SERIDOM SERVICIOS INTEGRADOS IDOM S.A.U. v. HENG WEN TRADE CO., LTD AND OTHERS

HCA 1631/2017

[2019] HKCFI 1368

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1631 OF 2017

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REASONS FOR DECISION

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1.  This was an application by Chengtongxiang Trading Co., Limited the 19^th defendant (“D19”) to discharge the injunction order (obtained in these proceedings by Seridom Servicios Integrados Idom S.A.U. (“the plaintiff”)) upon D19’s undertaking on a without admission of liability basis to provide security by paying the Sum (defined in §2 below) into court within three business days to be held to the order of court (“the undertaking”).

2.  On 27 September 2017, DHCJ Lee (as he then was) granted the injunction (continued by Madam Justice Mimmie Chan on 13 October 2017 (collectively “the injunction order”)) prohibiting D19 from removing from Hong Kong any of its assets up to the value of US$685,277 (being the full amount claimed by the plaintiff against D19) (“the Sum”) including “in particular” any money in D19’s bank account with DBS Bank (Hong Kong) Limited (“DBS”) pending trial or further order.

3.  The hearing culminated in a consent order based substantially on what the plaintiff had proposed four months earlier.  The following account is relevant to the costs order made.

Background

4.  The background to the injunction can briefly be stated as follows:

(i)   The plaintiff was victim of an email fraud that caused the plaintiff to transfer approximately US$2.4 million (“the Funds”) into the Hong Kong account of D2 on 21 June 2017 (“1^stLayer Recipient”).

(ii)   The Funds were the subject of 14 further transfers between 23 and 28 June 2017 to various recipients including D3, D4 and D5 (“2^ndLayer Recipients”).

(iii)   Between 23 June and 10 July 2017, certain 2^ndLayer Recipients including D3, D4 and D5 made further transfers to, inter alia D5 and D19 (“3^rdLayer Recipients”).

5.  The chain of transfers in so far as it concerned D19 is set out in §8 of the affidavit of Andrew James Frederick Robinson.  The evidence showed that on 27 June 2017, D19 received US$999,993.41 in total, directly from D5 into its bank account with DBS.  Of that amount, US$685,777 can be directly traced back to the Funds which belong to the plaintiff.  It was in those circumstances that the injunction order against D19 was made.

6.  So far as the underlying action is concerned, as between the plaintiff and D19, pleadings have closed and discovery completed.  The injunction order against D19 remains in place.  Notably, D19 has not challenged the grant of the injunction order which could only have been made on the basis that there is a real risk of dissipation.

7.  D19 which was incorporated in Hong Kong in 2015 claims to be engaged in the business of gold trading.  Yet, in the affirmation dated 23 November 2017 of Weng Shaonan filed on behalf of D19 disclosing its assets pursuant to the injunction order, it is claimed that apart from money held in the DBS account which is subject to the injunction order, D19 has no other assets of an individual value of HK$10,000 or more in Hong Kong,whether in its own name or whether solely or jointly owned.

8.  D19 appears to be nothing more than a shell company with no real business operations in Hong Kong.  It has one director (Huang Yushan) who is its sole owner and who resides in the PRC.

9.  The order sought was attached as a draft to its summons dated 17 December 2018 and read as follows:

“ Upon the undertaking by the 19^thDefendant on a without admission of liability basis to provide security by paying a sum of US$685,277.00 (or Hong Kong currency equivalent) (‘Sum’) into court within 3 business days counting from the day that the Injunction Order of Deputy High Court Judge Lee dated 27^thSeptember 2017 in so far as it relates to the 19^thDefendant (‘Injunction Order’) against the 19^thDefendant’s account held with DBS Bank (Hong Kong) Limited being account no. 475594677 is lifted (‘Undertaking’),

(a) the Injunction Order in so far as it relates to the 19^thDefendant shall cease to have effect;

(b) the Sum when paid into court pursuant to the Undertaking shall be held to the order of the court; and

(c)  the Plaintiff shall take steps to cause or procure the police to lift the restraint order, as imposed by the Hong Kong Police, if any, against the Account.”

10.  The application thus involves the lifting and discharge of the injunction order for three business days against the undertaking.  It would have the effect of giving D19 unfettered access to the DBS account for three business days, a proposition which the plaintiff understandably considered unacceptable given the state of the evidence: see §§7 – 8 above.  The risk of dissipation over those three business days could not be more obvious.

11.  While the plaintiff was amenable to a variation of the injunction order and has made several attempts to agree the mechanism with D19 without success, it objected to losing the protection it has secured under the injunction order for a period of three business days.

Whether the undertaking offers sufficient protection

12.  The purpose or objective of the present application was not entirely clear.  Seemingly, D19 wished to have unfettered access to the DBS account which remains frozen by the injunction order.  As the injunction order does not prohibit D19 from dealing with monies in excess of the Sum in the DBS account, clearly, there are no constraints on D19 dealing with such excess. 

13.  The initial proposal for paying the funds into court was made by letter dated 30 October 2018 but D19 never identified the intended source of the funds for payment.  The plaintiff was agreeable to the injunction being lifted on payment.

14.  On 23 November 2018, it transpired from D19’s letter of that date that the DBS funds had to be used to make payment.

15.  On 27 November 2018, the plaintiff proposed a joint application for a variation of the injunction order such that it would not prohibit the payment of the Sum out of the DBS account.  

16.  D19 did not consider the revised proposal acceptable given the “in particular” clause in clause 1.11(b) of the injunction order where the assets in the DBS account were specifically identified.  It cited Gee, Commercial Injunctions,6^th edition, §19-038 where it is stated that to take those assets out of the scope of the injunction required a variation order first being made.  

17.  D19 rejected the plaintiff’s counter-offer for a variation order as ‘unworkable’ and, instead of inviting further dialogue or discussion for a solution, it proceeded to issue the summons.

18.  D19 contended that the undertaking offered sufficient protection because its breach would render D19’s director liable to committal proceedings.  Given the matters highlighted in §§7 – 8 above, it is obvious that the undertaking was entirely meaningless and offered the plaintiff no comfort at all.

19.  Notwithstanding this summons, the plaintiff continued its efforts to reach agreement, refined its November proposal and on 14 January 2019 sent D19 a draft consent summons providing for a variation of the injunction order which would allow DBS to pay the Sum directly into court,upon confirmation of which, the injunction order would cease to have effect. It repeated its offer 4 days later, not having received any response from D19 in the interim.

20.  It will be seen that the plaintiff has in fact made four attempts to reach some accommodation with D19 without the need of a court application, both before and after the issue of the summons with the view to obviating a court hearing and to save costs.  D19 rejected all the proposals out of hand.

21.  On 20 May 2019, 3 days prior to the hearing, D19 filed its written submissions.  It was the first time that D19 raised the contention that DBS (which is not a party to these proceedings but who would be served with the undertaking) has power to override any unlawful instructions: see §§31 – 36 of the written submissions.  Pausing there, the notion that DBS would vigilantly police the DBS account bristles with difficulties: it fails to address what obligations (if any) DBS owes to the plaintiff and how DBS is to control internet transfers even if it were willing to co-operate.

22.  Then, at §36, it was stated that:

“ D19 have [sic] no objection that the court to give direction to the bank as follows:

direction for the DBS Bank (Hong Kong) Limited to issue a cashier’s cheque in the sum of US$685,277 payable to the Registrar, High Court to facilitate D19’s payment of the Sum into Court pursuant to the Undertaking.”

23.  At the hearing the ‘non-objection’ became “a request” to the court to order DBS as per §36 of D19’s written submissions.

24.  After hearing the parties, the court intimated to D19 that the court was not minded to accede to its application but was prepared to entertain a joint application for an order by consent to vary the injunction order along the lines proposed by the plaintiff.  It was entirely a matter for D19 whether it wished to make a joint application as proposed or face the inevitable dismissal of its summons.  A short adjournment was granted so that instructions could be taken.

25.  In the result, the court was presented with an agreed draft consent which substantially tracked the plaintiff’s proposal made on 14 January 2019, the only change being the substitution of the phrase “be permitted” in lieu of the phrase “does not prohibit”. 

The costs order

26.  The plaintiff sought an order that the costs of D19’s application be payable forthwith by D19 to the plaintiff to be summarily assessed on an indemnity basis.

27.  Mr Brown, counsel for the plaintiff, submitted that the plaintiff had made the proposal some 4 months ago.  But for D19’s intransigence and implacable opposition to any of the plaintiff’s proposals, effectively refusing to give the proposals any serious consideration, the present application would not have been necessary. 

28.  The present application was a discreet matter that is not dependent on the outcome of the trial.  Moreover, D19’s proposed order also required the plaintiff to “take steps to cause or procure the police to lift the restraint order, as imposed by the Hong Kong Police, if any, against the Account”: see (c) of D19’s draft order.  At the hearing D19 made no mentionof the provision at all.  The plaintiff had made it clear in its January proposal to D19 that the police would be informed of the order.  It is obvious that the plaintiff had no power to cause or procure the police to do anything and could not possibly agree to such an order being made.

29.  In my view, this application was wholly unnecessary and a waste of the court’s time.  What D19 wished to achieve could have been done by way of a consent order had it been prepared to apply its mind and give the plaintiff’s proposals due consideration rather than rejecting them outright and closing off dialogue and negotiation through its confrontationaland uncompromising attitude.  Such conduct by litigants is to be discouraged. I agree that this is an appropriate case for the award of indemnity costs.