Perfect Award Holdings Ltd v. Ouyang Yida and Others

HCA 349/2018

[2018] HKCFI 2654

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 349 OF 2018

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Before: Hon Chung J in Chambers

Date of Hearing: 14 November 2018

Date of Decision: 6 December 2018

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D E C I S I O N

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INTRODUCTION

1.This is the decision concerning:

(a)   the plaintiff’s application to continue the Mareva injunction order granted ex parte on 8 February 2018 against the 1^st defendant (“Ouyang”) (“the ex parte order”);

(b)   Ouyang’s application to discharge the ex parte order.

BACKGROUND

2.The plaintiff commenced this action in February 2018 against Ouyang and the other defendants, which in effect are said to be corporate vehicles managed or controlled by Ouyang.

3.This action is based on 9 promissory notes executed and delivered by the defendants jointly and severally (“the said notes”).

4.The transaction underlying the said notes was, in very brief terms, the plaintiff’s investment into one of the corporate defendants, which was intended to be listed in the Mainland.  The said investment was by way of the subscription of preferred shares.

5.The plaintiff has a right of redemption in respect of the subscribed shares (exercisable (among other things) for the failure of the said public listing).  On 22 October 2014, the plaintiff issued a redemption notice; as a result, Ouyang and two other defendants became liable for about RMB453.4 million.

6.Without going into other details, on 26 June 2015, Ouyang and all the other defendants entered into a payment agreement pursuant to which they are to pay RMB27 million for extending the payment time.  Clause 2 of the payment agreement provided for payment by the said notes.  The said notes were executed and delivered on the same day (26 June 2015).

7.The public listing did not take place as the parties intended, the plaintiff contends in this action the said notes became due and payable on 28 February 2016.

MAIN ISSUES IN THIS APPLICATION

8.Ouyang raises two main issues: the first pertains to whether the plaintiff has shown a good arguable case, the second pertains to whether the plaintiff has established a real risk of dissipation. There is also a dispute regarding an alleged failure to make full and frank disclosure.  This will be dealt with briefly towards the later part of this decision.

9.As regards the first main issue, Ouyang contends that the said notes were:

(1) void and/or unenforceable for illegality (namely, they were given in consideration of an illegal underlying transaction);

(2) not “bills of exchange” within the meaning of the Bills of Exchange Ordinance (Cap 19);

(3) the said notes were not actionable at the time of writ because there was no presentment (s 93, Cap 19).

(a)   Good arguable case

10.The first matter relied upon by Ouyang (para 9(1) above) is that the plaintiff has breached s 114(1), Securities and Futures Ordinance (Cap 571).  That provision in effect prohibits anyone from carrying on a business in a regulated activity without licence or registration (as the case may be) (that is, in the present context, the business of advising on corporate finance, such as advising on an offer to dispose of securities to the public).

11.Ouyang has adduced affirmation evidence trying to show that the plaintiff has carried on such prohibited activity in the plaintiff’s said dealings with Ouyang/the defendants.

12.This, however, is denied by the plaintiff, which has adduced affirmation evidence to show that the plaintiff’s said dealings with the defendants were nothing more than in the capacity of an investor.  It has never taken up any advisory role:

(a) even before the plaintiff dealt with the defendants, the defendants have already entered into financial advisory agreements with third parties for advising on public listing.  Further, the defendants have already engaged their own legal advisors (on top of its own financial advisors);

(b) whatever concern or interest the plaintiff might have in the public listing (as shown by some of the emails and social network messages relied on by Ouyang), it was the concern and interest of the plaintiff as an investor to see to it the listing would bring about maximum return for the plaintiff.

13.The second matter relied upon by Ouyang (no valid bills of exchange) (para 9(2) above) relates to the following terms of the said notes.

14.Clause 1 thereof provided that the said notes were due and payable 30 days after the (public listing) “lockup” period.

15.Clause 5 thereof provided that, despite clause 1 thereof, if the listing did not take place by 31 January 2016, the said notes would become due and payable on 28 February 2016.  This clause also provided that the said notes would become due and payable immediately upon bankruptcy, insolvency or debt restructuring.

16.Based on the above, Ouyang contends that the said notes were in law not bills of exchange (Williamson v Rider [1963] 1 QB 89; Claydon v Bradley [1987] 1 WLR 521; Chalmers & Guest on Bills of Exchange, Cheques and Promissory Notes (2017) 18^th Ed, para 2-085).  These alternative dates render the said notes not being a written order payable “at a fixed or determinable future time” prescribed by s 89(1) (cp s 3(1)), Cap 19.

17.This contention is refuted by the plaintiff:

(1) the Williamson decision was considered, but not followed, in Golden Garden Management Ltd v Grand TG Gold Holdings Ltd [2012] 1 HKLRD 934;

(2) a bill may be payable depending on the occurrence of a specified event which, though the time of happening is uncertain, is certain to happen (although a contingent event will not suffice): Chalmers & Guest, para 2-087 (see also (and cp) s 11, Cap 19);

(3) none of the terms of the said notes (whether when read separately or together) can be understood to create a contingency: there is a specific payment date whether or not the public listing takes place (clause 1 thereof was to take effects when there was a public listing; clause 5 thereof was to take effect when there was no public listing).  Thus, these terms are but the mechanism for fixing the said notes’ payment date.

18.The third matter relied upon by Ouyang (para 9(3) above) is that the said notes were not presented for payment, and hence, Ouyang was not liable for payment of the said notes at the time of the writ herein (s 93(1), Cap 19).

19.The plaintiff’s counter-argument about this aspect is as follows.  First, clause 6 of the said notes stipulates that the plaintiff does not need to present the said notes for payment in order to render Ouyang liable (the parties disagree over whether clause 6 was of general application, or was inapplicable to a “clause 5 situation” (namely, the intended public listing did not take place)).

20.Secondly, the “proper place” for presentment was an address related to the plaintiff (clause 2, the said notes).  Ouyang could not be found there.  In these circumstances, there was no need for the plaintiff to present the said notes (Cap 19, ss 45(e) [no person can be found at the proper place], and/or 46(2)(a) [presentment cannot be effected], read together with s 95 [presentment applies with modifications to promissory notes]).

21.Apart from the above, Ouyang also asserts that the amount claimed herein includes a compensation the plaintiff for the reduced share value upon public listing in the Mainland (compared to the expected share value).  There being no public listing at the end, Ouyang argues that the consideration for the said notes has totally failed.

22.The plaintiff denies the said assertion, pointing out that the said notes were drawn in purported performance of the payment agreement (para 6 above).  As stated in para 6 above, the payment was stated in the payment agreement to be for extending the payment time.

23.There is no need to analyse in detail the relative merits of the parties’ respective case (summarized above) (in fact, in view that this action has yet to proceed to trial, it is undesirable to do so).  Suffice it to say this: having taken into account the overall circumstance, as well as the contemporaneous records and documents which may be viewed as supportive of the plaintiff’s case, I find the plaintiff has more than sufficiently demonstrated that there is a good arguable case in relation to the issues outlined in para 9 above.

(b)   Real risk of dissipation of assets

24.The circumstances which the plaintiff has put forth as supporting its case that there is a real risk Ouyang may dissipate its assets are set out in the plaintiff’s skeleton argument (para 77 thereof). In brief:

(a) Ouyang repeatedly used forged documents to dispose of tranches of shares without the plaintiff’s consent.  Ouyang’s denial of forgery is a bare assertion without supporting evidence (there was also a written apology signed by Ouyang);

(b) the evasive and dilatory tactics adopted by Ouyang and his corporate vehicles to acknowledge liability to pay was followed by a refusal to pay.  Ouyang explains that he merely asked for time extension; that was not being evasive;

(c) Ouyang’s name appeared in the December 2017 list of dishonest persons subject to enforcement in the Mainland (his name was later removed);

(d) Ouyang repeatedly attempted to sell a Mainland building to pay tax despite the plaintiff’s objection.  Ouyang points to contemporaneous correspondence where the plaintiff was informed of this (and no action has in fact been taken by him);

(e) Ouyang indicated he was thinking of using a new corporate vehicle to take over the defendants’ business; this would seriously harm the plaintiff’s interest. Similar to sub-para (d) above, the plaintiff was informed of this (with no actual action by him);

(f) Ouyang refused to sell his property in Hong Kong (a subject-matter of the ex parte order) to settle the debts owed to the plaintiff.  This is denied by Ouyang;

(g) Ouyang might increase the amount of the current mortgage loan of the Hong Kong property;

(h) despite Ouyang’s need to use the Hong Kong property (until May 2019) for investment immigration to Hong Kong, the risk of Ouyang losing the property in the event the plaintiff succeeds in this action may prompt Ouyang to dispose of it.

25.In relation to 24(c) to (e) above, I agree with Ouyang that, when considered individually, they do not constitute circumstances which show a real risk of dissipation of assets.  This is because they can also be viewed as innocent conduct of a debtor who was in financial difficulties.

26.However, I disagree with Ouyang that the matters set out in para 24(a) and (b) above can have an innocent explanation.  The plaintiff already expressed concern as to how Ouyang could meet his liabilities.  It is therefore obvious Ouyang was facing immense financial pressure.  When this is considered with para 24(a) above (conduct the bona fide of which is questionable), one cannot but conclude that there is a real risk of dissipation.  I also agree with the plaintiff that para 24(f) to (h) above should not be considered separately from para 24(a) and (b) above. When so considered, para 24(f) to (h) above can properly be included as part of the supportive circumstance (and not pure speculation).  In particular, in relation to para 24(h) above, Ouyang’s investment immigration status cannot prevent him from satisfying the immigration criteria through other means.

27.Ouyang complains that the plaintiff has failed to make full and frank disclosure of the matters set out in para 9(1) and 10 to 11 above.  As has been pointed out in decision in Sino Wood Investment Ltd v Wong Kam Yin, HCA 307/2002 (23 December 2002), it is usually not fruitful to examine whether there has been such failure where the matters allegedly not disclosed are in fact matters the existence of which is hotly disputed (para 27 to 33 thereof).

28.Finally, Ouyang argues that the delay in seeking the ex parte order shows that there was no real risk of dissipation.  As the plaintiff has pointed out before the ex parte judge, whether there has been a delay has to be determined in the light of the action of Ouyang which prompted the plaintiff to make the ex parte application apply (para 49, plaintiff’s skeleton argument for use at the ex parte hearing).

29.Taking into account the matters set out above, I am satisfied that the plaintiff has established that there is a real risk of dissipation of assets.

CONCLUSION

30.To conclude, in light of the circumstances set out above, my discretion should be exercised in continuing the ex parte order; Ouyang’s application to have it discharged is consequently refused.

31.In this connection, I agree with the plaintiff:

(1) Ouyang has not said that he needs to dispose of the enjoined assets within a short time;

(2) in any event, the plaintiff is willing to consent to an arms-length sale of the Hong Kong property in good faith.

Accordingly, the risk of the continuation of the ex parte order causing injustice or prejudice to Ouyang is low.

OTHER MATTERS

32.The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its easier comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

COSTS ORDER

33.The plaintiff having succeeded in this application (and in accordance with the parties’ agreement in such event), the costs of this application (including any reserved costs) should be the plaintiff’s costs in the cause of this action.

Mr Derek J Y Chan, instructed by Tung, Ng, Tse & Lam, for the plaintiff

Mr Dixon Co, instructed by Yu, Chan & Yeung, for the 1^st defendant