YU YINING v. HMVOD LTD

HCA 1347/2021

[2025] HKCFI 502

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1347 OF 2021

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J U D G M E N T

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1.  In this case, the Plaintiff (“P”)  claims against the Defendant (“D”)  for breach of the Deed of Settlement entered by the parties on 10 August 2020 (“the Deed”). In the trial, P is represented by Mr Foster Yim and Ms Winky Wong, and D is represented by Mr Alan KL Au.

Background Facts

2.  D is a company incorporated in the Cayman Islands.  Its shares are listed for trading on the GEM Board of the Hong Kong Stock Exchange (“HKSE”), with stock code 08103.

3.  In or around November 2019, D owed P a principal sum of HK$9.8 million plus interests.  On 8 November 2019, P served a statutory demand on D, and thereafter commenced winding-up proceedings against D.  On 10 August 2020, P and D entered into the Deed.

4.  Under the Deed, the parties agreed that 60% of the outstanding principal and the accrued interest (“the 60% Outstanding”)  be paid on or before 5 December 2020.  The parties also agreed that 40% of the outstanding principal be paid by way of the allotment of new shares (“the New Shares”)  by D to P.

5.  In accordance with the Deed, D repaid the 60% of the Outstanding to P.  Subsequently, P and D signed a consent summons, seeking an order by consent to dismiss the winding-up petition.  On 11 January 2021, the consent order sought by the parties was granted by the Court.

6.  Pursuant to the Deed, on or around 21 January 2021, a share certificate of 5,521,126 shares (“the Subject Shares”)  of D under the share certificate numbered 25798 was issued by way of allotment in favour of P, and the certificate was given to P (“the Share Certificate”).  It was certified on the Share Certificate that P was the registered holder of the fully paid Subject Shares, and P has since been a registered shareholder of D holding the Subject Shares.

7.  However, from 23 July 2021 until now, P could not register the Share Certificate with the Union Registrars Limited (“Union”, the only share registrar of D in Hong Kong)  and thus could not deposit the Share Certificate into the Central Clearing and Settlement System (“the CCASS”)  for trading.

8.  It is a common ground that being unable to deposit the Share Certificate into the CCASS, P would not be able to trade the Subject Shares in the HKSE.

The parties’ Respective Cases

9.  Ps’ pleaded case is as follows:

(1)  On 23 July 2021, P intended to register the Share Certificate with Union in order to deposit the Share Certificate into the CCASS, for the purpose of trading the Subject Shares in the HKSE.

(2)  On 25 July 2021, P was informed by Union that since D had, through its lawyers, reported the loss of the Share Certificate to Union, Union was unable to register the Share Certificate and could not deposit the Share Certificate into the CCASS for trading.

(3)  D’s allegation that the Share Certificate has been lost is untrue.  It is within D’s knowledge that the Share Certificate has all along been in P’s possession and custody. By reporting the alleged loss of the Share Certificate, D is effectively denying P’s interest and entitlement in the Subject Shares, in breach of Clauses 1.3, 1.4 and 1.6 of the Deed.

(4)  Despite repeated enquiries made by P to D by way of telephone calls and emails in relation to the Share Certificate since 26 July 2021, no constructive reply has been received by P.

(5)  On or around 29 July 2021, a staff member of Union, Ms Yip, informed P through a telephone call that D had notified Union that the Subject Shares under the Share Certificate owned by P could not be dealt with.  Union did not know the reason behind such instruction.  No written document was passed by D to Union.

(6)  Subsequent to 23 July 2021, D continued to interfere with and/or deny P’s ownership of the Subject Shares by reason of the following:

(a)  On or about 3 March 2022, P further requested Union to deposit or register the Share Certificate into CCASS for the purpose of trading the Subject Shares in the HKSE.

(b)  On or about 11 March 2022, P was informed by Union that Union had passed P’s request to D, and that as per D’s instruction to Union, Union should request P to provide Union a certified true copy of the Share Certificate (certified by a solicitor of Hong Kong)  for verification purposes before D could proceed to handle P’s request for the Share Certificate to be deposited in CCASS.

(c)  On or about 21 March 2022, P provided Union a true copy of the Share Certificate certified by a solicitor in Hong Kong.

(d)  Subsequent to 21 March 2022, according to a letter from Union to D (with a copy to P’s then solicitors)  dated 7 April 2022:

(i)  Union had informed D on 3 occasions of P’s request and P’s provision of the certified true copy of the Share Certificate; and

(ii)  One Ms Sue Koo from D had informed Union by
e-mail on 4 April 2022 that D would reply to Union by 6 April 2022, yet no reply had been received by Union even as of 7 April 2022.

(7)  As at the date of the Amended Statement of Claim (ie 8 February 2023), D still failed to procure the Share Certificate to be deposited into CCASS.

(8)  By the aforesaid, D has breached the Deed.

10.  In the Amended Defence, the following material facts are pleaded by D:

(1)  Billionaire Asia Limited (“BAL”)  was a private limited company incorporated under the laws of Hong Kong on 6 May 2019.

(2)  By a letter dated 23 July 2021 from BAL to D (“BAL’s Letter to D”), BAL:

(a)  Informed D of the loss of the Share Certificate;

(b)  Stated that they would report to the police and other relevant organizations about the loss of the Share Certificate; and

(c)  Requested D to inform them the whereabouts of the Share Certificate should D know the same.

(3)  By a letter also dated 23 July 2021 from BAL to Union (“BAL’s Letter to Union”), which was received by Union on 29 July 2021, BAL:

(a)  Reported to Union the loss of the Share Certificate;

(b)  Requested for a re-issuance of a share certificate in respect of 5,512,126 shares of D; and

(c)  Requested Union to inform them the whereabouts of the Share Certificate should Union know the same.

(4)  By an email dated 29 July 2021 from Ms Sue Koo (on behalf of D)  to BAL, D referred to the BAL’s Letter to D and requested for more details over the loss.  D received no reply from BAL.

(5)  By a letter dated 19 August 2021 from D’s legal representative Messrs.  Bond Ng Solicitors (“BNS”)  to P’s then legal representatives Messrs.  Cheung & Choy (“C&C”), BNS informed C&C that:

(a)  D had received a report over the loss of the Share Certificate;

(b)  Union had been informed of the loss of Share Certificate; and

(c)  D endeavoured to provide further information on the loss of the Share Certificate once it is available.

(6)  By a letter dated 2 September 2021 from BNS to C&C, BNS provided a copy of the BAL’s Letter to D to C&C.

11.  Apart from pleading the aforesaid material facts, D is merely requiring P to prove her case.  D has not put forward a positive factual case to contradict P’s case.

12.  P commenced the present proceedings on 6 September 2021.

Issues

13.  It is trite that issues are defined by pleadings, not be evidence.[1] In my view, the issues in this case are as follows:

(1)  Whether in the circumstances as pleaded in P’s case, D has breached Clauses 1.3, 1.4 and/or 1.6 of the Deed;

(2)  If yes, what should be the reliefs.

D’s Summons

14.  Up to the pre-trial review stage, D did not file any witness statement in these proceedings.  On 6 December 2024 (slightly more than 6 weeks before the commencement of the trial), D took out a summons (“D’s Summons”)  seeking leave to:

(1)  file and serve the draft witness statement of Mr Lei Nelson (“Lei”)  annexed to D’s Summons (“the WS”); and

(2)  file and serve a supplemental list of documents (in which 17 items of documents are disclosed)  (“the SLOD”)  annexed to D’s Summons.

15.  Originally, the hearing of D’s Summons was fixed before me on 6 January 2025.  However, due to some unforeseeable circumstances, I was unable to hear that summons on that date.  Eventually, D’s Summons was heard at the beginning of the trial.

16.  After considering the parties’ respective submissions concerning D’s Summons, I dismissed the summons, with a costs order nisi that costs of that summons be to P in any event.  Unless there is an application by summons for an order varying that costs order nisi within 21 days[2], the costs order nisi would become absolute without a further order.  I would now give my reasons for dismissing D’s Summons.

17.  Lei is the company secretary of D.  He joined D on 20 November 2023.  The material events in this case occurred in 2021 and 2022.  Plainly, Lei would not have any personal knowledge of those matters.  What Lei could tell would be matters already recorded in documents.  In my view, the WS does not have much probative value.

18.  Further, I am of the view that the matters in the WS are not relevant to the issues to be resolved in this trial.

(1)  According to Mr Au for D, the essential matters addressed by Lei in the WS are as follows:

(a)  the historical background of how various directors or senior management previously involved in the relevant matters have since left D;

(b)  D’s position with respect to the Deed, including the steps D undertook to have the Subject Shares issued to P, as well as the issuance of the Share Certificate;

(c)  the Subject Shares issued to P are freely transferable;

(d)  the procedure by which shares are transferred to CCASS;

(e)  the incident of the loss of the Share Certificate claimed by BAL, D’s stance on such loss, and D’s engagement of Hastings & Co. to resolve any ownership disputes; and

(f)  D maintains a neutral position regarding the ultimate ownership of the Subject Shares.

(2)  With respect, I do not regard these matters being relevant to the issues to be resolved in the trial.

(a)  The change of composition of D’s board of directors and senior management would not affect the outcome of the issues to be resolved in the trial.

(b)  It is common ground that the Deed was executed by P and D, the Subject Shares were issued by D to P, and the Share Certificate was delivered by D to P.  There would be no need for D to adduce evidence from a witness on all these undisputed matters.

(c)  It is also not in dispute that since P could not deposit the Subject Shares to CCASS, P would not be able to trade the Subject Shares in the HKSE.  This is P’s complaint.  To say that the Subject Shares are freely transferrable is not an answer to this complaint.

(d)  Given that common ground as stated in [8] above, the procedure by which shares are transferred to CCASS is not relevant to the issues in this case.

(e)  Documents concerning the alleged loss of the Share Certificate claimed by BAL have already been disclosed and are now in the trial bundles.  In respect the engagement of Hastings & Co to advise D on the ownership dispute of the Subject Shares, in D’s pleaded case, D has never pleaded any ownership concerning the Subject Shares, and D has never raised any defence which is based upon the engagement of Hastings & Co.

(f)  It would not be necessary to tell the Court D’s position regarding the Subject Shares by a factual witness from D’s side.  D can inform the Court their position concerning the Subject Shares through their legal representatives in this trial.

19.  Regarding the documents in the SLOD, I am also unable to see in what way those documents would be relevant to the issues to be resolved in this trial.

20.  By reason of lack of relevance, D’s Summons ought to be dismissed.

21.  Without prejudice to the conclusion above, I am also of the view that there has been substantial delay by D in taking out D’s Summons, and there is no satisfactory explanation regarding the delay.  As per the Order of Master D To dated 30 January 2024, the deadline for D to file and serve any witness statement is 27 February 2024.  D did not file and serve any witness statement by the said deadline.  D did not take out any application for leave to file and serve any witness statement until the trial was only about 6 weeks away.  The application for leave to rely upon the documents as disclosed in the SLOD is equally late.  I do not see any satisfactory explanation from D regarding this lengthy delay.  Plainly, changes in the management cannot be a satisfactory explanation.

22.  The inexplicable delay would cause prejudice to P.  If the materials covered by D’s Summons are allowed to be part of the evidence in the trial, P would need time to do some preparation and make some decisions for the purpose of the trial.  There is no reason to require P to squeeze her preparation and decision-making processes all into a few weeks.[3] In particular, if D is trying to raise any defence based upon their engagement of Hastings & Co, there may be questions concerning waiver of any legal professional privilege.  Those questions would not be easy matters.  It would certainly not be fair to require P to consider all these matters just a few weeks before the trial.

23.  The inexplicable delay and the prejudice to P are further reasons for the dismissal of D’s Summons.

Analysis

24.  A special feature in this case is that although BAL played an important role in the material events in this case, neither P nor D has pleaded that BAL was somehow associated with the other side.  There is also no satisfactory evidence showing that BAL was associated with either P or D.

25.  P has given evidence in the trial to support her case.  I am of the view that P is a straightforward and forthcoming witness.  Her evidence is in line with the contemporaneous documentary evidence.  Subject to the point as set out in [26] below, I accept that the matters mentioned by P in her evidence are true, and I attach weight to her evidence.

26.  At [24] of her witness statement, P said:

“…… In hindsight, from my point of view, [D] planted that alleged letter from [BAL]. [D] issued that letter prepared by them. ……”

With respect, what has been said by P here is her own opinion and speculation.  This is no such allegation against D in P’s pleaded case.  There is also no sufficient objective evidence in support of this allegation.  This point made by P in her witness statement cannot be regarded as a fact.

27.  In her witness statement, P said:

“15. On 23 July 2021, I intended to register the Share Certificate with [Union] in order to deposit the Share Certificate into the CCASS system for the purpose of trading the Subject Shares in the Stock Exchange of Hong Kong (“HKSE”). ……

16.   However, on 25 July 2021, I was informed … that Union refused to proceed my application since [D] has, through its legal representatives Messrs.  Bond Ng Solicitors (“BNS”), reported a loss of the Share Certificate.  [Union] was unable to register the Share Certificate and thus deposit the Share Certificate into the CCASS system for trading.

17.   Repeated enquiries through emails and telephone calls were made by me to [Union] on 27 July 2021, 28 July 2021 and 29 July 2021.  Among one of those telephone conversations on or around 29 July 2021, I was informed by a Ms Yip of Union, who told me that [D] notified [Union] that the shares under the Share Certificate owed by me cannot be dealt with and cannot be registered.  Ms Yip also told me that [Union] has no knowledge of the reason behind such instructions given by [D] as [D] only informed [Union] orally.  Ms Yip suggested me to find out from [D] directly.

18.  I then instructed my then solicitors to make enquiries from [D] on my behalf.  On 18 August 2021, [D], through its solicitors, wrote to my then solicitors stating that [D] received a report concerning the loss of the Share Certificate and that [D] was in the course of obtaining information from the relevant persons who have reported the loss of the Share Certificate.

19.  It was only until 2 September 2021, [D]’s solicitor issued a letter to my then solicitors enclosing therewith a copy of the alleged report from [BAL] alleging the loss of the Share Certificate.

20.  I shall stress that it was only until 2 September 2021, which was more than 1 month after the report of the loss of the Share Certificate, that [D] decided to reached[4] out to me, informing me that [D] had received the alleged report issued by [BAL].  In my opinion, given that [D] admitted that the Subject Shares had been allotted to me and that I am the registered holder of the Subject Shares, the easiest and the most direct way for [D] to ascertain whether there was a loss of the Share Certificate was to ask me instead, rather than forwarding me the copy of the alleged report a month later without directing any enquiries to me about the Share Certificate.

21.  Pause here, I shall also stress that I have no interest in [BAL] and have no knowledge of its existence.  Later I found out from [Union] that [D] told them that [BAL] was a company owned by me, which is obviously and blatantly untrue.”

I accept that the matters as set out in these paragraphs in P’s witness statement are true.

28.  The matters in P’s pleaded case as set out in [9(6)] above are true and supported by the documentary evidence.  In Union’ s letter to D dated 7 April 2022, Union also said:

“According to [D]’s instruction as requested in the Letter dated 23 July 2021 from your solicitor, we have immediately informed [D] via emails and phone calls in relation to any updates on the Share Certificate.

Therefore, we look forward to receiving [D]’s written consent or instruction if the Share Certificate can be released without any delay.”

Union’s letter dated 7 April 2022 shows that D had given some instructions to Union on 23 July 2021, and as a result of those instructions, Union could only process P’s request for depositing the Share Certificate to CCASS after receiving D’s written consent or instruction.

29.  Clause 1.4 of the Deed provides:

“[P] shall[5] at the liberty to transfer and/or otherwise dispose of [the Subject Shares] from the date of allotment.”

In my view, the plain and natural meaning of Clause 1.4 is that the rights conferred upon P shall include the right to deposit the Subject Shares to CCASS, so that P would be able to trade the Subject Shares in HKSE.  D shall not take any step to prevent P from exercising the rights conferred upon her by that clause.

30.  In my judgment, D has breached Clause 1.4 of the Deed by reason of the following:

(1)  On D’s record, P is the registered owner of the Subject Shares.  Further, to D’s knowledge, the Share Certificate has been issued and delivered to P.  BAL is a total stranger to D.  In these circumstances, after receiving BAL’s Letter to D on 23 July 2021 reporting the alleged loss of the Share Certificate, the most natural reaction of D should be immediately approaching P to find out what happened. This has not been done, and there is no explanation as to why this has not been done.

(2)  On 23 July 2021, D did not approach P to try to find out what happened.  On the other hand, D instructed Union not to process P’s request for depositing the Share Certificate to CCASS unless with D’s written consent or instruction.  See [28] above.  See also P’s witness statement, [17].

(3)  There has not been any reply from BAL to D’s email dated 29 July 2021 requesting for more information concerning the alleged loss of the Share Certificate.  No follow-up action has been taken by D.  If D has genuine concern over the alleged loss of the Share Certificate, naturally some follow-up actions would be done.

(4)  As to P’s request for depositing the Share Certificate to CCASS made in 2022 (see [9(6)] above), the evidence shows that D chose to ignore the request and refused to give written consent to Union to process P’s request.

(5)  In view of all the above, the irresistible inference is that D has used BAL’s report of the alleged loss of the Share Certificate as an excuse to prevent P from exercising her right to deposit the Share Certificate to CCASS and to trade the Subject Shares in the HKSE. 

(6)  By reason of the aforesaid, P has breached Clause 1.4 of the Deed.

31.  That being the case, D is liable to P for the aforesaid breach.

32.  P is seeking the following reliefs against D:

(1)  a declaration that P holds the Subject Shares in D;

(2)  an order that D do procure the deposit of the Share Certificate into CCASS; and

(3)  damages.

33.  Given that D has tried to prevent P from exercising all the rights concerning the Subject Shares conferred upon P by Clause 1.4 of the Deed, I agree that the declaration and the mandatory order claimed by P would be necessary.  I would grant the declaration and the mandatory order sought by P. I would allow D to have 35 days to comply with the mandatory order.

34.  As to damages, in my view, the damages should be the diminution of the value of the Subject Shares from 23 July 2021 to present.  Counsel have agreed that the diminution of the value of the Subject Shares from 23 July 2021 to 22 January 2025 would be HK$11,456,336.  I would award this sum to P as damages. Since P’s loss during the aforesaid period has been fully covered by this judgment sum, in my view, interest on this sum should run from 23 January 2025 to the date of this judgment at 1% over the prime rate, and thereafter at the judgment rate until full payment.

Disposition

35.  There be judgment in favour of P, and I make the declaration, the mandatory order, and the award of damages as indicated above.

36.  Subject to one matter, counsel have agreed that costs should follow the event.[6] The only difference between the parties is whether indemnity costs should be awarded to P in the event that P succeeds in the trial.

37.  The principles concerning indemnity costs are trite.[7] Merely pursuing a weak case would not justify indemnity costs.  However, to run a case that one knows, or ought to know, is doomed to fail on the facts and on the law, is conduct that is so unreasonable as to justify indemnity costs.  In my view, D’s case in these proceedings is a case that D knows or ought to know is doomed to fail.  In the circumstances, indemnity costs are justified.

38.  I order that costs of these proceedings, including costs reserved, be to P, to be taxed on an indemnity basis if not agreed.

39.  Lastly, it remains for me to thank counsel for the assistance rendered to the Court.