PIONEER IRON AND STEEL GROUP CO LTD (IN LIQUIDATION IN THE BVI) v. CHEN NINGNING AND OTHERS

HCMP 1827/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1827 OF 2013

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BETWEEN

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J U D G M E N T

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Hon Kwan JA (giving the Judgment of the Court):

1.  On 18 July 2103, the plaintiff applied ex parte to Anthony Chan J for an order to appoint an interim receiver to Pioneer Metals Co Ltd, the 6^th defendant herein, and its assets.  The plaintiff, acting by its liquidators appointed in the BVI, brought an action to recover a substantial holding of shares of about 70% in the 6^th defendant (“the PMC Shares”).  The plaintiff asserts a beneficial interest over the PMC Shares by virtue of two declarations of trust made in October 2003.  It is alleged that the subsequent declarations of trust purportedly executed in April 2007 and the share transfers between August 2008 and May 2010 were done in breach of trust, or were voidable dispositions with intent to defraud creditors.

2.  The judge refused to make an ex parte order for two main reasons.  Firstly, he was not satisfied there is sufficient urgency to justify what is admittedly an intrusive and expensive order for an interim receiver on an ex parte basis. He took the view that the plaintiff should issue an inter partes summons to seek interim relief.  Secondly, he was not satisfied that damages would not be a sufficient remedy for the plaintiff. He expressed the view there is nothing unique in the PMC Shares claimed by the plaintiff in that damages should provide sufficient remedy for the plaintiff and on the evidence Chen Ningning (“Madam Chen”; the 1^st defendant herein and the primary protagonist who allegedly controlled the corporate defendants) is apparently of considerable wealth.

3.  The plaintiff renewed its application for an ex parte order to this court, pursuant to Order 59 rule 14(3), which provides that “where an ex parte application has been refused by the court below, an application for a similar purpose may be made to the Court of Appeal ex parte within 7 days after the date of the refusal.”

4.  Mr Carolan, who appeared with Ms Rachel Lam in this hearing, adopted the written submission of Mr Manzoni, SC that was placed before the judge, with just a few additions, to emphasise the point that the plaintiff is pursuing a proprietary claim to the PMC Shares, to beef up the plaintiff’s submissions on the need for an ex parte interim order to preserve the status quo, and to meet the argument that there is no risk of dissipation of assets in that Madam Chen must be aware of the liquidators’ interest in the PMC Shares as she was questioned about them in her examination by the liquidators in 2012.  We have read the transcript of the hearing before the judge and noted Mr Manzoni’s oral submissions before him.

5.  We are persuaded by the submissions on the plaintiff’s behalf that it is appropriate in all the circumstances to appoint an interim receiver on an ex parte basis.

6.  As Mr Carolan has put it succinctly, the justification for the ex parte application is not so much urgency but the need for confidentiality.  On the materials placed before us, we are satisfied it is right to grant interim relief to preserve the status quo so as to ensure that the battle, when it is fought in the inter partes stage, would be worth having, as Mr Manzoni had submitted before the judge.

7.  As for the adequacy of damages, we are inclined to agree with Mr Carolan that although Madam Chen is apparently of considerable wealth, it is right to take into account that the known assets which the liquidators have been able to identify as being held by her and/or parties associated with her are assets in the PRC.  The liquidators might well encounter difficulties in tracing assets and pursuing enforcement action in the PRC and the plaintiff might not be adequately compensated in damages as a result.  We also accept the submission that as the underlying assets of the PMC Shares are substantial share holdings in two companies, there ought to be a premium attached to the value of these share holdings which may not be easily quantifiable.  Last but not least, it is pertinent to bear in mind that the plaintiff is pursuing a proprietary claim in respect of the PMC Shares.

8.  We approve the draft order for the appointment of an interim receiver, with the amendments indicated by us, which relate to the terms of the plaintiff’s undertaking and its fortification, the powers of the receiver and the costs of the application before us.

9.  Our ex parte order for the appointment of an interim receiver is to continue until the hearing of the plaintiff’s inter partes summons for interim relief before a companies judge.

10.  We would mention that under Order 59 rule 14(3B), a party on whom a notice under rule 14(3A) has been served (thereby giving notice that an ex parte order is made by the Court of Appeal) is entitled, within 7 days after service of the notice, to apply to the Court of Appeal to have the order granting the application reconsidered inter partes in open court.  We wish to make clear that in the event an application is taken out under rule 14(3B), the issue before this court is not whether we ought to appoint an interim receiver as if we were hearing an inter partes summons for interlocutory relief.  That summons is to be heard by the Court of First Instance.  Order 59 rule 14(4) provides that wherever under these rules an application may be made either to the court below or to the Court of Appeal, it shall not be made in the first instance to the Court of Appeal, except where there are special circumstances which make it impossible or impracticable to apply to the court below.

11.  The role of the appeal court in an application under rule 14(3B) is restricted to a re-consideration of the order granted by this court in the ex parte application – whether it is appropriate to grant relief on ex parte basis, and whether the terms of the order made are appropriate.  The order of the appeal court is purely to preserve the status quo pending the determination of the inter partes application by the court below.  This court should not and would not be concerned with any grounds of opposition on the basis it is inappropriate to grant interim relief at all, whether the application be made ex parte or inter partes.  That is a matter for the court below in the hearing of the inter partes summons.