TARGET INSURANCE CO LTD v. NG YU AND OTHERS

HCA 305/2022

[2022] HKCFI1362

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 305 OF 2022

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DECISION

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A.  INTRODUCTION

1.  At the first return day hearing of the ex parte injunction order granted by S T Poon J on 25 March 2022 (“the Order”), the parties agreed to the continuation of the Order, as well as further directions for the substantive argument of the Plaintiff (“P”)’s summons dated 28 March 2022 for continuation of the Order (“P’s Continuation Summons”), and §1 of the summons taken out by the 1^st Defendant (“D1”), the 3^rd Defendant (“D3”)  and the 4^th Defendant (“D4”)  on 21 April 2022 to discharge the Order (“Ds’ Discharge Summons”). What I have to determine is §§2-3 of Ds’ said summons whereby D1 applies for a stay, or alternatively, variation of the ancillary disclosure order made under §§7-8 of the Order.

2.  In a nutshell, P’s case is as follows. P is an authorised insurer and one of the largest players in the taxi insurance market in Hong Kong. Managers over P were appointed by the Insurance Authority on 7 January 2022 to carry out investigations into P’s affairs, including the whereabouts of its funds which were deposited with a securities brokerage, Nerico Brothers Ltd (NBL), for forex trading. Investigations revealed that P’s funds up to at least US$154,170,171 (“the Sum”)  were purportedly used to subscribe for different products under D2 rather than used for forex trading. They were first transferred to a DBS bank account of a Cayman fund known as the Amber Hill ES Fund and then further dissipated to various corporate vehicles owned by D1 (including D3 and D5)  and other accounts of D2, leaving a nil balance in the DBS account. The Sum now appears to end up being used to subscribe for LP (liquidity provider)  units issued by Amber Hill ES Fund. P claims that it had fallen victim to a massive fraud perpetuated by D1 and D6, and was defrauded the Sum; and D2 to D5 are the recipients of the traceable proceeds of the Sum. D1 is allegedly the central figure in the fraudulent scheme; he is the common denominator of all the relevant entities, and the majority of the traceable proceeds of the Sum had ended up in corporate vehicles of or under the control of D1.

3.  The Order freezes D1’s assets up to the amount of the Sum. §§7-8 of the Order read as follows:

“7. Each of the 1^st and 6^th Defendants must inform the Plaintiff in writing within 7 calendar days after this Order has been served on him of all his assets of an individual value of HK$10,000 or more in Hong Kong, whether in his own name or not and whether solely or jointly owned, giving the value, location and details of all such assets. The Defendant may be entitled to refuse to provide some or all of this information on the ground that it may incriminate him.

8.  This information must be confirmed in an affidavit or affirmation which must be served on the Plaintiff’s solicitors within 14 calendar days after this Order has been served on the Defendant.”

4.  D1 applies for an order that §§7-8 of the Order shall be stayed pending the determination of P’s Continuation Summons and D’s Discharge Summons; or alternatively, the individual value of assets to be disclosed shall be changed to HK$500,000.

B.   THE APPLICABLE LEGAL PRINCIPLES

5.  The mere fact that there is a pending challenge by D1 against the Order is not a ground for suspending the operation of the disclosure order in the interim (Malofeev v VTB Capital plc [2011] EWCA Civ 1252 at §39). Hong Kong Civil Procedure 2022, vol. 1, §29/1/74 at p. 818 states:

“The defendant has no general entitlement to a stay of a disclosure obligation ancillary to a Mareva order pending the determination of the defendant’s application to discharge that order… While in the ordinary course, the application for a stay should be refused, the Court ultimately needs to strike a balance between depriving a plaintiff of the “teeth” of an injunction, and the potential prejudice to the defendant in making the disclosure…”

6.  As the Court of Appeal held in Chen Wenjun v Liu Luyuan and another, CACV168/2014 (1 September 2014, unreported), §21, whether an ancillary disclosure order should be stayed in the interim period must be decided as a matter of discretion on a broader balancing exercise having regard to the problem as identified by the English authorities as follows:

“The problem in cases where an order for disclosure has been made at the same time as, and in order to give teeth to, a freezing order made without notice to the defendant is that the freezing order may be set aside after hearing full argument on both sides. If so, it will then be seen that there was no proper basis for the disclosure order. But, by that time, the defendant may have been irremediably prejudiced by the disclosure of assets which he should not have been required to disclose. On the other hand, if it is held after full argument that the freezing order should stand, then the claimant may be irremediably prejudiced if the order has not been capable of being policed in the meantime. The court is faced with the position … that whichever course it takes on an application which has to be decided without full argument may lead to irremediable prejudice to one side or the other. There is a balance to be struck.”

7.  In Chen Wenjun v Liu Luyuan and another, §28, the Court of Appeal also held that:

“In our judgment, the immediate need for disclosure in respect of a proprietary claim is quite different from that in respect of a non-proprietary claim. In the former case, very often the disclosure serves at least two purposes: (a)  for policing the compliance with the injunctive relief; and (b)  to facilitate further steps being taken to recover assets which belongs to the claimant. In the latter, in most cases, only (a)  is applicable. This distinction is material to the Raja balancing exercise.”

8.  In this case, P’s claim against D1 is non-proprietary. Hence, the purpose of the ancillary disclosure order is for policing the compliance with the interim injunctive relief against D1.

C.   ANALYSIS

9.  The ground of D1’s application is that he has already disclosed in his affirmation dated 26 April 2022 his assets in Hong Kong of a value exceeding the Sum as follows:

(a)  390,821,084 shares in Amber Hill Financial Holdings Limited under the name of D3 (“Amber Hill Financial Shares”)  which are valued at about HK$673,775,548.80 (equivalent to about US$86,381,480.61)  with the average price of HK$1.724 between 23 March and 21 April 2022;

(b)  Bank deposits of HK$94,188,438.09 with HSBC under the name of D3 (“HSBC Deposits”)  (equivalent to about US$12,075, 440.78);

(c)  Investments of US$69,216,479 with Bank Julius Baer & Co Ltd (“Julis Bär”)  under the name of D3 (“Julis Bär Investments”);

(d)  138,822,000 shares in Target Insurance Holdings Ltd under the name of Smart Neo (“TIHL Shares”)  which are of the value of about HK$124,898,153.40 (equivalent to about US$16,012,583.76)  with average price of HK$0.8997 between 23 April 2021 and 4 January 2022;

(e)  Shareholdings in two private companies, namely, D3 and Smart Neo, which are both under his name. The equity of Smart Neo is about HK$280 million according to Smart Neo’s audited financial statement for the period of 9 January 2020 to 30 June 2021.

He states that the combined total estimated value of these assets come to well over US$183 million, not counting the value of his shares in the two private companies. He confirms that the said assets under the name of D3 and Smart Neo are wholly and ultimately owned by him beneficially; the HSBC Deposits and Julis Bär Investments remained of the same value as at the date of his affirmation; and those assets, in particular, the Amber Hill Financial Shares, the TIHL Shares and D3 Shares, are all not encumbered by any charge or mortgage to third parties/banks. He claims to have serious concerns about the issue of privacy and the prejudice that he will surely suffer if he is required to disclose assets which it is later held he should not have been required to do in the first place.

10.  On the other hand, P highlights the fact that serious allegations of fraud are being made against D1, and the amount involved is huge. It is important to police compliance with the interim injunction against D1 (which has been continued by agreement)  effectively in order not to deprive it of its “teeth”. P contends that, save and except the shares in the two private companies, D1 is not the legal owner of the other assets which are held by D3 or Smart Neo; they are not assets which are readily available for enforcement of judgment. In addition, the value of those assets may fluctuate.

11.  For the present purpose, it is sufficient for me to focus on the four assets disclosed by D1 which are held under the name of D3 and Smart Neo.

12.  A certificate of incumbency dated 12 April 2022 shows that D1 is the sole shareholder of D3. It is common ground that D1 is the beneficial owner of Smart Neo. D1 has admitted and confirmed on oath that the said assets held under the name of D3 and Smart Neo are wholly and ultimately owned by him beneficially. It will not be open to him to contend otherwise in due course. Further, there is no evidence suggesting that what he said is untrue. For the present purpose, I am prepared to accept that they are indeed D1’s assets. I appreciate that, assuming that P succeeds in its claim against D1, as compared to assets held directly under D1’s name, it may be more inconvenient to enforce judgment against those assets held under the name of D3 and Smart Neo. However, having regard to the admission made by D1, they are assets which are amenable to execution of a judgement against him.

13.  I turn to the estimated value of those assets given by D1:

(a)  The Amber Hill Financial Shares are listed on the Hong Kong Stock Exchange (“HKSE”). The value estimated by D1 is supported by the data provided by the HKSE.

(b)  The value of the HSBC Deposits is supported by a statement dated 31 March 2022 issued by HSBC. It appears that they are all foreign currency deposits.

(c)  The value of the Julis Bär Investments is supported by an asset statement as of 31 March 2022 issued by Julis Bär, which describes the Investments as “AMBER HILL ES FUND SPC SHS-C-SERIES 1 CURRENCY ARBITRAGE FUND SEGREGATED PORTFOLIO”.

(d)  The TIHL Shares are listed on the HKSE. The value estimated by D1 is supported by the data provided by the HKSE. It should, however, be noted that trading of TIHL shares has been suspended since 5 January 2022.

14.  P has not suggested that there is anything wrong about the value or estimated value of those assets provided by D1. I have some doubts about the estimated market value of the TIHL shares because trading thereof has been suspended for a few months. But even if one puts aside the TIHL Shares, the estimated value of the three other asserts considered above already exceeds US$167 million, which is more than the Sum.

15.  As to P’s concern that the value of the said assets may fluctuate, my observations are as follows:

(a)  The value of the Amber Hill Financial Shares can be easily ascertained from information available in the public domain.

(b)  The value of the HSBC Deposits, due to their nature as foreign currency deposits, is unlikely to change substantially though there might be some fluctuations due to any change in the exchange rates between the foreign currencies in question and HK$/US$. In any event, any fluctuation in the value of the Deposits may be confirmed by updated information provided by HSBC.

(c)  The value of the Julis Bär Investments may fluctuate, but any such fluctuation may be confirmed by updated information provided by Julis Bär.

(d)  As to the TIHL shares, there is no way to ascertain their market value accurately since trading thereof has been suspended.

16.  In respect of these assets, D1 is restrained from disposing of them in any manner under the Order. It seems that reasonable and practicable steps may be taken to ensure that D1 will comply with the Order in this respect:

(a)  As the shares in Amber Hill Financial Holdings Limited and TIHL are listed on the HKSE, and D3 and Smart Neo are subject to disclosure requirements under section 313(1)  of the Securities and Futures Ordinance (Cap. 571), it seems rather unlikely and difficult for D1 to deal with them in breach of the Order without notice. The fact that trading of the shares of TIHL has been suspended makes it even more unlikely that D1 can dispose of them in the meantime.

(b)  As to the HSBC Deposits and the Julis Bär Investments, P may give notice of the Order to HSBC and Julis Bär. One may reasonably assume that they will not assist D1 in breaching the Order. In order to dispose of the HSBC Deposits and the Julis Bär Investments, it would appear that D1, through D3, will need to give instructions to HSBC and Julis Bär. Without the co-operation of HSBC and Julis Bär, it is improbable that D1 can dispose of those assets.

17.  For the above reasons, I take the view that the interim injunctive order against D1 will not lose its teeth, at least not entirely, even if the disclosure order is stayed in the meantime. In addition, the stay will only operate for a short period of time pending the substantive hearing of P’s Continuation Summons and Ds’ Discharge Summons. According to the timetable for the hearing of the said summonses, the hearing shall take place in a few months’ time.

18.  That said, I take the view that there ought to be proper measures to address P’s concerns about ownership of the assets and the potential fluctuation in the value thereof. And, in case D1 fails in his discharge application, there should not be any further delay in complying with the disclosure order. Further, if there is any material change of circumstances, P should be entitled to apply to lift the stay. Hence, in my view, an interim stay of the disclosure order should be granted on conditions which I shall set out below.

19.  Although D1’s application to vary the individual value of assets which he is required to disclose is made in the alternative to his application for an interim stay of the disclosure order, on reflection, I take the view that this is a matter that I should consider in any event.  D1 contends that, given the value of the assets already disclosed and having regard to the magnitude of the Sum, no meaningful purpose for policing his compliance of the Order made against him would be served by requiring him to disclose assets of individual value of HK$10,000, and that the appropriate figure should be HK$500,000. P, on the other hand, indicates that it is prepared to adjust the value to HK$100,000. There is no hard and fast rule on this matter. The Court should apply a practical and common sense approach, and strike a fair and proper balance between the interests of the parties. It may take into account factors like the size of the claim, value of assets already disclosed by the defendant or known to the plaintiff, the personal background of the defendant, and the practical inconvenience of requiring a defendant to disclose assets of relatively small value. In this particular case, I believe the figure should be adjusted to $200,000.

D.  CONCLUSION AND ORDER

20.  Having considered all relevant circumstances, to strike a fair and proper balance between the interests of the parties, I shall make the following orders. First, I shall vary §7 of the Order by changing the individual value of assets which D1 shall disclose from HK$10,000 to HK$200,000. Second, I shall grant a stay of §7 of the Order (as amended)  and also §8 thereof pending the determination of P’s Continuation Summons and Ds’ Discharge Summons on the following conditions:

(a)  Within 7 days hereof and, after that, once every 4 weeks until the hearing of P’s Continuation Summons and Ds’ Discharge Summons, D1 shall file and serve an affirmation on P’s solicitors to:

(i)  confirm that he remains to be the sole beneficial owner of the Amber Hill Financial Shares, the HSBC Deposits, the Julis Bär Investments and the TIHL Shares (“the 4 Assets”), and that the 4 Assets remain unencumbered;

(ii)  provide an updated value or estimated value of the 4 Assets (with the support of documents insofar as available and necessary).

(b)  Within 14 days hereof, D1 shall lodge an affirmation to the Court giving disclosure as required by §7 of the Order (as amended)  in a sealed envelope; the said affirmation shall not be inspected without leave of the court, and shall be dealt with by further directions to be given by the judge hearing P’s Continuation summons and Ds’ Discharge Summons, or the judge hearing any application made by P for a lift of the stay pursuant to paragraph (c)  below.

(c)  Liberty to apply be granted to P to lift the stay at any time.

21.  As to costs, I order that the costs of and incidental to the disposal of §§2 & 3 of Ds’ Summons shall be in the cause of P’s continuation Summons and Ds’ Discharge Summons.