CHINA SHANSHUI CEMENT GROUP LTD AND OTHERS v. ZHANG CAIKUI AND OTHERS

HCA 2880/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2880 OF 2015

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J U D G M E N T

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A. Introduction

1.  On 4 November 2016, upon the 1^st to 3^rd plaintiffs’ ex parte application, Au‑Yeung J granted a worldwide Mareva injunction order (the “Mareva Order”) against each of the 1^st defendant (“Zhang Snr”) and the 2^nd defendant (“Zhang Jnr”) (collectively the “Zhangs”), restraining him from removing from Hong Kong, disposing of or otherwise dealing with or diminishing the value of his assets up to the value of HK$411 million (the “Restraint Sum”).

2.  The 4^th plaintiff (“Shandong Cement”) has since been joined to the action and the plaintiffs’ inter partes summons to continue the Mareva Order has been amended to include the 4^th plaintiff.  The Zhangs have also taken out a mirror application to discharge the ex parte Mareva Order.

3.  Additionally, more recently, the Zhangs have taken out a summons (the “Variation Summons”) by which they, alternatively, seek to have the Mareva Order varied in two respects, viz: (a) in respect of Zhang Snr’s voting rights over his shares in China Shanshui Investment Co Ltd (“CSI”); and (b) to reduce the Restraint Sum to HK$240 million.[1]

4.  The action is brought by the 1^st plaintiff (“CSCG”), a listed company in Hong Kong, under a new board, together with three of its subsidiaries, against various former directors who were on the old board prior to 1 December 2015 and against CNBM and ACC (viz. the 9^th and 10^th defendants respectively), two substantial shareholders in CSCG. 

5.  The background is familiar to the parties and need not be recited.  The new management has in this action complained of a number of matters but, for the purposes of the Mareva Order, only three monetary claims were relied upon by the plaintiffs at the ex parte stage and at this inter partes stage, namely, claims relating to (i) the Cayman Islands proceedings; (ii) Qilu Property; and (iii) Shandong Heavy.

6.  The Zhangs have not filed any defence to the action but their solicitors have filed an acknowledgment of service albeit only for purposes in connection with the Mareva Order.  Further, in Zhang Snr’s affirmation (dated 22 December 2016) opposing the Mareva Order, he contended that the case should be dealt with by a Mainland court rather than a Hong Kong court.

7.  However, as pointed out in Au‑Yeung J’s decision dated 6 January 2017 in related proceedings in HCMP 1574/2016 (and in the Court of Appeal’s decision in HCMP 863/2017 refusing leave to appeal dated 10 May 2017), the time for challenging jurisdiction under RHC O 12 r 8 has long expired.  Despite this, no defence had been filed by the Zhangs.  Indeed, Mr Barlow SC, who appeared for the plaintiffs, disclosed at the hearing that the plaintiffs had recently applied for default judgment to be entered on their monetary claims.

8.  The issues arising in the plaintiffs’ application for continuation of the injunction and in the Zhangs’ application for its discharge are basically the same.  There are four broad issues:

(1) Good arguable case

(2) Real risk of dissipation

(3) Sufficient assets within jurisdiction

(4) Material non‑disclosure

I am conscious that material non‑disclosure, if established, may, in appropriate cases, justify an immediate discharge of the ex parte order without examination of the merits.  As a matter of presentation, however, it seems to me more logical and comprehensible to deal with the above matters in that sequence. 

B.  Good arguable case

Cayman Islands proceedings

9.  It is not disputed that CSCG (i.e. the 1^st plaintiff) has demonstrated a good arguable case for its claim in relation to the Cayman Islands proceedings.  This relates to the expenses incurred for steps allegedly taken by some of the defendants to present a winding‑up petition in the Cayman Islands in respect of CSCG, which was eventually struck out by the Grand Court of the Cayman Islands.  The amount of expenses allegedly improperly incurred is approximately HK$24 million.

Qilu Property

10.  As for Qilu Property, the plaintiffs’ case is that in July 2015 the Zhangs caused Shandong Cement to acquire 30% in the company called Qilu Property for RMB 146.88 million which had been paid in full between July and September 2015.  A certificate of the payments received by Qilu on behalf of the vendor shareholders had been issued by Qilu Property dated 21 December 2016.

11.  The new management said that after the old board was ousted, they had been unable to locate the original of the equity transfer agreement — the agreement for the acquisition, or any meaningful documentation, books or records of Qilu Property, for audit purposes.  CSCG through Shandong Cement wrote to Qilu Property requesting financial information but Qilu Property rejected the request on the ground that the letters were not stamped with Shandong Cement’s corporate seal.  The plaintiffs’ case is that the Zhangs have not returned the seal to the plaintiffs.

12.  As recorded in Note 15(c) of the 2015 audited accounts of CSCG:

“Due to the lack of available information and books and records of Qilu Property, the Group has fully impaired the carrying amount of the investment in Qilu Property of RMB 146.88 million as at 31 December 2015.”

13.  On behalf of the Zhangs, Mr Wou submitted that the recognition of an impairment loss in CSCG’s accounts in these circumstances is not sufficient to give rise to a good arguable case of misapplication or misappropriation of Shandong Cement’s assets.  In particular, Mr Wou pointed out that (i) there is no suggestion that the 30% interest in Qilu Property is subject to any dispute with Qilu Property or their other stakeholders or indeed any party; (ii) the public records maintained by the Mainland authorities show Shandong Cement as a 30% shareholder in Qilu Property; (iii) other than the request for financial information which was turned down because of the lack of the company seal of Shandong Cement, there is no suggestion that anyone from the plaintiffs approached Qilu Property to confirm the status of Shandong Cement as an investor.

14.  The plaintiffs have to show a good arguable case on their claims, “in the sense of a case which is more than barely capable of serious argument, and yet not necessarily one which the Judge believes to have a better than 50 per cent chance of success”: Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH Und Co KG [1983] 2 Ll R 600, 605. 

15.  A prominent feature of this case is that the Zhangs have neither applied to strike out any claim nor filed any defence — a point that to my mind seems significant in the assessment of the strength of the plaintiffs’ case at this inter partes stage: see Ninemia Maritime, supra, at p 619.  Given that there is no extant challenge to the court’s jurisdiction, the absence of any defence or explanation on the merits is a matter the court can view adversely in the circumstances of this case.  The fact is that Shandong Cement had parted with substantial funds, at a time when the Zhangs were in charge of the Group and under fiduciary duties, and yet there is no document available now to show that Shandong Cement received anything of value.  It seems to me that the plaintiffs have established a good arguable case for this claim, though this is not inconsistent with there being potentially arguable defences available to the Zhangs.

Shandong Heavy

16.  As for Shandong Heavy, essentially the plaintiffs’ case is that the Zhangs caused Shandong Cement to enter into an agreement to sell 55% of the issued capital of Shandong Heavy (hitherto held by Shandong Cement as to 99.99%) to 2 purchasers called Zhusheng and Tiandi who had become suppliers to the CSCG group in 2015.  However, of the total price of RMB 94.05 million, (i) RMB 12.74 million was set off against trade payable balances due to the purchasers, Zhusheng and Tiandi; (ii) RMB 30.28 million was set off against trade payable balances due to 9 suppliers of the CSCG group; (iii) the balance of RMB 44.5 million remained unpaid.  The plaintiffs allege in effect that Shandong Cement was caused to part with 55% of Shandong Heavy without receiving anything in return.  Accordingly, the plaintiffs claim the consideration receivable for the 55% stake in the sum of RMB 94.05 million.

17.  Further, in the 2015 accounts of CSCG group, the new board decided to recognise full impairment loss of the carrying value of the remaining 44.99% interest in Shandong Heavy in the sum of RMB 79.33 million. Note 15(d) of the accounts stated:

“As at 31 December 2015, the existing directors re‑assessed the recoverable amount of the investment in [Shandong Heavy] with reference to its value in use, which is derived by using discounted cash flow analysis. Since the value in use calculated by the discounted cash flow analysis is lower than the carrying amount of investment in [Shandong Heavy], the Company has fully impaired the investment in [Shandong Heavy] of RMB79.33 million. The loss is included in other net expenses (note 4).”

18.  The plaintiffs allege that the Zhangs are also liable to compensate Shandong Cement in the sum of RMB 79.33 million which, together with RMB 94.05 million for the 55%, total RMB 173 million.

19.  For the Zhangs, Mr Wou submitted in relation to the claim for RMB 94.05 million for the 55%: (i) there is no suggestion or evidence that the Zhangs pocketed any part of the proceeds or diverted the 55% to themselves; (ii) there is no suggestion that the Zhangs were connected with the purchasers of the 55%; (iii) the set‑off of RMB 12.74 million and RMB 30.28 million against trade payable balances due to suppliers were audited; (iv) the balance of RMB 44.5 million remained unpaid but was recorded as a receivable, and there is no suggestion or evidence that this sum is irrecoverable or was written off.

20.  Mr Barlow submitted that the facts suggest that the trade payables were bogus.  The 9 suppliers were not purchasers of any interest in Shandong Heavy and yet part of the price receivable was set off against debts said to be due to them.  Given that no defence has been filed or any substantive explanation of the transaction given by the Zhangs, for the reasons set out above, I conclude that the plaintiffs have also made out a good arguable case to the extent of RMB 94.05 million for the 55% interest.

21.  The claim for RMB 79.33 million for the remaining 44.99% in Shandong Heavy stands on a somewhat different footing. Shandong Heavy was an asset that had long been with the Group.  The claim is rather based on the allegation that the Zhangs had deprived Shandong Cement of any control or influence over and involvement in Shandong Heavy, with the net effect that Shandong Cement had effectively lost even its remaining interest in Shandong Heavy.  There is nothing to show that the position had changed since Yen’s 8^th affidavit.  Shandong Heavy had declared itself to be the “headquarters” of the operations controlled by the Zhangs. 

22.  However, as stated above, the financial statements in CSCG’s 2015 annual report stated the sum of RMB 79.33 million was written off on a discounted cash flow analysis.

23.  There was no suggestion in the accounts that the write-off was due to deprivation by the Zhangs’ of the group’s access to Shandong Heavy.  In these circumstances I think there is no good arguable case shown for the claim of this amount from the Zhangs.  Even if there was, I think there had been material non-disclosure of this write-down based on discounted cash flow analysis (see below).

Overall

24.  For the above reasons, I am satisfied that the plaintiffs have shown a good arguable case for the claims up to the sums of HK$24 million + RMB 146.88 million + RMB 94.05 million.

C.  Risk of dissipation

25.  The overall basis of the plaintiffs’ claims is a case that the Zhangs have engaged in massive fraudulent and dishonest misfeasance involving the misapplication of substantial assets of the plaintiffs.  There is no dispute that the Zhangs are based in the Mainland.  They have refused to accept service in this action so that an order for substituted service had to be made.  They have chosen not to file any defence or otherwise to offer a substantive explanation of their conduct particularly with respect to Qilu Property and Shandong Heavy.

26.  Further, Au‑Yeung J has given leave for the 1^st to 3^rd plaintiffs to bring committal proceedings (HCMP 1574/2016) against the Zhangs for breach of various injunctive orders, so there is prima facie basis to suggest that they had failed to comply with previous orders of the court.

27.  On the basis of the evidence, which I will not summarise all here, the plaintiffs have in my view established sufficient risks of dissipation to support the Mareva Order.

28.  Mr Wou argued that there had been delay in making the application for the Mareva Order.  The timing was explained at the ex parte stage.  The application was not made earlier because the plaintiffs previously believed they were sufficiently protected by a proprietary injunction granted in December 2015.  However, in view of what they considered to be breaches of the injunction and the more recent developments, they had reviewed their position.  I do not think there was such delay as should lead to the plaintiffs being denied Mareva relief.  Nor do I consider the considerations mentioned in King Fung Vacuum Ltd v Toto Joys Ltd [2006] 2 HKLRD 785 – a case relied upon by Mr Wou, which concern interlocutory injunctions generally, to be apposite in the present context.

D.  Assets within jurisdiction

29.  It is not in dispute that Zhang Snr has 131,851 shares (equivalent to 13.19% of the share capital) in CSI (a company with a 25.09% shareholding in CSCG) registered in his name and beneficially owned by him, that these shares are located in Hong Kong, and that Zhang Snr has in his affirmation offered an undertaking not to deal with or dispose of them in any way until further order.

30.  The Zhangs have pointed to the fact that CSI, whose board they say is dominated by court-appointed receivers, has on 31 May 2017 invited the other substantial shareholders in CSCG, namely, ACC, CNBM and Tianrui, to make an offer to acquire all of its 847,908,316 shares in CSCG at HK$5.50 per share.  On the basis of this price, Mr Wou submitted that Zhang Snr’s stake in CSI alone would be worth HK$615 million (13.19% x 847,908,316 x HK$5.50).  There would therefore be sufficient assets within the jurisdiction so that there is no basis to grant a worldwide Mareva injunction. The price of HK$5.50 per share was however only an asking price.  It has not attracted any offer from the invitees. 

31.  On the other hand, the plaintiffs’ case on the ex parte application was that the shares had a market value of about HK$200 million (see ex parte skeleton §13(1)).  That would be sufficient to meet the Restraint Sum as reduced (see below).  Accordingly there is no basis to continue the Mareva Order as a worldwide Mareva injunction.  In the circumstances of this case, it would nevertheless be appropriate to continue the order as an injunction instead of simply receiving the undertaking of Zhang Snr.

E.  Material non‑disclosure

32.  Mr Wou has put material non‑disclosure at the forefront of his argument.  There are numerous matters said to have been omitted from or suppressed in the materials the 1^st to 3^rd plaintiffs placed before the ex parte judge.  They may be broadly grouped together as follows:

(1) Non‑disclosure about control of Shandong Cement and the lack of locus of the 1^st to 3^rd plaintiffs to bring the action.

(2) Non‑disclosure that the claims concerning Qilu Property and Shandong Heavy were not pleaded.

(3) Non‑disclosure about the merits of the complaints.

(4) Non‑disclosure that Zhang Snr’s interest in CSI was worth HK$615 million.

Alleged non‑disclosure about control of Shandong Cement and the lack of locus of the 1^st to 3^rd plaintiffs

33.  When the ex parte application was made, Shandong Cement was not a plaintiff.  It was stated on behalf of the 1^st to 3^rd plaintiffs that they could not cause Shandong Cement to sue and were thus driven to bring a derivative action on behalf of Shandong Cement, which they undertook to join as a party before seeking any judgment (see Yen’s 8^th affidavit used for the ex parte hearing at §§29 & 37 and ex parte skeleton argument at §12).  Eventually, a summons was taken out on 19 April 2017 to join Shandong Cement and an order was made on 29 May 2017 for it to be joined as 4^th plaintiff.

34.  Mr Wou submitted that in fact, as publicly announced by CSCG in Hong Kong on 3 December 2015, the plaintiffs camp had already replaced the board of Shandong Cement.  It was also reported in CSCG’s 2015 annual report that on 30 January 2016, the new management “accessed and took over the management” of Shandong Cement.  The 3^rd plaintiff is and was the sole parent company of Shandong Cement.

35.  Accordingly, Mr Wou submitted, there was nothing at the material times (either at the commencement of the action on 24 December 2015 or at the time of the ex parte application on 4 November 2016) to prevent the plaintiffs camp from causing Shandong Cement to bring its claims in its own name either by joining in as a party in this action or otherwise.  Indeed, they had caused Shandong Cement to bring an action in Hong Kong against the mayor and deputy mayor of Jinan City on 4 March 2016 (though it was discontinued on 25 July 2016). Further, in May 2016, they had also caused Shandong Cement to bring an action (no 16825 of 2016) in the Beijing People’s Court against, among others, the Zhangs.

36.  Mr Wou further submitted that the proper plaintiff for the Qilu Property and Shandong Heavy claims was Shandong Cement. The 1^st to 3^rd plaintiffs have no right of action themselves in relation to these two claims and had no basis to bring a derivative action unless the alleged wrongdoers, ie the Zhangs, were in control of Shandong Cement so that that company itself could not bring the action: Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, 323; Waddington Ltd v Chan Chun Hoo (2008) 11 HKCFAR 370, 380; World One Investments Ltd v Chow Cheuk Lap [2013] 3 HKLRD 701, §34.

37.  There is, in my opinion, considerable force in Mr Wou’s submission.  The omission to join Shandong Cement (at least after April 2016) and the representation to the ex parte judge that the 1^st to 3^rd plaintiffs were “driven” to bring the claim derivatively was quite inexplicable.  In fact, Mr Barlow acknowledged in his reply submission that the 3^rd plaintiff was “able to pass effective Shandong Cement resolutions after 20 April 2016” (ie the date when the Registrar of the High Court executed the corrective amendments of Shandong Cement’s articles on behalf of the Zhangs).  Yen’s 8^th affidavit also showed that the 3^rd plaintiff had been able to replace the board of directors of Shandong Cement.

38.  The explanation in Yen’s 8^th affidavit §§29 & 37 that the plaintiffs had not been able to secure recognition on the Mainland of the status of the new board of Shandong Cement, and that he had been advised that before any judgment was sought it would be necessary to join Shandong Cement, does not explain why Shandong Cement was not joined as a plaintiff in this action and as a direct applicant for the Mareva Order at the ex parte stage.  Nor is there any valid explanation in Yen’s 10^th affidavit filed for the inter partes hearing. 

39.  Had it been drawn to the judge’s attention that Shandong Cement could be procured by the plaintiffs camp to sue as a plaintiff, she would probably not have been satisfied that the 1^st to 3^rd plaintiffs had any basis to sue derivatively.

Alleged non‑disclosure that the claims concerning Qilu Property and Shandong Heavy were not pleaded

40.  Mr Wou submitted that the Qilu Property and Shandong Heavy claims were dealt with in the evidence but not specifically pleaded in the statement of claim at the time of the ex parte hearing, and that this was not drawn to the attention of the ex parte judge. I consider this complaint has no substance.  On an ex parte application there is no definite requirement for a claim to be pleaded.  What is important is that the Mareva applicant asserts that claim and demonstrates there is at least a good arguable case.  It was obvious that the claims were not in statement of claim but instead detailed in the supporting affidavit for the application.

Alleged non‑disclosure of various points on the merits of the complaints

41.  Mr Wou submitted that the 1^st to 3^rd plaintiffs failed to disclose to the ex parte judge that there was no evidence linking Zhang Snr to the two deals, no evidence that the Zhangs pocketed the money or assets, and nothing to show that the Zhangs were connected with the vendors of Qilu Property or the purchasers of the 55% interest in Shandong Heavy.  It seems to me clear from the affidavits before the ex parte judge that the plaintiffs’ case was based on circumstantial evidence.  The judge had accepted that the Zhangs were in control of Shandong Cement at the material times in 2015 and had earlier ordered them to execute corrective amendments of its articles of association. It was a matter of inference that they had caused Shandong Cement to enter into the two deals. 

42.  Despite the recovery of much of the books and records of Shandong Cement, the plaintiffs had not found any document in relation to the Qilu Property transaction.  Specific page reference was made in the affidavit to the exhibit containing extracts from the 2015 annual report of CSCG which stated that due to the lack of available information, the carrying amount of the investment in Qilu Property had been fully impaired, which seems to me to be consistent with the case put forward in the affidavit. I do not think there was any material non‑disclosure in this regard.

43.  As for Shandong Heavy, first, on the sale of 55.01% interest in Shandong Heavy, the claim as presented in Yen’s 8^th affidavit and the ex parte skeleton argument was based on the allegation that the Zhangs had purported to sell 55.01% of the company and retained control of it to the exclusion of Shandong Cement.  In particular, the plaintiffs alleged that the Zhangs “had never accounted to the Plaintiffs for the proceeds of sale of the 55.01%” (Yen’s 8^th affidavit §35).  However, in fact, the set‑off arrangements for the price were stated in the 2015 annual report of CSCG.  Extracts from the annual report were exhibited to Yen’s 8^th affidavit but they were not set out in the affidavit or ex parte skeleton argument.  It seems to me the fact that these set-off arrangements existed, at least on the records, is something that should have gone into the affidavit or the skeleton and specifically drawn to the attention of the court, especially given that the plaintiffs alleged the Zhangs had failed to account for the proceeds of sale.  The judge should have been informed that according to the 2015 annual report, RMB 49.55 million of the sale proceeds had apparently been settled by set‑off against trade payables, with the remaining balance of RMB 44.5 million not yet paid and recorded as a receivable.  This was directly contrary to the plaintiffs’ allegation that the proceeds were not accounted for.  The plaintiffs could, of course, argue why these arrangements were nevertheless suspicious or bogus and should not be taken at face value, but that is no justification for not disclosing them to the ex parte judge. 

44.  Furthermore, in relation to the retained 44.99% interest in Shandong Heavy, as stated above, it seems to me material that the group had decided to write its value down to nil based on its “value in use” which in turn was based on a discounted cash flow analysis, as stated in the annual report.  This was not drawn to the court’s attention at the ex parte stage.

45.  As for the other points raised by Mr Wou in this category, it seems to me that they are detailed arguments that have now been raised by the Zhangs to attack the plaintiffs’ claims but not critical matters that should necessarily have occurred to the plaintiffs at the ex parte stage.

Alleged non‑disclosure that Zhang Snr’s interest in CSI was worth HK$615 million

46.  There is no merit in this point.  Both Yen’s 8^th affidavit and the ex parte skeleton argument specifically stated that Zhang Snr held 13.18% in CSI.  The skeleton argument put the current market value of that interest at about HK$200m.  The value of HK$615 million contended for by the Zhangs now is based on an invitation of offer which was only made in apparently May 2017.

Implications of non-disclosure

47.  The principles on material non‑disclosure are not in dispute.  The decision of Au‑Yeung J in Velatel Global Communications Inc v Chinacomm Ltd (unrep, HCA 1978/2011, 26 October 2012) at §§25‑31 which summarised the applicable principles has been drawn to my attention.  I have also had regard to the principles concerning the discretion to re‑grant an injunction as set out by Kwan JA in Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642, at §§56–58. It is important not to undermine the duty of full and frank disclosure, which is of paramount importance in ex parte applications.  As such, the general rule is the court should discharge the ex parte order if there had been failures in making full and frank disclosure, and refuse to renew the order until trial.  Further, the discretion to re‑grant an injunction set aside for non‑disclosure is to be exercised sparingly.  On the other hand, a proportionate approach has to be taken and the power to set aside should not be allowed to become “the instrument of injustice”.  Taking into account all the circumstances including the following, I have come to the conclusion that (i) the ex parte Mareva Order granted to the 1^st to 3^rd plaintiffs should be discharged, but (ii) a Mareva Order should be granted to CSCG (the 1^st plaintiff) to the extent of HK$24 million corresponding to the expenses on Cayman Islands proceedings, and (iii) a Mareva Order should be granted to Shandong Cement (the 4^th plaintiff) to the extent of HK$167 million (RMB146.88 million) corresponding to its claim relating to Qilu Property.

(1) Although the case put forward for making the claim in the name of the 1^st to 3^rd plaintiffs derivatively was without foundation, there is no evidence of bad faith.  Yen’s 8^th affidavit did disclose that the 3^rd plaintiff had replaced the board of Shandong Cement and that Shandong Cement had brought an action in Hong Kong in 2016. 

(2) The position taken at the ex parte stage that the 1^st to 3^rd plaintiffs had basis to bring a derivative claim was a legal error.  On the facts, the cause of action in relation to the Qilu Property and Shandong Heavy was that of Shandong Cement and the conditions for bringing a derivative claim were not made out.  However, there is no suggestion that Shandong Cement could not in fact have joined in the action as the 4^th plaintiff at that time in November 2016. There is no suggestion or basis to think that the plaintiffs camp had gained any advantage by this misrepresentation which they could not otherwise have obtained.

(3) The 1^st plaintiff did have proper locus to seek a Mareva order in relation to the expenses incurred for the Cayman Islands proceedings.

(4) The non‑disclosure relating to Shandong Heavy did not affect the case on the Cayman Islands proceedings or Qilu Property.

(5) Having regard to all the circumstances, it would, in my opinion, be disproportionate to discharge the injunction altogether for the non‑disclosures in question.  The orders indicated above are what I regard to be an appropriate and proportionate response.

F.  Variation Summons

48.  There are two aspects to the Variation Summons, namely, (i) reduction of the Restraint Sum; and (ii) to allow Zhang Snr to exercise the voting rights of the shares in CSI registered in his name.  For item (i), having regard to my conclusion above, the extent of the injunction will be HK$24 million in favour of the 1^st plaintiff and HK$167 million in favour of the 4^th plaintiff.  The total Restraint Sum will therefore be HK$191 million.

49.  As to (ii), the application is to vary the wording of the exception to the injunction (as set out in para (2) in section D of the Mareva Order) so as to make clear that it does not prevent Zhang Snr from exercising the voting rights of the shares in CSI registered in his name.  Previously, at a general meeting of CSI in February 2017 chaired by one of the Receivers, they had in reliance on the Mareva Order refused to recognise Zhang Snr’s vote of his shares in CSI on the ground that it might diminish the value of his assets.  That was controversial because voting one’s shares at a general meeting is unlikely in the ordinary course of events to diminish the value of those shares, although in an extreme case it may: see eg Standard Chartered Bank v Walker [1992] 1 WLR 561, 566A‑D; Sunlink International Holdings Ltd v Wong Shu Wing [2010] 5 HKLRD 653, §§17–19.

50.  In this context, it should be noted that the terms of a Mareva injunction have to be restrictively construed; if it is considered that a certain act, which is not clearly within the prohibition, is to be enjoined, a new order should be made rather than an expansive interpretation adopted for the existing order: JSC BTA Bank v Ablyazov (No 10) [2015] 1 WLR 4754, §§17–19.

51.  The Mareva Order states that the 1^st defendant must not:

“in any way dispose of or deal with or diminish the value of any of his assets … This prohibition includes the following Hong Kong assets in particular:

(i) the shares in China Shanshui Investment Co Ltd held in the name of the 1^st Defendant …”

The exception in para D(2), which is in standard form, states at present:

“This Order does not prohibit either the 1^st Defendant or the 2^nd Defendant from dealing with or disposing of any of his assets in the ordinary and proper course of business.”

52.  Although the plaintiffs opposed the Variation Summons in correspondence, Mr Barlow did not raise much opposition at the hearing.  I think that the wording should be clarified by adding at the end of exception D(2):

“including the 1^st Defendant’s exercise of any voting rights attached to the shares in China Shanshui Investment Co Ltd registered in his name”.

G.  Conclusion

53.  For the above reasons, I order that:

(1) The ex parte worldwide Mareva Order granted to the 1^st to 3^rd plaintiffs should be discharged, but that a Mareva injunction (not worldwide but otherwise in substantially the same terms, subject to the variation below) should be granted to the 1^st plaintiff to the extent of HK$24 million and to the 4^th plaintiff to the extent of HK$167 million (RMB 146.88 million) for a total Restraint Sum of HK$191 million. Liberty to apply on form of order.

(2) Exception D(2) to the Mareva Order should be amended as explained in §52 above.

54.  On a nisi basis, I order:

(1) The 1^st to 3^rd plaintiffs do pay the Zhangs the costs of their summons for discharge dated 18 November 2016 and their Variation Summons dated 26 May 2017.

(2) The 2^nd and 3^rd plaintiffs do pay the Zhangs the costs of their summons dated 7 November 2016 (for continuation of the injunction).

(3) The Zhangs do pay the costs of §1 of the plaintiffs’ summons dated 7 November 2016, as amended pursuant to the plaintiffs’ summons dated 2 June 2017.

(4) No order as to costs of the ex parte application.