Civil Procedure — Interlocutory injunction — Mareva injunction — Disclosure obligations — Appointment of receivers — Shares in company

Mr Charles Sussex, SC leading Mr Douglas Lam, instructed by Messrs Lovells, for the 1^st and 2^nd Plaintiffs

Mr Patrick Fung, SC leading Mr William Wong and Mr Adrian Lai, instructed by Messrs Peter Lau & Co., for the 1^st to 3^rd Defendants

Poon J


A. APPLICATIONS

[1] On 22 May 2009, Kwan J granted an injunction order in favour of the 1^st plaintiff against all the defendants, restraining them from disposing or procuring the 1^st defendant to dispose of its shares in Chongqing Dading Property Company Limited ("Chongqing Dading") and made an interim receivership order against the 1^st defendant ("the 1^st Order").

[2] On 5 June 2009, Saunders J granted a Mareva injunction in favour of the 1^st plaintiff against the 3^rd defendant, restraining him from disposing of his assets up to the value of SGD49,359,366 and ordering him to disclose all his assets of an individual value of HK$100,000 wherever situated ("the 2^nd Order"). By order dated 12 June 2009 ("the 3^rd Order"), this court varied the disclosure provisions in the 2^nd Order, to which I will return in a moment.

[3] The 1^st plaintiff now applies to continue the 1^st and 2^nd Orders. The defendants apply to discharge them on various grounds.

[4] The 1^st plaintiff also applies for further discovery against the 3^rd defendant to secure the compliance with the disclosure obligations under the 3^rd Order, which is opposed.

[5] Separately, the 2^nd plaintiff applies for an order restraining the 3^rd defendant from dealing with or disposing of his shares in the 1^st defendant and the appointment of receivers over the shares of the 1^st defendant on the basis that the 2^nd plaintiff is an equitable chargee of the shares. This application is also opposed.

[6] The background circumstances giving rise to the matters now before me are summarized below.

B. BACKGROUND CIRCUMSTANCES

 

B.1. The financing provided to Thumb China

[7] Thumb (China) Holdings Group Limited ("Thumb China") is a BVI investment holding company. It was formerly the majority shareholder of Sino-Environment Technology Group Limited and Radiance Electronics Limited ("Sino-Environment" and "Radiance"), pubic companies listed on the Singapore Stock Exchange. The 3^rd defendant is and was at all material times its sole shareholder and director. He was also the chairman of Sino-Environment.

[8] Stark Investments ("Stark") is a global investment group. It controls and manages its investment through a number of corporate entitles, including Stark Investments (Hong Kong) Limited ("Stark HK").

[9] In early July 2007, Stark was approached by one Ivory Capital Asia Pte Ltd, a corporate advisory firm in Singapore, for potential provision of financing to Thumb China. After a series of discussions and negotiations, in which Thumb China was represented by reputable law firms in both Singapore and Hong Kong, the 3^rd defendant on 19 July 2007 signed a "Financing Term Sheet", setting out the broad terms upon which Stark would make financing of SGD120 million available to Thumb China to be secured by its shares in Sino-Environment. The Sheet specifically provided for a "topping up" requirement of security should the value of the collateral fell below the level as stipulated.

[10] After further discussions, a Notes Trust Deed dated 13 August 2007 ("the Deed") was made between Thumb China, the 3^rd defendant and the 2^nd plaintiff (as trustees on behalf of the Noteholders). The Noteholders provided financing of SGD120 million to Thumb China, secured by a share charge in favour of the 2^nd plaintiff over Thumb China’s shareholding in Sino-Environment. Pursuant to the Deed, Thumb China issued the Notes to the Noteholders on 15 August 2007.

B.2. The Share Charge

[11] In August and September 2007, the value of the Sino-Environment shares plummeted, which triggered the "topping up" provisions in the Deed. After discussions, the parties entered into an Amendment and Accession Deed dated 5 March 2008 under which further security by a charge over the shares in the 1^st plaintiff was to be provided. Further negotiations took place in March and April 2008 on the precise term of the charge.

[12] Eventually, on 30 April 2008, a Share Charge ("the Share Charge") was executed under which the 2^nd defendant, who was then the registered sole shareholder and director of the 1^st plaintiff, charged all his shares in the 1^st plaintiff in favour of the 2^nd plaintiff as security trustee and custodian. The 1^st plaintiff and the 3^rd defendant were also parties to the Share Charge.

[13] At the time of the Share Charge, the 1^st plaintiff was the 100% shareholder in Chongqing Dading, a wholly foreign owned enterprise in the Mainland and the parent company of the Dading Group, which owns numerous properties and resorts there. Thus, although the security was the charge over the plaintiff’s shares, what mattered in substance was the 1^st plaintiff’s interest in Chongqing Dading. To make the security effective, the 1^st plaintiff warranted to the 2^nd plaintiff under clause 6.1 that :

"…

(h) it and its subsidiaries hold good title to the assets held by it or its subsidiaries, including all property constituting the [Dading Group]; and

(i) no charge, lien, or encumbrance of any kind exists over all or any part of the assets held by it and its subsidiaries."

[14] Further, various undertakings were given by the 1^st plaintiff, the 2^nd and 3^rd defendants as follows :

"7. Undertakings by Chargor (the 2^nd defendant)

7.1 Negative Undertakings

Except with the Security Trustee’s prior written consent (acting on the instructions of the Majority Beneficiaries) and save as required or expressly permitted under this Share Charge, the Chargor shall not :

(a) assign, sell, transfer, lend, or otherwise dispose of all or any part of the Charged Portfolio or any of its rights, title, and interest therein;

(b) create, grant, or permit (or agree to create, grant, or permit) to subsist (i) any charge, lien, or encumbrance (other than the security constituted by or expressly permitted under this Share Charge) over, or (ii) any restriction on the ability to transfer or realise, all or any of its right, title, and interest in, the Charged Portfolio or any part thereof; or

(c) do or permit to be done any act or thing which might jeopardize the rights of the Security Trustee in the Charged Portfolio or any part thereof or which would reasonably be expected to adversely affect or diminish the value of the Charged Portfolio or any part thereof.

…

8. Undertakings by Company (the 1^st plaintiff)

8.1 Negative Undertakings

(a) Except with the Security Trustee’s prior written consent (acting on the instructions of the Majority Beneficiaries) and save as required or expressly permitted under this Share Charge, the Company shall not :

(i) assign, sell, transfer, lend, or otherwise dispose of any shares in its subsidiaries or all or any part of its assets or any of its rights, title, and interest therein;

(ii) create, grant, or permit (or agree to create, grant, or permit) to subsist (i) any charge, lien, or encumbrance over, or (ii) any restriction on the ability to transfer or realise, all or any of its right, title and interest in, its assets or any part thereof; or

(iii) do or permit to be done any act or thing which might jeopardize the rights of the Security Trustee in the Charged Portfolio or any part thereof or which would reasonably be expected to adversely affect or diminish the value of the Charged Portfolio or any part thereof.

(b) Except with the Security Trustee’s prior written consent (acting on the instructions of the Majority Beneficiaries) and save as required or expressly permitted under this Share Charge, the Company shall procure that each of its subsidiaries does not:

(i) assign, sell, transfer, lend, or otherwise dispose of any shares in its subsidiaries or all or any part of its assets or any of its rights, title, and interest therein other than in the ordinary course of its business as a property development company from time to time on arms’ length terms;

(ii) create, grant, or permit (or agree to create, grant, or permit) to subsist (i) any charge, lien, or encumbrance over, or (ii) any restriction on the ability to transfer or realise, all or any of its right, title, and interest in, its assets or any part thereof; or

(iii) do or permit to be done any act or thing which might jeopardize the rights of the Security Trustee in the Charged Portfolio or any part thereof or which would reasonably be expected to adversely affect or diminish the value of the Charged Portfolio or any part thereof.

…

9. Undertaking by Sun (the 3^rd defendant)

9.1 Negative Undertaking

Sun undertakes not to challenge the legality, validity, or enforceability or admissibility in evidence in any jurisdiction of (i) this Share Charge as well as the transactions contemplated herein and (ii) the Company’s, or any of its subsidiaries’, title to any of its, or their, assets in any circumstances whatsoever.

9.2 Information

Sun shall from time to time within 14 days of request by the Security Trustee, furnish the Security Trustee with such information as the Security Trustee may reasonably require about the Charged Portfolio and the compliance by the Chargor and/or the Company with the terms of this Share Charge.

9.3 Acknowledgement

The Parties acknowledge that Sun is currently in the process of procuring the equity transfer of Chongqing Dading from the Company for fair market value to a company incorporated or to be incorporated by Sun in Hong Kong, Cayman Islands, or the British Virgin Islands to be wholly owned by Sun (Sun’s Company ). Prior to the completion of such equity transfer by Sun and the provision of any relevant consents or waivers of the Chargor’s undertakings under this Share Charge by the Security Trustee (acting on the instructions of the Majority Beneficiaries), Sun shall execute a charge over the entire issued share capital of Sun’s Company on substantially the same terms as this Share Charge, and in any case, on terms acceptable to the Security Trustee and Sun, acting reasonably."

[15] It is the plaintiffs’ case that Clause 9.3 was a mechanism negotiated and agreed between the parties which would allow the 3^rd defendant the flexibility to dispose some of "his" shares on Chongqing Dading in the event of a "pre-IPO transaction" or an appreciation in the value of the shares of Sino-Environment already charged to the 2^nd plaintiff. The Noteholders insisted on including that undertaking in order to protect the security.

B.3. The 1^st and 2^nd Transfer Agreements

[16] Thumb China subsequently defaulted on the Notes. The 2^nd plaintiff then took enforcement action by selling the shares of Sino-Environment. After the disposal of those shares, a principal sum of some SGD50 million remained outstanding as at 31 August 2009.

[17] On 29 April 2009, the 2^nd plaintiff enforced the Share Charge by appointing joint and several receivers of the 2^nd defendant’s shareholding in the 1^st plaintiff ("the Receivers"). The Receivers then removed him from the board and assumed shareholder and board control of the 1^st plaintiff.

[18] On or about 19 May 2009, the Receivers learnt for the first time from the Mainland authority that the 1^st plaintiff’s shares in Chongqing Dading were no longer owned by the 1^st plaintiff. Further investigations revealed that those shares had been purportedly sold by the 1^st plaintiff to the 1^st defendant, which was only incorporated 25 March 2008 with the 3^rd defendant as the sole shareholder and director, pursuant to a Share Transfer Agreement dated 7 July 2008 for a consideration RMB200 million ("the 1^st Transfer Agreement").

[19] In other words, in less than3 months after the Share Charge were executed (30 April 2008) and despite the various undertakings by the 1^st plaintiff, the 2^nd and 3^rd defendants, the 1^st plaintiff’s shares in Chongqing Dading, the very security in substance under the Share Charge, were unbeknown to the 2^nd plaintiff and the Noteholders siphoned off from the 1^st plaintiff to the 1^st defendant, a company owned by the 3^rd defendant.

[20] On 26 April 2009, that is, just 3 days before the 2^nd plaintiff appointed the Receivers, the 1^st defendant and Fujian Dahong Investment and Development Company Limited ("Fujian Dahong") entered into a Share Transfer Agreement, whereby the 1^st defendant agreed to transfer the shares in Chongqing Dading to Fujian Dahong for RMB200 million ("the 2^nd Transfer Agreement"). Fujian Dahong was a PRC company in which the 3^rd defendant and his brother had 70% and 20% shareholding initially. On a date unknown, the 3^rd defendant’s brother became a 90% shareholder with the remaining 10% held by a person unknown. On 11 May 2009, the 1^st defendant applied for approval for the transfer under the 2^nd Transfer Agreement from the Mainland authority, which had already been granted although no formal business licence had been issued.

[21] By the 2^nd Transfer Agreement, the shares in Chongqing Dading were further removed from the reach of the 2^nd plaintiff and the Noteholders.

C. THE PLAINTIFFS’ CASE

[22] On 21 May 2009, the 1^st plaintiff commenced the present action. It later obtained the 1^st and 2^nd Orders. On 13 July 2009, the 2^nd plaintiff joined as a party.

[23] In the statement of claim dated 13 July 2009, the claims by both plaintiffs against the defendants are couched in these terms :

"Claims against Mr. Po (the 2^nd defendant)

17. As the sole director and registered shareholder of Top One A and by signing the Top One A Transfer Agreement on behalf of Top One A, Mr. Po procured and/or permitted Top One A to enter into the Top One A Transfer Agreement, thereby transferring Top One A’s equity interest in Chongqing Dading to Top One B, without informing or seeking the consent of the Bank.

18. By doing so:

(a) Mr. Po knowingly and wilfullybreached Mr Po’s Undertaking.

(b) Mr. Po knowingly and wilfullyprocured Top One A to breach the Share Charge and/or unlawfully interfered with the contractual relations between Top One A and the Bank under the Share Charge.

19. Further or alternatively, Mr. Po breached his fiduciary duties as a director of Top One A:

(a) By procuring and/or permitting Top One A to enter into the Top One A Transfer Agreement when he had no authority to do so without the consent of the Bank, Mr. Po knowingly and wilfullyacted in breach of his authority and the articles of Top One A, as modified by Top One A’s Undertakings. Top One A repeats paragraph 12 above;

(b) Further or alternatively, by procuring and/or permitting Top One A to enter into the Top One A Transfer Agreement in breach of Top One A’s Undertakings, Mr. Po knowingly and wilfullyplaced Top One A in breach of its contractual obligations under the Share Charge;

(c) Further or alternatively, by procuring and/or permitting Top One A to enter into the Top One A Transfer Agreement at a consideration of RMB200 million, which Mr. Po must have known was at a gross undervalue, Mr. Po knowingly and wilfully misappropriated the assets of Top One A and/or prejudiced its interests; and/or

(d) Further or alternatively, by failing or refusing to take any steps on behalf of Top One A to pursue Top One B for the payment of the purported consideration, Mr. Po knowingly and wilfully prejudiced the interests of Top One A.

Claims against Mr. Sun (the 3^rd defendant)

20. As the shadow director of Top One A and the sole shareholder and director of Top One B, and by signing the Top One A Transfer Agreement on behalf of Top One B, Mr. Sun procured and/or permitted Top One A to enter into the Top One A Transfer Agreement, thereby transferring Top One A’s equity interest in Chongqing Dading to Top One B, without informing or seeking the consent of the Bank.

21. By doing so:

(a) Mr. Sun knowingly and wilfully breached Mr. Sun’s Undertaking.

(b) Mr. Sun knowingly and wilfully procured Top One A to breach the Share Charge and/or unlawfully interfered with the contractual relations between Top One A and the Bank under the Share Charge.

(c) Mr. Sun dishonestly assisted Mr. Po to act in breach of his fiduciary duties to Top One A, as pleaded in paragraph 19 above.

Claims against Top One B (the 1^st defendant)

22. By reason of the fact that Mr. Sun was the sole director and shareholder of Top One B and the shadow director of Top One A, Mr. Sun’s knowledge was attributable to Top One B, including, inter alia , his knowledge of:

(a) The terms of the Share Charge; and

(b) The constitution and management of Top One A.

23. Therefore, Top One B knowingly and wilfully procured Top One A to breach the Share Charge and/or unlawfully interfered with the contractual relations between Top One A and the Bank under the Share Charge.

24. Further or alternatively, Top One B well knew that Mr. Po entered into the Top One A Transfer Agreement on behalf of Top One A in breach of his fiduciary duties to Top One A, as pleaded in paragraph 19 above. In the circumstances, Top One B is liable for knowing receipt.

25. Further or alternatively, Top One B is liable for dishonest assistance in Mr. Po’s breach of fiduciary duty to Top One A, as pleaded in paragraph 19 above."

[24] In summary, the causes of action relied on by the plaintiffs against the defendants are procuring the breach of the Share Charge and/or unlawful interference with contractual relations and dishonest assistance in breach of fiduciary duty and/or knowing receipt. As against the 2^nd and 3^rd defendants, there is an additional cause of action based on breach of the Share Charge.

[25] Stripped on all the legal terminologies, the plaintiffs’ case is simple and straightforward. By virtue of the 1^st and 2^nd Transfers, the defendants had wrongfully siphoned off the shares in Chongqing Dading, the very security under the Share Charge in reality, from the plaintiffs and the Noteholders, thereby causing loss and damage to them.

D. THE DEFENDANTS’ CASE

[26] The defendants have yet to file their defence. In his affirmations filed on behalf of all defendants, the 3^rd defendant did not deny that he did not inform the 2^nd plaintiff of the 1^st Transfer Agreement and that he did not execute any charge over the shares of the 1^st defendant in favour of the 2^nd plaintiff, contrary to Clause 9.3 of the Share Charge. He raised the following three main points as defence.

[27] First, the 3^rd defendant was induced by misrepresentation of Stark’s staff to sign the Share Charge as a party. He alleged that prior to the conclusion of the Share Charge, the value of the shares of Sino-Environment pledged under the Deed far exceeded the outstanding principal owed by Thumb China. There was no need for the 3^rd defendant to provide further security. The provision of the shares in the 1^st plaintiff as additional security was only arranged upon the request of Stark’s staff to comply with formalities, which constituted a misrepresentation.

[28] Second, prior to the conclusion of the Share Charge, the 3^rd defendant had advanced SGD53,500,200 to the 1^st plaintiff for the acquisition of the shares in Chongqing Dading ("the Purported Loan"). He had this to say on the Purported loan :

"Top One A taking out a loan to acquire Chongqing Dading

14. Top One A is a company incorporated in Hong Kong and Mr Po For Yau is its sole shareholder and director.

15. In the first half of 2007, Mr Po had looked around at a number of land lots and real estate projects in China, some of which were held by Chongqing Dading Property Company Limited (‘Chongqing Dading’). Mr Po told me afterward that he was interested in certain investment projects of Chongqing Dading, but unfortunately he did not have sufficient funds. Mr Po had lent me a hand many years ago; now I had the capability to return the favour and furthermore lending him money could earn interest. There were also commercial benefits for me in this. I therefore told him that if he did not have sufficient funds I could lent him some money. As to the acquisition of Chongqing Dading, I could act for him to ask the other shareholders whether they would be willing to sell. At the time, about 10% of the equity rights of Chongqing Dading were held by Sun Shao Hua (my younger brother), and the other 90% were held by Fujian Damuzhi Industry Group Company Limited (福建大拇指实业集团有限公司) (‘Fujian Damuzhi’), of which I was one of the shareholders.

16. I asked the opinions of Sun Shao Hua and the other shareholders of Fujian Damuzhi. They all thought that if the price was right they were willing to sell Chongqing Dading. After discussions, the transaction for Chongqing Dading was finally priced at RMB50 million.

17. Mr Po set up Top One A to carry out this investment project. The authorized capital of Top One A was HK$10,000 and its issued and fully paid share capital was HK$1,000. At the request of Mr Po, I provided a loan to Top One A. Under a loan agreement dated 10 August 2007, I agreed to lend to Top One A SGD53,500,000 at a monthly interest rate of 2%. The money was injected into the account of Top One A by me and my other investment company/companies. The actual amount of money injected into Top One A pursuant to the said loan agreement in the end was SGD53,500,200 (approximately RMB267,500,000), receipt of which was acknowledged by Top One A on 31 August 2007. Now marked as Exhibit ‘SJR-2’ to be presented before the Court as evidence are the loan agreement, bank statements and receipt. The said loan money was released long before the execution of the charge for the shares of Top One A. I was therefore a creditor of Top One A.

18. In July 2007, Top One A and Fujian Damuzhi and Sun Shao Hua entered into a transfer agreement for the shares of Chongqing Dading for a total consideration of RMB50,000,000. Subsequently, Top One A paid RMB45,000,000 to Fujian Damuzhi and RMB5,000,000 to Sun Shao Hua. Now marked Exhibit ‘SJR-3’ to be presented before the Court as evidence are the relevant resolutions of the shareholders’ meeting, share transfer agreement and statements.

19. Top One A used RMB50,000,000 to pay for the price for the acquisition of Chongqing Dading, and the remaining amount of the loan was used to increase the capital of Chongqing Dading. The original registered capital and paid up capital of Chongqing Dading was RMB50,000,000 only. After the transfer, Top One A increased the registered capital and paid up capital of Chongqing Dading to RMB200,000,000, that is to say RMB150,000,000 was injected into Chongqing Dading. Now marked as Exhibit ‘SJR-4’ to be presented before the Court as evidence are a document of Chongqing City Commission of Foreign Trade and Economic Relations (Yu Wai Jing Mao Fa [2007] No. 269) and two Capital Contribution Verification Reports issued by Chongqing Sai De Accountants Firm."

[29] The 3^rd defendant went on to allege :

"Top One A used Chongqing Dading to settle debts

20. Around May and June of 2008, I demanded Top One A to repay the loan. However, Top One A did not have money for repayment. After discussions, we agreed in the end to use equity rights in Chongqing Dading to settle part of the debt. Therefore, in July 2008, Top One A transferred Chongqing Dading to Top One Property Group Limited (i.e. ‘Top One B’, the 1^st Defendant). Top One B is a Hong Kong incorporated company, of which I was the sole director and shareholder.

21. The consideration for this transfer was RMB200,000,000, which was the amount of investment Top One A had put into Chongqing Dading (RMB50,000,000 as price of acquisition and RMB150,000,000 as capital increase). According to the balance sheet of Chongqing Dading as at 31 December 2007, the total asset of Chongqing Dading was RMB253,338,835.59 and its total liabilities was RMB53,210,984.75. So its net assets was around RMB200,127,850.80. Now marked as Exhibit ‘SJR-5’ to be presented before the Court as evidence is the audit report of Chongqing Dading issued by Chongqing Qianjin Boyuan Accountants Company Limited on 14 December 2008.

22. On 5 July 2008, Top One A (as seller) and Top One B (as buyer) entered into a transfer agreement for the shares in Chongqing Dading. On 15 September 2008, Top One B (buyer), Top One A (seller) and I entered into a three party agreement concerning the payment of RMB200,000,000, whereby:

(a) I would pay the price for the share transfer for Top One B (buyer);

(b) the transfer price would be deducted from the debt owned by Top One A (seller) to me. Therefore, the amount of debt owed to me by Top One A would be reduced by RMB200,000,000; and

(c) After the set off, Top One B would owe me a debt of RMB200,000,000 at a monthly interest rate of 2%.

Now marked as Exhibit ‘SJR-6’ to be presented before the Court as evidence are the share transfer agreement dated 5 July 2008, a document of the Chongqing City Commission of Foreign Trade and Economic Relations (Yu Jing Mao Fa [2008] No. 248) and the three party agreement dated 15 September 2008. Therefore, the price for the transfer of shares of Chongqing Dading had been paid. After the transaction, Top One B owed me RMB200,000,000 and Top One A owed me approximately RMB67,000,000."

[30] The 3^rd defendant further alleged that the 2^nd plaintiff must have been aware of the above matters because it had conducted due diligence on both the 1^st plaintiff itself and its ownership over Chonqing Dading. In the circumstances, a term should be implied in the Share Charge whereby the 1^st plaintiff was not prohibited from applying its assets to discharge its liabilities and the 3^rd defendant was not prohibited from enforcing his rights as a creditor against the 1^st plaintiff ("the Implied Term"). The 1^st Transfer Agreement was purely a transaction whereby the 1^st plaintiff discharged its liabilities to the 3^rd defendant in the normal course of business. It did not in any way diminish the value of the 1^st plaintiff and was not something the Share Charge prevented.

[31] As to the 2^nd Transfer Agreement, it was made by the 1^st defendant to settle its debts owed to Fujian Dahong.

[32] Third, as a result of the self-dealings and other misdeeds of the 2^nd plaintiff committed in the course of disposing of the shares of Sino-Environment, Thumb China has a cause of action against the 2^nd plaintiff, which has already been commenced in Singapore. The quantum will be sufficient to extinguish the existing debt.

E. THE 1^ST ORDER

[33] I now turn to consider if the 1^st Order should be continued or discharged.

E.1. The basic principles

[34] The 1^st Order is partly an interlocutory injunction and partly an interim receivership order.

[35] For an interlocutory injunction, it is trite that the principles in American Cyanamid Co v Ethicon Ltd [1975] AC 396 apply. In short, the court will consider if there is a serious question to be tried on the plaintiff’s claims, the adequacy or otherwise of damages and if necessary where the balance of convenience lies. It would appear from counsel’s submission that I only need to consider if there is a serious question to be tried and the risk of dissipation of the 1^st defendant’s shares in Chongqing Dading.

[36] For an interim receivership order, the jurisdiction of the court is flexible to be exercised on a similar basis to that of an interlocutory injunction : Chinese United Establishments Ltd v Cheung Siu Ki [1997] 2 HKC 212 , per Rogers J (as he then was) at p. 223E-F. Since an interim receivership order aims at preserving the assets in question, the court need to consider the risk of dissipation if the assets are left until trial in the possession or control of the party against whom the appointment of a receiver is asked for. The appointment of a receiver is a very serious matter. The court will be cautious to ensure that disproportionate and irreparable harm is not done by the appointment : see Re Chime Corporation Ltd , HCMP4146/2001, unreported, 25 June 2003, per Kwan J (as she then was) at paras. 38-41.

E.2 A serious question to be tried

[37] The defendants argued that the causes of action pleaded by the 1^st plaintiff are bad at law. It therefore did not have the locus to mount the ex-parte application. Rather, it made the application for the collateral purpose of the benefit of the 2^nd plaintiff, which was then not a party to the proceedings.

[38] In his written submissions, Mr Fung, SC, for the defendants stated various reasons why the causes of action are bad in law. I have already considered them carefully. I do not think I need to dwell on details save and except to deal with the contention that the 1^st plaintiff had not suffered any loss and damage as a result of the 1^st Transfer Agreement. Mr Fung argued that the 1^st plaintiff acquired the shares in Chongqing Dading with the Purported Loan, thereby incurring substantial liabilities owed to the 3^rd defendant. The 1^st Transfer Agreement had the effect of decreasing the assets and liabilities of the 1^st plaintiff to the same extent. Accordingly, the 1^st Transfer Agreement did not cause any loss or damage to the 1^st plaintiff. This contention is based on the assumption that the court accepts at this stage the truthfulness of the 3^rd defendant’s case on the Purported Loan. However, I am unable to do so on the evidence before me.

[39] The Purported Loan does not sit well with the 1^st plaintiff’s warranties under Clause 6.1 (h) and (i) of the Share Charge. No reference was made to it during the course of discussions leading to the Share Charge, which is odd. The 2^nd plaintiff had been unable to discover it when it carried out due diligence over the 1^st plaintiff, which is incredible. The 1^st Transfer Agreement was, on the 3^rd defendant’s case, meant to set off the loan owed by the 1^st plaintiff. Inexplicably, the 1^st Transfer Agreement contained no provision for this alleged set off.

[40] In my view, the causes of action pleaded and relied on by the 1^st plaintiff are plainly valid. It could mount the ex-parte application in its own right. And I am satisfied that on the evidence before Kwan J, the 1^st plaintiff had discharged the burden of showing a serious question to be tried.

[41] Kwan J did not have the benefit of the 3^rd defendant’s evidence on the proposed defence. But, as explained below, I do not think the propose defence would diminish the merits of the 1^st plaintiff’s claims for present purposes.

[42] To recap, the three main points of defence are : misrepresentation, the Implied Term and misconduct by the 2^nd plaintiff in disposing the shares of Sino-Environment.

[43] There is considerable difficulty in the 3^rd defendant’s case on misrepresentation. Throughout the negotiations leading to the Share Charge, the 3^rd defendant was represented by the Singapore law firm that he engaged for the Deed. Extensive and detailed discussions exchanged between the parties’ representatives before the execution of the Share Charge, as evidenced by the voluminous email correspondence (some 500 pages). The plea of misrepresentation in such circumstances is difficult to sustain.

[44] The validity of the Implied Term is based on the allegation that the 3^rd defendant had made the Purported Loan to the 1^st plaintiff. As noted above, I have doubt about this allegation even on the evidence before me. Further, the Implied Term is inconsistent with the various express undertakings given by the 1^st plaintiff, the 2^nd and 3^rd defendants. That is legally impermissible.

[45] The allegations of misconduct by the 2^nd plaintiff in disposing of the shares of Sino-Environment are strongly disputed. Whether Thumb China’s claim would succeed remains to be seen. At this juncture, it is simply too early to say that the claim by Thumb China, a non-party, would diminish the merits of the 1^st plaintiff’s case in this action as contended.

E.3. Risks of dissipation

[46] I next turn to the risks of dissipation.

[47] On the evidence before me, absent the 1^st Order, the risks that the defendants would dispose of or procure the 1^st defendant to dispose of the shares in Chongqing Dading is real and substantial.

[48] Mr Fung asked me to take into account two matters when assessing the risks. On 1 June 2009, the joint and several receivers, in the name of the 1^st plaintiff, commenced legal proceedings in Chonqing against the 1^st and 3^rd defendants, Chongqing Dading and Fujian Dahong. On 5 June 2009, the 1^st plaintiff obtained an interim injunction freezing the 1^st defendant’s shares in Chongqing Dading and restraining it from transferring or charging the same during the freezing period ("the Chongqing Order"). At the hearing on 10 September 2009, the 3^rd defendant, through counsel, gave an undertaking to the court that he would not take any steps to cause or procure the transfer, charge or assignment of or otherwise encumber or deal with his shares in the 1^st defendant until trial or further order ("the Undertaking"). Mr Fung argued that with the combination of the Chongqing Order and the Undertaking, the shares in Chongqing Dading is adequately preserved. The 1^st Order is redundant and serves no useful purpose.

[49] However, the Chongqing Order is only an interim order. Given its nature, I do not think it is sufficient to protect the shares in Chongqing Dading from the risks of dissipation. The Undertaking deals with the 3^rd defendant’s shares in the 1^st defendant. It is not an adequate protection either.

[50] Subject to the following points taken by the defendants, the 1^st Order should continue.

E.4. Material non-disclosure

[51] The defendants took a number of points on material non-disclosure.

[52] First, the 1^st plaintiff was impecunious and its acquisition of the shares in Chongqing Dading was funded by the Purported Loan. But neither the 2^nd plaintiff nor the Receivers were aware of this alleged indebtedness. This cannot be a possible ground of material non-disclosure.

[53] Second, the 1^st plaintiff had failed to disclose possible defence available to the defendants, such as those set out in the 3^rd defendant’s evidence. As noted, the matters relied on by the defendants are strongly disputed. The 2^nd plaintiff and the Receivers were not aware of those allegations until the 3^rd defendant filed his evidence. That being the case, there is simply no substance in this point.

[54] Third, the 1^st plaintiff had exaggerated the value of the Chongqging Dading shares. It is the 3^rd defendant’s case that the shares actually did not have any material value. This is flatly contradicted by an announcement made by Sino-environment to the Singapore Stock Exchange that those shares had an estimated value close to RMB10 billion as at 4 April 2008. This point must be rejected.

[55] Fourth, the 1^st plaintiff had failed to disclose the fact the Receivers had already in the 1^st plaintiff’s name commenced proceedings in the Chongqing court to preserve the shares in Chongqing Dading. This is factually incorrect. The ex-parte application went before Kwan J on 22 May 2009. The proceedings in Chonqing were commenced on 1 June 2009 after the appointment of the Receivers. And the possibility of the Receivers taking proceedings in the Mainland was in fact mentioned in paragraph 48 of the 1^st affidavit of Mr John Howard Batchelor of the Receivers filed in support of the ex-parte application.

[56] Finally, it is obvious that the 1^st plaintiff chose not to reveal to Kwan J that it would not be able to pay any damages should the court later finds that the 1^st Order was wrongly granted. The undertaking as to damages was insufficient. But the Receivers did offer to give the undertaking as to damages to the court : see paragraph 15 of the written skeleton submissions of counsel placed before Kwan J at the ex-parte hearing. In the end, Kwan J did not find it necessary to do so.

[57] For the above reasons, I can see no material non-disclosure as alleged.

E.5. Abuse of powers as interim receivers

[58] The defendants complained that the Receivers had abused their powers. Ido not need to go into details. Having carefully considered the matters relied on by them, I do not see any substance in this complaint.

E.6. Conclusion

[59] I will order the 1^st Order to be continued until trial or further order.

F. THE 2^ND ORDER

[60] I now come to the 2^nd Order.

F.1 The basic principle

[61] The 2^nd Order is a Mareva injunction. It is trite that the 1^st plaintiff needs to show a good arguable case on its claims against the 3^rd defendant and a risk of dissipation of assets by the 3^rd defendant.

F.2. A good arguable case

[62] For the reasons set out in section E.2. above, I rule that the 1^st plaintiff has shown that it has a good arguable case against the 3^rd defendant.

F.3. Risks of dissipation

[63] The evidence is clear. The 3^rd defendant’s conduct in secretly siphoning off the shares in Chongqing Dading demonstrated that he would be prepared to move his assets beyond the reach of the 1^st plaintiff to evade his liability should judgment be entered against him after trial. This is further reinforced by how he dealt with the shares in Radiance. Under the Deed, Thumb China undertook not to create any securities over its assets, including its 50% shareholding in Radiance, without the 2^nd plaintiff’s consent. In breach of the undertaking, Thumb China on 3 March 2008 secretly pledged the shares to a Hero Key Limited, a company wholly owned by the 3^rd defendant’s brother. The 3^rd defendant had exhibited a very low degree of commercial morality indeed. A Mareva injunction is in order : see Honsaico Trading Ltd v Hong Yiah Seng Co. Ltd [1990] HKLR 235 ; Standard Chartered Securities v Lai Arthur [1993] 1 HKC 375 .

[64] Mr Fung again deployed the same argument that the combination of the Chongqing Order and the Undertaking is sufficient protection, rendering the 2^nd Order unnecessary. I disagree. They do not obviate the need to prevent the 3^rd defendant from dissipating his assets to satisfy the 1^st plaintiff’s claim against him.

F.4. Material Non-disclosure

[65] The 3^rd defendant relied on the same matters of material non-disclosure for the 1^st Order. I have already explained why they do not amount to any material non-disclosure. I will just mention one additional point. On the undertaking as to damages, Mr Batchelor did say in paragraph 49 of his 2^nd affidavit dated 5 June 2009 in support of the e x-parte application that Stark HK is prepared to fortify the 1^st plaintiff’s undertaking as to damages. Any complaint based on the failure to refer to the 1^st plaintiff’s inability to pay damages or inadequacy of its undertaking as to damages must fail.

[66] The 3^rd defendant took one further point. He complained that the 1^st plaintiff had failed to inform Suanders J that it had already obtained the Chongqing Order on 5 June 2009. But the fact is the Receivers only found out that a freezing order was likely to be granted in the afternoon of 5 June 2009, about the same time as the ex-parte application. Formal notification was not received until 8 June 2009. There can be no material non-disclosure as alleged.

F.5 Conclusion

[67] I will also continue the 2^nd Order until trial or further order.

G. APPLICATION FOR FURTHER DISCLOSURE

[68] Under the 3^rd Order :

"‘2.1 The Third Defendant must inform the Plaintiff in writing of all his assets of an individual value of HK$100,000 or more, up to a total unencumbered value of SGD49,359,366 or its equivalent in any currency, first in Hong Kong, and to the extent they fall below SGD49,359,366, his assets outside Hong Kong, whether in his own name or not and whether solely or jointly owned, giving the value, location and details of all such assets.’

‘2.2 This information must be confirmed in an affidavit which must be served on the Plaintiff’s solicitors within 42 days after this Order has been served on the Third Defendant.’"

[69] The 1^st plaintiff complained that what the 3^rd defendant had disclosed is grossly insufficient. He only referred to his 70% shares in a Good Idea International Limited and nothing else. He said that the value of those shares is worth some RMB387 million but the evidence in support is hardly sufficient.

[70] The scope of disclosure under the 3^rd Order is substantially narrower than the disclosure order the court normally makes which requires the disclosure of all of the defendant’s assets. In Motorola Credit Corporation v Uzan and others (No.2) [2004] 1 WLR 113 , the English Court of Appeal said at para. 146 :

"The purpose of disclosure is to make the freezing order effective. In the ordinary way a defendant is required to disclose all his assets above a certain value. This is because if he can choose which assets to disclose he is likely to choose those which are the least available or accessible to the claimant for the purposes of execution. That is what the claimant says the defendants have done in this case. If there are assets which are more readily available, a claimant is entitled to be told what they are. In such circumstances a freezing order may be varied, so that particular assets are attached and others are released and, this way, the order may be made more effective."