Qiyang Ltd And Others v Mei Li New Energy Ltd And Others

CourtHigh Court (Hong Kong)
Judgment Date05 Mar 2013
Judgement NumberHCA420/2011
SubjectCivil Action
HCA420A/2011 QIYANG LTD AND OTHERS v. MEI LI NEW ENERGY LTD AND OTHERS

HCA 420/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 420 OF 2011

-----------------------

BETWEEN

QIYANG LIMITED 1st Plaintiff
THUNDER SKY ENERGY TECHNOLOGY LIMITED 2nd Plaintiff
SINOPOLY BATTERY LIMITED
(formerly known as THUNDER SKY BATTERY LIMITED)
3rd Plaintiff

and

MEI LI NEW ENERGY LIMITED 1st Defendant
CHUNG HING KA, also known as CHUNG WINSTON, also known as 鍾馨稼 2nd Defendant
深圳市雷天電源技術有限公司 3rd Defendant
深圳市雷天電動車動力總成有限公司 4th Defendant
THUNDER SKY BATTERY TECHNOLOGY LIMITED 5th Defendant
NEW BILLION INVESTMENTS LIMITED 6th Defendant
雷天綠色電動源(深圳)有限公司 7th Defendant

and

MIAO ZHENGUO (苗振國) Third Party
______________
Before: Hon To J in Court
Dates of Hearing: 7 February 2013
Date of Judgment: 5 March 2013

_____________

D E C I S I O N

_____________

Background

1. I have before me three summonses: (1) the 1st defendant’s summons dated 7 August 2012 seeking an order that final judgment be entered against the 3rd plaintiff pursuant to Order 14 of the Rules of the High Court; (2) the 3rd plaintiff’s summons dated 25 January 2013 seeking leave to file and serve the 4th Affirmation of Jaime Che (“Che”); and (3) the 3rd plaintiff’s summons dated 28 January 2013 seeking leave to file and serve an Amended Reply and Defence to Counterclaim. Ms Chan SC, counsel for the 1st defendant, agreed that the 4th Affirmation of Che and the draft Amended Reply and Defence to Counterclaim be admitted for the purpose of fairly disposing of the 1st defendant’s summons, while reserving the defendants’ rights. The 3rd plaintiff’s two summonses are adjourned.

2. The background leading to this litigation and the 1st defendant’s summons is as follows. The 3rd plaintiff is a company listed on the Hong Kong Stock Exchange. It holds all the issued shares in the 1st plaintiff, which was formed for the purpose of acquiring Union Grace Holdings Limited (“Union Grace”) and its wholly owned subsidiary, Thunder Sky (HK) Ltd, from Winston Chung (“Chung”), his wholly owned company (the 1st defendant), and five other vendor companies owned or controlled by Miao Zhenguo (“Miao”). Union Grace was in the business of manufacturing and sale of lithium‑based battery products and related battery business. The acquisition process commenced in around January 2010. The parties entered into an acquisition agreement dated 18 January 2010 (“Acquisition Agreement”). Under the Acquisition Agreement, the vendor’s shares in Union Grace were transferred to the 1st plaintiff as purchaser. The total consideration consisted of 783,517,010 shares in the 3rd plaintiff (“consideration shares”), convertible bonds issued by the 3rd plaintiff in the amount of $1,493,296,5 and cash of $100,000,000. The 3rd plaintiff was the purchaser’s guarantor, while Chung and Miao were the vendors’ guarantors. The acquisition was completed on 25 May 2010 when Union Grace became a wholly owned subsidiary of the 1st plaintiff. Thunder Sky (HK) Ltd, which has since changed its name, is now the 2nd plaintiff and the main operating arm of the business acquired.

3. For the purpose of implementing the Acquisition Agreement, the above mentioned parties or some of them together with other companies, mostly under the control of Chung, entered into eight other related agreements:

(1) Supplemental Acquisition Agreement dated 30 April 2010;

(2) Master Supply Agreement dated 18 January 2010;

(3) Confirmation Letter Agreement dated 25 November 2010;

(4) Patent Licence Deed dated 18 January 2010;

(5) Supplemental Patent Licence Deed dated 12 February 2010;

(6) IP Licence Deed dated 19 May 2010;

(7) Guarantee dated 26 March 2010; and

(8) Service Agreement dated 2 June 2010.

4. In accordance with the Terms And Conditions Of The Bond (“Terms and Conditions”), the 3rd plaintiff had the right to redeem the whole or part of the convertible bond by issuing an irrevocable redemption notice to the holder of the bond. There was a partial redemption of the convertible bond issued to the 1st defendant, which resulted in a re‑issue of a convertible bond certificate to the 1st defendant in the amount of $760,751,606 under certificate number 18 dated 10 February 2011.

5. Subsequently, dispute arose between the plaintiffs and the defendants over the performance of the Acquisition Agreement and related agreements. On 8 March 2011, the 3rd plaintiff issued another redemption notice to redeem the bond under certificate number 18, but did not deliver a cheque in the redemption amount to the 1st defendant in accordance with the Terms and Conditions. Then, four days later, the plaintiffs commenced the present proceedings. A statement of claim was filed on 14 June 2011. The defendants filed their defence and counterclaim dated 23 August 2011.

6. In another action, HCA 1283 of 2011, Che, Miao and others obtained judgment against Chung in an amount in excess of $210 million. On 20 June 2012, they presented a bankruptcy petition, HCB 4005 of 2012, against Chung, which is now awaiting judgment.

7. At the same time as the bankruptcy petition was proceeding, the 1st defendant commenced a new action, HCA 1071 of 2012, against the 3rd plaintiff, the subject matter of which was identical to its counterclaim in the present action. On 9 July 2012, the 1st defendant applied for summary judgment under that new action. That application was dismissed by Deputy High Court Judge Le Pichon and the new action was struck out on the grounds of an abuse of process of the court. On 7 August 2012, the 1st defendant took out the present summons seeking judgment against the 3rd plaintiff on its counterclaim.

General principles applicable to an application under Order 14 rule 5

8. It was stated in the marginal note in the 1st defendant’s summons that the application was made under Order 14 rule 1. As submitted by Mr Scott SC, leading counsel for the 3rd plaintiff, the application should have been made pursuant to Order 14 rule 5 as it was made by the 1st defendant as counterclaimant and not as plaintiff. I agree. The two rules are not without distinction. The hurdle which a counterclaimant has to overcome to obtain summary judgment against a defendant under Order 14 rule 5 is higher than that which a plaintiff has to discharge in obtaining judgment against a defendant under Order 14 rule 1. As was pointed out by the learned authors in Hong Kong Civil Procedure 2013, Vol 1 at paragraph 14/5/1, this rule should not be resorted to except in a clear case for the following reason:

“In most cases in which the defendant might desire to apply for summary judgment on the counterclaim, the plaintiff will have already served his statement of claim; and unless the claim or claims made by the plaintiff can be shown to be unsustainable or not bona fide or wholly unconnected with the defendant’s counterclaim, the defendant may not be able to depose to his belief that there is no defence to his counterclaim or part thereof in respect of which he seeks to apply for summary judgment.”

The making of a counterclaim presupposes that the plaintiff has a valid claim which constitutes a valid built‑in defence to a counterclaim. Hence, the counterclaimant has to show that the plaintiff’s claim is unsustainable or not bona fide or wholly unconnected with the defendant’s counterclaim. Failure to take timely action to strike out the plaintiff’s claim may be treated as indication that the plaintiff has a valid defence to the counterclaim. But this procedural advantage should not be over emphasised. Ultimately, it is the justice of the case which matters.

9. The test in an Order 14 application is as simple as whether the defendant’s assertions are believable. That question has to be answered not by taking those assertions in isolation but by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute: Re Safe Rich Industries Ltd CACV 81/1994, unreported, per Bokhary JA, as he then was.

10. Summary judgment under Order 14 is not intended to be a mini trial on affidavits. Where there are complicated factual issues in dispute, Order 14 is clearly not the correct procedure: Paul Y Management Ltd v Eternal Unity Development Ltd [2008] HKEC 1359 at paragraph 19 and Hong Kong Civil Procedure 2013, Vol 1at paragraph 14/4/9.

11. Where a defendant can show he has a bona fide cause of complaint against the plaintiff, as grounds of defence and counterclaim, arising from the same subject matter, he should be given unconditional leave to defend: Shenzhen Baoming Ceramics Co Ltd v Companion‑China Ltd [2000] 2 HKLRD 288 at 293‑294.

12. The authorities show that there are four different classes or groups of orders which the court would make where a defendant to a counterclaim, ie the original plaintiff, raises a set‑off or counterclaim as a defence (which for avoidance of confusion is hereunder referred to as “counter‑counterclaim”): Hong Kong Civil Procedure 2013, Vol 1 at paragraph 14/4/14. These are:

(1) where the plaintiff can show an arguable set‑off, equitable or otherwise, he is entitled to leave to defend to the extent of the set‑off;

(2) where the plaintiff sets up a bona fide counter‑counterclaim to the defendant’s counterclaim arising out of the same subject matter as the action and connected with the grounds of the counter‑counterclaim, the order should not be for judgment on the counterclaim, subject to a stay pending trial of the counter‑counterclaim, but should be for unconditional leave to defend the defendant’s counterclaim, even if the plaintiff admits the whole or part of that counterclaim;

(3) where there is no defence to the counterclaim but a...

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