CHINA EVERGRANDE GROUP (IN LIQUIDATION) v. HUI KA YAN AND OTHERS

CAMP 90 /2025, [2026] HKCA 15

On appeal from [2025] HKCFI 689

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 90 OF 2015

(ON AN INTENDED APPEAL FROM HCA NO 551 OF 2024 AND HCMP NO 1080 OF 2024)

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(Consolidated by the Order of The Honourable Mr Justice Coleman dated 12 February 2025)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

A. Introduction

1.  This is the 2^nd defendant’s application for leave to appeal from the decision of Coleman J dated 12 February 2025 (“Decision”; [2025] HKCFI 689), continuing a worldwide Mareva injunction (“Injunction Order”)  sought by the plaintiff China Evergrande Group (“CEG”), against inter alia, its former CEO, the 2^nd defendant Xia Haijun (“Xia”), restricting Xia from:

(1)  removing from Hong Kong any asset within the jurisdiction up to the value of HK$60 billion (approximately US$7.7 billion); and

(2)  disposing of or dealing in the proceeds arising from the Pavilia Hill Property sale.

2.  We should point out that the summons issued in these proceedings on 6 May 2025 seeks leave to appeal against an unless order made by the judge dated 19 March 2025, but the draft notice of appeal annexed to the summons seeks leave to appeal against the Decision and the statement of reasons for leave to appeal is in respect of an intended appeal against the Decision.  We shall treat this as an application for leave to appeal against the Decision.

3.  Having considered the papers, we think it is appropriate to determine this application on the basis of written submissions only.

B.  Relevant background

B.1.   China Evergrande Group and Xia’s role

4.  The relevant factual background is succinctly and clearly set out in the Decision at [6] to [39].  The following facts are pertinent to the present leave application before us.

5.  CEG was incorporated in the Cayman Islands on 26 June 2006.  It is an investment holding company and the ultimate holding company of many subsidiaries, collectively comprising the Group.

6.  From 19 December 2006 onwards, CEG was registered as an overseas company under the former Companies Ordinance, Cap 32 and now as a registered non-Hong Kong company under the present Companies Ordinance, Cap 622.

7.  CEG’s principal subsidiary is Hengda Real Estate Group Co Ltd (“Hengda”), which was engaged in property development in the Mainland.

8.  Xia joined CEG in around June 2007 as its Vice Chairman and Deputy Vice President.  In about August or September 2007, he became the CEO of CEG.  He continued to be CEG’s executive director, CEO and Vice Chairman until his retirement.

9.  In 2008, Xia was transferred to Hong Kong to assist in CEG’s attempt to have its shares publicly listed in Hong Kong.  On 5 November 2009, CEG’s shares were listed on the Main Board of the Stock Exchange of Hong Kong Limited.

10.  Since October 2009, CEG rapidly grew as one of the largest property developers in Mainland China.  By 2016, CEG had become the largest property developer in the Mainland, with the highest turnover, largest land reserve and the highest number of projects in second-tier cities across the Mainland.

11.  In October 2016, the management of CEG and Hengda became segregated and operated independently by unconnected teams, in order for Hengda to be listed on the Shenzhen Stock Exchange.  As a result of the spin-off, Xia was not directly involved in Hengda from 2016 onwards.

12.  On 24 January 2017, Xia’s responsibilities were confined to CEG at a top level.  He was responsible for overseeing CEG’s and its group’s financial management and fund mobilisation (excluding Hengda since its proposed spin-off in 2016).

13.  During Xia’s time at CEG, as a director and member of CEG’s board, he took part in meetings that approved the consolidated financial statements (“CFSs”)  and the dividends paid on the faith of the profits stated therein.

14.  Xia retired from CEG in July 2022.

B.2.   The collapse of Evergrande Group

15.  In 2021 through 2023, it became evident that CEG encountered increasingly worsening cash flow issues, as a result CEG defaulted on a number of its debts.  Its financial situation deteriorated to the point that by 31 December 2021, its liabilities exceeded its assets by RMB 473 billion.

16.  Trading of CEG’s shares was first suspended on 28 September 2023.  It resumed on 3 October 2023, and was again suspended on 29 January 2024.

17.  On the same day, upon a creditor’s petition, CEG was ordered to be wound up by Linda Chan J (Re China Evergrande Group [2024] 1 HKLRD 1128).  CEG did not dispute its inability to pay the debt.  CEG was eventually wound up on the basis that it was “balance sheet insolvent”.

18.  As a result of investigations, the liquidators of CEG say that they have identified five heads of misstatements (“Five Misstatements”)  in respect of CEG’s CFSs prior to its collapse, and which occurred during the direction and management of Xia and the 1^st defendant Hui Ka Yan (“Hui”):

(1)  First, CEG overstated its reported revenues from sale of properties by hundreds of billions of RMB, due to CEG’s aggressive approach to the timing of recognising revenues.  This overstatement resulted in a dramatic reversal of RMB 664 billion in revenues recorded by CEG in its audited CFSs for the financial year ended 31 December 2021.

(2)  Second, CEG overstated its completed properties held for sale and properties under development.  In CEG’s audited CFSs for the year ended 31 December 2021, these assets were written down by a total of RMB 373 billion.

(3)  Third, CEG inappropriately classified properties as investment properties and overstated their values.  In its audited CFSs for the year ended 31 December 2021, CEG recorded an RMB 31 billion write-down in value of these properties and a RMB 40 billion reclassification of the latter as properties under development.

(4)  Fourth, CEG overcapitalised its interest expenses – an accounting method in which the cost of borrowing is directly added to the cost of a long-term asset and the “capitalised interest” appears in instalments on the company’s income statement as periodic depreciation expense on the asset over its useful life.

(5)  Fifth, CEG made inappropriate assumptions regarding its ability to continue as a going concern.

19.  On 21 May 2024, the China Securities Regulatory Commission (“CSRC”)  published the Administrative Penalty Decision (“CSRC Decision”), which decided, amongst other things, that Hengda implemented financial fraud and Hengda’s 2019 and 2020 annual reports contained false records.  The CSRC Decision also noted that Xia had taken no part in the proceedings, and at that point in time CSRC had not penalised Xia directly.

B.3.   The ex parte application and the Injunction Order

20.  On 22 March 2024, CEG commenced HCA 551/2024 against its former directors, including Xia.  The writ was issued on a protective basis to preserve CEG’s rights in pursuing claims against Hui, Xia and the other defendants.  The fact of its issue was kept confidential initially.

21.  During June 2024, the liquidators discovered that Xia was in the process of selling a substantial property in Hong Kong called the Pavilia Hill Property, which he acquired in 2019.

22.  This led to a chain of communication between CEG’s solicitors Karas So LLP (“KS”)  and Xia’s solicitors Cheung & Liu (“C&L”)  from 19 June 2024 to 24 June 2024.  In particular:

(1)  In KS’s letter dated 19 June 2024, KS mentioned that the liquidators had filed, on a confidential basis, a writ in Hong Kong naming Xia as a defendant.  KS requested C&L (the firm, not their client)  to give an undertaking not to deal with any of the sale proceeds contrary to KS’s other requests and without prior consent from the liquidators.

(2)  In C&L’s letter dated 21 June 2024, C&L informed KS that the sale was due for completion within the month, on 27 June 2024. The reference of when exactly completion was to take place was ambiguous.  In the same letter, C&L advised KS that if the liquidators claimed the Pavilia Hill Property sale proceeds, they should first make an urgent application for necessary court orders.

(3)  In a letter dated 24 June 2024, C&L reiterated its position that absent an injunction order, it would deal with the sale proceeds in accordance with the sale and purchase agreement, and made clear that completion may take place before 27 June 2024.

23.  The liquidators considered that the above chain of correspondence gave rise to urgency, specifically following their receipt of C&L’s second letter, CEG was of the view that Xia was aware of the correspondence and that completion was to take place any time before 27 June 2024.

24.  CEG proceeded to take out an ex parte application for a worldwide Mareva injunction against Xia on 24 June 2024.  The judge heard the application and granted the Injunction Order.

25.  The terms of the Injunction Order included, amongst other things, orders to restrict Xia (1)  from removing from Hong Kong any asset within the jurisdiction up to the value of HK$60 billion (approximately US$7.7 billion), and (2)  from disposing of or dealing in the proceeds arising from the Pavilia Hill Property sale.

26.  CEG filed a summons on 25 June 2024 for the continuation of the Injunction Order (“Continuation Summons”).  Xia filed a summons on 5 July 2024 seeking to discharge the Injunction Order (“Discharge Summons”).

27.  CEG served the writ and its statement of claim (“SOC”)  on 1 and 8 August 2024 respectively.

28.  On the return date of the CEG’s inter partes application, the judge ordered, inter alia, the continuation of the Injunction Order up to and including the adjourned hearing of the Discharge Summons set for 2 October 2024.

29.  The Continuation Summons, the Discharge Summons and other related summonses were heard before the judge on 2 October 2024.

30.  By the Decision, the judge granted the continuation of the Injunction Order against Xia, and dismissed Xia’s application to discharge the same.

C.  The Decision

31.  In the Decision, the judge found that CEG had sufficiently established the following:

(1)  There was a good arguable case that the CFSs were massively misstated between 2017 and 2020 (at [114] to [120]);

(2)  There was a good arguable case that there was a breach of duty by Xia as director of CEG to ensure with reasonable skill, care and diligence that the CFSs were properly prepared and accurate and in approving the payment out of dividends on the basis of the CFSs (at [122] to [135]);

(3)  There was no or insufficient assets within the jurisdiction to satisfy CEG’s claim ([154] to [155]).  There are assets outside the jurisdiction and there was a real risk of dissipation of assets to render nugatory any judgment that CEG may eventually obtain (at [156] to [161]).

32.  Xia put forward the following grounds to discharge the Injunction Order:

(1)  CEG had failed to give notice to Xia prior to the ex parte hearing, giving rise to an abuse of process;

(2)  CEG failed to give full and frank disclosure in its evidence during the hearing; and

(3)  CEG had not shown a good arguable case on its claim, because: (a)  the claim is vague and unformulated; (b)  reliance on the CSRC Decision is impermissible because it is inadmissible evidence; and (c)  no reliance can be placed on the liquidators’ findings, which were mere opinions.

33.  For the purposes of the discussion below, we will set out the relevant parts of the judge’s findings in relation to each of Xia’s grounds.

C.1.   The lack of prior notice complaint

34.  In relation to Xia’s complaint of lack of prior notice leading to an abuse of process, the judge considered the following matters.

35.  After setting out the relevant legal principles (at [52]), the judge considered there was great force in Xia’s submission that CEG should have given notice to Xia, however informal or short, at some point prior to the ex parte hearing (at [62]).  However:

(1)  He did not think there was any tactical advantage to be gained (or sought)  from not notifying Xia during this stretch of time (at [63]);

(2)  He considered it understandable that CEG was preparing to make the application anyway, but brought it forward in light of their perception that there was a greater need for speed in the afternoon of 24 June 2024.  The concern of early completion (which was moved earlier as a result of the correspondence)  and the possibility of the proceeds of sale being moved at once, appeared to the judge to justify the making of an ex parte application (at [63] to [64]);

(3)  He considered that the focus of the correspondence appeared to be on the particular assets in Hong Kong (the Pavilia Hill property)  and the proceeds of its sale.  This brought the application closer to a more usual application for Mareva injunction, which is typically appropriately sought on an ex parte basis (at [65]);

(4)  The other matters raised by Xia are without merit (at [66]).

36.  The judge therefore considered the ex parte Injunction Order was not obtained in a way that was procedurally compromised such that it should be set aside.

37.  In any event had he thought there was procedural error that should lead to the ex parte order being set aside, he would have imposed a fresh injunction order, so as to achieve the right balance of fairness between the overall interests of the parties in the case, including in light of the matters dealt with below (at [68]).

C.2.   The material non-disclosure complaint

38.  In relation to Xia’s complaint of material non-disclosure in the ex parte application, the judge considered the relevant principles (at [69])  and dealt with each ground put forward by Xia:

(1)  Xia argued that CEG failed to disclose material information found in public records or matters contained within CEG’s own records.  The judge vetted and found that all of them were disclosed by CEG either in the affirmations in support of the application or by counsel (at [71]).

(2)  Xia argued the fact that CEG’s auditors, PricewaterhouseCoopers (“PWC”)  issued a clean unqualified audit report in respect of each consolidated financial statement should be disclosed.  While the judge sees an argument that CEG ought to have disclosed the matter to the court, he considered that: (a)  most judges would work on the starting basis that the published financial statements of listed companies would have a clean audit opinion (unless expressly identified to the judge to be otherwise); and (b)  despite PWC’s unqualified opinions, (i)  the Five Misstatements were not identified, and (ii)  Xia’s duties in respect of the CFSs remained regardless of the audited reports (at [73] to [74]).

(3)  Xia argued the fact that he resigned as a director of CEG in 2022 ought to have been disclosed.  The judge found this irrelevant as this post-dated the relevant period covered by CEG’s claim (at [75]).

(4)  Xia argued CEG ought to have disclosed these matters relevant to his duties as director of CEG: (a)  he was not a member of the Remuneration Committee of the board of directors; (b)  he was not Hengda’s director or officer; (c)  he was not involved in the preparation of the financial accounts of Hengda; (d)  he was not involved in Hengda’s bond issuance which led to CSRC’s investigation of CEG.  The judge considered that the crux of CEG’s case is directed against Xia’s duties as a director, and not at his actual participation in the preparation of the CFSs.  Xia’s non-involvement in the Audit or Remuneration Committees are not materially to the point as his duties remain engaged.  Similarly, Xia was the CEO of Hengda’s parent company CEG and as such his duties extended to Hengda’s statements during CEG’s consolidation of its financial accounts and those of its subsidiaries, including Hengda (at [76] to [77]).

(5)  Xia argued CEG ought to have disclosed information regarding its financial ability to meet its undertaking as to damages.  The judge considered there was no injustice caused to Xia in the circumstances (at [81]), where:

(a)  CEG does have assets despite being massively insolvent; the liquidators estimated the realizable value of assets directly owned by CEG may exceed HK$100 million;

(b)  Xia in his Discharge Summons did not seek orders requiring CEG to fortify its undertaking, nor did he demonstrate there was such a need, either as pure submission or based upon the evidence available since the ex parte hearing.

39.  The judge therefore found there was no material non-disclosure.  In any event, had he found any material non-disclosure as advanced, he would have found them to have been insubstantial or de minimis. He considered that to punish CEG for any such non-disclosure would be disproportionate.  He also took into account that the Injunction Order is of importance for CEG in respect of Xia, as the second-in-command of CEG and its group, and its highest paid executive officer and director (at [83]).

C.3.   The lack of good arguable case complaint: on admissibility of CSRC Decision and liquidators’ findings

40.  The judge considered Xia’s argument that the entirety of the CSRC Decision is inadmissible for any purposes (at [94] to [95]).  After consideration of relevant case law and submissions, he concluded that the findings made in the CSRC Decision are inadmissible in the application and CEG could not rely upon it as supporting its good arguable case (at [105] to [111]).

41.  The judge then considered Xia’s submission that the liquidators’ findings from their investigations were merely opinions and should be treated as inadmissible or at least given little weight (at [112]).  The judge rejected this submission.  Under Order 41 rule 5(2)  of the Rules of the High Court, an affidavit may contain statements of information or belief with the sources and grounds thereof.  He considered that Mr Middleton, the liquidator of CEG, in his fourth affidavit in support of his application for the Injunction Order, set out his sources and grounds for each of his statements of information or belief, and Xia has not drawn to the court’s attention any particular statement lacking a source or ground.  He therefore found the liquidators’ findings described by Mr Middleton in his affidavits as admissible and relevant evidence, to be accorded appropriate weight depending on the circumstances (at [113]).  

C.4.   The lack of good arguable case complaint: vague and unformulated claim

42.  Xia complained that CEG did not have a good arguable case and advanced the following arguments:

(1)  CEG obtained the Injunction Order without properly formulating any claim.  In support, Xia relied on Fourie v Le Roux [2007] 1 WLR 320, where the House of Lords held that in general, on an application without notice, a freezing order would not properly be made in the absence of any formulation of case for substantive relief which the applicant intended to institute, and in particular Lord Scott’s dicta at §§35 to 36 (at [85]);

(2)  CEG’s claim against Xia was in any event insufficiently formulated, the allegations of breach of duties were vague and unspecified, effectively by lumping Xia with the other directors of CEG, disregarding his particular circumstances of being too high up the management chain to be directly involved in the preparation of the CFSs, including the financial statements of Hengda  (at [121], [130]);

(3)  CEG allegedly changed its case in the present application compared to its ex parte case, where Xia claimed CEG has dropped a fundamental plank by foregoing references to Xia’s involvement in preparing the CFSs (at [49], [162]).

43.  The judge dealt with the arguments in the following way.

44.  In relation to the ground that CEG obtained the Injunction Order without properly formulating any claim, the judge considered Fourie is distinguishable from the present facts  (at [86] to [87]):

(1)  In Fourie, an ex parte injunction was granted despite there being (a)  an ambiguity as to where exactly substantive proceedings were to take place; and, more importantly, (b)  what the nature of such proceedings would be, described by Lord Scott as “unformulated and inchoate”.  After the respondents successfully discharged the injunction, the appellant finally formulated a claim for substantive relief in support of a new Mareva order, which the appellant successfully obtained.  It was only at this point that a claim form came into existence for the first time.

(2)  In the present case, the writ has been filed against Xia as early as 22 March 2024, although it was not served until August 2024.  CEG was at the time in the process of drafting the SOC before serving the writ on Xia, and that it was only because of the rapid urgent situation regarding the sale of the Pavilia Hill Property that CEG decided to apply for the ex parte injunction.  CEG has thus set out its claim in broad form in the writ as early as March 2024, and stated during the ex parte hearing that it was to serve the writ along with the SOC in the near future.  The judge therefore does not consider that CEG has failed to properly formulate its claim in the same manner as it occurred in Fourie.

45.  As to Xia’s complaint of lack of sufficiency of particularisation of the case against him (and the lack of consideration of his particular circumstances, in particular his lack of direct involvement in the preparation of the CFSs/Hengda financial statements):

(1)  While the case against Xia was high level, there was sufficient and clear particularisation of the case advanced against Xia, constituted by:

(a)  Sufficiently particularised formulated case from the first affidavit, which mirrored the writ verbatim, and sufficiently pleaded that the liquidators’ investigations, based on a variety of sources, led them to conclude that the CFSs of the Group had been significantly overstated, at least in respect of the financial years 2017 to 2020, in particular by reference to the Five Misstatements.  The liquidators identified that dividends of US$6 billion had been approved, and that occurred as a result of the specified breaches of duty in relation to the preparation and approval of CEG’s financial statements.  There was also clear reference to the receipt of remuneration totalling over RMB 1.8 billion for Xia.  Between 2017 and 2021, Xia was a senior executive officer and director of CEG, in charge of the overall financing of CEG, and was part of the board that approved the CFSs and the subsequent dividends in reliance on those same statements (at [89]).

(b)  Further particulars pleaded in the SOC, served in August 2024, including thirteen duties which Xia owed to CEG.  There is particularisation of how the defendants breached their duties, causing the Five Misstatement and the misstatements of Hengda’s financial statements.  CEG also pleaded particularised loss and relief (at [92]).

(2)  Thus, the judge considered that CEG’s pleaded case adequate, with sufficient particulars against Xia, and that although the writ was formulated in broad terms, taken against the broader contextual picture of the challenge faced by CEG, CEG’s case was formed broadly enough to accommodate the broad picture without being unnecessarily vague or inchoate.  CEG’s case has also since been given more shape in the SOC (at [91] to [93]).

(3)  As to Xia’s argument that CEG effectively lumped Xia with the other directors in relation to their breaches of duties and thus disregarded that Xia was not directly involved in the CFSs, the judge considered that:

(a)  On the evidence, it was not correct that Xia was not integrally involved in the financial affairs of CEG, and records showed that he had ultimate oversight in its daily operations.  Thus, Xia must or ought to have had a profound knowledge and appreciation of CEG’s financial position if he were to carry out his responsibilities (at [122] to [123]).

(b)  In any event, Xia bore a duty to exercise reasonable skill, care and diligence in relation to the preparation of the CFSs of CEG (Re Barings plc and others (No 5) [1999] 1 BCLC 433 at 489a to c; Cyberworks Audio Video Technology Ltd v Mei Ah (HK)  Co Ltd [2020] HKCFI 398 at §§62 to 64).  There was also a statutory duty imposed on directors such as Xia to ensure that the CFSs were accurate, under sections 379 and 380 of the Companies Ordinance.  It is incorrect for Xia to insist that he bore no duty or responsibility as director to ensure the accuracy of the CFSs, just because he was not directly involved in preparing them.  Even if he delegated the performance of his functions, he is not allowed to delegate his responsibility and he retains the duty to supervise the discharge of the delegated functions (at [124] to [128]).

(c)  Similarly, Xia’s approval of dividends constituted another instance of breaching his duties as a director of CEG.  While there is an argument that it is unclear from CEG’s pleaded case which defendant was responsible for which years when dividends were paid, Xia was involved and present during meetings when dividends were approved.  The judge found there is a good arguable case dividends should not have been approved by the board in light of the substantial misstatements in the CFSs.  Had the directors, including Xia, performed their duties, it is arguable that the misstatements would have been discovered by the directors, and as a result the dividends would not have been approved (at [130]).

(d)  The judge also found there is at least persuasive authority to support the contention that breach of director’s duty in failing to ensure accurate financial statements and the subsequent paying out of dividends on the profits stated in those accounts is strict (Moulin Global Eyecare Holdings Ltd (In Liq)  v Olivia Lee Sin Mei [2019] HKCFI 1715 (at [131] to [134]).

(e)  The judge therefore rejected Xia’s argument that CEG’s contention would in effect impose strict liability upon directors who in reality had no direct involvement in the preparation of financial statements of a company, given Xia’s statutory duties and the strict nature of unlawful dividend liability.  The judge considered that the causation link between breach of duty of the director and the loss suffered by the company would be a matter for trial (at [132] to [133]).

46.  The judge also rejected Xia’s complaint that CEG changed its case since the ex parte hearing by conceding that Xia was not involved in the preparation of CEG’s CFSs.  He considered that the dropping of reference to “preparing” the CFSs is not significant, given that CEG’s case has always been directed against Xia’s duties in respect of the CFSs and their accuracy and approval as well as the approval of the dividends on the faith of the profits stated in them, and was never about Xia’s direct participation in drawing up the statements (at [163]).

47.  Having found that CEG established the requisite requirements of continuation of the Injunction Order, and having dismissed each of Xia’s grounds of discharge, the judge granted the Continuation Summons and dismissed the Discharge Summons.

D.  The grounds of Xia’s intended appeal

48.  On 22 April 2025, the judge rejected Xia’s application for leave to appeal against the Decision (“Leave Decision”; [2025] HKCFI 1644).

49.  On 6 May 2025, Xia renewed his application for leave to appeal to the Court of Appeal.  According to his Statement for Reasons for Leave to Appeal and the Draft Notice of Appeal (“DNOA”), he relies on the following grounds:

(1)  The judge erred in failing to find there was no ex parte good arguable case to give rise to jurisdiction for the Injunction Order (DNOA Grounds 2 and 3)  (“No Ex Parte Good Arguable Case Ground”).  In particular, Xia contends that:

(a)  CEG has failed to formulate or identify a substantive claim against Xia; and

(b)  CEG has failed to adduce admissible supporting evidence; the only evidence were the CSRC Decision and the liquidators’ findings, which are inadmissible. 

As such, CEG has failed to establish a good arguable case, which Xia claims is “indispensable to Mareva jurisdiction.”

(2)  The judge erred in failing to find that the ex parte application was procedurally taken out in abuse of process (DNOA Grounds 4 to 7)  (“Ex Parte Abuse of Process Ground”).  Under this ground, Xia contends that:

(a)  Given the judge’s findings of lack of justification for applying wholly ex parte, the judge ought to have discharged the Injunction Order (DNOA Ground 4);

(b)  The judge was distracted by his own unsolicited concern whether or not the plaintiff obtained tactical advantage, which was legally irrelevant (DNOA Ground 5);

(c)  The judge ought to have considered that CEG was guilty of material non-disclosure and misrepresentation, in particular, regarding Xia’s lack of direct involvement in the preparation of the financial statements; and

(d)  The judge failed to consider the standard consequences of material misrepresentation and non-disclosure in the circumstances (DNOA Grounds 6 and 7).

(3)  The judge erred in finding there was an inter partes good arguable case (DNOA Grounds 8 to 11)  (“Inter Partes Good Arguable Case Ground”).  In particular, Xia contends that, having accepted that he played no part in the direct preparation of CEG’s 2017 to 2020 financial statements:

(a)  The judge erred in law in accepting that CEG’s strict liability case against Xia is a good arguable case, and failed to recognise that: (i)  it was evidentially sufficient that CEG’s financial statements had sufficiently complied with the statutory objective standards under the Companies Ordinance (DNOA Grounds 8 and 9); (ii)  similarly, the lawfulness of dividend distribution should be by reference to the objective criteria set out in sections 291, 297, 302 and 304 of the Ordinance, and not by the subjective opinions of individual accountants;

(b)  The judge erred on the facts in finding that CEG’s 2017 to 2020 distributions of dividends were paid out of profits, in that CEG’s assertion that there had been a “reversal of RMB 664 billion of 2017-2020” revenue was factually incorrect (DNOA Ground 10).

50.  The above grounds are broadly the same as the grounds raised in the leave application heard by the judge in April 2025.  As noted by the judge in [32] of the Leave Decision, they seek to reargue the same arguments ran before him unsuccessfully at first instance.

E.  Relevant legal principles

51.  The threshold test for granting leave to appeal against an interlocutory decision is provided in section 14AA(4)  of the High Court Ordinance, Cap 4.  Leave shall not be granted unless the court is satisfied that the intended appeal has reasonable prospect of success, or that there is some other reason in the interests of justice why the appeal should be heard.  Reasonable prospect involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful” without having to be “probable” (SMSE v KL [2009] 4 HKLRD 125 at §17).

52.  The grant of an injunction order concerns the exercise of discretion of the judge.  The Court of Appeal will not interfere with an exercise of judicial discretion unless the appellant can show that the judge erred in law or misapplied the law by failing to take account of relevant considerations or taking account of irrelevant considerations, or that the decision is plainly wrong, namely that the exercise of discretion is outside the generous ambit within which reasonable disagreement is possible (Target Insurance Company Ltd v Ng Yu & Ors [2025] HKCA 150 at §38).

53.  This court will not entertain an appeal simply because an applicant wishes to regurgitate arguments already considered in the court below with the hope that the appeal court may come to a different assessment of the situation.  The appeal court must defer to the judge’s exercise of discretion and not interfere with it save on the well-established grounds (Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 at 220).

F.  Discussion

F.1.   The No Ex Parte Good Arguable Case Ground

54.  Under this ground, Mr Barlow, SC, leading Ms Terri Ha, submits on behalf of Xia that CEG has failed to assert a formulated claim or cause of action against Xia during the ex parte hearing, such that no jurisdiction arises due to a lack of cause of action.  In support, he relies on Fourie v Le Roux at §§35 and 36, and Tugushev v Orlov [2019] EWHC 2031 at §7(iv).

55.  Mr Barlow contends there was no admissible evidence in support of CEG’s claim, given that the only evidence was the CSRC Decision, which was “obviously inadmissible”, and the liquidators’ findings constituting the liquidators’ statements of opinion, which were also inadmissible (DNOA Grounds 2 and 3).

56.  The arguments regarding the complaint of lack of formulated case have been advanced before the judge and dealt with in the Decision:

(1)  At [86] to [87], the judge considered and distinguished Fourie and did not consider that CEG had failed to formulate its claim in the manner as it had occurred in Fourie, including considerations that in the present case, unlike in Fourie, a writ was already filed and the claim was set out in sufficient broad form.  Tugushev v Orlov does not assist Xia.

(2)  At [89] to [92], the judge considered that CEG’s case against Xia at the ex parte hearing, whilst at a high level, was sufficiently particularised, and gave clear reasons for his acceptance of CEG’s case, namely, his consideration that against the contextualised picture of the challenge faced by CEG:

(a)  CEG has sufficiently identified that the liquidators’ investigations, based on a variety of sources, led them to conclude that the CFSs of the Group (at least in respect of the financial years 2017 to 2020), had been significantly overstated, in particular by reference to the Five Misstatements;

(b)  Between 2017 and 2021, Xia was a senior executive officer and director of CEG, in charge of the overall financing of CEG, and was part of the board that approved the CFSs and the subsequent dividends in reliance on those same statements;

(c)  The judge found it was arguable from the evidence that Xia was part of the decision-making entity which caused the dramatic collapse of CEG, and the case was formulated sufficiently broadly to accommodate the broad picture without being unnecessarily vague or inchoate.

57.  Mr Barlow is unable to point to any part of the Decision as erroneous or plainly wrong.  The judge is clearly entitled to reach the conclusions he did on the reasons given.  We do not find his exercise of discretion went beyond the generous ambit within which reasonable disagreement is possible.

58.  We also do not consider that the judge’s consideration of “subsequent materials” submitted, namely the further particularisation of CEG’s case in the SOC, affects the judge’s analysis in any way.

59.  As to the complaint of lack of sufficiency of evidence, the judge clearly has not based his conclusions on the CSRC Decision, which he found to be inadmissible (at [108] to [111]).

60.  As for the liquidators’ findings, the judge dealt with this at [112] to [113].  He accepted the liquidators’ findings as admissible and relevant, pursuant to Order 41 rule 5(2)  of Rules of the High Court, and ought to be accorded appropriate weight.  Mr Barlow has advanced no basis to doubt the correctness of that finding.

61.  We therefore do not consider there is any reasonable prospect of success in relation to this ground.

F.2.   The Ex Parte Abuse of Process Ground

62.  Under this ground, Mr Barlow argues that given the judge’s conclusions at [62] that CEG had no justification for applying wholly ex parte without giving prior notice to Xia, the judge erred in failing to discharge the Mareva injunction.  He submits as follows:

(1)  In the circumstances where no justification is found, the Mareva injunction ought to be discharged, citing authorities including Nico Constantijn Antonius Samara v Stive Jean Paul Dan [2018] HKCFI 1022 at §§24 to 26 and Gee on Commercial Injunctions (7^th ed)  at [8-002].

(2)  The judge erred (at [63])  in considering the irrelevant consideration whether a tactical advantage was obtained by CEG;

(3)  The judge erred in failing to find there was material misrepresentation and non-disclosure, in particular:

(a)  Material misrepresentation by CEG as to its unformulated case which originally involved allegations of fraud and misappropriation;

(b)  Material misrepresentation involving Xia’s lack of direct involvement in the drawing up of CEG’s financial statements and his exclusion from the Hengda group properties businesses; and

(c)  CEG’s unwillingness to disclose whether or not CEG would be able to honour its undertaking in damages as a company in liquidation.

(4)  Specifically, in respect of the material misrepresentation in relation to Xia’s role in the CEG financial statements and the Hengda group properties businesses, these were material facts required to be disclosed, citing Re Copyright Ltd [2004] 2 HKLRD 113 at §33 and Miu Hon Kit & Ors v The Stock Exchange of Hong Kong Ltd [2020] HKCFI 675 at §76.

(5)  The judge failed to consider the standard consequences of advancing an ex parte case with material misrepresentation and non-disclosure;

(6)  The judge’s conclusion at [76] to [77] regarding the lack of materiality of Xia’s non-involvement in the Audit or Remuneration Committees of CEG and his non-involvement in Hengda’s bond issuance to CEG’s case was erroneous.

63.  Mr Manzoni, SC, on behalf of CEG, submits the following:

(1)  For a start, this ground of appeal does not deal with the judge’s statement at all at [68] that, even had he thought there was procedural error that should lead to the setting aside of the ex parte order, the judge in the overall exercise of his discretion would have nevertheless re-imposed a fresh injunction order.  This would conclusively dispose of this ground of appeal.

(2)  In any event, there was no ex parte abuse of process, as the judge concluded that CEG was justified in making the application ex parte because of its concern regarding the early completion of the Pavilia Hill Property sale, and the risk of tipping off.  The judge applied the correct principles, and an ex parte application is appropriate where there was a risk that prior notice would defeat the purpose of the injunction or where there was no time to give notice.

(3)  The judge did not base his finding on the absence of tactical advantage on the part of CEG, this was only an additional surrounding factor.

(4)  In relation to the allegations of material non-disclosure, the judge has correctly concluded that the Injunction Order is unaffected by any material non-disclosure.  The Decision has set out in great detail each of the points that Xia now seeks to re-argue, and Mr Barlow has failed to identify any error in the judge’s reasoning.  The judge further held that had he found any non-disclosure as advanced, it would not have warranted discharge of the Injunction Order (at [83]). 

64.  We agree with Mr Manzoni’s submissions.

65.  We agree that, Xia having failed to challenge:

(1)  the judge’s decision at [68] that he would have re-imposed a fresh injunction order in any event in his exercise of discretion in the event that the ex parte order is set aside for procedural error; and

(2)  the judge’s decision at [83] that in the event there was material non-disclosure, he would have found them to have been insubstantial or de minimis, and would not have set aside the Injunction Order in the circumstances,

the discussion under this ground is in effect academic, and must fail for this reason alone.

66.  We will nonetheless deal with the points raised by Mr Barlow below.

The complaint of lack of notice

67.  On the complaint of lack of notice, reading [62] of the Decision against the context of [62] to [67], we do not consider that the judge has decided there was no justification for the application to be taken out ex parte.  While the judge observed at [62] there was great force in the submission that CEG should have given notice to Xia prior to the ex parte hearing, however informal or short, the judge continued his analysis at [62] to [66] to arrive at the view in [67] that, on balance, the ex parte application was not so procedurally compromised on the basis of various considerations, including CEG’s concerns regarding the early completion of the Pavilia Hill Property sale and the possibility of the proceeds of sale being moved at once (at [64]), and the focus on the particular asset in Hong Kong which brought the application closer to the usual Mareva injunction applications typically appropriately sought on an ex parte basis (at [65]).  We reject Mr Barlow’s premise that the judge had concluded at [62] that no justification was found for the ex parte application.

68.  What was said in Nico Constantijn Antonius Samara v Stive Jean Paul Dan at §§24 to 26 must be understood in the context of that case, which is very different from the present situation where there was possibility that proceeds of sale of a very substantial amount might be moved at once, and hence there was risk that if prior notice were to be given this would defeat the purpose of the injunction (Gee on Commercial Injunctions at [8.001]).

The complaint of material non-disclosure and misrepresentation

69.  On the complaint of material non-disclosure and misrepresentation, we agree with Mr Manzoni that the judge has already dealt with the arguments put forward by Mr Barlow, supported by detailed reasons.

70.  As to the nature of cause of action and CEG’s formulation of claim against Xia:

(1)  As already dealt with in relation to the first ground, at [86] to [87], [89] to [92] and [163], the judge gave his reasons for being satisfied that CEG’s claim was sufficiently formulated and particularised for the purposes of a good arguable case.  At [163], he rejected Xia’s complaint that CEG changed its case since the ex parte hearing.

(2)  At [74], the judge already considered the fact that CEG’s auditors PWC issued a clean unqualified audit report was not a material consideration, working on the basis that published financial statements of listed companies would have clean audit opinion, and that despite such opinion, the Five Misstatements were not identified, and Xia’s duties in respect of the CFSs remained.

(3)  At [76], the judge already dealt with Xia’s complaint that CEG did not disclose alleged matters relevant to Xia’s duties including the fact that he was not a member of the Remuneration Committee; his lack of involvement in the Hengda business; and his lack of direct involvement in the preparation of financial accounts of Hengda.  The judge considered that the crux of CEG’s case was in relation to Xia’s duties as a director, and thus his lack of actual or physical involvement in the drawing up of CFSs or his non-involvement in the Audit or Remuneration Committees were not materially to the point, as his duties remained engaged.

(4)  At [81], the judge dealt with Xia’s complaint that CEG ought to have disclosed information regarding CEG’s financial ability to meet its undertaking as to damages.  The judge found there was no injustice as CEG still had substantial realisable value despite being insolvent, and Xia did not seek orders requiring fortification nor did he demonstrate a need for the same.

(5)  At [121] to [130], the judge dealt with Xia’s argument that he disregarded Xia’s particular circumstances of being too high up to be directly involved in the preparation of the CFSs, including the financial statements of Hengda.  In particular, the judge considered this was an incorrect description of the evidence, and that Xia was involved and had oversight of the financial affairs of CEG, and, in any event, Xia still had duties as a director to ensure with reasonable skill, care and diligence that the CFSs were properly prepared and accurate.

71.  These findings were supported by clear reasons. Mr Barlow was unable to point to and we do not identify any flaw in the logic or in the judge’s consideration of various factors in the exercise of his discretion.  The judge is entitled to arrive at his conclusions based on the evidence before him.

72.  We do not accept Mr Barlow’s point that CEG has materially misrepresented the nature of its case from one of “fraud and misappropriation” initially to a case involving negligent breach of director’s duty of care.  We do not consider this is supported by the papers before us.

73.  We also do not accept Mr Barlow’s contention that the judge applied a wrong test or was erroneous in his reasoning at [76] to [77] in rejecting the materiality of Xia’s non-involvement in the Audit or Remuneration Committees of CEG and in Hengda’s businesses.  The judge was entitled to consider that such matters did not meet the relevant legal materiality threshold.

74.  As to Mr Barlow’s complaint that the judge failed to consider the standard consequences of non-disclosure or misrepresentation, we do not see the need for the judge to consider such consequences in light of his findings that there was no material non-disclosure or misrepresentation.

75.  We therefore consider there is also no reasonable prospect of success in respect of this ground.

F.3.   The Inter Partes Good Arguable Case Ground

76.  Under this ground, Mr Barlow submits that, having accepted that Xia played no part in the preparation of CEG’s 2017 to 2022 financial statements, the judge clearly erred in law in accepting CEG’s argument that its case of negligent breach of Xia’s duty of care is subject to strict liability, and thus liable for errors in CEG’s financial statements or dividend distributions based on them.  In particular, Mr Barlow argues:

(1)  In considering directors’ duties under section 379 of the Companies Ordinance, the judge failed to take into account sections 379(4)  and (6), namely, directors’ entitlement to delegate in respect of directors’ duty to prepare financial statements.  Similarly, in considering section 380, the judge failed to take into account section 380(4), namely, that it is a requirement that financial statements must comply with accounting standards applicable to the financial statements.

(2)  The judge misstated the law at [129] and [132] to [133] by confusing directors’ obligations in respect of annual financial statements with directors’ obligations in relation to dividend distributions;

(3)  Thus the judge failed to apply the statutory objective standards regarding the financial statements and dividend distribution, citing Palmer’s Company Law, vol 3 at [9.180] that compliance with the “true and fair view” requirement should be sufficiently shown by adherence to normal accounting practice, and sections 291, 297, 302 and 304 of the Companies Ordinance in relation to dividend distributions;

(4)  The judge erred in accepting CEG’s assertion that there had been a “reversal of RMB 664 billion of 2017 to 2020 revenue”, when this was factually incorrect.

77.  Mr Manzoni submits that the argument that the judge misstated the law concerning the statutory responsibility of company directors was not raised below at the hearing of the Discharge Summons, and should not be permitted, as they are highly fact-sensitive and should not be permitted to be taken for the first time on appeal, citing LehmanBrown Limited v Union Trade Holdings Inc & Ors, HCMP 977/2015, 17 June 2015, at §10.  He also submits that in any event these points do not affect the “good arguable case” finding of the judge.

78.  It does not seem to us that the new arguments put forward by Mr Barlow are highly fact-sensitive, nor do we think it would be prejudicial to the parties to consider them.  We will therefore deal with them.

79.  As to Mr Barlow’s complaint that the judge misstated or confused the law:

(1)  We do not consider that the judge erred in his consideration of the applicable legal principles.  In [124] to [128], the judge summarised the legal principles regarding directors’ duties to exercise reasonable skill, care and diligence when preparing financial statements of companies, including the common law duty of care, and with reference to statutory duties under sections 379 and 380 of the Ordinance.  Mr Barlow has not been able to point to any part of this summary of legal principles as incorrect.

(2)  While the judge did not expressly spell out section 379(4)  and (6)  at [126], he clearly considered the directors’ right to delegate duties in respect of the directors’ duties to exercise reasonable skill, care and diligence in the Decision, in that the exercise of the power of delegation does not absolve a director from his common law and statutory duties (at [124] and [128]).

(3)  We do not consider that the judge misstated or confused the law at [129] and [132] to [133].  We do not read the Decision as either effectively applying strict liability in respect of Xia’s duties in relation to the preparation of financial statements, or as confusing directors’ obligations between their obligations in the provision of annual financial statements and the obligations regarding the dividend distributions.

80.  As to Mr Barlow’s complaint that the judge ought to have applied the statutory objective standards regarding the financial statements and dividend distribution when considering CEG’s case against Xia:

(1)  Mr Barlow has not been able to identify any authorities directly in support of his proposition.  He was also unable to challenge the line of authorities summarised by the judge at [124] to [128], regarding the duties of Xia as director in respect of the preparation of financial statements.  As discussed above, he has also failed to successfully challenge the judge’s consideration at [131] to [133] that there was at least persuasive authority that there was strict liability in respect of payment of dividends. 

(2)  It seems to us that Xia’s reliance on CEG’s adherence of statutory objective standards presupposes that the financial statements represent a true and fair view and were not materially misstated.  The judge has found, on the basis of materials before him, including his acceptance of the liquidators’ identification of the Five Misstatements, that the financial statements did not represent a true and fair view and were materially misstated for the reasons advanced.

81.  Thus, we do not consider that this point assists Xia any further to challenge the judge’s finding of a good arguable case.  The judge rejected this point for similar reasons in [40] of the Leave Decision, see also his further discussion at [41] to [42].  We agree with him whether the director’s duty has been met in the particular circumstances is ultimately a matter for trial, and an argument to the contrary does not mean there is no good arguable case.

82.  In relation to Mr Barlow’s complaint that the judge erred in accepting CEG’s case there had been a “reversal of RMB 664 billion of 2017 to 2020 revenue”, the judge was entitled to accept the submissions of CEG regarding the liquidators’ findings of the Five Misstatements.  There was no misunderstanding of the evidence submitted by CEG. It is not appropriate to re-argue points of evidence at the leave application stage and we dismiss this point entirely.

83.  We therefore consider there is no reasonable prospect of success in relation to this ground.

G.  Conclusion

84.  As none of the intended grounds of appeal meet the threshold of reasonable prospect of success, we refuse to grant leave to appeal against the Decision and dismiss this leave application.

85.  We make a direction under Order 59 rule 2A(8)  that no party may under rule 2A(7)  request the determination to be reconsidered at an oral hearing inter partes, as we consider the intended grounds of appeal wholly without merit.

86.  Costs of the application should follow the event. It is appropriate to assess costs summarily.

87.  We consider the costs incurred by CEG at $254,456 as set out in the statement of costs submitted by its solicitors for summary assessment entirely reasonable and should be allowed in full.

88.  The costs order we make and the summary assessment are in the nature of orders nisi.  If there is no application for variation within 14 days of the handing down of this judgment, the orders will be made absolute.