CHINA ART BANK CO LTD v. XU ZHIQIANG

CAMP 12/2017

[2018] HKCA 63

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 12 OF 2017

(ON AN INTENDED APPEAL FROM HCA NOS 2543 AND 2178 OF 2015)

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HCA 2543/2015

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AND

HCA 2178/2015

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(Consolidated pursuant to the Order of
Mr Recorder Stewart Wong SC dated 1 June 2017)

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the court):

1.  This is the renewed application of the plaintiffs in two actions (HCA 2543/2015 and HCA 2178/2015) for leave to appeal to the Court of Appeal against the interlocutory orders made by Recorder Stewart Wong, SC in a decision handed down on 1 June 2017 (“the Decision”). By the Decision, the judge declined to continue the Mareva injunction granted on 2 November 2015 by Mimmie Chan J in favour of the plaintiff in HCA 2543/2015, China Art Bank Company Limited (“China Art”), and ordered China Art to provide security for costs within 28 days of the Decision in the sum of $500,000 and the plaintiff in HCA 2178/2015, Feng Lishe (“Feng”), to provide security for costs of the other action in the sum of $320,000. The judge further provided that if no such payment is made after 28 days, the actions are to be dismissed with costs to the defendant in both actions, Xu Zhiqiang (“Xu”).

2.  On 15 June and 6 July 2017, the plaintiffs issued two summonses seeking leave to appeal against the Decision.  On 19 July 2017, they issued another summons for a proprietary injunction pending the making of an application to the Court of Appeal for leave to appeal.

3.  As neither China Art nor Feng has paid the security for costs within 28 days of the Decision, judgments dismissing the two actions were entered on 24 July 2017.

4.  On 26 July 2017, the judge heard the plaintiffs’ application for leave to appeal and refused to grant leave in a decision given on the same day (“the Leave Decision”).

5.  The plaintiffs renewed their leave application to the Court of Appeal in these proceedings.  However, their summons filed on 10 August 2017 was one day out of time[1]. In the present application, the plaintiffs seek inter alia:

(1)   leave to appeal against the Decision out of time;

(2)   continuation of the Mareva injunction against Xu;

(3)   stay of execution of the provision of security for costs;

(4)   the orders for security for costs be set aside;

(5)   judgments entered against the plaintiffs by reason of their failure to provide security for costs be set aside unconditionally.

6.  Having considered the papers, we have decided to exercise the power under Order 59 rule 2A(5)(a) of the Rules of the High Court to determine this application without a hearing on the basis of the written materials before us.

Legal principles

7.  The threshold test for granting leave to appeal against an interlocutory decision is provided in section 14AA(4) of the High Court Ordinance, Cap 4.  Leave shall not be granted unless the court is satisfied that the intended appeal has a reasonable prospect of success, or there is some other reason in the interests of justice why the appeal should be heard.  Reasonable prospect involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful” without having to be “probable” (SMSE v KL [2009] 4 HKLRD 125 at §17).

8.  Further, as noted in §11 of the Leave Decision, the proposed appeal is against the judge’s exercise of discretion in refusing to continue the Mareva injunction and in ordering the plaintiffs to provide security for costs.  The principles in Hadmor Productions Ltd v Hamilton [1983] 1 AC 191 at 220 apply.  The appeal court must defer to the judge’s exercise of discretion and not interfere with it save on the well‑established grounds.

9.  The plaintiffs seek an extension of time to make the leave application as they are one day out of time.  The delay is insubstantial but it ought to be properly explained if the plaintiffs should wish to contend that this delay is excusable.  In KNM v HTF, HCMP 288/2011, 7 September 2011, Fok JA (as he then was) said in §16 the requirement of a supporting affidavit “deposing to any facts relied on by the applicant and giving a full account of, and explanation for, the whole of the delay since time expired” applies equally to an application for extension of time to apply for leave to appeal as it does to an application to file a notice of appeal out of time.

10.  The plaintiffs have not filed any supporting affidavit to explain the delay.  It was only mentioned in their counsel’s skeleton submission at §18 that they attempted to file their summons in the afternoon of the last day being 9 August 2017 but was rejected for filing by the registry on the ground it was not in the correct format.  We decline to accept an explanation not supported by an affidavit.  We do not understand why an application sought to be filed by a firm of solicitors was not in the correct format.  We therefore treat the delay as inexcusable.

11.  Where the delay is inexcusable although insubstantial, a party seeking an extension of time must show a real prospect of success on the merits, not simply a reasonable prospect of success (KNM v HTF, §§19 and 20).  This is the test we will apply.

Grounds of appeal

12.  Nine grounds of appeal are set out in §§16 to 25 of the present summons and are as follows:

(1)   The judge failed to assess the overall merits of the case and to place due weight on the factor of low commercial morality of Xu.

(2)   The judge erred in finding there is no real risk of dissipation.

(3)   The judge erred in law in failing to draw the inference or conclusion there is a real risk of dissipation.

(4)   The judge had erroneously speculated the reason why Xu did not remove the monies within his bank accounts before 2 November 2015 and drew a conclusion there was no risk that Xu would dissipate the monies.

(5)   The judge should have allowed the injunction to be continued since the injunction against Xu is proprietary in nature.

(6)   The judge erred in finding that the plaintiffs had failed to make full and frank disclosure.  Further or in the alternative, the judge wrongfully relied on the bare self-assertion of Xu to fix materiality onto the matter.

(7)   The judge erred in carrying out or properly carrying out the balancing exercise and failed to find that the balance of convenience should tilt in favour of continuing the injunction.

(8)   The judge erred in law in requiring the plaintiffs to provide for security for costs, having regard to the totality of the evidence which supports a strong case and the likely lack of reciprocity in that Xu is unlikely to return to the jurisdiction.

(9)   The judge was wrong in law and in fact to impose a condition that the claim of the plaintiffs be dismissed if no payment of security for costs is made within 28 days of the Decision.

13.  We do not propose to set out the background matters.  They have been mentioned in some detail in the Decision at §§1 to 10.

14.  Most of the grounds of appeal have been raised by Mr Geoffrey Chang when he argued for leave to appeal unsuccessfully before the judge.  The present application is essentially a re‑run of his arguments.  In light of the threshold test (real prospect of success on the merits) and that the decisions sought to be challenged concerned the exercise of the judge’s discretion, the plaintiffs have a high hurdle to surmount.

15.  We will consider the grounds of appeal sought to be raised in the order set out above.

Ground 1: failure to assess overall merits

16.  We do not propose to repeat the arguments advanced by Mr Chang set out in §16(a) to (g) of the summons.

17.  The judge has taken into account the merits of the plaintiff’s claim.  What he differed from Mr Chang, as stated in §18 of the Decision, is that he does not share counsel’s views “at this stage, as to how “overwhelming” [the plaintiffs’] case is.”  In his judgment, taking note that the alleged misrepresentations were all said to be made orally, and having taken into account all the evidence including the documents relied upon by the plaintiffs, the circumstances of the making of each of the seven payments “require detailed consideration at a trial”.  He formed the view “there are many factual issues which [he] cannot, and need not, resolve at this stage on affidavit evidence”, and did not think he could reject Xu’s explanation out of hand at the moment.

18.  In §19 of the Decision, the judge declined to have regard to any actions taken or intended to be taken by the law enforcement authorities in Hong Kong and Macau against Xu so far, which Mr Chang had referred him to, as those actions merely reflected the views of the authorities on the materials before them whereas he should focus on the evidence and arguments before him.

19.  In §§40 to 41 of the Decision, the judge noted and accepted that if there is a good arguable case in support of an allegation that the defendant has acted fraudulently or dishonestly, or with unacceptably low standards of morality, a risk of dissipation may be inferred by the court even without specific evidence in that regard.  But that is not an invariable rule and the court has to consider all the evidence to decide whether a risk of dissipation can be inferred.  On the basis of the delay by China Art to seek injunctive relief, the judge took the view there was and is no risk of dissipation (§42 of the Decision; §25 of the Leave Decision).

20.  We fail to see any or any proper basis to contend that the judge has failed to assess the overall merits of the case.  There is no reasonable prospect of success on this ground, let alone real prospect of success.

Grounds 2 to 4: no real risk of dissipation

21.  The relevant legal propositions on risk of dissipation of assets are well established and have been helpfully summarised in the judgment of Deputy Judge Winnie Tam, SC in Eastman Chemical Ltd v Heyro Chemical Co Ltd (No 2) [2012] 3 HKLRD 307 at §26(1) to (9), which we shall not repeat.

22.  Risk of dissipation was fully considered by the judge in the Decision at §§35 to 42.  As we have mentioned, he emphasised in §41 that it is not an invariable rule an unacceptably low standard of commercial morality would constitute a real risk of dissipation and the court has to consider all the evidence to decide whether such risk is shown or can be inferred.

23.  What weighed with the judge was the fact that China Art only applied ex parte for a Mareva injunction on 2 November 2015, more than six months after Feng had supposedly discovered the wrongful acts of Xu (who was arrested by the Hong Kong police shortly after Feng’s complaint to the Macau police and Hong Kong police in April 2015), two months after Feng discovered Xu has a bank account in Hong Kong and one and a half months after Feng issued the writ in HCA 2178/2015 against Xu.  The delay between early September and 2 November 2015 was unexplained.  This is in effect locking the stable door after the horse has bolted.

24.  In the Leave Decision at §§24 to 27, the judge has addressed in some detail the arguments Mr Chang sought to raise in the intended appeal regarding this issue and repeated before us.  We agree with his reasoning.  We note there is no application to adduce new evidence on appeal that the police had indeed frozen the bank account of Xu, and that China Art was aware of this or the delay in applying for an injunction was due to this.  So the delay remained unexplained.

25.  In King Fung Vacuum Ltd & Ors v Toto Toys Ltd & Ors [2006] 2 HKLRD 785, Rogers VP said at §20:

“There has traditionally been a strong requirement when interlocutory injunctions have been sought, that the plaintiff must show that it has acted promptly and without delay. Promptly in the circumstances of interlocutory injunctions has been commonly understood to be a period of six weeks or so of unexplained delay and three months with an explanation given for the delay in making application for an injunction.”

26.  In our view, the judge is fully entitled to infer there was and is no risk of dissipation of assets.  The plaintiffs fail to show reasonable prospect of success, let alone real prospect, for these grounds of appeal.

Ground 5: proprietary injunction

27.  Mr Chang sought to rely on the difference between Mareva injunctions and proprietary injunctions in that in the latter case it is not necessary to show any risk of dissipation of assets and even if there has been delay in making an application which might lead to refusal of a Mareva injunction, a proprietary injunction may nonetheless be granted (Madoff Securities International Ltd & Anr v Raven & Ors [2012] 2 All E R (Comm) 634 at §§127 to 128).  He contended that the judge should have taken into account that the substance of the plaintiffs’ claims is proprietary in nature, which would entitle China Art to a proprietary injunction, even though the relief sought was a Mareva injunction.

28.  The judge considered this contention in the Leave Decision at §§29 to 30.  The fact remains that in the ex parte application before Mimmie Chan J and the hearing for the continuation of the injunction before the judge, the application was made solely on the basis of a Mareva injunction.

29.  This is plainly not a viable ground of appeal.

Ground 6: material non-disclosure

30.  This ground may be disposed of shortly.  The judge only found material non-disclosure on one point (regarding the use of $1.9 million to purchase oil paintings for display at the premises of China Art) but stated that he would not have dismissed the application for continuation of the Mareva injunction on that ground alone, having regard to the fact that it only concerned one out of seven payments and the non-disclosure is not of the most serious nature (§47 of the Decision).

31.  This is hardly a matter of consequence, see the Leave Decision at §31.

Ground 7: balance of convenience

32.  There is no point in examining the balance of convenience when the plaintiffs could not have succeeded on the foregoing grounds.

Grounds 8 and 9: security for costs

33.  The judge considered the grounds advanced by Mr Chang in the Leave Decision at §§13 to 21.  He is fully entitled to find in §§56 and 18 of the Decision that the present case does not fall within the category of cases where the plaintiff can clearly demonstrate it has such a high degree of probability of success at the trial that no security for costs should be given and decline to take into account the relative merits of each side.

34.  There is nothing in the contention that as Xu is unlikely to return to the jurisdiction, it would be unjust to order the plaintiffs to provide security.  The judge has taken this into account and declined to attach weight to this in §19 of the Leave Decision.

35.  Mr Chang took a new point before us complaining that the judge has failed to follow the criteria in section 905 of the Companies Ordinance, Cap 622 which provides that where a company is a plaintiff and it appears by credible testimony there is reason to believe it will be unable to pay the defendant’s costs if the defendant succeeds, the court may, without limiting the powers of the court under any other Ordinance, require sufficient security to be given for costs.  In the present case, Xu did not rely on the plaintiffs’ inability to pay costs to seek security.  He relied on the ground that the plaintiffs are ordinarily resident out of the jurisdiction and there would be difficulty in enforcing costs orders as the plaintiffs have no asset within the jurisdiction. Section 905 is simply irrelevant.

36.  The contention that the order for security would have the effect of stifling the plaintiffs’ genuine claims and hence oppressive is another new point not raised before.  No exceptional circumstances are shown to justify why this is now raised before us (CCMJ v SSM (formerly known as SKL), HCMP 2059/2015, 7 December 2015 at §8).  We decline to consider it.  In any event, this contention is apparently without merit, it is at odds with the plaintiffs’ claim in §24(e) of the summons that they are “reputable entities who/which are eager to make investment with substantial amount, there is no reason for them not to fulfil their respective obligations.”

37.  As for the contention that the judge failed to consider that the money frozen actually belonged to China Art so any impecuniosity was caused by Xu’s wrongdoing, this is again a new matter not raised before.  In any event, the judge has explained in §17 of the Leave Decision why he declined to take into account the sum of $5.8 million the receipt of which was admitted by Xu.

38.  There is nothing in the contention that the amounts of security ordered against the plaintiffs are excessive, likewise the argument that the judge was wrong to impose a condition that the claims be dismissed if no payment is made within time.  Under Order 1B rule 1(3) and Order 32 rule 11B, the court has power to specify the consequence of failure to comply with an order.  It is not a prerequisite to adduce evidence there is no reasonable prospect the plaintiffs would pay the security.

Conclusion and orders

39.  As none of the grounds of the intended appeal are of merit, and we would have refused leave any way, we decline to grant leave to appeal against the Decision out of time.

40.  It follows that the application to continue the injunction pending the proposed appeal, the application for stay of execution of the orders of provision of security, the application for setting aside the orders for security, and the application for setting aside the judgments entered against the plaintiffs must also be dismissed.

41.  As this summons is wholly without merit, we make a further order pursuant to Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be considered at an oral hearing inter partes.

42.  We order the plaintiffs to pay Xu’s costs of this summons.  We have considered the statement of costs for summary assessment submitted on Xu’s behalf.  We will allow the amount claimed in full at $45,750.

43.  The costs order and gross sum assessment are orders nisi.  Any party seeking to vary the orders nisi shall lodge a written submission within seven days of the handing down of this judgment, failing which the orders shall become absolute.