CHINA BAOLI TECHNOLOGIES HOLDINGS LTD (formerly known as REX GLOBAL ENTERTAINMENT HOLDINGS LTD) v. ORIENT EQUAL INTERNATIONAL GROUP LTD AND OTHERS

HCA 1399/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1399 OF 2016

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D E C I S I O N

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1.  This was an application by SVK Capital Management the 3^rd third party (“SVK”) by summons dated 26 June 2017 for leave to appeal from this court’s dismissal of its summons to set aside the ex parte order of L Chan J dated 27 July 2016 granting the defendants leave to serve their third party notice out of the jurisdiction on SVK pursuant to Order 11, rule 1.1(c) of the Rules of Civil Procedure.

Factual background

2.  As appears from §1 of the Decision dated 12 June 2017, the litigation before the court was a complicated matter involving parties and proceedings outside the jurisdiction.  For ease of reference the following is a summary of the main sections of the Decision:

(a)  §§2 – 12 contain a summary of the general background, the nature of the proceedings and SVK’s involvement;

(b)   §13 lists the 8 summonses then before the court, with SVK’s summons being the latest in time;

(c)  §§14 – 46 state the procedural chronology and explain why the Squadron summonses were adjourned;

(d)   §§47 – 94 address the Lantau summonses and orders made therein;

(e)  §§95 – 121 address SVK’s summons; and

(f)  §§122 – 124 address the defendants’ injunction summons inter alia in relation to SVK.

3.  On the occasion that the ex parte order for service out being challenged was made on 27 July 2016, the defendants obtained leave to serve 3 thirdparties, namely, the 1^st third party (“Lantau”), the 2^nd third party (“Purported Squadron”) and SVK out of the jurisdiction.

4.  The 8 summonses mentioned in the chronology included 2 summonses issued on 11 August 2016 by Lantau and Purported Squadron to set aside the service out order.  SVK’s summons for similar relief was only issued some 7½ months later and 5 weeks or so before the adjourned hearing of the other 7 summonses scheduled for hearing on 9 May 2017 with 4 days reserved and so became the 8^th summons for determination at that hearing.

5.  As part of the loan transactions the defendants executed various documents all of which (including the Control Agreements to which SVK was party) were exhibited to the 1^st affirmation of Li Wen Hao filed in support of the ex parte application.  The defendants caused the shares that lie at the heart of the litigation to be deposited in HSBC and Merrill Lynch accounts pursuant to the transactions.  At the time of the defendants’ ex parte application for service out on the 3 third parties, the defendants had no information regarding the holder(s) of the accounts as such as they were only provided with account numbers at those institutions.

6.  After obtaining leave and serving the third parties, the defendants obtained interim injunctions against all of them and the injunction order was also served on the 2 institutions where the accounts were held.

Principles governing applications for leave to appeal

7.  The principles governing leave to appeal applications (particularly where intervention is sought concerning an exercise of judicial discretion) are well established. The following is a summary (adapted from the written submissions of Mr Barlow SC who appeared for the defendants):

(i) In the case of an application for leave to appeal an interlocutory judgment, it would not be sufficient for the applicant to show that the appeal is “arguable” and not “fanciful”: the court has to be satisfied that the appeal has a reasonable prospect of success: see Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887 at 896–7.

(ii) Where the proposed appeal seeks to overturn an exercise of judicial discretion, the general principle is that leave will not be granted unless it be shown that the judge exercised his discretion under a mistake of law or in disregard of principle or under a misapprehension as to facts or failed to exercise his discretion or the conclusion which the judge reached was “outside the generous ambit with in which a reasonable disagreement is possible”: see Hong Kong Civil Procedure 2018 at §59/0/54.

(iii) Where it concerns a case management decision, an applicant must in addition demonstrate that it was plainly wrong and had caused significant injustice or prevented a fair trial of the issues: see Hong Kong Civil Procedure 2018 at §59/0/55.

8.  An appeal under Order 11 requires leave.  In VTB Capital plc v Nutritek International Corp [2013] UKSC 5, the House of Lords held that the Order 11 power involves not the exercise of a discretion but “an evaluative, or a balancing, exercise”: at §§97 and 156.

9.  It also cited with approval (at §94) the observations of Lord Templeman in The Spiliada [1987] AC 460 at 465F to the effect that the determination of the appropriate forum is “pre-eminently a matter for the trial judge” and that “[a]n appeal should be rare and the appellate court should be slow to interfere.”

10.  Further, it is stated in Hong Kong Civil Procedure 2018 at §11/1/13N that an appellate court should also adopt a cautious approach regarding the weight given by the trial judge to facts taken into account when exercising the discretion.  The mere fact that an appellate court takes a different view as to the weight to be given to various factors does not justify interfering.

11.  Ms Ismail SC who appeared for SVK did not take issue with those principles in her submissions.

SVK’s draft notice of appeal

12.  There are said to be 4 errors of law.  These will be considered alongside SVK’s draft notice of appeal.

(1) The separability doctrine

13.  While there was said to be an error of law, I have some difficulty in identifying the error in the draft notice. SVK’s submissions (both written and oral) were nothing more than a repetition of their submissions made at the hearing. Those are addressed in §§96 – 113 of the Decision. 

14.  In reality, what is being challenged is the court’s assessment of the evidence and analysis of the defendant’s case in light of the legal principles (which SVK accepts have been correctly identified in the Decision).  In short, it would appear that SVK wishes to re-argue the separability point before another court. 

15.  Applying the applicable principles set out in §§7 – 9 above, I see no basis for granting leave under this first ground.

(2) No serious issue to be tried

16.  SVK’s second ground is that as at the time of the ex parte application for leave there was no factual foundation for the allegations against SVK, no serious issue to be tried could have been made out.  On that basis, the court should have set aside the leave granted.

17.  Additionally, it was also said that by the time of the inter partes hearing, the defendants had departed from their pleaded case: they had dropped any claim against SVK as ‘lender’ and sought to rely on a section 21(m) injunction claim that was not pleaded in the third party notice which is not permissible, citing Kayden v Securities and Futures Commission (2010) 13 HKCFAR 696.

18.  Assuming for present purposes that both points are made out, it does not necessarily follow that the leave granted must be set aside.  It is not an inevitable consequence because leave could be re-granted in an appropriate case.  Perhaps §118 of the Decision could have been better expressed but the unstated reasoning underpinning the conclusion is the court’s power to re-grant leave.

19.  Having reconsidered the matter, I see no reason to depart from my view that on the facts before the court, the case for assuming jurisdiction over SVK by a re-grant was clear.  It was entirely appropriate given that SVK was and remains the lenders’ agent. Accordingly, I take the view that leave to appeal should not be granted on the second ground.

(3) and (4)  The defendants’ injunction summons

20.  The submission was two-pronged: the first (being the third error of law) is premised on the SVK succeeding on setting aside the leave to serve out granted in July 2016.  Once that premise proved to be wrong, the third error/‌ground must consequently go.

21.  The second prong (being the fourth error of law) is that the defendants’ summons should have been dismissed because there was no serious issue to be tried as against SVK, and further, that an injunction was unnecessary since SVK could only act in accordance with the directions of the lenders against whom injunctions are in place. 

22.  As stated in §118 of the Decision, there is no requirement that there be a cause of action as such against the party to be served out.  Secondly, the point of an injunction order is to ensure compliance.  In any event, the adjournment was a case management decision.

Conclusion

23.  For the reasons stated above, the application is dismissed.  There is to be an order nisi of costs payable forthwith with certificate for two counsel, to be taxed if not agreed.