GOLDEN GEAR LTD AND ANOTHER v. LAW KIN CHEUNG AND OTHERS

HCA 1831/2021

[2022] HKCFI 641

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1831 OF 2021

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D E C I S I O N

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1.  The parties have agreed to adjourn the two summonses of 22 February 2022 for joinder of the five intended defendants and for an interlocutory injunction with the directions proposed by the Plaintiffs this morning and I make an order accordingly.

2.  What remains is the Plaintiffs’ application for relief against the five intended defendants pending the hearing of those summonses.

3.  The intended defendants not being parties to the proceedings, the Plaintiffs proceeded on the basis of the application being ex parte on notice.

4.  The Plaintiffs indicated that they were not pursuing a proprietary injunction against the intended defendants as they had not had the opportunity of putting together evidence to demonstrate that the

5.  The intended 4^th defendant is Madam Hui, the current wife of the 1^st Defendant.  The intended 3^rd and 5^th defendants are companies currently wholly owned by Madam Hui (and were wholly owned by her at the time when they received the funds which are the subject of the Plaintiffs’ claim).

6.  The main issue between the parties as regards these three intended defendants is whether there is evidence of a risk of dissipation by them.

7.  The approach to assessing risk of dissipation was set out in Convoy Collateral Ltd v. Cho Kwai Chee & others [2020] HKCA 537 by Lam VP (as he then was) starting at [35].  For present purposes, it is relevant to note that (1) the risk of dissipation must be established separately against each respondent, and (2) the applicant needs to show a “solid basis” for concluding that there is a real risk of dissipation.

8.  Mr Chan for the Plaintiffs submitted that:

(1)  as the parties were closely connected with the 1^st Defendant Mr Law, the risk of dissipation could be inferred, given Mr Law’s admission that had wrongfully transferred some $29m-odd from the 1^st Plaintiff to the 2^nd Defendant;

(2)  the explanation for the payment to the intended 3^rd defendant (Worldwide Sourcing Ltd) as being for service fees showed that it was a situation of self-dealing by Mr Law (since he was also a director of the 1^st Plaintiff), which Ms Hui would have known about;

(3)   the explanation for the payment to the intended 4^th defendant (Ms Hui) as being for repayment of a personal loan was incredible, since repayment of a personal loan should not have come from 2^nd Defendant;

(4)  the explanation of the gift of $168,000 to Ms Hui’s mother, which was received by the intended 5^th defendant, was incredible and lacked particulars.

9.  I am unable to draw an inference of a real risk of dissipation from these matters.

(1)   The fact that the 1^st Defendant, on his own admission, misappropriated funds from the 1^st Plaintiff, does not shed light on the integrity of Ms Hui.  The mere fact of being married to the 1^st Defendant does not demonstrate a risk that she would, to avoid the claim being made against her, dissipate her funds or those of the two companies (the 3^rd and 5^th intended defendants).

(2)   As to the further reason advanced in respect of the intended 3^rd defendant, as Mr Chan acknowledged, depending on the facts, the 1^st Defendant Mr Law wearing two hats and
self-dealing might or might not be improper.  Even if Ms Hui knew that Mr Law wore two hats, this does not lead to a conclusion that she must have known that he was doing something improper, or the further conclusion that she also is of low integrity.

(3)  As to the further reason advanced in respect of the intended 4^th defendant Ms Hui, the fact that Mr Law repaid a personal loan using funds from his company the 2^nd Defendant does not lead to an inference that she knew he was acting improperly, or the further conclusion that she likewise would act improperly.

(4)  As to the further reason advanced in respect of the intended 5^th defendant China Investment Limited, whilst it may be unusual that the intended 5^th defendant was nominated to receive what is said to have been a cash gift to Ms Hui’s mother on the occasion of Ms Hui’s marriage to Mr Law, it is not sufficient, in my view, to give rise to an inference that there would be a risk of dissipation of assets by the intended 5^th defendant.  In any event, counsel has given an undertaking that the entire amount claimed against the intended 5^th defendant ($168,000) will be paid into court within 96 hours.

10.  As to the intended 6^th and 7^th defendants, Mr Chan submitted that the risk of dissipation arose as the two companies were ones in which Mr Law had an interest and to which he had dissipated part of the funds he had earlier misappropriated from the 1^st Plaintiff.

11.  However, the Plaintiffs do not in fact have evidence that Mr Law has an interest in those companies.  It is said that the cheques drawn in favour of the two companies bear Mr Law’s mobile phone number on their reverse side, written in manuscript.  It is said that this shows that Mr Law or his assistant must have deposited the cheques.  I am unable to draw such an inference.  On the other hand, even if Mr Law does not have an interest in those companies, this does not necessarily mean that they would not dissipate funds.

12.  A more fundamental difficulty however is the lack of basic information about these two companies.  Their addresses are unknown.  It would not be possible for the Plaintiffs to serve any order on them.  The court should not make an order in vain.

13.  Mr Chan submitted that the order would not be in vain, because he could serve the order on banks.  However, I do not agree that this would be a sufficient basis for granting an injunction.  The injunction is an order addressed to the intended defendants, not to the banks.  It may be served on banks to give them notice and avoid them inadvertently assisting the intended defendants in a breach of the order.  In the absence of any authority showing that it is sufficient for a plaintiff to serve an injunction on banks without any current prospect of service on the defendant himself, I decline to grant the injunction.

14.  Mr Chan acknowledged that it would have been possible to ascertain such information by first applying for a Norwich Pharmacal order, but the decision was made not to do this as the matter was urgent.  I do not agree that there was any urgency such as to necessitate this mode of proceeding.  The Plaintiffs and the 1^st and 2^nd Defendants have been in litigation for some months.  It is the Plaintiffs’ case that all the intended defendants are closely connected with the 1^st and 2^nd Defendants, so that if dissipation was a risk, this would have happened before now.  Furthermore, the Plaintiffs’ solicitors themselves stated in a letter yesterday that they were not proceeding on the basis of secrecy, so it appears that the Plaintiffs do not fear that the intended defendants’ knowledge of the Plaintiffs’ application would undermine it.

15.  Separately, I note that the draft order presented asked for the intended defendants to disclose information within 7 days of the order.  It is not known whether the Plaintiffs would even be able to serve the order on the intended 6^th and 7^th defendants within 7 days.  There would therefore be a risk the 6^th and 7^th defendants would be in breach of the order without even knowing about the fact of the order having been made.  I do not consider that it would be right to make such an order.

16.  Mr Yau for the intended 3^rd to 5^th defendants also argued that if this application were to be put on the basis of an ex parte application on notice, the Plaintiffs have not complied with their duty of full and frank disclosure, since they did not refer to matters which the 1^st and 2^nd Defendants rely on to say that they are not liable to the Plaintiffs.  I do not consider it necessary to deal with those matters.

17.  I therefore dismiss the Plaintiffs’ application.