XY, LLC v. JESSE ZHU (a.k.a. JIA BEI ZHU and JESSE JIA BEI ZHU) AND ANOTHER

CACV 11/20 16

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 11 OF 2016

(ON APPEAL FROM HCMP NO. 869 OF 2014)

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the court):

1.  This is the application of the 2^nd defendant (“GNT”) for leave to appeal to the Court of Final Appeal against a judgment of this court (Kwan JA and G Lam J) in an interlocutory appeal handed down on 5 December 2016 (“CA Judgment”), in which we dismissed the appeal of GNT against the decision of Au-Yeung J on 13 November 2015 (“CFI Decision”) dismissing its summons to discharge a Mareva injunction granted by L Chan J on 7 April 2014 (“the HK Mareva”).

2.  The notice of motion of GNT was filed on 29 December 2016.  The parties have served submissions in support and in opposition.  GNT has indicated it will not lodge a reply submission, nor does it request an oral hearing of this application.  Having considered the submissions, we think it appropriate to deal with the application on paper.

3.  The questions stated in §1 of the notice of motion said to be of great, general or public importance are as follows:

(1) Whether it is necessary for a plaintiff, in applying for a Chabra type injunction, to first identify some process or procedure of enforcement which would (or might) lead to the assets of a defendant whom the plaintiff does not have a substantial cause of action (“the NCAD”) becoming available to satisfy the judgment which the plaintiff may obtain against the defendant whom the plaintiff has a cause of action (“the CAD”); and then to show a good arguable case that such assets are susceptible or amenable to such process or procedure?

(2) Whether it is necessary for a plaintiff, in applying for a Chabra type injunction, to identify the legal basis upon which it is asserted that the assets of the NCAD are in truth the assets of the CAD?

(3) Whether the Court of Appeal was entitled to conclude, at §47 of the Judgment, that GNT would, at least arguably, hold the shares transferred to it gratuitously for the purpose of giving a false appearance on a resulting trust for Jesse Zhu, notwithstanding that no such argument had been raised by the Plaintiff (“XY”) either in the Court below, in its Respondent’s Notice and Supplementary Respondent’s Notice filed in the appeal, or at the oral hearing of the appeal?

4.  GNT also invokes the “or otherwise” ground to seek leave to appeal, on the basis of the matters stated in §2 of the notice of motion.

5.  There is no dispute that for leave to appeal to be granted, it must be shown that the intended appeal has a reasonable prospect of success.  Further, this being an appeal against a judgment of the Court of Appeal in an interlocutory appeal, the three-fold test laid down by Bokhary PJ in CASV Group (Hong Kong) Ltd v Jamshed Safdar (2007) 10 HKCFAR 629 at §1 must be satisfied, namely, it must be “clearly seen” that: (i) the proposed appeal genuinely raises a question of law of great general or public importance; (ii) the result of the appeal would turn on how that question is answered; and (iii) such result is likely to make a significant contribution to the just disposal of the litigation.

Question 1

6.  Mr Paul Lam, SC[1] contended for GNT that question 1 should be answered in the affirmative.  In support of this, he quoted Sir John Chadwick in Algosaibi v Saad Investment Co Ltd 2011 (1) CILR 178 at §49, and repeated his submission on appeal that the plaintiff, XY LLC (“XY”) has not attempted to identify any process of enforcement in Hong Kong regarding the assets of GNT, namely, the HK Account.

7.  As pointed out by Mr Robin McLeish for XY, the passage at §49 of Algosaibi does not provide support for Mr Lam’s contention.  It is clear in that part of the judgment, Sir John Chadwick was discussing a situation within the second limb of the statement of principle on the Chabra jurisdiction in the decision of the High Court of Australia in Paul Cardile v LED Building Proprietary Ltd (1999) 198 CLR 380 at §§57 and 58[2]. He was not addressing a case within the first limb.  The present case is concerned only with the first limb[3].

8.  The first limb was the original scope of the Chabra jurisdiction laid down in TSB Private Bank International SA v Chabra & Anr [1992] 1 WLR 231.  A comprehensive statement of this appeared in the judgment of Gloster J in Parbulk II AS v PT Humpuss Intermoda Transportasi TBK [2011] 2 CLC 988 at §41:

“Thus assets apparently the property of a third party (whether a company or otherwise), which credible evidence at the interlocutory stage shows may be held by that third party as nominee or trustee for the principal defendant, even though that third party asserts that they are beneficially owned by him, may be the subject of a freezing order in appropriate circumstances; such an order against the third party is made on the grounds that the assets are, in reality, the assets of the principal defendant, and that such an order is ancillary and incidental to the claim as against him …”

9.  See also the summary of principles of Popplewell J at §7(4) in PJSC Vseukrainskyi Aktsionernyl Bank v Maksimov [2013] EWHC 422 (Comm).[4]

10.  The focus of a first limb case is establishing that the assets held by the NCAD are in truth those of the CAD.  Thus, in a first limb case, as submitted by Mr McLeish, there will ipso facto be good reason to suppose that the assets held by the NCAD would be amenable to some process, ultimately enforceable by the courts, by which the assets would be available to satisfy a judgment against the CAD.  That is the over-arching basis for the Chabra jurisdiction, see §7(1) of the summary of Popplewell J.

11.  In contrast, the focus of a second limb case is the identification of a process of enforcement against the assets of the NCAD.  Hence, it requires more specificity as to the process of enforcement which will lead to the assets of the NCAD becoming available to satisfy a judgment against the CAD.

12.  We do not think this question raises a genuine question of law of great general or public importance, nor do we think the contention of GNT regarding this question has reasonable prospect of success.

13.  Furthermore, how this question is answered could not have changed the outcome of the appeal.  This is because XY did in fact identify in its skeleton submission on appeal[5] the process of enforcement it intended to invoke to make the assets of GNT available to satisfy the Monetary Judgment against Jesse Zhu, and that is by commencing fresh proceedings in Hong Kong against Jesse Zhu and GNT to obtain similar declarations and orders as those obtained in the Recovery Action under the Canadian Final Judgment[6].

14.  We refuse to give leave to appeal on this question.

Question 2

15.  Mr Lam’s contention here is that it is necessary for a plaintiff applying for a Chabra injunction to identify the precise legal basis upon which it is asserted that the assets of the NCAD are in truth the assets of the CAD.  He submitted that XY had not formulated the legal basis of its claim against GNT clearly and consistently.  He queried whether XY was running a case of express trust by agreement, express trust by inference from conduct, or resulting trust by operation of law.

16.  In a first limb case, where the NCAD holds assets as either a nominee or trustee for the CAD, the assets are in truth beneficially owned by the CAD.  The authorities cited by Mr Lam do not establish any requirement that the precise legal basis must be identified to make out a good arguable case that the NCAD holds assets as either a nominee or trustee for the CAD.

17.  Having considered the totality of the evidence, the appeal court affirmed the decision of Au-Yeung J there is sufficient evidence from which an inference may be drawn to support a good arguable case that GNT holds the funds in the HK Account as a nominee for Jesse Zhu[7].  That is all that the law requires.

18.  Besides, as submitted by Mr McLeish, in a case in which Au-Yeung J has found “a widespread fraud of epic proportions”[8], one would not expect to see evidence of an express trust by agreement made by the CAD who was found to be a fraudster.

19.  We do not consider the arguments raised by Mr Lam in respect of this question would have reasonable prospect of success, nor would his contention change the outcome of the appeal in light of the finding of the appeal court there is sufficient evidence from which an inference may be drawn to support a good arguable case that the funds in the HK Account belonged beneficially to Jesse Zhu.

20.  We refuse leave to appeal on this question.

Question 3

21.  The complaint here is that the appeal court relied on resulting trust[9] when this was not canvassed in argument by the parties on appeal or below or raised in the respondent’s notice or supplementary respondent’s notice.  Mr Lam said this was unfair and improper and it raised an important point of procedural law to warrant the Court of Final Appeal looking into this.

22.  We think his arguments are misconceived.

23.  What the appeal court said about resulting trust in §47 must be read in context, together with the preceding paragraph in §46 in which the court found that GNT had failed to adduce material evidence to support the contention that the funds in the HK Account were the proceeds of the repurchase by IND DairyTech of shares held by GNT.  In §47, the court went on to consider the hypothetical situation of what the position would be if there had been material evidence that the funds in the HK Account were proceeds of the repurchase of shares by IND DairyTech.  It was in that context that the court made the remark that if Ms Zhou’s evidence is accepted, GNT would arguably hold the shares and proceeds derived therefrom on a resulting trust for Jesse Zhu.  There is no important point of procedural law involved.  It cannot be a question of great general or public importance.  Any challenge to the remark concerning resulting trust could not have changed the outcome of the appeal.

24.  Leave to appeal on this question is refused.

“Or otherwise” ground

25.  For the “or otherwise” ground, Mr Lam repeated his submissions in questions 1 to 3.  He submitted that since the HK Mareva was granted on 7 April 2014, XY had failed to identify some process of enforcement which would or might lead to the assets of the NCAD becoming available to satisfy the judgment which it may obtain against the CAD and/or the legal basis upon which it is asserted that the assets of the NCAD are in truth the assets of the CAD.  He complained there is “grave injustice” that the funds of the HK Account are frozen for more than 32 months in these circumstances, and prayed in aid various dicta in Lloyds Bowmaker Ltd v Britannia Arrow Plc [1988] 1 WLR 1337 at 1347A to D and 1349F to 1350A.  He said the application of the legal principles to the facts here is “clearly a difficult and challenging exercise”.  He repeated his contention of procedural unfairness in respect of question 3.

26.  For good measure, he cited two instances in which the Court of Appeal granted leave to appeal to the Court of Final Appeal on the “or otherwise” ground.

27.  That the Court of Appeal had, in some instances in the past, granted leave to appeal on the “or otherwise” ground is neither here nor there.  The fact remains there is clearly a practice of the Court of Appeal not granting leave on this basis and leaving it to the Appeal Committee of the Court of Final Appeal to decide whether the case is appropriate to be heard by them.  There is hardly anything exceptional about this case to justify a departure from the practice.

28.  What was said by the English Court of Appeal in Lloyds Bowmaker Ltd was not in the context of a Mareva injunction granted to facilitate foreign proceedings where no substantive proceedings are contemplated in Hong Kong.

29.  As pointed out earlier, XY has in November 2016 commenced enforcement proceedings in Hong Kong against Jesse Zhu and GNT.  The time taken must be viewed with regard to the proceedings in Canada[10], that Jesse Zhu had delayed the enforcement process by engaging in jurisdictional gamesmanship (such as applying to set aside the Canadian Final Judgment) and declining to accept service of the writ issued in Hong Kong of the enforcement proceedings.

30.  Two levels of court have found sufficient evidence which clearly supports the inference that the funds in the HK Account are in truth the assets of Jesse Zhu.  We agree with Mr McLeish that the application of the legal principles to the evidence in a Cardile first limb case is well established and relatively straightforward.  It is not a difficult or challenging exercise, as submitted by Mr Lam.

31.  We do not think any alleged hardship and injustice to GNT is made out.  It must be borne in mind that GNT is a special purpose vehicle holding only one asset, namely, the funds in the HK Account.  And as rightly submitted by Mr McLeish, this must be viewed with regard to the strength of the evidence of Jesse Zhu’s beneficial ownership of the assets in the HK Account[11], and the weakness of GNT’s evidence in refuting this[12].

32.  We decline to give leave to appeal on the “or otherwise” ground.

Order

33.  We dismiss GNT’s application with costs to XY.  We make a gross sum assessment.  Costs for preparing the statement of costs for summary assessment are generally not allowed, see Practice Direction 14.3, §13.  Having considered XY’s statement of costs for this purpose, we allow reasonable costs to XY at $80,155.