HUA SHE ASSET MANAGEMENT (SHANGHAI) CO LTD v. BEIJING YAOLAI INVESTMENT CO LTD

HCCT 16/2021

[2022] HKCFI 2549

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO 16 OF 2021

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BETWEEN

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DECISION

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1.  In this application, the Applicant (“Hua She”) seeks an order that the 2^nd Respondent (“Kei”) do provide securities (for costs and for the debt owed to it) as a condition for proceeding with his application by way of a Summons filed herein on 28 December 2021 for leave to apply out of time and to set aside (“Set Aside Application”) the Order of M Chan J dated 31 March 2021 (“Enforcement Order”).

2.  The merits of this application are fairly apparent from the material facts set out below.

Background facts

3.  On 26 October 2020, the Shanghai International Economic and Trade Commission rendered an arbitral award (“Award”) under which both the 1^st Respondent and Kei were ordered to pay Hua She the sum of RMB 158,675,747.25 with liquidated damages at 0.05% of RMB 134,537,063.24 per day from 17 April 2020 up to the date of payment (“Award Debt”).

4.  The Award Debt remains wholly unsatisfied and is accumulating. Currently, it stands at about RMB 215.5 million.

5.  On 6 November 2020, Hua She sought enforcement of the Award against Kei in the BVI, where he was known to have an asset holding company called Sparkle Roll Holdings Ltd (“Sparkle Holdings”) which held a substantial shareholding in a company listed on the stock exchange of Hong Kong, Sparkle Roll Group Ltd (“SRG”). Sparkle Holdings was the 2^nd respondent in the BVI proceedings.

6.  On 9 November 2020, the Eastern Caribbean Supreme Court of the BVI (“BVI Court”) granted a composite order pursuant to which (a) Hua She had liberty to register and enforce the Award as a judgment or order of the BVI Court and (b) a worldwide Mareva injunction against Kei and Sparkle Holdings which contained disclosure obligations against Sparkle Holdings (“BVI Enforcement Order”).

7.  On 13 January 2021, Kei and Sparkle Holdings applied to set aside the BVI Enforcement Order, which was supported by Kei’s affirmations.

8.  On 25 January 2021, Kei made disclosure of the assets of Sparkle Holdings. On the same day, the BVI Court varied the BVI Enforcement Order to compel Kei to disclose his personal assets.

9.  On 8 February 2021, Kei filed an affirmation purporting to comply with his disclosure obligations.

10.  On 11 February 2021, the BVI Court granted a receivership order over the shares in Sparkle Holdings as a result of the failure of both Kei and Sparkle Holdings to comply with their disclosure obligations and ordered that unless they complies with the disclosure orders by 4 pm on 15 February 2021, the set aside application shall be struck out and they be debarred from defending Hua She’s claim.

11.  Kei and Sparkle Holdings failed to comply with the unless order imposed by the BVI Court. Accordingly, their set aside application was struck out.

12.  On 16 February 2021, Hua She sought leave from this Court to enforce the Award in Hong Kong.

13.  On 17 February 2021, Hua She applied to this Court for a Mareva injunction order against Kei, which was granted on the same day by Deputy High Court Judge To (“HK Injunction”).

14.  On 31 March 2021, M Chan J granted the Enforcement Order.

15.  On 10 May 2021, both the HK Injunction (as re-amended) and the Enforcement Order were served on Kei pursuant to the substituted service order of Master Lai granted on 29 April 2021.

16.  On 14 May 2021, L Wong J made an order continuing the HK Injunction until such time that the Award Debt is fully satisfied.

17.  On 4 October 2021, Kei filed a certificate and supporting affirmation in this action appointing his wife, Ms Zhu Shuang (“Zhu”), as guardian ad litem in this action.

18.  On 3 November 2021, Kei applied to the Shanghai Second Intermediate Court (“Shanghai Court”) to set aside the Award. This application was dismissed by the Shanghai Court on 27 December 2021.

19.  On 16 July 2021, Hua She obtained a judgment against Kei from the High Court of Justice of England and Wales, Queen’s Bench Division, Commercial Court (“UK Court”) in the terms of the Award, together with a domestic freezing injunction against Kei’s assets (“UK Enforcement Order”).

20.  On 20 August 2021, Kei made an application to set aside the UK Enforcement Order. On 25 March 2022, the UK Court dismissed that application.

Applicable principles

21.  Pursuant to O 73, r 10A of the RHC :

“Where a debtor has applied under rule 10(6) to set aside an order made under rule 10(4), the Court may, either of its own motion or on an application made by the creditor, and if, having regard to all the circumstances of the case it thinks it just to do so, impose such terms, as to giving security or otherwise, as a condition of the further conduct of the application, as it thinks fit.”

22.  In considering an application under O 73, r 10A, this Court applies the principles adumbrated in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208, CA, per Staughton LJ at 212 :

“ In my judgment two important factors must be considered on such an application, although I do not mean to say that there may not be others. The first is the strength of the argument that the award is invalid, as perceived on a brief consideration by the Court which is asked to enforce the award while proceedings to set it aside are pending elsewhere. If the award is manifestly invalid, there should be an adjournment and no order for security; if it is manifestly valid, there should either be an order for immediate enforcement, or else an order for substantial security. In between there will be various degree of plausibility in the argument for invalidity; and the Judge must be guided by his preliminary conclusion on the point.

The second point is that the Court must consider the ease or difficulty of enforcement of the award, and whether it will be rendered more difficult, for example, by movement of assets or by improvident trading, if enforcement is delayed. If that is likely to occur, the case for security is stronger; if, on the other hand, there are and always will be insufficient assets within the jurisdiction, the case for security must necessarily be weakened.”

23.  Mr Payne, who appeared on behalf of Hua She, also submitted that where an award has been unsuccessfully challenged in the court of the supervisory jurisdiction, that decision will give rise to an issue estoppel if the issues determined by the decision of the supervisory court are substantially the same as those sought to be raised in the court where enforcement is being sought: see Good Challenger Navegante SA v Metalexportimport SA [2003] EWCA Civ 1668, [50]; and Carpatsky Petroleum Corp v Ukrnafta [2020] EWHC 769 (Comm), [120]-[126].

24.  The principles of issue estoppel were recently considered by the UK Court in declining Kei’s application to set aside the UK Enforcement Order: see Kei Kin Hung v Hua She Asset Management (Shanghai) Co Ltd [2022] EWHC 622 (Comm) (“UK Judgment”).

Analysis

25.  I believe that the key issues here are, firstly, whether the Award is manifestly valid perceived upon a brief consideration. It is unnecessary to consider the issue estoppel argument, which is disputed by Kei.

26.  The plain fact before this Court is that the Award had been upheld by the supervisory court, as well as the UK Court. The challenges made by Kei before those Courts were similar, if not identical, to those made before this Court, namely :

(1) Kei was not given proper notice of the appointment of the arbitrator or the SHIAC Arbitration;

(2) Kei was otherwise unable to present his case at the SHIAC Arbitration;

(3) Kei did not give a power of attorney in respect of his representation by Ms Liu Xianghui, which was required under Article 17 of the SHIAC Rules. Accordingly, the arbitration did not proceed in accordance with the arbitration agreement;

(4) Hua She had concealed the fact that it had reached a compromise with the 1^st Respondent by the time the SHIAC Arbitration took place. This effectively extinguished the liability of Kei, as there was no longer a debt that he had to guarantee.

27.  Given that the Award was upheld by the Shanghai Court as well as the UK Court, and that the grounds of challenge were similar, I have no difficulty in coming to the view that, on a brief consideration, the Award is manifestly valid.

28.  Further, it should be noted that the Set Aside Application is seriously defective in that the Summons does not contain any ground for setting aside the Enforcement Order (the above grounds are only discerned from Zhu’s 2^nd affirmation) and thus constitutes an abuse of process: see HKCP 2022, vol 1, [73/10/9].

29.  In respect of Kei’s arguments based on material non-disclosure (“MND”) by Hua She in obtaining the Enforcement Order, there are 2 main limbs: (a) Hua She’s evidence filed in support of the Enforcement Order had failed to set out sufficiently Kei’s case in setting aside the BVI Enforcement Order; and (b) Hua She had concealed the fact that the Award Debt had been set off.

30.  The second limb can be disposed of quickly. It was accepted by Kei that the set off argument was first raised by him in the UK proceedings, after the Enforcement Order was granted. Prima facie, it is therefore irrelevant.

31.  As regards the first limb, I am not convinced that, on a brief consideration, the MND had been made out. It appears that Hua She’s evidence in support of the Enforcement Order did address the substance of Kei’s case before the BVI Court, and the evidence filed by Kei in the BVI Court were exhibited.

32.  Further, even if there was MND, it might well be an error of judgment on the amount of details to be provided to the learned ex parte Judge, and there would be an issue of re-grant of the Enforcement Order.

33.  On the second key issue, I am in no doubt that the delay in enforcing the Award would constitute much additional difficulty to Hua She in doing do. Such difficulty is demonstrated by Kei’s conduct in the BVI enforcement proceedings. In breach of the BVI Enforcement Order, Kei :

(1) on or about 23 December 2020, caused the transfer of 40,152,000 SRG shares held by Sparkle Holdings to a person named Sze Ka Ho for a purported consideration of HK$9,957,696.00; and

(2) on or about 19 February 2021, caused the transfer of the remaining 320,468,630 SRG shares held by Sparkle Holdings to Zhu for a purported consideration of HK$83,321,843.80.

34.  It is quite clear that Kei had taken advantage of his breaches of asset disclosure obligations (as found by the BVI Court) by transferring away secretly assets which might be subject to enforcement by Hua She. See also the observations of the Court in the UK Judgment, [76].

35.  In respect of the suggestion that Kei has no substantial asset in Hong Kong, I do not believe that such assertion deserves much weight given the evasion by Kei to give proper disclosure of his assets. As submitted by Hua She, the evidence is that Kei was holding as beneficial owner a substantial amount of shares in SRG as of 29 March 2021. Kei has refused to disclose to Hua She the present whereabouts of those shares.

36.  For completeness, the Set Aside Application is out of time by some 7 ½ months. Such substantial delay can only add to the difficulty in the Application.

Disposition

37.  For these reasons, I accede to this application and grant the order sought in Hua She’s Summons filed on 12 January 2022, save that (a) I allow 21 (instead of 14) days for the payment into court to be made by Kei and (b) the sum as security for costs be reduced to HK$1,000,000 (instead of HK$1,500,000). Insofar as the security for the Award Debt in the sum of RMB 100 million is concerned, I take the view that it is a reasonable amount bearing in mind that such Debt stands at RMB 215.5 million.

38.  The costs of this application be summarily assessed for which purpose a Statement of Costs is to be lodged and served by Hua She within 3 days from the date of this Decision. Kei is to lodge and serve his comments thereon (limited to 2 pages in font size 13 and 1.5 line spacing) within 3 days thereafter. Reply to the comments (limited to 1 page in font size 13 and 1.5 line spacing), if any, is to be lodged and served by Hua She within 2 days thereafter. The assessment will be dealt with on paper.