SUPER MASTER INVESTMENTS LTD v. POWER APEX LTD AND ANOTHER

HCMP 2496/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2496 OF 2011

(ON AN INTENDED APPEAL FROM HCA NO. 1704 OF 2011)

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JUDGMENT

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1.  The Plaintiff obtained an ex parte Mareva injunction against the 1^st and 2^nd Defendants on 10 October 2011 in the sum of $51,000,000. The Plaintiff also obtained an ex parte order against the 2^nd Defendant, restraining them from selling, or in any way disposing of, or diminishing the value of, any of the 360,000,000 shares of Dejin Resources Group Company Limited ("Dejin") ("the shares"). The matter went for a substantive hearing before Yam J on 16 November, at the end of which Yam J refused to continue the ex parte orders. The Plaintiff then applied to Yam J for an interim order pending application for leave to appeal. The learned judge granted a stay until 5 o' clock today. This morning, the Plaintiff went before Yam J for leave to appeal as well as for continuation of the ex parte orders pending the disposal of the application for leave to appeal. The application before Yam J was dismissed after a hearing which lasted 2 hours. I should mention that Yam J has not yet given the reasons for either his decision of 16 November or this morning. The Plaintiff now comes to this Court for an interim order in terms of the ex parte orders, pending their application for leave to appeal to this Court. We commenced the hearing at about 3:10 pm this afternoon and it is now 4:15 pm.

2.  The facts are very complicated.  The rival contentions of the parties can be found in their skeleton submissions which were used before Yam J.  Briefly stated, it appears to be the Plaintiff's case that the shares, which were registered in the name of the Plaintiff, was in turn beneficially owned by a Mr Cheng Pak Lung.  It is Mr Cheng's case that the shares, together with the duly executed forms of transfer, were provided by him to a friend(s) Mr Ho Pui Tsun ("Mr Ho") and/or Mr Ke Jun Xiang ("Mr Ke")) on the understanding that the shares would only be used as security for an intended new loan facility and not otherwise.  It is also Mr Cheng's case that the new loan facility would be used in part, perhaps as to $100,000,000 thereof, in repayment of some existing loans to Mr Ke or Mr Ke's company. 

3.  On the other hand, the Defendant's case is that they knew nothing about Mr Cheng.  They obtained the shares from Mr Ke and they understood that as from the time when the shares certificates and the instrument of transfers were handed to them, they were tendered as additional securities for certain existing loans by Mr Ke or his company.

4.  It appears from some draft loan documentations which I have been taken to, for example, a guarantee (which appears at page 245 of the hearing bundle) that Mr Cheng was named therein as a guarantor of loans to be extended by the 2^nd Defendant to Trade Honour Limited (which is Mr Ke's company).

5.  In the Term Sheet "CPL-11" (Bundle page 122), which is said to evidence the intended loan, the lender was stated to be the 1^st Defendant, the borrower Trade Honour Limited (a company owned or controlled by Mr Ke), and the loan was to be HK$135 million and the proceeds was to be used to refinance the existing loan of HK$140 million.  There are also documents which show that the proceeds would only be used in part to repay the existing loan and that there would be some fresh money going presumably to Trade Honour Limited.

6.  Anyway, Mr Cheng's name appeared, amongst the various draft loan documents, as a potential guarantor (See: Draft Guarantee at page 245 of bundle).

7.  Mr Rimsky Yuen SC, appearing for the Plaintiff, reminded me that the Term Sheet actually stated under Security (iv) that Mr Cheng would provide a personal guarantee; and that Mr Cheng, together with the Plaintiff, shall have separate legal representation from the borrower (which is Trade Honour Limited (Mr Ke's company)).  That suggests that they were regarded in the Term Sheet as having possibly different interests.

8.  Even so, as I have said, the learned judge has refused to continue either the Mareva injunction or the injunction restraining sale or disposal of what is left of 360,000,000 shares.  I am told that what is left is 120,000,000 shares trading in which has been suspended. 

9.  The grant or refusal of injunction involves an exercise of discretion and appeals from such decisions rarely succeed.  I have to say, so far as the Mareva injunctions are concerned, I do not believe there is a reasonable likelihood at all of the Plaintiff succeeding.  On the material supplied to me, I do not see a sufficiently strong case of risk of dissipation to warrant the grant of such a draconian remedy against the 1^st and 2^nd Defendants.

10.  So far as the sale of the remainder of the shares are concerned, as I have said, the shares are under suspension and presumably they are not readily saleable. It is just arguable - that the Plaintiff's case on a quistclose trust - is just arguable. 

11.  Ms Josphine Tjia, who appeared for the Defendants, submitted that it is not arguable because there is no evidence that even if the shares were supplied to Mr Ke or Mr Ho, on a quistclose basis, there had been communication of any such purpose to the Defendants.  On the other hand, it is clear from the public record that the shares were said to be beneficially owned by Mr Cheng.  I see that in the extract from the annual report of Dejin for the year 2010, as well as from the interim report of 2011 as at 30 June 2011.  Moreover, as I have said, in the Term Sheet, Mr Cheng and the Plaintiff were mentioned; and it said that they would be separately represented, thereby suggesting that they had conflicting interests from Mr Ke's company.  So I think there is perhaps a reasonably arguable case of a quistclose trust in relation to them.  Even so, whether or not to grant an order restraining their disposal pending the application for leave to appeal is an exercise of discretion.  Mr Yuen said that it was offered to Yam J and the offer has repeated to me that, for fortification of their undertaking as to damages in this connection, the Plaintiff is prepared to undertake not to sell or charge or otherwise dispose of another lot of shares in the same company (I think a lot of 445,000,000 shares) which are at present unencumbered.  On the basis of such an undertaking, I am prepared to grant, as an interim measure, an order in relation to the remainder of 360,000,000 shares in terms of para. 3(a) of the ex parte order granted by Saunders J on 10 October 2011.  That is the order that I would make.  So far as costs are concerned, I will leave that to the court which will deal with the application for leave to appeal.