LIEU TSENG VAN v. JIUZHOU DEVELOPMENT CO LTD

HCA1645 /2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1645 OF 2009

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BETWEEN

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HCMP1893 /2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1893 OF 2009

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BETWEEN

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D E C I S I O N

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A. Introduction

1.  There are 6 applications under the 2 actions before me.   In order to better understand why these applications are brought, I should first give a brief introduction of the dispute.

2.  The dispute arose from a potential sale of 80% interest in a golf and leisure club in Zhuhai in the Mainland.

3.  Mr Lieu Tseng Van[1] and his wife (Ms Chan Siu Ling)[2] as the entire beneficial owners of Super Cruise Ltd (“Super Cruise”) own beneficially a PRC company called Pine Valley Sports & Country Club (“Pine Valley”), which operates a club (“the Club”) with a golf course, shooting range, hunting ground and various extensive clubhouse facilities in Zhuhai.

4.  Jiuzhou Development Company Ltd (“JZD”)[3] is a partly state-owned Mainland company with its shares listed on the Hong Kong Stock Exchange.

5.  In the negotiation for the intended and potential sale of 80% interest in Super Cruise to JZD, in around August and September 2008:

(1)	JZD gave a confidentiality undertaking (“the Confidentiality Undertaking”) effectively not to disclose to the public the fact and the information concerning the negotiations and the intended sale and purchase of the Club.  There were certain exceptions provided in the undertaking.
(2)	Mr Lieu entered into a Framework Agreement (as defined below) with JZD which set out the parties’ intention for the sale and purchase of 400 shares  (80% of all the issued shares) in Super Cruise for a price of not exceeding RMB200m.  This was stated to be subject to the entering into a formal sale and purchase agreement upon a satisfactory due diligence exercise.
(3)	Pursuant to the Framework Agreement, JZD paid Mr Lieu HK$30 million (which was made as equivalent to RMB26m million) as earnest money. The earnest money was provided in the agreement as repayable under certain conditions.
(4)	As security for the repayment of the earnest money, a charge was created over 400 shares in JZD owned by Mr Lieu and Ms Chen under a Share Charge[4] executed by them.  Pursuant to the Share Charge, JZD was entitled to appoint Receivers over these charged shares (“the Charged Shares”) if and when JZD was entitled to enforce the charge.

6.  The parties did not eventually enter into any formal sale and purchase agreement, as JZD said that it was not satisfied with the result of the due diligence.    It then demanded repayment of the earnest money.  Mr Lieu did not repay the money.

7.  In July, JZD appointed Receivers over the Charged Sharesas they sought to enforce their rights under the Share Charge. 

8.  In response to the appointment of the Receivers:

(1)	On 23 July 2009, Mr Lieu issued a generally endorsed Writ under HCA1645/2009 against JZD seeking the reliefs of, inter alia, (a) damages for JZD’s breach of the Confidentiality Undertaking, (b) forfeiture of the earnest money, and (c) setting aside of the Share Charge.
(2)	On 3 August 2009, Mr Lieu further issued an inter partes Summons seeking an injunction effectively to restrain the Receivers from exercising their rights to enforce the Share Charge and the Loan Assignment (as defined below), and to sell the shares.    On hearing the application, Stone J adjourned it, and gave leave to the parties to file affirmations in support and in opposition.

9.  In the meantime:

(1)

Mr Lieu and Ms Chen as the purported directors and members of Super Cruise sought to pass special resolutions to revoke various documents (including certain undated documents for their resignations as directors of the company) they had previously signed for the purpose of and required under the Share Charge.

(2)

The parties have since filed their pleadings while the Receivers continued to take steps to seek to take control of Super Cruise, Pine Valley and the Club, by replacing the directors and the legal representatives of these companies in Hong Kong and in the Mainland through the filing of various documents with the relevant authorities, including the Companies Registry (“CR”) in Hong Kong insofar as Super Cruise is concerned.

10.  As a result, on 24 September 2009, Mr Lieu issued in the name of Super Cruise the Originating Summons under HCMP 1893/2009 against the Registrar of Companies (“the Registrar”) requiring her (a) to withdraw various company documents filed by the Receivers with the CR, and (b) to instead accept and register the Form R1 (change of address of the registered office) purportedly filed by Super Cruise on 13 August 2009 and the special resolutions passed by Mr Lieu and Ms Cheng (as members of Super Cruise) on 17 August 2009.

11.  These have led to the 6 applications now before me.  They are:

(1)	Under HCA 1645/2009:
	(a) Mr Lieu’s Summons for the injunction (“the Injunction Summons”). (b) Summons dated 16 October 2009 taken out by Wilkinson & Grist acting for Super Cruise (as the 3rd Defendant by Counterclaim) under the instruction of the Receivers to strike out King & Wood’s Notice to Act to purportedly act for Super Cruise, and the Acknowledgement of Service filed thereby (“the Want for Authority Summons”). (c) JZD’s Summons dated 24 November 2009 seeking to strike out various paragraphs of the Amended Statement of Claim, the Amended Reply and Defence to Amended Counterclaim filed by Mr Lieu (“the Striking Out Summons”).
(2)	Under the HCMP 1893/2009:
	(a) Mr Lieu’s Summons dated 12 October 2009 seeking to join as an additional applicant in the proceedings (“the Joinder Summons”). (b) JZD’s Summons dated 23 October 2009 seeking to intervene (“the Intervening Summons”). (c) The reliefs under the Originating Summons itself.

12.  Before dealing with these applications substantively, I will further elaborate on the relevant essential background as follows.  Unless otherwise stated, this is largely uncontroversial.

B.      Background

13.  In about early summer 2008, there were negotiations between Mr Lieu and a potential buyer called Hua Fa for the sale and purchase of the entire interest in Pine Valley.  It is Mr Lieu’s case that the purchase price under negotiation was some RMB250 million.

14.  Later, there were also negotiations between Mr Lieu and a Mr Huang Xin of JZD for the sale and purchase of the interest in Pine Valley.  As a result of these negotiations:

(1)	JZD signed a confidentiality undertaking (“Confidentiality Undertaking”) dated 8 August 2008, agreeing not to release, inter alia, the information and details of the negotiations for the intended sale of effectively the Club between JZD and Mr Lieu.
(2)	Mr Lieu and JZD entered into a framework agreement dated 27 August 2008 (as further amended by a supplemental agreement dated 10 September 2008) for the intended sale of 400 shares (80% of the issued shares) in Super Cruise owned by Mr Leiu at a price of not exceeding RMB200 million.  I shall call this amended agreement conveniently the Framework Agreement. Some of the more relevant terms of the Framework Agreement are that:
	(a) Mr Lieu was to negotiate with JZD exclusively for the proposed sale of the 80% interest in Super Cruise. (b) The intended sale was subject to the satisfactory completion of due diligence on Super Cruise and Pine Valley, and the parties entering into a formal sale and purchase agreement. (c) JZD was to pay Mr Lieu RMB26 million as earnest money which shall be returned under certain conditions.  I will deal with these conditions later as they feature substantially in the applications before me.  (d) If Mr Lieu was unable to repay the earnest money as demanded on or before 31 December 2008, JZD was entitled to deal with the Charged Shares in accordance with the terms of the Share Charge and/or to enforce the Loan Assignment (see below).
(3)	Securities were provided to JZD for the return of the earnest money (and interest accrued thereof upon any failure to repay), which include:
	(a) A share charge deed (“the Share Charge”) executed by Mr Lieu and Ms Chen over the 80% of the issued shares of Super Cruise held by them.  Under the Share Charge, Mr Lieu and Ms Chen further executed 10 undated documents (“the Undated Documents”) relating to the enforcement and execution of the Share Charge.   They included blank instruments of transfer, directorship resignation letters and a written board resolution to approve the share transfer and resignation.  (b) A Deed of Assignment of Loan (“the Loan Assignment”) executed by Van Shipping Company Ltd (“Van Shipping”) in favour of JZD.    Van Shipping is found and majority-owned by Mr Lieu which had made various loans to Super Cruise.

15.  Due diligence on Super Cruise and Pine Valley was then carried out by JZD. 

16.  The parties eventually did not proceed to enter into any formal sale and purchase agreement, as it is JZD’s case that they were not satisfied with the results of the due diligence carried out under the Framework Agreement.  In particular, they were of the view that there were title problems with the land upon which the Club situated as:

(1)	Insofar as the part of the free use land was concerned, there was nothing to show that Pine Valley had paid the requisite compensation to Sanli Village committee (which originally owned the land).
(2)	Insofar as the part of the leased land was concerned, the lease had already expired and Sanli Village committee had decided not to renew the lease with Pine Valley.
(3)	Pine Valley had not entered into any lease with the water authority over the use of the land covering the reservoir located with the facilities operated by Pine Valley.

17.  The parties then engaged in further negotiations following JZD’s above dissatisfaction of the result of the due diligence.

18.  The negotiations were not fruitful.

19.  By a letter dated 27 May 2009, JZD informed Mr Lieu that they would not continue with any further negotiations and demanded him to repay the earnest money within 5 days.

20.  In response to this, by a letter dated 1 June 2009 (signed by Mr Lieu and Ms Chen), Mr Lieu stated that the Framework Agreement already expired on 31 December 2008 and that:

(1)	JZD had failed to complete the due diligence and also to issue any “Due Diligence Notice” to Mr Lieu before the expiration date (i.e., 31 December 2008) as provided thereunder.
(2)	JZD had breached the Confidentiality Undertaking and clause 8 of the Framework Agreement (which was of similar effect of the Confidentiality Agreement).
(3)	Mr Lieu was therefore entitled to apply the earnest money to set off his claim for loss and damage against JZD, thereby extinguishing the earnest money.
(4)	The security created by the Share Charge was therefore no longer effective and was revoked, cancelled and annulled with immediate effect.
The parties have referred to this letter as the Revocation Notice, which I will adopt in this Decision.

21.  At the same time, by written resolutions (“the Revocation Written Resolutions”) of the directors of Super Cruise dated 1 June 2009 signed by Mr Lieu and Ms Chen (as the only directors), Super Cruise and Mr Lieu and Ms Chen (as its directors) purported to revoke, cancel and annul some of the Undated Documents.  The same allegations as set out in the Revocation Notice were repeated in the Revocation Written Resolutions as the bases justifying the purported revocation of the Undated Documents.

22.  Then, by a letter dated 2 June 2009, Mr Lieu’s solicitors provided to JZD’s solicitors the Revocation Notice and the Revocation Written Resolutions and said effectively that Mr Lieu was not required to return the earnest money.  The letter further demanded JZD for the return of the certificate of the Charged Shares.

23.  Notwithstanding these:

(1)	By a letter dated 3 June 2009 sent to Mr Lieu and Ms Chen, JZD again requested them to repay the earnest money within 7 days, and stated that it would enforce the Share Charge if the money was not paid.
(2)	Mr Lieu and Ms Chen did not repay any of the earnest money.

24.  On 20 July 2009, JZD issued a notice to Mr Lieu informing him of its appointment of Receivers pursuant to the Share Charge for Mr Lieu’s failure to repay the earnest money. 

25.  On 22 July 2009, the Receivers inserted the date of 22 July 2009 on each of the Undated Documents, thereby:

(1)	Appointing the Receivers themselves as directors of Super Cruise through the written resolutions previously signed by Mr Lieu and Ms Chen as directors.
(2)	Giving effect to the resignation of Mr Lieu and Ms Chen as directors of Super Cruise.
(3)	Appointing JZD as the proxy for Mr Lieu and Ms Chen in respect of the Charged Shares and to vote on their behalf.
(4)	Transferring the Charged Shares to JZD.

26.  Further relying on the above, by a shareholders resolution of Pine Valley passed by Super Cruise on 27 July 2009:

(1)	The then directors of Pine Valley were removed.
(2)	The Receivers and their nominees were appointed as directors of Pine Valley.
(3)	Mr Lieu was removed as the Chairman and Legal Representative of Pine Valley.
(4)	Mr Borrelli (one of the Joint Receivers) was appointed as the Chairman and Legal Representative of Pine Valley.

27.  Suffice to say, as expected, Mr Lieu and Ms Chen do not accept as valid the Receivers’ appointment and the aforesaid procedures taken out by the Receivers.

28.  These have led to these proceedings and the instant 6 applications.

29.  The parties first appeared before me on 10 February 2010 for these applications (with 19 and 20 May 2010 also reserved).  However, given that both sides wanted to sell the Charged Shares subject to Mr Lieu’s concern about the Receivers not having been able to fetch the best price, at the Court’s suggestion and eventually by consent and subject to certain undertakings, I adjourned the matter to 20 March 2010 to enable the Receivers to provide detailed information to Mr Lieu on the potential purchasers found by them to purchase the shares to see if Mr Lieu could find any one who was prepared to make a better offer.  

30.  The Receivers eventually managed to provide the necessary information a few days before 20 March 2010. They have found a buyer who is prepared to pay HK$172million to purchase the entire shareholding in Super Cruise[5].  Mr Lieu said he needed more time to consider this proposal, and confirmed that he could respond to it by mid April.  I therefore further adjourned the hearing of these Summonses to the originally reserved dates on 19 and 20 May 2010.

31.  Eventually, other than saying that the offer from the Receivers’ purchaser is too low as compared with the valuation reports Mr Lieu previously obtained in 2007 and 2009 (which gave a value of RMB300 million odd)[6], Mr Lieu has not been able to identify or locate any purchaser to purchase the shares.  He however continues to object to the Receivers’ appointment and the intended sale of the Charged Shares by them.

32.  The long and short of these is that these Summonses remain alive before me now.   Bearing the above background in mind, I will proceed to look at each of the applications individually.

C.      The Injunction Summons

C1.    Applicable principles

33.  The applicable principles for interlocutory injunctions are well known.  They are to be found in American Cyanamid v Ethicon Ltd [1975] AC 396 and the relevant text in Hong Kong Civil Procedure 2010, paras 29/1/8-29/1/18, and can be summarized as follows:

(1)	Whether there is a serious question to be tried on the plaintiff’s claim and the reliefs sought.  If the answer is negative, no interlocutory injunction would be granted.
(2)	After satisfying with question (1) above, the Court should proceed to ask the following questions:
	(a) Whether damages would be a sufficient remedy for the plaintiff if the interim injunction is not granted.  If the answer is affirmative, generally no interlocutory injunction would be granted. (b) If the answer is negative, then the Court should ask whether damages are a sufficient remedy for the defendant even if the injunction is wrongly granted. If the answer to this question is in the positive, the interlocutory injunction should usually be granted.
(3)	If the answer to (2)(b) is also negative, then the court should proceed to consider all the circumstance as to whether on the balance of convenience, it is just and convenient to grant the injunction.

34.  I now apply these to Mr Lieu’s application.

C2.    Serious question to be tried?

C2.1  Mr Lieu’s claims

35.  In light of the pleaded case and the submissions made at the hearing, Mr Lieu’ claims that JZD was not entitled to enforce the Share Charge and thus to appoint the Receivers are premised principally on the following bases:

(1)	He has a claim for damages against JZD’s breach of the Confidentiality Undertaking, which damages are more than sufficient to set-off the earnest money liability.   I will call this the set-off claim.
(2)	Mr Lieu was entitled to forfeit the earnest money, as JZD was deemed to have been satisfied with the due diligence after failing to issue any notice to the contrary as required under the Framework Agreement.   There was thus no liability to repay the earnest money at all.   I will call this the forfeiture claim.
(3)	There was a valid revocation of the relevant Undated Documents by the Revocation Written Resolutions.  Thus, there was nothing upon which JZD was entitled to enforce the Share Charge.  I will call this the revocation claim.

36.  I will now deal with each of these bases in greater detail to see if any serious questions to be tried have been raised.

C2.1.1         The set-off claim

37.  The essence of this claim is as follows:

(1)	After entering into the Framework Agreement, there had been a report in a newspaper in Zhuhai in September 2008 which referred to the negotiations between Mr Lieu and JZD of the sale of the Club and the terms of the Framework Agreement, including the reference to the price of RMB200 million.
(2)	It is Mr Lieu’s case that this information was released to the newspaper by JZD, in breach of the Confidentiality Undertaking.
(3)	Then, in January 2009, there were two (unidentified) potential purchasers offered to purchase from Mr Lieu 70% interest in Pine Valley based on an agreed valuation of RMB266 million (i.e, a potential purchase price of some RMB186.8 million).  But they withdrew their offer on learning of the price mentioned in the Framework Agreement (i.e., not exceeding RMB200 million for 80% interest in the Club).  Since then, Mr Lieu has not been able to find any purchasers who are willing to offer any terms better than JZD’s RMB200 million for 80% shareholding in Pine Valley.
(4)	Mr Lieu therefore says he has by JZD’s breach of the Confidentiality Undertaking suffered a loss, which would almost certainly be an amount well exceeding the earnest money (and any accrued interest thereof).
(5)	He is thus entitled to set-off such damages against the earnest money.

38.  In relation to the set-off claim, the gist of JZD’s defence is that:

(1)	Although accepting that there was the newspaper report, JZD says the media only obtained such information from JZD’s public announcement  (published as required by the listing rules in Hong Kong), which set out its negotiations for the potential purchase of an unidentified and unnamed club in Zhuhai with various club facilities.
(2)	This does not amount to any breach of the Confidentiality Undertaking because:
	(a) such public announcement fell within the exceptions provided under the Confidentiality Undertaking; and (b) in any event, JZD did not identify the Club in the announcement, but instead it was the media itself who was able to identify the Club as it was the only club in Zhuhai with those facilities and features mentioned in the announcement.
(3)	Even if JZD were in breach of the Confidentiality Agreement, there was no causation between the breach and the alleged loss.

39.  With the evidence filed before me reading together with the express exceptions provided in the Confidentiality Undertaking, I am prepared to accept that for the present purpose, there is a question to be tried on:

(1)	Whether there was a breach of the Confidentiality Undertaking; and
(2)	Whether Mr Lieu has suffered loss and damage as a result of such a breach.

40.  However, the central issue under this claim for determining the Injunction Summons is whether it is triable that such damages are likely to exceed the earnest money, so as to deprive JZD the right to enforce Share Charge and appoint the Receivers.  This is the central issue because:

(1)	Clause 13.2 of the Share Charge[7] provides that the security provided under it shall be considered to be continuing to cover any sum which shall for the time being constitute the balance due from the Chargors to JZD over the earnest money (and the interest thereof).
(2)	In other words, JZD is still entitled to enforce the security even if there is only one dollar outstanding due by Mr Lieu to it.
(3)	Thus, unless it can be shown that at the time when the Receivers were appointed (and perhaps until now), Mr Lieu’s claim for damages already exceeds and extinguishes the entire earnest money and interest accrued thereon, there is nothing to challenge the validity of the appointment of the Receivers.

41.  In relation to this issue, I am not satisfied that there is a serious question to be tried on whether such damages would be of such a quantum to exceed or extinguish the earnest money at the time of appointment of the Receivers or by now.  This is so because:

(1)	Mr Lieu’s claim is for unliquidated damages for breach of the Undertaking Confidentiality.  The burden is on him to provide sufficient evidence which condescends to sufficient particulars at this stage to show that it is at least triable that the quantum to be awarded at trial would be sufficient to extinguish the earnest money and the interest thereof.
(2)	However, Mr Lieu has clearly failed to show this:
	(a) There is nothing in the pleading or the evidence filed by Mr Lieu which seeks to put an estimate on what the likely quantum of the damages would be, let alone any evidence to support the quantification. (b) In the way the matters were pleaded, and the evidence in support of the loss, Mr Lieu’s claim can only at best be described as a loss of chance in not having been able to secure either of the two unidentified potential purchasers to complete the sale of the alleged 70% interest in Pine Valley for the alleged offers.  (c) In relation to this loss of chance, it is important to note that there is similarly nothing in the pleading or the evidence to indicate or to enable one at least to assess at what stage Mr Lieu was in his negotiations with these two potential purchasers.  In other words, there is nothing to even remotely suggest on how likely that, if without the alleged breach of the Confidentiality Undertaking by JZD, Mr Lieu would have been able to secure the transaction with either of these two potential purchasers.   In this regard, it is also pertinent to note that Mr Lieu did not even say in his affirmations that he would have entered into a binding agreement with either of these 2 unidentified purchasers to purchase 70% interest in Pine Valley at the offer if not because of their getting to know the price mentioned in the Framework Agreement. (d) Simply put, other than a bare assertion in the affirmation (and in submissions) that the quantum of damages will certainly exceed the earnest money, there is not a scintilla of credible evidence (even noting that this is only at an interlocutory stage) to support the same.

42.  I am therefore of the view that the set-off claim does not raise a relevant serious question to be tried to entitle Mr Lieu’s application for the injunction. 

C2.1.2         The forfeiture claim

43.  In order to appreciate the basis of this claim, one has to first understand the relevant parts of the Framework Agreement and how the obligations to repay the earnest money was provided thereunder.

44.  The parts of the Framework Agreement which are relevant for the present purposes are in summary as follows:

(1)	JZD had the intention to purchase from Mr Lieu 400 issued shares (i.e., 80% interest) in Super Cruise. Subject to the results of the due diligence to be carried out and the negotiations for the formal sale and purchase agreement, the consideration for the purchase is not exceeding RBM 200 million (clauses 1 and 2).
(2)	The consideration is to be paid in two parts.  The first part in the sum of RMB 26 million  (i.e, the earnest money) is to be paid to Mr Lieu after the preparation of the Share Charge is completed[8].  The second part is to be paid upon the completion of the sale and purchase (clause 2.4).
(3)	The Share Charge is to only secure Mr Lieu’s repayment obligation of the earnest money provided specifically under clauses 3.2.1, 3.2.2 or 3.2.5.
(4)	Clause 3 sets out various specific circumstances when the earnest money is repayable by Mr Lieu to JZD.  Relevant for the present claim of forfeiture is that the earnest money is repayable after receipt of JZD’s written notice of withdrawal from the transaction issued pursuant to clause 7.2, and such repayment shall be made no later than 31 December 2008.
(5)	Clauses 7.1 and 7.2 together provide that on the date of completion of due diligence (which is no later than 30 days after the completion of the procedures of providing the Charged Shares as security under the Share Charge), JZD shall issue to Mr Lieu a notice of satisfaction of the result of the due diligence, or a notice of withdrawal from the transaction.  If neither of these notices is issued, JZD would be regarded as having been satisfied with the result of the due diligence.    I shall call this express contractual completion date of due diligence as provided in the Framework Agreement the “DD End Date”.
(6)	The pre-conditions for completing the sale and purchase of the shares in Super Cruise are that (a) JZD issues a notice of satisfaction of the due diligence before the DD End Date, (b) the signing of a shareholders’ agreement of Super Cruise, and (c) the formal sale and purchase agreement is approved in the general meeting of JZD and by the Hong Kong Stock Exchange (clause 4).
(7)	The validity of the Framework Agreement is until 31 December 2008.  The parties shall carry out as soon as possible the negotiations for the sale and purchase agreement and the shareholders’ agreement, and use their best endeavours to complete the signing of the sale and purchase agreement by 31 December 2008.

45.  The forfeiture claim is premised on various alleged breaches of the Framework Agreement by JZD, pleaded at para 31 of the Amended Statement of Claim as follows:

“31.	The Plaintiff forfeited the Deposit [i.e., the earnest money] because the Defendant was in breach of the Framework Agreement as Amended and his other obligations as particularized below. As the Deposit has been forfeited, there is nothing to be refunded to the Defendant.
Particulars of breach
	i. The Defendant failed to conduct proper due diligence of the Company and to carry out requisite steps towards completion of the sale and purchase as the Defendant was obliged to do under the Framework Agreement as Amended; ii. Furthermore, the Defendant was obliged under clause 7.1 of the Framework Agreement as amended by clause 2.1(f) of the Addendum to complete its due diligence within 30 working days of the extension of the Share Charge and to either issue a withdrawal notice or a notice of satisfaction at the end of the due diligence exercise (‘the DD End Date’); clause 7.2 of the Framework Agreement provided that if the Defendant did not issue any notice at the DD End Date, the Defendant would be deemed to have been satisfied with the due diligence; iii. The Defendant failed to complete its due diligence within 30 working days as aforesaid; iv. Neither notice of withdrawal or notice of satisfaction was issued by the Defendant on the DD End Date and therefore the Defendant was deemed to have been satisfied with the results of its due diligence; v. However, the Defendant then took no concrete step to complete the sale and purchase but, in breach of the Assurance and the Common Understanding and its promise to the Plaintiff to pay RMB 200 million for the 80% shareholding of the Company regardless of any valuation in consideration of the Plaintiff foregoing his negotiations with Hua Fa and engaging in negotiations with the Defendant, endeavoured to press the Plaintiff to reduce the price for the sale and purchase of the 80% Shares by raising requisitions such as on land title issues and other matters which the Defendant was already well aware of even before the Framework Agreement was signed on 27 August 2008.”

46.  The pleading was not signed by counsel.  At the hearing, Mr Tommy Lo (counsel for Mr Lieu) clarifies the basis of the claim further as follows:

(1)	He is not relying on the fact JZD has not entered into the formal sale and purchase agreement as a breach of the Framework Agreement as he accepts that there is no such obligation in the agreement.
(2)	He is also not relying on the pleaded “Assurance and Common Understanding” as any contractual or legal obligation created on the part of JZD.
(3)	He rests the claim for JZD’s breach of the Framework Agreement on the basis that it was not entitled to raise any objection in the due diligence exercise as to the land title or on any other matters because (a) JZD was deemed to have accepted the due diligence under clause 7.2 (since no notice of dissatisfaction or withdrawal was issued before the D D End Date), and/or (b) the land title queries related to matters already disclosed to JZD before the commencement of the due diligence.

47.  I am of the view that the claim on forfeiture as pleaded and as explained above does not raise a serious question to be tried.  My reasons are as follows:

(1)	I agree with Ms Chan that there is no provision in the Framework Agreement which provides Mr Lieu the right of forfeiture when JZD is in breach of it.   Without such an entitling clause, the mere fact that there is a breach of the agreement does not necessarily give rise to a right of forfeiture.  The innocent party’s remedy lies primarily in damages.
(2)	I accept that in the absence of such an express forfeiture clause:
	(a) if a sum is paid as a deposit (ie, a sum intended to be received as a security for the completion of the transaction), it will be assumed that it is intended to be forfeited to the recipient if the payor defaults in the transaction; (b) if the money is expressly paid as a deposit, this could be regarded as equivalent to a forfeiture clause.   To this, the Court looks to the substance of the payment as to whether it constitutes a deposit as properly understood in the sense described above. Cf: Chitty on Contracts (30thed), para 26-146 and footnotes 753, 754.
(3)	However, given that it is accepted by Mr Lo (fairly so) that there is no obligation under the Framework Agreement for JZD to complete the transaction and enter into sale and purchase agreement, I do not think it is arguable that the RMB26 million (albeit described as “交易保證金”, which could be translated as  “security for the transaction”, in the Framework Agreement), the sum was paid in its true nature as a deposit.
(4)	In the premises, there is no question of a right of forfeiture of the earnest money even if there was any breach on the part of JZD of the Framework Agreement.

48.  On the other hand, I note that it is also part of Mr Lieu’s claim that the Defendant could not claim refund of the earnest money under the circumstances prescribed under clauses 3.2.1, 3.2.2 or 3.2.5 of the Framework Agreement, therefore the Share Charge is not enforceable.  This is pleaded at paras 34 to 36 of the Amended Statement of Claim as follows:

“34. As a further alternative, even if it is held that the Deposit or any part thereof is refundable (this is denied), the Share Charge is enforceable as security only to secure refund in the circumstances as provided in clauses 3.2.1, 3.2.2 or 3.2.3 of the Framework Agreement as Amended.

 35.       No notice of satisfaction or notice of withdrawal was issued on the DD End Date.  The Plaintiff has complied with all its obligations under the Framework Agreement as Amended.  It is therefore averred by the Plaintiff that the Defendant is not claiming for refund in any of the circumstances as provided in clauses 3.2.1, 3.2.2 or 3.2.3 of the Framework Agreement as Amended.”

49.  As summarized above, the security provided under the Share Charge is only for the repayment obligations of the earnest money arising from clauses 3.2.1, 3.2.2 or 3.2.5 of the Framework Agreement. 

50.  The effects of these clauses are:

(1)	If JZD finds serious problems under the due diligence, it is entitled to issue the notice of withdrawal under clause 7.2 and require Mr Lieu to repay the earnest money.  Upon receipt of the notice of withdrawal, Mr Lieu shall repay the earnest money no later than 31 December 2008 (clause 3.2.1).
(2)	Mr Lieu shall repay 90% of the earnest money if any of the following occurs:
	(a) JZD still issues a notice of withdrawal pursuant to clause 7.2 even though it has found no major problems under the due diligence. (b) The sale and purchase transaction was not approved by the Hong Kong Stock Exchange for reasons not because of JZD’s fault. (c) The sale and purchase transaction was not approved by the shareholders of JZD for reasons not because of JZD’s fault. (clause 3.2.2)
(3)	If the sale transaction cannot be completed because of Mr Lieu’s failure to comply with the Framework Agreement or the formal sale and purchase agreement, the earnest money shall be repaid to JZD forthwith, without prejudice to JZD’s rights to claim further (clause 3.2.5).

51.  In relation this part of Mr Lieu’s case, in my judgment:

(1)	Clause 3.2.2 is irrelevant as JZD is not relying on this to demand for the repayment of the earnest money.  JZD is demanding for full repayment but not 90% of it.
(2)	Clause 3.2.5 is also not relevant.  It is not JZD’s case that the parties were not able to complete the sale because of Mr Lieu’s breach of the Framework Agreement or the formal sale and purchase agreement.
(3)	On the other hand, insofar as clause 3.2.1 is concerned, it is clearly arguable as to whether JZD was deemed to have been satisfied with the due diligence and thus lost the right to ask for the return of the earnest money by issuing a notice of withdrawal under clause 7.2:
	(a) It is arguable that, upon proper construction of clause 7.1 and 7.2 (read together with the other provisions set out above), the due diligence should be completed by the DD End Date, and any notice of dissatisfaction or withdrawal should be issued by then. (b) It is common ground that JZD had not issued any such notices by the contractual DD End Date. (c) It is however Ms Chan’s submissions that the evidence shows that the parties continued to negotiate and discuss about the due diligence results until early May 2009.   This, counsel further submits, must amount to (i) an agreement by the parties to extend the DD End Date until a reasonable time after the original date, and/or (ii) a waiver or estoppel on the part of Mr Lieu to insist on the right to have any such notices issued by the original DD End Date. (d) With respect to Ms Chan, at this interlocutory stage, I can only say that it is triable as to whether there was such an agreement to extend the time or a waiver.    (e) In the premises, it is similarly triable as to whether it was still open to JZD to purportedly issue the notice of withdrawal on 27 May 2009 pursuant to clause 7.2 and to demand repayment of the earnest money under clause 3.2.1.

52.  Given that it is triable as to whether JZD was entitled to demand repayment of the earnest money under clause 3.2.1 of the Framework Agreement, it is also triable as to whether they were entitled then to enforce the Share Charge, which is to secure specifically and only the repayment obligation under (for the present purpose) this clause.

53.  I therefore conclude that there is a serious question to be tried as to whether JZD is entitled to demand repayment of the earnest money under clause 3.2.1

C2.1.3         The revocation claim

54.  As mentioned above, the Undated Documents were required under the Share Charge to be provided to JZD (as chargee) obviously for the purpose to facilitate any enforcement of Share Charge in securing the interest in the Charged Shares.  Some of these documents (such as the resignations) were stated to be irrevocable. 

55.  The purported revocation of these documents under the Revocation Written Resolutions is clearly to prevent any proper enforcement of the Share Charge.

56.  It is Mr Lieu’s case that he and Ms Chen (qua directors of Super Cruise) were entitled to pass a board resolution to revoke these very documents signed by them (also as directors) because:

(1)

There was no more liability to repay the earnest money as supported by the set-off claim and the forfeiture claim.

(2)

In any event, these documents, when they were signed, were not in the best interest of company.   When further asked, Mr Lo (for Mr Lieu) explains that they were not for the interest of the company, because it was unknown (when these blank and undated documents were signed) who would be appointed to be the directors in replacement of Mr Lieu and Ms Chen, and such uncertainty was not in the best interest of the company.  Mr Lo further says he relies on the general principle that a director must act in the best interest of the company to support these submissions.

57.  Given my above view that it is triable as to whether JZD was entitled to demand repayment of the earnest money under the Framework Agreement and to thus enforce the Share Charge, I am prepared to accept that it is triable as to whether Super Cruise was entitled to revoke some of those Undated Documents by the Revocation Written Resolutions on the basis that the liability to repay the earnest money no longer arises. 

58.  This would be sufficient to dispose of the question as to whether the revocation claim raises a triable issue.   But for completeness sake, I will also say that I cannot see how it can be seriously contended that these documents could be revoked on the basis that they were not in the best interest of the company.   They would only be relied upon by the chargee when the Charged Shares should be transferred to it, who would by then hold 80% interest in the company.  In those circumstances, it is difficult to see why the chargee should not be entitled to appoint whomever it deems appropriate to be directors of the company.

C3.    Sufficiency of damages as remedy

C3.1  Whether damages is a sufficient remedy for Mr Lieu if injunction not granted

59.  If the injunction is not granted, the Receivers would be able to sell the Charged Shares.  As mentioned above, they have secured a purchaser to purchase Super Cruise/Pine Valley at the price of HK$172 million.

60.  At the same time, it has also always been Mr Lieu’s expressed and continuing intention to sell these shares.  His main complaint is only they should worth a lot more, in the region of RMB200 to 300 million.

61.  In the circumstances, if at trial it turns out that the injunction is wrongly refused, and Mr Lieu can show that he could have sold the shares at a higher price, the loss to be suffered by him is clearly monetary in nature and compensatible by damages.  It is not part of Mr Lieu’s case that JZD (as a listed company) is unable to meet these damages.

62.  Mr Lo for Mr Lieu however submits that if the Charged Shares are to be sold by the Receivers, Mr Lieu would also suffer damage to his reputation, which is not compensatible by damages.  He says there is damage to the reputation because outsiders would be under the impression that Mr Lieu is unable to pay off his debt and thus his assets (the Charged Shares) have to be taken over by Receivers and be sold.  In support of his submissions, Mr Lo relies on the authority of Jinlin Sun v Kenneth Chi Shing Cheung & Styland (unrep., HCA 3544/2003, 13 October 2003, Reyes J).

63.  In Styland, the plaintiffs sought an interim injunction to appoint receivers over Styland, which was a listed company.  The plaintiffs were some of the shareholders of Styland, who brought a derivative action against various directors of Styland for breach of common law and fiduciary duties owed to the company in relation to certain transactions entered into by the company and certain circulars issued by it. 

64.  Reyes J refused to appoint the interim receivers on the basis that the appointment would have served no useful purpose vis-à-vis the wrongdoings alleged by the plaintiffs and was thus not required or justified.    However, the learned judge went on to deal with question of balance of convenience for completeness.  It was in this context that he ruled at paragraphs 36 and 37 of his judgment that the defendants (i.e., the directors) would suffer irreparable damage to their reputation if the injunction was subsequently shown to be wrongly granted with the receivers taking over the management of the company from them.

65.  Reyes J’s said observation is understandable in that in Styland, the main allegations against the defendant were that they (as directors of a listed company) were in breach of fiduciary duties in causing the company to enter into the wrongful transactions.   Thus, the appointment of the receivers would have a direct effect on the impression of the outsiders on the propriety (and thus reputation) of these defendants in their conducts as directors of a listed company. 

66.  However, whether an appointment of a receiver would have such an effect on the reputation of the defendant must be looked at and assessed in each case in context and should not be taken too far.

67.  In my view in the present case, it is farfetched and unrealiastic to say that Mr Lieu’s reputation would be affected simply because the receivers were allowed to sell the Charged Shares.  In particular, in the present case, the appointment of the Receivers were not made by the Court but by JZD pursuant to the Share Charge entered voluntarily by Mr Lieu himself.  It is Mr Lieu who is now seeking to prevent JZD from exercising their contractual right of appointment.  This is a very different context from Styland.

68.  I therefore do not accept that the refusal of the injunction, if later proven to be wrong, would cause loss to Mr Lieu which is not compensatible by damages. 

69.  On this basis alone, I would refuse the grant of the injunction as sought.

C3.2  whether damages is a sufficient remedy for JZD

70.  If I am wrong in my above conclusion on the first head of American Cyanamid, the Court then assess whether, if JZD is to succeed at trial, it would have suffered loss because of the granting of the injunction, which could not be adequately compensated by damages.

71.  JZD may only suffer a loss as a result of a wrongful grant of the injunction if the sale price of the Charged Shares after trial would not be sufficient to pay off the earnest money together with the accured interest accrued. 

72.  This loss is monetary in nature and thus prima facie compensatible by damages.

73.  Ms Chan for JZD however contends that damages are unlikely to be a sufficient remedy because:

(1)	Mr Lieu is clearly not in a position to pay any such loss.
(2)	There is a chance that there would be no buyer of the Charged Shares by that time.
(3)	Alternatively, the price of the Charged Shares may drop to such a level that it would not be sufficient to satisfy all or part of the then outstanding sum of the earnest money together with interest.   This is particularly so as the Receivers’ report shows that Pine Valley is continuing to incur losses under Mr Lieu’s present management for its daily operation.

74.  I am not persuaded by Ms Chan’s submissions:

(1)	In my view, with the evidence before me, the chance that there would be no purchaser whatsoever for the Charged Shares is a low one.  This is a substantial club and it is a matter of price whether there is a purchaser.
(2)	The Receivers at present are able to secure a purchaser who is willing to pay HK$172 million for the Club.
(3)	In considering whether JZD will suffer any irreparable damage by a wrongful grant of the injunction, the Court has to realistically assess what is the likely loss that they would suffer in the light of the evidence before it.  The exercise is not intended to be an exact science, but to consider on a rough estimate whether damages that may be suffered could be sufficiently protected by the undertaking as to damages.
(4)	Mr Lieu has through his legal representatives offered to put  up HK$ 9million to fortify his undertaking as to damages.
(5)	In my opinion, the HK$9 million fortified undertaking as to damages is sufficient for the time being to compensate the loss that JZD may suffer as a result of the injunction.  This would mean that JZD would only not tobe sufficiently compensated if the sale proceeds of the Charged Shares after trial would not be able to cover the earnest money and accrued interest to the extent of more than HK$9 million.  There is no evidence at present to suggest that such a scenario has a likely chance of occurring.

75.  For the above reasons, I conclude that damages would be a sufficient remedy for JZD if the injunction is wrongly granted provided:

(1)	Mr Lieu provides an undertaking as to damages fortified to the extent of HK$9 million.
(2)	There would be a speedy trial, so as to reduce the quantum of the accrued interest.
(3)	There be liberty to apply by JZD for further fortification of the undertaking as to damages when circumstances changes, in particular in relation to the valuation of the Charged Shares.

76.  Therefore, if I had come to the conclusion that damages is not a sufficient remedy for Mr Lieu, but is a sufficient one for JZD, I would have granted the injunction subject to the following:

(1)	Mr Lieu do make payment of HK$ 9million in cash into Court as fortification of the undertaking as to damages within 14 days from the date of the order[9].
(2)	There be liberty to apply.
(3)	There be an order for speedy trial of the action herein.

C4.    Balance of convenience

77.  Again, if I was wrong above, and that I had to come to the question of balance of convenience, I would have also granted the injunction to preserve the status quo, subject to the same directions I have suggested at paragraph 76 above. 

C5.    Conclusion under the Injunction Summons

78.  For the reasons I have set out above, I dismiss the Injunction Summons.  I further make an order nisi that JZD’s costs of the Injunction Summons be in the cause.

D.      The Striking Out Summons

D1.    The objected paragraphs

79.  By the Striking Out Summons, JZD applies to strike out:

(1)	Paras 14, 15, 29-39 and 41-47 of the Amended Statement of Claim; and
(2)	Paras 10(iii), 11(ii)-(iii), 19, 27(i), 32 to 34, 40 to 51 and corresponding references in paragraphs 57 to 74 of Amended Reply and Amended Defence to Counterclaim.

80.  This striking out application is made on the grounds that the objected pleas are frivolous and vexatious and/or constitute an abuse of process. 

81.  JZD also applies to strike out all allegations purportedly made on behalf of Super Cruise in the Amended Reply and Amended Defence to Counterclaim on the ground that they were made by Mr Lieu in breach of an undertaking given to the Court on 29 October 2009.  That undertaking provides that until the determination of the Want for Authority Summons, Mr Lieu will not take or cause to be taken any steps in this action on behalf of Super Cruise.

82.  Ms Chan has advanced separate arguments in support of the striking out applications.  I will explain them in greater detail as I deal with each of them below.

D2.    The specific grounds for striking out

83.  Paragraphs 29-31, 33-37 and 41-47 of the Amended Statement of Claim plead (by way of amendments to the original Statement of Claim) the various allegations in support of the forfeiture claim and the revocation claim (as discussed above under the Injunction Summons). They are repeated in various paragraphs in the Amended Reply and Amended Defence to Counterclaim. 

84.  Ms Chan submits that they should be struck out as:

(1)	They amount to an attempt to resile from an admission of liability to pay the earnest money.
(2)	They are bound to fail.

85.  On the ground of an attempt to resile from admission, Ms Chan says as follows:

(1)	In the original Statement of Claim, the only claim is for damages for JZD’s alleged breach of the Confidentiality Undertaking, which is further pleaded to set-off against the earnest money.
(2)	This must amount to at least an implied admission that there was a liability on Mr Lieu to repay the earnest money, otherwise there is simply no question of set-off.
(3)	Thus, in pleading by way of amendments the newly added forfeiture claim and revocation claim in the Amended Statement of Claim, which are premised on or resulted in an allegation of no liability to repay the earnest money at all amount to attempts to resile from the earlier admission.
(4)	As no leave has been granted to Mr Lieu to withdraw the admission, these new pleas should not be allowed, and thus the paragraphs in support of them must be struck out.

86.  I am prepared to accept that the original Statement of Claim can be regarded as containing an implied admission of liability to repay the earnest money. 

87.  The question is whether leave should be given to Mr Lieu to withdraw the admission and so as to plead these additional claims.

88.  Leave to withdraw an admission should normally be given in circumstances where:

(1)	It can be done without injustice to the other party, and there is normally no injustice if the other party can be compensated by costs.
(2)	There is no question of bad faith.
(3)	A triable issue with reasonable prospects of success is raised.
See:  Hong Kong White Book 2010, para 27/3/9.

89.  Applying these principles, I am satisfied that leave should be granted to Mr Lieu to withdraw the admission and plead those additional claims as:

(1)	Nothing is shown to me that JZD would suffer any uncompensatible injustice if leave if given at this early pleading stage.
(2)	I have not seen anything to show bad faith on the part of Mr Lieu in pleading these additional claims.  The mere fact that the new allegations enable Mr Lieu to resile from the admission cannot per se amount to bad faith, as Ms Chan appears to suggest at paragraph 90.3 of her skeleton submissions[10].  This is particularly so as some of these new claims are premised on legal arguments regarding the proper construction of the relevant clauses in the Framework Agreement.
(3)	These additional claims (as discussed above) are in my view at least arguable.

90.  Ms Chan further contends that these alternative claims based on the new allegations are bound to fail as they are either not arguable as a matter of law, or could not possibly be established at trial when viewed against (a) the admission, (b) the lack of mentioning of these in the correspondence between the parties when the dispute first arose, and in the early affirmations filed in these Summonses, and (c) the fact that they were only introduced in the pleadings by way of amendments.

91.  Although Ms Chan’s submissions have some force, suffice for me to say that, for the reasons I have given above under the Injunction Summons and after reading the evidence before me as a whole, I am not convinced that this is a clear and obvious case where I can say at this early stage that these alternative claims and allegations in support thereof are bound to fail as a matter of law or on the limited evidence before me.  These should be ventilated at trial.

92.  As a result, I will not strike out the objected paragraphs on either of these grounds as submitted by Ms Chan.

93.  On the other hand, as I mentioned in my discussion under the Injunction Summons, Mr Tommy Lo for Mr Lieu at the hearing confirmed that it is not Mr Lieu’s case that the “Assurance” and “Common Understanding” as pleaded at paragraph 14, 15 and 31(v) of the Amended Statement of Claim have any legal or binding effect.   They were pleaded, Mr Lo says, only by a way of background.  These paragraphs read as follows (the underlined parts are the amendments made at the Amended Statement of Claim):

“14.	In the course of the Plaintiff's negotiations with the Defendant and subsequent to the signing of a Confidentiality Undertaking dated 8 August 2008 (‘the Confidentiality Undertaking’) by the Defendant in favour of the Company and its shareholders namely the Plaintiff and Ms Chen, and in view of and in reliance on the Defendant's promise to pay RMB 200 million for 80% of the Company based on the agreed valuation of RMB 250 million for the entire ownership of the Company, the Common Understanding (as defined in the paragraph immediately below) and the Defendant's assurance to the Plaintiff (‘the Assurance’) that the sale and purchase would be completed on or before the end of October, 2008 and the Defendant's undertaking not to breach its obligations of confidentiality under the Confidentiality Undertaking, the Plaintiff through his solicitors Messrs. Arculli Fong & Ng released due diligence documents and materials relating to the Company and Pine Valley on 9 August 2008 to Messrs. Chiu & Partners, solicitors acting for the Defendant at that time.
15.	It was agreed between the Plaintiff and the Defendant that the Defendant would not in the course of its own due diligence raise any issue covered in valuation reports and past due diligence materials (complied for purpose of the Plaintiff's previous negotiations with other potential purchasers) which the Plaintiff would voluntarily supply to the Defendant even before the Framework Agreement was signed, in particular those on land title and indebtedness of the Company due to the Plaintiff or companies controlled by the Plaintiff, and the Defendant would not press for any price reduction based on any such said issue  (‘the Common Understanding’).
…
31.	The Plaintiff forfeited the Deposit because the Defendant was in breach of the Framework Agreement as Amended and his other obligations as particularized below.  As the Deposit has been forfeited, there is nothing to be refunded to the Defendant.
Particulars of breach
i.	…
…
v.	However, the Defendant then took no concrete step to complete the sale and purchase but, in breach of the Assurance and the Common Understanding and its promise to the Plaintiff to pay RMB 200 million for the 80% shareholding of the Company regardless of any valuation in consideration of the Plaintiff foregoing his negotiations with Hua Fa and engaging in negotiations with the Defendant, endeavoured to press the Plaintiff to reduce the price for the sale and purchase of the 80% Shares by raising requisitions such as on land title issues and other matters which the Defendant was already well aware of even before the Framework Agreement was signed on 27 August 2008.”

94.  Given counsel’s confirmation that the “Assurance” and “Common Understanding” as pleaded do not carry any legal effects, I do not see any relevance of them being so pleaded which, if allowed to remain in the pleading, may need to be proved at trial (as they are denied by JZD).  These would result in incurring unnecessary costs and time, and/or would unnecessarily distract the issues at trial.

95.  In the premises, I will exercise my power on the Court’s own motion under O. 18 r 19(1) of the Rules of High Court (Cap 4) to strike out paragraphs 14, 15 and 31(v) in the following manner on the basis that they disclose no reasonable cause of action, and/or it is frivolous or vexatious and/or it may prejudice, embarrass or delay the fair trial of he action.

“14.	In the course of the Plaintiff's negotiations with the Defendant and subsequent to the signing of a Confidentiality Undertaking dated 8 August 2008 (‘the Confidentiality Undertaking’) by the Defendant in favour of the Company and its shareholders namely the Plaintiff and Ms Chen, and in view of and in reliance on the Defendant's promise to pay RMB 200 million for 80% of the Company based on the agreed valuation of RMB 250 million for the entire ownership of the Company, the Common Understanding (as defined in the paragraph immediately below) and the Defendant's assurance to the Plaintiff (‘the Assurance’) that the sale and purchase would be completed on or before the end of October, 2008 and the Defendant's undertaking not to breach its obligations of confidentiality under the Confidentiality Undertaking, the Plaintiff through his solicitors Messrs. Arculli Fong & Ng released due diligence documents and materials relating to the Company and Pine Valley on 9 August 2008 to Messrs. Chiu & Partners, solicitors acting for the Defendant at that time.
15.	It was agreed between the Plaintiff and the Defendant that the Defendant would not in the course of its own due diligence raise any issue covered in valuation reports and past due diligence materials (complied for purpose of the Plaintiff's previous negotiations with other potential purchasers) which the Plaintiff would voluntarily supply to the Defendant even before the Framework Agreement was signed, in particular those on land title and indebtedness of the Company due to the Plaintiff or companies controlled by the Plaintiff, and the Defendant would not press for any price reduction based on any such said issue  (‘the Common Understanding’).
31.	The Plaintiff forfeited the Deposit because the Defendant was in breach of the Framework Agreement as Amended and his other obligations as particularized below.  As the Deposit has been forfeited, there is nothing to be refunded to the Defendant.
Particulars of breach
	… v. However, the Defendant then took no concrete step to complete the sale and purchase but, in breach of the Assurance and the Common Understanding and its promise to the Plaintiff to pay RMB 200 million for the 80% shareholding of the Company regardless of any valuation in consideration of the Plaintiff foregoing his negotiations with Hua Fa and engaging in negotiations with the Defendant, endeavoured to press the Plaintiff to reduce the price for the sale and purchase of the 80% Shares by raising requisitions such as on land title issues and other matters which the Defendant was already well aware of even before the Framework Agreement was signed on 27 August 2008.”

96.  At the same time, insofar as the Amended Reply of the Plaintiff (by original action) and Amended Defence to Amended counterclaim filed by King & Wood dated 11 November 2009 is concerned, I will also strike out the references to the 3^rd Defendant (i.e, Super Cruise) at the heading of the first page and the backsheet of the pleading which show that the pleading was filed by King & Wood for and on behalf of Super Cruise, as this is in breach of the undertaking given by Mr Lieu to the Court as submitted by Ms Chan.

D3.    Conclusion under the Striking Out Summons

97.  For the reasons given above, under the Striking Out Summons:

(1)	I will strike out the references to the 3rdDefendant (i.e, Super Cruise) at the heading of the first page and the backsheet of the pleading which show that the pleading was filed by King & Wood for and on behalf of Super Cruise.
(2)	I will dismiss the rest of the Summons.

98.  On the Court’s own motion, I will also strike out paragraphs 14, 15 and 31(v) of the Amended Statement of Claim in the manner as set out in paragraph 95 above.

99.  Although Mr Lieu is substantially successful in opposing the Striking out Summons, as explained above, Mr Lieu only so succeeds because I have decided to exercise my discretion to grant him leave to resile from the admissions, which leave he had not sought before amending the pleading. 

100.  In the circumstances, I think a fair and just costs order under the Striking out Summons should be no order as to costs.  I therefore make an order nisi that there would no order as to costs under the Striking out Summons.

E.      The 3 applications under HCMP 1893/2009

101.  I can deal with these applications quickly.

102.  Insofar as the Joinder Summons and the Intervening Summons are concerned, the parties have agreed at the hearing that they should be granted.   I so make the orders in terms of the Summonses.  I further make an order nisi that costs of these 2 Summonses be in the cause of the Originating Summons. 

103.  Mr Lieu seeks the following substantive reliefs under the Originating Summons:

"(1)	the Form D2A (notification of change of secretary and director) dated 22 July 2009 filed with the Companies Registry on 22 July 2009 by Borrelli Walsh Limited be withdrawn and/ or removed from the registry and such withdrawal and/ or removal to take effect on the day next following the date of this order;
(2)	the Form R1 (change of address of registered office) dated 31 July 2009 filed with the Companies Registry on 31 July 2009 by Borrelli Walsh Limited be withdrawn and/ or removed from the registry and such withdrawal and/ or removal to take effect on the day next following the date of this order;
(3)	(3) further or alternatively, the following documents be accepted by the Registrar for registration:
	(a) the Form R1 (change of address of registered office) dated 13 August 2009 filed with the Companies Registry on 13 August 2009 by the Company; and (b) special resolutions passed on 17 August 2009 by the members of the Company at the Extraordinary General Meeting of the Company held on 17 August 2009."

104.  The application is made pursuant to s 348 of the Companies Ordinance (Cap 32) (“the CO”), which provides as follows:

“348.	Power of Registrar to refuse to register certain documents
(1)	The Registrar may refuse to register or accept for registration any document delivered to him under this Ordinance if it appears to him that-
	(a) the document is manifestly unlawful or ineffective; (b) the document is incomplete or altered; or (c) any signature on the document, or digital signature accompanying the document, is incomplete or altered.
(2)	Without limiting the generality of subsection (1), where any form is specified under section 2A for use in relation to any purpose of this Ordinance, the Registrar may refuse to register or accept for registration any form used for that purpose that deviates from the form so specified.
(3)	Any person aggrieved by a decision of the Registrar under subsection (1) or (2) may, within 42 days of the decision, appeal to the court against the decision and the court may, subject to subsection (4), make such order as it may deem just, including an order as to costs.
…”

105.  It is not disputed that, in deciding whether the Registrar was correct in her decision to register or accept for registration documents delivered to her in applying s. 348 of the CO, the Court would have regard to the following principles:

(1)	In determining whether the Registrar’s decision was in error, the Court would consider whether those documents ought to be filed are “manifestly unlawful” or “manifestly ineffective”:  Re Tongda Group Holdings Ltd (HCMP 1356/2004, 30 September 2004, Kwan J), paras 41-45.
(2)	In an appropriate case, the Court may direct the Registrar under s. 348 to remove a document from the register or to accept a document for registration:  Re Tongda, supra, paras 36-40.
(3)	The Court may refuse to order a removal where the public could have relied on the document filed and its removal would only cause confusion:  Re Tongda, supra, paras 43-45.
(4)	The Registrar may accept amending or corrective return for registration where there has been an error or inaccuracy in a return originally filed:  Re Hang Lung Properties Ltd [2008] 2 HKLRD 196, 205-208 per Barma J.

106.  Mr Jenkin Suen, counsel for the Registrar, also draws my attention to s 348A of the CO, which provides as follows:

“The [Registrar] shall not be responsible for verifying the truth of any statement made in any document delivered to him for registration.”

107.  In the present application, Mr Lieu says the Registrar was wrong in accepting the objected documents for registration filed by the Receivers, because she was put on alert as to Mr Lieu’s complaints that the Receivers were wrongly or invalidly appointed through various letters sent to her by Mr Lieu’s solicitors.  These letters set out some of the disputes between the parties on the appointment.   

108.  Given ss 348 and 348A of the CO, Mr Lieu can only succeed if he can show that the Form D2A and Form R1 filed by the Receivers are manifestly (and thus plainly) unlawful or ineffective without the need to engage into any detail investigations.

109.  In my judgment, Mr Lieu has clearly failed to show that the said documents are manifestly unlawful or ineffective:

(1)	Mr Lieu’s challenge to the validity of these documents is premised only and principally on the alleged invalid appointment of the Receivers on the various grounds set out above under the Injunction Summons.
(2)	As explained above, I have come to the view that some (and not all) of these grounds are at best arguable at this stage, and their merits can and should only be resolved at trial.   It must be noted that even Mr Lieu’s counsel only seeks to contend that those grounds give rise to triable issues, but not that they have such strong merits that they are bound to succeed.
(3)	In the circumstances, I simply cannot see how it could be suggested that the objected Form D2A and Form R1 filed by the Receivers are (even with the objections made by Mr Lieu through his solicitors) manifestly unlawful or ineffective.
(4)	In the absence of manifest unlawfulness or ineffectiveness, Mr Lieu has therefore failed to show that the Registrar was wrong in accepting these documents for registration.

110.  Given that the Registrar was correct in registering these documents, I am also of the view that it was correct for her to refuse registering the Form R1 and the special resolutions sought subsequently to be filed by Mr Lieu for and on behalf of Super Cruise, as these will cause confusion to the public.

111.  For these reasons, I dismiss the Originating Summons.  I also make an order nisi that costs be to the Registrar and JZD to be paid by Mr Lieu, to be taxed if not agreed.

F.      The Want for Authority Summons

112.  King & Wood (“K&W”) filed a Notice to Act and the Acknowledgment of Service purportedly for Super Cruise (as the 3^rd Defendant by Counterclaim) under HCA 1645/2009.

113.  Where a solicitor’s authority to act for a party is in question, the burden is on the solicitor to prove that she is so duly authorized.  If a solicitor acknowledges service for a defendant without his knowledge or authority, other than the defendant himself, the plaintiff may also apply to strike out the acknowledgment of service:  Hong Kong White Book 2010, para 12/3/9.

114.  In the present case, for reasons of the above discussion and conclusion set out under the Injunction Summons and the Originating Summons, it is clear that when the Notice to Act and the Acknowledgment of Service were taken out, K&W could not have been certain that they had proper authority to act for Super Cruise since:

(1)	Receivers have been appointed over Super Cruise pursuant to the Share Charge.
(2)	Mr Lieu and Ms Chen had already been replaced as directors of Super Cruise as demonstrated by the Undated Documents duly signed by them.  These company documents have also been filed with the CR.  Subject to these being set aside, they appear to be prima facie valid.
(3)	Thus, even though Mr Lieu and Ms Chen believed that they had good reasons to challenge the Receiver’s appointment and to set aside the registration of those company documents, their authority as directors of Super Cruise to instruct K&W to act for the company must be at least in doubt and not certain, unless and until these documents are set aside.  That was the whole purpose of the Originating Summons.
(4)	In the premises, I am not satisfied that it has been shown to me that K&W had clear authority to act for Super Cruise when the Notice to Act and the Acknowledgment of Service were filed.

115.  I will therefore strike out the Notice to Act and the Acknowledgment of Service filed on behalf of Super Cruise as the 3^rd Defendant by Counterclaim under HCA 1645/2009. 

116.  This comes to the question of costs.

117.  Although I strike out the Notice to Act and the Acknowledgement of Service for the above reasons, it must be pointed out that in the Counterclaim, Super Cruise is only joined as a nominal defendant, with no substantive relief sought against it.   It is therefore entirely beyond me as to why it was thought necessary by perhaps Mr Lieu to file an Acknowledgment of Service for Super Cruise, other than perhaps seeking to assert the position on the dispute on the validity of the appointment of the Receivers and thus who has proper control over the company.  If that is the case, it is in my view entirely inappropriate to do so in such a way.  That dispute should be, and has been put squarely and properly in the original claim itself.

118.  But because of this, it has triggered the Want for Authority Summons representing yet another interlocutory application under the action, which is entirely unnecessary. 

119.  Yet further, this Summons was taken out purportedly by Super Cruise (as the 3^rdDefendant by Counterclaim) through the Receivers instructing Wilkinson & Grist.   Given the dispute on whether the appointment of the Receivers is valid, which I have found to be arguable, I am equally puzzled as to why it was also thought appropriate to issue this Summons by Super Cruise instead of JZD as the plaintiff by Counterclaim.  This is particularly so as Ms Chan (for JZD) in her written submissions also submits that the plaintiff has a right to strike out the acknowledgment for want for authority.   This seems to me to be another example where the parties are using this interlocutory application simply to “show” that they should be the one in control of the company.

120.  In my view, both sides have acted inappropriately in the way they have advanced in this application, which have escalated costs and wasted time.  This should not be endorsed.  In the circumstances and in the exercise of my discretion, I will make an order nisi that there should be no order as to costs under the Want for Authority Summons.