CHAU YUET CHING BRENDA v. CHAN BO MAN WILLIAM AND OTHERS

HCA 652/2017

[2024] HKCFI 3694

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 652 OF 2017

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(BY ORIGINAL ACTION)

(BY COUNTERCLAIM)

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D E C I S I O N

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Introduction

1.  This is an application by the 7^th Defendant in the original action (“D7”) and the 8^th Defendant in the original action (“D8”) by way of a summons dated 24 July 2024 (“Summons”) for an order that the Plaintiff in the original action (“P”) do further fortify her undertaking as to damages in respect of the injunction dated 19 January 2018 and granted Ng J against D7 and D8 (“the 2018 Injunction”). On 19 December 2024, this Court heard the Summons and reserved its decision. This is the Court’s decision.

Background

2.  In the original action, P seeks reliefs against D7 and D8, alleging that her sole shares in two companies (“Lucky Top” and “More Harvest”) were fraudulently transferred to parties associated with the 1^st Defendant in the original action, and ultimately to D7 and D8. It is further alleged that D7 and D8 were not bona fide purchasers for value without notice.

3.  On 19 January 2018, P obtained the 2018 Injunction against D7 and D8 such that they would not deal with the shares in the two companies nor the two properties that were being held by them respectively (“the Two Properties”). But that injunction was made subject to P’s cross-undertaking to compensate any loss of D7 and D8 if the Court in due course decides that they should be so compensated. As part of the 2018 Injunction, P was ordered to fortify the cross-undertaking by making a payment into court of HK$350,000 which P duly did.

4.  After more than 6 years and on 25 July 2024, D7 and D8 filed the Summons seeking further fortification and relying on the following circumstances or grounds which they say are “significant” or “compelling”:-

(i)  The age of P being 88 years old in 2024;

(ii)  Falling property prices in 2024;

(iii)  Accumulated loss of rental income from the Two Properties since 2017.

Relevant legal principles

5.  In Hui Chi Ming v Koon Wing Yee [2011] 1 HKLRD 260 (at §§34 and 36), Coleman DJ (as he then was) held that it falls to the defendant (or applicant) to show that there is a likelihood of a significant loss arising as a result of the injunction granted, and that there is a basis for the belief that the plaintiff would be unable to make good the loss. In the event of a late application, there is the need to show “some significant change in circumstances” or “compelling circumstances”.

6.  In Yan Yu Ying v Leung Wing Hei [2022] 3 HKLRD 270 (at §82), K Yeung J held that it is valid to ask whether the plaintiff’s financial position is such that, viewed fairly, may be said to raise realistic doubts as to the plaintiff’s ability to honour the undertaking.

Discussion

7.  Turning to the first circumstance or ground being relied upon by D7 and D8, namely, that P has turned 88 years old in 2024. In her skeleton submissions, counsel for D7 and D8, Ms Yang, contended[1]: “Given the age of P, D7 and D8 are worried that if anything happens to P’s health between now and the conclusion of the action, there may be complications and/or difficulties for D7 and D8 in enforcing P’s undertaking as to damages.”

8.  The Court can dispose of this ground quickly. The personal worries or speculations of D7 and D8 are not relevant, particularly when Ms Yang conceded at the hearing that there is simply no evidence to show that P’s health has changed in any material way so as to affect her ability to honour her undertaking in due course, if that becomes necessary. To support this ground, the burden is on D7 and D8 to show a significant change in P’s health and they have failed in that regard.

9.  Turning to the second circumstance or ground. D7 and D8 submit that given the falling residential property prices (down by some 14.9% in the 1^st quarter in 2024 compared to the same period in 2023) and the fact that they are prohibited by the 2018 Injunction from selling the Two Properties, they are suffering losses which may be increasing.

10.  More or less the same ground for fortification was relied upon recently by the applicant in Lau Lai Shan Lisa v Zhang Qi & Ors. [2023] HKCFI 1465 but Cheng J rejected it (at §20):-

“20. I do not consider that the evidence relied on by the 1^st Defendant demonstrates any significant change of circumstances or compelling circumstances as to why the court should entertain the application for fortification.

20.1 Fluctuations in property values in response to external events are normal and to be expected. The evidence adduced does not suggest that the fluctuations are out of the ordinary.

20.2 The graph of the property index relied on shows an upward gradient between about 2016 and 2018, a bit of a drop between 2018 and 2019, and then a relatively overall flat gradient between 2019 and 2022. Roughly speaking, the level of the index in June 2018 is similar to the level of the index in 2022. Even assuming that the index accurately reflects the fluctuations in value of the City Point Property (there is no evidence in this regard), this would mean that the absolute value of the City Point Property has not in fact fallen since the time of the Injunction.

20.3 From the graph, it does not seem that the property market was on an upward trend as at June 2018; rather, the index had started falling some time prior to that. Insofar as the 1^st Defendant suggests that at the time of the Injunction, she was not particularly concerned that the Plaintiff might not be good for her cross-undertaking by reason of her ownership of the City Point Property, this would have been against the background of (and despite) the property market moving downwards. The contrast she now seeks to draw between property market trends then and property market trends now should be seen in this light.

20.4 It is said that the property market is predicted to continue to fall until 2025, based on the articles adduced in evidence. However, the articles were generally written in the context of the restrictions imposed during the Covid-19 pandemic and the associated economic conditions. Several of the articles report the predictions made by Goldman Sachs Group Inc, who said that social distancing rules would combine with rising unemployment and higher borrowing rates to dampen demand, and that this would be reflected in lower home prices. A South China Morning Post article of 17^th June 2022 reported that property developers had mostly written off the first quarter of 2022 when strict social distancing rules forced them to scrap their home sales from January to April 2022. Another South China Morning Post article of 27^th July 2022 reported the Financial Secretary as saying that the movement in home prices in the second half of 2022 would depend on the pandemic. In other words, the articles and predictions relied on were just snapshots at particular points in time (mostly around March to July 2022), and market conditions will continue to change.

21. I therefore do not agree that the downturn in the property market starting in 2022 constitutes a significant change of circumstances, or special circumstances, justifying the revisiting the issue of fortification of the Plaintiff’s cross-undertaking as to damages.”

11.  Further, counsel for P, Ms Kang, submitted that even accepting the accuracy of the information on property prices as produced by D7 and D8, the level of property index in 2024 sees no drastic change as compared to that of 2017, which was the year in which D7 and D8 purportedly purchased the shares of Lucky Top and More Harvest which held the Two Properties. In other words, it cannot be said that D7 and D8 would have suffered a significant loss when the prices of the Two Properties cannot be shown to have fallen sharply since 2017. The Court notes that in any event, P has sufficient assets to cover any potential loss in that regard, a matter that the Court will turn to later.

12.  I therefore take the view that some of the observations of Cheng J apply equally to the present case. Fluctuations in property values are normal and to be expected, and the downturn in the property market in recent years does not constitute a change of circumstances so significant as to justify revisiting the issue of fortification of P’s cross-undertaking as to damages.

13.  Turning now to the last ground being relied upon by D7 and D8, namely, that given they have not received any rental income from the Two Properties since 2017, the longer that remains to be the case, the greater the loss they will suffer. Based on the market rental value, they claim that their potential loss amounts to some HK$3.69 million. D7 and D8 advance other bases to calculate the potential loss but they produce results which are all less than HK$3.69 million.

14.  To oppose the Summons, P has produced affirmation evidence to show that she owns a property located at Park Haven in Hong Kong, which was purchased at the price of HK$17,567,000 in 2014, being free from any encumbrances[2]. Even taking into account the downturn in the property market, the value of this property clearly well exceeds the amount of further fortification being sought by D7 and D8, or any damages that they may claim in due course. This Court is therefore not satisfied that there are realistic doubts as to P’s ability to honour her cross-undertaking to pay damages to D7 and D8, if that becomes necessary in due course.

15.  This Court has therefore considered the merits (or demerits) of the above three grounds which are being relied upon in this Summons by D7 and D8, both individually and collectively, but they fail to persuade the Court that further fortification is necessary. The Court has further noted the observations by Le Pichon DJ (as she then was) in her Decision of 11 November 2019 relating to this action, including that the inference is compelling that subsequent transfers in Lucky Top and More Harvest[3] bear the hallmarks of sham transactions. They were observations throwing light on the merits of P’s claims which this Court may take into account in considering and indeed ruling against further fortification[4].

16.  For the above reasons, I find the Summons to be devoid of merits. I therefore dismiss it and order that the costs of and incidental to the Summons be to P, to be taxed if not agreed.