ALPHA & LEADER ASSOCIATES LTD v. VICTORY MEGA TRADING LTD

HCA 212/2021

[2024] HKCFI 788

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 212 OF 2021

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DECISION

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INTRODUCTION

1.  On 15 September 2023, I handed down the decision in this action: [2023] HKCFI 2322.  I shall adopt below the defined terms used there.

2.  By summons dated 29 September 2023, the defendant applies for leave to appeal against my decision (1)  dismissing the discharge application, (2)  dismissing the new evidence summons, and (3)  continuing the interim mareva injunction, as amended, until trial or further order of the court: see paras 217(1), (2)  and (3)  of the decision.

3.  By summons dated 27 September 2023, the defendant applies to vary the costs order nisi I made in relation to the discharge application, the new evidence summons and the injunction summons: see paras 218(1)  and (2)  of the decision. 

4.  Following the guidance laid down by the Court of Appeal in Tsang Wing Kwai v Tsang Wing Fai [2018] 5 HKLRD 350, [2018] HKCA 759 at para 24, I gave directions for the lodging of written submissions for both summonses. Having read the submissions, I am satisfied that an oral hearing is not necessary and the summonses are suitable for disposal on paper only.

THE LEAVE TO APPEAL SUMMONS

5.  The draft grounds of appeal are 22 pages long. There are five paragraphs which are grouped under four headings.  Each of paras 1, 2 and 3 further branches out to sub-paragraphs, sub-sub-paragraphs and (in one instance)  sub-sub-sub-paragraphs.  The document reads like a set of submissions.  It fails to follow the guidance set out in paras 20 and 22 of Practice Direction 4.1.  It is not a concise document.  It contains submissions at length.  It fails to set out succinctly why the Court of Appeal should interfere with the decision. 

6.  What I propose to do below is to extract from the document the precise proposed grounds of appeal by quoting the relevant paragraph numbers used in the document.

Legal principles

7.  The principles governing the threshold for granting leave to appeal are well established.  The applicant needs to show that the appeal has a “reasonable prospect of success” or there is some other reason in the interests of justice why the appeal should be heard: section 14AA(4)  of the High Court Ordinance, Cap 4.  A “reasonable prospect of success” means an appeal with prospects that are more than “fanciful”, without having to be “probable”: SMSE v KL [2009] 4 HKLRD 125 at para 7.  To meet the “reasonable prospect of success” test, an applicant is required to show more than just an arguable case, but an appeal that has merits and ought to be heard, although he does not have to demonstrate that the appeal will probably succeed: Wynn Resorts (Macau)  SA v Mong Henry [2009] 5 HKC 515 at para 19.

8.  The intended appeal is an appeal against my exercise of discretion.  It is not in dispute that the grounds on which the Court of Appeal is entitled to interfere are limited.  It cannot interfere merely because it would have reached a different conclusion had it been hearing the hearing at first instance: Bright Shipping Ltd v Changhong Group (HK)  Ltd (No 2) [2019] 5 HKLRD 30, [2019] HKCA 1062 at para 5.  Mr John Yan, SC, leading Ms Shannon Leung for the defendant, confirms that the main basis underlying the defendant’s grounds of appeal is that in exercising my discretion, I took into account matters which I ought not to have done or I failed to take into account matters which I ought to have done.

Para 1 – material non-disclosure

9.  It appears that there are four proposed grounds under this paragraph.

Para 1(a)

10.  Under para 1(a), the defendant contends that I erred in treating the plaintiff’s application for the interim mareva injunction as an inter partes application.  I ought to have held that it was an ex parte application on notice and hence the plaintiff came under a duty of full and frank disclosure.  This is because the plaintiff had initially applied for a proprietary injunction only and it was only after I indicated my view that it sought a mareva injunction. 

11.  The defendant is effectively saying that the return day hearing was an inter partes hearing insofar as it related to the proprietary injunction but at the same time it was an ex parte hearing insofar as it related to the mareva injunction.

12.  I accept that in theory if the two applications were totally unrelated applications, the distinction drawn by the defendant could well be a valid one.  

13.  However, that was not the case here.  The interim mareva injunction which was granted covered the same assets as set out in the injunction summons: see Schedule 1 to the summons and Schedule 3 to the injunction order.  The evidence relied on by the plaintiff for the interim mareva injunction was contained in the affidavits filed in support of the injunction summons.  Both the opposing affirmation and Mr Yan’s written submissions expressly anticipated that a mareva injunction might be sought.  In the circumstances, the return day hearing insofar as it related to the interim mareva injunction ought to be treated as an inter partes hearing.

14.  This ground is in fact a re-run of Mr Yan’s argument at the hearing: see para 7 of his submissions dated 21 September 2021.  I sought to deal with the point in paras 125 and 167 of the decision. 

15.  This ground does not have any real prospect of success.

Paras 1(b)(i)  to (vi)

16.  Under paras 1(b)(i)  to (vi), the defendant argues that I erred in holding that the defendant had had a fair and reasonable opportunity to present its case at the return day hearing.  This is because the defendant had not had sufficient time to review the papers, file evidence and investigate into the plaintiff’s allegations.

17.  It is a repeat of the arguments put forward at the hearing.  I dealt with them in paras 164 to 169 of the decision. 

18.  I should add one observation as regards the principle set out in Muginoho Co Ltd v Vimiu HK Co Ltd HCMP 107/2012, 24 February 2012 at paras 5 and 6.  I would think that in situations similar to the present case, when deciding whether the respondent has had a fair and reasonable opportunity to present its evidence and arguments in opposition, the proper question to ask is whether he had such an opportunity to do so for the purpose of resisting any interim application made on the first return date, but not for the purpose of resisting the entire substantive application.  In this regard, I refer to the last sentence of para 169 of the decision.

19.  I do not see any real prospect of success for this ground.

Para 1(c)

20.  Under para 1(c), the defendant says that I erred in not addressing the contention regarding the plaintiff’s failure to disclose the fact that the 1^st Framework Agreement was not terminated by Spinnaker until 21 February 2012.  That is to say, it was not terminated before the Cooperation Agreement was entered into in December 2011.  I ought to have held that it was a serious case of material non-disclosure.

21.  It is true that in the decision I did not make any ruling in relation to the 1^st Framework Agreement.  However, in para 170 of the decision, I concluded that the duty of full and frank disclosure did not arise in the first place and hence it was not necessary to consider whether there was any breach.  In the circumstances, I did not commit any error in not making any ruling in this regard.

22.  Furthermore, given my rulings on para 1(a)  and paras 1(b)(i)  to (vi)  above, the fact that I did not make any ruling in relation to the 1^st Framework Agreement would not advance the intended appeal in any way, as the duty of full and frank disclosure did not arise in the first place. 

23.  This ground has no reasonable prospect of success.

Para 1(d)

24.  Under para 1(d), I erred in making no ruling that the non-disclosure in relation to Alpha & Leader Hong Kong was deliberate.  It was deliberate because, the defendant submits, Ma had sought the declaration from Pan in preparation for bringing legal proceedings relating to the Cooperation Agreement but Pan had refused.  In the circumstances, one can conclude that Ma knowingly and deliberately did not disclose the relevant facts at the return day hearing.

25.  It is correct that in the decision I did not make any ruling that the non-disclosure was deliberate.  I only concluded that it was a serious one: para 174.  But I did not commit any error by omitting to make the ruling for the same reasons set out in paras 21 and 22 above. 

26.  This ground has no reasonable prospect of success.

Para 2 – no good arguable case

27.  It appears that para 2 contains five proposed grounds of appeal.

Paras 2(a)  to (c)(i)  to (iv)

28.  Under paras 2(a)  to (c)(i)  to (iv), the defendant contends that I erred in finding at para 191 that the plaintiff had demonstrated a good arguable case on its two causes of action.  I erred in doing so on the strength of Lu’s evidence.  I overlooked the fact that the affirmation made by Lu in HCA 1501/2017 was not evidence before me.  I also erred in continuing to adopt what I had previously said in the decision at [2021] HKCFI 461: para 192.  This is because at the time of the earlier decision, no evidence had yet been adduced by the defendant to the effect that the action had been settled on the express basis of non-admission of liability.  Lastly, I erred in concluding that the plaintiff had made out a good arguable case that it was “Party B” in the Cooperation Agreement by relying on Lu’s affirmation made in HCA 1501/2017 and in this action: para 193 of the decision.  It was an error because Lu’s evidence was entirely irrelevant to the disputes over the Cooperation Agreement.

29.  I do not think that any of the above grounds are valid.

30.  As I said in para 193 of the decision, Lu had made an affirmation in the present action re-confirming what he had said in HCA 1501/2017.  Hence his evidence formed part of the plaintiff’s evidence which I was entitled to take into account.  I disagree with the submission that his evidence was not evidence before me.

31.  In para 192 of the decision, I adopted my earlier reasoning.  In doing so, I was fully aware that the action in HCA 1501/2017 had been settled on a “no admission” basis.  This is evident by my recitation of the defendant’s case in para 85.  In the decision, I made no factual finding on why that action was settled.  But I treated what had happened there as a relevant piece of evidence in evaluating the plaintiff’s case.  I do not consider that I committed any error in the process.

32.  Lastly, it is wrong for Mr Yan to say that I concluded that the plaintiff had shown a good arguable case on the issue of “Party B” on the strength of Lu’s evidence.  This is a misreading of the decision. 

33.  Under the section “Good arguable case”, I dealt with the plaintiff’s case on the Asset Stripping Exercise in paras 188 to 193. In this part, I did rely on Lu’s evidence.  I then proceeded to deal with the “Party B” issue in paras 195 to 198 as part of my evaluation of the defence. In this part, I made no reference to Lu’s evidence at all. 

Para 2(d), the introductory paragraph

34.  In the introductory paragraph of para 2(d), the defendant contends that had I not erroneously relied on Lu’s evidence to find that the plaintiff had made out a good prima facie case as I did in paras 192 and 193, I should have found that it had not done so upon taking into account the relative strengths of the parties’ cases.

35.  For the reasons stated above, I did not commit the alleged error in paras 192 and 193.  Hence this ground is not reasonably arguable.

Paras 2(d)(i)  to (iii)

36.  Under paras 2(d)(i)  to (iii), the defendant contends that I ought to have applied the approach in Shogun Finance Ltd v Hudson [2004] 1 AC 919 and if I had done so, given that the Cooperation Agreement stated that Party B was Alpha & Leader Associates Limited, a company incorporated in Hong Kong, I should have concluded that it was Alpha & Leader Hong Kong.

37.  It is the plaintiff’s case that there was a mistake in the description of Party B in the Cooperation Agreement: see para 47.  Ma’s evidence in this regard ought to be taken into account when determining whether there was in fact such a mistake.

38.  I do not consider that it is possible at this stage to conclude definitively, as suggested by the defendant, that Party B was Alpha & Leader Hong Kong.  This ground has no reasonable prospect of success.

Paras 2(d)(iv)  to (vi)

39.  Under paras 2(d)(iv)  to (vi), the defendant argues that on the proper identity of Party B, I should have found the defendant’s evidence to be far more compelling.  I should also have found that the plaintiff’s case that the 1^st Framework Agreement was not proceeded with due to a lack of funds by Nation Field and that in mid-December 2021 the plaintiff was involved in setting up a new deal with Spinnaker is patently false.

40.  This is a repeat of the defendant’s submissions made on the evidence at the hearing.  I dealt with the evidence in paras 195 to 198 of the decision.  Furthermore, in para 189, I highlighted that the evidence before me was voluminous and the factual disputes were extensive.  I emphasised that these factual disputes could not be resolved at this stage and the credibility of the deponents could only be properly evaluated after trial. There was no point in engaging in any forensic discussion in order to evaluate the credibility at this stage.  Under this ground, Mr Yan is making the same forensic points as in the hearing.  They should not be entertained.

41.  For these reasons, I consider that this proposed ground is not reasonably arguable.

Paras 2(d)(vii)  to (xi)

42.  Under paras 2(d)(vii)  to (xi), the defendant contends that I erred in not addressing the following point.  The disposal of the 35 direct creditor’s rights by Nation Field could not have had the effect of denuding it of the ability to honour its obligations under the Cooperation Agreement.  This is because under the Cooperation Agreement, the plaintiff was entitled to only 20% of the recovery returns.  Here, the face value of the 35 direct creditor’s rights only represented less than 45.17% of the whole of the Spinnaker rights acquired by Nation Field and the undisputed evidence was that the balance representing 54.83% were still held by different financial institutions for Nation Field.  Had I taken this point into account, I should have found that the plaintiff had not made out a good prima facie case.

43.  It is correct that I did not address this point in the decision.  However, Mr Lawrence Ng, representing the plaintiff with Mr Victor Lui, did make a reply to this contention in paras 9(1)  and (2)  of his submissions dated 10 August 2021.  Mr Ng referred to evidence suggesting that Nation Field might not be holding the entire balance of the Spinnaker rights.

44.  Hence, it is not correct for Mr Yan to now say that the evidence in this regard is “undisputed”.  This point was disputed at the hearing and was not capable of being resolved at an interlocutory stage.

45.  There is no reasonable prospect of success for this ground.

Paras 3 and 4 – balance of convenience

46.  Under paras 3 and 4, the defendant contends that I erred in holding that the balance of convenience came down in favour of continuing the interim mareva injunction.  I failed to have regard to a number of matters, including that (1)  the cross-undertaking in damages given by the plaintiff, a Samoan company, was of no value, (2)  Ma is not based or resident in Hong Kong and his company is not a Hong Kong company, (3)  Ma concealed highly material facts from the court and lied on oath, (4)  the total market value of the shares owned by Ma had substantially fallen in value by the date of the decision, and (5)  given the vast amount being restrained, it would be very difficult to quantify the exact loss that the defendant would suffer if it turned out that the interim mareva injunction was wrongly continued.

47.  Before me at the hearing, Mr Yan devoted only two paragraphs in his submissions dated 9 August 2021 to the issue of balance of convenience: see paras 41 and 42.  I dealt with the issue in paras 213 to 216 of the decision.  I addressed Mr Yan’s submissions in those paragraphs. The points now being raised in the proposed appeal were not relied on by Mr Yan at the hearing.  In my view, it is not open to him now to raise these new points.

48.  This ground has no reasonable prospect of success.

Para 5 – the new evidence summons

49.  Under para 5, the defendant argues that I erred in dismissing the new evidence summons for the reasons stated in paras 185 and 205 of the decision.  More specifically, I erred in misunderstanding the effect of the new evidence.

50.  In para 204 of the decision, I set out Mr Yan’s submission on the significance of the new evidence.  There was no misunderstanding on my part.

51.  Apart from this, this proposed ground is basically a repeat of the defendant’s submissions at the hearing.  As emphasised in para 205 of the decision, it must be borne in mind that there should be finality of litigation.  In light of the lack of utility of the new evidence, there was no good reason for me to exercise my discretion to admit it into the evidence. 

52.  This ground has no reasonable prospect of success.

Some other reason why the appeal should be heard?

53.  Mr Yan submits that a decision of the Court of Appeal on the correctness of the principle set out in Muginoho would be to the public advantage.  Various courts have cited the case with approval and followed the principle: see, eg, Jessop & Baird (Hong Kong)  Ltd v Neo Hwee Khim [2020] HKCFI 2264 at para 82; Lee Sai Hoi v Li Sin Man [2022] HKCFI 2984 at para 60; Flexi Credits Ltd v Wong Chi Kit Clement [2022] HKCFI 2052 at para 9; HKCOLO.NET Ltd v Hong Kong Telecommunications (HKT)  Ltd [2023] HKCFI 138 at paras 111 to 112.  On the other hand, I expressed strong reservations in the decision and reluctantly applied the principle in the present case.

54.  I do not consider that it is appropriate to grant leave so that the Court of Appeal can decide on the issue.  First, save for a very brief exchange between me and Mr Yan, the point was not argued at all at the hearing.  I was therefore only expressing my own thoughts in the decision, without the benefit of hearing any argument or counter-argument from counsel: para 162.  Secondly, and importantly, I proceeded on the basis that the proposition in Muginoho was correct: para 163.  In the end, I found that the defendant failed to establish the duty of full and frank disclosure, applying Muginoho.  Therefore, the present case does not turn on the correctness of Muginoho and any appeal on this point would be purely academic.

55.  Accordingly, I consider that the reason put forward by the defendant does not amount to a good reason why the appeal should be heard.

Conclusion

56.  None of the proposed grounds of appeal have any reasonable prospect of success.  There is no other reason why the appeal should be heard.  The leave to appeal application should be dismissed.

THE SUMMONS TO VARY COSTS

57.  In paras 218(1)  and (2)  of the decision , I made an order nisi that the plaintiff do have costs of the discharge application and the new evidence summons and that the costs of the injunction summons be the plaintiff’s costs in the cause.

58.  The defendant now applies to vary the above nisi orders.  It asks for the costs of all three applications to be in the cause.

Legal principles

59.  When awarding costs in interlocutory proceedings, I should have regard to Order 62, rule 3(2A)  and rule 5.

60.  Rule 3(2A)  provides that the court may order the costs to follow the event or make such other as it sees fit in respect of costs of interlocutory proceedings.  An order that costs should follow the event is just one option and is no longer considered to be the “general rule” or the “usual order”: Waxman v Li Fei Yu [2013] 6 HKC 424 at paras 11 to 12.

61.  Under rule 5(1), the court should take into account a number of factors in exercising its discretion, including the underlying objectives set out in Order 1A, rule 1 and the conduct of the parties: rule 5(1)(aa)  and (e).  Rule 5(2)(1)  provides that the conduct of the parties includes whether it was reasonable for a party to raise a particular issue.

62.  In the context of interlocutory injunctions, I follow the approach explained in Mendlowitz & Associates Inc v Winner International Group Ltd HCA 574/2009, 14 May 2010 at paras 28 and 30.  It is now no longer correct to say that as a matter of principle, the costs of an interlocutory injunction should be in the cause unless there is justification for its departure.  The court is entitled to and should look at the merits of the injunction on its own at the time of the application to decide what should be the proper costs order taking into account all the circumstances, which do not necessarily depend on the outcome of the trial.

The injunction summons

63.  In respect of the injunction summons, Mr Yan points out that I repeatedly emphasised in the decision that I was not in a position to resolve the factual disputes between the parties and I only found that the plaintiff had demonstrated a good arguable case.  This is therefore a clear case where the injunction was granted and continued on the balance of convenience in order to hold the ring until the disputes could be decided at trial.  Hence, the proper thing to do is to reserve the costs of the injunction to the trial judge, who will ultimately decide which party is successful and which is not: Desquenne et Giral UK Ltd v Richardson [2001] FSR 1.  Here, it is only fair to require the defendant to bear the costs only if the plaintiff also succeeds at trial.  Hence, Mr Yan submits that the proper order for the injunction summons should be costs in the cause.

64.  As stated above, I would follow the approach in Mendlowitz. The injunction summons is a meritorious application when viewed on its own. The costs order should reflect both the success of the plaintiff and the failure of the defendant in resisting the application.  At the same time, I should not disregard the purpose of the injunction, which is to preserve the status quo for the time being when the merits of the action are yet to be determined.  I therefore consider that the plaintiff should have costs of the application but only if it also succeeds in the action. 

65.  This order means that in the event that the defendant is the ultimate winner in the action, it will still not get its costs of the injunction.  But I consider that this properly reflects its failure in resisting the application, which I found to be meritorious.

66.  I therefore decline the defendant’s application to vary the costs order nisi which I made in respect of the injunction summons.

The discharge application

67.  In respect of the discharge application, Mr Yan submits that although it is a separate application, it is in fact an integral part of the defendant’s opposition to the injunction summons.  Accordingly, the same costs should apply and the costs should be costs in the cause. 

68.  Furthermore, Mr Yan submits that I dismissed the discharge application only on the narrow ground that the plaintiff did not have a duty to make full and frank disclosure at the return day hearing.  But, importantly, I went on to hold that had the duty existed, the plaintiff would have been in serious breach.  In the circumstances, it was eminently reasonable for the defendant to have made the discharge application.

69.  On the other hand, Mr Ng submits that the discharge application is a separate and distinct application from the injunction summons.  In fact, at the hearing, Mr Yan was at pains to point out that the discharge application should be disposed of first in sequence because if the court was satisfied that the material non-disclosure ground was made out, it should discharge the interim mareva injunction and refuse to even consider a re-grant: see para 10 of the decision. 

70.  I agree with Mr Ng’s submissions.  The discharge application is plainly a distinct application from the injunction summons. That was effectively how Mr Yan put it at the hearing.  The defendant failed at the first hurdle.  It failed to establish that the plaintiff came under the full and frank duty at the return day hearing.  The discharge application significantly added to the time and costs incurred by both parties and the court, in terms of the evidence adduced, the hearing time and the length of the judgment.

71.  Given all these circumstances, it is in my view just to look at the discharge application on its own when determining costs. Whatever the outcome of the action is, the application failed on its own merits.  Viewed this way, there is no good reason to link the incidence of costs to what may happen in the trial.  It is fair that costs should follow the event.

72.  I therefore confirm the order nisi that the plaintiff should have costs of the discharge application.

The new evidence summons

73.  In respect of the new evidence summons, Mr Yan submits that it was taken out to place before the court highly relevant evidence.  It was not available to the defendant before the hearing.  It could only take out the application afterwards.  It was reasonable for the defendant to have made the application as it did not know what view the court would take towards the discharge application and the evidence filed for the injunction summons. 

74.  For present purpose, I would assume that the defendant was only in a position to adduce such evidence after the hearing took place. 

75.  It is true that at the time of the application, the defendant would not know how the court would decide the discharge application and the injunction summons.  It was a judgment call for the defendant to decide whether to apply to put in new evidence post-hearing.  As it turned out, it made the wrong call.  I concluded that the new evidence served no purpose in respect of the discharge application and that it had no material impact on the court’s evaluation of the injunction summons: see paras 185 and 205 of the decision.

76.  The matter is not to be looked at solely from the perspective of the defendant.  As between the plaintiff and the defendant, there is no good reason why the plaintiff should not get the costs which have been incurred by reason of the defendant’s incorrect judgment call.  It is fair for costs to follow the event.  I would confirm my order nisi in respect of the new evidence summons.

 CONCLUSION

77.  I dismiss the defendant’s summons for leave to appeal.

78.  I also dismiss the defendant’s summons to vary costs and order that the costs order nisi made in paras 218(1)  and (2)  of the decision be made absolute.

79.  I make an order nisi that the plaintiff do have costs of both summonses, to be summarily assessed if not agreed, with certificate for two counsel.  The plaintiff has already lodged with the court two statements of costs.  I direct that the defendant do lodge its lists of objections, if any, on or before 27 March 2024.  Each list of objections should not exceed two pages.  The costs will be assessed on paper after the deadline.