CHINACAST EDUCATION CORPORATION AND ANOTHER v. WU SHAOQING AND OTHERS

HCA 1424/2016

[2018] HKCFI 487

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1424 OF 2016

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D E C I S I O N

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Introduction

1.  Presently before this Court is an application by Chinacast Education Corporation/P1 to continue an ex parte injunction order granted by G Lam J on 3 June 2016 against Wu Cai Yu/D2 (“Injunction Order”).  

2.  This action was commenced by P1 against D1-D4 essentially over 1,293,769 shares issued by P1 (“Wu Shares”) and allegedly held by the D1 and later D2 as bare trustee or constructive trustee for P1 and that P1 claims to be entitled to trace the shares or the sale proceeds of the shares and further entitled to restitution, equitable compensation, damages and/or account of profit (“Share Misappropriation Claim”).

3.  The Injunction Order was continued on 29 July 2016 by Anthony Chan J, upon hearing Counsel for P1 and Counsel for D2, with D1 being absent.  Although service has since been effected on D1, so far, he has not taken any active part in this action.

4.  At the above hearing, Anthony Chan J varied the Injunction Order to allow D2 to spend HK$350,000 on legal advice and representation, and further gave directions for filing of affirmations and for a date to be fixed for the substantive argument of P1’s inter partes summons to continue the Injunction Order.

5.  The hearing of the substantive argument eventually took place before this Court on 20 December 2017, some 1½ years after the Injunction Order was granted.

6.  In the meantime, the writ was amended twice and the statement of claim was amended on 1 June 2017.  As a result of the amendments, a subsidiary of P1, namely Chinacast Technology (Shanghai) Limited 雙巍信息技術 (上海) 有限公司 (“Chinacast Shanghai”) has been added as the 2^nd plaintiff/P2 and D2’s daughter Ms Wu Ye (“Ms Wu”) has been added as a defendant.  P1’s claim against D4 has been discontinued.  P2’s claim against D2 and D5 is for a declaration that they were and are jointly and severally bare or constructive trustees of various unauthorized transfers of funds in cash from P2 to them (“Cash Misappropriation Claim”).

7.  The Injunction Order restrained D2 from, amongst other things :

(i)   Disposing of or dealing with the value of any of his assets within Hong Kong up to the value of USD9,900,437.90 the value of the Wu Shares at the time of allotment to D1(“Sum”);

(ii)   Disposing of or dealing with the Sale Proceeds of the Wu Shares (as defined hereinafter) or any part thereof.

8.  P1 is seeking to continue the Injunction Order in is original form, subject to the variation of spending limits ordered on 29 July 2016, and premised on the Share Misappropriation Claim.  There was no application by P1 to vary the Injunction Order either to increase the monetary limit or to extend the Injunction Order by P2 against D5.

9.  The continuation is opposed by D2.

10.  D2 had issued a summons on 7 December 2017 for leave to adduce his 4^th affirmation sworn on 6 December 2017[1].  This was originally fixed for hearing before Master Hui but was adjourned to this Court.  It was indicated at the hearing before this Court that D2 only intended to rely on paragraph 18 of his 4^th affirmation in relation to new points of facts raised.  P1 did not object to leave being granted to D2 to file his 4^th affirmation save that D2 was only to rely on paragraph 18 thereof.

11.  Counsel Mr Jonathan Wong appeared for P1 and Senior Counsel Mr Bernard Man appeared with Mr Felix Ng for D2.

Brief Background

12.  P1 is a Delaware company and the ultimate parent company of the CEC Group (“Group”).  P1 was listed on NASDAQ in October 2007 and was delisted on 2 May 2012.  The business of the Group consisted of the provision of post-secondary and e-learning services in Mainland China, where it operated by means of wholly foreign owned enterprises. The educational services were provided in two ways, namely (i) through a traditional university group (TUG) and (ii) by e-learning services (ELG).  It is Ps’ case that at all material times since about 2003, Chinacast Shanghai/P2 was/is a wholly foreign owned enterprises and one of P1’s main operating subsidiaries in Mainland China.

13.  The predecessor of P1 was Chinacast Communications Holdings Limited (“CCHL”), a company established by Mr Ron Chan Tze Ngon (“Ron Chan”).  CCHL was listed in Singapore in 2004. In January 2007, a reverse merger took place whereby Great Wall Acquisition Corporation, a special purpose acquisition corporation, acquired CCHL and changed its name to P1 in January 2007.

14.  According to P1, in late 2011, there was conflict at the board level in the company which gave rise to a proxy contest resulting in new directors being appointed to the board. The new management then uncovered that the former board members and senior management of the Group had carried out various activities which were allegedly fraudulent and seriously prejudicial to the interests of the Group.

15.  As a result, thereof, P1 and 4 other companies of the Group (collectively the “2012 Plaintiffs”) commenced an action in HCA 1062/2012 (“2012 Action”) against a number of defendants (collectively “2012 Defendants”), among which were Ron Chan and Mr Jiang Xiangyuan (“Jiang”).

16.  Ron Chan was the Chief Executive Officer and a director of P1 and the Chairman and Legal Representative, and a director of Chinacast Shanghai.  He was removed from all positions within the Group on 26 March 2012.  Ron Chan is not a party in the present action.

17.  Jiang was the Chief Investment Officer and President-China of P1, and also a director of Chinacast Shanghai before he was removed from all positions within the Group on 29 March 2012.  Jiang is the 3^rd defendant/D3 in the present action.

18.  It was P1’s case in the 2012 Action that a fraud of considerable scale had been committed against the 2012 Plaintiffs by people who were in control of them, including Ron Chan and Jiang, as a result of which, the 2012 Plaintiffs had been stripped of virtually all of its cash as well as assets of considerable value and much of their business also taken away.  P1 also lost its listing status on NASDAQ.

19.  As seen in the statement of claim in the 2012 Proceedings, the Foreign Trade and Business College of Chongqing Normal University (“FTBC”) was one of the 3 main college assets of P1 in Mainland China[2].

20.  In April 2008 P1 acquired an interest in FTBC through P1’s wholly owned Mainland subsidiary Yupei Training Information Technology Limited/語培信息科技 (上海) 有限公司 (“Yupei”) acquiring 80% of Hai Lai Education Technology Limited (“Hai Lai”), a Mainland company holding FTBC.  The then remaining 20% of Hai Lai was owned by Chaosheng Education and Investment Co Ltd (“Chaosheng”).

21.  As part of P1’s plan to acquire the whole of FTBC, Yupei entered into a share transfer agreement with the then shareholders of Chaosheng for a consideration of RMB 135m (about USD 19.77m) on 18 September 2009 to acquire 20% interest in Hai Lai.

22.  According to P1, full cash payment of the purchase price was made by P1 pursuant to the above share transfer agreement. According to the press release of P1 dated 17 September 2009[3], the former shareholders of Chaosheng proposed to invest the entire cash proceeds from the sale of their shares in Chaosheng back into P1.  However, on the date on which P1 entered into the share transfer agreement, namely 18 September 2009, a share purchase agreement was entered into pursuant to which P1 was to issue and allot 2,582,947 of its shares to 4 purported investors at the price of around USD19.77m, who but for one Xu Hong, were not former shareholders of Chaosheng (“Share Allotment”).  The 4 purported investors were:

(i)   Wu Shaoqing /D1 – 1,293,769 shares (ie the “Wu Shares”) at USD9,900,437.90

(ii)   Shi Meishan – 848,436 at USD6,492,571.65

(iii)   Huang Yueqing – 255,360 at USD1,954,116.86

(iv)   Xu Hong – 185,382 at USD1,418617.22

23.  It was Ps’ case that the Share Allotment was not in accordance with the press release, and there was no reason for P1’s shares to be allotted to or sold to the 4 purported investors, nor could P1 identify any consideration having been received by P1 from any of the 4 purported investors in respect of the Share Allotment.  P1 was unable to locate any board resolution approving the Share Allotment after the 2012 Defendants exited the Group with all financial and business records of the Group.

24.  The above share transfer agreement and the share purchase agreement were entered into by Ron Chan on behalf of Yupei and P1 respectively.

25.  According to P1, D1, who was allotted the Wu Shares, is a nephew of Jiang and at the time of the Share Allotment was a young person of only about 27 years old, and there was no reason for D1 to be in funds to the tune of almost USD10m for the purchase of the Wu Shares. 

26.  It was not disputed that 9 months later, on 10 June 2010, D1 transferred the Wu Shares to D2, and it is P1’s case that this transfer was again at no consideration.

27.  It later appeared that during the period from about August 2010 to July 2012, (i) the Wu Shares were sold and proceeds were received by D2 (“Sale Proceeds of Wu Shares” ), and D2 had transferred at least USD7.65m thereof to Jiang between 18 November 2010 to 23 May 2011[4].

28.  As mentioned earlier, P1’s amended statement of claim has now included the Cash Misappropriation Claim, in that during the period from December 2008 to March 2012, there were unauthorized transfers of funds in cash of considerable amounts from P2 to D2 and D5, and vice versa, resulting in a net sum of about RMB24,051,250 received by D2 and D5 from Chinacast Shanghai[5].

29.  It is P1s’ case that one of the difficulties the 2012 Plaintiffs had in pursuing their claims against the wrongdoers was that financial and business records of the Group were allegedly removed by the 2012 Defendants when they exited the Group.

30.  According to Ps, on 19 January 2015, judgment was entered against Jiang in the 2012 Action, and on 17 December 2015, a total sum of RMB762,507,222.22 and USD123.8m were assessed as damages against Jiang in favour of the 2012 Plaintiffs.

31.  On the same day, 17 December 2015, the 2012 Plaintiffs obtained an order pursuant to s 21 of the Evidence Ordinance, against the Standard Chartered Bank and HSBC for bankers’ books relating to Jiang’s bank accounts (“2012 Disclosure Order”).

32.  As a result of the 2012 Disclosure Order, P1 discovered, amongst other things, that D2 had made various USD transfers to Jiang and shortly thereafter, Jiang had transferred out those sums.  It was P1’s belief that some of those transfers could be traced to the Wu Shares allotted to D1 by P1 in 2009, and later transferred to D2 and sold by D2. 

33.  After discovery of further evidence pursuant to the 2012 Disclosure Order, P1 commenced the present action on 31 May 2016. 

34.  P1 asserts proprietary claim in respect of the Wu Shares and the Sale Proceeds of the Wu Shares.

35.  It is also P’s case that there were numerous transfers of significant amounts (“Fund Transfer transactions”) between D2/Ms Wu and Jiang in that from May 2010 to March 2011, Jiang received a total of RMB34.51m from Ms Wu.  During the same period, Ms Wu received a total of RMB66,611.589 from Jiang[6].

36.  Further, according to P1, Jiang disposed of all his own shares in P1 at the time when he was in possession of material non-public information concerning the Group and as a result thereof, Jiang was subject to prosecution by the Securities Exchange Commission in the United States for securities fraud in an action commenced on 26 September 2013.

D2’s defence  

37.  D2’s defence is that he was a “bona fide purchaser for value” without notice of any misconduct of Ron Chan or Jiang as alleged by P1, and that the Wu Shares were charged to him as security for lending RMB50m to one as Kang Wenjie (“Kang”).

The relevant affidavits/affirmations

38.  Mr Douglas Nelson Woodrum, the present Chief Financial Officer and a director of P1, has sworn two affidavits in relation to the present application, his 1^st affidavit in support of P1’s application for the Injunction Order and his 3^rd affidavit in reply to D2’s 2^nd affirmation filed to oppose the present application. Further, P1’s solicitor has also sworn two affidavits in relation to the present application, namely his 1^st affidavit in which a Delaware Legal Opinion was produced and his 3^rd affidavit in relation to service and the production of D2’s bank statements pursuant to the disclosure order contained in the Injunction Order (“2016 Disclosure Order”).

39.  Apart filing his 2^nd affirmation in connection with this application, D2 has filed his 1^st affirmation in support of his application for security of costs against P1, and Mr Woodrum has filed his 4^th affidavit in opposition thereto, and D2 then filed his 3^rd affirmation in reply.  These affirmations were by consent included in the hearing bundles before this Court.

40.  As mentioned earlier, D2 also relies on paragraph 18 of his 4^th affirmation.

The evidence

41.  D2 has in his 2^nd affirmation set out his personal background and the history of how he obtained the Wu Shares.

42.  According to him, he was a teacher for 17 years before he became a press reporter and editor for 5 years, and then he started his own business in advertisement and made investment in running newspapers and the business became a huge success.  He said he retired in 2006 due to ill health, and moved to Hong Kong through the investment immigration scheme in 2011, and that since then he had been spending time looking after his granddaughter.

43.  D2 said in or around 2005, he came to know Kang, the branch manager of the Shanghai Bund branch of the Shanghai Hua Xia Bank (“SHXB”), and since he came to know Kang towards the eve of his retirement, he had deposited his savings into SHXB.

44.  In 2006, Kang introduced D2 to one Yin Jianping (“Yin”), then a director of a telecommunication company known as雙威通訊網絡有限公司.  Yin asked D2 to acquire the interests of two shareholders in a company which were listed in Singapore. 

45.  The reason for the acquisition was that the Singapore listed company was trying to undergo a reverse merger and acquisition exercise in the United States in order to get listed on NASDAQ, and two shareholders were against the merger and acquisition.  D2 claimed in his 2^nd affirmation that he could not recall the number of shares he acquired in the Singapore listed company nor the name of that company and believed the company was CCHL referred to by Mr Woodrum in his 1^st affidavit.

46.  D2 said he bought the shares of the two shareholders in CCHL for RMB10m and his shares in CCHL were then exchanged for 314,470 shares in a company called Great Wall Acquisition Corporation (“Great Wall”) and he did not know when the name of Great Wall was changed to P1 (“Exchange Shares”).

47.  D2’s evidence was that at that time, he did not know much about share trading and that through a friend, he had opened a securities account with Monix Boom Securities (HK) Limited (“Boom Securities”) into which D2 had deposited the Exchange Shares.  According to D2, all the Exchange Shares, totaling 314,470 shares were sold in November 2007 and thereafter until 2010, he held no shares in P1[7].

48.  It was further D2’s evidence that at the time when he acquired the shares in the CCHL he still had his personal savings deposited in SHXB and as Kang knew that he had savings, Kang then recommended D2 to lend money on short-term basis to corporations in Shanghai in order to earn more interest. 

49.  In the beginning of year 2010, Kang told D2 that a foreign enterprise would like to borrow Renmenbi but was unable to come to suitable borrowing terms with SHXB.  D2’s case was that he initially refused as he knew very little about foreign enterprises, but Kang suggested that Kang could sign the loan documents as a borrower, with the end-user persons/enterprises of the loan signing as guarantors and providing security for the loan. 

50.  According to D2, after initial discussion, Kang then took D2 to see Jiang who introduced himself to D2 as a NASDAQ listed-company operating an education business within Mainland China[8].  It was then agreed that D2 would lend RMB 60m to Kang as borrower (“Loan”) with various other parties as guarantors, and secured by, among other things, the Wu Shares.

51.  It was D2’s case that the following documents were executed in respect of the Loan:

(i)   a loan agreement dated 3 March 2010 notarised on 4 March 2010 (“Loan Agreement”) whereby D2 (lender) was to lend RMB60m to Kang (borrower), with 7 entities/persons signing as guarantors, namely 3 Mainland companies (which appear to be the Chinese names of FTBC, Hai Lai and Chaosheng) and also Yupei, Ron Chan, 黃詠薇 the wife of Ron Chan (“Ms Wong”), and Jiang (collectively “Guarantors”)[9];

(ii)   A share transfer agreement dated 3 March 2010 executed between D1 and D2 (“Share Transfer Agreement”) whereby D1 agreed to transfer the Wu Shares to D2 at USD5.70 per share totaling USD7,374,483.30[10];

(iii)   A realty charge agreement dated 3 March 2010 and notarized on 4 March 2010 (“Realty Charge Agreement”) executed by D2, Ron Chan and Ms Wong whereby Mr Ron Chan and Ms Wong would charge their property in Shanghai (“Shanghai Villa”) to D2 as security under the Loan Agreement.  The parties confirmed the value of the Shanghai Villa was RMB12,800,000 and after deducting outstanding mortgage of RMB8,960,000, the net value was RMB3,840,000, and that any increase in value would be subject to the charge[11].

52.  Thereafter, a supplemental loan agreement dated 17 March 2010 (“Supplemental Loan Agreement”) was executed but only between D2, Kang, and 4 of the Guarantors only, namely Yupei (signed by Ron Chan as its Legal Representative), Ron Chan and Ms Wong, and Jiang.  It was agreed by these parties that, amongst other things, due to unforeseen circumstances, the amount of the Loan be reduced to RMB 50m.

53.  There were also 4 letters of undertakings produced by D2 (collectively “Undertakings”):

(i)   A letter of irrevocable undertaking dated 3 March 2010 (“Letter of Irrevocable Undertaking”) signed only by Ron Chan, in his capacity as the Legal Representative of Yupei, who irrevocably undertook to D2 on behalf of Yupei that if the closing trading price of the Wu Shares was 15% lower than that of the price of D1’s transfer (ie USD5.70 per share) for 3 consecutive trading days, Yupei would pay to D2 in cash the difference of 15% or more as security and if after payment of the same, the closing trading price of the Wu Shares were to recover to above USD5.70 for 3 consecutive trading days, the share price guarantee money was to be returned to Yupei[12];

(ii)   A letter of undertaking of charge dated 3 March 2010 (“Letter of Undertaking of Charge”) signed only by D1 who undertook, amongst other things, to charge the Wu Shares to D2 as security for the Loan, and that if D2 were to sell any of the Wu Shares in open market pursuant to the terms agreed by Kang, all proceeds would belong to D2 and if after due repayment by the borrower, and D2 were to deem it necessary to re-transfer the Wu Shares, D1 would accept the shares[13];

(iii)   a letter of undertaking dated 17 March 2010 (“Letter of Undertaking”) signed only by Ron Chan as Legal Representative respectively of Yupei and P2 undertook to D2 amongst other things that Kang was only a borrower in name and that the actual borrowers were Yupei and P2 who were the end users of the Loan amount and Yupei and P2 would be responsible for payment of the Security Money (as defined hereinafter), interests, repayment and to bear the responsibility for any breach of the Loan Agreement[14];

(iv)   A letter of undertaking for the transfer of the Wu Shares dated 27 May 2010 (“Letter of Undertaking for the Wu Shares”) signed by (a) Yupei (signed by Ron Chan) (b) Kang, (c) Jiang, and (d) Ron Chan who stated that due to their initial misunderstanding of US securities regulations, the transfer of the Wu Shares had not yet been effected, and the 4 of them undertook to D2 to effect the transfer before 31 July 2010 to enable D2 to possess all rights in relation to those shares including a right to sell in open market without any restrictions, and that if the closing trading price of the shares were to fall below USD5.70 per share for 3 consecutive trading days, the 4 of them undertook to pay D2 the shortfall within the 3 trading days thereafter, and D2 would have the right to sell the shares and further to demand the shortfall, if the Guarantors were to fail to pay[15].

54.  Anyway, according to the Loan Agreement[16]:

(i)   The term of the Loan was 12 months from the date of the 1^st drawdown (Clause 3.1);

(ii)   The 1^st tranche of the Loan was RMB40m, the date of payment of which was to be a day in March 2010 (Clause 3.2.1);

(iii)   The 2^nd tranche of the Loan was to be RMB20m, upon the transfer of the Wu Shares to D2 and that latest date of which was to be 31 July 2010(Clause 3.2.2);

(iv)   The interest rate of the Loan was to be 20% per year after tax and the tax payable, namely 20% of the interest income, was to be paid by Kang as borrower (Clause 4.1);

(v)   Prior to each of D2’s payments under the Loan Agreement to Kang, Kang was to pay an amount equal to 12% of each payment of the Loan as a performance guarantee for the Loan Agreement ie履約保證金 (“Security Money”).  If Kang and any of the Guarantors were to breach any terms, including the failure of D1 to transfer the Wu Shares to D2 before 31 July 2010, the Security Money would be regarded as compensation which D2 was entitled to retain (Clause 6.1 and 6.2); 

(vi)   Upon the expiration of the term, and if there were no breach by Kang and any of the guarantors, the Security Money was to be utilized as payment of interest and interest tax payable under the Loan Agreement, or to be set off against any interest payable by Kang (Clause 6.3).

55.  According to the Supplemental Loan Agreement:

(i)   The Loan amount in Clause 2 of the Loan Agreement was varied to RMB 50m (Clause 1);

(ii)   Clause 3.2.2 of the Loan Agreement be varied and the 2^nd tranche of the Loan be varied to RMB10m, and if the Wu Shares had not been transferred by D1 and registered under D2’s name by 31 July 2010, D2 had the right to cease advancement of the 2^nd tranche of the Loan (Clause 2);

(iii)   If the Wu Shares had been transferred by D1 and registered under D2’s name by 31 July 2010, Kang could not refuse the drawdown of the 2^nd tranche of the Loan of RMB 10m or request to reduce the amount, and if Kang insisted, this would be considered a breach of the Loan Agreement, and D2 would be entitled to retain 1.2m of the Security Money as compensation (Clause 3);

(iv)   Clause 6.1 of the Loan Agreement be varied and that Kang had to pay D2 RMB 10m as Security Money, prior to the 1^st instalment of the Loan (Clause 5).

56.  It was D2’s evidence in his 2^nd affirmation, that he instructed his daughter namely Ms Wu and his Mainland lawyer Guo Chaozhong (“Guo”) to act on his behalf in making the alleged payments for the 1^st tranche of RMB40m as follows:

(i)   RMB19m on 26 March 2010 paid by a cashier’s cheque endorsed by Guo to Yupei[17];

(ii)   RMB2m on 2 April 2010 paid by Ms Wu into Yupei’s bank account with the Hongkou branch of the Shenzhen Development Bank;

(iii)   RMB19m on 8 April 2010 paid by a cashier’s cheque endorsed by Guo to Chinacast Shanghai[18].

57.  It was further D2’s evidence on 31 March 2010 Kang gave him a Notice of Payment of Security Money, showing that Kang had arranged Chinacast Shanghai to pay RMB5m as Security Money into Ms Wu’s bank account on 25 March 2010 and that another RMB5m was to be paid on 31 March 2010 into Ms Wu’s bank account, totaling RMB10m for the 1^st payment of the Security Money[19].

58.  As mentioned earlier, on or around 10 June 2010, the Wu Shares were transferred to D2 by D1.  On 27 July 2010 pursuant to the Loan Agreement, the Wu Shares were deposited into a securities account in the name of D2 with Boom Securities, said by D2 to be opened particularly for the purpose of executing the Loan Agreement etc (“Boom Account”).

59.  The 2^nd instlament of the Loan of RMB10m, was transferred  by Ms Wu to the account of Chinacast Shanghai with SHXB on or around 13 August 2010[20].

60.  It was D2’s pleaded case that as the total value of the securities for the Loan substantially exceeded the total outstanding amounts, there was a further agreement reached between D2, Kang and Jiang on behalf of D1 on or about 25 September 2010 (“ 25.09.10 Agreement”) as follows[21]:

(i)   During the term of the Loan Agreement and the Supplemental Loan Agreement, D2 would authorize Jiang to sell the Wu Shares on the market, and that D2 could arrange for such sale proceeds to be released to Jiang or D2;

(ii)   Jiang could decide the price and quantity of the Wu Shares to be sold, and to operate D2’s Boom Account for this purpose;

(iii)   Kang and Jiang (acting on behalf of D1) also agreed they would ensure that the total amount of Security Money and market value of the Wu Shares remaining with D2 would not be lower that the outstanding Loan; otherwise Kang and Jiang would purchase sufficient shares in P1 to make up the deficit.

61.  It is further D2’s pleaded case that pursuant to the 25.09.10 Agreement, Jiang had procured sales and purchases of shares in P1, as set out in Annex 1 to the amended defence[22], and Jiang had caused the payments set out in Annex 2, totaling USD7,406,300[23] (wrongly typed as USD7,460,300 in Annex 2) be released to him[24].

62.  It was thus D2’s pleaded case that by 6 April 2011 Kang had repaid the principal of the 1^st tranche of the Loan, totaling RMB40m and on 12 August 2011 Kang repaid the remaining principal sum of the 2^nd tranche of RMB10m.  The manner of repayment can be seen in the table set out below in paragraph 70.  The Security Money of RMB12m was used to satisfy Kang’s obligation to pay interest on the Loan plus D2’s interest tax liability[25].

63.  D2’s 1^st and 2^nd affirmations were filed prior to his defence.  There was no mention of the 25.08.10 Agreement in his two affirmations.  What D2 had said in his affirmations was only that it was agreed between all the parties to the Loan Agreement that if the trading price of the Wu Shares were to rocket, Jiang could realise the shares into cash and such cash with the unsold shares would continue to act as security over the Loan[26].

64.  D2 had further said as he did not know much about shareholding, he gave his login details and password to the Boom Account to Jiang and that Jiang later sold some of the Wu Shares and converted to cash and also made some purchases of P1’s shares during this period of time[27].

65.  Anyway, D2 said in his affirmations that in or around beginning of November 2010, after some of the Wu Shares were sold, (i) the value of the remaining of the Wu Shares; (ii) the cash raised from the sale of the sold shares; and (iii) the remaining value of the Shanghai Villa was more than enough to act as security over the Loan.  In addition, Kang had by then already paid to him the Security Money pursuant to the Supplemental Loan Agreement.  Upon the request of Jiang, cash from sale proceeds of Wu Shares were released to Jiang’s bank account with SCB.  D2 had set out a table of his payments to Jiang during the period of 6 November 2010 to 12 April 2011[28].

66.  It was in D2’s 3^rd affirmation filed on 13 March 2017 in support of his security of costs applicable that he produced 3 receipts respectively dated 18 April 2011 (“1^st Receipt”), 4 July 2011 (“2^nd Receipt”) and 11 July 2012 (“3^rd Receipt”)[29].  On the 1^st Receipt, Jiang acknowledged that the USD7,460,300 (sic) were proceeds from realization of part of the Wu Shares[30].  D2’s evidence was thus there were still remaining 265,589 of the Wu Shares held in in the Boom Account.  As of that date, according to D2, he held:

(i)   Remaining 265,589 of the Wu Shares in the Boom Account (“Remaining Wu Shares”);

(ii)   Remaining sale proceeds of USD243,700 (“Remaining Proceeds”);

(iii)   The charge over the Shanghai Villa.

67.  On the 2^nd Receipt, Jiang confirmed receipt of HKD1,890,000 (equivalent to USD243,700) on 20 May 2011, being the Remaining Sale Proceeds[31].  On this receipt, Jiang had referred to another sum of HKD10,073,200 being a sum transferred by D2 to Jiang’s SCB account for exchange of RMBs.

68.  D2 had also produced a repayment notice dated 6 April 2011 issued by Kang (“Repayment Notice”) to show the repayment of the principal sum of RMB40m by Kang and the guarantors[32].  D2 then said in or around mid August 2011, the remaining principal sum of RMB10m had been repaid.  According to D2, this then marked the completion of the repayment of the Loan with interests under the Loan Agreement as varied by the Supplemental Loan Agreement.

69.  Subsequently, on 2 July 2012, the Remaining Wu Shares in the Boom Account were sold and all sale proceeds of USD 131,800 were said to be returned to Jiang.  On the 3^rd Receipt produced by D2, Jiang acknowledged receipt of USD131,800.  Further according to D2, he had executed a power of attorney in favour of Guo on 24 March 2012 and instructed him to release the charge over the Shanghai Villa, which was done on 27 March 2012.

70.  To summarise, the underlying transactions and relevant events so far as this Court could gather appeared to be:

Date	Alleged purpose of payment/ Event	Amount	Payer	Payee
25.03.10	1st amount of Security Money	RMB5m	Chinacast Shanghai	Ms Wu (B3:873, 875)
26.03.10	1st instalment of 1st Tranche of Loan	RMB19m (cashier cheque endorsed by Guo)	Zhujixian (as defined later)	Yupei (B3:867)
31.03.10	2nd amount of Security Money	RMB5m	Chinacast	Ms Wu (B3,873,875)
02.04.10	2nd instalment of 1st Tranche of Loan	RMB2m	Ms Wu	Yupei (B3:877)
08.04.10	3rd Instalment of 1st Tranche of Loan	RMB19m (cashier cheque endorsed by Guo)	Zhongjixian (as defined later)	Chinacast Shanghai (B3:883)
10.06.10	D1 transferred Wu Shares to D2
27.07.10	Wu Shares deposited into D2’s Boom Account
27.07.10	Sale of 1,000 Wu Shares (B3:907)	USD6,872.85
13.08.10	2nd payment of Security Money	RMB2m	Chinacast Shanghai	D2 (B3:893)
13.08.10	2nd Tranche of Loan	RMB10m	Ms Wu	Chinacast Shanghai
25.09.10	25.09.10 Agreement
18.11.10	Sale Proceeds of Wu Shares	USD1,500,000 (B2:623)	D2:HSBC account	Jiang: SCB account
06.12.10	Sale Proceeds of Wu Shares	USD2,970,000 (B2:625)	D2:HSBC account	Jiang: SCB account
23.12.10	Sale Proceeds of Wu Shares	USD1,200,000 (B2:627)	D2:HSBC account	Jiang: SCB account (B3:963, 922)
23.03.11	Repayment A:57	RMB19,011,000	Chinacast Shanghai	Kangxin Technology (B3:975)
01.04.11	Repayment A:58	RMB2,000,000	Chinacast Shanghai	D2
04.04.11	Sale Proceeds of Wu Shares	USD1,200,000 (B2:633)	D2: HSBC account	Jiang: SCB account (B1:365)
06.04.11	Repayment A:58	RMB1,940,000 RMB5,100,000	Chinacast Shanghai	Kangxin Technology (B3:975)
06.04.11	Repayment	RMB12,000,000	Kangxian Information	Kangxin Technology (B3:975)
12.04.11	Sale Proceeds of Wu Shares	USD440,000 USD96,300 (B2:633)	D2: HSBC account	Jiang: SCB account  (B1:370)
20.05.11	Remaining Proceeds	USD243,700 (HKD1,890,000)	D2: Citibank account (B3:973 B2:803)	Jiang: SCB account
12.08.11	Repayment	RMB10,000,000	?	?
11.07.12	Sale Proceeds of Remaining Wu Shares	USD131,800	D2: HSBC account (B2:663)	Jiang: (receipt at B3:1069)

Problematic Features of the Loan

71.  Mr Wong submitted that there were 6 material problematic features of D2’s evidence as set out hereafter.

(1)   D2’s relationship with Jiang

72.  The impression D2 gave in his 2^nd affirmation was that he first met Jiang through Kang in early 2010.  However, Mr Woodrum’s evidence was that D2 and Ms Wu had had a long standing relationship with Jiang as early as 2006 as seen from:

(i)   A receipt dated 13 December 2006[33] whereby Ms Wu acknowledged receipt of the sum of RMB2m being interest payable by Shanghai Shuangwei Communications Network Company Limited/雙威通訊網絡有限公司(“SHSW”) under a loan agreement out of which a sum of RMB1.3m was paid out from a bank account of Jiang, and SHSW was a company holding a 90% interest in ChinaCast Li Xiang Co Ltd (formerly 雙威理想通訊網絡有限公司and subsequently changed to 上海雙巍通訊網絡有限公司) (“CCLX”) through which P1 operated its ELG business in Mainland China; 

(ii)   CCLX was part of the Group and that prior to P1’s acquisition of its first TUG business in 2008, CCLX business represented P1’s sole operating business and Jiang was the Chief Financial Officer of CCLX since 2006 and that he became a director and shareholder of CCLX in July 2009 when he acquired 30% shareholding in CCLX from SHSW;

(iii)   D2 and Ms Wu were both employed by CCLX since at least late 2008, as seen from various documents produced by Mr Woodrum, until at least 27 February 2010[34];

(iv)   Further, Mr Woodrum produced a purported undertaking signed by Jiang to D2 dated 3 March 2009 in respect of another loan purportedly advanced by D2 to Kang with Jiang as guarantor[35];

(v)   There were the Fund Transfer Transactions between D2/Ms Wu and Jiang from 31 May 2010 to 3 March 2011[36];

(vi)   There was another alleged loan agreement dated 21 June 2010 with D2 as lender and Jiang as borrower and Ron Chan and Ms Wong as guarantors for a loan of RMB 17m[37].

73.  Mr Man submitted that D2 never shied away from deposing that he had a long-standing relationship with the Group as seen from his evidence in relation to the involvement in the reverse takeover in 2006 and that it was not D2’s case that he never had any dealings with the Group prior to the Loan.

74.  Further Mr Man submitted that it was Yin who employed D2 and Ms Wu in 2008[38], as seen from D2’s latest explanation in paragraph 18 of his 4^th affirmation.

75.  However, the impression D2 tried to give in his 2^nd affirmation was that he did not recall the name of the Singapore listed company, nor did he know the name of the company Great Wall was changed to that of P1 even though he held the Exchange Shares in P1.  More importantly, D2’s evidence was that he was only introduced to Jiang by Kang in the beginning of 2010.  As seen from Mr Woodrum’s above evidence, D2 and Ms Wu would have known Jiang at least since end of 2008 and there was already another alleged loan in March 2009 between D2 and Kong guaranteed by Jiang.  

76.  It would thus appear to this Court that from his evidence, D2 was trying to distance himself from Jiang and the Group and did not appear to be honest in relation to his relationship with Jiang and the Group.

(2)   D2 being cash-rich

77.  As seen from the two cashier orders endorsed by Guo[39] for two of the alleged drawdown of the 1^st tranche of the Loan, the source of the funds for RMB38m of the Loan in fact came from Shanghai Zhoujixian Computer Technology Co Ltd (“Zhoujixian”), formerly 上海星脉計算机科技發展有限公司/Shanghai Xingmai Computer Technology Development Company Limited.

78.  It was Mr Woodrum’s evidence that P1 believed that Zhoujixian was ultimately controlled by Jiang.

79.  Mr Man submitted that this was a mere assertion on the part of Mr Woodrum and that it was not supported by any documentary evidence. Further, all the contemporaneous documentary evidence including the receipts collaborated D2’s case that D2 had instructed Guo and Ms Wu to make payments on D2’s behalf.

80.  However, it was D2’s case that he was cash-rich and had savings at the SHXB, and it was Kang who suggested that he made the Loan to earn higher interest.  The source of two of the payments totaling RMB38m was from Zhoujixian, and two other of the payments totaling RMB12m were from Ms Wu.  There was no supporting evidence before this Court at this stage that those payments had come from D2’s bank account with SHXB, or that they had come from D2 at all, save what D2 himself said.

(3)   No sufficient security

81.  Mr Wong submitted on D2’s case, he had released proceeds from sale of part of Wu Shares to Jiang before the first repayment made on 23 March 2011, thereby leaving insufficient security to secure the Loan and that this did not make sense.

82.  On D2’s own pleaded case and as seen from the table in paragraph 70 above a total sum of USD5.67m (being 1.5m + 2.97m + 1.2m) were said to have been released to D2 by 23 December 2010 from the sale of Wu Shares before any repayment. 

83.  At the end of December 2010 there were only 545,492 of the shares remaining in D2’s Boom Account, of value of about USD4,233,018.

84.  Mr Man submitted that P1’s calculations were premised upon the assumption that the Shanghai Villa was only worth RMB3,840,000[40] but this figure was only the historical purchase price and had not taken into account the prevailing market value of the Shanghai Villa.

85.  The Realty Charge Agreement was dated 3 March 2010 and it was D2’s evidence the value of the Shanghai Villa of RMB3,840,000 was calculated based on the purchase price at the time of purchase minus the sums borrowed from banks pursuant to prior charges and that it had not taken into account the prevailing market value of the Shanghai Villa.

86.  There was however no evidence of the prevailing market value of the Shanghai Villa or that it was of any higher value in March 2010 than a year ago.

87.  Mr Wong later admitted there was a mistake in his calculations, and that the shortfall as pointed out by Mr Man was only about USD650,000, and not USD4.3m as originally submitted by Mr Wong.

88.  However, Mr Wong pointed out that the 25.09.10 Agreement as pleaded by D2 referred to Jiang and Kang agreeing that they would ensure that the total amount of the Security Money (RMB12m) and the market value of the shares remaining in D2’s Boom Account would not be lower than the outstanding Loan, and there was no mention of the Shanghai Villa.  At the end of December 2010, the Security Money of RMB12m and about UDS4.233m in the Boom Account would be lower than the outstanding Loan.

89.  Anyway, I am of the view that for a commercial loan transaction, it would be unusual for the lender to release the security or a large part of it before any repayment, and in fact equally unusual for a lender to allow draw down of a large part of a loan before a major security is received.

(4)   Lack of commercial reasons for D1 to pledge the Wu Shares

90.  Mr Wong submitted that it made no commercial sense for D1 to pledge the Wu Shares as security for the alleged Loan, since on the face of it, D1 paid USD7.65 per share for the Wu Shares[41]. There was no evidence that D1 was interested in the sums obtained under the alleged Loan, nor did it made sense for D1 to transfer the shares at USD5.7 per share to D2 and then if D2 were to re-transfer back the shares back to D1, D1 then had to pay D2 50% of the profit if the trading price were to exceed USD5.7 per share, pursuant to Clause 8 of the Share Transfer Agreement and Clause 5 of the Irrevocable Undertaking[42].

91.  Mr Man submitted that the above argument was fallacious, since the timing and nature of the two transactions were vastly different, in that there was nothing remarkable about someone purchased shares as an investment in September 2009 and then later pledging those shares as security for a loan in March 2010 at different prices.

92.  However, D2 did not deal with the point as to why D1 would want to pledge his shares for the alleged Loan in the first place when there was no evidence presently before this Court that D1 had received any benefit of any part of the Loan, and further there was no reason why D1 had to pay D2 50% of the profit if the share price were to go up in the event of a re-transfer.

(5)   Alleged repayment of the Loan and (6) the repayment amounts did not tally

93.  Mr Wong submitted that the purported repayment of the Loan was also suspicious.  The repayment of RMB38,051,000 of the Loan was allegedly made by P2 to one Shanghai Kangxin Technology Development Company Limited (“Kangxin Technology”).  There was no explanation by D2 as to the relationship between D2 and Kangxin Technology. Further, a sum of RMB 12m was allegedly repaid by Shanghai Kang Xian Information System Technology Co Ltd (“Kangxian Information”).

94.  Neither Kangxin Technology nor Kangxian Information was a party to the purported Laon Agreement, although according to Ps’ reply to D2’s defence, both are companies controlled by Jiang[43].

95.  Further, there was no documentary evidence to show that the 2^nd tranche of repayment in the sum of RMB10m was made apart from a bare assertion by D2. 

96.  Mr Man pointed out that a major part of the Loan of RMB38,051,000 was repaid by Chinacast Shanghai and as Chinacast Shanghai is a subsidiary of P1, the repayment was made on P1’s behalf.  As for Kangxin Information, there was no documentary proof that the company was controlled by Jiang but in any event, even if it was, this would only mean Jiang had used his money to pay a loan owed by the Group.

97.  However, at present, it is not clear what the relationship between all there companies was.  Further, Mr Woodrum had also pointed out in his 3^rd affidavit that  the alleged repayment amount did not tally[44].  The total repayment sum in respect of the 1^st tranche of funds for the Loan, was RMB40,211,000, which meant an excess sum of RMB211,000.  Further, the sum of money repaid from P2 to Kangxin Technology on 23 March 2016 was recorded as RMB19m in the Repayment Notice issued by Kang to D2 dated 6 April 2011[45] and in fact the amount was RMB19,011,000.  Further, the repayment of the sum of RMB160,000 from P2 to D2 on 1 April 2011 was not accounted for in the said Repayment Notice.

98.  Mr Man submitted the above was not a valid complaint and that in Ps’ Reply and also in Mr Woodrum’s 3^rd affidavit, there was an unqualified admission that the Loan had been fully repaid.

99.  However, the existence or genuine nature of the Loan is specifically denied by P1 in its Reply, and as such, it is denied by P1 in the Reply that the alleged repayments were repayments for the Loan[46].

Merits of P1’s case

100.  I agree with Mr Wong that the 6 problematic features were indeed problematic and raised serious doubts as to whether the alleged Loan was a genuine loan.

101.  Notwithstanding the numerous agreements/documents/receipts produced, if one looks at the actual underlying transactions, there was no sufficient evidence at this stage to show that the source of various payments of the alleged Loan could be traced to D2[47], nor was there sufficient evidence that any payment to the recipient/s was repayment of the alleged Loan to D2. 

102.  So far as I can see, of all the documents produced by D2, the only documents which were notarized were the Loan Agreement and the Realty Charge Agreement.  There was no clear provision in the Loan Agreement that the Wu Shares were a security for the Loan. 

103.  Clause 7 of the Loan Agreement sets out the security for the Loan, as follows :

(i)   All assets of the 7 Guarantors;

(ii)   The landed properties held by Ron Chan and Ms Wong, which would include not only the Shanghai Villa but also a landed property in Hong Kong.

104.  Then according to Clause 18, the Loan Agreement became effective upon receipt of the Security Money and the charges of both the Shanghai Villa and the landed property in Hong Kong.

105.  The only references in the Loan Agreement to the Wu Shares would appear to be in Clauses 6.2 and 8.4 of the Loan Agreement, which referred to the failure of the transfer within the term of the Loan would constitute a breach, or may jeopardize the safety of the Loan, D2 would have the right to cease the drawdown or to demand early repayment, but the Wu Shares were not stated to be a security for the Loan.

106.  Unlike the Realty Charge Agreement which specifically stated that the charge on the Shanghai Villa was for security for the Loan, there was no such provision in Share Transfer Agreement said to be executed on the same day, which merely stated that D1 voluntarily transferred the Wu Shares to D2 at USD5.70 per share. 

107.  None of the Share Transfer Agreement, nor the Undertakings, or the Supplemental Loan Agreement were notarized.  The Supplemental Loan Agreement was signed by only D2 and 4 of the Guarantors.  The Letter of Irrevocable Undertaking was signed by Ron Chan on behalf of Yupei.  D1 was not even a party to the Loan Agreement, nor the Supplemental Loan Agreement.  The problematic feature about the lack of commercial reasons for D1 to pledge the Wu Shares has already been set out earlier.  There was no provision in the Loan Agreement that the Loan was subject to D1 having to provide the Letter of Undertaking of Charge or any undertaking.

108.  Further in those emails relating to the transfer of the Wu Shares[48], in particular a “Non US Person Representation Form” was signed by D2, and in this form, D2 had declared that he was acquiring the shares for his own account, for investment and not for distribution or resale to others[49].  He also declared that he had sufficient knowledge and experience in finance, securities, investments and other business matters to be able to protect his interests in connection with this transaction[50].  I note that this appeared to be contrary to his repeated statements that he knew very little about share trading.

109.  The Wu Shares were stated to be of a value of USD5.70 at the time of transfer.  Yet, the 1^st tranche of the Loan namely RMB40m, ie 80% of the Loan, was already drawn down two months before the Wu Shares were transferred.  In my view, and as mentioned earlier, this did not make commercial sense if the Loan was indeed to be secured by the Wu Shares. 

110.  Further, as soon as the Wu Shares were deposited, on the same day, 1,000 shares were sold.  There was also buying and selling of P1’s shares in the Boom Account which was said to be opened for the particular purpose of the Loan.  It was in fact not clear when the Boom Account was opened.  The problematic feature of the sale of the Wu Shares and purported release of the sale proceeds to Jiang, prior to any repayment, has already be mentioned earlier.

111.  It is P1’s pleaded case that HK$10m of the USD1.5m allegedly out of the proceeds of the sale of Wu Shares paid out by D2 to Jiang on 18 November 2010 in fact found its way back to D2 on 30 November 2010[51].  On D2’s own evidence, there was also money exchange activity he had with Jiang at the time when the Remaining Proceeds were allegedly paid to Jiang.  There was no supporting evidence of the last repayment of RMB10m.

112.  Having considered the above and all the evidence presently before this Court, I have come to the view that P1 has established a good arguable case for the reliefs they are seeking against D2, that the Loan was a sham, and that Wu Shares were not a security for the Loan, or any loan.  

Delay

113.  As Mr Man submitted, in Mareva injunctions, delay is relevant to whether there is sufficient risk of dissipation to justify Mareva relief.  Mr Man referred this Court to what was explained by Bean LJ in JSC Mezhdunarodniy Promyshlenniy Bank, State Corporation “Deposit Insurance Agency” v Sergei Viktorovich Pugachev, [2015] EWCA Civ 906[52] :-

“It may mean in some cases that there is no real risk of dissipation and that if the claimant had seriously thought that there was, an application would have been made earlier.”

114.  Mr Woodrum explained that the issue of the writ herein and application for the Mareva injunction was due to P1’s discovery of certain suspicious transactions made between Jiang and others from the documents disclosed by SCB pursuant to the 2012 Disclosure Order.  According to Mr Woodrum, SCB only provided P1 with the bank statements in January 2016 and such other relevant vouchers which showed the transaction details in March 2016.  Upon receipt of such documents, P1 had to spend some time to review the documents and to seek any necessary advice before deciding to commence the present action.  P1 applied for the Mareva injunction ex parte, but the application was adjourned by Ng J at the time for P1 to file a further affirmation.  The application then came before Lam J on 3 June 2016, who to granted the Injunction Order against D1 and D2.

115.  Mr Man however pointed out that Mr Woodrum did not exhibit those “bank statements” and “relevant vouchers” and submitted that there was no plausible explanation as to how, without those “bank statements” and “relevant vouchers”, P1 could not have taken action against D2 in respect of the “shares misappropriation”.  Further, Mr Man submitted that there was no explanation as to why an application for disclosure of bank statements was not made earlier.

116.  Mr Woodrum had mentioned the difficulties of the 2012 Plaintiffs in pursuing their claims against the wrongdoers was to do with the “whole theft” of the financial and business records of the Group when the 2012 Defendants exited the Group[53].  The 2012 Plaintiffs did obtain an unless order in the 2012 Proceedings on 27 October 2014 requiring  Jiang to produce certain bank documents, and that Jiang was in breach of that order, upon which judgment was then entered against Jiang in the 2012 Action[54].

117.  Having said this, I accept that there had been some delay on the part of P1.

118.  As said by Bean LJ in the JSC Mezhdunarodniy Promyshlenniy Bank case,it is not generally the rule that delay in applying for a freezing injunction or an extension of a freezing injunction is a bar in itself to the obtaining of relief, and that, it may mean in some cases there is no real risk of dissipation and that if the claimant has seriously thought that there was, an application would have been made earlier.  Bean LJ then went on to say that that if the court is satisfied on the evidence that there remains a real risk of dissipation it should grant an order, notwithstanding delay, even if only limited assets are ultimately frozen by it[55].  The real question is thus whether there is a real risk of dissipation.

Whether real risk of dissipation

119.  P1’s basis for the allegation that there is real risk of dissipation is that D2 was dishonest.  Mr Wong referred to the comments made by DHCJ Saunders in Ferrari North Amerca Inc v Changhon International Energy Co Limited and Others, HCA 852/2017, unreported Decision 29 June 2017 that irrespective of what was pleaded, dishonesty or suspicion of dishonesty would strongly suggest that there was a real risk of dissipation[56].

120.  Mr Man submitted that if D2 is assumed to be dishonest, he would have dissipated his assets already and the Injunction Order would be futile.  If D2 is honest, then the sole basis of risk of dissipation will have gone.  There was no reason for D2 to believe that he would be sued 6 years after the Loan.

121.  From the disclosure of HSBC pursuant to the 2016 Disclosure Order, D2’s HSBC account , from which the bulk of the transfers were made to Jiang, was closed by D2 on 21 November 2013[57].

122.  Having considered present evidence including that D2 had taken steps to close an account which would show substantial transactions with Jiang and D2 had not been honest in relation to his relationship with Jiang and the Group, I am satisfied that P1 has demonstrated that there is risk of dissipation.

Material non-disclosure

123.  Mr Man argued that there were two significant aspects of material non-disclosure, namely :

(i)   There was no indication that P1 had properly explained the significance of delay (ie its relevance to risk of dissipation) to Lam J; 

(ii)   P1’s case is that D2 was a habitual lender to the Group and there was a wholesale theft of financial business records from the Group and therefore it was possible that the Wu Shares were transferred to D2 as security for loans, and there was no indication that all this was drawn to the attention of Lam J.

124.  “Delay” was stated in Wong’s then skeleton arguments before Lam J.  Mr Wong also referred to the 2^nd affidavit filed by P1’s solicitor Mr Wu Man Tsuen Alfred on 30 May 2016 in which Mr Wu had explained that Ng J adjourned the ex parte application for the Mareva injunction on 27 May 2016 and granted leave for P1 to file further affidavit evidence as to the basis on which the application was to proceed ex parte having regard to the lapse of time since the Wu Shares were first allotted to D1.  Mr Wu’s 2^nd affidavit was before Lam J at the hearing on 3 June 2016 and Lam J should therefore be fully aware of the delay in the making of the application.

125.  It is not clear as to when the “debt ledger of unauthorized borrowings at high interest rates” referred to in paragraph 9(4) of the amended statement of claim was obtained by P1 or when P1 found out that D2’s name appeared as one of the lenders on the debt ledger.  Mr Woodrum’s 1^st affidavit set out a table of transfers from D2 to Jiang which were obtained from the banks records obtained pursuant to the 2012 Discovery Order against Jiang.  There was no sufficient evidence that P1 was aware that D2 was a habitual lender to the Group at the time of the hearing before Lam J.

126.  Anyway, there was no application made by D2 to discharge the Injunction Order on the ground of material non disclosure at the time when the Injunction Order was continued on 29 July 2016, and further in any event in my view, even if there had been non disclosure on part of P1 in relation to D2 being a habitual lender, this was not material and will not affect my decision herein.

Other discretionary factors 

127.  There was no suggestion by D2 that P1 may be adequately compensated by damages.

128.  In D2’s 3^rd affirmation filed in support of his application for security for costs, he stated that the Injunction Order had caused him undue hardship and that he needed to borrow money from friends to pay for his daily expenses and legal fees incurred and to keep borrowing money from friends to pay for his future legal fees if the matter goes to trial[58]. Yet, as pointed out by Mr Wong, there was no application to vary the Injunction Order to seek further living expenses or legal fees after 29 July 2016.  There was no evidence that D2 intended to partake in any business ventures or investments, and no suggestion that he intended to sell the property co-owned with Ms Wu.

Conclusion

129.  Having considered all the above, I have come to the view that on a balance of convenience, the Injunction Order should be continued until resolution of this action or further order.

130.  P1 also sought an ancillary disclosure order, but there was no such application set out in the summons issued by P1 on 27 June 2016.  I decline to grant this order.

131.  Costs of P1’s summons issued on 31 May 2016 and 27 June 2016 to be costs in the cause.