China Medical Technologies, Inc.(in Liquidation) and Others v. Wu Xiaodong and Others

HCA 3391/2016

[2019] HKCFI 1266

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

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HCA 1417/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

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(Consolidated by Order of Master Chow dated 23 July 2018)

Before: Hon Ng J in Chambers

Dates of Hearing: 17 - 19 September 2018

Date of Judgment: 22 May 2019

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J U D G M E N T

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Introduction

1.This is the adjourned hearing of the Plaintiffs’ summonses dated 13 December 2017 and 9 January 2018 (“Continuation Summonses”) issued in HCA 3391/2016 (“HCA 3391”) seeking the continuation of the worldwide Mareva injunction granted ex parte without notice by L Chan J on 11 December 2017 and amended by the Learned Judge on 8 January 2018 (“Injunction”).  The Injunction was granted against the 1^st Defendant (“Mr Wu”), 2^nd Defendant (“Mr Tsang”), 3^rd Defendant (“Dr Chen”), 5^th Defendant (“Mr Chong”) and 13^th Defendant (“Ms Bi”).  The Injunction was continued by Chow J on 12 January 2018 pending the substantive hearing of the Continuation Summonses and the Discharge Summons as defined below.

2.The principal evidence in support of the ex parte application on 11 December 2017 was the 1^st affidavit of Cosimo Borrelli dated 8 December 2017 (“Borrelli 1”). The body of the affidavit, together with inter alia exhibits CB1 to 3 alone, comprise about 2,000 pages.

3.The Continuation Summonses are opposed by Mr Tsang, Mr Chong and Ms Bi (“Opposing Defendants”).  Solicitors for the 3^rd Defendant had written to this court indicating the 3^rd Defendant did not intend to oppose the Continuation Summonses and their attendance was accordingly excused. The 1^st Defendant had not filed evidence in opposition and did not attend the hearing.

4.There are also before this court Mr Chong’s summons dated 9 January 2018 for a discharge of the Injunction (“Discharge Summons”) and the 2^nd Defendant’s summons dated 16 July 2018 for fortification of the Plaintiffs’ cross‑undertakings as to damages (“Fortification Summons”).  Judging from Mr Ho’s skeleton submissions, the same arguments are advanced in support of the Discharge Summons and to resist the Continuation Summonses. The Fortification Summons occupies a very minor part of this hearing.

The Parties

5.The 1^st Plaintiff, China Medical Technologies, Inc., was incorporated in the Cayman Islands in July 2004.  Its shares were listed on NASDAQ in August 2005 and were delisted in February 2012.  It was the holding company of a group whose principal business was said to be developing, manufacturing and marketing advanced surgical and medical equipment in the PRC.  The 1^st Plaintiff was grossly insolvent with provable claims of over US$400m.  In July 2012, it was wound up by the Grand Court of the Cayman Islands.  On 1 September 2014, Harris J made an ancillary winding up Order against it in HCCW 435 of 2012. 

6.The 2^nd Plaintiff, CMED Technologies Ltd, is the 1^st Plaintiff’s wholly‑owned subsidiary.

7.The 3^rd Plaintiffs were appointed as the provisional liquidators of the 1^st Plaintiff by Order of Harris J in November 2012. On 5 February 2015, they became the Liquidators of the 1^st Plaintiff (“Liquidators”).

8.Mr Wu was at all material times the founder, Chairman, CEO, director and the largest shareholder of the 1^st Plaintiff.  From January 2006 to July 2012, he was a director of the 2^nd Plaintiff.

9.Mr Tsang was the 1^st Plaintiff’s director from June 2007 to December 2011 as well as its CFO from January 2005 to January 2012.  He was also a director of the 2^nd Plaintiff from January 2006 to December 2011.  He was the second most senior executive of the 1^st Plaintiff after Mr Wu.  Mr Tsang is said to be in contempt of a High Court Order that he should attend for examination, has absconded from Hong Kong and is subject to an outstanding warrant for his arrest.  Mr Tsang is also said to be a fugitive from the United States criminal justice system.  According to his 2^nd affirmation dated 27 March 2018, his present residence appears to be in the PRC.  His main affirmation in opposition to the Continuation Summonses was made by a partner of Messrs PC Woo & Co viz Mr George Sit.

10.Dr Chen was from about February 2007 the Chief Technology Officer of the 2^nd and/or 1^st Plaintiff’s Fluorescent in situ hybridisation (“FISH”) technology business and from November 2007 the Chief Technology Officer of all of the 1^st Plaintiff’s businesses.

11.Mr Chong and Ms Bi are said to be associates of the former management of the 1^st and 2^nd Plaintiffs, particularly Mr Wu and Mr Tsang.

12.Ms Bi was at all material times the wife / former wife of Mr Wu.  On her own evidence, she and Mr Wu were married in 1995 and they ran several medical related companies in the PRC and Hong Kong.  Ms Bi and Mr Wu separated in 2001 and were divorced in June 2012.  She obtained Singapore citizenship in November 2010 and is currently living in Singapore.  From the date of its incorporation in June 2010 until August 2012, she was a director of CMT Diagnostics (Singapore) Pte Ltd (“CMT Singapore”), a wholly‑owned indirect subsidiary of the 1^st Plaintiff. From June 2010 to December 2011, she and Mr Tsang were common directors of CMT Singapore. CMT Singapore was wound up in April 2013. Ms Bi is said to be a friend of inter alia Mr Tsang and Mr Chong and had business and/or personal dealings with them.

13.Mr Chong is, on his own evidence, a friend of Ms Bi and, through her, came to know Mr Wu in the late 1990s in Hong Kong and then, through Mr Wu, came to know Mr Tsang in around 2002.  Mr Chong is a Hong Kong resident.  Mr Chong is said to be an associate of Mr Wu and Mr Tsang and acted upon their instructions and directions.

Legal Principles

14.While the applicable principles are largely uncontroversial, this court shall first remind itself of them and set them out for ease of comprehension of the subsequent discussion on the parties’ respective contentions.

15.First, when a plaintiff applies for a worldwide Mareva injunction, it has to satisfy the Court that:

(1)  it has a good arguable case;

(2)  there are no or insufficient assets within the jurisdiction to satisfy its claim;

(3)  there are assets outside the jurisdiction; and

(4)  there is a real risk of dissipation or secretion of those assets so as to render nugatory any judgment which a plaintiff may eventually obtain.

Hong Kong Civil Procedure 2019 Vol 1 para 29/1/83

16.Second, the threshold of “a good arguable case” is much higher than “a serious issue to be tried” under the American Cyanamid principles.  The applicant need not go so far as to persuade the Court that it is likely to win but it needs to show a case which is more than barely capable of serious argument, albeit not necessarily one that the judge believes to have a better than 50% chance of success. The existence of a good arguable defence does not necessarily negate a good arguable case: Hong Kong Civil Procedure 2019 Vol 1 para 29/1/66; Grupo Pacifica Incorporada v Worldwide Marine Product Ltd & Ors unrep, CACV 217 of 2015, 28 January 2016 at [5.1].

17.Third, given the serious consequences of a Mareva injunction, the standard of proving a real risk of dissipation is “relatively high”.  The plaintiff must establish that risk by reference to “solid evidence” or “cogent evidence”: Laemthong v Artis [2005] 1 Lloyd’s Rep 100 at [60]‑[61]; Hsin Chong Construction (Asia) Ltd v Henble Ltd [2005] 3 HKC 27 at [20]; Re Chau Cham Wong Patrick (a bankrupt) [2016] 2 HKLRD 278 at [31].

18.Evidence that a defendant has exhibited “an unacceptably low standard of commercial morality” in his dealings with the plaintiff or that he is of “questionable integrity” may entitle the Court to conclude that there is a sufficient risk of dissipation: Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235 at 240H; Standard Chartered Securities Ltd v Lai Arthur [1993] 1 HKC 375 at 394B.

19.In Crete Maritime Corp v Emirates Shipping Line DMCEST [2017] 5 HKLRD 345 at [17]‑[18], A Chan J observed:

“ 17. It has to be accepted that an applicant will often be unable to put forward direct evidence of a risk of dissipation, and that the burden is often discharged by inferential evidence: see Pacific Concepts (HK) Ltd v Michel Brennion (unrep, HCA 2672/2008, [2009] HKEC 444, 13 March 2009) at [24]‑[25], per Andrew Cheung J (as he then was). However, it is self‑evident that applying Honsaico too readily will result in grave injustice.

18. It was pointed out in Pacific Concepts that it is not a proposition of law that an unacceptably low standard of commercial morality would constitute a real risk of dissipation. Instead, it is a matter of common sense that there is a risk that a person of such morality may seek to render himself judgment proof. The task of the court is to assess that risk in light of all the evidence before it.” (emphasis added)

20.Similar warning against applying Honsaico Trading Ltd too readily was issued by L Wong J in Nicholas VA Schebek-Fuerstenberg v Yip Wai Sang & Anr unrep, HCA 221 of 2017, 31 May 2017.  At [33], the learned Judge observed that the description of a person as being of an “unacceptably low standard of commercial morality” or “questionable integrity” is a very serious allegation for which the Court would expect nothing less than “cogent proof”.

21.Where there is a good arguable case for fraud or dishonesty, the court may more readily infer a real risk of dissipation by the fraudster: Akai Holdings Ltd & Ors v Ho Wing On, Christopher & Ors unrep, HCCL 37 & 40 of 2005, 9 February 2009, Stone J at [53].  A fortiori, where there is a clear case of fraud, such as the now prevalent internet fraud, the real risk of dissipation by the fraudster may be said to be self‑evident: Crete Maritime Corp v Emirates Shipping Line DMCEST at [21].

22.While the mere fact of delay in bringing an application for Mareva injunction does not, without more, negate a risk of dissipation, delay, and the lack of proper explanation for it, is always a relevant consideration when assessing whether there is a real risk of dissipation: Enercon GmbH v Enercon (India) Ltd [2012] EWHC 689 (Comm).  As Eder J put it at [78]:

“ [I]t is not simply the fact of delay that is so important but what it tells the court about the risk of dissipation. Absent some proper explanation, the fact that the claimants here waited for almost two and a half years before seeking a freezing injunction raises, at the very least, a large question mark as to whether there is indeed a real risk of dissipation.” (emphasis added)

23.Further, Equity does not act in vain — a court does not usually grant injunctions where significant time has elapsed and an injunction would in effect be locking the stable door after the horse has bolted: Re Chau Cham Wong Patrick (a bankrupt) at [34].

24.Fourth, an ex parte application is not simply a convenient alternative to an inter parte application.  Ex parte applications without notice should only be made where either the delay would cause injustice to the applicant or the defendant would take action which would nullify the effect of the injunction: Ho Tak Eng v Fame Brilliant Ltd [2006] 1 HKLRD 34 at [8] and [11] (CA).

25.On the question of abuse of process in making an unjustified ex parte application, Johnson Lam J (as he then was) observed in Slik Hong Kong Co Ltd v Gerald Merlyn Rhoslyn Evans & Ors unrep, HCA 1424 of 2005, 25 July 2005, at [2]‑[6] as follows:

“ 2. Ex parte applications should be regarded as exceptional and the court should not entertain the same unless there are cogent justifications usually in terms of either extreme urgency or secrecy. See Bates v Lord Hailsham of St Marylebone & others [1972] 1 WLR 1373.

3. In Brand, Farrar Buxbaum v Samuel-Rozenbaum Diamond, HCA 5191 of 1998, 8 May 2002, Ma J (as he then was) said at Para 24,

‘ One of the facets of equality before the law (a fundamental right guaranteed under Article 25 of the Basic Law) is that no order ought to be made by a court against anyone without his first being given a reasonable opportunity of being heard. An exception to this fundamental rule is where ex parte orders are made by the court. At the risk of repeating the obvious, ex parte orders are only made “where the situation is of such extreme urgency that there is literally no time to warn the defendant of what is proposed or where the purpose of the injunction will or may be frustrated if the defendant is informed of what is proposed or where the defendant simply cannot be found”: see TRP Limited v Thorley, unreported, 13 July 1993, English Court of Appeal, per Bingham LJ. I should perhaps out of completeness add that this salutary rule does not apply where express provisions are made in the Rules for the ex parte procedure to be used: see Hong Kong Civil Procedure at paragraph 32/6/5.’

4. It follows that the first thing the court should ask when it is faced with an ex parte application is whether the applicant can show such exceptional circumstances which justify him proceeding on ex parte basis. If he could not cross that hurdle, the court should not be concerned about the substantive merits of his application.

5. In the context of urgency, it has to be borne in mind that nowadays it does not need to wait very long to list a matter for an inter parte hearing. Hence, Ma J said in Para 28 of his judgment in Brand, Farrar Buxbaum v Samuel‑Rozenbaum Diamond,

‘ Even if there was genuine urgency (and I do not accept that there was), the proper course was for the claimant to take out an inter parte application, if necessary with time abridged, or if that was somehow not possible, to make an ex parte application on notice to the plaintiff.’

In Seapower Resources International Ltd v Lau Pak Shing HCA No. A10715 of 1993, 15 December 1993, Rogers J (as he then was) said the following with regard to the degree of urgency that could justify ex parte application,

‘ For an ex parte application for an injunction to be [justified] on the grounds of urgency it must be so urgent [that] you cannot give even five minutes warning to the other side. Here, solicitors were instructed for the Defendants … the Plaintiffs’ solicitors well knew it. … There was no justification for not even making a telephone call or sending a fax …’

See also the recent judgment of the Court of Appeal in L v C, CACV 333 of 2003, 27 April 2004.

6. The fact that if notice is given, the defendant might ask for time to response is not a justification for proceeding ex parte. The court can exercise its discretion in deciding whether any interim relief should be granted in the meantime after hearing submissions from the defendant. Thus, Rogers J said in Seapower Resources International,

‘ Lastly, it was suggested that if the Defendants were given notice they would have sought an adjournment which would have delayed matters and then the Plaintiffs might not have got their injunction. That is an argument which I find so reprehensible that will not dignify it by dealing with it.’ ” (emphasis added)

26.Where it is found that there is no justification, either on the ground of urgency or the need for secrecy, to make the application ex parte, the Court will set aside an order obtained on this ground alone: Luck Continent Ltd v Leonora Yung & Ors unrep, CACV 42 of 2010, 22 October 2010 at [19]; Yifung Developments Ltd v Liu Chi Keung Ricky [2014] 4 HKLRD 483 at [15]‑[16].

Deliberation

Plaintiffs’ substantive case

27.As succinctly summarized in Ms Chan SC’s skeleton argument and executive summary, the Plaintiffs claim that the former senior management of the 1^st and 2^nd Plaintiffs, assisted by their associates, perpetrated, participated in and/or benefited from the fraudulent misappropriation of US$521.8m in cash (“Fraud”) through purported acquisitions (“Acquisitions”) from the 7^th Defendant, Supreme Well Investments Limited (“Supreme Well”), and its subsidiaries, of the following alleged medical technologies:

(1)  FISH, acquired pursuant to a contract dated 6 February 2007 for US$176.8m; and

(2)  surface plasma resonance technology (“SPR”) acquired pursuant to a contract dated on or around 5 October 2008 for US$345m.

28.It is the Plaintiffs’ case that:

(1)  the FISH and SPR technologies were worthless in that they were not new technologies;

(2)  Supreme Well, the counter‑party to the Acquisitions, was in fact controlled by Mr Tsang, who was the sole authorised signatory of its bank accounts with Bank of China (Hong Kong) Limited (“BOC”) and The Bank of East Asia, Limited (“BEA”) into which US$355.5m of the consideration paid by the 1^st and 2^nd Plaintiff was deposited.  The balance was paid to Supreme Well by other means;

(3)  Mr Tsang authorised the transfer of funds from Supreme Well to the bank accounts of other persons and entities (“Supreme Well Payees”) all of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates; and

(4)  the Supreme Well Payees subsequently transferred all or some of the funds to the bank accounts of other persons and entities (“Further Supreme Well Payees”), some of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates, and thereafter to further recipients.

29.Mr Wu orchestrated, participated and conspired in the Fraud.  The Plaintiffs claim US$524.6m against Mr Wu:

(1)  US$521.8m misappropriated from the 1^st and 2^nd Plaintiffs by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

(2)  US$2.8m, being salary and bonuses paid to him from January 2006.

30.Mr Tsang acted on both sides of the Acquisitions and directed payment of the consideration received by Supreme Well to the Supreme Well Payees.  He received US$7.47m directly and US$379m through entities controlled by him.  The Plaintiffs claim US$524.7m against Mr Tsang:

(1)  US$521.8m misappropriated from the 1^st and 2^nd Plaintiffs by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

(2)  US$2.9m, being salary and bonuses paid to him from January 2006.

31.Dr Chen, through the 11^th Defendant, Dynamic Sense Limited (“Dynamic Sense”) was Supreme Well’s initial director and shareholder.  He purported to be one of the inventors of the FISH and SPR technologies.  The Plaintiffs claim US$522.79m against Dr Chen:

(1)  US$521.8m misappropriated from the 1^st and 2^nd Plaintiffs pursuant to the Fraud; and

(2)  US$0.99m, as salary and bonuses paid to him.

32.Mr Chong was an associate of Mr Wu and Mr Tsang and a friend of Ms Bi.  He was the sole proprietor of Kam Hing Trading Co (“Kam Hing”) which received substantial proceeds of the Fraud.  He was the sole director, shareholder and an authorised account signatory of the 10^th Defendant, Innovative Technology Investment Ltd (“Innovative”), a Supreme Well Payee.  He was also the sole director and a beneficial owner of the 16^th Defendant, Chavis Investments Ltd (“Chavis”), a Further Supreme Well Payee.

33.Mr Chong received US$115.86m by himself or via Kam Hing and US$66m through other entities controlled by him.  The Plaintiffs claim US$521.8m against Mr Chong for unlawful conspiracy, dishonest assistance, knowing receipt and want of authority.

34.Ms Bi was a director, shareholder and/or beneficial owner of the 15^th Defendant, Long Chart Investments Ltd (“Long Chart”), Chavis and the 20^th Defendant, WB International Holding Pte Ltd (“WB”), which are Further Supreme Well Payees. 

35.Ms Bi received US$14.1m through her personal bank accounts and trust accounts held or controlled by her and US$3.5m through Long Chart and WB, both controlled by her.  The Plaintiffs claim US$17.6m against Ms Bi for dishonest assistance, knowing receipt and restitution for want of authority.

Procedural Irregularity

36.This court shall deal with it first as it is a general point which potentially taints the Injunction against all the Opposing Defendants.

37.In the Plaintiffs’ skeleton argument in support of the application on 11 December 2017 at paragraphs 58 and 59, the Plaintiffs explained why the application was made ex parte:

“ 58. The present application is made ex parte on the basis of need for confidentiality. If the Relevant Ds were to be notified of the present application, there is a real risk that they would commence or expedite steps to dissipate their assets before the application is heard inter partes.

59. Further, this application is also brought on an urgent basis, as the Liquidators’ investigations have recently revealed that the Coral Island Property and the Pensier Street Property have been listed for sale by Mr Wu and Ms Bi.”

38.It can be seen from the two short paragraphs that no details were given to the ex parte Judge, in relation to each Opposing Defendant, why there was a need for confidentiality.  As for urgency, there was also no attempt to give any details as to what the urgency, let alone extreme urgency, was, save for the recent discovery in November 2017 that Mr Wu and Ms Bi had publicly put the Coral Island Property in Singapore and the Pensier Street Property in the US for sale.[1]  Leaving the ex parte Judge to figure out himself the validity or otherwise of the assertions at paragraphs 58 and 59 from almost 2,000 pages of materials before him is highly unsatisfactory, to say the least.

39.On behalf of Mr Tsang, Mr Alder submits that his client has had many years’ notice of the Plaintiffs’ claim against him.

40.To start with, for HCA 1417 of 2013 (“HCA 1417”), in which the 1^st Plaintiff was the only Plaintiff, Mr Wu, Mr Tsang and Dr Chen were respectively the 1^st, 2^nd and 3^rd Defendants and the claim was in respect of payments from the 1^st Plaintiff’s BOC account to Supreme Well in 2007 and 2008 amounting to almost US$190m, the Writ (“1417 Writ”) was issued on 1 August 2013.  On 2 August 2013, the Liquidators specifically brought the 1417 Writ to Mr Tsang’s attention by letter.  In the 4^th affidavit of Mr Borrelli (“Borrelli 4”) dated 20 July 2017 filed in HCA 1417 at paragraph 125, Mr Borrelli said this:

“ 125. The Liquidators specifically brought the First Hong Kong Protective Writ [in HCA 1417] to the attention of Mr Tsang by letter dated 2 August 2013 (Tab 13). Furthermore, the other Defendants are also likely to be aware of the existence of the First Hong Kong Protective Writ, and Mr Tsang and the other Defendants are likely to be aware of the existence of the Second Hong Kong Protective Writ [in HCA 3391], because they are not the subject of a confidentiality order.”

41.Regarding the Writ in HCA 3391 (“3391 Writ”), it was issued on 23 December 2016.  The 3391 Writ was served on Mr Tsang’s solicitors on 28 November 2017, the day after Mr Tsang’s solicitors confirmed they had instructions to accept service.  There was exchange of correspondence between the Liquidators’ and Mr Tsang’s solicitors since at least 14 November 2017 regarding inter alia service of the 3391 Writ.

42.Secondly, Mr Alder submits that the Plaintiffs relied on no recent development concerning Mr Tsang in justifying the ex parte application.  In Borrelli 1 at paragraph 168, the Plaintiffs admitted that other than the evidence of the Coral Island Property in Singapore and the Pensier Street Property in the USA being put on the market by Mr Wu and Ms Bi, they had no direct evidence that, inter alia, Mr Tsang was taking or would take steps to dissipate his assets.  Paragraph 168 of Borrelli 1 reads:

“ 168. The Defendants may argue that there is no real risk of dissipation of their assets, given the long lapse of time between the Fraud and the commencement of the Actions and the fact that they have not dissipated their assets in the meantime. Other than the evidence of the Coral Island and Pensier Street Properties being on the market, the Liquidators do not have any further direct evidence that the Relevant Defendants or Ms Chui are taking, or will take, steps to dissipate their assets. Further, Mr Wu and Ms Bi may argue that the prospective sale of their respective real properties has been made openly and is not made for the purpose of putting assets beyond the reach of any judgment made against them. However, as referred to in Part D.3 above, the Liquidators consider there is a real risk of dissipation.” (emphasis added)

43.In other words, there is no need for confidentiality and there is no urgency, let alone extreme urgency, shown as far as Mr Tsang is concerned.  Mr Alder submits that Borrelli 1 lacked justification for proceeding ex parte against his client.  Proceeding ex parte in itself, and not drawing the foregoing fairly to the Judge’s attention so he could decide if Mr Tsang should have notice, was an abuse of process.

44.On behalf of Ms Bi, Mr Wong SC succinctly set out his case in paragraphs 20 to 27 of his skeleton submissions.  Essentially, the point is that there was neither urgency nor the need for confidentiality.    

45.On the lack of urgency, Mr Wong SC relies on the following.

46.First, from as early as December 2012, the Liquidators had already levelled accusations against Ms Bi that she was deeply “implicated in the misappropriation of hundreds of millions of dollars from [the 1^st Plaintiff] and received and secreted substantial funds in the United States”.  The accusations were contained in Mr Borrelli’s declaration filed in the USA Chapter 15 proceedings on 31 December 2012.

47.Second, CMT Singapore was wound up in April 2013.  During the oral examination of Ms Bi concerning the affairs of CMT Singapore which took place on 4 occasions in March and May 2014 as well as January 2015, similar allegations that Ms Bi was complicit in the Fraud were made by Mr Borrelli against her.  

48.Furthermore, by the time of the oral examination at the latest, the Liquidators were aware of Ms Bi’s interest in both the Pensier Street Property and the Coral Island Property.  On Ms Bi’s evidence, which is not contradicted, the Pensier Street Property was purchased in 2005 and openly put up for sale since August 2016.  The Coral Island Property was purchased in December 2009 and again openly put up for sale initially in 2015.  So these were not sudden attempts by Ms Bi to put the properties on the market for a quick sale.  Yet, no attempts were made to freeze Ms Bi’s assets, including the 2 properties, after the oral examination was concluded in January 2015.

49.Third, despite the issue of the publicly searchable 3391 Writ against inter alia Ms Bi on 23 December 2016 in respect of her alleged complicity in the fraudulent misappropriation of the 1^st Plaintiff’s funds, no application for injunction was applied for until a year later in December 2017.  Further, the 3391 Writ was served on Ms Bi on 27 November 2017, 3 days after her Singapore lawyers confirmed instructions to accept service.  As with the case of Mr Tsang, there was exchange of correspondence between the Liquidators’ and Ms Bi’s Singapore solicitors in November 2017 regarding inter alia service of the 3391 Writ.  The fact that Ms Bi instructed her lawyers to accept service shows that she had no intention to evade any legal process against her.

50.The Liquidators said they only discovered in November 2017 that the Coral Island Property and the Pensier Street Property were listed for sale, as if somehow that justified the ex parte application on the basis of urgency.  Indeed, according to paragraph 59 of the Plaintiffs’ ex parte skeleton argument quoted above, that was the only justification put forward to L Chan J on “urgency”.  In section C of the 6^th affidavit of Mr Borrelli dated 25 June 2018 filed in HCA 3391 (“Borrelli 6”), the Plaintiffs attempted to justify that the timing of their application for the Injunction was understandable and excusable because it took time for the Liquidators to carry out their extensive investigations.  This court is not oblivious to the difficulties often faced by liquidators in investigating the affairs of a failed company.  But at the risk of stating the obvious, an ex parte applicant cannot rely on its own delay in investigating/discovering matters, even if the delay is understandable or excusable, in order to generate urgency for the present purpose.

51.On the need for confidentiality, Mr Wong SC argues that any such need is wholly dispelled by the matters stated above.  Ms Bi had known since December 2012 of the Liquidators’ allegations against her.  They therefore by their own conduct had warned Ms Bi of a likely claim against her and thereby destroyed all justification for confidentiality.  If Ms Bi were indeed minded to dissipate her assets or to evade the anticipated legal proceedings so as to defeat any judgment against her, she would have done so long ago.  Lastly, as a matter of common sense, the listing of the 2 properties for sale openly is the very antithesis of any attempt to spirit away assets — normally, a person of questionable integrity who is minded to dissipate his assets in a case like this would do so privately.

52.The above factual matters were all raised in the 3^rd affirmation of Ms Bi and have not been refuted by the Plaintiffs.

53.As for Mr Chong, although his counsel Mr Ho does not specifically use the term “procedural irregularity” in his skeleton submissions, the essence of his submissions in the section entitled “No Risk of Dissipation Shown” is no different from those of Mr Alder and Mr Wong SC ie there was no urgency and no need for confidentiality.

54.First, after being served with a summons dated 24 April 2015 in HCW 435 of 2012 pursuant to s 221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, an order was made by consent on 12 August 2015 requiring him to produce documents to the Liquidators and attend an oral examination.  The examination lasted 4 days on 5 and 6 May and 11 and 12 July 2016 in which the Liquidators examined Mr Chong extensively[2] with respect to his role in the Fraud.

55.Since the making of the Consent Order on 12 August 2015 in HCCW 435 of 2012, there has been extensive correspondence exchanged between the Liquidators’ and Mr Chong’s solicitors. In the letter dated 19 January 2016 from Lipman Karas to Tony Kan & Co, the Liquidators already accused Mr Chong of his involvement in the misappropriation of the 1^st Plaintiff’s funds.  Paragraphs 24 and 26 of the letter read as follows:

“ 24. The Liquidators’ investigations indicate that a significant part of the Company’s cash was likely misappropriated, including through bank accounts and entities controlled by [Mr Chong] and R7. This is obviously a very serious matter.

…

26. Should [Mr Chong]/R7 fail to do so, the Liquidators will take all necessary steps to ensure that they comply with the Order and to address their involvement in the apparent misappropriation of the Company’s assets.” (emphasis added)

56.Second, the 3391 Writ was served on Mr Chong on 15 November 2017 and among the Opposing Defendants, he was the first to file an acknowledgment of service on 28 November 2017.

57.Based on these facts alone, it is difficult to see why there was urgency or a need for confidentiality in applying ex parte against Mr Chong on 11 December 2017.

58.On the question of urgency, if Mr Chong had indeed wished to dissipate his assets, he would have done so (i) by the time of the letter dated 19 January 2016 from Lipman Karas, (ii) at the conclusion of the oral examination in July 2016 or (iii) when he was served with the 3391 Writ on 15 November 2017.  Indeed, as stated earlier in this Judgment, the justification on urgency put before the ex parte Judge was the recent discovery that Mr Wu and Ms Bi had put the Coral Island Property in Singapore and the Pensier Street Property in the US for sale, which of course does not concern Mr Chong.

59.As for the need for confidentiality, one cannot help asking the same question as one would ask in the case of Mr Tsang and Ms Bi: if there was indeed a need for confidentiality, why served the 3391 Writ on the Opposing Defendants to alert them of the actual claims against them prior to applying for the Injunction?

60.In this court’s view, the above points made on behalf of Mr Tsang, Ms Bi and Mr Chong are all valid and unanswerable.  

61.In the Plaintiffs’ written Reply, they could only offer the following in response.

“ 33. Application for Mareva injunction usually made ex parte.

33.1. As observed by this Court in Chau Cham Wong §1 [P#12], inter partes application for a Mareva injunction was an “oddity”.

33.2. Similarly, Stone J said in Akai v Christopher Ho §4 [P#11], “Unusually, this Mareva application did not commence life upon an ex parte application”.

…

37. L Chan J said he had read the 3 affidavits (Borrelli 1, Borrelli 4, Borrelli 5) and ex parte Skeleton, and decided to hear the application ex parte and granted the Injunction.

38. Indeed, D13 (and her legal advisers) did not consider there was any alleged abuse of process or procedural impropriety, given that she has never sought to discharge the Injunction, whether on this or any other ground. Same goes to D2. While D5 sought to discharge the Injunction, the ground does not include these alleged grounds.

39. It is difficult to see how D13 (or D2, D5 for that matter) can contend that Ps have committed any abuse of process or procedural impropriety.

40. While this Court may take a different view from that of L Chan J, it does not render the ex parte application to become an abuse of process or procedural impropriety.”

62.With regard to the 1^st point in reply, it is of course true that applications for mareva injunction are usually made ex parte.  The question here is not what usually happens, but what actually happened ie whether the application for the Injunction on an ex parte basis on 11 December 2017 was justified.

63.With regard to the 2^nd point in reply, the question here is not whether L Chan J was right in deciding to hear the application ex parte since this court is not an appellate court.  The question is whether the Plaintiffs were right in proceeding on an ex parte basis before L Chan J.

64.With regard to the 3^rd point in reply, the Injunction expressly stated it would remain in force until 12 January 2018, unless before then it is varied or discharged by a further order.  It was incumbent on the Plaintiffs to apply to continue it beyond that date, which they did by the Continuation Summonses.  Procedurally, it is up to the Opposing Defendants to simply oppose the Continuation Summonses, as in the case of Mr Tsang and Ms Bi, or, as in the case of Mr Chong, issue a summons for the discharge of the Injunction — they are two sides of the same coin in the present case since the arguments are the same.  Now that the points about lack of urgency and absence of the need for secrecy have indeed been taken, this court does not see how it can be argued that Mr Tsang, Ms Bi or Mr Chong and their legal advisers did not consider there was procedural impropriety.

65.Based on the materials set out above, the inevitable conclusion is that the Plaintiffs were not justified in applying for the Injunction ex parte as there was absolutely no valid basis for them to do so.  On this ground alone, the Injunction must be set aside: Luck Continent Ltd v Leonora Yung & Ors supra.

Real Risk of Dissipation

66.Lest anyone considers setting aside the Injunction on procedural ground to be over technical, this court will go on to consider the issue of “real risk of dissipation”.  In this court’s view, the Plaintiffs have failed to show real risk of dissipation of assets by any of the Opposing Defendants.  On that ground also, the Injunction should be set aside.

67.The factual basis of the Plaintiffs’ case on “real risk of dissipation” was summarised at paragraph 18.5 of Borrelli 1:

“ 18.5. there is a real risk that the Relevant Defendants are taking or will take steps to dissipate their assets, including proceeds of the Fraud, in circumstances where there is a good arguable case against them for fraudulent misappropriation and/or receipt of the funds stolen from the Plaintiffs, and their low commercial morality is evidenced by their previous dishonest or questionable conduct, including the elaborate steps taken by them to conceal the Fraud. This risk is heightened as the Plaintiffs have commenced serving the Hong Kong Protective Writs such that the Relevant Defendants are either aware or will soon become aware of the claims made against them. Furthermore, there is evidence that certain of the real property owned by Ms Bi and Mr Wu has recently been put on the market, highlighting the need for urgent injunctive relief to protect further dissipation of their assets pending determination of the Actions;”

68.In paragraphs 53 and 54 of the Plaintiffs’ skeleton argument for the ex parte application on 11 December 2017, their contention was summarised in these terms:

“ 53. The Relevant Ds, and each of them, have demonstrated low commercial morality and questionable integrity, as well as a propensity to involve themselves in the dissipation of the assets misappropriated from P1‑P2.

54. Without the injunction, it is likely that the Relevant Ds will dissipate their assets so as to frustrate any judgment which may be obtained by Ps against them.”

69.In other words, the Plaintiffs are principally relying on Honsaico and Standard Chartered Securities in justifying their contention of “real risk of dissipation of assets” against the Opposing Defendants, in addition to their recent discovery that Mr Wu and Ms Bi had publicly put the Coral Island Property in Singapore and the Pensier Street Property in the US for sale.

70.The answers to the Plaintiffs’ contentions are quite simple.

71.If the Liquidators truly believe the Opposing Defendants have exhibited “an unacceptably low standard of commercial morality” or are of “questionable integrity” by reason of their alleged role in the Fraud, they would have applied for a mareva injunction against them long ago and well before alerting them of a potential or actual claim against them.  Yet, the Liquidators have done the opposite. 

72.In the case of Mr Tsang, he was alerted to the 1417 Writ on 2 August 2013 and was served with the 3391 Writ on 28 November 2017, having instructed his lawyers to accept service.  In the case of Ms Bi, the allegations against her was first levelled in December 2012 and then repeated in the oral examination in Singapore in March/May 2014 and January 2015.  Ms Bi instructed her Singapore lawyers to accept service of the 3391 Writ and they duly did so on 27 November 2017.  In the case of Mr Chong, he was alerted to the accusation against him in the letter dated 19 January 2016 from Lipman Karas to Tony Kan & Co and, at the latest, upon the conclusion of the oral examination in July 2016.  He was served with the 3391 Writ on 15 November 2017, almost a month before the ex parte application for the Injunction.  It is true that Mr Chong sold shares worth about HK$450,000 on the day he was served with the Injunction ie 15 December 2017, but, on his undisputed evidence, that took place prior to him being notified of the Injunction.  Importantly, he did not entirely clear out his BOCOM securities account — after the sale, he still had shares worth HK$1.6 million in the account.

73.The fact that the Plaintiffs waited until December 2017 to apply for the Injunction against the Opposing Defendants raises “a large question mark” as to whether there was indeed a real risk of dissipation, which has not been satisfactorily answered by the Plaintiffs in their written Reply.  All that the Plaintiffs did was to repeat their reliance onHonsaico and Standard Chartered Securities and the Opposing Defendants’ alleged involvement in the Fraud.  But even if this court accepts there is a good arguable case of fraud or dishonesty against the Opposing Defendants, (as to which see the next section), this court may more readily but is not bound to infer a real risk of dissipation — this court still has to consider that risk in light of all the evidence before it.

74.In this court’s view, there is no solid or cogent evidence to justify an inference that the Opposing Defendants would, given the opportunity, dissipate their assets so as to evade the due process of the law.  They have been given ample opportunity to do so but notwithstanding the vigorous and extensive investigation carried out by the Liquidators over the years, the evidence now before this court fails to show they had dissipated their assets after having been alerted to the potential/actual claims against them.

75.For these reasons, this court is not satisfied that the Plaintiffs have shown a real risk of dissipation of assets.  The Injunction must also be set aside on this ground.

Good arguable case

76.Mr Tsang is, in addition to Mr Wu, said to be the main perpetrator of the Fraud.  The pleaded causes of action against him include fraudulent breach of fiduciary duty/trust, want of authority, conspiracy to defraud and knowing receipt.  In his skeleton argument, there is no serious attempt to contest the good arguable case against him.  Instead, Mr Tsang “is content to leave the matter in the Court’s hands” for the limited purpose of this application.  On the materials available, this court is satisfied that a good arguable case based on fraud/dishonesty has been made out.

77.Mr Chong had received US$115.86m by himself or Kam Hing and US$66m through other entities controlled by him.  By any standard, these are huge sums of money for Mr Chong, who claims to be in the garment manufacturing business as well as garment quota trading business on a part‑time basis, to receive, particularly in light of the fact that his business and the business of Mr Wu and Mr Tsang via the 1^st Plaintiff were totally unrelated.  His explanation for receiving the funds and then transferring them out at the behest of Mr Wu and Mr Tsang was in the words of his counsel “With a view to maintaining a good relationship with them … just to do them a favour, upon their request”.

78.According to his skeleton submissions, Mr Chong does not challenge there is a good arguable case on the 3 causes of action[3] pleaded against him viz conspiracy to defraud, dishonest assistance, knowing receipt and as such.  Instead, he claims to have “a strong limitation defence which is unlikely defeated by any of the postponement provisions”, save for 1 transaction of about HK$1m which took place in May 2011.

79.Ms Bi had received US$14.1m through her personal bank accounts and trust accounts held or controlled by her and US$3.5m through Long Chart and WB, both controlled by her.  The causes of action pleaded against her are dishonest assistance, knowing receipt and restitution for want of authority.

80.According to Ms Bi’s executive summary, her contentions on no “good arguable case” are that (i) there is no direct evidence to substantiate the Plaintiffs’ allegations of dishonesty or knowledge making it unconscionable for her or her companies to receive the relevant funds, the necessary mens rea for dishonest assistance and knowing receipt — instead, the Plaintiffs ask the Court to proceed on the basis of inference and suspicion; (ii) she has comprehensively explained on oath the legitimate reasons for her to receive monies from Mr Wu who was at the time still her husband albeit separated; and (iii) the Plaintiffs’ claim for money had and received[4] is time‑barred, save for one sum of about US$0.8m received in July 2011, without any viable arguments for postponement — s 26(1)(a) of the Limitation Ordinance is of no avail since money had and received is not a cause of action based on “fraud” but a strict liability claim.  These contentions are extensively elaborated upon in her skeleton submissions and shall not be repeated here.

81.As far as the limitation defence is concerned, the Plaintiffs, in their written Reply, are content to accept, for the purpose of this application only, the 6‑year limitation period applies to claims for conspiracy, dishonest assistance, knowing receipt and restitution for want of authority. But they rely on inter alia s 26(1) and (2) of the Limitation Ordinance to extend or postpone the limitation period.  The relevant parts of section 26(1) and (2) provide:

“ (1) Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either—

(a) the action is based upon the fraud of the defendant;

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

…

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

(2) References in subsection (1) to the defendant include references to the defendant’s agent and to any person through whom the defendant claims and his agent.”

82.Relevantly for the present purpose, “fraud” in s 26(1)(a) includes a dishonest assistance claim: Madoff Securities International Ltd v Raven & Ors [2013] EWHC 3147 (Comm) at [386].  Further, s 26(1)(a) applies not only where the defendant has committed a fraud, but also where the claim is based on the fraud of “any person through whom the defendant claims”: s 26(2).  

83.Hence, at least for the dishonest assistance claim against Mr Chong and Ms Bi, the limitation period is liable to be extended until the Plaintiffs had discovered the Fraud which the Liquidators said was in December 2013 when they found out Supreme Well’s BEA bank account was controlled by Mr Tsang.  This was described as a “major breakthrough” in the Liquidators’ investigations in Borrelli 4 at paragraph 41.  Subsequent investigations in Hong Kong revealed that Mr Tsang was also the sole signatory of Supreme Well’s BOC account.  Indeed, as a matter of inherent probabilities, the Fraud could not have been discovered prior to the appointment of the Liquidators as the provisional liquidators of the 1^st Plaintiff by Harris J in November 2012 — it was after their appointment that any meaningful investigation into the affairs of the 1^st Plaintiff would have begun.

84.That is sufficient to deal with the limitation defence — it is unnecessary to deal with the Plaintiffs’ alternative reliance on s 26(1)(b) on the basis of deliberate concealment of the Fraud by Mr Chong and Ms Bi.

85.As far as Mr Chong is concerned, this court is satisfied that there is sufficient objective evidence for inferring knowledge of the Fraud on his part which includes inter alia (i) he acted in accordance with the instructions of Mr Wu and Mr Tsang in receiving and, shortly afterwards, transferring out huge sums of money without asking questions, (ii) he admittedly had no business dealings with Mr Wu or Mr Tsang, (iii) the named directors and beneficial owners of Supreme Well at the time of the Acquisitions were relatives or close friends of Mr Chong.

86.As far as Ms Bi is concerned, this court is also satisfied that there is sufficient objective evidence for inferring knowledge of the Fraud on her part which includes inter alia (i) she received US$14.1m and her companies viz Long Chart and WB received US$3.5m but was unable to produce any documents to justify her entitlement to receive such sums or her so‑called comprehensive explanation for receiving them, (ii) her continued business and financial dealings with Mr Wu after their alleged separation in 2001 which, on the evidence highlighted to this court by Ms Chan SC in her written Reply, is questionable to say the least, and (iii) Ms Bi’s allegation that Mr Wu continued to manage their joint investments after their alleged separation in 2001.

87.Regarding Ms Bi’s complaint of a lack of direct evidence to substantiate the Plaintiffs’ allegations of dishonesty or knowledge making it unconscionable for her or her companies to receive the relevant funds and her comprehensive explanation on the legitimate reasons for her to receive monies from Mr Wu ie from time to time, Mr Wu would send proceeds of the sale of their joint investments as well as living expenses for her and her daughter, this court has carefully considered the explanation and her counsel’s submissions.  However, this court agrees with Ms Chan SC that claims involving fraud and dishonesty are almost invariably based on inferences, so the lack of direct evidence cannot be a complete answer to the Plaintiffs’ “good arguable case”.  Further, Ms Bi’s comprehensive explanation is untested by cross-examination.  For the purpose of this application, this court is not prepared to accept her explanation at face value so as to defeat the Plaintiffs’ good arguable case against her.  After all, the test for “good arguable case” is simply for the Plaintiffs to show a case which is more than barely capable of serious argument, but not necessarily one that the judge believes to have a better than 50% chance of success.  In any event, the existence of a good arguable defence does not necessarily negate a good arguable case.

88.For all the above reasons, this court is satisfied that the Plaintiffs have shown a good arguable case against each of the Opposing Defendants.

Material non‑disclosure

89.The parties have made very lengthy submissions on material non‑disclosure.  Given this court’s decision to set aside the Injunction, no useful purpose can be served by dwelling on these submissions except to significantly lengthen this Judgment, which this court is not minded to do.

Disposition and costs order nisi

90.The Injunction against the Opposing Defendants is hereby set aside and discharged.  This court shall make no order on the Fortification Summons which is rendered academic by this court’s decision to set aside/discharge the Injunction.

91.There shall be an order nisi that costs of and occasioned by the Continuation Summonses and the Discharge Summons be to Mr Tsang, Ms Bi and Mr Chong, as the case may be, to be taxed if not agreed, and paid forthwith, with Certificate for 2 Counsel in the case of Mr Tsang and Ms Bi, and Certificate for Counsel in the case of Mr Chong.

92.Lastly, this court thanks the legal representatives of all parties for their helpful assistance.

Ms Linda Chan SC and Mr Norman Nip, instructed by Lipman Karas, for the Plaintiffs

The 1^st Defendant, Wu Xiaodong, was not represented and did not appear

Mr Edward Alder and Mr Joseph Wong, instructed by P. C. Woo & Co, for the 2^nd Defendant

Lam, Lee & Lai, for the 3^rd Defendant, excused from attendance

Mr Martin Ho, instructed by Tony Kan & Co, for the 5^th Defendant

Mr Stewart Wong SC and Ms Elizabeth Cheung, instructed by Eversheds Sutherland, for the 13^th Defendant