LEADER SCREWS MANUFACTURING CO LTD v. HUANG SHUNKUI

HCA 2067/2019

[2021] HKCFI 2828

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2067 OF 2019

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D E C I S I O N

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Introduction

1.  This is the Plaintiff’s application for a receivership order.

2.  The Defendant (“Madam Huang”) perpetrated a fraud on the Plaintiff in 2010.  It was discovered in 2019.  The Plaintiff obtained judgment against her on 18 January 2021 for a sum of over $9 million, with pre-judgment interest at 6% and post judgment interest at judgment rate.  By now, the judgment debt has accrued to over $15 million.

3.  Madam Huang has always adopted an uncooperative attitude to prevent the Company from obtaining the fruits of the judgment.  Despite an injunction order and disclosure order, she remains in breach in failing to disclose her assets. She has sought leave to file a defence out of time when the Plaintiff sought default judgment but leave was refused.  After judgment was granted, she sought leave to set aside the judgment but that application was dismissed on 7 May 2021.

4.  So far, the Plaintiff has only been able to obtain a charging order on Madam Huang’s landed property and car park in Hong Kong and garnishee orders over various bank accounts.  The estimated value that can be recovered by the Plaintiff is about $8.5 million.  The Plaintiff has to apply for extension of the injunction order for another 6 months to facilitate enforcement. Meanwhile, the interest on the judgment debt continues to accumulate.

5.  Madam Huang holds 2 other classes of known Assets:

(i)  Units of overseas unit trusts and shares of overseas companies in her HSBC and the Chief Group[1] (“Class A”); and

(ii)  Units of Hong Kong funds and shares held within her HSBC and Chief Group accounts, such as shares listed on the Hong Kong Stock Exchange, H shares and government ibonds (“Class B”),

The aggregate value of the Assets is about HK$3.8 million.

6.  By a summons dated 20 May 2021, the Plaintiff sought a receivership order to appoint 2 experienced insolvency practitioners as receivers, who would be granted the power to sell, or to take possession and then realize the Assets, to meet the judgment debt.

7.  Despite an opportunity given to her at the call-over hearing on 8 June 2021, Madam Huang has failed to instruct the bank and securities companies to realize her Assets in order to meet the judgment debt.  The summons has therefore to be restored.

8.  Madam Huang has filed 4 affirmations, none of substance.  All of them purport to describe her past relationship with the directors of the Company, explained her work at the Company, and to ask for discharge of the injunction.

Legal principles

9.  Under section 20A(2) of the High Court Ordinance, Cap 4 (“HCO”), to obtain a charging order, the register of unit holders or shareholders must be “kept at any place within Hong Kong”.

10.  Section 21L(1) of HCO empowers the Court to appoint a receiver where it is just and convenient to do so.

11.  The general principles for the appointment of receivers by way of equitable execution are summarised in Cruz City 1 Mauritius Holdings v Unitech Ltd [2015] 1 All ER 336 by Males J (as he then was) as follows:

(1)  The overriding consideration in determining the scope of the court’s jurisdiction is the demands of justice.  Those demands include the promotion of the policy of the law that judgments of the court should be complied with and, if necessary, enforced: at §47(a).

(2)  The jurisdiction to appoint a receiver by equitable execution will not be exercised unless there is some hindrance or difficulty in using the normal processes of execution, but there are no rigid rules as to the nature of the hindrance or difficulty required, which may be practical or legal. For example, where it would be difficult to enforce by other means and the appointment of a receiver was the only realistic prospect of enforcement in the short term, this suffices: at §47(c).  See also HKCP 2021 at §51/1/2.

(3)  A receiver will not be appointed if the appointment would be fruitless as equity does not act in vain.  However, a receiver will be appointed if there is a reasonable prospect that the appointment will assist in the enforcement of a judgment: at §47(e).

12.  A receiver may be appointed over whatever assets may be considered in equity as the assets of the judgment debtor.  This includes assets subject to trust arrangements if the judgment debtor has the legal right to call for those assets to be transferred to him or to his order, or if he has de facto control: JSC VTB Bank v Skurikhin [2015] EWHC 2131 at §§38-39, 45 per DHCJ Christopher Butcher QC.

13.  The order operates in personam against the judgment debtor, and it does not confer proprietary right because the judgment debtor is compelled (on pain of contempt) to transfer his assets to the receiver, and through the receiver to the Court, and finally, the judgment creditor: Masri v Consolidated Contractors International (UK) Ltd (No.2) [2009] QB 450 at §§48-49, per Lawrence Collins LJ (as he then was).

14.  In relation to assets which are situated abroad, there needs to be a sufficient connection with the English jurisdiction to justify the order and to satisfy the requirements of comity, but the fact that the order is made with a view to the enforcement of an English judgment provides that connection: Cruz City 1 at §§35-36.

Application of the legal principles

15.  Even taking into account the charging order absolute, and garnishee order absolute, there remains a significant shortfall of over $7 million in meeting the judgment debt.

16.  Given Madam Huang’s failure to comply with the disclosure order, the Plaintiff can only look to the Assets.

Class A

17.  There is no denial as to the existence of Class A or the lack of register of the relevant unitholders/shareholders kept in Hong Kong, as confirmed from public records and inquiries.  In respect of eg Apple Inc shares, the location of its register of members cannot be located in the public domain and the Plaintiff has not received any reply to its inquiries as to location.  Accordingly, no charging order can be sought over Class A under section 20A(2) of HCO.

18.  Although Class A is situated abroad, there is sufficient connection to Hong Kong as they are held in the accounts of HSBC and securities companies in Hong Kong under Madam Huang’s name.  There is no suggestion of any other beneficial owner but Madam Huang herself and so Class A is in equity her assets.

19.  Absent a receivership order, enforcement against Class A (eg seeking recognition of the judgment in each jurisdiction where the unit trust/overseas company exists) would be impracticable and onerous and not economically effective.  There would be uncertainty in proceeding down this route without knowing the details of any intermediaries, custodian or nominees (possibly offshore entities) of HSBC and the Chief Group who might be legally holding Class A.

20.  It is anticipated that the appointment of receivers will cut through these difficulties.  The receivers will get in Class A and deal with HSBC and the Chief Group directly to satisfy the judgment debt.  This will undoubtedly be more costs-effective and convenient than seeking recognition and enforcement of the judgment in foreign jurisdictions.

21.  The intended receivers estimate that the total costs of the receivership should not exceed $300,000 and that will be provided for in the receivership order.  Compared to the estimated total value of Class A (about $2.2 million), the costs are proportional.

22.  The receivership order would not be fruitless, as the estimated value of Class A will meet a substantial portion of the outstanding judgment debt.

Class B

23.  In relation to Class B, the Plaintiff can in principle apply for a charging order.  However, if a receivership order is granted over Class A, it would be just and convenient to extend the order to Class B.  This is because the receivers will have to deal with HSBC and the Chief Group anyway over Class A.  It would save time, costs and confusion to HSBC and the Chief Group if the receivers can deal with Class B at the same time, than to apply for several charging orders for Class B.

24.  Madam Huang has been given the opportunity to meet the judgment debt by less onerous and costs-saving methods but she has been recalcitrant.

25.  For the reasons given in paragraphs 15-24 above, I find that it is just and convenient to appoint receivers in this case.

Terms of the receivership

26.  The draft receivership order is to empower the receivers to get in and sell the Assets for meeting the judgment debt instead of holding the Assets on long-term basis.  The receivers shall be empowered to direct Madam Huang to sell the Assets subject to the receivership. 

27.  It is reasonably foreseeable that, with her recalcitrant attitude, Madam Huang may refuse to execute documents to effect a sale or transfer of the Assets. 

28.  Under Order 25A of the HCO, where the Court of First Instance has given or made a judgment or order directing a person to execute any conveyance, contract or other document, then, if that person neglects or refuses to comply with the judgment or order, the Court of First Instance may, on such terms and conditions, if any, as may be just, order that the conveyance, contract or other document shall be executed by such person as the Court may nominate for that purpose.

29.  In Chau Hung Kau v Texgar Ltd, HCMP 1372/2000, 23 January 2001, p.11, sub-paragraph (iii), Kwan J (as she then was) exercised the power under section 25A of HCO to ensure that the receivership order was effective.

30.  Clause 6 of the draft order directs Madam Huang to, upon the instructions of the Receivers, forthwith do all necessary acts to procure the sale of the Assets including to execute all transfer documents.

31.  In Clause 7 of the draft order, I make a slight adjustment to the wording:

“In the event of non-compliance with paragraph 6(a) and/or 6(b) above by the Judgment Debtor as certified by the Receivers, and upon 7 calendar days’ written notice by the Receivers to the Judgment Debtor, each of the Receivers be empowered to execute the Sale Documents and/or the Transfer Documents (as the case may be) in lieu of the Judgment Debtor.”

32.  I also grant an order in terms of paragraphs 1-20 of the draft receivership order as amended to take into account the preceding paragraph.

Costs

33.  Given Madam Huang’s breach of the disclosure order, her totally obstructive attitude and her failure to take the chance under the order dated 8 June 2021 (which would have saved this hearing), it is only just and appropriate to order her to bear costs on indemnity basis, including costs reserved on 8 June 2021.  I make an order nisi accordingly. 

34.  However, I reduce the costs of solicitors for their non-compliance with §8 of Practice Direction 14.3 in failing to enclose the costs statement with counsel’s written submissions.  I summarily assess costs on a nisi basis in the amount of $180,000.

35.  I thank Mr Lau for his assistance.