JEN KIT JOSEPHINE v. CHAN SAU WAI SHIRLEY

HCA346/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 346 OF 2014

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D E C I S I O N

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Introduction

1. On 11 November 2014, I handed down a decision (“the Decision”) whereby I ordered that the ex parte “Mareva Injunction Order” and “Disclosure Order” which the plaintiff obtained from Madam Justice Toh on 28 February 2014, as subsequently continued by Deputy High Court Judge Wilson Chan on 14 March 2014 and by Mr Justice Suffiad on 28 March 2014, be discharged immediately on the ground of material non-disclosure.

2. The background facts of this case were set out in the Decision and I shall not repeat them here.

3. On 25 November 2014, the plaintiff issued an inter partes summons (“the Injunction Summons”) seeking fresh orders in substantial the same terms as the Mareva Injunction Order and Disclosure Order.  The summons was supported by the 4^th affirmation of the plaintiff filed on 25 November 2014 which was said to contain (inter alia) new evidence justifying the grant of an interlocutory injunction against the defendant.

4. The Injunction Summons came before me on 28 November 2014.  At the commencement of that hearing, Mr Frederick Fong (for the plaintiff) argued that I had not dealt with the question of “re-grant” of the Mareva injunction in the Decision and submitted that I ought first to consider re-granting the Mareva injunction based on the previous evidence before me at the time of the Decision.  I refused to do so because, as mentioned in paragraph 32 of the Decision, the plaintiff’s former counsel did not make any submission that I ought to exercise my discretion either not to discharge the Mareva injunction, or to re-grant the Mareva injunction, but concentrated instead on the contention that there was no material non-disclosure.  In any event, I did consider the question of re-grant but, for the reason given in paragraph 33 of the Decision, declined to do so. 

5. After I had given my ruling, Mr Fong pursued the application under the Injunction Summons.  The hearing on 28 November 2014 was adjourned part heard due to insufficiency of time.  The matter resumed on 16 December 2014.  In the meantime, the plaintiff issued yet another summons on 15 December 2014 seeking leave to rely on the 2^nd affirmation of Tang Tsz Pun, the plaintiff’s solicitor, filed and served on 10 December 2014.  That affirmation consisted of 12 paragraphs and purported to contain “evidence” on the current market value of various properties.  In some instances, the solicitor referred, not to valuations given by professional valuers or banks, but to his own calculation and analysis.  In the course of the submissions, Mr Fong conceded that paragraphs 7, 8, 9 and 10 of the 2^nd affirmation of Tang Tsz Pun were irrelevant to the plaintiff’s application.

6. Mr David Tang (for the defendant) objected to the plaintiff’s attempt to rely on the new affirmation of Tang Tsz Pun for the purpose the Injunction Summons on the grounds of delay, that the plaintiff should not be permitted to file her evidence “bit by bit” in the context of a part-heard application, and that the solicitor was not qualified to give opinion evidence on valuation of properties.  Nevertheless, Mr Tang indicated that the defendant did not intend to file any reply evidence but would press ahead with the matter even if the court should permit the plaintiff to use that affirmation. 

7. Having regard to Mr Fong’s concession that paragraphs 7, 8, 9 and 10 of the 2^nd affirmation of Tang Tsz Pun were irrelevant to the plaintiff’s application and the indication by Mr Tang that the defendant did not intend to file reply evidence in any event, I informed the parties that I would (i) not grant leave to the plaintiff to rely on paragraphs 7, 8, 9 and 10 of the 2^nd affirmation of Tang Tsz Pun, and (ii) reserve my decision on whether the plaintiff should be permitted to rely on the remaining parts of that affirmation and deal with that matter together with the plaintiff’s main application under the Injunction Summons. 

8. Lastly, by way of introduction, I should record that Mr Fong informed the court that the plaintiff did not intend to pursue paragraph 3(c) of the Injunction Summons.

Test to be applied

9. In paragraph 1 of his written skeleton submission for the plaintiff, Mr Fong stated that the plaintiff was seeking “an inter parte domestic mareva injunction” against the defendant. However, Mr Fong argued, in his oral submission in reply, that the plaintiff was seeking both a Mareva injunction and a proprietary injunction.  Mr Fong further clarified that the proprietary injunction sought related only to a property known as Flat B on 9^th Floor of Tower 16, No 21 Parc Oasis Road, Parc Oasis, Kowloon (“the Parc Oasis Flat”) referred to in paragraph 1(d) of the draft order attached to the Injunction Summons which Mr Fong contended was held by the defendant on trust for the late Jen Frank Chia Hsiang, deceased (“the Deceased”).

10. For reasons which I will explain later when I consider the nature and validity of the individual complaints raised in the Statement of Claim, I consider that the plaintiff has failed to show even a serious issue to be tried that the defendant held the Parc Oasis Flat on trust for the Deceased.  Accordingly, the present application falls to be considered as one for a standard Mareva injunction.  It is well established that, to justify the court granting a Mareva injunction pending the trial of a local action (in other words, the injunction sought is not in aid of foreign proceedings under section 21M of the High Court Ordinance), the plaintiff has to establish:-

(1) that she has a good arguable case on a substantive claim over which the court has jurisdiction;

(2) that the defendant has assets within the jurisdiction;

(3) that the balance of convenience is in favour of granting the injunction;

(4) that there is a real risk of dissipation of assets, or removal of assets from the jurisdiction, which would render any judgment which the plaintiff may obtain of no effect.

See Hong Kong Civil Procedure 2015, paragraph 29/1/65.

Whether plaintiff has established a good arguable case

11. The plaintiff’s substantive complaints, under the heading of “Defendant’s Acts of Misappropriation and Suspicious Dealing”, are set out in paragraph 7(a) to (i) of the Statement of Claim.  In what follows, references to paragraphs shall be to the Statement of Claim, unless the context indicates otherwise.

12. Paragraph 7(a): the plaintiff complains that there was an unauthorised withdrawal of about HK$2.5 million by the defendant from the Deceased’s bank account at HSBC Asset Management Limited.  The evidence adduced by the plaintiff discloses that (i) as at 31 December 1995, the Deceased had a portfolio with a value of HK$6,954,323 in his account at HSBC Asset Management Limited, (ii) two sums of HK$2,497,316.21 and HK$11,659.63 were withdrawn from that account on 5 September and 31 October 2001 respectively, (iii) the final payment of HK$11,659.63 from the aforesaid account was made to an account held in the name of the Deceased at HSBC.  As can be seen from a fax covering sheet sent by HSBC Asset Management (Bahamas) Limited dated 30 October 2001, that final payment was apparently confirmed and agreed by the Deceased and the defendant.  The personal seal of the Deceased was affixed on the fax covering sheet, which was also signed by the defendant.

13. It will be recalled that it is the plaintiff’s case that the Deceased probably lost his mental capacity in the early part of the period from 1995 to 2001.  It is also the plaintiff’s case that the Deceased moved out of the matrimonial home and started to live with the defendant in Shanghai in February 1997, and had been hospitalised in Shanghai since January 2001 until his death on 25 January 2010.  The plaintiff argues that, by inference, the monies in the Deceased’s aforesaid account at HSBC Asset Management Limited were unlawfully and/or improperly withdrawn by the defendant.

14. In his submission, Mr Fong accepted that there was no evidence to show that any part of the monies in the Deceased’s account at HSBC Asset Management Limited were in fact withdrawn or received by the defendant.  There was also no evidence on how the monies in that account were used, whether by or for the benefit of the Deceased or otherwise.  I do not see how the currently available materials which the plaintiff relies upon can give rise to a serious issue to be tried against the defendant that she misappropriated the monies in the Deceased’s aforesaid account at HSBC Asset Management Limited.

15. For the sake of completeness, I should mention that the plaintiff’s allegations regarding the mental capacity of the Deceased and the period of his hospitalisation from January 2001 to his death on 25 January 2010 are disputed by the defendant (see paragraph 6(f) of the Defence). For the purpose of the present application, it would not be possible for the court to resolve such disputes of fact.  Neither is it necessary for the court to do so in order to dispose of the present application.

16. Paragraph 7(b): the plaintiff complains that the defendant wrongfully obtained the Deceased’s 18% shareholding in a company called Cartegena Industrial Co Ltd (“Cartegena”) on 20 January 2000.  Cartegena was incorporated on 28 January 1975, and the Deceased had been holding 180,000 shares (36% of all the issued shares) in Cartegena since no later than 28 January 1995.  On 20 January 2000, the Deceased transferred 90,000 shares in Cartegena to the defendant.  The plaintiff says that the Deceased had no mental capacity to transfer the 90,000 shares to the defendant on 20 January 2000 and argues that, by inference, the defendant obtained those shares illegally and/or by unlawful means (namely, forging the Deceased’s signature and/or manipulating and/or unduly influencing the Deceased into signing documents that she wished the Deceased to sign).

17. The plaintiff has not produced the instrument of transfer or bought and sold notes in respect of the transfer of the 90,000 shares in Cartegena by the Deceased to the defendant.  It is not known what, if any, document was signed by the Deceased to effect the transfer of those shares. Thus, the allegation that the defendant forged the Deceased’s signature, or manipulated or unduly influenced the Deceased into signing documents seems to me to be purely speculative.  There is also no evidence on whether any consideration was paid by the defendant to the Deceased for the transfer of those shares.  On the existing state of the evidence, I do not see that the plaintiff has begun to make out any case that the defendant obtained the 90,000 shares in Cartegena by illegal or unlawful means.

18. Further, the plaintiff has not produced any evidence regarding the value of the 90,000 shares in Cartegena as at the date of the transfer or as at the date of the application.  In paragraph 15 the Statement of Claim, it is said that Cartegena currently holds 25% in a company which was incorporated in Shenzhen, PRC in 1982 (representing an initial paid up capital of US$111,800), and this company operates a paper factory, and it is further said that the paper factory has regularly declared and paid dividends in significant amounts to Cartegena from time to time. However, no figure is given. Mr Fong submitted that the 90,000 shares in Cartegena should be regarded as having a value of US$111,800 x 18% (= US$21,240).  I am unable to see how the initial paid up capital of a company or paper factory in China in 1982 can be used to calculate the current value of a 25% shareholding in that company.  Thus, even if one assumes, for the sake of argument, that the defendant did improperly obtain 90,000 shares in Cartegena from the Deceased, I do not consider that there is any fair or reasonable basis to fix a monetary value on those shares for the purpose of granting a Mareva injunction against the defendant.

19. Paragraph 7(c): the plaintiff complains that the defendant made an unauthorised withdrawal of the monies held in a bank account of the Deceased at Nanyang Commercial Bank Ltd and closed that account on 15 September 2003.  For the purpose of this allegation, the plaintiff relies on a letter issued by Nanyang Commercial Bank Ltd dated 22 April 2010, in which it was stated that the Deceased’s account, no 043-482-025026-6, at that bank was closed on 15 September 2003.  The plaintiff argues, in view of the fact the Deceased had been bed ridden and confined in a hospital outside Hong Kong since early 2001, it was impossible for the Deceased to withdraw any monies from that account or close that account in September 2003.  The plaintiff further argues that, by inference, the account was closed by the defendant and alleges that the bank “had committed a serious mistake and/or [been negligent] in that the bank recklessly allowed the withdrawal of monies from and the closing of the said account by [the defendant], who has never been duly appointed or authorized to manage the property and affairs of the Deceased.”

20. There is no evidence that the account in fact had any money as at 15 September 2003, or that any money was withdrawn by the defendant from the Deceased’s account at Nanyang Commercial Bank Ltd.  Even if there was some money in the Deceased’s account and it was withdrawn at the time of the closing of the account, there is no evidence on whom the money was paid to or how the money was used.  Indeed, there is no evidence that the account was closed by the defendant.  The plaintiff’s aforesaid allegations against the defendant and the bank seem to me to have no foundation on the existing evidence.

21. Paragraph 7(d): the plaintiff complains that there was an unauthorised transfer of the Deceased’s shares in a company called Kwai Chung Enterprises Limited (“KCEL”) to the defendant.  KCEL is a company incorporated in Hong Kong.  It appears, from the annual return of KCEL made up to 14 April 2000, that that company had a total of 100 issued shares, and the Deceased transferred 45 shares in that company to the defendant on 20 January 2000 and retained 54 shares after the transfer.

22. The evidence also shows that KCEL purchased a property known as 2/F, Block D, East Sun Industrial Centre, No 16 Shing Yip Street, Kowloon (“the East Sun Industrial Centre Property”) at the price of $722,540 in or about 1978, and assigned that property to two persons by the names of Wu Chih Ching Siman and Chan Yuk Ha as tenants in common in 2004 for the consideration of HK$1,280,000.  KCEL was de-registered in or about March 2006, pursuant to an application in Form DR 1 signed by the defendant as a director of KCEL dated 17 March 2006.

23. As in the case of the plaintiff’s complaint regarding the transfer of shares in Cartegena, the plaintiff has not produced the instrument of transfer or bought and sold notes in respect of the transfer of the 45 shares in KCEL by the Deceased to the defendant.  There is no evidence on whether any consideration was paid by the defendant to the Deceased for the transfer of those shares.

24. Further, the plaintiff has not produced any evidence regarding the value of the 45 shares in KCEL as at the date of the transfer or as at the date of the application.  The fact that KCEL once held a property which was sold in 2004 for HK$1,280,000 cannot be regarded as any evidence that the company had a net asset value of HK$1,280,000.  In order to arrive at a reasonable estimate of the value of the 45 shares in KCEL, it is at least necessary to know what other assets and liabilities (if any) the company had as at the date of the valuation.  No account or other financial information relating to KCEL has been adduced as evidence by the plaintiff to enable the court to make even a rough estimation of the value of the 45 shares in KCEL transferred to the defendant on 20 January 2000.  There is no evidence on how the proceeds of sale of the East Sun Industrial Centre Property were used, still less that the proceeds were received by the defendant.  For all one knows, the sale proceeds could have been used to discharge existing liabilities of KCEL.  Thus, even if one assumes, for the sake of argument, that the defendant did improperly obtain 45 shares in KCEL from the Deceased, I do not see that there is any fair or reasonable basis to fix a monetary value on those shares for the purpose of granting a Mareva injunction against the defendant.

25. Paragraph 7(e): here the plaintiff alleges that the defendant was involved in a suspicious sale and purchase of two properties in Shanghai using a fake PRC identity card.  The plaintiff also relies on this matter to support her case that there is a real risk of dissipation of assets.

26. The plaintiff alleges that the two properties in question, referred to as “Villa No 8” and “Villa No 9”, were purchased by the defendant on about 28 March 2001, and she transferred Villa No 8 to her sister for the consideration of RMB 1,380,000 which the plaintiff says was far below its market value on 10 June 2007, and Villa No 9 to two other persons for the consideration of RMB 1,750,000 on 30 August 2004.

27. Mr Fong accepted, however, that there was no evidence that the two properties were acquired by the defendant in 2001 using funds belonging to the Deceased.  The fact that the defendant might have used a fake PRC identity card (which allegation is disputed by the defendant) in the sale and purchase of the two properties cannot give rise to any claim that the Deceased or his estate has any right or interest in the two properties.  The further allegation that the defendant sold Villa No 8 to her sister at an undervalue cannot take the plaintiff’s case any further.

28. Paragraph 7(f): the plaintiff complains that the defendant made unauthorised withdrawals from the Deceased’s bank account at Bank of East Asia Limited commencing in 2003.  In particular, the plaintiff refers to a letter dated 22 November 2012 issued by Bank of East Asia Limited, in which it was stated that (i) the account had a high balance of HK$11,169.12 on 30 June 2003 and (ii) there were two cash withdrawals in the sums of HK$6,000 and HK$5,000 on 10 September 2003 and 11 March 2010 respectively, with the latter one being withdrawn by an unnamed “authorized signer”.  In a further letter dated 13 December 2012 issued by Bank of East Asia Limited, it was stated that the Deceased’s account was operated by his personal chop, and the “authorized signer” (whom the bank was unable to locate) was appointed to operate the said account on 26 January 1999.

29. It may be recalled that the Deceased passed away on 25 January 2010, and thus the second withdrawal of HK$5,000 from his account at Bank of East Asia Limited on 11 March 2010 would seem to be “unauthorised”. There is, however, no evidence on the identity of the person(s) who made the two withdrawals on 10 September 2003 and 11 March 2010 respectively. Again, the plaintiff argues that, by inference, it was the defendant who made the two withdrawals.  This seems to me to be speculation.  In any event, the amounts involved are not significant and would not, in my view, justify the imposition of a Mareva injunction by reason of this complaint alone.

30. Paragraph 7(g): the plaintiff complains that the defendant used the Deceased’s personal seal without authority in the course of a litigation in the PRC in 2007 in which the Deceased was sued in respect of certain landed properties in the PRC.  As I understand from Mr Fong’s submissions, the plaintiff is not saying that the Estate has any monetary claim against the defendant arising out of her alleged unauthorised use of the Deceased’s seal, but relies on this complaint to show the low commercial morality of the defendant in support of the argument of real risk of dissipation of assets.

31. Paragraph 7(h): the plaintiff complains that the defendant used the Deceased’s personal seal without authority and/or is suspected of forging the Deceased’s signature on various annual returns of Ziang Kong Knitting Factory Limited (“ZKKF”), a company incorporated in Hong Kong on 21 February 1966.

32. As can be seen from the annual return of ZKKF made up to 21 February 1998, ZKKF had an issued share capital of HK$2,500,000 divided into 250,000 shares of HK$10 each.  The Deceased was a director and the defendant was the secretary of ZKKF.  The Deceased apparently signed the 1998 annual return, and his personal seal was affixed next to his signature.

33. The Deceased also apparently signed the 1999, 2000 and 2001 annual returns of ZKKF dated 21 February 1999, 21 February 2000 and 21 February 2001 respectively.  The personal seal of the Deceased was affixed on the 2002 annual return of ZFFK, but there was no signature of the Deceased on that document.

34. The 1998, 1999, 2000, 2001 and 2002 annual returns of ZKKF were apparently also signed by the defendant.

35. ZKKF was struck off the register and dissolved on 17 July 2002 pursuant to section 291(6) of the former Companies Ordinance (as then in force).

36. It is the plaintiff’s case that the signatures of the Deceased on the 1998, 1999, 2000 and 2001 annual returns of ZKKF were forged by the defendant, and she also affixed the personal seal of the Deceased on the 1998 and 2002 annual returns of ZKKF without authority.  The plaintiff relies on the mental incapacity of the Deceased, and the fact that he had been bed-ridden since January 2001, to contend that he could not have signed and/or affixed his person seal on the aforesaid annual returns of ZKKF.  In her 4^th affirmation filed on 25 November 2014, the plaintiff also produced an expert report on handwriting prepared by Beth Chrisman dated 18 November 2014 in support of the allegation that the Deceased’s signature on the 1998, 1999, 2000 and 2001 annual returns of ZKKF were forgeries.

37. There is no direct evidence that the Deceased’s signatures on the four annual returns of ZKKF were forged by the defendant. Even if one assumes in the plaintiff’s favour that the defendant did forge the Deceased’s signature and/or affix the Deceased’s person seal without his authority on the aforesaid annual returns of ZKKF, there is still no evidence that the Deceased suffered any loss, or the defendant derived any gain or benefit, from those acts.  There is also no evidence on the business or value of ZKKF.  At most, this ground of complaint may be relied upon to show the character of the defendant and to strengthen the argument on risk of dissipation of assets, but there is no fair or reasonable basis to fix any monetary value on this ground of complaint for the purpose of granting a Mareva injunction against the defendant.

38. Paragraph 7(i): the plaintiff complains that the defendant sold the two properties belonging to the Deceased, namely, (i) the Parc Oasis Flat and (ii) a property known as Flat E5, 15^th Floor, Block E, Mount Parker Lodge, No 10 Hong Pak Path, Hong Kong (“the Mount Parker Flat”), without authority.

39. The land search of the Parc Oasis Flat shows that: (i) the Deceased and the defendant became the joint tenants of that property on 11 February 1993, and (ii) the defendant became the sole owner of that property pursuant to an assignment dated 22 August 1997.  Apparently, the assignment of the property by the Deceased and the defendant (as joint tenants) to the defendant (as sole owner) was for the consideration of HK$4,500,000. The plaintiff challenges this assignment on the basis that the Deceased lacked mental capacity, and alleges that the sale proceeds were used, kept and/or manipulated by the defendant.

40. If the Deceased did not have mental capacity to execute the assignment dated 22 August 1997 such that it ought to be set aside, the Deceased and the defendant should remain as joint tenants of the Parc Oasis Flat such that, upon the death of the Deceased on 25 January 2010, it would pass to the defendant as the surviving joint tenant.  It does not seem to me that the Estate of the Deceased has any valid claim that the Parc Oasis Flat is held by the defendant on trust for the Deceased.

41. In so far as the sale proceeds are concerned, there is no evidence on whether the sale proceeds were in fact paid, and if so who received them and how they were distributed or used.  There does not seem to me to be any evidential foundation for the allegation that the sale proceeds were used, kept and/or manipulated by the defendant as alleged by the plaintiff.

42. The land search of the Mount Parker Flat shows that (i) the Deceased and her wife became the joint tenants of that property on 16 November 1992, and (ii) it was assigned to two persons on 1 February 1999 for the consideration of HK$2,700,000.  The plaintiff says that the sale price was about 10% below the market value of the property.

43. It will be recalled that the Deceased’s wife passed away in May 1998.  Thus, the Deceased became the sole surviving owner of the Mount Parker Flat as from that date.  In reliance on the Deceased’s mental incapacity, the plaintiff alleges that the sale proceeds of HK$2,700,000 were used, kept and/or manipulated by the defendant.  The plaintiff relies on the defendant’s “admission” at paragraph 9(iii) of the Defence that the sale proceeds were place “at the Defendant’s disposal”.

44. The defendant’s solicitor, Mr Kuan Man Chun of Tsang, Chan & Woo, made an affidavit on 15 December 2014 stating that the word “Defendant’s” in paragraph 9(iii) of the Defence was an inadvertent clerical error and the correct version, in accordance with the defendant’s instruction all along, should be “at the Deceased’s disposal”.  I granted leave to the defendant to rely on this affidavit at the hearing on 16 December 2014 because it seemed to me to be unfair, in the context of an interlocutory application for a Mareva injunction against the defendant, to hold her bound by what her solicitor had stated on oath to be an inadvertent clerical error in the preparation of the Defence.

45. For the purpose of the present application, I accept the explanation given by Mr Kuan that the word “Defendant’s” in paragraph 9(iii) of the Defence was an inadvertent clerical error, and the defendant never intended to admit having received the proceeds of sale of the Mount Parker Flat.

46. Other than the aforesaid “admission”, the plaintiff has not adduced any evidence on who in fact received the sale proceeds and how they were used.  I do not consider that the plaintiff has made out, on the evidence, any sufficient basis for the allegation that the sale proceeds were used, kept and/or manipulated by the defendant.

47. As Mr Justice Ng remarked at paragraph 30 of his recent judgment in Re Chau Cham Wong Patrick, a Bankrupt HCB 549/2012 (20 June 2014):

“A Mareva injunction should not be granted lightly. The consequences of granting the injunction are such as to put the defendant at a very real disadvantage and in a position from which it may never adequately recover”.

When assessing whether a claimant has made out a good arguable case on a substantive claim in the context of an application for a Mareva injunction, the court should always examine with care the allegations raised against the defendant and whether they are properly supported by the evidence adduced by the claimant. 

48. In the present case, it seems to me that the evidence which the plaintiff has adduced falls far short of establishing a good arguable case on the various substantive complaints raised in paragraph 7 of the Statement of Claim.  Further, the plaintiff has completely failed, in my view, to justify the court granting a Mareva injunction against the defendant to the extent of HK$50 million, or any substantial amount.

49. In the circumstances, I would not grant leave to the plaintiff to rely on the 2^nd affirmation of Tang Tsz Pun.  It also becomes unnecessary for me to consider other issues such as risk of dissipation of assets or balance of convenience, or the defendant’s argument that the present application amounts to an abuse of process of the court.

50. In conclusion, I dismiss the plaintiff’s Injunction Summons and the summons dated 15 December 2014, and I make an order nisi that the defendant shall have the costs of these applications, to be taxed if not agreed.