Huinong Delta Investments Ltd and Others v. Cccc Financial Ltd and Others
Read the full judgment text of HCA 2814/2016 on BabelCite. This High Court CFI judgment was delivered on 6 November 2017.
1. This derivative action is brought by the plaintiffs/Ps, who are suing on behalf of themselves and all other shareholders (except D2) of the company D1, for losses suffered by D1 due to wrongs allegedly done to the company.
Cites 4 cases
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HCA 2814/2016 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2814 OF 2016 ________________________
_______________________ Before: Hon B Chu J in Chambers Date of Hearing: 18 September 2017 Date of Judgment: 6 November 2017 ________________ J U D G M E N T ________________ Introduction 1.This derivative action is brought by the plaintiffs/Ps, who are suing on behalf of themselves and all other shareholders (except D2) of the company D1, for losses suffered by D1 due to wrongs allegedly done to the company. 2.Ps’ main complaint against the defendants is in relation to the allegedly wrongful disposal of a portfolio of 254,500,000 H-shares in the Bank of Zhengzhou Company Limited (“Bank of ZZ”), a company listed on the main board of the Hong Kong Stock Exchange (stock code:6169) (“Portfolio”). 3.There were two applications before this court. The main application was issued by D2, D4 and D5 (which I shall refer to herein collectively as “Ds”) to strike out the writ of summons and the statement of claim, on all four grounds under Order 18 rule 19(1) of the Rules of the High Court and the inherent jurisdiction of the court (“Striking Out Application”). 4.The other application was issued by Ps to seek leave to amend the writ to introduce a double derivative action such that Ps also sue for losses suffered by D7 (“Amendment Application”). 5.The Amendment Application was opposed by Ds. 6.Counsel Mr Jose-Antonio Maurellet SC leading Messrs Jonathan Chang and Chow Ho Kiu appeared for Ps and Mr Ronny Wong SC leading Mr Newton Mak appeared for Ds. D1’s attendance was excused and the other defendants were absent. Background 7.D1 (CCCC Financial Limited/中國城市國際金融控股集團有限公司), is a company incorporated under the laws of Hong Kong with 10,000 issued shares (“CCCC Financial”). CCCC Financial held the entire shareholding of 1 share in D7, a BVI company (“Lightning Triumph”). Lightning Triumph in turn held the Portfolio. 8.P1 is a company incorporated under the laws of Cayman Islands. P2 and P3 are both BVI companies. 9.Between 11 February 2016 and 17 June 2016 (“Relevant Date”), Ps held 100% shareholding of CCCC Financial as follows:
10.It is Ps’ case that prior to 11 February 2016, the ultimate shareholder of CCCC Financial was China City Construction Holding Group Company/中國城市建設控股集團有限公司, a Mainland company (which shall be referred herein as “Parent Company”[1]), and that due to commercial reasons the shares in CCCC Financial were transferred to Ps as nominees on 11 February 2016, but Ps held/hold their shares as nominees for the Parent Company and that the ultimate owner and controller of CCCC Financial was until the Relevant Date the Parent Company[2]. 11.Ds however dispute that Ps held/hold their shares as nominees of the Parent Company and allege that Ps in fact held/hold their shares as nominees for Mr Yu Lian/于煉 (“Yu Lian”) who was the former President and Chairman of the Parent Company, and was part of the management of the Parent Company[3]. 12.Anyway, it was not disputed that at the material times, the Parent Company had various subsidiaries among which were China City Construction (International) Co Ltd/中國城市建設 (國際) 有限公司, a Hong Kong company (“CCCC International”), and 中國城市建設控股集團 (珠海) 置業有限公司, a Mainland company (“CCCC Zhuhai”). 13.Prior to 22 April 2016[4], Guo Wenhui (“Guo”), Hong Zhaohui (“Hong”) and Yuan Qing (“Yuan”) all used to work for Yu Lian and the Parent Company and/or its subsidiaries. Hong was in particular the sole director of CCCC Financial until the Relevant Date, and Yuan was the sole director of Lightning Triumph until 26 June 2016. 14.Prior to 22 April 2016, 100% of the shareholding of the Parent Company was held by a Hong Kong company, China City Development Academy International Co Limited/中國城市發展研究院國際有限公司 (“China City Development Academy (International)”) through another Mainland entity, and 99% of China City Development Academy (International) was held by a BVI company, CCCC Holdings Limited (中國城建國際控股有限公司) (“CCCH”)[5]. 15.On around 22 April 2016, Huinong Fund International Investments Ltd/惠農基金國際投資有限公司 (“Huinong Fund”) acquired 100% interest in CCCH as a result of which it held 99% of China City Development Academy (International) (“22.04.16 Acquisition”). The remaining 1% of the China City Development Academy (International) was at the material times held by a Mainland entity中國城市發展研究院有限公司 (“China City Development Academy”)[6]. 16.In short, after the 22.04.16 Acquisition, Huinong Fund held 99% of the Parent Company, and the Parent Company ceased to be controlled by a State-owned entity[7]. 17.It was not disputed that the 22.04.16 Acquisition resulted in a substantial change in the shareholding of the Parent Company, and a “Change of Control Put Event”[8] which triggered off an early redemption of bonds issued by CCCC International and/or the Parent Company, as a result of which the Parent Company faced financial difficulties. Ps’ case was by this time, Yu Lian had already ceased to be the Chairman of the Parent Company[9]. 18.However, according to Ps, as Yu Lian had been working for the Parent Company for over 10 years, Wei Lidong/尉立東 (“Wei LD”) and Wan Hongchun/萬洪春 (“Wan HC”) of Huinong Fund[10] approached Yu Lian to help search for “white knights” to save the Parent Company[11]. Yu Lian then approached his friend, namely D4/ Chong Wing Kin (“Chong WK”). 19.It is the Ps’ case that Chong WK then introduced one Zhong Meiwa/鍾美娃 (“Zhong MW”) to Yu Lian, and later Zhong MW introduced a Yao Jianhui/姚建輝 (“Yao JH”) who headed Baoneng Industrial (Group) Limited /寶能實業(集團)有限公司 (“Baoneng”) to Yu Lian. It was Yuan’s evidence on behalf of Ps that, Zhong MW, Yao JH and Chong WK, or Zhong MW’s camp, had expressed that they wanted to jointly acquire the shares in CCCH. 20.Thereafter, from Ps’ pleadings and evidence before the Court, the chronology of events (“Chronology”) which one could gather appeared to be the following :
21.Apart from the Portfolio held by Lightning Triumph, CCCC International also held additional shares in the Bank of ZZ through nominees, some in names of individuals and others in names of corporate entities (“Additional Bank of ZZ Shares”), which, as seen earlier CCCC International provided as additional security for the HKD Loan, under the Additional Securities Agreement. 22.Ps alleged that as a result, the Additional Bank of ZZ Shares held by individual nominees were transferred to a person said by Ps to be designated by Amuse Peace, and further, the directors in the corporate nominees resigned so that Amuse Peace could appoint its own agents and representatives to the board of directors of the respective companies to control the corporate nominees. 23.Further, according to Ps’ pleaded case, upon repayment of the HKD Loan, Amuse Peace was to re-transfer and to cause its agents and representatives to resign from the corporate nominees, so that the Additional Bank of ZZ Shares could revert to the original nominees. This was allegedly not done and Ps alleged that the Additional Bank of ZZ Shares were misappropriated by Amuse Peace[40]. 24.To summarise, at the time of the 11.07.16 Transfer :-
The 26.06.16 Meeting 25.According to Ps’ pleaded case, Zhong MW, and two other of the RMB Lenders both surnamed Zhong (“collectively “Zhongs”) and more than 10 other unidentified men attended Luk Kwok Office on 26 June 2016 and the Zhongs threatened to take Yuan’s life should he fail to comply with their demands, which they repeated on 4 July 2016. Further, from about 26 June 2016 to 29 June 2016 the Zhongs demanded Yuan to stay with them inside hotel rooms arranged by them to be under their surveillance during the night time, and during the day, they followed Yuan back to the office. 26.Ps pleaded case was that under the above duress, amongst other thing, the following took place :
27.Yuan’s own evidence in relation to the 26.06.16 Meeting was that after Baoneng and Zhong MW’s camp decided not to proceed with the acquisiton they requested for a meeting and that Zhong MW called him and “lied” to him that they wanted a meeting to discuss the proposal of making further loans. Zhong MW then arranged a car to pick him up from Shenzhen to the Luk Kwok Office to attend the 26.06.16 Meeting. 28.At the 26.06.16 Meeting, Yuan said he was asked to provide information and surrender all documents in relation to the Portfolio as well as the Additional Bank of ZZ Shares and he was also forced to sign a resignation letter as the director of Lightning Triumph. Yuan said when at first he refused to do so, Zhong MW together with the 10 odd strong men threatened to throw him down the building from the 12th floor. 29.Yuan further said as he was afraid that he or his family would be harmed by Zhang MW’s camp, he did not go to the police immediately and was only encouraged to do so on 20 September 2016 by his Counsel. The litigations 30.There are now no less than 4 sets of proceedings relating to the disputes between Ps’ camp and Zhang MW’s camp. Apart from the present action, the Asset Recovery Action and the HKD Loan Action, there is another related set of proceedings issued by Ps’ camp against CCCC Financial, Cheng WK and Chan KC, namely HCMP 3194/2016, for inspection of company document, which was also before this court at an earlier hearing and judgment has been reseved. The alleged defects of Ps’ statement of claim (“SOC”) 31.Mr Wong SC submitted an Annex 1 to his skeleton arguments, setting out Ds’ comments to the pleadings under the various headings in the SOC and the reasons why the SOC should be struck out. 32.Chong WK pointed in his affirmation that Ps had not pleaded in the SOC or alleged that he and Chan KC as directors of CCCC Financial or Chan KC as director of Lightning Triumph had acted in breach of their fiduciary duties towards those two companies, and that the whole foundation of Ps’ complaints was that the rights attached to the shares in CCCC Financial had been misused contrary to the terms of their transfers to D2 and D3 which transfers had also been also challenged[47]. Further, he and Chan KC did not wrongfully take control of the board of CCCC Financial[48] and the 17.06.16 Transfers were effected at the instruction of Yu Lian in the “continuous process” of offering substantial inducements in seeking financing[49]. 33.Mr Wong submitted that Ps’ case was in fact one of breach of securities agreement as opposed to fraud against the companies, and that Ps’ true case related to the alleged terms whereby CCCC Financial shares were transferred in accordance with the direction of Ps’ own principal as alleged security and whether there was any breach of such alleged terms[50]. 34.Mr Maurellet SC summarised Ps’ claims in the SOC to be[51] :
Discussion The 17.06.16 Transfers 35.Paragraphs 21 to 28 of the SOC were in relation to the HKD Loan Agreement. 36.What was pleaded in paragraph 21 was that during the Shenzhen Meeting, it was discussed that Amuse Peace was to enter into a loan agreement with a lender arranged by Zhong MW whereby a loan of HK$540,000,000 was to be advanced to P3 and at the beginning, it was intended that an amount of HK$650,000,000 to be advanced to CCCC International, but in the end only HK$540,000,000 was advanced[52]. 37.As pleaded, the terms of the HKD Loan were[53] :
38.Mr Wong had referred to two emails, one sent by Yuan to Yuan’s/Ps’/CCCC Financial’s then solicitors, Ms Clara Ngo, and copied to the Ds’ solicitor Mr Peter KS Chan on 16 June 2016 (“16.06.16 Email”)[54] and one sent by Ms Clara Ngo to Mr Peter KS Chan copied to Yuan on 17 June 2016 (“17.06.16 Email”)[55]. 39.In the 16.06.16 Email, Yuan thanked Ms Ngo for the documents prepared by her, and Yuan stated that after obtaining instructions from their principal/superior, there were changes and that D1 was to transfer 40% of its 45% shareholding in CCCC Financial to D2, and P2 was to transfer 11% out of its 35% shareholding to D2, and another 22% to D3, and Ms Ngo was instructed to prepare all necessary documents to effect the transfers and Ms Ngo was further asked when stamp duty would be payable. 40.In the 17.06.16 Email, Ms Ngo sent to Mr Peter KS Chan 8 documents duly signed by D2 and its representatives which included board resolutions for the transfer of shares, the share transfer documents, board resolutions for appointment of Chong WK and Chan KC as directors and their consent to act and Form ND2A (Notice of changes). 41.As seen from the two emails, all documents for the 17.06.16 Transfers were prepared by Ms Ngo on instructions of Yuan. There was nothing to indicate that the documents were executed at the requirement of D3or Ds, nor were there any instructions from Yuan to prepare the transfer documents on the basis of a share charge in favour of Amuse Peace, or as security for the HKD Loan. 42.Further, in Yuan’s affirmation filed on behalf of Ps, what he had said was that the transfers of the shares to D2 and D3 by CCCC Financial was to “reflect the share structure after the intended acquisitions in April and June 2016 in the PRC”[56]. The acquisition in April 2016 was the 22.04.16 Acquisition and the acquisition in June 2016 would be that by Power Universal. Yuan then said as the 16.06.16 Acquisition Agreement was subsequently abandoned by the parties, the 51% shareholding in CCCH was later transferred back to Huinong Fund by Power Universal on 28 June 2016[57]. 43.Yuan went on further to say in his affirmation that the making of the HKD Loan was first secured by the Post-dated Cheque, but after Baoneng and Power Universal decided not to proceed with the acquisition of CCCH as well as in CCCC Financial, they “treated” the 51% shareholding transferred (intended as a transfer pursuant to the acquisitions) to D2 as security for the HKD Loan. In the meantime, they also requested D3 to transfer 22% shareholding in CCCC Financial to D2 in order to gain more security and it was under such circumstances that D3 transferred the 22% of the shareholding[58]. 44.It is not clear as to when Power Universal decided not to proceed with the the 16.06.16 Acquisition Agreement or when they decided to “treat” the 51% shareholding in CCCC Financial as security for the HKD Loan. The 51% shareholding in CCCH was however transferred back to Huinong Fund on 28 June 2016. Thus, according to Yuan’s evidence, it would appear to be around 28 June 2016 that Power Universal or Zhong MW’s camp “treated” the 51% shareholding in CCCC Financial as security for the HKD Loan, but the transfer of 22% shareholding from D3 to D2 was only on around 8 July 2016. 45.As pointed out by Mr Wong, Ps’ pleaded case was inconsistent with Yuan’s above evidence and the two emails. It is clear from Yuan’s evidence that the 17.06.16 Transfers, or the transfers of the shares to D2 and D3 on the Relevant Date were not as security for the HKD Loan and were only to reflect the share structure after Power Universal signed the 16.06.16 Acquisition Agreement. 46.There was no evidence that at the time of the 17.06.16 Transfers, D3 was related or connected to D2. Ds have dissociated themselves from D3 and it is their case D3 is another nominee of Yu Lian[59]. Yuan denied this and according to him, D3 was/is related to Wei LD and Huinong Fund. As seen in the Chronology, although the sole shareholder of D3 was Wei LD, on 16 June 2016, one day prior to the 17.06.16 Transfers, he had transferred away his one share to one Hua JQ. According to Yuan, this Hua JQ was/is a nominee for Wei LD[60]. However, Wei LD was also said to be working for Huinong Fund and it would appear that Wei LD/D3 was part of Ps’ camp or the borrowers at least at the time of the HKD Loan Agreement. In any event, one can see from the evidence and Yuan’s affirmation that on the Relevant Date, only 51% of the shareholding of CCCC Financial was transferred to D2 or Zhong MW’s camp, and such transfer was not as security for the HKD Loan. 47.As pointed out by Mr Wong, Ps’ case, appeared to have further changed from the pleaded case in that they now seem to be alleging that D2 and D3 should have transferred their shares in CCCC Financial back to Ps after the acquisition by Power Universal was abandoned, but that D2 and D3 failed or refused to do so and “treated” the shares as security/additional security. 48.As seen earlier, Ps’ pleaded case was that in addition to the transfer of the 73% shareholding being a security for the HKD Loan, there was also the Post-dated Cheque. In the 22.07.16 Letter, the securities for the HKD Loan stated therein were (1) the 73% shareholding in CCCC Financial and (2) the Portfolio. In the Letter, CCCC International complained that, prior to the repayment date of the HKD Loan, CCCC Financial had allowed Zhong MW and the lender to unlawfully take over the control of its 73% shareholding and to appoint additional directors and to dispose of the Portfolio, and further to freeze the bank accounts and to lock up the office, resulting in the non payment of rent and staff salaries, thereby causing serious damage and loss to CCCC Financial and CCCC International[61]. 49.There was no mention in the 22.07.16 Letter of the Post-dated Cheque being a security, nor was there any mention of the Additional Securities Agreement. On the other hand, there was no pleading in the SOC that the Portfolio was to be a security for the HKD Loan. Again, Ps’ pleaded case was not consistent with the evidence. 50.On Ps’ pleaded case, the HKD Loan Agreement was “partly oral and partly written”[62]. According to the Ps’ pleaded case, when the loan was first discussed at the Shenzhen Meeting, the borrower was to be P3. It was at the Shenzhen Meeting that both the RMB Loan and the HKD Loan were discussed but it was not Ps’ pleaded case that there was any overall agreement reached at the Shenzhen Meeting between those who attended which encompassed both the RMB Loan Agreement and the HKD Loan Agreement. Instead, what was pleaded was that there were two separate agreements after the Shenzhen Meeting, namely the RMB Loan Agreement for the RMB Loan for one month and the HKD Loan Agreement for the HKD Loan for three months. 51.So far as the HKD Loan Agreement was concerned, as pleaded the parties were Amuse Peace (arranged by Zhong MW) as lender, and CCCC International as the borrower. It was not clearly pleaded as to which terms of the HKD Loan Agreement were oral or and which were written. 52.In any event, the 17.06.16 Transfers were clearly on the instructions of Ps and consensual and the shares were also transferred to D2 and D3 at a nominal value only. The 17.06.16 Transfers on Yuan’s evidence did not have anything to do with the HKD Loan. As for the re-transfer of the 51% shareholding in CCCH to Huinong Fund on 28 June 2016, the treating of the 51% shareholding in CCCC Finance by Zhong MW’s camp as security of the HKD Loan on around 28 June 2016, and the request by Zhong MW’s camp for D3 to transfer 22% shareholding as additional security and effected on 8 July 2016[63], all these matters had not been pleaded at all. This is notwithstanding Ps had pleaded in detail that Amuse Peace forced CCCC International to provide the Additional Bank of ZZ shares as additional security for the HKD Loan at around late June and early July. 53.In so far as the Ps’ allegations in the SOC that the 17.06.16 Transfers were as security for the HKD Loan or pursuant to any wrongful act of D2 and D3, or that it was as a result of the unlawful misappropriation/conversion of the shares owned by P1 and P2 in CCCC Financial by D2 and D3 that P1 and P2’s shareholding were reduced, such were clearly inconsistent with the evidence. Appointment of additional directors 54.Ps’ pleaded case was on about the Relevant Date by resolution purportedly passed by D2 and D3, in their purported capacity as 73% shareholders appointed two additional directors (in addition to the existing sole director, Hong), namely Chong WK and Chan KC (“Additional Directors”) [64]. 55.However, It is clear from the 17.06.16 Email that the board resolution of CCCC Financial for the appointment of Chong WK and Chan KC as Additional Directors and their consent to act and the Form ND2A were all prepared by Ps’ solicitor and the Additional Directors were appointed by the then sole director, Hong, pursuant to the articles of association of CCCC Financial[65] and upon instructions of Yuan. 56.Mr Maurellet referred to article 5 of the articles of association of CCCC Financial, which states that the minimum number of directors shall not be less than one and there shall be no maximum number of directors, and also article 11 (b) states that until otherwise determined, two directors shall constitute a quorum. 57.Article 11 (c) states that if the company has only one director, that director may at any time summon a meeting of directors and the sole director shall have full power to represent and act for the company in all matters and in lieu of minutes of a meeting shall record in writing and sign a note or memorandum of all matters requiring a resolution of the directors, and such note or memorandum shall constitute sufficient evidence of such resolution for all purposes. Article 12 provides for any casual vacancy occurring in the board of directors may be filled up by the directors and article 13 provides that the directors shall have power at any time, and from time to time, to appoint a person as an additional director[66]. 58.Mr Maurellet attempted to argue that by reason of article 11 (b), there being no quorum of two directors, there could be doubt as to whether appointment of the Additional Directors by Hong was valid and that in any event, the board resolution was only to approve, ratify and confirm the appointment. 59.This was, however, not Ps’ pleaded case in the SOC, that the appointment of the Additional Directors was not valid by reason of there not being a quorum of the board meeting, nor was it Ps’ pleaded case that the appointment by the shareholders was prior to the Relevant Date and that the board resolution on the Relevant Date was only to approve, ratify and confirm such appointment. 60.Ps’ pleaded case in respect of the Appointment of Additional Directors was again inconsistent with the documentary evidence. There was no evidence that the Additional Directors were appointed pursuant to D2 and D3 exercising their shareholders’ rights, as pleaded by Ps[67]. In fact, the evidence shows the contrary, that the appointment of the Additional Directors were effected by Hong, with approval of Ps. Dissipation of the Portfolio and “knowing receipt” 61.Ps’ pleaded case was that D2 and D3 in their capacity as majority shareholders in CCCC Financial committed a wrong against Ps, the minority shareholders, and also against CCCC Financial. Further, D2, D3, the Additional Directors and Chen WQ had all committed a wrong against CCCC Financial by passing a resolution to dispose of the CCCC Financial’s shareholding in Lightning Triumph to Chen WQ[68]. 62.The resolution to sell the one share of CCCC Financial in Lightning Triumph was a board resolution which was apparently passed on 8 July 2016 during a meeting of which notice was given to Hong[69]. 63.The notice of the meeting was sent to Hong the day earlier. On Ps’ pleaded case, Hong did receive the notice but claimed he was “too fearful” to attend the meeting due to the duress against Yuan and that he knew he would be outvoted[70]. 64.Whatever, it was not in exercise of the shareholders’ rights of D2 and D3 that the CCCC Financial’s one share in Lightning Triumph was sold, and Ps must have known this. 65.In the general endorsement of claim, Ps are seeking a declaration that the appointment of the Additional Directors in CCCC Financial are null and void, and they have stated that without prejudice to this, in their capacities as de facto or de jure directors, the Additional Directors have breached their respective fiduciary duties owed towards the CCCC Financial as well as being liable for dishonest assistance by procuring the transfer of the entire shareholdings in Lightning Triumph. There were however no particulars pleaded in the SOC as to how the Additional Directors had breached their fiduciary duties. Passing a resolution to sell the share in Lightning Triumph does not necessarily mean a breach of their fiduciary duties. 66.As seen earlier, it was only on 8 July 2016 that D3 said to be controlled by Wei LD and Huinong Fund, transferred all its shares in CCCC Financial to D2. It was not Ps’ pleaded case that Wei LD acted under duress. 67.On Ps’ own pleaded case in relation to duress, Ps must know during the 26.06.16 Meeting or shortly thereafter that Zhong MW’s camp had taken control of Lightning Triumph by allegedly forcing Yuan to resign as director and had further taken control of the Portfolio by Yuan being asked to provide and surrender all documents in relation to the Portfolio. Yet there was no legal action taken, by Ps. Ps must have further known by 7 July 2016 that the Additional Directors were proposing to sell the share in Lightning Triumph held by CCCC Financial. Again they took no legal action. Not only no action was taken, as said, 22% shareholding in CCCC Financial was transferred by D3 to D2, 3 days prior to 11 July 2016, the due date for the RMB Loan, and the day CCCC Financial’s one share in Lightning Triumph was sold or transferred to Chen WQ, one of the RMB Lenders. 68.By 22 July 2016, Ps and CCCC International knew that the Portfolio had been sold/or transferred, yet again, no legal action was taken by Ps or CCCC International to try and recover the Portfolio or to prevent dissipation of the sale proceeds, notwithstanding CCCC International had by then instructed solicitors. All CCCC International did was to seek from the Board of CCCC Financial copies of the relevant documents and to ask for the whereabouts of the sale proceeds. There was no mention of any threat or duress or the 26.06.16 Meeting at all in the 22.07.16 Letter. The report to the police was made by Yuan only on 20 September 2016 after the HKD Loan became due. In any event, the evidence indicated that advance notice that the sale/transfer of the 1 share in Lighting Triumph was going to take place was given to Ps’ camp. Further, as Yuan had said, it is CCCC International’s case in the HKD Loan Action that the outstanding amount of HKD Loan was expunged by the value of the misappropriated shares in CCCC Financial, the Portfolio and the Additional Bank of ZZ Shares[71]. 69.In the endorsement of claim P claimed against Chen WQ for dishonest assistance and as constructive trustee and/or trustee de son tort over the Portfolio, and also against Join Right and Wang Jian for dishonest assistance/knowing receipt and a declaration that Join Right held the Portfolio as constructive trustee/trustee de son tort for CCCC Financial. 70.No particulars had in fact been pleaded against Chen WQ, Join Right and Wang Jian. The Striking Out Application 71.Having considered Ps’ pleaded case and the evidence, the 17.06.16 Transfers, and the Appointment of Additional Directors on the Relevant Date were clearly consensual and on Ps’ evidence were not related to the HKD Loan. The crux of the dispute is really in relation to the terms of the HKD Loan Agreement and the agreement in relation to the alleged securities for the HKD Loan. 72.Mr Maurellet accepted that Ps’ case could have been pleaded better in the SOC, and that Ps’ claim against D2 and D3 was “on the face of it on fairly thin ice”. However, he submitted that the pleaded case was not “false”, “imaginary” or a “lie” as Mr Wong had described it. 73.Mr Maurellet also tried to save the pleadings against the Additional Directors by arguing that if this court were to accept that they were validly appointed as such, then Ps’ case would be even easier in establishing breach of fiduciary duties, and that Ps’ claim against D2 and D3 could be regarded as a “red-herring”. Mr Maurellet submitted that the claim against the Additional Directors was reasonably arguable and could be substantiated, and so could the claim against Chen WQ, Wang Jian and Join Right, and that amendments could be made to particularize certain averments. 74.Mr Maurellet further submitted that Ps had the standing to commence a derivative action on behalf of CCCC Financial and Lightning Triumph, and that Ps should be afforded the opportunity to amend the SOC generally within 28 days. No copy of any draft amended SOC was prepared or shown to this court. 75.Ps’ claim in the SOC against the Additional Directors was for a declaration that their appointment was null and void or, they had breached their fiduciary duties as de facto directors, as well as liable for dishonest assistance. On the face of it, or prima facie, the 1 share in Lighting Triumph was a corporate asset of CCCC Financial. The Additional Directors passed a resolution to sell this 1 share but as said earlier, the sale of itself may not necessary be breach of fiduciary duties. There were no other particulars pleaded of breach of fiduciary duties or dishonest assistance. 76.Mr Wong had submitted that the statement of truth signed by Guo was false. As it was Yuan who instructed Ms Ngo to prepare all the documents for the 17.06.16 Transfers and for the Appointment of Additional Directors, Ps had pleaded a case which was inconsistent with the documentary evidence and with Yuan’s evidence, and which they knew was false. 77.Mr Wong referred the court to Tong Kin Hing and Autron Maurtius Corp [2010] 1 HKLRD 77, HCA 1961 of 2009, 16 October 2009 where Rogers V-P struck out defective pleadings and held, amongst other things, that (1) a statement of truth might not be an affidavit or an affirmation but the Rules (RHC) treated it with similar seriousness, and it was a very important part of the court’s process in applying the Rules and served to help the court and the parties to achieve the underlying objectives set out in O 1A r 1 of the RHC; (2) where it had been demonstrated that a pleading should never have been verified by a statement of truth, the court should be very slow to permit any amendment to that pleading, and if the central part of the pleading was defective, the court might well consider exercising its discretion by striking it out and leaving the party to bring new proceedings and that this was a matter of discretion and the court recognized that the primary aim in exercising its powers was to secure the just resolution of disputes according to the substantive rights of the parties; (3) the action would be struck out as an abuse of the process of court, and the pleading was so defective that it was not a matter of simple amendment but of reconstituting any claim[72]. 78.In the Striking Our Application, Ds relied on all 4 grounds under Order 18 rule 19(1) and/or inherent jurisdiction. In light of the 16.06.16 Email and the 17.06.16 Email and also Yuan’s own evidence, the pleadings should not have been verified by a statement of truth by Guo. I have come to the view that the central part of the pleadings is so defective that it is not a matter of simple amendment but of reconstituting the claim and that to secure the just resolution of disputes, the SOC and the action ought to be struck out as an abuse of the process of court under Order 18 rule 19(1)(d) and/or inherent jurisdiction of the court. 79.In the above circumstances, I do not find it necessary to deal with Mr Wong’s submission on the other grounds or in relation to those pleadings on what he called irrelevant matters. Amendment Application 80.As for Ps’ Amendment Application, this would necessarily fall away in view of my above decision. Mr Maurellet has pointed out that it is now well established that a double derivative action is possible at common law[73]. As to whether an unregistered beneficial shareholder has a standing to bring a derivative action, the law appears to be not entirely clear in this area, but this is not a matter which this court needs to go into at this stage in any event. Orders 81.I make the following orders:
82.As for costs, the D2, D4 and D5 should be entitled to their costs, to be taxed if not agreed, and with certificate for two Counsel. This is an order nisi which shall be made absolute after 21 days.
Mr Jose Antonio Maurellet SC, Mr Jonathan Chang and Mr Chow Ho Kiu, instructed by C W Yuen & Co, for the 1st, 2nd and 3rd plaintiffs The 1st defendant was excused Mr Ronny Wong SC and Mr Newton Mak, instructed by Peter K S Chan & Co, for the 2nd, 4th and 5th defendants [1] As so referred in the various public announcements made by CCCC International, B:6-11 [2] See para 14, A:89 [3] See para 16, A:78 [4] Although it appeared to be Ps’ case throughout that the date of the acquisition by Huinong Fund was 25 April 2016, the date of the occurrence of the “Chang of Control Put Event” was stated to be 22 April 2016 in a public announcement by CCCC International, see B:10-11 [5] See corporate structure at B:114 [6] See supra at B:114 [7] See B:10 [8] See clauses 6(c), B:102 [9] See para 16, A:90 [10] Respectively, also the Chief Executive Officer of CCCC Financial, and Chief Investment Officer of CCCC International, see para 7(1), A:47 [11] See para 16, A:90 [12] Paras 7-9 of SOC, A:47-48 [13] See B:10 [14] B:29-30 [15] See para 12, A:49 [16] B:32-33 [17] B:126 [18] B:152-153 [19] Para 22, A:52 [20] Para 25, A:53 [21] See para 37(5), A:58 [22] Para 26, A:54 [23] See para 27, A:54 [24] Para 28, A:54 [25] See B:10 [26] B:121-122 [27] See para 25, A:93 [28] See B:60, Certificate of Incumbency [29] B:127 [30] B:33 [31] See para 33, A:55 [32] Para 18, A:51 [33] B:144 [34] B:139 [35] See para 41, A:59; see also Certificate of Incumbency dated 13 July 2016, B:60 [36] See para 42, A:59 [37] B:1-5 [38] See B:11 [39] See B:11 [40] See para 35, A:56 [41] Para 36(2), A;57 [42] Para 33, A:55 [43] Para 37, A:57 and para 25, A:93 [44] Para 17, A:51 [45] Para 18, A:51 [46] Para 20, A:52 [47] See paras 3, 4 A:74 [48] Para 23, A:80 [49] Para 14, A:77-78 [50] See para 5, A:75 [51] Para 4, Ps’ skeleton submissions [52] At para 21, A:52 [53] See paras 22, 23, A:52-53 [54] B:35 [55] B:37-50 [56] See para 18, A:91 [57] See para 19, A:91, B:127 [58] See para 20, A:91-92 [59] See para 18, A:79 [60] See para 30, A:94 [61] B:2-3 [62] See para 22, A:52 [63] Para 20, A:91-92 [64] Para 37(5), A:58 [65] B:44-50 [66] See B:72 [67] See para 37(5), A:58 [68] Para 44, A:59 [69] B:144 [70] See para 28, A:93 [71] Para 9, A:88 [72] See Holding in Headnote [73] See Waddington Ltd v Chan Hun Hoo (2008) 11 HKCFAR 370 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 2814/2016