浙江大通輕紡有限公司 v. HE BIN AND ANOTHER

HCA 667/2019

[2022] HKCFI 1987

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 667 OF 2019

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BETWEEN

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D E C I S I O N

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A. INTRODUCTION

1.  By a summons of 16 August 2021 as amended on 20 August 2021 (“the Summons”), the Plaintiff applied for a Mareva injunction and ancillary disclosure orders against the 1st and 2nd Defendants (“Mr He” and “Ms Wang” respectively). The injunction seeks to prevent the Defendants from removing from Hong Kong assets up to the value of $29,536,357.10, and in particular to prevent the Defendants from disposing of a property known as House 7, Providence Bay, No.8 Fo Chun Road, Tai Po, New Territories, Hong Kong (“House 7”) (save that the Defendants may sell House 7 provided that the net proceeds are paid into court and that the Plaintiff is notified of the sale and assignment).

2.  The originally scheduled hearing of the Summons was adjourned due to the general adjournment of proceedings announced by the Judiciary by reason of public health considerations. The parties consented to the determination of the application on the papers instead.

B. THE BACKGROUND

3.  The Defendants are a married couple who were originally residents of mainland PRC and who are now Hong Kong residents.

4.  It is the Plaintiff’s case that in June 2011, it agreed to guarantee the liabilities of one Zhejiang Feixing Biye Limited (“Feixing”), which had borrowed money from the Yiwu Branch of the Industrial and Commercial Bank of China (“ICBC Yiwu”). The Plaintiff further says that it entered into agreement with the Defendants and other persons (“the Other Guarantors”), pursuant to which Feixing undertook to repay sums paid by the Plaintiff to ICBC Yiwu, and the Defendants and the Other Guarantors were to be jointly and severally liable for Feixing’s liabilities to the Plaintiff in the event that Feixing failed to make repayment.

5.  The Plaintiff says that it obtained a judgment against the Defendants and the other Guarantors from a mainland court on 20 March 2013 (“the Mainland Judgment”), that the Mainland Judgment took effect on about 24 June 2013 and is final and conclusive and binding on the Defendants, and that as at 15 April 2019 (one day prior to the writ in these proceedings), the total amount of the debt, interest and costs payable by the Defendants and the Other Guarantors to the Plaintiff under the Mainland Judgment was the renminbi equivalent of $29,536,357.10.

6.  The Defendants’ primary defence is that the Mainland Judgment is not considered final and conclusive by the Hong Kong courts, and that it is in any event not enforceable in Hong Kong as the Yiwu Court which granted the judgment was not a court of competent jurisdiction over the Defendants. The Plaintiff’s response is that the Mainland Judgment was entered some nine years ago, but the Defendants have not made any application for review or retrial in mainland PRC.

7.  Apart from the Mainland Judgment, the Plaintiff says that it has discovered that judgments were obtained against the Defendants in the mainland in eight other cases, for which a total sum of about RMB 60m remains outstanding (“the Other Judgments”). The dates of the judgments fall within the period February 2013 to September 2019. The Defendants claim not to know anything about the Other Judgments.

8.  The Plaintiff says that it has discovered that in towards the end of June to early August 2021, the Defendants were dissipating their assets, in that back in January 2021, they had sold their flat in Laguna Verde, Hung Hom which was registered in Ms Wang’s name (“the Hung Hom Flat”), and were actively marketing House 7 which was their family home.

9.  Pending determination of the Summons, the Defendants gave an undertaking to inform the Plaintiff of any binding contract of sale of House 7 and to place the net proceeds of sale into a designated account.

10.  On 22 February 2022, Mr He entered into a preliminary sale and purchase agreement to sell House 7 for $56m. He acknowledged that, pursuant to his earlier undertaking, the net proceeds of sale (after the discharge of incumbrances and deduction of expenses) would be paid into the aforesaid designated account.

C. THE APPLICABLE PRINCIPLES

11.  The main issue between the parties is whether the Plaintiff has established that there is a solid basis for concluding that there is a real risk of unjustified dissipation of assets by the Defendants. There is no dispute as to the applicable principles governing this issue, which were considered recently by the Court of Appeal in Convoy Collateral Ltd v Cho Kwai Chee and others [2020] HKCA 537 at [35] to [53]. For present purposes, I particularly bear in mind that:

11.1 The ultimate question is whether a claimant succeeds in showing, objectively, a solid basis for concluding that there is a real risk of unjustified dissipation of assets by a defendant.

11.2 What must be threatened is unjustified dissipation; the purpose of a Mareva injunction is not to provide a claimant with security.

11.3 In order to establish a sufficient risk of dissipation, it is not enough merely to establish a good arguable case that the defendant has been guilty of dishonesty; the question is whether such dishonesty points to the conclusion that assets may be dissipated. It is also necessary to take account of whether there appear to be properly arguable answers to the allegations of dishonesty.

11.4 The assessment as to whether there is a real risk of dissipation involves an evaluative and predictive judgment. The evidential burden can be satisfied by drawing proper inferences from a holistic consideration of all the circumstantial materials that are indicative of risk, including matters which point against such risk.

11.5 The courts have been vigilant in scrutinising the allegations in a claim with care before drawing the inference of risk of dissipation.

11.6 Dishonest or wrongful acts which are themselves not acts of dissipation may nevertheless be relevant to the issue of dissipation.

11.7 Evidence of dishonest and fraudulent conduct or other serious wrongdoing which form the basis of the claims, and which reflect adversely on the integrity of the defendant, may point powerfully towards an inference of such risk.

12.  The burden lies on the claimant to prove the risk of dissipation; the respondent does not bear any burden to disprove it: at Re Chau Cham Wong Patrick [2016] 2 HKLRD 278 at [43].

13.  The court will not restrain a person from dealing with his assets in the usual or ordinary course of a lawful business, even if the business involves a degree of risk or speculation. That said, there may be cases where the defendant seeks to put his assets to a use which is so speculative or so different from his ordinary or usual activities that a freezing order should be made: Perry v Princess International Sales & Services Ltd [2005] EWHC 2042 at [28].

D. WHETHER REAL RISK OF DISSIPATION

14.  In her written submissions, counsel for the Plaintiff Ms Tara Liao relies on the following matters in support of the submission that there is a real risk of unjustified dissipation of assets by the Defendants.

14.1 The Defendants have low commercial morality and a track record of evading judgments by relocating to a different jurisdiction.

14.2 The Defendants sold the Hung Hom Flat and House 7 under unfavourable conditions.

14.3 There was a risk that the Defendants would relocate to London.

D1. Sale of Hung Hom Flat and House 7

15.  I deal with the sale of the Defendants’ properties first as it was the sale of the Hung Hom Flat, and the discovery that House 7 had been put on the market for sale, which triggered the Plaintiff’s concern that the Defendants were dissipating their assets.

16.  Mr He’s evidence is that the Hung Hom Flat and a shop in Hung Hom were purchased in around 2007 in order for Mr He and Ms Wang to apply for the Capital Investment Entrant Scheme. Mr He set up a business in 2008. However, since late 2019, the business was affected by social unrest, and the pandemic, and Mr He and his wife had to take out various mortgages and loans in order to keep the business running. In 2020, they decided to sell the Hung Hom Flat in order to repay some of those loans and mortgages. He produced a letter from the solicitors of the purchase enclosing the cheques used to pay the purchase price, showing that the most of the sale proceeds of the Hung Hom Flat were used to discharge mortgages over the property, leaving just $655,136.94 to be paid to Ms Wang.

17.  On the basis of this evidence, which is not disputed, it does not seem that the sale of the Hung Hom Flat evidences an indication to dissipate assets. Most of the proceeds went towards repayment of mortgages.

18.  As for House 7, the Plaintiff says that (a) it was first listed for sale in August 2019, after the commencement of the current proceedings in April 2019 and another action against the Defendants in March 2019, (b) the stated reason for sale, being the defects of the House, was not credible, (c) House 7 was sold for $56m, which is below the purchase price of $58m paid in 2017 and also the $68.8m asking price, (d) House 7 was heavily encumbered with mortgages of around $47m, leaving only around $9m in net proceeds, (e) there is no credible explanation of why the Defendants sold their family home in these unfavourable conditions or where the family will live after the sale.

19.  Against this, I note the following.

19.1 Mr He produced some correspondence written by solicitors on his behalf, dating back from August 2018 up to July 2019, making complaints to the developer of House 7 about the defects in the property. This is consistent with his evidence that he and Ms Wang encountered defects in the property shortly after the family moved into House 7 in 2017, which caused them trouble up to at least August 2019, and that this (coupled with their children having travelled overseas for studies) was the reason why they put the property on the market at that point in time.

19.2 In a WeChat message of 22 August 2019, Mr He asked his estate agent to put the property on the market at $73m, given that the three-year period in which special stamp duty had not yet lapsed at the time; he also indicated that if the transaction could be deferred to May 2020, the price could be reduced to $70m. This does not appear to be conduct indicative of an attempt to effect a quick sale upon the receipt of a writ.

19.3 In a WeChat message of 1 November 2019, Mr He asked his estate agent to take House 7 off the market for the time being as a good price could not be achieved. Again, this is not consistent with an attempt to dissipate assets.

19.4 House 7 remained off the market until March 2020, when Mr He appointed Centaline Property Agency to sell the property at $65m. It was at one point listed at a price of $68.8m. It remained unsold until February 2022, almost two years later. Again, this does not suggest an attempt to achieve a quick liquidation of an asset so as to dissipate it.

19.5 Whilst the sale price of $56m is below the asking price and the original purchase price, I note there is no direct evidence as to the market price of the property at the time of sale. The neighbouring house (House 8) was sold for $60.8m in November 2021; it is not suggested by the Plaintiff that this is an inappropriate ballpark indication of market value for House 7. Mr He says that the estate agent misunderstood his instructions that his bottom line was $58m and that the asking price was mistakenly set at $58m, leading to an eventual transaction at $56m. Leaving aside whether this was indeed the case or not, I do not consider that the level of the sale price could be said to be so low as to be a strong indication of an intention to dissipate assets by way of a “fire sale”. Nor can any conclusion as to dissipation be drawn from the fact that only $9m in net proceeds can be realised.

20.  I have given thought to the point that given that since no further complaints about the defects in House 7 appear to have been made after July 2019, and that since the Defendants’ children had returned to Hong Kong for their education, the original rationale for the sale of House 7 in August 2019 would have been overtaken by events, and it would have been open to the Defendants to revisit their decision to sell the property. Furthermore, the Defendants have not indicated where the family would live after the sale of the family home. However, it seems to me that notwithstanding these gaps in the evidence, on a consideration of the evidence as a whole in relation to the sale of House 7, the conduct of the Defendants in relation to the sale is not such as to provide a solid basis for inferring a real risk of unjustified dissipation of assets.

21.  As Ms Liao submitted, “there appear to be a range of commercial reasons as to why Ds did not push for a quick sale of House 7 in 2019”, namely, (a) that the Defendants would have had to pay special stamp duty in the event of a sale before May 2020, and (b) that the Defendants had “little motivation to push for a quick sale” by marking down the price, as they would have had little left after paying off the mortgages. If so, this would in fact undermine the claim that the Defendants were selling the property in dissipation of their assets.

D2. Low commercial morality and track record of evasion by relocation

22.  It was submitted that the Defendants relocated to Hong Kong in about 2019 to evade judgment debts in the mainland (under the Judgment and the Other Judgments).

23.  However, Mr He’s evidence, supported by copies of the visas of the Defendants, is that he and Ms Wang emigrated to Hong Kong in 2009. He says that the Defendants subsequently acquired permanent residency in 2016. The Defendants therefore submit that their relocation was not, and could not have been, for the purpose of evading any of the judgments obtained in the mainland, which date from 2013 onwards.

24.  The Plaintiff says that the Defendants’ claim to have no knowledge about the Other Judgments is not credible.

24.1 The plaintiff in the first of the Other Judgments sought to enforce the judgment in Hong Kong against the Defendants in HCA 535/2019, and the Defendants acknowledged service in the proceedings and indeed applied for and obtained security for costs against the plaintiff.

24.2 In the same case and two other ones, the plaintiffs guaranteed loans advanced to Yiwu Taihe Packaging Limited, and the Defendants provided guarantees to the plaintiffs, which were not honoured. The Defendants were officers of the company at the relevant time and Mr He remains a 51% shareholder.

24.3 In two further cases, the plaintiffs were banks which advanced loans to Zhejiang Feixing Bi Ye Company Limited, and the Defendants provided guarantees to the banks, which were not honoured. It is said that the company is closely connected to the Defendants as its director and shareholder is Mr He’s father.

25.  The Plaintiff further points out that in two judgments relating to execution of the Other Judgments, the Yiwu City People’s Court of Zhejiang Province noted the Defendants’ failure to perform their obligations and report the status of their assets, and placed them on a “list of dishonest persons” subject to execution and restriction of consumption.

26.  There are indeed questions over the credibility of the Defendants’ claim of ignorance about the Other Judgments. In the 4th Affirmation of He Bin, Mr He says that it was not possible to find four of the judgments on the official website, but as the Plaintiff points out, there should have been sufficient time for the Defendants to instruct PRC lawyers to seek to retrieve copies from the court had they so wished. Furthermore, the Defendants have not put forward any evidence to rebut the points made by the Plaintiff as to why the Defendants must be aware of the proceedings to which five of the Other Judgments relate.

27.  On the other hand, I note that the Plaintiff’s own PRC lawyers were unable to obtain copies of two of the judgments. They were able to obtain copies of the other judgments (which were then produced in the Plaintiff’s reply affidavit evidence). As Ms Esther Mak, counsel for the Defendants, submitted, it appears that the judgments had been obtained in the mainland courts in the Defendants’ absence, and there was no evidence that either these judgments or the proceedings in question had been served on the Defendants.

28.  In any event, even if the credibility of the Defendants’ affidavit evidence as to their knowledge of the Other Judgments is doubtful, and even if the Defendants have failed to pay judgment debts, it does not necessarily follow that one should infer a risk of dissipation. The ultimate question is whether the Plaintiff succeeds in showing objectively that there is a solid basis for concluding that there is a real risk of unjustified dissipation of assets by the Defendants. See Convoy Collateral, supra, at [53], [56]; Lin Chien Cheng v Hui Chi Keung [2019] HKCFI 2686 at [32].

29.  Ms Liao’s argument is that the Plaintiff does show such a risk, as it can be inferred that the Defendants migrated to Hong Kong to evade liability for their judgment debts in the mainland, and indeed, that they have a “track record” of migration to avoid such debts. However, given that the Defendants had in fact moved to Hong Kong in 2009, several years before any of the Other Judgments were entered against them, that on the face of the available judgments they were stated to have been entered in the Defendants’ absence, that it is not clear to what extent under the relevant mainland legal procedures the Defendants would have been made aware of the proceedings and judgments, and that the Plaintiff’s claim in the current proceedings is not based on dishonest or fraudulent conduct on the part of the Defendants, then, although I harbour doubts as to the Defendants’ evidence regarding the Other Judgments, I nevertheless cannot say that this forms a solid basis for concluding that there is a real risk of unjustified dissipation of assets by the Defendants.

D3. Risk of relocation to London

30.  The Plaintiff relies on the hearsay evidence from the Defendants’ helper, obtained when a paralegal from the Plaintiff’s solicitors’ firm visited House 7 in August 2021 (on the pretext of being a potential buyer of the property) and struck up a casual conversation with the helper. The helper said that her employers planned to move to London after the pandemic and were therefore trying to sell House 7.

31.  Mr He’s evidence is that the family has aborted the idea of moving to London, his children having returned to Hong Kong for their studies as they could not cope with life in London. He has adduced evidence that the children have enrolled in a school in Hong Kong.

32.  In the circumstances, I do not consider that the conversation with the Defendants’ helper provides any significant support for the submission that the Defendants are seeking to dissipate their assets.

33.  It was the Plaintiff’s further submission that the Defendants have a track record of relocating in order to evade judgments, so that the intended move to London is part of a pattern of behaviour. As earlier observed, the Defendants in fact moved to Hong Kong a few years before judgments were obtained against them in the mainland. I do not consider that the submission is made out.

D4. Delay

34.  Ms Mak submitted that in any event, the Plaintiff’s delay in applying for injunctive relief militates against any finding of a real risk of dissipation. House 7 was publicly marketed, and the Other Judgments are in the public domain, with enforcement proceedings for many of them having been taken out in the mainland over eight years ago, in 2013.

35.  Delay per se does not necessarily bar relief; the ultimate question is still whether the plaintiff is able to show a real risk of dissipation despite the delay: Convoy Collateral, supra, at [78].

36.  To the extent that delay, or lapse of time, is relevant to the consideration of the issue of the risk of dissipation, I have addressed this above (for example, in relation to the timing of the sale of House 7).

37.  Insofar as delay may suggest that the Plaintiff does not genuinely believe that there is any risk of dissipation, I accept Ms Liao’s submissions that the Plaintiff became concerned only in late June 2021 when it discovered that the Hung Hom Flat had been sold, and it was only subsequently that it learned of the existence of House 7. I also accept that it is no answer for a defendant to come to the court to say that his horse may have bolted before the gate is shut and then to put that forward as a reason for not shutting the gate: see Madoff Securities International Ltd v Raven [2012] 2 All ER (Comm) 634 at [155].

D5. No solid basis for concluding risk of dissipation

38.  In the circumstances, and considering the matters relied on by the Plaintiff in the round, I decline to find that there is a real risk of unjustified dissipation of assets by the Defendants.

E. BALANCE OF CONVENIENCE

39.  Given my views above, it is not necessary for me to go on to consider the Defendants’ submission that the balance of convenience is against the grant of an injunction.

F. DISPOSITION

40.  I dismiss the Summons. I further make a costs order nisi that the Plaintiff pay to the Defendants the costs of and occasioned by the Summons, to be taxed if not agreed.