Chen Hongqing v. Mi Jingtian and Others

HCA 1304/2017 and
HCMP 962/2017
(Heard Together)

[2021] HKCFI 648

HCMP 962/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 962 OF 2017

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ACTION NO 1304 OF 2017

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(Heard Together)

Before:  Hon K Yeung J in Chambers

Date of Hearing:  3 April 2019

Date of Decision:  16 March 2021

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DECISION

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A.   The Summons

1.There are a number of matters before me:

(a)  the Summons (the “Dismissal Summons”) taken out by the Defendants in HCMP 962/2017 (the “962 Ds”) for the dismissal (or permanent stay) of the HCMP 962/2017 proceedings (the “962 Proceedings”) and their release from the undertaking (the “Undertakings”, as defined below) they have given therein;

(b)  the Summons (the “Joinder and Injunction Summons”) taken out by the Plaintiff (“Chen HQ”) in HCA 1304/2017 (“HCA 1304”) for amendment so as to join the 962 Ds as defendants (the “Joinder Application”), and an injunction restraining Asia Cement Corporation (“ACC”, the only current defendant in HCA 1304 and the Intervener in the 962 Proceedings) from causing any transfer or registration of 104,908 shares in China Shanshui Investment Company Limited (the “Subject CSI Shares” and “CSI”), and the 962 Ds from transferring, voting upon or otherwise dealing with the Subject CSI Shares (the “Injunction Application”); and

(c)  the Summons (the “ACC Summons”) taken out by ACC for security for costs against Chen HQ (the “Security for Costs Application”).

2.Mr Bernard Mak with Mr Issac Chan and Mr Ho Lok Hin appeared for Chen HQ.  Mr Simon Westbrook SC leading Ms Sharon Yuen appeared for the 962 Ds.  Mr Abraham Chan SC leading Mr Joshua Chan appeared for ACC. 

B.   The Dismissal Summons

B.1.  THE BACKGROUND

3.For background of the Shanshui matters I refer to G Lam J’s judgment in HCA 1661, 1766, 2191/2014 and HCA 623, 939, 1564/2015 (Consolidated) dated 31 January 2018[1] (the “Trust Actions”, and the “Trust Actions Judgment”).  For background of the 962 Proceedings, I refer to the Decision of Mimmie Chan J of 27 June 2017 acceding to Chen HQ’s application for appointment of interim receivers (the “Interim Receivers”), and the Reasons for Decision of G Lam J of 31 May 2018[2] discharging the same (the “Lam J 31/5 Reasons”).  Unless specified otherwise, I also use the same terms as used in those Judgment and Decisions.

4.For the purpose of these applications, it is relevant to note, from §29 of the Lam J 31/5 Reasons, that upon the discharge of the Interim Receivers on 17 May 2017 (for reasons given in the Lam J 31/5 Reasons), the 962 Ds and ACC each gave an undertaking (ie the Undertakings) in the following terms:

“ The [962 Ds] were willing, pending the arbitration, to undertake not to dispose of the relevant shares or to vote them provided they may be counted towards the quorum. ACC was also willing to undertake not to cause any transfer or registration of the shares in its name. In my view these undertakings, which I accepted, afforded ample protection to Chen HQ.”

5.According to the sealed Order granted by G Lam J (the “Lam J Order”), the Undertakings were given:

“ …pending the determination of the [Arbitration] … or further order of the Court.”

B.2.  PARTIES’ STANCES

6.Mr Westbrook’s principal submissions are that as the arbitration which the 962 Proceedings were initiated to aid has come to an end, so should the 962 Proceedings.  The 962 Ds should also be released from the Undertakings.

7.Mr Mak submits that the HCA 1304 was commenced to preserve the status quo created by the 962 Proceedings.  He accepts that the arbitration has resulted in an award (the “SPGA Arbitration Award”).  He argues that the award has not however resolved the actual dispute between Chen HQ and the 962 Ds.  While he accepts[3] that the technical basis for continuing the 962 Proceedings has ceased to exist, he argues that the grant of the award in the arbitration is not a material change of circumstances.

8.Mr Chan submits that given the terms of the Lam J Order, the Undertakings have lapsed.  The Dismissal Summons is also technically unnecessary as there are no pending applications or causes of action in the 962 Proceedings which need to be stayed or dismissed. Mr Chan however invites this Court to rule on the matter for the avoidance of doubt and given Chen HQ’s stance.

B.3.  DISCUSSION

9.The 962 Proceedings were commenced pursuant to Sections 45(2) and 45(5) of the Arbitration Ordinance (Cap 609).  The arbitration which the 962 Proceedings were initiated in aid of (the “Arbitration”) was, as stated in the Re‑Amended Originating Summons, “the Arbitration between [Chen HQ] and [the 962 Ds] in Beijing pursuant to the Application for Arbitration dated 10 February 2017 and an Amended Application for Arbitration to be submitted…”.

10.The interim relief which Chen HQ sought thereby was the appointment of receivers for the Subject CSI Shares registered in the name of the 962 Ds.

11.On 27 June 2017, Mimmie Chan J appointed Interim Receivers as sought.

12.However, those appointments were discharged by G Lam J on 17 May 2018 (for reasons stated in the Lam J 31/5 Reasons).

13.The Undertakings were given pending the determination of the Arbitration or further order.

14.The Arbitration had been finally determined by a Final Award dated 12 June 2018[4].

15.The alleged failure on the part of the arbitral tribunal to deal with the actual dispute between Chen HQ and the 962 Ds does not affect the above.

16.Given the legal basis upon which the 962 Proceedings were commenced, and the terms of the Undertakings, I agree with Mr Chan that technically, the Dismissal Summons might not strictly be necessary.

17.However, given the stance taken by Chen HQ, I find it reasonable for the 962 Ds and ACC to seek formal rulings from this Court.  I rule that the 962 Proceedings be dismissed, that the Undertakings had lapsed upon the determination of the Arbitration, and that both the 962 Ds and ACC be released therefrom.

C.   The Joinder Application and the Injunction Application

18.The Joinder Application and the Injunction Application may be considered together because, as will be clear from the discussion below, the merits of Chen HQ’s claim (or proposed claim in the case of the 962 Ds) is an issue pivotal to both applications.

C.1.  THE BACKGROUND

19.A proposed Amended Statement of Claim is attached to the Joinder and Injunction Summons (the “Proposed SOC”).  The basis of Chen HQ’s proposed claim in HCA 1304 may be summarised as follows[5]:

(a)  By 11 Loan Agreements (the “Loan Agreements”) entered into on about 17 August 2015 between Chen HQ and 11 representatives selected from the Employee Shareholders (the “11 Representatives”), the 11 Representatives obtained loans (the “Loans”) which they used to purchase CSI Shares from the Employee Shareholders;

(b)  Also on about 17 August 2015, Chen HQ and the 962 Ds (together with another minority shareholder) entered into the Share Pledge and Guarantee Agreement (the “SPGA”) whereby the 962 Ds charged/mortgaged the Subject CSI Shares to Chen HQ as securities for the performance of the agreements between Chen HQ and the 11 Representatives;

(c)  The combined effect of a “common understanding” between Chen HQ, the 962 Ds (inter alios), and the 11 Representatives that (the “Common Understanding”), the Loan Agreements and the SPGA is that in the event that the Trust Actions were successfully determined in favour of the Employee Shareholders, Chen HQ would have an option to choose between repayment of the Loans by cash or by transfer to him of all the CSI Shares acquired by the 11 Representatives;

(d)  In breach of the terms under the SPGA, the 962 Ds exercised the voting rights attached to the Subject CSI Shares, and on around 23 March 2017 sold them to ACC through certain agreements (the “ACC SPAs”);

(e)  The breaches by the 962 Ds were the subject matters of the Arbitration and the 962 Proceedings;

(f)  Chen HQ commenced HCA 1304 on 5 June 2017. ACC is currently the only defendant.  He sues ACC principally for procurement of the 962 Ds’ breach of the SPGA.  He avers that in the event that ACC may have acquired any interests in those shares, his security interests as equitable mortgagee and/or charge in the Subject CSI Shares would take priority, and ACC would be bound by the same;

(g)  He now applies to add the 962 Ds as additional defendants;

(h)  Chen HQ claims, principally, a declaration that the ACC SPAs are invalid and/or null and void, or alternatively an order setting aside the same;

(i)  He also claims (and intends to claim) an injunction restraining the ACC and the 962 Ds from transferring the Subject CSI Shares, and the latter from voting upon the same.

C.2.  THE MERITS OF CHEN HQ’S CASE

20.The merits of Chen HQ’s case is an issue important to both the Joinder Application and the Injunction Application:

(a)  In respect of the Joinder Application, there is no point in granting Chen HQ leave to amend to join the 962 Ds if his case against them is bound to fail or not viable at all — see Goldbay Fortis Ltd v Rich Resources Development Ltd [2018] HKCFI 2684 at §15, and Pang Kwok Lam v Schneider Electric Asia Pacific, HCPI 90/2010 (5 January 2011) at §§73 and 82;

(b)  In respect of the Injunction Application, the American Cyanamid test requires Chen HQ to demonstrate, in so far as merits are concerned, that there is a serious question to be tried as to whether he is entitled to a permanent injunction at trial.

21.Mr Westbrook’s principal submissions in this regard are that the proposed claim against the 962 Ds are bound to fail.  He submits, with reference to Pang Kwok Lam, that it is plain and obvious that Chen HQ’s proposed claim against the 962 Ds is not viable at all, for the following reasons:

(a)  By way of preliminary objections:

(i)  even if Chen HQ’s proposed claim against the 962 Ds could be established, it would at most be a matter of priority over the shares, but not validity of the ACC SPAs;

(ii)  the 962 Ds had already sold the Subject CSI Shares to ACC.  There is nothing left to restrain;

(iii)  Chen HQ sought in the Arbitration an anti-voting injunction against the 962 Ds, which he failed.  He cannot have a second bite at the cherry;

(b)  In respect of Chen HQ’s core case on purchasing the Employee Shareholders’ shares, he has no coherent, credible case on the nature of the contractual relationship between himself and the 11 Representatives in relation to the Loans and the shares of the Employee Shareholders.  The 962 Ds’ case is consistent with the Loan Agreements.  Chen HQ on the other hand has at different stages run inconsistent cases.  In particular, in the 962 Proceedings, he ran the case that the 11 Representatives purchased from the Employee Shareholders as principals, and that they would sell them to Chen HQ if the Employee Shareholders were to be successful in the Trust Actions (the “Loan/Conditional Purchase Case”).  It was criticised in the SPGA Arbitration Award.  Then in HCA 2648/2017 (“HCA 2648”), Chen HQ ran the case that his relationship with the 11 Representatives, based on a so‑called share acquisition and loan agreement (“SALA”), was one of agency, so that he has become full beneficial owner of the CSI Shares purchased from the Employee Shareholders (the “Purchasing Agent Case”).  The contradictions are irreconcilable.  Then, in HCA 1304, he further runs the case that he has an option to choose whether to get the Employee Shareholders’ shares or repayment of the Loans (the “Option Case”).  Chen HQ has no viable case against the 962 Ds.

22.Mr Chan’s principal submissions in this regards are that Chen HQ’s application for injunctive relief against ACC and the 962 Ds should be dismissed, as Chen HQ’s case is clearly without merits, so that there is no serious issue to be tried.  He in particular submits that:

(a)  The restriction imposed by Clause 5 of the SPGA upon the 962 Ds against transfer of the Subject CSI Shares operated pending the 11 Representatives’ discharge of their obligations under the Loan Agreements.  That clause does not bind ACC and the 962 Ds given that the 11 Representatives have undisputedly acted to repay the Loans in discharge of their Loan Agreements obligations;

(b)  In an attempt to avoid the above, Chen HQ relies on the alleged Common Understanding;

(c)  the alleged Common Understanding is without merits, in that:

(i)  it is inherently incredible on its face:

(1)  it is inherently incredible that parties would have been content to rely on an unwritten understanding when the shares at stake are worth multi‑millions;

(2)  the alleged Common Understanding is inconsistent with the wording and structure of the Loan Agreements, and in particular Clauses 1 and 6(2) thereof;

(3)  the alleged Common Understanding would have rendered the Share Pledge Agreements signed by the 11 Representatives otiose, and is further commercially and practically nonsensical, given the interest payments involved;

(4)  the alleged Common Understanding is also inconsistent with Chen HQ’s earlier case that the 11 Representatives purchased the CSI Shares from the Employee Shareholders as principals;

(5)  Clauses 6(1), (3) and (4) of the Loan Agreements, which Chen HQ relies heavily on, do not suggest that he has a free‑standing option to choose as alleged;

(ii)  Chen HQ is estopped from relying on the alleged Common Understanding.  He is not permitted as a matter of law to discard the written agreement (ie the Loan Agreements) and rely on what he claimed to be the “true bargain” as against third parties;

(iii)  the alleged Common Understanding utterly fails to advance Chen HQ’s position in law, in that the question is whether the 11 Representatives have performed their obligations under the Loan Agreements, as required by Clause 5 of the SPGA, but not the terms of any alleged Common Understanding.

23.Mr Mak submits that the lack of merits of the criticisms of Chen HQ’s case of SALA is obvious if the latter is to be fairly understood.  He points out that SALA involves 2 stages, before and after the Employee Shareholders’ success in the Trust Actions.  The criticisms based on the SPGA Arbitration Award was caused by unfair reading of the same. A simple comparison of the parties’ respective case reflects that the balance of probabilities clearly tilts in favour of Chen HQ’s case of SALA.  It gets support from the Lam J 31/5 Reasons.  It is also supported by the terms of the Loan Agreements.

C.3.   MERITS OF CHEN HQ’S CASE — DISCUSSION 

24.In my view, Chen HQ’s cases on the nature of the contractual relationship between himself and the 11 Representatives in relation to the Loans and the shares of the Employee Shareholders at different stages are clearly contradictory.

25.The terms of the Loan Agreements suggest that they are straightforward loan agreements (see §§1 and 2 of the Recitals thereof)[6].

26.The 11 Representatives have tendered repayments of the Loans.  They did so in August 2017.

27.In the 962 Proceedings, Chen HQ ran the Loan/Conditional Purchase Case.  That is clear from the contents of the number of affirmations he filed in that action, and in particular §§10[7]-13, 17 and 24 of his 2^nd, and §18 of his 4^th.

28.After the 11 Representatives had tendered repayments of the Loans, in September 2017, when Chen HQ sought to be joined into the Trust Actions, he based his application on the existence of SALA, which he said was a “common agreement and understanding” between him,the 11 Representatives and inter alios the 962 Ds.  He stated that the various agreements were entered into pursuant thereto.  He put forward a Purchasing Agent Case, to the effect that the 11 Representatives acquired the CSI Shares from the Employee Shareholders as his “nominees”, so that he could claim that he had already been the beneficial owners of those shares purchased from the Shareholder Employers.  The way he ran his application was clear from the several affirmations he filed in support of his application, and in particular §53.4 of his 1^st and §17[8] of his 4^th in HCA 2648. 

29.The two contradictory versions were both given by way of affirmation.

30.I accept Mr Westbrook’s submissions that the differences are irreconcilable.

31.When discharging the Interim Receivers in the 962 Proceedings, one reason given by G Lam J in the Lam J 31/5 Reasons was the “drastic” differences between the cases that Chen HQ had put forward, as follows (with emphasis added):

“ 18. After obtaining the order for receivership in these proceedings, in September 2017, Chen HQ made an application to be joined as a party to the Trust Actions. There, in contrast to what he had said before Mimmie Chan J in these proceedings,Chen HQ claimed that pursuant to what he termed the ‘Share Acquisition and Loan Agreement’ (‘SALA’) the 11 ‘representatives’ (no longer labelled ‘borrowers’) acquired the employee‑plaintiffs’ interests in the CSI shares ‘as nominees acting for and on [his] behalf’ in August 2015, that he made payment of the remaining 30% of the price in March 2017, and that he had ‘become the full beneficial owner of the CSI Shares previously held by 2,248 of the relevant employees … from around March 2017’.^[9] He exhibited a copy of a Confirmation, which was in materially identical terms to the ‘blurry’ copy exhibited by the defendants in these proceedings in June 2017, and which Chen HQ had clearly had in his possession or power since March 2017. According to Chen HQ, at least 1,014 employees had executed such Confirmation in his favour.

19. Mr Mok SC, who appeared for Chen HQ, submitted that the defendants’ reliance on the discrepancies between Chen HQ’s different versions was a mere forensic point and that in substance his case had not changed throughout.  With respect, I cannot agree. These drastic differences were substantively material in at least two respects.  First, if the 11 representatives acted indeed as agents and nominees at the outset through whom Chen HQ agreed to purchase the employee‑plaintiffs’ interests in CSI shares in August 2015, it is difficult to see how they could be said to have ever had beneficial receipt of the money in their hands, and how they could be held liable for repayment of any ‘loans’.  In fact, it has been revealed in Chen HQ’s new case that, according to him,he obtained the 11 representatives’ bank cards and online banking devices at the time so that he retained full control of the money.  Further, in light of the Confirmation which stated that Chen HQ ‘irrevocably’ purchased the employee-plaintiffs’ interest in the CSI shares, it is difficult to see how Chen HQ could revert to a claim that the 11 representatives were ‘borrowers’.  The artificiality of the ‘Loan Agreements’ can indeed be seen from Chen HQ’s own 5^th affirmation herein (at §29) where he stated it was in his view ‘beyond belief’ that the 10 Borrowers, who were mere employees of the group, would have the necessary funding to repay him [10].  At the hearing Mr Mok was hard put to offer an explanation how Chen HQ could (to use Mr Westbrook SC’s word) ‘flip‑flop’ between electing to have the shares and still trying to recover the ‘loans’.  Of course, if there were no real loans and real borrowers, then the pledges of the defendants’ shares under the SPGAs as security might well be said to be ineffective because, as Mr Mok accepted, the security interest asserted by Chen HQ was for the repayment of the loans.  It is, however, not necessary for present purposes to determine the precise effect of these arrangements, which may anyhow be a matter governed by Mainland law.  It is sufficient to say—which I do—that these are highly material matters which should have been frankly placed before the original judge hearing the receivership application.” 

20. Secondly, if Chen HQ had indeed acquired the employee- plaintiffs’interests in the CSI shares in question from the outset, there might be requirements under securities regulations such as for disclosure of interest, since CSI held a 25.09% interest in the listed company, China Shanshui Cement Group Ltd.  In the receivership application before Mimmie Chan J, when faced with the criticism that he had not made any disclosure of interest filings,Chen HQ categorically said he had ‘not yet acquired the Purchased Shares’,[11]which is to be contrasted with his statement in the joinder application in the Trust Actions that he had ‘become the full beneficial owner of the CSI Shares … from around March 2017’.[12]  Moreover, the point had been raised by the defendants before Mimmie Chan J that Chen HQ was a front‑man for Tianrui. If in fact Chen HQ had already purportedly acquired interests in CSI shares, that would bring into sharp focus whether or not the whole transaction was an attempt by Tianrui to circumvent any obligation to make a mandatory general offer under the Takeover Code, which would be relevant to whether the court’s discretion should be exercised to assist Chen HQ by appointing interim receivers.”

32.I do not accept Mr Mak’s submissions that Chen HQ’s case based on SALA found favour with G Lam J.

33.Chen HQ’s case was also criticised in the SPGA Arbitration Award, in its original simplified Chinese, that:

「 (二) 关于本案主法律关系性质的分析与认定

申请人认为，申请人与付元伟等人于2015年8月17日签订的《借款协议》系名为借款合同、实为委托购股的合同。《股权质押担保协议》系申请人和四被申请人为了委托购股能够履行和实现而签订，是付元伟等人向申请人履行委托购股协议义务的担保，而不是借款合同的担保。」[13]

「其三，本案中，从申请人作为证据提交的十份《借款协议》分析，其性质应当属于借款合同。申请人主张该案所涉《借款协议》系名为借款合同、实为委托购股合同，但在本案中未能举出相应证据予以証明，即申请人未能提供充足的证据以使仲裁庭合理相信当事人之间名为借款实为委托购买权的合同。仲裁庭认为，当事人若主张名义上的合同与实际上的合同关系性质不一致，必须提供足以推翻名义合同性质、并証明当事人之间实际权利义务关系性质的证据。」[14]

34.I do not accept Mr Mak’s submission that the criticisms made against Chen HQ’s different cases based on the SPGA Arbitration Award was caused by any unfair reading of the same.

35.Next, Chen HQ put forward a case based on a mixture of agency and option.  In his 12^th Affirmation filed in HCA 2648, at §18(b)[15], he claimed that the 11 Representatives (who he called therein the 11 Nominees) were selected “to purchase the CSI shares on behalf of me”, but that the “peculiar wordings of the Loan Agreements show that it could not have been a simple lending.  The Nominee Agreements were so drafted so as to allow me to request for repayment of the funds if the plan to acquire the CSI shares through the 11 Nominees on my behalf could not work or was no longer desirable (i.e. the ‘SALA’ arrangement)”. (Emphasis added)

36.In the Proposed SOC:

(a)  Chen HQ is no longer alleging that the 11 Representatives were purchasing on his behalf — see in particular §§5.2 and 6.1 of the same;

(b)  he claims at §6.5 that he has an option “to choose between repayment of the Loans by cash and by transferring to the Plaintiff all the CSI Shares and interests therein acquired under their respective SPAs with the Employees”.

37.The Option Case is again irreconcilable with the Purchasing Agent Case.  As Mr Westbrook has submitted, which I accept, that on the Purchasing Agent Case, Chen HQ had already acquired beneficial interests in the shares purchased from the Employee Shareholders upon purchase and prior to the determination of the Trust Actions; on the Option Case, he would have an option to choose after the outcome of the Trust Actions is known.

38.I accept Mr Chan’s submissions that the terms of the Loan Agreements relied upon by Chen HQ do not begin to suggest that he would have a free‑standing option as alleged.

39.In addition to the above, I accept Mr Chan’s submissions as summarised above that it is inherently highly incredible that parties would have been content to rely on overarching unwritten understanding when the shares at stake are worth multi‑millions.

40.The contradictory and inherently incredible cases that Chen HQ has run in respect of the contractual relationship between himself and the 11 Representatives in relation to the Loans and the shares of the Employee Shareholders impact directly not just on his case against the 962 Ds but also on his case against ACC:

(a)  as Mr Chan has submitted, Chen HQ’s case against the 962 Ds for injunction relief is based on Clause 5 of the SPGA;

(b)  Clause 5 of the SPGA provided that pending the 11 Representatives’ discharge of their obligations under the Loan Agreements, the 962 Ds (inter alios) are not permitted to transfer the Subject CSI Shares without prior written consent from Chen HQ;

(c)  Chen HQ’s contradictory and inherently incredible cases go directly to the core issue as to what the obligations of the 11 Representatives are under the Loan Agreements;

(d)  If the terms of the Loan Agreements mean what they say, so that the obligations of the 11 Representatives were to repay the Loans, which they had tendered, Chen HQ would have no case for any injunctive relief against ACC.

D.   Conclusion on the Joinder Application and Injunction Application 

41.For the reasons set out above, I accept Mr Westbrook’s submissions and conclude that it is plain and obvious that Chen HQ’s proposed claim against the 962 Ds is not viable at all.  I accept also Mr Chan’s submission that Chen HQ has failed to establish a serious question to be tried as to whether he is entitled to a permanent injunction at trial.  I refuse both the Joinder Application and the Injunction Application against both ACC and the 962 Ds.

42.Given the above, there is no need for me to consider the balance of the submissions made by the parties in relation to the Injunction Application.  Out of deference, I make the following observations.

43.On the question of balance of convenience:

(a)  I accept Mr Mak’s submissions that it is the 962 Ds’ case that they have sold the Subject CSI Shares.  If necessary, I would hold that balance of convenience would have tilted in favour of a grant in so far as they are concerned;

(b)  In respect of ACC:

(i)  I would have accepted Mr Chan’s submissions that given the analysis above, it is likely that the Court will find after trial that injunction relief should not be granted, and that this is a material factor to be taken into account — National Commercial Bank of Jamaica v Olint [2009] 1 WLR 1405, at §§16-17 and DBS Bank v Tian Wen Quan, HCA 3228/2016 (12 October 2017), at §12;

(ii)  I would also have accepted Mr Chan’s submissions that on Chen HQ’s own evidence, he advanced the Loans to the 11 Representatives for two reasons, (1) he saw value in the shares of CSI and took the view that it would be commercial viable to invest his money in the group, and (2) he wanted to assist the Employee Shareholders;

(iii)  The balance of convenience tilts strongly against the grant of injunctive relief:

(1)  given the lack of merits of Chen HQ’s claim for a permanent injunction;

(2)  should injunctive relief be wrongly granted, the harm to ACC is likely to be significant;

(3)  in contrast, if injunctive relief is wrongly refused, the irreparable harm which Chen HQ would suffer is likely to be relatively minimal;

(4)  in the circumstances, dismissing the application for injunctive relief is likely to cause the least irremediable prejudice to one party or the other.

44.On the question of clean hand, Chen HQ had been a mid‑level manager of a subsidiary of Tianrui.  G Lam J has in a previous Decision under HCA 1282/2017[16] expressed serious concerns as to whether the source of the funds for the Loans came from Tianrui as opposed to him.  Chen HQ has consistently refused to clarify that, saying in a number of affirmations that he did not wish to disclose too much of his personal financial information.  I see great force in the submissions of both Mr Westbrook and Mr Chan that the evidence gives rise to concern as to whether Chen HQ might have been fronting for some other entity, why that was deemed necessary, and as a result whether Chen HQ has come to court for equitable relief with clean hands.  

E.   The Security for Costs Application

45.This application concerns only Chen HQ and ACC.

46.Mr Mak does not dispute that security is payable. The only issue is the amount.

47.The consensus is that the Court is to award security of an amount which will cover the defendant’s recoverable costs of defending the action, estimated as accurately as possible, applying the standard party‑and‑party basis — Iskandar v Leo, unrep, CACV 117/1987 (28 September 1987), §19.  In estimating the amount of recoverable costs, the court should adopt a broad‑brush approach.  There is no need to subject the costs claimed to a microscopic scrutiny Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd, unrep, HCA 1957/2005, (26 October 2007), §§46-47.

48.Mr Chan urged me to take into account the exceptionally complicated factual background, the likely involvement of complicated foreign law and conflict of law issues, the value of the shares involved, and the fact that most witnesses are in the Mainland.

49.Mr Chan informed this Court that the skeleton Bill of Costs annexed to the ACC Summons contains an error (in that two sums in the total amount of HK$390,000 in Part D relating to the Security for Costs Application have been counted twice).  After the correction, the estimated amount from Concurrent Writ up to Defence (Part A), from Reply up to and including discovery (Part B), the Joinder and Injunction Application (Part C) and the Security for Costs Application (Part D) is HK$2,740,016 + RMB300,000 (the RMB300,000 being fees for providing Mainland expert’s opinion).

50.Mr Mak has urged me to consider the following factors, namely:

(a)  the change of solicitors’ firm representing ACC,

(b)  the disposal of the Security for Costs Application in this combined hearing, resulting in reduction of costs (eg counsel fees).  I note in this regard that the error mentioned above in the total amount of HK$390,000 in fact related to counsel’s fees for the Security for Costs Application, which has now been corrected;

(c)  the estimate in Part A, including in effect 120 hours to be spent by solicitors (in addition to counsel’s input) is excessive;

(d)  the estimate in Part B, amounting to 110 hours of solicitors’ work, is excessive;

(e)  Parts C and D will only be engaged if ACC is successful in both (which I have ruled that they are), and that they are excessive.

51.The respective estimates of the parties are set out below:

Item	ACC’s estimates	Chen HQ’s estimates
Part A	HK$732,023 + RMB300,000	HK$300,000 (including Mainland expert)
Part B	HK$452,200	HK$100,000
Part C	HK$986,108	HK$400,000
Part D	HK$569,685	HK$200,000
	HK$2,740,016 + RMB300,000	HK$1,000,000

52.In my view, Chen HQ’s estimates for Part A and Part B are unrealistic.  But ACC’s estimates for those same Parts are on the high side.  ACC’s estimates for Parts C and D are also on the high side. Adopting a broad brush approach, I estimate Part A to be HK$500,000 + RMB 200,000, Part B to be HK$250,000, Part C to be HK$600,000, and Part D to be HK$300,000, giving the total of HK$1,650,000 + RMB 200,000.

F.   Disposition

53.For the reasons set out above:

(a)  In respect of the Dismissal Summons:

(i)  in respect of §1, I order that following the SPGA Arbitration Award, the Originating Summons be dismissed;

(ii)  in respect of §2, I order that the 962 Ds and ACC be forthwith released from the Undertakings given on 17 May 2018;

(iii)  a costs order nisi in terms of §3, with certificate for 2 counsel for both the 962 Ds and ACC;

(b)  In respect of the Joinder and Injunction Summons, I dismiss the same in its entirety, both in respect of the Joinder Application and Injunction Application, and make a costs order nisi that Chen HQ shall bear the costs of and occasioned by the same, to be taxed if not agreed, with certificate for 2 counsel for both the 962 Ds and ACC;

(c)  In respect of the Security for Costs Application, I allow the same, and made an Order in terms of §§1 to 4 of the same, save that the amount of the security should be HK$1,650,000 + RMB 200,000.  I make a costs order nisi in terms of §5 of the same, to be taxed if not agreed, with certificate for 2 counsel.

54.All orders nisi are to become absolute within 21 days from the date of these Decisions, unless any party seeks variation or summary assessment in the meantime, and for that purpose parties are granted liberty to write to my clerk, in which case I will give directions on the papers for further conduct of the same.

Mr Bernard Mak, Mr Isaac Chan and Mr Ho Lok Hin, instructed by Gallant, for the Plaintiff in HCMP 962/2017 and HCA 1304/2017

Mr Simon Westbrook SC, leading Ms Sharon Yuen, instructed by Stephenson Harwood, for the 1^st to 4^th Defendants in HCMP 962/2017 and the Intended 2^nd to 5^th Defendants in HCA 1304/2017

Mr Abraham Chan SC, leading Mr Joshua Chan, instructed by Dechert, for the Intervener in HCMP 962/2017 and the Defendant in HCA 1304/2017