Cosimo Borrelli As Trustee of the Sfc Litigation Trust v. Allen Tak Yuen Chan and Others

HCMP 2174/2014

[2019] HKCFI 2999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2174 OF 2014

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D E C I S I O N

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Introduction

1.Pursuant to a court order, the 5^th Defendant (“Mr Danny Wu”) paid a sum of HK$16,275,000 representing the 1^st Defendant’s assets into court, as security for the Plaintiff’s action against the 1^st Defendant in Ontario, Canada.  Having obtained judgment in Ontario against the 1^st Defendant, the Plaintiff applies for payment out. This is resisted by Mr Danny Wu who claims that the condition for payment out has not been met.

Undisputed facts

2.The background facts are not disputed and are taken from the skeleton submission of Ms Holden, solicitor for the Plaintiff.

3.On 31 March 2014, the Plaintiff commenced proceedings against the 1^st Defendant in the Ontario Court of Canada (“Ontario Proceedings”), seeking damages for claims of wide-ranging fraud and breaches of fiduciary duty arising out of the 1^st Defendant’s role as the former chairman and CEO of Sino Forest Corporation (“SFC”).

4.On 28 August 2014, the Ontario Court granted the Plaintiff a worldwide Mareva injunction prohibiting the 1^st Defendant from selling, dissipating or dealing with his assets, whether in his own name or otherwise. The Plaintiff also obtained disclosure orders against the 1^st Defendant (“the Ontario Mareva”).

5.On 29 August 2014, Anthony Chan J granted the Plaintiff an ancillary Mareva injunction against the 1^st Defendant’s assets in Hong Kong up to the value of HK $2,250,000,000 pursuant to section 21M of the High Court Ordinance (“the Hong Kong Mareva”).

6.As part of his disclosure pursuant to the Ontario Mareva, the 1^st Defendant disclosed that Win Fair Holdings Group Limited (“Win Fair”) was under his control, and its assets were subject to the Ontario Mareva and the Hong Kong Mareva.  Win Fair advanced US$1,300,000 to his female companion (D2) and US$2,600,000 to each of his daughters (D3 and D4) (collectively, “the Sums”).  Those advances were made very shortly after publication of a short-seller report in relation to SFC in June 2011, that ultimately led to SFC’s collapse.

7.As a result of this disclosure, on 9 January 2015, Chow J made orders extending the Hong Kong Mareva to freeze the bank accounts of D2 to D4 that received the funds from Win Fair.  He also ordered D2-D4 to disclose how the Sums had been used and the current whereabouts.

8.On 7 July 2016, D2 to D4 disclosed that substantial transfers totalling HK$34,525,000 originating from the Sums were paid to 3 BVI Companies (“the Substantial Transfers”).

9.As a result of the Substantial Transfers, the Plaintiff commenced contempt proceedings against D1 to D4 in HCMP 1987 of 2016 for breach of the Ontario Mareva and Hong Kong Mareva.

10.On 24 October 2014, Campbell-Moffat J granted orders allowing the Plaintiff to obtain from Fubon Bank and ICBC details of the account signatories of the 3 BVI Companies.  The account opening form subsequently produced confirmed that the bank accounts of the 3 BVI Companies were all controlled by Mr Danny Wu.

11.In the light of that information, the Plaintiff filed a summons for Mr Danny Wu to disclose the whereabouts of the Substantial Transfers (“Disclosure Summons”).

12.On 24 November 2016, the day before the return date of the Disclosure Summons, Mr Danny Wu filed an affirmation in opposition deposing to the following facts:

(1)     That he had made payments in the PRC at the 1^st Defendant’s direction, which accounted for approximately HK$18,250,000 of the Substantial Transfers;

(2)     That he had made payments of the balance of the Substantial Transfers totalling HK$16,275,000 in the PRC on behalf of the 1^st Defendant, with the 1^st Defendant paying Mr Danny Wu “in Hong Kong dollars equivalent in Hong Kong”; and

(3)     That having made such payments in the PRC, the balance of the Substantial Transfers in the 3 BVI Companies’ Accounts were his funds and the subsequent withdrawals were for his own purposes.

13.Mr Danny Wu declined to provide any records to substantiate the purported payments he had made in the PRC on behalf of the 1^st Defendant. Instead, Mr Danny Wu indicated that he was willing to pay into court the balance of the Substantial Transfers totalling HK$16,275,000, in lieu of disclosure.

14.On 7 December 2016, upon undertakings from Mr Danny Wu, Campbell-Moffat J made the subject order (“the Order”) with these terms:

“AND UPON the 5^th Defendant’s [ie Mr Danny Wu’s] undertaking to make “payment into court a sum of HK$16,275,000 (“Payment”) on or before 3 January 2017 upon the terms hereinunder set out …

AND UPON the Intended 5^th Defendant’s undertaking not to seek enforcement of any judgment obtained against [the 1^st Defendant] to indemnify [Mr Danny Wu] for the said Payment for so long as any judgment obtained by the Plaintiff (if any) in the Action (as defined below) remains unsatisfied …

AND UPON the Intended 5^th Defendant’s undertaking to consent to payment out to the Plaintiff from the Payment of such amounts as are necessary to satisfy the judgment debt (if any) in the Action as defined below and any order for costs against the 1^st Defendant in the Action and in these proceedings.

IT IS ORDERED THAT:

…

(3)     The Payment:

(a)     stands, as between the Plaintiff and the 5^th Defendant (and as between them only) as representing the assets of the 1^st Defendant; and

(b)     stands as security in response of (sic) the Plaintiff’s action in [the Ontario Proceedings] (the “Action”) to the extent that there are insufficient assets of the 1^st Defendant in Canada and/or in Hong Kong available to fully satisfy any judgment debt thereof.”

The words underlined in paragraph (3)(b) shall be referred to as “the Condition”.

15.After a 48-day trial, on 14 March 2018, the Ontario court awarded damages to the Plaintiff that totalled CAD$2.9 billion and punitive damages of CAD$5 million (“the Ontario Judgment”).

16.The Court of Appeal for Ontario dismissed the 1^st Defendant’s appeal on 24 June 2019. There is a pending application by the 1^st Defendant for leave to appeal to the Supreme Court of Canada but the 1^st Defendant’s application for stay of execution pending the leave application has been dismissed by the Court of Appeal for Ontario on 9 September 2019.

17.Meanwhile, on 28 March 2018, the Plaintiff commenced proceedings in Hong Kong in HCA 709/2018 against the 1^st Defendant to enforce the Ontario Judgment (“HK Enforcement Proceedings”).

18.On 18 October 2019, the Plaintiff took out this summons for payment out.

19.On 28 October 2019, Master H Au-Yeung granted summary judgment to the Plaintiff in the HK Enforcement Proceedings, whereby the 1^st Defendant was adjudged to pay the sum awarded in the Ontario Judgment, together with interest and costs.

Undisputed legal principles

20.The court has unfettered discretion to order payment out so as to achieve justice between the parties on a case by case basis: MGA Entertainment Inc v Toy and Trends (Hong Kong) Ltd & ors, HCA 2152/2002 (unrep, 15 July 2014), per Master H Au-Yeung at §§16‑17.

21.In the normal course of events, money will be released for the purpose it was paid in, such as to satisfy a judgment sum where payment in was a condition for stay of execution: MGA Entertainment at §18.

22.Where the applicant is prima facie entitled to the release of funds in the court, the onus is on the counterparty opposing the release to give some good reason justifying why the money should remain in court: Ng Chi Kwan, Danny Summer & anor v Yeung Yiu Kwai & anor [2015] 1 HKC 348 per DHCJ Marlene Ng (as she then was) at §§21, 22 & 25.

23.The fact that an unsuccessful party who has paid money into court may seek to appeal is not a legitimate matter for the court’s consideration.  There is no reason to defer payment out where no stay of execution of the judgment has been sought: Wear Me Apparel LLC v Lam Na, HCA 149/2009 (unrep, 25 April 2013), per Au-Yeung J at §§6 & 15.

Application of the legal principles

24.Determination of this summons turns on interpretation of the Condition. Mr Bernard Mak and Mr Ernest Ng for Mr Danny Wu submit that in order to apply for payment out, the Plaintiff must show:

(1)     That there is a judgment debt in the Action in Canada;

(2)     That enforcement proceedings against the 1^st Defendant’s assets have been commenced and concluded in Canada and Hong Kong, unless in exceptional circumstances where the commencement of such proceedings is otherwise impracticable; and

(3)     That the fruits of those enforcement proceedings are insufficient to fully satisfy the judgment debt in the Action and the judgment debt remains unsatisfied after those proceedings.

25.In respect of proposition (1), Mr Bernard Mak conceded that it has been fulfilled by reason of the Ontario Judgment. 

26.The application for leave to appeal to the Supreme Court of Canada is, in my view, irrelevant as there is no automatic stay of execution of judgment and this court has no power to order a stay: Wear Me Apparel.

27.In respect of proposition (2), I do not agree that commencement or conclusion of proceedings is a necessary starting point.  The Order must be construed with common sense.  The primary obligor to pay the judgment debt is still the 1^st Defendant.  Assuming he has only CAD$1,000 in a bank account in Canada and a similar amount in a Hong Kong bank, it is simply impracticable to commence enforcement proceedings in either jurisdiction since the costs are likely to exceed the fruits of the enforcement proceedings.  The Plaintiff should be at liberty to apply for payment out upon disclosure of that situation (with credible proof) to the court.

28.Similarly, if the 1^st Defendant only has CAD$100,000 in a bank account in Canada but no asset elsewhere, there is no need to wait till conclusion of garnishee proceedings before the Plaintiff can apply for payment out because the assets (after taking into account costs) are plainly insufficient.

29.The intention of the Order was clear: that assets of the 1^st Defendant in Canada and/or Hong Kong must first be shown (with credible evidence) to be insufficient to cover the judgment debt before the frozen funds in court can be utilized.

30.Strict adherence to the terms of the Order would not cause prejudice to either party as the money will remain in court until the Condition has been satisfied.  This approach is consistent with the principle in MGA Entertainment, especially since the Order was entered into by consent with the assistance of leading counsel on both sides.

31.Mr Danny Wu should not be troubled to seek indemnity from the 1^st Defendant if the latter has the resources to meet the judgment debt in the first place.  Adherence to the terms of the Order will also protect other judgment creditors who may have priority over the funds in court.

32.In respect of proposition (2), the only “enforcement action” taken by the Plaintiff was the HK Enforcement Proceedings.  The Plaintiff only obtained the summary judgment against the 1^st Defendant on 28 October 2019, 10 days after the payment out summons was issued. 

33.There is no evidence of enforcement proceedings in Canada, nor evidence that the 1^st Defendant would not honour the Ontario Judgment. 

34.Mr Borrelli’s 11^th affidavit in support of this summons wrongly relied on an order in draft form and simply failed to explain how the Condition was satisfied.

35.It was only in his 12^th affidavit that Mr Borrelli averred that assets disclosed by the 1^st Defendant in Hong Kong and Singapore were worth only about HK$214,000,000.  Those assets comprised bank balances, Hong Kong real properties held for the benefit of the 1^st Defendant and the money in court.  Even if all his disclosed assets worldwide are taken into account, they are only worth about HK$304,000,000, way below the Ontario Judgment sum.  The Plaintiff has not been able to identify other available assets.

36.In my view, the Plaintiff’s situation falls within the analogy in paragraph 28 above and meets the intention of the Order set out in paragraph 29 above.  It is not necessary to wait for conclusion of the Hong Kong Enforcement Proceedings nor commencement of enforcement proceedings in Canada. 

37.Consequentially, proposition (3) has been fulfilled as the fruits of any enforcement proceedings in any of the 2 jurisdictions will be insufficient to fully satisfy the Ontario Judgment sum.

Conclusion

38.Since the Condition imposed by the Order has been met, the Plaintiff is entitled to payment out and Mr Danny Wu has not rebutted the same.  I grant an order in terms of the summons.

39.It is not appropriate to grant costs to the Plaintiff on indemnity basis because Mr Borrelli’s 11^th affidavit did not show that the Condition has been fulfilled.

40.There is no complexity on law or facts.  The only “complexity” is to compile evidence showing that the value of the 1^st Defendant’s assets fell short of the Ontario Judgment sum.

41.I make an order nisi that costs be to the Plaintiff, summarily assessed at $100,000, to be borne by Mr Danny Wu.

Ms Brooke Holden, of Lipman Karas, for the Plaintiff

The 1^st to 4^th Defendants were excused from participation

Mr Bernard Mak and Mr Ernest Ng, instructed by Johnny KK Leung & Co, for the 5^th Defendant