Super Master Investments Ltd v. Power Apex Ltd and Another
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HCMP 2496/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL MISCELLANEOUS PROCEEDINGS NO. 2496 OF 2011 (ON AN INTENDED APPEAL FROM HCA NO. 1704 OF 2011) ----------------------- BETWEEN
----------------------- Before: Hon Tang VP and Fok JA in Court Date of Hearing: 23 March 2012 Date of Judgment: 18 April 2012 _______________ JUDGMENT _______________ Hon Tang VP: 1.These proceedings concern 360,000,000 shares in Dejin Resources Group Company Limited ("Dejin") (formerly known as Bright International Group Limited) (Stock Code No. 1163) which were registered in the name of the Plaintiff ("the Shares"). The Shares were transferred by the Plaintiff to, Pachmar Ltd, the 2nd Defendant in October 2010. The 1st Defendant, Power Apex Ltd, is wholly owned by the 2nd Defendant. Both these companies are incorporated in the British Virgin Islands. 2.The dispute between the parties primarily concerns the circumstances under which the shares were transferred by the Plaintiff to the 2nd Defendant. 3.Mr Cheng Pak Lung ("Cheng") is the sole director and the shareholder of the Plaintiff, which is also a BVI company. According to an extract from the Annual Report of Dejin for the year ended 31 December 2010, as of that date, the Plaintiff was the beneficial owner of 815,000,000 shares in Dejin which represented 9.93% of the issued capital of the company, and the Plaintiff was a controlled corporation of Cheng. Put briefly, the Plaintiff's case is that the Plaintiff was, at all material times, the beneficial owners of these shares. 4.According to the Plaintiff, the shares were delivered to the Defendants as security for a new facility in the sum of HK$135,000,000 to be granted by the 1st Defendant to Trade Honour Limited ("Trade Honour"), a BVI Company, of which $100,000,000 would be used to repay the existing indebtedness of Trade Honour to the 1st Defendant. The balance of the HK$35,000,000 would be new money to be provided by the 1st Defendant to Trade Honour. 5.The facts are complicated and I will state them as simply as possible for the present purpose. 6.According to Cheng, he was asked in or about early October 2010 by a Mr Ho Pui Tsun ("Ho") to help Ho's friend, a Mr Ke Jun Xiang ("Ke") who was the chairman of CIL Holdings Ltd ("CIL"), a company which was listed on the main board of the Stock Exchange of Hong Kong (Stock Code No. 479). 7.Cheng was told by Ho that Ke was the sole director and shareholder of Trade Honour which held 3,500,000,000 shares in CIL which represented 56.68% of its issued share capital. Trading in CIL shares had been suspended since 1 April 2004 but the application for the resumption of trading was at the final stage. 8.Cheng was also told that Trade Honour was indebted to the 1st Defendant in the sum of $140,000,000 secured by a mortgage over the CIL shares. The 1st Defendant intended to exercise its power of sale over the CIL shares and accordingly, Ke had entered into negotiation with a Mr Choi of the 1st Defendant ("Choi") to restructure the debt. The 1st Defendant was agreeable to grant a new facility to Trade Honour to repay the existing indebtedness in part and make a further advance to Trade Honour, but only on condition that further security by way of a personal guarantee of a third party together with a share mortgage over shares of a listed company was provided. Thus, Ho asked Cheng to help Trade Honour by providing the required security. Cheng was agreeable and Ho was authorized to handle this matter on behalf of the Plaintiff. Messrs Johnny K K Leung & Co ("JKKL"), Solicitors, were instructed to advise on the "anticipated transactions and documentations". Thereafter, on 12 October 2010, Ho and Ke met with Johnny Leung at JKKL's office, and instructed JKKL to act for Trade Honour, the Plaintiff and Cheng. 9.Johnny Leung, who has made an affirmation in support of the Plaintiff, has produced an attendance note recording the conference which took place on 12 October 2010, set out below:
10.On the same day, Johnny Leung called Ms Shirley Lau of Troutman Sanders ("TS"), Solicitors for Power Apex who confirmed she had instructions to act for the 1st Defendant. Ms Lau told Johnny Leung that she had prepared a first draft of a term sheet[1] for discussion. After that conversation, JKKL wrote to TS by letter of 13 October 2010 and told TS that the Plaintiff had deposited 22 share certificates representing 360,000,000 Dejin shares with JKKL and enclosed a certified true copy of JKKL's receipt for those share certificates. The letter went on to say:
11.The intended borrower was identified in the letter as Trade Honour. 12.A few days after 26 October 2010, Ke gave a receipt for the Shares to Ho dated 26 October 2010, the translation of which reads:
13.A copy of an undated "Loan, Repayment and Security Agreement" was provided by Mr Ke to Mr Ho, apparently signed by Ke on behalf of Trade Honour and Choi on behalf of the 1st Defendant. Trade Honour was therein referred to as Party A and 1st Defendant referred to as Party B. The name of the third party Party C was left blank, but it is obvious by its content (which refers to the Shares, that Party C would be the Plaintiff). Where relevant, it reads:
14.On 3 November 2010, TS sent to JKKL a copy of a letter from TS to JKKL dated 3 November 2010 enclosing (i) 2nd draft of Loan Agreement; (ii) 2nd draft of Share Mortgage (I); (iii) 2nd draft of Share Mortgage (II); and (iv) 2nd draft of Guarantee (I) and (II). 15.I will not refer to these documents in any detail. It suffices to say in the 2nd draft Loan Agreement, Trade Honour was called the Borrower; the Plaintiff, the Obligor; and the 2nd Defendant the Lender. The facility to be made available was HK$135,000,000 and
16.The 2nd draft of Share Mortgage (I) was to be made by Trade Honour in relation to 3,500,000,000 shares in CIL. The 2nd draft of Share Mortgage (II) was to be executed by the Plaintiff therein described as Beneficial Owner in respect of the Shares. 17.By an email from JKKL to TS dated 25 November 2010 (i) revised Loan Agreement; (ii) revised Guarantee (I); (iii) revised Guarantee (II); (iv) revised Share Mortgage (I); and revised Share Mortgage (II) were supplied to TS, "approved by us as amended in red for your discussion with the Lender". 18.Clause 2.2 of the Loan Agreement was amended to read:
19.However, the appendix for "Form of Notice of Drawing" to the Loan Agreement was amended to read:
20.The 2nd Share Mortgage II (revised by Borrower 23 November 2010) contained a new 7A as follows:
21.And in Schedule 1 of the 2nd Share Mortgage II under Particular of Shares the Registered Holder was amended to Pachmar ("the 2nd Defendant") from Super Master ("the Plaintiff"), and the latter continued to be described as Beneficial Owner[3]. 22.According to Cheng, the new loan, which was to be secured by the Shares did not materialize. Subsequently, the Plaintiff discovered that the 1st Defendant had sold some of the shares. As a result JKKL wrote to TS on 22 July 2011[4] as follows:
The Proceedings 23.The present proceedings were commenced on 10 October 2011. On the same day, an ex parte Mareva Injunction was granted by Saunders J against the 1st and 2nd Defendants and following that on 11 October 2011, the Plaintiff issued an inter partes summons. 24.On 13 October 2011, the 1st and 2nd Defendants applied for the Mareva Injunction Order of Mr Justice Saunders dated 10th October 2011 be varied to the extent that the entire para 2 entitled "Disclosure of Information" be discharged. 25.The matter went for hearing before Sakhrani J who made an order dated 14 October 2011 continuing the Mareva Injunction granted by Saunders J and made certain other orders. 26.Eventually, the matter was heard before Yam J on 16 November 2011, who discharged the ex parte order of Saunders J, and dismissed the Plaintiff's summons. Yam J refused leave to appeal on 18 November 2011. 27.The Plaintiff then applied for leave to appeal to this court. On 18 November 2011, I continued the injunction in relation to the remainder of the 360,000,000 shares[5] so that they could not be disposed of until the hearing. I adjourned the hearing of the application for leave to appeal to a date to be fixed and directed that, at the hearing of the application for leave to appeal, if leave were granted, the court would then proceed to hear the appeal itself. The appeal 28.The matter came before us on 23 March 2012, when, with the agreement of the parties, we dealt with the application for leave to appeal and the appeal together. At the end of the hearing we reserved our decision, but continued the order of 18 November 2011 until the disposal of this application or further order. 29.Yam J decided against the Plaintiff because he regarded the Defendants' case as "much more credible and consistent"[6]. 30.The learned judge, however, acknowledged:
31.This is what he said about the Defendants' case
32.Yam J appeared not to have appreciated that the Plaintiff's case was that the 1st Defendant would provide Trade Honour with a new facility of HK$135,000,000, HK$100,000,000 of which would be used to repay part of the existing indebtedness of Trade Honour, and that the balance of the HK$35,000,000 would represent fresh funds made available to Trade Honour, and that the new facility would be formalized by the documentations to be exchanged between JKKL and TS. Thus, the learned judge described the Plaintiff's case in these words
33.What was the evidence before Yam J in support of the Defendants' case which shows that their case was more credible and consistent? 34.Choi, who is the sole director of the 1st Defendant, in his affidavit, after narrating Cheng's case, did not refer to or explain any of the contemporaneous documents produced by Cheng some of which emanated from TS, the Defendants' solicitors. Nor had he dealt with the undated "Loan Repayment and Security Agreement" referred to in para 13 above which bore what appeared to be his signature. 35.Choi went on to deal with the restructuring of Trade Honour's indebtedness with Ke, in paras 23-43 of his affirmation, and said that the 360 million Dejin shares were provided as additional collaterals. Choi said:
Accordingly some of the Shares have been sold. 36.Choi also referred to JKKL's letter of 22 July 2011. He said:
37.Choi then provided 2 letters or certificates from Ke as follows:
and
38.Ke had also made an affirmation in support of the Defendants (dated 1 November 2011) in which Ke said Ho was his close personal friend and that Ho agreed to assist him by providing the shares as additional collaterals: para 22. He said Ho had assured him that the shares "were in fact … beneficially owned by himself" through a nominee, the Plaintiff. That has been denied by the Plaintiff. For the present purpose, I must proceed on the basis that the Plaintiff is the beneficial owner of these shares. 39.Then Ke said in para 27, that he agreed with Ho to buy out the shares[7], and that because the shares were delivered on 26 October 2010, he had to pay $109.8 million being HK$0.305 per share by 25 April 2011. Ke also said eventually a settlement agreement was made which he did not produce. And that the Shares were paid for by the transfer of certain shares in a mainland company. 40.Ho filed an affirmation dated 10 November 2011 refuting Ke's allegations. He said Cheng was an old friend who was doing him a favour by providing the Shares, that Ho agreed (after obtaining Cheng's consent) on 13 October 2010 to have the shares stamped
and that on 26 October 2010,
which he did after securing Cheng's permission: paras 42 and 43. 41.Cheng filed a 2nd affirmation dated 10 November 2011, in which after referring to the contemporaneous documents, he said:
42.Having regard to the evidence narrated above, I am unable to agree with the learned judge that the Plaintiff's case is "quite incredible" or that the Defendants' case is "much more credible and consistent". I am of the view that on the available evidence, the Plaintiff has a good arguable case. I do not mean to say that the defence is less credible. I will not go on to deal with the strength of the Defendants' case. That must await trial. It is sufficient to say that the Plaintiff has a good arguable case. 43.The Plaintiff put its case on the basis of a trust. The Plaintiff is the beneficial owner of the shares and that unless the Defendants are bona fide purchasers of these shares without notice, the Plaintiff's beneficial interest endures. On the evidence, I believe the Plaintiff has a good arguable case that the Defendants had actual or constructive notice of Plaintiff's beneficial interest. That is notwithstanding that Choi has said:
44.Given the document referred to earlier in this judgment, I believe the Defendants had at least been put on enquiry. 45.Yam J also took the view that the Plaintiff was guilty of material non-disclosure. That view was principally based on Ke's allegations which Ho has denied. With respect, I agree with Mr Rimsky Yuen, SC, for the Plaintiff that the complaint of material non-disclosure cannot be made out simply on the basis of the Defendants' factual allegations which have been denied. 46.Mr Coleman, SC, for the Defendants, submitted that the Plaintiff is appealing an exercise of discretion. That is so. But, with respect, the exercise of discretion was not based on solid ground. 47.Mr Coleman also submitted that since the Plaintiff would buy Dejin shares in the market, damages would be an adequate remedy. The Plaintiff's claim is proprietary. In relation to shares already sold, the Plaintiff is entitled to trace its proceeds. Moreover, even if the claim is for damages only, that would not stop a mareva injunction being granted when the facts justify it. 48.Both the Defendants are BVI companies. There is only Choi's assertion in para 50 of his affirmation that:
49.Since the Plaintiff's claim to the shares is proprietary, I believe the injunction[8] granted by Saunders J against both Defendants should be restored. 50.That is because:
51.The Plaintiff also seeks disclosure of information. 52.Goff J (as he then was) said in A v C [1981] Q.B. 956 at 958:
53.The Disclosure of information sought can be found in Saunders J's order[9] and the same information is sought against each of the Defendants. 54.We have had no submissions on the disclosure sought. 55.However, I would not make an order in terms of 2(1)(a) which requires:
56.Nor the similar order sought against the 2nd Defendants under 2(5)(a). 57.I would not make such orders because at the moment I do not see the need for them. I would not preclude the Plaintiff from seeking such an order in the event that after the other disclosures have been made, it can be demonstrated that further disclosure is necessary to give effect to the injunction order granted. 58.It follows for the above reasons I would allow the appeal. Naturally, leave to appeal would also be granted. 59.I will also make an order nisi in favour of the Plaintiff both here and below. Hon Fok JA: 60.For the reasons given by Tang VP, I too would grant leave to appeal, allow the appeal and make the various orders proposed by him.
Mr. Rimsky Yuen, SC & Mr. Bernard Mak instructed by Johnny K. K. Leung & Co.for the Plaintiff Mr. Russell Coleman, SC & Ms. Josephine Tjia instructed by Troutman Sanders, Solicitors and International Lawyers, for the Defendants [1] A term sheet described as "1st draft for Discussion Purposes" was indeed produced sometime after 3 November 2010 by Ho to JKKL: see para 20 Cheng's first affirmation. The term sheet showed Trade Honour as the Borrower and the 1st Defendant the Lender that the shares would form part of the security for Total Facility Amount of HK$135 million to be used to refinance an existing loan of HK$140 million, and stated that Cheng and the plaintiff should have separate legal representation from the Borrower. [2] It may be noted that the disposition of the new loan of $135 million is consistent with the Plaintiff's case. [3] By then, the shares was already registered in the name of the 2nd Defendant: see para 40 below. [4] Choi referred to JKKL's letter by 22 July 2011 in his affirmation and said that after the receipt of the letter from TS, he "contacted Ke who reassured me that Cheng was 'his man'" and gave him a copy of the certificate dated 3 August 2011. It does not appear that TS had replied to JKKL's letter. [5] 120.31 million shares. According to disclosure made pursuant to para 6 of the order of Sakhrani J dated 14 October 2011, the 2nd Defendant has disclosed that it had (i) between 1 March 2011 and 16 August 2011 sold 11 million shares on the open market; (ii) between 22 December 2010 and 1 June 2011 "disposed of 66.69 million shares …"; (iii) between 22 December 2010 and 1 September 2011 sold 162 million on the open market. [6] para 42 of his reasons for judgment dated 24 February 2012 [7] Ke did not say when the agreement was made. If, as seems to be the drift of that paragraph, the agreement was made in October 2010, then it is difficult to explain, eg TS's supply of the draft documentations to JKKL: see para 14 above, JKKL's e-mail to TS of 25 November 2010, or indeed other documents including the undated "Loan, Repayment and Security Agreement" referred to in para 13. Also it is perhaps surprising that the certificate of 3 August 2011 referred to in para 37 above did not state that Ke was the beneficial owner of the shares. [8] Namely, para 1(1)(a) and (b), (2) and (3) of his order of 10 October 2011. [9] Para 2(1) and (5) | ||||||||||||||
Further hearings and rulings under HCMP 2496/2011