GU ZHUOHENG AND ANOTHER v. HUANG WEI CHENG AND OTHERS

HCA 2509/2017

[2019] HKCFI [381]

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO 2509 OF 2017

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J U D G M E N T

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A.   APPLICATIONS AND RELEVANT PROCEDURAL HISTORY

1.  On 10 November 2017, upon an application by the plaintiffs, Gu Zhuoheng (谷卓恒) and Korchina Culture Investment Limited (韓中文化投資有限公司) (“Gu” and “Korchina” respectively and “Plaintiffs” collectively), which I treated as having been made ex parte[1] and subject to the Plaintiffs’ reciprocal undertaking not to deal with the assets of the 2^nd defendant, All Faith Corporation Limited (信全有限公司) (“All Faith”), including its shareholding (“Alishan Shares”) in 新豐縣阿里山味食品有限公司 (“Alishan”), I granted an interim interlocutory injunction (“Injunction”) restraining:

(1)  the 1^st defendant, Huang Wei Cheng (黃偉誠) (“Huang”), whether by himself, his servants, agents, employees or otherwise, from howsoever

(a)  selling, disposing of, transferring away, assigning or charging any interests, benefits or ownership in All Faith’s assets, including the Alishan Shares;

(b)  causing All Faith to enter into or sign any agreement, contract, transaction, dealing or arrangement;

(c)  acting or holding himself out as a director or officer of All Faith or a person who has authority to represent All Faith; or

(d)  doing any act or taking any action on behalf of All Faith, including but not limited to the conduct of proceedings in the People’s Republic of China, including those identified by the references 深龍法院三初字第408號 and深龍法立保字第32號 (“2015 PRC Proceedings”);

(2) the 4^th defendant, Wang Xuehua (王雪華) (“Wang”), whether by herself, her servants, agents, employees or otherwise, from howsoever

(a)  selling, disposing of, transferring away, assigning or charging any interests, benefits or ownership in Korchina’s assets;

(b)  causing Korchina to enter into or sign any agreement, contract, transaction, dealing or arrangement;

(c)  acting or holding herself out as a director or officer of Korchina or a person who has authority to represent Korchina; or

(d)  doing any act or taking any action on behalf of Korchina, including but not limited to the conduct of proceedings in the PRC, including the 2015 PRC Proceedings;

(3) Huang, Wang and the 5^th defendant, Chen Mei Lan (陳美蘭) (“Chen”), whether by themselves, their servants, agents, employees or otherwise, from howsoever performing or causing Korchina or All Faith to perform the settlement agreement (“Settlement Agreement”) alleged in the letter dated 31 October 2017 issued by Li, Wong, Lam & W I Cheung (“LWL”).

2.  In support of the application, by paragraph 49 of the 1^st affirmation dated 1 November 2017 of Sharon Kwan (“Kwan”) (who identifies herself as a director of Korchina) and paragraph 23 of Gu’s 1^st affirmation dated 7 November 2017, the Plaintiffs offered to give the usual cross-undertaking as to damages.  While Gu asserted the Plaintiffs’ ability to honour such undertaking, he did not give any particulars of the means available to him or Korchina to do so.  I therefore required a further undertaking by Gu to file an affirmation within 14 days to disclose the financial means and resources that the Plaintiffs have for fulfilling the cross-undertaking as to damages.  Such undertaking was purportedly complied with by the filing of Gu’s 2^nd affirmation on 29 November 2017 which deposed to Gu’s holding of 129,606,000 shares in one Ding He Mining Holdings Limited (stock code: 705) (“Ding He Mining Shares”) in a securities account (“Kingston Account”) with Kingston Securities Limited (“Kingston”), which shares had a market value of HK$5,573,058 as at 7 November 2017, having closed at HK$0.043 on that day.

3.  By a summons issued on 17 November 2017, the Plaintiffs applied for continuation of the Injunction against Huang, Wang and Chen until judgment or further order.

4.  In the meantime, it had come to the Plaintiffs’ notice that the Alishan Shares had already been transferred from All Faith to one Shuangchuang International (HK) Co., Limited (雙創國際 (香港) 有限公司) (“Shuangchuang”). So, by another summons issued on 22 November 2017, the Plaintiffs applied for leave to join Shuangchuang as the 6^th defendant to this action and for amendment of paragraphs 1 and 3 of the Injunction so that those paragraphs would extend to Shuangchuang.

5.  The Plaintiffs’ summonses dated 17 and 22 November 2017 (“Summonses”) first came before me on 24 November 2017.  Shuangchuang attended by counsel instructed by CP. Other than allowing the joinder of Shuangchuang as the 6^th defendant and making consequential directions, I adjourned the Summonses for substantive argument, pending which I continued the Injunction as against Huang, Wang and Chen and, upon the Plaintiffs’ application, I also granted another interim interlocutory injunction restraining Shuangchuang, whether by itself, its servants, agents, employees or otherwise, from howsoever selling, disposing of, transferring away, assigning or charging any interests, benefits or ownership in All Faith’s assets, including the Alishan Shares.

6.  On 18 January 2018, with Huang, Chen and Shuangchuang attending by counsel instructed by CP and Wang represented by counsel instructed by Edward Lau, Wong & Lou (“ELWL”), I further adjourned the substantive hearing of the Summonses to permit the filing of further evidence and:

(1)  upon Wang’s indication of no objection, continued the Injunction against her until judgment or further order and excused her attendance at the adjourned hearing;

(2)  continued the Injunction against Huang and Chen until the adjourned hearing; and

(3)  granted an injunction against Shuangchuang in the same terms as the first and third paragraphs of the Injunction with effect from 18 January 2018 without prejudice to the plaintiffs’ argument that Shuangchuang is a just nominee of Huang and Chen and, as such, bound by the Injunction anyway.

7.  The substantive hearing of the Summonses took place on 7 May 2018, with opposition from Huang, Chen and Shuangchuang (“Opposing Defendants”) who invited the court to discharge or not to continue the Injunction on the grounds of failure to show any serious issue to be tried or material non-disclosure at the hearing on 10 November 2017 by the Plaintiffs (although the Opposing Defendants had not taken out a formal summons for discharge).

8.  To complete the procedural history, I should mention that, pending the delivery of this judgment, by a letter dated 6 December 2018 from their solicitors, CP, to the court, the Opposing Defendants indicated their intention to make an urgent application for a variation of paragraph 1(d) of the Injunction to allow Huang to appoint PRC legal representative to appear for All Faith before the People’s Court at the Longgang District, Shenzhen (深圳市龍崗區人民法院) (“Longgang Court”) on 27 December 2018 at the trial of the 2015 PRC Proceedings and sought the court’s directions.  In view of the apparent urgency of the matter, instead of directing the issuance of a summons, I treated the Opposing Defendants as having made the proposed application by CP’s said letter.  After considering the parties’ respective written submissions, I varied paragraph 1(d) of the Injunction to allow Huang to appoint PRC legal representative to appear for All Faith before the Longgang Court on 27 December 2018 at the trial of the 2015 PRC Proceedings, but only for the limited purposes of:

(1)  informing the Longgang Court of

(a)  the existence and pendency of this action which concerns, among others, the shareholding and directorship of All Faith, and would therefore indirectly impact upon the ownership and control of Alishan and its assets (which is the subject matter of the 2015 PRC Proceedings); and

(b)  the grant of the Injunction against Huang in this action and terms thereof; and

(2)  applying for a further stay of the 2015 PRC proceedings until the final determination of this action.

B. SUBJECT MATTER OF THIS ACTION

9.  It should be clear from the terms of the Injunction that it seeks to protect and preserve the assets of All Faith and Korchina pending determination of the shareholdings and directorships of these 2 companies in this action.

10.  In this connection, All Faith is supposed to hold the entire shareholding in Alishan.  Alishan is, in turn, supposed to own a piece of land of over 170,000 square metres together with the factories, offices, staff accommodation and various associated facilities thereon at Pingshan, Longgang District, Shenzhen (深圳市龍崗區坪山) with land parcel number G11201–1739 and registration number 深房地字第6000334782號 (“Shenzhen Land”).

C. PARTIES

C1. Gu and Wang

11.  Both Gu and Wang are Mainland citizens.  They were both implicated in what has become known as the “Mei Dai cyber fraud case” (美貸網詐騙案), which reportedly involved RMB2.4 billion and 350 victims who had complained to the police.  Gu was found by the Mainland court to be the mastermind behind such fraud.  Before that, Gu had left China.[2] He entered the USA on 27 March 2016 and sought asylum there in May 2017. Wang was employed by Gu and/or his companies.  She was detained on 13 May 2015, formally arrested on 16 June 2015 and convicted upon her own guilty plea and sentenced on 13 May 2016 in the Mainland for offences arising from the said fraud.  She is currently serving a 7-year sentence at a prison in Guangzhou.

C2. Korchina

12.  Korchina was incorporated in Hong Kong on 24 May 2013.  It was acquired by Wang on 4 December 2013 as sole director and sole shareholder holding 10,000,000 shares of HK$1 each (“Korchina Shares”). 

13.  Gu asserts his claim to All Faith (and therefore indirectly to the Alishan Shares and the Shenzhen Land) through Korchina.  More particularly, Gu claims to have acquired the entire shareholding of Korchina from Wang on 16January 2017 in the following circumstances:

(1)  Between April and November 2014, Gu lent to Korchina sums totalling HK$18.8 million (“Loans”) to facilitate Korchina’s investment in Sing Pao Media Enterprises Limited (“Sing Pao”), a company which owned Sing Pao Daily News and was listed on the Growth Enterprise Market Board of the Hong Kong Stock Exchange Limited and of which Gu was then the chairman.  Trading of Sing Pao shares had been suspended.  Wang and Korchina were interested in restructuring Sing Pao so as to secure the resumption of trading of its shares.

(2)  Wang personally guaranteed the repayment of the Loans.

(3)  Korchina’s investment in Sing Pao failed.  On 6 April 2015, Korchina issued a statutory demand to Sing Pao for an amount equal to the sum of the Loans which Korchina had on-lent to Sing Pao.  In late April 2015, Korchina presented a winding-up petition against Sing Pao based on the unsatisfied statutory demand.  Sing Pao was wound up on 12 August 2015.  Korchina did not recover anything from the liquidation of Sing Pao.

(4)  Gu became anxious about repayment by Wang in her capacity as guarantor of the Loans after she was sentenced to imprisonment in the Mainland in May 2016. 

(5)  In early January 2017, Gu and Wang agreed that Gu should take the Korchina Shares as repayment of the Loans by Wang as guarantor (“Repayment Agreement”).  Gu agreed to do this because, according to his understanding at the time, Korchina held valuable assets, being the All Faith Shares.[3]

(6)  By bought and sold notes and an instrument of transfer dated 16January 2017 (“16/1/2017 Transfer Documents”), Wang transferred the Korchina Shares to Gu at the nominal consideration of HK$1 (“16/1/2017 Transfer”).  Wang, acting in the capacity of sole director of Korchina, also signed a board resolution of Korchina authorising the 16/1/2017 Transfer (“16/1/2017 Transfer Resolution”).

14.  Gu further explains that he refrained from stamping the 16/1/2017 Transfer Documents or informing the Companies Registry (“CR”) of his acquisition of Korchina because he was aware of the appeal from HCMP 894/2015 under CACV 23/2017 which concerned the ownership and control of All Faith and which was fixed to be heard on 21 November 2017 (see paragraph 36 below) and he did not want to get involved in such legal proceedings.[4]

15.  However, the discovery of the settlement of CACV 23/2017 on terms that returned the ownership and control of All Faith to the Huang family (see paragraphs 37 and 38 below) thereby depriving Korchina of the All Faith Shares, its only valuable asset, forced Gu to (1) appoint Kwan[5] as a director of Korchina on 23 October 2017; (2) have the 16/1/2017 Transfer Documents stamped and an updating annual return of Korchina filed at the CR on 24 October 2017; and (3) have Wang removed as a director of Korchina on 7 November 2017.

C3. Huang and Chen

16.  Chen is the widow of the late Huang Wen Tsai (黃文財) (“Huang Senior”).  They have 3 children: Huang Yi Chen (黃怡甄), Huang Pin Ching (黃品靜) and Huang.  Save that Huang Senior had business interests in the Mainland since the 1990’s and that Huang Pin Ching had assisted Huang Senior in the clerical and bookkeeping aspects of his Mainland business after graduating from university, Huang Senior, Chen and their 3 children (“Huangs” or “Huang Family”) are and were at all material times Taiwanese citizens and based in Taiwan.

C4. Shuangchuang

17.  Shuangchuang is a company incorporated in Hong Kong on 25 March 2009.  Zhang Chong (張沖), husband of Huang Pin Ching, was the sole shareholder and director of Shuangchuang until his shares were transferred to Chen and Huang Pin Ching on an unknown date and until he resigned, and Huang was appointed, as a director on 26 August 2017.[6]

18.  The transfer of the Alishan Shares from All Faith to Shuangchuang, which led to the joinder of Shuangchuang in this action, took place on 23 October 2017, i.e. before the grant of the Injunction.  Shuangchuang does not appear to have any business other than holding the Alishan Shares.

D. HUANG FAMILY’S INITIAL CONTROL OF ALL FAITH AND ALISHAN

19.  Alishan, a Mainland company, was founded by Huang Senior on 9 December 1999.

20.  Alishan acquired the Shenzhen Land in April 2009.

21.  Prior to October 2012, the Alishan Shares were held by a Taiwanese company called榮倫涼椅工業股份有限公司 owned and controlled by Huang Senior.  Huang Senior was and remained the legal representative of Alishan until 6 August 2013. 

22.  All Faith, a Hong Kong company, was set up by Huang Senior later on 10July 2012.   Prior to 5 December 2013, Huang Yi Chen and Huang Pin Ching (“Huang Sisters” collectively) were arranged by Huang Senior to hold all the issued shares in All Faith (which are 10,000 shares of HK$1 each) (“All Faith Shares”) in equal shares.  Huang Senior was and remained the sole director of All Faith until 11 July 2013.

23.  Regarding the establishment of All Faith, according to Huang Pin Ching,[7] Huang Senior had since 2012 been approached by various developers offering to buy the Shenzhen Land.  It was Huang Senior’s plan to dispose of the Shenzhen Land indirectly through a sale of the All Faith Shares.  Hence, after All Faith’s formation, on 11 October 2012, Huang Senior caused the Alishan Shares to be transferred into All Faith’s name.

24.  After he was diagnosed with liver cancer in July 2013 and before he passed away in September 2013, Huang Senior caused Huang to replace him as the sole director of All Faith on 11 July 2013 and as the legal representative of Alishan on 6 August 2013.

E. DEALINGS, DISPUTES AND LITIGATIONS

25.  There have since 2013 been numerous dealings with the All Faith Shares, the Alishan Shares and the Shenzhen Land that have given rise to a myriad of legal proceedings in both Hong Kong and the Mainland.

E1. Concerning the All Faith Shares

E1.1 Dealing by Huang Senior himself before his death

26.  Dealing first with the All Faith Shares, first of all, prior to his being diagnosed with liver cancer, Huang Senior (acting for himself and for All Faith) entered into a deposit agreement and a formal agreement respectively dated 25 April 2013 and 24 May 2013 (“Zhang Agreements”) with one Zhang Yanjin (張炎錦) (“Zhang”) for the sale of the All Faith Shares and the landed properties under All Faith’s name to Zhang at RMB530 million, 10% of which had been paid by Zhang as deposit.

E1.2 HCA 1533/2014 & HCA 30/2018

27.  The sale to Zhang was never completed.  Dispute arose as to which party was in breach of contract.  This transaction between Zhang and Huang Senior back in 2013 has given rise to 2 sets of proceedings taken by Zhang in Hong Kong:

(1)  under HCA 1533/2014 against the estate of Huang Senior, the Huang Daughters, All Faith and Alishan; and

(2)  under HCA 30/2018 against Korchina, All Faith, Shuangchuang, Huang and Huang Senior’s estate

 for, inter alia, specific performance of the Zhang Agreements.  There were/are also claims against the Huang Daughters and Korchina for declarations that they held the All Faith Shares and against Shuangchuang that it holds the Alishan Shares as constructive trustees for Zhang pending completion of the Zhang Agreements. Zhang further claimed/claims against the Huang Sisters in HCA 1533/2014 and against Korchina, All Faith, Shuangchuang and Huang in HCA 30/2018 damages for procurement/inducement of breach of contract.  HCA 1533/2014 had in May 2016 proceeded to the entry of interlocutory judgment in default against the Huang Daughters with damages to be assessed.  

E1.3 Dealings with Korchina after Huang Senior’s death

28.  After the dispute between Zhang and the Huang Family had arisen, under disputed circumstances:

(1)  On 5 December 2013, the Huang Sisters transferred the All Faith Shares to Korchina.

(2)  On 27 January 2015, the All Faith Shares were transferred from Korchina to Chen.

29.  Despite the transfer from Korchina to Chen, on 21 February 2015, Korchina (still acting as the sole shareholder of All Faith) removed Huang from All Faith’s board of directors and appointed Wang and one Liu Hui (劉輝) (“Liu”) as directors of All Faith.  On 27 February 2015, statutory forms signed by Wang, including a Form ND2A showing the replacement of Huang by Liu as a director of All Faith, were submitted to the CR.

E1.4 HCMP 894/2015

30.  The transfers of the All Faith Shares from the Huang Sisters to Korchina and from Korchina to Chen and the removal of Huang, and the appointment of Wang and Liu, as directors of All Faith became the subject matters of the claims and cross-claims in HCMP 894/2015.  Such proceedings was commenced by Chen and Huang (asserting their respective capacities as sole shareholder and sole director of All Faith) on 16April 2015 against the Registrar of Companies (“Registrar”), All Faith, Wang, Liu and Korchina to claim for (1) rectification of All Faith’s share register and (2) declarations that Chen and Huang were respectively All Faith’s sole shareholder and sole director and that the statutory forms (regarding All Faith’s register of directors and registered office address) presented by Wang and Liu to the CR were forgeries.

31.  It was Chen and Huang’s case in HCMP 894/2015[8] that:

(1)  Since the death of Huang Senior, Zhang had put pressure on Huang Pin Ching to transfer the All Faith Shares to him by the use of illegal means (such as making harassing and threatening telephone calls to Huang Pin Ching and causing hundreds of people to frequently visit, occupy and create nuisance at the Shenzhen Land). 

(2)  In about September to October 2013, Huang Pin Ching became acquainted with Gu who represented himself to have military background and connections with influential/high-ranking government officials in the Mainland.  Gu agreed to help Huang Pin Ching to resolve the dispute with Zhang, after which Gu’s company would purchase the All Faith Shares at not less than RMB 800 million.  However, to enable Gu to do so, the Huang Sisters should transfer the All Faith Shares to an entity controlled by him, which would hold the shares on trust for the Huang Sisters.

(3)  At a meeting on 5 December 2013:

(a)  Gu signed, inter alia, a代持股協議(“Declaration of Trust”) on behalf of Korchina, which Wang had just acquired on 4 December 2013,[9] in favour of All Faith (which name, instead of the Huang Sisters’ names, was put down as beneficiary by mistake due to lack of legal advice) to the effect that Korchina held the All Faith Shares on trust.

(b)  To secure the return of the All Faith Shares to the Huang Sisters or their nominee(s) upon fulfilment of the purpose of the trust or on demand, at the Huang Sisters’ request, Wang signed undated bought and sold notes and an instrument of transfer (“Security Documents”) on behalf of Korchina as transferor.

(c)  The Huang Sisters transferred the All Faith Shares to Korchina.

(4)  Gu did not settle the dispute between Zhang and the Huang Family.  Zhang took proceedings under HCA 1533/2014 in August 2014.  Gu tore up the original of the Declaration of Trust (which had been kept by Huang Pin Ching) at a meeting with Huang Pin Ching in August 2014.

(5)  Huang Pin Ching demanded Gu and Wang to procure Korchina to return the All Faith Shares at the end of 2014, but to no avail.

(6)  On 27 January 2015, the Huang Sisters dated the Security Documents and used them to transfer the All Faith Shares from Korchina to Chen solely.

32.  Korchina denied the existence of any trust of the All Faith Shares or the Declaration of Trust.  The Huang Sisters transferred the All Faith Shares to Korchina in repayment of a loan of RMB 95 million advanced to Alishan by one 深圳航美房地產開發有限公司 (“SZ Hang Mei”), a Mainland company of which Wang was then the legal representative and general manager.  Korchina further claimed that Wang’s signatures and Korchina’s company chops on the Security Documents used in the transfer from Korchina to Chen were forged.  It counterclaimed for a declaration that the transfer of the All Faith Shares to Chen was void and an injunction restraining Chen and Huang from representing that they were the shareholder or director of All Faith.

33.  HCMP 894/2015 was tried before Madam Justice Au-Yeung in October 2016.  Huang Pin Ching was the only witness as to fact who gave evidence viva voce before her Ladyship.  She was found to be untruthful and unreliable.  Au-Yeung J was not satisfied on a balance of probabilities:

(1)  that the trust of the All Faith Shares alleged by Chen and Huang existed;

(2)  that the Security Documents used to effect the transfer of the All Faith Shares from Korchina to Chen were genuinely created for the purpose or in the circumstances described by Huang Pin Ching or that Wang’s signatures thereon were genuine; or

(3)  that even if they were genuine documents signed by Wang, the condition for their use had been met.

34.  Her Ladyship dismissed Chen and Huang’s claim, declared that the transfer of the All Faith Shares from Korchina to Chen was null and void and granted a permanent injunction restraining Chen and Huang and their servants and agents from representing to anyone that she/he was All Faith’s shareholder/director (“HCMP 894/2015 Judgment”).  See Au-Yeung J’s judgment dated 30 December 2016.

35.  The effect of the HCMP 894/2015 Judgment is that Korchina remained the sole owner of the All Faith Shares.

E1.5 CACV 23/2017

36.  On 27 January 2017, Chen and Huang appealed against the HCMP 894/2015 Judgment under CACV 23/2017.  A respondent’s notice was filed on behalf of Wang, Liu and Korchina, represented by Wong & Lawyers (“W&L”), on 17 February 2017.  CACV 23/2017 was fixed to be heard on 21 November 2017.  

37.  However, before such hearing date:

(1)  On 18 August 2017, LWL filed a Notice of Change of Solicitors in CACV 23/2017 to act for Wang, Liu and Korchina who had until then been represented by W&L.

(2)  By a joint letter dated 22 August 2017, LWL (representing Wang, Liu and Korchina) and CP (representing Chen and Huang) informed the Registrar that the parties to CACV 23/2017 had reached settlement on all disputes in relation to the shareholding and directorship of All Faith and entered into a settlement deed on 18 August 2017.  Pursuant to such settlement, enclosed to the letter were 3 notices dated 18 August 2017 for reporting changes in the directors of All Faith, including 2 signed by Wang and Liu giving notice of their resignation as directors of All Faith. 

(3)  By a further joint letter dated 1 September 2017, LWL and CP provided the Registrar with a copy settlement deed (presumably the Settlement Agreement)[10] and sought her directions on the filing of statutory forms for reporting changes in the directors and in the registered office address, the outstanding annual returns (for the years ending 10 July 2015, 10 July 2016 and 10 July 2017) and the updated annual return in respect of All Faith.

(4)  To implement the settlement, by yet another joint letter dated 12 September 2017, LWL and CP delivered to the Registrar 7 returns/notices of All Faith dated 18 August 2017, signed by Wang (as outgoing director), Liu (as outgoing director) and Huang (as the sole remaining director) (“Settlement Implementation Documents”) and showing, inter alia, the following:

(a)  that Huang had not been removed as a director of All Faith in February 2015 but has remained in office since his appointment in July 2013; and

(b)  that Wang and Liu resigned as directors, and Huang became the sole director, of All Faith on 18 August 2017.

The effect of the Settlement Implementation Documents was to return the management and control of All Faith to Huang.

(5)  Registration of the Settlement Implementation Documents was however delayed because, by letters dated 26 and 27 September 2017 to LWL and the Registrar respectively, W&L challenged LWL’s authority to act for Wang and Korchina on the basis that Wang, the sole shareholder and director of Korchina, had told a close friend of hers who had recently visited her in prison that she had never at any time instructed any solicitors firm in Hong Kong to act for her and Korchina in CACV 23/2017 in place of W&L.  The Registrar was requested to withdraw the Settlement Implementation Documents from the public domain.  LWL was asked to provide evidence that it had been properly instructed by Wang and Korchina. 

(6)  W&L then withdrew the objection on 20 October 2017, whereupon the Settlement Implementation Documents were registered on the same date.

(7)  On 27 October 2017, a consent summons was filed by the parties in CACV 23/2017 for the dismissal of Huang and Chen’s notice of appeal and the withdrawal of Wang, Liu and Korchina’s respondent’s notice (“CA Consent Summons”).

(8)  On 30 October 2017, the Court of Appeal made an order in terms of the Consent Summons (“CA Consent Order”).

38.  Although All Faith’s annual return for the year ending 10 July 2018 was not yet due by the time of the hearing on 7 May 2018, according to paragraph 21 of the Opposing Defendants’ defence in this action, the All Faith Shares were transferred from Korchina to the Huang Sisters pursuant to the Settlement Agreement on 18 August 2017.  In other words, with effect from 18 August 2017, the Huang Sisters and Huang have respectively been the registered shareholders and sole director of All Faith.

39.  It is the Plaintiffs’ case herein that the Settlement Agreement was “an unlawful and dishonest scheme” orchestrated by Huang/Chen “to create a false pretence that their dispute with Korchina has been settled (which is untrue and implausible)” and “to defeat and/or nullify the HCMP 894/2015 Judgment”.[11]  The discovery of the settlement of CACV 23/2017 on terms that returned the ownership and control of All Faith to the Huang Family caused Korchina, at Gu’s instigation, to issue a summons in CACV 23/2017 on 2 November 2017 to set aside LWL’s notice of change of solicitors and the Consent Order (“CA Setting Aside Summons”).  It is also the immediate cause for this action (see section F below).  Upon the grant of the Injunction herein on 10 November 2017, Korchina invited the Court of Appeal, initially by letter, to stay or adjourn the hearing of the CA Setting Aside Summons pending the determination of this action.  A formal summons for that purpose (“CA Stay Summons”) was taken out on 20 December 2017.  The CA Setting Aside Summons and the CA Stay Summons were both dismissed by the Court of Appeal with costs against Korchina on 3 January 2018.

E1.6 HCA 2602/2017

40.  Wang herself and Korchina, instigated by Wang, had commenced proceedings under HCA 2602/2017 on 14 November 2017, i.e. about a week after the issue of the writ of summons herein, against the Opposing Defendants seeking, inter alia, to set aside the transfer of the All Faith Shares by Korchina and her resignation as director of All Faith under the Settlement Agreement.  HCA 2602/2017 was discontinued very shortly after its commencement on 4 December 2017.

E2. Concerning the Alishan Shares

41.  Moving onto the Alishan Shares, on 1 April 2014, All Faith acting by and through Huang, its sole director, and one China HK and Macao News Media Holding Limited (中國港澳新聞傳媒控股有限公司) (“News Media”), a Hong Kong company held as to 50% by Gu’s wife, Shen Wei (沈威) (“Shen”), signed an agreement for the transfer of the Alishan Shares by All Faith to News Media for US$500,000 (“News Media Agreement”).

42.  It was Chen and Huang’s case in HCMP 894/2015[12] that:

(1)  News Media was owned and/or controlled by Gu and/or Wang.

(2)  The News Media Agreement was signed by Huang for All Faith against collateral assurances by Gu, Wang and News Media that the agreement would have no legal effect; it would only be used by News Media to boost its customers’ confidence in it; that it could be revoked and the Alishan Shares returned at any time; and that News Media would not in any way deal with or jeopardise Alishan’s assets including the Shenzhen Land.

(3)  News Media had not paid any part of the consideration of US$500,000 to All Faith.

43.  In September 2014, the Administrative Bureau for Industry and Commerce of Shaoguan (韶關市工商行政管理局) (“Shaoguan Bureau”) registered the change of Alishan’s shareholder from All Faith to News Media as well as Gu’s appointment as the legal representative of Alishan in place of Huang upon an application filed by Alishan at Gu’s instigation, which was based on the News Media Agreement and supported by corporate documents of Alishan bearing what purported to be Huang’s signatures.

44.  On 22 January 2015, Huang as director of All Faith caused it to start the 2015 PRC Proceedings (which included an application for a pre-trial asset preservation order in connection with the assets owned by Alishan, which was mainly the Shenzhen Land, then valued at RMB 26,046,469) in the Longgang Court against News Media for a declaration that the Shenzhen Land beneficially belonged to All Faith.  On 10 and 18 March 2015, i.e. after Liu was appointed as a director of All Faith on 21February 2015, Liu acting for and on behalf of All Faith applied to the Longgang Court to discontinue/withdraw the 2015 PRC Proceedings on the basis that All Faith wished to explore alternative means of dispute resolution.  It is the Opposing Defendants’ case that Liu’s appointment as a director of All Faith was made to put him in a position to interfere in this way in the 2015 PRC Proceedings in the name of All Faith.  There is no direct evidence of any rulings or directions by the Longgang Court on such applications.  However, enclosed to CP’s letter dated 6 December 2018 to the court mentioned in paragraph 8 above was a notice dated 27 June 2018 issued by the Longgang Court for the trial of the 2015 PRC Proceedings on 27 December 2018, which suggests that the applications for discontinuance/withdrawal made by Liu for All Faith did not succeed.

45.  While the 2015 PRC Proceedings was pending, on 21 September 2016,[13] Huang and All Faith commenced an administrative action (“Shaoguan Administrative Action”) under the reference (2016) 粵2050行初49號against the Shaoguan Bureau at the People’s Court at the Qujiang District, Shaoguan (韶關市曲江區人民法院) (“Qujiang Court”) to set aside the respective registration of News Media and Gu as the shareholder and legal representative of Alishan on the ground that what purported to be Huang’s signatures on the News Media Agreement and the other documents submitted in support of the registration were forgeries.[14]  Although Gu and News Media were joined as third parties, neither took any part in the proceedings.[15]

46.  By a decision dated 29 March 2017, the Qujiang Court found in favour of Huang and All Faith and set aside News Media and Gu’s respective registration as the shareholder and legal representative of Alishan in reliance on the opinion of the court-appointed handwriting expert who concluded that the purported signatures of Huang on the impugned documents were forged.

47.  The Alishan Shares were transferred back from News Media to All Faith on 28 August 2017 and then from All Faith to Shuangchuang on 23 October 2017.  Huang Pin Ching explained the latter transfer in paragraph 63 of her 1^st affirmation herein as follows:

“在2017年8月28日阿里山股權由港澳新聞轉回信全後, 因為阿里山及該土地在香港和內地涉及信全的訴訟未了,對我們就該土地與有興趣的發展商洽談時會造成極大的不便,於是我們決定將阿里山的股權由信全轉到[雙創],即本案的第六被告名下。雙創的原股東及董事張沖是本人的丈夫, 公司並無業務運作。張沖將他持有的雙創股份轉讓到我和我母親陳美蘭的名下, 並由黃偉誠出任雙創董事。” (emphasis added)

48.  News Media’s application for a re-trial of the Shaoguan Administrative Action was dismissed on 29 December 2017.

49.  Also rising from the News Media Agreement is an action commenced by News Media in 2017 at the People’s Court at the Wujiang District, Shaoguan (韶關市武江區人民法院) under the reference (2017) 粵0203民初2597號against Alishan and Shuangchuang with All Faith and Huang as third parties.  There is no evidence before me as to the contents, disposal or status of these proceedings save that it is apparently still going on.

E3.   Concerning the Shenzhen Land

50.  Lastly, in relation to the Shenzhen Land, on 26 January 2014, i.e. prior to the News Media Agreement, Alishan entered into a written agreement (“SZ Hang Mei Agreement”) with SZ Hang Mei and深圳市鼎和投资担保有限公司 (“SZ Ding He Investment”) under which, in return for RMB 1.5 billion, Alishan agreed to transfer the Shenzhen Land to SZ Hang Mei for development by SZ Hang Mei.  SZ Ding He Investment guaranteed both parties’ performance.

51.  Then, on 18 May 2016, i.e. after the date of the News Media Agreement, Alishan entered into (1) a supplemental agreement to the SZ Hang Mei Agreement and (2) another agreement (“SZ Ao Xin Agreement”) with SZ Hang Mei, SZ Ding He Investment and深圳市澳新房地產開發有限公司 (“SZ Ao Xin”) under which SZ Hang Mei assigned all its rights to develop the Shenzhen Land under the SZ Hang Mei Agreement to SZ Ao Xin for RMB 100 million.

52.  According to the Opposing Defendants, these 3 agreements were all signed by Gu purportedly for and on behalf of Alishan without having been authorised to do so by Alishan and using a forged company chop of Alishan.

53.  In November 2017, SZ Ao Xin commenced proceedings against Alishan before the Guangdong Higher People’s Court under the reference (2017) 粤民初90號 for specific performance of the SZ Ao Xin Agreement.  This case is apparently still going on.

F.   THIS ACTION

F1.   Plaintiffs’ claim

54.  Against the aforesaid background, the gist of the Plaintiffs’ case in this action is that:

(1)  Gu became the sole owner of Korchina since 16 January 2017 as set out in paragraph 13 above.

(2)  Korchina never authorised LWL to act on its behalf in CACV 23/2017 or at all.

(3)  Korchina never authorised the making of the Settlement Agreement or the filing of the Settlement Implementation Documents or the CA Consent Summons, all of which could not have been validly or effectively done without the consent of Gu since he became the sole owner of Korchina on 16 January 2017.

(4)  Shuangchuang is and was at all material times Huang’s alter ego and/or nominee, which the Huang Family uses to defeat or circumvent the HCMP 894/2015 Judgment.

55.  The Plaintiffs claim the following declarations:

(1)  that the full interest in and ownership of Korchina has been validly transferred from Wang to Gu since 16 January 2017;

(2)  that the Settlement Implementation Documents had been submitted and filed without the proper authority or consent of the Plaintiffs and All Faith and are hence invalid and ineffective;

(3)  that Huang had been removed as director of All Faith since 21 February 2015;

(4)  that Kwan’s appointment as director of Korchina on 24 October 2017 is valid and effective;

(5)  that any acts purportedly done by LWL on behalf of Korchina at all material times were done without the authority or consent of Korchina and are hence invalid and effective; and

(6)  that the Settlement Agreement was void, invalid and/or ineffective.

56.  The Plaintiffs also seek (1) an order for the Registrar to rectify the information on the Companies Register as it relates to All Faith so that it is consistent with the above declarations as well as (2) permanent injunctions in the same terms as the Injunction.

F2.   Opposing Defendants’ grounds of defence

57.  Insofar as it is material for present purposes and in gist, the Opposing Defendants:

(1)  set out the events summarised in sections C, D and E above and contend that the transactions involving News Media, SZ Hang Mei, SZ Ding He Investment and SZ Ao Xin were all fraudulent attempts by Gu (through these companies which were under his control) to take over the interest in the Shenzhen Land from the Huangs and that the present claim is just another such bogus and fictitious effort by Gu;

(2)  dispute Gu’s claim that he has acquired the Korchina Shares from Wang on 16 January 2017 whether as alleged or at all; and

(3)  plead the following case in defence:

(a)  The HCMP 894/2015 Judgment and the findings and observations made in support thereof were wrong and Chen and Huang had appealed against such judgment in CACV 23/2017.

(b)  Wang was at all material times since 4 December 2013 and still is Korchina’s sole shareholder and director and, as such, authorised to enter into the Settlement Agreement and signed the Settlement Implementation Documents on behalf of Korchina to dispose of CACV 23/2017 before its hearing.

(c)  In this regard, in around April to May 2017, Wang, through one Li Chengwu (李成武), the PRC lawyer who had represented Wang in her appeal against sentence in the Mainland,[16] contacted the Huangs to inform them that Wang wanted to settle her disputes with them so as to end the litigation in Hong Kong.

(d)  Wang acting for herself and, as she was entitled to, for Korchina as its sole shareholder and director, instructed LWL to represent her and Korchina to settle the litigation with the Huangs in Hong Kong.

(e)  On 15 August 2017, pursuant to an agreement to settle CACV 23/2017 (presumably the Settlement Agreement), Wang duly signed inter alia the following then undated documents (included in “Settlement Implementation Documents”) in prison witnessed by Li Chengwu and in the presence of a prison officer:

(i)  instruments of transfer and bought and sold notes transferring the All Faith Shares from Korchina to the Huang Sisters;

(ii)  letter for her resignation as director of All Faith;

(iii)  Form ND4 giving notice of her resignation to be filed with the CR;

(iv)  written resolutions of All Faith approving the transfer of the All Faith Shares to the Huang Sisters as well as Wang and Liu’s resignation; and

(v)  written resolution of Korchina authorising Wang to effect the transfer of the All Faith Shares to the Huang Sisters.

(f)  On 18 August 2017:

(i)  LWL filed the said notice of change of solicitors in CACV 23/2017 to act for Wang, Liu and Korchina in place of W&L; and

(ii)  the transfers of the All Faith Shares from Korchina to the Huang Sisters were effected.

(g)  The Court of Appeal has disposed of CACV 23/2017 by the CA Consent Order made upon the CA Consent Summons.

(h)  The Court of Appeal has also dismissed the CA Setting Aside Summons and the CA Stay Summons, taken out by Korchina, with costs against Korchina.

58.  Huang Pin Ching elaborated on the settlement of CACV 23/2017 in paragraphs 68 to 70 of her 1^st affirmation herein[17] that after Gu fled to the USA, the public security authority in the Mainland began to investigate into his dealings outside of the Mei Dai cyber fraud case.  Such investigation led to Wang, who was serving a sentence of imprisonment because of the Mei Dai cyber fraud case, being approached by public security officers for information about Gu, including the transactions concerning All Faith, Korchina, Alishan, News Media and the Shenzhen Land.  Wang became worried that such investigation would reveal her own role in Gu’s activities outside of the Mei Dai cyber fraud case and lead to further criminal charges being laid against her.  Wang therefore contacted the Huangs through Li Chengwu with a view to returning the ownership and control of All Faith held by Korchina to the Huangs in the hope of severing her connection with these matters so as to avoid any further prosecution or a heavy sentence, if prosecuted.  Wang also got in touch with Liu who had been appointed a director of All Faith, again through Li Chengwu, to ascertain his position.  After contacting the Huangs, on 12 May 2017, Li Chengwu visited Wang in prison to obtain Wang’s signature on various documents including a confession of the same date handwritten by Wang (“Wang’s Confession”) whereby she admitted that Korchina had not given consideration for the All Faith Shares; that the All Faith Shares did not belong to Korchina or Wang; that her boss Gu arranged for Korchina to hold the All Faith Shares on trust for the Huang Sisters; that Wang did sign the Security Documents because the transfer of the All Faith Shares from the Huang Sisters to Korchina was not “a real share transfer”; that Gu subsequently told her to assert that the All Faith Shares were hers and not to return them to the Huang Sisters;  that the witness statement(s) that she had given in HCMP 894/2015 were not true; that she was following instructions in tendering such evidence; that she had since reflected on the matter; that she wished to redeem herself by returning the All Faith Shares to the Huang Sisters; and that she would co-operate by signing all necessary documents for such purpose.  Li Chengwu passed Wang’s Confession to Huang Pin Ching.  LWL also obtained Liu’s instruction to settle CACV 23/2017.  In about mid to end June 2017, the parties’ solicitors completed the drafting of the settlement documents, which LWL then asked Li Chengwu to bring to Wang in prison for her consideration.  On 8 August 2017, the Huangs’ solicitors reported to Huang Pin Ching that, after some delay for reasons that are not relevant for present purposes, Li Chengwu had visited Wang that day.  The draft settlement documents were left with Wang so that she could read and consider them carefully.  Wang further requested that Liu should sign the documents first.  A few days later, the Huangs’ solicitors reported to Huang Pin Ching that, in response to Wang’s request, Liu had signed the settlement documents first and that Li Chengwu had on 15 August 2017 visited Wang in prison again with the documents with Liu’s signature and that Wang had also signed on the same.  On 18 August 2017, the Huangs’ solicitors received all the settlement documents with Wang and Liu’s signatures.  The Huangs themselves appended their signatures on the same day.  (While on the Opposing Defendants’ account of how the Settlement Agreement and the documents relating thereto came to be proposed and signed, I pause to mention that they have not included a copy of the Settlement Agreement in their evidence in opposition to the Summonses.  The significance of this document is apparent.  The Plaintiffs[18] have demanded its disclosure.  I am puzzled by the Opposing Defendants’ steadfast refusal/failure to produce this piece of evidence, which certainly does not assist in their attempt to persuade the court that the Plaintiffs have failed to raise a serious issue to be tried regarding the Settlement Agreement.)

59.  The Opposing Defendants also deny that Shuangchuang was or is Huang’s alter ego or nominee or that the transfer of the Alishan Shares by All Faith to Shuangchuang on 23 October 2017 was made or caused to be made by Huang.  Further, the HCMP 894/2015 Judgment ceased to have effect on Huang and Chen once the Settlement Agreement was concluded and implemented.  The transfer of the Alishan Shares by All Faith to Shuangchuang, which took place after the conclusion and implementation of the Settlement Agreement when Wang and Korchina no longer had any interest in All Faith, could not have been effected in breach of the HCMP 894/2015 Judgment.

F3.   Wang’s position

60.  Although Wang had not filed any defence in this action by the hearing on 7 May 2018, one Li Yanjun (李炎君), a PRC lawyer, has made an affirmation herein on Wang’s behalf to which the following documents were exhibited:

(1)  a handwritten copy of Wang’s Confession with comments said to have been added by Wang on 29 November 2017 and by which Wang basically disclaimed such confession as not reflecting the truth and as having been signed by her under inducement and deception by Li Chengwu;

(2)  record of an interview between Wang and Li Yanjun on 14 December 2017 (“14/12/2017 Interview Record”); and

(3)  Wang’s statement in the form of an affirmation, drafted by Li Yanjun based on the instructions previously given to her by Wang and signed by Wang on 8 January 2018 (“Wang’s Statement”).

61.  Further, as said earlier, Wang had in her own name and that of Korchina commenced proceedings under HCA 2602/2017 against the Opposing Defendants to set aside the transfer of the All Faith Shares by Korchina and her resignation as a director of All Faith under the Settlement Agreement.  They had, before the discontinuance of HCA 2602/2017, applied for an interlocutory injunction.  That application was supported by an affirmation of Li Yanjun dated 14 November 2017 setting out Wang and Korchina’s case in HCA 2602/2017, which has also been adduced as part of the evidence before me.

62.  According to Li Yanjun’s said affirmations herein and in HCA 2602/2017 and the exhibits thereto that emanated from Wang (see paragraph 60 above), Wang claims to have signed all the documents relating to the Settlement Agreement under duress exerted upon her in 2017 by Li Chengwu and others.  The threats were that her prison term could be extended by another 10 years and that she would encounter a lot of trouble in prison if she did not co-operate by signing the documents presented to her by Li Chengwu.  Wang says she believed that Li Chengwu and the others who exerted pressure on her were sent by Huang and Huang Pin Ching to do so.  Regarding who else had coerced her, in HCA 2602/2017, the Shenzhen police was mentioned as a source of duress whereas, in this action, Huang Pin Ching and Zhang Chong are said to have threatened Wang and her parents.  Wang alleges that, as a result of such threats, she signed the documents asked of her by Li Chengwu but only under extreme fear that if she did not do so, her sentence might be extended for 10 years and she might even be abused in prison and her personal safety would be jeopardised.  In this regard, in addition to the Settlement Implementation Documents, she also signed Wang’s Confession which she first had to copy in her own hand from a draft shown to her by Li Chengwu and a letter of appointment issued in the name of Korchina for the retention of LWL to handle the litigations in Hong Kong concerning All Faith and Korchina.

63.  As for Gu’s allegation that she had on 16 January 2017 transferred the Korchina Shares to him, Wang has not in the evidence filed on her behalf so far directly dealt with such assertion.  See further paragraph 80 below.

G.  QUESTIONS TO ASK IN DECIDING WHETHER TO GRANT OR REFUSE INTERLOCUTORY INJUNCTION

64.  The principles governing the grant or refusal of interlocutory injunctive relief are well established.  I start with Lord Diplock’s speech in American Cyanamid Co v Eithicon Ltd [1975] AC 396 (HL) at 407F-409D which, as explained by Ribeiro JA (as he then was) in Wah Nam Holdings Co Ltd v Excel Noble Development Ltd [2000] 3 HKC 118 at [28]-[32], guides the court to ask the following questions in deciding whether it is just or convenient to grant an interlocutory injunction:

(1)  whether there is a “serious question to be tried”;

(2)  if so, whether, if the plaintiff were to succeed in obtaining a permanent injunction at trial, it could adequately be compensated by an award of damages in respect of any loss which it might suffer by reason of the defendant continuing to act unrestrained pending the trial;

(3)  if not, whether the defendant would be adequately protected by the plaintiff’s cross-undertaking in damages should it be later found that the plaintiff should not have been granted an interlocutory injunction; and

(4)  if there is doubt as to the adequacy of the respective remedies of damages, where the balance of convenience lies.

H.   SERIOUS ISSUE TO BE TRIED

65.  In assessing whether there is a serious issue to be tried, the prospects of the plaintiff’s success are to be investigated to a limited extent only.  The demonstration of a serious issue to be tried is not “a very steep hurdle”: Re Full Billion Shipping Ltd [2003] 2 HKLRD 674, per Chu J (as she then was) at [28].  All that is required is the plaintiff has prospects of success which, in substance and reality, exist.  It does not matter whether the court thinks that the plaintiff’s chance of success at trial are 90% or 20%: AXA China Region Insurance Co Ltd v Pacific Century Insurance Co Ltd [2003] 3 HKC 1, per Deputy High Court Judge To (as he then was) at [24].  Odds against success do not defeat the plaintiff, unless they are so long that he can have no expectation of success, but only a hope.

66.  Conversely, if the opposing party argues there is no series issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out: Yifung Properties Ltd v Manchester Securities Corp, CACV 258/2015, unreported, 9 September 2016, per Kwan JA at [20].

67.  While the threshold of establishing a serious issue to be tried is not high, Mr Paul Shieh SC (leading Ms Gekko Lan) for the Opposing Defendants stressed that there must be proper evidential basis to support the plaintiff’s claim.  Reference was made to Commercial Litigation: Pre-emptive Remedies, §A1-046:

“It is open to the court to decide that there is not a serious issue to be tried if the material available at the interim hearing fails to disclose that the applicant has any real prospect of succeeding in his action for a permanent injunction at the trial.  In this context, Lawton LJ said in Tetrosyl Ltd v Silver Paint and Lacqueur Co Ltd: “A serious question… can only arise if there is evidential backing for it."…”

68.  Mr Shieh also reminded me of what I said in Golden Miles Group Holdings Ltd v Jacob & Co Ltd[2018] HKCFI 441at [89],

" 89.    While the court hearing an interlocutory application on affidavit discourages parties from dwelling incessantly on disputes of fact that cannot be resolved on paper, for the purpose of demonstrating a serious issue to be tried of a factual nature as the threshold for the grant of an interlocutory injunction, of which the question whether the plaintiff submitted to the defendant claims for marketing expenses that were false is one, it is in my view insufficient for the plaintiff to just barely deny the defendant’s allegation and expect the court to be prepared to assume that it would at the trial be in a position to adduce some substantive evidence that might tend to give credence to its denial.  In short, a serious issue to be tried need to be raised/dismissed by concrete evidence, not just a bare allegation or denial.”

69.  By way of illustration, in Golden Miles, the plaintiff sought a permanent injunction to restrain the defendant from acting in breach of the distribution agreement between them, thereby raising an issue as to whether the defendant’s termination of such agreement was wrongful.  The defendant invited the court to hold that there was no serious issue that the plaintiff would succeed in its claim for wrongful termination of the agreement or for a permanent injunction because the defendant was entitled to and did exercise its common law right to terminate the agreement by accepting the plaintiff’s repudiation of the same.  The plaintiff was said to have repudiated the agreement by dishonestly providing the defendant with fraudulent, bogus or exaggerated claims for marketing expenses to attempt to extract payment from, or deny payment due from it to, the defendant.  I found that the problems identified by the defendant in respect of some of the plaintiff’s claims for marketing expenses did appear to be supported by direct objective evidence or information obtained from identified third parties through enquiries made by the defendant’s solicitors who had gone on oath to verify such enquiries and the results thereof.  However, the plaintiff had not adduced any specific contradictory evidence save in relation to one claim.  All that the court was left with was the plaintiff’s standard statement in the opening paragraphs of its affirmation in reply that any allegations by the defendant that had not been specifically responded or objected to by the plaintiff should not be construed as an admission.  On such state of the evidence, I came to the conclusion that the evidence placed before me by the plaintiff did not disclose a serious issue that it had submitted false marketing expenses claims to the defendant.[19]

70.  Whether the threshold for a serious issue to be tried has been crossed in each case essentially depends on its own facts, circumstances and evidence.

71.  Turning to the present case, the Plaintiffs question:

(1)  the existence of the Settlement Agreement;[20] or

(2)  alternatively, its validity on the grounds:

(a) that it was obtained by duress exerted on Wang, based on her description of the circumstances under which she executed such agreement and the documents for the implementation of the same;and/or

(b) that Wang lacked authority to bind or act for Korchina in which she had ceased to be interested having regard to the 16/1/2017 Transfer.

72.  It is unnecessary for me to discuss whether a serious issue to be tried is raised by each of the said 3 premises underlying the Plaintiffs’ case.  I propose to focus just on the 16/1/2017 Transfer as it goes, not only to one of the bases upon which the Plaintiffs seek to upset the Settlement Agreement, but also to the more fundamental question as to whether this action has been properly authorised insofar as Korchina is concerned.

73.  Indeed, the main plank of the Opposing Defendants’ submission that the present application for interlocutory injunction fails in limine because the Plaintiffs fail to raise a serious question to be tried was the inherent incredibility of, and the poor quality of the evidence on, the Plaintiffs’ allegation of the 16/1/2017 Transfer.

74.  The detailed points made by Mr Shieh in support of such submission can be summarised as follows.  First, the Plaintiffs’ case on the Loans, Wang’s guarantee, the Repayment Agreement and the 16/1/2017 Transfer rests entirely on Kwan’s bare, and essentially hearsay, assertions.

(1)  Gu himself has not deposed to any details on how the Loans, Wang’s guarantee or the Repayment Agreement came about.  He saw fit to simply adopt what was said in paragraphs 4 to 17 of Kwan’s 1^st affirmation dated 1 November 2017.  However, Kwan apparently only came into the picture in late 2017 and therefore does not and could not possibly have any personal knowledge of these matters.

(2)  In any event, Kwan’s 1^st affirmation contained only minimal detail (which has already been set out in paragraph 13 above).  There was no reference to any terms of the agreement for the Loans or Wang’s guarantee.  Nor was there any mention of any of the background leading to Korchina’s request for the Loans from Gu or Wang’s agreement to stand as surety, which is curious given that the Loans were allegedly intended for investing in Sing Pao which Gu being the chairman should be the person who was interested in its restructuring, not Wang or Korchina which is a company with no business on its own.

(3)  Further, Kwan’s rather bare account was not supported by any documents that one would expect to see, such as the agreement(s) for, or some written records of, the Loans or Wang’s guarantee or any bank records proving the actual advancement of the Loans.

75.  Second, Sing Pao defaulted on the Loans from Korchina back in 2015.  There is no reason why it would only occur to Gu in 2017 to try to recover the Loans.

76.  Third, regarding the Repayment Agreement:

(1)  Gu agreed to take the Korchina Shares in satisfaction of Wang’s obligation as guarantor to repay the Loans supposedly because Korchina holds valuable assets, including the All Faith Shares.  Actually, Korchina does not appear to have any other assets of value at all.

(2)  The value of the All Faith Shares lies in All Faith’s holding of the Alishan Shares.

(3)  However, on Gu’s own case and on his own procurement, such valuable underlying asset of All Faith had already been transferred away from All Faith to News Media in 2014 (see paragraphs 41 and 43 above).  And the registration of News Media at the Shaoguan Bureau as the shareholder of Alishan was not set aside until 29 March 2017 when the Qujiang Court ruled for All Faith in the Shaoguan Administrative Action.

(4)  Therefore, as of January 2017, the supposed underlying valuable asset of Korchina namely, the Alishan shares (indirectly held through All Faith) was no longer under Korchina.  The value of the Korchina Shares as at January 2017 was, on Gu’s own procurement, nil.  Gu’s reason for wanting the Korchina Shares therefore cannot stand.

(5)  When Huang Pin Ching pointed this out in in paragraph 79(4) and (5) of her 1^st affirmation, Gu then asserted in paragraph 11 of his 3^rd affirmation dated 10 January 2018 that the acquisition of Korchina would enable him to take the initiative in future litigations.[21]

(6)  This was not Gu’s original reason for agreeing to take Korchina as repayment of the Loans.  (It is also unclear to me what future litigations about the shareholdings of All Faith and Alishan and involving Korchina that Gu could have in mind back on 16 January 2017.  In Hong Kong, the notice of appeal in CACV 23/2017, to which Korchina was a respondent, was not lodged until 27 January 2017, which was 11 days after the 16/1/2017 Transfer.  In the Mainland, Korchina was not involved in any of the legal proceedings mentioned in sections E2 and E3 above.)

77.  Fourth:

(1)  The Repayment Agreement (namely, the 16/1/2017 Transfer in repayment of the Loans) could on the Plaintiffs’ own case be proposed and agreed upon, and the 16/1/2017 Transfer Documents and the 16/1/2017 Transfer Resolution could be signed, by Wang only while she was in prison because Gu allegedly became worried about Wang’s ability to repay after she was sentenced to imprisonment in May 2016.

(2)  Also, apart from the date of 16 January 2017 appearing on the 16/1/2017 Transfer Documents, the Plaintiffs have not specified any other possible dates on which the Repayment Agreement was reached or the 16/1/2017 Transfer took place.

(3)  One can therefore only proceed on the basis that these things all happened on 16 January 2017.

(4)  It is also the Plaintiffs’ case that the Repayment Agreement was reached between Gu and Wang directly, and not through any middleman.

(5)  However, it is undisputed that Gu has gone to, and been living in, the US since March 2016.  He in fact sought asylum there. He could not have returned to China to personally make the Repayment Agreement with Wang.

(6)  It is also undisputed that Wang has been incarcerated in the Mainland since May 2015 and has remained so in January 2017.

(7)  Thus, it is simply impossible for Gu and Wang to have met such that they could have reached the Repayment Agreement or for Wang to have signed on the 16/1/2017 Transfer Documents or the 16/1/2017 Transfer Resolution and to have given them to Gu.

78.  Fifth, Gu did not cause the 16/1/2017 Transfer Documents to be stamped and registered with CR until 10 months later on 24 October 2017.  His explanations are that he “did not want to get involved” in, and was prepared to wait until the conclusion of, CACV 23/2017 and that, given Wang and Korchina’s success in HCMP 894/ 2015, he had no reason to get involved in the appeal therefrom.  Such explanations defy common sense and are thus unbelievable. First, as said earlier, the notice of appeal in CACV 23/2017 was not lodged until 11 days after the 16/1/2017 Transfer.  Second, after the appeal was lodged, it would be even more crucial for Gu to take steps to protect his interest in Korchina.  If Huang and Chen were to succeed in the appeal, Korchina would have to return its only valuable asset, namely the All Faith shares, back to the Huangs.  If what Gu said was true, there is no reason why he would have left CACV 23/2017 to be handled by Wang who had, by reason of the 16/1/2017 Transfer, ceased to have any interest in Korchina and thus the appeal and who, being in jail in the Mainland, should be the last person Gu would have trusted to handle CACV 23/2017 in Hong Kong.

79.  Sixth, the Plaintiffs’ case on the 16/1/2017 Transfer is contradicted by Wang’s repeated assertions that she was the shareholder of Korchina, and attempts to act for Korchina, after 16 January 2017. For instance:

(1)  By a委托書dated 31 October 2017, Wang appointed Li Yanjun to act as her and Korchina’s attorney in all legal matters and litigations involving her and Korchina.  In this document, Wang described herself as the shareholder of Korchina.

(2)  Wang went so far as to commencing HCA 2602/2017 and joining Korchina as a co-plaintiff on 14 November 2017 to set aside the transfer of the All Faith Shares and her resignation as a director of All Faith under the Settlement Agreement.  See paragraph 40 above.  It would have been peculiar for Wang to do so if she had already parted with the Korchina Shares on 16 January 2017 as alleged by Gu.  Indeed, in paragraph 5(a) of Li Yanjun’s affirmation filed on 14 November 2017 on behalf of Wang and in support of her application for an interlocutory injunction in HCA 2602/2017, Wang was introduced as “the beneficial owner of all the shares in [Korchina]”.

(3)  By a couple of other委托書both dated 5 December 2017, Wang appointed ELWL and its partners to act as her legal representatives in respect of inter alia all disputes relating to the shareholdings and control of Korchina and All Faith and to commence legal proceedings to trace and recover the assets of Korchina and All Faith.

80.  These are all criticisms/questions that one can legitimately and fairly make against/raise on the Plaintiffs’ case and evidence on the 16/1/2017 Transfer.  However, while they may provide ample material for the Opposing Defendants to cross-examine Gu and Wang on the 16/1/017 Transfer and while Gu would have to address these points at the trial of this action, at this stage and on the state of the evidence before me, I do not see them as so forceful as to support the conclusion that the Plaintiffs’ claim is liable to be struck out (see paragraph 66 above).

81.  Whether or not there is a serious issue to be tried must be assessed in the light of the whole body of evidence before the court.  Here, in particular, one cannot ignore what Wang, the other party to Wang’s guarantee, the Repayment Agreement and the 16/1/2017 Transfer, has said or, rather conspicuously not said.  I have already mentioned in paragraph 63 above that Wang has not in the evidence filed on her behalf directly dealt with Gu’s allegation that she had on 16 January 2017 transferred the Korchina Shares to him.  Instead, in Wang’s Statement, she touched upon the matter of the Korchina Shares only as follows:

“23. 至於谷卓恒在本案告我一事，我是不知情的。後來經李焱君律師解釋後，我了解因早前我及韓中文化拖欠谷卓恒債務，所以我把韓中文化的股份轉讓了給他抵債，及後皆因我辭去信全董事，以及轉讓信全股份、與黃偉誠、黃品靜和解，谷卓恒才起訴我對我申報了禁制令。我在此再次明確，我沒有真正做損害韓中文化、信全的事情，完全是因為被欺騙脅迫所為，委託李黃林，轉讓信全股份，與黃偉誠、黃品靜、陳美蘭的所謂和解均是非法無效的。當時我亦明白，因此通知了李焱君律師中止該禤氏案件。” (emphasis added)

“25. 李焱君律師向我解釋，所有這些香港案件的爭議重點，是誰擁有韓中文化的股權，從而控制韓中文化的董事局，再從而控制信全，以達到處置信全持有的重要資產，即阿里山味的股權。而阿里山味則持有一塊位於深圳坪山的土地專案。我明白並願意澄清事實。” (emphasis added)

“29.綜而觀之，所有的爭議均是與韓中文化、信全及阿里山味的股權有關的。而我被捲入此等案件當中的原由，因為我是(或曾經是)韓中文化的登記股東及董事及信全的董事。” (emphasis added)

82.  Ms Audrey Eu SC (leading Messrs Alan Kwong and Martin Kok), counsel for the Plaintiffs, read the above emphasised words of paragraph 23 of Wang’s Statement as evidence from Wang confirming the 16/1/2017 Transfer.

83.  I beg to differ.  I agree with Mr Shieh that, read plainly and naturally, Wang was there just stating what she understood, after Li Yanjun’s explanation, to be the case made against her by Gu in this action.  If Wang were asserting the primary fact of the 16/1/2017 Transfer, she would not preface it by saying that Li Yanjun has explained to her such matter.  

84.  However, what does strike me as peculiar about Wang’s Statement is that it was expressly spelt out in paragraphs 23, 24 and 29 thereof that it had been explained to Wang, and she understood, that one of the issues in this action is who owns the Korchina Shares and that such issue arises because of Gu’s allegation that she had on 16 January 2017 transferred the Korchina Shares to him in settlement of certain loans due from Korchina to Gu.  One would expect Wang to take the opportunity to put on the record her disagreement if this part of the Plaintiffs’ case were not true.  She did not do so.  She merely said she understood the Plaintiffs’ case. Indeed, the words in brackets in the last sentence of paragraph 29 of Wang’s Statement, i.e. (或曾經是), seem to me to leave open the possibility that Wang had ceased to hold the Korchina Shares.

85.  Likewise, none of the questions or answers in the 14/12/2017 Interview Record referred to the 16/1/2017 Transfer.  Quite to the contrary, the following question (pre-typed) and answer (handwritten) were recorded:

“問:您所持有的韓中文化投資有限公司股份及間接持有的信全有限公司股份, 您2015年4月21日簽署過委託書給公司嗎? 2017年10月31日簽署的代持協議及轉讓書丶買賣單據是你的真實意思表示嗎?

答:有簽署,是我的真實意思表示,(只有轉給沈威的相關文件才是我的真實意思)。” (emphasis added)

86.  It can be seen that Wang was specifically asked by Li Yanjun about her shares in Korchina and All Faith with reference to (1) a 委托書 dated 21 April 2015 and (2) certain 代持協議及轉讓書and買賣單據 which she signed on 31 October 2017 and which she confirmed to be documents for a transfer in favour of Shen, Gu’s wife, and reflecting her true intention.  These transactions had apparently been made known to Li Yanjun before the interview on 14 December 2017.  Otherwise, the said question could not have been prepared in advance.  Such question and answer do not appear to me to sit well with Wang having transferred the Korchina Shares to Gu on 16 January 2017, as alleged by the Plaintiffs.

87.  On the other hand, as mentioned in paragraph 60(1) above, Wang added certain comments on a handwritten copy of Wang’s Confession to disown such document on 29 November 2017.  They were:

“該文字是本人抄寫複印件文稿,非本人自意,當時也受李成武律師的哄騙下簽寫的,與真實內容不相符,股權實屬公司所有,我並不知公司任何運營,都是老闆和老闆娘操作” (emphasis added)

88.  I read the expressions “公司”, “老闆” and “老闆娘” in the underlined sentences to be references to Korchina, Gu and Shen respectively.  The statement by Wang that she had no knowledge of any of the operations of Korchina which were all handled by Gu and Shen may suggest that Wang actually has had no beneficial interest in Korchina.  At the same time, I am mindful that it is not the Plaintiffs’ case that Wang holds or at any material times held the Korchina Shares only on trust for Gu.o

89.  In short, the evidence emanating from Wang, which raises more questions that it answers, reinforces that there is a serious issue to be tried as to the 16/1/2017 Transfer.

90.  Golden Miles, supra, upon which the Opposing Defendants relied, is in my view distinguishable on the facts. 

91.  This should be sufficient to satisfy the “serious issue to be tried” aspect of the test.

I.  ADEQUACY OF DAMAGES & BALANCE OF CONVENIENCE

92.  In considering the adequacy of damages and then weighing the balance of convenience:

(1)  If damages would be an adequate remedy for the plaintiff, and the defendant would be in a position to pay them, no injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage.

(2)  If the defendant would be adequately compensated by the plaintiff’s undertaking as to damages and the plaintiff would be in a position to pay them, there would be no reason on this ground to refuse the injunction.

(3)  Where the question of balance of convenience arises:

(a)  Where other matters are evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo.

(b)  The extent to which the disadvantages to each party would be incapable of being compensated if he succeeds at the trial is always a significant factor in assessing where the balance of compensation lies.

(c)  If the extent of the uncompensatable disadvantage to each party would not differ widely, it may not be improper to take into account in tipping the balance the relative strength of each party’s case as revealed by the affidavit evidence adduced on application.  This however should be done only where it is apparent upon the facts disclosed by evidence to which there is no credible dispute that the strength of one party’s case is disproportionate to that of the other party.

See Fellowes & Son v Fisher [1976] 1 QB 122, per Browne LJ at 137, cited in Hong Kong Civil Procedure 2019, Volume 1, paragraph 29/1/11.

93.  Ultimately, the court should take whichever course which appears to carry “the lower risk of injustice if it should turn out that it is wrong” in granting an interlocutory injunction: Music Advance Ltd v Incorporated owners of Argyle Centre Phase I [2010] 2 HKLRD 1041, per Ma J (as the Chief Justice then was) at [12(d)].

94.  As noted above, the value of the All Faith Shares lies in All Faith’s holding of the Alishan Shares.  The worth of the Alishan Shares, in turn, lies in Alishan’s holding of the Shenzhen Land.  Paragraph 63 of Huang Pin Ching’s 1^st affirmation (quoted in paragraph 47 above), which explained that the transfer of the Alishan Shares from All Faith to Shuangchuang was effected so as to facilitate the Opposing Defendants’ negotiations relating to the Shenzhen Land with interested developers before the conclusion of the legal proceedings about the Alishan Shares and the Shenzhen Land in Hong Kong and the Mainland, strongly suggests that, without the restraint of interlocutory injunctive relief, the Plaintiffs would be exposed to a risk of loss of the Shenzhen Land through further dealings with the All Faith Shares or the Alishan Shares by the Opposing Defendants before the end of these proceedings.  And on the Opposing Defendants’ own evidence (contained in paragraph 4 of Huang Pin Ching’s 1^st affirmation), the Shenzhen Land has a current market value of RMB 1.9 billion.[22]  Although this figure was given without the support of any professional valuation, the Plaintiffs do not appear to dispute the Opposing Defendants’ estimate of the value of the Shenzhen Land.

95.  There is however no evidence of any of the Opposing Defendants’ financial position in Hong Kong.  None of them have deposed to ownership of any assets in Hong Kong against which an award of damages in favour of the Plaintiffs after trial could be enforced through the process of this court.  Damages may be an illusory remedy if there is any doubt about the defendant’s ability to pay damages (Union (V-Tex) Shirt Factory Ltd (in liquidation) v Union V-Tex Realty Ltd [1985] 2 HKC 617 and Yeko Trading Ltd v Chow Sai Cheong Tony [2000] 2 HKC 612).

96.  On the other hand, from the Opposing Defendants’ point of view, interlocutory injunctive relief in the terms of the Injunction would prevent them from immediately realising the Shenzhen Land either by a direct disposition or via a sale of the Alishan Shares, which may expose them to a risk of loss of part of the value of such propriety should the Shenzhen property market turn downwards by the time this action is resolved.  While no one has a crystal ball, property markets do go up and down.

97.  I have already mentioned in paragraph 2 above that Gu has, in compliance with the undertaking given to the court at the hearing on 10 November 2017 to substantiate the assertion that he is good for the cross-undertaking of damages, by his 2^nd affirmation disclosed his holding of the Ding He Mining Shares which are Hong Kong listed shares with a market value of HK$5,573,058 on 17 November 2017.  Moreover, Gu has offered not to remove the Ding He Mining Shares out of the Kingston Account or otherwise dispose of or deal with such shares while the Injunction is in place.  See paragraph 7 of Gu’s 2^nd affirmation.

98.  This is, unfortunately, a very one-sided, if not misleading, presentation of Gu’s financial position in Hong Kong.  Leaving aside the dispute of whether the Kingston Account is a margin account so that the Ding He Mining Shares are in any event pledged to secure Gu’s liability for margin facilities advanced to him by Kingston, the Opposing Defendants have unearthed the writs of summons in following 3 actions in Hong Kong in which Gu is being sued for repayment of outstanding debts totalling HK$113 million in principal:

(1)  HCA 1038/2017 commenced by a Tang Wai Kuen on 28 April 2017 for repayment of an outstanding loan of HK$3 million plus interest pursuant to a loan agreement dated 8 October 2015;

(2)  HCA 1054/2017 commenced by Kingston on 2 May 2017 for repayment of an outstanding loan of HK$100 million plus interest pursuant to a loan agreement dated 4 February 2016; and

(3)  HCA 1074/2017 commenced by one Asia Honest Finance Ltd on 5 May 2017 for repayment of an outstanding loan of HK$10 million plus interest pursuant to a loan agreement dated 4 February 2016.

99.  In response, Gu only saw fit to volunteer:[23]

(1)  that as he had carried on business in Hong Kong, there is nothing usual for him to become involved in disputes and litigations;

(2)  that his having been joined as defendant in certain civil proceedings in Hong Kong is neither here nor there;

(3)  that he personally considers the causes of action against him in the 3 cases to be very weak but he would not go into any detail as these proceedings have nothing to do with this action; and

(4)  that the 3 actions have just been commenced in 2017 and have not resulted in any judgment against him so that their existence and pendency has no effect on his cross undertaking as to damages in this action.

100.  I find the said way in which Gu has dealt with these 3 sizable monetary claims against him not helpful at all.  The court is often not in a position to make a finding that an interlocutory injunction has caused loss to the defendant or come to a decision that the defendant should be compensated for such loss until after the trial of the action.  The purpose of Gu’s 2^nd affirmation is to inform and satisfy the court that Gu has the necessary financial standing to honour the cross-undertaking of damages, if called upon to do so.  The fact that Gu might potentially be adjudged liable under other pending lawsuits for repayment of principals and interests in sums far in excess of the value of the Ding He Mining Shares, his only disclosed asset within the jurisdiction, creates the appreciable risk that other judgment creditors of Gu might get to such shares first before the Opposing Defendants could obtain an award of damages in their favour under the Plaintiffs’ cross-undertaking of damages after the trial of this action.  The plaintiff’s undertaking as to damages may be an illusory remedy for the defendant if there is any doubt about the plaintiff’s ability to pay damages.

101.  Given the considerable doubt as to the adequacy of the respective remedies of damages, the question of balance of convenience does arise.

102.  Given the wide disparity in the extent of the uncompensatable disadvantage to each party (i.e. loss of the Shenzhen Land for the Plaintiffs versus possible drop in value of the Shenzhen Land in the event of a downward market for the Opposing Defendants) and the complete absence of any or any known asset whatsoever of the Opposing Defendants within the jurisdiction that may be amenable to enforcement of an award of damages to bridge the gap between the uncompensatable disadvantage to each party to any extent, subject to the following discussion on material non-disclosure and subject to a consideration of whether fortification of the Plaintiffs’ cross-undertaking as to damages should be required in light of their questionable financial standing in Hong Kong, the balance of convenience lies in favour of a continuation of interim interlocutory injunctions against the Opposing Defendants.

103.  That this is so is reinforced by the fact that the continuation of the injunctions against the Opposing Defendants would preserve the status quo, even though this is not a case where the balance is even.

J.   MATERIAL NON-DISCLOSURE

104.  As stated in paragraph 1 above, in the absence of service on, or notice to, the targeted defendants, the hearing on 10 November 2017 proceeded on an ex parte basis.  It is trite that parties seeking ex parte relief must make full and frank disclosure of all material facts.  The material facts are those that it is material for the judge to know in dealing with the application as made.  Materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers.  See Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350, per Ralph Gibson LJ at 1356G-1357B, applied, for instance, by Madam Justice Au-Yeung in XY, LLC v Jesse Zhu, HCMP 869/2014, unreported, 13 November 2015, at [38].  However, it is not necessary to demonstrate that had the alleged material facts been disclosed to the court, the court would necessarily or likely have arrived at a different decision.  The requirement of materiality does not require that the disclosure of the relevant facts would have altered the decision of the Court.  See, again, XY, LLC v Jesse Zhu, at [41], following Behbehani v Salem [1989] 1 WLR 723 at 729E-F.

105.  A major complaint of the Opposing Defendants under this heading is the Plaintiffs’ failure to disclose the fact that he is only worth HK$5,000,000 odd in the form of the Ding He Mining Shares and, more seriously, the 3 pending claims against Gu listed in paragraph 98 above which facts, Mr Shieh said, were material to the court’s assessment of the Gu’s financial ability to give a credible undertaking for damages.[24]

106.  It is well settled that information relevant to assessing if the plaintiff is good for damages on the cross-undertaking is a material fact which must be disclosed on an ex parte application: see Gee, Commercial Injunctions, 6^th edition, §11-023.

107.  In Wah Nam holdings Co Ltd v Excel Noble Development Ltd, supra, the Court of Appeal upheld a decision by the judge at first instance releasing the defendants from certain undertakings in lieu of injunctions given by them at a hearing which was effectively ex parte although nominally on notice, on the ground that they had been obtained in circumstances involving material non-disclosure on the part of the plaintiffs regarding their adverse financial condition, material to their ability to honour the cross-undertaking in damages.  As explained by Ribeiro JA, at 126A-129I, the requirement that a plaintiff must provide a cross-undertaking in damages is a necessary part of the mechanism for granting interlocutory injunctions.  It is a safeguard for the defendant that enables the court to grant the plaintiff an order for interim restraint without the merits having been canvassed.  For such safeguard to be real and not illusory, the plaintiff must obviously be able to honour it if required.  Where a cross-undertaking is given to the court, if nothing further is said, the court will take the plaintiff to be impliedly representing that his financial position allows him to meet his potential liability thereunder.  Hence, if a plaintiff’s financial position is such that, viewed fairly, it may be said to raise realistic doubts as to his ability to honour the cross-undertaking, it becomes incumbent upon the plaintiff to make full and frank disclosure of his financial position to the ex parte judge so as to permit the judge to determine for himself the correct order to make in the light of such disclosures.  The judge in such cases has various options.  He may consider it proper to refuse to grant the injunction altogether.  Or, he may decide to require fortification of the cross-undertaking as a condition for the grant of the injunction.  Or, he may simply grant the injunction against the cross-undertaking notwithstanding the risk that it may not be honoured or fully honoured if called upon.  It is however crucial that all relevant material be placed before the judge so that he can make the decision for himself.  It does not avail a plaintiff under a duty to make disclosure, to say that his non-disclosure was inadvertent or that if the ex parte judge had been told of his financial difficulties, he would nonetheless have granted the ex parte injunction.  What matters is that full disclosure is made to enable the judge to make the decision for himself.

108.  See also Cheung Kam Wah v Cheung Hon Wah[2005] 1 HKC 136, in which Woo VP said at [28]:

“It seems to us clear, therefore, that it is incumbent on an applicant for interlocutory injunction ex parte to make full and frank disclosure of his financial position to demonstrate that he is able to honour his undertaking in damages where on the evidence the applicant’s financial position, viewed fairly, may be said to raise realistic doubts as to his ability to honour his cross-undertaking. This is particularly so where the circumstances give rise to a real risk of substantial and not purely insignificant loss that may be suffered by the respondent.”

109.  It should be apparent from paragraph 100 above that I take the view that the existence and pendency of the 3 claims against Gu listed in paragraph 98 above, viewed fairly, raises realistic doubts about the credibility of the Plaintiffs’ cross-undertaking in damages.  They should have been, but were not, disclosed by the Plaintiffs at or before the ex parte hearing on 10 November 2017.

110.  In answer, in paragraph 27.1 of her skeleton argument dated 2 May 2017, Ms Eu highlighted the following 2 matters:

(1)  that the court was content at the hearing on 10 November 2017 to accept an undertaking from Gu to file an affirmation of means within 14 days, which undertaking was duly complied with by the filing of Gu’s 2^nd affirmation; and

(2)  that Gu has confirmed that he will fortify his undertaking as to damages, if so required by the court.

111.  Neither of these matters assists the Plaintiffs.

(1)  First, there was before the court at the hearing on 10 November 2017 Gu’s sworn statement that he has the ability to satisfy the Plaintiffs’ cross-undertaking as to damages.   The court relied and acted on such statement in granting the Injunction without requiring any fortification.  I fail to see how the fact that the court spotted the absence of evidence in support of such statement and required such gap in the evidence to be filled after the hearing could relieve the Plaintiffs of their obligation to make full and frank disclosure of all the facts and circumstances material to an assessment of the credibility of their cross-undertaking as to damages at or before the ex parte hearing.

(2)  Second, as Woo VP observed in Cheung Kam Wah, supra, at [72], the requirement of full and frank disclosure should not be brushed aside as unnecessary for compliance because of a late offer of fortification.

112.  On material non-disclosure, Ms Eu also referred to Sir Nicholas Browne-Wilkinson VC’s judgment in Dormeuill Frères SA v Nicholian Ltd [1988] 1 WLR 1362, in which his Lordship advised at 1369G-1370E that in the ordinary case it was wrong on the hearing of an inter partes motion to go into the huge complexities involved in seeking to disentangle at that stage whether there was full disclosure when the ex parte order was obtained and that an application to set aside an ex parte order on the ground of material non-disclosure should normally be  adjourned to be dealt with at the trial. 

113.  In Dormeuill Frères SA, the ex parte order sought to be set aside for material non-disclosure was an executed Anton Piller order.  The allegedly non-disclosed material facts included principally that it was impossible to tell whether or not the goods in question were genuine.  The total evidence of allegation and cross allegation amounted to some 750 pages.  The defendant accepted that there would have to be some form of injunctive relief until trial.   The only relevance of the question as to whether or not the ex parte order should be set aside was to determine whether the plaintiffs were liable on their cross undertakings in damages.

114.  In contrast, in the present case, the Plaintiffs clearly failed to disclose their questionable financial standing.  There is simply no point in delaying the decision on the question whether they were guilty of material non-disclosure in the making the ex parte application for the Injunction by adjourning it to the trial judge.

115.  As a general rule, the court will discharge an injunction and refuse to renew order until trial upon finding material non-disclosure: see, for instance, China Shanshui Cement Group v Zhang Caikui, HCA 2880/2015, unreported, 18 July 2017, per G Lam J at [47]. As explained by Scott J in Manor Electronics Ltd v Dickson [1988] RPC 618 at 623:

“The court is always very vulnerable when ex parte applications are made. The court has no alternative but to rely on the disclosure made by the applicant for the ex parte relief. There is no other source of information. Full disclosure is assumed and is a condition on which ex parte relief is granted. If subsequently it becomes apparent that there has not been full disclosure the practice of the courts is without more ado to discharge the ex parte orders.”

And at 624:

“If there was inadequate disclosure then the ex parte orders ought not to have been made and ought at once to be discharged. It is no answer to say that the orders improperly obtained have in fact been fruitful. The practice of the courts when material non-disclosure has attended the obtaining of an ex parte injunction is to discharge the order without going into the merits. That is a salutary and necessary rule of practice ...”

116.  That said, where material non-disclosure is established, the court does have a discretion whether to discharge the injunction or, where full disclosure is made at the inter partes hearing, to continue the injunction or to discharge and immediately re-grant substantially the same injunction.  It will consider factors including: whether the non disclosure was innocent or deliberate; the excuse or reason for the material non-disclosure; and the importance of the omitted fact to the issues which were to be decided by the judge, in particular whether the non-disclosure would have resulted in the original order not being made in the first place.  See, for example, Yau Chiu Wah v Gold Chief Investment Ltd, HCA 807/2001, unreported, 15 May 2001, per Recorder G Ma SC (as the Chief Justice then was) at pages 23-24.

117.  Given Gu’s attitude, as summarised in paragraph 99 above, the court is not at all assisted on whether the non-disclosure was innocent or deliberate or provided with any acceptable excuse or reason for the non-disclosure.  But for a peculiar twist in the present case, I am satisfied that the Injunction, as against Huang and Chen, should be discharged for material non-disclosure and not be re-granted.

118.  The twist is that the material non-disclosure only tainted the ex parte hearing on 10 November 2017 and the Injunction granted thereat against Huang and Chen.  However, the court has, at the subsequent inter partes hearing on 24 November 2017 and 18 January 2018, also granted identical/similar interim interlocutory injunctive relief against Shuangchuang.  All the Opposing Defendants were represented by counsel at the second-mentioned inter partes hearing.  And they had, by Huang Pin Ching’s 1^st affirmation, laid the 3 pending lawsuits against Gu before the court before such hearing. 

119.  The subject matter of protection under the first paragraph of the Injunction, i.e. the Alishan Shares, are now vested in Shuangchuang, and not All Faith.  It should be clear from the discussion above that I am of the opinion that the interlocutory injunctive relief against Shuangchuang should be continued until trial.  However, Shuangchuang is owned and controlled by the Huangs.  In particular, Huang and Chen are respectively the sole director and a shareholder of Shuangchuang and therefore in the position to cause Shuangchuang to act in relation to the Alishan Shares.  To enhance, if not ensure, the effectiveness of the interlocutory injunctive relief against Shuangchuang, I believe it is necessary to continue to enjoin Huang and Chen from disposing of or dealing with the Alishan Shares or from causing Shuangchuang to do so.  However, it is unclear to me whether it is still meaningful to restrain Huang in respect of the 2015 PRC Proceedings given that All Faith’s interest in Alishan and indirect interest in the Shenzhen Land should cease with the transfer of the Alishan Shares to Shuangchuang.

K.   FORTIFICATION OF UNDERTAKING AS TO DAMAGES

120.  As stated in paragraph 110(2) above, Gu has confirmed that he will fortify the Plaintiffs’ undertaking as to damages, if so required by the court.  See paragraph 28 of his 3^rd affirmation.

121.  The principles applicable to an application for a fortification of an undertaking as to damages are well settled.  It is for the defendants who seek fortification to show that (1) there is a likelihood of significant loss arising as a result of the injunction and (2) a sound basis for the belief that the undertaking as to damages is insufficient.  Generally, a court can order fortification where it appears to be “just and proper to protect the defendant” by making the order.  See Hui Chi Ming v Koon Wing Yee[2011] 1 HKLRD 260, per Recorder Coleman SC at [30]-[34].

122.  First, as discussed in paragraph 96 above, interlocutory injunctive relief restraining the Opposing Defendants from realising the Alishan Shares and therefore the Shenzhen Land might expose them to a risk of loss of part of the value of such property in the event of a falling property market before the trial.

123.  Second, a basis for believing that the undertaking as to damages would be insufficient is where the plaintiff might be unable to make good the loss.  See Hong Kong Civil Procedure 2019, Volume 1, paragraph 29/1/24.  Given that Gu (as the 1^st plaintiff) has only some shares worth HK$5 million odd in Hong Kong but is potentially exposed to liabilities far in excess of the value of such shares and also given that Korchina (as the 2^nd plaintiff) has no asset other than the All Faith Shares which are not only the subject matter the ownership of which is in issue in this action, but which have become valueless following the transfer of the Alishan Shares to Shuangchuang, there is certainly reason for one to query whether the Plaintiffs would be able to make good the Opposing Defendants’ loss should it occur.

124.  In the circumstances, I consider this a “just and proper” case to order fortification from the Plaintiffs in the form of either a payment into court or a guarantee from a bank in Hong Kong. 

125.  In view of the value of the Shenzhen Land and the nature of the potential loss that might be sustained by the Opposing Defendants (i.e. loss of profit in a downward market) but giving the Plaintiffs credit for the value of the De Hing Mining Shares which Gu has undertaken to keep in the Kingston Account, I believe HK$5 million would afford the Opposing Defendants sufficient protection at this stage.

L. DISPOSITION

126.  For these reasons, upon the Plaintiffs’ undertaking to comply with any order the court may make if it later finds that this order has caused loss to the Opposing Defendants and decides that the Opposing Defendants should be compensated for that loss and further undertakings (1) not to in any way dispose of or dealing with the Ding He Mining Shares or remove them out of the Kingston Account; (2) within 14 days from today, to either pay into court HK$5 million or cause a written guarantee in the sum of HK$5 million to be issued by a bank having a place of business in Hong Kong in favour of the Opposing Defendants, such payment/guarantee being in respect of any order the court may make pursuant to the Plaintiffs’ aforesaid undertaking as to damages; and (3) to cause a copy of the guarantee to be served on the Opposing Defendants’ solicitors forthwith upon its issue:

(1)  The interlocutory injunction granted against Shuangchuang on 18 January 2018 shall continue until trial or further order.

(2)  The Injunction is discharged as against Huang and Chen.  In place thereof, Huang and Chen, whether by themselves, their servants, agents, employees or otherwise, shall be restrained until trial or further order from (a) howsoever disposing of or dealing with Shuangchuang’s assets, including the Alishan Shares; (b) from causing Shuangchuang to howsoever dispose of or dealing with its assets including the Alishan Shares.

(3)  The parties shall have liberty to apply on the precise terms of the order.

127.  I will entertain the parties’ written submissions on costs.  The Plaintiffs shall have 14 days from today to file and serve such submission.  The Opposing Defendants shall have 14 days thereafter to respond with a right of reply within another 14 days to the Plaintiffs.