Convoy Collateral Ltd v. Cho Kwai Chee (also known as Cho Kwai Chee Roy) and Others

HCA 399/2018

[2020] HKCFI 690

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 399 OF 2018

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BETWEEN

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Before: Hon Harris J in Chambers

Date of Submission by the Plaintiff (Intended Appellant): 31 March 2020

Date of Submission by the 1^st Defendant (Intended Respondent): 1 April 2020

Date of Decision: 7 May 2020

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D E C I S I O N

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1.On 30 October 2019 I heard the Plaintiff’s application for an order restraining the 1^st Defendant from disposing of his assets within or outside Hong Kong up to the value of $654,057,954. I delivered my judgment dismissing the application on the 11 March 2020. The first defendant has sought leave to appeal that decision.

2.An unusual feature of this application is that the Plaintiff has already obtained similar relief to that sought in Hong Kong in the British Virgin Islands (“BVI”) for reasons explained in my decision.  The relevant orders remain in place pending decisions of the Court of Appeal in the BVI, which were awaited at the time of the application was made and  I understand have not yet been handed down.

3.As the Plaintiff acknowledges, in order to obtain leave to appeal it has to show a reasonable prospect of success [1]. As my decision involved the exercise of a discretion, the Plaintiff needs to demonstrate that I exercised the discretion under a mistake of law [2] or my conclusion was outside the generous ambit within which reasonable disagreement is possible [3].

4.Although neither the Notice of Appeal nor the Plaintiff’s skeleton acknowledge this, what the Plaintiff wants the opportunity to argue is that the test, which it is required to satisfy in respect of the risk of dissipation of assets, is lower than it accepted was the case before me and then re-argue the application based on that lower threshold.

5.In [12]–[13] of my decision I set out what I understood to be the criteria, which need to be satisfied in respect of the risk of dissipation of assets.  For convenience I quote these paragraphs:

“12. The purpose of granting a freezing order is to restrain a defendant from evading justice by disposing of assets otherwise than in the normal course of his affairs with the result that a defendant becomes judgment proof. It is not to provide security for the plaintiff [4]. There must be concrete evidence that there is a real risk of dissipation of assets in the sense which I have described [5]. It is not sufficient to show that a defendant has a reason or the opportunity to dissipate assets. Gloster LJ explains this in [59] of Holyoake v Candy [6]:

‘59(ii). However, the mere possibility of a party using a complex corporate structure or corporate reorganisation to dissipate assets, without more, does not equate to a risk of dissipation. Otherwise, the burden of proof would be reversed: parties subject to a freezing order application would be compelled to show that they would not dissipate assets in that way.

59(iii). This emphasis is important. An applicant must show a risk of dissipation as opposed to it merely being possible (without more) that the claimant could dissipate in that way: (a) In Mediterranean Feeders LP v Bernd Meyering Schiffahrts (unreported) 5 June 1997 the Court of Appeal approved Tuckey J’s rejection of the proposition that a freezing order was appropriate where there might be a temptation to dissipate assets—but no evidence whatsoever that the claimant to the application would yield to it. Evans LJ said:

“Given the nature of the Mareva jurisdiction and given the fact that it is not, as the judge says: “a means of obtaining advance security for a claim”, it is inevitable that before the court can be satisfied that there is a risk of dissipation, in the sense in which that term has been used, the court must consider whether there is any evidence that in the particular case the asset will be dissipated rather than otherwise. If there is no such evidence then, in my view, it would be wrong for the injunction to be granted.”

(b) Several cases have emphasized that there is nothing implicit in complex, offshore corporate structure which evidences an unjustifiable risk of dissipation…’

13. There is no presumption either that a defendant will make himself judgment proof if he is able or that a defendant who can be shown to have the means and wherewithal to do so.  Otherwise, as Gloster LJ observes, the burden of proof would be reversed.  It is necessary for the risk to be proved and in assessing whether or not it has been proved the court will have regard to all relevant background matters that provide an aid to determining whether the risk has been demonstrated.  Commonly it is argued that evidence of dishonesty or low commercial ethics is capable of justifying the inference that a defendant will attempt to make himself judgment proof.  However, the evidence must be relevant to the risk of dissipation, not simply the underlying claim [7].”

6.This was consistent with the Plaintiff’s submission on the law (which was very limited [8]) in which it appears to accept that it is necessary for the Plaintiff to establish a real risk of dissipation.  The 1^st Defendant’s counsel, Linda Chan SC (as she then was) made more comprehensive submissions, which were not disputed by the Plaintiff’s counsel either in written reply submissions or so far as I can recall in oral submissions.

7.The Plaintiff now seeks to argue (at least as I understand the Plaintiff’s notice of appeal[9] and written submission in support of the application for leave) on the basis of a recent decision of the English Court of Appeal in Lakatamia Shipping Company Limited v Toshiko Morimoto [10], that it is not necessary to prove on the balance of probabilities a real risk of dissipation.  It is sufficient, so the Plaintiff now argues, to show a good arguable case of a risk of dissipation and that, this being the criteria, if there is a good arguable case that the defendant has been involved in             wrong-doing this is of itself close to sufficient to establish a risk of dissipation.

8.The Plaintiff wants to re-argue its application before the Court of Appeal assisted by what, in practice, it is contending is a lowering of the test that it needs to satisfy.

9.The principal judgment in Lakatamia was given by      Haddon-Cave LJ.  He summaries his conclusion, with which the other judges agreed, although in the case of McCombe LJ with what he describes as “with some hesitation”, in [51].  He says this:

“51. In my view, in the light of the authorities which I consider in detail below, the correct approach in law should be formulated in the following two propositions:

(1) Where the court accepts that there is a good arguable case that a respondent engaged in wrongdoing against the applicant relevant to the issue of dissipation, that holding will point powerfully in favour of a risk of dissipation.

(2) In such circumstances, it may not be necessary to adduce any significant further evidence in support of a real risk of dissipation; but each case will depend upon its own particular facts and evidence.”

10.It seems to me that in the present context the important component of this approach is that the alleged wrong-doing is relevant to the issue of dissipation.  This cannot in my view mean, as the Plaintiff appears to suggest, that if the alleged wrong-doing involves impropriety or possibly unlawful conduct that it follows a form of presumption arises that the defendant will dissipate their assets unless restrained.  In my view, what Lakatamia is explaining is that if the wrong-doing involves activities, which are consistent with dissipation, for example misappropriation of assets, the court may accept that this points to a material risk of dissipation.  I do not read Lakatamia as saying simply because the wrong-doing involves allegations of dishonesty the Court should assume a defendant will try and hide their assets.

11.In the present case, in my view the allegations of wrong-doing are not of themselves relevant to the risk of dissipation.  It is correct that the nature of the claims that are described in my earlier decision involve impropriety, but the nature of the impropriety does not of itself point powerfully to a risk of dissipation.

12.I am not satisfied that it can be said that I misapprehended the legal principles or that my decision fell outside the range of reasonable decisions open to me on the basis of the evidence and the argument before me in October.  It seems to me that the Plaintiff simply want to have the opportunity to re-argue the application.  I, therefore, decline to give leave.  I dismiss the application.  The Plaintiff shall pay the 1^st Defendant’s costs with a certificate for two counsel forthwith.

Mr José Maurellet SC, Mr John Hui and Mr Howard Wong, instructed by Charles Chu & Kenneth Sit, for the plaintiff (intended appellant)

Mr Jonathan Chang and Mr Peter Dong, instructed by Raymond Siu & Lawyers, for the 1^st defendant (intended respondent)