KEEN LLOYD HOLDINGS LTD v. CHURK YAT MING AND ANOTHER

HCA 641/2014

[2020] HKCFI 2182

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 641 OF 2014

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D E C I S I O N

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Introduction

1.  D1 is subject to a Mareva Injunction Order.  By a summons dated 15 July 2020, he sought to discharge or vary the Mareva Injunction Order on the ground of delay in prosecution of this action.  D1 proposed to give an undertaking to apply all the assets subject to the Mareva Injunction Order to comply with a part judgment entered in favour of the Plaintiff.

2.  The Plaintiff opposes the discharge of the Mareva Injunction Order but has, in principle, no objection to a variation.  Its grounds in opposition are that the delay in prosecution of this action was not intentional and that the Plaintiff was entitled to lay hands on the half interest in a property held by D1’s wife (Madam Chan).

Background

3.  D1 was and is the shareholder and director of D2 and sole signatory to a bank account at the Bank of China (“the BOC account”). 

4.  There was an Agreement between the Plaintiff and D2 at the end of January 2012 whereby the Plaintiff would deposit receivables into the BOC account and D2 would hold the monies on trust for the Plaintiff.

5.  D1 and Madam Chan orally undertook to the Plaintiff to be answerable for any sums in the event D1 or D2 misappropriated the trust monies.  At the same time, D1 and his wife requested the Plaintiff and Mr Chin Kam Chiu (“Mr Chin”) to pay for the overseas tuition fees for D1’s daughters, which the Plaintiff agreed to.

6.  Pursuant to the Agreement, the Plaintiff deposited a total of HK$13,679,770.40 into the BOC account.  The Plaintiff claims that after some withdrawals, there was a balance of HK$8,006,385.66 (“the Balance”) which D1 had failed to return to the Plaintiff.

7.  According to the Plaintiff, D1 admitted that he had misappropriated the Balance to improve the standard of living of his family and to purchase stocks.  Further, D1’s son had forged the monthly statements of the BOC account.

8.  The Plaintiff claimed against D1 for the Balance and against D1 and D2 for damages for breach of trust and conspiracy to defraud.

9.  In defence, D1 claimed that there were the tertiary education fees of his daughters and monthly dues to D1 and D2 which the Plaintiff had promised to pay but failed to take into account.  D1 only admitted a sum of HK$5,901,605.66 as owing.   These are denied by the Plaintiff, who said that the Plaintiff had only agreed to lend HK$500,000 to D1.

10.  The writ was issued on 9 April 2014.  The Mareva Injunction Orderwas made by DHCJ B Chu (as she then was) on 11 April 2014.  It was continued and eventually amended on 29 February 2016.  It restrained D1 from disposing of his assets up to a value of the Balance and required him to disclose his assets up to the same value.

11.  D1 duly made disclosure.  He has a property at Fullview Garden, Siu Sai Wan, Hong Kong (“the Property”), held in the names of himself and Madam Chan.  He has shares in various listed companies and bank accounts. 

12.  On 25 July 2016, Master Hui gave part judgment to the Plaintiff in the sum of $5,901,605.66 (“Master Hui’s Order”).

13.  D1 took out the present summons for discharge of the Mareva Injunction Order.  By then, the Mareva Injunction Order has been in force for over 6 years; and the action has become dormant for about 4 years since Master Hui's Order.

Legal principles

14.  The Court can set aside a Mareva injunction where a plaintiff is guilty of delay in bringing an action on for trial: Hong Kong Civil Procedure 2020, Vol 1, §29/1/42; China Merchants Bank v I-China Holdings Ltd [2003] HKLRD 271, at §12 (where examples of discharge of injunction due to delay from 19 months to 3½ years were given).

15.  In China Merchants Bank, DHCJ Saunders (as he then was) held that delay was not the only factor for considering whether an injunction should be discharged.  Other factors included (§§10-11):

(1)     Whether the lapse of time was a result of a deliberate decision on the part of the plaintiff;

(2)     The length of time lapse and the explanation put forth by the plaintiff;

(3)     The degree of prejudice liable to be caused to the plaintiff if the injunction is discharged;

(4)     Whether the plaintiff has sought to rectify the position and proceed with the action or whether the lapse of time was still continuing at the time of the hearing;

(5)     The degree of prejudice caused to the defendant as a result of the lapse of time; and

(6)     Whether the defendant has, through his conduct, either caused the lapse of time or contributed to it.

Whether the Plaintiff’s delay in prosecution of this action was intentional

16.  I accept for the purpose of this application that Mr Chin was the person in charge of the affairs of the Plaintiff. He was the Chairman and director of the Plaintiff from 1 January 2010 to 30 June 2015; and from 14 June 2017 till now.

17.  Mr Chin was remanded in custody for the period of 1 September 2015 to 30 December 2016 for charges of conspiracy.  In between 12 February 2016 and 11 September 2018, he had had 32 mention hearings.  Save for the first 2, he had acted in person.  He was only acquitted on 26 June 2019.

18.  Mr Chin claimed that his involvement in the complex criminal proceedings and freezing of his and the Plaintiff’s assets have brought the Plaintiff to a complete halt.  His focus was on the criminal proceedings and he had no capacity to deal with this action.  His involvement in the criminal proceedings was not caused by his fault, as illustrated by the fact that he was granted costs after his acquittal.  In the premises, the Plaintiff submits that the delay in prosecution of this action was not intentional.

19.  However, D1 has demonstrated that this action was not affected by the criminal proceedings.  In between September 2015 and mid-January 2017 (ie for about 16 months when Mr Chin was not a director), the Plaintiff has proceeded with this action and taken out substantive steps, including (i) filing of 3 witness statements, (ii) taking out applications for enforcement of the disclosure order, (iii) summary judgment which led to Master Hui’s Order, and (iv) time extension for payment of an order for security for costs.  The Plaintiff had also attended 8 substantive hearings. Plainly, someone was looking after this action on behalf of the Plaintiff whilst Mr Chin was busy handling his criminal proceedings.

20.  Since mid-January 2017, this action has lain dormant for over 2 years before Mr Chin’s acquittal on 26 June 2019.  After that, there had been another 11 months before D1 issued the present summons.

21.  It was plain that the inaction on the Plaintiff’s part, at least since mid-January 2017 was inordinate and inexcusable.  The fact that D1 did nothing for about 3½ years did not undermine the delay of the Plaintiff. The first ground in opposition is not substantiated.

Plaintiff’s entitlement to freeze Madam Chan’s share in the Property

22.  The Plaintiff claimed that there was an agreement in 2019 between Mr Chin and Madam Chan (“2019 Agreement”) in the presence of D1 whereby Madam Chan agreed to sell the Property and apply the entire proceeds of sale to repay the debt due to the Plaintiff.  The Plaintiff then promised Madam Chan that, on that basis, Madam Chan would have discharged her liabilities and the Plaintiff would not join her as a defendant.

23.  The Plaintiff also claimed that D1 had, on 31 March 2014, admitted to Mr Chin that D1 had applied the trust money to discharge the mortgage of the Property and had given some money to Madam Chan.  The Plaintiff claimed that it would be in the interest of justice to determine if the Plaintiff has a proprietary interest over the Property and the extent of it before the proceeds of the sale of the Property are released to D1.

24.  For present purposes, even if the 2019 Agreement existed, it was not relevant as it was not alleged that D1 was a party to it.  D1 had shown that the mortgage in respect of the Property was discharged in 2013, well before commencement of this action. 

25.  Even if D1 had misappropriated the Plaintiff’s money to fund the purchase of the Property, the Mareva Injunction Order only applied to D1’s assets.  Despite Madam Chan being added as the 3^rd defendant 4 months after the writ was issued, there has never been an injunction order against her.  The statement of claim never made a proprietary claim over the Property.

26.  This action against Madam Chan stood dismissed on 18 January 2017 as the Plaintiff was unable to meet an order for security for costs in her favour.  Although the Plaintiff’s counsel suggested that the Plaintiff can undertake to join Madam Chan as a party within 2 weeks, the Plaintiff has taken no step as yet. 

27.  The second ground in opposition is unsubstantiated.

Prejudice to D1

28.  To continue the Mareva Injunction Order would prejudice D1.  Not only will there be an action hanging over his head but interests will continue to accrue under Master Hui’s Order.   The Plaintiff has not shown that D1 has other assets that could be restrained in accordance with the Mareva Injunction Order or that could be applied to meet Master Hui’s Order.  D1 has not contributed to the delay. 

The proper order to make

29.  The Mareva Injunction Order should be discharged in principle despite the fact that the total disclosed assets cannot even satisfy Master Hui’s Order.

30.  However, this is a claim in fraud/conspiracy against D1 and part judgment has already been entered.  Under no circumstances should assets that form the subject matter of the Mareva Injunction Order fall into the hands of D1 until judgment debts are satisfied. 

31.  Accordingly, I give leave to sell the Property and the shares, but I direct that any proceeds of sale should be handled directly by D1’s solicitors without going through the hands of D1.

32.  The Plaintiff is concerned that the Property, being a property under the Housing Authority, might be subject to a restriction against alienation or a premium has to be paid upon sale.  However, the Property has been acquired for 27 years by now and the mortgage has been cleared.  To address the Plaintiff’s concern, I direct the parties to agree upon a reserve price for sale, failing which the Court will decide it for them.

33.  The Plaintiff is concerned with the value of the shares and submit that there should be a time frame in which to sell the assets.  D1 does not oppose. I therefore direct that a copy of this order be served on the Bank of China and that the shares be sold within 14 days of such service.  Bank of China shall release the net proceeds of sale to D1’s solicitors directly.

34.  Upon compliance with the terms of variation, D1’s solicitors shall inform the Court by letter, copied to the Plaintiff.  The Court will deal with the formal discharge of the Mareva Injunction Order on paper without the need for an oral hearing.  This will give certainty to the parties as to when the Mareva Injunction Order shall end.

35.  A sum of not more than $11,600 shall be retained out of the net proceeds of sale of the Property and the shares solely for costs of D1’s solicitors for implementing this order (which shall not include costs of conveyancing or costs of this summons) pursuant to paragraph 1 of the Exceptions to the Mareva Injunction Order.

36.  Since D1 is successful in this application, I make an order nisi that the Plaintiff should bear the costs of D1 for this summons, summarily assessed at $140,000. 

37.  On the bases set out in paragraphs 29 to 36 above, I make an order in terms of the draft order submitted by D1 as amended.

38.  I thank counsel for their assistance.