MIAO ZHENGUO AND OTHERS v. CHUNG WINSTON formerly known as CHUNG HING KA

HCA 1283/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1283 OF 2011

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BETWEEN

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REASONS FOR DECISION

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Introduction

1.  At the end of the hearing, the following orders were made:

(a) the defendant’s inter partes summons dated 8 May 2012 (“the time summons”) for an extension of the time for complying with the consent order dated 24 April 2012 (see para 8 below) be adjourned sine die with liberty to restore;

(b) the ex parte order dated 7 May 2012 (“the ex parte order”) be discharged.

Below are the brief reasons for the above orders.

Background

2.  A few words have to be spent on the background leading to the ex parte order and the time summons.

3.  The plaintiffs commenced this action in July 2011 suing the defendant for the repayment of a contractual debt. The parties consented to a Tomlin order dated 5 December 2011.  The attached schedule (among other things) provided for the payment of US$23.8 million (equivalent to about HK$185.6 million) by the defendant.  The defendant’s failure to pay would result in judgment being entered for the total sum of about HK$182 million.  The defendant’s payment was in essence in exchange for the shares of a US company (“the US company”).

4.  No payment having been made, the plaintiff applied for summary judgment.  The application came to be heard in February 2012, but it was adjourned to April 2012. The adjournment arose as follows. 

5.  Prior to 5 December 2011 (date of the Tomlin order), the parties entered into a settlement agreement in California (“the Calif agreement”) to settle the legal actions then pending in California and Hong Kong.  The Tomlin order was consented to pursuant to the terms of the Calif agreement.

6.  The defendant alleged at the February 2012 hearing the Calif agreement contravened Californian law and was unenforceable.  The deputy judge acceded to the defendant’s application for an adjournment to enable the illegality issue to be resolved in the Californian court.  The illegality issue was later resolved in the plaintiffs’ favour.

7.  The plaintiffs restored the application for judgment and the matter came before me on 24 April 2012.  The defendant then contended that the US company had received, or would shortly receive, substantial funds.  He further said he believed the plaintiffs would remove the funds, resulting in the US company being a bare shell without assets.

8.  The plaintiffs denied at the April 2012 hearing they would remove any funds from the US company.  At the court’s suggestion, they offered an undertaking to such effect.  Despite the defendant’s initial opposition, the parties later consented to judgment being entered against the defendant with a stay of its execution conditional upon (among other things) the defendant paying into court HK$182 million within 14 days (“the Apr 2012 consent order”).

9.  I pause to note that at no time during any of the above hearings did the defendant indicate he had difficulties in paying what in effect was a contractual sum.  There was no indication he was unclear as to the nature of his contractual obligations either.  As will be seen in para 10, 14 and 20(a) below, these matters featured at the ex parte hearing and/or the hearing of the time summons.

The ex parte order

10.  The defendant made an urgent ex parte hearing on 7 May 2012, the urgency being his financial inability to comply with the payment deadline imposed by the Apr 2012 consent order (which would expire on 8 May 2012).

11.  Upon the defendant’s undertaking to take out the time summons, I ordered the time for the defendant to pay to be extended to the determination of that summons or until further order.

12.  During the ex parte hearing, there were discussions between the court and the defendant as regards:

(1) the allegation that the auction held in the US, which was the source of one of the substantial funds received by the US company (see para 7 above), was improperly conducted by the auction agents;

(2) the allegation that the improprieties resulted from a conspiracy between the plaintiffs and the auction agents (see para 20(b), 21 and 22 below for more details);

(3) the prejudice likely to be caused to the defendant if the time for payment‑in were not extended.

Hearing of the time summons

13.  The plaintiffs filed an affirmation deposing (among other things) shares belonging to the defendant had been sold in 2011 and proceeds of about HK$522.48 million had been obtained.  Further, the defendant has filed notices in April 2012 stating that shares worth about HK$123.56 million had earlier been sold.

14.  While not disputing the above sales, the defendant claimed through his lawyers they were made without his knowledge or authority and he never obtained the proceeds.

15.  But even if the claim be true, the fact that shares which were worth substantial sums had been sold (especially those covered by the defendant’s notices) is a material fact which ought to have been disclosed as part of the defendant’s duty to make full and frank disclosure.

16.  One of the defendant’s arguments for a time extension is that extending the time would not cause the plaintiffs prejudice. According to his affirmation dated 8 May 2012 and the skeleton argument dated 9 May 2012, the fund required to make the payment‑in would be available latest by 26 May 2012 (para 5 thereof).  It was also said in the skeleton argument:

“It is the first time and [the defendant] believes that it is the last time”,

he would need a time extension (para 1 thereof).

17.  The lack of real prejudice is a double‑edged point.  Even if time extension for making the payment‑in had not been given by way of the ex parte order, which would have resulted in the stay of execution having been lifted by the time of the inter partes hearing, it is unlikely real harm would be caused to the defendant before 26 May 2012 (and none has been put forth by him when being queried about this).  What reinforced the lack of real prejudice is his firm stance (repeated during the inter partes hearing) that the fund would be available shortly, as well as the plaintiffs’ indication that any application for time extension would receive their favourable consideration if it was made when the funds are actually available to be paid‑in.

18.  Apart from para 13 to 17 above, I have also taken into account the following when exercising my discretion.

19.  First, the plaintiffs’ contention that the defendant’s statements ought not be taken at face value by reason of his repeated unsuccessful attempts to resist judgment being entered, using different reasons at various times (see para 6 to 8 above).

20.  Secondly, assertions to the effect that:

(a) the contractual document(s) was/were executed by him without knowledge of its/their full meaning and effect;

(b) the auction was improperly conducted and was a conspiracy involving the auction agents and the plaintiffs;

(c) the Apr 2012 consent order (especially the part relating to the time for making the payment‑in) was agreed to by the defendant’s former solicitors contrary to his express instructions.

In relation to sub‑para (a) above, the assertion has not been made prior to the inter partes hearing.

21.  In relation to para 20(b) above, the auction was known to the defendant prior to the April 2012 hearing (it was deposed to in his affirmation filed for that hearing) but the allegation was not made until the affirmation filed in support of the ex parte hearing.  Further, the auction was dealt with on the defendant’s behalf by someone who declared that he was legally qualified in California and who have been:

“providing business and financial advice to [the defendant] as concerns certain of his investments in the United States” (para 5 thereof).

The declaration is vague as regards when the improprieties (allegedly wrongful rejection of other higher offers and the defendant’s “overbid”) came to the knowledge of the declaration maker.  In a declaration made by another Californian attorney acting for the defendant in relation to the auction, it was stated that the declaration maker was informed of the rejection of the defendant’s “overbid” several days before the April 2012 hearing.

22.  Thirdly, the allegation of conspiracy, which has been denied by the plaintiffs, lacks particulars.  In this connection, exhibit “CW‑21” (a letter dated 22 April 2012) to the defendant’s affirmation dated 23 April 2012 (filed for the April 2012 hearing) specifically referred to said auction and the “overbid” process.  But it merely asserted a wrongful distribution of the US company’s funds and a right to set it off against the judgment sum (and for an account for such purpose).

Conclusion

23.  By reason of the above matters, I discharged the ex parte order and declined to make any order at the inter partes hearing except to adjourn the time summons with costs reserved.