CHINA CITIC BANK CORPORATION LTD (QUANZHOU BRANCH) v. LI KWAI CHUN AND OTHERS

HCMP 1408/2017

[2018] HKCFI 1800

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1408 OF 2017

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D E C I S I O N

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1.  This is the adjourned hearing of the following summonses:

(a)   the plaintiff’s summons dated 16 June 2017 (but filed on 19 June 2017) (the “Continuation Summons”) to continue the ex parte injunction order first granted by Deputy Judge To on 16 June 2017 (the “Injunction Order”); and

(b)   the defendants’ summons filed on 20 July 2017 and amended on 8 November 2017 (the “Discharge Summons”) to inter alia discharge the Injunction Order.

PROCEDURAL BACKGROUND

2.  The Summonses (together with a number of other summonses) first came before me on 1 February 2018.  They were adjourned.  Some background leading to the adjournment, and the reasons therefor, have been set out in my Reasons for Decision dated 22 February 2018.  I state some additional relevant background as follows.

3.  On 17 February 2017, the Intermediate People’s Court of Quanzhou City, Fujian Province handed down its judgments against the defendants as guarantors (the “Mainland Judgments”).  Those Judgments were obtained by default, following a hearing held in the defendants’ absence.  According to the defendants’ case, they did not have notice of those proceedings (the “Mainland Proceedings”).

4.  On 16 June 2017, the plaintiff took out an Originating Summons dated 16 June 2017 for interim relief in aid of the Mainland Proceedings under sections 21M and 21N of the High Court Ordinance.  The interim relief sought was in effect a Mareva injunction.  On the same day, the plaintiff obtained on an ex parte basis the Injunction Order.  The defendants’ assets in Hong Kong are restrained up to the amount of RMB 64,018,675.16.  The plaintiff’s case, accepted by Deputy Judge To, was that there was a risk of dissipation of assets by the defendants, on the basis of the selling of 3 specific landed properties (the “3 Landed Properties[1]”) separately by D1, D2 and D3, and as such the defendants “are likely to remove, dissipate or dispose of the assets they hold in Hong Kong before the plaintiff can obtain an order recognizing and enforcing the two Mainland Judgements [sic]”[2].  On that same day, the plaintiff also took out the Continuation Summons.

5.  The Injunction Order is a Mareva injunction in the usual form. It is not a proprietary injunction.  It contains a disclosure order in aid (the “Disclosure Order”), which is in the following terms:

“The 1^st, 2^nd and 3^rd Defendants must inform the Plaintiff’s solicitors in writing at once of all their assets of an individual value of HK$100,000 or more in Hong Kong, whether in their own name or not and whether solely or jointly owned, giving the value, location and details of all such assets, in particular, the sale proceed [sic] of [the 3 Landed Properties].”

That threshold value of HK$100,000 was later on 28 July 2017 lowered by Deputy Judge To to HK$50,000.

6.  On 21 June 2017, the plaintiff started HCMP 1439/2017 and sought an Order that the Mainland Judgments be registered under Cap 597.  On 28 August 2017, Master Hui granted the Order sought (“the Order of Registration”). It was filed on 11 September 2017.  After the Notice of Registration of Mainland Judgment dated 13 September 2017 had been served upon the defendants, the defendants took out a summons dated 28 September 2017 for an Order that the Order of Registration be set aside (“the Setting Aside Summons”). 

7.  The Injunction Order first granted by Deputy Judge To has subsequently been continued and varied a couple of times.  The last variation was ordered by me on 1 February 2018 (reasons also stated in my Reasons for Decision of 22 February 2018).  On 20 July 2017, the defendant took out the Discharge Summons (which was subsequently amended on 8 November 2017).

8.  The adjourned Summonses first came back before me on 5 March 2018.  During that hearing, the plaintiff was represented by one team of counsel.  The hearing started that day but could not be completed.  It was adjourned part heard.  The resumed hearing took place on 26 March 2018.  On that day, the plaintiff’s team of counsel was replaced by Mr Jat Sew-Tong SC leading Mr Jonathan Chang.  A new set of written Skeleton Argument was filed.  During the hearing, and upon my enquiry about the status of the submissions that had previously been made on behalf of the plaintiff, Mr Jat invited me to focus on the submissions that he made on 26 March 2018.  This is what I will do.  

THE MAINLAND PROCEEDINGS

9.  D2 and D3 are husband and wife.  D1 is D2’s mother.

10.  D1 was the founder of Jiayi (Fujian) Import and Export Trading Company Limited (“Jiayi”) and Jinjiang Zhenxing Shoes and Plastic Company Limited (“Zhenxing”).  They are two companies incorporated in the Mainland.  According to the plaintiff, the defendants are their ultimate beneficial owners.

11.  According to D1, Jiayi and Zhenxing carried on in the Mainland manufacturing and trading business of plastic shoes and natural rubber.  They once prospered.  That was until about 2014 when business started to turn bad.  Big losses were recorded.  They ultimately ceased business in March 2016.

12.  Since about 2007, Jiayi and Zhenxing had obtained business finances from the plaintiff.  Their business for 2014 was bad.  They had difficulty repaying the 2014 to 2015 credit lines.  The total amount repayable was about RMB 60 million.  For repayment of those debts, Jiayi and Zhenxing obtained new credit lines for 2015 to 2016. The finances obtained under these new lines were utilized towards repayment of the old lines.  The defendants acted as guarantors of those new loans. 

13.  The 2015 to 2016 credit lines became due on 15 November 2016.  The total principal amounts owned by Jiayi and Zhenxing were RMB 28,952,742 and RMB 30,817,595 respectively.  They were unable to repay those loans. 

14.  On about 9 December 2016, the plaintiff commenced the Mainland Proceedings against Jiayi and Zhenxing.  The defendants were also sued as guarantors.  According to the plaintiff, the Mainland Court issued hearing notices to the parties in accordance with Mainland law.  Notices to D1, D2 and D3 were issued to them at their addresses for services provided in the relevant credit agreements[3].

15.  On about 18 January 2017, the Mainland Court issued freezing order over, inter alia, the properties of the defendants up to a maximum of RMB 31 million. 

16.  In fact, according to the evidence filed by the plaintiff, in addition to the Mainland Proceedings, Jiayi and Zhenxing had been facing during that period further claims in the Mainland.  The total number of such claims was at least 24 (including the Mainland Proceedings), and the total amount of claims exceeding RMB 400 million.  There had also been other freezing orders in addition to those issued in the course of the Mainland Proceedings. 

17.  On 17 February 2017, the plaintiff obtained the two Mainland Judgments against inter alia the defendants.  The total amount of the judgment debts exceeded RMB 60 million.  According to Mr Wu Yixin, the Mainland Judgments were duly served upon the defendants at their addresses for services provided in the relevant credit agreements[4].

GOOD ARGUABLE CASE

18.  The plaintiff has obtained the Mainland Judgments.  Those Judgments have been registered in Hong Kong.  Although the defendants have taken out the Setting Aside Summons, they are content that it be heard on another day.  I record further the defendants’ stance that they had not received the notices of the Mainland Proceedings issued by the Mainland Court.  The Mainland Judgments were therefore, they say, made in their absence.  However, for the purpose of the Discharge Summons, it is not sought to be argued that the plaintiff does not have a good arguable case. The grounds relied instead upon are (1) the plaintiff’s alleged failure to show any risk of dissipation of assets, and (2) alleged material non-disclosure on the part of the plaintiff.

THE LAW

Nefarious intent not required

19.  I will first of all consider a number of legal propositions or principles which the parties have raised before this Court.  The first concerns the relevance of “nefarious intent” in the context of risk of dissipation.

20.  At paragraph 26 of her Judgment in Eastman Chemical Ltd v Heyro Chemical Co Ltd (No 2) [2012] 3 HKLRD 307, Deputy Judge Winnie Tam SC set out a number of legal principles on risk of dissipation of assets.  Paragraph 26(5) and (6) are as follows (citation of authorities omitted, and with emphasis added):

“(5) the plaintiff cannot beforehand prevent the defendant from disposing of his assets merely because he fears that there will be nothing against which to enforce his judgment nor can he be given a secured position against other creditors. The dissipation of assets must be shown to be with an intention or for the purpose of defeating the plaintiff’s claim, or otherwise ‘improper’.

(6) the plaintiff is required to show that at least objectively, the effect of the defendant’s conduct would be to frustrate the enforcement of any judgment.  The conduct in question must be unjustifiable.  There must be a risk that the asset will be used otherwise than for normal and proper commercial purposes.”

21.  Paragraph 26 of DHCJ Winnie Tam’s judgment in Eastman was reproduced by Anthony Chan J at paragraph 10 of his judgment in Crete Maritime Corp v Emirates Shipping Line DMCEST [2017] 5 HKLRD 345 (HCMP 1010/2017, 21 September 2017), where his Lordship observed that “a useful starting point [of the legal principles on risk of dissipation of assets] can be found in Eastman.”

22.  Relying upon Crete, Mr Wong for the defendants submitted at paragraph 30.4 of his written submissions that “… apart from raising no more than a suspicion, P has not proffered any evidence (let alone ‘clear’ or ‘cogent’ evidence) that the sale of the ‘Bel-Air Property’ was ‘with an intention or for the purpose of defeating the plaintiff’s claim, or otherwise ‘improper’’”(Mr Wong’s emphasis).

23.  I have been referred by Mr Jat to a long line of authorities which suggest that to show risk of dissipation, it is not necessary to show subjective intent on the part of the defendant to dissipate or remove assets from the jurisdiction for the purpose of defeating any judgment.  See:

(a)   Great Wall Pan Asia International Investment Co Ltd v Cervera Holdings Ltd & Anor HCCT 13/2016 (unreported, 1 June 2016), per Mimmie Chan J at paragraph 19, that:

“It is now clear that there is no requirement for an applicant for Mareva relief to show that the defendant intends to deal with his assets with the purpose of ensuring that any judgment will not be met. The court is concerned with the effect of the defendant’s conduct, as opposed to the motives underlying it (Ulfar International AS v Miles, Court of Appeal (Civ Div), unreported, 29 August 1991). It is not necessary to show a ‘nefarious intent’ on the part of the defendant.”

(b)   Lam Sik Ying v Lam Sik Shi & Anor HCA 4713/2001 (unreported, 14 January 2011) per Mr Recorder Benjamin Yu SC at paragraph 11, that:

“As to the requirement to show risk of dissipation, it is not necessary for the plaintiff to show subjective intent on the part of the defendant to dissipate the assets or remove his assets from the jurisdiction for the purpose of defeating any judgment. To put this in another way: there is no requirement to prove nefarious intent: see Gee, Commercial Injunctions 5^th ed., paragraph 12.032 and Akai Holdings Limited & othersvHo Wing On, Christopher & others HCCL 37/2005 and HCCL 40/2005 at paragraph 52. The test formulated by the Court of Appeal in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG was

‘whether, on the assumption that the plaintiffs have shown ‘a good arguable case’ the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied.’”   

(c)   Grandview Industries Co Ltd v Leung Yiu Kei HCA 1617/2011 (unreported, 10 September 2012), per DHCJ John Yan SC at paragraph 7, where he, having referred to Eastman, observed that:

“With the greatest respect to the learned judge, I am of the view that on the present state of the authorities, it is not the law that in order to succeed on an application for a Mareva injunction, the plaintiff needs to show dissipation of assets with an intention or for the purpose of defeating the plaintiff’s claim.”

(d)   Gee, Commercial Injunctions (6^th ed) at paragraph 12-028, that:

“It is now clear that to justify Mareva relief, there is no requirement for an applicant to show that the defendant intends to deal with his assets with the purpose or object of ensuring that any judgment will not be met. The test is an objective one of assessment of the risk that a judgment may not be satisfied because of a risk of an unjustified dealing with assets.”

24.  I echo the observation made by Mimmie Chan J in Great Wall that the Mareva jurisdiction is concerned with the effect of the defendant’s conduct.  The exercise of the jurisdiction is not to punish a defendant for his or her improper intent or motive.  Nefarious intent of course is not totally irrelevant.  In those rare occasions where the existence of nefarious intent can be established, the inference that there is real risk of dissipation will no doubt be much stronger.  The reverse however is not true.  The test accordingly is, and should be, an objective one—whether the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied because of a risk of an unjustified dealing with assets.

25.  In the light of the authorities and discussions set out above, I agree with Mr Jat’s submission that, in so far as paragraph 30.4 of Mr Wong’s submissions giving the impression that the existence of “nefarious intent” is pre-requisite to the finding of risk of dissipation, that submission should be rejected.  Mr Wong has also properly clarified that that was not a proposition he sought to put forward.

Post-judgment Mareva injunction—whether “special circumstances” required

26.  In his written submission, Mr Wong referred me to Spry, Equitable Remedies (9^th ed), where the learned author at pages 550 – 551 suggests that:

“ … a plaintiff who has obtained judgment is entitled to make use of the ordinary processes of execution, and in the absence of special circumstances he should rely on those processes rather than seek a Mareva injunction. If in view of special considerations the grant of a Mareva injunction is proper in order to prevent execution from being rendered ineffective, that injunction should continue only as long as it is necessary for that purpose.⁴”

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4  Republic of Haiti v. Duvalier [1990] 1 Q.B. 202.

Relying on that passage, Mr Wong submitted that: “Crucially, the fact that P has obtained the Registration Order in Hong Kong effectively means that P’s present application is for a post-Judgment Mareva injunction against Ds. As such, it is incumbent on P to show ‘special circumstances’ in support ofa Mareva injunction, namely that such relief is necessary for the purpose of‘prevent[ing] execution from being rendered ineffective’.  If P is unable toshow such ‘special circumstances’, P should rely on the ‘ordinary process ofexecution…rather than seek a Mareva injunction’.”  (Mr Wong’s emphasis.) 

27.  If Mr Wong was seeking to put forward thereby a general proposition that an applicant seeking a post-judgment Mareva injunction has to establish “special circumstances” over and on top of those requirements which would support a Mareva injunction, I reject the submission.  That submission runs contrary to both authorities and common sense.

28.  The case of Haiti v Duvalier [1990] 1 QB 202 (cited in footnote 4 to the passage from Spry relied upon by Mr Wong), properly read, only supports the proposition that a post-judgment Mareva injunction, if granted, should be of limited duration.  It does not support any general proposition that additional “special circumstances” are required to be established.  Quite the contrary, Staughton LJ at 214G–H of his judgment observed that:

“ The law on this topic has developed in recent years; and in particular a distinction has emerged between pre-judgment and post-judgment restraint.  Our courts are more willing to restrain a defendant from dealing with his assets after, than before, judgment has been given against him.  (In passing, I would say that an injunction granted after judgment should normally, in myview, be of limited duration; the plaintiff should be encouraged toproceed with proper methods of execution; perpetual injunctions restraining a defendant from dealing with his assets until the crack of doom are undesirable.)”

29.  The mere fact that there are usual mechanisms of execution of judgments does not justify the requirement of additional “special circumstances”.  A Mareva injunction and the usual execution mechanism can work in tandem.  In Orwell Steel (Erection and Fabrication) Ltd v Asphalt and Tarmac (UK) Ltd [1984] 1 WLR 1097, Farquharson J observed at 1100C–E that:

“Indeed, in one sense it could be said that there is greater justification for restraining a defendant from disposing of his assets after judgment than before any claim has been established against him.It is true that there is a variety of methods for enforcing execution as set out in R.S.C., Ord. 45, r. 1 and once the plaintiff has obtained judgment it may be said that he should pursue the remedies provided by the rules rather than extend the application of Mareva injunctions still further.  The answer to that objection is that, as has been frequently pointed out, the Mareva injunction acts in personam on the defendant and does not give the plaintiff any rights over the goods of the defendant nor involve any attachment of them.  In this context it would have the effect of preserving the defendant’s goods until execution could be levied upon them; and the remedies of injunction and execution can take effect side by side.  Such was the view of Robert Goff J. in Stewart Chartering Ltd. v. C.&O. ManagementsS.A. [1980] 1 W.L.R. 460 where he continued a Mareva injunction granted before judgment in aid of execution.  Plainly an injunction will only be granted where the plaintiff can adduce evidence of a kind which normally supports an application for a Mareva injunction, namely, that there are grounds for believing that the judgment debtor will dispose of his assets to avoid execution.  Perhaps such grounds may be more readily established after judgment than before it.”

30.  To similar effects is the Judgment of Anthony To J in Menno Leendert Vos v Global Fair Industrial Ltd & Others HCA 4200/1995(unreported, 25 March 2010), where his Lordship observed at paragraph 9 that:

“The nature of Mareva relief is such that the majority of applications are made at a very early stage, sometimes even before commencement of action.  However, a Mareva injunction may also be granted to a judgment creditor in aid of execution of his judgment even if he had not applied for or obtained one originally: see Gee on Mareva Injunctions and Anton Piller Relief, 4^th Ed at 26-30 generally and Deutsche Schachtbau-und Tiefbohr-Gesellschaft MBH v Shell International Petroleum Co Ltd [1990] 1 AC 295.  The courts are much more ready to grant post-judgment Mareva injunctions because the plaintiff is a judgment creditor entitled to enforce the judgment by executing on the assets of the defendant and even to make him bankrupt or in the case of a corporation to have it wound up.  As observed by Sir John Donaldson MR in Deutsche Schachtbau-und Tiefbohrgesellschaft MmbH v R’as Al Khaimah National Oil Company (No 1), [1990] 1 AC 295, such an injunction was not, strictly speaking, an injunction which fell into the Mareva category, but was an injunction granted as protection for a judgment creditor, under a jurisdiction recognised before the emergence of the Mareva jurisdiction.”

31.  Orwell has recently been referred to with approval by Teare J in Great Station Properties SA & Anor v UMS Holding Ltd & Ors [2017] EWHC 3330 (Comm) (20 December 2017).  In paragraph 63, Teare J, having cited some dicta of Field J in Cruz City 1 Mauritius Holdings v Unitech [2013] 2 AER (Comm) 1137, observed that:

“These dicta all show that the policy of the law is to enforce judgments (and particularly so where the judgment enforces a London arbitration Award) so that freezing orders can, in an appropriate case, be granted after judgment.  They also show that such orders may more readily be made after judgment than before.  That may be because it is easier to infer a risk a dissipation.  Thus, in Distributori Automatici Italia v Holford General Trading [1985] 1 WLR 1066 at p.1073 Leggatt J. cited with approval the dictum of Farquharson J. in Orwell Steel v Asphalt and Tarmac [1984] 1 WLR 1097 that ‘in one sense it could be said that there is greater justification for restraining a defendant from disposing of his assets after judgment than before any claim has been established against him.’  Leggatt J. agreed that ‘grounds for believing that the judgment debtor would dispose of his assets before execution might perhaps be more readily established after judgment than before.’ It may also be because factors which are said to weigh against the making a freezing order (for example delay or the absence of assets within this country and the presence of related proceedings in another jurisdiction, two of the factors relied upon in this case) have less weight where judgment has already been obtained.  In circumstances where judgment has been given and there is solid evidence of a real risk of dissipation there would have to be particularly strong grounds for refusing freezing order relief.”  

32.  In my view, by the term “special circumstances”, the learned author of Spry should be taken as referring to those circumstances which would justify the granting of a Mareva injunction.  The mere fact that a judgment has been obtained does not by itself justify one.  But if a Mareva injunction is otherwise justified (applying the established considerations and with the fact that it is a post-judgment application factored in), a Marevainjunction may be granted (subject to the rider that it should normally be of limited and specific duration).  It acts in personam on the defendant and works in tandem with the usual execution mechanism.  No additional “special circumstances” are required to be established.

Proof of risk of dissipation

33.  In addition to the two specific matters discussed above, I have further been usefully reminded by Mr Wong of a number of principles relevant to the proof of risk of dissipation.  They are as follows.

34.  Burden on the applicant to prove risk of dissipation:

(a)   Mr Wong referred me to Re Chau Cham Wong Patrick (a bankrupt) [2016] 2 HKLRD 278, where Peter Ng J observed at paragraph 43 that:

“… the burden is on the [applicant] to prove a real risk of dissipation of assets.  There is no burden on the respondents, whether by voluntarily disclosing their assets or otherwise, to disprove it.”

(b)   This is not controversial.

35.  Disposals have to be unjustified:

(a)   See Gee at paragraph 12-032, that:

“It is not every risk of a judgment being unsatisfied which can justify Mareva relief.

…

(3)   A defendant may have some pre-existing legal or moral obligation to a third party which it is appropriate for him to satisfy (e.g. repay a loan).  Mareva relief should not be granted for the purpose of preventing the defendant from honouring the obligation even though in consequence the risk of an eventual judgment going unsatisfied is substantially increased.”

(b)   Whilst this is also not controversial, I will add the obvious observation that whether a particular disposal is justified or not will have to be considered in the light of all the circumstances of a particular case.  A disposal viewed in isolation may appear justified; but the same disposal when juxtaposed with other transactions may together suggest a course or pattern of conduct which justifies Mareva relief. 

36.  Solid evidence of risk of dissipation:

(a)   Mr Wong referred me to Eastman, where DHCJ Winnie Tam at paragraph 26(3) observed that:

“there must be ‘solid evidence’ of the risk of dissipation of assets. The order, being a very serious infringement of rights and liberties of the defendant, can only be justified on appropriately clear and strong facts and risks.  The standard of proof of the risk of dissipation is relatively high.”

(b)   See also Gee at paragraph 12-033, that:

“The claimant must adduce ‘solid evidence’ to support his assertion that there is a real risk that the judgment or award will go unsatisfied.  Since each case depends on its own facts it is impossible to lay down any general guidelines on satisfying this evidential burden …”

(c)   Mr Wong has in his written submissions emphasized a number of times the words “clear and strong facts and risks”.  I agree with the sentiments that have been expressed in the authorities cited.  The effects of Mareva relief have been described as draconian.  Application for such relief ought therefore to be cautiously and judiciously considered and scrutinized. The incidence of burden of proof should be firmly borne in mind.  The standard of proof of balance of probabilities in the sense as explained by the Court of Final Appeal in A Solicitor v The Law Society of Hong Kong (2008) 11 HKCFAR 117 will have to be applied.  But beyond this, it may not easy to apply in any principled approach the test of “clear and strong facts and risks”.  As the learned author in Gee has observed, which I respectfully repeat, “since each case depends on its own facts it is impossible to lay down any general guidelines on satisfying this evidential burden”.  In my view, there is also wisdom in the following observations in paragraph 29/1/58 of Hong Kong Civil Procedure 2018:

“It has been said that it is important that the jurisdiction should be kept flexible, so that the court can continue to do what is ‘just and convenient’ in any given case and that the discretion of the court should not be hedged about with too many rules (S.C.F. Finance Co. Ltd v Masri [1985] 1 W.L.R. 876; [1985] 2 All E.R. 747, CA, per Lloyd, L.J.).”

(d)   In this context, one ought not lose sight of the reality, as A Cheung J (as the Chief Judge then was) observed in Pacific Concepts (HK) Ltd v Brennion, HCA 2672/2008 (unreported, 13 March 2009) (at paragraph 24), that the plaintiff’s burden of showing real risk of dissipation of assets is very often discharged by means of “inferential evidence”.

37.  Disclosures subsequently given in aid—whether can be used to prove risk of dissipation:

(a)   In Bouvier v Accent Delight International [2015] SGCA 45, the Court of Appeal of Singapore considered the issue as to whether asset disclosures given pursuant to an order in aid contained in a Mareva injunction can be used to prove risk of dissipation so as to justify the original grant of that Mareva injunction.  Menon CJ, delivering the judgment of the Court, observed that such information may only relevant to the risk of dissipation in two narrow situations:

“102    Where the Mareva injunction itself is ultimately found not to have been justified on the basis of the material before the court at the time it was granted, it seems to us inherently unfair to nonetheless allow the plaintiff to use information that he has obtained through the ancillary disclosure orders to try to shore up a case for a real risk of dissipation.  Ancillary disclosure orders have been recognised to be highly intrusive and can entail potentially severe ramifications.  But, these severe intrusions on privacy are tolerated because a Mareva injunction without an accompanying disclosure order will often be toothless.  To further prejudice the defendant by allowing the plaintiff to use information extracted from an ancillary disclosure order to support an otherwise unsustainable Mareva injunction would be to provide the plaintiff with an unfair and improper advantage.

103    Further, the information obtained from an ancillary disclosure order will often have little, if any, bearing on a real risk of dissipation.  The disclosed information does not provide a longitudinal view of the defendant’s assets.  All that is disclosed are the assets standing to the defendant’s name at the time disclosure is made.  The information will not show whether there has been a systematic and unexplained attrition of the defendant’s assets over time, which, presumably, would be the justification for inferring a real risk of dissipation.  The disclosed information is also often rough and ready.  Given that the disclosure affidavits usually have to be compiled and filed under stringent timelines, the information set out therein is not the type of information that tends to stand up well to the microscopic scrutiny of lawyers and forensic accountants. …

104    In our judgment, ancillary disclosure orders may only be relevant to the risk of dissipation in two narrow situations.  The first is where the defendant refuses to provide any disclosure of his assets at all.  This might, in appropriate circumstances, found the inference that there is a real risk that the defendant may dissipate his assets (see Z Ltd v A and others [1982] 1 All ER 556 at 566B–566C per Lord Denning; Jarvis Field Press at [14]; Madoff Securities at [172]–[173]).  The second is where the information disclosed by the defendant reveals assets which are so glaringly inadequate or suspicious that the deficiencies cannot be attributed to the urgency with which the disclosures were made or other accounting or valuation inaccuracies.  This latter situation would rarely arise because if the defendant were truly minded to conceal his assets, the likelihood is that he would not provide any disclosure at all.  Even in these situations, the court would have to carefully consider whether, in all the circumstances, an inference of a real risk of dissipation may appropriately be drawn.”

(b)   For my part, I see little justification in laying down any hard and fast rule on the use of such disclosures in the context of proof of risk of dissipation.  It was not said that because of irrelevancy or unfairness, such disclosures could never be used to prove risk of dissipation.  No authority has in any event been cited to me in support of that proposition.  The Singaporean Court of Appeal indeed accepted that under some circumstances, the manner of compliance, and the information obtained from an ancillary disclosure order, could be admissible and relevant to the proof of risk of dissipation. Once it is accepted as a matter of principle and law that they are relevant and admissible, it may not in my view be useful to try to lay down the exact scenarios in which they could be so used.  Facts differ.  The terms and scope of ancillary disclosure orders in aid (and hence whether the information disclosed represent only a snap-shot or a longitudinal views of the assets concerned) also vary.  It is impossible to generalize.  Ultimately, as Menon CJ observed at paragraph [104] in Bouvier, the issue is whether “in all the circumstances, an inference of a real risk of dissipation may appropriately be drawn.”

38.  I apply the principles and considerations set out above when considering the facts dealt with below.

THE SALE OF THE 3 LANDED PROPERTIES AND THE CAR

39.  The sale of the 3 Landed Properties, and the manner in which the proceeds were disclosed, formed the main factual basis upon which a real risk of dissipation, Mr Jat submitted, could be inferred.  They occurred as follows.

40.  The Celestial Heights Property:

(a)   D1 and D2 became the joint registered owners of the Celestial Heights Property on 4 August 2009.  It was the defendants’ home;

(b)   On 27 February 2017, a sale and purchase agreement was entered into for the sale of the same.  The sale price was HK$29.5 million;

(c)   Prior to that sale, the property was subject to an “all moneys” mortgage in favour of the Bank of China.  Details of that mortgage and the loans or facilities secured by the property were not revealed;

(d)   The sale and purchase was completed on 20 April 2017.  Uponcompletion, the defendants leased the same property back from the purchasers for a term of about 6 months at the monthly rent of HK$50,000 (the “Lease”);

(e)   According to D1 and D2, HK$29 million of out of the sale price of HK$29.5 million was paid to the Bank of China to discharge the mortgage.  The balance was used as solicitors’ costs (HK$13,000), estate agency fees (HK$147,500), rental payments for the full 6-month term of the Lease (HK$300,000), and ordinary living expenses;

(f)   In respect of the reasons for the sale of the Celestial Heights Property (and the Hong Hom Property which I will deal with below), D2 explained in his affirmation dated 19 July 2017 that due to poor performance of his family business and his investment loss, he having discussed the matter with D1 decided to sell the properties to resolve his financial crisis[5].

41.  The Hung Hom Property:

(a)   The Hung Hom Property was purchased by D2 via Yee Fung Global Investment Ltd in February 2014 at HK$19.5 million.  It was subject to an “all moneys” mortgage in favour of DBS Bank (HK) Ltd.  The terms of the mortgage and the loans or facilities secured by the property were not revealed;

(b)   On 22 May 2017, D2 entered into a provisional sale and purchase agreement for its sale at HK$18.8 million.  That sale was completed on 7 July 2017.  The entirety of the purchase price was paid over to DBS.

42.  The Bel-Air Property:

(a)   The Bel-Air Property was purchased by D3 via Max Emperor Limited on 18 January 2011 at HK$19.5 million.  It was subject to two “all monies” mortgages in favour of the Bank of China.  The terms of the mortgages and the loans or facilities secured by the property were not revealed;

(b)   On 25 May 2017, D3 entered into a provisional sale and purchase agreement for its sale at HK$29 million.  The sale was scheduled to complete on 25 July 2017;

(c)   In her first affirmation filed on 21 June 2017 in purported compliance of the Disclosure Order, D3 revealed that “I entered into a transaction of the Bel-Air Property which will be completed on 25 July 2017.” She then produced a copy of the provisional sales and purchase agreement concerned.  Nothing further about that property or the pending sale was disclosed;

(d)   On 30 June 2017, D3 filed her 2^nd affirmation in purported compliance of the Disclosure Order.  She provided updated information on two or her bank accounts.  The new information provided concerned her involvement in the Mandatory Provident Fund Scheme;

(e)   On 20 July 2017, D3 filed her 3^rd affirmation.  This affirmation is in Chinese.  Amongst other things which she said, she explained that the reason for the sale of the Bel-Air Property was that D2 had suffered investment loss and was in urgent need for funds to resolve his financial crisis[6]. No disclosure was made in respect of any proceeds of the sale of the Bel-Air Property;

(f)   On 6 September 2017, D3 filed her 4^th affirmation. She said that it was filed “for the purpose of disclosure of my assets pursuant to the [Disclosure Order]” and “in support of [the application] to vary the Injunction Order in respect of ordinary living expenses [etc]”;

(g)   In that 4^th affirmation, D3 disclosed for the first time that (1) her solicitors had on 25 May 2017 received deposit for the sale of the Bel-Air Property in the total sum of HK$2.9 million; and (2) out of that sum of HK$2.9 million, HK$2 million was on 8 June 2017 released to her and deposited into an account of hers;

(h)   She then explained how she had used that sum of HK$2 million. Two transactions are of particular relevance:

“HK$200,000 was transferred into my HSBC Account … on 9 June 2017, of which HK$180,000 was transferred … to the account of Maxwell International Holdings Berh on 12 June 2017 …”

“HK$750,000 of which was transferred to the Standard CharteredPrivate Bank HKD savings account of [D2] on or around 12 June 2017.  The sum was then converted into US$96,148.51 in the Standard Chartered Private Bank USD savings account of [D2].  Out of this sum, US$28,000 was transferred to a Standard Chartered Private Trust account, and US$65,400.34 was transferred to another Standard Chartered Private Trust account.”

(i)   Maxwell International Holdings Berh (“Maxwell International”) was a Malaysia company.  D1 held interest in it[7]. According to an exhibit produced by D3, the account of Maxwell International to which the sum of HK$180,000 was transferred was in Kuala Lumpur.  D2’s private trust accounts to which the sums of US$28,000 and US$65,400.34 were remitted were also outside Hong Kong;   

(j)   No explanation was given by D3 as to why she had not made the aforesaid disclosure earlier.  Nor did she explain why she effected those transfers of HK$180,000 or HK$750,000, or the use of those funds;

(k)   On the same day (ie 6 September 2017), D2 filed his 6^thaffirmation.  In respect that sum of HK$750,000, he made disclosure in similar terms as D3 did.  Similarly, he did not explain why the disclosure had not been made earlier.  Nor did he give any reason as to why he made the onward transfers, or the use of those funds. 

43.  Sale of D2’s car:

On 7 June 2017, D2 sold his Tesla motor car.

THE PARTIES’ SUBMISSIONS ARISING

44.  For the plaintiff, Mr Jat referred me to the events that led to the Mainland Proceedings and the Mainland Judgments.  He submitted that it could not have been a co-incidence that the defendants started to dispose of their properties only right after the Mainland Judgments.  Within a span of 4 months, all their real properties in Hong Kong were sold.

45.  In respect of the explanations given by the defendants for their sale of their properties, Mr Jat submitted that they were incredible and unsupported by evidence as (1) the defendants provided no evidence to show that any sum owed under the mortgages were due or close to being due;(2) the Celestial Heights Property and Hong Hum Property were sold with no substantial proceeds left after discharging the mortgages.  Their sale could not have provided any financial aid to D2 as he alleged; and (3) if there were significant financial difficulties to be met through the sale of the properties, the defendants could easily have provided such evidence to the Court, which they did not.

46.  Mr Jat further pointed to the unsatisfactory manner in which the disclosure relating to the deposits of the sale of the Bel-Air Property, and the transfer out of some of those funds to overseas accounts.  Mr Jat submitted that in all the circumstances of the case, an inference of real risk of dissipation could be drawn.  By way of illustration, he cited GE Capital Australia v Davis [2001] NSWSC 933 where the Supreme Court of the New South Wales held (at paragraph 7) that it was possible to infer a risk of dissipation when the defendants put up their home for sale shortly after their companies encountered difficulties leaving a substantial claim on the guarantees and no defence to the claim was put forward, thereby depriving the plaintiff of the fruits of his judgment.  Mr Jat further cited Guan Chong Cocoa Manufacturer Sdn Bhd v Pratiwi Shipping SA [2013] 1 SLR 157, where the Singaporean Court of Appeal observed that:

“In our opinion, a good piece of evidence would be where the defendant, for no sufficient reason, starts to put his property up for sale or where a company just ceases business.”
                                           (paragraph 19)

47.  On behalf of the defendants Mr Wong also reminded me of the history leading to the Mainland Proceedings and Mainland Judgments.  He submitted that had the defendants wanted to dissipate their assets, they would and could have done so much earlier.  He reminded me of the disputeof facts as to whether the defendants had notice of the Mainland Proceedings. 

48.  In respect of the sale of the properties, his main submission was that it was not unjustified to sell off the 3 Landed Properties to pay off the mortgages.  Whilst the defendants have not expressly said so, Mr Wong relied on the common sense point that selling off those properties would save the defendants from further exposure to interest.

49.  In respect of the manner of disclosure, Mr Wong referred me to the terms of the Disclosure Order.  He submitted that it is restricted to disclosure of assets in Hong Kong.  It also does not require disclosure of any flow of the assets, but just a snap shot of the asset at the moment of the disclosure.  He submitted that the defendants had done what they were required to do.  He further submitted that any doubt on the scope of the Disclosure Order, given the contempt implications, should be given to the defendants.

50.  In relation to the transfer to overseas accounts of part of the deposits received from the intended sale of the Bel-Air Property, Mr Wong, whilst accepting that the defendants might not have said so expressly in their affirmations, submitted that the defendants did say that the money realized from the sale of the properties was used to relieve their financial difficulties, and that those transfers were not inconsistent with that purpose.

51.  In addition, Mr Wong referred me to the bank statement for the month of May 2017 of an account D3 held with the HSBC.  He pointed to the fact that the balance of the account had increased from 29 April 2017 of HK$54,871 to HK$440,182 as at 29 May 2017.  He also pointed out the existence of some investment in the form of securities in the account.  He submitted that that those features were inconsistent with any intent to dissipate.

52.  Mr Wong submitted in all the circumstances that no risk of dissipation could be inferred.

DISCUSSION

53.  I have considered the evidence and counsel’s submissions carefully.  For the reasons below, I accept Mr Jat’s submissions that a real risk of dissipation can be inferred:

(a)   Prior to the Mainland Proceedings and Mainland Judgments, the defendants had been facing financial difficulties. Jiayi and Zhenxing had in fact ceased business in March 2016;

(b)   The Mainland Proceedings had been served upon the contractual addresses of the defendants.  The defendants haveraised the factual dispute as to whether they had notice of thoseproceedings.  That issue might be the subject of more detailed evidence and submissions during hearing for the Discharge Summons.  But the defendants were content to proceed with the present applications separate from the Discharge Summons.  Having considered the evidence now before me, and in particular paragraphs 34 and 39 of Mr Wu Yixin’s 1^stAffirmation, and for the purpose of the present applications, I draw the inference that the defendants had received notice of the Mainland Proceedings and the Mainland Judgments. That the defendants had not sold their landed properties in Hong Kong before then was neither here nor there;

(c)   The Mainland Judgments were obtained on 17 February 2017.  Within 10 days thereafter, a sale and purchase agreement was entered into for the sale of the Celestial Heights Property.  It was the defendants’ home;

(d)   Shortly later, on 22 May 2017 and 25 May 2017 respectively, agreements were entered for the sale of the Hung Hom Property and the Bel-Air Property.  Then, on 7 June 2017, the Tesla Motor was sold.   All these took place within 4 months of the Mainland Judgments;

(e)   I have considered the explanations given by the defendants for the sale of those properties.  I accept Mr Jat’s submissions in this regard that they are not credible and are not supported by the evidence.  I have also considered Mr Wong’s common sense point that the sale could save the defendants from furtherinterest exposure.  That was however not what the defendants have said.  I note also that the terms of all the “all moneys” mortgages, and the details of the loans or facilities which the properties secured were not revealed.  The court has nothing upon which the defendants’ alleged exposure thereunder could be considered;

(f)   It should also be noted that the Celestial Heights Property was the defendants’ home.  After its sale, the defendants had to seek alternative accommodation.  That involved expenses.  Indeed, the defendants had to lease back the property from the purchasers at the monthly rent of HK$50,000.  This outlay of additional expenses is inconsistent with the picture which the defendants are seeking to paint that the sale was to cut down on financial exposure;

(g)   On the manner of disclosure of the deposits of the sale of the Bel-Air Property, I am prepared to give the defendants, and in particular D3, the benefit of doubt which Mr Wong urged me to.  But the fact remains that part of those deposits were transferred overseas. No explanation was given by either D2 or D3 on the reasons for those transfers or the use which the monies were put to.  Mr Wong submitted that those transfers were not inconsistent with what the defendants had otherwise said (that the money realized from the sale of the properties was used to relieve their financial difficulties).  But as Mr Wong has fairly accepted, that was indeed not what the defendants had expressly said in respect of those transfers.  They could have;

(h)   I have considered all the circumstances relevant to the applications.  I place weight on the actual sale of all their landed properties in Hong Kong by the defendants in the face of their failed business, within 4 months of the Mainland Judgments.  I find that no credible explanations have been given for the sales.  I have considered the activities of D3’s account with HSBC in May and June 2017 (increase in the credit balance in the month of May 2017, and the existence of certain securities in that same account, as Mr Wong has highlighted for my attention).  I juxtaposed the retention of some liquid assets by D3 in her account with the sale of all their landed properties in a span of 4 months.  My view remains that upon the basis of the actual sale in the circumstances of this case, an inference of a real risk of dissipation can be drawn;

(i)   I clarify this.  I have in the reasoning above referred on a couple of occasions to the failure on the part of the defendants to explain certain matters.  By doing so, I was not placing any onus of proof upon the defendants.  Nor was I placing on the defendants any onus to disprove anything.  It is just that in the face of the evidence before the court, and in the absence of contrary evidence from the defendants which the defendants were in the position to give, I find that the plaintiff has satisfied the burden of proof to establish real risk of dissipation.

MATERIAL NON-DISCLOSURE?

54.  The main complaint by Mr Wong was that the plaintiff had failed to disclose the existence of the “all moneys” mortgages (such that any sale proceeds would first be paid towards their discharge).  However, at the ex parte state, the plaintiff had no information on the state of the defendants’ indebtedness under those mortgages, or how much of the sale proceeds would be paid towards their discharge.  In all, I do not accept the submissions that there was material non-disclosure which would justify the Court discharging the Injunction Order.

DELAY?

55.  The time gap between the Mainland Judgments and the application for the Injunction Order was about 4 months.  Given the cross‑border nature of the proceedings, I do not find it unreasonable that the plaintiff need to take some time to prepare for its action in Hong Kong.  I do not find that the gap of 4 months justifies any discharge.

DISPOSAL

56.  For the reasons set out above, I allow the Continuation Summons (with the necessary modification to reflect that it is the Injunction Order granted by Deputy Judge To on 16 June 2017 as subsequently varied which is being ordered to continue).  I for the same reasons dismiss the Discharge Summons.

COSTS

57.  I make a cost order nisi that the costs of and occasioned by the Continuation Summons and Discharge Summons be the plaintiff’s costs in the cause, with certificate for two counsel, to be taxed if not agreed.