XY, LLC v. JESSE ZHU AND ANOTHER

HCMP 869/2014

MISCELLANEOUS PROCEEDINGS NO 869 OF 2014

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D E C I S I O N
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1.  By my decision dated 13 November 2015 (“the Decision”), I dismissed the applications of the 2^nd defendant (“GNT”) for, amongst others, (a) discharge of a Mareva injunction (“the Discharge Summons”) and (b) fortification of the plaintiff’s undertaking as to damages (“the Fortification Summons”). There are now 2 applications by GNT for (i) leave to amend the draft grounds of appeal attached to the summons; and (ii) leave to appeal to the Court of Appeal against the Decision. I shall adopt the abbreviations used in the Decision.

LEAVE TO AMEND THE DRAFT GROUNDS OF APPEAL

2.  There is no objection from the plaintiff.  In fact, the parties’ arguments on whether or not leave to appeal should be granted were premises on the amended draft grounds of appeal.  I give leave to amend. 

LEAVE TO APPEAL

Legal principles for grant of leave to appeal

3.  Leave for an interlocutory appeal will only be granted if the court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.  “Reasonable prospects of success” requires something more than an appeal which is “arguable”, ie more than fanciful without having to be probable; and is akin to the test for setting aside a default judgment.  SMSE v KL [2009] 4 HKLRD 125, at §17; Ho Yuen Ki Winnie & anor v Ho Hung Sun Stanley & anor, HCMP 1009/2009, 24 August 2009, at §§16.

4.  GNT accepts that the Decision involves an exercise of discretion and the Court of Appeal will intervene only in limited circumstances, where the judge has misdirected himself in the relevant law or evidence, took into account irrelevant matters or failed to take into account relevant matters, or that his exercise of discretion was so plainly wrong that it was outside the generous amibt within which there can be a reasonable disagreement: Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642, §§54-55, Kwan JA.

Leave to appeal against the Discharge Summons

5.  Two grounds of appeal have been advanced in respect of the Discharge Summons:

(1) That this court has erred, when deciding whether a good arguable case has been established for applying for a HK Mareva, in failing to examine the plaintiff’s claim against GNT independently (Ground 1);

(2) That this court has erred in holding that the facts relied on (even assuming them to be true) provided sufficient grounds to grant a Chabra-type injunction against GNT (Ground 2).

Ground 1

6.  It is said that this court has erred in finding the Canadian Final Judgment as decisive (or at least, a very weighty consideration) and deferred the decision of whether there was a good arguable case to the Canadian Court. It is said that this was contrary to the principle that the Hong Kong court must examine the plaintiff’s claim against GNT independently.  It is submitted that in assessing whether the plaintiff had a good arguable case against GNT independently, the Canadian Final Judgment (and the Canadian Mareva) was of no assistance because no reasoned judgment had been given by the Canadian court and hence no suggestion by this court that the Canadian Final Judgment gave rise to any issue estoppel.

7.  There is no dispute that the court has to independently assess the evidence of the plaintiff.  However, if the foreign court has a reasoned judgment at an interlocutory stage, the Hong Kong court can take that as a starting point in relation to the question of good arguable case: Motorola Credit Corporation v Uzan & ors (No.2) [2004] 1 WLR 113, at pp 143-144:

“102. … Mr Leggatt argues that, in the context of proceedings under s.25 of the CJJA, where (as here) the foreign court in interlocutory proceedings has itself determined that a good arguable case exists against the defendants, that is, or falls to be treated as, a final decision upon that issue for the purposes of the s.25 jurisdiction of this court. We do not think that is correct. The requirement that the claimant must establish that Mareva-type relief would be granted if the substantive proceedings were brought in England requires a decision of the judge based on English procedures and the approach of the English court to the nature and sufficiency of the evidence in a situation where the claimant has come to England to obtain a remedy unavailable to him in the substantive foreign proceedings. It is frequently, indeed usually, the position that s.25 proceedings are brought following issue and service of the foreign proceedings but before there has been any decision of the foreign court which examines the strength or arguability of the claimant's substantive case. However, whether or not that is the position, in our view the English court is required, once issue is joined in the s.25 proceedings, to make a separate exercise of judgment rather than a simple acceptance of the decision of the foreign court in interlocutory proceedings decided on the principles applicable, the evidence then available, and the levels of proof required in that jurisdiction. (emphasis added)

103. Furthermore we do not think that it should be regarded as per se abusive of the English court's process that points are raised and arguments advanced in the English court which were not deployed before the foreign court. There may be a variety of reasons why that is so, whether because of deliberate omission, accidental oversight, non-availability of evidence, legal advice or tactical decision, none of which in itself involves abuse of this court's process.

104. …

105. … Where there is available to the judge on an application under s.25 a reasoned judgment of a foreign court at an interlocutory stage upon the merits or arguability of the defendant's claim, that judgment will inevitably form the judge's starting-point in relation to the question of 'good arguable case' and, depending upon the apparent cogency of the reasoning and the force of any arguments raised by the defendant, is likely to prove conclusive. …”  (emphasis added)

8.  In assessing a good arguable case against GNT, this court has examined the evidence independently: §§25-31 of the Decision, in particular §28.  The evidence was also reviewed in considering whether there was material non-disclosure: §§45-64.

9.  At the time the Discharge Summons was heard in October 2015 (“the October hearing”), the Canadian Final Judgment had been entered, unlike the situation referred to in Motorola Credit.  It was not less final because it was not accompanied by a reasoned judgment or was entered in default: Dicey, Morris and Collins on the Conflict of Laws, 15 ed, §14-023.  Unless and until set aside, these judgments can be enforced at common law by action in Hong Kong. 

10.  At the October hearing, despite the plaintiff’s reference to the Canadian Final Judgment, no argument was then taken by Mr Liang, then counsel for GNT as to the lack of finality of that judgment and that this court should not place weight on it.

11.  The reference to the Canadian Final Judgment merely reinforced the court’s view that there was a good arguable case.  GNT’s likely success in seeking to set aside the Canadian Final Judgment had been considered by this court as part its assessment of the good arguable case.

12.  Ground 1 is an attempt to raise new arguments to attack the exercise of discretion as opposed to point out an error of law.  I am not satisfied that Ground 1 has reasonable prospects of success.

Ground 2

13.  It is submitted that the findings in the Decision that Jesse Zhu was the sole beneficial owner of GNT and hence had control over its assets (even assuming to be true) did not provide sufficient grounds to grant a Chabra-type injunction against GNT; and that this court has blurred the distinction between control of the company’s assets and ownership thereof.

14.  Mr Lam SC submits that  that it is not legitimate, in the context of the Chabra-type injunctions, to disregard the separate corporate personality of individual companies in a group (sometimes referred to as “piercing corporate veil”), merely because the ultimate, or intermediate, holding company may have the practical ability to require a subsidiary to act in a particular way, or because it is necessary to achieve justice, even in circumstances where one or more of the companies in question may have been involved in some sort of impropriety.  To do so would offend the well-established principles of separate corporate personality.  See Parbulk II AS v PT Humpuss  Intermoda Transportasi TBK and others [2011] EWHC 3143 (Comm), §42, Gloster J.

15.  The mere fact that the judgment debtor has substantial control over the assets held by party against whom no cause of action is alleged is not enough. Rather, the proper question is whether there is good reason to suppose that the assets of that party (in this case, GNT, in particular the HK Account), are amenable or susceptible to execution of the judgment against the judgment debtor (Jesse Zhu): Parbulk, §58; JSC BTA Bank v Ablyazov (No 10) [2014] 1 WLR 1414 at §35; Lakatamia Shipping Co Ltd v Su & ors [2015] 1 WLR 291 at §32, Tomlinson LJ.

16.  These authorities have not been referred to in the October hearing. There are reasonable prospect of success in relation to Ground 2. On this basis, I grant leave to appeal on the Discharge Summons.

LEAVE TO APPEAL AGAINST THE FORTIFICATION SUMMONS

17.  GNT’s complaint is twofold.  Firstly, it is said that this court has gone too far to say that GNT’s liability to pay the plaintiff CAD9.98 million was a “certainty” as there was no basis to hold that the application to set aside the Canadian Final Judgment had no chance of success.

18.  With respect, this is a misreading of the Decision.  This court was balancing the situation whereby GNT had tendered no evidence of loss of investment opportunities with a situation where there was already a final judgment entered against GNT.  The certainty was describing the validity of the judgment until it was set aside.  This complaint has no merits.

19.  Secondly, it is contended that the absence of evidence of any concrete investment opportunities was inconclusive and there was a real (not fanciful) likelihood of loss in view of the large amount sitting idle in the bank account.  Reliance was placed on Samtani v Samtani [2012] 4 HKLRD 872 at 894-895, §§91-97.

20.  Samtani has its own special features.  The plaintiff himself agreed to provide fortification in the face of a partnership claim that had lots of difficulties.

21.  It is pointless to compare the facts in one case to another when exercising the discretion on whether or not to order fortification.  GNT’s complaint is at best a criticism on how this court exercised its discretion against GNT.  There is no attack on the legal principles applied by this court.  There is no prospect of success on this aspect of the intended appeal.

CONCLUSION

22.  I order as follows:

(1) There be leave to amend the draft notice of appeal;

(2) On a nisi basis, costs of and occasioned by the amendment should be to the plaintiff;

(3) There be leave to appeal in relation to the Discharge Summons;

(4) The application for leave to appeal in respect of the Fortification Summons is dismissed;

(5) In respect of paragraphs (3) and (4), there be an order nisi that

(i) 50% of the costs of the summons be to the plaintiff, and

(ii) 50% shall be costs in the cause of the appeal;

(6) Costs of the plaintiff under paragraphs (2) and (5)(i) are summarily assessed and allowed in the sum of $120,000.

23.  I thank counsel for their assistance.