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HCA 524/2022
[2023] HKCFI 1525
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 524 OF 2022
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BETWEEN
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CHEN YUE (陳悅) |
Plaintiff |
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and
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LI SHAN (李珊) |
1st Defendant |
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FINE ELITE GROUP LIMITED |
2nd Defendant |
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| Before: |
Deputy High Court Judge Le Pichon in Chambers |
| Date of Hearing: |
31 May 2023 |
| Date of Decision: |
6 June 2023 |
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D E C I S I O N
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1. This is D1’s application by summons dated 22 May 2023 to vary paragraph 3 of the order made on 11 May 2023 (“the Order”) such that
(a) D1 would not be required to pay the full Redemption Amount of USD 2.47 million back into the Company’s JB Account but required to pay only three quarters of the amount;
(b) if this variation is granted and if the full amount is already paid, that D1 be allowed to withdraw one quarter of the amount paid; and
(c) the time for her to pay the full amount into court extended for 7 days to 29 May 2023.
2. The nomenclature used in the decision dated 11 May 2023 (“the Decision”) will be adopted where appropriate.
The new evidence
3. In support of her application, D1 filed a 3rd affirmation dated 22 May 2023 (“D1 3rd”).
4. It is recorded in the FE Reports that the Company’s subscription amount into EBC (Investment 8) was USD 4 million, USD 3 million was paid by the plaintiff and the balance by Arthur and Kenneth, with each contributing USD 0.5 million.
5. D1 disclosed (at §10) that on 13 June 2022, she arranged for the transfer of part of the Redemption Amount to Arthur Kuan (“Arthur”) and Kenneth King (“Kenneth”). As one quarter of this investment was made by Arthur and Kenneth, D1 transferred one quarter of the Redemption Amount to them.
The variation application
6. Mr Charlie Liu, counsel for D1, submitted that the spirit of the Decision was to preserve the status quo.
7. Given the definitions of “Payments” and “Investments” in the SOC[1], it was submitted that those terms do not extend to the USD 1 million that came from Arthur and Kenneth as the purpose of the Injunction Order was to preserve the Plaintiff’s Payments to finance the “Investments” which would include the USD 3 million the Plaintiff paid into Investment 8.
8. On that reading, it was submitted that §3 of the Injunction Order went beyond preserving the status quo.
9. Mr Liu’s second submission was directed at the relationship between the Injunction Order and the Plaintiff. He referred to §§ (2) to (4) of the prayer for relief in the SOC and pointed out they do not relate to the USD 1 million. It was said that the preservation of the amount paid out to Arthur and Kenneth of USD 617,000 odd has nothing to do with the Plaintiff’s claims in the present case.
10. In so far as § (1) of the prayer may be relevant, it was submitted that the Plaintiff’s appointment as one of 2 directors of the Company would not give the Plaintiff any power to recover the sum that the Company has already paid to those investors to discharge the Company’s obligations to them.
11. Mr Laurence Li SC and Mr Byron Chiu, counsel for the plaintiff opposed the application on several grounds.
12. First, there has to be finality to decisions. The evidence now adduced is not “new”: it is not information that has come to D1’s knowledge after the date of the hearing nor is it an event that occurred after that date. Rather, it is evidence that has been in D1’s possession since 13 June 2022.
13. The “new” evidence is the payment of one quarter of the Redemption Amount to the 3rd parties, i.e. Arthur and Kenneth. At the hearing, the Defendants ran the point that the USD 1 million belonged to the 3rd parties but chose not to put in evidence that they had been paid one quarter of the Redemption Amount.
14. D1 has not explained why she is rerunning the argument relating to the USD 1 million and why she wants to put in evidence now when that evidence could have been put before the court at the hearing on 27 April 2023. Mr Li submitted that if D1 wants a second bite at the cherry, she must first explain why that evidence was not adduced at the hearing and she has not done so.
15. Second, as regards the USD 1 million, the obligation to repay is a matter between the Company and the 3rd parties. D1 has not adduced any evidence as to why the Company was under an “obligation” to pay them upon a partial redemption of Investment 8. The obligation to pay (and when it would arise) would depend on the terms upon of the agreement between the 3rd parties and the Company. Not only has that not been disclosed, how payment was made to the Company remains a disputed issue[2].
16. Moreover, the fact that the original investment was made with funds of which one quarter came from 3rd parties does not mean that when part only of the investment is redeemed, the 3rd parties are entitled to immediate repayment of one quarter of the amount redeemed. In the normal course, the divvying up should happen at the end when the entire investment is redeemed or realised.
17. It was submitted that even on the present evidence and the late evidence from D1, she still falls short of showing that the Company was under an obligation as a matter of law to make payment of one quarter of the Redemption Amount to the 3rd parties.
18. Third, SOC §12(4) defines “Investment 8” as the Company’s investment into EBC rather than the plaintiff’s payment into Investment 8. That is consistent with the accounts which show that the Company invested USD 4 million into Investment 8.
19. Fourth, D1’s objection to the Injunction Order on the basis that it is not part of the prayer for relief in the SOC misses the point. That argument was raised at the hearing and rejected by the court. The injunction granted is to preserve the assets of the Company pending trial, to preserve the status quo of the Company rather than what the Plaintiff would ultimately be awarded.
20. §23 of the Decision records D1’s stance at the hearing that the Redemption Amount was paid into her wallet on 6 June 2022 and that insofar as the Redemption Amount originates from what D1 described as “[the Company’s Subscription Amount]” in Investment 8 (which she maintained was USDT 3 million), it represents the fruits of the Company’s investment.
21. The court noted[3] that according to the Plaintiff, the remaining USD 1 million came from 2 other investors who invested through the Plaintiff. It was an allegation that D1 apparently disputed although her reasons for doing were not made apparent.
22. Notwithstanding her stance at the hearing (as recorded in §23 of the Decision), D1 now implicitly accepts that the Company’s investment into Investment 8 was USD 4 million. The obvious (if not also, likely,) explanation for that volte face would be D1’s need to put up a plausible reason to justify the payment of the one quarter made to the 3rd parties.
23. D1 also went on in D1 3rd to disclose what became of the remaining three quarters of the Redemption Amount when, at the time of the hearing, she was adamant that was not required/mandated to disclose their whereabouts.
24. It now transpires from D1 3rd that it is likely that the three quarters of the Redemption Amount have been lost[4] with the consequence that the Plaintiff may have to share pari passu with the 3rd parties in the one quarter of the Redemption Amount.
25. On a proper reading of the Decision, it is clear that the Injunction Order was made to preserve the assets of the Company whose investment into Investment 8, indisputably, was USD 4 million, pending determination of the parties’ respective interests in the Company at trial.
26. In reply to this last point (relating to preserving the status quo of the Company), Mr Liu submitted that the point in time in which the status quo is measured is the time of the injunction application. He submitted that as the Company had already paid one quarter of the Redemption Amount to the 3rd parties before the commencement of these proceedings, to maintain the status quo could mean no more than the preservation of the Plaintiff’s investment into Investment 8, i.e. the USD 3 million. On that basis, it was said that the effect of the Injunction Order was to require D1 to make payment of the one quarter of the Redemption Amount out of her own pocket.
27. With respect, it is not understood on what basis that submission could be made when it is obvious (and to D1’s knowledge) that neither the Plaintiff nor the court was aware of the evidence that D1 has belatedly disclosed. I regret to say that I do not consider it a submission worthy of counsel.
28. No reply was made to the other points raised by the Plaintiff other than to reiterate D1’s stance at the hearing that she is not required to disclose the whereabouts of Redemption Amount. To reiterate a stance that court has rejected is of no assistance.
Time extension
29. As regards the time extension of 7 days sought to comply with the Repayment Order, D1’s evidence as to the effect that immediately prior to her signing D1 3rd on 22 May 2023, she was informed by the JB Bank that it was not in a position to apply an incoming fund of USD 617,644 (“Arthur’s transfer”) until certain details could be confirmed with the remitting bank.
30. At the hearing, the court was informed that Arthur’s transfer was credited to the JB account on 29 May 2023.
31. In the circumstances, the request for time extension has been rendered academic.
Conclusion
32. I agree with the objections raised by the Plaintiff. It follows that D1’s variation application falls to be dismissed.
33. On the question of costs, the Plaintiff, having prevailed, is entitled to the costs of this application, with certificate for two counsel, such costs to be summarily assessed and payable forthwith. I make an order nisi of costs to that effect.
34. An agreed draft order be submitted for approval within 7 days of this Decision.
35. It is directed that (a) the Plaintiff’s statement of costs be lodged within 14 days of this order; (b) D1’s statement of objections (limited to 3 pages) be lodged within 14 days thereafter; and (c) the Plaintiff’s reply (limited to 2 pages) be lodged within 7 days thereafter.
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(Doreen Le Pichon) |
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Deputy High Court Judge |
Mr Laurence Li SC and Mr Byron Chiu, instructed by Zhong Lun Law Firm LLP, for the Plaintiff
Mr Charlie Liu, instructed by Karas So LLP., for the 1st Defendant
Chen & Lee Law Office, for the 2nd Defendant, attendance excused
[1] SOC §§10 and 12.
[2] See §21 below.
[3] See footnote 7 of the Decision.
[4] It would appear that after the closure of her Binance account, it was transferred to her account with FTX Exchange between 30 August 2022 and 11 September 2022: see D1 3rd at §12.
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