ALPHA & LEADER ASSOCIATES LTD v. VICTORY MEGA TRADING LTD

CAMP 57/2024, [2024] HKCA 709

On Appeal From [2023] HKCFI 2322

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 57 OF 2024

(ON AN INTENDED APPEAL FROM HCA NO. 212 OF 2021)

________________________

________________________

________________

DECISION

________________

Hon Cheung JA (giving the Decision of the Court) :

I.  Leave to appeal

1.  This is the defendant’s application by way of summons filed on 27 March 2024 seeking leave to appeal against the decision by Deputy High Court Judge Winnie Tsui (‘Judge’) dated 15 September 2023 ([2023] HKCFI 2322) (‘Decision’).

II.  Factual background

2.  The factual background is rather complicated, as set out in detail at [20‑109] of the Decision, which we will not repeat. For the purpose of this application, we will only set out the most salient facts below. As observed by the Judge, the substantial factual disputes in this matter can only be resolved at trial when oral evidence is to be adduced and cross‑examined and the parties’ cases tested. (Decision [12])

3.  In about mid-2011, an investment opportunity arose in respect of the acquisition of certain creditors’ rights in or against Guangdong International Trust and Investment Corporation 「廣東國際信託投資公司」 (‘GITIC’) at a face value of about RMB 5.4 billion from a fund called Spinnaker. Broadly speaking, the profits to be realised from this investment opportunity, i.e. the recovery returns 「回收利潤」under the Cooperation Agreement (as defined below), would be determined by the difference between the distributions to be made by the liquidation unit of GITIC to the holders of such rights and the costs of acquisition. (Decision [15] and [40])

4.  The plaintiff, which is a Samoan company, pleads that it and Nation Field Limited (‘Nation Field’) entered into a contract entitled 「合作協議」dated 26 December 2011 (‘Cooperation Agreement’), under which the plaintiff agreed to provide services to the latter in its acquisition of the creditors’ rights in GITIC in return for 20% of the recovery returns (if the distribution proceeds were to exceed RMB 2.5 billion). (Decision [15], [45] and [58]) The defendant’s primary defence is that the party to the Cooperation Agreement is not the plaintiff, but a Hong Kong-incorporated company with the same name (which is termed ‘Alpha & Leader Hong Kong’ in the Decision). (Decision [18], [23], [34] and [70]) The defendant explains that the Cooperation Agreement was executed by Mr Ma Zhangkai 「馬章凱」 (‘Mr Ma’) on behalf of Alpha & Leader Hong Kong when he was still in the employment of Alpha & Leader Law Office, which was part of the Alpha & Leader group that would use Alpha & Leader Hong Kong to provide non‑Mainland legal services. (Decision [72‑83]) The plaintiff replies that the defendant’s defence is a recent fabrication and that Mr Ma had continued to perform the obligations under the Cooperation Agreement after he left Alpha & Leader Law Office and in his personal capacity when he had expressly referred to the ‘Alpha & Leader company that signed the Cooperation Agreement …’ as representing his own interest. (Decision [97‑101])

5.  Nation Field is a BVI company. According to the defendant and Mr u Yongde 「盧永德」 (‘Mr Lu’) (who commenced an action in HCA 1501/2017 against, inter alia, the defendant), Nation Field was beneficially owned by Mr Allan Yap 「葉 家 海」(‘Mr Yap’) (45%), Mr Lu (35%) and Mr Hong Shunyao 「洪 舜 堯」 (‘Mr Hong’) (20%). (Decision [27], [30‑31], [63])

6.  On 14 May 2012, Nation Field acquired the creditors’ rights in GITIC (including 35 direct creditors’ rights at a face value of RMB 2.4 billion) from Spinnaker (‘Spinnaker Rights’) at a price of no more than 4.75% of the face value. (Decision [17], [51-53])

7.  In about January 2017, Nation Field transferred and disposed of the 35 direct creditors’ rights to the defendant (‘the Transfer’) without the plaintiff’s knowledge or consent. The plaintiff complains that the Transfer was an asset striping exercise by Nation Field and the defendant. It claims against the defendant for, among other things: 1) conspiracy with Nation Field to injure the plaintiff by unlawful means, and 2) procuring or inducing Nation Field’s breach of the Cooperation Agreement. (Decision [16], [59] and [68]) The defendant contends that the Transfer was a genuine commercial transaction at arm’s length, and the defendant was a bona fide purchaser for value without notice. (Decision [18], [84]) According to the defendant, the GITIC rights held by Nation Field were divided into two lots, representing Mr Yap’s 45% interest and Mr Hong and Mr Lu’s 55% interest respectively. The former lot was used as security for a loan of $300 million from深圳市泰銀投資發展有限公司 to Mr Yap, which was enforced and sold to the defendant under an agreement entitled 「債權轉讓協議」on 30 December 2016 for a consideration of RMB 118 million. (Decision [59], [88-94]) The plaintiff replies that the Transfer was a sham, as confessed by Mr Hong to Mr Lu, and that the payments formed part of a series of circular fund transactions, where no consideration was in effect given by the defendant. (Decision [103-108]) The defendant has not adduced any evidence to refute the allegation regarding the circular fund transactions. (Decision [109])

8.  It is of note that regarding the Transfer, in the separate action of HCA 1501/2017, Mr Lu claims against, inter alia, Mr Hong and the defendant for conspiracy to defraud him of his beneficial interests in the creditors’ rights in GITIC held by Nation Field. (Decision [33]) Mr Lu and the defendant (among others) reached a settlement, whereby it seems the assets were returned to Mr Lu. Neither Mr Hong nor the defendant came up with any evidence to refute the fraud allegations in that action. (Decision [66]) The defendant argues that HCA 1501/2017 was commenced by Mr Lu who had misunderstood the arrangement, under which the other lot representing Mr Lu and Mr Hong’s 55% interest was transferred to Million Victory Corporation Limited to hold on trust for Mr Hong and Mr Lu. (Decision [88]) As the action was settled on terms that the defendants therein did not admit any liability, the defendant contends that there was no need for Mr Hong and others to adduce any evidence to refute the fraud allegations. (Decision [85])

9.  As it happens, the liquidation unit of GITIC had agreed to pay the creditors in full. According to a working report by the liquidation unit of GITIC, as of March 2019, certain creditors had received 18.52% of the face value of their rights and the remaining 81.48% would be distributed shortly. (Decision [17]) Mr Ma referred to the prospects of full recovery and the plaintiff’s share under the Cooperation Agreement on two occasions on 16 June 2017 and 23 April 2019 respectively in his letters to, inter alia, Nation Field. There was no reply to Mr Ma’s letters. (Decision [55‑56])

III.  Procedural history

10.  On 4 February 2021, the plaintiff commenced this action and issued an inter partes summons seeking an injunction restraining the defendant from dealing with or disposing of the assets identified in Schedule 1 hereto (i.e., 18 direct creditors’ rights in GITIC at a face value of RMB 320 million) until trial or further order.

11.  On 11 February 2021 with counsel for both parties attending, the Judge granted an interim Mareva injunction restraining the defendant from dealing with or disposing of its assets up to the value of RMB 320 million (including 18 direct creditors’ rights in GITIC) up to the hearing of the substantive argument of the plaintiff’s summons (‘Interim Decision’).

12.  The substantive hearing took place on 11 August, 20‑21 September and 6 December 2022. By the Decision, the Judge dismissed the defendant’s application to discharge the interim Mareva injunction granted on 11 February 2021. The Judge also dismissed the defendant’s summons filed on 6 June 2022 to seek leave to adduce further evidence. (Decision [217]) The Judge continued the interim Mareva injunction until trial or further order. The Judge made an order nisi that the defendant do pay the plaintiff the costs of the defendant’s discharge application and the defendant’s new evidence summons, that the costs of the plaintiff’s injunction summons be the plaintiff’s costs in the cause, and that the costs of the parties’ summonses filed on 9 August 2021 and on 10 August 2021 respectively be in the cause of the plaintiff’s injunction summons. (Decision [218])

13.  On 29 September 2023, the defendant sought leave from the Judge to appeal against the Decision. The Judge refused leave in a decision handed down on 13 March 2024 ([2024] HKCFI 788). (‘Leave Decision’)

14.  On 27 March 2024, the defendant issued the present summons to seek leave to appeal from this Court, with a 26‑page draft Notice of Appeal appended thereto.

IV.  Defendant’s intended grounds of appeal

15.  The defendant’s summons identifies two broad bases to seek leave to appeal. The first ground refers to matters contained in the defendant’s draft Notice of Appeal which is summarized as follows :

1)  Material Non-Disclosure Ground: the Judge should have held that the plaintiff’s application for a Mareva injunction was in effect an ex parte application on notice [1(a)] or an inter partes application for which the defendant had not had a fair or reasonable opportunity to present proper evidence in opposition [1(b)], whereby the plaintiff was under a duty to make full and frank disclosure. The Judge should have held that the plaintiff failed to disclose the fact that the 1^st Framework Agreement was not terminated until 20 February 2012 as a material non-disclosure. [1(c)] The Judge should have held that the plaintiff’s non-disclosures were deliberate. [1(d)]

2)  No Good Arguable Case Ground: the Judge erred in finding that the plaintiff had a good arguable case on its two causes of action. More specifically, the Judge erred in relying on Mr Lu’s affirmation filed in HCA 1501/2017, which was not referred to in Mr Ma’s main supporting affirmation and the plaintiff did not depose to its belief as to the veracity of its content. [2(c)(i)] Further, the Judge erred in failing to take into account the evidence explaining the defendants’ lack of evidence to refute the allegations in HCA 1501/2017, as the action was settled on a no-admission basis, whereas the plaintiff failed to disclose the consent order dated 12 October 2017 annexed with the settlement agreement. [2(c)(iii) and 2(c)(ii)] The Judge erred in finding a good prima facie case on the strength of Mr Lu’s affirmation, which was not related to the issues in this action. [2(c)(iv)] The Judge erred in failing to apply Shogun Finance Ltd v Hudson [2004] 1 AC 919 and find Alpha & Leader Hong Kong is the party to the Cooperation Agreement, or failing to do so on the evidence. [2(d)(i)‑(vi)] The Judge erred in failing to consider the defendant’s contentions that the disposal of the 35 direct creditors’ rights would not have had the effect of denuding Nation Field of its ability to perform the obligation to pay 20% of the recovery returns under the Cooperation Agreement. [2(d)(vii)‑(xi)]

3)  Balance of Convenience Ground: the Judge erred in concluding that the balance of convenience lies in favour of continuing the interim Mareva injunction, because, among other things, the cross-undertaking given by the plaintiff and Mr Ma is of no value, or of insufficient value. [3‑4]

4)  New Evidence Summons Ground: further to the ground that the Judge erred in finding that the plaintiff did not owe a duty to make full and frank disclosure, the Judge erred in failing to find that the plaintiff should have disclosed the incident for which the new evidence was adduced. [5(a)] The Judge also erred in failing to admit the new evidence demonstrating that Mr Ma was fully alert to the difference between the two companies, which undermines the plaintiff’s case that the description of Alpha & Leader Hong Kong on the Cooperation Agreement was a mistake. [5(b)‑(c)]

16.  The second ground is that there is some other reason in the interests of justice why the appeal should be heard, namely, guidance from this Court would be required in light of the reservations expressed by the Judge on two other decisions, namely, Muginoho Co Ltd v. Vimiu HK Co Ltd, HCMP 107/2012 and Chen Lingxia v 中國金谷國際信託有限責任公司 & Ors [2019] HKCFI 379 regarding an applicant’s duty of full and frank disclosure in inter partes proceedings for interlocutory injunctive reliefs.

V.  Legal principles

17.  The principles governing the grant of leave to appeal are trite. Under section 14AA(4) of the High Court Ordinance (Cap. 4), the applicant needs to establish that the appeal has a ‘reasonable prospect of success’ or there is some other reason why the appeal should be heard. To demonstrate that the appeal has a ‘reasonable prospect of success’, the applicant must show that the appeal has merits and ought to be heard, although he or she is not required to demonstrate that that appeal will probably succeed. (Leave Decision [7])

18.  Having considered the papers, we will pursuant to Order 59, rule 2A(5) of the Rules of the High Court (Cap. 4A) (‘RHC’) determine this application without an oral hearing on the basis of written submissions only.

VI.  Our view

1)  Material Non-Disclosure Ground

19.  First, the defendant argues that the hearing on 11 February 2021 of the plaintiff’s application should be treated as an ex parte application. The Judge held that the hearing before her was inter partes and the requirement for full and frank disclosure did not arise. What happened was that the plaintiff sought a proprietary injunction but the Judge was of the view that it should be seeking a Mareva injunction and then submissions were made by the parties on that basis. The defendant argues (as it had before) that the Judge should have treated the application before her as ex parte in respect of the application for the Mareva injunction. The Judge rejected this argument as the defendant’s own submission had anticipated a Mareva injunction being sought and the interim Mareva injunction which was granted covered the same assets with the same evidence being used. On this basis we agree with the Judge. It is artificial to the extreme in the circumstances of the case for such a distinction to be drawn. This point is not reasonably arguable.

20.  Second, the defendant contends that an applicant making an inter partes application for interlocutory injunctive reliefs should be under a duty to make full and frank disclosure, where ‘the other side has not had a fair and reasonable opportunity to present its evidence and arguments in opposition’ and the Judge erred in holding that the defendant had had a fair and reasonable opportunity to present its case. In our view the Judge did proceed on the basis that the legal propositions put forward by the defendant are correct, and she gave reasons in her Decision [164‑169] why the defendant had the fair and reasonable opportunity to respond. We disagree that it is reasonably arguable that the Judge had erred in her view.

21.  The third and fourth complaints of the defendant can be addressed together. The defendant complains that the Judge erred in not addressing the contention regarding the plaintiff’s failure to disclose the fact that the 1^st Framework Agreement was not terminated by Spinnaker until 21 February 2012. That is to say, it was not terminated before the Cooperation Agreement was entered into in December 2011. The Judge ought to have held that it was a serious case of material non-disclosure. The defendant further complains that the Judge erred in making no ruling that the non-disclosure in relation to Alpha & Leader Hong Kong was deliberate. It was deliberate because, the defendant submits, Mr Ma had sought the declaration from Pan in his preparation to bring legal proceedings relating to the Cooperation Agreement but Pan had refused. In the circumstances, one can conclude that Mr Ma knowingly and deliberately did not disclose the relevant facts at the return day hearing.

22.  The Judge accepted that she did not make any ruling in relation to the 1^st Framework Agreement but given her ruling that the requirement of full and frank disclosure does not arise, this would not advance the defendant’s case. The same applies to the further complaint by the defendant.

2)  No Good Arguable Case Ground

23.  First, the defendant complains that the Judge erred in relying on Mr Lu’s affirmation filed in HCA 1501/2017. This point is not pursued in the defendant’s skeleton submission. This point can be easily dismissed. As recorded at [67] of the Decision as well as in the Leave Decision [30], Mr Lu has made an affirmation in the present action to re-confirm what he had affirmed in HCA 1501/2017.

24.  The defendant’s further complaint is that the Judge erred in taking into account Mr Lu’s affirmation, which was not relevant to the issues in this action. As noted in the Leave Decision, the Judge relied on Mr Lu’s affirmation in respect of the plaintiff’s case on the asset stripping exercise, and in particular, on the circumstances of the Transfer, which is the central plank of the plaintiff’s case. We are of the view that the Judge did not err in taking into account Mr Lu’s affirmation.

25.  Second, the defendant complains that the Judge erred in failing to take into account the explanation by the defendant of its lack of response in refuting the fraud allegations in HCA 1501/2017. This point is again not pursued in the defendant’s skeleton submission. The Judge rejected this point as she did consider the defendant’s explanation regarding the settlement of HCA 1501/2017 (Decision [85]), Leave Decision [31]). The defendant referred to the Interim Decision [17] where the Judge stated that there was no evidence to refute the fraud allegations in HCA 1501/2017 and that the lack of evidence ‘seems to reinforce the conclusion that there was a wrongful and fraudulent appropriation of assets … by Nation Field and the defendant’. The defendant argued that the Judge had wrongly adopted this view to find that there is a good arguable case on the plaintiff’s two causes of action against the defendant, namely, 1) the defendant had conspired with Nation Field to injure the plaintiff by unlawful means and 2) the defendant had procured or induced Nation Field’s breach of the Cooperation Agreement and that the plaintiff had also made out a good arguable case that the asset stripping exercise took place and that it was done with the fraudulent intent to divest assets away from Nation Field. In our view the Judge did not simply rely on the evidence of Mr Lu. The Judge in the Interim Decision [2] clearly stated the reasons she gave were brief and provisional. The whole of the Decision has to be looked at. The Judge dealt extensively with the plaintiff’s causes of action and the asset stripping exercise at Decision [188‑202]. We do not regard that it is reasonably arguable that the Judge had erred.

26.  Third, concerning the identity of the parties, the defendant argues that the Judge erred in failing to apply Shogun Finance Ltd v Hudson [2004] 1 AC 919 and should instead conclude that the plaintiff is not a party to the Cooperation Agreement. In our view the Judge had properly addressed this point in [195‑198] of the Decision. The defendant’s complaint in respect of the Judge’s assessment of the evidence is not reasonably arguable. This is only an interlocutory application where the Judge did not purport to make any definite finding of facts.

27.  Finally, the defendant complains that the Judge erred in failing to consider that the disposal of the 35 direct creditors’ rights would not have had the effect of denuding Nation Field of its ability to perform the obligation to pay 20% of the recovery returns under the Cooperation Agreement. The face value of the 35 direct creditor’s rights only represented less than 45.17% of the whole of the Spinnaker rights acquired by Nation Field and the undisputed evidence was that the balance representing 54.83% were still held by different financial institutions for Nation Field. Had the Judge taken this point into account, she should have found that the plaintiff had not made out a good prima facie case. In our view the Judge had adequately addressed this point in her Leave Decision as follows :

‘ 43. It is correct that I did not address this point in the decision. However, Mr Lawrence Ng, representing the plaintiff with Mr Victor Lui, did make a reply to this contention in paras 9(1) and (2) of his submissions dated 10 August 2021. Mr Ng referred to evidence suggesting that Nation Field might not be holding the entire balance of the Spinnaker rights.

44. Hence, it is not correct for Mr Yan to now say that the evidence in this regard is “undisputed”. This point was disputed at the hearing and was not capable of being resolved at an interlocutory stage.’

28.  For completeness, we will address two more points made by the defendant. First, the defendant’s complaint about the plaintiff’s failure to disclose the consent order dated 12 October 2017 annexed with the settlement agreement, (this point is not pursued in the defendant’s skeleton submission), is rejected for the same reasons given under the Material Non‑Disclosure Ground. Second, the defendant also complains about the lapse of time between the substantive hearing and the Judge’s issuance of the Decision. This is not a proper ground of appeal. This case before the Judge was based on documentary evidence with no oral evidence being called. Further the mere fact there is delay is not by itself a proper ground to challenge the Decision.

3)  Balance of Convenience Ground

29.  The defendant complains that that Judge erred in failing to take into account a range of matters, including that the cross-undertakings given by the plaintiff and Mr Ma are of no value or inadequate value. The Judge pointed out that these points had not been raised before her at the hearing. (Leave Decision [47]) As the defendant does not contend that these points were not new points, and failing an explanation from the defendant as to why the new points were not raised in the Court below, we will similarly take the view that these points are not open to the defendant in this appeal.

4)  New Evidence Summons Ground

30.  The defendant’s first complaint is that the Judge erred in failing to admit the new evidence as the Judge erred in finding that the plaintiff did not owe a duty to make full and frank disclosure. As this Court has already found that the Judge was correct in finding that the plaintiff was not under a duty to make full and frank disclosure, it follows that this ground must fail.

31.  The defendant’s second complaint is that the Judge erred in failing to admit the new evidence, which goes to not only the defence that the plaintiff was not the proper party, but also to the plaintiff’s case that the description of Alpha & Leader Hong Kong was merely a mistake. In our view the Judge had clearly understood the defendant’s position :

‘ 204. As submitted by Mr Yan, the significance of the new evidence is that it shows that at the time of the Cooperation Agreement, Ma was fully alert to the existence of Alpha & Leader Hong Kong and that it was used by the Alpha & Leader Group in its business. Hence, it would be relevant to the defence of whether that company, not the plaintiff, was in fact the party to the Cooperation Agreement.’

32.  We agree with her ruling on this point :

‘ 205. However, as remarked above, the evidence which the defendant had adduced prior to the substantive hearing has already demonstrated that Ma was aware of the existence of Alpha & Leader Hong Kong. The admission of the new evidence would not add anything to the defendant’s case and would not have any material impact on the court’s evaluation of whether the plaintiff has a good arguable case. That being the case, the second condition in Ladd v Marshall is not satisfied. Also, bearing in mind that there should be finality of litigation, I would not exercise my discretion to admit the new evidence post-hearing.’

5)  Some Other Reason Ground

33.  As to the views expressed in Muginoho Co Ltd and Chen Lingxia, the issue is academic in this case because the Judge had proceeded to deal with the defendant’s discharge application on the basis of the legal propositions in these two cases but decided, on the facts of this case, that the defendant had the full opportunity to respond.

VII.  Conclusion

34.  Accordingly we dismiss the defendant’s summons. As this application is wholly without merit, we will make an order under Order 59, rule 2A(8) of the RHC that no party may request the application to be considered at an oral hearing inter partes.

VIII. Costs

35.  There is no reason to depart from the general rule that costs should follow the event. We will order the defendant to pay the plaintiff costs of this application, with certificate for two counsel. A statement of costs was lodged by the solicitors for the plaintiff seeking costs in the sum of $252,730 in this application. Considering that the same team of lawyers had appeared in the leave application before the Judge, the same arguments were before the Judge in respect of the same grounds of appeal relied on in the present application and the contents of the papers in both applications ought to be identical, we will summarily assess the plaintiff’s costs at $168,000.

36.  The costs orders and assessment are orders nisi, which will be made absolute if there is no application for variation by any party within 14 days of the handing down of this decision.