TIMING CAPITAL (TIANJIN) INVESTMENT MANAGEMENT L.P. AND ANOTHER v. JI CHANGQUN AND ANOTHER

HCMP 1112/2023

[2024] HKCFI 1003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1112 OF 2023

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BETWEEN

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DECISION

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1.   Introduction

1.1  On 14 July 2023, the Plaintiffs (respectively “P1” and “P2” and collectively “Ps”) obtained, on an ex parte basis before Wilson Chan J (“Ex Parte Hearing”), a worldwide Mareva injunction against the Defendants (respectively “D1” and “D2” and collectively “Ds”) in aid of (then) intended proceedings in the Mainland to be commenced against D1 (“Ex Parte Order”)[1]. The monetary limit of the Ex Parte Order is RMB1,972,549,550.84 (“Claim Amount”) and the assets specifically identified are Ds’ shareholdings in Fullshare Holdings Ltd, a company listed on the Hong Kong Stock Exchange (“607.HK”).

1.2  By an order dated 9 August 2023, the Ex Parte Order was varied by consent to recognize certain chargees’ rights to dispose of or deal with Ds’ shareholdings in 607.HK (as identified in the order) in accordance with the terms of the applicable charge instruments (“Injunction Order”).

1.3  On 19 October 2023, I heard substantive arguments on the following applications[2]:

(1) Ps’ Originating Summons (“OS”) dated 14 July 2023 for worldwide Mareva relief in aid of and until the final determination of intended proceedings in the Mainland to be commenced by Ps against D1 and the execution of any judgment in favour of Ps (whichever is the later) or until further order of the court;

(2) Ps’ summons dated 17 July 2023 (“Continuation Summons”) for (a) continuation of the Injunction Order and (b) ancillary disclosure;

(3) Ds’ summons dated 31 August 2023 (“Discharge Summons”) for discharge of the Injunction Order.

1.4  Subsequent to the hearing, Ps issued a summons on 5 January 2024 (“New Evidence Summons”) for leave to adduce post-hearing evidence. The application was opposed by Ds, and directions were given to the parties to lodge post-hearing submissions to deal with the new application on the papers.

1.5  Ps were represented by Mr John Hui (with Mr Charlie Liu) and Ds by Mr Victor Dawes SC (leading Mr Roger Phang).

1.6  The parties have provided very comprehensive and helpful submissions. Following clarifications at the hearing before me, the issues which require my determination are broadly as follows[3]: (1) whether Ps have breached their undertakings set out at §6 of Schedule 2 of the Injunction Order thereof[4], which is an undertaking to commence proceedings in the Mainland as soon as practicable, (2) whether Ps were guilty of material non-disclosure (“MND”) and (3) whether Ps have demonstrated a real risk of dissipation of assets.

1.7  Consequent upon my findings on the above, I need to determine: (1) whether the Injunction Order should be discharged and (2) were the Injunction Order continued (or regranted after being discharged)[5], whether there should be an order for fortification of Ps’ cross-undertaking as to damages.

2.   Ps’ underlying claims

2.1  P’s underlying claims in the Mainland are based on two documents both executed on 20 March 2019 in favour of Ps, namely a letter of undertaking (“Letter of Undertaking”) provided by Nanjing Jiangong Industrial Group Co Ltd (“Nanjing Jiangong”) and a letter of guarantee (“Letter of Guarantee”) provided by D1 and his wife in their personal capacities guaranteeing Nanjing Jiangong’s performance of most, but not all, of its obligations under the Letter of Undertaking. It is Ps’ case that Nanjing Jiangong has failed to comply with the relevant terms of the Letter of Undertaking thereby triggering D1’s liability under the Letter of Guarantee.

2.2  The Letter of Undertaking and Letter of Guarantee were executed in the light of the following background matters, which are largely taken from Ps’ written materials.

2.3  P1 is a limited partnership established in 2010 in the Mainland, whose main business is the management of investment funds. The funds managed by P1 include (1) Tianshi Pension Industry Investment Fund (Shenzhen) Enterprise (Limited Partnership) (“Tianshi Shenzhen”) and (2) Nanjing Huading Asset Management Center (Limited Partnership) (“Nanjing Huading”). A major investor in Tianshi Shenzhen and Nanjing Huading is Hongkang Life Insurance Co Ltd (“Hongkang Insurance”).

2.4  P2 is a company incorporated in 2006 in the Mainland and was at all material times engaged in property development in Hainan.

2.5  D1 is and was at all material times the chairman of 607.HK and its largest beneficial shareholder holding 32.17% (“607 Shareholding”). 607.HK in turn is the largest shareholder of another listed company, China High Speed Transmission Equipment Group Co Ltd (“658.HK”).

2.6  Apart from the Hong Kong listed companies, D1, according to Ps, controlled an unrelated group of entities including Nanjing Jiangong and Wuhu Changyue Investment Centre (Limited Partnership) (“Wuhu Changyue”). Prior to September 2018, Nangjing Jiangong and Wuhu Changyue through the following structure held 100% of P2[6].

2.7  On or about 15 September 2018, Tianshi Shenzhen and Nanjing Huading entered into an agreement with (1) Hainan Zhongkun Mechanical Engineering Co Ltd ("Hainan Zhongkun Mechanical"), (2) Nanjing Saihua Enterprise Management Co Ltd ("Nanjing Saihua") and (3) P2 (“Capital Injection Agreement”).

2.8  Pursuant to the Capital Injection Agreement:

(1) Tianshi Shenzhen and Nanjing Huading would collectively be allotted 52% of the shareholding of P2 (with Tianshi Shenzhen and Nanjing Huading allotted 31.2% and 20.8% respectively);

(2) In return, P1 procured the injection of a total of RMB 4 billion into P2 by various payments made by Tianshi Shenzhen and Nanjing Huading between September 2018 and December 2018:

(a) Clause 9 of the Capital Injection Agreement provided that Tianshi Shenzhen and Nanjing Huading would inject a total of RMB 5 billion into P2;

(b) However, the parties to the Capital Injection Agreement thereafter agreed to vary the Capital Injection Agreement such that the total injection would be reduced from RMB 5 billion to RMB 4 billion, following their agreement to revise P2’s valuation. These variations were not reduced into writing.

2.9  As such, Tianshi Shenzhen and Nanjing Huading collectively hold a majority 52% of P2 since around December 2018.

2.10  Following the allotment, P1 could not immediately take over the control of P2 from D1. Contrary to the provision at clause 21 of the Capital Injection Agreement that Tianshi Shenzhen and Nanjing Saihua would participate in the management of P2, P1 was not able to take over P2's board until April 2021, despite repeated demands made by P1, Tianshi Shenzhen and/or Nanjing Huading in 2019 and 2020 to Nanjing Jiangong or the then management of P2 concerning control of P2's corporate seals and financial affairs.

2.11  Hence, P1 only had some, but not complete visibility, over P2's financials and operations between December 2018 and April 2021.

2.12  In around January and February 2019, P1 became aware of potentially suspicious transactions concerning P2 hidden from P1 by D1, which prompted its further negotiations with D1.

(1) Based on public information and P2's audited accounts, it came to P1's attention that P2 had, without P1's approval, caused a security to be created over two pieces of land for an amount of RMB 740 million.

(2) Further, P1 discovered that monies lent by Wuhu Changyue and Great Wall West China Bank Co Ltd to P2 were not used by P2 to settle its construction costs, as previously asserted by D1. Instead, they were used by D1 to satisfy the expenses of his own companies.

2.13  In or around February 2019, Tianshi Shenzhen acquired Nanjing Jiangong's 48% shareholding in Nanjing Saihua pursuant to a Share Transfer Agreement (“Saihua Share Transfer Agreement”).

2.14  Following negotiations with D1, steps were taken to lower and alleviate P1's risks (as well as the risks of Tianshi Shenzhen and Nanjing Huading) under the Capital Injection Agreement and the Saihua Share Transfer Agreement, by procuring the execution of the Letter of Undertaking and Letter of Guarantee.

2.15  The following diagram provided by Ps illustrates the relevant corporate structure after the Capital Injection Agreement, Siahua Share Transfer Agreement, the Letter of Undertaking and the Letter of Guarantee[7].

2.16  Pursuant to the Letter of Undertaking, Nanjing Jiangong assumed liabilities for certain P2's debts and undertook to repay the same promptly (the “Guaranteed Debts”):

(1) Clauses 1.1 to 1.3: Nanjing Jiangong undertook to assume the liabilities of P2's debts specified therein which totaled approximately RMB 2.65 billion (together with interest to be accrued), and to repay the same promptly;

(2) Clause 1.4: Nanjing Jiangong undertook to assume contingent liabilities concerning a security of RMB 740 million given by P2 and repay the same promptly;

(3) Clause 1.5: Nanjing Jiangong undertook to assume the liabilities (actual or contingent) of all debts owed by P2 which were undisclosed to P1, Tianshi Shenzhen and Nanjing Huading prior to the completion of the corporate registration procedure of the acquisition under the Capital Injection Agreement and the Saihua Share Transfer Agreement, and repay the same promptly.

2.17  Pursuant to the Letter of Guarantee, D1 (and his wife) provided a joint and several guarantee for Nanjing Jiangong's performance of the Letter of Undertaking. Specifically, pursuant to clause 2 of the Letter of Guarantee, their guarantee extends to:

(1) The Guaranteed Debts set out at Clauses 1.1 to 1.4 of the Letter of Undertaking above (but excluding Clause 1.5);

(2) Default payments, compensations and expenses incurred by Ps due to Nanjing Jiangong's failure to perform its relevant obligations, including but not limited to costs for instructing legal representatives, litigation costs, travel expenses and other expenses; and

(3) Any losses caused by Nanjing Jiangong's failure to perform its relevant obligations to Ps.

2.18  As Ps accepted at the Ex Parte Hearing[8], the Letter of Guarantee created a secondary liability and the obligations thereunder depended on a breach by Nanjing Jiangong of its obligations under the Letter of Undertaking.

2.19  After the execution of the Letter of Undertaking, Nanjing Jiangong failed to repay the Guaranteed Debts, despite repeated demands. Enforcement actions were then taken by creditors against P2, including attempts to seize P2’s assets.

2.20  Eventually, Ps were constrained to repay the following Guaranteed Debts to protect P2’s interest and prevent irreparable damage caused to P2 (“Ps’ Repayments”):

(1) Guaranteed Debt at clause 1.1 of the Letter of Undertaking: Since March 2019, P1 made payments of RMB 900,879,196.90, and P2 made payments of RMB 520,696,324.8.

(2) Guaranteed Debt at clause 1.2 of the Letter of Undertaking: Since June 2019, P2 made payments of RMB 268,583,283.28.

(3) Guaranteed Debt at clause 1.3 of Letter of Undertaking: Since March 2019 (subsequent to the execution of Letter of Undertaking), P1 (and its affiliates) made payments totalling RMB 42,802,032.59[9] and P2 made payments of RMB 139,588,713.27.

(4) Guaranteed Debt at clause 1.4 of Letter of Undertaking: In December 2022, P1’s affiliate paid RMB 100,000,000.

2.21  As a result of Nanjing Jiangong’s failure to repay the Guaranteed Debts and breach of the Letter of Undertaking, it is alleged that Ps suffered loss and damage in the amount of Ps’ Repayments, the breakdown of which is as follows:

Creditor(s)	P1	P2
Letter of Undertaking Clause 1.1 Wuhu Changyue and Great Wall West China Bank Co., Ltd.	RMB 900,879,196.90	RMB 520,696,324.8
Letter of Undertaking Clause 1.2 Hainan Bank Co., Ltd.,	/	RMB 268,583,283.28
Letter of Undertaking Clause 1.3 ICBC Wenchang Branch	RMB 2,825,977.02 + RMB 39,976,055.57	RMB 139,588,713.27
Letter of Undertaking Clause 1.4 China Orient Asset Management Co., Ltd. Chongqing Branch	/	RMB100,000,000
Total:	RMB 943,681,229.49	RMB 1,028,868,321.35

2.22  The total loss suffered by Ps is RMB 1,972,549,550.84 (ie the “Claim Amount”).

2.23  Starting from October 2020, Nanjing Jiangong became subject to pre-reorganisation and reorganisation procedures in the Mainland, with administrators appointed to supervise its reorganisation. It entered into formal reorganisation procedures on 30 June 2021 and the re-organization was approved by the court on 14 April 2022.

2.24  In order to enforce the Letter of Undertaking, P1 submitted proofs of debt in the reorganisation of Nanjing Jiangong on 9 September 2021 to the administrators (“2021 Proofs of Debts”). The calculations in the 2021 Proofs of Debts were not based on Ps’ Repayments actually made in place of Nanjing Jiangong, but were instead largely referable to the total amount of Guaranteed Debts stated in clauses 1.1 to 1.4 of the Letter of Undertaking and interest.

2.25  For present purposes, it is important to note that it is Ps’ case that, despite nearly two years having passed, the 2021 Proofs of Debt remain unadjudicated by the administrators. Hence, it is Ps’ case that Nanjing Jiangong has still failed to discharge its contractual obligations under the Letter of Undertaking.

2.26  When it appeared that Ps may not be able to recover their losses from Nanjing Jiangong caused by its breach of the Letter of Undertaking, Ps commenced negotiation with D1 in Nanjing between September and November 2022 concerning his obligations under the Letter of Guarantee.

2.27  In early 2023, Ps began to realize that the negotiations with D1 and their participation in the reorganization of Nanjing Jiangong would likely not result in any positive developments in recovering their losses. Ps then considered the need to commence legal actions.

3.   The Ex Parte Hearing

3.1  In view of the arguments ventilated before me, it seems to me that the following are the notable features of the Ex Parte Hearing.

3.2  First, the evidence explaining the timing of the ex parte application is set out at, inter alia, the 1^st Affirmation of Mr Sun Yuchen (“Sun”)[10] at §§55-56. It is stated therein that Ps started to have real concerns since May 2023 that D1 would soon dissipate his assets, in particular the 607 Shareholding. That concern was precipitated by what was said to Mr Zhou Yuhang (“Zhou”)[11] by Mr Chen Yongdao (“Chen”)[12] on 24 May and 10 July 2023 that (1) D1 was planning to transfer the 607 Shareholding to other nominee shareholders, and (2) D1’s goal in doing so was to ensure that his legal and financial responsibilities owed to the creditors would be relieved: Transcript 13G-H.

3.3  Secondly, it was brought to the specific attention of Wilson Chan J that P2 itself had also entered into pre-reorganization procedures in the Mainland on 19 April 2023: Sun 1^st §12. Despite that, P2 was described as being able to give the usual undertaking as to damages, since, as at 30 June 2023, P2 had cash reserve of RMB38,252,130.63 and net assets of RMB3,463,942,951.68: Sun 1^st §82 and Transcript page 17G. The learned Judge specifically requested Ps to address the effect of P2’s reorganization at the inter partes stage, including for example, whether any cause of action of P2 would be vested in the administrator: Transcript pages 6R to 8R.

3.4  Thirdly, the picture painted in respect of P1’s financial position was also reassuring, in that P1 had cash reserve of RMB12,484,411.55 and net assets of RMB94,590,413 as at 30 June 2023: Sun 1^st §82 and Transcript page 17G.

3.5  Fourthly, Wilson Chan J was expressly reminded that the 2021 Proof of Debts had not been adjudicated upon: Transcript pages 12K-P and 13F.

3.6  Fifthly, it was specifically drawn to Wilson Chan J’s attention that §6 of Schedule 2 of the draft order contained an undertaking to commence proceedings in the Mainland as soon as practicable: Transcript page 18K-O.

4.   Developments after the Ex Parte Hearing

4.1  Germane to the arguments advanced by the parties are the following developments which took place after the Ex Parte Hearing.

4.2  First, as stated above, on 9 August 2023, the Ex Parte Order was varied by agreement to recognize certain chargees’ rights to dispose of or deal with Ds’ shareholdings in 607.HK. It is common ground that the existence of the charges over the 607 Shareholding was information in the public domain[13] but not disclosed to Wilson Chan J.

4.3  Secondly, on 10 August 2023, D1 transferred his shareholding in a Singaporean company, Ji Pte Ltd, to his son (“JPL Transfer”) and the transaction was reversed on 12 October 2023. It is Ps’ case, with which Ds disagree, that the JPL Transfer was an apparent breach of the Injunction Order and strongly supports a risk of dissipation of assets.

4.4  Thirdly, P1 has not, as at the date of the hearing before me, commenced any proceedings in the Mainland against D1.

4.5  Fourthly, whilst P2 was in pre re-reorganization at the time of the Ex Parte Hearing, on 11 September 2023, the Hainan Court made an order that P2 would enter formal reorganization (“P2 Reorganization Order”). It appears from the P2 Reorganization Order that P2 was unable to meet its debts as they fell due[14] and certain powers were granted to the administrators of P2, including representing P2 in legal proceedings[15].

4.6  Fifthly, although the administrators of P2 did commence proceedings in the Mainland against D1 (“Original Complaint”)[16], they did so only on 26 September 2023. A complete copy of the Original Complaint was only provided to Ds’ solicitors upon a request made pursuant to RHC Order 24, rules 10 and 11A. The Original Complaint submitted by P2 to the Hainan Court was not only against D1 but also his wife and Nanjing Jiangong and was a claim in excess of RMB 5 billion.

4.7  Sixthly, when the complete copy of the Original Complaint was provided to Ds’ solicitors, they discovered that the evidence in support of the Original Complaint included (1) the 2021 Proofs of Debts and (2) a table which appears to be an adjudication of the proofs of debts by the administrators of Nanjing Jiangong including the 2021 Proofs of Debts (“Adjudication Table”). It is Ds’ case that, according to the Adjudication Table, contrary to Ps’ position, the 2021 Proofs of Debts were adjudicated and given a nil value by the administrators.

4.8  Seventhly, the Original Complaint was subsequently revised on 11 October 2023 to exclude Nanjing Jiangong (“Revised Complaint”). It was only on 17 October 2023 that the Hainan Court issued to P2 a Notice of Acceptance of P2’s case (“Notice of Acceptance”). In the Notice of Acceptance, P2 was directed to make a prepayment of court fees in the sum of RMB22,021,938.83 (“Court Fees”). As at the hearing before me, discussions were still ongoing between the Hainan Court and the administrators of P2 on the staying of the payment of the Court Fees.

4.9  Eighthly, by the New Evidence Summons, Ps seek to adduce evidence that, on 20 October 2023, P2 issued an application to join P1 as a party to the proceedings commenced by it in the Hainan Court, and P1 issued an application to like effect on 13 November 2023. On 22 November 2023, the Hainan Court issued a Notice of Permission to Participate to P1, allowing P1 to participate as a joint plaintiff in the proceedings commenced by P2 in the Hainan Court.

4.10  The 3^rd, 4^th, 5^th, 7^th and 8^th developments above are relevant to the parties’ arguments on both (1) whether Ps had breach their undertakings to commence proceedings in the Mainland as soon as practicable and (2) MND. In particular, as set out below, the main arguments are concerned with (1) Ps’ rationale and explanations for the timing of the eventual commencement of the proceedings which were admittedly not disclosed at the Ex Parte Hearing and (2) whether that rationale and explanations can be viewed as falling within the confines of “as soon as practicable”.

5.   The applicable principles

5.1  Ps’ application for Mareva relief against D1 is made pursuant to section 21M of the High Court Ordinance Cap 4 (“HCO”) in aid of foreign proceedings. It is common ground that the court should adopt the two-stage test laid down in Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd (2016) 19 HKCFAR 586 §§47-54. There is also no dispute that the application made against D2 is based on the Chabra jurisdiction.

5.2  As stated at §1.6 above, the parties’ arguments were focused on three main issues, namely (1) whether Ps have breached their undertakings to commence proceedings in the Mainland as soon as practicable, (2) whether Ps were guilty of MND, and (3) whether Ps have demonstrated a real risk of dissipation of assets. The arguments on the 3 main issues revolve around the matters set out in the preceding section. I bear in mind that the positions of P1 and P2 should be assessed separately, as it is possible that the Injunction Order should be continued or discharged in respect of only one of them.

5.3  The principles guiding the court in assessing whether there are risks of dissipation of assets to warrant the grant of a Mareva injunction are established: Convoy Collateral Limited v Cho Kwai Chee [2020] HKCA 537 at §§35-54. As pointed out by G Lam J (as he then was) at Beijing Renji Real Estate Development Group Co Ltd v Zhu Min [2022] HKCFI 1027 §67, the assessment is not an exact science but is based on an evaluative judgment by the court taking a holistic view of the circumstances of the case.

5.4  On the obligation of an applicant in an ex parte application to give full and frank disclosure, the applicable principles are summarized at Aleksandr Narimanovich Kushaev v Greenly Holdings Limited (in liquidation) and Ors [2019] HKCFI 2745 §69. In particular, an applicant has a duty to inform the court as soon as he becomes aware that the court has been misinformed or given incomplete information at the time of the ex parte application.

5.5  Where an injunction is discharged for MND, Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642 §56 sets out the principles governing the court’s discretion whether the injunction should be regranted. There are no hard and fast rules. On the one hand, the jurisdiction to regrant an injunction should be exercised sparingly, taking into account of the need to protect the administration of justice and uphold the public interest in requiring full and frank disclosure. On the other, the application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice, and as the jurisdiction is penal in nature, the court should therefore have regard to the proportionality between punishment and offence.

5.6  Counsel informed me that, despite their industry, they were unable to identify any Hong Kong cases on how the courts have approached the issue of a breach of an undertaking to commence underlying foreign proceedings. However, both Mr Hui and Mr Dawes advocated that an analogy may aptly be drawn with the principles applicable to MND cases. I proceed on that basis.

6.   Ps’ rationale and explanations on the timing of their commencement of proceedings in the Mainland

6.1  Ps rely on the 4^th legal opinion of Mr Li Jintian (“Li 4^th”). Li 4^th is dated 18 October 2023 (ie the day before the hearing before me on 19 October 2023) and sets out the considerations which Ps took into account before they commenced proceedings in the Mainland.

(1) §5: When Ps made the ex parte application, P2 was at the pre-reorganisation stage, and considered that in practical terms, starting proceedings in the Mainland after P2 entered into formal reorganisation would be most appropriate, because it could significantly reduce P2’s financial burden in terms of Court Fees.

(2) §6: During the pre-reorganisation stage, P2 only held limited cash and P2’s management had to adopt a frugal and need-based approach (管理層必須節儉及量入為出). If P2 initiated proceedings it would have to immediately pay the Court Fees. This would adversely impact its cash flow and obligations to other companies. Therefore, after discussions between P2 and its PRC lawyer with the Hainan Court, they decided to commence proceedings against D1 after P2 entered into formal reorganization, in order to make an application to stay the payment of the Court Fees.

(3) §7: On 11 September 2023, the Hainan Court ordered P2 to enter into formal reorganisation and appointed administrators. P2 then applied for and obtained the permission of the administrators to commence proceedings against D1. On 17 October 2023, the Hainan Court accepted the case and P2’s PRC lawyer was thereafter in discussion with the Hainan Court on the issue of suspension of P2’s obligation to pay the Court Fees.

(4) §8: It was necessary for P1 and P2 to coordinate their litigation strategy to save time and costs and avoid duplication of claims. The reason why P1 did not participate in the Civil Complaint of P2 was because Ps’ PRC legal team was still in discussion with the Hainan Court about the role of P1 in participating in the proceedings, as well as the Court Fees that P1 would need to bear and whether that payment could also be suspended.

(5) §9: As the Notice of Acceptance had been issued to P2 by the Hainan Court, pending the clarification of whether P1 is required to pay the Court Fees, P1 can join the proceedings commenced by P2. If it was required by the Hong Kong Court, P1 was ready to commence proceedings on its own sooner.

7.   Analysis

7.1  I propose to carry out my analysis by reference to the events set out at section 4 above.

(i) 1^st and 2^nd matters set out at section 4: Risk of Dissipation and MND

7.2  At the Ex Parte Hearing, Ps relied on 3 matters to demonstrate there existed a real risk of dissipation of assets, namely (1) low standard of commercial morality, (2) failure on D1’s part to disclose his assets in breach of legal obligations and (3) threats of actual dissipation[17].

7.3  At the hearing before me, Ps further relied on D1’s apparent breach of the Injunction Order by reference to the JPL Transfer.

7.4  As regards the allegation of low standard of commercial morality, Ps’ case is largely based on the matters giving rise the Guaranteed Debts. The cases show that delay may potentially be fatal to an application for injunction (Convoy §§78-80) and, as pointed out by Mr Dawes, the matters giving rise to the Guaranteed Debts all took place some time ago. The matters giving rise to the Guaranteed Debts were discovered by Ps in early 2019 and they chose to deal with them by the execution of the Letter of Undertaking and Letter of Guarantee. According to Ps, Nanjing Jiangong has been in breach of its obligations under the Letter of Undertaking since early 2019 and proceedings were contemplated against D1 since early 2023.

7.5  Against the above period of inaction, as set out at §3.2 above, it seems to me quite plain the impetus which prompted the ex parte application on 14 July 2023 was the hearsay evidence of actual threat by D1 in May and July 2023 to dissipate the 607 Shareholding: Ps Ex Parte Skeleton §110(2).

7.6  In relation to the allegation that D1 had failed to disclose his assets in breach of his legal obligations, Ps relied on the fact that between 2019 to 2021 D1 was on 3 occasions held to be a “失信被執行人”. However, the evidence shows that D1 was no longer listed as such at the time of the Ex Parte Hearing and I accept Mr Dawes’ submissions that there is no compelling reason to infer from these past incidents a real risk of dissipation. It seems to me that the present case is distinguishable from Beijing Renji relied on by Mr Hui. In contrast to Beijing Renji §71, D1 did take steps to remove himself from the list of discredited judgment debtors.

7.7  Turning to Ps’ reliance on the hearsay evidence on D1’s threat to dissipate the 607 Shareholding. (§3.2 above), Mr Dawes pointed to the following factors which militate against the cogency of such hearsay evidence:

(1) Chen has filed an affirmation denying that he ever told Zhou that D1 was planning to dissipate his assets;

(2) Ps did not disclose to Wilson Chan J that the 607 Shareholding had already been pledged or charged (which Ps accepted to be publicly-available information) and Ds were therefore not at liberty to transfer the 607 Shareholding to nominees in order to evade D1’s liabilities, which undermine the plausibility of the alleged hearsay evidence;

(3) Ps also did not disclose to Wilson Chan J that any disposal by Ds of the 607 Shareholding was subject to stringent regulatory requirements.

7.8  Whilst I think Ps ought to have made more complete disclosure in relation to the 607 Shareholding, it seems to me the more fundamental point is that the alleged hearsay evidence cannot be regarded as a solid basis to establish a risk of dissipation of assets. As pointed out at Convoy §41, a solid basis to support an inference of risk of dissipation is to be contrasted with unsupported or bare statements of fear which would carry very little, if any, weight. In my view, the hearsay evidence on D1’s threat to dissipate the 607 Shareholding falls within the realm of an unsupported or bare statement. Indeed, it was Ps’ own case at the Ex Parte Hearing that the 607 Shareholding has remained intact, despite D1’s alleged repeated threats of dissipating the same: Ps Ex Parte Skeleton §§108-109.

7.9  In the foregoing connection, Mr Hui disagreed with Mr Dawes’ submissions that Ps have to show that there was a real risk of dissipation of the 607 Shareholding since, as a matter of law, there is no legal requirement that an applicant for a Mareva injunction must demonstrate risk of dissipation by reference to specific known asset(s). I have no difficulty in accepting Mr Hui’s submission as a general proposition. But in the particular circumstances of the present case where the Ex Parte Order was obtained principally on the basis of the threat of dissipate the 607 Shareholding, I agree with Mr Dawes that this aspect does assume significance.

7.10  As regards the JPL Transfer (admittedly carried out after D1 became aware of the Injunction Order), the evidence shows as follows:

(1) The decision by D1 to transfer his approximately 80% shareholding in JPL to his son was made before the Injunction Order came into existence, pursuant to discussions between D1 and his team since June to July 2022 (well before the Ex Parte Hearing);

(2) The audited accounts of JPL for the latest 4 years show that it has always had substantial net liabilities. As JPL is and has been a company with net liabilities, D1 believed that the completion of the share transfer did not constitute a transfer of "assets", since his shares in such company has no value;

(3) However, since he became aware that such a transfer might be argued as a transfer of "assets", in order to avoid unnecessary argument or complications, he has explained the situation to his son who has agreed to transfer back the shares to him, and this has promptly been effected on 12 October 2023.

7.11  In the particular circumstances of the present case, I am of the view that the JPL Transfer, whilst potentially a breach of the Injunction Order, does not in itself show a risk of dissipation of assets. The evidence is that the JPL Transfer was contemplated well before the Ex Parte Hearing and did not involve assets of value. It seems to me that the JPL Transfer cannot be said to have the character of an unjustified dissipation of asset: Convoy §§35-54.

7.12  Taking a holistic view of the circumstances of the present case, the factors relied on by Ps, whether individually or collectively, do not amount to a solid evidence establishing a real risk of dissipation.

7.13  Even were I incorrect on the above conclusion, the court may still discharge an injunction where a plaintiff has failed to make full and frank disclosure (and, as agreed by counsel, by analogy, where a plaintiff has breached an undertaking given to the court), despite strong evidence of likely dissipation of assets: Tiong King Sing v Sam Boon Peng Yee [2011] 5 HKLRD 651 §§15-17. It is to those other matters which I now turn.

(ii) 3^rd and 8^th matters set out at section 4: Breach of undertaking and MND relating to D1’s commencement of proceedings in the Mainland

7.14  In my view, P1 has plainly breached the undertaking set out at §6 of Schedule 2 of the Injunction Order and/or was in breach of its obligation to give full and frank disclosure.

7.15  On the issue of proper construction of §6 of Schedule 2 of the Injunction Order, Mr Hui submitted that the meaning to be ascribed to the phrase “as soon as practicable” calls for the exercise of common sense. He referred to Toeca National Resources BV v Baron Capital Limited & Anor, CACV 55 of 2013, 6 June 2014 where it is stated at §19:

“‘Practicable’ should not be equated with ‘possible’ but should be given greater flexibility, and, as in any case of construction, the factual matrix of the case must be considered. The likely practical consequence of the course of action is relevant to the consideration of whether it would be ‘practicable’.”

7.16  According to Mr Hui, the relevant factual matrix is the “coordination of litigation strategy” referred to in Li 4^th (set out at section 6 above).

7.17  It appears from Li 4^th that the “coordination of litigation strategy” was already in place at the time of the Ex Parte Hearing. Yet, it was never made known to Wilson Chan J. Instead, the picture presented to Wilson Chan J was that both Ps were asset-rich such that it could not reasonably be contemplated that the issue of Court Fees (which was not brought up in any event) would present itself as a major consideration.

7.18  Even if the “coordination of litigation strategy” was devised after the Ex Parte Hearing, no explanation was given as to why Ps did not inform the court of the same. Instead, Li 4^th was only signed on the day before the hearing before me, after the breach of undertaking issue had been raised by Ds.

7.19  Further, according to Li 4^th, the “coordination of litigation strategy” was only an option for P1, as P1 could have started proceedings on its own. Despite Mr Hui giving an undertaking at the hearing before me that P1 would commence proceedings within 14 days, P1 did not do so. Instead, what happened, as set out by way of the evidence sought to be adduced by way of the New Evidence Summons, was that P2 lodged a joinder application on the day after the hearing to join P1 in the Hainan Proceedings and it was not until 22 November 2023 that P1 was permitted to participate as a joint plaintiff in the proceedings commenced by P2.

7.20  What then is the consequence of P1’s breach of its undertaking to commence proceedings in the Mainland as soon as practicable? As pointed out by Mr Dawes, in exercising the power under section 21M of the HCO, the court should have regard to the fact that the power is ancillary to the foreign proceedings that have been or are to be commenced. In that regard, he drew an analogy with Siporex Trade SA v Comdel Commodities Ltd [1986] 2 Lloyds Rep 428 which is a case concerned with the failure to issue an originating process for two months after the grant of a Mareva Injunction. At page 436, it is stated:

“When application was made to Mr. Justice Gatehouse no originating summons (the appropriate originating process) had been issued by Comdel. Nor had any writ. The draft order submitted to him did not contain, nor did he exact, any undertaking to issue an originating summons forthwith. This was a departure from the usual practice…

One might have assumed that an originating summons would have been issued forthwith even in the absence of an express undertaking, but this was not done. In an affidavit sworn on Mar. 14, 1986, Siporex's solicitor commented in clear terms on the irregularity of these proceedings, but when this hearing began before me on Apr. 30 it remained the position that no originating summons (and no writ) had been issued. That is still so. Thus the papers bear no serial number, and the order of Mr. Justice Gatehouse has never been formally drawn up and, in the absence of originating process, cannot (as I understand) be drawn up.

This history highlights in a vivid way the laxity of practice which the Mareva injunction has indirectly caused. It is not so very long since ex parte applications for injunctive relief were infrequently made and even more exceptionally granted. The conditions were strict and (at least in my experience) scrupulously observedl. If the urgency of the case was demonstrably such as to preclude issue of proceedings, an undertaking to issue forthwith was given and performed. The advent of the Mareva injunction has, as is notorious, led to such applications becoming commonplace, hundreds being made each year and relatively few refused. As often as not, the proceedings have not been issued and the supporting affidavit is in draft. Appropriate undertakings are then given, but cases occur in which an impermissibly generous construction is given to the important word "forthwith".

Even by these relaxed standards, the present case must be regarded as an extreme example of procedural irregularity. Comdel urge that the absence of originating process is no more than an irregularity, which I should cure by a suitable order under O. 2, r. 1. They urge that Siporex were fully aware of the injunction, and that neither they nor the bank have suffered from this procedural oversight which (I assume) was not the fault of Siporex themselves. There is undoubted force in these considerations. It is nonetheless entirely unacceptable, in my judgment, that an injunction should remain in force for over two months after its grant without any originating process to sustain it, and that the Court should appear to countenance that neglect of its procedure by maintaining an injunction in force in those circumstances. I feel that the only appropriate course is to discharge the injunction.”

7.21  I agree with Mr Dawes that an analogy may aptly be drawn with Siporex. A failure to issue an originating process in a “local” claim scenario is in principle similar to a failure to issue underlying foreign proceedings in the present case, where the power to under section 21M of the HCO is ancillary to the foreign proceedings. However, I believe regard should be given to the procedural differences between issuing proceedings here and elsewhere, and hence the difference between the notions of issuing local proceedings “forthwith” and issue foreign proceedings as soon as practicable.

7.22  In the present case, the explanations belatedly given by Ps do not involve any procedural difficulties, for example, they needed time to draft the complaint to commenced proceedings in the Mainland. According to Li 4^th, P1 could have issued proceedings on its own but instead opted for the “coordination of litigation strategy”.

7.23  In my view, what is considered “practicable” should in principle be considered in the light of the factual matrix placed before Wilson Chan J, and if there were any changes in circumstances from those presented at the Ex Parte Hearing, Ps should have proactively brought those to the attention to the court. The factual matrix presented at the Ex Parte Hearing was that there was no practical impediment to the issuance of proceedings in the Mainland and the obligation to do so “as soon as practicable” must be considered in that light.

7.24  In so far as Ps now seek to rely on the “coordination of litigation strategy” as the relevant factual matrix, at worst there was a deliberate MND at the Ex Parte Hearing, or viewed more magnanimously, if there were changes in circumstances, Ps failed to proactively update the court. It must be remembered that the underlying premise of the “coordination of litigation strategy” was premised on P2 entering formal reorganization, which situation was entirely in flux at the time of the Ex Parte Hearing. Had that precondition being brought up at the Ex Parte Hearing (or updated subsequently), as Mr Dawes posited, it was at the very least possible that Wilson Chan J would have asked Ps to apply again when the timing of P2 entering formal reorganization became more certain. Conversely, if Ps only devised the “coordination of litigation strategy” after the granting of the Ex Parte Order in the comfort of the protection offered by it without providing any update to the court, that is to me equally unacceptable.

7.25  On either of the above scenarios, the identified inadequacies cannot be characterized as immaterial or innocent. In my view, the Injunction Order obtained by P1 should be discharged on those considerations. I shall deal with the issue of whether there should be a regrant below together with P2’s position.

(iii) 4^th matter set out at section 4: MND relating to D2’s status

7.26  I accept that it was made known to Wilson Chan J that at the time of the Ex Parte Hearing, P2 was in pre-reorganization and the learned Judge indicated that the ramifications of P2 being placed in formal reorganization should be dealt with by P2 at the inter partes stage.

7.27  However, the main problematic feature is P2’s financial position as presented at the Ex Parte Hearing. At Ps’ Ex Parte Skeleton §83(2), the submission made to Wilson Chan J was as follows (see also §3.3 above):

“…. Ps have ample assets to make good [their] undertaking…. Although P2 has entered into pre-organisation procedures… P2 has cash reserve of RMB 38,252,130.63 and net assets of RMB 3,464,942,951.68.” (emphasis added)

7.28  Either that was untrue at the time of the Ex Parte Hearing, or it later became untrue, since as noted at §4.5 above, according to P2 Reorganization Order, P2 was placed in formal reorganization less than 2 months later as it was unable to meet its debts as they fell due. The observation that P2 was unable to meet its debts is also consistent with what is stated at Li 4^th §6 (cited at §6.1(2) above).

7.29  Another problem associated with P2’s status was whether, following P2 entering formal reorganization, its undertaking as to damages continued to be valid since, the power to represent P2 in legal proceedings was vested in the administrators per the P2 Reorganization Order. After this was raised at the hearing before me, Mr Hui took instructions and produced a confirmation from the administrators of P2 that the undertaking as to damages given by P2 remained valid. There was, however, no update on the financial position of P2.

7.30  As stated at Han Jeojoon v Lee Sang Young [2023] HKCFI 2202 §69:

“It is [essential] for a plaintiff to give a meaningful undertaking as to damages in an application for an interlocutory injunction. If the plaintiff’s financial position is that, objectively, there are realistic doubts as to the plaintiff’s ability to honour the cross-undertaking, this fact must be disclosed to the Court in the ex parte hearing. In Wah Nam Holdings Co Ltd v Excel Noble Development Ltd[16], Ribeiro J (as he then was) said in the Court of Appeal:

‘The requirement that a Plaintiff must provide a cross-undertaking in damages is therefore a necessary part of the mechanism for granting interlocutory injunctions. It is a safeguard for the Defendant which enables the court to grant the Plaintiff an order for interim restraint without the merits having been canvassed. ……’

It follows that the merits argument, involving the contention that Yuen J should have undertaken an assessment of the merits of the Plaintiffs’ case with a view to absolving them from providing an undertaking in damages or from the consequences of any non-disclosure or with a view to assessing the likelihood of the undertaking being called upon, turns the true principle on its head.

……

It follows that if a Plaintiff’s financial position is such that, viewed fairly, it may be said to raise realistic doubts as to the Plaintiff’s ability to honour the cross-undertaking, it becomes incumbent upon the Plaintiff to make full and frank disclosure of his financial position to the ex parte judge so as to permit the judge to determine for himself the correct order to make in the light of such disclosures. The judge in such cases has various options. He may consider it proper to refuse the injunction altogether. Or, he may decide to require some degree of fortification of the cross-undertaking as a condition for the grant of the injunction. Alternatively, he may simply decide to grant the injunction against the cross-undertaking notwithstanding the risk that it may not be honoured or fully honoured if called upon. It is however crucial that all relevant material be placed before the judge so that he can make the decision for himself ……

If the facts were such that the Plaintiff came under a duty to make disclosure, it does not avail him to say that his non-disclosure was inadvertent. ……”

7.31  In my view, there was either an incorrect presentation of P2’s financial position at the Ex Parte Hearing, or a failure to inform the court as soon as P2 became aware that the court has been misinformed or given incomplete information at the time of the Ex Parte Hearing.

(iv) 5^th and 6^th matters set out at section 4: MND relating to the Adjudication Table

7.32  Ds’ arguments ran as follows.

7.33  At the Ex Parte Hearing, Ps’ stance was that the 2021 Proofs of Debt lodged by P1 with Nanjing Jiangong’s administrators “remain unadjudicated”. They produced letters issued by or on behalf of Ps to the Nanjing Court and/or the administrators as evidence that the 2021 Proofs of Debt remain unadjudicated.

7.34  However, on 14 April 2022, the Nanjing Court had approved Nanjing Jiangong’s reorganization plan. The Civil Ruling recorded that the reorganization plan was approved at a 2^nd creditors meeting. In the light of this, it is doubtful whether the 2021 Proofs of Debt truly remain unadjudicated. It would instead appear that after the Civil Ruling, P1 started to issue the letters mentioned in the paragraph above to protest to the administrators and the Nanjing Court. This is because Article 58 of the Enterprise Bankruptcy Law provides as follows: “依照本法第五十七条规定编制的债权表，应当提交第一次债权人会议核查…” As the Civil Ruling recorded that the reorganization plan was approved at a 2^nd creditors’ meeting, clearly a 1^st creditors’ meeting had already been held and did not approve the reorganization plan. In view of this, the Adjudication Table would more likely suggest that it was the revised version submitted to the 2^nd creditors’ meeting.

7.35  It is against the above context that Ds submit that Ps had deliberately suppressed the Adjudication Table until they were forced to disclose it as part of the complete copy of the Original Complaint. This is important, since where there is non-disclosure by an applicant for a Mareva injunction which is the result of a suppression of material facts, the practice of the courts is to discharge the order without further going into the merits: Velatel Global Communications Inc Trussnet Capital Partners (HK) Ltd v Chinacomm Limited and Ors, HCA 1978/2011, 26 October 2012 at §26.

7.36  In the present case, the Adjudication Table is no doubt a material document. It was not disclosed in the ex parte application, and yet it is one of the 6 documents appended to the Original Complaint.

7.37  The materiality of the Adjudication Table lies in the fact that P1’s Proofs of Debt are listed in item 596, but given a value of “0” whether under the column of “確認金額” or “暫緩確認金額”. In other words, prima facie the 2021 Proofs of Debt lodged by P1 had been adjudicated, contrary to Ps’ claim.

7.38  As a result of the suppression of the Adjudication Table, Wilson Chan J was misled to believe that the 2021 Proofs of Debt remained unadjudicated or that this was a plain fact, when in truth the administrators had already rejected them. This resulted in the court not being apprised of serious and potential defences undermining Ps’ case, for example, the Court was not addressed or provided with any PRC legal opinion as to the impact of a rejection of the 2021 Proofs of Debt lodged by P1 (if that is indeed the case) on the merits of Ps’ claim.

7.39  In response to Ds arguments set out above, Mr Hui reminded me that the role of the court at the inter partes hearing is not to conduct a mini trial in relation to the disputed subject matters of any alleged MND and a dispute about whether full and frank disclosure has been made should generally be left to be investigated at trial. He relied on Man Jason Chun Yin v Wong Chi Kit [2022] HKCFI 3238 §24:

“But most fundamentally, this Court simply cannot decide the substantial disputes between the parties in relation to the subject matters of the alleged non-disclosure on the incomplete evidence before the court. Whilst Mr Ko says that he is not asking this Court to look into merits and examine the issue of credibility “under the microscope”, in my view he in effect is. I repeat with respect the warnings given by the Courts in Sino Wood and Cheer Signal, that no mini-trial should be conducted to decide, for the purpose of deciding allegations of material non-disclosure, which parties’ story is inherently more credible.”

7.40  In my view, the status of the Adjudication Table is far from clear. On the present state of the evidence, I am unable to dismiss Ps’ case that the Adjudication Table had not been approved in Nanjing Jiangong’s administration. After the Civil Ruling dated 14 April 2022 approving Nanjing Jiangong’s reorganization plan, Ps and their solicitors had respectively on 24 April and 23 October 2022 issued letters to the administrators of Nanjing Jiangong chasing the adjudication of 2021 Proofs of Debts. The evidence placed before me is unclear as to whether the administrators of Nanjing Jiangong had factually asserted that the 2021 Proofs of Debts had been adjudicated and given a “nil” value.

7.41  For the above reasons, I am not persuaded that I should conclude at this stage that there was MND in respect of the Adjudication Table.

(v) 7^th matter set out at section 4: Breach of undertaking and MND relating to P2’s commencement of proceedings in the Mainland

7.42  Some of the relevant matters have already been set out in the discussions above regarding P1’s breach of the undertaking and P2’s status (ie the 3^rd, 4^th and 8^th matters set out at section 4).

7.43  For the reasons stated therein, I am of the view that P2 was likewise in breach of its undertaking to commence proceedings in the Mainland as soon as practicable and/or was in breach of its obligation to give full and frank disclosure.

7.44  It seems to me that the failures in respect of P2 are even clearer. Whereas there is no material to suggest that the financial picture of P1 had drastically changed from that presented at the Ex Parte Hearing, the same cannot be said about P2’s financial position. According to Li 4^th, the “coordination of litigation strategy” was one devised specifically to cater to P2’s financial position. It was not disclosed to Wilson Chan J that the commencement of proceedings by P2 in the Mainland was dependent upon P2 entering formal reorganization. At the Ex Parte Hearing, there was no indication how long it would have taken for that eventuality to come to fruition and certainly the picture painted to Wilson Chan J was that P2’s financial position was such that the Court Fees would not be a material consideration.

7.45  I do not however place any weight on Mr Dawes’ submission that the Original Complaint and Revised Complaint were in scope different from the case presented before Wilson Chan J (in both scenarios making a claim far exceeding the Claim Amount). On the evidence, it is plain that the claims made are based on the Letter of Guarantee and Ps did expressly inform Wilson Chan J that Ps reserved the right to claim for a larger sum in the proceedings in the Mainland.

7.46  The inadequacies identified above in respect of P2 likewise cannot be dismissed as immaterial or innocent. In my view, the Injunction Order obtained by P2 should also be discharged.

8.   Conclusion from the above analysis

8.1  As set out above, I have found that:

(1) there was no solid basis to establish a real risk of dissipation of assets;

(2) P1 and P2 were in breach of their undertakings to commence proceedings in the Mainland as soon as practicable, and relatedly, there was MND in relation to the fact that there was in place the “coordination of litigation strategy”;

(3) there was MND in respect of P2’s financial position;

(4) the Injunction Order obtained by Ps should be discharged for the reasons identified at the above subparagraphs.

8.2  There remain two further issues, namely whether the Injunction Order should be regranted and the issue of fortification.

8.3  The issue of regrant is only relevant to MND and Ps’ breaches of their undertakings to commence proceedings in the Mainland. Mr Hui’s position is that, whatever inadequacies there might have been, they have been remedied. Proceedings in the Mainland have now been commenced and there is an outside investor, namely Hongkang Insurance, which can provide fortification for Ps cross-undertakings in damages.

8.4  I have found that Ps inadequacies in respect of MND and breaches of their undertakings are neither immaterial nor innocent. I have not lost sight of Mr Hui’s submissions that Ps apparently have a meritorious case, and the objective facts that the Letter of Undertaking and Letter of Guarantee were executed indicated the claims made by Ps are not without substance. However, as pointed out at Excel Courage, I should not conduct a simple balancing exercise in which the strength of Ps’ case is allowed to undermine the policy objective to uphold the public interest in requiring full and frank disclosure, and by extension, the honouring of undertakings given to the court. In the circumstances of the present case, I decline to regrant the Injunction Order.

8.5  Were I wrong on the above conclusions, I would have ordered fortification given the questionable financial position of P2 and both Ps are resident outside of jurisdiction. Mr Hui and Mr Dawes were content to proceed on the basis that the fortification should be quantified by applying the commercial interest rate (6.25% per annum) to the amount frozen (ie the Claim Amount) for the period estimated for the Mainland Proceedings to conclude. The Hainan Court had indicated that the Mainland proceedings should be concluded within 6 months. Bearing in mind that P1 was permitted to participate in the Hainan proceedings on 22 November 2023, the proceedings should conclude sometime in May 2024. I would have ordered fortification in a sum calculated by applying 6.25% per annum to the Claim Amount for 10 months (from the date of the Injunction Order to May 2024) in a form to Ds’ satisfaction, with liberty to Ds to apply in case the Mainland proceedings take longer to resolve.

9.   The New Evidence Summons

9.1  There appears to be no real dispute between the parties that the main considerations are (1) the cogency/relevance of the new evidence and (2) whether it would have an impact on the outcome Galsworthy Ltd v Liu Por (appointed to represent the estate of Liu Cheng Chan, deceased) & Ors [2019] HKCFI 2397 §443.

9.2  I have considered the new evidence sought to be adduced by the New Evidence Summons on a de bene esse basis. As is clear from the matters stated above, the new evidence would not have had an impact on the outcome.

9.3  I would therefore dismiss the New Evidence Summons.

10.   Disposition

10.1  For the above reasons, the OS, the Continuation Summons and the New Evidence Summons are dismissed. I also make an order in terms of §1 of the Discharge Summons.

10.2  I further make a costs order nisi that the Ps do pay to Ds the costs of and occasioned by the above 4 applications to Ds to be taxed if not agreed, with a certificate for two counsel.

10.3  I thank all counsel for their assistance.