Asia Pacific Infrastructure Investment Fund, Lp v. Keyway Holdings Ltd

HCA 689/2018

[2018] HKCFI 2228

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 689 OF 2018

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Before: Deputy High Court Judge Keith Yeung SC in Chambers

Date of Hearing: 31 August 2018

Date of Decision: 31 August 2018

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DECISION

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1.There are two summonses before me:

(a)   the summons dated 24 August 2018 (the “Joinder Summons”) for leave to join “Keyway Holdings Limited (啟聯集團有限公司)” (“Keyway HK”) as the 2^nddefendant in the action herein (together with consequential amendments to the Writ, and an order that service of the amended Writ upon Keyway HK be dispensed with); and

(b)   another summons also dated 24 August 2018 (the “Injunction Summons”) for an Order as follows:

“ 1. The Defendant [(“Keyway Seychelles”)] and/or [Keyway HK] shall forthwith transfer or cause to be transferred (whether by its directors, officers, employees, or agents, including but not limited to China Times Securities Limited (‘China Times’) and/or Key Way Holdings Limited), or otherwise vest the 79,300,000 freely trading ordinary shares (‘the Pledged Shares’) of the common stock of Asia Allied Infrastructure Holdings Limited (stock code: 711.HK) [(“Asia Allied”)], a corporation organised under the laws of Bermuda which stock listed on the Stock Exchange of Hong Kong Limited, and any such dividends received in respect of the Pledged Shares since deposit on 4 July 2017, in favor of an independent collateral agent instructed by the Plaintiff, Sun Hung Kai Investment Services Limited, in the place of China Times, subject to the Plaintiff paying into Court the sum of HK$36,019,426.67 as security for the Plaintiff’s potential outstanding indebtedness towards the Defendant and/or [Keyway HK] (if any) under the loan agreement dated 29 June 2007 entered into between the Plaintiff and the Defendant and/or [Keyway HK];

2.  Relief of paragraph 1 above in the interim pending determination of the Summons herein or such further order of the court;

3.  The time for the Plaintiff to comply with the undertaking as set forth in the Order of Madam Justice Lisa Wong dated 22 August 2018, i.e. to issue and effect service of the Summons herein, be extended for one day”.

THE PLAINTIFF’S PLEADED CLAIM

2.The Writ herein was taken out on 26 March 2018.  In its original form it was against Keyway Seychelles only. A Statement of Claim was indorsed thereon.  It was pleaded that pursuant to a loan agreement of 29 June 2007 between Keyway Seychelles and the plaintiff, Keyway Seychelles as lender agreed to provide a non-recourse loan of up to HK$37,000,000 (the “Loan”) to the plaintiff as borrower.  The security wasto be the Pledged Shares.  The terms of the agreements were that the plaintiff would remain the beneficial owner of those shares, retain exclusive control over them, would be entitled to exercise all voting rights and powers appurtenant to them, and that Keyway Seychelles “shall not Transfer[1] any Pledged Shares prior to an uncured Event of Default.”  Pursuant to the Loan Agreement, Keyway Seychelles advanced to the plaintiff a total of HK$33,740,386 (the “Advanced Sum”).  Transfer of the Pledged Shares was effected as security.  They were deposited into an account opened in the plaintiff’s name with China Times.  However, it subsequently transpired that the number of Asia Allied shares hold by China Times recorded or evidenced by the CCASS records has since 7 July 2017 fallen below 79,300,000, ie the number of the Pledged Shares.  That suggested that part of the Pledged Shares had been transferred away.  The plaintiff seeks inter alia (1) damages to be assessed; (2) all necessary accounts and inquiries as to the whereabouts of the Pledged Shares; and (3) a mandatory injunction that any shortfall be replenished, with a prohibitory injunction restraining further disposition.

THE JOINDER SUMMONS

3.I have read the affirmation of service of Chua Mei Mei filed on 28 August 2018.  I am satisfied that a copy of the Joinder Summons has validly been served upon Keyway HK.  I turn to the merits.

4.In the preamble of the Loan Agreement, Keyway Seychelles was described as “Key Way Holdings Limited, a Seychelles corporation having an address at Capital City, 1^st Floor, Suite 106, Victoria, Mahe, Seychelles”.  No Chinese name was mentioned therein.  This is to be contrasted with the company chop of the lender at the execution clause on page 24 of the Loan Agreement, whereby the lender was described as “Keyway Holdings Limited 啟聯集團有限公司”.

5.The plaintiff has taken steps to serve the Writ outside jurisdiction in Seychelles.  Those steps were however unsuccessful.  According to the searches conducted on the plaintiff’s behalf, it transpires that there is no company incorporated or registered in Seychelles in the name of “Keyway Holdings Limited”.

6.The plaintiff then sought to serve the Writ upon a firm of lawyers in New York.  That firm had on behalf of Keyway Seychelles on previous occasions communicated with the plaintiff in relation to businesses connectedto the Loan Agreement.  The plaintiff applied for and obtained an Order ofsubstituted service for that purpose.  Amongst other documents, a concurrent Writ was successfully delivered to that firm.  However, on 25 July 2018, that firm wrote to the plaintiff’s legal advisers and said that “… this firm has never represented Keyway Seychelles.  This firm did represent a company known as Keyway Holdings Limited, but such company was not incorporated in Seychelles.”

7.Service via that firm of lawyers was therefore also unsuccessful.  The evidence discussed above also raises concern about the true identity of the lender.

8.In the meantime, on 4 July 2018, the plaintiff obtained an Order from B Chu J ordering China Times to disclose the current status and whereabouts of the Pledged Shares together with the particulars of the custodian utilized to hold the same. The disclosure was made by Mr Frank Yu via his 3^rd affirmation dated 19 July 2018.  He is a director of China Times.  He produced a one-page statement of Sinteza Invest Group entitled “Investment Report” (the “Sinteza Statement”).  It concerned an account held in the name of Keyway Holdings Limited.  The address of that company (Keyway Holdings Limited) was said to be 1301, Bank of America Tower, 12 Harcourt Road. According to the company search records of Keyway HK obtained by the plaintiff, that was the previous address of the registered office of Keyway HK.  Whilst there is concern about the authenticity of the Sinteza Statement, that statement does on its face suggest that Keyway HK is involved in the matters in dispute.  

9.This morning, Keyway HK (but not Keyway Seychelles, which is absent and not represented) is represented by Mr Byron Chiu.  He confirms that Keyway HK is indeed the lender under the Loan Agreement.  That being the case, and by reason of the above, and having considered the authorities cited to me (which included Lin Man Yuan v Kin Ming Holdings International Ltd [2012] 3 HKLRD 550 and Wong Shan Shan v IO of Yue Wah Mansion HCA 1086/2013 (unreported, 28 January 2015), I am satisfied that the evidence establishes that Keyway HK should be joined pursuant to Order 15, rule 6(2)(b)(i).  I allow the Joinder Summons and make the orders sought, including the Order dispensing with service of the Amended Writ.  I grant Keyway HK 14 days to file the Acknowledgement of Service.  All subsequent steps are to follow the procedure as prescribed in the Rules of the High Court.

10.Having heard parties, I reserve the costs of and occasioned by the Joinder Summons.

THE INJUNCTION SUMMONS

Paragraph 3 of the Injunction Summons

11.The application for the injunction now sought via the InjunctionSummons was first made on an ex parte with notice basis on 22 August 2018 before Lisa Wong J.  Her Ladyship refused to grant any order on that basis, but directed that an inter parte summons be issued.  Upon the undertaking by the counsel appearing for the plaintiff that that be done as soon as possible, her Ladyship adjourned the application to 24 August 2018 before the Summons Judge and ordered that the time for service be abridged.

12.As things turned out, the issue and service of the Injunction Summons (together with all other related documents) was delayed.  The plaintiff first attempted to file the Injunction Summons after 4:15 pm on 23 August 2018, for hearing on 24 August 2018.  It was far too late, and filing was refused.  The plaintiff only managed to file and serve the documents on 24 August 2018, for hearing before the Summons Judge the following Friday (ie 31 August 2018).  The reason for the delay, as explained by Mr Yu Tin Sum in his 6^thaffirmation (of 24 August 2018), was that extra time was required and taken for the plaintiff to prepare for the Joinder Summons.

13.It is important that any undertaking made to the Court be honoured. However, in the circumstances of this case, noting the short delay, and the reason therefor, I grant the Order sought in paragraph 3 of the Injunction Summons.

Paragraphs 1 and 2 of the Injunction Summons

14.I have read the affirmation of service of Chua Mei Mei filed on 28 August 2018.  I am satisfied that a copy of the Injunction Summons (together with other related documents) have been validly served upon China Times and Keyway Seychelles/HK.

15.I adjourn paragraph 1 of the Injunction Summons adjourned for substantive argument.  That is consented to by the parties represented before me.  I give directions on the filing of evidence.  That leaves paragraph 2 for “interim interim” relief.

16.I have considered carefully the evidence that has been filed before me, and in particular the 5^thaffirmation of Law Tsz Ling of 22 August 2018.  I have considered counsel’s submissions.  I have also considered the authorities cited before me, and in particular Music Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041.  On the approach which the Court should adopt when considering whether to grant any “interim interim” relief, I refer to the recent decision of the Court of Appeal in China Shanshui Cement Group Limited & Others v Zhang Caikui & Others [2018] HKCA 409 (19 July 2018), where Hon Lam VP observed at paragraphs 13 to 16 that the test to be applied is one of balance of fairness.  When applying the test of balance of fairness, I will further factor in the consideration that it is an interim interim mandatory injunction which the plaintiff is seeking.

17.Based on the evidence before me, I form the provisional view that the plaintiff’s claim has good merits.  Keyway Seychelles apparently does not exist, at least not in Seychelles and not in the address set out at the preamble of the Loan Agreement.  The CCASS records show that the Pledged Shares had been transferred out.  Requests from the plaintiff for clarifications from the Keyway Seychelles/HK and China Times have never been satisfactorily answered.  China Times asserted variably that they were still holding the Pledged Shares.  Indeed, according to the monthly statements issued by China Times, the Pledged Shares remained in the account as at 31 July 2018.  Keyway Seychelles/HK through the New York firm of lawyers have also claimed that “the Lender … has not Transferred any of the Pledged Shares and is in full compliance with the terms of the Loan Agreement.”  In another letter of 5 January 2018, it was said by that firm of lawyers that:

“ The subject shares were hypothecated by Lender in connection with a refinancing of the underlying loan transaction.  This hypothecation is neither a ‘disposition’ nor a ‘transfer’ in the sense such terms are used in the Loan Agreement.  Rather, hypothecation is explicitly permitted as a “portfolio protection arrangement” by Section 3(d) thereof.” 

18.But the disclosure made by China Times in purported compliance of the Order of B Chu J of 4 July 2018 raises serious concern. That statement shows on its face that the Pledged Shares were in an account Keyway Holdings Limited (having the address of 1301, Bank of America Tower, 12 Harcourt Road) held with it.  Sinteza Invest Group has by correspondence indicated that the Sinteza Statement was not issued by it.  Recently on 27 August 2018, a representative appointed by the owner of the plaintiff (Mr Chau Fung Cheung) flew over to Serbia where Sinteza Invest Group was situated.  He had a face to face meeting with the representatives of the group.  A draft affirmation of Mr Chau has been placed before me.  According to that draft, Mr Chau was informed by representatives of the group that the Sinteza Statement was not issued by them.

19.In the circumstances, a compelling case had been established for the protection of the Pledged Shares. 

20.In terms of balance of convenience, I note that (1) the plaintiff is not seeking to have the Pledged Shares transferred back to it outright.  They are seeking to have it transferred for safe custody to an independent collateral agent; and (2) the transfer is not sought to be unconditional, but is to be upon a payment into court by the plaintiff of the sum of HK$36,019,426.67, which sum is calculated on the basis of the amount of the Advanced Sum together with interest that would have accrued by the maturity of the loan.

21.However, I remain concerned about one matter.  On the evidence before me, and despite the assertion of China Times that the Pledged Shares were still in the relevant account, I cannot ignore the possibility (I emphasize that this is only a possibility which the evidence suggests, but not a finding on my part) that the Pledged Shares might in fact have been wrongfully transferred out so that Keyway Seychelles/HK might no longer be in the position to comply with the interim interim mandatory order being sought (should one be granted).  As a matter of fairness, this Court ought not compel them on the pain of committal to do what they cannot do, even though their inability so to do is the result of their own wrongful acts. It isparticularly so whether no evidence has been filed by Keyway Seychelles/HK at this interim interim stage.

22.As things turn out, Ms Wu for the plaintiff produces for my consideration a refined version of the interim interim injunction which she seeks.  It is confined to those Pledged Shares which remain in the custody, power and control of Keyway Seychelles/HK.  I have considered this refined version of the interim interim injunction.  I repeat my preliminary view expressed above that a compelling case has been shown that the Pledged Shares require immediate protection. Given the two matters set out in paragraph 20 above, the balance of convenience is strongly in favour of the plaintiff.  My concern expressed in paragraph 21 above has been addressed.  In the circumstances, I am convinced that the withholding of the interim interim mandatory injunction sought would in fact carry a greater risk of injustice than granting it.  I am further satisfied that the balance of fairness, even having factored in the fact that it is an interim interim mandatory injunction being sought, requires the same to be granted.  Mr Chiu on behalf of Keyway HK consents to the same.  I so order.

23.I will hear parties on costs.

(Counsel submissions on costs)

24.Having heard parties, I reserve the costs of the Injunction Summons.

Ms Teresa Wu and Ms Rosa Lee, instructed by PC Woo & Co, for the plaintiff

The defendant was not represented and did not appear

Mr Byron Chiu, instructed by DLA Piper Hong Kong, for Keyway Holdings Limited (啟聯集團有限公司), the intended 2^nddefendant