GORGEOUS INVESTMENT GROUP HOLDING CO, LTD v. INDUSTRIAL BANK CO, LTD AND OTHERS

HCA 356/2021

[2021] HKCFI 1966

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 356 OF 2021

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BETWEEN

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REASONS FOR DECISION

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INTRODUCTION

1.  Pursuant to the summons issued on 8 March 2021 (“Summons”), the plaintiff (“P”) seeks (1) an interim mandatory injunction against the 3^rd and the 4^th defendants (“Mandatory Injunction”) and (2) an interim prohibitive injunction (“Prohibitive Injunction”) against all 4 defendants.

2.  For the Mandatory Injunction, P essentially seeks an order requiring the 3^rd and 4^th defendants (collectively “Receivers”) to (i) allow P to attend and vote at the special general meeting (“SGM”) of the Hong Kong publicly listed company China Smarter Energy Group Holdings Limited (“CSE”) in respect of the sale of a subsidiary made by CSE on 27 January 2021 (“Disposal”), or (ii) vote in favour of the Disposal.  At the hearing, P requested that its application for the Mandatory Injunction to be adjourned sine die.  The Receivers asked that P’s application be dismissed.

3.  As for the Prohibitive Injunction, P seeks an interim order to restrain all 4 defendants (D1 and D2 respectively referred to herein as “Bank” and “Broker”) from selling P’s shares in CSE charged to the Bank.

4.  At the hearing before this Court, Counsel Mr James Wood appeared for P, Mr Maurellet SC leading Ms Connie Lee and Ms Ellen Pang appeared for the Bank and the Broker, and Mr Victor Dawes SC leading Mr Alexander Tang appeared for the Receivers.

5.  At the end of the hearing, this Court declined to grant the injunctions sought by P and dismissed both P’s application for the Prohibitive Injunction and P’s application for the Mandatory Injunction.  The reasons for the Court’s decision are set out hereinafter.  

BRIEF BACKGROUND

6.  P is a BVI company and is/was at all material times ultimately owned and controlled by a Mr Ko Ting Kwok also known as Gao Tian Guo/高天國 (“Mr Ko”).  Mr Ko is also the ultimate beneficial owner and controller of other companies including two Hong Kong companies Rich Crown International Industries Limited (“Rich Crown”) and Creaton Holdings Limited (“Creaton”).

7.  As for the defendants, the Bank is a licensed bank carrying on business in Hong Kong and the Broker is a securities brokerage company incorporated in Hong Kong.  The Receivers are partners of Deloitte Touche Tohmatsu and were appointed by the Bank on 7 December 2020 as receivers over the Charged Shares (as defined later) under Clause 11 of the Account Charge (as defined later).

8.  It is P’s case that in about April 2018, Mr Ko was introduced by his then business associate Mr Li Liang (also known as Lai Leong)/黎亮 (“Mr Li”) to two employees of the Bank, namely Mr Dong Feng, the Executive Officer and the Head of the Capital Market Department of the Bank (“Mr Dong”) and his then superior Mr Xia Weilun (“Mr Xia”), and that at this meeting in April 2018, Mr Li, Mr Dong and Mr Xia persuaded and thereafter caused Mr Ko to use one of his corporate vehicles (namely Rich Crown which was incorporated on 21 June 1994 in Hong Kong) to borrow money from the Bank and to invest the borrowed money into a project in Malaysia via a BVI company owned by controlled by Mr Li, Asia Elite Investment Limited (“Asia Elite”)[1].

9.  Although it is not disputed by the Bank that there was a meeting during which Mr Ko was introduced by Mr Li to Mr Dong and Mr Xia, the Bank’s case was that this meeting took place over a lunch in or about May 2018 (“Introduction Meeting”)[2]. It is denied by Mr Dong and the Bank that there had been any information and/or discussions and/or misrepresentations made by Mr Dong and/or Mr Xia, as now alleged by P and/or Mr Ko to have taken place during the Introduction Meeting.

10.  Further, according to the Bank, after the Introduction Meeting, Mr Dong assigned a relationship manager of the Bank, Mr Gary Law (“Mr Law”), and Mr Ko assigned a Ms Zhao Li (“Ms Zhao”) at that time a director of CSE[3], and a Mr Eric Suen (“Mr Suen”) as Mr Ko’s team to discuss with the Bank regarding the potential grant and use of P’s loan facilities[4].

11.  It is the Bank’s pleaded case in the 298 Action (as defined later) that it was Mr Ko and/or his team who proposed to make use of the Bank’s loan facilities to finance a project in Panama but the Bank’s credit department was of the view that Panama was a high risk country.  Mr Ko and/or his team therefore proposed that the loan facilities should instead be used to finance Mr Ko’s investment in a project in Malaysia, and that Malaysia was considered by the Bank’s credit department to be a relatively low risk country[5].

12.  On 19 September 2018, an email was sent by Mr Law on behalf of the Bank to Mr Suen (at an email address at CSE), enclosing a preliminary draft of the loan facility agreement prepared by the Bank’s solicitors[6].

13.  Thereafter, a bank account was opened in the name of Mr Ko’s company Rich Crown with the Bank on 28 September 2018, as seen in an account opening form of that date (“Account Opening Form”)[7].  Mr Ko and one Mr Cheng Kwun Fu (“Mr Cheng”) were stated therein to be the directors and shareholders of Rich Crown, with Mr Ko being a 99% shareholder.  There were two persons authorised to authenticate all instructions in connection with the operation of all existing and future accounts and all services provided to the account holder in connection with all transactions, and the two persons were Mr Ko and Ms Zhao.  Ms Zhao was thus one of the authorized signatories for Rich Crown’s bank accounts with the Bank, although she was not a director of Rich Crown.  The reason for Rich Crown to set up an account in Hong Kong with the Bank was stated in the Account Opening Form to be for a loan[8].

14.  On 10 October 2018, Mr Suen replied to Mr Law’s email of 19 September 2018 confirming that the draft loan facility agreement was read by their side’s lawyer and that the agreement was based on the APLMA form, and that there was no problem on their side[9] (“10.10.18 Email”).  The 10.10.18 Email was copied by Mr Suen to Ms Zhao at “zhaoli; Rachel Zhao”, and also Mr Dong.

15.  On 6 December 2018, Rich Crown signed a Chinese investment cooperation agreement with Asia Elite (“Investment Cooperation Agreement”)[10].  It was stated in the recital of the Investment Cooperation Agreement that Asia Elite was intending to acquire 100% in an industrial park project in Malaysia and to invest in the expansion and development of the project (“Malaysian Project”) with a total investment of USD 290 million and that Rich Crown was intending to cooperate with Asia Elite to jointly invest in the project, with Rich Crown investing USD 125m by way of a loan to Asia Elite and that Asia Elite was to invest USD 165m, and that 21 months after completion of the acquisition of the target company, the Malaysian Project was to be injected into a company publicly listed in Hong Kong.  As seen in Clause 1.4 of the agreement, the target company is called East Coastal Development Limited (“Target Company”), which was owned by Bright Ruby Investment Holding Limited, a company which was said to be controlled ultimately by Rizhou Steel Holdings Group Co Ltd, a private Mainland company.  Bright Ruby was to sell the Target Company at USD 120m to Asia Elite.

16.  Clause 2.1 of the Investment Cooperation Agreement stated that Rich Crown was to inject the amount of USD 125m by way of a loan to Asia Elite.  Clause 2.4 stated that Asia Elite was to be responsible for injection of all assets of the Target Company or the Target Company itself within 21 days after acquisition into a Hong Kong listed company at a price of not less than USD 350m.  Clause 2.5 stated that Asia Elite was to apply 40% of the total price at the time of injection into the listed company towards the repayment of the loan to Rich Crown and Rich Crown’s share.  Clause 2.6 then stated that in the event of the injection into the listed company failed to take place within the agreed deadline, the parties were to discuss further an extension of time or alternatively, Rich Crown had the right to terminate the Investment Cooperation Agreement.  Under Clause 2.7, if the injection into the listed company failed to take place or the injection price was less than USD 350m, or the injection failed to take place within 24 months (or any agreed extended deadline) after Rich Crown’s injection of USD 125 m, Asia Elite had to pay to Rich Crown USD 125m plus an additional 8% as repayment of the loan from Rich Crown to Asia Elite.

17.  On 12 December 2018, a facility agreement (“Facility Agreement”) was entered into by the Bank as the lender, Rich Crown as the borrower, Mr Ko as personal guarantor and Creaton as corporate guarantor[11].  Under the Facility Agreement, the Bank agreed to make available to Rich Crown a revolving loan facility of not exceeding HKD 800m (“Loan Facility”).

18.  Although the Facility Agreement had referred to an “Acquisition Agreement” being the sale and purchase agreement entered or to be entered into between, amongst others, Asia Elite as purchaser and Bright Ruby as seller of the Target Company, so far as this Court can see, no “Acquisition Agreement” has been produced by the parties.

19.  On the same day of the execution of the Facility Agreement, 12 December 2018, a deed of account charge (“Account Charge”) was executed by P and the Bank for P to charge its securities trading account opened and maintained by the Broker together with 4,060,000 (or around 43.65%) shares in CSE deposited therein by P in favour of the Bank (“Charged Shares”)[12].  Further, on the same day, a tripartite agreement (“Tripartite Agreement”) was executed between P, the Bank and the Broker, pursuant to which, P charged all its rights, title and interest from time to time and in and to the Charged Shares, together with all related rights, in favour of the Bank as security for the Loan Facility for Rich Crown[13].

20.  On 18 December 2018, there was further a general agreement executed by Rich Crown to the Bank and signed by two signatories namely Mr Ko and a Mr Cheng (“General Agreement”)[14] pursuant to which the Bank had the overriding right at any time and at its sole discretion to, amongst other things,  demand immediate repayment of all outstanding indebtedness, liabilities and/or obligations due, by the customer, ie Rich Crown, in respect of all credit and other facilities and/or to terminate or cancel all or any of credit and other facilities granted to the customer (ie Rich Crown) by the Bank.

21.  It is P’s pleaded case that at the time of execution of the Facility Agreement and the General Agreement, Mr Dong and/or Mr Xia had required as a condition of drawing down of the Loan certain undated but ‘pre-signed’ documents by Mr Ko (“Pre-signed Documents”)[15].

22.  One of the Pre-signed Documents was a “utlitisation request”[16].  A utilisation request was then dated 19 December 2018 (“Utilisation Request”) for draw down of a loan in the sum of HKD 785m (“Loan”).

23.  Pursuant to the agreements executed including those above mentioned and the Utilisation Request, on 20 December 2018, the Bank transferred the sum of HKD 753m (being the principal of the Loan of HKD 785m less the Bank’s handling fee of HKD 32m) (“Net Sum”) to the bank account of Rich Crown maintained with the Bank.

24.  On the same day, ie 20 December 2018, a “Cheque Deposit and Transfer Slip” (“Transfer Slip”) was signed by Ms Zhao on behalf of Rich Crown, for the transfer of the Net Sum from Rich Crown’s bank account to the bank account of Asia Elite also maintained with the Bank[17].  It was alleged by P that the Transfer Slip was also an undated Pre-Signed Document, which was dated by the Bank[18].

25.  Ms Zhao is now alleged by Mr Ko to be a close confidant and a friend of Mr Li’s and who had worked closely with Mr Li at CSE before Mr Ko bought the controlling interests at CSE from Mr Li.  There was no evidence produced by Mr Ko in support of his allegation.  What is clear is that Ms Zhao was a director of CSE until about 30 August 2019[19] and Mr Ko bought his controlling interest in CSE in 2016, and Mr Ko was the Executive Director and Vice Chairman of the Board of CSE prior to 30 August 2019.  There was also no evidence to contradict the Bank’s case that Ms Zhao was part of the team assigned by Mr Ko in relation to the negotiation over the loan facilities to be provided by the Bank.

26.  On 27 November 2019, Rich Crown defaulted in payments to the Bank.  By a letter dated 18 December 2019 to Rich Crown and 2 letters dated 7 January 2020 to Mr Ko and Creaton respectively, the Bank’s solicitors demanded repayment of the Loan and interest on behalf of the Bank. 

27.  It is not disputed that Rich Crown made a further payment of interest in the amount of HKD 3,490,663.35 on 22 January 2020.  Thereafter no further payments have been made to the Bank. 

28.  On 12 March 2020, the Bank commenced an action in the High Court, namely HCA 298/2020, as plaintiff against the borrower Rich Crown, and the guarantors Mr Ko and Creaton as defendants to recover the Loan and interests and costs (“298 Action”).

29.  In their Defence and Counterclaim in the 298 Action, Rich Crown, Mr Ko and Creaton alleged that the Bank conspired with Mr Li to defraud them, and that the Bank was negligent in failing to ensure that the Loan was properly applied for the intended purpose.  The Bank has applied for summary judgment in the 298 Action which is yet to be heard.

30.  In May and July 2000, two other creditors presented winding-up petitions against CSE and this amounts to another event of default under Clause 22.7 of the Facility Agreement[20]. On 7 December 2020, the Bank then appointed the Receivers over the Charged Shares[21].

31.  P issued the writ in the present action on 8 March 2021.  It is P’s pleaded case in the statement of claim (“SoC”) that the Facility Agreement, the Account Charge and the Tripartite Agreement (together with several other agreements pleaded therein) (“Agreements”)were entered into by P by reason of, amongst other things, the reliance upon fraudulent misrepresentations and/or in furtherance of a conspiracy against Mr Ko, Rich Crown and Creaton in which the Bank participated, and that the Facility Agreement is unenforceable as there is a total failure of consideration.  P has averred that the Account Charge and the Tripartite Agreement are liable to be rescinded and are void ab initio, and that the appointment of the Receivers was illegitimate and they should be removed from office.

32.  It is P’s case that at all material times, Mr Li , Mr Dong and/or Mr Xia knew or ought to have known that there was no Malaysian Project at all that was suitable for investment and they were involved in a conspiracy against P and Mr Ko[22].  It is argued on behalf of P that the Account Charge should be set aside because the Bank conspired with Mr Li and/or made misrepresentations and/or was negligent in handling Rich Crown’s account and/or dishonestly assisted Mr Li.  The causes of action thus pleaded in the SoC include: (i) conspiracy; (ii) deceit/misrepresentation; (iii) negligence/breach of Quincecare duty of care; (iv) dishonest assistance.

THE EVIDENCE

33.  P’s case was supported by the 1^st, 2^nd and 3^rd affirmation of Mr Zhang Liang, an Executive Director and Chief Executive Officer of CSA who was appointed as Chairman of the Board and an Authorised Representative and Process Agent on 30 August 2019[23] (“Mr Zhang”), the 1^st and 2^nd affirmation of Mr Ko.

34.  The Bank’s and the Broker’s case was supported by an affirmation of the Bank’s Hong Kong Branch Assistant General Manager of Risk Management Ms Cao Xiao Man (“Ms Cao”) and an affirmation of Mr Dong.  The Receivers’ case was supported by an affirmation filed by the 4^th defendant Mr Ho Kwok Leung Glen (“Mr Ho”).

THE PROHIBITIVE INJUNCTION

Relevant legal principles

35.  The relevant legal principles in relation to the granting or refusal of an interim injunction set out in American Cyanamid have further been explained by Ribeiro JA (as he then was) in Wah Nam Holdings Co Ltd v Excel Noble Development [2003] 3 HKC 118, and are well settled.

36.  As submitted by Mr Wood, the demonstration of a serious issue to be tried is not a high threshold.  However, as pointed out by Mr Maurellet, allegations of fraud or serious dishonest conduct should be supported by cogent evidence[24].

P’s pleaded case

37.  To summarise, P’s allegations against the Bank and/or the Broker in the SoC can be categorised as follows:

(1) Deceit/Misrepresentation/Conspiracy to defraud/Dishonest assistance allegations

(2) Negligence/Breach of Quincecare duty allegations

(3) Estoppel claim

38.  As mentioned, P’s case against the Receivers in the SoC is essentially that the Agreements are void ab initio and that the Bank was not entitled to appoint the Receivers pursuant to the Account Charge and that they should be removed.

DECEIT / MISREPRESENTATION / CONSPIRACY TO DEFRAUD / DISHONEST ASSISTANCE ALLEGATIONS

39.  The conspiracy as pleaded by P (“Conspiracy”) was that Mr Li, Mr Dong and/or Mr Xia knew or ought to have known that there was no Malaysian Project or that it was a suitable investment, that they conspired to procure the Loan be paid to Asia Elite, and that Mr Li would be in a position to misappropriate the funds for his personal gain instead of for investment in the Malaysian Project, and that the Charged Shares would become available to be re-purchased by Mr Li at a substantial discount by Mr Li if the Account Charge were enforced, and further the Bank would obtain substantial fees and charges in respect of the Loan and that Mr Dong and/or Mr Xia stood to gain financial benefit by way of bonus or commission payments.  Further, the means through which the Bank, Mr Li and Asia Elite gave effect to the Conspiracy included the 1^st Representation, 2^nd Representation and the 3^rd Representation as defined in the SoC.

40.  The 1^st Representation was alleged to be made to Mr Ko by Mr Li and Mr Dong orally during the Introduction Meeting, that amongst other things the Malaysian Project was a legitimate and proper investment opportunity and Mr Dong was trustworthy and would act in an ordinary and usual business manner and the prospect of the Bank enforcing the charge was remote.

41.  The 2^nd Representation was alleged to be made to Mr Ko and/or Rich Crown, after the Introduction Meeting, by reason of the Investment Cooperation Agreement and a “Business Plan” (as defined in the SoC and as contained in the Investment Cooperation Agreement) being prepared by Mr Li without any input from or negotiation with Mr Ko and intended to cause Mr Ko and Rich Crown to form the belief that the Malaysian Project was a legitimate investment and that there was a likely prospect of a substantial profit to Rich Crown.  The 3^rd Representation was alleged to be made by Mr Dong orally, after the Site Visit (as defined later), in updating Mr Zhang the progress of the Malaysian Project and telling Mr Zhang that there were no issues and everything was in order.

42.  Mr Dong had emphasised in his affirmation that the Bank is and never was a party to or otherwise involved in the Malaysian Project, which was purely an investment as between Mr Li and Mr Ko and/or their respective corporate vehicles and that neither the Bank nor Mr Dong had ever introduced the Malaysian Project to Mr Ko. 

43.  Mr Dong had in his affirmation also denied that he had ever made any of the 3 Representations to Mr Ko and that said in fact it was the Bank which had relied on representations made by Mr Ko and his corporate vehicles, referring to Clause 19 and Section 8 of the Facility Agreement, before it agreed to grant the Loan Facility.  Further, Mr Dong pointed out that Mr Ko is a sophisticated business person with experience in making investments in and managing listing companies.  Mr Ko is/was a substantial shareholder of Anxin Trust Co Ltd (“Anxin”), a company listed on the Shanghai Stock Exchange and that he was the Executive Director and Vice Chairman of the Board of CSE prior to 30 August 2019.  Mr Dong further pointed out that it did not make any sense for Mr Ko to enter into a transaction involving a substantial amount purely based on representations said to be made by Mr Dong and/or Mr Li when Mr Ko himself had acknowledged that he had never had any previous dealings with the Bank. 

44.  Mr Zhang has described himself as having considerable experience of involvement in financing transactions , and that before his appointment to the Board of CSE, he said he worked for Anxin in Mainland China during which period he was involved in many financing transactions in relation to infrastructure projects with facility amounts ranging from RMB 200m to RMB 500 billion and that since his appointment to the Board of CSE, he had assisted Mr Ko in his business affairs and that Mr Zhang himself understands English[25].  Thus, even though Mr Ko himself does not understand English, as said by Mr Dong, Mr Ko is clearly a sophisticated business person with experience in making investments in and managing listing companies and he has assistance from his subordinates such as Mr Zhang. 

45.  In fact, Mr Ko’s present evidence is that the Introduction Meeting was for him to borrow a loan from the Bank for an investment in a project in Panama.  Thus, it seems whether Mr Ko understands English or not, this would not affect him in investing in projects in other parts of the world or borrowing money for this purpose. 

46.  Mr Ko also had had the benefit of independent legal advice.  In the 10.10.18 Email mentioned earlier sent by Mr Suen to Mr Law in relation to the “Rich Crown -draft loan documents”, Mr Suen had in his email confirmed that their side’s lawyer had read the documents and that they had no problems with the draft.

47.  Further, prior to Mr Ko signing the Facility Agreement, the Bank had sent him a “Warning Notice” on 7 December 2018[26] and clause 7 therein stated that Mr Ko was recommended to instruct his own solicitor.  Mr Ko had signed a confirmation that he confirmed that he had read the “Warning Notice” and that he fully understood its contents. Clause 19.6 of the Facility Agreement also stated that prior to the signing thereof, Mr Ko had been advised by his own legal advisors in relation to him being the personal guarantor.  

48.  Having regard to what was said above, for Mr Ko now to claim that he relied on Mr Li and the Bank’s employees completely as he could not speak or read English at all and had no independent knowledge about the Malaysian Project did not seem to be probable.  

49.  In any event, whether Mr Ko had any independent knowledge about the Malaysian Project or not, even on Mr Ko’s own case, the Malaysian Project was a project of Mr Li’s and/or Asia Elite’s.  As seen later in this judgment, Mr Ko had said it was Mr Li who proposed and introduced the project to him.  There was no evidence at all that the Malaysian Project was a project of the Bank or that the Bank had any interest in the project.  The fact that the Bank had charged HKD 32m for handling fee for the Loan Facility does not mean that the Malaysian Project was a project of the Bank or that the Bank had any interest in the project itself.

50.  As seen in paragraph 4.1 of the Facility Agreement, it was stated clearly that Rich Crown was to apply all amounts borrowed towards a loan or loans to Asia Elite for its application towards financing the payment of part of the acquisition price and part of the production cost of blast furnace pellets by and part of the expansion cost of the factory site owned by the Target Company and that the Bank was not bound to monitor or verify the application of any amount borrowed.  Thus, Mr Ko was fully aware that the Net Sum was provided directly to Asia Elite through Rich Crown, and the Bank had no duty to monitor or verify the destination of the Net Sum.  In fact, it was stated in Clause 21.18 of the Facility Agreement, that it was the duty of Rich Crown to deliver to the Bank within 90 days from the drawdown of the Loan documentary evidence showing that all amounts payable by Asia Elite at the closing of the acquisition of the Target Company had been duly paid in accordance with the terms of the acquisition agreement[27].  There was no evidence that Rich Crown had complied with its obligation.

51.  It was however Mr Ko’s allegation that as Asia Elite provided no information to Rich Crown regarding the Malaysian Project, Rich Crown was unable to comply with the above mentioned Clause 21.18(b) and that the Bank seemed unconcerned by not requiring Rich Crown to satisfy Clause 21.18(b) and this was relied on by Mr Ko to show that the Bank had turned a blind eye and that the Bank knew or ought to have known the Malaysian Project was not a real or viable investment.  The fact that the Bank failed to follow up or to remind Rich Crown of its obligation under Clause 21.18(b) does not mean the Malaysian Project was not a real or viable investment or that the Bank knew or ought to have known of such.

52.  As for the alleged 1^st, 2^nd and 3^rd Representations , these were not mentioned in the Defence & Counterclaim in the 298 Action.  In any event, there was no proper evidence to substantiate the three Representations as pleaded. 

53.  In so far as the 1^st Representation was concerned, all Mr Ko said in his 1^st affirmation in relation to the Introduction Meeting was that the Bank represented that it could arrange finance if he were to undertake an investment in the Malaysian Project proposed by Mr Li[28].  Mr Ko further said it was Mr Li who introduced the proposal to him and prepared the Investment Cooperation Agreement, and that he had no knowledge of the Malaysian Project other than as represented to him by Mr Li.  All he said was that Mr Dong and Mr Xia “steered ” him towards the Malaysian Project (and away from his preferred project, being the project in Panama) at the Introduction Meeting[29].  Then in his 2^nd affirmation, he claimed that he attended this meeting solely to discuss funding for an investment in Panama and that Mr Dong’s refusal to fund this investment was “deliberate” and that “they brought [him] to the [Introduction Meeting] under false pretences; there was never any intention on the part of [the Bank] to finance the project in Panama, rather it was a ruse to present the Malaysian Project to [him]” and he then went on to say that the Introduction Meeting was not an ordinary business meeting at all, but the execution of “a well-hatched scheme”[30]. 

54.  However, apart from making those unsupported allegations against the Bank and maintaining that he did rely upon the representations made at the Introduction Meeting[31], he did not make clear whether in his 1^st or his 2^nd affirmation as to the particulars of the 1^st Representation, or how he was being “steered” by Mr Dong and Mr Xia.

55.  As for the 2^nd Representation, Mr Ko did not mention any 2^nd Representation in his affirmations.  The fact is that the Investment Cooperation Agreement (with the so-called “Business Plan” contained therein) was all prepared in Chinese, and Mr Ko himself had himself signed it.  P’s pleaded case is that the agreement was prepared solely by or upon the instruction of Mr Li[32]. This was also his own evidence in his 1^st affirmation[33].  There was no evidence that the Bank and/or Mr Dong and/or Mr Xia had been involved in the drafting or preparation of that agreement at all.  It is really not clear as to what the 2^nd Representation was based on.

56.  As for the 3^rd Representation, as pointed out by Mr Maurellet, this was alleged to have occurred after 21 October 2019, some 10 months after the execution of the Facility Agreement and the Account Charge and thus Mr Ko and/or his corporate vehicles could not be said to have been induced by the 3^rd Representation in executing the Agreements.

57.  Further, according to Mr Zhang’s 1^st affirmation, Mr Li had admitted to Mr Zhang during several meetings since October 2019 that he had taken all of the Net Sum transferred by Rich Crown to Asia Elite for his personal use and not for investment in the Malaysian Project and that Mr Li had said that he took the Net Sum because the money was owed to him by Mr Ko[34]. 

58.  Thus even on P’s own evidence, Mr Li’s alleged fraud and misappropriations of the Net Sum was discovered by P in October 2019 and yet Mr Li has not been sued, nor joined in the present action or in the 298 Action, and further Mr Ko continued to cause Rich Crown to make payment of the interest on the Loan to the Bank up till January 2020.  There was also no evidence that Mr Ko or his corporate vehicles had raised any sort of complaints to the Bank, or any criminal complaint, in relation to the alleged fraud and misappropriation of the Net Sum by Mr Li, notwithstanding the discovery of the alleged fraud in October 2019, and this was even so when the Bank issued demand letters on 18 December 2019 and 7 January 2020.  P’s complaints were raised only after the Bank commenced the 298 Action. 

59.  Mr Ko did not offer any explanation in his 1^st affirmation as to why he had in fact written to the Bank on 5 March 2020[35] explaining that Rich Crown defaulted in repayment of the Loan “due to the business environment and operating conditions both internally and externally”, and asking the Bank to give him more time to dispose of his assets and that he undertook to repay the Loan as soon as possible (“05.03.20 Letter”).

60.  Even after this was pointed out in Ms Cao’s affirmation and a copy of the 05.03.20 Letter was produced therein, there was still no explanation from Mr Ko in his 2^nd affirmation as to why he had sent the 05.03.20 Letter.  It was Mr Zhang who purported to explain on behalf of Mr Ko in Mr Zhang’s 3^rd affirmation. 

61.  Mr Zhang’s evidence in his 1^st affirmation was that he had a meeting with Mr Dong in his office on 2 October 2019 in which Mr Dong demanded Rich Crown to make further payments of interest due pursuant to the Facility Agreement, and according to Mr Zhang, Mr Dong had informed him that the information regarding the Malaysian Project had been provided to the Bank by Mr Li’s employees/agents and that on 3 October 2019, a site visit of the Malaysian project was proposed by Mr Dong’s assistant.  The site visit did take place on 21 October 2019 by representatives of the Bank including Mr Dong and Mr Law, representatives for Asia Elite and Mr Li and also a Mr Gao Li, then a director of CSE, as representative of P and Rich Crown (“Site Visit”).  Mr Zhang himself did not attend the Site Visit but produced photographs said to be taken by P’s representative Mr Gao Li and it was Mr Zhang’s allegation that those photographs taken by Mr Gao Li were very different from those provided to him by the representatives of Asia Elite. 

62.  It was Mr Zhang’s evidence that it was clear from those photographs and from Mr Gao Li’s visual inspection that there was no proper development on the site which looked abandoned.  Mr Zhang’s evidence was thus that based on the observations made by P’s representative after the Site Visit and further investigations, he believed the Malaysian Project was a sham[36].  It was Mr Zhang’s evidence that yet, Mr Dong orally reported to him after the Site Visit that everything was in order.

63.  What was alleged by Mr Zhang was denied by Mr Dong.  Mr Zhang himself did not attend the Site Visit and there was no affirmation filed by Mr Gao Li in support Mr Zhang’s allegations about the site looking abandoned.  In any event, as Mr Dong had emphasised, the Bank maintained no duty to Mr Ko and his corporate vehicles to investigate or to manage their underlying investment and the Malaysian Project was not the Bank’s project and the Bank was never an advisor of Mr Ko or Rich Crown in respect of their investment in the Malaysian Project.

64.  According to Mr Zhang, on 10 November 2019, he told Mr Dong in a restaurant about Mr Li’s oral admission that the investment had been misappropriated by him for his personal use and alleged that Mr Dong appeared unconcerned and that when Mr Zhang complained that it was unfair for the borrower to repay the Bank when Mr Li was the wrongdoer, and Mr Dong had then told him that he would help the borrower to negotiate with Mr Li.  Further, Mr Zhang’s evidence in his 1^st affirmation was that when the 24 month period (being 24 months after Rich Crown’s injection of USD 125m on 20 December 2020)[37] expired on 21 December 2020, he was advised that Rich Crown was entitled to insist that Asia Elite to repay the Loan together with interest, and that he had instructed P’s present solicitors on behalf of P and the borrower to pursue action against Asia Elite and Mr Li.

65.  However, up until the hearing before this Court, there was no information about any action having been issued against Asia Elite and/or Mr Li and/or Mr Li’s alleged confidante Ms Zhao.

66.  As for the payment of interest by Rich Crown and the 05.03.20 Letter, Mr Zhang’s explanation in his 3^rd affirmation was that Mr Dong had called him from time to time between October 2019 and March 2020 and that Mr Zhang was told that the Bank was pressuring Mr Dong to secure repayment of the Loan and that if the monthly interest of the Loan was not repaid on time, the Bank would sue to recover the Loan and dispose of the Charged Shares and that Mr Dong had said words to the effect that he had not given up on helping the borrower to pressure Mr Li for a settlement and that it would be impossible once the Bank started litigation.  Further, Mr Dong told him that if Mr Ko was to write a “non-binding” letter of intent to the Bank Mr Dong would double his efforts to “calm down” his internal “credit control department” and to continue to provide help to secure a settlement with Mr Li[38].

67.  Mr Zhang claimed in his 2^nd affirmation that the 05.03.20 Letter was written in the above context, namely Mr Dong’s offer to help to negotiate with Mr Li and/or to calm down his internal credit control department.

68.  As pointed out by Mr Maurellet, this purported explanation by Mr Zhang was never mentioned in the previous affirmations filed by Mr Ko and Mr Zhang or in the SoC herein or the Defence & Counterclaim in the 298 Action.  There were no contemporaneous documents produced by P to support Mr Zhang’s allegations.

69.  In any event, I agree with Mr Maurellet that it does not make sense for Mr Ko to act pursuant to Mr Dong’s instruction to pacify the Bank’s credit control department, when Mr Ko’s or P’s case is that the Bank and Mr Dong had acted in the Conspiracy with Mr Li to defraud him.

70.  As seen in paragraph 4 of the Defence and Counterclaim filed on 5 August 2020 in the 298 Action, Mr Ko had made no mention of any investment in a project in Panama[39]. In fact, the investment in a project in Panama seemed to be first brought up by the Bank in its Reply and Defence to Counterclaim filed on 29 October 2020 in the 298 Action and that according to the Bank, this was mentioned by Mr Ko’s team subsequent to the Introduction Meeting during negotiation pertaining to the grant and use of loan facilities between the Bank’s team and Mr Ko’s team[40].

71.  What is clear is that the “purpose” of the Introduction Meeting was for Mr Ko to utilise his beneficial shareholding in CSE to raise finance in order to undertake investments[41].   

72.  It was for this purpose that Mr Ko and/or his team appeared to have mentioned first a project in Panama and then the Malaysian Project.  The Malaysian Project was introduced to Mr Ko by Mr Li according to Mr Ko’s own evidence[42].

73.  The Investment Cooperation Agreement was in Chinese and Mr Ko must be fully aware that the USD 125m paid by him was to be treated as a loan, and in default, Rich Crown could terminate the agreement, and Asia Elite was to repay the amount.  In fact, apart from the Net Sum which was just under USD 100m, there was no evidence as to whether Mr Ko or Rich Crown had paid the USD 125m in full pursuant to the Investment Cooperation Agreement.

74.  Further, as mentioned during the hearing, on P’s case, there had been fraud and misappropriation of funds by Mr Li, and if this were the case, it was rather surprising that there had been no criminal complaints made by P or Mr Ko against Mr Li and/or Asia Elite, nor any civil action taken by P or Mr Ko against Mr Li and/or Asia Elite immediately upon P’s discovery of the fraud, to restrain Mr Li and/or Asia Elite from dissipating the funds and/or to trace the proceeds of dissipation. 

75.  Having considered the pleadings and all the evidence before this Court, I agree with Mr Maurellet’s submission that the “Deceit/Misrepresentation/ Conspiracy to Defraud/Dishonest Assistance” allegations are made by P against the Bank and/or the Broker for the purpose of frustrating or delaying enforcement action by the Bank, or in other words, an afterthought only and there was evidence to support those allegations.

Negligence/ Quincecare allegations

76.  P’s pleaded case is that the Bank at all material times owed Mr Ko, P, Rich Crown and Creaton a duty of care with the standard of such duty being that of a prudent banker to act in accordance with regulatory codes including the Code of Conduct for Persons licenced by or registered with the Securities and Futures Commission published under the Securities and Futures Ordinance, Cap 571 and the Code of Banking Practice published under the Hong Kong Association of Banks Ordinance, Cap 364 (collectively “Regulatory Codes”). The Bank was alleged to have failed to meet the standard of a prudent banker and breached its duty of care.

77.  P’s complaints in this regard are, amongst other things, that:

(1) The Bank failed to take all reasonable steps to establish whether Rich Crown held a board meeting the authorise the execution of the Account Opening Form and/or failing to make proper enquiries as to whether Ms Zhao was validly authorised by Rich Crown to act on its behalf and/or failing to request for any certified copies of the relevant board resolutions signed by each of Rich Crown’s directors;

(2) The Bank failed to have any or any suitable or effective risk management controls or procedures to ensure that the moneys advanced to Rich Crown and remitted by the Bank to Asia Elite were used solely for investment in the Malaysian Project and/or to carry out any proper due diligence in relation to the Malaysian Project;

(3) The information to be provided by Rich Crown to the Bank was provided in accordance with the Facility Agreement.

78.  As said earlier, it was P’s pleaded case amongst other things that Mr Ko cannot read or speak English and that Mr Ko had no knowledge of the Malaysian Project, and P alleged that the Bank would have or ought to have known that Malaysian Project was not a real or viable investment, and that the Loan would be paid to Asia Elite but would not be used for the Malaysian Project, and that Ms Zhao was not authorised to execute documents on behalf of Rich Crown.

79.  As pointed out by Mr Maurellet, there is no dispute that the Loan was in fact paid into the bank account of Rich Crown per the Utilization Request signed by Mr Ko himself.  Any subsequent transfer from Rich Crown to others had nothing to do with the Bank.  In this respect, as mentioned earlier, Clause 4.2 of the Facility Agreement expressly provided that the Bank was not under any duty to monitor the application of the Loan[43].

80.  As for the transfer from Rich Crown to Asia Elite, this was executed by Ms Zhao who was authorised the authorised signatory on the Account Opening Form for Rich Crown’s bank account with the Bank.  As mentioned earlier, the Account Opening Form was signed by Mr Ko and Mr Cheng, the shareholders and directors of Rich Crown.  A company search has been conducted by the Bank and the shareholding structure of Rich Crown has been certified.  There was no evidence that Ms Zhao was a close confidante or a friend of Mr Li.  Mr Ko cannot now complain that the Bank did not request for any certified copies of the relevant board resolutions or that the Bank failed to establish whether or not Rich Crown held a board meeting to authorise the execution of the Account Opening Form or that Ms Zhao was validly authorised. There were no such complaints in the Defence and Counterclaim in the 298 Action.  In any event, it is P’s own pleaded case that the Transfer Slip signed by Ms Zhao was one of the Pre-signed Documents required by the Bank as a condition for the drawing down of the Loan.  Mr Ko was clearly fully aware of this and that the Net Sum was to be transferred to Asia Elite as soon as it was received by Rich Crown from the Bank.

81.  Mr Ko had made a number of allegations against the Bank without any supporting evidence.  There was no evidence that Mr Li was a close personal associate of Mr Dong.  The fact that Mr Li introduced Mr Ko to Mr Dong would not mean that he was “a close personal associate” of Mr Dong as alleged.  Further, there was no evidence Mr Dong and Mr Xia would benefit financially personally from the “Commission” as pleaded (ie the HKD 32m of the handling fee payable to the Bank) which predicated their taking part in the Conspiracy.

82.  There was also no evidence that Ms Zhao was related to Mr Li.  As mentioned earlier, there was no evidence that Ms Zhao was a close confidante or a friend of Mr Li. In any event, at all material times, Mr Ko knew about the transfer to Asia Elite and had never made any query or complaint until the Bank commenced the 298 Action.

83.  P also alleged that the Bank had failed to carry out “due diligence” in relation to the Malaysian Project.  The burden is on P to demonstrate that there was such a duty on the Bank in the first place.  There was no evidence that there was such a duty, and as mentioned earlier, and reiterated again, Clause 4.2 of the Facility Agreement specifically stated that the Bank was not bound to monitor or verify the application of the Net Sum.

84.  Having regard to the above said, there was simply no sufficient evidence that the Bank was in breach of any of the Regulatory Codes.

85.  P had also pleaded that the Bank was in breach of its Quincecare duty.  It was held in Barclays Bank Plc v. Quince Care Limited and another [1992] 4 All ER 363 that[44]:

“A banker must refrain from executing an order if and for as long as the banker is ‘put on inquiry’ in the sense that he has reasonable grounds (although not necessarily proof) for believing that the order is an attempt to misappropriate the funds of the company (see proposition (3) in Lipkin Gorman v. Karpnale Ltd. (1986) [1992] 4 All ER 331 at 349, [1987] 1 WLR 987 at 1006). And, the external standard of the likely perception of an ordinary prudent banker is the governing one.”

86.  It is P’s pleaded case that the Agreements contained implied terms and that the Bank would discharge its role pursuant to the Agreements with reasonable skill, care and diligence, and in discharging its role, the Bank would comply with its internal policies and relevant laws and regulations relating to the prevention of money laundering, and that the Bank would not follow payment instructions where it had reasonable grounds for believing that the instructions were an attempt to misappropriate P’s funds unless it had made adequate enquiries to satisfy itself of the bona fides of the instructions.

87.  As said earlier, Mr Ko was at all material the Executive Director and Vice Chairman of the Board of CSE and the controlling shareholder of Anxin and he should be experienced in making investments relying on bank facilities.  Further, as pointed out by Mr Maurellet, and mentioned earlier, Mr Ko had received independent legal advice for the transaction and there is no reason for his complaints that he does not read English and knows nothing about the Malaysian Project.

88.  In any event, there was nothing suspicious in the transaction which would put the Bank on inquiry, P did not make clear what the alleged “red flags” were.  There was no evidence that the Bank had reasonable grounds at the time of the drawdown of the Loan and the transfer of the Net Sum to Asia Elite for believing that the instructions were an attempt to misappropriate P’s funds.

Estoppel Claim

89.  As seen in Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAE 1, there are 3 elements necessary for establishing estoppel:

(1) the parties are in a relationship involving enforceable or exercisable rights, duties or powers;

(2) one party (the promisor), by words or conduct, conveys or is reasonably understood to convey a clear and unequivocal promise or assurance to the other (the promisee) that the promisor will not enforce or exercise some of those rights, duties or powers; (emphasis added) and

(3) the promisee reasonably relies upon that promise and is induced to alter his or her position on the faith of it, so that it would be inequitable or unconscionable for the promisor to act inconsistently with the promise.

90.  As pointed out by Mr Maurellet, there was no mention in P’s Skeleton Submissions in relation to this claim[45] and that P seemed to no longer rely on the Estoppel Claim for its present application for injunctive relief.

91.  P’s case is that “[the Bank] knowingly, deliberately or recklessly represented to P, Mr Ko, Rich Crown and Creaton that it would inter alia comply with the Regulatory Codes [the SFC Code and Banking Code] [46]. What is pleaded is not a representation to the effect that the Bank will not enforce or exercise its right, and this cannot give rise to any estoppel.

Whether a serious issue to be tried

92.  I accept the demonstration of a serious issue to be tried is not a high threshold.

93.  However, even so, having considered P’s pleaded case and all the present evidence, I have come to the conclusion that P has not been able to demonstrate that there is any serious issue to be tried. 

94.  This is sufficient to dispose of P’s application for a Prohibitory Injunction.

BALANCE OF CONVENIENCE

95.  On P’s own evidence, two winding up petitions were issued against CSE on 15 May 2019 and 9 July 2019 and as pointed out on behalf of Ds, this raised serious doubts as to CSE’s financial position as a going concern.

96.  The shares of CSE have been suspended from trading since 20 April 2021 as CSE was unable to produce its Annual Report.

97.  In the above circumstances, I agree with the Bank that the share price of the Charged Shares is likely to become volatile or even valueless and if the Bank is prevented from selling the Charged Shares, there is a real and imminent risk that the Bank will not be able to recoup its loss when in reality the Bank had made the Loan to Rich Crown. 

98.  Further, as seen in Mr Ho’s 2^nd affirmation, CSE has been disposing of its assets in the absence of shareholders’ approval and that the Disposal was completed in breach of the Listing Rules.  Mr Zhang and Mr Ko had not denied that the Disposal was unauthorized.  As pointed out by Mr Ho, despite the Receivers’ repeated request, no explanation or update had been provided to the Receivers.

99.  There was no cross undertaking as to damages offered by P.  In any event, P is a BVI company and there was no evidence or information regarding P’s financial position or its ability to satisfy a claim by the Bank and the Broker under any such cross undertaking.  There was no evidence that Mr Ko, the beneficial owner of P and/or Creaton would be in a position to procure P to provide adequate fortification for such cross undertaking.  The evidence showed that the only substantial asset held by Creation and Rich Crown appeared to be the 75.66% shares in Shanghai Gorgeous Investment Development Co, the ultimate parent company of P, but neither Mr Ko nor P has adduced any evidence to show that P has any assets other than the Charged Shares and on the other hand, the Bank has adduced evidence to show that the said parent company of P has been subject to enforcement actions over 10 cases in the Mainland and the total amount involved exceeds at least RMB 535m.

100.  I am of the view that any loss suffered by the Bank may not be adequately compensated by damages.  On the other hand, there is no reason why damages against the Bank and the Broker cannot be an adequate remedy for P, nor is it P’s case that the Bank will not be able to compensate P in the event the Charged Shares are disposed of wrongfully.

101.  Having considered the above, I am satisfied that the balance of convenience weighs against the granting of the Prohibitive Injunction.

THE MANDATORY INJUNCTION

102.  As seen in Mr Dawes SC’s Skeleton Submissions on behalf of the Receivers, the Receivers had recently conducted investigations in relation to the Disposal and CSE and that the investigations showed that in breach of the Listing Rules, the Disposal had in fact already been completed despite there being no shareholders’ approval.  There was no basis nor evidence that the transaction could be unwound.  Further, the Receivers’ case was that the Disposal was made at an inexplicable undervalue and there had been no proper disclosure of CSE’s relationship with the counterparty to the Disposal, Gangsu Jintai and even though the Board of CSE took the view that the Disposal was in the best interests of CSE and its shareholders, there was no supporting evidence of the same. 

103.  Anyway, P decided at last minute to request at the hearing for its application for the Mandatory Injunction to be adjourned sine die, claiming that there was no resolution before the Receivers concerning the Disposal on which they were asked to vote under the Mandatory Injunction.

104.  Having considered the Receivers’ evidence, I am of the view that the Disposal had obviously been completed.  There was no need to seek the Mandatory Injunction.  There was no reason for the Mandatory Injunction to be adjourned sine die, and as submitted by Mr Dawes, it should be dismissed.  I agree.

CONCLUSION

105.  The above were the reasons why this Court refused to grant the Prohibitive Injunction and the Mandatory Injunction, and dismissed the Summons.

COSTS

106.  Costs should follow the event, and I order P to pay the Bank, the Broker and the Receivers the costs of the Summons to be summarily assessed on party and party basis with certificate for 2 counsel. The defendants to submit their respective statements of costs within 14 days and P its list of objections within 14 days thereafter.  The costs summarily assessed shall be paid by P within 21 days of assessment.

107.  The costs order is an order nisi which will be final after 14 days.  Mr Maurellet indicated there was an authority to support indemnity costs to the Bank.  I will leave it to the parties to make any variation application in respect of the order nisi.