Pinpoint Multi-strategy Master Fund (Formerly Known As Pinpoint Multi-strategy Fund) v. Gangtai Group Co., Ltd

HCMP 146/2020

[2021] HKCFI 1011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 146 OF 2020

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DECISION

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1.This is the application of the Respondents by way of Summons filed on 15 October 2020 (“Summons”) seeking: (a) the discharge of the ex parte injunction order granted against them on 3 February 2020 (“Injunction”); and (b) payment out of the sum of USD33,762,475 (plus interest) which was paid into court on 28 February 2020 (“Sum”) in place of the Injunction and without prejudice to the Respondents’ application to set it aside.

2.The Injunction is a worldwide Mareva injunction against the Defendant pursuant to s. 21M of the High Court Ordinance, Cap 4 (“21M”) granted in aid of a default judgment obtained by the Plaintiff (“Judgment”) against it in the Supreme Court of the State of New York (“NY Court”) in respect the Defendant’s default on a senior high yield note[1] (“Note”).  The Injunction extends to the Respondents on the basis of the Chabra jurisdiction.  The Injunction restrains each of the Defendant and Respondents from dealing with any of their assets up to the value of USD33,762,475.

Issues

3.The Respondents say that the ex parte application was formulated on a fundamentally defective basis in contravention of the well-established principles and limits for both the Chabra and 21M jurisdiction.  The Plaintiff was guilty of serious material non-disclosure (“MND”), leading the ex parte Judge to grant the Injunction which was plainly inappropriate even on its own factual case :

(1)  It was a misuse of the Chabra jurisdiction to obtain the Injunction against the Respondents in respect of all of their assets up to the amount of the Judgment as if they were personally liable together with the Defendant thereunder.  The Chabra jurisdiction should only extend to assets held by the Respondents on behalf of the Defendant which were amenable to execution on the Judgment – as to which the Plaintiff had only been able to identify one specific asset;

(2)  The Plaintiff had failed to inform the Judge as to the proper approach to the grant of an injunction under 21M, in particular the considerations involved when it was (and is) the policy of the primary jurisdiction not to make the type of injunctive relief available.  Rather, the Plaintiff misled the Judge by claiming that it did not seek an injunction in the NY Court because it did not have personal jurisdiction over the 3^rd Respondent (“XCJ”), when the truth was that the NY Court would not have granted any such injunction even if it had such jurisdiction.

(3)  The Plaintiff was also guilty of MND in submitting to the Judge that fortification was not necessary for its undertaking as to damages.

4.Further, on 19 January 2021, the Judgment was vacated or set aside by the NY Court upon the Defendant’s application. Therefore, the basis for the Injunction had fallen away and it ought to be set aside in any case.  It is for the Plaintiff to re-apply for new injunctive relief. 

Background

5.The material facts were not disputed by the Respondents.  The Defendant had failed to pay the interest and principal due under the Note, which had matured on 23 September 2019.  On 25 March 2019, the Defendant defaulted[2] on an interest payment due under the Note in the amount of USD1,462,500.

6.The Defendant was 70% owned by Xu Jiangang, its Chairman and Legal Representative[3] (“Chairman”), and 30% by Xu Feijun, the Chairman’s wife (“Wife”).  The Chairman was a director of the Defendant and the Wife was its Supervisor at the material times.  In addition, their 27 year old son was also a director of the Defendant as well as the sole director of Yuelong and Gangtai Italia (see the following paragraph).  Hence, the Plaintiff says that the Defendant was a family business.

7.At the material times, the major asset owned by the Defendant was an 85% interest in Buccellati Holding Italia SpA (“Buccellati”), a famous Italian jewellery business and brand.  It was acquired at the cost of €230 million, according to the Plaintiff.  Whereas, the Respondents say that the cost was €195.5 million.  The 85% interest was held indirectly via 2 layers of wholly owned subsidiaries :

(1)  The 2^nd Respondent (“Yuelong”), a Hong Kong company wholly owned by the Defendant;

(2)  In turn, Yuelong wholly owned Gangtai Italia Srl (“Gangtai Italia”), an Italian company; and

(3)  Gangtai Italia wholly owned the Buccellati Interest.

8.On 25 March 2019, the day of default over interest payment (according to the case of the Plaintiff), the 1^st Respondent (“Champion Link”) was incorporated in the BVI.  The Chairman’s 18 year old daughter, XCJ, was registered as the sole shareholder and a director of Champion Link on 11 April 2019. 

9.On 8 July 2019, the Plaintiff brought proceedings before the NY Court against the Defendant to enforce the obligations under the Note. According to the Plaintiff, the Defendant failed to enter an appearance in the proceedings despite having been served via its NY registered agent, which was required to be maintained under the Note.

10.On 6 August 2019, Champion Link was registered as the sole shareholder of Yuelong in place of the Defendant for a recorded consideration of €50 million.  On the face of that transaction, the Buccellati Interest was transferred by the Defendant to Champion Link.

11.On 26 September 2019, Gangtai Italia sold the Buccellati Interest to a Swiss listed company called, Compagnie Fiancière Richemont SA (“Richemont”) for €195.5 million.

12.On 27 September 2019, Richemont announced the acquisition as a purchase from the Defendant, not Champion Link.  In the same announcement, the Chairman’s comments also implied that the acquisition was from the Defendant.

13.After learning of the sale, the Plaintiff applied for the Injunction on 3 February 2020.  On 28 February 2020, the Respondents paid USD33,762,475 into court so that the Injunction ceased to have effect.

14.On 24 February 2020, the NY Court entered the Judgment against the Defendant after it failed to appear in the proceedings despite service on its NY registered agent.

15.On 12 March 2020, the Defendant applied to vacate the Judgment and for leave to defend arguing that: (a) it did not receive notice of the proceedings because of an email mishap; and (b) the proceedings were commenced pre-maturely because the Note had not yet matured at the time. 

16.The Defendant’s application was granted on 19 January 2021.  The NY Court held that the Defendant had raised a “reasonable excuse” for failing to defend the proceedings and had presented evidence of a possible defence, namely, that the Note had not yet matured when the suit was brought.  The Plaintiff says that the second point is now moot because the Note had matured in September 2019.

17.On 11 February 2021, the Plaintiff filed an appeal against the decision to vacate the Judgment.  On 19 February 2021, it filed an Amended Complaint in the NY proceedings, which remains pending.

Applicable principles

18.The principles which govern the Chabra jurisdiction were summarised by Kwan JA (as she then was) in XY, LLC v Jesse Zhu [2017] 5 HKC 479 at §§24-26.  In gist, the Chabra jurisdiction may be exercised where there is good reason to believe that assets held in the name of a defendant against whom the claimant asserts no cause of action (“NCAD” to stand for no cause of action defendant) would be amenable to some process, ultimately enforceable by the court, by which the assets would be available to satisfy a judgment against a defendant whom the claimant asserts to be liable on his substantive claim (“CAD”).

19.One of the important safeguards for the NACD is that the form of the order made against such a defendant should be as specific as the circumstances permit in respect of the CAD’s assets of which the NACD has possession or control. 

20.On the other hand, if the NACD is mixed up in an attempt to make the CAD judgement-proof and the assets or their proceeds in question are not readily identifiable in his hands, it is open to the court, where it is just and convenient to do so, to make an order which catches the NACD’s general assets up to the amount of the CAD’s assets of which he appears to have possession or control: see Yukong Line v Rendsburg [2001] 2 Lloyd’s Rep 113 at §44.

21.In Yukos Capital S.a.r.l v OJSC Rosneft Oil Co [2010] EWHC 784 (Comm) (a case relied upon by the Plaintiff), the court applied the Yukong principles to circumstances where the NCADs were holding cash on behalf of the CAD.  The NACDs were special purpose vehicles with no business or assets of their own.  The court held that it was clearly just and convenient for a freezing order to be made against the NCADs to prevent the CAD from taking steps to dissipate the assets held by them.

22.21M empowers the Hong Kong court to grant interim relief in aid of proceedings commenced outside Hong Kong.  Sub-section (4) provides as follows :

“The Court of First Instance may refuse an application for appointment of a receiver or interim relief under subsection (1) if, in the opinion of the Court, the fact that the Court has no jurisdiction apart from this section in relation to the subject matter of the proceedings concerned makes it unjust or inconvenient for the Court to grant the application.”

[emphasis added]

23.The relevant principles applicable to 21M were set out by Lord Phillips NPJ in Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd (2016) 19 HKCFAR 586 :

(1)  As to the first stage:

(a)  The starting point is to consider whether, if the proceedings that have been or are to be commenced in the foreign court result in a judgment, that judgment is one that the Hong Kong court may enforce.  If the nature of the foreign proceedings is such that the Hong Kong court will not enforce any judgment to which they give rise, eg, because the exercise of the foreign jurisdiction is exorbitant or for some other reason of public policy, then there can be no question of granting relief under 21M (§§47-48);

(b) Next the court should ask itself the same questions as it would if a Mareva were sought in support of an action proceeding in the Hong Kong court, namely: (i) has the plaintiff a good arguable case; and (ii) is there a real risk that the defendant will dissipate his assets if the Mareva is not granted? (§49); and

(c)  The question that the Hong Kong court has to consider is whether the plaintiff has a good arguable case in the foreign court (§52).

(2)  As to the second stage:

(a)  The court needs to consider whether the fact that the court has no jurisdiction apart from this section in relation to the subject matter of the proceedings concerned makes it “unjust” or “inconvenient” for the court to grant the application (§54);

(b) The CFA considered it unhelpful to try to formulate a list of circumstances where it will be unjust or inconvenient to grant the Mareva sought, but noted that the court has a wide discretion in the matter (§54).

24.In Motorola Credit Corpn v Uzan (No 2) [2004] 1 WLR 113 at §115 (referred to in Compania Sud Americana de Vapores at §54), the English Court of Appeal set out 5 particular considerations which the court should bear in mind as to when it would be “unjust” or “inconvenient” to grant an application under the equivalent English provisions :

(1)  whether the making of the order will interfere with the management of the case in the primary court, eg, where the order is inconsistent with an order in the primary court or overlaps with it;

(2)  whether it is the policy in the primary jurisdiction not itself to make worldwide freezing/disclosure orders;

(3)  whether there is a danger that the orders made will give rise to disharmony or confusion and/or risk of conflicting inconsistent or overlapping orders in other jurisdictions, in particular the courts of the state where the person enjoined resides or where the assets affected are located.  If so, then respect for the territorial jurisdiction of that state should discourage the English court from using its unusually wide powers against a foreign defendant;

(4)  whether at the time the order is sought there is likely to be a potential conflict as to jurisdiction rendering it inappropriate and inexpedient to make a worldwide order;

(5)  whether, in a case where jurisdiction is resisted and disobedience to be expected, the court will be making an order which it cannot enforce.

25.In Banco Nacional de Comercio Exterior SNC v Empresa de Telecommunicaciones de Cuba SA [2008] 1 WLR 1936 at §30, Tuckey LJ considered that an additional reason for refusing relief in aid of Italian proceedings was that it was not the policy of the Italian court to grant worldwide freezing orders.

26.In a 21M application, it is incumbent on an applicant to proceed with the injunction application in the primary jurisdiction or alternatively explain to the Hong Kong court why no application was made at the first instance in the primary jurisdiction.

27.In Deiulemar Shipping SpA v Transfield ER Futures Ltd [2011] 1 HKLRD 75, the plaintiffs made an ex parte application to the Hong Kong court for a worldwide Mareva injunction in aid of English proceedings.  No such application was made in the English proceedings where the substantive action was brought.  The Court of Appeal upheld the Judge’s refusal to grant the Mareva injunction for the following reasons :

(1)  The plaintiffs failed to explain why no prior application was made to the English court which was likely to have an excellent “feel” for the case, given that it had been pleaded out in that court (§48);

(2)  It was not sufficient to say that even if the English court had seen fit to grant a worldwide Mareva, the plaintiffs would still have needed to apply to the Hong Kong court for an order to freeze the Hong Kong bank account because it was unlikely for the bank to disobey the English order based on a territorial point (§49);

(3)  In any event, there was no reason why an application in the English court could not be made prior to making an application in Hong Kong for back-to-back injunctive relief (§50);

(4)  The proposition that the case brought against the defendant was strong would not relieve the plaintiff from making an application in the primary jurisdiction (§§52-53);

28.These principles were recently applied in Shi Hong v Chan Man Kit [2020] HKCFI 191, in which Linda Chan J held (inter alia) :

(1)  The duty is on the applicant who has on-going proceedings abroad to provide reasons why the application for injunctive relief was not submitted to the court that is seized with the substantive dispute (§36);

(2)  Had the ex parte Judge been told that the plaintiffs could have applied for and obtained the temporary protective order from the California court on an ex parte basis, he would have required the plaintiffs to explain why no prior application was made to the California court and whether, in the absence of a good reason for not making such an application, it would be “unjust” or “inconvenient” for the Hong Kong court to grant a worldwide Mareva injunction against the defendants (§42).

29.Whilst not disputing the foregoing principles, the Plaintiff highlighted the following dicta of Motolora Credit Corp, §119 :

“ … Mr Strauss has emphasised the observations of Millett LJ in the Refco Inc case, in which he made clear that he regarded it as fatal in that case on grounds of comity that the primary court would have refused to grant the ancillary relief sought. Mr Strauss argued that, now the position has been made clear in Grupo Mexicano de Desarrollo SA v Alliance Bond Fund Inc 527 US 308, and given the absence of power in the New York court to grant Mareva-type relief in the general or worldwide form available in this country, refusal was the appropriate course in this case. We do not think that follows. It seems to us that the position being contemplated by Millett LJ was one where the primary court has the jurisdiction to grant relief but would refuse to exercise it on the merits or for other substantial reasons (which the court appears to have understood to be the position in the Refco Inc case [1991] 1 Lloyd’s Rep 159) and not the position where the foreign court simply lacks the jurisdiction (as now made clear to be the position in the US in the Grupo Mexicano case). In the latter event, the English court may judge it ‘not inexpedient’, and indeed is likely to regard it as desirable in cases of international fraud, to be supportive of the processes of the primary court.”

30.In Credit Suisse Fides Trust SA v Cuoghi [1998] 1 QB 818, which was cited in Motolora Credit Corp, Millet LJ held :

“Where a defendant and his assets are located outside the jurisdiction of the court seised of the substantive proceedings, it is in my opinion most appropriate that protective measures should be granted by those courts best able to make their orders effective. In relation to orders taking direct effect against the assets, this means the courts of the state where the assets are located; and in relation to orders in personam, including orders for disclosure, this means the courts of the state where the person enjoined resides.

I recognise that an ancillary jurisdiction ought to be exercised with caution, and that care should be taken not to make orders which conflict with those of the court seised of the substantive proceedings.  But I do not accept that interim relief should be limited to that which would be available in the court trying the substantive dispute; or that by going further we would be seeking to remedy defects in the laws of other countries.  The principle which underlies article 24 is that each contracting state should be willing to assist the courts of another contracting state by providing such interim relief as would be available if its own courts were seised of the substantive proceedings … By going further than the Swiss courts would be prepared to go in relation to a defendant resident outside Switzerland, we would not be seeking to remedy any perceived deficiency in Swiss law, but rather to supplement the jurisdiction of the Swiss courts in accordance with article 24 and principles which are internationally accepted” (827C-D)

“… Where an application is made for in personam relief in ancillary proceedings, two considerations which are highly material are the place where the person sought to be enjoined is domiciled and the likely reaction of the court which is seised of the substantive dispute. Where a similar order has been applied for and has been refused by that court, it would generally be wrong for us to interfere. But where the other court lacks jurisdiction to make an effective order against a defendant because he is resident in England, it does not at all follow that it would find our order objectionable.” (829D-E)

31.In a recent Decision of Yeung J in Chow Steel Industries Public Co Ltd v Ko Sung [2020] HKCFI 483, the court also rejected an argument advanced by a respondent that a 21M injunction in support of Thai proceedings should be discharged because the Thai courts did not have any policy or practice of making extra-territorial freezing orders (§115).  Citing Motolara Credit Corp (see para 29 above), the court held :

“In my view, the policy or practice of the Thai courts not making any extra-territorial freezing orders renders it ‘not inexpedient’ for Hong Kong courts to grant the Injunction. It is in my view in fact a … support of the Plaintiffs’ applications for the grant and continuation of the Injunction. As observed by Potter LJ in Motorola Credit Corporation …” (§119)

32.The law on the duty of full and frank disclosure on the part of an ex parte applicant is trite (see the summary at Hong Kong Civil Procedure 2021, vol 1, [29/1/51]).  Particular emphasis had been placed by the parties on the following :

(1)  The duty of disclosure extends to “significant factual, legal and procedural aspects of the case”: East Asia Satellite Television (Holdings) Ltd v New Cotai LLC [2011] 3 HKLRD 734, CA, at §82;

(2)  The principles which govern the exercise of discretion by the court to re-grant an injunction in the event of discharge on the ground of MND had been set out in Excel Courage Holdings Ltd v Wong Sin Lai [2014] HKLRD 642, CA, at §§56-58.

Good arguable case

33.On the basis of the material facts set out above, the Plaintiff says that it clearly had a good arguable case on which the Injunction was grounded, including the dissipation of assets by the Defendant with the aim to make itself judgment- proof to the prejudice of the Plaintiff.

34.Bearing in mind that: (a) there is no dispute that the Defendant was (and is) in default of the payment obligations under the Note; and (b) the Defendant had transferred away its main asset to a new company owned by the Chairman’s 18 year old daughter purportedly for €50 million[4], which was resold 6 weeks later for €195.5 million, I agree with the Plaintiff.  Indeed, quite fairly, Mr Lam SC, who appeared with Mr Lam for the Respondents, did not seek to argue otherwise.

MND

Chabra jurisdiction

35.The arguments fall within a narrow compass. There is no disagreement that the court’s jurisdiction extends to, in short, assets against which the Plaintiff may enforce the judgment of the NY Court obtained against the Defendant, notwithstanding that the assets are held by NCADs. 

36.On the other hand, it is reasonably clear that the basic requirement is that the order should be specific and should identify the very assets against which a judgment obtained by the Plaintiff may be enforced.  Granting an order against the assets of the NCADs generally is the exception and should only be done on proper ground (see para 20 above). 

37.The Respondents say that the Plaintiff had completely failed to assist the ex parte Judge (“Judge”) on the relevant law and wholly failed to address the issue whether the order should only apply to the proceeds of sale of the Buccellati Interest instead of the general assets of the Respondents.

38.The Plaintiff contends that on the evidence adduced before the Judge there was no reason to identify specific assets for the purpose of the Injunction.  Hence, the absence of assistance to the Judge on the requirement that an order should only bite on specific assets is not in dispute. 

39.Before analysing the Plaintiff’s contention, as submitted by Mr Lam, the 3 Respondents require individual treatment here.  In respect of Champion Link, Mr Lam accepted that there was a good arguable case that it was a special purpose vehicle (“SPV”) acquired to receive the Defendant’s shareholding in Yuelong which represented its main asset. Therefore, the argument that the Injunction should not be formulated against Champion Link’s general assets is not the strongest amongst the Respondents. 

40.The concession was plainly correct.  Apart from the evidence before the Judge that the Plaintiff was not aware of any known asset owned by any of the Respondents with the exception of XCJ (see below), the obvious inference was that Campion Link would not have any significant asset save for its shareholding in Yuelong because it was a newly acquired SPV used by the Defendant to dissipate its assets.  As for the proceeds of sale, the whereabouts of the money was unknown to the Plaintiff.

41.In the case of Champion Link, and as a matter of practicality, I can see why the Plaintiff did not think it necessary to address the issue of asset specificity for purpose of the Injunction. 

42.However, it must be made clear that I am of the view that the point could and should have been addressed briefly (in the case of Champion Link) in the skeleton arguments before the Judge.  On the other hand, the failure here was borderline and, on balance, I would not uphold this complaint of the Respondents in respect of Champion Link because the point was not of real relevance in the weighing exercise of the Judge. 

43.As regards XCJ, the evidence before the Judge was that she owned the shareholdings of 3 BVI companies, namely, Champion Link, Gold Mighty and Astral Realm.  Gold Mighty owned an apartment in which XCJ was living, which was acquired at HKD94 million.  In the disclosure of assets filed by XCJ after the Injunction, her evidence is that the shareholding in Golden Mighty is held by her merely as legal owner (without beneficial interest). 

44.Plainly, in the case of XCJ, there was no good reason not to address the need to consider restricting the Injunction to the proceeds of sale.  I fail to see why the Injunction should cover XCJ’s shareholding in Gold Mighty or Astral Realm.  The failure means that a material consideration was absent in the weighing exercise.  This complaint of MND is made out in respect of XCJ. 

45.In the case of Yuelong, the evidence before the Judge was that its only known assets was the 100% shareholding in Gangtai Italia.  After the disposal of Buccellati, Yuelong was unlikely to be substantially valuable.  The proceeds of sale were “unaccounted for”, according to the Plaintiff’s evidence. 

46.The inference which arose from the evidence was that Yuelong was also a SPV used in a corporate structure to hold the main asset of the Defendant.  I do not believe the fact that Yuelong had incurred debts in financing the acquisition of the Buccellati Interest (a point relied upon by Mr Lam) changed that picture. 

47.Mr Lam submitted that as shareholder the Defendant did not own Yuelong’s assets.  In this regard, I agree with Mr Han, who appeared for the Plaintiff, that for the operation of Chabra jurisdiction it sufficed that Yuelong’s assets were liable to enforcement by the Plaintiff with a judgment against the Defendant (see the principles summarised in para 18 above).  For instance, receiver or liquidator might be appointed in respect of the Defendant, and such persons would be able to gain control over Yuelong due to the Defendant’s 100% shareholding in it.  By controlling Yuelong, they would gain access to its assets.  Quite fairly, Mr Lam agreed that in the event of liquidation of the Defendant, its interest in Yuelong would be liable to enforcement by the Plaintiff. 

48.More important to the complaint of MND in connection with Yuelong, I am unable to see any real reason to believe that Yuelong had any substantial assets other than, possibly, the proceeds of sale after the disposal of the Buccellati Interest.  The analysis in relation to the case of Champion Link applies equally to Yuelong, and I am not satisfied that a case of MND has been made out.

49.Two further points should be made.  The law recognises that the extension of a Chabra order to the general assets of the NCAD against which a judgment in favour of the plaintiff may be enforced is very wide (see Jesse Zhu, supra, §26).  Plainly, the exercise of such jurisdiction can be oppressive to the NCAD.  However, there is no suggestion of any countervailing consideration here, eg, the existence of other shareholders of Yuelong.

50.Secondly, and for completeness, the post-Injunction disclosure of assets made by Champion Link and Yuelong had confirmed that they have no significant assets other than, indirectly and directly, the interest in Gangtai Italia valued at €103 million.  The money most probably came from the proceeds of sale. 

21M jurisdiction

51.The ambit of arguments here is also confined. There is no disagreement on the principles of law set out above.  The Plaintiff took no issue with the fact that it did not inform the Judge about the policy[5] of the NY Court not to make available relief of the kind sought by it.  However, it contends that such policy was not a relevant consideration for the Judge. 

52.In the course of the ex parte hearing, the Judge asked: “… why are you making the application here rather than in New York?”  To which it was answered: “The reason that we’re making the application here, My Lady, is because the ultimate controller of the entire stack of companies is the Chairman’s 19-year-old daughter and there is no personal jurisdiction over her in New York.  The reason in fact that the proceedings were brought in New York at all is because the trustee of the bonds is located in New York.  And so, under the loan indenture, there was a New York forum clause.  The only place where there could be “teeth” to an injunction is Hong Kong where she resides, My Lady.”

53.Whilst I have no reason to disagree with Mr Han that the answer was accurate or true, I find it surprising that the issue whether the NY Court would have granted similar relief was not addressed in response to the Judge’s specific question.  The issue was plainly relevant to the issue of “unjust or inconvenient” under 21M(4). 

54.With respect, I disagree with the Plaintiff that based on the existence of cases where Hong Kong court had granted 21M relief notwithstanding the unavailability of such relief in the primary forum (see, eg, Chow Steel Industries Public, supra), the issue had become irrelevant. 

55.Quite the contrary, based on the authorities referred to hereinabove (in particular Motorola Credit), it is plain that the issue was an important one for the Judge’s weighing exercise.  I also disagree with the Plaintiff that the issue was only relevant to the question of forum shopping.  Again, that submission is untenable in light of the said authorities.

56.In the premises, I uphold the Respondents’ complaint of MND under 21M. 

Plaintiff’s assets

57.The Plaintiff is a Cayman Islands exempted company.  At the hearing before the Judge, the Plaintiff submitted that it should not be required to provide fortification for its undertaking as to damages because :

(1)   “Damages, if any, caused by this injunction can be set off against the debt under the New York judgment”[6]; and

(2)   “[the Plaintiff] is a substantial and well capitalised investment fund – demonstrated by its investment in the Notes …”[7].

58.It is uncontroversial that the Judge did not require the Plaintiff to provide any fortification for its undertaking as to damages.  Mr Lam submitted that without providing information as to the Plaintiff’s assets within jurisdiction or confirming that it did not have any assets within jurisdiction, the Judge would not have been in a position to consider the necessity of fortification.  This amounted to MND on the Plaintiff’s part: see Co A v Co D [2019] HKCFI 367, §61.

59.I have no difficulty accepting the proposition that in an ex parte application, which normally involves an undertaking as to damages, the court should be provided with some evidence to enable it to consider whether fortification would be required. 

60.Although there were merits in the submissions made to the Judge (see para 57 above), the set off would not be relevant to the Respondents who owed no debt to the Plaintiff.  As regards the financial strength of the Plaintiff (para 57(b) above), there was no evidence of its liabilities (if any) or general financial health.  Importantly, the Plaintiff was (and is) a foreign company.  The Judge should have been informed whether it had any assets in Hong Kong, which plainly was relevant to the consideration whether fortification should be ordered.

61.In the premises, I accept also that the Plaintiff was guilty of MND in that the Judge was not provided with relevant information of its financial position so as to enable her to evaluate the need for fortification of the undertaking as to damages.  However, I do not regard this MND as serious or deliberate.

Vacation of the Judgment

62.Firstly, I do not believe that the vacation of the Judgment adversely impacts upon the Plaintiff’s good arguable case.  In particular, an argument of prematurity of the Plaintiff’s NY proceedings is academic because of the subsequent maturity of the Note.  At worst, the Plaintiff can issue new proceedings against the Defendant.

63.Secondly, in the circumstances of this case, I am unable to agree with the Respondents that the vacation of the Judgment means that the Injunction should be discharged.  It is in the nature of adversarial legal proceedings that they may have a life of their own.  Procedural battles may be won and lost.  Battles lost may be overturned on appeal.  The real relevance is whether the development in the NY proceedings affects the merits of the Plaintiff’s case. 

64.I fail to see how the vacation of the Judgment affects the merits of the Plaintiff’s case.  In particular, there is a distinct case of dissipation of assets.  I therefore disagree with the Respondents that the Injunction should be discharged on this ground.

Discharge and re-grant of the Injunction

65.I remind myself of the principles set out by the Court of Appeal in Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642, §56-58. 

66.In my view, the Plaintiff was misguided, and not intentional, in respect of the MNDs found to be established above.  However, I see no reason why the Injunction should not be discharged as a matter of general rule.

67.Pursuant to an Order dated 25 February 2020, the Injunction had ceased to have effect due to the payment of the Sum into court. However, the right of the Respondents to discharge the Injunction was preserved under the said Order.  I therefore discharge the Injunction on the ground of MND. 

68.The Respondents’ application for payment out of the Sum gave rise to the argument whether the court should exercise its discretion to re-grant the Injunction.  I am in no doubt that, should it be necessary, the Injunction should be re-granted in substantially the same terms.  Those terms should be modified in that the Injunction should apply to the proceeds of sale of the Buccellati Interest or their present equivalent in the possession or control of the Respondents. 

69.Further, in the absence of evidence of any assets in Hong Kong, the Plaintiff should provide, in fortification of its undertaking as to damages, a bank guarantee or payment to its solicitors as stakeholders in the sum of USD1 million or its HKD equivalent, within 21 days from the date of this Decision.   

70.For re-granting the Injunction, I bear in mind in particular that there is a distinct case of dissipation of assets by the Defendant with the assistance of the Respondents.  I fail to see any serious prejudice to the Respondents resulting from the MND.  On the other hand, to deny relief to the Plaintiff would be seriously prejudicial to its interest, and against the interest of justice. 

71.For completeness, I do not consider the US policy in not granting similar relief to be an unjust or inconvenient factor in re-granting the Injunction. 

72.Mr Lam submitted that any variation of the Injunction would merit the release of the Sum because it was paid into court on the basis of the Injunction.  I am unable to agree.  I have little doubt that the release of the Sum to the Respondents would mean that the Plaintiff will not see the money again, and the Defendant would have succeeded in making itself judgment-proof. 

73.If not for the payment of the Sum into court, the assets of Gangtai Italia (from which the Sum came)[8] would be frozen under the Injunction.  The answer to Mr Lam’s submission is therefore whether the court is willing to re-grant the Injunction.  A re-grant of the Injunction would have the effect of continuously freezing the assets of Gangtai Italia up to the applicable limit.  

Disposition

74.As indicated above, the Injunction is discharged. 

75.Re-granting the Injunction appears to be a superfluous exercise in light of the payment of the Sum into court.  Instead of doing so, the better course is to decline to order the payment out sought by the Respondents, and I so decline.  However, the Plaintiff’s undertaking as to damages must continue until further order, and it should be fortified as indicated in para 69 above. 

76.I give liberty to apply.

77.I make an order nisi that the costs of and occasioned by the Summons be to the Respondents, to be taxed if not agreed, with a certificate for 2 counsel. 

78.I am grateful to counsel and Mr Han for their assistance.

Mr John Han (solicitor advocate) of Kobre & Kim, for the Plaintiff

Mr Douglas Lam SC and Mr Justin Lam, instructed by Reed Smith Richards Butler, for the 1^st – 3^rd Respondents