WANG RUIYUN v. GEM GLOBAL YIELD FUND LTD

HCCL 16/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 16 OF 2006

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BETWEEN

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J U D G M E N T

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1.  Within the GEM Group, there are at least 2 companies with the name “GEM Global Yield Fund Limited”. There is the Defendant company (GEM Nevis) incorporated in Nevis. There is also a company (GEM Cayman) incorporated in the Cayman Islands.

2.  Mr. Wang obtained a default judgment against GEM Nevis for $128,351,291.56.  The judgment debt remains unpaid.  Mr. Wang has therefore been searching for assets of GEM Nevis to garnishee.

3.  A search of the records of the Hong Kong Stock Exchange (HKSE) revealed that a company of the Defendant’s name held shares in Kaisun Energy Group Ltd. (formerly Challenger Group Holdings Ltd.) and shares in China Timber Resources Group Ltd. Mr. Wang also found a public announcement by Kaisun stating that Joy Harvest Ltd. was a wholly-owned subsidiary of a company of the Defendant’s name.

4.  Mr. Wang applied to the Master for a charging order nisi to be imposed on the Kaisun, China Timber and Joy Harvest shares which the researches of his lawyers had identified.  The Master made a charging order nisi and directed that, unless cause was shown otherwise, the charging order nisi would become absolute. 

5.  Note that, by the time of the hearing before the Master, Mr. Wang’s solicitors had ascertained that the relevant company had long ago sold its Kaisun shares and held China Timber warrants as opposed to China Timber shares.  Accordingly, the Master imposed the charging order nisi on the relevant China Timber warrants and Joy Harvest shareholding. 

6.  In these proceedings, GEM Nevis and GEM Cayman apply for the charging order nisi to be set aside.  They do so on the basis that the assets charged do not belong to GEM Nevis, but GEM Cayman. 

7.  The GEM companies stress that there can be no dispute over the ownership of the assets by GEM Cayman (rather than GEM Nevis).  They point out, for instance, the even the HKSE records which Mr. Wang’s lawyers consulted specifically gave a Cayman Islands address for the company identified as owning the Kaisun and China Timber securities.  Further, the Company Registry’s records for Joy Harvest (which Mr. Wang’s lawyers also looked at before seeking a charging order nisi) gave a Cayman Islands address for the GEM entity holding Joy Harvest’s sole issued share.

8.  Before they obtained the charging order nisi, Mr. Wang’s solicitors acknowledge that they were aware that the relevant assets were held by a GEM entity with a Cayman Islands address.  But, because of the identity in company names, the solicitors thought that GEM Nevis might have transferred its registration from Nevis to the Cayman Islands.  This belief of Mr. Wang’s solicitors has, however, been shown to have been wrong.  The GEM entities are distinct legal persons.

9.  Mr. Ronny Tong SC (appearing for Mr. Wang) argues that there are nonetheless grounds for suspecting that GEM Nevis has a beneficial interest in GEM Cayman’s assets.

10.  First, Mr. Tong points to the “close connection” between GEM Nevis and GEM Cayman. 

11.  There is obviously a close connection between the two companies.  They not only share the same name.  It is accepted that they both belong to the GEM group.  But I am unable to infer from this circumstance alone that GEM Nevis has a beneficial interest in GEM Cayman’s assets. 

12.  It is certainly a peculiar circumstance that both companies have the same name.  Indeed, it appears from the further researches of Mr. Wang’s solicitors that there may be other companies in the GEM group with the same name as GEM Nevis and GEM Cayman.  But these other companies have apparently been registered in jurisdictions other than Nevis or the Cayman Islands. 

13.  Sometimes, a similarity in corporate names is employed to mislead persons into dealing with a company X in the belief that the impressive assets of another company X’ are those of X. In such situation, where a person has been induced to believe that X is more creditworthy than it actually is and that person extends credit to X accordingly, there may be grounds for (say) piercing the corporate veil and treating the identically named companies within a group as one and the same.

14.  But this is not that situation.  There is no evidence of a representation of the type just described having been initially made to Mr. Wang so that he gave credit to GEM Nevis under the impression that GEM Cayman’s assets belonged to GEM Nevis. 

15.  The evidence here is merely that, after having been awarded a judgment sum by this Court, Mr. Wang proceeded to search available databases (including that of the HKSE) to find assets apparently held in the name of GEM Nevis.  It was thus only after he extended credit to GEM Nevis that Mr. Wang learned of the assets sought to be charged in this case.  Mr. Wang does not appear to have been misled into dealing with GEM Nevis in the first instance as the result of that company sharing a similar name with GEM Cayman. 

16.  Contrary then to Mr. Tong’s submission, without more evidence, I cannot simply conclude from the “close connection” between the GEM companies that GEM Cayman “connived” with GEM Nevis to mislead Mr. Wang or any other creditor.  That appears to me too big a jump in inference to make.

17.  Second, Mr. Tong complains that GEM Nevis and GEM Cayman have “consistently adopted a secretive approach as to [their] corporate information and [their] transactions and public records are also kept in an obfuscating manner”.  It is, for instance, unclear how precisely GEM Cayman obtained the assets sought to be charged by Mr. Wang.  Mr. Tong speculates, in the absence of any evidence whatsoever on the matter, that GEM Nevis may have funded GEM Cayman's acquisition of the assets so that there might be (say) a resulting trust of the assets in favour of GEM Nevis.

18.  I am far from persuaded on the evidence that the GEM companies keep their records in an “obfuscating” manner.  It is true, for example, that there have been public announcements referring to a company by the Defendant’s name but not specifying whether the reference was to GEM Nevis, GEM Cayman or some other GEM entity of the like name.  But I cannot infer from such circumstance alone that the omission has been deliberately done for the purposes of fraud. 

19.  In any event, assume for the sake of argument that the publicly available records of the 2 GEM companies are obscure.

20.  This is a case where a creditor (such as Mr. Wang) seeks to establish that the asset of a third person T (such as GEM Cayman) should be charged with repayment of monies due from a debtor (such as GEM Nevis).  In such situation, it is for the creditor to put forward at least a prima facie case that T’s asset is beneficially owned by the debtor. 

21.  Unless a creditor is able to discharge that preliminary evidential (as opposed to probative) burden, I do not think that T should be under any obligation to volunteer information about its transactions or records.  It would be oppressive to T to hold otherwise. 

22.  That is because to hold otherwise would mean that, merely by alleging that an asset belongs to a debtor, a creditor could impose a burden on T (on the face of it, an innocent party distinct from the judgment debtor) to prove that T’s property belongs to T.  That cannot be right.  It would be an unwarranted intrusion on T’s rights of privacy and confidentiality. 

23.  In contrast, once a creditor makes out a prima facie case, T would at least have something concrete which T could rebut.  The threshold of a prima facie case having been met, the evidential burden would shift to T to counter the creditor’s evidence and show cause why the charging order should not be made absolute.  If T discharges this evidential burden, the ultimate probative burden would be on the creditor to establish its case. 

24.  The pertinent question is whether sufficient evidence has been adduced by the creditor (Mr. Wang) to indicate that the charged assets ultimately belong not to a third person (GEM Cayman) but to the debtor (GEM Nevis). 

25.  The fact that solicitors of the GEM companies have been (according to Mr. Tong) coy or uncooperative or that publicly available records are obscure does not seem to me sufficient to constitute a prima facie case.  The GEM companies’ solicitors maintain that by showing that GEM Nevis and GEM Cayman are distinct companies they have done enough to rebut the allegations here.  Everything else (the GEM solicitors say) is pure speculation on the part of Mr. Wang’s lawyers.

26.  It is well-known that the information which can be obtained about Nevis or Cayman Island companies from their respective registries is sparse.  That is possibly a reason why Nevis or Cayman Island shelf companies are used in commercial transactions. One deals with such companies at one’s own risk knowing that to be the case. The mere “obscurity” of the available records cannot be a ground for assuming that all Nevis or Cayman Island companies are to be treated as ipso facto suspect or fraudulent.

27.  Third, Mr. Tong suggests there is something suspicious about the GEM group using different vehicles in the same name to operate in Hong Kong.  He wonders “if the attempt is designed to evade ... legal obligations”.

28.  I have in effect dealt with this submission in my discussion of Mr. Tong’s first and second points.  Mr. Tong needs to be more concrete.  His speculations do not amount to a prima facie case. 

29.  It is not enough to say that something (say, that GEM Nevis provided the funds by which GEM Cayman acquired assets) could conceivably be the case.  At a sufficiently abstract level, everything and anything may be possible.  But the Court needs something more than that.  As Mr. Simon Westbrook SC (appearing for the GEM companies) observes, the Court is not here “to investigate alleged obscurities [in] the hope that something will turn up on the investigation”. See Ashita Impex Ltd. v. Leganza International Pte Ltd. and Another HCMP 1430 of 2005 (6 December 2007), at para.24, applying Megarry VC’s famous dictum in Lady Anne Tennant v. Associated Newspapers Group Ltd. [1979] FSR 298 on “surmise and Micawberism” to the context of garnishee orders nisi.

30.  In my judgment, Mr. Wang has failed to establish a prima facie of GEM Nevis owning the charged assets.  Had a prima facie case been shown, I would in the exercise of my discretion have ordered an issue to be tried as to the beneficial ownership of the assets.  In the event, there being no prima facie case established, the charging order nisi should be discharged.

31.  I will now hear the parties on costs and consequential orders.