CHINA NPL HOLDINGS PTE. LTD v. MO HAIDAN AND OTHERS

CACV 583/2020

[2020] HKCA 1014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 583 OF 2020

(ON APPEAL FROM HCA 513/2019)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

A. Background and the Judgment below

1.  The 1^st defendant and 2^nd defendant were joint and several guarantors for loan contracts made between a PRC company, Guangzhou Zaihua Trading Development Co Ltd (“Guangzhou Zaihua”) as borrower and the Industrial and Commercial Bank of China Ltd (“ICBC”) as lender in 2014.  

2.  Guangzhou Zaihua defaulted in payments and ICBC successfully obtained judgments against Guangzhou Zaihua, the 1^st defendant and the 2^nd defendant in the Basic People’s Court of Huangpu District, Guangzhou City, Guangdong Province (“the Huangpu Court”) on 30 November 2015 in the aggregate sum of RMB 80,922,042.24 (“the Original Judgments”).  The 1^st defendant did not appear in the proceedings. The judgments were entered by the Huangpu Court on the basis that she refused to attend without any valid reason.  Her address as stated in the judgments was an address in Guangdong Province, viz 廣東省陽江市江城區城南下濠洲26號.

3.  According to the 1^st defendant, she did not reside in Guangdong at the material time and she had no notice of the proceedings.

4.  The judgment debts were later assigned by ICBC to a third party who subsequently assigned the same to the plaintiff.

5.  On 26 March 2019, the plaintiff issued a writ endorsed with a statement of claim against the defendants in Hong Kong seeking to enforce the Original Judgments under the common law.  It sought judgment against the 1^st defendant in the sum of RMB 75,347,434.93 (or its HKD equivalent), being the amount due under the guarantee, together costs and interests under the PRC proceedings and an injunction restraining her from dealing with or diminishing the value of her assets up to that value.

6.  On the following day, the plaintiff obtained an ex parte (on notice) Mareva injunction[1] against the 1^st defendant prohibiting her from:

(1)  removing from Hong Kong any of her assets which are within Hong Kong, whether in her own name or not, and whether solely or jointly owned, up to the value of RMB 75,347,434.93 (or its HKD equivalent); or

(2)  disposing of or dealing with or diminishing the value of any of her assets which are within Hong Kong, whether in her own name or not, and whether solely or jointly owned up to the value of RMB 75,347,434.93 (or its HKD equivalent).  This prohibition includes the following assets in particular:

(i)    the proceeds of any sale of the 1^st defendant’s shareholding in the 3^rd defendant; or

(ii)   the property known as “Flat A, 38/F., Tower 6A, Imperial Cullinan, No.10 Hoi Fai Road, Kowloon, Hong Kong” held in the name of the 3^rd defendant (“the Property”) or the net sale proceeds if the Property had been sold[2].

7.  On 8 April 2019, the 1^st defendant took out summons to discharge the Mareva injunction.  Deputy High Court Judge Sherrington (“the Judge”) heard the application on 21 November 2019.

8.  At the time of the hearing, the 1^st defendant’s applications for retrial in the Intermediate People’s Court of Guangzhou (“the Guangzhou Intermediate Court”) were pending.  Subsequently, the 1^st defendant was granted leave to adduce as evidence the four retrial orders (“Retrial Orders”) dated 24 December 2019 issued by the Guangzhou Intermediate Court.  By the Retrial Orders, the dispute between the 1^st defendant and the plaintiff would be re-tried by the Guangzhou Intermediate Court.  In the meantime, the Original Judgments were stayed or suspended. 

9.  After taking into account of the Retrial Orders and expert evidence of their effects, the Judge handed down judgment on 3 June 2020 discharging the Mareva injunction against the 1^st defendant.

10.  The Judge discharged the Mareva injunction on the basis that the plaintiff had failed to show a good arguable case that the Original Judgments are final and conclusive judgments in light of the Retrial Orders.

11.  The Judge accepted the 1^st defendant’s submissions[3] and held that where a retrial had been ordered any rulings made or issues decided in the course of the original trial were not “res judicata”.  He went on to say at [42]:

“ 42. It seems to me there is a clear distinction between a judgment of a foreign court where there is an appeal pending which I accept might be regarded as final and conclusive, notwithstanding the ongoing appellate process in the overseas jurisdiction and the position, as here, where a retrial has been ordered in the overseas jurisdiction such that the original judgment has been set aside, the findings are not binding on the court hearing the retrial and there is therefore no question of the matters being ‘res judicata’.” (our emphasis)

12.  Based on the evidence of the 1^st defendant’s expert Mr Hu, the Judge held that in the present case “there was no res judicata arising from the PRC proceedings”:

“ 43. I cannot see how it can be said that a judgment in the second situation is final and conclusive; I accept the evidence of Mr Hu that there is no ‘res judicata’ arising from the original proceedings in the PRC and in the circumstances it would be contrary to common sense as well as to the established principles of Hong Kong Conflict of Laws to regard it as such for enforcement purposes in Hong Kong.”

13.  Further, the Judge rejected the plaintiff’s submission that the correct approach was to order a stay of the proceedings pending the determination of the retrials in the PRC as it would be unjust to subject the 1^st defendant to a stay or a continuing injunction in its current form.  Given his conclusion, the Judge did not find it necessary to decide on the question of risks of dissipation (although this issue was argued substantively before him).

B.      The appeal

14.  Leave to appeal was initially refused by the Judge.  On 30 October 2020, the plaintiff obtained leave from this Court to appeal against the judgment.

15.  When we granted leave, we also directed that the appeal be heard on an expedited basis.  We heard the appeal on 12 November 2020 and reserved our judgment.

16.  In the Notice of Appeal, the plaintiff (represented by Mr Chua SC leading Mr Huges) advanced four grounds of appeal:

(1)  There was a good arguable case that the Original Judgments are final and conclusive unless and until set aside (“Ground 1”);

(2)  Foreign law must be specifically pleaded and proved (“Ground 2”);

(3)  The Judge misapplied some authorities and the disputes between parties’ PRC law experts are unsuitable for summary determination (“Ground 3”); and

(4)  It was just and appropriate to continue the injunctive relief (“Ground 4”).

17.  By a Respondent’s Notice of 4 November 2020, the 1^st defendant (represented by Mr Khaw SC leading Mr Chan) sought to affirm the Judgment on the following additional grounds:

(1)  In view of the legal effects of the Retrial Orders under PRC law as set out and explained in Mr Hu’s evidence (which is accepted by the Judge), the Original Judgments (albeit not having been set aside) are not res judicata under PRC law and cannot be regarded as final and conclusive by either the PRC court or the Hong Kong court;

(2)  Nouvion v Freeman [1889] AC 1 does not support any general proposition that a foreign judgment that cannot be abrogated or varied by the same court which issued it and can only be questioned by a higher court is final and conclusive.  Whether a foreign judgment is final and conclusive is a foreign law-specific question;

(3)  Apart from the position under PRC law as stated above, the Judge should have ruled that at common law, the fact that the execution of the Original Judgments have been stayed or suspended under PRC law is sufficient to deprive them of any finality or conclusiveness;

(4)  In any event, the court should be cautious in considering if a Mareva injunction should be granted in the present case for (i) given that the Intermediate People’s Court of PRC will conduct the retrial, any tentative assessment of the questions of finality and conclusiveness of the Original Judgments would necessarily be subject to the outcome of the retrial; and (ii) there is a likelihood that the present proceedings in Hong Kong may never be revived.  Further, according to Mr Hu’s evidence (which is not contradicted), after the retrial, regardless of whether the Original Judgments are repealed, amended, corrected or affirmed, it is the new judgment that gives effect and authority to the validity of such decision;

(5)  Insofar as it was necessary for the Judge to consider if there was any risk of dissipation of assets, there were and ought to have been sufficient reasons for him to conclude that the plaintiff failed to establish any such risk;

(6)  Further, the plaintiff cannot be allowed to make use of the Mareva injunction for the purpose of making itself a secured creditor.  Since the plaintiff is resident outside Hong Kong (i.e., in Singapore), there would be an additional difficulty for the 1^st defendant to enforce the plaintiff’s undertaking as to damages, in the event that the injunction turned out to be wrongly granted.  The plaintiff has also failed to explain why it chose to wait until March 2019 to apply for the Mareva injunction when it was aware of the 1^st defendant’s intended sale of the property back in January 2019.  The Mareva injunction has substantially prejudiced the 1^st defendant in that she was unable to use the proceeds to purchase a property for a substantial period of time at significant expense.

C.      Our analysis

18.  After considering the submissions of counsel, we are of the view that the Judge had misapprehended the effect of the Retrial Orders when he regarded the Original Judgments as having been set aside[4].  In the circumstances, this Court should consider the impact of the Retrial Orders afresh.

19.  In light of the terms of and the expert evidence on the Retrial Orders, it is indisputable that the Original Judgments are generally stayed in the Mainland.  In other words, they cannot be enforced in the PRC in whatever manner in the meantime.  In light of that, we hold that as a matter of common law the Original Judgments are, whilst the stay subsists, equally unenforceable by way proceedings in Hong Kong even though they have not been set aside.  As such, they cannot per se form the basis for a Mareva injunction to be granted pending the outcome of the retrials.  In these circumstances, the plaintiff has to rely on Section 21M of the High Court Ordinance Cap 4 to support a case for Mareva injunction.

20.  Further, we are of the view that in any event the plaintiff failed to establish any solid basis for risk of dissipation.  Thus, the court should not grant Mareva relief in such circumstances.

21.  Our detail reasons for these conclusions are set out below.

C.1   The stay pursuant to the Retrial Orders operates to deprive the Original Judgments of present enforceability under common law in Hong Kong

22.  Under common law, a foreign judgment for a debt or definite sum of money which is final and conclusive given by a foreign court with jurisdiction to give such judgment may be enforced by a claim for the amount due under the judgment[5]. For this purpose, a judgment is final and conclusive even though it may be subject to challenge on appeal, or even if it is being appealed against and the appeal is still pending[6].

23.  Foreign in this context means jurisdiction operating under another system of law.  By reason of the principle of One Country Two Systems enshrined in the Basic Law of the Hong Kong Special Administrative Region, the Original Judgments are regarded as foreign judgments and the Huangpu Court is regarded as foreign court for the purpose of common law enforcement of foreign judgment in Hong Kong.  This is common ground in this appeal.

24.  In respect of a claim based on foreign judgment as the cause of action, it is possible to run a defence based on lack of jurisdiction, fraud, public policy or against natural justice[7].  However, it is not open to a defendant to impeach a foreign judgment based on the underlying merits as the judgment is final and conclusive on the issues of fact and law pertaining to such merits[8].

25.  The position is different if the claim is based on the underlying claim which culminated in the foreign judgment and injunction is sought on the basis of Section 21M.  In an application under Section 21M, the court will examine if there is a good arguable case concerning the merit of that claim, viz the underlying claim, see Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd (2016) 19 HKCFAR 586 at [49].  When a foreign court has assessed the merit of the underlying claim, this would be taken into account, see Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd at [52] and [53] with reference to the apparent cogency of the reasoning in that judgment and the force of the arguments raised by a defendant. 

26.  Since an appeal against the foreign judgment is not by itself a sufficient ground for resisting a claim based on that judgment as a cause of action, there is a possibility that a Hong Kong judgment based on a foreign judgment under appeal may have to be revisited when the appeal in the foreign appellate court succeeds. 

27.  Thus, when an appeal in the foreign court is pending, Hong Kong court may enforce the foreign judgment subject to conditions which will save the interests of the appealing party.  In Nouvion v Freeman (1889) 15 App Cas 1, Lord Watson made these observations at p.13:

“ In order to its receiving effect here, a foreign decree need not be final in the sense that it cannot be made the subject of appeal to a higher Court; but it must be final and unalterable in the Court which pronounced it; and if appealable the English Court will only enforce it, subject to conditions which will save the interests of those who have the right of appeal.”

28.  After quoting this dicta, the learned editors of Dicey Morris & Collins, The Conflict of Laws Vol.1, 15^th Edn, at paragraph 14-026 continued:

“ So in a proper case a stay of execution would no doubt be ordered pending a possible appeal.”

29.  Commenting on the same topic, the learned editors of Cheshire, North & Fawcett, Private International Law,15^th Edn, at p.550 summarized the common law position as follows:

“ … Neither the fact that the judgment may be reversed on appeal, nor even the stronger fact that an actual appeal is pending in the foreign country, is a bar to the effectiveness of the judgment in England; though where an appeal is pending the English court has an equitable jurisdiction to stay execution, which it will generally exercise. If, however, the effect under the foreign law of a pending appeal is to stay execution of the judgment, it would seem that, in the interim, the judgment is not effective in England.” (our emphasis)

30.  This seems to echo the view of Russell LJ in Colt Industries Inc v Sarlie (No.2) [1966] 1 WLR 1287 at p.1293G by way of obiter when His Lordship said:

“If there were a stay on the New York judgment it would not be possible, while that stay persisted, to sue on that judgment in this country, because present enforceability is relevant to the question of the finality and conclusiveness of a foreign judgment …”

31.  Concerning the effect of a stay of execution of the foreign judgment, Mr Khaw also cited the following comments from David Joseph, Jurisdiction and Arbitration Agreements and their Enforcement,3^rd Edn, paragraph 15.39:

“ Equally, a foreign court decision which has itself been the subject of an order for stay will not give rise to issue estoppel.”

32.  Having considered the authorities cited in these textbooks and with the benefit of the submissions of counsel on those authorities, we are of the view that instead of laying down a general rule applicable to all kinds of stay, one must have regard to the nature of the stay and this must be examined in light of the law of the foreign court. 

33.  Berliner Industriebank v Jost [1971] 2 QB 463 is the main authority in which the effect of a stay in the context of enforcement of foreign judgment under the common law was considered.  Both Mr Chua and Mr Khaw placed great reliance on the judgment of the Court of Appeal in that case.

34.  It was a case concerning a German bankruptcy. The defendant was declared bankrupt in May 1958.  By reason of the notification of a claim by the plaintiff in the bankruptcy proceedings and the defendant (who was the bankrupt) not objecting to the same, the claim was entered in the German bankruptcy table in November 1958.  It was held that such entry amounted to a final and conclusive judgment in respect of the debt.  The German bankruptcy did not extinguish the debt.  However, during the bankruptcy there was a stay of execution in respect of the assets of the bankrupt.  German law permitted enforcement of the debt after the termination of the bankruptcy.  The bankruptcy of the defendant was terminated in July 1964.  The plaintiff issued a writ against the defendant in England in 1968.  One of the defence raised on behalf of the defendant was limitation: the relevant limitation period was held to be 6 years.  The limitation defence hinged on whether the stay of execution prior to the termination of the bankruptcy had the effect of stopping the limitation period from running because the judgment was not final and conclusive.

35.  In light of Mr Chua’s reliance on it, we have to allude to the decision of Brandon J on this issue in [1971] 1 QB 278 before we examine the judgment of the Court of Appeal.

36.  Brandon J followed an old authority Hall v Odber (1809) 11 East 118 and held that a stay of execution in the foreign court was not a bar to an action being brought on the basis of that judgment.  However, the reliance on Hall v Odber was demonstrated to be misplaced by Lyell J in the Court of Appeal at p.473G to 474C.  In this respect, Salmon and Philimore LJJ agreed with Lyell J, see p.471C.  

37.  Mr Chua referred the observations of Brandon J on the distinction between the right to sue on a judgment and the right to issue execution in the law of limitation at p.293H to 294B.  Those observations were based on W.T. Lamb & Sons v Rider [1948] 2 KB 331.  The analysis in W.T. Lamb & Sons v Rider was subsequently held by the House of Lords to be incorrect in Lowsley v Forbes[1991] 1 AC 329, 335B-342B (Lord Lloyd of Berwick).  In Re Li Man Hoo[2013] 4 HKLRD 247 at §20 (Barma JA), this Court held that W.T. Lamb & Sons v Rider was not part of the common law in Hong Kong.

38.  Having disposed of Mr Chua’s reliance on Brandon J’s judgment, we can move onto the judgment of the Court of Appeal in Berliner Industriebank v Jost, supra.  It should be noted that none of the members of the Court of Appeal disagreed with the dicta of Russell LJ in Colt Industries Inc v Sarlie (No.2), supra.  At p.471A, Salmon LJ made this observation:

“ In our view, Russell LJ was contemplating only the normal case in which, after judgment, a general stay of execution granted pending the hearing of an appeal. We can well understand that in such a case the judgment under appeal would not be regarded as final and conclusive; nor as establishing an implied promise to pay, let alone the existence of a debt presently due and payable.” (our emphasis)

39.  The disagreement between Salmon and Phillimore LJJ on the one hand and Lyell J on the other was in respect of the impact of the stay under German bankruptcy law.  The majority held that the effect of the stay was limited to preclude execution on the debtor’s property during the bankruptcy.  The debt remained due and payable from the date of the judgment in 1958.  They accepted the submission of counsel for the defendant that the plaintiff’s right to be paid had not been stayed and an action could have been brought in England in 1959 to which the defendant could have no defence even though execution of the judgment might be stayed pending the termination of bankruptcy (see p.471B to G).

40.  It is apparent from their judgment that Salmon and Phillimore LJJ drew a distinction between a stay of execution pending appeal (which according to their Lordships would impinge upon the underlying obligation as the debt would not be presently due and payable) and a limited stay precluding execution on certain assets (which was held to be the effect of the stay in German bankruptcy).  Hence, their Lordships found it necessary to make some comments concerning orders for stay pending appeals at p.471H to 472A to reflect the position of a general stay.

41.  Lyell J discussed the nature of an action on a foreign judgment at p.473F (citing Williams v Jones (1845) 13 M & W 628):

“ An action in this country upon a foreign judgment for an ascertained sum is an action in debt or assumpsit, which is an action ‘in personam’: Williams v Jones (1845) 13 M & W 628 at 633. On the date when the writ is issued the debt must be presently due and payable before the courts of this country will enforce it.”

Then at p.474D (citing Grant v Easton (1883) 13 QBD 302):

“ An action upon a foreign judgment may be treated as an action in either debt or assumpsit: the liability of the defendant arises upon the implied contract to pay the amount of the foreign judgment.”

42.  Such analysis seems to accord with the view of the majority that the debt had to be due and payable before the foreign judgment is enforceable in England.

43.  Lyell J only dissented from the majority concerning the effect of the stay under German bankruptcy law because he was unable to conclude that a promise to pay could exist when he could not be forced to pay by any process of the German law during the stay, see p.474E and 475G to 476A.

44.  Other than Berliner Industriebank v Jost, supra, there are other first instance English Commercial Court judgments containing statements supporting the proposition that English courts will not enforce a foreign judgment which is currently subject to a stay pending appeal: see Enercon GmbH v Enercon (India) Ltd [2012] 1 Lloyd’s Rep 519 at [51]; Midtown Acquisitions v Essar Global [2017] 1 WLR 3083 at [75].

45.  We are not concerned with a stay under German bankruptcy law.  The stay in question was prescribed by Article 206 of the PRC Civil Procedure Law (“CPL”) upon the making of Retrial Orders.  As mentioned earlier, the Retrial Orders were made by the Guangzhou Intermediate Court as a step in the appellate process.  Under Article 204 of the CPL, the Guangzhou Intermediate Court had to satisfy that the 1^st defendant had made good a case under Article 200 before granting the Retrial Orders.

46.  In the Retrial Orders, the Guangzhou Intermediate Court found that the conditions under Article 200 of the CPL were met:

「 本院认为，本案中，根据莫海丹提交的出入境记录以及司法鉴定意见书显示，案涉保证合同显示的签订时间莫海丹不在内地，且该合同是否为莫海丹本人的真实意思表示存疑，需要进一步查证。该问题可能会导致原审法院认定莫海丹根据该合同所记载的财产承担担保责任的实体结果失去主要的事实基础。据此，莫海丹的再审申请符合《中华人民共和国民事诉讼法》第二百条第一项、第二项之规定，本案应予再审。依照《中华人民共和国民事诉讼法》笫二百零四条、第二百零六条、《最高人民法院关于适用〈中华人民共和国民事诉讼法〉的解释》第三百九十五条笫一款的规定，裁定如下：

一、本案由本院提审；

二、再审期间，中止原判决的执行。」

“ The court believes that, in this case, according to the entry and exit records and the Opinion of Judicial Expertise submitted by Mo Haidan, Mo Haidan was not in Mainland China on the signing date shown in the involved Guarantee Contract, and itis doubtful whether the contract represented the true intention of Mo Haidan herself, which needs further investigation. These questions may lead to the adjudication of the Original Court that Mo Haidan should bear the guarantee responsibility for the assets, losing its substantial factual ground. Therefore, the retrial application of Mo Haidan complies with the provisions of Article 200 (1) and (2) of the Civil Procedure Law of the People's Republic of China, and the case shall be retried. It is ruled as follows in accordance with Article 204 and Article 206 of the Civil Procedure Law of the People's Republic of China and Section I, Article 395 of Interpretations of the Supreme People's Court on Several Issues Concerning Application of the Civil Procedure Law of the People's Republic of China:

1. This case is to be heard by this Court for retrial;

2. The enforcement of the Original Judgment be terminated pending the retrial.”

47.  Though there were disputes between the expert evidence on PRC law as to which judgment shall constitute the effective orders after the retrial, there is no dispute (and there cannot be any dispute) that in the meantime the Original Judgments could not be enforced in the Mainland.  Mr Tu, the expert instructed by the Plaintiff, only stressed that the Original Judgments had not yet be set aside and their enforcement is temporarily suspended. 

48.  Also, Mr Tu cannot dispute the reasons given by the Guangzhou Intermediate Court for granting the Retrial Orders.

49.  In our judgment, the present situation falls squarely within the kind of stay contemplated by Russell LJ.  As held by all members of the Court of Appeal in Berliner Industriebank v Jost, supra, under the common law English court would not enforce the foreign judgment subject to such a stay.  We hold that the same approach is applicable under the common law in Hong Kong.

50.  Different analysis had been put forward for this rule: (a) the stay (viz lack of present enforceability) rendered the foreign judgment not final and conclusive (per Russell LJ in Colt Industries Inc v Sarlie (No.2), supra; Salmon and Phillimore LJJ in Berliner Industriebank v Jost, supra; Eder J in Enercon GmbH v Enercon (India) Ltd, supra); (b) comity (Teare J in Midtown Acquisitions v Essar Global, supra); (c) the lack of a presently due and payable in the terms of the obligation flowing from the foreign judgment (Salmon and Phillimore LJJ as well as Lyell J in Berliner Industriebank v Jost, supra).

51.  Mr Khaw urged this Court to adopt rationale (a), viz that the foreign judgment ceased to be final and conclusive because of the general stay pending appeal.  In addition to the English cases, he also referred us to the judgment of the High Court of Australia in Talacko v Bennett (2017) 91 ALJR 564 at [84] and footnote 88.

52.  As presently advised, we do not find it necessary to go that far in this judgment.  Instead, we prefer to rest our analysis on rationale (b) and (c).  Comity and obligation are the two theoretical underpinning for the recognition and enforcement of foreign judgment at common law, see Cheshire, North & Fawcett, Private International Law,15^th Edn, at p.525-526[9].  Such explanations are consistent with the court granting summary judgment with a stay of execution when the foreign judgment was pending appeal as envisaged by Lord Watson in Nouvion v Freeman, supra and the cases cited in Dicey Morris & Collins, The Conflict of Laws Vol.1, 15^th Edn, at paragraph 14-026 footnote 116[10].

53.  In other words, though a foreign judgment subject to an appeal can still be regarded as final and conclusive until they were set aside, this would not preclude the courts in Hong Kong from taking account of the developments in the foreign jurisdiction from which the judgment emanated in deciding what is the proper relief to be granted and the course to take in an action in Hong Kong based on such foreign judgment.

54.  It should be noted that there could be a spectrum of possible scenarios.  First scenario: the foreign judgment can as a matter of the foreign law be capable of being appealed against but no appeal has actually been brought.  Second scenario: the foreign judgment is actually subject to a pending appeal which has been duly filed.  A variant of this scenario is that steps were being taken to seek leave to appeal.  According to Nouvion v Freeman, supra and Colt Industries Inc v Sarlie (No.2), supra, in none of these scenarios would the enforcing court preclude judgment being entered under the common law though in the second scenario the enforcing court may consider granting a stay of execution pending the determination of the appeal in the foreign court.

55.  A third scenario is that not only is there an appeal in the foreign court but that the foreign court actually stayed the enforcement of the judgment pending the appeal.  Within this scenario, there can be variations depending the procedural law of the foreign court.  Such stay could be granted as a matter of course after an appeal has been filed.  Alternatively, a stay could be granted after the foreign court assessed the merit of the appeal and balanced the same against other factors.

56.  We are of the view that as the enforcing court where a claim is brought on the basis of a foreign judgment which is currently subject to a stay granted by that foreign court, the courts of Hong Kong should have regard to how the stay came about in the foreign court in deciding if the foreign judgment should be enforced pending the determination of the appeal by the foreign court.

57.  A fourth scenario is that though the action in Hong Kong was brought when the foreign judgment was valid, it was subsequently overturned on appeal in the foreign appellate court.  In that event, subject to the exceptional situation where the appellate judgment was given in tainted circumstances rendering its recognition against the public policy in Hong Kong[11], Hong Kong courts would not enforce the overturned foreign judgment.  If judgment has already been entered in Hong Kong based on the overturned foreign judgment, that Hong Kong judgment should be set aside.  Mr Chua did not demur from this analysis.

58.  In the present appeal, we are concerned with a stay which was imposed after the Guangzhou Intermediate Court found that the conditions under Article 200 of the CPL were satisfied and the Retrial Orders were issued accordingly. As we have seen, the reasons given by the Guangzhou Intermediate Court cast doubt on the factual basis underlying the Original Judgments.  On the principle of comity, Hong Kong court should give due weight to such decision though the Original Judgments were only suspended instead of being set aside.

59.  In the circumstances, we hold that Hong Kong court should withhold the enforcement of the Original Judgments in the meantime in light of the general stay effected by the Retrial Orders and Article 206 of the CPL.

60.  Mr Chua correctly highlighted that when the present action was first brought by the plaintiff the Retrial Orders had not been made and there was no stay.  But this Court must consider if the Judge was correct in discharging the injunction when the stay had come into effect by reason of the Retrial Orders.

61.  Mr Chua submitted that even if Hong Kong courts were to withhold the giving of judgment in the action, the court should still consider if a Mareva injunction were to be granted to hold the ring in the meantime.

62.  But that begs the question as to the basis for testing if there is a good arguable case.  If the test is to be applied by reference to the pleaded cause of action based on the Original Judgments, as we have seen the potential grounds of defence are very limited.  Unlike a claim for interlocutory injunction in aid of foreign proceedings under Section 21M, the merit of the underlying claim for the foreign judgment does not enter into the equation.

63.  Such approach would give full effect to the Original Judgments notwithstanding that, as analysed earlier, by reason of the Retrial Orders and stay these judgments per se could not give rise to an immediately enforceable obligation in Hong Kong.

64.  In our judgment, this approach fails to take account of the effect of the Retrial Orders and the stay.  We do not consider the approach advocated by Mr Chua to be the correct approach.

65.  If the plaintiff wishes to seek injunctive relief, the plaintiff should make out a case under Section 21M instead of taking advantage of the Original Judgments which were subject to the stay.   

C.2    Risk of dissipation of assets

66.  Mr Chua accepted that the plaintiff has to show a real risk of dissipation of the assets by the 1^st defendant in addition to a good arguable case to support the application for a Mareva injunction.  Though the matter came before the Judge as an application to discharge the injunction which had previously been granted on ex parte basis, Mr Chua did not dispute that the plaintiff still bears such burden.

67.  Recently, this Court (differently constituted) reviewed the authorities on risk of dissipation in the context of an application for Mareva injunction in Convoy Collateral Ltd v Cho Kwai Chee [2020] HKCA 537 and the correct approach was discussed at [35] to [54] and [77] to [79].  In particular, this Court endorsed the approach of Popplewell J (as he then was) in Fundo Soberano de Angola v dos Santos [2018] EWHC 2199 (Comm) and that of Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto [2019] EWCA Civ 2203. 

68.  The only issue between counsel on the applicable principle is whether there is any need for a plaintiff to show that a defendant intends to dissipate assets to put them out of reach of the plaintiff. 

69.  Mr Chua submitted that there is no such requirement, citing the judgment of Kerr LJ in Ninemia Corporation v Trave GmbH [1983] 1 WLR 1412 at 1422G to H and the commentary at paragraph 29/1/69 in Hong Kong Civil Procedure 2021.  

70.  On the other hand, Mr Khaw submitted that proof of an intention to dissipate in general and broad terms is required, meaning a deliberate or reckless dealing with assets rather than some random event unconnected to such intention.  Counsel cited the judgment of Mostyn J in L v K [2014] 2 WLR 914 at [18] to support his contention. 

71.  In that judgment, the judge of the Family Division compared the Mareva jurisdiction with the power under Section 37 of the Matrimonial Causes Act 1975 (which is the English equivalent of Section 17 of our Matrimonial Proceedings and Property Ordinance Cap 192).  We are not concerned with that exercise in the present appeal[12]. For present purposes, the relevant part of Mostyn J’s judgment appeared in [18].  After starting with the proposition much relied on by Mr Khaw, the judge referred to the judgment of Cranston J in Alternative Investment Solutions (General) Ltd v Valle de Uco Resort and Spa SA [2013] EWHC 333 at [8]. Then Mostyn J carried on with the following observations:

“ This would suggest that proof of a nefarious intent is not needed, but that proof of unjustified conduct will suffice. I consider that there is no real difference between the two. It may be that Cranston J was drawing a distinction between express and inferred intentions. In my opinion if someone is doing something unjustified with his assets then it surely follows as night follows day that he must, in a non-innocent way, be intending to do so.”

72.  With respect, we do not find it profitable to engage in a debate on whether there is any real distinction between nefarious intent (which suggested an inquiry into the subjective intent or motive of a defendant) and unjustified conduct (which seems to be focused on objective examination).  Nor do we derive much assistance from the concept of intention to dissipate.  After all, as observed in Convoy Collateral Ltd v Cho Kwai Chee, supra, the ultimate issue is whether there is solid basis for concluding that there is a real risk of dissipation and the exercise involved an evaluative and predictive judgment.  Most of the time, it is a matter of drawing proper inference from a holistic consideration of all circumstantial materials that are indicative of risk.  Such circumstantial matters may, depending the facts and evidence available in a case, encompass evidence related to subjective intent as well as those related to objective conducts. Given the highly fact and circumstances sensitive nature of the exercise, broad and general statements may not be of much assistance. 

73.  For present purposes, it suffices for us to highlight proposition (6) of Popplewell J’s useful summary in Fundo Soberano de Angola v dos Santos, supra: 

“ What must be threatened is unjustified dissipation. The purpose of a 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 freezing order 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 freezing order 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.”

74.  In the instant case, Mr Chua submitted that the risk of dissipation could be inferred from the following matters: 

(a) The 1^st defendant is not credible in her account for selling the Property as it was inconsistent with what she had told the plaintiff’s investigator in January 2019;

(b) the 1^st defendant’s bare denial that she had never put her signature on the guarantee agreement was unsubstantiated as her signature on the guarantee agreement was distinctively identical as the one she signed on the Companies Registry Form ND2A; and

(c) her evasive attitude towards the fingerprint (which the plaintiff said to be hers) on the guarantee.

75.  Mr Chua placed much emphasis on the fingerprint and invited the court to draw adverse inference against the 1^st defendant due to her silence in respect of the same.  Counsel highlighted that the signature of the 1^st defendant was signed over a fingerprint, it called for an explanation from the 1^st defendant.  However, the 1^st defendant has so far failed to provide any expert evidence regarding the fingerprint.  Mr Chua submitted that based on the principle for drawing adverse inference discussed in British Railways Board v Herrington [1972] AC 877 at p.930G-H and R v Inland Revenue Commissioners Ex p Coombs & Co [1991] 2 AC 283 at p.300F-G and Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at [174], the withholding of fingerprint evidence from the courts can give rise to an adverse inference of lack of honesty in the dispute on the signature.

76.  With respect, we are not impressed by these arguments.  

77.  On the materials and information before the court, there is insufficient evidential basis for alleging that the 1^st defendant is withholding relevant fingerprint evidence.  In terms of her application for retrial in the Guangzhou Intermediate Court, she had produced evidence concerning her travel records as well as handwriting expert evidence to challenge the genuineness of the signature on the guarantee as hers.  The Guangzhou Intermediate Court found such evidence sufficient to warrant the making of the Retrial Orders.  We were also informed by counsel that in the retrial, there will be forensic examination of the guarantee both in respect of the signature and the fingerprint.  There is nothing to suggest that the 1^st defendant would not be complying with any request for the supply of her fingerprint samples for that exercise.  Mr Khaw actually told us that the 1^st defendant would do so. 

78.  The principle governing the drawing of adverse inference was discussed by Ribeiro PJ in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 at [185] to [187][13].  For present purposes, we only need to highlight the citation at [186] of the judgment of Kitto J in the High Court of Australia in Jones v Dunkel (1959) 101 CLR 289:

“ One does not pass from the realm of conjecture into the realm of inference until some fact is found which positively suggests, that is to say provides a reason, special to the particular case under consideration, for thinking it likely that actual case a specific event happened or a specific state of affairs existed.”

79.  We have examined the copy of the guarantee in the appeal bundle at Bundle B p.407.  On the face of the copy before us, the fingerprint underneath the purported signature of the 1^st defendant is blurred and incomplete.  We do not know if the original version is better. Even assuming that there is a clear fingerprint in the original, there is no evidence from the plaintiff that this was the fingerprint of the 1^st defendant.  There is no evidence concerning how the guarantee was allegedly executed by the 1^st defendant.  There is no suggestion that the document was executed by the 1^st defendant in the presence of any witness from ICBC.  Nor is there any evidence on how the guarantee was procured by ICBC.  The only evidence filed in the proceedings in Hong Kong is the guarantee document itself. 

80.  Mr Chua submitted that as the plaintiff was only a sub-assignee, it was not in a position to adduce such evidence. 

81.  Even taking this and the plaintiff’s reliance on the Original Judgments as its cause of action into account, the position remains that there is simply not much primary evidence to support the plaintiff’s assertion that the fingerprint was that of the 1^st defendant.  Since there is serious dispute by the 1^st defendant on being a party to the guarantee (with substantial evidence on the authenticity of the signature and the travel records adduced before the Guangzhou Intermediate Court), if the plaintiff were to rely on the fingerprint as one belonging to the 1^st defendant to tilt the balance for the purpose of showing a real risk of dissipation, we do not think it is sufficient for it to produce a poor copy of the document and then leave it to the court to draw adverse inference that the fingerprint was that of the 1^st defendant. 

82.  In our judgment, there is simply nothing from the plaintiff’s evidence which could be regarded positively proving that the fingerprint belongs to the 1^st defendant.  Thus, it is not appropriate for adverse inference to be drawn in such circumstances. Otherwise, it would simply be reversing the burden.

83.  The following parts of the judgment of Gloster LJ in Holyoake v Candy [2017] 3 WLR 1131 at [50] and [51] are apposite:

“ 50. There are three points which inform this analysis.  First, it is critical to remember that the burden is on the applicant to satisfy the threshold.  The court will of course decide on the basis of all the evidence before it.  However, in practice, if an applicant has not adduced sufficient evidence, the application will fail.  The respondent's evidence will be immaterial – unless, unusually, it lent support to the application.

 52. Second, it follows that, unless an applicant has raised a prima facie case to support a freezing order, the respondent is not obliged to provide any explanation or answer any questions posed – and nor can a purported failure to do so be held against the respondent.  It is only if the applicant has raised material from which a real risk of dissipation can be inferred, that the respondent will be expected to provide an explanation.  Then, in appropriate circumstances, the lack of a satisfactory explanation may give rise to an adverse inference.”

84.  In view of the evidence placed before us, we would not characterize the omission on the part of the 1^st defendant to produce any fingerprint evidence as withholding crucial evidence from the court.  Given the suspect nature of the guarantee, we do not accept Mr Chua’s submission that the guarantee prima facie bears the fingerprint and signature of the 1^st defendant. Whatever reasons behind the plaintiff’s difficulty in procuring the relevant evidence on the execution of the guarantee, the stark reality is that with the authenticity of the guarantee being cast into doubt it has no positive evidence to suggest that the fingerprint was that of the 1^st defendant.

85.  The raising of the issue on the fingerprint by the plaintiff in the affirmation of Tu Chaofeng, in our judgment, is not positive evidence providing sufficient basis for adverse inference to be drawn.

86.  In those circumstances, it is a quantum leap for Mr Chua to submit that the non-production of any fingerprint test by the 1^st defendant can be regarded as evidence of dishonesty on her part.

87.  The 1^st defendant’s challenge to the signature is supported by handwriting expert evidence which the Guangzhou Intermediate Court did not find incredible.  We see no basis for the court in Hong Kong to take a different view.

88.  Concerning the sale of the Property, the 1^st defendant’s evidence was that she had to arrange for the sale of the Property in January 2019 to support the living of herself and her children (who are receiving education abroad) as she had lost contact with her husband since the end of 2014.  As she only became aware of the proceedings in the PRC and the Original Judgments in March 2019, she did not sell the Property with the intention of evading the enforcement of such judgments in Hong Kong. 

89.  The plaintiff adduced evidence from its agent[14] that at a viewing of the Property on 31 January 2019 the 1^st defendant said she was moving to Singapore with her children.  Despite such evidence, the plaintiff did not apply for injunction until 27 March 2019 after attempting to serve statutory demand on the 1^st defendant and its solicitors writing letter to her on 11 March 2019.

90.  The assertion of the agent is contradicted by the evidence of the 1^st defendant[15].

91.  This court cannot resolve such dispute on affirmation evidence alone.  In any event, in light of the 1^st defendant’s positive engagement with the plaintiff’s solicitors after she learnt of the proceedings, we do not find the agent’s evidence as sufficiently cogent to enable us to cast doubt on the explanation of the 1^st defendant for the sale of the Property.

92.  As explained above, it is not the purpose of Mareva relief to require a defendant to change his or her legitimate behaviour in order to provide preferential security for the claim.  Such relief should be targeted against unjustified dissipation of asset.

93.  In the present case, the disposal of the Property in the circumstances as deposed by the 1^st defendant does not provide a solid basis for finding a real risk of dissipation of assets.

94.  Hence, even if we were to conclude (contrary to our analysis under section C.1 above) that there is a good arguable case that the Original Judgments are enforceable in Hong Kong notwithstanding the stay, we would discharge the injunction on the ground that there is no solid basis for finding real risk of dissipation.

C.3    Other grounds of appeal

95.  In light of our analysis above (which is different from that adopted by the Judge), it is not necessary to address the other grounds of appeal at length.  Whether the Judge had misapplied Bobolas v Economist Newspaper Ltd [1987] 1 WLR 1101 or Fabianos Hotels Ltd v Profitmax Holdings Inc[2017] 6 HKC 414 is a matter of no moment in terms of the outcome of this appeal.  Likewise, it is not necessary for us to engage in the disputes between the experts on PRC law. 

96.  As regards the pleading point under Ground 2, we are of the view that it has no merit.  In the context of interlocutory application, points of foreign law would have to be determined without pleading.  The PRC law evidence was filed by the 1^st defendant pursuant to the directions made by the court below and the plaintiff had ample opportunity to respond to the same.  There cannot be any complaint of unfairness. 

D.      Disposition

97.  For the above reasons, we uphold the discharge of the injunction by the Judge and dismiss the appeal by the plaintiff. 

98.  We also make a costs order nisi that the plaintiff shall pay the costs of the 1^st defendant in this appeal, including the costs of the application for leave to appeal.  Such costs are payable forthwith, to be taxed if not agreed.

99.  Last but not least, we are grateful to counsel for their valuable assistance in this appeal.