鑫都集團有限公司 v. U.K. PROLIFIC PETROLEUM GROUP COMPANY LTD AND OTHERS

HCMP 666/2024

[2024] HKCFI 2234

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 666 OF 2024

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BETWEEN

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REASONS FOR DECISION

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1.   Introduction

1.1   At the hearing on 31 May 2024 (“Hearing”), I dealt with the Plaintiff’s summons dated 24 April 2024 (“Summons”), by which it sought the following injunctive relief against the 1^st to 3^rd Defendants:

(1) An injunction restraining the 1^st Defendant (“UKPPGC”) from dealing with:

(a) The 1,860,000,000 shares in China Energy Development Holdings Ltd (“ListCo”) held by it (“Subject Shares”);

(b) Convertible bonds with a principal amount of HK$199,120,000 issued on or around 5 January 2011 by Listco standing to the name of the 1^st Defendant (“Subject CBs”); and/or

(c) The traceable assets of (a) and (b) above;

(2) An injunction restraining the 2^nd Defendant (“Cypress”) from dealing with:

(a) Its interest in 1,500,000,000 shares in ListCo purportedly transferred to it by UKPPGC on or around 9 April 2024;

(b) Its interest in the convertible bonds with a principal amount of HK$62,600,000 issued on or around 5 January 2011 by Listco, which were purportedly transferred to it from UKPPGC on or around 9 April 2024; and/or

(c) The traceable assets of (a) and (b) above;

(3) An injunction restraining the 3^rd Defendant (“Wang”) from dealing with 20% of the issued share capital of UKPPGC (“UKPPGC Shares”).

1.2   At the Hearing, the Plaintiff was represented by Mr David Chen (with Ms Clara Wong)[1]. As I was satisfied that the 1^st to 3^rd Defendants had been properly served the Summons and all related papers, I decided to proceed with the Hearing in their absence. At the conclusion of the Hearing, I acceded to Mr Chen’s invitation and granted an interim-interim injunction in terms of the relief sought pending the resolution of the Summons (for which an evidential timetable was directed)[2]. These are my reasons.

1.3   The Summons was adjourned for a number of times. At the hearing on 3 May 2024, only matters relating to service was dealt with. Subsequently, at the hearing on 17 May 2024, as UKPPGC and Cypress had then not been served, the Summons against them was adjourned to the Hearing. I did, however, granted an interim-interim injunction against Wang which was to remain in force until the Hearing for the ex tempore reasons I gave at that hearing.

1.4   These proceedings were commenced by an Originating Summons dated 22 April 2024, by which the Plaintiff seeks interim injunctive relief in aid of arbitral proceedings to be commenced (and subsequently commenced on 28 May 2024) (“SCIA Arbitration”) before the Shenzhen Court of International Arbitration pursuant to a memorandum executed in 2015 (“2015 Memorandum”) between inter alia the Plaintiff, UKPPGC and Wang.

1.5   The Plaintiff’s case is that under the 2015 Memorandum, it is contractually entitled to the UKPPGC Shares, the Subject Shares and the Subject CBs.

2.   Background

2.1   The background material is largely taken from Mr Chen’s Skeleton Argument lodged for the hearing on 17 May 2024.

2.2   In January 2015, the Plaintiff, UKPPGC and Wang (amongst others) entered into the 2015 Memorandum which settled various disputes between the parties. The Plaintiff agreed to give up certain claims and entitlements. In return, UKPPGC and its related parties agreed that the Plaintiff shall be entitled to (1) 20% of the shareholding in UKPPGC as of January 2011, (2) 20% of the shares and convertible bonds in ListCo initially owned by UKPPGC, and (3) 20% of other rights and benefits owned by UKPPGC. The relevant clause (四(二) 2) provides as follows:

“ 鑫都对 UK 公司的股权拥有20% 的权益(该权益指 2011 年 1 月最初中能控股交易完成获得对价，而不是现时持有的股票和债劵)，并有权按比例分配 UK 公司最初拥有的中能控股股票和可换股债劵的 20%，UK公司的其他权益(如有) 按现时的20%分配。”

2.3   The corporate filings and documents of ListCo reveal:

(1) On 3 January 2011, UKPPGC acquired 15,226,190,476 shares (both issued and underlying) in ListCo through the issuance of convertible bonds with a principal amount of HK$2,558,000,000, convertible to ListCo shares at HK$0.168/share;

(2) On 5 January 2011, UKPPGC converted bonds with a principal amount of HK$312,480,000 and was issued 1.86 billion shares in ListCo. Thus, at this stage, UKPPGC held:

(a) 1.86 billion issued shares in ListCo, and

(b) 13,366,190,476 underlying shares in ListCo, arising from convertible bonds with a principal amount of HK$2,245,520,000 (HK$2,558,000,000 less $312,480,000);

(3) As of 30 June 2023, UKPPGC held:

(a) 1.86 billion issued shares in ListCo; and

(b) 4,045,654,762 underlying shares in ListCo, arising from convertible bonds with a principal amount of HK$679,670,000.

2.4   According to UKPPGC, convertible bonds with a principal amount of HK$1,279,000,000 were cancelled in around May 2015, which explains the substantial reduction in UKPPGC’s holding in convertible bonds since January 2011.

2.5   It is the Plaintiff’s case that it is entitled to 20% of UKPPGC’s shareholding in ListCo. Since UKPPGC was initially interested in 15,226,190,476 shares (both issued and underlying) in ListCo, the Plaintiff’s 20% interest amounts to 3,045,238,095 shares. After UKPPGC converted part of its convertible bonds into ListCo shares, the Plaintiff is entitled to trace its interest into:

(1) 1.86 billion issued shares in ListCo (ie the Subject Shares);

(2) 1,185,238,095 underlying shares in ListCo (arising from convertible bonds with a principal amount of HK$199,120,000, convertible at HK$0.168/share) (ie the Subject CBs).

2.6   On 9 April 2024, UKPPGC purportedly transferred, without the Plaintiff’s knowledge and consent, part of the Subject Shares and part of the Subject CBs (“Purportedly Transferred Securities”) to Cypress, which is another corporate vehicle wholly owned and controlled by Wang. By letter dated 10 April 2024 , ListCo gave notice to the Plaintiff that:

(1) On 10 April 2024, ListCo had instructed Tricor (its share registrar and transfer agent) to register the transfer of 1.5 billion shares in ListCo from UKPPGC to Cypress pursuant to a duly executed and stamped standard form of transfer dated 9 April 2024, and issue the new share certificate on 25 April 2024;

(2) ListCo would register the transfer of convertible bonds with principal amount of $543,150,000 from UKPPGC to Cypress pursuant to a duly executed form of transfer dated 9 April 2024, and issue the new bond certificate on 25 April 2024.

2.7   On 12 April 2024, UKPPGC through their solicitors Messrs. Chiu Liang & Co (“CLC”) sent a letter to the Plaintiff’s solicitors requesting “at least 7 days prior written notice” if the Plaintiff decided to apply for injunctive relief to restrain the registration of Purportedly Transferred Securities.

2.8   On 16 April 2024, the Plaintiff commenced HCMP 630/2024 to seek a stop order against ListCo and Tricor in respect of the registration of the Purportedly Transferred Securities. Given CLC’s 12 April letter, the Plaintiff named UKPPGC the 3^rd Defendant in HCMP 630/2024, even though no substantive relief was sought against it.

2.9   On 19 April 2024, DHCJ KC Chan granted interim-interim relief in HCMP 630/2024 at a return-date hearing in which UKPPGC participated and raised substantive opposition. The relief restrained ListCo and Tricor from registering the transfer of Purportedly Transferred Securities. No order was made against UKPPGC (“19/4/24 Order”).

2.10   The 19/4/24 Order does not extend to the UKPPGC Shares held by Wang. The 19/4/24 Order also does not affect the traceable proceeds (if any) of the Purportedly Transferred Securities.

2.11   It is in the above context that the Plaintiff commenced the present proceedings seeking injunctive relief against the 1^st to 3^rd Defendants to restrain them from dealing with the UKPPGC Shares, the Subject Shares and the Subject CBs.

2.12   Following the issuance of the Summons, on 8 May 2024, the Plaintiff discovered that, quite apart from the incident on the Purportedly Transferred Securities, Wang had on 30 April 2024 entered into an agreement with Xinjian Xintai Natural Gas Co Ltd (“Xinjiang Xintai”), a company listed on the Shanghai Stock Exchange, to dispose of his entre interest in Cypress to Xinjiang Xintai.

3.   The applicable principles

3.1   The principles applicable to the grant of interim-interim relief is set out at China Shanshui Cement Group Ltd v Zhang Caikui [2018] HKCA 409:

“ [13] It has to be reiterated that interim interim relief is meant to be an urgent temporary stop-gap measure and the circumstances were such that the court has to do practical justice on the balance of fairness even though it may not have sufficient time to consider the matter fully.

[17] The extent to which a judge give weight to the merit on an issue in a particular case depends very much on the context and there are obviously other factors at play including the effect of the grant or refusal of the relief and the subject matter at stake. It is a multi-facet assessment and, as we said, an exercise with high discretionary margin accorded to the first instance judge.”

3.2   The present application is made pursuant to Section 45 of the Arbitration Ordinance Cap 609 (“AO”) and Section 21M of the High Court Ordinance Cap 4 (“HCO”). As explained in Top Gains Minerals Macao Commercial Offshore Ltd v TL Resources Pte Ltd [2016] 3 HKC 44:

(1) Section 45 of the AO is the primary provision governing the court’s grant of interim measures in aid of arbitral proceedings commenced, or to be commenced, in or outside Hong Kong (§21);

(2) Section 21M of the HCO refers to “proceedings” which have been, or are to be commenced outside Hong Kong, which are capable of giving rise to a judgment which may be enforced in Hong Kong under any ordinance or at common law. “Proceedings” can include arbitral proceedings (§28);

(3) There is similarity in the bases of Section 21M and Section 45, namely, to enable the court to grant interim measures in relation to and in aid of proceedings which have been or are to be commenced outside Hong Kong, so long as such proceedings are capable of giving rise to a judgment which may be enforced in Hong Kong. The guidelines set out by the court in Compania Sud Americana De Vapores SA v Hin-Pro International Logistics Ltd [2015] 2 HKLRD 458, when a party seeks an injunction under Section 21M in aid of legal proceedings outside Hong Kong is relevant and of assistance when the court is asked to exercise its powers under Section 45 to grant interim measures in aid of arbitral proceedings outside Hong Kong (§29);

(4) The exercise involves a two-stage test for determining the grant of interim relief: (1) whether the facts of the case warrant the grant of interim relief if substantive proceedings were brought in Hong Kong, and (2) whether it is unjust or inconvenient for the court to grant the interim relief (§23).

4.   Analysis

4.1   At the Hearing, having considered the evidence and Mr Chen’s submissions, it was plain to me that, in order to do practical justice on the balance of fairness, an interim-interim injunction should be granted against UKPPGC and Wang:

(1) As pointed out by Mr Chen, there are plainly serious issues to be tried on (a) the Plaintiff’s proprietary interest in the UKPPGC Shares, the Subject Shares and the Subject CBs pursuant to the 2015 Memorandum and (2) the validity and enforceability of the 2015 Memorandum;

(2) Whilst it may be said that the subject matters were in reality concerned with the shares in listed company, given that they represent a significant percentage of ListCo’s issued share capital, a “replacement” may not be readily obtainable in the market: Pacas Worldwide Ltd v China Health Group Ltd, HCA 2961/2015, 18 May 2016 §§8 and 39;

(3) Whilst it is not strictly necessary for the Plaintiff to show any risk of dissipation for purposes of a proprietary injunction or preservation order, the existence of such a risk is “clearly a factor that weighs heavily” in favour of a grant: Hengshi International Investments Ltd v Bayspring International Ltd, HCMP 1916/2015, 18 December 2015;

(4) The Plaintiff can offer a credible undertaking as to damages, as it has a substantial cash reserve and is asset-rich.

4.2    What troubled me slightly was the position regarding Cypress. I had raised my concern with Mr Chen at the hearing on 17 May 2024. First, Cypress is not a party to the 2015 Memorandum and is therefore not a party to the arbitration commenced before the SCIA. Secondly, there was no indication that any substantive proceedings would be commenced by the Plaintiff against Cypress. At the Hearing, Mr Chen informed me that any substantive proceedings against Cypress would depend on the outcome of the SCIA Arbitration.

4.3   Mr Chen referred to Company A & Ors v Company D & Ors [2018] HKCFI 2240, in which Mimmie Chan J held that interim relief in aid of arbitral proceedings may be granted against third parties to an arbitration:

“ [38] The role of the court in the grant of interim measures, as clearly set out in section 45 (7), is ancillary to the arbitral proceedings, and the orders which the court may make under section 45 are for the purpose of “facilitating the process” of the arbitral tribunal, or the supervisory court, which has the primary jurisdiction outside Hong Kong. This is all for the object (as set out in section 3 (1) of the Ordinance) to “facilitate the fair and speedy resolution of disputes by arbitration”. The role of the court is to aid, and to facilitate, the arbitration and the tribunal. Article 9 of the Model Law (which applies by section 21 of the Ordinance) expressly states: “It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.” The grant of interim measures under section 45 is accordingly not interference in the arbitration, and there is no need to further restrict the ambit of section 45 or to confine the scope of the interim measures which may be granted, beyond what is already expressly set out.

[39] The grant of any interim remedy is discretionary, and it remains open to the court to consider, on the facts of each particular case, whether it would be appropriate to exercise its powers, on grounds properly established, to make the necessary orders for the purposes of and in relation to the arbitral proceedings to be “facilitated”, aided and supported. As the authorities have established, when the court is asked to grant any form of interim relief in aid, it applies the same general principles which govern the grant of interim injunctions and other interim relief in legal proceedings (Prema Birkdale Horticulture (Macau) Ltd v Venetian Orient Ltd [2009] 5 HKLRD 89). In the case of a Mareva injunction, the applicant has to show a good arguable case and that the balance of convenience is in favor of the grant of the injunction sought. In the case of a Chabra type of order, the court should be satisfied that the 3rd party holds, or controls the relevant assets of the potential judgment debtor, such that the order should be extended to the 3rd party when the cause of action is only against the defendant judgment debtor.

[40] To the extent that the authorities considered by the English court in Cruz City 1 Mauritius Holdings v Unitech Ltd and DTEK Trading SA v Mr Sergey Morozov had to refer to and rely on the relevant provisions of the English rules which govern service of proceedings outside the jurisdiction, to conclude that there is no basis for saying that the English court should have power to allow service out of the jurisdiction of proceedings relating to an arbitration to which the proposed defendant is not a party, there is no such issue or concern in Hong Kong. Our Order 73 rule 7 (3) RHC expressly permits service out of Hong Kong of any originating summons or summons, by which an application for an interim measure under section 45 (2) of the Ordinance is made, with the leave of the Court. Rule 7 (5) also provides expressly that no leave may be granted for service out, “unless it is made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction” under rule 7. The “line of positive decision that service out against third parties is not permissible” (paragraph 23 of the judgment in DTEK Trading SA) is not applicable to Hong Kong. Our Order 73 rule 7 (3) and (5) also remove any argument of an intended check on the jurisdiction of the court. The only question is whether the interim measure for service out can be ordered against a 3rd party who is not privy to the arbitration agreement and arbitration.

[41] It may well be right, that the power of the court to make an order of interim measure against a 3rd party to the arbitration and arbitration agreement should not be exercised lightly. It has to be borne in mind that such a non-party should be brought to proceedings before the court, and be subjected to an order against which there is no appeal, only if it can be established on clear evidence, and on strong grounds, that the order should be made in aid of and to facilitate the arbitral proceedings. However, I would not agree that the court has no jurisdiction at all, under section 45 of the Ordinance, to make such an order in the appropriate case.”

4.4   As against Cypress, the Plaintiff’s case is that UKPPGC purportedly transferred to it 1,500,000,000 shares in ListCo and convertible bonds with a principal amount of HK$543,150,000. It is the Plaintiff’s further case that Cypress is not a bona fide purchaser for value of the legal estate without notice. Cypress is controlled by Wang, who knows the Plaintiff’s entitlement to the ListCo shares and convertible bonds transferred to it. It is also unclear if Cypress has provided consideration for the Transfers. In the circumstances, it is at least arguable that the Plaintiff has a proprietary claim to the ListCo shares and $62,600,000 in convertible bonds transferred to Cypress.

4.5   Subject to the jurisdiction point, it seems to me that the considerations set out at §4.1(2) to (4) above are also factors in favour of the grant of interim-interim relief.

4.6   Mr Chen acknowledges that whilst interim relief may be granted against third parties to an arbitration, it is a jurisdiction which should not be exercised lightly. I think this is one of the main reasons why he (fairly in my view) only sought interim-interim relief on the basis that the order is intended to be a stop gap measure, leaving the issue of whether the jurisdiction should be exercised in the present case to be properly argued at the hearing of the Summons, either by Cypress or possibly even by Xinjian Xintai.

4.7   I therefore acceded to grant interim-interim relief also against Cypress.

5.   Conclusion

5.1   It is for the above reasons I granted interim-interim relief against the Defendants at the Hearing.