YUNG WAI MAN v. LEUNG KWOK PONG

HCA 315/2020

[2020] HKCFI 2657

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 315 OF 2020

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R E A S O N S  F O R  D E C I S I O N

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1.  At the hearing of the summons issued by the plaintiff (“P”) on 17 March 2020 (“Summons”), I continued an ex parte Mareva injunction granted by Deputy High Court Judge Ismail SC on 13 March 2020 (as continued on 20 March 2020) (“Injunction”) whereby the defendant (“D”) was enjoined from disposing of or dealing with his assets which are within Hong Kong up to the value of HK$15,389,135 (“Limit”) including (i) the net sale proceeds of the property known as No 3, York Road, Kowloon (“Property”) and (ii) the sale proceeds of D’s shares in Finsoft Financial Investment Holdings Limited, a listed company in Hong Kong (“Finsoft”), but reduced the Limit by $6 million to HK$9,389,135. I ordered the costs of and occasioned by the Summons be P’s costs in the cause on the basis that D should not have opposed the Summons. These are the reasons for my decision.

2.  Mr Tommy Cheung, counsel for D, contends that the Injunction should not be continued on the following grounds:

(1)  P has no good arguable case against D.

(2)  P failed to discharge the relatively high burden of proving a real risk of dissipation of assets.

(3)  There was no good reason to justify the ex parte application without giving any notice to D. 

(4)  P failed to give full and frank disclosure at the ex parte application.   

3.  For the reasons explained below, none of the contentions have any merit. 

Good arguable case

4.  P’s claim is simple.  Prior to October 2019, he lent various loans to D which were used to purchase over 24 million shares in a listed company, PT International Development Co Ltd (“PTI”), on behalf of D (“PTI Shares”).  The PTI shares were purchased in the name of P and his relative (Ms Chow Yin Mei) and have since then been under the control of P.

5.  On 11 October 2019, P (as lender) and D (as borrower) entered into an agreement in Chinese entitled “股票抵押及現金貸款協議書” (“Agreement”).  The Agreement stated, inter alia, that the parties had agreed as follows:

(1)  From June to September 2019, D used 24 million shares in PTI as collateral for the loan advanced by P.  As at 30 September 2019, each share (including interest) worth HK$0.52 and the total amount translated in cash was  HK$12.48 million. 

(2)  As at 30 September 2019, D still owed P cash of HK$600,000 and interest of HK$200,000.  In addition, P on behalf of D had paid interest of HK$450,000 to Ms Lee Yan Lap (“Lee”).  The total amount owed was HK$1.25 million.

(3)  D shall repay all the loans before 31 October 2019.  If the value of the shares is not sufficient to repay the loans, D shall repay the shortfall in cash.  If P suffers any additional loss as a result of the fluctuation in the value of the collateral, D shall indemnity such loss.

(4)  The loan secured by the shares bears interests at 2% per month from 30 September 2019.  The cash loan bears interest at 4% per month from 12 September 2019.   

(5)  The Agreement is governed by Hong Kong law. 

(6)  The Agreement takes effect from the date it is signed.

6.  P refers to the loan described in §5(1) above as “Secured Loan” and the loans described in §5(2) above as “Unsecured Loans” and together “Loans”.

7.  There is no dispute that the Agreement was signed by P and D on the date stated, and P received from D a cheque for HK$300,000 on 18 September 2019 (“Cheque”), but the same could not be cleared.   

8.  It is P’s case that D had on 2 occasions in September 2019 and October 2019 told P that he would sell his shares in Finsoft to repay the Loans.  At that time, D owned about 17% shareholding in Finsoft. 

9.  In breach of the Agreement, D failed to repay the Loans by the due date (i.e. 31 October 2019). Apart from HK$150,000 paid by D’s relative in cash as partial repayment, which was applied to reduce the HK$600,000 previously paid by P on behalf of D (as repayment of interest due to Lee) to HK$450,000 (which formed part of the Unsecured Loans mentioned in the Agreement), no other repayment was made by D. As at 13 April 2020, the amounts owed by D were:

(1)  HK$14,085,760, being the Secured Loan plus interest of HK$1,605,760 (at 2% per month from 1 October 2019); and

(2)  HK$1,520,200, being the Unsecured Loan plus interest of HK$270,200.     

10.  By letter dated 11 February 2020 from P’s solicitors to D, P demanded D to make repayment in accordance with the Agreement together with legal fee of HK$5,000 within 18 days of the letter.  No repayment was made by D. 

11.  D denies that P has lent any sum to him.  On his case, P only acted as an “intermediary” between D and Lee in respect of the $20 million loan advanced by Lee for which D agreed to pay HK$300,000 to P as  commission. The commission was paid by the Cheque.  The Agreement was signed by D in reliance on P’s representation to the effect that it “functioned as D’s promises to make up for the drop in the value of the Collateral or Security in favour of [Lee]”[1]. In other words, it is a defence of non est factum.   

12.  In my view, P has shown a good arguable case against D.  His case is supported by contemporaneous document admittedly signed by D. 

13.  By contrast, the defence advanced by D is shadowy.  It is not supported by any document, let alone contemporaneous document.  Although much has been said by D about his dealings with and the loan advanced by Lee to him, I am unable to see how such dealings and loan can give rise to a defence to P’s claim.  This is particularly so when the Cheque could not be cleared such that P did not receive the HK$300,000 from D. 

14.  As for non est factum, it is trite law that a party of full age and understanding is normally bound by his signature to a document, whether he reads or understands it or not (Chitty on Contracts, 33^rd ed, §3-049).  Although D tries to get around that by alleging that he was misled into signing the Agreement, the nature of which is different from what he intended to sign, the burden is on D to meet the high threshold for establishing such a defence.  Given that the Agreement is a one-page document in Chinese and its title aptly described its nature, it is very hard to believe that D was misled into signing the Agreement.  Indeed, other than the bare assertion of D, he has not been able to adduce any other evidence in support of his defence of non est factum.   

Real risk of dissipation of assets

15.  At the ex parte application, P relied on the following facts and matters in support of his contention that there was a real risk of dissipation of assets on the part of D so as to render any judgment which may be obtained by P to become nugatory:

(1)  Contrary to D’s statements that he would sell his shares in Finsoft to repay the Loans owed to P, D sold a substantial part of his shares in Finsoft without informing P or repaying the Loans.   

(2)  It was only until February 2020 that P discovered from the Disclosures of Interests (“DoI”) published by the Hong Kong Stock Exchange that D had been disposing of his shares in Finsoft, which reduced his shareholding from 17.98% (as of 7 January 2020) to 11.22% (as of 25 February 2020).

(3)  D continued to sell his shares in Finsoft such that according to the DoI, as of 5 March 2020, D only owned 8.13% shareholding in Finsoft.  Based on its then trading price, the shares in Finsoft only worth about HK$6,663,800. 

(4)  On 6 February 2020, D told P that he would sell the Property and use the net sale proceeds to repay the Loans.  Shortly afterwards, D informed P that the completion date of the sale would be 22 April 2020.  On 5 March 2020, D told P that the net sale proceeds from the sale would be around $15 million.

(5)  P requested D to assign the net proceeds from the sale of his shares in Finsoft to him so as to repay the Loans.  On 7 March 2020, P provided a draft Deed of Assignment for D’s execution, which D agreed to revert with his comments by 9 March 2020.  However, on 8 March 2020, D suddenly informed P that he needed to travel outside of Hong Kong and would return on 10 March 2020. 

(6)  However, by the time of the ex parte application, D had not returned to Hong Kong or contacted P.   

16.  D does not dispute the above facts and matters. 

17.  Mr Cheung submits that none of the facts and matters relied on by P constitute “solid” or “cogent” evidence to discharge the “relatively high” standard of proving a real risk of dissipation of assets (Re Chau Cham Wong Patrick (a bankrupt) [2016] 2 HKLRD 278, §31, per Ng J) given that:

(1)  D denies that he had told P that he would sell the shares in Finsoft to repay the Loans. P fails to give any particulars of how and when such statements were made by D or produces document in support of his assertion.

(2)  The sale of shares in Finsoft would trigger disclosure obligation and D had no means to hide the sale.

(3)  D has kept P informed of the sale of the Property so as to discharge his liability.  Had he wanted to dissipate his assets, he would have sold the Property quickly at much lower price and, thereafter, transferred the proceeds out of Hong Kong.

(4)  P’s allegation about the draft Deed of Assignment is unsubstantiated and not sufficiently particularised.

(5)  D is a Hong Kong-based businessman living a busy life.  It has been his practice to travel to various countries for business purposes.   

18.  I do not accept Mr Cheung’s submissions.  The stark fact is that D sold a substantial part of his shares in Finsoft within a short time and without informing P.  The fact that P was able to discover the sale from the public record is neither here nor there as the disclosure obligation would only be triggered if the sale resulted in a change in shareholding by 1%.  It also presupposes that P had to monitor D’s shareholding in Finsoft on a regular basis, when there was no reason for P to do so in view of D’s promise to sell his shares in Finsoft to repay the Loans. As regards the sale of the Property, there is no credible explanation from D as to why P provided the draft Deed of Assignment to D for his consideration.  Unless D promised P that he would use the net sale proceeds to repay the Loans, there was no reason for P to provide the draft Deed of Assignment to D. 

19.  I consider that the facts and matters relied on by P at the ex parte application and the timing in which D took steps to dispose of his 2 most valuable assets, were sufficient to show that unless restrained by the Court to do so, D would dissipate his assets so as to frustrate any judgment which may be obtained by P against D in this action.

20.  Indeed, the risk of dissipation of assets is reinforced by the evidence now before the Court in that:

(1)  Contrary to what D had told P, the net sale proceeds of the Property was not HK$15 million but only HK$2.3 million, as the bulk of the proceeds were applied to discharge the encumbrances against the Property;

(2)  Other than confirming that the sale proceeds of Finsoft were deposited into D’s account maintained at the securities firm, there is no information on how much of such proceeds remain in the account and whether such proceeds are subject to any charge or security created in favour of the securities firm.

(3)  D has been subject to demands made by various creditors and he needs to carry out “re-financing” before he can raise funds to repay such creditors.  This confirms that D has been in financial difficulty and he does not have the financial means to repay his creditors, let alone the Loans owed to P. 

Justification for ex parte application

21.  It is well-established that ex parte application should only be made where either the delay would cause injustice to the applicant, orthe defendant would take action which may nullify the effect of the injunction (Ho Tak Eng v Fame Brilliant Ltd [2006] 1 HKLRD 34).   

22.  The justifications for making the application on ex parte basis were need for secrecy and urgency, given that (1) D had not returned to Hong Kong and could not be found; and (2) the imminent completion of the sale of the Property.  Although P had been told by D that the completion date was 22 April 2020, he had no means to verify such statement given that the relevant agreement was still pending registration and, in any event, D might be able to bring forward the completion date.   

23.  Mr Cheung submits that need for secrecy is not enough.  What needs to be shown was “extreme secrecy”, and there was no reason why P could not give any notice to D so that he could present his case before the Court.  I disagree.  I accept the matters relied on by P are sufficient to justify making the application on an ex parte basis without any notice to D.

Full and frank disclosure

24.  Mr Cheung submits that P has failed to discharge his duty of giving full and frank disclosure at the ex parte application in respect of the following matters:

(1)  The legal principles that the standard of proving real risk of dissipation is “relatively high” and the applicant must establish the risk by solid and cogent evidence.

(2)  D has a potential defence that merely selling his assets for business and/or financing purpose should not, without significantly more, be sufficient to form the basis of an application for a Mareva injunction.

(3)  P’s case is based on oral discussions and/or cash transfers and he has not exhibited the usual contemporaneous documents in support of his case.  As such, D can “sensibly argue” that P does not necessarily have a good arguable case.

(4)  P included the PTI Shares as his asset to show that he is good for his cross undertaking as to damages. 

25.  I do not find there is any merit in the matters relied on by Mr Cheung:

(1)  The principles governing real risk of dissipation of assets are well known to the Court and did not require “disclosure” by P.

(2)  The so-called potential defence is so tenuous that I do not think P can be blamed for not raising it at the ex parte application. 

(3)  P’s case is supported by contemporaneous document admittedly signed by D. 

(4)  On P’s case, upon default of repayment, he has the right to sell the PTI Shares to repay the Loans.  It cannot be said that it was wrong for P to include such Shares as part of his assets.  Even if the PTI Shares cannot be regarded as P’s assets, P has produced the Agreement, which showed that he had a valuable asset in the form of the Loans.   

26.  At the hearing, this Court raises the point as to whether P still has possession and control of the PTI Shares.  It seems to me that if P still has possession of the PTI Shares, credit should be given to the value of the Shares and the Limit of the Injunction should be reduced. 

27.  Mr Lau confirms that apart from 260,000 shares sold by P on 10 July 2020, which led to the share price of PTI to drop by 3%, P still has possession and control over the remaining PTI Shares.  He submits that P had disclosed the fact that he had possession and control of PTI Shares, and no credit was given to the value of these Shares at the time of the ex parte application as the prices of PTI shares have been very volatile and he believed that if all the PTI Shares were sold, the price could plummet to HK$0.1 per share. 

28.  At the request of this Court, Mr Lau ascertains that the last trading price of PTI shares is HK$0.26 per share.  Taking into account the sale of 260,000 shares, the market value of the remaining PTI Shares held by P is HK$6,172,400, and P agrees that the Limit should be reduced by such amount.  On this basis, I consider that it is appropriate to vary the Injunction by deducting HK$6 million, which represents the value of the remaining PTI Shares currently held by P.  Mr Cheung agrees with this. 

29.  As for costs, given that D has failed in all his arguments, I consider that a fair costs order should be that the costs of and occasioned by the Summons be P’s costs in the cause, so that irrespective of the outcome of the action, P will not have to pay the costs of the Summons to D.