CHEN ZHIXUAN v. FUNG MAN KWONG

HCA 172/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 172 OF 2013

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BETWEEN

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DECISION

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1.  This is the return hearing of the plaintiff’s Summons filed on 29 January 2013 (“Summons”) by which he seeks a mareva injunction against the defendant. An order in terms of the Summons (“Injunction”) was made at the last hearing on 8 February 2013 during which the defendant was unrepresented.

2.  I am in no doubt that the Injunction should not be continued and I make an order discharging the same.  The reason is that one of the prerequisites of the relief – risk of dissipation of assets – has not been made out.

3.  The background of this case is simple.  The plaintiff and the defendant were the owners of two companies (in the case of the defendant, he was the majority shareholder of his company) and those companies were trading with each other.  However, the defendant’s company fell into financial difficulties and trade debts in excess of US$300,000 were owed by it to the plaintiff’s company.  In September 2012, the defendant signed a document (“Document”) acknowledging that he was personally indebted to the plaintiff in respect of the trade debts.  A repayment schedule was provided in the Document.  Three repayments in the total sum of HK$377,000 were made by the defendant to the plaintiff pursuant to the Document.  The last one was made on 1 December 2012.  The defendant was unable to make further payment.

4.  On 11 December 2012, during a telephone conversation, the defendant told the plaintiff that he was unable to make further repayment of the debt, he intended to look for a job in the Mainland, he was selling his property/properties and he needed more time to repay the debt. 

5.  The defendant has three properties.  There is a flat in Tai Po which is jointly owned by the defendant and Ng Muk Ying.  There are two workshops in Kowloon (“Workshops”) which are owned by the defendant and Law Pik Yee as tenants in common.  The plaintiff found out that the Workshops was sold in July 2012 with completion in April 2013.  Accordingly, the Summons was taken out. 

6.  It must be reminded that the jurisdiction to grant a mareva injunction is not to be exercised lightly.  The relief serves a useful purpose to prevent the dissipation of assets to defeat a judgment. Hence, it is a key requirement that the plaintiff must make out a case of dissipation of assets on the part of the defendant.  It cannot be right for a party to come to court for mareva relief simply because his debtor has sold or is in the course of selling his assets.  It is trite that the relief cannot be used to make the applicant a secured creditor. 

7.  There is disagreement between Mr Tsang and Mr Kwong who appeared respectively for the plaintiff and the defendant as to what the legal test is on dissipation of assets.  Relying upon a Decision of Deputy High Court Judge Yan, SC in Grandview Industries Co Ltd v Leung Yiu Kei trading as Agfa Manufacturing Co, unrep, HCA 1617/11, Mr Tsang submitted that the applicable test is an objection one of assessment of the risk that a judgment may not be satisfied and there is no need to prove nefarious intent on the part of the defendant (p3M-4B).  On the other hand, Mr Kwong disagreed with the objective test as being contrary to a long line of authorities that it must be shown that the dissipation of assets was coupled with an intention or for the purpose of defeating the plaintiff’s claim or otherwise improper.  Mr Kwong relied upon Eastman Chemical Ltd v Heyro Chemical Co Ltd (No 2) [2012] 3 HKLRD 307 which was cited at p4D-F of Grandview Industries Co Ltd as well as Hong Kong Civil Procedure 2013, vol 1, 29/1/70. 

8.  I do not believe that I need to resolve the difference between the parties on the applicable test, especially without the benefit of full argument on the law.  Even on the more favourable objective test, I am unable to see how it can fairly be said that there is dissipation of assets. 

9.  On the plaintiff’s own case, the defendant was trying his best to repay his debts.  He made no secret of the fact that he was selling his properties.  There is no suggestion that the defendant was in any way avoiding the plaintiff.  Mr Tsang’s complaints about the shutting down of the defendant’s company and the fact that he sought a lengthy repayment period do not take that matter any further.  They reflect the fact that the defendant and his company were (and are) in financial trouble.  More likely than not, the plaintiff is not the only creditor of the defendant.  In contrast with Grandview Industries Co Ltd, there is no evidence that the proceeds of sale of the Workshops will be dissipated by the defendant as opposed to being deployed for legitimate purposes, including paying off the debt owed to the plaintiff.   

10.  Last but not least, the plaintiff clearly has a good cause of action.  With respect, it is misguided to have wasted the time and costs in trying to get a mareva injunction against the defendant.  The resources would have been much better spent on trying to obtain a summary judgment which can then be enforced. 

11.  I order that the costs of and occasioned by the Summons, including the costs reserved pursuant to the Order dated 8 February 2013, be to the defendant to be taxed if not agreed.