YIFUNG DEVELOPMENTS LTD v. LIU CHI KEUNG RICKY AND OTHERS

HCA 3020/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3020 OF 2015

____________

____________

__________________________________

REASONS FOR DECISION
AND
ASSESSMENT OF COSTS

__________________________________

1.  At the conclusion of the hearing of the defendants’ application to strike out the statement of claim and the action, I dismissed the summons with costs for reasons to be handed down.  I now provide my reasons and make a summary assessment of the plaintiff’s costs.

2.  The summons as issued was based on all the possible grounds under O 18 r 19(1), but the affirmations and arguments show that the grounds are three-fold, namely: (1) that the claim is frivolous and vexatious; (2) that the action is an abuse of process with reference to the principle in the Henderson v Henderson line of authorities; and (3) that the action is an abuse of process because of issue estoppel.

3.  The action arose out of a loan of US$39 million between the plaintiff, Yifung Developments Limited (“YDL”), as borrower, and Manchester Securities Corporation (“MSC”) as lender.  YDL had a subsidiary, Yangjiang Fungyi Properties Limited – a wholly foreign‑owned enterprise (“WFOE”) in the Mainland – which was the developer of a real estate project in Yangjiang City, Guangdong Province.  The shares in YDL were held by 2 BVI companies called Wonder Earn Group Limited (“WEG”) and Yifung Properties Limited (“YPL”), which were owned and controlled by Mr Ricky Liu (“Mr Liu”), the 1^st defendant, via another BVI company Able Mind Investments Limited (“Able Mind”).  The 2^nd and 3^rd defendants were, together with Mr Liu, three of the directors of YDL appointed by the shareholders.  There was at the material times a fourth director of YDL (the “Lender Director”) who was nominated by MSC as lender under the loan documentation.

4.  On 10 September 2010, the Facility Agreement was entered into between MSC as lender, YDL as borrower and obligor, WEG, YPL and Able Mind as obligors, and Mr Liu as sponsor.  On the same day, YPL and WEG executed two equitable mortgages over their shares in YDL as security for the loan.  The loan was duly advanced in September 2010.  On 1 November 2010, Capital Metro Group Limited (“Capital Metro”), a BVI company also owned by Mr Liu through Able Mind, mortgaged a commercial property in Hong Kong in favour of MSC as further security for the loan.  I shall refer to WEG, YPL and Capital Metro collectively as the “Mortgagors”.

5.  Under the Facility Agreement, the loan was repayable in   3  tranches, a first tranche of US$10 million payable on 15 September 2012, and two further tranches each of US$14.5 million payable on 15 September 2013 and 15 March 2014 respectively.  There is a provision in the Facility Agreement for YDL to give notice to extend the repayment date to the first business day 6 months later, on the ground that a change in the law, governmental policy or regulation on the Mainland has occurred which will in the opinion of YDL or WFOE impact upon the business of the group and the ability of YDL to meet its payment obligations.

6.  YDL gave notice under this clause to extend the repayment date of the first tranche to 15 March 2013.  The first tranche was eventually repaid, albeit beyond the extended date, on 2 April 2013.

7.  YDL also gave notice to extend the repayment date of the second tranche to 17 March 2014.  On that date, both the second and third tranches fell due but YDL failed to repay the outstanding balance of the loan and interest accrued.

8.  What happened then was that, on 18 March 2014, MSC declared an event of default under the Facility Agreement and took steps to exercise some of its rights under the loan and security documentation.  Thus, on 18 March 2014, MSC gave notice to YDL of its intention to exercise its rights following the occurrence of an event of default and appointed 2 individuals as receivers over the security, ie the shares in YDL mortgaged by YPL and WEG, as well as the Hong Kong property mortgaged by Capital Metro.[1]  On 4 June 2014, MSC took steps to remove the then directors of YDL, being the 3 defendants in this action, and appointed the 2 receivers as directors in their place.  On 5 June 2014, YDL (under the control of the receivers) took steps as a shareholder of WFOE to remove and replace the directors and the legal person’s representative of WFOE.

9.  Various proceedings in the High Court, including the present action, have arisen out of these events.  Two actions are in particular relevant to the arguments on this application.

10.  First, on 16 July 2014, YDL (as controlled by the receivers) commenced an action in HCA 1341/2014 (“1341 Action”) against the same 3 defendants as the defendants in the present action, who had up to 4 June 2014 been directors of YDL (in addition to the Lender Director).  The principal reliefs sought there are as follows: (i) a declaration that the defendants have no authority to hold themselves out as directors of YDL; (ii) a mandatory injunction for delivery up of all of YDL’s assets, including books and records, company seals and chops, and the share certificates in WFOE; (iii) an injunction to restrain the defendants from disposing of or removing from the jurisdiction or otherwise dealing with YDL’s assets; (iv) a mandatory injunction to compel the grant of access to YDL’s new directors in respect of YDL’s premises; (v) an injunction to restrain the defendants from remaining on YDL’s premises; (vi) a mandatory injunction to compel the defendants to instruct YDL’s auditors and banks to comply with the instructions of the new management; (vii) an injunction to restrain the defendants from interfering with YDL’s relationships with its auditors and banks; (viii) an injunction to restrain the defendants from holding themselves out as directors, officers or representatives of YDL; and (ix) damages.

11.  Secondly, on 18 July 2014, the Mortgagors brought an action in HCA 1359/2014 (“1359 Action”) against MSC, the 2 receivers, and Elliott Advisors (HK) Limited (“Elliott Advisors”), a sister company of MSC that provided advisory services, essentially for declaratory relief and damages, contending that no event of default had occurred, that MSC’s declaration of event of default and appointment of receivers were invalid, and that the exercise of powers by the receivers was invalid.

12.  One of the main contentions of the Mortgagors in that case was that MSC was estopped from enforcing its strict legal rights under the loan and security documentation because it had, via Mr James Smith, an employee of Elliott Advisors, given an assurance to Mr Liu, which  Au‑Yeung J described in §63 of her decision of 17 November 2014 in that action as follows:

“According to Ricky Liu, MSC (through Mr Smith) told him (of YDL) that YDL should continue to seek investors to finance a prepayment of the Settlement Sums. MSC would not insist on YDL’s payment of the Outstanding Balance (probably covering both instalments) on its due date and would not declare an Event of Default should YDL delay in repayment under the FA [ie Facility Agreement]. Mr Smith assured Ricky Liu that “So long as YDL was sincere about repaying the Settlement Sums, and was actively seeking additional finance for such purposes, it was unnecessary for YDL to write to MSC again to extend the relevant due/repayment dates under clause 6.2 of the FA.” ”

13.  In the 1341 Action, YDL applied for an interlocutory mandatory injunction to require the defendants to hand over corporate records, assets and possession of premises and to give instructions to YDL’s auditors and banks, as well as a prohibitory injunction to restrain the defendants from holding themselves out as directors of YDL and interfering with YDL’s relationship with its auditors and banks.  In the 1359 Action, the Mortgagors also applied for an interlocutory injunction to restrain the receivers from exercising their powers.

14.  These interlocutory applications were heard together before Au-Yeung J in September 2014 who handed down her decision on 17  November 2014 (“the Injunction Decision”).  Her Ladyship dismissed the Mortgagors’ applications and granted both mandatory and prohibitory injunctions in favour of YDL.

15.  Applications by the Mortgagors and by the former directors of YDL for leave to appeal were dismissed by Au-Yeung J on 12 February 2015 and by the Court of Appeal again on 28 May 2015 (in HCMP 461–463/2015).

16.  Following their success in these injunction proceedings, MSC, Elliott Advisors and the receivers, as defendants in the 1359 Action, applied to strike out the writ and statement of claim in that action, and YDL, as plaintiff in the 1341 Action, applied to strike out parts of the defences of the former directors, as being unarguable in light of the Injunction Decision.  By a decision handed down on 19 October 2015 (“the Strike-out Decision”), Au-Yeung J granted their applications.  There is an appeal against that decision which will be heard on 1 September 2016.

17.  On 2 November 2015, another action was commenced in HCA 2539/2015 (“the 2539 Action”), whereby YPL and WEG sued Elliott Advisors and its employee Mr James Smith for certain alleged misrepresentations.  This action is not relevant for present purposes except to the extent that it is alleged by the defendants here that the present action has been brought by YDL in retaliation in light of the commencement of the 2539 Action.  The 2 defendants to the 2539 Action applied to strike it out.  Their application was heard in April 2016 with the decision pending.

18.  Then came the present action, which was brought by YDL (as controlled by the receivers) against its 3 former directors.  On 18 December 2015, the writ of summons was issued.  The gist of the allegations in the statement of claim is that the 3 former directors breached their duty to act in the best interests of YDL and to exercise reasonable care, skill and diligence in relation to the repayment of the second and third tranches of the loan.  The statement of claim pleads that it was the Mortgagors’ case and Mr Liu’s evidence in the 1359 Action that:

(1)  Mr Smith gave the alleged assurance to Mr Liu, as I have referred to earlier.

(2)  As of 15 March 2014, WFOE had receivables in excess of RMB129 million from the sale of flats in the real estate project.  But for the alleged assurance, it would have been possible for WFOE to obtain finance by way of a non‑recourse factoring agreement to enable YDL to discharge its outstanding liabilities under the Facility Agreement in March 2014. 

(3)  Further, but for the alleged assurance, it would have been open to the Mortgagors to discharge, and in fact the Mortgagors would have discharged, YDL’s liabilities under the Facility Agreement to avoid the occurrence of an event of default. 

(4)  Instead, in reliance on the alleged assurance, YDL inter alia (a) did not make or attempt to make any repayment under the Facility Agreement by 17 March 2014, and (b) did not give notice to MSC to extend the repayment date of the third tranche by 6 months. 

(5)  MSC was therefore estopped from declaring an event of default on 17 March 2014.

19.  It is alleged that the former directors breached their duties to YDL in that:

(1)  They knew or ought to have known in around March 2014 that (a) the outstanding balance of the loan would be due on 17 March 2014; (b) WFOE had or was in a position to access available funds to discharge the loan fully or in part; (c) further or alternatively, the Mortgagors were able to discharge the loan on YDL’s behalf; and (d) the third tranche could have been postponed.

(2)  They knew or ought to have known that Mr James Smith had never given the alleged assurance.  Alternatively, they had failed to clarify with Mr Smith as to its existence.

(3)  They failed –

(a)  to procure WFOE to access the available cash or obtain finance to enable YDL to discharge the outstanding liabilities under the loan;

(b)  to take steps to procure the Mortgagors to utilise the available resources to discharge the outstanding liabilities under the loan; and/or

(c)  to exercise YDL’s right to extend the repayment date for the third tranche by 6 months.

20.  It is said that these failures led to the occurrence of an event of default on 17 March 2014 and consequent loss and damage on the part of YDL, such as the enforcement costs incurred by MSC and default interest.  Accordingly YDL claims equitable compensation or damages against the defendants for breach of duties, as well as an indemnity in respect of YDL’s liability to pay enforcement costs and default interest.

Ground 1 – frivolous and vexatious claim

21.  The first ground advanced by the defendants for striking out is that the claim is frivolous and vexatious.  Initially the argument raised was that the statement of claim disclosed no reasonable cause of action, which would involve an examination solely of the pleading, without reference to evidence which by virtue of O 18 r 19(2) is inadmissible on such a ground.  Ms Linda Chan SC, for the defendants, clarified in her oral submissions that the defendants’ case is not that the statement of claim is on its face demurrable, but that certain pleas are incontestably bad in light of the facts and evidence.

22.  The attack is centred upon the allegation that the defendants, as directors of YDL, failed to do the 3 things referred to in §19(3) above, and the allegation that such failures had led to the occurrence of an event of default under the Facility Agreement. 

23.  In respect of the alleged failure to procure WFOE to access its assets or obtain finance to enable YDL to discharge its outstanding liabilities under the loan, the defendants argued that the steps referred to would involve YDL and/or WFOE incurring “Financial Indebtedness” within the meaning of the Facility Agreement and YDL’s articles of association which, by virtue of the provisions of these two documents, could not be undertaken without the prior written consent of MSC (under the Facility Agreement) and of the Lender Director nominated by MSC to YDL’s board (under the articles of association).  As neither MSC nor the Lender Director had, as a matter of fact, given such prior written consent for YDL or WFOE to incur any Financial Indebtedness in order to repay the balance of the loan on 17 March 2014, the defendants were prohibited by these provisions from taking the steps in question.  It follows, it was argued, that they could not have been in breach of any duty as directors in failing to take such steps.

24.  It is common ground that the prior written consent of MSC and the Lender Director was required by the two documents, and that neither had given such consent in relation to the outstanding balance of the loan as at 17 March 2014.  But that is not to the point.  In my view the crucial matter is whether such consent would have been refused had it been requested, so that it could be said that it would have been pointless for the directors of YDL to try to secure financing to discharge the outstanding liabilities, and that the failure to do so could not in any way be said to have caused the occurrence of the event of default. 

25.  The evidence suggests that there had been no actual request to MSC at the relevant time for the requisite consent for YDL or WFOE to incur Financial Indebtedness to repay the second and third tranches of the loan.  For the purpose of repaying the first tranche of the loan in April 2013, YDL had obtained a loan from Bank of China, which was unanimously approved by the then board of directors of YDL, including the MSC-appointed Lender Director at the time.  Further, the evidence filed by YDL for this application is that MSC was, at all material times, willing to be commercial and cooperative in its dealing with YDL.  There is in my view nothing in the evidence sufficient to establish a plain and obvious case that MSC would in any event not have given its consent for Financial Indebtedness to be incurred by the relevant entities for the purposes of repaying the second and third tranches.

26.  Further, Ms Chan submitted that, having regard to what was averred in the defence of MSC and Elliot Advisors, filed in December 2014, in the 1359 Action, which was adopted by the receivers as the 2^nd and 3^rd defendants in that Action, it is not open to YDL now to allege that MSC would have been prepared to give its consent had it been requested. 

27.  Quite apart from the fact that this seems to me to reverse the burden, I am unable to accept this submission.  The relevant passages in the defence[2] pleaded that the requirements of reliance and change in position were not satisfied for the purposes of the Mortgagors’ case of estoppel arising from the alleged assurance.  It was pleaded that there was no evidence that YDL could make the necessary repayment of the loan on or before 17 March 2014, that there was no evidence that YDL could receive financing in time, and that the second tranche could not be further extended and would fall due for payment on 17 March 2014.

28.  It was further pleaded:

“YDL failed to pay the same by such date, wherefor an event of default would have occurred in any event.”

and

“[MSC and Elliot Advisors] will further rely on Clause 26 of the [Facility Agreement] which requires the prior written consent of MSC to amend the [Facility Agreement] or waive any obligation thereunder. No such prior written consent had been given.”

I do not think these passages assist the defendants here.  The quoted averments simply mean that, YDL having failed to pay the second tranche by the due date, an event of default was inevitable, and that prior written consent was required to amend the agreement or waive YDL’s obligation thereunder which had not been given.  It was, on my reading, not an averment that YDL could never have paid the second tranche on time or that MSC would have refused to give prior written consent under a different provision (namely, clause 7.4(f)) of the Facility Agreement for YDL or other relevant entities to incur Financial Indebtedness.  Indeed, a subsequent paragraph in the same defence[3] pleaded that:

“it is admitted that, as a matter of fact:

...

(4)  It would have been open to the Plaintiffs [ie WEG and YPL] to discharge YDL’s then-existing liabilities under the [Facility Agreement] to avoid an event of default ...”

29.  Secondly, the defendants also challenged the allegation that they failed to procure the Mortgagors to utilise their resources to discharge the outstanding liabilities under the loan.  It is said that the Mortgagors and YDL are separate and independent legal entities, and that, as a matter of law, the directors of YDL owed no duty to YDL to procure other legal entities to use their own resources to repay the liabilities of YDL.  Reliance was placed on Walker v Wimborne (1976) 137 CLR 1 at 6-7 where Mason J (as he then was) said:

“... the emphasis given by the primary judge to the circumstance that the group derived a benefit from a transaction tended to obscure the fundamental principle that each of the companies was a separate and independent legal entity, and that it was the duty of the directors of Asiatic to consult its interests and its interests alone in deciding whether payments should be made to other companies.”

30.  It seems to me, with respect, the argument is flawed.  It is, of course, for the directors of each company to consider and act in the interests of that company.  Thus, if the Mortgagors were requested by YDL for financial assistance, it would be for the directors of the Mortgagors to consider whether it was in the interests of their companies to help YDL and, in so doing, the directors of YPL and WEG, in particular, would no doubt take into account the fact that YDL was owned by these two companies. But it does not follow that it could never be within the scope of duties of the directors of YDL to approach the Mortgagors (or, for that matter, other third parties) for assistance.  It depends on the facts and circumstances.  There is no evidence in this case that the Mortgagors would have refused outright to provide any financial assistance to YDL and that therefore it would have been pointless for YDL’s directors to approach them.  Nor does the relationship between them suggest that it would necessarily be against the Mortgagors’ interests to help YDL.  On the contrary, it is pleaded in the statement of claim of this action that it was the Mortgagors’ pleaded case and Mr Liu’s evidence in the 1359 Action that, but for the alleged assurance, it would have been open to the Mortgagors to discharge and the Mortgagors would actually have discharged the liabilities of YDL in order to avoid the occurrence of an event of default. 

31.  Thirdly, the defendant submitted that the alleged failure on the part of the directors to procure YDL to extend the repayment date of the third tranche by 6 months did not cause the occurrence of an event of default because the second tranche could not be further extended, and its non-payment, by itself, would constitute an event of default under the Facility Agreement.  Again, I see no ground for striking out this allegation. This is not a stand-alone averment but has to be read in conjunction with the rest of the pleading.  If the third tranche was postponed, it would reduce the amount that YDL had to repay by 17 March 2014 to avoid the occurrence of an event of default.  Taken together with the other averments, there is nothing frivolous or hopeless in this allegation. 

32.  For these reasons, this ground of the application failed.

Ground 2 – Henderson v Henderson type of abuse

33.  As their second ground, the defendants contended that the present action is an abuse of process of the Henderson v Henderson type, because the claims in this action could and should have been raised in the 1341 Action to which they “properly belonged”.[4]

34.  A major difficulty with this argument is immediately apparent: YDL is not making claims in a later action where an earlier action has come to an end in which the claims could and should have been raised.  The 1341 Action is still at the pleading stage and far from a final conclusion. 

35.  In Henderson v Henderson (1843) 3 Hare 100, Wigram VC stated at p 115:

“In trying this question I believe I state the rule of the Court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.” (emphasis added)

36.  In this formulation of the principle, Wigram VC was, as observed by Lord Millett in Johnson v Gore Wood & Co [2002] 2 AC 1 at p 58G, “careful to limit what he was saying to cases which had proceeded to judgment”.  In Johnson v Gore Wood & Co itself the House of Lords extended the scope of the principle to a situation where the earlier action had culminated in a settlement and not a judgment: pp 32H & 59C.  But I am not aware of an authority, and Ms Chan has not been able to refer me to any, where this specie of estoppel or abuse has been held to exist in relation to a later action where the earlier proceedings have not yet come to an end.  Indeed, in Manson v Vooght [1999] BPIR 376, quoted by Lord Bingham in Johnson v GoreWood & Co at pp 28-29, May LJ referred (at pp 387H & 388H) to the principle as relevant to cases where a litigant has raised a matter which should have been brought, if at all, in “earlier concluded proceedings” (emphasis added).

37.  This is not surprising, for a principal policy underlying the rule against this kind of abuse is that there should be finality in litigation: Johnson v Gore Wood & Co, at p 31A per Lord Bingham.  This public interest is generally not engaged where the earlier action is still on-going when the later action comes to be considered.  The rule also protects a party from vexation and oppression.  It is true that in a proper case the law may protect him, not only from being vexed by successive actions, but also from being oppressed by unnecessary multiple concurrent actions.  That however is not the function of the rule in Henderson v Henderson.  Ample remedy for the latter is provided by the court’s power to allow amendment of pleadings, and to order consolidation, and other case management powers, in the light of which it must be rare indeed for an order precluding a claim altogether to be an appropriate, proportionate response.

38.  Very recently, in Deutsche Bahn AG v Mastercard Inc [2016] CAT 13, various claimants had launched actions in the English High Court against Mastercard for damages for infringement of European Union competition law.  The claimants also, as a protective measure against limitation defences raised in the High Court actions, commenced a claim in the (UK) Competition Appeal Tribunal for damages in a follow-on action based on the decision of the European Commission finding infringement on the part of Mastercard.  Upon Mastercard’s application to strike out the claim in the Tribunal as an abuse, Roth J, sitting as the President of the Tribunal, held (at §30) that the Henderson v Henderson principle “will not apply if the previous action has not concluded”, though his Lordship went on to consider whether the commencement of the claim in the Tribunal nevertheless involved an abuse of process in other ways and held that it did not.

39.  Faced with this difficulty, Ms Chan submitted that despite it remains on the file, the 1341 Action had, in substance and reality, come to a conclusion.  According to her, following Au-Yeung J’s Injunction Decision and the Strike-out Decision, there was no substantive defence to the action left.  With respect, I am unable to accept the submission.  The action is as a matter of fact still extant.  If there is no defence left, the defendants should submit to judgment and end the case.  Instead, as far as I can see, that action is still being vigorously contested.  There is also a damages claim for breach of duty (see §46 below).  Just in January 2016 there was a hearing of the defendants’ application to strike out the writ of summons on the ground of want of authority.  The defendants cannot have their cake and eat it too.

40.  If, as the defendants contend, the claim in this action could and should have been brought in the 1341 Action, it can still in principle be brought there, subject to leave being granted to YDL to amend the writ.  Alternatively, the defendants can apply for consolidation or other case management directions, asking that the present action be dealt with together with the 1341 Action in order to minimise wastage of effort and time.  None of that has been advocated by the defendants. 

41.  Instead, what the defendants seem to be contending is that YDL should have brought the new claim in the 1341 Action before Au‑Yeung J granted the injunctions sought by YDL and struck out parts of the defences.  The real grievance seems to me to be that YDL has now seized upon certain statements (especially those in Mr Liu’s 3^rd affirmation in the 1359 Action filed for the purpose of the combined hearing in September 2014) made by Mr Liu before he knew YDL would make the present claim.  But it is not suggested that he would not have said, or would have tailored, what he said in the 1341 and 1359 Actions had the present action been on foot at that time.  Ms Chan asserted that Au-Yeung J might have decided the injunction and strike-out applications differently if the present action were in existence then.  I fail to see any foundation for that speculation.  In any event it is in my view hardly a basis for concluding that there has been abuse in the Henderson v Henderson sense.

42.  For these reasons, the contention that the present action should be struck out as a Henderson v Henderson type of abuse seems to me, with respect, misconceived.  This ground of striking out must therefore be rejected.

43.  For completeness I shall briefly deal with the contention that YDL could and should have instituted the present claims when it commenced the 1341 Action in July 2014.  The starting point is that there is no presumption against the bringing of successive actions; and in a particular case there may be sensible reasons for advancing claims separately.  In every case the burden rests on the defendant to establish that it is an abuse of process for him to be subjected to the second action: Johnson v Gore Wood & Co at p 59H per Lord Millett; Spencer Bower & Turner, Res Judicata (4^th ed), §26.21. 

44.  The defendants contend that YDL could have brought the present action in July 2014 because by then the receivers had gained sufficient knowledge of the matters that YDL now alleges in the statement of claim.  There is, however, a dispute about the extent of the receivers’ knowledge of the financial status of YDL at the early stage.  It seems to me on the basis of the evidence filed that the receivers’ knowledge as at July 2014 was limited and incomplete.  In particular, they did not have the benefit of the “admissions” contained in Mr Liu’s 3^rd affirmation in the 1359 Action on which YDL now relies in the present action.  Ms Chan argued that since that affirmation was filed on 14 August 2014, YDL could have amended its writ in the 1341 Action to incorporate the present claim.

45.  Just because a claim could have been brought in an earlier action does not mean it should have been made there.  I agree with Mr Bartlett SC who appeared for YDL that the 1341 Action and the present one are very different in nature.  The former is primarily a claim, consequent immediately upon the change of management of YDL, by the company (under the control of the receivers) for recovery of its assets, seals, books and records and for various orders sought for the purpose of ensuring that the change of management is effective and not interfered with.  This is, usually at any rate, a simple and straightforward claim capable of being instituted by originating summons.  It is the defendants who raised as a defence in the 1341 Action the plea that the receivers could not validly act, on the ground that MSC was estopped from taking enforcement actions because of the assurance that it allegedly gave Mr Liu which was acted upon.  The latter, in contrast, is a claim for damages for breach of directors’ duties of loyalty and care in relation to the handling of the repayment of the second and third tranches under the Facility Agreement.  It can be seen that the nature and subject matter of the two actions are quite different.  Based on the claims themselves, the facts material to the two actions are also very different.

46.  It is true that the 1341 Action also contains a damages claim.  It is alleged there that, because of their allegedly uncooperative and obstructive conduct after the appointment of new directors, the former directors were liable in damages for breach of their continuing duty, inter alia, to deliver up YDL’s property to the new management, as well as for conversion, detinue and trespass to goods and land.  It is clear, however, from an examination of the statement of claim in the 1341 Action that those causes of action have little in common with the present action.

47.  In my view, commencing the present action as a separate action relying on the affirmations made by Mr Liu in the 1359 Action as the evidential basis for the claim is not abusive.  Further, given that Mr Liu’s side was challenging all the acts of MSC and the receivers done by way of enforcement of the security, it seems to me a rational course open to the receivers and YDL to take to await the Injunction Decision and Strike-out Decision before issuing non-urgent proceedings not essential for the functioning of the receivership and new management, such as the present action for damages.  In all the circumstances I am far from persuaded that it was an abuse of process for YDL to bring these claims separately in two different actions as it did.

48.  Finally, there is an allegation in this connection that the present action was launched to put pressure on the former directors and in retaliation against Mr Liu for procuring YPL and WEG to bring the 2539 Action against Elliott Advisors and Mr James Smith.  There is little basis for this allegation other than the fact that YDL did not bring this action until 18 December 2015, after the 2539 Action was started on 2 November 2015.  In riposte, YDL has filed evidence that the directors’ decision to bring the present action was not dictated by MSC and was taken in cognisance of their fiduciary duties to YDL and in light of the Strike-out Decision on 19 October 2015.  On the materials the evidence is in my view far from sufficient to substantiate the defendants’ contention which is a most serious one alleging bad faith.

Ground 3 – issue estoppel

49.  The defendants also rely on issue estoppel, contending that it is an abuse of process for YDL to plead and rely on facts and matters which have already been considered and rejected by the court in the Injunction Decision. 

50.  A preliminary objection to this ground was taken by Mr Bartlett SC for YDL.  He submitted that as an interlocutory decision, the Injunction Decision of Au-Yeung J could not, as a matter of law, give rise to any issue estoppel. 

51.  I do not need to deal with this point because in my opinion no relevant findings have been or can be identified which, by operation of issue estoppel, preclude YDL from making the averments that it has made in the statement of claim in this action.  To establish an issue estoppel, it is, of course, incumbent upon the defendants here to demonstrate that an issue in the present action is the same as or covered by an issue decided in previous proceedings; only a determination which is necessary or fundamental to the decision would found an issue estoppel: Spencer Bower & Handley: Res Judicata (4^th ed), §§8.19 & 8.24. 

52.  It may perhaps be said that by her Injunction Decision and her Strike-out Decision, Au‑Yeung J had decided that the alleged assurance did not exist and was not given, and that Mr Liu did not rely on it.  But her Ladyship certainly did not expressly decide, and no fair reading of her decisions can suggest that she necessarily by implication decided, that either (i) WFOE or the Mortgagors had no accessible resources at the time that could have been used to help YDL discharge its liabilities under the loan, or (ii) if requested, MSC would not have given consent for YDL or any other relevant entities to incur Financial Indebtedness for that purpose.  On the contrary, §83 of the Injunction Decision recorded that the Mortgagors “claim to have funds to pay from WFOE, Capital Metro and/or Ricky Liu’s personal deposit to raise the finance with, which was not disputed by MSC at all” (emphasis added). 

53.  Accordingly, I had no hesitation in rejecting the contention stated in Mr Liu’s affirmation in support of the present application that Au-Yeung J had “effectively rejected the contention that WFOE had sufficient resources to enable YDL to discharge its then-existing liabilities”.  In my respectful opinion, her Ladyship’s decisions did nothing of the sort. 

54.  There was a faint attempt by the defendants to rely on §120 in the Injunction Decision, where Au-Yeung J expressed the view that if she had been minded to grant an injunction in favour of the Mortgagors, she would have required them to fortify their cross‑undertaking as to damages.  It is said that, therefore, her Ladyship had found that Mr Liu’s group had no sufficient financial resources.  That seems to me to be a very long shot indeed.  The views expressed in that paragraph were clearly obiter, and therefore not fundamental to the decision; they were predicated on the insufficiency of evidence of “readily available capital to meet any award of damages pursuant to that undertaking”; and they could not conceivably be construed as a finding that neither YDL, nor WFOE, nor the Mortgagors could ever have found accessible financial resources 8 months earlier (in March 2014) to discharge YDL’s liabilities under the loan.

55.  In my judgment there was no relevant prior judicial determination that is incompatible with the case now advanced by YDL.  There is therefore no basis for contending that YDL was estopped from re-opening any issue or that the action was for that reason an abuse of process.

56.  For the foregoing reasons I dismissed the defendants’ summons with costs.

Summary assessment of costs

57.  YDL submitted a statement of costs claiming HK$938,952, which seems to me to be grossly excessive having regard especially to the fact that the legal representatives have been involved in many previous proceedings and should therefore be familiar with the facts and background. The papers are not voluminous – many of the exhibits consist of decisions, pleadings and affirmations in previous proceedings, and the issues are far from complex.  I assess YDL’s costs summarily on a party and party basis in the amount of HK$328,200.