Sinom Investments Ltd v. Ccmd Overseas Ltd and Another

HCCT 43/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION LIST

No. 43 of 2015

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JUDGMENT

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1.This is an application by way of originating summons for injunctive relief against the 1^st Defendant, CCMD Overseas Limited (“CCMD Overseas”), in aid of arbitration proceedings which have been commenced in Hong Kong pursuant to s 45 of the Arbitration Ordinance (Cap 609)(“AO”) and RHC O 73 r 1.

Background

2.CCMD Overseas is a wholly-owned subsidiary of Chongqing Chonggang Minerals Development Investment Limited (“CCMD Investment”), a state-owned enterprise which is a substantial player in the iron and steel industry.  It is under the supervision of Chongqing City State Assets Supervision and Administration Commission (“Chongqing SASAC”).

3.The 2^nd Defendant, Asia Iron Holdings Limited (“AIHL”), is an unlisted private company which through its subsidiaries holds various iron ore mining recourses in Western Australia.  Prior to 2010, its sole shareholder was the Plaintiff, Sinom Investments Limited (“Sinom”), which director and ultimate beneficial owner is Mr Zhang Chi (“Mr Zhang”).

4.In November 2009, negotiations between CCMD Investment and Mr Zhang resulted in the signing of a document known as “Heads of Terms” whereby CCMD Overseas[1] agreed in principle to subscribe for 60% shares in AIHL for AUD$280,000,000.  The parties did not have any dealings previously.  At all times both sides were legally represented.

5.Thereafter on 11 May 2010, CCMD Overseas and Sinom entered into a share subscription agreement to subscribe for 265,800,000 shares in AIHL (equivalent to 60% in the enlarged share capital of AIHL) for a subscription price of AUD280,000,000 (“Share Subscription Agreement”).

6.Completion of the Share Subscription Agreement took place on 17 September 2010, on which date the following agreements, inter alia, were entered into:

(i) a shareholders agreement between CCMD Overseas, Sinom and AIHL (“the Shareholders Agreement”);

(ii) a loan agreement for USD159,035,000 between Sinom as borrower and CCMD Overseas as lender (“the Loan Agreement”);

(iii) the share charge (“the Share Charge”) over Sinom’s 40% shareholding in AIHL, between Sinom as chargor and CCMD Overseas as chargee, together with various instruments of transfer, bought and sold notes, letters of authority and letters of resignation all signed in blank by Sinom; and

(iv) a personal guarantee given by Mr Zhang as guarantor to CCMD Overseas as lender in respect of all obligations of Sinom under the Loan Agreement and the Share Charge.

7.The Share Subscription Agreement and the Shareholders Agreement provide that:

(i) the objectives of AIHL are, inter alia, to, through AIHL and its subsidiaries, develop and exploit the mining resources held by AIHL’s subsidiaries, and develop and carry on the magnetite mining project (“the Project”);

(ii) the agreed capital expenditure of AIHL (“the Agreed Capital Expenditure”) would be USD2,000,000,000, which was an estimated sum subsequently revised to USD3,000,000,000;

(iii) 70% of the Agreed Capital Expenditure was to be financed by way of a “domestic loan” from a major domestic Chinese bank (“the Domestic Loan”), which, apart from a written expression of interest which must be secured by CCMD Overseas, both Sinom and CCMD Overseas have equal obligations to act in good faith and to use reasonable endeavours to procure (“the Financial Procurement Obligation”);

(iv) of the remaining 30% of the Agreed Capital Expenditure (i.e. USD600,000,000), Sinom would have to contribute USD240,000,000 by way of shareholder’s loans, and CCMD Overseas would be responsible for USD360,000,000, in accordance with their respective shareholding percentages.  These payments are to be paid not in one lump sum but through capital calls to be made by AIHL from time to time;

(v) however, in respect of Sinom’s share (USD240,000,000), Sinom has the option to require CCMD Overseas to pay half thereof.  The effect of this would be, instead of being responsible for 60% of the shareholders’ contribution, CCMD Overseas would have to pay 80%, and Sinom would only have to pay USD120,000,000.  The 20% paid for by CCMD Overseas on Sinom’s behalf, which was referred to as the “Specified Capital Call Loan”, would only have to be repaid by Sinom to CCMD Overseas at the earlier of 5 years after completion or the date of delivery of the first shipment of the products from the iron ore mines; and

(vi) dispute between the parties relating to the Shareholders Agreement is to be referred to arbitration for determination.

8.At the same time, a loan of USD159,035,000 (equivalent to AUD170,000,000)(“the Loan”) was advanced by CCMD Overseas to Sinom pursuant to the Loan Agreement.  The Loan:

(i) is equivalent to the additional consideration for 20% shareholding in AIHL which CCMD Overseas had wanted to acquire but which Sinom did not permit CCMD Overseas to subscribe;

(ii) is only required to be repaid at the earlier of: (a) 6 months from the date of delivery of the first commercial shipment of the products from the Project; and (b) 17 June 2015 (“the Repayment Date”)[2]; and

(iii) is not subject to any restriction as to its use.

9.The Loan is different from the Specified Capital Call Loan as referred to in the Shareholders Agreement.  There is no restriction as to its use.  In §16 of Mr Zhang’s 1^st Affirmation, he accepts that the Loan had been applied towards discharging Sinom’s other indebtedness. One should also note that Sinom’s then “existing indebtedness” did not include its obligation to repay a loan known as “AMB-AMRO  Facility” as defined in the Share Subscription Agreement which was discharged by the subscription price payable to AIHL.[3] There is also no arbitration clause in the Loan Agreement.

10.After the completion of the share subscription, the parties encountered difficulty in obtaining the Domestic Loan.  The documents produced by the parties show that:

(i) CCMD Overseas had procured an expression of interest from the Export-Import Bank of China which was extended on 25 July 2011.  This proposed loan did not materialise, but Sinom did not take issue with the same as Sinom’s preferred lender at that time was China Development Bank (“CDB”);

(ii) in the discussion with CDB on the Domestic Loan:

(a) CDB requested guarantees to be procured from third parties including the indirect parent company of CCMD Overseas and guarantees arranged by Chongqing SASAC;

(b) there was delay in the appointment of the financial advisor as Sinom opposed the financial advisor nominated by CDB in respect of the Domestic Loan;

(c) CBD revised its loan-vetting policy after the free-fall in the commodity price of iron since the last quarter of 2013, and AIHL was not able to satisfy the 150% debt service coverage ratio imposed by CDB in light of the changing market circumstances; and

(d) though disputed by Sinom, the minutes of the meetings on 28 November 2013 and 10 December 2014 show that Sinom by that time opposed the continued development of the mines under the Project because the fluctuation in the commodity price of iron would expose the shareholders to significant financial risks.

11.AIHL has to date not been able to obtain the Domestic Loan and the Project has yet commenced production.

12.Meanwhile, notwithstanding the receipt of the Loan, Sinom appeared to be in financial difficulties.  First, Sinom has only advanced no more than USD30,000,000 (in money-of-the-day value) to AIHL by way of shareholder’s loans.  Second, in response to CDB’s suggestion in December 2014 of increasing the shareholders’ contribution to 50% hence reducing the amount of the Domestic Loan, Sinom’s response was that it was unable to contribute such amount.  Third, Sinom failed to pay the June to September 2015 cash calls by way of shareholder’s loan, though there is dispute between the parties as to whether Sinom had expressly agreed to the cash calls.  Fourth, Sinom failed to repay the Loan on the Repayment Date.

13.Up to now, CCMD Overseas has injected considerable amounts into AIHL, including the payment of the subscription price of AUD280,000,000 plus close to 80% of all the capital calls by way of shareholder’s loans over the years.  On the other hand, Sinom has only paid no more than USD30,000,000 by way of shareholder’s loans and is in default of the cash calls.

14.CCMD Overseas made the demand for the repayment of the Loan after the Repayment Date.  By way of response, Sinom claimed that it sought to lodge a claim against CCMD Overseas on unfair prejudice grounds.  CCMD Overseas through its solicitors replied on 24 September 2015 refuting Sinom’s complaints.  Further, CCMD Overseas made an offer (“the Offer”) that, without admitting Sinom’s complaints, the parties would resolve their dispute by submitting to arbitration and unfair prejudice petition proceedings on the premise that: (i) all of Sinom’s unfair prejudice complaints would be determined therein; (ii) there would be an independent valuation of Sinom’s 40% shares subject to the Share Charge; (iii) such valuation would reflect any findings to be made in respect of Sinom’s unfair prejudice allegations; and (iv) CCMD Overseas would waive any objection to “reflective loss” under s 725(5) of the Companies Ordinance (Cap 622)(“CO”).  However, Sinom did not accept the Offer and made the present application, including issuing both the Originating Summons and the relevant inter parte summons, applying for injunctive relief in aid of arbitration preventing CCMD Overseas from enforcing the security under the Share Charge.

15.The application came before Au-Yeung J on 16 October 2015.  The court gave directions for the filing of evidence for the substantive hearing.  CCMD Overseas also gave an undertaking not to enforce the Share Charge pending the determination of Sinom’s application.

16.About 4 months after the call over hearing on 23 February 2016, Sinom eventually commenced arbitration proceedings against CCMD Overseas claiming for unfair prejudice relief in respect of its dealings under the Shareholders Agreement.

17.Sinom has also joined AIHL in the present proceedings as an interested party.   AIHL is absent in the substantive hearing. It appears that it is taking a neutral stance in respect of Sinom’s application.

18.In the substantive hearing, CCMD Overseas sought leave to file the 2nd Affirmation of Mr Guo De Yong (“Mr Guo”) to oppose the application. According to CCMD Overseas, Sinom had raised some new allegations in the reply affirmation which necessitates the filing of further rebuttal evidence.  However, as Sinom should have the last words in support of the application, the granting of such leave may result in adjournment of the hearing.  In addition, the further evidence sought to be adduced relates to the background as to why AIHL was not able to obtain the Domestic Loan from the banks.  As the court should not make any findings of fact at this interlocutory stage, such new evidence in the 2^nd Affirmation of Mr Guo does not take CCMD Overseas’ case any further.  Hence, I do not allow CCMD Overseas to rely on the evidence, but I would proceed on the basis that CCMD Overseas is taking issue with the latest allegations contained in Mr Zhang’s 2^nd Affirmation.

Legal principles for application of injunction in aid of arbitration proceedings

19.An application under s 45 of AO for the grant of an injunction in aid of arbitration proceedings in Hong Kong involves the same principles applicable for grant of an interlocutory injunction pending the resolution of any other civil disputes.[4] In other words, the court will examine whether there is a serious issue to be tried between the parties, and where the balance of convenience lies.  In Hengshi International Investments Ltd v Bayspring International Ltd[5], Au-Yeung J held that the burden of showing a serious issue to be tried is not “a very steep hurdle”.  In the interlocutory stage, the principal concern of the court is that it may make a wrong decision in the sense that after trial, the party to whom an interlocutory injunction has been granted may lose, or the party who has been refused one may win.  The court would therefore take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong.

Serious issue to be tried

20.There is no dispute that Sinom was in default of the repayment of the Loan[6], and so CCMD Overseas is legally entitled under the terms in the Loan Agreement and the Shares Charge to enforce the security over Sinom’s shares in AIHL.  The issue here is whether equity should intervene to prevent CCMD Overseas from enforcing the Share Charge in view of the unfair prejudice complaints relating to the running of AIHL.

21.According to Sinom, the purpose of setting the repayment date in the manner described above is that the parties expected the Project would have commenced production within 5 years.  It was anticipated that, upon AIHL being properly financed by the Domestic Loan and the Project having commenced production, Sinom would have been in a position to make repayment under the Loan Agreement through refinancing the Loan from third parties on more favourable terms.  However, since CCMD Overseas failed to fulfil its Financial Procurement Obligation, AIHL has not been able to obtain the Domestic Loan to finance the Project.  As the mining operation has yet commenced production, Sinom is unable to refinance the Loan or to obtain any other funding to repay the Loan.  It is Sinom’s case that such breach of the Financial Procurement Obligation amounts to unfair prejudice, and it would be inequitable to allow CCMD Overseas to enforce the Share Charge under such circumstances.

22.Sinom also alleges that the enforcement of the Share Charge is a further act of unfair prejudice against it as a minority shareholder of AIHL.  According to Sinom’s case, CCMD Overseas is effectively taking advantage of its own wrongful conduct to permanently stifle Sinom’s complaint on the Financial Procurement Obligation.  If CCMD Overseas is free to enforce the Share Charge, it could have deliberately sabotaged the Project by not fulfilling its Financial Procurement Obligation, then using the Share Charge to take Sinom’s 40% shareholding in AIHL to stifle any potential unfair prejudice complaint by Sinom, allowing CCMD Overseas to effectively seize AIHL and the iron ore mining resources it owns through the backdoor without fear of any repercussions.  Mr Sussex SC, counsel for Sinom, therefore submits that there is at least a serious issue to be tried between the parties as to whether CCMD Overseas should be allowed to exercise its rights under the Share Charge.

23.Both parties have given different versions as to why the banks, in particular CDB, had not agreed to advance the Domestic Loan to AIHL.  Sinom tries to lay the blame on CCMD Overseas[7], but the later claims that it was actually Sinom which created all the hurdles for the granting of the Domestic Loan.  Further, the fluctuation in the market and the free-fall in the commodity price of iron in the international market in recent years also discouraged banks such as CBD in granting the Domestic Loan to AIHL. 

24.It is not appropriate for me to make any factual findings at this interlocutory stage.  However, there is no serious dispute that there has been a significant drop in the price of iron in the commodity market after CCMD Overseas acquired the shares in AIHL.  Further, whether to advance a loan of such substantial amount to a mining business would certainly involve a lot of complicated commercial and other considerations.  Hence there might be a lot of reasons to explain why financial institutions such as CDB would have required harsher terms for advancement of the Domestic Loan or even simply refused to advance the Domestic Loan for the Project.  In addition, having invested heavily in the Project, I cannot see the commercial sense as to why CCMD Overseas would like to delay the operation of the mining business.  Despite these preliminary observations, I agree with Mr Sussex that the burden in establishing serious issue to be tried is not a steep one.  For the purpose of this application, I am prepared to accept that there is some factual basis to support the complaint that CCMD Overseas had failed to fulfil its Financial Procurement Obligation.

25.Despite such observations, it does not mean that equity should intervene to prevent CCMD Overseas from enforcing the Share Charge.  One must bear in mind that there was no restriction on Sinom as to the use of the Loan, and so there is no direct link between the object of the Loan and the operation of the joint venture business.  More importantly, after elaborate negotiations, the parties have expressly agreed a date for the repayment of the Loan irrespective of whether AIHL had made the first shipment of iron under the Project.  In such circumstances, there is little room for intervention by the court.

26.The Loan Agreement clearly provides that the Loan has to be repaid within 6 months of the first commercial shipment of the products under the Project, and in any event not later than the Repayment Date (i.e. 17 June 2015).  The provision of the Repayment Date in the Loan Agreement is important.  It provides that Sinom would have to repay the Loan even if the Project has not come into operation.  In fact, there may be a lot of possible reasons for the delay in the first shipment of iron, some of which may be beyond the control or not due to the fault of either party, and yet it was the clear intention of the parties that Sinom had to repay the Loan not later than the Repayment Date.

27.The provision of an independent Repayment Date in the Loan Agreement clearly indicates that the parties did not intend to link the repayment of the Loan with the operation of the joint venture business.  If that was the intention of the parties, why should equity intervene to prevent CCMD Overseas from enforcing the security for the Loan?  In particular, from the contents of the written agreements made by the parties, the joint venture business was formed by a group of highly sophisticated and experienced business people with a view to purchasing a valuable asset running into billions of dollars, with little prior relationship between them, and with a detailed Shareholders Agreement negotiated and drafted containing lengthy and complex provisions governing their relations with each other and with AIHL.[8]  If the court were to intervene, I agree with Mr Mok SC, counsel for CCMD Overseas, that the court is in effect rewriting the agreements between the parties.

28.No matter what was the cause for the delay in the commencement of the mining operation, Sinom knew full well that it had to repay the Loan before the Repayment Date.  Hence in my judgment, there is no unfairness if the court allows CCMD Overseas to enforce the security for the Loan.  After all, that was what Sinom agreed under the Loan Agreement.

29.On the other hand, if, according to the allegation of Sinom, it was the understanding of the parties that Sinom would use the dividend from the mining business to pay off or refinance the Loan, then I would expect the parties to specify clearly that the Loan would only have to be repaid, say, 6 months after the first shipment of the iron under the Project. As I see it, the express provision of an independent Repayment Date is to cater for the repayment of the Loan even, for whatever reasons, the mining operation had not taken off ground.  Under the express arrangement agreed by the parties, the position of CCMD Overseas is no different from other financial institution providing an independent loan to Sinom, and so there is no room for intervention by the court insofar as the enforcement of the Loan and the Share Charge is concerned.

30.The dicta of David Richards J in Re Coroin Ltd[9] is also relevant here:

“The purpose of the jurisdiction [relating to unfairly prejudice conduct] is to provide remedies in respect of the way in which the affairs of the company ate conducted. It was perceived prior to the enactment of section 75 of the Companies Act 1980 that there was insufficient protection to shareholders in that respect. The section is not directed to the activities of shareholders amongst themselves, unless those activities translate into acts or missions of the company or the conduct of its affairs. Relations between shareholders inter se are adequately governed by the law of contact and tort, including where appropriate the ability to enforce personal rights conferred by a company’s article of association. This important distinction has been emphasised in many of the authorities. ... ... ...”

31.As there was no restriction about the use of the Loan and the parties had expressly agreed for an independent Repayment Date, the provision of the Loan can only be regarded as an activity between the shareholders themselves and cannot be translated into an activity relating to the conduct of the affairs of AIHL.

32.Sinom complains that CCMD Overseas could have deliberately sabotaged the Project by not fulfilling the Financial Procurement Obligation, waiting for the default in the repayment of the Loan and enforcing the Share Charge to obtain Sinom’s shares in AIHL.  However, the reverse may also happen.  It may be possible, as shown in the documentary evidence, that Sinom seeks to delay the operation of the Project because of the falling iron prices.  Sinom could deliberately sabotage the granting of the Domestic Loan by insisting on certain unrealistic terms in the Domestic Loan agreement.  In the meantime, Sinom had already obtained the Loan to discharge its other indebtedness and it could delay the making of the cash calls, whilst CCMD Overseas had paid substantial amounts for the acquisition of the shares and the cash calls.  If that was the case, it would be equally unfair to disallow CCMD Overseas from enforcing the Share Charge, as such delay may affect the value of the security.

33.I am not saying that Sinom has deliberately sabotaged the Project.  I just want to emphasise that there might be a lot of reasons for the parties to agree on the terms as contained in the Shareholders Agreement and the Loan Agreement.  In a complicated commercial transaction where the parties had negotiated in length about their rights and obligations, the court should be cautious in not disturbing the agreement made by the parties themselves.

34.For the same reasons, the court should not imply any term in the Loan Agreement to the effect that CCMD Overseas is not allowed to exercise the rights under the Share Charge in circumstances or in a manner which would stifle or circumvent the proper resolution of disputes arising out of the Shareholders Agreement.[10] Such implied term would be inconsistent with the express term in the Loan Agreement that Sinom would have to repay the Loan before the Repayment Date irrespective of whether AIHL has made the first shipment under the Project.  I agree with Mr Mok that implying such a term would amount to the court rewriting the Loan Agreement, the terms of which had been negotiated by the parties at arm’s length with the benefit of legal advice.

35.In the premises, Sinom is unable to establish any serious issue to be tried that it has proper legal basis qua petitioner in the unfair prejudice petition to seek to restrain its creditor, CCMD Overseas, from enforcing the security against it on the undisputed Loan.  I therefore dismiss Sinom’s application for injunctive relief both under the Originating Summons and the inter parte summons.

Balance of convenience

36.This would have been sufficient to dispose the application.  However even if I am wrong on the aforesaid conclusion, the balance of convenience still favours the non-granting of the relief.

37.Mr Sussex submits that the consequence of not granting the injunctive relief would be the permanent stifling and shutting out Sinom’s unfair prejudice complaints.  If CCMD Overseas were to be allowed to enforce its rights under the Share Charge, Sinom would cease to be a shareholder of AIHL.  Then even if the complaints are substantiated, Sinom’s claim is limited to one for damages[11], and it would lose the right to claim the full range of unfair prejudice remedies, including a minority buy out order for Sinom to buy out CCMD Overseas’ shares, a business management regulation order under s 725(2)(iv)(a) of the Companies Ordinance (Cap 622)(“CO”) and an order to wind-up AIHL.  According to Mr Sussex, the other reliefs are of particular importance because Sinom’s primary intention is to remain involved in the Project, due to Mr Zhang’s personal attachment to and involvement in the Project and his strong belief in its potential and prospects provided that it is properly managed and financed.

38.Further, Mr Sussex submits that there does not appear to be any permanent prejudice to CCMD Overseas if the injunction is granted so that it is temporarily prohibited from enforcing the Share Charge. There is no risk of Sinom disposing of its 40% shareholding in AIHL.

39.Despite the able submission of Mr Sussex, I do not accept his arguments.

40.One of the common remedies granted in unfair prejudice proceedings is a majority buy out order.  This particular remedy is preserved even if CCMD Overseas is allowed to enforce the Share Charge.  According to the Offer made by CCMD Overseas, it agrees, for the purpose of the unfair prejudice proceedings, an independent valuation to be made in respect of Sinom’s 40% shares in AIHL.  Such valuation would reflect any findings to be made in respect of Sinom’s unfair prejudice allegations, and CCMD Overseas would waive any objection relating to the “reflective loss” principle.  In other words, in case that Sinom’s complaints are substantiated, it would be able to claim for damages the amount of which would be the same as that would be received by Sinom from a majority buy out order.  This particular remedy is therefore preserved even if CCMD Overseas is allowed to enforce the Share Charge.

41.Although Sinom can, in theory, claim for other reliefs in the unfairly prejudice proceedings, the chance of Sinom in successfully obtaining these reliefs is very remote.

42.I first start with the minority buy out order.  Whilst the court has power to order a minority petitioner to purchase the shares of the majority respondent, such cases are “very rare indeed” and will probably be confined to exceptional cases.[12] The authorities show that a minority buy out order can be made where the minority shareholder has played an active role in managing the business and has the ability to buy out the majority shares.[13]  However, although Sinom was the initial owner of AIHL, there is no evidence that the mines held indirectly by AIHL had been developed prior to CCMD Overseas’ involvement in AIHL[14], for the obvious reason that Sinom lacked the financial ability to develop them.  On the other hand, CCMD Overseas has injected considerable amount of capital into AIHL whilst Sinom contributed relatively little sum by way of shareholder’s loans and is in default of the cash calls.  Nor can it be said that Sinom alone has the necessary expertise to develop the mines held under AIHL.  There is simply no evidence as to Sinom’s experience and expertise in developing the iron ore mines.  On the other hand, CCMD Overseas is part of a state-owned enterprise specialising in the iron and steel industry.

43.Further, based on the undisputed facts in the present case, it would be ludicrous to suggest that Sinom would have the financial ability to buy out CCMD Overseas’ 60% interest in AIHL.  As Sinom acknowledges itself, it only has means to meet “reasonable cash calls”, which on Sinom’s own calculation coming to about AUD50,000 a month.  With the means to pay only such amounts, it is hard to imagine that Sinom would have the financial ability to buy out the majority interest in AIHL, which Mr Zhang describes in his 2^nd Affirmation as a “unique and extremely valuable investment opportunity” with “incredible potential and prospects”.

44.Mr Sussex submits that this is not the proper occasion for Sinom to adduce detailed evidence as to how it would finance a minority buy out order.  There are many ways that Sinom can raise fund, for example by putting up AIHL to refinance the Project.   However, in determining whether to grant an interlocutory injunction in aid of arbitration, the court has to balance the inconvenience to both parties in case the decision turns out to be wrong.  The court should not assess the inconvenience by just relying on bare allegations. It has to look at the evidence to assess whether the alleged inconvenience is a matter of substance or just a fanciful concern.

45.From the existing evidence, it is clear that Sinom has no financial resources and it has difficulty in answering the cash calls.  In such circumstances, Sinom should have put before the court some evidence as to how it is going to finance the minority buy out.  Unfortunately, no such evidence is before the court.  Further, it is not just a matter of putting up AIHL for refinancing the Project, there is also an additional debt of over USD280,000,000 plus fair value for CCMD Overseas’ 60% shares which Sinom will have to pay for.  Hence, the claim for minority buy out order simply fails on the facts.

46.As a desperate attempt to salvage its application, Sinom seems to suggest that in a valuation of AIHL for the purpose of its buy out, the value of the 60% shares would be minimal.  This simply cannot be right.  Such contention is contrary to Mr Zhang’s own favourable description about the joint venture business as mentioned in §43 above.  Given what Sinom says about the value of AIHL’s mines, the enterprise value of AIHL upon proper valuation must be very substantial, and so it is not open for Sinom to say that it does not need to pay substantial amount to buy out the majority interest.

47.I then turn to the business management regulation order.  According to the relief claimed in the arbitration proceedings, Sinom seeks an order whereby: (i) Sinom (being a 40% shareholder) can appoint 60% of directors whereas CCMD Overseas (being a 60% shareholder) can only appoint 40% of directors; and (ii) the board of directors of AIHL shall have full power to make all decisions relating to the Domestic Loan.

48.I agree with Mr Mok that Sinom is in effect asking the court to rewrite the Shareholders Agreement and to allow Simon to have the power of the majority shareholder without having to pay anything to buy out any of CCMD Overseas’ shares.  There is a limit as to what the court can do even if a case of unfair prejudice is made out.  It does not mean that “the court is free to superimpose on the rights, expectations and obligations springing from those agreements and understandings further rights and obligations arising from its own concept of fairness”[15].

49.Further, even if CCMD Overseas failed to fulfil its Financial Procurement Obligation, it is not a case of CCMD Overseas having defrauded AIHL, or misappropriated any benefit from AIHL, or has used its board control to oppress Sinom.  One must not forget that CCMD Overseas also suffers as well from the inability to obtain the Domestic Loan, in particular it has injected huge capital into the Project and the price of iron has dropped significantly after it acquired the shares in AIHL.  The authorities show that any business management regulation order must be proportionate to the wrong allegedly committed[16], and so the chance of Sinom in obtaining the order contended for is extremely slim.

50.In addition, the board control proposed by Sinom has no time limit, and it is grossly unfair that CCMB Overseas, having invested so much in the joint venture business, would lose control of AIHL for an indefinite period of time.  Finally, Sinom would, by the proposed business management regulation order, be able to commit AIHL to a Domestic Loan in the region of USD2,400,000,000, which CCMD Overseas would have absolutely no control whatsoever.  Sinom has not paid and will not be asked to pay for the majority interest albeit it will have control of AIHL for all intents and purposes. This simply cannot be right, and I do not believe that any court or tribunal would grant such kind of order.

51.In his submissions, Mr Sussex does not press for the relief of winding up AIHL.  In any event, it is trite that winding up is a remedy of last resort and it would not be granted if the petitioner is acting unreasonably in insisting upon it instead of pursuing an available alternative remedy. Given the facts of the present case and the plethora of alternative relief which Sinom claims it is entitled to, it is inconceivable that the court would grant a winding up order even if the unfair prejudice complaints are made out.

52.For the above reasons, there is only an illusory chance that Sinom is able to obtain any relief other than an order for majority buy out or damages.

53.On the other hand, there would be serious prejudice to CCMD Overseas if it is not allowed to enforce the Share Charge which is the only security for the Loan.  It is beyond dispute that Sinom has no financial ability to repay the Loan.  In fact, Mr Zhang admits that Sinom had no financial resources and it had to rely on funds provided by other investors when he negotiated for the Project.  In such case, CCMD Overseas can only rely on the security, i.e. Sinom’s shares in AIHL, to satisfy the repayment of the Loan.  As shown in the market in the past few years, there can be great fluctuation in the price of iron in the international commodity market which would in turn affect the value of the security, i.e. Sinom’s shares in AIHL.  Hence, one should not underestimate the loss that may result from the delay in the enforcement of the security.  Taking into account the existing financial condition of Sinom, I have serious doubt as to whether it has the ability to honour the cross-undertaking as to damages.

54.I agree that the range of relief available to Sinom would be limited if its unfair prejudice complaints are substantiated. However, the court has to balance such inconvenience with the possible harm that can be caused to CCMD Overseas if it is not permitted, even temporarily, to enforce the security under the Share Charge.  If CCMD Overseas suffers any damages resulting from the delay in the enforcement of the Share Charges, it is unlikely that Sinom would be able to pay any compensation to CCMD Overseas.  This is already a strong reason for refusing Sinom’s application.

55.On the other hand, as shown by its previous contributions for the Project, CCMD Overseas would be in a much better position to pay any monetary compensation to Sinom even if the former is found guilty of any conduct of unfair prejudice, and damages should be an adequate remedy under such circumstances.  In any event, there is only a very remote chance that Sinom can obtain other reliefs apart from a majority buy out order.  At this interlocutory stage, the court would take the course which appears to carry the lower risk of injustice if it should turn out that it is wrong.  In my judgment, the balance of these factors certainly favours the non-granting of the injunction.

56.For the above reasons, upon the undertaking of CCMD Overseas in the terms set out in the Offer and that it would waive any objection based on the “reflective loss” argument[17], I dismiss both the Originating Summons and Sinom’s summons dated 14 October 2015.  I also make a costs order nisi that CCMD Overseas’ costs of the proceedings, including the costs of the said summons, be paid by Sinom with certificate for 2 counsel, which shall be made absolute 14 days after the date of the handing down of this Judgment.

Mr Charles Sussex, SC & Mr Christopher Chain, instructed by Francis & Co, for the Plaintiff

Mr Johnny Mok, SC and Ms Eva Sit, instructed by Reed Smith Richards Butler, for the 1^st Defendant

The 2^nd Defendant, represented by Hom & Associates, absent