LINE POWER LTD v. CHEN JINHUI

HCMP 2591/2024

[2024] HKCFI 3584

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2591 OF 2024

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REASONS FOR DECISION

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1.  On 4 December 2024, the plaintiff in HCMP2591/2024 (“LPL”) issued an Originating Summons for an injunction to restrain the defendant (“Chen”) from presenting a petition to wind up LPL. On the same day, LPL issued an inter partes summons and fixed a hearing for an interim interim injunction on 10 December 2024. At the conclusion of the hearing, I gave an order and indicated that I would give brief reasons in writing which I now do.

2.  On 19 November 2024, two statutory demands (“SDS”) had been served on LPL on behalf of Chen by Adrian Yeung & Cheng, solicitors (“AYC”). There is no mechanism in winding-up proceedings to set aside an SD against a company (in contrast with an SD against an individual in bankruptcy proceedings). Hence, a company disputing its liability to pay an SD and seeking to pre-empt a winding-up petition has to seek an injunction to restrain the presentation of the petition.

Factual background

3.1.  The dispute between Chen on one side and LPL and others on the other side was the subject of litigation in HCA1524/2012 (“the 1524 Action”). DHCJ Simon Leung (“the trial judge”) gave a judgment in favour of Chen in March 2021 (“the 1524 Judgment”)[1].

3.2.  LPL and others appealed. LPL’s appeal (CACV173/2021) is scheduled to be heard on 25-26 November 2025. In a decision in 2022[2] in CACV173/2021, the CA gave leave to LPL to adduce fresh evidence. In that decision, the CA gave a cogent summary of the issues in the 1524 Action.

HCA1524/2012

4.1.  Essentially, in the 1524 Action, Chen claimed that:

-  in 2003, one Wong Kam San (“Wong”) had agreed to transfer to him 80% of Wong’s shares (“the Shares”), held through LPL, in a company called Hawkins Development Ltd (“Hawkins”); and

-  in 2008 however, Wong transferred those shares to one Lead Success (Hong Kong) Ltd (“Lead Success”).

4.2.  The defendants in the 1524 Action included Wong (1^st defendant), LPL (2^nd defendant), Lead Success (4^th defendant) and Hawkins (5^th defendant).

4.3.  In support of his claim, Chen produced various documents (described by AYC as “core documents”) said to have been signed by Wong.

4.4.  By the time of trial, Wong had become mentally incapacitated. He had previously said that some of his signatures on the documents were forged, or had been placed by him on blank documents.

5.1.  In the 1524 Judgment, the trial judge accepted that those core documents were genuine. He gave declaratory relief in respect of the Shares in favour of Chen, and ordered that in default of transfer of the Shares to Chen, Wong and others were liable to pay Chen.

5.2.  The trial judge also ordered that the defendants (including LPL) pay Chen’s costs in the 1524 Action. From 2013 - 2016, costs orders in interlocutory proceedings (in the net amount of about $93,000) were made in Chen’s favour. Further, by an allocatur dated 14 October 2024, a master certified the costs of the Action at more than $9.2 million.

6.  On 19 November 2024, AYC served two SDS on LPL, one for each of the costs orders above.

2022 Declarations

7.1.  However in the meantime, after judgment was given in the 1524 Action in March 2021, Chen was investigated by authorities on the Mainland. Subsequently, three handwritten documents entitled Declarations and dated 3 February 2022, 25 April 2022 and 21 May 2022 respectively (“the 2022 Declarations”) came into being, said to be signed by Chen.

7.2.  According to these Declarations, Chen (i) admitted having forged or fabricated various documents, including the core documents, which he had produced as evidence in the 1524 Action, (ii) stated that he wished to withdraw the Hong Kong proceedings, and (iii) instructed AYC to stop the procedure for transfer of the Shares.

Admission of fresh evidence

8.1.  In the meantime, on 16 April 2021, LPL had lodged a notice of appeal in CACV173/2021 against the 1524 Judgment.

8.2.  In 2022, LPL applied for leave to adduce the 2022 Declarations as fresh evidence.

8.3.  On 4 November 2022, the CA gave leave to adduce the 2022 Declarations as fresh evidence at the hearing of the appeal, reserving the question of what weight (if any) ought to be accorded to them for consideration at the substantive hearing of the appeal (§52).

9.  Mr Chow Ho Kiu, counsel for LPL[3], informed me that in that application to the CA, LPL had challenged AYC’s authority to act for Chen, based on the contents of the 2022 Declarations. However, the CA obviously did not think that these Declarations indicated that AYC had no authority to act, as otherwise the CA would not have received the submissions of counsel instructed by AYC who were stated as Chen’s legal representatives in the CA judgment.

10.  As a matter of completeness, I should add that Mr Chow informed me that LPL had provided the CA with a draft Supplemental Notice of Appeal to incorporate reference to the 2022 Declarations, but it has not been filed.

Liaoning proceedings

11.1.  Meanwhile, Chen underwent a trial in Liaoning. He pleaded not guilty, and refuted the contents of the 2022 Declarations on the basis of involuntariness.

11.2.  A judgment was given by the Liaoning Court on 19 September 2024 (“the Liaoning Court Judgment”). It is 68 pages long. It summarizes in some detail the parties’ respective cases, the documentary evidence and the witnesses’ testimonies, before giving reasons for its judgment. It included reference to Chen’s argument that his confession was involuntary as it was the result of duress, but it also included summaries of the testimonies of other witnesses including Wu Yuefan and Zheng Zhiguang who said Chen had asked them to give false evidence in the Hong Kong proceedings to support Chen’s case that Wong had agreed to sell the Shares to him.

11.3.  The Liaoning Court found Chen guilty of fraud and sentenced him to 10 years imprisonment and a fine of RMB20 million.

Statutory Demands and subsequent proceedings

12.1.  Two months after the Liaoning Court Judgment, the SDS were served on LPL on 19 November 2024.

12.2.  On 27 November 2024, LPL’s solicitors and AYC entered into correspondence. LPL demanded that a petition should not be presented, and AYC proposed conditions for an undertaking not to do so.

13.  On 3 December 2024, LPL commenced a new action (HCA2396/2024) to set aside the 1524 Judgment on the basis that it had been procured by fraud.

14.  On 4 December 2024, LPL commenced the present proceedings (HCMP2591/2024).

15.  On 9 December 2024, AYC filed a notice to act for Chen in the present proceedings, and filed skeleton submissions.

Discussion

16.  First, I will consider LPL’s challenge to AYC’s authority to act for Chen, based on the 2022 Declarations.

17.  I note that AYC’s authority to act for Chen had already been challenged by LPL at the application to the CA for leave to adduce fresh evidence, and as discussed above (§9), the CA has obviously rejected the challenge.

18.  Mr Chow then submitted that HCMP2591 are fresh proceedings distinct from the 1524 Action. However, in my view, this HCMP is only satellite litigation arising from Chen’s enforcement of the 1524 Judgment by way of the SDS.

19.  Accordingly I am satisfied[4] that Chen has not terminated his instructions and AYC has authority to act for him.

20.  Coming then to the proposed injunction to restrain presentation of the petition, AYC has confirmed that Chen is prepared to give an undertaking not to present the petition:

(1)  upon LPL paying $94,000 into court; and

(2)  the undertaking to be until the determination of CACV173/2021 (the appeal from the 1524 Judgment) or HCA2396/2024 (the new action to set aside the 1524 Judgment) whichever is the earlier.

21.  As for (1), LPL has no objection to doing so by 12 December 2024.

22.  As for (2), LPL contended that the undertaking needs to be until the determination of CACV173/2021 and HCA2396/2024 whichever is the later.

23.  I agree that the latter is more appropriate. Although the hearing of CACV173/2021 has been fixed for November 2025 and HCA2396/2024 is still in its initial stages, one can see that more evidence may be produced to the court in the new action which is the more appropriate mechanism to deal with a situation where it is alleged that a judgment has been procured by fraud.

24.1.  Finally, as to costs, I have heard submissions from both sides.

24.2.  Even putting the controversial 2022 Declarations to one side, the evidence in the Liaoning court[5] as summarized in that court’s judgment shows that there was also live evidence in the Liaoning proceedings from Wu and Zheng, witnesses who had given evidence in the Hong Kong proceedings, that he had procured them to give false evidence in his favour. I recognize that Chen has not had the opportunity to file evidence to explain these witnesses’ testimonies in the Liaoning proceedings, but he must have been aware of them. To insist on presentation of a petition to wind up in light of that, and in light of the issuance of the new action to set aside the 1524 Judgment, would be an abuse of process.

24.3.  There are also the issues of adequacy of damages and balance of convenience. It is well known that interim interim relief is only a temporary, stop-gap measure, and in its evaluative process, the court is concerned to do what is fair[6]. It is trite that the presentation of a winding-up petition against a company would lead to the freezing of its bank accounts, which would inevitably lead to difficulties in operations. In contrast, Chen would only be kept out of his money for a little longer for which he would be able to obtain interest.

24.4.  Having considered the matters above, I am satisfied in the exercise of discretion that the costs of the OS should be in the cause, but that the costs of the inter partes summons and the hearing today should be paid by Chen to LPL on a party and party basis.

24.5.  I have not acceded to Mr Chow’s request for costs to be taxed on an indemnity basis[7], having considered matters in the round, noting that at the time the SDS were served, there were (and are) two extant court orders for costs, there was (and still is) no amendment to the grounds of appeal in CACV173 to incorporate any allegation of fraud, and the new action to set aside the 1524 Judgment had not yet been issued