Sung Chung Kwun and Another v. Addchance Holdings Ltd and Others

HCA 2385/2017 and
HCMP 2556/2017
(Heard Together)
[2018] HKCFI 2512

HCA 2385/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2385 OF 2017

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AND

HCMP 2556/2017

MISCELLANEOUS PROCEEDINGS NO 2556 OF 2017

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Before: Deputy High Court Judge Sherrington in Chambers

Dates of Hearing: 23 and 24 October 2018

Date of Judgment: 29 November 2018

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JUDGMENT

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The present application

1.There are two applications before the court in separate sets of proceedings.

2.In HCMP 2556/2017 Champion Forever Group Limited (“CFGL”) seeks summary determination under Order 88 of the Rules of theHigh Court (“RHC”) to enforce a second mortgage over a property known as Sung’s Tower against Addchance Dying Factory Limited (“ADFL”).

3.In HCA 2385/2017 ADFL and Sung Chung Kwun (“Sung”) allege that Poon Sum (“Poon”), D6, is liable for breach of contract and/or breach of fiduciary duty, arising out of its conduct in procuring D1, Addchance Holdings Limited (“AHL”), and its subsidiaries, which are named as D2 – D5, to enter into a Debt Restructuring Agreement dated 9 March 2017 which led to the execution of the Second Mortgage, the subject of HCMP 2556/2017, as well as the assignment of the Second Mortgage to D2 and the subsequent steps taken by D2. In the present application ADFL and Poon seek an order that the HCMP action be converted to a writ action, the two sets of proceedings be consolidated and that they be heard together.

4.I shall deal first with CFGL’s application under Order 88 in HCMP 2556/2017.

The background facts

5.Many of the material background facts are not in dispute:

(a) The AHL Group originated from Addchance Limited (“AL”), which Sung founded in 1981.

(b) AL, which developed into the Addchance group of companies, was engaged in business in the dyeing, knitting and textile trading industry, with production facilities set up in various provinces in the PRC and in Cambodia (ie Sung’s Businesses).

(c) AHL was listed on the Main Board in October 2005.

(d) Chinakey (Hong Kong) Limited (“Chinakey”) and Sky EmperorInternational Limited (“Sky Emperor”) were other subsidiariesof the AHL Group that carried on Sung’s Businesses.

(e) The building which became known as Sung’s Tower was being used by the Addchance group of companies for their offices. It was acquired by ADFL on 19 November 2010, particularly financed by a loan from Hang Seng Bank secured by a first mortgage.

6.The position of the parties then diverge and in deference to the detailed and helpful submissions I received I seek here to summarize the parties’ respective positions.

ADFL’s position

7.According to ADFL, AHL was listed because Sung wanted to bring in investors and capital to expand and develop the AHL Group.  However, he later came to doubt the wisdom of his decision.  Amongst other things, it is said that Sung and his team were not very sophisticated and unable to make the most of AHL’s listed status.

8.Poon by contrast was a very experienced and sophisticated investor and after a number of meetings attended by Poon and Sung and their associates, Poon offered to purchase AHL as a listed shell company on the basis that AHL’s business, assets and liabilities (“Sung’s Businesses”) would be returned to Sung.  At the time, Sung held approximately 72.44%of the shareholding of AHL, by himself and through his company Powerlink Industries Limited (“Powerlink”).

9.Poon’s intention was to use AHL to pursue some natural gas businesses. Poon had no experience of the textile industry and had no intention of maintaining AHL’s existing textiles businesses.  He said he would return everything to Sung, down to each “brick” and “screw”.

10.Sung was interested in Poon’s proposition because it would bean opportunity for Sung to go back to running the original textile businesses without the burdens of AHL’s listed status.

11.Against this background it is ADFL’s case that in December 2014 Poon and Sung reached an agreement (the Shell Sale Agreement) (“SSA”) which provided:

(i) Sung would sell his controlling interest in AHL to Poon (to himself or his nominees) by several tranches over the period from December 2014 to June 2016.

(ii) After Poon acquired a controlling interest over AHL, Poon would then re-transfer the Textile Businesses (including its assets and liabilities) (“Sung’s Businesses”), back to Sung, upon completion of the necessary restructuring exercises.

(iii) Poon could appoint two representatives to the board of AHL.

(iv) Poon would arrange for some fund raising exercises to be conducted by AHL to raise funds for both Sung’s Businesses and Poon's new businesses.

(v) The proceeds from these fundraisings would be kept separate bydepositing them into a bank account held by a special purpose vehicle (SPV) (which was Perfect Attempt Limited (“Perfect Attempt”)).  One-third of the funds would be channeled backinto the AHL Group’s existing companies for Sung’s Businesses, and the remainder would be used for Poon’s new businesses.

(vi) The price of the shares, at HK$0.952 per share, was proposed by Poon.  It represented the price of a shell and did not take into account the value of Sung’s Businesses.

12.It is ADFL’s case that fiduciary duties arose and/or contractual terms were implied into the SSA to ensure that pending re-transfer of Sung’s Businesses to Sung, Poon would not misuse his power over Sung’s Businesses for his own benefit.

13.The SSA was effected by three Sale and Purchase Agreements (the “SPAs”), all executed on 5 December 2014.

14.The First SPA and Second SPA each effected the sale of a total of 43,500,000 shares in AHL to Poon’s nominees.

15.The Third SPA effected the sale of 213,500,000 shares in AHLto Poon’s nominee, Flotilla Holdings Limited (“Flotilla”).  The first tranchewould be sold by December 2015, whilst the second tranche would be sold by December 2016.  The Third SPA also provided for the appointment of two directors to AHL’s Board and a new bank account to hold funds from fundraising.

16.I pause here to note here that it is Poon’s pleaded case in HCA 2385/2017 that whilst the purchaser in the case of the First SPA was his nominee, the purchasers in the case of the Second and Third SPAs, whilst friends of his, were entirely independent of him. I will come back to this.

17.The AHL Group owed certain debts (the “Debts”) to various banks (the “Banks”).  In early 2015, the Banks started pressuring the AHL Group for repayment.  They suggested that Sung put up Sung’s Tower as security.

18.It is ADFL’s case that Poon also tried to persuade Sung to mortgage Sung’s Tower through Mr Koo Yuk Shing (“Mr Koo”), who met with Sung a number of times.  Mr Koo told Sung that Poon was planning some fund-raising activities and that once these were completed, Poon would arrange for repayment of the bank loans with the proceeds and discharge the new security over Sung’s Tower.  Sung was reluctant to put up Sung’s Tower as security but recognised that action by the Banks would undermine the SSA and the operations of Sung’s Businesses.

19.Therefore, at the request of Poon and in exchange for his assurance that he would procure AHL to raise funds to repay the bank loans and discharge the new security, Sung on his own behalf and on behalf of ADFL agreed with Poon that he would procure ADFL, and ADFL would,enter into a Second Mortgage in respect of Sung’s Tower as security for repayment of the outstanding Debts (the “Second Mortgage”).  This is the oral agreement referred to as the Collateral Repayment Agreement (the “CRA”) which is at issue in these proceedings.

20.The sole purpose of the Second Mortgage was to support the SSA and to maintain Sung’s Businesses until they were re-transferred back to him.  Sung’s Tower itself was worth HK$300,000,000 at the time.

21.It is ADFL’s case that the CRA was concluded and that fiduciary duties arose and/or contractual terms were implied into the agreement for the Second Mortgage to ensure that Poon would not misuse his powers for his own benefit.

22.From October 2015 to January 2016, AHL then took steps to raise funds from the market in order to repay the Banks, as was agreed under the CRA.

23.In October and November 2015, notwithstanding that Sung had entered into the Second Mortgage, the Banks were again threatening to take action against the AHL Group.  Poon and Sung discussed possible ways to deal with the situation which negotiations, ADFL says, evidence Poon’s interest in and control over AHL.

24.Various proposals were considered including correspondence involving the parties’ solicitors which ADFL says evidenced Poon’s acceptance that he was party to the SSA and that he was in control of AHL at the time even though he did not formally take over the Board until an AGM on 7 May 2016.

25.ADFL and AHL continued to negotiate with each other to try to find a way out of the funding issues AHL faced but in the event negotiations between them failed.

26.Then on 9 March 2017, AHL announced that the following parties had entered into a Debt Restructuring Deed (the “Debt RestructuringDeed”): AHL; CFGL, being the Assignee; AL, Chinakey and Sky Emperor, being the Borrower Subsidiaries; the Banks, being the Assignors; and Hang Seng Bank, acting as the Security Agent and Paying Agent.

27.Under Clause 3.2 of the Debt Restructuring Deed, the Banks agreed to assign the Debts and their rights under the Second Mortgage to CFGL, in consideration for payment of HK$380,000,000; the Initial Instalment of HK$230,000,000 being payable by three instalments; and the Final Instalment being HK$150,000,000 (if paid by the due date).  The assignment would take effect on payment of the Initial Instalment.

28.The effect of the Debt Restructuring Deed was that the Banks sold the Debts and their rights under the Second Mortgage at a discounted price of HK$380,000,000.  As at the date of the Debt Restructuring Deed, the AHL Group Debts amounted to HK$526,660,000.

29.In other words, as ADFL puts it, Poon, through CFGL, purchased the Debts and the Second Mortgage for a discounted price and preserved them for his own benefit, even though Poon could have negotiated with the Banks to cancel the Debts and discharge the Second Mortgage at the same discounted price.  ADFL’s case is that there is no reason why Poon could not have done so.  It would have made no difference to the Banks.

30.Pursuant to the Debt Restructuring Agreement the AHL Group paid the Initial Instalment to the Banks and the Banks assigned the Loan Facilities and the Second Mortgage to CFGL.

31.The Second Mortgage was assigned to CFGL by a Deed dated 28 September 2017 (the “Assignment Deed”).

32.By letter dated 16 October 2017 from Michael Li & Co (“MLC”) (for CFGL) to ADFL, MLC demanded that ADFL repay the amount of HK$315,364,418.39, failing which CFGL would exercise the power of sale under the Second Mortgage.

33.On 24 October 2017, DLA (for ADFL and Sung) served the Writ in the HCA Action on MLC.

34.Subsequently by letter dated 9 November 2017, Wilkinson & Grist (“WG”) (for CFGL) demanded the sum of HK$288,153,195.05 originally owed to the Banks, failing which CFGL would institute legal proceedings for recovery of the debt and possession of Sung’s Tower.

35.By letter dated 13 November 2017, DLA served the Statement of Claim in the HCA Action on WG.  Nevertheless, CFGL insisted on commencing the HCMP Action.

36.In April 2017, it transpired that a restructuring exercise had taken place whereby AL’s and Chinakey’s businesses were transferred to new subsidiaries.  This demonstrates on ADFL’s case that Poon has no intention of re-transferring Sung’s Businesses back to Sung, and indeed is seeking to make it harder for ADFL to seek an indemnity from AL and Chinakey as the principal borrowers if ADFL is ultimately made liable for their debts.

CGFL’s position and the application for summary judgment

37.Mr Shieh SC’s case for CGFL was, he said, straightforward.  He said that it was important to recognize that if the banks themselves had brought the application ADFL and Sung would have had no defense.  The fact that CFGL was an assignee should therefore make no difference.

38.Mr Man SC on the other hand said it made the world of difference since the assignee here, namely CFGL, was a subsidiary of the primary debtor and so one needed to look much more closely at the overall structure of the arrangements between the parties.

39.Mr Man’s submission was that consistent with the SSA Sung was only persuaded to put up Sung’s Tower as further security for the debtsof AHL by virtue of the CRA wherein Poon agreed to procure AHL to raisefunds to repay the bank loan and discharge the Second Mortgage.  In other words Sung relied on Poon to ensure that the relationship between the borrower companies and the banks was maintained in line with the SSA andthat the bank would not take enforcement action under the Second Mortgage.  

40.Mr Shieh submitted that this was an attempt to obfuscate since the only relevant disputed issue for the purposes of the Originating Summons is whether CFGL’s right to enforce the Second Mortgage has been fettered, which in turn depends on the existence of the CRA.  His submission was that all of the other factual issues, which could be gleanedfrom the affirmation evidence, are irrelevant to the question of whether the Second Mortgage should be enforced.

41.His submission was that the suggestion that there was a CRA is inherently incredible and contradicted by contemporaneous documents on both sides such that there should be no further delay in the Court giving summary judgment to CFGL.

42.In developing his case Mr Shieh, whilst disputing the existenceand the terms in the SSA, conceded that this was a triable issue and went onto make a number of submissions about the factual background at the time.  In this connection he referred me extensively to what Mr Sung had said about the SSA at paragraph 35 of his affirmation:

“ In early December 2014, Mr. Poon and I arrived at an agreement whereby:

(1) I would sell my controlling interest in AHL to Mr. Poon, either to himself or his nominee(s), by several tranches over a period of time from around December 2014 to around June 2016;

(2) When all the necessary restructuring exercises were completed, Mr. Poon would re-transfer the existing Textile Business of the AHL Group (including its assets and liabilities) (‘My Businesses’) back to me.

(3) Through the above arrangement, Mr. Poon would ultimately acquire AHL as a listed shell company, while My Businesses would be returned to me.

(4) Mr. Poon would immediately be entitled to appoint 2 persons, namely Lo Ping and Robert Chui, to be the Executive Director and Non-Executive Director of AHL, respectively, as his representatives in AHL’s Board.

(5) Mr. Poon would then, either by himself or through Lo Ping or Robert Chui, arrange for some fund raising exercises (e.g. subscription of new shares or placing) to be carried out in the name of the AHL Group. The purpose of these fund raising exercises was to raise funds for both My Businesses and the new businesses that Mr. Poon intended to introduce to AHL, pending the re-transfer of My Businesses to me.

(6) In order to keep the funds and accounts of My Businessesseparate from the new businesses conducted by Mr. Poon, a special purpose vehicle (‘SPV’) would be incorporatedby AHL and a bank account would be opened under the SPV’s name. The SPV and the SPV’s bank account would be controlled by Mr. Poon through his nominee(s). The existing bank accounts of the AHL Group were referred to by the parties as the ‘A Account’ and the bank account opened under the SPV’s name was referred to as the ‘B Account’.

(7) All proceeds from the fund raising exercises would initially be deposited into the ‘B Account’.  One third of the proceeds from the fund raising exercises would be used to meet the operational needs of My Businesses. The remaining balance would be used to acquire other new business items/projects identified by Mr. Poon as the new core business of AHL.”

43.Mr Shieh made a number of comments in relation to Sung’s account whilst at all times reserving his position on whether the SSA was concluded.

44.In para 35(1) the controlling interest would not accrue to Poon until the relevant share transfers had been made in accordance with the purchase of the proposed tranches between December 2014 and June 2016.  Accordingly Mr Shieh submitted that at the time of the execution of the Second Mortgage on 8 June 2015 Poon did not have control of AHL, which was accordingly still controlled by Sung and his nominees/affiliates.  As I have already said Mr Man’s submission was that the facts made clear that Poon had de facto control by this point.

45.Secondly even on Sung’s own summary of the SSA there was no suggestion that Poon was under any obligation to ensure the ongoing viability of Sung’s textile businesses since it contemplated the re-transfer to Sung of these businesses “including its assets and liabilities” (para 35(2)).

46.Nowhere is it suggested under the terms of the SSA that all funds raised should be used to finance the repayment of loan facilities; in fact it was expressly contemplated that only one third of any funds raised would be applied to Sung’s former businesses (para 35(7)).

47.Nowhere either is there any suggestion that Sung had divested himself of any financial responsibilities to his businesses whilst they were under the temporary custodianship of Poon.  Mr Shieh pointed out that pursuant to the three SPAs referred to above Poon by June 2015 controlled at most 28.23% of AHL since transfer of the bulk of the shares, the subject of the Second SPA as well those the subject of the Third SPA had still to be transferred on or before 15 June 2016.

48.Mr Shieh therefore submitted that looking at the share register, Sung was still the largest shareholder of AHL and still had Board control, and he pointed to Appendix 1 to the Statement of Claim in the High Court Action by way of confirmation of this fact.

49.When AHL came under considerable pressure from its banks in mid-2015 and faced formal demands for repayments of the debts due to them from AHL, it was of course no surprise that consideration needed to be given to further security to support the continued lending.

50.At this time, Mr Shieh said, as well as Sung being in control of AHL’s Board he and his son, Kin Ping were the directors of ADFL which was wholly owned by the Sung family at all material times.

51.Mr Shieh referred the Court again to Sung’s evidence on whattranspired at this time at paragraph 87 et seq of his affirmation which again I set out:

“ 87. Mr. Poon was very concerned about the Demand Letters and continued to persuade me to put up Sung’s Tower as security. Mr. Koo told me on behalf of Mr. Poon that Mr. Poon was planning some fund raising exercises to be carried out shortly by the AHL Group. Mr. Koo said he was personally involved in some of the discussion with the potential investors. Once those intended fund raising exercises were completed, they would arrange for repayment of the bank loans with the proceeds and discharge the proposed new security over Sung’s Tower to be provided by the Defendant.

88. Mr. Koo also said that if I was willing to put up Sung’s Tower as security, apart from extending the existing loanthe Banks had granted to the AHL Group which was in the total sum of approximately HK$500 million, the Banks would be willing to lend another HK$100 million to the AHL Group, so as to keep AHL Group’s existing businessoperating pending the re-transfer of My Businesses to me (‘the 1+5 Proposal’).

89. Subsequently, Mr. Koo lined up a meeting at the office of FTI, which, so far as I remember, was attended by me, Martin Wong, Mr. Koo and the Banks’ representatives.

90. At the beginning, I was reluctant to put up Sung’s Tower assecurity. But serious possibility that if the Banks’ demands were unmet, the commencement of legal proceedings against the AHL Group would undermine the AHL Shell Sale Agreement and the operations of My Businesses. Therefore, in the end I gave in, and at the request of Mr. Poon and in exchange for Mr. Poon’s assurance (through Mr. Koo) that he would procure AHL to raise funds to repay the bank loans and discharge the new security, I on my own behalf and on behalf of the Defendant agreed with Mr. Poon that I would procure theDefendant, and the Defendant would, enter into a Second Mortgage in respect of Sung’s Tower as security for the repayment of the outstanding Loan Facilities (‘the Second Mortgage Agreement’).

91. Without waiving privilege, I am advised and verily believe that by virtue of the foregoing circumstances, Mr. Poon was bound by a collateral contract to procure AHL to raise funds to repay the bank loans and discharge the Second Mortgage (‘the Collateral Contract’).”

52.Mr Shieh submits that the suggestion that there was an oral collateral contract, which I have previously referred to as the CRA, is not supported by the contemporaneous documents, nor by the subsequent conduct of the parties, and as such the allegation of its existence is incredible.   

53.Mr Shieh says that if there really had been a CRA the most natural thing would have been for Sung to have executed whatever documents he was advised was necessary to formalize the oral agreement he had reached and that this was particularly so given that Sung still had control of AHL with the result that Poon would be bound by it when he assumed control; yet he did not do so.

54.Furthermore Mr Shieh points out that no such oral agreementwas mentioned in the public announcement of the Second Mortgage whichexpressly stated that the mortgage was unconditional.  The announcement recorded that the mortgage was “an unconditional financial assistance provided by ADFL” and that “no consideration was paid and no security wasprovided by the group to [ADFL]”.  Again Mr Shieh says that it is simply unbelievable that Sung would have not disclosed the CRA in the public announcement.

55.Even more telling in Mr Shieh’s submission is that the CRA was not even referred to in ADFL’s own Board resolution on the second mortgage which was signed by Sung and Kin Ping.  The resolution recorded their approval that “it was in the best interests of the Company to enter into the second mortgage” and simply that: “The second mortgage, all the terms and conditions thereof, and the transactions completed thereby, be and hereby are approved in all respects.”

56.Mr Shieh then turned to the subsequent conduct of the parties.  He refers to the fact that AHL carried out a placement to raise funds whichwas the subject of a public announcement dated 21 August 2015, in whichthe expected proceeds of HK$125.3 million was stated to be used as generalworking capital and/or for future investments of the group, but significantly in his submission not to pay for the loan facilities.  He submits that this is contrary to the terms of the CRA and yet no complaint was received from Sung or anyone in his camp, notwithstanding that at the time Sung remained the largest shareholder and with a majority on the Board.

57.Mr Shieh also points to the fact that when FTI Consulting (“FTI”) became involved as the AHL Group’s independent financial advisor vis-à-vis the restructuring of the loan facilities, Sung never mentioned to them anything about the CRA needing to be taken into account.  As a result none of the proposals made by FTI made any reference to the CRA, and indeed, in Mr Shieh’s submission, were inconsistent with it.

58.Furthermore Mr Shieh submitted it was significant that when on 25 May 2016 Sung instructed K&L Gates to write to AHL demanding the Second Mortgage be released he did not seek to rely on the CRA but rather simply that he was no longer involved in the management of AHL.

59.Finally he submitted that even in his own evidence, Sung in talking of the discussions he had with Poon and the various proposals which were considered, never made any reference to the CRA.  He referredin particular to the description of these discussions at paragraphs 122 – 128of Sung’s affirmation, which specifically included a discussion of the sale of Sung’s Tower and pointed out that in June 2016 Mr Sung even considered the surrender of Sung’s Tower to satisfy the Second Mortgage to the banks:

“ 122. In view of the financial difficulties faced by the AHL Group, Mr. Poon and I discussed possible ways to deal with the situation. However, no agreement could be reached between us. By way of illustration of the different plans that were on the table, there are now produced and shown to me copies of a report letter from Cedric Yeung to me dated 20 November 2015, a draft agreement (‘WLA Draft Agreement’) prepared by my solicitors, William Lee & Associates (‘WLA’), and a draft MOU Regarding the Debt Arrangement (‘Zimmern Draft MOU’) prepared by F. Zimmern & Co. (‘Zimmern’) at respectively pages [344], [345 – 352] and [353 – 355]. The WLA Draft Agreement and the Zimmern Draft MOU also show that at all times it was Mr. Poon who I was dealing with and who was in control of AHL.

123. According to Cedric Yeung’s report letter, he had already passed the WLA Draft Agreement to Mr. Poon through Lo Ping and Robert Chui.

124. By the WLA Draft Agreement, it was proposed, inter alia,that:

(1) I shall cause Powerlink to sell all its remaining shares in AHL to a third party at a consideration of not less than HK$100,000,000 and apply the sale proceeds of such shares for repayment of the outstanding indebtedness owing by the AHL Group to the Banks under the Loan Facilities.

(2) Mr. Poon shall procure that any outstanding sale andpurchase agreement entered into between Powerlink and Mr. Poon or any other persons (i.e. the SPAs) be rescinded and terminated. Mr. Poon shall pay HK$30,000,000 to Mr. Sung within 7 working days as damages. Mr. Poon shall indemnify Powerlink against all losses suffered by Powerlink by reason of the rescission and termination of the SPAs.

(3) Mr. Poon shall procure AHL and any related company to sell Sung’s Tower at reasonable marketprice. The sale proceeds from Sung’s Tower (after deducting all the necessary expenses in relation to the sale) shall be applied for repayment of the outstanding indebtedness owing by the AHL Group to the Banks under the Loan Facilities.

(4) Mr. Poon shall procure AHL and all the related companies to sell or transfer all the subsidiaries of AHL carrying out the businesses of textile, garmentmanufacturing, trading of knitted sweaters and dyeing (including ACL, Chinakey and their subsidiaries or related companies) (i.e. my Textile Business) to me or my designated companies without requiring me to pay any further consideration.

125. The idea was that, given that I had put up Sung’s Tower as security, if I could at least get back My Businesses,I was willing to apply the proceeds from the sales of the 2nd Tranche of AHL shares (that would originally have been sold to Mr. Poon under the 3rd SPA) and Sung’s Tower for settlement of the outstanding indebtedness under the Loan Facilities. Also, Mr. Poon would need to repay the outstanding consideration of approximately HK$30 million as described in Paragraph 65 above.

126. As recorded in Cedric Yeung’s report letter, Lo Ping said it would be difficult for Mr. Poon to agree to the WLA Draft Agreement because its terms were only in my favour. In the end, Mr. Poon did not agree to it.

127. Another proposal that was broached was the Zimmern Draft MOU. According to Cedric Yeung’s report letter, a representative of Standard Chartered Bank by the name of Hendrick said that signing the Zimmern Draft MOU would help me to get back My Businesses in the PRC andCambodia. Otherwise, both Mr. Poon and I would both be the losers. Hendrick also said that the bank would only recognize the Zimmern Draft MOU. He would pretend that he knew nothing about the other arrangements; otherwise he or the bank would get into trouble.

128. By the Zimmern Draft MOU, it was proposed, inter alia, that:

(1) I shall sell and Mr. Poon shall buy all my shares in AHL on or before 25 November 2015;

(2) I shall procure the relevant parties to sell Sung’s Tower;

(3) I shall advance all the sale proceeds from my shares in AHL and Sung’s Tower to the AHL Group as shareholder’s loan. Mr. Poon and I shall procure the AHL Group to put up the ‘relevant assets’ of theAHL Group (so far as it is allowed under the Listing Rules) as security for the shareholder’s loan;

(4) I shall agree that before the AHL Group repay all the relevant bank loans, I will not call on the shareholders’ loan; and

(5) Mr. Poon and I shall procure the AHL Group to settlethe relevant bank loans using the money I was about to advance to the AHL Group.”

60.Mr Shieh emphasizes the point that in describing various discussions including possible surrender, Sung makes no reference of the need to satisfy the alleged CRA.

61.Having sought to make good his submission that in all of the circumstances, the allegation of an oral CRA was incredible, Mr Shieh submitted that he had prima facie demonstrated on the evidence the plaintiff’s entitlement to summary judgment.  His submission was that there was no triable issue given that the court in considering this question needed to test the defense against the available evidence and having regard to its inherent probability.

ADFL’s response to the summary judgment application

62.Mr Man’s submission was that CFGL’s attempt to obtain summary judgment was a try-on, designed to avoid the spotlight of a trial and the forensic examination which would accompany that in terms of the evidence surrounding the business relationship between the principal parties. 

63.He pointed to what he felt were the significant factors which supported this view.

64.First this is an Order 88 mortgage action, brought not by the bank, but rather by a special purpose vehicle incorporated by the principle debtor for the purpose of taking over the debt.  It is, as Mr Man puts it, “a bit ripe” for a claim for summary judgment to be asserted in circumstanceswhere the mortgagee is a Poon entity seeking to recover over and above the amount due to the Banks as a result of the discount AHL had negotiated with them.

65.Secondly the CRA is an entirely logical arrangement for partiesin the position of Poon and Sung to have concluded and not at all incredible. It simply reflects the principal debtor agreeing to repay the loan if securityis put up.  Indeed, says Mr Man, why otherwise would Sung have chargedSung’s Tower voluntarily to support AHL’s business.  It is surely the more incredible that he would put up such valuable security voluntarily on an unconditional basis yet that, he said, is the effect of Mr Shieh’s submission.

66.Thirdly against this background Mr Man submits that Mr Shieh’s points about the CRA not being in writing, the absence of contemporaneous documents and inconsistent subsequent conduct are no more than cross examination points and even then not good ones in circumstances where the plaintiff had conceded the triability of the SSA in this action.  He points out that the SSA itself is oral.  Pursuant to it Sung sold his shares at a discount because he was going to get back his businesses.  This was entirely oral, not announced, and yet Mr Shieh accepts that this agreement is triable, but says the CSA which flows from it is not.  The sum total of all of Mr Shieh’s submissions are not enough to justify summary judgmentwhen he has conceded the existence and terms of the SSA are triable issues.  

67.Furthermore, in Mr Man’s submission, it is difficult to see how the Poon camp, as he put it, will be able to defend their position without evidence from Poon himself, which is so far conspicuously absent and which was a point of which the court could take note.

68.Mr Man’s riposte to Mr Shieh’s submissions at a macro level, therefore were three-fold:

(1) CFGL is in effect a special purpose vehicle of the primary debtor, incorporated to take an assignment of the bank’s debt and enforce it in full against the surety, notwithstanding they had purchased it at a discount.  One needed therefore to look at this in context.

(2) The terms of the CRA were altogether normal and to be expected amounting to no more than the principal debtor agreeing to repay the surety if ADFL were to put up additional security.

(3) Mr Shieh’s submissions that the CRA was not in writing, not asserted in correspondence and not raised in settlement negotiations subsequently amounted to no more than cross examination points which should be entirely discounted in circumstances where CFGL has conceded the triability of the SSA, which was itself a collateral arrangement also entirely oral and also inconsistent with the public announcements made at the time.  Against that background it was not at all convincing to suggest that summary judgment be given in relation to an agreement said to be closely related to the SSA simply because it was oral and not evidenced in documents.

69.Mr Man’s submissions were to the effect that Poon and CFGL’s conduct in seeking to enforce the Second Mortgage summarily needed to be seen against the background facts which make it clear that this is far from a straightforward case.

70.In December 2014 it was agreed between them that Poon would acquire Sung’s controlling interest by virtue of three binding SPAs pursuant to which he would acquire 58.36% of AHL’s shares.

71.He took issue with Mr Shieh’s suggestion that the commercial reality was that at the time of the execution of the Second Mortgage Mr Sung remained the majority shareholder of AHL with control of the Board and pointed to the fact that there was a binding agreement from December 2014 for Mr Poon to acquire 58.36% of the shares and it is against that background that the court should consider the events of June 2015.

72.Mr Man then took the court to the terms of the three SPAs and pointed out that in his defence in the High Court Action Poon denies any connection between the purchasers of these shares under the three SPAs notwithstanding he admits having introduced the other two purchases to Sung.  His case is that each of them acquired a minority stake which in Poon’s own case was limited to the acquisition under the first SPA in favour of Gold Tat Group Limited.  It is Poon’s pleaded case that all three purchasers operated independently and yet it is absolutely clear on the evidence, in Mr Man’s submission, that Poon acquired control in fact as a result of the agreement he reached with Sung in December 2014.

73.In support of his submission that Poon was de facto in controlfrom December 2014 he pointed to the fact that the purchases under the firsttwo SPAs were completed in December 2014 and immediately thereafter on22 December Mr Lo Ping, who is the only person whose formal affirmation is filed in support of CFGL in its application, and Mr Robert Choi were appointed as Directors of AHL.  It is significant that they became Board members when they did and if one looks at Sung’s evidence at paragraph 56 one can see that they undeniably became active and arranged for AHL to carry out a placing:

“ 56. In December 2014, Mr. Poon and Robert Chiu arranged for AHL to carry out a placing.

(1) On 24 December 2014, Powerlink entered into a Placing Agreement with KGI Asia Limited (‘KGI’), to place up to 88,000,000 existing shares at HK$1.05 per share on behalf of Powerlink, to not fewer than 6 placees (‘the December 2014 Placing’). On the same date, AHL and Powerlink entered into an Subscription Agreement for the subscription of up to 88,000,000 new subscription shares at HK$1.05 per subscription share (‘the December 2014 Subscription’).

(2) As a result of the December 2014 Placing and Subscription, Powerlink sold 88,000,000 shares to the 6 placees, and then purchased the same amount of shares from AHL, with the sale proceeds being paid to AHL.

(3) On 6 January 2015, AHL transferred the proceeds of December 2014 Subscription in the sum of $90,221,238.2 (i.e. the HK$92,400,000 raised, minustransaction fees for the December 2014 Placing and Subscription) to Perfect Attempt’s bank account (which was the ‘B Account’ mentioned in paragraph 35(6) above).  There is now produced and shown to me a copy of the current account of Perfect Attempt for the period from January to June 2015 atpages [110].  On this current account, the proceeds of the December 2014 Subscription are recorded as a sums due to AHL.”

74.Sung’s evidence at paragraph 35 of his affirmation which I have already set out makes it clear that Poon was in control from this time and there were detailed arrangements for dealing with the proceeds of the fundraising activities being undertaken, including the provision of one third of the proceeds to meet the operational needs of the businesses agreed to be re-transferred to Sung under the SSA.

75.In this connection he referred the court to paragraph 69 of Sung’s evidence which records that notwithstanding Poon’s pleaded case that he had no involvement with the purchases under the second SPA, the DI forms filed by him disclose all of the shares under the first and second SPAs as being an acquisition of shares by Mr Poon.  Sung goes on to point out that there were no DI forms filed for the first tranche of shares under the third SPA and Mr Man also points to the significance of there having been no announcement of Flotilla’s long position under the SPA.

76.Against this background and on the basis that the SSA is accepted as triable it is Mr Man’s submission that it is breathtaking for Mr Shieh to have suggested that Poon was entitled to everything, and when in a position to pay off the mortgage did not do so and was able to turn on Sung.

77.Mr Man’s submission in respect of the SSA is summarized in his skeleton at paragraph 11:       

“ Several features of the Shell Sale Agreement are worth noting at the outset:

11.1 To put the matter mildly, this agreement would obviously give rise to a number of regulatory concerns. As one would expect, therefore, it is neither the subjectmatter of any announcement or written document. But it is accepted for present purposes that it is triable.

11.2 This immediately puts paid to any argument that in the dealings between Sung and Poon, it is unbelievable for important agreements to be oral only, and not subject of (or even contrary to) the effect of AHL’s public announcements.

11.3 This agreement means that by December 2014, Poon had already undertaken to re-transfer the existing textile businesses back to Sung at an uncertain point in time in the future. This must mean that Poon had the responsibility to ensure that those businesses remained in viable existence, pending the re-transfer.

11.4 Put another way, whilst, when the actual re-transfer took Place, Sung would have to shoulder the liabilities,Poon would have to keep the businesses afloat pending the transfer.

11.5 This is how the deal was struck in December 2014. Very strong and cogent reasons would therefore have to be found if it were to be suggested that this was fundamentally altered later."

78.Mr Shieh submitted that whatever may have been the position in December 2014, there were troubled times ahead and in June 2015 something needed to be done to keep the Banks at bay and this is the basisfor his argument that the risk allocation between the parties might have changed. Mr Man, on the other hand, says that is only right if you discount entirely the case that the parties had reached an agreement in relation to the provision of further security.

79.In essence Mr Man submitted that the parties’ apparent coynessfor recording their agreements in writing was to conceal the fact of Poon’sinvolvement and control of AHL pursuant to the December 2014 agreement.  It was Mr Man’s submission that it was important for Poon that there was no disclosure or record of the SSA or CRA since the very fact that the CRA was between Sung and Poon would demonstrate his involvement and control of AHL which was inconsistent with the public announcements.  Mr Man submitted further that it was the lack of perceived control which permitted Poon to introduce the natural gas business to AHL and thus that there were a number of reasons why it was in Poon’s interest to keep the details of his agreements with Sung off the record.

80.The next focus of Mr Man’s submissions was Poon’s conduct in relation to Sung.  He referred again to Mr Sung’s relative lack of experience in corporate dealings and the fact that he reposed great trust in Mr Poon and as evidence of this said that when it came to agreeing to provide security for the Second Mortgage Sung did not focus on the fact that the borrowers from the banks were the operating subsidiaries of the listed company and that AHL was simply a guarantor and he did not even insist on Poon procuring an indemnity from AHL.  When subsequently all the businesses were transferred out of the debt owning subsidiaries to new companies, Mr Man submitted that Sung was left with a bare common law right against the empty subsidiaries, subject always to what could be clawed back under the Transfer of Businesses (Protection of Creditors) Ordinance (Cap 49).

81.Against this background Mr Man submits that even if I am to take CFGL’s case at its highest namely that the CRA did not exist it must at least be arguable that Poon owed fiduciary duties to Sung to deal with the Second Mortgage for the purposes of implementing the SSA, ie not to alter the distribution of risks in respect of the period before the re-transfer of the businesses and not to profit from this arrangement at the expense of Sung or ADFL.

82.Mr Man also submits that Poon’s pleaded case in the High Court Action lacks credibility. He referred the court to paragraphs 24 et seq of the Defense from which it can be seen that on the 5 May 2015 the AHL group entered into an informal Standstill Agreement with the Banks which specifically envisaged a Second Mortgage being granted over Sung’sTower.  This was confirmed in writing in a letter from Standard CharteredBank of 29 May and when this Second Mortgage was not forthcoming, thebanks made their demands by letter on 3 or 4 June 2015.  It is then pleadedthat around the same time, namely in early June, Sung approached Poon for advice on how to resolve AHL’s financial problems and Poon introduced him to Mr Koo, a former colleague of his, and it was only following that Sung agreed to execute the Second Mortgage to ADFL. 

83.Mr Man submits that this begs a very big question as to why suddenly Sung did within a matter of days what Poon had agreed with the banks more than a month before.  No explanation for this is given and indeed the implication of Poon’s case is that Sung did this entirely voluntarily.  Mr Man’s submission is that this raises fundamental questions which need to be examined at trial and the court would want to hear from Mr Poon as to why, he says, Sung put up $300 million on a voluntary basis at this juncture.

84.Mr Man then turned his attention to his third rebuttal point and Mr Shieh’s submission that there was nothing in the written documents supporting the allegation that there was a CRA.  He submitted that even though the CRA was not specifically mentioned it was clear from a number of documents that the intention throughout the period until the beginning of 2016 was that the loans would be repaid and not that Sung would be responsible for them.

85.He pointed to the fact that following a statutory demand fromthe Banks dated 2 December 2015 ADFL had written to AHL on 7 December claiming an indemnity or a repayment of the loans and that in response AHL’s solicitors positively confirmed that AHL’s intention was to use the proceeds of contemplated shares subscriptions and share placings to “fully repay the outstanding loans owed to the relevant banks”.

86.He also referred to the announcement made on 5 January 2016which talked of a potential subscription and placing of new shares in whichit was stated that the proceeds of the subscription amount, which amounted to approximately $1.125 billion, would be used for purposes including approximately HK$300 million for the repayment of existing bank loans

87.Furthermore the gross proceeds of the placings, amounting to approximately HK$728 million would be used for a number of purposes including approximately $200 million for the repayment of existing bank loans.

88.Mr Man goes further and points to the evidence of Mr Lo in his second affirmation for CGFL in which he concedes at paragraph 24 that on receipt of the statutory demands from the banks in late 2015 “AHL attempted to raise funds to repay its Outstanding indebtedness to the Banks by way of the 2016 Intended Subscription and the 2016 Intended Placing.”

89.The fact that in the end these transactions did not proceed does not alter mindset at the time which is plainly inconsistent with the notion that Sung was to be solely responsible for this indebtedness by virtue of his having voluntarily put up Sung Tower as security.

90.The fact that Sung did not insist on his rights in settlement negotiations is not at all surprising either; the point of settlement negotiations is to attempt to reach agreement notwithstanding the parties’ starting position and in any event the same argument can be leveled at Mr Poon on his pleaded case since he never asserted the rights he said he had; for instance he never asserted that he had no obligation to transfer back to Sung Sung’s Businesses.

91.To continue with the narrative, it is clear that the execution of the Second Mortgage was not sufficient for the Banks and they continued to press for payment in 2016.  In late 2016/early 2017 AHL successfully pursued a series of placings and subscriptions, the end result of which was that Poon became the disclosed controlling shareholder of AHL and AHL came into funds totaling some HK$380 million.  Notwithstanding this AHL did not use those funds to repay the bank loans but used them instead to purchase the debts and securities from the Banks at a discount.  It then incorporated CGFL to take over the debts and securities from the Banks such that CGFL takes the benefit of the Second Mortgage and is now seeking to use these proceedings to enforce the Second Mortgage without discount for the entire outstanding loans owed to the Banks.

92.Mr Man described this action by Poon and CFGL as seeking to have the “double whammy” of enforcing the Second Mortgage before retransfer of Sung’s Businesses and making a profit out of the discounted purchase from the Banks by enforcing the entirety of the outstanding loans in these proceedings.

93.He points out that the promised retransfer has still not taken place, Poon has become the disclosed controlling shareholder and Chairman of AHL and AHL has made plain that Sung no longer has any interest or involvement in the AHL group.

94.To make matters worse Mr Man points to Poon having emptied the original debtor’s subsidiaries so as to ensure that ADL is left with a common-law indemnity against them that may be empty.

95.Thus it is ADFL’s case that given the SSA which is conceded to be triable, the CRA is at the very least triable as well and this fact is fortified by the fact that Poon has, in his view, wholly and inexplicably not chosen to give any evidence in this matter.

96.By his acts Poon is said to be taking advantage of the Second Mortgage in a way inconsistent with the CRA and the SSA.  Furthermore even if the court were to find the CRA was never expressly entered into, it must at least be arguable that Poon is in breach of fiduciary duty in his actions and that it would be unconscionable for the plaintiff, with all the relevant knowledge, to enforce the Second Mortgage now and seek to achieve the “double whammy” he referred me to. 

97.The plaintiff’s case that without enforcing the Second Mortgage the Banks could not be satisfied is plainly inconsistent with their own evidence since they in fact paid the final installment as required under the Debt Restructuring Deed in order to claim the discount, by arranging a loan, which is said to be at an interest rate of 20% per annum in late December 2017.  This is Mr Lo Ping’s evidence at paragraph 43.  Mr Man takes the point that the loan terms are not specified or disclosed anywhere in either this action or the discovery in the High Court Action but in any event on their own evidence, he submits, this demonstrates that they were in a position to pay off the loan because they did so.

The law and the court's decision

98.There is no real dispute as to applicable principles when the court is approaching a summary judgment application under Order 88 RHC. Mr Shieh summarized these at paragraphs 8 – 11 of his skeleton:

“ 8. In summary judgment applications under O.88, the burden is on the plaintiff to justify its entitlement to summary judgment. Once this is prima facie demonstrated on the evidence, it is for the defendant to show that he has a defence to the claim: Wing Hang Bank Ltd v Liu Kam Ying & Ors [2002] 2 HKC 57, 60H-I (Ma J).

9. Although the matter is litigated by way of O.88, the court can give judgment summarily in favour of the plaintiff if there is no triable issue on the evidence: Bank of China (Hong Kong) Ltd v China Hong Kong Textile Co Ltd [2011] 4 HKLRD 457 §5 (Johnson Lam J).

10. In considering whether there are triable issues, the Court will not take the alleged defence on its face value but will test it against the evidence disclosed in the affidavit including contemporaneous documents and also the inherent probability of the defence: Paul Y Management Ltd v Eternal Unity Development Ltd & Ors (CACV 16/2008, 12.8.2008) §19 (Cheung JA) (in the analogous context of O.14).

11. In opposing summary judgment, the defendant’s affidavit must condescend upon particulars and should as far aspossible deal specifically with the plaintiff’s claim and affidavit, and state clearly and concisely what the defence is, and what facts are relied on to support it.  A mere general denial that the defendant is indebted will not suffice unless the grounds on which the defendant realise as showing that he is not indebted are stated: Hong Kong Civil Procedure 2019 §14/4/4 (in the analogous context of O.14).”

99.Mr Man accepted this but sought to emphasize at paragraph 88 of his skeleton the following additional well acknowledged factors which the Court also needs to take into account.

“ 88.1 The threshold for resisting summary judgment is low. The test is whether the defendant has a reasonable probability of showing a real or bona fide defence, i.e. that his evidence is reasonably capable of belief: Hong Kong Civil Procedure 2019, §14/4/9A.

88.2 Where there are unexplained features of both the claim and the defence which are disturbing because they bear the appearance of falsity and disreputable business dealings and questionable conduct, the court should notmake tentative assessments of the respective chances of success of the parties or the relative strengths of their good or bad faith, and should not on such an examination grant the defendant conditional leave to defend, but should give unconditional leave to defend: Hong Kong Civil Procedure 2019 §14/4/9X.”

100.I accept for the purposes of CFGL’s application that it has established a prima facie case but I then have to consider ADFL’s defense to the claim and ask myself whether based on the evidence disclosed that defense is inherently improbable as Mr Shieh contends.

101.The facts surrounding the relationship of the parties to the Originating Summons as well as the High Court Action are complex and very detailed evidence has been filed as to the relationship between them as I have sought to summarise.

102.Mr Shieh contends that for the most part this factual background is irrelevant and should not cloud the simple issue of whether the Second Mortgage should be enforced.  The only hurdle he has to overcome he says, is to demonstrate that the allegation of the CRA is so incredible that it can be disregarded.

103.Mr Man on the other hand says that you cannot divorce the enforceability of the Second Mortgage from the overall relationship of the parties pursuant to which they assumed rights and obligations towards each other and the CRA was an inherent part of those arrangements and indeed in Mr Man’s submission consistent with the SSA which CFGL has conceded raises a triable issue.

104.I have reached the conclusion that it would be wrong of me to give summary judgment in this matter.  The facts disposed to raise clear issues as to the propriety of the arrangements leading to the Second Mortgage and I accept Mr Man’s submission that, even were there to be found at trial to be no CRA, then there is still a triable issue arising from the allegation of breach of fiduciary duty on the part of the Poon camp in disregarding their obligation to the Sung camp, and indeed in making a profit on the arrangements.

105.In reaching this conclusion I have considered carefully the arguments addressed by Mr Shieh namely:

(1) The CRA is unsupported by contemporaneous documents.

(2) It is inherently incredible on either side’s case and inconsistent with contemporaneous documents; in particular it is inconsistent with ADFL’s own case on the SSA.

(3) The SSA is a red herring and in any event is equally consistent with their being no CRA.

106.I will deal with each of these briefly in turn:

(1) I do not find the absence of contemporaneous documents to support the CRA a compelling argument against the background of a series of transactions in which both parties seem to have scrupulously avoided recording their positions accurately in writing and especially against the background of a failure to make full and accurate disclosure in public announcements in relation to their affairs.  In this respect I disregard Mr Shieh’s submission that the failure to record the terms of the CRA in the public announcement relating to the Second Mortgage is in any way conclusive.  Whether this apparent coyness in relation to the documenting of their affairs is because of a desire to hide Poon's control of AHL, as Mr Man contends, or for some other purpose will have to be decided at trial; certainly I could not conclude on the evidence before me as Mr Shieh contended that Sung was in control of AHL at the relevant time and Poon’s pleaded case on this will need to be tested at trial.

(2) Whether the CRA exists and whether it is consistent or not with the SSA, if indeed that is found to have been concluded, are matters that cannot be resolved without weighing the testimony of the parties; it is not for me to do this on a summary judgment application, and as Mr Man has pointed out, when Poon has given no evidence to date.  I cannot accept Mr Shieh’s submission that the Court should disregard the evidence in relation to these alleged agreements as irrelevant to his client’s rights to enforce the Second Mortgage.  There are serious allegations on the evidence as to Poon’s conduct in relation to the Second Mortgage which need to be tested.

(3) Whether the CRA is as equally consistent with or without there having been an SSA seems to me to be neither here nor there.  I do not regard it as right for the Court to reach any conclusion on this at this summary stage.

ADFL and Sung’s application in HCA 2385/2017

107.Having concluded as I have, I am then faced with ADFL and Sung’s application in HCA 2385/2017 that the HCMP action be converted to a writ action pursuant to Order 28, rule 8 RHC and the two sets of proceedings consolidated in accordance with the directions they seek.

108.Mr Shieh submits that I am by no means compelled to take this route (which I accept) since I could give appropriate directions without taking such steps and that I should at all times have in mind the case management powers I have that need to be exercised with a view to the underlying objective of the Rules as set out in Order 1A; that contention is not in dispute.

109.His principle argument is that consolidation is unnecessary and would delay the final resolution of the dispute between the parties, which is not in CFGL's interests, given the loan it has taken out, and the consequent need to fund it, until the conclusion of the proceedings, and nor is it, he submits, in Sung’s interests since Sung’s Tower remains encumbered in the meanwhile.

110.He further says that there is no need for formal pleadings in the Originating Summons since the parties' positions in respect of the CRA have already been covered in the HCA pleading and the HCA case is well advanced.  He points to the fact that substantial evidence has already beenadduced (so that neither side would suffer any prejudice from an expeditedprocess), lists of documents have been exchanged and discovery has takenplace in the HCA, extensive evidence has already been filed in the OS such that the only outstanding remaining evidence is that from the remaining HCA defendants, ie Poon, AHL and the Subsidiaries.

111.Accordingly his submission was the interests of justice, having regard to the underlying objectives and the need for urgent termination, militated against converting the Originating Summons into a writ action andthat accordingly I should give directions for the two sets of proceedings tobe heard together on an accelerated basis and that a speedy trial be ordered. 

112.Mr Man by way of response notes the concession by Mr Shieh that the two actions should be heard together but objects strongly to what he describes as a last minute application that there be a speedy trial; he said that this has never been raised in correspondence and was not the subject of the summons and is supported by absolutely no evidence with the result that I should dismiss this in limine.  There is no evidence filed by Poon in relation to such an application and Sung and ADFL have had no opportunityto respond as to why they say an order for speedy trial should not be made.  The burden is clearly on the Poon camp, he submits, to persuade the Court that a speedy trial should be ordered and that no prejudice would be suffered by the defendants.  Mr Man referred me to a recent decision of DHCJ Keith Yeung SC in Qianhai Xinhuakang Financial Holdings (Shenzhen) Limited v Chen Jiarong [2018] HKCFI 2113 dealing with the principles when a speedy trial should be ordered namely: (1) whether the applicants have shown good reason for expedition; (2) whether expedition would interfere with the good administration of justice; (3) whether expedition would cause prejudice to the other party; and (4) whether there are any other special factors.

“ 6.1 Factor 1 is the most important factor. It is the threshold issue, and the question is not simply one of comparing competing timetables which are put before the court, and expedition will be granted only if the threshold test is duly satisfied (§21). The party making the application must make out a clear case that there is real and objective urgency which justifies expedition, and displacing the procedural timetable in the Rules of the High Court (§22).

6.2 Expedition can only be justified on the basis of real, objectively viewed, urgency of the case, which justifies,first of all, giving preference in the allocation of court time to this case over the other cases in the court’s list and, correspondingly, requiring the lawyers to drop everything else and devote their time to the expedited case (§22(b)).

6.3 The Rules of the High Court contains a comprehensive set of procedural timetable for all litigants to follow. Todisplace their application, good reason has to be shown, and the onus to do so has to be on the party seeking expedition (§22(c)).

6.4 In respect of Factor 2, the Court will have to bear in mindthat there are parties to other cases in the queue waitingfor trials, and ordering expedition means that the partiesin the instant case are permitted to jump the queue (§23).

6.5 Factor 3 focuses on the prejudice to the other party in the instant case. To be able to gauge that, the Court will, among other things, consider the quantity of the discoverable materials involved, and whether the opposing party is required to go through a lot of materials to put its case together. A party is entitled to expect to have the time stipulated by the Rules of the High Court to put its case together. That should not be cut short without good reason, and a fortiori, ought not be cut short if that could result in prejudice (§24).

6.6 The important point is that expedition should not be allowed to be used to the unfair advantage of the applying party, thereby and in that sense causing prejudice to the other party (§25).

6.7 In respect of Factor 4, the most important component is often the conduct of the applying party.  Relevant are for example whether there has been any delay on its part (§26).”

113.Mr Man says that the only justification for urgency given is that CFGL has arranged “a loan at an interest rate of 20% per annum in lateDecember 2017 for (amongst other things) payment of the final installment to the banks”.  I have already referred to his submissions as to the inadequacy of the pleading of this matter and the lack of evidence in support.  On the other hand Mr Man says that Sung and ADFL are entitled under therules of the High Court, to have a proper opportunity to put their case, andto ensure that proper discovery is provided by Poon and his companies and this cannot be simply be brushed aside.  He says that had proper notice of this application been given Sung and ADFL would have explained that the List of Documents filed by Poon and his companies in the HCA Action is woefully inadequate, and that there will be a serious discovery dispute.  For example, he says, there clearly needs to be disclosure of documents relating to:

(i) the execution and implementation of the Shell Sale Agreement by Poon and his nominees;

(ii) the circumstances in which the Second Mortgage was entered into;

(iii) the conduct of AHL's fundraising exercises and where the money has gone; and

(iv) Poon and his associates’ communications between themselves and with FTI and the Banks in negotiating the Debt Restructuring Agreement.

114.I am not prepared to make an order for a speedy trial in the current circumstances.  It seems to me to be unfair for the reasons Mr Man has advanced and it will clearly have an adverse effect on the overall administration of the courts and impact those other parties waiting for their cases to be listed.

115.I am not convinced that anything said on behalf of CFGL outweighs the advantages of the trial judge being able to hear the entire story relating to these proceedings in a coherent manner against the background of a consolidated set of pleadings.  It is clear from what has been said that the proceedings are not at an advanced stage since there are further interlocutory applications in relation to discovery which are to be made and on any stretch of the imagination pleadings will have to be amended.  In those circumstances the interests of justice militate in my view in favour of the conversion of the HCMP action to a writ action and the consolidation of the two sets of proceedings so that they can be heard together with the current HCA action being the lead action.  In view of Mr Shieh’s concern that there should be no delay I am prepared to direct a reasonably aggressivetimetable for further directions as follows in accordance with the directions proposed by Mr Man:

(1) The HCMP Action be converted to a writ action, and the HCA Action and the HCMP Action be consolidated and heard together, with the HCA Action being the lead action;

(2) The plaintiffs in the HCA Action shall file and serve their Statement of Claim in the Consolidated Action within 14 days from the date of this Order;

(3) The defendants in the HCA Action shall file and serve their Defence and Counterclaim in the Consolidated Action, if any, within 21 days thereafter;

(4) The plaintiffs in the HCA Action shall file and serve their Reply and Defence to Counterclaim in the Consolidated Action, if any, within 21 days thereafter;

(5) The parties to the Consolidated Action shall serve their respective List of Documents within 7 days after the close of pleadings, followed by inspection within 7 days thereafter;

(6) The parties to take out any application for discovery within 21 days thereafter, with the substantive hearing to be fixed with 1 day reserved in consultation with leading counsel’s diaries; and

(7) There be a First Case Management Conference to be heard at the same time as the hearing of the applications for discovery.

116.In all of the circumstances I make a cost order nisi in favour of the defendants with a certificate for two counsel in HCMP 2556/2017, to be taxed if not agreed.  In relation to the HCA action, I order that the costs be in the cause.

Mr Bernard Man SC and Mr Julian Lam, instructed by DLA Piper Hong Kong, for the 1^st and 2^nd plaintiffs (in HCA 2385/2017) and the defendant

(in HCMP 2556/2017)

Mr Paul Shieh SC and Mr Danny Tang, instructed by Wilkinson & Grist, for the 1^st to 6^th defendants (in HCA 2385/2017) and the plaintiff

(in HCMP 2556/2017)