CHINACHEM CHARITABLE FOUNDATION LTD v. CHAN CHUN CHUEN AND ANOTHER

HCAP 8/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO 8 OF 2007

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Reasons for Decision

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Introduction

1.  On 21 December 2011, upon the Administrators’ ex parte application, I granted a worldwide Mareva injunction against the 1^st defendant from disposing his assets up to the value of HK$130,606,174.  I also ordered him to disclose his assets of an individual value of HK$100,000 or more within 7 days after service.  On the return date on 30 December 2011, Deputy Judge Au‑yeung continued the injunction.  She also extended the time to comply with the disclosure order to 13 January 2012.  The 1^st defendant did not make any disclosure.  Instead, he took out a summons on 13 January 2012 to discharge the injunction or alternatively, to vary the disclosure order by extending the time until the resolution of his discharge application and/or capping the total value of assets to be disclosed to HK$130,606,174.

2.  On 9 February 2012, after hearing the parties, I dismissed the discharge application.  I also refused the application to cap the limit of assets to be disclosed.  But I extended the time for complying with the disclosure order up to 23 February 2012.

3.  I had indicated that I would hand down the reasons for my decision, which I now do.

Background

4.  The present action concerns the estate of the late Nina Kung (“the Estate”).  She died on 3 April 2007.  Soon after her death, the 1^st defendant claimed that he had in his possession the purported last will of the Deceased dated 16 October 2006 (“the 2006 Will”), bequeathing the Estate to him.

5.  The Foundation is a charitable organization set up by the Deceased and her late husband in 1988.  It is named as the beneficiary of the entire Estate under another will of hers made on 28 July 2002 (“the 2002 Will”).  The Foundation brought the present action against the 1^st defendant, challenging the validity of the 2006 Will.  The Secretary for Justice is joined as a party because of the charitable nature of the Foundation.

6.  The Administrators were appointed by A Cheung J (as he then was) as the administrators pendente lite of the Estate on 10 December 2007 (“the Appointment Order”).  On 2 February 2010, Chu J (as she then was) ordered the appointment to be continued until further order.

7.  In the judgment handed down on 2 February 2010, Lam J entered judgment for the Foundation, pronouncing for the force and validity of the 2002 Will.  He dismissed the 1^st defendant’s counterclaim by pronouncing against the 2006 Will.

8.  Lam J handed down another judgment on costs on 16 April 2010.  He ordered the 1^st defendant to indemnify the Estate the costs of the administration pendente lite, by paying the Estate all costs and expenses of administration pendente lite up to 2 February 2010 payable, paid or incurred by the Estate over and above any sums chargeable in any event to the Estate for the purpose of its winding up.

9.  The 1^st defendant appealed against both judgments of Lam J.  The Court of Appeal dismissed his appeal on 14 February 2011 (CACV62/2010).  The Court of Appeal further ordered the 1^st defendant to pay to the Estate all costs and expenses of administration pendente lite from 3 February 2010 up to 14 February 2011 payable, paid or incurred by the Estate over and above any sums chargeable in any event to the Estate for the purpose of its winding up.

10.  The above costs orders covered :

(1)     Costs which in any event would have to be incurred in winding up the Estate (“Pure Administration Costs”);

(2)     Additional costs incurred by the Estate in consequence of the litigation (“Additional Costs”).

11.  The 1^st defendant then applied for leave to appeal to the Court of Final Appeal, which was dismissed by the Court of Appeal on 6 April 2011. His further application for leave to appeal to the Court of Final Appeal was dismissed by the Appeal Committee on 24 October 2011 (FAMV20/2011).  The 1^st defendant is now conclusively and absolutely liable to the Estate for all Additional Costs incurred up to 14 February 2011.

12.  The Administrators said they had undertaken a careful analysis of all the tasks carried out in the administration.  They had divided into different categories on the basis of the invoices previously sent to the parties of the action and apportioned each category by reference to Pure Administration Costs and Additional Costs.  By letter dated 23 February 2011, the Administrators requested the 1^st defendant to agree the apportionment percentages or alternatively make a counter proposal.  In the reply letters dated 14 March and 7 April 2011, the 1^st defendant neither agreed any percentages (save and except those which the Administrators had conceded) nor made any counter proposal.  He simply asked the Administrators to reconsider the incidence of each of the disputed categories.  By letter dated 8 September 2011, the Administrators made further concessions on the percentages for the categories of costs.

13.  By another letter dated 18 November 2011, the Administrators’ solicitors informed the 1^st defendant’s, supported by a schedule setting out the breakdown, that the Additional Costs up to 14 February 2011 had been quantified at HK$130,606,174.  The Administrators asked the 1^st defendant to make an interim payment of HK$65,000,000, which is about 50% of the quantified Additional Costs.

14.  The 1^st defendant’s solicitors responded on 23 November 2011.  In short, the 1^st defendant made no admission of liability or indicated that he would pay any part of the Additional Costs as quantified.  He refused to make any interim payment on the basis that the basis for such a request was not understood.  He raised numerous queries on the categories of costs again and requested the Administrators to revert with a revised proposal.

15.  By letter dated 25 November 2011, the Administrators pointed out that the 1^st defendant had not even agreed one of many proposals made by them. They served on him a summons dated 24 November 2011 returnable before Chu JA on 5 December 2011 for assessment of costs.  They also asked for an interim payment of HK$65,000,000.

16.  At the hearing on 5 December 2011, Chu JA adjourned the Administrators’ application for interim payment to 4 January 2012, which was subsequently adjourned to 12 January 2012.

17.  While that application was pending, the Administrators applied to me for the Mareva injunction on 21 December 2011.

Granting the Mareva injunction

18.  When I heard the Administrators’ ex parte application, I applied the well established test for Mareva injunctions. 

19.  I was first satisfied that the Administrators had shown a good arguable case on the 1^st defendant’s liability on the Additional Costs as quantified.  For present purposes, I need not go further as the 1^st defendant, in his discharge application, did not seek to argue that the threshold of a good arguable case was not met.

20.  I was also satisfied that there is a real risk of dissipation because of a combination of the following factors.

21.  First, it is well settled that when a defendant has acted fraudulently or dishonestly, or with an unacceptably low standard of commercial morality giving rise to a felling of uneasiness about him, it is open to the court to draw the inference, in light of all the circumstances of the case, that there is a real risk of him seeking to render himself judgment proof by dissipating his assets : Gee on Commercial Injunctions, 5^th Edn, 2004, pp 356‑357; Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235, per Godfrey J (as he then was) at p 240F‑I, confirmed by the Court of Appeal in CACV171/1989, unreported, 3 May 1990, per Hunter JA at pp 7‑8; Standard Chartered Securities Ltd v Lai Arthur & Ors [1993] 1 HKC 375, per Woo J (as he then was) at p 394A‑B; CAC Brake Co Ltd Zhuhai v Bene Manufacturing Co Ltd, CACV94/1998, unreported, 30 April 1998, per Rogers JA (as he then was) at pp 3‑4; Pacific Concepts (HK) Ltd v Michel Brennion et al, HCA2672/2008, unreported, 13 March 2009, per A Cheung J (as he then was) at para 25; and Hornor Resources (International) Co Ltd v Savvy Resources Ltd [2010] 4 HKC 50, per Chu J (as she then was) at paras 24‑25, 29 and 42.

22.  Here, the 1^st defendant has been found by both Lam J and the Court of Appeal to be a thoroughly dishonest and untrustworthy person, who has exhibited extremely low morality and integrity in the probate action to which the costs orders in question were made.  In particular, Lam J found that the 1^st defendant had deliberately perpetuated a deception on the probate court with a view to obtaining financial advantage by seeking probate on the 2006 Will, which he forged.  The Court of Appeal was equally harsh.  They said he had persisted in pursuing a thoroughly dishonest case and had thereby abused the process of the court.

23.  Second, in an interview that the 1^st defendant gave to Ming Pao on 20 November 2011, he was reported to have said that he no longer believed in the judicial system and that he saw the various judgments against him as “scripts” written by the judges.  Plainly, he regarded himself as a victim persecuted by the judges concerned.  He has no respect for our judicial system at all.

24.  Third, the 1^st defendant’s financial position is in doubt.  He is now facing a huge claim by the Inland Revenue Department for unpaid tax totalling some HK$330 million.  Two of the Chinachem companies are pursuing recovery of HK$2 billion from a BVI company which he beneficially owned.  In fact, he had recently admitted that he was under financial pressure.

25.  Fourth, the 1^st defendant had been employing a delaying tactics in dealing with the Administrators’ requests relating to the Additional Costs.

26.  Fifth, the 1^st defendant is, as found by Lam J, undisputedly experienced in sophisticated international transactions involving movements of large sums of money.

27.  When these factors are considered together, the picture is quite alarming indeed.  The 1^st defendant’s lack of respect for the judicial system casts a serious doubt on his intention to comply with the two costs orders.  And he is trying his best to delay payment as far as possible.  In the meantime, his financial position appears to be precarious.  Given his dishonesty, complete lack of integrity and commercial morality, and his audacity to perpetuate a deception to obtain financial advantages, there is a real risk that he might take steps to dissipate his assets in order to avoid payment of the Additional Costs.  He knew how to move funds internationally.  This raises the further risk that he might move his assets to somewhere outside Hong Kong beyond the reach of the Administrators.

28.  For the above reasons, I granted the Mareva injunction as I did.  To aid the injunction, I further made the disclosure order.

Discharge application

29.  Mr Wong, for the 1^st defendant, took three points in applying to discharge the injunction.  They all concerned the risk of dissipation.

30.  He first argued that the Administrators had been guilty of delay in lodging the application, which militated against any genuine belief that they might have about the risk of dissipation.  However, as rightly submitted by Mr Fung, for the Administrators, although the two costs orders were made in April 2010 and February 2011, when the 1^st defendant had not yet exhausted all venues of appeal, the Administrators did not consider it appropriate to commence any injunction proceedings against him immediately after the costs orders were made.  But soon after the Appeal Committee refused to give him leave to appeal in October 2011 and when it had become apparent that the 1^st defendant would not pay up, the Administrators took out the application forthwith.  I find no delay on their part as contended by Mr Wong.

31.  Mr Wong next contended that the real motive behind the Administrators’ application for the Mareva injunction was to obtain security for the Additional Costs, rather than to guard against any risk of dissipation.  I reject this submission as it is simply not supported by any objective evidence before me.  In any event, the Mareva injunction that I granted would not possibly have the effect of providing any security to the Administrators’ claim for the Additional Costs.

32.  Finally, Mr Wong submitted that there is no real risk that the Additional Costs would be or remain unsatisfied.  On 12 January 2012, Chu JA ordered the 1^st defendant to pay an interim payment of HK$65,000,000 on or before 2 February 2012, which was later extended to 1 March 2012.  The 1^st defendant has now taken steps to raise funds from the sale or mortgage of a property on Bowen Road.  If successful, the funds raised would far exceed the Additional Costs claimed.  The 1^st defendant can then make the interim payment and provide security for the balance of the Additional Costs.  Mr Fung queried if the Bowen Road Property is really beneficially owned by the 1^st defendant as alleged when, on record, it is held by two companies, which in turn are held by either the 1^st defendant directly or through a series of other companies.  

33.  In my view, the difficulty with Mr Wong’s submission is that, even assuming (without deciding) that the Bowen Road Property is beneficially owned by the 1^st defendant, whether he would be able to raise sufficient funds to meet the interim payment order and to provide security for the remainder of the Additional Costs remains to be seen.  The real risk of dissipation is still there, which is not or being capable of being dispelled by something which may or may not happen.  I can see no material change of circumstances that would enable me to conclude that the risk of dissipation is now gone. 

34.  For these reasons, I refused the discharge application.

Variation

35.  Mr Wong submitted that the 1^st defendant had already disclosed the Bowen Road Property which is more than sufficient to satisfy the Additional Costs.  There is no need to make any disclosure of his assets any further.

36.  Mr Fung rightly submitted that there is a clear distinction between a pre-judgment disclosure order and a post‑judgment disclosure order.  And the distinction is significant.

37.  A pre‑judgment disclosure order should be no wider than the injunction to which it is ancillary.  However, there is no similar restriction for a post-judgment disclosure order : see Hong Kong Civil Procedure 2012, Vol 1, paras 29/1/77 and 29/1/78.  The court may order disclosure after judgment in order to render the judgment effective, in the sense of capable of enforcement : Maclaine Watson & Co Ltd v International Tin Council (No 2) [1989] Ch 286, per Kerr LJ at p 303F‑G.

38.  In Babanaft International Co SA v Bassatne and Another [1990] Ch 13, Nicholls LJ observed at pp 42G‑43D that in the post‑judgment regime where the judgment creditor is at liberty to attach assets of the judgment debtor in execution of the judgment, a freezing order may often be ancillary to a disclosure order for the obvious reason that the disclosure order is needed in order to ascertain the whereabouts of assets which may be attached but a freezing order may be necessary in order to prevent an unscrupulous judgment debtor from removing those assets from an identifiable location before attachment can be effected.

39.  In other words, in a post-judgment situation, the jurisdiction to make the disclosure order arises both as a power ancillary to and in support of the injunction and independently of the injunction as a power in support of the execution of the judgment : Gidrxslme Shipping Co Ltd v Tantomar-Transportes Maritimos Lda [1995] 1 WLR 299, per Colman J at p 310E‑G.  His Lordship went on to observe at p 312E‑F that in cases of post‑judgment, “it is just and convenient that the judgment or award creditor should normally have all the information he needs to execute the judgment or award anywhere in the world”.

40.  In my view, the principles for a post‑judgment disclosure order set out above apply here with full force.  The disclosure order that I made should not be limited in the way as contended by Mr Wong.  The application for such variation was therefore refused.

41.  Finally, as a matter of indulgence, I gave the 1^st defendant another 14 days to comply with the disclosure order.  I therefore extended the deadline to 23 February 2012.