CANTON PLUS ENTERPRISE LTD AND ANOTHER v. TONG ZHENJUN AND OTHERS

HCA 227/2017

[2021] HKCFI 1244

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 227 OF 2017

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(by Original Action)

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(by Counterclaim)

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HCA 1026/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1026 OF 2020

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HCA 2132/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2132 OF 2020

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(Heard Together)

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D E C I S I O N

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1.  These are the Plaintiffs’ applications to continue, and the Defendants’ applications to discharge, the ex parte Mareva and proprietary Injunctions granted in these 3 actions on 5 January 2021. For the present purposes, I ignore the Supplemental Note of the Plaintiffs which was only lodged with the court this morning because the Defendants have not had an opportunity to consider it.

2.  In my respectful view, it is clear that the Injunctions should not have been granted.  Although the Injunctions had been replaced by a “security package” put up by Mr Lau Wing Yan, I am in no doubt that the obtaining of such relief has caused real prejudice to the Defendants and the security package must be released without delay. 

3.  I shall endeavour to state succinctly my reasons for discharging the Injunctions.  

4.  These matters arose out of a particularly bitter business divorce between Mr Chu Kong and Mr Lau.  They used to jointly own a substantial shipping business conducted by the Pacific Bulk Group of companies.  In 2009, another shipping business under the Beibu Gulf Group of companies was set up. 

5.  The relationship between the business partners broke down in early 2014 and they endeavoured to divide their business and assets.  Whether the parties had reached an agreement on the division and, if so, what the terms were, are the subject matters, directly and indirectly, of extensive litigation by the 2 camps. 

6.  Excluding any litigation overseas, since 2014 there had been 33 actions and 25 of which remain on foot (including the 3 actions now before the court).  It is fair to say that these actions provide a fairly comprehensive coverage of the disputes between the 2 camps. 

7.  Importantly, the complaints made by the Chu camp which grounded the Injunctions, namely, the diversion of Pacific Bulk’s business to Lau’s companies and dissipation of assets belonging to the allegedly jointly owned Pacific Bulk companies by the Lau camp have been the subject matters of litigation since 2014. 

8.  Mr Joffe, who appears with Mr Tang for the Defendants, has helpfully identified in paras 21 and 24 of the Defendants’ skeleton arguments Chu’s pleadings in which such serious allegations were made.  It must be assumed that these pleas were made with adequate basis since they were signed by 3 counsel, including a senior counsel, in the case of HCCW 352/2014. 

9.  The Plaintiffs do not dispute that the said complaints have been the subject matters of litigation since 2014. 

10.  Mr Lau’s position in the dispute is that the parties had indeed come to agreement on the division of business and assets. It was agreed that he would take over the Pacific Bulk Group, whilst Chu would do likewise with the Beibu Gulf Group.  Also, Chu has since set up a rival business under the names of Quadrolink and Ausca.

11.  It is important to appreciate that Lau has stated his position openly since 2014, including his contention that the Pacific Bulk Group has become his wholly owned business since 2014, and he was free to conduct its business in whatever manner he sees fit.

12.  In light of the existence of these complaints since 2014, Lau’s position and the lack of any attempt to apply for any asset preservation relief over the years (with 1 unsuccessful attempt which I shall referred to below), it is quite astonishing for the Plaintiffs to have applied for ex parte Mareva relief on 5 January this year.  The application was purportedly grounded upon “new findings”, which I shall deal with below.

13.  I must first address the manner in which the application was made.  The ex parte application was supported by a 113 page affirmation.  Apart from the extraordinary length, the document was printed in an unusually small font size.  The exhibits ran to 3,000 pages.  The overbearing amount of details in the affirmation was obfuscated by submissions interwoven in the details.  There can be no doubt that it would have taken many hours to really understand and digest the materials.

14.  The ex parte skeleton arguments itself was another 38 pages of very dense material. 

15.  Given that the staleness of these matters, it is my respectful view that there was simply no justification for the application to have been made on an ex parte basis.  The court must be provided with a proper and balanced understanding of these complicated cases.  The best way to ensure such assistance is to have the matters ventilated with the input of the Lau camp.  If there was a real risk of dissipation (I shall deal with the alleged risk of dissipation below), the risk could have been mitigated with a hearing on notice outside banking hours.

16.  In my view, the alleged “new findings” were illusory.  Allegedly, such new findings constituted “solid proof” of (a) the methodology of the diversion of business; and (b) the extent and quantum of business diverted. 

17.  Firstly, solid proof was a red-herring.  Such proof was not required for injunctive relief. 

18.  Secondly, the precise methodology of the business diversion was not critical when Lau had long admitted to the diversion.  The use of BVI corporate vehicles to receive payments was common place in the context of substantial international business.  It appears that Chu himself has made use of such corporate vehicle(s).

19.  Further, I agree with Mr Joffe that the allegedly discovered methodology was nothing new.  The same methodology was deployed for one of the companies jointly owned by the parties called Central Minerals.

20.  Thirdly, the extent or precise quantum of the diversion would not have deterred Chu from applying for injunctive relief based on Lau’s admissions made no later than 2017 (see the materials referred to in paras 37 and 38 of the Defendants’ skeleton arguments).  Where appropriate, ancillary disclosure order might have been sought against Lau to find out the extent of the diversion. 

21.  Further, according to Chu’s own allegation made in HCMP 3134/2014, he alleged that Pacific Bulk Shipping Ltd (“PBHK”) (on behalf of which he is suing derivatively in HCA 227/2017): “… has no more business activities it is understood by Mr Chu that [PBHK] has lost all its customers and effectively ceased to carry on any business because Pacific Bulk Cape [Lau’s company] has taken over [PBHK]’s previous clients”.

22.  Furthermore, Chu’s allegation made in HCCW 352/2014 concerning Pacific Bulk Cayman (on behalf of which Chu sues in HCA 2026/2020) was that: “… PB Cayman became deprived of all its existing customers and had effectively ceased to carry on any business since around the end of 2014”. 

23.  Coupled with the fact that Chu must have a good knowledge of the profits made by the business before he was excluded from its operation, I fail to see why he was not in a position to provide a fair quantum assessment of the loss of business.

24.  Finally, I agree with Mr Joffe that Chu could have applied for a negative injunction to stop the Lau camp from taking away the business.

25.  In the premises, I regret to say that the picture painted before the learned ex parte Judge that Chu was not aware of the extent of the diversion was misleading. 

26.  In respect of the alleged diversion of money from PB Lines (on which behalf Chu sues in HCA 2132/2020), I agree with the submissions set out in paras 80-83 of the Defendants’ skeleton arguments that it was nothing new to Chu. 

27.  As regards the Defendants’ complaints of material non-disclosure (“MND”), I need only specifically mention one particularly relevant issue, the failure to make proper disclosure of which is quite inexcusable.  In HCCW 352/2014, Chu had applied inter parte for interim preservation relief by seeking the appointment of provisional liquidators over PB Cayman’s holding company, Smartplace Ltd (“PL Application”). 

28.  The PL application was based on allegations over Lau’s conducts, which allegedly gave rise to “urgent need for [PL] to be appointed in order to hold the ring and safeguard the assets and documents of [Smartplace]”[1].  It was also alleged that Lau had diverted the business of PB Cayman to his new companies and that PB Cayman had ceased its operation since around the end of 2014[2].

29.  Importantly, at the hearing before Harris J on 18 July 2017, the Companies Judge took the view that there was no urgency warranting an immediately appointment of PL.  The Application was subsequently withdrawn by Chu. 

30.  The transcript of the ex parte hearing shows that the learned Judge was concerned about the staleness of these matters.  In such circumstances, it is indefensible that the learned Judge was not informed that back in 2017 similar concern had troubled the Companies Judge and that the Plaintiffs saw fit to make only an inter parte Application.

31.  I am unable to accept the alleged risk of dissipation.  The staleness of these matters and openness of Lau in the conduct of Pacific Bulk business under his new companies speak volumes.  Further, Lau is a Hong Kong businessman with his roots here.  He is a man of considerable wealth.  Even if he had parked some of his cash with overseas companies, that would not stop any enforcement action against him to recover the funds, should Chu ultimately prove his case. 

32.  I should also say that I am unable to see a proper case of dissipation of assets against Mr Tong Zhenjun, the 1^st Defendant in HCA 227/2017.

33.  For completeness, I agree with Mr Joffe’s criticisms over the proprietary relief as technically unsound when the Plaintiffs’ claims concern money as loss of profits, and there is no specific asset which could be identified as the profits or their present equivalent. 

34.  Further, there are clear merits in the Defendants’ challenge of the quantification of the alleged profits from loss of business on which the Injunctions were based in part.

35.  Finally, if it were necessary to consider the balance of convenience, I am unable to see the justice in granting an ex parte injunction affecting on-going businesses which have been carried on openly for a number of years with the knowledge of the Chu camp.  I fail to see what irreparable damage there is.  The security package put up by Lau demonstrates that if the Plaintiffs should ultimately succeed in their actions, Lau will likely be in a position to pay the damages. 

36.  For these reasons, the Injunctions are discharged.  The security package must be released.  I shall hear the parties on costs.