CHINA MEDICAL TECHNOLOGIES, INC (IN LIQUIDATION) AND OTHERS v. SAMSON TSANG TAK YUNG AND OTHERS

CACV 505/2019

(On appeal from HCA 3391/2016 and
HCA 1417/2013 (Consolidated))

[2022] HKCA 427

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 505 OF 2019

(ON APPEAL FROM HCA 3391/2016 and 1417/2013 (Consolidated))

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D E C I S I O N

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Hon Chow JA (giving the Decision of the Court):

1.  On 19 January 2022, this Court handed down its judgment (“the Judgment”) allowing the Plaintiffs’ appeal against an order made by Ng J (“the Judge”) dated 22 May 2019 whereby the Judge set aside and discharged a worldwide mareva injunction granted ex parte by L Chan J on 11 December 2017, as amended by L Chan J on 8 January 2018 and as continued by Chow J on 12 January 2018 (“the Injunction”), against, inter alia, the 5^th and 13^th Defendants. The effect of the Judgment is that the Injunction continues against the 5^th and 13^th Defendants until trial or further order of the court.[1]

2.  There are now before the court two applications for leave to appeal.

THE 5^TH DEFENDANT’S APPLICATION

3.  By a Notice of Motion dated 11 February 2022 (“the D5 Notice of Motion”), the 5^th Defendant applies for leave to appeal the Judgment to the Court of Final Appeal. The D5 Notice of Motion raises 3 questions said to be questions of great general or public importance which ought to be submitted to the Court of Final Appeal for determination pursuant to s 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance, Cap 484:

(1)  Question 1: Did the Court of Appeal decision of Convoy Collateral Ltd v Cho Kwai Chee [2020] 6 HKC 81 (cited in Judgment §§35-37) alter the legal position set out in Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235 (Judgment §45) in respect of the principles governing the grant of a Mareva injunction (cf Judgment §47)? In particular, whether a good arguable case of fraud and/or dishonesty against a defendant now assumes a greater significance in establishing a real risk of dissipation, irrespective of and notwithstanding countervailing considerations inconsistent with and/or negating the existence of any such risk (Judgment §48)?

(2)  Question 2: In assessing the extent to which lapse of time militates against or negates the existence of a risk of dissipation, what is the relevant time period for this assessment? In particular, does the relevant time period start –

(a)  from the time at which the plaintiff reasonably ought to have taken out the Mareva injunction application (ie the position adopted by the Court of Appeal – cf Judgment §55)? Or

(b)  from the time at which the defendant had knowledge that the plaintiff may bring a claim against him (ie the position adopted by Ng J in the court below – cf Judgment §53)?

(3)  Question 3: what is the correct understanding of the so called “stable-door” point in relation to the significance of lapse of time in bringing a Mareva injunction application? In particular –

(a)  Is the “stable-door” point a reflection of the principle that “equity will not act in vain”; that no injunction would be granted if the defendant’s assets had already been dissipated? See Re Chau Cham Wong Patrick [2016] 2 HKLRD 278 §38, cited with approval in Convoy §77, but criticized and rejected by the English Court of Appeal in Ras al Khaimah Investment Authority v Bestfort Development LLP [2018] 1 WLR 1099 §55.

(b)  Alternatively, is the “stable-door” point the evidential point that, if the defendant had not disposed of his assets despite his knowledge that the plaintiff intends to bring a claim against him, that is a powerful factor militating against the risk of dissipation? See Holyoake v Candy [2018] Ch 297 at 357 (§62).

4.  In addition, the 5^th Defendant contends that Questions 1 to 3 above ought to be submitted to the Court of Final Appeal for determination under the “or otherwise” limb of section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance for the reasons set out in paragraph 5 of the D5 Notice of Motion.

5.  We are not satisfied that the 3 questions set out in the D5 Notice of Motion are questions of great general or public importance which ought to be submitted to the Court of Final Appeal for determination.

6.  In respect of Question 1, it is premised on a misunderstanding or misconception that the judgment of the Court of Appeal in Convoy has effected some fundamental change in the law relating to the assessment of risk of dissipation of assets for the purpose of an application for a Mareva injunction. The analysis of the Court of Appeal in Convoy was itself based on the judgment of Popplewell J (as he then was) in Fundo Soberano de Angola v dos Santos [2018] EWHC 2199 (Comm) and the judgment of Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto [2019] EWCA Civ 2203. Convoy essentially adopts those English decisions, and explains or elucidates the proper approach that the court should adopt in the assessment of risk of dissipation in cases where a Mareva injunction is sought against a defendant who is accused of fraud or other serious wrongdoings: the court should adopt a holistic approach and take into account all circumstances relevant to the risk of dissipation for the purpose of determining whether a “solid basis for concluding a real risk of unjustified dissipation of assets” by the defendant has been shown (§§34 and 38 of the Judgment). We do not consider that Convoy breaks any new ground. It certainly does not establish that a good arguable case of fraud and/or dishonesty against a defendant “now assumes a greater significance in establishing a real risk of dissipation” as suggested by the 5^th Defendant, but affirms (or reaffirms) the position that conduct which may be regarded as being of “low commercial morality” does not necessarily establish risk of dissipation, that being an incorrect, and over-simplified, approach that is sometimes advanced by applicants for a Mareva injunction purportedly in reliance upon Honsaico.

7.  Question 2 is not reasonably arguable as a proposition of law and, in any event, does not affect the outcome of this case. The question of whether the relevant time period for assessment of delay should start from (i) the time when the plaintiff ought reasonably to have taken out the Mareva injunction application, or (ii) the time when the defendant had knowledge that the plaintiff might bring a claim against him, depends on the purpose of the inquiry. Delay on the part of an applicant for a Mareva injunction is relevant to the issue of risk of dissipation of assets, and also generally in the court’s consideration of whether it is just and convenient to grant the injunction sought. At §55 of the Judgment, the court accepted Mr Manzoni, SC’s submission that until the Plaintiffs were able to properly formulate their claim in the form of a draft Statement of Claim in around late August 2017 for the purpose of seeking leave to serve out of the jurisdiction, there was no sufficient basis for them to apply for Mareva relief against the Restrained Defendants. This conclusion is based on an assessment of the facts and evidence in the case, and is relevant to the question of whether it was just and convenient to grant the injunction sought by the Plaintiffs in the court’s exercise of its discretion. On the other hand, in relation to the issue of risk of dissipation (which appears to be the focus of Question 2), the crucial question is not when time starts to run in reckoning the Plaintiffs’ delay in making the application for Mareva injunction. As pointed out in the judgment of Lam VP (as he then was) in Convoy, at §78, delay per se would not necessarily bar Mareva relief. The question is still whether the Plaintiffs could show a real risk of dissipation despite delay (§55 of the Judgment). The pertinent inquiry is not when the Plaintiffs could, or should, have made the application, but whether by the time of the application, there was still a sufficient risk of dissipation as to justify the court grating Mareva relief.

8.  In respect of Question 3, the so-called “stable-door” point is not an independent issue distinct from the assessment of risk of dissipation. There would not be any different outcome in the present case whether it is treated (i) as a point of reflection of the principle that “equity will not act in vain” and thus no injunction would be granted if the defendant’s assets have already been dissipated, or (ii) as an evidential point that if the defendant has not disposed of his assets despite his knowledge that the plaintiff intends to bring a claim against him, that is a powerful factor militating against the risk of dissipation. In the present case, it has not been suggested that the 5^th Defendant has already dissipated all his assets. The evidence indicates that he still has some limited assets which are frozen by the Injunction (§22 of the Judgment). Thus, equity will not be acting in vain here. The court is also satisfied on the facts, notwithstanding the 5^th Defendant’s knowledge that the Plaintiffs intended to bring a claim against him, that there is a sufficiently solid basis for concluding that there is a risk of dissipation such that the Injunction ought to be continued against him. Whatever may be the rationale behind the “stable-door” point is not material in the present case.

9.  Lastly, it is the settled practice of this court to defer to the Appeal Committee of the Court of Final Appeal in respect of any question as to whether leave to appeal should be granted on the “or otherwise” limb.

THE 13^TH DEFENDANT’S APPLICATION

10.  By a Notice of Motion dated 16 February 2022 (“the D13 Notice of Motion”), the 13^th Defendant applies for leave to appeal the Judgment to the Court of Final Appeal. In the D13 Notice of Motion, the 13^th Defendant adopts Questions 1 to 3 set out in the D5 Notice of Motion, and add the following Question 4 as being a proposed question of great general or public importance which ought to be submitted to the Court of Final Appeal for determination:

“In assessing whether an applicant is entitled to invoke the ex parte procedure in applying for a Mareva injunction, which can only be justified on the ground of confidentiality if the application is to proceed without notice, and which can only be justified on the ground of urgency if the application is to proceed with notice, what is the relevance or significance of the fact that the underlying cause of action against the respondent is premised upon or involves an allegation of fraud and/or dishonesty? In particular –

(a) Is the existence of the underlying allegations of fraud and/or dishonesty of any relevance or significance at all (Judgment §54)?

(b) If the answer to (1) is yes, what is the correct approach in considering and assessing the need for confidentiality and/or urgency justifying the ex parte application (with or without notice) in the light of the factors inconsistent with and/or negating the need for confidentiality and/or urgency in making such an application (Judgment §§53-54)?”

11.  We have already dealt with Questions 1 to 3 in the D5 Notice of Motion above and shall not repeat our views here.

12.  Question 4 (including the 2 sub-questions) do not raise any distinct question of law of great general or public importance which ought to be submitted to the Court of Final Appeal for determination:

(1)  The fact that the underlying cause of action against the respondent is premised upon or involves an allegation of fraud and/or dishonesty is, generally speaking, of potential relevance to the question of whether it is justifiable to proceed with an application for a Mareva injunction ex parte without notice.

(2)  However, whether it is justifiable to do so in any given case must depend on the facts and circumstances of that case, including factors which may be inconsistent with and/or negate the need for confidentiality and/or urgency. We do not see what further guidance can sensibly be sought from the Court of Final Appeal on this issue.

DISPOSITION

13.  The applications for leave to appeal are refused, and the 5^th and 13^th Defendants’ Notices of Motion dated 11 February 2022 and 16 February 2022 respectively are dismissed with costs to the Plaintiffs, to be taxed if not agreed.