BUER GUDE v. CHEN KEEN

HCA 1554/2021

[2023] HKCFI 232

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1554 OF 2021

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BETWEEN

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REASONS FOR DECISION

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1.  There are 2 applications before the Court:

(1) the application of Buer Gude (“the Plaintiff”) for a charging order absolute (“CO Absolute”) pursuant to a charging order notice to show cause dated 2 December 2021 (“CO Nisi”) made by Master Rita So in respect of the beneficial interest of Chen Keen (“the Defendant”) in a flat described in the schedule to the CO Nisi (“the property”); and

(2) the application of Natural Dairy (NZ) Holdings Limited (in Provisional Liquidation) (“the Intervener”) dated 28 January 2022 to intervene in the Plaintiff’s action to, inter alia, oppose the Plaintiff’s application.

2.  At the conclusion of the hearing, the Plaintiff’s application was adjourned pending the determination of the Intervener’s claim to the beneficial interest in the property in HCA 2218/2017 (“HCA 2218”) (described in §7 below), with written reasons to be handed down which I now do.

Factual background

3.  The Intervener is a Cayman Islands’ company listed on the Hong Kong Stock Exchange. The Intervener has been involved in a series of transactions stemming from its attempted acquisition of New Zealand dairy farms in 2009 (“the Acquisition”).

4.  Although the Acquisition failed, various other transactions were entered into in attempts to “restructure” the Acquisition. To that end, the Intervener raised substantial funds (“the Acquisition Funds”).

5.  On 22 December 2016, the Cayman Court appointed Simon Conway and Jong Yat Kit as joint provisional liquidators (“JPLs”) of the Intervener.

6.  Based on investigations they carried out, the JPLs are of the view that the Acquisition Funds raised by the Intervener for the purposes of the Acquisition of over HK $1.3 billion were misappropriated.

7.  The JPLs commenced HCA 2218 against the Defendant (who is the 1^st defendant, having been a director of the Intervener at all material times) and others for breach of fiduciary duties in that he, along with other individuals, misled the Intervener into raising funds for the Acquisition and was instrumental in the misappropriation of the Acquisition Funds.

8.  Criminal proceedings brought against the Defendant (“HCCC 83 of 2014”) which remain ongoing are based on the same facts.

9.  On 26 October 2011, the Secretary for Justice obtained a Restraint Order (“the Restraint Order”) against the assets of the Defendant (including the property) until further order of the court. The Restraint Order remains extant.

10.  On 7 October 2020, the Intervener obtained an order (“the Injunction Order”) from DHCJ Sit SC (as she then was) granting proprietary and Mareva relief against the Defendant including a proprietary injunction over various properties (the “mortgaged properties”) including the property: see §1 and Schedule 5 of the Injunction Order. It is the Intervener’s case that the Acquisition Funds were applied to discharge the Defendant’s liabilities on the mortgaged properties, including the property. The Mareva injunction granted was over the Defendant’s assets up to a value of approximately $776 million.

11.  The Plaintiff is not a party in HCA 2218.

12.  It is common ground that given the Intervener’s existing proprietary claim against the Defendant over the property, it has a sufficient interest to intervene in HCA 1554.

13.  On 11 October 2021, the Plaintiff issued a writ in HCA 1554 against the Defendant for repayment of a sum in excess of $46 million comprising (in round terms) principal of $11 million and interest of $35 million.

14.  About 2 weeks later, on 26 October 2021, the Defendant filed a Form 16 admission.

15.  On 4 November 2021, final judgment against the Defendant was entered in favour of the Plaintiff which formed the basis for the CO Nisi the Plaintiff obtained on 2 December 2021.

16.  The Intervener only became aware of the CO Nisi on receipt of a letter dated 14 January 2022 from the Department of Justice (“DOJ”) sent in response to a letter from the Plaintiff’s solicitors. While the DOJ had “no objection” to the CO Nisi being made absolute, it suggested that the stance of the JPLs, an affected party of the Restraint Order, be ascertained.

Legal principles

17.  The court has power pursuant to section 20 (1) of the High Court Ordinance, Cap 4 (“HCO”) to impose a charging order on property of the judgment debtor for the purpose of enforcing a judgment or order either absolutely or subject to conditions. If the power is exercised it renders the creditor a secured creditor.

18.  It is common ground that a charging order can only be imposed where the property to be charged is beneficially owned by the judgment debtor: see HCO section 20A (1) (a), Hong Kong Civil Procedure 2023 (“HKCP”) at §50/9A/17, citing SJ v Chau Mei Ha T/a Ramco International Co, unrep., HCA 787/1992, 29 January 1999.

19.  Pursuant to RHC Order 50, rule 3 (1), upon a further consideration of the charging order, the court may make it absolute or discharge it.

20.  In Po Kwong (China) Stone Limited v Chan Wai Wah trading as Axis Stone Interior Design, CACV 157/2004 at § 11, the Court of Appeal (adopting the approach of the English courts where a similar English provision (in Rosseel NV v Oriental Commercial Shipping (UK) Limited and others (hearing date 8 October 1990 Lexis Nexis Transcript)) had to be construed, interpreted the provision in such a way as to allow the court to direct an issue to be tried. In Rosseel, the issue was whether the registered owner of a piece of land was holding the beneficial interest for the person who provided the purchase price.

21.   The issue that arises in the present case is whether the Plaintiff made the mortgage repayments out of funds misappropriated from the Defendant. In my view, it is open to the court to apply the Po Kwong principle and direct that the issue of beneficial ownership is to be resolved at trial.

The Intervener’s case

22.  The proprietary injunction obtained by the Intervener has not been varied and subsists over the property. Ms Sharon Yuen, counsel for the Intervener submitted that the charging order should not be made absolute in that the issue of whether the Defendant beneficially owns the property has yet to be determined in HCA 2218. Rather, the CO Nisi should be discharged or alternatively, the applications before the court should be adjourned pending the determination of the Intervener’s proprietary claim against the Defendant in HCA 2218.

23.  The Intervener highlighted the fact that the Plaintiff has no proprietary claim over the property and is an unsecured creditor unless the charging order is made absolute.

24.  As regards two of the authorities relied on the Plaintiff’s written submissions, namely, Nikkei America & Another v Aulic Industry Limited & Others [2021] HKCFI 2032 and Paloma Company Limited v Capxon Electronic Industrial Company Limited [2020] HKCFI 754, it was submitted that those cases concern competing unsecured creditors and are inapplicable given the facts of the present case.

25.  Having heard oral submissions made by both counsel, for present purposes, it is unnecessary to relate or go into the circumstances in which the debt underlying the Plaintiff’s judgment arose.

26.  Mr Alan Kwong, counsel for the Plaintiff, referred to the relief sought by the Intervener in its summons which is for the discharge of the CO Nisi. It was submitted that the burden was on the Intervener to show that it has a beneficial interest in the property and it has not been able to adduce evidence in support, citing Woo Tat Huen v Lee Wai Ping [2021] HKCFI 576 at § 42 and Fung Sau Mui Janne v Fung Wing Tong [2018] HKCFI 2247 at § 16.

27.  The relevance of those authorities is not apparent. The whole point of HCA 2218 is to the beneficial entitlement to the property determined, whether it belongs to the Intervener or the Defendant. The issue before this court is whether it should exercise its discretion to adjourn the Plaintiff’s application pending determination of HCA 2218 which would resolve that issue.

28.  The Plaintiff invited the court to proceed with making the CO Absolute on the basis that the Intervener would not be prejudiced were such an order to be made.

29.  It was submitted that, practically speaking, the Plaintiff would not be able to sell the property without first obtaining an order for sale pursuant to RHC O 88 and, given that the Restraint Order and the proprietary injunction have been registered against the property, the prospects of the Plaintiff obtaining such an order are nil.

30.  It was said that if the Intervener were to succeed in establishing its beneficial interest in the property in HCA 2218, it could then apply for the discharge of the CO Absolute pursuant to O 50, r 7.

Conclusion

31.  I am bound to say that I am not persuaded by the Plaintiff’s submissions and do not find his proposal attractive.

32.  If the court were to make absolute the charging order, it must consider all the circumstances. That would necessarily include the matters alluded to in §24 above which may present serious difficulties for the Plaintiff.

33.  I consider the fairest and most efficient outcome is for the Plaintiff’s application to be stayed pending the determination of HCA 2218.

Costs

34.  At the conclusion of the hearing, Ms Yuen made an application for indemnity costs. Two letters, respectively dated 18 August 2022 and 3 January 2023 and marked “Without prejudice save as to costs” were produced.

35.  The 1^st letter was sent prior to the hearing scheduled before the Master on 29 August 2022 in which the Intervener sought the Plaintiff’s consent to an adjournment of both applications until the determination of the Intervener’s proprietary HCA 2218. The 2^nd letter was in similar terms and written with the view to vacating today’s hearing.

36.  Mr Kwong informed the Court that briefs to counsel had already been delivered for the Master’s hearing by the time the Plaintiff received the 1^st letter. As regards the 2^nd letter, the court was informed that by 3 January 2023, briefs for this hearing had also been delivered.

37.  In my view, that is not a valid excuse given that the Plaintiff became aware of the Intervener’s proposal upon receipt of the 1^st letter. Tellingly, not only did the Plaintiff not reply to the 1^st letter or provide any explanation for proceeding with the hearing before the Master, thereafter, no attempt was made to consider or follow up on the Intervener’s proposal.

38.  In those circumstances, I consider that indemnity costs are justified in respect of costs incurred after the Master’s hearing on 29 August 2022 and I so order.

39.  I further order that the Intervener’s costs with certificate for counsel in respect of both applications, be summarily assessed and payable forthwith.

40.  It is directed that the Intervener’s statement of costs be lodged within 7 days, the Plaintiff’s objections within 14 days thereafter and the Intervener’s reply (if any) within 7 days thereafter.