GOLEND INTERNET FINANCE LTD v. LIU ZHENJIA

DCCJ 1540/2017

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1540 OF 2017

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DECISION

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1.  On 28 March 2017, I granted an ex parte injunction (“the Injunction”) to the plaintiff freezing the HK$387,700 (“the Sum”) in the defendant’s account (“the Account”) in the Industrial and Commercial Bank of China (Asia) (“the Bank”) upon the undertakings given by the plaintiff in support of the Injunction.

2.  Today is the return date of the injunction application.  In this hearing, the plaintiff seeks (a) an order (“the Continuation Order”) to continue the Injunction until the final determination of this action or until a further order made by the court; (b) an order (“the Service Order”) that personal service of the Injunction and the other documents which the plaintiff has undertaken to serve on the defendant (“the Related Documents”, which include the writ of summons in this action (“the Writ”)) be dispensed with, and the service of the Injunction and the Related Documents be effected by substituted service by sending the same by post to an address in Hong Kong (“the Hong Kong Address”). 

Background

3.  The plaintiff’s case is as follows:-

(a) The plaintiff carries on a money service business in Hong Kong.

(b) The defendant is the plaintiff’s agent.

(c) On 18 January 2017, the plaintiff and the defendant entered into 2 agreements titled 信托協議 (“the Trust Agreement”) and委託協議 (“the Authorization Agreement”), by which the parties agreed that all the money in the Account was and would be held on trust by the defendant for the plaintiff and was the plaintiff’s property.

(d) On 20 March 2017, the plaintiff remitted RMB345,900 into the bank account of a Mr Zhang in exchange for Hong Kong dollars.  On the same date, Mr Zhang converted RMB345,900 into HK$387,700 and transferred the same (which is now the Sum targeted by the Injunction) to the Account as instructed by the plaintiff.

(e) On 24 March 2017, the plaintiff discovered that the Account had been “cancelled” and could not contact the defendant by either emails or telephone calls.

4.  On 28 March 2017, the plaintiff made an ex parte application for an injunction freezing the sum in the Account.  After hearing the submissions made by Ms Sabrina Leung, counsel for the plaintiff, I granted the Injunction.

5.  The Injunction contains 2 orders:-

(a) §1 of the Injunction is a prohibitory order, which prohibits the defendant from removing from Hong Kong any of his assets up to the value of the Sum or in any way dispose of or deal with or diminish the value of his assets in Hong Kong up to the value of the Sum.  The ambit of the prohibition includes the Sum in the Account.

(b) §2 of the Injunction is an order compelling the defendant to disclose information to the plaintiff’s solicitors by affidavit of all his assets of an individual value of HK$20,000 or more in Hong Kong within 3 days after the service of the order on him.

6.  The plaintiff served the Injunction on the Bank at around 4:56 pm on 28 March 2017.

7.  The plaintiff attempted to effect personal service of the Injunction and the Related Documents on the defendant by visiting the Hong Kong Address twice on 30 March 2017, but the 2 attempts were not successful.  No one at the Hong Kong address answered the server on both occasions.

8.  However, on 31 March 2017 a paralegal to the plaintiff’s solicitors, Mr Choi Tsun Wai Marcus, successfully contacted the defendant by calling a mobile phone number in Mainland China, and the paralegal managed to inform the defendant the contents of the Injunction over the phone.  Mr Choi said the following in §7 of his affirmation:-

“7. On 31^st March 2017 at 10:35 a.m., I called the Defendant on his phone number …… which, as I am instructed, is the Defendant’s mobile phone number in the People’s Republic of China. A male answered the call, then I asked whether he is the Defendant in the proceedings or not. The male answered yes and identified himself as the Defendant. I then read the penal notice on the back page of the Order to the Defendant word by word, explained the Order and advised the Defendant to seek legal advice. Also I have informed the Defendant that the Order will continue until 3^rd April 2017 and a further hearing will commence on 3^rd April 2017 in regards to the continuation of the Order. Finally, I asked the Defendant whether he understood the explanation provided, he answered yes and the call was ended.”

Application for the Continuation Order

9.  In the ex parte hearing, Ms Leung informed the court that (a) the Sum was still in the Account, and (b) the plaintiff had substantial assets in Hong Kong and would be able to honour the undertaking as to damages in support of the Injunction if being called upon to do so at a later time.  The plaintiff undertook to verify these by affidavit evidence.  Relevant evidence has been produced by the plaintiff in this hearing.  I am satisfied that the Sum is still in the Account and the plaintiff is financially able to honour the undertaking as to damages if being required to do so at a later time.

10.  The injunction sought by the plaintiff is often called as a Mareva injunction.  In order to have a Mareva injunction, the plaintiff must show:-

“1. that he has a good arguable case on a substantive claim over which the court has jurisdiction;

2. that there are assets within the jurisdiction;

3. that the balance of convenience is in favour of grant;

4. that there is a real risk of dissipation of assets, or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect;

5. the plaintiff must comply with a strict duty of full and frank disclosure ……”

See Hong Kong Civil Procedure 2017, Vol 1, §29/1/65.

11.  In the ex parte hearing, I considered that the plaintiff had made out a case for injunctive relief and hence I granted the Injunction.

(a) Having considered that the terms of the Trust Agreement and the Authorization Agreement, I am satisfied that the plaintiff has shown a good arguable case against the defendant.  It is certainly arguable that the Sum in fact is the plaintiff’s money, and the defendant merely holds the same on trust for the plaintiff.  Accordingly, the defendant should have no right to cancel the Account and placed the Sum out of the plaintiff’s reach.

(b) The Sum is still in the Account, which is an account in a bank having business in Hong Kong.

(c) The purpose of the Injunction is to freeze the Sum so that the same would remain in the Account pending the resolution of the dispute herein.  If at the end it is shown that the Injunction is wrongly granted, the plaintiff would be financially able to honour the undertaking as to damages and hence the defendant is adequately protected.  On the other hand, if there is no injunction and the plaintiff later succeeds at trial, the Sum may have already been taken away or transferred to another place.  This may cause irreparable damage to the plaintiff.  The balance of convenience is in the plaintiff’s favour.

(d) The plaintiff has produced evidence to show that the defendant is merely a trustee holding the Sum on trust for the plaintiff.  The fact that the defendant has given an instruction to the Bank to cancel the Account without any prior notice to the plaintiff is evidence showing that there is a real risk of dissipation.  On the basis of the evidence now available, what has been done by the defendant is not something which a faithful trustee would do.

(e) Ms Leung told the court that the plaintiff had been advised of its duty to make full and frank disclosure.

12.  In the hearing today, I reviewed the evidence produced by the plaintiff at the ex parte stage and also considered the new evidence produced by the plaintiff.  In my judgment, the plaintiff has produced sufficient evidence justifying the continuation of the Injunction.  I would allow the application for the Continuation Order.

Application for the Service Order

13.  Rules of the District Court (“RDC”), Order 45, rule 7 provides:-

“(2) Subject to Order 24, rule 16(3), Order 26, rule 6(3) and paragraphs (6) and (7) of this rule, an order shall not be enforced under rule 5 unless—

(a) a copy of the order has been served personally on the person required to do or abstain from doing the act in question; and

(b) in the case of an order requiring a person to do an act, the copy has been so served before the expiration of the time within which he was required to do the act.

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(5) With the copy of an order required to be served under this rule, being an order requiring a person to do an act, there must also be served a copy of any order made under Order 3, rule 5, extending or abridging the time for doing the act and, where the first-mentioned order was made under rule 5(3) or 6 of this Order, a copy of the previous order requiring the act to be done.

(6) An order requiring a person to abstain from doing an act may be enforced under rule 5 notwithstanding that service of a copy of the order has not been effected in accordance with this rule if the Court is satisfied that, pending such service, the person against whom or against whose property it is sought to enforce the order has had notice thereof either—

 (a) by being present when the order was made; or

 (b) by being notified of the terms of the order, whether by telephone, telegram or otherwise.

(7) Without prejudice to its powers under Order 65, rule 4, the Court may dispense with service of a copy of an order under this rule if it thinks it just to do so.”

14.  RDC, Order 65, rule 4 provides:-

“(1) If, in the case of any document which by virtue of any provision of these Rules is required to be served personally or in the case of a document to which Order 10, rule 1, applies, it appears to the Court that it is impracticable for any reason to serve that document in the manner prescribed on that person, the Court may make an order for substituted service of that document.

(2) An application for an order for substituted service may be made by an affidavit stating the facts on which the application is founded.

(3) Substituted service of a document, in relation to which an order is made under this rule, is effected by taking such steps as the Court may direct to bring the document to the notice of the person to be served.”

15.  Ms Leung drew my attention to the following authorities:-

(a) In Porter v Freudenberg [1915] 1 KB 857, the English Court of Appeal said at 888:

“In order that substituted service may be permitted, it must be clearly shown that the plaintiff is in fact unable to effect personal service and that the writ is likely to reach the defendant or to come to his knowledge if the method of substituted service which is asked for by the plaintiff is adopted. The Court may then make such order as may seem just: Order IX., r. 2 [equivalent to Order 65, rule 4]. The terms of this rule are of very wide application, and give a very wide discretion which we are not inclined to limit.” (Emphasis added)

(b) In Abbey National Plc v Frost [1999] 1 WLR 1080, the English Court of Appeal held (as per the headnotes):

“that the essential condition for the exercise of the court's discretionary power to grant leave for substituted service of a writ or other document under R.S.C., Ord. 65, r. 4 was the impracticability of service of the document in the prescribed manner; that the provision in rule 4(3) for substituted service to be effected “by taking such steps as the court may direct to bring the document to the notice of the person to be served” did not limit the court’s primary discretion under rule 4(1) by imposing a further requirement that the order had to be likely to bring the document to the notice of the person to be served; that the fact that the defendant [who was the solicitor previously acting for the plaintiff in connection with a fraudulent mortgage transaction]’s whereabouts were unknown and there was no likelihood of such service bringing the proceedings to his notice was therefore no bar to an order for substituted service on [the Solicitors’ Indemnity Fund] if it would otherwise be proper to make such an order; and that, having regard to the purposes for which the fund was set up and the public nature of its obligations in relation to defaulting solicitors, such an order would be proper.” (Emphasis added)

(c) In Chan Yeuk Mui v Ng Shu Chi [1999] 2 HKLRD 376, Rogers JA (as he then was) said at 380D-F:

“The Court in granting an order for substituted service must then take into consideration the requirement of bringing the particular document to the notice of the person being served. It is, after all, not an order that service be dispensed with. The first consideration must be where the person is likely to be found. If the person to be served is likely to be found abroad, then obviously different considerations will apply and this is recognised in the notes in the White Book. Then, consideration must be given as to what practical steps can be taken to bring the documents to be served to the attention of the relevant party. Often, advertisements will be the only practical way.” (Emphasis added)

16.  Relying upon the Abbey case, Ms Leung submits that the only requirement under Order 65 rule 4 is the impracticability of the service of the document in the prescribed manner.  The rule does not impose a further requirement that the mode of service provided in the order for substituted service should have the effect of bringing the document to the notice of the person to be served.  Ms Leung submits that the Hong Kong Court of Appeal’s decision in Chan Yeuk Mui is a decision per incuriam, as the Hong Kong Court of Appeal was not aware of the Abbey case when making the decision in Chan Yeuk Mui.

17.  Ms Leung submits:-

(a) Since the defendant has been notified of the terms of the Injunction by telephone, this court may exercise the power under Order 45 rule 7 to dispense with the service of the Injunction.

(b) As the only requirement under Order 65 rule 4 is the impracticability of personally serving the Injunction on the defendant, it would not be necessary for this court to require proof to show that the proposed substituted service (ie sending the court documents to the Hong Kong Address by post) would bring the documents to the notice of the defendant.

(c) Alternatively, if this court has to follow Chan Yeuk Mui, the proposed substituted service would have the effect of likely bringing the court documents to the notice of the defendant.

18.  With respect to Ms Leung, I am unable to accept these submissions.

19.  I would follow Chan Yeuk Mui and adopt the law as stated by the Hong Kong Court of Appeal therein.  I do so not only because Chan Yeuk Mui is a binding authority, but also because I am of the view that the law as stated therein is undoubtedly correct.

20.  In order to obtain an order for substituted service, the applicant must show that it is impracticable to serve the document on the person to be served (Order 65, rule 4(1)).  The applicant must also show that the mode of service proposed by him would have the effect of bringing the document to the notice of the person to be served (Order 65, rule 4(3)).  An order for substituted service is not an order dispensing service.  If there is no or no satisfactory evidence showing the mode of service proposed by the applicant would have the effect of bringing the document to the notice of the person to be served, the court should refrain from giving the order for substituted service sought by the applicant.

21.  Something is clear and unambiguous from the evidence produced by the plaintiff:-

(a) The defendant is a resident of the People’s Republic of China (as per §3.2 of the Affirmation of Zhang Zhengfen, who is a director of the plaintiff).

(b) The defendant’s address in the Trust Agreement and the defendant’s address in the Authorization Agreement are the same, which is an address in Mainland China (“the Mainland Address”).

(c) The defendant is contactable through his mobile phone number in Mainland China.  He is willing to answer the phone call from Mr Choi, and he has listened to Mr Choi’s explanation of the Injunction.

22.  Something is unclear.  It is unclear why the plaintiff says that the defendant’s last known address is the Hong Kong Address.  Madam Zhang Zhengfen made this point in §3.3 of her affirmation without any elaboration.  There is no evidence showing that by sending the court documents to the Hong Kong Address, the defendant would have notice of the same.

23.  Given the facts set out in paragraph 21 above, the plaintiff should apply for leave to serve the Writ, the Continuation Order and the other Related Documents out of jurisdiction under Order 11 rule 1 and rule 9(4) and to serve the same through the judicial authorities of Mainland China by following Order 11 rule 5A and rule 9(7). Before the plaintiff doing so, it would not be appropriate to grant any order for substituted service to the plaintiff.  The plaintiff has not adduced any evidence to show that it is impracticable to serve the court documents on the defendant by following the steps in Order 11.

24.  A recent authority on the point is the Hong Kong Court of Appeal’s decision in Deutsche Bank AG, Hong Kong Branch v Zhang Hong Li [2016] 3 HKLRD 303, in which Lam VP said:-

“5. …… If the plaintiff had not made an unsuccessful attempt to effect service in the mode prescribed under Order 11 Rule 5A, it would usually be inappropriate to order substituted service in such a manner. To start with, it must be emphasized that one should not allow the use of substituted service within the jurisdiction on a defendant residing overseas (be it in the Mainland or otherwise) with the effect of circumventing the threshold requirement of Order 11 Rule 1. That rule provides an important safeguard against the improper exercise of jurisdiction over foreign parties. Any attempt to circumvent such safeguard is an abuse of process.

6. Further, without such unsuccessful attempt, the court cannot be satisfied that it is impracticable to serve in accordance with Rule 5A. ……

7. On the method of service, the criterion in Order 65 Rule 4(3) is that the step should bring the document to the notice of the person to be served.

8. …… It should perhaps be mentioned that in most cases, in respect of service upon a defendant residing in the Mainland, the usual mode of substituted service by advertisement in newspapers in Hong Kong cannot bring the proceedings to his attention and it is therefore not a viable option.” (Emphasis added)

25.  Although Mr Choi has notified the defendant the terms of the Injunction by telephone, the effect of this notification is that §1 of the Injunction may be enforced against the defendant by the operation of Order 45, rule 7(6).  However, this notification would not be sufficient for the enforcement of §2 of the Injunction.  Further, at that time the life of the Injunction was only up to today.  The Continuation Order obtained by the plaintiff in this hearing has to be served on the defendant. Before the plaintiff applying for leave to serve the documents in these proceedings out of jurisdiction and trying to serve the same on the defendant through the judicial authorities of Mainland China, I would not make an order dispensing with the personal service of the documents.

26.  I would dismiss the application for the Service Order.

27.  I note that the Injunction has been served on the Bank.  The Continuation Order obtained by the plaintiff today will also been served on the Bank.  The Injunction continued by the Continuation Order prohibits the Bank from assisting or permitting a breach of the Injunction.  In other words, the Sum has already been frozen and would continuously be frozen in the Account.  If the defendant makes any request to the Bank for withdrawing the Sum or any part thereof from the Account or transferring the Sum or any part thereof to any other place, the Bank must refuse to accede to the defendant’s request and notify the defendant that the Injunction is in place.  By the operation of Order 45 rule 7(6), the notification would immediately trigger the enforcement of §1 of the Injunction as continued by the Continuation Order against the defendant.   Accordingly, the plaintiff’s interest has already been sufficiently protected.  All the plaintiff needs to do now is to take proper steps to effect service of the court documents on the defendant by following the requirements in Order 11.

Disposition

28.  I give the Continuation Order sought by the plaintiff.  Costs of the application for the Continuation Order be reserved.  There be a certificate for counsel for this hearing.

29.  The Continuation Order is an ex parte order.  The defendant may apply to the court at any time to vary or set aside the order, but he may only do so after giving reasonable notice to the plaintiff.

30.  I dismiss the application for the Service Order with no order as to costs.

31.  I thank Ms Leung for her assistance.