China Medical Technologies, Inc. (in Liquidation) and Others v. Samson Tsang Tak Yung and Others

CACV 505/2019
(On appeal from HCA 3391/2016 and
HCA 1417/2013 (Consolidated)) &

CACV 510/2019
(On appeal from HCA 3391/2016)

[2022] HKCA 41

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 505 & 510 OF 2019

(ON APPEAL FROM HCA 3391/2016 and 1417/2013 (Consolidated))

________________________

CACV 505/2019
(On appeal from HCA 3391/2016 and
HCA 1417/2013 (Consolidated))

(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

CACV 510/2019
(On appeal from HCA 3391/2016)

____________

________________________

JUDGMENT

________________________

Hon Chow JA (giving the Judgment of the Court):

INTRODUCTION

1.Before this court are two appeals against the following orders made by Ng J (“the Judge”):

(1)  an order dated 22 May 2019 whereby the Judge set aside and discharged a worldwide mareva injunction granted ex parte without notice by L Chan J on 11 December 2017, as amended by L Chan J on 8 January 2018 and as continued by Chow J on 12 January 2018 (“the Injunction”), as against Tsang Tak Yung Samson (the 2^nd Defendant[1], “Mr Tsang”), Chong Wing Yip (the 5^th Defendant, “Mr Chong”) and Bi Xiao Qiong (the 13^th Defendant, “Ms Bi”) - the Main Appeal; and

(2)  a further order dated 17 June 2019 where by the Judge varied or discharged the Injunction insofar as Chui Sau Kuen (the Interested Party, “Ms Chui”) was concerned in respect of certain properties (“the Tsang Properties”) held in the name of Ms Chui but alleged by the Plaintiffs to be in truth the property of Mr Tsang - the Chabra Appeal,

pursuant to the leave to appeal granted by the Court of Appeal (constituted by Barma and Au JJA) on 17 October 2019.

2.For reasons which we shall endeavour to explain in this judgment, we shall allow the Main Appeal, but dismiss the Chabra Appeal.

BACKGROUND FACTS

3.The Plaintiffs’ claims in this action arose out of an alleged massive fraud practised by, amongst others, Wu Xiadong (the 1^st Defendant, “Mr Wu”), Mr Tsang, Chen Zhong (the 3^rd Defendant, “Dr Chen”) and Mr Chong on China Medical Technologies, Inc (in liquidation) (the 1^st Plaintiff, “the Company”) and/or CMED Technologies Ltd (the 2^nd Plaintiff, “CMED”).  The underlying transactions complained of by the Plaintiffs are of some considerable complexity.  For the purpose of this judgment, the following brief summary of the background facts, taken largely from the Judgment of the Judge handed down on 22 May 2019 (“the Main Judgment”) and 17 June 2019 (“the Chabra Judgment”), should suffice.

(i)      The parties

4.The Company was incorporated in the Cayman Islands in July 2004.  Its shares were listed on NASDAQ in August 2005 and were delisted in February 2012.  It was the holding company of a group whose principal business was said to be developing, manufacturing and marketing advanced surgical and medical equipment in the PRC.  The Company was grossly insolvent with provable claims of over US$400m.  In July 2012, it was wound up by the Grand Court of the Cayman Islands.  On 1 September 2014, Harris J made an ancillary winding up order against it in Hong Kong in HCCW 435 of 2012.

5.CMED, a company incorporated in the British Virgin Islands in 2006, is the Company’s wholly‑owned subsidiary.

6.The 3^rd Plaintiffs (“the Liquidators”) were appointed as the provisional liquidators of the Company by Order of Harris J in November 2012.  On 5 February 2015, they became the liquidators of the Company.

7.Mr Wu was at all material times the founder, Chairman, CEO, director and the largest shareholder of the Company.  From January 2006 to July 2012, he was a director of CMED.

8.Mr Tsang was the Company’s director from June 2007 to December 2011 as well as its CFO from January 2005 to January 2012.  He was also a director of CMED from January 2006 to December 2011.  He was the second most senior executive of the Company after Mr Wu.  Mr Tsang is said to be in contempt of a High Court Order that he should attend for examination, has absconded from Hong Kong and is subject to an outstanding warrant for his arrest.  Mr Tsang is also said to be a fugitive from the United States criminal justice system.  According to his 2^nd affirmation dated 27 March 2018, his present residence appears to be in the PRC.

9.Dr Chen was from about February 2007 the Chief Technology Officer of CMED and/or the Company’s Fluorescent in situ hybridisation (“FISH”) technology business, and from November 2007 the Chief Technology Officer of all of the Company’s businesses.

10.Mr Chong is, on his own evidence, a friend of Ms Bi and, through her, came to know Mr Wu in the late 1990s in Hong Kong and then, through Mr Wu, came to know Mr Tsang in around 2002.  Mr Chong is a Hong Kong resident.  Mr Chong is alleged by the Plaintiffs to be an associate of Mr Wu and Mr Tsang and acted upon their instructions and directions.

11.Ms Bi was at all material times the wife / former wife of Mr Wu.  On her own evidence, she and Mr Wu were married in 1995 and they ran several medical related companies in the PRC and Hong Kong. Ms Bi and Mr Wu separated in 2001 and were divorced in June 2012.  She obtained Singapore citizenship in November 2010 and is currently living in Singapore.  From the date of its incorporation in June 2010 until August 2012, she was a director of CMT Diagnostics (Singapore) Pte Ltd (“CMT Singapore”), a wholly‑owned indirect subsidiary of the Company.  From June 2010 to December 2011, she and Mr Tsang were common directors of CMT Singapore.  CMT Singapore was wound up in April 2013.  Ms Bi is said to be a friend of, inter alia, Mr Tsang and Mr Chong, and had business and/or personal dealings with them.

12.Ms Chui was Mr Tsang’s former wife.  The two divorced in September 2011.

(ii)     The Plaintiffs’ substantive case

13.The Plaintiffs claim that the former senior management of the Company and CMED, assisted by their associates, perpetrated, participated in and/or benefited from the fraudulent misappropriation of US$521.8m in cash (“the Fraud”) through purported acquisitions (“Acquisitions”) from Supreme Well Investments Limited (the 7^th Defendant, “Supreme Well”), and its subsidiaries, of the following alleged medical technologies:

(1)     FISH, acquired pursuant to a contract dated 6 February 2007 for US$176.8m; and

(2)     surface plasma resonance technology (“SPR”) acquired pursuant to a contract on or around 5 October 2008 for US$345m.

14.It is the Plaintiffs’ case that:

(1)     the FISH and SPR technologies were worthless in that they were not new technologies;

(2)     Supreme Well, the counter‑party to the Acquisitions, was in fact controlled by Mr Tsang, who was the sole authorised signatory of its bank accounts with Bank of China (Hong Kong) Limited (“BOC”) and The Bank of East Asia, Limited (“BEA”) into which US$355.5m of the consideration paid by the Company and CMED was deposited.  The balance was paid to Supreme Well by other means;

(3)     Mr Tsang authorised the transfer of funds from Supreme Well to the bank accounts of 9 other persons and entities (“the Supreme Well Payees”), all of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates; and

(4)     the Supreme Well Payees subsequently transferred all or some of the funds to the bank accounts of other persons and entities (“the Further Supreme Well Payees”), some of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates, and thereafter to further recipients.

15.Mr Wu orchestrated, participated and conspired in the Fraud.  The Plaintiffs claim US$524.6m against Mr Wu:

(1)     US$521.8m misappropriated from the Company and CMED by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

(2)     US$2.8m, being salary and bonuses paid to him from January 2006.

16.Mr Tsang acted on both sides of the Acquisitions and directed payment of the consideration received by Supreme Well to the Supreme Well Payees.  He received US$7.47m directly and US$379m through entities controlled by him.  The Plaintiffs claim US$524.7m against Mr Tsang:

(1)     US$521.8m misappropriated from the Company and CMED by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

(2)     US$2.9m, being salary and bonuses paid to him from January 2006.

17.Dr Chen, through Dynamic Sense Limited (the 11^th Defendant), was Supreme Well’s initial director and shareholder.  He purported to be one of the inventors of the FISH and SPR technologies.  The Plaintiffs claim US$522.79m against Dr Chen:

(1)     US$521.8m misappropriated from the Company and CMED pursuant to the Fraud; and

(2)     US$0.99m, as salary and bonuses paid to him.

18.Mr Chong was an associate of Mr Wu and Mr Tsang and a friend of Ms Bi.  He was the sole proprietor of Kam Hing Trading Co (“Kam Hing”), which received substantial proceeds of the Fraud.  He was the sole director, shareholder and an authorised account signatory of Innovative Technology Investment Ltd (the 10^th Defendant, “Innovative”), a Supreme Well Payee.  He was also the sole director and a beneficial owner of Chavis Investments Ltd (the 16^th Defendant, “Chavis”), a Further Supreme Well Payee.  Mr Chong received US$115.86m by himself or via Kam Hing, and US$66m through other entities controlled by him.  The Plaintiffs claim US$521.8m against Mr Chong for unlawful conspiracy, dishonest assistance, knowing receipt and want of authority.

19.Ms Bi was a director, shareholder and/or beneficial owner of Long Chart Investments Ltd (the 15^th Defendant, “Long Chart”), Chavis, and WB International Holding Pte Ltd (the 20^th Defendant, “WB”), which are Further Supreme Well Payees.  Ms Bi received US$14.1m through her personal bank accounts or trust accounts held or controlled by her, and US$3.5m through Long Chart and WB (both being controlled by her).  The Plaintiffs claim US$17.6m against Ms Bi for dishonest assistance, knowing receipt and restitution for want of authority.

(iii)    The Injunction

20.The writs (“the 1417 Writ” and “the 3391 Writ” respectively) in the two actions, namely, HCA 1417/2013 and HCA 3391/2016 (“the 1417 Action” and “the 3391 Action” respectively, and “the Actions” collectively), were issued by the Plaintiffs on 1 August 2013 and 23 December 2016 initially as protective writs.

21.On 11 December 2017, upon the Plaintiffs’ application on an ex parte without notice basis, L Chan J granted an interim injunction against Mr Wu, Mr Tsang, Dr Chen, Mr Chong and Ms Bi (“the Restrained Defendants”).  The interim injunction, as subsequently amended by L Chan J on 8 January 2018 and continued by Chow J on 12 January 2018, restrained them from disposing of or dealing with or diminishing the value of their worldwide assets up to certain monetary limits as specified in the Injunction:

(1)  In relation to Mr Wu, the restraint is up to the limit of US$524.6m, and specifically prohibits him from disposing of or dealing with (inter alia) a property known as 17 Coral Island, Singapore 098564 (“the Coral Island Property”), or the net proceeds of sale thereof.

(2)  In relation to Mr Tsang, the restraint is up to the limit of US$524.7m, and specifically prohibits him from disposing of or dealing with (inter alia) the Tsang Properties, ie (i) Flat G, 10/F, One Island Place, 51 Tanner Road, Hong Kong (“the One Island Place Property”), (ii) Unit C, 51/F, Tower 1, Les Saisons, 28 Tai On Street, Hong Kong (“the Les Saisons Property”), and (iii) Flat G, 5/F, Block 6, Kenswood Court, Kingswood Villas, 2 Tin Lung Road, Tin Shui Wai, Yuen Long, NT (“the Kenswood Court 5G Property”), or the net proceeds of sale thereof.  Ms Chui is the registered owner of the Les Saisons Property and Kenswood Court 5G Property, and was the registered owner of the One Island Place Property until it was sold in January 2018 in circumstances which will be further described below.

(3)  In relation to Dr Chen, the restraint is up to the limit of US$522.79m.

(4)  In relation to Mr Chong, the restraint is up to the limit of US$521.8m.

(5)  In relation to Ms Bi, the restraint is up to the limit of US$17.6m, and specifically prohibits her from disposing of or dealing with (inter alia) 2 properties, namely, (i) the Coral Island Property, and (ii) a property known as 5036, Pensier Street, Summerlin, Nevada 89135, USA (“the Pensier Street Property”), or the net proceeds of sale thereof.

22.The Injunction also required the Restrained Defendants to make disclosure of their worldwide assets of an individual value of HK$50,000 or more within a specified period of time.  The disclosures made by Mr Tsang, Mr Chong and Ms Bi (“the Opposing Defendants”) have been summarized in a table attached to Mr Charles Manzoni, SC’s Skeleton Argument dated 21 September 2021, as follows:

Funds (Allegedly) Received		Assets Disclosed
Recipients	Total (USD)	Assets	Total (USD)
Mr Tsang	7.61	Cash and Securities (Mr Tsang)	1.80
Entities controlled by Mr Tsang	389.32
Total - Mr Tsang	396.93	Total  - Mr Tsang	1.80
Mr Chong	133.16	Tsat Tsz Mui Road Property (jointly owned by Mr Chong and wife)	1.09
Entities controlled by Mr Chong	66.11	Cash and Securities (Mr Chong)	0.51
Total - Mr Chong	199.27	Total - Mr Chong	1.60
Ms Bi	16.15	Coral Island Property (net of mortgage) (Mr Wu/Ms Bi)	4.58
		Pensier Street Property (Ms Bi)	0.75
Entities controlled by Ms Bi	3.50	Cash and Securities (Ms Bi/Long Chart/WB)	6.17
		3 Vehicles (Ms Bi/WB)	Unknown
		Jewellery (Ms Bi)	Unknown
Total - Ms Bi	19.65	Total - Ms Bi	11.50
		Total Assets Disclosed	14.90

THE MAIN JUDGMENT

23.The Plaintiffs’ summonses dated 13 December 2017 and 9 January 2018 (“the Continuation Summonses”) for continuation of the Injunction came before the Judge on 17 to 19 September 2018.  The Continuation Summonses were opposed by the Opposing Defendants.  Through his solicitors, Dr Chen informed the court that he did not intend to oppose the Continuation Summonses, while Mr Wu did not file evidence in opposition and did not attend the hearing before the Judge.  Also before the Judge were (i) a summons dated 9 January 2018 (“the Discharge Summons”) taken out by Mr Chong for discharge of the Injunction, and (ii) a summons dated 16 July 2018 taken out by Mr Tsang for fortification of the Plaintiffs’ cross-undertaking as to damages (“the Fortification Summons”).

24.By the Main Judgment handed down on 22 May 2019, the Judge held that:

(1)  There was procedural irregularity in that the Plaintiffs were not justified in applying for the Injunction ex parte without notice.  In particular, the Judge considered that there was neither urgency nor a need for confidentiality to justify the application being made on an ex parte without notice basis.  On this ground alone, the Judge held that the Injunction must be set aside (see §65 of the Main Judgment).

(2)  The Plaintiffs had failed to show a real risk of dissipation of assets by any of the Opposing Defendants, and thus the Injunction must also be set aside on this ground (see §75 of the Main Judgment).

(3)  The Plaintiffs had shown a good arguable case against each of the Opposing Defendants (see §88 of the Main Judgment).

(4)  It was not necessary to consider the issue of material non-disclosure (see §89 of the Main Judgment).

Based on the aforesaid findings, the Judge set aside and discharged the Injunction against the Opposing Defendants.  The Judge made no order on the application for fortification, which he considered to have been rendered academic by his decision to set aside/discharge the Injunction against (inter alia) Mr Tsang (see §90 of the Main Judgment).

25.In respect of the issue of “procedural irregularity”, the Judge accepted the submissions made by counsel on behalf of Mr Tsang, Mr Chong and Ms Bi respectively about the lack of urgency and the absence of any need for confidentiality.

(1)  Insofar as Mr Tsang was concerned, the Judge accepted the following submissions made by Mr Edward Elder on his behalf -

(a)  He had many years’ notice of the Plaintiffs’ claim against him.  The 1417 Writ, issued on 1 August 2013, in which the Company sued (inter alia) Mr Tsang in respect of payments from the Company’s BOC account to Supreme Well amounting to almost US$190m, was brought to Mr Tsang’s attention by the Liquidators by letter on 2 August 2013. Furthermore, according to the 4^th Affidavit of Cosimo Borrelli dated 20 July 2017 filed in HCA 1417/2013, Mr Tsang and other defendants were likely to be aware of the existence of the second protective writ, ie the 3391 Writ, because it was not the subject of confidentiality order.  There was exchange of correspondence between the Plaintiffs and Mr Tsang’s solicitors since at least 14 November 2017 regarding service of the 1417 Writ and 3391 Writ.  The 1417 Writ and 3391 Writ were served on Mr Tsang’s solicitors on 28 November 2017.

(b)  The Plaintiffs relied on no recent development concerning Mr Tsang to justify the ex parte application.  In the supporting Affidavit of Cosimo Borrelli dated 8 December 2017 filed in the 3391 Action (“Borrelli 1”), at §168, the Plaintiffs admitted that other than the evidence of the Coral Island Property in Singapore and the Pensier Street Property in the USA being put on the market by Mr Wu and Ms Bi, they had no direct evidence that, inter alia, Mr Tsang was taking or would take steps to dissipate his assets.[2]

(2)  Insofar as Mr Chong was concerned, the Judge accepted the following submissions made by Mr Martin Ho on his behalf -

(a)  After being served with a summons dated 24 April 2015 in HCCW 435/2012 pursuant to s 221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32, an order was made by consent on 12 August 2015 requiring Mr Chong to produce documents to the Liquidators and attend an oral examination.  The examination lasted 4 days on 5 and 6 May and 11 and 12 July 2016 in which the Liquidators examined Mr Chong extensively with respect to his role in the Fraud.

(b)  The 3391 Writ was served on Mr Chong on 15 November 2017.  Among the Opposing Defendants, he was the first to file an acknowledgment of service on 28 November 2017.

(c)  If there was indeed a need for confidentiality, the 3391 Writ would not have been served on Mr Chong to alert him of the actual claims against him prior to applying for the Injunction.[3]

(3)  Insofar as Ms Bi was concerned, the Judge accepted the following submissions made by Mr Stewart Wong, SC on her behalf -

On the lack of urgency

(a)  As early as December 2012, the Liquidators had already levelled accusations against her that she was deeply “implicated in the misappropriation of hundreds of millions of dollars from [the Company] and received and secreted substantial funds in the United States”.  The accusations were contained in Mr Borrelli’s declaration filed in the USA Chapter 15 proceedings on 31 December 2012.

(b)  CMT Singapore was wound up in April 2013. During the oral examination of Ms Bi concerning the affairs of CMT Singapore which took place on 4 occasions in March and May 2014 as well as January 2015, similar allegations that Ms Bi was complicit in the Fraud were made by Mr Borrelli against her.  By the time of the oral examination at the latest, the Liquidators were aware of Ms Bi’s interest in both the Coral Island Property and the Pensier Street Property.  On Ms Bi’s evidence, which was not contradicted, the Pensier Street Property was purchased in 2005, and openly put up for sale since August 2016.  The Coral Island Property was purchased in December 2009, and again openly put up for sale initially in 2015.  These were not sudden attempts by Ms Bi to put the properties on the market for a quick sale.  Yet, no attempts were made to freeze Ms Bi’s assets including the 2 properties, after the oral examination was concluded in January 2015.

(c)  Despite the issue of the publicly searchable 3391 Writ against, inter alia, Ms Bi on 23 December 2016 in respect of her complicity in the fraudulent misappropriation of the Company’s funds, no application for injunction was applied for until a year later in December 2017.  Further, the 3391 Writ was served on Ms Bi on 27 November 2017, 3 days after her Singapore lawyers confirmed instructions to accept service.  As with the case of Mr Tsang, there was exchange of correspondence between the Liquidators and Ms Bi’s Singapore solicitors in November 2017 regarding, inter alia, service of the 3391 Writ.  The fact that Ms Bi instructed her lawyers to accept service shows that she had no intention to evade any legal process against her.

(d)  The Liquidators said they only discovered in November 2017 that the Coral Island Property and the Pensier Street Property were listed for sale.  Notwithstanding the difficulties often faced by liquidators in investigating the affairs of a failed company, an ex parte applicant cannot rely on its own delay in investigating/discovering matters, even if the delay is understandable or excusable, in order to generate urgency for the present purpose.

On the absence of need for confidentiality

(e)  Any such need was wholly dispelled by the matters stated above.  Ms Bi had known since December 2012 of the Liquidators’ allegations against her.  They therefore by their own conduct had warned Ms Bi of a likely claim against her and thereby destroyed all justification for confidentiality.  If Ms Bi were indeed minded to dissipate her assets or to evade the anticipated legal proceedings so as to defeat any judgment against her, she would have done so long ago.

(f)  As a matter of common sense, the listing of the 2 properties for sale openly was the very antithesis of any attempt to spirit away assets - normally, a person of questionable integrity who was minded to dissipate his assets in a case like this would do so privately.[4]

26.In respect of the issue of “real risk of dissipation” of assets, the Judge found against the Plaintiffs for the following reasons:

(1)  The Judge referred to the Plaintiffs’ case on “real risk of dissipation” advanced in Borrelli 1, and understood that they were principally relying on “Honsaico and Standard Chartered Securities[5] in justifying their contention of ‘real risk of dissipation of assets’ against the Opposing Defendants, in addition to their recent discovery that [Mr Wu and Ms Bi] had publicly put the Coral Island Property in Singapore and the Pensier Street Property in the US for sale”[6].

(2)  The Judge considered, however, that if the Liquidators truly believed that the Opposing Defendants had exhibited “an unacceptably low standard of commercial morality” or were of “questionable integrity” by reason of their alleged role in the Fraud, they would have applied for a mareva injunction against them long ago and well before alerting them of a potential or actual claim against them.  Yet, the Liquidators had done the opposite.

(a)  In the case of Mr Tsang, he was alerted to the 1417 Writ on 2 August 2013 and was served with the 3391 Writ on 28 November 2017, having instructed his lawyers to accept service.

(b)  In the case of Mr Chong, he was alerted to the accusation against him in a letter dated 19 January 2016 from Lipman Karas to Tony Kan & Co and, at the latest, upon the conclusion of the oral examination in July 2016.  He was served with the 3391 Writ on 15 November 2017, almost a month before the ex parte application for the Injunction.  While it was true that Mr Chong sold shares worth about HK$450,000 on the day he was served with the Injunction, ie 15 December 2017, on his undisputed evidence, that took place prior to him being notified of the Injunction.  Importantly, he did not entirely clear out his BOCOM securities account - after the sale, he still had shares worth HK$1.6 million in the account.

(c)  In the case of Ms Bi, the allegations against her was first levelled in December 2012 and then repeated in the oral examination in Singapore in March/May 2014 and January 2015.  Ms Bi instructed her Singapore lawyers to accept service of the 3391 Writ and they duly did so on 27 November 2017.

(3)  The Judge took the view that the fact that the Plaintiffs waited until December 2017 to apply for the Injunction against the Opposing Defendants raised “a large question mark” as to whether there was indeed a real risk of dissipation, which had not been satisfactorily answered by the Plaintiffs.  All that the Plaintiffs did was to repeat their reliance on Honsaico and the Opposing Defendants’ alleged involvement in the Fraud.  But even if the court accepted there was a good arguable case of fraud or dishonesty against the Opposing Defendants, the court might more readily but was not bound to infer a real risk of dissipation - the court still had to consider that risk in light of all the evidence before it.

(4)  The Judge concluded that there was no solid or cogent evidence to justify an inference that the Opposing Defendants would, given the opportunity, dissipate their assets so as to evade the due process of the law.  They had been given ample opportunity to do so but notwithstanding the vigorous and extensive investigation carried out by the Liquidators over the years, the evidence before him failed to show they had dissipated their assets after having been alerted to the potential/actual claims against them.[7]

THE CHABRA JUDGMENT

27.Ms Chui was not a defendant in the Actions, but the Injunction affected her because the assets which Mr Tsang was expressly restrained from disposing of, dealing with or diminishing the value of included (i) the Tsang Properties held in the name of Ms Chui (see §4(2)(a) to (c) of the Injunction), and (ii) any money held by Ms Chui, whether in bank accounts or otherwise, comprising the net proceeds of sale of any of the Tsang Properties (see §4(2)(f) the Injunction).

28.Pausing here, it may be noted that in respect of the One Island Place Property, Ms Chui entered into a preliminary sale and purchase agreement on 20 November 2017 at the price of HK$13.98 million, and a formal sale and purchase agreement on 4 December 2017 (prior to the interim injunction first granted by L Chan J on 11 December 2017). Completion of the sale and purchase was scheduled to take place on 17 January 2018.  In view of the interim injunction, it was varied by the court on 12 January 2018 to enable completion to take place, subject to Ms Chui’s undertaking to pay into court the initial deposits already received and the completion monies to be received by her within specified periods of time.  In accordance with the undertaking, Ms Chui paid into court the sums of HK$1,398,000 and HK$12,582,000 on 16 January 2018 and 18 January 2018 respectively.

29.By a summons dated 8 June 2018, Ms Chui applied to vary or discharge the Injunction insofar as she was concerned.  Ms Chui’s summons came before the Judge on 30 April 2019.  Her grounds of application were that:

(1)  There was no basis to grant the Injunction against the Tsang Properties, and the sale proceeds/money belonged to her.

(2)  There was serious material non-disclosure by the Plaintiffs at the ex parte stage.

(3)  There was no good reason to suppose that the Tsang Properties or the sale proceeds would be amenable to any judgment which the Plaintiffs might obtain against Mr Tsang.

(4)  There was no real dissipation by her.

(5)  It was not just and convenient to grant the Injunction against the Tsang Properties, and the sale proceeds belonged to her.[8]

30.At the hearing before the Judge, counsel for the Plaintiffs were at pains to emphasise that 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 his assets.  However, as pointed out by the Judge, at the ex parte hearing before L Chan J on 11 December 2017, the Plaintiffs made conflicting claims as to the bases on which the injunction against the Tsang Properties was sought.  Apparently, the Plaintiffs claimed both (i) a proprietary interest over the Tsang Properties, on the basis that they were purchased “using stolen funds” and represented “traceable proceeds of the Fraud in which the Plaintiff Companies have a proprietary interest”, and (ii) the Tsang Properties “may in truth be assets of Mr Tsang or assets in which he has a beneficial interest, and that the Tsang Properties would be amenable to execution of a judgment obtained against Mr Tsang” (see §§26-31 of the Chabra Judgment).

31.By the Chabra judgment handed down on 17 June 2019, the Judge allowed Ms Chui’s application by removing §4(2)(a) to (c) and (f) of the Injunction, and ordered the sums paid into court by Ms Chui to be paid out to her.  The Judge’s essential reasons for his decision are as follows:

(1)  The Plaintiffs had failed to show that there was a real risk of dissipation of the Tsang Properties by Ms Chui or Mr Tsang, and thus there was no basis for granting the Injunction on the Chabra basis over the Tsang Properties or the proceeds of sale of the One Island Place Property (see §§44-48 of the Chabra Judgment).

(2)  There was material non-disclosure on the part of the Plaintiffs, in that they failed to explain to the ex parte judge 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 (see §50 of the Chabra Judgment).

(3)  There was a material misrepresentation made to the ex parte judge by the Plaintiffs, in that in Borrelli 1, at §76, it was (incorrectly) alleged that the Tsang Properties were purchased without mortgage.  This fact was a material one since it bolstered the Plaintiffs’ case 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 were in truth his assets and hence the propriety of invoking the Chabra jurisdiction (see §51 of the Chabra Judgment).  Although the misrepresentation was due to an inadvertent oversight rather than a deliberate attempt to mislead the ex parte judge, nevertheless, given the materiality of the misstatement, the Injunction covering the Tsang Properties and the sale proceeds in question should be discharged on this ground (see §52 of the Chabra Judgment).

(4)  The question of re-grant of the Injunction was academic given the court’s conclusion that there was no basis for granting the Injunction on the Chabra basis over the Tsang Properties or the sale proceeds in question (see §53 of the Chabra Judgment).

THE MAIN APPEAL

32.By Notice of Appeal dated 24 October 2019, the Plaintiffs appealed against the Main Judgment on 3 grounds, as follows:

(1)  Where (i) a good arguable case of fraud/dishonesty had been established in respect of a theft, including by fiduciaries, of listed company assets of US$521.8 million for which Mr Wu and Mr Tsang were the subject of a United States criminal indictment and are fugitives; and (ii) the fraud involved actual dissipation of the stolen funds through multiple secret, complex banking transactions designed to put those assets beyond the reach of the Plaintiffs and the Opposing Defendants had not disclosed the whereabouts of those funds, the Judge erred in fact and law by concluding that the Plaintiffs had not shown a real risk of dissipation of assets.  Such risk flowed from the fraud itself, and was self-evident.

(2)  As a consequence of the Judge’s erroneous finding that there was no real risk of dissipation notwithstanding the good arguable case of fraud/dishonesty -

(a)  the Judge erred in finding that it was inappropriate to apply ex parte, as it was self-evidently appropriate to apply ex parte when seeking mareva relief in respect of a defendant who had engaged in fraud/dishonesty including actual dissipation of assets;

(b)  the Judge further erred in finding that injunctive relief was not appropriate due to delay by the Plaintiffs, because (i) the Judge erroneously considered events between 2012 and 2017 as delay, notwithstanding that the Plaintiffs were not able to articulate a good arguable case (and therefore seek mareva relief) until after the formulation of a draft statement of claim in September 2017, (ii) the reason why the Plaintiffs were not able to seek mareva relief earlier was because the theft and dissipation which comprised the good arguable case of fraud/dishonesty were clandestine and hidden by the Opposing Defendants, and in any event (iii) such a conclusion is inconsistent with the principle of law that delay alone will never be dispositive of an application for a mareva injunction.

(3)  The Judge erred in finding that the Plaintiffs had acted in abuse of process by failing to draw certain matters to the ex parte judge’s attention with respect to Mr Tsang.  They did so, including in their skeleton argument and the main body of their supporting affidavit evidence, which the ex parte judge confirmed he had read.

(i)      Real risk of dissipation of assets

33.The principal point raised by Mr Manzoni concerns the proper approach that the court should adopt in the assessment of “real risk of dissipation” of assets by the Opposing Defendants on the facts and circumstances of the present case.

34.Subsequent to the handing down of the Main Judgment and the Chabra Judgment by the Judge in May/June 2019, the Court of Appeal (constituted by Lam VP (as he then was) and Barma JA) gave a judgment in Convoy Collateral Ltd v Cho Kwai Chee & Others [2020] 6 HKC 81 on 3 July 2020, which explains or elucidates the proper approach that the court should adopt in the assessment of risk of dissipation in cases where a mareva injunction is sought against a defendant who is accused of fraud or other serious wrongdoings.  At §35 of his judgment, Lam VP (giving the judgment of the Court of Appeal) quoted with approval (subject to certain elaborations) the judgment of Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto [2019] EWCA Civ 2203 at §34, where his Lordship adopted (with a slight modification) the principles set out by Popplewell J (as he then was) in an earlier judgment in Fundo Soberano de Angola v dos Santos [2018] EWHC 2199 (Comm), as follows -

“(1) The claimant must show a real risk, judged objectively, that a future judgment would not be met because of an unjustified dissipation of assets. In this context dissipation means putting the assets out of reach of a judgment whether by concealment or transfer.

(2) The risk of dissipation must be established by solid evidence; mere inference or generalised assertion is not sufficient.

(3) The risk of dissipation must be established separately against each respondent.

(4) It is not enough to establish a sufficient risk of dissipation merely to establish a good arguable case that the defendant has been guilty of dishonesty; it is necessary to scrutinise the evidence to see whether the dishonesty in question points to the conclusion that assets may be dissipated. It is also necessary to take account of whether there appear at the interlocutory stage to be properly arguable answers to the allegations of dishonesty.

(5) The respondent’s former use of offshore structures is relevant but does not itself equate to a risk of dissipation. Businesses and individuals often use offshore structures as part of the normal and legitimate way in which they deal with their assets. Such legitimate reasons may properly include tax planning, privacy and the use of limited liability structures.

(6) What must be threatened is unjustified dissipation. The purpose of a [World Freezing Order] is not to provide the claimant with security; it is to restrain a defendant from evading justice by disposing of, or concealing, assets otherwise than in the normal course of business in a way which will have the effect of making it judgment proof. A WFO is not intended to stop a corporate defendant from dealing with its assets in the normal course of its business. Similarly, it is not intended to constrain an individual defendant from conducting his personal affairs in the way he has always conducted them, providing of course that such conduct is legitimate. If the defendant is not threatening to change the existing way of handling their assets, it will not be sufficient to show that such continued conduct would prejudice the claimant’s ability to enforce a judgment. That would be contrary to the purpose of the WFO jurisdiction because it would require defendants to change their legitimate behaviour in order to provide preferential security for the claim which the claimant would not otherwise enjoy.

(7) Each case is fact specific and relevant factors must be looked at cumulatively.” [emphasis added]

35.Lam VP went on to state that, subject to certain elaborations, the aforesaid principles are applicable in Hong Kong:

“[37] On the onus borne by a party seeking such draconian relief, whilst there are no doubt respectable authorities referring to the need for a solid evidential basis to establish a real risk of dissipation …, we prefer to describe the burden as solid basis for concluding that there is such a real risk.

[39] Gee on Commercial Injunction, 6^th Edn at para 12-033 discussed the ‘solid evidence’ of risk of dissipation and at footnote 155 cited this part of the judgment of Mustill J as the authority on this requirement. The learned author also observed that each case depends on its own facts and it is impossible to lay down any general guidelines on satisfying the evidential burden. Instead, he discussed various factors that could be relevant. For present purposes, it is pertinent to note that most factors are not direct evidence on dissipation as such. Matters like the nature of assets held by the defendant, nature and financial standing of the defendant, past or existing credit history, defendant’s behaviour in respect of the claim can be indicative of the risk of dissipation.

[40] Since the assessment is in respect of the risk of dissipation as opposed to the fact of actual dissipation, the exercise necessarily involves an evaluative and predictive judgment. Thus, the evidential burden can be satisfied by drawing proper inferences from a holistic consideration of all the circumstantial materials that are indicative of risk, including matters which point against such risk…

[42] There are cases where a good arguable case on the underlying substantive claims could also be regarded as supporting a case of real risk of dissipation. As highlighted in proposition (4) in Popplewell J’s summary, the court needs to scrutinise with care whether the allegations in respect of the claims justify the inference of likelihood of dissipation.

[43] Notwithstanding the broad statement of Godfrey J in Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLRD 235, Hong Kong judges have been vigilant in scrutinizing the allegations in a claim with care before drawing the inference of risk of dissipation…

[46] In Lakatamia Shipping Co Ltd v Toshiko Morimoto, supra, the wrongdoing was the dishonest assistance provided by a mother to the son’s breach of a world-wide freezing order in the dissipation of certain proceeds subject to the order. Haddon-Cave LJ held at [51] that:

‘(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.’

[47] Wrongdoing relevant to the issue of dissipation can be some dishonest or wrongful acts which were not themselves acts of dissipation. In VTB Capital v Nutritek International [2012] 2 CLC 431, the alleged wrong committed by the defendant was the procurement of a loan from CCL by fraudulent misrepresentation as to the value of the assets of the borrower and the disappearance of the proceeds in a complex web of corporate entities. Lloyd LJ said at [177]:

‘… However, where (as here) the dishonesty alleged is at the heart of the claim against the relevant defendant, the court may well find itself able to draw the inference that the making out, to the necessary standard, of that case against the defendant also establishes sufficiently the risk of dissipation of assets.’

[49] Another illustration is the judgment of Saville LJ in Grupo Torras SA v Al-Sabah (21 March 1997) which was cited in the judgment of Flaux J in Madoff Securities International Ltd v Raven [2011] EWHC 3102 (Comm).  The defendant in that case was an investment adviser in Switzerland.  The judge found there was a good arguable case that he was implicated in a scheme of fraud and the nature of the allegation was such that there was a strong fear of dissipation…”

36.At §53 of his judgment, Lam VP summed up the position as follows:

“To sum up, the approach set out by Haddon-Cave LJ in Lakatamia Shipping Co Ltd v Toshiko Morimoto, supra at [51] provides good guidance. The ultimate question is whether CCL succeeds in showing objectively there is a solid basis for concluding that there is a real risk of unjustified dissipation of assets by a defendant. That question is to be answered by examining the evidence holistically. Evidence of dishonest and fraudulent conducts or other serious wrongdoings which form the basis of the claims, and which reflect adversely on the integrity of the defendant could point powerfully towards an inference of such risk.”

37.At §54 of his judgment, Lam VP also pointed out that evidence of delay is relevant in the assessment of risk of dissipation.  “Delay after a defendant gained knowledge of a plaintiff’s claim can militate against the risk of dissipation as such defendant would already have the opportunity to dispose of assets should he be inclined to do so.”

38.It is clear from the Court of Appeal’s judgment in Convoy that the court should adopt a holistic approach in assessing the risk of dissipation of assets.  The court should take into account all circumstances relevant to the risk of dissipation for the purpose of determining whether a “solid basis for concluding a real risk of unjustified dissipation of assets” by a defendant has been shown.  It bears emphasis that conduct which may be regarded as being of “low commercial morality” is not necessarily relevant to risk of dissipation, eg putting up poor excuses to get out of a bargain in Crete Maritime Corp v Emirates Shipping Line [2017] 5 HKLRD 345, breach of contract without solid evidence pointing to dishonesty or any attempts to conceal inventory or proceeds in Eastman Chemical Ltd v Heyro Chemical Co Ltd (No 2) [2012] 3 HKLRD 307, or coercion and duress in Holyoake v Candy [2018] Ch 297.  Where the underlying claim advanced against a defendant involves dishonest or fraudulent conduct or other serious wrongdoings, it is necessary to examine whether the conduct or wrongdoings in question is itself indicative of, or relevant to, the risk of dissipation.

39.Counsel for the Opposing Defendants were at pains to emphasise that the position of each defendant should be looked at and assessed separately.  We accept that this is the proper approach to take.

40.In so far as Mr Tsang is concerned, he was, on the Plaintiffs’ case, a prime mover behind the Fraud:

(1)  He acted on both sides of the Acquisitions[9].

(2)  Supreme Well was his agent, nominee, trustee, façade or alter ego, and was used by him for the purpose of perpetrating the Fraud[10].

(3)  He directly received at least US$7.47 million of funds allegedly stolen from the Company/CMED[11].

(4)  He controlled Supreme Well (the 7^th Defendant), East Hope International Limited (the 8^th Defendant), Cheer Link Technology Investment Limited (the 9^th Defendant), Innovative (the 10^th Defendant), Worldpro Investments Limited (the 14^th Defendant), Long Chart (the 15^th Defendant), and Global Flash Limited (the 23^rd Defendant) (collectively “the Tsang Entitles”), which received over US$379.32m of funds allegedly stolen from the Company/CMED[12].

(5)  He directed payment of the consideration received by Supreme Well to the Supreme Well Payees[13].

(6)  In Re China Medical Technologies, Inc (HCCW 435/2012, unreported, 28 August 2014), in the context of an application to re-open the trial of a petition to wind up the Company in Hong Kong based on new evidence, Harris J had the following to say about Mr Tsang:

“[6] … in the light of the new evidence it was quite clear that Mr. Tsang’s evidence was self‑serving, could not be relied on and that Mr. Tsang, as opposed to his lawyers, was intent not on assisting the Court determine the jurisdiction issue properly, but avoiding his conduct being investigated.

[10] The transaction between the Company and Supreme Well and Molecular was, according to public announcements made by the Company at the time, an arm’s length transaction. However, the new documents obtained by the liquidators show that the 2 accounts into which US$355,000,000 was deposited with Bank of China Hong Kong and the Bank of East Asia respectively, had as their sole authorised signatory Mr. Tsang. The shareholder of the account opening documents is a Mr. Chen Zhong, who was allegedly the developer of the technology sold to the Company. However, through a series of transfers made initially out of the Supreme Well accounts to various other accounts the large majority of the proceeds, US$294,500,000, ended up in accounts controlled by Mr. Tsang and the Company’s former Chairman and Chief Executive Officer Mr. Wu…

[14] There is now reason to think that a very large part of the Company’s assets has been misappropriated through a scheme operated in Hong Kong involving various persons who themselves are normally resident here (Mr. Tsang, Mr. Kwan and Mr. Chong Wing Hip) and using bank accounts in Hong Kong which were operated personally by Mr. Tsang in Hong Kong.

[16] In the present case the evidence that has come to light since July of last year makes it clear there are strong prima facie grounds for suspecting that a very significant part of the Company’s assets have been misappropriated in Hong Kong using a number of Hong Kong bank accounts operated by persons in Hong Kong …”

41.On the Plaintiffs’ case, it is also clear that Mr Chong is a central figure in the Fraud[14]:

(1)  Mr Chong assisted Mr Tsang in the incorporation of Supreme Well’s BVI shareholders, which were shell companies used to implement the Fraud.

(2)  The named shareholders and beneficial owners of Supreme Well at the time of the Acquisitions were all relatives and close friends of Mr Chong, and were appointed without their knowledge or consent through misuse of their Hong Kong Identity Cards by Mr Tsang and/or Mr Chong and forged signatures.

(3)  Mr Chong received the stolen funds personally in his own name or in the name of Kam Hing, as well as through Innovative and Chavis (at least US$115.86m in his own name or in the name of Kam Hing, and US$66.01m though Innovative/Chavis)[15]. On the instructions of Mr Wu and/or Mr Tsang, he caused those funds to be further disbursed.

(4)  Mr Chong opened and operated numerous accounts for the purpose of receiving the funds involved in the Fraud, and subsequently caused some of the accounts to be closed, after having transferred away all the stolen funds.

(5)  Mr Chong deliberately concealed the Fraud, including through the use of entities, bank accounts and a vast number of banking transactions to receive the proceeds of the Acquisitions and conceal their true character and effect.

42.Mr Chong’s explanation that he received substantial funds via Kam Hing, Innovative and Chavis (the latter two companies being “entirely incorporated by Mr Tsang and/or Mr Wu, who had told [him] from time to time that there would be business for [him] to do”) and then transferred them out to various designated accounts upon the requests of Mr Wu and/or Mr Tsang without enquiry “just to do them a favour”, or as “[he] would like to maintain a good relationship with [Mr Wu] and [Mr Tsang] for business opportunities”, believing that they were “rich and successful businessmen who [had] lots of business connections and networks” and such requests were “normal and proper since Mr Wu and Mr Tsang might have needed help to transfer their own funds in and out of China”[16] is, to say the least, highly questionable.

43.In relation to Ms Bi, we accept that her involvement in the Fraud, on the Plaintiffs’ case, was more limited. Apparently, (i) US$14.1m of the funds stolen from the Company/CMED were transferred into her personal bank accounts or trust accounts held or controlled by her[17], and (ii) US$3.5m were received by Long Chart and WB, which the Plaintiffs say were controlled by Ms Bi[18]. However, as pointed out by the Judge, Ms Bi was unable to produce any documents to justify her entitlement to receive such sums or her so-called comprehensive explanation for receiving them.  There were also suspicious circumstances which the Judge took into account in coming to the view that there was sufficient objective evidence for inferring knowledge of the Fraud on her part (see §86 of the Main Judgment).

44.The Judge was satisfied that the Plaintiffs had established a “good arguable case” of fraud against the Opposing Defendants (see §§76-88 of the Main Judgment).  Given this finding, as well as the nature of the Fraud itself, we consider that there was clearly a solid basis for concluding a risk of dissipation of assets by the Opposing Defendants, notwithstanding the countervailing considerations mentioned by the Judge in §§71 to 73 of the Main Judgment (which we have summarized in §26(2) to (4) above).

45.The Judge held otherwise.  As noted above, the Judge considered, in relation to the issue of real risk of dissipation, that the Plaintiffs were principally relying on Honsaico, in addition to the recent discovery that Mr Wu/Ms Bi had publicly put the Coral Island Property and the Pensier Street Property for sale, to justify their contention of “real risk of dissipation of assets” against the Opposing Defendants, and held that even if the court accepted that there was a good arguable case of fraud or dishonesty against the Opposing Defendants, he was not bound to infer a real risk of dissipation in light of the other matters that he referred to in §§71 to 74 of the Main Judgment.

46.Generally speaking, the Court of Appeal would not lightly interfere with an assessment of the risk of dissipation by a judge at first instance in deciding to grant, or refuse to grant, a mareva injunction.  As mentioned in §33 of Lam VP’s judgment in Convoy, a decision in respect of a refusal to grant an injunction involves the exercise of discretion on the part of a judge.  The Court of Appeal will not interfere with such exercise of discretion unless an appellant can show that the judge erred in law or misapplied the law by failing to take account of relevant considerations or taking account of irrelevant considerations or the decision is plainly wrong, viz the exercise is outside the generous ambit within which reasonable disagreement is possible.

47.However, at the time when the Judge gave the Main Judgment in this case, he did not have the benefit of considering the subsequent judgment of the Court of Appeal in Convoy.  Had the Convoy judgment been available to the Judge, we believe that the Judge would have focused more closely on the nature of the fraud or dishonesty alleged against the Opposing Defendants, and asked whether the fraud or dishonesty in question was indicative of, or relevant to, the risk of dissipation.  We are of the view that the Judge erred in approach in failing to properly evaluate the significance of the nature of the alleged fraud or dishonesty, thus entitling the Court of Appeal to intervene in his assessment of the issue of risk of dissipation of assets.

48.In the present case, the Fraud is in substance a massive scheme of wrongful misappropriation and dissipation of the Company/CMED’s assets through the extraction of very substantial funds (in the region of US$524.6m) belonging to the Company/CMED purportedly as purchase monies for worthless assets sold by Supreme Well, and the siphoning off of the funds to a large number of persons (ie Supreme Well, the Supreme Well Payees and the Further Supreme Well Payees) using more than 50 bank accounts across at least 5 jurisdictions.  Viewed in this light, it seems to us that the nature of the Fraud itself ought to be regarded as being highly relevant to a proper assessment of the risk of dissipation of assets by the Opposing Defendants.  While there are undoubtedly some countervailing considerations which tend to militate against a risk of dissipation[19], we consider that, overall, a sufficiently solid basis for concluding that there is such a risk has been shown to justify the granting of mareva relief against them.

49.Before we leave this issue, we should mention that, in Mr Tsang’s Respondent’s Notice, he contends that there is no real risk of dissipation of assets on his part taking into account, inter alia, the fact that he had shortly before the first ex parte hearing on 11 December 2017 settled taxed costs orders against him in the proceedings for the winding up of the Company in HCCW 435/2012, and his good history of settling taxed costs orders in the said proceedings.  The amount of costs paid by him on 1 December 2017 was for the sum of HK$204,892.60.  Inclusive of some earlier costs paid by Mr Tsang, the total came to less than HK$1.4m[20].  Mr Tsang was of course under a legal obligation to pay those costs.  The amount of costs paid by him was negligible compared to the monetary limit of the Injunction against him. We are not satisfied that compliance with the relevant orders for costs is sufficient evidence to negate a real risk of dissipation of assets by Mr Tsang.

(ii)     Procedural irregularity

50.The Judge also decided to discharge the Injunction against the Opposing Defendants on the ground of procedural irregularity. In particular, the Judge was of the view that there was neither urgency, nor a need for confidentiality, which could justify the Plaintiffs’ application for mareva relief on an ex parte without notice basis.

51.Mr Manzoni argues that, apart from cases of material non-disclosure, it was not open to the Judge to review the decision of L Chan J to hear the application on an ex parte without notice basis, because the Judge was not hearing an “appeal” against the decision of L Chan J who was exercising a co-ordinate jurisdiction.  It is, we consider, unnecessary to determine this issue, because it is not disputed by Mr Manzoni that, whatever may be the position before the Judge, it is open to the Court of Appeal to consider whether it was justifiable for the Plaintiffs to proceed on an ex parte without notice basis before L Chan J.

52.Whether it was justifiable for the Plaintiffs to apply (i) ex parte, and (ii) without notice, are two separate questions, although they may involve overlapping considerations.  If there is no urgency in a matter, it would be difficult to justify an application for an injunction being made ex parte, instead of by an ordinary inter partes summons.  On the other hand, a matter may be urgent, but there may not be any need for confidentiality.  In such a case, while an ex parte application may be justifiable, it would not be justifiable to proceed without notice to the other side.  Notice does not necessarily have to be long, but it must not, of course, be so short as to be illusory.  Mr Manzoni says that it is almost unheard of for mareva injunctions to be sought inter partes.  While it is true that most applications for mareva injunctions are made ex parte without notice, whether such mode of application is justifiable must still depend on the facts and circumstances of the case in question.  There is no rule of law which says that an application for a mareva injunction is permitted to be made ex parte without notice as a matter of course.  For example, in Akai Holdings Limited (in compulsory liquidation) and Others v Ho Wing On, Christopher and Others (HCCL 37/2005 and HCCL 40/2005, 9 February 2009), an ex parte application for mareva injunction on notice was refused by Stone J who required the ex parte summons to be reconstituted as an inter partes application; and in Re Chau Cham Wong Patrick (a bankrupt) [2016] 2 HKLRD 278, an application for a worldwide mareva injunction was made by way of an inter partes summons because there had already been extensive correspondence between the parties prior to the issue of the summons and it could not therefore be said that there was a need for secrecy.

53.In this case, the Judge considered that there was neither urgency, nor a need for confidentiality, to justify the application being made ex parte without notice before L Chan J on 11 December 2017. The Judge came to that view because, amongst other things: (i) the Opposing Defendants had knowledge of the Plaintiffs’ allegation of fraud and/or the 1417 Action and/or the 3391 Action for a long time prior to the application on 11 December 2017, (ii) there was no evidence, or suggestion, that either Mr Tsang or Mr Chong took any steps to dissipate their assets despite such knowledge, while Ms Bi had put up the Coral Island Property and the Pensier Street Property for sale openly since 2015 and 2016 respectively, and (iii) Mr Tsang and Ms Bi instructed lawyers to accept service of the 3391 Writ, which took place on 28 November 2017 and 27 November 2017 respectively, while Mr Chong was the first amongst the Opposing Defendants to acknowledge service of the 3391 Writ on 28 November 2017.

54.We acknowledge the force of these considerations.  However, in considering the question of urgency and the need for confidentiality, the nature of the Fraud alleged against the Opposing Defendants is, we consider, also a relevant factor, which the Judge did not seem to have taken into account.  Given that the Fraud involves a massive scheme of misappropriation and dissipation of funds belonging to the Company/CMED, it was, we consider, justifiable for the Liquidators to be concerned that, if the Restrained Defendants (including the Opposing Defendants) were given notice of an actual application for mareva injunction against them, they might dissipate whatever assets that remained in their names to avoid any judgment which the Liquidators might eventually obtain against them.

55.In relation to the issue of delay, we agree with Mr Manzoni that until the Plaintiffs were able to properly formulate their claim in the form of a draft Statement of Claim in around late August 2017[21] for the purpose of seeking leave to serve out of the jurisdiction, there would be no sufficient basis for them to apply for mareva relief against the Restrained Defendants. There is evidence that the Liquidators’ investigations of the Fraud were impeded by a lack of available books and records, the refusal of former executives of the Company and its subsidiaries to provide assistance, and the obstructive conduct of some of the Opposing Defendants[22].  Eventually, the Liquidators obtained leave to serve the 1417 Writ and 3391 Writ out of the jurisdiction on, inter alia, Mr Wu, Mr Tsang, Dr Chen, and Ms Bi on 8 September 2017[23], while Mr Chong was served in Hong Kong by personal service.  Even at the time of the ex parte application, the Liquidators’ investigations were still ongoing[24]. In our view, the Plaintiffs’ delay in applying for mareva relief against the Opposing Defendants should be regarded as commencing from around late August/early September 2017[25]. As pointed out in the judgment of Lam VP in Convoy, at §78, delay per se would not necessarily bar relief.  The ultimate question is still whether a plaintiff could show a real risk of dissipation despite delay. Having regard to the nature, seriousness and complexity of the Fraud, we do not regard the delay in this case (from around late August/early September 2017 to 11 December 2017) to be so significant that it would negate the real risk of dissipation of assets by the Opposing Defendants.  Also, taking into account the fact that some of the assets of the Opposing Defendants restrained by the Injunction were not liquid assets which could be disposed of or removed easily (eg the property at Tsat Tsz Mui Road held in the name of Mr Chong and his wife in Hong Kong, and the Coral Island Property and Pensier Street Property held in the joint names of Mr Wu/Ms Bi or in the sole name of Ms Bi), we do not consider relief should be denied on the ground of delay alone.

56.Overall, we are of the view that the Plaintiffs were justified to apply for mareva relief against the Opposing Defendants by way of an ex parte application without notice in the circumstances of the present case.

(iii)    Good arguable case

57.In their respective Respondent’s Notices, Mr Tsang and Mr Chong have not sought to challenge the Judge’s finding of a good arguable case against them.

58.In Ms Bi’s Respondent’s Notice dated 7 November 2019, she contends that the Judge erred in finding that the Plaintiffs have a good arguable case against her.  There was evidence that Ms Bi received, through her personal bank accounts/trust accounts held or controlled by her, and through Long Chart and WB, substantial funds (totalling some US$17.6m) belonging to the Company/CMED which were part of the proceeds of the Fraud. There was no convincing explanation given by Ms Bi to justify her entitlement to receive such funds.  Such explanation as was given by Ms Bi for her receipt of the funds through her personal accounts/trust accounts was general and not supported by any documents which showed her entitlement to receive the moneys[26].  In so far as funds received by Long Chart and WB are concerned, no supporting document was produced, and Ms Bi’s explanation was vague and unsatisfactory (“cannot remember the exact reason why Long Chart received such money”, and “I believe it comprises part of the proceeds of sale of the joint ventures that Mr Wu owed me” in relation to the money received by WB)[27]. In our view, the Judge was entitled to come to the view, based on the matters referred to in §86 of the Main Judgement, that there was sufficient objective evidence for inferring knowledge of the Fraud on the part of Ms Bi for the purpose of making out a good arguable case of “dishonest assistance” against her.  After all, as correctly pointed out by the Judge at §87 of the Main Judgment, a good arguable case for the purpose of an application for a mareva injunction does not need to be one with a better than 50% chance of success.  What is required to be shown is a claim which is “more than barely capable of serious argument”.  In our view, this threshold is easily crossed as against Ms Bi in the present case.

(iv)    Material non-disclosure

59.Although both Mr Tsang and Mr Chong have raised the issue of material non-disclosure in their respective Respondent’s Notices, it is fair to say that neither Mr Alder nor Mr Ho was particularly enthusiastic about this part of the case.

60.In his Skeleton Argument dated 5 October 2021, Mr Alder says that Mr Tsang relies on 2 areas of material non-disclosure, namely (i) the error in respect of the mortgage-based purchase of the Tsang Properties, and (ii) various matters concerning the ex parte application.  We shall deal with the first aspect of the material non-disclosure in our consideration of the Chabra Appeal below.  As for the second aspect of the material non-disclosure relied upon by Mr Tsang, it was explained by Mr Alder at the hearing of the appeal that it goes to the merits of the Plaintiffs’ case against Mr Tsang.  We have already dealt with the issues of good arguable case and the propriety of the Plaintiffs’ applying for the Injunction on an ex parte without notice basis, and do not propose to repeat the discussion here.

61.In relation to Mr Chong’s complaint of material non-disclosure, Mr Ho said at the hearing of the appeal that he was content to simply rely on what was stated in his client’s Respondent’s Notice dated 6 November 2019[28]. The complaint was not further developed in either his written or oral submissions.

62.We have considered Mr Manzoni’s written answers to the complaints of material non-disclosure contained in (i) “Annex 2 to Ps’ Skeleton Argument (Annotated) - Alleged Material Non-Disclosure and Ps’ Responses - D2”, (ii) “Annex 2 to Ps’ Skeleton Argument (Annotated) - Alleged Material Non-Disclosure and Ps’ Responses - D5”, and (iii) “Addendum to §32 of Ps’ Skeleton Argument - Alleged procedural impropriety MNDs and Ps’ Response”. We accept Mr Manzoni’s submissions and reject the complaints of material non-disclosure by Mr Tsang and Mr Chong, save in respect of the misstatement by the Plaintiffs that the Tsang Properties were purchased without mortgage.  For reasons which we shall further explain below, we consider that the Injunction should be discharged in so far as it relates to the Tsang Properties because of this misstatement, but not further or otherwise.  In any event, even if we accept Mr Tsang and Mr Chong’s complaints of material non-disclosure and discharge the Injunction on such basis, we would in the circumstance of this case exercise our discretion to re-grant the Injunction in the same terms as against them (save in relation to the Tsang Properties).

(v)     Fortification

63.The Judge did not deal with the Fortification Summons on the basis that it had been rendered academic by his decision to discharge the Injunction as against Mr Tsang.  Given our conclusion that the Injunction ought to be continued against Mr Tsang or, alternatively, a new injunction in the same terms ought to re-granted against him, the issue of fortification remains alive.  We would remit the Fortification Summons to the Judge for fresh consideration.

THE CHABRA APPEAL

64.By Notice of Appeal dated 28 October 2019, the Plaintiffs appealed against the Chabra Judgment on the ground the Judge erred in holding that the Plaintiffs had not shown a real risk of dissipation of assets by any of the Opposing Defendants, including Mr Tsang.  The Plaintiffs contend that, as a consequence of this error:

(1)  The Judge erred in holding that the Plaintiffs had failed to show a real risk of dissipation of the Tsang Properties.  The Judge should have held that the test for establishing whether there is a real risk of dissipation is an objective one, which the Plaintiffs had satisfied by reference to (i) the good arguable case of fraud/dishonesty against Mr Tsang, and (ii) his actual dissipation of the Tsang Properties, his only real properties in Hong Kong, in highly suspicious circumstances.

(2)  The Judge further erred in holding that the Plaintiffs had to show a real risk of dissipation of assets by Ms Chui as a “non-cause of action defendant” (NCAD).  The Judge should have held that -

(a)  the requirement that the Plaintiffs needed to satisfy was that there was a good reason to suppose the assets held in the name of Ms Chui would be amenable to the execution of a judgment against the “cause of action defendant” (CAD);

(b)  this requirement could be satisfied where there was good reason to suppose that the assets in the name of the NCAD were in truth the assets of the CAD, held by the NCAD as nominee or trustee of the CAD as the ultimate beneficial owner;

(c)  there was good reason to suppose that the assets in the name of Ms Chui were in truth the assets of Mr Tsang, held by her as nominee or trustee of Mr Tsang as the ultimate beneficial owner; and

(d)  the Plaintiffs did not, in addition, have to show a real risk of dissipation of assets by Ms Chui; in any event, such risk was demonstrated as against Ms Chui, as well as against Mr Tsang, by reference to the factors under (1) above.

(3)  The Judge further erred in holding that the Chabra jurisdiction operated oppressively against Ms Chui and that it was not just and convenient for the Court to exercise that jurisdiction over assets held by her.

(4)  The Judge erred in setting aside the Injunction on the ground of material non-disclosure.  In particular -

(a)  The Judge erred in holding that the Plaintiffs had failed to explain to L Chan J at the ex parte stage the significance and requirements of invoking the Chabra jurisdiction and that this amounted to material non-disclosure justifying discharge.  The Judge should have held that the basis of the claim made against assets held by Ms Chui was obvious.

(b)  The Judge erred in holding that the misstatement in the Plaintiffs’ evidence at the ex parte stage that the properties were purchased without a mortgage amounted to material misstatement justifying the discharge.

(c)  Further or alternatively, the Judge should have re-granted the Injunction notwithstanding any such material non-disclosure, particularly in light of the real risk of dissipation.

65.At the hearing of the present appeal, Mr Manzoni confirms that the Plaintiffs’ case is that the Tsang Properties are in truth the assets of Mr Tsang even though they are held in the name Ms Chui (a NCAD), and the Plaintiffs rely on the first limb of the Chabra jurisdiction, ie “the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in control of, assets … of the judgment debtor or potential judgment debtor”[29], in support of the application for a mareva injunction over the Tsang Properties.

66.Mr Manzoni argues that the following facts or matters show the need for the court to grant a Chabra injunction against the Tsang Properties:

(1)  The Tsang Properties were purchased at around the same time that Mr Tsang and his associates stole over US$500m from the Company/CMED.

(2)  Despite the significant amounts that Mr Tsang stole from the Company/CMED, the Tsang Properties were his only real properties in Hong Kong and the only material assets of Mr Tsang identified to date internationally.

(3)  Over the period of about 7 months in 2011, just before Mr Tsang resigned from the Company and its ultimate collapse, Mr Tsang transferred title in all of the Tsang Properties to Ms Chui.  This coincided with Mr Tsang emptying and closing a number of bank accounts which he had used in laundering the proceeds of the theft.

(4)  On 4 December 2017, an agreement was entered into to sell one of the Tsang Properties, ie the One Island Place Property.  The timing of this sale is highly suspicious as it occurred 20 days after Mr Tsang was informed that he would be served with the Writs in these proceedings (14 November 2017) and shortly before the Plaintiffs filed the Statement of Claim (on 12 December 2017).

(5)  By reason of the matters relied upon in relation to the Main Appeal, there is a real risk that Mr Tsang will dissipate his assets, particularly in light of the good arguable case of fraud and money laundering by Mr Tsang.  As the Tsang Properties are in truth the assets of Mr Tsang, it follows that there is a risk that he will also dissipate the Tsang Properties in the absence of an injunction.

(6)  The sale of the One Island Place Property in December 2017 is further evidence of the risk of dissipation of the Tsang Properties.

67.In our view, the Chabra Appeal can be disposed of on two separate or independent bases.

68.First, it is not disputed by Mr Manzoni that, to justify a Chabra injunction being granted against the Tsang Properties, the Plaintiffs have to show that there is good reason to suppose that the Tsang Properties held in the name of Ms Chui are in truth the assets of Mr Tsang. For this purpose, “good reason to suppose” means a “good arguable case” (see sub-paragraph (3) of the summary of principles by Popplewell J in PJSC Vseukrainskyi Aktsionernyl Bank v Maksimov [2013] EWHC 422 (Comm), at §7, quoted with approval by Kwan JA (as she then was) in XY, LLC v Jesse Zhu [2017] 5 HKC 479, at §24).  There is, in our view, no sufficient evidence which supports a good arguable case that the Tsang Properties are in truth the assets of Mr Tsang.  The inference that Mr Manzoni seeks to draw in support of this proposition, based on the matters referred to in §66 above, is basically speculation or conjecture.  Ms Chui has given an explanation of the circumstances in which Mr Tsang came to transfer the Tsang Properties to her as part of a divorce arrangement between them in 2011[30].  We bear in mind Mr Manzoni’s submission about the suspicious timing of the acquisitions of the properties and the transfers of the properties to Ms Chui, and his criticism of Ms Chui’s explanation, including the fact that the explanation was not supported by contemporaneous documents, and the transfers happened at different times, some of which were prior to the divorce order[31].  On the other hand, there is documentary evidence to support Ms Chui’s case that she paid 50% of the down payments for the acquisitions of the One Island Place Property and Les Saisons Property[32], and 100% of the down payment for the acquisition of the Kenswood Court 5G Property[33].  It is neither possible, nor appropriate, to make any definitive finding in the present interlocutory appeal on the veracity of Ms Chui’s explanation regarding the circumstances of Mr Tsang’s transfers of the Tsang Properties to her.  All that we would say is that we do not regard Ms Chui’s explanation to be incredible, or consider that no weight should be given to her explanation because of the submission and criticism made by Mr Manzoni.  Bearing also in mind the exceptional nature of the Chabra jurisdiction and the need for caution in the exercise of this jurisdiction[34], we are not satisfied that the Plaintiffs have shown a good arguable case that the Tsang Properties are in truth the assets of Mr Tsang.

69.In passing, we should mention Mr Manzoni also argues that the sale of the One Island Place Property is further evidence of a risk of dissipation of the Tsang Properties[35]. However, it is a fact that Ms Chui entered into a preliminary sale and purchase agreement in respect of that property on 20 November 2017, and a formal sale and purchase agreement on 4 December 2017, both prior to the interim injunction first granted by L Chan J on 11 December 2017.  We do not consider the sale of the One Island Place Property to be further evidence of a risk of dissipation of the Tsang Properties as submitted by Mr Manzoni.

70.Second, it is clear that there was a material misrepresentation made by Mr Borrelli to L Chan J on 11 December 2017 in support of the ex parte application for the Chabra injunction sought against the Tsang Properties.  In Borrelli 1, at §75, it is stated that “[t]he Hong Kong Land Registry’s records show that each of the Tsang Properties was purchased without mortgage”.  The significance of this statement is explained in §76 of Borrelli 1, as follows:

“While the information currently available to the Liquidators does not allow them to identify the source of the funds used to purchase the Tsang Properties, at the time that each of them was purchased either solely by Mr Tsang and/or jointly by Mr Tsang and Mr Chui, Mr Tsang and the Tsang Entities had already received many millions of US dollars of the cash stolen from the Plaintiff Companies. Those receipts well exceeded the prices paid for the Tsang Properties, and the properties were purchased without registered mortgage loans. Accordingly, the Liquidators have reasonable grounds to believe that those properties were purchased by Mr Tsang using stolen funds, and that they represent traceable proceeds of the Fraud in which the Plaintiff Companies have a proprietary interest”.

71.It is clear that the picture which the Plaintiffs sought to paint before L Chan J was that Mr Tsang used monies stolen from the Company/CMED to purchase the Tsang Properties, as shown or supported by the fact that the properties were purchased without the need for any mortgage finance, and this in turn supported their contention that the Tsang Properties were in truth Mr Tsang’s assets.

72.As a matter of fact, the statement that “each of the Tsang Properties was purchased without mortgage” is false.

(1)  The One Island Place Property was acquired by Mr Tsang and Ms Chui as joint tenants in January 2007 for the consideration of HK$4,780,000 with the assistance of a mortgage loan of HK$3,346,000 (70% of the purchase price) from BOC.  It was transferred to Ms Chui on 23 June 2011.

(2)  The Les Saisons Property was acquired by Mr Tsang and Ms Chui as joint tenants in December 2007 for the consideration of HK$7,880,000 with the assistance of a mortgage loan of HK$5,516,000 (70% of the purchase price) from BOC.  It was transferred to Ms Chui on 18 October 2011.

(3)  The Kenswood Court 5G Property was acquired by, or in the name of, Mr Tsang in November 2008 for the consideration of HK$1,415,000 with the assistance of a mortgage loan of HK$500,000 (around 35% of the purchase price) from HSBC.  It was transferred to Ms Chui on 21 March 2011.

73.Mr Borrelli was plainly aware, or at least ought to have been aware, of the falsity of the statement that “each of the Tsang Properties was purchased without mortgage”, because at §105 of the 7^th Affirmation of Mr Tsang filed in HCCA 435/2012 on 15 August 2013 (a copy of which was exhibited as “CB-1/Tab 9” to Borrelli 1), it was expressly stated that the One Island Place Property, the Les Saisons Property and the Kenswood Court 5G Property were each purchased with a mortgage.

74.While this court would not be prepared to disagree with the Judge’s view that the misstatement was not a deliberate attempt by the Plaintiffs to mislead L Chan J[36], having regard to the materiality of the statement, we consider that the Judge was fully justified to discharge the Injunction in so far as it related to the Tsang Properties or concerned Ms Chui.  Given the seriousness of the misstatement and the circumstances in which it was made (which we consider to be quite inexcusable), we are also not minded to exercise our discretion to re-grant the Injunction in so far as it related to the Tsang Properties or concerned Ms Chui even if, contrary to our view, there is good reason to suppose that the Tsang Properties held in the name of Ms Chui are in truth the assets of Mr Tsang.

DISPOSITION

75.We allow the Main Appeal, and dismiss the Chabra Appeal, with the consequence that: (i) the Judge’s order dated 22 May 2019 is set aside, (ii) the Injunction as against the 2^nd, 5^th and 13^th Defendants (save §4(2)(a) to (c) and (f) thereof) shall continue until trial or further order of the court, and (iii) paragraph 2 of the order made by Barma and Au JJA dated 17 October 2019 in CAMP 179/2019 concerning a stay of the Judge’s order dated17 June 2019 pending appeal is according discharged.

76.The parties are agreed that costs should follow the event.  Accordingly, we order:

(1)  the 2^nd, 5^th and 13^th Defendants to pay the Plaintiffs’ costs of and occasioned by the Continuation Summonses and Discharge Summons before the Judge and the Main Appeal (including the Respondent’s Notices), to be taxed if not agreed with certificate for Senior Counsel and Solicitor Advocate; and

(2)  the Plaintiffs to pay the Interested Party’s costs of and occasioned by the Chabra Appeal, to be taxed if not agreed with certificate for 2 counsel.

77.For the benefit of the taxing master, we would apportion the Plaintiffs’ costs of the Continuation Summonses and Discharge Summons and of the Main Appeal equally in respect of the 2^nd, 5^th and 13^th Defendants, so that each of them shall be liable to pay only one-third of such costs.

Mr Charles Manzoni, SC & Mr Jason Karas, instructed by Karas LLP, for the Plaintiffs in both cases 

Mr Edward Alder & Mr Tommy Cheung, instructed by P C Woo & Co., for the 2^nd Defendant in HCA 3391/2016 and the 2^nd Defendant in HCA  1417/2013

Mr Martin Ho, instructed by Tony Kan & Co., for the 5^th Defendant in HCA 3391/2016

Mr Stewart K M Wong, SC & Ms Elizabeth Cheung, instructed by Eversheds Sutherland, for the 13^th Defendant in HCA 3391/2016

Ms Rachel Lam, SC & Ms Eva Leung, instructed by Fairbairn Catley Low & Kong, for the Interested Party in HCA 3391/2016