Qianhai Xinhuakang Financial Holdings (Shenzhen) Ltd v. Chen Jiarong and Others

HCA 377/2018

[2018] HKCFI 2655

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 377 OF 2018

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Before: Deputy High Court Judge Patrick Fung SC in Chambers

Date of Hearing:  4 September 2018

Date of Judgment:  11 December 2018

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J U D G M E N T

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AN OVERVIEW OF THE DEFENDANTS

1.There are altogether nine defendants in this action.  The 1^st and 2^nd defendants are son and father.  The 3^rd to 7^th defendants are all companies incorporated in Hong Kong, or the British Virgin Islands or Mainland China.  Their names all consist of the word or words “Kingkey” in English or “京基” in Chinese or both.  The 8^thdefendant is a special purpose vehicle and the 9^thdefendant is an individual.

THE APPLICATION

2.The application before me is one by the 2^nd and 7^th defendants by Summons issued on 30 May 2018 to strike out the Amended Writ of Summons dated 22 March 2018 (“the Amended Writ”) and the Amended Statement of Claim dated 6 April 2018 (“the ASOC”) and to dismiss the action as against them on the grounds that the Amended Writ and the ASOC:

(a) disclose no reasonable cause of action;

(b) are frivolous or vexatious; or

(c) are otherwise an abuse of the process of the court.

3.By a letter dated 27 August 2018 from Messrs King & Wood Mallesons, the solicitors for the 2^nd and 7^th defendants, to Messrs Anthony Siu & Co, the solicitors for the plaintiff, the former informed the latter that the broad grounds relied on under the “no reasonable cause of action” limb were:

“ 1. The pleaded case does not disclose a case of agency, actual or apparent, vis-à-vis the 2^nd and 7^th Defendants;

2. The implied term of the ‘Agreement’ is unsustainable as a matter of law; and

3. The pleaded ‘Agreement’ was not supported by consideration.”

THE PLAINTIFF’S PLEADED CLAIM

4.Before I deal with the plaintiff’s pleaded claim, I should point out that there was an application in September 2018 before DHCJ Keith Yeung SC whereby the plaintiff applied for directions for a speedy trial.  By his Decision handed down on 14 September 2018, the learned judge dismissed the application of the plaintiff.  In that Decision, the learned Judge also made mention of the present application before me.

5.In the said Decision, the learned Judge adopted a summary of the pleaded claim of the plaintiff put forward by Mr Yu SC, counsel for the plaintiff, and set out the same in the Decision.  For the purpose of the present application, it will of course be necessary for me to examine in detail some of the specific allegations in the ASOC.  By way of an introductory summary of the plaintiff’s pleaded claim, I think it will be convenient for meto set out here the summary given by the learned judge in the said Decision as follows, which I gratefully adopt:

“ 3. The 2^nd defendant and 1^stdefendant are father and son. They hold various shareholding and directorship in a group of corporate entities which may loosely be called the Kingkey Group. The Kingkey Group includes the 3^rd to 7^th defendants (collectively ‘Kingkey Parties’).

4. Since July 2017, the plaintiff began to participate in a bidding process for AXA Wealth Management (HK) Limited (‘Target’). The vendor was AXA China Region Limited (‘Vendor’). This acquisition is referred to as the ‘Acquisition’.

5. In late October 2017, the plaintiff decided to seek a joint venture partner for the Acquisition.

6. In or around November 2017, the plaintiff and the Kingkey Parties entered into an agreement which was partly oral, partly written and partly inferred from conduct (‘Agreement’) that they would join together in a venture to (i) pursue the Acquisition, (ii) if successful, operate the Target with a view to sharing the profit therein, (iii) pursue an IPO in five years’ time, and (vi) respectively hold shares in the Target in 20%/80% (‘Joint Venture’). The written component of the Agreement consists of two agreements called the 1^st and 2^nd Framework Agreements. The stated parties of the 1^st Framework Agreements were the plaintiff and the 5^th defendant, and those of the 2^nd Framework Agreements were the plaintiff and the 6^th defendant. It is the plaintiff’s case that those two agreements were entered into on behalf of each of the Kingkey Parties.

7. After signing the 1^st Framework Agreement, the plaintiff introduced the Kingkey Parties’ representatives to the professionals (namely Morgan Stanley, Davis Polk & Wardwell (‘Davis Polk’) and PricewaterhouseCoopers (‘PWC’)) who therefrom acted on behalf of some or all of the Kingkey Parties and the plaintiff (collectively ‘Professionals’ Clients’). On 13 November 2017, the Professionals’ Clients made a joint final offer to the Vendor at aprice of HK$2.1 billion (the ‘Joint Final Offer’). On 15 December 2017, the Kingkey Parties instructed Morgan Stanley to submit a revised bid of HK$2.2 billion on behalf of the Professionals’ Clients. On the same day, the Professionals’ Clients were informed that they were successful in their bid.

8. On 15 December 2017, Jeneration Holdings Limited (ie the 8^th defendant) was incorporated. The 3^rddefendant was its sole shareholder. To the plaintiff’s understanding, the 8^thdefendant was intended to be the special purpose vehicle to hold the parties’ respective shares pursuant to the Agreement.

9. On 22 December 2017, the 4^th defendant, the 8^th defendant and the Vendor executed a share sale agreement in respect of the Target (‘SSA’). The plaintiff gave consent to the execution of the SSA on the understanding that it would receive its entitlements pursuant to the Agreement. However, immediately after the execution of the SSA, the Kingkey Parties informed the plaintiff that they would no longer co-operate with the plaintiff and would proceed with the Acquisition alone.

10. On 26 December 2017, the Kingkey Parties informed the plaintiff that they were willing to offer compensation.

11. To date, the Kingkey Parties have refused to procure 20% interest in the Target or the 8^th defendant be transferred to the plaintiff.

12. The plaintiff claims against the Kingkey Parties:

(a) a constructive trust based on the Pallant v Morgan equity;

(b) breach of fiduciary duty arising from their position as joint venturers with the plaintiff;

(c) knowing receipt; and

(d) breach of contract.”

6.Counsel on each side in the present case have very helpfully each produced a chart which read together help to explain the complicated corporate holding structure of the various companies, the directorships and shareholdings in the various companies and the contractual relationships, as may be relevant.  I have come to the view that it would assist a reader of this Decision in understanding the situation better for me to annex both charts hereto.  I therefore annex hereto as Annexure 1 the “Corporate Chart of the Kingkey Parties” produced by counsel for the plaintiff and, as Annexure 2, the “Appendix to Skeleton of 2^nd and 7^th Defendants” produced by counsel for the 2^nd and 7^thdefendants.

7.The core of the dispute in the present application is, of course, whether there is any case by the plaintiff against the 2^nd and 7^th defendants, whether as pleaded or on the facts as alleged in the affirmation evidence of the parties or both.  To put it in another way, whether the 2^nd and 7^th defendants are contracting parties vis-à-vis the plaintiff in the transaction in question.

The plaintiff’s pleaded case implicating the 2^nd and 7^th defendants

8.In paragraphs 23 – 29 of the ASOC, the plaintiff sets out the way in which the alleged Agreement between the plaintiff and the Kingkey Parties was arrived at as follows:

“ 23. In or around November 2017, the Plaintiff and the Son, on his own behalf and as agent for rest of the Kingkey Parties, entered into an agreement which was partly oral, partly written and partly inferred from conduct (‘Agreement’) that:

23.1 The Plaintiff and the Kingkey Parties would join together in a venture to carry out the Acquisition, to operate the Target with a view to sharing the profit obtained therefrom after the Acquisition, and to pursue an initial public offeringin respect of the Target in 5 years’ time from the Acquisition (‘Joint Venture’).

23.2 The Plaintiff and the Kingkey Parties’ interest in the Target would be 20% and 80% respectively.

24. At all material times, the Plaintiff’s representatives were:

24.1 Wang; and

24.2 Li Qiming (‘Li’), the Plaintiff’s Officer-in-charge of Investment, Merger and Acquisition, Strategic Development Department.

25. The Kingkey Group’s representatives were:

25.1 Yao Yuxiang (‘Yao’), the General Manager of Kingkey Holdings;

25.2 Desmond Lin Chi Fai (‘Lin’), the Senior Advisor of Kingkey Holdings; and

25.3 Li Shaohui (‘Shaohui’), the Assistant General Manager of Kingkey Shenzhen.

26. The oral part of the Agreement was reached on the following occasions:

26.1 a meeting on 7 November 2017 in Shenzhen with the following attendants: Wang, Li, the Son, Lin, Yao, and Shaohui;

26.2 a telephone conversation on 8 November 2017 between Li and Shaohui;

26.3 a meeting on 19 November 2017 in Hong Kong with the following attendants; Wang, Li, the Son, Lin, Yao, and Shaohui; and

26.4 a meeting on 11 December 2017 in Shenzhen with the following attendants: Wang, Li, the Father, Lin, Yao, Shaohui, among others.

27. The written part of the Agreement was contained in the following framework agreements (‘the Framework Agreements’):

27.1 合作框架协议 (‘1^st Framework Agreement’) with the Plaintiff and Kingkey Shenzhen stated as parties, dated and stated to be executed on 8 November 2017; and

27.2 合作框架协议 (二) (‘2^nd Framework Agreement’) with the Plaintiff and Kingkey Enterprise HK stated as parties, dated 17 November 2017 but stated to be executed on 17 and28 November 2017 respectively by the Plaintiff and Kingkey Enterprise HK.

28. Each of the Kingkey Parties were bound by the terms in the Framework Agreements by reason of:

28.1 Kingkey Shenzhen and Kingkey Enterprise HK acting on their own behalf and as agents for the Kingkey Parties: or

28.2 alternatively, to the extent that the Framework Agreements did not form part of the Agreement, it was an implied term, or the true construction, of the Agreement that the terms in the Framework Agreements were extended to all parties to the Agreement as pleaded in 31.1 below.

29. The Agreement is also to be inferred from the Kingkey Parties and the Plaintiff’s joint submission of a term sheet (‘Term Sheet’) dated 13 December 2017 which recorded the agreed key terms of their shareholders’ agreement vis-à-vis the Joint Venture to the Vendor as more particularly described in paragraph 51.3 below.”

9.Section B.4 of the ASOC sets out the case of the plaintiff implicating the 2^nd and 7^th defendants as follows:

“ B.4 Authority

34. The Son had authority, actual (express or implied) or apparent, to act and make representations on behalf of the Kingkey Group in allmatters pertaining to the Agreement and the Acquisition, including making representations on who had authority to act in relation to the Agreement.

Particulars

34.1 As sole director of Kingkey Enterprise HK, the Son had authority to direct and manage all its business and affairs including any negotiations and dealings with, and agreements entered into between all third parties and the Kingkey Enterprise HK. Insofar as necessary, the Plaintiff relies on the statutory presumption in section 127 of the Companies Ordinance (Cap.622).

34.2 Since 30 October 2017, the Son has been held out, expressly or impliedly, by the board of directors to be the Chairman of Kingkey Holdings to be entrusted with all the powers, authorities and discretions exercisable by its board includingin particular the powers to identify, negotiate and enter into joint venture agreements with third parties on behalf of Kingkey Holdings and its subsidiary Kingkey HK.

34.3 Since 7 November 2017, the Son has been held out, expressly or impliedly, by the board of directors to be the Legal Representative and director of Kingkey Shenzhen to be entrusted with all the powers, authorities and discretionsexercisable by its board including in particular the powers to identify, negotiate and enter into joint venture agreements with third parties on behalf of Kingkey Shenzhen and its parent Kingkey PRC.

34.4 Kingkey Holdings and Kingkey HK were aware of, and permitted or acquiesced in, the Son acting on their behalf in dealing with the Plaintiff in relation to the negotiation of and entering into the Agreement, evidenced by:

(i) Kingkey Holdings and/or Kingkey HK incorporating Jeneration for the purpose of the Acquisition pursuant to the Agreement as pleaded in paragraph 52 below; and

(ii) Kingkey Holdings and/or Kingkey HK causing Jeneration to enter into a share sale agreement with the Vendor in acquiring the Target pursuant to the Agreement as pleaded in paragraph 53.1 below.

34.5 The Plaintiff acted on the representations as pleaded in paragraphs 34.2 – 34.4 above in negotiating with the Son and entering into the Agreement.

35. From 11 December onwards, the Son had authority, actual (express or implied) or apparent, on the Father’s behalf to act in all matters pertaining to the Agreement, including the negotiation and execution of the Agreement and making representations as to who had authority to act in relation to the Agreement.

Particulars

35.1 In the 11 December 2017 meeting, the Father acknowledged the Agreement and expressly conferred on the Son, and further represented to the Plaintiff that the Son had, authority to represent him, Kingkey PRC and Kingkey Shenzhen in relation to the Agreement.

35.2 The Plaintiff acted on the representation as pleaded above in negotiating with the Son and entering into the Agreement.

36. As regards the period before 11 December 2017, the Father has ratified the Son’s entry into the Agreement on his behalf by virtue of the matters pleaded in paragraph 35.1 above.

37. If (which is denied), the Son did not have authority to enter into the Agreement on behalf of Kingkey Holdings and Kingkey HK, by virtue of the matters pleaded in paragraph 34.4 above, Kingkey Holdings and Kingkey HK have ratified the Son’s entry into the Agreement on their behalf.

38. If (which is denied), the Son did not have authority to enter into the Agreement on behalf of Kingkey Shenzhen and Kingkey PRC, by virtue of the matters pleaded in paragraph 35.1 above, the Fatherhas ratified on their behalf the Son’s entry into the Agreement on their behalf.

Particulars

38.1 The Father had authority, actual (express or implied) or apparent, on Kingkey PRC and Kingkey Shenzhen’s behalf to act in all matters pertaining to the Agreement, including the negotiation and execution of the Agreement in that since11 December 2017, the Father has been held out (expressly or impliedly) by the board of directors to be the Chairman, Legal Representative and CEO of Kingkey PRC to be entrusted with all the powers, authorities and discretions exercisable by its board including in particular the powers to identify, negotiate and enter into joint venture agreements with third parties on behalf of Kingkey PRC and its subsidiary Kingkey Shenzhen.

38.2 The Plaintiff acted on the representation as pleaded above in negotiating with the Son and entering into the Agreement.

39. Yao, Lin and Shaohui had authority, actual (express or implied) or apparent, on the Kingkey Parties’ behalf to act in all matters pertaining to the Agreement, including the negotiation and execution of the Agreement.

Particulars

39.1 In a meeting on 9 November 2017 at or around 10am in the Office of Kingkey Shenzhen with the representatives from Morgan Stanley, the Son represented to the Plaintiff that Yao, Lin and Shaohui had authority to represent the Kingkey Parties in relation to the Agreement.

39.2 The Son had authority to make such representations by virtue of the matters pleaded in paragraphs 34 – 35 above.

39.3 The Plaintiff acted on the representation as pleaded above in negotiating with Yao, Lin and Shaohui and entering into the Agreement.”

THE CASE OF THE 2^ND AND 7^TH DEFENDANTS FOR STRIKING OUT

10.The stated grounds for a strike-out by the 2^nd and 7^th defendantsare set out in paragraphs 2 and 3 above.  I shall deal with them in turn below.

Disclosing no reasonable cause of action

11.So far as this ground for a strike-out is concerned, it is trite that all the facts pleaded in the pleading the subject of the application are to be assumed to be true.  On the basis of such assumption, if the Statement of Claim on its face shows that there is a good cause of action, then there can beno strike-out.  Secondly, in this context, no evidence should be looked at. Thirdly, if it is suggested by the applicant for a strike-out that the pleading is not sufficiently particularised, then it is a matter for an application for the supply of further and better particulars and not one for a strike-out.  In paragraph 27 of their Skeleton Argument of the 2^nd and 7^thdefendants, Ms Chan SC leading Ms Eva Sit have more or less agreed with the above propositions.

12.Bearing the abovementioned principles in mind, I now examine in detail the relevant part of the ASOC against the first complaint of the 2^nd and 7^th defendants set out in paragraph 3 above which is that “The pleaded case does not disclose a case of agency, actual or apparent, vis-à-vis the 2^nd and 7^th Defendants”.

13.In the opening words of paragraph 23 of the ASOC, the plaintiff has pleaded that in or around November 2017, the plaintiff and the 1^stdefendant (the Son), on his own behalf and “as agent for the rest of the Kingkey Parties” (defined in the ASOC as including the 1^st to the 7^th defendants), entered into the Agreement.

14.Furthermore, in paragraphs 34 and 35 of the ASOC, the plaintiff has pleaded with particulars the grounds on which it is alleged that the 1^st defendant had actual or apparent authority to act for the Kingkey Group (including the 7^thdefendant) and the 2^nddefendant respectively.  In paragraphs 36 and 38 of the ASOC, the plaintiff has further pleaded a case of ratification by the 2^nddefendant for himself and for and on behalf of the 5^thdefendant and the 7^thdefendant.

15.Ms Linda Chan SC, counsel for the 2^nd and 7^thdefendants, seeks to attack those paragraphs on the basis that it is not viable to have a case of a self-appointed agent.

16.Looking at the pleading as a whole, I do not take the view that the plaintiff has pleaded a case of self-appointed agency.

17.As mentioned above, in paragraph 34 of the ASOC, it is pleaded that the 1^stdefendant had actual or apparent authority to act and make representations on behalf of the Kingkey Group, including the 7^th defendant, on all matters relating to the Agreement.  It then gave particulars, including under paragraph 34.3 that, since 7 November 2017 (which was before the dates of the two Framework Agreements), the 1^stdefendant had been held out, expressly or impliedly by the board of directors (presumably of the5^th defendant) to be the Legal Representative and director of the 5^th defendant and to act on behalf of the 5^th defendant and its parent the 7^th defendant.  Thus, a linkage between the 1^st, 5^th and 7^th defendant has been pleaded.

18.Furthermore, it was actually the 5^th defendant which entered into the 1^stFramework Agreement with the plaintiff. 

19.Regarding the 2^nd defendant, again as mentioned above, it has been comprehensively pleaded in paragraphs 35, 36 and 38 of the ASOC thatthe 1^st defendant had been authorised by the 2^nd defendant to act on his behalf in relation to the Agreement.  It is also pleaded that, at the 11 December 2017 meeting, the 2^nddefendant acknowledged the Agreement and represented to the plaintiff that the 1^stdefendant had authority to represent him, the 7^thdefendant and the 5^thdefendant in relation to the Agreement.  Furthermore, ratification by the 2^nd defendant has also been pleaded.

20.At this juncture, I should add that, in view of the fact that it was the 5^th defendant which was the first party to enter into the 1^stFramework Agreement with the plaintiff, then it was the 6^thdefendant which entered into the 2^ndFramework Agreement with the plaintiff and, ultimately, it was the 4^thdefendant which entered into the Share Sale Agreement dated 22 December 2017 with the Vendor, Axa China Region Limited, it appears to me that it was quite a loose arrangement within the Kingkey Group as to which company should be used to enter into the transactions in question.

21.On the face of the pleading and in light of the above, I am unable to say that it is plain and obvious that the plaintiff’s plea that the 1^stdefendant had authority to act for and bind the 2^nd and 7^th defendants will definitely fail.

22.I therefore find against the 2^nd and 7^th defendants on this aspect of their complaint.

23.The next attack by the 2^nd and 7^th defendants in the context of “disclosing no reasonable cause of action” is that the plea of the “implied term of the ‘Agreement’ is unsustainable as a matter of law”.  The way that Ms Chan SC has put her argument is set out below.

24.Ms Chan SC’s argument is to the following effect:

(i) The plaintiff is trying to argue that the obligations of the 5^th defendant under the 1^stFramework Agreement and of the 6^th defendant under the 2^nd Framework Agreement would extendto (inter alios) the 2^nd and 7^th defendants.  Thus, the 2^nd and 7^th defendants had impliedly “promised” that, if the Target were to be acquired by a corporate vehicle, they would procure that vehicle to transfer 20% interest in the Target to the plaintiff.

(ii) An implied term can only arise within a contract.It cannot be extended to bind someone who is not a party to the contract. The 2^nd and 7^th defendants are not parties to the Agreement. Hence, they cannot be bound by any implied term of the Agreement.

(iii) Even if the plaintiff’s plea of “implied terms” are viable, they clearly do not satisfy the requirements of implied terms on the “business efficacy” front.  Furthermore, whether a term is implied is to be judged at the date when the contract was made.

(iv) The plea of an “implied promise” is also demurrable as it is “common ground” that the 2^nd and 7^th defendants did not have any dealings or contact with the plaintiff.  Hence, they could not have made any “implied promise” to the plaintiff.

25.I am afraid I do not think that there is anything in this line of attack by the 2^nd and 7^th defendants.  The expression “implied promise” simply means that it is a part of a contract which binds both sides to the contract.  It does not mean that a promise actually has to be made expressly by one party to the other.  Hence, the use of the word “implied”.  As long as a party is held to be one of the parties to a contract, he will be bound by both the express terms and any implied term which may arise within it.  AsI have found above, as a matter of pleading, it cannot be said that the plea that the 2^nd and 7^th defendants are also parties to the Agreement is bound to fail.

26.The plea of implied terms is contained in paragraph 31 of the ASOC.  It reads as follows:

“ 31. The Agreement contained the following implied terms, such terms arising as a matter of obvious inference and/or due to its being necessary for business efficacy:

31.1 The obligations on the part of Kingkey Shenzhen and Kingkey Enterprise HK pursuant to the Framework Agreements respectively would extend to each and every member of the Kingkey Parties.

31.2 If the Target was acquired by a corporate vehicle (whether pre-existing or to be subsequently incorporated) under the control of any of the Kingkey Parties, each of the Kingkey Parties, promised to procure that corporate vehicle to transfer 20% interest in the Target to the Plaintiff.

Alternatively, paragraphs 31.1 & 31.2 represent the true construction of the Agreement.”

As a matter of pleading, I do not take the view that it is insufficient or that it is bound to fail on the “business efficacy” front.

27.In my judgment, this line of attack also fails.

28.The next line of attack by the 2^nd and 7^th defendants on the ground of “disclosing no reasonable cause of action” is that no considerationhas been pleaded.  In other words, it is said, the 2^nd and 7^th defendants have not been identified as taking any benefit or bearing any burden under any of the written terms in the Agreement.  Furthermore, now that the Target turns out to be held by the 8^th defendant in which the 2^nd and 7^th defendants have no interest, they should not be bound by the Agreement.

29.The simple answer to this line of attack is that the plaintiff on the one hand and all the other parties to the Agreement on the other hand are bound by their mutual obligations towards each other under the terms (express and implied) of the Agreement.  If at the end of the day it is foundby the court that the 2^nd and 7^th defendants are parties to the Agreement, then their obligations would be supported by the consideration moving from the plaintiff.

30.All in all, in my judgment, the 2^nd and 7^th defendants fail on their ground that the Amended Writ and the ASOC disclose no reasonable cause of action.

The action is frivolous or vexatious or is otherwise an abuse of the process of the court

31.I next deal with the remaining two grounds relied on by the 2^nd and 7^th defendants in this application.  They can be dealt with together.  In this context, it is permissible to look at the evidence in the form of affirmations and the exhibits thereto.

32.For the plaintiff, there has been filed three affirmations:

(i)  the 1^st Affirmation of Li Qiming (“Qiming I”);

(ii)  the 2^nd Affirmation of Li Qiming (“Qiming II”); and

(iii)  the Affirmation of Wang Zhenwu (“Wang’s Affirmation”).

For the 2^nd and 7^th defendants, there has been filed only one affirmation, the Affirmation of Chen Hua (“D2’s Affirmation”).

33.Qiming I is actually an affirmation filed in support of the plaintiff’s ex parte application for service of the writ out of the jurisdiction.  One point which has been made by Ms Chan SC is that a few of the allegations made in Qiming II has not been made in Qiming I.  Hence, doubtshould be cast on Qiming II as to whether it contains some allegations which are recent inventions by the deponent. I am afraid I do not attach much weight to this point.  Quite obviously, one would not expect that the plaintiff would have given as full a version of the factual allegations as now just for the purpose of the application for service out of the jurisdiction.  On the other hand, Qiming II being filed for the express purpose of opposing the present application, it is not surprising that it is more focused and contains more details of factual allegations.

34.As I see it, for the purpose of the present application, the crux of the dispute is centred upon some of the communications between the two sides and upon what actually happened in the restaurant in the evening of 11 December 2017.

35.The Main points made by the 2^nddefendant in D2’s Affirmation can be summarised as follows:

(i) He is the Chairman and Legal Representative of the 7^thdefendant. He has never been an office holder in the 3^rd, 4^th, 6^th and 8^th defendants.  He was not an office holder in the 5^thdefendant until 12 April 2018 when he became its Legal Representative in place of his son, the 1^stdefendant.  “The change was made following professional advice to reflect the fact that Marco’s group of companies is independent of the 7^thDefendant and its subsidiaries.”

(ii) He heads a group of companies on the Mainland which he callsthe “Kingkey PRC Group” with the 7^thdefendant as the holding company.  He started building up the Kingkey PRC Group when he started his real estate development in Shenzhen in 1994.  The 7^thdefendant was registered on the Mainland in 1997.

(iii) The Kingkey PRC Group is based, managed and operated entirely on the Mainland.  It is a large real estate developer and is also involved in commercial operations, financial management and related services.

(iv) He has two sons, including the 1^st defendant.  From 2014 to 2015, the two sons worked in one of the subsidiaries of the 7^thdefendant in Shenzhen.  After having worked and built up their experience and contacts, at the beginning of 2016, the two sons began to launch their business in Hong Kong through companies outside of the Mainland, including the 3^rd, 4^th and 6^th defendants.  “They adopted the name “Kingkey” in their Hong Kong business only for branding purposes—the shareholdings and operations of their business are completely different from those of the Kingkey PRC Group.”  Neither he nor the 7^thdefendant has any financial interest in the 3^rd, 4^th or 6^th defendants.  He also has no involvement in their businesses.

(v) The 5^th defendant was set up as a subsidiary of the 7^th defendant only in May 2015 primarily for the purpose of identifying investment opportunities in financial and other non-real estate sectors on the Mainland, in order to diversify the portfolio of the 7^thdefendant and also to deploy the substantial cash resources generated by its businesses.  Because he was not familiar withthe financial and non-real estate sectors, he asked “Marco to bethe legal representative of the 5^th Defendant for the time being”. 

(vi) He is based in Shenzhen and the 1^st defendant divides his time between Shenzhen and Hong Kong.

(vii) The 1^st defendant had only briefly mentioned to him his plan to acquire an insurance business in Hong Kong.  He and the 7^thdefendant had never been involved in the Acquisition.

(viii) Regarding what happened on 11 December 2017, on 8 December 2017, the 1^stdefendant called him and asked whether the 1^stdefendant’s staff could introduce to him a person called Wang Zhenwu with whom the 1^st defendant had been discussing about cooperation in relation to the Acquisition. He agreed.  He understood that it would only be “a short, social ‘hello’ for Mr Wang to meet me”.

(ix) He had scheduled to entertain some friends at a restaurant called“一日三餐”, which he frequently visited, on 11 December 2017.  He was informed that the 1^stdefendant and his team would also be meeting Wang Zhenwu at the same restaurant on11 December 2017.  On that day, in the course of his own dinner, Simon Yiu and Li Shaohui of the 1^stdefendant’s staff came over and asked him to go into another room in the restaurant to meet Wang.

(x) When he entered the room, he saw a number of people, including some bankers from Morgan Stanley.

(xi) He then says the following in paragraphs 17 and 18 of D2’s Affirmation:

“ 17. After I was introduced to Mr. Wang, I remember Mr. Wang mentioned that he and Marco were going to purchase a life insurance business in Hong Kong. I do not recall what I said in reply to that—usually in this type of situation I would simply make some courteous remarks and ask the person to give some guidance to my son, but I certainly did not say anything as alleged in paragraphs 35 and 36 of the ASOC. I remember we only engaged in some brief discussions about the general real estate and property markets in the Mainland. The chat lasted about 10 minutes, I then wished Mr. Wang success on the deal, and returned to my own dinner.

18. During the very brief exchange with Mr. Wang mentioned above, there was no mention of any terms of cooperation or any details pertaining to the Acquisition.  Nor did anyone tell me about whatterms the parties had discussed thereafter, until I was informed thatthe Plaintiff had commenced proceedings against me personally as well as the 7^thDefendant in around mid-March 2018 when such allegations were made.”

36.The main points made by Li Qiming in Qiming II can be summarised as follows:

(i)  Contrary to the allegations of the 2^nd defendant, it has always been the common intention between the plaintiff and the Kingkey parties that the 2^nd and 7^thdefendants would be parties to the Agreement and that they would be involved in the Joint Venture for the following reasons:

(a) It was originally intended that the 7^th defendant would provide the necessary backing for funding.  Subsequently, because of exchange regulation difficulties in the Mainland system, the parties decided to resort to the assets of the 4^thdefendant for financial backing.

(b) Since the plaintiff had had no dealing with the Kingkey parties before, it relied heavily on the reputation, the enormous resources, and the proven track record of the 2^ndand 7^th defendants.  The 1^stdefendant and his Hong Kongcompanies, when compared with the 2^nd and 7^th defendants, only had a very short track record.

(c) The understanding of the plaintiff as to how real estate companies on the Mainland operate—they generally prefer resorting to income derived from insurance businesses,would also be consistent with the 7^th defendant being involved in the Joint Venture.

(ii)  Regarding the absence of the 2^nd and 7^th defendants from the two Framework Agreements, the drafts of the same were provided by the Kingkey Parties and they were all working under pressure to beat the deadline.

(iii)  There was every reason for the plaintiff to think that the 1^st defendant was closely related to the 2^nd and 7^th defendants in respect of the Acquisition and the Joint Venture because of the 1^stdefendant’s name card and his use of the office facilities in Shenzhen.  On top of that, the 1^stdefendant was the Legal Representative of the 5^thdefendant and a director of the 7^thdefendant at the material time.

(iv)  He further relies on WeChat messages from Li Shaohui who was the Assistant General Manager of the 5^th defendant, in which the former used expressions such as “集团法务” (understood to be a reference to the legal department of the Group with the 7^thdefendant as the parent company) and “领导” (understood to be a reference to the management of the 7^thdefendant) and “周總” (understood to be a reference to “周磊”, the man in charge of the 7^thdefendant’s financial department.

(v)  Regarding what happened on 11 December 2017, Li Qiming says the following in paragraphs 35, 36, 39, 40 and 41:

“ 35. The 11 December 2017 meeting was attended by Father, Mr Wang, myself, Lin, Yao, Shaohui, Li Song Yang and Fan Xinpeng of Morgan Stanley. The Son was supposed to attend but eventually could not make it because of flight delay.

36. The purpose of the meeting was to seek approval from the Father ofthe Acquisition.  It is no exaggeration that this was a make-or-breaksession, since if the Father refused to give the green light, the project would fail.  It was the common understanding that the Son and the Son Led Group were very much reliant on Father and the Father Led Group.  As set out in the joint final offer to the Vendor (LQM-1) p.10, Kingkey Holdings’ funding was mainly derived from its shares in Meitu Inc (HKG:1357).  To my understanding,the capital to invest in Meitu was provided by Father (and most likely from Kingkey PRC).  As elaborated above, the Joint Venturewas a long-term project and the Kingkey Parties’ involvement were not to end simply after contributing to the price of Acquisition.  It would no doubt have had to continue to invest to help develop the Target, as well as contributing to key business decisions.  This would most certainly require the involvement and support of Father and Kingkey PRC.”

“ 39. On 11 December 2017, Mr Wang and I arrived at the restaurant ataround 8 to 9pm. We were brought into a room and joined Shaohui, Lin and the Morgan Stanley representatives. After some time, Father and Lin came into the room. Mr Wang and Lin did most of the talking in the meeting. They informed Father of the details of the Acquisition, including its progress, its present stage and the next steps, our bidding competitors, the intended price of the Acquisition, and the plans for the Target after the Acquisition.

40. Eventually, Father was pleased and gave his approval of the Acquisition. In particular I remembered him saying that the bid price of HK$2.1 billion was acceptable. If it had been more expensive, he would not have agreed to the Acquisition. He told us that Hui’s Brothers Currency Exchange Group Holdings (許氏兄弟), a company in Hong Kong carrying on currency exchange business, had once discussed with him the possibility of acquiring a company with a property insurance licence in Hong Kong (财险牌照) but he decided against as it was too expensive. He then told us that the Son would have his support (‘支持家荣’) in respect of the Acquisition.

41. The meeting lasted for around 20–30 minutes.  We were in some rush since we needed to catch the flight back to Hong Kong to meet the Vendor the next day and also needed time for preparation. Therefore, once Father’s agreement was obtained, the meeting came to an end.”

37.The plaintiff has also filed Wang’s Affirmation in which the deponent confirmed Li Qiming’s account of what happened at the meeting on 11 December 2017.

38.At this juncture, it is appropriate for me to refer to two exhibits.

39.It is common ground that there were at least negotiations between Li Qiming and Li Shaohui about a settlement between the two sides in late December 2017.  There were WeChat messages between the said two persons.  One point to note is that, in all such messages, Li Shaohui would refer to the 1^stdefendant by his English name of “Marco”.  In Qiming I, Li Qiming has produced as exhibit “LQM-6” a transcript in Chinese of a telephone conversation which took place between him and Li Shaohui on 27 December 2017 at 17:44.  The first thing to note is that during that conversation Li Shaohui referred to the 1^stdefendant again as “Marco”.  In the same breath, he said the following:

「 然后第三个，就是说，反正我是在争取，就是说因为之后要跟大老板说，然后汪总也可以提一下就是说，反正后面再弄下去那个牌照是不可能。」 [emphasis added]

The expression “大老板” (which should be correctly written as “大老闆”) in Cantonese and Putonghua means “the big boss”.

40.It is suggested by Mr Yu SC that in the abovementioned conversation the use of the expression “大老板” was clearly a reference to the 2^nd defendant and not the 1^st defendant.  On the other hand, Ms Chan SC submits that the expression was a reference to the 1^stdefendant.

41.I next refer to exhibit “CH-5” to D2’s Affirmation.  It is a copy of the restaurant’s record of bookings on 11 December 2017.  The 2^nddefendant has produced that for the purpose of showing that he had booked private room No V102 and that the booking for Wang Zhenwu and the bankers etc was for private room No V206.  It can be seen from that record that room No V102 was booked under the name of “大老板” (the big boss) and room No V206 was booked under the name of Mr Yao.  Against the latter, there is also a remark: “單留大少”.  My understanding is that it means “the bill to be settled by the eldest son”.  I think that it is far more likely that the bookings would have been made by one secretary or two secretaries in one of the Kingkey companies, rather than by the 2^nddefendant and/or the 1^stdefendant themselves.

42.Although I am not making any finding of fact at this stage, in my judgment, in light of the abovementioned evidence, there is a lot of room for the trial court ultimately to make a finding that the 2^nd defendant is generally known and addressed in the Kingkey companies as “大老板” and that the 1^stdefendant is generally known and addressed in the Kingkey companies as “大少”.

43.It is clear from the above that there are many factual issues in dispute between the parties which can only be resolved after the court has heard oral evidence at the trial.

44.Furthermore, a lot will also depend on the result of discovery of documents between the parties and of interrogatories which may be administered. Such processes will throw more light on the relationship and the financial arrangements (if any) between the “Father Led Group” and the “Son Led Group”.

45.In all the circumstances, I am not able to say that the plaintiff’scase is bound to fail upon the evidence before me now.

46.Hence, I also find against the 2^nd and 7^th defendants on the remaining grounds for the application to strike out.

CONCLUSION

47.I dismiss the application of the 2^nd and 7^th defendants by their Summons issued on 30 May 2018.

48.I make an order nisi that the costs of and incidental to this application be paid by the 2^nd and 7^th defendants to the plaintiff to be taxed if not agreed, with a certificate for two counsel.

49.Finally, it remains for me to thank counsel on both sides for their able assistance.

Mr Benjamin Yu SC, Mr Keith Lam and Mr Danny Tang, instructed by Anthony Siu & Co, for the plaintiff

Ms Linda Chan SC and Ms Eva Sit, instructed by King & Wood Mallesons, for the 2^nd and 7^th defendants

Annexure 2