LIN CHIEN CHENG v. HUI CHI KEUNG

HCA 2680/2018

[2019] HKCFI 2686

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2680 OF 2018

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J U D G M E N T

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1.  In this action the plaintiff sues the defendant for enforcement, at common law, of a PRC judgment in the sum of RMB 43,976,302.04 (“the PRC Judgment”).

2.  The plaintiff seeks summary judgment on its claim, and in addition also seeks an injunction freezing the assets of the defendant pending payment.

3.  There is no dispute that for the purposes of common law enforcement of a foreign judgment the foreign judgment has to be:

(1)  for a debt or definite sum of money;

(2)  made by a court of competent jurisdiction over the parties and the subject matter;

(3)  between the same parties or their privies on an identical issue;

(4)  final and conclusive on its merits; and

(5)  not impeachable according to the rules on conflict of laws of Hong Kong.

(see for example JSC BTA Bank v Ablyazov [2014] 5 HKC 209, [27].)

4.  In this case, there is no dispute about most of those matters save for the question of whether the PRC Judgment is final and conclusive on its merits.

A.  BACKGROUND

5.  The PRC Judgment arose in this way.  By an agreement dated 20 December 2005 the parties, together with various other individuals, agreed to incorporate and invest in a company in the PRC for the purposes of development of a real estate project in Jiangsu Province.  It was agreed that the defendant would hold the PRC company as the sole shareholder on trust for himself and all other parties.  The company was to operate as an investment vehicle to develop the land into a residential area.

6.  Disputes arose between the parties and, according to the plaintiff, the defendant ultimately refused to distribute to the plaintiff his share of the profits of PRC company from the sale of the residential units. On 5 May 2014 the plaintiff commenced legal proceedings against the defendant in the Intermediate People’s Court of Yangzhou, Jiangsu Province for, amongst other things, damages arising from the alleged breach of the various contracts.  The Intermediate Court rendered a judgement on 31 October 2017 requiring the defendant to pay the sum of RMB 44,112,600, with interest for late payment in accordance with PRC law.

7.  The defendant appealed against that decision on 24 January 2018 to the Higher People’s Court of Jiangsu Province, which is an appeal court within the PRC judicial system.  The appeal was dismissed and the defendant was ordered to pay a (revised) sum of RMB 43,976,302.04 with interest for late payment within 10 days of the date of the judgement.

8.  On 14 November 2018 the defendant applied to the Supreme People’s Court 3^rd Circuit Court for “review” of the PRC judgment under the “Adjudication Supervision System” which exists under PRC law.

9.  The most significant issue in this case for the purposes of Summary Judgment is whether the review under the Supervision System prevents the PRC judgment from being determined as final and conclusive the purposes of common law enforcement.

B.  ANALYSIS ON SUMMARY JUDGMENT

10.  The plaintiff relies upon the expert declarations of Mr Zhu Daxiang, and the decision of To J in Bank of China Ltd v Yang Fan [2016] 3 HKLRD 7 at [53], to support his proposition that the decisions are final and binding and that the supervision system does not alter that. 

11.  In addition, the plaintiff contends that there is no real dispute as to the position in the PRC as to the law.  What the plaintiff suggests is that there is agreement as to what the PRC law states, but the dispute is whether, as a matter of Hong Kong law, that renders the judgment final and conclusive.  The plaintiff contends that because this court is in a position to determine that issue based upon what are essentially (it says) agreed facts as to PRC law, the issue is suitable for determination under Order 14.

12.  In my view the plaintiff’s reliance on Bank of China Ltd v Yang Fan to support any proposition that the PRC Judgments are to be considered as final and conclusive notwithstanding the supervision system is misplaced.  That case did not hold that despite the supervision system operating PRC judgments are nonetheless final and conclusive.  All that it decided was that the existence of the supervision system does not necessarily render a judgment as not final and binding.  That is a very different proposition.  In fact, To J expressly held, at [54], that he was bound by the Court of Appeal decisions that “in view of its complicated nature and public importance, that question could not be determined in interlocutory proceedings without hearing evidence from expert witnesses.”  

13.  The Court of Appeal decision referred to by To J was that in Lee Yau Wing v Lee Shui Kwan [2007] 2 HKLRD 749 at 751, in which a majority held that a summary judgment granted on a similar issue was to be set aside because:

“ The issue of whether the ‘trial supervision’ system per se rendered a PRC judgment inconclusive and not final was an issue of public importance and involved complicated legal questions that could not be determined in the absence of trial.”

14.  In my view I am bound by that conclusion as well.

15.  The plaintiff also relies upon a decision of DHCJ R Pang SC in Liquidation Committee of Guangxi Non-ferrous Metals Recycling Co Ltd v CNA Metals (Asia) Ltd HCA 519/2017, unreported, 13 December 2017, in which, at [5] the Deputy Judge stated, in relation to To J’s judgment:

“ The plaintiff’s response is that this is a final and conclusive judgment, and the plaintiff relies on the judgment of To J in Bank of China Limited v Yang Fan [2016] 3 HKLRD 7, where To J reviewed the authorities in Hong Kong, and particularly those which considered the protest or the review procedure in the mainland, and came to the conclusion that despite the review procedure, the judgment or a judgment in the mainland which has been appealed is a final and conclusive judgment.”

16.  With respect to the Deputy High Court Judge, I do not read the decision of To J in that way.  In my view he did not positively decide that a judgment in the mainland was a final and conclusive judgment despite the review procedure.  All he decided was that the review procedure did not mean that the judgment was not final and conclusive.  The use of double negatives is always confusing, but as I understand the decision all it was stating is that the matter remains open, to be decided after having heard expert witnesses, and it could not be stated one way or the other whether a judgment was final or binding.

17.  More recently, in Jiang Xi An Fa Da Wine Co Ltd v Zhan King [2019] HKCFI 2411, Hon Lisa Wong J reviewed the authorities in the context of an application for an injunction under section 21M of the High Court Ordinance, particularly between paragraphs 85 and 89 and concluded at [89] and [90] that:

“ 89. In short, there is no definite authority that the existence of the ‘trial supervision’ procedure would deprive a PRC judgment of its otherwise final and conclusive character. Rather, the matter has to be proved at trial at which evidence of material PRC law would have to be adduced by the parties and assessed by the court in the actual enforcement proceedings.

90.  I am satisfied that the Prospective PRC Judgment may be enforced in Hong Kong within the meaning of s 21M(1)(b) of the [High Court Ordinance] notwithstanding (1) the common law prohibition on the recognition and enforcement of foreign non-monetary judgment; or (2) the existence of the ‘trial supervision’ system under the Civil Procedure Law of the PRC.”

18.  At paragraph 65 of the same judgment the learned judge emphasised that what she was deciding was whether the applicable PRC judgment in that case was a judgment which “may be enforced in Hong Kong” (emphasis in the original).  She was not deciding in any sense that a PRC judgment was final and conclusive for the purposes of a common law action.  All she was deciding was that such a judgment might be enforced despite the existence of the “trial supervision” system.  She did so on the basis that there was no definite authority that the existence of such a procedure would deprive a PRC judgment of its otherwise final and conclusive character.

19.  I do not agree with the plaintiff that there is no factual issue in this case such that it ought to be decided on this application.  There may be little factual difference between the parties as to what the law in the PRC actually says, but there is a significant difference between the parties as to its effect.  Whilst the question of whether the PRC Judgment is final and conclusive is ultimately one to be decided under Hong Kong law, it is inevitably significantly influenced by the law in the PRC and the effect of those laws on the PRC Judgment.  In order to make a proper determination of that issue it is necessary, as well as sensible and proper, to have a trial in which this difficult question can be fully ventilated with experts, and full and detailed submissions made.

20.  In all the circumstances, I am satisfied that I am bound by the Court of Appeal decision in Lee Yau Wing v Lee Shui Kwan, to the effect that on such an important matter where there is no definitive authority, this matter must go to trial.

21.  Accordingly I reject the application for summary judgment.

22.  I note that the defendant has also raised an issue concerning whether interest is in fact payable on the judgment sum as alleged by the plaintiff.  I make no finding on that issue as it is unnecessary to do so.

C.  ANALYSIS ON INJUNCTION APPLICATION

23.  The plaintiff’s application for an injunction freezing the assets of the defendant is premised upon what it says is a good arguable case and an evidenced risk of dissipation by the defendant.

24.  I am satisfied that the plaintiff has established that it has a good arguable case and that there is a serious issue to be tried.  The real area of dispute revolves around whether the plaintiff has established a risk of dissipation.

25.  As for risk of dissipation the plaintiff relies on three matters:

(1)  What it describes as the low commercial morality of the defendant.

(2)  The fact that the defendant has not satisfied the PRC judgment.

(3)  The attempts by the defendant and his wife to sell various properties.

C.1  Low commercial morality

26.  For this purpose, the plaintiff relies upon the underlying dispute, and the conduct of the defendant in relation to the real estate project. He contends that the failure to distribute the investment returns from the project in accordance with the written agreements is unconscionable and fully justifies an inference that the defendant is likely to transfer away his assets to somewhere else in order to defeat the enforcement of the judgment against him.  The plaintiff relies upon the well-known case of Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235 at 240H.

27.  The defendant, on the other hand, describes the underlying facts giving rise to the dispute in relation to the real estate project.  He says that those underlying facts recast the plaintiff as the person with low commercial morality, and contends that the real difference between the parties ultimately boils down to a contractual dispute which cannot of itself demonstrate the requisite standard of low commercial morality to justify a Mareva injunction.  In this context the defendant refers to the decision of Anthony Chan J in Crete Maritime Corp v Emirates Shipping Line DMCEST [2017] 5 HKLRD 345 at [21] – [24] where he said:

“ 21. I agree with Mr Chain that 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 the fraud or dishonesty end of the spectrum.” (emphasis in the original)

28.  In my view it is not appropriate to investigate the facts giving rise to the PRC judgment in any great detail.  I accept that the dispute was essentially a contractual one, albeit one in which the plaintiff was alleging impropriety of some form.  However, I do not believe that this is a case in which serious allegations of fraud or misappropriation have been upheld by the PRC court.  Therefore, insofar as the spectrum identified by Anthony Chan J is concerned, I do not think that this is a case which falls at or very close to the fraud or dishonesty end of the spectrum.  Whilst that in itself does not answer the question as to whether the defendant has a low level of commercial morality, I agree with Anthony Chan J that it is a significant factor which should be borne in mind.

29.  Having considered the various submissions which have been made, I am not satisfied that the underlying dispute assists me one way or the other to determine whether there is any real risk of dissipation.

C.2  Failure to satisfy the judgment

30.  There is no doubt that the defendant has failed to pay the judgment for a considerable time.  It is correct that the judgment has been appealed, but an appeal in the PRC does not operate as a stay of execution and there was in any event a considerable period between the appeal to the Higher People’s Court and the application for a review under the supervisory jurisdiction during which nothing appears to have been done.

31.  I have considerable sympathy with the submissions by the plaintiff that the defendant is using every available means to avoid paying the judgment sum.  One of the means which he has been using is the appeal and review process.  That process does not, as a matter of law, justify non-payment.  Therefore I am left with the clear conclusion that the defendant is simply not paying the amounts which he is obliged to pay, and that he has no legitimate excuse for that non-payment.

32.  The more difficult question, in my view, is whether that illegitimate non-payment of a judgment sum can in itself constitute sufficiently low commercial morality to justify a conclusion that there is a risk of dissipation of assets.  Ultimately, having considered the matter very carefully, on the facts of this case I do not think that this factor on its own is sufficient to justify a finding of a real risk of dissipation.

33.  There can be no doubt that the judgment sum is due and owing.  It should have been paid but was not.  As a matter of law, as far as I can tell in the PRC there is no excuse for the non-payment.  The appeal process and the review process does not operate as a stay and so the defendant remains bound to make the payment.  Commercially however I can well recognise that a defendant would be reluctant to make payment during an appeal process.  There always remains the possibility during that process that the defendant will be successful in its appeal, and in such an event the money would not be due.  In circumstances where the judgment involves considerable sums and the financial strength of the parties may be open to some doubt I recognise a commercial reluctance to make the payment pending the final outcome of the appeal process.  That is not to say that payment should not be made, but it does mean that a failure to pay is not necessarily indicative of low commercial morality.

34.  I accept that this conclusion will be highly factually dependent. The court may have regard to matters such as the prospects of success under appeal, any evidence that the appeal is purely for delay purposes, the stage to which the appeal process has obtained, delay in prosecuting any appeal and no doubt a raft of other matters which would be relevant to an assessment of the extent to which the appeal may or may not be genuine. In addition, the court will have regard to other evidence of a propensity to dissipate assets, or other evidence of a low level of commercial morality. In other words, the court will take into account all of the circumstances, and the failure to pay the judgment sum will be one relevant factor.

35.  The difficulty in this case is that the underlying judgment is not one made under Hong Kong law and is not one pronounced by the Hong Kong courts.  I am therefore limited in my ability to make any assessment of these matters by the nature of the evidence that is put before me.  There is in reality little evidence of this in the various PRC reports.

36.  Consequently, although I have every suspicion that the final step taken in November 2018 for a review may have been just a tactic further to delay payment of the judgment sum, I am at this stage unable to reach a firm conclusion on that basis. It is relevant in this context that since November 2018 the review process has progressed and, I am told, that all that is awaited is the decision to be issued by the Supreme People’s Court.  Although I am not familiar with the timeframes for such a process, I am unable to say that it has been prosecuted slowly by the defendant and in all the circumstances I am bound to conclude that the steps which have been taken do not of themselves demonstrate an unacceptably low level of commercial morality.

C.3  The attempts to sell the properties

37.  In this context the plaintiff relies upon the affirmation of Ngai Chung Hoi dated 6 December 2018, in which he explains that he visited various estate agents in Tsuen Wan on 29 November 2018 in an attempt to see if the defendant was attempting to sell a flat at Flat D, 19^th Floor, Block 2, Royal Sea Crest, No 8 Lung Tang Road, Tsing Lung Tau, Tsuen Wan (“the Tsuen Wan Property”).  The Tsuen Wan Property has been the matrimonial home of the defendant and his wife for a long time.

38.  Mr Ngai explains that he was offered the Tsuen Wan Property at a price of HK$12,800,000, although he was later told that the price had gone up to HK$13,500,000.  In the light of this evidence the plaintiff contends that the defendant is seeking to sell his properties in order to defeat the claim of the plaintiff.

39.  Similar evidence is provided by Lam Pui Yau in respect of two other properties which are owned by companies of which the defendant is a significant shareholder.

40.  The plaintiff also identifies that the defendant has resigned from the directorships of two companies of which he is a shareholder in order to facilitate a sale of the properties that those companies hold.

41.  In rebuttal of this proposition the defendant’s wife, Ng Man Ah, has sworn affirmations in which she describes that estate agents started to telephone her to see if she would sell the Tsuen Wan Property.  She responded that she might consider selling it at a price of HK$12,800,000, on the basis that she felt that was above the market value at the time this occurred, which was well before 14 November 2018, which is the date that the writ of summons in this action was issued.  She says that the telephone conversations were casual, and that she subsequently adjusted the offer price upwards to HK$13,500,000 in view of the good property market.  She confirms that she was not in a hurry to sell Tsuen Wan Property, and denies that it was any attempt to dissipate the assets of the defendant.

42.  I am told that the Tsuen Wan Property has now in fact been sold, and the proceeds from the sale have been held by the solicitors for the defendant pursuant to undertakings which were given to the court on the first hearing of the inter partes summons on 14 December 2018.

43.  Insofar as the other properties, and the companies which hold them, are concerned Madam Ng explains that the defendant ceased to be involved as a director because of his involvement in civil proceedings. This was so as not to affect the business or any financing that the underlying companies may wish to participate in.  Madam Ng also stresses that if there had been a positive intention to dissipate assets then these properties could have been sold at any stage.

44.  I have some concerns about the selling of the family home at around the same time as the other properties were obviously on the market. I accept that it is not entirely uncommon for families in Hong Kong to sell their own home at a time when the property market is high, but I cannot ignore the fact that the Tsuen Wan Property has been the family home of the defendant for a very long time, and it is therefore somewhat out of character suddenly to sell it.  Combine that with the fact that the other properties appear also to be on the market at the same time, and also with the failure to pay the judgment sum, and I believe that it is a legitimate inference that the defendant is looking to dissipate his assets.  Cash is, of course, far more fungible than property, and hence I am satisfied that when all of these facts are combined, the evidence is sufficient to justify a conclusion that there is a real risk of dissipation by the defendant.

45.  There is no evidence of any prejudice that would be caused by the grant of the injunction.  The defendant is in the PRC and apparently unable to leave due to proceedings there.  The family home has already been sold, and the asset is now in cash, and the other two properties are held by companies about which no direct evidence has been adduced (other than shareholdings and directorships).  There is no suggestion that particular prejudice would be caused by freezing the defendant’s assets, although I entirely accept that a freeze would of itself amount to prejudice due to the infringement of the defendant’s rights.  That is always the case in the context of a Mareva injunction, and it is this prejudice which must be balanced against the prejudice caused to the plaintiff if assets are dissipated pending the resolutions of the disputes over the PRC Judgment which the defendant has raised are resolved.

46.  On balancing these various matters, and in all the circumstances, I am satisfied that a Mareva injunction should be ordered.

C.4  The terms of the Mareva injunction

47.  The summons seeking an injunction identifies the order sought, by way of an Appendix to the summons.  I refer to the paragraphs within that appendix.

48.  I am prepared to grant paragraph 1.

49.  I am prepared to grant paragraph 2.

50.  Paragraph 3 appears to me to go too far.  The Tsuen Wan Property was owned as to 50% by the defendant’s wife.  Hence it is inevitable that the proceeds of sale are also owned by her as to 50%.  There is no reason why the injunction should impinge upon her freedoms, and hence the injunction cannot prevent her from dealing with her assets.  Equally it is clear that the other two properties are owned by the two companies Wing Shing Hong and Charming Rise.  It is trite that the assets of a company are not considered as the assets of a shareholder, and hence it is not appropriate to injunct the assets of the company.  All that I consider that it is proper to do is to injunct the shares of the companies in the hands of the defendant.  Paragraph 3 of the order therefore requires amendment to reflect this.  It may be that the terms of the undertakings given by the defendant at the time of the call over are more appropriate in this regard.

51.  I am prepared to grant the disclosure sought.

52.  As to the exceptions, I have not heard counsel as to the value of the requirement for living and legal expenses.  I shall do so if necessary, although I have every hope that the parties can reach an agreement on such matters following delivery of this judgment.

53.  The undertakings referred to in the draft are not in fact attached to the draft, and I require the normal undertakings to be given.

54.  I shall leave it to the parties to agree the terms of an order to reflect this judgment.  Until such time as that is agreed, or ordered by the court in the event of disagreement, the undertakings given by the defendant to the court and recorded in the order of Deputy High Court Judge Marlene Ng (as she then was) dated 14 December 2018 shall remain in force.

D.  COSTS

55.  As to costs, on a nisi basis I order that the plaintiff shall pay the defendant’s costs of the summary judgment summons to be taxed if not agreed.  The costs on the injunction summons shall be costs reserved.