CHEN HONGQING v. The persons whose names are set out in the second column of the Schedule to the Re amended Writ of Summons filed on 26 March 2018 AND OTHERS

HCA 2648/2017
and HCA 1282/2017
(Heard together)

[2021] HKCFI 1803

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2648 OF 2017

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BETWEEN

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AND

HCA 1282/2017

ACTION NO 1282 OF 2017

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BETWEEN

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(Heard together)

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D E C I S I O N

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The

“Leave & Directions Decision”

A. Introduction

1.  I call this decision the “Leave & Directions Decision”.  It is my decision on principally the NOA Summons and the SHDs Directions Summons (both defined below).  It may be read in context together with two other related decisions this Court hands down at the same time (namely the “CHQ Injunction Decision”[1] and the “FR Lien Decision”[2]).

2.  This Decision is to be read together with the Jurisdiction Decision[3], the Receivership Decision[4] and the SHD Injunction Decision[5] this Court handed down on 30 August 2019.  I also adopt the same terms used in those Decisions.

3.  For reasons as set out in the Jurisdiction Decision, I set aside the Service Out Order, the concurrent Writ and concurrent Amended Writ issued pursuant thereto and the service out permitted thereby.  I also discharged the ASI.  Those orders are for ease of reference referred to as the “Jurisdictional Orders”.

4.  For reasons set out in the Receivership Decision, I dismiss Chen HQ’s Receivership Summons.  

5.  There were a number of parties before me:

(a) Chen HQ, represented by Mr Law Man Chung and Mr Issac Chan on 8 October 2019 and Mr Ambrose Ho SC leading Mr Issac Chan on 18 October 2019;

(b) the SHDs, represented by Mr José-Antonio Maurellet SC leading Mr Alexander Tang;

(c) the Jinan Group, represented by Mr Anson Wong SC leading Mr Ross Li;

(d) the EY Receivers, represented by Mr David Chen; and

(e) those plaintiffs in HCA 1282/2017 (“HCA 1282”) who were represented by Messrs K&L Gate (“K&L Gate”, and the “KLG Employee Shareholders”), represented by Mr Samuel Ngo on 8 October 2019 and Mr Keith Tam on 18 October 2019.

B. The number of applications in HCA 2648/2017, HCA 1282, the Trust Actions, and HCA 1699/2019 before this Court

6.  During the period between late 2019 and early 2021, a number of different but related applications in different actions came before me.

7.  The following matters in HCA 2648/2017 (“HCA 2648”) were on 18 October 2019 before this Court[6]:

(a) Chen HQ’s application by Summons of 13 September 2019 (“NOA Summons”) for:

(i) leave to appeal against the Jurisdictional Orders and the dismissal of the Receivership Summons;

(ii) leave for him to rely on certain new evidence for his application for leave, and if granted, for the appeal;

(iii) interim measures pending appeal;

(b) SHDs’ applications by Summons of 13 September 2019 in  HCA 2648 and 4 October 2019 in HCA 1282 for consequential directions (the “SHDs Directions Summons”) on, inter alia, release of the CSI Shares;

(c) Taxation of costs in respect of the Jurisdiction, Receivership and SHDs Injunction Applications, and in that regard the summons taken out by Chen HQ for extension of time for him to file his response to the SHDs’ and Jinan Group’s submissions for summary assessment (the “CHQ Costs Extension Summons”);

(d) Summons taken out on 17 October 2019 by the KLG Employee Shareholders seeking adjournment of the SHDs Directions Summons (the “K&L Summons”);

(e) The objection raised by the EY Receivers to the terms of the directions sought by the SHDs on the grounds, inter alia, that they are entitled to a lien to the CSI Shares.

8.  At the time of the hearing, there were other additional and relevant summonses which were pending but were not before this Court on that same hearing day.  They subsequently were.  Some more related applications have since then been taken out.  I set them out as follows. 

9.  The CHQ Injunction Summons and other applications under HCA 1699/2019:

(a) On 17 November 2017, soon after his unsuccessful application to be joined in the Trust Actions, Chen HQ commenced HCA 2648.  He claimed to be the owner of those Employee Shareholders’ interests in their CSI Shares, so that should those Employee Shareholders become successful in the Trust Actions, the related shares, then held by the EY Receivers, should be passed to him but not the successful Employee Shareholders;

(b) On 30 August 2019, I handed down the Jurisdiction Decision in HCA 2648. I made the Jurisdictional Orders.  For reasons set out in the Receivership Decision, I also dismissed Chen HQ’s Receivership Summons;

(c) On 13 September 2019, Chen HQ started HCA 1699/2019 (“HCA 1699”).  Instead of seeking to have the matter tried in Hong Kong, as he had been seeking to do in HCA 2648, he seeks in HCA 1699 to rely on the decisions he has obtained in the Mainland (the “Ruzhou Judgments”) against certain of the Employee Shareholders.  He seeks to enforce those judgments;

(d) On the same day, he took out the NOA Summons;

(e) On 3 October 2019, two of the SHDs took out a summons for leave to be joined in HCA 1699.  They have subsequently been joined, and are now D4 and D5 in HCA 1699;

(f) By summons dated 4 October 2019 under HCA 1699 and returnable on 31 October 2019 before this Court (the “CHQ Injunction Summons”), Chen HQ sought against the EY Receivers an interim injunction to restrain them from disposing of the 368,168 CSI Shares pending trial or further order;

(g) During the hearing on 31 October 2019, and having heard respective Senior Counsel appearing for the parties, I refused Chen HQ’s application for interim / interim relief (see [2019] HKCFI 2720 in HCA 1699).  I adjourned the matter for substantive argument.  That hearing was originally fixed before me on 3 March 2020.  That was vacated due to the COVID-19 pandemic.  I on 28 February 2020 ordered paper disposal, and gave directions on the further conduct of the matter, including the filing of written submissions and extension of time for the filing of further evidence as requested by Chen HQ;

(h) Before the close of the filing of submissions for the CHQ Injunction Summons, and by summons of 16 March 2020 (“Jinan Group Joinder Summons”), Jinan Group sought leave to be joined as a defendant in HCA 1699, and other consequential directions relating to the CHQ Injunction Summons should it be permitted to so join;

(i) After a contested hearing on 5 January 2021, and for reasons set out in my Decision of 23 February 2021[7], I allowed the Jinan Group Joinder Summons;

(j) Pursuant to the directions I gave on 23 February 2021, and between 23 March and 16 April 2021, further submissions in relation to the CHQ Injunction Summons were filed;

(k) By the CHQ Injunction Decision handed down together with this Decision, I allow the CHQ Injunction Summons.

10.  The Lien Summonses:

(a) Mr Chen referred to the Lien Summonses (defined below) at §11 of his written submissions;

(b) I have mentioned above the question of lien raised by the EY Receivers;

(c) On 15 October 2019, the EY Receivers took out 2 identical summonses under the Trust Actions and HCA 1282 (the “Lien Summonses”) for inter alia a declaration that they are entitled to a lien over the CSI Shares;

(d) The contested hearing took place before me on 11 August 2020;

(e) By the FR Lien Decision handed down at the same time as the present Decision, I refused the Lien Summonses.

11.  All the above matters intertwined.  In particular, Mr Ho urged this Court to view the disposal of HCA 2648 and HCA 1699 as a whole[8].  He further invited this Court to hear parties on all the matters first.  Any decisions and directions for both HCA 2648 and HCA 1699 may then be given at the same time[9]. 

12.  Given their intertwined nature, I am of the view that they would have to be (and hence the handing down of this Leave & Directions Decision, the FR Lien Decision and the CHQ Injunction Decision at the same time).

C. The KLG Employee Shareholders’ application for adjournment

13.  Subsequent to the hearing, Messrs Stephenson Harwood (“SH”) on 25 October 2019 (the “SH 25/10/19 Letter”) wrote in and informed this court that agreement had been reached to adjourn the issue concerning how to deal with the shares of certain specific KLG Employee Shareholders sine die with liberty to restore.  I make an order to effect that.  I otherwise need not be concerned about that further.

D. The NOA Summons

14.  I consider the NOA Summons first.

15.  A draft Notice of Appeal (“Draft NOA”) is attached to the NOA Summons. 

16.  To get leave, it is incumbent upon Chen HQ to show that the intended appeal has a reasonable prospect of success.

D.1. In relation to the Jurisdiction Decision

17.  I consider the proposed grounds in relation to the Jurisdiction Decision first.

18.  Whilst the Draft NOA contains a number of paragraphs, they fall into 2 broad grounds, and Mr Ho addresses them as such in his written submissions.  I will consider them along the same line.

19.  The first broad ground — submission to jurisdiction:

(a) As submitted and summarised by Mr Ho[10], the first broad ground suggests that “SHDs and Jinan [Group] have submitted to the jurisdiction of the Hong Kong Courts through their application for anti-suit Injunction”;

(b) I agree with Mr Maurellet and Mr Wong that that ground is not reasonably arguable;

(c) To start with, the SHDs Directions Summons was taken out by the SHDs, but not the Jinan Group;

(d) I am not satisfied that Jinan Group, by supporting the same, has submitted to the jurisdiction of the Hong Kong Courts;

(e) Further, my attention has been drawn by Mr Maurellet and Mr Wong to a number of authorities which explain what constituted voluntary submission to jurisdiction.  They include, Hwoo Huang Linda v Fu Being San [2013] 1 HKLRD 259, per Deputy Judge Reyes SC (as he then was) at §§25-26 (citing Mustill and Boyd, The Law and Practice of   Commercial Arbitration in England (2^nd ed, 1989) pp.472-473), RKL v WL [2016] 5 HKC 153 (CA), per Chu JA at §§31-32, and China Medical Technologies, Inc (In Liquidation) v The Bank of East Asia, Limited [2019] HKCFI 2143, per Wilson Chan J at §12;

(f) I note the circumstances leading to the application for the SHD Injunction.  Consistent with those circumstances, in his written submission of 3 June 2019 made in support of that application, Mr Maurellet submitted that:

“ 44. …unlike the traditional case, the injunctions sought herein are not based on a dispute over forum, and the assertion by the applicant that HK is the forum conveniens. In fact, the SHDs’ disputed that HK is the appropriate forum.

45. As such, unlike the traditional case, where an anti-suit injunction is based on the jurisdiction of the Hong Kong Court, the injunctions sought herein is not.

46. In fact, all that the injunctions would achieve (if granted) is to deprive Chen HQ of any fruits of his abusive conduct …”

(g) I accept Mr Maurellet’s submission[11] that properly understood, the true purpose of SHDs’ application was to preserve the status quo pending determination of the Jurisdiction Challenge and the ASI Discharge Application — and see Hwoo Huang Linda §26(3).

20.  The second broad ground — the Ruzhou Judgments:

(a) Mr Ho submits[12] that “This Court held that the parties should fight these disputes out in the Mainland: Jurisdiction Decision §150… P has done that through the Ruzhou Proceedings.  In fact, judgments had been obtained …”;

(b) At §1(6) of the Draft NOA, it is suggested that in respect of those SHDs who were involved in the Ruzhou Proceedings, they “are estopped by the judgment against them”; and in respect of those who were not, still those judgments “should be taken into account and accorded due weight in this action”;

(c) Request for leave under the Ladd v Marshall [1954] 1 WLR 1489, principles to rely on fresh evidence (“Fresh Evidence”) on certain further developments in relation to the Ruzhou Proceedings is then made (§2 of the Draft NOA);

(d) Then at §3 of the Draft NOA, it is suggested that:

“ After taking into account, and giving due weight, to the judgments in all the aforesaid Ruzhou Proceedings, including those referred to in the Fresh Evidence, the Underlying Issues have by now been concluded and should accordingly be applied to the only remaining issue in this action, namely, in the light of such judgments, whether the Plaintiffs … is entitled to and/or interested in the Shares (‘Remaining Issue’) …”

(e) As Mr Maurellet and Mr Wong have submitted, that approach is different and inconsistent with the stance that Chen HQ had thus far adopted.  His stance in prosecuting HCA 2648 had been that Hong Kong was the appropriate forum for adjudicating his claim.  But now, he is seeking to say that the Mainland is in fact the appropriate forum, that he had obtained the Ruzhou Judgments, and that all that is left is the Remaining Issue;

(f) It is one thing for Chen HQ, after my Jurisdiction Decision, to commence HCA 1699 and adopt a different stance.  I have considered the implications in the CHQ Injunction Decision.  It is however quite another to try to rely on a ground of appeal in HCA 2648 basing on a stance which is contradictory to the stance which he has previously adopted and maintained in the same action;

(g) I agree with Mr Maurellet and Mr Wong, relying on Express Newspapers Plc v News (UK) Ltd [1990] 1 WLR 1320 at 132F-G and Chan Chun Chuen v Kao, Lee & Yip, unrep, HCA 597/2015, 12 October 2017 at §30(4), that would be barred from running such a point on appeal;

(h) I am of the view that the second broad ground is also not reasonably arguable;

(i) In my view, the Fresh Evidence does not assist Chen HQ.  I refuse him leave to rely on them;

(j) On similar considerations, I am of the view that §§6 and 7 of the Draft NOA in relation to my views on material non-disclosure are also not reasonably arguable.

21.  I refuse leave in respect of all the proposed grounds of appeal against the Jurisdiction Decision and Jurisdictional Orders.

D.2. In relation to the Receivership Decision

22.  I proceed to consider the proposed appeal against the Receivership Decision.

23.  §9 of the Draft NOA relies on the same matters which Chen HQ seeks to rely on in relation to his proposed appeal against the Jurisdiction Decision.  For the same reasons discussed above, I am of the view that it is not reasonably arguable.

24.  §10 of the Draft NOA complains that I have “erred in holding that there was no necessity for a receivership over the Shares: Receivership Decision §22”.  It proposes to contend that I should have considered that the discharge of the EY Receivers has led to Zhang Snr becoming the single largest shareholder in CSI.

25.  At §§20 and 21 of the Receivership Decision, I stated that given my conclusion that there is no serious issue to be tried, the Receivership Summons should be dismissed.  I proceeded to consider the Alleged Necessities in case I were wrong in that conclusion.

26.  I repeat the matters which I have stated at §22 of the Receivership Decision.  I have considered the relevant evidence and materials that were before me before reaching the view that the Alleged Necessities, whether individually or collectively, do not afford any basis for the appointment of interim receivers.  I am of the view that §10 of the Draft NOA is not reasonably arguable.

27.  In respect of §11 of the Draft NOA, I highlight §25 of the Receivership Decision. That proposed ground is in my view not reasonably arguable.

28.  §§12 and 13 of the Draft NOA concern my consideration of the Takeover Code in the context of the issue of balance of convenience.  For the reasons stated at §23, I am not satisfied that those proposed grounds are reasonably arguable.

29.  I refuse leave in respect of all the proposed grounds of appeal against the Receivership Decision.

D.3. Interim measures pending appeal

30.  Given my conclusion that the grounds set out in the Draft NOA are not reasonably arguable so that the proposed appeal has no reasonable prospect of success, I refuse to grant any of the interim measures sought. 

31.  Also in the light of that same conclusion of mine, there is no need for me to resolve the disagreement between the parties on the interpretation of Registrar of Hong Kong Institute of Certified Public Accountants v X [2017] 3 HKLRD 541 as to whether the threshold test for interim injunction pending appeal is the higher one of “a real prospect of success” — see §43 per Kwan JA.  If necessary, I would have applied the threshold of “a real prospect of success”, which in my view is the effect of Her Ladyship’s observations.

32.  I dismiss §3 of the NOA Summons.

33.  The dismissal of §3 of the NOA Summons is however without derogation from the effect of the CHQ Injunction I grant for reasons set out in the CHQ Injunction Decision.

E. The SHDs Directions Summons

34.  I proceed to deal with the SHDs Directions Summons.

35.  I refer to the FR Lien Decision.  For the reasons set out therein, I dismiss the Lien Summonses.

36.  I refer to the CHQ Injunction Decision.  For the reasons set out therein, I allow the application.

37.  The SHDs Directions Summons has to be considered in the light of those 2 Decisions.

38.  I refer to the Order I made on 15 February 2018 (the “15/2 Order”)[13].  Given the Jurisdictional Orders, and this Court’s decision refusing Chen HQ leave to appeal, I see no reason why the undertaking given by 1,878 SH Defendants should be permitted to stay.  I release the 1,878 SH Defendants from that undertaking. 

39.  The 385 Defendants (Categories 1.4 and 1.5 as set out at Appendix I to Mr Maurellet’s written submissions of 3 October 2019) who are subject to the injunction imposed by §6 of the 15/2 Order are mostly not represented by SH[14].  I however accept Mr Maurellet’s submissions that since the challenge goes to the jurisdiction of the court, this court would need to form a view regardless of the positions taken by the parties — see Lehman & Co Management Ltd v Effiscient Limited, unrep, CACV 272/2011, 13 March 2013, at §47.  Given the Jurisdictional Orders and my views leading to them, I form the view that that injunction should also be discharged.  I discharge the injunction against the 385 Defendants.

40.  In short, I grant §§1 and 2 of the SHDs Directions Summons, and make an order in terms of §§1 and 2 of the Draft Order attached to the SH 25/10/2019 Letter (the “Draft Order”).

41.  The release of the undertaking and the discharge of the injunction are however subject to the effect of the CHQ Injunction.

42.  Given the CHQ Injunction Decision, I am of the view that the Shares (as defined in the 15/2 Order) and other related documents that have been deposited with Court pursuant to §5 of the 15/2 Order should remain in Court.

43.  I refuse §§3 and 4 of the SHDs Directions Summons.

44.  Given my decisions above, the technical matters raised at §51 of Mr Maurellet’s written submissions are not engaged.

F. The issues on costs

45.  I now consider the CHQ Costs Extension Summons.

46.  I have refused leave to appeal.  I have refused CHQ the measures pending appeal sought.

47.  Whilst I have granted the CHQ Injunction, those costs may be dealt with under the CHQ Injunction Summons in HCA 1699.

48.  I refuse §2 of the CHQ Costs Extension Summons.

49.  In his written submissions, Mr Ho has in fact gone further than seeking time.  He submits that “the figures put forward by the SHDs and the Jinan Group for summary assessment are, to say the least, staggering”, and that “[such] substantial amount claimed demonstrates that summary assessment should not be made”.

50.  Relying on Seridom Servicios Integrados Idom SAU v Heng Wen Trade Co., Ltd [2019] HKCFI 761 at §§24-30, Mr Maurellet submits that the mere fact that quantum is high does not make gross-sum assessment unsuitable. As observed by Marlene Ng J at §29, there should be “disputes over points of principle that underlied the amount of costs claimed”, as opposed to simply “potential arguments as to quantum”.

51.  In reply, Mr Ho submits that the dispute “did not just go to quantum, but rather are proofs of significant duplication of costs”, and that “there are substantial dispute as to obviously duplicating feature of the costs claimed by both SHDs and Jinan [Group] which merits a careful examination through taxation”.

52.  With respect, what Mr Ho has put forward remain in my view “potential arguments as to quantum”.  Nothing on the substance and extent of the dispute has been put forward to justify taxation.

53.  Despite submissions, I remain of the view that summary assessment is on the facts before me appropriate.

54.  I am however prepared to give Chen HQ sometime to prepare his objections.  I give him 28 days from the date hereof to do so.  That should give him and his team sufficient time to go conduct the examination carefully.  SHDs and Jinan Group are given 21 days thereafter to file their replies.

G. Disposition

55.  I therefore:

(a) dismiss the NOA Summons;

(b) allow §§1 and 2 of the SHDs Directions Summons and dismiss the balance;

(c) allow the CHQ Costs Extension Summons to the extent as explained above;

(d) in respect of the K&L Summons, make an order in effect by consent as per Section C above.

H. Costs

56.  I make the following costs order nisi:

(a) Chen HQ should bear the costs of and occasioned by the NOA Summons, with certificate for 2 counsel for SHDs and Jinan Group;

(b) whilst I have allowed §§1 and 2 of the SHDs Directions Summons, §§3 and 4 thereof are the more controversial and substantial ones.  I order that the SHDs shall bear 1/3 of the costs of and occasioned by that summons, with certificate for 2 counsel for Chen HQ;

(c) whilst I have granted Chen HQ time to file his objections, he is seeking the indulgence of the court.  I make no order as to costs in so far that the CHQ Costs Extension Summons is concerned;

(d) I make no order as to costs in respect of the K&L Summons, it having been dealt with in effect by consent;

(e) all costs are to be summarily assessed.  Statement of costs to be filed within 28 days from the date hereof, objections 21 days thereafter, and reply 14 days thereafter.

In respect of the hearing on 8 October 2019 :

In respect of the hearing on 18 October 2019 :