SECURITIES AND FUTURES COMMISSION v. QUNXING PAPER HOLDINGS COMPANY LTD AND ANOTHER

HCA 2428/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2428 OF 2013

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D E C I S I O N

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1.  There are 3 Summonses before this court. The first in time concerns the defendants’ application to discharge the injunction order grant by Mr Justice Chung on 12 December 2013 (“Injunction”), which has subsequently been varied.

2.  There is agreement by counsel that I should deal with this Summons first.

3.  The contest here concerns whether the plaintiff (“SFC”) has made out a serious issue to be tried in support of the Injunction.  The defendants have filed and are relying upon the affirmation of Mr Zhou dated 24 March 2014 in support of their application.

4.  To encapsulate the arguments succinctly, SFC’s case is premised upon an extensive investigation into the financial affairs of the 1^st defendant and its subsidiaries.  By such investigation, evidence was uncovered which suggests that various financial information published by the 1^st defendant are seriously misleading. In particular, such information was inflated by the non-existing sales to Shangdong On Hing (“On Hing”) by Shangdong Qunxing (“Shangdong”).

5.  It is the evidence of Mr Zhou that those sales between On Hing and Shangdong are genuine and that the SFC has been misled in its investigation because it is common for Mainland commercial entities to understate their business volume when the same is put under scrutiny.

6.  I have also been reminded by Mr Li, who appears for the defendants, that the books of the 1^st defendant have been subjected to the scrutiny of no less than 4 firms of accountants, and no deficiency of the sort alleged by the SFC has been identified.

7.  With respect to the arguments of Mr Li, I am unable to see how the evidence marshalled by the defendants before the court can undermine the evidence of the SFC.  No doubt the contested evidence will have to be tried, but for the purpose of demonstrating a serious issue to be tried clearly that threshold has been satisfied.  For completeness, I should say that I am not impressed by Mr Zhou’s evidence given the complete lack of documentary support.  Neither am I convinced by his explanation as to why he is not in a position to produce any such document.

8.  In the premises, this Summons is dismissed.  Costs of this Summons be to the SFC with a certificate for 2 counsel.  For taxation purpose, the hearing of the Summons has taken 1 hour.

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