TRANSUNION LTD v. HONGKONG TAIJIN INDUSTRY LTD AND OTHERS

HCA 1353/2019

[2021] HKCFI 259

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1353 OF 2019

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DECISION

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1.  There are 4 applications before this court:

(1)  the plaintiff (“P”)’s application to make absolute a garnishee order nisi against Zall Holdings Company Limited (“Zall”) qua garnishee dated 7 July 2020 (“the 1^st Garnishee Order Nisi”);

(2)  P’s application by a summons dated 7 July 2020 for an order varying the injunction order made on 25 July 2019 and continued on 2 August 2019 such that Zall be permitted to pay P the debts due from Zall to the 1^st defendant (“D1”) pursuant to the 1^st Garnishee Order;

(3)  P’s application to make absolute a garnishee order nisi against Zall qua garnishee dated 3 August 2020 (“the 2^nd Garnishee order Nisi”); and

(4)  P’s application by a summons dated 22 September 2020 for an order varying the injunction order made on 13 September 2019 and continued on 20 September 2019 such that Zall be permitted to pay P the debts due from Zall to the 20^th defendant (“D20”) and the 22^nd defendant (“D22”) pursuant to the 2^nd Garnishee Order.

2.  These application are opposed by Zall.  Zall submits that P’s applications should be refused by reason of the following:

(1)  At all material times, Zall qua garnishee and the debts in question are not located “within the jurisdiction” and thus cannot be subject to any garnishee order (“the Jurisdiction Ground”).

(2)  The guarantor of the debts in question, ie a Mr Cui Jinfeng (崔錦鋒) (“Cui”) is exposed to the real risk of double jeopardy and the court’s discretion ought not be exercised to make absolute the 1^st and the 2^nd Garnishee Orders Nisi in these circumstances (“the Double Jeopardy Ground”).

3.  Zall is also the 25^th defendant (“D25”) in these proceedings.

BACKGROUND

4.  In these proceedings, P is claiming that they are a victim of an email fraud and have suffered a loss of US$17,800,000. Being deceived by the fraud, P has transferred the sum to D1’s bank account in Hong Kong between 4 to 10 July 2019 by 8 payments (“the Original Sum”).

5.  It is P’s case that:

(1)  The Original Sum was further transferred in 86 tranches from D1’s bank account to, inter alia, the bank account in Hong Kong held by Zall qua D25 in these proceedings (“Zall A/C”).  The sum paid to Zall A/C amounted to US$2,999,968.13.

(2)  Apart from D25, D20 and D22 also received tranches of the Original Sum.  Both D20 and D22 then paid HK$6,234,696.00 and HK$7,951,630 to D25 respectively.

6.  Zall filed a defence.  The gist of the defence is one of bona fide purchase for value without notice.  Three loan agreements (“the Loan Agreements”) have been executed by D1, D20 and D22 on the one hand and Zall on the other hand:

(1)  a loan agreement dated 9 July 2019 between D1 as the lender and Zall as the borrower, pursuant to which D1 has provided to Zall a loan of US$3,000,000 for a term of one year with an interest rate of 4% per annum;

(2)  a loan agreement dated 9 July 2019 between D20 as the lender and Zall as the borrower, pursuant to which D20 has provided to Zall a loan of HK$7,500,000 for a term of one year with an interest rate of 4% per annum; and

(3)  a loan agreement dated 8 July 2019 between D22 as the lender and Zall as the borrower, pursuant to which D22 has provided to Zall a loan of HK$12,500,000 and a loan of US$1,000,000, both for a term of one year with an interest rate of 4% per annum.

7.  Zall claimed that they were assured of the propriety of the sums transferred to them and had no knowledge of and had no reason to suspect any fraud was involved.  Thereafter, the monies were deposited into another securities account held by Zall in Hong Kong (“the Securities A/C”) and used to purchase shares in Zall Smart Commerce Group Limited (2098) (“Zall Smart”).

8.  P has obtained various injunctions to preserve the sums which may be parts of the Original Sum.

9.  On 2 December 2019, P obtained a default judgment against D1 for the sum of US$17,800,000.

10.  On 30 June 2020, P obtained a default judgment against D20 and D22.  Under that judgment, D20 and D22 are required to pay P US$800,001.30 and US$1,019,999.48 respectively.

11.  On 7 July 2020, P obtained the 1^st Garnishee Order Nisi.  On 3 August 2020, P obtained the 2^nd Garnishee order Nisi.  The debts sought to be garnisheed under the said garnishee orders are the debts or parts of the debts owed by Zall to D1, D20 and D22 under the Loan Agreements.

THE JURISDICTION GROUND

The principles

12.  It is trite that the court may only make a garnishee order against a person who is within the jurisdiction.  Order 49 rule 1 provides:

“1. Attachment of debt due to judgment debtor (O. 49, r. 1)

(1) Where a person (in this Order referred to as the judgment creditor) has obtained a judgment or order for the payment by some other person (in this Order referred to as the judgment debtor) of a sum of money amounting in value to at least $1,000, not being a judgment or order for the payment of money into court, and any other person within the jurisdiction (in this Order referred to as the garnishee) is indebted to the judgment debtor, the Court may, subject to the provisions of this Order and of any written law, order the garnishee to pay the judgment creditor the amount of any debt due or accruing due to the judgment debtor from the garnishee, or so much thereof as is sufficient to satisfy that judgment or we order and the costs of the garnishee proceedings.” (Emphasis added)

13.  A debt is situate in the place where the debtor resides.  Where the debtor is a corporation, “residence” in this context must be equated with the residence for the purpose of jurisdiction.  Jurisdiction over a corporation depends on whether or not it does business in the country concerned, and, for the purpose of determining situs, a corporation is resident wherever it carries on business.  Where the debtor has two or more places of residence and the creditor either expressly or impliedly stipulates for payment at one of them, then the debt will be there situate^[1].

Residence of D25 qua Garnishee

14.  In D25’s defence, it is pleaded:

“2.1 At all material times, [D25] is an investment holding company incorporated in the British Virgin Islands (“BVI”) with limited liability, which is wholly-owned by a Mr Yan Zhi (閻志) (“Mr Yan”).

2.2 As of the date of this Defence, [D25] beneficially owned and still owns (i) 74.8% of shares of China Infrastructure & Logistics Group Limited which is listed on the main board of the Stock Exchange of Hong Kong Limited (“HKEx”) (Stock Code: 1719) and (ii) 2.14% of shares of Zall Smart Commerce Group Limited (“Zall Smart”) which is also listed on the main board of the HKEx (Stock Code: 2098).”

15.  It is not disputed that:

(1)  Zall has an address at Two Exchange Square (“the Hong Kong Address”).

(2)  Zall A/C is in Hong Kong.  The funds under the Loan Agreements were transferred to this account.

(3)  The Securities A/C is also in Hong Kong.  The funds obtained under the Loan Agreements were transferred to this account to purchase the shares of Zall Smart.

(4)  The Loan Agreements are governed by Hong Kong law and the forum for dispute resolution is in Hong Kong.  Each of the Loan Agreements contains the following clause:

“五. 争议解决

本合同受香港特别行政区法律管辖及解释在本合同履行过程中发生的纠纷，双方应友好协商解决；协商不成的，任何一方均有权向香港法院提起诉讼”

16.  Zall submits that notwithstanding the aforesaid, Zall cannot be said of having a place of residence in Hong Kong.

(1)  The Hong Kong Address is merely used as a corresponding address with respect to bank and securities firms.  The use of the Hong Kong Address as a correspondence address is far from “carrying on business”.

(2)  There is no rule of law that prohibits foreign companies to set up a bank or securities account in Hong Kong.  There is also no rule dictating that once a foreign company does so, it will be caught by the jurisdiction of the Hong Kong Court.

(3)  The mere fact that Zall has concluded certain agreements which are governed by Hong Kong law and has elected to have Hong Kong as the forum for dispute resolution is quite irrelevant as to whether Zall has carried on business in Hong Kong.

17.  With respect, I am unable to accept these submissions.  In my view, the matters set out in [15] above have sufficiently shown that for the purpose of the garnishee proceedings, Zall should be regarded as within the Hong Kong jurisdiction.

(1)  Although Zall is a company incorporated in BVI, it would be regarded as having a residence in Hong Kong if Zall has carried on business in Hong Kong.

(2)  Since Zall is an investment holding company, its business would be the activities relating to investment holding.  The investment held by Zall are shares in the listed companies in Hong Kong.

(3)  The Hong Kong Address, the Zall A/C, and the Securities A/C have been used by Zall to conduct its investment holding business in Hong Kong.  An example on this point is that the funds provided to Zall under the Loan Agreements were injected into the Zall A/C, and then were advanced to the Securities Account for the purpose of purchasing the shares of Zall Smart.

18.  In my view, it is clear that Zall has carried on business in Hong Kong. 

19.  Further, I am of the view that under each of the Loan Agreements, the place for repayment of the loan is in Hong Kong.  Although the place of repayment has not been expressly set out in the Loan Agreements, it has been stipulated in Clause 5 of each Loan Agreement that the agreement is governed by Hong Kong law, and the forum for resolving the disputes arising from the agreement is the Hong Kong Court.  All these point to the fact that the place of repayment should be in Hong Kong.  Unless the place of repayment is in Hong Kong, there is no or no sufficient reason to include Clause 5 in each of the Loan Agreements.

20.  Zall submits that Clause 5 of each Loan Agreement is a non-exclusive jurisdiction clause, and the BVI Court’s jurisdiction has not been excluded by this clause.  This may be so.  However, in considering the place of repayment of the loan under each Loan Agreement, one must not overlook the following:

(1)  Zall is an investment holding company.  Based upon the evidence before the court, the assets held by Zall are shares of listed companies in Hong Kong.

(2)  Zall A/C and the Securities A/C are in Hong Kong.

(3)  Zall is having correspondences with bank and securities firms at the Hong Kong Address.

(4)  There is no evidence showing that Zall has any other asset which is not in Hong Kong.

(5)  There is also no evidence showing that Zall has any other bank account, any other securities account, or any other office which is not in Hong Kong.

(6)  D1, D20 and D22 are companies incorporated in Hong Kong and having their respective registered offices in Hong Kong. Each of them has a bank account in Hong Kong.  The sums advanced to Zall under the Loan Agreements in fact are from their bank accounts in Hong Kong.

(7)  There is no evidence showing that D1, D20 and D22 have any other office which is not in Hong Kong.  There is also no evidence showing that D1, D20 and D22 have any other bank account which is not in Hong Kong.

(8)  Clause 5 of each Loan Agreement further indicates that the parties intend to have the loan to be repaid in Hong Kong.

21.  With all the aforesaid in mind, in my view, a reasonable bystander would certainly have a view that under each of the Loan Agreements, the loan is to be repaid by Zall in Hong Kong.  It is inconceivable to say that the intended place of replacement is not Hong Kong but is BVI or any other place in these circumstances.

22.  Since I have ruled that Zall has a residence in Hong Kong, that would be sufficient for the Hong Kong Court to exercise jurisdiction over Zall in the garnishee proceedings.  With no disrespect to the parties, it would not be necessary for me to make a ruling on the other points advanced by the parties concerning jurisdiction, including whether Zall has submitted to the jurisdiction for the purpose of the garnishee proceedings.

23.  In my judgment, the jurisdiction challenge mounted by Zall fails.

THE DOUBLE JEOPARDY GROUND

24.  Under this ground, Zall makes the following submissions:

(1)  At the same time when the Loan Agreements were entered into, Cui, the then executive director and authorised representative of Zall Smart, executed three personal guarantees (協議書) (“the Personal Guarantees”) for the three Loan Agreements.  As stipulated in Clause 5 of each of the Personal Guarantees, the Personal Guarantees are governed by Mainland Chinese law.

(2)  Pursuant to the Personal Guarantees, Cui has paid substantial sums to accounts designated by the lenders (“the Cash Guarantees”).

(3)  Zall has produced an expert opinion on Mainland Chinese law (“the Expert Opinion”) prepared by two Mainland lawyers.  P has not produced any expert report to challenge that opinion.  The two Mainland lawyers said the following in their opinion:

“（三）崔锦锋先生不应立即承担担保责任

崔锦锋先生承担担保责任的先行条件是Zall公司未按期归还借款构成违约，而无论从前文所述《协议书》的约定（借款期限自动顺延）还是从《中华人民共和国合同法》中关于同时履行抗辩权、不安抗辩权的角度，Zall公司均有权暂缓归还借款，而不构成任何违约。故崔锦锋先生承担担保责任的先行条件尚未成就，崔锦锋先生理所当然不应立即承担担保责任。此外，若崔锦锋先生先行履行了担保义务，而贷款人失联不能按约同时返还保证金，则崔锦锋先生将遭受财产损失。

换一个角度而言，如香港法庭颁布一法庭命令，要求Zall公司需立即将应偿还给貸款人的借款向第三方（如环联，该公司诉称贷款人借给Zall公司的款项是属于环联的）转付，而Zall公司根据该法庭命令向第三方还款，虽第三方权益得到法律保护，但因贷款人处于失联状态，崔锦锋先生的保证金亦将无法同时反还，而崔锦锋先生也无权再向Zall公司主张权利，则崔锦锋先生的权益将无法得到保障，且遭受财产损失，而且更可能因借款合同期限未被终止而承受贷款人继续要求Zall公司归还借款或要求崔锦锋先生承担担保责任的风险，造成Zall公司及崔锦锋先生均蒙受重大的财产损失。” (Emphasis added)

(4) If the 1^st and the 2^nd Garnishee Order Nisi are made absolute, Cui would be deprived of the return of the Cash Guarantees paid to the designated recipients and may be requested by the lenders for payment (notwithstanding the orders). This is clear evidence of real risk that Cui (who is entirely innocent) will suffer irreparable financial prejudice.

(5) In the circumstances, it would not be just and appropriate to make absolute the 1^st and the 2^nd Garnishee Orders Nisi.

25.  With respect, I am not persuaded by these submissions.

26.  Order 49 rule 8 provides:

“Any payment made by a garnishee in compliance with an order absolute under this Order, and any execution levied against him in pursuance of such an order, shall be a valid discharge of his liability to the judgment debtor to the extent of the amount paid or levied notwithstanding that the garnishee proceedings are subsequently set aside or the judgment or order from which they arose reversed.” (Emphasis added)

27.  As said in the above, each of the Loan Agreements is governed by Hong Kong law.  That being the case, if the 1^st and the 2^nd Garnishee Orders Nisi are made absolute and Zall made payments to P under these orders, Zall’ liabilities owed to D1, D20 and D22 under the Loan Agreements would be correspondingly reduced.  The discharge would still be valid even if the garnishee proceedings or the default judgments against D1, D20 and/or D22 are subsequently set aside.

28.  As stipulated in Clause 2 of each of the Personal Guarantees, the purpose of the cash advanced by Cui to the recipients designated by the lender is for the purpose of guaranteeing the lender’s right to obtain repayment under the corresponding loan agreement – “为保障原合同项下[D1/D20/D22] 的债权实现”.  While the lender’s right of obtaining repayment under the loan agreement has been extinguished or reduced by reason of the matters set out in [26] and [27], the obligation of Cui under the relevant guarantee would be correspondingly extinguished or reduced.

29.  Although the Expert Opinion produced by Zall is not contradicted by any other evidence before the court, I am not bound to accept the same^[2]. I am entitled and indeed obliged to use my legal training insofar as it may have a bearing on the resolution of dispute^[3]. Having carefully the Expert Opinion, with respect, the two Mainland lawyers have not addressed the matters set out in [26] to [28] above.  Notwithstanding the Expert Opinion, I am not persuaded that making the 1^st and the 2^nd Garnishee Order Nisi absolute would prejudice Cui or the lenders under the Loan Agreements (ie D1, D20 and D22) in any way.

30.  In my judgment, there is no merit in the double jeopardy ground.

DISPOSITION

31.  For the reasons set out in the above, Zall’s opposition is devoid of merits.  P’s applications should be allowed.  I make absolute the 1^st and the 2^nd Garnishee Orders Nisi. I also vary the relevant injunctions so that Zall is required to pay the debts garnisheed to P notwithstanding the said injunctions.

32.  Costs should follow the event.  There be a costs order nisi that costs of P’s applications be paid by Zall to P forthwith, and those costs be summarily assessed.  There be leave to P to file and serve a bill of costs for summary assessment within 7 days after the costs order nisi becoming absolute, and leave to Zall to file and serve a written reply to the said bill within 7 days thereafter.

33.  Lastly, it remains for me to thank Mr Randall Arthur for P and Mr Ernest CY Ng for Zall for the helpful assistance rendered to the court.