NATURAL DAIRY (NZ) HOLDINGS LTD (IN PROVISIONAL LIQUIDATION) v. CHEN KEEN (alias JACK CHEN) AND OTHERS

HCA 2218/2017

[2021] HKCFI 804

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2218 OF 2017

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DECISION

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1.  This is the application by the 1^st Defendant (“D1”) and the 3^rd Defendant (“D3”) for leave to appeal against my Decision made on 7 October 2020 (“Decision”) granting Mareva and proprietary injunctions against them (inter alios). For convenience I will adopt the nomenclature in the Decision herein.

2.  In essence, P (now under the control of JPLs) claims against D1, its former director, for breach of fiduciary duty with respect to the Acquisition, in which he was in a position of conflict which he had not disclosed and was highly impoverished to P, and that consequent upon the Acquisition very substantial funds belonging to P had been paid out, of which a significant amount ended up with D1 and D3 (who is D1’s wife).

3.  By the Decision, I found (inter alia) that:-

(1)  A good arguable case for breach of fiduciary duty has been made out against D1, in that (a) during the period when he was a de jure director of P he was (i) in a position of conflict or possible conflict with respect to P’s entering into the SPA which he had not disclosed; and (ii) aware that the financials of the Crafar Farms (the underlying asset to be acquired under the SPA) had been manipulated and their asset value and financial performance were much less favourable than as presented, without disclosing the same to P, and (b) he should account for approximately HK$776.07 million (viz. the [E] payment, the [B], [J], [F3] and [F4] payments; and the [D] and [F3] payments) out of the HK$1,357,680,000 (ie the Acquisition Funds) claimed by P. As I was also satisfied that there was a real risk of dissipation in the circumstances of this case, a Mareva injunction up to HK$776.07 million was granted against D1.

(2)  I was also satisfied that some of the Acquisition Funds that had been misappropriated by D1 (specifically those paid to the counterparty to the SPA with respect to which D1 was in a position of actual or possible conflict) could be traced into the NZ Property and the Mortgaged Properties, and granted a proprietary injunction with respect to D1’s share in these properties.

(3)  As to D3, against whom P claims dishonest assistance in D1’s breaches of fiduciary duty, I was satisfied that a good arguable case was established with respect to the D3 1^st Payment, the NZ Property and the Mortgaged Properties.  I granted Mareva and proprietary injunctions with respect to the D3 1^st Payment and D3’s share of the NZ Property and the Mortgaged Properties respectively.  

4.  On 21 October 2020 D1 and D3 issued a summons seeking leave to appeal against the Decision, on the basis of the 3 grounds set out in their draft notice of appeal (“Draft NOA”).

5.  However, the matter then progressed slowly:-

(1)  At the outset, directions were given for the leave application to be disposed of on the papers.

(2)  However, after I have refused, on 9 November 2020, D1 and D3’s (inter alios) application with respect to legal fees exception to the Mareva injunctions (see paragraph 129(4) of the Decision) on the basis that they have not discharged their burden of showing they have no other source of funding other than the enjoined funds (and there is no application for leave to appeal against such ruling), D1 proceeded to act in person.

(3)  Notwithstanding extension of time and further directions given for D1 and D3 to file written submissions, at the time when D1 was due to file his last round of written submissions on 29 December 2020, he requested, in an English letter written to Court, an oral hearing instead.

(4)  That request was acceded to in light of the fact that D1 was acting in person, and an early hearing was directed. D1’s attempt to fix the hearing after May 2021 (on the basis that he had to attend the re-trial of the 1^st Criminal Proceedings) was rejected, and the hearing was fixed for 22 March 2021 at a time which would accommodate his attendance at the re-trial.

6.  When I acceded to the request for oral hearing, I further directed that D1 should have a final opportunity to file written submissions by 10am on 9 March 2021, as he has not filed any reply submissions as directed in late December 2020. This D1 did, out of time, on 18 March 2021.

7.  After that, on 19 March 2021 and at the hearing on 22 March 2021, D1 attempted to submit further documents, including documents which were not in evidence at the substantive hearing.  Given the lateness, the lack of justification and the obvious unfairness to P, I refused leave for D1 to rely on these new documents.

8.  As to D3, those representing her informed the Court that she would not advance any submissions and would be content to adopt D1’s submissions for the leave application, and their attendance was excused on that basis.

9.  The principles applicable to leave to appeal an interlocutory decision are uncontroversial.

(1)  No leave shall be granted unless the court is satisfied that either the appeal has a reasonable prospect of success (meaning the prospect of succeeding must be reasonable, which is more than fanciful without having to be probable), or there is some other reason in the interests of justice that the appeal should be heard: SMSE v KL [2009] 4 HKLRD 125.

(2)  Further, in an appeal against the grant or refusal of an interlocutory injunction the function of the appellate court is limited; the appellate court will only interfere where it can be shown that the judge’s exercise of discretion was based on a misunderstanding of the law, or of the evidence before the judge, or upon an inference that particular facts existed or did not exist demonstrated to be wrong by further evidence that becomes available subsequently, or there has been a change in circumstances: Hadmor Productions Ltd v Hamilton [1983] 1 AC 191, 220B-F.

10.  In my view, none of the 3 grounds advanced by D1 in the Draft NOA satisfy the above threshold.

11.  The first ground is directed against the finding of good arguable case against D1 and D3, to the effect that there was no concrete evidence showing (i) D1 had an interest in the UBNZ Group when he was a de jure director of P; (ii) D1 still had an interest in the Acquisition by reason of the Commission Agreement; (iii) the Eric Yee 2009 Emails provided a sufficiently cogent basis to show D1’s knowledge of manipulation of the Crafar Farm financial information, and in any event such information was irrelevant since the Acquisition concerned the acquisition of assets and not the business of Crafar Farms; and (iv) the Acquisition Funds could be traced into the Anfatex Properties, the Anfatex Payments, the NZ Poperties, the Mortgaged Properties or the D3 1^st Payment.

12.  Essentially D1 merely disagrees with the analyses and conclusions in the Decision, which with respect to the above matters have been set out in detail in paragraphs 88, 91, 94, 98 and 106 of the Decision. There is no error of law alleged, and no attempt has been made to show any demonstrable error in the understanding or analysis of the relevant facts.

13.  Further, D1 also asserts that I had reversed the burden of proof with respect to the conclusions on D3 1^st Payment, the NZ Property and the Mortgaged Properties as I had allegedly relied on the absence of credible explanation from D3. This is plainly incorrect, as can be seen from paragraphs 98, 104 and 106 of the Decision, where the positive explanations given by D3 were considered and rejected with reasons stated.

14.  The second ground is directed at causation of loss flowing from D1’s breaches of fiduciary duty, essentially that since I have only found (for the purpose of a good arguable case) breach at the time when D1 was a de jure director, the losses said to be suffered by P at a time after D1 ceased to be de jure director (15 September 2009) should not be attributed to him.  However, this wholly ignores the applicable law, which has been set out in paragraph 96(1) of the Decision (for which there is no suggestion of any misunderstanding thereof), and the analysis of the evidence in the remainder of paragraph 96.

15.  As to the third ground, it goes to quantum of the cap for D1’s Mareva injunction, and complains that (i) of the [E] payment, I have taken into account HK$314 million when the evidence only shows HK$280 million had been paid out; and (ii) I erred in not giving credit for the HK$314 million repaid by UBNZ Trustee in 2011 on the basis that D1 had failed to show it was not saddled with any liability.

(1)  (i) is dealt with in paragraph 48(1)-(2) of the Decision (in particular footnote 5), where I have referred to the fact that the contemporaneous documents in this case either referred to HK$ or NZ$ without any attempt to provide the then prevailing conversion rate, which rendered the tracing of payments from such documents more difficult. However, it has never been D1’s case and he has adduced no evidence to that effect, whether at the substantive hearing or now, that the [E] payment consisted only of HK$280 million. My adoption of the HK$314 million figure was based on the public announcement made by P at the time, which in the absence of evidence suggesting otherwise I had no basis to not accept as accurate.

(2)  (ii) is addressed in paragraphs 96(1)(d)-(e) and 97 of the Decision. The principles of law set out in paragraph 96(1)(d)-(e) are not suggested to be erroneous, and they clearly placed the burden on the director (ie D1) to show that credit should be given and the money returned was not saddled with any liability. D1 has not adduced any evidence, at the substantive hearing or now, to show that the refund either did not originate from the AB Funds, or that the refund was otherwise not saddled with any liability.  

16.  In the premises, I am not satisfied that the grounds in the Draft NOA have a reasonable prospect of success.

17.  The leave to appeal application by D1 and D3 is accordingly dismissed with costs.