Keynes Capital Global Ltd v Guo

1. [1]

   BELL CJ: I agree with Meagher JA.

2. [2]

   MEAGHER JA: The applicants for leave to appeal, Keynes Capital Global Ltd (Keynes) and General Energy International Holdings Limited (General Energy), are the fourth and fifth defendants in a proceeding brought by the respondent (Ms Guo) in the High Court of the Hong Kong Special Administrative Region (the Hong Kong Proceeding). That proceeding arises out of an agreement providing for the investment in and potential acquisition of two mining companies listed on the Australian Stock Exchange (ASX), Rand Mining Ltd (Rand) and Tribune Resources Ltd (Tribune). The other defendants in that proceeding are the remaining three parties to that agreement, Messrs Xu, Chen and Zhang, and a subsidiary of the broker engaged in the acquisition of shares in those companies, Gleneagle Securities Nominees Pty Ltd (Gleneagle).

Overview

1. [3]

   On 20 February 2019, in proceedings commenced in the Commercial List in which the same parties are named as defendants, the Court made orders by consent as between Ms Guo, Keynes and General Energy freezing funds totalling $22,671,178 held on the latter’s behalf by Gleneagle until the final resolution (including the hearing, determination of any appeals and the payment of all moneys awarded) of the Hong Kong Proceeding (the Freezing Order). That order was made pursuant to Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 25.14(3), and directed to the enforcement of a prospective judgment in the Hong Kong Proceeding in favour of Ms Guo which it was accepted had sufficient prospects of being given in Hong Kong and enforced in New South Wales: cf PT Bayan Resources TBK v BCBC Singapore Pte Ltd (2015) 258 CLR 1; [2015] HCA 36.

2. [4]

   In correspondence leading to the agreement underlying the making of the Freezing Order, Ms Guo’s solicitors contended that the affidavit evidence filed in the Commercial List proceeding established a “good arguable case”. That case was that as a result of Keynes and General Energy having acted as nominees for Mr Xu and Mr Chen in the purchase of shares in Rand and Tribune, Ms Guo and Mr Zhang were entitled to 49% of the dividend payments received and held by Gleneagle and to 49% of the unrealised capital gains on the Rand and Tribune shares acquired and held for Keynes and General Energy. That evidence included an affidavit of Ms Guo of 14 October 2018 which explained how the amounts alleged to be “presently payable” were calculated (see [29] below).

3. [5]

   The funds held by Gleneagle on behalf of the applicants as at 10 October 2018 when an ex parte freezing order was made, being dividends paid by Rand and Tribune, exceeded AUD $35m. The total amount for which the Freezing Order was sought was $22,671,178, of which $13,130,613 was in respect of funds held for Keynes and $9,540,565 in respect of funds held for General Energy. Each was the sum of 49% of the dividend payments received before 12 October 2018 and 49% of the (unrealised) increase in the capital value of shares held by Gleneagle (being 7,701,574 shares in Rand and 6,120,793 shares in Tribune) at that date.

4. [6]

   The significance of 12 October 2018 was as follows. Ms Guo’s statement of claim in the Hong Kong Proceeding was filed on 10 December 2018. That statement of claim alleged that on 12 October 2018 Messrs Guo and Zhang had terminated their Strategic Cooperation Agreement with Messrs Xu and Chen for repudiatory conduct. In her affidavit of 14 October 2018, Ms Guo explained how each of the amounts of $13,130,613 and $9,540,565 was calculated as at 12 October 2018. The Writ of Summons commencing the Hong Kong Proceeding and filed on 12 October 2018 included a claim for 49% of the dividends received as at that date, but did not include any claim for unrealised capital gains. The bases on which the former claim was made included, as against Keynes and General Energy, that they held those funds as constructive trustees. Ms Guo’s affidavit foreshadowed that the relief sought by the writ was to be amended to include a claim for “49% of the unrealised profits” on the shares.

5. [7]

   In a letter to the applicants’ then solicitors HWL Ebsworth (HWL) on 30 October 2018, Ms Guo’s solicitors King & Wood Mallesons (KWM) confirmed “for the avoidance of doubt” that Ms Guo’s position was that the relevant agreement had been repudiated, that Ms Guo had accepted that repudiation by commencing the Hong Kong Proceeding on 12 October 2018, and that on that basis Ms Guo’s claimed loss ought to be assessed as at 12 October 2018 and by reference to the profit generated on the investments at the close of the market on 11 October 2018.

6. [8]

   In early June 2019, Ms Guo applied for leave to file an amended statement of claim, partly in response to an earlier application of Keynes and General Energy to strike out the claim against them as pleaded in the statement of claim. On 3 September 2019 the Hong Kong court granted that leave. The amendments included the addition of a claim against Messrs Xu and Chen and Keynes and General Energy relying on a “Pallant v Morgan equity” ([1953] Ch 43), which describes circumstances constituting equitable fraud that give rise to a proprietary remedy in favour of a non-acquiring party who has acted on an arrangement to stay out of a market (see John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 at [68], [69]). As against those companies, “being the nominee vehicles used by Mr Xu and Mr Chen to hold the shares in the Target Companies”, the remedies claimed included declarations that the companies held 49% of the shares in Rand and Tribune on trust, and a 49% share of the dividends and relevant capital gain as constructive trustees, in each case for Ms Guo.

7. [9]

   At some point prior to October 2019, the shares in Rand and Tribune held by Gleneagle were transferred to a custodian. By their letter to HWL dated 16 October 2019, KWM noted that Ms Guo’s amended claim included that the two companies held a 49% share of their shareholdings in Rand and Tribune as constructive trustees. Relying on that claimed “proprietary interest”, an undertaking was sought that their clients not dispose of those shares. At the same time Ms Guo’s right to apply to the Court for “orders freezing the shares” was reserved. No such undertaking was forthcoming and no application was later made for a freezing order directed to the shares. (By the time of the hearing before her Honour in April 2021 all of the Rand and Tribune shares held by Keynes and General Energy had been sold (J[156]). The evidence does not disclose when those shares were sold and at what prices.)

8. [10]

   On 7 October 2019, Rand and Tribune announced the declaration of further dividends. Those dividends were paid between 22 and 25 October 2019 (the October 2019 dividends). On 29 October 2019, Ms Guo applied for a further freezing order for an amount of $985,893, being 49% of the value of those dividends. Partly in response to that application, on 17 January 2020 Keynes and General Energy applied for orders vacating the Freezing Order.

9. [11]

   Following a two-day hearing in early April, on 3 May 2021 the primary judge dismissed the companies’ application to vacate the Freezing Order and made a further freezing order in favour of Ms Guo in respect of an amount equal to 49% of the unencumbered value of the October 2019 dividend payments (Guo v Xu [2021] NSWSC 460).

The proposed appeals

1. [12]

   The applicants require and seek leave to appeal from her Honour’s orders dismissing the first, and allowing the second of those applications. Five of the six proposed grounds of appeal are pressed. Grounds 1 and 3 contend that the primary judge erred in not finding that there were “exceptional circumstances” warranting the discharge of the Freezing Order.

2. [13]

   As for the remaining grounds, ground 2 contends that the primary judge erred in granting Ms Guo’s further application in circumstances where it was “contrary to the consent orders” (i.e. the Freezing Order) and the agreement underlying it. Grounds 4 and 5 contend that her Honour erred in finding that there was a “good arguable case” to justify a freezing order in respect of the October 2019 dividends where the Freezing Order constituted security for a judgment in the sum of $22,671,178, being the sum of 49% of the dividend payments up to 12 October 2018 and 49% of the unrealised capital gain assessed at that date. The calculation of that unrealised gain was based on the market value of the shares at the close of business on 11 October 2018, and the bundle of rights for which that price was payable included the right to receive future dividends.

3. [14]

   In support of their challenge to the further freezing order, the applicants contend that Ms Guo had not established that she had a good arguable case to a judgment against them in the sum of the existing security ($22,671,178) and the additional security sought ($985,893). That argument, which was made to the primary judge, is as follows. To allow Ms Guo to recover dividends declared and paid after 12 October 2018, as well as any capital gain as at 12 October 2018, would necessarily involve ‘double-counting’ in the sense that she would be compensated for the same loss assessed in different ways and at different times. The first is the capital value of the entitlement to receive future payments reflected in the share price as at 12 October 2018. The second is the amount of any future dividend payment. To avoid that double-counting where a claim to future dividends when paid is to be taken into account, it would be necessary also to reassess the value of any unrealised capital gain at the same point in time. There being no evidence as to what that value was, a real possibility remained that the unrealised capital gain at the later time was less than that assessed on 12 October 2018, and by an amount equal to or more than the claimed future dividend payment. It followed that Ms Guo had not established a good arguable case for the making of the additional freezing order (cf J[198]).

4. [15]

   For the reasons which follow, that argument should be accepted. Leave to appeal should be granted in respect of ground 5 and the appeal allowed, with the result that the freezing order made on 3 May 2021 should be set aside.

5. [16]

   This basis for allowing that appeal makes it unnecessary to determine whether Ms Guo’s claim to a share of any dividend payments made after 12 October 2018 is within her amended claim; and if it is within that claim, whether the compromise underlying the Freezing Order precluded the making of any claim to security for a prospective judgment which was not assessed in accordance with that agreement. Irrespective of the answers to these questions, Ms Guo did not establish an arguable case to a prospective judgment which exceeded the amount of the (existing) Freezing Order.

6. [17]

   In relation to the first application (which is the subject of grounds 1 and 3), for the reasons that follow leave to appeal should be refused. The essence of the argument in support of that application is that the making of the application for the further freezing order was a variation of the Freezing Order and not made in relevantly “exceptional” circumstances. That being the position might provide a basis for rejecting Ms Guo’s application. However, on no view should it result in a discharge of the Freezing Order in circumstances where it is not suggested that the agreement underlying it was liable to be set aside or varied by reason of the making of that application.

7. [18]

   Before considering in more detail each of the proposed appeals, it is necessary to provide a relatively short summary of Ms Guo’s claim in the Hong Kong Proceeding, and of the circumstances in which the Freezing Order was made.

Ms Guo’s claim and the making of the Freezing Order

1. [19]

   In November 2014 Ms Guo and Mr Zhang (together “Party B”) and Mr Xu and Mr Chen (together “Party A”) entered into a written Strategic Cooperation Agreement, the object of which was to acquire shares in Rand and Tribune, to privatise those companies and subsequently to relist them on the Hong Kong or Shanghai Stock Exchange. As between the parties, Party A was to take a major role in raising capital for the acquisition and Party B was to take a major role in negotiating with the substantial shareholding controller of Tribune and Rand. The Strategic Cooperation Agreement provided that ultimately the profits would be divided in the proportions Party A 51% and Party B 49% after deducting “expenses incurred”. Ms Guo maintains that the cost of the acquisition of the Tribune and Rand shares is not a relevant expense when working out her profit share. That issue turns on a question of construction. However, in the calculation of the amount of the Freezing Order, and in her claim as formulated in the amended statement of claim, the acquisition cost of those shares is brought to account (as a deduction) in calculating the share in the unrealised profit or capital gain to which Ms Guo is entitled.

2. [20]

   Keynes and General Energy dispute that they were nominees or agents of Messrs Xu and Chen. In this Court it was accepted that an arguable case was made to that effect in respect of General Energy. The same concession was not made in respect of Keynes.

3. [21]

   A related company to Gleneagle acted as broker in the acquisition of the shares under a side arrangement which was not disclosed to Mr Xu, Mr Chen, Keynes or General Energy. Gleneagle paid a proportion of brokerage fees earned to Westlink Partners Ltd (Westlink), a company associated with Ms Guo’s brother and Mr Zhang’s driver and personal assistant. Those payments were referred to in argument as “secret profits” said to have accrued for the benefit of Ms Guo.

4. [22]

   The transaction contemplated by the Strategic Cooperation Agreement did not proceed to the threshold considered necessary for the making of a takeover offer. By May 2017 Keynes and General Energy had acquired 12.98% of the capital of Rand and 12.31% of that of Tribune.

5. [23]

   In early June 2017 Rand and Tribune announced that each proposed to declare and pay dividends. Relying on the Strategic Cooperation Agreement, Ms Guo maintained that she and Mr Zhang were entitled to 49% of any dividends paid. At the end of July 2017, $2m in dividends was paid to Gleneagle as nominee shareholder for Keynes and General Energy.

6. [24]

   In the absence of payment or any indication Messrs Xu and Chen proposed to account to Ms Guo and Mr Zhang for their share of the dividends, Ms Guo commenced the Commercial List proceedings, and sought and obtained ex parte freezing orders in relation to an amount of $17,168,803 (Guo v Xu, Supreme Court (NSW), Ball J, 10 October 2018, unrep). That amount was calculated as being 49% of the dividends paid to that point in time.

7. [25]

   On 15 October 2018, Ball J made an order increasing the amount of that freezing order by $5,364,674. That amount was calculated as 49% of the unrealised capital gains made on the acquisition of the shares and by reference to their closing price on the ASX on 11 October 2018.

8. [26]

   On 31 October 2018, an order was made permitting Keynes and General Energy to use those additional funds to take advantage of an opportunity to acquire further Rand and Tribune shares provided that any moneys received from the subsequent sale of those additional shares were the subject of the earlier freezing order. As matters turned out Keynes and General Energy did not avail themselves of this opportunity.

9. [27]

   The freezing order as varied was extended on 9 November 2018 until 12 April 2019, the third of the three days for which Ms Guo’s freezing order application had been listed for a ‘final’ hearing.

10. [28]

    There followed negotiations between the lawyers for the parties, which led to the making of the Freezing Order. KWM’s letter of 4 December 2018 proposed a settlement on the basis that Ms Guo maintained that in the Hong Kong Proceeding she and Mr Zhang were entitled to a judgment for “49% of the dividend payments made by the Target Companies… [and 49% of] the unrealised profits on the shares held by Keynes and General Energy”. “Target Companies” was a reference to Rand and Tribune.

11. [29]

    The amount of that “prospective judgment” was equal to the amount of the freezing orders as at 15 October 2018. That amount was ‘justified’ in Ms Guo’s affidavit of 14 October 2018, which included:

12. [30]

    HWL made a counter-offer which provided for freezing orders, albeit in lesser amounts than those proposed by Ms Guo. That offer was rejected by KWM’s email of 12 December 2018. In response on 14 December 2018 HWL indicated in principle agreement to the offer made by the 4 December 2018 letter “subject to the final form of the court orders being agreed”. Correspondence followed as to the terms of the consent orders and of an email to the Court which was to enclose the proposed consent orders. That letter, as finally agreed and sent to the Court, included:

13. [31]

    The consent orders made on 20 February 2019 provided that the freezing order made in order 2 on 15 October 2018, as varied by the 31 October 2018 order and as extended by the 9 November 2018 order, be extended until the final resolution of the Hong Kong Proceeding. Order 2 made on 15 October 2018 froze funds totalling $22,671,178, being $13,130,612 for Keynes and $9,540,565 for General Energy.

14. [32]

    Orders 2, 4 and 5 of the consent orders provided:

15. [33]

    The relief sought against Keynes and General Energy by para 43 of the current pleading in that proceeding is:

16. [34]

    A claim against Keynes and General Energy for knowing participation in breaches of fiduciary duties owed by Mr Xu and Mr Chen to Ms Guo, and in conduct amounting to breaches of the “Pallant v Morgan equity”, is pleaded at paras 38K, 39, 40 and 41 of the amended pleading. The underlying breaches of fiduciary duties and conduct alleged to be inconsistent with the Pallant v Morgan equity are, in each case, the failure or Messrs Xu and Chen to account to Ms Guo for her 49% of the dividends received up to 12 October 2018 (as defined in the pleading, the Gleneagle Dividends) and for her 49% of the unrealised capital gain as at 12 October 2018 (as defined, the Target Capital Gain) (see esp. amended pleading paras 38K, 40(b),(c)).

17. [35]

    There is no suggestion in that pleading that it was a breach of fiduciary duty or inconsistent with any Pallant v Morgan equity for Messrs Xu and Chen (or their nominee companies) not to account to Ms Guo for the full value of any shares held or sold. Nor, more relevantly in the present context, does the pleading allege that it was a breach by Mr Xu and Mr Chen of their fiduciary duties or inconsistent with any Pallant v Morgan equity for them not to account to Ms Guo for any share of dividends received after 12 October 2018 or for any unrealised capital gain assessed at a time after that date. Accordingly, whilst the amended pleading includes that 49% of the shares in Rand and Tribune are held subject to a constructive trust (see esp para 41(a)(iii)), the equities secured by any trust over the shares are not pleaded as including an entitlement to dividends received after 12 October 2018 or any capital gains accruing after that date.

Unchallenged conclusions of the primary judge

1. [36]

   The correctness of the following conclusions and observations of the primary judge is not challenged or controversial.

2. [37]

   First, the Freezing Order was the product of “protracted and difficult negotiations between parties ably represented by experienced commercial lawyers”, and was the subject of a binding contract between the parties which “not only resolved the freezing order but also finalised the remaining procedural matters in the Australian proceedings including vacating the remaining interlocutory orders… and determining the costs of the proceedings” (J[170]).

3. [38]

   Secondly, the “freezing order was intended to remain in place until the Hong Kong proceedings were finalised in all respects” (J[173]). The fact that the consent orders included “liberty to apply” did not detract from this conclusion because the “terms of the consent orders, and the agreement underlying those orders” show that this provision was directed “essentially to questions of machinery which may arise from the implementation of a court’s orders” (J[172], citing Abigroup Ltd v Abignano (1992) 39 FCR 74 at 88; [1992] FCA 567).

4. [39]

   Thirdly, in those circumstances the question for the Court on an application by one or other of the parties to the consent orders to discharge those orders is that stated by McHugh JA (with whom Samuels and Clarke JJA agreed) in Paino v Hofbauer (1988) 13 NSWLR 193 at 198 (J[162]):

5. [40]

   Her Honour also referred to the additional comments of Clarke JA, made in circumstances where there were authorities in England and Australia which supported the position being that a consent order embodying a compromise agreement would only be set aside if the underlying agreement might be invalidated (Paino at 200). (As to the position under English law in respect of a compromise resulting in an interlocutory order made by consent, see D Foskett, Foskett on Compromise (9th ed, 2020, Sweet & Maxwell) at [6-22]–[6-23].) Having done so, Clarke JA concluded (at 201):

6. [41]

   As her Honour then observed, a submission challenging the correctness of Paino in this respect was rejected by this Court (Bathurst CJ, Beazley P and McColl JA) in Lachlan v HP Mercantile Pty Ltd (2015) 89 NSWLR 198; [2015] NSWCA 130 at [27]-[28]:

Disposition of appeal against dismissal of application to discharge Freezing Order (grounds 1 and 3)

1. [42]

   The primary judge considered and rejected six matters which “in combination, were said to amount to exceptional circumstances warranting the discharge of the freezing order” (J[176]-[186]). Having considered those matters, her Honour was not satisfied that Keynes and General Energy had established such exceptional circumstances warranting the discharge of the Freezing Order (J[187]).

2. [43]

   In their argument in this Court, the applicants relied on two matters as constituting exceptional circumstances justifying the discharge of the Freezing Order. Neither was relied on in support of a submission that the Court should set aside or vary the compromise agreement underlying the making of that order. The first was the fact of Ms Guo’s application for a further freezing order, described in the applicants’ written submissions as being one to “vary” the Freezing Order. The second was Ms Guo’s failure to disclose her sharing in the “secret profits” (see [21] above) in the course of the negotiations for the Freezing Order. The primary judge was said to have erred in not finding that each was an exceptional circumstance warranting the discharge of that order.

3. [44]

   As to the first, the applicants contend it was an “essential” term of the parties’ compromise agreement that the Freezing Order would finally resolve the application for a freezing order made in the Australian proceedings other than in exceptional circumstances; and that the making of further dividend payments by Rand and Tribune did not answer that description.

4. [45]

   It is conceded that this first argument was not made to the primary judge. That is a sufficient reason for rejecting ground 1. More fundamentally, this ground contends for a term of the parties’ compromise agreement which is not express and plainly not necessary to give that agreement business efficacy. In addition, that term is inconsistent with the principle applied in Paino. The applicants rely on the absence of exceptional circumstances justifying the making of Ms Guo’s application to vary the Freezing Order as having the consequence that the Freezing Order is discharged, rather than that Ms Guo’s application is to be rejected. Ground 1 is not sufficiently arguable to justify a grant of leave to appeal.

5. [46]

   As to the second matter, it is contended that the fact that Ms Guo’s receipt of “secret profits” was not disclosed in the course of the negotiation of the Freezing Order “vitiated” the applicants’ consent to that order because that consent was given on a misapprehension of the facts in two material and related respects. They are that Ms Guo’s failure also to disclose those profits to the Court when making her ex parte application provided a basis for them to seek to discharge that ex parte order; and that the receipt of $2.8 million in secret profits may have provided a partial defence to Ms Guo’s claim in the Hong Kong Proceeding. It is said that those factors together “may” have provided a sufficient basis to set aside the compromise agreement underlying the making of the Freezing Order.

6. [47]

   Ms Guo makes two responses. The first is that the primary judge gave some consideration to the subject of the “secret profits” at J[182]-[183], noting that the events underlying those payments may give rise to a set off defence which extinguishes or simply reduces any liability to Ms Guo in circumstances where her claim is more than $20m and the “secret profits” in question total some $2.8m. Secondly and more fundamentally, the argument now made as to this matter constituting exceptional circumstances was not advanced before the primary judge. That is not contested.

7. [48]

   Furthermore, that argument as advanced does not adhere to the terms of ground 3, which is limited to whether the primary judge erred in concluding that the non-disclosure of Ms Guo’s “interest in the secret profits made by Westlink Partners and Highland” was an exceptional circumstance. Her Honour dealt with that question at J[182]-[183], and is not shown to have erred in concluding that this fact did not constitute an exceptional circumstance warranting the discharge of the Freezing Order. Leave to appeal on ground 3 also should be refused.

Disposition of appeal against making of further freezing order (grounds 2, 4 and 5)

1. [49]

   Before the primary judge the applicants did not contend that Ms Guo was required to establish exceptional circumstances before her application for the further freezing order could be granted. That contention is advanced for the first time in this Court and in support of ground 2.

2. [50]

   Treating Ms Guo’s application as a freestanding one, the primary judge considered whether there was a “good arguable case” against Keynes and General Energy in respect of dividend payments after 12 October 2018. Her Honour was satisfied that this requirement was made out, including in relation to Keynes. That conclusion is challenged by ground 4.

3. [51]

   In the reasoning which follows, I deal with ground 5, concluding that it should be upheld, and justifies a grant of leave and order allowing the appeal against the making of the further freezing order.

4. [52]

   The primary judge described Ms Guo’s application as being for a freezing order in relation to 49% of the October 2019 dividends together with 49% of any future dividend payments (J[134]). Her Honour then proceeded on the basis that so described, the application was not to set aside or more relevantly to vary the Freezing Order. Treating it as a separate application, her Honour turned to UCPR r 25.14(3)(a) and whether Ms Guo had a “good arguable case” to a judgment in the Hong Kong Proceeding which would justify a freezing order in an amount of $22,671,178 plus at least 49% of the October 2019 dividends (J[189]).

5. [53]

   In doing so, her Honour was conscious that the effect of Ms Guo’s application was “to extend the freezing order to the October 2019 dividends”:

6. [54]

   That is so. However, in that context it was necessary to consider any argument as to whether those claims overlapped or were inconsistent. The primary judge then turned to the claim made in the amended statement of claim which was relied on as supporting the claim to the October 2019 dividends, namely the claim to a Pallant v Morgan equity in the shares held for Keynes and General Energy (J[192]).

7. [55]

   Earlier at J[185] her Honour had said, when assessing whether Ms Guo’s application to extend the freezing order was an exceptional circumstance warranting the discharge of the Freezing Order:

8. [56]

   The correctness of her Honour’s observation that the amendments to Ms Guo’s claim against Keynes and General Energy were “such that the plaintiff now asserts a claim to the shares, including dividends or capital gains enjoyed since her equitable interest in the shares allegedly arose” is not challenged in this appeal.

9. [57]

   Although I have expressed a different view on this question (see [34]-[35] above), it is not necessary to decide it in order to dispose of the applicants’ appeal against the making of the further freezing order. Nor is it necessary to decide whether the compromise agreement underlying the Freezing Order prevents the making of a claim to a further asset preservation order in support of a prospective judgment which was not assessed in accordance with that agreement.

10. [58]

    Proceeding on the assumption that a claim in respect of dividends paid after 12 October 2018 is included in Ms Guo’s amended claim and not prevented by the underlying compromise agreement (as to which see J[185] extracted at [55] above), at J[193(c)] her Honour described the claim against Keynes and General Energy as constructive trustees as maintaining that:

11. [59]

    Her Honour then considered the pleaded case that Keynes and General Energy as “nominee vehicles” were knowingly involved in Messrs Xu and Chen failing to account to Ms Guo for her share in the Gleneagle Dividends and Target Capital Gain in breach of their fiduciary duties and alternatively their Pallant v Morgan equity. At J[194]-[197] her Honour considered the question whether there was a good arguable case and that these companies were nominees as alleged, and as such each involved in the pleaded breaches of duty.

12. [60]

    Her Honour’s conclusion that such an arguable case was made out is stated shortly at J[198]:

13. [61]

    At J[199] the primary judge noted that there was an issue as to whether on its proper construction the Strategic Cooperation Agreement provided that the cost of the shares was a “cost” or “expense” of the project which was to be borne equally by Messrs Guo and Zhang and the other parties. Her Honour then referred to Keynes and General Energy’s contention that Ms Guo’s contractual rights did not entitle her to any post-termination profits in circumstances where the agreement was alleged to have been terminated on 12 October 2018.

14. [62]

    Returning then to the claim in respect of the October 2019 dividends, her Honour noted at J[214]:

15. [63]

    A premise of ground 5 is that the further freezing order was made in respect of an amount equal to a 49% share of the October 2019 dividends; and that at the same time Ms Guo retained the benefit of the Freezing Order. In doing so it assumes that the compromise agreement underlying the Freezing Order did not preclude the making of the further order and that the amended claim includes a claim to those dividends.

16. [64]

    Making those assumptions, the applicants submit that the Court could not have been satisfied that there was a sufficient prospect that the Hong Kong court would give judgment in a sum which included the amount of the Freezing Order and the additional amount. That is because that sum necessarily involves an element of double-counting as explained in [14] above; and the Court could not be satisfied that any negative adjustment of the unrealised capital gain calculated at the later point in time would be the same as or more than the proportion of the October 2019 dividends which is the subject of the further freezing order. The primary judge did not address this argument.

17. [65]

    If Ms Guo were to succeed on her claim to dividends received after 12 October 2018, there would be no basis for an award of damages calculated by reference to the increase in the value of the shares as at 12 October 2018 because that calculation would take account of the right to receive future dividends, including the October 2019 dividends. As the matter currently stands, the funds frozen by the Freezing Order include an amount of $5.36m calculated by reference to the appreciation in capital value of the shares as at that date. That amount would have to be recalculated by reference to the increase or decrease in the capital gain as at the date on which further dividends are received or some later date. Two things follow. First, Ms Guo did not establish that she was arguably entitled to a judgment for an amount equal to the funds which were the subject of the Freezing Order and 49% of the October 2019 dividends. Secondly, in that state of the evidence, the primary judge could not be satisfied that there was a sufficient prospect that Ms Guo would secure a judgment in an amount in excess of that which was the subject of the Freezing Order. In the result, ground 5 is made out. The applicants’ appeal against the making of the further freezing order should be allowed, and that order set aside.

18. [66]

    This conclusion makes it unnecessary to deal with grounds 2 and 4, and leave to appeal on those grounds should be refused.

Conclusion and orders

1. [67]

   As each party has had some success on the appeal, there should no order as to the costs of the appeal with the intent that each party bears its or her own costs. The orders I propose are:

   1. (1)

      Dismiss the application for leave to appeal from orders 3 and 4 of the primary judge made on 3 May 2021.

   2. (2)

      Grant leave to the applicants to appeal from order 1 of the primary judge made on 3 May 2021. That leave is granted in relation to ground 5 of appeal but not in relation to grounds 2 and 4.

   3. (3)

      Allow the appeal from order 1 and set aside orders 1 and 2 of the primary judge made on 3 May 2021.

   4. (4)

      Order that the respondent’s notice of motion dated 29 October 2019 be dismissed.

   5. (5)

      Order that the respondent pay the applicants’ costs of the notice of motion dated 29 October 2019.

   6. (6)

      Note that no order is made as to the costs of the appeal with the intent that each party bears its or her own costs.

2. [68]

   GLEESON JA: I agree with Meagher JA.