ZHAO ZHI QIANG v. ZHAO ZHIGUANG AND ANOTHER

HCA 1614/2019

[2023] HKCFI 382

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1614 OF 2019

______________________

BETWEEN

______________________

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DECISION
(Variation of Costs Order Nisi)

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Introduction

1.  On 3 November 2022, this Court handed down a judgment declining to order default judgment sought by P (“Judgment”). This Court ordered, amongst others, as follows:

(1) No order made in relation to P’s Sanction Summons for judgment in default of defence against D1;

(2) P’s application for judgment in default of defence against D2 be adjourned sine die with liberty to restore;

(3) Retrospective leave to D1 to file and serve D1’s 7^th affirmation in compliance with the order dated 13 May 2021.

2.  This Court made a costs order nisi, that D1 shall pay P’s costs of paragraph 1 of the Sanction Summons (in relation the default judgment against D1), and the P’s costs of the Relief Summons, with certificate for one counsel and costs of paragraph 2 of the Sanction Summons (in relation to default judgment against D2) be reserved (“Order Nisi”).

3.  Thereafter, both P and D1 applied to vary the Order Nisi.

4.  In D1’s summons issued on 22 November 2022, the variation sought by D1 is as follows:

(1) P to pay D1’s costs of and incidental to (a) paragraph 1 of the Sanction Summons and (b) the Relief Summons;

(2) Alternatively, D1 to pay P’s costs of and incidental to (a) paragraph 1 of the Sanction Summons and (b) Relief Summons up to 21 March 2022 (date of service of the 12^th affidavit of Mr Tsui exhibiting D1’s 7^th affirmation), and that P to pay D1’s costs thereafter.

5.  In P’s summons issued on 23 November 2022, the variation P sought is for costs of paragraph 1 of the Sanction Summons and costs of the Relief Summons be paid by D1 to P forthwith, with certificate for 2 counsel, and such costs be summarily assessed.

6.  This Court directed that the above two summonses (collectively “Variation Summonses”) to be determined on paper without an oral hearing.

7.  In this decision, I shall continue to adopt the nomenclature and abbreviations in the Judgement, unless otherwise indicated herein.

Discussion

8.  As set out in paragraph 31 of the Judgment, there were 3 contentions on behalf of D1 as to why this Court should not grant default judgment as sought by P.

9.  The 1^st contention was that the Unless Order was a ‘time order’ The 2^nd and 3^rd contentions were that there had been compliance of the Disclosure Order, failing which there should be relief from sanction.

10.  Much time was spent on the 1^st contention which was D1’s primary contention at the hearing. The Court had to be referred to the relevant authorities and the Transcript of the hearing on 13 May 2021. This was an issue which D1 had clearly failed.

11.  As noted in the Judgment, the Relief Summons was only issued on behalf of D1 on 20 April 2022, some 4 months after P issued the Sanction Summons. Further, although Mr Tsui had in his 12^th affidavit exhibited a copy of D1’s notarised 7^th Affirmation, the 7^th Affirmation was not properly filed until 8 July 2022, some 6 weeks before the hearing before this Court.

12.  D1 filed the 7^th Affirmation to oppose the Sanction Summons, but in his 7^th Affirmation, he also provided further information/explanation/clarification and/or confirmation of information disclosed in numerous documents produced in his earlier affirmations. What was clear was that it was only upon considering the same in D1’s 7^th Affirmation that the Court came to the view that there has been “literally complete compliance” of the Discovery Order and the Unless Order. The Court gave retrospective leave for D1 to file and serve his 7^th Affirmation in compliance with the Discovery Order and the Unless Order and granted relief from sanction to D1. It was clear that D1 had also failed in his 2^nd contention in that there had been compliance and only obtained relief under his 3^rd contention.

Conclusion and order

13.  Having considered the above, this Court is not prepared to vary the Order Nisi as sought by D1. D1’s Variation Summons is to be dismissed.

14.  As for the variation sought by P, even though the value of the P’s claim is not insubstantial, the Sanction Summons and the Relief Summons did not involve complicated legal issues or arguments. This Court is not prepared to grant a certificate for two counsel as sought by P, but in line with the approach in most interlocutory applications, the Court will order the costs to be summarily assessed, and to be paid by D1 within 21 days after summary assessment. P’s Variation Summons is allowed to such extent.

15.  As for costs of D1’s Variations Summons, P’s costs are to be paid by D1, such costs to be summarily assessed and to be paid by D1 within 21 days after summary assessment.

16.  As for P’s Variation Summons, P did not succeed in seeking a certificate for two counsel, and D1 did not really oppose summary assessment. Having considered this, I make no order as to costs.

17.  P is to lodge his statement/s of costs within 14 days, and D1 to lodge his list/s of objections 14 days thereafter.

Mr Alan CY Yung, instructed by Hastings & Co, for the Plaintiff

Ms Tara Liao, instructed by Jun He Law Offices, for the 1^st Defendant

HCA 1614/2019

[2022] HKCFI 3356

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1614 OF 2019

______________________

BETWEEN

______________________

________________

JUDGMENT

________________

Introduction

1.  There are two summonses before this Court:

(1) A summons issued by the plaintiff (“P”) on 29 November 2021 for default judgment (“Sanction Summons”)

(2) A summons issued by the 1^st defendant (“D1”) on 20 April 2022 for relief from sanction (“Relief Summons”)[1]

2.  P and D1 are brothers and their dispute in this action concerns the beneficial ownership of the 10,000 issued shares of (or the equivalent 100% shareholding) in the 2^nd defendant (“D2”), a company incorporated in Hong Kong.

3.  D2 is a 96.25% shareholder of a Mainland Chinese company Kunshan Hoza Garment Manufacturing Company Limited (“Kunshan Hoza PRC”) which engages in a garment business (“Garment Business”) and owns a piece of land in Kunshan, Jiangsu, value of which was said to be between RMB 50-80 million (“Land”). A factory, buildings and facilities for the manufacturing chain of the Garment Business (collectively “Factory andBuildings”) were built on the Land.

4.  The writ herein was issued by P on 30 August 2019. On 29 August 2019, P obtained an ex-parte injunction against D1 and D2 (collectively “Ds”), which was later amended by K Yeung J on 13 September 2019 and continued by DHCJ MK Liu (“Judge”) on 27 November 2020 (“Injunction”)[2]. Upon continuing the Injunction, the Judge made an ancillary disclosure order (“Disclosure Order”).

5.  P complains of D1’s non compliance of the Disclosure Order. This eventually led to an order made by the Judge on 13 May 2021, that unless D1 made disclosure as set out therein by the stipulated deadline, D1 be debarred from defending this action, D1’s amended defence filed on 6 October 2020 (“Amended Defence”) be struck out, and P be at liberty to enter judgment against D1(“Unless Order”). On 21 June 2021, D1 issued his 1^st summons for relief from sanction. On 6 July 2021, Master Dick Ho granted an extension of time for D1 to comply with the Unless Order , until 4 pm on 13 July 2021[3].

6.  It is P’s case that D1 still has not complied with the Unless Order. P issued the Sanction Summons seeking that the Amended Defence be struck out and to enter judgment against D1 in default of defence. As there has been no defence filed on behalf of D2, in the Sanction Summons, P also seeks judgment against D2 in default of defence, but at the hearing before this Court, Mr Dawes SC has suggested P’s application for default judgment against D2 be adjourned sine die with liberty to restore.

7.  Some 4 months after P issued the Sanction Summons, D1 issued the present Relief Summons.

Brief background

8.  P’s and D1’s respective case in this action has been helpfully summarised in the decision of the Judge on 27 November 2020 (“Injunction Decision”).

9.  Briefly, it is P’s case that the Garment Business was developed by him in the 1990s, initially in New York and then in Shanghai through his group of companies in Hong Kong, the Mainland, the US and the BVI (“Hoza Group”). According to P, he set up a factory in Mainland China in 1994 for the Garment Business and that D1 had since 1994 been working for P as his employee in the Garment Business in Mainland China until in around 2018 when the brothers had a fall out.

10.  D2 was incorporated on 28 September 2001 in Hong Kong and it was acquired as a shelf company via D1 on about 29 January 2002. Upon acquisition, (i) one of the two issued shares of HKD 1 each was transferred to D1, and the remaining one share was transferred to a BVI company Simple Style Limited (“SSL”) which was beneficially owned by P; and (ii) the share capital was increased by D2 issuing 9,998 new shares of HKD 1 each, which were all allotted to D1. Thus, SSL held 1 share and D1 held 9,999 shares in D2. D1 and SSL were appointed as the two directors of D2.

11.  P’s case is that D1’s 9,999 shares in D2 were held on trust for P. On the other hand, D1’s case is that the one share held by SSL was held on trust for D1.

12.  D1’s case is that he acquired D2 initially for his future investment purpose and to pay and/or receive cash flow for the garment business owned and operated by D1, and that D1’s garment business outsourced the manufacturing of garments to fulfil purchase orders from a US company International Direct Group (“IDG”) of which P holds 60% and P’s business partner David Haynes holds 40%.

13.  It is not disputed that about 4 months after D2 was incorporated in Hong Kong, Kunshan Hoza Garment Manufacturing Limited (“Kunshan Hoza PRC”) was incorporated in Mainland China on 9 February 2002. According to D1, upon incorporation, the shares in Kunshan Hoza PRC were registered as to 50% in the name of D1 and the remaining 50% in the name of the brothers’ mother Hong Caizhu (“Mother”). However, according to P, he arranged for Mother to be the registered shareholder of 20% of the issued shares and D1 of 80% and that they both held their shares on trust for P.

14.  The Land was acquired through 3 separate sale and purchase agreements between July 2001 and June 2003 from the Kunshan Zhangpu People’s Government. It is P’s case that the consideration for the acquisition of the rights in the Land was paid by D1 using P’s funds, whereas D1’s case is that those were his funds. Upon acquisition of the rights in the Land, the Factory and Buildings were constructed on the Land, and construction works were completed in about 2005.

15.  On 12 December 2002, 9,900 shares or 99% of D2’s shareholding was transferred from D1’s name to P’s name, with the remaining 100 shares or 1% shareholding remaining in D1’s name. As a result, P became the registered owner of 9,900 shares and D1 became the registered owner of 100 shares in D2. At the same time, P was appointed to be one of the two directors in place of SSL. D1 remained to be the other director.

16.  On 19 August 2004, there was again a restructuring of the shareholding of Kunshan Hoza PRC, in that 10% of the shareholding thereof became held by D1 and the remaining 90% shareholding became held by D2.

17.  According to P, in about 2005, P and his ex-wife Qin Yun Liu (“Ex Wife”) reached a settlement for division of assets and properties for the purpose of a clean break divorce (“2005 Settlement”) but subsequently P’s Ex Wife reneged on the 2005 Settlement. In or about mid 2009, during a discussion with D1, at the office of Kunshan Hoza PRC, D1 suggested to P that P should have D1 or D1’s wife who are Mainland citizens to hold all the shares in D2 (“Shares”) on behalf of P for protection and as precautionary measure, in case P’s Ex Wife, in breach of the 2005 Settlement, was to claim for a share in the Garment Business in future divorce proceedings.

18.  It is P’s case that out of trust for D1, P agreed to D1’s proposal and P executed a bundle of undated documents for the transfer of the Shares to D1. According to P, D1 subsequently effected the transfer by causing all those undated documents to be dated 29 July 2014 in the absence of P’s prior knowledge.

19.  On the other hand, D1’s version is that in about 2014, he had asked P to transfer back to D1 the Shares held by P in trust for D1, after D1 learnt of P’s divorce proceedings with his Ex Wife in 2013 in New York, and that D1 had no trust in Ms Guo Yan (“Guo”) who was then P’s girlfriend and now P’s wife. According to D1, P agreed to the transfer and that it was under such circumstances that the Shares were transferred to D1’s name on 29 July 2014.

20.  Since about mid 2014, D2’s shareholding in Kunshan Hoza PRC has been 96.25%, leaving the remaining 3.75% shareholding held in D1’s name.

21.  To summarise, the corporate structure of D2 and Kunshan Hoza has been as follows:-

Date	Asian Trinity Limited (城泰有限公司)/D2	Kunshan Hoza Garment Manufacturing Company Limited (昆山厚實製衣有限公司) /Kunshan Hoza PRC
28 September 2001	Incorporation in HK
29 January 2002	Acquisition via D1 1 share (0.1%) – SSL (P) 9,999 shares (99.99%) – D1 Directors: SSL                 D1
9 February 2002		Incorporation in Mainland China 50%, or 80% (according to P) - D1 50%, or 20% (according to P) - Mother
July 2001 and June 2003		Land acquired by Kunshan Hoza PRC
12 December 2002	9,900 shares (99%) – P 100 shares (1%) – D1 Directors: (i) P                 (ii) D1
19 August 2004		10% – D1 90% – D2 Legal Representative and Chairman – P
December 2013		P removed as Legal Representative and Chairman
29 July 2014	10,000 shares (the Shares) – D1 Sole Director – D1
Since mid 2014		3.75% – D1 96.25% – D2

22.  In 2018, there was a breakdown in the relationship between P and D1 whereupon according to P, he had repeatedly demanded D1 to return the Shares to him, but D1 refused to do so. Further, according to P, on about 4 August 2019, he discovered that D1 had, without P’s prior consent, attempted to register a change of shareholding in Kunshan Hoza PRC by transferring D2’s shareholding in Kunshan Hoza PRC to D1’s own name.

23.  This led to P to applying ex parte for the Injunction and issuing the writ herein claiming amongst others (1) a declaration of trust over the Shares and D2’s assets; (2) an order to transfer the Shares to P; (3) an injunction; and (4) an account of profits and order for tracing.

24.  The Injunction provides that D1 must not, whether by himself or his servants, agents or otherwise howsoever:-

(1) Act or hold himself out as shareholder of D2 and do any acts qua shareholder including: (a) disposing of or dealing with or diminishing the value of any of the Shares; and/or (b) changing the structure of the board of directors and the management of D2;

(2) Act or hold himself out as director of D2, do any act on behalf of D2 including disposing any assets of D2 including (but not limited to) D2’s 96.25% shareholdings in Kunshan Hoza PRC or any part thereof.

25.  The Disclosure Order[4], ie paragraph 2 of the Injunction, provides as follows:

“[D1] shall file and serve an affirmation on [P] within 7 days of the date of the service of this Order, informing [P] at once of:

(a) all of the assets of [D2], whether in or outside Hong Kong, whether in the name of [D2] or not, and whether solely, jointly owned, giving the value, location and details of all such assets (“DO(a)”);

(b) all of the assets of [Kunshan Hoza PRC], whether in or outside Hong Kong, whether in the name of Kunshan Hoza PRC or not, and whether solely, jointly owned, giving the value, location and details of all such assets (“DO(b)”); and

(c) how the assets of [D2] and Kunshan Hoza PRC respectively have since 29 July 2014 been paid, disposed, or committed to be paid or disposed of by [D1] and/or [D2] and its agents, including to whom and/or to what entities the assets or any part thereof have been paid and/or given to (if paid or given to any entities other than [D2] and/or Kunshan Hoza PRC), when the assets were so paid and/or given, and for what alleged purpose (“DO(c)”).

26.  D1 failed to comply with the Disclosure Order within the stipulated deadline. This led to P issuing his 1^st summons for an unless order on 4 January 2021. According to D1, due to the prolonged and extensive Covid regulations in Mainland China at the time, he was unable to formally attest his affirmation in time, but a finalised draft of his 4^th affirmation was exhibited in the 8^th affirmation of his solicitor Mr Tsui Ming-lun (“Mr Tsui”) filed on 11 January 2021, purporting to comply with the Disclosure Order and exhibiting thereto copies of the annual audited financial statements of Kunshan Hoza PRC (“Financial Statements”) from 2015 to 2018 (“Draft4^th Affirmation”).

27.  The parties later agreed by consent for D1 to have retrospective leave to serve the Draft 4^th Affirmation. However, P’s solicitors sent a letter to Ds’ solicitors on 18 January 2021, complaining that the purported disclosure by D1 in the Daft 4^th Affirmation was insufficient and that D1 was in breach of the Disclosure Order (“18.01.21 Letter”)[5].

28.  On 13 April 2021, P issued his 2^nd summons for an unless order, which was fixed for a hearing before the Judge on 13 May 2021 (“Unless Summons”)[6]. On 12 May 2021, the day before the hearing of the Unless Summons, without admission to P’s allegation of inadequate disclosure, D’s solicitor Mr Tsui filed a further affirmation exhibiting D1’s finalised draft 5^th affirmation with some supporting documents (“Draft5^th Affirmation”). P’s Unless Summons was heard before the Judge on 13 May 2021, upon which the Unless Order was made.

29.  Although thereafter the Draft 4^th Affirmation and the Draft 5^th Affirmation were filed, they were later expunged as they were not formally attested and notarised. Both formally attested and notarised affirmations were eventually filed on 13 July 2021 (respectively “4^th Affirmation” and “5^th Affirmation”). Prior thereto, D1’s 6^th affirmation was also filed on 8 July 2021 purportedly to comply with the Unless Order (“6^th Affirmation”).

30.  As said earlier, it is P’s case that D1 has still failed to comply with the Unless Order and this has led P to issue the Sanction Summons, and that D1 issued the present Relief Summons some 4 months later. D1’s 7^th affirmation[7] was subsequently filed (“7^th Affirmation”).

The Issues

31.  D1 contends that:

(1) the Unless Order was just a “time order”;

(2) there had been compliance of the Disclosure Order;

(3) in the event that the Court finds there was non compliance, relief from sanction should be granted.

Whether the Unless Order was a “time order”

The Unless Order

32.  Briefly, paragraph 1 of the Unless Order provides as follows:

“(1) Unless [D1], by noon on 18 June 2021, file and serve a further affirmation which should be made by [D1] himself to make disclosure of the following matters and provide copies of supporting documents evidencing the same in full and proper compliance with paragraph 2 of the [Disclosure Order], D1 be debarred from defending this action, the [Amended Defence] be struck out and [P] be at liberty to enter judgment with costs against [D1]:

(i) The value, location and details of the assets of [D2] including but not limited to monies in bank account, cash in hand and all other assets whatsoever, whether movable or immovable, whether in or outside Hong Kong and whether solely or jointly owned (“UO1(i)”);

(ii) The value, location and details of the assets of [Kunshan Hoza PRC] including but not limited to monies in bank account, cash in hand and all other assets whatsoever, whether movable or immovable, whether in or outside Hong Kong and whether solely or jointly owned (“UO1(ii)”);

(iii) Full details of any disposals of assets of Kunshan Hoza PRC, whether movable or immovable, whether in or outside Hong Kong and whether solely or joined owned, since the financial statement 2018 (“UO1(iii)”);

(iv) Full details of each of the disposals of assets of Kunshan Hoza PRC as disclosed in paragraph 11 of the [Draft 4^th Affirmation] including but not limited to: ……. (“UO1(iv)”)

(a) In respect of the alleged severance payment (see paragraph 11(1) of the [Draft 4^th Affirmation]), the names of those employees receiving the severance payment from Kunshan Hoza PRC, the respective amounts paid and payment records;

(b) In respect of the alleged tax payment (see paragraph 11 (2) of the [Draft s 4^th Affirmation]), the name of entity receiving the tax payment by Kunshan Hoza PRC, the date on which the payment was allegedly made and payment records;

(c) In respect of the alleged transfer of Kunshan Hoza PRC's equipment to suppliers (see paragraph 11 (3)(a) of the [Draft 4^th Affirmation]), an inventory of equipment allegedly to the suppliers with proper description, the name of each such supplier, the respective amounts of payables allegedly due to each of such suppliers and documentary records relating thereto, and the dates on which the equipment was allegedly transferred and delivered to such suppliers; and

(d) In respect of the alleged sale of Kunshan Hoza equipment (see paragraph 11(3)(b) of the [Draft 4^th Affirmation]), an inventory of equipment allegedly sold to Changshu Luohai Garment Manufacturing Company Limited (常熟市羅海製衣有限公司)with proper description, terms of the alleged sale and any written agreement, the amount of sale proceeds, the date on which the equipment was allegedly sold and delivered to Changshu Luohai Garment Manufacturing Company Limited (常熟市羅海製衣有限公司), the amount of the alleged loan lent by the [D1] to Kunshan Haza PRC, the date of the alleged loan, and any written record thereof.

General legal principles

33.  It was held by Chow J (as he then was) in Cosimo Borelli v Allen Tak Yuen Chan HCMP 2174/2014 ,12 Nov 2015 at §11, the appropriate approach when construing a court order is:

“ … the starting point is the natural and ordinary meaning of the words used in light of the syntax, context and background in which those words are used. What additional principles and factors come into play as part of the court’s exercise of interpretation will depend on the nature of the writing to be interpreted and will be highly dependent on the facts of the specific case.”

34.  Counsel for Ds, Ms Liao, has referred the Court to Silver Universe Investments Limited v China Securities Limited & another[2019] HKCFI 834, a case concerning the compliance of an unless order for a disclosure order in aid of an injunction. In his judgment, K Yeung J observed that:

“24. … in the absence of clear wording or history of the proceedings suggesting the contrary, the general position is that an unless order should be construed as a time order, so that a qualitative analysis of the adequacy of the step undertaken is in general not necessary.”

35.  As for “history of the proceedings suggesting the contrary”, K Yeung J referred to China Metal Recycling (Holdings) Ltd (in provisional liquidation) v Chun Chi Wai & Ors HCA 1412/2013,25 June 2014. As noted by K Yeung J, in that case, the unless order in question was construed as an order for compliance in the qualitative sense because it was made earlier by another deputy judge (a) “following protracted argument” and (b) after a positive finding that there had been non-compliance with the underlying disclosure order made in aid of a Mareva injunction[8].

36.  It was also submitted by Ms Liao that once an unless order was construed as a time order, the issue would turn on whether the deadline had been met and not on the adequacy of compliance, unless it could be said that the compliance was not made in good faith or illusory, citing what was said by Lok J in paragraph 34 of his judgment in Top Point Ltd v K & L Gates, HCA 1088/2011, 13 September 2016, a case concerning the compliance of an unless order for discovery.

37.  There is no real dispute on the above general legal principles.

The hearing on 13 May 2021

38.  P has produced a copy of the transcript of the hearing on 13 May 2021 before the Judge (“Transcript”). The hearing lasted about 30 minutes. Counsel Mr Alan Yung appeared for P and Mr Tsui appeared for Ds. Mr Yung had lodged written submissions setting out the details of P’s allegations of D1’s non compliance of the Disclosure Order. It appeared that there had been no written submissions from Mr Tsui.

39.  As seen in the Transcript, Mr Tsui opened by saying that there were a lot of items that had been answered by D1 and there were items P was not entitled to. Upon query by the Judge as to whether D1 had fully complied with the Disclosure Order, Mr Tsui responded that they did not say so but they had provided a further affirmation. The Judge had pointed out that P had set out all the details that P was entitled to, and he asked Mr Tsui whether he was saying that P was not entitled to some of the information set out in the Unless Summons, to which Mr Tsui said yes.

40.  As further seen in the Transcript, Mr Tsui submitted that paragraph 1(i) of the Unless Summons in relation to the assets of D2 had been complied with and that D2 did not have any bank accounts and all assets available had been disclosed[9]. However, the Judge pointed out that as the Draft 4^th Affirmation was only a draft, and that an unless order would still be necessary as even if Mr Tsui was correct that D1 had already disclosed all the assets of D2, the disclosure was made only in a draft affirmation[10]

41.  As for paragraph 1(ii) of the Unless Summons in relation to the assets of Kunshan Hoza PRC, Mr Tsui submitted that information had been disclosed in paragraphs 6 and 7 of the Draft 4^th Affirmation. What can be seen in paragraph 6 of the Draft 4^th Affirmation, D1 disclosed that as of 30 November 2020, Kunshan Hoza PRC’s assets had a total value of about RMB16,409,537.88 (excluding its liabilities). D1 had provided a breakdown of Kunshan Hoza PRC’s assets in a table (“Table A”)[11]:

	Category	Item	Value of About (RMB)
(1)	Real Property	Building and factory	7,579,109.72
(2)	Intangible Asset	Use of land	2,028,647.84
(3)	Other Receivables	流動資產，固定資產清理，在建工程，長期待攤費用	6,801,780.32

42.  The Judge queried about the details of “Other Receivables” in Table A, citing as an example the item “在建工程”[12] / “construction work in progress” and asking what this item was, whereupon Mr Tsui responded by accepting that a breakdown was necessary for “Other Receivables” but said that D1 had provided the breakdown in the Draft 5^th Affirmation[13].

43.  The Judge did not appear to be aware of the Draft 5^th Affirmation, which was contained in a late affirmation of Mr Tsui.

44.  Upon a copy of the Draft 5^th Affirmation being provided to the Judge by Mr Tsui, the Judge had said to save some time, even if Mr Tsui was correct that some parts of the Disclosure Order had been complied with by the draft affirmations, the Judge considered that in any event an unless order would be necessary as the two drafts affirmations were only drafts and that D1 would still need to make formal affirmations to comply with the Disclosure Order[14].

45.  Although Mr Tsui tried to argue that an unless order was not necessary, the Judge had pointed out that Mr Tsui had earlier agreed that the draft affirmation would not be sufficient to fully comply with the Disclosure Order and again cited the example of the item of “在建工程” and indicating that the details of this item were missing in the draft affirmation.

46.  Although it was not clear from the Transcript as to which draft affirmation the Judge was referring to, what is clear is that neither the Draft 4^th Affirmation nor the Draft 5^th Affirmation had contained the necessary details of the item of “在建工程”.

47.  Further, in paragraph 6 of D1’s Draft 5^th Affirmation, all D1 stated under “Other Receivables” was that part of which included (1) cash of about RMB 31,952.61 held at the factory and (2) savings in bank account about RMB 80,289.16. Then in paragraph 7, D1 disclosed a list of 7 bank accounts of Kunshan Hoza PRC[15].

48.  As pointed out by the Judge, Mr Tsui had himself agreed that there had not been full compliance of the Disclosure Order. The Judge had pointed out that the details of “在建工程” were missing and that if Mr Tsui was saying that D1 would only make an affirmation which would be identical to the draft, then it would be very difficult for the Judge to accept that D1 had intention to comply with the Disclosure Order. Mr Tsui then responded that D1 would add that item and the Judge had queried “Only that item?”[16].

49.  When Mr Tsui tried to explain, the Judge reminded him that D1 would have legal advice from Mr Tsui’s firm and that if an unless order was made and D1 filed an affirmation for the purpose of complying with the Disclosure Order and if the Court was of the view that the affirmation in fact was not good as some requested information was still missing, then the unless order would take effect[17]. Thereafter, the Judge gave his decision on P’s Unless Summons, stating that he agreed with P that for the reasons set out in the 18.01.21 Letter sent by P’s solicitors and in P’s counsel Mr Yung’s written submissions, D1 had failed to fully comply with the Disclosure Order, and that P should be entitled to have an unless order, as sought in the Unless Summons (“Finding”)[18]. Although after the Judge gave his decision, Mr Tsui had tried to argue that there were items in the Unless Summons that P was not entitled to, the Judge declined to hear him further on this.

50.  Ds had known about P’s complaints of the inadequacies of the disclosure in the Draft 4^th Affirmation since the 18.01.21 Letter in which P had set out the information which D1 allegedly failed to disclose. Ds had further been served with P’s Unless Summons on the same day it was issued, ie 13 April 2021. Yet, all D1 said in his Draft 5^th Affirmation, apart from making further disclosure, was that he denied what was alleged in P’s 18.01.21 Letter, and that the Unless Summons was premature and that most of the items were set out in his Draft 4^th Affirmation or not entitled to be discovered[19].

51.  First, Ds should have replied to the 18.01.21 Letter properly indicating which of P’s allegations of non disclosure was untrue, or alternatively why P was not entitled to the information set out. Second, it was open to Ds, upon being served with the Unless Summons, to set out in an affirmation in opposition as to why P was not entitled to the information set out in the Unless Summons. It was further open to Ds to lodge written submissions before the hearing before the Judge, and/or to seek a substantive hearing be fixed for the argument on whether P was entitled to the information sought the Unless Summons. Finally, if Ds were dissatisfied with the Unless Order, they could have sought leave to appeal.

52.  Notwithstanding Ms Liao’s submissions, it was clear that Mr Tsui himself had accepted that there had not been full compliance of the Disclosure Order in the Draft 4^th Affirmation and although Mr Tsui had initially tried to argue that there had been further disclosure by D1 in the Draft 5^th Affirmation, he clearly realised that there was still no sufficient disclosure in the Draft 5^th Affirmation of the details/breakdown of say, the item “在建工程” and Mr Tsui was trying to say he would add such details. As said earlier, the Judge had given brief reasons for his decision and he had agreed with P’s then counsel that for the reasons set out in the 18.11.21 Letter and in P’s written submissions that D1 had filed to fully comply with the Disclosure Order.

53.  The Unless Order is not one which requires a mere undertaking by D1 to file the draft affirmations by a specified time.

54.  Having considered all above said, and the Transcript, notwithstanding there had not been protracted argument before the Judge, there was the Finding by the Judge of non-compliance, and I have come to the view that the Unless Order requires compliance in the qualitative sense and it is not a “time order”. Further, the fact that D1 not only formally filed his 4^th Affirmation (as per the Draft 4^th Affirmation) and his 5^th Affirmation (as per the Draft 5^th Affirmation) after the Unless Order, but also his 6^th and his 7^th Affirmations making further disclosure clearly demonstrated that his disclosure in his 4^th and 5^th Affirmations was insufficient.

Whether there had been compliance of the Unless Order

The terms of the Unless Order

55.  Ms Liao complained that P had utilised the Unless Order to embark on a fishing expedition for information and documents of the assets of Kunshan Hoza PRC and that (1) as the Unless Order is formulated in vague and highly uncertain terms, making it extremely difficult for D1 to ascertain the scope of disclosure, D1 should be given the benefit of the doubt of any ambiguity; and (2) the Disclosure Order and the Unless Order were granted to preserve P’s alleged interest in the Shares, they could not have been intended to entitle P to minutiae details of the assets of Kunshan Hoza PRC, which is an entirely separate legal entity.

56.  First of all, there was no date or period of disclosure specified in DO(a) and DO(b) of the Disclosure Order. As the Disclosure Order was made on 27 November 2020, and that D1 was to make the disclosure within 7 days, a reasonable interpretation of the Disclosure Order in my view would be that the disclosure should be of the assets on or around 27 November 2020. As for DO(c) of the Disclosure Order, a reasonable interpretation would be the period covered under that paragraph should be from about 20 July 2014 to about 27 November 2020. The fact that D1 had voluntarily made disclosure of post 27 November 2020 information and/or documents does not mean he was under an obligation to do so. Had P or Ds been in any doubt, they should have sought clarification before the Judge, which neither had done.

57.  What is clear is that UO1(ii) is differently worded as DO(b) of the Disclosure Order. Ms Liao has complained that the words “all other assets” in UO1(ii) to be “extremely ambiguous and imprecise”. Under DO(b) of the Disclosure Order, D1 is under an obligation to disclose the value, location and details of all the assets of Kunshan Hoza PRC, and in my view, UO1(ii) only spells out that such assets should include but not limited to monies in bank account, cash in hand and all other assets whatsoever, whether movable or immovable. However, I do accept that the order is very wide with no monetary value placed on those assets and this could lead to disclosure of assets of insignificant value. As for “location” of the assets, I agree with Ms Liao that “location” does not necessarily mean the exact address.

58.  UO1(iii) and UO1(iv) stem from DO(c) of the Disclosure Order. As pointed out by Ms Liao, UO1(iii) refers to full details of any disposals of assets of Kunshan Hoza PRC without specifying any description of the nature of disposal or a monetary limit of disposal subject to disclosure. I agree that the wording is wide and vague. Also, I agree with Ms Liao that “Full details” does not mean all supporting documentary evidence. UO1(iv) seems to be a follow up on P’s disclosure made in the Draft 4^th Affirmation but appears to be wider in scope than DO(c) of the Disclosure Order. In any event, there is no requirement under UO1(iv)(d), as alleged by P in his 8^th affirmation[20], that “specific details, breakdown and supporting documents” are to be provided in relation to each of the items “周邊配套,機器設備,電子設備及其他,運輸設備,” to explain what they were, where they were located and their respective individual value.

59.  Having considered the above, I accept Ms Liao’s submission that there is ambiguity in the scope of the the Disclosure Order and the Unless Order, and that D1 should be given the benefit of the doubt in such circumstances[21].

Alleged Non-compliance

60.  By the time P issued the Sanction Summons, notarised and signed copies of D1’s 4^th, 5^th and 6^th Affirmations had been filed. As said earlier, after P issued the Sanction Summons, D’s 7^th Affirmation dated 24 March 2022 was eventually filed on 8 July 2022, in which D1 provided further explanation of his disclosure in the 4^th, 5^th and 6^th Affirmations.

61.  It was submitted on behalf of P that even taking into account the 7^th Affirmation, there were still significant outstanding disclosures and these are summarised in a table in paragraph 18 of P’s Skeleton Submissions (“P’s Table”). P’s Table is set out hereinafter:

Category	Outstanding disclosure (taking into account D1’s 7th Aff)
1(a). Real Property	• D1 failed to disclose the lease between Kunshan Hoza PRC and the tenant over the factory and buildings erected on the Land.
1(b). Other Fixed Assets	• D1’s disclosure with regards to “机器设备”，“电子设备及其他”，and “运输设备” remains incomplete and inconsistent. • Specifically, D1 failed to explain: (1) why the corresponding records regarding a “list of inventory and suppliers” in the sum of RMB297,313.74 could not be identified in the New Cashflow Extract (defined below); and (2) the inconsistencies between the New Cashflow Extract and the “明細分類賬” in relation to “固定資產” exhibited earlier by D1 in ZZG-05.[22]
1(d). Other Receivables	• D1 failed to disclose the details of the current status of various bank accounts up to the date of disclosure.[23]
2. Disposal of Assets	• D1 failed to produce a legible breakdown of records of payments by cash and bank transfers.[24] • D1 failed to produce the bank statements of Kunshan Hoza PRC to evidence the bank transfers.[25] • D1 failed to account for several transactions under “辦公費用” and “其他費用”.[26]
3. Undisclosed Assets	• D1 failed to disclose how the 60,000 units of finished women’s knit pants are committed to be paid or disposed of.[27]

Real Property

62.  In relation to the “Real Property”, under UO1(ii) of the Unless Order, as said earlier, “location” does not mean the exact address. In the 7^th Affirmation, D1 stated that in relation to Kunshan Hoza PRC, the dispute all along concerns the Land and the Factory and Buildings, and that relevant contracts for the purchase of the Land, building contracts and land certificates have been disclosed in D1’s List of Documents filed on 18 February 2021 and these documents showed the address and location of the Land. D1 has further confirmed that there are no other real property owned by Kunshan Hoza PRC save the Land, the Factory and Buildings. D1 has also pointed out that P was fully aware of the address of the Factory and Buildings as P had produced photographs of the entrance to the complex[28]. In the 7^th Affirmation, D1 has also reproduced the “Certificate of Right of Use” of the Land. Further, I also note that companies in the Hoza Group did use and/or occupy/use the premises of the Factory and Buildings[29].

63.  As for the lease of the Factory and Buildings erected on the Land, or the tenant/s thereunder, as pointed out by D1 in his 7^th Affirmation, he was not required in the Disclosure Order and/or the Unless Order to explain the occupation status of the Land or of the Factory and Buildings. D1 has explained that Kunshan Hoza PRC had rented out the Factory and Buildings to a tenant who then subleased it to others, and that he has no details on how and to whom the Factory and Buildings were sublet. The rental income received by Kunshan Hoza PRC has been disclosed in copies of the Financial Statements disclosed by D1.

64.  It was submitted on behalf of P that a copy of the lease or its terms is covered by the Unless Order. I think there is ambiguity in the Unless Order. The Unless Order, and/or the Disclosure Order, concerns assets and disposal of assets. D1 has produced the Financial Statements of Kunshan Hoza PRC for the years 2015, 2016, 2017, 2018 and also 2020. As seen in the 2018 Financial Statements[30], there are “Current Assets” and “Non-current Assets”. There are 8 items of “Remarks” in the 2018 Financial Statement[31]. In particular, item 5 are on the explanatory notes to the main items in the accounts/會計報表主要項目注釋 (“ExplanatoryNotes”)

65.  The Explanatory Notes are divided into 3 categories: (i) those in relation to the main items of “Schedule of Assets and Liabilities”/資產負債表主要項目注釋 (“Category (1)”); (ii) those in relation to the main items of “Schedule of Profit and Loss”/利潤表主要項目注釋 (“Category (2)”); and (iii) those in relation to the items of “Schedule of Cash Flow”/現金流量表項目注釋 (“Category (3)”).

66.  One can see from the Explanatory Notes that “rental income”/房租收入 is under 4. 其他業務利潤/ other business profits under Category (2)[32]. The rental income was stated to be RMB 1,174,668.57. In the Explanatory Notes of the 2020 Financial Statements, the rental income was stated to be RMB 3,862,866.72, against RMB 91.428.57 for previous year, ie 2019[33]. P complained that without the lease and/or other documents evidencing payment of rent, such huge fluctuation was inexplicable. First, the rental income was set out under the Schedule of Profit and Loss, ie Category (2). The rental income was part of “income” and I do not agree that the rental income received or receivable form part of the “assets” or “receivables” under Category (1). Second, the amounts for 2018, 2019 and 2020 have already been disclosed in the Financial Statements.

67.  In any event, in my view, renting out the Factory and Buildings is not a disposal of an asset. I do not agree that obligations (eg maintenance of the Factory and Buildings), if any, in the lease may involve the “disposal” or “committed disposal” of its assets. Such obligations, if any, are only expenses relating to the earning of the rental income.

68.  Having considered the terms of the Disclosure Order and the Unless Order, I find there is ambiguity in the UO1(ii), in that it is not specified that D1 is required to disclose under UO1(ii) the lease or the terms of the lease or tenant/s of the Factory and Buildings, or any breakdown as to which part of the Factory and Buildings was rented to whom, for how long and for how much, or the rental payment arrangement, or to have to provide any other documents evidencing payment of rent. It thus follows that D1 is not required to disclose under UO1(iii) a copy of the lease or the tenant/s, as there is no disposal of asset by renting out the Factory and Buildings and/or any part thereof.

Other Fixed Assets

69.  As for “Other Fixed Assets” under UO1(iii), in D1’s 4^th Affirmation, D1 has disclosed in paragraph 11 the major disposals of assets since the 2018 Financial Statements. In paragraph 11(3), D1 disclosed that in early 2020, Kunshan Hoza PRC has disposed of all of its equipments, with an estimated book value of RMB 404,199.74 by (a) transfer to suppliers for setting off payables due to such suppliers of RMB 297,313.74 and (b) remaining equipments sold as scrap materials to Changshu Luohai Garment Manufacturing Company (“Luohai”), and that the sale proceeds were used to repay the loan D1 lent to Kunshan Hoza PRC.

70.  It appeared from the above that the sale value of the remaining equipment to Luohai was about RMB 106,886 (ie RMB404,199/74 less RMB 297,313.74).

71.  P referred to item 6 of Category (1) of the 2020 Financial Statement in relation to “Depreciation of Fixed Assets”/固定資產累計折舊,減值準備[34], in which the “original price”/固定資產原價 of 4 items thereunder, namely “周邊配套,機器設備,電子設備及其他,運輸設備” came to over RMB 12m. “周邊配套” in fact refers to surrounding facilities relating to the Factory and Buildings. D1 said such was disclosed in the 2020 Financial Statements produced in his 5^th affirmation and also as Item 22 of his Supplemental List of Documents.

72.  Anyway, according to the above item 6 of Category (1), the “original price” of the 3 items 機器設備,電子設備及其他,運輸設備 came to RMB 6,778,594,49 at beginning of the period, but was reduced to “0” at the end of the period. As for depreciation, the amount of those 3 items at beginning of the period was about RMB 4,843,810 but again reduced to “0” at the end of the period. Without further evidence/explanation, these figures may not necessarily reflect the actual value of these equipments or that the book value of RMB 404,199.74 was not correct.

73.  D1 had in his 7^th Affirmation produced an extract of the cashflow in connection with the disposal of the equipments on 31 October 2020 and 31 December 2020 (“New Cashflow Extract”)[35]. P alleged that this was the first time D1 disclosed this document and that P could not find this New Cashflow Extract from any previous account ledgers concerning fixed assets and that this raised doubts whether D1 had withheld any part of any account ledgers from disclosure. Further, D1 failed to explain: (i) why the corresponding records regarding a “list of inventory and suppliers” in the the sum of RMB 297,313.74 could not be identified in the New Cashflow Extract and (ii) the inconsistencies between the New Cashflow Extract and “Breakdown of Other Receivables” produced by D1 in his 6^th Affirmation[36].

74.  In paragraph 12 of D1’s 5^th Affirmation[37], D1 had produced a “list of inventory and suppliers”[38] who received the inventories, the amounts that were deemed as setting off accounts payable due to those suppliers and the dates of disposal/set off (“Suppliers List”). The total amount in the Suppliers List was RMB 297,313.94 and the dates of disposal/set off were between 18 March 2020 and 10 April 2020.

75.  In paragraph 13 of D1’s 5^th affirmation, he then produced a list of equipments sold to Changsha Luohai of a total amount of RMB 90,885[39] (“Luohai List”). Part of the Luohai List with the full description of the equipment cannot be seen on the photocopy produced and no dates of disposal can be seen on the Luohai List, but according to paragraph 14 of D1’s 5^th Affirmation, payment of those items on the Luohai List was made to him in about April 2020.

76.  The amount of factory equipment disposed of as at 31 October 2020 as seen in the New Cashflow Extract was RMB 90,885 and the total amount of the factory vehicles disposed of as at 31 October 2020 was RMB 16,000. There was then another amount of RMB 28,000 for disposal of factory equipment on 31 December 2020 in the New Cashflow Extract.

77.  As the New Cashflow Extract was in relation to “cashflow”, it may not reflect the items and amounts in the Suppliers List, which were set off of amounts owed to the suppliers. As for the disposal of the equipments to Luohai, the amount of RMB 90,885 was reflected but I accept there were some additional items. However, the inconsistency, if any, was not in my view significant. Even if the New Cashflow Extract was a new document, there is no requirement in the Unless Order that all supporting accounting documents and/or ledger accounts have to be provided by D1.

78.  As mentioned earlier, the scope of UO(1)(iv) appears to be wider than DO(c). Under DO(c) of the Disclosure Order, D1 is only required to inform P in an affirmation of how the assets of D2 and Kunshan Hoza PRC have since 29 July 2014 been paid/disposed of by D1 and/or D2, including to whom/to what entities the assets or any part thereof have been paid/given, when and for what alleged purpose.

79.  In any event, UO1(iv) of the Unless Order does not specify that D1 is required to disclose the location and individual value of each of “電子設備及其他,運輸設備”. If P finds the information provided by D1 was inconsistent, or insufficient there is nothing to stop P to issue an application for specific discovery, setting out specifically what information or documents are required by P. At this stage, I find D1 has provided sufficient information to comply with UO1(iv)(c) and UO1(iv)(d).

Other Receivables

80.  P complained that D1 failed to disclose the details of the current status of various bank accounts up to the date of disclosure.

81.  As said earlier, there is no period specified in the Disclosure Order. Further, UO1(ii) of the Unless Order also does not specify the requisite period of disclosure for the assets of Kunshan Hoza PRC. In D1’s 5^th affirmation he has stated that part of the amount of about RMB 6,801,780.32 under “Other receivables” in Table A included (i) Cash of about RMB 31,952.61 held at the Factory and (ii) savings in bank accounts of about RMB 80,289.32[40]. D1 then provided a list of 8 banks where Kunshan Hoza PRC held bank accounts.

82.  Kunshan Hoza PRC had held account/s at the China Construction Bank in Shanghai, and the account/s was/were closed on 19 November 2020[41]. D1 has in the 7^th Affirmation stated that he has not been able to find the bank statement for this account. As for the accounts at the other 7 banks, D1 had provided a printed statement from each of the 7 banks, 4 as at about end of September 2020, and 3 as at about end of November 2020. The 2020 Financial Statements also reflected the cash at the Factory (RMB 41,841.01) and cash at bank (RMB 23,439.26), totalling RMB 65,280.27 as at 31 December 2020.

83.  I am of the view that the present documents provided by D1 are sufficient to comply with the DO(b) of the Disclosure Order and UO 1(ii) of the Unless Order.

Disposal of Assets

84.  P complained that D1 failed to (i) produce a legible breakdown of records of payments by cash and bank transfers, (ii) produce the bank statements of Kunshan Hoza PRC to evidence the bank transfers, and (iii) account for several transactions under “辦公費用” and “其他費用”.

85.  Regarding (i) above, there appeared to be only 3 illegible pages[42] out of a total of some 98 pages of the “breakdown of available records of payments by cash and rom bank transfers from July 2014 to November 2022” produced by D1 in his 6^th Affirmation (“Breakdown”). This cannot be said to be a significant non compliance. The Breakdown was produced by D1 to support paragraphs 9-11 of his 4^th Affirmation, and paragraphs 8-14 of his 5^th Affirmation.

86.  Regarding (ii) above, there is no requirement in the Unless Order that D1 has to provide bank statements to evidence all the bank transfers in the Breakdown.

87.  Regarding (iii), in paragraph 8 of D1’s 5^th Affirmation, D1 has produced a schedule of what he described as “all the other disposals of assets”[43]. However, the heading of this schedule states “昆山厚實製衣有限公司費用支出明細 (2019.1.1-2020.11.30)”, which appears to be a ledger account of the expenses and payments of Kunshan Hoza PRC during those 21 months (“Ledger”). The Ledger consisted of payments for utilities, litigation/legal costs, compensation to employees, taxes, financial expenses (bank charges and interests), depreciation expenses, labour insurance and employee other expenses. The item of office expenses/辦公費用 of RMB1,074,888.55 consisted of payments during the 21 months to companies which appeared to be a materials company, a trading company, a software technology company, a “針車設備公司”, a security services company, a firm of accountants in Suzhou, a lawyer office in Shanghai, and an estate agent company. The item of “其他費用” of RMB587,140.15 consisted of payments to a total of 7 companies such as fire services equipment company, insurance company etc.

88.  As said earlier, DO(c) of the Disclosure Order and/or UO1(iii) and (iv) of the Unless Order has not specified the monetary amount of the assets paid/disposed of/given since 29 July 2014 which are required to be disclosed by D1and/or D2. The words “paid”, “disposed of”, “given” are ambiguous and the period between 29 July 2014 and the date of the Disclosure Order spanned over 6 years. The Ledger appeared to contain normal business expenses and to expect D1 to account for each transaction in the Ledger is far too onerous, and unnecessary.

Undisclosed Assets

89.  P complained that D1 failed to disclose how the 60,000 units of finished women’s knit pants were committed to be paid or disposed of.

90.  The knit pants in question are subject to a legal action in the Mainland between Kunshan Hoza PRC and a company in the Hoza Group called Kunshan Xingjinrong Trading Company Limited/昆山欣锦荣贸易有限公司 (“Xinjinrong”). It is pleaded by D1 in the Amended Defence that from 2015 to 2017, Kunshan Hoza PRC received orders from and manufactured garments for both Shanghai Zhuoyi Garment Company Limited and Xinjinrong, and that Xinjinrong was a company incorporated by P in 2015 in Mainland with P as the sole shareholder and legal representative up to January 2020 and that Xinjinrong was incorporated to gradually take over D1’s garment business operation. In about August 2018, D1 caused Kunshan Hoza PRC to cease manufacturing garments for Xinjinrong as Xinjinrong had defaulted payment for clothings for 3 months and this had also led to a legal action commenced by Kunshan Hoza PRC in 2019 against Xinjinrong[44] (“18151 Action”). According to P, the action has been postponed and no court date fixed todate, pending the determination of the beneficial ownership of the Shares.

91.  The issue in the 18151 Action is whether D1 had the authority to cause Kunshan Hoza PRC to withhold the relevant shipment of the garments, and to demand payment of the full amount without any deduction of the sum already paid and without producing any invoice for payment.

92.  D1’s explanation for failing to account for the 60,000 units of knit pants was that these were made to the specification of Xinjinroung which was controlled by P and were labelled with the names of Xinjinrong’s customers, and that D1 did not consider them to be the assets of Kunshan Hoza PRC.

93.  In any event, I agree with Ms Liao that if P wished to seek specific disclosure in respect of these knit pants, P should have specifically identified such in the Disclosure Order/Unless Order and/or seek specific discovery.

Conclusion

94.  I agree with Ms Liao that the Disclosure Order and Unless Order were granted to preserve P’s alleged interest in the Shares and they could not have been intended to entitle P to seek disclosure of minutiae or microscopic details of the assets and accounts of Kunshan Hoza PRC. Further as said earlier, I find there is ambiguity in the scope of both orders. Having considered the terms of the orders, I am not satisfied that D1’s compliance so far has not been made in good faith, or illusory, or that there is still any significant non compliance on the part of D1. I am satisfied that there has been “literally complete compliance” of the Discovery Order and the Unless Order in the 4^th to 7^th Affirmations.

95.  In the above circumstances, I am not prepared to grant the order sought by P against D1 in paragraph 1 of the Sanction Summons. P’s application against D2 in paragraph 2 of the Sanction Summons shall be adjourned sine die with liberty to restore. As for the Relief Summons, I am prepared to grant relief from sanction to D1 by granting retrospective leave for D1 to file the 7^th Affirmation in compliance with the Unless Order.

96.  As for costs, it was only in the 7^th Affirmation that D1 had provided explanations and further details to further comply with the Unless Order. Having considered the circumstance of this case, I am of the view that D1 should pay P’s costs of paragraph 1 of the Sanction Summons and P’s costs of the Relief Summons, with certificate for one counsel. Costs of paragraph 2 of the Sanction Summons be reserved. This is an order nisi which shall be made final and absolute after 21 days.

Mr Victor Dawes SC and Mr Alan CY Yung, instructed by Hastings & Co, for the Plaintiff

Ms Tara Liao, instructed by Jun He Law Offices, for the 1^st and 2^nd Defendants

HCA 1614/2019

[2021] HKCFI 248

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1614 OF 2019

________________________

________________________

________________________

DECISION

________________________

1.  There are two summonses before me:

(1)  D1’s summons filed on 11 December 2020 (“the Leave Summons”) for leave to appeal from my decision dated 27 November 2020 (“the Main Decision”)[1]; and

(2)  D1’s summons filed on 16 December 2020 (“the Costs Summons”) for leave to allow D1 to make an application to vary the costs order nisi made by me in the Main Decision out of time (“the Costs Order Nisi”), and an order varying the Costs Order Nisi.

2.  By the Main Decision, I have allowed P’s application as per the Continuation Summons and dismissed the Discharge Summons.  I have also made a costs order nisi that costs of those 2 summonses be paid by D1 to P forthwith and be summarily assessed, with a certificate for 2 counsel.  This decision should be read together with the Main Decision.  For ease of reference, the abbreviations used in the Main Decision are adopted herein.

The Leave Summons

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^[2].

4.  Interlocutory injunctions are discretionary relief. Upon an appeal from a judge’s continuation or discharge of such injunction, the appellate court is “not to exercise an independent discretion of its own”. It must “defer to the judge’s exercise of his discretion and must not interfere with it merely upon the ground that the members of the appellate court would have exercised the discretion differently”[3].  The judge’s discretion is only to be interfered with if he made an error of law or principle, took into account irrelevant matters, or exercised his discretion in a manner outside the generous ambit within which reasonable disagreement is possible[4].

5.  Having read the Draft Notice of Appeal annexed to the Leave Summons and D1’s written submissions, D1 is relying upon the “reasonable prospect of success” limb to seek leave to appeal.  In essence, D1 is saying that I erred in making the following findings in the Main Decision:

(1)  there was no material disclosure by P at the ex-parte stage;

(2)  the wording of the Injunction Order is not too wide;

(3)  there is a serious issue to be tried.

6.  With respect, D1 is merely rerunning the arguments previously placed before this court.  I have dealt with those arguments in the Main Decision.  For the reasons given in the Main Decision, I am not persuaded that D1 has a reasonable prospect of success in the appeal by relying upon these arguments.

(1)  As to D1’s complaint based upon material non-disclosure, I have dealt with the same in [50] to [64] of the Main Decision.  I am not persuaded that I erred in finding that there has not been any material non-disclosure by P as alleged by D1.  In particular, I have said in [63] of the Main Decision that even if I were wrong and D1 had in fact made out a case of material non-disclosure against P, I would be prepared to exercise my discretion against the discharge of the Injunction Order for the reasons given in that paragraph.  It has not been shown in what way I have erred in principle in the exercise of my discretion and therefore my discretion should be interfered with by the Court of Appeal.

(2)  As to whether the scope of the Injunction Order is too wide, I have dealt with the same in [65] to [68] of the Main Decision.  It has not been shown in what way I have erred in the analysis as set out in [67] of the Main Decision.  With respect, I am of the view that there is no merit in this challenge.

(3)  As to whether there is a serious issue to be tried, I have dealt with the same in [40] to [49] of the Main Decision.  I am not persuaded that I erred in finding that there is a serious issue to be tried.

7.  In my view, D1 has not shown a reasonable prospect of success in his proposed appeal against the Main Decision.  Leave to appeal must be refused.  I would dismiss the Leave Summons.

The Costs Summons

8.  D1 suggests that the Costs Order Nisi should be varied so that the costs of the Continuation Summons and the Discharge Summons should be P’s costs in the cause, without a certificate for 2 counsel.

9.  D1 admits that in accordance with the timetable set out in Order 42 rule 5B(6), he should have taken out an application for an order to vary the Costs Order Nisi by 11 December 2020.  However, this has not been done.  The Costs Summons was only filed on 16 December 2020.  D1 submits that the delay is just a short one.  D1 explains that after the Main Decision was handed down on 27 November 2020, time was taken to review the Main Decision and to hold conferences to discuss the way forward.  Resources were pulled to prepare the Leave Summons. Due to the limited resources caused by Covid-19 (including reduced manpower of D1’s solicitors), the Costs Summons was not filed in time but was only filed a few days after the deadline.

10.  As to whether a court has jurisdiction to extend time for varying a costs order nisi after it has become absolute by the operation of Order 42 rule 5B(6), as observed by Lam VP in [42] of Poon Ching Man v Lam Hoi Pun[5], there are different authorities suggesting different answers to this question. Even if the court has jurisdiction to do so, the considerations in Order 2 rule 5 may well be relevant.

11.  However, it would not be necessary for me to resolve the jurisdiction issue and to consider Order 2 rule 5 in this decision.  For the reasons set out below, I am of the view that there is no merit in D1’s application for varying the Costs Order Nisi.  Even if the application were made in time, the application would still be dismissed.  That being the case, even if I have jurisdiction to allow D1 to make the application out of time, I would decline to do so.

12.  In considering the application for varying the Costs Order Nisi, everything must be based upon my rulings made in the Main Decision.  The application is not an opportunity for D1 to reargue the matters which have already been determined by me in the Main Decision.  I am not prepared and indeed I am not allowed to revisit those matters^[6].

13.  D1 refers me to Melvin Waxman v Li Fei Yu[7] and submits that in respect of the costs of the Continuation Summons and the Discharge Summons, both costs following the event and costs being P’s costs in the cause are options before the court.  I have no quarrel with these.  After all, costs are in the discretion of the court.

14.  D1 submits that costs of the Continuation Summons and the Discharge Summons should be P’s costs in the cause.  P should not be immediately awarded these costs and should only be allowed to get those costs if P eventually succeeds at the trial.  D1 submits that:

(1)  Whether the Injunction Order should have been granted and continued largely depends on which party has been telling the truth, and the truth can only be found out in the trial.

(2)  D1 and indeed the operation of ATL have been heavily restricted by the Injunction Order since around November 2019, such that D1 had no choice but to apply for the discharge or variation of the Injunction Order.

(3)  P has failed to discharge the duty of making full and frank disclosure at the ex parte application for the Injunction Order.

15.  With respect, there is no merit in these submissions.

(1)  It is plainly wrong in saying that whether an interlocutory injunction should be granted depends on which party is telling the truth.  Time and again, the courts have said that what is necessary to be shown by the applicant seeking an interlocutory injunction is a serious issue to be tried.  D1 has challenged that there is no serious issue to be tried, and that challenge failed.

(2)  No challenge based upon balance of convenience has been made by D1 against the Injunction Order.  The allegation that “D1 and indeed the operation of ATL have been heavilyrestricted by the Injunction Order since around November2019” is not proved by evidence and is not a finding made by this court in the Main Decision.

(3)  I have dismissed D1’s complaint concerning material non-disclosure in the Main Decision.  D1 is not allowed to rely upon that complaint to support his application for varying the Costs Order Nisi.

16.  It would be wrong to say that as a matter of principle, the costs of an interlocutory injunction should be in the cause unless there is justification for departure therefrom.  Rather, the court should look at the merits of the injunction application as at the time of the application, which do not necessarily depend on the outcome of trial[8].  There are numerous post-CJR cases in which the court ordered continuation of the interlocutory injunction and ordered that costs be to the plaintiff[9].

17.  At said in [78] of the Main Decision, D1 has vigorously opposed the Continuation Summons and tried to seek an order in terms of the Discharge Summons, but D1 failed in all these.  Based upon the rulings made by me in the Main Decision, I am of the view that costs should follow the event, with a certificate for 2 counsel.  In my judgment, D1 has not put forward any argument showing that I have erred in principle in exercising my discretion.  There is no merit in D1’s application for varying the Costs Order Nisi.

18.  For the reasons above, the Costs Summons must be dismissed.

Disposition

19.  I dismiss both the Leave Summons and the Costs Summons.

20.  Costs should follow the event.  As I said in [78] of the Main Decision, the documents relating to the Continuation Summons and the Discharge Summons are voluminous and various issues have been argued in relation to whether the Injunction Order should be continued.  For the purpose of meeting D1’s applications as per the Leave Summons and the Costs Summons, P’s counsel would have to read those documents and to consider those issues again.  I would grant a certificate for 2 counsel in relation to the Leave Summons and the Costs Summons.

21.  There be a costs order nisi that costs of the Leave Summons and the Costs Summons be paid by D1 to P forthwith with a certificate for 2 counsel, and those costs be summarily assessed.  There be leave to P to file and serve a bill of costs for summary assessment within 7 days after the costs order nisi becoming absolute, and leave to D1 to file and serve a written reply to the said bill within 7 days thereafter.

22.  I thank counsel for the helpful assistance rendered to the court.

HCA 1614/2019

[2020] HKCFI 2990

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1614 OF 2019

________________________

________________________

____________________

DECISION

____________________

1.  In these proceedings, the dispute is between two brothers (the plaintiff (“P”) and the 1^st defendant (“D1”)) over the ownership of a garment business, and specifically over the shares in the 2^nd defendant (“ATL”). The most valuable asset of D2 is its 96.25% shareholding in Kunshan Hoza Garment Manufacturing Company Limited (昆山厚實製衣有限公司) (“Kunshan Hoza”), which in turn owns a valuable piece of land in Kunshan, Jiangsu Province (“the Land”). The current value of the Land is between RMB50-80 million. There is a factory of the garment business on the Land.

2.  There are 3 summonses before this court, namely the Continuation Summons, the Discharge Summons and the Expunge Summons.  Details of these summonses are set out below.

3.  By summons dated 5 September 2019 (“the Continuation Summons”), P applies for an order to continue the ex parte proprietary injunction granted by G Lam J on 29 August 2019, as amended pursuant to the order of K Yeung J on 13 September 2019 (“the Injunction Order”).  By the Injunction Order, D1 is restrained from:

(1)  acting or holding himself out as shareholder of ATL and doing any acts qua shareholder including:

(a)  disposing of or dealing with or diminishing the value of any of the 10,000 issued shares of (or the equivalent 100% shareholding in) ATL (“the Shares”); and/or

(b)  changing the structure of the board of directors and the management of ATL;

(2)  acting or holding himself out as director of D2, doing any act on behalf of D2 including disposing of any asset of D2.

4.  By the Continuation Summons, P also seeks an ancillary disclosure order against D1.

5.  On 13 September 2019, in the absence of D1 but in the presence of ATL who was represented by counsel instructed by D1’s present solicitors, K Yeung J continued the Injunction Order until the call-over hearing fixed on 17 January 2020.

6.  On 18 December 2019, the Injunction Order was further continued by Mimmie Chan J with consent from D1 until the substantive hearing, which was fixed on 16 June 2020.

7.  On 10 March 2020, D1 took out a summons (“the Discharge Summons”) to apply for an order to discharge or to vary the Injunction Order.

8.  On 12 June 2020, the Injunction Order was further continued by me with consent from D1 again until the determination (on paper without an oral hearing) of the Continuation Summons and the Discharge Summons.

9.  Subsequently, on 7 July 2020, D1 issued a summons (“the Expunge Summons”) to apply for an order to debar P from making various references in the pleadings and affirmations to a meeting between the parties and their brother Zhao Zhiwei in April 2019 (“the First Meeting”) and a meeting between the parties and their common friend Jiang Han on about 3 July 2019 (“the Second Meeting”) and expunge/strike out those references therein.

10.  On 16 July 2020, I directed that Expunge Summons be determined on paper without an oral hearing immediately before the Continuation Summons and the Discharge Summons.

11.  I have considered the written submissions provided by the parties concerning all the 3 summonses.  After considering those submissions and the documents before me, I reach the conclusion that the Expunge Summons should be adjourned to the trial and be determined by the trial judge at the trial.  I would make an order in terms of the Injunction Summons and dismiss the Discharge Summons.  My reasons are set out in the paragraphs below.

THE PARTIES’ RESPECTIVE CASES

12.  I would first set out the respective cases of P and D1.

P’s case

13.  P claims that he is and was at all material times, the sole beneficial owner of ATL and Kunshan Hoza.  P is having a garment business (“P’s Garment Business”).

14.  D1 is the younger brother of P.  D1 is and was at all the material times living in Mainland China.

15.  ATL was incorporated in Hong Kong on 28 September 2001 and was a shell company acquired by P via D1 in or about January 2002 for P’s Garment Business.

16.  P is based in the US.  He first started to develop his garment business in the 1990s, initially in New York and then in Shanghai.  It was then that P began to enlist the help of D1, who was and still is based in Mainland China.  P delegated to D1 the task of managing the Mainland China side of P’s Garment Business.

17.  P operated his Garment Business through the Hoza Group companies, of which P was at all material times the sole beneficial owner (with the exception of International Direct Group Inc (“IDG”)[1]).  The Mainland China companies are generally registered in the name of P’s employees and being held on trust for P, because it was complicated for P as a US citizen to have Mainland China companies registered in his name.

18.  In early 2002, at P’s instruction and request:

(1)  D1 acquired ATL as a shell company to hold P’s investments in relation to the Mainland China side of P’s Garment Business.  D1 held 99.99% of the Shares in ATL on trust for P, and the remaining 0.01% was held by P’s BVI company, Simple Style Limited (“SSL”).  SSL is owned by P.

(2)  D1 arranged for Kunshan Hoza to be incorporated, using P’s funds as the initial capital. Upon incorporation, the shares in Kunshan Hoza were held by D1, P and their mother (“the Mother”).  D1 and the Mother were holding the shares on trust for P.

(3)  In 2002-2003, P procured D1 to acquire the leasehold interest and/or use rights in the Land from the Kunshan Government and register it in the name of Kunshan Hoza, for the purposes of housing a factory and related facilities (“the Factory”) for P’s Garment Business.  The total consideration for the Land, in the sum of RMB5,629,930, was paid by using P’s funds routed through Hoza Group companies, namely 上海厚實時裝貿易有限公司 (“Shanghai Houshi”) and Kunshan Hoza.  Subsequently, the Factory was constructed on the Land using P’s funds, and the construction works were completed in 2005.

19.  In the meantime, in order to assume direct control over the company holding the Land, P effected the following transfers of shares:

(1)  On 12 December 2002, 99% of the Shares in ATL were transferred to P, leaving 1% to be held by D1 on trust for P.  At the same time, P was appointed director of ATL, in place of SSL.

(2)  On 19 August 2004, 90% of the shares in Kunshan Hoza were transferred from D1 and the Mother to ATL, leaving 10% to be held by D1 on trust for P.  At the same time, P was appointed the Legal Representative and Chairman of Kunshan Hoza, until he was wrongfully removed in 2013.

(3)  As a result, between 2002 and 2014, P was the registered shareholder of 9,900 Shares in ATL, with the other 100 Shares held by D1 on trust for P. ATL in turn held 90% and subsequently 96.25% of Kunshan Hoza, which itself held the Land.

20.  In 2009, P accepted D1’s proposal and agreed to transfer the Shares to D1 to hold on trust for P (“the Trust Arrangement”), in anticipation of divorce proceedings between P and his ex-wife. P therefore executed undated transfer documents to transfer the 9,900 Shares to D1.

21.  D1 did not register the transfer of the said 9,900 Shares in 2009.  However, in 2013-2014, D1 made the following moves to take control of ATL and Kunshan Hoza:

(1)  In or about December 2013, P was purportedly removed and replaced by D1 as Legal Representative and Chairman of Kunshan Hoza, by the use of corporate documents containing forged signatures of P.

(2)  On 29 July 2014, D1 suddenly registered himself as the shareholder of the 9,900 Shares. P was not notified beforehand, and has no recollection of having instructed or approved the registration of the transfer.  Thereafter, D1 became sole registered shareholder and appointed himself as sole director of D1.

(3)  On the face of the documents, the consideration for the transfer of the 9,900 Shares was HK$1 per share (ie par value), which was not even paid by D1.

22.  In or around October 2018, P and D1 fell out over P’s current wife, Guo Yan (“Guo”).  D1 distrusted Guo, disapproved of her low educational background, and found her manipulative and opportunistic. Guo alleged that D1 had been misappropriating funds from P’s companies and had been having various affairs.  D1 left P’s Garment Business shortly thereafter.

23.  Since then, P has repeatedly asked D1 to transfer the Shares back to P.  However, D1 has all along delayed and refused to do so, on the pretext that the Garment Business had to be kept out of the hands of Guo and that P and Guo had badmouthed D1 about his business and personal conduct.  Nevertheless, in the course of discussing the matter, D1 acknowledged on more than one occasion that P had paid for the Land, and that D1 had been holding the assets of the Hoza Group on P’s behalf.  During the Second Meeting, D1 further demanded that P should give him 30% of the Shares as a condition for returning the rest of the Shares to P.

24.  At a later time, D1 attempted to transfer away ATL’s most valuable assets, namely its shareholding in Kunshan Hoza (and therefore D2’s indirect interest in the Land), to D1’s own name.  This was discovered by P on 4 August 2019.  The change of shareholding would be effected as and when D1 provided the necessary notarised transfer documents to the Market Supervision Administration in Kunshan (昆山市場監管局).

25.  P says that in view of this development, there was and still is a clear need to restrain D1 from disposing of the Shares which he held on trust for P, and/or from disposing of ATL’s shareholding in Kunshan Hoza.  The Injunction Order was obtained on this basis.

D1’s case

26.  D1’s case is that he was and is the sole beneficial owner of ATL.  He acquired ATL as a shell company in Hong Kong on 29 January 2002.  He acquired ATL for future investment purpose and to pay and/or receive cash for garment business owned and operated by D1 through his various companies in Hong Kong and in Mainland China.

27.  D1’s Hong Kong companies would receive purchase orders from IDC[2], and then would ask D1’s Mainland China companies to do the manufacturing works.  From about 2015 onwards, the manufacturing works were carried out by Kunshan Hoza, after D1 caused and personally funded the building of the Factory on the Land.  In about August 2019, D1 caused Kunshan Hoza to cease to manufacturing garments for P’s Garment Business, for a company in P’s Garment Business (昆山欣錦榮貿易有限公司Kunshan Xinjinrong Trade Company Limited (“Xinjinrong”)) had defaulted to make payments for 3 months.

28.  Kunshan Hoza was incorporated by D1 on or about 9 February 2002.  Prior to the incorporation, on or about 6 February 2002, D1 paid a total registered capital of RMB 3 million.  To satisfy the requirement of having at least 2 shareholders, D1 caused the Mother to be a registered shareholder to hold 50% of the shares on trust for D1, and D1 himself was the other registered shareholder.

29.  D1 incorporated Kunshan Hoza as his investment holding company to acquire and hold the Land.  The Land was purchased by using D1’s own funds.

30.  In ATL, P (an American citizen) was holding 99% of the shares on trust for D1.

(1)  In about 2002, P intended to purchase a property in Shanghai and asked D1 to permit P to use ATL as an investment vehicle to purchase the property. D1 agreed and transferred 9,899 shares to P, and SSL transferred 1 share to P.  D1 remained to have 100 shares and remained to be a director of ATL after the transfer. P held the 9,900 shares on trust for D1.

(2)  In December 2002, D1 provided a loan to P to facilitate P to purchase the Property in Shanghai.  On or about 19 December 2002, ATL purchased the property and held the property on trust for P.

(3)  On 4 February 2005, P sold the property.  However, P remained holding the 9,900 shares in ATL on trust for D1.

31.  In about 2004, to avoid the Land being forfeited by the Mainland Government by reason of being left idle, D1 personally funded and arranged for the building of the Factory thereon. 

32.  In 2004, with a view to obtain the benefit under a tax scheme in Mainland China at that time, D1 caused Kunshan Hoza to transfer 90% of its shares to ATL.  This caused Kunshan Hoza to become a Chinese-Foreign joint venture and could have a benefit under a tax scheme in Mainland China at that time.  D1 also caused P to be a director of Kunshan Hoza to make it appearing to be a Chinese-Foreign joint venture.  D1 also transferred US$850,000 of his funds to ATL so that ATL could inject the funds to Kunshan Hoza to increase its share capital and cash flow.  All these were done for the purpose of enabling Kunshan Hoza to have the tax benefit under the relevant scheme in Mainland China at that time.

33.  In 2013, the tax benefit scheme came to an end. In 2014, D1 requested P to transfer all his shares in ATL back to D1.  As a result, documents for transferring the shares back to D1 were prepared.  In about May or June 2014, P signed the transfer documents.

34.  The relationship between P and D1 broke down in about June 2019.  The disputes between P and D1 include matters concerning Guo.

EXPUNGE SUMMONS

35.  By the Expunge Summons, D1 seeks to expunge or strike out and to debar P from referring to the First and Second Meetings.  According to P, D1 has made some acknowledgement as to P’s entitlement to the Land and/or the Shares in these meetings.  The basis of D1’s application is that the First and Second Meetings involve settlement negotiations regarding the disputes raised in these proceedings, and hence these meetings are protected by the without prejudice privilege. 

36.  The summons is opposed by P.  P submits that:

(1)  The without prejudice privilege is inapplicable because:

(a)  no disputes existed between P and D1 in relation to the Shares at the time of the meetings;

(b)  the meetings are not bona fide attempts to settle any dispute; and

(c)  the meetings involve unambiguous impropriety.

(2)  In any event, D1 has waived the privilege by referring extensively to the meetings in his pleadings and affirmations without raising any objection based on privilege or otherwise.

37.  Transcripts of the First Meeting and the Second Meeting have been produced.  Having considered those transcripts and the submissions made by the parties, I am of the view that the Expunge Summons should not be determined now and should be adjourned to the trial and be determined by the trial judge after hearing all the evidence.

(1)  The First Meeting and the Second Meeting must be viewed in context.  In order to determine the subject matters being discussed in these meetings and the nature of these meetings, the context must be considered.  What occurred immediately or shortly before and after each meeting may well be part of the context.

(2)  Although the transcripts can show the words said by the persons participated in the First Meeting and in the Second Meeting, the tone of the utterances and the manner of the speaker when he was speaking those words cannot be shown in the transcripts.  The tone of the utterances and the manner of the speaker when he was uttering those words would be relevant in considering what message the speaker in fact intended to convey by those utterances.

(3)  The transcripts show that some of the words uttered by the speakers in the meetings are inaudible.  It is not known whether the inaudible words would bear any significance.

(4)  The transcript of the Second Meeting show that P and D1 were discussing a document in that meeting[3]. At present, the nature and the contents of that document are unclear.  That document may affect the determination of the Expunge Summons.

(5)  All the aforesaid cannot be ascertained by the court now based upon affidavit evidence before the court.  All these matters can only be properly investigated by the court at the trial.

38.  Since I have decided to adjourn the Expunge Summons to the trial and that summons would be determined by the trial judge, I would not take the First Meeting and the Second Meeting into account while I am considering the Continuation Summons and the Discharge Summons.

CONTINUATION SUMMONS & DISCHARGE SUMMONS

39.  Counsel for D1 submits that the Injunction Order should not be continued and should be discharged without a re-grant by reason of the following:

(1)  There is no serious question to be tried.

(2)  P has made a number of serious material non-disclosures in the ex parte application.

(3)  The Injunction Order is interfering the internal management of ATL, which is something that this court should not do.

I would examine these objections in turn.

Serious issue to be tried

40.  It is well established that “a serious question to be tried” is not a steep hurdle.  All that has to be shown is that the claimant has prospects of success which in substance and reality exist, and odds against success do not defeat him.  As long as there is a serious question, it matters not whether the court thinks that the chances of success at trial is 90% or 20%[4]. If the opposing party seeks to show that there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out[5].

41.  As to interlocutory proprietary injunctions, as held by DHCJ Douglas Lam SC in Pacific Rainbow International Incv. Shenzhen Wolverine Tech Ltd^[6]:-

(1)  The principles in AmericanCyanamid Cov Ethicon Ltd^[7] apply, although irremediable damage need not necessarily be shown and the court will readily find that the balance of convenience favours the preservation of the fund pending trial^[8].

(2)  The court need only be satisfied that the claim is not frivolous or vexatious, in other words, that there is a serious question to be tried. If the opposing party seeks to show there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out^[9].

(3)  It should be noted that the existence of a good arguable defence does not necessarily negate a good arguable case^[10].

42.  In respect of disputes between family members, the following have to be borne in mind:

(1)  In Chen Tek Yee & Ors v. Chan Moon Shing[11], Yuen JA said:-

“29. …… when the parties are in a personal relationship (as contrasted with parties in a commercial transaction), it would be unrealistic to expect written records of assurances ……”

(2)  Similarly, in Cheung Lai Mui v. Cheung Wai Shing & Ors[12]^, Wilson Chan J said:

“95. …… Members of the family dealt with each other on the basis of trust, not mistrust. They could not have envisaged litigation in the future, and they would not have generated records to protect themselves out of the blue.”

43.  Counsel for D1 submits that there is no serious question to be tried.  Counsel argues that:

(1)  There is no declaration of trust or any written document evidencing the Trust Arrangement as alleged by P.

(2)  There is no independent corroboration that the alleged Trust Arrangement was made in anticipation of the divorce proceedings between P and his ex-wife.  In any event, P’s explanation that the alleged Trust Arrangement arose as a precautionary measure is inherently implausible.

(3)  There is no evidence to suggest that Kunshan Hoza has been set up by P other than P’s bare assertions.

(4)  Further, the forgery complaints made by P have no merit.

(5)  P claims that D1 was merely an employee in P’s group.  This allegation is not supported by credible evidence.

44.  I would not and should not conduct a mini-trial on affidavit evidence.  The issue before me is whether there is a serious question to be tried.  That issue should be approached by applying the principles set out in [40] – [42] above.

45.  In order to succeed in arguing that there is no serious question to be tried, D has to demonstrate that P’s claim is frivolous or vexatious and is liable to be struck out.  That is a high threshold.  With respect to counsel for D1, in my view, this threshold is not met.  On the contrary, I agree with counsel for P that there is ample evidence showing a serious question to be tried in these proceedings.

46.  Since P and D1 are brothers, it cannot be said that there is no serious question to be tried merely because of the absence of a declaration of trust or a written instrument recording the Trust Arrangement in P’s case.  As submitted by counsel for P, there is ample evidence in support of the trust claimed by P:

(1)  In the emails passing between P and D1 on 6 and 7 December 2018:

(a)  D1 did not deny or take any issue with P’s statement that “你94年到我這裡，陳剛是95年到我這裡”.  Read in context, it is arguable that the words “我這裡” are referring to P’s Garment Business and the Hoza Group founded by P.

(b)  D1 acknowledged in his reply email that P’s company did not belong to him, but that because of P’s care and nurture for D1, D1 worked for the company as if it were his own (“首先感謝我從小到今的關心和栽培，給我我這樣一個平台鍛鍊和工作... 也正因為如此我把公司當自己的事來做”). D1 recognized and accepted that the company was not his own, but was owned by P.

(c)  The reference to “公司” is not specific.  It is arguable that the term used is a referring to the Hoza Group as a whole.  D1 says that “公司” in that email only means Xinjinrong.  However, Xinjinrong was only set up in 2015, but in those emails P and D1 were discussing the “company” where D1 had worked since 1994.  D1’s argument does not appear to be a convincing argument.

(d)  D1 acknowledged that he was holding assets belonging to P, which he would sort out in due course (“你說你的東西跟我理清我會的”).  It is arguable that P’s assets would have included the Shares in ATL, which according to P, are all beneficially owned by P.

(e)  D1 contends that “東西” only means P’s house in the US (“the Wheatley Road Property”).  It would be sufficient for me to say at this stage that this may not be a natural reading in the context of the email.

(2)  In a Wechat message from D1 to P dated 16 October 2018 at 12:25 am:

(a)  D1 stated “你寄放在我這裡的一切權利，這次你回來我交還給你，難道說錯了，你要看東西誰敢不給，只是等你回來把一切弄清楚，我也有個交代”.  P argues that this is an acknowledgement by D1 that he was holding certain “rights” on behalf of P, and would return them to P upon P’s request. There is force in this submission.

(b)  D1 argues that he was only referring to Xinjinrong and the Wheatley Road Property in the message.  However, this is nothing in the message showing that the message should be read in this way.

(c)  It is arguable that the “rights” mentioned by D1 in this message include the Shares.

(3)  There is documentary evidence showing that P periodically injected funds into Hoza Group companies for settling business expenses of the companies.  The monies belonging to the Hoza Group companies were freely at P’s disposal and P could use them how he wished. For example, upon P’s request, D1 and Chen Qi (an accountant working in the Hoza Group) would procure funds to be transferred from the Hoza Group companies to P’s personal use.  This evidence would provide support to P’s contention that he is the sole beneficial owner of the Hoza Group companies.

(4)  The historic shareholding structure of D2, prior to the Trust Arrangement, also provides support to P’s case:

(a)  ATL was acquired by D1 and SSL in equal shares. There is no dispute that SSL is a company beneficially owned by P.

(b)  Soon after ATL was acquired as a shelf company, 99% of its shares were transferred to P, and P became a director of ATL.  The transfer was at no consideration.  That would be consistent with P already being the beneficial owner of the Shares.

(c)  P remained the registered legal shareholder of 99% of the Shares for a period of over 10 years, from 2002 to 2014.  During most of that period, the principal asset of ATL was its shareholding in Kunshan Hoza, of which P was Legal Representative and Chairman.

(d)  The transfer of the 99% Shares from P to D1 under the Trust Arrangement was at a consideration of HK$1 per share. P could not have intended to transfer the beneficial interest in those Shares, which would be worth a substantial amount, to D1 for such nominal consideration.

(5)  There is also evidence showing that P and D1 were not equal partners in a joint venture.  Although D1 was a manager with responsibility over the Mainland China side of the business, he was nevertheless a subordinate of P.

(a)  Accounting reports, salary records and other payments of the Hoza Group companies had to be reported to P by email on a regular basis.  These reports and records had been sent to P since at least 2010, long before Xinjinrong was set up in 2015.

(b)  D1 had to obtain P’s approval on the amount of bonuses to be issued to various employees, including himself.

(c)  Bonuses of certain senior employees such as D1, William Zhong Xun, Chen Qi and Zhao Yue were paid from P’s personal accounts.

(d)  D1 and other employees of the Hoza Group would seek instructions and directions from P in relation to business operations, including the transfer of funds between the group companies.

(e)  P often reprimanded D1 and other employees if they did not follow P’s instructions, including:

(i)    By an email dated 21 July 2015 to Chen Qi, P reprimanded him for having stopped sending to P the Hoza monthly expenses report. P indicated that he had been receiving the report every month for decades, and wanted to find out why the expenses of the Hoza Group in June 2015 were “historically high”.

(ii)   By an email dated 25 May 2016 to D1, P criticised D1 for repeatedly issuing Hoza invoices containing errors, and berated D1 for always going out drinking with Chen Qi.

(f)  P was consistently called “老板” in all the correspondence within the Hoza Group, whereas D1 was called as “趙總”.  D1 has never been called as “老板” in the correspondence.

(g)  In the messages passing among D1, Chen Qi and P in the “Hoza finance” Wechat group, the message from D1 to P on 1 April 2018 at 1:06 am stating “至於公司狀況，你是老闆得出這樣的結論，我不會爭辯，只有再努力”.

(h)  In the email dated 7 December 2018 (see [46(1)] above), D1 acknowledged that P had cared for and nurtured D1 from when he was young, and provided him with a platform to train and work in P’s company (“首先感謝我從小到今的關心和栽培，給我我這樣一個平台鍛煉和工作…也正因為如此我把公司當自己的事來做…”).

47.  Counsel for D1 has put forward various submissions to argue that there is no serious question to be tried.  With respect, I am unable to accept these submissions.

(1)  In P’s 1^st affirmation dated 27 August 2019, P said that the Trust Arrangement arose as a precautionary measure in case P’s ex-wife breached a settlement agreement reached in 2005.  It is argued that P’s explanation is inherently implausible, for there is no documentary evidence showing the existence of the said 2005 settlement agreement.  As to this, P’s answer is that the 2005 settlement agreement is an oral agreement. Originally, P planned to reduce the same into writing.  However, P’s ex-wife reneged on the 2005 settlement and refused to sign a separation agreement.  As a result of change of stance of P’s ex-wife, no document was executed to record the 2005 settlement.  At this stage, I would say that P’s answer to D1’s point is an arguably satisfactory answer.

(2)  Counsel for D1 heavily relies upon P’s answer to the ex-wife’s question in the divorce proceedings to say that P’s case must fail.  D1 submits that the answer is an admission by P that ATL is owned by D1 and purchased by D1 by using D1’s own funds.  With respect, I am unable to reach this conclusion.

(a)  The said answer in fact is contained in an attachment to an email from P to D1 dated 5 October 2014.  By that email, P provided some draft answers to the ex-wife’s questions in the divorce proceedings to D1. The answer relied upon by D1 in fact is a draft answer which has not yet been finalized. Since the answer is only a draft, how much weight should be given to this draft answer would be an issue to be investigated in the trial.

(b)  Further, as submitted by counsel for P, the fact that P sent the email to D1 fits with P’s version of events, which is that the idea of having the Trust Arrangement came from D1, and D1 proposed it as a way for P to avoid exposing his assets to the claims of his ex-wife. 

(3)  In D1’s submissions, there is documentary evidence showing that it was D1 who advanced money in setting up Kunshan Hoza, and it was D1 entering into various agreements with the Kunshan Government in acquiring the Land.  However, as pointed out by counsel for P, the documentary evidence does not show that D1 advanced his own money in setting up Kunshan Hoza.  The records cannot show the ultimate source of funds.

(4)  D1 has also made some complaints against the allegation of forgery raised by P.  For the purpose of this decision, it would not be necessary for me to set out the details of those complaints.  Suffice for me to say that, notwithstanding the complaints made by D1, I am of the view that P’s allegation of forgery is a triable issue and should be resolved at the trial.

(5)  D1 has also put forward arguments that he is not an employee in the Hoza Group.  D1 has also produced affirmations made by Chen Qi, Zhao Yue and Hu Youzhen[13] in support of his contention.  On the other hand, P has produced affirmations made by David Haynes Holding and William Zhong Xun in support of his case.  I would not conduct a mini-trial on affidavit evidence.  It would not be necessary for me make a final determination on this issue.  Suffice for me to say that, for the reasons set out in [46(5)] above, in my view, it is arguable that D1 is not the boss but an employee in the Hoza Group.

48.  The submissions put forward on behalf of D1 at best can only show that D1 has an arguable defence to P’s claim.  However, those submissions cannot lead to the conclusion that there is no serious question to be tried.

49.  In my view, the evidence before me has shown a serious question to be tried in these proceedings.  D1’s objection based upon this ground fails.  For avoidance of doubt, I have not made any final adjudication on any factual dispute between P and D1.  A final adjudication on those factual disputes can only be made at the trial.  All I say is that there is a serious question to be tried.

Material non-disclosure

50.  The principles concerning material non-disclosure are well established.

51.  The material facts to be disclosed are all matters which are material for the ex parte judge to know and which are necessary to enable him to exercise his discretion properly. Materiality is to be decided by the court, not by the assessment of the applicant or his legal advisers. A matter is not material merely because it might have been set out more fully[14].

52.  In assessing materiality, the court must not be influenced by what has since been known subsequent to the ex parte application[15].

53.  A realistic view should be taken and the applicant should not be required to disclose every conceivable point, however fanciful, which might be raised by the respondent.  In Sky Motion Holdings Ltd v China Create Capital Ltd[16], Coleman J said: at §88:

“Where I have held that the allegations… 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.”

54.  The question of non-disclosure only concerns matters which are relevant to the judge’s weighing operation at the exparte stage. otherwise “an impossible burden would be placed on applicants and their advisers and the court may get itself in a position of what might be called ‘counter-abuse’…”^[17].  See also Xie Li Xin v Law Ka Yan, Thompson, in which DHCJ R Ismail SC said[18]:

“…… in laying down principles concerning disclosure of all material facts, the courts have not intended to give active encouragement to undeserving defendants to search ingeniously for facts which a plaintiff might innocently have failed to disclose, in the hope that a judge may consider them material and so discharge the injunction; common sense must prevail; and the heavy burden cast on a plaintiff must not be allowed to become so onerous as to be intolerable.”

55.  The role of the court in the inter partes hearing is not to conduct a mini-trial in relation to the disputed subject matters of any alleged material non-disclosure, and the court should resist the temptation to do so.  A dispute about whether full and frank disclosure has been made should generally be left to be investigated at trial, rather than at the interpartes hearing.  As said by DHCJ A Cheung (as he then was) in SinoWood:

“27. There are more difficulties facing the Defendant than that. The alleged subject matters of material non-disclosure are hotly disputed by the Plaintiff. I have four bundles of documents of over 1,200 pages from both sides disputing with each other over all matters, big or small. Mr Walter Lau, appearing for the Defendant, very wisely accepted that there is no way this Court can conduct a mini-trial in relation to the disputed subject matters of the alleged material non-disclosure. Indeed, the Plaintiff strenuously disputes the Defendant’s version in relation to the subject matters of the alleged material non-disclosure ……

28. Mr Lau has tried hard in seeking to persuade me that the Defendant's story is inherently more credible than that of Mr Yaw’s, despite his submission that the Court should not and cannot conduct a mini-trial. Whilst I appreciate Mr Lau’s good effort, it does not really assist his client's case in the present context ……

31. I cannot decide the substantial disputes between the parties in relation to the subject matters of the alleged material non-disclosure on paper. Not only must I resist the temptation of conducting a min-trial, I must not, on the incomplete evidence that has been placed by the parties before me, seek to evaluate the “inherent probabilities” of the respective competing versions of the parties. ……”

56.  See also Cheer Signal Development Ltd v Wong Siu Fan[19], in which Au-Yeung J said:

“48. Where the alleged subject matters of material non-disclosure are hotly disputed by the plaintiff, the court should not and could not conduct a mini-trial to decide which party’s story is inherently more credible. Whether or not a plaintiff has made full and frank disclosure in obtaining an ex parte Mareva injunction should be investigated at the trial: Sino Wood Investment Ltd v Wong Kam Yin, at §§27-28.

49. No doubt, on the Defendants’ case, Cheer Signal has not disclosed documents or information which the Defendants consider to be material. However, that was due to different explanations for many underlying matters given by the parties. There was no pre-action correspondence setting out the Defendants’ case. Looking at things at the ex parte stage, it would have been impossible for Cheer Signal to anticipate a defence which in its eyes is concoction.

50.      Moreover, the defences are hotly disputed by Cheer Signal on many aspects, big and small. There is a mass of documents (14 bundles with 4,000 pages) to support the allegations and cross-allegations.  Even a document could be read both ways by the Consultants and Cheer Signal respectively.  Discovery is complete and each party’s version has not yet been tested by cross-examination.  It is simply impossible to resolve all disputes in this decision.  Subject to the next paragraph, whether Cheer Signal was guilty of material non-disclosure is best left to the trial.”

57.  As to re-granting an injunction after discharge based upon material non-disclosure, the relevant principles have been summarized by Kwan JA (as she then was) in Excel Courage Holdings Ltd v Wong Sin Lai[20]:

(1)  If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial.

(2)  Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order.

(3)  That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.

(4)  The court should assess the degree and extent of the culpability with regard to non-disclosure.  It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order.  Equally, there is no general rule that a deliberate breach will attract that sanction.

(5)  The court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court.  In making this assessment, the fact that the judge might have made the order anyway is of little if any importance.

(6)  The court can weigh the merits of the plaintiff's claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff's case is allowed to undermine the policy objective of the principle.

(7)  The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice.

(8)  The jurisdiction is penal in nature and the court should therefore have regard to the proportionality between the punishment and the offence.

(9)  There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the court should take into account all relevant circumstances

58.  Counsel for D1 submits that P has committed material non-disclosure at the ex parte stage by failing to draw the court’s attention to the following:

(1)  P failed to disclose that he borrowed US$2,953,867 from D1 at the time when D1 transferred ATL to P, all for the purpose of P’s investment in a property in China.

(2)  P concealed the fact that the full purchase price of the Land and the construction costs of the Factory was paid by D1.

(3)  P did not draw to the court’s attention that the accounting report relied on for alleged misappropriation by D1 was from an accountant frim that had never audited Kunshan Hoza’s books and therefore it has incomplete information.  Also, the report is heavily qualified to the extent that it cannot be relied upon to draw any conclusion.

(4)  P concealed that the records of Kunshan Hoza shows that the initial setup capital was paid by D1.

(5)  P failed to disclose the events concerning the transfer of the shares in Kunshan Hoza to ATL in 2004 as summarized in [32] above.

(6)  The increase in share capital of Kunshan Hoza on 2014 in the sum of RMB 5 million was funded by D1.

(7)  P failed to disclose the fact that there is no documentary evidence proving the alleged settlement agreement between P and P’s ex-wife in 2005.  P also failed to draw the ex parte judge’s attention to P’s email dated 5 October 2014 to his solicitors for a US divorce with his ex-wife confirmed that he has no interest in Kunshan Hoza and/or ATL.

(8)  Xinjinrong had been paying rent to Kunshan Hoza for the use of part of the Factory.

(9)  Xinjinrong has outstanding unpaid garment debt due to Kunshan Hoza for garment that were manufactured and P has signed an agreement with D1 on 8 August 2019 agreeing to pay those debts owed by Xinjinrong to D1.

(10)  On 28 August 2019, the Mainland Court granted an injunction against Xinjinrong in a civil litigation commenced by a Zhuoyi against Xinjinrong.  It was D1 who caused Zhuoyi to commence this litigation against Xinjinrong.  P did not draw the court’s attention to this injunction in the ex parte hearing.

(11)  P failed to disclose the written agreement signed by P and D1 in 2019, in which P agreed to settle the outstanding payments regarding orders placed by P’s companies with the Factory of Kunshan Hoza.

(12)  P falsely claimed that Frances Cheung[21] knew of the Trust Arrangement, and thereby gave the ex parte judge an impression that there was evidence from an independent third party supporting P’s claim.

59.  I agree with counsel for P that the matters being complained by D1 under “material non-disclosure” in fact are the controversial factual disputes between P and D1 in these proceedings.  The parties’ substantive cases are diametrically opposed on nearly every single issue, as is evident from the pleadings and the multiple rounds of very lengthy affirmations filed by the sides.  There are 9 bundles and over 2,000 pages of underlying documents in support of the allegations and cross-allegations by both parties.  Each and every document is read by the parties in different ways, to support their respective substantive cases. The emails dated 6-7 December 2018 can be used as an example to illustrate the point.  As stated in the above, P submits that “公司” in those emails should be the Hoza Group, whereas D1 argues that it means Xinjinrong.  P submits that the term “東西” in the phrase “你說的東西跟我理清我會的” refers to P’s assets including the Shares in ATL.  D1 disagrees and put forward another interpretation.  The same goes for many underlying documents in these proceedings.

60.  Assuming that P’s case is the truth, at the ex parte stage, it would not be possible for P to anticipate D1 to interpret the documents in these proceedings in the way now being argued by D1, which in P’s eyes is a complete untrue story made up by D1.

61.  Whether the material non-disclosure now raised by D1 can be established depends on which side is telling the truth, and this can only be resolved at the trial.  I cannot and would not resolve the factual disputes between the parties on paper.   In the premises, in my view, D1 cannot rely upon the alleged material non-disclosure to discharge the Injunction Order now.  Whether the alleged material non-disclosure can be established should be left to be decided at the trial.

62.  Without prejudice to the aforesaid, I observe that there may be no or little merits in the “material non-disclosure” arguments raised by D1.

(1)  As to the loan of US$2,953,867 alleged by D1, P’s case is that no such loan has ever existed.  P further argues that even if the alleged loan is true, that would not have any bearing on the Trust Arrangement asserted by P.  Accordingly, not mentioning this alleged loan in the ex parte hearing cannot be a material non-disclosure.  I am of the view that there is force in this argument.

(2)  There is no clear documentary evidence showing that D1 himself has used his own funds to pay the purchase price of the Land and the construction costs of the Factory.

(3)  As to the point that the accounting report regarding D1’s alleged misappropriation was qualified and prepared by an accountant who has never audited Kunshan Hoza books before, P submits that the point is not relevant to the issues to be resolved in these proceedings.  I agree.

(4)  There is in fact no record showing that the initial capital of Kunshan Hoza was paid by D1 using his own funds.  The available record only shows that the initial capital was paid in the name of D1 and the Mother from a bank account.  Even on D1’s own case, the record does not reflect the source of the initial capital – D1’s own case is that all the money was paid by him, and the Mother did not pay any part of the initial capital.  There is no document showing the ultimate source of the initial capital.

(5)  P’s case is that the “tax benefit” appoint raised by D1 is a complete red herring.  It was never anticipated that Kunshan Hoza would benefit from the tax scheme, for Kunshan Hoza was just the manufacturing arm of the Hoza group and was never intended to generate any profit.  Since 2004, Kunshan Hoza continuously suffered losses, save and except for 3 years (2011, 2014 and 2017).  P submits that the “tax benefit” point is a mere concoction made up by D1, and P has no obligation to disclose the same in the ex parte hearing.  In my view, this is a forceful submission.

(6)  There is no documentary evidence showing that the sum of RMB 5 million injected to Kunshan Hoza in 2014 was from D1’s own funds.  In any event, the increase in share capital of Kunshan Hoza in 2014 does not appear to be relevant to the beneficial ownership of ATL or the Shares.

(7)  As to the alleged settlement agreement between P and P’s ex-wife in 2005 and P’s draft answers to his ex-wife questions in the divorce proceedings, P and D1 have put forward their respective arguments concerning these matters.  For the reasons set out in [47(1) and (2)] above, whether there is any material non-disclosure by P on these matters should be resolved at the trial.

(8)  The fact that Xinjinrong had been paying rent to Kunshan Hoza is immaterial.  It has nothing to do with the beneficial ownership of ATL.  Further, this fact also does not necessarily inconsistent with P’s case.  If P’s case is true, both Xinjinrong and Kunshan Hoza would be owned by P.  Companies within the same group can make payments to each other for various commercial purposes.

(9)  The fact that Xinjinrong had outstanding unpaid garment debt due to Kunshan Hoza is also immaterial.  Reasons are same as those as set out in the aforesaid subparagraph.

(10)  The injunction granted by the Mainland Court mentioned by D1 is irrelevant.  The litigation in the Mainland is a separate litigation involving different parties and issues.

(11)  As to the written agreement signed between P and D1 in 2019, I agree with counsel for P that the agreement concerns events long after the trust has been constituted, which cannot shed light on whether there was in fact a trust in the first place.  As to why P would enter into the written agreement, P’s answer is that D1 has forcibly taken control of Kunshan Hoza without any legal right to do so.  D1 essentially committed extortion against P by preventing P’s workers from taking delivery of the goods from the Factory, knowing that P needed these goods to fulfil shipments to the US, thus forcing P to enter into the agreement and agreeing to pay significant amounts of money to D1 thereunder.  All these may have to be investigated at the trial.

(12)  As to the claim that Frances Cheung knew of the Trust Arrangement, P agreed that he made a mistake on this point but the mistake was an honest mistake.  P submits that the mistake concerning Frances Cheung’s knowledge would not be material, for there is clearly sufficient evidence demonstrating a serious question to be tried that P is the beneficial owner of ATL, regardless of whether there is any corroboration from Frances Cheung.  I am of the view that P’s submission is persuasive.

63.  If I were wrong in the analysis concerning material non-disclosure as set out in the above and D1 had in fact made out a case of material non-disclosure against P, I would be prepared to exercise my discretion against the discharge of the Injunction Order.  Further, if I were again wrong and the Injunction Order should be discharged, I would be prepared to exercise my discretion to re-grant an injunction to P, the terms of which would be same as the Injunction Order in substance.  My reasons are as follows:

(1)  There is a serious question to be tried.

(2)  Given that D1 is prepared to transfer away ATL’s most valuable assets to himself, ie ATL’s shareholding in Kunshan Hoza, and ATL’s indirect interest in the Land, it would be necessary to have an injunction to prevent D1 from doing so until the outcome of the trial is known.

(3)  The Land is a unique asset.  If there is no injunction and P ultimately succeeds at the trial, P may not be able to get back the Land, and the loss suffered by P may not be compensated by damages.

(4)  With all these in mind, even if P has committed material non-disclosure at the ex parte hearing as submitted by D1, I am of the view that depriving P from having the protection of the injunction sought by P before the conclusion of the trial would be a disproportionate punishment to P.

64.  For all these reasons, I refuse to discharge the Injunction Order on the ground of material non-disclosure raised by D1.  The Discharge Summons should be dismissed.

Internal Management

65.  Counsel for D1 takes issue with §1(1)(a)(ii) of the Injunction Order, which is as follows:

“(1) [D1] must not act, whether by himself, his servants, agents, or otherwise howsoever, in any way:

(a) Act or hold himself as shareholder of [ATL] and do any acts qua shareholder including:

……

(ii) Changing the structure of the board of directors and the management of [ATL].”

66.  Relying upon Kwok Ping Sheung Walter v Sun Hung Kai Properties Ltd[22], counsel for D1 submits that §1(1)(a)(ii) offends the principle enunciated by the Court of Appeal in that case as it is attempting to force D1 to refrain from changing the structure of the board of directors and management of ATL.  Further, the wording of the Injunction Order is far too wide and restrains D2 from carrying out the daily management of the company at all.

67.  With respect, I am unable to accept these submissions.

(1)  In my view, in the Kwok case, the Court of Appeal did not lay down a principle that there could not be an interlocutory injunction concerning the internal management of a company in any situation. Each case must depend upon its own facts.

(2)  The Injunction Order is a proprietary injunction, for the purpose of protecting the Shares to which P has a proprietary claim.  The court would not hesitate to use the strongest powers to protect and preserve assets to which a party has a proprietary claim[23]. Any reduction in its scope would carry the real risk of defeating the very purpose of having the injunction, ie preventing D1 from transferring away the most valuable assets of the ATL, namely its shareholding in Kunshan Hoza and its indirect interest in the Land.

(3)  ATL is an asset holding company with no substantial business.  There are minimal, if any, operations that would require active management.  In any event, if any necessary step is necessary for the purpose of keeping ATL alive, D1 can have discussion with P and seek consent from P.

(4)  The facts in the Kwok case are very much different from the facts in the present case:

(a)  In the Kwok case, the injunction sought by the plaintiff was against the company and all its directors, to restrain them from voting to terminate the plaintiff as chairman and re-designate him as non-executive director.  No injunction was sought against the shareholder(s) of the company.  The Court of Appeal was of the view that the matter sought to be enjoined by the injunction was a matter of internal management by the board, and refused to grant the injunction.

(b)  The Injunction Order in the present case restrains D1 from “hold[ing] himself out as shareholder of [ATL] or do[ing] any acts qua shareholder including” changing the structure of the board or management of ATL.  The matter enjoined by the injunction is not a matter of internal management by the board.

(c)  The injunction sought in the Kwok case is an interim injunction based upon personal claims.  However, the Injunction Order in the present case is a proprietary injunction.

(d)  Further, in the Kwok case, the subject company is a company having substantial business operation.  ATL is not such a company.  As said before, ATL is merely an asset-holding company.  

68.  I am not persuaded by D1’s arguments.  In my judgment, §1(1)(a)(ii) of the Injunction Order should remain in the order without any change.

Continuation of the Injunction Order

69.  With respect to counsel for D1, for the reasons set out in the above, I am not persuaded that there is any valid objection to the continuation of the Injunction Order.  In my judgment, the Injunction Order should be continued until the conclusion of the trial or a further order made by this court.  The Discharge Summons should be dismissed.

70.  P also seeks an ancillary disclosure order in terms of [2] of the Continuation Summons. I agree that the disclosure order sought relates to the assets over which P has a proprietary claim, and is necessary for the purpose of giving effect to the Injunction Order.  In order to enable P to ascertain the whereabouts of the assets subject to the proprietary claim, I would make an order in terms of [2] of the Continuation Summons[24].

SPEEDY TRIAL

71.  The parties have reached a consensus and they are jointly seeking directions for having a speedy trial in this case.  The proposed directions are as follows:

(1)  The parties do file their list of documents within 28, with inspection to be done within 14 days thereafter.

(2)  The parties do exchange witness statements within 56 days thereafter.

(3)  All further interlocutory application(s), if any, be taken out by the parties within 14 days thereafter.

(4)  The action be set down for speedy trial at the earliest possible date, but not earlier than April 2021 with 6 days reserved, to be fixed in consultation with counsel’s diary.

(5)  A case management conference be fixed to be heard no earlier than April 2021 in consultation with counsel’s diary.

(6)  There shall be a pre-trial review before the trial judge not later than 28 days before the trial commences.

(7)  The parties must inform each other and the court forthwith if they or any of them should become aware of any matter or development that may affect the above estimated length of trial or the holding of the trial on the dates fixed.

72.  The principles concerning speedy trial have been discussed in detail by DHCJ Yeung SC (as he then was) in Qianhai Xinhuakang Financial Holdings (Shenzhen) Ltd v Chen Jiarong[25].  In that case, the learned judge said:

“20. The question of expedition is essentially one for the discretion of the Court. In exercising that discretion, the Court should take into account four factors, namely: (1) whether the applicants have shown good reason for expedition; (2) whether expedition would interfere with the good administration of justice; (3) whether expedition would cause prejudice to the other party; and (4) whether there are any other special factors — WL Gore & Associates GmbH v Geox SpA [2008] EWCA Civ 622 , per Lord Neuberger at paragraph 25), and JW Spear & Sons Ltd v Zynga Inc [2013] FSR 15, per Henderson J at paragraph 20.

21. When considering an application for expedition, Factor 1 is the most important factor. It has been rightly described as the “threshold issue”—see JW Spear & Sons Ltd v Zynga Inc [2013] FSR 15, where Henderson J observes at paragraph 20 that:

‘ … it is emphasised that the first question which always has to be answered is whether urgency is justified at all. That may aptly be termed a threshold issue, and it is only if it is answered in the applicant’s favour that one gets on to the next stage of considering what degree of expedition would be appropriate. It can be seen, therefore, that the question is not simply one of comparing competing timetables which are put before the court, and expedition will be granted only if the threshold test is duly satisfied.’

22. The onus is on the party making the application to make out a clear case that there is real and objective urgency which justifies expedition:

(a) I respectfully adopt the observations made by Mann J at paragraph 8 of his judgment in Intervet (UK) Ltd v Merial [2009] EWHC 1065 (Pat), which Mr Dawes relied upon, that:

‘It behoves a litigant who wishes to have his or her trial on quickly and, therefore, to leapfrog other litigants (leaving aside the difficulties it causes to the other side) to make a clear case to the court. If a case is to be made on commercial uncertainty, then the court is entitled to expect some details—I would say some more details, but in fact there are virtually none—of what that commercial uncertainty is, how it operates and how it is that the three months which would be saved between November and February is somehow a degree of commercial uncertainty on top of the existing uncertainty which justifies the leapfrogging.’

(b) In Daltel Europe Ltd v Makki [2004] EWHC 1631 (Ch) (also cited and relied upon by Mr Dawes), Lloyd J (as he then was) observed at paragraph 13 of his judgment that:

‘Expedition is not a question of choosing a slightly faster over a slightly slower method of the proceeding to trial. Expedition involves an application and, if granted, an order that the case should proceed to trial on a seriously accelerated timetable and can only be justified on the basis of real, objectively viewed, urgency of the case, which justifies, first of all, giving preference in the allocation of court time to this case over the other cases in the court’s list and, correspondingly, requiring the lawyers to drop everything else and devote their time to the expedited case.’

(c) In this regard, I also accept Ms Sit’s submission that in considering an application for expedition, a principled approach should be adopted. The Rules of the High Court contains comprehensive sets of procedural timetable for all litigants to follow. To displace their application, good reason has to be shown, and the onus to do so has to be on the party seeking expedition.

23. In respect of Factor 2, and as explained by Lord Neuberger in WL Gore (at paragraph 30), it includes having a sensible timetable leading up to the hearing, and it also includes the interests of parties to other cases. On the latter point, the Court will have to bear in mind that there are parties to other cases in the queue waiting for trials, and ordering expedition means that the parties in the instant case are permitted to jump the queue. This is the consideration of “leapfrogging” discussed by Mann J in Intervet. That should, as a matter of fairness and good administration of justice, only be permitted with good reason.”

73.  I would not order a speedy trial merely because the parties intend to have a speedy trial.  There are parties to many other cases in the queue waiting for trial dates.  If a speedy trial is ordered in this case, that would mean that the parties herein would be permitted to jump the queue.  I would only give such a permission to the parties in this case if a good reason is shown.  In my view, the parties have not sufficient addressed the court why a speedy trial should be ordered in this case.  I decline to order a speedy trial at the present stage.

74.  If the parties wish, they may take out a summons at a later time to apply for an order for speedy trial.  The application must be supported by evidence and submissions addressing the concerns as set out in the Qianhai case.

75.  At present, I would only give the directions as set out in [71(1) to (3)] in the above.

DISPOSITION

76.  I allow P’s application as per the Continuation Summons.  I make an order that the Injunction Order be continued until the determination of this action or a further order made by the court.  I also make a disclosure order in terms of [2] of the summons.

77.  I dismiss the Discharge Summons.

78.  D1 has vigorously opposed P’s application for an order continuing the Injunction Order and has sought an order to discharge the Injunction Order, but D1 failed in all these.  Costs should follow the event. The documents relating to these 2 summonses are voluminous and various issues are involved in the arguments concerning these 2 summonses.  I am minded to grant a certificate for 2 counsel in these circumstances.  There be a costs order nisi that costs of these 2 summonses be paid by D1 to P forthwith and be summarily assessed.  There be leave to P to file and serve a bill of costs for summary assessment within 7 days after the costs order nisi becoming absolute, and there be leave to D1 to file and serve a written reply to the said bill within 7 days thereafter.

79.  I stand over the Expunge Summons and direct that the summons be determined by the trial judge at the trial.  Costs of that summons be reserved.

80.  Lastly, it remains for me to thank all counsel for the helpful assistance rendered to the court.