YIP CHI HUNG, FRANCIS v. DOUBIBI (HK) LTD AND ANOTHER

HCMP 1620/2025

[2026] HKCFI 3414

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1620 OF 2025

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D E C I S I O N

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I.  INTRODUCTION

1.  Before me is the Originating Summons filed on 18 September 2025 (the “Originating Summons”) by the Plaintiff (“Mr Yip”) seeking leave under sections 732 and 733 of the Companies Ordinance (Cap. 622) (the “CO”) to commence a derivative action on behalf of the 1^st Defendant (the “Hong Kong Company”) against the 2^nd Defendant (“Mr Cheng”).

II.  BACKGROUND

2.  Since 22 December 2014, Mr Yip has been a shareholder holding 40% of the shareholding of the Hong Kong Company, and Mr Cheng is the shareholder holding the remaining 60%.

3.  Prior to 6 March 2025, Mr Yip was the sole de jure director of the Hong Kong Company. On 6 March 2025, by a shareholders’ resolution, Mr Cheng was appointed as a director of the Hong Kong Company. I shall refer to this appointment as the “March Appointment”.

4.  On 25 April 2014, Doubibi (China) Network Information Technology Co., Ltd (the “PRC Company”) was incorporated as a wholly owned foreign-owned enterprise in the PRC of the Hong Kong Company. The PRC Company operated a branch in Xi’an (the “Xi’an Doubibi Branch”). The PRC Company in turn holds, as one of the shareholders, shares in two other PRC companies. The business of the group of the companies (including a PRC company known as “Nanjing Doubibi”) is related to e-commerce, and for convenience, I shall refer to the business of the group as the “PRC E-Commerce Business”. The real business is the PRC E-Commerce Business, and the Hong Kong Company is a mere holding company.

5.  By a Shareholders’ Agreement dated 1 January 2015 (the “SHA”) between Mr Yip (as “乙方”), Mr Cheng (as “甲方”) and the Hong Kong Company (as “該公司”),

“1.1「該集團」指香港都比比 [that is, the Hong Kong Company]、江蘇都比比 [that is, the PRC Company]、南京都比比 [that is, Nanjing Doubibi]、西安都比比 [that is, the Xi’an Doubibi Branch]

5. 董事會及管理

5.2. 在符合本協議第7條之條款及《公司條例》（香港法例第622章）的前提下，董事會負責監督該公司及集團公司的所有活動，並根據本協定的約定負責確定該公司的總體政策和目標。

5.5. 在本協定有效期限內的任何時候，甲方有權任命並維持1名董事（甲方董事），並對其任命的任何董事有權予以撤銷。爲此，第一批甲方董事爲鄭昭明 [that is, Mr Cheng]。

5.6. 在本協定有效期限內，乙方在任何時候都有權任命並維持1名董事（乙方董事），並有權對其任命的任何董事予以撤銷。爲此目的，第一批乙方董事將是葉志雄 [that is, Mr Yip]。”

6.  Clause 7 enumerates several matters of the Hong Kong Company and the members of the group of the companies（該集團成員）, including the PRC Company that would require unanimous consent of the shareholders of the Hong Kong Company.

7.  Clause 8 reads:-

“8.3. 該公司應促使該集團成員定期提交業務報告，會計報告（包括現金流量表、損益表及資產負債表）。除任何股東另有通知外，該等報告將不少於每三個月提交。

8.7.(a) 各股東將合作及促使該公司及各集團成員能達成第8條之目標；並能令特定業務成功經營及運作”

8.  By 1 June 2025, Mr Yip invested approximately USD1.7 million into the Hong Kong Company.

III.  MR YIP’S INTENDED DERIVATIVE ACTION

9.  Against the above background, Mr Yip intends to commence a derivative action on behalf of the Hong Kong Company against Mr Cheng based on, among others, the following averments in the draft Statement of Claim (the “DSOC”), on which now Mr Yip seeks leave to commence derivative action:-

(1)  On 6 March 2025, Mr Cheng was appointed as a director of the Hong Kong Company, and prior to this appointment, he had been a de facto director of the Hong Kong Company (§3 of the DSOC).

(2)  Mr Cheng is and was at all material times an executive director, whether de jure and/or de facto, of the PRC Company (§6 of the DSOC).

(3)  Mr Cheng had been the legal representative（法人代表）of the PRC Company since its incorporation until December 2017 (§6 of the DSOC).

(4)  In early 2014, Mr Yip and Mr Cheng reached a common understanding (the “Common Understanding”), among others, that the Hong Kong Company to be incorporated would be a passive investment holding company to hold interest in the PRC Company (to be incorporated), and Mr Cheng would be responsible for managing the business and affairs of the PRC Company.

(5)  Since the incorporation of the PRC Company on 25 April 2014, “[Mr Cheng] has been in charge of and/or in control of its business, affairs and management (and as such that of the Plaintiff” (§12 of the DSOC).

(6)  Further, by virtue of Clause 5.5 of the SHA (quoted in §5 above), though no formal appointment has been made thereunder, Mr Cheng has been a de facto director of the Hong Kong Company (§11(e) of the DSOC).

(7)  The Hong Kong Company has remitted US$1.7 million (the “Fund”) to the PRC Company for the PRC E-Commerce Businesses (§13 of the DSOC).

(8)  The PRC Company and the PRC E-Commerce Businesses “constitute the single most substantial asset” of the Hong Kong Company (§13 of the DSOC).

(9)  By virtue of his position in the PRC Company, Mr Cheng has full control of the Fund and the business, affairs and management of the PRC E-Commerce Businesses (§14 of the DSOC).

(10)  The Hong Kong Company relies on Mr Cheng to manage the PRC Company and the PRC E-Commerce Businesses (§14 of the DSOC).

(11)  By reason of the Common Understanding and his position in the Hong Kong Company Mr Cheng owed and owes, among others, a duty to the Hong Kong Company to account to the Hong Kong Company for his dealings with the PRC Company, the PRC E-Commerce Businesses and/or the Fund (§19 of the DSOC).

(12)  Further or alternatively, Mr Cheng was and is a trustee or fiduciary of the Hong Kong Company’s assets and properties (being the PRC Company and the PRC E-Commerce Businesses) in his possession and control (by virtue of his control of the PRC Company), and owes, among others, the same duty to account (§20 of the DSOC).

(13)  Mr Cheng has breached his duty to account (§§21-24 of the DSOC).

(14)  In December 2017, Mr Cheng purportedly resigned as the legal representative, and since December 2017, Mr Bright Wang (“Mr Wang”) has become and remains the legal representative of the PRC Company (§6 of the DSOC).

(15)  Mr Wang has been Mr Cheng’s nominee, holding the position of legal representative on behalf of Mr Cheng. Mr Cheng was and still is the de factor executive director and/or de facto legal representative and/or shadow director of the PRC Company (§6(b) of the DSOC).

10.  The relief to be sought by the DSOC are:-

“(1) An account and inquiry in respect of the total sum of USD1.7 million;

(2) Mandatory injunction that [Mr Cheng]…do deliver up or allow [the Hong Kong Company] access to the books, accounts and business records of and in relation to [the PRC Company] and the PRC E-Commerce Businesses”.

For convenience, I shall refer to these two reliefs as “Relief (1)” and “Relief (2)”.

11.  During the hearing, Ms Jamie Pang, counsel for Mr Yip, points out the obvious in relation to relief (2) – that the “books, accounts and business records” are those that are in Mr Cheng’s possession, custody and/or power.  

IV.  LEGAL PRINCIPLES

12.  The legal principles in relation to section 732 and 733 of the CO have been recently summarised by Harris J in Re Archid Garment Factory Limited [2026] HKCFI 2166 at §§9-12. I can do no better than quoting his Lordship’s summary:-

“9. As I have held in Lam Kin Chung v Soka Gakkai International of Hong Kong Ltd, before granting leave, the Court must be satisfied principally that the proposed proceedings raise a serious question to be tried, and that it appears to be in the Company’s interests that it be tried. The issues are normally considered in that order.

10. More recently, the correct approach to determining whether the two criteria are met was restated by Coleman J in Kwok Hiu Kwan v Convoy Global Holdings Ltd:

(1) As to the requirement for a serious question to be tried, the threshold is relatively low. Therefore, the prospects of success on the claim are to be investigated only to a limited extent, and the Court should be slow to refuse leave unless the prospects are so slim that the plaintiff cannot be said to have any expectation of success. The question is whether there can be seen prospects of success which, in substance and reality, exist. Unless the pleaded claim is demurrable, or there are some easily demonstrated fatal flaws, the merits will not be further investigated. At this stage, it is not the Court’s function to try to resolve conflicts of evidence or difficult questions of law: [56].

(2) Of course, when considering whether a serious question to be tried is made out, the Court is not obliged to accept whatever evidence the plaintiff chooses to place before it without any critical thinking: [57].

(3) As to the requirement that the intended action appears to be in the interests of the company, again the threshold is low. In most cases, if a serious question to be tried has been demonstrated, it will follow that it is prima facie in the interests of the company that proceedings are pursued (and, of course, vice versa): [58].

(4) In assessing whether it appears to be in the interests of the company that the statutory derivative action be pursued, the Court should also take into account whether any practical benefit is likely to result. This involves making some assessment as to whether it appears that the company stands to gain in money or money’s worth in light of the costs to be incurred. That is not necessarily the same as a cost-benefit analysis of possible outcomes of the prospective litigation, as that assessment may not be possible with any degree of confidence or accuracy. But the Court should be looking to see whether there is a realistic tangible and practical overall benefit which might be obtained: [59].

(5) Section 733 provides a discretionary power for the Court to grant leave to commence a statutory derivative action. In exercising its discretion, the Court is deciding—on the basis of the criteria laid down by statute—whether the plaintiff should exceptionally be allowed to sue in place of the company which is normally the proper plaintiff. The questions to be asked by the Court include a consideration of whether the case is a proper case for the Court to exercise its discretion. Part of the reason for the discretion is to act as a safeguard against vexatious and inappropriate proceedings by disgruntled members. The Court can properly be regarded as exercising a “gatekeeping” function: [60].

(6) If the applicant can satisfy the serious question to be tried requirement and the interests of the company requirement, the fact that he may also be engaged in broader disputes and hostile litigation with the intended defendants does not of itself give rise to an inference that the leave application is for an ulterior motive and hence an abuse of process: see, for example, Lau Wing Yan v Pacific Bulk Investment Ltd [2020] HKCFI 769 at [48]. If something is in the best interests of a company, it does not matter who the shareholders are and the state of the relationship between them: [61].

11. Furthermore, Mr Bernard Man SC, acting for the Respondents, emphasised that there will be cases in which a serious question to be tried is established, but it may not be in the interests of the Company that proceedings be commenced. For example, a $100 claim may be meritorious, but it may not be expedient to commence an action for it.

12. In addition to the above principles, the Court should take into account evidence, which demonstrates that the substance of the redress which the applicant seeks to achieve is available by a means which does not require the company to be brought into litigation against its will. For example, if the applicant can achieve the desired result in proceedings in his or her own name, it may not be in the best interests of the company to be involved in litigation at all: Wong Wai Chung and Anor v Woncorn Investment Ltd.” (emphasis added)

V.  MR CHENG DID NOT OWE AND BREACH ANY DUTY TO THE HONG KONG COMPANY

13.  Mr Martin Lau, leading Mr Kenny Kwok, counsel for Mr Cheng, raises several grounds of opposition. The first ground is that Mr Cheng did not owe or breach any duty to the Hong Kong Company because before the March Appointment he was neither a de jure director nor was a de facto director.

14.  With respect, I do not understand this ground of opposition. As a matter of fact, Mr Cheng has since the March Appointment been a de jure director. Therefore, there cannot be any dispute that at least since the March Appointment, Mr Cheng has owed duties to the Hong Kong Company. As to the contents of the duties, I shall deal with this point after I deal with the de facto directorship of Mr Cheng prior to the March Appointment for the sake of completeness.

15.  §17 of the DSOC, in pleading that prior to the March Appointment, Mr Cheng was a de facto director of the Hong Kong Company, refers to §§10, 11(e) and 12 to 15 of the DSOC. In summary, these paragraphs aver:-

(1)  Based on the Common Understanding, the substance of the Hong Kong Company is the PRC Company and the PRC E-Commerce Businesses, and Mr Cheng had already operating such business in the PRC, he would be responsible for managing the business and affairs of the PRC Company;

(2)  By Clause 5.5 of the SHA, Mr Cheng was entitled to have himself appointed as a de jure director of the Hong Kong Company. Although no such appointment had been formally made prior to the March Appointment, Mr Cheng has been a de facto director; and

(3)  Mr Cheng has, as a matter of fact, been in charge of and/or in control of the business, affairs and management of the PRC Company and the PRC E-Commerce Businesses (with particulars pleaded in support), and since the Hong Kong Company’s only substance is the PRC Company and the purpose of the Hong Kong Company has been to operate the PRC Company and the PRC E-Commerce Businesses, Mr Cheng has been a de facto director.

16.  The legal principles regarding de facto directorship have been summarised by Coleman J in Cyberworks Audio Video Technology Limited v Mei Ah (HK) Company Limited [2020] HKCFI 398 at §56. I highlight the following points:-

(1)  It is a question of fact and degree, and all the relevant factors must be considered in their context.

(2)  Often, holding out would be weighty evidence in support of a de facto directorship, but holding out is not a necessary feature. The Court would look at the substance.

(3)  It is not sufficient to show that the person was concerned in the management of the company’s affairs, or undertook tasks in relation to its business.

(4)  It is necessary to plead and prove that the person undertook functions in relation to the company which could properly be discharged only by a director.

(5)  If it is unclear whether the acts are referable to an assumed directorship or to some other capacity, the person is entitled to the benefit of doubt.

17.  In my overall assessment, but for Clause 5.5 of the SHA, I would agree with Mr Lau that there would be insufficient basis for any plea of de facto directorship. The plea that Mr Cheng had been managing the substance of the Hong Kong Company in itself is insufficient. However, Clause 5.5 entitled Mr Cheng to be appointed as a de jure director. The reason proffered by Mr Cheng in §15 of his Affirmation in opposition to the Originating Summons is that:-

“原因是我…身處於中國國內，再加上那時候我非常信任原告人，認為並沒有必要介入公司在香港的業務，所以我全權交由原告人處理公司的事宜。”

18.  One question is, what was the business of the Hong Kong Company? As pleaded, and apparently not much in dispute, the substance of the Hong Kong Company has been the PRC Company and the PRC E-Commerce Businesses. As to Mr Cheng’s trust in Mr Yip, this is also a factual issue to be tried. As to the presence of Mr Cheng in the PRC rather than in Hong Kong, clearly, appointment of a director does not require the director to be in Hong Kong. Insofar as Mr Cheng would like to say that because he was not in Hong Kong, and so he would not be able to manage the Hong Kong Company and so no appointment was made, again, as I said, the substance of the Hong Kong Company has been the PRC Company and the PRC E-Commerce Businesses, and so the fact that he was in the PRC actually would tend to show that he would indeed manage the PRC Company and the PRC E-Commerce Businesses. It would seem to be triable that at that time, when the relationship between Mr Cheng and Mr Yip had not turned sour, the appointment of Mr Cheng as director was thought to be a mere formality only, given the expression provision of Clause 5.5 of the SHA. It may then follow that Mr Cheng was a de facto director, only short of a formal title.

19.  Besides the directorship, there is a “further or alternatively” plea at §20 of the DSOC that Mr Cheng was and is a trustee or fiduciary of the Hong Kong Company’s assets and properties (being the PRC Company and the PRC E-Commerce Businesses) in his possession and control (by virtue of his control of the PRC Company), and owes, among others, the same duty to account to the Hong Kong Company. Ms Pang refers me to Libertarian Investments Ltd v Thomas Alexej Hall [2014] 1 HKC 368 at §§53 and 64, suggesting that Mr Cheng managed the Hong Kong Company’s assets and properties on behalf of the Hong Kong Company and therefore owed fiduciary duties to account to the Hong Kong Company. Ms Pang also submits that the present circumstances are similar to Chun Man Timber Development Limited v Kwan Chia Cheng, HCA 2531/2002, 22 February 2008, Sime Winner Holdings Limited and Another v Tan Wan Hong and Another, HCA 793/2005, 17 April 2009, and Chung Pui Tak and Another v Tam Chi Leung Nolan and Others [2021] HKCFI 242, as examples where the Court would find a duty on the person managing subsidiaries or assets to account. Each case of course depends on its own fact, but these examples, in my view, show that Mr Yip’s plea is arguable.

20.  Would the duty require accounting? In my view it is at least arguable that it would. The duty would be imposed in respect of, or arising from, the management of the PRC Company (in this regard, including the Fund) and the PRC E-Commerce Businesses, and logically, the most basic thing would be to account.

21.  In the circumstances, I find that there is at least a serious issue to be tried over Mr Cheng’s duty owed to account to the Hong Kong Company in respect of the PRC Company (in this regard, including the Fund) and the PRC E-Commerce Businesses.

VI.  MR YIP’S INACTION WHEN HE WAS THE SOLE DE JURE DIRECTOR

22.  The second ground of opposition raised by Mr Lau is that before the March Appointment, Mr Yip, being the sole de jure director of the Hong Kong Company, never saw fit to account for the affairs of the Hong Kong Company in the manner now the DSOC would seek, and Mr Yip “sitting on the case speaks volumes of his acceptance of the state of affairs”. Mr Lau relies on Tam Po Kei v Tam Bo Kin [2012] 2 HKLRD 1227 at §46, where Kwan JA (as she then was) cited with approval the judgment of the first instance:-

“… it seems to me difficult to characterise what would in different circumstances be breach of duty as such for the reason that the parties have agreed expressly or, perhaps as in the present case, tacitly that the best interests of a company are what the dominant shareholder decides and therefore there has not been a failure to act in the best interests of the company or to neglect the company’s interests. This can be analysed in terms of what represents the interests of a particular company, the act being ratifiable or in terms of estoppel depending on the precise facts. This accords with common sense because it is both artificial and unfair to suggest that if directors and shareholders accepted, or would have if they had been asked at the time, that a particular act was unobjectionable years later a shareholder can come forward and argue that the act analysed conventionally is in breach of fiduciary duty. An act that would have been authorised if directors and shareholders had been alive to the need for formal approval by the board or the company, but was not, can be treated as approved and therefore lawful by virtue of the Duomatic principle.” (emphasis added)

23.  This passage was in relation to the application of the Duomatic principles to a particular act. This is a far cry from the present case. In the present case, the duty to account is a continuing duty. That the director did not account for, say, Years 1 to 5, without any objection does not mean any acquiescence or Duomatic approval that that director did not have to account for Years 6 and onwards. Further, at the very most, Mr Cheng could say that Mr Yip’s failure to account in the past could not be now a matter for complaint, but Mr Cheng cannot say that because his predecessors did wrong, he could now continue the wrong.

24.  Therefore, with respect, I cannot accept this ground of opposition.

VII.  RELIEF (1) IS UNSUSTAINABLE?

25.  The third ground of opposition is related to Relief (1). Mr Lau submits that Relief (1) is unsustainable because there is no dispute that the Fund has already been injected into the PRC Company, and insofar as details of how Mr Cheng has used the Fund, it would be for the PRC Company and/or Mr Wang to seek such relief against Mr Cheng, and the proper forum would be in the PRC.

26.  Assuming that the PRC law is the same as Hong Kong law, the PRC Company and/or Mr Wang may be able to seek similar relief against Mr Cheng. However, it does not follow that the Hong Kong Company cannot seek such relief against Mr Cheng at the same time. On the basis that there is a serious issue to be tried over Mr Cheng’s duty to account in respect of the Fund over which he has control, there is a serious issue that his account should be an account more than simply telling the Hong Kong Company that the Fund was injected into the PRC Company. Such duty to account may be subject to any conflict of interest between Mr Cheng’s duty to the PRC Company (if any) and his duty to the Hong Kong Company. However, there is no such allegation of conflict of interest.

27.  In the premises, I take the view that Relief (1) is sustainable.

VIII.  RELIEF (2) IS UNSUSTAINABLE?

28.  Mr Lau submits that Relief (2) is unsustainable because (a) the Hong Kong Company, being a parent, generally has no legal right or power to obtain documents of its subsidiary in the capacity of a shareholder; and (b) Mr Cheng had already resigned from the PRC Company in 2017 and therefore, there is no basis to order Mr Cheng to deliver up the PRC Company’s books.

29.  (a) is besides the point. By the intended derivative action, the Hong Kong Company would not be seeking documents from the PRC Company, but would be seeking documents from Mr Cheng who, arguably, owes a duty to account to the Hong Kong Company in respect of the PRC Company and the PRC E-Commerce Businesses. For (b), Mr Yip’s case is that Mr Wang has been a mere nominee of Mr Cheng, and therefore Mr Cheng still controls the PRC Company and manages the PRC E-Commerce Businesses, and therefore presumably, has possession, power and/or custody of the relevant documents. Whether Mr Wang is Mr Cheng’s nominee is a question of fact, and in my view, the central question is whether Mr Cheng has possession, power and/or custody of the relevant documents, and if so, whether, in discharging his duty to account to the Hong Kong Company, he should pass these documents to the Hong Kong Company. All these are serious to be tried.

30.  For Relief (2), it remains for me to say that in context, the documents sought in Relief (2) clearly refers to documents in Mr Cheng’s possession, power and/or custody. In his Affirmation in opposition, Mr Cheng does not say that he does not have such documents in his possession, power and/or custody. What he says is that he, but Mr Wang, has not been involved in the management of the PRC Company and the PRC E-Commerce Businesses. However, as I have found, whether Mr Wang is Mr Cheng’s nominee is a serious issue to be tried. It follows that there is at least a serious issue to be tried over whether Mr Cheng has such documents in his possession, power and/or custody.

IX.  NOT IN THE INTEREST OF THE HONG KONG COMPANY?

31.  Mr Lau submits that the derivative action is not in the interest of the Hong Kong Company because (a) none of the Relief is monetary; and (b) the Hong Kong Company may pursue other means to obtain the account of the Fund and documents from the PRC Company in the PRC. I note, in this regard, that the Hong Kong Company is absent from the hearing, and so, must be taken to have adopted a neutral position on this “interest” point.

32.  For (a), I do not think that §10(4) of Re Archid Garment Factory Limited (quoted in §12 above) should be taken to mean that only monetary relief or relief of money’s worth would be in the interest of the subject company. Harris J was, in my view, giving examples. Some other examples are injunction restraining breach of contract or an order of specific performance of contracts. The relief may not be monetary, but such orders are not necessarily not in the interest of the subject company. In any event, when the Hong Kong Company would have more information about the Fund and the PRC Company and the PRC E-Commerce Businesses, it may then decide what action to take to protect the Hong Kong Company’s interest.

33.  More fundamentally, given that there is a serious issue to be tried over whether Mr Cheng managed, on behalf of the Hong Kong Company, the PRC Company and the PRC E-Commerce Businesses, the Hong Kong Company may, upon the account and inquiry and examination of the documents to be produced, find that the PRC Company may have entered into transactions that were against the Hong Kong Company but would not be necessarily against the PRC Company itself. In such situation, the rule against recovery of reflective loss simply does not apply: see Robert Von Palace Kolbatschenko and Another v Lee, Io Vai Ivan and Another [2020] 5 HKLRD 444 at §§45-46 per Recorder Pow SC.

34.  Insofar as there is any suggestion that it would be in the better interest of the Hong Kong Company if the relief are to be pursued against the PRC Company and/or Mr Wang in the proper forum, or if the relief are to be pursued by the PRC Company against Mr Wang and/or Mr Cheng in the proper forum, there is no evidence for a proper comparison to show that the intended derivative action would not be in the interest of the Hong Kong Company. Given that the existence of serious issues to be tried means a prima facie case that the claim would be in the interest of the subject company, in the present case, absent any evidence of such comparison, any suggestion relating to other fora does not help Mr Cheng’s opposition.

35.  In the circumstances, I am satisfied that the intended derivative action would be in the interest of the Hong Kong Company.

X.  CONCLUSION AND ORDER

36.  For the above reasons, I grant leave to Mr Yip to commence proceedings on behalf of the Hong Kong Company against Mr Cheng per the DSOS subject to an amendment which I would direct simply for the avoidance of doubt, namely, for Relief (2), the phrase “in the Defendant’s possession, custody and/or power” should be added at the end.

37.  For costs, both Ms Pang and Mr Lau agree that the costs should be reserved, since the costs may well depend on the outcome of the derivative action. Therefore, I make a costs order that costs be reserved.

38.  It remains for me to thank Ms Pang and Mr Lau and Mr Kwok for their assistance.