COMPANY A AND OTHERS v. COMPANY D AND OTHERS

HCCT 31/2018

[2018] HKCFI 2240

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 31 OF 2018

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REASONS FOR DECISION

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1.  This is the application made by the Plaintiffs for the appointment of receivers, “to receive the 41,216,398 shares in Company G (a company incorporated in Thailand) (“Thai Co”) registered in the name of the 3^rd Defendant (“Thai Co Shares”)”. The application was initially made ex parte on 27 June 2018, with notice to the Defendants. I declined to make the ex parte order, and directed the Plaintiffs to issue an inter-partes summons in the usual way, for evidence to be filed by the affected parties and for the summons to be heard inter partes on an early date. The inter partes application only came before me on 2 August 2018, apparently after a renewed and failed application to the Court of Appeal. After hearing the parties, I dismissed the application and the following sets out my reasons for the dismissal.

2.  Receivership orders may well be the “flavor of the season”, as evidenced by the recent increase in the number of applications made to the court for such orders, but one must not lose sight of the fact that they are generally “draconian” and “invasive” by nature, and should not be easily granted in the absence of solid evidence of the risk of dissipation, or that the application is otherwise justified on clear facts - particularly when there is a less intrusive remedy available. 

3.  In Re Chime Corporation Ltd HCMP 4146/2001, 25 June 2003, the court pointed out that the power to appoint receivers on an interlocutory application is a discretionary power to be exercised flexibly, on a similar basis to that of an interlocutory injunction, such that the principles in American Cyanamid Co v Ethicon Ltd [1975] AC 396 apply.  The learned judge set out at paragraph 40 of the judgment the relevant factors to be considered as to when a receivership order can be granted.  These are: whether there is a serious issue to be tried, the alleged risk of dissipation of assets, the current protective regime and its efficacy, and the risk of damage to the parties and whether the risk can be adequately compensated by an undertaking in damages.  Such an order is normally made for the protection of legal or equitable rights to the ownership of the property (Mandarin Resources Corp Ltd v Cheng Heng Soon, CACV 146/1987, 28 April 1988), or where the receivership order is sought as being the only means of preserving assets which are in jeopardy or in “imminent danger of loss” (Macau First Universal International Ltd v Ding Xiaohong & Others, unreported, CACV the 193/2011, 31 July 2012), as in the case when a defendant has disregarded the existence and effect of an injunction restraining the defendant’s disposal of assets, by acting in breach of the terms thereof.

4.  In this particular case, there is the additional feature of the receivership order being sought in respect of the Thai Co Shares of the 3^rd Defendant, as an interim measure under s 45 of the Arbitration Ordinance (“Ordinance”) in aid of the arbitration seated in Singapore between the Plaintiffs and the 1^st and 2^nd Defendants (“Arbitration”), when the 3^rd Defendant is not a party to either the Arbitration or the arbitration agreement which led to the Arbitration.  The 3^rd Defendant, a Hong Kong company, has been sued as 3^rd Defendant in these proceedings, and together with the 1^st and 2^nd Defendants (together referred to as “Defendants”), the 3^rd Defendant resists the receivership order on the basis that the Hong Kong court has no jurisdiction under s 45 of the Ordinance to grant the interim measure sought by the Plaintiffs.  The only remedy sought against the 3^rd Defendant is the receivership order in respect of the Thai Co Shares registered in its name, and the claim that such shares are liable to be returned, ultimately, to the Defendants and be available for distribution to the Plaintiffs, as creditors under any award to be made in their favor in the Arbitration.  The Plaintiffs effectively argue that they are entitled to invoke the Chabra jurisdiction, on the basis that the Thai Co Shares are owned or controlled by the Defendants, and that the court has power to make orders against the 3^rd Defendant, a third party, in aid of the Arbitration between the Plaintiffs and the Defendants.

Relevant facts

5.  The Plaintiffs and the Defendants were parties to 2 separate sale and purchase agreements (“Agreements”), whereby the Defendants together acquired 97.94% of the shares in a Thai company known as Company H (“R Co”). Each of the Defendants executed deeds of guarantee to cross-guarantee each other’s obligations under the Agreements.  The Plaintiffs claim that the Defendants are special purpose vehicles created (and ultimately owned) by Mr X to hold the shares in R Co which were purchased under the Agreements (“R Co Shares”). They further claim that the only material asset which R Co held at the time of the Agreements was 59.4% of the shares in Thai Co, which is a leading renewable energy company in Thailand.  The total price agreed to be paid by the Defendants to the Plaintiffs was US$700 million (“Price”), by staggered payments tied to various milestone dates for completion of Thai Co’s key projects.  The Agreements are governed by Thai law and are subject to an arbitration clause in favor of arbitration in Singapore pursuant to the ICC Rules.

6.  According to the Plaintiffs, the 1^st Defendant failed to pay the 1^st installment payment and the 2^nd Defendant paid only part of the 1^st installment of the Price payable by them under the Agreements.  The Plaintiffs in fact commenced 2 separate arbitration proceedings in Singapore (referred to collectively as the “Arbitration”), the first against the 1^st Defendant in January 2016, and the second set against the 2^nd Defendant in March 2017. 

7.  The 1^st Plaintiff discovered that the 1^st and/or 2^nd Defendants were attempting to dispose of the R Co Shares to a third party.  On 29 January 2016, therefore, the 1^st Plaintiff obtained from the BVI court an interim injunction which prohibited the 1^st Defendant (a BVI company) from (inter alia) “selling, pledging, dealing with, charging or otherwise disposing of” its shares in R Co.  On 17 February 2016, the 1^st Plaintiff also applied for and obtained from the ICC emergency arbitrator an order (“February 16 Order”) which prohibited the 1^st Defendant from disposing of, transferring or taking “any other action having an economic effect similar to the disposal and/or transfer and/or encumbrance of” the R Co Shares it held.  The 2^nd Defendant was further ordered to cause the 1^st Defendant to comply with the February 16 Order, and not to pledge, encumber or dispose of the 2^nd Defendant’s R Co Shares.

8.  The February 16 Order recites that the 1^st Plaintiff had requested the emergency arbitrator to appoint a receiver “to secure the R Co Shares and to administer the 1^st Defendant”, to ensure that the 1^st Defendant exercises its rights to manage R Co and through R Co, Thai Co, in aid of the Arbitration.  The emergency arbitrator did not accede to such request, since he explained that the 1^st Plaintiff had failed to establish why the receivership was urgently required, in addition to the other emergency measures sought.  In particular, the emergency arbitrator stated that the 1^st Plaintiff had given no reasons and presented no evidence to explain why it was not sufficiently protected by the injunctive/freezing orders it sought (and which were granted), and he considered that the urgent need for the appointment of the receiver, pending the constitution of the arbitral tribunal, was not established. 

9.  After the February 16 Order, there was no further application made to the tribunal for the appointment of a receiver.

10.  It was only on 22 September 2017, after the hearing of the 1^st phase of the Arbitration, and when the tribunal made its Partial Awards against the Defendants (“Awards”), whereby the 1^st Defendant was ordered to pay the 1^st installment of the Price with interest, and the 2^nd Defendant was ordered to pay interest on the 1^st installment of the Price, that the tribunal extended the February 16 Order - by restraining the Defendants in terms that they were “not to dispose of the Thai Co Shares in any manner until the Global Purchase Price is paid to the Plaintiffs”, and subject to the tribunal’s findings in the 2^nd phase of the Arbitration.

11.  By this time, as the Plaintiffs later discovered in October 2017, R Co had in April 2016 already entered into a sale and purchase agreement (“April 16 Transaction”) to sell and transfer its shares in Thai Co to a 3^rd party. This is not disputed.  What is in dispute is whether this constitutes a breach of any injunction order of the tribunal. 

12.  According to the Plaintiffs, they discovered from documents obtained in criminal proceedings they initiated in Thailand that under the April 16 Transaction, the Thai Co Shares were allegedly sold by R Co to Mr X’s father, Mr Y, for approximately US $68 million, which is less than 10% of the Price under the Agreement.  The Plaintiffs allege that this purchase price was payable in multiple installments, that the funds were likely “recycled”, and further, that the majority of the funds R Co received under the April 16 Transaction were then lent to the 2^nd Defendant.  The Plaintiffs further discovered that the 3^rd Defendant was the recipient of 37.9% of the Thai Co Shares in about July and August 2017.

13.  On the basis that the Defendants had acted in breach of the orders of the tribunal, by disposing of the Thai Co Shares, and by causing R Co to dispose of the Thai Co Shares, the Plaintiffs applied to the Hong Kong court on 11 May 2018, and was granted an injunction in aid of the Arbitration (“May 18 Injunction”), to restrain the 3^rd Defendant from dealing with the 37.9% of the Thai Co Shares transferred to it under the April 16 Transaction.  The order against the 3^rd Defendant was sought on the basis that there were clear acts of dissipation by the Defendants in breach of the order of the tribunal, which acts were intended to frustrate the enforcement of the Awards.  The Plaintiffs also claim that the Thai Co shares held by the 3^rd Defendant were amenable to execution by which the Thai Co Shares would be available to satisfy the Awards against the Defendants (paragraph 24 of the skeleton submissions filed by the Plaintiffs in support of the ex parte application made to the Court on 11 May 2018 (“ex parte Skeleton”)).  The Thai Co Shares were, of course, the only material assets of R Co, and R Co was in turn, on the Plaintiffs’ case, held by the Defendants as Mr X’s special purpose vehicle companies.  The May 18 Injunction against the 3^rd Defendant, which was not a party to the Arbitration itself, was sought by the Plaintiffs from the court as an extension of the usual Mareva injunction on the Chabra basis (paragraph 37 of the ex parte Skeleton).

14.  The May 18 Injunction was continued by the Court on 18 May 2018, on the Plaintiffs’ application.

15.  On 27 June 2018, the Plaintiffs applied to the court again, to seek a receivership order in respect of the Thai Co Shares held in the name of the 3^rd Defendant.  This was on the basis that such a receivership order was necessary to reinforce the May 18 Injunction against the 3^rd Defendant in aid of the Arbitration.  The Plaintiffs claim that there was evidence of fraudulent conduct on the part of those in control of the 3^rd Defendant, which took place after the grant of the May 18 Injunction, and which resulted in the unauthorized transfer of all the shares in the 3^rd Defendant from Mr Y to Mr X’s mother-in-law, with forged documents involved.  The past conduct of the Defendants, in dissipating the Thai Co Shares in breach of orders of the tribunal, was also relied upon as evidence of the commercial immorality of those in control of the 3^rd Defendant.

16.  It is not disputed that on 25 June 2018, the 3^rd Defendant had effected a transfer of the 3^rd Defendant shares from Mr Y (Mr X’s father) to Mrs Z (Mr X’s mother-in-law).  The 3^rd Defendant’s evidence is that this was upon presentation to the 3^rd Defendant of the relevant instruments of transfer, bought and sold notes, the original share certificate, all signed by Mr Y, together with a declaration of trust and an agency agreement whereby Mr Y declared the 3^rd Defendant’s shares to be held by him as agent and on trust for Mrs Z.

17.  In short, on the Plaintiffs’ case, these transfers of shares in the 3^rd Defendant from R Co to Mr Y, and from Mr Y to Mrs Z, were not only breach of the injunction orders of the tribunal, but were all intended to evade the May 18 Injunction of the court.  The Plaintiffs claim that this was all part of a scheme by Mr X and the Defendants to seize control over the Thai Co Shares, as evidence of the fact that the Thai Co Shares - which are the assets of R Co, and the indirect assets of the Defendants - are in jeopardy, such as to warrant the grant of a receivership order to preserve such assets.

18.  The ex parte application, made on notice to the 3^rd Defendant, was opposed and the court ordered the matter to proceed on inter partes basis, with full arguments.

19.  During the interim, between the ex parte application on 27 June 2018 and the inter partes hearing of the application on 2 August 2018, Mr Y applied to the Court (in separate proceedings) and obtained an injunction, to restrain Mr X and Mrs Z from disposing of or otherwise dealing with the shares in the 3^rd Defendant (“3^rd Defendant Injunction”). This was on the basis of Mr Y’s claim that his signatures on the documents relied upon to effect the alleged transfer of the 3^rd Defendant’s shares from himself to Mrs Z were forged.  Mr Y claims that the acquisition of Thai Co was supposed to be a family investment and was funded or secured by family assets, but that Mr X had acted contrary to the agreement with Mr Y and the family.  Mr Y denies that the 3^rd Defendant’s shares were held by him on trust for Mrs Z, disputes the purported transfers of the 3^rd Defendant’s shares in his name to Mrs Z, and asserts that he only found out about the Plaintiffs’ claims made against the Defendants for the outstanding price of the acquisition of the R Co Shares, his shareholding in the 3^rd Defendant, and the May 18 Injunction against the 3^rd Defendant, in May or June 2018.  He was concerned about the management of the 3^rd Defendant, and anxious that the May 18 Injunction should be observed, thus leading to his application for the 3^rd Defendant Injunction against Mr X and Mrs Z, to prevent Mr X from taking control of the 3^rd Defendant.  At the hearing of Mr Y’s application for the 3^rd Defendant Injunction, the 3^rd Defendant also undertook to the court not to effect any further transfers of the 3^rd Defendant’s Shares.

20.  The claims made by Mr Y are, in turn, disputed by the Defendants.  This dispute as to the ownership of the 3^rd Defendant’s shares are now the subject matter of HCA xx/2018 between Mr Y, the 3^rd Defendant, Mr X and Mrs Z.

21.  The issue for determination by this court now is whether, as an interim measure to be ordered in aid of the Arbitration in Singapore between the Plaintiffs and the Defendants, the receivership order should be granted in respect of the Thai Co Shares which are registered in the name of the 3^rd Defendant.

Jurisdiction

22.  On behalf of the 3^rd Defendant, Leading Counsel argued that the court does not have any jurisdiction under section 45 of the Ordinance to make any order against a 3^rd party to the Arbitration.

23.  Section 45 of the Ordinance states as follows:

“45. Article 17J of UNCITRAL Model Law (Court-ordered interim measures)

(1) Article 17J of the UNCITRAL Model Law does not have effect.

(2) On the application of any party, the Court may, in relation to any arbitral proceedings which have been or are to be commenced in or outside Hong Kong, grant an interim measure.

(3) The powers conferred by this section may be exercised by the Court irrespective of whether or not similar powers may be exercised by an arbitral tribunal under section 35 in relation to the same dispute.

(4) The Court may decline to grant an interim measure under subsection (2) on the ground that—

(a) the interim measure sought is currently the subject of arbitral proceedings; and

(b) the Court considers it more appropriate for the interim measure sought to be dealt with by the arbitral tribunal.

(5) In relation to arbitral proceedings which have been or are to be commenced outside Hong Kong, the Court may grant an interim measure under subsection (2) only if—

(a) the arbitral proceedings are capable of giving rise to an arbitral award (whether interim or final) that may be enforced in Hong Kong under this Ordinance or any other Ordinance; and

(b) the interim measure sought belongs to a type or description of interim measure that may be granted in Hong Kong in relation to arbitral proceedings by the Court.

(6) Subsection (5) applies even if—

(a) the subject matter of the arbitral proceedings would not, apart from that subsection, give rise to a cause of action over which the Court would have jurisdiction; or

(b) the order sought is not ancillary or incidental to any arbitral proceedings in Hong Kong.

(7) In exercising the power under subsection (2) in relation to arbitral proceedings outside Hong Kong, the Court must have regard to the fact that the power is—

(a) ancillary to the arbitral proceedings outside Hong Kong; and

(b) for the purposes of facilitating the process of a court or arbitral tribunal outside Hong Kong that has primary jurisdiction over the arbitral proceedings.

(8) The Court has the same power to make any incidental order or direction for the purposes of ensuring the effectiveness of an interim measure granted in relation to arbitral proceedings outside Hong Kong as if the interim measure were granted in relation to arbitral proceedings in Hong Kong.

(9) An interim measure referred to in subsection (2) means an interim measure referred to in article 17(2) of the UNCITRAL Model Law, given effect to by section 35(1), as if—

(a) a reference to the arbitral tribunal in that article were the court; and

(b) a reference to arbitral proceedings in that article were court proceedings,

and is to be construed as including an injunction but not including an order under section 60.

(10)   A decision, order or direction of the Court under this section is not subject to appeal.”

24.  The interim measures referred to in section 45 (2) and (9) are set out in section 35 of the Ordinance:

“35. Article 17 of UNCITRAL Model Law (Power of arbitral tribunal to order interim measures)

(1) Article 17 of the UNCITRAL Model Law, the text of which is set out below, has effect—

“Article 17. Power of arbitral tribunal to order interim measures

(1) Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, grant interim measures.

(2) An interim measure is any temporary measure, whether in the form of an award or in another form, by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party to:

(a) Maintain or restore the status quo pending determination of the dispute;

(b) Take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself;

(c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or

(d) Preserve evidence that may be relevant and material to the resolution of the dispute.”.

(2) An interim measure referred to in article 17 of the UNCITRAL Model Law, given effect to by subsection (1), is to be construed as including an injunction but not including an order under section 56.

(3) If an arbitral tribunal has granted an interim measure, the tribunal may, on the application of any party, make an award to the same effect as the interim measure.”

25.  The 3^rd Defendant’s arguments on jurisdiction are summarized as follows:

(1)   The court’s jurisdiction and power to grant interim measures in aid of arbitrations is purely statutory, conferred under section 45 of the Ordinance.

(2)   Section 45 expressly excludes Article 17 J of the Model Law, which states that a court “shall have the same power of issuing an interim measure in relation to arbitration proceedings, irrespective of whether that place is in the territory of this State, as it has in relation to proceedings in courts.  The court shall exercise such power in accordance with its own procedures in consideration of the specific features of international arbitration.” The exclusion of Article 17 J means that the court is not intended to have the usual powers that it has in relation to legal proceedings.

(3)   Section 3 of the Ordinance states the object and principles of the Ordinance, and expressly provides in section 3 (2) (b) that the court should interfere in the arbitration of the dispute only as expressly provided for in the Ordinance.

(4)   As a matter of statutory interpretation, the interim measures under section 45 can only be granted against a party to the arbitration.  Article 17 of the Model Law refers to “parties”, and interim measures by which the tribunal can order against “a party”, and these can only refer to parties to the arbitration agreement.

(5)   The Ordinance is premised on the fundamental principle that arbitration is a consensual agreement between parties, to submit their dispute to arbitration by a tribunal.  The tribunal has no power to make orders against 3^rd parties.  It will be grossly unjust for the court to extend its jurisdiction to 3^rd parties and to subject these parties to orders of the court made in relation to arbitral proceedings, to which these parties have never submitted.  This is particularly so when, by virtue of section 45 (10), no appeal lies from any order of interim measure made by the court.  Counsel emphasized that the exclusion of a right of appeal in respect of a party to an arbitration agreement is not surprising, but a 3^rd party had never agreed to arbitration in the first place, and the Ordinance cannot have been intended to deprive such a 3^rd party of the right to appeal against an order to which he is subjected.

(6)   The 3^rd party may have no connection with Hong Kong at all, but Order 73 rule 7 (3) permits service out of the jurisdiction on such 3^rd party.  It cannot be intended that the court should extend its jurisdiction to a 3^rd party and its assets, all without any right of appeal.

26.  Leading Counsel for the 3^rd Defendant relies on the decisions of the English court in Cruz City 1 Mauritius Holdings v Unitech Ltd [2014] 2 CLC 784, and DTEK Trading SA v Mr Sergey Morozov [2017] WHC 94, in support of his proposition that the court does not have power to make any order for interim measure against a party who is not a party to an arbitration agreement or arbitration.  These decisions of the English court, that their power is limited, are based on section 44 of the Arbitration Act 1996 (“Act”).  The relevant provisions are as follows:

“44. (1) Unless otherwise agreed by the parties, the court has for the purposes of and in relation to arbitral proceedings the same power of making orders about the matters listed below as it has for the purposes of and in relation to legal proceedings.

(2) Those matters are—

(a) the taking of the evidence of witnesses;

(b) the preservation of evidence;

(c) making orders relating to property which is the subject of the proceedings or as to which any question arises in the proceedings—

(i) for the inspection, photographing, preservation, custody or detention of the property, or

(ii) ordering that samples be taken from, or any observation be made of or experiment conducted upon, the property;

and for that purpose authorising any person to enter any premises in the possession or control of a party to the arbitration;

(d) the sale of any goods the subject of the proceedings;

(e) the granting of an interim injunction or the appointment of a receiver.

(3) If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets.

(4) If the case is not one of urgency, the court shall act only on the application of a party to the arbitral proceedings (upon notice to the other parties and to the tribunal) made with the permission of the tribunal or the agreement in writing of the other parties.

(5) In any case the court shall act only if or to the extent that the arbitral tribunal, and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively.

(6) If the court so orders, an order made by it under this section shall cease to have effect in whole or in part on the order of the tribunal or of any such arbitral or other institution or person having power to act in relation to the subject-matter of the order.

(7)   The leave of the court is required for any appeal from a decision of the court under this section.”

27.  On my reading, section 45 of the Ordinance is not as confined and restricted in scope as section 44 of the Act.  The specified powers of the English court under section 44 are considered in the cases of Cruz City 1 Mauritius Holdings v Unitech Ltd and DTEK Trading SA v Mr Sergey Morozov. In Cruz City, Males J referred to several indications in section 44 itself, which show that “it is intended to be limited to orders made against a party to the arbitration ‘for the purposes of and in relation to’ which the court’s powers are to be exercised”.  He referred, firstly, to the opening words of subsection (1), that the section is “subject to contrary agreement between the parties”, which must mean the parties to the arbitration agreement. Males J then referred to subsections (4) to (6) of section 44, which provide that the court can only act on an application made with the permission of the tribunal or the agreement in writing of “the other parties”, except in cases of urgency; that the court shall act only if the arbitrators have no power, or are unable for the time being, to act effectively; and that the court is to hand back to the tribunal the power to act in relation to the subject matter of the order.  The learned judge explained that the reference in subsection (4) to “the other parties” could only mean that the court can act with the agreement of “the other parties to the arbitration”, that subsection (5) will always apply if an order is sought against a non-party, and that subsection (6) can have no application to an order made against a non-party.  Males J pointed out in his judgment that none of the indications to which he referred is conclusive, but that “together they suggest … that the section is simply not concerned with applications against non-parties”.

28.  Significantly, section 45 of the Ordinance does not have any provision corresponding to section 44 (4) to (6) of the Act.  Nor does section 45 exclude the power of the court to grant an interim measure, when “otherwise agreed by the parties”. 

29.  In contrast, section 45 (3) of the Ordinance provides that the powers conferred on the court by section 45 may be exercised irrespective of whether or not similar powers may be exercised by the arbitral tribunal under section 35 in relation to the same dispute.  Section 45 (4) only provides that the court may decline to grant an interim measure on the ground that it is currently the subject of arbitral proceedings, and the court considers it more appropriate for the interim measure sought to be dealt with by the tribunal.

30.  In relation to arbitral proceedings outside Hong Kong, the only restrictions on the powers of the court are those contained in section 45 (5) to (7) of the Ordinance.  Subsection (5) states that the interim measure may be granted by the court only if the arbitral proceedings outside Hong Kong “are capable of giving rise to an arbitral award (whether interim or final) that may be enforced in Hong Kong”, and the interim measure sought belongs to a type or description of interim measure that may be granted in Hong Kong in relation to arbitral proceedings by the court.  Under subsection (7), the court must have regard to the fact that the power to grant interim measures is ancillary to the arbitral proceedings outside Hong Kong, and “for the purposes of facilitating the process of a court or arbitral tribunal outside Hong Kong that has primary jurisdiction over the arbitral proceedings”.

31.  There is a reference in section 45 (2) to the court granting an interim measure “on the application of any party”.  In my view, this reference to “any party” is more neutral, and does not by its mere use indicate that the application for interim measure can only be made by a party to the arbitration or arbitration agreement.  It may in the context extend to any party before the court. 

32.  Section 45 (9) states:

“An interim measure referred to in subsection (2) means an interim measure referred to in article 17 (2) of the UNCITRAL Model Law, given effect to by section 35 (1) as if –

(a) a reference to the arbitral tribunal in that article were the court; and

(b) a reference to arbitral proceedings in that article were court proceedings,

and is to be construed as including an injunction but not including an order under section 60.”

33.  When section 45 (2) is read in conjunction with section 45 (9) and Article 17 (2), the effect is that on the application of “any party”, the court may, in relation to any arbitral proceedings, order “a party” to maintain or restore the status quo pending determination of the dispute, take action that would prevent or refrain from taking action that is likely to cause current imminent harm or prejudice to the arbitral process itself, provide a means of preserving assets out of which a subsequent award may be satisfied, or preserve evidence that may be relevant and material to the resolution of the dispute, within the meaning of Article 17 (2) (a)-(d).  The “party” may refer to a party brought before the court, against whom the interim measure is sought to be made.

34.  Article 17 (1) (incorporated in section 35) refers to the power of the arbitral tribunal, at the request of “a party”, and “unless otherwise agreed by the parties”, to grant interim measures.  The “party/parties” here must of course refer to parties to the arbitration, since Article 17 speaks of and provides for the powers of the tribunal itself. 

35.  I do not regard section 45’s exclusion of Article 17 J of the Model Law to mean, by itself, that the court is not intended to have the powers to grant the orders it would otherwise and generally have in relation to legal proceedings.  Article 17 J is excluded because section 45 is intended to set out the powers of the court in relation to interim measures.  Whether or not the court has the power to grant the relief sought by a party in each case depends on whether the relief falls within section 45 (2) to (9), read in conjunction with Article 17 (2), given effect to by section 35 (1): namely, whether the arbitral proceedings are capable of giving rise to an arbitral award that may be enforced in Hong Kong, whether the interim measure sought belongs to a type or description of interim measure that may be granted in Hong Kong in relation to arbitral proceedings by the court, whether the interim measure falls within the type of interim measure outlined in Article 17 (2) (a) to (d), and giving due regard to the matters outlined in section 45 (4) and (7). 

36.  This is supported in some way by paragraph 6.12 of the Consultation Paper on Reform of the Law of Arbitration in Hong Kong and Draft Arbitration Bill, December 2007, prepared by the Department of Justice (to which Paper GML has referred).  This simply states that “Article 17 J of the Model Law does not have effect as it is intended that the power and procedures for the granting of interim measures by the Court of First Instance in support of arbitral proceedings, whether in or outside Hong Kong, are to be separately provided for in (section 45) (2) to (7).”

37.  The 3^rd Defendant’s argument is that the Ordinance, and the provisions and powers conferred thereunder, are all premised on an arbitration agreement and an arbitration between parties who submitted to the agreement and the process and jurisdiction of the tribunal.  I agree that there are strong arguments in support of construing all references to “parties” to parties to the arbitration agreement and process.  Yet, the purpose and objective of the Ordinance have also to be borne in mind.

38.  The role of the court in the grant of interim measures, as clearly set out in section 45 (7), is ancillary to the arbitral proceedings, and the orders which the court may make under section 45 are for the purpose of “facilitating the process” of the arbitral tribunal, or the supervisory court, which has the primary jurisdiction outside Hong Kong.  This is all for the object (as set out in section 3 (1) of the Ordinance) to “facilitate the fair and speedy resolution of disputes by arbitration”.  The role of the court is to aid, and to facilitate, the arbitration and the tribunal.  Article 9 of the Model Law (which applies by section 21 of the Ordinance) expressly states: “It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.” The grant of interim measures under section 45 is accordingly not interference in the arbitration, and there is no need to further restrict the ambit of section 45 or to confine the scope of the interim measures which may be granted, beyond what is already expressly set out.

39.  The grant of any interim remedy is discretionary, and it remains open to the court to consider, on the facts of each particular case, whether it would be appropriate to exercise its powers, on grounds properly established, to make the necessary orders for the purposes of and in relation to the arbitral proceedings to be “facilitated”, aided and supported.  As the authorities have established, when the court is asked to grant any form of interim relief in aid, it applies the same general principles which govern the grant of interim injunctions and other interim relief in legal proceedings (Prema Birkdale Horticulture (Macau) Ltd v Venetian Orient Ltd [2009] 5 HKLRD 89).  In the case of a Mareva injunction, the applicant has to show a good arguable case and that the balance of convenience is in favor of the grant of the injunction sought. In the case of a Chabra type of order, the court should be satisfied that the 3^rd party holds, or controls the relevant assets of the potential judgment debtor, such that the order should be extended to the 3^rd party when the cause of action is only against the defendant judgment debtor. 

40.  To the extent that the authorities considered by the English court in Cruz City 1 Mauritius Holdings v Unitech Ltd and DTEK Trading SA v Mr Sergey Morozov had torefer to and rely on the relevant provisions of the English rules which govern service of proceedings outside the jurisdiction,to conclude that there is no basis for saying that the English court should have power to allow service out of the jurisdiction of proceedings relating to an arbitration to which the proposed defendant is not a party, there is no such issue or concern in Hong Kong.  Our Order 73 rule 7 (3) RHC expressly permits service out of Hong Kong of any originating summons or summons, by which an application for an interim measure under section 45 (2) of the Ordinance is made, with the leave of the Court.  Rule 7 (5) also provides expressly that no leave may be granted for service out, “unless it is made sufficiently to appear to the Court that the case is a proper one for service out of the jurisdiction” under rule 7.  The “line of positive decision that service out against third parties is not permissible” (paragraph 23 of the judgment in DTEK Trading SA) is not applicable to Hong Kong.  Our Order 73 rule 7 (3) and (5) also remove any argument of an intended check on the jurisdiction of the court.  The only question is whether the interim measure for service out can be ordered against a 3^rd party who is not privy to the arbitration agreement and arbitration.

41.  It may well be right, that the power of the court to make an order of interim measure against a 3^rd party to the arbitration and arbitration agreement should not be exercised lightly.  It has to be borne in mind that such a non-party should be brought to proceedings before the court, and be subjected to an order against which there is no appeal, only if it can be established on clear evidence, and on strong grounds, that the order should be made in aid of and to facilitate the arbitral proceedings.  However, I would not agree that the court has no jurisdiction at all, under section 45 of the Ordinance, to make such an order in the appropriate case.

Whether the order should be made in this case

42.  On the facts and in the circumstances of this case, I am not satisfied that the receivership order should be made as an interim measure against the 3^rd Defendant. 

43.  As the Defendants have emphasized, the Plaintiffs are not asserting any proprietary claim to the Thai Co Shares.  Their claim against the Defendants in the Arbitration are for the outstanding balance of the Price said to be payable under the Agreements.  They have no security interest over either the R Co Shares or the Thai Co Shares.  In seeking the May 18 Injunction, the Plaintiffs’ basis is that the Defendants exercise control or a power of disposition over the Thai Co Shares, or that the Thai Co Shares are liable to a process enforceable by the court whereby the 3^rd Defendant is obliged to disgorge the Thai Co shares held in its name.  The Defendants’ and Mr X’s control over the 3^rd Defendant, in whose name the Thai Co shares were registered, is now disputed by Mr Y, and the control of the 3^rd Defendant and the Thai Co shares are now the subject matter of separate legal proceedings instituted by Mr Y against Mr X and Mrs Z.

44.  The Plaintiffs have throughout relied on the fact that the Defendants had disregarded orders of the court and/or the tribunal in transferring the R Co Shares, such that they need the intervention of receivers, as a necessary remedy to preserve the assets of R Co.  However, at the time of the April 16 Transaction (which is said to be the disposition of the Thai Co Shares made in breach of the orders of the tribunal), the injunctions granted by the tribunal under the February 16 Order only prohibited the Defendants from disposing of their R Co Shares.  The April 16 Transaction was a disposition by R Co of its shares in Thai Co.  It was not until later, on 22 September 2017, that the tribunal extended its injunction to restrain the Defendants from disposing of the Thai Co Shares.  By then, the April 16 Transaction had already been effected.

45.  The Plaintiff seek to rely on the fact that under the February 16 Order, the tribunal had prohibited the 1^st Defendant from taking “any other action having an economic effect similar to the disposal and/or transfer and/or encumbrance of” the R Co Shares held by the 1^st Defendant. 

46.  An injunction should be precise in terms, to enable the party injuncted to know what steps would constitute breach and subject it to the legal consequences of being held to have acted in breach of the order.  An order made by a tribunal may be enforced by the court, such that any act in breach of an injunction granted by the tribunal may lead to possibly criminal proceedings for contempt of court.  Any uncertainty should be construed in favor of the party alleged to be in breach.

47.  The Defendants, R Co and Thai Co are all separate legal entities.  It is uncertain whether R Co’s sale of its shares in Thai Co can be said to have a similar economic effect as the Defendants’ disposal, transfer or encumbrance of the Defendants’ shares in R Co.  The “similar economic effect” is directed to the effect of a disposal or encumbrance, by the Defendants, of their interests in R Co, such that any disposition or act which has the effect of the Defendants ceasing to have any interest in R Co would be covered by the February 16 Order.  In my view, it is arguable that R Co’s disposal of its shares in Thai Co does not have such a “similar effect”.  In any event, it is not clear enough to conclude at this stage that the Defendants were, by reason of the April 16 Transaction, in breach of the February 16 Order in “causing” or allowing R Co to dispose of its shares in Thai Co to the 3^rd Defendant. 

48.  By reason of the Defendants, R Co and Thai Co being separate legal entities, I am not satisfied from the evidence at this stage that the 3^rd Defendant may be obliged to disgorge its Thai Co Shares, or to contribute to the funds or property of the Defendants, to satisfy any judgment or award against the Defendants (Paul Cardile v LED Building Proprietary Ltd (1999) 198 CLR 380), to justify any Chabra type relief to be granted.  Under Hong Kong law, there cannot be execution of any judgment against the Defendants, by resorting to the assets of a separate legal entity, the 3^rd Defendant.  The assets of the Defendants cannot be equated in this case with the assets of R Co.

49.  In any event, bearing in mind the matters set out in paragraph 41 above, I am not satisfied on the facts that this is an obvious case, supported by clear evidence, that the court should exercise its power to make an order against the 3^rd Defendant, which is a 3^rd party to the arbitration agreement and the Arbitration.

50.  Pertinently, there is now the 3^rd Defendant Injunction, whereby further transfers of shares in the 3^rd Defendant, from Mr X and Mrs Z, are prohibited.  The basis of Mr Y’s application for the 3^rd Defendant Injunction was, inter alia, that the May 18 Injunction granted by the court should be observed by the 3^rd Defendant, that he was supportive of the May 18 Injunction to prevent any wrongful steps taken by Mr X, or anyone under his instruction, to dispose of the Thai Co Shares subject to the May 18 Injunction.  According to Mr Y, he wanted to appoint his own choice of directors to properly manage the 3^rd Defendant and to ensure that steps be taken to comply with the May 18 Injunction. 

51.  On the Plaintiffs’ part, their application for the appointment of receivers was premised on the Defendants’ orchestrating the sale of the Thai Co Shares from R Co to Mr Y in April 2016, and then from Mr Y to the 3^rd Defendant, and thereafter Mrs Z’s attempt to transfer the 3^rd Defendant shares to herself, all in order to evade the May 18 Injunction, and/or that there were suspicious dealings in the 3^rd Defendant’s Shares by “the Defendants’ camp”, to suggest a risk of further transfers of the Thai Co Shares to 3^rd parties controlled by Mr X/the Defendants, in breach of the injunctions in place.  All this was to establish a risk of dissipation to justify the appointment of receivers, in order to preserve the assets held in the 3^rd Defendant’s name, namely the Thai Co Shares.  However, with the grant of the 3^rd Defendant Injunction which prohibits further transfers to 3^rd parties, the Plaintiffs’ case on the risk of further transfers and the necessity for receivers to step in and take over the Thai Co Shares in the 3^rd Defendant’s name goes.  The 3^rd Defendant has undertaken not to accede to any request for effecting any transfer of its Shares.  Further, on 1 June 2018, the tribunal extended its order to the 3^rd Defendant, directing it not to dispose or diminish the value of the Thai Co Shares, on the basis that the 3^rd Defendant was controlled by Mr X’s family.

52.  To conclude, there is no evidence of risk of dissipation of the 3^rd Defendant’s assets or of the Thai Co Shares, no clear evidence of any prior breach of the February 16 Order of the tribunal, or as to the questionable modus operandi of the Defendants (as alleged by the Plaintiffs) to demonstrate any risk of further breach of the May 18 Injunction or other orders of the tribunal, and there is available a less intrusive remedy already granted, to preserve the control of the Thai Co Shares through the 3^rd Defendant Injunction.  I am not satisfied on the evidence available that the existing regime of remedies is not adequate. 

53.  The Defendants have pointed out that the Plaintiffs’ claims in the Arbitration have been more than sufficiently protected.  The 1^st installment of US$89.25 million which was adjudged to be payable had been paid by the 2^nd Defendant in full by December 2015.  The 1^st installment of US$85.75 million adjudged to be payable by the 1^st Defendant was paid in full into an escrow account controlled by the tribunal on 28 February 2018.  Further transfers of the 3^rd Defendant’s Shares have been enjoined by the 3^rd Defendant Injunction granted on 29 June 2018.

54.  The Plaintiffs argued that injunctions granted by the Hong Kong court are not recognized under Thai law.  The individuals who control the 3^rd Defendant are resident in Thailand.  There is no way to police any injunction, as the Plaintiffs have no means to find out whether the Thai Co Shares have been transferred in breach of any injunction, unless and until the shareholder ledger is filed in Thailand, and there has been delay for over a year in the last filing.  The Plaintiffs seek to refer to evidence on Thai law, that there is no direct enforcement or recognition of foreign court judgments or orders in Thailand.  However, if a receivership order is granted over the Thai Co Shares, Thai courts will recognize that only a receiver has the authority, under Hong Kong law, to carry out any transfer of the Thai Co Shares, and that any attempted transfer of shares by the board of the 3^rd Defendant will not be recognized.

55.  In relation to the arguments made as to the alleged difficulties in policing any injunction restraining dealings in the Thai Co Shares, and the lack of recognition by the Thai court of an injunction order, I agree with Leading Counsel for the Defendants, that if this should be right, the court should have been so informed at the ex parte hearing of the May 18 Injunction, as it would appear from the submissions now made by the Plaintiffs that it would be futile to grant any injunction at all.  The utility and necessity of a receivership order, which gives no voting power to the receivers as the Plaintiffs now concede, is also questionable.

56.  In any event, I accept the submissions made on behalf of the 3^rd Defendant, that the purported expert evidence on Thai law which is sought to be relied upon by the Plaintiffs is inadmissible.  There is no declaration by the expert, as required under Order 38 rule 37C (1).  The requirements of Order 38 rule 37 should be observed in all cases where expert evidence is to be relied upon (see China Medical v KPMG, HCCW 435/2012, 24 February 2016, at paras 51 to 54), and there is no justification for parties and their advisers to be cavalier about compliance with the provisions of Order 37 on expert evidence.

57.  The above matters are in my view sufficient to dispose of the application for receivership, and there is no need to deal in detail with the Defendants’ and the 3^rd Defendant’s claims of the adverse effect which they may suffer as a result of a receivership order on the Thai Co Shares, which I agree cannot be ignored.

Disposition

58.  For all the above reasons, the application for the appointment of receivers was refused at the conclusion of the hearing on 2 August 2018.  The costs of the application are to be paid by the Plaintiffs to the Defendants and to the 3^rd Defendant, with certificate for 2 counsel.