PACIFIC ANDES ENTERPRISES (BVI) LTD (IN LIQUIDATION)AND OTHERS v. NG JOO SIANG AND OTHERS

HCA 688/2019

[2020] HKCFI 1242

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 688 OF 2019

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BETWEEN

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DECISION

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I INTRODUCTION

1.  This is a renewed application by the 1^st plaintiff, Pacific Andes Enterprises (BVI) Limited (In Liquidation) (“PAE”), the 2^nd plaintiff, Solar Fish Trading Limited (In Liquidation) (“Solar Fish”), the 3^rd plaintiff, Richtown Development Limited (In Liquidation) (“Richtown”), the 4^th plaintiff, Parkmond Group Limited (In Liquidation) (“Parkmond”) and the 5^th plaintiff, Europaco Limited (In Liquidation) (“Europaco”) (collectively “the plaintiffs”) for a Mareva injunction against 18 named defendants.  

The parties

2.  The plaintiffs (other than Solar Fish) are part of the Pacific Andes Group (“PAG”). A chart showing PAG’s corporate structure is exhibited[1] to the affirmation of the 5^th defendant Ng Puay Yee, Annie (“Annie”) dated 5 August 2019 (“D5 1^st”). PAG is a conglomerate comprising almost 150 subsidiaries.

3.  N S Hong Investments (BVI) Limited (“NSH”), a private company owned by the Ng family holds 54.9% of the issued share capital of Pacific Andes International Holdings Limited (Bermuda) (“PAIH”), listed on the Stock Exchange of Hong Kong.

4.  PAIH through wholly-owned subsidiaries has (a) a 100% interest in Europaco (P5) also a Hong Kong listed company; and (b) a 66.45% stake in Pacific Andes Resources Development Limited (Bermuda) Limited (“PARD”).

5.  PARD in turn holds

(a) a chain of wholly-owned subsidiaries, namely, Richtown, PAE and Parkmond (respectively P3, P1 and P4); and

(b) a majority interest[2] in China Fishery Group Ltd (Cayman) (“CFGL”) which has a wholly-owned subsidiary China Fisheries International Limited (Samoa) (“CFIL”).

6.  For ease of understanding, a simplified and bare bones representation of PAG’s constituent members[3] (using abbreviated references) relevant to the present application is set out below:

7.  The entities NSH, PAIH, Pacific Andes International Holdings Limited (BVI) (“PAIH (BVI)”), PARD, CFGL and CFIL (collectively “the Chapter 11 companies”) shown above are under Chapter 11 bankruptcy protection in the US.

8.  The first 7 named defendants are members of the family of that late Ng Swee Hong (“NS Hong”) who commenced a seafood trading business in 1986 that would become the 12^th largest seafood company in the world.  The 1^st defendant Ng Joo Siang (“D1”), the 3^rd defendant Ng Joo Kwee (“D3”), the 4^th defendant Ng Joo Puay, Frank (“D4” or “Frank”), the 6^th defendant Ng Joo Thieng (“D6”), and 7^th defendant Ng Joo Chuan (“D7”) are NS Hong’s sons. D5 is his daughter. The 2^nd defendant Teh Hong Eng (“D2”) is his widow, now in her 80s.

9.  The plaintiffs were unable to serve D3 who was not before this court.

10.  Each of D1 to D5 was a director in one or more of the plaintiffs (other than Solar Fish), held senior executive management positions as well as being a signatory to one or more of corporate bank accounts of the 9^th-17^th defendants (“D9-D17”) which are private companies.

11.  D1 to D5 are executive directors of PAIH. For convenience, D1, D2, D4 and D5 will hereinafter collectively be referred to as “the main defendants”.

12.  D6 is a director of the 8^th defendant Teh Hong Eng Investments Holding Limited (“D8”). He was the general manager of indirect wholly-owned subsidiaries of CFGL, responsible for overseeing the Peruvian fishmeal business.

13.  D6 is a bank account signatory of D9 to D17[4] (collectively “the remaining defendants”) which are private companies and are not part of PAG.

14.  D8 also is not a member of PAG. It is owned by the Ng family as an investment vehicle as are some of the remaining defendants.

15.  D7 was a director of various subsidiaries of PAIH prior to May 2013 but thereafter had no involvement in PAG’s business. He acquired the shares in the 18^th defendant Meridian Investment Group PTE Ltd (“Meridian”) on 13 May 2013. He is also a bank account signatory of the remaining defendants.

Overview

16.  Liquidators were appointed in respect of (i) PAE and Parkmond (November 2016); (ii) Solar Fish (January 2017); Europaco (February 2017); and (iii) Richtown (June 2017), having previously been appointed provisional liquidators of the relevant plaintiff(s).

17.  Solar Fish is not part of PAG. It was the agent of Russian fishing vessels as were, inter alia, Palanga Ltd (in liq) (“Palanga”) and Zolotaya Orda (in liq) (“Zolotaya”) (collectively “agent companies”).

18.  It is the plaintiffs’ case that the executive directors and controlling shareholders of entities within PAG, all of whom are members of the Ng family, have perpetrated a massive fraud within PAG that went on for at least 5 years from 29 September 2010 to 19 August 2015. It was said to have defrauded banks, creditors, the entities concerned, the minority shareholders, the regulators and the public.

19.  The plaintiffs acting through the liquidators applied ex parte for Mareva relief, proprietary injunctions and ancillary discovery orders on 16 April 2019. That application was unsuccessful.

20.  The plaintiffs issued this inter partes summons on 18 April 2019.

Events leading up to this application

21.  The financial condition of CFGL and CFIL (“the CFGL group”), a subsidiary group of PAG, deteriorated in 2014. The defendants attributed this to the El Niño effect on its Peruvian fish operations. HSBC was PAG group’s primary lender.

22.  On 24 September 2014, unknown to PAG, HSBC engaged FTI Consulting (“FTI”) as an independent financial accountant to investigate the financial transactions of PAG. 

23.  Based on a review that concluded in October 2014, FTI prepared a draft report dated 20 October 2014 (“the 2014 draft report”) opining that there were suspicious transactions involving PAG. It caused HSBC to press for repayment of its facilities. By the end of 2014, those facilities (other than HSBC’s exposure under an agreement known as “the Club Loan”) had been repaid, contributing to further deterioration in the group’s finances into 2015.  

24.  On 20 August 2015, PAG announced that regulatory agencies in Hong Kong and Singapore had commenced an investigation into the PAG group. This caused all bank lenders to pull their lines of funding.

25.  PAG requested a standstill and, as a result, 3 bank creditors groups were formed in respect of each of the 3 listed entities within PAG. The CFGL group appointed Deloitte & Touche Financial Advisory Services Ltd (“Deloitte”) as financial adviser to a possible group restructuring of the Club Loan.

26.  Negotiations were then conducted with investment groups recommended by Deloitte for the acquisition by the potential buyer of some or all of the CFGL group.

27.  The 2014 draft report was finalized and issued on 16 November 2015 (“the FTI report”).

28.  Meanwhile, negotiations for the sale of the Peruvian fishery business were at an advanced stage with a memorandum of understanding expected to be signed on 26 November 2015[5].

29.  However, on 25 November 2015, on the basis of the FTI report, HSBC made an ex parte application without notice for the appointment of provisional liquidators. On the same day, partners of KPMG (financial advisers to HSBC) were jointly appointed provisional liquidators of CFGL and CFIL in HCCW 367/2015 (“the HCCW proceedings”).

30.  As a result, trading in shares of CFGL, PARD and PAIH was suspended.

31.  The inter partes hearing was heard in late December/early January and, on 5 January 2016, HSBC’s continuation summons was dismissed and the provisional liquidators discharged. HSBC then filed an appeal.

32.  Notwithstanding the discharge of the provisional liquidators in Hong Kong, HSBC proceeded with winding up petitions in the Cayman Islands to wind up CFGL and CFIL and to appoint provisional liquidators.

33.  Following extensive negotiations, CFGL, CFIL and HSBC entered into a Deed of Undertaking dated 20 January 2016. HSBC agreed to withdraw its appeal and the winding up petitions in HK and the Cayman Islands, conditional, inter alia, on the sale of the Peruvian business by 15 July 2016.

34.  On 30 June 2016 and certain dates thereafter, the entities mentioned in §7 above and other group companies filed for Chapter 11 protection in New York. Those filings established a moratorium on any further enforcement steps taken by creditors of the Chapter 11 companies.

35.  Nicholas James Gronow (“Mr Gronow”)[6], Joshua James Taylor and Ian John Morton were appointed joint and several liquidators of one or more of the plaintiffs on various dates between 18 November 2016 and 2 June 2017[7], having previously been appointed provisional liquidators of the relevant plaintiff. John David Ayres replaced Ian Morton as liquidator on 25 June 2018.

36.  This application is made by the plaintiffs acting through the joint and several liquidators (“the Liquidators”).

II MAREVA RELIEF

37.  It is common ground that the plaintiffs need to show that:

(i) there is a good arguable case against the defendants;

(ii) there are assets within the jurisdiction;

(iii) the balance of convenience is in favour of the grant; and

(iv) there is a real risk of dissipation of assets or removal of assets from the jurisdiction, which would render the plaintiffs’ judgment of no effect.

(A) Whether the plaintiffs have established an arguable case on fraud

38.  The plaintiffs’ case is that PAE and Europaco obtained Trade Finance Facilities (“TFF”) in excess of US$5.5 billion for financing purchases and/or prepayments for future supply of fish which did not happen. Instead, the funds advanced were mainly (but not entirely) paid in a circular fashion through agent companies to connected parties including D8 to D18 and back to PAG.

39.  TFF were substantially repaid with the proceeds of newly advanced TFF, thus continuing the cycle. The continuing applications for TFF is said to have created materially inaccurate representations as to the financial performance and position of PAG.

40.  This circular flow of funds which first surfaced in the FTI report remains the mainstay of 4 reports to creditors dated 13 February 2017, 13 April 2017, 31 October 2017 and 2 November 2018 (respectively “the February 2017 report”, “the April 2017 report”, “the October 2017 report” and “the 2018 report”).

41.  While it is accepted that PAG had legitimate fish transactions, it is the plaintiff’s case that no actual supply of fish to PAE, Parkmond or Europaco ever took place. Instead, PAE, Parkmond and Europaco received payments from agent companies which were recorded in the accounts as a reduction in prepayments for fish. The Liquidators’ analysis of the bank statements of PAE, Solar Fish, Parkmond and Hangzhou is said to confirm this circular flow.

42.  The court was referred to an analysis of Solar Fish’s cash flow over 2 ½ years from March 2013 to August 2015 showing that Solar Fish received US$2.1 billion from creditor banks through TFF of which US$1.7 billion went to Hangzhou which it owned and then largely recirculated.

43.  It was alleged that US$152 million of the balance of US$400 million went towards the acquisition of the Peruvian business which was acquired on 30 August 2013 and the rest to other entities.

44.  The plaintiffs further submitted that as a result of the matters described in §§38-43, the audited financial statements of PAE, Parkmond and Europaco in the relevant period were materially inaccurate through the inflation of revenue, profit and net asset figures by the proceeds of Trade Finance Fraud (“the Fraud”). The return of a large portion of the funds obtained under TFF to PAE, Parkmond or Europaco resulted in the payment of dividends by those entities in breach of law and fiduciary duties which funds ultimately benefited D1 to D7 or entities under their control.

45.  Moreover, such dividends were said to have been paid in circumstances in which PAE, Richtown, Parkmond and Europaco were either already insolvent or were rendered insolvent. Hence, it was said that D1-D5 as directors of those entities (as applicable) were in breach of fiduciary duties owed to each of those companies, that the dividends remain the beneficial property of the payer of each dividend and rendered the recipient a trustee of such dividend for the payer.

46.  The plaintiffs (other than Solar Fish) assert a proprietary interest in the amounts D1-D7 received from NSH derived from the dividends paid out by the plaintiffs and from payments NSH received from agent companies on the basis that the dividends paid up the chain to NSH had resulted from breaches of fiduciary duties.

47.  The allegations of impropriety concerning prepayments and circular flow of funds first surfaced in the FTI report which was the basis for the application for the appointment of provisional liquidators of CFGL and CFIL. Those allegations affected the PARD group which was responsible, inter alia, for sourcing Russian fish for sale to Chinese customers rather than the CFGL group.

48.  In response to those allegations, in D1’s 2^nd affirmation dated 24 December 2015[8] filed in the HCCW proceedings (“D1 2^nd”), D1 set out the reasons why the FTI report was considered flawed and went on to explain the PARD business model, said to be widely accepted in the Russian fishing industry. Deloitte was informed of the structure on 19 November 2015 which was said to be unique to the Russian business and reported to the PARD lenders later that month. 

49.  Apart from stating that (a) they are not aware of any false applications made for TFF by any PAG entity and that all applications were based on genuine commercial transactions; (b) Deloitte had given unqualified audit opinions for both PAIH and PARD for the relevant years; and (c) the plaintiffs’ allegations were made “on a high level and non-specific basis without any facts pleaded or differentiation” between the individual defendants notwithstanding that each had a different role within PAG, the main defendants did not address the plaintiffs’ present allegations which are wider ranging although the core remains the circular flow but relied on D1 2^nd .

50.  Mr Walsh SC was leading counsel for D1, D4 to D6 and Mr James Wood was counsel for D2, and D7 to D18. Mr Wood adopted the submissions of Mr Walsh and made additional submissions relevant to his clients’ case.

51.  Mr Walsh submitted that in the context of fraud, the plaintiffs’ allegations seek to reverse the burden of proof. Instead of a particularising in respect of what, where, how and when each of his clients was fraudulent, the plaintiffs are requiring the defendants to explain conclusions reached through a forensic accounting process.

52.  The court was referred to D5’s 2^nd affirmation dated 13 February 2020 (“D5 2^nd) which gave specifics of the regulatory investigations carried out by the SFC against PAIH in Hong Kong and by both the MAS and CAD in Singapore against PAIH, PARD and CFGL which covered a period of 7 years and involved extensive interviews and document disclosure.  

53.  The SFC’s investigation[9] covered

“prepayments for fish of HK$5.815 billion and HK$7.503 billion as at 28 September 2013 and 2014 respectively as per the annual reports of [PAIH] for 2013 and 2014, please provide the detailed breakdown and supporting documents, including but not limited to the name of the suppliers, the payment date and amount, the bank accounts involved, the purchase order and the subsequent settlement details[10].”

54.  In November 2018, the SFC concluded their investigation (which took a little over 3 years) and notified PAIH that no action would be taken against it.

55.  MAS and CAD similarly concluded their investigations in October 2019 without further action being taken against PAIH, PARD and CFGL.

56.  Hong Kong criminal law enforcement agencies, namely the ICAC and the CCB have also carried out investigations following complaints[11] made to them. The scope of investigation carried out by the ICAC[12] related to

“(i) the operation of the fish trading business of PAIH group; the demarcation of duties among the management of PAIH group; (iii) the business and monetary dealings among PAIH, its suppliers and customers; and (iv) the financial statements published by PAIH group in its annual reports.”

57.  The ICAC informed D1 and D5 on 28 October 2019 that it will not be taking any action while, to date, none of the defendants have been contacted by CCB.

58.  The defendants have not yet filed their defence as the hearing of their summons for an unless order for “Further Outstanding Answers” is still pending.

59.  However, as matters stand, the allegations made by the plaintiff in the statement of claim and the 1^st affirmation of Mr Gronow dated 17 April 2019 (“Gronow 1^st”) have not been addressed. It was accepted that in the circumstances the plaintiffs have shown that they have a good arguable case on fraud.

(B) Quantum or quantification of loss

60.  The Liquidators quantify the loss and damage to the plaintiffs by reference to the balance of the “Prepayments for fish” (US $608.1 million) as at 28 September 2015 in PAE’s accounts.

61.  Their case is that TFF were ostensibly obtained by PAE and Europaco for prepayments for fish but no fish was in fact supplied. Funds in the circular flow that went back to PAG were recorded as a reduction in prepayments. The shortfall represented what was siphoned off for other purposes and not repaid. This amount was said to represent the loss to PAE and Europaco.   

62.  In support of that submission, the court was referred to the FTI report sent to creditors in the February 2017 report which stated (at §5.7) that “according to the PwC report referred to above, PAE’s prepayment balance as at 14 September 2015 to [agent companies] totaled US$608m”.

63.  The PwC report was mentioned in §3.1 of the February 2017 report which stated that whilst FTI did not have the audited financial statements for Parkmond, they had a draft report dated May 2016 prepared by PwC provided to lenders of PARD. Based on those matters, the plaintiffs submitted that the Liquidators had a draft audit report prepared by PwC for PAE.  

64.  However, as Mr Walsh SC pointed out, the PwC report itself is not in evidence. He took issue with the suggestion that it was a draft audit report[13].

65.  It would appear that the Liquidators are relying on a figure given in a report prepared by a third party (which is not in evidence) rather than an analysis carried out by the Liquidators themselves.  

66.  The court was also reminded that at the ex parte hearing, the petitioners were unable to give a satisfactory explanation of how the US$600 million loss was quantified. That was one of 2 issues that particularly troubled the judge who observed that no “raw empirical data” before the court.

67.  When pressed, alternative quantification figures were given to the ex parte judge, ranging from US$5.5 billion to dividends paid to PAIH by the other companies enabled PAIH to pay dividends totalling not less than HK$508 million[14] (or US$65 million) to NSH.

68.  In their SOC, the plaintiffs assert a proprietary claim in respect of the HK$508 million of dividends and also in respect of Meridian. The proprietary claims are dealt with in heading III below.

69.  Gronow 1^st, filed in support of the present inter partes hearing, is identical to his affirmation that was before the ex parte judge except for §49 which is new and reads:

“49. The Fraud has caused substantial loss and damage to the Plaintiffs, which the Liquidators presently quantify as being approximately US$608 million. The estimated loss and damage amount of US$608 million represents the Liquidators’ understanding of the balance of the Prepayments for Fish account as at September 2015, when the purported trading business had ceased. This amount therefore represents fictitious payments made to Agent Companies for the purported purchase or prepayment of fish which not occur and which funds were not circulated back to PAE to be recorded as reductions of the Prepayment for Fish account.”

70.  In fact, §49 reflects the substance of §5.7 (“Transactions involving other agents related to Solar Fish”) of the February 2017 report considered in §§60-64 above that led to the conclusion set out in §65. Therefore, the allegation of a loss of US$608 million would appear to have been extracted from the PwC report which is not in evidence. The “other agent companies”, namely, Palanga and Zolotaya are not parties to this action.

71.  In short, whilst I have considerable reservations as to whether that the plaintiffs have shown a good arguable case that the loss is quantifiable at US$608 million, I would accept that on their case they will have suffered a loss although the precise amount is debatable.

72.  The court was invited to adopt the approach of Stone J in Akai Holdings Limited (in Liquidation) & Ors v Ho Wing On Christopher & Ors, unreported, HCCL 37 and 40 of 2005, 9 February 2009 where, at §164 the judge did his best “to alight upon an overall figure” which he considered appropriate in the light of the evidence. Given the outcome of this application, it is unnecessary to decide what an appropriate figure would be.

(C) Assets within and outside the jurisdiction

73.  The defendants’ known assets are set out in Gronow 1^st at §§80-86 and can be summarised as follows: 

(1) D4 is the owner of a property in Hong Kong acquired with a mortgage in 2007 which remains outstanding.

(2) D5 acquired 3 properties in Hong Kong in 2006, 2013 and 2016 with the latter recently mortgaged in March 2018.

(3) D8-D17 each hold a bank account with HSBC.  

74.  The Liquidators “expect” D1 to D6 to maintain bank accounts in Hong Kong as they reside here and they also expect the D7 similarly to maintain a bank account in Singapore.

75.  D8 owns 5.97% of Kropz Plc, a listed company on London’s AIM Stock Exchange.

76.  Meridian owns 2.14% of Kropz Plc.

77.  Mr Walsh submitted that one of the matters that has to be satisfied before considering granting a Mareva injunction is that the relevant defendant must be shown to have assets, citing Honsaico Trading Limited v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235. In the context of the plaintiff’s application for a continuation of the Mareva injunction granted ex parte, Godfrey J held (at 239I-240H), that

“[a] number of matters have to be satisfied before this drastic and extraordinary remedy is granted. For example, there must be proof of assets within the jurisdiction before a Mareva injunction is granted”

citing Third Chandris Shipping Corporation v Unimarine SA [1979] 1 QB 645 per Lawton LJ at 673.

78.  Applying Honsaico, it was submitted that an “expectation” is not good enough and in respect of D1 and D6, the plaintiffs have not been able to offer proof of assets as against those defendants.

(D) Risk of dissipation

(1) General principles

79.  The recent decision of Harris J in Convoy Collateral Limited v Chu Kwai Chee (a.k.a. Chu Kwai Chee Roy) and Others, HCA 399/2018, [2020] HKCFI 429 provides a convenient starting point in considering the risk of dissipation in the present case.

80.  The following propositions are taken from §§12-14 of Convoy:

(1) The rationale for a Mareva injunction is to restrain a defendant from evading justice by disposing of assets otherwise than in the normal course of his affairs with the result that a defendant becomes judgment proof.

(2) It is not to provide security for the plaintiff.

(3) There must be concrete evidence that there is a real risk of dissipation of assets. The risk must be proved.

(4) It is not sufficient to show that the defendant has a reason or opportunity to dissipate assets.

(5) There is no presumption either that a defendant who has the means to do so will make himself judgment proof. Otherwise, the burden of proof would be reversed.

(6) As delay tends to be inconsistent with the risk of dissipation, it needs to be explained.

81.  For the propositions in (3) - (5) above, Harris J (at Convoy §12) cited and adopted the reasoning of Gloster LJ in the English Court of Appeal’s case of Holyoake v Candy [2018] Ch 297, §59 (ii), (iii) and (b) which focused on the burden of proof and the need to guard against an approach that reverses that burden.

82.  In that case, in relation to the correct test to establish that there is a risk of dissipation Gloster LJ cautioned (at §34) that

“[t]here must be a real risk, judged objectively, that a future judgment would not be met because of unjustifiable dissipation of assets. But it is not every risk of a judgment being unsatisfied which can justify freezing order relief. Solid evidence will be required to support a conclusion that relief is justified, although precisely what this entails in any given case will necessarily vary according to the individual circumstances.”

83.  The burden is on the applicant to satisfy the threshold: §50. Further, the requisite risk of dissipation must be established against each defendant and the fact that the defendants are alleged to be co-conspirators does not – without more – entail that evidence proving a real risk of one defendant dissipating their assets transposes to the other defendants: §54. In other words, the Court of Appeal rejected any “tarring with the same brush” approach.

(2) Applying those principles to the facts

84.  With those principles in mind, I turn to consider their application based on the evidence before the court.

(a) Delay and the “stable door” point

85.  The plaintiffs’ reason for seeking injunctive relief is stated in Gronow 1^st (at §88):

“I verily believe that if the Defendants’ assets in Hong Kong are not frozen, then as soon they become aware of these proceedings the Defendants will take further steps to transfer their assets out of Hong Kong or to otherwise frustrate the ability of the Liquidators to enforce the judgment.”

86.  In the present case, the main defendants would have been put on notice on 19 August 2015, when they received notices that PAIH was the subject of investigation by regulatory agencies in Hong Kong and Singapore.    

87.  By late November 2015 when the provisional liquidators was first appointed over CFGL and CFIL based on the FTI report, the allegations of fraud now before the court emerged. The main defendants as well as D6 and D7 (who are all members of the Ng family) have been aware of the allegations of fraud against them since that date.

88.  When the February 2017 report to creditors was published stating the Liquidators’ firm conclusion[15] that a substantial trade finance fraud had occurred, the defendants could not have been left in any doubt of the allegations being made against them. Thus, any “tipping off” would have occurred at the very least, over 3 years ago, if not over 4 ½.

89.  In the present case, the delay is significant. It cannot be explained away (as the plaintiffs sought to do) by the need to garner more evidence. Evidence that justified the unqualified conclusion expressed in the February 2017 report is unlikely to be inadequate to support an application for interim relief. It is clearly an important factor that the court must take into account in the balancing exercise to be undertaken.  

90.  In Holyoake (at §62), Gloster LJ considered the “stable door” point

“a powerful factor militating against any conclusion of a real risk of dissipation. If they had been a real risk of the defendants unjustifiably dissipating their assets, it would have materialised by the time of the application”

In that case, the first intimation of proceedings occurred in May 2014 whereas the application for a freezing order did not happen until February 2016 resulting in the hearing in April 2016. Here, the delay is considerably longer.

(b) Risk of empty judgment

91.  The plaintiffs submitted that the conduct of the defendants gives rise to a risk that a judgment in favour of the plaintiffs would be practically empty for 3 reasons: (i) the nature of the fraud consisting of an act of misappropriation and dissipation reveals an unacceptably low standard of commercial morality; (ii) the defendants have demonstrated a willingness to flout court orders and evade statutory obligations; and (iii) actual attempts by D5 and D7 to dissipate assets.

(i) Low commercial morality

92.  The plaintiffs resort to the Honsaico principle – that exhibition of “an unacceptably low standard of commercial morality” may provide material on which a court can conclude there is risk of dissipation.

93.  The plaintiffs’ case of low commercial morality is based entirely on their allegations of wrongdoing. According to the plaintiffs, “the case involves a systemic, substantial and sustained fraud … the fraudulent activities constituted a whole host of offences, in securities law and in general criminal law, across at least 2 jurisdictions” and involved “a massive dissipation of assets”[16].

94.  As earlier noted[17], the SFC and the ICAC investigations, in particular, focused on matters that are precisely the subject of the present complaint. The Liquidators have also prepared an additional report[18], titled “Investigation Report” dated 11 December 2018 “for the purpose of making a criminal complaint to the [CCB], as well as a complaint to the [SFC] in respect of the matters that the liquidator had investigated and the fraud that it had uncovered”[19].

95.  Yet, despite extensive investigations and document disclosure that have taken place and the Investigation Report, the regulatory agencies in Hong Kong and Singapore and the Hong Kong criminal law enforcement agencies, have concluded the investigations[20] without further action being taken against the defendants.

96.  In my view, it is a matter of considerable significance. While I appreciate the standard of proof for a criminal prosecution is different from a civil complaint, given the detail of the impeached transactions that must have been provided (if the material before this court is any yardstick), repeated and emphatic allegations of the ‘fraud’ allegedly perpetrated by the defendants, not a single charge has been brought. Nor for that matter, have any civil proceedings been launched. That fact must counterbalance if not, militate against what the plaintiffs have characterized as a “slam dunk” case.

97.   While I consider that they are just sufficient to show a good arguable case as to the underlying merits of the action, that conclusion was largely driven by the fact that the defendants did not address the plaintiffs’ allegations because of the lack of particularization of the fraud alleged against each of them.

98.  In pleading their case of dishonesty against the main defendants (the directors of PAIH), the plaintiffs did not differentiate between the individual defendants and their specific executive roles but treated them collectively as a single body or group irrespective of differences in roles and responsibility and whether the complaint was for breach of fiduciary duty, dishonest assistance, conspiracy or fraudulent misrepresentation.

99.  In ArcelorMittal USA LLC v Ravi Ruia and others [2020] EWHC 740 (Comm) Henshaw J cited (at §217) Popplewell J’s summary (set out in Fundo Soberano de Angola v Jose Filomeno dos Santos [2018] EWHC 2199 (Comm) §86[21]) of relevant considerations in the context of risk of dissipation[22]. For present purposes, it is only necessary to refer to the following: 

“(3) The risk of dissipation must be established separately against each[23] respondent.

(4) It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets [may] be dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty …

(6) What must be threatened is unjustified dissipation ...” (Emphasis added)

100.  Without a particularised and specific case made against the individual defendant (as is the present case), it is impossible for the court to scrutinise whether the specific dishonesty alleged against the particular individual justifies the inference about risk of dissipation. In other words, given the manner in which the plaintiffs have pleaded their case, the necessary scrutiny cannot be undertaken.

(ii) Flouting of court orders and evasion of statutory  obligations

101.  As regards the flouting of court orders, this was directed at the breach of the Deed of Undertaking mentioned in §§ 33-34 above. The plaintiffs referred to the decision of Harris J in Re RHC Order 63, rules 4 (1) (b)-(c), HCMP 134/2018, [2019] HKCFI 174 which made reference to the decision of Garrity J that was the basis for certain observations Harris J regarding the defendants’ conduct. At the court’s request, the plaintiff’s solicitors supplied a copy of Garrity J’s decision to the Court subsequent to the hearing.

102.  The Memorandum Decision and Order of Garrity J of the United States Bankruptcy Court dated 28 October 2016 in In re China Fishery Group Ltd (Cayman), et al Debtors[24] granted the “Motion” brought by the Bank of America together with Club Lender Parties, (the “Movants”) for the appointment of a Chapter 11 Trustee. The Motion had been opposed by the Debtors[25].

103.  One of the issues Garrity J had to consider was the trustworthiness of the Debtors in light of the events surrounding the breach of the Deed of Undertaking which, in the Memorandum Decision was called “the January 2016 Deed[26]”. While Garrity J considered that the Movants had good reason to question the trustworthiness of the Debtors in that, inter alia, on June 30, 2016, “the Debtors deliberately breached the January 2016 Deed[27]”, he reached the following conclusion[28]:

“ ... based on a review of the entire record, the Court does not find that management’s actions “signal[] an unwillingness or inability to understand proceedings or abide by court orders with which [they] disagree.” In re Ridgemour Meyer Props., LLC, 423 B.R. at 113. Thus, the Court finds that the Movants failed to establish that existing management is not trustworthy.”

104.  Another aspect of the second ground relied on is the defendants’ evasion of statutory obligations and failure to cooperate with the Liquidators.

105.  The plaintiffs raised the following instances to illustrate the point:

(1) The Liquidators were appointed provisional liquidators of PAE in the BVI on 31 October 2016. They wrote to the directors of PAE, Parkmond and Solar Fish on 13 December 2016 and 10 January 2017 requesting an explanation for the circular funds flow and how any fish could have been supplied to PAE and sold by to Parkmond. No reply was ever received.

(2) Requests made to PAE’s former directors for a Statement of Affairs concerning the period they acted as directors were initially ignored and ultimately only partially complied with. Notwithstanding the Liquidators’ requests, records of the Group entities subject to liquidation have never been provided except in the case of Richtown.

(3) On 6 August 2018, the Liquidators requested a meeting with D4 and D5. After reviewing the list of topics (which concerned the trading business and Solar Fish), D4 and D5’s solicitors[29] informed the Liquidators by letter dated 3 September 2018[30] that their clients would not meet with them given that the Liquidators had already formed views on those matters and would not do so in circumstances as they are under no obligation to respond to oppressive lines of questioning and will not do so in circumstances where they are accused of wrongdoing.  

106.  It is relevant to note that the Liquidators are not Hong Kong liquidators. The provisions in the Companies Ordinance relating to liquidators only apply to Hong Kong liquidators.

107.  In Joint Official Liquidators of A Co v B [2014] 4 HKLRD 374 it was held that at common law, the court has power to recognise foreign liquidators and assist the courts of the place of incorporation of an insolvent company which operated a similar insolvency regime in ensuring that the affairs of the company were properly investigated. 

108.  The Liquidators only obtained recognition orders in Hong Kong for the liquidations of, inter alia, PAE, Solar Fish and Parkmond on 17 January 2017. It would follow that prior to that date, they lacked the requisite authority to require the former directors of the companies in liquidation to comply with their requests described in §105(1) and (2) above.

109.  The Companies Court does not grant a foreign liquidator, whose appointment it has recognised all the powers available to a liquidator appointed by it pursuant to the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32: Re the Joint and Several Liquidators of CEFC Shanghai International Group Ltd (Mainland liquidation) [2020] HKCFI 167; [2020] HKLRD 676. The principles that circumscribe the limits of the common law power of assistance are to be found in Lord Sumption’s speech in Singularis Holdings Limited v PricewaterhouseCoopers [2014] UKPC 36; [2015] AC 1675 at [25][31].

110.  After 17 January 2017, the former directors had a duty to assist the liquidators if the duties under foreign law is similar to what pertains in Hong Kong [32]. The Liquidators can legitimately complain of their failure to cooperate in providing documents in the course of 2017 and 2018.

111.  Turning to D4 and D5’s refusal to meet with the Liquidators pursuant to their request made in August 2018, by that stage, the Liquidators had issued the February, April and October 2017 reports to creditors. The general principles set out in Joint & Several Liquidators of Kong Wah Holdings Limited v Grande Holdings Limited [2007] 1 HKLRD 116, §30 (3)-(5)[33] are apposite. 

(iii) Actual attempts by D5 and D7 at dissipation

112.  The Liquidators point to the fact that D5 had listed[34] for sale one of the 3 properties (valued in August 2019 at approximately HK$11 million) she owns as an attempt at dissipation: Gronow 4^th, §41. D5 has explained that it was to fund her living expenses and costs but in order to avoid accusations of dissipation, the listing has now been withdrawn.

113.  But as stated in China Medical Technologies Inc (In Liquidation) v Wu Xiaodong and Ors [2019] HKCFI 1266, HCA 1417/2013 and HCA 3391/2016, 22 May 2019, §51

“as a matter of common sense, the listing of 2 properties for sale openly is the very antithesis of any attempt to spirit away assets – normally, a person of questionable integrity was minded to dissipate his assets in a case like this would do so privately.”

114.  The property in question was in fact purchased by D5 in 2016, after becoming aware of the allegations being made against her. I agree with the defendants’ submission that defendants who plan to dissipate their assets do not purchase new properties within the jurisdiction of the court after they have become aware of the allegations made against them.  On any view, the Liquidators’ allegation of D5’s attempted dissipation is a non-starter.

115.  Gronow 7^th dated 4 February 2020 raised the issue of the potential sale of Greenland Seafood as further evidence of a risk of dissipation on the part of D7 and Meridian.  D7 is the sole director and shareholder of Meridian[35].

116.  In D7 1^st[36], D7 stated and confirmed (at §27) on behalf of himself and Meridian that Meridian had no intention to sell Greenland Seafood, Meridian being the minority shareholder of the Singaporean holding company in which Sahara has a 76% interest.  The Liquidators adduced evidence of a news article dated 12 November 2019 to the effect that Greenland Seafood’s owners were looking to sell it.

117.  I see no basis for the plaintiffs’ suggestion that D7 should have disclosed the potential sale in D7 1^st. In D7 2^nd dated 13 February 2020, D7 stated that the majority owner decided in November 2019 to sell Greenland Seafood through a disposal of the intermediate holding company Alisa. There is no evidence to suggest that in early August, D7 knew about the potential sale and failed to disclose it.

118.  The Liquidators sought to suggest that D7 was engaging in a ‘fudging’ exercise in not disclosing the fact that he was the sole director of the Singaporean holding company of Alisa. That aspersion is unwarranted and has no evidential basis if it was intended to suggest that D7 as sole director could do as he wished without regard to the majority owner. The reality is that as minority shareholder, D7 had little option but to carry out those instructions.

(c) Conclusion on risk of dissipation

119.  The “stable door” point is as powerful in the present case as in Holyoake, if not even more so. Over 4 ½ years have elapsed since the allegations were first made against PAG and thus the main defendants.

120.  The plaintiffs have not been able to show any movement of assets by any of the defendants despite the investigation that has been ongoing since 2014. There has been no evidence of any real incident of attempted or actual disposition despite the Liquidators’ (unsuccessful) efforts to make out a case against D5 and D7: see §§112-118 above.

121.  For all the reasons explained above, I have no hesitation in reaching the conclusion that the plaintiffs have not demonstrated a concrete risk of dissipation such as would warrant a conclusion that the defendants should be assumed to be trying to make themselves judgment proof.

(E) Balance of convenience

122.  A Mareva injunction involves a draconian interference with the right of businessmen or corporate entities to deal with their personal or business assets. It also carries a reputational stigma: per Gloster LJ in Holyoake at §36 (ii).

123.  The matters mentioned in §95 above have seriously undermined the force of the plaintiffs’ case. That aside, the plaintiffs’ failure to demonstrate a real risk of dissipation of assets is fatal to their application for a freezing injunction.

124.  Apart from seeking a Mareva injunction, it should be mentioned that the draft order also sought disclosure of information from the defendants on terms that are draconian and oppressive. The individual defendants are members of a family whose business was reported to be the 12th largest seafood company in the world. They are accused of defrauding banks to the tune of US$5.5 billion with a loss the plaintiffs have quantified for Mareva purposes at US$600 million. It is not unreasonable to take the view that they are individuals of considerable wealth.

125.  They, as well as the corporate defendants, are required not only to disclose in writing every asset of an individual value of HK$50,000 or more in Hong Kong (with value, location and details), but also to do so at lightning speed, namely, disclosure within 48 hours and confirmed in an affidavit within 7 days.

126.  This should be contrasted with the leisurely pace the plaintiffs have taken in seeking relief.

127.  In addition to the oppression described, at the same time the individual defendants are also restricted to “conspicuously” low spending limits of HK$20,000 per week on ordinary living expenses. It was submitted that the order is designed to require each of the defendants to alter in a major way their standard, and way, of living. It is difficult to dissent from that view.

128.  Litigants should not approach those matters as one for “negotiation”. It would be of more assistance to the Court if proper consideration is given to the relief sought in the first place.

III PROPRIETARY INJUNCTIONS

129.  The plaintiffs (other than Solar Fish) also assert a proprietary claim over the PAIH dividends of HK$508 million and Meridian.

(A) Dividends of HK$508 million

130.  It is the plaintiffs’ case that dividends paid to PAIH by the other companies enabled PAIH to pay dividends upstream to NSH which was then able to distribute dividends to D1 to D7. The total amount of such dividends is said to be not less than HK$508 million (or US$65 million).

131.  This allegation is disputed. D5 has adduced evidence[37] which shows that NSH was in fact a net cash contributor to PAIH rather than a net cash beneficiary:

(i) between 2009 and 2014, dividends paid by PAIH to NSH was approximately HK$314 million rather than HK$508 million;

(ii) of the HK$314 million, almost HK$195 million were received as scrip dividends; and

(iii) NSH paid almost HK$657 million as subscription monies paid by NSH towards rights issues by PAIH during that period.

(B) Meridian

132.  Meridian is a company incorporated in Singapore which owns 24% of Greenland Seafood GmbH (“Greenland Seafood”), owned/controlled by D7.

133.  In May 2013, D7 resigned from all his directorships in PAG and since then has had no role or involvement in PAG’s affairs. He acquired Meridian on 13 May 2013 from his business partner Oleg Sizov (“Oleg”).

134.  D7 has explained how Meridian came to acquire a minority interest of 24% in Sahara Investment Group Pte Limited (Sing) (“Sahara”): the latter had funded the acquisition of Greenland Seafood on behalf of Sahara and Meridian, with Sahara indirectly[38] (through intermediate companies) owning 76% and Meridian the remaining 24%.

135.  Sahara loaned Meridian its share of the acquisition cost on 16 August 2013 in return for repayment of the advance with interest and professional fees of US$2.4 million. The loan was repaid in April and May 2016 and is supported by records of the remittances made.  

136.  However, the plaintiffs assert a claim to the shares in Greenland Seafood that Meridian (indirectly) holds. It is the plaintiffs’ case that (i) between March and December 2013, CFIL made a payment of US$50 million to Royal Greenland A/S (“RG”); (ii) RG then transferred shares in Greenland Seafood to Meridian; (iii) and “[a]ll or a substantial portion” of the funds used by CFIL are traceable to the Fraud[39]. On the basis, it is asserted that the funds used to purchase Greenland Seafood are traceable to the Fraud.

137.  The plaintiffs then sought to rely on its alternative case, said to be based on §68(d) of D1 2^nd. That passage referred to drawdowns made in January/February 2013 totalling US$114 million under a loan agreement between PAIH and D8 and repayments made, inter alia, to RG at the request of D8 between March and December 2013 by, inter alia, CFIL. The exhibit NGS 31 shows that in round terms, between May and August 2013, US$53.9 million was repaid to D8 and in December 2013 a further US$54.6 million was paid from CFIL to RG, the total repayments aggregating US$108.5 million.

138.  The plaintiff contends that the D8 loan to PAE[40] does not exist because PAE’s audited financial statements never recorded such a loan. Further, had there been one, the loan would entail public disclosure and shareholders’ approval as a related party transaction, neither of which occurred.

139.  It is asserted that as the repayments to RG were made on behalf of PAE, such funds implicitly belonged to PAE but in respect of which repayment PAE derives no discernible benefit. In those circumstances, it was said that the Greenland Seafood shares would have been purchased with PAE’s funds, rendering it the beneficial owner of the Meridian’s shareholding in Greenland Seafood.

140.  However, it is not apparent on what basis the plaintiffs allege that the loan agreement[41] was made between PAE and D8. In any case, the mere fact that such a loan is not recorded in PAE’s accounts is not dispositive nor is the fact that such a loan did not appear in PARD’s or PAIH’s audited financial statements. Equally the absence of public disclosure and shareholders’ approval may constitute a breach of the listing requirements but cannot of themselves negate the existence of a loan. 

141.  Significantly, based on the plaintiff’s asserted sequence of events set out in §136 above, payment from CFIL to RG preceded the transfer of shares by RG to Sahara. Although Sahara’s acquisition agreement is not in evidence, given that the loan agreement between Sahara and D7 is dated 16 August 2013, it is not unreasonable to take the view that it is likely to have occurred around that date. However, the CFIL payment(s) were not made until December 2013.

(C) Conclusion

142.  Given the evidence on issues (A) and (B) above, I am not convinced that the plaintiffs have shown that there is a serious issue to be tried on the merits either as regards the dividends of HK$508 million or the beneficial ownership of Meridian.

IV OTHER ISSUES

143.  Other issues were raised at the hearing relating to the cross-undertaking as to damages and fortification. Given the conclusion I have reached, I will only make the following comments.

144.  While the plaintiffs are prepared to provide the usual undertaking as to damages, under Schedule 2 to the draft order, the plaintiffs’ liability is limited to the value of the cash and unpledged assets realised in the liquidations of the plaintiffs less the expenses of the liquidations.

145.  The default position is that an applicant for an interim injunction is required to give an unlimited cross-undertaking in damages: JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2016] 1 WLR 160 at 180.

146.  While there are limited exceptions to the rule, whether a limited cross-undertaking[42] should be given is a matter within the scope of the discretion of the judge: Patrick Cowley &Anr v All Powerful Holding & Anr [2018] HKCFI 1802 at §131; and Pugachev, §70.

147.  The fact that the case concerns fraud and proceedings are brought by a liquidator to recover the company’s assets may result in a limited undertaking does not invariably mean that a limited undertaking is all that is required. It should be borne in mind that exercise of that discretion is necessarily fact-sensitive and generalisations should be avoided.

148.  The issue is whether the estimated loss to be suffered is significant and whether there is a real risk that the defendants will be unable to enforce, or at least have difficulty enforcing, the plaintiffs’ cross-undertaking in damages.

149.  The Liquidators are foreign liquidators and no evidence has been filed concerning the plaintiffs’ assets. In those circumstances the defendants submitted that the cross-undertaking is not meaningful when the plaintiffs are seeking a freezing order of an amount of US$600 million and the injunction is being sought against 18 defendants such that any security provided will have to be shared between all of them in the event of an injunction been granted and subsequently discharged. The defendants therefore have justifiable concerns that they may be left without compensation.

150.  In the present case, there is no evidence of the plaintiff’s unencumbered assets nor the likely liquidation expenses much less what has been incurred to date. In so far as the plaintiffs’ position is that the burden is on the defendants to adduce evidence of their loss on the basis that they are seeking fortification of the cross-undertaking, that approach is misguided given the total absence of evidence as to the plaintiffs’ unpledged assets and likely liquidation costs.

151.  On the facts set out in §§149-150, the plaintiffs’ stance is akin to the approach with the trustees adopted in the Patrick Cowley case which the judge rejected, citing Wah Nam Holdings Co Limited v Excel Noble Development Limited [2000] 3 HKC 118 (CA) for the proposition that it is wrong to attempt to determine the merits of the plaintiffs’ case at the interlocutory stage with a view to absolving the plaintiffs from providing the cross-undertaking: Cowley at §133.

V  ORDER

152.  The summons dated 18 April 2019 is dismissed. There is to be an order nisi of costs in favour of the defendants with certificate for counsel to be taxed if not agreed and payable forthwith.