Chinacast Education Corporation and Others v. Chan Tze Ngon and Others

HCA 1062/2012

[2018] HKCFI 2300

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1062 OF 2012

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D E C I S I O N

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Background

1.On 19 June 2012, the plaintiffs obtained an ex parte Mareva injunction against the 1^st to 4^th defendants from Tong J (“the Injunction Order”) whereby the disposal of the 1^st to 4^th defendants’ assets in Hong Kong were prohibited with the following exceptions:-

(1)The Injunction Order does not prohibit any defendant from spending HK$20,000 per week towards his ordinary living expenses, HK20,000 per week towards his ordinary and proper business expenses and also HK100,000 on legal advice and representation; and if such amount is exhausted or being insufficient, the defendant may agree to an increase with the plaintiffs, failing which the defendant may apply to the court.

(2)The Injunction Order does not prohibit any defendant from dealing with or disposing of any of his assets in the ordinary and proper course of business.

(3)Any defendant may agree with the plaintiffs’ solicitors that the above spending limits should be increased or that the Injunction Order should be varied in any other respect, but any such agreement must be in writing.

(4)The Injunction Order shall cease to have effect as regards any defendant if that defendant provides security by paying the sum of RMB800,000,000 into court or makes provision for security in that sum by some other method agreed with the plaintiffs’ solicitors or approved by the court.

2.In obtaining the Injunction Order, the plaintiffs gave their undertaking to the court that if the court later on finds that the Injunction Order has caused loss to the defendants or any other party and decides that the defendant or that other party should be compensated for that loss, the plaintiffs will comply with any order the court may make.

3.On 11 November 2013, Anthony Chan J ordered that the Injunction Order be continued until the conclusion of trial or further order with the following variations:-

(1)The 3^rd defendant be allowed to withdraw HK$2 million for business expenditure and

(2)The allowance of HK$20,000 per week for the ordinary and proper business expenses shall cease upon the release of the aforesaid HK$2 million.

4.In addition, Anthony Chan J ordered that the plaintiffs must fortify their undertaking as to damages with either a payment into court or a bank guarantee of HK$3 million.                  

5.On 31 July 2017, after a lengthy trial in 2016, DHCJ Kent Yee gave judgment in favour of the 3^rd defendant and ordered that the Injunction Order be discharged forthwith.

6.However, on 19 September 2017, DHCJ Kent Yee ordered an interim renewal of the Injunction Order until the determination of the plaintiffs’ application to the Court of Appeal for a renewal of the Injunction Order pending an intended appeal.

7.By summons dated 7 August 2017, the plaintiffs applied for payment out of the HK$3 million paid into court by the plaintiffs pursuant to the order of Anthony Chan J made on 11 November 2013 being the plaintiffs’ fortification of their undertaking as to damages given to the court in respect of the 3^rd defendant.

8.The summons dated 7 August 2017 was heard and dismissed by DHCJ Kent Yee on 27 September 2017.  The plaintiffs informed the court at the hearing that they would abandon the intended appeal and hence DHCJ Kent Yee ordered the interim renewal of the Injunction Order to cease to have effect forthwith.

9.At the same hearing, the 3^rd defendant made an oral application (“the Application”) for an enquiry as to damages as a result of the Injunction Order against the 3^rd defendant.  DHCJ Kent Yee directed that the Application be heard before a master in chambers for a pre-trial review.

10.The pre-trial review of the Application was heard by me on 8 February 2018 and it was adjourned to enable the 3^rd defendant to take out applications for expert directions and for cross-examination of the plaintiffs.

11.The 3^rd defendant took out a summons dated 22 February 2018 to seek leave to adduce expert evidence on quantum of a registered professional surveyor, Au Wai Man, but no application was made for cross-examining the plaintiffs.

12.The summons dated 22 February 2018 was heard by me on 23 April 2018 and it was amended on the same day for the 3^rd defendant to add another expert in the summons, namely Mak Kwong Fai Louis, who is an expert on financial services and investments.

13.At the same hearing, the plaintiffs and the 3^rd defendant agreed that there was no need to adduce the expert evidence of Au Wai Man as they could agree on the values of the properties in question.  Hence, the application in relation to Au Wai Man was withdrawn.  As to the application in relation to Mak Kwong Fai Louis, I dismissed the same after hearing arguments from the parties, as I did not find the evidence of this expert being relevant to the issues before me.

14.After the application for expert direction was dealt with, I adjourned the hearing of the Application to a date to be fixed, and as agreed by the parties, I directed that the 10^th Affirmation of the 3^rd defendant dated 19 October 2017, the 20^th Affidavit of Douglas Nelson Woodrum dated 21 November 2017 and the 11^th Affirmation of the 3^rd defendant dated 11 December 2017 do stand as the parties’ evidence.

15.The Application was then heard by me on 16 August 2018.  This is my decision on the Application.

The 3^rd defendant’s claims

16.The 3^rd defendant claims damages arising from the Injunction Order which prevented him from:-

(1)Purchasing a property in Hong Kong, in particular, Flat 1404, Block B, Kornhill ("Property A") or Flat 808, Block H, Kornhill ("Property B");

(2)Purchasing a property in Beijing; and

(3)Obtaining a reasonable return on the sums restrained.

17.When the Injunction Order was first obtained against the 3^rd defendant, he had about HK$15 million of cash balances in his bank accounts, comprising approximately of:

(1)About HK$9,700,000 being deposits in savings/current accounts with Standard Chartered Bank (Hong Kong) Ltd;

(2)HK$171,741.86 being deposits in a savings account with The Bank of East Asia Ltd;

(3)About HK$5,100,000 being the balance in a share trading account with Monex Boom Securities (HK) Ltd; and

(4)HK$72,495.59 being deposits in a savings account with HSBC maintained by the 11^th defendant which was wholly owned and controlled by the 3^rd defendant.

18.Part of the above cash deposits came from the sale of the 3^rd defendant’s property at Kornhill in September 2011 and another part came from the sale of the shares in the 1^st defendant in 2009 and 2010.  After the sales, apart from the aforesaid cash deposits, the 3^rd defendant had no other valuable asset in Hong Kong.

19.The 3^rd defendant withdrew the following sums from his accounts pursuant to the exceptions to the Injunction Order:-

(1)HK$170,000 for legal costs, although he was allowed to withdraw HK$200,000;

(2)HK$5,480,000 for personal expenses as he was allowed to withdraw HK$20,000 per week; and

(3)HK$2 million on 23 December 2013 for business expenditure pursuant to the order of Anthony Chan J made on 11 November 2013, but he did not withdraw any other sum for business expenditure before the variation of the Injunction Order.

20.It is to be noted that based on the above figures, the 3^rd defendant withdrew a total sum of HK$7,650,000.  As he had about HK$15 million in his accounts, he should have been restricted in the use of the balance sum of HK$7,350,000.

21.Nevertheless, the 3^rd defendant assumes that he could have the use of HK$15 million in his estimate of his loss.  He contends that it was reasonably foreseeable that he would have used his assets to invest in property or the stock market.  The 3^rd defendant had advised the plaintiffs that he wanted to invest in property, and yet the plaintiffs persisted with continuation of the Injunction Order and resisted the 3^rd defendant's application for variation.  The Injunction Order had therefore caused him to be unable to use his assets, and hence his loss.

22.The 3^rd defendant first bought a property in Kornhill in 2000 and he sold it in 2011 because it required major renovations.  He was, however, looking to purchase a property in better condition in the near future and he had monitored the property market to gauge a suitable time and opportunity to return to the property market.  The 3^rd defendant alleges that this is well supported by the agency agreement signed by the 3^rd defendant with Midland Realty International Ltd on 16 September 2012, and it can be seen from Schedule 1 of the agency agreement that the 3^rd defendant had viewed Property A and Property B.  Even though the viewing took place when the Injunction Order was already in place against the 3^rd defendant, it was before the hearing for continuation of the Injunction Order on 27 November 2012.  However, due to the Injunction Order, the 3^rd defendant was not able to purchase either Property A or Property B.

23.The 3^rd defendant alleges that he conducted the viewing of Property A and Property B in September 2012 because he had hoped that the Injunction Order could be discharged at the hearing on 27 November 2012 and he would be in a position to commit his funds to the purchase of a property.

24.Subject to the 3^rd defendant being able to establish liability, the parties agreed that the quantum of the loss suffered by the 3^rd defendant in relation to the loss of opportunity to purchase Property A and Property B are HK$3,160,000 and HK$2,890,000 respectively.

25.The 3^rd defendant also contends that as he was living in Beijing, he was actively looking for a property in that city.  He was interested in a property in the price range of RMB 5,000,000 to RMB 6,000,000. Assuming that he had purchased a property in Beijing for RMB 5,000,000 in 2012, it would now be worth at least RMB 9,000,000.  After adjusting for foreign exchange loss, he would have lost HK$4,400,000 in such an investment.

26.If the 3^rd defendant would not have purchased a property in Beijing (which is denied by the 3^rd defendant), he would have used his funds to invest in a diversified basket of investments between high yield investments (purchase of shares listed on the stock exchange of Hong Kong) and lower yield investments in sovereign and high quality corporate bonds and investment funds.

27.According to the 3^rd defendant, he would have purchased a property in Hong Kong using about HK$4 million (assuming he could obtain a mortgage of about 60%).  He would reserve HK$3 million for a “rainy day”.  As he had HK$15 million in his accounts, that would leave him HK$8 million for acquiring and maintaining a basket of investments.  He has a track record of making a reasonable return say about 8% per annum on his investments.  He reasonably believes that he could have achieved an annual return of 5% on the sum of HK$8 million from 2012 to 2017 (a period of 5 years).  Thus, he could have obtained a return of HK$2.2 million on the sum of HK$8 million.

28.Another approach to assess the 3^rd defendant's loss of investment returns would be to adopt the Hang Seng Index as a proxy. From 18 June 2012 to 27 September 2017, the Hang Seng Index rose from 19,428 to 27,642, i.e. a return of 42.3%. The return would have been HK$3,384,000 if the 3^rd defendant had been permitted to invest the HK$8,000,000 of cash.

29.Based on the above, the 3^rd defendant estimates that the loss occasioned by the Injunction Order was as follows:-

(1)If he had purchased Property B and a property in Beijing, HK$7,290,000 (HK$2,890,000 + HK$4,400,000).

(2)If he had purchased Property B and invested in a basket of investments, HK$5,090,000 (HK$2,890,000 + HK$2,200,000).

30.Thus, the 3^rd defendant asks the court to assess his damages at HK$7,290,000 or such sum as the court deems fit.

The approach

31.The 3^rd defendant submits that a party covered by an undertaking as to damages has the right to ask the court to enforce the undertaking against the claimant, and the court can do so, either by assessing the damages summarily or by directing that the claimant pay the damages awarded on an inquiry as to damages (see Gee on Commercial Injunctions (6th ed), § 11-035).

32.The 3^rd defendant also submits that in relation to liability, the following principles appear to apply:-

(1)The initial question is whether the injunction was "wrongly granted". If the claimant fails at trial, then normally it would follow that the injunction was wrongly granted;

(2)This issue is to be decided by the court and should be dealt with before the inquiry as to damages is directed;

(3)The undertaking ought to be given effect to by the court except "under special circumstances".  The court, in deciding whether to enforce the undertaking, has a discretion and each case must be decided on its own facts.

(See Gee on Commercial Injunctions (6th ed.), § 11-035, § 11-041, Yukong Line Ltd v Rendsburg Investments Corp [2001] 2 Lloyd's Rep. 113 at [32], and Graham v Campbell (1877) 7 Ch D 490 at 494)

33.Following the above principles, the 3^rd defendant submits that as the plaintiffs failed at trial, the injunction was wrongly granted, and the undertaking ought to be given effect.  There are no special circumstances to order otherwise.  The inquiry itself should only be concerned with the quantum of damages to be awarded to the 3^rd defendant.

34.On the other hand, the plaintiffs submit that on an application to enforce an undertaking as to damages, there are two separate points to consider (see HKCP 2019, paragraph 29/1/25):-

(1)First, as a matter of discretion, should the court order that the undertaking be enforced?

(2)Secondly, if so, what loss has the defendant suffered in terms of money, was it caused by the injunction and was it too remote?

35.A judge may leave both questions to be determined at the same time, or he may decide the first question himself.  An order made on an application for an inquiry into damages should spell out clearly what, if any, residual discretion is left to be exercised later and it should, for example, be possible to tell on the face of the order whether the plaintiff is to pay the amount ascertained on the inquiry.

36.In the present case, DHCJ Kent Yee does not seem to have answered the first question and only ordered that the Application be heard before a master. The master is therefore required to decide on both questions.

37.In my view, the approach adopted by the 3^rd defendant seems to suggest that a party has “the right” to ask the court to enforce the undertaking, and the submission that the undertaking ought to be given effect to by the court except “under special circumstances” seems to suggest that the court has a discretion not to enforce an undertaking only under special circumstances.

38.I do not agree with this approach.  The undertaking in damages is given to the court, not to the party affected by the injunction.  The party affected does not even have a right to sue on the undertaking by way of a claim in contract (see Gee on Commercial Injunctions (6th ed), § 11-035).  When the party affected does not have the right to sue the party giving the undertaking, it follows that the party affected cannot ask the court to enforce the undertaking as of right.  The court must always have absolute and unfettered discretion to decide whether to enforce the undertaking or not, instead of only “under special circumstances” as suggested by the 3^rd defendant.

39.As held in Cheltenham and Gloucester Building Society v Ricketts, [1993] 1 WLR 1545, in a case where it is determined that the injunction should not have been granted, the court is likely to enforce the undertaking if asked to do so, though the court retains a discretion not to do so (see HKCP 2019, paragraph 29/1/26).  Thus, the court retains a discretion not to enforce the undertaking even when the injunction was wrongly granted.  It is clear that the party affected may ask the court to enforce the undertaking, but does not have a “right” to do so.  There is no reason to restrict the court’s discretion by saying that the court should refuse to give effect to an undertaking only “under special circumstances”.  The court must consider all the circumstances of the case to decide whether the discretion should be exercised one way or the other.

40.I therefore agree with the approach of the plaintiffs.  The court should answer the two questions as submitted by the plaintiffs.

Should the court enforce the undertaking?

41.On the first question, although the court is likely to enforce the undertaking when the injunction should not have been granted, an inquiry as to damages should not be ordered unless there is at least some reasonably arguable case that the injunction has caused the complaining party some loss or damage for which compensation ought to be paid (see HKCP 2019, paragraph 29/1/26).

42.Considering the evidence before me, I do not find that the 3^rd defendant has established a reasonably arguable case for the loss allegedly suffered by him.

43.First of all, in relation to the 3^rd defendant’s assertion that he intended to purchase a property in Hong Kong, the only documentary evidence filed by him is the agreement dated 16 September 2012 with Midland Realty which shows that he had viewed two properties in Kornhill in September 2012.  Apart from that, the other evidence just came from the 3^rd defendant’s own bare assertion.

44.I agree with the plaintiffs that viewing two properties on one occasion cannot be regarded as cogent evidence of a serious intention to purchase a property in Hong Kong when there were no other steps taken to proceed with the purchase.  In fact, this viewing occurred almost 3 months after the Injunction Order was granted in June 2012.  There is no evidence that the 3^rd defendant had viewed other properties before the granting of the Injunction Order.  So it is not a case that the 3^rd defendant was suddenly prevented from proceeding with the purchase of a property in Hong Kong because of the Injunction Order.

45.The 3^rd defendant was well aware of the Injunction Order when he had the viewing, but hoped that the Injunction Order could be discharged in November 2012.  If this intention to purchase was really serious, there is no reason why the 3^rd defendant did not take any steps to vary the Injunction Order when it was not discharged.

46.The 3^rd defendant tried to rely on the case of Hone v Abbey Forwarding Ltd [2015] 1 Ch 309 to suggest that the court must be realistic as to the dilemma facing a defendant when served, out of the blue, with a freezing order and applications for variation are not that simple.

47.However, the considerations in Hone v Abbey Forwarding Ltd cannot be applied to the present case. The 3^rd defendant did take steps to vary the Injunction Order to enable him to have HK$2 million to start a business he had in mind which required a start-up capital of RMB 1.5 million. He could have also applied to court to have HK$4 million for the purchase of property that he had allegedly in mind, if that is indeed true.   

48.The 3^rd defendant explains that he did not apply to vary the Injunction Order to enable him to purchase a property because he did not feel that it was likely that he would have succeeded in seeking such a variation. It is unclear why he would have that feeling.  In fact, the 3^rd defendant had never made any request to the plaintiffs for such a variation.

49.There should be no reason for the 3^rd defendant to have that worry because the plaintiffs were quite willing to have such a variation.  As explained by the plaintiffs, they would have agreed to such a request as a landed property is a secure and valuable form of asset. 

50.It is in fact more difficult for the 3^rd defendant to obtain a variation so as to enable him to invest in a start-up business than to obtain a variation to invest in a landed property, as the money could easily be used up in a star-up business without any return.  It is hard to believe that the 3^rd defendant would find no problem in applying for a variation for business expenses and yet feel that a variation for investing in property would be unlikely.

51.The 3^rd defendant suggests that such an application would only further diminish the funds available to fund his defence of these proceedings.  Even if that was the case, it just shows that the 3^rd defendant was prevented from purchasing a property because of the proceedings instead of the Injunction Order.  The 3^rd defendant must prove that the loss was caused by the Injunction Order and not by the existence of the litigation (see MGA Entertainment Inc v Toys & Trends (Hong Kong) Ltd (2014) 17 HKCFAR 27).

52.In fact, according to the 3^rd defendant, his legal expenses were in the sum of about HK$5 million.  So it is understandable that he would not want to diminish the funds available so as to have enough funds for his legal expenses.  This could be the real reason why he did not apply for a variation to enable him to purchase a property, but this reason is unrelated to the Injunction Order.

53.Moreover, at the hearings concerning the continuation of the Injunction Order, counsel for the 3^rd defendant did not mention anything about the 3^rd defendant’s intention to purchase a property in Hong Kong to the court (as confirmed by all the written submissions), even though it was mentioned in the 3^rd defendant’s affirmation in opposition (the 2^nd Affirmation of the 3^rd defendant dated 27 July 2012).  Anthony Chan J also did not mention anything about this in his Decision dated 11 November 2013.  The variation mentioned in His Lordship’s Decision is only concerning the 3^rd defendant’s business expenses.

54.If the 3^rd defendant really had a serious intention to purchase a property in Hong Kong, this matter would not have been omitted by his counsel in written submissions.  If the 3^rd defendant’s counsel had mentioned this matter to the court, it is also unlikely that His Lordship would have omitted to deal with this issue in his Decision.  I accept the plaintiffs’ submission that this matter was in fact not pursued at the hearings.

55.In fact, in his 4^th Affirmation, the 3^rd defendant states that “Given the recent government intervention, prices are softening and this may be the right time to buy (or at least to actively look for a property)”.  This shows that the 3^rd defendant is only thinking about buying but has no serious intention to commit to a purchase at that stage. It is therefore not surprising at all that the 3^rd defendant did not pursue with any application for variation of the Injunction Order to enable him to buy a property in Hong Kong.

56.However, the 3^rd defendant is seeking damages based on the assumption that he would have bought a property in Hong Kong in or about September 2012.  There is simply no or insufficient evidence to support such a contention.

57.Another reason given by the 3^rd defendant in not seeking variation for him to buy a property in Hong Kong is that it was not possible for him to obtain a mortgage from a bank given the Injunction Order and the proceedings.  If it is due to the proceedings, the alleged loss would not have been caused by the Injunction Order.  There is also no basis to suggest that the 3^rd defendant could not obtain a mortgage because of the Injunction Order.  The 3^rd defendant was unemployed at that time and hence could not provide any regular income proof.  Hence, it would be difficult for him to obtain any mortgage in any event.  There is also no evidence that he had tried to obtain a mortgage and was rejected because of the Injunction Order.  It is simply groundless for the 3^rd defendant to suggest that he could not obtain a mortgage because of the Injunction Order.

58.In the circumstances, I find that there is no or insufficient evidence to support the 3^rd defendant’s contention that he suffered any loss in the property market in Hong Kong because of the Injunction Order.

59.As to the contention that the 3^rd defendant would purchase a property in Beijing, there is absolutely no documentary evidence to support such a contention.  No evidence has been adduced to show the property market situations or the property values in Beijing apart from the 3^rd defendant’s own bare assertions.  The 3^rd defendant’s bare allegation that he was actively looking for a property in Beijing is in fact inconsistent with his earlier evidence that his intention was to return to Hong Kong which he regarded as his home.  Counsel for the 3^rd defendant did not even mention this loss in their written submissions.

60.Thus, there is no reason at all for me to accept such a bare and inconsistent assertion of such a loss.

61.Likewise, there is no documentary evidence adduced to show that the 3^rd defendant had any intention to invest in a basket of investments at the material time, nor anything to show his knowledge or past experience in shares investments.  On the contrary, the 3^rd defendant explained in his affirmation that he left his money idling and did not actively but conservatively manage his investments because he did not have the time to do so during his last years of employment.

62.It is not clear what the 3^rd defendant meant when he said he would manage his investments conservatively.  In the ordinary course, a conservative portfolio would consist of investment products which are held long-term and would not be traded actively.  Thus, the 3^rd defendant’s own evidence does not support that he had much experience in such investments.

63.In the circumstances, I do not accept that the 3^rd defendant would have invested his money in a basket of investments as alleged by him. His calculations of his loss in such alleged investments are also speculative and without any concrete proof.

64.In view of the lack of cogency of the 3^rd defendant’s evidence in establishing his loss, I am of the view that the court should not exercise its discretion to enforce the undertaking.  The first question is therefore answered in the negative.

What loss has the 3^rd defendant suffered?

65.In view of my answer to the first question, there should not be an inquiry as to damages in the first place.  Even if I am wrong on the first question, I am not satisfied that the 3^rd defendant has proved that he had suffered any loss as a result of the Injunction Order.  The reasons are simply the same as mentioned above.  There is a clear lack of cogent evidence to establish the 3^rd defendant’s loss or that such loss was caused by the Injunction Order.

66.Thus, if I have to proceed to answer the second question, my assessment of the 3^rd defendant’s loss is nil.

Conclusion

67.By reasons aforesaid, the Application is dismissed and the 3^rd defendant is not entitled to claim any damages against the plaintiffs.  I also make a costs order nisi that the 3^rd defendant do pay the plaintiffs costs of the Application with certificate for counsel to be taxed if not agreed.

Mr Jonathan Wong, instructed by Norton Rose Fulbright Hong Kong, for the plaintiffs

Mr Nicholas Cooney SC and Mr Nicholas Oh, instructed by Lee & Chow, for the 3^rd defendant