HUOBI ASIA LTD AND ANOTHER v. CHEN BOLIANG AND ANOTHER

HCA 415/2020

[2020] HKCFI 2750

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 415 OF 2020

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DECISION

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1.  This is the adjourned hearing of part of a summons dated 1 June 2020 (“the Summons”) filed by Huobi Asia Limited (“the 1^st plaintiff”) and Huobi Global Limited (“the 2^nd plaintiff”) (collectively “the plaintiffs”) seeking a disclosure order in the context of a Mareva injunction against Chen Boliang (“the defendant”) and Chen Feng (“Mr Chen”).

Background facts

2.  The defendant was a former senior manager of the 1^st plaintiff.

3.  Between 27 February and 14 March 2020, the defendant used a trading account with the 2^nd plaintiff which he set up using his father[1]’s identity to trade in bitcoins/USDT against the corporate account of the 2^nd plaintiff.  The defendant made substantial profits of just over US$5 million (causing a corresponding loss to the 2^nd plaintiff) of which US$4,999,995 (in the form of USDT) (“the USDT”) were transferred in various tranches to a bitcoin wallet where the profits crystallised (“1^st bitcoin wallet”) at OKEX Bitcoin Exchange (“OKEX”) a digital assets exchange. 

4.  The unauthorised trading came to light in late March which caused the plaintiffs to carry out a tracing exercise.  On 30 March 2020, the plaintiffs discovered that the 1^st bitcoin wallet had been cleared out of which US$2,278,478.3 USDT had been transferred by 2 transfers to another bitcoin wallet (“the 2^nd bitcoin wallet”) at Binance.com.

5.  The 1^st plaintiff’s legal counsel Ng Gilbert Man Him (“Mr Ng”) reported the matter to police on 1 April 2020.

6.  The defendant was arrested on 11 May 2020 and charged the following day with an offence of “Obtaining Access to Computer with Criminal or Dishonest Intent” which is not an offence under the Theft Ordinance.  He is on bail pending further police investigation.

Procedural chronology

7.  On 17 April 2020, Coleman J granted an ex parte local Mareva injunction against the defendant (“the April injunction”) with an ancillary disclosure order covering his assets in Hong Kong (“the injunction order”).  Prior to the return date, the defendant agreed to the continuation of the injunction order until trial or further order.

8.  The defendant complied with disclosure on 29 April 2020, disclosing Hong Kong assets of just under HK $3 million.

9.  By this Summons the plaintiffs applied for an order that (1) the injunction order be extended to cover the defendant’s assets outside Hong Kong (the worldwide injunction); (2) the defendant be required to disclose his assets outside Hong Kong pursuant to such injunction order in the form of the draft order attached to the summons.

10.  There are 2 parts to §2 of the draft order relating to disclosure of information: (1) required the defendant to make ancillary disclosure of his assets worth HK $50,000 or more outside Hong Kong, including crypto currencies and/or all other forms of digital assets such as bitcoins and USDT; and (2) required the defendant to provide the following information (which is the subject of the present application):

“The Defendant must inform the Plaintiffs in writing the current whereabouts of what has become of the US$4,999,995 worth of USDT (or any other forms converted from USDT), which was transferred out of the trading account with the 2^nd Plaintiff (in the name of 陳峰 (UID130289289) between 27 February 2020 and 16 March 2020.”

For present purposes, §2(2) of the draft order will be referred to as “the disclosure order”.

11.  A detailed account of events commencing 15 June 2020 culminating in the consent order of 19 June 2020 is necessary given the submissions made in the course of the hearing:

(1)     On 15 June 2020, the 1^st defendant’s solicitors, Chong & Partners LLP (“CP”) responded to a draft consent order submitted by the plaintiffs’ solicitors Deacons on 11 June 2020 to the effect that the defendant was willing to consent to the Summons subject to, inter alia, the removal of §2(2) of the draft order (ie the disclosure order) in its entirety, “by reference to [the defendant]’s privilege against self-incrimination (“PSI”)”.

(2)     Deacons’ response later the same day addressed PSI mentioned in CP’s letter, stating that the defendant appeared to be labouring under a misconception that PSI might assist him in respect of the disclosure order and that as the plaintiff’s case is that “the Subject USDT … was trust properties held upon constructive trust” by the defendant, the exception against self-incrimination does not apply at all.

(3)     As the then impending hearing on 19 June 2020 was only a 15-minute call over hearing, Deacons proposed that a consent order be entered in respect of the other parts of the draft order first, save and except that the disclosure order be adjourned for substantive arguments with 2 hours reserved which proposal was accepted.

(4)     The consent summons was filed for approval on 17 June 2020. Later the same day Deacons and CP were asked by the Court by letter to explain how it was appropriate to amend the existing local Mareva injunction to become a worldwide one.

(5)     There is a note on the court file made at 3:24 pm on 18 June 2020 recording a telephone conversation between the Judicial Clerk and Deacons intimating that the latter’s letter did not answer the point raised in the Court’s letter, that the Judge had certain comments and Deacons were asked to speak to CP about them.

(6)     The plaintiffs lodged their skeleton argument at some point in the course of that afternoon. 

(7)     Ms Lareina J Chan (counsel for the defendant on that occasion and today) informed the Court that upon receipt of the plaintiffs’ skeleton sometime that afternoon, she filed a last-minute skeleton on an urgent basis in reply. The defendant’s skeleton bears a time stamp of 17:43 pm.

(8)     Meanwhile, Deacons followed up their earlier call to the Court agreeing with the Judge’s comments conveyed to them and intimated that they would send a new amended draft order, and would be seeking leave to amend the injunction order[2].

(9)     No hearing took place on 19 June 2020 as it was vacated at the last minute, Anthony Chan J having made the order by consent.

12.  The order dated 19 June 2020 (1) varied the injunction order granted on 17 April 2020 and continued on 22 April 2020 as shown in red in the form attached to the 2^nd consent summons[3], and (2) ordered that the disclosure order be adjourned for substantive arguments.

Whether the disclosure order should be made

13.  Ms Bonnie YK Cheng (counsel for the plaintiffs at this hearing) was not involved at the time of the June events set out above. The plaintiffs were represented by their former counsel.

14.  Ms Cheng’s initial submissions were directed at the issue of PSI when in fact there is no dispute between the parties as to the applicable principles which are set out in the Court of Appeal’s decision in Petroliam Nasional Berhad v George Tan Soon Gin [1989] 2 HKLR 109.

15.  It would appear that CP’s reference to PSI in their letter of 15 June had been misread and/or misconstrued by Deacons who maintained that section 33 of the Theft Ordinance applies to the present proceedings[4]. If correct, it would mean that the exception to PSI would apply and the defendant would not be able to rely on PSI.

16.  My understanding of CP’s reference to PSI was to flag its availability to the defendant notwithstanding the fact that the disclosure order deviated[5] from the standard form in PD 11.2 by omitting the standard proviso. 

17.  As the present case does not involve any contravention of section 33 of the Theft Ordinance[6], the defendant having been charged other offences, the standard proviso should have been included as part of the disclosure order[7].

18.  PSI is not an issue in the present application as the disclosure order has not been made.  The time for raising PSI is when the defendant provides his answers to that order if one is made.  Rather, the present question is whether or not the disclosure order should be made.

19.  Ms Cheng submitted the defendant had no proper grounds[8] for opposing the disclosure order in June since the worldwide injunction granted was both a Mareva injunction and a proprietary injunction.  She relied on the fact that §§21-27 of the plaintiffs’ June skeleton addressed the issue of the injunction being a “proprietary injunction”.

20.  However, in §31 of the plaintiffs’ June skeleton, the plaintiffs acknowledged that they were “content to leave this disputed part of the Summons to be dealt with at a subsequent hearing, where the Court can have the opportunity to hear full arguments on this matter.” 

21.  That statement and the sequence of events described in §11 above show that it is the subject matter of the present hearing. Issue estoppel does not arise.

22.  It remains the plaintiffs’ primary position that the Mareva injunction was granted on the basis of a proprietary claim. Their alternative position is that it is proper for this Court to grant the disclosure order.

A.      Whether the Mareva injunction was granted on the basis of a proprietary claim

23.  The plaintiffs’ primary submission is that the June injunction was both a Mareva injunction and a proprietary injunction.  As earlier noted, Ms Cheng placed reliance on the fact that the June skeleton specifically addressed its proprietary nature and highlighted the fact that the defendant’s June skeleton was silent on that topic.

24.  The plaintiffs cited Seridom Servicios Integrados Idom SAU v Heng Wen Trade Co Ltd & Others [2019] HKCFI 85. P in that case was the victim of email fraud.  As a result of fraudulent misrepresentations, it paid US $2.4 million to a bank account in D2’s name in Hong Kong.  By 14 separate transactions D2 transferred that sum to each of D3 to D7.  The injunction orders made in that case followed the standard form for Mareva injunctions in PD 11.2.

25.  The judge found (at §80) that the injunctions were granted on the basis of Mareva and proprietary reliefs in that the then draft amended writ and draft re-amended writ as well as the affidavits in support were premised on P’s proprietary claim and P’s skeleton submissions also made it clear that the ex parte applications were for Mareva and proprietary injunctions. 

26.  Seridom is thus distinguishable on the facts:

(a)  the plaintiffs’ June skeleton came after the defendant had already agreed and consented to the April injunction being made a worldwide injunction with the ancillary disclosure order of his assets outside the jurisdiction[9]

(b)it came about in unusual circumstances[10] described in §11 above; and

(c)   the writ in its original unamended form was a monetary claim and remained as such at the time of the June injunction.

27.  Although Deacons’ letter of 15 June 2020[11] in response to CP’s letter of that date made a reference to trust properties held on constructive trust, given the original indorsement on the writ which remained extant. It is the indorsement writ that determines the nature of the relief sought. A defendant should not be put in a position of having to guess or speculate on the nature of the relief sought.

28.  The defendant submitted that whether the plaintiffs’ claim was proprietary in nature when the Mareva injunction was sought and granted materially affects how the Court exercises its discretion in granting disclosure in aid of a Mareva injunction, citing Pacific King Shipping Holdings Pte Ltd v Huang Ziqiang [2015] 1 HKLRD 830 at §23.

29.  The Court of Appeal further held (at §29) that if the case involves a proprietary claim where the plaintiff seeks to trace property which in equity belongs to him, the court not only has jurisdiction to grant an injunction restraining the disposal of that property, it may in addition make orders designed to ascertain the whereabouts of that property.  But if the case does not involve a proprietary claim, the position is different; the main underlying consideration for ordering disclosure is to prevent abuse by the defendant to frustrate or defeat the very purpose of the Mareva injunction: §§31-32.

30.  The indorsement of claim on the writ issued on 20 April 2020 is undoubtedly a monetary claim for US$4,999,995.  The supporting affirmation alleged[12] that the defendant was liable to account for the profits made in breach of fiduciary duties and sought payment on that basis.  The April injunction was a local Mareva injunction with a disclosure order of local assets in aid of that injunction.

31.  The plaintiffs were aware at the time they applied for the April injunction that the profits withdrawn from the Mr Chen’s account had been transferred to the 1^st bitcoin wallet at OKEX. After its receipt, the USDT would be transferred to a centralised pool of OKEX.  Subsequent transfers would be from OKEX’s centralised pool and not from any specific OKEX account[13].

32.  By 30 March 2020 they were also aware that the 1^st bitcoin wallet had been cleared out and part of it transferred to the 2^nd bitcoin wallet. Yet, the relief the plaintiffs sought was limited to the disclosure order made in aid of the local Mareva. The plaintiffs did not seek to trace the whereabouts of the USDT.

33.  RACP Pharmaceutical Holdings Limited v Li Xiaobo, CACV 139/2007, unrep, 19 September 2007 is another example of the plaintiff’s cause of action not being a proprietary claim.  It concerned an injunction granted in a claim for damages for deceit and where the plaintiff did not seek tracing relief in its writ.  It was held (at §§11-12) that the Mareva injunction was not proprietary in nature. 

34.  Ms Chan submitted that the position in the present case remained the same by the time of the June injunction: nothing had changed between April and June.  The indorsement was not amended until 15 September 2020.

35.  The amendment added, inter alia, a claim of unjust enrichment and sought a declaration that the USDT is held on constructive trust.  The amendments made highlight the fact that the writ in its unamended form was nothing more than a monetary claim.

36.  I agree with the defendant that the June injunction is nothing more than a Mareva injunction.

B. Whether it would be proper for the Court to grant the disclosure order

37.  The plaintiffs’ alternative position is that if the June injunction is only a Mareva injunction, it would be proper for the Court to grant the disclosure order, citing Grupo Torras SA and another v Sheikh Fahad Mohammed Al-Sabah and others, unrep, English Court of Appeal, 16 February 1994, a case concerning a conspiracy to defraud.  

38.  The central question in that case was whether the judge was right in refusing to discharge a disclosure order annexed to a worldwide Mareva injunction pending a decision on a challenge to the jurisdiction of the English court. The disclosure order made was an order directing the defendant to disclose his assets worldwide within 21 days. It further contained an order directing him to state, inter alia, what had become of the US$22.5 million.

39.  It is not apparent how Grupo Torras can assist the plaintiffs. In that case, the pleaded causes of action included breaches of constructive trust and in addition, there was a tracing claim against the defendant for recovery of US $22.5 million lodged in his account with a bank in London.

40.  Those important features are absent from the present case.  It would have been a different matter if in this case the original indorsement had contained a constructive trust plea and a tracing claim.

41.  Grupo Torras was considered by the Court of Appeal in Pacific King and (at §44) Jeremy Poon J (as he then was), delivering the judgment of the Court made the following observations regarding Grupo Torras:

“That case concerned a worldwide injunction granted by an English court. The plaintiff needed the information sought in order to identify the whereabouts of the defendant’s assets abroad so that steps could be taken there to protect its position over those assets. Viewed pragmatically, the disclosure order was more important to the plaintiff because without it, the whereabouts of the defendants’ assets remained unknown. The worldwide Mareva injunction would then serve no meaningful purpose. It was only in such a context that the Mareva injunction was said to be ancillary to the disclosure order. It does not support Mr Lee’s sweeping submission that in the present context a Mareva injunction is ancillary to the disclosure order. That is certainly not the case when the Mareva injunction is no more than a domestic one, as is the case of the Hong Kong Injunction here. There is no basis to treat the Further Disclosure Order as ancillary to the Hong Kong Injunction, thus justifying the very wide disclosure sought.”

42.  In the present case, the plaintiffs were well aware of the 1^st and 2^nd bitcoin wallets when they applied for the April injunction. They could have applied for a proprietary injunction and a specific disclosure order relating to the USDT in April by issuing a writ with the appropriate indorsement of claim. But that did not happen.

Conclusion

43.  For the reasons stated above, the plaintiffs’ application for the disclosure order is dismissed.

44.  There is to be an order nisi of costs in favour of the defendant, with certificate for counsel, such costs to be summarily assessed and payable forthwith.  Directions will be given separately for the summary assessment.