QU JIAN QIN v. HU JING

HCA 2745/2017

[2020] HKCFI 2788

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2745 OF 2017

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DECISION

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1.  By a summons dated 25 May 2020 (“the summons”), the plaintiff (“P”) seeks a Mareva injunction restraining the defendant (“D”) from disposing her assets in Hong Kong up to the value of RMB 8,173,613.54 pending the outcome of the trial herein.

2.  On 29 May 2020, the summons was heard by me.  In that hearing, upon the undertakings provided by P and D respectively, I adjourned the summons for substantive arguments on a date to be fixed.  I also made a disclosure order (“the 1^st Disclosure Order”) requiring D to inform P of any prospective or intended sale of her two properties in Hong Kong (“D’s Two Properties”) at least 7 days prior to the signing of a provisional sale and purchase agreement, giving at least the consideration, the completion date, the identity of the purchaser, the amount outstanding over the property to be sold, and how the net sale money would be received by D. 

3.  Originally, the substantive hearing of the summons was fixed on 27 October 2020.  On 22 September 2020, the court directed that the summons would be determined on paper without an oral hearing.  Pursuant to the directions given by the court, the parties have provided me their respective written submissions and bills of costs for summary assessment.  I have considered all the written submissions provided by the parties.

4.  It is well established that in order to obtain a Mareva injunction, the applicant has to show[1]:

(1)  that it has a good arguable case on a substantive claim over which the court has jurisdiction;

(2)  there are assets within the jurisdiction;

(3)  the balance of convenience is in favour of granting the injunction; and

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

5.  D opposes the summons on the grounds that:

(1)  P has failed to establish a good arguable case against D; and

(2)  P has failed to show that there is a real risk of dissipation of assets by D if the injunction sought is not granted.

6.  D also submits that if a Mareva injunction is made, the amount covered by the injunction should not be the figure suggested by P but should be a reduced sum.

7.  I would focus on these issues and determine which party is correct.

The facts

8.  I would first set out the essential facts concerning the summons.

9.  P and D are residents of Wenzhou.  P sued D in the Mainland and successfully obtained a judgment against D from the People’s Court of Lucheng District, Wenzhou (“the Wenzhou Court”) on 5 August 2013 (“the Wenzhou Judgment”).

10.  Under the Wenzhou Judgment, D is liable to pay a principal sum of RMB 2,800,000 (“the Principal”), with interest accruing thereon at contractual rate of 1.8% per month from 1 February 2012 (“the Judgment Interest”)[2].

11.  By a Wenzhou Court sanctioned settlement agreement dated 30 April 2014 (“the Settlement Agreement”), the enforcement of the Wenzhou Judgment was suspended subject to an agreed instalment payment plan of paying RMB 5,000 to P by the 20^th day of each calendar month. It is provided in the Settlement Agreement that:

“若分期履行期间，若胡静未能按期履行，则申请人瞿建琴有权向法院申请未履行的部分全额恢复原判决书的执行。”

12.  D did not pay the monthly instalments on time on many occasions.

13.  Pursuant to the Settlement Agreement, P made an application (“the Resumption Application”) to the Wenzhou Court and obtained an enforcement notice from the Wenzhou Court on 2 May 2017 (“the Enforcement Notice”), resuming P’s right to enforce the Wenzhou Judgment on its original terms, effectively setting aside the Settlement Agreement.

14.  On or about 20 August 2019, D made an application to the Wenzhou Court for an order setting aside the Enforcement Notice (“the Setting Aside Application”).  D’s application was dismissed by the Wenzhou Court on 17 September 2019.

15.  Save for partial payments totalling RMB 355,000, D has not yet paid the judgment debt due under the Wenzhou Judgment to P.

16.  In November 2017, P commenced these proceedings against D to enforce the Wenzhou Judgment as a common law debt, upon discovering the existence of D’s Two Properties, against which a judgment debt could be enforced.  The trial in these proceedings has been set down to commence on 21 June 2021, with 5 days reserved.

17.  In January 2018, P attempted to register these proceedings as a lis pendens against D’s Two Properties.  In May 2020, P withdrew the attempted registrations, and an order by consent was made for P to pay D’s costs of applying to set aside the lis pendens registrations on an indemnity basis.

18.  P took out the summons on 25 May 2020.

19.  P’s case is that up to the commencement of the trial, the total of the outstanding Principal and Judgment Interest would be RMB 8,173,613.54.

Good arguable case

20.  The true meaning of “good arguable case” in the context of a Mareva injunction has been mentioned by DHCJ Eva Sit SC recently in Natural Dairy (NZ) Holdings Ltd (in provisional liquidation) v Chen Keen and Others[3].  In that case, the learned judge said:

“80. The threshold of “a good arguable case” is much higher than “a serious issue to be tried” under the American Cyanamid principles. While the plaintiff need not go so far as to persuade the court that it is likely to win, it needs to show a case which is more than barely capable of serious argument, albeit not necessarily one that the judge believes to have a better than 50% chance of success. The existence of a good arguable defence does not necessarily negate a good arguable case ……”

21.  There is no dispute that a foreign judgment may not be impeached in Hong Kong on its merits.  The foreign judgment can only be impeached if it offends against Hong Kong views of substantial justice.  As said by Godfrey JA (as he then was) in Mei Yu Yau v Shiu Ki Lau[4]:

“18. A judgment of a foreign court having jurisdiction over the parties and subject matter, i.e., having jurisdiction to summon the defendants before it and to decide such matters as it has decided, cannot be impeached in this country on its merits : see Godard v. Gray (1870) LR 6 QB 139. If the judgment is pronounced by a foreign court over persons within its jurisdiction and in a matter with which it is competent to deal, English courts never investigate the propriety of the proceedings in the foreign court unless they offend against English views of substantial justice: see Pemberton v. Hughes [1899] 1 Ch. 781 (especially per Lindley MR at p.790).

22. However, where the method by which the judge in the foreign court came to his decision as to the amount of his judgment is “by itself contrary to the requirements of substantial justice contained in our law”, then this court will refuse to enforce the foreign judgment: see Adams v. Cape Industries Plc [1990] 1 Ch 433 at p.568D.”

22.  D argues that P has failed to demonstrate a good arguable case against her.  D’s focus is not whether the Wenzhou Judgment was rightly obtained in the first place.  D is contending that the Enforcement Notice was improperly obtained by P in May 2018.  Hence, the Wenzhou Judgment which was revived by the Enforcement Notice should not be enforced in Hong Kong.

23.  D submits:

(1)  Prior to P’s application for the issuance of the Enforcement Notice, no due notice of the application was given to D.  D was not given a proper opportunity to be heard.

(2)  Even after P obtained the Enforcement Notice, P did not immediately serve the notice on D. D was not even informed of its issuance.  P only served the Enforcement Notice on D on or about 11 May 2017.  As a result of the deliberate delay in serving the Enforcement Notice on D, D was required to pay default interest as from 5 May 2017 onwards.

(3)  Although the scope of the injunction sought by P does not cover any default interest, the aforesaid should be a backdrop in the court’s holistic assessment of whether notions of substantial justice has been offended in the present case.

(4)  D claims that she has been continuously honouring her repayment obligations under the Settlement Agreement.  Before P took out the resumption application, D had been making monthly payments to P.  Albeit late on many occasions, P duly accepted with no serious complaints at all.

(5)  D contends that the Settlement Agreement is still subsisting, and this fact has never been considered by the Wenzhou Court. The only basis upon which the Wenzhou Court allowed P’s resumption application and dismissed D’s Setting Aside Application is that D was in breach of the Settlement Agreement.  The Wenzhou Court did not pay any regard to any countervailing factors which might have indicated that the Settlement Agreement should still be regarded as subsisting.

(6)  D highlights the fact that she was late in payment on many occasions because this has reinforced her belief that P has condoned her lateness and would not adhere to the strict terms stipulated in the Settlement Agreement.  D submits that this is a classic example of estoppel by conduct or by acquiescence.

(7)  However, as agreed by both P’s expert and D’s expert on the Mainland Chinese law, though the Mainland Chinese law recognises sort of the concept of acquiescence, the legal concept of estoppel is not in the Chinese jurisprudence.  Hence, it is practically not open to D to run her defence case before the Wenzhou Court.  Accordingly, D should not be criticized for not running the estoppel argument in her Setting Aside Application.

(8)  Had D run the estoppel argument before the Hong Kong Court, it would have been very unlikely that P could have obtained the Enforcement Notice at the first place.

(9)  In the Mainland, P could take advantage and revive the Wenzhou Judgment without paying any regard to the defence of estoppel. On one view, it is what it is and no complaint should be made by D if P enforces the Wenzhou Judgment in the Mainland.  However, P chose not to do so. She decided to enforce the Wenzhou Judgment in Hong Kong through the cause of action of common law enforcement. In order to defend herself, D raised the estoppel defence in these proceedings.  So long as D has a valid defence of estoppel, D naturally is entitled to raise that notions of substantial justice had been breached if the Wenzhou Judgement would be enforced against her in Hong Kong.

(10)  Hence, there can be no good arguable case on the common law enforcement of the Wenzhou Judgment.

24.  With respect, I am unable to accept these submissions.

25.  I do not agree that there has been any unfairness to D.

(1)  As agreed by both P’s expert and D’s expert on the Mainland Chinese law, P was not obliged to notify D of the Resumption Application.

(2)  After the issuance of the Enforcement Notice, D has the right to apply for setting aside the notice, and D has exercised that right.  In the Setting Aside Application, D has been given an opportunity to make submissions to the Wenzhou Court as to why the Enforcement Notice should be set aside and why the Settlement Agreement should be treated as subsisting. As shown by the Wenzhou Court’s Judgment dated 17 September 2019, D’s submissions have been considered by the Wenzhou Court. In these circumstances, it would not be right to say that D has been deprived the right to be heard on whether the enforcement of the Wenzhou Judgment should be resumed as a result of D’s non-compliance with the Settlement Agreement.

26.  I also do not agree that D has been caused to pay default interest as a result of the deliberate delay by P in serving the Enforcement Notice on D.  It is expressly stated in the Enforcement Notice that D would have to comply with the Enforcement Notice within 3 days after service of the notice on D, not within 3 days after the issuance of the notice.  Further, both P’s expert and D’s expert on the Mainland Chinese law agree that the notice should be served by the Wenzhou Court, not by P[5].  In the light of all these, there is no basis to say that P has caused D to pay default interest by delaying the service of the Enforcement Notice on D.

27.  As said in the above, in the Setting Aside Application, D has made the argument that the Settlement Agreement should be treated as subsisting.  The Wenzhou Court considered the application (including that argument) and dismissed the application in its judgment dated 17 September 2019.  It is wrong to say that the Wenzhou Court did not pay attention to D’s argument that she should still enjoy the protection under the Settlement Agreement.

28.  I am also of the view that D’s alleged inability to run the “estoppel” defence in the Wenzhou Court due to the absence of a concept of “estoppel” under the Mainland Chinese law does not have anything to do with the propriety of the Wenzhou Court proceedings.  The Wenzhou Court applied the Mainland Chinese law and determined the controversies between P and D.  There is no allegation, let alone evidence, saying that there is any impropriety in the Wenzhou Court proceedings by reason of D being unable to run the “estoppel” argument in the Mainland.

29.  I am not persuaded by the arguments put forward by D.  In my judgment, based upon the Wenzhou Court proceedings, P has shown a good arguable case against D.

Real risk of dissipation of assets

30.  The principles concerning real risk of dissipation of assets are well-established and not in dispute:

(1)  The test in determining whether there is a real risk of dissipation is objective. The court will examine the effect of a defendant’s conduct, and determine whether the refusal of a Mareva injunction would involve a real risk that a judgment in favour of the plaintiff would remain unsatisfied[6].

(2)  The plaintiff has to show a solid basis for concluding that there is a real risk of dissipation.  Each case depends on its own facts.  While most factors will not be direct evidence on dissipation as such, matters like the nature of assets held by the defendant, nature and financial standing of the defendant, past or existing credit history, defendant’s behaviour in respect of the claim can be indicative of the risk of dissipation[7].

(3)  The assessment of whether there is a real risk involves evaluative and predictive judgment, in particular by drawing proper inferences from a holistic consideration of all circumstantial materials that are indicative of, and that points against, such risk[8].

(4)  In considering whether there is a risk of dissipation, the fact that the defendant is resident outside the jurisdiction may also be relevant[9].

31.  P submits that there is a real risk of dissipation of assets by reason of the following:

(1)  D is resident in the Mainland.

(2)  D had flouted the asset disclosure orders made by PRC and HK Courts.

(3)  D has failed to repay the judgment sum due under the Wenzhou Judgment (save the payment of RMB 355,000) and there is no justification for P not to pay the sum.

(4)  D has been formally named as a “Dishonest Judgment Debtor” (失信被執行人) by the Mainland courts.

(5)  D has taken steps to sell her properties in Hong Kong.

32.  There is no dispute that D is a resident in the Mainland.

33.  It is also undeniable that D has repeatedly failed to comply with the asset disclosure orders made by the Wenzhou Court.

(1)  As recorded in the Report of the Wenzhou Court dated 31 August 2018, the Wenzhou Court made 3 asset disclosure orders against D on 19 February 2014, 30 April 2014 and 2 May 2017 respectively.  It is a fact that D has not made any disclosure pursuant to these orders.

(2)  D gave the following explanation as to why she did not comply with these disclosure orders[10]:

“… Once the Settlement Agreement kicked in, it is neither here nor there that I have disregarded these 2 Asset Disclosure Orders [made in 2014]. Further, I have been adamant that the Plaintiff is not entitled to obtain the Enforcement Notice. It follows that the Asset Disclosure Order attached therein, i.e. the 3rd Asset Disclosure Order on 2 May 2017, was wrongfully obtained. I have been advised and I verily believe that no adverse inference should be drawn from my commercial reluctance to comply with the Asset Disclosure Orders …”

(3)  D submits that the first 2 asset disclosure orders preceded the Settlement Agreement made on 30 April 2014.  It would not be fair for P to rely upon these 2 disclosure orders to make adverse comments against D, for the parties were probably in the process of negotiation at that time.  D further submits that non-compliance with the 3^rd asset disclosure order at best would only be evidence of commercial reluctance which does not necessarily indicative of low commercial morality. 

(4)  I would not hold the non-compliance with the first 2 asset disclosure orders as evidence against D.  I agree that the parties might having some negotiations at that time.  However, there is simply no satisfactory explanation as to why D did not comply with the 3^rd asset disclosure order.  The 3^rd asset disclosure order is an order made by the Wenzhou Court.  D3 has to respect and obey the court order. “Commercial reluctance” certainly cannot be a valid reason explaining the non-compliance.

34.  D has also failed to comply with the disclosure orders made by the Hong Kong Court.

(1)  On 29 May 2020, I made the 1^st Disclosure Order requiring D to disclose “how the net sale money [of D’s Two Properties] will be received by [D]”.  However, D only made partial compliance with the 1^st Disclosure Order by disclosing that she was due to complete the sale of one of D’s Two Properties in August 2020.  D refused to inform P the details of bank account(s) at which the net sale money will be received, insisting that “how the net sale money will be received” in the order only required her to inform P that she would receive cheques from the purchaser.

(2)  D maintained her position despite P’s explanation that the 1^st Disclosure Order was made in the context where P’s Counsel informed the court that P would at least have to know where to serve the order in order to give bite to D’s undertakings not to dispose of her assets, and therefore D must be required to disclose the said bank details (for otherwise the order would not serve its purpose).

(3)  As a result of the uncooperative attitude of D, P made a further application to the court.  On 29 July 2020, I ordered D to (a) disclose details of bank account(s) at which the net sale money will be received; and (b) pay P’s costs of the application (“the 2^nd Disclosure Order”).

(4)  The 1^st and the 2^nd Disclosure Orders together require D to disclose where the entirety of net sale money is deposited at.  However, on 17 September 2020, D only informed P where the balance of net sale money after deduction of deposit is to be deposited at, and refused to disclose the whereabouts of the deposit.  Only after P’s repeated demands did D eventually disclose the same on 6 October 2020.

(5)  All the aforesaid are indisputable.  D submits that all these merely show that D is not forthcoming with her financial details.  These facts would not be sufficient to demonstrate an unacceptably low level of commercial morality.

(6)  In my view, the non-compliance with the disclosure orders made by the Hong Kong Court should certainly be taken into account in considering whether there is any real risk of dissipation. While this factor alone may be not sufficient for the purpose of demonstrating a real risk of dissipation, this factor and together with other factors may well be sufficient for showing the real risk of dissipation. 

35.  D submits that she has been honouring her obligations pursuant to the Settlement Agreement at all times, and this is antithesis of low commercial morality.  That D is being unable to repay the judgment debt under the Wenzhou Judgment to P in one go cannot be evidence of showing a real risk of dissipation.  Having considered this submission in context, I am of the view that there is no force in the submission.

(1)  Based upon the evidence produced by P, it is indisputable that D has failed to comply with the Wenzhou Judgment and 8 other judgments or orders made by the Mainland courts.  D has been named by the Mainland courts as a “Dishonest Judgment Debtor” (失信被執行人).  The Mainland courts took the view that D had the ability to comply with judgments but chose not to do so (“有履行能力而拒不履行生效法律文书确定义务”).

(2)  D’s Two Properties in Hong Kong are valuable properties.  Apart from these two properties, P owned another property in Hong Kong but she has disposed of the same in June 2019.

(3)  In view of the comments made by the Mainland courts, the matter set out in subparagraph (2) above, and D’s non-compliance with the asset disclosure orders made by the Wenzhou Court and the Hong Kong Court, D’s allegation that she would not be financially able to repay the judgment debt owed to P under the Wenzhou Judgment in one go may not be true.

(4)  Further, I agree with P that D’s continuous payment of the minimal RMB 5,000 monthly installment under the Settlement Agreement is not the antithesis of risk of dissipation.  The fact that D sees fit to treat the Settlement Agreement as subsisting and the Enforcement Notice as having no legal effect when her Setting Aside Application has already been dismissed by the Wenzhou Court, reflecting her flagrant disregard of court orders.

(5)  After the dismissal of the Setting Aside Application, D has to pay the judgment debt owed to P under the Wenzhou Judgment in one go. She did not do so and still refuses to do so.

36.  It is also a fact that D is taking steps to sell her properties in Hong Kong.  This factor alone would not be sufficient to show a real risk of dissipation.  However, taking this factor and all the aforesaid matters into account, I am satisfied that there would be a real risk of dissipation of assets if the injunction sought by P is not granted.

37.  Having considered the evidence, I am of the view that P has shown a real risk of dissipation of assets in the absence of a Mareva injunction.

Balance of Convenience

38.  D submits that since there is no risk of dissipation and with regard to the strong merits of D’s case, the balance of convenience lies against granting of the injunction.

39.  I have ruled that P has shown a good arguable case against D, and P has also shown that there would be a real risk of dissipation of assets if the injunction sought is not granted.  In the circumstances, the balance of convenience is clearly in favour of granting the injunction.

Quantum

40.  P is seeking a Mareva injunction to freeze an amount equivalent to the total of the Principal and the Judgment Interest awarded in the Wenzhou Judgment up to the commencement of the trial in these proceedings.  According to P, the figure should be RMB 8,173,613.54. P does not include any default interest in the calculation.

41.  D contends that:

(1)  Under the Wenzhou Judgment, D is required to pay to P within 10 days (a) the Principal of RMB 2,800,000; and (b) interest at the monthly rate of 1.8% starting from 1 February 2012 to “本判決確定的履行之日止”.

(2)  The Wenzhou Judgment was ordered to be effective on 28 August 2013.  Counting 10 days from 28 August 2013, that would be 7 September 2013.  Accordingly, D has to pay to P the Principal and the interest at the monthly rate of 1.8% from 1 February 2012 to 7 September 2013.  The total of these amounts would be:

Principal: RMB 2,800,000 + Interest at 1.8% per month from 1 February 2012 to 7 September 2013: RMB 982,800 = RMB 3,782,800.

(3)  Under the Mainland Chinese law, after 7 September 2013, the interest payable by D would be default interest.  However, P has made it clear that she does not include any default interest in her application for a Mareva injunction.

(4)  Accordingly, the sum to be frozen by the Mareva injunction at most can only be RMB 3,782,800.

42.  P’s position is that the judgment interest at the rate of 1.8% per month in fact should apply at all times.

43.  As to whether the judgment interest of 1.8% per month is applicable from 8 September 2013 to 21 June 2021, P’s expert and D’s expert have given different opinions.  The answer depends upon the true meaning of the Wenzhou Judgment and the interpretation of some Mainland Chinese law.  I am of the view that this is an arguable issue, which would have to be finally determined in the trial of these proceedings. 

44.  It is trite that the existence of a good arguable defence does not necessarily negate a good arguable case.  In my view, notwithstanding the existence of an arguable issue on interest, it remains that P has a good arguable case concerning the RMB 8,173,613.54.  The amount to be frozen by the injunction would be this sum.

Ancillary Disclosure Order

45.  P also seeks an ancillary disclosure order in terms of [3] and [4] of the draft order annexed to the summons.  I am of the view that the disclosure order sought is necessary and appropriate.  I would give the disclosure order to P. 

Disposition

46.  For the reasons set out in the above, I am satisfied that P is entitled to have the Mareva injunction (with the ancillary disclosure order mentioned in [45] above) sought in the summons.  I grant the order to P.

47.  D has vigorously opposed the summons, but her opposition fails.  Costs should follow the event.  I make a costs order nisi that costs of the summons (including costs of the hearing on 29 May 2020) be paid by D to P forthwith, and those costs be summarily assessed.  I note that P was represented by 2 counsel in the hearing on 29 May 2020.  With no disrespect to counsel for P, I am unable to say that P’s application as per the summons carries sufficient complexity which would justify a certificate for 2 counsel.  I am not minded to grant that certificate.

48.  There be leave to D to file and serve a written reply to P’s bill of costs for summary assessment within 7 days after the costs order nisi becoming absolute.

49.  Lastly, it remains for me to thank counsel for the assistance rendered to the court.