China Medical Technologies, Inc. (in Liquidation) and Others v. Wu Xiaodong and Others
Read the full judgment text of HCA 3391/2016 on BabelCite. This High Court CFI judgment was delivered on 17 June 2019.
1. Upon the ex parte applications without notice of the Plaintiffs, a worldwide Mareva injunction was granted 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 arguments of th
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HCA 3391/2016 [2019] HKCFI 1488 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 3391 OF 2016 ________________________
________________________ Before: Hon Ng J in Chambers Date of Hearing: 30 April 2019 Date of Judgment: 17 June 2019 __________________ J U D G M E N T __________________ Introduction 1.Upon the ex parte applications without notice of the Plaintiffs, a worldwide Mareva injunction was granted 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 1st Defendant (“Mr Wu”), 2nd Defendant (“Mr Tsang”), 3rd Defendant (“Dr Chen”), 5th Defendant (“Mr Chong”) and 13th Defendant (“Ms Bi”). The Injunction was continued by Chow J on 12 January 2018 pending the substantive arguments of the Plaintiffs’ application to continue the Injunction. 2.Paragraph 4 of the Injunction was directed against Mr Tsang. Listed under paragraph 4(2) of the Injunction were inter alia the following 3 properties (“Tsang Properties”):
3.By way of amendment on 8 January 2018, a sub‑paragraph (f) was added to paragraph 4(2) of the Injunction:
4.By a judgment handed down on 22 May 2019 in these proceedings (“May Judgment”), this court set aside and discharged the Injunction against Mr Tsang, Mr Chong and Ms Bi (“Opposing Defendants”). One of the reasons for setting aside and discharging the Injunction, as stated in paragraphs 66 to 75 of the May Judgment, was that the Plaintiffs had failed to show a real risk of dissipation of assets by any of the Opposing Defendants. 5.This is the application of the Interested Party, Ms Chui, by way of summons dated 8 June 2018 (“Summons”) (i) to discharge or vary the Injunction so as to remove paragraph 4(2)(a) to (c) and (f) set out above, and (ii) for payment out of the sums of HK$1,398,000 and HK$12,582,000 paid by her into Court on 16 and 18 January 2018 respectively, upon her undertaking as set out in paragraph 11A of the Order of Chow J dated 12 January 2018. 6.In Ms Chan SC’s skeleton argument, the Plaintiffs indicate they do not oppose removing paragraph 4(2)(a), since One Island Place has already been sold, and paragraph 4(2)(f), presumably because the net sale proceeds of One Island Place have already been paid into Court pursuant to Ms Chui’s undertaking aforesaid. The Parties’ cases 7.The Plaintiffs’ substantive case against Mr Tsang and the other relevant Defendants has been set out in the May Judgment and shall not be repeated here. This judgment should be read in conjunction with the May Judgment for ease of comprehension. 8.As far as Ms Chui is concerned, she is not a Defendant and the Plaintiffs assert no substantive claim against her in these proceedings. Paragraph 4 of the Injunction is not directed against Ms Chui personally but, on her case, affected her properties and monies and hence the present application. 9.Ms Chui’s relationship with Mr Tsang is that they were married in November 1999 with a daughter but were divorced in September 2011. 10.On Ms Chui’s own evidence, between 1994 and 2007, she was a marketing manager and subsequently a senior manager of foreign‑funded companies (except in 1994‑1995), earning a gross income of over HK$6.5 million after tax. Since 1997, Ms Chui has also been actively engaged in property investment:
11.As for the Tsang Properties, the circumstances of their purchase and subsequent transfer to Ms Chui, according to her evidence, are set out below. For convenience, they are hereinafter referred to as “One Island Place”, “Les Saisons” and “Kenswood Court 5G”. 12.One Island Place was purchased by Mr Tsang and Ms Chui in November 2006 at the price of HK$4.78 million with the aid of a mortgage loan of HK$3,346,000. Ms Chui paid around HK$717,000 as part of the down payment and other related expenses. She also contributed to the repayment of mortgage instalments until discharge in June 2011. 13.Les Saisons was purchased by Mr Tsang and Ms Chui in October 2007 at the price of HK$7.88 million with the aid of a mortgage loan of HK$5,516,000. Ms Chui paid HK$1,083,500 as part of the down payment and other related expenses. She also contributed to the repayment of mortgage instalments until discharge in October 2011. 14.Kenswood Court 5G was purchased together with its adjoining unit, Flat 5H (“Kenswood Court 5H”) in September 2008, at the prices of HK$1,428,000 and HK$1,415,000. The two properties were intended to be used as a “twin unit” and served as the family home of Mr Tsang, Ms Chui and their daughter. Upon the advice of estate agents in order to pre‑empt the vendor raising the prices of the 2 properties if used as a “twin unit”, Kenswood Court 5H was purchased by and registered in the name of Ms Chui and Kenswood Court 5G was purchased by and registered in the name of Mr Tsang, holding beneficially for Ms Chui. Kenswood Court 5G was subsequently transferred back to Ms Chui when they agreed to divorce in 2011. 15.Ms Chui mortgaged Kenswood Court 5G and Kenswood Court 5H to secure 2 loans of HK$500,000 each. Mr Tsang’s name appeared in the mortgage documents for Kenswood Court 5G for the simple reason that he was the registered owner. Ms Chui paid HK$928,000 and HK$915,000 as down payments and other related expenses. She also repaid all mortgage instalments until discharge in March 2011. 16.In 2011, Mr Tsang and Ms Chui agreed to divorce. As part of the divorce financial arrangement (“Divorce Arrangement”), they agreed inter alia as follows:
17.Upon the joint application of Ms Chui and Mr Tsang, the Court granted a Consent Order dated 15 July 2011. Ms Chui would not claim distribution of any of Mr Tsang’s assets and properties other than seeking maintenance of HK$6,000 per month for herself and HK$12,000 per month for their daughter. 18.The transfer of Kenswood 5G to Ms Chui took place in March 2011, the transfer of One Island Place to her took place in June 2011 and the transfer of Les Saisons to her took place in October 2011. Regarding the transfer of Les Saisons, Ms Chui paid the agreed sum of HK$3.98 million to Mr Tsang with the aid of a new mortgage from Hang Seng Bank in the sum of HK$3 millionwhich Ms Chui is still making monthly repayments. 19.As far as One Island Place is concerned, Ms Chui entered into a preliminary sale and purchase agreement on 20 November 2017 at the price of HK$13.98 million and then the formal sale and purchase agreement on 4 December 2017. Completion of the sale and purchase was set at 17 January 2018. 20.Given the existence of the Injunction, at the hearing before Chow J on 12 January 2018, Ms Chui offered an undertaking to pay into Court the initial deposits as well as the net completion proceeds from the sale of One Island Place in return for the Injunction to be so varied as to allow her to complete the sale on 17 January 2018. Ms Chui duly did so on 16 and 18 January 2018. 21.Naturally, the Plaintiffs do not accept most of Ms Chui’s version of events. Judging from section E[1] of the Plaintiffs’ skeleton argument, the long and short of it is that Ms Chui only had modest income and savings, the purchase of the Tsang Properties were in fact funded by Mr Tsang and the Divorce Arrangement is unsupported by contemporaneous documents and is inherently incredible. Deliberation 22.Given that this court has set aside and discharged the Injunction against inter alia Mr Tsang for reasons stated in the May Judgment, it goes without saying that paragraph 4(2)(a) to (c) and (f) of the Injunction cannot stand alone and must be removed and the monies Ms Chui paid into court should be returned to her. 23.However, since the Plaintiffs have indicated their intention to take the May Judgment further, this court will go on to consider the parties’ submissions made at this hearing. 24.As set out in paragraph 42 of Ms Wu’s skeleton submissions, the grounds for Ms Chui’s application are as follows:
25.Of these 5 grounds, (3) to (5) are actually covered by (1). It is therefore only necessary to go into (1) and briefly into (2). No basis to grant the Injunction 26.In light of Ms Wu’s criticism at paragraph 5 of her skeleton submissions, Ms Chan SC was at pains to emphasize to this court that at the ex parte hearing before L Chan J, the Plaintiffs did not apply for a proprietary injunction with regard to the Tsang Properties — instead they were applying for a mareva injunction against Mr Tsang and did so on the basis that the Tsang Properties were in truth Mr Tsang’s assets. 27.That may or may not have been the Plaintiffs’ intention but the evidence in this regard before the Learned Judge, principally the 1st affidavit of Mr Borrelli dated 8 December 2017 (“Borrelli 1”), was conflicting and did suggest the Plaintiffs were asserting a proprietary interest over the Tsang Properties. For ease of reference, this court shall set out an extract of the relevant parts of paragraphs 74 to 80 of Borrelli 1 below:
28.It can be seen from the above extract that, on the one hand, the Plaintiffs claim at paragraph 76 to have reasonable grounds to believe they have a proprietary interest in the Tsang Properties on the basis that the properties were purchased by Mr Tsang with stolen funds. But on the other, at paragraph 80, the Plaintiffs consider that they have good reason to suppose the Tsang Property may indeed be the assets of Mr Tsang or assets in which he has a beneficial interest and hence would be amendable to execution of a judgment obtained against him in these proceedings, which is a key requirement for invoking the Court’s jurisdiction to grant a mareva injunction against the properties of a non‑party to the proceedings, commonly known as Chabra jurisdiction. 29.At paragraphs 38 and 44 of the Plaintiffs’ skeleton argument for the hearing on 11 December 2017, they again referred to inter alia the above paragraphs and their conflicting claims to the Tsang Properties:
30.The same conflicting claims were in fact repeated in paragraph 9 of the Plaintiffs’ skeleton argument for the 8 January 2018 hearing before L Chan J. 31.In light of the conflicting claims made in Borrelli 1 and the skeleton argument, and in view of the Plaintiffs disowning any proprietary claim over the Tsang Properties on the basis they were purchased with funds fraudulently misappropriated from the 1st and 2nd Plaintiffs, it was prudent of, if not incumbent on, them to emphasise to L Chan J at the hearing on 11 December 2017 that they did not have and were not asserting a proprietary claim to those properties. According to the transcript of that hearing, which lasted slightly longer than 15 minutes, it did not appear they had done so. 32.Further, and importantly, if the Plaintiffs disown any proprietary claim over the Tsang Properties and rely solely on the Chabra jurisdiction, they should have clearly explained to L Chan J the significance[2] and requirements of the Chabra jurisdiction and how those requirements were met or arguably not met. This, according to the transcript of that hearing, the Plaintiffs again did not appear to have done, which is the gist of the complaint made by Ms Wu in her skeleton submissions. 33.On the principles applicable to the Chabra jurisdiction, this court need only refer to 2 cases. 34.First, in XY, LLC v Jesse Zhu [2017] 5 HKC 479, Kwan JA observed at [24] that:
35.Second, in Company A & Ors v Company D & Ors unrep, HCCT 31 of 2018, 15 February 2019 at [71], [83] and [86], Recorder Eugene Fung SC summarised the key requirements of the Chabra jurisdiction as follows:
36.In the present case, Ms Chan SC and Ms Wu differ on (i) whether it is necessary to show real risk of dissipation of the Tsang Properties in order to invoke the Chabra jurisdiction and (ii) if yes, whether the court should only look at the conduct of Ms Chui (as Ms Wu contends) or Mr Tsang (as Ms Chan SC contends). 37.At paragraph 55.2 of the Plaintiffs’ skeleton argument, it is submitted that all the authorities cited by Ms Chui (and which Recorder Fung SC referred to) state that the only requirementthat needs to be satisfied is that there is good reason to suppose the assets would be amenable to execution of a judgment against the CAD (assuming a case of Mareva is made good against the CAD). There is no additional requirement to show risk of dissipation on the part of NCAD. 38.With respect, that submission is fallacious for a number of reasons. 39.First, it blatantly ignores paragraphs 71(2) and 83(1) and (2) of Recorder Fung SC’s Judgment quoted above with which this court respectfully agrees. 40.Second, it also conveniently ignores the warning of Popplewell J that the Chabra jurisdiction should not operate oppressively to innocent third parties who “have not acted to frustrate the administration of justice”. In the present case, if the Plaintiffs cannot show a real risk of dissipation of the Tsang Properties by Ms Chui, the Chabra jurisdiction would indeed operate oppressively to her. 41.Third, it is based on a misunderstanding of Popplewell J’s judgment in PJSC Vseukrainskyi Aktsionernyl Bank v Maksimov, cited with approval by Kwan JA at paragraph 24(1) of XY, LLC v Jesse Zhu quoted above. It is true the fact that a plaintiff can show good reason to suppose assets held in the name of a third party would be amenable to some process by which the assets would be available to satisfy a judgment against the substantive defendant may enable the plaintiff to invoke the Chabra jurisdiction; however, that is not the same as saying it is the only requirement for the exercise of that jurisdiction. 42.Another well‑established requirement for the exercise of the Chabra jurisdiction, as with the exercise of any jurisdiction to grant injunctive relief, is that it is just and convenient to do so. In the present case, if the Plaintiffs cannot show a real risk of dissipation of the Tsang Properties by Ms Chui, it is difficult to see why it is just and convenient for the Court to exercise the jurisdiction over the Tsang Properties which after all were and are held in her sole name. Similarly, if the Plaintiffs cannot show a real risk of dissipation of the Tsang Properties by Mr Tsang eg by proving he has substantial control over the Tsang Properties, again it is difficult to see why it is just and convenient for the Court to exercise the jurisdiction over them. 43.For these reasons, this court is of the firm view that the Plaintiffs must be required to demonstrate a real risk of dissipation of the Tsang Properties by Ms Chui and/or by Mr Tsang. 44.As far as Ms Chui is concerned, there is no attempt on the Plaintiffs’ part to demonstrate that there is a real risk of dissipation of the Tsang Properties by her. In section F of their skeleton argument, the Plaintiffs only seek to argue, as a matter of law, that is not required for the purpose of the Chabra jurisdiction. 45.In any event, the evidence before this court does not justify an inference that there is a real risk of dissipation of the Tsang Properties by Ms Chui. The Tsang Properties were all transferred to her sole name in 2011. This is not in dispute. The Plaintiffs’ theory is that the transfer was done (by Mr Tsang and Ms Chui acting in collusion) in order to put the Tsang Properties out of reach of any judgment that the Plaintiffs may obtain against Mr Tsang. If that theory is sound, the logical next step must be for Ms Chui to put the Tsang Properties up for sale as soon as possible and then hide the sale proceeds. But that was not what happened. Ms Chui only entered into a preliminary sale and purchase agreement in respect of One Island Place on 20 November 2017, 6 years after the transfer to her and almost 1 year after the Writ in the present proceedings was issued on 23 December 2016. In this court’s view, that is not the sort of conduct of someone who colludes with Mr Tsang in order to dissipate what is allegedly Mr Tsang’s assets. 46.As far as Mr Tsang is concerned, this court has already ruled that it is not satisfied the Plaintiffs have shown a real risk of dissipation of assets by any of the Opposing Defendants, including Mr Tsang himself, for reasons stated in paragraphs 66‑75 of the May Judgment. Just to re‑cap the part concerning Mr Tsang, this court said this in the May Judgment:
47.While the Plaintiffs assert, at paragraph 56 of their skeleton argument, that he has substantial control over the Tsang Properties, this is nothing but a bare assertion. Assuming for the sake of argument that Mr Tsang did have substantial control over the Tsang Properties, it seems to this court he would have put them up for sale or procured Ms Chui to do so as soon as possible in 2011 and the Tsang Properties would have been sold well before the present proceedings were issued. That did not happen. 48.To conclude, for the above reasons, this court agrees with Ms Wu that there was and is no basis for granting the Injunction on the Chabra basis over the Tsang Properties or the One Island Place sale proceeds. Material non‑disclosure and misrepresentation 49.It is well‑established that any applicant to the Court for relief without notice must act in the utmost good faith and disclose to the Court all matters which are material to be taken into account in deciding whether or not to grant relief without notice. The same principles apply to material misrepresentations as to material non‑disclosure. It applies not just to disclosure of facts but to absolutely anything which the judge should consider, as part of the duty of the applicant to present the application fairly: Gee Commercial Injunctions 6th Ed para 9‑001. 50.Matters going to the jurisdiction of the Court to entertain the application are material: Gee Commercial Injunctions 6th Ed para 9‑011. In this regard, as this court noted above, the Plaintiffs had failed to explain to L Chan J the significance and requirements of invoking the Chabra jurisdiction and how those requirements were met or could be argued by Ms Chui as not met. This is a serious material non‑disclosure. On this ground alone, the Injunction covering the Tsang Properties and the sale proceeds in question should be discharged. 51.As far as material misrepresentation is concerned, the Plaintiffs have frankly and very properly accepted that there was a misstatement in Borrelli 1 that the Tsang Properties were purchased without mortgage. This is clearly a material fact since it bolstered the Plaintiffs’ submission that Ms Chui did not have the necessary funds to contribute to the purchase price of the Tsang Properties whereas Mr Tsang did — hence the properties are in truth his assets and hence the propriety of invoking the Chabra jurisdiction. 52.However, this court wishes to put on record that it is satisfied that this was due to an inadvertent oversight rather than a deliberate attempt to mislead L Chan J. Mortgages over real properties are invariably registered with the Land Registry and it only takes a simple land search to find out whether the Tsang Properties were or were not subject to mortgage. It is unthinkable that the Liquidators or their legal advisers would deliberately mislead L Chan J on something like this. Nevertheless, given the materiality of the misstatement, on this ground also, the Injunction covering the Tsang Properties and the sale proceeds in question should be discharged. 53.Whether or not there should be a re‑grant of the Injunction is entirely academic, given this court’s conclusion that there was and is no basis for granting the Injunction on the Chabra basis over the Tsang Properties or the sale proceeds in question. Disposition and costs order nisi 54.There shall be an Order in terms of paragraphs 1 and 2 of the Summons and an order nisi that costs of and occasioned by the Summons be to the Interested Party, to be taxed if not agreed, and paid forthwith, with Certificate for 2 Counsel. 55.Lastly, this court thanks the legal representatives of the parties for their helpful assistance.
Ms Linda Chan SC and Mr Danny Tang, instructed by Lipman Karas, for the Plaintiffs Ms Teresa Wu and Ms Eva Leung, instructed by Fairbairn Catley Low & Kong, for the Interested Party | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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