SIBERIAN MINING GROUP CO LTD v. DAILY LOYAL LTD

HCMP 2169/2019

[2020] HKCFI 138

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2169 OF 2019

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R U L I N G

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1.  As I shall explain, the only matter arising for decision today relates to costs. I should, however, refer to the background of the matter.

2.  The plaintiff, Siberian Mining Group Company Limited, filed an originating summons against the defendant, Daily Loyal Limited, on 22 November 2019.  The dispute between the parties is complex and the subject of three other sets of proceedings to which they, along with two other companies, are each a party.  In short, it relates to convertible loan notes issued pursuant to a note instrument dated 3 April 2013.

3.  In May 2015, approximately US$400 million of the notes were transferred to the defendant.  The present dispute specifically concerns the proposed placement of shares to an investor representing about 16.67 per cent of the plaintiff’s issued share capital.  This was announced in September 2019 and was pursuant to a conditional agreement dated 27 September 2019.

4.  The defendant maintains that such an issue cannot be made without its consent as noteholder under clause 10.1(f) of the note instrument.  It says that this would dilute its holding, should it have to convert at all, which is in dispute.  It has accordingly withheld its consent.

5.  The plaintiff maintains that the dilution would be of minimum impact and that the defendant’s real motive is to disrupt the plaintiff’s operations to obtain leverage in the three actions.

6.  The originating summons claims relief in the form of declarations and orders.  There are three declarations:  first, that condition 10.1(f) does not provide the noteholder with the right to object to any proposed issuance, consolidation or subdivision of shares where (1) the maturity date has passed and/or (2) the noteholder has demanded payment from the plaintiff for the full principal amount of the convertible notes.  The second declaration is to the effect that the defendant had no right under condition 10.1(f) to object to the proposed share placement.  The third application for a declaration is in the alternative, namely that if the defendant did have a right to object to the proposed placement it unreasonably withheld its consent. The first declaration sought therefore is of general effect applying to any noteholder; the second and third apply to the defendant specifically.

7.  The plaintiff also seeks an order that the defendant be restrained from exercising its purported right under condition 10.1(f) to object to the proposed placement or any other future share restructuring in the plaintiff company.

8.  The plaintiff accepts that the order sought is, in substance, a mandatory injunction requiring the defendant to give consent.  On 26 November 2019, the plaintiff applied for an interlocutory injunction to this effect.  This was refused by Madam Justice Lisa Wong J on 29 November 2019.  The learned judge ordered the substantive hearing to come on today before myself.

9.  In the meantime, however, matters have, as the plaintiff puts it, been overtaken by events.  This is because the Hong Kong Stock Exchange informed the plaintiff on 17 December 2019 that conditional listing approval for placing the shares under the proposed placement had been granted.  In other words, the placement may now go ahead.  In fact, as announced by the Stock Exchange yesterday, it has now gone ahead.

10.  This renders these applications for an injunction entirely academic and both parties accept that it puts an end to the application for the interlocutory injunction.

11.  After discussions during the course of the proceedings this morning, both parties also accepted, clearly sensibly in my opinion, that there was no purpose in these proceedings going ahead at all. The plaintiff has therefore effectively withdrawn the originating summons.  The only live issue, as I have said, which remains is as to costs.

12.  Mr Tam for the defendant argues that it is not possible for the court to form any view as to facts, even in relation to costs because of the other proceedings which I have referred to earlier.  There is, he submits, no usual rule that there should be no order as to costs where a claim is withdrawn because it has become academic.  On the contrary, and with reference to the White Book, the default position is that upon withdrawal then costs should follow the event.

13.  He refers to the Fook Lam case, HCMP 438/2010 at paragraph 44.  He also submits that this is a case where there were always substantial disputes of fact, which meant that the case should have been begun by a writ.  In particular, the two versions of events as to whether an amendment agreement is valid or not.  In the circumstances, he submits the defendant should have its costs of the proceedings.

14.  For the plaintiff, Mr Lam SC argues that the plaintiff did not abandon the case, rather events overtook the need to pursue proceedings.  So, he submits, the court has a wide discretion.  The court can deal with the issues substantively, so as to form a view as to the merits, but the preferred course is now to take a broad brush view of the case. An important question, however, is whether it was reasonable to commence the proceedings and to try to take a view of the broad merits in that regard.  If it is not possible to take a view as to the broad merits, there should be no order as to costs.

15.  In addition to the Fook Lam case, he cites the case of C Y Foundation Group, HCMP 702/2010, a decision of Barma J as he then was.  Ultimately, he submits that the court looks at whether the application was taken out reasonably.  So the court has discretion, he submits, on the basis first that if the plaintiff had succeeded then it is entitled to its costs, or secondly, if it is not possible to say one way or the other, there should be no order as to costs.

16.  My conclusions are as follows.  The plaintiff’s case, reasonably in my view, is that it needed the inward investment resultant on the placement.  The evidence to this effect is not challenged.  I can see the force of Mr Tam’s point, but to decide either the position as to the maturity date or the position as to demand for payment would cut across hotly disputed factual issues in the other actions.  However, the plaintiff, in my view, clearly has an arguable case in relation to its claim that consent was being unreasonably withheld.  However, I am satisfied that I need not, and indeed should not, reach any conclusion in that regard.

17.  Overall, I consider that it was reasonable for the plaintiff to commence these proceedings because although the Stock Exchange could, and in the event did, reach its own independent decision, the fact of the defendant’s withholding consent was a material commercial factor in relation to the proposed placement.

18.  In my view, neither party has won or lost this case in a substantive sense.  A disputed issue has simply been resolved and become academic.  The default position does not, in those circumstances, apply.  For these reasons I am satisfied that there should be no order as to costs.  The parties should now draw up an order giving effect to these matters.