ZHI CHARLES v. LIM HOSOK AND OTHERS

HCA 160/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 160 OF 2015

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D E C I S I O N
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1. I have an application for injunction before me which originated from an ex parte summons which went before Chung J on 30 January 2015. The learned judge adjourned the matter to a date to be fixed for 30 minutes and told the plaintiff to serve the application on the defendants.

2. Since then, the plaintiff has on 30 January filed a summons on an inter partes basis.  Mr Kwok who appears for the 6^th defendant today has told me, however, that his client has not been served with any of the affirmations filed by the plaintiff.  There are in fact three, according to the court file, which are dated 26 January, a second affirmation also dated 26 January and a third affirmation dated 29 January.  Moreover, the plaintiff has not appeared at 9:30 am this morning, the appointed time for his own summons, or even now, at 9:55 am.  For this reason alone, I would dismiss the summons.  But I should perhaps explain my decision a little further.

3. The writ in this action complains of a number of matters.  First, according to the writ, the plaintiff was and is a shareholder of the 6^th defendant, a listed company in Hong Kong.  The 3^rd defendant, a company owned by the 2^nd defendant, bought certain interests in a Russian coal mine for US$15m, of which only US$2m had been paid, and sold the interests to the 6^th defendant for a total consideration of US$728m, payable by 3 sets of convertible notes.  All this could be achieved, the plaintiff says, because the 1^st defendant, who was the 6^th defendant’s chairman at the time, was in fact the 2^nd defendant’s agent or collaborator.

4. The 4^th defendant, a coal mining consultants firm, had produced a misleading report, according to the plaintiff, which enabled the acquisition of the coal mine by the 6^th defendant to be approved by its shareholders as a very substantial acquisition.

5. US$35m of the first set of convertible notes were surrendered and replaced by promissory notes of the same amount.  Of these notes, US$9.2m are outstanding with a maturity date of 25 May 2015.  The coal mine, it is alleged, was not developed and is now left abandoned.  The conditions for the issue of the third set of convertible notes by the 6^th defendant to the 3^rd defendant had lapsed, but the 6^th defendant had wrongfully obtained a technical report from the 5^th defendant confirming the available coal reserves in Lot 2 of the coal mine.

6. Another allegation raised in the writ is a promissory note no. 7 in the sum of US$2m made by the 6^th defendant payable to the 3^rd defendant or its order.  The plaintiff’s case is that promissory note no. 7 was pledged or charged to his father-in-law, Mr Hyon, who was a creditor of the 2^nd defendant, as security for repayment of a loan of KRW2 billion (about HK$14m).  The 1^st defendant was the person who delivered promissory note no. 7 to Mr Hyon for this purpose. However, the 1^st defendant has since said, in other proceedings, that the note delivered to Mr Hyon was not the original promissory note no. 7.  The original could not be found at the time and the 1^st defendant reprinted a copy, signed and stamped it with the 6^th defendant’s chop and delivered it to Mr Hyon.

7. The plaintiff’s case seems to be that, if what the 1^st defendant said is correct and the promissory note delivered to Mr Hyon was not in truth promissory note no. 7, then the 1^st defendant created and gave Mr Hyon a “false instrument”.  The 1^st defendant has also said that promissory note no. 7 has since been cancelled and replaced with two promissory notes numbered 29 and 30 respectively.

8. The third major matter alleged in the writ is that the 2^nd defendant had promised the plaintiff that US$8m of the convertible notes issued by the 6^th defendant would be given to the plaintiff.  The plaintiff relies on a letter signed by the 2^nd defendant addressed to the plaintiff’s wife stating that the 3^rd defendant would grant a total of US$7.4m of the 6^th defendant’s convertible notes to her (being US$1.9m of the first set and US$5.5m of the third set).  Wrongfully, however, all the convertible notes in the first set had been converted and sold by the 3^rd defendant.

9. Based on these allegations in the writ, the inter partes summons dated 30 January 2015 seeks the following injunctions:

(1)  The 6^th defendant be restrained from engaging in any activity to renew, reinstate or replace the expired licences of Lot 1 of the mine;

(2)  the 6^th defendant be restrained from engaging in any activity to enhance, supplement, amend or reproduce any of the work done by the 5^th defendant on Lot 2 of the mine; and

(3)  the 6^th defendant be restrained from amending the terms of the promissory notes due on 25 May 2015.

10. So far as the first two injunctions are concerned, I can discern no conceivable legal basis for the application.  The plaintiff is a shareholder of the company.  The plaintiff does not seek any order against the 6^th defendant in the writ.  Whether or not the mining licences should be renewed is a matter for the management of the company.  As a shareholder, the plaintiff has no direct cause of action against the defendants with regard to the renewal of the mining licences.

11. The same applies to the technical report done by the 5^th defendant on Lot 2 of the coal mine.  Whether the report should be amended or enhanced is a matter between the 6^th defendant and the 5^th defendant as the consultant, and a matter for the management of the 6^th defendant.  A shareholder has no cause of action against either the 6^th defendant or the 5^th defendant to restrain them from doing any work in relation to the technical report on Lot 2 of the coal mine.

12. As for the third injunction sought, I presume the reference to the promissory note due on 25 May 2015 is to promissory note no. 7 or its replacement.  I have to say there is something odd in that the 1^st defendant – the 6^th defendant’s chairman at the time – should have printed out a copy of promissory note no. 7, signed it, stamped it with the company chop, and delivered it to Mr Hyon, and yet he and the 6^th defendant should now be heard to deny that that document is the promissory note.

13. Still, there are difficulties with the application for injunction.  First, the cause of action, if any, relating to promissory note no. 7 is vested in Mr Hyon, not the plaintiff.  The plaintiff has no locus standi to make any complaint in this regard.

14. Secondly, if the plaintiff’s version of fact is true, then it may be argued – I need put it no higher than that – that there was, to the knowledge of the 6^th defendant, an equitable charge of promissory note no. 7 in favour of Mr Hyon.  If so, it is doubtful if any cancellation or alteration of promissory note no. 7 without the consent of Mr Hyon would be valid and effective as against him.

15. Thirdly, the promissory note delivered by the 1^st defendant to Mr Hyon appears still to be in the possession of Mr Hyon.  If the plaintiff is right that that note is to be regarded as the true promissory note no. 7, then the note is not in the possession of the 6^th defendant. On this basis, I cannot see how that note can be unilaterally altered by the 6^th defendant or the 3^rd defendant. 

16. For these reasons also, I consider that the summons should be dismissed.

17. Mr Kwok also invited the court to exercise its jurisdiction of its own motion to strike out the part of the writ relating to promissory note no. 7 on the ground that the plaintiff has no standing to sue, and also the part relating to the alleged “theft” of US$7.4m of the 6^th defendant’s convertible notes on the ground that, on the plaintiff’s own case, the proper person to pursue the claim is his wife, rather than the plaintiff himself. However, these are defects that are potentially curable by the joinder of additional persons as plaintiffs  And for this reason, I decline to make any strike-out order of the court’s own motion, especially since the plaintiff has not been given much notice of this suggestion and is not present in court today.

18. The summons will therefore be dismissed with costs forthwith to the 6^th defendant to be taxed if not agreed.