MACAU FIRST UNIVERSAL INTERNATIONL LTD v. DING XIAOHONG AND OTHERS

HCA 992/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 992 OF 2010

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BETWEEN

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DECISION

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The Application

1.  By my judgment dated 10 March 2011 (“the Judgment”), I appointed 2 persons as joint and several receivers and managers (“the Receivership Order”).   In this Decision, I shall adopt the same abbreviations as in the Judgment. 

2.  On 24 March 2011, Macau First and DG (I will refer to them as “DG” for ease of reference) took out 2 summonses (collectively “the 2 Summonses”):

(i)   For leave to appeal from the Receivership Order and a stay of execution pending appeal (“the Leave to Appeal and Stay Summons”).

(ii)   For variation and clarification of the Receivership Order (“the Variation and Clarification Summons”).

3.  On 7 April 2011, I dismissed DG’s application for interim stay of execution pending appeal (“the Interim Stay Decision”) and adjourned the 2 Summonses to the present hearing for argument.  DG now seeks an adjournment, having changed to a new team of counsel.  The application to adjourn is opposed by DY.

Grounds for Seeking Adjournment

4.  The Applicants were originally represented by Messrs. Iu, Lai and Li at the hearing of the application for Receivership Order.  By the time the 2 Summonses were issued, they were represented by Messrs. Herbert Smith.  Allegedly due to loss of mutual trust and confidence and what appeared to be exorbitant fees for work incurred just over one month, DG terminated Messrs Herbert Smith.  Messrs. LCP came on record on 4 May 2011.  Messrs Herbert Smith refused to deliver files to Messrs LCP before fees were settled.  Efforts made by the latter to obtain relevant documents from Court files only resulted in limited files being obtained but not correspondence between the parties, including those involving the Receivers.  There was no reasonable opportunity for the present team of lawyers to review the documents to see if the grounds of appeal were arguable.  Mr Ronny Tong SC, leading Mr Lawrence Cheung, are tentatively of the view that substantial additional grounds of appeal, both as to proper exercise of discretion and jurisdiction, should be added.  It is unlikely for the present team to proceed with the Variation and Clarification Summons in its present form.  Mr Tong SC submits that DY will not suffer any prejudice as a result of the adjournment as his interest is now fully preserved and protected by the Receivership Order.  Any difficulty which the Receivers may encounter in the Mainland should not be considered in the question of adjournment.

5.  DG was apparently caught between the dilemma of having to settle exorbitant fees and the inability to get hold of papers if the solicitors’ lien was not discharged.  This is a common phenomenon when a retainer is terminated.  However, this and the resultant change in legal team, in themselves, cannot be a ground for seeking adjournment.   The Court has to see if there are other good grounds for adjournment, whether there are merits in the proposed appeal, variation and clarification application and whether there will be prejudice arising from the adjournment.

6.  The only other ground for adjournment is that DG was not satisfied with the way Messrs Herbert Smith handled the case and doubted “as to whether his interests had been best protected, in particularly (sic) the appeal against the Receivership Order”.  

7.  What meets the Court’s eyes, in terms of the contents of the 2 Summonses was nothing less than robust and fearless on the part of Messrs Herbert Smith (and Mr Manzoni QC).  If can hardly be said that they failed to protect DG’s interest.  Whilst one cannot compel DG to disclose matters involving legal professional privilege, such ground, without more particulars, is unlikely to attract the sympathy of the Court.   

8.  This is particularly so since the present hearing date (about 6 weeks’ from the interim stay hearing) was fixed at DG’s insistence on disposal as soon as possible.  I accommodated it since a Receivership Order could have drastic impact on a business.  This date was fixed so that both parties could use counsel of their choice.  As matters now stand, this hearing date is wholly wasted.  Although Mr Tong SC proposes to adjourn only for 4 weeks, that would mean Mr Yuen SC (whose side is not at fault) would be unlikely to attend because of his other commitments.

9.  Mr Tong SC invites me to adopt a common sense approach and ask why DG would want to adjourn at his own expense.   That is of course a justified approach.   There can be various reasons why DG may want to delay notwithstanding the resultant financial loss – to retain control over the Companies for as long as possible, to buy time for disposal of assets, to gain mileage in the Mainland proceedings. I do not wish to speculate but would rather consider the matter under the prejudice limb.

Merits of the Proposed Appeal

10.  Leave to appeal is ‘not lightly granted’ an ‘reasonable prospects of success’ for the purpose of s.14AA (4) High Court Ordinance, Cap 4 involves the notion that the prospects of succeeding must be more than ‘fanciful’, without having to be ‘probable’.  SMSE v KL [2009] 4 HKLRD 125.

11.  To meet the ‘reasonable prospect of success’ test in section s.14AA (4) (a) High Court Ordinance, Cap 4, ‘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’.  In Wynn Resorts (Macau) SA v. Mong Henry [2009] 5 HKC 515, Chu J at para 19.

12.  I stand by my analyses of the merits in paragraphs 18 – 33 of the Interim Stay Decision.  Mr Tong SC has put forth some possible grounds of appeal which I shall briefly deal with. 

13.  Firstly, it is suggested that I have wrongfully exercised my discretion in not taking account of the injunction order granted by consent by Suffiad J (“the Injunction”).  With respect, the grant of an injunction does not bar the Court from making a receivership order: Akai Holdings Ltd (in Compulsory Liquidation) & others v. Ho Wing On Christopher and others, HCCL 37 & 40/2005, 1.9.2009. DG in fact anticipated a change in Yu Xiaan (“Yu”) as a legal representative, the very thing the Injunction sought to prevent: paragraph 84 of the Judgment.

14.  Next, it is said that the Court should not have taken into account events before the Injunction but only those after as evidence of dissipation.  With respect, that was what I did.  An example would be the attempted sale of the 5^th and 7^th floors of Citigroup Tower, failing to apply rental income to designated bank accounts and failure to properly keep books of account pre- and post-2010.

15.  Thirdly, Mr Tong SC submits that the Court should not have treated sale of property as dissipation, especially if it was above the market price.  A sale is merely transformation of an asset from one form to another.  With respect, money is easier to dissipate than landed property.  This is not something to be under-estimated in this case as there was evidence that DG had been siphoning off funds from Shanghai Bading in the past.  Moreover, Mr Tong’s submission disregards the evidence in DG’s own affirmation in support of the ex parte injunction in which he said that

“… any sale or disposition of the “Citicorp Tower by Shanghai Bading is not something in the ordinary course of business and is therefore prohibited by our undertakings offered to this Court.” (paragraph 54 of the Judgment)

Mr Tong SC submits that this undertaking only applied to sale of the whole building and not units.  I do not think that was how the parties understood it.  Sale of units may gradually lead to sale of the whole Tower.  It was preservation of the building in its present state of ownership that the undertaking and Receivership Order were aimed at.

16.  Fourthly, it is said that non-payment of bank loans was not dissipation as a bank loan was not an asset.  Whilst it may be correct that a bank loan was not an asset, the concern was rather that the rental income had gone to the wrong destination instead of being used for repaying bank loans.  There was thus mismanagement of assets.

17.  DG has had the opportunity of considering the grounds of appeal by Mr Manzoni QC.  Having had a “trial-run” of those grounds at the application for interim stay a month earlier, DG should not be given a 2^nd opportunity to adduce new grounds.  In any case, I am not satisfied that the oral additional grounds of appeal have any reasonable prospect of success. 

Merits of the Variation and Clarification Summons

18.  Mr Tong SC submits that the Variation and Clarification Summons cannot be used to vary the Injunction.  Although it is unlikely that he would argue this Summons in its present terms, he cannot at this stage come to a view of abandoning it.

19.  I stand by my reasons in paragraphs 35 – 38 of the Interim Stay Decision.  There is, however, one matter which needs to be dealt with anyway.  From the submissions lodged for the interim stay application on 7 April and for this hearing, one of the issues disclosed is whether or not the Injunction has been superceded by the Receivership Order (“the Issue”) and whether the Receivers acted properly in passing a resolution to remove Yu as legal representative of Shanghai Bading.  Mr Yuen says that it has impliedly been superceded whilst Mr Manzoni QC and Mr Tong SC disagreed.  I have asked the Receivers to attend the present hearing hoping that this matter could be argued and clarified.  (See paragraphs 8 – 11 of the Interim Stay Decision.)   I still consider the clarification to be necessary in any event.  Accordingly, even if I were to refuse to adjourn the 2 Summonses, I will still reserve the Issue for argument.

20.  There is the further application to vary the costs order nisi under the Judgment.  DG applies to vary the order from one giving costs to DY to DY’s costs in the cause.  The Receivership Order arose because of the risk of dissipation by DG despite his undertakings.  For completeness, I will refer to the authorities which show that the Court can order immediate payment of costs in applications for interim injunctions: Midland Business Management Ltd & another v. Lo Man Kui (also known as Howard Lo), HCA 1599/2010, 4.3.2011, per Lam J; Mendlowitz & Associates Inc v. Winner International Group Ltd & anor, HCA 574/2000, at para 28 – 34 per Au J.  I say no more since DG has advanced no arguments at this hearing.

Prejudice Arising out of an Adjournment

21.  Mr Tong SC suggests that the prejudice of any adjournment is with DG as opposed to DY because the assets involved were DG’s.  I do not agree.  The beneficial interest is yet to be adjudicated.

22.  What bothers me most is that there has not been much that the Receivers could achieve since the making of the Receivership Order.  DG has not been cooperative with the Receivers.  He failed to answer their enquiries, to produce updated accounts, or to produce business licences.  Yu could not be contacted.   The situation has deteriorated in the sense that although Yu had allegedly been acting as his nominee, DG says that even he is not able to get in touch with Yu.  Yu is seeking independent legal advice and DG has not been communicating with him as if they were in the same camp.  Just how DG can still maintain that Yu should not be removed as a legal representative is beyond one’s imagination.  Mr Tong SC submits that it is unfair to DG to simply accept the Receivers’ version without question.  I do not think that is unfair because even from the previous Receivers’ report, given to DG when he was represented by Messrs Herbert Smith, it was clear that the Receivers has met with similar difficulties and DG had not been cooperative, offered any solution or answered the Receivers’ allegations for the purpose of this hearing.

23.  There are other matters worth noting:

(i)   Yu may declare loss of title deeds and try to dispose of Citigroup Tower.

(ii)   There has been attempted sale of the Citigroup Tower at RMB 60,000 per square metre.

(iii)   Tenants of Citigroup Tower having been paying rent to Hong Kong First instead of Shanghai Bading.

(iv)   Huaxia Bank expressed concerns over delay and expressed the intention to call in the loan if the receivership is ineffective. 

(v)   There has been drop in income but significant increase in expenses of Shanghai Bading, leading to a deficit in the accounts.

24.  In my view, point (i) is speculative.  Point (ii) has to be investigated, there being no evidence apart from bare allegation.  Points (iii) and (v) do raise concerns.  They arise out of the difficulty in execution of the Receivership Order due to the uncooperative attitude of DG.  The risk of dissipation which was the key factor for the Receivership Order remains.  There are compelling reasons to clarify the position as soon as possible to enable the receivership to proceed. Adjournment will cause prejudice not only to DY but also the well-being of Shanghai Bading and its holding Companies.

Terms of Adjournment

25.  DG has only offered to pay costs arising out of the adjournment on indemnity basis and Mr Tong SC proposes to amend the draft grounds of appeal within 4 weeks.  I am not minded to let a party “buy” an adjournment.  No other conditions have been offered by DG to make the Receivership Order work during the adjournment (e.g. to do certain undone acts under the Receivership Order or to procure Yu to meet the Receivers by a certain date).  I decline to grant an adjournment.

Stay of Execution Pending Appeal

26.  Since the grounds of appeal have no reasonable prospect of success, there should not be a stay. In any case, I adopt the same reasons in paragraphs 17 – 40 of the Interim Stay Decision.

Conclusion

27.  Change of legal team is not a sufficient ground for adjournment.  Insufficient ground for adjournment has been put forward.  The proposed grounds of appeal and oral additional grounds of appeal disclose no merit. Adjournment will give rise to prejudice and DG has not offered any condition to ensure that the Receivership Order can work in the interval.   I decline to adjourn the 2 Summonses.  Since DG has not put forth submissions in respect of the 2 Summonses, I dismiss them accordingly subject to reserving the Issue for argument.  The Receivers should attend the next hearing of the Variation and Clarification Summons to justify the validity of the Resolution.

28.  I order as follows:

(i)   Save and except the issue of whether paragraph 4 of the Order dated 10 March 2011 superseded paragraph 1 of the Order of Mr. Justice Suffiad dated 9 July 2010 and, if so, whether the Order should be varied or clarified by expressly stating that it supersedes paragraph 1 of the Suffiad J Order (collectively “the Issue”), the Summons dated 24 March 2011 (for leave to appeal), the Summons also dated 24 March 2011 (for variation and clarification), the Summons dated 6 May 2011 (for adjournment) and the Summons dated 9 May 2011 (for adjournment), all taken out by the Plaintiff (by original action) and the Defendants (by counterclaim) be dismissed.

(ii)   The hearing concerning the Issue be adjourned to a date to be fixed, with 3 hours reserved, and the Receivers do attend.

(iii)   On a nisi basis, the costs of all Summonses up to and including the hearing on 7 April 2011 be to the Defendants (by original action) and the Plaintiff (by counterclaim) on party and party basis and thereafter on indemnity basis, with certificate for two counsel.

(iv)   On a nisi basis, the costs of the Receivers for attending this hearing and the hearing on 7 April 2011 be borne by the Plaintiff (by original action) and the Defendants (by counterclaim).

(v)   The costs referred to in paragraphs (iii) and (iv) be dealt with by summary assessment on the papers on 3 June 2011 at 9:30 am.   No attendance is required.

(vi)   The Defendants (by original action) and the Plaintiff (by counterclaim) and the Receiver respectively to file and serve a statement of costs within 7 days from today.

(vii)   The Plaintiff (by original action) and the Defendants (by counterclaim) to file and serve their grounds of objections (if any), within 7 days thereafter.

28.  I thank counsel and Mr. Tang for their assistance.