THE NATIONAL TRUST LTD v. TAHOE INVESTMENT GROUP CO., LTD AND OTHERS

HCMP 2301/2020

[2021] HKCFI 2617

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2301 OF 2020

________________________

________________________

________________________

________________________

DECISION

________________________

The application

1.  This is the hearing of the summons of 19 February 2021 (the “Summons”)  taken out by the 2^nd and 3^rd defendants (“D2” or “Everwin”, and “D3” or “Thaihot”)  for security for costs against the plaintiff (“P”).  The application is made pursuant to Order 23, rule 1(1)(a), on the basis that P is ordinarily resident out of the jurisdiction.

2.  There are 3 defendants to these proceedings (“Ds”).  But in relation to this Summons, only P, D2 and D3 are involved.

3.  Mr Benjamin Yu SC leading Mr Peter Dong appear for D2 and D3. Mr Martin Wong appears for P.

The parties, and the corporate / asset holding structure

4.  I attach to the judgment as Annex 1 the corporate and assets holding structure of various parties and entities involved.  It is reproduced from §11 of the 1^st affirmation of Bai Yongliang filed on P’s behalf on 16 February 2021 (“Bai”, and “Bai 1^st”).

5.  P is a trust financial institution formed and licensed to conduct business under Mainland laws.  Its headquarters are in Beijing.  There is no evidence that it has any presence in Hong Kong.

6.  D1 is a Mainland company.  It is a substantial shareholder of Tahoe Group Co., Ltd (“Tahoe Group” or the “ListCo”), a Mainland company listed on the Shenzhen Stock Exchange.

7.  D2 is a Hong Kong company.

8.  D3 is a Bermudan company.

9.  As shown on Annex 1, D1 through D2, and D2 through D3, indirectly or directly own, in the percentage specified in Annex 1 Tahoe Life Insurance Company Limited (a Bermudan company, “Tahoe Life”), Tahoe Life Insurance Company (Macau)  Limited (a Macau company, “Tahoe Macau”)  and Tahoe Insurance Services Limited (a Hong Kong company, “Tahoe Services”, and together with Tahoe Life and Tahoe Macau, the “Tahoe Insurance Entities”).

The proceedings the costs of which security is being sought

10.  In February 2017, P and D1 entered into a loan agreement for RMB 3,950,000,000 (the “Loan”, and the “Loan Agreement”).  The Loan was obtained to finance D3’s acquisition of the Tahoe Insurance Entities.

11.  The principal sum of the Loan was provided by Evergrowing Bank Co. Ltd (“Hengfung Bank”).

12.  Related to the Loan Agreement were a number of security documents between the parties:

(a)  Two share pledge agreements separately between P and Huang Min and Huang Qisen in relation to their shares in D1;

(b)  A personal guarantee by Huang Qisen for D1’s liabilities under the Loan Agreement;

(c)  The undertakings which D2[1] and D3[2] each provided to inter alios P (the “Undertakings”).

13.  P subsequently claimed that certain events of default of the Loan Agreement had been triggered, and that the Loan had become immediately due and payable.

14.  On 14 April 2020, P commenced legal proceedings against D1, D2, D3, Huang Min and Huang Qisen at the Beijing Forth Intermediate People’s Court (the “Beijing Court”, and the “Mainland Proceedings”).  P claims, according to the statement of claim filed (the “Mainland SOC”)[3]:

(a)  against D1, repayment of the balance of the Loan in the sum of RMB 2.95 billion, various types of interest, and legal costs (the 1^st to 5^th items claimed in the Mainland SOC);

(b)  against Huang Min and Huang Qisen an order that the shares held by them in D1 be sold;

(c)  against Huang Qisen, D2 and D3, an order that they “承擔連帶清償責任”[4], in that:

「 依法判令…黃其森、[D2]、[D3] 對上述第1項至第5項訴求承擔連帶清償責任。」

15.  On 17 December 2020, P took out an Originating Summons (the “OS”)  in Hong Kong.  The OS was taken out pursuant to section 21M of the High Court Ordinance.  Mareva injunctions are sought against all three defendants.  Those Mareva injunctions are sought in aid of the Mainland Proceedings.

16.  Also on 17 December 2020, P took out a summons for interim-interim Mareva injunction against Ds.  Interim-interim orders have subsequently been granted (the “Interim-interim Orders”).

17.  The substantive hearing of the OS has been fixed before this Court on 27 September 2021.

18.  It is the costs of the proceedings initiated in Hong Kong by the OS which D2 and D3 are now seeking security for.

Parties’ stances

19.  There is no dispute that P is ordinarily resident out of Hong Kong[5], it being as said a trust financial institution formed and licensed to conduct business under the laws of the Mainland. 

20.  Nor is there any dispute that P has no assets in Hong Kong[6].

21.  P opposes the application.  Mr Wong invites this Court in the circumstances of the present case to exercise its discretion against the application.  He prays in aid principally on the following matters:

(a)  P can clearly demonstrate that it has a high degree of probability of success; and

(b)  If security is ordered, the deadline for the provision of security and the date for the substantive hearing would only be 7 days apart.  He submits that the substantive hearing would hence proceed anyway, and a major objective of the provision of security defeated.

22.  Mr Yu submits that P does not have a high degree of probability of success in these proceedings.  In particular, he submits that P is at least unable to show a high degree of likelihood of success in respect of the following 4 matters:

(a)  the enforceability in Hong Kong of any judgment which P may obtain before the Beijing Court under the Mainland Judgments (Reciprocal Enforcement)  Ordinance (Cap 597)  (“MJREO”), given the absence of any “choice of Mainland court agreement” in the Undertakings;

(b)  the scope of the “連帶責任” as claimed, given the terms of the Undertakings;

(c)  risk of dissipation; and

(d)  related to the risk of dissipation, absence of any serious breach of the Interim-interim Orders.

The applicable law

23.  The law is not in dispute.

24.  In respect of a plaintiff who is ordinarily resident out of the jurisdiction with no assets within, the court would usually exercise its discretion to order security for costs to be given, in the absence of any circumstance as would make it unjust to do so — PT Graha Multimulia Cemerlang v Silver Tech Enterprise Limited, HCCW 883/2004 (unrep, 1 March 2005)  at §4.  That has been described as the “starting point” by Cheung JA in Dracco Netherlands BV v Simba Toys Gmbh & Co KG [2018] HKCA 75 at §3.8.

25.  In respect of such a plaintiff, if they want to rely on the merits of their case to resist the application, they need to show, without embarking upon a detailed analysis of the merits, that they have a high probability of success. The threshold for establishing this is “very high indeed”.  As explained by Kwan J (as the V-P then was)  in PT Graha at §6:

“ It must be borne in mind that the threshold of demonstrating the probability of success in this situation is very high indeed. As was mentioned by the court in a number of instances, the practice of going into the merits of the case in an application of this kind is to be deplored, unless it can be clearly demonstrated one way or other there is high probability of success or failure …”

To the same effects are the observations of Cheung JA in Dracco at §3.8, where His Lordship reiterated the repeated reminders by the Courts that:

“ … the practice of going into the merits of the case in an application of this kind is to be deplored, unless it can be clearly demonstrated one way or the other there is high probability of success or failure.”

26.  The present case is an application under section 21M of the High Court Ordinance for interim relief in aid of the Mainland Proceedings.  In considering whether P has any high probability of success in the application, one needs to bear in mind the observations of Lord Phillips of Worth Matravers NPJ in Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd (2016)  19 HKCFAR 586 at §§47-54 as to how such an application should be approached, that:

“ 53. In summary, in s.21M proceedings the court has first to consider whether, if the plaintiff succeeds in the primary jurisdiction the resultant judgment is one that the Hong Kong court will enforce. If the answer to that is yes, the court has to form a view, on all the available material, including any findings of the foreign court itself whether the plaintiff has a good arguable case before the foreign court and whether there is a real risk that the defendant will dissipate his assets if the Mareva is not granted.

   54.  The second stage of consideration of a s.21M application requires the court to consider whether the fact that the court has no jurisdiction apart from this section in relation to the subject matter of the proceedings concerned makes it ‘unjust’ or ‘inconvenient’ for the court to grant the application.”

Discussions

27.  I bear at the forefront of my mind that this Court is not to conduct a detailed examination of the merits of the case or make a “preliminary run”.

28.  In respect of the enforceability of any judgment which P may obtain from the Beijing Court:

(a)  The enforcement of a Mainland judgment under the MJREO is conditional upon the satisfaction of a number of requirements[7];

(b)  The judgment concerned has to be given, relevantly, by “a chosen court”[8], defined as “the court … specified in a choice of Mainland court agreement …, as the court to determine a dispute to which the agreement applies”[9];

(c)  A “choice of Mainland court agreement” is defined as “an agreement concluded by the parties to a specified contract and specifying the courts in the Mainland or any of them as the court to determine a dispute which has arisen or may arise in connection with the specified contract to the exclusion of courts of other jurisdictions.”[10];

(d)  P’s case against D2 and D3 are based on the Undertakings;

(e)  There is no dispute that the Undertakings do not contain any express “choice of Mainland court agreement”;

(f)  The Undertakings were in fact signed in Hong Kong;

(g)  Mr Wong’s submission in this regard is that the Undertakings by express terms state that they form part of, inter alia, the Loan Agreement, which has a “choice of Mainland court agreement”;

(h)  Parties have filed rival expert evidence on this point;

(i)  I am not here to rule on the matter, but I at this stage see force in the opinion rendered by the expert engaged by D2 and D3, that:

(i)  the relevant Mainland laws require an agreement in writing between parties to designate a specific People’s Court at a location which has a real connection with the dispute.  There is no such agreement in the Undertakings;

(ii)  The parties could have expressly incorporated the jurisdiction clause in the Loan Agreement into the Undertakings.  They did not; and

(iii)  The Undertakings are not a guarantee for the Loan Agreement.

29.  In respect of the meaning of “連帶責任” and the scope of D2’s and D3’s liabilities under the Undertakings:

(a)  I have considered the contents of the Undertakings;

(b)  I have considered the rival expert opinions adduced by the parties;

(c)  Clause 3 of the Undertakings is the principal undertaking in so far as this case is concerned, which provides that if D1 was unable to repay the Loan on the due date:

「 …在符合當地監管政策要求的前提下，則我司需將實際併購主體持有的100% [Tahoe Insurance Entities] 股權全部無償轉讓給恒豐銀行股份有限公司或其指定主體。」

(d)  On their face, the Undertakings are not guarantees signed by D2 and D3 in P’s favour, but only provide for (apart from other matters which we are not concerned with here)  the transfer of their shareholdings in the Tahoe Insurance Entities in default of repayment by D1;

(e)  The Undertakings contain a further clause that:

「我司如有違反以上承諾，則視為[D1] 違反《信托合同》，《信托貸款合同》及其擔保合同，由我司與[D1]承擔連帶責任。」

(f)  The operation of that further clause is on its face conditional upon D2’s and/or D3’s breach of the Undertakings, which is not P’s case before the Beijing Court;

(g)  It is pertinent to note and repeat that P is suing D2 and D3 for repayment of the balance of the Loan together with all interest and legal costs (ie the 1^st to 5^th items claimed in the Mainland SOC);

(h)  On this issue, Mr Wong submits that “a proper reading of the Undertakings is clearly that ‘ancillary liability’ (連帶責任)  arise for D2/3 when D1 is considered in breach of the Loan Agreement etc., D2/3’s breach of the Undertaking is clearly provided as just one way of causing D1 to be considered in breach and therefore just one way how D2/3’s ancillary liability can arise …; to contort it in such a way that D2/3’s breach of the Undertakings is the exclusive way giving rise to D2/3’s ancillary liability makes no sense, be it commercial or common” (original emphasis);

(i)  When making his oral submissions, Mr Wong elaborates that that deeming provision in that further clause supports his submissions, otherwise that part of the clause would have no meaning.  He submits that the Undertakings are, properly construed, full guarantees with the additional undertakings contained therein; 

(j)  Again, I am not requested at this stage to rule on the matter.  My view is that on the materials before me at this stage, Mr Wong’s aforesaid submissions involve quite a substantial stretch of the literal meanings of the terms of the Undertakings, and are not supported by the same.

30.  In my view, and on the materials before me at this stage, the above two points alone show that P does not have a high degree of probability of success in these proceedings.

31.  In the circumstances, and conscious further of the fact that the substantive hearing of the OS will take place before me on the 27 September 2021, I will not express any view on the other matters Mr Yu relies on.

Conclusion on the payment of security

32.  For the above reasons, I exercise my discretion in favour of the application, and order that P shall pay security for costs.

Quantum

33.  I next consider the question of quantum.

34.  I have been reminded that the quantum for security is a matter within the discretion of the court, and that it is not the function of the court on an application for security for costs to assume the role of a taxing master: Big Island Construction (HK)  Ltd v Wu Yi Development Co Ltd, HCA 1957/2005 (unrep, 26 October 2007)  at §§46-47.

35.  Mr Yu has placed before this Court a skeleton bill of costs.  D2 and D3 seek HK$5,116,554 in security from P up to and including the costs for the upcoming substantive hearing for the OS and the Injunction Summons.  It is submitted that given the complexity of the matters and the amount involved, the proposed security is justified.

36.  On law, Mr Wong has referred me to Aachen (Asia Pacific)  Consultants Ltd v Khoo Ee Liam, HCA 4354/2003 (unrep, 2 June 2011)  which I have considered.

37.  On facts, Mr Wong has raised the following:

(a)  D2 has previously prepared a skeleton bill which estimated the costs, up to the substantial hearing, at HK$3, 010,000.  The amount grew upon the defendants’ change of legal teams;

(b)  The application is not complicated;

(c)  The case of D2 and D3 can adequately be conducted by a senior junior; and

(d)  HK$1.5 million should be sufficient as security.

38.  The application, whilst not the most complex of its kind, involves some complications.  But more importantly in my mind, given the amount of money involved, I am of the view that D2 and D3 are justified in engaging a senior counsel.

39.  However, for an application of this nature, even given my view that the case involves some complications, despite the amount involved, and taking into account questions of proportionality, I am of the view that the security in excess of HK$5 million as being sought is far too high.

40.  Further, as I have raised with Mr Yu in the course of the hearing, even if P is unsuccessful in the substantive hearing, and unless costs are to be ordered to be assessed on any enhanced basis, there being no such request having been indicated at this stage, P’s costs liability is not going to be the full amount as estimated in the skeleton bill of costs.

41.  I am of the view that security for costs up to the substantive hearing in the sum of HK$3 million is proportional, fair and appropriate.

Disposition

42.  For the above reasons, I allow the application.  Having heard parties further, I make an Order in terms of the Summons, except that:

(a)  in respect of §1:

(i)  bearing in mind the hearing date of 27 September 2021, and upon Mr Yu’s invitation, I order that the security should be paid within 21 days;

(ii)  the amount of the security should be HK$3 million and the words “(or such other sum as this Honourable Court thinks fit)” be deleted;

(b)  In respect of §2, the mode of payment is a payment into Court, and the words “or such other form as approved by the Court” be deleted;

(c)  §3 in relation to a stay pending payment be deleted; and

(d)  §5 will simply provide that there be liberty to apply.

43.  In respect of costs, and having heard parties, I order that costs of and occasioned by the Summons be paid by P to D2 and D3, to be taxed if not agreed, with certificate for senior counsel.

Summons to file further evidence

44.  Before me also is a summons taken out by P on 18 August 2021 for leave to file the 4^th affirmation of Bai (“Bai 4^th”).

45.  Bai 4^th is proposed to be filed in support of the OS.

46.  The gist of Bai 4^th may be set out as follows:

(a)  He says that at §4 thereof that:

“ [P’s] solicitors have been closely monitoring the media reports regarding the Thaihot entities … I am advised and verily believe that since the date of my third affirmation … the financial condition of the ListCo … has further significantly deteriorated and there are negative news regarding Huang Qisen and Huang Min ... I would like to draw this Court’s attention specifically to the following media reports …”

(b)  He then highlights certain media reports and announcements by the ListCo;

(c)  He does not claim to have any personal knowledge on the contents of those media reports;

(d)  Then he avers at §5 that:

“ In view of the above and for reasons of matters stated in my previous affirmations, [P] continue to strongly apprehend that there is a real risk that unless the [Ds] are properly restrained, they may take steps to dispose of the off-shore assets …”

47.  The exhibits proposed to be produced comprise 12 items, 9 of which being media reports, 2 being announcements by the ListCo, and 1 being information on the latest closing price of the ListCo shares as at 17 August 2021.

48.  Mr Wong submits that Bai 4^th seeks to supply the Court with further and updated information on the “continuing deterioration of the financial condition of the ListCo”, that those matters are clearly relevant, and that there can be no prejudice to Ds.  

49.  D2 and D3 oppose the application. 

50.  Relying on Wise Union Industries Ltd v Hong Kong Science and  Technology Parks Corporation, HCAL 12  &  13/2009 (unrep, 21 September 2009)  at §§2 and 9, Mr Yu submits that a late application to introduce new evidence has a fairly high threshold to pass. 

51.  I agree.

52.  But it is material to note that all the documents which P seeks to introduce via Bai 4^th came into existence recently, and all post-date the filing of the 3^rd affirmation of Bai.  Subject to relevance and the provision of time to Ds for reply, that may justify the grant of leave.

53.  Much more important in my mind are however Mr Yu’s substantive objections, that unsubstantiated media reports based on rumours and speculation do not come close to the solid evidence required to establish a Mareva injunction, that the media reports concern personal allegations against Huang Qisen, the relevance of which is not explained and the truth not substantiated, and that if leave is granted, Ds would need time to respond, which will be prejudiced given the tight timeframe.

54.  I have in the course of the hearing canvassed with Mr Yu and Mr Wong the nature of the proposed new documents as analyzed above.  In the end, Mr Wong informs this court that P would update the draft Bai 4^th so that it would only contain certain formal parts (§§1-3 and 6), and as exhibits only the two public announcements and the information on the closing price of the ListCo as at 17 August 2021.

55.  On that basis, Mr Yu only seeks 14 days for D2 and D3 to reply if so advised.

56.  I allow P’s application to the above extent.

57.  Given the approaching substantive hearing, I agree with counsel that the costs of this summons should be reserved.  I so order.

Annex 1

Simplified Chart showing the ownership and corporate structure between the Defendants