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Well Thrive Ltd v High West Capital Partners, Llc

Judgment Cited authorities 2 Cited in Precedent Map Related
Vincent
Judgment Date23 March 2020
Neutral Citation[2020] HKCFI 500
Year2020
Judgement NumberHCMP1946/2019
Subject MatterMiscellaneous Proceedings
CourtCourt of First Instance (Hong Kong)
HCMP1946/2019 WELL THRIVE LTD v. HIGH WEST CAPITAL PARTNERS, LLC

HCMP 1946/2019

[2020] HKCFI 500

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1946 OF 2019

________________________

IN THE MATTER OF HIGH WEST CAPITAL PARTNERS, LLC

and
IN THE MATTER OF SECTION 45 OF ARBITRATION ORDINANCE (CHAPTER 609), LAWS OF HONG KONG

________________________

BETWEEN
WELL THRIVE LIMITED
(凱富投資顧問有限公司)		 Plaintiff

and
HIGH WEST CAPITAL PARTNERS, LLC Defendant

________________________

Before: Deputy High Court Judge MK Liu in Chambers

Date of the Plaintiff’s Submissions: 5 March 2020 & 11 March 2020

Date of the Defendant’s Submissions: 9 March 2020

Date of Decision: 23 March 2020

________________________

DECISION

________________________

1. By an inter partes summons dated 29 October 2019 (“the summons”), the plaintiff (“P”) seeks an order that the ex parte injunction granted on 28 October 2019 (“the injunction”) which, inter alia, restrains the defendant (“D”) from dealing with P’s shares in IntelliCentrics Global Holdings Ltd (“IntelliCentrics”) pledged[1] to D (“the Shares”) be continued. The costs order sought in the summons is that costs of and occasioned by the summons be reserved.

2. The parties have agreed that the summons be disposed of on paper without an oral hearing. Both parties have provided full written submissions to the court. I am grateful that the parties have agreed to adopt this approach, so that the summons can be disposed of without delay and the oral hearing time can be saved.

BACKGROUND FACTS

3. I would first set out the background facts which are not in dispute.

4. P is a limited company incorporated in Taiwan and serves as an investment holding company. D is a company with limited liability incorporated in Saint Kitts and Nevis. D is not registered as a non-Hong Kong company under the Companies Ordinance.

5. After about 2-month’s discussion with Yuanta Securities (Hong Kong) Company Limited (“Yuanta Securities”), P succeeded in acquiring 8,437,500 shares in IntelliCentrics in August 2019.

6. With a view to securing funds to acquire more shares in IntelliCentrics, P entered into two agreements dated 7 August 2019 with D:

(1) By a Master Loan Agreement (“the MLA”), D agreed to extend a loan up to 55% of the current “Fair Market Value” of 23,467,636 shares of IntelliCentrics to P for a term of 3 years at 7% per annum.

(2) By a Master Pledge Agreement (“the MPA”), P agreed to “… pledges and assigns to the Lender, and hereby transfers all rights, title, ownership and interest in… 23,467,636 shares of IntelliCentrics…”[2]

7. Subsequently, P opened a securities account of number 100266 (“the Account”) with Look’s Securities Limited (“Look’s Securities”) and transferred into the same 8,000,000 IntelliCentrics shares (“the Shares”) out of the block of shares previously acquired. At about the same time, P, D and Look’s Securities executed a Collateral Management Agreement (“the CMA”) and adding additional securities accounts which, among other matters, designated the Account as securities under the MLA.

8. On five separate occasions respectively on 4, 10, 16, 17 and 28 October 2019, D advanced five tranches of loans to P under the MLA in the total “loan principal amount” of HK$7,251,970 through the Account.

9. Between 7 October 2019 and 28 October 2019, without P’s consent, D caused 2,310,000 IntelliCentrics shares to be transferred from the Account to an account of D with Look’s Securities (“D’s Account”), of which 2,181,500 shares were sold in batches between 7 October and 28 October 2019, generating net proceeds in the sum of HK$11,677,664.

10. On 28 October 2019, P made an ex parte application and obtained the injunction. The injunction was continued by an order dated 1 November 2019 until the determination of the summons or a further order made by the court.

11. On 27 December 2019, P commenced arbitration against D in the Hong Kong International Arbitration Centre (case number HKIAC/A19270) by issuing a Notice of Arbitration.

THE ISSUES

12. There is no dispute that the court may grant an injunction as an interim relief pursuant to s.45(2) of the Arbitration Ordinance.

13. Mr Christopher Chain (together with Mr Lai Chun Ho), counsel for D, have in their written submissions clearly set out that D’s opposition to the summons is based upon the following[3]:

(1) On a proper interpretation of the MLA, MPA, and CMA (collectively “the Contracts”), P simply has no proprietary interest in the Shares whatsoever, even on a serious issue to be tried threshold.

(2) There is material non-disclosure on law by P in the ex parte application.

(3) On a proper interpretation of the Contracts and application of “adequacy of damages” principles, damages are clearly an adequate remedy for P in the present case.

14. Naturally, Mr Ken TC Lee, counsel for P, does not agree to these. I would examine these matters in turn in the paragraphs below.

SERIOUS ISSUE TO BE TRIED

15. It is well established that “serious issue to be tried” is not a steep hurdle. All that has to be shown is that the claimant has prospects of success which in substance and reality exist, and odds against success do not defeat him. As long as there is a serious issue, it matters not whether the court thinks that the chances of success at trial is 90% or 20%[4]. If the opposing party seeks to show that there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out[5].

16. Counsel for D submits that as a matter of law, shares cannot be pledged. They argue that under the terms of the Contracts, the Shares are not held by D under a mortgage or a charge. The Shares in fact have been transferred to D by the Contracts and the transaction is an outright transfer, subject to a repurchase obligation committed by P, ie a “repo”. The true meaning of a repo has been explained by Blair J in Första AP-Fonden v Bank of New York Mellon[6], in which the learned judge said:

“In simple terms, a repo is a transaction in which one party sells an asset (such as fixed-income securities) to another party at one price, and commits to repurchase the asset at a different price in the future. Although a repo is structured legally as a sale and repurchase of the securities, it behaves economically like a secured loan, with the securities acting as collateral.”

17. Counsel for P submits that while shares as chose in action cannot be pledged, a share “pledge” may nevertheless take effect as a mortgage or charge. The crux here is whether D enjoys only security interest or absolute ownership in the Shares. Counsel for P argues that the answer must be D is having security interest in the Shares only.

18. Both sides have referred me to various provisions in the Contracts and various cases. I have to say that both sides have put forward respectable arguments in support of...

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