JUNSON DEVELOPMENT INTERNATIONAL LTD AND ANOTHER v. ZFT TRADING CO., LTD AND OTHERS

HCA 1781/2019

[2019] HKCFI 2685

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1781 OF 2019

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DECISION

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1.  In this matter, the plaintiffs claim against 23 defendants in respect of a fraud that has allegedly been perpetrated against the plaintiffs. The writ of summons, which has been amended, makes a claim for proprietary and personal relief for the recovery of the stolen moneys from the defendants. It states that the plaintiffs will seek or will rely upon claims for unjust enrichment, moneys had and received, constructive trust and equity. An injunction was granted by Madam Justice Anthea Pang on 26 September 2019, freezing various sums as against each individual defendant. The matter came before me on 4 October 2019 and I continued the injunction order, having varied it as set out in the order made on that date. The 5^th and the 14^th defendants are now represented by Mr Chiu of counsel, and he has submitted that the injunction against them should be discharged for two primary reasons. First, that the plaintiffs have failed to show a real risk of dissipation and, second, that there has been material non-disclosure of corporate information and financial information of the plaintiffs in order to assess the undertaking as to damages.

2.  It is trite that in relation to a proprietary injunction (including one which freezes the assets of the defendant), there is no need to demonstrate a risk of dissipation.  If authority was needed for that proposition, it is contained in Madoff Securities International Ltd & Anor v Raven & Ors [2011] EWHC 3102 (Comm), [2012] 2 All ER (Comm) 364, per Flaux J at paragraphs 126 – 128. Thus if the claim against the 5^th and the 14^th defendants is simply a proprietary claim, then the proposition of those defendants that the Mareva injunction should be discharged due to a failure to demonstrate a risk of dissipation seems unlikely to succeed.  However, if and to the extent that the claim against those defendants is a personal claim for damages or equitable compensation, then, as currently advised, it seems to me that there may be some real prospect that the 5^th and the 14^th defendants are correct that the plaintiffs have failed to show a risk of dissipation.

3.  However, I am currently unable to make any assessment as to the extent to which a personal claim is in fact made because that particular distinction between proprietary and personal claims has been somewhat blurred by the evidence which is before me.  Consequently, for this reason, it is necessary that the matter is to be adjourned for full and proper argument.  That argument will no doubt allow the court to identify with some clarity the nature of the claim being made against the 5^th and the 14^th defendants and, based upon that claim, whether there was in fact material non-disclosure in relation to the nature of that claim and/or whether the injunction should be discharged because of a failure to demonstrate a risk of dissipation.  I pass no comment on the way in which that might subsequently be addressed, and nothing in this judgment is to be taken as giving any indication in respect of those matters.

4.  In relation to the second allegation of material non-disclosure of corporate information and financial information, it is clear from the judgment of Madam Justice Lisa Wong in Gu Zhuoheng & Anor v Huang Wei Cheng & Ors [2019] HKCFI 381 (HCA 2509/2017, 13 February 2019), at paragraph 107 that:

“Where a cross-undertaking is given to the court, if nothing further is said, the court will take the plaintiff to be impliedly representing that his financial position allows him to meet his potential liability thereunder. Hence, if a plaintiff’s financial position is such that, viewed fairly, it may be said to raise realistic doubts as to his ability to honour the cross-undertaking, it becomes incumbent upon the plaintiff to make full and frank disclosure of his financial position to the ex parte judge so as to permit the judge to determine for himself the correct order to make in the light of such disclosures.”

5.  That proposition is also supported in the case of Cheung Kam Wah v Cheung Hon Wah [2005] 1 HKC 136 also quoted by Madam Justice Lisa Wong at paragraph 108.

6.  In this case, in the affirmation of Jing Wang exhibited to the first affirmation of Anthony Thomas Marrin, which was before the ex parte judge, Mr Wang stated at paragraph 5:

“The plaintiffs, along with their affiliates (collectively known as ‘Junson Capital’) are a prominent Hong Kong investment management group with multiple investment strategies and a global footprint. Junson Capital’s business cover real estate, financial assets and private equity. The plaintiffs are investment vehicles which form part of Junson Capital. Junson Stable Growth Master Fund Limited (the 2^nd plaintiff) is a Cayman Island registered mutual fund. The 1^st plaintiff is the largest investor in that fund, and holds assets in excess of HK$45 billion.”

7.  On the face of that disclosure, it seems to me that the court was entitled to take the view at the ex parte stage that the plaintiff had sufficient financial resources to satisfy their undertaking.  However, it is correct, as Mr Chiu has pointed out, that it is not clear where the 1^st plaintiff is incorporated and it is also clear that the 2^nd plaintiff is incorporated in the Cayman Islands.  Therefore neither of them have identified assets within Hong Kong which may be capable of satisfying the undertakings given. 

8.  It seems to me that whether there was a material non‑disclosure in this respect, or whether the disclosure identified in paragraph 5 of Mr Wang’s affirmation is sufficient is something which needs to be argued fully and properly. In the meantime, however, I have some sympathy for the proposition that in the absence of a clear indication of assets within Hong Kong, it is appropriate for the plaintiffs to fortify their undertaking.  The 5^th and the 14^th defendants have requested a sum of HK$600,000 as fortification, and given the alleged considerable financial prowess of Junson Capital, it seems to me appropriate that they should provide that sum as fortification for their undertaking at this stage.  Whether it should thereafter remain can be addressed at the resumed hearing of this matter.

9.  In those circumstances, in relation to the 5^th and the 14^th defendants, I will give directions for the exchange of evidence and for further argument to be adjourned.  Meanwhile, subject to the provision of the fortification, I will continue the injunction.  However, it should be varied to reflect the ordinary and proper business expenses required by the 5^th and the 14^th defendants to continue running their business which, by reference to the affirmation of Mr Ku Ka‑chung exhibited to the affirmation of Douglas, Anson James, appears on the face of it to be a legitimate business. 

10.  Mr Chiu originally asked for expenses of HK$100,000 per calendar month but then amended that request to a sum of HK$500,000 per calendar month.  The affirmation of Mr Ku at paragraphs 31, 32 and 33 indicates expenditure required in October 2019 of HK$935,141.22 apparently within the next month and a further requirement of essential disbursements which the 5^th and the 14^th defendants need to settle, including rent of approximately HK$15,000 a month, salaries of approximately HK$87,000 a month, and MPF of approximately HK$10,000 per month.  In my view, the more appropriate figure for legitimate business expenses is HK$500,000 per month and that is what I shall allow.  The wording is to be the wording in the standard form of the Mareva injunction.  Mr Chiu is content with the current limit of HK$50,000 on legal representation and, as a result, I make no change to that. 

11.  I turn then to the position of the 21^st defendant, Mr Or.  On the previous occasion that this matter was before me, I varied the injunction order to allow the 21^st defendant to spend HK$50,000 on legal representation, HK$50,000 up to 11 October 2019 on legitimate business expenses incurred in the ordinary course of business, and Mr Or Kam-sing of the 21^st defendant (to the extent that the injunction order may affect him personally) to spend up to HK$25,000 up to 11 October 2019 on personal and family expenses.

12.  Mr Or has appeared before me again today.  He has told me that he intended to engage a lawyer but because the charge was too high, he did not do so and he wishes to co-operate with the minimum expense.  It seems to me that the claim against the 21^st defendant suffers from the same problems in relation to whether it is proprietary or personal as the claim against the 5^th and 14^th defendants.  That needs further clarity from the plaintiffs.  If it is personal, then the court will need to make an assessment as to whether there was, or is, any risk of dissipation and whether the plaintiff has adequately dealt with that proposition in relation to the 21^st defendant.  To the extent that it is a proprietary claim, the burden immediately shifts to the defendant to prove that he received the money without notice and is therefore entitled to retain it. 

13.  In relation to the proprietary nature of the claim, it is also necessary to address the question of whether tracing of moneys into what may well be a mixed fund in the bank account of the defendants is possible, but all of these matters apply equally to the 21^st defendant as they do to the 5^th and the 14^th defendants.  Therefore it seems to me that it is appropriate for this matter to come back in relation to the 5^th, 14^th and 21^st defendants to address those questions.  I will therefore make directions in respect of the 21^st defendant as well.

14.  I turn then to the remaining defendants.  The 3^rd defendant is also represented by Messrs Haldanes (who represent the 5^th and the 14^th defendants), and Mr Chiu has told me that the 3^rd defendant does not object to the continuation of the injunction until trial or further order.  No other defendants have appeared.  In the circumstances, it seems that it is appropriate to continue the injunction order as against all other defendants until trial or further order without further variation, provided always that the defendants remain at liberty to apply at any stage to vary or discharge the order or so much of it as affects them.  That provision is clearly contained within the existing order dated 26 September 2019 and will remain.  Therefore in relation to the other defendants (ie all defendants other than the 5^th, 14^th and 21^st defendants), I continue the injunction until trial or further order on the terms as varied by me on 4 October 2019. 

15.  Mr Marrin has helpfully identified that it is not his case that the injunction covers Mr Or in his personal capacity.  He is content to rest on the proposition that the injunction covers only an entity known as Hopwell Electronics.  Therefore he accepts that any money or assets that Mr Or receives personally from other sources are not covered by the injunction and Mr Or is free to spend them without restriction.  On 4 October 2019 when this matter was before me, Mr Or told me that he has a salary of HK$85,000 per calendar month from another company and he does not in any way rely upon Hopwell Electronics for payment of his personal expenses.  In the light of Mr Marrin’s acceptance that the injunction does not bite on Mr Or personally, and Mr Or’s confirmation that his personal expenses are not reliant upon Hopwell Electronics, it seems to me unnecessary to make further provision for Mr Or’s personal living expenses.  Insofar as the legitimate business expenses of Hopwell Electronics are concerned, Mr Or has told me that they are in the region of HK$70,000 to HK$80,000 per calendar month, and I will allow the 21^st defendant to spend that much per calendar month in accordance with the normal wording in the standard form of Mareva injunction.

16.  In terms of costs, the costs in relation to the 5^th and 14^th and 21^st defendants will be reserved pending the outcome of the adjourned hearing.  In relation to the costs of the return date for the other applications, they will be costs in the cause.