Chen Hongqing v. Liu Yiu Keung Stephen and Others

HCA 1699/2019

[2025] HKCFI 3612

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1699 OF 2019

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BETWEEN

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(by Original Action)

AND BETWEEN

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(by Counterclaim)

AND BETWEEN

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(by Counterclaim)

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DECISION

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A. Terminology

1.For the long and convoluted background of this case, I refer the CHQ Injunction Decision this Court handed down on 23 June 2021[1] and the many other Judgments and Decisions referred to in §§1 and 2 therein.  Unless otherwise specified, I adopt the same terms and abbreviations used in that Decision.

2.I set the following matters out at the outset to facilitate understanding of the terminology used:

(a)  As can be seen from the case title, there are in this action:

(i)  the original action by Chen HQ (the “Original Action”).  There are now 1190 defendants;

(ii)  the counterclaim by Jinan Group (the “JG Counterclaim”).  There are now 1189 defendants; and

(iii)  another counterclaim by 10 named plaintiffs (the “Rep Counterclaim”):

(1)  The first 8 of those 10 named plaintiffs are D4, D327, D703, D191, D667, D1086, D503, and D663 in the Original Action (the “8 Representatives” or “8 Reps”);

(2)  The last 2 are respectively D1189 and D1190 in the Original Action (“Wang” and “Jin”);

(3)  There are now 241 defendants.  The first 4 are respective Chen HQ and D1 to D3 to the Original Action.  I call the balance the “Rep Counterclaim/D5-D241”;

(b)  The term “SHDs” and “SH Defendants” have not been used consistently by the parties, not even on the face of the relevant summonses:

(i)  The term SH Defendants is used to denote a group of parties represented by Messrs Stephenson Harwood;

(ii)  D4 to D1168, D1170 to D1188, D1189 (i.e. Wang)  and D1190 (i.e. Jin)  in the Original Action are all SHDs (at least treated to be so by Messrs Stephenson Harwood – see the “Striking Out Summons” of 2 January 2025 detailed below);

(iii)  The term SH Defendants, used as such, covers and include the 8 Reps, Wang and Jin;

(iv)  But in the earlier Summons of 14 March 2024 (the “14/3/2024 Summons”)[2], the term SH Defendants is used in a sense which excludes the 8 Reps, Wang and Jin;

(v)  In his written submissions, Mr Maurellet uses the term Remaining Employees to denote those SHDs excluding the 8 Reps, Wang and Jin;

(vi)  Unless otherwise specified, I use the term SHDs or SH Defendants in this Decision to denote all of D4 to D1168, D1170 to D1188, D1189 (i.e. Wang)  and D1190 (i.e. Jin)  (i.e. inclusive of the 8 Reps, Wang and Jin).  When the 8 Reps, Wang and Jin are not meant to be included, I use the term SHDs (Excluding).

B.  Introduction

3.This is the hearing of:

(a)  The appeal (the “Appeal”)  by Chen HQ against Master Lewis Law’s decision of on 2 August 2024 (the “Master Law Order”)  allowing:

(i)  The Amendment Applications made by the 8 Reps and the SHDs (Excluding)  via the 14/3/2024 Summons to amend their respective defences; and

(ii)  The I/G Withdrawal Applications made by the 8 Representatives (via also the 14/3/2024 Summons)  and the Jinan Group (via its summons of 24 January 2024 (the “24/1/2024 Summons”)  for an order that Chen HQ withdraw his Interrogatories (as defined below); and

(b)  The Striking Out Summons (the “Striking Out Application”)  issued by the SHDs.

4.Mr Law Man-Chung SC leading Mr Danny Tang appeared for Chen HQ.  Mr Jose Maurellet SC leading Mr Alexander Tang and Mr Kevin Lau appeared for the SHDs. Mr Anson Wong SC leading Mr Lai Chun Ho appeared for Jinan Group.

C.  The core facts

5.As said, the history of these matters is long and convoluted.  For fully background, I refer to the Decisions mentioned in §1 above.

6.I only set out here the core events to make sense out of these Appeal and divers applications.

7.The subject matter of the dispute is the beneficial ownership of certain percentage of CSI Shares.

8.In respect of Chen HQ’s case:

(a)  As summarised by Mr Law[3], Chen HQ’s case as pleaded in this action is that in 2015, by way of documents titled “Loan Agreements”, he appointed 11 representatives (“11 Nominees” or “11 Representatives”, which included the 8 Representatives)  to acquire beneficial interest in those Shares from some of the employee shareholders on his behalf;

(b)  During the hearing, Mr Law reminded this Court of the “big picture” of the disputes between the parties.  He read out a number of paragraphs from section C of the Amended Statement of Claim (“ASoC”).  I was invited to read them further.  I have.  Below are some of those paragraphs:

8.3  … The Minority Shareholders arranged for the Plaintiff 11 representatives … (“11 Nominees”)  to carry out the Acquisition on behalf of the Plaintiff ...

…

8.5  By around August 2015, the Plaintiff, the Minority Shareholders and the 11 Nominees … agreed on the following arrangement:

(1)  The 11 Nominees shall act as the Plaintiff’s agents … for the purposes of acquiring the HCA Employee’s beneficial interest in the Employees’ Shares …

(2)  Pursuant to the said agency:

(a)  The 11 Nominees shall do all things necessary to complete the Acquisition …

(b)  The Plaintiff shall provide the funds required for the Acquisition.

…

8.6  The agency agreements …were partly written and partly by conduct …

8.7  The written part of the Agency Agreement was contained in 11 loan agreements entered into between the Plaintiff and each of the 11 Nominees … (“Loan Agreements”)  …

…

8.9  Notwithstanding references to “loan” and words of like effect, the Loan Agreements were, on true construction, the Agency Agreements.  Alternatively, the Loan Agreements, construed together with the conducts of the Plaintiff and the 11 Nominees, were in substance the Agency Agreements.

8.10  The Plaintiffs relies on the following matters:-

…

(4)  Clause 7(1)  of the Loan Agreements provides that the Nominees shall not transfer or create any incumbrance over the interests acquired without the Plaintiff's consent[4].

…

8.11  Pursuant to the Agency Agreements, between August to September 2015, the 11 Nominees (on the Plaintiff's behalf)  entered into sale and purchase agreements (“2015 SPAs”)  with 2,091 HCA Employees …

8.12  Each of the 2015 SPAs provided, inter alia, that:-

(1)  70% of the price shall be payable to the relevant Seller within 15 days …; and

(2)  upon such payment, the relevant Seller’s interest in his corresponding Employees’ Shares is forthwith transferred to the corresponding Nominee.

8.13.  Between August to September 2015, through the 11 Nominees, the Plaintiff paid a total of RMB 737,500,000, representing 70% of the total price under the 2015 SPAs, to the Sellers.

(c)  Chen HQ seeks inter alia declarations to the effects that he is the beneficial owner of those shares, such that they are now being held on trust for him;

(d)  Having read Jinan Group’s original Defence and Counterclaim, Chen HQ amended his Statement of Claim so as to plead to it.  He pleads what he says Jinan Group’s case is, and his own case against it.  In particular, he pleads in §19.2(5)  as follows:

On 16 August 3017 [sic], Jinan Group deposited a sum of RMB828,100,000 into the Jinan Quancheng Notary Public Office of Shandong for the purposes of repaying the “loans” owing to the Plaintiff under the Loan Agreements by the 11 Nominees …, and with a view to extinguishing the Plaintiff’s rights and interests in the Employees’ Shares.  The repayment was not accepted by the Plaintiff by reason of the fact that the 11 Nominees were purchasing agents and not borrowers, and thus their obligations could not be discharged by repayment of the monies advanced by the Plaintiff for the Acquisition.

(e)  As can be seen on the face of the pleadings, and in any event as confirmed by Mr Law in the course of the hearing, Chen HQ has not pleaded any alternative case to any effect that should his agency case be rejected upon trial, such that the monies he had advanced to the 11 Nominees were in fact loans, he claims repayment of those loans. 

9.The true nature of those Loan Agreements is very much in dispute.  Chen HQ’s cases have not been consistent in the various actions he has been involved in.  Those disputes have been considered at some length in some of the Decisions mentioned above, and have been raised in pleadings in the present case by some of the parties.  But there is no need to revisit them for resolution of the matters presently before this Court.

10.In respect of Jinan Group’s case:

(a)  Mr Wong summarises Jinan Group’s position in his written submissions as follows:

14.  Between August and September 2015:-

(1)  11 individuals (“11 Representatives”)  entered into sale and purchase agreements (“2015 SPAs”)  with about 2,090 Shanshui employees to acquire the Shanshui employees’ shares in CSI.  

(2)  The 11 Representatives settled 70% of the purchase price due under the 2015 SPAs using funds advanced pursuant to certain loan agreements entered into with CHQ (“Loan Agreements”).

15.  It is Jinan Group’s case that in about mid-2017, Jinan Group was approached by the representatives of the Shanshui employees [and received certain proposal]…

16.  Jinan Group’s case is that Jinan Group agreed to the above proposal.   Against the aforesaid background:-

(1)  Between 9 and 22/9/2017:-

(a)  1,838 Shanshui employees entered into termination agreements (“Termination Agreements”)  with the 11 Representatives to terminate the 2015 SPAs such that the CSI shares held by these Shanshui employees became available for purchase by Jinan Group.

(b)  1,838 Shanshui employees then entered into sale and purchase agreements (“2017 Jinan SPAs”)  with Jinan Group for the sale of an aggregate of 264,664 CSI shares (“Acquired Shares”)  to it.  

(2)  It will be recalled that these 1,838 Shanshui employees have previously received consideration from the 11 Representatives under the 2015 SPAs.  Such consideration received under the 2015 SPAs would need to be refunded to the 11 Representatives pursuant to the Termination Agreements: 

(a)  Instead of asking these 1,838 Shanshui employees to refund the consideration received under the 2015 SPAs to the 11 Representatives, it was logistically more efficient for Jinan Group under the 2017 Jinan SPAs to pay such amount to the 11 Representatives.  Jinan Group shall elaborate on this aspect of its case below.

(b)  On 16/8/2017, Jinan Group deposited RMB830,500,000 (“Notary Deposit”)  into the Jinan Quancheng Notary Public Office (“Notary Office”).   The Notary Deposit was made on behalf of the 11 Representatives.

(b)  §§4E(3)  and 4G of Jinan Group’s Amended Defence and Counterclaim[5] (the “JG/AD&C”)  are of particular relevance (we will very soon see why).  They are in the following terms:

4E.  Between 9 and 22 September 2017 and on the same day as the relevant Termination Agreements were signed, Jinan Group entered into [the 2017 Jinan SPAs] with the said 1,838 Shanshui employees holding a total of 264,664 CSI shares (“Acquired Shares”).  In the 2017 Jinan SPAs, it is stated that:-

…

(3)  Jinan Group should perform its payment obligation in respect of the consideration payable for the purchase of the Acquired Shares by refunding the payments received under the 2015 SPAs on behalf of the 1,838 Shanshui employees, to the relevant 11 Employees or other parties as required under the Termination Agreements.

…

4G.  By September 2017, Jinan Group had paid a total of RMB830,500,000 to the 11 Employees, by way of deposits into the Jinan Quancheng Notary Public Office on behalf of the 11 Employees, RMB810,399,785 out of the aforesaid sum was, pursuant to the 2017 Jinan SPAs, used to refund the payments received under the 2015 SPAs on the 1,838 Shanshui employees’ behalf.  Such RMB810,399,785 represented the aggregate sum of (i)  the full consideration for the Acquired Shares then owned by the 1,051 Shanshui employees, and (ii) 70% of consideration for the Acquired Shares then owned by the remaining 787 Shanshui employees.  In respect of the latter, Jinan Group has been and is willing, able and ready to repay the remaining 30% consideration of RMB92,898,447 in relation to the said 787 Shanshui employees for purposes of their effecting refund of any payments to be made by them.  Jinan Group has thus obtained the beneficial interest to the Acquired Shares by virtue of the 2017 Jinan SPAs in or around September 2017.

(c)  Jinan Group at §38C(3)  pleads to §19.2(5)  of the ASoC as follows:

As to Paragraph 19.2(5), it is admitted that Jinan Group deposited RMB828,100,000 into the Jinan Quancheng Notary Public Office on 16 August 2017 on behalf of the 11 Employees. Jinan Group understood that the deposit would be used to discharge the repayment obligations under the Loan Agreements.  The rest of paragraph 19.2(5)  is not admitted.

11.In relation to the position of the 8 Reps and SHDs (Excluding):

(a)  The 8 Reps on the one hand and the SHDs (Excluding)  on the other have filed their separate defences.  Their cases are however broadly identical, and are along the same line as pleaded by the Jinan Group.  Unless otherwise specified, I will refer only to the pleadings filed by the 8 Reps;

(b)  §§6G, 6H, 6I and 6J of the 8 Reps’ Re-Amended Defence and Counterclaim[6] (the “8Reps/RAD&C”)  are of particular relevance (and again the reason will be clear soon).  They are in the following terms:

6G.  The loans made pursuant to the Loan Agreements had a term of 24 months, i.e. they would fall due in or around August 2017.

6H.  In or about August 2017, [Jinan Group] agreed to provide funds to repay the loan due under the Loan Agreements.  In consideration therefor, the 2015 SPAs would be terminated and/or rescinded, and the Employees would enter into agreements to sell their interests in CSI to [Jinan Group].

6I.  Pursuant thereto, the 11 Representatives took steps to make repayment to Chen HQ.  Chen HQ however refused to engage with the 11 Representatives or to accept the offer of repayment.

6J.  In the premises, in mid-August 2017, [Jinan Group] on behalf of the 11 Representatives (save for Liu DQ)  paid a sum of RMB828,100,000 plus notary fees into the Jinan Quancheng Notary Public Office (the “Notarial Repayment”).  Under PRC law, the Notarial Repayment is effective to discharge a loan in the event of uncertainty regarding the identity and/or whereabouts of the creditor and/or where the creditor refuses to accept payment.  As such, by way of the Notarial Repayment, the Loan Agreement had been discharged.

(c)  At §27(ab)(v), the 8 Reps plead to §19.2(5)  of the ASoC as follows:

As to Paragraph 19.2(5), it is admitted that [Jinan Group] deposited RMB838,500,000[7] into the Jinan Quancheng Notary Public Office on 16 August 2017 for the purpose of repaying the loans due under the Loan Agreement.  Save as aforesaid, paragraph 19.5 is denied by reason of the matters pleaded above.  In particular, it is averred that Chen HQ’s refusal to accept the Notarial Repayment is itself unlawful and invalid.

D.  The procedural history

12.In respect of the Appeal:

(a)  On 27 December 2023, Chen HQ filed separately a set of interrogatories against each of Jinan Group and the 8 Reps (the “JG I/G” and “8 Reps I/G” respectively, and “Interrogatories” collectively);

(b)  The 2 sets of Interrogatories are administered in connection with different pleadings:

(i)  The JG I/G concern what Jinan Group has pleaded at §§4E(3)  and 4G of its JG/AD&C, which I have set out above;

(ii)  The 8 Reps I/G concern what the 8 Reps have pleaded in §§6H, 6I and 6J of their 8Reps/RAD&C, which I have also set out above;

(iii)  It is noted that whilst the SHDs (Excluding)  have separately filed their Re-Amended Defence (the “SHDs/RAD”), no interrogatory has been administrated against them;

(c)  The 8 Reps I/G make 5 requests (“Request (a)” to “Request (e)”). The JG I/G contain 2 additional requests (“Request (f)” to “Request (g)”):

(i)  Requests (a)  to (c)  concern information on the current whereabouts of the Notarial Repayment;

(ii)  Requests (d)  and (e)  ask whether any deposit further to those (“Further Deposit”)  had been made, and if so, their details; and

(iii)  Requests (f)  and (g)  ask Jinan Group whether the remaining consideration (after the Notarial Repayment)  had been paid, and if so the particulars;

(d)  By the 24/1/2024 Summons, Jinan Group seeks an order that Chen HQ shall withdraw the JG I/G (i.e. one of the I/G Withdrawal Applications);

(e)  Separately, by the 14/3/2024 Summons, the 8 Reps and the SHDs (Excluding)  seek inter alia:

(i)  leave to re-re-amend respectively their 8Reps/RAD&C and SHDs/RAD as per the drafts attached thereto (i.e. the Amendment Applications); and

(ii)  an order that Chen HQ shall withdraw the 8 Reps I/G (i.e. the other of the I/G Withdrawal Applications);

(f)  Having heard parties, Master Lewis Law on 2 August 2024 allowed the Amendment Applications and the I/G Withdrawal Applications, and made the Master Law Order;

(g)  By 2 Notices of Appeal both dated 16 August 2024, Chen HQ appeals against the Master Law Order;

(h)  Hence the Appeal.

13.In respect of the Striking Out Summons:

(a)  Pursuant to the Master Law Order, the 8 Reps and the SHDs (Excluding)  on 5 August 2024 separately filed their amended pleadings (the “8Reps/RRAD&C”[8] and “SHDs/RRAD” respectively);

(b)  After a number of extensions, Chen HQ on 17 December 2024 filed his Re-Re-Amended Reply and Defence to Counterclaim to the 8Reps/RRAD&C (“CHQ/RRAR&DC”), and his Re-Re-Amended Reply to the SHDs/RRAD (“CHQ/RRAReply”);

(c)  On 2 January 2025, the SHDs[9] filed the Striking Out Summons and sought an order that Paragraphs 4CA to 4F, the last sentence of paragraph 10F, and paragraph 10G(2A)  of both of the CHQ/RRAR&DC and CHQ/RRAReply be struck out (the “Impugned Paragraphs”);

(d)  Hence the Striking Out Application before this Court.

E.  The Appeal and the Striking Out Application related

14.The Appeal and the Striking Out Application are clearly related, beyond the fact that they arose out of the same action.

15.The Amendment Applications and I/G Withdrawal Applications were both triggered by the Interrogatories.  In Mr Maurellet’s own words, the SHDs “responded” to the same by issuing those applications.

16.The Amendment Applications bear upon the scope of the pleadings, which in turn bears upon the I/G Withdrawal Applications and the Striking Out Application. 

17.For this Decision, I regard as logical and sensible to consider the Amendment Applications first, then the I/G Withdrawal Applications, and then the Striking Out Application.

18.I pause here and record one matter.  Parties (Chen HQ, SHDs and Jinan Group)  on 17 April 2025 came before this Court for directions.  Parties requested various interlocutory matters, inter alia the Appeal, the Striking Out Application, and certain applications for adducing expert evidence (the “Expert Evidence Applications”)  be heard together before this Court.  However, my enquiries during that hearing revealed that certain processes and documents had not in fact been served upon certain parties to the action (notably the Rep Counterclaim/D5-D241, who I was told are not likely to be amongst the SHDs).  The view was taken that some of those interlocutories intended to be heard together could not be proceeded with until proper service.  The attending parties were however adamant that the Appeal and the Strike Out Application could nonetheless be proceeded with, as all the parties involved were and would be before the Court.  I hence directed that the Appeal and the Striking Out Application be heard together – and therefore the present (in effect)  consolidated hearing.

F.  Chen HQ’s draft 5^th affirmation

19.With leave, and for the purpose of resisting the Strike Out Application, Chen HQ has filed his draft 5^th affirmation.  The Striking Out Summons was taken out by the SHDs, not the Jinan Group.  Mr Wong objects to Chen HQ’s use of his draft 5^th affirmation in support of his Appeal.  Chen HQ has put forward no reason as to why further evidence should pursuant to O.58 r.1(5)  be admitted for the purpose of the Appeal.  In the course of the hearing, upon request by this Court for clarification, Mr Law confirmed that Chen HQ does not seek to rely on the same for the purpose of the Appeal.

G.  The Amendment Applications

20.I have set out above §§6I, 6J and 27(ab)(v)  of the 8Reps/RAD&C.

21.The disputed amendments relate to those 3 paragraphs, being:

(a)  The proposed addition of the following underlined words to §6I:

Pursuant thereto, the 11 Representatives took steps to make repayment to Chen HQ by way of [Jinan Group] paying on behalf of the 11 Representatives (save for Liu DQ)  a sum of RMB828,100,000 plus notary fees into the Jinan Quancheng Notary Public Office.  Chen HQ however refused to engage with the 11 Representatives or to accept the offer of repayment.

(b)  The deletion of the entire §6J; and

(c)  The following additions (as underlined)  and deletions (as struck through)  to §27(ab)(v):

As to Paragraph 19.2(5), it is admitted that [Jinan Group] deposited RMB838,500,000 into the Jinan Quancheng Notary Public Office on 16 August 2017 as an offer to repay for the purpose of repaying the loans due under the Loan Agreement.  As pleaded in paragraph 6I above, the offer was not accepted by Chen HQ; and sSave as aforesaid, paragraph 19.5 is denied by reason of the matters pleaded above.  In particular, it is averred that Chen HQ’s refusal to accept the Notarial Repayment is itself unlawful and invalid.

22.The reasons for the Amendment Applications, as put forward by Mr Maurellet, may be summarised as follows.  The Amendment Applications and the I/G Withdrawal Applications were indeed triggered by the Interrogatories.  Mr Maurellet refers to §§19.1 and 19.2 of the ASoC.  §19.2(5)  pleads only factual background.  It is not an integral part of Chen HQ’s case.  Chen HQ’s own case is that the Loan Agreements were not actually agreements for loans.  He did not accept any repayment.  He has not pleaded any alternative case on the basis of they being loans.  As such the SHDs only plead §§6I, 6J and 27(ab)(v)  out of completeness in response to Chen HQ’s own pleas.  The legal effect of the Notary Deposit as a matter of Mainland law is in fact irrelevant.  But it had given rise to confusion and misunderstanding.  The SHDs hence on reflection applied to take it out.  

23.Mr Law summarises his response at §73 of his written submissions, that:

P does not oppose the Deletions, save and except if (1)  the 8 Reps rely on the Deletions to resist the Interrogatories, and (2)  the Court does not accept the analysis above that the issue of Notary Deposit remains live notwithstanding the Deletions.

He also submits that the proposed amendments were “strategic maneuvering done to avoid the Interrogatories”, and that the principles relating to withdrawal of admissions are applicable by analogy.

24.For the following reasons, I allow the Amendment Applications:

(a)  What the SHDs want to plead in defence of the case against them is primarily a matter for them;

(b)  Of course, if they seek to amend by withdrawing admissions they have made, there are requirements which they need to satisfy.  But this is not the case here, and I do not accept Mr Law’s submissions that the related principles apply;

(c)  I accept Mr Maurellet’s submissions that §19.2(5)  of the ASoC pleads only factual background, and does not form an integral part of Chen HQ’s case. Chen HQ has also pleaded no alternative case based on loans;

(d)  SHDs in the circumstances want to limit and delineate their cases by taking out the plea in relation to the legal effects of the Notary Deposit, which they do not regard as relevant.  I do not accept that it amounts to any “strategic maneuvering”;

(e)  I see no basis to force SHDs to run a defence which they do not want to.

25.I hence dismiss the part of the Appeal in relation to the Amendment Applications.

H.  The I/G Withdrawal Applications

H.1.   The legal principles

26.The applicable legal principles are not in dispute.  The differences between the parties are matters of emphasis.

27.The starting point is O.26 rr.1(1)  and (3), that:

(1)  A party to any cause or matter may in accordance with the following provisions of this Order serve on any other party interrogatories relating to any matter in question between the applicant and that other party in the cause or matter which are necessary either—

(a)  for disposing fairly of the cause or matter; or

(b)  for saving costs.

(2)  …

(3)  A proposed interrogatory which does not relate to such a matter as is mentioned in paragraph (1)  may not be administered notwithstanding that it might be admissible in oral cross-examination of a witness.

28.As explained by Au J (as His Lordship then was)  in Ng Shek Wai v Hong Kong Institute of Certified Public Accountants [2019] HKCFI 2439 at §§31-32:

31.  The relevant principles governing whether interrogatories should be permitted are not and cannot be disputed.  They can be conveniently summarized as follows:

(1)  The interrogatories must relate to a matter in question between the parties: Order 26, rule 1(3)  of the Rules of the High Court (Cap 4A).

(2)  The interrogatories must be necessary either for disposing fairly of the cause or matter or for saving costs: Order 26, rule 1(1)  of the Rules of the High Court.

(3)  Even where the interrogatories comply with the requirements of the rules, the Court nevertheless retains an overriding discretion as to whether or not to allow them to be administered: Lee Nui Foon v Ocean Park Corp (No 2) [1995] 2 HKC 395.

32.  In determining whether the interrogatories relate to a matter in question between the parties, the court applies a test which is akin to the Peruvian Guano test in discovery.  The right to interrogate is not confined to the facts directly in issue, but extends to any facts the existence or non-existence of which is relevant to the existence or non-existence of the facts directly in issue: Lee Nui Foon at 398F-G, Kao Lee & Yip v Koo Hoi Yan (unreported, HCA 8847/1993, 26 February 2002)  at paragraph 7(1).

29.On the Peruvian Guano relevance test, Mr Law refers to the observations of Deputy Judge H Wong SC at §24 of Chan Hung v Yung Kwong Chung (HCA 216 & 217/2004, 15 January 2009), that a document is relevant if it relates to the matters in question in the sense that it may either directly or indirectly enable a party either to advance his own case or to damage his adversary’s case, and that it is sufficient if the document may fairly “lead to a train of inquiry” that may produce such a consequence.  That is not controversial.  Mr Law relies further on the learned Deputy Judge’s observations at §27, that for discovery purposes, the pleadings have to be looked at broadly.

30.On the requirement of necessity and the court’s discretion:

(a)  Whilst the general principle is that interrogatories are admissible where they go to support the applicant’s case or destroy the opponent’s, that only goes to the question of admissibility.  Whether a court will in its discretion allow interrogatories is entirely a different matter.  It is wrong to order interrogatories once admissibility is demonstrated.  In the exercise of its discretion, the court must bear in mind that interrogatories will be ordered only where they are necessary, in the sense as stipulated in O.23 r.1(1)  – per Ma J (as the former CJ then was)  in Kao Lee & Yip at §§7(1)  to (3);

(b)  In the exercise of its wide and unfettered discretion, the key consideration for the court is the factor of necessity – per Coleman J at §16 of Wang Pengying v Ng Wing Fai[2019] HKCFI 2430, applying Kao Lee & Yip;

(c)  Necessity is a stringent test, and the interrogator must be able to show that his interrogatories will serve a clear litigious purpose – per Deputy Judge Raymond Leung SC stated at §90(6)  of New Shipping Ltd v Lau Wing Yan [2020] HKCFI 2933, and Deputy Judge H Au-Yeung (as he then was)  at §4(3)  of Wong Ying Grace v Dr. Ho Wing Chiu Clement [2022] HKCFI 3109.

31.Mr Law placed emphasis upon the observations of Deputy Judge Raymond Leung SC in New Shipping at §91.  In that case, it was the defendant who was seeking interrogatories.  They related to matters likely to be in the plaintiff’s possession (as opposed to the defendant’s).  The learned Deputy Judge observed hence that “As such, care should be taken to maintain a level playing field so that the Defendant would not be stonewalled in the conduct of his defence.”

32.I have considered all the authorities that were cited to me, and in particular those above.  I apply them.

H.2.   Parties’ stance

33.I have considered the totality of Mr Law’s submissions.  On the question of relevance, the crux of his stance can be gleaned from §§34, 35, 37, 49, 50 and 51 of his written submissions, with reference to the Mainland law he summarises at §§51 and 52 of the same, that (with emphasis added):

34.  … it is patent that a fundamental tenet of Jinan Group’s case is that it had refunded (through the 11 Nominees)  the consideration paid by P under the 2015 SPAs by way of the Notary Deposit, which in turn:

34.1  discharged its own obligations under the Purported 2017 Jinan SPAs, and “earned” its entitlement to the Jinan Disputed Shares;

34.2  unwound the 2015 SPAs and enabled the signing of the Purported Termination Agreements, which in turn extinguished P’s entitlement to the Jinan Disputed Shares; and

34.3  discharged the Loan Agreements (or the Agency Agreements), otherwise the 11 Nominees would have entered into the Purported Termination Agreements without authority (whether by virtue of their duties as agents or P or cl.7(1)  of the Loan Agreements).

35.  If this fundamental tenet cannot be made out, it is difficult to see how Jinan Group could establish its title to or proprietary interest in the Jinan Disputed Shares, or alternatively, it should have priority over P.

…

37.  Therefore, it must also be central to Jinan Group’s case that the Notary Deposit (despite not accepted by P)  amounts to a valid payment to P, and accordingly a good discharge / termination of the 3 contractual documents in §34 above.

…

49.  As shown above, it is a critical plank of both Jinan Group’s and the SHDs’ cases that the Notary Deposit amounted to payment to P (even though not accepted by P), and in turn a good discharge of the Loan Agreements, termination of the 2015 SPAs and performance under the 2017 Jinan SPAs.

50.  But the position would be different if the Notary Deposit had been withdrawn by Jinan Group or the 11 Nominees from the Jinan Notary Office.

51.  The basis for thinking that the Notary Deposit has been withdrawn is that under Mainland law, where the creditor had proper reasons to refuse accepting payment (which would be the case if P is right on his characterization of the Loan Agreement as agency agreements), the notarial deposit will be escheated to the Government by its 5-years’ mark.  Therefore, there was incentive for Jinan Group / 11 Nominees to do so to avoid the risk of losing the Notarial Deposit whilst the Loan Agreements would remain undischarged ….

Mr Law proceeds to give greater details of what he calls the relevant Mainland provisions at §52 of his written submissions, with reference to the expert opinion of 譚潔.  He submits further at §56 that:

56.  The withdrawal before the 5-year mark (the effect of which is as if the deposit had never been made at all) is significant because if the Notary Deposit has not been re-deposited into the notary office, the fundamental tenet of Ds’ case would not be made out, and accordingly, there is no basis for them to argue that the 2015 SPAs had been terminated; or that they were entitled to enter into the Purported Termination Agreements (when the negative pledge obligation in the [Loan] Agreement remained intact and had not been discharged); or that Jinan Group had provided consideration for the acquisition of the beneficial interest in the Jinan Disputed Shares under the Purported Jinan 2017 SPAs.

34.On necessity, Mr Law submits that the Interrogatories are necessary for disposing fairly of the cause or matter, as Chen HQ has no access to the Notary Office.  They also save costs as, as the Interrogatories are simple and straightforward, and the answers will allow parties to focus on the real issues.

35.I have dealt with SHDs’ stance above.  They are not relying on the legal effect of the Notary Deposit.  They have made that clear via the amendment of their pleadings, and re-confirmed its stance in the course of the hearing emphatically.

36.Jinan Group’s stance is that Chen HQ has fundamentally mischaracterizes their position.  Their pleaded case in relation to the Notary Deposit, as submitted by Mr Wong in answer, is as follows:

(a)  Under the 2017 Jinan SPAs, Jinan Group shall pay the consideration for the Acquired Shares to the 11 Representatives;

(b)  They did so, as required, by making the Notary Deposit on behalf of the 11 Representatives.  Their payment obligations under the 2017 Jinan SPAs had already been discharged thereby, and what the 11 Representations decided to do subsequently with the Notary Deposit has no bearing on Jinan Group’s obligations;

(c)  Chen HQ has not pleaded or advanced any case that Jinan Group’s performance of the 2017 Jinan SPAs would be dependent upon the Notary Deposit remaining with the Notary Office;

(d)  Whilst not Chen HQ’s case, and not even an alternative one, but even if the Loan Agreements conferred genuine loans, whether those loans had been discharged are matters between the lender and borrowers of those Agreements, and had nothing to do with Jinan Group’s entitlement to the Acquired Shares;

(e)  In relation to the negative pledge clause, that is not Chen HQ’s pleaded case, and he should not be permitted to administer interrogatories on that basis.

37.On necessity, the SHDs’ and Jinan Group’s stance is that if the Interrogatories are not relevant, they cannot be necessary for disposal of the cause of matter.

H.3.   Discussion

38.On the question of relevance:

(a)  In my view, the position has become clear once the parties’ respective cases have been properly identified;

(b)  Chen HQ himself does not rely on the Notary Deposit, or they remaining with the Notary Office, as part of his case.  He is not claiming those sums. The Interrogatories hence do not advance his case;

(c)  Chen HQ has formed his view as to what SHDs’ and Jinan Group’s cares are.  I have set out above §19.2(5)  of his ASoC.  It is also relevant to note in this regard what he has pleaded in §2.3 of his Re-Amended Reply to JG/RAD&C, that (emphasis added)  “… insofar as the same is alleged, it is denied that the purported deposits into the Jinan Quancheng Notary Public Office by Jinan Group… discharged the obligations under the Agency Agreements or Loan Agreements.”

(d)  But the legal effects of the Notary Deposit is not part of SHDs’ case.  If not clear before, that is made clear by the Amendment Applications;

(e)  Nor is it Jinan Group’s case that the Notary Deposit effected any discharge, as Chen HQ says Jinan Group is saying.  That in my view is clear on the face of Jinan Group’s pleadings;

(f)  Nor is it Chen HQ’s case that Jinan Group’s performance of the 2017 Jinan SPAs would be dependent upon the Notary Deposit remaining in the Notary Office[10], so that Jinan Group’s case may be damaged if they have ceased to be;

(g)  Nor does the negative pledge clause assist Chen HQ:

(i)  At §5.2 of his written submissions, Mr Law says:

There is a dispute between P on the one hand and SHDs on the other as to the true nature of the Loan Agreements.  The latter argue that instead of agency agreements, the effect of the Loan Agreements was for P to provide loans to the 11 Nominees who would acquire the Shares on their own behalf.  Regardless of who is right, the Loan Agreements contain an express negative pledge clause which prohibits the representatives from creating any encumbrance over the Shares.

(ii)  But it is not a matter of “regardless of who is right”.  No matter how broadly one looks at the pleadings, it is a fundamental plank of Chen HQ’s case as pleaded in the present action that the Loan Agreements did not provide for the advancing of loans, but were the written part of the Agency Agreements;

(iii)  This renders it important to note again, as emphasized by Mr Wong[11], that Chen HQ has pleaded only one case, and has pleaded no alternative case cased on the scenario of the Loan Agreements being genuine loan agreements;

(iv)  There is further no plea, on the basis of Mainland law or otherwise, that if the Loan Agreements were in fact genuine loan agreements, the Termination Agreements would be invalid for breach of the negative pledge clause;

(v)  I will come back to this when I consider the question of necessity;

(h)  On the parties’ respective cases, the whereabouts of the Notary Deposit is simply not an issue.  During the trial, the court will not be required to make any finding on that factual issue.  I accept Mr Maurellet’s submissions in this regard;

(i)  Viewed as above, the Interrogatories may not advance Chen HQ’s case, nor damage those of SHDs and Jinan Group.  Either way, the Peruvian Guano relevance test is not demonstrated.  This is the big picture.  This is also what the pleadings inform us, even when read broadly;

(j)  Specifically in relation to Requests (f)  and (g), I accept Mr Wong’s submissions that they are similarly irrelevant.  Jinan Group has never pleaded that it had paid the remaining consideration.  Their case is that they remain willing, able and ready to do so;

(k)  The need to “maintain a level playing field” does not assist Chen HQ.  Deputy Judge Leung’s observations are that “care should be taken to maintain a level playing field so that the Defendant would not be stonewalled in the conduct of his defence” (emphasis added).  Chen HQ is seeking to interrogate the 8 Reps and Jinan Group on matters which do not form part of their case.  He does not need them “in the conduct of his defence.”  He would not be “stonewalled” without them.

39.The above takes me to the issue of necessity:

(a)  I repeat that necessity is a stringent test;

(b)  I repeat the wide and unfettered discretion that this Court retains;

(c)  The Interrogatories are not as simple as Mr Law describes them to be, as to only whether the Notary Deposit had been withdrawn.  They ask that if they had been, the dates of withdrawal, by whom, whether withdrawn orally or in writing, and further details either way.  Request (b)6)  asks further:

The full and precise contents of the request(s), including the basis or reasons for withdrawal of the Alleged Deposit.

(d)  Expert evidence on Mainland law would also be required to be adduced on those matters.  I have mentioned above the Expert Evidence Applications.  Whilst those applications are at this stage not before this Court, I was informed by counsel in the course of the hearing that part of those applications relate to the issues raised in the Interrogatories.  That is in fact apparent on the face of the Impugned Paragraphs, as we shall see;

(e)  In my view, on the overall facts of this case, the stringent test of necessity has not been met;

(f)  In my view, even if this Court were wrong above on the question of relevance, and that the Peruvian Guano relevance test had perhaps been marginally made out, perhaps on the effects of the negative pledge clause based on a very board reading of the pleadings, the stringent necessity test remains in my view not met;

(g)  This action is a complicated one.  The introduction I have given in paragraph 2 gives a taste of it.  There will be a multitude of issues which are much more important towards resolution of parties’ disputes.  In a case of this nature, it is particularly important for parties to focus on the real issues, and for the court to exercise its case management power and discretion in ways which lead parties towards that.  In my view, allowing Chen HQ to administer the Interrogatories is neither necessary for disposing fairly of the case, nor for saving costs.  In my view, ordering them would achieve the contrary.

40.For record, I have considered all the matters which Mr Law has raised.  I have in particular also considered the procedural history which he submits confirms the relevance of the Interrogatories.  I have weighed them. They are inconsequential against those principal matters discussed above.

H.4.   Conclusion on the I/G Withdrawal Applications

41.For the reasons set out above, I dismiss the part of the appeal in respect of the I/G Withdrawal Applications.

I.  Conclusion on the Appeal

42.For the above reasons, I dismiss the Appeal in its totality.

J.  The Striking Out Application

43.As introduced above, the Striking Out Application concerns the Impugned Paragraphs in the CHQ/RRAR&DC and CHQ/RRAReply.

44.The Impugned Paragraphs in the CHQ/RRAR&DC and CHQ/RRAReply are the same.

45.What has happened is that despite the Master Law Order, and despite the amendments which SHDs (Excluding)  and the 8 Reps had accordingly made to their pleadings, Chen HQ nonetheless inserted or amended the Impugned Paragraphs to plead to the Notary Deposit.  §§4CA to 4F of the Impugned Paragraphs span over some 7 pages.  §4CA is entirely new.  §4D is the amended version of the original paragraph 4D pleaded in reply to §6J of 8Reps/RAD&C and SHDs/RAD. §§4E and 4F are also entirely new.  Their nature can be gleaned from the main paragraphs of each of those paragraphs:

4CA.   Insofar as the same is alleged, it is denied that the deletion of paragraph 6J renders the issue of whether the Notarial Repayment discharged the obligations under the Loan Agreements irrelevant or obsolete … [followed by 9 subparagraphs].

4D.  Further, the second and third sentences of paragraph 6J are denied.  It is denied that the Notarial Repayment did not discharged the obligations under the Agency Agreements or Loan Agreements … [followed by 5 subparagraphs, several of which relate to Mainland law].

4E.  Further or alternatively, even if (which is not admitted)  the Notarial Repayment had been made, it is to be inferred from the facts and matters pleaded hereinbelow that it had been withdrawn by September 2022 … [followed by 7 subparagraphs, several of which relate to Mainland law].

4F.  Where a notarial deposit is withdrawn, the initial deposit shall be deemed to have not been made at all, such that the payment obligation would remain undischarged.  [P] relies on Article 3 of the Notary Deposit Regulation, which provides … [Article 3 is then pleaded].

The last sentence of paragraph 10F and paragraph 10G(2A)  of the Impugned Paragraphs repeat §4CA.

46.For the following reasons, I accede to the Striking Out Application:

(a)  The leave given to Chen HQ to file his CHQ/RRAR&DC and CHQ/RRAReply is only to effect amendments consequential to those amendments which the SHDs had been permitted to make.  Whilst this is not expressly provided to be so on the face of the Master Law Order, this must be implicitly so – see Chow Ching Yee v Wong Hung Kee [2020] HKCFI 2555 at §14 per G Lam J (as his Lordship then was);

(b)  §4CA is clearly in the nature of arguments, seeking to justify the opening proposition therein that “Insofar as the same is alleged, it is denied that the deletion of paragraph 6J renders the issue of whether the Notarial Repayment discharged the obligations under the Loan Agreements irrelevant or obsolete”. 

(c)  I accept Mr Maurellet’s submissions that against SHDs (Excluding)’s and the 8 Reps’ act of deleting pleas, the appropriate forum for Chen HQ to raise arguments against was when he was before Master Lewis Law, but whose opposition had been unsuccessful;

(d)  Mr Law submits[12] that despite the deletion of §6J, the SHDs continue to maintain the averment that the 2015 SPAs had been terminated by reason of the Termination Agreements and the cancellation clause in the 2015 SPAs.  I reject that argument in any event.  That averment is different from any averment of the Notary Deposit having the legal effects of discharging the 11 Nominees’ obligations under the Loan Agreements, which averment the SHDs have expressly disavowed;

(e)  In his written reply, Mr Law reiterated his submissions on the relevance of the Notary Deposit.  For the reasons set out in the discussions above on the I/G Withdrawal Applications, I am of the view that the matters pleaded in the Impugned Paragraphs are simply not relevant;

(f)  Further, as explained above, the amendments made by the SHDs are to narrow down the scope of their pleaded case.  Chen HQ does not only retain §4D.  He expands on its scope;

(g)  Viewed as such, and considered in the round, the Impugned Paragraphs are clearly not amendments consequential to the amendments allowed by Master Lewis Law. Chen HQ has no leave to do so.

47.For all the reasons set out above, I strike out the Impugned Paragraphs on all the bases which the SHDs relies on.  In particular, I for the above reasons find that the Impugned Paragraphs disclose no reasonable defence or reply, are irrelevant, will prejudice, embarrass or delay the fair trial of the action, and are an abuse of the process of the Court in the sense that they were filed without leave.

K.  Overall disposition

48.For the reasons set out above, I dismiss the Appeal, and allow the Striking Out Application.

L.  Costs

49.I make a costs order nisi that Chen HQ shall bear the costs of this Appeal and the Striking Out Application, with certificate for 2 counsel for both the SHDs and Jinan Group, to be summarised assessed on the papers. Any application for variation shall be made within 14 days from the date when this Decision is handed down, upon receipt of which further directions will be given. In the absence of any, SHDs and Jinan Group shall within 21 days from the date hereof lodge their respective Statement of Costs, Chen HQ to lodge his Statements of Objections within 14 days thereof, and SHDs and Jinan Group their replies within 7.

Mr Law Man-Chung SC, leading Mr Danny Tang instructed by Gallant, for the Plaintiff

Mr Jose Maurellet SC, leading Mr Alexander Tang and Mr Kevin Lau, instructed by Stephenson Harwood, for the SH Defendants (SHDs)

Mr Anson Wong SC, leading Mr Lai Chun Ho, instructed by Linklaters, for the Jinan Group

P.C. Woo & Co., for the 1^st to 3^rd Defendants (by Original Action), attendance was excused