MING YANG CAPITAL LTD v. CHINA VERED ASSET MANAGEMENT (HONG KONG) LTD AND ANOTHER

HCA 1803/2023

[2024] HKCFI 1444

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1803 OF 2023

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DECISION

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A. INTRODUCTION

1.  This is the substantive hearing of the application by the Plaintiff (“P”) for an interlocutory injunction against the 1^st Defendant (“D1”) as sought under §1 of the Summons dated 7 November 2023 (“Summons”).

B.  FACTUAL BACKGROUND

B1.  The Parties and the Subject Fund

2.  P (formerly known as Venture Partners Asset Management Limited) is a company incorporated under the laws of Hong Kong.  P is licensed by the Securities and Futures Commission to conduct Type 4 (advising on securities) and Type 9 (asset management) regulated activities.

3.  D1 is a company incorporated under the laws of Hong Kong and a fully owned subsidiary of China Vered Financial Holding Corporation Limited (“CVFH”), a company listed on the Main Board of the Hong Kong Stock Exchange (Stock Code: 245) and the holding company of the China Vered Group (“China Vered Group”).

4.  The 2^nd Defendant (“D2”) is a segregated portfolio limited company incorporated under the laws of the Cayman Islands.

5.  D2 holds a number of segregated portfolios, including the CVAM Greater China Selected Fixed Income SP (“Subject Fund”). The present dispute arises out of the management of the Subject Fund.

6.  The Subject Fund was established on 8 August 2019.  It is a “professional investors-only” fund, and no person may offer or sell any participating shares in the Subject Fund other than to professional investors as defined under the Securities and Futures Ordinance (Cap 571).

B2.  Subscription to the Subject Fund

7.  Investors would subscribe to the Subject Fund by obtaining certain issued Class A shares in D2.

8.  On 15 August 2019, CVFH subscribed for 38,000 Class A Series 1 shares by cash payment of US$38,190,000 (of which US$190,000 was the subscription fee).

9.  On 7 December 2020, the following three new investors (“New Investors”) subscribed for Class A shares with payment in kind, namely with shares in Wealthink AI-Innovation Capital Ltd (1140.HK) (“1140.HK”):

(1)  Liu Zhiwei (“Liu”) subscribed for 10,304.4193 Class A Series 2 shares with 96,888,000 1140.HK shares;

(2)  AI International Capital Management Ltd (“AI International”) subscribed for 5,783.1012 Class A Series 2 shares with 54,376,000 1140.HK shares; and

(3)  Chunda International Capital Management Co., Ltd (“Chunda”) subscribed for 1,354.5236 Class A Series 2 shares with 12,736,000 1140.HK shares.

10.  Liu is the sole director and shareholder of AI International and Chunda.  Liu is also the sole executive director, the authorised representative and a substantial shareholder of 1140.HK.

B3.  The Co-Management Agreement

11.  On 7 December 2020 (ie the day when the New Investors subscribed to the Subject Fund), D2 entered into a Co-Management Agreement (“Co-Management Agreement”) with D1 (as “Investment Manager”) and P (as “Co-Manager”).  The Co-Management Agreement was later amended and supplemented by a Deed of Amendment to the Co-Management Agreement dated 18 August 2021.

12.  Pursuant to Clause 3 of the Co-Management Agreement, D1 and P are appointed by D2 to manage and invest the Subject Fund.  Clause 4.1 further provides that D1 and P will jointly manage and invest the assets of the Subject Fund on a discretionary basis.

13.  Clause 4.7 provides that:

“4.7 Acknowledgement

The Investment Manager and the Co-Manager acknowledge that the Company may add to the Segregated Portfolio cash subscribed on the issue of shares and may, subject to the consent of the Investment Committee, withdraw from the Segregated Portfolio cash or other assets to enable the Company to meet redemptions of shares and other outgoings.”

14.  Clause 5.1 of the Co-Management Agreement concerns the composition of the Investment Committee (“IC”). It provides, amongst other things, that the IC shall comprise 4 members and that each of D1 and P is entitled to nominate and appoint two members to the IC and to replace any member it has appointed or fill the vacancy upon the resignation of any such member.

15.  Clause 5.2 concerns duties and powers of the IC.  It reads as follows:

“5.2 Duties and powers

(a) Subject to clause 6.2, any matters relating to the Managers’ management of the Segregated Portfolio under this Agreement must be approved by the Investment Committee. Any reference to the Investment Manager, the Co-Manager or the Managers in this Agreement must be construed accordingly. Without limiting the generality of the preceding two sentences, the matters that require the Investment Committee’s prior approval include among other things: (1) any matter relating to the investment of the Segregated Portfolio; and (2) payment of the proceeds of any redemption exceeding the Redemption Threshold.

(b) The quorum for a meeting of the Investment Committee (including a meeting by conference call) shall be all members.  Each member of the Investment Committee is entitled to one vote.  The Investment Committee will make its decision by unanimous consent, which can be evidenced by among other things a written consent by all the members.”

16.  Clause 6.2 provides that subject to the approval of the IC, D1 and/or P may engage (a) brokers or dealers for the account of the Subject Fund and (b) third parties to advise in relation to the performance by it of any of the services to be provided under the Co-Management Agreement.

B4.  The redemption process

17.  The rights and obligations of the investors in the Subject Fund are governed by, for present purposes, the Private Offering Memorandum dated August 2021 (“POM”) and the Supplement dated May 2023 (“Supplement”).

18.  The POM provides, amongst other things, that “[s]ubject to any restrictions applicable to redemption of Participating Shares of any Class as may be set forth in the relevant Supplement, Participating Shares of each Class may be redeemed at the option of the Shareholder on any Redemption Day as described in the Supplement relating to that Class”.

19.  As set out in the Supplement, an investor of the Subject Fund is subject to a lock-up period of 3 years (which may be extended by the IC for two consecutive one-year periods, or such other period of time as the IC may determine) from the time of subscription, during which they cannot redeem their participating shares (“Lock-Up Period”).  Upon the expiry of the Lock-Up Period, an investor may redeem its shares on the first business day of each calendar month (“Redemption Day”).

20.  In the absence of any extension of the Lock-Up Period, the earliest Redemption Day for CVFH and the New Investors would be 1 September 2022 and 2 January 2024 respectively.

21.  The Supplement also provides that an investor wishing to redeem its shares in the Subject Fund should send a completed “Redemption Request” to the “Administrator”.  Unless the IC determines otherwise, in respect of any class of participating shares, if Redemption Requests are received in respect of any Redemption Day which, if satisfied in full, would result in the redemption of the participating shares representing in aggregate more than 10% (or such higher percentage as the IC determines) of the Net Asset Value (“NAV”) of such class (“Redemption Threshold”), the IC has the discretion to determine whether redemption proceeds will be distributed to shareholders, subject to market condition.

22.  Each of the New Investors also entered into a side letter with P, D1 and D2 (“Side Letters”) in which it is stated in §2 that P and D1, acting through the IC, shall have the discretion as to whether to accept any Redemption Request received from the New Investors.

B5.  Redemption Requests made by CVFH

23.  Since around September 2021, the Subject Fund began to suffer losses.  The Subject Fund’s performance continuously worsened from then to January 2023.

24.  In the period from January to November 2023, CVFH made a total of eight Redemption Requests, the details of which are as follows:

(1)  On 18 January 2023, CVFH made its first request to redeem 5,500 shares on 1 February 2023.  The redemption amount was US$2,876,995.00.

(2)  On 3 February 2023, CVFH made its second request to redeem 4,900 shares on 1 March 2023.  The redemption amount was US$2,469,992.00.

(3)  On 1 March 2023, CVFH made its third request to redeem 4,400 shares on 3 April 2023.  The redemption amount was US$2,088,768.00.

(4)  On 3 April 2023, CVFH made its fourth request to redeem 4,000 shares on 2 May 2023.  The redemption amount was US$1,752,200.00.

(5)  On 11 May 2023, CVFH made its fifth request to redeem 3,600 shares on 1 June 2023.  The redemption amount was US$1,858,644.00.

(6)  On 29 September 2023, CVFH made its sixth request to redeem 3,200 shares on 3 October 2023.  The redemption amount was US$876,384.00.

(7)  On 9 October 2023, CVFH made its seventh request to redeem 2,900 shares on 9 October 2023.  The redemption amount was US$702,583.00.

(8)  On 6 November 2023, CVFH made its eighth request to redeem 2,600 shares. The effective date of redemption and the redemption price are not yet confirmed.

(collectively “CVFH’s Redemption Requests”)

25.  Approval of the IC (“IC Approval”) was not sought by D1 in respect of CVFH’s Redemption Requests.

26.  On 10 March 2023, D1 requested P by email to sign a remittance form for the first of CVFH’s Redemption Requests.  According to P, it was concerned with the request as it could cause the Subject Fund to suffer from insufficient asset liquidity.

27.  On 23 March 2023, P proposed effecting this first Redemption Request after the sale of certain securities held by the Subject Fund, and requested that a meeting of the IC be convened to consider (a) fulfilling the request with a combination of cash and assets, and (b)re-assessing the valuation of the NAV of the Subject Fund as of 31 January 2023.

28.  On 24 March 2023, P’s 2 representatives on the IC voted in favour of P’s aforesaid proposals, whereas D1’s 2 representatives on the IC voted against them.

29.  The parties continued to exchange email correspondence on the propriety of CVFH’s Redemption Requests in March and April 2023.

30.  On 3 May 2023, D1 requested D2 to change the account signatories of the bank account used by the Subject Fund (“Account”) with the China Minsheng Banking Corp. Ltd (“Bank”).  D2’s directors passed a resolution on the same day approving D1’s request.

31.  The signatories of the Account were changed by the Bank on 3 August 2023, following which P’s appointees were no longer authorised signatories of the Account.

32.  On 8 August 2023, without P’s knowledge or consent, a total of US$11,046,559 was withdrawn from the Account in fulfilment of the first to fifth of CVFH’s Redemption Requests (“Impugned Transfers”).

33.  On 14 August 2023, P wrote to D1 by email and asked for an explanation for the Impugned Transfers.  In its reply dated 17 August 2023, D1 stated that the Impugned Transfers were to fulfil the first to fifth of CVFH’s Redemption Requests.  P was also informed by the Bank on 17 August 2023 that the Impugned Transfers were executed based on the instructions by authorised signatories of the Account.

34.  After the Impugned Transfers, P and D1 engaged in negotiations concerning the management of the Subject Fund.  In the meantime, CVFH proceeded to make the sixth to eighth of CVFH’s Redemption Requests on 29 September 2023, 9 October 2023 and 6 November 2023.

C.  PROCEDURAL HISTORY

35.  On 7 November 2023, P commenced these proceedings and took out the Summons which was returnable on 10 November 2023.  The terms of §1 of the Summons are as follows:

“Until the final determination of the proceedings herein or further order of the Court, the 1^st Defendant, whether acting by itself, its directors, associates, servants, employees, agents (or any of them) or otherwise howsoever, be restrained from causing or procuring the withdrawal of proceeds pursuant to share redemption requests in respect of CVAM Greater China Selected Fixed Income SP (the ‘Subject Fund’) (including but not limited to the redemption request of China Vered Financial Holding Corporation Limited dated 3 October 2023 in the amount of US$876,384.00) without the prior consent of the Investment Committee of the Subject Fund as required under the Co-Management Agreement dated 7 December 2020 (the ‘Co-Management Agreement’), as amended and supplemented by a Deed of Amendment to the Co-Management Agreement dated 18 August 2021”.

36.  It is common ground that the Summons was served on D1 on 7 November 2023 (which was a Tuesday) after 4 pm.  Pursuant to Order 65 rules 7(1)(b) and 7(2) of the Rules of the High Court (Cap 4A) (“RHC”), service was deemed to have been effected on the next day, ie 8 November 2023 (Wednesday).  The service was therefore effected less than 2 clear days before the return date on 10 November 2023 as required under O32 r3 of the RHC.

37.  On 10 November 2023, DHCJ Roxanne Ismail SC ordered, inter alia, that until the substantive hearing of the Summons or until further order of the Court, D1 is restrained from causing or procuring the withdrawal of the proceeds in respect of the Subject Fund (including the sixth of CVFH’s Redemption Requests on 3 October 2023) without the IC Approval (“Interim-interim Injunction”).

38.  The parties came before me for the substantive hearing of the Summons on 3 January 2024.  As the Interim-interim Injunction was expressed to last only until “the substantive hearing of the Summons”, I made an order at the hearing for the Interim-interim Injunction to be continued until my decision on the Summons, which I hand down now.

D.  THE ISSUES

39.  Having regard to the parties’ arguments before me, I consider that the following three main issues arise for determination:

(1)  Whether there is any serious issue to be tried?

(2)  Whether the balance of convenience lies in favour of granting the interlocutory injunction?

(3)  Whether there was any material non-disclosure on the part of P when it obtained the Interim-interim Injunction?

40.  I will address these issues in turn.

E.  SERIOUS ISSUE TO BE TRIED

41.  It is well established that for a party seeking an interlocutory injunction, it is not a high threshold to show a serious issue to be tried, as it is no part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations: Ip Pui Lam Arthur & Anr v Ho Yuk Wah David (a bankrupt) & Ors [2018] HKCA 604 at §13.

42.  Conversely, if the opposing party seeks to show that there is no serious issue to be tried, the threshold for him to succeed is high, as it would be necessary for him to demonstrate that the claim should be struck out: Ip Pui Lam Arthur at §14.

43.  In essence, P’s case is that on a proper interpretation of Clauses 4.7 and 5.2(a) of the Co-Management Agreement, IC Approval is required for approving Redemption Requests by the investors of the Subject Fund, regardless of whether such requests fall above or below the Redemption Threshold.  Since no IC Approval was obtained in respect of CVFH’s Redemption Requests, D1 was in breach of the Co-Management Agreement in requesting D2 to change the authorised signatories of the Account and make the Impugned Transfers in fulfilment of the first to fifth of CVFH’s Redemption Requests.  P contends that an interlocutory injunction should be granted to restrain further breaches by D1 pending the final determination of these proceedings.

44.  D1 disputes P’s construction of the Co-Management Agreement.  D1 contends that IC Approval is only required if the payment of redemption proceeds exceeds the Redemption Threshold.  As none of the CVFH’s Redemption Requests exceeds the Redemption Threshold, there was no need for D1 to obtain IC Approval.  D submits that there is no serious issue to be tried.

45.  I am of the view that P has demonstrated at least a serious issue to be tried on its interpretation of Clauses 4.7 and 5.2(a) of the Co-Management Agreement concerning the need to obtain IC Approval for CVFH’s Redemption Requests.

46.  The principles in relation to contractual interpretation have been re-affirmed on multiple occasions by the highest courts in Hong Kong and the UK.  In particular, I bear in mind the following salient principles:-

(1)  The Court’s task is to ascertain “what a reasonable person would have understood the parties to have meant by using the language which they did”: Sinoearn International Ltd v Hyundai-CCECC Joint Venture (2013) 16 HKCFAR 632 at §77.

(2)  It is a truism that the starting point is the ordinary and natural meaning of the words of the contract, and in the vast majority of cases that is also the ending point: Eminent Investments (Asia Pacific) Ltd v DIO Corp (2020) 23 HKCFAR 487, [2020] HKCFA 38 at §43.

(3)  Where there are conflicting interpretations, account should be taken of the natural and ordinary meaning of the provision in question, the purpose of the contract and of the provision, other relevant provisions, the facts and circumstances known or assumed by the parties at the time that the contract was executed, the quality of the drafting of the instrument, and commercial common sense: Eminent at §44.

(4)  Subjective evidence of any party’s intentions is disregarded: Arnold v Britton [2015] AC 1619 at §15.

(5)  Commercial common sense and surrounding circumstances should not be used to undervalue the importance of the language of the provision.  The natural meaning of a provision should be slow to be rejected simply because it appears imprudent for a party to have agreed to it, even ignoring the benefit of wisdom of hindsight.  The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed.  Thus, the court must be alive to the possibility that one side may have agreed to something which with hindsight did not serve its interest, or that a provision may be a negotiated compromise: Arnold v Britton at §20; Eminent at §45.

47.  In terms of the language of Clause 4.7 and 5.2(a) of the Co-Management Agreement, I agree with P’s contentions that:

(1)  Under Clause 4.7, D1 and P acknowledge that D2 may, “subject to the consent of the Investment Committee”, withdraw from the Subject Fund cash or other assets to enable D2 to meet redemption of shares and other outgoings.  The phrase “subject to the consent of the Investment Committee” expressly qualifies D2’s ability to withdraw cash or assets to meet redemption of shares and indicates that consent of the IC is required for fulfilling Redemption Requests.

(2)  Clause 5.2(a) provides that “any matters relating to the Managers’ management” of the Subject Fund “must be approved by the Investment Committee”.  It is phrased in very broad terms.  It is at least reasonably arguable that fulfilling Redemption Requests made by investors is an aspect of “management” of the Subject Fund and thus falls within the scope of “any matters relating to the Managers’ management” of the Subject Fund.

(3)  The opening phrase of Clause 5.2(a) is “subject to clause 6.2”, which further provides that the engagement of brokers or third party advisers is subject to IC Approval.  This reinforces the broad nature of Clause 5.2(a).

48.  D1 contends that P’s interpretation is too broad for the following reasons:

(1)  The second part of Clause 5.2(a) (starting from “[w]ithout limiting the generality of the preceding two sentences, …”) specifically provides for the need for IC Approval over “payment of proceeds of any redemption exceeding the Redemption Threshold”.  By the maxim of “expressio unius est exclusio alterius”, Clause 5.2(a) deliberately omits and does not require IC Approval where the Redemption Requests are below the Redemption Threshold.  Reliance was placed on Best View Medical Co Ltd v Richermen International Investments Co Ltd [2018] HKCA 288 at §§22-27.  P’s interpretation would render the second part of Clause 5.2(a) otiose.

(2)  The Co-Management Agreement does not provide any dispute resolution mechanism in case of a deadlock in the IC.  Hence, parties would not have intended to bind themselves by IC Approval for every Redemption Request.

(3)  Clause 5.2(a) should hence be interpreted to require IC Approval for (a)investment matters;(b)payment for Redemption Requests over the Redemption Threshold; and (c)other “sufficiently substantial or material” management matters.

49.  With respect, I do not consider that these arguments would render P’s interpretation untenable to the extent that there would be no serious issue to be tried.

50.  Insofar as D1’s reliance on the maxim of “expressio unius est exclusio alterius” is concerned, it is notable that the second part of Clause 5.2(a) is preceded by the phrases “without limiting the generality of the preceding two sentences” and “among other things”.  These general phrases strongly suggest that the matters which are set out in the second part of Clause 5.2(a), including the references to payment of redemption proceeds exceeding the Redemption Threshold, are intended to be illustrative rather than exhaustive.

51.  I have also taken into account the following cautionary remark from Cheung CJHC (as the Chief Justice then was) in Best View Medical at §27 regarding the expressio unius maxim:

“Of course, as Lewison pointed out (at pp 382 - 383), the principle under discussion is not a rule of law, but merely a principle of interpretation which like all other such principles, is no more than a guide to the true meaning of the contract; even at its highest, it can be no more than a presumption. …”

52.  In light of the express general phrases in the second part of Clause 5.2(a) and the cautionary remark on the utility of the maxim, I am of the view that the expressio unius maxim is of limited assistance in this case when considering the parties’ rival contentions on interpretation.

53.  The short answer to the deadlock point is that the Court must give effect to the terms of the contract entered into between the parties.  If the parties have adopted the broad language as contained in Clause 5.2(a) of the Co-Management Agreement which would require IC Approval for “any matters relating to the Mangers’ management”, it is not the function of the Court to rewrite the agreement. 

54.  In any case, I accept P’s submission that the Co-Management Agreement, as its name suggests, is meant to contain checks and balances and to provide for “co-management” of the Subject Fund by P and D1. The equal participation in the management of the Subject Fund between P and D1 is also reflected by the fact that (a) P and D1 are each entitled to nominate and appoint 2 members to the IC under Clause 5.1(a); and (b) P and D1 are obliged under Clause 4.1 to “jointly manage and invest” the assets of the Subject Fund.

55.  I also have reservation as to D1’s interpretation as set out in §48(3) above:

(1)  The concept of “sufficiently substantial or material” does not feature in the text of Clause 5.2(a) at all.

(2)  As fairly acknowledged during the hearing, D1 has no definitive answer as to who, under D1’s interpretation, would decide if a management matter is “sufficiently substantial or material” or not to necessitate IC Approval.

(3)  Even if D1’s interpretation is correct, it can reasonably be said that fulfilling a Redemption Request, which concerns the exit of an investor and the payment of cash or assets out of the Subject Fund, is by itself a “sufficiently substantial or material” matter in the management of the Subject Fund.

56.  For the sake of completeness, I should mention that parties have referred me to various provisions in the POM and the Supplement in support of their respective interpretations of the Co-Management Agreement.  It appears to me that the parties’ arguments on these documents are evenly balanced and do not change the shape of the arguments on interpretation of the Co-Management Agreement.

57.  I should, however, address D1’s arguments regarding the Side Letters.  It is part of D1’s submissions that the Side Letters were entered into by the New Investors only and not by CVFH.  As such, D1 contends that only the New Investors are additionally bound by the term in the Side Letters that “any redemption request” is subject to the discretion of the IC.

58.  I agree with P’s submission that this argument appears to be inconsistent with the purpose of the Side Letters.

(1)  The POM states that Side Letters are to be entered into for certain investors to “receive advantages not appearing in this Memorandum or the related Supplement”.  The Supplement also provides that Side Letters may be entered into to “provide such investors with more favourable terms than those in this Supplement in relation to information rights, among other things.”

(2)  In light of the purpose of the Side Letters as set out in the POM and the Supplement, it is reasonably arguable that the Side Letters were not intended to limit the redemption rights of the New Investors or to differentiate between the redemption rights of the New Investors on the one hand and the redemption rights of CVFH on the other.

(3)  As pointed out by P, the Side Letters also contain terms that overlap with the POM.  For example, it is stated in §1(b) of the Side Letters that the New Investors would be provided with audited annual financial statements of the Subject Fund within 180 calendar days after the end of each fiscal year.  The same commitment was also provided in the POM.

(4)  Accordingly, I do not consider that the Side Letters necessarily undermine P’s interpretation of Clauses 4.7 and 5.2(a) of the Co-Management Agreement.

59.  For the above reasons, I am of the view that there is at least a serious issue to be tried.

F.  BALANCE OF CONVENIENCE

60.  One legal issue which arose at the hearing before me is whether P needs to show that balance of convenience lies in favour of granting the interlocutory injunction.

61.  This issue arose in relation to P’s submission that in the context of a breach of a negative covenant, an injunction is available virtually as of course and the Court is not normally concerned with the balance of convenience unless the injunction is oppressive.  The correctness of this legal proposition was disputed by D1 at the hearing.  In light of the parties’ disagreement, I gave directions for parties to file further written submissions after the hearing to address this legal issue.          

62.  Whilst I am grateful to the parties for their research and assistance, I do not consider that it is necessary for me to express any concluded view on this legal issue in the circumstances of this case.  This is because the parties in this case have addressed the balance of convenience by way of both evidence and submissions before me.  P also sensibly confirmed at the hearing that I would need to consider other factors on balance of convenience in any event irrespective of the ruling on the legal proposition. In these circumstances, I consider that I should proceed to assess the balance of convenience as a separate element.    

63.  In this regard, I accept P’s submission that damages would be an inadequate remedy for P.

64.  I agree with P that it may be exposed to potential liabilities from the New Investors.  If P’s interpretation prevails at trial, but most cash have been withdrawn by CVFH leaving substantially illiquid assets of declining values, the New Investors will be unable to redeem their shares at the value that they would have had the withdrawals by CVFH not taken place.  In this situation, P may be subject to claims by the New Investors to recover their losses.  The unpredictability of the nature, timing, numbers and extent of claims and consequential losses claimed by the New Investors is a significant prejudice to P, and is hard to be quantified.

65.  D1 disputes the prospect of P being sued by the New Investors.

66.  D1 relies on Clause 13.3 of the Co-Management Agreement, which provides that D2 agrees to indemnify P for all liabilities and losses, incurred by or asserted against P in its capacity as Co-Manager of D2.  However, this is indemnification afterwards and does not prevent P from being sued by the New Investors in the first place.  Besides, D2 may seek to limit its liability by alleging gross negligence, wilful default or fraud on the part of P.

67.  In this connection, D1 also relies on the fact that it has more than sufficient financial assets to compensate any losses incurred by P that are not already indemnified by D2 pursuant to Clause 13.3 of the Co-Management Agreement.  Nevertheless, I accept P’s evidence that the existence of proceedings hanging over its head is itself a source of significant prejudice and that allegations which may be levied against P in causing significant loss to the investors may cause damage to P’s reputation and business.

68.  D1 also submits that P is connected with the New Investors and hence would not be sued by them.  D1 relies on the following connections in support:

(1)  Liu is the sole director and shareholder of AI International and Chunda.

(2)  P was indirectly owned by Liu through a BVI company called Tycoon Champ Limited (“Tycoon”) as at 22 November 2020.

(3)  P is a substantial shareholder (with 11.5%) of 1140.HK, of which Liu is the only executive director, the authorised representative and a substantial shareholder.

(4)  Between 7 April 2021 and 30 August 2022, P was the sole investment manager of 1140.HK.

69.  In its reply affirmation, P clarified that:

(1)  Liu had ceased to be a shareholder of Tycoon on 30 June 2022, and all 4 shareholders of Tycoon at present are independent.

(2)  P is only holding management shares of 1140.HK as part of its investments held through another fund.  This does not disclose any close connection between P and Liu.

(3)  P had ceased to be the investment manager of 1140.HK as of 30 August 2022.

70.  The veracity of P’s clarification is something which can be tested at trial.  Nevertheless, on the strength of P’s evidence adduced in the reply affirmation, I am prepared to accept that the possibility of the New Investors commencing proceedings against P is not a remote one.  My view is also fortified by the email dated 19 April 2023 by AI International to P in which AI International expressed concerns over the redemption of cash from the Subject Fund and intimated that it would preserve the rights to “report the case to regulatory authority or seek the legal means of safeguarding [its] rights”.

71.  On the other hand, I consider that the prejudice on D1 is minimal and damages would be adequate for it:

(1)  The granting of an interlocutory injunction is simply to maintain the status quo and defer the withdrawal of funds in fulfilment of the remaining portion of CVFH’s Redemption Requests.  As of now, CVFH has already redeemed 5 out of 8 of CVFH’s Redemption Requests.  In considering the need to preserve the status quo, I have also taken into account the events relating to the change of signatories of the Account and the making of the Impugned Transfers after such change.

(2)  There is at least a serious issue to be tried that D1 is simply required to abide by the terms of the Co-Management Agreement, which it voluntarily entered into.

(3)  It is unlikely that halting the redemption process would subject D1 to any claim or lawsuit from CVFH, which is D1’s associated company.

(4)  P has offered the cross-undertaking as to damages and P’s evidence in support of its financial position has not been challenged (albeit that D1 contends that its assets are more substantial than that of P).  Any loss suffered by D1 by the grant of an injunction can be adequately compensated by P.

72.  For these reasons, I am of the view that the balance of conveniences lies in favour of granting the interlocutory injunction.

73.  Subject to the discussions below on material non-disclosure, I would grant an interlocutory injunction in favour of P.

G.  MATERIAL NON-DISCLOSURE

74.  As set out in Section C above, the Summons was served on D1 after 4 pm on 7 November 2023.  Service of the Summons was deemed to have been effected on 8 November 2023, less than two clear days before the hearing before DHCJ Roxanne Ismail SC on 10 November 2023 (“10 November Hearing”).  At the hearing before me, it was accepted by P that the 10 November Hearing was an ex parte on notice hearing.

75.  I am conscious of the fact that the Summons and P’s supporting affirmation (“Chou 1^st”) were not filed and served on D1 with the duty of full and frank disclosure in mind.  I was also informed that D1 attended the 10 November Hearing by counsel.  Nevertheless, I agree with D1 that P had to bear the consequences of pressing for interim-interim relief at the 10 November Hearing rather than seeking an adjournment of the Summons to the next return date by which time the two clear day notice would have been given.  As a result, I consider that P was under a duty of full and frank disclosure in applying for the Interim-interim Injunction at the 10 November Hearing.

76.  I have borne in mind the following principles on assessing allegations of material non-disclosure (“MND”) which can be distilled from the authorities cited to me:

(1)  Material facts are the facts relevant to the weighing operation which the court has to make in deciding whether to grant the order.  The test is not whether, if the facts had been disclosed, the judge would still have made the order, but whether the facts not disclosed, being relevant, should have been in the scales: Xie Li Xin v Law Ka Yan, Thompson & Ors [2018] HKCFI 1096 at §52.

(2)  The plaintiff must identify any defences, which, although not yet taken, would have been available to be taken by the defendant had he been present at the application, provided that: (1) the defence is one which can reasonably be expected to be raised in due course by the defendant; and (2) the defence is not one which can be dismissed as without substance or importance: New Asia Energy Ltd v Concord Oil (Hong Kong) Ltd [2000] 2 HKC 681 at 686A-B.

(3)  Where the alleged subject matters of MND are hotly disputed by the plaintiff, the court should not and could not conduct a mini-trial to decide which party’s story is inherently more credible: Cheer Signal Development Ltd v Wong Siu Fan (unrep., HCA 780 of 2015, 26 October 2015) at §48.

(4)  It does not amount to a MND if an applicant fails to posit and canvas every conceivable argument which a creative respondent might conjure up in the face of a claim: Sky Motion Holdings Ltd v China Create Capital Ltd [2019] HKCFI 2408 at §88.

(5)  In view of the seriousness of an allegation of MND, adequate and clear notice of it must be given and full details provided of the non-disclosure or misrepresentation alleged: Elysium Ltd & Anr v Sun Ka Kuen Dominic & Ors [2023] HKCFI 612 at §94.

(6)  Matters which are essentially a defendant’s submissions and analysis of the law and/or evidence do not constitute the subject of non-disclosure: Elysium Ltd at §97.

77.  With these principles in mind, I will now address each of the alleged grounds of MND raised by D1.

G1. MND Ground 1

78.  MND Ground 1 relates to the “circumstances in which and the terms on which [P] was appointed a Co-Manager, and the [New Investors] subscribed to the Fund, in December 2020”.  In particular, D1 contends that P should have disclosed the fact that:

(1)  Up until December 2020, CVFH had been the sole investor upon payment of US$38M in cash, and D1 had been the sole manager of the Subject Fund.

(2)  The New Investors were fully aware that CVFH was the majority subscriber holding over 2/3 of the participating shares.  The New Investors were also fully aware of the additional restrictions on redemption rights as set out in the Side Letters (which did not apply to CVFH) and the difference in expiry date of the 3-year Lock-Up Period between CVFH and the New Investors.

79.  I do not agree that MND Ground 1 is made out. 

80.  In §13(3) of Chou 1^st, P referred to the timing, manner and extent of CVFH’s and the New Investors’ subscription to the Subject Fund.  In §14 of Chou 1^st, P also referred to the fact that the Subject Fund was initially set up by the China Vered Group.  The 3-year Lock-Up Period was also referred to in §§24 and 31(4) of Chou 1^st.

81.  Whilst the Side Letters were not disclosed in Chou 1^st, the point of the Side Letters is, on D1’s case, to support its interpretation that not all of the Redemption Requests made by the investors of the Subject Fund are subject to IC Approval and that only the Redemption Requests which are above the Redemption Threshold are subject to IC Approval. This interpretation advanced by D1 was mentioned in §2 of Annex A to P’s skeleton for the 10 November Hearing (“Annex A”).  Accordingly, I consider that the non-disclosure of the Side Letters is not material.

G2. MND Ground 2

82.  MND Ground 2 concerns D1’s interpretation of Clause 5.2(a) of the Co-Management Agreement and the arguments in support thereof.

83.  I do not consider that there is any MND under this ground.  As mentioned, D1’s interpretation of Clause 5.2(a) was mentioned in §2 of Annex A.  In addition, D1’s reliance on the Supplement was also addressed in §§5-6 of Annex A.

G3. MND Ground 3

84.  MND Ground 3 concerns P’s alleged failure to raise any breach of Clause 5.2(a) or the need for IC Approval for payments not exceeding the Redemption Threshold for 8 months (since March 2023) before the issuance of the Summons.

85.  I am not satisfied that MND Ground 3 is made out.  In §31(2) of Chou 1^st, P referred to its concern at the time of March 2023 that IC Approval was not sought with regard to the first of CVFH’s Redemption Requests in breach of the Co-Management Agreement.  Whilst Clause 5.2(a) itself was not referred to in this paragraph, it is clear that P objected to the first Redemption Request with reference to a breach of the Co-Management Agreement.

86.  I am also of the view that P’s subjective intention in March 2023 on the effect of Clause 5.2(a) of the Co-Management Agreement is neither relevant nor material to the issue of contractual interpretation.    

87.  Insofar as the 8-month lapse is concerned, I am satisfied that P has sufficiently addressed this in §53 of Chou 1^st.

G4. MND Ground 4

88.  Under MND Ground 4, D1 pointed to the fact that the Impugned Transfers were effected by D2 (and not by D1) and that the assets in the Account were owned by D2 (and not by D1).  D1’s complaint is that §42(2) of Chou 1^st was misleading.

89.  My reading of §42(2) of Chou 1^st is that it was not part of P’s case that D1 owned the assets in the Account.  P’s case is simply that D1 “caused” the Impugned Transfers on the basis that D1’s representatives, as signatories of the Account, approved the Impugned Transfers.  As such, I do not consider that there is any MND as alleged.

G5. MND Ground 5

90.  MND Ground 5 relates to the “circumstances concerning the change of [D2]’s bank account signatories”.

91.  I agree with P’s submission that this MND ground is wholly unparticularised and that P cannot be expected to meaningfully respond to the same.

92.  In any event. I am unable to accept that there was any MND.  It is D1’s own evidence that it had requested D2 to change the account signatories of the Account so as to “minimise the ongoing obstructions to the operation of the Fund”.  The request was also documented by a letter (not copied to P) dated 3 May 2023 from D1 to D2.  The evidence therefore suggests that whilst it was technically D2 who changed the authorised signatories of the Account, the change originated from the request from D1.  I further note that P disclosed D2’s board resolution approving the change of authorised signatories of the Account in §42(2) of Chou 1^st.  In the light of these pieces of evidence, I do not consider that §§42(1) and 44 of Chou 1^st are “wrong and misleading” as alleged by D1.      

G6. MND Ground 6

93.  MND Ground 6 relates to the “ownership and source of funds of YESCOM, its association with [P] and Liu, and the due diligence process for YESCOM”.

94.  I am not satisfied that there is any MND under this Ground.

95.  The reference to YESCOM (which is an abbreviation for YESCOM Development Company Limited) in §40 of Chou 1^st is in the context of P setting out its attempt to find other potential purchasers for the assets of the Subject Fund in order to properly fulfil CVFH’s Redemption Requests without jeopardising the liquidity of the Subject Fund.  It is plainly not a material matter for the purposes of the Summons.  This is evident by the fact that D1 did not make any reference to YESCOM in addressing either serious issue to be tried or balance of convenience in both its written or oral submissions.

96.  Further, the ownership and source of funds of YESCOM and/or its association with P and Liu are hotly disputed matters between P and D1.  Such matters cannot form the subject of MND.

G7. MND Ground 7

97.  MND Ground 7 concerns the lack of irreparable harm to P.  In particular, D1 refers to (a) the lack of non-economic or any loss to the investors; (b) the indemnity provided to P under Clause 13.3 of the Co-Management Agreement; and (c) D1’s substantial financial assets available to meet any award of damages in favour of P.

98.  I am not satisfied that there is any MND under this Ground.

(1)  In §54(2) of Chou 1^st, P referred to (a) the possibility that it may be subject to claims from other third party investors and (b) the losses suffered by the investors by the depletion of assets from the Subject Fund.  The mere fact that D1 disputes P’s position in this regard does not mean that there is any MND.

(2)  Whilst Clause 13.3 of the Co-Management Agreement is not specifically mentioned in Chou 1^st, this clause only addresses the issue of indemnification afterwards, but does not address P’s contention that it may be subject to claims by the New Investors in the first place, which was the point addressed in 54(2) of Chou 1^st.  I am of the view that the indemnification provision in Clause 13.3 is not a line of defence which, at the time of the 10 November Hearing, could reasonably be expected to be raised by D1.

(3)  Finally, in relation to D1’s substantial financial assets, P never suggested in Chou 1^st that D1 would be unable to financially compensate P for its losses.  On the contrary, D1’s status as a licensed entity and part of the China Vered Group was disclosed in §§8(2) and 8(4) of Chou 1^st. 

G8. MND Ground 8

99.  MND Ground 8 relates to D1’s position that this is not a case of breach of a negative or restrictive covenant and that it is incorrect for P to state in §54(4) of Chou 1^st that an interlocutory injunction to restrain a breach of negative covenant should be “readily granted”.

100.  In my view, the need to potentially resolve the legal issue of whether an interlocutory injunction ought to be “readily granted” in a case involving breach of a negative covenant was not apparent until the day of the hearing before me when I received a supplemental note from D1.  I do not consider that P could fairly be criticised for not anticipating this line of legal argument at the time of the 10 November Hearing.

101.  Further, irrespective of whether an interlocutory injunction should be “readily granted” to restrain a breach of negative covenant, P did go on to address the issue of balance of convenience in other parts of §54 of Chou 1^st.

G9. Conclusion on MND

102.  In light of the above, I am of the view that none of the MND grounds is established.

103.  Even if I am wrong on the analysis of the MND, I am in any event minded to exercise my discretion to regrant the interlocutory injunction, having regard to the existence of a serious issue to be tried and the balance of convenience in favour of granting the injunction.  In the exercise of my discretion, I would also have taken into account the fact that (a) the 10 November Hearing was an ex parte on notice hearing; (b) D1 attended the hearing by counsel and had an opportunity to address DHCJ Ismail SC on the appropriateness of the Interim-interim Injunction; and (c) in the circumstances of this case, the duty of full and frank disclosure only arose by reason of the fact that the service of the Summons and Chou 1^st on D1 was late by around two hours on 7 November 2023.

H.  DISPOSITION

104.  For the above reasons, I grant an order in terms of §1 of the Summons.

105.  As to costs, I see no reason why costs should not follow the event.  I make an order nisi that costs of the Summons be paid by D1 to P with certificate for two counsel, such costs to be taxed if not agreed.  The costs order nisi shall become absolute 14 days after the date of handing down of this decision.

106.  I thank Counsel for their assistance.