CA-2025-000010 - [2025] EWCA Civ 933

A fundamental problem with Xinbo’s arguments is that they do not engage with its own case and that of Dynamic. Xinbo maintains that the Unpledged Shares were transferred to, and are held by, Dynamic as nominee for Xinbo. Before it was prevented from defending the proceedings Dynamic’s case was the same, and there is no hint that its position has changed. In circumstances where Xinbo is asking the court to accept that defence it is not realistically open to it to raise arguments that are fundamentally inconsistent with it. If, as not only Xinbo but Dynamic itself have consistently maintained, Dynamic is indeed Xinbo’s nominee then the fact that it is a separate legal entity, or indeed not 100% owned, is nothing to the point. On its own case, Xinbo arranged for valuable shares to be transferred to Dynamic to hold for Xinbo as its nominee. To suggest, when convenient to Xinbo to do so, that it might not now be entirely straightforward to ensure that those shares are dealt with at its direction is both inconsistent with its defence and, frankly, unreal. In legal terminology Xinbo’s actions might be described as approbation and reprobation. In more everyday language, what Xinbo is doing is attempting to have the proverbial cake and eat it.

The emphasis now placed on the fact that Xinbo has only recently joined the proceedings does not reflect the full picture. Xinbo has funded Dynamic’s participation in the proceedings and they have shared the same legal representatives. That, together with their common assertion that Dynamic acts as Xinbo’s nominee, is very strongly indicative that their interests are fully aligned. This is further underlined by the fact that the witness evidence that Dynamic has filed in the proceedings is from Xinbo employees.

It must follow that Xinbo must have been, at the very least, content for Dynamic not to comply with the Bright J order or the Knowles J order. In particular, Bright J had reasonably inferred that funding for the payment into court to meet the condition imposed on Dynamic would come from Xinbo, noting that Dynamic’s Counsel had not suggested otherwise (see the Bright J judgment at [129]). And it must be assumed that it would have been up to Xinbo to decide whether to instruct its nominee to transfer the Unpledged Shares pursuant to the Knowles J order. It chose not to do so.

In reality, all the evidence points to Xinbo having participated in the proceedings via Dynamic as its proxy ever since Dynamic first became active in them in November 2023. Put another way. Dynamic is not acting in any sense independently in these proceedings, but instead has danced (or not) to Xinbo’s tune throughout.

The argument that the Trustee had not sought relief against Xinbo is without merit. At the time that Xinbo was joined to the proceedings the particulars of claim alleged that Xinbo was party to an unlawful means conspiracy but had (unsurprisingly) not been amended to reflect its joinder. They have now been amended by consent, and claim both monetary relief from Xinbo and relief in respect of the Unpledged Shares. In any event it is obvious that the Trustee was all along disputing the validity of Xinbo’s claim to the Unpledged Shares and seeking their return to ETS.

It is true that the Trustee did not seek to impose conditions on Xinbo’s joinder, but a witness statement by its solicitor produced in response to the joinder application had foreshadowed that the Trustee reserved the right to apply for the imposition of conditions on Xinbo’s ability to defend the proceedings, noting that the joinder application appeared likely to be an attempt to subvert the Bright J order by allowing Xinbo to continue to advance the defences previously advanced by Dynamic. The Trustee’s later application for conditions to be imposed can hardly have come as a surprise.

It is also true that Xinbo’s own procedural delay, while serious, is significantly less material that Dynamic’s own procedural defaults. The Trustee’s application for conditions also followed very shortly after Xinbo failed to meet the deadline to file its defence. However, it was clearly not based simply on the existence of that default. It was supported by a 28 page witness statement which provided a detailed summary of the proceedings and relied on Xinbo’s failure to file a defence as consistent with a broader pattern of behaviour exhibited by Xinbo, Dynamic and Ms Qiu throughout the proceedings. Bright J described Dynamic’s delay in engaging in the proceedings, and then choosing to engage shortly before the Trustee’s summary judgment application was to be determined, as causing significant disruption.

It is clearly not the case that the Transfer Condition amounts to a mandatory injunction. It is not an order to transfer the Unpledged Shares. It is a condition of Xinbo’s ability to defend the proceedings. Xinbo has a choice as to whether to comply.

Given that the Trustee is obviously keen for the Unpledged Shares to be returned to ETS, the need for a variation to the Singapore freezing order is also not a proper objection. Under its terms the order can be varied by agreement. Alternatively a consent order could doubtless be obtained. I understand that the BVI freezing order has already been varied to allow for the transfer.

As regards other practical difficulties suggested by Xinbo, the burden is on Xinbo to show that it would be unable to comply with the conditions (Gama Aviation (UK) Ltd v Taleveras Petroleum Trading DMCC [2019] EWCA Civ 119, [2019] Costs LR 497 at [46]). It has adduced no evidence to that effect. Any such evidence would also have to be assessed against the backdrop of Xinbo’s case that it chose Dynamic as its nominee to hold valuable shares.

In the circumstances, any residual concern about Xinbo’s ability to comply with the Transfer Condition is sufficiently addressed by paragraph 2 of the judge’s order, which contemplated that Xinbo could make an application explaining why it said it could not comply (see [15] above).

What I have said so far addresses Xinbo’s specific objections, but it is not sufficient to explain why the conditions imposed by the judge are appropriate.

CPR rule 3.1(3) provides:

“When the court makes an order, it may –

(a)

make it subject to conditions, including a condition to pay a sum of money into court; and

(b)

specify the consequence of failure to comply with the order or a condition.”

It is also worth noting rule 24.6, which would have been of particular relevance to Bright J since he was considering a summary judgment application:

“24.6

When the court determines a summary judgment application it may…

(c)

make its order subject to conditions in accordance with rule 3.1(3).”

In Huscroft v P&O Ferries Ltd [2010] EWCA Civ 1483, [2011] 1 WLR 939 (“Huscroft”), Moore-Bick LJ, with whom Sedley and Elias LJJ agreed, observed at [17] that, while there are no hard and fast rules, the court’s power to impose conditions under CPR rule 3.1(3) is intended to enable the court to exercise a degree of control over the future conduct of litigation. Further, what rule 3.1(3) permits is the making of an order “subject to conditions” (and specifying the consequence of a failure to comply), rather than the imposition of conditions on a freestanding basis. As Moore-Bick LJ explained at [18], the right way to exercise the power is to express the relevant order as being subject to a condition. That also has the advantage of requiring the court to focus attention on whether the condition (and any sanction) “is a proper price for the party to pay for the relief being granted”.

In addition, while the power to attach a condition to an order is not limited to cases where there are repeated failures to comply or litigation is not being conducted in good faith:

“…before exercising the power given by rule 3.1(3) the court should identify the purpose of imposing a condition and satisfy itself that the condition it has in mind represents a proportionate and effective means of achieving that purpose having regard to the order to which it is to be attached.” ([19])

Reflecting Moore-Bick LJ’s guidance at [18], the form of the order in this case should strictly have been to grant relief from sanctions for the failure to file a defence subject to conditions, and the judge should have addressed the purpose of imposing the conditions and whether they were a proportionate and effective means of achieving that purpose, or in other words whether they were a “proper price to pay” for that relief.

Huscroft was considered in Deutsche Bank AG v Unitech Global Ltd [2016] EWCA Civ 119, [2016] 1 WLR 3598 (“Deutsche Bank”). Giving a judgment of the court (with Christopher Clarke and Sales LJJ), Longmore LJ reiterated at [78] that a condition imposed under rule 3.1(3) must attach to an order which the court is proposing to make. Further, rule 3.1(3) cannot be used to circumvent the requirements of other specific rules (such as those governing the provision of security for costs), but beyond that there is no special rule and the judge must be guided by the overriding objective ([80] and [81]). In Deutsche Bank the court ordered a substantial payment into court as a condition of setting aside an order for summary judgment.

On the face of it, the Payment Condition and Transfer Condition would not be justified by a six week delay in filing a defence. However, in the particular circumstances of this case it was appropriate to take account of the broader procedural history relating to Dynamic. Xinbo had previously been conducting the litigation via Dynamic and was now seeking to continue doing so itself, circumventing the inconvenient fact that Dynamic had been barred from defending the proceedings. Dynamic’s earlier delays and default can properly be attributed to Xinbo. It is true that Xinbo’s own delay in filing its defence provided an opportunity for conditions to be imposed, but that delay needed to be considered in a broader context.

While Xinbo was not itself a party when the earlier delays and defaults occurred (and it was also not a party to the freezing order pursuant to which asset disclosure was required) Dynamic was, as I have said, effectively Xinbo’s proxy throughout. To allow Xinbo to escape responsibility for delays and defaults by relying on not having been formally joined as a party at the time would, as the judge indicated, undermine the dignity of the court process. Indeed, I would go so far as to say that denying any responsibility for them is indicative of Xinbo not conducting the litigation in good faith.

Further, and as discussed below, the condition imposed by the Bright J order reflected the weaknesses of a defence that has now been adopted by Xinbo.

The purpose of imposing conditions in this case is accordingly clear. In circumstances where Bright J concluded that Dynamic’s ability to defend the proceedings should be subject to a condition, Xinbo has clearly been directing Dynamic’s actions (and inaction) in the proceedings and therefore must bear responsibility for Dynamic’s delays and defaults, and Xinbo’s own defence shares the same weaknesses as Dynamic’s, Xinbo should not have unconditional leave to defend the proceedings.

The next question is whether the conditions imposed by the judge represent a proportionate and effective means of achieving that purpose. They clearly have the potential to be effective, because if they are not met then Xinbo will not be able to mount a defence to the claim against it, so the real question is whether they are proportionate.

Dealing first with the Payment Condition, the reasons why Bright J considered it appropriate to impose a condition that Dynamic and Ms Qiu each pay €9m into court are apparent from his careful judgment. While he was not prepared to grant summary judgment against them, he concluded that their case was weak and took account of their decision not to engage for a very significant period, such that they required the indulgence of significant extensions. In the circumstances they needed to “show that they are now in earnest by putting their money where their mouth is” (Bright J judgment at [127]). As Bright J explained at [131] and [132], the total sum of €18m was an estimate of the Trustee’s outstanding claim in damages on the assumptions that the Trustee succeeded in its primary case for the return of the Unpledged Shares and that the shares were rapidly returned, and ignoring any claim for loss in the value of the shares and for interest and costs, so that it was “in some respects a very conservative figure”. The order to pay €9m each reflected the judge’s view that it would not be right to require each of Dynamic and Ms Qiu to pay the full amount.

Bright J summarised the “significant difficulties” with Dynamic’s case, and that of Ms Qiu, at [104] to [107]. It is uncontroversial that Xinbo’s defence is essentially the same. The difficulties to which he referred included that:

It was obviously proportionate for Bright J to impose the condition that he did. Because he was considering a summary judgment application he would have done so pursuant to CPR rule 24.6, but that does no more than cross-refer to the general rule in rule 3.1(3) (see on that point Deutsche Bank at [73], although that concerned an earlier version of the rules and a Practice Direction that has since been revoked). The cases put forward by Dynamic and Ms Qiu were weak and there had been significant delays and defaults. Xinbo’s defence suffers from the same weaknesses, and since the Bright J order this has been further underlined by the striking out of the proceedings Xinbo brought in Singapore to enforce the Beihai arbitration award (see [10] above).

Bright J arrived at a figure of €18m as a conservative estimate of the Trustee’s damages claim on assumptions that included the rapid return of the Unpledged Shares. That assumption has proved false, and we were told that the value of the SMCP shares has also fallen significantly since the transfer to Dynamic, not assisted by the current uncertainty over the ownership of part of what was previously a majority stake held by ETS. In my view it would have been open to the judge to have adopted the same total figure as Bright J, that is €18m (which was also the figure sought by the Trustee in its application), rather than mirroring the €9m ordered to be paid by Dynamic, but it was also open to the judge to select a different figure.

Although the judge’s choice of €10m is not well expressed, it is appropriate to give some weight to that choice and, in the absence of any cross-appeal by the Trustee seeking a higher figure, I would adopt the €10m figure reflected in the judge’s order. If any justification was required for this sum being higher than that ordered to be paid by Dynamic, the passage of time since the Bright J order and the associated continued uncertainty over the Unpledged Shares, together with increased concerns over the SMCP share price, would supply it. But the real point is that it is “earnest money” rather than a precise pre-estimate of loss. Further, in the event that Dynamic or Ms Qiu belatedly chose to make payments into court the figure could obviously be revisited, but it must now be extremely unlikely that they will do so.

This leaves the Transfer Condition. That condition was of course not included in the Bright J order. Rather, it reflects the Knowles J order granting partial summary judgment against ETS and Dynamic by ordering the return of the Unpledged Shares to ETS. In the case of Dynamic, that summary judgment was granted in circumstances where it had been barred from defending the claim due to its failure to meet the condition in the Bright J order.

I was initially concerned as to whether the effect of including the Transfer Condition might be to amount to partial summary judgment against Xinbo, in circumstances where Bright J had previously refused to grant summary judgment on the merits. However, I am satisfied that the concern is misplaced.

The Knowles J order was limited to summary judgment for the return of the Unpledged Shares to a specified securities account held by ETS. It explicitly left open the question of whether, and if so what, further relief should be granted. Robin Knowles J’s ex tempore judgment ([2024] EWCA Civ 1841 (Comm)) also expressly contemplated at [16] not only that Xinbo might join the proceedings, but that what would happen to the Unpledged Shares following their re-transfer to ETS was a matter to be decided subsequently. He made it clear at [17] that what he was deciding was:

“…the validity of the disposal for €1 to the second defendant. That is effectively to be reversed and that, it seems to me, is not inappropriate to resolve at this point, even though other issues lie ahead.”

In other words, the transfer required to be made pursuant to the Knowles J order reflects the invalidity of the transfer of the Unpledged Shares to Dynamic, and thus its lack of entitlement to them, but does not determine that Xinbo has no claim to those shares. Subject to satisfying the conditions, therefore, Xinbo remains able to defend the proceedings, and indeed to pursue the Part 20 claim it has included in its defence in which it seeks to establish its entitlement to the Unpledged Shares and an order for their transfer to it. Further, ETS’s curator (who is supervised by the Luxembourg court) is obviously aware of Xinbo’s claim and has been active in this litigation, and it has not been suggested that Xinbo is prevented from taking whatever additional steps might be required to assert its claim to the Unpledged Shares in the Luxembourg insolvency proceedings. It is also worth noting that, although at one stage Dynamic argued that Xinbo would refuse to participate in the proceedings if the Unpledged Shares were ordered to be returned to ETS, Xinbo subsequently decided to participate despite the Knowles J order and has not sought to appeal on the basis that the effect of complying with the order would be to deprive it of the ability to defend any part of the claim against it.

In the circumstances I am satisfied that the Transfer Condition is an appropriate, and proportionate, condition to impose on the court’s permission to Xinbo to defend the proceedings. Like the Payment Condition, it reflects the fact that Dynamic is Xinbo’s proxy and Xinbo must be seen as, in effect, responsible for its defaults. These include Dynamic’s contumelious failure to transfer the Unpledged Shares pursuant to the Knowles J order.