NATURAL DAIRY (NZ) HOLDINGS LTD (IN PROVISIONAL LIQUIDATION) v. CHEN KEEN (alias JACK CHEN) AND OTHERS

HCA 2218/2017

[2022] HKCFI 3037

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2218 OF 2017

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DECISION

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1.  The defendants were allegedly involved in a complex conspiracy, for which there are ongoing criminal and civil legal proceedings both in Hong Kong and New Zealand, including the present action. The first three defendants in this action have since 2011 been subject to a property restraint order as well as prosecution in Hong Kong. In the present action, the plaintiff, under liquidation, has also obtained worldwide proprietary and Mareva injunction for some HK$776 million against the first four defendants. Of them, the first three defendants have attempted but failed to obtain exception to the injunction on account of, amongst other things, their legal expenses. They now apply to vary the injunction with a view to obtaining a similar exception.

BACKGROUND

2.  Briefly, the plaintiff, under the control of its joint provisional liquidators (“JPL”), claims against the 1^st defendant (“Chen”) for breach of fiduciary duties with respect to a complex deal which the plaintiff entered into with entities controlled by the 2^nd defendant (“Hao”) in 2009.  The purported deal was to acquire certain dairy assets in New Zealand (“the Acquisition”), which resulted in substantial funds belonging to plaintiff being paid out to various parties including Chen and his wife, the 3^rd defendant (“Ye”).  The last four defendants in this action are also sued for accessory liability in assisting Chen with his breach of fiduciary duties while all the defendants are sued for conspiracy.

3.  On 9 July 2019, the plaintiff applied for worldwide proprietary and Mareva injunction against the defendants.  The application was heard in early May 2020.  By her decision dated 7 October 2020 (“the 7/10/2020 Decision”), DHCJ Eva Sit SC (as the learned Recorder then was) granted the injunction against the first four defendants.

4.  The terms of the injunction will be summarised further below.  Suffice at this juncture to say that the learned Deputy Judge gave direction for the filing of evidence and written submissions for resolving the outstanding issue of exception from the injunction. Chen and Ye did so, seeking exception from the injunction amounts for their legal expenses.

5.  On 9 November 2020, the learned Deputy Judge in writing refused to allow the exception requested (“the 9/11/2020 Decision”).

6.  The background and the procedural history of the present application up to early October 2020 were set out in the 7/10/2020 Decision and the 9/11/2020 Decision.  Pertinently, the learned Deputy Judge was aware that following the arrest and charge of Chen and Ye, the Department of Justice (“DoJ”) has obtained against them a restraint order in respect of their properties pursuant to the Organized and Serious Crimes Ordinance, Cap 455 (“OSCO”) since October 2011 (“the Restraint Order”).  The Restraint Order has since been varied for several times, the last of which was in March 2020.  Against this background, Chen and Ye have since been the subjects of various legal proceedings referred to below.

7.  In 2012, Ye faced criminal trial for money laundering relating to the Acquisition (DCCC 1022/2012).  The trial lasted for 44 days (over a span of 8 months). After her conviction, Ye appealed in 2014 (CACC 299/2014).  The conviction was quashed on appeal, but a re-trial was directed. The re-trial lasted for 27 days.  Ye was eventually acquitted.

8.  In 2014, Chen (and Hao) faced criminal trial for conspiracy to defraud relating to the Acquisition (HCCC 83/2014).  The trial lasted for 105 days. After their conviction, Chen sought to appeal (CACC 172/2016).  After a 10-day hearing, the appeal failed.  Chen took it to the Court of Final Appeal, and eventually managed to have his conviction quashed in August 2019 (FAMC 29/2018 & FACC 26/2018).  However, Chen also had to face re-trial.

9.  The learned Deputy Judge was also aware that in January 2020, the Court of Final Appeal awarded costs to, amongst others, Chen consequential upon the success of his final criminal appeal.  The amount of such costs were subsequently agreed with the DoJ at HK$60 million.  Such costs then paid to Chen were excepted from the Restraint Order, and were said to have been applied towards what had previously been paid for the costs of Chen and Ye in their criminal proceedings, leaving a balance of HK$19,293,048.92 in the client’s account of those acting for Chen.  That formed the sum then sought by Chen and Ye to be excepted from the injunction.

10.  By the time of the 9/11/2020 Decision, Chen and Ye have also filed their application for leave to appeal against the 7/10/2020 Decision, challenging the injunction.

11.  In the 9/11/2020 Decision, the learned Deputy Judge explained her decision to refuse to allow the exception sought:

“The Restraint Order has been in place since October 2011 and it is supposed to cover all of D1/D3's assets. However D1/D3's case appears to be that they have already settled all their legal fees in the 1^st Criminal Proceedings up to the Court of Final Appeal. I also accept P's submissions that the averments in D1's 3^rd Affirmation suggest there have been changes (in some cases accretion) in the assets of D1/D3 for which they have failed to provide any or any sufficient evidence to show their current whereabouts or value, which would clearly be relevant to whether other source(s) of funding are available. Accordingly D1/D3's application for an exception for payment of legal fees in the sum of the Dl/D3 Balance is dismissed.”

12.  There was no appeal against the 9/11/2020 Decision.

13.  Since the 9/11/2020 Decision up to the present application, Chen and Ye were subjects of the following further legal proceedings.

14.  In late February 2021, the criminal re-trial of Chen (HCCC 309/2019) commenced.

15.  In April 2021, following the dismissal by the learned Deputy Judge of the application for leave to appeal against the 7/10/2020 Decision, Chen applied to the Court of Appeal for leave (CAMP 119/2021).  This was dismissed on 23 February 2022.

16.  In mid-June 2021, when the re-trial of Chen in HCCC 309/2019 reached its 65^th day, the trial judge directed the jury to be discharged.  In August 2021, the trial judge made an order awarding costs of the aborted re-trial to Chen. That prompted the DoJ to appeal against such costs decision on the one hand and Chen to apply for stay of further criminal proceedings against him on the other.

17.  By summons filed on 13 December 2021 (“the Summons”), Chen and Ye took out the present application to vary the injunction by excepting from it:

(1)  Spending of HK$60,433,687.22 on legal fees in connection with, inter alia, the proceedings herein and the criminal proceedings under HCCC 309/2019 and any appeals arising therefrom (“the Legal Costs Exception”); and

(2)  Settlement of any outstanding mortgage repayments and future monthly mortgage repayments in respect of the property situated at No. 16 Bridgewater Road, Parnell, Auckland, New Zealand (“the 16 Bridgewater Road Property”) with the Bank of New Zealand together with bank charges and related legal fees (if any) from the trust account held by the Official Assignee in New Zealand under Estate No. 862740 (“the Trust Account”) until further order (“the Mortgage Repayments Exception”).

18.  By the time when the present application was first heard in May 2022, the Court of Appeal has already refused leave to Chen to appeal against the 7/10/2022 Decision to the Court of Appeal.

19.  Further pending legal proceedings were also known by then.

20.  First, the appeal against the order as to the costs of the aborted criminal re-trial of Chen mentioned above was scheduled to be heard by the end of June 2022.  Decision was in fact handed down on 4 August 2022 (ie after the hearing of the present application on 5 July 2022) whereby the costs order was set aside.  In other words, the costs originally awarded to Chen for the aborted criminal re-trial would not come as expected.

21.  Second, following the Court of Final Appeal’s dismissal of Chen’s application to appeal against the dismissal of his application for stay of proceedings mentioned above (FAMC 35/2021 & FAMC 1/2022) in March 2022, the second criminal re-trial of Chen in HCCC 309/2019 is now scheduled to commence in May 2023, and is estimated to last for 90 days.

THE PRINCIPLES

22.  It is common ground that the applicant has the burden to show by sufficient evidence that:-

(1)  he does not have other assets to meet the payment, and the court should not limit its consideration to funds to which the applicant concerned has a legal right, if there are reasonable grounds for believing that he can obtain money otherwise; and

(2)  the purpose of the application is not an attempt to dissipate the assets to frustrate the enforcement of judgment by the plaintiff.

See Tidewater Marine International Inc v Phoenixtide Offshore Nigeria Limited & Ors [2015] EWHC 2748 (at §§34-46); XY, LLC v Jesse Zhu [2018] HKCFI 1485 (at §§20-22).

23.  The plaintiff reiterates that the JPL have no intention of unfairly depriving Chen or Ye of legal representation or unnecessarily preventing them from meeting the mortgage repayments.  It argues that Chen and Ye nevertheless fail to discharge their burden so that the present application ought to be dismissed.

PRELIMINARY

24.  A couple of preliminary points.

25.  First, when the present application came to be heard on 25 May 2022, counsel for Chen and Ye complained about surprise arising out of issues taken by the plaintiff in its written submission, which were said to be withheld from the affirmation in opposition filed on its behalf.  Without ruling on the complaint, but after ascertaining the plaintiff’s stance, this court gave leave to Chen and Ye to file and serve further affirmation evidence in respect of those issues and adjourned the substantive argument of the application.  Hence the second hearing on 5 July 2022.  The further affirmation evidence has now been filed, and further submissions of the parties have been lodged with reference to the further evidence.

26.  Second, in respect of the Legal Costs Exception, the plaintiff argues that the present application is an abuse of process. Reference is made to what the court said in Lau Sin v Wong Mary [2018] 3 HKLRD 202 (at §33), which did not differ in substance from the following explanation in Steven Gee Q.C., Commercial Injunctions (7^th Edition) (at §21-059).  They are summarized by counsel as follows:-

(1)  If a point was open to the applicant on an earlier interlocutory application and was not pursued, it is not open to the applicant to take the point in a later application when there has been no material change of circumstances and no new facts.

(2)  It is an abuse of process of the court to rely upon a set of facts for obtaining a variation and then to apply again shortly thereafter for different relief based on the same facts or when there has been no material change of circumstances.

(3)  When an application is made to the court for a variation, the applicant should put before the court the full picture.  The court will not rehear an application which it has already heard and determined inter partes. A party aggrieved by such a determination will have to appeal.

27.  In the present case, DHCJ Sit SC has considered and spoken on the application by Chen and Ye for the exception from the injunction for the legal costs and expenses on the basis of the circumstances up to the 9/11/2020 Decision.  The learned Deputy Judge noted that Chen and Ye chose not to file any evidence then notwithstanding leave to do so.  Regard was then had to their submission, before the learned Deputy Judge concluded that they failed to discharge the burden in accordance with the principle.  Such conclusion on the basis of the circumstances by then has not been challenged by way of appeal (with application for leave to adduce new evidence).

28.  If Chen and Ye now seek to better their explanation of their case before the learned Deputy Judge and to rely on evidence which could have been but was not adduced then, that may be viewed as disguised attempt to have a “second bite of the cherry”.  That said, this court understands that the present application is based on alleged material change of circumstances, namely that Chen and Ye have since the 9/11/2020 Decision and by now exhausted their financial resource to fund the further criminal proceedings (against Chen) and the proceedings herein (against Chen and Ye) ahead.  This court also notes that for the purpose of considering the present application on this basis, whether and, if yes, what Chen and Ye said in respect of how their legal proceedings so far have been funded remain relevant.  This is apparent from the submission on behalf of the plaintiff as well.  Approached this way, the consideration should leave the parties with no real concern about any room for re-litigation of previously decided issues.

THE LEGAL COSTS EXCEPTION

29.  Concerning Chen and Ye, the proprietary part of the injunction restrains them from, amongst others, disposing of their interest in the landed properties in Hong Kong and New Zealand set out in Schedule 5 to the order.  Ye is further subject to a proprietary injunction in respect of the sum of HK$68,950,000 said to have gone into her bank account with HSBC.

30.  By the Mareva injunction, Chen is restrained from, amongst others, removing his assets up to the value of HK$776,070,000 while Ye is restrained from, amongst others, removing her assets up to the value of NZ$6,497,500 (or its equivalent Hong Kong dollar value) and HK$68,950,000 mentioned above.

31.  In seeking the legal costs exception before DHCJ Sit SC in November 2020 (then for the amount of HK$19,293,048.92), Chen and Ye projected the need but inability to fund (i) the estimated costs in the sum of HK$2,997,840 to be incurred for the criminal re-trial of Chen; (ii) costs incurred in the present action in the sum of HK$450,000; and (iii) estimated costs in the sum of HK$22.2 million to be incurred in the present action.

32.  Now for the present application, Chen and Ye provided the following figures:

Costs incurred and paid

Criminal proceedings concerning Chen
ESCC 1834/2012		HK$19,065,591.78
HCCC 83/2014		HK$62,143,524.85
CACC 172/2016		HK$10,451,424.25
FAMC 29/2018 & FACC 26/2018		HK$7,936,366.67
HCCC 309/2019
1st retrial		HK$38,746,653.75
Application for stay of proceedings		No charge
Appeal to the CFA		HK$1,552,000.00
Criminal proceedings concerning Ye
DCCC 1022/2012 & CACC 299/2014		HK$17,736,804.84
Costs awarded		- HK$11,057,000.00
DCCC 1022/2012 (re-trial)		HK$14,323,057.72
Costs awarded		- HK$9,800,000.00
Proceedings concerning Chen and Ye
HCA 2218/2017 (the present action)		HK$6,112,194.13
New Zealand proceedings		Unknown[1]

Costs incurred but unpaid

Proceedings concerning Chen
HCCC 309/2019
DoJ’s appeal against costs order	HK$2,000,000.00
Proceedings concerning Chen and Ye
HCA 2218/2019 (the present action)	HK$450,000.00

Estimated further costs to be incurred

Proceedings concerning Chen
HCCC 309/2019
2nd re-trial (quoted)	HK$38,000,000.00
Proceedings concerning Chen and Ye
HCA 2218/2017 (the present action)	HK$17,913,000.00

33.  It can be seen that the amount sought for the Legal Costs Exception is substantially more than that sought for the similar exception before DHCJ Sit SC back in late 2020.  More importantly, the plaintiff rightly points out that when the present application was heard before this court on 25 May 2022, Chen and Ye were yet to actually state what assets restrained by the injunction that they are seeking to be released to make up the now requested exception of HK$60,433,687.22.  The sources for the exception was made clear only in the latest affirmation of Chen filed after that hearing, which consist of:

(1)  The balance of HK$18,301,298.92 in Chen’s client account with his solicitors;

(2)  Costs of the criminal re-trial awarded to him estimated at HK$40,000,000; and

(3)  The balance of HK$13,206,236.98 in Ye’s account with HSBC.

34.  Subject to the Restraint Order since 2011, Chen and Ye should expect to be questioned about how they have managed to fund the legal costs incurred and paid, including those arising out of the legal proceedings subsequent to the 9/11/2020 Decision.  The explanation must be supported by evidence as well as full and frank.

The balance in Chen’s client account with his solicitors

35.  The scepticism of the court about the defendants, Chen and Ye included, that led to the grant of the injunction was set out in the 7/10/2020 Decision, which the Court of Appeal refused to disturb.  Insofar as their previous attempt on the basis of the circumstances by November 2020 is concerned, the scepticism the court had about the case of Chen and Ye that led to the refusal of allowing a similar legal costs exception from the injunction was set out in the 9/11/2020 Decision.  This court is in principle entitled to be no less sceptical in the consideration of the present application on the basis of their circumstances since then: see Steven Gee Q.C., Commercial Injunctions (7^th Edition) at §§21-048 to 053.  That the plaintiff subjects the disclosure and explanation of Chen and Ye to forensic scrutiny is only to be expected, as the financial situation of Chen and Ye is for them to tell: see: Tidewater Marine International Inc (above) (at §40).  Explanation by reference to lapse of time, inability to recall or lack of contemporaneous record never works in their favour.

36.  It is emphasised on behalf of Chen and Ye that the plaintiff never alleges breach of the ancillary disclosure order on their part, insofar as assets owned and controlled by them are concerned.  That may probably be relevant to the consideration of some queries raised by the plaintiff which will be discussed below.  However, the duty of full and frank disclosure for the purpose of discharging the burden to obtain the Legal Costs Exception here extends to that of the financial resources of Chen and Ye which could be entirely beyond their ownership or control such as loans.

37.  Indeed, Chen and Ye essentially explain that they have funded their legal costs so far since the Restraint Order and the injunction by obtaining substantial loans from relatives, business partners and friends.  The loans would have to be repaid.  Further, they have now exhausted such source as these third parties are prepared to lend them no more.

38.  The plaintiff argues that the account of Chen and Ye is both inadequate and incredible, notwithstanding effectively second chance to adduce evidence and to explain even the circumstances prior to the 9/11/2020 Decision.  Specifically, the plaintiff takes the following issues:

(1)  There is no evidence as to how Chen and Ye paid certain of their legal costs incurred even on the basis of their own case.

(2)  That the alleged family and friends of Chen and Ye would have advanced all those alleged loans in substantial sums enough to fund the HK$100 million legal costs incurred is inherently and on balance incredible.

(3)  The actual sources of the funds that enabled these alleged family and friends to advance the alleged loans to Chen and Ye are unclear and doubtful.

(4)  Certain substantial changes in Ye’s assets have not been explained.

(5)  There are a number of other suspicious features in the case and evidence of Chen and Ye.

39.  The factual context of the above issues was set out in some detail in the submission on behalf of the plaintiff.  Almost point-to-point responses were set out in the submission on behalf of Chen and Ye, particularly in that lodged with reference to the latest affirmation evidence filed pursuant to this court’s leave given at the first hearing of the present application.  Details aside, the central theme of the plaintiff’s criticism is either of two scenarios regarding the financial sources of Chen and Ye.  The first scenario is that Chen and Ye have not exhausted their third party funding sources as alleged.  The second scenario is that such funding, or part of it, so far did not come from entirely third party sources.

40.  An instance of the first scenario mentioned above was that Chen and Ye likewise claimed before DHCJ Sit SC in their first attempt for the exception from the injunction that they had no other means to pay their legal costs, and that they were no longer able to secure further loans from their family and friends.  The assertion did not persuade the learned Deputy Judge.  It is said that as a result, Chen had no choice but to act in person in the application for leave to appeal against the 7/10/2020 Decision.  Chen did appear to have acted in person.  However, somehow it was Ye, still represented in those proceedings, who through her solicitors adopted the submission of Chen who appeared in person: see decision of DHCJ Sit SC dated 1 April 2021 (at §8).

41.  Relevantly, after that, Chen allegedly came to be able to obtain another loan from his friend (Chan Tze Shing) to fund his appeal against the refusal of stay of his criminal proceedings.  That was heard in March 2022 when he was represented by QC and junior counsel.  Chen and Ye also allegedly secured another loan from the same friend to fund their present application to be conducted by SC and junior counsel. There might be circumstances surrounding or terms for such arrangements.  Yet the fact was that they did manage to obtain such funding after their claim of impossibility.

42.  The implication of the second scenario mentioned above would go further.  The doubt that the plaintiff cast on first, the inherent and relative improbability of all such funding by way of alleged loans from family and friends, and second, the intricate connections amongst these alleged third party sources and the couple, gears towards one suggestion, namely that Chen and/or Ye by themselves or their associates may have control over some of those funds deployed which they claim are third party sources. Only that the plaintiff is careful in refraining from actually saying that.

43.  Counsel for Chen and Ye must have discerned from the plaintiff’s criticism the implication of the second scenario.  They made the point that had the plaintiff indeed suggested that Chen or Ye has withheld disclosure of any assets owned or controlled by them, it would have been expected to have taken action for their breach of the ancillary disclosure order under the injunction.  Regarding that, it should be noted that first, the plaintiff is at the receiving end of disclosure by Chen and Ye; second, the facts and evidence as well as their scrutiny were really brought about by the application for exception by Chen and Ye but not before; and third, the plaintiff in the present application is still entitled to submit to the court whether or not Chen and Ye have discharged their burden of demonstrating by evidence their assertion that they have no other means of funding their legal expenses.

44.  Reference is made to the fact that the DoJ raised no objection to the release of the HK$60 million costs awarded to Chen upon his ultimate success in quashing his conviction after the first trial.  However, as the plaintiff points out, the fact was that the sum was not brought within the ambit of the Restraint Order.  That did not connote that the DoJ has considered and was satisfied that Chen and Ye have no other means to pay their legal expenses.  Further, the purpose of the Restraint Order and the Mareva injunction are not the same – the former being to preserve assets and prevent dissipation to enable confiscation in the event of a conviction where a person has benefitted from his crime, whereas the latter being to prevent dissipation of a defendants’ assets to frustrate the plaintiff’s enforcement of a civil judgment which may be obtained: see ss. 14 and 15 of OSCO; §15.03 of Annotated Ordinance of OSCO.  That also explains the concurrent existence of the two in the first place.

45.  This court bears in mind what the court in Tidewater Marine International Inc (above) said (at §44), and will make the best assessment on the material available.  All things considered and balanced, this court is not compelled by the materials, at this stage I emphasize, to come to the view for the present purpose that the alleged funding of Chen and Ye by way of third party loans was not genuine. However, this court also concludes that it is not virtually impossible for Chen and Ye to secure further funding by way of loans for footing their bills for their legal expenses to be incurred.  That said, I am prepared to share the reservation about the extent of that, in view of the extent already extracted so far including that since the 9/11/2020 Decision.  By now, it is also known that Chen’s costs incurred for the last aborted criminal re-trial indeed went down the drain, as the award of costs of that has just been set aside.

46.  At this stage, this court is only prepared to accommodate the more imminent need of the second criminal re-trial of Chen. Chen improves his case by providing information about actual counsel quotation (about HK$38 million), instead of mere estimation, by way of his further affirmation filed since the last hearing.  As mentioned, the amount spent on the first criminal re-trial was unexpectedly wasted, and could not be recouped.  Approaching with balance of interest of the parties in mind, provision to ease the unexpected situation faced with by Chen, in my view, suffices for the time being.

47.  As to the legal expenses of Chen and Ye to be incurred in the present action, this court observes that this action is still at its early stage, and it would be premature to consider the exception for the purpose of the proceedings herein, let alone up to trial estimated to last for 40 days as suggested.  This court would also be surprised that the parties have not considered whether and, if yes, to what extent the further proceedings in the present action should await the outcome of the criminal re-trial of Chen.

The estimated HK$40 million legal costs award

48.  As to the requested release of the then estimated HK$40 million legal costs awarded after the abortion of the criminal re-trial, the most recent development, as mentioned above, was that the order was set aside by the Court of Appeal after the hearing in July.  The exception of such sum is therefore academic.  As to its impact, the above discussion refers.

Conclusion

49.  All matters considered, including those discussed above, this court is prepared to grant the Legal Costs Exception but only to the extent of HK$40 million.  That will be inclusive of the balance of the previous award of costs now in the client’s account of Chen with his solicitors.

The variation of the proprietary injunction against Ye

50.  It becomes clear, but only at the hearing on 5 July 2022, that Ye seeks to vary the proprietary part of the injunction in respect of the money in her HSBC account for the purpose of the Legal Costs Exception.

51.  The principles applicable to except from proprietary injunction amount for funding legal costs are also trite.  It is an exercise of discretion which involves a two-stage process:

(1)  The defendant applying for the release of funds has to demonstrate with full and frank evidence that there are no alternative funds or assets available to him which can be used to pay his legal expenses other than the assets in respect of which the plaintiff brings the proprietary claim.  If the defendant fails in this first hurdle, the court need not consider the second stage and the application should be dismissed.

(2)  Once the first hurdle is cleared, the court in the exercise of its discretion will engage in a balancing exercise to weigh the potential injustice to the plaintiff of releasing the funds against the possible injustice to the defendant of depriving him of the opportunity to have legal assistance in advancing what may eventually turn out to be a successful defence.  This process is a 'careful and anxious judgment', and the court is entitled to look at all the relevant circumstances, and in particular, to weigh the relative strengths of the plaintiff's proprietary claim in the funds and the defendant's defence to that claim.  In relation to this, it is not sufficient for a defendant to merely establish that he has no other funds, for even so, he must also show that there is an arguable case, for his having recourse to the funds in question, failing which, he has no right to use the money.

See Wharf Ltd v Lau Yuen How [2010] 1 HKLRD 783 (at §13).

52.  As to stage one of the test, the above discussion refers.  As to stage two of the test, it is apparent from the affirmation evidence and submissions on their behalf that Chen and Ye did not actually set out to demonstrate the merits of Ye’s defence to the proprietary claim against her for the purpose of the applicable test. They seek to do so by way of counsel’s oral submission at the hearing on 5 July 2022.

53.  Ye’s defence to the plaintiff’s claim over the sum of HK$68,950,000 said to have gone into her HSBC account has been considered by DHCJ Sit SC in the 7/10/2020 Decision (at §73(8)).  Her defence is that she received the funds pursuant to a transfer agreement, of which the learned Deputy Judge considered that Chen and Ye have failed to credibly explained (see §98).  At the hearing on 5 July 2022, it was submitted on their behalf that it was no more than arguable that the balance in the account might have come from other sources.  However, this does not suffice in driving this court to deprive the plaintiff of the benefit of the proprietary injunction by allowing recourse by Chen and Ye to such balance standing in Ye’s HSBC account.

54.  The release of balance in the sum of HK$13,206,236.98 in Ye’s HSBC account for the Legal Costs Exception is therefore refused.

MORTGAGE REPAYMENT EXCEPTION

55.  Chen and Ye claim similar lack of financial resources to settle the outstanding mortgage repayments in respect of the 16 Bridgewater Road Property.  They seek variation of the Mareva injunction.  They seek payment out of the Trust Account, which contained a balance in the sum of NZ$2,857,022.10 as of 10 December 2021.

56.  In July 2022, the parties have consented to the variation of the Restraint Order and the Mareva Injunction to enable the payment out of the Trust Account a sum of NZ$178,012.99 for the repayment of the arrears of mortgage repayments.  However, those acting for Chen and Ye wrote to this court soon after the hearing on 5 July 2022 that the agreed amount no longer suffices as the arrears are ever increasing.

57.  Likewise, the plaintiff argues that Chen and Ye fail to demonstrate by sufficient evidence that they do not have other means to meet the mortgage repayments, and thus the Mortgage Repayments Exception should also be refused.

58.  Essentially, the plaintiff sees the improbability of the case of Chen and Ye, as deposed to, that the mortgage repayments since the Restraint Order in 2011 have been settled by the rental income from the 16 Bridgewater Road Property at the rate of NZ$2,200 per week.  Hence its requisition.  That led to further explanation by Chen and Ye that part of the mortgage repayments was funded by loans from Ye’s father.

59.  The Restraint Order was varied in March 2020.  The case of Chen and Ye is that the mortgage repayments since then were settled by funds from Chen’s bank account with Nanyang Commercial Bank Limited, a development which the plaintiff was not actually aware of at the time when its application for the injunction was heard in May 2020.

60.  The plaintiff takes issue as to the lack of or inadequate documentary evidence in proof of the amounts and funds arrangements in this respect despite its requests and invitation to file further evidence, and thus that of transparency in the case of Chen and Ye for the purpose of the requested exception from the injunction.

61.  The DoJ does not object to the release of funds from the Trust Account for the mortgage repayments.  The plaintiff is in principle correct that that does not therefore dispense with the burden of Chen and Ye to satisfy the test for variation of the injunction. That said, unlike the Legal Costs Exception, the success or failure of which very much concerns Chen and Ye only, the sustaining of the property concerns both sides of the action.  Therefore, this court is prepared to be pragmatic about the Mortgage Repayments Exception.

62.  The undeniable fact is that what is and will continue to be preserved by the injunction is not merely the property to the extent of its capital value but also its incidental liability in terms of the mortgage repayment.  The major part of the repayment is supposed to contribute towards the capital value, instead of interest expenses, and thus proprietary interest being preserved instead of dissipated. 

63.  This court is prepared to give weight to the concern about undesirable forced sale of the property in the event of default regardless of whether this will be beneficial for either side.  As at one point proposed, the option of sale of 16 Bridgewater Road Property remains open, which is a matter of appropriate timing depending on, amongst the circumstances, the market.  This court is sure that the liberty to apply to the court at the appropriate time will be exercised in this respect.

64.  The DoJ has consented to vary the Restraint Orders to allow the funds in the Trust Account to be utilised to settle the mortgage repayments.  The New Zealand Court has also confirmed no objection to that.

65.  All matters considered, this court is prepared to allow the Mortgage Repayment Exception from the injunction in terms as sought but without prejudice to the plaintiff’s liberty to apply to further vary the injunction on the basis of, amongst others, proposed sale of the 16 Bridgewater Road Property, if so advised or agreed between the parties.

ORDER

66.  The Legal Costs Exception is allowed in terms of §1(a) of the Summons but only to the extent of a sum of HK$40 million, which is inclusive of the sum of HK$18,301,298.92 standing in the client’s account of Chen with his solicitors.

67.  The Mortgage Repayment Exception is allowed in terms of §1(b) of the Summons.

68.  There be liberty to apply.

COSTS

69.  There is some success in the application.  However, the adjournment of the substantive hearing was occasioned by Chen and Ye, which, in my view, was not attributable to fault of the plaintiff.

70.  This court agreed to adjourn the substantive argument so as to enable them to have full opportunity to address the factual issues which they were adamant about having been able to do, had they been expressly forewarned by the plaintiffs.  However, I am not convinced that the further affirmation evidence and submissions of them manage to convince me that the plaintiff was entirely unjustified in making the observations, comments and inferences in the submission on its behalf at the first hearing, particularly when the burden is always on Chen and Ye to come up with nothing short of full disclosure and explanation.

71.  Relevant matters such as that as important as identifying what makes up the amount of variation sought, which should have been made clear, was not addressed until after the same was pointed out at the first hearing.  That Ye seeks to release what is subject to the proprietary injunction was also revealed that way.  These are but instances of the deficiency of their case, which they had the chance of bettering for the purpose of the second hearing.  Further, it is not that with their further evidence, the light cast on their case was clearly turned around in their favour.

72.  On the above note, unless resolved by agreement, the issue of the costs of and occasioned by the present application will be disposed of on paper without an oral hearing.  For that purpose, the plaintiff shall lodge and serve written submission in 14 days and Chen and Ye shall do so in 14 days thereafter.  Submissions should be succinct and not exceed 3 pages, inclusive footnotes and appendix, if any (and in A4 sized paper in not less than 14 font size and 1.5 line spacing).