CHEN YU v. SKY MERIT LTD AND OTHERS

HCA 725/2022

[2022] HKCFI 3417

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 725 OF 2022

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D E C I S I O N

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A.  INTRODUCTION

1.  There are before me:

1.1  the Plaintiff’s summons of 17^th June 2022, as amended pursuant to leave given at the hearing of 19^th October 2022, for proprietary and Mareva injunctive relief and ancillary disclosure (“the Plaintiff’s Amended Summons”);

1.2  the 1^st Defendant’s summons of 12^th October 2022 for leave to file and serve the 4^th Affirmation of Garry Albert Muir (“the Evidence Summons”). The parties were content for me to consider the evidence de bene esse for the purpose of the hearing.

B.  THE BACKGROUND

2.  The Plaintiff (“Mr Chen”) was a shareholder and director of VTRON Group Limited (“VTRON”), a BVI company.

3.  The 1^st Defendant (“Sky Merit BVI”) is a company incorporated in the BVI.

4.  The 2^nd Defendant (“Sky Merit HK”) is a company incorporated in Hong Kong, and a wholly-owned subsidiary of Sky Merit BVI.

5.  The 3^rd Defendant (“Mr Fong”) is the sole shareholder of Sky Merit BVI. Mr Fong was previously a director of both Sky Merit BVI and Sky Merit HK, but resigned after the hearing before DHCJ Laurence Li SC on 21^st June 2022. He remains a signatory of the two companies’ bank accounts in Hong Kong, although he says that he has been directed by the current director not to operate them without his agreement. That current director is Garry Albert Muir (“Mr Muir”), the husband of Mr Fong’s sister.

6.  Mr Chen’s case is that he got to know Mr Fong through a Madam Ho, whom Mr Chen had known for over thirty years, and who was Mr Chen’s friend and business partner in VTRON. Mr Fong was married to Madam Ho’s daughter, and he also worked for VTRON. Mr Chen understood from Mr Fong that he was experienced in investment management.

7.  Mr Chen says that in around 2020, VTRON intended to cease operations, and the board resolved that the company would repurchase 33,501,437 shares from its shareholders for some US$147.8m. The Defendants dispute that there was such a resolution; they say in the alternative that the resolution was invalid under BVI law. Mr Chen would receive US$14,489,914 in return for his 3,503,398 shares in VTRON.

8.  Mr Chen says that he told Mr Fong that he wanted to set up a corporate vehicle in Hong Kong to hold part of the proceeds from the sale of his VTRON shares for ease of future investment. Mr Fong proposed that he do this under a nominee arrangement, with Mr Fong holding all the shares in (what would later turn out to be) Sky Merit BVI, which in turn held all the shares in (what would later turn out to be) Sky Merit HK. Mr Chen says that Mr Fong represented to him that this arrangement would confer tax benefits and operational convenience. He trusted him and agreed to the arrangement.

9.  Mr Chen says that it was pursuant to this arrangement that Mr Fong arranged to incorporate Sky Merit BVI in November 2020, with Mr Fong being the sole shareholder and director; and Sky Merit HK in December 2020, with Sky Merit BVI being its sole shareholder and Mr Fong being its sole director. Mr Fong later told him that both companies opened accounts with HSBC in Hong Kong.

10.  Mr Chen says that he asked VTRON to pay part of the proceeds for the purchase of his shares, in the amount of US$5,286,594.39 (“the Funds”), to Sky Merit HK, and the remainder of the proceeds to himself. A cheque was drawn by VTRON in favour of Sky Merit HK and the funds were deposited in Sky Merit HK’s account with HSBC in Hong Kong in January 2021. In a message of 31^st July 2021, Mr Fong told Mr Chen that all the funds had been placed in Sky Merit BVI’s account (with HSBC in Hong Kong). (In fact, according to the 2^nd Affirmation of Garry Albert Muir filed on behalf of Sky Merit HK, US$5,268,500.90 (US$5,286,594.39 less US18,093.49) was transferred from Sky Merit HK to Sky Merit BVI on 20^th May 2021.)

11.  Mr Chen says that in around July 2021, Mr Chen wanted to invest US$3m out of the Funds in an investment fund administered by Morgan Stanley Fund Services (“the Anglepoint Fund”). He instructed Mr Fong to handle this on his behalf. On 4^th August 2021, Mr Fong sent Mr Chen an acknowledgement of receipt of funds from Anglepoint addressed to Sky Merit BVI, via WeChat.

12.  A print out of the WeChat exchanges between Mr Chen and Mr Fong was produced. They show that on 4^th August 2021, Mr Fong sent a copy of Sky Merit BVI’s account statement of the same date to Mr Chen to indicate what the remaining balance of the Funds were before the US$3m was transferred out of Sky Merit BVI’s account for the Anglepoint Fund investment. The statement showed that there was an amount of US$5,197,544.73 in the account, which was less than the amount of the original Funds by US$89,049.66.

13.  Mr Chen says that from about September 2021 onwards, Mr Fong became unresponsive and failed to answer his requests for a full accounting of the flow of the Funds from the time they were paid into the Sky Merit HK account. In around November 2021, he learnt that Mr Fong had separated from his wife and was engaged in divorce proceedings. As a result of Mr Fong’s unresponsive attitude and the knowledge of his personal circumstances, Mr Chen became concerned about the Funds. Mr Chen asked him to sign a nominee agreement retrospectively, but Mr Fong failed to do so and stopped responding altogether.

14.  Mr Chen says that Mr Fong “resurfaced” in February 2022 and referred him to an email from Sky Merit BVI sent to him on 13^th December 2021, which Mr Chen says was sent to a little-used email account of his. It transpired that Mr Muir had apparently been appointed as director of Sky Merit BVI. Mr Chen had never agreed to this. The letter also said that Mr Fong had told the District Court that he beneficially owned the shares in Sky Merit BVI, and that their value was nil; the company owed a debt to the Crown but the Crown could be prevented from claiming it if VTRON were to be restored to the BVI companies register.

15.  On 16^th March 2022, Mr Chen received a letter from Messrs Cheung Yan & Associates, claiming on behalf of Mr Fong that he had made mistaken payments of sums totaling $1,913,965.73 in the period from November 2017 to June 2021, and demanding repayment. Mr Chen says that he never received such a sum from Mr Fong.

16.  Mr Chen instructed solicitors to demand a transfer of Mr Fong’s shareholding in Sky Merit BVI, appoint him as director of Sky Merit BVI and Sky Merit HK, report on matters relating to the Funds, and deliver up all relevant documents and items.

17.  Mr Fong filed an affirmation on 6^th September 2021 (“Fong 1^st”), saying that he was no longer a director of either Sky Merit BVI or Sky Merit HK, and that he no longer controlled Sky Merit BVI’s assets; he remained a signatory to Sky Merit BVI’s Hong Kong bank accounts but he was directed by Mr Muir not to operate them without his agreement.

18.  Mr Fong further denied that he declared any trust of the shares in Sky Merit BVI. At most there was an oral promise to transfer the shares to Mr Chen’s son when the time was right. In any event, whatever arrangement the parties had, the basis was that Mr Chen had had his shares in VTRON repurchased, which was not true. Mr Fong said he was not aware of Mr Chen’s alleged repurchase records. He believed that the VTRON board resolution (to repurchase all VTRON shares) relied on by Mr Chen was not genuine and was created ex post facto. VTRON’s payment to Sky Merit HK was by way of loan, not for repurchase of Mr Chen’s shares.

19.  Mr Muir filed an affirmation on 13^th September 2022 (“Muir 1^st”), saying that he became a director of Sky Merit BVI on 5^th December 2021. The affirmation was filed for the purpose of Sky Merit BVI’s application to stay the present proceedings on the grounds of forum non conveniens. Mr Muir said that he had no knowledge of the factual disputes between Mr Chen and Mr Fong and that VTRON was liquidated in October 2021. He exhibited a legal opinion from a BVI lawyer to say, inter alia, that VTRON’s repurchase of shares was not valid, that the sum paid by VTRON to Sky Merit HK was therefore paid under a mistake (as Mr Chen could not have validly directed the payment), and that since VTRON was in liquidation, the amount was owed to the Crown.

20.  Mr Muir filed a second affirmation on 13^th September 2022 in his capacity as the sole director of Sky Merit HK, referring to and adopting parts of his first affirmation. He says that he found no evidence that Mr Chen directed VTRON to make any payment to Sky Merit HK. Sky Merit HK never declared a trust of its assets and there was nothing wrong with it transferring funds to Sky Merit BVI. The discrepancy between the amount paid by VTRON to Sky Merit HK (the Funds of US$5,286,594.39) and the amount paid by Sky Merit HK to Sky Merit BVI (US$5,268,500.90) was US$18,093.49, which was not misappropriated, but spent on certain legal, accounting and bank fees. He says that he could not find any evidence of any promise made by Mr Fong that Sky Merit HK would hold its assets on a bare trust. Mr Muir went on to provide an analysis why the share repurchase by VTRON was not valid under BVI law, but I am not satisfied that he is qualified to provide expert evidence as to BVI law.

21.  Mr Chen had sought interim-interim relief on an ex parte basis, with notice to the Defendants. At a hearing on 21^st June 2022, in lieu of interim-interim relief, DHCJ Laurence Li SC accepted the undertakings of Sky Merit HK and Mr Fong to pay into Court US$2,286,594.39 (equivalent to the amount of the Funds less the US$3m used to invest in the Anglepoint Fund), and the undertaking of Mr Fong not to cause Sky Merit BVI to redeem the Anglepoint Fund investment, and ordered that Mr Chen’s application be adjourned for substantive argument.

22.  Sky Merit HK and Mr Fong duly made payment into court on 5^th July 2022.

C.  THE APPLICABLE PRINCIPLES

23.  There is no dispute as to the applicable principles.

24.  For the court to grant a proprietary injunction, a plaintiff has to demonstrate the American Cyanamid elements that there is a serious issue to be tried on the merits, that the balance of convenience is in favour of granting an injunction, and that it is just and convenient to grant the injunction. It is not necessary to show any risk of dissipation of assets. See Zhang Yan v ASA Bullion Ltd [2019] HKCFI 179 at [11].

25.  It is not a high threshold to show that there is a serious issue to be tried. The court will not resolve conflicts of evidence on affidavit, or decide difficult questions of law which call for detailed arguments and mature consideration. See DBS Bank (Hong Kong) Ltd v Tian Wen Quan, unreported, HCA 3228/2016, 12^th October 2017, at [13].

26.  Whilst it is not necessary, for the grant of a proprietary injunction, to demonstrate a risk of dissipation of assets or that damages would not be an adequate remedy, it is nevertheless necessary to demonstrate that the balance of convenience favours the granting of the injunction, and that it would be just and convenient to do so. Thus where the proprietary claim of a plaintiff is not to any specific real or personal property but to money, and the plaintiff can be adequately compensated by an award of damages (for example, if there is no reason to think that the defendant will be unable to pay), whereas the defendant might be adversely impacted by the requirement to set aside the sum of money, the court might not grant a proprietary injunction: Wason Holdings Ltd v BHP International Markets Ltd [2018] HKCA 113 at [36] to [39].

27.  In essence, the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other. See National Commercial Bank Jamaica Ltd v Olint Corpn Ltd [2009] 1 WLR 1405 at [16] to [18]:

“16. The second feature is the basis upon which Jones J decided to refuse an interlocutory injunction and the Court of Appeal decided to grant one. It is often said that the purpose of an interlocutory injunction is to preserve the status quo, but it is of course impossible to stop the world pending trial. The court may order a defendant to do something or not to do something else, but such restrictions on the defendant's freedom of action will have consequences, for him and for others, which a court has to take into account. The purpose of such an injunction is to improve the chances of the court being able to do justice after a determination of the merits at the trial. At the interlocutory stage, the court must therefore assess whether granting or withholding an injunction is more likely to produce a just result. As the House of Lords pointed out in American Cyanamid Co v Ethicon Ltd [1975] AC 396, that means that if damages will be an adequate remedy for the plaintiff, there are no grounds for interference with the defendant's freedom of action by the grant of an injunction. Likewise, if there is a serious issue to be tried and the plaintiff could be prejudiced by the acts or omissions of the defendant pending trial and the cross-undertaking in damages would provide the defendant with an adequate remedy if it turns out that his freedom of action should not have been restrained, then an injunction should ordinarily be granted.

17. In practice, however, it is often hard to tell whether either damages or the cross-undertaking will be an adequate remedy and the court has to engage in trying to predict whether granting or withholding an injunction is more or less likely to cause irremediable prejudice (and to what extent) if it turns out that the injunction should not have been granted or withheld, as the case may be. The basic principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other. This is an assessment in which, as Lord Diplock said in the American Cyanamid case [1975] AC 396, 408:

“It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them.”

18. Among the matters which the court may take into account are the prejudice which the plaintiff may suffer if no injunction is granted or the defendant may suffer if it is; the likelihood of such prejudice actually occurring; the extent to which it may be compensated by an award of damages or enforcement of the cross-undertaking; the likelihood of either party being able to satisfy such an award; and the likelihood that the injunction will turn out to have been wrongly granted or withheld, that is to say, the court's opinion of the relative strength of the parties' cases.”

28.  For the court to grant a Mareva injunction, a plaintiff has to show that he has a good arguable case on the merits (that is, a case that is more than barely capable of serious argument and yet not necessarily one that the judge believes to have a better than 50% chance of success), that the defendant has assets within the jurisdiction, that there is a real risk of dissipation of the assets so as to render nugatory any judgment which the plaintiff may obtain, and that the balance of convenience is in favour of the grant.

D.  SERIOUS ISSUE TO BE TRIED / GOOD ARGUABLE CASE

29.  Mr Chen relies on several messages in the WeChat exchange with Mr Fong as establishing a serious issue to be tried, and a good arguable case, on the merits.

29.1  On 23^rd July 2021, Mr Chen messaged Mr Fong, saying[1] that “I nominated you to help me deal with this matter in Hong Kong, I gave your contact details to a handler to be arranged by Mr Liu Jie, [Jerry Jiang]…”.[2] Mr Fong confirmed receipt of Mr Chen’s message.

29.2  On 30^th July 2021, Mr Chen addressed a number of questions to Mr Fong. “…explain to me the rationale behind using SKY company BVI for Chen Jie’s investment project, I still don’t quite understand. First, SKY is a private company that I incorporated in Hong Kong last year, I am the ultimate controller, you are currently the sole shareholder (and will transfer to Chen Xi at the right time), right[?] When the companies opened account it had BVI account number and Hong Kong HSBC account, for investment and business management, right[?] This time BVI’s account number to invest money is to enable tax simplicity when receiving profits in future or for operational convenience[?] If I am the ultimate controller, I need to provide place of birth and sources of funds right[?] Are you free tomorrow morning at 10A.M. for us to talk about this[?] Thank you”.

29.3  On 31^st July 2021, Mr Fong responded. “Sky Merit company has Hong Kong and BVI. Fong Ming holds 100% shareholdings in Sky Merit Limited (BVI) on behalf of Mr Chen. This BVI holds 100% shareholding in Sky Merit (Hong Kong) Limited. These two companies were set up simultaneously in November 2020. In January 2021, both of these companies successfully opened accounts with HSBC Hong Kong. Now all the funds are put in the BVI’s account. Will transfer to Chen Xi [Mr Chen’s son] at the right time. This time the BVI’s account number was used to make the investment money so as to enable tax simplicity and operational convenience when receiving profits in future…”

29.4  On 4^th August 2021, Mr Fong sent a screenshot of Sky Merit BVI’s HSBC account portfolio summary to Mr Chen. It showed a US dollar ledger balance of US$5,197,544.73. The screenshot was followed by a message saying “Hi Mr Chen, for your record, this is the remaining balance before the 300 [3 million] is transferred out.” Mr Chen’s case is that the reference to the 3 million is to the amount invested in the Anglepoint Fund.

29.5  On the same day, Mr Chen asked “…Also, has the 3 million been transferred[?]”

29.6  On 5^th August 2021, Mr Chen chased Mr Fong for a response. “Hi bobby, please inform if Liu Jie’s 300w [3 million] investment fund has been transferred[?] Thank you”. Mr Fong responded by sending, first, an Acknowledgment of Receipt of Funds from Morgan Stanley Funds Services dated 5^th August 2021, saying “Re Sky Merit Limited” acknowledging the receipt of US$3m in respect of the Anglepoint Fund, and second, a screenshot of an acknowledgment from Morgan Stanley Funds Services sent to Mr Fong, saying

“Regarding Sky Merit Limited…

At the request of Anglepoint Global Fund

Morgan Stanley Fund Services as Administrator is sending you your Acknowledgment of Receipt of Funds for the 09 Aug 2021 dealing date.”

29.7  On 26^th August 2021, Mr Chen chased Mr Fong in relation to the updating of “sky merit account’s excel document”. Mr Fong said he would do it over the weekend as he was moving homes. Mr Chen chased again for this on 7^th September 2021.

29.8  On 13^th August 2021, Mr Chen asked Mr Fong, “…how can I obtain $2 million from the sky merit USD account for my son to buy a house in Canada (without tax) [?]”. Mr Fong answered, “Transfer directly to him? Let’s see if we can prepare a sky merit BVI loan agreement? And then he pays interest lawfully, such as 1% or something, you are essentially paying yourself anyway”.

29.9  On 13^th October 2021, Mr Chen asked Mr Fong, “I still do not understand, in the future, how can I use the money in [sky] merit in a safe way[?]. Mr Fong responded, “For example, directly buying assets or investing, this is the safest. For personal uses, you can make separate small payments, for example sky merit can apply for a corporate credit card. Using Chen Xi’s to lend him money to buy property is also safest, but need to see if there is restriction in the local laws…”

29.10  On 1^st December 2021 (after Mr Chen says he learned of Mr Fong’s divorce proceedings), Mr Chen said, “Good afternoon Bobby, I didn’t know that there was a risk issue in your situation. After yesterday’s phone call, I thought about it carefully, and think that we need to sign a Nominee Arrangement Agreement in relation to you holding sky merit company on my behalf as soon as possible (should have done this earlier), so that this fact doesn’t get in the way of your family assets dispute, then find an appropriate time as soon as possible to change the name of the shareholder to my name. Please consider what I said and arrange for execution as soon as possible, this way the money Chen Xi needs to buy a house can be easily lent. Please consider, thank you”.

29.11  On 8^th December 2021, Mr Chen chased Mr Fong. “…Right now we need to sign Skymerit’s Nominee document as soon as possible (this issue is not related to anything, which also reflects the truth), thank you”. After a few attempts to contact Mr Fong for a discussion, Mr Fong responded later that day, “Hi good afternoon Mr Chen, I got your message, let us talk early next week.”

29.12  The WeChat record then shows Mr Chen repeatedly chasing Mr Fong, without any response from the latter. On 30^th December 2021, Mr Chen wrote, “…Did you not promise me that you will sort out the matter relating to skymerit’s Nominee Arrangement Agreement as soon as possible[?] I have been waiting for your reply, if there are any issues, we can talk about it, I am waiting for your reply, thank you”.

29.13  On 30^th January 2022, Mr Chen wrote, “Hi Bobby, it has been nearly 2 months. You have not replied any of my messages. This seems strange, and have also affected my plan as to how to use my money. Is there something you are reluctant to discuss about[?]…”

29.14  On 16^th February 2022, Mr Chen chased again. “Hi Bobby, Chinese New Year has passed. I do not know why you have dragged out the matter relating to the Nominee Arrangement for over 2 months and have not replied to me in all this time. Due to the pandemic, it is inconvenient to travel, so my only option is to arrange for someone in Hong Kong to talk to you on my behalf, please follow up, thank you!” Mr Fong finally responded, saying that “On 13^th December 2021, Sky Merit Limited’s director had already sent an email to you… You can contact the director directly at … Since last year, I have instructed my solicitors to deal with the various matters because the divorce proceedings with Ms Lee is still ongoing. Thank you!” Mr Chen’s response was to say that the nominee arrangement was a matter between the two of them, and was unrelated to directors and others. He chased for action on the part of Mr Fong.

30.  These exchanges support Mr Chen’s case that Sky Merit BVI and Sky Merit HK were set up to hold assets on his behalf; that Mr Fong held the shares in Sky Merit BVI on behalf of Mr Chen rather than as beneficial owner; that the Anglepoint Fund investment was made using funds provided originally by Mr Chen and subsequently transferred to Sky Merit BVI’s HSBC account in Hong Kong.

31.  It was not suggested by Mr Fong that the WeChat exchanges should be read in some other way. As for Sky Merit BVI and Sky Merit HK, Mr Muir said that he had no personal knowledge of the dispute between Mr Fong and Mr Chen. Nor have any of the Defendants provided any alternative positive factual case as to why Mr Chen directed the payment from VTRON to Sky Merit HK, or why Sky Merit BVI made an investment in the Anglepoint Fund.

32.  The Defendants nevertheless argued that there is no serious issue to be tried. Miss Tanie Toh, counsel for Mr Fong, submitted that unless Mr Chen could show that the Funds paid by VTRON were pursuant to a valid repurchase of Mr Chen’s shares, there was no serious issue to be tried.[3] Mr Tony Ko, counsel for Sky Merit HK and Sky Merit BVI, made the same submission, and a further submission that Sky Merit HK never declared a trust of its assets.[4]

33.  The argument based on invalidity of the share repurchase is that if VTRON did not make a valid repurchase of Mr Chen’s shares as a matter of BVI law, the payment of the Funds from VTRON to Sky Merit HK must have been by way of a loan, apparently to Sky Merit HK.[5] This is simply a non-sequitur. If the share repurchase by VTRON was invalid, such that the Funds did not constitute part payment for the repurchase of Mr Chen’s shares, and VTRON paid Sky Merit HK by mistake, this would not thereby render the payment a loan by VTRON to Sky Merit HK. Furthermore, factually, none of the Defendants suggest that there was any loan agreement between Sky Merit HK and VTRON, or any factual reason for Sky Merit HK to borrow money from VTRON.

34.  There is also a view expressed in the BVI legal opinion exhibited in Muir 1^st that if VTRON paid the Funds by mistake to Sky Merit BVI[6], VTRON “might” be able to recover them from Sky Merit HK, although VTRON would not be able to do so until it is restored to the companies’ register, and in the meantime, it is the Crown who can do so. At most, this argument raises the possibility that Mr Chen might not have been entitled to be paid by VTRON. It cannot go so far as to eliminate the possibility that Mr Chen might, as he says, have been entitled to be paid by VTRON, in which case there would be no question of recovery from Sky Merit HK. In any event, there is no evidence to suggest that the Crown or VTRON’s liquidator seeks to make any recovery from Sky Merit HK.

35.  As to the second argument, even if Sky Merit HK never declared a trust of its assets, this would not prevent a trust arising by reason of Mr Chen having procured the Funds to be transferred to Sky Merit HK.[7] At least, there must be a serious issue to be tried, and indeed a good arguable case, in this regard.

36.  I therefore consider that there is a serious issue to be tried, and a good arguable case, on the merits of Mr Chen’s claim that Mr Fong holds the shares in Sky Merit BVI as trustee or nominee for Mr Chen; that Sky Merit BVI and Sky Merit HK are also trustees or nominees of Mr Chen and hold the Funds (or what remains of them) and the Anglepoint Fund investment in that capacity.

E.  THE ORDERS SOUGHT AGAINST MR FONG

37.  As against Mr Fong, Mr Chen seeks, in essence:

37.1  a Mareva injunction, prohibiting him from removing any assets from Hong Kong up to the amount of US$2,286,594.39;[8] and

37.2  an injunction prohibiting Mr Fong from causing Sky Merit BVI to redeem or other dispose of the US$3m investment paid to the Anglepoint Fund other than with the written consent of Mr Chen or until further order;

37.3  an injunction prohibiting Mr Fong from disposing of, dealing with or diminishing the value of his shares in Sky Merit BVI other than with the written consent of Mr Chen or until further order.

38.  As mentioned above, at the hearing on 21^st June 2022, DHCJ Laurence Li SC had accepted the undertakings of Sky Merit HK and Mr Fong to pay into Court US$2,286,594.39 (equivalent to the amount of the Funds less the US$3m used to invest in the Anglepoint Fund), and the undertaking of Mr Fong not to cause Sky Merit BVI to redeem the Anglepoint Fund investment. The payment in was then made on 5^th July 2022.

39.  At the hearing before me, Mr Fong through counsel (together with Sky Merit HK through counsel) further confirmed that for the avoidance of doubt, the payment in of 5^th July 2022 was to stand as security for Mr Chen’s claim for any amount which the court might require Sky Merit HK and/or Mr Fong to pay Mr Chen in these proceedings, whether individually, jointly or severally, pending determination of Mr Chen’s claim in these proceedings, and undertook that they would not take issue with the payment in being used to meet any eventual liability of either or both of them to Mr Chen in these proceedings, on the grounds that the payment in was originally made using the funds of one or the other of them.

40.  In Fong 1^st, Mr Fong further stated that he was prepared to give a further undertaking to the court that he would not dispose of his shares in Sky Merit BVI pending the final resolution of these proceedings, “whether it be in the Eastern Caribbean Supreme Court (Commercial Court) or in Hong Kong”. At the hearing before me, Mr Fong through counsel offered an expanded version of this undertaking, to the effect that he would not in any way dispose of, deal with, transfer, charge, encumber or diminish the value of his shares in Sky Merit BVI (such shares including his 50,000 shares in Sky Merit BVI): (a) otherwise than with the written consent of Mr Chen or until further order, pending the final resolution of Mr Chen’s action in Hong Kong; or (b) unless and until these proceedings are stayed pursuant to the Defendants’ summonses of 26^th August 2022, 9^th September 2022 and 13^th September 2022.[9]

41.  Counsel for Mr Fong submitted that in the light of the aforesaid undertakings and confirmations, Mr Chen had failed to demonstrate the need for the injunctions sought.

42.  I first consider the Mareva injunction sought against Mr Fong. I agree that the balance of convenience is not in favour of a grant. In accordance with the standard form of Mareva injunctions, the draft order presented to the court provided that the Mareva against each of Mr Fong and Sky Merit HK would cease to have effect if they paid the amount of US$2,286,594.39 into court. Mr Fong and Sky Merit HK have paid into court the amount sought under the Mareva and have now confirmed that the amount stands as security for the liability of either or both of them to Mr Chen as may be found in these proceedings. It is not suggested that the facts are such that Mr Chen would be able to recover the full amount twice, once from Mr Fong and once from Sky Merit HK.

43.  I next consider the injunction seeking to prohibit Mr Fong from causing Sky Merit BVI to redeem or other dispose of the US$3m investment paid to the Anglepoint Fund. Mr Adrian Leung, counsel for Mr Chen, submitted that the corresponding undertaking offered by Mr Fong was “meaningless” in the light of his resignation as a director of Sky Merit BVI: he was no longer in control of the board of Sky Merit BVI and would not be in a position to honour the undertaking. However, even if Mr Fong is no longer a director of Sky Merit BVI, this would not render the undertaking meaningless. It is Mr Chen’s own case that Mr Fong’s resignation is “artificial” and that Mr Fong is acting in concert with Mr Muir in an attempt to put the assets of Sky Merit BVI beyond his reach.[10] The undertaking, which has the same effect as an injunction, would prevent Mr Fong from so doing in relation to the Anglepoint Fund investment.

44.  In any event, if one were to follow through on the logic that the undertaking is “meaningless” by reason of Mr Fong’s resignation as director, it would equally be “meaningless” to grant the injunction sought. Mr Leung submitted that the grant of an injunction would enable the giving of notice to third parties that an injunction had been made. I do not agree that an injunction should be granted for the purpose of enabling the giving of notice of an injunction to third parties.

45.  In the circumstances, it seems to me that in the light of the undertaking given by Mr Fong, the balance of convenience does not lie in favour of a grant of the injunction sought.

46.  I then consider the injunction seeking to prohibit Mr Fong from disposing of his shares in Sky Merit BVI. Mr Fong has agreed to give an undertaking in substantially the same terms, albeit with the additional proviso that the undertaking would not continue were the proceedings to be stayed on the basis of forum non conveniens (pursuant to applications due to be heard in May 2023). It is not suggested by Mr Leung that this additional proviso renders the undertaking problematic. It was submitted that the undertaking is unsatisfactory given the lack of evidence as to the current membership of Sky Merit BVI, and in particular whether Mr Fong still holds 100% of the shares in the company. Again, however, the same criticism would apply to the grant of the injunction sought. A complaint as to the lack of disclosure is not remedied by the grant of an injunction.

47.  It seems to me that in order to preserve the status quo pending trial, Mr Fong ought not to sell shares in Sky Merit BVI. However, since Mr Fong has given an undertaking that he will not do so, the balance of convenience does not lie in favour of a grant of injunctive relief to the same effect.

F.  THE ORDERS SOUGHT AGAINST SKY MERIT HK

48.  As against Sky Merit HK, Mr Chen seeks, in essence:

48.1  a proprietary injunction, prohibiting it from removing from Hong Kong the sum of US$5,286,594.39 which was paid into its account with HSBC, or any assets purchased with such funds; and

48.2  a Mareva injunction, prohibiting it from removing any assets from Hong Kong up to the amount of US$2,286,594.39.[11]

49.  For the same reasons as given above in relation to Mr Fong, I consider that the balance of convenience is not in favour of a grant of the Mareva injunction sought, Sky Merit HK (and Mr Fong) having paid the full amount into court and having confirmed that the amount stands as security for the liability of either or both of Sky Merit HK and Mr Fong as may be found in these proceedings.

50.  This leaves the proprietary injunction. Mr Leung acknowledged, by reference to the bank statements of Sky Merit HK for its HSBC account dated 13^th November 2021, that there was only US$0.24 remaining of the Funds by that date. It was not suggested that Sky Merit HK had used the remainder of the funds to purchase any assets; indeed, Mr Chen proceeded on the basis that he had been told by Mr Fong back in July 2021 that all of the funds had been transferred to Sky Merit BVI’s account. In the circumstances, I do not see any utility in making an injunction in respect of this amount.

G.  THE ORDERS SOUGHT AGAINST SKY MERIT BVI

51.  As against Sky Merit BVI, Mr Chen seeks, in essence:

51.1  a proprietary injunction, prohibiting it from removing from Hong Kong the sum of US$5,197,544.73 in its account with HSBC as at 4^th August 2021, or any assets purchased with such funds;

51.2  a Mareva injunction, prohibiting it from removing any assets from Hong Kong up to the amount of US$2,286,594.39;[12] and

51.3  an injunction prohibiting it from redeeming the US$3m investment paid to the Anglepoint Fund;

51.4  an injunction prohibiting it from disposing of, dealing with or diminishing the value of the US$3m investment paid to the Anglepoint Fund.

52.  I first deal with the proprietary injunction. Mr Leung acknowledged, by reference to the bank statements of Sky Merit BVI for its HSBC account dated 1^st November 2021, that there was only US$2,197,480.29 remaining in the account by that date. It will be recalled that US$3m was used to invest in the Anglepoint Fund. Any injunction in relation to the account should therefore at most be in respect of US$2,197,480.29. As regards the US$3m paid out to invest in the Anglepoint Fund, rather than imposing injunctive relief in general terms to cover this as being part of the proceeds of the funds originally received in Sky Merit’s HSBC account, any injunctive relief to be granted ought to be directed specifically at the Anglepoint Fund, as this would be more precise. I return to this below.

53.  Mr Ko submitted that the injunction should not be granted, as although Mr Chen’s claim was proprietary in nature, it was nevertheless merely a claim to money, so that he could be adequately compensated by damages (relying on Wason Holdings Ltd). Furthermore, Mr Chen’s position was already covered by the payment into court by Sky Merit HK and Mr Fong.

54.  I am of the view that the injunction should be granted.

54.1  There is no dispute that the funds in the account originated from the Funds which Mr Chen directed VTRON to pay to Sky Merit HK. Sky Merit BVI does not seek to make any claim to them.

54.2  Whilst Mr Chen’s claim is merely to money, I do not consider that he could be adequately compensated by an award of damages. Sky Merit BVI has no assets or income. Mr Chen says that Mr Fong recommended setting it up to hold Mr Chen’s assets. If the money were to be paid out of Sky Merit BVI’s account, there would be no source from which Sky Merit could pay any award of damages.

54.3  There is nothing to suggest that Sky Merit BVI would suffer any adverse impact by the requirement to set aside the sum of money (cf. the adverse impact on the 1^st defendant’s business in Wason Holdings Ltd). Sky Merit BVI does not operate any business and is merely a holding company.

54.4  The payment into court by Sky Merit HK and Mr Fong could not be used to meet Mr Chen’s proprietary claim against Sky Merit BVI.

54.5  In the circumstances, granting the injunction seems to me to be clearly the course which would cause the least irremediable prejudice to one party or the other.

55.  As to the Mareva injunction, there is no evidence that Sky Merit BVI has any other assets in Hong Kong. After all, the only source of its funds was the transfer of the Funds to it by Sky Merit HK. There is therefore no basis to grant any “top-up” injunction.

56.  I will consider together the two injunctions seeking to restrain Sky Merit from redeeming, disposing or dealing with the Anglepoint Fund. Mr Ko did not strongly resist the grant of these injunctions. In my view, they should be granted.

56.1  The investment in the Anglepoint Fund was requested by Mr Chen, and was paid for by the Funds which Mr Chen directed VTRON to pay to Sky Merit HK. Sky Merit BVI does not seek to make any claim to them.

56.2  As with the funds in Sky Merit BVI’s account, if the Anglepoint Fund investment were to be disposed of, Mr Chen could not be adequately compensated by an award of damages.

56.3  It is not suggested that Sky Merit BVI would suffer any adverse impact as a result of the injunction.

56.4  It was suggested that as the Anglepoint Fund is subject to a three-year lockup period from August 2021, during which it could not be redeemed, this would provide sufficient protection. I agree with Mr Leung that it is unclear whether a trial of the proceedings could be heard within the period. The Defendant’s application for a stay of the proceedings is not due to be heard until May 2023.

56.5  The undertaking given by Mr Fong not to redeem the Anglepoint Fund investment does not prevent Sky Merit BVI from dealing with the investment. Mr Muir, not Mr Fong, is now the director of Sky Merit BVI.

H.  DISCLOSURE

57.  Mr Chen seeks disclosure which is ancillary to, and in support of, the injunctions. I therefore need only to consider the disclosure applications in relation to the injunctions to be granted.

58.  There is no dispute that in an action in which the plaintiff seeks to trace property which in equity belongs to him, the court not only has the jurisdiction to grant an injunction restraining the disposal of property, but also make interlocutory orders designed to ascertain the whereabouts of that property: A v C [1981] QB 956 at 958E to 959E.

59.  In relation to the injunction restraining Sky Limit BVI from removing the amount of US$2,197,480.29 from its account, it is in fact not known whether there has been any movement in the account since the bank statement of 1^st November 2021. In order to make the injunction effective and to enable Mr Chen to trace what has become of these funds which he claims to be his property, it would be appropriate to require Sky Limit BVI to disclose whether the funds remain in its account, and details of any disposals made.

60.  In relation to the injunctions restraining Sky Limit BVI from redeeming, disposing of or dealing with the Anglepoint Fund investment, whilst the receipt of US$3m from Morgan Stanley Funds Services dated 5^th August 2021 has been disclosed, the precise terms on which Sky Merit invested US$3m into the Anglepoint Fund (including the terms which govern the redemption, disposition or dealing with the fund) have not been disclosed. Mr Leung referred to a draft subscription agreement to the Anglepoint Fund, which appears to indicate that the investment may be redeemed without the consent of any non-party to the agreement. I agree that in order to make the injunctions against Sky Limit BVI effective, Sky Limit BVI should disclose documents relating to its investment into the Anglepoint Fund.

61.  Having made these orders, I consider it not necessary to go further to make orders against HSBC for disclosure under s.21 Evidence Ordinance (Cap.8). Those orders as drafted go further than necessary in the light of the disclosures already obtained, the undertakings given by Sky Merit HK and Mr Fong, and the additional ancillary disclosure which I am ordering Sky Merit BVI to give.

I.  THE EVIDENCE SUMMONS

62.  DHCJ Laurence Li SC’s order of 21^st June 2022 had ordered that no further affirmations were to be filed without the leave of the court.

63.  In such circumstances, leave is not granted in the absence of genuine extenuating circumstances; in other words, exceptions that normally would fall within the rule in Ladd v. Marshall: Jose Miranda Da Costa Junior v Lorenzo Yih, unreported, HCA 156/2010, 28^th April 2014, at [9] to [13].

64.  Sky Merit BVI has not shown that such extenuating circumstances exist so as to justify the admission of the 4^th Affirmation of Garry Albert Muir.

65.  Whilst Mr Muir says that he placed Sky Merit BVI into voluntary liquidation only on 6^th October 2022, the reasons he gave for so doing (that Mr Chen had made ad hominem attacks on his credibility and that threatening letters had been sent to the shareholder Mr Fong on 20^th September 2022) do not explain why the decision to place the 1^st Defendant into liquidation was not taken earlier.

66.  In any event, I do not consider that the evidence is of probative value. The purpose of the affirmation is to say that Sky Merit BVI is in voluntary liquidation and to explain the liquidator’s duties. However, there is no evidence as to whether Sky Merit BVI has met the requirements to be placed into voluntary liquidation. In any event, as regards the appointment of a liquidator, the evidence does not come from the liquidator said to have been appointed, but only from Mr Muir. There is no evidence from the liquidator that he has accepted the appointment. Whilst Mr Muir says that he has sent a notice of the appointment to the Registrar of Corporate Affairs at the BVI Financial Services Commission, and a copy of the notice bearing what appears to be a chop from the Registrar has been produced, there is no evidence as to the effect of this document. The evidence as to the liquidator’s duties are matters of BVI law, and whilst Mr Muir in his first affirmation asserted that he was qualified to give his “views and beliefs on applicable law”, he only referred to his legal qualifications in Australia and New Zealand, not the BVI. There is no basis to admit his views as to BVI law.

J.  DISPOSITION

67.  I dismiss the Evidence Summons, and make a costs order nisi that the costs of and occasioned thereby by paid by Sky Merit BVI to the Plaintiff.

68.  Upon the undertakings given by Sky Merit BVI and Mr Fong to the court on 21^st June 2022, by which Sky Merit BVI and Mr Fong continue to abide, and the additional confirmation and undertakings given to the court on 19^th October 2022, as set out in paragraphs 38 and 39 above:

68.1  I grant an injunction in terms of paragraph 1(1) of the Plaintiff’s Amended Summons, save that the amount should be US$2,197,480.29;

68.2  for disclosure ancillary to this injunction, I grant an order in terms of paragraphs 4(1) and 4(4) of the Plaintiff’s Amended Summons. For the avoidance of doubt, the term “D1 Funds” should be taken to refer to the aforesaid US$2,197,480.29;

68.3  I grant an injunction in terms of paragraphs 3(1) and 3(1A) of the Plaintiff’s Amended Summons;

68.4  for disclosure ancillary to this injunction, I grant an order in terms of paragraphs 4(3) and 4(4) of the Plaintiff’s Amended Summons;

68.5  I dismiss the remainder of the Plaintiff’s Amended Summons.

69.  In the light of the extent to which the Plaintiff has been successful, but also having regard to the fact that it was only at the hearing that Sky Merit HK and Mr Fong provided their confirmations and undertakings which have led me to decline certain of the relief sought, I make a costs order nisi that 70% of the costs of and occasioned by the Plaintiff’s Amended Summons be paid by the Defendants to Mr Chen.