Yingheng Co Ltd v. Sang Kangqiao

HCA 674/2025

[2026] HKCFI 5413

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 674 OF 2025

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BETWEEN

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DECISION

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A. Introduction

1.By decision herein dated 11 November 2025 ([2025] HKCFI 5506) (the “Decision”)[1]:-

(1) I allowed the Plaintiff’s Interlocutory Injunction Application, whereby the Defendant is restrained from disposing of the 140 million shares (the “Subject Shares”) in the Listed Co[2]; and

(2) I adjourned the Defendant’s Fortification Application and provided directions for the parties to file evidence[3].

2.This is the substantive hearing of the Defendant’s Fortification Application.

B. Material Background

3.The material background relating to these proceedings is set out in Section B (paragraphs 3 to 28) of my previous Decision. I do not intend to repeat the same.

4.For the purposes of disposing of the Fortification Application, the following matters are pertinent and worth mentioning.

5.Before the Plaintiff took out the Interlocutory Injunction Application (which took place on 3 April 2025), on 27 February 2025, the Listed Co entered into a placing agreement (the “Placing Agreement”) of convertible bond with Orbit Venture Capital Management Co Ltd. (“OVC”). Under the Placing Agreement:-

(1) OVC (as placee) agreed to subscribe for convertible bonds issued by the Listed Co (as placer) in an aggregate principal amount of HK$97 million with a 5% annual coupon rate.

(2) The maturity date of the convertible bond was 26 February 2026.

(3) OVC had the right to elect to convert the principal amount of the convertible bond into fully paid shares issued by the Listed Co. Unless the convertible bond was redeemed or converted, the Listed Co should, within 30 business days after the maturity date (ie on or before 14 April 2026), redeem all the unconverted and uncancelled convertible bonds at the initial purchase price and pay any outstanding interest and expenses.

6.On the same day (ie 27 February 2025), OVC (as placee), the Defendant (as charger), Infore Holding (Hong Kong) Ltd (“Infore”) (as chargee) executed a deed of share charge (the “Infore Charge Deed”). Under the Infore Charge Deed:-

(1) To secure the Listed Co’s performance of the obligations to redeem any unconverted convertible bonds under the Placing Agreement, the Defendant charged the Subject Shares in favour of Infore.

(2) The Defendant gave a representation and a warranty that the Subject Shares are freely transferable and not subject to any lock-up or restriction.

(3) If the Defendant breaches its representation and/or warranty, this would constitute an event of default, whereupon OVC and/or Infore would be entitled to enforce its rights.

7.As of the day when I allowed the Interlocutory Injunction Application (ie 11 November 2025), the market price of the shareholding in the Listed Co was HK$3.73 per share.

8.As a result of the interlocutory injunction order (the “Interlocutory Injunction”) that I granted, the Defendant has not been able to transfer any of the Subject Shares. In the premises, the Defendant had breached the warranty under the Infore Share Change.

9.According to the Defendant, OVC and Infore no longer had confidence in the Listed Co, and, as such, OVC refused to convert the bulk of the convertible bonds into shares in the Listed Co.

10.Hence, the Listed Co had to redeem HK$70 million of the convertible bonds with its own financial resources. To this end, the Listed Co was, according to the Defendant, compelled to sell away some of its assets in order to settle the indebtedness.

11.As of 14 April 2026 (ie the deadline for the Listed Co to settle the indebtedness owed to OVC under the Placing Agreement), the market price of the shares in the Listed Co had dropped to HK$1.24 per share.

12.I have been informed that as of the time when the present hearing took place, the market price of the shares in the Listed Co was HK$0.44 per share.

C. Legal Principles

13.In Lau Lai Shan Lisa v Zhang Qi [2023] HKCFI 1465 at paras 11 to 12, Cheng J helpfully summarized the legal principles on fortification as follows:

“11. There is no dispute as to the relevant principles. Where an application for fortification is made after the grant of the original injunction and giving of the cross-undertaking:

11.1 the applicant needs to show a reason why the late application should be entertained, by way of some significant change of circumstances, or compelling circumstances;

11.2 if the court is persuaded that the application should be entertained, the test to be applied is the ordinary test as to the grant or refusal of an order of fortification.

See Hui Chi Ming v Koon Wing Yee [2011] 1 HKLRD 260 at [36] to [39].

12. As to the “ordinary test” as to whether to grant or refuse an application for fortification:

12.1 the court has a general power to order fortification where it appears just and proper to protect the defendant by making such an order;

12.2 usually, the merits of the parties’ cases are not a relevant consideration. However, if the plaintiff has a strong case, it may not appear just and proper to make the protection available to the defendant;

12.3 the burden of showing the need for fortification and the appropriate quantum falls on the defendant seeking fortification;

12.4 the defendant must show the likelihood of a significant loss arising as a result of the injunction, and demonstrate why he believes that the plaintiff will be unable to make good that loss;

12.5 the court will approach these issues by taking a broad view of the evidence, usually without the need for a detailed enquiry;

12.6 whilst there is no obligation on the plaintiff to give full and frank disclosure of his own financial means, circumstances might arise where the absence of disclosure might entitle the court to draw an adverse inference as to the plaintiff’s ability to meet his cross-undertaking in damages;

12.7 whilst fortification is not the necessary starting point, it is valid to consider whether a plaintiff’s financial position is such that, viewed fairly, may be said to raise realistic doubts as to the plaintiff’s ability to honour the cross-undertaking.

See Yan Yu Ying v Leung Wing Hei [2022] 3 HKLRD 270 at [81] to [83].”

D. Deliberation

14.For the reasons canvassed in paragraphs 42 to 43 of my previous Decision, I am of the view that “there appears to be holes in the respective cases of the parties, and the factual disputes in this action can only be resolved at trial”.

15.In my view, as the Plaintiff asks the court to protect its interest before the final determination of the merits of its claim, it would only be fair to require the Plaintiff to offer some protection in favour of the Defendant to cover his loss in case it turns out that the Interlocutory Injunction was wrongly granted: see Taihan Global Holdings Ltd v Lau Siu Ming (HCA 1687/2011, 25 November 2011) at para 22 (per DHCJ Lok, as Lok J then was).

16.After all, there is a real possibility that the court may, at the end of the day, find that the Defendant is the lawful owner of the Subject Shares. There is no reason why the Defendant shall be left unprotected. This would be unfair.

17.The evidence before the court shows that the market price of the shares in the Listed Co has been volatile. It appears that the transactions under the Placing Agreement and the Infore Charge were legitimate arm’s-length business dealings. I am inclined to accept the submissions of Mr Norman Nip SC (for the Defendant) that adverse consequences have already arisen as a result of the granting of the Interlocutory Injunction. This is, to say the least, highly arguable.

18.In light of the Interlocutory Injunction, I do understand why OVC and Infore were no longer keen on investing in the Listed Co substantially. I am inclined to the view that it is highly arguable that this has adversely affected the market price of the shares in the Listed Co:-

(1) After all, as a result of the granting of the Interlocutory Injunction, the Defendant, being the major shareholder of the Listed Co, was in breach of the warranty under the Infore Charge Deed, and he had failed to provide security based on the Subject Shares. There was every reason why OVC would wish to adopt a prudent approach and cease investing substantially in the Listed Co.

(2) Pursuant to the terms of the Placing Agreement, OVC could have converted the convertible bond into shareholding of the Listed Co at the conversion price of HK$2.60 per share. As OVC declined to convert the bulk of the convertible bonds into shares of the Listed Co, this sent a strong signal to the market that a major investor appeared to take the view that the value of the shareholding in the Listed Co was not even worth HK$2.60 per share.

(3) In the circumstances, it is explicable as to why the market price of the shares in the Listed Co would plunge drastically. On the evidence available to the court, I am unable to discern any other reason that satisfactorily explains the plunge.

19.I am not of the view that the Defendant should be blamed. The Plaintiff only took out the Interlocutory Injunction Application (which took place on 3 April 2025) after the Defendant caused himself and the Listed Co to enter into the Infore Charge and the Placing Agreement (which took place on 27 February 2025).

20.I do not lose sight of the fact that before I granted the Interlocutory Injunction, the Defendant once indicated that he had no intention to sell the Subject Shares. In my view, the Defendant’s indication must be understood in context. As I understand, the Defendant’s agenda was to retain a sufficient amount of shareholding in the Listed Co, such that he could exercise some control over the Listed Co at the shareholders’ level. However, I have no doubt that the Defendant did not (and still does not) intend to hold onto the Subject Shares at all costs regardless of the adverse consequences. Any suggestion along this line does not make commercial sense at all. I accept Mr Nip’s suggestion that there is every reason why the Defendant would wish to make use of the Subject Shares as a financial tool to advance or protect his financial or commercial interest. Further, I accept that in light of the on-going developments, Defendant took the view that it would be desirable to dispose of some of the Subject Shares at an acceptable sale price before it would be too late to do so. This is something that any sensible businessman would do. In this connection, I am unable to accept the submissions of Ms Sabrina Ho (for the Plaintiff) that there is no evidence showing that the Defendant intended to dispose of some of the Subject Shares. As already pointed out, this suggestion does not make commercial sense. Moreover, it is important not to lose sight of the fact that the Defendant has been subject to the Interlocutory Injunction, and this was the reason why despite the plunge, he could not have attempted to dispose of any of the Subject Shares.

21.Ms Sabrina Ho also contended that it could not be shown that the Defendant would have been able to dispose of the Subject Shares. I am unable to accept this suggestion. The shares of the Listed Co have been listed. Further, but for the Interlocutory Injunction, there is nothing that stops the Defendant from selling part of the Subject Shares by way of private treaties in favour of interested third party investors.

22.In the premises, I accept that it is, to say the least, highly arguable that as a result of the restraint under the Interlocutory Injunction, the Defendant had suffered loss, and there is a very real risk that the Defendant will continue to suffer loss.

23.In this connection, it is highly doubtful as to whether the Plaintiff will be in a position to honour its undertaking by compensating the Defendant as to the loss being suffered. The Plaintiff is a BVI corporate vehicle. There is no evidence showing that the Plaintiff has been carrying on any business operation in Hong Kong; nor is there any evidence showing that the Plaintiff owns any substantive asset in Hong Kong, save and except 21,704,734 shares in the Listed Co (the current market value of which is about HK$9,550,082.96 (ie 21,704,734 shares x HK$0.44/per share).

24.Although HK$9,550,083.96 is not an insubstantial sum, it should be noted that from the day when I granted the Interlocutory Injunction (ie 11 November 2025) to the deadline by which the Listed Co had to settle the indebtedness owed to OVC under the Placing Agreement (ie 14 April 2026), the market price of the shares in the Listed Co had dropped by 66.76% from HK$3.73 per share to HK$1.24 per share. On this basis, it appears arguable that the Defendant had suffered loss to the extent of HK$348,600,000 (ie 140 million shares[4] x (HK$3.73/share less HK$1.24/share)). Obviously, the 21,704,734 shares in the Listed Co (which is currently worth about HK$9,550,083.96) would not be sufficient to cover the Defendant’s loss.

25.For all the above reasons, I am minded to allow the Defendant’s Fortification Application.

26.The next question to consider is the appropriate amount of the fortification to be provided by the Plaintiff.

27.In light of the subsequent developments canvassed hereinabove, there is no question that the pre-existing fortification in the amount of HK$1 million is grossly inadequate.

28.As demonstrated in paragraph 24 above, it appears that the Defendant had suffered loss to the extent of HK$348,600,000 during the period from the date of the Interlocutory Injunction to the deadline by which the Listed Co had to settle the indebtedness owed to OVC under the Placing Agreement. It is the Defendant’s case that that the said loss arose as a result of the granting of the Interlocutory Injunction, and, as discussed, I am of the view that the Defendant’s case is highly arguable.

29.The authorities suggest that:-

(1) The court will take a broad view in arriving at the amount to be put up by way of fortification: see Chow Chor Leung v Rafaella Sportswear Inc. [1990] 1 HKLR 449 at p.453H (per Bokhary J, as Bokhary PJ then was); Taihan Global Holdings Ltd v Lau Siu Ming (supra) at para 18.

(2) The court will make an intelligent estimate of the prospective losses. The court will have to be realistic, but the exercise is not necessarily scientific: see Adeem Investment Holding Company KSCH v Al-Humaidhi [2021] EWHC 1483 (Ch) at para 29 (per Mr Justice Adam Johnson).

30.Whilst each case will have to be decided on its own facts, Mr Nip referred to me to Taihan Global Holdings Ltd v Lau Siu Ming (supra) and Adeem Investment Holding Company KSCH v Al-Humaidhi (supra), which are helpful references. In Taihan, DHCJ Lok (as he then was) ordered fortification based on 35% of the claimed loss. In Adeem, Mr Justice Adam Johnson ordered fortification based on 40% of the claimed loss.

31.Adopting a broad-brush approach, I am of the view that it would be fair and proportionate to order fortification based on 25% of the loss asserted by the Defendant. Taking into account the balance of the consideration in the amount of HK$66,152,648.85 (which the Defendant is liable to pay the Plaintiff according to his own case: see previous Decision at para 25) and the pre-existing fortification in the amount of HK$1,000,000, the figure shall be HK$19,997,351.15 (ie HK$348,600,000 x 25% less HK$66,152,648.85 less HK$1,000,000).

32.In arriving at this figure, I took into account the following factors:-

(1) Although I accept that the Defendant would not hold onto the entirety of the Subject Shares at all costs irrespective of the adverse consequences, I take into account that the Defendant, who wishes to retain effective control over the Listed Co at the shareholders’ level, might not wish to sell away a substantial part of the Subject Shares.

(2) There is uncertainty as to whether the Defendant would have been able to sell away a substantial part of the Subject Shares at the high price of HK$3.73 per share.

(3) There may also be room for arguing that the drop of the share price in the Listed Com was partially ascribed to factors that had nothing to do with the restrain under Interlocutory Injunction. This is a point that can only be canvassed meaningfully at the substantive stage of the proceedings (if any) where experts’ evidence is available.

E. Disposition

33.I order that the Plaintiff do provide fortification of undertaking as to damages in the amount of HK$19,997,351.15 within 28 days by way of payment into court, failing which the Interlocutory Injunction shall lapse and be discharged automatically.

34.Costs should follow the event.

35.I order the Plaintiff to pay the Defendant’s costs in respect of the Fortification Application to be taxed forthwith if not agreed (with certificate for 2 counsel).

36.Lastly, I express my gratitude to Mr Norman Nip SC, Mr Alexsander Wong, Ms Sabrina Ho, and Mr Paul Law for their helpful assistance rendered to me.

Ms Sabrina Ho and Mr Paul Law instructed by Chen, Lee & Law Office, for the Plaintiff

Mr Norman Nip, SC and Mr Alexsander Wong instructed by Chong & Partners LLP, for the Defendant