XU SHENGHENG AND ANOTHER v. CHEUNG KWAN

CACV 133/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 133 OF 2012

(ON APPEAL FROM HCA NO 291 OF 2009)

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J U D G M E N T

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Hon Poon J (giving the Judgment of the Court) :

INTRODUCTION

1. This is an appeal by the 1^st defendant by counterclaim (“Xu”) against the order of Deputy High Court L Chan (as he then was) dated 3 March 2012 continuing the ex parte injunction obtained by the 1^st plaintiff by counterclaim (“Cheung”) on 3 January 2012, which restrained Xu from dealing with or disposing of 250 million shares in China Ground Source Energy Limited (“the Company”).

JUDGMENT BELOW

2. The background leading to these proceedings has been summarized by the learned Judge at §§1 to 11 of his judgment, which we gratefully adopt.

3. Cheung’s counterclaim against Xu is based on an oral sale and purchase agreement the parties made in or about March or early April 2008 under which Cheung agreed to sell Xu 500 million shares of the Company at HK$0.25 cents per share for Xu to become the controlling shareholder of the Company (“the Oral Agreement”).  Xu strenuously denied the existence of the Oral Agreement.

4. After carefully analyzing the evidence, the Judge found that there was a serious question to be tried on the Oral Agreement. He next rejected Xu’s complaints that Cheung was guilty of material non disclosure when she made her ex parte application.  He further found that damages were not an adequate remedy.  He therefore ordered the ex parte injunction to be continued and gave some consequential directions.

DISCUSSION

5. Mr Mak, counsel for Xu here and below, took three main points in support of his appeal.

6. First, Mr Mak argued that the Judge was wrong in finding that there is a serious question to be tried on the Oral Agreement.  In the course of both his written and oral submissions, Mr Mak referred to the evidence in length, contending that the evidence shows that Cheung’s case is wholly unbelievable.  In particular, he submitted that the Judge erred in his understanding of the disclosure obligations under the Securities and Futures Ordinance, Cap 571.  Hence his reading of the evidence pertaining to and conclusion on the disclosure notices was wrong.

7. In our view, the way in which Mr Mak approached the evidence is tantamount to a forensic analysis, bordering on a trial on affidavits.  That is clearly wrong and must be firmly rejected.  We reiterate that it is not the function of the first instance court, let alone the Court of Appeal, at this interlocutory stage to try to resolve conflicts of evidence or decide difficult questions of law.  They are all matters for trial.  A minute detailed analysis of the evidence, as Mr Mak has tried to carry out here, is neither permissible nor necessary.

8. After carefully considered all the evidence in the round, we think there is ample evidence to support the Judge’s conclusion that there is a serious question to be tried on the Oral Agreement, including the three matters highlighted by the Judge at §§49 to 52 of his judgment which is relied on by Cheung and not contradicted by Xu.

9. We have not discussed the evidence in detail.  Quite apart from the fact that a detailed analysis of the evidence is unwarranted, the case will most likely go to trial when all the hotly disputed factual issues will be canvassed in full.  We consider it prudent for us not to express any view on the strength or weakness of the evidence here.

10. Mr Mak next contended that there was material non disclosure.  He basically repeated his complaints leveled before the Judge.  The Judge dealt with them adequately at §§53 to 58 of his judgment.  We agree with his reasoning.  Like the Judge, we fail to see any material non disclosure as contended.

11. Finally, Mr Mak complained that Cheung was guilty of almost 3 years of delay in taking out the application for interim injunction.  With respect, we disagree.  The question of timing must be viewed in proper context.  Although Cheung discovered Xu had transferred the shares in question to himself on 22 January 2009, Xu had not indicated his intention to sell the shares until 23 December 2011 in response to Cheung’s stop notice served on him 2 days beforehand.  Then on 29 December 2011, Cheung gave her intention to take out the application, which she did on 3 January 2012 with notice to Xu.  There is no delay on her part as complained of.

CONCLUSION

12. For the above reasons, we dismiss Xu’s appeal.

13. Costs should follow the event.  We make an order nisi that Xu is to pay Cheung costs of the appeal, to be taxed if not agreed.