SU SU v. LI WING CHIU

HCA 2225/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2225 OF 2013

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J U D G M E N T

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Introduction

1.  The issue before this court is whether the Mareva Injunction granted to the plaintiff (“P”), as subsequently varied, should be continued.

2.  The Mareva Injunction was granted initially on ex-parte basis on 16 November 2013 by DHCJ Lok (“Ex-Parte Order”).  On the return hearing of P’s inter partes summons on 22 November 2013, despite the opposition of the defendant (“D”), DHCJ Seagroatt ordered the Ex-Parte Order to continue in the interim until further order, subject to D’s level of spending being increased to HK$40,000 per month, and P’s inter-partes summons adjourned for a substantive hearing.

3.  On 19 December 2013, an order was made by consent under which D agreed to pay HK$17m into court and a further amount of HK$680,000, being security of 2 months’ interest at 2% per month, and all obligations on D’s part under the Mareva Injunction were to be stayed pending the substantive hearing of P’s inter-partes summons.

Background

4.  P was/is a Mainland citizen engaged in the business of import and export of different kinds of merchantable goods in Xiamen.  P said she knew D in Xiamen when they were young.  D said P was introduced to him by his sister.

5.  D was a Mainland citizen, but he became a permanent Hong Kong resident in 2007 and at that time, according to him, he was a shareholder of an investment company.

6.  On about 13 May 2008, a winding up petition was presented against a company listed on the GEM Board of the Hong Kong Stock Exchange then known as China Medical and Bio Science Limited, but now called Oriental Unicorn Agricultural Group Limited (“Company”). Provisional liquidators were appointed for the Company on 3 December 2008 (“Provisional Liquidators”).

7.  D said he was introduced to the restructuring plan of the Company through his friend Chan Ka Chung (“Chan”).  D was advised to identify an appropriate person to, among other matters, take care of the Company’s investments in Fujian Province, and to develop the Company’s business there, as part of the restructuring plan of and the re-listing of the Company (“Restructuring Project”).

8.  In about 2009, D approached and invited P to join as an investor in the Restructuring Project to which P agreed.  For the purpose of carrying out the Restructuring Project, a corporate investment vehicle in the British Virgin Islands called Neuf Capital Limited (“Neuf Capital”) was incorporated in July 2009.  There were 3 shareholders of Neuf Capital, namely 3 other offshore companies representing ultimate beneficial ownerships of D, P and Chan, Chan’s interest being represented by a Mr Leung (“Leung”). The 3 companies were :

(i) Golden Winner Investments Limited (“Golden Winner”)

(ii) Mack Capital Partners Inc (“Mack Capital”)

(iii) Cheerise Development Limited (“Cheerise”)

9.  There was no dispute that P was initially the majority beneficial shareholder of Golden Winner, holding 67% of its shares, and her beneficial interest in the Company was held through Golden Winner only.

10.  On 28 July 2009, Neuf Capital entered into an exclusivity agreement with the Provisional Liquidators (“1^stExclusivity Agreement”), whereby it was agreed that Neuf Capital would be exclusively responsible for the Restructuring Project and the investment of the capital in relation thereto.

11.  It was not disputed by D that P would have to approach other persons/investors in order to finance her share of the investment capital in the Restructuring Project.  It would now appear that for such purposes, P had entered into various agreements with various persons in PRC. 

12.  It was not denied by P that on 28 July 2009 she had entered into an agreement with a person called Miao Peng Fei (“Miao”)whereby she agreed to transfer 10m shares in the Company to him in return to an investment of RMB 5m[1] (“Miao Agreement”).

13.  It was further not denied by P that on 3 September 2009 she had signed an agreement on behalf of Golden Winner on 3 September 2009 (“Chen Agreement”)[2] with a person called Chen Jianlin (“Chen”).   It was stated in the Chen Agreement that Golden Winner was the controlling shareholder in Neuf Capital and it agreed to transfer 70m shares in the Company to Chen at the consideration of HK $1.

14.  It was P’s case that the Miao Agreement and the Chen Agreement had been superseded by further agreements, and these will be referred to later in this judgment.

15.  Then on 16 January 2010, P entered into a loan agreement for a sum of RMB 30m from one Zheng Zhenxin (“Zheng”) to be paid to Neuf Capital for the purpose of the Restructuring Project[3] with a subsequent Supplemental Agreement revising the loan maturity date from 30 June 2010 to 30 September 2010[4] (“Zheng Agreements”).  Neuf Capital and D were both guarantors to the loan.  The loan was to be repaid to Zheng by the transfer of 690,000,000 shares in the Company by Neuf Capital to Zheng.

16.  Thereafter, on 6 July 2010, to facilitate further development of the Company’s business after re-listing, Golden Winner had further entered into a share transfer agreement with a PRC company known as 台科加丹(福建) 乳豬營養有限公司 (“Tai Ke”), under which Golden Winner agreed to purchase 60% interest in Tai Ke at a consideration of RMB 33m to be paid by following instalments:

(i) RMB 4.32m within 5 days of the agreement;

(ii) RMB 3.68m within one month after re-listing of the Company;

(iii) RMB 5m within six months after re-listing of the Company;

(iv) Balance of RMB 20m within 13 months after re-listing of the Company.

(“Tai Ke Agreement”)

17.  According to D, on 20 December 2010, P, D and Leung had signed an agreement stating that each of them had different responsibilities in the Restructuring Project, and that P was responsible for raising investment capital of HK $48m from two other persons, namely Zheng and another person called Wu Shan (“Wu”), towards the parties’ payment for 480,000,000 shares in the re-listed Company (“Confirmation Agreement”)[5].

18.  The 1^st Exclusivity Agreement expired in about March 2011, and the Provisional Liquidators requested the execution of another exclusivity agreement.

19.  It was P’s case that in about March 2011, she discovered the misappropriation of funds from Neuf Capital to a company incorporated in Hong Kong by D and Leung on 4 September 2009 called Neuf Investment Limited (“Neuf Investment”), to settle certain what she said were inexplicable expenses from September 2009 to February 2011 which they were not entitled to.  According to P, the funds in the banks account of Neuf Capital should only be used for the carrying out of the Restructuring Project, but from time to time, various sums were “diverted” from Neuf Capital to Neuf Investment, without P’s knowledge nor consent.

20.  In the above circumstances, P said she lost faith and confidence in D and Leung and wished to sell her stake in the Restructuring Project.  This resulted in an investment transfer agreement being signed between P and D on 23 April 2011 (“Transfer Agreement”)[6].

21.  The Transfer Agreement was in Chinese.  Under the terms of the Transfer Agreement, a new BVI company called 千玖國際有限公司 was to be formed to be wholly owned by D and which would be responsible for the continuation of the Restructuring Project.  D was to pay P a total of HK $32m under the Transfer Agreement, and the final amount of HK $17m was to be paid by D to P within one week upon the expiry of what the parties called the “black-out period” (“Black Out Period”), upon the successful re-listing of the Company.  The English name of the new company千玖國際有限公司 turns out to be Thousand Jade International Limited (“Thousand Jade”).  P had referred to the new company being called Neuf International Limited in her 1^st affirmation which was in English, which D said never existed.  It seems clear to this court what P was referring to in her 1^st affirmation was 千玖國際有限公司, the English name of which turned out to be Thousand Jade.

22.  Thereafter, on 29 April 2011, a new Exclusivity Agreement was entered into by Thousand Jade with the Provisional Liquidators[7] (“2^nd Exclusivity Agreement”).

23.  At the time of the signing of the Transfer Agreement, the parties were still on amicable terms, and on the same day they signed the Transfer Agreement, they also signed a consultancy service agreement whereby P would become a director of Thousand Jade and would continue to facilitate the financing by Zheng and Wu in the Company, and if Zheng and Wu changed their minds, it was stated in the agreement that P could look for other investors (“1^st Consultancy Agreement”)[8]. It was further stated in the 1^st Consultancy Agreement that upon P completing her work under the agreement, she would be entitled to 50m shares in the re-listed Company at no consideration.

24.  Then about 3 months later, the parties entered into a further agreement dated 20 July 2011(“2^nd Consultancy Agreement”)[9]. It was stated therein that upon re-listing, the shares of the Company would be consolidated, in that 40 old shares would become 1 new share, and thus the parties entered into the 2^nd Consultancy Agreement to revise the terms in the 1^st Consultancy Agreement, in particular the number of shares which P would receive.  Under the 2^nd Consultancy Agreement, among other things, P would be entitled to 16,500,000 shares in the Company after it was re-listed, and such shares would be transferred to P or her nominee within one week after expiration of the Black Out Period.

25.  The Restructuring Project was successful.  The winding up petition was dismissed on 28 October 2011 and the Provisional Liquidators were discharged with effect on the same day, and the Company was relisted on the GEM board on 1 November 2011.

26.  Under clause 6 of the Transfer Agreement, the Black Out Period expired on 1 November 2013, and the sum of HK $17m would be payable to P by D on or before 8 November 2013.  D had failed to pay her the said sum.  D was also to transfer to P 16,500,000 shares on or before 8 November 2013 under the 2^nd Consultancy Agreement, which he also seemed to have failed to do.

27.  P then said she and her husband Lin came to Hong Kong in early November 2013 to try to look for D.  On 13 November 2013, P read an announcement issued by the Board of the Company in relation to a placing agreement for the placing of a maximum of 200,000,000 shares owned by the controlling shareholder of the Company, Thousand Jade.  The following day, on 14 November 2013, a large block of shares of the Company was sold in open market, which P said should have come from D and/or Thousand Jade.

28.  On 16 November 2013, P applied for and obtained the Ex-Parte Order and she issued the writ herein against D on 18 November 2013. 

D’s Grounds of Opposition

29.  By the time of the hearing before this court, D had filed 2 affirmations, and P was granted leave to file a 3^rd affirmation in addition to her earlier 2 affirmations, in relation to new matters raised in D’s 2^nd affirmation, which I gave him leave to file.

30.  D opposed the continuation of the Ex-Parte Order on mainly the following grounds :

(i) There were material non-disclosure and misstatement on the part of P in her affirmations;

(ii) P had failed to establish a good arguable case by failing to disclose the Chen Agreement, which voided the Transfer Agreement, and further that she had failed to fulfill and/or discharge her obligations under the Transfer Agreement;

(iii) There was a lack of solid evidence from P to show a real risk of dissipation of assets on the part of D

The Legal Principles

31.  It is trite law that for a domestic Mareva injunction, the applicant /plaintiff must show that:

a. That he has a good arguable case claim over which the court has jurisdiction;

b. That there are assets within the jurisdiction;

c. That the balance of convenience is in favour of a grant;

d. That there is a real risk of dissipation of assets, or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect;

e. The plaintiff must comply with a strict duty of full and frank disclosure[10].

32.  In respect of full and frank disclosure, the material facts to be disclosed are all matters which are material for the judge to know and which are necessary to enable him to exercise his discretion properly.  The plaintiff should give particulars of his claims against the defendant, stating the grounds of his claims and the amount thereof and, in addition, should fairly state the points made against him by the defendant.[11]

33.  This court was referred to Citibank NA v Express Ship Management Services Ltd [1987] HKLR by P’s Counsel, Mr Liang. As set out in the judgment of Fuad JA, what are to be regarded as material facts are, “all facts that are relevant to the weighing operation which the court has to make in deciding whether or not to grant the order”[12].  The Court of Appeal then held that the facts not disclosed by the plaintiff in that case, namely all its efforts it was undertaking which might lead to recovery from third parties of some of the money it was claiming from the defendants, were not facts which would go to the weighing operation at the ex parte hearing, and that failure to disclose them did not vitiate the injunctions.

34.  Mr Chan, D’s Counsel, had referred the court to a recent unreported judgment of DHCJ Ng in Sin Yuk Hung v Sin Tung San, HCA 474/2013, 18 December 2013, where it was held that the court was not concerned with whether the matters not disclosed would, if they had been disclosed, have caused it to refuse to grant the ex parte order[13], and that the proper test was whether the court should have these matters in the weighing scales.  DHCJ Ng had quoted from Kwan J (as she then was) in the case of Securities and Futures Commission v “A”[14] who, when dealing with an application for discharge on material non-disclosure had summarized as follows :

“40. For information to be material for this purpose, it must be something which would have affected the judge’s decision on the application. It is a matter relevant to the weighing operation which the court has to make (Thermax v Schott Industrial Glass [1981] FSR 289 at 298, per Browne-Wilkinson J; Director of the Serious Fraud Office v A [2007] EWCA Crim 1927 at paragraph 18, per Hughes LJ). Unless the courts use the sanction only when the non-disclosure is of matters which are relevant to the ex parte judge’s weighing operation, an impossible burden would be placed on applicants and their advisers and the court may get itself in a position of what might be called ‘counter-abuse’ (Wo Fung Paper Making Fty Ltd v Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346 at 357H to J, per Hunter JA; Citibank NA v Express Ship Management Services Ltd & Anr [1987] HKLR 1185 at 1190 H to I, per Fuad JA).

41. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or its relevance was not perceived, is an important consideration whether the ex parte order should be discharged, although it is not decisive (Brink’s Mat Ltd v Elcombe & Ors [1988] 1 WLR 1350 at 1357D, per Ralph Gibson LJ). In practice it would be extremely difficult for a defendant applying for discharge to show that the matters which were not disclosed were the subject of a decision not to disclose made in circumstances where it was appreciated there should have been disclosure. In the majority of cases, the matter has to be approached on the basis of considering the quality of the material which was not disclosed without making any final decision whether or not there has been bad faith in the failure to disclose (Behbehani v Salem [1989] 2 All ER 143 at 149a to b, per Woolf LJ).

42. Even if it is established there was material non-disclosure which justifies discharge of the ex parte order, the court has a discretion to continue the order or make a new order on terms.  The court must assess the degree and extent of the culpability, the importance and significance to the outcome of the application of the matters which were not disclosed, and whether the punishment of discharging the ex parte order would be out of proportion to the failure of the applicant to make full and frank disclosure (Brink’s Mat Ltd, supra. at 1359B to F, per Slade LJ; Behbehani v Salem, supra. at 149g; Arab Business Consortium International Finance and Investment Co v Banque Franco-Tunisienne [1996] 1 Lloyd’s Report 485 at 492, per Waller J; Director of the Serious Fraud Office v A, supra. at paragraph 18).”

35.  With the above principles in mind, I will turn to the present case.

Material non-disclosure

36.  The matters complained by D included:

(i) P had given an incorrect residential address to the court in her affirmations and there was abundant evidence to show that P had been cutting her ties from her previous residence and location of business;

(ii) P failed to disclose the Chen Agreement which was highly material to her alleged claim under the Transfer Agreement;

(iii) P failed to disclose the existence of  the Confirmation Agreement and the Consultancy Agreements;

(iv) P failed to disclose her breach of the Transfer Agreement, among other things, her failure to recover the deposit of HK$4.32m from Tai Ke paid under the Tai Ke Agreement, and her failure to perform her duties under the Confirmation Agreement;

(v) P failed to disclose to the court that she should have received a substantial sum out of the HK$10m loan repayment by Thousand Jade to Neuf Capital, a fact which would be relevant to the actual amount of claim;

(vi) P failed to disclose the Zheng Agreements and her failed to repay the loan therein in full, as a result of which Zheng was about to issue proceedings in PRC against P, her husband Lin, Neuf Capital and also D for the balance.

P’s Address

37.  It is stated in O 41 r 1(4) of the RHC that unless the court otherwise directs, every affidavit must state the place of residence of the deponent, unless the deponent who is giving evidence in a professional, business or other occupational capacity, and in such a case, the deponent may state the address at which he/she works.

38.  D complained that the address given by P in her 1^st and 2^nd affirmations was not a proper address, and that the address given by P would not be an address at which P was residing.  D had engaged an express courier service to deliver a blank envelope to the address given by P, and the courier was unable to deliver the envelope to the address given by P.

39.  It was further D’s case that P and her husband Lin Yuman (“Lin”) used to own a residential property, where they once resided, and also a commercial property in Xiamen, where P used to work or conduct her business.  D said he had visited P at both these addresses recently, but found that both properties had been sold, and that D alleged that various other people were trying to locate P to recover money due and owing from her. 

40.  In P’s 3^rd affirmation, she confirmed that the address given by her in her affirmations was/is a valid “service address”, and that all along, she had used that address as her usual correspondence and service address and the address to which her lawyers corresponded with her.  The address given by P was the address of a village called Group 9, Yannei Village, with no number.  P said Lin was born in the village and that Lin had inherited a property there from his father, and that P and Lin had lived in the village since their marriage in 2005.  According to P, she claimed that there was no specific number assigned to the property.  P further produced copies of documents to show the address given by her, such as her PRC identity card issued on 17 April 2006, Lin’s household register issued by the local authority on 2 March 2012, and a letter dated 31 December 2013 from a securities company in Hong Kong at which she had maintained an account.  Further, on the register of directors of Thousand Jade, the address given by P in her affirmations was stated to be her residential address.

41.  P admitted that she and Lin had sold their residential property in Xiamen in late 2012, and that they had moved out of their commercial property in about March 2013.

42.  Having considered P’s explanations, there seemed to be no sufficient evidence at this interim stage to show that the address given by P was not her residential address. 

P’s Failure to disclose the Chen Agreement

43.  There was no dispute the Chen Agreement was not disclosed to DHCJ Lok by P in her 1^st affirmation filed in support of her ex-parte application.  The issue is whether this was a material non-disclosure.

44.  The parties to the Chen Agreement were Golden Winner and Chen.  It was not disputed that P was the majority shareholder in Golden Winner.

45.  Upon signing of the Chen Agreement, Chen was to become the beneficial owner of those shares held by Golden Winner in the Company, and that Golden Winner was to hold those shares in trust for Chen in the interim pending the completion of the Restructuring Project and the re-listing of the Company, and that Golden Winner undertook to deliver/transfer the 70m shares to Chen upon the completion of the Restructuring Project.

46.  In P’s 2^nd affirmation, she explained that since the funds to be injected into the Restructuring Project were very substantial, totaling about HK$20m, she had sought assistance from other financiers/investors, and Chen was interested.  At that time, P said as she (presumably through Golden Winner) would be allocated about 42.18% of the shares in the Company, which was equivalent to about 231,990,000 shares, she therefore signed the Chen Agreement to transfer 70m shares in the re-listed Company to Chen in consideration of his financial support.  She further explained that it was not her, nor Chen’s intention for the 70m shares to be transferred right away, but instead the shares were to be transferred after the re-listing.  She further explained it was certainly not her intention to dispose of any of D’s interest in the Company.

47.  P then said that subsequent to the Chen Agreement, which was signed on 3 September 2009, there had been two further documents signed by her and Chen:

(i) An undertaking which she signed on 30 September 2009 in favour of Chen[15], to confirm that she would transfer only 2.35m shares in the Company to Chen or Chen’s nominee/s upon the successful re-listing of the Company, in exchange for Chen’s investments of a total of RMB 4.7m; and in the event of the re-listing being unsuccessful, Chen agreed to waive the repayment by P of his said investment capital together with interest, and that this undertaking was to supersede any previous agreement/s signed by P and Chen over the shares in the Company, and any such previous agreement/s would be void (“Undertaking”). The Undertaking appeared to have been signed by Chen signifying his agreement to the contents thereof.

(ii) Then, on 23 October 2013, she, in her personal capacity, and Chen had signed a further agreement (“2^nd Chen Agreement”)[16].  In the 2^nd Chen Agreement, P had agreed to transfer 2.35m shares in the Company to Chen’s securities account on or before 8 November 2013, and that upon such transfer, Chen would have no other claims against P.

48.  To summarise, it was P’s case that the Chen Agreement had been superseded by the Undertaking and the 2^nd Chen Agreement and that prior to the Ex-Parte Order, she was to transfer only 2,350,000 shares in the Company to Chen, on or before 8 November 2013.

49.  P said as D had failed to transfer to her the 16,500,000 shares in the Company which she was entitled to under the 2^nd Consultancy Agreement, she therefore had to purchase 2,350,000 shares of the Company in open market in November 2013, in order to honour her obligation to Chen under the 2^nd Chen Agreement.  P had produced a copy of a delivery instruction dated 4 November 2013 to a securities company Haitong International Securities Company Limited duly signed by her and Chen evidencing the transfer in question[17].

50.  P’s Counsel, Mr Liang, had submitted on behalf of P that the Chen Agreement was irrelevant.    

51.  According to D, after the Ex-Parte Order was served on him, he received an enquiry from a PRC law firm acting for Chen in relation to the Chen Agreement, and D was then provided with a copy of the agreement[18].  D said that was the first time he found out about the Chen Agreement, and that as a shareholder and director of Golden Winner, he had no knowledge of this agreement.  D complained that P had not disclosed to him the existence of the Chen Agreement.

52.  However, it was also D’s case the Chen Agreement was not valid or effective, as there was no board resolution for Golden Winner to enter into that agreement, in which case the agreement would not be binding on Golden Winner.  D had also produced a minute of the shareholders’ meeting of Neuf Capital on 10 October 2009 (“Minute”)[19].  It was resolved during that shareholders’ meeting that none of the shareholders had the authority to make any public announcement or to sign any agreement, and any agreement signed with any third party without the authorization and the proper chop of the Company would be invalid.  It was D’s case that the Chen Agreement was not disclosed by P at that meeting and thus would not be binding on Neuf Capital.

53.  Both the Undertaking and the 2^nd Chen Agreement were executed before the Ex-Parte Order.  P did not disclose these documents in her 1^st affirmation nor the related transactions. 

54.  D had also produced a letter from Chen’s PRC lawyers dated 27 December 2013 who were said to be conducting investigations over Chen’s involvement with Golden Winner (“Enquiry Letter”)[20].  This letter stated, according to Chen:

(i) P had on 15 July 2009 through Golden Winner authorized Chen and another to act as directors of Golden Winner and on 3 September 2009 P had signed the Chen Agreement with Chen; 

(ii) Thereafter, during a period of two odd years, Chen had on behalf of Golden Winner entered into agreements with other investors in relation to the capital investments into the Company.

(iii) All capital raised by Chen and/or other investors had been remitted to P and her family members and this totalled at least RMB 5m;

(iv) Chen and his other investors had understood that they had shares in the Company and that P’s shares and their shares had been held in trust by the Thousand Jade, and that such shares could only be formally transferred to them after the expiration of the Black Out Period;

(v) All along, initially, Chen had understood that P was the majority beneficial shareholder of the Company and that D was only a trustee

(vi) On 7 November 2013, Chen had received 2,350,000 shares in the Company from P, which had been purchased by P from open market, and which were then worth less than HK$200,000, and such shares were not allotted by the Company.

55.  The enquiries raised by Chen’s PRC lawyers with D were:

(i) Whether Golden Winner was an investor in the Restructuring Project of the Company?  Whether P held any interest in Thousand Jade?

(ii) Whether D and Golden Winner, or P or Chen and his investors, had any trust arrangement as to the shares in the Company?  What was the proportion of the shareholding? And how could Chen and his investors obtain their allocated shares?

(iii) Whether the Chen Agreement could be regarded as Golden Winner holding in trust for Chen shares in the Company? Now the Black Out Period had expired, how could the shares be transferred to Chen legally, and how soon could D arrange?

56.  In fact, the same PRC law firm had also sent to D another letter of enquiry on behalf of Chen’s other investors earlier on 22 December 2013 in relation to the relationship between Golden Winner and the Company and raising similar queries[21].

57.  D’s latest case was that P was engaged in “fraudulent conduct and wrongful behaviour”.

58.  As mentioned earlier, it had not been disputed by D that P had to borrow or raise funds from other persons in order to come up with her share of the investment capital in the Company through Golden Winner, and D was aware of this.  It had also been admitted by D that the Transfer Agreement was a “buy-out transaction”, namely D buying out all P’s rights and interest in the Restructuring Project of the Company[22].  Even though D seemed to have challenged the actual amount of capital injected by P being HK $20m, according to him, the HK $15m paid to P under Clauses 2 and 3 of the Transfer Agreement was for P to recover a substantive part of the amount previously invested by her in the Restructuring Project, in which case what P had invested must be more than HK$15m[23]. 

59.  P had in her 3^rd affirmation provided evidence that her investment in the Restructuring Project was about HK$ 22.9m in total, but D pointed out that these documentary evidence was self-serving.

60.  It was anyway clear that D had considered the provisions in Clauses 1, 2 and 3 performed and fulfilled in entirety and he had paid P the said HK$15m[24].  

61.  As D himself had pointed out, P/Golden Winner appeared to have no authority from the shareholders of Neuf Capital to enter into the Chen Agreement and thus the Chen Agreement would not be valid or binding on Neuf Capital or its other shareholders.

62.  P had said she was investigating if D had played any role in causing the Enquiry Letter to be issued.

63.  I accept that P did not seem to have denied that Chen had allegedly paid her and her family members RMB 5m odd.  Whether she was engaged in any wrongful conduct towards Chen and/or the Investors was in my view a separate matter to D’s obligations under the Transfer Agreement.

64.  All those transactions covered by the Chen Agreement, the Undertaking and the 2^nd Chen Agreement were quite separate from the Transfer Agreement which was freestanding.  All those transactions only showed that even if the Chen Agreement was a valid and effective agreement and not superseded by the Undertaking or the 2^nd Chen Agreement, Golden Winner would then be holding 70m shares (or what the amount after consolidation) in trust for Chen.

65.  The Transfer Agreement was entered into by P in her personal capacity.  It may well be, that if the Chen Agreement was eventually held to be a valid agreement, any amounts P was paid by D or recovered from D under the Transfer Agreement, she would have to account to Golden Winner, and Golden Winner as trustee would then have to account to Chen. All these matters were in my view not relevant to P’s application for the Ex-Parte Order.

66.  After the signing of the Transfer Agreement, it was Thousand Jade which was solely involved in the Restructuring Project, and not Neuf Capital.  It was Thousand Jade which had replaced Neuf Capital as the “Investor” in the 2^nd Exclusivity Agreement, and Thousand Jade was to continue to provide further capital, and according to the Company’s public announcement on 13 July 2011, Thousand Jade had agreed to subscribe for and the Company agreed to allot to it 240,000,000 of the Subscription Shares as set out therein[25].

67.  According to D, Thousand Jade had undertaken to repay on behalf of the Company the amount due and owing by the Company to Neuf Capital[26]. 

68.  Thus, Neuf Capital dropped out of the picture in the Restructuring Project after the 2^nd Exclusivity Agreement.  Thousand Jade was the controlling shareholder of the Company at the time when it was re-listed, and was described as such at the time of the placement on 13 November 2013.

69.  Having considered the evidence, I do not find that the Chen Agreement, or the Undertaking or the 2^nd Chen Agreement were relevant  in the weighing operation at the ex parte hearing or that they would have affected DHCJ Lok’s decision, and I do not consider the non-disclosure of these documents material.

70.  There had also been an inter-partes hearing before DHCJ Seagroatt and one day prior to that hearing, D had filed his 1^st affirmation setting out the Chen Agreement and claiming that the Transfer Agreement was arguably not enforceable.  D’s Counsel Mr Wong had made submissions to the court to dismiss P’s inter-partes summons to continue the Ex-Parte Order, based on those matters set out in D’s 1^st affirmation including the Chen Agreement.  The Learned Judge declined to do so and continued the injunction saying that he was not satisfied that there had been material non-disclosure.

P’s Failure to disclose the Confirmation Agreement and the Consultancy Agreements

71.  The Confirmation Agreement set out that P was to raise capital of HK$48m from two persons, namely Wu and Zheng. The Confirmation Agreement was entered into 3 months prior to the Transfer Agreement.  Under the 1^st and the 2^nd Consultancy Agreements, P had agreed to continue to facilitate or to complete the injection of investment capital by Wu and Zheng for the Restructuring Project.  The Restructuring Project had already been completed.  D was alleging P had breached of the Confirmation Agreement, and the Consultancy Agreements. 

72.  Those agreements were quite separate from the Transfer Agreement and the non-disclosure of these documents was in my view not material.

P’s failure to disclose her breach of the Transfer Agreement

73.  Under Clause 4 of the Transfer Agreement, P was responsible for seeking a return from Wu an outstanding amount of RMB 334,000, to reduce what seemed to the outstanding sum of RMB 300,000 which should have been paid by D by the 5^th stage of the injection of the investment capital in the Restructuring Project.

74.  Under Clause 5 of the Transfer Agreement, P was responsible for seeking the return of a deposit of RMB 4.32m paid to Tai Ke under the Tai Ke Agreement to repay to D.

75.  D’s present case seemed to be that the sum of RMB 4.32m should be set off against the sum of HK $17m payable under Clause 6.

76.  There was no stipulation in Clause 6 of the Transfer Agreement that the payment by D to P of HK $17m was conditional upon P being successful in seeking the return of those sums mentioned in Clauses 4 and 5. 

77.  So far as Tai Ke is concerned, D himself had raised a number of “problems” with the Tai Ke Agreement and according to him, upon becoming aware of the problems, P had agreed to negotiate with Tai Ke to terminate the Tai Ke Agreement and to recover the refund of the deposit of RMB 4.32m.  P denied D’s allegations.  In any event, the Tai Ke Agreement was also signed by D.

78.  There was no guarantee by P in the Transfer Agreement that she would be successful in recovering the payments set out in Clauses 4 and 5. 

79.  In my view, Clause 6 was independent of Clauses 4 and 5.

80.  In P’s 1^st affirmation, she had set out the terms of the Transfer Agreement in full and DHCJ Lok was fully aware of such terms.  

81.  P denied any breach of the Transfer Agreement. Again, the non-disclosure of the Tai Ke Agreement was in my view not material.

P’s Failure to disclose that she should have received a substantial sum out of the HK$10m loan repayment by Thousand Jade to Neuf Capital

82.  D had also said that Thousand Jade’s repayment Neuf Capital of the HK $10m loan took place quite some time ago and that he himself had not yet received his part of HK $1,650,000 from Neuf Capital. 

83.  There was no provision in the Transfer Agreement that there should be any set off of any amount P was to receive from Neuf Capital against the HK $17m.

84.  Again, I am of the view that P’s failure to disclose this was not material.

P’s Failure to disclose the existence of the Zheng Agreement

85.  According to D, P had repaid Zheng about RMB 28.8m  under the Zheng Agreement, around 10 March 2011, but it seemed the amount had come from Neuf Capital’s bank account[27]. 

86.  P said she understood that on 10 March 2011, D and Zheng had visited HSBC together and arranged for the release to Zheng sums held in Neuf Capital’s HSBC bank accounts.  P had produced copies of transaction advices from HSBC on which Zheng had duly signed and acknowledged receipt in the presence of P, her husband Lin and D, as P and Lin were in Hong Kong at the time.  According to P, the common understanding between P, Lin, D, and Zheng was that any liability under the Zheng Agreement of her, D and Neuf Capital had been discharged on that day.

87.  D, however, claimed that due to the exchange rate and interest, P now owed Zheng about RMB 10m and accrued interest of some RMB 8m.  D had exhibited a draft writ[28] which he claimed would be issued shortly by Zheng against P, Lin, Neuf Capital and D.  There was no sufficient evidence that P was aware of this prior to applying for the Ex-Parte Order.

88.  Anyway, the Zheng Agreement is a separate matter from the Transfer Agreement, and the non-disclosure of the Zheng Agreement would not be material.

Miao Agreement

89.  According to P, she had already bought back all Miao’s right to shares by a further agreement with Miao dated 25 March 2012[29].

90.  Thus, the non-disclosure of the Miao Agreement was not material.

Conclusion

91.  D had raised many allegations of non-disclosure of various agreements/transactions entered into by P with third parties, and it may well be that these third parties will have claims against P, but this should not affect D’s obligations towards P under the Transfer Agreement.  

92.  Whatever the reasons were for P’s decision to pull out in March 2011, D had admitted that the Transfer Agreement was a buy-out arrangement, that he had agreed to buy out all P’s interest in the Restructuring Project.  It was stated quite clearly in Clause 1 of the Transfer Agreement, for any liabilities incurred by P without the signature or confirmation of D, P was to be personally liable. 

93.  Following the Transfer Agreement, and pursuant to the 2^nd Exclusivity Agreement, Thousand Jade had become the only “Investor” in the Restructuring Project, and as I have said earlier Neuf Capital was out of the picture.  There had also been part performance of the terms of the Transfer Agrement, in that D had already paid HK $15m to P upon the events in Clauses 2 and 3 being completed.

94.  Having considered all D’s allegations and P’s explanations so far, I am of the view that there had not been material non-disclosure on P’s part and that the Ex-Parte Order should not be discharged on this ground.

95.  I am further of the view that even had there been any material non-disclosure on the part of P, such non-disclosure was innocent in that the relevance was not perceived by P at the time of her application and that the Ex-Parte Order should not be discharged on this ground.

96.  D had also complained that there were various misstatements in P’s 1^st affirmation, such as referring to the new company being called Neuf International Limited, and giving the impression that D was not a resident of Hong Kong.  I am also satisfied that such misstatements were not material.

Whether P had a Good Arguable Case

97.  It is trite that there is no need for P to show that her case against D is so strong that she is likely to obtain summary judgment, and the test is whether P has a “good arguable case”[30].

98.  Mr Wong submitted that P had no good arguable case, and this seemed to be based on mainly:

(i) By reason of the Chen Agreement, the subject matter of the Transfer Agreement was simply non-existing, in that the Transfer Agreement had been voided by P having entered into the Chen Agreement;

(ii) P was in breach of the Confirmation Agreement, the Transfer Agreement and the two Consultancy Agreements;

(iii) There was no sufficient evidence produced by P to show her alleged total investment of about HK$22.8m .

99.  The recital of the Transfer Agreement stated that upon  expiration of the Exclusivity Agreement, the parties agreed to co-operate to continue to carry forward the Restructuring Project in the name of Thousand Jade, and for D to be transferred all P’s rights in the Restructuring Project and the consideration was then set out thereafter.

100.  Under Clause 1 the Transfer Agreement, P agreed to the following :

(i) To carry out audit and confirmation of the parties’ investment accounts as at the 5^th instalment stage, and to transfer all such accounts to D or his nominee;

(ii) To carry out confirmation of all liabilities during P’s appointment as “legally appointed representative” and/or direct of the relevant companies, and if there were any liabilities which were not confirmed and signed by D, including and not limited to any guarantee or loans, such should be borne permanently by P unilaterally.

101.  Clause 2 provided for payment of HK $8m by D to P upon the Hong Kong Stock Exchanging agreeing to extend the Exclusivity Agreement.

102.  Clause 3 basically provided for the payment of HK $7m by D to P upon P ceasing to be the legally appointed representative, shareholder and director of 3 related PRC companies.

103.  P’s claim was simply based on the Transfer Agreement. D was satisfied with the events in Clause 2 and 3 had taken place, and he had paid the HK $15. 

104.  There was no evidence at this stage that the audit and confirmation set out in Clause 1 had not been carried out, or that P’s investment accounts as at the 5^th instalment payment stage of the  Restructuring Project under the 1^st Exclusivity Agreement had not been transferred to D.  Further, as mentioned earlier, Clause 1 made it clear any liabilities incurred by P without D’s signature or confirmation was to be borne personally by her, and thus any liabilities incurred by P under the Chen Agreement should be a matter between P and/or Golden Winner and Chen.

105.  I have said earlier that there were no conditions precedent set out in Clause 6.  Clause 6 stated clearly that within one week upon expiration of the Black Out Period, D was to pay P HK $17m; and if the re-listing was to fail, this amount would be cancelled automatically and would not be payable; but if re-listing was successful and D failed to pay within time, such sum would be regarded as a debt carrying monthly interest of 2%, and P could institute proceedings in the Hong Kong courts against D to claim such sum.

106.  As has been said, in an application for Mareva injunction, the court will take into account the apparent strength or weakness of the respective cases in order to decide the applicant’s case, on the merits, is sufficiently strong to reach the threshold, and this will include assessing the apparent plausibility of statements in affidavits[31].

107.  D had relied heavily on the Chen Agreement, which according to him, he only found out after the Ex-Parte Order was served on him, namely after 16 November 2013.  It was not apparent clear what reasons he had for failing to pay D HK $17m on or before 8 November 2013, the deadline set out in the Transfer Agreement.

108.  As I have said, even if the Chen Agreement was a valid and effective document, all this would mean would be that Golden Winner could be holding certain shares in trust for Chen, and Chen’s recourse would be to sue Golden Winner to recover such shares and/or damages.  This should not affect D’s obligations towards P under the Transfer Agreement.

109.  Having considered the evidence put before this court at this interim stage, I am satisfied that P has established a good arguable case against D.

Risk of Dissipation

110.  According to D, he has been a permanent Hong Kong resident since about 2007. 

111.  D said that the disposal of the shares by Thousand Jade was no more than a normal investment activity in the ordinary course of business.  Further, according to D, he held other valuable assets in Hong Kong including his residential property.

112.  D had, however, said in his affirmations that he procured Thousand Jade to place the shares so as to repay existing debts and meet financial needs of investments, and he had also stated that he was under financial pressure to make payments under an agreement which I will call Tianfeng Investment Agreement which he entered into on 5 August 2013[32], and a loan agreement dated 28 July 2011[33] with almost RMB 15m outstanding. 

113.  Both the Tianfeng Investment Agreement and the loan agreement were entered into by D after the Transfer Agreement. 

114.  I accept that there is no requirement for P to show that D intends to deal with his assets with the purpose of ensuring that any judgment will not be met[34].  P had, however, in her 1^st affirmation set out the evasive attitude of D when P tried to contact him from 1 November 2013 onwards, and there seemed to be no satisfactory explanation by D to P’s allegations.

115.  Thousand Jade entered into a placing agreement after trading hours on 13 November 2013 for a placement of a maximum of 200,000,000 shares.  As noted in the public announcement made by the Company, Thousand Jade was then holding 219,356,000 shares, and thus the placement seemed to be about 91% of Thousand Jade’s holding, which was substantial.  It would appear from the transcript of the hearing before DHCJ Seagroatt on 22 November 2013, the entire 200m shares had been placed and the sale proceeds would be about HK $46m.  There did not seem to be any dispute about this from D’s Counsel[35].

116.  This amount did not seem to be sufficient for D to meet his alleged obligations under the Tianfeng Investment Agreement and the loan agreement.  Further, his intention in using the HK $46m, or whatever net sale proceeds there were, to meet such obligations would mean that the funds would be transferred out of jurisdiction.  D has a residential property in Hunghom, Kowloon which he bought for $5.25m in April 2008 with no mortgage at that time.  It was then mortgaged in October 2011.  It is not clear what other assets he has within the jurisdiction.

117.  I am satisfied that in light of the information available there is a real risk of dissipation.

Whether “just and convenient”

118.  Having regard to all the circumstances of this case, on a balance of convenience, I am of the view that it is just and convenient that the Ex-Parte Order should be continued subject to such variations as ordered.

Undertaking as to Damages

119.  Mr Chan had submitted that in the event that the Ex-Parte Order is to be continued, P’s undertaking to damages should be fortified and he proposed that the present HK$500,000 be increased to HK$ 10m, being 50% of HK $20m which D had to pay under the loan agreement, and also loss of profits in the Tianfeng Investment Cooperation Agreement.

120.  The Tianfeng Investment Agreement seemed to have already been temporarily suspended by Tianfeng[36].  In any event, under the agreement, if D failed to pay the further instalments, the deposit already paid by D seemed likely to be forfeited.  The deposit was HK $1m.  D said the investment was a good and timely investment, and his failure to complete the transaction would result in “substantive loss of profit”.  There were, however, no details given by D as to this alleged substantive loss of profit.

121.  As for the loan agreement, it appears if D should fail to repay on time, further interest would be payable and he could face litigation.

122.  P is a PRC citizen ordinarily residing in Xiamen.  In the draft writ exhibited by D, the residential address of her husband Lin stated therein was still the residential property which had been sold[37].  According to P, this residential property was sold by her and Lin on 22 December 2012 for RMB 2.6m as they were facing financial difficulties.  She also said she and Lin used to run a business of import and export business at the commercial property but they had moved out there from in about March 2013.  It is not clear at what address P and/or Lin are now carrying on their business.  There is little information about P’s present financial situation or where her assets are, save that she seems to have a securities account in Hong Kong.  The evidence indicates that P herself may have some financial difficulties, and if D’s allegations proved correct, P would no doubt face litigation from at least Chen and Zheng. 

123.  Having considered all the available information, I am of the view that P’s undertaking as to damages should be fortified.  The amount she has paid into court should be topped up to a total of HK $2m, to be paid within 14 days.

Order

124.  My order is thus as follows:

(i) The Order made on 16 November 2013, as varied on 22 November 2013, shall continue until further order, subject to the amount in paragraph (2) of Schedule 2 to be topped up to HK$2m, with the difference of HK$1.5m to be paid by P into court within 14 days of this order.

125.  I further order that D shall pay P’s costs of and incidental to the inter-partes summons.  This is a costs order nisi, which shall be made final after 21 days.

126.  Lastly, I thank both Counsel for their submissions and assistance to the court.

(Bebe Pui Ying Chu) Deputy High Court Judge