TIONG KING SING v. SAM BOON PENG YEE AND ANOTHER

HCA 1517/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1517 OF 2011

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D E C I S I O N

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1.  In 2009, the plaintiff (“Tiong”) agreed to sell his shares in Wijaya International Investment Group Limited (“W”), a Hong Kong company, to the 1^st defendant (“Yee”). The 2^nd defendant (“New Sunshine”) was Yee’s nominee to take up the shares. The shares were transferred and partly paid for. Tiong now alleges fraud and wants his shares back; and claims for his loss and damage. Yee and New Sunshine counterclaim for specific performance or alternatively money back and, in any event, damages.

BACKGROUND

2.  Tiong is a Malaysian.  He started W in about 2006.  Through holding all the shares in W, which in turn owns all the share capital of Chongqing Wijaya Realty Limited, later known as Chongqing Wijaya Whittier Homes Limited (“Chongqing W”), Tiong owned the major commercial and residential property development of Chongqing W in Ba Nan District in Chongqing, the Mainland (“the Ba Nan Project”).

3.  Yee is Malaysian and a United States citizen. He has been acting as the general manager of Chongqing W since September 2009.

4.  By an offer letter dated 14 November 2009 (‘the Offer Letter”), Tiong offered to sell to Yee his shares in W (“the Shares”), and thus the Ba Nan Project of Chongqing W, at RMB 300 million.  This was accepted by Yee.

5.  The parties later entered into the following agreements dated 30 December 2009:

(1) By a formal sale and purchase agreement, Tiong agreed to sell and Yee agreed to buy the Shares at RMB 333.5 million, payable by 7 instalments spread over a period until 1 March 2012.

(2) By a custodian agreement, the parties agreed that the new share certificates (for the Shares) to be issued to Yee’s nominee, New Sunshine, would be held by Yee’s solicitors pending instruction.

(3) By a deed of tax indemnity, Tiong agreed to indemnify Yee and New Sunshine against the tax liability of Chongqing W prior to completion of the sale and purchase of the Shares.

6.  The major differences between the terms of the Offer Letter and those of the subsequent written agreements lie in the restriction on encumbering the land of Chongqing W and in the retention of beneficial interest in the Shares in Tiong, pending full payment of the purchase price by Yee.  These provisions, which existed in the Offer Letter, no longer existed in the written agreements.

7.  Tiong has paid the first 3 instalments of the purchase price for the Shares.

8.  Subsequently, Tiong, through his representative, and Yee entered into 2 variation agreements, the first one dated 22 January 2011 and the second one dated 27 March 2011.  As a result, the RMB 250 million balance for the purchase of the Shares was rescheduled to become payable by 3 annual instalments between February 2012 and February 2014.

9.  By the variation agreements, an additional sum of RMB 300 million became payable by 6 equal half-yearly instalments spread between July 2011 and January 2014 (“the Additional Sum”).  Yee and New Sunshine described that as Tiong’s share of the anticipated profits from the Ba Nan Project.  Tiong described that as compensation for the postponement of the payment of the purchase price for the Shares.

10.  In any event, the variation agreements provided for the inspection of the accounts of W by Tiong’s representative.

11.  There is no dispute that Yee has paid RMB 5 million towards the Additional Sum.

12.  As at today, there is an outstanding balance of the purchase price for the Shares in the sum of RMB 250 million and (possibly payable) an outstanding balance of the Additional Sum in the sum of RMB 295 million.

Application in HCA 1069/2011

13.  On 28 June 2011, Tiong commenced HCA 1069/2011.  The action was then commenced in aid of arbitration proceedings in Singapore.  On the same day, Tiong applied ex parte for mareva injunction to restrain Yee and New Sunshine from disposing of the Shares and the assets of W and Chongqing W.

14.  The ex parte application came before Poon J, who at the end of the hearing made no order.

The letter dated 5 July 2011

15.  By letter dated 5 July 2011, Tiong, through his then solicitors, communicated to his opponents his stance that he considered Yee to be in repudiation of the agreement (which, he says, included the terms of the Offer Letter). Tiong thereby accepted such repudiation and thus terminating the agreement.  Tiong demanded, among other things, the return of the Shares.

Application in HCMP 1089/2011

16.  On 8 July 2011, Tiong commenced originating proceedings HCMP 1089/2011 essentially for similar injunctive relief against Yee and New Sunshine as before.  On the same day, Tiong applied ex parte for mareva injunction, which he succeeded before To J.

17.  Tiong then discontinued HCA 1069/2011 on 26 July 2011.

18.  At the inter partes hearing on 12 August 2011, Chung J discharged the ex parte mareva injunction on the ground of material non-disclosure and Tiong’s failure to establish a real risk of dissipation of assets of W or Chongqing W. The learned judge refused to re-grant the injunction inter partes.  He handed down his reasons for decision on 19 August 2011 (“the HCMP 1089/2011 Decision”).

19.  HCMP 1089/2011 was subsequently discontinued.

The present action

20.  In September 2011, Tiong commenced the present action.

21.  Tiong contends that the terms of the Offer Letter, whether by way of incorporation or collateral contract, were binding on the parties notwithstanding the subsequent written agreements.  On that basis, Tiong made multiple complaints about fraud and breach on the part of Yee, including the follows:

(1) Yee delayed in his payment of the purchase price for the Shares.

(2) The Shares were transferred to New Sunshine without the knowledge or consent of Tiong.

(3) The Shares and the land in the Ba Nan Project were pledged as security for loans.

(4) Yee utilised the loans so obtained for his personal purpose including funding his purchase of the Shares and purchase of land other than for Chongqing W.

(5) Yee also caused Chongqing W to incur higher than normal construction cost to the construction contractor and got Chongqing W into dispute with the contractor.  The project was delayed and thus resulting in financial loss.

(6) All those led to the depletion of the assets of Chongqing W and the dilution of the value of the Shares, in which Tiong retains beneficial interest.

(7) Access to the company accounts for inspection by Tiong’s representative was denied.

22.  Tiong then contends that he was induced to enter into the above written agreements as a result of fraudulent misrepresentation by Yee, including that in respect of his intention and ability to pay for the Shares.  Yee is also accused of seizing control of Chongqing W by submitting forged statutory forms to the authority for the removal of Tiong as the executor director and the legal representative of the company.

23.  At that stage, the pleaded case of Tiong was that Yee has repudiated the parties’ agreement or evinced the intention not to be bound.  By letter dated 5 July 2011, as mentioned, Tiong sought to terminate the agreement.  New Sunshine was said to be liable as a constructive trustee of the Shares.

24.  Yee and New Sunshine denied the claim.  Yee contends that the Offer Letter was superseded by the written agreements subsequently signed by the parties.  They were not subject to any restriction against transferring the Shares to New Sunshine and encumbering the assets of Chongqing W in the course of its business.  They counterclaimed for specific performance of the agreements for the sale and purchase of the Shares as well as damages for Tiong’s breach.

Application in January 2012

25.  On the basis of the then pleaded case, Tiong applied by summons filed on 10 January 2012 for mareva injunction against Yee and New Sunshine or alternatively an order that the two paid into court the sum of RMB 245 million (ie, the outstanding balance of the price of the Shares).  This was by then the third attempt of this sort by Tiong.

26.  While the application was adjourned for argument, an interim order was made on 13 January 2012 (“the 13/1/12 Interim Order”) essentially as follows:

(1) Yee and New Sunshine had to pay RMB 45 million into a designated bank account as agreed by the parties by 20 January 2012.

(2) Yee and New Sunshine were restrained from disposing of or encumbering the Shares or the shares of Chongqing W.

(3) Yee should report to Tiong the sale, disposal or encumbrance of the units and land in the Ba Nan Project weekly.

27.  After hearing, Deputy Judge L Chan reserved his decision.  In the meantime, the 13/1/12 Interim Order continued.

28.  Pending the decision of the learned judge, Tiong changed his legal representatives and amended his pleading, first in May 2012 and then in November 2012.  The last of these amendments took the form of substitution of the existing pleading.  The significant amendment was that Tiong now primarily claims for rescission of all the agreements between the parties and the reinstatement of his position as the registered holder of the Shares.  Termination of the agreement as a result of Yee’s wrongful repudiation has become his alternative case.

29.  On 22 February 2013, L Chan J (as he has become) handed down his decision (“the 22/2/13 Decision”).  The learned judge dismissed Tiong’s application with costs.  In summary, the learned judge did not accept the multiple complaints by Tiong suggested a real risk of dissipation of assets by Yee or New Sunshine.  Nor did the complaints amount to new circumstances materially different from those already canvassed by Chung J in the HCMP 1089/2011 Decision.

30.  The learned judge also refused to order Yee and New Sunshine to pay into court the outstanding purchase price for the Shares on the ground that this would be inconsistent with Tiong’s (then) pleaded claim for the return of the Shares and damages consequential upon termination of the parties’ agreements.  Tiong was not entitled to compel his opponent to pay the purchase price for the Shares.

31.  Upon the dismissal of Tiong’s application, the 13/1/12 Interim Order also lapsed.  But the learned judge noted that the parties’ cross-undertakings would take effect upon that until the final determination of this case.  As noted in the 22/2/13 Decision, the undertakings mirror the terms of the lapsed interim order (“the Undertakings”):

(1) Tiong undertakes to refrain whether by himself his servants agents or otherwise howsoever from causing any harassment to Yee, New Sunshine and Chongqing W and/or any interference and disruption to their carrying on with the development of the Ba Nan Project.

(2) In return, Yee and New Sunshine undertake:

(a) to maintain the deposit of RMB 45 million at a bank in Chongqing and to provide to Tiong’s solicitors weekly report issued by the bank on the status of the deposit;

(b) to provide Tiong’s solicitors weekly report of the sale and/or disposal and/or creation of encumbrance on the units and landed properties comprising the Ba Nan Project;

(c) not to dispose of or encumber the Shares that are now registered in the name of New Sunshine; and

(d) to allow Tiong’s representative and no more than 3 accountants to inspect the books and accounts of Chongqing W upon reasonable prior notice.

32.  The Undertakings are in force as at today.

The present applications

33.  Prior to the handing down of the 22/2/13 Decision, and notwithstanding the Undertakings, Tiong took out the summons on 14 February 2013 seeking the following relief:

(1) the appointment of receivers and managers over the entire shareholding of W presently registered in the name of New Sunshine until the final determination of this action or further order; and the terms of the order sought, including the powers of the receivers, are set out in the schedule to the draft order attached to the summons;

(2) order that Yee and New Sunshine do deliver to the receivers all effects, books, records, accounts, seals and chops of W and provide to the receivers such information as the receivers shall require regarding the assets and liabilities of W and shall, if requested to do so by then, make affirmations confirming the same; and

(3) order restraining Yee and New Sunshine from taking any steps to cause or procure the transfer, charge or assign the Shares or otherwise encumbering or dealing with the Shares until trial or further order save for complying with the requests of the receivers.

34.  Tiong also repeated his application for an order that Yee makes payment into court, but this time the sum of RMB 545 million (being the outstanding balance purchase price of the Shares and that of the Additional Sum).

35.  By this summons, Tiong also applied to vary the 13/1/12 Interim Order by the following injunctive relief with effect pending the determination of this very summons:

(1) order restraining Yee and New Sunshine from dealing with the assets of W or Chongqing W where the value of any single transaction exceeds RMB 300,000 unless 14 days advanced written notice and statement has been provided to Tiong’s solicitors;

(2) order that Yee and New Sunshine shall provide to Tiong’s solicitors true and accurate monthly management accounts of W and Chongqing W; and

(3) order that Yee and New Sunshine shall allow Tiong’s representatives (not exceeding 7) to inspect the books, records and accounts of W and Chongqing W at their respective premises and to make copies thereof upon at least 48 hours advance notice.

36.  As mentioned, upon the dismissal of Tiong’s summons dated 10 January 2012 for mareva injunction, the 13/1/12 Interim Order lapsed; but the cross undertakings of the parties came into effect.  In view of that, Tiong applied for leave to amend the new summons.

37.  On 27 February 2013, the summons came before L Chan J, ie, 5 days after the 22/2/13 Decision.  L Chan J adjourned this summons dated 14 February 2013 as amended on 27 February 2013 for argument.  This becomes the first summons before me (“the Receivership Summons”).

38.  On 2 July 2013, Tiong took out another summons, this time for an injunction essentially in terms of the interim relief sought under the Receivership Summons set out in §35(1)-(3) above.  This becomes the second summons before me (“the Injunction Summons”).

39.  At the hearing on 18 July 2013, Mr Shieh SC (with Mr Douglas Lam and Mr Harry Liu) appeared for Tiong; and Ms EU SC (with Mr Tony Chow) appeared for Yee and New Sunshine. Mr Shieh made the following clarification:

(1) As far as the Receivership Summons is concerned, I only need to consider the application for the relief summarised in §33(1) to (3) above.

(2) The Injunction Summons is meant to be his client’s fallback, in the event that the court is not inclined to order the receivership.

(3) The application for payment into court is not pursued.

40.  In other words, Tiong is applying for an order restraining Yee and New Sunshine to deal with the Shares notwithstanding their undertaking to like effect.  Further, in view of the inconsistency between his primary case for rescission of the agreements and that for the amount payable for the Shares under the agreements, Tiong, in my view, really should not have taken out the repeated application for payment into court of the amount.

Thereafter

41.  After the decision of this court has been reserved, Tiong took out yet another summons on 23 September 2013 (“the 23/9 Summons”).  This summons consisted of 2 parts.  First Tiong applied for an interim order pending this court’s decision in respect of the Receivership Summons and the Injunction Summons.  The relief sought, though not identical in terms, were similar enough to the interim injunctive relief first sought under the Receivership Summons and then under the Injunction Summons mentioned above.  Second, Tiong applies for case management directions, including those for split trial and speedy trial as well as leave to set down.

42.  The 23/9 Summons was heard before this court on 4 October 2013.  Though counsel for Tiong[1] pressed ahead, that the 30 minutes reserved simply would not suffice should have been obvious.  The summons was therefore adjourned for argument on 12 November 2013.

43.  Upon this court’s subsequent indication of the handing down of this decision soon and thus the need to consider the true interim for the purpose of the 23/9 Summons, Tiong sought to withdraw this most recent application.  I gave leave to do so during the hearing on 12 November 2013.  I also adjourned the part of that summons for case management directions for being premature.

ABOUT THE EVIDENCE

44.  To oppose the 2 summonses in question, Yee has prepared an affirmation dated 20 May 2013.  It was signed in Chongqing but the same contains no jurat or notarisation.  It actually took the form of an exhibit to the affirmation of his solicitor.

45.  The explanation given was that Yee has been subject to ‘monitored residency’ in Chongqing since April 2013 as a result of the authority’s investigation into his affairs following Tiong’s report.  Yee was not permitted to leave Chongqing, and thus could not go to Chengdu, Sichuan, for making his affirmation at the United States Consulate.

46.  On Tiong’s behalf, doubt was cast as to whether Yee could have had his affirmation notarised in Chongqing.  Yee explained in the negative, because he was not allowed to go to places other than the office of Chongqing W.  Nor could he meet people other than the staff and relatives without the permission of the authority.

47.  Whether or not Yee’s explanation is true, the circumstances are such that his affirmation, on its own, is inadmissible for non-compliance with O.41 of the RHC. As an exhibit to his solicitors’ affirmation, the contents of his affirmation are effectively instruction and information received by his solicitors, who were in a position to verify to such extent.

48.  I must also mention that the parties have produced further documentary evidence time and again since the hearing on 18 July 2013.  This started with Tiong whose solicitors wrote to the court on 5 August 2013 and produced documentary evidence said to be discovered after the hearing.  Further correspondence between the parties and between them and the court followed.  Yee and New Sunshine also produced their further documentary evidence in response.  There were of course the further documentary evidence in support of the 23/9 Summons.

49.  As mentioned, the interim injunction part of the 23/9 Summons was withdrawn during the hearing on 12 November 2013.  Mr Shieh asked this court to nevertheless take into account the new evidence in my deliberation on the Receivership Summons and the Injunction Summons.  He explained that they consisted of evidence of new discoveries and developments not known by the time of the hearing in July.

50.  Mr Shieh referred to the test in Robin Colin Foster & Anor v Action Aviation Limited & Ors [2013] EWHC 2930, a recent decision of the Queen’s Bench Division in UK.  That was an application to adduce further evidence after trial and pending judgment.  Before me remains an interlocutory application where no final determination has been or would be made.

51.  Nevertheless Miss Eu was fair in not disputing the discretion of the court in receiving the new evidence.  Indeed she sought leave to formally adduce the new documents disclosed by her clients in response, which I gave.  But she objected to any attempt to make factual allegations beyond what the documents say or to rehearse the arguments in the July hearing.  Mr Shieh responded also fairly by limiting his submission on the new documents to what could be made out of them and their relevance to the Receivership Summons and the Injunction Summons.

52.  I shall approach all the evidence so presented accordingly.

THE RECEIVERSHIP SUMMONS

53.  To recapitulate, I am asked to put the Shares now registered in the name of New Sunshine into receivership and managership by the persons nominated by Tiong pending the determination of this action.  Terms of the appointment are set out in the schedule to the draft order submitted.

Principles

54.  Section 21L of Cap 4 provides that the court may appoint a receiver in cases in which it appears to be just and convenient to do so.  An order may be made unconditionally or on terms.

55.  It is recognised that the principles for granting interlocutory injunction in American Cyanamid v Ethicon Ltd [1975] AC 396 apply by analogy: see Re Niceline Co Ltd [2003] 2 HKLRD 725 (at §§50-54).  The following questions need to be answered:

(1) whether there is a serious question to be tried;

(2) whether the assets are in jeopardy or risk of dissipation warranting interim protection;

(3) where the balance of convenience lies.

The applying party must also show that the appointment is appropriate because other less invasive remedies would be inadequate: Re Zealot & Co Ltd [2008] HKLRD 386 (at §§30; 35).

56.  On behalf of Yee and New Sunshine, it was emphasized that appointment of receivers and managers is an invasive measure, and the court always recognises the need for greater circumspection in granting such relief than an interlocutory injunction: see Re Chime Corporation, HCMP 4146/2001 (25 June 2003) (at §§39-41; 63); Re Niceline Co Ltd (at §§71-75); Re Zealot & Co Ltd (at §34); Re Full Billion Shipping Ltd [2003] 2 HKLRD 674 (at §§50; 56).

57.  The applicant is expected to provide appropriate undertaking as to damages: Re Niceline (at 744D-745I); Re Chime (at §75); Re Full Billion (at §56).

58.  On behalf of Tiong, it was pointed out that an interim receiver could be appointed to preserve and protect the value of the shares of a company until such time that the dispute as to their ownership has been resolved at trial: see Re HK Sindy Footwear Ltd [2007] 1 HKC 64 (at §§22-24).  As mentioned, Tiong’s case for the preservation and protection of the value of the Shares is essentially built on alleged dissipation of assets of the company by Yee.

59.  In view of the unsuccessful attempts in previous sets of proceedings, Tiong applied for mareva injunction in the present action in January 2012 on the basis of alleged change in circumstances since his last attempt.  L Chan J noted that in the 22/2/13 Decision.  Likewise, the present applications by the Receivership Summons and the Injunction Summons were based on what was said to be change in circumstances since the application before L Chan J in early 2012.

60.  Mr Shieh referred to Wu Wei v Liu Yi Ping, CACV 47/2005 (at §40) and submitted that in the context of interlocutory application, it will not be unjust or unreasonable to allow a second application to be heard, for what is involved is not re-litigation of an identical issue of law or fact if:

(1) the ruling on the first application was not based on the merits of the issue but on a technical objection;

(2) upon the first application the applicant had failed to prove essential facts from mistake or inadvertence;

(3) there is new evidence that seriously justifies reconsideration of the issue; or

(4) there is a material change of circumstances of a non-evidentiary nature.

See also Spencer Bower & Handley on Res Judicata (4^th ed) (at §§5.31-5.32); Hui Chi Ming v Koon Wing Yee & Ors [2011] 1 HKLRD 260 (at §27).

61.  Mr Shieh submitted that the ex parte injunction in HCMP 1189/2011 was discharged on the ground of material non-disclosure.  This was a technical objection not touching on the merits: see Wu Wei (above) (at §41).  As I understand, Chung J indeed considered and decided not to grant the injunction afresh inter partes.  I therefore would not categorise that as a decision merely on technical ground.

62.  For his purpose, Tiong must show significant change in circumstances that suggest new real risk of dissipation of assets since his last application in early 2012.

Serious question to be tried

63.  Much of Tiong’s case rests upon the alleged binding effect of the terms of the Offer Letter, particularly the restriction against encumbrance on the assets of Chongqing W prior to full payment for the Shares.  When the written agreements were signed, Tiong was advised by his own Malaysian lawyer.  Ms Eu also referred to the sequence of events and documents after the Offer Letter which showed that Tiong has accepted his client’s performance (ie payment) with knowledge that the restriction pursuant to the Offer Letter did not form part of the written agreements signed.  The right of Tiong to rescind was thus doubted.  At this preliminary stage, I can see the force of that.

64.  On behalf of Tiong, handwriting expert evidence was adduced in support of the alleged forgery of the statutory forms submitted by Yee to the authority to remove Tiong from Chongqing W.  It was also pointed out that the forms were submitted on the day after the Offer Letter was signed, though formal agreement between the parties was contemplated.  Before the formal agreement, Yee also entered into an agreement with a third party committing to charge the land in the Ba Nan Project as securities for funds, which was restricted pursuant to the Offer Letter.  The explanation of Yee that he did not know Chinese and was merely deceived into signing that agreement may not at once be readily acceptable (particularly in view of the numerous Chinese documents that Yee had signed in the course of the company’s business).

65.  The above are mere examples of the extensive dispute between the parties.  For the present purpose, I understand that there is no real dispute that there are indeed serious questions to be tried in the present case.

Asset in jeopardy and risk of dissipation

66.  Tiong seeks to justify the present application, by the Receivership Summons, on the basis of discovery of new evidence not before Chung J in HCMP 1089/2011 or L Chan J in the present action; as well as the events occurring since the 22/2/13 Decision.  Yee and New Sunshine argue that the new evidence reveals nothing materially new; and that this is nothing but another attempt of Tiong to bite the cherry.

67.  What Tiong referred to as the new discoveries may be summarised as follows:

(1) Tiong managed to obtain from the Chongqing Public Security Bureau (“PSB”) and its forensic accountants (“the Forensic Accountants”) access to the books and records seized from Chongqing W and the Forensic Accountants’ draft report.

(2) Tiong appointed his accountant, KPMG, to meet with the Forensic Accountants and to inspect the books and records in question.  KPMG produced its first report in February 2013 (“KPMG’s 1^st Report”).

(3) The reports are said to suggest that Yee had siphoned off massive sums from Chongqing W for his personal purpose on various occasions since the end of December 2010.

(4) In the premises, the audited reports of Chongqing W in 2010 and 2011 relied on by Yee in resisting previous applications were said to be false.  So was his affirmation evidence.

(5) Further Yee was said to have been in breach of the 13/1/12 Interim Order in various respects:

(a) New charges created over the landed properties of Chongqing W were not reported to Tiong.

(b) The sum of RMB 45 million deposited into the designated account in fact did not belong to Yee for his use but Chongqing W.

(c) Yee had significantly under-reported the sales of the units in the Ba Nan Project.  Whether the proceeds of sale of those units had been paid into the account of Chongqing W is unclear.

(6) After inspecting the further books and records of Chongqing W disclosed by Yee by mid-2013, KPMG produced its adjusted report in June 2013 (“KPMG’s 2^nd Report”).  The following breach of the 13/1/12 Interim Order and subsequently the Undertakings was allegedly found:

(a) Yee was not forthcoming with supply of accounting documents and has refused inspection on one occasion.

(b) Pledge and charges of landed properties of the Ba Nan Project were not reported.

(7) That Yee has been adjudged bankrupt during the last decade had been concealed from the court.  He remained an un-discharged bankrupt in Malaysia at the time of the parties’ agreement for the sale and purchase of the Shares as well as today. Yee first disputed; but subsequently admitted his bankruptcy status, yet explained that he was made bankrupt without his knowledge.

(8) It was recently discovered that Yee has created further encumbrances for loans at very high interest rates (though at one point misread) without reporting the same.  The timing and frequency of such conduct were said to cause concern.

(9) Yee has never actually put in his own funds into the business.

68.  Yee allegedly owes Chongqing W not less than RMB 93 million.  The alleged drain of assets and money from Chongqing W by Yee has allegedly rendered the financial position of the company dire.

69.  On behalf of Yee, it was denied that there was significant change in circumstances that suggest new and real risk of dissipation of assets.  He gave, among others, the following explanations:

(1) The reliance on the documents seized by PSB from Chongqing W is itself objectionable, as access to the documents was restricted and disclosure to third party was not authorised.  The circumstances in which Tiong managed to obtain from PSB access to the documents and to come up with the 1^st KPMG Report were suspicious.

(2) The 1^st KPMG Report did not give a fair picture.  There was admittedly lack of full scale analysis of the operations and financial position of Chongqing W.  The alleged illiquidity of the company lacked fair and objective treatment of the assets and receivables as well as loan repayments.  There were also examples of Chongqing W following common business practices in the Mainland.  The revision and acknowledgement in the 2^nd KPMG as a result of the books and accounts supplied by Yee evidences that.

(3) If any, the Forensic Accountants’ report actually showed that injection of funds since Yee took over had increased substantially to RMB 900 million.  In line with his case that there was no restriction in the parties’ agreement against obtaining finance on the security of the assets of Chongqing, Yee had managed to finance and bring about the actual completion of the first phase of the development of Ba Nan Project for sale.

(4) The dispute with the contractor had been settled and a new contractor was appointed.  Construction of the second phase of the development was underway with a view to another RMB 500 million’s worth of units becoming available for sale this year.  The 2^nd KPMG Report did not suggest otherwise.

(5) The revisit to the sum of RMB 45 million paid into the bank pursuant to the 13/1/12 Interim Order (now the Undertakings) led to nowhere as the same is subject to weekly report by the bank pursuant to the Undertakings.

(6) Omissions in the weekly reports were inadvertent and have been explained in the contemporaneous correspondence.  In any event, allegation of breach of existing order should be made and properly proved in committal proceedings.

(7) As to the alleged refusal of inspection, the correspondence demonstrated that he had acted reasonably about arrangement.

(8) He was made bankrupt without his knowledge, as he only travelled to Malaysia every now and then since becoming a United States citizen.  He has never experienced difficulty that would have been expected in entry to or departure from Malaysia as a result of the bankruptcy proceedings or order.  In any event, the arrangement for settlement with the debtors and thus discharge of the bankruptcy orders has been progressing.

(9) The recent encumbrances at high interest rates, even if true, could be explained by the nature of the bridging loans for relatively short term.  In any event, inference of any risk of dissipation of assets of the company from that would not be justified as a matter of fact.

(10) Whilst Yee was being criticised for having put in none of his own funds in the business, he has indeed made an open offer in writing to settle this action by paying Tiong a sum of RMB 245 million, ie the outstanding balance of the purchase price for the Shares.

70.  Along the above lines, counsel have respectively dealt with each allegation and answer meticulously.  The allegations against Yee and New Sunshine should also be assessed with reference to what they might well consider themselves to be entitled to do in the operation of Chongqing W, which was and still is very much a going concern.

71.  It remains for Tiong to establish significant change in circumstances that suggest new and real risk of dissipation of assets on the part of Yee and New Sunshine since the last failed attempt to obtain mareva injunction.  I find it hard in all the circumstances to draw such a conclusion.

Balance of convenience

72.  But the major reservation I have really lies in the balancing the risk of injustice to the parties if the interim relief sought is granted or not.

73.  In his submissions, Mr Shieh set out an overview of the potential outcomes of the present action.  They may be summarised as follows:

(1) If Tiong succeeds in his claim for rescission, he would be entitled to the return of the Shares and to claim for damages for the loss of the value of the Shares, subject to the return of the amount paid by Yee to Tiong.

(2) If Tiong succeeds in his alternative claim for breach on Yee’s part instead of rescission, the agreements would be terminated.  Tiong would be entitled to damages, which would likely be measured as the value of the Shares at the time of the contract less the amount paid by Yee, together with any other loss suffered by Tiong including possibly loss from the non-payment of the Additional Sum.

(3) If Yee and New Sunshine succeed in their counterclaim for specific performance, Yee would have to pay the outstanding balance of the purchase price for the Shares and possibly the balance of the Additional Sum, subject to any damages payable by Tiong for breach[2]. In default, Tiong would become entitled to terminate the agreements once again; and in that event, he should be entitled to the return of the Shares and forfeiture of 20% of the purchase price already paid, pursuant to the default provisions of the formal sale and purchase agreement.

(4) If Yee and New Sunshine succeed in their alternative claim for termination of the agreements upon Tiong’s breach, the pleaded claim is for the return of the amount paid and damages for loss.  Presumably the claim for money back would have to come hand in hand with the return of the Shares.

74.  In the premises, it was submitted that irrespective of which of the above potential outcomes materialises at the end of the day, the protection and preservation of the value of the Shares remain critical and paramount to the protection of Tiong’s interest.  In court, Mr Shieh added that the protection and preservation of the value of the Shares could also have a bearing on the financial ability of Yee to pay Tiong, be it for the outstanding purchase price for the Shares or damages.

75.  There does not seem to be real dispute as to the above projection of the potential outcomes.  Having said that, I have no reason to doubt that the above premises (or those available by pleading at the relevant times) were not appreciated by the court during their deliberation on the previous applications, though for mareva injunction instead of receivership.  I would not consider this to be a new consideration.

76.  Ms Eu submitted that the court should be alert about the sensitivities and complexities in relation to the property development business in the Mainland. Appointment of receiver or manager might not be practical or effective: Re Niceline (at §§61-68); Re Full Billion (at §§49-52).

77.  Mr Shieh pointed out that receivers would be appointed in respect of the Shares, not Chongqing W or its shares.  It would be unlikely that the appointment would result in any stigma of insolvency as mentioned some of the authorities cited above.  He also submitted that the receivers would probably not seek to manage the day to day operation of Chongqing W; but would retain some, if not most, of the existing staff.  The receiver, he submitted, would only be concerned about the honest and competent management of the company.

78.  Ms Eu disagreed.  She pointed out the reality that W is indeed the 100% owner of the shares of Chongqing W.  Chances are that the receiver, once appointed, would remove Yee from control of the management of Chongqing W.  Judging from the terms of the appointment set out in the schedule to the draft order, I share Ms Eu’s scepticism about the extent of intervention intended by the appointment sought.

79.  Ms Eu added that the risk of concern and hesitation among the members of the general public arising out of the appointment of receiver would be real in the circumstances of the present case.  As far as what Yee asserts in his affirmation (and to the extent the evidence is admissible), he mentioned the possibility of government action in relation to the land.  As far as the documents show, the loan facility agreement between Chongqing W and the China Construction Bank in 2010 apparently provided that the bank would be entitled to stop the credit line or call loan in the event of receivership (“接管”) or change of de facto control(“實際控制人變更”).  The loan in question amounted to about RMB 138 million. The risk could not be brushed aside as being unreal.

80.  Another essential condition for making the order for the appointment of receiver that is not forthcoming is the applicant’s undertaking as to damages, Ms Eu submitted.  Indeed it was only in counsel’s submission was it suggested that Tiong would be willing to give such undertaking, if necessary.  In offering the undertaking, Mr Shieh nevertheless referred to the outstanding amount that Yee would have to pay to Tiong for the Shares, which would be available for set off as sufficient protection.  In court, he further suggested that if necessary, direction could be made for the filing of evidence and argument on fortification of undertaking.

81.  Mr Shieh submitted that each case should be decided on its own facts.  This must be right.  Considering the applications whilst the (cross) Undertakings are in force and all the circumstances, including the extent of intervention intended by Tiong by the receivership and the risk of impact on various lifelines of the company as a going concern, I refrain from acceding to the application.

THE INJUNCTION SUMMONS

82.  By the Injunction Summons, Tiong seeks the following interlocutory relief against Yee and New Sunshine:

(1) order restraining them from disposing or causing the disposition of the assets of W and/or Chongqing W where the value of any single transaction exceeds RMB 300,000 without 10 days advance notice to Tiong;

(2) order compelling them to provide monthly management accounts of W and Chongqing W to Tiong;

(3) order compelling them to allow Tiong’s representatives (not exceeding 5 individuals) to attend the premises of W and Chongqing W during business hours to access, inspect and take copies of the books and accounts as particularised in the schedule to the Receivership Summons.

83.  I am considering this summons against the background where the Undertakings are in force and the receivership sought is refused.

84.  Ms Eu emphasized from the outset that the 2 summonses now before this court were taken out by Tiong when the Undertakings were in force.  He must justify the present applications to go much further than the existing protection regime.  This must be right.

85.  Further, the undertakings by Yee and New Sunshine to provide weekly report and allow inspection of the books and accounts of Chongqing W upon reasonable prior notice, among others, were given in return for Tiong’s undertaking to refrain, whether by himself or agents, from causing any interference or disruption to Yee’s carrying on with the development of the Ba Nan Project.  The cross undertakings could not be enforced without reference to each other.  Accommodation of the parties’ right under the respective undertaking already necessitates a balancing exercise at all times.

Pre-disposition reporting

86.  As far as W is concerned, the real assets are the Shares, which represent Chongqing W and its assets.  The Shares, now registered in New Sunshine, are already subject to the undertaking of no disposition or encumbrance.  The other real assets of Chongqing W comprise the assets in the Ba Nan Project, which are subject to the undertaking of weekly report of any sale, disposal or encumbrance.  These undertakings for the present purpose are broad and not lacking in substance.

87.  I agree with Ms Eu that an order for advance notice of the disposition of the assets of Chongqing W as requested, which would include the units in the development, would likely be impractical in view of how sale and purchase of such units in the development are expected to be transacted.  The downside of undue hindrance to the sale must be avoided.

Monthly accounts and inspection

88.  Ms Eu submitted that whilst the Injunction Summons was described as the fallback of Tiong, the exact legal basis for such interlocutory relief was not really identified. I share her scepticism.

89.  Inspection originated from the variation agreements between the parties for the purpose of profits adjustment.  Now that the primary case of Tiong is that all the agreements between the parties were rescinded ab initio.  Tiong himself put the contractual basis for such right in doubt.

90.  The relief could have been granted in aid of mareva injunction.  But Tiong has failed to obtain such injunction despite repeated attempts.  Now the failure to succeed on the Receivership Summons does not help him either.

91.  I shall not repeat what was said above about accommodating both parties pursuant to the cross undertakings at the same time is a balancing exercise whenever every request for inspection is made.

92.  It was acknowledged on behalf of Tiong as well as in the KPMG’s 2^nd Report that he or his accountants were allowed to inspect.  There was indeed argument; and I am not surprised, in view of the broad terms of the cross undertakings mentioned above.  However any argument on whether the specific arrangement, be it to do with the time or mode, would be within the ambit of the cross undertakings, if not resolved despite genuine effort, should be referred to the court for direction.  Any alleged breach of the undertaking should be a matter for committal proceedings.  That Yee’s present circumstances due to the Mainland authorities’ investigation and directives

93.  As far as the documents being sought are said to be relevant to the present action, they could well form the subject matter of discovery.

94.  Considering the history and the prevailing circumstances, I see no sufficient justification for effectively going behind the Undertakings by granting the relief sought under the Injunction Summons.

ORDER

95.  The Receivership Summons and the Injunctions Summons are dismissed with costs to Yee and New Sunshine with certificate for 2 counsel.  Costs shall be taxed, if not agreed.

96.  When giving leave to amend the Receivership Summons on 27 February 2013 and adjourning the argument of the same as amended, L Chan J awarded costs of that hearing to Yee and New Sunshine but reserved the question of certificate for counsel, if any, to this court.

97.  Considering how the proceedings, both previously and herein, have been conducted, I would be slow in picking on the reasonableness of Yee and New Sunshine in instructing the same team of counsel to appear at the hearing before the learned judge on 27 February 2013, though the same ended with an amendment to the Receivership Summons and adjournment.  I therefore make a nisi order certifying the engagement of 2 counsel for that hearing as well.

98.  The nisi costs order shall become absolute in the absence of application in 14 days to vary.