CANTON PLUS ENTERPRISE LTD AND ANOTHER v. TONG ZHENJUN AND OTHERS

CAMP 150-152/2021
(Heard Together)

[2021] HKCA 1251

CAMP 150/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 150 OF 2021

(ON AN INTENDED APPEAL FROM HCA NO 227 OF 2017)

________________________

(by Original Action)

________________________

(by Counterclaim)

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AND

CAMP 151/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 151 OF 2021

(ON AN INTENDED APPEAL FROM HCA NO 1026 OF 2020)

________________________

________________________

AND

CAMP 152/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 152 OF 2021

(ON AN INTENDED APPEAL FROM HCA NO 2132 OF 2020)

________________________

________________________

(HEARD TOGETHER)

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REASONS FOR JUDGMENT AND
DECISION ON COSTS

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Hon Yuen JA (giving the Reasons for Judgment and Decision on Costs of the Court):

1.1.  On 30 July 2021, this court held a “rolled-up hearing”¹ of the application by the plaintiffs in CAMP150/2021, CAMP151/2021 and CAMP152/2021, who are all connected with Mr Chu Kong (for convenience, “the Chu Camp”), for leave to appeal a decision of Anthony Chan J (“the judge”) given on 26 April 2021 (“the Decision”)² discharging various orders (including Mareva and proprietary injunctions) granted ex parte by DHCJ To on 5 January 2021 against some of the defendants in HCA227/2017, HCA1026/2020 and HCA2132/2020 respectively. 

1.2.  As far as the affected defendants are concerned, Mr Tong Zhenjun, the 1^st defendant in HCA227/2017, was and is separately represented by Mr Martin Lau³.  The other affected defendants⁴ are connected with Mr Lau Wing Yan and are, for convenience, referred to as “the Lau Camp”.  In summary, the ex parte judge made injunction orders⁵ against Tong, Lau, and 5 companies in the Lau Camp.

1.3.  At the conclusion of the inter partes hearing on 26 April 2021 however, the judge discharged the ex parte orders, refused to regrant them, made an order for indemnity costs against the Chu Camp, and refused its oral application for leave to appeal.

1.4.  At the conclusion of the hearing before this court, the application for leave to appeal was also refused with costs.  The Lau Camp and Tong applied for an order that costs be taxed on an indemnity basis.  We said we would reserve our decision on the basis of costs, which we now give together with our summary assessment of costs and our reasons for the refusal of leave to appeal.

Background

2.  For present purposes, it is necessary to set out some of the background which is derived primarily from Chu’s 6^th affirmation made on 28 December 2020 (“Chu VI”) in support of the ex parte application. 

3.1.  In 1995, Lau and Chu became colleagues at a major dry bulk shipping company based in Hong Kong. 

3.2.  In 2000, Lau left the company to set up what have been called “Lau’s Old Companies” which all bore the name “Pacific Bulk”. 

3.3.  In 2002, Chu joined Lau.  However, Chu’s case is that he left after only one year to set up, on his own, what have been called “Chu’s Old Companies”, which also bore the name “Pacific Bulk”.

3.4.  In 2007, Lau and Chu incorporated a Hong Kong company called Pacific Bulk Shipping Ltd (“PBHK”).  It was owned by a BVI company called Profit Far Ltd, which was owned as to 50% each by Lau and Chu through their respective corporate vehicles⁶. 

3.5.  In 2008, Lau and Chu incorporated a Cayman Islands company called Pacific Bulk Shipping (Cayman) Ltd (“PB Cayman”). It was owned by a BVI company called Smartplace Ltd, which was also owned as to 50% each by Lau and Chu through their respective corporate vehicles⁷.

3.6.  In 2009, a Hong Kong company called Beibu Gulf Ocean Shipping (Group) Ltd (“BBGOS”)⁸ was incorporated.  It was owned as to 51% by a PRC state-owned company called Guangxi Beibu Gulf International Port Group Co Ltd and as to 49% by a BVI company called Ocean Sino Ltd (“OSL”). OSL was owned as to 50% each by Lau and Chu⁹.

3.7.  In 2013, a Hong Kong company called Pacific Bulk Lines Co Ltd (“PB Lines”) was incorporated.  It was owned as to 10% by a person called Yang Haitao through his corporate vehicle, and as to 90% through corporate vehicles owned as to 50% each by Lau and Chu.

4.1.  However, Lau and Chu fell out in 2013.  This was the start of what has been described as a “messy corporate divorce”.

4.2.  It appears to be common ground that Lau and Chu split up in January 2014, but what is disputed is whether they concluded an agreement on how to divide the businesses in which they both had interests (there are also disputes as to which companies should be included in the division).  Lau’s case was that it was orally agreed that he would take all the PB companies (“the PB restructuring agreement”) and Chu would take all the BBGOS companies (“the BBGOS restructuring agreement”).  Chu disagrees, and says no agreement was concluded.

4.3.  Suffice it to say that this corporate divorce has spawned 33 sets of legal proceedings, of which 25 remain on foot¹⁰.  In a Decision given on 22 June 2018, DHCJ Saunders remarked¹¹:

“It appears that the parties are determined to occupy the time of the court with satellite litigation rather than direct their attention to the real issues between them”.

5.  After their split, Lau and Chu individually set up new companies in the shipping business.  Lau’s new companies included Pacific Bulk Cape Co Ltd (“PB Cape”), Pacific Bulk Panamax Co Ltd (“PB PM”) and Pacific Bulk Supramax Co Ltd (“PB SM”). Chu’s new companies included the Quadrolink group.

Legal proceedings

6.  For the purpose of the present application for leave to appeal, it is necessary to see what allegations had been made by the Chu Camp against the Lau Camp (these terms including their respective associates) in some of the legal proceedings, and when those allegations had been made, to see whether Mareva and proprietary injunctions were justified.

HCCW352/2014 (“the Smartplace proceedings”)

7.1.  Chronologically, the first relevant set of legal proceedings is HCCW352/2014 (filed on 24 November 2014). 

7.2.  In those proceedings, the Chu Camp sought an order that its shares in Smartplace (the parent company of PB Cayman) be purchased by the Lau Camp, alternatively, for an order to wind up Smartplace. 

7.3.  The Chu Camp pleaded (among other things) in the Points of Claim that:

-   on 30 June 2014, Chu was notified that he was (purportedly) removed as a director of PB Cayman¹²;

-   PB Cayman was “deprived” of all its existing customers and had effectively ceased to carry on any business since the end of 2014¹³;

-   there have been no meetings of shareholders or directors of PB Cayman since 2014¹⁴;

-   on 10 July 2017, Chu notice dthat PB Cayman’s bank account with HSBC had been closed as at October 2015¹⁵.

7.4.  It would be noted that the Chu Camp was aware of the “depriving” of customers and cessation of PB Cayman’s business well before it applied for the ex parte Mareva and proprietary injunctions on 5 January 2021.

HCMP3134/2014 (“the Profit Far proceedings”)

8.1.  The second relevant set of legal proceedings is HCMP3134/2014 (filed on 1 December 2014).

8.2.  In those proceedings, the Chu Camp sought an order that its shares in Profit Far (the holding company of PBHK) be purchased by the Lau Camp. 

8.3.  The Chu Camp pleaded (among other things) in the Petition that:

-   Chu became aware in May 2014 that since February 2014, “nominee directors”¹⁶ directed by Lau  

“started to entice away [PBHK]’s customers and diverted [PBHK]’s business opportunities to [PB Cape]. For example, Central Minerals Holdings Limited (“Central Minerals”) was one of [PBHK]’s major customers and it regularly chartered vessels from [PBHK]. Since about April 2014, Central Minerals has been chartering ships from [PB Cape] and it has ceased to enter into any business contract with [PBHK]. ... As a result of their wrongful conduct, and since [PBHK] has no more business activities it is understood by Mr Chu that [PBHK] has lost all its customers and effectively ceased to carry on any business because [PB Cape] has taken over [PBHK]’s previous clients”¹⁷. (Emphasis added).

8.4.  Further, in his affirmation in support of the petition, Chu set out the method under which the Lau Camp transferred PBHK’s business with Central Minerals to PB Cape.  The relevance of this will be seen later in these Reasons for Judgment¹⁸.

8.5.  The above allegations had been made by the Chu Camp some 7 years before it applied for the ex parte Mareva and proprietary injunctions.

HCA227/2017 (“the PBHK derivative action”)

9.1.  The third relevant set of legal proceedings is HCA227/2017 (filed on 27 January 2017).

9.2.  In those proceedings, the Chu Camp sued 10 defendants in a double derivative action for wrongs allegedly done to PBHK.

9.3.  The Chu Camp pleaded (among other things) in the Statement of Claim that there was “diversion of [PBHK]’s business and poaching of its staffs”, alleging¹⁹:

-   in February - March 2014, Lau set up new companies using the Pacific Bulk brand names including PB Cape, PB PM and PB SM;

-   PB Cape “engages in the business of Cape-sized vessels shipping and is in direct competition with [PBHK]; PB PM and PB SM operates panamax and supramax²⁰ vessels shipping respectively”;

-   in around May 2014, Chu discovered that Tong and Lau (and another) had “started to entice away [PBHK]’s customers and diverted [PBHK]’s business opportunities to PB Cape”;

-   PBHK “became deprived of all its existing customers and had effectively ceased to carry on any business, as a result of the wrongful acts of [Tong and Lau and another] which led to PB Cape’s assumption of [PBHK]’s previous clients;

-   “Indo Bauxite Mining Corporation (“Indo Bauxite”) and Bintan Mining Corporation (“Bintan Mining”) were [PBHK]’s major customers and regularly chartered vessels from [PBHK] on favourable terms and were offered extensive credit.  Since around mid-2014, Bintan Mining and Indo Bauxite ceased to enter into business contract with [PBHK] but started chartering ships from PB Cape”;

-   “in around October 2014, Chu learned from market sources that ... [PBHK] had ceased to operate its business since around mid-2014”.  (Emphasis added).

9.4.  It would be noted again that these dates were well before the Chu Camp applied for the ex parte Mareva and proprietary injunctions in January 2021.

9.5.  Further, it is interesting to note (in connection with approaches to Indo Bauxite and Bintan Mining for their business), that when the Lau Camp pleaded in the Defence²¹ that Chu “began to set up his own shipping and logistics business in April 2014, which directly competed with [PBHK] and PB Cape, using companies with the different brand/prefix ‘Quadrolink’ ...”, the Chu Camp’s Reply was as follows:

“38. As to Paragraph 46.4:

(1) It is admitted that Quadrolink Group was set up;

(2) It is averred that:

(a) Quadrolink Group’s approach of Indo Bauxite and Bintan Mining was done on open market, as the company has the right to approach potential customers.

(b) This is contradicted to Lau’s New PB Companies obtaining businesses from Indo Bauxite and Bintan Mining using the ‘Pacific Bulk’ brand through PBHK/PB Cayman and trading on the goodwill built by the companies and on special terms negotiated by PBHK/PB Cayman (PBHK/PB Cayman prepaid all costs and extended credit period of 40-100 days for freight payment was given to customers)”.

9.6.  In other words,

-   it was common ground that soon after they split up in 2014, both Lau’s new companies and Chu’s new companies approached Indo Bauxite and Bintan Mining for their business;

-   these customers would thus have known that Chu and Lau had split up; and

-   the Chu Camp was aware in 2014 of the Lau Camp’s use of the “Pacific Bulk” brand name.

9.7.  The relief sought by the Chu Camp in HCA227/2017 include declarations of liability in relation to Lau’s misappropriation of funds, tracing, an account and assessment of damages, while the Lau Camp has also counterclaimed in respect of Chu’s alleged misappropriation of funds, and for damages, equitable compensation, etc.

10.  So far, what has been set out above are allegations made by the Chu Camp in its pleadings in the three relevant sets of proceedings, all made years before it applied for the ex parte Mareva and proprietary injunctions in January 2021.

11.  The following events are also relevant.

Application to appoint provisional liquidators for Smartplace

12.1.  On 13 July 2017, the Chu Camp issued a summons in the Smartplace proceedings for the appointment of provisional liquidators.  The summons was made returnable before the companies judge (Harris J) on 18 July 2017.

12.2.  In Chu’s affirmation filed the same day in support of the summons, he said the following (among other things):

-   on 16 June 2017, staff of Lau’s Camp removed various properties from premises previously used by the PB group;

-   as the Lau Camp’s solicitors confirmed on 20 June 2017 that what were removed were “mostly documents and properties belonging to the ‘Pacific Bulk Group’, including the books and accounts of the ‘Pacific Bulk Group’”, Chu believed that the

“said documents and properties largely belong to [Smartplace], PB Cayman and the other companies in the Pacific Bulk Group that used to occupy the premises”²²;

-   Lau had “caused the business of PB Cayman to be diverted and transferred to PB Cape, PB Enterprises, PB PM, and PB SM”;

-   on 10 July 2017, it “just came to [Chu’s] notice that PB Cayman’s bank account with HSBC had been closed down in October 2015"²³;

-   therefore, Chu alleged “there exists a genuine and pressing need for provisional liquidators to collect in and preserve the documents and assets of PB Cayman, including particularly those that have now been illegally removed by Lau in the Removal Incident”.  (Emphasis added).     

12.3.  The companies judge did not hear the summons on the return date (18 July 2017) apparently for lack of urgency, and eventually it was not proceeded with.  On 1 December 2017, Harris J gave a consent order giving leave to the Chu Camp to withdraw the summons.

Application for preservation and inspection of documents

13.1.  Shortly after the summons to appoint provisional liquidators, on 1 August 2017 the Chu Camp issued a summons for:

-   an order that Lau provide within 7 days a list of all properties removed from the premises;

-   an order that Lau deliver up within 3 days, to a storage location, all documents that had been removed from the premises;

-   an order that until trial or further order, Lau enable reasonable repeated access into the storage location for Chu to inspect the removed documents. 

13.2.  On 4 August 2017, DHCJ Kenneth Kwok SC made an interim order under which:

-   the parties were to jointly appoint an independent firm of solicitors (“the independent firm”), and failing agreement on this, a firm would be nominated by the President of the Law Society;

-   both Lau and Chu would deliver all documents belonging to 31 companies (listed in an appendix, including PBHK, PB Cayman, PB Lines, Smartplace, Profit Far, and Central Minerals) to the independent firm to make copies;

-   the independent firm would retain the copied documents and shall not release them to either party without an order of the court;

-   the Chu Camp’s summons was adjourned for argument.

13.3.  Notwithstanding the above, and despite further satellite litigation, the terms of the interim order were not put into effect, with neither camp offering up any documents in its individual possession.   

DHCJ Saunders’ Order

14.1.  The Chu Camp’s summons for preservation and inspection was eventually heard by DHCJ Saunders in May-June 2018.  By this time, the Lau Camp had also filed a summons for preservation and inspection of documents in the possession of the Chu Camp. 

14.2.  After argument, DHCJ Saunders made an order in his Decision of 22 June 2018²⁴ for the preservation of four categories of documents.  The fourth category comprised:

“PB Group documents which came into existence after January 2014, during a period when it appears that each were [sic] conducting separate businesses”.

In respect of this category, the judge said:

“Here, the question of inspection is more delicate. It is plain that the inspection sought by Chu is not simply to establish the existence of the documents or to identify them or to ascertain who made them, but to examine their content for the purpose of the preparation of his case. It seems to me that inspection for that purpose falls more appropriately and comfortably within the category of inspection”. (Emphasis added).

14.3.  As far as inspection was concerned, DHCJ Saunders accepted that there were issues as tothe type of documents Chu would be entitled to inspect, and whether inspection would be governed by Order 29 rule 2²⁵ or by Order 24 rule 10²⁶, and who would be entitled to do the inspection.  The judge therefore “reserved the issue of inspection to be considered following preservation, identification and copying of the documents”.  Leave to apply was given. 

14.4.  However the Chu Camp has not taken any steps since June 2018 to pursue this part of its summons for inspection of these documents.  The relevance of this will be seen later in these Reasons for Judgment²⁷.

Chu Camp’s fresh 2020 derivative actions

15.1.  On 22 June 2020, the Chu Camp issued an indorsement of writ in HCA1026/2020 against 10 defendants in the Lau Camp. This derivative action relates to PB Cayman.

15.2.  On 22 December 2020, the Chu Camp issued an indorsement of writ in HCA2132/2020 against six defendants in the Lau Camp.  This derivative action relates to PB Lines.

Ex parte application for Mareva and proprietary injunctions, etc

16.1.  On 5 January 2021, the Chu Camp applied ex parte to DHCJ To for Mareva and proprietary injunctions, etc in the PBHK derivative action and in the two fresh 2020 derivative actions.

16.2.  In Chu VI, reliance was placed on 29 documents from Indo Bauxite and Bintan Mining received between September and December 2020 which the Chu Camp alleged revealed “new findings”.  The primary documents were Contracts of Affreightment (COA) that Indo Bauxite and Bintan Mining had made with PBHK and PB Cayman, and with PB Cape and PB SM, an agreement made by Bintan Mining with PB Enterprises Co Ltd, and a Nomination Agreement made between these two companies and Ecosuccess, related freight invoices and transaction advices, and some bank statements of PBHK.  The dates of these documents ranged from 2013 to 2020.

16.3.  On the basis of these “new findings”, “the amounts of assets to be frozen under the injunction or the amounts of assets to be preserved under the asset preservation order by different individuals and companies are as follows:

(a)     Lau shall be restrained from dealing with his assets in the total sum of USD126,427,218.33;

(b)     Tong shall be restrained from dealing with his assets in the total sum of USD16,225,381.02;

(c)     Properous Elite Ventures Ltd [the parent company of PB Cape]²⁸ shall preserve assets held on trust for PBHK in the total sum of USD4,568,379.15;

(d)     PB Cape shall preserve assets held on trust for PBHK in the total sum of USD16,225,381.02;

(e)     PB SM shall preserve assets held on trust for PB Cayman in the total sum of USD73,792,903.12;

(f)     Go Prosper International Ltd [the parent company of PB SM]²⁹ shall preserve assets held on trust for PB Lines in the total sum of USD2,762,242; and

(g)     Ecosuccess Ltd shall preserve assets held on trust for PB Cayman in the total sum of USD1,335,993.21" (Chu VI, §85).

16.4.  As mentioned above, DHCJ To granted the orders ex parte.  There followed various applications by both parties which are not directly material to this appeal.  As a matter of completeness, it would be noted that on 8 February 2021, the injunctions against Lau were discharged by Lisa Wong J on undertakings given by him.

HCA2562/2014 - Decision of DHCJ Tsui

17.1.  One should also note that in April 2021, the trial of HCA2562/2014 commenced before DHCJ Tsui.  In this action, Lau and three others (including PB Cayman) were the plaintiffs, and Chu and four others were defendants.  An injunction had been obtained ex parte against the defendants, and their application to set it aside for material non-disclosure was to be heard at the same time as the trial.

17.2.  On day 7 of the trial (22 April 2021), after two of the plaintiffs’ witnesses (not including Lau) had completed their evidence, leading counsel for the plaintiffs³⁰ applied to the court for leave to discontinue the action with costs to the defendants.  The plaintiffs also accepted that the injunction should be discharged on the ground of material non-disclosure with costs on an indemnity basis. 

17.3.  The defendants applied for the costs of the action to be taxed also on an indemnity basis, on the basis “that the two alleged oral agreements never existed and they were concocted by the plaintiffs as a plank on which to apply for the interlocutory injunction back in December 2014”³¹. These two alleged oral agreements were not the two restructuring agreements alleged by Lau³².

17.4.  The plaintiffs opposed the higher basis for the costs of the action.  The judge was therefore asked to determine the proper basis of taxation of these costs.  In the course of doing so, the judge made her position very clear:

“8. I should add here that by adopting the above approach, I would not be making any formal factual finding on the issues in dispute in this action.

9. The evidence before me is incomplete. Counsel did not have the opportunity to make full submissions in the way they would at closing if the trial proceeded as scheduled.

10. I am not sure whether in the circumstances, I have the power or am in a position to proceed to make factual findings. But even if I do, I would decline the invitation of Mr Wong to do so, particularly in light of the fact that there are ongoing litigation between the two camps. I would be hesitant to make findings of fact when the evidence had not been fully explored on all the disputed issues when these findings may have the effect of creating issue estoppel against the parties concerned”. (Emphasis added).

The judge’s Decision

18.1.  Four days later, Anthony Chan J heard the Chu Camp’s application to continue the injunctions.   He declined to take into account its Supplemental Note provided that day (which referred the court to the Decision of DHCJ Tsui) because the Lau Camp had not had the opportunity to consider it.

18.2.  For the reasons given in his Decision, the judge discharged the ex parte orders and refused to re-grant them.   

18.3.  The judge’s reasons included the following:

-   since 2014, Lau had openly stated that he wholly owned the PB Group, and yet the Chu Camp had not attempted to apply for any asset preservation order over the years (§§11-12 of the Decision), or to apply for an injunction to restrain the Lau Camp from taking away the businesses that the Chu Camp claimed were jointly owned (§24); it was the Chu Camp’s own case that PBHK had entirely ceased business many years ago (§21) as had PB Cayman (§22); in view of the “staleness” of these matters, the Chu Camp was not justified in making an ex parte application, which was not even made on notice outside banking hours (§15);

-   as for the Chu Camp’s excuse that the “new findings” constituted “solid proof” of (a) the methodology of diversion of business and (b) the extent and quantum of the business diverted, the alleged “new findings” were illusory (§16):

-   in any event “solid proof” was not required for injunctive relief (§17);

-   the “new finding” of the precise methodology of the diversion of business was not critical, as Lau had long admitted to the diversion; the use of BVI companies to receive payments was common place for substantial international business and Chu had himself made use of such corporate vehicles (§18); in any event, the same methodology had been deployed for Central Minerals (§19);

-   as for the “new finding” of the extent and quantum of the business diverted,

-   as Lau had made admissions no later than 2017, the Chu Camp could have applied for injunctive relief then, and could have sought ancillary disclosure orders if thought appropriate (§20);

-   as Chu was in the business, he could have made a fair assessment of the quantum of business lost (§23);  

-   thus, “the picture painted before the learned ex parte judge that Chu was not aware of the extent of the diversion was misleading” (§25);

-   the Chu Camp was guilty of material non-disclosure in having failed to disclose that Harris J had, back in 2017, refused for lack of urgency to hear its application for appointment of provisional liquidators for interim preservation relief (§27);

-   there was no risk of dissipation as Lau was a person of considerable wealth with roots in Hong Kong (§31);

-   if it were necessary to consider the balance of convenience, it would not be just to grant an injunction affecting on-going businesses which had been carried on openly for a number of years with the knowledge of the Chu Camp, there was no “irreparable damage”, and the security package put up by Lau demonstrated that should the Chu camp ultimately succeed in its actions, Lau would likely be in a position to pay the damages (§35).

18.4.  As noted earlier, at the conclusion of the hearing after the Decision was given, the then leading counsel³³ for the Chu Camp orally applied for leave to appeal, which was refused.  Hence, the application to this court for leave to appeal by summonses filed on 10 May 2021.

Proposed grounds of appeal

19.1.  In the Chu Camp’s written submissions³⁴ to this court, the following were argued:

(1)  the judge had “wrongly fixated” on the “staleness” of the claims³⁵; delay (which has to be seen in the context of the complexity of the transactions and the availability of the information to the Chu Camp) was only one factor in the question whether there existed a real risk of dissipation, and even if there had been delay, that would not bar a proprietary injunction³⁶; the perceived “staleness” was different from the lack of urgency found by Harris J in the application for appointment of provisional liquidators, so it was not necessary to disclose that to the ex parte judge³⁷;

(2)  the judge was wrong to equate the complexity of the case with the need for an inter partes application³⁸;

(3)  the “new findings” filled “gaps in Chu’s knowledge” because the Chu Camp had:

-   not been able to identify the quantum of misappropriation, having been prevented from accessing documents of the PB companies³⁹,

-   not known the methodology by which business had been diverted⁴⁰, and Bintan may have been misled into thinking that they were still engaging in business with “Chu/Lau’s ‘PB Companies’”⁴¹.

-   not been aware of offshore companies such as Ecosuccess⁴² to whom Lau’s new companies had transferred funds without a commercial rationale⁴³;

(4)  Lau’s “low commercial morality” in misappropriating funds and diverting pre-2014 business on the “basis of an apparent oral agreement, with an unknown consideration, regarding an unknown scope of companies and with no consensus on any material terms”⁴⁴; Lau had purported to convene a meeting of PB Lines in May 2020⁴⁵ and there had also been “dishonest fabrication of evidence” in HCA2562/2014⁴⁶;

(5)  the judge was wrong in law in considering that a proprietary injunction in respect of profits from a diverted business was technically unsound, as such profits are held on constructive trust;

(6)  by reason of the above, this court was asked to exercise the discretion afresh and to re-grant the injunctions, and in any event to set aside the indemnity basis of costs. 

19.2.  At the hearing before this court, the Chu camp was represented by Mr Johnny Mok SC⁴⁷.  His speaking note comprised nearly entirely of challenges to the Lau Camp’s case of an oral agreement for the restructuring of the two groups of companies, PB and BBGOS. Mr Mok argued that since “there is a very strong suspicion that the alleged oral agreement does not exist”⁴⁸, that demonstrated that Lau was a person of “extremely low commercial morality”⁴⁹, which therefore carries a real risk of dissipation.

Discussion

- “Low standard of commercial morality”

20.1.  With respect, it is not appropriate for this court at this hearing to decide the issue of the likelihood or unlikelihood of the parties having reached an agreement for the restructuring of the businesses.  This issue (which has led to 33 sets of legal proceedings) has been hotly contested for the past seven years, and can only be determined at trial after cross examination of the two protagonists and whatever other relevant witnesses there might be.  This court cannot, and should not, shortcut that process, much less determine, on the arguments rehearsed by Mr Mok at a hearing such as this, whether Lau was a person of “extremely low commercial morality”.

20.2.  It is apposite here to remind practitioners that they should not employ the phrase “low standard of commercial morality” as if it were a proposition of law⁵⁰.  It certainly was not meant to be so, as can be seen in the context in which it was first used by Godfrey J (as he then was) in Honsaico Trading Ltd v Hong Yiah Seng Co Ltd⁵¹. 

20.3.  An applicant for a Mareva injunction cannot simply set out his arguments challenging the defendant’s case, repeat the incantation “low standard of commercial morality”, and ask the court to conclude that there is a real risk of dissipation.  The court has frequently disapproved of this approach.  

20.4.  In Hornor Resources (International) Co Ltd v Savvy Resources Ltd⁵², Chu J (as she then was) said:

“27. I accept that the court should examine with care allegations that a defendant has acted dishonestly and should not too readily infer a real risk of dissipation from the conduct or commercial morality of a defendant. ...”.

In Crete Maritime Corporation v Emirates Shipping Line DMCEST⁵³, Anthony Chan J said:

“21. ... [I]n the context of unacceptably low commercial morality the court deals with a spectrum of conduct. At one end, there are clear cases of fraud. A good example is internet fraud, which is quite prevalent in recent years. In those cases, the real risk of dissipation may be said to be self-evident. This sits with common sense because the fraudulent exercise is designed to deprive the plaintiff of his assets.

22. At the other end of the spectrum may be cases of sharp commercial practice. Whilst such conduct is reprehensible, it cannot by itself give rise to the inference of real risk of dissipation.

23. In between the two ends, the circumstances are infinitely variable and it would not be fruitful to try to categorise them”.

21.1.  Coming back to this case, I have explained above why this court cannot usurp the function of the trial judge and assess the likelihood or unlikelihood of the parties having made an oral agreement.  It is particularly surprising for the Chu Camp to argue⁵⁴, for example, that the consideration for the alleged oral agreement was “unknown” when it well knew that since 2014, it has had control of the BBGOS group of companies, which (on the Lau Camp’s case) was the quid pro quo for Lau obtaining control of the PB group which he had founded. 

21.2.  Further, in the context of this case, with accusations and counter-accusations regarding many companies over the past seven years, it is difficult to see how one can realistically expect the court to pick out the convening of one meeting of one company⁵⁵ as demonstrating “low commercial morality”.  

21.3.  As for the allegation of “dishonest fabrication of evidence” in HCA2562/2014, it would be noted that the two alleged oral agreements referred to in the “doctored” emails were not the two restructuring agreements alleged by Lau⁵⁶, and DHCJ Tsui was anxious to point out in her decision on the basis of costs that she was not making any findings of fact as the evidence had not been fully explored.  So, even if this court were to exercise the discretion afresh (the judge having refused to consider this matter as the Supplemental Note was only provided on the day of the hearing), this would not have demonstrated such a low standard of commercial morality as to lead to the inference of a real risk of dissipation.

- “Staleness”

22.  As for the argument that the judge was too “fixated” on “staleness”, delay was one of the important factors the judge took into account in considering whether the injunctions should be granted, and the weight given to it is for the judge in the exercise of his discretion.  It is clear from the Decision that the judge was unimpressed by the “new findings” by which the Chu Camp sought to explain why the injunctive relief was sought only now.  As can be seen below, there is absolutely no ground on which this court should or would interfere.  

23.1.  The judge was clearly entitled on the evidence to arrive at the conclusion that there was nothing new in the “methodology” argument.  As set out above⁵⁷, Chu had alleged that in May 2014, he had discovered that staff of the Lau Camp had “enticed away” PBHK’s customers and diverted their business to PB Cape.  The steps employed for transfer of Central Minerals’ business from PBHK to PB Cape, of which the Chu Camp was aware in 2014, were similar to those “newly” found steps employed for transfer of Indo Bauxite’s business (see the comparison set out in Lau XIII, §77). 

23.2.  Further, it is difficult to see how it can be said that Bintan may have been “misled” into thinking that they were still engaging in business with “Chu/Lau’s ‘PB Companies’”⁵⁸.  It would be noted that the Chu Camp had admitted⁵⁹ that Chu’s new Quadrolink Group had itself approached Indo Bauxite and Bintan Mining for business after the split.  Chu and the personnel of these customers were known to each other⁶⁰, so they could hardly have been “misled” into thinking that Chu was still with the PB companies when his new companies approached them in competition with Lau’s new companies.

24.  The judge was also clearly entitled on the evidence to arrive at the conclusion that the “quantum” argument did not justify the grant of injunctions now.  It had been the Chu Camp’s case that all of the old PB companies’ businesses had been diverted, and as Chu was an experienced businessman in the trade and a former director of these companies, he would have been in a position to assess the quantum much earlier in the litigation.  Further, on 22 June 2018 DHCJ Saunders had given leave to apply in the Chu Camp’s summons of 1 August 2017 on the issue of inspection.  The Chu Camp thus had the means of discovering the extent of the businesses allegedly diverted more than 3 years ago, had it wished to do so for the purpose of applying for injunctive relief.  Indeed, this appears to be as serious a demonstration of material non-disclosure as Harris J’s refusal to hear the application for appointment of provisional liquidators, in which the Chu Camp’s skeleton submissions⁶¹ had actually referred to the risk of dissipation of assets.

25.  As for Ecosuccess, the judge was clearly entitled to give little weight to the use of an offshore company.  The parties had long employed offshore companies in the operation of their businesses during the time they were in business together (see the corporate charts in Chu VI).  In the context of the present case, this could not have been an unexpected revelation with sinister connotations. 

26.  As a matter of completeness, I would also add that:

(1)  the judge was fully entitled to criticize the Chu Camp for not even making the application on notice outside banking hours; the judge was correct to say that the more complex the case, the greater the risk of an ex parte applicant failing (whether through intention or inadvertence) to present the full picture;

(2)  the judge was also entitled to take the view that a proprietary injunction would not be available in this case.  First, an injunction relating to “estimated”⁶² profits is obviously imprecise.  Secondly and in any event, there was no reasonable evidence that there currently existed an asset comprising these “estimated profits” which could form the subject matter of a proprietary injunction;

(3)  the basis of costs is a matter of discretion for the judge, and on the materials discussed above, there is no ground for this court to interfere with the judge’s order that costs be paid on an indemnity basis.

27.  For these reasons, the court considered that the proposed appeal had no prospect of success, and dismissed the application for leave with costs.

Basis of Costs

28.  As for the basis of costs before this court, given the clear and unassailable reasons the judge had given (including material non disclosure) for discharging the ex parte orders and refusing to regrant them, and for ordering that costs be paid on an indemnity basis, the further pursuit of the injunctions before this court on the same grounds was vexatious.  Accordingly, the costs before this court shall also be assessed on an indemnity basis. 

Summary assessment

29.  To save time and further costs, we have asked for statements of costs for summary assessment under Order 62 rule 9A.  Having considered the statements and the list of objections from the solicitors for the Chu Camp, we would order that the appellants pay Tong (not Liang Pan, the 2^nd defendant in HCA227/2017⁶³) the sum of $135,000, and the other affected respondents globally, the sum of $230,000 in each of CAMP150/2021, 151/2021 and 152/2021.