LI LI HONG v. KILMOREY INTERNATIONAL HOLDINGS LTD AND ANOTHER

HCA 1166/2019

[2020] HKCFI 372

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1166 OF 2019

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D E C I S I O N

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A.     The Applications

1.  There are three applications before the court, all taken out by the plaintiff (referred to as “Li” in this Decision).

2.  The first and main application is for summary judgment against the 1^st defendant (“Kilmorey”) for breach of an agreement contained in a “Deed of Settlement” dated 29 April 2019 (referred to as the “Further Amended Restated Agreement” in the Amended Statement of Claim).  The primary relief initially sought was specific performance, or in the alternative, damages.  Counsel representing Li (Mr Fung SC together with Mr Chen) indicated that their client would no longer pursue specific performance but elected the relief of damages only.  As against the 2^nd defendant (“Cai”), Li seeks summary judgment for damages pursuant to a “Deed of Guarantee”.  As an alternative to summary judgment, Li seeks an order for interim payment against both defendants.

3.  The second application is against Kilmorey to enforce the order made by DHCJ K Wong on 2 July 2019 as later varied by DHCJ Leung on 12 July 2019, to disclose information concerning Kilmorey’s assets (“the Disclosure Order”) as part of the relief in aid of the Mareva injunction.

4.  The third application is for the Mareva injunction to be continued in the event of the court granting summary judgment.

B.1    The transaction

5.  The dispute involves the sale and purchase of shares in a listed company, formerly known as Food Wise Holdings Ltd, since re‑named Minshang Creative Technology Holdings Ltd. (Stock Code: 1632) (“the ListCo”). The transaction was first embodied in a written agreement dated 22 August 2018 (referred to as the “Former Agreement”) whereby Li contracted to sell to Kilmorey a parcel of the ListCo shares (totalling 24,301,337 shares) for the sum of HK$200 million.

6.  The Former Agreement was signed on behalf of Kilmorey by its sole director, Madam Xu.  Madam Xu was the wife of Cai and Cai was all along the person negotiating the transaction on behalf of Kilmorey.

7.  Soon after the Former Agreement, there was a subdivision of the ListCo shares whereby every existing share of par value HK$0.01 was subdivided into four shares of par value HK$0.0025 each.

8.  Since the signing of the Former Agreement, the transaction has undergone several variations.  The several subsequent agreements were contained in or evidenced by the following:

(1)     The Amended and Restated Agreement dated 13 September 2018 (“A&R Agreement”) and a Promissory Note dated September 2018 (“Promissory Note”) (together referred to as the “Restated Agreement”);

(2)     The Supplemental and Confirmatory Deed (“Confirmatory Deed”) dated 28 February 2019; and

(3)     The Deed of Settlement (“Deed of Settlement”) dated 29 April 2019.

9.  The gist of Li’s claim is that despite repeated time extensions granted to Kilmorey and various assurances of payment by the latter, Kilmorey has failed to fully pay for the sale shares.  As at the time of hearing this application, the principal sum of HK$163 million plus the interest accrued remained outstanding and unpaid. Li also claims against Cai on the basis of the “Deed of Guarantee” signed by the latter on 29 April 2019 for the outstanding sums owing by Kilmorey to Li.

10.  I will set out the salient terms of the various agreements and the background facts.

B.2    The Former Agreement

11.  As already noted, under the Former Agreement the consideration for the parcel of 24,301,337 shares was HK$200 million.  Kilmorey was to pay a 10% non‑refundable deposit (ie HK$20 million) by 28 August 2018 (clauses 3.1 and 3.2).

12.  Completion was to take place on 10 November 2018.  On completion, Kilmorey should pay the balance of the consideration and Li should transfer the shares to Kilmorey (clause 4.1).

13.  On 29 August 2018 following the subdivision of the shares, Li transferred to Kilmorey 58,005,348 of the ListCo shares (“First Tranche”) for HK$119,346,003.50, computed by reference to the consideration of HK$200 million under the Former Agreement.  This transfer was evidenced by a Bought and Sold Note signed by the parties.

14.  Kilmorey paid the non‑refundable deposit of HK$20 million on 3 September 2018, after its first cheque for such payment was earlier dishonoured.

B.3    The Restated Agreement

15.  On 13 September 2018, Li and Kilmorey entered into the Restated Agreement.  The Restated Agreement was evidenced by the A&R Agreement and the Promissory Note. There is no dispute that Kilmorey was party to the A&R Agreement and the issuer of the Promissory Note.

16.  The following are the material terms of the Restated Agreement:

(1)     The A&R Agreement was to amend and restate the agreement for the sale and purchase of the shares and upon execution of the A&R Agreement, the Former Agreement would become void and invalid (recital 4 of the A&R Agreement);

(2)     The parties acknowledged that:

(i)     Kilmorey had paid the non‑refundable deposit of HK$20 million to Li (clause 3.2 of the A&R Agreement);

(ii)     Li had transferred the First Tranche of the ListCo shares to Kilmorey.  The consideration for such transfer being HK$119,346,003.50 remained unpaid and a promissory note had been issued by Kilmorey as its undertaking in respect of such liability (clause 4.1 of the A&R Agreement);

(iii)    the balance of the 39,200,000 shares (“Second Tranche”) were to be transferred by Li to Kilmorey on or before 10 November 2018, whereupon Kilmorey was to pay the balance of HK$60,653,996.50 to Li (clause 4.2 of the A&R Agreement);

(3)     Should Kilmorey fail to complete the transaction under the A&R Agreement, Li would be entitled to seek specific performance requiring Kilmorey to complete the purchase of all the sale shares under the First and Second Tranche (clause 5A of the A&R Agreement); and

(4)     Kilmorey promised to pay Li the consideration for the First Tranche being HK$119,346,003.50 by 10 November 2018, failing which interest would accrue at the rate of 15% p.a. until full payment (the Promissory Note).

17.  Kilmorey did not make payment of either the sum of HK$119,346,003.50 for the First Tranche or the sum of HK$60,653,996.50 for the Second Tranche by 10 November 2018.

B.4    The Confirmatory Deed

18.  On 28 February 2019, Li and Kilmorey executed the Confirmatory Deed.  The following are the material terms:

(1)     The parties confirmed that as of 28 February 2019, Kilmorey had not paid the sum of HK$119,346,003.50 and interest of HK$3,180,822 payable under the Promissory Note (clause 1b);

(2)     The parties agreed that:

(i)     Kilmorey should pay Li:

(a)     not less than HK$40,000,000.00 on or before 15 March 2019;

(b)     an additional HK$100 million on or before 25 March 2019;

(c)     any remaining balance out of HK$180 million on or before 28 March 2019

(clause 2a);

(ii)     Li would transfer to Kilmorey the Second Tranche upon Kilmorey’s full payment of HK$180 million and the accrued interest between 16 January and 28 March 2019 would be waived (clause 2b);

(iii)    the waiver of interest would not be given effect if Kilmorey failed to make full payment of the HK$180 million on or before 28 March 2019, in which event:

(a)     the interest accruing between 16 January and 28 March 2019 aggregating HK$5,252,055 would become payable;

(b)     interest from 29 March 2019 to the date of full payment would accrue at the rate of 30% p.a.

(clause 2c).

19.  Kilmorey did not make payment of the sum of HK$180 million or any part thereof by 28 March 2019.

B.5    The Deed of Settlement

20.  On 29 April 2019, Li and Kilmorey further executed the Deed of Settlement, containing the following material terms:

(1)     Kilmorey has acknowledged its breach of the A&R Agreement and the Confirmatory Deed (the recitals);

(2)     Kilmorey should:

(i)     on or before 13 June 2019 pay Li the outstanding amount of HK$180 million and interest accrued thereon up to the date of full repayment (clause 1.1(1));

(ii)     procure Cai to execute a personal guarantee to secure the performance of Kilmorey’s obligations under the Deed of Settlement (clause 1.1(2));

(iii)    effect the change of the authorized signatories of two securities accounts by including Li’s personal assistant, one Ms Shih, as an authorized signatory within three working days, and in any case obtain Ms Shih’s prior written consent to any dealing of the shares in the said two accounts and any dealing of the accounts (clause 1.1(3));

(3)     An event of default would arise if Kilmorey should fail to duly perform or observe any of its obligations under the Deed of Settlement (clause 2.1(1));

(4)     Kilmorey should notify Li in writing of any occurrence of an Event of Default (clause 2.2);

(5)     When an Event of Default occurs:

(i)     the HK$180 million or any outstanding balance thereof and any interest accrued thereon would immediately become due and payable by Kilmorey;

(ii)     Li should be entitled to forthwith exercise and enforce against Kilmorey and its assets the full amount of the outstanding balance, and any other rights as Li would have been entitled to exercise as if the Deed of Settlement had never been executed

(clause 2.3).

21.  On the same day, the Deed of Guarantee was signed by Cai to guarantee the performance of Kilmorey’s obligations under the A&R Agreement, the Promissory Note, and Confirmatory Deed and the Deed of Settlement.

22.  Between 17 April and 8 May 2019, Kilmorey paid further sums aggregating HK$17 million in principal and HK$4,543,151 in interest.  No payment was made for the remaining HK$163 million in principal or any further interest.  No payment was made by Cai under the Deed of Guarantee.

C.     The Defence

23.  Kilmorey and Cai have put up four defences. They may be broadly summarised as follows:

(1)     Prior to entering into the Former Agreement, Li had allegedly made representations to Cai (as Kilmorey’s representative) about a plan to jointly acquire and invest in the ListCo Shares with a view to making a profit together. It was alleged that those representations were further expressly reiterated to Cai since the Former Agreement “up until before the Deed of Settlement and the Deed of Guarantee”.  Allegedly, the representations were false and were made to induce (and did induce) Kilmorey to enter into the Former Agreement as well as the series of subsequent agreements;

(2)     The transaction allegedly contravened certain provisions in Schedule 5, Part 2 of the Securities and Futures Ordinance (“SFO”);

(3)     Li was alleged to have coerced Kilmorey, through Cai, to execute the above agreements without the benefit of independent legal advice;

(4)     The parties have allegedly entered into a superseding settlement agreement (“Superseding Agreement”).

24.  I shall deal with the defences in turn.

C1.    Misrepresentations

25.  The representations said to have induced Cai and Kilmorey to enter into the transaction were first set out in Cai’s First Affirmation (“Cai(I)”).  Notably, the representations (or allegedly misrepresentations) now relied upon in Cai’s Second Affirmation (“Cai(II)”) are far more elaborate than those in Cai(I).  In §7 of Cai(II), Cai said as follows: 

“7. In around late April 2018, I recall that the Plaintiff had verbally and expressly intimated and represented to me (as a representative of the 1^st Defendant) that he was prepared to facilitate the acquisition of around 14,000,000 shares of Food Wise (the “Shares”) by the 1^st Defendant on the following basis and mutual understanding (collectively the “Representations”):

(a) The Plaintiff and the 1^st Defendant would jointly invest I Food Wise.

(b) In order to carry out (a) above, the Plaintiff would first invest a sum of HK$100,000,000 to acquire the preferred stock of a company which was a wholly-owned subsidiary company of Minsheng E-Commerce Holdings (Shenzhen) Company Limited 民生電商控股(深圳)有限公司.

(c) Upon injecting the said sum of HK$100,000,000 into that wholly-owned subsidiary company, that wholly-owned subsidiary company would then cause its own fully-owned subsidiary to purchase the Shares.

(d) Thereafter, the newly‑acquired Shares were transferred to the Plaintiff to redeem the latter’s preferred stock as aforesaid.

(e) The Plaintiff would then and in turn sell the Shares to the 1^st Defendant in consideration of HK$200,000,000, in essence reaping a profit which doubles his initial investment.

(f) The Plaintiff would accept a lumpsum of HK$20,000,000 being a deposit and/or partial payment of the said acquisition of the Shares by the 1^st Defendant.

(g) At the relevant time, the prevailing market price of the Shares amounted to around HK$130,000,000.

(h) The share price, after subdivision (which was at the time already anticipated by the Plaintiff), would be at round HK$2 per share.

(i)     The Plaintiff understood that the 1^st Defendant, upon acquisition of the Shares, would dispose of them at a profit and was keen to obtain a share of said profit from the latter.”

(bold as in the original)

26.  I have a few preliminary observations.  First, as the opening sentence suggests, the Representations were made verbally and not set out in writing.  It is all the more important that care should be taken to set out the material aspects of the conversation between the persons involved in a way as accurately as the deponent could reasonably recount.  One would have expected that the deponent should at least set out the occasion, the place of the meeting or the telephone conversation (as the case may be), the persons participating in the meeting or conversation, and the pertinent and material matters discussed on the occasion, all in a way of a narrative that tells the deponent’s version of the event in his affirmation.  The paragraph quoted above, however, reads more like a lawyer’s pleading than the deponent’s own account of the event, with little description of the occasion(s) involved or the discussion(s) culminating in the several alleged Representations in question.  Without the appropriate context, it will be difficult for the reader to make a proper assessment of whether or how believable the assertions are. 

27.  Furthermore, the above passage seems not to distinguish between things allegedly said by Li (ie representations) and those which were perhaps statements of surrounding facts.  Take an example, one is quite unable to tell whether the deponent intends to suggest sub‑paragraph (d) was something said by Li or whether that sub‑paragraph was simply a factual assertion inappropriately inserted in this part of the affirmation that was supposedly recounting Li’s oral representations.  To a lesser extent, the same criticism can be made about sub-paragraphs (g), (h), and (i).  This is unhelpful to the defendants’ case especially when these are critical factual assertions upon which their case of misrepresentation is built.

28.  I would now turn to the substantive discussion.  First and foremost, according to Cai, the joint investment would involve acquiring 14,000,000 of the ListCo shares.  According to the plan Li would need only to invest HK$100 million through taking a number of intermediate steps, and it was contemplated that Li would later sell the 14,000,000 ListCo shares to Kilmorey for a consideration of HK$200 million, thereby making a profit which would double his initial investment.  Cai said Li’s Representations regarding the joint investment has induced him, through Kilmorey, to enter into the Former Agreement.  However, it would be noted that under the terms of the Former Agreement, the parcel of shares involved was 24,301,337 shares. Exactly how the supposed joint investment of the initial 14,000,000 shares had evolved into a transaction of 24,301,337 shares was not explained.

29.  In addition, I have difficulty understanding the commerciality of whole supposed joint investment. Apart from saying that Li would make an initial investment of HK$100 million with a view to making a profit when the shares were sold to Kilmorey, and that when Kilmorey eventually disposed of the shares Li would obtain a share of Kilmorey’s profit, Cai has given no details as to how the profits were agreed to be shared between the parties or why it was intended for Li to take a profit twice.  In any event, I cannot see the commercial sense for Kilmorey to acquire the shares for HK$200 million if the prevailing market price for them was around HK$130 million.

30.  According to Cai, the Representations were alleged to have been expressly reiterated by Li “since the execution of the Former Agreement up until before the Deed of Settlement and the Deed of Guarantee”.  Mr Fung has made some detailed submissions (with which I agree) why this assertion is illogical and makes no commercial or common sense:

(1)     With regard to the Representation (at sub‑paragraph (g)) that “at the relevant time, the prevailing market price of the Shares amounted to around HK$130 million”, it makes no sense that Li would reiterate the same remark between April 2018 and April 2019, given that the prevailing market price of the shares must have fluctuated over the period of time.

(2)     With regard to the Representation (at sub‑paragraph (h)) that “the share price, after subdivision . . . would be at around HK$2 per share”, it again makes no sense for Li to repeat such Representation “up until . . . 29 April 2019” after the subdivision had taken place on 24 August 2018.

(3)     At sub‑paragraph (f), Li allegedly represented that he would “accept a lumpsum of HK$20,000,000 being a deposit . . . ”.  It again makes no sense for Li to repeat such Representation “up until . . 29 April 2019” when Li had already received the HK$20 million payment on 3 September 2018.

(4)     Given that the effect of the Confirmatory Deed and the Deed of Settlement was essentially to give further extension of time to Kilmorey to pay the balance of the purchase price for the shares, Kilmorey simply did not need to be “induced” to enter into such agreements.

31.  As Mr Fung submitted, Cai is constrained to emphasise that the Representations were repeated up until the execution of the Deed of Settlement and the Deed of Guarantee, because it must be obvious to him that it would be pointless merely to impugn the Former Agreement, when the Former Agreement was already superseded by the Restated Agreement in September 2018 which itself was subsequently further varied in February and April 2019.

32.  I would also accept Mr Fung’s submission that the defence of misrepresentation is flatly contradicted by the defence of duress.  Kilmorey could not have been induced into executing the various agreements and at the same time coerced into doing so.

33.  Finally and fatally to the defence of misrepresentation, even assuming that Li had indeed made the Representations as alleged, Cai has completely failed to explain in what way the Representations were false.  Mr Poon (counsel for the defendants) submitted that Li never had any intention of undertaking the plan for joint investment in the first place.  The whole plan was Li’s device to lure Kilmorey into committing itself to purchasing the ListCo shares from Li at a premium (at HK$200 million as compared with their market price of HK$130 million) and Cai into guaranteeing Kilmorey’s performance of its obligations.  However, there was simply nothing to support the submissions.  It cannot simply be asserted (as Mr Poon did in the written submissions) that the institution of the present proceedings and Li’s denial of the alleged Representations could somehow bolster the defendants’ unfounded assertions that Li had planned at the outset to deceive Kilmorey and Cai into a joint investment by the misrepresentations as alleged.

34.  In summary, the assertions based on the Representations are plainly not believable.  The defence of misrepresentation is wholly without merit and I reject it completely.

C2.    Contravention of the SFO

35.  In his written submissions, Mr Poon referred to a number of definitions in the SFO, including “financial accommodation” (s 1, Part 1 of Schedule 1), “securities margin financing” (Part 2 of Schedule 5), and “dealing in securities” (Part 2 of Schedule 5).

36.  However, when asked by the court as to how the various definitions could relevantly be applied to the transaction in question, and in particular how the transaction constituted “financial accommodation” within the definition, Mr Poon replied that he would not be able to develop the argument further apart from the reference to the several definitions.  Without a proper formulation of the argument on how the alleged contravention arises and the effect of such contravention, the court should decline to analyse the argument further.

37.  In any event, as submitted by Mr Fung, the alleged breach of the SFO apparently arises from the transactions as described in the Representations.  However, as it is Cai’s case that the Representations were false and that Li had no intention to carry out the plan as represented, it is difficult to see how any contravention could arise.

38.  I would reject the defence based on the alleged contravention of the provisions in the SFO.

C3.    Duress

39.  For the defence of duress, Cai’s evidence was that at the time when he signed the various agreements and the guarantee, he was “under strong pressure”.  He further said that he had no alternative but to sign the various documents and accede to Li’s demands “in light of the threatening tone” of Li.

40.  Cai referred to the WeChat messages exchanged between himself and one Mr Lee Hao (Li’s representative) between 2 June and 9 June 2019 to show that Kilmorey was about to undertake some “corporate actions” involving “a potential cross border acquisitions in the US” and that Li was aware of such matters.

41.  First, it is difficult to understand how the WeChat messages exchanged in June 2019 could have any influence on Cai or Kilmorey’s decision to enter into the various agreements, including the Former Agreement, the A&R Agreement, the Promissory Note, the Confirmatory Deed, the Deed or Settlement Deed and the Deed of Guarantee, which all pre-date the WeChat messages referred to.  Without the WeChat messages, Cai’s allegation that he had been coerced by Li into executing the various agreements will be reduced to nothing more than bare assertions.  What is more, such assertions are wholly unparticularised as to when and how the pressure was exerted on him.

42.  Looking at the WeChat messages between 2 June and 9 June 2019, it is apparent that Mr Lee was urging Cai to have the funds ready for payment and had repeatedly reminded the latter of the approaching due date.  While it is true that at one stage Mr Lee did urge Cai to arrange the funds so as to avoid legal proceedings, the exchanges clearly cannot be characterised as “menancing demands” (as described by Mr Poon in his submissions).

43.  Furthermore, the suggestion that somehow illegitimate pressure had been brought to bear on Cai or Kilmorey because Li had been made aware of some “corporate actions” to be undertaken by Kilmorey, is vague and non‑specific.  The evidence falls far short of what is required to set up a triable issue on the basis of economic duress.  But even if Cai and Kilmorey were indeed put under pressure by the demand for payment or threat of legal action, it is difficult to understand how such pressure could be regarded as illegitimate, given the context of the exchanges and the circumstances when repeated extension of time had been given to Kilmorey for payment.

44.  In summary, Cai’s assertions of having been coerced into entering into the various agreements and his own guarantee are plainly not believable.  The defence of duress is wholly without merit and I reject it completely.

C4.    Superseding Agreement

45.  Cai alleged that sometime after his execution of the Deed of Settlement and the Deed the Guarantee on 29 April 2019, a settlement was agreed upon between Li, Kilmorey and himself (ie the Superseding Agreement).  According to Cai, Li had agreed that upon Kilmorey’s payment of HK$70,000,000, Li and Kilmorey would conduct further negotiation regarding the purchase of the Second Tranche of the shares.  It was alleged that the parties had agreed to “settle all disputes stemming from the Former Agreement and in respect of the acquisition of the Shares”.

46.  Apart from Cai’s own assertion, there is again absolutely no evidence to support the existence of the Superseding Agreement. In contrast, all the previous agreements were in writing.  If any such settlement were agreed upon, it is inconceivable why it would not be set out in writing and properly signed by the parties. 

47.  Importantly, when the parties were all along in correspondence via WeChat, one would have expected Cai to have produced some contemporaneous evidence of the Superseding Agreement.  Here again, I agree with Mr Fung that the absence of any reference in the parties’ correspondence, through WeChat or otherwise, speaks volumes.  What is more, when one has regard to the WeChat exchanges between Cai and Lee (especially, the messages at 10:29 pm on 13 May; 4:24 pm on 19 May; 9:24 pm on 19 May, 6:57 pm on 22 May; leading to the message at 5:28 pm on 13 June), it is clear that the allegation of a Superseding Agreement completely falls apart.

48.  In summary, Cai’s assertion that the parties had reached a settlement of the disputes in terms of the Superseding Agreement is plainly not believable.  No triable issue arises in relation to the Superseding Agreement defence.

D.     Relief

49.  In relation to Li’s claim for damages against Kilmorey, an issue arises as to the appropriate date at which such damages should be assessed. 

50.  The general rule is that damages should be assessed at the date when the cause of action arises, that is, the date of the breach.  The normal measure of damages is the contract price of the shares (the payment that the seller would have been able to receive) less their market price at the time of completion of the sale and purchase.  However, as is clear from the authorities, this is not an absolute rule: UBS Securities Asia Ltd v Multec International Holdings Ltd, CACV 269/2007, per Cheung JA at §22; Chitty on Contracts, 33^rd Ed, Vol 1, §26‑096.

51.  In the present case, Mr Fung contends that the date of assessment should be a date later than 13 June 2019 (ie the payment date under the Deed of Settlement).  Mr Fung’s contention is that Li was entitled to specific performance until he made an informed choice of his remedy after seeing Madam Xu’s 1^st and 4^th affirmations filed on Kilmorey’s behalf (“Xu(I)” and “Xu(IV)”), disclosing the precarious financial position of Kilmorey. The filing date of Xu(IV) was 25 September 2019 and the assessment date Mr Fung contends for is 27 September 2019. 

52.  Mr Fung points to clause 2.3 of the Settlement Deed.  It provides that when an Event of Default occurs, “Mr Li shall be entitled to forthwith exercise and enforce against Kilmorey . . .  all other rights as Mr Li would have been entitled to exercise as if this Deed had never been executed”.  In other words, upon Kilmorey’s breaching its obligation to make payment on the due date, all the rights provided for in the previous agreement(s) would remain exercisable and enforceable.  This would include Li’s right to enforce specific performance of the transaction as set out in clause 5A of the A&R Agreement in the following terms:

“5A.(a) If [Kilmorey] fails to comply with the provisions of this Agreement to complete the sale and purchase of the Shares for Sale, . . . [Li] shall have the right to apply to the courts of Hong Kong for specific performance of [Kilmorey] to complete the sale and purchase of all the Shares for Sale, and to pay the consideration for the [Second Tranche] together with all the expenses incurred . . . . ”

53.  The available evidence shows that between 13 June and 27 September 2019, the closing price of the ListCo shares dropped from HK$1.28 to HK$0.79.  As a result, between the two dates the quantum of damages will increase from HK$128,648,384 (by adopting HK$1.28 on 13 June) to HK$162,057,480 (at HK$0.79 on 27 September).  Further, the daily trading volume of the ListCo shares was by no means substantial.  It ranged between 70,000 and 1,220,000 shares a day during the period from 13 June to late 26 July 2019, and much the same between 26 July and 5 September 2019 if not lower.  Mr Fung made the point that even assuming the daily trading volume to be at the upper end of the range, say 1,000,000 shares, it would take about 40 days to dispose of the Second Tranche (39,200,000 shares), and such disposal would induce a depressing effect on the price of the shares.  It would not, therefore, be a reasonable measure to expect the shares to be all disposed of on 13 June 2019 when Kilmorey’s breach occurred.

54.  The general rule of measuring the loss by reference to the market price on the date of the breach presupposes that the seller will readily be able to dispose of the shares to recoup his loss occasioned by the buyer’s failure to pay.  This general rule is closely linked to the principle relating to the seller’s duty to mitigate his loss.  Indeed, in the illuminating article by A Dyson and A Kramer - “There is No ‘Breach Date Rule’: Mitigation, Difference in Value and Date of Assessment”, (2014) 130 LQR 259, the authors argued that the conventional date of assessment rule should best be understood by reference to the underlying rule of mitigation.  I think two points are worth bearing in mind.  First, the general “breach date rule” is not an absolute rule: it may be departed from “if to follow it would give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances”: Johnson v Agnew [1980] AC 367, per Lord Wilberforce at 401, or where it is “necessary or just to do so in order to give effect to the compensatory principle”: Gold Strait Corp v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 AC 353, per Lord Bingham at §13.  Second, once analysed in terms of mitigation, it is the contract‑breaker who bears the burden of showing that the innocent party has failed to take reasonable mitigating steps: McGregor on Damages, 20^th Ed, §9‑020.

55.  In the present case, the low daily trading volume and the likely depressing effect on the share price are obviously relevant matters against which the reasonableness of Li’s decision in keeping the transaction alive must be assessed.  Such market evidence as there is indicates that except for one day on 17 June when the closing price was HK$1.30 per share and three other days when the closing price was HK$1.28, the closing prices were all along below HK$1.28.  Except for the period between 13 and 25 June where the day’s high recorded prices slightly above HK$1.28, the prices were in fact trading below HK$1.28 all the way until September 2019.  If one were to add the effect of a sustained disposal of the large quantity in the Second Tranche over, say, the whole period up to 27 September 2019, the realistic likelihood is that the prices would be driven much lower than HK$1.28 per share.  Viewed thus, it is clear to me that the adherence to the “breach date rule” in this case will actually result in an injustice to Li and will not be consistent with the compensatory principle.

56.  Viewed another way, there is simply no evidence to support any argument of failing to mitigate that if steps had been taken to dispose the large quantity of shares from 13 June onwards, a price at HK$1.28 or above could still be achieved for the Second Tranche.

57.  In this connection, I have not overlooked Mr Poon’s contention that the court should have regard to the fact that Xu(I) was filed on 26 July 2019 when the price of HK$1.17 was recorded as the day’s high.  Mr Poon argued that after reading Xu(I), Li could have made an informed choice and that it would be unreasonable to hold onto the shares thereafter.  With respect, I do not accept Mr Poon’s submissions. In Xu(I), Kilmorey disclosed assets allegedly to the tune of HK$481 million.  Although Li was not satisfied with the lack of details of the assets (particularly about the recoverability of the substantial receivables), Xu(I) itself did not suggest that Kilmorey would have no means of paying the outstanding price for the shares.  I do not consider the case of failure to mitigate is made out by reference to Xu(I).

58.  Before leaving the question of damages, I have noted that in the Summons, Li has only asked for judgment corresponding to an assessment on the date of breach.  The figures based on a deferred assessment date appeared only in Mr Fung’s Skeleton Submissions, which were further revised at the hearing.  However, since I have heard full arguments on the issue and there is no suggestion that the defendants would suffer prejudice by allowing Li to claim for a sum different from that in the Summons, I do not see the departure as an impediment against entering judgment on the figures based on the revised calculations.

59.  In summary, I find that Li has not acted unreasonably by keeping the transaction alive, nor is there sufficient evidence to support any triable issue that he has unreasonably delayed until 27 September 2019 in exercising his right of election of the remedy.  Accordingly, I would assess damages to be HK$162,057,480, being the aggregate of (i) the outstanding principal of HK$163,000,000 and (ii) outstanding interest of HK$30,205,480, minus (iii) the value of the Second Tranche of HK$30,968,000 (being the value based on HK$0.79 per share as of 27 September 2019).

E.     The “Enforcement Summons”

60.  The Disclosure Order made by DHCJ K Wong on 2 July 2019, as later varied by DHCJ Leung on 12 July 2019, requires Kilmorey to disclose information of its assets of an individual value of HK$50,000 or more in Hong Kong, whether in its own name or not and whether solely or jointly owned, and details of all such assets.

61.  The List of Assets exhibited to Xu(I) contains two items relating to the ListCo shares, items 2 and 41.  Item 2 is stated to be “Shares receivable from Li” with a value of HK$80,654,000 and item 41 as “Investment in shares (Shares – HKEX 1632)” with a value of HK$146,000.

62.  As against the disclosure in items 2 and 41, it transpires that in an “Authorisation Letter” dated 27 May 2019 issued by Kilmorey to Li, Kilmorey declared itself to be the “actual beneficiary” of 80,730,643 ListCo shares held under the names of various entities and individuals.  The Authorisation Letter was signed by Xu on Kilmorey’s behalf.  It further transpires that in a Disclosure of Interests Form filed on 9 August 2019 with the Hong Kong Stock Exchange (“DI Form”), it was disclosed that Kilmorey held 39,283,655 of the ListCo shares directly and 24,603,925 shares indirectly.  On the face of these documents and particularly the Authorisation Letter, even leaving aside the 39,200,000 shares under the Second Tranche, the value of the ListCo Shares professed to be beneficially held by Kilmorey would, prima facie, far exceed the sum of HK$146,000 as disclosed in item 41 of its List of Assets.

63.  In Xu(IV), Kilmorey explained, in essence, that only 83,655 shares belonged beneficially to Kilmorey (being 39,283,655 as stated in the DI Form minus 39,200,000 of the Second Tranche yet to be transferred from Li) – hence the disclosed value of HK$146,000 under item 41.

64.  Xu(IV) explained that the 24,603,925 shares (disclosed in the DI Form as indirectly owned by Kilmorey) were held by the Cayman entity KSPC in name only and were assets belonging to KSPC’s clients.  They were “strictly speaking not assets of [Kilmorey] liable to be disclosed”.

65.  In this regard, even assuming Xu’s explanations about the DI Form were correct (on which I make no determination here), there remains prima facie non‑disclosure of a substantial portion of shares identified in the Authorisation Letter.  The contention in Xu(IV) that the Authorisation Letter was procured by coercion is completely contradicted by the contemporaneous WeChat correspondence between Ms Shih (Sylvia) and Cai.  Having regard particularly to the messages exchanged between 22 and 28 May 2019, there is little doubt that the allegation of coercion is completely unfounded and wholly unbelievable.  It is clear from the exchange that details in the Authorisation Letter concerning holders of the shares were actually provided by Cai.  Cai indicated that a draft of the Authorisation Letter would be reviewed by “the legal department”.  Indeed, it was Kilmorey who arranged the individuals each to sign an authorisation form to authorize Ms Shih to operate their accounts.

66.  In short, apart from the 83,655 shares, Xu(IV) fails to give any credible explanation why Kilmorey was resiling from the Authorisation Letter and now claims not to be the “actual beneficiary” of the remaining shares held in the name of other entities and individuals.  I do not see any merit in Mr Poon’s contention that determination of the application should be deferred subject to cross-examination of Xu.  Kilmorey had had the opportunity of adducing proper evidence in answer to the application and it has failed to do so.  There is clear non‑compliance with the Disclosure Order.

67.  The Order to be made under O 45, r 6 should, however, be confined to the 80,646,988 ListCo shares (ie 80,730,643 minus 83,655 shares) held under the entities and individuals as identified in the Authorisation Letter.  No argument has been put forward by Mr Fung regarding the other items set out in the List of Assets.

68.  Moreover, I do not think it is necessary specifically to provide for a penal notice as prayed for in paragraph 2 of the “Enforcement Summons”.  O 45, r 6, as invoked by Li, merely empowers the court to revisit the time specified for the taking of any act.  The other aspects of the injunction as originally granted (and subsequently varied) will remain effective subject to the further variation of the time for complying with the Disclosure Order to be made herein.  Kilmorey will no doubt be aware of the consequences of non‑compliance with an order of the court.

F.     Continuation of the injunction

69.  In view of the Order for summary judgment I am going to make, it is appropriate for the injunction to continue until after completion of the execution or enforcement of the judgment herein, or until further order of the court.

G.     Conclusion

70.  On Li’s Summons for Summary Judgment dated 31 July 2019, I will make the following order:

(1)     There be judgment against the 1^st and 2^nd defendants severally, for HK$162,057,480 together with interest thereon at the rate of 30% per annum on the sum of HK$163,000,000 (or any outstanding part thereof) from 13 June 2019 until full payment of principal and accrued interest;

(2)     Costs of the Action, including costs of this application and any costs reserved, be paid by the 1^st and 2^nd defendants to the plaintiff.

71.  On Li’s Summons under O 45, r 6 dated 22 August 2019, I will make the following order:

(1)     The 1^st defendant do, within 14 days from the date of this Order, serve an affirmation on the plaintiff’s solicitors disclosing information and details of its interest in the 80,646,988 shares in Minshang Creative Technology Holdings Ltd (Stock Code: 1632), which are identified in the Authorisation Letter dated 27 May 2019 as being held by or in the name of entities and individuals other than the 1^st defendant. For the avoidance of doubt, the 1^st defendant may be entitled to refuse to provide some or all of the said information on the ground that it may incriminate it;

(2)     Costs of this application be paid by the 1^st defendant to the plaintiff.

72.  On Li’s Summons dated 19 December 2019 for the continuation of the injunction, I will make the following order:

(1)     The Mareva Injunction Order granted by Deputy High Court Judge K Wong on 2 July 2019 as continued by the order of Deputy High Court Judge Leung dated 12 July 2019 (subject only to the variation of the Disclosure Order as stated in paragraph 71(1) herein), be continued until after completion of execution or enforcement of the Judgment granted herein or until further order.  For the avoidance of doubt, this order does not prohibit disposal of monies by the 1^st defendant insofar as the disposal is to effect or facilitate enforcement or execution of the said Judgment.

(2)     Costs of this application be paid by the 1^st defendant to the plaintiff.

73.  For the avoidance of doubt, there be a certificate for two counsel in respect of the three summonses.