BINCHUANG RESOURCES CO., LTD v. LOCKWOOD GROUP LTD AND ANOTHER

HCA 2167/2019

[2022] HKCFI 739

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2167 OF 2019

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D E C I S I O N

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1.  This is the Plaintiff’s application for interim payment against the 1^st Defendant in the sum of HK$83.1 million or such sum as determined by Court.

2.  The background to this dispute has been summarized by Anthony Chan J in his Decision dated 27 November 2020 in these proceedings which concerns the proceedings against the 2^nd Defendant (“Decision”) §§2-21, which I gratefully adopt and quote.

“2. These matters arose from a loan transaction.  In about July 2019, Binchuang and Lockwood entered into such a transaction through an intermediary known as Dimension Capital Group (“DCG”).

3.      The following agreements were entered into between the parties (collectively, the “Agreements”) :

(1)      A Loan Agreement dated 17 July 2019 between Binchuang and Lockwood (“LA”);

(2)      An Amendment Agreement dated 21 August 2019 between Binchuang and Lockwood; and

(3)      The CAA dated 17 July 2019 but signed in August 2019 between Binchuang, Lockwood and Axis.

4.      Under the Agreements, Lockwood agreed to make available to Binchuang a loan in the principal amount of up to RMB40,000,000 (“Facility”), which would be secured by a pledge of 30 million shares in a bank listed on the HKSE (“Shares”) by Binchuang in favour of Lockwood and deposited with Axis.

5.      Clause 2(a) of the LA contemplated that the Facility would be funded in 2 tranches to be advanced in 20 trading days after the date of pledge of the Shares.

6.      There were contractual terms in the LA to restrict Lockwood from dealing with the Shares as follows :

(1)      Clause 3(a) stated that Binchuang pledged and granted a charge on the Shares, and that Lockwood should have a continuing security interest in the Shares;

(2)      The warranties given by Binchuang in Clause 4(a)(8) stated that the LA “creates in favor of [Lockwood] a valid first priority security interest in the Shares included within the Collateral … in accordance with the terms of the Loan Documents, securing the payment and performance of the Obligations”;

(3)      Clause 3(b) provided that Binchuang should remain the beneficial owner of the securities account (maintained with Axis where the Shares were deposited), except where an event of default (“EOD”) took place;

(4)      Clause 3(d) provided that Lockwood should not transfer the Shares prior to an EOD, after which time Lockwood might transfer the Shares.  “Transfer” was defined at Clause 1(ff) as “sell, trade, transfer, assign, convey or otherwise dispose of title to securities (for clarification, Transfer does not include Portfolio Protection Arrangements which may be effected)”;

(5)      Clause 3(g) provided for a specific obligation on Lockwood’s part to return the Shares upon full repayment of the Facility:

“At such time as all of [Binchuang’s] Obligations have been paid in full, the [Shares] shall be returned to [Binchuang] to the extent and in the manner set forth herein. [Lockwood] acknowledges and agrees that all shares of Common Stock, including the [Shares], are fungible, such that [Lockwood’s] obligation to return the [Shares] is understood to mean the delivery to [Binchuang] of such number of shares of Common Stock as is equal to the total number of [Shares] required to be delivered to [Lockwood] hereunder.”

(6)      Clause 6(b) provided for Lockwood’s remedies which arose only after the occurrence of an EOD.  These remedies included power of sale and transfer of the Shares.

7.      Following the execution of the LA, Binchuang executed the CAA with Axis on 8 August 2019.

8.      Thereafter, Axis continued to correspond with Binchuang to facilitate the transfer of the Shares into a custodian account until 6 September 2019.  It is Binchuang’s evidence that :

(1)      On 21 August 2019, Binchuang’s representatives attended a WeChat call with Mr Hutchinson (acting on behalf of Axis), wherein Hutchinson represented that the Shares would not be disposed of in the absence of an EOD;

(2)      On 29 August 2019, Binchuang’s representatives again attended a WeChat call with Hutchinson when the latter explained that Binchuang would remain the beneficial owner of the Shares, even after the transfer of the Shares into the account at Axis.

9.      On 6 September 2019, Binchuang deposited the Shares into a securities account (no 300026) (“Custodian Account”) at Axis in accordance with the LA.  It was understood that Axis would in turn use Citibank N.A. to hold the Shares.

10.      On 12 September 2019, Lockwood advanced RMB 690,900 as a “test tranche” (“Test Tranche”) to “make sure the disbursement process works”.  It was, according to Binchuang, the only sum it ever received from Lockwood.  

11.      Since mid-September 2019, Lockwood repeatedly represented that the loan would be advanced to Binchuang by a certain date, and when that date approached, sought further time extension for the advancing of the loan.  

12.      As a very substantial part of the loan was not advanced, Binchuang became concerned with the whereabouts of the Shares.  It therefore requested Axis to send to it account statements of the Custodian Account.  In response, Axis sent to Binchuang :

(1)      A statement of the Custodian Account showing, Binchuang says, that the Shares remained in it as at 14 October 2019; and

(2)      A statement of the Custodian Account showing, Binchuang says, the same status as at 25 October 2019

13.      At the risk of diversion, there is controversy between the parties as to the proper interpretation of the said statements.  Axis says that they merely showed that the Shares had been hypothecated to Lockwood.  For the purpose of strike out, I certainly accept that Binchuang’s reading of those statements is a reasonable one.

Lockwood’s failure to advance the loan

14.      On 23 October 2019, by an email, Binchuang informed Lockwood that unless the loan was received by 1 November 2019, it would terminate the LA.

15.      On 1 November 2019, Binchuang did not receive any further amount from Lockwood.  By way of an email dated 3 November 2019, Binchuang informed Lockwood that in light of the failure to provide the loan, it would terminate the LA.

16.      On 6 November 2019, Lockwood stated by an email that the first tranche of the loan had been advanced to DCG which was holding the funds on behalf of Binchuang.  It was also suggested that DCG received the first tranche of the loan soon after 12 September 2019.  This, says Binchuang, was a blatant lie because :

(1)      DCG confirmed by email on 9 November 2019 that it had never received any loan from Lockwood;  

(2)      Lockwood was unable to produce any document evidencing the alleged transfer of the loan to DCG upon Binchuang’s request;  

(3)      Lockwood had no commercial reason to advance the loan to DCG.  DCG was never authorised by Binchuang to receive the loan.  Under the LA, Binchuang only authorised one Beijing Jin Yu Rui Lian Investment Management Co to receive the loan;

(4)      The advancement of the loan soon after 12 September 2019 was also inconsistent with Lockwood’s repeated request in September and October 2019 for more time to fund the first tranche of the loan.

Disposal of the Shares

17.      After receiving the 6 November 2019 email, Binchuang conducted investigations as to the whereabouts of the Shares.  By reviewing the CCASS records, Binchuang discovered that Lockwood had sold or disposed of the Shares contrary to the terms of the LA.

18.      On 7 November 2019, Binchuang requested by an email to Axis for it to confirm whether the Shares were still held in the Custodian Account, having pointed out that the checking of CCASS records showed that Citi N.A. was not holding sufficient number of shares in the listed Bank in question.  Against the background of Binchuang’s concern :

(1)      Axis confirmed (on 8 November 2019) that the Shares were “still pledged” by Binchuang with Lockwood;

(2)      Axis confirmed that “nothing has happened to our sub-accounts held with [Citi N.A.]”.

(3)      Axis also sent Binchuang a statement of the Custodian Account showing, Binchuang says, that it contained the Shares as at 6 November 2019.

19.      On 8 and 11 November 2019, Binchuang twice requested Axis to provide the details of the CCASS sub-accounts in which the Shares were held.  These requests were ignored by Axis.

20.      Binchuang thereafter took out ex parte applications for relief against Lockwood and Axis.  The Injunction against Axis was for (a) delivery up of the Shares or their substitutes into the custody of the court and (b) disclosure of the whereabouts of the Shares and their traceable proceeds and the details of the sale of or dealings with the Shares.  It was made and granted on the limited ground that :

(1)      Upon the setting aside of the LA for Lockwood’s fraud, Axis came under an implied duty to return the Shares to Binchuang; 

(2)      For the safe custody of the Shares pending the resolution of the dispute between Binchuang and Lockwood, the Shares ought to be delivered into court.  No allegation of fraud was made against Axis at that time.

21.      Having reviewed the documents disclosed by Axis pursuant to the Injunction in relation to the disposal of the Shares, it emerged that :

(1)      The Shares was transferred away from the Custodian Account in early September 2019;

(2)      They were all sold with the knowledge and assistance of Axis by 23 October 2019; and

(3)      According to Binchuang, Axis had concealed and misled it into believing that the Shares remained in the Custodian Account.”

3.  After the Decision and for the purpose of this application, further evidence has been filed by the Plaintiff and the 1^st Defendant, which I will refer to below.

4.  As summarized in the Decision, the Plaintiff was the borrower and the 1^st Defendant was a lender for a loan of up to RMB40 million (“Loan”); their relationship was principally governed by a loan agreement dated 17 July 2019 (which was subject to an amendment agreement which is not material for present purposes) (“LA”); and as security for the Loan, the Plaintiff pledged 30 million shares in a Chinese bank listed on the Stock Exchange of Hong Kong Limited (“Shares”), and a tripartite collateral agency agreement between the Plaintiff, the 1^st Defendant and the 2^nd Defendant (“CAA”) was entered into to that end.

5.  The Plaintiff’s complaint is that:-

(a)     Although a Loan of up to RMB40 million was promised, it only ever received RMB690,900 (around USD110,000) on 12 September 2019; the bulk of the Loan was never advanced by the 1^st Defendant; and

(b)     While it had granted a security interest over the Shares to the 1^st Defendant and had transferred the Shares to an account in its own name maintained with the 2^nd Defendant, and the terms of the LA provide that the Plaintiff should remain the beneficial owner of such account and the 1^st Defendant should not transfer the shares prior to an event of default, shortly after the Shares were deposited into the account maintained with the 2^nd Defendant on 6 September 2019:-

(i)     Immediately after the deposit, on 6 September 2019, the Shares were said to have been hypothecated from the Plaintiff’s account to the 1^st Defendant’s account and were transferred into the 1^st Defendant’s account.

(ii)     Between 6 and 9 September 2019, the 1^st Defendant claimed to have hypothecated the Shares to a third party, which such first third party thereafter further hypothecated to a second third party, and the Shares were further transferred from the 1^st Defendant’s account to the accounts of the third parties.

(iii)     Between 8 September 2019 and 23 October 2019, on the instructions of the third parties, the 2^nd Defendant sold all the Shares.  All proceeds from such sale were then withdrawn by 8 November 2019.

6.  The Plaintiff’s case is that while the transfers and disposals of the Shares were ongoing without its knowledge, the 1^st Defendant was repeatedly deferring the provision of the bulk of the Loan, such that after it had given final notice to the 1^st Defendant on 23 October 2019, on 3 November 2019 it gave official notice to the 1^st Defendant that it elected to terminate the LA and start the procedures to release the Shares.  Notwithstanding that, neither the 1^st Defendant nor the 2^nd Defendant informed it that the Shares were no longer in its account with the 2^nd Defendant but had been sold.  On the contrary, the 2^nd Defendant gave it the impression that the Shares were still in its account; and it was not until after proceedings were commenced in Hong Kong and the United Kingdom that the 2^nd Defendant disclosed, in early 2020, that the Shares had been disposed of and the proceeds removed.

7.  The Plaintiff claims against the 1^st Defendant on 4 bases in the Amended Statement of Claim – (i) fraudulent misrepresentation that the 1^st Defendant genuinely intended to advance the Loan to the Plaintiff and honestly believed that it had the financial ability to do so; (ii) breach of trust on the basis that the 1^st Defendant (pursuant to the terms of the LA) held the Shares on trust for the Plaintiff – which essentially is a claim asserting the Plaintiff’s proprietary right in the Shares); (iii) breach of contract in (a) failing to advance the Loan and (b) transferring the Shares out of the Plaintiff’s account on 6 September 2019 and the subsequent transfer to the first third party; and (iv) unlawful means conspiracy between the 1^st Defendant and the 2^nd Defendant.

8.  The 1^st Defendant filed a Defence which mostly consists of non-admissions and bare denials.  The only matters of note are:-

(a)     It avers that the LA and the overall arrangement was not a security arrangement, although it has not pleaded what it claims its proper characterization to be.

(b)     It avers that it did arrange for the Loan to be advanced to the Plaintiff, although no particulars have been given.

(c)     It relies on clause 3(d) of the LA, which confers on the 1^st Defendant “the absolute right to effect Portfolio Protection Arrangements free and clear of any liens claims or encumbrances”; “Portfolio Protection Arrangements” are defined to mean “any arrangements or transactions effectuated to mitigate the risk of loss of principal, assets or securities value, including without limitation effecting a pledge, encumbrances, hypothecation and/or loan of or on securities”, and avers that its hypothecation to the first third party on 6 September 2019 was “in order to mitigate the risk of loss of principal, assets or securities values”.  No further particulars are given.

9.  At this juncture it is also relevant to mention another party which features in this case.  It is common ground that Dimension Capital Group (“DCG”) was an intermediary between the Plaintiff and the 1^st Defendant introducing them which led to their entering into agreements in question.

(a)     The Plaintiff’s pleaded case is that DCG was the agent of the 1^st Defendant, acting under either actual or ostensible authority.  The 1^st Defendant merely denies DCG was its agent but has not pleaded to the actual or ostensible agency pleas in the Reply.

(b)     In correspondence from DCG which is in evidence, DCG denies it was the agent of the Plaintiff.

(c)     Further, from the contemporaneous documents, one can see that (i) DCG had a contractual arrangement with the 1^st Defendant to facilitate the 1^st Defendant’s business development, including introducing customers to the 1^st Defendant, for which DCG charged a fee; and (ii) the 1^st Defendant had transferred a significant amount of cryptocurrency (Tether, USDT) to DCG by early October 2019. The 1^st Defendant and DCG then embroiled in a dispute over how the USDT received was to be applied.  However, there is no evidence that save for USDT 110,000, any of the USDT transferred to DCG had been paid to the Plaintiff; indeed the contemporaneous evidence from DCG was that the USDT was stuck in the cryptocurrency platform at which it had assisted the 1^st Defendant to open an account, as the 1^st Defendant had not completed the necessary KYC and AML requirements to enable the USDT to be withdrawn.

10.  On the interim payment application, the parties have no real dispute over the applicable principles:-

(a)     The court must be satisfied that if the claim were to go to trial then, on the matter before the judge at the time of the application for interim payment, the plaintiff would succeed in his claim and would obtain a substantial amount of damages.

(b)     The court must be satisfied on the balance of probabilities.  It is insufficient that the plaintiff is likely to succeed; the court must be satisfied that the defendant has no arguable defence or that there are sufficient doubts regarding the genuineness of the defence so that the court would not grant the defendant unconditional leave to defend in a summary judgment application.

(c)     In addition, the court should read O. 29 rr. 11 and 12 together and ask the single question of whether the plaintiff fulfils the requirements of those rules as a whole, rather than consider separately and exclusively the plaintiff’s entitlement under each rule.

(d)     As to quantum, under r.11 (damages) the court can order an amount as it thinks just, not exceeding a reasonable proportion of damages which in the opinion of the court are likely to be recovered by the plaintiff after taking into account any relevant contributory negligence and any set-off, cross-claim or counterclaim which the respondent may be entitled to rely, whereas under r.12 (sums other than damages) the amount is that which the court thinks just, after taking into account any set-off, cross-claim or counterclaim on which the respondent may be entitled to rely.

11.  For this application the Plaintiff relies only on 2 of its 4 pleaded claims against the 1^st Defendant, namely breach of contract and fraudulent misrepresentation.

12.  At the outset I should deal with 2 preliminary objections by the 1^st Defendant.

(a)     The first is that since the Plaintiff is alleging fraud, the court should be very cautious in determining such allegation at the interlocutory stage, and drawing from the analogy of fraud exception in the O.14 context (though accepting it is not applicable) the interim payment application must fail.

(i)     I do not accept that this is a sufficient answer in this case.

(ii)     As stated by the CA in Zimmer Sweden AB v KPN Hong Kong Ltd [2016] 1 HKLRD 1016, §18 (cited in Delco Participation BV v Chiho Environmental Group Ltd [2020] HKCFI 1643; HCA 3040/2015 (unrep., 23 July 2020), §25), the question to be asked by the court is does this action include a claim for which an allegation of fraud would have to be made by the Plaintiff in order to establish or maintain that claim?

(iii)     As can be seen from my analysis below on the breach of contract claim, the Plaintiff’s claim for breach of contract can be established without relying on any allegation of fraud.  Accordingly, I do not consider that this assists the 1^st Defendant at all.

(b)     The second objection is that as the Plaintiff has pleaded a number of different causes of action with different reliefs which are inconsistent with that of damages, in the absence of election by the Plaintiff, the court needs to assess how the alternatives would affect the claims which the Plaintiff relies on to seek interim payment, and if there are alternatives which invalidate the basis for granting interim payment and they are not abandoned, they may cast doubt on whether interim payment can be granted on that basis.  The 1^st Defendant says the Plaintiff has not demonstrated that to be the case.

     (i)     The 1^st Defendant’s objection is based on certain observations of the Court of Appeal in Silver Universe Investments Ltd v China Times Securities Ltd [2021] HKCA 105; CAMP 187/2020 (unrep., 27 January 2021).  In that case listed shares were charged pursuant to a loan and security arrangement similar to this case.  On the facts, the lender had advanced substantial loans of around HK$22 million; an event of default was declared; thereafter the lender took control of the shares and sold more than half of them, retaining about 20%.  The plaintiff was said to have terminated the agreement but there were a number of possible dates of termination since there was no clear and unequivocal notification given.  Between this range of dates of termination the market value in the shares had fallen.

     (ii)     In that case the plaintiff advanced various claims, including on the basis that it was the mortgagor, asserting proprietary claims over the shares.  The Court of Appeal held that the pleadings did not show that the plaintiff had indisputably pleaded that it had rescinded the agreement, and the evidence also did not unequivocally show that the agreement had been rescinded.  This had an impact since the market value of the shares had fallen, and unless the time for rescission could be clearly identified, the court was not able to tell whether the value of the shares exceeded the outstanding loan and interest accrued.

     (iii)     The present case is very different.

(1)     Rescission was clearly communicated on 3 November 2019.

(2)     On that day, the Plaintiff was entitled to call for return of the Shares and claim for whatever damages if might have suffered for the failure to advance the Loan.

(3)     Insofar as Shares are concerned, their value as at that date is known.

(4)     It is true that the Plaintiff has not pleaded special damage or adduced evidence to show what damage it had suffered by the non-availability of the Loan, but if that can be advanced and proved that would be additional to the return to the Shares.

(5)     The 1^st Defendant argues that if the Plaintiff continues to pursue the remedy of the return of the Shares and elects for that at trial, and the value of the Shares had fallen in the meantime, there would be a case of overpayment.

(6)     Realistically, if by trial the Shares had fallen substantially in value, it is difficult to see why the Plaintiff would have elected to have the Shares back instead of damages.  That said, I accept (as the 1^st Defendant submitted) that there could be a host of reasons why the Plaintiff might have wanted the Shares, considering it appeared to be a significant bloc in a listed company.

(7)     That said, it seems to me that this is a matter to be factored in, not so much as whether the Plaintiff can show that it could obtain substantial damages at trial (which the 1^st Defendant refers to as stage 1 of the consideration on interim payment), but in my exercise of discretion as to reasonable proportion (which the 1^st Defendant refers to as stage 2).

(8)     Thus, I do not see any inconsistency arising from the different causes of action pleaded such as to render the interim payment application uncertain or unworkable.

13.  I now move on to the breach of contract claim.

(a)     The Plaintiff’s pleaded case on breach of the LA is three-fold.

(b)     First, failure to advance the Loan (save for RMB690,900).

(i)     The documentary evidence shows that the Plaintiff has never received the bulk of the Loan.  That does not appear to be disputed by the 1^st Defendant.

(ii)     The 1^st Defendant’s contention – which is not pleaded and only appears in the affirmation filed in opposition to this application – is that it had transferred sufficient funds to DCG in or around early October 2019 intending that the same should be transferred by DCG to the Plaintiff after the National Day holidays in the Mainland, but those funds got stuck with DCG.  The email correspondence now disclosed by the 1^st Defendant appears to be consistent with that account.

(iii)     However, I cannot see how this can assist the 1^st Defendant, since it is (a) not any party’s pleaded case that DCG was the Plaintiff’s agent such that transfer of funds into DCG’s hands would be a sufficient discharge of the 1^st Defendant’s obligation; (b) clause 24 of the LA clearly stated that the Plaintiff’s agent for the purpose of receiving Loan was a named PRC party, not DCG; and (c) both the Plaintiff and DCG have expressly denied DCG was the Plaintiff’s agent.

(iv)     The 1^st Defendant submits that there is no evidence of loss arising from this breach and it would not be HK$81 million.  I accept there is no evidence of what damages would be claimed by the Plaintiff on this aspect alone, but as explained above, this breach would have entitled the Plaintiff to terminate the LA and call for the return of the Shares.

(c)     The second and third aspects of breach were the transfer and hypothecation of the Shares to the 1^st Defendant and the further transfer and hypothecation by the 1^st Defendant to first third party on 6 September 2019.

(i)     The contest between the parties here is that the Plaintiff says the LA expressly provides the 1^st Defendant cannot transfer the Shares before an event of default (clause 3(d)), whereas the 1^st Defendant says it was entitled to hypothecate to the first third party under the Portfolio Protection Arrangements in the proviso to clause 3(d).

(ii)     The battle lines are drawn in this way because it is not disputed that no event of default had ever been declared by the 1^st Defendant in this case, at least up to the issuance of the writ.

(iii)     In my view, the 1^st Defendant is unable to show an arguable defence on this ground.

(iv)     First, as submitted by the Plaintiff, proviso to clause 3(d) is only engaged if the transaction in question is “for the purpose of mitigating the risk of loss of principal, assets or securities value”, but save for a bare assertion (in the Defence and the affirmation), there is no particulars or evidence as to why there was a risk of loss on 6 September 2019 such that some form of protection of value of the Shares was required.  On the contrary, the contemporaneous stock prices showed that the closing prices of the Shares had been on an increasing trend since late August to 6 September 2019; the email from the Plaintiff dated 12 September 2019 stated that the Share price was rising and called on the 1^st Defendant to increase the Loan amount; and even the 1^st Defendant’s own funding notices showed that the Share price had increased throughout September 2019.

(v)     Second, the hypothecation agreements disclosed by the 2^nd Defendant in the English ancillary injunction proceedings show that they were not for mitigating the risk of loss of securities value, but to act as security for the 1^st Defendant’s loan from the first third party which would then finance the 1^st Defendant’s Loan to the Plaintiff.  That is plainly not within the proviso stipulated in LA clause 3(d).

(vi)     Third, what the 1^st Defendant did in this case was not limited to entering into the hypothecation agreements, because their terms did not provide for the transfer of Shares out of the Plaintiff’s account maintained with the 2^nd Defendant. In addition to entering into the hypothecation agreements, the 1^st Defendant also instructed the 2^nd Defendant to transfer the Shares out of the Plaintiff’s account into its account and thereafter to the first third party’s account.  In other words, the 1^st Defendant’s conduct went beyond the Portfolio Protection Arrangements proviso.

(vii)     By reason of the 1^st Defendant’s act (including the transfer out of the Plaintiff’s account), it resulted in the disposal of the Shares in the absence of any event of default.

(viii)     Fourth, there is no substance in the 1^st Defendant’s assertion in the affirmation (not in pleadings) that there was a subsequent event of default of clause 6(a)(1) (alleged non-payment of principal or interest) and clause 6(a)(11) (alleged non-perfection of security interest).  On the alleged non-payment of principal and interest, the principal is wholly irrelevant since the LA stipulates that the Loan is for a 3-year term and no early repayment is allowed.  As for interest, the “Interest Period” defined in the LA provides for the first interest period to end on 31 December 2019 and thereafter in 6-month intervals; however by 22 November 2019 the Plaintiff has already commenced this action and by mid-December 2019, pursuant to the undertakings given in support of the proprietary and Mareva injunctions granted on 22 November 2019, the principal of RMB690,000 and interest at 6.5% pa had already been paid into a stakeholding account of the Plaintiff’s solicitors for the purpose of redeeming the Shares.  As for the alleged non-perfection of security, there is clearly no substance since the 2^nd Defendant was able to and did sell the Shares, showing there could not have been any issue with perfecting the security.

(ix)     The Plaintiff also argues, relying on Ding Huirong v China Times Securities Ltd [2021] HKCA 419; CACV 112 & 122/2020 (unrep. 26 March 2021), that the proviso is void as it would be a clog the equity of redemption.  Interesting submissions have been advanced on both sides, but ultimately I do not consider I need to address this in light by my other findings, save to point out that in each case where the clog on equity argument is engaged, much depends on the specific wording of the clause and how that clause was applied on the facts.

(d)     Accordingly, I find that the 1^st Defendant has no arguable defence on the breach of contract claim.

14.  In light of my conclusions above, it is not necessary for me to deal with the fraudulent misrepresentation limb.

15.  As to quantum:-

(a)     Since my conclusion on the merits is based on the breach of contract claim, the Plaintiff will be claiming damages and r.11 is engaged.  In this regard, I bear in mind that the quantum should be as I consider just, not exceeding a reasonable proportion of damages likely to be recovered.

(b)     As indicated, the Plaintiff has already paid RMB690,000 plus interest at 6.5% pa into stakehold account of its solicitors as part of the undertakings given when it was granted proprietary and Mareva injunctions in November 2019. As such I am entitled to focus only on the value of the Shares.

(c)     On the evidence, at the date of termination the value was HK$72.54 million.

(d)     I have been referred to 2 cases by the Plaintiff where the court ordered interim payment equivalent to the sums claimed.  I note that while the claims advanced in those cases appear to be for liquidated sums not by way of damages, the court in each case was proceeding under r.11.

(e)     In Hong Kong Civil Procedure 2022 : 29/11/5, it is said that once the court has estimated the damages likely to be awarded, it must award a reasonable proportion of that estimate, taking into account the financial ability of the Plaintiff to repay any overpayment should it transpire if that estimate is wrong, and taking into account the hardship to the defendant from having to make an immediate payment and from being unable to recover any overpayment.

(f)     There is no evidence before me as to the financial position or hardship to either party.  However, I understand from the passage in (e) above that it may not necessarily (although it can be) a matter of evidence; rather in the exercise of discretion the court is entitled to take into account the financial impact to the Plaintiff and the 1^st Defendant respectively.  As indicated above, I have also taken into account a scenario – albeit not a highly likely one – as submitted by the 1^st Defendant.  In the premises taking a broad-brush approach, I take HK$72.54 million as the basis of my estimate of damages, and assess a reasonable proportion being 75%.  Accordingly, I direct interim payment of HK$54,405,000 payable by the 1^st Defendant within 56 days.

16.  Finally on costs, the Plaintiff seeks a split order that the costs of the application be in the cause but the costs of the hearing be to the Plaintiff. The Plaintiff did have to have to court to seek the interim payment which was opposed, and is substantially successful in obtaining the same. Accordingly, I will grant a split order, that the Plaintiff should have its costs of the hearing, to be assessed on a summary basis on the papers, and the costs of the application should be in the cause.