DELCO PARTICIPATION B.V. v. CHIHO-TIANDE GROUP LTD AND ANOTHER

HCA 3040/2015 and
HCA 2939/2016
(Heard Together)

[2019] HKCFI 2646

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3040 OF 2015

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ACTION NO 2939 OF 2016

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DECISION

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1.  This hearing dealt with two inter partes summonses both dated 11 December 2018, filed by the Delco Participation BV, as plaintiff, in HCA 3040/2015 and HCA 2939/2016 (the “Actions”).

2.  By the summonses, the plaintiff seeks Mareva injunctions against:

(a)  Mr Fang Ankong (“Mr Fang”); Mr Fang is the 2^nd defendant in HCA 3040/2015 and the 4^th defendant in HCA 2939/2016.  Injunctive relief sought against Mr Fang is capped at $64,179,118.  This sum can be broken down into two sums, namely; $57,927,118 in respect of HCA 3040/2015 and $6,252,000 in respect of HCA 2939/2016.

(b)  HWH Holdings Limited (“HWH”); HWH is the 3^rd defendant in HCA 2939/2016.  The injunctive relief sought against HWH is capped at $6,252,000. 

3.  In this decision, all dollar sums are a reference to Hong Kong dollars, unless I state otherwise.

4.  The injunctive relief described above is directed in particular towards the sum of $64,067,118 (the “Escrow Fund”) as currently held at Messrs Stephenson Harwood, pursuant to the terms of an escrow agreement dated 17 December 2015 (the “Escrow Agreement)”. 

5.  While the summonses were issued inter partes, the return date for both summonses was 14 December 2018.  Thus, the defendants had just two days to consider their position and to prepare for the return date hearing.  The defendants’ counsel Mr William Wong SC, made reference to this in his submissions and I shall return to this issue below.

6.  At the return date hearing on 14 December 2018, and upon the defendants providing undertakings not to dispose of or deal with the Escrow Fund, directions were given for the summonses to progress towards trial.  Orders were made in respect of the filing of affidavit evidence and the summonses were adjourned for a trial date, to be fixed.  This is the hearing that came before this court on 10 October 2019.

Factual background

7.  In the 1990s, two Dutch businessmen, through their “Delco” group of companies began selling scrap metal to Mr Fang and his companies, who ran a scrap metal recycling business on the Mainland.

8.  The business and relationship grew to a point that in 1999, Delco and Mr Fang decided to start a joint venture to carry on a metal scrap recycling and trading business, through a PRC company called Taizhou Chiho-Tiande Metals Co., Ltd (“CT Metals”).  The joint venture was later restructured in 2002/2003 such that the parties’ interests were held through CT Metals’ holding company, known as Hefast Holdings Corporation Limited.  Since 2001, the interest of Delco’s part of this business was held through Delco Asia Co Ltd (“Delco Asia”).

9.  Mr Fang ran the mainland operations of the joint venture, whereas Delco was responsible for sourcing scrap metals from Europe for the joint venture.  All processing and production facilities of the joint venture were located on the Mainland, where revenues for the joint venture were generated.

10.  It appears that the joint venture was successful.  Thus, in around 2008, the Delco parties and Mr Fang decided that the business should be listed.  For that purpose, Chiho-Tiande Group Limited (“Chiho”), the 1^st defendant in the Actions, was incorporated in May 2008 to be the listed vehicle, with Delco Asia and HWH holding equal shares.

11.  But this otherwise successful relationship has since led to disputes between the parties.  There are now three separate sets of proceedings before this court, namely HCA 2943/2015, HCA 3040/2015 and HCA 2939/2016.  These proceedings can be briefly summarized as follows:

(a)  HCA 2943/2015; here, Delco claims the amount of up to HK$46,883,466 against HWH under a transfer agreement between Delco and HWH, by which HWH allegedly agreed to purchase 1% of CT Metal’s shares from Delco (“Transfer Agreement”).  It is alleged that pursuant to the Transfer Agreement, on 17 January 2012, Delco transferred 10,418,548 shares to HWH for $4.50 per share, with the consideration to be left outstanding and payable on demand.  HWH pleads set offs in these proceedings.

(b)  HCA 3040/2015; here, Delco claims against CT Metals or Mr Fang for repayment of the Uncapitalised Portion of Delco Asia’s shareholder loans that are said to be owed to Delco Asia, which Delco claims to have acquired from Delco Asia under an assets and liabilities transfer agreement dated 3 October 2011 (“Assets & Liabilities Transfer Agreement”).  There are defences, claims to set off and counterclaims in these proceedings. 

(c)  HCA 2939/2016); here, Delco claims against Mr Fang and HWH:

i.   the sum of $6,252,000 being the first half-yearly interest payment of certain convertible bonds, which Delco previously directed CT Metals to pay to HWH instead of to itself; and

ii.  damages and/or breach of fiduciary duties/dishonest assistance in relation to the sale of CT Metal’s shares by Delco to HWH in January 2015.

12.  These proceedings came before Justice Godfrey Lam on 14 March 2019 where a series of strike out and pleading amendment applications were made.  This led to a written decision from G Lam J dated 26 July 2019 (the “Lam Decision”).  The Lam Decision is relied upon by both parties and I shall return to this decision below.

13.  The real argument between the parties can be encapsulated briefly as being three pronged:

(a)  The plaintiff says that its claims for $57,827,118 (Uncapitalised Portion) and $6,252,000 (CB Interest) are clear and essentially undisputed.  I shall refer to this below as the plaintiff’s “Primary Claim”.

(b)  The defendants demur on the Primary Claim but say that there are large set offs that must be recognized, namely $31,772,969.19 owed to Mr Fang, $72,345,000 owed to HKM Metals and $65,730,897 owed to Mr Chern Shyn Kang, said by Mr Fang to be his nominee.  These sums together, amount to $169,848,866.19.  I shall refer to this alleged right of set off below as the defendants’ “Set Off Claim”.  This right of set off is said by the defendants to be strong – and more than sufficient to extinguish the plaintiffs’ Primary Claim, such that the requested Mareva relief should not be granted.  

(c)  In response to that, the plaintiff asserts that the defendants’ Set Off Claim is a fiction; that there is no true debt owed by the plaintiff to the defendants at all and that the Set Off Claim is effectively a “concoction” based on paper debts that were “stuck” on the books of the plaintiff’s companies.  For this argument, the plaintiff relies upon the so-called “Scheme”, as now pleaded.   I shall call this the plaintiff’s “No Debt Defence.”

14.  Although that is a high level summary, I see this as being the essence of the dispute between the parties in the matters before me and these positions (and the documents relied upon by the parties) now need to be examined in more detail, in the Mareva context. 

Legal context

15.  The matters that the plaintiff needs to establish in order to obtain domestic Mareva relief are as follows (Hong Kong Civil Procedure 2019, §29/1/65):

(a)  The plaintiff must have a good arguable case on a substantive claim.

(b)  there are assets within the jurisdiction.

(c)  there is a real risk of dissipation of assets or removal of assets from the jurisdiction which would render the plaintiff’s judgment of no effect; and

(d)  the balance of convenience is in favour of granting the injunction.

16.  In addressing these matters, Mr Wong reminds me that caution is to be applied in determining whether to grant Mareva relief.  He referred me to the Court of Appeal decision in Grand Trade Development Limited v Bonance International Limited, (unrep., CACV 776/2000), citing these passages.

17.  Rogers VP stated;

“17. ...it cannot be said too clearly that Mareva injunctions are extremely serious. They are very damaging, they have been described time and time again as one of the court’s nuclear weapons; Mareva injunctions to prevent dissipation of assets should not be granted unless there is a clear basis on which the court can conclude that there is a risk of dissipation of assets. Unfortunately here, there is only supposition that that might be the case. There is no evidence to that effect and in my view, unfortunately, the order that I was prepared to make should not be made.” (decision, §17).

18.  Likewise, Le Pichon JA described the Mareva injunction as a “draconian remedy” that should not be granted “in the absence of sufficient and solid evidence” (decision, §19). 

Good arguable case – principles and submissions

19.  On the question of “good arguable case” in the Mareva context, Ms Sit SC (who appeared for the plaintiff) referred me to the decision of Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft GmbH ("The Niedersachsen") [1983] 2 Lloyd's 600.  In that case, Mustill J (as he then was) said (at page 606) that a good arguable case refers to the pleaded case being one which is more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50% chance of success.

20.  Ms Sit said that the plaintiff’s case easily achieves this hurdle.  In her submission, the plaintiff’s claims are clear and indisputed, namely that (i) the Uncapitalised Portion of Delco Asia’s shareholder loans (HK$57,827,118) and (ii) the CB Interest (HK$6,252,000) are payable and that this much is not really in dispute.  As to the former sum, this is said to be clear from the 2^nd defendant’s Defence in HCA 3040/2015 and also from the first affirmation of Mr Fang in the same proceedings.  The assertion that the latter sum is undisputed is said to be clear from HWH’s Defence and Counterclaim in HCA 2943/2015.

21.  In Ms Sit’s submission, weight should also be given to the §§12, 13 and 29 of the Lam Decision as confirming that the plaintiff’s Primary Claim is “largely undisputed”.  

22.  Ms Sit says the plaintiff’s Primary Claim easily surmounts the test set out in The Niedersachsen.  

23.  Following from that position, Ms Sit then asserts that for the defendants’ Set Off Claim, the burden of proof is to be approached in a different way.  In this regard, she referred me to the decision of Douglas Lam J in Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd, HCA 3023/2016 (unrep., 2 May 2017).  From that case, I believe paragraphs 41 and 42 to be relevant, which state:

[41] Although a plaintiff may have had at the ex parte stage a good arguable case, the defendant may be able to put up a defence and evidence of sufficient cogency as to “water down” the merits of the claim to an extent that it no longer amounts to a good arguable case (or even a serious issue to be tried). See eg Arrow ECS Norway AS v Xin Cheng Holdings (International) Company Limited (unreported) HCA 239/2016, 12 May 2016 at §§46, 61.

[42] That said, the existence of a good arguable defence does not necessarily negate a good arguable case. This was fairly accepted by Ms Lau, as it is entirely possible to have, at the interlocutory stage, both the claim and the defence being more than barely capable of serious argument and not necessarily having a better than 50% chance of success. For a Mareva injunction, there is no requirement that the plaintiff show that he has a “much better” case or argument than the defendant. See eg Kazakhstan Kagazy plc v Arip [2016] 2 All ER (Comm) 711, CA, at §25.

22.    From the Pacific Rainbow decision, Ms Sit asserts two propositions:

(a)  The burden is on the defendants to show (at least) a good arguable case on its Set Off Claim.

(b)  Even if (which Ms Sit does not accept), the defendants can show a good arguable case on its Set Off Claim (ie more than barely arguable but not up to 50% chance of success), that would still be insufficient to undermine the plaintiff’s good arguable case on its Primary Claim which, in her submission, is based on undisputed debts.

24.  Ms Sit says, in effect that the defendants’ Set Off Claim is a sham and that the defendants have fallen far short of establishing anything close to winning on the Set Off Claim.  It was on this issue that both parties spent a good deal of time at the hearing of this matter, walking through a range of contemporaneous documents.  These included:

(a)  a report from the Dutch Tax Authority dated 20 September 2005.

(b)  a deed of Assignment dated 24 June 2010.

(c)  two agreements on transfer of receivables (both undated) but which both took effect on 1 January 2011.

(d)  audit confirmations from August 2011.

(e)  an Assets and Liabilities Transfer Agreement dated 3 October 2011.

(f)  numerous emails between 2010 and 2015, including plaintiff internal emails.

(g)  financial statements and balance sheet extracts.

(h)  a report prepared by Ernst & Young Advisory Services Limited dated 29 January 2019.

25.  Ms Sit, for her part, said that these documents explain and are evidence of the so-called “Scheme” relied upon by the plaintiff, which was alleged to work as follows:

(a)  Delco Asia systematically under-invoiced the PRC companies when supplying scrap metals to them, by issuing an invoice which was paid by the PRC companies and entered into the books of Delco Asia, and then issued a second invoice of a higher amount which was used by the PRC companies to charge their customers and record in their books as acquisition cost; and

(b)  the difference between the two sets of invoices was accounted for in Delco Asia’s books as (inter alia) (i) turnover by way of pre-dated entries which were then written off simultaneously and (ii) capital (which in due course would be returned through (untaxed) payment of dividends).

26.  In Ms Sit’s submission, the defendants’ Set Off Claim is based on “mere book entries” – that due to the Scheme, there are no true debts owed to the defendants at all.  Ms Sit was clear in her assertion that the defendants have never been able to point to documents that evidence the origin of the debts said to be owed to the defendants.  On her case, the Set Off Claim is based on nothing more than historical accounting entries.

27.  For his part, the thrust of Mr Wong’s submissions was as follows:

(a)  The plaintiff places too much reliance on the Lam Decision, which was simply a case involving the amendment of pleadings. And in any event, the judge in that case did not have access to the plaintiff’s internal emails, which in Mr Wong’s view, show the plaintiff’s Scheme and the No Debt Defence to be “made up”.  

(b)  As to burden of proof, Mr Wong, like Ms Sit, relies on the Lam Decision, which stated the defendants’ position to be that “but for the defence of set-off, the sum is due from Fang to Delco” and that the defendants’ Set Off Claim “as a defence to the otherwise largely undisputed claims of Delco” (Lam Decision, §§13 & 29).  Mr Wong submits that the Set Off Claim is strong and that it entirely extinguishes the plaintiff’s Primary Claim.

(c)  Mr Wong asserts that the contemporaneous documents (and especially the plaintiff’s internal emails) provide overwhelming evidence of the validity of the Set Off Claim.  These were mostly the plaintiff’s own documents and there is not a whisper of the Scheme anywhere to be found.  Mr Wong says the “newly created” Scheme was necessary to avoid what would otherwise have been a simple netting off of the Primary Claim and the Set Off Claim.

(d)  Mr Wong submits that the plaintiff’s attempts to explain away the internal emails (which are said to show the validity of the Set Off Claim) are weak and hopelessly contrived.  He submitted that the court should draw an adverse inference as to the failure of Mr Stephanus Ooijen (from the plaintiff) to give evidence on this key issue. 

(e)  Relying upon the decision of Madam Justice Mimmie Chan J in Chen Lingxia v 中國金谷國際信託有限責任公司 and Others [2019] HKCFI 379 (at §§40 to 42), Mr Wong submitted that the plaintiff had a duty of full and frank disclosure in filing its inter partes summonses of 11 December 2018.  This is said to arise from the fact that at short notice, the defendants had not had the chance to put their case, at the hearing that followed just 2 days later.  Mr Wong said that the plaintiff had failed in this duty by not disclosed the damaging internal emails that are said to “prove” the Set Off Claim.  Mr Wong went further and submits that withholding evidence was sufficiently grave that the plaintiff should have no relief as it did not come to court with “clean hands.”

Good arguable case - decision

28.  I will begin by addressing the weight to be given to the Lam Decision, which both parties rely upon as supporting their position on the question of “good arguable case”. 

29.  The unobjectionable starting point here is that the matters before the judge in that case were pleading applications (applications to strike out and to amend).  The outcome of those applications having been decided upon by G Lam J, the matters in dispute in those proceedings will now go to trial.  In those circumstances, it does not seem appropriate for me to attempt to draw any sort of factual conclusions or inferences from the Lam Decision, during an interlocutory application.  

30.  In addition, I accept the submission of Mr Wong that the judge on that occasion did not have all of the documents before him that I have been shown (and in particular the plaintiff’s internal emails that were relied upon by both parties at the hearing of the present matter). 

31.  For these reasons, I do not believe that it would be appropriate for me to place much weight on the Lam Decision in determining the summonses before me. 

32.  I now turn to the question of whether the plaintiff has met the test of ‘good arguable case” as set out in “The Niedersachsen”.  In examining this question, I have taken on board and will apply the “supplementary” observations of Douglas Lam J in the Pacific Rainbow (supra) on the question of burden of proof.

33.  In approaching the good arguable case issue, my initial observation is that in this case, what we have is a long and initially successful relationship between the parties that has progressively turned sour, to the point where there is now litigation “on all fronts”.  The result is that a complex set of commercial relationships spanning a period of more than ten years will need to be the subject of detailed witness and - perhaps expert - evidence. But these are not matters for today and it is important that such matters are reserved for trial.     

34.  As part of a necessarily more limited inquiry as what constitutes a good arguable case in the Mareva context, it is convenient to start with the Primary Claim. 

35.  I am satisfied that the Primary Claim meets the test laid out in “The Niedersachsen”, and that this claim appears easily to constitute a good arguable.  I have really seen nothing that suggests otherwise.

36.  On the face of the contemporaneous documents it is tempting to say that that the Set Off Claim seems similarly strong.  It is reasonably compelling to me that nowhere in the documents is there a clear articulation of the Set Off Claim being anything other than genuine.  If the Scheme relied upon by the plaintiff were real – and not an “after the fact” creation, why do we not find explicit reference to the Scheme and the No Debt Defence in the contemporaneous documents?  But to balance against this, there is Ms Sit’s point, which strikes me as fair, that the defendants have seemed unable to particularize any underlying debts or liabilities that are said to give rise to the Set Off Claim.  For such a large set off, why are there no detailed particulars?

37.  Hence, looked at in the round, the Primary Claim seems easily strong enough to meet the evidential burden faced by the plaintiff. The Set Off Claim is surely a matter that the defendants are entitled to pursue at trial and from what I have seen upon an altogether preliminary review, I would say that there are contemporaneous documents which seem to provide some support for the Set Off Claim.

38.  But as noted, those are matters for trial and it is clearly premature to form a view as to whether the Set Off Claim “wins” against the Scheme and the No Debt Defence.    

39.  All that I am required to do here is to assess the Primary Claim and the Set Off Claim, in the manner suggested in the Pacific Rainbow case.   As to that, while I can see that the defendants have a good arguable case on the Set Off Claim, this does not in the words of Douglas Lam J necessarily negate the plaintiff’s good arguable case on the Primary Claim.

40.  Thus, I accept Ms Sit’s submission that by applying the test laid out in Pacific Rainbow, we arrive at the point where, even if it were accepted that the defendants show a good arguable case on the Set Off Claim (which I believe they have) that is not enough to undermine the plaintiff’s good arguable case on the Primary Claim.

41.  This being so, I am satisfied that the plaintiff meets the “good arguable case” criteria required for a Mareva application. 

42.  There are three related matters arising from Mr Wong’s written submissions which remain to be addressed.

(a)  It is suggested that the failure of Mr Stephanus Ooijen to provide an affidavit to address the plaintiff’s internal emails (as relied upon by the defendants) is a matter of great concern.  It is submitted that the court should draw an adverse inference  (as would likely be drawn at trial) that Mr Ooijen’s evidence, even if adduced, would not have supported the evidence of the plaintiff’s other witnesses.  All I would say here is that I am not inclined to draw an adverse inference in what is an interlocutory matter.  That is a matter for trial, if this issue is still “in play” at that time.         

(b)  It is also suggested that the plaintiff’s good arguable case fails because the plaintiff did not make full and frank disclosure of internal emails relied upon by the defendants in the hearing before me.  I accept Mr Wong’s starting point here (and following the decision of Madam Justice Mimmie Chan in Chen Lingxia v 中國金谷國際信託有限責任公司 and Ors [2019] HKCFI 379 at §§40-42), that the obligation of full and frank disclosure ought to apply in the present situation where the defendants had just two days to prepare for the return date hearing that took place on 14 December 2018.  But I do not believe, from what I have seen, that the plaintiff has fallen short in meeting that obligation.  It is suggested that the plaintiff’s internal emails should have been disclosed as part of the plaintiff’s application.  But this pre-supposes that the plaintiff knew the reliance that the defendants would be placing on those emails (which the plaintiff did not know at the time of its injunction applications).  In any event, both parties seek to rely on the internal emails and those documents are perhaps not an entirely “one way street”, as Mr Wong suggests.    

(c)  With these views expressed I do not see much in the defendants’ argument that the plaintiff should be declined relief for not coming to court with clean hands.

Assets in the jurisdiction

43.  As noted by the plaintiff, with reference to the 5th affirmation or Mr Fang, there are assets within the jurisdiction, in the form of the Escrow Fund held in the account of Messrs Stephenson Harwood.

Risk of Dissipation – principles and submissions

44.  In assessing the risk of dissipation, Ms Sit submits that the  test to be applied is an objective one – whether the refusal of a Mareva injunction would involve a real risk that a judgment in favour of the plaintiff would remain unsatisfied because of a risk of an unjustified dealing with assets (China Citic Bank Corp Ltd (Quanzhou Branch) v Li Kwai Chun, [2018] HKCFI 1800; HCMP 1408/2017 (unrep., 3 August 2018), §24.

45.  In Ms Sit’s submission, it is not necessary for the plaintiff to show any subjective, nefarious intent on the part of the defendants to dissipate or remove assets from the jurisdiction to defeat any judgment (China Citic Bank, §§19 to 25).

46.  Ms Sit further submits, with reference to China Citic Bank, §36 that in assessing the evidence of risk of dissipation, the court should approach the matter bearing in mind the jurisdiction should be kept flexible, the court is required to do what is just and convenient in any given case, the discretion of the court should not be hedged about with rigid rules, and the plaintiff’s burden of showing real risk of dissipation can be and indeed is often discharged by inferential evidence.

47.  Further, Ms Sit submitted that evidence of an “unacceptably low standard of commercial morality” particularly in connection with the transactions in question and after disputes have arisen, may entitle the court to conclude that there is a sufficient risk of dissipation (see Honsaico Trading Co v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235, 240H).  Although 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 (see Hornor Resources (International) Co Ltd v Savvy Resources Ltd[2010] 4 HKC 50, §§27 to 28), the conduct of the defendant remains relevant, and where such conduct shows the defendant paid no regard to its legal obligations and deliberately made misleading suggestions to the plaintiff, the court is entitled to conclude that there is a risk of dissipation (see Hornor, §§30 to 40).

48.  Against this legal backdrop, the plaintiff’s case on the risk of dissipation is based on disputes that arose in the aftermath of the successful listing of Chiho.  A company known as Green Elite Ltd (a BVI company) (owned equally by the plaintiff and HWH) held shares in Chiho. Following the listing, the plaintiff wrote (in May 2014) to ask for what it said was its share of the sale proceeds (which totalled $150,000,000).  Matters at that point then appeared to go quiet (at least this is my impression from the materials before me).

49.  More than two years later, in August 2016, the plaintiff asked for information and materials on Green Elite.  On the plaintiff’s case, the requested information was not forthcoming, and thus, proceedings were commenced in the BVI.   The plaintiff complains that in numerous respects, the defendants’ behaviour in those proceedings was obstructive and that material facts were suppressed from the BVI court and that this behaviour led to some highly adverse comments from the judge hearing those proceedings.  Ms Sit took me to several passages of transcript from the BVI proceedings that certainly show the BVI court’s disapproval of the conduct of the defendants. 

50.  From the plaintiff’s submissions, there is perhaps one particular matter that bears highlighting from the BVI proceedings.  It appears that during these proceedings, the court (and Delco) were led to believe from the written submissions of HWH, that the proceeds of the Green Elite share sale were still available for distribution.  But in fact, at the time of those submissions, the funds were already being dissipated (as discovered by the plaintiff in late 2018), allegedly to meet obligations to make distributions to the beneficiaries of an employee trust known as the FDG Trust.  Ms Sit took me to the transcript which showed that the BVI court was incensed at “vital information” on this issue having been “suppressed”. 

51.  In Ms Sit’s submission, the events surrounding the payment out of Green Elite funds are troubling for two reasons (i) withholding information and misleading the BVI court is a concern in itself and (ii) there are documents from the court appointed liquidators of Green Elite to the effect that they had seen “no lawful basis” for the distributions to the beneficiaries of the FDG Trust.  This is said to cast doubt on the appropriateness of the distributions made by the defendants to the FDG Trust’s beneficiaries.

52.  Mr Wong’s response begins with the words of Rogers VP, cited above in the Grand Trade case, namely, that there must be a “clear basis on which the court can conclude that there is a risk of dissipation of assets”.     And with reference to Re Chau Cham Wong Patrick (a bankrupt) [2016] 2 HKLRD 278 at §§31-32, it is said that the standard of proving the risk of dissipation is “relatively high” and that evidence of the risk must be “solid” or “cogent”.

53.  In Mr Wong’s submission, the plaintiff does not meet this standard.  In the defendants’ case, the Green Elite funds that were paid out following the Chiho listing were not misused or misapplied.  Rather, they were properly paid out to the beneficiaries of the FDG Trust.  Mr Wong led me to documents which, in his submission, showed the legitimacy of the payments to the beneficiaries of the FDG Trust.  He also pointed me to documents showing that all such payments had been properly paid out and received.   

54.  Mr Wong also asserts that the defendants had no duty to answer Delco’s questions regarding the distribution of the share sale proceeds.   Mr Wong also took me to the parties’ skeleton arguments in the BVI proceedings for support that the defendants did not mislead the BVI court. 

55.  The plaintiff’s retort, as foreshadowed above, is that the FDG Trust arrangement had been superseded; that a new system was implemented; and that the BVI courts had specifically found that there was no such trust.  Certainly this is how the liquidators of Green Elite saw the position.    

Risk of Dissipation – decision

56.  What is apparent from both the Hong Kong proceedings and the BVI proceedings as described above, is that the parties are engaged in wide ranging disputes on many fronts.  All points that can be taken, are being taken.  The question is whether the defendants, in the context of this fight, have crossed the line, such that the court should infer that there is a risk of dissipation of assets.   

57.  In this regard – and based on the information before me - the defendants’ conduct in the BVI proceedings is a concern, particularly for the following reasons:   

(a)  The court in the BVI proceedings expressed its view on several occasions that the defendants’ behaviour was obstructive and that important – even vital – information had been suppressed.  In my assessment it is evident that the BVI court took strong exception the defendants’ behaviour in those proceedings.

(b)  While the payment out of Green Elite funds is said by the defendants to have been to the beneficiaries of an employee trust known as the FDG Trust, there are documents from the court appointed liquidators of Green Elite to the effect that they have seen “no lawful basis” for the distributions to the FDG Trust.   

58.  While I have taken on board Mr Wong’s submissions on these issues, I am satisfied on balance that a refusal of a Mareva injunction in these circumstances would involve a real risk that any later judgment in the plaintiff’s favour would remain unsatisfied because of a risk of an unjustified dealing with assets.  This is test in the China Citic Bank Corp case.  To me, the “fight on all fronts” litigation now underway, when looked at from afar, is such that the risk of dissipation in this case is real and can properly be inferred, not least of which because the Escrow Fund if released, is highly liquid and could easily be transferred away from Hong Kong.

59.  Having reached this decision, I do not need to address the question arising from the Honsaico Trading case (supra), as to whether the defendants have shown an “unacceptably low standard of commercial morality”.   

Balance of convenience

60.  I am satisfied that the balance of convenience is in favour of my granting injunctive relief.  I note in this regard that the Escrow Fund has been in place since December 2015.  Given that the Escrow Fund has been held on agreed terms for more than three years, it appears reasonable in all the circumstances of this case that the Escrow Fund should continue to be so held, while the Hong Kong litigation matters proceed to trial (or to a negotiated settlement).

61.  It also seems relevant to me that the Escrow Fund was established by agreement between the parties and with the express intention of providing security for the Delco Proceedings, as defined in the Escrow Agreement.      

62.  Finally as to balance of convenience, I have taken note of the evidence of Mr Fang (in his 5^th affirmation) that granting the injunctive relief sought would strain his resources, especially given that there are other injunctions in place.  But with respect, that assertion is not substantiated.  If this remains an issue for Mr Fang, this is for another occasion.

Undertakings and fortification of damages

63.  The plaintiff has indicated its willingness to give the usual undertaking as to damages, which I shall address at the end of this decision.

64.  The defendants seek fortification in the amount of $5 million.  This is on the basis of the 5^th affirmation of Mr Fang, who contends that the continuing freezing of the Escrow Fund would deprive him of the opportunity to invest his sum.    Mr Wong relies on the decision in XY LLC v Jesse Zhu (unrep., HCMP 869/2014, 13 November 2015) at §73 for the proposition that being deprived of the opportunity to invest money frozen is a fact that is “always acknowledged” by the court. 

65.  Ms Sit submits that there is no basis for fortification and for this, she relies principally on the decision of Energy Venture Partners Ltd v Malabu Oil and Gas Ltd [2015] 1 WLR 2309, which held:

(a)  The applicant for fortification must show a good arguable case that he will suffer loss in consequence of the making of the injunction. An intelligent estimate can be made of the likely amount of any loss which may be suffered by the applicant for fortification by reason of the making of the injunction (decision, §§52 to 53).

(b)  The court must be satisfied that the making of the injunction was a cause without which the relevant loss would not have been suffered (§54).

(c)  While commercial parties would normally have a claim for the costs of borrowing for the loss of use of the frozen money, the rule can be displaced in appropriate circumstances (§58).

66.  I have taken note of the passage from XY LLC v Jesse Zhu that is relied upon by Mr Wong that “being deprived of the opportunity to invest money frozen is a fact that is “always acknowledged” by the court.  Yet I note also that on facts of that case, the judge found that there was no evidence to substantiate the defendant’s suggestion that it was an investment corporate vehicle, looking for investment opportunities from time to time.  Nor was there evidence in that case as to the investment opportunities alleged to have been lost.

67.  In my assessment, the same can be said of the present situation.  The assertion of being deprived of an opportunity to invest, as set out in Mr Fang’s 5^th affirmation, is unsubstantiated. This is problematic on the basis of the legal authorities presented to me.

68.  Further, it is noted that the Escrow Fund has been and remains on interest bearing deposit.   

69.  For these reasons, I would not accede to the defendants’ request for fortification of the cross-undertaking.  

Summary of decision and costs

70.  By this decision I have determined that the grounds to be satisfied for the granting of the requested Mareva injunctive relief have been met and I am therefore prepared to grant the orders sought by the plaintiff in its two summonses dated 11 December 2018.  I do so in these terms:

(a)  Orders in terms as to paragraph 1 of each of the summonses.

(b)  Undertakings from the plaintiff to be provided in the Actions,  in the following terms: “If the court later finds that this Order has caused loss to the defendants or any other party and decides that the defendants or that other party should be compensated for that loss, the plaintiff will comply with any order the court may make”.

71.  In these circumstances, I make a costs order nisi that the costs of the plaintiff’s summonses dated 11 December 2018 be the plaintiff’s costs in the cause, with certificate for two counsel, to be taxed if not agreed.