CONVOY COLLATERAL LTD v. CHO KWAI CHEE (also known as CHO KWAI CHEE ROY) AND OTHERS

CACV 197/2020
and CAMP 38/2020
(Heard together)

[2020] HKCA 537

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 197 OF 2020

(ON APPEAL FROM HCA 399/2018)

AND

(ON APPEAL FROM HCA 399/2018)

MISCELLANEOUS PROCEEDING NO 38 OF 2020

(ON AN INTENDED APPEAL FROM HCA 399/2018)

________________________

________________________
(Heard together)

________________________

REASONS FOR JUDGMENT

________________________

Hon Lam VP (giving the Reasons for Judgment of the Court):

1.  Convoy Collateral Limited (“CCL”), the Plaintiff in these proceedings, is a moneylender and an indirect wholly-owned subsidiary of Convoy Global Holdings Limited (“Convoy”). Convoy is the apex of the Convoy Group of financial services companies and it is listed on the main board of the Hong Kong Stock Exchange.

2.  The 1^st Defendant (“Roy Cho”) was an indirect owner of CCL.  At all material times Roy Cho held 50.1% of shares in Broad Idea International Limited (“Broad Idea”).  Between 2014 and 2017, Broad Idea held at least 18.28% of shares in Town Health International Medical Group Limited (“Town Health”).  Town Health together with its subsidiaries comprise the Town Health Group, which held at least 4.53% of Convoy shares during most of the relevant period from 2014 to 2016.  Town Health is also listed on the main board of the Hong Kong Stock Exchange.

3.  CCL claimed that Roy Cho was not merely an indirect owner.  It is alleged that since 2013 he had gradually acquired control over Convoy via associates, nominees and/or agents that occupied key positions within the Convoy Group and had acted as a de facto and/or shadow director of CCL and the Convoy Group. The 2^nd to 9^th Defendants are some of his associates, nominees and/or agents responsible for the senior management of CCL acting under his instructions (“CCL Co-Defendants”). 

4.  Roy Cho denied these allegations; instead, he claimed that his role was less substantial, having only been appointed to the board of Convoy when he was Executive Director from March to August 2017.  Prior to that, he said, he acted a Senior Advisor to Convoy and a consultant at CCL.

CCL’s claims, the BVI proceedings and the application for Mareva injunction in Hong Kong

5.  CCL’s claims against Roy Cho in this action are for relief under the following heads:

(a)  Roy Cho and several CCL Co-Defendants wrongfully caused CCL to advance loans in the total sum of HK$168.9 million to his friend and associate Sin, the chairman of First Credit Finance Group Limited (“First Credit”), a company listed on the GEM board, to finance the increase of Sin’s shareholding in First Credit at low prices.  Part of the loan, HK$33,200,000 was paid to Promising Finance Limited, a wholly-owned subsidiary of Town Health. Subsequently, Roy Cho and several CCL Co-Defendants wrongfully caused CCL to acquire 1,070,400,000 shares (29.5% stake) in First Credit from August to November 2016 in the market for the purpose of pushing up the prices of the First Credit shares and maintaining Sin’s control (in concert with Roy Cho through CCL) over First Credit without compliance with the obligation to make a general offer under the Takeovers Code.  Such acquisitions were matched by corresponding disposals of First Credit shares by persons and entities closely associated with Roy Cho (including his brother Cho Kwai Yee Kevin and Sin). Due to the improper purpose of allowing Sin and/or Cho to entrench their control in First Credit, CCL did not sell those shares before the share price plummeted sharply in September 2017, resulting in a loss to CCL of HK$259,869,800;

(b)  Roy Cho and several CCL Co-Defendants wrongfully caused the misappropriation of HK$33,212,800 from CCL to the 10^th Defendant (“Checkmate”) under the pretext of paying a false and fabricated loan referral fee to Checkmate in December 2015;

(c)  Roy Cho and several CCL Co-Defendants wrongfully caused or conspired with each other to cause CCL in November 2015 to grant an unsecured loan to the 11^th Defendant (“China Green”), a company listed on the main board of the Hong Kong Stock Exchange and to extend the loan and restructure the same in May and December 2016 by way of convertible notes. At the same time Roy Cho in concert with others acquired China Green shares by way of placement with margin loans from CSL in May 2016.  Roy Cho and other placees disposed of their China Green shares in March 2017 causing the share price to plummet.  Throughout the course of this period, he and several CCL Co-Defendants wrongfully did not cause CCL to convert the notes when it could have done so at a profit.  With the collapse of the China Green share price, CCL suffered loss of value of the convertible notes;

(d)  Roy Cho and several CCL Co-Defendants wrongfully caused CCL in November 2015 to grant the 12^th Defendant (“Athena Power”) an unsecured loan of HK$100,000,000 on terms that were commercially imprudent and disadvantageous to CCL, resulting in a loss of at least HK$34,600,000 (including interest) when in May 2016 Roy Cho and others caused CCL to assign its rights and benefit under that loan to Help U Credit Finance Limited for HK$70,000,000;

(e)  Roy Cho and several CCL Co-Defendants wrongfully caused CCL to acquire True Surplus International Investment Limited (“True Surplus”) in September 2016 from himself and the 13^th Defendant (“Zhang”) for HK$89,388,153.80 in a self-dealing transaction.

The total of the amounts claimed above adds up to HK$715,670,753.80. 

6.  On 15 May 2017, David Webb, a financial commentator, published a report titled “The Enigma Network: 50 stocks not to own” (“Webb Report”).  Convoy, China Green, and Town Health International were among the 50 companies named in the Webb Report. Some of the entities or individuals involved in the transactions under the five heads of claims are companies within the Enigma Network or persons in control of such companies.

7.  After the publication of the Webb Report, the Independent Commission Against Corruption (“ICAC”) and SFC began investigations of Convoy and its management and senior executives during the relevant time(s), including Roy Cho. 

8.  In November 2017 Roy Cho departed Hong Kong for Australia where he remained incommunicado until he decided to return to Hong Kong in September 2018 and surrender himself to the ICAC.  In May 2019 the ICAC laid charges against Roy Cho.  The criminal trial is ongoing in the District Court.

9.  Convoy appointed new directors in respect of itself and its subsidiaries in the wake of the ICAC’s investigation and arrest of several former Convoy executive directors.

10.  Shortly thereafter, on 6 February 2018 CCL applied in the British Virgin Islands (“BVI”) for, and obtained on 9 February 2018, an ex parte, temporary freezing order over Roy Cho and Broad Idea’s assets.  The freezing order by Chivers J (Eastern Caribbean Supreme Court, High Court of Justice, Virgin Islands (“BVI High Court”)):

(1)  restrained Broad Idea from disposing of, dealing with, diminishing the value of or encumbering shares it and/or Roy Cho directly and/or indirectly held in Town Health International or the proceeds of sale of such shares to the value of US$75,583,490.03;

(2)  restrained Broad Idea from registering, recording or recognizing (or causing same to) any change in Roy Cho’s ownership (whether legal, equitable, whole or partial) of shares in Broad Idea, and from cancelling or reissuing those shares, as well as from removing or allowing or instructing or causing the removal from the BVI of the share certificates for those shares;

(3)  restrained Roy Cho from disposing of, dealing with or diminishing the value of his assets in the BVI up to the value of US$75,583,490.03 or from disposing of, diminishing, dealing with or encumbering his shares (whether owned jointly, beneficially, legally or otherwise) in Broad Idea;

(4)  restrained Roy Cho from effecting or allowing any changes, variations or amendments to any agreement, trust and/or any other similar agreement in relation to which his shares (whether owned jointly, beneficially, legally or otherwise) in Broad Idea are held.

11.  Upon Roy Cho’s application, Adderley J of the BVI High Court on 2 May 2019 set aside the BVI freezing order against him on jurisdiction ground.  CCL applied for, and obtained on 25 June 2019 at the Eastern Caribbean Supreme Court, Court of Appeal, Virgin Islands (“BVI Court of Appeal”) a stay of Adderley J’s order. 

12.  On 30 July 2019, Adderley J issued an BVI freezing order against Broad Idea in substantially the same terms as before, but expanded the scope to cover all of Broad Idea’s assets worldwide, and also restrained Broad Idea from effecting or allowing any changes to its share register.

13.  On 30 March 2020 the BVI Court of Appeal upheld the setting aside of the BVI freezing order against Roy Cho.  On 31 March 2020 CCL applied for a stay of that judgment pending an appeal to the Judicial Committee of the Privy Council (“Privy Council”).

14.  Shortly after, the BVI Court of Appeal allowed Broad Idea’s appeal to set aside the BVI freezing order against it on 29 May 2020.  CCL has also applied for a stay of this judgment pending a Privy Council appeal.

15.  In the meantime, CCL issued its Writ of Summons in these proceedings on 14 February 2018 and filed and served its Statement of Claim 31 May 2018.  Roy Cho’s Defence was filed and served 26 February 2019, to which CCL filed and served its Reply on 23 October 2019.  On 25 June 2019 CCL issued its summons to apply for a Mareva injunction against Roy Cho and Broad Idea.  Harris J heard Mareva injunction application against Roy Cho and Broad Idea on 30 October 2019, and dismissed the application in his judgment of 11 March 2020 [2020] HKCFI 429.  

The judge’s decision

16.  The judge refused to grant the injunction because he considered that CCL had failed to show a real risk of dissipation of assets by Roy Cho.

17.  At [12] and [13] of the Decision of 11 March 2020, the judge set out the legal test to be applied in considering if the injunction should be granted.  After citing the judgment of Gloster LJ at [59] in Holyoake v Candy [2018] Ch 297, the judge summed up the approach at [13] as follows:

“ … It is necessary for the risk to be proved and in assessing whether or not it has been proved the court will have regard to all relevant background matters that provide an aid to determining whether the risk has been demonstrated. Commonly it is argued that evidence of dishonesty or low commercial ethics is capable of justifying the inference that a defendant will attempt to make himself judgment proof. However, the evidence must be relevant to the risk of dissipation, not simply the underlying claim.”

18.  The judge examined the risk of dissipation at [27] to [36] of the Decision.

19.  On the departure of Roy Cho from Hong Kong in November 2017 and his remaining in Australia incommunicado before his return in September 2018, the judge had this to say at [27] of the Decision:

“ It would seem to me quite clear that Roy Cho left Hong Kong in November 2017 for Australia in order to avoid the investigations commenced by the authorities and the Convoy group in Hong Kong. I find his evidence that his reason for spending time incommunicado in Australia was because he and his Family were in the process of emigrating to Australia at the time and that nothing adverse can be read into his disappearance, for that is what it was, entirely unconvincing. I also take into account the inconsistencies in Roy Cho’s evidence about the reasons for his departure for Australia. I accept that his Family may have been in the process of emigrating to Australia, but it does not follow that this is why Roy Cho left in November 2017; or why on his own case he spent far longer in Australia than was necessary to satisfy the requisite residency requirements or why he remained incommunicado in Australia until he decided to return to Hong Kong in September 2018 and surrender to the ICAC. It seems to me a compelling inference that he decided to avoid the investigations until such time as he had decided how best to respond to them and it is against this backdrop that the question of the risk of dissipation of assets is to be considered.”

20.  At [29] to [33], the judge had gone through the evidence on the specific transactions alluded by CCL as evidence of dissipation.  In a nutshell, contrary to Mr Wong’s contention that there was a strong prima facie case on risk of dissipation on the basis of those transactions, the judge found nothing suspicious in them, describing them as “unremarkable changes in [Roy Cho’s] financial affairs, or the affairs of companies with which he is associated”.

21.  The judge alluded to CCL’s reliance on the dishonest dealings which gave rise to the present action and the criminal charges against Roy Cho at [34],

“ CCL’s case on dissipation boils down to this. Roy Cho is central to the allegations of dishonest dealing involving the Convoy group, which have given rise to the present action and the investigations by the authorities which has led to the ICAC charging Roy Cho in connection with the True Surplus transaction. This suggests that Roy Cho has low commercial ethics and cannot be trusted, a conclusion, which is made more compelling by his disappearance in November 2017 for 10 months. Against this background the Court should view the purpose of the transactions that I have just described with appropriate scepticism and conclude that they evidence a real risk of dissipation.”

22.  Despite such contention, the judge was not satisfied that there was a concrete risk of dissipation at [35] and [36].  He explained his reasons as follows:

“ 35.  As I have explained in [15], what CCL has to demonstrate is a concrete risk of dissipation and this threshold cannot be met, particularly in the case of businessman, who CCL itself has characterised as sophisticated, by pointing to largely unremarkable changes in his financial affairs, or the affairs of companies with which he is associated, and inviting the Court to draw the conclusion that he should be assumed to be trying to make himself judgment proof.  It would be wrong, as Mr Wong invites me in [35] of his reply submissions, to draw an adverse inference from Roy Cho’s failure to file evidence detailing his assets and where they are located.  This would be to reverse the burden of proof.  Neither do I think that I can properly draw much assistance from Adderley J’s conclusion that there was a real risk of dissipation in the case of Broad Idea.

36.  Although I understand CCL’s concern and scepticism I am unable to find amongst CCL’s evidence sufficient to allow me properly to conclude that there is a concrete risk of dissipation of assets.  If I had reached the alternative conclusion I would have made a worldwide freezing order in the first instance in the amount of $654,057,954 and allowed Roy Cho to file evidence if he wished demonstrating to the court that he did not have any assets in excess of this amount and that he needed the order to be qualified to cover his legal and personal expenses.”

23.  The judge’s reference to concrete risk of dissipation at [35] was explained by him earlier at [12] (instead of [15]):

“ The purpose of granting a freezing order is to restrain a defendant from evading justice by disposing of assets otherwise than in the normal course of his affairs with the result that a defendant becomes judgment proof. It is not to provide security for CCL. There must be concrete evidence that there is a real risk of dissipation of assets in the sense which I have described. It is not sufficient to show that a defendant has a reason or the opportunity to dissipate assets.”

24.  This appeal is brought by CCL against the decision of Harris J of 11 March 2020 refusing to grant a Mareva injunction over the assets of Roy Cho.  Though the judge found that CCL has shown a good arguable case for its claims (for HK$654 million), as we have just explained, he was not satisfied that CCL had shown a real risk of dissipation.

25.  On 7 May 2020, the judge refused to grant leave to appeal.

26.  By a summons of 19 May 2020, CCL renewed its application before this Court.  On 3 June 2020, the then leading counsel for CCL signed a certificate of urgency asking for an expedited rolled-up hearing.

27.  Directions for lodging supplemental submissions were given on 4 June 2020.

28.  In the supplemental submissions of Roy Cho, counsel advanced the ground of delay to affirm the decision to refuse the injunction.  A draft respondent’s notice was attached.  The ground of delay had been considered and rejected by the judge.

29.  We held a rolled-up hearing on 16 June 2020 at which oral submissions were made by Mr J Maurellet SC (who appeared with Mr J Hui and Mr H Wong for CCL) as well as Mr S Wong SC (who appeared with Mr J Chang SC and Mr P Dong for Roy Cho).

30.  At the hearing, we granted leave to appeal and leave to file the respondent’s notice at the hearing and heard the substantive appeal.  At the end of the hearing, we announced our decision to allow the appeal with reasons to be given later.

31.  We now give our reasons for allowing the appeal.

The grounds of appeal

32.  The draft Notice of Appeal (not prepared by Mr Maurellet) is a prolix document and its content mostly consisted of submissions rather than grounds of appeal.  We do not find such document helpful for the purpose of identifying the true grounds of appeal.  Three grounds of appeal were identified in the skeleton submissions of CCL of 27 May 2020 and we shall process this application by reference to those three grounds:

(a)  The judge erred in law in finding that the evidence of Roy Cho’s dishonesty, evasiveness and/or low commercial morality is not relevant and only forms the backdrop in assessing the risk of dissipation.  The judge took an unduly restrictive view that there must be evidence of actual dissipation or other unjustified dealings with assets;

(b)  The judge misunderstood CCL’s factual case on risk of dissipation which is a holistic examination of a combination of factors including Roy Cho’s fleeing to Australia, evasive litigation tactics and incredible explanations in addition to the suspicious transactions and Roy Cho’s ability and opportunity to transfer and dissipate assets through a complicated corporate network;

(c)  The decision of the judge is plainly wrong and internally inconsistent as he found Roy Cho’s evidence on departure to Australia unconvincing and failed to have regard to the strong prima facie case raised by CCL on risk of dissipation.

Discussion

33.  A decision in respect of the refusal to grant an injunction involves the exercise of discretion on the part of the judge.  This court will not interfere with such exercise unless an appellant can show that the judge erred in law or misapplied the law by failing to take account of relevant considerations or taking account of irrelevant considerations or that the decision is plainly wrong, viz the exercise is outside the generous ambit within which reasonable disagreement is possible, see Ip Pui Lam Arthur v Ho Yuk Wah David [2018] HKCA 604.

34.  In our judgment, the resolution of the first two grounds of appeal calls for an examination of the proper approach in assessing risk of dissipation and whether the judge had applied the same correctly in this instance.

35.  The approach on assessment of risk of dissipation in the context of an application for freezing order was considered in the recent judgment of Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto [2019] EWCA Civ 2203 at [34].  His Lordship adopted (with a slight modification) the principles set out by Popplewell J (as Popplewell LJ then was) earlier in Fundo Soberano de Angola v dos Santos [2018] EWHC 2199 (Comm):

“ (1) The claimant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets. In this context dissipation means putting the assets out of reach of a judgment whether by concealment or transfer.

(2) The risk of dissipation must be established by solid evidence; mere inference or generalised assertion is not sufficient.

(3) The risk of dissipation must be established separately against each respondent.

(4) It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets may be dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.

(5) The respondent's former use of offshore structures is relevant but does not itself equate to a risk of dissipation. Businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets. Such legitimate reasons may properly include tax planning, privacy and the use of limited liability structures.

(6) What must be threatened is unjustified dissipation. The purpose of a [World Freezing Order] is not to provide the claimant with security; it is to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business in a way which will have the effect of making it judgment proof. A WFO is not intended to stop a corporate defendant from dealing with its assets in the normal course of its business. Similarly, it is not intended to constrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling their assets, it will not be sufficient to show that such continued conduct would prejudice the claimant's ability to enforce a judgment. That would be contrary to the purpose of the WFO jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy.

(7)   Each case is fact specific and relevant factors must be looked at cumulatively.”

36.  Subject to the following elaborations, we respectfully agree that these principles are applicable in Hong Kong.

37.  On the onus borne by a party seeking such draconian relief, whilst there are no doubt respectable authorities referring to the need for a solid evidential basis to establish a real risk of dissipation (see Mustill J in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft [1983] 2 Ll Rep 600 at p.606-607;Gloster LJ in Holyoake v Candy, supra, at [34] and Stock and Le Pichon JJA in Grand Trade Development Ltd v Bonance International Ltd CACV 776/2000, 3 November 2000, [18] to [19][1]), we prefer to describe the burden as solid basis for concluding that there is such a real risk.

38.  It is perhaps useful to remind ourselves what Mustill J (as he then was) had in mind when he referred to “solid evidence” in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft, supra, at p.606-607:

“ It is not enough for CCL to assert a risk that the assets will be dissipated. He must demonstrate this by solid evidence. The evidence may take a number of different forms. It may consist of direct evidence that the defendant has previously acted in a way which shows that his probity is not to be relied upon. Or CCL may show what type of company the defendant is (where it is incorporated, what are its corporate structure and assets, and so on) so as to raise an inference that the company is not to be relied upon. Or, again, CCL may be able to found his case on the fact that enquiries about the characteristics of the defendant have led to a blank wall. Precisely what form the evidence may take will depend upon the particular circumstances of the case. But the evidence must always be there. Mere proof that the company’s incorporated abroad, accompanied by the allegation that there are no reachable assets in the United Kingdom apart from those which it is sought to enjoin, will not be enough.”

39.  Gee on Commercial Injunction, 6^th Edn at para 12-033 discussed the “solid evidence” of risk of dissipation and at footnote 155 cited this part of the judgment of Mustill J as the authority on this requirement.  The learned author also observed that each case depends on its own facts and it is impossible to lay down any general guidelines on satisfying the evidential burden.  Instead, he discussed various factors that could be relevant.  For present purposes, it is pertinent to note that most factors are not direct evidence on dissipation as such.  Matters like the nature of assets held by the defendant, nature and financial standing of the defendant, past or existing credit history, defendant’s behaviour in respect of the claim can be indicative of the risk of dissipation. 

40.  Since the assessment is in respect of the risk of dissipation as opposed to the fact of actual dissipation, the exercise necessarily involves an evaluative and predictive judgment.  Thus, the evidential burden can be satisfied by drawing proper inferences from a holistic consideration of all the circumstantial materials that are indicative of risk, including matters which point against such risk.  Such holistic approach is alluded to by Kerr LJ in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft [1983] 1 WLR 1412 at p.1422H and Mortimer V-P in CAC Brake Co v Bene Manufacturing Co Ltd CACV 94/1998, 30 April 1998 at [18].

41.  A solid basis to support an inference of risk of dissipation is to be contrasted with unsupported or bare statements of fear which would carry little weight.  As observed by Sir Peter Pain in O’Regan v Iambic Productions (1989) 139 NLJ  1378 at 1379, “unsupported statements and expressions of fear, carry very little, if any, weight.  The court needs to act on objective facts.”[2]

42.  There are cases where a good arguable case on the underlying substantive claims could also be regarded as supporting a case of real risk of dissipation.  As highlighted in proposition (4) in Popplewell J’s summary, the court needs to scrutinise with care whether the allegations in respect of the claims justify the inference of likelihood of dissipation[3].

43.  Notwithstanding the broad statement of Godfrey J in Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLRD 235, Hong Kong judges have been vigilant in scrutinizing the allegations in a claim with care before drawing the inference of risk of dissipation.  Chu J (as she then was) in Hornor Resources v Savvy Resources [2010] 4 HKC 50 cautioned that the court must examine with care allegations of dishonesty before inferring therefrom a real risk of dissipation.  It was a case of breach of contract and the judge found there was a good arguable case that the defendant was dishonest in deliberately concealing its breach from the plaintiff.  It was held that a real risk of dissipation was established.

44.  In Crete Maritime Corp v Emirates Shipping Line [2017] 5 HKLRD 345, Anthony Chan J assessed the risk of dissipation in light of allegations of low commercial morality and analysed the allegations in the case (which the judge found to be no more than putting up poor excuses to get out of a bargain) before declining to infer risk of dissipation.

45.  See also Eastman Chemical Ltd v Heyro Chemical Co Ltd (No 2) [2012] 3 HKLRD 307 where the relevant earlier cases were helpfully summarized at [26].  Deputy Judge W Tam SC held that the requisite risk of dissipation was not established from allegations of breach of contract without solid evidence pointing to dishonesty or any attempts to conceal inventory or proceeds.

46.  In Lakatamia Shipping Co Ltd v Toshiko Morimoto, supra[4], the wrongdoing was the dishonest assistance provided by a mother to the son’s breach of a world-wide freezing order in the dissipation of certain proceeds subject to the order.  Haddon-Cave LJ held at [51] that:

“ (1) Where the court accepts that there is a good arguable case that a respondent engaged in wrongdoing against the applicant relevant to the issue of dissipation, that holding will point powerfully in favour of a risk of dissipation.

(2)   In such circumstances, it may not be necessary to adduce any significant further evidence in support of a real risk of dissipation; but each case will depend upon its own particular facts and evidence.”

47.  Wrongdoing relevant to the issue of dissipation can be some dishonest or wrongful acts which were not themselves acts of dissipation.  In VTB Capital v Nutritek International [2012] 2 CLC 431, the alleged wrong committed by the defendant was the procurement of a loan from CCL by fraudulent misrepresentation as to the value of the assets of the borrower and the disappearance of the proceeds in a complex web of corporate entities[5].  Lloyd LJ said at [177]:

“ … However, where (as here) the dishonesty alleged is at the heart of the claim against the relevant defendant, the court may well find itself able to draw the inference that the making out, to the necessary standard, of that case against the defendant also establishes sufficiently the risk of dissipation of assets.”

48.  In Lakatamia Shipping Co Ltd v Toshiko Morimoto, supra, at [55], Haddon-Cave LJ noted that in that dicta of Lloyd LJ the reference to the heart of the claim means the claim for an injunction.

49.  Another illustration is the judgment of Saville LJ in Grupo Torras SA v Al-Sabah (21 March 1997) which was cited in the judgment of Flaux J in Madoff Securities International Ltd v Raven [2011] EWHC 3102 (Comm)[6].  The defendant in that case was an investment adviser in Switzerland.  The judge found there was a good arguable case that he was implicated in a scheme of fraud and the nature of the allegation was such that there was a strong fear of dissipation.  Saville LJ said:

“ Since it is part of Mr Dawson’s own case that he was expert in the sort of intricate, sophisticated and international financial transactions which feature in this case, and since the plaintiffs had established a good arguable case that Mr Dawson had used his expertise for dishonest purposes, I am not in the least surprised that the judge reached the conclusion he did.”

50.  By way of contrast, in Holyoake v Candy, supra, the plaintiff’s substantive claim was coercion and duress instead of being defrauded[7].  The English Court of Appeal held that the evidence in that respect was not sufficiently strong to support the requisite risk of dissipation[8].

51.  In CAC Brake Co v Bene Manufacturing Co Ltd CACV 94/1998, 30 April 1998 our Court of Appeal held that a good arguable case that the defendants knowingly assisted in a scheme of fraudulent use of letters of credit to defraud the plaintiff was sufficient to show real risk of dissipation.  Applying the approach discussed in the fourth edition of Gee and the judgment of Phillips LJ in Norwich Union Fire Insurance Society Ltd v Eden[9], Rogers JA (as he then was) said it was a case that cried out for the grant of a Mareva injunction.  The refusal of the judge to do so was held to be in error.  Mortimer and Nazareth VPP agreed that the judge’s exercise of discretion was flawed.  Mortimer VP also mentioned that the court must look at the whole of the evidence and risk of dissipation does not necessarily follow from a strong arguable case of fraud.

52.  In Crete Maritime Corp v Emirates Shipping Line, supra, at [24] A Chan J expressed the view that where there is nothing more than propensity evidence it would not be right to infer from it a real risk of dissipation unless the conduct of the defendant is at or very close to the fraud or dishonesty end of the spectrum.  We have no doubt that such view was apt on the facts of that case.  As it shall become clear, the present case does not depend solely on propensity evidence and the evidence on the facts underlying the substantive claims does implicate Roy Cho with dishonesty and fraud.  As we have not heard submissions on the general application of such proposition, we prefer to leave it open.      

53.  To sum up, the approach set out by Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto, supra at [51] provides good guidance.  The ultimate question is whether CCL succeeds in showing objectively there is a solid basis for concluding that there is a real risk of unjustified dissipation of assets by a defendant.  That question is to be answered by examining the evidence holistically.  Evidence of dishonest and fraudulent conducts or other serious wrongdoings which form the basis of the claims, and which reflect adversely on the integrity of the defendant could point powerfully towards an inference of such risk.

54.  We should also mention that evidence of delay would also be relevant.  Delay after a defendant gained knowledge of a plaintiff’s claim can militate against the risk of dissipation as such defendant would already have the opportunity to dispose of assets should he be inclined to do so.  This is the stable-door argument which Mr S Wong strongly urged upon us in the present appeal by way of a respondent’s notice.  We shall deal with this contention below.      

55.  With these principles in mind, and having considered carefully the judgment of the judge, we came to the conclusion that he had erred in law and misapplied the same in the assessment of risk of dissipation in the following respects:

(a)  The judge had erred in law in holding that CCL’s evidence on the substantive claims were not relevant to the risk of dissipation;

(b)  The judge had misapplied the law in confining his consideration of the risk by reference to what Roy Cho had done from the time he became alive to investigations into the affairs of Convoy;

(c)  The judge had misapplied the law in failing to assess the disposal of Convoy shares by Roy Cho in light of the evidence on the substantive claims and came to the wrong finding that such disposal was an unremarkable change in his financial affairs.

56.  As we have seen, on the proof of the requisite risk, the judge had clearly stated at [13] that evidence of dishonesty or low commercial ethics must be relevant to the risk of dissipation and not simply the underlying claim.  Insofar as this statement of principle is concerned, we have no problem with it as it is perfectly in line with our analysis above.

57.  In dealing with the evidence in the present case on risk of dissipation, the judge alluded to the departure of Roy Cho from Hong Kong in November 2017 and spending time incommunicado in Australia until his return in September 2018.  The judge was not impressed by Roy Cho’s explanation and he found that Roy Cho did so to avoid investigations by CCL and the authorities. In our judgment, this finding at [27] is very telling for the assessment of risk of dissipation:

“ It seems to me a compelling inference that he decided to avoid the investigations until such time as he had decided how best to respond to them…”

58.  There is no doubt that the same can be said even after Roy Cho had come back to Hong Kong as he would monitor developments and re-assess his position, including the protection of his assets, from time to time.  For reasons further elaborated below, there is ample evidence to support an inference that dissipation of asset is a real option on Roy Cho’s agenda in the assessment on his response to investigations and litigations against him. 

59.  The judge went through the various specific dispositions and changes in financial arrangements relied upon by CCL at [28] to [33].  It is clear from [28] that in so doing, the judge confined himself to “what he can be shown to have done from about the time one would expect him to have become alive to the investigations”.

60.  Then, at [34] to [36], the judge viewed the purpose of these specific dispositions and arrangements “against the background” of the substantive allegations in the claims and Roy Cho’s disappearance for 10 months.  He held at [35] and [36] that these were largely unremarkable changes in the financial affairs of Roy Cho and the court was unable to conclude from them that there is a concrete risk of dissipation of assets.

61.  It is apparent from these paragraphs that the judge did not consider the evidence of the underlying substantive claims on their own as evidence of risk of dissipation.  Instead he focused on the specific dispositions and arrangements discussed at [28] to [33] of his judgment as the backbone of CCL’s case on such risk.  As the judge came to the view that such backbone was not solid enough, he did not find sufficient concrete evidence on risk of dissipation.

62.  That the judge’s approach was indeed so confined was confirmed in his Decision of 7 May 2020 refusing leave to appeal.  At [11], he categorically said that the allegations of wrong-doing in the present case were not of themselves relevant to the risk of dissipation.

63.  We have examined the nature of the allegations against Roy Cho in the substantive claims advanced by CCL.  As summarized above, there were five heads of claims.  It is not disputed by Mr S Wong that there was a good arguable case for these claims.

64.  The main underlying premise for all the claims of CCL is that Roy Cho exercised control and acquired ownership in Convoy through appointment of his associates, nominees and/or agents to occupy key positions in Convoy without himself holding a formal position.  Through such secret control and ownership, he was able to commit the serious wrongs complained of, which in many respects involved manipulations of the corporate affairs of Convoy and other listed companies in a dishonest manner.  As can be seen from the summary above, the scale of these wrongdoings is very substantial and sophisticated.  Most of them were carried through complicated schemes with dishonesty and fraud practised not only against Convoy or CCL, but also the other shareholders of the listed companies involved.  In our judgment, the concealment of a person’s actual ownership and control over the affairs of a listed company in the manner that Roy Cho allegedly did in order to evade one’s fiduciary obligations to listed companies and side-step compliance with the rules imposed by regulatory authorities designed for the protection of the general investing public is a serious form of dishonest deception.  The court can readily accept that the perpetrator of such serious wrong would have little hesitation in dissipating assets to avoid the consequence of a judgment against him.       

65.  We cannot accept Mr S Wong’s submissions that the transactions which formed the subject matters of the substantive claims were merely bad investment decisions.  Some of the allegations of CCL against Roy Cho include elements of self-dealings or serious conflict of interests. The relevant transactions were allegedly procured by Roy Cho on terms which were commercially unsound for CCL and from which Roy Cho or his friends or associates derived benefit.

66.  For the First Credit claim[10], quite apart from the fact that Sin benefitted from loans advanced by CCL and derived profit from sale of First Credit shares, a company in the Town Health group (Promising Finance Limited) obtained repayment of its loan and Roy Cho’s brother and other associates of Roy Cho also made profit from the disposals of their First Credit shares.  CCL started to acquire shares in First Credit and Sin made a profit when the price of the shares increased.  After the disposal by Sin, the share price dropped significantly and CCL suffered loss and damages.

67.  For the China Green claim[11], by virtue of the failure to exercise the conversion rights under those China Green Notes when the market price was above the conversion price, CCL suffered substantial loss when Roy Cho and his associates disposed of a large quantity of their shares causing the price of the shares to plummet to a level well below the conversion price.

68.  For the True Surplus claim[12], Roy Cho procured CCL to acquire his interest in True Surplus without going through proper due diligence check.  On the basis of Roy Cho’s interest and control over CCL, the transaction was a blatant disregard of the restriction against self-dealing or connected transactions.  As mentioned, this was only possible by virtue of the dishonest concealment by Roy Cho of his actual role in CCL.   

69.  In the Checkmate claim[13], it was pleaded that Roy Cho and others procured CCL to pay Checkmate a sum of money by way of loan referral fee based on false and fabricated loan referrals.  It was a case of fraudulent misappropriation.   

70.  With respect to the judge, it is plain to us that these allegations and evidence pertaining thereto are highly material to real risk of dissipation of assets even though they are not directly relevant to the transactions after Roy Cho became aware of investigation against him set out at [29] to [33] of the judgment.

71.  Further, viewed in light of the judge’s finding on the reason for his departure and absence from the jurisdiction, the disposal by Roy Cho of his Convoy shares in May 2017 (which were substantial assets) shortly after the publication of the Webb Report cannot be regarded as unremarkable changes in Roy Cho’s financial affairs.  The allegations of Roy Cho transferring the assets to his nominees had to be considered in light of the allegations of exercising ownership and control through nominees underlying the substantive claims and should not be brushed aside that easily.  Roy Cho’s evidence that the disposal was to obtain money to repay a loan of HK$715 million owed by Broad Idea to Credit Suisse AG under a facility letter of 19 May 2016 cannot be taken on its face value in light of the fact that Broad Idea was only a holding company with no business operation on its own.  The judge’s finding in this regard is plainly wrong.

72.  Taking account of all the evidence in the round, we are of the view that had the judge considered the matter without making the errors identified above, he would have come to the conclusion that a real risk of unjustified dissipation was sufficiently established.

73.  In coming to this conclusion, we have also considered the submissions of Mr S Wong on delay and the argument raised in the respondent’s notice.

74.  After taking account of the proceedings in BVI and accepting CCL had good reasons to proceed there instead in Hong Kong in the first place, the judge did not regard the delay in the application in Hong Kong as sufficient reason for denying relief, see [15] of the judgment below:

“ This case is unusual. Despite CCL being aware of matters, which as evidenced by its application in the BVI, it believed justified seeking a freezing order at the time the writ was issued, it has waited 16 months before making the application. CCL explains this by reference to the BVI proceedings. I accept that CCL believed in early 2018 that there was a risk of Roy Cho disposing of his assets. By that time the authorities were investigating the affairs of the Company and Roy Cho appeared to have fled Hong Kong. At the time the application was made to Chivers J in the BVI, CCL had obtained evidence that suggested Roy Cho was beginning to dissipate his assets. It would appear that CCL was advised that the best way of preventing further dissipation was to apply for freezing orders in the BVI against both Broad Idea and Roy Cho. The fact that Chivers J was not informed by counsel of the jurisdictional issue that Roy Cho’s non-residence gave rise to indicates that CCL’s legal team did not recognise the jurisdictional difficulty and that the better course was to apply for an order against Roy Cho in Hong Kong. Although, the way in which the attempts to freeze Roy Cho’s assets has been cumbersome it seems to me that the delay in applying to the Hong Kong court is understandable and of little weight …”

75.  As mentioned, initially CCL sought and obtained Mareva relief against Roy Cho and Broad Idea in BVI.  In Hong Kong, CCL only applied for Mareva relief against Roy Cho by a summons of 25 June 2019.  The judge gave directions at a call-over hearing and the substantive hearing took place on 30 October 2019.  The judge handed down his decision on 11 March 2020.  No doubt the pace at which the summons was processed reflected the fact that at that stage CCL had effective protection under injunctive relief granted in the BVI proceedings.  The protection in terms of injunction against Roy Cho ended with the dismissal of CCL’s appeal on 30 March 2020.  The remaining protection effectively ended on 29 May 2019 when the BVI Court of Appeal discharged the injunction against Broad Idea.

76.  In this appeal, Mr S Wong very properly acknowledged the difficulty in overturning this part of the judgment in terms of the reasonableness on the CCL’s part to pursue such relief in BVI instead of Hong Kong.  However, counsel submitted that the objective state of affairs was that Roy Cho was at liberty to dispose of his Hong Kong assets and the stable-door argument should militate against the grant of Mareva relief in Hong Kong.  He drew our attention to the fact that other than his holding in Broad Idea, Roy Cho was not subject to any injunction in the BVI proceedings over his assets in Hong Kong. 

77.  As identified by P Ng J in Re Chan Cham Wong Patrick [2016] 2 HKLRD 278 at [24], the underlying premise of the stable-door argument is that equity does not act in vain.

78.  It is also clear from the authorities that delay per se would not necessarily bar relief.  The ultimate question is still whether the plaintiff could show a real risk of dissipation despite delay.  A recent exposition of the relevant law is contained in the judgment of Jacobs J in PJSC National Bank Trust v Boris Mints [2019] EWHC 2061 (Comm) at [48] to [51] where recent English Court of Appeal judgments were discussed.  In JSC Mezhdunarodniy Promyshlenniy Bank v Pugachev [2015] EWCA Civ 906 at [34] Bean LJ endorsed the proposition that if the court is satisfied on the evidence that there remains a real risk of dissipation it should grant an order, notwithstanding delay, even if only limited assets are ultimately frozen by it.

79.  Thus, the significance of delay in each case must be considered on its own circumstances.  There are no doubt cases where a defendant has little connection with and limited assets within Hong Kong, particularly when the assets could be easily removed.  There are also cases where the fact that the assets remain here notwithstanding a defendant has knowledge of the claim for a long period of time can be evidence negating an inference of risk of dissipation.  In those cases, an unexplained delay can be fatal.  The authority cited by Mr S Wong, China Art Bank Co Ltd v Xu Zhiqiang [2018] HKCA 63 is one of such cases.  

80.  On the contrary, the delay in this instance is not unexplained and the stable door was not completely opened (secured as it were, at least with regard to Roy Cho’s holding in Broad Idea, by the BVI injunctions). Further, given the fact that the base of the defendant’s business empire is in Hong Kong and the scale and complexity of his financial affairs, we are satisfied that there is still a real risk of unjustified dissipation notwithstanding the lapse of time before the summons was issued on 25 June 2019.

81.  In short, we do not think equity will act in vain by the grant of Mareva relief.  For these reasons, we rejected Mr S Wong’s arguments based on delay.

82.  We therefore allowed the appeal and granted the order as we did.