PATRICK COWLEY AND ANOTHER (The Joint and Several Trustees in Bankruptcy of the Property of the Bankrupt) v. ALL POWERFUL HOLDING LTD AND ANOTHER

HCB 104/2017

[2018] HKCFI 1802

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 104 OF 2017

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DECISION

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What happened

1.  Although the matters set out in §§2 – 7 below are yet to be formally proved in a trial, for the purposes of the hearing before me no issue was raised by counsel for the respondents.

2.  The bankrupt, Mr Jaffe Lau Yu (“Mr Lau”), was the sole shareholder and director of All Powerful Investment Ltd (“APIL”) since its incorporation in 2009.  APIL is a Hong Kong company.  APIL has one issued ordinary share and a total share capital of HK$1.00.

3.  On 19 December 2014, Mr Lau executed a Deed of Settlement establishing the JL Family Trust (“the JL Trust”), a trust governed by the laws of the British Virgin Islands (BVI).  The trustee is All Powerful Group (PTC) Ltd (“APG”), a BVI company.  That company was incorporated on that same day as the JL Trust.  All Powerful Holdings Limited (“APHL”),also a BVI company, was also incorporated, on 19 December 2014.  The sole shareholder in APHL is the JL Trust.

4.  On 20 January 2015, a little over four weeks after the establishment of the entities set out in the previous paragraph, Mr Lau transferred the sole issued share in APIL, held by him, to APHL for the sum of HK$1.00 (“the share transfer”).  Mr Lau remained the sole director of APIL until his resignation on 4 September 2017. 

5.  On 6 January 2017, a petition in bankruptcy against Mr Lau was presented to the High Court by The Hongkong and Shanghai Banking Corporation (“HSBC”).  Mr Lau was adjudged bankrupt on 5 September 2017.  On 4 October 2017, the applicants (“the Trustees”) were appointed as the joint and several trustees of the property of Mr Lau.

6.  The presentation of the bankruptcy petition was within two years of the share transfer. 

7.  On 26 September 2017, Mr Lau filed a Notice of Appeal against the Bankruptcy Order.  The appeal will come on for hearing on 16 October 2018.

The applications

8.  As a result of investigations they have carried out, it is the contention of the Trustees that the share transfer undertaken by Mr Lau on 20 January 2015, to dispose of his shareholding in APIL to APHL for the sum of HK$1.00 is void as it constitutes a transaction at an undervalue and is a disposition of property made with intent to defraud creditors. 

9.  On 12 February 2018, four months after their appointment, the Trustees made application to the Court for a declaration that the share transfer constitutes a transaction at an undervalue pursuant to section 49, of the Bankruptcy Ordinance (Cap 6) (“BO”),  and, pursuant to sections 51A and 58 BO, an order that the share transfer be set aside, and associated orders.

10.  At the same time, the trustees sought Chabra injunctions against APHL and APIL, who are not parties to the substantive BO proceedings, but who hold the assets ultimately reflected by the ownership of the single share in APIL.  The Trustees also seek certain disclosure orders against both APHL and APIL.

11.  There was no dispute as to the jurisdiction of the Court to make the orders sought.  The Rules of the High Court, (“RHC”) Order 29, empowers the court to make orders to prevent the disposal of assets to defeat a judgment.  This is commonly known as a Mareva injunction.  The standard American Cyanamid principles are applicable, namely that there has to be a serious issue to be tried, and the balance of convenience favours the making of such an order. 

12.  The dispute between the parties lay in whether or not the jurisdiction should be exercised in this case.

13.  The jurisdiction of the court to grant freezing or Mareva injunctions against third parties, against whom no direct claim lay provided that the injunctions are ancillary and incidental to a good arguable claim against a defendant, the Chabra injunction, was established in TSB Private Bank International SA v Chabra [1992] 2 All ER 245.  Chabra injunctions are part of the law of Hong Kong: see XY, LLC v Jesse Zhu & Anor [2017] 5 HKC 479 (CA) and China Metal Recycling (Holdings) Ltd v Chun Chi Wai (No 2) [2017] 2 HKLRD 603. 

14.  The principles involved in a Chabra injunction will be discussed in due course.

The opposition to the Chabra injunction

15.  The opposition to the Chabra injunction is based upon six assertions.  First, it is asserted that the share transfer was not at an undervalue, but that the consideration of HK$1.00 appropriately reflected the true value of the company at that time. 

16.  Second, it is asserted that the share transfer was not a disposition of property made with the intent to defraud creditors.

17.  Third, it is contended that the evidence does not demonstrate any risk of dissipation of the assets of either APIL or APHL.

18.  Fourth, Mr Ambrose Ho SC takes the legal point that the effect of granting the injunction will be to pierce the corporate veil contrary to the fundamental principle stated by the House of Lords in Salomon v Salomon [1897] AC 22 as recently explained by Lord Sumption in the UK Supreme Court in Prest v Petrodel Resources Ltd [2013] 2 AC 415.

19.  Fifth, it is contended that APIL has a substantial trading business in a number of commodities, and that notwithstanding the resignation of Mr Lau upon his bankruptcy, the business activities of APIL and its subsidiaries continue.  If the injunction is granted it is asserted that APIL will suffer serious prejudice to its trading activities.  Consequently it is argued that the balance of convenience lies against granting an injunction.

20.  Finally, sixth, it is argued that as the Trustees do not wish to give the usual undertaking as to damages, consequently the injunction ought not to be granted.  It is right that at the commencement of the proceedings the position of the Trustees was that they sought to be released from the obligation to give an undertaking.  That position developed as the hearing proceeded and will be the subject of further discussion below.

APIL and APHL

21.  The annual return of APIL dated 18 August 2017, shows that the company is a Hong Kong HK$1.00 company.  The sole director at that time was Mr Lau. 

22.  On 15 September 2017, seven months after the presentation of the bankruptcy petition, and 10 days after adjudication in bankruptcy, Mr Lau resigned as a director of APIL.  On that day a PRC citizen, Mr Xie Rongzong (“Mr Xie”) was appointed sole director, a post he holds until this day.  A Notice of Change of Director dated 4 September 2017, shows that Mr Lau had resigned as a director, and that Mr Xie had been appointed in his place.

23.  According to a “Group Chart”, certified as being correct by Mr Lau on 5 April 2017, and given to the Bank of East Asia (“BEA”) in support of an application for funds by APIL, the JL Trust is the sole shareholder of APHL.  There is no other evidence of the ownership or control of APHL, but as the Group Chart was certified by Mr Lau there is no reason to doubt its accuracy. In an affirmation filed in these proceedings Mr Lau’s wife, Madam Tsang Wai Yee, Terri (“Mdm Tsang”), said that she was a director of APHL.  There is no evidence of any other person having formal control over APHL.

The Trustees’ interviews with Mr Lau and his wife

24.  At his first interview with the Trustees on 30 October 2017, Mr Lau admitted to the Trustees that the transfer of the shares was for no valuable consideration in that only a nominal consideration was given.  He asserted that APIL was merely a shelf company with negative assets, which he had set up for a family trust, and that hence the family trust was the true owner of APIL. 

25.  Mr Lau alleged that the family trust had injected assets into APIL, and engaged him as an investment adviser.  Consequently, he said to the Trustees, the transfer of APIL back to its true owner was legitimate.  He denied that the trust was related to his own family and claimed that the trust was “confidential” and owned by “someone with background”, whose identity he must not disclose.

26.  When asked by the Trustees about her source of income, Mdm Tsang referred to an “AP Group” and told the Trustees that she was “a director of the AP Group”.  She claimed to have no knowledge about the full company name of the AP Group or any knowledge of the companies that compose the AP Group.  Mdm Tsang does not dispute evidence from the Trustees that the “AP Group” has been paying rent for her current residence at HK$120,000 per month in addition to a cash remuneration of HK$120,000 per month.

Affirmations as to the control of APIL and APHL

27.  In an affirmation made on 14 February 2018, and filed in these proceedings, Mdm Tsang says that she is a director of APHL.  She says further:

“ I am not a Director of (APIL). The sole director of (APIL) one Mr Xie Rongzong (Mr Xie), and one Mr Wilson Tang (Mr Tang), the general manager of (APIL), are now in Mainland China and have difficulty in travelling to Hong Kong within such a short time. I am authorised to file this affirmation on behalf of (APIL) on an urgent basis even though I am yet to have sufficient opportunity to gather all relevant information.”

28.  Mr Cowley, one of the Trustees said that when asked whether she had any knowledge about Mr Lau’s activities prior to his bankruptcy that involved her, Mdm Tsang referred to a “fund/trust” which was established in 2015.  He said that she said that the beneficial owners were “basically the boss and her and her three children” but would not make clear who the “boss” to whom she referred was.  Mdm Tsang disputes that the reference was to the beneficial owners of the JL Trust.

29.  Mr Tang ultimately made an affirmation on 19 April 2018.  That affirmation deals principally with the substantive issue as to whether or not the Chabra injunction sought should be granted, and other than the following, says nothing about the involvement of Mr Lau in either APIL or APHL.

“ 5 Since 2011, I have been involved in the business of (APIL) especially its trading in commodities and a real estate project in Luoyang (洛陽) in Mainland China (Luoyang Project) through a subsidiary company named Sure Vantage Ltd and its subsidiaries (Sure Vantage Group). The relevant details of the Sure Vantage Group will be further explained below.

6     Whilst I have been given the title of general manager, I am not an employee of (APIL) and I handle the business of (APIL) on a voluntary basis.  Given my personal knowledge of the Luoyang Project and the trading of commodities, the Director of (APIL), (Mr XIE), who stays mainly in Mainland China for business, authorised me to file this affirmation on behalf of (APIL).”

30.  Notwithstanding that the matter before me did not start until 4 July 2018, five months after Mdm Tsang’ affirmation, Mr Xie, the sole Director of APIL, did not make any affirmation at all.

The JL Trust

31.  Mdm Tsang claimed to have no knowledge of any further details about the fund/trust other than saying that Mr Lau had told her that the fund/trust had bought a “US$1.00 company with negative asset” and that he would wait “to see whether the company will do better in the future”.

32.  The trust deed for the JL Trust states that the original trustee is APG.  Not surprisingly, there is no evidence as to the ownership or control of APG.

33.  The assets of the JL Trust, stated in the trust deed, consist only of the sum of US$100.  It is right that the trust deed provides that the trustee is given the power to receive additional property, but no evidence has in fact been yet offered by APIL, APHL or Mr Lau or Mdm Tsang to show exactly which assets might have been received by the trust, or when those assets, if any, were received.

34.  No accounts in respect of the JL Trust, APG or APHL were exhibited.

35.  The trust deed provides that the beneficiaries of the JL Trust are Mdm Tsang, and Mr Lau’s three children.  In addition, by paragraph 4 of the trust deed Mr Lau, as the “Original Settlor” may at any time during the “Trust Period” (a period of 360 years from 19 December 2014), declare that any person may be added to the class of beneficiaries.  It is accordingly open to Mr Lau to make himself a beneficiary of the trust at any time by a simple stroke of the pen. 

36.  The trust deed grants to the trustee absolute discretion in respect of the distribution to the beneficiaries of both income (§7) and capital (§8).

37.  For reasons that were not explained, the identity of the person or company holding the power of appointing or removing trustees, in §15 of the trust deed, was redacted in the copy of the trust deed exhibited. In the whole of the circumstances of this case, at this stage of the proceedings, an inference arises that the person holding that power is Mr Lau.

38.  The evidence establishes that on 16 November 2017, the JL Trust was registered under the Cook Islands International Trusts Act 1984.  No explanation was offered as to why that step was taken.  Mr Ho did not challenge Ms Cheung’s submission that the Cook Islands is one of the most opaque jurisdictions in the world.

Control of the respondent companies

39.  The most significant element of the Chabra orders is that the orders are being made against a non–cause of action defendant (“NCAD”).  When considering whether or not to exercise the Chabra jurisdiction it is appropriate for the Court to consider the extent to which the cause of action defendant (“CAD”), in this case Mr Lau, has by way of control or interest in the assets of the NCAD defendant: see Dadourian Group International Inc v Azuri Ltd [2005] EWHC 1768 (Ch).

40.  The evidence of the control of came first from All Powerful Group Chart (see §23 above).  It shows first that APG is the trustee of the JL Trust, which in turn holds 100% of the shares of APHL.  APHL in turn holds 100% of the shares in APIL.  The Group Chart was provided by Mr Lau to HSBC for the purpose of opening a Private Banking account in April 2017.

41.  I accept Ms Cheung’s submission that there is ample evidence pointing to Mr Lau retaining control of both APIL and APHL.  The following factors are relevant. 

42.  First, Mr Lau remained a director of APIL until 15 September 2017, when Mr Xie was appointed a Director.  Mdm Tsang explains Mr Lau’s remaining as a director as being a consequence of:

“ his love and affection to the family, and the fact that he was the founder of the business, it was most natural for him to continue with the management of (APIL)”.

43.  Next, on 5 March 2014, 9 April 2014 and 3 April 2014, Mr Lau transferred cash or cash equivalents in the amounts of US$59,784, HK$3 million and HK$5 million respectively from his personal bank accounts to APIL’s bank accounts.  No explanation has been offered as to why Mr Lau would do this in respect of a company that, on assertions made in affirmations filed to support his assertion that the share transfer was not at an undervalue, in fact belongs to someone else, and in February 2015, was worthless.

44.  In December 2014, APIL transferred HK$30 million to Evershine Group Holdings Ltd (“Evershine”), (a GEM listed company).  Mr Lau became a shareholder of Evershine in February 2015, after having purchased some HK$49.8 million worth of Evershine shares.  A Disclosure of Interests Form filed by Mr Lau in April 2017 declares that he held 10.35% of the issued shares of Evershine, over 99% of which were held through Noble Ace Investments Ltd, a BVI company which was wholly owned and controlled by Mr Lau. 

45.  APIL has never been a substantial shareholder of Evershine.  At this stage the circumstances by which APIL appears to have provided money to Evershine, apparently resulting in Mr Lau becoming a substantial shareholder in Evershine only two months later, are not explained by Mr Lau, APIL or APHL.

46.  In May 2017, APHL assigned a Manulife insurance policy, taken out against the life of Mdm Tsang, to HSBC to secure facilities owned by Mr Lau to HSBC.  He signed the assignment “for and on behalf of APHL”.  At this stage no explanation for that assignment is offered by APIL or APHL. No explanation is offered to explain Mr Lau’s power to act on behalf of APHL.

47.  Between 2010 and 2015, Mr Lau executed unlimited personal guarantees and an “all moneys” charges on six Hong Kong properties owned by him, securing facilities granted by BEA to himself, APIL, APHL’s subsidiaries and another company owned by himself.  Mr Lau’s total personal exposure is at least HK$128 million.  Neither APIL nor APHL offer any explanation, at this stage, why Mr Lau would expose himself to such liability if he did not have any control over APIL or APHL.

48.  I accept of course that none of these allegations have been tested in a trial.  They are however allegations which, even at this early stage of the proceedings, cry out for a substantive answer from the JL Trust as sole shareholder in APHL, and APHL, as the sole shareholder in APIL.  They also cry out for a substantive answer from Mr Xie as the director of APIL. 

49.  It is significant that Mr Tang, the only person to make substantive assertions on behalf of APHL, does not hold any formal office in APHL, but describes himself as a “volunteer”.  Even then he offers no substantive answer to the allegations made by the Trustees.

50.  The application for the Chabra injunction was made in February 2018.  The hearing of the application took place in July 2018, five months later.  The sole director of APIL, Mr Xie, has not made an affirmation.  There are suggestions in Mdm Tsang’s and Mr Tang’s affirmations that this is because Mr Xie is engaged in business in the Mainland. 

51.  I reject completely the explanation offered as to why Mr Xie has not made an affirmation.  These proceedings are plain circumstances in which the director of the company at the centre of the proceedings should have made an affirmation.

52.  It may have been reasonable for Mdm Tsang to say, in February 2018, shortly after the proceedings were issued, that Mr Xie had been unable to come to Hong Kong.  But to maintain the position that he has not been able to make an affirmation because he is engaged in business in the Mainland over a period of eight months borders on the farcical.  It would be a simple matter for Mr Xie to instruct APIL’s solicitors, the solicitors for the company of whom he is a director, as to the appropriate content of an affirmation.  It is a simple matter for a draft affirmation to be sent electronically to Mr Xie for comment.  It is a simple matter to scan a settled, signed, affirmation and return it to Hong Kong.

53.  The overwhelming inference to be drawn from the absence of an affirmation from Mr Xie is that there are matters that APIL wishes to conceal from the court.  In the whole of the circumstances it seems clear that Mr Lau is taking every step possible, not only to “ring fence” APIL’s assets from his  creditors, but also to ensure that the reality of Mr Lau’s control of APIL, and up-to-date information in respect of APIL’s assets, are concealed from the court.

54.  Accepting, as I do, that the allegations to which I have referred have not been tested, I am satisfied that the evidence goes well beyond raising a serious matter to be tried.  There is a very strong case on the evidence before me that Mr Lau is in reality in control of the JL Trust, APHL, and consequently, ultimately APIL.

Was the share transfer at an undervalue

55.  All that is necessary for the Trustees to establish at this stage of the proceedings is a good arguable case that the share transfer was at an undervalue. 

56.  The audited annual accounts for APIL, confirmed and signed by Mr Lau, for the financial years ended March 2011 to March 2016, are in evidence.  These accounts were provided to the BEA for the purpose of obtaining banking facilities. 

57.  These audited accounts demonstrate that APIL’s revenue had grown from HK$296 million in 2011, to HK$811 million in 2014.  In 2015, the year of the share transfer, APIL had generated revenue of HK$1.561 billion and a net profit of HK$24 million.  In the year ended 31 March 2016, Mr Lau, in his capacity as the sole director of the company, provided financial support to APIL to the extent of HK$149,896,000, which amount remained apparently outstanding and due to him at that date.

58.  For the year ended March 2011, the auditor gave an unqualified opinion that the consolidated financial statements provided a true and fair view of the APIL Group’s state of affairs as at 31 March 2011.

59.  However for the financial years ended March 2012, March 2013, and March 2014, the auditor gave an “qualified opinion”.  On each occasion the qualification arose from the fact that consolidated financial statements in respect of the APIL Group had not been prepared.  In all other respects the opinion was that the financial statements gave a true and fair view of the state of the company’s affairs.

60.  New auditors were employed in the year ended March 2015.  On this occasion the auditor gave an “adverse opinion”.  The basis for the adverse opinion was, first, the absence of consolidated financial statements and second, that an investment in an associate had been accounted for in the financial statements at cost, which was not in accordance with Hong Kong Accounting Standards.

61.  The specific subsidiary, (I understand the reference in the opinion to an associate to refer to a subsidiary), is not identified in the accounts.  Under the heading “Investments in Subsidiaries” total amounts due from subsidiaries are shown at HK$328,255,000, of which HK$106,540,000 is attributable to Sure Vantage Ltd (“Sure Vantage”).

62.  In the financial year ended March 2015, the accounts showed that APIL had total assets of HK$2.1 billion and a net asset value of HK$68 million.  On its face, the accounts, although subject to an adverse opinion, showed an apparently successful company.  On 20 January 2015, the date spanned by the accounts, Mr Lau had transferred the sole share in the company for the sum of HK$1.00, and had thereafter certified audited accounts showing the company had net assets of HK$68 million.

63.  For the year ended 31 March 2016, the auditors changed yet again.  There is no explanation as to why there was any necessity to change accountants.  Again, the auditor gave an adverse opinion, based upon the lack of consolidated financial statements.  The auditors said:

“ In view of the significance of the subsidiaries’ assets, liabilities and operating results in the context of the consolidated financial statements as a whole, had the subsidiaries been consolidated, substantially all the items included in the Company’s statement of financial position and statement of comprehensive income would have been materially affected.”

64.  The “Statement of Financial Position” showed that the company had total assets of $1.570 billion and total liabilities of HK$1.512 billion, resulting a net value of HK$60 million.  The amounts due from subsidiaries are $318.8 million, of which $141.1 million are due from Sure Vantage.  The accounts show that APIL owns 90% of Sure Vantage.

65.  Whilst acknowledging the adverse opinion of the auditors, the annual accounts show, on their face, a valuable and profitable company.  There was, up until the time these Chabra proceedings were commenced, no evidence to suggest that any of the amounts due from subsidiaries, and in particular the amount due from Sure Vantage, might not be properly recoverable. 

66.  In order to maintain his facilities with BEA I have no doubt that when each set of accounts was completed, Mr Lau delivered those accounts to BEA.  There is no suggestion that, notwithstanding the adverse opinions from the auditors, Mr Lau suggested to BEA that the accounts did not reflect the true position of the company.  The plain inference is that, either the accounts truly reflected the state of APIL as a substantial and successful company, or that Mr Lau was deliberately deceiving BEA as to the true state of the company.

67.  The accounts themselves provide strong evidence to support the Trustee’s submission that there is a good arguable case the share transfer was at an undervalue.

The argument against an undervalue

68.  In her affirmation, filed on 14 February 2018, Mdm Tsang exhibits a copy of report, dated 2 January 2018, prepared by certified public accountants, Cheung Leung Hui & Li (“the accountants”), that purports to review APIL’s net asset position as at 20 January 2015.  The report is highly qualified by the accountants who state:

“ For the preparation of this report, we have been provided with information and documents as listed in appendix 2. In addition, we have made certain assumptions, as detailed below, for our review purpose. Our review is limited to the aforesaid assumptions,information and documents. On this basis, we have prepared and issued our review report, which according to the engagement letter is not to be used for any other purpose and are solely for (the respondents’ solicitors) information.”

69.  Notwithstanding the limits placed on the report by the accountants, APHL and APIL seek to rely upon it in these proceedings.

70.  The essence of the report is contained in the following statement by the accountants, under the heading “Assumptions”:

“ During the review, we have noted that the investment in (HK$67,500,000) an amount due from (HK$106,540,879) a subsidiary, (Sure Vantage) were two of the major assets of the Company. As such, we have obtained a set of draft consolidation worksheets of (Sure Vantage) and its subsidiaries (Sure Vantage Group) for the year ended 31 March, 2015 and a set of consolidation worksheets of the (Sure Vantage Group) for the year ended 31 March, 2014. In the 2014 worksheets, (Sure Vantage Group) recorded a net asset value amounting to HK$454,705,058 (see appendix 3) as at 31 March 2014. In the 2015 worksheets it recorded a net liabilities value amounting to $81,877,660 (see appendix 3) as at 31 March 2015. In view of the significant change of Sure Vantage group’s financial position, we have requested for confirmation from (APIL) about our such understanding. According to the instruction from (APIL) to [the accountants] which was subsequently passed on to us on 28 December, 2017, we have proceeded with the review and prepared this report based on the assumption of the aforesaid understanding.”

71.  The accountants conclude that the reduction in the value of Sure Vantage between 31 March 2014 and 31 March 2015, means that the net value of APIL at 31 March 2015 was negative HK$106,037,076, and at 20 January 2015, was negative HK$110,137,076.

72.  In the light of that position Mdm Tsang asserts that the transaction was not at an undervalue, and effectively that it was realistic to pay HK$1.00 for a company that was in a net negative asset position of HK$110 million. 

73.  A number of valid criticisms may be made of the accountants’ report.  First, the accountants appear to have no professional connection as either auditors or accountants with APIL or APHL.  No explanation is given as to why different accountants might be used.  It is notable that the accountants were engaged and supplied with instructions and documents, not by APIL’s solicitors, nor by Mr Xie or even Mr Tang, but by the solicitors representing Mr Lau and Mdm Tsang. 

74.  Ms Cheung submits, and I agree, that there is a clear conflict of interest in Mr Lau and Mdm Tsang supplying material and making representations about APIL’s financial position at the date of the share transfer.

75.  In his affirmation Mr Tang says that he has been involved in APIL’s business in respect of Sure Vantage and its real estate project in Luoyang. He says that Sure Vantage was set up for the Luoyang project in 2011, and he has always been one of the persons who managed the project.  He asserts that it was fraught with various problems including PRC Government change of environmental protection regulations and PRC Government policy aiming at controlling the real estate market.  Without supplying any detail he says that at the date of his affirmation, (18 April 2018), the Luoyang project is “basically aborted and worthless”.

76.  The audited financial report of Sure Vantage for the year ended 31 March 2014, was supplied to BEA as part of the company information supplied when Sure Vantage continued the banking facilities obtained from BEA.  These show that Sure Vantage was reported to have total assets of HK$7.05 billion and net assets of HK$4.55 billion. 

77.  The reduction in Sure Vantage’s net assets from HK$4.55 billion to the negative amount asserted by the accountants’ report in a period of nine months, is a circumstance which demands a better explanation at this stage of these proceedings, if the Chabra injunction is to be resisted.  That reduction was not adequately explained by the draft consolidated financial statements of Sure Vantage for the year ended 31 March 2015, particularly bearing in mind that the draft is unsigned and has not been subject to audit.

78.  Mr Cowley, one of the Trustees, has made a detailed examination of the scope, methodology and assumptions in respect of the accountants’ report.  Ms Cheung summarises this examination by describing the scope of the report is being limited, the methodology inherently deficient and the assumptions either wrong and/or unverified. 

79.  I do not propose to set out here the detail of Mr Cowley’s examination which extends over 22 pages in an affidavit.  I am satisfied that Ms Cheung accurately summarised the criticisms made by Mr Cowley as follows:

     (a)     The conclusions in the accountants’ report are not based on independently audited accounts, but on instructions relayed by APHL and APIL’s solicitors, and incomplete and selectively chosen documents supplied by the solicitors.  The report relies heavily on unaudited management accounts or draft consolidation schedules.  The material assumptions supplied by the solicitors are unverified. The report cannot be compared to audited consolidated financial reports and consequently cannot be accepted as a reliable tool for estimating APIL’s position at the date of the share transfer.

     (b)     The documents supplied to the accountants for the report were cherry picked documents that reflected only a portion, notably an allegedly loss-making portion, of APIL’s extensive businesses.

     (c)     In choosing to focus on supposedly non-performing or loss-making businesses of APIL, the accountants ignored all other balances that may have been profit-making.

     (d)     APIL’s audited accounts for 2015, state that APIL and its subsidiaries generated revenues of almost HK$1.6 billion, had net profits of HK$24.6 million and positive cash inflows of HK$72 million.  None of these numbers suggest a business that was worthless.

80.  It is not yet appropriate to reach any conclusions upon the conflict in the evidence.  It is sufficient to say, at this stage of the proceedings, when both the accountants’ report and Mr Cowley’s criticisms are untested, that Mr Cowley provides strong grounds to say that no weight is likely to be placed upon the accountants’ report. 

81.  The 2^nd affirmation of Mr Tang, although posing questions, does not raise any serious challenge to Mr Cowley’s criticism of the accountants’ report.  It is not without significance that in a further affirmation filed after Mr Cowley’s affidavit in this respect, Mdm Tsang makes no comment in respect of these criticisms.  Mr Xie remains silent.

82.  Notwithstanding Mr Tang’s affirmation and the accountants’ report, both of which have yet to be tested, I am satisfied that there is a good arguable case that the share transfer was at an undervalue.

A disposition with intent to defeat creditors

83.  In 2011, Mr Lau had provided personal, unlimited, all monies guarantees (joint and several) securing facilities granted by HSBC to General Nice Resources (Hong Kong) Ltd (“GNR”).  Between 2010 and 2015, Mr Lau provided unlimited personal guarantees and executed all monies charges over six properties he owned in Hong Kong to secure facilities granted by BEA to himself, APIL and APIL’s subsidiaries and another company owned by APIL (collectively, “the Corporate Borrowers”).  Mr Lau was the only guarantor and mortgage or in respect of those facilities. 

84.  As at December 2015, the total limit of the facilities granted to the Corporate Borrowers stood at HK$155.8 million.  A proof of debt in the bankruptcy from BEA, shows that the total indebtedness under the facilities granted by BEA, as at 5 September 2017, stood at HK$128.9 million.

85.  In addition Mr Lau had executed personal guarantees in favour of the State Bank of India, Hang Seng Bank, and Fubon Bank in relation to GNR and its related companies borrowings.  The extent of these liabilities is not in evidence.

86.  No dispute is made by either APIL, APHL or Mdm Tsang that GNR’s principal business activity was the trading of iron ore and coking coal.  Mr Cowley asserts, and it is not disputed, that in 2013 and 2014, the trading environment for iron ore and coal in China deteriorated markedly, the fact of which Mr Lau was very much aware.  In late 2014, GNR’s creditors began to take action to recover their debts, personally guaranteed by Mr Lau.  Ms Cheung submits that on this evidence, and it is not in dispute, by the time Mr Lau set up APHL and the JL Trust he would have been fully aware that GNR was facing enormous financial difficulties, and that as personal guarantor of those debts, Mr Lau faced a very real prospect of personal bankruptcy.

87.  I accept the submission that the creation of APHL, and the establishment of the JL Trust, in December 2014, are arguably steps that were taken by Mr Lau in the face of a very real prospect of personal bankruptcy.  A very strong inference arises in those circumstances that the steps taken by Mr Lau on 20 January 2015, in close proximity to the establishment of APHL and the JL Trust, to transfer the only issued share in APIL to APHL, a company solely owned by the JL Trust, were steps taken to remove the assets represented by APIL, a company solely owned by Mr Lau, from Mr Lau’s creditors.

88.  I accept of course that Mr Lau, as only a shareholder in APIL, did not own the company’s assets, nor did the company hold those assets on trust for Mr Lau.  But, as will be seen from the discussion below, the assets owned by APIL, ostensibly a substantial company, are assets which may be accessed by Mr Lau’s creditors in order to satisfy his debts.

89.  I am accordingly satisfied that there is a good arguable case that with the knowledge of impending bankruptcy, the step taken by Mr Lau to remove the sole issued share in APIL from Mr Lau’s ownership, to a purportedly “ring fenced” corporate/trust ownership, was a disposition with the intent to defraud creditors. 

90.  By disposing of the ownership of APIL, ultimately, to the JL Trust, a trust in which, on the face of it, Mr Lau had no access, but which in reality, Mr Lau could simply become a beneficiary, Mr Lau has attempted to put the assets of APIL beyond the access of his creditors.  By doing so through a trust of which he may at any time become a beneficiary there is a strong argument that he has attempted to defraud his creditors.

91.  The argument that the steps being taken by Mr Lau are an attempt to defraud his creditors is strengthened when regard is had to the circumstances in which, despite allegedly distancing himself from APIL, there is a strong argument that Mr Lau retains, in reality, control of APIL.

A risk of dissipation

92.  The mere fact of the evidence establishing a good arguable case of an attempt to defraud creditors is itself sufficient evidence that there is a real risk of dissipation of assets.  Mr Lau, having already taken steps to remove assets from his name is, unless the injunction is granted, able to take further steps to distance the assets from his creditors by removing them from the control of either APHL or the JL Trust.

93.  That steps should have been taken to change the trustee of the JL Trust from a company controlled by Mr Lau to the Registry of the Cook Islands, a well-known opaque jurisdiction, is evidence of a good arguable case that Mr Lau is in the process of taking further steps to distance the assets from his creditors.

94.  The act of concealing Mr Lau’s control of APIL through the JL Trust, APGH and APHL serves further to raise the inference of dishonesty on the part of Mr Lau, thereby giving rise to an inference of a risk of dissipation.

Lifting the corporate veil

95.  Mr Ho’s submissions concentrated on this question.  The argument goes this way.  The Trustees seek an order from the Court to set aside the sale of the one share in APIL by Mr Lau to APHL on the basis of an undervalue and an intention to defraud creditors.  Mr Ho correctly says that the Trustees seek to reverse the passing of the beneficial ownership of that one share from Mr Lau to APHL.  Consequently, he says correctly, the substantive parties to the transfer sought to be reversed are Mr Lau and APHL.  APIL is merely joined in the summons as a nominee defendant to be bound by any judgment entered.

96.  Next, Mr Ho says that no claim is made by the Trustees for any declaration against APIL, or any of APIL’s subsidiaries, that their assets were held on trust for Mr Lau.  Mr Ho says that the absence of such a proprietary claim into APIL or its subsidiaries assets is significant.  He says that not only does it reflect the Trustees’ acknowledgement that they lack a proper evidential or legal basis to advance any such claim, it also means the Court has no basis to exercise the Chabra jurisdiction.

97.  Consequently, Mr Ho says, that even if the Trustees were to succeed in setting aside the transfer of the one share in APIL and constitute the Trustees as the holder of the one share in APIL, that is all they would achieve.  They would not achieve ownership of the assets of APIL or any of its subsidiaries.  As the Trustees would not achieve ownership in any way of the assets of APIL, there is no jurisdiction, Mr Ho submits, to grant the Chabra injunction.

98.  The submission is based upon the fundamental principle in Salomon, as explained in Prest.  In simple terms, Mr Ho says that to make the Chabra order would be to unlawfully pierce the corporate veil of both APHL and APIL.

99.  I reject the submission on three bases.

100.  First, I accept Ms Cheung’s submission that the jurisdiction to make a freezing injunction against a third party can be exercised where there is good reason to suppose that the assets of the third party are in truth the assets of the defendant in the substantive proceedings, in this case Mr Lau.  It is not necessary to establish beneficial ownership in a strict trust law sense, so long as it can be shown that the defendant exercises substantive control over the assets: see Akai Holdings Ltd v Christopher Ho (unreported, HCMP 1718/2009, 24 September 2009).

101.  In Akai Holdings, Tang VP (as he then was), at §46, sets out a passage from the decision of Deputy Judge Edward Bartley Jones QC, dealing with a Chabra injunction, in the Chancery Division of the English High Court in Dadourian.  That paragraph reads:

“ For my part, I do not believe it is necessary to establish beneficial ownership in a strict trust law sense. Clearly, if assets are held on a bare trust then the Chabra jurisdiction can be exercised. But,in my judgment, even if the relevant defendant to the substantive claim has no legal or equitable right to the assets in question (in the strict trust law sense) the Chabra jurisdiction can still be exercised if the defendant has some right in respect of, or control over, or other rights of access to, the assets. The important issue, to my mind, is substantive control. The view expressed in Gee on Commercial Injunctions 5th Edition 2004, at 13.007 [1] is that if a network of trusts and companies has been set up by a defendant to hold assets over which that defendant has control and that this has, apparently, been done to make himself judgment-proof, then such would be an appropriate case for the granting of freezing relief against a relevant non-party. I agree. What needs to be considered is the substantive reality of control, not a strict trust law analysis as to whether the third party is a bare trustee. Thus, in my judgment, placing assets in a discretionary trust would not prevent the Chabra jurisdiction being exercised against that discretionary trust if the substantive reality were that the relevant defendant controlled the exercise of the discretionary trust. Any other analysis would entirely defeat the ability of the English courts to take drastic action and would allow the court’s orders to be evaded by manipulations, entirely contrary to the court’s powers and duties as identified by Robert Walker J in International Credit and Investment Co (Overseas) Ltd v Adham [1998] BCC 134 at 136. Whether this be described as identifying the discretionary trust as a ‘sham’, as piercing the corporate veil, or as seeking to identify a controlled discretionary trust as a bare trust does not, to my mind, particularly matter. Certainly, at the interim stage, all that matters is to ascertain whether there is good reason to suppose that the relevant defendant controlled the assets in the discretionary trust.” (My emphasis underlined.)

102.  Tang VP, with whom A Cheung J (as he then was) agreed, proceeded to hold that in the circumstances of that case the defendant had represented to the whole world that he was the beneficial owner of the trust and an appeal against the Chabra injunction was dismissed. 

103.  I have already made reference to the issue of control by Mr Lau over the JL Trust, APHL and APIL and held that there is a good argument that Mr Lau has, in reality, control over those three entities.

104.  Second, there is a well-established principle that the court is justified in piercing the corporate veil if there is an abuse of the separate corporate legal personality.  In Prest, Lord Sumption said this at §27:

“ In my view, the principle that the court may be justified in piercing the corporate veil if a company’s separate legal personality is being abused for the purpose of some relevant wrongdoing is well established on the authorities. It is true that most of the statements of principle in the authorities are obiter, because the corporate veil was not pierced. It is also true that most cases in which the corporate veil was pierced could have been decided on other grounds. But the consensus that there are circumstances in which the court may pierce the corporate veil is impressive. I would not for my part be willing to explain that consensus out of existence. This is because I think that the recognition of a limited power to pierce the corporate veil in carefully defined circumstances is necessary if the law is not to be disarmed in the face of abuse.”

105.  In the following paragraphs, §§28 – 34 Lord Sumption reviews the authorities and comes to this conclusion in §35:

“ I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality.”

106.  The steps taken by Mr Lau in an attempt to “ring fence” the assets of APIL from his creditors raise a strong argument of the abuse of the corporate veil, and the concept of trusts.  That that abuse is taking place is demonstrated by the good arguable case that the steps Mr Lau has taken constitute a disposition with intent to defraud creditors.

107.  Third, there is simply no suggestion, at this stage, that the corporate veil is being pierced.  All that is being done at this stage is that the assets of APHL and APIL are sought to be protected in favour of creditors, who may ultimately be able to access those assets to satisfy Mr Lau’s debts.  Even then, it will not be necessary to pierce the corporate veil.

108.  If the share transfer is reversed, the liquidator becomes the sole shareholder in APIL.  Clearly, the liquidator cannot then simply sell APIL’s assets to satisfy Mr Lau’s debts.  But the liquidator can take steps, lawfully, to wind up APIL, and distribute the assets to those lawfully entitled to those assets or the funds arising from realisation. 

109.  This is noted in Gee, Commercial Injunctions, 6^th Edn, 2016, where it is said:

“ Even if the company is not a nominee, the defendant has access to the company’s assets through distributions made to him as a shareholder or through placing the company in liquidation. The same might be done after judgment by a receiver appointed over the shares in aid of enforcement of the junction and this route can be protected by a Mareva injunction.”

110.  Of course, there may be others entitled to share in the distribution ahead of the liquidator ,who is simply the shareholder.  There may be creditors who have security over the assets.  There may be creditors who have preference as a matter of law, such as the Inland Revenue Department or employees entitled to preference for wages.  It will only be after a winding up, in accordance with law, and the lawful distribution of the proceeds of the liquidator’s realisation of APIL’s assets, that any surplus may be distributed to the shareholder, the Trustees, who may apply those funds in the satisfaction of Mr Lau’s creditors.

111.  There being a lawful process, which does not involve the piercing of the corporate veil, by which the liquidator may ultimately access the assets of APIL and APHL for the benefit of Mr Lau’s creditors, I have no doubt at all that those assets should be secured to be available for the benefit of Mr Lau’s creditors. 

112.  To deny the creditors the opportunity to access those assets would be to enable Mr Lau, by manipulation, to evade his proper obligations.  To deny the creditors the opportunity to access those assets would enable Mr Lau, by manipulation, to wrongfully regain assets that he believed were placed in a shelter, or ring fenced, at the expense of his lawful creditors.

113.  To refuse to grant the injunction would enable Mr Lau, in the words of Deputy Judge Jones QC in Dadourian (see §101 above) to:

“ … entirely defeat the ability of the English courts to take drastic action and would allow the court’s orders to be evaded by manipulations, entirely contrary to the court’s powers and duties as identified by Robert Walker J in International Credit ….”

The balance of convenience

114.  The submission is next made that to grant the injunction will cause serious prejudice against APIL, and consequently the balance of convenience lies against the grant of the injunction.  Factual support for this submission comes first from Mdm Tsang and secondly from Mr Tang.

115.  When Mdm Tsang was first interviewed by the Trustees she claimed to have no knowledge about the full company name of the AP Group, or what companies compose the AP Group.  She did not dispute that statement by the Trustees.  In her first affirmation she made it clear that she was not a director of APIL.  In that affidavit she asserts that APIL has a substantial trading business in commodities and through various subsidiaries operates various businesses in various sectors in various places.  She says:

“ As far as I understand, (APIL) itself has a substantial trading business in a number of commodities. Also, through various subsidiaries, (APIL) also operates various businesses in various sectors in various places.”

116.  Further, in the same paragraph she says, in reference to certain loan facilities APIL has from Fubon Bank:

“ However, it is almost certain that Fubon Bank will terminate all trading facilities and demand full repayments as soon as the Injunction Summons is allowed. This will cause catastrophic consequences to the finance and business of (APIL) which is totally unjustified.”

117.  As Mdm Tsang is not a director of APIL, and does not assert to any basis upon which she might have knowledge of its affairs, I am unable to place any weight on her statements.

118.  Mr Tang, in his affirmation says that he has been:

“ … given the title of general manager, I am not an employee of (APIL) and I handle the business of (APIL) on a voluntary basis.”

He says further:

“ Given the sizeable trading/business activities, (APIL) has in the ordinary course of business entered into various loan facilities to finance its trading/business activities. There is now shown to me and marked exhibit ‘WT-2’ a copy of the facility letter from the Fubon Bank to (APIL) dated 20 October 2017. (APIL) has been granted certain financing facilities to the maximum amount of HK$49,172,000 which have been substantially utilised.

Should the business of (APIL) be continuing, Fubon Bank would roll over the part of the loans called the ‘STA Loan’, the outstanding amount of which is about HK$34.5 million, upon payment of monthly interest.  However, it is almost certain that Fubon Bank will terminate all trading facilities and demand full repayments as soon as the Injunction Summons is allowed.  This will cause catastrophic consequences to the finance and business of (APIL) which is totally unjustified.”

119.  In the usual way, the Facilities Letter contains a representation and warranty to Fubon Bank by APIL that there will be no material adverse change in APIL’s financial condition and further that APIL undertakes that it will immediately inform the Bank of such occurrence, if any.

120.  The evidence as to the extent and nature of the business carried on by APIL may best be described as sparse.  It is vague in the extreme.  The facility letter is the only document exhibited in support of the assertions.  There is nothing else to justify the extent or nature of the business activities being carried on by APIL.  For reasons that were not explained, a “Pre-approved Suppliers List” attached to the facility letter was redacted, preventing the Trustees from making any further enquiries of those suppliers.

121.  Ms Cheung was entitled to say that “miraculously, APIL seems to have bounced back from being a practically valueless company in 2015 to being, in 2018”, a company described by those associated with it as having “active and sizeable trading/business activities” operating “various businesses in various sections in various places” (see §§115 & 118 above).

122.  The Trustees respond to the evidence of the activities of the company by, in effect, asserting that it would not be the injunction that Fubon Bank would have regard to, in determining whether to continue to extend credit facilities to APIL, but Mr Lau’s position as a guarantor.  Mr Lau is a guarantor to the Facilities Letter.  Mr Cowley says in his affirmation, and there is real weight in the assertion, that the very fact that Mr Lau is named as a guarantor suggests that the Fubon Bank was not aware at the time the facility was granted of either the bankruptcy order against Mr Lau, or the appointment of the Trustees. 

123.  The Trustees have enquired of Fubon Bank and have been informed that the Bank has already capped the facility.  That was not disputed by APIL.  Fubon Bank have apparently informed Trustees that there is no present intention to withdraw the facilities.  It is to be noted that in any event Fubon’s facilities are secured by a first legal charge over a property in Pokfulam, which on the evidence has a value of some HK$57 million. Given the value of the security against the extent of the facility, it appears that Fubon Bank considers that it is sufficiently protected.  The existence of that security serves to justify the decision by the Fubon Bank not to withdraw the facilities, even though they are aware of these proceedings.

124.  Mr Cowley says further that the Trustees are of the view that it is in the interests of justice to stop APIL from further depleting its assets by giving out further securities, as it has already charged most of its or its subsidiaries’ assets.  That, says Mr Cowley, will preserve the status quo.

125.  In the course of the hearing, the precise terms of the order sought has been amended.  The amendment proposed by the Trustees now permits APHL and APIL to deal in their assets in the ordinary course of business.  That is a common provision in an injunction of this nature.  The Trustees now propose that the order contain the following term:

“ Provided that nothing in the aforementioned Paragraphs 1 and 2 shall prevent the 1^st and 2^nd Respondent’s from carrying on trading activity (if any) in the ordinary course of business.”

126.  In assessing the balance of convenience, I have had regard to all the foregoing factors, and to the matter of the undertaking to be discussed below.  I am satisfied that the balance of convenience lies with the granting of the injunction to protect Mr Lau’s creditors.

The undertaking

127.  It is well-established that the price that an applicant must pay for an injunction is an undertaking in damages.  The principle is best expressed in JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2016] 1 WLR 160 at 180, CA, where Lewison LJ, delivering a judgment in which the other members of the court agreed, said:

“ The default position is that an applicant for an interim injunction is required to give an unlimited cross-undertaking in damages. That is regarded as the price for interfering with the defendant’s freedom before he has been found liable for anything.”

128.  The position is the same in Hong Kong.  In Wah Nam Holdings Co Ltd v Excel Noble Development Ltd [2000] 3 HKC 118 (CA), at 126, Ribeiro J (as he then was) said:

“ … a plaintiff ‘is almost invariably required to give an ‘undertaking in damages’; and an undertaking to this effect will be implied if the court grants an injunction or accept an undertaking in lieu thereof’ (Baker & Langan (Ed), Snell’s Principles of Equity (28th Ed) p 644. See also Meagher, Gummow and Lehane, Equity Doctrines & Remedies (3rd Ed) [2180]: ‘Almost as a matter of course, a court will decline to grant an interlocutory injunction unless the plaintiff undertakes to the court to abide by any order it may later make if it turns out that the injunction should not have been made: Smith v Day (1882) 21 Ch D 421’).”

129.  There are limited exceptions to this rule.  The clearest example is in the case of a government law enforcement agency which is simply enforcing the law in the public interest.

130.  In Pugachev, at §68 Lewison LJ said:

“ There is also another possible exception where the applicant has no personal interest in the litigation and is bringing the action on behalf of others. One example is where litigation is being brought by liquidators on behalf of an insolvent company where there are no large creditors who can be expected to indemnify them and where it has proved impossible to obtain insurance against unlimited liability on the cross-undertaking.”

131.  What is clear is that the requirement for a limited cross undertaking is within the scope of the discretion of the judge from whom the injunction is sought: see Pugachev, §70.

132.  The position of the Trustees at the beginning of the proceedings was that they should be exempted from the obligation to give an undertaking as they were bringing the proceedings in circumstances where there were no large creditors who could be expected to indemnify them, and that they had been unable to obtain insurance.  If there was to be an undertaking, the Trustees said, the burden lay on APHL and APIL to demonstrate that the wrongful grant of the injunction would cause some loss.

133.  It is clear from Wah Nam Holdings that that is the incorrect approach.  It was held to be wrong to attempt to determine the merits of the plaintiff’s case at the interlocutory stage with a view to absolving the plaintiffs from providing the cross undertaking.  The headnote accurately summarises the judgment at pp 128I–130D:

“ If at the ex parte hearing there was a reasonable doubt as to a plaintiff’s ability to honour his undertaking, it was incumbent on the plaintiff to make full and frank disclosure of his financial position so that the judge could determine the correct order to be made.”

134.  It is entirely understandable, in the circumstances of any liquidation or bankruptcy, why a liquidator or a trustee in bankruptcy would not wish to give a personal undertaking as to damages unless that undertaking were protected by the creditors represented in the liquidation or bankruptcy. 

135.  As I have said, the position of the Trustees developed in the course of the hearing.  From the position that APHL and APIL should demonstrate that a wrongful grant of the injunction might cause some loss, and following enquiries, by the Trustees, I was informed that HSBC was willing to indemnify the Trustees in the sum of HK$20 million.  By the afternoon of the third day of the hearing, the offer of indemnity by HSBC was increased to the sum of $40 million.

136.  In reaching my conclusion I have had regard to the fact that this litigation is being brought by liquidators who have been, I am satisfied, unable to obtain insurance against unlimited liability, but who have been able to obtain an indemnity to the extent of HK$40 million.

137.  In RBG (Resources) PLC v Rastogi & Ors [2002] BPIR 1028 there had been a massive fraud in which US$400 million had disappeared.  Initially, a substantial bank had been willing to provide an indemnity to the cross-undertaking, but was now no longer willing to continue that undertaking.  An undertaking by the liquidators limited to the amount of moneys and the net realisable value of the un-pledged resources of the plaintiff was accepted by the court.  In that case the liquidator was pursuing the alleged perpetrators of the fraud, various directors and a senior employee.

138.  In Re DPR Futures Ltd [1989] 1 WLR 778, the order froze assets of £2.3 million, and the applicants, who were liquidators, were permitted to limit their liability under a cross undertaking at £2 million.  In RBG (Resources), Laddie J cited the following passage from Millett J (now Lord Millett NPJ) in DPR Futures, at 786:

“ In my judgment, a liquidator cannot be criticised for refusing to risk his personal assets by giving an unlimited cross-undertaking. It is right to require him to give an undertaking of an amount commensurate with the size of the company’s assets and to take the risk that he may not be authorised by the court to have recourse to them to meet his liability. If the value of such an undertaking is considered insufficient in any particular case he should be required to fortify it by obtaining a bond or an indemnity from a substantial creditor, but in either case of a fixed amount. The court cannot avoid the need to make an intelligent estimate of the likely amount of any loss which may result from the grant of the injunction. There is nothing unusual in this. It is so in every case where the balance of convenience has to be considered. A plaintiff’s resources are not infinite. But any such estimate can be reviewed from time to time and further fortification required if necessary. If fortification cannot be obtained this will affect the balance of convenience between granting or refusing the injunction. But the court cannot abdicate its responsibility for deciding where the balance of convenience lies.” (My emphasis.)

139.  This passage demonstrates the correct approach to an assessment of the risk to be undertaken, as distinct from the approach sought to be taken, but rejected by the Court of Appeal, in Wah Nam Holdings.

140.  The evidence of the extent of the business operated by APIL is, as I have said, sparse in the extreme.  The only real figure that I can look at is the sum secured by the Fubon Bank facilities letter. Mr Tang says that the amount secured by the Fubon Bank facilities letter that will be rolled over is a sum of HK$34.5 million. 

141.  In reaching my conclusion I have had regard the proportion between the amount sought to be recovered by the liquidators in DPR Futures, and the extent of the cross-undertaking (see §138 above). 

142.  Weighing all the relevant matters I conclude that the Trustees must give a cross undertaking limited to the sum of HK$40 million, to be fortified by an indemnity from HSBC.

The disclosure orders

143.  The original summons sought disclosure orders against both APHL and APIL, including their subsidiaries, in respect of an extensive range of financial documents from 2009 to 2017.  By the time the hearing had concluded the disclosure request had been reduced to the following terms:

     (a)     a full set of the audited financial statements and management’s accounts for (APIL) for all the financial periods from 2014 to 2017;

     (b)     a list of (APIL’s) other assets whether in the name of (APIL) or not whether solely or jointly owned, giving the value, location and details of all such assets and, in the case of bank accounts, the name and address of the branch, the name of the account holder, the amount of the balance and a list of all the authorised signatories to the account;

     (c)     a list containing the details of all transactions through which any of its other assets were disposed of and/or removed from (APIL) since December 2014 onwards, including the name of the purchasers or disposees, and the time and price for each of the transaction;

     (d)     the aforesaid documentation and information must be confirmed in an affidavit which must be served on the applicant’s solicitors within days after this Order has been served on each of the respondents.

144.  The extensive reduction in the scope of the proposed disclosure order in my view properly recognises the legal position in respect of such orders.  A disclosure order is not a substitute for proper discovery procedures.  Such an order can only be made if it is necessary to assist the applicant to identify the location of the defendant’s assets and to preserve those assets which might otherwise be dissipated notwithstanding the injunction: see AJ Bekhor & Co Ltd v Bilton [1981] 1 QB 923 (CA), at 940C–D and F–G. In Ashtiani v Kashi [1987] 1 QB 888, the Court of Appeal held that, as the only basis for which a disclosure order might be made was in aid of, and ancillary to, a Mareva injunction, the disclosure order should be limited, first to the ascertainment of assets which will be covered by the Mareva order.

145.  I am satisfied that the limited form of order now sought by the Trustees falls within the scope of the Court’s proper jurisdiction. 

Disposal

146.  For the foregoing reasons there will be an injunction against APHL and APIL, and disclosure orders against APIL in the terms sought in the amended order handed up at 2:30 pm on 20 July 2018.  The time for APHL and APIL to comply with the disclosure orders is fixed at 28 days from the date of the order. 

147.  The Trustees must give the usual undertaking, with liability limited to the sum of HK$40 million.

The directions summons

148.  On the third day of the hearing the Trustees put before me a summons to fix the substantive hearing for the BO application to set aside the share transfer.  Directions were sought to ensure that that matter would be then ready for trial.  There is already a directions hearing set before Mr Justice Ng, for hearing on 4 September 2018.  I was not satisfied that the was any need at all to bring that matter forward to be heard at short notice before me.

149.  I dismissed the summons accordingly.

Costs

150.  The parties were agreed that the appropriate order for costs is costs in the cause.  Order accordingly.