SKY MOTION HOLDINGS LTD v. CHINA CREATE CAPITAL LTD

HCA 1151/2019

[2019] HKCFI 2408

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1151 OF 2019

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R U L I N G

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Introduction

1.  The dispute in this action arises out of the terms of a written agreement dated 25 October 2018 (“Agreement”), made between the plaintiff (“Sky Motion”) and the defendant (“China Create”). There is no dispute as to the existence of the Agreement, nor the fact that it has been at least partially performed.

2.  On 24 June 2019, Sky Motion applied ex parte for a Mareva and proprietary injunction order, which was granted by DHCJ Leung (“Order”). The application was supported by the affirmation of Xie Xinghong (“Xie”), who has since filed two further affirmations.

3.  On 5 July 2019, Mimmie Chan J gave directions for filing evidence, and continued the Order until the determination of matters on an inter partes basis. She also ordered Sky Motion to provide fortification in respect of its undertaking as to damages in the sum of $10 million by payment into court.

4.  Originally, today’s hearing was fixed for the substantive argument on three summonses. However, a fourth summons has been issued on short notice. The four summonses are:

(a)     Sky Motion’s summons dated 25 June 2019 (“Continuation Summons”) seeking the continuation of the Order;

(b)    Sky Motion’s summons dated 2 July 2019 (“Variation Summons”) seeking to vary the amount injuncted from HK$343,912,270 upwards to HK$566,264,400;

(c)     China Create’s summons dated 16 August 2019 (“Fortification Summons”) seeking further fortification of the cross-undertaking in damages in the further sum of HK$40 million in addition to the HK$10 million already paid into Court by Sky Motion; and

(d)    China Create’s summons dated 23 September 2019 (“Leave Summons”) seeking leave to file and rely on the 3^rd affirmation of Wang Tao, which is said only to reply to new matters raised in the 3^rd affirmation of Xie.

Leave Summons

5.  Before dealing with some background, it is convenient to deal with the Leave Summons first. I was invited by Mr Clark Wang, Counsel for China Create, to read and deal with the materials in the 3^rd affirmation of Wang on a de bene esse basis, which I have done. Mr Patrick Chong and Mr Michael Ng, Counsel for Sky Motion, were content that I should treat that material on that basis, but formally objected to this new and late affirmation.

6.  Mr Chong objects specifically on the basis that the 3^rd affirmation is far too late, without any proper explanation as to its lateness, which means there is no proper basis on which to exercise a discretion to afford China Create further time to file evidence. He also submits that much of the content of the 3^rd affirmation is irrelevant and disputed, some of it could have been produced much earlier, and some of it seems to be having a second bite of the cherry after sight of the skeleton argument filed for Sky Motion for this hearing. As Mr Chong put it, this is an attempt to “top up” the evidence recognised to be otherwise insufficient.

7.  Mr Wang submits that the timing of the 3^rd affirmation is self-evidently the result of the production of new matters and evidence in Xie’s 3^rd affirmation. Hence, the necessity to reply to that material lies from the failure of Sky Motion to have provided it earlier. Some other matters dealt with arise from documents newly found, not the fault of China Create. Mr Wang further submits that there is no real prejudice to Sky Motion, and no specific prejudice has even been alleged. He says there is no conscious flouting of court rules or practice directions, and no deliberate manoeuvring, but the 3^rd affirmation will assist the Court in securing the just resolution of disputes in accordance with the substantive rights of the parties.

8.  The timing of the 3^rd affirmation, and whether its contents are genuine responses to new material which might not otherwise have been anticipated, and the fact that some of it is not accepted and has not been answered, seem to me matters which I can take into account in the weight that I afford the contents. But I am not persuaded that it would be right to exclude the material altogether. I therefore permit the 3^rd affirmation of Wang.

Background

9.  Both Sky Motion and China Create are companies incorporated in the British Virgin Islands.

10.  The Agreement was one of several dealings between Sky Motion and China Create since in or around 2017. Those dealings began after China Create’s controllers, Zhang Wei (“Zhang”) and his wife Wang, had been introduced to Sky Motion’s then sole shareholder and director, Wang Bingxin (“WB”), by a Cheuk Hiu Nam (“Cheuk”). At the material time, Cheuk was the CEO and an executive director of Jiyuan International Group Ltd (“JIGL”).

11.  Zhang was China Create’s sole shareholder and director until 10 March 2018, when he transferred his shares to Wang and resigned his directorship.

12.  The Agreement was signed on behalf of Sky Motion by WB, and on behalf of China Create by Huang Xuli (“Huang”), the then assistant to Wang.

13.  Under the Agreement, Sky Motion was obliged to transfer the sum of HK$343,912,270 (“Sum”) to China Create on or before 25 October 2018. In return, China Create was obliged to transfer to Sky Motion (a) 5.45 million ordinary shares in JIGL on or before 2 November 2018; (b) US$35 million of JIGL 12% Senior Secured Notes due 2020 (“Notes”) on or before 2 November 2018; and (c) 85.76 million shares in JIGL (“Shares”) on or before 23 November 2018.

14.  The agreement is called a ‘Loan Agreement’, and certain aspects of its terms might indicate some lending arrangement. But much of the Agreement appears to be one for the sale and purchase of shares and notes. Indeed, in her 1^st affirmation, Wang describes how China Create had taken part in two placements of JIGL shares, and how with various other parties China Create had subscribed for Notes with a total face value of US$70 million. Wang then describes how she was approached by Cheuk who had “arranged someone to acquire from [her] the Subject Notes and shares of [JIGL]. She suggested that an agreement be signed upon which payment could be made to [her]. The subsequent arrangements and logistics were all handled by … Huang.”

15.  Similarly, in the WeChat exchange between WB and Huang, the latter made it clear that her understanding was that they were not engaged in making a loan agreement, but putting into place a sale and purchase agreement.

16.  Subject to a disagreement as to whether the full amount of the Sum was paid, or whether it was short by HK$20 million (as to which, see below), there is evidence that on 25 October 2018 Sky Motion transferred the Sum to accounts designated by China Create. In other words, it seems by that date Sky Motion had either fully or very substantially performed its obligations under the Agreement.

17.  On 31 October 2018 and 8 November 2018, China Create transferred 3.45 million and 2 million shares respectively (totalling 5.45 million shares) to Sky Motion. Although not in accordance with the timetable provided under the Agreement, the transfer of those shares was plainly pursuant to the terms of the Agreement. In other words, China Create partially performed its obligations under the Agreement.

18.  However, China Create failed to transfer the Notes to Sky Motion on or before 2 November 2018. Further, China Create failed to transfer the Shares to Sky Motion on or before 23 November 2018. Despite repeated demands, no part of the Notes or the Shares has subsequently been transferred to Sky Motion.

19.  Zhang was arrested in April 2019, apparently on allegations of unlawfully defrauding public investors, false imprisonment, extortion, false litigation, and fraud. One newspaper article identifies that China Create has been described by the Shenzhen police as “a Mafia-style gang involved in illegal fundraising, harassment, blackmail, illegal detention of people and the possession of firearms”. There is also evidence that Wang has been formally listed by the Chinese Public Security Bureau as a wanted person on allegations of false litigation. As I understand it, Zhang and Wang reject these allegations.

20.  However, it does not seem to be in dispute that from May 2019, Wang was not contactable by either WB or Cheuk, at least not directly. Prior to that date, there had been some discussions between the parties (see below). Wang’s first substantive response after that date was in her 1^st affirmation filed in these proceedings.

Applicable Principles

21.  There is, and there can be, little dispute between Mr Chong and Mr Wang as to the main applicable legal principles.

22.  The principles applicable to applications for a Mareva injunction over Hong Kong assets are well-settled. The plaintiff must establish (a) that it has a good arguable case on its substantive claim; (b) that the defendant has assets within the jurisdiction; (c) that there is a real risk of dissipation or removal of assets from the jurisdiction which would render a judgement in favour of the plaintiff of no effect; and (d) that the balance of convenience is in favour of granting the injunction.

23.  Mr Chong accepts that for the purposes of a Mareva injunction, the plaintiff needs to show a good arguable case in the sense of a case which is more than barely capable of serious argument, but yet not necessarily one which the judge believes to have a better than 50% chance of success.

24.  Nevertheless, there should be no attempt to persuade a court to resolve disputed questions of fact, whether relating to the merits of the underlying claim or relating to elements of the Mareva jurisdiction, nor should there be detailed arguments on difficult points of law on which the claim of either party may ultimately depend. The existence of a good arguable defence does not necessarily negate a good arguable case.

25.  As to the real risk of dissipation, courts have been stringent as to the necessity of sufficiently clear and solid evidence to prove such a risk. This is, in part, recognition that careful scrutiny is required before encumbering a respondent to an injunction application with an order that might seriously disadvantage it from the start and from which it may never recover.

26.  Too ready an inference of real risk of dissipation from a defendant’s conduct or commercial morality is to be avoided. Mere incantations of “unacceptably low standards of commercial morality” do little to assist the process of consideration, and mere propensity evidence is unlikely to be sufficient to infer a real risk of dissipation. It is also worth remembering that allegations of dishonesty or low standards in one context may not always fairly lead to inferences of dishonesty or low standards in another context.

27.  Therefore, the relevant dishonesty upon which a plaintiff wishes to rely must be sufficiently proximate to the plaintiff’s claim and surrounding circumstances before it is sufficient to give rise to an inference of risk of dissipation. The court should scrutinise with care whether what is alleged to have been the dishonesty of the person against whom the order is sought in itself really justifies the inference that that person has assets which he is likely to dissipate unless restricted.

28.  The applicable principles for the grant of a preservation order or proprietary injunction are also well established. The plaintiff must show (a) a serious issue to be tried that there is property which is bona fide the subject matter of the cause or matter; (b) the balance of convenience is in favour of granting an injunction; and (c) it is just and convenient to grant the injunction.

29.  However, it is not necessary to demonstrate any risk of dissipation of assets. Further, even if there has been delay in making an application which may lead to the refusal of a freezing injunction, a proprietary injunction may nonetheless be granted. An enquiry into the relative merits of rival claims is not necessary.

30.  A personal claim against a trustee is not as satisfactory as a trust fund maintained intact in his hands, so that such a claim is not an alternative remedy that will defeat a beneficiary’s right to an injunction.

31.  Of course, since the purpose of a proprietary injunction is to preserve the very property over which the plaintiff makes proprietary claim, any such injunction would only be in respect of such property in the hand of the defendant.

32.  In general, a contract for the sale of shares in a publicly quoted company will not be specifically enforceable. This is because such shares are normally freely available on the market, so that generally damages will be an adequate remedy. However, if the quantity of shares in a listed company (such as JIGL) contracted for is a quantity not readily obtainable in the market, it may be that not only specific performance can be obtained of a contract to sell them, but that the title to the shares passes in equity to the buyer: see, for example, Mills v. Sportsdirect.com Retail Ltd [2010] 2 BCLC 143, at §§74-75; Lewin on Trusts 19^th Ed at 10-009.

33.  The conditions for establishing a constructive trust are stricter than the mere existence of a specifically enforceable contract. Although the vendor-purchaser constructive trust arises almost exclusively in the context of contracts for the sale of land, it is arguable that it ought to apply also in other limited circumstances, to sales of personal property. In such a scenario, the transferee will only become the equitable owner of property belonging to the transferor if the transferor is under a (i) mandatory and (ii) unconditional personal obligation to transfer (iii) identifiable assets to the transferee: see, for example, Bridge on The Law of Personal Property 2^nd Ed at 14-001.

34.  In the context of interlocutory ex parte applications, the courts have frequently recognised the difficulty in the task at the inter partes hearing of resolving disputed facts. To discover whether an ex parte order has been improperly obtained, the court first has to consider the evidence as it was at the time of the application for the ex parte order and then a mass of evidence designed to demonstrate that the evidence was misleading or failed to make full disclosure. The real question at the time of the inter partes hearing should not be what has happened in the past, but what should happen in the future. At the hearing, it is impossible to make any concluded findings of fact, yet the court is being asked to reach a conclusion on the issue of non-disclosure without full knowledge of the circumstances. This is why it is frequently that applications for discharge of ex parte orders are left to be dealt with at trial.

35.  Nevertheless, courts are well used to identifying circumstances in which materially relevant matters were not properly disclosed, materiality being judged by whether the facts would be relevant to the weighing process as to whether or not grant the injunction.

The Outline of the Argument

36.  Sky Motion’s claims are straightforward. The matter has now been fully pleaded in a statement of claim, and the claims are for (a) breach of the Agreement in failing to transfer to it the Notes and the Shares; and (b) a constructive trust claim over the Notes and the Shares.

37.  In her affirmation, Wang relies on three main grounds to deny liability under the Agreement. They are: (a) Wang has not herself seen the Agreement, and had no idea that Sky Motion was a party to it or of its terms; (b) Sky Motion has failed to pay the full Sum by 25 October 2018 (being short by HK$20 million) so that China Create’s obligations to transfer the Notes and the Shares has been postponed accordingly; and (c) the Agreement has been amended as a result of Cheuk’s request that the shares should be transferred in paper form rather than electronic, and by reason of Wang’s further assistance in relation to the issue of a second tranche of Senior Notes.

38.  Mr Wang in submission describes these three points (though phrased differently by him) as showing arguable defences. In addition, Mr Wang submits that the continuation of the Order should be refused on the basis that: (a) there is no proprietary claim; (b) there is no risk of dissipation; (c) the balance of convenience is against an injunction; and (d) there has been extensive and material non-disclosure.

Knowledge of the Agreement

39.  It is fair to say that in her evidence, Wang has sought to distance herself from her husband Zhang, emphasising that none of the events the subject matter of this claim have anything to do with him. On the other hand, she asserts that she had no idea that Sky Motion was a party to the Agreement or of the terms of the Agreement. These two assertions are somewhat in tension, and the latter assertion is at least difficult to reconcile with other parts of the evidence.

40.  First, Wang accepts Huang was her then assistant, and there is no suggestion that Huang was not authorised to act for and bind China Create. In any event, it is unlikely that Huang would have conducted negotiations and entered an agreement without clear instructions and authority, and to the knowledge of, Wang. Wang herself says (in the context of distancing Zhang) that the dealings in relation to the Agreement had always been handled by her.

41.  Secondly, there is no dispute that China Create received more than HK$153 million directly from Sky Motion on 25 October 2018. After that, on her own evidence, Wang personally procured China Create to transfer the 5.45 million shares in JIGL to Sky Motion.

42.  Thirdly, Wang’s case that certain amendments were made to the Agreement around early November 2018 presupposes that she knew what were the original terms of the Agreement.

43.  I consider the fact that Wang has been less than frank in relation to her knowledge is relevant to the question of risk of dissipation.

Payment in Full

44.  The details of the destination accounts and respective sums to be transferred by Sky Motion pursuant to its obligation to pay the Sum under the Agreement were provided to Sky Motion by Huang. Payment was made accordingly, and there are also contemporaneous banking and WeChat records which support that fact. Whilst Mr Wang has described Sky Motion’s case on the payments made under the Agreement as “most suspicious”, the payment was as directed.

45.  It is, however, correct that the total amount transferred by Sky Motion on 25 October 2018 was $455,622,270. The additional sum approaching $112 million is said to have been repayment of loans previously granted by China Create to Sky Motion. I have taken into account the criticism that no particulars or evidence has been provided to show and prove what those loans were, and how they arose. But, of that total sum of over $455 million, only $20 million has not been supported by indisputable documentary evidence. The amount wholly supported by documents is over $100 million in excess of the Sum.

46.  The late production of material relating to that $20 million, and the appearance that it may have been paid in advance of the date of the Agreement, and not from Sky Motion, raises some questions. But these are matters capable of exploration in the process towards any trial. Part of that exploration may be by reference to the schedule of payments provided by Huang, which identified the particular $20 million payment as the first in the list and in red, rather than in black, which might indicate a recognition that the $20 million was part of the schedule but had already been paid.

47.  But I also accept that full payment of the Sum is potentially supported by the surrounding circumstances. Following the transfer by Sky Motion, China Create immediately transferred the first tranche of 3.45 million shares, and transferred a further 2 million shares within the next few days, making the total of 5.45 million shares which China Create was obliged to transfer as its first obligation under the Agreement.

48.  Also, there is no suggestion of any contemporaneous complaint as to lack of full payment of the Sum. I do not lose sight of the fact the amount of $20 million and identity of the payee, which Sky Motion says it has paid to that payee, was dictated by Huang on behalf of China Create.

49.  So whilst there may be something showing an arguable defence on this point, I do not think that removes the existence of the sufficiently arguable claim.

Amendments to the Agreement

50.  As Mr Chong submits, if China Create wishes to assert the existence of amendments to the Agreement, that is something which must be strictly proved: see, for example, China Life Insurance (Overseas) Co Ltd v. Li Xiaoming (HCA 570/2017, 11 December 2017, Lisa Wong J) at §71. But, as Mr Chong also submits, there is no contemporaneous documentary support for the allegation that the Agreement was in some way amended, and the contemporaneous documents tend to contradict such an allegation.

51.  There is also force in Mr Chong’s submission that it would seem to make little commercial sense for Sky Motion to have agreed to the alleged amendments, after it had already transferred the Sum to China Create (to the accounts as designated), and without insisting on definite dates for transfer of the Notes and the Shares. Leaving indefinite delay seems at least unlikely.

52.  I note the point made by Mr Wang that the request for physical certificates is capable of being evidenced by the provision of physical certificates, when otherwise there was no duty to transfer physical stock under the Agreement. But as Mr Wang accepts, it is not possible fully to investigate the merits of the proposed defence on this factual dispute, which may depend very much on oral evidence.

53.  I also note Mr Wang’s point that no evidence has been adduced from Cheuk directly to refute the allegations of amendments. But that seems to me to identify the need for oral evidence which would be investigated at trial.

54.  Even if there is an arguable defence, of which I am not actually persuaded on current materials, that does not mean that there is not a sufficiently arguable claim.

Proprietary Claim

55.  Mr Wang submits that no evidence has been adduced to indicate that the Shares or the Notes cannot be readily obtained from the market. Indeed, he says there is positive evidence which shows the contrary. First, the Shares the subject matter of the Agreement are about only 3% of the entire issued shares in JIGL. Secondly, the daily trading volume of between 2 million and 400 million shares in the period from August 2018 to June 2019 suggests that the shares under the Agreement may easily be obtained from the market within weeks or days. As to the Notes, they are only about 8.75% of the notes issued and listed.

56.  Mr Wang says these facts are very different from those in the case relied on by Mr Chong, where the relevant portions of shares were significant strategic stakes in thinly traded stocks, which the Court held to be highly unlikely to be readily available through normal trading activity, if at all.

57.  Whilst I see the force of those points, they seem to me to be ultimately issues for a trial. I do not think that those arguments of themselves remove or negate the serious issue to be tried on the proprietary claim.

58.  Mr Wang’s alternative position is that if any proprietary injunction is to be ordered, it should be limited to the proportion of JIGL shares currently held by China Create, being the total of 7,951,226 shares (identified by Wang in her 3^rd affirmation). He also submits that there could be no injunction in respect of the Notes, as no Notes are held by China Create at the moment (as also identified by Wang in her 3^rd affirmation).

59.  The problem with that submission is the state of the evidence produced by China Create. So heavily redacted are the various brokerage statements which are exhibited, it is difficult to place any particular reliance on the unredacted elements.

60.  The imprecision adopted by China Create is understandable. As I read Wang’s evidence, her explanation for the existence of the Agreement was that someone had been found to acquire from China Create the Shares and the Notes which it held as a result of share placements and subscriptions for notes. Hence, if the Shares and the Notes are no longer held by China Create, there was deliberate dissipation of those assets notwithstanding having received the money from Sky Motion to acquire them. On the other hand, if the Shares and the Notes are still held, so much stronger is the claim to those actual Shares and Notes.

Threshold on Merits

61.  In the above circumstances, it seems to me that Sky Motion has satisfied the necessary threshold requirements as to the merits of the underlying claims.

62.  None of the points raised on behalf of China Create seem readily credible at this stage, and in any event none of them contradict that Sky Motion has established that it has at least a strongly good arguable case on the merits capable of supporting a Mareva injunction, and at least a serious issue to be tried capable of supporting a proprietary injunction.

Risk of Dissipation

63.  As I have already noted, in her evidence, Wang has asserted that as a matter of fact China Create does not currently hold any of the Notes and is only holding a small quantity of the Shares. I accept Mr Chong’s submission that, if this is true, this identifies direct evidence of dissipation, whereas if it is false then Wang has lied on affirmation evidencing low commercial morality about this particular dealing and a real risk of dissipation.

64.  I take Mr Wang’s point that this submission was made only in Mr Chong’s skeleton argument for this hearing, and so may not be fair to think that it has not been properly addressed in evidence from China Create. Actually, the point was taken in Xie’s 3^rd affirmation, and if regarded as a new point might have been answered by Wang’s 3^rd affirmation which was filed for that purpose. But anyway, as I have also already noted, it seems to me the obvious reading and inference from the way in which Wang described the Agreement coming into being that its purpose was for Sky Motion to acquire from China Create the Shares and the Notes which China Create had obtained through share placements and subscription for notes. It may be that the terms of the Agreement permitted time within which China Create might obtain shares or notes to transfer under the Agreement. But that is not how the genesis of the Agreement was described.

65.  Mr Chong is also on firm ground when he criticises China Create for blowing hot and cold, when it says on the one hand that it did not have the shares in the first place but on the other hand that the reason why it only has so few shares is as the result of a margin cut. Those two points do seem to me to be inconsistent. I also have some difficulty in understanding how a drop in the value of the JIGL shares, held as part of a basket of other shares within a securities account, can have led to a margin cut resulting in a 90% reduction in the number of JIGL shares held.

66.  I also do not accept Mr Wang’s submission that there could not be any real risk of dissipation where China Create has retained some millions of the Shares. The submission proceeds on the basis that if, in the period of months since the alleged breach of the Agreement, a real intention to defeat any claim had existed, then China Create would have disposed of all of the Shares. I do not think that necessarily follows, and in any event it is just one factor which would go into the consideration of risk. Further, it is settled that if a real risk of dissipation is found, it may be a consequence that only part protection is provided by an order made on that finding.

67.  The apparent deliberate dissipation of the very subject matter of the Agreement seems to me to be an important point from which one can readily draw the inference of a real risk of dissipation. There are a number of other additional matters which also come into the picture.

68.  Though it may not be a matter of great weight bearing in mind its hearsay (perhaps multiple hearsay) nature, I also take into account the newspaper report of the police allegations relating to Zhang and a related China Create company, and the content of the underlying official police notice. Further, it does not seem to be disputed that Zhang was arrested on allegations of various false and fraudulent activity. Those matters seem to me properly to give rise to an inference of real risk of dissipation. I do not think it is necessarily an answer to that inference to point out that if Zhang is in custody he is in no position to exert any influence over China Create, which requires a different inference. Nor in the circumstances where Zhang and Wang are not just husband and wife but apparently business partners, that the police notice focuses on Zhang alone.

69.  Of course, the other point of referring to Zhang’s apparent difficulties with the police authorities ties in with the other aspects of evidence which show financial difficulties being encountered, as might be expected, in a connected business such as that of China Create.

70.  I also accept that where China Create’s main assets appear to consist of shares in public companies, they are susceptible to easy disposal, in other words are at real risk of dissipation. In this context, it seems to me to be something to be taken into account that Wang originally claimed to have practical difficulties in retrieving records to confirm the amount of JIGL shares held by China Create. This is perhaps particularly so where another part of Wang’s initial evidence emphasises the difficulty in obtaining paper shares to replace electronic shares, the holding in which must be readily identifiable from brokerage accounts. Even the disclosure which has been given provides no historical context for the snapshot now shown.

71.  Mr Wang criticises what he describes as the “significant mutation” of Sky Motion’s case on risk of dissipation between the ex parte hearing and this inter partes hearing. He says that mutation is a signifier of material non-disclosure (which I deal with below), but he also says that it signifies the lack of solid evidence to prove a real risk of dissipation.

72.  I do not agree. The main changes in the points made as to risk of dissipation arise as a result of the filing of Wang’s evidence. Of course, at the ex parte hearing Sky Motion was not able to rely as evidence of real risk of dissipation things which were yet to be said in evidence filed by China Create. But that does not preclude it from relying on that material at the inter partes hearing, now that such evidence has been filed.

73.  Mr Wang says that, whilst there is no evidence to show the full size and operation of China Create at the moment, the available evidence is already sufficient to show that it has substantial assets and operations, pointing against a real risk of dissipation. He relies on what he says is the disparity between the total assets owned by China Create and the disputed sum, as an important factor against the finding of risk of dissipation. However, on the materials currently available (which on China Create’s own case are by no means full materials), I do not think that the sizeable assets as might be held by China Create on balance remove a reasonable apprehension of a real risk of dissipation.

74.  I have also taken into account that in a letter from solicitors on behalf of a securities company, intimating that its client might wish to intervene in these proceedings, reference is made to a significant margin loan facility provided to China Create on which a margin call in a sum exceeding $116 million has been unsatisfied since demand on around 10 May 2019. There is also another set of proceedings in which a Mareva injunction was granted by DHCJ Field against China Create arising from another claim in excess of $300 million.

75.  I am wholly satisfied of the risk of dissipation justifying the continuation of the Order.

76.  I might add that the terms of the Order, and the likely terms of any continuation of the Order, specifically identify that the freezing aspect would be suspended if the injuncted sum is paid into court. Whilst I specifically acknowledge that no obligation to make the payment into court is triggered unless the court has already been satisfied of a real risk of dissipation, which I am, on Mr Wang’s submissions China Create would have no difficulty in paying in the relevant amount and/or the figure frozen would have little impact on its other activities.

77.  That a defendant has other assets in excess of the injunction ceiling sum is not a reason to refuse the injunction if a real risk of dissipation has been found. But the defendant is entitled to use those assets, as the standard form of the Mareva order identifies. Indeed, that is one reason why the typical disclosure orders ancillary to Mareva orders are required, and why such disclosure may be of assistance to both parties.

Balance of Convenience

78.  I do not think that China Create has raised any real credible defence to the strong case on breach of contract which Sky Motion can assert on the undisputed facts.

79.  Further, where there is at least a serious issue to be tried on the proprietary claim, the balance of convenience would normally favour the preservation of the subject matter of the action at an interlocutory stage. Into the mix might be added that the subject matter are tradable assets, hence the real risk of dissipation, and that China Create is an overseas company, whereas the Notes and the Shares are listed on the Hong Kong Stock Exchange.

80.  Mr Wang relies on the significant prejudice which he says China Create now faces from the Order, which would only be exacerbated if it were to be continued, and in particular against the recent significant market losses. He says the practical reality is that all of China Create’s securities accounts have been frozen, effectively prevent it carrying on its normal business. But the answer to that seems to me to be for it to identify clearly what other assets it has above the ceiling limit, which it might therefore be able to deal with.

81.  Mr Wang also says that the delay in the making of the original application shows no irreparable damage would be suffered by Sky Motion, and that there was no intention to dissipate because of the part of the Shares still held, as well as the amounts in the securities accounts.

82.  But, there is little difficulty in identifying that the balance of convenience points strongly in favour of the grant and maintenance of the injunctive relief sought by Sky Motion.

Alleged Material Non-Disclosure

83.  There can be no realistic dispute as to the duties an ex parte applicant faces to make full and fair disclosure of all the material facts. It is a stringent duty, designed to protect the absent party. If material non-disclosure has occurred at the ex parte application, the order obtained at such an application would likely be set aside automatically without going into the merits. Nevertheless, there is a discretion to re-grant the same order in exceptional circumstances which only sparingly arise.

84.  The three areas of alleged material nondisclosure put forward by Wang are: (a) the failure to identify who conducted the communications between Sky Motion and China Create; (b) the failure to disclose the amendments alleged to have been made to the Agreement; and (c) the failure to have disclosed that Zhang was not involved in dealing with the Agreement.

85.  Mr Wang in submission also refers to the alleged disappearance of Wang, relied on at the ex parte stage, as a blatant lie explaining why it has now been dropped by Sky Motion as a point suggesting risk of dissipation. He also relies on (a) an alleged misrepresentation about the loan agreement between Sky Motion and Jin Jiang, (b) nondisclosure of we chat messages and the excel table.

86.  I do not think the precise person who conducted the communications was material. In any event, Wang’s allegation that it was only Cheuk who made communications on behalf of Sky Motion is contradicted by contemporaneous evidence. This point also goes nowhere on Wang’s own primary position that she had no knowledge of the terms of the Agreement, even as to the counterparty (although I have rejected that position as lacking credibility).

87.  I would also disagree with the suggestion that non-disclosure of WeChat messages was somehow to cover up the involvement of WB and Cheuk, which does not seem to me logically to follow the criticism. It seems to me that the WeChat messages were deployed in answer to the suggestion made by Wang in her evidence that China Create had not actually received the various payments under the Agreement.

88.  Where I have held that the allegations of amendments to the Agreement are essentially bare allegations, with little if any merit, it cannot have been material non-disclosure not to have anticipated and made reference to such matters. It does not amount to a material non-disclosure if an applicant fails to posit and canvas every conceivable argument which a creative respondent might conjure up in the face of a claim.

89.  Zhang was the shareholder and director of China Create until March 2018. That may explain why Wang said in evidence that she was unaware of any prior dealing between Sky Motion and China Create therefore the Agreement. The timing of the transfer of the shares from Zhang to Wang, against the chronology of his subsequent arrest, and the fact that the pair have been described as a “power couple”, all go properly into the consideration of whether or not there is a real risk of dissipation.

90.  I do not think whether or not Zhang was personally involved in the negotiations of, the making of, or subsequent dealings under the Agreement was so material as to amount to a material non-disclosure if not mentioned in the application for the injunction which led to the Order. But, in any event, Mr Wang accepts that Sky Motion did not suggest that Zhang played any role in the negotiation, signing, communicational performance of the transaction relating to the Agreement. So not to have mentioned it could not amount to non-disclosure. The real point of mentioning Zhang was that he appeared to be a co-controller of China Create, and that there were significant doubts as to the honesty of his dealings with the group of companies of which China Create is apparently a part.

91.  There is a bit more force in Mr Wang’s criticism of the way in which reliance appeared to be placed on Wang’s “disappearance” from Hong Kong. He rightly describes the picture painted in Mr Chong’s ex parte skeleton as being that (a) first Zhang was acting for China Create and he appears to be dishonest, and (b) Wang took over from Zhang and she has now disappeared. Whereas, it is now been accepted on behalf of Sky Motion that indirect contact with China Create was maintained to some extent with Wang’s new assistant. But, I think the real point being made in the evidence for Sky Motion was that whilst Wang had originally said she needed some time, and even said she needed to realise assets to effect the release of her husband from custody (which itself might identify possible acts of dissipation), no further contact was made by her directly, or substantively from her if indirectly. I do not think this was material non-disclosure or misleading in any material way.

92.  There is also some force in the criticism of Xie’s 1^st affirmation, in the possible confusion as to what was within her direct knowledge and what has been deposed to on information and belief. Part of the problem arises from referring to the “plaintiff” doing something, when corporate entities can only act through particular individuals. Clearly, it is at least better practice and probably required under the rules for the individuals who are said to have acted or spoken to be specifically named, and the source of the knowledge of those actions and words to be directly identified. Nevertheless, I do not think the lack of clarity in this case amounts to material non-disclosure, intentional or otherwise.

93.  None of China Create’s criticisms seem to me to amount to made-out allegations of material non-disclosure.

94.  I would also add that, even had I been satisfied that there was material non-disclosure such as should lead to the discharge of the ex parte Order, I would on the materials now available nevertheless re-grant the order on similar terms.

Variation of Ceiling Amount

95.  It is said that the figure put forward by Sky Motion which became the ‘ceiling figure’ in the Order was put forward by mistake, as it was based on the contract Sum. Mr Chong submits that if Sky Motion succeeds at trial, the amount of damages recoverable would likely far exceed the contract price.

96.  The evidence identifies that the average price of JIGL shares in the period May to August 2019 was around $3.45. That, says Mr Chong, would justify an increase in the ceiling figure to around $566 million. But Mr Chong accepts the force in the concern expressed by China Create about potential repeated variation of the figure in the light of a moving, at times volatile, market. Hence, to meet that concern, Sky Motion would undertake not to very further the varied amount.

97.  But such an undertaking would really only deal with a rising market, and not a falling market which might create a ceiling figure which is significantly too high. Nevertheless, I accept that where there is a proprietary claim it may be appropriate to come closer to reflecting market value of the Notes and the Shares in broad brush terms. Further, I see force in Mr Chong’s submission that the measure of any damage should be by reference to the date of the breach of the Agreement. Doing the best I can on the materials, by reference both to the date of alleged breach and specifically to reflect that the market is likely to move up and down over a period of time until the trial of this action, it seems to me that the appropriate ceiling figure is $500 million.

98.  Though I have not required an undertaking that no further variation application will be made in respect of that figure, there would need to be a significant change in the market that as might justify the making of any such application. As stated, I have also taken into account in reaching that figure the fact that the market may go down as well as up, and that the appropriate ceiling figure should be broadly fair and appropriate for both parties in such circumstances.

Fortification

99.  In accordance with the terms of the Order, Sky Motion has paid $10 million into court as fortification for its cross-undertaking in damages.

100.  China Create now seeks a further $40 million to be provided by way of fortification. That figure appears to have been calculated by reference to an alleged drop in value of the portfolio of public shares held by China Create in a securities account.

101.  The principles relating to the provision of fortification are well settled. The court has a general power to order fortification where it appears just and proper to protect the defendant by making such an order. Usually, merit of the parties’ case is not a necessary consideration. But, if the plaintiff has a strong case, it may not appear just and proper to make the protection available to the defendant.

102.  The burden of showing the need for fortification and the appropriate quantum falls on the defendant seeking fortification. He must show the likelihood of a significant loss arising as a result of the injunction, and demonstrate why he believes the plaintiff will be unable to make good that loss. The court will approach these issues by taking a broad view of the evidence, usually without the need for detailed enquiry. Whilst there is no obligation on the plaintiff to give full and frank disclosure of his own financial means, circumstances might arise where the absence of financial disclosure by a plaintiff might entitle adverse inference to be drawn as to his ability to meet his cross-undertaking in damages.

103.  Mr Chong submits that Sky Motion has already paid $10 million as fortification, and there has been no identification of a change in circumstances which might justify further fortification. However, that submission overlooks the point that the original fortification figure was one arrived at effectively ex parte, when China Create was yet to file its evidence. Hence, it seems to me that I should consider the question of fortification against the available materials on this inter partes hearing.

104.  That material seems to me to identify the following points, which I weigh in the balance. First, there is a natural movement, sometimes even volatility, in the value of notes and shares like the Notes and the Shares. That means that the value can go down, but it can also go up. Secondly, on present material Sky Motion has a strong case that China Create has breached the Agreement. Thirdly, there is no particular reason to doubt Sky Motion’s ability to make good on its cross-undertaking. Fourthly, though before the filing of its evidence and subsequent market falls, the original figure of $10 million was suggested by China Create as being what it described as an intelligent estimate of the likely amount of loss and hence a reasonable figure, I do not think that the evidence since put forward identifies a more intelligent estimate, even though it is tied to a temporal drop in value of a particular brokerage holding.

105.  I consider in the exercise of my discretion that the $10 million fortification already provided is a just and proper figure sufficient to protect the defendant in all the circumstances.

Costs

106.  Though I have allowed the Leave Summons, the summons effectively sought an indulgence to permit the filing of late evidence, and it does not seem to me that cost should follow the event. Rather, the costs of the Leave Summons should form part of the costs of these applications overall.

107.  On my findings, Mr Wang correctly accepts that costs would follow the event and does not oppose a costs order against his client. Therefore, I shall order that the costs of all four summonses shall be paid by China Create to Sky Motion. I will assess costs summarily or on a gross some basis on paper in accordance with the directions I have given.