SUN YAN v. SUPERB JADE LTD AND OTHERS

HCA 813/2014

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D E C I S I O N
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Introduction

1.  On 23 October 2015 I handed down my decision dismissing the application of the 1^st and 2^nd Defendants by Original Action (“the Applicants”) for further fortification against the Plaintiff by Original Action (“Sun”). The Applicants were then represented by Mr Alfred Liang of counsel.

2.  On 6 November 2015, the Applicants took out a summons applying for leave to appeal my decision.  On 5 January 2016, they took out a second summons seeking leave to amend the Draft Notice of Appeal attached to the summons dated 6 November 2015.  Save for the issue of costs, Sun does not object to the amendments sought.  The amendments are accordingly allowed with costs to Sun. The Applicants are now represented by Mr Ronny Wong SC and Mr Newton Mak.  Sun is represented by the same legal team, ie Mr Anson Wong SC and Mr Benny Lo.

3.  In dismissing the application for fortification, I concluded in paragraph 35 of my decision that the Applicants have failed to show a real likelihood of substantial loss as a result of the grant of the Mareva injunction; all they needed is to be protected from the costs of the litigation if the action is dismissed against them; and the fortification in the amount of $1,000,000 paid into court is sufficient for that purpose.

4.  The Applicants advanced six proposed grounds of appeal.  Mr Anson Wong, leading counsel for Sun argues that most if not all of the proposed grounds are based on reliance on evidence not adduced or submissions not advanced at the original hearing and/or a selective reading or misreading of my decision.  

Applicable legal principles

5.  Counsel have no dispute that I have correctly summarised the legal principles applicable to fortification in paragraphs 11 and 12 of my decision.  These principles are reproduced hereunder:

“The legal principles applicable to fortification are well settled. The court has a general power to order fortification where it appears just and proper to protect the defendant by making such an order[1]. Usually, merit of the parties’ case is not a necessary consideration. However, if the plaintiff has a strong case, it may not appear just and proper to make the protection available to the defendant. The burden of showing the need for fortification and the appropriate quantum falls on the defendant seeking fortification[2]. He must show the likelihood of a significant loss arising as a result of the injunction, and demonstrate why he believes the plaintiff will be unable to make good that loss[3]. The court will approach these issues by taking a broad view of the evidence, usually without the need of a detailed enquiry. Whilst there is no obligation on the plaintiff to give full and frank disclosure of his own financial means, circumstances might arise where the absence of financial disclosure by a plaintiff might entitle adverse inference as to his ability to meet his cross-undertaking in damages to be drawn [4].

The same principles are applicable to an application for further fortification.  But in addition, a defendant seeking further fortification is usually required to show change in circumstances which justify further fortification.  In the present case, as the original fortification was a ballpark figure offered by the Plaintiff’s counsel in response to questions from the bench and was made in the absence of the Applicants, I do not find it necessary for the Applicants to show proof of change in circumstances.”

In essence, the party seeking fortification bears the burden of satisfying the court that there is a likelihood that it will suffer significant loss as a result of the injunction and the appropriate quantum.  In approaching these two issues, the court will take a broad view of the evidence without the need of a detailed enquiry. 

6.  Counsel also have no dispute that to obtain leave to appeal, the Applicants have to satisfy the court either (1) that the proposed appeal has a reasonable prospect of success, or (2) that there is some other reason in the interest of justice why the appeal should be heard[5].  Reasonable prospect of success involves the notion that the prospect of succeeding must be more than fanciful, without having to be probable: SMSE v KL [6].  Although the fact that there is, ex hypothesi, a reasonable prospect of success would heavily influence the court’s exercise of discretion, even if the court comes to that view, it still retains in an appropriate case, discretion not to grant leave: Ho Yuen Ki Winnie & Anr v Ho Hung Sun Stanley & Anr[7].

7.  For an appellate court to interfere with the judge’s exercise of discretion, it must be established that the judge has misunderstood the law or the evidence or that the exercise of his discretion was plainly wrong such that it was “outside the generous ambit within which reasonable disagreement is possible”: Re Shun Kai Finance Co Ltd[8]

8.  While the appellate court has power to entertain new points in an appeal, it is clearly and firmly established that new points which are fact sensitive or otherwise affect the course of evidence or conduct of the case at the substantive hearing below should not be allowed.  The same approach is applied when leave to appeal from an interlocutory decision is sought on the basis of some new points which had not been canvassed at the substantive hearing below: LehmanBrown Limited v Union Trade Holdings Inc & Ors[9].

Ground (1) – confusing the Applicants’ intention in mitigation with their likely intention but for the injunction

9.  This ground of appeal is directed at the underlined parts of paragraphs 25 and 29 of my decision.  For completeness, I quote those paragraphs and the preceding one more extensively hereunder:

“24. Mr Liang depicts two scenarios under which the Applicants would suffer potential significant loss. First, he submits that the Applicants would suffer significant loss if the value of the shares in the SWS Account plummets during the time in which the Mareva injunction continues to be in force. Second, the Applicants would suffer loss of making a good harvest even if the value of the shares should surge. These shares are volatile and their prices fluctuate widely. The risk of loss under the two scenarios is always there. The question is how real is that risk and whether the loss is likely to be substantial. Given the volume of shares involved, the loss, if it occurs, is likely to be substantial. Just a ten cent change in the price of the Alibaba shares means $8 million. The remaining question is how real is that risk. In assessing that risk, the court shall place itself in the shoes of the Applicants with their experience in the dealing of the securities concerned and their intention, ask what the Applicants would have done in the circumstances and then postulate the outcome. The Applicants shall not be given the benefit of hindsight of the market condition and price movement.

25. The Applicants are particularly concerned about the 80 million Alibaba shares. Lin said he intended to sell those shares or part of them with the proceeds to be paid into court in order to mitigate the Applicants’ loss, but that was refused by Sun. That was in February 2015 when the share price was in the region of $1.60 per share. His intention then was to lock-in the profit at that price and have the proceeds of sale paid into court without using them in further trading. In the subsequent months, the share price went up to just above $4.90 and then fell to about $3.50 at the time of this hearing and has since fallen further to about $2.00 as at the time of this decision, still well above the intended selling price of $1.60. The Tencent shares performed likewise. The Tibet 5100 and Poly Culture shares did not perform as well, but they carry less weighting in the portfolio. As at the date of this decision, the parties are much better off not selling the Alibaba shares than selling. I would not bind the Applicants to their intention of selling the shares at $1.60 had they not been restrained from trading in the shares. But given their avowed intention to sell, it is most probable that they would not have sold the shares otherwise than below the current market price, which is 25% higher than their target price. They cannot say, with the benefit of hindsight, they would have sold at peak level or at the level at the time of the hearing or at the current market level. As matters now stand, the Applicants are much better off not selling than selling. Furthermore, according to historical data, the share prices are now at the lower end of the range. It is unlikely that there would be much downside from here until conclusion of the proceedings. The likelihood of significant loss as result of plummeting in the value of the shares is not real. The first scenario of the shares plummeting depicted by Mr Liang has not materialised.

…

29. The Applicants’ case under this scenario is that they lost the opportunity of making profit by selling at higher level, buying back at lower level and then ride with the surge.  This scenario is premised on a long term rising trend with a significant correction which provides a buy back opportunity.  It is not open to the Applicants to argue with benefit of hindsight what they would have done at what price levels.  As the historical data show, the share price surged from $1.60, peaked at about $4.90 and then declined to the current level of $2.00.  Again, given their avowed intention to sell at $1.60 if not restrained, the Applicants would have sold the shares not much above that level and most probably not above the current level (which was $2.00).   The probability is that once sold, the Applicants would have no opportunity of buying back at lower level, whether as the share price soared to the peak level of $4.90 or as it turned south thereafter down to the present level.  The correction which is the basic premise of this scenario never occurred deep enough.  As the current price is already near the lower end of this very extended price range, it is unlikely that there would be much downside from here.  The deeper correction necessary to provide an opportunity to buy back is unlikely to occur.  Thus the likelihood of loss of profit from trading of the shares is unreal.  On the contrary, it would be Sun who would suffer significant loss if the Applicants were not restrained and in the event that Sun succeeds in this litigation.  Furthermore, this scenario of selling at high level and buying back at low level is quite inconsistent with Lin’s intention of locking-in the profit and paying the proceeds of sale into court.”

(The parts relied on by the Applicants are underlined.  My emphasis are highlighted in bold print.)

10.  Relying on the parts underlined, particularly the phrase “given their avowed intention to sell at $1.60”, Mr Ronny Wong argues that I failed to recognise that the Applicants’ intention to sell at $1.60 in the particular context meant their intention consequential upon the injunction having been imposed on them, which would be materially different under ordinary trading circumstances in the absence of the injunction.  I shall not summarise Mr Ronny Wong’s submission in full.  In essence, he submits that I erred in construing the evidence by equating the Applicants’ intention to sell and lock in profit when subjected to the restraint under the injunction with what would have been their intention under unrestrained trading circumstances and in total ignorance of the contemporaneous evidence of the Applicants’ past trading history.

11.  With respect to Mr Ronny Wong, I adopted the proper approach by reminding myself in paragraph 11 of my decision that the relevant issue was the likelihood of significant loss arising as a result of the injunction.  Then, in paragraph 24 of my decision, I proceeded to assess that likelihood by placing myself in the shoes of the Applicants with their experience in dealing with the securities concerned and asked what would they have done in the circumstances and then postulated the outcome. 

12.  It must be borne in mind that the Applicants bear the burden of showing the likelihood of significant loss.  If, given their experience, they wished to rely on what they would have actually done or intended to do but for the injunction, they have to satisfy me as to their past trading experience, what was the likely price movement and the cause or reason for such movement, the volume and the price at which they would sell and buy back and the loss they would suffer as a result of the restraint.  Instead, what the Applicants relied on was volatility of the shares only, particularly the Alibaba shares.  That is far from proving likelihood of loss.

13.  Much has been argued by Mr Ronny Wong about the Applicants’ experience in share trading.  However, the Applicants did not impress me that they had a previous history of share trading, not to mention the trading of Alibaba shares.  The Applicants’ experience in trading shares is a disputed issue.  It is Sun’s evidence that he called the shots, placed orders with Shum, the account executive of Shenyin Wanguo Securities (HK) Limited (“SWS”) responsible for the securities account in question and then instructed the Applicants to execute the necessary documents.  Sun’s evidence is supported by the evidence of Shum.  The Applicants did not seem to dispute their evidence.  The Applicants’ case is that Sun placed orders and traded with their authority and subject to their confirmation: see paragraph 16 of my decision.  In the circumstances, it is open to me not to place much weight on the argument based on the Applicants’ experience.

14.  In the light of the approach I adopted in assessing the likelihood of loss, it is clear, and with respect, that Mr Ronny Wong misconstrued my decision.  In paragraphs 23 to 30 of my decision,  I was considering two scenarios, first, of the value of the shares plummeting, and second, of the value fluctuating in which the Applicants could have repeatedly sold and bought and made profits.  Just immediately preceding the second underlined quote in paragraph 25 of my decision, I expressed clearly that “I would not bind the Applicants to their intention of selling the shares at $1.60 had they not been restrained from trading in the shares”.  This sentence clearly reflects that I had in mind that the Applicants would have intended and done otherwise if they were not subject to the restraint of the injunction.

15.  In paragraph 29 of my decision, I went on to consider the second scenario.  I was directing my mind to “selling at higher level, buying back at lower level and then ride with the surge”.  These words clearly indicate that I had in mind the possibility of the Applicants repeatedly trading by selling at high level and buying back at low level which Mr Ronny Wong said I had overlooked.  I said that this scenario was premised on a deeper correction.  I then concluded, on the state of the evidence then before me, that the correction never occurred and had not been shown by the Applicants to be likely to occur and hence there was no likelihood of significant loss.  The Applicants not having satisfied me that there was a likelihood of deeper correction to make a buy back, there could be no likelihood of repeated sell and buy transactions.  On the state of the evidence presented before me at the time of the hearing, it was unnecessary for me to specifically mention in my decision repeated trading under that scenario.  But that does not mean I have not fully considered the Applicants’ case that if unrestrained they would have sold and bought repeatedly and made profits.  The reality was they had failed to show that there was a real likelihood of significant loss of such trading profits.

16.  As for the third underlined quote relied on by the Applicants, I was merely referring to the lack of mention in the Applicants’ offer of replenishing the shares sold by buying back at low level.  Had the Applicants intended to trade regularly, they would have offered to sell the shares at $1.60, pay the proceeds of sale into court, not just to stay there but with a condition or indicated intention that the proceeds be made available for buying back at lower level to replenish the shares sold.  That was what I meant when I said their intention to sell at high level and buy back at low level was inconsistent with their intention as expressed in their offer.  I might not have expressed as clearly as I could have because the deep enough correction was then in my view unlikely to occur as the price had soared up to $4.90.  A price significantly below $1.60, say $1.30 which was 26.5% of the climax was a long way south.

17.  Now, eight months down in time, the correction occurred. Probably, this was the result of global factors, such as the unrest in the Middle East, the drop in oil prices, the strength of the US dollar, the change in US monetary policy, and Chinese factors.  None of these factors have been advanced before me.  My assessment of the likelihood might turn out to be erroneous. But that does not mean I erred in applying the law and the appropriate tests in assessing the likelihood of loss.  My conclusion was reached on the basis of the evidence then before me.  The Applicants have miserably failed to discharge the burden of showing likelihood of significant loss.

Ground (2) – failure to adopt the proper approach in construing evidence

18.  Bluntly put, Mr Ronny Wong’s criticism of my decision under this ground is that despite quoting the proper test in my decision I did not properly apply it.  He submits that had I properly applied the test, ie by placing myself in the shoes of the Applicants with their experience in the dealing of the securities concerned, I would have found in favour of the Applicants.  I have dealt with these criticisms in paragraph 10 above.  There is no substance in these criticisms.

19.  Mr Ronny Wong submits that I should have taken into account the Applicants’ past trading history.   I have dealt with this issue about the Applicants’ past trading history in paragraph 12.  For reasons as stated therein, I am entitled to form a provisional view that the Applicants’ assertion of trading history is not credible and that it was Sun who called the shots.  Accordingly, I gave no weight to that assertion in my decision.

20.  However, I shall go on to consider Mr Ronny Wong’s arguments.  He refers to the record in the securities account showing the sale of 55 million Alibaba shares in three lots, leaving 80 million shares; the sale and purchase of Tencent shares in lots of 10,000 reaping profits and re-investing the proceeds in the same or different shares, which I had not mention in my decision.  Accordingly, he argues that had I put myself in the shoes of the Applicants with their experience in the dealing of the Alibaba shares during the March 2014 and 2015 price surges, the Applicants would have made more than $50 million in profits.  He made some calculations based on the above past practice and submits that the Applicants would not have sold all the Alibaba shares in May 2014 or in February 2015 when the price went up from $1.30 to $1.60 but by stages; that but for the injunction the Applicants would have sold some of the Alibaba shares in around April 2015 at the midway price of $3.63 when the price surged up to $4.40; and that the Applicants were deprived of the opportunity of reaping significant profits or cutting loss by trading in a volatile and fluctuating market. 

21.  In all fairness to Mr Ronny Wong, his calculations are conservative.  Those profits could have been made had the Applicants so traded.  But the Applicants had advanced no evidence of what they would have done, at what price they would have sold and bought back and for what volume of shares, and why those target prices were likely to be achievable.  The points raised in Mr Ronny Wong’s submissions are new points which had never been argued at the original hearing.  That is not permissible under the principle in LehmanBrown Limited. At the hearing, the Applicants had not produced even the fundamentals, let alone no investment expert evidence, to support the postulated price movements.  They just relied on volatility of the shares and fluctuation in price.  Even though fluctuation may be assumed, such fluctuation may be in an overall uptrend or downtrend or just horizontal, each with different effects.  There was simply no evidence of what the Applicants would have done or intended to do.  What Mr Ronny Wong is seeking to argue today is to superimpose what he suggests the Applicants would have done with the benefit of hindsight on historical data.  There is no dispute that the Alibaba shares are news sensitive.  There is nothing to postulate what news would hit the market, when and the effect.  The Applicants had a difficult burden to discharge and have failed to discharge it.  As for the suggestion that the Applicants would have sold the Alibaba shares by stages, this is covered under the next proposed ground of appeal.

Ground (3) - error in finding that the Applicants intended to sell all the Alibaba shares in the region of $1.60 in February 2015

22.  In short, under this ground the Applicants argue that I erred in finding that they intended to sell all the Alibaba shares in February 2015 immediately or around the same time in February 2015 at $1.60 or around $2.00.  This argument is targeted at the underlined part in paragraph 25 of my decision.  Mr Ronny Wong submits that even if I were right to say that the Applicants would have acted the same way with or without the injunction, I should have found that they would have only sold at most part of the Alibaba shares in February 2015, leaving some shares available for taking profits during the April 2015 price surge from $2.86 to $4.40 and for taking further profits by re-investing the sale proceeds.

23.  From paragraph 25 of my decision, it is manifestly clear that what was said therein was not premised on an assumption that the Applicants would have sold all the shares in Alibaba at once or around the same time when the price reached $1.60.  My statement that “I would not bind the Applicants to their intention of selling the shares at $1.60 had they not been restrained from trading” cannot be any more unequivocal.  When I referred to their “avowed intention to sell”, I did not refer to any price. When I referred to the probability that “they would not have sold the shares otherwise than below the current market price”, I clearly had in mind sale by stages throughout an extended period taking advantage of higher prices which might become available and not a total sale of all the shares at one go.  I only made reference to the market price at the time of my decision, which then stood at $2.14.  That included a 25% allowance over the target price of $1.60. Allowing for sale by stages at prices starting from the low end of $1.60, my estimate that the Applicants “would not have sold the shares otherwise than below the current market price” was premised on sales by stages at prices very well above the then market price at the time of my decision to bring the average price down to the then market price of $2.14.  Depending on the amount of shares sold at the low end, my estimate must have been premised on some of the shares being sold at or near $3.00.  But of course, in the light of the evidence, it would not be unreasonable to assume that all the shares were sold before the height was reached.

24.  Mr Ronny Wong may criticise my estimation as speculative.  It is easy to criticise with hindsight.  It is easy to argue what the Applicants would have done, at what prices they would have sold and for what volume of shares.  But one cannot lose sight of the burden of proof and the court’s position as the sole arbitrator of fact.  The Applicants bear the burden of proof.  Mr Ronny Wong’s above arguments have never been advanced before me at the original hearing.  The Applicants failed to satisfy me for what volume and at what prices they would sell by stages.  What Mr Ronny Wong is seeking to do is to superimpose what he argues the Applicants would have done on the historical price based on hindsight.  I may not have been correct in my estimate.   There was no evidence of the fundamentals of these shares before me, let alone no expert evidence to interpret those fundamentals.  I could only adopt an empirical approach based on the historical prices before me. My finding that the Applicants “would not have sold the shares otherwise than below the current market price” is a finding of fact, which no appellate court could fairly say is outside the realm of reasonable disagreement.

25.  As for Mr Ronny Wong’s argument that the Applicants were prevented from re-investing the proceeds of sale, it is bald and speculative.  There was simply no evidence of such intention, what shares, for what volume and at what price the Applicants would intend to invest in, and how and why profits would have been made.  If the Applicants intended to buy back the Alibaba shares, there was no evidence of what volume and for what price they would buy back.  As I have found, on the state of the evidence before me, it was not envisaged that a deep enough correction would occur as to make a buy back possible and the likelihood of loss real.  Now that a correction to below $1.60 occurred, any buying back by stages from below $3.00 to $1.60 would have resulted in loss.

26.  Considered in the round, this proposed ground of appeal is largely based on hindsight and has no reasonable prospect of success.

Ground (4) – failure to consider likelihood of significant loss due to loss ability to re-invest proceeds of sale: the “Samtani argument”

27.  Under this ground, Mr Ronny Wong submits that even if I was correct in finding that in the absence of the injunction, the Applicants would have sold all the Alibaba shares in around February 2015, I should have considered the loss of opportunities to re-invest the sale proceeds.  He also repeats his argument that there is no factual basis to suggest that the Applicants would have intended to lock-in the proceeds without re-investing them.  He quotes Samtani v Samtani[10] as authority for his proposition that a plaintiff is required to fortify his undertaking to pay damages for the defendant’s loss arising from his inability to use the preserved funds pending trial.  He argues that assuming the Applicants had sold all the 80,000,000 Alibaba shares at $2.00 in February 2015, they would have acquired $160 million in cash but were deprived of the opportunity of using the funds during these two years.  As the share price has dropped below $1.60, the costs of borrowing is not offset by any gain from keeping the shares.  Mr Ronny Wong therefore argues that the Applicants’ loss should be measured by the costs, ie interest, of borrowing the same amount of cash during these two years while litigation is pending.

28.  Samtani v Samtani was a case of a partnership dispute between two siblings in which the plaintiff sought a Mareva injunction restraining the defendant from disposing of some landed properties belonging to the partnership.  Deputy High Court Judge Au-Yeung, as she then was, considered the plaintiff’s claim was fraught with difficulties and refused his application for injunction.  The parties had no disagreement about selling the properties nor did the plaintiff require the defendant to obtain his prior consent before sale.  All that he required was that 60% of the proceeds of sale be put into a designated account pending trial of the action.  Having regard to the defendant’s conduct, the learned judge considered something ought to be done for the security of what might be partnership properties and granted the preservation order requiring the defendant to pay the proceeds of sale into a designated account.  The question then arose was the loss of the defendant’s opportunity to invest his share of the proceeds of sale.  The plaintiff agreed to provide fortification.  It was under those special factual circumstances that the learned judge ordered the plaintiff to fortify his undertaking by paying an amount equivalent to 5% of those net proceeds of sale into court. 

29.  In a later decision referred to me by Mr Anson Wong, XY, LLC and Jesse Zhu (a.k.a. Jia-Bei Zhu and Jesse Jia-Bei Zhu) and Grand Network Technology Ltd [11], the same learned judge did not follow Samtani.  She said that Samtani had its own special features in that the plaintiff agreed to provide fortification in the face of a partnership claim that had lots of difficulties. She said that it was pointless to compare the facts in one case to another when exercising the discretion on whether or not to order fortification.  I do not think Samtani established any legal principle that whenever a defendant is restrained from disposing of disputed assets, the plaintiff has to fortify his undertaking as to damages in an amount equivalent to the costs of borrowing the funds restrained for the estimated duration of the period pending trial. Rather, it is a case which was determined on the basis of the general principles applicable to fortification and on the judge’s finding that the plaintiff’s claim was fraught with difficulties but was willing to provide fortification and the defendant has shown likelihood of significant loss for being deprived of the opportunity to re-invest the proceeds of sale.

30.  In the present case, the crucial issue is likelihood of significant loss.  Merit of the parties’ case is not a necessary consideration whether to order fortification.  This is so even if the plaintiff has a meritorious claim.  If the plaintiff has not, it weighs against him as in the case of Samtani.  Likewise, failure to show a meritorious defence to a meritorious claim weighs heavily against an application for fortification. This is because under that scenario the defendant usually is unable to show likelihood of significant loss.  In paragraphs 19 to 22 of my decision, I assessed the parties’ case as follows:   

“19. Sun has adduced solid evidence of a nominee arrangement which was so understood by Shum. The applicants have not. In fact, there are many holes still to be plugged in their case. On their case, Brother Zhao is the owner of funds, not Lin. Lin may have no valid defence or locus standi to sue in the counterclaim and Brother Zhao is not a party to the counterclaim. The Applicants’ case does not fit well with the timing of the incorporation of Superb Jade and the setting up of the SWS Account in 2009, which was three years after the price of the stock skyrocketed 50 times. There may also be issues of PRC laws involved.

20. The Applicants’ conduct is also inconsistent with an aggrieved party whose rights have been infringed and whose property is at stake. They must have been aware that the SWS Account had been frozen since May 2014. They instructed solicitors to accept service of these proceedings by late October 2014. Yet, it was not until when they filed their defence and counterclaim in February 2015 that they sought further fortification. Their conduct suggests that they realised the weakness in their case or that they saw no real need for further fortification.

21. On the other hand, Sun has established by incontrovertible bank records the surreptitious manner in which Lin dissipated Superb Jade’s assets. It is inexplicable why, if he were the true beneficial owner and had nothing to hide, he would have adopted such an extremely tortuous route to remove assets which were rightly his.

22. All these undermine the credibility of the Applicants’ case.  But, as I have said, merit is usually not anything of significance in an application for fortification.  If lack of merit of Sun’s case is to be relied on, the burden of proof is on the Applicants.  As an overall impression, I cannot say that Sun’s case is so thin and flimsy that it could have any significant bearing in an application for further fortification.” 

In these paragraphs, I dismissed the Applicants’ argument about the weakness of Sun’s case and remarked on the many difficulties of the Applicants’ defence.   These remarks demonstrate the failure on the part of the Applicants in establishing the likelihood of significant loss.  In my view, the Applicants’ reliance on Samtani is misplaced.  On the evidence presented before me at the original hearing, they failed to show likelihood of significant loss.

Ground (5) – Error in speculating that the shares of Alibaba would not have much downside

31.  This ground is based on my comments in paragraphs 25 and 29 of my decision that it is unlikely that there would be much downside from the date of hearing until conclusion of the proceedings.  Mr Ronny Wong criticised my finding as speculative.  He argues, firstly, that I erred in not taking into account the price surge in March 2014 when the share price jumped from below $0.64 to $1.83.  He argues that had I had regard to those prices, I would have considered that the price surge in March 2014 was speculative and not supported by fundamentals and further downside below $1.60 possible.  Second, he argues that I failed to rationalise what I meant by not having “much downside” as I found that even a small change by $0.10 in the Alibaba shares can produce substantial loss.

32.  On the evidence before me, the correction which is the basic premise of the Applicants’ claim for loss never occurred deep enough.  It was on the basis of the historic price between May 2014 and the price as at the date of my decision and the fact that it was already near the lower end of this very extended price range that I came to the view that it was unlikely that there would be much downside from there.  I could only come to that conclusion by adopting an empirical approach based on the historical prices before me.  There is no dispute that the pre-May 2014 prices were never presented to the court at the original hearing.  Indeed if I had evidence that just two months earlier the price had surged from $0.64, I would have estimated the downside differently.  But based on the evidence then before me, my estimate was the best I could have reached.  I could not have used any more precise language.  My estimate could not even be described as a calculated guess.  My estimate, or guestimate or speculation, or whatever the Applicants would label it, is nevertheless a finding of fact, albeit a provisional one. It may turn out to be wrong post facto.  But that does not mean I erred in law and in my finding of fact.  The Applicants could only blame themselves for not producing evidence of the March 2014 prices.  I do not consider there is any substance in this ground of appeal.

33.  Mr Ronny Wong argues that I could have taken judicial notice of the pre-May 2014 prices in just the same way as I did in taking into account the prices between the date of the original hearing and the date of my decision.  In my view, taking judicial notice of post-hearing prices not available to the parties at the time of the hearing stands on a very different footing from taking into account prices which were available to the parties at the time of the hearing but which the parties deliberately or inadvertently did not seek to rely.  The former is done at the initiative of the court during the course of its deliberation in respect of facts which were not available to the parties at the time of the hearing.  The court is well entitled to do so as the court has to make a decision which is realistic.  However, to take judicial notice of facts which were known to the parties but which the parties did not seek to rely or did not consider relevant, the court would be entering into the arena which it is not permitted to do.  More importantly, it would flout the rules of pleadings.  It must be borne in mind that it is the pleadings which define the party’s case.  By taking judicial notice of facts not relied on by a party, not only would that party be thrust with a case which it never intended to present, its opponent would also be thrust with a case which it never anticipated and which it had no chance to argue or rebut.  It is precisely for that very reason that new evidence of this kind which would materially affect the court’s decision that the principle under LehmanBrown enjoins the parties from adducing new evidence and raising new arguments based on that new evidence.  Furthermore, Mr Ronny Wong’s association of the March 2014 price surge with the lack of fundamentals in the Alibaba shares is speculative as there was neither evidence about those fundamentals nor expert opinion on the interpretation of those fundamentals.

34.  As for Mr Ronny Wong’s suggestion of my failure in rationalizing what I meant, with respect, the failure is his.  I have said what I said.  Even a ten cent drop in price (which is equivalent to 4% to 5% reduction in price) may be translated into a significant loss of $8 million. What I said in effect was that despite the easy threshold the Applicants failed to show, as the evidence then stood, that they were likely to suffer significant loss.

35.  For reasons as I have explained, the Applicants may not discharge the burden of proving a reasonable prospect of success on appeal by relying on hindsight and materials not before the court at the time of the original hearing.  This court cannot be criticised as having erred in failing to take the pre-May 2014 prices into account in assessing the downside.  This ground of appeal has no chance of success.

Ground (6) – the amount of fortification paid is insufficient

36.  At the ex parte hearing of Sun’s application for injunction on 12 May 2014, Deputy High Court Judge Lok (as he then was) ordered him to pay $1 million as fortification of his undertaking of all damages in respect of the injunction.   Mr Ronny Wong argues that I failed to consider that the same is used for multi-purpose and is insufficient.

37.  With respect, that argument is misconceived.  My finding was that the Applicants failed to show likelihood of significant loss. There is therefore no question that Sun’s undertaking should be fortified for likely damages.  Accordingly, I considered all the protection the Applicants need is to be protected from the costs of the litigation, treating as if the amount paid into court were security for costs and for that purpose the amount is sufficient.  The Applicants have put forward no evidence of the level of likely costs.  It is open to them to make an application for further security for costs insofar as they can justify the same, if their concern is on their costs exposure.  That concern cannot be a valid ground of appeal.  To succeed in their appeal, the Applicants have to rely on the other grounds.  

Conclusion

38.  For the above reasons, I am of the view that the Applicants have failed to show that the intended appeal has a reasonable prospect of success or that there is any other reason in the interests of justice why the appeal should be heard.  Accordingly, their summons dated 6 November 2015 (as amended) seeking leave to appeal from my decision is dismissed with costs and with certificate for two counsel, to be taxed if not agreed.