CHINA METAL RECYCLING (HOLDINGS) LTD (in Provisional Liquidation) AND ANOTHER v. CHUN CHI WAI AND OTHERS

HCA 1412/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1412 OF 2013

________________

________________

________________

D E C I S I O N

________________

1.  This is the hearing of the plaintiff’s application (initiated by their provisional liquidator) by summons dated 5 March 2014 for:

(1)  an Unless Order against the 5^th defendant giving limited time for compliance of disclosure orders ancillary to the worldwide Mareva injunction; and

(2)  for further discovery orders against the 5^th defendant to be made.

2.  On 13 March 2014 upon the application by counsel for the 5^th defendant I gave leave for the 5^th defendant to file evidence in answer to the summons.  At the time, the indication was that the 5^th defendant was in the process of preparing for compliance of the extant order, but it needed time.  Thereafter, the affirmation of Ou Yongzhao was filed on 24 March 2014 barely within the 10 days given.  On 1 April 2014 the 3^rd defendant issued a summons to discharge paragraph 2.2 of the order of Tong J made ex parte and continued by Recorder Pow SC.  Remarkably, there was no attempt to make that summons returnable before me, or on a date before today’s hearing.  It was left to be made returnable before the summons judge, Chung J, on 11 April 2014, subsequent to this hearing. 

3.  Mr Hui on behalf of the 5^th defendant argues that for the sake of good case management, and so that full arguments by leading counsel may be heard on the issues, I should adjourn paragraphs 1(b), 1(c) and paragraphs 3 of the plaintiff’s summons to Chung J for determination on 11 April 2014 alongside the 5^th defendant’s summons.  I note that the summons is fixed for 30 minutes at its first return date, and there is no certainty that the presiding judge will be able to hear substantive arguments, although Mr Hui has indicated that he does not intend to apply for time to file any evidence in support.

4.  In my view, I should go ahead to decide the plaintiff’s summons as it stands, taking into account any evidence that the 5^th defendant has filed and counsel’s submissions.  My decision will not take away any right on the part of the 5^th defendant to go ahead and argue its summons of 1 April 2014 in front of the summons judge, who may come to his own decision on it based on the arguments to be advanced before him.  I am not prepared to allow this last minute step taken by the 5^th defendant to sabotage the hearing and determination of this summons before me, which has been outstanding since last month.

General jurisdiction to impose Unless Order

5.  As a general remark, I consider disclosure orders as an important part of the built‑in measures to enable assets dissipated or at risk of dissipation to be accounted for, uncovered from their hiding places and preserved (CIBC Mellon Trust Company v Stolzenberg [2003] EWHC 13 (Ch)).

6.  I am satisfied both on the authority of the White Book paragraph 42/2/3 and JSC BTA Bank v Ablyazov [2010] EWHC 2219 (QB) (Christopher Clarke J) that I have jurisdiction to impose an Unless Order in an appropriate case where non‑compliance to the peremptory order of disclosure persists.

The plaintiff’s summons paragraph 1(a)

7.  The 5^th defendant does not resist a sanctioned disclosure order to be made under this paragraph, but asks for time until 28 April 2014.  I will impose a deadline until close of business 17 April 2014 for disclosure to be made pursuant to paragraph 1(a).  Having taken into account the time that has elapsed since the issue of the plaintiff’s summons, the evidence of Ou and the submissions for the 5^th defendant, I am not satisfied that there is any justification for more time to be given.

The plaintiff’s summons paragraph 1(b) and (c)

8.  Mr Hui for the 5^th defendant submits that I should not exercise my discretion in favour of granting an Unless Order where the propriety of the granting of the order is under challenge or cast in doubt. He was unable to point to any authority in support of such a proposition, but relies on this as a factor I should take into account in exercising my discretion.  On the other hand, Ms Sit for the plaintiff relies on JSC BTA Bank v Ablyazov (supra) in submitting that I should not feel inhibited:

“40. Mr. Colton further submits that before a jurisdiction challenge is heard or the application to discharge the freezing order is determined, the court is not in a position to determine whether breach of the freezing order would have such an impact on the proceedings as to render their future conduct unsatisfactory so as to justify the debarring of the respondents. Reliance is again placed on the words of Chadwick L.J. in Raja. Nor, it is said, is the court in a position to determine the merits so as to decide whether it is appropriate that an ‘unless’ order should be made.

41. As to that I do not accept that the question is solely whether non‑compliance will render further conduct of the proceedings unsatisfactory.  As Arrow Nominees and Markham Shipping indicate, the court is entitled to take into account the effect of making, or not making, the order sought on the overall fairness of the proceedings and the wider interests of justice as reflected in the overriding objective.”

9.  Mr Hui submits that as long as there exists an arguable case to set aside the Order for lack of proper basis, I should refuse to grant sanctioned relief that would render the challenge of the basis of granting the Order nugatory if the challenge turns out to be successful.  This argument is to be compared with the unsuccessful argument advanced in JSC BTA Bank v Ablyazov, supra, where it was suggested that the court’s jurisdiction to grant relief in the presence of a serious challenge to jurisdiction should be limited to cases where there are exceptional circumstances justifying it.  In declining to limit the court’s jurisdiction in this way, Christopher Clarke J had regard to the policy underlying the Mareva injunction and the mandatory disclosure order the purpose of which is to assist the efficacy of the Mareva Order in enabling the policing of it (para 22, citing GruposTorras v ShiekhFahad&Ors, CA 60 of February 2004 Steyn LJ).  In exercising its discretion, the court is entitled to take account of the wider interests of justice as reflected in the overriding objective, balancing between the prejudice to the defendant if he is required to disclose information which it is later held he should not have been required to disclose and the prejudice to the claimant if the defendant is not required to disclose information which it is later held he should have been required to disclose: see Arrow Nominees v Blackledge [2000] ECWA 200 per Chadwick LJ.

10.  Having considered all the evidence and the relevant factors, I am not convinced that the propriety of the order is likely to be successfully challenged, or there exists any good reasons not to impose a sanctioned order in these circumstances.  Further, Ou in his affirmation has not put forward any matter that leads me to believe that the 5^th defendant would suffer any prejudice that would outweigh the need for the plaintiff to secure disclosure of the information without further delay. 

11.  Just as it was in the JSA BTA Bank case, if the transactions involving the seven payments were regular and bona fide transactions, the plaintiff’s claim based on sham transactions and round robin of funds will fail, and revelation of the details of what has become of the money and as to the assets of the 5^th defendant is unlikely to be very prejudicial particularly as any information obtained will be subject to the usual implied obligation of confidentiality that a professional man such as the provisional liquidator of the plaintiff could hardly be expected to have any incentive to flout.  On the other hand if the transactions are what the plaintiff says they are, namely shams, the fact that information on what had become of the money should not have been required to be given before a proprietary claim in relation to the seven payments was specifically named as the basis of the Mareva injunction application seems to me to be of limited significance.

12.  While I do not accept that I am bound to refuse an Unless Order at this stage unless I regard as unarguable the pending challenge to the propriety of paragraphs 1(b) and (c) of the Order of Tong J, I regard it as relevant to take into account the likelihood of the challenge succeeding, as part of the exercise of balancing the risk of injustice to the respective parties.  This is the approach taken by the Christopher Clarke, J in JSA BTA Bank v Abylazov (see paragraphs 49 to 50), which I would follow.

13.  I am persuaded by Ms Sit’s submissions that the factual basis for the making of the order on the basis of a proprietary claim was present in the materials put before the ex parte judge Tong J, with the claim of constructive trust clearly alluded to against the 5^th defendant acting as the alter ego of Mr Chun, who was alleged to be acting as the puppet‑master.  This does not appear to be doubted by Recorder Pow SC when he continued the order against the 5^th defendant and the 10^th defendant but discharged the order against the 11^th defendant and the 12^th defendant after hearing arguments advanced on their behalf.  I am not prepared to take the submissions by the respective counsel for the plaintiff, the 11^th defendant and the 12^th defendant and the comments and findings made by Recorder Pow SC vis‑a‑vis the 11^th defendant and the 12^th defendant as if they were submissions and findings necessarily applicable to the case of the 5^th defendant, who chose to be absent at the return date.  I note that despite having sought legal advice on the disclosure order, the 5^th defendant was content not to pursue any application, let alone to raise issue regarding the lack of proper basis for the order with the plaintiff in the context of its failure to comply with the disclosure order, until shortly before this hearing.

14.  In exercising my discretion, I have taken into account the factual background leading to the granting of the orders by Tong J, Recorder Pow SC and Anthony Chan J, and the conduct of the defence by the 5^th defendant through its legal advisers subsequent to the making of those orders.

15.  In particular, I am conscious of the fact that the compliance for the existing disclosure orders have been outstanding for over eight months, with no apparent attempt made to comply with them, nor any legitimate excuse, nor any genuine steps to take legal advice on whether and how to comply with them.  I am driven to conclude from the evidence and the objective facts that non‑compliance was deliberate, contumelious and without due cause.

16.  Despite the able submissions of Mr Hui, and having considered all the relevant factors including any possible prejudice that the imposition of an Unless Order may cause to the 5^th defendant, and balancing all these factors, I am satisfied that I should exercise my discretion to make an Unless Order in the circumstances.  However, bearing in mind that the last letter written by the plaintiffs’ solicitors demanding compliance of the disclosure order was made in September 2013, and no further correspondence has been exchanged since on the subject, I would allow time up to close of business on 14 April 2014 for compliance, in default of which the sanction will be for the defence and counterclaim to be struck out.

Further discovery under paragraph 3 of the Summons

17.  The further discovery sought is based on further sums discovered to have been transferred to the 5^th defendant under other fictitious transactions of the same nature.  These came to light after the granting of the order ex parte by Tong J.  The 5^th defendant takes issue with the application for disclosure regarding what has become of these funds in the absence of any application for any specific order freezing the equivalent sums under paragraph 1.

18.  The stance of the plaintiff is not that it is not entitled to a Mareva injunction to restrain dealings of the further sums, but that in the light of the coverage it already has under paragraph 1, with a ceiling of $1,682,198,420, it does not find it necessary to ask for an increase in the limit of the sum in the freezing order.  I do not find that as a matter of principle, the law requires there to be a corresponding mechanical increment of the limit of the Mareva order in order to justify ancillary disclosure order in respect of additional sums found to have been under risk of dissipation, where an increment in the amount of the further sums is not regarded as further necessary protection over and above the existing limit of assets frozen.  As a matter of principle, in an application of this kind, the plaintiff is only expected to limit its request for relief to no more than what is necessary for its protection, and the court is to grant only such relief that is just and convenient.

19.  Given the legal basis of the further discovery is in substance the same as the further discovery asked for in the Mareva injunction, and are founded on the same set of facts, I am of the view that the requirements of good arguable case, balance of convenience and risk of dissipation are likewise satisfied, and it is proper to grant the order.  Given these transactions relate to matters which the 5^th defendant did not have to deal with in its defence, I am prepared to allow time up to 28 April to make the disclosure under paragraph 3 of the summons.