China Metal Recycling (Holdings) Ltd (in Liquidation) and Another v. Chun Chi Wai and Others

HCA 1412/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1412 OF 2013

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JUDGMENT

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INTRODUCTION

1.There are two applications before the court:

(a)   the application of the plaintiffs (P1 and P2) for continuation of the order of DHCJ Yee made on 22 August 2016 (“the Amendment Order”)[1] until further order;[2] and

(b)   the application of the respondents (R1‑R3, collectively “Rs”) for discharge or alternatively variation of the Amendment Order.[3]

2.The Amendment Order is about the following two Mareva injunctions previously made and then amended by other judges:

(1)   the order first made by Tong J on 30 July 2013[4](“Tong Order”) against D1‑D12 in the main action, which was subsequently amended by DHCJ Geiser[5] and by Ng J;[6] and

(2)   the order first made by DHCJ Geiser on 7 August 2013[7] (“Geiser Order”) against D13 in the main action, which was subsequently amended by Ng J.[8]

3.As far as the present applications are concerned, the effects of the Amendment Order are twofold:

(i)   to extend the Mareva injunctions against D1 and D13 to R1‑R3 as third parties, so that R1‑R3 are not allowed to dispose of or deal with or diminish the value of the assets belong to D1/D13 or which D1/D13 has the power to direct, dispose of or deal with.  In particular, R1 is restrained from dealing with a London property (“the Property”) or its proceeds; and

(ii)   to require R1‑R3 to make disclosure in respect of the Property in particular and also generally other assets held by them since 30 July 2013 on behalf of D1/D13 or administered or dealt with by them in accordance with D1’s/D13’s instruction or acquired with funds provided by or derived from D1/D13.[9]

There are provisions in common in Tong Order and Geiser Order extending/elaborating on the scope of the assets under restraint and in respect of which R1‑R3 are required to make disclosure.  Apart from the extended Mareva injunctions obtained in Hong Kong, Ps have also obtained an English ancillary order[10] against R1‑R3 in substantially the same scope as the Hong Kong orders which remains in place to date.

4.Rs are the daughters of Mr Chun Chi‑wai (D1). D1 is the former chairman and CEO of P1.  He has jumped bail, resulting in forfeiture of his bail money.  Mrs Chun, his wife and Rs’ mother, I am told, has been charged by the police in relation to the massive fraud allegedly committed by her and her husband.  However, the criminal case is still at an early stage and no trial dates have been fixed.  Rs are all university students now studying full time in London.

5.The Property, which is subjected to the freezing orders, is a luxurious apartment situated in Central London registered in the sole name of R1 which was purchased in cash (GBP 1.8 million) in late February 2014 without any mortgage.  As aforesaid, there are also substantial amounts of cash held respectively in Rs’ respective bank accounts in UK and in Hong Kong.[11] So far as it is relevant to the present applications, the current position is that:

(i)   Rs are not allowed to in any way dispose of, deal with or diminish the value of any assets of D1 and D13 (a company which he allegedly controlled) subject to a cap of HK$1,682,198,420, which is also the amount Ps are claiming against D1 and D13;

(ii)   R1‑R3 are allowed to live in the London Property; and

(iii)   each of R1‑R3 is allowed GBP 48,000 a year on tuition and living expenses and another GBP 25,000 on legal advice and representative.

THE ISSUES

6.It is not in dispute that Rs, being full time students either in their young adulthood or late teen, do not have financial resources of their own.  The factual dispute between the parties is about the source of the purchase price of the Property and the substantial amounts of cash in the Rs’ bank accounts.  Rs’ case is that their assets were provided by Mrs Chun and their paternal grandmother (Madam Qin) which had nothing to do with Mr Chun.  On the other hand, it is Ps’ case that both Mrs Chun and Madam Qin are in fact nominees of Mr Chun and that any money which they might have provided to Rs was in fact property from or related to Mr Chun and therefore should also be subject to the various injunctions which have already been imposed.

7.Apart from the factual disputes, R1‑R3 also raised two legal issues.  Firstly, they argue that the restraint and duty of disclosure imposed on them by the Amendment Order are wilder in scope than what is supported by the relevant case authorities.  In respect of the freezing order against them, they ask that the following be struck out:

(a)   §1.5: the words “or assets acquired through the use of funds provided by or deriving (directly or indirectly) from [D1/ D13]”; and

(b)   §1.6 in its entirety, namely: “For the purpose of paragraph 1.5, [D1’s/D13’s] assets include any asset which [he/it] has the power, directly or indirectly, to dispose of or deal with as if it were [his/its] own.  [D1/D13] is to be regarded as having such a power if a third party (including the Respondents or any one of them) holds or controls the asset in accordance with [his/its] direct or indirect instructions”.

8.Secondly, for the same reason, R1‑R3 also ask that the following part of the consequential Disclosure Orders be either discharged or struck out:

“or administered by them or dealt with by them in accordance with [D1’s/D13’s] direct or indirect instructions or acquired through the use of funds provided by or deriving (directly or indirectly) from [D1/D13]”[12]

9.Thirdly, R1‑R3 argue that the remainder of Tong Order and Geiser Order against them are defective in that they require Rs to ascertain for themselves whether the assets they held in fact belong to D1 or D13.  The task, it is submitted, is “impossible” for Rs.  It is further submitted that two Orders fall foul of being unclear by making reference only to the “assets of [D1/D13]” without identifying those assets with precision so that “everyone should know exactly what acts are prohibited by the injunction”.

THE RELEVANT LEGAL PRINCIPLES

10.Rs are not parties to the main action.  The extended Mareva injunctions against them were sought on Chabra basis, following the decision in TSB Bank International v Chabra.[13]

11.The relevant legal principles are well‑established.  The threshold for the exercise of Chabra jurisdiction is where there is “good reason to suppose” that the assets of the third party are, in truth, the assets of the injuncted defendant.  In such cases, the Chabra jurisdiction will be exercised where it is “just and convenient” to do so.  The court is not obliged to discharge the injunction on the mere say‑so of the third party: SCF Finance Co Ltd v Masri.[14]  However, this jurisdiction is exceptional and should be exercised with caution, taking care that it should not operate oppressively to innocent third parties who have not acted to frustrate the administration of justice.  The ultimate test is always whether there is good reason to suppose that the assets would be amendable to execution of a judgment obtained against the defendant in the main action: see XY, LLC v Jesse Zhu & Anor[15] citing with approval Paul Cardile v LED Building Proprietary Ltd.[16]

12.“Good reason to suppose” in this context means a good arguable case that there are assets, apparently vested in the third party, which may be beneficially the property of the defendant and therefore available to satisfy the plaintiff’s claims against him if established at trial.  The plaintiff does not need to demonstrate a balance of probabilities.  A good arguable case is “one 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”: Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft GmbH.[17]

13.As to the scope of assets that can be subject to Chabra jurisdiction, it is not limited to cases where the assets to which the defendant is beneficially entitled can be specifically identified in the hands of the third party; once the court is satisfied that there are such assets in the possession or control of the third party, the court could make an order over the third party’s assets up to the amount of the defendant’s assets of which the third party appears to have possession and control: see Yukong Line Ltd v Rendsburg Investments Corp.[18]

BACKGROUND

14.Before dealing with the issues, it is pertinent for me to make reference to the history of the case, which is lengthy and protracted, insofar as it is relevant to the present proceedings.

15.There have already been many court proceedings before various judges.  A narrative of it is neatly summarised by DHCJ Judge Yee,[19] which I gratefully adopt as follows:

“3. China Metal Recycling (Holdings) Limited (“China Metal”) is now in compulsory liquidation. It was incorporated in the Cayman Islands with its principal place of business situated in Hong Kong. It is the holding company of a number of subsidiary companies in the PRC, Macau, Taiwan, Singapore, Hong Kong and the British Virgin Islands (“the China Metal Group”). The China Metal Group carried on a worldwide trade in scrap metal with the major operations being vested in the subsidiaries in the Mainland.

4. Central Steel (Macao Commercial Offshore) Limited (“Central Steel”) is also in compulsory liquidation. It was incorporated in Macau and was purportedly the sourcing arm of the China Metal Group.

5. The scrap metal recycling business of the Group was said to be on a grand scale in the Mainland. On 22 June 2009, the shares of China Metal were listed on the Main Board of the Hong Kong Stock Exchange and about HK$1,685 million was raised by the initial public offering.

6. Mr Chun and Madam Lai, husband and wife, founded the China Metal Group. Mr Chun was the Chairman and CEO of China Metal and its controlling shareholder.

7. The investigation of the Securities and Futures Commission (“SFC”) in late 2009 lifted the lid on the alleged misdeeds of Mr Chun and Madam Lai leading to the present proceedings. The SFC found out that Mr Chun had committed fraud on a massive scale on China Metal, Central Steel and the Stock Exchange. As a result, more than HK$5 billion were misappropriated from these two companies mainly by means of a number of fictitious transactions over the years with the assistance of all other defendants.

8. On 26 July 2013, in a winding-up petition commenced by SFC under HCCW 210/2013, Mr Borrelli and Ms Chi were appointed provisional liquidators in respect of China Metal and on 8 August 2013, they were appointed provisional liquidators in respect of Central Steel.

9. On 30 July 2013, the provisional liquidators obtained an ex parte Mareva injunction against Mr Chun and Madam Lai and all other defendants in this action except Wellrun Limited (“Wellrun”) up to the value of HK$1,682,198.420.  Wellrun, a corporate vehicle of Mr Chun, was joined as the 13th defendant in this action and an ex parte Mareva injunction in respect of the like amount was granted against Wellrun on 7 August 2013.

10. On 4 June 2014, Ng J extended the Mareva injunctions to 13 companies which Mr Chun allegedly held substantial assets through his relatives and close associates.  Among these companies, the three daughters of Mr Chun own Chung Shing Finance Holding Limited (Belize) (“Chung Shing Belize”), which holds Chung Shing Development Pte Limited (Singapore) and Chung Shing Investment Pte Ltd (Singapore), the second respondent (“R2”). R2 holds Chung Shing Finance (Holdings) Limited (HK), the 1st respondent (“R1”).  R1 holds 4 PRC subsidiaries which include the 4th respondent (“R4”), Zhongjin Goldman (Jiangsu) Investment Co Ltd (“the Jiangsu Company”), the 3rd respondent (“R3”) and the 5th respondent (“R5”).

11. The provisional liquidators allege that Wellrun purportedly loaned a sum of US$82 million to R1.  The purported loan was transferred to R3 and the Jiangsu Company subsequently.  As mentioned, Mr Chun’s three daughters have become the shareholders of Chung Shing Belize.  The purported loan is suspect.

12. On 26 February 2015, Harris J ordered that China Metal be wound up.  On 14 May 2015, Mr Borelli and Ms Chi (hereinafter “the Liquidators”) were appointed as liquidators in respect of China Metal and on 10 July 2015 in respect of Central Steel. 

13. In the present action, China Metal and Central Steel (hereinafter collectively “Ps”) claim against both Mr Chun and Madam Lai for an indemnity for any claims against China Metal arising from the IPO, equitable damages and/or compensation for breach of trust and/or fiduciary duty and /or damages for conspiracy.  They also claim against Wellrun for an identical indemnity and equitable damages and/or compensation for dishonest assistance and/or damages for conspiracy.

14. Default judgment has been entered against the 3rd, 4th, 7th 8th, 9th and 10th defendants.  The 5th defendant has been debarred from defending this action pursuant to the order of Saunders, J dated 25 June 2014. Ps discontinued this action against the 11th and 12th defendants.

15. On account of their failure to comply with the disclosure obligations in aid of the Mareva injunctions despite its being enforced by the unless order of Chow J dated 17 November 2014, DHCJ Anita Yip SC ordered that the defence of Ds be struck out without entering default judgment against them on 12 October 2015.

16. On 5 February 2016, DHCJ Keith heard and disposed of an inter partes application of Ps for an appointment of interim receivers (“the 1st Receivership Application”) over the assets of five company respondents.[20]  [C1‑C5] The deputy judge accepted that there is a triable issue over whether the liquidation of the Jiangsu Company and the current whereabouts of its assets were deliberately concealed from the Liquidators and whether the Mareva injunctions were breached.

17. The deputy judge also accepted that there is a triable issue as to whether there is a risk that there will be further breaches of the Mareva injunctions unless drastic action of some kind is taken.  The deputy judge opined that the appointment of interim receivers over the assets of [C1], [C2] and [C5] would be a proportionate response to the need to protect the assets of the Jiangsu Company from further dissipation subject to the personal undertaking of Mr Fung who is a certified public account in his executive control of the relevant respondents that he would ensure none of their assets would be disposed of in breach of the Mareva injunctions.  On that basis, the deputy judge agreed to place trust in Mr Fung and adjourned the 1st Receivership Application so that it could be renewed at the same time as the application as against the [C3] and [C4] which Ps had not been able to effect service of their summons.”

16.In respect of the shares of Chung Shing Belize (which ultimately controlled the company which had received US$82 million from D13) mentioned at §10 of the judgment of DHCJ Yee above, the daughters (R1‑R3) have given an undertaking to the court not to deal with those shares or to do anything to diminish the value of their shareholding.[21]  The daughters’ case, which was based on an affirmation given by their mother, was that the shares were a “secret gift” from their father which they had not even known about.[22]

CONSIDERATION ON LEGAL ISSUES

As to the scope of restraint

17.Ms Sit, counsel for Ps, argues that Chabra jurisdiction can be exercised in situations where the defendant, even without any legal or equitable right to the assets (in the strict trust law sense), has some right in respect of, or control over, or other rights of access to, the assets.  In other words, as long as he has “substantive control” over the assets that would suffice.  References are made to Dadourian Group International Inc v Azuri Ltd[23] and Akai Holdings Ltd (in liq) v Ho Wing On Christopher.[24]

18.Ms Sit’s above submission is on its face attractive.  However, a closer reading of the relevant parts of Dadourian and Akai shows that they do not in fact support her broad proposition that “substantive control” of itself is sufficient to invoke Chabra jurisdiction, nor was the point appeared to have been argued at any length in the two cases she relies upon.  What the two cases have decided is that “substantive control” is an important consideration and that Chabra jurisdiction “can be” exercised where a defendant is shown to have “substantive control” over the assets held by a third party.  I note, however, that in Akai, Tang VP (as he then was), giving the judgment of the Court of Appeal, said,

“48. It is true that there is as yet no claim made against Accolade, although one cannot rule out the possibility of a claim against Accolade on the basis that if Accolade was indeed the beneficial owner of the Ho Family Trust, Mr Ho acted as its servants or agent in the alleged fraud. However, for the present purpose, it is sufficient if there is good reason to suppose that Mr Ho has substantive control over the Ho Family Trust Assets. The nature and degree of control may have to be investigated in due course. (Mr Kosmin suggested as a possibility, in execution of judgment.) It is sufficient for the present purpose that for all intents and purposes, Mr Ho has represented to the whole world that he was the beneficial owner of the trust. Also notwithstanding the assertion that Accolade and its directors actually managed and controlled the trust, there has been no explanation how it was that the trust was silent all these years about Mr Ho’s representation that he was the beneficial owner of the trust. These may have to be properly investigated in due course.” (Emphasis supplied)

By emphasizing twice “for the present purpose” in the above paragraph, it is obvious that Tang VP was not laying down any general principle that “substantive control” would in all circumstances be sufficient.   In my humble view, what Tang VP was saying that in the factual context of the case before him, “substantial control” would be sufficient for invoking Chabra jurisdiction against Accolade (a third party), which was the trustee of the Ho Family Trust, when, Mr Ho had represented to the whole world that he was the beneficial owner of the trust and the latter had kept silent about it.

19.That said, I have no difficulties with the proposition that in a suitable factual situation “substantial control” by a defendant of the asset of a third party may well be a factor, or even a strong factor, in favour of the inference that the asset in fact belongs to the defendant.  I also have no difficulty that Chabra jurisdiction can also be invoked even in cases where a defendant does not have some sort of proprietary entitlement over the asset of a third party.  As said in Paul Cardile v LED Building Proprietary Ltd,[25]

“What then is the principle to guide the courts in determining whether to grant Mareva relief in a case such as the present where the activities of third parties are the object sought to be restrained?  In our opinion such an order may, and we emphasise the word “may”, be appropriate, assuming the existence of other relevant criteria and discretionary factors, in circumstances in which:

(i) the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including “claims and expectancies”, of the judgment debtor or potential judgment debtor; or

(ii) some process, ultimately enforceable by the courts, is or may be available to the judgment creditor as a consequence of a judgment against that actual or potential judgment debtor, pursuant to which, whether by appointment of a liquidator, trustee in bankruptcy, receiver or otherwise, the third party may be obliged to disgorge property or otherwise contribute to the funds or property of the judgment debtor to help satisfy the judgment against the judgment debtor.

It is that principle which we would apply to this case. Its application is a matter of law, although discretionary elements are involved.”

20.On the other hand, there are clear case authorities that “substantial control” is not the test for Chabra.  In PJSC Vseukrainskyi Aktsionernyi Bank v Maksimov,[26] which was cited with approval in XY, LLC v Jesse Zhu & Anor, Popplewell J said at §32:

“(5) Substantial control by the CAD[27] over the assets in the name of the NCAD[28] is often a relevant consideration, but substantial control is not the test for the existence and exercise of the Chabra jurisdiction. Establishing such substantial control will not necessarily justify the freezing of the assets in the hands of the NCAD. Substantial control may be relevant in two ways. First, evidence that the CAD exercises substantial control over the assets may be evidence from which the court will infer that the assets are held as nominee or trustee for the NCAD as the ultimate beneficial owner. Secondly, such evidence may establish that there is a real risk of dissipation of the assets in the absence of a freezing order, which the claimant will have to establish in order for it to be just and convenient to make the order. But the establishment of substantial control over the assets by the CAD will not necessarily be sufficient: a parent company may exercise substantial control over a wholly owned subsidiary, but the principles of separate corporate personality require the assets to be treated as those of the subsidiary not the parent. The ultimate test is always whether there is good reason to suppose that the assets would be amenable to execution of a judgment obtained against the CAD.” (Emphasis supplied)

As a matter of stare decisis, I am bound by XY, LLC v Jesse Zhu & Anor which is a judgment of the Court of Appeal directly on point.

21.I now turn to the relevant parts of the injunctions which are challenged by Mr Mok.  For the sake of convenience, they are reproduced below, with the parts objected to under this ground underscored.

1.5   Subject to the monetary value of HK$1,682,198,420 capped at paragraph 1.1 above, the 1^st to 3^rd Respondents (“Respondents”) and each of them (whether acting by herself and/or through others howsoever, including but not limited to her agents and/or nominees and/or servants) must not in any way dispose of or deal with or diminish the value of any assets of [D1/D13].  This applies to all of the assets of [D1/D13] whether or not they are in his name, whether they are solely or jointly owned and whether he is interested in them legally, beneficially or otherwise (which for the avoidance of doubt and without limitation includes assets held by any one or more of the Respondents as nominee or trustee for [D1/D13] or assets acquired through the use of funds provided by or deriving (directly or indirectly) from [D1/D13]).

1.6   For the purpose of paragraph 1.5, [D1’s/D13’s] assets include any asset which [he/it] has the power, directly or indirectly, to dispose of or deal with as if it were [his/its] own.  [D1/D13] is to be regarded as having such a power if a third party (including the Respondents or any one of them) holds or controls the asset in accordance with [his/its]direct or indirect instructions.

22.The parts underscored above can be divided into three broad categories:

(i) assets acquired through the use of funds provided by D1/D13;

(ii) assets which D1/D13 has the power to dispose of or deal with as his/its own; and

(iii) assets held in accordance with the instructions of D1/D13.

23.I fully accept the proposition that the above three categories are capable of being important pointers to the existence of good reasons to suppose that the assets under consideration are amenable to the execution of a judgment obtained against D1/D13.  However, applying XY, LLC v Jesse Zhu & Anor, the categories are not in themselves the test for invoking Chabra jurisdiction.  In particular, whilst Category (i) is capable of giving rise to the inference that the asset under consideration in fact belongs to D1/D13, in my view a distinction should be drawn between a piece of evidence adduced for proving a certain matter and the matter itself.  As regards Categories (ii) and (iii), with respect, they are different ways of saying that the asset under consideration is subject to the “substantial control” of [D1/D13].  Insofar as Clauses 1.5 & 1.6 seek to equate an asset falling within the three categories to an asset of D1/D13, this, with respect, is incorrect in view of PJSC Vseukrainskyi Aktsionernyi Bank v Maksimov and XY, LLC v Jesse Zhu & Anor.

24.Given my view that as a matter of law assets falling within any of the three categories above are not necessarily amenable to execution of a judgment obtained against D1/D13, I do not think that the presence of the words underscored about can be justified on the basis that assets falling within them may turn out to be so amenable.  In my view, since the breach of an injunction may lead to penal consequences, it is imperative that its terms should comply strictly with the law.

25.In the circumstances, I accept Mr Mok’s submission that those parts in Clauses 1.5 & 1.6 underlined above have gone beyond what is permitted pursuant to Chabra jurisdiction and should therefore be struck out from the extended Mareva injunctions.

As to the injunctions as a whole

26.Mr Mok submits that the remainder of the injunctions are defective in that they fall foul of the principle that an injunction must identify the assets with precision so that “everyone should know exactly what acts are prohibited by the injunction”. It is submitted that it is no good for a freezing order to prohibit a third party from dealing with the assets of the defendant, leaving it to the third party to find out for himself what those assets might be.  In the present case, so far as R1‑R3 are aware, the funds in their bank accounts were from their mother and grandmother.  Given such state of their knowledge, it would have been impossible for R1‑R3 to identify any of the monies in their respective bank accounts as constituting the assets of D1 or D13.

27.In reply, Ms Sit draws my attention to the following passage from Dadourian,[29] which I respectfully agree:

“Since the purpose of granting such an injunction against the co‑defendant was to preserve the assets of the principal defendant so as to be available to meet a judgment against him, the form of order made against the co‑defendant should be as specific as the circumstances permitted in respect of the principal defendant's assets of which the co-defendant had possession or control. Thus, generally, the form of injunction would be tailored to that purpose and should be no wider than was necessary to achieve it. However, subject to that requirement, if a co‑defendant was mixed up in an attempt to make the principal defendant judgment‑proof and the assets or their proceeds were not readily identifiable in his hands it was open to the court, where it was just and convenient to do so, to make an order which caught the co-defendant's general assets up to the amount of the principal defendant's assets of which he appeared to have possession and control. That was, in fact, the position in Chabra (TSB Private Bank International SA v Chabra [1992] 1 WLR 231) itself.” (Emphasis supplied)

28.Applying the above passage to the present case, I am unable to accept Mr Mok’s submission that the remainder of the freezing orders against R1‑R3 (ie after deleting the words underscored as discussed above), is defective.  My reasons are as follows:

(a)   As aforesaid, R1‑R3 are young and do not have business or financial resources of their own. Therefore, the inference is that nearly all they have were given to them by their close relatives.  A further inference can be drawn that they should know where their assets come from.

(b)   In any event, since there is nothing to suggest that R1‑R3 have received any substantial assets from anyone other than their parents (D1 and Mrs Chun) and their grandmother (Madam Qin), the possible sources of the respondent’s assets are very limited.  The task for R1‑R3 to ascertain the source of their assets is therefore not “impossible”.

(c)   However, as can be seen in the later discussion, there are at least good reasons to suppose that even Mrs Chun and Madam Qin are nominees of D1.

(d)   The incident about the alleged “secret gift” of the shares of Chung Shing Belize mentioned above speaks volumes that D1 had used Rs to hold shares which were worth as much as US$82 million.  That, coupled with the fact that Rs are D1’s daughters and therefore would be trusted by him, in my view gives rise to at least goods reasons to suppose that D1 would also have used them to hold other assets for him.

(e)   Mr Mok submits that it would be “wholly unreasonable to expect the Daughters to be able to second-guess” what their mother told them were the sources of their funds.  With respect, that is not a reason not to make a freezing order against Rs if there are good reasons to suppose that their assets are amenable to execution of a judgment obtained against D1/D13 and that it is just and convenience that a freezing order be made against Rs pending the outcome of the Masri procedure. In this regard, I note that it is Rs’ case that the shares of Chung Shing Belize were transferred to them without them knowing about it.  Despite their alleged lack of knowledge, they have still given an undertaking to the court not to deal with those shares.  There is little dispute that but for Rs’ undertaking to the court, a freezing order would have been made.   

29.Based on the above, given what my view is about the sources of Rs’ assets in the discussion below, I can see no objection to the making of an order which catches the general assets of Rs up to the amount of D1 of which they appear to have possession and control.  Rs are only students and they do not require any money for doing business.  There is nothing to suggest that the present levels of allowances given to R1 R3 for their tuition fees and living expenses on the one hand and legal fees on the other are insufficient for their purpose.  The freezing orders, after removing the parts underscored as discussed about, are not in my view objectionable.

As to scope of disclosure order

30.Clause 2.7(a) of Tong Order and Clause 2.3(a) of Geiser Order are similarly phrased.  Again, for the sake of convenience, they are reproduced as below with the part objected to under this ground underscored:

“all assets with a value of HK$50,000 or more which have at any time since 30 July 2013 been held by any one or more of the Respondents on behalf of [D1/D13], or administered by them or dealt with by them in accordance with [D1’s/D13’s] direct or indirect instructions or acquired through the use of funds provided by or deriving (directly or indirectly) from [D1/D13], giving the current value, location and details of all such assets and the manner in which they have administered or dealt with the same.”

31.In considering whether the words underscored above should be struck down or varied, I bear in mind that disclosure of assets is a necessary adjunct of a freezing order to make it effective.  I also bear in mind the general principles stated in Pacific King Shipping Holdings Pte Ltd v Huang Ziqiang.[30]  Jeremy Poon J (as he then was), giving the judgment of the Court of Appeal, noted that the main underlying consideration for ordering disclosure is to prevent abuse by the defendant to frustrate or defeat the very purpose of the Mareva injunction.  Absent any evidence of abuse such as non-compliance with the Mareva injunction, the court will normally refuse to order further disclosure in addition to the standard disclosure.  His Lordship also quoted with approval a passage from Gee on Commercial Injunction (5^th ed) that there are situations where the court would order disclosure against a third party, eg there may be an issue as to whether certain assets belong beneficially to the defendant, and therefore should be subject to a Mareva injunction, or information may be needed to enable the court to formulate injunctions against several defendants in appropriate terms, as in A v C (No 1),[31] or to make a Mareva injunction fully effective (eg by enabling the court to specify particular assets in the order which can then be notified to non-parties holding the defendant’s assets).  It may be that information is needed because the defendant cannot be relied upon to obey the court order and it is necessary to take steps to preserve the assets in the hands of non‑parties.[32]

32.I am alive that the power to order disclosure, if too readily resorted to, could easily become an oppressive procedure especially in case of a third parity.  Therefore, this court must strike a balance between what Ps would reasonably require as against the need to avoid making an order that was unreasonable, unnecessary or oppressive.

33.Having considered the written and oral submissions from both sides, I am of the view that the present case is very unlike the situation in Pacific King Shipping Holdings and that the underlined part of the disclosure order against R1‑R3 above is not objectionable in that it has not gone beyond the ambit of the associated freezing orders and is no more than what is necessary in order to make the underlying Mareva injunction effective.  My reasons are as follows:

(a)   There have already been many occasions where D1 had apparently attempted to frustrate or defeat the Mareva injunction against him, a prime example of which is the US$82 million worth of “secret gift” which he had allegedly given to R1‑R3.  D1 has denied knowing the current whereabouts of the residual sums of the US$82 million.[33]

(b)   There is substantial evidence before the court that D1 cannot be relied upon to obey court order and it is necessary to take steps to preserve the assets in the hands of non-parties.  In fact, the non‑compliance by D1/D13 with the unless order imposed by Chow J has already caused their defence to be struck out.[34]  Their appeal against the striking‑out has recently been dismissed by the Court of Appeal.[35]

(c)   There is also substantial evidence before the court of D1’s habitual practice to use members of his family as nominees.[36] 

(d)   There is an issue as to whether the assets of R1‑R3 in fact belong beneficially to D1/D13 and therefore should be subject to a Mareva injunction.[37]

(e)   Ps are not seeking to have a tracing remedy as if in a proprietary claim.  Ps, by the disclosing order made against R1‑R3, are simply seeking to ascertain whether there are other assets (not yet known to Ps) which R1‑R3 are holding for D1/D3 which should also be subject to the associated freezing orders.  Information pertaining to the words underscored above in the disclosure order is plainly relevant to and necessary for Ps’ enquiry and is necessary for prevention of abuse by D1/D13.[38]

(f)    Rs are only required to make disclosure of assets with a value of HK$50,000 or more relating to D1/D13 and there is also a time restriction from 30 July 2013.  The burden on them is reasonable.

34.In the circumstances, I refuse R1‑R3’s application to strike out or varied the disclosure orders made against them.

MRS CHUN & MADAM QIN

35.Evidence has been filed, in the form of an affirmation from Mrs Chun,[39] on behalf of R1‑R3 which purports to explain that Mrs Chun and Madam Qin were the sources of the purchase price of the Property and the funds in the bank accounts of R1‑R3.  In particular, Mrs Chun explained that the purchase price of the Property and the funds in Rs’ bank accounts came mainly from the following:

(a)   the proceeds (HK$18.5 million) of sale on 28 March 2013 of a property belonging to Mrs Chun’s company (Whampoa) which she then tried to transfer to R1’s UK account on 7 August 2013;

(b)   a loan (RMB 24.49 million) dated 20 September 2013 secured by the mortgage[40] of Mrs Chun’s Shanghai property which loan proceeds she claims to have gifted to R1‑R3; and

(c)   a cash transfer of GBP 749,993 from Madam Qin to R1 on 22 August 2014 which sum is said to be the proceeds of sale of Madam Qin’s property in 2013.

36.On the other hand, Ms Chi, one of the joint and several liquidators, has filed a lengthy affirmation giving a detailed rebuttal of the version given by Mrs Chun.

37.Ms Sit, in her very helpful written and oral submissions, has given a plethora of reasons as to why this court should reject what Mrs Chun said in her affirmation.  In my view, the reasons given by Ms Sit are valid ones.  For present purpose, it suffices for me to name just a few of them:

(a)   It is plain that neither Mrs Chun nor Madam Chun would have been in a position to gift away such substantial amounts of cash to Rs:

(i)   as regards Mrs Chun, if what she says about her means (HK$250,000 per annum, which ceased from August 2013 onwards)[41] and assets (which amount to about HK$4.75 million) were true,[42] then she would be unable to meet her living expenses (running at HK$344,000 per month)[43] and the legal fees of her family, including those of D1 and Rs;[44] and

(ii)   as regards Madam Qin, by way of background, she is said to be a retired worker employed by the Environmental Bureau in Guangzhou.[45]  After that, she was on the payroll of GAS Property Ltd with a monthly salary of a mere RMB 3,000.[46]  Although she is the shareholder of the Asia Steel group of companies, Ng J has already held[47] that there are good reasons to suppose that she held those shares (and their assets) as nominee for D1, such that his Mareva injunctions should be extended to over those companies and assets.  There has been no appeal from Ng J’s order.  As to the assertion that Madam Qin is a skilled investor, there is evidence that she held her trading account as a nominee for D1.[48]

(b)   As regards Mrs Chun’s company, Whampoa, D1 was one of its initial shareholders and directors.  D1 resigned as director and assigned his shares to Mrs Chun only on 2 December 2008 at the eve of the IPO of P1.[49] However, Whampoa had been used to receive and defray payments on behalf of D1 as a matter of course.  As regards the Whampoa property, all mortgage payments came either from the company or D1.  D1 even repaid on Whampoa’s behalf its book debts owed to Mrs Chun.  Conversely, there is no evidence that Mrs Chun ever contributed to the purchase price of the Whampoa property and/or paid any sum in discharge of the mortgages.[50]  The way in which the proceeds of the sale of the property were transferred is also highly suspicious.  The proceeds were originally transferred to Mrs Chun’s UK bank account in June/July 2013.  On 26 July 2013, the SFC presented a petition against P1.  On 30 July 2013, a Mareva injunction was granted against Mrs Chun with a disclosure order requiring her to disclose all her assets within 48 hours.  However, she did not file her disclosure affirmation until 8 August 2013 and when she did that the disclosure affirmation did not contain any information about her attempted transfer to R1 of GBP 1.6 million the day before on 7 August 2013.[51]  It is noted, however, that R1, as a student, would not be in need of such a huge sum of money at the time, as the pre-sale agreement for the Property only entered into by R1 in late February/March 2014.  All of the above, in my view, give rise to at least good reasons to suppose that Mrs Chun had been acting as D1’s nominee as regards the affairs of Whampoa and that the GBP 1.6 million which she subsequently transferred to R1 was in fact D1’s money which D1 sought to hide from the liquidators.

(c)   As regards the Shanghai property, Mrs Chun in her affirmation filed for the present purpose is silent as to the source of funds used to acquire it.  She does not say that the Shanghai property or the source of funds was a “gift” to her or admit that they were derived from D1.  In D1’s own case, however, he said that the Shanghai property was in fact paid by him.[52] Concerning the alleged mortgage loan from one “Chen Min Dai”, the mortgage was never registered.  This stands in stark contrast with the Guangzhou property the mortgage of which was registered.  The lack of registration of the Shanghai loan casts grave doubt on its genuineness, especially in view of the allegedly large amount involved.  Regarding the alleged loan proceeds, Mrs Chun asserted that she had kept part of the money (HK$12.7 million) in cash in Hong Kong which she later remitted to her daughters with the help of moneychangers.  The notion that Mrs Chun would have kept such a large sum in cash is suspicious to say the least.  Moreover, there is no documentary proof linking the alleged mortgage loan with the transfers to R1‑R3.  On the other hand, her assertion about the use of moneychangers in effecting the transfers makes little sense, as both her and her daughters have bank accounts with the same bank (ie HSBC) in UK and she had regularly made direct transfers from her bank account to theirs.  All in all, what Mrs Chun says about the alleged mortgage loan is on its face so beset with difficulties that for present purpose I can hardly attach any weight to it.

(d)   Out of the GBP 1.6 million which Mrs Chun transferred to R1 in August 2013, GBP 140,000 was not traceable to the proceeds of sale of the Whampoa property.[53]  Mrs Chun has failed to explain the source of those GBP 140,000 in her affirmation filed for the present hearing.[54]

(e)   As regards the money allegedly came from Madam Qin, as discussed above, there are in my view strong reasons to doubt that she was in fact a person of substantial means.  There are also no bank statements or other documents to show her total assets.  On the other hand, it was apparent that the PRC property, which she said she had realised with a net gain of just under RMB 10 million in August 2013, had been the only property in her name as she had since lived in the Guangzhou property of Mrs Chun.  And yet, on 22 August 2014, which was a year after the sale, she remitted GBP 749,993 to R1.  There was no documentary proof linking the same sale with the transfer.  Besides, one would doubt why R1, still a full time student, would need such an amount of cash at the time.  In all the circumstances, including the aforesaid evidence which points to Madam Qin being a nominee of D1, there is in my view at least good reasons to suppose that the money she remitted to R1 was in fact D1’s money.

(f)   There were two payments into R1’s bank account of HK$1.4 million[55] and HK$200,000[56] which have not been satisfactory accounted for.  Although R1 asserts that those were from Mrs Chun, as pointed out by Ms Sit (i) there are no documentary proof of that, when those documents could have been easily obtained; and (ii) even Mrs Chun in her affirmation has not corroborated those bare assertions of R1.

38.In all the circumstances, I am satisfied that Ps have shown that there are at least good reasons to suppose that the Property as well as the funds in Rs’ bank accounts in Hong Kong and in UK are in fact assets of D1 or that they are amenable to execution of a judgment obtained against D1/D13.  In coming to the above view, I have not ignored Mr Mok’s submission that there is an assumption of advancement in favour of Mrs Chun (and perhaps also Rs) regarding the assets which were or believed to have originated from D1.  Yet, as noted by Litton NPJ in Cheung Pui Yuen v Worldcup Investments Inc,[57] the presumption of advancement is nothing more than an evidential tool; its weight varies with the circumstances of the case.  In Suen Shu Tai v Tam Fung Tai,[58] the Court of Appeal observed that the presumption of advancement is a rather weak concept these days.  I am also alive that I am not conducting a mini trial on affirmation evidence.  What I need to decide is whether, in view of the assumption of advancement in favour of Mrs Chun and Rs, Ps can still show that in the circumstances of the present case there are “good reasons to suppose” that the various assets under consideration (the shares and the properties) are in true D1’s assets or assets which are amenable to execution of a judgment obtained against D1/D13.  In my view, looking at all the relevant evidence as a whole, there are such good reasons to suppose even after taking into account the assumption of advancement.

39.I am also satisfied that it is obviously just and convenient that the freezing orders (subject to the deletion of the words underscored above) and the disclosure order against Rs should continue, bearing in mind that Rs are allowed to stay in the Property, that there are no suggestions that the allowances they are currently permitted are not sufficient for their purpose or that they have suffered any hardship.

CONCLUSION

40.I allow Ps’ application for the continuation of the Amendment Order, subject to the deletion from the freezing orders the words underscored as discussed above.

41.Rs’ application for the variation of the freezing orders is allowed to the limited extent as discussed above.  However, their application for the discharge/variation of the disclosure order is refused.

42.As aforesaid, the issue about the ownership of Rs’ assets should be the subject matter of a trial according to the Masri procedure. However, Rs are still studying and preferably the Masri procedure should take place not during school term.  Moreover, the date for the criminal trial of Mrs Chun, who will be an important witness for Rs, is not yet known. Therefore, I leave it for the parties to discuss the preferable hearing dates for the Masri procedure.  For avoidance of doubt, whilst I have expressed certain views above in relation to the probabilities or otherwise of certain matters, those views are necessarily provisional in the sense that they are based solely on affirmation evidence.  The judge who is going to preside over the Masri procedure will of course be entitled to form his own views on those matters and he will also have the added advantage, which I do not have, of seeing and hearing to witnesses giving evidence in the witness box.

COSTS

43.Given the aforesaid results, I am of the view that Ps are the major winner of this hearing, although Rs are successful in having part of the freezing order against them varied.  Looking at the matter in the round, I make an order nisi that Ps have three‑fourth of their costs relating to the two applications before this court, to be taxed, if not agreed.

Ms Eva Sit instructed by Hogan Lovells, for the plaintiffs

Lau, Kwong & Hung, for the 1^st and 13^th defendants, excused

Mr Johnny Mok SC and Mr Alexander Tang instructed by Chong & Partners LLP, for the respondents