RICH AND HONOR MANAGEMENT LTD AND OTHERS v. MING YANG CAPITAL LTD AND OTHERS

HCA 1559/2023

[2025] HKCFI 1013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1559 OF 2023

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BETWEEN

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DECISION ON COSTS

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1.  For determination on papers are

(a) the costs of the Plaintiffs’ (individually “P1” to “P5”, collectively “Ps”) summons dated 3 October 2023 applying for the continuation of the Mareva injunction granted by Recorder William Wong SC on 28 September 2023 (“the Injunction”)[1] against the 1^st, 2^nd and/or the 3^rd Defendants (respectively, “MYC”, “SP5” and “SP1”, collectively “Ds”) up to the value of US$101,449,997.23 and for various ancillary disclosures (“the Continuation Summons”); and

(b) the costs of and incidental to the consent summons dated 8 November 2024 filed by Ps and Ds (“the Consent Summons”).

2.  The Continuation Summons was heard by this Court substantively on 9 April 2024 and 8 October 2024, at the conclusion of which the decision was reserved.

3.  On 8 November 2024 and when the decision was pending, Ps and Ds filed a joint application by the Consent Summons.

4.  As reported to this Court by the joint letter of the solicitors of Ps and Ds dated 25 November 2024, the orders sought in the Consent Summons would completely dispose of Ps’ application by the Continuation Summons, save that paragraph 6 thereof was no longer pursued and there were the above costs disputes. In fact, the terms of the Consent Summons, which I will allude to, dealt with more than were asked for in the Continuation Summons.

5.  On 26 November 2024, I made an order in terms of the Consent Summons[2] with the direction, by consent, that the above costs disputes be disposed of on papers.

6.  Having considered the parties’ written submissions, I am not persuaded that either Ps or Ds should be awarded these 2 sets of costs to be paid forthwith by the other side, as each of them was contending for. I am also not persuaded that the alternative costs order contended for by Ds, namely, no order as to costs, is appropriate.

7.  I conclude that the appropriate costs orders are that (a) the costs of the Continuation Summons, including all costs reserved (if any), be Ps’ costs in the cause, with certificate for 2 counsel and (b) the costs of and incidental to the Consent Summons be costs in the cause.

Background and the parties’ respective case

8.  The background matters to Ps’ claim, in a nutshell, are as follows.

9.  MYC is a Hong Kong company licensed for Type 4 and Type 9 regulated activities by the Securities and Futures Commission. It was and is the investment manager of SP5 and SP1, both segregated portfolios of Ming Yang International Opportunities Fund SPC, an exempted company incorporated and registered as a segregated portfolio company under the laws of Cayman Islands.

10.  P1 introduced P2 to P5 to subscribe for participating shares issued by SP5 and SP1, which they did between December 2022 to June 2023 and contributed an aggregate sum of US$101,449,997.23 (“the Investment Assets”). It is undisputed that P2 and P5 are SP5’s and SP1’s only investors, in that P2 and P3 are the only investors of SP5, and in turn, SP5, P4 and P5 are the only investors of SP1.

11.  Ps’ case, hotly disputed by Ds, is that about a month before P2 to P5 began to make the said contributions, ie in around November 2022, P1 on behalf of Ps, on the one part, and MYC (then named Bestone Capital Limited) on behalf of Ds, on the other part, entered into a cooperation agreement, and then a supplemental agreement (together “the Funds Agreements”). By the Funds Agreements, it was agreed, among others, that MYC shall carry out asset allocation of its funds, including SP5 and SP1 (“the Funds”), in accordance with P1’s instructions, that the traders of MYC shall maintain close communication with Mr Lin Rongsen Johnson (“Lin”) as P1’s authorized representative, that assets invested by the Funds shall not be disposed of without P1’s prior consent, that all investment decisions and other matters for the Funds shall be subjected to Lin’s confirmation, and that the Funds shall later be transferred to a fund managed by a designated manager according to P1’s written instructions.

12.  According to Ps, in mid-September 2023, P1 was tipped off that MYC planned to misapply the Investment Assets. Ps immediately on 13 September 2023 issued redemption requests to SP5 and SP1 and reiterated that under the Funds Agreements, any transfer or dealing of the Investment Assets should be subject to prior notification to Lin.

13.  Ps then found out, and they say Ds now admit, that around HK$260 million (“the Misappropriate Funds”) was used by SP1 on 21 September 2023 to acquire the shares of Wealthking Investment Ltd (Stock Code 1140)(“the Listco”), within 30 minutes, at approximately HK$0.33 per share, which was a price substantially higher than its closing price on 19 September 2023, before the price was allegedly artificially pulled up from approximately HK$0.17 to HK$0.36 per share on 20 September 2023 by certain trading activities of Mr Liu Zhiwei (“Liu”), the 6^th Defendant herein, who was then an Executive Director, Authorized Representative and a substantial shareholder of the Listco and who was also the ex-beneficial owner of MYC.

14.  Upon discovery of these unusual trading activities, Lin immediately sent an email to Ds requesting a detailed statement of the total cash balance and asset holdings of SP5 and SP1 as of 21 September 2023, but he only received on the next day, ie. 22 September 2023, a bank statement of the bank account of SP1 purportedly showing that the Misappropriate Funds still sat in the bank account, when that bank statement in fact and misleadingly showed the balance as on 19 September 2023. Lin’s further requests to Ds to provide updated information concerning the bank balances held by SP5 and SP1 were to no avail.

15.  On 28 September 2023, Ps commenced this action and obtained the Injunction.

16.  Ps now pursue in this action the causes of action of breach of the Funds Agreements and unlawful means conspiracy by Ds and the 4^th to 6^th Defendants to injure Ps.

17.  Ds’ pleaded defences consist of, among others, (a) that the Funds Agreements were never validly executed and never came into force, and are otherwise void for illegality (b) that Ps are estopped from relying on the Funds Agreements, (c) that MYC has a discretion over investment decisions regarding SP1 under the terms of the SP1 Co-Management Agreement, and investing in the Listco in September 2023 was properly within that discretion and (d) that redemption requests are governed by the terms of Memorandum and its supplements with respect to SP5 and SP1.

18.  In respect of Ps’ allegation of SP1 purchasing shares of the Listco with the Misappropriated Funds within 30 minutes on 21 September 2023 at a substantially inflated price as compared with its closing price on 19 September 2023 and that such price was artificially raised on 20 September 2023, just one day before SP1’s said purchase (§§21 and 22 of the Amended Statement of Claim), Ds pleaded in §40 of the Defence that §21 of the Amended Statement of Claim “does not concern the Defendants and is not admitted” and in §41 of the Defence that essentially §22 of the Amended Statement of Claim is not admitted and that Ps’ pleas therein lack particulars.

The Consent Summons

19.  Ps and Ds have reached an agreement and by the Consent Summons jointly applied for an order by consent, in gist, that

(1) Notwithstanding the Injunction, SP5 and SP1 shall arrange within 30 days the transfers to P2 to P5 of the assets listed in the attached annex (“the WP Transfers”)(consisting of 17 items and which assets, as I understand it, essentially represent the Investment Assets net the Misappropriated Funds (“the Remaining Investment Assets”)), with

(a) a provision to extend time by agreement in writing;

(b) a provision, for the avoidance of doubt, that any party, including other 3^rd parties, would not be breaching the Injunction when taking part to effect the WP Transfers; and

(c) a provision that the WP Transfers “are made on a non-admission basis and without prejudice to the rights and entitlements of all parties to this action”;

(2) The monetary value of the Injunction be varied from US$101,449,997.23 to HK$260,000,000 upon the completion of the WP Transfers;

(3) Notwithstanding the Injunction, SP5 and SP1 each be permitted to use up to HK$1,000,000 from certain bank accounts solely for their ordinary and proper business expenses; and

(4) Subject to the above, the Injunction shall remain effective and be continued until further order.

The costs of the Continuation Summons

20.  Ps contended that they are entitled to the costs of the Continuation Summons and all costs reserved to be paid by Ds forthwith because they are the clear winners of the Continuation Summons and Ds conducts (a) in persistently refusing to arrange the re-transfer of the Remaining Investment Assets, but which they agreed to now by the Consent Summons and (b) seeking to re-argue the whole matter in the resumed hearing on 8 October 2024 when the clear direction of this Court was to deal specifically with the position of the Remaining Investment Assets at the resumed hearing.

21.  Ds contended that they are entitled to this set of costs to be paid by Ps forthwith, for these reasons :

(1) They submitted that the WP Transfers were acts of good faith on the parts of Ds, and were expressly made on an entirely non-admission and without prejudice basis, such that at least in respect of the Remaining Investment Assets, Ps should not be considered as a winner in respect of the Continuation Summons.

(2) Ds maintained that their position was consistent, as they have stated in their long “without prejudice” letter dated 27 February 2024 (“the Feb 27 Letter”), that Ps have been entitled to redeem their participation shares but only in accordance with the terms of the Memorandum and its supplements.

(3) Ds also attached to their submissions the written agreement entitled 「基金資产转移安排协议」signed by Lin on behalf of Ps and MYC (which formed the basis and leading to the WP Transfers)(“the Transfer Agreement”) and pointed out that the Transfer Agreement was signed by MYC on 26 September 2024, but was only signed by Lin on 9 October 2024, which was one day after the resumed hearing. Ds submitted that Ps were at fault in delaying and that but for the fault the resumed hearing could have been dispensed with and the costs not wasted.

22.  On this particular delay point raised by Ds, Ps in their Reply Submissions barely said that there was further correspondence and negotiation between the parties from 29 September 2024 to 9 October 2024, without giving any details or annexing these correspondence, in the same manner as they have annexed to their Reply Submissions the set of without prejudice correspondences exchanged between the parties from 2 February 2024 to 16 April 2024.

23.  The starting point is, as is trite, that the discretion on costs is wide and unfettered. I also readily accept as correct, not disputed by the parties, that post-Civil Justice Reform, the Court is entitled to and should look at the merits of the interlocutory injunction itself as at the time of the application to decide what should be the proper costs order for that application in all the circumstances, which do not necessarily depend on the outcome of the trial (Mendlowitz & Associates Inc v Winner International Group Ltd & Another HCA 574/2009, unrep., 14 May 2010, Au J (as he then was) at §28; and Cheung Kong Property (Business Development) Limited v Gold Brilliant Investment Limited & Another HCA 280/2021, unrep., 16 August 2021, DHCJ Abraham Chan SC). However and evidently, the learned judges in the above 2 cases did not intend to say that the costs of any interlocutory injunction application is now to be decided by making such costs to usually follow the event of the application. I understand that they meant that the merits of the interlocutory application for interim injunction should now be given more weight in exercising the discretion on costs and the Court should be more flexible and not necessarily attaching such costs to the ultimate outcome of the trial.

24.  Nest, there are two matters I want to make very clear.

25.  First, I would not be referring to, or considering, the contents of the “without prejudice” correspondence provided to me. They were all clearly marked “without prejudice” but not marked or said to be “save as to costs”. Such privilege which enables parties to negotiate freely and unhindered, especially in this case where there has been at different stages various intricate without prejudice negotiations going on, should be all the more respected and protected. In any case, having read the contents of the Feb 27 Letter, I do not think what were said or offered by Ds there is of much bearing to the costs disputes in question.

26.  Second, both sides to a degree rely on, and put their own spins on and argued over, the requests for, the negotiations concerning, and how the actual re-transfer of the Remaining Investment Assets was achieved by way of the WP Transfers and the fact that it was initially resisted but then agreed by Ds, and Ds said that they did not really resisted it and such. This Court understood that as to how to handle the Remaining Investment Assets had not been straightforward and the parties had been negotiating, and of course, if the parties were able to achieve some sort of re-transfer of the Remaining Investment Asses, there would not be a need for Ps to continue to pursue the part of the Continuation Summons regarding the Remaining Investment Assets. It was indeed due to this interplay and tension that in the late afternoon of the hearing on 9 April 2024 that this Court required Ps to state definitively their stance in respect of the coverage of the Injunction over the Remaining Investment Assets for the purpose of deciding whether a second hearing date was necessitated, which led to certain directions being made and ultimately the resumed hearing on 8 October 2024.

27.  What has happened now is that the parties are contending, for the purpose of the costs of the Continuation Summons, that the other side was one way or another at fault in the process leading to the WP Transfers such as to justify an order ordering the other side to pay this set of costs.

28.  I am not persuaded by either party that these matters concerning the negotiation for, and the ultimate transfer of the Remaining Investment Assets are as relevant as each of them would have me looked at. I do not think that the instance of the costs of the Continuation Summons is so dependent. On proper analysis, these requests and negotiations regarding the re-transfer of the Remaining Investment Assets are matters of private negotiations between the parties on the side and are not the subject matter of the Continuation Summons which concerns the Injunction enjoining their disposal and removal from Hong Kong and not any application for interim preservation order ordering Ds to transfer them to the custody of whoever.

29.  Having gotten those out of the way,

(1) I accept Ds’ contention that the WP Transfers were expressly made on a non-admission and without prejudice basis and therefore the obtaining of the WP Transfers should not be counted as a “win” for Ps. If I in any way so count it, it would have defeated the underlying basis on which Ds negotiated and agreed on the arrangement of the WP Transfers.

(2) However, I take note of the fact that Ds has been hotly contesting the Continuation Summons in its entirety in both the hearings on 9 April 2024 and 8 October 2024 and that Ps were not entitled to the grant of the Injunction altogether.

(3) By the Consent Summons, Ds agreed to and Ps thus have obtained the continuation of the Injunction over HK$260 million, which is a very substantial part of the relief Ps were applying for in the Continuation Summons and which Ds were strenuously resisting in both hearings.

30.  Thus, I accept Ps’ submission, and reject Ds’ submission otherwise, that Ps are effectively the successful party in respect of the Continuation Summons.

31.  Having so concluded, I would readily dismiss Ds’ claim, based on the afore-mentioned matters, that they are as effective losers, extraordinarily as it is clearly against established principles on costs, entitled to be awarded this set of costs as against Ps, the effective winner.

32.  Regarding the costs that were incurred after the hearing on 9 April 2024, I come to the view that it is not appropriate to fillet them out from the costs of the Continuation Summons for separate consideration because

(1) either side so asked in their written submissions;

(2) Ds continued at the resumed hearing on 8 October 2024 to resist the Continuation Summons at its entirety; and

(3) it can be said that Ds’ attempt at the resumed hearing to re-argue the whole matter again contrary to my direction should attract some disapproval; but

(4) equally, Ds’ point that there was some delay on the part of Ps to sign the Transfer Agreement earlier to avoid the resumed hearing seems to be not convincingly answered by Ps.

33.  Though Ps are the effective winner of the Continuation Summons, the following matters advocated to this Court by Ds at the hearings in my mind are rather weighty. Firstly, the reality is that the imposition of the Injunction since 28 September 2023 has effectively completely frozen the entire operation of SP5 and SP1 as their entire funds have thereby been frozen. Needless to say, it has been very draconian and understandably has put tremendous pressure on Ds, among other things, to negotiate with Ps. Secondly, it is not seriously disputed by Ps that Ds had made substantial disclosure (if not by now complete disclosure), from prior to the commencement of this action and since, of the shares and other assets purchased by using some of the Remaining Investment Assets and that Ds now have amicably and cooperatively agreed to the WP Transfers. Considering these matters, I am not prepared to view Ds’ opposition of the Continuation Summons as unreasonable or ought not to have been attempted at all or was motivated by ulterior motive.

34.  In all, I am not persuaded that I should exercise my discretion such that the instance of this set of costs should be decided without reference to the ultimately outcome after trial of the substantive disputes between the parties or that it is a case that I should visit Ds with a costs order that they pay the costs of the Continuation Summons forthwith.

35.  By reasons of all I have said above, it is evidently also inappropriate to make an order that there be no order as to costs, as Ds contended by way of an alternative.

36.  Considering all the matters alluded to above, and in my judgment, the just and appropriate costs order for this set of costs, including all costs reserved (if any), is Ps’ costs in the cause. There being no dispute that a certificate for 2 counsel is appropriate, which I think it is, I will so order too.

The costs of and incidental to the Consent Summons

37.  I do not think either party’s stance that they should be awarded this set of costs has any traction. Neither party alleged any specific fault on the part of the other side in relation to the Consent Summons justifying making the other side liable for such costs.

38.  Rather, I commend the parties for having achieved the agreement. As said, the agreed terms went beyond what was asked for in the Continuation Summons in that, among others, provisions were included to permit SP5 and SP1 to use from certain bank accounts HK$1,000,000 each for their ordinary and proper business expenses. The agreement on the WP Transfers obliviated the need for, and it seems to be was an arrangement preferred by the parties over that of, the Injunction to be continued to cover the Remaining Investment Assets.

39.  In their nature, therefore, these costs are spent to achieve agreeable interim measures regarding the assets in dispute pending the determination of the parties’ disputes. They clearly and properly should be made costs in the cause.

Disposal

40.  For the reasons expressed above, I make the costs orders set out in paragraph 7 above.

41.  As neither side wins in these costs disputes, I would order on nisi basis that there be no order as to the costs concerning these costs disputes, to be made absolute within 14 days.