Zhi Charles v. Kim Young Jun and Others

HCA 2983/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2983 OF 2015

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D E C I S I O N

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1.I have before me a summons dated 15 March 2015 taken out by the plaintiff for an interlocutory injunction against the 2^nd defendant. Although the 2^nd defendant has not yet filed any evidence, Mr Cheung, counsel, has appeared on its behalf this morning before me and asked me to dismiss the plaintiff’s application since it was, in his submission, entirely misconceived. The 7^th defendant has appeared before me by solicitors, adopting a neutral stance to the plaintiff’s application.

2.The writ of summons with a statement of claim endorsed was issued in this case on 16 December 2015.  So far as relevant, it seems to be alleged that there was an illicit scheme operated by the 1^st defendant to channel funds wrongfully obtained to the 7^th defendant which is a listed company in Hong Kong.

3.In particular, it is said that the 1^st defendant procured the 4^th, 5^th and 6^th defendants, which are all listed companies in Korea, to lend money to the 3^rd defendant, a Korean company said to be 51% owned by the 4^th defendant.  The 3rd defendant would then inject the money into its own wholly owned subsidiary, the 2^nd defendant.  The 2^nd defendant would then lend the money to the 7^th defendant.

4.It is said that these loans to the 7^th defendant, called “Pioneer loans” because of the name of the 2^nd defendant, were a money laundering activity and harmful to the 4^th, 5^th and 6^th defendants.

5.The evidence for all this, at this stage, is simply an indictment against the 1^st defendant in Korea, an English translation of which has been placed before me as an exhibit (“CZ-2”) to the plaintiff’s affirmation.

6.I have serious doubt over the evidential value of a foreign indictment, which is yet to be tried and proved.  But, in any event, just pausing here, I do not see how this in itself gives rise to a cause for complaint for the plaintiff either for himself or on behalf of the 7^th defendant.  If anything, the proper complainant about the loans should be the 4^th, 5^th and 6^th defendants.

7.Anyhow, on 1 December 2015, the 7^th defendant entered into certain loan capitalisation agreements with a number of its creditors, including the 2^nd defendant.  Under the agreement with the 2^nd defendant, the 7^th defendant would issue a maximum of 162,505,317 new shares to the 2^nd defendant to capitalise the Pioneer loans.

8.The relevant public announcement, which is dated 1 December 2015, made clear that the completion of the loan capitalisation exercise would be subject to shareholders’ approval, and in respect of certain creditors, subject to approval by independent shareholders, at an extraordinary general meeting of the 7^th defendant to be held.  The original long-stop date for the capitalisation exercise was 29 February 2016, but I have been told that it has since been extended to August 2016.  No circular has yet been despatched to the shareholders and no date has been fixed for the EGM.

9.The plaintiff complains that the capitalisation of the Pioneer loans would be prejudicial to the independent shareholders of the 7^th defendant because it is said the 2^nd defendant was connected to the 1^st defendant and the 1^st defendant was a connected person with the 7^th defendant.  It is said that the loans were ultra vires and illegal.

10.On 14 March 2016, the plaintiff issued a summons pursuant to Order 14 of the Rules of the High Court for summary judgment against the 2^nd defendant that the 2^nd defendant should forfeit all of its loans made to the 7^th defendant. 

11.On 15 March 2016, the plaintiff issued the summons, which is now before me, seeking:

“An injunction order for the 2nd defendant be restrained from taking any steps, whatsoever to sell, in any direct or indirect manner, alter the form of its “Pioneer Loans,” and continue to be involved or engaged in any discussions or agreements with any party about possible transaction relating to its Pioneer Loans, until the Summary Judgment has been made by the Court.”

12.It is difficult to understand the basis of the plaintiff’s application for injunction.  There is no dispute by the plaintiff that the loans were, in fact, made to the 7^th defendant, which had received actual funds.  The loans, as such, are therefore the private property in the form of choses in action of the 2^nd defendant.  The plaintiff is not in any relationship that is relevant to this application with the 2^nd defendant.  It is difficult, therefore, to see on what basis he can seek to restrain the 2^nd defendant from dealing with or disposing of its own private property.

13.The plaintiff says that the loans should not be capitalised when they are the subject of criminal investigation in Korea, but the fact is that plaintiff is not the criminal authority of Korea, nor does he represent the 4^th, 5^th and 6^th defendants.  

14.So far as the 7^th defendant is concerned, of which the plaintiff is a shareholder, the plaintiff says he is concerned to ensure that the 7^th defendant should not involve itself in illegal money laundering activities.  But it is clear that the loan capitalisation exercise, if it proceeds, will be subject to advice from independent financial advisors in the case of certain connected creditors and will be subject to shareholders’ approval at the EGM to be held.  How the company should conduct itself in the light of the allegations made by the plaintiff seems to me to be a matter for the shareholders in general meeting.  The exercise, as announced, would also be subject to the approval of the Listing Committee of the Stock Exchange in granting listing of and permission to deal in the capitalisation shares. As such, I fail to see any basis for the plaintiff, at this stage and on the basis of his allegations based simply on an indictment in Korea, to pre-empt the ordinary decision-making process in relation to the corporate affairs of the 7^th defendant.

15.In the plaintiff’s affirmation, at paragraph 41, it is said that if the Pioneer loans are not restrained but allowed to be sold or altered in any way then,

“… the problematic loans with all the money laundering implications would be exonerated. The evidence would be shredded.”

I do not think the proposed capitalisation exercise would have that effect.  What has happened has happened.  No evidence will be destroyed by the capitalisation exercise or by any other transactions that the plaintiff seeks to restrain in relation to the Pioneer loans. 

16.I am also not satisfied that the plaintiff would be able to meet an order for damages consequent, potentially, on the usual cross‑undertaking as to damages that would be needed for an interlocutory injunction.

17.As I see it, therefore, the injunction application has no prospect of success and should be dismissed.  As far as I am concerned, I think I am doing the plaintiff a service in dismissing it now, for otherwise, as it seems to me, all that would happen is that more evidence will be filed, more elaborate arguments will be made, longer hearings will be needed, resulting in more costs incurred.

18.The summons is therefore dismissed.  It will be dismissed with costs to the 2^nd defendant against the plaintiff, to be taxed forthwith if not agreed.

The plaintiff, appeared in person

Mr Anthony P W Cheung, instructed by Benjamin Au & Billy Chan, for the 2^nd defendant

Mr Robert Chan, of Baker & McKenzie, for the 7^th defendant