Canton Plus Enterprise Ltd and Another v. Tong Zhenjun and Others
Read the full judgment text of CAMP 150/2021 on BabelCite. This Court of Appeal judgment.
2. For present purposes, it is necessary to set out some of the background which is derived primarily from Chu’s 6 th affirmation made on 28 December 2020 (“ Chu VI ”) in support of the ex parte application.
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CAMP 150-152/2021 [2021] HKCA 1251 CAMP 150/2021 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL MISCELLANEOUS PROCEEDINGS NO 150 OF 2021 (ON AN INTENDED APPEAL FROM HCA NO 227 OF 2017) ________________________
(by Original Action) ________________________
(by Counterclaim) ________________________ AND CAMP 151/2021 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL MISCELLANEOUS PROCEEDINGS NO 151 OF 2021 (ON AN INTENDED APPEAL FROM HCA NO 1026 OF 2020) ________________________
________________________ AND CAMP 152/2021 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL MISCELLANEOUS PROCEEDINGS NO 152 OF 2021 (ON AN INTENDED APPEAL FROM HCA NO 2132 OF 2020) ________________________
________________________ (HEARD TOGETHER) Before: Hon Cheung and Yuen JJA in Court Date of Hearing and Judgment: 30 July 2021 Date of Reasons for Judgment and Decision on Costs: 27 August 2021 ________________________ REASONS FOR JUDGMENT AND ________________________ Hon Yuen JA (giving the Reasons for Judgment and Decision on Costs of the Court): 1.1. On 30 July 2021, this court held a “rolled-up hearing”1 of the application by the plaintiffs in CAMP150/2021, CAMP151/2021 and CAMP152/2021, who are all connected with Mr Chu Kong (for convenience, “the Chu Camp”), for leave to appeal a decision of Anthony Chan J (“the judge”) given on 26 April 2021 (“the Decision”)2 discharging various orders (including Mareva and proprietary injunctions) granted ex parte by DHCJ To on 5 January 2021 against some of the defendants in HCA227/2017, HCA1026/2020 and HCA2132/2020 respectively. 1.2. As far as the affected defendants are concerned, Mr Tong Zhenjun, the 1st defendant in HCA227/2017, was and is separately represented by Mr Martin Lau3. The other affected defendants4 are connected with Mr Lau Wing Yan and are, for convenience, referred to as “the Lau Camp”. In summary, the ex parte judge made injunction orders5 against Tong, Lau, and 5 companies in the Lau Camp. 1.3. At the conclusion of the inter partes hearing on 26 April 2021 however, the judge discharged the ex parte orders, refused to regrant them, made an order for indemnity costs against the Chu Camp, and refused its oral application for leave to appeal. 1.4. At the conclusion of the hearing before this court, the application for leave to appeal was also refused with costs. The Lau Camp and Tong applied for an order that costs be taxed on an indemnity basis. We said we would reserve our decision on the basis of costs, which we now give together with our summary assessment of costs and our reasons for the refusal of leave to appeal. Background 2.For present purposes, it is necessary to set out some of the background which is derived primarily from Chu’s 6th affirmation made on 28 December 2020 (“Chu VI”) in support of the ex parte application. 3.1. In 1995, Lau and Chu became colleagues at a major dry bulk shipping company based in Hong Kong. 3.2. In 2000, Lau left the company to set up what have been called “Lau’s Old Companies” which all bore the name “Pacific Bulk”. 3.3. In 2002, Chu joined Lau. However, Chu’s case is that he left after only one year to set up, on his own, what have been called “Chu’s Old Companies”, which also bore the name “Pacific Bulk”. 3.4. In 2007, Lau and Chu incorporated a Hong Kong company called Pacific Bulk Shipping Ltd (“PBHK”). It was owned by a BVI company called Profit Far Ltd, which was owned as to 50% each by Lau and Chu through their respective corporate vehicles6. 3.5. In 2008, Lau and Chu incorporated a Cayman Islands company called Pacific Bulk Shipping (Cayman) Ltd (“PB Cayman”). It was owned by a BVI company called Smartplace Ltd, which was also owned as to 50% each by Lau and Chu through their respective corporate vehicles7. 3.6. In 2009, a Hong Kong company called Beibu Gulf Ocean Shipping (Group) Ltd (“BBGOS”)8 was incorporated. It was owned as to 51% by a PRC state-owned company called Guangxi Beibu Gulf International Port Group Co Ltd and as to 49% by a BVI company called Ocean Sino Ltd (“OSL”). OSL was owned as to 50% each by Lau and Chu9. 3.7. In 2013, a Hong Kong company called Pacific Bulk Lines Co Ltd (“PB Lines”) was incorporated. It was owned as to 10% by a person called Yang Haitao through his corporate vehicle, and as to 90% through corporate vehicles owned as to 50% each by Lau and Chu. 4.1. However, Lau and Chu fell out in 2013. This was the start of what has been described as a “messy corporate divorce”. 4.2. It appears to be common ground that Lau and Chu split up in January 2014, but what is disputed is whether they concluded an agreement on how to divide the businesses in which they both had interests (there are also disputes as to which companies should be included in the division). Lau’s case was that it was orally agreed that he would take all the PB companies (“the PB restructuring agreement”) and Chu would take all the BBGOS companies (“the BBGOS restructuring agreement”). Chu disagrees, and says no agreement was concluded. 4.3. Suffice it to say that this corporate divorce has spawned 33 sets of legal proceedings, of which 25 remain on foot10. In a Decision given on 22 June 2018, DHCJ Saunders remarked11:
5.After their split, Lau and Chu individually set up new companies in the shipping business. Lau’s new companies included Pacific Bulk Cape Co Ltd (“PB Cape”), Pacific Bulk Panamax Co Ltd (“PB PM”) and Pacific Bulk Supramax Co Ltd (“PB SM”). Chu’s new companies included the Quadrolink group. Legal proceedings 6.For the purpose of the present application for leave to appeal, it is necessary to see what allegations had been made by the Chu Camp against the Lau Camp (these terms including their respective associates) in some of the legal proceedings, and when those allegations had been made, to see whether Mareva and proprietary injunctions were justified. HCCW352/2014 (“the Smartplace proceedings”) 7.1. Chronologically, the first relevant set of legal proceedings is HCCW352/2014 (filed on 24 November 2014). 7.2. In those proceedings, the Chu Camp sought an order that its shares in Smartplace (the parent company of PB Cayman) be purchased by the Lau Camp, alternatively, for an order to wind up Smartplace. 7.3. The Chu Camp pleaded (among other things) in the Points of Claim that:
7.4. It would be noted that the Chu Camp was aware of the “depriving” of customers and cessation of PB Cayman’s business well before it applied for the ex parte Mareva and proprietary injunctions on 5 January 2021. HCMP3134/2014 (“the Profit Far proceedings”) 8.1. The second relevant set of legal proceedings is HCMP3134/2014 (filed on 1 December 2014). 8.2. In those proceedings, the Chu Camp sought an order that its shares in Profit Far (the holding company of PBHK) be purchased by the Lau Camp. 8.3. The Chu Camp pleaded (among other things) in the Petition that:
8.4. Further, in his affirmation in support of the petition, Chu set out the method under which the Lau Camp transferred PBHK’s business with Central Minerals to PB Cape. The relevance of this will be seen later in these Reasons for Judgment18. 8.5. The above allegations had been made by the Chu Camp some 7 years before it applied for the ex parte Mareva and proprietary injunctions. HCA227/2017 (“the PBHK derivative action”) 9.1. The third relevant set of legal proceedings is HCA227/2017 (filed on 27 January 2017). 9.2. In those proceedings, the Chu Camp sued 10 defendants in a double derivative action for wrongs allegedly done to PBHK. 9.3. The Chu Camp pleaded (among other things) in the Statement of Claim that there was “diversion of [PBHK]’s business and poaching of its staffs”, alleging19:
9.4. It would be noted again that these dates were well before the Chu Camp applied for the ex parte Mareva and proprietary injunctions in January 2021. 9.5. Further, it is interesting to note (in connection with approaches to Indo Bauxite and Bintan Mining for their business), that when the Lau Camp pleaded in the Defence21 that Chu “began to set up his own shipping and logistics business in April 2014, which directly competed with [PBHK] and PB Cape, using companies with the different brand/prefix ‘Quadrolink’ ...”, the Chu Camp’s Reply was as follows:
9.6. In other words,
9.7. The relief sought by the Chu Camp in HCA227/2017 include declarations of liability in relation to Lau’s misappropriation of funds, tracing, an account and assessment of damages, while the Lau Camp has also counterclaimed in respect of Chu’s alleged misappropriation of funds, and for damages, equitable compensation, etc. 10.So far, what has been set out above are allegations made by the Chu Camp in its pleadings in the three relevant sets of proceedings, all made years before it applied for the ex parte Mareva and proprietary injunctions in January 2021. 11.The following events are also relevant. Application to appoint provisional liquidators for Smartplace 12.1. On 13 July 2017, the Chu Camp issued a summons in the Smartplace proceedings for the appointment of provisional liquidators. The summons was made returnable before the companies judge (Harris J) on 18 July 2017. 12.2. In Chu’s affirmation filed the same day in support of the summons, he said the following (among other things):
12.3. The companies judge did not hear the summons on the return date (18 July 2017) apparently for lack of urgency, and eventually it was not proceeded with. On 1 December 2017, Harris J gave a consent order giving leave to the Chu Camp to withdraw the summons. Application for preservation and inspection of documents 13.1. Shortly after the summons to appoint provisional liquidators, on 1 August 2017 the Chu Camp issued a summons for:
13.2. On 4 August 2017, DHCJ Kenneth Kwok SC made an interim order under which:
13.3. Notwithstanding the above, and despite further satellite litigation, the terms of the interim order were not put into effect, with neither camp offering up any documents in its individual possession. DHCJ Saunders’ Order 14.1. The Chu Camp’s summons for preservation and inspection was eventually heard by DHCJ Saunders in May-June 2018. By this time, the Lau Camp had also filed a summons for preservation and inspection of documents in the possession of the Chu Camp. 14.2. After argument, DHCJ Saunders made an order in his Decision of 22 June 201824 for the preservation of four categories of documents. The fourth category comprised:
In respect of this category, the judge said:
14.3. As far as inspection was concerned, DHCJ Saunders accepted that there were issues as tothe type of documents Chu would be entitled to inspect, and whether inspection would be governed by Order 29 rule 225 or by Order 24 rule 1026, and who would be entitled to do the inspection. The judge therefore “reserved the issue of inspection to be considered following preservation, identification and copying of the documents”. Leave to apply was given. 14.4. However the Chu Camp has not taken any steps since June 2018 to pursue this part of its summons for inspection of these documents. The relevance of this will be seen later in these Reasons for Judgment27. Chu Camp’s fresh 2020 derivative actions 15.1. On 22 June 2020, the Chu Camp issued an indorsement of writ in HCA1026/2020 against 10 defendants in the Lau Camp. This derivative action relates to PB Cayman. 15.2. On 22 December 2020, the Chu Camp issued an indorsement of writ in HCA2132/2020 against six defendants in the Lau Camp. This derivative action relates to PB Lines. Ex parte application for Mareva and proprietary injunctions, etc 16.1. On 5 January 2021, the Chu Camp applied ex parte to DHCJ To for Mareva and proprietary injunctions, etc in the PBHK derivative action and in the two fresh 2020 derivative actions. 16.2. In Chu VI, reliance was placed on 29 documents from Indo Bauxite and Bintan Mining received between September and December 2020 which the Chu Camp alleged revealed “new findings”. The primary documents were Contracts of Affreightment (COA) that Indo Bauxite and Bintan Mining had made with PBHK and PB Cayman, and with PB Cape and PB SM, an agreement made by Bintan Mining with PB Enterprises Co Ltd, and a Nomination Agreement made between these two companies and Ecosuccess, related freight invoices and transaction advices, and some bank statements of PBHK. The dates of these documents ranged from 2013 to 2020. 16.3. On the basis of these “new findings”, “the amounts of assets to be frozen under the injunction or the amounts of assets to be preserved under the asset preservation order by different individuals and companies are as follows:
16.4. As mentioned above, DHCJ To granted the orders ex parte. There followed various applications by both parties which are not directly material to this appeal. As a matter of completeness, it would be noted that on 8 February 2021, the injunctions against Lau were discharged by Lisa Wong J on undertakings given by him. HCA2562/2014 - Decision of DHCJ Tsui 17.1. One should also note that in April 2021, the trial of HCA2562/2014 commenced before DHCJ Tsui. In this action, Lau and three others (including PB Cayman) were the plaintiffs, and Chu and four others were defendants. An injunction had been obtained ex parte against the defendants, and their application to set it aside for material non-disclosure was to be heard at the same time as the trial. 17.2. On day 7 of the trial (22 April 2021), after two of the plaintiffs’ witnesses (not including Lau) had completed their evidence, leading counsel for the plaintiffs30 applied to the court for leave to discontinue the action with costs to the defendants. The plaintiffs also accepted that the injunction should be discharged on the ground of material non-disclosure with costs on an indemnity basis. 17.3. The defendants applied for the costs of the action to be taxed also on an indemnity basis, on the basis “that the two alleged oral agreements never existed and they were concocted by the plaintiffs as a plank on which to apply for the interlocutory injunction back in December 2014”31. These two alleged oral agreements were not the two restructuring agreements alleged by Lau32. 17.4. The plaintiffs opposed the higher basis for the costs of the action. The judge was therefore asked to determine the proper basis of taxation of these costs. In the course of doing so, the judge made her position very clear:
The judge’s Decision 18.1. Four days later, Anthony Chan J heard the Chu Camp’s application to continue the injunctions. He declined to take into account its Supplemental Note provided that day (which referred the court to the Decision of DHCJ Tsui) because the Lau Camp had not had the opportunity to consider it. 18.2. For the reasons given in his Decision, the judge discharged the ex parte orders and refused to re-grant them. 18.3. The judge’s reasons included the following:
18.4. As noted earlier, at the conclusion of the hearing after the Decision was given, the then leading counsel33 for the Chu Camp orally applied for leave to appeal, which was refused. Hence, the application to this court for leave to appeal by summonses filed on 10 May 2021. Proposed grounds of appeal 19.1. In the Chu Camp’s written submissions34 to this court, the following were argued:
19.2. At the hearing before this court, the Chu camp was represented by Mr Johnny Mok SC47. His speaking note comprised nearly entirely of challenges to the Lau Camp’s case of an oral agreement for the restructuring of the two groups of companies, PB and BBGOS. Mr Mok argued that since “there is a very strong suspicion that the alleged oral agreement does not exist”48, that demonstrated that Lau was a person of “extremely low commercial morality”49, which therefore carries a real risk of dissipation. Discussion - “Low standard of commercial morality” 20.1. With respect, it is not appropriate for this court at this hearing to decide the issue of the likelihood or unlikelihood of the parties having reached an agreement for the restructuring of the businesses. This issue (which has led to 33 sets of legal proceedings) has been hotly contested for the past seven years, and can only be determined at trial after cross examination of the two protagonists and whatever other relevant witnesses there might be. This court cannot, and should not, shortcut that process, much less determine, on the arguments rehearsed by Mr Mok at a hearing such as this, whether Lau was a person of “extremely low commercial morality”. 20.2. It is apposite here to remind practitioners that they should not employ the phrase “low standard of commercial morality” as if it were a proposition of law50. It certainly was not meant to be so, as can be seen in the context in which it was first used by Godfrey J (as he then was) in Honsaico Trading Ltd v Hong Yiah Seng Co Ltd51. 20.3. An applicant for a Mareva injunction cannot simply set out his arguments challenging the defendant’s case, repeat the incantation “low standard of commercial morality”, and ask the court to conclude that there is a real risk of dissipation. The court has frequently disapproved of this approach. 20.4. In Hornor Resources (International) Co Ltd v Savvy Resources Ltd52, Chu J (as she then was) said:
In Crete Maritime Corporation v Emirates Shipping Line DMCEST53, Anthony Chan J said:
21.1. Coming back to this case, I have explained above why this court cannot usurp the function of the trial judge and assess the likelihood or unlikelihood of the parties having made an oral agreement. It is particularly surprising for the Chu Camp to argue54, for example, that the consideration for the alleged oral agreement was “unknown” when it well knew that since 2014, it has had control of the BBGOS group of companies, which (on the Lau Camp’s case) was the quid pro quo for Lau obtaining control of the PB group which he had founded. 21.2. Further, in the context of this case, with accusations and counter-accusations regarding many companies over the past seven years, it is difficult to see how one can realistically expect the court to pick out the convening of one meeting of one company55 as demonstrating “low commercial morality”. 21.3. As for the allegation of “dishonest fabrication of evidence” in HCA2562/2014, it would be noted that the two alleged oral agreements referred to in the “doctored” emails were not the two restructuring agreements alleged by Lau56, and DHCJ Tsui was anxious to point out in her decision on the basis of costs that she was not making any findings of fact as the evidence had not been fully explored. So, even if this court were to exercise the discretion afresh (the judge having refused to consider this matter as the Supplemental Note was only provided on the day of the hearing), this would not have demonstrated such a low standard of commercial morality as to lead to the inference of a real risk of dissipation. - “Staleness” 22.As for the argument that the judge was too “fixated” on “staleness”, delay was one of the important factors the judge took into account in considering whether the injunctions should be granted, and the weight given to it is for the judge in the exercise of his discretion. It is clear from the Decision that the judge was unimpressed by the “new findings” by which the Chu Camp sought to explain why the injunctive relief was sought only now. As can be seen below, there is absolutely no ground on which this court should or would interfere. 23.1. The judge was clearly entitled on the evidence to arrive at the conclusion that there was nothing new in the “methodology” argument. As set out above57, Chu had alleged that in May 2014, he had discovered that staff of the Lau Camp had “enticed away” PBHK’s customers and diverted their business to PB Cape. The steps employed for transfer of Central Minerals’ business from PBHK to PB Cape, of which the Chu Camp was aware in 2014, were similar to those “newly” found steps employed for transfer of Indo Bauxite’s business (see the comparison set out in Lau XIII, §77). 23.2. Further, it is difficult to see how it can be said that Bintan may have been “misled” into thinking that they were still engaging in business with “Chu/Lau’s ‘PB Companies’”58. It would be noted that the Chu Camp had admitted59 that Chu’s new Quadrolink Group had itself approached Indo Bauxite and Bintan Mining for business after the split. Chu and the personnel of these customers were known to each other60, so they could hardly have been “misled” into thinking that Chu was still with the PB companies when his new companies approached them in competition with Lau’s new companies. 24.The judge was also clearly entitled on the evidence to arrive at the conclusion that the “quantum” argument did not justify the grant of injunctions now. It had been the Chu Camp’s case that all of the old PB companies’ businesses had been diverted, and as Chu was an experienced businessman in the trade and a former director of these companies, he would have been in a position to assess the quantum much earlier in the litigation. Further, on 22 June 2018 DHCJ Saunders had given leave to apply in the Chu Camp’s summons of 1 August 2017 on the issue of inspection. The Chu Camp thus had the means of discovering the extent of the businesses allegedly diverted more than 3 years ago, had it wished to do so for the purpose of applying for injunctive relief. Indeed, this appears to be as serious a demonstration of material non-disclosure as Harris J’s refusal to hear the application for appointment of provisional liquidators, in which the Chu Camp’s skeleton submissions61 had actually referred to the risk of dissipation of assets. 25.As for Ecosuccess, the judge was clearly entitled to give little weight to the use of an offshore company. The parties had long employed offshore companies in the operation of their businesses during the time they were in business together (see the corporate charts in Chu VI). In the context of the present case, this could not have been an unexpected revelation with sinister connotations. 26.As a matter of completeness, I would also add that:
27.For these reasons, the court considered that the proposed appeal had no prospect of success, and dismissed the application for leave with costs. Basis of Costs 28.As for the basis of costs before this court, given the clear and unassailable reasons the judge had given (including material non disclosure) for discharging the ex parte orders and refusing to regrant them, and for ordering that costs be paid on an indemnity basis, the further pursuit of the injunctions before this court on the same grounds was vexatious. Accordingly, the costs before this court shall also be assessed on an indemnity basis. Summary assessment 29.To save time and further costs, we have asked for statements of costs for summary assessment under Order 62 rule 9A. Having considered the statements and the list of objections from the solicitors for the Chu Camp, we would order that the appellants pay Tong (not Liang Pan, the 2nd defendant in HCA227/201763) the sum of $135,000, and the other affected respondents globally, the sum of $230,000 in each of CAMP150/2021, 151/2021 and 152/2021.
Mr Johnny Mok SC, Mr John Hui and Mr Michael Lok, instructed by Sit, Fung, Kwong & Shum, for the plaintiffs in HCA 227/2017 (by original action), the plaintiff in HCA 1026/2020 and the plaintiff in HCA 2132/2020 Mr Martin Lau, instructed by Simmons & Simmons, for the 1st defendant in HCA 227/2017 (by original action) Mr Victor Joffe and Mr Alexander Tang, instructed by DLA Piper Hong Kong, for the 3rd to 5th defendants in HCA 227/2017 (by original action), the 1st, 9th and 10th defendants in HCA 1026/2020 and the 1st and 5th defendants in HCA 2132/2020 1 Meaning that if leave to appeal is given, the appeal would be heard immediately thereafter at the same hearing. 3 Instructed by Simmons & Simmons. 4 Represented by Mr Victor Joffe and Mr Alexander Tang, instructed by DLA Piper Hong Kong. 5 See §16.3 below. 6 See corporate chart: Chu VI, §55. 7 See corporate chart: Chu VI, §56. 8 Later renamed as BGA Holdings Ltd. 9 Chu VI, §58. 10 Decision, §6. 11 §5. 12 Points of Claim, §37(4). 13 Points of Claim, §41(3). 14 Points of Claim, §41(4). 15 Points of Claim, §40. 16 Including Tung: Petition §38. 17 Petition §46. 18 See §23.1 below. 19 §§45-51, SOC. 20 “Cape-size”, “panamax” and “supramax” refer to different sizes of vessels. 21 §46.4. 22 §30. 23 §50. 25 “Detention, preservation etc of subject-matter of cause or matter” under “Interlocutory Injunctions etc”. 26 “Inspection of documents referred to in pleadings and affidavits” under “Discovery and Inspection of Documents”. 27 See §24 below. 28 Chu VI, §65. 29 Chu VI, §65. 30 Mr Douglas Lam SC, leading Mr Martin Kok. 31 Decision of DHCJ Tsui, [2021] HKCFI 1184, §6. 32 Supplemental Note of the Applicants, 26.4.2021, §1 (V/1181). 33 Mr William Wong SC with Mr John Hui, Mr Michael Lok and Ms Jasmine Cheung. 34 Prepared by the team identified in the above footnote. 35 §9. 36 §11. 37 §22. 38 §12. 39 §14(a). 40 §14(b). 41 §15(b). 42 §14(c). 43 §19(a). 44 §19(b). 45 §19(d). 46 §19(c). 47 With Mr John Hui and Mr Michael Lok. 48 §12. 49 §13. 50 Pacific Concepts (HK) Ltd v Michel Brennion & Ors [2009] HKCU 402, per A Cheung J (as he then was). 51 [1990] 1 HKLR235, 240H. 52 [2010] 4 HKC 50. 53 [2017] 5 HKLRD 345. 54 See §19.1(4) above. 55 See §19.1(4) above. 56 Supplemental Note of the Applicants, 26.4.2021, §1. 57 See §8.3 above. 58 Plaintiffs’ Written Submissions, §15(b). 59 See §9.5 above. 60 Chu VI, §25(c). 61 11 July 2017, §§43-44. 62 Chu VI refers to “estimates” in many places, eg “estimated profits” in §92. 63 Who was not a respondent to this application, but whose name was included in Simmons and Simmons’ statement of costs. |
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