Zhi Charles v. Kim Young Jun and Others

HCA 2494/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2494 OF 2015

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DECISION
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This interlocutory injunction application

1.This is the plaintiff’s application for interlocutory injunction orders.  Details of the relief sought will be discussed below.

2.The plaintiff is no stranger to these courts. In the period from June 2014 to August 2015, he has (in his own name or the names of others) commenced no less than 6 High Court proceedings (HCCW 282/2014, HCA 1151/2014, HCA 2247/2014, HCA 160/2015, HCA 1821/2015 and HCA 1880/2015).  Some 6 written decisions were handed down in these proceedings, which concerned defendants who were defendants in all or some of these proceedings (including this action) (and were said to be connected to one another).

3.The subject-matter which featured in almost all of the above proceedings were:

(a) certain convertible notes (“the above CNs”) issued by the 6^th defendant (“Siberian Mining Group”), which was incorporated in the Cayman Islands but publicly listed on the Hong Kong Stock Exchange;

(b) certain promissory notes which replaced some of the above CNs.

Judging from the contents of the earlier decisions, it appears that the said instruments were to pay for the price for the acquisition of a coal mine in Russia by Siberian Mining Group.

4.In one of the above proceedings, the petitioner therein (represented by the plaintiff at the hearing) claimed to be the pledgee of one of the above promissory notes (based on which he petitioned (unsuccessfully) for the winding up of Siberian Mining Group).

5.In some other of the above proceedings, the plaintiff alleged that:

(1) he had been a shareholder of Siberian Mining Group;

(2) he was promised the sum of US$8 million by or on behalf of Siberian Mining Group (but the sum was never paid);

(3) the coal mine acquisition was a fraudulent scheme, and a disguised reverse-takeover of Siberian Mining Group by certain individuals;

(4) the majority shareholders of Siberian Mining Company have committed fraud on the minority shareholders (including him) in that:

(a) the board of directors wrongly misled investors by publishing a defective and deficient technical report about the Russian coal mine (the mine was said to be worthless);

(b) the coal mine acquisition was in truth a dilution of shareholders’ interest;

(c) the majority in control caused Siberian Mining Group to shoulder up a substantial debt (the proceeding (which was in the nature of a derivative action) was struck out).

6.Undeterred by the earlier experience, the plaintiff commenced this action in October 2015.  The indorsement of claim (no statement of claim has been filed yet) seeks various relief.

7.Further, the plaintiff has taken out a summons dated 27 October 2015 which seeks the following interlocutory injunction orders against Siberian Mining Group; namely, that it be restrained from:

(a) using or relying on a loan facility agreement for the purpose of resolving the going concern issue in the audit reports;

(b) discussing or pursuing the whitewash waiver for recapitalization of its debts and the replacement of a convertible note, or any other restructuring of its debts.

8.In his affirmation filed in support of the above summons, the plaintiff explains that:

(1) this action (and presumably this application) has been commenced as (a) a personal action, in his capacity as a shareholder, and (b) as a representative action, suing for himself and other shareholders;

(2) he is not alleging fraud against the defendants, but only that there has been ultra vires acts (presumably acts on the defendants’ part).

9.The supporting affirmations have not given the factual particulars concerning:

(a) the loan facility agreement referred to in para 7(a) above;

(b) the whitewash waiver for recapitalization of debts referred to in para 7(b) above.

10.The plaintiff’s skeleton submissions allege that the amount of loan facility agreement was HK$400 million and was extended by the 2^nd defendant to Siberian Mining Group.  Para 2 of the skeleton submissions say:

“Not relying on D2’s Loan Facility cannot have any prejudice on [Siberian Mining Group]’s normal business operation when it was never able to use the Loan Facility anyway”.

11.The plaintiff clarified at the hearing that the order sought at para 7(a) above is intended to restrain the audit reports of Siberian Mining Group from referring to, or making use of, the above loan facility for the purpose stated in para 7(a) above.

12.The skeleton submissions appear to be saying that the convertible note referred to in para 7(b) above was one of the above CNs referred to some of the above proceedings (see para 3(a) above).  The plaintiff states in his skeleton submissions that the restructuring has been relied upon by the 1^st defendant in his criminal proceedings in Korea.

13.None of the above documents has explained:

(1) the cause(s) of action based on which this action was commenced; more importantly for the purpose of this application, the cause(s) of action based on which this application is made;

(2) in what way the matters set out in para 7, 11 and 12 above have caused him (or other shareholders having an interest common to his) loss and damage.

When the plaintiff was asked of the above, he was unable to give an explanation verbally either.

14.Siberian Mining Group also complains (principally) of the lack of a discernible cause of action.  Further, it argues that any impropriety concerning the debt restructuring of a listed company which requires the approval of the Securities and Futures Commission (“SFC”) is a matter for the SFC rather than for the individual shareholders (who can avoid any loss which may arise out of the restructuring by disposing of their shares in the stock market anyway). The vires of a loan facility of a listed company is also no concern of the individual shareholders.

15.I agree with the above arguments.  In addition, matters such as the compilation of audit reports and the restructuring of company debts are, in the absence of some special circumstances, more matters pertaining to the operation and management of a company, and hence more a matter for its directors and managers, and as such are not matters for shareholders.

Conclusion

16.For the above reasons, this application is dismissed.

Costs order

17.Siberian Mining Group accepts that costs should follow the event whereas the plaintiff expresses no objection to this.  There will accordingly be a costs order that the costs of this application be paid by the plaintiff to Siberian Mining Group.

18.I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:

(a) Siberian Mining Group be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(b) the plaintiff be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.

The plaintiff appeared in person

Mr Eugene Kwok, instructed by Baker & McKenzie, for the 6^th defendant