SILVER UNIVERSE INVESTMENTS LTD v. CHINA TIMES SECURITIES LTD AND OTHERS

HCA 1824/2018

[2020] HKCFI 2027

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1824 OF 2018

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D E C I S I O N

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1.  By a summons dated 23 August 2019 (“the Summons”), the plaintiff (“P”) applies for an order requiring the 1^st defendant (“D1”) and the 2^nd defendant (“D2”) to pay interim payments to P.  The interim payments sought by P are as follows:

(1)  D1 do pay HK$155,400,000 or such sum as determined by the Court to P within 14 days; and

(2)  D2 do pay HK$129,203,661 or such sum as determined by the Court to P within 14 days.

2.  Originally, the substantive hearing of the Summons was scheduled to take place before another judge on 24 March 2020.  Due to the General Adjourned Period, the substantive hearing was re-scheduled to take place before me 30 July 2020.  On 27 July 2020, I directed that the Summons would be determined on the papers without an oral hearing. Subsequently, the parties have provided me detailed written submissions pursuant to my directions.  I have considered all the written submissions before reaching a decision on the Summons.

3.  There is also a summons taken out by D1 before the Court, by which D1 is seeking retrospective leave to file and serve the 5^th affirmation of Frank Yu (a director and employee of D1) dated 18 March 2020 and the exhibits thereto out of time.  P objects to the late filing of this affirmation. D2 has not indicated any objection to this application. The said affirmation has been provided to P a long time ago.  It is not suggested by P that it would need to put in any evidence in reply if leave for filing this affirmation is granted to D1.  In the circumstances, I do not see any prejudice to P if D1’s application for leave is granted.  Bearing in mind that the primary aim in exercising the case management powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties[1], I am of the view that the retrospective leave sought should be granted to D1. I so order.  There be a costs order nisi that costs of the D1’s summons be paid by D1 to P forthwith, and the sum of which should be HK$1,040.

4.  Counsel have put forward many arguments in their respective written submissions.  I am not going to deal with each and every point raised in those written submissions.  It would be sufficient for me to say that for the reasons set out below, I am of the view that P has not made out a case for interim payments.   As to the points raised by counsel which have not been discussed in this decision, those points are not discussed here merely because it would not be necessary to do so for the purpose of determining the Summons.  Counsel may pursue those points at the trial if they deem fit.

5.  I would first outline the parties’ respective cases.

THE PARTIES’ RESPECTIVE CASES

P’s Case

6.  According to P,

(1)  Mr Chen Jianle (“Chen”) is a Mainland resident who does not speak or read English.  Chen is the majority shareholder of P which held some 70,000,000 shares in of China Silver Group Limited (a company listed on the Main Board of the Hong Kong Stock Exchange) (“China Silver”).

(2)  Through intermediaries P’s representatives were introduced to representatives of D2, who represented that D2 as a Swiss based private fund for high end clients.  D2 would be able to provide a loan facility to P secured against the China Silver shares, a small cap stock with low volumes of transactions.

(3)  On 12 February 2018:

(a)  P entered into a loan agreement (“the Loan Agreement”) and a Pledge Agreement (“the Pledge Agreement”) with D2, pursuant to which D2 as a lender, agreed to lend US$10,600,000 (“the Loan”) to P, and P as borrower, would pledge the 70,000,000 shares of China Silver (“the Subject Shares”) in favour of 360 as collateral.

(b)  In reliance of the Loan Agreement, P, D2 and D1 signed a Collateral Agency Agreement (“the Collateral Agreement”, collectively with the Loan Agreement and the Pledge Agreement, “the Financing Documents”). Pursuant to the Collateral Agreement, D2 appointed D1 as its agent holding the Subject Shares as security on behalf of D2.

(c)  P and D1 entered into a Cash Account (Securities Trading) Client Agreement and a Supplemental Agreement for Margin Account, which set out the terms and conditions of the account held at D1 (“the Account”).

(4)  On or around 13 February 2018, and pursuant to the Financing Documents, P deposited the Subject Shares into the Account held in its name and beneficially owned by it with D1, in respect of which D1 would act as the collateral agent.  The market value of the Subject Shares was around HK$150 million at the time.

(5)  On 21 February 2018, D2 advanced HK$22,696,339 (around US$2.9 million) to P, being less than one third of the Loan promised under the Loan Agreement.  The remaining facility under the Loan Agreement has never been released to P.

(6)  Unbeknownst to P, all the Subject Shares were transferred out of the Account by D1 on 23 February 2018 to an account held with Standard Chartered Bank (Hong Kong) Limited (“SCB”) (“the SCB Transfer”) without P’s knowledge or consent.  In the meantime, D1 continued to issue account statements to P as late as July 2018 in which it represented that D1 still held the Subject Shares in the Account.

7.  D1 claimed that the Subject Shares were being held with SCB under some custodian arrangement.

8.  D2 continued to make representations that there was some issue which needed investigation but the remainder of the Loan would be released.

9.  However, in light of a report in the media indicating that D1 was under investigation for fraud, P was ultimately prompted to commence these proceedings on 6 August 2018 and obtained an injunction against D1.

10.  Only after the injunction was obtained and served against D1 and D2, on 15 August 2018, D2 issued a letter purportedly alleging a contractual event of default (“EOD”) on the basis that P did not pay interest due by 1 August 2018, and requested D1 to transfer the Subject Shares to D2.

11.  The disclosure made by D2 under compulsion of the Court Order shows that the SCB Transfer was made pursuant to an arrangement with Eden Investments Limited (“Eden”), in which D2 hypothecated all of the Subject Shares to Eden and relinquished all rights and control of the Subject Shares.

12.  As for D1, its disclosure evidence was that in effecting the SCB Transfer, it was acting as Eden’s agent and the transfer was to a custodian account at SCB.  However, D1 gave no particulars of the alleged custodian arrangement.

13.  Subsequently, P sought discovery from SCB as to the transactions in the Subject Shares.  It transpired that:

(1)  Following the SCB Transfer, by 2 March 2018, State Street Bank and Trust Co Boston (“State Street Bank”) sold a total of 51,000,000 of the Subject Shares to SG Securities (HK) Limited, in return for a total sum of HK$97,040,080.  It is unclear whether State Street Bank did so on its own volition or on the instructions of D2, Eden, or others.

(2)  SCB unequivocally confirmed that it did not have any custodian arrangement with any of D2, D1, Eden or Everton Associates (“Everton”).

14.  As far as P is concerned, the Subject Shares are lost and no longer traceable or recoverable save and except against the D1 and D2.

15.  P also claims that D2 is a “money lender” within the meaning of s.2 of the Money Lenders Ordinance (“MLO”), and since D2 is not a licensed money lender, the Financing Documents are unenforceable pursuant to s.23 of the MLO.

16.  P has not put forward a case that D2 has failed to return the balance of the proceeds to P, after realizing the Subject Shares to satisfy P’s indebtedness owed by P to D2 under the Loan Agreement.

17.  The basis of P’s application for interim payments is as follows:

(1)  Application against D1 under Order 29 rule 11(1)(c) on the basis of the following: 

(a)  D1’s breach of express and/or implied terms of the Account Opening Documents and the Collateral Agreement; and/or

(b)  D1’s breach of its duties of care owed to P in tort.

(2)  Application against D2 is based on the following claims:

(a)  breach of express/implied terms of contract, based on Order 29, rule 11(1)(c) in respect of damages, or alternatively for a sum due under the Loan Agreement, based on Order 29, rule 12(c) in respect of a sum other than damages and costs;

(b)  breach of duties of care as mortgagee in possession or in tort, based on Order 29, rule 11(1)(c) in respect of damages; and/or

(c)  the claim under s.23 of MLO, based on Order 29, rule 11(1)(c) in respect of damages.

D2’s Case

18.  It would be more convenient to set out D2’s case first.

19.  D2 submits that the fundamental premise on which P pursues its claim in these proceedings is that there is a fraudulent scheme perpetrated by, inter alia, D2 to misappropriate the Subject Shares. This is categorically denied by D2.

20.  According to D2, the material facts are as follows:

(1)  On or around 12 February 2018, P entered into the Loan Agreement and the Pledge Agreement with D2 in respect of the Loan and involving the Subject Shares.  Appended to the Loan Agreement is a Secured Promissory Note dated 12 February 2018 (“the Note”).

(2)  On or around 12 February 2018, P, D2 and D1 signed the Collateral Agreement in respect of the handling of the Subject Shares.

(3)  On or around 12 February 2018, 360 entered into a hypothecation agreement and credit agreement with Eden in respect of the Subject Shares (“the Eden Transaction”).

(4)  The Eden Transaction is within the ambit of “Portfolio Protection Arrangements” expressly permitted under Clause 3(d) of the Loan Agreement, which is defined under Clause 1(dd) thereof to mean:

“any arrangements or transactions effectuated to mitigate the risk of loss of principal, assets or securities values, including without limitation effecting a pledge, encumbrances, hypothecation and/or loan of or on securities”.

(5)  The consideration D2 received from Eden in exchange for the hypothecation of the Subject Shares was Eden’s agreement to fund the Loan. 

(6)  On or around 13 February 2018, P deposited the Subject Shares into the Account with D1.

(7)  On or around 20 or 21 February 2018, P received the first tranche of the loan under the Loan Agreement in the amount of US$2,902,345 (“1^st Tranche”) in the Account by way of transfer from Eden’s account with D1.

(8)  Following the advancement of the 1^st Tranche, the volume-weighted average sale price per share of China Silver dropped significantly from HK$2.1994 (on 21 February 2018) to HK$1.7344 (on 28 February 2018), ie around 21.14% over a period of 6 trading days.

(9)  The share price dropped further from mid-March 2018 onwards and remained at low level ever since.

(10)  Given the volatility of the shares in China Silver, D2 had to wait and observe until the share price of China Silver had become stabilized and/or when it could be confirmed that there had not been occurrences of “Fraudulent Instances” as defined under Clause 3(h) of the Loan Agreement and/or its interest was adequately protected before advancing the 2^nd and 3^rd Tranches of the loan thereunder.

(11)  On 1 August 2018, being the first day of an interest period pursuant to Clause 1(a) of the Note, P was required, but failed, to pay interest as required.  This constituted an EOD under the Loan Agreement as per Clause 6(a)(1) thereof.

(12)  On 6 August 2018, D2, Eden and Everton entered into a loan purchase agreement whereby Eden irrevocably sold, assigned, transferred, conveyed and delivered all rights under the Eden Transaction to Everton and Everton irrevocably accepted and assumed all obligations of Eden under the Eden Transaction.

(13)  On 15 August 2018, D2 confirmed in writing to P that an EOD under the Loan Agreement has occurred on 1 August 2018, and that D2 had the right to exercise, and accordingly asserted (insofar as it is possible and permitted by law), the exercise of all rights with respect to the Subject Shares as the sole and absolute owner thereof, directing D1 to transfer any and all securities contained in the Account, including, inter alia, the Subject Shares, to the account of D2.

(14)  On 20 August 2018, Everton confirmed in writing to D2 that an event of default had occurred under the Eden Transaction (by virtue of Clause 7(a)(2) and (5) of the “Credit Agreement” therein, which provides that an event of default occurs if, inter alia, there is an EOD under the Loan Agreement).  By 20 August 2018 at the latest, Everton was entitled to, and demanded (as an assertion of its rights as sole and absolute owner of the Subject Shares) immediate possession of the Subject Shares.

(15)  The rights and remedies provided under the Loan Agreement upon the occurrence of an EOD are available to D2, including but not limited to:

(a)  rights to exercise all rights with respect to the Subject Shares as though D2 were the absolute owner thereof (Clause 6(b)(2));

(b)  the right to assign, sell, lease, transfer title to the Subject Shares or dispose of and deliver the Subject Shares without P’s right of redemption (which, if any, is waived for the avoidance of doubt) (Clause 6(b)(3), (5)); and

(c)  the right to retain any and all proceeds of sale of the Subject Shares, offset such amount of proceeds from any amounts remaining due from P, and retain any proceeds received in excess of such amounts due without any obligation to remit any proceeds to P (Clause 6(d)).

(16)  Similar rights are available to Eden/Everton under the Eden Transaction.

21.  D2 denies that it is a “money lender” as defined in s.2 of the MLO. Further, even if D2 is a money lender, there are sufficient reasons in support of exercising the discretion under s.23 of the MLO in favour of D2.

22.  D2 contends that P has failed to show that it would obtain judgment against D2 at the trial.  Further, P has also failed to show that it would obtain judgment against D2 for substantial damages or a substantial sum of money.  For these reasons, P’s application for interim payment against D2 should be dismissed.

D1’s Case

23.  D1’s position is that it is an innocent party caught up in this dispute between P and D2.  Were it not for the fact that P is making serious allegations of wrongdoing against D1, including conspiracy to defraud and dishonest assistance in a breach of trust, D1 would have taken a neutral position in these proceedings and agreed to be bound by whatever decision the Court may arrive at.  Due to the serious nature of the allegations made against it by P, D1 has been obliged to take an active role to defend itself in these proceedings.

24.  D1 submits that P has failed to demonstrated that it would obtain judgment for substantial damages against D1 at the trial, and hence P’s application for interim payment against D1 should be dismissed.

THE PRINCIPLES

25.  Order 29, rule 11(1)(c) provides:

“If, on the hearing of an application under rule 10 in an action for damages, the Court is satisfied…that, if the action proceeded to trial, the plaintiff would obtain judgment for substantial damages against the respondent or, where there are two or more defendants, against any of them, the Court may, if it thinks fit and subject to paragraph (2), order the respondent to make an interim payment of such amount as it thinks just, not exceeding a reasonable proportion of the damages which in the opinion of the Court are likely to be recovered by the plaintiff after taking into account any relevant contributory negligence and any set-off, cross claim or counterclaim on which the respondent may be entitled to rely.” (Emphasis added)

26.  Order 12 rule 12(c) provides:

“If, on the hearing of an application under rule 10, the Court is satisfied that, if the action proceeded to trial, the plaintiff would obtain judgment against the defendant for a substantial sum of money apart from any damages or costs, the Court may, if it thinks fit, and without prejudice to any contentions of the parties as to the nature or character of the sum to be paid by the defendant, order the defendant to make an interim payment of such amount as it thinks just, after taking into account any set-off, cross-claim or counterclaim on which the defendant may be entitled to rely.” (Emphasis added)

27.  The principles concerning interim payments are trite.  A helpful summary can be found in a recent decision by DHCJ Paul Lam SC in Rich Profit Creation Ltd v Ko Chung Lun and Others[2], in which the learned judge said:

“15. It is trite that the Court must be satisfied that if the claim were to go to trial, then, on the material before the judge at the time of the application for interim payment, the plaintiff would succeed in his claim, and would obtain a substantial amount of damages; the court must be satisfied on the balance of probabilities, and need not be satisfied beyond reasonable doubt. However, it is insufficient that the plaintiff is likely to succeed. The court must be satisfied that the defendant has no arguable defence or that there are sufficient doubts regarding the genuineness of the defence, so that the court would not grant the defendant unconditional leave to defend in a summary judgment application. The test is essentially the same as that for granting conditional leave to defend, namely, whether the defence can be said to be shadowy. See Hong Kong Civil Procedure 2020, vol. 1, §29/11/1 at p. 795; Hollywood Palace Co Ltd v Trans-Global Hong Kong Investment Ltd [2011] 1 HKLRD 833 at 838-839, §§16-18.

16. In addition, the Court should read Order 29, rules 11 and 12 together and ask the single question whether the application fulfils the requirements of those rules as a whole rather than considering separately and exclusively the applicant’s entitlement under each rule (Ho Kuen Fai v Chun Wo Construction & Engineering Co Ltd, HCA 1790/2007 (7 August 2008, unreported), §§29-31).”

28.  An application for interim payment must be made on the basis of what is pleaded in the applicant’s pleadings and not merely based on references in evidence[3].

LIABILITY

29.  In my view, it is obvious that the allegations made by P against D1 and D2 involve allegations of fraud, dishonesty and bad faith.  Unlike Order 14, there is no “fraud exception” in Order 29 rules 10, 11 and 12.  That being the case, it would be possible for a plaintiff obtaining interim payment from a defendant even if the plaintiff’s case involving allegations of fraud. However, each case depends upon its own facts.

30.  While an allegation of fraud is involved in a civil case, the standard of proof is on the pre-ponderance of probabilities, but the degree of probability must be commensurate with the occasion.  “Commensurate with the occasion” does not mean that the Court is looking for a degree of probability higher than the civil standard.  Rather, it means that the more inherently improbable the act in question, the more compelling would be the evidence needed to satisfy the Court on a preponderance of probabilities[4].

31.  Here, D2 is saying that everything done by D2 was properly done pursuant to the Financing Documents executed by P and D2, and was done for the purpose of safeguarding D2’s interests.

(1)  According to D2, the Eden Transaction entered into by D2 and Eden on or around 12 February 2018 is within the ambit of “Portfolio Protection Arrangements” permitted under Clause 3(d) of the Loan Agreement.

(2)  It is not in dispute that on or around 20 or 21 February 2018, P received the 1^st Tranche of the Loan, ie US$2,902,345.  This is a substantial sum.

(3)  As to the non-provision of the 2^nd and the 3^rd Tranches of the Loan after the advancement of the 1^st Tranche, D2 has offered an explanation as set out in [20(8) – (10)] above.

(4)  D2 alleges that on 1 August 2018, P failed to repay the interest as required under Clause 1(a) of the Note. This non-payment constitutes an EOD under the Loan Agreement.

(5)  D2’s case is that given the occurrence of the EOD, D2 would be entitled to exercise all the rights with respect to the Subject Shares as the sole and absolute owner thereof.  D2 has therefore directed D1 to transfer any and all the securities in the Account, including the Subject Shares, to D2’s account.

32.  I observe that in P’s case, P has not said that after receiving the 1^st Tranche, P had tried to repay the 1^st Tranche or any part thereof, or any interest accrued thereon, to D2.  Further, as to whether the EOD alleged by D2 has occurred, it seems that there is no denial by P on this point.  At the very least, it is arguable that the EOD did occur.

33.  I appreciate that as a result of the information disclosed by SCB as set out in [13] above, it is arguable that D2 might have dealt with the Subject Shares improperly after obtaining the same in mid-February 2018 by causing or permitting a substantial part thereof (ie 51,000,000 shares) to be sold by 2 March 2018, and D2 was doing all these behind the back of P.  It is also arguable that D1 might have made misrepresentations to P that the Subject Shares were still in the Account up to late July 2018, while the Subject Shares in fact were no longer in the Account after 23 February 2018.

34.  However, in order to succeed in an application for interim payment, merely showing an arguable case (or even a strong arguable case) would not be sufficient.  P must demonstrate that it would succeed in its claim at the trial.  Based upon the case now pleaded by P, in my view, P has not overcome this hurdle in its claim against D2.

(1)  D2 would only be required to return the Subject Shares to P after P has discharged its repayment obligation under the Loan Agreement.

(2)  D2 has put forward an argument that under Clause 3(g) of the Loan Agreement, upon the discharge of the repayment obligation by P, D2 is only required to return equivalent number of China Silver shares to P, not the identical shares (“the Equivalent Number Point”). Since China Silver is a listed company, D2 may acquire China Silver shares in the market at any time.  I am of the view that the Equivalent Number Point is an arguable point.

(3)  P has not repaid the 1^st Tranche or any part thereof, and the interest accrued thereon to D2.  In fact, P has not even attempted to make any repayment.  In the circumstances, D2’s obligation to return the shares (equivalent number of shares, not identical shares) to P has not yet arisen.

(4)  If P has tried to make a repayment to D2 and D2 is unable or unwilling to return the shares to D2, that may be evidence suggesting that there has been fraud, dishonesty and/or bad faith on D2’s part.  However, since P has never indicated that it is ready, willing and able to make any repayment at any time, it may not be proper to conclude that D2 must have acted fraudulently or dishonestly, or must have done something in bad faith.

(5)  The allegations put forward by P against D2 are serious allegations.  The evidence required to prove these allegations should commensurate with the occasion.

(6)  Bearing in mind all the above, the Court cannot at this stage conclude that P would succeed in its claim against D2 at the trial.

35.  D1 is saying that everything done by D1 in respect of the Subject Shares was done pursuant to the instructions from D2, and later pursuant to the instructions from Eden.  In that case, if D2 is not liable to P, it is likely that D1 would also not be liable to P.

36.  As to P’s claim against D2 based upon the MLO, I am of the view that P has failed to demonstrate that it would succeed on this claim at the trial.

(1)  D2 contends that it is not carrying on a business of “making loans”, and it operates primarily as an investment fund for the purpose of acquiring, holding and disposing of securities in markets worldwide.  In my view, whether D2 is a “money lender” as defined in the MLO is an arguable issue, which has to be determined at the trial.

(2)  Even if D2 is a “money lender”, D2 may rely upon the proviso in s.23 of the MLO.  In determining how the discretion under the proviso should be exercised, the Court would consider[5]:

(a)  relative status of the parties;

(b)  the nature and extent of the default;

(c)  the way in which it arose;

(d)  the implications for the borrower;

(e)  the attitude of the lender; and

(f)  the general appearance of the contract throughout.

(3)  D2 may succeed in persuading the Court that the discretion under s.23 of the MLO should be exercised in D2’s favour by relying upon the following:

(a)  P is an investment company incorporated in the British Virgin Islands in 2015, and Chen and his relatives are its majority shareholders.

(b)  Chen himself is an experienced businessman and has various business in precious metals and real estates in Mainland China.  P acquired the shares of China Silver in around 2017 through an equity swap of a company called Shanghai Huatong.

(c)  P and Chen are not unsophisticated parties who would have entered into the Loan Agreement without knowing the implication of the terms thereof.

(d)  Before the parties entered into the Loan Agreement, the parties had gone through negotiations.  P had the chance to consider the Loan Agreement and its implication before it accepted the terms of the Loan Agreement and proceeded to sign the Loan Agreement.

(e)  Chen conducted certain due diligence on D1 and he only decided to proceed with the transaction when he was satisfied that D1 held a type 1 licence with the Securities and Futures Commissions.  If a money lender’s licence is of any significance to Chen (or P), he could have conducted a similar due diligence against D2.

37.  On the materials the Court, in my judgment, P has not shown that it would succeed on liability against D1 and D2 at the trial.

QUANTUM

38.  Relying upon Ding Huirong v China Times Securities Ltd and Another[6], P argues that has an equity of redemption in the Subject Shares.  The equity of redemption cannot be waived by contract.  D2 disputes the correctness of Ding Huirong and relies upon the Equivalent Number Point.

39.  As to whether P has an equity of redemption in the Subject Shares, this is not an easy question.  I am of the view that the Equivalent Number Point is an arguable point.  However, it would not be necessary for me to resolve the question in this decision.  Even assuming that P has an equity of redemption in the Subject Shares (ie identical shares) and D2 is liable to P for having disposed of the Subject Shares without P’s consent, in my view, P has not shown that it would obtain a judgment for substantial damages or a substantial sum of money against D2, after taking into any set-off which D2 is entitled to have.

40.  An equity of redemption is the right of getting back the property pledged after repaying the debt secured by the property[7].

41.  According to P’s pleaded case, the 1^st Tranche of the Loan is secured by 1/3 of the Subject Shares[8].  However, P has not yet repaid the 1^st Tranche and the interest accrued thereon to D2.  P would only have the right to get back the 1/3 Subject Shares after making the repayment.  The loss suffered by P in relation to the 1/3 Subject Shares should be assessed by reference to the point of time at which P is prepared to make repayment to D2.  No assessment can be done at the moment, for the said point of time is unknown.  P has not said that it is ready, willing and able to make repayment to D2.  It is not known when P is prepared to make repayment.  The price of the China Silver shares fluctuates from time to time in the market.  If at the time when P is prepared to make repayment, the market value of the 1/3 Subject Shares is less than the amount to be repaid by P, there would not be judgment for a substantial amount to P, after taking into account the set-off which D2 is entitled to claim by reason of the repayment obliged to be made by P.

42.  As to the remaining 2/3 of the Subject Shares, originally P’s pleaded case is that by virtue of the Clause 3 of the Collateral Agreement, so long as the loan is outstanding, P may not deal in the Subject Shares and P grants a security interest in Account and in the Subject Shares and the exclusive control of the same to D2 and D1[9].  Subsequently, P amended its statement of claim and added a claim that the remaining 2/3 of the Subject Shares had nothing to do with the 1^st Tranche[10].  Be that as it may, I take the view that as per the Financing Documents, it is arguable that all the Subject Shares would be the security securing any amount advanced by D2 to P.  It would be arguable that P can get back all the Subject Shares only after repaying the 1^st Tranche together with interest to D2.  Accordingly, the analysis in the paragraph above may apply to all the Subject Shares.  When P is prepared to discharge its repayment obligation, if the market value of all the Subject Shares at that point of time is less than the amount to be repaid by P, there would not be judgment for a substantial amount to P, after taking into account the set-off which D2 is entitled to claim by reason of the repayment obliged to be made by P.

43.  As to P’s claim based upon MLO, it would not be realistic to expect that, as a result of this claim, the Court would not require P to repay the 1^st Tranche together with interest to D2, but at the same time would require D2 to return all the Subject Shares to P.  The Court may consider P’s obligation to repay the 1^st Tranche together with interest and D2’s obligation to return the Subject Shares as concurrent obligations.  Bearing in mind that the obligation to return the Subject Shares would only arise upon P’s repayment of the 1^st Tranche together with interest, the analysis in the above would still apply in this scenario.

44.  If P is unable to obtain a judgment for a substantial sum against D2, there would not be any reason to say that P would obtain a judgment for a substantial sum against D1.

45.  In my judgment, P has failed to show that it would succeed in obtaining a judgment for a substantial sum against D1 or D2 at the trial.

DISPOSITION

46.  For the reasons above, I dismiss the Summons.

47.  There be a costs order nisi that costs of the Summons be paid by P to D1 and D2 forthwith, and those costs be summarily assessed.  There be leave to D1 to file and serve a bill of costs within 7 days, and the same also applies to D2.  There be leave to P to file and serve a written reply to those bills within 7 days thereafter.  For the avoidance of doubt, time do run during the Summer Vacation.

48.  I thank counsel for the assistance rendered to the Court.