北京誠義豪泰投資管理有限公司 v. ZHANG YUPING (also known as CHEUNG YU PING)

HCCT 1/2025

[2025] HKCFI 2280

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 1 OF 2025

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D E C I S I O N

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INTRODUCTION

1.  This is the decision regarding the plaintiff’s (“P”) inter parte summons dated 6 January 2025 (“the Summons”) for an order that:

(a)  The worldwide Mareva injunction order made by Deputy High Court Judge Jonathan Wong on 2 January 2025 against the defendant (“D”) (“Injunction Order”) be continued until the final determination of these proceedings or further order of the Court; and

(b)  An ancillary disclosure order be made against D in the following terms:

(i)  D must inform P in writing at once of all his assets of an individual value of HK$50,000 or more, whether in or outside Hong Kong, whether in his own name or not, and whether solely or jointly owned, giving the value, location and details of all such assets. D may be entitled to refuse to provide some or all of this information on the grounds that it may incriminate him; and

(ii)  This information must be confirmed in an affidavit which must be served on P’s solicitors within 14 days after the order has been served on D.

2.  D contends that the Summons should be dismissed for the following reasons:

(a)  P failed to lead solid evidence to demonstrate a “solid basis” to conclude that there is a real risk of unjustified dissipation of assets by D;

(b)  There is serious delay in P’s application for the Ex Parte Order;

(c)  P has no good arguable case against D as P’s claim has been time-barred under Mainland law, which is the governing law of the claim; and

(d)  There is material non-disclosure (“MND”) on the part of P when it applied for the Ex Parte Order.

BACKGROUND

3.  The factual background of this case are not seriously disputed between the parties. They have been summarized by P’s counsel under P’s skeleton submissions (“P’s Submissions”). I would respectfully adopt their summary below with modifications of my own where appropriate.   

4.  The general background has been set out in Section A of the affirmation of Law Ming Yiu Felix (“Law”), the legal manager of P, dated 2 January 2025 (“Law 1^st”) and supplemented by Section A of the 2^nd affirmation of Law dated 27 January 2025 (“Law 2^nd”). The background matters stated by D in Section A of his affirmation dated 16 January 2025 (“Zhang 1^st”), insofar as they are supported by documentary evidence, are not materially different from Law’s summary and are not seriously disputed by P.

The Parties

5.  P is a company established in the People’s Republic of China (“PRC”) with limited liability.

6.  D:

(a)  is the holder of a valid Hong Kong identity card and his usual or last known addresses in Hong Kong are or were (1) at a flat in The Long Beach, Hoi Fai Road, Tai Kok Tsui, Kowloon, Hong Kong (“the Flat”), (2) at an office unit at Lippo Sun Plaza, 28 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong and (3) at another office unit at The Gateway, Harbour City, Tsim Sha Tsui, Kowloon, Hong Kong. In Zhang 1^st, he gives his address at a residential unit in Sorrento, 1 Austin Road West, Kowloon, Hong Kong (“the Sorrento Address”);

(b)  was the Chairman of the board of directors, the Chairman of the nomination committee and an Executive Director of Hengdeli Holdings Limited (亨得利控股有限公司) (“ListCo”), a company incorporated in the Cayman Islands with limited liability whose shares have since 2005 been listed on the Main Board of the Hong Kong Stock Exchange (stock code: 3389), until 6 December 2024 when his son, Cheung Wing Lun Tony (“Cheung Jr”), was appointed to the said positions with immediate effect;

(c)  was at the material times the beneficial controller (实益控制人) of Rui Xin Investments Limited (瑞鑫投资有限公司) (“Rui Xin”), a company established in the British Virgin Islands (“BVI”);[1] and

(d)  wholly owns a company named Best Corporate Limited (誉丰有限公司) (“Best Corporate”), which in turn owns 35% shares in a Mainland private company named Primetime Group Co Ltd (盛時鐘錶集團股份有限公司) (“Primetime”).[2]

The Guarantee, Transfer Framework Agreement and other agreements

7.  The present dispute between the parties arises out of a letter of guarantee (担保函) dated 3 December 2012 (“the Guarantee”) under which D irrevocably guaranteed, inter alia, the performance of the sellers’ obligations under a transfer framework agreement (转让框架协议) entered into between P as purchaser and the two sellers on the same day (“Transfer Framework Agreement”).

8.  By the Transfer Framework Agreement, P agreed to purchase (1) 3.2% shares[3] (“the Shares”) in Beijing Yaohui Real Estate Co. Ltd (北京耀辉置业有限公司) (“Beijing Yaohui” or “the Developer”), a company established in the PRC with limited liability which owned and was developing a real estate project in Beijing called “长安8号” (“the Project”), for a consideration of RMB190,000,000 and (2) shareholder loans to Beijing Yaohui in the amount of RMB31,558,372 (“SH Loans”), from the following parties who agreed to sell the same (“the Sellers”):

(a)  Beijing Wangfu Shiji Development Co., Ltd (北京王府世纪发展有限公司) (“Beijing Wangfu”), a company registered in the PRC, which held the Shares; and

(b)  Mr Wang Zhi Cai (王志才) (“Mr Wang”), who at the material times was the legal representative of Beijing Wangfu, and beneficially held (实益持有) 90% shares in Beijing Wangfu through a company named 仲海有限公司 (“仲海”).

9.  According to the Transfer Framework Agreement:

(a)  Due to the need for finance, Mr Wang and one 王清福 had charged their 100% shares in a company named 泓达投资有限公司 (“泓达”)[4], and Mr Wang had charged 90% shares in Beijing Wangfu held by him through仲海, to Rui Xin (which, as mentioned above, is beneficially controlled by D). Further, the entire shareholding in 泓达 and 90% shareholding in 仲海 were nominally held (名义持有) by Rui Xin, albeit still beneficially held by Mr Wang and the said 王清福 as the case may be.[5]

(b)  Within 5 days after signing the Transfer Framework Agreement, the Sellers shall cooperate with P by signing a share transfer agreement (股权转让协议) (including a nominee agreement (代持协议)) and relevant supporting documents, and provide them to P for custody (Clause 1(4)(1)).

(c)  Within 6 months after signing the Transfer Framework Agreement, the Sellers shall procure the signing by the parties of, inter alia, the share transfer agreement in respect of the Shares (including the nominee agreement) and relevant supporting documents (Clause 2(5)).

(d)  The Sellers agree that after signing the Transfer Framework Agreement, the shareholder’s rights (股东权利) over the Shares held by the Sellers belong to and are exercisable by P, including but not limited to management rights, voting rights, bonus rights, etc., and the Sellers no longer enjoy any rights over the Shares (Clause 1(4)(2)).

(e)  The parties confirm that after signing the share transfer agreement and relevant supporting documents, they would not undergo the process of approval and change of register (暂不办理审批及变更登记手续), and the Sellers would hold the Shares for P (the parties were to separately sign a nominee agreement) (Clause 1(4)(3)).

(f)  There was a reference to “自留物业” (“Reserved Property”). These are units which the Sellers had agreed with the Developer which the Sellers have the right to be allocated at cost (Clause 3(1)(1)).

(g)  Within 1 year after the Developer obtained the《项目竣工验收备案表》of the Project (“Completion Inspection Report”), Beijing Wangfu shall pay the Developer the repurchase price (回购价) in respect of the Reserved Property, and at the same time the Developer shall cooperate by transferring the Reserved Property to the Sellers or third party at the Sellers’ instruction (Clause 3(1)(4)).

(h)  The Sellers undertake to cooperate with P to undergo the process of approval and change of register in respect of the Shares within one month after the Reserved Property has been transferred to the name of the Sellers (Clause 1(4)(3)).

(i)  The beneficial controller (实益控制人) of Rui Xin (ie D), as guarantor for the Transfer Framework Agreement and supporting documents, shall provide a joint and several liability guarantee (连带责任) of the obligations of the Sellers and its connected parties under the Transfer Framework Agreement and supporting documents (Clause 4).

(j)  For disputes arising out of the execution of the Transfer Framework Agreement, the parties agree to submit those disputes to China International Economic and Trade Arbitration Commission (中国国际经济贸易仲裁委员会) (“CIETAC”) for arbitration under its prevailing arbitration rules, and the ruling under the said arbitration is to be final and binding on the parties (Clause 8(2)).

(k)  The Transfer Framework Agreement shall be governed by PRC law (Clause 8(3)).

10.  On the same day, P and Beijing Wangfu entered into a nominee agreement (股权代持协议), whereby P agreed to, inter alia, appoint Beijing Wangfu to nominally hold (代持) the Shares for P, before the same were to be transferred to P.

11.  Also on the same day, D signed and affixed his fingerprint on the Guarantee. Pursuant to the terms of the Guarantee, D, inter alia, guaranteed that the Sellers would fully and timely comply with their obligations under, inter alia, the Transfer Framework Agreement, and provided a joint and several liability guarantee (连带担保责任) in respect of the Sellers’ obligations under the Transfer Framework Agreement, relevant supporting documents and supplemental agreements (Clause 2). It is expressly stated that the Guarantee is an irrevocable guarantee (不可撤销之担保).

12.  The Guarantee itself does not expressly contain any governing law or arbitration clause. However, the parties’ positions are that the Guarantee is subject to the same governing law and arbitration clause under the Transfer Framework Agreement.[6]

13.  By an agreement entitled “协议书” dated 12 May 2014 and entered into between P, Beijing Wangfu and Mr Wang (“the 2014 Agreement”), it was confirmed that P had fully performed its payment obligations under the Transfer Framework Agreement.

P’s Entitlement to the Shares

14.  In or around August 2017, Beijing Yaohui obtained the Completion Inspection Report.

15.  However, the Sellers did not pay Beijing Yaohui the repurchase price in respect of the Reserved Property, and the Reserved Property was not transferred to the Sellers, with the result that the Shares have not been transferred to and registered under P’s name.

16.  On 12 June 2020, P submitted the dispute to CIETAC for arbitration, where P sought, inter alia, an order to the effect that (i) P do have shareholder’s rights in the Shares registered under the name of Beijing Wangfu; (ii) Beijing Yaohui do change the register in respect the Shares such that those shares would be under P’s name.

(a)  By an arbitral award dated 31 December 2021 ((2021) 中国贸仲京裁字第3516 号) (“Arbitral Award”), the arbitral tribunal (“the Tribunal”) held, inter alia, that P had shareholder’s rights in the Shares on the basis that it had already paid the consideration for the purchase of the same under the Transfer Framework Agreement.

(b)  The Tribunal also awarded the reliefs sought by P. In particular, the Tribunal ordered Beijing Yaohui and Beijing Wangfu to effect the change of register in respect of the Shares within 30 days after the conditions for undergoing the process for effecting such change had been met (应当在符合法律规定的办理股权变更登记手续的条件后30 天之内办理完毕).

(c)  In 2022, Beijing Wangfu applied to the Beijing No. 4 Intermediate People’s Court to set aside the Arbitral Award. By a decision dated 1 April 2022 ((2022) 京04 民特89号), the court dismissed the application.

17.  Meanwhile, a creditor of Beijing Wangfu obtained an order from the Beijing No. 2 Intermediate People’s Court (“Beijing Court”) to freeze the Shares for the period from 29 June 2020 to 28 June 2023, in an enforcement action against the Sellers ((2020) 京02执648号). In particular:

(a)  In 2020, P objected to the said order and requested the Beijing Court to terminate the enforcement in respect of the Shares and release the same from the freezing order.

(b)  By a letter dated 8 July 2020 to the Sellers, P (through its then solicitors, An He Li Law Office) requested the Sellers to, inter alia, procure the release of the Shares from the freezing order and transfer the same to P.

(c)  By a decision dated 20 August 2020 ((2020) 京02执异254号), the Beijing Court dismissed P’s objection and requests.

(d)  P then commenced proceedings before the same level of court seeking, inter alia, termination of the enforcement in respect of the shares. By a decision dated 27 November 2020 ((2020) 京02 民初511 号), the P’s requests were dismissed.

(e)  P then appealed, but by a decision dated 31 August 2022 ((2021) 京民终83号), P’s appeal was dismissed.

(f)  P’s subsequent requests to the same effect were dismissed by the Beijing Court by a decision dated 6 April 2023 ((2023) 京02执异226号).

(g)  Pursuant to the Beijing Court’s order, the Shares were put up for judicial auction between 15 and 16 April 2024, and between 19 and 20 September 2024, but were not successfully sold.

(h)  By a decision dated 12 November 2024 ((2024) 京02执恢97号之一), the Beijing Court ordered, inter alia, a transfer of the Shares from Beijing Wangfu to the third party judgment creditor, 北京鼎成典当行有限公司 (“Ding Cheng”), in satisfaction of Beijing Wangfu’s liability to the same.

(i)  As at 25 November 2024, the Shares were transferred to and registered under the name of Ding Cheng.

18.  In the premises, P’s position is that the Sellers have failed to transfer the Shares to P in breach of their obligations under the Transfer Framework Agreement, and D is jointly and severally liable for the said breach under the Guarantee.

19.  As at 31 March 2023, the Shares were valued at RMB284,648,500 pursuant to an appraisal ordered by the Beijing Court for the purposes of the judicial auction. P adopts this objective valuation of the Shares as representing the loss and damage suffered by P as a result of the Sellers’ breach.

DISCUSSION

20.  In the present application, there is no dispute between the parties that D was only taking issue with whether there is (i) a good arguable case; and (ii) a real risk of unjustified dissipation in this application in the affidavit evidence.

21.  However, by the time of the hearing before me, D no longer insists that P may have a good arguable case as the threshold to show that is not high: See Agritrade Resources Limited Through The Joint Provisional Liquidators Ng Kian Kiat, Oon Su Sun and E. Alexander Whittaker and Another v Ashok Kumar Sahoo [2022] HKCA 280 at §26 per Cheung JA; Predincine Holdings Ltd v Bianchi (Hong Kong) Ltd and Others [2021] HKCFI 123 at §26 per Coleman J; and Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd and Others, unreported, HCA 3023/2016; 2 May 2017 at §42 per DHCJ Douglas Lam SC.

22.  Thus, the arguments before me concentrated on whether there is a real risk of unjustified dissipation on the part of D in this case. In particular, there are several issues under that heading as highlighted by the parties during their arguments before me that required the court’s determination. I shall try to concentrate on those issues which are in dispute between the parties and which in my view will have a determinative effect on the outcome of the Summons. I shall also try to deal with some of the minor issues raised by the parties in their submissions at the end of this decision, which, however, may not have a critical effect on the outcome of the Summons.

23.  In my view, the following are the critical issues which would  determine the outcome of the Summons:

(a)  Whether there is any real risk of unjustified dissipation of assets by D; 

(b)  Whether there was any serious delay in P’s application for the Ex Parte Order; and

(c)  Whether there was any material non-disclosure on the part of P when applying for the Ex Parte Order.

24.  I shall deal with each of the above issues in turn below.

Any real risk of unjustified dissipation of assets by D?

Legal principles governing risk of dissipation

25.  The relevant principles of the risk of dissipation in the context of a Mareva injunction application have been summarized by the Court of Appeal (“CA”) in Convoy Collateral Limited v Cho Kwai Chee & Ors [2020] 6 HKC 81 §§35-36 (Lam VP, as he then was) (citing with approval Lakatamia Shipping Co Ltd v Toshiko Morimoto [2019] EWCA Civ 2203 §34 (Haddon-Cave LJ)):[7]

“(1) The claimant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets. In this context dissipation means putting the assets out of reach of a judgment whether by concealment or transfer.

(2) The risk of dissipation must be established by solid evidence; mere inference or generalised assertion is not sufficient.

(3) The risk of dissipation must be established separately against each respondent.

(4) It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets may be dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.

(5) The respondent's former use of offshore structures is relevant but does not itself equate to a risk of dissipation. Businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets. Such legitimate reasons may properly include tax planning, privacy and the use of limited liability structures.

(6) What must be threatened is unjustified dissipation. The purpose of a [World Freezing Order] is not to provide the claimant with security; it is to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business in a way which will have the effect of making it judgment proof. A WFO is not intended to stop a corporate defendant from dealing with its assets in the normal course of its business. Similarly, it is not intended to constrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling their assets, it will not be sufficient to show that such continued conduct would prejudice the claimant's ability to enforce a judgment. That would be contrary to the purpose of the WFO jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy.

(7) Each case is fact specific and relevant factors must be looked at cumulatively.” [emphasis added]

26.  Subject to certain qualifications, the principles in Lakatamia reproduced above are applicable in Hong Kong: Convoy Collateral Ltd §§36-54.

27.  The following qualifications discussed in Convoy Collateral Ltd are relevant:

“37. On the onus borne by a party seeking such draconian relief, whilst there are no doubt respectable authorities referring to the need for a solid evidential basis to establish a real risk of dissipation…we prefer to describe the burden as solid basis for concluding that there is such a real risk.

[…]

40. Since the assessment is in respect of the risk of dissipation as opposed to the fact of actual dissipation, the exercise necessarily involves an evaluative and predictive judgment. Thus, the evidential burden can be satisfied by drawing proper inferences from a holistic consideration of all the circumstantial materials that are indicative of risk, including matters which point against such risk…

41. A solid basis to support an inference of risk of dissipation is to be contrasted with unsupported or bare statements of fear which would carry little weight. As observed by Sir Peter Pain in O’Regan v Iambic Productions (1989) 139 NLJ 1378 at 1379, ‘unsupported statements and expressions of fear, carry very little, if any, weight. The court needs to act on objective facts.’

[…]

43. Notwithstanding the broad statement of Godfrey J in Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLRD 235, Hong Kong judges have been vigilant in scrutinizing the allegations in a claim with care before drawing the inference of risk of dissipation. Chu J (as she then was) in Hornor Resources v Savvy Resources [2010] 4 HKC 50 cautioned that the court must examine with care allegations of dishonesty before inferring therefrom a real risk of dissipation.

[…]

“53. To sum up, the approach set out by Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto, supra at [51] provides good guidance. The ultimate question is whether CCL succeeds in showing objectively there is a solid basis for concluding that there is a real risk of unjustified dissipation of assets by a defendant. That question is to be answered by examining the evidence holistically. Evidence of dishonest and fraudulent conducts or other serious wrongdoings which form the basis of the claims, and which reflect adversely on the integrity of the defendant could point powerfully towards an inference of such risk.” [emphasis added]

The 3 alleged dissipating events that P complained of

28.  P has complained of 3 “dissipating events” on the part of D. They have been set out in P’s Submissions.

29.  In §57 of P’s Submissions, the 2 instances of the “actual dissipation” have been described as follows:-

(a)  In the present case, there are two instances of actual dissipation on the part of D, which were discovered by P in or around early December 2024, and which show that D has since August 2023 been transferring away his assets incrementally otherwise than in the ordinary course of his personal affairs, such that he is increasingly becoming judgment-proof:

(i)  First, on 23 August 2023, D caused his wholly-owned company, Best Growth International Limited (“Best Growth”), to enter into two sale and purchase agreements to transfer 704,643,034 shares and 114,011,420 shares in the ListCo (collectively, “ListCo Shares”) to his son (ie Cheung Jr, through his wholly-owned company, Empire Charm Limited (“Empire Charm”)) and his daughter, Ms Cheung Yuan Yuan Emily (“Ms Cheung”). The consideration for the transfers were HK$102,173,240 and HK$20,881,656 respectively.

(ii)  Second, by an agreement for sale and purchase dated 28 October 2024, D agreed to sell the Flat to a third party named Chen Hanqing (陳含青) (“Mr Chen”), for HK$9,200,000, with completion to take place on or before 30 December 2024.

30.  In addition, P claims that the third “real risk of unjustified dissipation” is supported by D’s sudden and abrupt resignation from his various managerial and directorial positions in the ListCo. Under §§59.1 and 59.2 of P’s Submissions, the following allegations have been made:-

(a)  After P’s former solicitors served the statutory demand (“SD”) on D (through his solicitors) on 3 December 2024, D immediately resigned as Chairman of the board of directors, the Chairman of the nomination committee and an Executive Director of the ListCo, and was replaced by Cheung Jr on 6 December 2024. The purported reason was that D needed to devote more time to his other business commitments.

(b)  The sudden and abrupt resignation is suspicious and extraordinary:

(i)  As mentioned above, D is the founder of the group, which has substantial operations. Even if the statement that D needs to devote more time to his other business commitments is taken to be true, there is no apparently good reason why D would suddenly give up all these managerial and directorial positions through which D used to manage the group.

(ii)  According to the ListCo’s circular dated 8 April 2024, D had offered himself for re-election as a director at the annual general meeting as recently as 8 May 2024. He had also entered into a 3-year service contract with the ListCo commencing from 26 September 2023, which still had a substantial period to run. These circumstances objectively indicate that D had intended to continue managing the ListCo in his roles and positions. Hence, it is plainly inconsistent and out of the ordinary for D to suddenly resign from these position.

(iii)  It can be seen from the announcement of D’s resignation that Cheung Jr was aged 35 at the time of taking over from D all his roles and positions in the ListCo. Apart from young age, however, Cheung Jr was previously not even a director of the ListCo at all. But all of a sudden, he was appointed Executive Director, Chairman of the board of directors and Chairman of the nomination committee in D’s place all on 6 December 2024.

(iv)  The circumstances in which D came to resign his positions in the ListCo and for Cheung Jr to be appointed Executive Director and Chairman of the Board in his place appear extraordinary, and can only be rationalized as an attempt to provide support for D’s assertion (which is bound to fail for the reasons explained below) that the transfer of his shares was part of an estate and succession planning. As mentioned above, D is presumed to be acting in concert with his children under the Takeovers Code. In all likelihood, his children will act along with him to protect their family interests.

Whether there was any solid basis to conclude that there was a real risk of unjustified dissipation in this case

On the timing of the Sales of the ListCo Shares

31.  On this issue, I agree with Mr Dawes that there is nothing in the allegation that the Sales occurred at a time when D was “aware that it was becoming increasingly certain that the Sellers would not be able to transfer the Shares to [P]”. In my view, there is simply no solid evidence to support P’s serious accusation.

32.  I agree with Mr Dawes’ submission that P has failed to prove on a solid basis for concluding that there is a real risk of unjustified dissipation on this issue for the following 3 key reasons:-

(a)  First, P’s suggestion that the Sales occurred at a time when D was “aware that it was becoming increasingly certain that the Sellers would not be able to transfer the Shares to [P]”[8] is entirely baseless. Even if D knew about the various enforcement actions of Ding Cheng at the material time, this is in fact a point against P – on P’s case, D would have known about Ding Cheng’s freezing order in June 2020, but there is no evidence of any dealings with assets until almost 3 years later in August 2023.

(b)  Second, the Sales were made pursuant to legitimate commercial reasons and in the ordinary course of business.

(c)  Third, D’s resignation from the Board of ListCo is completely irrelevant to the issue of whether there is a real risk of unjustified dissipation.

Whether D sold the ListCo Shares at a time when he was aware of Ding Cheng’s enforcement actions in the PRC

33.  In my judgment, P’s allegation that D sold the ListCo Shares at a time when D was aware that it was becoming increasingly certain that the Sellers would not be able to transfer the Shares to P is in lack of any evidential basis, let alone any solid basis.

34.  Originally, in Law 1^st §41.3, P claimed that D was aware of P’s efforts to oppose the enforcement action of Ding Cheng and “unfreeze” the Shares because D’s supporting affirmation in HCSD 56 of 2024 expressly referred to the Arbitral Award and various judgments given by the PRC courts.

35.  I agree with D that it is a quantum leap to suggest that just because D knew about the Arbitral Award and various judgments given by the PRC courts at the time of the application to set aside the SD (ie as late as December 2024), D must also have possessed such knowledge at the time of the sale of the ListCo shares (August 2023) and the Flat (October 2024). D has now affirmed that he had come to know about the enforcement action after the service of the SD through his lawyers: Zhang 1^st §41.

36.  In my view, while P has raised a lot suspicions and conjectures about the alleged business activities of D in recent years, it is clear that there is no evidence, whether direct or indirect, to point to any dishonesty or fraud on the part of D. In this regard, I agree with Mr Dawes’ submission that there is simply no direct evidence to show that D was aware of the enforcement action at the time when D sold the ListCo shares:

(a)  While P has criticised D for his “unbelievable and unconvincing” assertion that D was not aware of the enforcement action until after the service of the SD[9], it has failed to produce any evidence to show D actually has such knowledge;

(b)  P used the signing of the Guarantee of D and the alleged “close relationship” with the Sellers as evidence of D’s knowledge in my view is rather tenuous. In this respect, again I agree with Mr Dawes that the fact that D had signed the Guarantee does not mean that D was aware of every single minute development of the 2012 Agreement, including the subsequent enforcement actions by Ding Cheng, which were as Mr Dawes described, peripheral and ancillary to the Seller’s obligation under the 2012 Agreement. There is also no evidence to show such “close relationship” existed as alleged by P;

(c)  There is also no real substance in the allegation that D referred to the enforcement actions of Ding Cheng and exhibited various copies of PRC judgments as evidence of D “maintaining close communication with the Sellers and was aware of the matters pertaining to Ding Cheng’s enforcement actions even before the issuance and service of the SD”.

(d)  The allegation that D made the Sales “in the midst of [P’s] efforts to oppose the enforcement action of [Ding Cheng] and “unfreeze” the Shares”[10] also contains no real substance in my view. The fact that there was a time gap of 3 to 4 years between the commencement of the enforcement action by Ding Cheng (in June 2020) and the Sales (in August 2023 and October 2024) really speaks for itself. As Mr Dawes has submitted, if the Sales were intended to be dissipation of D’s assets, they would surely have occurred soon after Ding Cheng’s enforcement action. It simply does not make sense for D to wait for 3-4 years if he had intended to dissipate any of his assets.

37.  In the aforesaid circumstances, I would reject P’s submission that the Sales occurred at a time when D was aware that “it was becoming increasingly certain that the Sellers would not be able to transfer the Shares to [P]”.         

38.  More importantly, I have borne in mind that there is no allegation of dishonesty or low commercial morality on the part of D in this case – whether in P’s underlying claim against D or in the specific allegation of dissipation in the context of the Mareva injunction application.

39.  In this regard, I consider the following passage by Reyes J in Hsin Chong Construction (Asia) Ltd v Henble Ltd [2005] 3 HKC 27 at §23 relevant:

“What, one asks rhetorically, is [the Defendant] expected to do? To hold $170 million idle in [the Defendant’s] bank accounts to abide the outcome of disputed litigation would not be the most productive way of using funds.”

Transfer of the ListCo Shares   

40.  Mr Yu for P in P’s submissions, which was expanded and eloquently highlighted  in his oral submissions at the hearing, stated that the following matters about the transfer of the ListCo Shares to Cheung Jr and Ms Cheung “plainly form a solid basis for concluding that there is a real risk of unjustified dissipation of assets by D”.

41.  According to P, the transfers were effected in the following context:

(a)  As expressly stated in the circular of the ListCo dated 8 April 2024, D is the founder of the group and is in charge of the group’s strategic development and overall management. D also has over 30 years of management experience in watches and other high-end consuming accessories manufacturing and international trade industries.

(b)  D held his interest in the ListCo via a company called Best Growth. Prior to the disposal in August 2023, Best Growth held some 34.19% (or 1,505,832,901) of the issued shares in the ListCo. D’s interest in the shares in the ListCo is likely to constitute a substantial part of his assets.

(c)  No reasons were given at all in the announcements as to the rationale for these transfers to D’s son and daughter.

(d)  According to the ListCo’s circular dated 8 April 2024, D is presumed to be acting in concert with his children under the Takeovers Code.

(e)  These transactions were effected in the midst of the P’s efforts to oppose the enforcement action of Ding Cheng and “unfreeze” the Shares. As explained in Law 1^st §41.3, D must have been aware of these matters and hence the possibility that his obligation under the Guarantee would be called upon and enforced. By April 2023, D must have known that the Shares may not be released and it was becoming increasingly possible that he may be called upon to perform on his obligations under the Guarantee.

(f)  It was expressly stated in the announcement dated 23 August 2023 that the ListCo’s board of directors did not expect the transfers to have any significant impact on the business operations and the composition of the management of the group.

(g)  D claims that the transfers were part of his “estate and succession planning” (Zhang 1^st §38).

42.  Mr Yu submits that, in these peculiar circumstances, the only practical effect of the transfers was to insulate a substantial percentage of the shareholding in the ListCo held by D through Best Growth from any enforcement action against D personally. These transfers certainly cannot be described as D’s ordinary dealing with his assets (contra Zhang 1^st §28(a)).

43.  Mr Yu further submits that D has already effected these transfers of part of the shares he owns through Best Growth in the ListCo to his family members. In other words, there has been actual dissipation of assets. There is hence a real risk that D may continue to transfer away his remaining shares at any time, especially in the course of the intended CIETAC arbitration.

44.  With greatest respect to Mr Yu and his team, I do not share the same scepticisms about the transfer of the ListCo Shares by D at all.

45.  First, I do not regard D’s explanation in his affirmation that the Share Transfers were part of his estate and succession planning, as well as to maintain family control of the ListCo, is as sinister as P has painted it. After all, D is now 65 years old, a normal retirement age for most of the working population in Hong Kong. He also says that he is no longer as “healthy and energetic as before to effectively manage the affairs of ListCo alongside other business ventures” which is only natural as one ages. He also decided to redirect his focus and energy into his other venture in the Mainland, namely Primetime: See Zhang 1^st §38. In my view, there is nothing unusual for a successful businessman of D’s age to want to slow down and plan for his retirement. There is also nothing wrong for a man of his age who wants to pass on his wealth and position to his own children and try to keep them within his own family.

46.  Second, it is important to bear in mind that both the son and daughter of D had paid market value for the shares. The sale price for the Share Transfers were around HK$0.145 per ListCo share, which was close to the market price of the shares in the open market back in August 2023: See Zhang 1^st §40.

47.  Third, the Shares Transfer was done in an open manner as it involves ListCo. They were not done in secret and they were not done in the dark. It was carried out as transparent as it could be. To me, they simply do not bear the hallmarks of someone who is trying to dissipate his assets desperately and discreetly in order to avoid some possible future creditors.

48.  P also criticized the fact that the son and daughter of D had not explained where the funds of purchasing the Shares had come from. I do not consider the law would require a third party to the proceedings to explain where the source of funds for purchasing the assets have come from. Nor do I think such onerous burden should be placed on a defendant in a Mareva injunction as P seems to suggest. At least I am not aware any authority to support such proposition.

49.  Fourth, one must not lose sight of the fact that after the Shares Transfer, in or around August 2024, Cheung Jr through Empire Charm has acquired a further 660,602,843 shares of the ListCo (which was around 15% of the ListCo shares outstanding) pursuant to a pre-conditional voluntary cash partial offer. I agree with Mr Dawes that this tends to support the Shares Transfers were part of D’s genuine plan for succession planning.           

50.  Fifth, on P’s criticism of how Cheung Jr’s acquisition of the further shares of the ListCo could facilitate succession planning alleged by D (See Law 2^nd §20.3), the obvious answer to that in my view is that the acquisition would make the son the largest shareholder of the ListCo which would allow him more control over the day to day running and management of the ListCo. This would at the same time reduce the control of D over the ListCo. In my view, this matches the timing of D in stepping down as the Chairman of the company (as well as other directorship) and allowing his son to step up in his responsibilities as well as positon in the company.

The Sale of the Flat

51.  P says that the sale of the Flat to Mr Chen in October 2024 is another attempt of D to dissipate his asset and to avoid a future judgment or award in favour of P one day would go unsatisfied.

52.  P relies on the following facts in P’s Submissions to support its argument[11]:-

(a)  Prior to the completion date of 30 December 2024, D had early completed and assigned the Flat to Mr Chen on 2 December 2024.

(b)  As can be seen from the land search, D acquired the Flat in March 2011 from Ms Tan Li (談麗), a senior manager holding the position of vice president and secretary of the board of directors who joined the ListCo’s group in 2001.

(c)  Thus, prior to the sale, D had been holding the Flat for almost 13 years.

(d)  D apparently entered into an agreement for the sale of the Flat on 28 October 2024. The sale was completed early on 2 December 2024, after:

(i)  P issued the SD against D on 25 November 2024, and before D instructed his solicitors to accept service thereof; and

(ii)  the Shares were transferred to and registered under the name of Ding Cheng, by which time it became impossible for the Sellers to perform their obligation to transfer the Shares to P under the Transfer Framework Agreement.

(e)  But despite the early completion of the sale on 2 December 2024, in Cheung Aff which was affirmed on 18 December 2024, D still stated his residential address to be at the Flat. This circumstance alone already raises serious questions as to the genuineness of the sale and/or demonstrates D’s intention to conceal his whereabouts and any other properties from P.

53.  Again, with greatest respect to Mr Yu and his team, I do not find the sale of the Flat as good evidence of dissipation of assets in this case, let alone as solid evidence.

54.  D in his affirmation has explained the background behind the sale of the Flat (See Zhang 1^st §§43-45). In particular, he has explained:

(a)  “At the outset, I should make clear that while I have used the address of the Flat for correspondence purposes, I have never resided in it.

(b)  Since 2016, there was an informal arrangement with Mr Chen that he could use the Flat whenever he visits Hong Kong for business or otherwise needs to use the Flat. I agreed since I never resided in it anyway.

(c)  In late 2024, I started to look for a purchaser for the Flat. I had this thought because I planned to reorganize my finances.

(i)  Best Corporate Limited (“Best Corporate”) is a wholly owned company of mine. I refer to its annual return dated 13 December 2023 at pp.81-90 of ZYP-1. It has made investments in Mainland Chinese companies. It has also raised finance through, among other things, borrowings from the Swatch Group (Hong Kong) Limited (“Swatch”).

(ii)  Best Corporate is required to make regular repayments of principal and interest to Swatch. I refer to the recent debit notes at pp.91-92 of ZYP-1 dated 27 April 2024 and 27 October 2024 issued by Swatch to Best Corporate in the amounts of around HK$33 million and HK$31 million respectively.

(iii)  It had been my intention that my investment returns would cover the loan repayments to Swatch. However, in the past two years, due to the declining financial performance of the Mainland companies which Best Corporate had invested in, Best Corporate’s ability to make repayments has been impaired.

(d)  In the premises, I, as the sole shareholder of Best Corporate, have to reorganize my finances to facilitate Best Corporate’s repayment and/or anticipated future repayments.

(e)  I therefore sought to sell the Flat to liquidate my assets for what is on any view normal financial arrangements. Naturally, I looked to Mr Chen, who would use the Flat every now and then, to see if he was interested in purchasing the Flat.”

55.  I accept D’s explanations that the sale of the Flat was pursuant to a legitimate commercial reason of facilitating the repayments and/or anticipated future repayments of Best Corporate to its creditor and conducted in the ordinary course of business. In particular, I accept the following explanations provided by D in his affirmation:-

(a)  First, the consideration under the sale and purchase agreement with Mr Chen was objectively determined by reference to market data. In fact, a search on HSBC’s website on 11 January 2025 reveals that the Flat was valued at approximately HK$7,460,000, so the consideration was in fact above market value and not a quick fire sale with the aim of dissipation: Zhang 1^st §54.

(b)  Second, there was no need to wait until 30 December 2024 for formal completion especially given that full payment had been made by mid-November 2024: Zhang 1^st §52.

(c)  Third, the address of the Flat was used in D’s affirmation in HCSD 56 of 2024 because (1) it was the address used by P in the SD and simply adopted by ASC (D’s solicitors) in D’s affirmation in HCSD 56 of 2024 and (2) D thought the address was only for communication purpose and expected that Mr Chen would notify D of documents addressed to D but delivered to the Flat: Zhang 1^st §53.

56.  Furthermore, the suggestion that D tried to sell a HK$9 million flat with the intention to evade his possible liabilities while still openly and publicly retains almost HK$100 million worth of the ListCo shares in my view simply does not make sense.

57.  In this regard, I have been reminded of the following passage by Sakhrani J in LG International Corp v J&J Chemtrading Company Ltd, (unreported, HCA 2557/2008; 30 December 2008) at §20 which  I consider to be so appropriate:-

“I do not regard the sale of property by a defendant to improve its cash flow position and to use the money for its business operations by paying off its trade debts when due as sufficient evidence showing a real risk of dissipation of assets which would render the plaintiff’s judgment of no effect.”

58.  Similarly, in Severin Asia Limited v Great Universe (HK) Limited (unreported, HCA 2322/1999, 23 July 1999) at p.3, Recorder Kotewall SC held that “a Mareva injunction, or the Mareva approach, does not give the Plaintiff any security to assets of the Defendant, nor does it allow a plaintiff who has not obtained a judgment any priority in terms of enforcement against the Defendant. A defendant against whom a claim is made is entitled to use its assets as part of its ordinary business and to pay off just and legitimate debts. A plaintiff is not entitled to direct how the defendant should carry on its business, or the order in which the defendant must pay off its debts” [emphasis added], and thus refused to grant a Mareva injunction to restrain the defendant from disposing of its property to satisfy its indebtedness to its creditor.

59.  In the aforesaid circumstances, I do not regard the sale of the Flat would amount to solid evidence of dissipation on the part of D in this case.

D’s resignation and Cheung Jr’s appointment as chairman and executive director      

60.  The third complaint of P is the alleged “sudden and abrupt” resignations of D from his various managerial and directorial positions at the ListCo.

61.  In particular, P claims that after P’s former solicitors served the SD on D, through his solicitors, on 3 December 2024, D immediately resigned as the Chairman of the board of directors, the Chairman of the nomination committee and an Executive Director of the ListCo. He was replaced by Cheung Jr on 6 December 2014. D explains that his resignation was part of his ongoing estate and succession planning.

62.  Mr Yu submits that the “sudden and abrupt” resignation is suspicious and extraordinary for the reasons stated in §30 above.

63.  In my judgment, it is difficult to link the resignation of D from his chairmanship as well as other directorial positions in the ListCo as evidence of unjustified dissipation of assets. D’s directorships in the ListCo are not physical assets which can be dissipated. In my view, just because one may think that there is a possibility that someone will bring a law suit against him in some future date does not mean that all his business activities should be put on hold. Life must go on.   

64.  I further reject P’s argument that there is no objective evidence of estate and succession planning on the part of D. The fact that Cheung Jr joined the Group in 2012 and gradually taking on more responsibilities (more prominently since 2019) indicates that he has always been treated by D as an “heir apparent” to the family business. Further, the fact that he was appointed as the CEO of the ListCo in April 2021 shows that D had started to allow him to take on more important roles in the ListCo well before P started the present proceedings. Then 2 years later (in August 2023) when D transferred the Shares to him and made him become the Chairman as well as the executive director of the ListCo can, in my view, only be seen as a natural progression of that succession plan. Of course, Cheung Jr could not become the chairman and take on more directorial positions unless D resigned from them. This is only natural and part and parcel of a normal transition of positions from father and son within the ListCo.   

65.  By August 2024 when Cheung Jr acquired approximately another 15% of the shares of the ListCo from the market, he has become the largest shareholder of the company. In my view, it will only be natural that he should become the Chairman of the ListCo and takes on the major managerial and directorial roles in the company.

66.  Looking at the matter objectively, I simply cannot see how the resignation of D as Chairman (and other directorships) and made his son to take over his role as Chairman as well as executive director of the ListCo could be interpreted as an act of unjustified dissipation.  

Conclusion on the issue of unjustified dissipation

67.  Based on the aforementioned discussions and looking at the evidence holistically, I do not find there is solid evidence to show that there is any real risk of unjustified dissipation on the part of D in this case. Thus, on this ground alone, I do not consider that the Mareva injunction should be allowed to continue against D.

Delay

68.  In addition to the above, there is the issue of delay in P in taking out the Mareva injunction application in this case.

69.  I agree with Mr Dawes that on the case as presented by P, at least since August 2018 or June 2020 or December 2021, it ought to have at least considered that there is a real possibility of needing to hold D liable as guarantor. Yet P waited not months but years before applying for the Mareva injunction in January 2025. In my view, this in itself raises a large question mark as to whether there is indeed a real risk of dissipation and whether P in fact has any legitimate concern over the issue: See Enercon GmbH & Anor v Enercon (India) Ltd [2012] EWHC 689 (Comm) at §78.

70.  Further, it has now been firmly established that delay after a defendant gained knowledge of a plaintiff’s claim can mitigate against the risk of dissipation as such defendant would already have the opportunity to dispose of the assets should he be inclined to do so. This is what the Court of Appeal in Convoy at §54 called the stable-door argument. Simply put, the horse have bolted already and it is too late to close the stable door. Placed in the context of this case, given the serious delay on part of P in applying for the Mareva injunction, if D had any intention to ringfence his assets from enforcement actions, he would have had ample time to do so. But the evidence shows that he did not.

71.  For the reasons detailed by Mr Dawes in D’s Submissions, I consider that the delay in P in applying for the Mareva injunction in this case is also fatal to its current application.

Material Non-Disclosure (“MND”)

72.  Mr Dawes highlighted the following alleged MND on P’s part when applying for the Ex Parte Order.

73.  The first MND concerns P’s reliance on D’s resignation (and replacement by D’s son) as Chairman and executive director of the listed company and replacement by Cheung Jr to “further demonstrate that the … dispositions of D’s assets are beyond the ordinary dealing with his assets and simply to protect D’s assets from enforcement” (see P’s Ex Parte skeleton §60).

74.  P highlighted the fact that D’s son “was aged 35, … not previously a director of Hengdeli Holdings at all. But all of a sudden, he became an Executive Director, Chairman of the board of directors and Chairman of the nomination committee in D’s place all on 6 December 2024.” (see P’s Ex Parte skeleton §60.2(4)). P presents the picture as one of “sudden and abrupt resignation” and “replacement”.

75.  However, I agree with Mr Dawes that, as publicly announced, Cheung Jr in fact joined the Group[12] in 2012; had been “appointed as a director of various subsidiaries of [Hengdeli Holdings]” since 2019 and was already the president of the industrial group of the Group at least by 2021 (at the age of 32). In April 2021, Cheung Jr was appointed Chief Executive Officer of the Group already. Further, his taking over the helm in December 2024 in fact followed his acquisition of shares from the open market in August 2024 (in addition to the purchase from D in August 2023) and consequent status as single largest shareholder. I agree with Mr Dawes that his ascension was anything but sudden and abrupt. In other words, he did not become an executive director / Chairman of Hengdeli Holdings “all of a sudden”.

76.  The second MND relates to the quantum of P’s claim (and in turn the quantum of the draconian injunction sought by P).

77.  P claims against D in the amount of RMB284,648,500, which P suggests is the value of the Shares pursuant to an appraisal ordered by the Beijing Court for purposes of the judicial auction: Law 1^st §22.

78.  However, P never informed the Ex Parte Judge (or this Court) that the value of the Shares as sold when auctioned was RMB181,925,465 (see top of page 2 of the Decision of the Beijing Court dated 12 Nov 2024 at [B1/14/120]).

79.  Leaving aside the fact that it is questionable why P is pursuing D for RMB284,648,500 when there is evidence of the actual value of Shares fetched at an auction, I agree with D that this material fact ought to have been brought to the Ex Parte Judge’s attention for his consideration in determining the appropriate quantum.

80.  It seems that none of the above was disclosed to the Ex Parte Judge at the Ex Parte hearing.

81.  I agree with Mr Dawes that the above MND is all the more egregious when (i) it was P who relied on this changing of the guard as a material fact to demonstrate that D’s dealings with his assets are beyond ordinary; (ii) P had referred to a number of Hengdeli Holdings’ public announcements where it ostensibly supports P’s case, but omitted reference to this salient announcement; and (iii) there is a large difference of approximately RMB 102.7m between the sum claimed against D and the actual value of the Shares sold at an open market auction.

82.  The law is that if the Court finds that there have been breaches of the duty of full and fair disclosure on the Ex Parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial. The fact that the judge might have made the order anyway is of little if any importance: See Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642 at §56 (Kwan JA).

83.  In the aforestated circumstances, I find there is MND on the part of P at the stage of obtaining the Ex Parte Order before DHCJ Jonathan Wong in this case and the injunction order ought to be discharged on this ground also.

Other Issues

84.  While I am aware that there is an argument over whether the claim is time-barred under the PRC law[13], given my findings on the above 3 critical issues, I do not intend to go into this matter as I will not be in the position to resolve this issue in this application without hearing evidence from the Mainland experts.

85.  There is also the allegation of D of the tactical manoeuvres on the part of P in (i) taking out the SD against D; (ii) in serving the documents in relation to the Ex Parte Order late on D: See §§66-68 of Zhang 1^st.

86.  In relation to the SD, I find it was used a tool to obtain a tactical advantage over D for the following reasons:-

(a)  The SD is bad on its face, as P itself acknowledged that the sum claimed is “in the form of damages” rather than a liquidated sum;

(b)  During the Ex Parte hearing before DHCJ Jonathan Wong on 2 January 2025, “P acknowledged that the use of the SD procedure was probably wrong”: See p 1 of the Notes of the Ex Parte hearing; and

(c)  The fact that P has later decided to withdraw the SD, with costs payment to D is a clear acknowledgment that the SD should not have been issued in the first place.

87.  D submits that P has also sought to gain a tactical advantage in the present proceedings by its following conduct:

(a)  In its application for the Ex Parte Order, P undertook to Court that “[a]s soon as practicable the plaintiff will serve on the defendant a summons to be heard on the return date together with a copy of the affirmation and copiable exhibits containing the evidence relied on by the plaintiff, a copy of the skeleton argument used at the application for this Order and a full note of the hearing […]” (paragraph (3) of Schedule 2 to the Ex Parte Order).

(b)  P allegedly has breached such undertaking by only serving D with the aforementioned documents on 7 January 2025, despite having obtained the Ex Parte Order 5 days prior.

(c)  P knowing full well that the return date hearing was on 10 January 2025, failed to comply with Practice Direction 5.3 at §7.3 to serve its skeleton submissions by 9:30am on 8 January 2025.

(d)  At the return date hearing when the matter was before me, I expressed my “disquiet” about the late service of the Ex Parte Order, which allowed P to gain a “tactical advantage” and was “unfair”.

88.  At all material times, due to HCSD 56 of 2024, P knew that D was represented by ASC.

89.  I agree with Mr Dawes’ submission that once the sealed Ex Parte order was received on Friday, it should have been served on D. There is no merit in P’s excuse of having to serve the banks first (cf P’s Submissions §77) – it contradicts the express language of the undertaking given to the Court by P, namely that P will “as soon as practicable” serve on D the relevant materials mentioned in paragraph (3) to Schedule 2 of the Ex Parte Order. Gee on Commercial Injunctions §21-006  does not suggest or justify that the banks must or should be served prior to the defendant who is actually affected by the Ex Parte Order notwithstanding the express undertaking.

90.  However, as said, these minor issues do not affect the outcome of the Summons.

CONCLUSION

91.  In conclusion, based on the discussions and my findings above, I would dismiss the Summons with costs in favour of D, such costs to be taxed if not agreed with certificate for 2 counsel. It follows that the ancillary orders sought by P must be rejected also.

92.  It remain for me to thank counsel on both sides for their very helpful assistance in this case.