Realord Group Holdings Ltd and Another v. Win Dynamic Ltd and Another
Read the full judgment text of HCA 716/2021 on BabelCite. This High Court CFI judgment was delivered on 16 May 2025.
1. There are two applications before the court:
Cited by 2 cases · Cites 8 cases
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HCA 716/2021 [2025] HKCFI 1939 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ________________________ BETWEEN
(By Original Action) AND BETWEEN
(By Counterclaim)
________________________ D E C I S I O N ________________________ A. INTRODUCTION 1.There are two applications before the court:
B. THE EXPERT EVIDENCE APPLICATION 2.The Defendants seek leave to adduce expert evidence on the following questions:
B1. Relevant background to the Expert Evidence Application 3.This action concerns the $260,435,373 paid by RGHL to Win Dynamic (“the Proceeds”) to acquire Win Dynamic’s shareholding in the 2nd Plaintiff (“SinCo”) pursuant to a voluntary general offer made by RGHL in May 2020. The Plaintiffs say that on 29th October 2020, Win Dynamic executed a Deed of Gift, pursuant to which Win Dynamic was to remit the Proceeds net of stamp duty to SinCo. The Defendants say that the Deed of Gift was executed under duress and undue influence. 4.The Defendants say that their case about duress and undue influence has been pleaded primarily in paragraphs 31.8, 31.9 and 65 of Win Dynamic’s Amended Defence and Counterclaim (“D1 ADCC”).
B2. Applicable principles 5.There is no dispute that, as the Court of Appeal set out in Shenzhen Futaihong Precision Industry Co Ltd & ors v BYD Co Ltd & ors [2019] 2 HKC 175 at [4] to [6], an applicant for leave to adduce expert evidence needs to satisfy three conditions, namely:
6.Apart from these substantive conditions, the use of expert evidence is subject to procedural requirements to guard against misuse or mismanagement of expert evidence: Shenzhen Futaihong at [8]. 7.The giving of expert directions is very much a matter of case management. In relation to such case management:
See Shenzhen Futaihong at [7], [9] to [13]. 8.The Defendants cite Hu Qinqin v Action Gain Limited [2025] HKCFI 516 at [16] to suggest that it is open to the court to go beyond the pleadings, but what Au-Yeung J was referring to was the observations by the Court of Appeal in Shenzhen Futaihong at [10] and [18] that in some cases, it may be better for the issues to be more precisely defined (for example through particulars, interrogatories or witness statements) before expert directions are sought. Neither of these authorities suggest that a party can rely on unpleaded issues to define the scope of expert evidence. B3. The Subject Matter Condition 9.In my view, the Subject Matter Condition is not satisfied. 10.The subject matter of the proposed expert opinion is (1) the alleged “common industry practice” relating to rule 34.3 of the Takeovers Code and (2) the alleged “common industry practice” relating to rule 4 of the CFA Code. However, it is not clear what these common industry practices may be. They are not pleaded. They are not mentioned in the witness statements so far filed. The 2nd Affirmation of Ma Lai Yuk says that the intended expert confirms that the common industry practices exist, but no indication has been given as to what they are (other than saying that, in relation to both of the proposed expert issues, (a) merely disclosing a conflict of interest does not exhaust the reasonable steps necessary, and (b) where the conflict is fundamental, a corporate financial adviser should resign). 11.Mr Nip SC (appearing with Mr Jonathan Lee and Mr Charlie Liu) for the Defendants submitted that the Defendants’ case has been sufficiently pleaded and that the common industry practices did not need to be pleaded as they were a matter of evidence to be relied on in assessing whether there had been a breach of the Codes. I agree with Mr Jin Pao SC (appearing with Mr Vincent Chen and Mr Jeff Yau) that whilst evidence does not need to be pleaded, if it is the Defendants’ case that there were common industry practices that should have been, but were not, followed, and that this resulted in illegitimate pressure being put on the Defendants, this is a material fact that needs to be pleaded. At the very least, what those practices were would need to be properly identified and pleaded. 12.Given the lack of particulars, the Defendants fail to establish that the subject matter of the proposed opinion forms part of a body of knowledge or experience which is “sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience” as required under the Subject Matter Condition. The Plaintiffs have challenged the existence of the “common industry practices”, yet the Defendants have failed to properly identify what these practices are, let alone show some basis for saying that they are common, or that they are sufficiently organised or recognised as a body of knowledge or experience. 13.Insofar as some particulars have been given as regards the steps to be taken in a case of conflict of interest (namely, that mere disclosure is inadequate and resignation may be necessary), this is confusing, as the Plaintiffs point out. It is expressly said that this is relevant to both Question 1 and Question 2, but rule 34.3 of the Takeovers Code does not refer to conflict of interest. 14.The Defendants say that corporate finance has been consistently recognised as an area in which expert evidence may properly be given, pointing to various cases in which either leave has been given for experts in “corporate finance” to give evidence, or cases which such experts have given evidence. However, “corporate finance” is a very broad area. The fact that expert evidence may have been called for in other cases in relation to particular aspects of corporate finance does not mean that any issue relating to corporate finance justifies the introduction of expert evidence (nor do the authorities cited suggest that this is the case). B4. The Relevance Condition 15.The Relevance Condition has also not been satisfied. 16.On the pleadings, there is no issue between the parties as to the alleged “common industry practices”. The Defendants’ case is that there has been a breach of the Takeovers Code and the CFA Code, not that there was a failure to follow certain practices. I do not agree that it is open to the Defendants to rely on unpleaded issues to justify the need for expert evidence. 17.As for what is pleaded, namely, a breach of the Takeovers Code and the CFA Code, I do not agree that expert evidence would be relevant to assist in resolution of this issue. 18.Insofar as the interpretation of the Codes is concerned, this is a matter that does not require any expert evidence. As the Plaintiffs point out, the interpretation of the Codes has been dealt with by the court in past cases without the need for expert evidence; and in any event, it is not the Defendants’ case that expert evidence is needed to assist with such interpretation – they accept that this is a matter for the court. 19.Insofar as the question of whether there has been any breach of the Codes, I would first observe that the 2nd Affirmation of Ma Lai Yuk says that the intended expert says that “Practitioners need to and do pay heed to such common industry practices.” As the Plaintiffs point out, taking the Defendants’ case to the highest, practitioners only need to “pay heed” to the practices, so that a failure to do would not in itself amount to a breach of rule 34.3 of the Takeovers Code or rule 4 of the CFA Code. The probative value of the proposed expert evidence is doubtful when the pleaded complaint is that there was an actual breach of the Codes, and not that there was a failure to follow certain practices. 20.Furthermore, the proposed expert evidence cannot assist in the resolution of the key aspects of the Defendants’ defences of duress and undue influence. 21.For the defence of duress, factors that the court will take into account in determining whether duress is made out include:
22.These are factual matters, and expert evidence will not assist. Insofar as the Defendants say that Win Dynamic was not advised to take professional advice, this is a matter that can and will be taken into account, regardless of expert opinion. Moreover, issues such as whether Win Dynamic should have been encouraged to obtain professional advice, and the extent to which it should have been so encouraged, are fact sensitive and will depend on the specific factual findings to be made at trial, rather than whether there may be some sort of general industry practice of encouraging shareholders of offerees to take professional advice. 23.For the defence of (actual) undue influence, a claimant needs to establish that:
24.Whether the Defendants’ free will was impaired, or whether there were alternative courses open to them, and what actually caused Win Dynamic to enter into the Deed of Gift, are factual issues which do not depend on any steps which RGHL or Optima should supposedly have taken. Whether the complaints of what Dr Lin or Ms Mei Leung said to press Win Dynamic to remit the Proceeds and whether this constituted pressure are matters of fact. 25.Insofar as impropriety of conduct is concerned, whilst it could in theory be said that a failure to follow a particular industry practice might potentially amount to improper conduct, no such failure is pleaded. In any event, failure to follow a particular industry practice would not necessarily amount to improper conduct. The Defendants say that expert evidence is necessary for the court to compare RGHL and Optima’s conduct with what is commonly required as a matter of practice, so that it can assess the reasonableness of their conduct. However, unreasonable conduct is not the same as improper conduct. In such circumstances, and even leaving aside the pleading objection, the probative value of the expert evidence is doubtful; on the contrary, there is a risk that such evidence would be a distraction from the real issues of primary fact, and unnecessarily lengthen the trial and increase the costs of the parties. The court will not order expert evidence to be adduced on the basis that it might, possibly, be helpful at trial. B5. The Expertise Condition 26.The Defendants fail to show that the Expertise Condition is satisfied. 27.This is not a matter of calling the expert’s qualifications into question, but rather, whether the Defendants have shown that he has the necessary knowledge and experience to opine on the proposed areas of expert evidence. 28.The proposed expert is a member of the Securities and Futures Commission Takeovers and Mergers Panel and Takeovers Appeal Committee, and was previously on the Stock Exchange Listing Review Committee and the Listing Committee. However, no indication has been given as to what work he has carried out in those capacities, and how this gave him the relevant expertise in relation to the alleged common practices which an offeror or corporate financial adviser would ordinarily take. 29.It is also said that he has acted as a financial adviser and sponsor in numerous transactions on the Hong Kong Stock Exchange. However, no indication has been given as to whether these transactions involved conflicts of interest or pressure, or how these transactions otherwise gave rise to the relevant expertise in this regard. Mr Pao submitted that Question 2 focuses on a very specific factual scenario, and whilst the expert may be a qualified and experienced practitioner, it would not necessarily be the case that he has knowledge or experience of such scenarios. I agree that the Defendants fail to show how he has the necessary knowledge or experience to act as an expert witness in this regard. 30.Finally, it is also said that he has acted as an expert witness for the Securities and Futures Commission in a case against two banks as sponsors of a substantial IPO on the Hong Kong Stock Exchange. Again, no information was provided as to how this contributed to the relevant expertise of the alleged common practices. 31.Mr Nip complains that the Plaintiffs did not raise any objection to the qualifications of the expert in their evidence, so that the Defendants did not have an opportunity to respond to this in their reply evidence. Whilst I agree with him that this was a matter of fact (and not merely submission) which ought to have been raised by the Plaintiffs, it is not the case that the Defendants suggest that they would have had more to say about the point had it been raised earlier. Furthermore, in the light of my views about the other two conditions, it would not have made any difference to the outcome of the application. C. THE DISCOVERY SUMMONS C1. Relevant background to the Discovery Summons 32.Under the Injunction as originally granted on 14th May 2021, Win Dynamic was not prohibited from spending (i) a reasonable sum on legal advice and representation, and (ii) $50,000 a week on ordinary and proper business expenses. 33.This exception to the Injunction was amended by consent on 6th April 2021, so that Win Dynamic was not prohibited from spending (i) up to $13,000,000 on legal advice and representation, and (ii) $50,000 a week on ordinary and proper business expenses (“the Exceptions”). 34.Between about 20th May 2021 and 5th April 2024, Win Dynamic withdrew a total of about $16.76m from its account (“the Morton Account”) with Morton Securities Ltd (“Morton”), which account was subject to the Injunction. Morton has disclosed that Win Dynamic has been withdrawing $50,000 from the account on a weekly basis. On the assumption that this started in May 2021, shortly after the grant of the Injunction, and continued until 5th April 2024, RGHL calculated that this would have accounted for a total of approximately $7.7m; and if so, then the balance of some $9.06m would have been spent on legal expenses. 35.RGHL says that it is unclear whether the withdrawals made by Win Dynamic thus far are justified under the Exceptions. RGHL says that Win Dynamic is merely an investment holding company (and that its investment in SinCo has been disposed of), and could not have incurred the level of ordinary and business expenses said to have been incurred. Moreover, Win Dynamic’s financial statements for the year ending 31st December 2019 show that in 2018 and 2019, it incurred very few expenses, and did not pay any director’s remuneration. As to legal expenses, RGHL says that there have been few interlocutory applications in these proceedings, so that Win Dynamic could not have incurred anything close to the amount of $9.06m on legal expenses. 36.Win Dynamic pointed out that in terms of figures, the amount withdrawn was well within the monetary limits specified in the Exceptions. It has filed evidence to say that it has incurred expenses in employing a secretary to carry out administrative tasks, settling fees of professional and other service providers for services rendered (including those in connection with the present proceedings), paying a director’s fee to the 2nd Defendant for work including that relating to the current proceedings, and paying a monthly account maintenance fee to Morton. As to legal expenses, Win Dynamic says that the amount spent falls within the $13m allowed under the Exceptions, and it is not obliged to provide a detailed breakdown or documentary record of such legal expenses. C2. Purpose of Discovery Summons 37.The Discovery Summons essentially asks Win Dynamic to:
38.RGHL initially said that Win Dynamic has “breached the Injunction”[1] and then modified this to a concern over Win Dynamic’s “potential non-compliance with the Injunction”.[2] It says that the purpose of its application is to ensure that the Mareva injunction has been operating properly, “and in particular, to ensure that the substantial withdrawals from the Morton account have been properly justified”.[3] 39.At the hearing, Mr Pao submitted that there may have been non-compliance with the Injunction, so that the purpose of obtaining discovery was to ensure that the Injunction was operating correctly, and that the Exceptions have been operating correctly. 40.In other words, the aim of the obtaining an order for discovery is to find out whether Win Dynamic has been in breach of the Injunction. C3. Principles as to scope of discovery in aid of Mareva injunctions 41.In its skeleton argument, RGHL submitted that discovery can be ordered in aid of a Mareva injunction for the purpose of policing the injunction. The question however is what “policing” means. 42.Insofar as RGHL says that this means that discovery can be ordered in order to give effect to a Mareva injunction, or to ensure that the injunction is effective to achieve its purpose, for instance by obtaining information about the defendant’s assets or a particular asset so as to enable the court to decide on what the Mareva injunction should bite, I agree. See AJ Bekhor & Co Ltd v Bilton [1981] QB 923 at 942E-H (Ackner LJ); Yau Chiu Wah v Gold Chief Investment Ltd & another [2002] 2 HKLRD 832 at [20] (Ma J, as he then was). Put obversely, the main underlying consideration for ordering disclosure is to prevent abuse by the defendant to frustrate or defeat the very purpose of a Mareva injunction: Pacific King Shipping Holdings Pte Ltd v Huang Ziqiang [2015] 1 HKLRD 830 at [32] (Poon J, as he then was). 43.However, the court will not require a defendant to disclose breaches of the Mareva he has committed in exercise of the ancillary jurisdiction to secure enforcement of the court’s order, unless that disclosure is necessary for the actual working out or the proper operation of the order: Bhimji and others v Chatwani and other (No.2) [1992] 1 WLR 1158 at 1166H-1167A (Knox J), citing Bekhor v Bilton. For an order for disclosure to be made under the ancillary jurisdiction, there must be an intrinsically justifiable reason directly connected with the proper exercise of the court’s primary jurisdiction. The promotion of compliance with a Mareva in the future by collecting evidence of past non-compliance does not constitute such a reason: Bhimji at 1169D-E. Cf. an order for cross-examination of a defendant on an affidavit made by him in compliance with an order for discovery ancillary to a Mareva injunction – the purpose is not to enable information to be gathered so as to impugn his credit or investigate whether there has been a breach of the Mareva and thereby obtain material for possible contempt proceedings: Yau Chiu Wah at [14(1)]. 44.As succinctly summed up in Gee on Commercial Injunctions, 7th ed., at paragraph 23-010: “The practice of the court is not to make an order for the purpose of investigating whether an injunction has been broken and (if so) to supply material for contempt proceedings.” 45.Various authorities were cited in RGHL’s skeleton to say that it was proper to order discovery for the purpose of “policing” the injunction. However, “policing” is not a term of art. None of the authorities suggests that it is appropriate to order discovery for the purpose of ascertaining whether a defendant has acted in breach of a Mareva injunction, or, as Mr Pao put it, to monitor whether the injunction has been operating properly.
46.At the hearing, counsel were in agreement that an order for discovery in the present context is an order ancillary to the injunction, so that its purpose is to ensure that the injunction is effective; the test as to whether discovery should be granted is whether it is just and convenient to do so in order to ensure the effectiveness of the injunction. 47.Counsel also debated the extent of the breach of the injunction, or an earlier order for discovery, which needs to be shown in order for a further order for discovery to be made. However, it seems to me that the test as to whether an ancillary order for discovery should be made is not one of whether there has been a breach of a prior order and if so how serious the breach has been. As counsel agreed, the test is whether it is just and convenient to order discovery to ensure the effectiveness of the injunction (to which discovery is ancillary). In considering whether or not to make the order, whilst one factor to take into account is whether there are grounds to think that the injunction may be being broken, ultimately, whether an order should be made in any particular case will depend not only on the strength of those grounds but also other considerations which militate for and against the making of such an order. See JSC BTA Bank v Ablyazov [2018] EWHC 1368 (Comm) at [13], [16] (Patricia Robertson QC, sitting as a High Court Judge). This also explains why, in different cases, the courts have expressed different views as to the strength of the evidence before them: not as a threshold to be met generally, but as one of the factors relevant to the particular case under consideration. 48.Given all of the above, where there has been no breach of a prior order, the court would normally refuse to order disclosure beyond the standard disclosure. Thus, in RACP Pharmaceutical Holdings Ltd, a case where the Court of Appeal rejected the plaintiff’s allegations that the defendant was in breach of an order that he disclose his worldwide assets (in aid of a Mareva injunction against him), and the application for a further order for discovery, Le Pichon JA said at [15] that:
49.This was also the approach in Pacific King Shipping Holdings Pte Ltd (citing RACP Pharmaceutical Holdings Ltd at [32]; and see [36]). 50.It is also relevant to bear in mind the purpose of a Mareva injunction itself, as summarised in Vneshprombank LLC v Bedzhamov and others [2020] 1 All ER (Comm) 911 at [68] (Males LJ) in the context of the issue of whether the spending limits in a freezing order should be varied:
C4. The present case 51.I first consider the factual context in which the application is being made. RGHL’s argument is that Win Dynamic should not have such a high level of expenses, given that it is merely an investment holding company (which in fact no longer holds its shares in SinCo) and its financial statement for 2019 showed that it had very little expenses. It says that the explanations given by Win Dynamic are inadequate:
52.Whilst the explanations given by Win Dynamic do not condescend into details, I cannot say that they amount to evidence of a breach of the Injunction (and the Exceptions), or that one should infer that there has been a breach or a real risk of a breach. Whilst Win Dynamic had a low level of expenses in 2018 and 2019, some of the expenses which it says are now being incurred are those which arose as a result of the current proceedings, and would therefore not have been reflected in the financial statements in 2019. Whether the amounts paid to the secretary, the 2nd Defendant, Morton and other service providers are high in return for the level of service provided is not a matter into which the court will inquire on an application of this nature. Nor will the court inquire into the business wisdom of Win Dynamic’s engaging a secretary to carry out administrative tasks, asking its director to carry out certain work, and engaging other service providers. There cannot be any criticism of Win Dynamic paying the fees of Morton to maintain the Morton Account when the Injunction prohibits Win Dynamic from disposing of the amounts held in the account. Mr Pao submitted that the amount of the fee suggested that Morton and Win Dynamic were “playing the same game”. There is, however, no basis to suggest that Morton has been engaging in any impropriety and is in cahoots with Win Dynamic in order to subvert the Injunction. 53.As regards Win Dynamic’s legal expenses, again, the court does not inquire into whether the defendant could have engaged cheaper lawyers, or whether the lawyers could have spent less time on the case, and will not act as a form of provisional taxing body for the purpose of scrutinising the defendant’s legal fees: Gee at paragraph 21-058. Furthermore, there is no basis to say that the money withdrawn has, in breach of the Injunction, been spent on the 2nd Defendant’s legal expenses. 54.Win Dynamic says that without the discovery sought, there is no way for RGHL to know whether Win Dynamic’s withdrawals from the Morton Account were in compliance with the Exceptions.[4] This highlights that there is, in fact, no evidence of any actual non-compliance. At best, there is evidence which may be consistent with non-compliance but which also is consistent with compliance. Whilst I agree with Mr Pao that the Exceptions do not confer carte blanche on Win Dynamic to withdraw amounts from the Morton Account up to the monetary limits to use on whatever it pleases, there is no evidence that this is what is happening. 55.It is against this factual background that RGHL seeks what can be described as discovery of an intrusive nature, asking for particulars of every withdrawal from the Morton Account, accompanying bank records, a statement of the purpose of each of the withdrawals, and full documentary evidence in support of each, such as lawyers’ feenotes and receipts. Even if privileged information is redacted, the information sought would no doubt be revealing of the steps taken by Win Dynamic in these proceedings. 56.RGHL has not identified any reason as to why the discovery sought is needed to make the Injunction effective, or which is otherwise directly connected with the proper exercise of the court’s primary jurisdiction (in granting the Injunction) and therefore ancillary to it. On the contrary, the aim is find out whether Win Dynamic has been withdrawing funds in breach of the Injunction. However, as Mr Pao accepted, the court does not make an ancillary order for discovery for the purpose of enabling a party to find out whether there has been a breach of the injunction. 57.RGHL elaborated on the reasons for wanting to find out whether Win Dynamic has been withdrawing funds in breach of the Injunction as follows.[5] 58.First, it is said that without an order for discovery, RGHL would have difficulty in ensuring the preservation of funds in the Morton Account, which might have been illegitimately dissipated.[6] However, this is clearly an attempt to discover past breaches of the Injunction, for which Win Dynamic might be punished, for example by way of contempt proceedings. The authorities make it clear that this is not a proper purpose for which ancillary discovery should be given. The discovery sought would not assist in making the Injunction effective as regards any past breaches which have already occurred. 59.Second, it is said that if there has been non-compliance with the Injunction, RGHL has an interest in ensuring that this would not continue any further.[7] That may be so, but it is unclear how RGHL would further such an interest, other than by bringing contempt proceedings. Whilst contempt proceedings, or the threat of such, may indeed incentivise Win Dynamic to comply in future, the promotion of compliance with a Mareva in the future by collecting evidence of past non-compliance is not in itself an intrinsically justifiable reason directly connected with the proper exercise of the court’s primary jurisdiction in granting the Mareva: Bhimji at 1169D-E. 60.Third, it is said that in the absence of satisfactory disclosure, there can be no confidence in allowing the Injunction as currently framed to continue, and there may be justification to impose more stringent requirements for Win Dynamic to justify withdrawals from the Morton account.[8] However, whether or not the facts as currently known and disclosed justify the continuation of the Injunction as currently framed is not a question which is before me for consideration. Indeed, if the purpose of the discovery is to ascertain whether or not the Injunction should be continued in its current form, then the order sought is clearly not ancillary to the Injunction at all: it is not directed at making the current Injunction effective, but rather, at a potential future application to vary the Injunction. D. DISPOSITION 61.I therefore dismiss both the Expert Evidence Application and the Discovery Summons. 62.Counsel were agreed that in the event that, for either of the applications, I either allowed or dismissed it in its entirety, costs should follow the event. I therefore further order that the Defendants should pay the costs of and occasioned by the Expert Evidence Application to the Plaintiffs, with certificate for two counsel, and that RGHL should pay the costs of and occasioned by the Discovery Summons to the Win Dynamic, with certificate for two counsel. Both sets of costs are to be summarily assessed on the papers. Statements of costs should be lodged and served within five days, limited to two pages. Lists of objections are to be lodged and served within five days thereafter, in bullet point form, limited to two pages. Replies, if any, are to be lodged and served within three days thereafter, in bullet point form, limited to two pages.
Mr Jin Pao SC leading Mr Vincent Chen and Mr Jeff Yau, instructed by Lam & Co., for the 1st and 2nd Plaintiffs Mr Normal Nip SC leading Mr Jonathan Lee and Mr Charlie Liu, instructed by, Patrick Chu, Conti Wong Lawyers LLP, for the 1st and 2nd Defendants [1] 2nd Affirmation of Ko Ka Yau paragraph 8. [2] 4th Affirmation of Ko Ka Yau paragraph 26. [3] Skeleton (for discovery) paragraph 13. [4] Skeleton (for discovery) paragraph 29.1. [5] Skeleton (for discovery) paragraphs 13, 29. [6] Skeleton (for discovery) paragraph 29.2. [7] Skeleton (for discovery) paragraph 29.2. [8] Skeleton (for discovery) paragraphs 13, 29.3. |
Cases cited in this judgment