QIYANG LTD AND OTHERS v. MEI LI NEW ENERGY LTD AND OTHERS

HCA 420/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 420 OF 2011 & NO 1071 OF 2012

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AND

HCA 1071/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1071 OF 2012

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(Heard together)

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REASONS FOR JUDGMENT

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1. Two summonses came on for hearing on 1 August 2012.  The earlier in time is a summons in HCA 1071/2012 ("2012 Action") taken out by Sinopoly Battery Ltd (formerly known as Thunder Sky Battery Ltd) ("Sinopoly") on 4 July 2012 to strike out the statement of claim in the 2012 Action.  Mei Li New Energy Ltd ("Mei Li") is the plaintiff in the 2012 Action.  The second is a summons dated 7 July 2012 taken out by Mei Li in HCA 420/2011 (the "2011 Action") for leave to discontinue its counterclaim against Sinopoly.

2. At the conclusion of the hearing, I refused leave to discontinue the counterclaim and ordered that the 2012 Action be struck out with costs to Sinopoly.

3. Sinopoly is one of the plaintiffs in the 2011 Action.  Mei Li is the first defendant in that action. Mei Li filed a defence and counterclaim on 23 August 2011 which was amended on 13 March 2012.

4. Mei Li’s counterclaim against Sinopoly related to a convertible bond issued by Sinopoly on 10 February 2011.  It was for the sum of $760,751,606 ("the redemption amount") said to be repayable pursuant to a redemption notice dated 8 March 2011 issued by Sinopoly to Mei Li.

5. On 10 April 2012, Sinopoly and its co-plaintiffs filed a reply and defence to counterclaim.

6. On 18 June 2012, Mei Li’s solicitors sent a letter on Mei Li’s behalf requesting a cheque for the redemption amount, confirming that Mei Li was "ready, willing and able to deliver the [Convertible Bond] …upon receipt of a cheque for the redemption amount …"

7. In pertinent part, clause 11 of the convertible bond reads:

"…once a Redemption Notice is given, the Company shall deliver to the Bondholder at its address referred to in Condition 14 a cheque for the Redemption Amount against delivery of the Bonds (which the Bondholder is obliged to deliver to the Company upon such Redemption Notice being given) for cancellation …"

8. Logically, the summons for leave to discontinue the counterclaim should be considered first as its result could have a bearing on the summons to strike out.

9. Mr Warren Chan SC, leading counsel for Mei Li, submitted that a party is at liberty to discontinue an action and then to issue a fresh action. As stated in the judgment of Yuen JA in Sincere's Knitting Mills Ltd v Cheong Pui Fan [2005] 4 HKC 363 at § 25

"there is no objection in principle to a party seeking leave to discontinue an action with the intention of instituting a fresh action subsequently …"

10. While the principle is not doubted, Mei Li may not withdraw its counterclaim without the leave of the court. Whether leave should be granted involves the exercise of the court's discretion, having regard to all the circumstances.

11. The counterclaim and 2012 Action involve the same parties. The cause of action is also the same and arises from Sinopoly's failure to pay the redemption amount under the convertible bond. In substance, the same relief is sought. Further, the counterclaim has progressed further than the 2012 Action: Sinopoly’s reply and defence was filed in April. In those circumstances, absent good reason for bringing the 2012 Action, the court should be slow to exercise its discretion to grant leave to discontinue the counterclaim and, concomitantly, to allow the 2012 Action to proceed.

12. In the present case, it was not apparent to the court what defect existed in the counterclaim that could not be remedied by an appropriate amendment.  If it was because of the absence of a plea to the effect that Mei Li was "ready, willing and able" to deliver the bonds, plainly that could be remedied by way of amendment to the counterclaim.

13. Mr Chan explained that good reason existed for bringing the 2012 Action. He submitted that it could be argued that Mei Li’s cause of action was not complete without a prior written notice. As written notice was only given on 18 June 2012 which was several months after the filing of the counterclaim, it was not a defect that was curable by way of amendment. Mr Chan added that while it was not an argument that he considered to be correct, he could not rule out the possibility of it being raised in the future.

14. For my part, I simply do not see that clause 11 requires the bondholder to give prior written notice or that such written notice is essential for the bondholder to complete its cause of action.  I am not satisfied that good reason underpinned the bringing of the 2012 Action.

15. Quite apart from the matters mentioned in §11 above which weigh against Mei Li’s application, the 2012 Action, if permitted to go forward, will more likely than not engender yet more applications.  Such applications are bound to take up judicial time and resources and generate unnecessary costs. An example that readily comes to mind would be an application for the 2011 Action to be heard at the same time as the 2012 Action. From a case management perspective, such an outcome would be highly undesirable.

16. For all those reasons, I refused Mei Li’s application for leave to discontinue the counterclaim, but intimated to Mei Li that an application for leave to amend the counterclaim would be viewed favourably.  It followed from the refusal of leave to discontinue that the 2012 Action could no longer remain on foot. Accordingly, it was struck out.