ALPHA & LEADER ASSOCIATES LTD v. VICTORY MEGA TRADING LTD

HCA 212/2021

[2021] HKCFI 461

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 212 OF 2021

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DECISION

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1.  Having heard submissions from counsel, I have come to the view that the plaintiff’s application for injunction should not be rejected outright, as suggested by the defendant’s counsel. I would adjourn the application so that full evidence can be filed and substantive argument properly made. In the meantime, I would grant an interim mareva injunction up to the sum of RMB 320 million pending the final disposal of the application, subject to the undertaking given by the plaintiff and Mr Ma, as indicated in the latter’s affirmation.

2.  I set out below my brief reasons.  My views expressed below are of course provisional ones as they are arrived at within the short space of time the court is given to review the matter.  My reasoning is subject to revisiting in the future upon fuller arguments being considered: see China Shanshui Cement Group Ltd v Zhang Caikui [2018] HKCA 409.

3.  It does not appear to me that the plaintiff has a viable case on knowing receipt of trust property against the defendant.

4.  In gist, the plaintiff is alleging that Nation Field has failed to honour its promise under the Cooperation Agreement to pay the plaintiff a share of profits arising from the prospective distribution of the GITIC rights.  In fact, Nation Field has never intended to honour its promise as in 2017, without the knowledge or consent of the plaintiff, Nation Field transferred some of the GITIC rights it held to the defendant.

5.  On the evidence adduced by the plaintiff itself, the distribution by the Liquidation Committee of GITIC would be by way of cash.  In that case, under the terms of the Cooperation Agreement, Nation Field should pay a lump sum to the plaintiff in cash.  In other words, any claim against Nation Field would be a pure monetary claim.  The plaintiff has no right to claim any part of the GITIC rights as being its property.

6.  The second part of Clause 2.4, on which the plaintiff now relies, does not apply as it expressly deals with the distribution of non-cash assets.  That is not the case here.  The plaintiff’s reliance on this clause to found a propriety claim in respect of the GITIC rights seems misplaced.

7.  Where there is no proprietary right, there is no room for the plaintiff to say that the defendant is in knowing receipt of trust property. 

8.  For these reasons, I have serious reservation about the plaintiff’s claim for a proprietary injunction.  The “serious issue to be tried” hurdle does not appear to be met.

9.  The other cause of action raised by the plaintiff is that the defendant has conspired with Nation Field to injure the plaintiff’s interest by unlawful means.

10.  On this, I am of the view that the plaintiff has demonstrated that there is prima facie a good arguable case and a real risk of dissipation such that the plaintiff should be allowed to proceed further with the present application.

11.  On the merits of the plaintiff’s case, there are the following matters in support.

12.  First, it seems to follow from the commercial arrangement between the plaintiff and Nation Field that the plaintiff would look to the actual GITIC rights held by Nation Field for satisfaction of its claims under the Cooperation Agreement.  This would appear to be borne out by the second part of Clause 2.4 of the Cooperation Agreement.  Under that provision, in the event of a non-cash distribution by GITIC, the plaintiff would share the profits by receiving a portion of the non-cash assets. Therefore, it seems to be the contemplation of the parties that Nation Field would continue to hold on to the GITIC assets.

13.  Second, notwithstanding that, Nation Field transferred the GITIC rights to the defendant and another entity in late 2016 and early 2017 without any notice to the plaintiff.

14.  Third, despite that the plaintiff sent a letter to Nation Field in July 2017 reminding the latter of its promise to share the profits in the GITIC rights, Nation Field did not respond or make any mention of the transfer.

15.  Fourth, the evidence filed in support of the injunction granted against, among others, the defendant in HCA 1501/2017 suggests that Nation Field and the defendant are related parties, both controlled by a Mr Heng.

16.  Fifth, the above evidence also suggests that the transfer from Nation Field to the defendant was wrongful and fraudulent with a view to divesting the assets away from a Mr Lu, an alleged beneficial owner.

17.  Sixth, the defendant adduced no evidence to rebut the above suggestions.  In the end, settlement was reached in that action and the settlement terms would appear to be to the effect that the assets alleged to be owned by Mr Lu were to be returned to him.  They were in fact subsequently returned to him.  This seems to reinforce the conclusion that there was a wrongful and fraudulent appropriation of assets from the rightful owner by Nation Field and the defendant. 

18.  These are matters which would go to support a claim for conspiracy as against the defendant.  I consider that the plaintiff is quite entitled to rely on them to seek to make out a good arguable case at the substantive hearing. 

19.  I am conscious of the fact that the evidence filed in the HCA 1501/2017 action all pointed to fraud against Mr Lu, not the plaintiff in this action.  But at the very least, they are evidence pointing to the fraudulent character of a number of parties.  One of them is the defendant in the present action.  As commented in Binchuang Resources Co Ltd v Lockwood Group Ltd [2020] HKCFI 2941, fraud is often difficult to uncover and prove. I am of the view that the evidence in the HCA 1501/2017 action can be taken into account to evaluate the present claim of conspiracy to injure the plaintiff by unlawful means. 

20.  On the risk of dissipation, applying the approach set out in Convoy Collateral Ltd v Cho Kwai Chee [2020] 6 HKC 81, [2020] HKCA 537, the allegations made in support of the underlying claim are matters which can and should be taken into account as part of the holistic consideration to be undertaken by the court.  Arguably, they point to a conclusion that assets may be unjustifiably dissipated by the defendant to the disadvantage of the plaintiff such that its claim for share of profits, even if successful, will not be satisfied if the defendant is not restrained from doing so. 

21.  To sum up, on the materials before me, it is a case where the plaintiff should be allowed to proceed with the injunction application.

22.  It also seems clear to me that it is an appropriate case to grant an interim interim mareva injunction so as to preserve the status quo pending the final disposal of the application.  If no such interim relief is granted, even in the event that the plaintiff is successful at the substantive hearing, it is not clear whether the relief is going to afford any real protection to the plaintiff when the defendant is free to dispose of the assets in the meantime.

23.  On the other hand, the defendant’s assets are now subject to an existing injunction in the other High Court action. According to the defendant’s own case in that action, it has been open to it to apply for the injunction to be discharged since early last year.  But in the end it only took out an application to discharge last month.  It is not a criticism of the defendant.  But the timing does indicate that the defendant does not seem to have any urgent need to realise the GITIC rights.

24.  I therefore grant an order as indicated at the outset of the decision.  The amount is taken from the plaintiff’s summons.  It may not be as high as the plaintiff’s claim against the defendant but then the plaintiff has not adduced sufficient evidence before me to show what the amount should be.

[Submissions on costs]

25.  Costs of today’s hearing be in the cause of the summons.