ESSILOR MANUFACTURING (THAILAND) CO., LTD v. G. DOULATRAM AND SONS (HK) LTD AND OTHERS

HCA 392/2020

[2021] HKCFI 30

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 392 OF 2020

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DECISION

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A. THE PLEADED CASES

1.  In this action, commenced by a Writ of Summons dated 30 March 2020, the plaintiff claims that it is the victim of fraudulent acts perpetrated by its then Finance and Accounting Manager and others.  It is alleged that funds had been fraudulently paid out of the plaintiff’s bank account to a number of first layer recipients, and which were then further transferred to the defendants as the second layer recipients.

2.  In relation to the 14^th defendant, a company incorporated in Hong Kong on 4 September 2015, the plaintiff claims that it is the owner of a sum of US$179,693.63 (“the Sum”) that was transferred to a bank account in the name of the 14^th defendant in Hong Kong (“the D14 Account”) and seeks reliefs accordingly.   According to the Statement of Claim dated 4 May 2020, of the many transfers from the plaintiff’s bank account allegedly by reason of fraud (“the First Layer Transfers”), a total of US$17,000,000.00 went to an account described as the “Idrisco Account No 1” between 8 November 2019 and 11 December 2019.  On or around 7 November 2019, the Sum was transferred from the Idrisco Account No 1 to the D14 Account.[1]  This was one of the “Second Layer Transfers”.

3.  The plaintiff claims that it had no business, commercial or other dealings with inter alios the 14^th defendant and had no knowledge of and did not consent to or authorise any of the First and Second Layer Transfers.

4.  The plaintiff claims that the 14^th defendant was unjustly enriched at its expense and held the Sum on constructive trust from it and for its benefit.

5.  In its Defence dated 14 May 2020, the 14^th defendant denies knowledge of or involvement in any alleged fraud.  It pleads that it is the wholly-owned subsidiary of Yekalon Industry Inc (“the Parent”).  The Parent:

(1)  has its registered office in Shenzhen in Mainland China;

(2)  was incorporated in 1997 with a fully paid up capital of RMB72,000,000.00;

(3)  had a profit of RMB11,500,000 in the financial year ending 31 December 2018.

6.  Further, according to the Defence, the Parent:

“(iv) Is a leader in the global building construction material sector, manufacturing products such as floor plates, ceramic tiles, marbles, kitchen cabinet, furniture, metallic hardware, doors, windows, shower and bath tub, glass walls, commercial kitchenware, electronics, and fire safety products (list not exhaustive);

(v) Offers consultation and advice in relation to engineering design, manufacturing costs evaluation, guidance and workshop, construction and operation of hotels, electricity and fire safety (list not exhaustive);

(vi) Owns several other leading material brand-names, such as ‘Bergeim’, ‘Sennorwell’ and ‘Tap & Go’.

(vii) After the global outbreak of the COVID-19 pandemic, has added medical equipment such as invasive ventilators, hospital height adjustable beds, patient monitors, disposable protective masks, and surgical lights in emergency personal protective equipment (PPE) (list not exhaustive)”.

7.  The 14^th defendant admits receipt of the Sum but denies knowledge of the identity or account number of the payer. It admits that it had no dealings with the plaintiff and was not aware of its existence.

8.  The 14^th defendant pleads that its Parent had a transaction in September 2019 with a group called “Traki”, which operated the largest department store in Venezuela and with which the Parent had business dealings since 2009.   The Parent agreed to sell 74,080 pieces of ceramic tiles to Traki for US$121,250.30 (plus freight of US$90,300.00).  On 8 October 2019, Traki paid an initial deposit of RMB232,267.00 (being 30% of purchase price), and it was subsequently agreed between the parties that Traki would pay the remaining 70% in US dollars to the 14^th defendant.  On 7 November 2019, Traki provided an online remittance telegraphic transfer slip in the amount of US$179.693.63 to the D14 Account, without providing who the payer was.[2]

9.  According to the 14^th defendant, on 7 November 2019, the Parent made enquiries of the identity of the payer of the Sum, and was told by Traki that the payment was made by a Singaporean company called Idrisco Pte Ltd.   It is alleged that in international trade, payments made by a third party is very common, especially when one is dealing with companies from politically sensitive regions such as Venezuela, and since 2009 Traki had paid the Parent via third parties on numerous occasions.  Third party payments are also accepted under accounting rules and regulations of the Mainland.  

10.  The 14^th defendant also pleads that the Parent did deliver the tiles ordered by Traki in December 2019.

11.  The 14^th defendant therefore claims that it and the Parent were bona fide vendors acting in good faith, with no unjust enrichment, or any knowledge of or reason to suspect any fraud, and they also have a defence of change of position.

B.    THE INJUNCTIONS AND PAYMENT IN

12.  On 27 March 2020, three days before the issue of the Writ herein, the plaintiff obtained, at an ex parte hearing, an order (“the Order”) granting, inter alia, and until 24 April 2020 (or any earlier order), a proprietary injunction prohibiting the 14^th defendant from dealing with the Sum, and a Mareva injunction prohibiting the 14^th defendant from dealing with assets in Hong Kong up to the amount of US$179,693.63 (together, “the Injunctions”).  The Order includes an exception as follows (“the Exception”):

“This Order shall cease to have effect with respect to any Defendant which provides security by paying the sums received by it as set out against its name in Schedule 1 into Court or makes provision for security in that sum by some other method agreed with the Plaintiff’s solicitors or approved by the Court”.[3]

13.  The Inter-partes Summons for the continuation of the Order against inter alios the 14^th defendant dated 30 March 2020 (“the Continuation Summons”) was heard on 24 April 2020.  The Summons was adjourned for substantive argument and the Injunctions were continued until the substantive hearing.

14.  On 7 May 2020, the 14^th defendant filed a Summons (“the Discharge Summons”) asking for an order discharging the Injunctions granted on 27 March 2020 and continued on 24 April 2020.[4]

15.  On 20 May 2020, directions were made that the Continuation Summons and the Discharge Summons (together “the Summonses”) be heard together.

16.  Notwithstanding the pending Summonses and the Exception which appears to me to be “self-executing” in the sense that the Injunctions would cease to have effect upon payment in by the 14^th defendant without any further order of the Court, on 2 July 2020 Coleman J made the following order by consent (“the Consent Order”), presumably because without an order from the Court the bank would not allow the release of any money from the D14 Account to enable the payment in because of the Injunctions:

“For the avoidance of doubt, the 14^th Defendant do have leave to instruct the Hongkong and Shanghai Banking Corporation (‘HSBC’) to issue a cashier’s order in the sum of US$179,693.93 made payable to the ‘Registrar, High Court’ (‘Cashier’s Order’), out of the 14^th Defendant’s corporate account number … held with HSBC, such Cashier’s Order be collected by the 14^th Defendant’s Solicitors to be deposited with the High Court forthwith pursuant to paragraph (4) of the exceptions of the injunction and continuation orders dated 27 March and 24 April 2020 respectively (‘Injunction’) [i.e. the Exception], without prejudice to the 14^th Defendant’s application to discharge the Injunction”.

17.  The 14^th defendant paid US$179,693.93 into Court on 4 September 2020.

18.  On 10 September 2020, i.e. 12 days before this hearing before me, solicitors for the plaintiff wrote to solicitors for the 14^th defendant.  In the letter, the Exception and payment in by the 14^th defendant were referred to, which then said:

“On the basis that the Order no longer affects your client, there remains no issue to be heard before Recorder Stewart Wong SC on 22 September 2020 (the ‘Hearing’), being the hearing of our client’s application to continue the Order against your client. In short, there is nothing to continue. We therefore enclose a draft Consent Summons seeking to vacate the Hearing, for your consideration”.

The draft Consent Summons simply provides for the vacation of the hearing of the Continuation Summons before me, with costs to the 14^th defendant at HK$1,040.

19.  The letter and the draft Consent Summons did not mention the Discharge Summons.   Presumably, the plaintiff’s position would be that following the payment in, in short, there was (and is) nothing to discharge.

20.  By letter dated 13 September 2020, solicitors for the 14^th defendant replied as follows:

“Payment into court in the amount of US$179,693.93 … made by our client on 4 September 2020 (‘Payment Sum’) does not affect the underlying arguments at the heart of the Hearing. We shall ask the court to discharge the injunction, repay the Payment Sum back to our client, order costs against your client in our Client’s favour and subsequently enforce the undertaking as to damages against your client”.

21.  By letter dated 14 September 2020, solicitors for the plaintiff said:

“With respect, your client’s position – that it can maintain an application to discharge an injunction that has already been discharged by payment in – is totally misconceived …

We would also propose to act as a respondent to your application, as the Plaintiff has no remaining summons in effect regarding the injunction”.

C.    THE EFFECT OF THE PAYMENT IN

22.  The first issue I shall deal with is, following the payment in with the consequence[5] that the Injunctions cease to have effect thereupon, whether it is still open to the 14^th defendant to pursue its Discharge Summons by arguing, as Mr Lam puts it, that the Injunctions “should not have been granted in the first place”. Mr Lam asks for a payment out to his client of the sum that was paid into Court together with costs, and he says that the 14^th defendant will at a later stage ask for an order to enforce the undertaking as to damages given by the plaintiff.

23.  For the plaintiff, Mr Hughes submits that, having made payment into Court as security for the plaintiff’s claim, it is not open to the 14^th defendant to now contend that the Injunctions should never have been granted in the first place.  Instead, by making payment into Court in return for the discharge of the Injunctions, the 14^th defendant must implicitly have taken to have accepted that there was a proper basis for the Injunctions to have been granted.

24.  I do not agree with Mr Hughes.

25.  The Consent Order contains an express reservation by the 14^th defendant that the payment in is without prejudice to its application to discharge the Injunctions.   I do not think one can say that, implicitly, the 14^th defendant must have accepted that there was a proper basis for the grant of the Injunctions when it has expressly said, in effect, that it does not so accept.

26.  Where, faced with an application for the grant or continuation of an interlocutory injunction, or where an application is made to discharge such an injunction, a defendant deals with the matter by way of an undertaking, it is a question of construing the terms of the undertaking, in the context of the order as a whole, as to the effect of the undertaking on the application, and whether, subsequently, the defendant can apply to be released from the undertaking on the ground that the injunction should not have been granted or continued in the first place.  The question is whether, in all the circumstances, the defendant is taken to have preserved his right to so argue later or whether, by dealing with the application there and then by the undertaking, he has thereby given up on the battle as to whether there are grounds for the grant or continuation of an interlocutory injunction.

27.  I derive the above from the judgment of Teare J in Emailgen Systems Corpn v Exclaimer Ltd[6], and the authorities he referred to[7]. Although those cases dealt with the situation where the defendant gives an undertaking and then seeks to be released therefrom later by arguing that there was no ground for an interlocutory injunction, in my judgment the principle is applicable where a defendant deals with an application for interlocutory injunction (or its continuation), or an application for discharge, in any manner other than contesting the application on its merits, including by way of a payment in, in which case it is also a matter of construction of the terms under which the payment in is made whether the defendant can be seen to have given up on his right to argue that there is no ground to grant or to continue an interlocutory injunction in the first place.  If the defendant is not to be so taken, for example by making an express reservation, so that the payment in can be seen to be a “temporary holding operation”[8] until the defendant is in a position to make full submissions, then he is not precluded from doing so.  But if he is to be so taken, then he cannot subsequently seek to be released from the undertaking, or ask for a payment out, unless good cause is shown, for example a change of circumstances or the discovery of some new fact.

28.  In my judgment a defendant is not precluded, in a subsequent hearing, from raising and contesting the question of whether there is any ground to grant or continue an interlocutory injunction in the first place, if the question is otherwise an appropriate and relevant one at the subsequent hearing relevant to some live issues, after the original application for the interlocutory injunction or its continuation or discharge is dealt with by some other manner, if on a proper construction of the relevant order the defendant has preserved his right to so argue.

29.  The approach of the plaintiff, namely that a defendant is precluded from arguing that an interlocutory injunction should not have been granted when it chooses to deal with the injunction by giving an undertaking or making a payment in, in effect to take the place of the injunction granted or applied for, is my judgment too inflexible and may result in injustice.  A Mareva injunction or a proprietary injunction may have a very drastic effect on a defendant’s legitimate business operations.  The defendant may have genuine grounds to challenge the injunction but the challenge may not be heard by the Court substantively for some time.  If a necessary consequence of the defendant choosing to “get rid” of the injunction in the meantime by giving an undertaking or making a payment in is that it then loses the right to challenge the grant of the injunction in the first place later by asking for a release from the undertaking or a payment out (unless there is a change of circumstances of the discovery of a new fact later), then the defendant is in effect put to two choices, both of which are not desirable, i.e. to give up the challenge, or to persist in a challenge which may not be heard for some time, with the injunction in operation in the meantime.   This, in my judgment, is not fair, and the defendant should be allowed a third choice, i.e. to offer the undertaking or payment in as a “temporary holding position”, so that the plaintiff is protected in the meantime while the defendant’s position is also not prejudiced, pending the hearing of the challenge.  It is a matter of construction of the terms of the undertaking or payment in as to whether the defendant has given up the challenge or not.   (When I say “choice”, it is of course not entirely up to the defendant, but involving the Court accepting the “choice” as appropriate to deal with the application (with or without the consent of the plaintiff).)

30.  I am discussing general principles in the preceding paragraph.  Given that the 14^th defendant says it intends to enforce the undertaking as to damages given by the plaintiff, I should make clear that I make no findings at all on the effect of the Injunctions on the 14^th defendant.  But what I am saying is that there cannot be any hard and fast rule on whether a defendant, after giving an undertaking or making a payment to take the place of an injunction, can subsequently challenge whether there are grounds for the injunction.

31.  In this case, the 14^th defendant has made clear in the Consent Order that it is reserving its right to challenge the Injunctions.

32.  If, after the payment in, the 14^th defendant takes out a Summons formally applying for payment out on the ground that the Injunctions (which the payment in was intended to replace) should never have been granted and continued in the first place, I would have thought that it would not be prohibited from doing so. 

33.  However, the 14^th defendant has not so applied but chooses to persist with its Discharge Summons seeking to discharge the Injunctions which have already been discharged.  

34.  In my judgment, this is not a reason for me not to deal with the 14^th defendant’s case that the Injunctions should never have been granted or continued (which has been fully argued by the plaintiff). While the Injunctions have already been discharged, the challenge by the 14^th defendant is not academic because if I otherwise accept its arguments, a necessary consequence is that the entire basis of the payment in, founded upon the Exception in the Order which ex hypothesi ought not have been made against the 14^th defendant in the first place, is gone.  There is no reason then for the Sum to remain in Court and an order for payment out ought to be made under Order 22A, rule 1, of the Rules of the High Court.[9]

35.  In my judgment, the entire context of the payment in, pursuant to the Exception and the Consent Order, including the express reservation in the Consent Order, would suggest clearly to anyone objectively that the Injunctions, the Discharge Summons and the payment in are closely connected and the pursuit of the Discharge Summons notwithstanding the payment in (and the consequence that the Injunctions cease to have effect) would have an impact on the status of the Sum in Court.  If there is any doubt, that would have been put to rest by the letter of 13 September 2020 from those acting for the 14^th defendant, which makes clear that a payment out is being sought.  Even though there is no formal Summons for a payment out, there is nothing in Order 22A to suggest that that is a necessity, and no doubt the plaintiff has been given sufficient notice of the 14^th defendant’s intention to seek a payment out as a necessary consequence of it succeeding in challenging the grant (and continuation) of the Injunctions.

D.    THE CHALLENGES TO THE INJUNCTIONS

36.  I shall proceed to deal with the merits of the 14^th defendant’s challenges against the Injunctions.

37.  Before me, Mr Lam submits that the application for Injunctions was fundamentally misconceived as it had failed to make out any viable case of a risk of dissipation by the 14^th defendant to justify a Mareva injunction, or why a proprietary injunction was necessary to secure such a small sum of money.   The aforesaid are the primary submissions of Mr Lam but he also submits that the plaintiff does not have a good arguable case and has not demonstrated there are serious issues to be tried in support of its claim for the Injunctions.

D1.  The Mareva injunction

38.  In an application for a Mareva injunction, the plaintiff must establish a solid basis for concluding that there is a real risk of dissipation of assets by the relevant defendant.[10]  There is no objection to a defendant using its assets in its normal daily commercial or personal activities.  The dissipation which a Mareva injunction is to guard against is, as will be seen from the quote in the following paragraph, the putting of assets out of reach of a judgment creditor whether by concealment or by transfer.[11]  It is not necessary to show that the defendant intends to put its assets out of reach of the judgment creditor: the question is the effect of its conduct.[12]

39.  In Convoy Collateral Ltd v Cho Kwai Chee[13], Lam VP accepted certain propositions, set out by Popplewell J (as he then was) in Fundo Soberano de Angola v dos Santos[14], and adopted with slight modifications by Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto[15], as applicable in Hong Kong, and added his own elaborations.   Such propositions or principles as further explained and elaborated by Lam VP were summarised by Coleman J in Universal Entertainment Corporation v Kazuo Okada[16]as follows:

“(1) The applicant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets.

(2) In this context, dissipation means putting the assets out of reach of a judgment whether by concealment or transfer. Whilst it may not always be necessary to demonstrate a nefarious intent, there must be something more than the mere ordinary or usual dealing with assets.

(3) What must be threatened is unjustified dissipation. It is not the purpose of a freezing order to provide security for the claim. Rather, the purpose is to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business, in a way which will have the effect of making the defendant judgment-proof.

(4) The purpose of a freezing order is not to prevent a corporate defendant from dealing with its assets in the normal course of business, or to restrict an individual defendant from conducting his personal affairs in the way he has always conducted them, provided that such dealing and conduct are legitimate.

(5) Where there is more than one respondent to the application, the risk of dissipation must be established separately against each respondent.

(6) The burden is on the applicant to show a real risk of dissipation, which must be established by solid evidence. Mere inference or generalised assertion is not sufficient. Neither are unsupported or bare statements of fear, which will carry little weight. Resort to mantras such as ‘low commercial reality’ are of little value unless supported by solid evidence.

(7) It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty. It is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets may be dissipated.

(8) It is also necessary to take into account whether there appears at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.

(9) An assessment of the risk of dissipation necessarily involves an evaluative and predictive judgment. The evidential burden can be satisfied by drawing proper inferences from a holistic consideration of all the circumstantial materials that are indicative of risk, including matters which point against such risk.

(10) Where the court accepts that there is a good arguable case that a respondent has engaged in wrongdoing against the applicant relevant to the issue of dissipation, that holding will, or may, point powerfully in favour of a risk of dissipation.

(11) Hence, where the dishonesty alleged is at the heart of the claim against the defendant (being either the substantive claim or the claim for an injunction), the court may find it able to draw the inference that the making out of that case to the necessary standard also establishes sufficiently the risk of dissipation of assets. But the evidence of dishonesty must be relevant to the risk of dissipation and not simply the underlying claim.

(12) Evidence of delay in making the application may be relevant in the assessment of risk of dissipation. Delay after a defendant gained knowledge of a plaintiff’s claim can militate against the risk of dissipation because that defendant has already had the opportunity to dispose of assets, should he be inclined to do so. But delay of itself does not necessarily bar relief. The ultimate question remains whether the plaintiff can show a real risk of dissipation despite delay.

(13) Each case is fact specific, and the relevant factors must be looked at cumulatively”.

40.  Lam VP said further in Convoy[17]:

“Evidence of dishonest and fraudulent conducts or other serious wrongdoings which form the basis of the claims, and which reflect adversely on the integrity of the defendant could point powerfully towards an inference of such risk”.

41.  The ex parte application for the Mareva and proprietary injunctions, which was made against all 44 defendants to be sued in this action, was supported by the first affirmation of Ms Doris Marcellesi[18], the Vice-President of Legal and General Counsel for Asia Pacific, Middle East, Russia, and Africa of the plaintiff’s group.   The risk of dissipation against the 14^th defendant of course has to be established separately from the other defendants, and that must be more so in a case like the present where there is no allegation of any connection or collusion between the 14^th defendant and the plaintiff or any other defendants.

42.  In her first affirmation, Ms Marcellesi does not allege any dishonest conduct, or any such suspicion, against the 14^th defendant, or that it was otherwise involved in the alleged fraud.[19]  As stated by Ms Marcellesi[20]: 

“[The plaintiff] intends to commence proceedings against the Defendants in respect of a number of causes of action, including to make proprietary claims against the Defendants based upon unjust enrichment in support of this application, and there is clearly a serious issue to be tried in that respect …

[The plaintiff’s] claims for unjust enrichment against the Defendants herein do not require any allegation to be made that the Defendants were involved in the underlying Fraud perpetrated against [the plaintiff] by the Fraudsters, nor is such an allegation made. Likewise, [the plaintiff] does not allege that the Defendants were engaged in any intentional or reckless dishonest act done with the purpose of deceiving. [The plaintiff’s] case, on the presently available evidence, is simply that the Defendants have been unjustly enriched at the expense of [the plaintiff] and the Defendants are holding the amounts received on constructive trust for [the plaintiff]”.

43.  As far as one can gather from the first affirmation of Ms Marcellesi, the following points are made which are relevant to the question of risk of dissipation by the 14^th defendant (either generally or specifically against it):

(1)  After referring to the First and Second Layer Transfers, the requests made to recipient banks to withhold monies in the relevant accounts (“the Second Layer Accounts”) which had received the Second Layer Transfers (called the “Stolen Funds”), the report to the Hong Kong Police, the fact that the banks did not confirm that they would comply with the requests to withhold the monies, and that the Hong Kong Police said that none of the Stolen Funds had been frozen and that no letters of “no consent” had been issued in respect of the relevant bank accounts, Ms Marcellesi then says[21]:

“Accordingly, there is a real risk that the Defendants will dissipate the Stolen Monies, their assets and/or render them unavailable for judgment in the absence of an injunction restraining the same, which would potentially leave [the plaintiff] with an empty judgment”.

(2)  Ms Marcellesi then gives the following information about the 14^th defendant, namely that it:

“is a Hong Kong company which was incorporated on 4 September 2015. It has an issued share capital of HK$200,000.00 and its registered address is at Room 19, 9/F., One Midtown, No. 11 Hoi Shing Road, Tsuen Wan, New Territories, Hong Kong. Its sole shareholder is Yekalon Industry Inc. and its sole director is He Yixin, who is a PRC national. [The 14^th defendant’s] company secretary is Weacc Company Limited”.[22]

(3)  Under the heading “Risk of dissipation” in Section H of her first affirmation, Ms Marcellesi says:

“102. I am further advised that, as [the plaintiff’s] claim is a proprietary claim, it is not necessary for [the plaintiff] to demonstrate a risk of dissipation. However, insofar as may be necessary for the purposes of the application for a Mareva injunction against the Defendants, I believe that there is a very real risk of dissipation.

103. I understand from [solicitors for the plaintiff] that the Hong Kong Police have not frozen the Stolen Funds in the Second Layer Accounts and have not issued letters of ‘no consent’ over any of the Second Layer Accounts.

104. In addition, I am informed by [solicitors for the plaintiff] and verily believe that none of the Respondent Banks with which the Second Layer Accounts are held have confirmed that they would comply with the Request and withhold the Stolen Funds from being transferred. In particular, as mentioned in Section B above, given the 7^th Defendant, being the holder of the Second Layer Account held with IOB, has refused to return [the plaintiff’s] funds, the holder of this Second Layer Account is currently at liberty to deal with the relevant funds as it wishes without restriction. The same applies to holders of the other relevant Second Layer Accounts. Furthermore, the Second Layer Accounts held by the 26^th and 32^nd Defendants have now been closed.

105. In light of the additional transfers of the Stolen Funds that have taken place as identified so far through the Tracing Exercise and the sophisticated nature of the Fraud, I verily believe that there is a real risk that the Defendants might dissipate [the plaintiff’s] funds or render them unavailable for judgment in the absence of an injunction restraining the same”.

(4) I note here that the “Tracing Exercise” referred to traces, as far as the 14^th defendant is concerned, the movement of funds to the Idrisco No 1 Account and then of the Sum to the D14 Account. It does not show movements out of the D14 Account. Further, whether the alleged fraud was sophisticated or not, as the 14^th defendant is not said to be involved, I fail to see how that is relevant to the question of risk of dissipation as far as it is concerned.

(5) Ms Marcellesi then refers generally to the fact that some defendants, without specifying whether they include the 14^th defendant, did not have websites, or were very recently incorporated, or had closed their accounts, which suggest that they were not genuine actively trading businesses but were used for illegitimate purposes.[23] This is under the heading of “Full and frank disclosure” and the sub-heading of “Bona fide counterparties”, and it is not clear how that relates, if at all, to any risk of dissipation by the 14^th defendant.

(6) Under “Balance of convenience”, after referring to the plaintiff’s proprietary claim and its funds were in the Defendants’ Second Layer Accounts, Ms Marcellesi says[24]:

“I strongly believe that there is a real likelihood that the funds in the Second Layer Accounts will be transferred out of the Second Layer Accounts by the Defendants. This risk is heightened by the fact that the Hong Kong Police have not placed any blocks on any of the Second Layer Accounts at this stage and have not issued letters of ‘no consent’ over those accounts, and that none of the Respondent Banks have indicated that they will withhold the Stolen Funds from being transferred out of the Second Layer Accounts. Accordingly, [the plaintiff] believes that the grant of an injunction is appropriate to provide certainly that the funds remaining in the Second Layer Accounts will be preserved pending resolution of these proceedings”.

  This passage appears to be more related to the proprietary injunction rather than the Mareva injunction.

44.  In his submissions before me, Mr Hughes refers additionally to the transaction between the Parent/the 14^th defendant and Traki and argues that the receipt of “third party payments” on behalf of a Venezuelan entity is illegal (under Venezuelan law), and there are various suspicious aspects regarding the transaction (in terms of discrepancies in the transaction documents, due diligence by the 14^th defendant, and the circumstances of the third party payment), and the 14^th defendant:

“has clearly demonstrated low commercial standards in itself offering to receive payment from an unknown third party in order to contravene exchange controls, instead of requiring payment from Traki or indeed from its US or PRC subsidiaries … a subsidiary of a large and well-established company should not engage in a pattern of conduct of receiving suspicious payments from unknown third party payment agent, purportedly on behalf of its customers, and in quite obvious and open breach of foreign currency exchange controls”.

45.  Citing 匯力（天津）股權投資基金管理有限公司 v Sunfund Investment & Management Co Ltd[25], Mr Lam argues that the plaintiff is not allowed to put forward a new basis to support its case of risk of dissipation not advanced at the ex parte stage.  This is probably correct if I am considering discharge, but not if I am considering continuation, but which the plaintiff is saying that it is not pursuing.   However, in any event, I do not think that these additional submissions assist the plaintiff.

46.  As Coleman J said in Universal Entertainment Corporation v Kazuo Okada[26], resort to mantras such as “low commercial morality” and “low commercial standards” is of little value in itself, and what the Court must do is “to scrutinise the evidence to see whether [the alleged conduct of the defendant] points to the conclusion that assets may be dissipated”[27]. The acts relied upon by the plaintiff must be relevant to the issue of risk of dissipation.  I repeat what Lam VP and Coleman J said about the relevance of alleged wrongdoing/dishonesty by a defendant in assessing real risk of dissipation which I quoted above.

47.  Further, as Anthony Chan J said in Crete Maritime Corp v Emirates Shipping Line DMCEST[28]:

“21. … in the context of unacceptably low commercial morality the court deals with a spectrum of conduct. At one end, there are clear cases of fraud. A good example is Internet fraud, which is quite prevalent in recent years. In those cases, the real risk of dissipation may be said to be self-evident. This sits with common sense because the fraudulent exercise is designed to deprive the plaintiff of his assets.

22. At the other end of the spectrum may be cases of sharp commercial practice. Whilst such conduct is reprehensible, it cannot by itself give rise to the inference of real risk of dissipation.

23. In between the two ends, the circumstances are infinitely variable and it would not be fruitful to try to categorise them.

24. However, I am in no doubt that where there is nothing more than propensity evidence, it would not be right to infer from it a real risk of dissipation unless the conduct of the defendant is at or very close to fraud or dishonesty end of the spectrum”.

48.  With respect, I agree.

49.  I cannot see how the acts and conduct of the 14^th defendant in relation to the transaction with Traki, even in the way as analysed by the plaintiff, is supportive of any inference or conclusion of a real risk of dissipation.   The important point is that it remains the plaintiff’s case that it is not alleging that the 14^th defendant was in any way involved with the underlying fraud.  The 14^th defendant is not said to be engaged in any wrongdoing against the plaintiff at all. Therefore, whatever features of the transaction with Traki that one may question, it is not the plaintiff’s case that it is because the 14^th defendant was knowingly participating in the siphoning away of money which belonged to the plaintiff, and the purpose of the transaction, as far as the 14^th defendant and the Parent are concerned, was not to facilitate the dispersing of money obtained by fraud on any person.  There is nothing to suggest that, to the 14^th defendant and the Parent, this is anything but a commercial transaction with Traki.  As analysed by the plaintiff, the conduct of the 14^th defendant may well be (although I am not making any findings one way or another because the validity of the plaintiff’s points may affect the defence of the 14^th defendant that it and the Parent were bona fide vendors) commercially, or even legally, reprehensible, but that is only in the way that the 14^th defendant or the Parent chose to conduct their business with Traki which to them was not part of any fraud against the plaintiff, and cannot, in my judgment, give rise to an inference of real risk of dissipation in the sense that there is a solid basis to infer that the 14^th defendant, in the light of such conduct, is the kind of entity which may seek to render itself judgment proof. 

50.  Mr Hughes also refers to the fact that from the bank statements of the 14^th defendant, entire amounts of monies received by it are regularly dissipated in full by payment out.  I do not see how that assists the plaintiff.  There is no objection to an entity using, or using up, its funds in the normal course of its business, and the purpose of a Mareva injunction is not to stop such conduct.  Thus, merely dispersing one’s funds regularly, or not keeping any surplus cash, is neither here nor there.  Unless there is something to suggest that such regular “dissipation” (as Mr Hughes puts it) is in fact done to “dissipate” the assets in the sense as that word is used in the law on Mareva injunctions, it is not indicative of any real risk of dissipation.

51.  In my judgment, looking at the evidence holistically, the plaintiff has failed to establish any real risk of dissipation at all as against the 14^th defendant (which has to be established separately as against it). Apart from the submissions of Mr Hughes which I deal with above, all that the plaintiff has left with is that, with the attitude of the banks and the Hong Kong Police which is unhelpful to it, the 14^th defendant was and is left with the ability to deal with its assets, including monies in its bank account, without restraint.  But there is no evidence to say that, with this ability, the 14^th defendant would do anything with the intention, or would have the effect, of dissipating its assets unjustifiably, i.e. the assets are put out of reach of the plaintiff as a judgment creditor, as against merely using its assets including funds in its bank account in its normal commercial activities.[29]  The plaintiff’s case is, as far as I can see, since the 14^th defendant can dissipate there is a risk that it will do so.  That cannot be correct otherwise all defendants not subject to any injunctions or any lawful restraints will have a Mareva injunction slapped on it.

52.  The reference by Ms Marcellesi to the corporate details of the 14^th defendant, and the fact some defendants may have been formed for illegitimate purpose, do not assist at all.  The former is neutral and the latter fails to deal with the 14^th defendant’s position separately, if it is really intended to apply to it at all.  But in either case, if the plaintiff is really relying upon the point, then it makes it all the more serious the failure by the plaintiff to find out more about the 14^th defendant and the Parent, which Mr Lam complains under material non-disclosure.

53.  The plaintiff has failed, in my judgment, to show that a real risk of dissipation existed or exists at any time.

54.  For the above reasons, had the Mareva injunction continued to exist (which it would but for the payment in), I would not have continued it, and/or would order its discharge.

55.  The 14^th defendant alleges that there was also material non-disclosure by the plaintiff, namely the failure of the plaintiff to draw to the attention of the Court during the ex parte hearing of the “strong financial and commercial standing” of the 14^th defendant and the Parent, which could easily be ascertained from Internet searches, but instead it made the general statement about some defendants being used for illegitimate purpose.   In the light of my conclusions above, there is no need for me to deal with this argument in detail save to say that I think there is real substance in it and I am prepared to hold for the 14^th defendant on this ground too.

56.  There is also no need for me to rule on whether the plaintiff has a good arguable case against the 14^th defendant and even assuming that in favour of the plaintiff I do not think that a Mareva injunction is justified.  As the plaintiff’s claim against the 14^th defendant will continue, and without disrespect to both counsel who have made detailed submissions thereon, the less I say about the merits of the plaintiff’s case the better.

D2.  The proprietary injunction

57.  As for the proprietary injunction, in Heitkamp & Thumann KG v Living Profit Trading Develop Ltd[30], DHCJ Marlene Ng (as she then was) said:

“For an interim injunction to protect a claim for trust property, the Amercian Cyanamid principles apply, ie an applicant must show (a) there is a serious question to be tried on the merits of the claims, (b) the balance of convenience is in favour of granting an interlocutory injunction, and (c) it is just and convenient to grant the injunction ‘although irremediable damage need not necessarily be shown and the court will readily find that the balance of convenience favours the preservation of the fund pending trial’”.

58.  There is no need for a plaintiff seeking an interlocutory proprietary injunction to show risk of dissipation.[31]  A proprietary injunction will not be granted if a monetary award will be an adequate remedy for the plaintiff.[32]

59.  In particular, where the proprietary claim of a plaintiff is not to any specific real or personal property but money, the plaintiff can be adequately compensated by a monetary award, unless there is evidence which calls into question the ability of the defendant to meet the award (for example its solvency), a proprietary injunction is not necessary or justified.[33]

60.  For the purpose of this Decision, I am prepared to assume that the Sum received by the 14^th defendant in the D14 Account on 7 November 2019 can be traced back to the plaintiff’s bank account.   The plaintiff’s case for a proprietary injunction is simply that, the Sum being its own money, there is no reason for the 14^th defendant to retain it.  There is however no evidence to suggest that the 14^th defendant will not be in a position to pay an amount equivalent to the Sum to the plaintiff, whether by way of a liquidated sum or as damages, if the plaintiff succeeds eventually in this action.  I am not satisfied that in all the circumstances of this case, a proprietary injunction is either necessary or appropriate.   Had the proprietary injunction continued to exist (which it would but for the payment in), I would not have continued it, and/or would order its discharge.

61.  As in the case of the Mareva injunction, I do not intend to say anything about the merits of the plaintiff’s claim against the 14^th defendant.  In particular, Mr Lam also queries whether the very money put into the D14 Account, i.e. the Sum itself, has already been paid out in the course of the 14^th defendant’s business and so there is no proprietary claim by the plaintiff, including a case for a proprietary injunction.   As this concerns the merits of the cause of action of the plaintiff, and it is not necessary for me to decide on this issue for the purpose of this Decision, I shall not do so.

E.    DISPOSITION

62.  For the above reasons, in my judgment the 14^th defendant has established that the Injunctions ought not have been granted or continued.  As the payment in is in effect to replace the Injunctions[34] but the latter ought not have been granted, I do not see any reason for the money that has been paid into Court by the 14^th defendant to be kept there, and, to achieve justice between the parties[35], I order that the sum (together with any accrued interest) is to be paid out to the 14^th defendant forthwith.  I do not see the need to make any further substantive order.

63.  I also order that the plaintiff is to pay the costs of the 14^th defendant of the Summonses, and all costs of and occasioned by the Injunctions, with a certificate for counsel, to be taxed if not agreed.   The 14^th defendant asks for the costs to be paid on an indemnity basis because of the material non-disclosure.  In all the circumstances I do not think that the plaintiff’s conduct warrants that and I decline to so order.  The aforesaid is on a nisi basis.

64.  I thank counsel for their assistance.