that all of China Create’s securities accounts have been frozen, effectively prevent it carrying on its normal business. But the answer to that seems to me to be for it to identify clearly what other assets it has above the ceiling limit, which it might therefore be able to deal with.

81.  Mr Wang also says that the delay in the making of the original application shows no irreparable damage would be suffered by Sky Motion, and that there was no intention to dissipate because of the part of the Shares still held, as well as the amounts in the securities accounts.

82.  But, there is little difficulty in identifying that the balance of convenience points strongly in favour of the grant and maintenance of the injunctive relief sought by Sky Motion.

Alleged Material Non-Disclosure

83.  There can be no realistic dispute as to the duties an ex parte applicant faces to make full and fair disclosure of all the material facts. It is a stringent duty, designed to protect the absent party. If material non-disclosure has occurred at the ex parte application, the order obtained at such an application would likely be set aside automatically without going into the merits. Nevertheless, there is a discretion to re-grant the same order in exceptional circumstances which only sparingly arise.

84.  The three areas of alleged material nondisclosure put forward by Wang are: (a) the failure to identify who conducted the communications between Sky Motion and China Create; (b) the failure to disclose the amendments alleged to have been made to the Agreement; and (c) the failure to have disclosed that Zhang was not involved in dealing with the Agreement.

85.  Mr Wang in submission also refers to the alleged disappearance of Wang, relied on at the ex parte stage, as a blatant lie explaining why it has now been dropped by Sky Motion as a point suggesting risk of dissipation. He also relies on (a) an alleged misrepresentation about the loan agreement between Sky Motion and Jin Jiang, (b) nondisclosure of we chat messages and the excel table.

86.  I do not think the precise person who conducted the communications was material. In any event, Wang’s allegation that it was only Cheuk who made communications on behalf of Sky Motion is contradicted by contemporaneous evidence. This point also goes nowhere on Wang’s own primary position that she had no knowledge of the terms of the Agreement, even as to the counterparty (although I have rejected that position as lacking credibility).

87.  I would also disagree with the suggestion that non-disclosure of WeChat messages was somehow to cover up the involvement of WB and Cheuk, which does not seem to me logically to follow the criticism. It seems to me that the WeChat messages were deployed in answer to the suggestion made by Wang in her evidence that China Create had not actually received the various payments under the Agreement.

88.  Where I have held that the allegations of amendments to the Agreement are essentially bare allegations, with little if any merit, it cannot have been material non-disclosure not to have anticipated and made reference to such matters. It does not amount to a material non-disclosure if an applicant fails to posit and canvas every conceivable argument which a creative respondent might conjure up in the face of a claim.

89.  Zhang was the shareholder and director of China Create until March 2018. That may explain why Wang said in evidence that she was unaware of any prior dealing between Sky Motion and China Create therefore the Agreement. The timing of the transfer of the shares from Zhang to Wang, against the chronology of his subsequent arrest, and the fact that the pair have been described as a “power couple”, all go properly into the consideration of whether or not there is a real risk of dissipation.

90.  I do not think whether or not Zhang was personally involved in the negotiations of, the making of, or subsequent dealings under the Agreement was so material as to amount to a material non-disclosure if not mentioned in the application for the injunction which led to the Order. But, in any event, Mr Wang accepts that Sky Motion did not suggest that Zhang played any role in the negotiation, signing, communicational performance of the transaction relating to the Agreement. So not to have mentioned it could not amount to non-disclosure. The real point of mentioning Zhang was that he appeared to be a co-controller of China Create, and that there were significant doubts as to the honesty of his dealings with the group of companies of which China Create is apparently a part.

91.  There is a bit more force in Mr Wang’s criticism of the way in which reliance appeared to be placed on Wang’s “disappearance” from Hong Kong. He rightly describes the picture painted in Mr Chong’s ex parte skeleton as being that (a) first Zhang was acting for China Create and he appears to be dishonest, and (b) Wang took over from Zhang and she has now disappeared. Whereas, it is now been accepted on behalf of Sky Motion that indirect contact with China Create was maintained to some extent with Wang’s new assistant. But, I think the real point being made in the evidence for Sky Motion was that whilst Wang had originally said she needed some time, and even said she needed to realise assets to effect the release of her husband from custody (which itself might identify possible acts of dissipation), no further contact was made by her directly, or substantively from her if indirectly. I do not think this was material non-disclosure or misleading in any material way.

92.  There is also some force in the criticism of Xie’s 1^st affirmation, in the possible confusion as to what was within her direct knowledge and what has been deposed to on information and belief. Part of the problem arises from referring to the “plaintiff” doing something, when corporate entities can only act through particular individuals. Clearly, it is at least better practice and probably required under the rules for the individuals who are said to have acted or spoken to be specifically named, and the source of the knowledge of those actions and words to be directly identified. Nevertheless, I do not think the lack of clarity in this case amounts to material non-disclosure, intentional or otherwise.

93.  None of China Create’s criticisms seem to me to amount to made-out allegations of material non-disclosure.

94.  I would also add that, even had I been satisfied that there was material non-disclosure such as should lead to the discharge of the ex parte Order, I would on the materials now available nevertheless re-grant the order on similar terms.

Variation of Ceiling Amount

95.  It is said that the figure put forward by Sky Motion which became the ‘ceiling figure’ in the Order was put forward by mistake, as it was based on the contract Sum. Mr Chong submits that if Sky Motion succeeds at trial, the amount of damages recoverable would likely far exceed the contract price.

96.  The evidence identifies that the average price of JIGL shares in the period May to August 2019 was around $3.45. That, says Mr Chong, would justify an increase in the ceiling figure to around $566 million. But Mr Chong accepts the force in the concern expressed by China Create about potential repeated variation of the figure in the light of a moving, at times volatile, market. Hence, to meet that concern, Sky Motion would undertake not to very further the varied amount.

97.  But such an undertaking would really only deal with a rising market, and not a falling market which might create a ceiling figure which is significantly too high. Nevertheless, I accept that where there is a proprietary claim it may be appropriate to come closer to reflecting market value of the Notes and the Shares in broad brush terms. Further, I see force in Mr Chong’s submission that the measure of any damage should be by reference to the date of the breach of the Agreement. Doing the best I can on the materials, by reference both to the date of alleged breach and specifically to reflect that the market is likely to move up and down over a period of time until the trial of this action, it seems to me that the appropriate ceiling figure is $500 million.

98.  Though I have not required an undertaking that no further variation application will be made in respect of that figure, there would need to be a significant change in the market that as might justify the making of any such application. As stated, I have also taken into account in reaching that figure the fact that the market may go down as well as up, and that the appropriate ceiling figure should be broadly fair and appropriate for both parties in such circumstances.

Fortification

99.  In accordance with the terms of the Order, Sky Motion has paid $10 million into court as fortification for its cross-undertaking in damages.

100.  China Create now seeks a further $40 million to be provided by way of fortification. That figure appears to have been calculated by reference to an alleged drop in value of the portfolio of public shares held by China Create in a securities account.

101.  The principles relating to the provision of fortification are well settled. The court has a general power to order fortification where it appears just and proper to protect the defendant by making such an order. Usually, merit of the parties’ case is not a necessary consideration. But, if the plaintiff has a strong case, it may not appear just and proper to make the protection available to the defendant.

102.  The burden of showing the need for fortification and the appropriate quantum falls on the defendant seeking fortification. He must show the likelihood of a significant loss arising as a result of the injunction, and demonstrate why he believes the plaintiff will be unable to make good that loss. The court will approach these issues by taking a broad view of the evidence, usually without the need for detailed enquiry. Whilst there is no obligation on the plaintiff to give full and frank disclosure of his own financial means, circumstances might arise where the absence of financial disclosure by a plaintiff might entitle adverse inference to be drawn as to his ability to meet his cross-undertaking in damages.

103.  Mr Chong submits that Sky Motion has already paid $10 million as fortification, and there has been no identification of a change in circumstances which might justify further fortification. However, that submission overlooks the point that the original fortification figure was one arrived at effectively ex parte, when China Create was yet to file its evidence. Hence, it seems to me that I should consider the question of fortification against the available materials on this inter partes hearing.

104.  That material seems to me to identify the following points, which I weigh in the balance. First, there is a natural movement, sometimes even volatility, in the value of notes and shares like the Notes and the Shares. That means that the value can go down, but it can also go up. Secondly, on present material Sky Motion has a strong case that China Create has breached the Agreement. Thirdly, there is no particular reason to doubt Sky Motion’s ability to make good on its cross-undertaking. Fourthly, though before the filing of its evidence and subsequent market falls, the original figure of $10 million was suggested by China Create as being what it described as an intelligent estimate of the likely amount of loss and hence a reasonable figure, I do not think that the evidence since put forward identifies a more intelligent estimate, even though it is tied to a temporal drop in value of a particular brokerage holding.

105.  I consider in the exercise of my discretion that the $10 million fortification already provided is a just and proper figure sufficient to protect the defendant in all the circumstances.

Costs

106.  Though I have allowed the Leave Summons, the summons effectively sought an indulgence to permit the filing of late evidence, and it does not seem to me that cost should follow the event. Rather, the costs of the Leave Summons should form part of the costs of these applications overall.

107.  On my findings, Mr Wang correctly accepts that costs would follow the event and does not oppose a costs order against his client. Therefore, I shall order that the costs of all four summonses shall be paid by China Create to Sky Motion. I will assess costs summarily or on a gross some basis on paper in accordance with the directions I have given.