CK v. TCH

FCMC 5240 /2011

[2019] HKFC 179

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 5240 OF 2011

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D E C I S I O N
(Variation of Order : Mareva Injunction)

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Background

1.  On 19 November 2012, the Petitioner Wife (“W”) obtained a Mareva Injunction (“the Injunction”) on an ex parte basis against the Respondent Husband (“H”) which was then continued at the inter partes hearing on 8 January 2013 until present.

2.  The Injunction covers, inter alia, 4 landed properties all situated in Shenzhen, Mainland China. The terms of paragraph 1(1)(b) of the Injunction stipulates that H must not :-

“in any way dispose of or deal with or diminish the value of any of his assets, whether within or outside Hong Kong, whether in his own name or not, and whether solely or jointly owned up to the same value. This prohibition includes the following assets in particular the properties known as :

 

(i)………….126;

(ii)………...28G;

(iii)………..28H;

(iv)………..10C

 

or the net sale money after payment of any mortgages if they have been sold”

3.  On 20 August 2018, H issued the present Summons seeking variation of paragraph 1(1)(b) of the Injunction insofar as property (i), namely the 126 property, is concerned by adding paragraph 1(1)(c) as follows :-

“Notwithstanding paragraph 1(1)(b) above, the Respondent is at liberty to sign and execute on behalf of LD xxx Limited agreement(s) with Shenzhen xxxx Limited for the redevelopment of the property known as xxxx126 (“Redevelopment Agreement”), subject to the following terms :-

(i) The Respondent must not dispose of or diminish the value of the property to be assigned to LD xxx Limited pursuant to the Redevelopment Agreement;

(ii) The Respondent must not dispose of or diminish the value of LD xxx Limited’s right in the property to be assigned to LD xxx Limited pursuant to the Redevelopment Agreement; and

(iii) The Petitioner be at liberty to inspect the documents within the possession of LD xxx Limited relating to the Redevelopment Agreement upon giving 14 days’ notice to the Respondent.”

4.  H filed his 10^th Affirmation in support of the application. W filed her 10^th Affirmation in opposition and H filed his 11^th Affirmation in reply. Both parties also provided their own legal opinion on different chapters of the PRC law.

Husband’s application

5.  By the terms of the Summons, H is seeking relief for allowing him to enter into a Redevelopment Agreement with the Authorities in Mainland China. The redevelopment involves demolishing the 126 property, which at present is confined for industrial use, and upon completion of the redevelopment, each owner involved in the Redevelopment Agreement would be assigned with landed properties in replacement of comparable size to their original properties.  

6.  The following are undisputed facts :-

(i) The 126 property was registered under the name of LD xxx Limited;

(ii) H is the legal representative of LD xxx Limited;

(iii) There is a Hong Kong company by the name USG Limited which was owned by H (9,999 shares) and DD Limited (1 share);

(iv) LD xxx Limited is a foreign enterprise wholly owned by USG Limited; and

(v) DD Limited was jointly owned by H and W.

7.  It is H’s case that it is commercially advantageous for him to enter into the Redevelopment Agreement since upon completion of the redevelopment, the value of the new property assigned in replacement would be increased substantially in value.  This is the so-called “commercial advantage” ground.

8.  The other reason is that LD xxx Limited, as owner of the 126 property forming part of the entire redevelopment project, was obligated to comply with the Redevelopment Plan of the Authorities in Mainland China to “surrender” the 126 property for the redevelopment.  This is the “obligatory” ground, so to speak.

Wife’s opposition

9.  Whilst conceding that terms under Mareva injunction could be varied by the Court upon “good reasons” being shown, W’s main contention is that to increase the value of properties being subject to injunction could hardly be a good reason for seeking variation and indeed is unprecedented. 

11.  Even if H’s commercial advantage ground could found a variation application which W strongly disagreed, H still fails to discharge his burden of proving the alleged increase in value upon completion of the redevelopment by any cogent evidence. The only evidence adduced by H purportedly to support the increase in value came from the first opinion of his PRC lawyer Mr. Qiu dated 18 April 2018[1].  Mr. Qiu does not possess any expertise to forecast property value, not to say any increase in property value after redevelopment.  Apart from Mr. Qiu’s personal views or speculation, H only had his own assertion that the value of the new properties to be given in return for surrendering the 126 property post redevelopment would be substantially increased.

12.  The case of Halifax Plc v. Chandler [2001] EWCA Civ 1750 cited by H’s Counsel should be distinguishable on facts as the variation in that case was granted to allow the party applying to obtain funds for paying legal expenses.  This is in stark difference from H’s variation at present which was made purportedly to increase the value of the property subject to injunction.

13.  In respect of the “obligatory” ground, H relied upon the second legal opinion of his PRC lawyer Mr. Qiu dated 28 May 2019[2] where Mr. Qiu referred to Section 9 of the《中华人民共和国城乡规划法 (2019 修正) 》which provides :-

“任何单位和个人都应当遵守经依法批准并公布的城乡规划, 服从规划管理, 并有权就渉及其利害关系的建设活动是否符合规划的要求向城乡规划主管部门查询”

14.  W disagreed for the fact that Mr. Qiu did not provide any explanation as to how that particular provision is to be applied or understood in the context of the present situation except a bare citation of it to support the “obligation” ground.  It is W’s case that the recital of the Pro Forma Agreement[3] clearly states that parties’ agreement to sign the Pro Forma Agreement was based upon equality, voluntariness and principles of sufficient protection of legal rights of the party signing it (“本着平等、自愿、充分保障乙方合法权益的原则……….”).  Thus, any suggestion of “obligatory” to surrender could not reconcile with the recital in the Pro Form Agreement.  Further, W’s PRC lawyer Mr. Tsui in his legal opinion dated 31 January 2019[4] referred to the basic principle under Section 3 of the 《中华人民共和国民法总则》第一章which provides :-

“民事主体的人身权利、财产权利以及其他合法权益受法律保护, 任何组织或者个人不得侵犯”

15.  Hence, H’s legal opinion had failed to address how the provision which Mr. Qiu had cited under《中华人民共和国城乡规划法　(2019 修正)》to be applied to H’s scenario save and except to merely assert that the surrender is “obligatory”.  

16.  W also referred to H’s past conduct in respect of property (ii), namely the 28G property, which H sold it to a third party which then necessitated the application for the Injunction.  In respect of property (iii), namely the 28H property, H had acted in breach of the Injunction and sold it by signing a power of attorney as a result of which leave to issue committal proceedings was granted by this Court.  H was prohibited from leaving Hong Kong but yet he left Hong Kong on 6 January 2013 to sign the said power of attorney.  In respect of the 126 property, H had once also attempted to dispose of it indirectly by the use of false document and by way of share transfer which W had successfully set aside the sale in Mainland China.[5]

17.  W also raised doubts as to the feasibility of H to sign the Redevelopment Agreement even though he is the legal representative of LD xxx Limited.  Under Clause 2 of Section 1 of the Pro Forma Agreement[6], it was stipulated that the property to be surrendered must not be the subject of any legal dispute.  This is not the case here.  Further, under Clause 11.2.1 of the Pro Forma Agreement[7], it was stipulated that the party surrendering the property must be the sole beneficial owner of title property until the time the property surrendered is demolished by the Developer.  This may also not be the case here.   

18.  W also raised the issue of prejudice to her ancillary reliefs claim since the redevelopment might take up to 5 years to complete.  It is yet uncertain when the redevelopment would commence.  To allow the variation not only affect the Court’s determination of the size of the “matrimonial pot” and would also compromise the very purpose of the Injunction to prevent valuable assets disappearing pending resolution of the parties’ dispute.

The Court’s Views

19.  Since there is not much dispute between Counsel as to the law on variation of Mareva injunctions, I will go straight to the factual disputes before me.

20.  H’s Counsel Mr. Patrick Siu urged this Court to note that Mareva injunction was not intended to punish or penalise the party subject to it (see Commercial Litigation in Hong Kong (2^nd edition 2017 at §3.170).  The English Court of Appeal in the case of Halifax Plc v. Chandler (supra) at paragraph 19 of the Judgment said :-

“19. In the fourth edition of Mareva Injunction and Anton Pillar Relief, Gee says at page 318 :

“The court will always be concerned to ensure that a Mareva injunction does not operate oppressively and that a defendant will not be hampered in his ordinary business dealings any more than is absolutely necessary to protect the plaintiff from the risk of improper dissipation of assets. Since the plaintiff is not in the position of a secured creditor, and has no proprietary claim to the assets subject to the injunction, there can be no objection in principle to the defendant’s dealing in the ordinary way with his business and with his other creditors, even if the effect of such dealings is to render the injunction of no practical value.”

21.  H’s Counsel submitted that the facts before this Court are even more impressing since there will be an increase in property value after the redevelopment which is beneficial to all parties.  H is not going to withdraw any monies out of the 126 property subject to the Injunction or out of the new property to be given.  However, H’s Counsel fairly conceded that there are no cases or authorities which he is aware of in support of such ground of “commercial advantage” for variation of Mareva injunction.

22.  The Halifax case must be considered in its entire context. I find those paragraphs preceding paragraph 19 cited by H’s Counsel are more useful and informative :

“16. It is well settled that a freezing injunction is not granted in order to provide the claimant with security for its claim. It is, at least in part, for that reason that the standard form of order permits the defendant to spend monies on legal expenses and indeed on ordinary and proper business expenses. The order ordinarily either includes a specific weekly sum for legal or business expenses or permits a reasonable sum for such expenses.

17. These principles are not in dispute. Three examples may be given. (1) A defendant is entitled to pay his debts as they fall due even if the creditor could not recover them at law, as, for example, because of the provisions of the Moneylenders Act (see the decision of Robert Goff J in Iraqi Ministry of Defence and Others v Arcepey Shipping Co SA, The Angel Bell [1981] 1 QB 65, which has frequently been followed in the 20 years or so since it was decided. (2) A distinction is drawn between cases where the claimant has a proprietary claim and cases where he does not. Sir Thomas Bingham MR put the distinction in this way in Sundt Wrigley Co Ltd v Wrigley (unreported, 23^rd June 1993):

“In the Mareva case, since the money is the defendant’s subject to his demonstrating that he has no other assets with which to fund the litigation, the ordinary rule is that he should have resort to the frozen funds in order to finance his defence. In the proprietary case, however, the judgment is a more difficult one because in the plaintiff’s contention the money on which the defendant wishes to rely to finance his litigation is not the defendant’s money at all but represents money which is held on trust for the plaintiff. That of course, gives rise to an obvious risk of injustice if the plaintiff, successful at the end of the day, finds that his own money has been used to finance an unsuccessful defence. As these authorities make plain, a careful and anxious judgment has to be made in a case where a proprietary claim is advanced by the plaintiff as to whether the injustice of permitting the use of the funds by the defendant is out-weighted by the possible injustice to the defendant if he is denied the opportunity of advancing what may of course turn out to be a successful defence.”

(3) As that passage shows, in the Mareva case, in order to be allowed to spend frozen monies, the defendant must show that he has no other assets which he can use.

18. In cases of what may be called ordinary business expenses the court does not usually consider whether the business venture is reasonable, or indeed whether particular business expenses are reasonable. Nor does it balance the defendant’s case that he should be permitted to spend such monies against the strength of the claimant’s case, or indeed take into consideration the fact that any monies spent by the defendants will not be available to the claimant if it obtains judgment.  As I see it, that is because the purpose of a freezing injunction is not to interfere with the defendant’s ordinary business or his ordinary way of life.”

23.  Mareva injunction does not and should not operate oppressively must be looked at in the context of the case upon which the variation was sought.  The party against whom the Mareva injunction was granted must be able to show some “good reasons” for seeking the variation.  If the variation was connected with ordinary business dealings not more than is absolutely necessary (my emphasis) whilst protecting the plaintiff from the risk of improper dissipation, it would be allowed.  Variation in order to obtain funds for payment of legal expenses for properly defending a case which had a realistic prospect of success was held to be one of those “good reasons” (see Halifax case).  However, this is not the situation in H’s case here.  Furthermore, neither was H able to prove by evidence to this Court that the “surrender” of the 126 property is any form or part of his ordinary business dealings with the Authorities in Mainland China.   

24.  Thus, I agree with W’s Counsel that the Halifax case is readily distinguishable from the present case on facts.  

25.  H’s Counsel submission that there is no proprietary claim by W on the 126 property or the 126 property does not fall within the matrimonial pot of assets, I disagree.

26.  Unless and until W’s ancillary reliefs are fully investigated and determined after the trial proper, it is premature to form any definitive view that W has no proprietary interest or claim to the 126 property.  Having said, the distinction between cases where a claimant having a proprietary claim and cases where the claimant does not have (which is W in this case) outlined at paragraph 17 of the Halifax case, citing what Sir Thomas Bingham MR said in the Sundt Wrigley Co Ltd v. Wrigley case, is a live issue here which could not be determined at this preliminary stage. 

27.  I do not accept H’s Counsel submission on the point as to proprietary claim of W on the 126 property or whether such property falls within the pot of family assets.

28.  Now I will deal with H’s “obligatory” ground.

29.  H relied on the Notice allegedly issued to LD xxx Limited by the Authorities in Mainland China dated 25 October 2017.  Such Notice was produced as Exhibit “TCH-24” to H’s 10^th Affirmation[8]. There is competing evidence from W that she had personally checked and enquired with the Authorities in Mainland China and was informed that the said Notice dated 25 October 2017 was a forged document[9]. W deposed by way of Affirmation that the said Notice does not contain any proper heading of the Authorities nor does it bear any official stamp/chop.  H then in his 11^th Affirmation in reply produced another Notice dated 16 January 2019 as Exhibit “TCH-30” with heading of the Authorities and official stamp/chop.[10] H explained that he was informed by the Developer that the Notice dated 25 October 2017 was issued by the Renewal Bureau.  He did not know why the Notice dated 16 January 2019 was issued later with the same contents.[11]

30.  On this issue of the 2 written Notices, I accept W’s evidence for the apparent flaw in H’s evidence.  The Notice under Exhibit “TCH-24” in Chinese was dated 25 October 2017 and contained, inter alia, the following sentence :-

“………目前, 项目申报主体深圳市金地新沙房地产发展有限公司正在积极开展项目范围内的拆迁补偿工作, 已在2017年12月全面启动拆迁补偿恊议签约工作…….”

31.  The sentence in Chinese underlined above, translated literally, referred to the signing of those contracts for demolition and compensation having started extensively since December 2017.  It is appalling to see that a written Notice dated 27 October 2017 could refer to signing of contracts having started extensively in December 2017 (which is 2 months afterwards). 

32.  For the other Notice dated 16 January 2019 and produced as Exhibit “TCH-30”, although the contents are the same, was under the proper heading and official stamp/chop of the Authorities in Mainland China.  As a matter of common sense and logic, it is not surprising for this written Notice dated 16 January 2019 to refer to signing of contracts having started extensively since December 2017.    

33.  I find against H on his fidelity, if not being dishonest.

34.  As to the “obligatory” ground, I find H has failed in his burden of proving such ground.  There is no Order from the Courts in Mainland China on compulsory acquisition or had H been able to refer to any such legislation catered for the alleged redevelopment.  Those promotion materials exhibited as “TCH-31”[12] could not have the force of law.

35.  The “obligatory” ground, insofar as I can see from H’s evidence and documents, is purely self- serving.  For H who wishes to accede to a request to surrender landed properties, even though such request comes from the Authorities in Mainland China, could not be equated as an “obligation” to do so.  Also, H had not demonstrated to the Court by evidence of any consequences which may follow had he failed to honour his alleged “obligation” to surrender.

36.  The legal opinion from H’s PRC lawyer Mr. Qiu could not be accepted as sufficient evidence to support the “obligatory” ground.

Other matters for consideration

37.  Mareva injunction, being a discretionary remedy, would only be varied upon justifiable grounds or good reasons being shown.  The Courts would have to consider a wide range of factors and the circumstances of the case before it for exercising its discretion whether variation should be granted.

38.  W’s concern of prejudice is well founded.  First, I agree with W that there is no assurance of the time for completion of the redevelopment which may well exceed 5 years as there may be various contingencies.  Secondly, the time for redevelopment is completely beyond the control of H and W thus any prejudice arising out of delay would be to the detriment of W and not capable of remedy by either party.

39.  W’s concern of H’s past conduct of having breached the Injunction is also justified.  Given this Court’s finding against H on his Exhibit “TCH-24” (see paragraphs 30, 31 and 33 above) in the present application, I have reservation on the necessity of H’s variation and the motive underlying such application, if not another attempt to dissipate assets, which he had done/attempted to do so in the past.

40.  Variation of Mareva injunction based upon increase, or probably decrease, in value of the assets subject to the injunction is unprecedented.  I agree.  The rationale behind Mareva type of injunctions is to preserve assets located worldwide from dissipation pending resolution of the disputes between the parties. Given the extensive scope of preservation in terms of locality commonly covering different jurisdictions, there is bound to be increase or decrease in value of the assets so preserved. A commonly cited day to day example would be due to currencies fluctuation.  Had the change in assets value, whether due to currencies fluctuation or otherwise, been a justifiable ground or good reasons for variation, this would open the floodgate to uncountable number of variation applications before conclusion of the pending proceedings where the Mareva injunction was obtained.  This is certainly not the legal position on variation of Mareva injunction.

Conclusion

41.  For all the above reasons, I find H failed in his 2 grounds for the variation application.

42.  H’s Summons dated 20 August 2018 must be dismissed.

43.  The Mareva injunction dated 19 November 2012 and continued as per the Order dated 8 January 2013 be further continued until disposal of W’s ancillary reliefs or until further order. 

Costs

44.  Since H had failed in his application completely, I find it fair and reasonable for W to have the costs of and occasioned by H’s application, including all costs reserved, to be taxed if not agreed.

45.  I also grant Certificate for Counsel.

Orders

46.  I now grant the following Orders :-

(a) The Respondent’s (H’s) Summons dated 20 August 2018 be dismissed;

(b) The Mareva Injunction dated 19 November 2012 and continued by the Order dated 8 January 2013 be further continued until final determination of the Petitioner’s (W’s) ancillary reliefs or until further order;

(c) The Respondent (H) do pay to the Petitioner (W) the costs of and occasioned by the Summons dated 20 August 2018, including all costs reserved, to be taxed if not agreed;

(d) There be Certificate for Counsel.

47.  This is a costs order nisi which will become absolute if no application is made by either party within 14 days from the date of this Decision.