DINGWAY INVESTMENT LIMITED (Provisional Liquidators Appointed) v. CHINA CITY CONSTRUCTION & DEVELOPMENT CO., (HONG KONG) LTD AND OTHERS

HCA 309/2022

[2022] HKCFI 2314

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 309 OF 2022

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HCCW 30/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 30 OF 2022

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(Heard Together)

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D E C I S I O N

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1.  There are 8 Summonses before the court. They arose from 3 ex parte Injunction Orders granted in HCCW 30/2022 (“HCCW”) and HCA 309/2022 (“HCA”). These Summonses were heard together.

2.  The facts of this case are complex. Many corporate entities with similar names are involved. For ease of understanding, it is important to adopt simple monikers for them.

3.  The central dispute here concerns the transfers of the shares in a corporate vehicle and the sale of a valuable piece of land in Miami, USA, which was held by this vehicle via 3 layers of subsidiaries. I shall firstly set out the undisputed or indisputable facts (unless stated otherwise) succinctly whilst endeavouring to do justice to the complexity of the facts.

Background

4.  The Plaintiff (a BVI company) in HCA (“Dingway”) was (until 15 October 2019) the holding company, through 3 Delaware subsidiaries (“Company A to C”), of a piece of land in Miami (“Land”). Company C was the titleholder of the Land. On 15 October 2019, Dingway was itself owned by the Petitioner in HCCW (“CCCI”) (55%) and the 1^st Respondent (“Champ Prestige”) (45%). Dingway is the 2^nd Respondent in HCCW.

5.  Dingway only served as the holding company for the Land. It had no other valuable asset save for the Land, which was acquired in December 2014 at US$86.7 million. The purchase price was accounted for as a shareholder’s loan from CCCI to Dingway. CCCI was at that time the sole owner of Dingway.

6.  In about February 2016, CCCI sold 45% of the shareholding in Dingway as well as 45% of its shareholder’s loan to Champ Prestige for US$40.5 million. In 2017 and 2018, actions were brought by Champ Prestige against CCCI for alleged breach of agreement in respect of the development of the Land.

7.  Up until 22 April 2016, CCCI and the 1^st Defendant in HCA (“D1”) (the rest of the Defendants in HCA are referred to in similar manner) were both indirectly wholly-owned subsidiaries of China City Development Academy Co Ltd (“CCDA”).

8.  Beginning from 2016, CCCI was in financial difficulties. It defaulted on bonds issued by it with a face value of RMB 2.5 billion. In June 2018, a creditor’s winding up petition was presented against it.

9.  On 5 October 2018, D1 commenced HCA 2343/2018 against CCCI, asserting that CCCI had been holding the shares in Dingway on trust for it since the incorporation of Dingway (“Trust Arrangement”). Accordingly, D1 claimed that CCCI’s 55% shareholding in Dingway and the consideration received by CCCI from Champ Prestige for 45% of Dingway should be held on trust by CCCI for its benefit.

10.  In January 2019, CCCI went into voluntary liquidation, and liquidators were appointed (“Liquidators (C)”).

11.  Both Champ Prestige and CCCI (through its Liquidators) filed Defence in respectively 30 May and 11 July 2019 in HCA 2343/2018 denying the Trust Arrangement.

12.  On 18 June 2019, Champ Prestige started an action in Miami (“Miami Action”), seeking an order that CCCI be dissolved and the Land be sold, with payment of HK$148 million out of the sale proceeds to be paid first to Champ Prestige[1].

13.  On 15 October 2019, D2 (then a director of CCCI and Dingway, and a former director of D1) on behalf of Dingway transferred its entire shareholding in Company A (“Shares”) to D1 for no consideration (“Transfer (1)”). The transfer agreement was signed by D2 on behalf of Dingway and by D3 on behalf of D1.

14.  Within weeks (in November 2019), D1 transferred the Shares to a Californian company, D4, for a stated consideration of US$70 million (“Transfer (2)”). The genuineness of this Transfer or sale is under dispute.

15.  On 17 December 2019, Liquidators (C) learned about Transfer (2). This part of the evidence is disputed. The case of D1 and D3 is that one of the Liquidators, Ms Tiffany Wong of KPMG, and Mr Gilbert Ho of KPMG knew about the Transfer (in the case of Ms Wong the intention to do so) in respectively February and November 2019.

16.  On 17 December 2019, Liquidators (C) took steps to remove the 3 (out of a total of 5) directors of Dingway originally nominated by CCCI (including D1), and appointed themselves and their colleague as the CCCI-nominated directors.

17.  Upon discovery of Transfer (2), on 19 December 2019, Champ Prestige filed an Emergency Motion in the Miami Action. On 26 December 2019, Champ Prestige obtained temporary injunctive relief against D4. The injunction order was also sent to CCCI as party to the Miami Action.

18.  As part of the Miami Action, subpoenas were issued by which D4 was required to deliver up certain documents.

19.  HCA 2343/2018 (see para 9 above) was discontinued by D1 on 17 December 2019. At that time, the Shares had been transferred from Dingway.

20.  According to Liquidators (C), they only came to know of Transfer (1) on about 8 February 2020 (which is in dispute). The knowledge came from the documents disclosed by D4 in the Miami Action.

21.  With knowledge of Transfer (1), Champ Prestige took action in Hong Kong against D1 in February 2020. On 13 February 2020, it obtained an ex parte Mareva injunction from DHCJ Liu against D1 to D3 up to the value of US$54 million. The parties were unable to assist the court as to the monetary limit of that injunction.

22.  On 5 March 2020, one day before the return day for the Mareva injunction, Asia Allied Infrastructure Holdings Ltd (the former sole shareholder of Champ Prestige) announced that it had sold its entire interest in Champ Prestige to D1 for US$44 million. Thereafter, Champ Prestige ceased all its legal actions in Hong Kong and the US with respect to Transfer (1) and Transfer (2).

23.  On 2 April 2020, Champ Prestige (under D1’s control) appointed 2 new individuals to be the Champ Prestige-nominated directors of Dingway.

24.  In March 2021, Company C (the titleholder of the Land), whose name had been changed to that of D5, sold the Land to Mast Capital (a local developer) for US$103 million. The sale was completed on or around 22 December 2021 (“Sale”).

25.  Liquidators (C) found out about the Sale on 30 December 2021. A financing arrangement which enabled them to take legal action was put in place in December 2021 after prolonged negotiations.

26.  HCCW was brought by CCCI (through Liquidators (C)) on 24 January 2022 to wind up Dingway (in March 2022, Dingway was wound up by the BVI court). The complaints by CCCI in those proceedings concerned Transfer (1), Transfer (2) and the Sale. CCCI sought to have Dingway wound up on (a) insolvency ground and (b) just and equitable ground. On ground (a), based on the wrongful Transfer (1), Dingway had no means to repay the shareholder’s loan of HK$403 million owed to CCCI. The details of ground (b) are not important for the present purpose.

27.  On 25 January 2022, upon the ex parte application of CCCI in HCCW, Ng J granted an interim order (“Injunction (1)”) under the court’s Chabra jurisdiction as follows :

(1)  A worldwide proprietary injunction against D1 in respect of the sum of US$70 million (the proceeds of Transfer (2)) and the traceable substitutes thereof, topped up by a worldwide Mareva injunction up to US$103 million;

(2)  A worldwide Mareva injunction against both D2 and D3 up to US$103 million; and

(3)  The appointment of provisional liquidators to Dingway.

28.  The application for appointment of provisional liquidators was made with the intention that the injunction granted would enable such liquidators to conduct the necessary investigation for commencement of appropriate legal proceedings in the name of Dingway. HCA was the result of such investigation.

29.  After their appointment in early 2022, the provisional liquidators of Dingway (“Liquidators (D)”) (they were subsequently appointed by the BVI court as Liquidators of Dingway) issued subpoenas in the US for information and documents. These steps led them to discover that a substantial portion of the proceeds of sale of the Land (“Sale Proceeds”) were transferred from D5 to various entities which Dingway had reasons to believe were conduits or nominees of D1 (or those controlling D1). The known transfers were as follows :

(1)  On 22 December 2021, US$1,300,000 was transferred to D1 purportedly as reimbursement of its payment to American Da Tang (“ADT”) which was involved in arranging the Sale;

(2)  On 27 December 2021, US$33,213,698.63 was transferred to D8 (“D8 Receipt”);

(3)  On 30 December 2021, US$45,076,164.38 was transferred to a Bank of China account in Hong Kong held by D6 (which account was subsequently closed);

(4)  On 30 December, US$13,340,000 was transferred to a Bank of Communication account in Hong Kong held by D7;

(5)  Between 18 January 2022 and 26 January 2022, a total sum of US$200,000 was remitted to CCCC US International Corp (“CCCC US International”), a company involved in the original purchase of the Land;

(6)  On 10 February 2022, D9 received into her personal bank account in Hong Kong US$33,000,000, being almost the entire amount of the D8 Receipt;

(7)  On 11 April 2022, Mr Sunny Ea (“Ea”), who was at all material times the sole shareholder and director of D6, transferred US$27,000,000 to D8.

30.  It should be noted that there is no direct evidence linking transfer (7) with the Sale Proceeds.

31.  Upon discovery of the transfers of Sale Proceeds, on 31 March 2022 Dingway made an ex parte application against D6 and D7. Worldwide proprietary and Mareva injunctions were granted against them by Cheng J up to US$103 million (“Injunction (2)”), which was subsequently continued by this court pending the substantive determination of the continuation summons.

32.  HCA was issued on 1 April 2022. It was emphasised by D7 and D9 that in this action Dingway does not claim rescission of any of Transfer (1), Transfer (2) or the Sale. Mast Capital is not sued. Dingway’s claim is for damages and equitable compensation.

33.  Further information received by Liquidators (D) on 26 April 2022 revealed that D9 also received a substantial portion of the Sale Proceeds. On 28 April 2022, upon the ex parte application of Dingway, this court granted local proprietary injunction (for US$33 million) and top up Mareva injunction (up to US$103 million) against D9 (“Injunction (3)”). On the return date, only the Mareva injunction was continued, pending substantive determination of the continuation summons.

34.  Dingway also made applications for Norwich Pharmacal/Bankers Trust relief for disclosure of records held by Bank of China and Bank of Communications in respect of the accounts of D1, D6 and D7. By a Decision dated 6 May 2022 (“Disclosure Decision”), DHCJ Paul Lam SC refused the application. By a Summons dated 20 May 2022, Dingway had applied for leave to appeal against the Disclosure Decision.

Applications

35.  The following Summonses are before this court :

(1)  Continuation Summons for Injunction (1) filed on 25 January 2022;

(2)  Continuation Summons for Injunction (2) re-filed after amendment on 13 April 2022;

(3)  Summons filed on 19 April 2022 by D7 for striking out the Writ of Summons;

(4)  Continuation Summons for Injunction (3) filed on 29 April 2022;

(5)  Summons filed on 3 May 2022 by D9 for the discharge of Injunction (3) (“D9 Discharge Summons”);

(6)  Summons filed on 6 June 2022 by D6 to strike out the Writ of Summons against it. There is a Summons filed on 8 June 2022 to amend the strike out to include the Statement of Claim[2]; and

(7)  Summonses filed on 8 and 9 June 2022 by respectively Dingway and CCCI to “transfer” Injunction (1) to the HCA in which Dingway is the plaintiff (“Transfer Application”).

Representations

36.  CCCI and Dingway were represented by Mr Yuen SC and Ms Mak. D1 and D3 were represented by Mr W Wong SC and Ms Cheung. D2 by Mr Chiu. D6 by Mr A Wong SC, Mr Lai and Ms Li. D7 and D9 by Ms Lok.

37.  Champ Prestige (the 1^st Respondent in HCCW) did not appear, neither did the rest of the Defendants in HCA.

Dingway’s causes of action

38.  Dingway’s case can be found in its Statement of Claim filed in HCA (“SOC”). For the present purpose, Dingway’s case, focusing primarily on the Defendants who appeared at the hearing, can be summarised as follows :

(1)  In breach of his fiduciary duties to Dingway, which also constituted breach of trust, D2 caused Transfer (1) to be made;

(2)  D1, who received the Shares (trust property), and D3, who signed the transfer document on D1’s behalf, dishonestly assisted D2’s breach of duties;

(3)  D1 knowingly received the trust property transferred in breach of D2’s duties;

(4)  Transfer (2) was not a genuine sale. D4 was a nominee or corporate vehicle of D1 (or those controlling it). If D1 had received US$70 million from D4 under the Transfer, such proceeds are the traceable substitute of the Shares and recoverable by Dingway;

(5)  D1 to D3 and other Defendants combined together to wrongfully deprive Dingway of its interest in the Land and dissipate the Sale Proceeds through a series of unlawful conduct;

(6)  D4, D6, D7 and D9 were mere vehicles or proxies of D1 (or those controlling D1) for stripping away Dingway’s interest in the Land;

(7)  Against D6, D7 and D9, Dingway has:

(a)  A proprietary claim for the Share Proceeds which they had received, respectively, US$45 million, US$13.3 million and US$33 million;

(b)  A claim for dishonest assistance, based on their assistance in D4’s breach of duty as constructive trustee holding the Shares for Dingway, by dissipating the economic value of the Shares;

(c)  A claim in knowing receipt for the Sale Proceeds received;

(d)  A claim in conspiracy based on their combination with other Defendants to wrongfully deprive Dingway of its interest in the Land;

(e)  A claim in unjust enrichment based on their receipt of Sale Proceeds, which represented the value of the Shares, at the expense of Dingway.

Evidence

39.  On behalf of CCCI and Dingway, a substantial body of evidence had been assembled before the court. On the other hand, only D1/D3 and D6 had filed evidence in support of their cases.

40.  For D1/D3, evidence had been adduced in respect of the Trust Arrangement, including a Trust Agreement dated 28 November 2014 and a Declaration of Trust dated 20 January 2015. Further, they said that Transfer (1) was agreed by Liquidators (C).

41.  Without filing any evidence of his own, D2 sought to rely upon the evidence of D1/D3. Mr Yuen took exception with such reliance. This disagreement is only relevant in the event that the evidence of D1/D3 is accepted for the present purpose.

42.  In its evidence, D6 said that there was a genuine commercial reason for it to receive part of the Sale Proceeds, namely, on 6 November 2019 it entered into a written Loan Agreement with D4 by which a US$40 million loan (“Loan”) was extended to D4 to finance the purchase of the Land. The loan was advanced in 3 tranches and bank advices had been produced in support. The Sale Proceeds received by D6 was in repayment of the loan with interest at 6% p.a.

Issues

43.  It is fair to say every conceivable argument had been advanced by D1/D3, D2, D6 and D7/D9 to resist the continuation of the Injunctions. The strike out applications (of D6 and D7) are based on arguments concerning Dingway’s causes of action. The Transfer Application is resisted by D1/D3.

44.  At the beginning of the hearing, with the encouragement of the court, a list of issues was agreed by the parties as follows :

(1)  The Trust Arrangement;

(2)  Whether Liquidators (C) had agreed to Transfer (1);

(3)  Whether various Defendants were acting in concert (under this head D6 also raised the issue as to the required intention and knowledge on its part);

(4)  The Loan;

(5)  Dingway’s proprietary claim;

(6)  Scope of tracing – whether with a proprietary claim over the Shares, Dingway is entitled to trace into the Sale Proceeds (of the Land);

(7)  Whether there was/is a good arguable case for Mareva relief in light of the Trust Arrangement, Liquidators (C)’s agreement to Transfer (1) and the Loan;

(8)  Whether there was delay in the applications for injunctive relief, which may impact upon 3 sub-issues: (a) proceeding ex parte; (b) discretion of the court; and (c) risk of dissipation;

(9)  Material non-disclosure (“MND”) (the points taken were listed out in para 95 of CCCI/Dingway’s skeleton arguments and will be addressed below);

(10)  In respect of HCCW, (a) whether CCCI was the proper applicant for injunctive relief and (b) the 2^nd limb of Chabra jurisdiction;

(11)  The monetary limits of the Injunction Orders;

(12)  The Transfer Application;

(13)  Whether the causes of action against D6 and D7 are defective.

Factual issues (Issues (1)-(4) and (7))

Trust Arrangement

45.  First, the issue is only assessed under the test of good arguable case (for Mareva relief) or serious issue to be tried (proprietary relief). The court does not try any factual issue on affidavit evidence.

46.  Second, there is no independent proof of the provenance of either the Trust Agreement or the Declaration of Trust adduced by D1/D3. There is no contemporaneous document in support of the Trust Arrangement. The same can be said in respect of documents relied upon by D1/D3 (and D2) for the allegation that D1 had paid for various expenses in relation to the Land. Those documents did not record any particular payment of expenses by D1, and some of the payments were made by, on the face of the documents, unrelated entities.

47.  Hence, this issue is depended upon the acceptance by the court of the affirmation evidence of D3 upon which the Trust Arrangement is based. Aside from the fact that even the higher threshold of good arguable case is not a particularly onerous one for Dingway to meet, I am far from convinced on the evidence before the court that the Trust Arrangement is one which the court can rely upon.

48.  There is ample contemporaneous evidence which undermines the existence of a Trust Arrangement. Before I give examples of such evidence, the Trust Arrangement must be assessed against the factual backdrop that CCCI was in deep financial trouble and it appears that the Land was one of its most valuable assets. It is quite conceivable for D1 (or the people behind it) to have engineered a scheme to try to remove the Land from the reaches of CCCI’s creditors.

49.  I need only give 3 examples of the documentary evidence before the court. Firstly, CCCI’s audited Financial Statements in 2015 and 2016 showed that the Land was an asset of CCCI (both before and after April 2016 by which time CCCI and D1 ceased to be under common ownership). Mr Yuen was right to point out that D1 had failed to adduce its own audited Financial Statements to demonstrate any genuine interest in the Land, which would have been reflected in such Statements.

50.  There were Public Announcements made by Asia Allied in relation to Champ Prestige’s interest in Dingway and the project to develop the Land, to which D1 had made no complaint and took no action until 2018.

51.  The Business Review conducted by Liquidators (C) dated 11 December 2018, which was supported by a letter of factual accuracy signed by a director of CCCI, Mr Yuan Qing, gave no indication that the Trust Arrangement existed.

52.  In the premises, I do not believe that evidence of the Trust Arrangement impacts on the veracity of the Dingway’s case.

Whether Liquidators (C) had agreed to Transfer (1)

53.  This issue had been conceded by Mr W Wong at the hearing. It is therefore unnecessary to consider it. However, I have to say that the concession was rightly made because there is a wealth of evidence, including contemporaneous documents, which contradicted the suggestion of consent.

The Loan

54.  To understand D6’s case, I should first set out Dingway’s case (supported by evidence before the court and the inference to be drawn therefrom) on the interconnection between various Defendants and CCCC US International.

55.  D6, which received US$45,076,164.38 out of the Sale Proceeds on 30 December 2021, was closely connected with D1 and D8 :

(1)  D6 was the sole shareholder of D1 from 23 August 2012 to 20 July 2016, being the nominee of CCDA;

(2)  It had the same registered office address as D1;

(3)  From the Customer Advice slips dated 15 November 2019, 20 November 2019 and 4 December 2019, which were relied upon to prove the Loan, it could be seen that an aggregate payment of US$40,096,640 was made by D6 to D4. In those documents, D6’s telephone number was identical to that of D1 shown on its Customer Advice slip dated 20 January 2020;

(4)  Ea, who was at all material times the sole shareholder and director of D6, was nominated by CCDA to hold the shares of D1 on its behalf from 3 January 2006 to 22 August 2012. Whilst Ea claimed to have sold his shares in D6 to one “Mr Yang” in or around February 2022, the investigation carried out by Liquidators (D) gave them good reasons to believe that “Mr Yang” was connected with the subject matter of this dispute. Those reasons had been set out in Mr Crumpler’s 2^nd Affidavit, §§18-20;

(5)  Ea held positions in D8. Further, on 11 November 2022, he transferred US$27,000,000 to D8, and “Mr Yang” was apparently involved in such transfer;

(6)  Apart from the Loan (the veracity of which will be considered below), no good reason can be found in the evidence as to why D6 would receive a substantial part of the Sale Proceeds.

56.  D1’s connection with D4 as well as the sale of the Land can be seen from D1’s payment of US$1.3 million to ADT, which was involved in arranging the sale of the Land to Mast Capital. D1 was reimbursed by the titleholder, D5, from the Sale Proceeds. In its evidence, D1 advanced an explanation for its payment. However, for the present purpose I am of the view that Dingway had made out a good arguable case here.

57.  D7, which received US$13,340,000 out of the Sale Proceeds, was a member or manager of D4 (together with D9 and Mr Sen Wang (“Wang”)) in around October 2021.

58.  D8, which received US$33,213,698.63 out of the Sale Proceeds, was connected with D1 (through Ea, as explained above), D4 (with which it shared the same business address), as well as with D2, D3 and D9 (who held positions in it).

59.  CCCC US International, which received US$200,000 out of the Sale Proceeds was connected with D4 and D8 (with which it shared the same business address) and with D2 and D9 (who held positions in it).

60.  D9, which played a role in the sale of the Land, eg, by signing the Sale and Purchase Agreement and executing Deeds of Warranty, had received US$33,000,000 in her personal account on 10 February 2022. It is highly likely that the funds came from the D8 Receipt. D9 was indirectly connected with D1:

(1)  She was the authorised person and Manager/President of D8 in 2020, 2021 and 2022 as well as its registered agent in 2022. On the other hand, D2 was the authorised person and registered agent of D8 in 2018; D3 was the authorised person of D8 in 2019 and its registered agent in 2020 and 2021. D2 was formerly a director of D1 (from October 2017 to September 2018), and D3 was at all material times been a director of D1;

(2)  D9 was the manager of D4 in around October 2021 and the “sole Manager” of D5 as at 7 December 2021;

(3)  D9 was previously a real estate agent. She was employed by Centaline Property Agency Ltd in around October 2015. On the evidence (none had been filed by her), her receipt of a huge sum of US$33,000,000 is difficult to explain unless she was acting as a nominee.

61.  Turing to D6’s evidence on the Loan :

(1)  Prior to 21 July 2016, D6 and Ea were holding the shares in D1 as nominees of CCDA;

(2)  Thereafter, Ea departed from the China City Group, and D6 was no longer linked with D1. However, Ea remained trusted by his former colleagues;

(3)  In early 2019, Ea promised D3 that he could help to facilitate the sale of the Land. He paid a visit to the Land together with Wang of D4 (see para 57 above);

(4)  In about October 2019, Wang told Ea that he was interested in acquiring the Land, but he would need time to raise finance. Ea proposed to Wang that D6 might extend a loan to D4 with interest at 6% p.a. A loan agreement was subsequently entered between D4 and D6 on 6 November 2019 for a principal sum of US$40 million with interest of 6% p.a. and repayable in 30 months;

(5)  On 30 December 2021, D6 received from D5 the sum of US$45,076,164.38 being the repayment of the principal and interest due under the Loan.

62.  Apart from the connections between various Defendants which should be borne in mind, the analysis of the Loan should begin with the circumstances of Transfer (2). Dingway says that those circumstances are highly suspicious :

(1)  Wang, who signed the transfer documents for Transfer (2), stated in his US deposition that the acquisition of the Land by D4 was substantially funded by a Chinese individual (referred to as “Mr X”) whose identity he refused to reveal on the ground of confidentiality. Mr X also funded D4’s payment of real estate taxes. At all material times prior to October 2019, the bank account of D4 only had a couple hundred dollars;

(2)  It appears from Wang’s deposition that D4 was a corporate vehicle wholly owned by him (and he was its manager) until October or November 2019. At that time, Wang was looking for a funder. The inference is that Mr X became Wang’s partner in D4. That coincided with the timing of Transfer (2);

(3)  Wang described how he purchased the Land at US$70 million. In short, he received a call from a “contact” (who was Chinese but he refused to disclose his identity) in mid-October 2019 out of the blue enquiring about his interest to purchase the Land. The “contact” then put the vendor (D1)’s lawyer in touch with Wang. Wang had never bought any property in Miami before in 2019;

(4)  Wang purchased the Shares with barely any due diligence. With his experience as an estate agent, Wang was familiar with due diligence for land transaction. He said that he relied on his Californian lawyer to carry out any due diligence. He did not instruct any Miamian lawyer for the transaction. No formal valuation was obtained for the Land. There was no negotiation over the sale price. No litigation search was conducted in respect of the Land. As a result, Wang was not aware of any pending lawsuits affecting the Land (the Miami Action was underway at the time).

63.  Dingway says that the irresistible inference from the above circumstances is that the sale by D1 to D4 was not a bona fide or genuine transaction, and that D4 was merely put up as a purported purchaser to fend off any claim to recover the interest in the Land. After selling the Land, the Sale Proceeds were then routed back to entities connected with D1, including D6 to D9 and CCCC US International.

64.  I next examine the documents heavily relied upon by D6 on the Loan. The 3 Customer Advice slips which evidenced the transfer of funds from D6 to D4 (see para 55(3) above) did not show where D6’s funds came from. That could easily be proved by bank documents, and there is no explanation why such proof was not forthcoming.

65.  The Loan Agreement between D6 and D4 dated 6 November 2019 was a surprisingly simple 1-page document bearing in mind the size of the Loan. The English name of D6, which appears to have come from a chop, was incorrectly stated with word “Co.,” missing.

66.  Under Clause 5 of the Agreement, the funds should reach D4’s bank account by 26 November 2019. In fact, the 3^rd tranche of the funds was paid on 4 December 2019. The Agreement was silent on when interest should be payable.

67.  Although Clause 4 provided that D4 agreed to pledge the Land in favour of D6 as security for the Loan, public records showed that it was on 14 December 2021 (2 years after the Agreement) that D4 charged its 100% interest in D5 in favour of D6. No explanation had been offered for this delay.

68.  It is not clear why a total sum in excess of US$40 million was transferred to D4 under the Agreement. Moreover, it was an odd sum.

69.  Further, the Sale Proceeds received by D6 did not telly with the sum due for repayment of the Loan (principal plus interest) under the terms of the Agreement. According to the calculation proffered by Mr A Wong, the repayment was calculated with a principal sum of US$40 million and interest thereon running from 15 November 2019. That calculation did not sit with the fact that the sum lent exceeded US$40 million by US$96,640 and on 15 November 2019 only the 1^st tranche of the loan (US$26.5 million) was transferred to D4.

70.  In short, I find the evidence concerning the Loan lacking. The circumstances of it are shrouded in mystery. The Loan Agreement was at best amateurish, and quite inconsistent with a transaction of US$40 million. The absence of security over the Loan until 2 years later seriously undermines its genuineness. These deficiencies must be viewed in light of the equally mysterious circumstances of Transfer (2) (see para 62 above) and the connection between the parties.

71.  For the present purpose, I have little hesitation in rejecting the evidence of D1/D3 and D6 on Issues (1), (2) and (4).

Acting in concert

72.  This Issue concerns Dingway’s causes of action set out in para 38(5), (6) and (7)(d) above.

73.  In light of the foregoing analysis on the factual evidence, there is clearly a good arguable case that Transfer (2) was not a genuine sale but a device to keep the Shares from the reach of Dingway.

74.  Bearing in mind in particular the evidence of connection between various Defendants and the dissipation of the Sale Proceeds, there is clearly also a good arguable case that D1 to D3, D6, D7 and D9 were acting in concert to deprive Dingway of the Shares and its indirect interest in the Land, Dingway’s only valuable asset.

75.  I shall deal with the more technical arguments concerning Dingway’s pleaded causes of action when I deal with the strike out applications below.

Issue (7)

76.  Issue (7) is covered by the above analysis. The rejection of the Trust Arrangement, Liquidators (C)’s consent to Transfer (1) and the Loan means that these allegations have no impact on whether Dingway has a good arguable case on the facts. I am of the view that Dingway clearly has such a case.

Proprietary Claim (Issues (5) and (6))

77.  All the Defendants who appeared at the hearing took issue with Dingway’s proprietary claim to the Sale Proceeds, which was the basis for the proprietary relief in all 3 Injunctions.

78.  The Defendants say that the Land was never Dingway’s property. It was the property of a sub-sub-subsidiary, D5, and Dingway never had any proprietary right in the Land from which the Sale Proceeds were derived.

79.  Dingway’s case on proprietary claim is, according to Mr Yuen, as follows. For proper understanding of its tracing claim, a proprietary base in the original asset should first be identified. Then, the new assets which value is causally and transactionally linked to the value inherent in the original asset would have to be identified :

(1)  In this case, the original asset was the Shares. It is undisputed that Dingway had a proprietary claim in respect of the same. This formed the proprietary base entitling it to trace into the value inherent in the asset;

(2)  When the Shares were transferred to D1, the value inherent in it was traceable to and represented by the value of the Shares held by D1, which was in turn assessed by reference to the value of the Land;

(3)  When the Shares were purportedly sold to D4, the value of the Shares was again assessed by reference to the value of the Land;

(4)  Following the Sale, the value of the Shares was reflected in the value of the Sale Proceeds;

(5)  Tracing was the process by which Dingway identified each of the “substitutes” that was regarded as representing its property. Dingway was required to have title to the original asset, the Shares, from which it traced into the value inherent in such asset. It is incorrect to ask whether Dingway had any property right in the new asset (or substitutes);

(6)  The correct analysis is that equity imposed a constructive trust on recipients of property which represented the value of Dingway’s original proprietary interest in the Shares.

80.  In answer to the Defendants’ submission that the Sale Proceeds were not substitutes of the Shares because the Shares remained (and remain) with D4 since Transfer (2) and were never substituted by any new asset, Dingway said that there was no need to show a physical transfer of the original asset, because the substitution could be a substitution in value and not a physical substitution.

81.  Mr Yuen relies on the example in Lewin on Trusts, 20^th edn, [44-098(2)], where the claimant held one issued share (“Original Share”) and 99 shares were subsequently issued which diluted the value of the Original Share, the claimant was able to trace into the new shares which represented the value in the Original Share prior to dilution notwithstanding that the claimant continued to hold the Original Share and it had never been substituted by any other physical asset.

82.  In relation to the Defendants’ submission that “tracing is available when the claimant’s property is substituted by a new asset, thereby value transferred”, Mr Yuen submitted that the law does not require a physical substitution in the sense of the original asset having “gone away”. This was the crux of Lord Millett’s discussion in Foskett v McKeown [2001] 1 AC102 at 128A-C, which highlighted that there was no money passing from bank to bank in a wire transfer. As such, tracing was concerned with identifying the new asset which was acquired from the value inherent in the original asset.

83.  There is a related argument. The Defendants say that Dingway has no claim for the value inherent in the Shares because it was barred by the rule against reflective loss.

84.  To resolve these arguments, I start with the law on tracing. There are 2 fundamental propositions which must be borne in mind. Firstly, tracing is neither a claim nor a remedy. “It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.” (see Foskett, supra, 128D).

85.  Secondly, and it is inherent in the 1^st proposition, the tracing process has no relevance unless the claimant has a proprietary right in the original asset. In other words, the tracing process cannot be used to turn a property which did not belong to the claimant into one of his.

86.  The same arguments on tracing were ventilated before DHCJ Paul Lam SC (see para 34 above). By the Disclosure Decision, Dingway’s arguments were rejected by the court. Foskett was explained in the Decision. I accept that the Decision does not bind this court. On the other hand, I respectfully share the same view as that of the learned Judge. His reasons were summarised on para 18 of the Decision :

“It is clear that tracing is premised on the existence of some proprietary interest in the original property in question on the part of the claimant. He may only claim the same interest in the substituted property. It follows that if he did not have any proprietary interest in the original property, he cannot possibly claim any proprietary interest in the substituted property. Returning to the facts of this case, as P had no proprietary interest whatsoever in the Land, it cannot claim any proprietary interest in the sale proceeds of the Land (or what have become of those proceeds). For these reasons, properly understood, Lord Millet's said judgment in Foskett v McKeown does not support P's case.”

87.  Of course, Dingway had proprietary interest in the Shares and there is no dispute that it was (and is) entitled to trace such interest/asset into the US$70 million received by D1 from D4 under Transfer (1) if it was a genuine sale.

88.  With respect, there is a fundamental conflation in Dingway’s arguments. It cannot rely on tracing principles, such as “where one asset is exchanged for another, the claimant may elect to treat the substituted asset as representing the value contained in the original asset” (Snell’s Equity, 34^th edn, [30-051]), as giving rise to proprietary interest in the original asset. Without proprietary interest in the Land, there was (and is) no basis for any tracing process.

89.  For completeness, I do not believe that the “2^nd Basis” and “3^rd Basis” for proprietary claim set out in Dingway’s skeleton arguments, §53-54, assist Dingway when it had no right over the Land. I agree with the analysis in Ms Lok’s skeleton arguments, §§35-38, on the authorities relied upon by Dingway for the “2^nd and 3^rd Bases”.

90.  For these reasons, I do not believe that Dinpgway has a viable proprietary claim on the Sale Proceeds.

91.  In the circumstances, the reflective loss arguments are not relevant. However, out of deference to the submissions advanced by counsel, I shall deal with the no reflective loss principles succinctly.

92.  Relying on Nectrus Ltd v UCP Plc [2021] EWCA Civ 57, at §§44-55, Mr Yuen submitted that the principle of reflective loss was not engaged in the circumstances of this case. Dingway had lost its legal title to the Shares as a result of the Transfers, and was (and is) no longer a shareholder (whether directly or indirectly) of D5 or Company A. In Nectrus, it was held that the rule against reflective loss is inapplicable to claims by ex-shareholders.

93.  Nectrus is an important authority which analysed the latest Supreme Court decision on the rule against reflective loss: Marex Financial Ltd v Sevilleja [2020] 3 WLR 255.

94.  In Nectrus, the claimant sued for the loss it suffered in the reduction of sale price for the 100% shareholding in a company (“Company X”) which it owned. Such loss was caused by the negligence advice of the defendant rendered to Company X in breach of a tripartite contract between the claimant, Company X and the defendant. The defendant argued that the losses claimed were irrecoverable because they were reflective loss suffered by Company X. It was said that after the sale of Company X at discount price, Company X could nonetheless have sued the defendant under contract for the same amounts as the claimant was seeking to recover from it. I shall endeavour to set out the guidance which may be derived from Nectrus (see §§8-12 and 41-55) as follows :

(1)  The no reflective loss principle does not apply to a claim made by a party who was an ex-shareholder in the company at the time of claim;

(2)  The claim by the claimant as ex-shareholder was a separate and distinct claim from that of Company X;

(3)  In Marex, Lord Reed (with whom Lady Black and Lord Lloyd-Jones agreed) held that the rule against reflective loss was limited to cases of shareholders within the original rule as formulated by the Court of Appeal in Prudential Assurance Co Ltd v Newman Industries (No 2) [1982] Ch 204;

(4)  Prudential established a “highly specific exception to the general rule” – a shareholder cannot bring a claim in respect of a diminution in the value of his shareholding, or a reduction in the distributions which he receives by virtue of his shareholding, which is merely the result of a loss suffered by the company in consequence of a wrong done to it by the defendant, even if the defendant’s conduct also involved the commission of a wrong against the shareholder, and even if no proceedings have been brought by the company;

(5)  Prudential established a rule of company law, applying specifically to companies and their shareholders in the particular circumstances described, and having no wider ambit;

(6)  Lord Hodge, who delivered a concurring judgment, further explained that where a company suffers a loss as a result of wrongdoing and that loss is reflected to some extent in a fall in the value of its shares or in its distributions, the shareholder’s economic loss is not a loss which the law recognises as being separate and distinct from the loss sustained by the company;

(7)  The minority judgment of Lord Sales (with whom Lady Hale and Lord Kitchin agreed) concurred with the result of the appeal but would have effectively abolished the reflective loss principle in so far as it applied to shareholder claimants;

(8)  For the application of the reflective loss principle, it is important to understand the nature of the claim in question. In Nectrus, upon completion of the share sale at a discount, the claimant’s loss crystallised. The claimant was able to bring a free-standing claim for breach of contract against the defendant for the loss it suffered not in the capacity of a shareholder but through ceasing to be a shareholder;

(9)  As a matter of principle, the applicability of the rule against reflective loss should be assessed when the claim is made, at a time when the loss claimed has crystallised;

(10)  The rationale of the rule is based on the shareholder’s right of participation in the company. There is a unity of economic interest of the shareholder and the company. The shareholder’s loss is not recognised in law as having an existence distinct from the company’s loss, and a claim by the shareholder is barred by the principle of company law known as the rule in Foss v Harbottle (1843) 2 Hare 461: the only person who can seek relief for an injury done to a company, where the company has a cause of action, is the company itself;

(11)  Avoidance of double recovery is not in itself a satisfactory explanation of the rule in Prudential. In respect of the risk of double recovery, the court can and always will avoid putting a defendant in double jeopardy with the use of procedural tools at its disposal.

95.  I agree with Mr Yuen’s submission on reflective loss.

Strike out (Issue 13)

D6

96.  D6 contends that Dingway has no reasonable cause of action for any proprietary claim (whether based on constructive trust, knowing receipt and/or unjust enrichment) against it. Further, Dingway also has no reasonable cause of action for unlawful means conspiracy and/or dishonest assistance.

97.  In respect of the complaints arising from Dingway’s proprietary claim over the Sale Proceeds, I have held that such claim is not viable. Accordingly, any tainted pleas should be struck out.

98.  As regards unlawful means conspiracy and dishonest assistance, in summary the complaint is that Dingway has failed to plead and provide sufficient particulars to support a case that D6, being a corporate defendant, had the requisite state of mind and knowledge of the agreement and the intention to injure (for unlawful means conspiracy) or had the dishonest state of mind (for dishonest assistance).

99.  It is necessary for a party who asserts a conspiracy claim against a corporate defendant to plead his case as to whose state of mind and knowledge should be attributed to that corporate defendant. Such attribution of knowledge must be specifically pleaded: Kwong Yi Ling v Lau Kwun Leung [2021] HKCFI 2303, §28(1), per Linda Chan J.

100.  In the Statement of Claim, apart from identifying Ea as the sole director and shareholder of D6, Dingway had failed to plead anything about Ea’s knowledge or state of mind. Further, there is no plea that Ea had any knowledge of the breaches of duties on the part of D2, D1 and D4 which is the foundation of Dingway’s claims.

101.  In light of the court’s acceptance that Dingway has a good arguable case on the facts, I propose to deal with this strike out application (and the one made by D7) succinctly. Firstly, there are merits in the complaints over the deficiencies in the pleading requirements for both unlawful means conspiracy and dishonest assistance.

102.  On the other hand, it is abundantly clear that Dingway’s case is based on circumstantial evidence and inferences, eg, the receipt by D6 of a very substantial portion of the Sale Proceeds can speak volumes.

103.  The following dicta was cited with approval in Ubiquiti Networks International Ltd v Chan Kim Chuen, unrep, HCA 1606/2016, 26 May 201, §81, per B Chu J: “… fraud and/or conspiracy by their very nature are clandestine and difficult to uncover, so quite often proof is not readily obtained. Hence, the averments of fraud and/or conspiracy cannot be too precise. In an application to strike out a fraud and/or conspiracy claim, the court will look upon such application with care to the above considerations, but at the same time will bear in mind that loose allegations that are not properly particularised will be oppressive as regards the defendants when the action goes to trial. The broad question for the court is whether from the facts as pleaded it can be argued that [the defendants] sufficiently know [the plaintiff]’s case on the conspiratorial combination(s) or agreement(s) that they have to meet.”

104.  Further, the principles on strike out are well-established: see Hong Kong Civil Procedure 2022, Vol 1, [18/19/4]. The court will only strike out a pleading when the applicant has shown that it is plain and obvious that the other party’s claim is bound to fail. Where the complaint is about lack of particulars, the proper procedure is to apply for particulars and not an order for strike out: HKCP 2022, Vol 1, [18/19/5].

105.  In light of the above principles, I do not believe that this is a plain and obvious case for striking out Dingway’s pleading against D6 on conspiracy or dishonest assistance. The trial of HCA is not going to take place in the near future. The identified deficiencies certainly justify a Request for Further and Better Particulars of the Statement of Claim.

D7

106.  Firstly, like the case against D6, Dingway’s causes of action based on a proprietary claim over the Sale Proceeds received by D7 should be struck out given the absence of a viable proprietary claim over the Sale Proceeds.

107.  D7’s complaints here are similar to those of D6 based on the failure to meet various pleading requirements, eg, for dishonest assistance, there is no adequate plea on who was the principal fiduciary, when and how did he breach what fiduciary duties owed to Dingway and how was this principal fiduciary assisted by D7 in that breach.

108.  The above analysis concerning D6’s complaints can be applied here also. On the evidence, there is clearly a good arguable case that D1 (or the persons in control of it) had executed a plot to strip the Land (an indirectly held asset) from Dingway and thus CCCI’s creditors. The receipt of US$13.34 million by D7 from the Sale Proceeds can be a powerful indication that it was a party to and/or had assisted in the plot, unless there is evidence that the money was received for a legitimate purpose (there is none).

109.  There are certainly areas of fragility in the Statement of Claim in terms of meeting the strict requirements of various pleas based on fraud. On the other hand, the absence of a precise plea is inherent in a case built on circumstantial evidence and inferences.

110.  I do not believe that this is a plain and obvious case of strike out but a Request for Further and Better Particulars of the Statement of Claim is justified.

Chabra jurisdiction (Issue 10)

111.  This issue concerns Injunction (1). Hence, it was raised by D1/3 whose submissions were adopted by D2.

112.  The substantive claim which CCCI relied on in HCCW was its shareholder’s loan to Dingway (“CCCI Loan”). There is no dispute that any direct claim by CCCI (as shareholder of Dingway) against D1-3 in respect of Transfer (1) would be barred by the rule against reflective loss, as the proper plaintiff should be Dingway. Further, CCCI did not seek to procure Dingway to take action in its capacity as 55% shareholder of Dingway and through its control of the majority on Dingway’s board of directors, or pursue a derivative action in the BVI. Instead, CCCI applied to appoint provisional liquidators (“PL”) to Dingway, and to obtain injunctions by invoking the court’s Chabra jurisdiction.

113.  Under the Chabra jurisdiction, the court may grant freezing orders against third parties not only where the third party is holding or in control of assets beneficially owned by the defendant (1^st limb), but also where some process, ultimately enforceable by the court, is or may be available to the claimant as a consequence of a judgment against that defendant, pursuant to which the third party may be obliged to contribute to the funds or property of the defendant to help satisfy the claimant’s judgment against the defendant (2^nd limb): see XY, LLC v Jesse Zhu [2017] 5 HKC 479, CA, §25.

114.  The “process” under the 2^nd limb includes the appointment of liquidator, trustee in bankruptcy and receiver. Accordingly, the court has jurisdiction to grant freezing orders against third parties pending the appointment of a liquidator of the company.

115.  The application for Injunction (1) was based on the factual case that CCCI was the claimant against Dingway as the defendant, and D1-3 were the third parties. If CCCI obtained judgment against Dingway on its claim, D1-3 might be obliged to contribute to the funds or property of Dingway through the appointment of PL in respect of Dingway. Accordingly, the court had jurisdiction to grant freezing orders against them under the 2^nd limb of Chabra.

116.  D1-3 argued that the Chabra jurisdiction is confined to Mareva or in personam relief and not proprietary. Even if Dingway had a proprietary claim against D1 (the proprietary component of Injunction (1) only concerned D1), this only meant that CCCI might apply for an in personam Mareva injunction. Mr W Wong relies on the following authorities :

(1)  Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, §55, p 405 (which was cited by the Court of Appeal in XY, §25):

“… The availability of a proprietary remedy [as between the defendant and third party] may, in our opinion, in some cases be sufficient to a constitute a substantive right in aid of which Mareva relief in personam might go”

[emphasis added]

(2)  Gee on Commercial Injunctions, 7^th edn, [3-006], pp 113-114:

“The court has jurisdiction to grant Mareva relief pending presentation of a winding-up petition or bankruptcy proceedings. …”

[emphasis added]

(3)  In China Medical Technologies Inc (in liquidation) v Wu Xiaodong [2019] HKCFI 1488 (the Decision was upheld on appeal [2022] HKCA 41), the plaintiff disowned a direct proprietary claim and relied on the Chabra jurisdiction as justifying an injunction against a third-party, Chui (Decision, §32).

The plaintiff argued that there was no need to show a real risk of dissipation of assets by Chui if there was good reason to suppose that the assets in her name were in truth the assets of the defendant, held by Chui as nominee or trustee of the defendant as the ultimate beneficial owner. Hence, the defendant had a proprietary claim to those assets.

The court held that under the Chabra jurisdiction, real risk of dissipation of the assets on the part of Chui must be shown (Decision, §§35-43).

117.  In respect of China Medical Technologies, Mr W Wong’s submission was that the requirement to show risk of dissipation demonstrated that the Chabra injunction granted was one in personam because a proprietary injunction had no such requirement.

118.  Mr W Wong further emphasised that since CCCI’s claim against Dingway, ie, the CCCI Loan was itself a personal claim only. The Chabra relief could not give CCCI more right than it had against Dingway pursuant to its claim.

119.  In answer, Mr Yuen submitted, firstly, that the legal basis for Injunction (1) was firmly grounded on Revenue and Customs Commissioners v Egleton [2007] Bus LR 44, §§26, 29, 41-43. That authority is not disputed by D1-D3, save for highlighting the cautionary observation of the Court that the jurisdiction under the 2^nd Chabra limb is “potentially of extremely wide application” (§29).

120.  Secondly, the facts of the present case were exceptional. It was virtually impossible or impracticable for a provisional liquidator of Dingway to act in time to obtain an effective injunction. There was a real risk that, by the time that CCCI took control of Dingway and would be in a position to sue D1-3, the assets of those Defendants might have long been dissipated.

121.  Thirdly, there is no hard and fast rule of law that an applicant can never obtain a proprietary injunction under the Chabra jurisdiction. The test for the exercise of the jurisdiction is whether there is good reason to suppose that the assets of the third party would be amenable to execution of a judgment obtained against the defendant: XY, §24. If there is a proprietary claim against the third party available to the defendant, it may, in an appropriate case, be “just and convenient” that a proprietary injunction be granted against the third party in favour of the plaintiff, such that the assets of the third party can be applied to effectively satisfy the plaintiff’s interests.

122.  Finally, the observation that there was a need to show a real risk of dissipation in China Medical Technologies was made in the context of an application for a Mareva injunction under the Chabra jurisdiction. Nothing was said with respect to the position where the plaintiff seeks a proprietary injunction.

123.  I am inclined to the view that under the Chabra jurisdiction, the court should only grant a Mareva as opposed to a proprietary relief even where the defendant has a proprietary claim against the third party for the following reasons :

(1)  There appears to be no direct authority on the point;

(2)  However, the discussions in the authorities on the ambit of the Chabra jurisdiction clearly covered a propriety claim by the defendant against the third party. The 1^st limb embraces cases where the third party holds assets of the defendant. The jurisdiction under the 2^nd limb may be exercised where the third party may be obliged to disgorge property belonging to the defendant after the appointment of, eg, a liquidator: see XY, §25;

(3)  Although it may be argued that the precise point now before this court was not argued in the authorities, it cannot be said that there is no indirect support for the argument of D1-3;

(4)  The difference between a Mareva relief and a proprietary injunction is that in the case of the latter (a) there is a lower application threshold, eg, demonstrating a serious issue to be tried as opposed to a good arguable case; and (b) the absence of some of the mitigating provisions in favour of the affected party, eg, the payment of legal expenses with the frozen assets;

(5)  Given the extraordinary nature of the Chabra jurisdiction, the court should act with all appropriate caution and not extend it beyond what is essential for the safeguard of the claimant’s interest. I see no reason why a Mareva relief would not normally be sufficient for the protection of a claimant;

(6)  Fundamentally, the claimant has no cause of action against the third party. There is a conceptual difficulty in granting the claimant a relief which he would not be entitled against the defendant. Put another way, it is difficult to see why it is just and convenient to grant the claimant a relief against the third party which he would not be entitled against the defendant.

124.  The arguments concerning CCCI’s locus to apply for Chabra relief (Issue 10(a)) were based on the proposition that its shareholding in Dingway and its shareholder’s loan were held on trust for D1. With the rejection of the Trust Arrangement, these arguments fall away.

Delay (Issue 8)

125.  D1-3 complain about the delay by CCCI in obtaining Injunction (1) and say that the application should never have been made ex parte.

126.  D1-3 submitted that based on the documentary evidence, by December 2019, CCCI knew of Transfer (2) and had written to D1 to complain about the same. By January 2020, CCCI’s had been actively taking steps to obtain evidence about Transfer (1) and/or Transfer (2). Even on CCCI’s case, both Transfers had been discovered by February 2020.

127.  The important events can be seen from paras 15 to 28 above. It should be pointed out that for the present purpose, I accept that Liquidators (C) only found out about Transfer (2) on 17 December 2019. With the rejection of Issue (2) in favour of Liquidators (C), I also accept that they came to know about Transfer (1) on about 8 February 2020.

128.  The evidence clearly showed that Liquidators (C) did not accept either one of the Transfers as legitimate. Indeed, Champ Prestige was taking legal actions in respect of them until it was bought out by D1.

129.  The evidence of CCCI/Dingway is that due to the lack of funding, CCCI was at the time unable to pursue legal action against the wrongdoers to recover its indirect interest in the Land (or monetary compensation due to the loss of such interest). Further, there were issues with the renegotiation over the funding arrangement. Such difficulties should be understood against the backdrop that Champ Prestige was cooperating with CCCI at the time, and that the COVID-19 pandemic had severely impacted upon commercial activities worldwide. The conclusion of a renegotiated funding arrangement for CCCI was only put in place in December 2021.

130.  On the evidence before the court, I accept Mr Yuen’s submission that the Sale (completed in December 2021 and discovered by Liquidators (C) on 30 December 2021) gave rise to increased urgency for injunctive relief, and reinforced the need for the application to be heard on an ex parte basis.

131.  It is incorrect to suggest that the Sale did not add anything to what Liquidators (C) knew so far as D1-3 were concerned. The documents effecting the Sale showed that D4 and D1 were connected and that D4 might not have been a genuine purchaser of the Land. Thus, the discoveries relating to the Sale exposed a greater part of the “Wrongful Scheme” (alleged by CCCI/Dingway), which necessitated steps to be taken to recover Dingway’s only valuable asset that had been stripped from it. These discoveries also revealed the important fact that the Land had been turned into cash, which were liquid assets that could be easily dissipated or removed.

132.  I was referred by Mr W Wong to C v D1 and D2 [2021] HKCFI 228, per Linda Chan J, §§28-29 and this court’s Decision in Canton Plus Enterprise Ltd v Tong Zhenjun [2021] HKCFI 124, §§9, 12 and 15 on lack of urgency and need for secrecy.

133.  The facts of the present case were (and are) rather different to those cases. The lack of funding clearly inhibited the action open to Liquidators (C). They are not to be blamed for not acting earlier.

134.  In my view, the discovery of the Sale called strongly for action to be taken and Liquidators (C) did. I am unable to agree with Mr W Wong that the existence of injunctive relief previously obtained by Champ Prestige militated against an ex parte application because there was no secrecy to be preserved. I agree with Mr Yuen that the Sale would not have been possible until Camp Prestige’s legal actions had been resolved, which took place after 5 March 2020 (see para 22 above).

135.  Further, it appears that Transfer (2) was put in place to ward off any claim to the Shares or the interest in the Land. The Sale took place about 1 year after Champ Prestige’s actions were resolved. The alleged conspirators might well be in a state of complacency and might not have anticipated an action by Liquidators (C) who had been making complaints for some time without action.

136.  For these reasons, I disagree with the complaint on delay and that Injunction (1) should not have been applied by way of an ex parte application.

Risk of Dissipation

137.  This is an issue taken by all the Defendants who appeared at the hearing. The cases of Convoy Collateral Ltd v Cho Kwai Chee [2020] HKCA 537, §§35-54 and this court’s Decision in Crete Maritime Corp v Emirates Shipping Line DMCEST [2017] 5 HKLRD 345, §§21-24 were referred to.

138.  In light of the acceptance by this court of CCCI/Dingway’s factual case, I am unable to see any real fragility in their case on this issue. It bears emphasis that the Defendants were parties to an unlawful scheme to deprive Dingway of its indirect interest in the Land. In my view, it was likely to have been triggered by CCCI’s financial problems and the desire to keep Land from CCCI’s creditors and retain it for the people or entities behind D1.

139.  I also reject the Defendants’ arguments on this issue.

Discretion/balance of convenience

140.  This issue is only taken by D1-3 based on their arguments on Chabra jurisdiction and delay. The court was referred to its Decision in Dorshare Ltd v Shun Pong Ltd, unrep, HCA 1823/2012, 4 January 2013, §§13-16 on the effect of delay.

141.  These arguments have been sufficiently dealt with above. I am unable to agree with D1-3 on this issue.

MND

142.  All the appearing Defendants take issue with alleged MND in obtaining the Injunctions. In my view, the only complaint of substance concerns Dingway’s alleged proprietary claim.

143.  As regards the complaints based on the Trust Arrangement, Liquidators (C)’s agreement to Transfer (1), the Loan and delay, the issues have been dealt with above and I reject those complaints (see para 95(1), (2), (5) and (6) of CCCI/Dingway’s skeleton arguments).

144.  In the context of this case, D3’s ownership of a small landed property in Hong Kong (in respect of which Liquidators (C) had no knowledge) had little significance, and the complaint is also rejected (para 95(4)).

145.  In respect of Injunction (1), D1-3 say that CCCI ought to have informed the court that the injunctive relief it sought against them under the Chabra jurisdiction could only have been in the nature of personal (not proprietary) claims, with a ceiling in the amount of Dingway’s liability to CCCI.

146.  Although this court has rejected Dingway’s case on proprietary claim over the Land or the Sale Proceeds, Dingway clearly had a proprietary claim on the stated consideration of US$70 million purportedly received by D1 under Transfer (2) (the sale proceeds of the Shares).

147.  On the other hand, for the reasons stated above, under the Chabra jurisdiction the court should only grant a Mareva injunction. However, there was no direct authority on the point (see para 123(1) above) and the view reached by this court was based on analysis carried out with the benefit of searching arguments presented by both side. I see no ground to hold that there was MND on this issue. Nevertheless, the proprietary element of Injunction (1) should be discharged (see also para 158 below).

148.  Apart from being a creditor of Dingway, CCCI was (and is) also a 55% shareholder of Dingway and additional dividends might be paid to it in such capacity. Winding up is a class remedy for the benefit of the creditors as a whole. I agree with Mr Yuen that there was in principle nothing wrong for CCCI to seek a Chabra injunction in the context of a winding up petition for an amount exceeding the CCCI Loan.

149.  I turn to the MND in respect of Dingway’s alleged proprietary claim over the Sale Proceeds. It affected both Injunction (2) and Injunction (3).

150.  The principles on MND are trite, amongst which it was held in East Asia Satellite Television (Holdings) Ltd v New Cotai LLC [2011] 3 HKLRD 734, CA, §82 that the duty of disclosure in an ex parte application extends to significant legal and procedural aspects of the case. The court had also been reminded of the principles set out in Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642, CA, §56 on the discretion to re-grant injunctions.

151.  In my view, there was a failure by Dingway to fully inform or explain to the court in its ex parte applications on why it had a proprietary claim over the Sale Proceeds. Given the highly complex nature of the case, it was essential for Dingway to explain the basis of that claim. It should have been made clear to the court why, notwithstanding the lack of any interest over the Land, Dingway nevertheless had a proprietary claim to the Sale Proceeds. Had it been done, the court might have considered whether Dingway’s heavy reliance on tracing principles was misplaced (see para 88 above).

152.  It follows that the complaint of MND in this regard is made out. However, I believe that the non-disclosure was innocent based on a misguided application of the legal principles. Nevertheless, in light of the fundamental nature of the MND, the proprietary part of Injunction (2) should be discharged (for the reasons stated above, there is in any event no basis for Dingway’s proprietary claim). That part of Injunction (3) was not continued at the inter parte hearing in light of the Disclosure Decision.

153.  I see no reason to discharge any of the Mareva component in any of the 3 Injunctions.

Transfer Application (Issue (12))

154.  I agree with Mr Yuen that the Transfer application should not have come as a surprise to D1-3. The legal basis and the short-term nature of Injunction (1) had been explained from inception. CCCI had made clear its intention for proceedings to be commenced in the name of Dingway once Liquidators (D) were appointed.

155.  After Liquidators (D) assumed office, they acted expeditiously to familiarise themselves with the underlying matters of these proceedings and promptly commenced HCA for relief against the Defendants, including obtaining Injunctions (2) and (3). The Transfer Application is part of a “transition process”, seeking the discharge of Injunction (1) and substituting in its place an order to like effect in HCA. Such steps will be in line with the guidance by Briggs J in Egleton, §§52-53.

156.  The objection to the Transfer Application is premised upon technical arguments which, in my view, are of little merits. There is no suggestion of any real prejudice which may arise from the Transfer.

157.  I therefore accede to the Transfer Application.

Monetary limits of the Injunction Orders (Issue (11))

158.  Although I have discharged the proprietary components of all 3 Injunctions, I have no hesitation to continue the Mareva relief, and in the case of Injunction (1), it should be substituted as indicated above. In its own right (without relying on the Chabra jurisdiction), Dingway is entitled to a proprietary injunction in respect of the US$70 million, and I grant an order accordingly.

159.  I see is no valid reason why the appropriate limit for the Mareva relief should be anything other than US$103 million, which on the evidence represented the value of the Shares. Indeed, apart from D1-3, there was no argument advanced to the contrary. D1-3’s argument was dealt with in para 148 above.

160.  I repeat the observation made to counsel for Dingway at the ex parte hearing for Injunction (3). If there is any reason for Dingway to believe that the effect of the Injunction Orders is that assets in excess of the value of US$103 million have been frozen, it has a duty to apply to the court for variation or directions.

Disposition

161.  I accede to the continuation of the Mareva components of Injunctions (2) and (3). I discharge Injunction (1) and re-grant a similar Injunction in its place in HCA. The costs of the Transfer Application be to CCCI and Dingway, with a certificate for 2 counsel.

162.  D9 Discharge Summons is dismissed, save that the time for compliance with paras 4 and 5 of the Amended Order re-filed on 10 May 2022 be extended to 14 days from the date of this Decision. The costs of that Summons up to and including the hearing on 6 May 2022 be to D9 for the reason that the proprietary component was not continued at the hearing on that day. The rest of the costs be to CCCI and Dingway, with a certificate for 2 counsel.

163.  As for the strike out Summonses, save that Dingway’s proprietary claims to the Sale Proceeds are struck out, I make no order on the Summonses. D6 and D7 are to have 50% of the costs of their respective Summons. I grant a certificate for 2 counsel in favour of D6.

164.  In respect of the costs of the 3 Continuation Summonses, CCCI and Dingway should have 2/3 of their costs, with a certificate for 2 counsel. The reduction reflects the fact that they have lost on the proprietary claim issue which had taken up a substantial part of the hearing.

165.  All costs orders are made on nisi basis.

166.  In light of the multiplicity of Summonses and complexity, a draft order should be agreed by the parties for the approval of the court. Any disagreement should be addressed in a succinct joint letter to the court. Unreasonable conduct may be met with costs sanction.

167.  I grant liberty to apply.

168.  Last but not least, I am grateful to counsel for their assistance.