WANG LINPING AND ANOTHER v. HUANG KEQIN AND OTHERS

HCMP 632/2012 and
HCA 373/2014

[2020] HKCFI 256

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 632 OF 2012

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 373 OF 2014

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(Consolidated pursuant to the Order of
Master K H Hui dated 13 October 2015)

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D E C I S I O N

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A.    Introduction

1.  This is the hearing of a Summons by the 1^st Defendant (“Huang”) for an order to discharge the Undertakings he gave to the court 7 years ago.  Those Undertakings were given in return for the discharge of an injunction order, to preserve the Plaintiffs’ rights in the 3^rd Defendant (“the Company”) and preserve the status quo of its subsidiary. As the 1^st Plaintiff was not cooperative over the renewal of the business license of the subsidiary, leading to revocation of the renewed licence, Huang seeks to have the Undertakings discharged.

2.  The Plaintiffs oppose the Summons on the grounds that (a) some reliefs sought violated the reflective loss principle; (b) there had been delay in taking out the summons; (c) there was no material change of circumstances to justify releasing Huang from his Undertakings; (d) Huang has not come with clean hands; (e) Huang had misappropriated funds of the subsidiary; and (f) Huang failed to show that he could honour his undertaking as to damages.  I will deal with these grounds in section E below when I consider an overview of the merits of this Summons.

B.    Background facts

3.  The present action is a dispute over ownership of shares in the Company.  The Company in turn wholly owns a subsidiary known as Xinxiang Hongsheng Real Estate Co Ltd (“Xinxiang REC”), whose main business was development of a land project in Xinxiang.

4.  Wang (P1) and Niu (P2) are a couple.  They used to hold 70% shareholding in the Company whilst Huang and Chan (D2, nominee of Huang) held 30%. The 4 of them used to be directors of the Company.

5.  Huang was and is also the legal representative of Xinxiang REC.  He and Wang were 2 of the directors of Xinxiang REC.

6.  It is the Plaintiffs’ case that Huang and Chan forged the signatures of the Plaintiffs on documents which had the effect of removing the directorship of the Plaintiffs and causing their 70% shareholding to be transferred to Huang and Chan.

7.  Huang and Chan deny the forgery.  They say that the project in Xinxiang was facing a tempest threatening disaster. The 70% shares were transferred by Wang and Niu to them pursuant to a Share Transfer Agreement. Full consideration of RMB 9 million had been paid to Wang and Niu, who then resigned from directorship.  Wang and Niu regretted the transfer when they saw the project survive the tempest and turn into profitable state.  They commenced the present action for illegitimate gain.

8.  The Plaintiffs obtained an ex parte injunction from Au‑Yeung J on 2 April 2012 (“the Injunction Order”) which had the effect of, amongst others, restraining Huang, Chan and the Company:

(a)     From holding out Chan as a shareholder of the Company holding more than 100 shares;

(b)     From representing that the Plaintiffs have ceased to be directors of the Company or that Huang and Chan are the only directors of the Company;

(c)      In the case of Huang and Chan, from conducting the Company’s business, including the affairs of the subsidiaries, in their joint capacity, or the sole capacity of Chan, as the majority shareholders or directors of the Company;

(d)     From removing the names of the Wang and Niu as directors and shareholders from the register kept by the Companies Registrar.

(e)      From using the allegedly forged documents for any purposes except for the present proceedings.

9.  Pending resolution of Huang and Chan’s discharge summons, the Injunction Order was continued until trial or further order.

10.  By the Order of L Chan J dated 27 July 2012, the Plaintiffs were not allowed to make known the Injunction Order or its contents to any third party in the Mainland pending hearing of the discharge summons (“the Non-disclosure Order”).

11.  On 29 October 2012, Huang gave various undertakings (“the Undertakings”) until the conclusion of the trial or further order, in return for the Plaintiffs’ consent to discharge the Injunction Order; and no order be made on the discharge summons.  The terms of their agreement have been set out in an order of L Chan J of the same date (“the Discharge Order”).

12.  The Undertakings could be classified into 3 limbs:

(1)     Not to procure Chan to dispose of the 7,000 shares in the Company or exercise any rights over those shares and another 100 shares held in the name of Chan (“the Non-disposal Undertaking”);

(2)     Not to exercise any rights in relation to Huang’s 2,900 shares in the Company (“the Right Restraint Undertaking”);

(3)     No to change the specimen of the Company’s chop (“the Chop”)[1] filed with Henan Province Xinxiang City Bureau of Industry and Commerce 河南省新鄉市商務局 or require its return or otherwise challenge the validity or authenticity of the Chop (“the Chop Undertaking”); and

(4)     Not to procure the Company to submit the returns (ie those showing cessation of the Plaintiffs’ directorship and shareholding) referred to in paragraph 14(2) of Wang-2^nd [2] filed on 2 April 2012 to China Legal Services (HK) Ltd for authentication (“the No Authentication Undertaking”). 

13.  Apparently when the Undertakings were given, Wang was in possession of the Chop and would keep it pending resolution of this action.  The Chop carried legal significance because of the practice of recognition of a chop rather than the person (認章不認人) in Mainland China where Xinxiang REC was incorporated.

14.  The Business Licence of Xinxiang REC was due to expire in January 2017. The Company had to apply for its renewal (“the Renewal Application”). Since late 2016, there have been competing renewal applications made by Huang and Wang respectively on behalf of the Company. 

15.  新鄉市工商行政管理局(“Xinxiang ICB”) refused to process Huang’s Renewal Application on the ground that the legal representative (Wang) had supplied the Order restraining the exercise of rights under 100% shareholding and the applicant (Huang) had not provided supplemental documents on the due date (“the Refusal”). 

16.  Huang took Xinxiang ICB to the Hui Xian People’s Court (“HXPC”) for a review.  In the course of the HXPC case, Huang obtained Lisa Wong J’s Order on 15 June 2018 which required Wang to:

“take with him the original corporate stamp of [the Company] and attend with [Huang] before the relevant officers of the Xinxiang Administration for Industry and Commerce and affix the stamp in the presence of [Huang] and Chinese officials on such documents as may be required by the Administration for renewing the business license of [Xinxiang REC] to be issued to [Xinxiang REC] with the same particulars of registration”.

However, till this date, Wang has not complied with that Order.

17.  HXPC set aside the administrative decision of the Xinxiang ICB.  The Business Licence was eventually renewed on Huang’s application on 10 September 2018 for 10 years.

18.  By a judgment dated 22 January 2019, the Henan Xinxiang Intermediate People’s Court (“Henan IPC”) set aside the renewed Business Licence (“the 2019 Judgment”) on Wang’s application.  Wang’s application for the Xinxiang ICB to renew its administrative conduct was refused.  It appears that the Business Licence remains expired as at the date of this hearing.

19.  By this Summons filed on 1 February 2019, Huang applied for release from the Undertakings and to restrain the Plaintiffs from doing a series of acts pertaining to the Company and Xinxiang REC. 

C.    Discovery of Wang’s misconduct

20.  Huang claims that in the course of the PRC litigation over the Renewal Application, he discovered a series of incidents which showed misconduct of Wang to justify withdrawal of his Undertakings.  One incident was before and the others were after issue of the Discharge Order. (Unless otherwise specified, references to Wang below shall mean Wang acting on behalf of the Company; references to Huang below shall mean Huang acting on behalf of the Company, save that the Undertakings were his personal undertakings.)

21.  The 1^st incident was in 2012, over 6 years ago.  There was no dispute that 2 weeks after the Injunction Order was made, the Plaintiffs disclosed, by a letter of their PRC lawyers dated 19 April 2012, the Injunction Order and its Chinese translation to the Xinxiang Public Security Bureau (“PSB”). It was a clear breach of the Non-disclosure Order. 

22.  Further, that set of Chinese translation contained material misstatements of the Injunction Order in that:

(a)     The order was stated to be made by DHCJ Au-Yeung before secretly pronouncing the Injunction Order: “高等法院暫委法官歐陽秘密 (非公開) 公布禁制令前” when it was not.  The Injunction Order was made in chambers not open to the public;

(b)     The Court was stated to have prohibited D2 from holding more than 100 shares of the Company (“禁止第二被告爲第三被告（公司）超過100股的股東”) when the Court had not made this order and none of the Undertakings had such effect;

(c)     The Court “禁止由於第一被告和/或第二原告不再作爲公司董事和/或股東，而據此采取任何措施和進一步措施變更公司注冊官和/或公司秘書保存的登記信息” when the reason for making the order was not as underlined.  Huang had never ceased to be a shareholder or director.

23.  The covering letter made allegations of fraud against Huang, that he ignored the criminal summons by the Hong Kong police against him, and that his whereabouts were unknown.

24.  Huang claimed that Wang’s wrongful disclosure of the Injunction Order was to stifle the PSB’s investigation into the robbery incident on 5 March 2012 instigated by Wang.  I make no comment as that was not something that concerned the present civil proceedings.

25.  Relevant to the present Summons is, therefore, the misconduct in paragraphs 21-22 above. 

26.  The 2^nd and subsequent incidents were sparked off by the Renewal Application. By this time, the Non-disclosure Order no longer had effect because of the Discharge Order.  Huang made the Renewal Application in December 2016.  However, 2 months before, Wang had already supplied a Hong Kong Court order to the Xinxiang ICB claiming that the Hong Kong Court had restrained the exercise of rights under 100% shareholding of the Company.

27.  The 2^nd incident was in the form of a Declaration dated 21 July 2015 of Mr Chong Wing Charn Francis (“Chong’s Declaration”), solicitor of Tai, Tang & Chong enclosing copies of, amongst others, the Injunction Order and Discharge Order, both with Chinese translations.  On its face, this Declaration was notarized and was stated to be “only for use in Henan Province Xinxiang City, for submission to the City Government, Commercial Bureau, Industrial and Commercial Bureau, courts and relevant government department as evidence, for litigation purpose and for related matters”. 

28.  Mr Lai, counsel for Huang, submits that Chong’s Declaration was a breach of Clause 6 of schedule 2 to the Injunction Order (“Clause 6”) which provided as follows:

“The Plaintiffs would not without leave of the Court begin proceedings against the 3 Defendants in any other jurisdiction [1st limb] or use information obtained as a result of an order of the Court in this jurisdiction for the purpose of civil or criminal proceedings in any other jurisdiction [2nd limb].”

He queries why Chong’s Declaration was made almost 3 years after the Discharge Order.  

29.  With respect, Clause 6 had expired upon making of the Discharge Order. In any case, the Court was not told in what proceedings Chong’s Declaration was used so it was not clear if the 1st limb of Clause 6 was breached.  If Mr Lai is referring to the PRC proceedings concerning the Renewal Application, they were proceedings against the Xinxiang ICB and not any of the Defendants.

30.  Further, the copies of Court Orders attached to the Declaration were not themselves “information obtained as a result of an order of the Court”.  It could not be said that the 2nd limb of Clause 6 was breached.

31.  The problem probably lay with the Chinese translation although it was not clear from the evidence whether the Chinese translation given to the PRC bureaus and the courts was the same as that enclosed in Chong’s Declaration.

32.  The 3^rd incident was a series of letters from Wang as the purported Chairman of the Board of the Company to government bureaus in Xinxiang which mis-stated the effect of the Hong Kong Court Orders. 

(1)     A letter entitled “關於凍結新鄉市宏生置業有限公司工商變更登記的函”dated 8 January 2016 to 新鄉市工商行政管理局 (“Xinxiang ICB”) (“Letter 1”):

Wang referred therein to the alleged forgery of Huang and Chan.  He stated that the Hong Kong police was investigating and the High Court was hearing this case.  To prevent Huang and Chan from continuing their criminal conduct, the High Court of Hong Kong had given an “injunction order” and “order” (presumably meaning the Injunction Order and Discharge Order).  Wang represented to the Xinxiang ICB that documents from the Company without bearing the original stamp (ie the original one used when Xinxiang REC was first set up) and Wang’s signature should be regarded as null and void.

This letter contained a half truth. The tone of the letter gave the reader an impression that the Hong Kong Court had imposed an injunction still in force when the injunction had lost its effect for over 3 years already.  The Discharge Order was a stand-alone order which could have been presented to the recipient of the letter without the Injunction Order.

It was not clear whether Wang’s representation was based on Hong Kong law or PRC law.  If he was relying on Hong Kong law, that was not correct.  This lack of clarity means that Mr Lai has failed to establish that Wang was guilty of misconduct

(2)     A letter entitled 延長新鄉宏生置業有限公司經營期限的申請書dated 26 October 2016 to新鄉市工商局注冊科 in support of the Renewal Application (“Letter 2”):

This letter contained material misrepresentations:

(a)     It stated that the Plaintiffs instituted criminal prosecution in the High Court of Hong Kong against Huang and others for forgery when there was no such prosecution. 

(b)     It stated that by an order of 29 October 2012 (date of the Discharge Order), the Hong Kong Court ordered that:

(i)     The exercise of rights under 100% shareholding of the Company do cease.  In fact, the Hong Kong Court had not made such an order.  The cessation was the effect of 2 of the Undertakings in paragraphs 12(1) and (2) above.

(ii)     Only the chop of the Company which Wang registered with the 新鄉商務局 could be used in Xinxiang to represent the Company. In fact, the Hong Kong Court had never made such an order and none of the Undertakings had this effect.

(3)     A letter dated 2 August 2017 to 新鄉市工商局 (“Letter 3”):

Wang reiterated that the Hong Kong forgery case was in progress.  After preliminary deliberation, the High Court of Hong Kong “handed down the Order” (presumably meaning the Discharge Order). Wang reiterated his position on the Chop, stating that authentication of the Order emphasized that the Order was applicable to Xinxiang City.  However, Huang and Chan ignored the Order and made up a Company document and had it authenticated.  They applied to the Xinxiang ICB for alteration of the Company chop so as to make the Renewal Application and Xinxiang ICB accepted the application.  Wang effectively invited the Xinxiang ICB to reconsider his case.

This letter (at p.1) contained a material misrepresentation of the Hong Kong Court Order in asserting that “the Order plainly stated”, before conclusion of the forgery case, within Xinxiang, only the public chop (公章) of the Company registered at 新鄉市工商局 and all along in the possession of Wang, could be used to represent the Company to exercise rights; and only documents stamped with that chop was lawful and was protected by Hong Kong and PRC law.  In fact, the Hong Kong Court had never made such orders and none of the Undertakings had such effect.

(4)     A letter dated 2 August 2017 with the same contents as in (3) above was sent by Wang to the higher, provincial, level of the ICB, 河南省工商總局 (“Henan ICC”) (“Letter 4”).

33.  After this series of letters, litigation began in the PRC Courts.  These letters appeared to have been given to the PRC courts. 

34.  The 4^th incident was based on hearsay evidence which Huang obtained from Xinxiang ICB officers.  Allegedly, Wang misstated the meaning of Lisa Wong J’s Order to say that the Hong Kong Court had adjudicated that the Chop in his possession was the only lawful mandate for representing the Company and that he alone would have exclusive authority to transact business on behalf of the Company and Xinxiang REC.  There was no independent evidence in support of such hearsay evidence and I place no weight on it.

35.  The 5^th incident concerned Wang’s litigation conduct as could be gleaned from the PRC Court judgments.

(a)     Xinxiang ICB had taken into account, amongst others, (i) the Hong Kong Court Orders supplied by Wang, (ii) Wang’s statement that the Hong Kong Court had prohibited Huang from exercising any rights as a shareholder; and (iii) Wang’s position on the Chop.  On such bases, and at the invitation of Xinxiang ICB, Wang was joined as a third party to the review proceedings taken out by Huang in HXPC.  

(b)     In the HXPC proceedings, Huang pointed out that documents submitted by the Xinxiang ICB (obtained from Wang) contained misleading, incomplete information and translations of the Hong Kong Court Orders. Amongst others, (i) the Chinese translation of items 1-5 (unspecified) in “the Hong Kong High Court Order” was completely at odds with the English Order; (ii) the declaration of Wang was incomplete in its attachments; (iii) Chong’s Declaration referred to the English and Chinese versions of 2 court orders but Wang only supplied one; (iv) only half of the attachment 5 (“injunction order directed to D1, D2 and D3”) was submitted, completely in contravention of the Hong Kong Court Order. See pages 6-7 of the judgment 河南省輝縣市人民法院行政判決書（2018）豫0782行初20號 (“the 30/7/2018 judgment”).

(c)      Huang-6^th, §22(1), stated that the HXPC confirmed that Wang had interfered with the license renewal work of Xinxiang ICB by providing purported information of the Hong Kong Court Order restraining exercise of 100% shareholding rights.   With respect, what the HXPC was doing in that part of the judgment was to recite Xinxiang ICB’s submission similar to (b) above; HXPC was not making a finding.  (See the judgment of HXPC dated 10 August 2018, “the 10/8/2018 judgment”.)

It was recorded in page 7 of the 10/8/2018 Judgment that Huang’s Hong Kong lawyers had provided written statements to HXPC to rebut Wang’s assertion that Huang could not represent the Company and that before the completion of the Hong Kong case, it could not be denied that Huang could not represent the Company.

36.  Mr Tommy Cheung, counsel for Wang and Niu, accepts that the translation of the Court Orders submitted to the PRC Courts were not in the best condition achievable but he denied dishonesty on the part of Wang.

37.  I also note that it was not clear from the 2 Judgments that HXPC had placed much weight on Wang’s conduct.

38.  The 6^th incident was Wang’s refusal to comply with Lisa Wong J’s Order.  After publication of the 30/7/2018 Judgment but before issuing the 10/8/2018 Judgment, the President of the HXPC notified the lawyer representing the Company that the Renewal Application could be done in the manner described in Lisa Wong J’s Order.  According to Huang, Wang failed to confirm attendance by giving the excuse that he was unwell without stating what his illness was and when he was fit to comply. 

39.  On the other hand, according to Wang, it was in late August 2018 that he sought to seek Huang’s cooperation for renewal of the Business Licence but Huang rejected his request through the general manager of Xinxiang REC, 趙均其.  Wang did not state the reasons for rejection.

40.  I reject Wang’s explanation.  Huang was keen to renew the Business Licence and Lisa Wong J’s Order was beneficial to him.  There was no logical reason why Huang would have rejected Wang’s request.  On the other hand, there was logical reason for Wang’s uncooperative attitude – he simply wanted to obstruct Huang for the nuisance value.

41.  Even the PRC lawyer who represented the Company could not tell why Lisa Wong J’s Order was not complied with even today.  However, that Order imposed the obligation on Wang, not Huang.  Non-compliance was weighty evidence of Wang’s misconduct.

42.  The 7^th incident was that Wang had instructed lawyers in the PRC for 8 years without paying them, thereby putting Xinxiang REC’s interest at risk of a legal suit by the lawyers.  With respect, this should be the concern of Xinxiang REC as a separate legal entity and not Huang.  I place no weight on this incident.

43.  Th 8^th incident was what Huang described to be a “new crisis”. On 26 October 2018 Wang sued Xinxiang ICB for unlawfully altering the registration particulars of Xinxiang REC and renewing the Business Licence, under case no. (2018) 豫 07 行初208 號in the Henan IPC. The third party was Xinxiang REC (with Huang’s brother being the litigation agent). 

44.  On 22 January 2019, the Henan IPC gave its judgment (“the 2019 Judgment”), setting aside the registration of the renewed Business Licence on the grounds, amongst others, that (i) the chop used in the Renewal Application was different from the public chop used when the Company dealt with business at the Xinxiang ICB; and (ii) a board resolution was provided in place of the relevant shareholders’ resolution dated 25 November 2016.  The Xinxiang ICB was held not to have wrongly changed the registered particulars.  However, Wang’s application for fresh exercise of administrative powers (重新作出行政行爲) was dismissed. I notice that in its reasons, the 2019 Judgment did not refer to the Injunction Order, the Discharge Order or Lisa Wong J’s Order.

45.  The 2019 Judgment meant an instant death of the business of Xinxiang REC and potential re-entry of the land by the government.  Huang lodged an appeal on 29 January 2019 and issued the present Summons. 

46.  According to Huang, during informal discussions with court officials, his PRC lawyers were advised that the PRC Court was heavily influenced by the Hong Kong Court Orders as represented by Wang.  For a successful appeal it was urgently required to seek some clarification and authoritative support of Huang’s case from the Hong Kong High Court.  I place little weight on such evidence for lack of independent proof.

47.  I also add that I do not regard the 8^th incident as “misconduct” in itself but it certainly is one factor that the court should take into account in the exercise of discretion to grant relief under the Summons.

48.  In summary, Mr Lai submits that Huang has been trying to preserve the status quo.  However, Wang made misrepresentations to the PRC government bureaus and the Courts to hinder Huang’s Renewal Application on the one hand and to enable Wang to make a similar application on the other.  This would enable Wang and Niu to get physical control of the Company.  Huang therefore wants prohibitory orders to stop Wang and Niu from using the Court Orders.

49.  Huang stated that the potential loss caused by Wang’s misconduct was substantial.  Phases 1 and 2 of the development project have been sold. Development of Phase 3 was hindered because the Business Licence was suspended.  If Wang would take control of the project, just by selling the undeveloped land and the unsold car parks, he could take away as much as RMB50 million.

50.  Mr Lai submits that the Undertakings were temporary measures to solve the situation in 2012, with a view to trial in a few months or a year’s time. However, Wang and Niu did nothing in this case for about 7 years.  Wang’s misconduct was not isolated but persistent over the years in misrepresenting the effect of Court Orders.  The status quo was in danger because Wang’s objection to the renewal of the Business Licence would bring the whole project to a standstill and cause total loss to Huang as an investor. 

51.  As a businessman, Huang would not wish to waste time on contempt proceedings.  He has had difficulty in starting a derivative action which might be stayed by Wang on the basis of the Undertakings.

D.   Reliefs sought in the Summons

52.  The reliefs sought can broadly be summarized as follows.

53.  Class 1 reliefs are related to the Company.  These are to restrain Wang (alone or with Niu) from further using the Chop, making false representation as to the effect of the Chop, making false representation that Wang has the sole authority to transact business on behalf of the Company, or publishing documents purporting to be a document of the Company duly signed by Wang. Huang also asks that Wang do deposit the Chop into court pending trial. (§§1-5 of the Summons)

54.  Class 2 reliefs are related to Xinxiang REC, to restrain Wang (alone or with Niu) from claiming to be sole authority or one of the owners with authority to manage the business of Xinxiang REC or from interfering with the affairs of Xinxiang REC. (§6 of the Summons) 

55.  Class 3 relief is for a mandatory injunction requiring Wang to cease the Henan IPC action. (§7 of the Summons)

56.  Class 4 reliefs concern representation as to existence of an injunction:

(i)      to restrain Wang (and/or Niu and/or his lawyer) from making false representation to any person that there is a subsisting injunction against the 3 Defendants in the present proceedings, contrary to the fact that the Injunction Order has been discharged by the Discharge Order for material non-disclosure and no further injunction has been granted (§8 of the Summons); and

(ii)     to restrain Wang and/or Niu from publishing copies of court orders in the present proceedings or any purported Chinese translations in the PRC for administrative, corporate, government, or legal purpose concerning Xinxiang REC (§9 of the Summons).

57.  Class 5 relief is to give leave to Huang to withdraw his Undertaking not to exercise any right in relation to his 2,900 shares in the Company and not to change the specimen of the Company’s chop filed with the Xinxiang ICB or challenge the validity of the chop. (§10 of the Summons)

58.  DHCJ Keith Yeung SC (as he then was) refused to grant urgent relief at the call-over hearing of this Summons.  The reasons set out in his Decision dated 8 February 2019 can be summarized as follows:

(1)     The acts complained of took place during the course of the last few years (§6 of the Decision).

(2)     The “new crisis” which sparked off the Summons concerned the 2019 PRC Judgment (§6 of the Decision).

(3)     Xinxiang REC was represented in that PRC action by Huang’s brother.  D1 knew about the action, but D1’s brother did not adduce any evidence in the PRC action to oppose Wang’s application (§7).

(4)     Huang was unable to explain why he did not try to put forward before the PRC Court what he now sought to put forward before the Hong Kong Court (§8).

(5)     Huang’s application for interim interim relief was based on “multiple hearsay” (§9).

E.    Overview of the merits of the summons

59.  In this Section, I shall broadly consider the grounds of opposition set out in paragraph 2 above.  I bear in mind that there should be no mini-trial on affirmations where there are disputed facts.  However, whether there is a genuine dispute of facts must be viewed in context, against the inherent probabilities and the contemporaneous documents.  Where core facts are indisputable, the Court may readily dismiss purported explanations that are not capable of belief.

60.  I only accept the expert report of the Plaintiffs on the well-known practice in the PRC of 認章不認人。 The rest of the report is not admissible as it purports to show, as a matter of fact, that Huang had breached the Undertakings.

61.  As will become apparent from the analyses below, the Summons faces legal hurdles.  Having regard, nonetheless, to the spirit of the Undertakings, there is a genuine need to preserve the real fruit of this case – Xinxiang REC and to keep it in operation.  This Court has to consider measures to ensure that this need is met.

62.  The first ground of opposition of Mr Tommy Cheung is violation of the reflective loss principle. 

63.  The sole applicant in the Summons is Huang.  The Company has not appeared for obvious reasons – no valid resolution could have been passed for it to conduct this case in view of the dispute over ownership and the Right Restraint Undertaking.  Although the real battle is between Wang and Huang, there is at yet no order for the Company to be excused from attendance.

64.  The reliefs sought in the Summons mostly concern Wang’s misconduct as against the Company and/or Xinxiang REC.  Any alleged loss suffered by Huang was as a shareholder of the Company and hence an indirect beneficial owner of Xinxiang REC.  The proper applicant should thus be the Company or Xinxiang REC and not Huang.

65.  In Wah Nam Group Ltd v Roderick John Sutton [2018] HKCA 687, at §17:

“As I understand the present state of the law in this jurisdiction, the “no reflective loss” principle is a principle of law which is based on the nature of the loss. The focus on the nature of the shareholder claimant’s loss as the benchmark of the “no reflective loss” principle is shown in cases where that principle has been applied even though the company has itself declined or failed to sue, or has been unable to sue whether for lack of merits or lack of financial resources caused by the wrongdoer. Even in those situations, the shareholder was not entitled to claim directly against the alleged wrongdoer, because his loss is still only from the fall in the value of his interest in the company. Depending on the reasons for the company’s refusal or failure or inability to act, his recourse could be to issue a claim against the company or, by way of a derivative action or an application to court to direct a receiver, to sue the wrongdoer on behalf of the company.” (emphasis added)

66.  Huang is barred by the “reflective loss” principle from pursing reliefs under Classes 1-5.  Even if he can successfully obtain an order for discharge from his Undertakings, he would still need to take out eg a derivative action to succeed on those items.

67.  Mr Thomas Lai submits that the court should lift the corporate veil of the Company so that the Court is free to exercise jurisdiction to make appropriate orders having regard to the conduct of Wang.   This bold submission needs only to be mentioned to be dismissed, given the unresolved dispute as to who the real shareholders of the Company are.

68.  Secondly, Mr Tommy Cheung submits that Huang has delayed in coming to court.  I do not think so.  Huang merely stated the events in 2012 as background and, rightly, did not rely on that to seek discharge of the Undertakings.  He claimed to have discovered the Plaintiffs’ acts now complained of in 2017/2018 and the Summons was taken out on 1 February 2019. His complaint on misconduct was true, but it meant that for about 7 years before the Summons, Xinxiang REC had been able to operate even without the Chop until the Renewal Application arose.

69.  Thirdly, Mr Tommy Cheung submits that there was no change of circumstances since the Undertakings were given.

70.  I disagree.  The 6^th and 8^th incidents were material. Lisa Wong J’s Order was a most practical order that saved all arguments on who should have acted on behalf of the Company or Xinxiang REC to renew the Business Licence, and which chop or whose signature was valid for the Renewal Application.  It was workable as apparently the President of the HXPC invited Wang and Huang to comply with it.  The real fruit of this case would be preserved pending trial.

71.  However, Wang had not complied with Lisa Wong J’s Order for no valid reason but engaged in satellite litigation in the PRC Courts over the Renewal Application. The renewed Business Licence was set aside.  These were most material changes of circumstances.

72.  Fourthly, Mr Cheung complains that Huang has not come to Court with clean hands as he breached the Chop Undertaking in 2016 and 2017 by making a declaration that new company chops had been made for the Company and had informed the 新鄉市工商局注冊科 that all documents issued by the Company had to bear what appeared to be the new chops. 

73.  With respect, Wang distorted the evidence.  Huang denied that those were new chops, but old chops of the Company in his possession.  This was credible evidence.  There was no need to specify only the Chop in the Undertakings if there had been no other Company chops in existence in 2012.  Wang has not produced evidence otherwise to show that the other old chops had ceased to exist.

74.  Wang also claimed that Huang has breached the “spirit” of the No Authentication Undertaking by making a declaration (with Chan) on 15 September 2017 to the effect that the only directors of the Company were Huang and Chan without mentioning the dispute in this action. 

75.  Huang has explained that in view of Wang’s competing position in the Renewal Application, Xinxiang ICB had required Huang to clarify the use of the Company chops and due authorization under the Company’s Articles of Association.  The declaration was made in that context.  Xinxiang ICB’s requirement was perfectly reasonable.  Wang dared not say that Huang has breached the No Authentication Undertaking, only the spirit.  I do not consider it correct to say that Huang has not come with clean hands.

76.  Fifthly, Wang claimed that investigation of the PSB showed signs of misappropriation and missing of funds procured by Huang and his brother. Wang produced some investigation papers dating back to 2012 which did not appear to relate to Xinxiang REC.  He did not even aver that Huang or his brother had been prosecuted for any offence as a result. 

77.  Wang alleged that Huang has misappropriated the sale proceeds of properties under the project name of “Blue Diamond” belonging to Xinxiang REC. However, this was a bare assertion supported only by documents showing sale details of projects whose relationship with Xinxiang REC was not clear.

78.  I reject this ground of opposition.

79.  Sixthly, Mr Tommy Cheung submits that Huang has not demonstrated that he was willing, able and ready to honour any undertaking as to damages or that there was evidence of sound financial standing. 

80.  I disagree.  Huang indisputably holds 30% shareholding in the Company, which could support an undertaking as to damages.

81.  With this overview in mind, I now analyze each Class of relief sought in the Summons.

F.    Class 1 Reliefs relating to the Company (§§1-5 of the Summons)

82.  Firstly, Class 1 reliefs violate the reflective loss principle.  Huang is not the proper applicant. 

83.  Secondly, Class 1 reliefs are not sought in the counterclaim, as the relevant incidents occurred post-counterclaim.  The Court would not grant interim reliefs to protect unpleaded substantive rights. 

84.  Thirdly, seeking to restrain Wang from representing to any person that he has sole authority to represent and transact all business on behalf of the Company or to manage the business and daily operation of Xinxiang REC is wider than necessary (§4 of the Summons).  The facts do not show that the Plaintiffs had made misrepresentations on business or daily operation beyond the scope of the Renewal Application.   

85.  Fourthly, seeking a mandatory injunction for Wang to deliver up and deposit the Chop in Court pending trial is again wider than is necessary. 

86.  I do not agree with Mr Tommy Cheung that Huang is seeking a “final relief” with regard to the Chop as the relief is pending trial; and even if the Court were to order delivery up of the Chop, it would not in substance determine any part of the case in favour of Huang.

87.  There are of course serious issues to be tried. The facts are hotly disputed.  Neither party has a cast-iron case.  The question is really one of balance of convenience.

88.  The Chop has been in the possession of Wang for almost 7 years up to the Summons.  There is nothing to show that the business of the Company has been obstructed because of this fact, at least not before the renewal of the Business Licence became an issue in 2016/2017.

89.  I decline to grant Class 1 reliefs.

G.   Class 2 Reliefs relating to Xinxiang REC (§6 of the Summons)

90.  Paragraphs 82-84 above apply, mutatis mutandis, to this Class of reliefs and I decline to grant it.

H.   Class 3 Relief for mandatory injunction to cease the action in Henan IPC (§7 of the Summons)

91.  I find it most objectionable for Huang to seek this relief.  He invoked the jurisdiction of the PRC Court over the Renewal Application.  When Wang did the same, Huang fought the proceedings but lost.  Huang appealed.  Pending resolution of the appeal, Huang invites the Hong Kong Court to compel Wang to cease the Henan IPC proceedings.  As a matter of judicial comity, the Hong Kong Court would not entertain such a collateral attack on jurisdiction and usurp the powers of the PRC Courts.

92.  It could be seen from the Judgments that both PRC Courts were careful in their approach.  They had Wang joined as a third party in view of his competing stance.  They gave both parties (legally represented) the opportunity to adduce evidence and make submissions.  They recorded submissions on the misleading translation and incomplete evidence on Wang’s part.  They gave detailed analyses of the evidence and the law. 

93.  At this hearing, Mr Lai pointed out that the 2019 Judgment had wrongly stated that Huang’s brother had not adduced evidence (at p.3), as it contradicted the statement that referred to Xinxiang REC providing an (unidentified) declaration and certificate of lawyers (at p.6). Mr Lai submitted that such a wrong statement caused Deputy Judge Keith Yeung SC to refuse relief at the ex parte stage. 

94.  However, Mr Lai has not explained why the same arguments made at this hearing or correct translations of the Hong Kong Court Orders were not laid before the PRC Court. Huang is bound by the PRC Judgments and should pursue an appeal if he is not satisfied with those Judgments. 

95.  I decline to grant Class 3 relief.

I.       Class 4 Relief to restrain Wang from making false representation that there is a subsisting injunction against the 3 Defendants and from using a publishing Hong Kong Court orders (§§8 & 9 of the Summons)

96.  Firstly, paragraph 8 of the Summons stated that the Injunction Order has been discharged by the Discharge Order for material non-disclosure.  Mr Lai rightly concedes during his oral submission that there was no finding of material non-disclosure in L Chan J’s Order and those words should be deleted from paragraph 8 of the Summons.

97.  Secondly, I find that there was material misrepresentation of the effect of the Hong Kong Court Orders in the 1^st incident, 3^rd incident (Letters 2, 3 and 4) and 5^th incident.  I would add that I would not have granted relief based on the 1^st incident alone as it happened 7 years ago and had no direct impact on the Renewal Application.

98.  At this point, it should be made clear that since issue of the Discharge Order, there has been no more injunction against any of the Defendants.  What remain valid and subsisting are the Undertakings.

99.  The Hong Kong High Court has never determined any of the following points:

(1)     The merits of Wang’s allegation of forgery; and whether Wang and his wife, or Huang and Chan are the shareholders of the Company pursuant to of the Share Transfer Agreement; they are issues for trial in this case;

(2)     How the Chop or other chops of the Company should be used, in particular for the Renewal Application, but it is common for a company incorporated in Hong Kong to have the 4 types of chops/stamps described in Chan’s declaration dated 20 May 2016 submitted to Xinxiang ICB.

(3)     Who could use the Chop in the possession of Wang;

(4)     Who could sign letters/documents on behalf of the Company; or that only Wang’s signature could be validly affixed to Company letters/documents;

(5)     Who could represent the Company in litigation.

100.  In principle, relief, with some modifications, should be granted to Huang under §8 of the Summons.  However, it is wrong in principle to bar Wang from using or publishing Hong Kong Court orders in Mainland China for any administrative, corporate, government or legal purpose concerning the Xinxiang REC.  Wang is at liberty to use the court orders properly especially where they affect the rights he may have in Xinxiang REC.  §9 of the Summons should not be granted.

J.      Class 5 Relief for leave to withdraw Undertakings (§10 of the Summons)

101.  The court cannot vary an undertaking, as it was given voluntarily, but can discharge it if it is shown that there are material changes of circumstances or that the undertaking was given due to vitiating factors.  The principles have been summarized in L v C, FCMC 5952/2012 (unreported, 3 July 2015), §22, Her Honour Judge Grace Chan, following Mid Suffolk District Council v Clarke [2007] 1 WLR 980, Buxton LJ, at §§54-56:

“(1) An undertaking can be discharged, but not varied. This is because the litigant is not ordered to give these undertakings; he chooses to give them;

(2) The court has jurisdiction to discharge an undertaking given to the court at any stage, even if it was given in an order made by consent;

(3) In general, a party who has given an undertaking to the court may seek to uplift or release himself from an undertaking in any of the following situations:

(a) when there has been a material change of circumstances since the undertakings were given which are not foreseeable at the time and which make compliance not feasible;

(b) when the subject matter to which the undertakings relate no longer exists which renders compliance impossible;

(c) the party to whom the undertaking was given releases the undertaker from complying with the undertaking;

(d) when the undertaking was obtained through fraud, misrepresentation or mistake (See: TLS nee J v RCS (supra));

(4) Whether an undertaking given to the court should be discharged is a matter of judicial discretion to be exercised if it is “just” to do so: Kensington Housing Trust (supra) at 613;

(5) However, in case where an undertaking to the court is given in lieu of a final injunction, that it is “just” to discharge the undertaking is not sufficient, “material change of circumstances” must be shown: Mid Suffolk District Council (supra) at §§52-56.” (emphasis added)

102.  Huang referred to the circumstances under which he cursorily gave the Undertakings over the phone to his lawyers but, rightly, did not rely on that to seek withdrawal of the Undertakings.  Nor did he refer to any vitiating factors which led to his giving of the Undertakings. 

103.  The Discharge Order was granted upon consent of the Plaintiffs, Huang and Chan, with legal advice.  It involved some give and take on each side.  It was to hold the ring until trial – to preserve the most valuable subject matter of the litigation, ie the business of Xinxiang REC. The Undertakings should not be lightly discharged unless Huang could show changes of circumstances. 

104.  I have alluded to the difficulties in some of the reliefs sought. However, one should not miss the indisputable wider picture.  For 7 years since the giving of the Undertakings, this action has not progressed beyond close of pleadings.  (Mr Tommy Cheung conceded and promptly proposed directions at the 2^nd day of this hearing.)  This directly created a reasonable doubt on whether the Plaintiffs were serious in protecting their alleged rights. The doubt was particularly strong in the light of the defence that the Plaintiffs had in fact executed the Share Transfer Agreement and received full payment thereunder.

105.  Wang claimed to be keen to go to trial, only to be frustrated by the “satellite litigation” initiated by Huang and Chan.  However, the only satellite litigation that Wang could point to in the present case was the Summons (taken out 2½ years since close of pleadings) disposed of by Lisa Wong J. That summons was necessitated by the PRC proceedings to keep the Subsidiary alive.  Neither the PRC proceedings and the summons would have hindered the preparation of the present case for trial. 

106.  Huang successfully renewed the Business Licence without Wang’s compliance under Lisa Wong J’s Order.  There was no evidence that he would misuse the Business Licence or otherwise dissipate assets of Xinxiang REC.  The Undertakings would have continued to protect Wang and Niu.

107.  However, Wang got the Business Licence revoked, as he wanted to do the Renewal Application.  The rhetorical question was: what better result could his application achieve than Huang’s successful renewal?  I can see none.  His conduct constituted satellite litigation in the real sense.

108.  Discharge of an undertaking is a draconian measure and is a judicial discretion.  The Court has given a less draconian alternative through Lisa Wong J's Order.  Disappearance of the valuable fruit of this case was completely avoidable.  Wang did not comply despite HXPC’s facilitation.  After the 2019 Judgment, the Renewal Application could have been done by Wang.  He did nothing. 

109.  There is no change of circumstances more substantial than that stated in paragraphs 107 and 108, and it fell within limbs 3(a) and (b) of L v C.

110.  In the deliberation of this decision, the parties were invited to address this Court on whether or not it was appropriate to impose an unless order for Wang to comply with Lisa Wong J's Order.

111.  Mr Lai submits that compliance with Lisa Wong J’s Order had been superseded by events and is no longer physically possible today.  He refers to the history set out in Huang-6^th, at §§22(7) to (10), 23 and 26. However, §§22(7) to (10) and 23 refer to the Business Licence being initially renewed for 10 years.  §26 refers to Wang using his Chop to issue new proceedings in the Henan IPC.  I fail to see why those paragraphs support Mr Lai’s submission.

112.  On the other hand, Wang and Niu gave a supplemental written submission dated 7 January 2020 through their solicitors who have applied to cease to act. Wang and Niu confirmed their “willingness” to abide by Lisa Wong J’s Order but made no mention of the date of compliance, 14 days or otherwise.  So compliance of that Order has been outstanding for 20 months.  Their alleged willingness to abide was hollow.  One asks rhetorically: why were Wang and Niu not concerned about revocation of the Business Licence?  It was consistent with their failure to press on with this case for several years after close of pleadings in the light of the defence.

113.  Balancing all factors, I give leave to Huang to withdraw the Undertakings.  Wang and Niu would still be protected by the Non-disposal Undertaking and the No Authentication Undertaking.

114.  It is not the intention of this order to usurp or pre-empt the powers of the PRC Courts in any manner.  The order is to police the Hong Kong Court’s own orders having regard to the balance of convenience.  It is to prevent Wang from misrepresenting the effect of the Discharge Order and the Undertakings and to preserve the real fruit of this litigation.

115.  Huang asks for a bilingual order to be made.  I decline to do so.  It is not the practice of the Court to give bilingual orders.  If Huang needs a Chinese version, he can always get certified translations.

K.    Orders

116.  I order as follows:

(1)     With regard to paragraphs 8 of the Summons, Wang be restrained whether by himself, his servants or agents including the 2^nd Plaintiff or any China lawyer engaged by him, whether orally or in writing or howsoever otherwise from making any representation to any person (including but not limited to any officers, staff, personnel or agent of any government department, office, authority or bureau in Mainland China) that there is a subsisting injunction against the 1^st, 2^nd and 3^rd Defendants in these proceedings, contrary to fact that the ex parte injunction against the Defendants granted by Deputy High Court Judge Au-Yeung herein on 2 April 2012 had been discharged on 29 October 2012 by the Order of L Chan J, and that there has been no further grant of any injunction against the Defendants since 29 October 2012.

(2)     With regard to paragraph 10 of the Summon, that leave be given to the 1^st Defendant to withdraw his undertaking embodied in the Consent Order of L Chan J of 29 October 2012 namely:

(i)      under paragraph 2 therein, “not to exercise any right in relation to his 2,900 shares in the 3^rd Defendant”; and

(ii)     under paragraph 3 therein, “not to change the specimen of the 3^rd Defendant’s chop filed with Henan Province Xinxiang Municipal Bureau of Industry and Commerce (河南省新鄉市商務局) or require its return or otherwise challenge the validity or authenticity of the said chop.”.

(3)     Other reliefs sought in the Summons be dismissed.

(4)     After sending a copy of this judgment to Wang, the Plaintiffs’ solicitor shall inform the Court by letter within 3 days, copied to the Defendants.

L.     Costs

117.  This is not a straightforward application and Huang has not got all the reliefs sought under the Summons.  However, the bulk of the affirmation evidence is still required even for the reliefs now granted. The application to withdraw the Undertakings forms a substantial part of the Summons.  There is no reason to impose costs on indemnity basis. 

118.  I make an order nisi that Wang should bear 75% of the costs of this Summons to be summarily assessed on the papers without an attendance.  Huang shall submit his costs statement by 6 February 2020.  Wang shall submit his grounds in opposition by 20 February 2020.

119.  The reliefs sought are many; so are the incidents involved.  It would have helped the court greatly if an applicant’s counsel could have set out the facts in a fair, narrative form and referred to the relevant pages of an authority relied on.

120.  I thank counsel for their assistance.