ZHANG XIUHONG v. LIU WENCHEN AND OTHERS

HCA2118/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2118OF 2012

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R U L I N G

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1.  This is an application by the 2^nd defendant Han and 3^rd defendant Qiang for leave to appeal against my order made on 20 June 2013 (“Order”). Reasons for my decision were handed down on 5 July 2013 (“Reasons”).

2.  I shall adopt the same abbreviations in the Reasons.

3.  The Order was made against Han, Qiang and the Company which is the 4^th defendant.  The Company has not sought leave to appeal.  The effect of the Order was briefly as follows:

(i) To continue the appointment of the Receivers  of the Shares in the Company under the order made in the Ex Parte Hearing, until final determination of the action or further order;

(ii) The powers and rights of Han and Qiang to cease forthwith save as otherwise authorized by the Receivers;

(iii) Upon Zhang providing a bank guarantee to the extent of HK$5m as fortification for his undertaking as to damages, the Receivers shall be expressly authorized to do those things as set out in the Order;

(iv) Costs to Zhang, to be taxed if not agreed, with certificate for two Counsel.

4.  In the Draft Revised Notice of Appeal (“Draft Notice”), the main grounds of appeal referred to in the Draft Notice are:

(i)  Findings of fraud and forgery clearly wrong and without proper evaluation of all the evidence;

(ii) Conclusion that no arguable defence shown by Han and Qiang clearly wrong;

(iii) There were material non-disclosures on the part of Zhang;

(iv) Wrong legal test applied re receivership: no necessity and/or deadlock shown.  Receivership only remedy of last resort.

(I) Findings of fraud and forgery clearly wrong and without proper evaluation of all the evidence

5.  It was stated in paragraph 66 of the Reasons that, so far, there had been no contradictory evidence to Zhang’s alleged forgery, and that at the time of the hearing on 20 June 2013 (“Hearing”) there was very strong evidence that the purported signatures of Zhang on the Zhang Documents were not his, and that they were forged based on the reports from the Examination Office which also had not been challenged.  As pointed out by Mr Lam, Counsel appearing for Zhang, what the court was doing was only weighing up the evidence before the court at that time which the court was entitled to do for an interlocutory injunction.  There was no conclusive “finding” of fraud and forgery by the court.

6.  Mr Kwok, Counsel appearing for Han and Qiang, relied heavily on a document which he calls a Power of Attorney.  This document is in fact part of the documents attached to the Witnessing Certificate referred to in paragraph 35 of the Judgment.  The so called Power of Attorney was a document marked “16” (“Document”). On the left side of the Document was a photocopy of the front and back of Zhang’s PRC identity card with Zhang’s signature in between, and on the right hand side of the Document were some handwritten words (“Handwritten Words”) to the effect that a Madam Xing Yanli was authorized to be the full attorney to deal with the transfer to Liu of the Shares in the Company and to sign all relevant documents.

7.  The alleged significance of the Handwritten Words was only raised in the Draft Notice for the first time.  According to Mr Kwok, the Handwritten Words provided a complete explanation and answer to Zhang’s allegations and that it tallied with what Liu said in Liu’s Explanation when he seemed to be stating that he had Zhang’s legal authorization to transfer the shares back and that as Zhang was unable to pay the balance of the consideration, the Shares belonged to Liu, and Zhang had agreed to re-transfer the Shares back to Liu. 

8.  The Document was disclosed and referred to by Zhang in his 1^st affirmation in support of his ex parte application.  In paragraph 67 of his 1^st affirmation, Zhang had produced a copy of the original Witnessing Certificate with the attached documents which were shown to him and of which photographs were taken by him during his meeting with Li, the 7^th defendant, the law clerk and office manager of ACYT. 

9.  Zhang had said in paragraph 68 of his 1^st affirmation that the original of the Witnessing Certificate with the attached documents which were shown to him and of which photographs were taken did not contain the Document. Zhang confirmed that his signature in between the photocopies of the front and back of his identity card was genuine, and this was certified by the Examination Office.  Zhang had said those Handwritten Words were added without his knowledge and approval, and he did not know why the Document was omitted from the version provided to him by Li.  Zhang’s position was thus quite clear, that the Handwritten Words were not written by him, and that they were added onto a document containing his specimen signature.

10.  The existence of the Document and the Handwritten Words and what Zhang said was in fact drawn to the court’s attention by Ms Eu SC, who was acting for Zhang during the Hearing, when she was explaining to the court as to which of Zhang’s signatures were certified to be forged by the Examination Office.  During the Hearing, Mr Leong SC was appearing for Han, Qiang and the Company.  There was no particular reference in Mr Leong’s skeleton arguments or in his oral submissions in relation to the Document, nor was any significance attached to the Handwritten Words.  The position of Han and Qiang at that time was simply that they were not in a position to comment on the evidential conclusiveness of the forensic evidence, as set out in paragraph 67 of Mr Leong’s skeleton arguments.

11.  Further, so far, there had been no evidence filed on behalf of Han and Qiang or the Company at all to deny or rebut what Zhang said about the Document and Handwritten Words in his 1^st affirmation.

12.  In the Draft Notice, Mr Kwok complained that Zhang had not adduced his defence filed in the 2^nd PRC Action between him and Liu, and that Zhang’s locus in relation to the Shares in the Company was in serious doubt, and that the court failed to take this matter into account in the Reasons.

13.  There was no dispute that the Shares had been transferred to Zhang’s name and he was the registered shareholder.  As set out in paragraphs 2 to 11 of Ms Eu’s Reply Submissions, under Hong Kong law,   even if Zhang were to be found to be in breach of the December 2010 Agreement, Liu’s remedy against Zhang would only be for the unpaid price or damages.  There was no evidence or any legal opinion placed before the court to indicate that the PRC law would be different on this issue, nor were there any submissions from Mr Leong to this effect.

14.  As stated in paragraph 63 of the Judgment, there was no documentary evidence attached in Liu’s Explanation as evidence of the alleged lawful authorization and undertaking of Zhang for Liu to “take back” the Shares.  Further, more importantly, none was referred to by Liu in his claim in the 2^nd PRC Action and in particular, there was no mention by Liu of the Document nor the Handwritten Words in Liu’s claim in the 2^nd PRC Action.

(II) Conclusion that no arguable defence shown by Han and Qiang clearly wrong

15.  Mr Kwok again mainly relied on the Document and the Handwritten Words for this ground.

(III) There were material non-disclosures on the part of Zhang

16.  Again, Mr Kwok relied mainly on the Document and the Handwritten Words alleging that those acting for Zhang did not make any specific reference and/or explanation to the Handwritten Words to Chan J at the Ex Parte Hearing, and that this was a material non-disclosure.  As mentioned earlier, the Document was disclosed in Zhang’s 1^st affirmation and he had explained about the Document and the Handwritten words in his 1^st affirmation.

(IV)  Wrong legal test applied re receivership: no necessity and/or deadlock shown.  Receivership only remedy of last resort.

17.  In relation to this ground, Mr Lam submitted in paragraphs 30 to 33 of his skeleton arguments there was no error in the legal test applied.  The reasons for the receivership were set out in the Reasons.

Whether to grant leave to appeal

18.  S 14 AA (1) of the High Court Ordinance provides that no appeal shall lie to the Court of Appeal from an interlocutory judgment or order unless leave to appeal has been granted and s 14AA (4) states as follows:

“Leave to appeal for the purpose of subsection (1) shall not be granted unless the court hearing the application for leave is satisfied that—

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

19.  As pointed out by Mr Lam, the Draft Notice seeks to re-argue the Receivership Summons, and the main ground centers around the significance of the Document and Handwritten Words which were not raised on behalf of Han, Qiang or the Company at the Hearing. 

20.  Having considered all the circumstances set out above, I am not satisfied that the appeal has a reasonable prospect of success, or there is some other reason in the interests of justice why the appeal should be heard.

21.  I thus make the following order:

(i)  The summons issued on behalf of the 2^nd and 3^rd Defendants on 4 July 2013 be dismissed.

(ii)  Costs be to the Plaintiff in any event, to be taxed if not agreed.