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

HCA 227/2017
HCA 1026/2020 &
HCA 2132/2020
[2021] HKCFI 181

HCA 227/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 227 OF 2017

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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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DECISION

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1.  This is the return day for the ex parte injunctions granted by Deputy High Court Judge To on 5 January 2021 in the three actions.

2.  The injunctions were granted against the 1^st, 3^rd, 4^th and 5^th defendants in HCA 227/2017, the 1^st, 9^th and 10^th defendants in HCA 1026/2020 and the 1^st and 5^th defendants in HCA 2132/2020.  I shall refer to them as the defendants below.

3.  Before me today are the plaintiffs’ summonses for continuation of the injunctions and the defendants’ summonses for discharge of the injunctions primarily on the ground of material non-disclosure.

4.  The three actions arise out of a common background where the two protagonists are Mr Chu Kong and Mr Lau Wing Yan. The two of them have been involved in a multitude of civil proceedings both here in Hong Kong and overseas since about 2014.  The present three actions are derivative actions commenced by Mr Chu and his related companies on behalf of companies from which, Mr Chu alleges, funds and businesses had been wrongfully misappropriated by Mr Lau and his related companies.

5.  At the conclusion of the ex parte hearing, the judge granted a mareva injunction against Mr Lau in each of the three actions and against Mr Tong Zhenjun, the 1^st defendant in HCA 220/2017.  Proprietary injunctions were granted against companies related to Mr Lau for sums that are now alleged to have been wrongfully misappropriated by them.

6.  Mr Tong is separately legally represented from Mr Lau.

7.  The alleged misappropriation and wrongful diversion of funds and businesses mostly date back to 2014 and 2015.  The plaintiffs launched the application for interlocutory injunctions on an ex parte basis on the basis of new materials which had come to their attention only in September and December 2020.

8.  Earlier this morning, I have adjourned the discharge summonses for substantive argument.  The remaining issue before me is whether pending the substantive disposal of the discharge summonses, I should stay the disclosure orders granted by Deputy High Court Judge To in aid of both the mareva injunctions against Mr Lau and Mr Tong and also in aid of the proprietary injunctions against the corporate defendants.

9.  The underlying purpose of a disclosure order in the present context is to make sure that the injunctions granted are effective to serve their purposes.

10.  A mareva injunction is granted to protect a plaintiff from the risk of having nothing or not enough to enforce if it succeeds in obtaining a judgment after trial.  An ancillary disclosure order would enable the plaintiff to find out the whereabouts of the defendant’s assets and take steps accordingly to make sure that those assets are effectively frozen (eg by informing the relevant bank which would proceed to freeze the defendant’s bank accounts).

11.  In the case of proprietary injunction, an ancillary disclosure order would enable the plaintiff to locate, trace and thus preserve and pursue assets which the plaintiff says is beneficially his.  See, eg, A v C [1981] QB 956, Yau Chiu Wah v Gold Chief Investment Ltd [2002] 2 HKLRD 832 and China Shanshui Cement Group Ltd v Zhang Caikui HCA 2880/2015, 15 January 2016.

12.  Plainly, these considerations apply to the present case.  For instance, for some of the alleged misappropriations, the plaintiffs do not even know to which bank or bank account of the defendant entities the funds had gone.

13.  The burden is squarely on the defendants to justify why I should depart from the above default position.  The defendants have put forward a few grounds as justification. 

14.  Among them, I am of the view that prima facie there is force in the contention that given Mr Lau owns (indirectly) one half share in a commercial property in Sheung Wan and the entire interest in a residential property in Bel-Air, they are assets in Hong Kong which are readily available to satisfy a good part of the plaintiffs’ claim: see Chen Wenjun v Liu Luyuan CACV 168/2014, 1 September 2014.  The total amount provided for by the marvea injunctions is about US$27 million.  The estimated value of Mr Lau’s alleged interest in the two real properties is about US$24 million.

15.  In this situation, even in the absence of the ancillary disclosure orders, that is to say, even when the plaintiffs are in the dark as to what other assets the defendants may own, the plaintiffs are at least protected up to the value of their properties.  In that case, there is much to be said for dispensing with the disclosure orders in the meantime.

16.  The question is – have the defendants made out a good case that Mr Lau in fact owns the real properties?

17.  There is a particular question mark over the Bel-Air property.

18.  In the course of submissions today, the plaintiffs handed up to the court land search results which show that the Bel-Air property is owned by Smooth Day Management Limited and it has since October 2017 been subject to a mortgage granted to China CITIC Bank International Limited.  The mortgage is granted to secure any indebtedness that may be incurred by Pacific Bulk Panamax Company Limited to the bank.  This suggests that the property is apparently not free from encumbrance.  Further, there is no information before the court today as to precisely how the property is eventually held by Mr Lau and whether it is in fact owned 100% beneficially by him.

19.  Mr Anson Wong, SC informed the court from the Bar Table that Smooth Day is a BVI company and has 2 shareholders, Mr Lau and his wife.  Further, he informed the court that his wife holds the shares on trust for Mr Lau.  But Mr Wong could not tell the court anything about that trust eg whether it was done orally or in writing. 

20.  Mr Wong further informed the court from the Bar Table that as of today, no debt is due to China CITIC Bank by Pacific Bulk Panamax Company Limited.  However, Mr Wong appeared to be unable to tell this court with certainty the exact shareholding of Mr Lau in Pacific Bulk Panamax.  Mr Wong said that Pacific Bulk Panamax would give an undertaking that it would not incur any debt under the mortgage facility so that the Bel-Air property would remain to be free from encumbrance in the meantime. 

21.  These are very extensive factual evidence given from the Bar Table, which is of course not permissible.

22.  It is notable that even though Mr Lau filed an affirmation in support of the discharge summonses and the stay application, he made no mention at all of the above matters.

23.  There is no good explanation why such crucial evidence in support of the stay application would be missing.

24.  In the circumstances, and in the face of the existence of the mortgage document registered against the property, I am not in a position at all to find that Mr Lau in fact owns 100% of the interest in the Bel-Air property beneficially and that the property is or is going to be free from encumbrance.

25.  Mr Wong asked for time to file further supporting affidavits.  I refuse to adjourn the stay application for that purpose.  These urgent interim applications are to be dealt with expeditiously without delay.  The evidence required to support the stay application is very straightforward and should be easy to prepare, if it does exist in the first place.    The defendants had the opportunity to adduce such evidence.  They did not make use of the opportunity with no apparent good reason.  There is no reason why indulgence should be granted.  It may or may not be open for the defendants to renew their stay application on further evidence being produced. This is something for them to reflect on.  But it would be unfair to the plaintiffs if indulgence is granted now for the defendants to “perfect” their application when they had had adequate opportunity to do so.

26.  On the present state of the evidence, the only real property beneficially owned by Mr Lau is the half share in the Sheung Wan property which is estimated to be worth about US$10 million.  That means we are dealing with a shortfall of about US$17 million.  That is clearly and plainly a sizable sum of money.

27.  As such, the protection or comfort that one can derive from Mr Lau’s ownership of real property in Hong Kong is limited.

28.  Mr Wong also pointed out the record to be disclosed by the defendants under the disclosure orders goes back to six years.  It would be an onerous task.  I agree that time will need to be spent on this.  While this is onerous, it is not undoable.  It only goes to the issue of how much time should be allowed for the defendants to come up with the documents.

29.  Mr Wong also pointed out that the defendants have a strong case of material non-disclosure such that the injunctions would be set aside in due course.  Earlier today, I have already ruled that they do have an arguable case but the plaintiffs have also put forward answers to the various allegations of material non-disclosure.  The answers are also arguable.

30.  Where there is disagreement on whether a disclosure order should be in place pending the resolution as to whether an injunction should be discharged (as in the present case), the court has to carry out a balancing exercise.

31.  If the court grants a disclosure order but eventually the injunction is discharged, the defendants would have disclosed his assets when he should not have been required to do so.  This is a serious intrusion of personal privacy and is irreversible.  In this case, the intrusion is arguably more serious since for the proprietary injunctions, the defendants would have to disclose private transactions from 2014 onwards.

32.  However, that risk has to be weighed against the risk to the plaintiffs if the disclosure orders are stayed in the meantime. The plaintiffs may be irremediably prejudiced in the sense that the mareva and proprietary injunctions cannot be properly policed in the meantime if the disclosure orders are stayed: Chen Wenjun.

Conclusion

33.  The defendants have failed to put forward sufficient justification why the ancillary disclosure orders should be stayed while the interlocutory mareva and proprietary injunctions remain effective.  I dismiss the stay application.

34.  On the continuation and discharge summonses, I would make an order in terms of those proposed by the defendants and agreed by the plaintiffs, save that the stay order should be taken out.  I should also direct that the injunctions granted by Deputy High Court Judge To on 5 January 2021 do continue until the disposal of the discharge summonses, or further order of the court.  Also, as agreed by the plaintiffs, the disclosure orders should be varied as follows: in paragraphs 3(1) and (2), the reference to “5 days” be replaced by “14 days from today” and in paragraph 3(3), the reference to “HK$10,000” be replaced by “HK$100,000”.

35.  I should also give liberty to apply.

[Submissions on costs]

36.  I order that the plaintiffs do have costs of the stay application, with certificate for one senior counsel and one junior counsel, to be summarily assessed if not agreed.  The plaintiffs do lodge and serve their statement of costs within 7 days from today.  The defendants do lodge and serve their lists of objection, if any, within 7 days thereafter. The costs will be summarily assessed on paper after the deadline.