Jin Jiang Investment Ltd v. 深圳市威廉金融控股有限公司 and Others

HCA 196/2021

[2022] HKCFI 1068

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 196 OF 2021

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AND

HCA 391/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 391 OF 2021

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(Heard together)

Before:  Hon Coleman J in Chambers (Open to Public)

Date of Written Submissions: 9, 16, 21 and 25 March and 1 April 2022

Date of Decision:  22 April 2022

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D E C I S I O N

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A.   Introduction

1.The current applications relate to the two sets of otherwise separate proceedings shown in the heading, on this aspect being heard together.

2.On 1 February 2021, in HCA 196/2021 (“196”), I granted an order (“Order”) which comprises (a) a Mareva injunction to prohibit the 2^nd, 3^rd, 4^th, 5^th and 6^th Defendants from dealing with their assets to the ceiling figure of about HK$1 billion (“Mareva Injunction”), and (b) a proprietary injunction against the 4^th, 5^th and 6^th Defendants in various amounts (“Proprietary Injunction”).  The Order was last continued by me on 17 February 2022: see my Judgment [2022] HKCFI 378.

3.It is the 6^th Defendant (“State Frontier”) which is relevant for present purposes because it is also the Defendant and judgment debtor in another action, HCA 391/2021 (“391”).

4.On 16 June 2021, in 391, the Plaintiff (“Haitong Products”), obtained judgment (“Judgment”) against State Frontier in the sum of US$64.7 million odd carrying with it a 20% annual interest, and costs (“Judgment Debt”).  As it now stands, the Judgment Debt has run up to more than US$80 million.

5.From 28 July 2021 to 15 October 2021, Haitong Products obtained (a) two charging orders nisi (“COs Nisi”) and (b) two garnishee orders nisi (“GOs Nisi”) on the strength of the Judgment Debt.  There were some hiccoughs with the COs Nisi (irrelevant for present purposes) and they were later amended.

6.The COs Nisi are attached to various listed shares held by different securities firms as custodians on behalf of State Frontier.  One of those custodian firms is a group company of Haitong Products, which I shall refer to as Haitong Securities.  The GOs Nisi garnish the debts owed to State Frontier by different financial institutions, i.e. the garnishees.  Haitong Securities is also one of the garnishees.

7.Obviously the assets of State Frontier sought to be attached by the COs Nisi and the GOs Nisi are also exposed to the Injunction Order.  But it bears emphasis that, on the face of it, only the Mareva Injunction component of the Order is relevant because none of the assets sought to be attached by the COs Nisi and GOs Nisi are caught by the Proprietary Injunction as it now stands.

8.By a consent summons dated 8 March 2021, Haitong Products and Haitong Securities (“Interveners”) applied to intervene in 196.  That summons was granted 9 March 2021. The Interveners then issued a summons (“Variation Summons”) on 30 December 2021 for the purpose of varying the Order to enable the release of assets covered by the COs Nisi and GOs Nisi (i.e. for the Interveners to sell etc assets).

9.Because of the connection between the Variation Summons and the hearings for the COs Nisi and the GOs Nisi to be made absolute, the Variation Summons, COs Nisi and the GOs Nisi were directed by Master Phoebe Man to be heard together before me, and the date was originally fixed for 14 March 2022.  Due to the intervention of the GAP, I subsequently vacated the hearing and directed paper disposal.

B.    The Exchange of Written Submissions

10.The exchange of written submissions was more protracted than expected.  I ended up having the benefit of 5 sets of written submissions, filed by either the Interveners or the Plaintiffs in 196.  No other parties participated in the written exchange.  The Interveners’ filed 3 sets of written submissions, all by Mr Justin Ho of Counsel.  The Plaintiffs have provided 2 sets, with the latter by Mr Patrick Chong of Counsel, and the earlier one (contained in the form of a letter) by the solicitors’ firm representing the Plaintiffs but said to be upon the advice of Counsel.

11.On 9 March 2022, the Interveners filed the first set of submissions.  As said, the assets covered by the COs Nisi and the GOs Nisi do not fall within the scope of the Proprietary Injunction.  Mr Ho emphasised the starting point that Haitong Products, as the judgment creditor, is entitled to enforce the Judgment by way of the COs Nisi and the GOs Nisi and the well-established Angel Bell principle that a Mareva injunction does not confer proprietary rights on the enjoined assets nor improve the position of the claimant.  The assets enjoined remain the asset of the defendant to the Mareva Injunction.

12.On 16 March 2022, at 4.30 pm (which was after the already extended deadline), the Court received a faxed letter from the Plaintiffs’ solicitors, stating that (my emphasis):

As advised by counsel, inter alia, the 1^st and the 2^nd Plaintiffs have a proprietary claim in respect of the sum of HK$117,000,000.00 transferred to the 6^th Defendants’ account maintained with the Industrial Bank Co. Ltd (see paragraph 2(1)(c) of the Injunction Order dated 1 February 2021 – Bundle A page 4). It is the 1^st and the 2^nd Plaintiff’s position that all or part of the amount of HK$117,000,000 may have been used by the 6^th Defendant to purchase the shares which are now subject to the Charging Orders Nisi obtained by the 1^st and the 2^nd Interveners.

In order to properly ascertain the matter the 1^st and the 2^nd Plaintiffs will seek discovery against the 6^th Defendant and a Summons will be issued within the next 7 days and we will invite his Lordship to deal with such discovery application.

In the circumstances, we respectfully submit that the hearing be adjourned sine die with liberty to restore pending the outcome of the 1^st and the 2^nd Plaintiffs discovery application as mentioned above.

13.The bank account mentioned in the letter – the account held with Industrial Bank and credited to State Frontier (“Industrial Bank Account”) – is covered by the 1^st GO Nisi granted on 28 July 2021.

14.In the 16 March 2022 letter, the Plaintiffs seemed to suggest that it may have a competing claim to (a) the money in the Industrial Bank Account because it was covered by the Proprietary Injunction component of the Order; and (b) the listed shares covered by the 2 COs Nisi because they might be the traceable substitutes from the Industrial Bank Account.

15.A few observations could be made about this letter.  First, the letter suggests that the Industrial Bank Account is covered by the Proprietary Injunction as shown in §2(1)(c) of the Order.  But there is no mention of the Industrial Bank Account in §2(1)(c), which reads:

The HK$117,900,000.00 transferred from Baijin Limited to the 6^th Defendant [State Frontier] pursuant to the cheque dated 6 June 2017 (no. 000128) [“Cheque Money”]

16.Though perhaps not the biggest point, the figures are also slightly different: HK$117.9 million in the Order against HK$117 million in the letter.

17.Second, the Plaintiffs’ ‘position’ – that the money deposited into the Industrial Bank Account may have been used to purchase the shares now subject to the COs Nisi – is stated in the form of a speculative possibility rather than a positive case.  The relevant shares which could be said to be traceable are not even identified, let alone was any attempt made to explain and substantiate the necessary tracing.

18.Third, the Plaintiffs were all along represented by the same solicitors’ firm and they knew at the latest by July 2021, from other court documents previously filed in 196, that (a) the Industrial Bank Account had been closed and (b) the Cheque Money could be traced no further than to some HK$200 million worth of shares in a listed company known as Jiayuan International Group Limited (“Jiayuan Shares”).  They also knew at the latest by 7 December 2021 that the Jiayuan Shares were no longer held by State Frontier.  Such knowledge was confirmed by the Plaintiffs in their affirmation (“DV 3^rd”) filed on 25 March 2022 for the purpose of the Variation Summons.  They did not impart such information to the Interveners until 25 March 2022.

19.Third, the Plaintiffs said it would apply for discovery within 7 days from the date of the letter.  Yet, it seems that no discovery has been applied for even as of now.

20.On 21 March 2021, the Interveners filed the second set of written submissions. Mr Ho emphasised that despite the fact that the Plaintiffs were made aware of the Interveners’ intended variation application by the Interveners’ letter dated 10 September 2021 and the various subsequent correspondence:

(1)  the 16 March 2022 letter was the first time for the Plaintiffs to indicate their intention to make a discovery application or to seek to adjourn the matters sine die;

(2)  it was also the first time the Plaintiffs sought to raise a proprietary claim to the shares subject to the COs Nisi;

(3)  even for the Industrial Bank Account, the Plaintiff has not provided any evidence to show how the Cheque Money could be traced to it – as said, the Interveners were not served with the prior court documents filed in 196 and by 21 March 2022, the Plaintiffs had not yet filed DV 3^rd;

(4)  no steps including any discovery application have been taken by the Plaintiffs to establish the necessary proprietary link between the Cheque Money and the shares subject to the COs Nisi;

(5)  there was a lack of particulars and, still less, evidence to show the Plaintiff’s proprietary claim in shares subject to the COs Nisi.

21.Based on the substantial delay on the Plaintiffs’ part and the lack of evidence on the Plaintiff’s proprietary claim, Mr Ho invited the Court to refuse the Plaintiffs’ request to adjourn the matters sine die.

22.By letter dated 22 March 2022 issued to the parties, I indicated that, based on the chronology of the proceedings and the materials available thus far, I was not prepared to grant an open-ended adjournment pending a discovery application yet to be issued.  Nor was it necessarily clear that the intended application would be materially significant, let alone determinative, in dealing with the current substantive matters before the Court.  I, in effect, directed a further round of written submissions from the parties (first to be filed by the Plaintiffs). I also indicated that if it is said that the current substantive matters could not be properly determined without further information available to Court, if such information is to be obtained and however it is to be obtained, that can form part of the submissions.

23.On 25 March 2022, Mr Chong filed a set of written submissions on behalf of the Plaintiffs.  For the first time, the Plaintiffs submitted that the proper way forward is to order a trial proper before a Master to resolve the supposed competing claims in not only the shares covered by the COs Nisi (as put forward in the 16 March 2022 letter) but also the moneys subject to the GOs Nisi.  Also for the first time, the Plaintiffs explained how the missing proprietary link might look: the sale proceeds of the Jiayuan Shares might have been used to purchase the shares now subject of the COs Nisi (or which found their way into the GOs Nisi).  Mr Chong submitted that it is not “clearly unarguable”:

If the Plaintiffs are given an opportunity to carry out the tracing exercise, it is possible that the evidence might reveal that the sale proceeds of the shares had been spent elsewhere.  On the other hand, it is also possible that they have found their way in the subject accounts and identified by the Interveners.  The shares and the moneys in the subject accounts could have been bought by State Frontier using the sale proceeds of the shares.  Is that clearly unarguable?  The Plaintiffs submit the question should be answered in the negative.

24.It was also admitted in the written submissions that the Plaintiffs have not yet provided any substantive evidence for their claim, though that is said to be excusable because they do not have access to State Frontier’s documents.

25.Late on 25 March 2022, the Plaintiffs also filed DV 3^rd and the Interveners were informed for the first time that prior court documents in 196 had shown that the Cheque Money subject to the Proprietary Injunction was once deposited into the Industrial Bank Account before it was later withdrawn to purchase the Jiayuan Shares.  The Interveners requested a very short extension of time on the ground of this evidence (understandably new to them) which was granted.

26.On 1 April 2022, Mr Ho filed his third written submissions.  The thrust of his argument is that a trial should only be ordered if the Plaintiffs have shown sufficient evidential basis for their claim, and they have not done so.

C.    The COs Nisi, GOs Nisi and Parties’ Current Stands

27.There are two GOs Nisi.  The respective garnishee of each GO Nisi is required to pay the judgment creditor of 391 (i.e. Haitong Products) the debt owed by the garnishee to the judgment debtor (i.e. State Frontier) to meet the Judgment Debt and the costs of the garnishee proceedings.

28.The 1^st GO Nisi was obtained on 28 July 2021.  The garnishee is Industrial Bank.  As said, the Industrial Bank Account had been closed already and it is the Plaintiffs’ position, as stated in Mr Chong’s written submissions, that they would now adopt a neutral stance towards the 1^st GO Nisi.

29.The 2^nd GO Nisi was obtained on 1 September 2021.  The garnishee is Haitong Securities.  State Frontier maintains 3 accounts with Haitong Securities, referred to by the Interveners as the “30 Cash Account”, the “31 Cash Account” and the “Margin Account”.  State Frontier held cash and/or shares in these accounts and it is the cash in the accounts which are garnisheed by the 2^nd GO Nisi.

30.The COs Nisi, when made absolute, will have the effect of charging State Frontier’s beneficial interest in the assets with the payment of the Judgment Debt and the costs of the charging order proceedings.

31.The 1^st CO Nisi was obtained on 28 July 2021 and amended on 30 November 2021.  It covers various shares listed in Hong Kong held in the custody of Haitong Securities.

32.The 2^nd CO Nisi was obtained on 15 October 2021, and amended on 30 November 2021.  It covers various shares listed in Hong Kong held in the custody of two other financial institutions, namely CCB International Securities Limited (“CCBI”) and China Merchants Securities (HK) Co Ltd (“CMS”).

33.Except for the 1^st GO Nisi (which covers the now closed Industrial Bank Account), the Plaintiffs assert a potential proprietary claim to all the debts and/or shares covered by the 2^nd GO Nisi and the two COs Nisi.

34.The other potentially interested parties’ positions are as follows:

(1)  As stated in its lawyers’ letter dated 3 March 2022, State Frontier has adopted a neutral stance to the Variation Summons.  It can also be noted that it did not file an intention to defend in 391 and the Interveners obtained default judgment against it.

(2)  Industrial Bank, the garnishee in the 1^st GO Nisi, has made no appearance so far.

(3)  Haitong Securities, the garnishee in the 2^nd GO Nisi, is also one of the interveners issuing the Variation Summons.

D.    Haitong Securities and its General Lien

35.The Interveners claim two legal bases for the Variation Summons: (1) the COs Nisi and GOs Nisi obtained in favour of Haitong Products; (2) a “general lien” which is said to have arisen in favour of Haitong Securities by the agreements entered into between itself and State Frontier when the latter opened the 3 accounts with it.

36.The COs Nisi and GOs Nisi already cover all the moneys and shares which the Interveners sought to free from the Order, as identified in §2 of the Variation Summons.

37.The general lien only covers the moneys and shares which are kept in State Frontier’s accounts with Haitong Securities. The lien serves as an additional legal basis for these items because they are already covered by the 2^nd GO Nisi (for money) or the 1^st CO Nisi (for shares).

38.That may be said to be the other reason why Haitong Securities is also made an intervener, despite the GOs Nisi and COs Nisi are not to be enforced for its benefit, besides indicating its support for the application as one of the garnishees and the entity having possession of the assets sought to be charged.

39.The effect of the general lien is a subject of contention between the parties.  Mr Ho submitted in his 1^st written submissions that Haitong Securities’ general lien over assets under its control gave rise to a proprietary interest in favour of Haitong Securities and would enable it, under the relevant contractual terms, to sell such assets to settle the Judgment Debt owed to Haitong Products.  By his 3^rd written submissions, Mr Ho accepted that the interest arising from the general lien (and also the interest underscored by the COs Nisi and GOs Nisi) will not take priority over the Plaintiff’s asserted proprietary claim (if proved).  Whilst not put in such terms, that is an acceptance that the lien cannot further strengthen the Interveners’ case beyond what the COs Nisi and the GOs Nisi could do.

40.I shall try to deal with the lien argument as economically as possible.

41.The Terms and Conditions of the 3 accounts maintained by State Frontier with Haitong Securities contain the following:

In addition and without prejudice to any general liens, rights of set-off or other similar rights to which the Company [i.e. Haitong Securities] may be entitled under the law or this Agreement, all securities, receivables monies (in any currency) and other property of the Client [State Frontier] (held by the Client either individually or jointly with others) held by or in the possession of the Company at any time shall be subject to a general lien in favour of the Company as continuing security to offset and discharge all of the Client’s obligations, arising from the business of dealing in securities or otherwise, to the Company and any of the Company’s group Companies [which includes Haitong Products]

42.Mr Ho submitted that the lien confers on Haitong Securities a proprietary interest in the assets held in those accounts and allows it to sell them in settlement of the Judgment Debt owed to its group company, Haitong Products.

43.Mr Chong pointed out that (1) the lien is a contractual lien which only gives rise to a security interest but not a proprietary interest in common law, (2) lien is a form of possessory security and Haitong Products does not have a lien over assets which are in the possession of Haitong Securities, and (3) if the assets in the accounts of Haitong Securities were stolen assets, it is difficult to see how the Interveners may have any interests over them.

44.I shall deal the three points in reverse order. The last point could be readily disposed of.  It was a mere speculation that those assets might have been stolen assets.  There is neither particulars nor evidence for such assertion.

45.Mr Ho, as he re-emphasised in his latest written submissions, does not claim that Haitong Products has the lien over assets in the possession of Haitong Securities.  The lien is conferred on the latter, but he said Haitong Securities is allowed to sell the assets covered by the lien to settled Haitong Products’ Judgment Debt.

46.As to whether the lien has given rise to any sort of proprietary interest (as opposed to ‘security interest’ in Mr Chong’s words), this question has subsided since Mr Ho has already conceded that if the Plaintiffs are able to prove a proprietary right over the assets, such interest will take prior to the Interveners’ lien.  In this case, there is no need for the Court to entertain the issue on the true nature of the interest arising from the lien.

E.    The Competing Claims between Haitong Products and Plaintiffs

47.The basis of Haitong Products’ claim to the assets held under State Frontier’s name is straightforward.  The claim arises from the Judgment obtained in Haitong Products’ favour and which has now given rise to the COs Nisi and the GOs Nisi.

48.In his first written submissions, Mr Ho submitted that the granting of COs Nisi and GOs Nisi, even before they are made absolute, would have already created some sort of proprietary rights:

(1)  For the COs Nisi, he relied on the principle that a charge imposed by a charging order will have effect and will be enforceable in the same courts and in the same manner as an equitable charge created by the debtor by writing under his hand: see Hong Kong Civil Procedure 2022 (“HKCP 2022”), Note §50/9A/17.

(a)  For the GOs Nisi, he submitted that the service of a garnishee order nisi would create an equitable charge over the debt in question due to the judgment debtor, citing HKCP 2022, Note §49/3/3.

49.These submissions were made before Mr Ho was informed that now the Plaintiffs assert a possible proprietary claim over the assets subject to the GOs Nisi and the COs Nisi.  As Mr Ho has fairly accepted in his 3^rd written submissions, if the Plaintiffs are able to prove that they have a proprietary interest (which as a matter of chronology must have arisen before the COs Nisi and the GOs Nisi were granted), their interests will take priority over the Interveners’ interests.  As a corollary, the GOs Nisi and the COs Nisi should be discharged rather than made absolute.

50.If the Plaintiffs fail to demonstrate a proprietary interest in the assets now covered by the GOs Nisi and the COs Nisi, Mr Chong has accepted the settled law that a Mareva injunction does not grant the plaintiff any proprietary interest and will not improve the plaintiff’s position as against other creditors.  A Mareva injunction could thus be varied to allow payment out of the enjoined assets for the purpose of satisfying the defendant’s judgment debts owed to third parties: see Iraqi Ministry of Defence v Arcepey Shipping Co SA (The ‘Angel Bell’) [1981] 1 QB 65 at 72, and Great Silver Investment Ltd v Sky Trend Global Ltd [2020] HKCFI 2987, at §§7 and 16.

51.Thus, the basis of Haitong Products’ claim rests on the Judgment Debt, rather than the COs Nisi and the GOs Nisi.  The latter could not give Haitong Products any proprietary interests which could be capable of ranking higher than the Plaintiffs’, if they could show a proprietary interest in the relevant assets.

52.As it now stands, the assets covered by the COs Nisi and the GOs Nisi are not caught by the Proprietary Injunction.  The Plaintiffs’ “case” is that the Cheque Money covered by the proprietary injunction might somehow have found its way into the assets enjoined by the Mareva Injunction.

53.It is of note that:

(1)  The particular assets which are said to be capable of tracing to the Jiayuan Shares are not identified.

(2)  The routes and details by which such assets are to be traced to the Jiayuan Shares are not identified.

(3)  The Court is informed of no more than that “the shares and moneys in the subject accounts could have been bought by State Frontier using the sale proceeds of the [Jiayuan Shares]”.

(4)  There is admittedly no evidence to substantiate the Plaintiffs’ “case”.  As noted, the Plaintiffs’ “case” is not even a positive case in that they can only state such a case as a mere possibility without committing to such a position.

F.    The Proper Procedural Way Forward

F1.    The two stages for garnishee and charging order applications

54.Garnishee orders and charging orders are enforcement methods available only to enforce judgment debts.  The procedural rules governing garnishee applications and charging order applications are found in RHC Order 49 and Order 50 respectively.

55.Both types of applications follow a two-stage approach.  In the first stage, a nisi order is to be sought by the judgment creditor on an ex parte basis: see Order 49 rule 2 and Order 50 rule 1.

56.The nisi order obtained from the first stage is formally known as a “Notice to Show Cause”.  It will be stated in the standard form for the respective nisi order that, unless sufficient cause is shown on why the nisi order should not be made absolute in the hearing fixed for the nisi order, the nisi order will be made absolute. The nisi order must be served on the judgment debtor and the garnishee in the case of a garnishee order.  The Court may also direct service of the charging order nisi on other creditors of the judgment debtor or other interested persons: see Order 49 rules 1 and 3 and Order 50 rules 1 and 2.

57.In the second stage, the Court has to exercise its discretion in determining whether the order nisi should be made absolute.  For garnishee orders, if the garnishee makes no appearance or does not dispute the debt claimed to be due from it, the Court may make absolute the order nisi: see Order 49 rule 4.  For charging orders, the Court has the power to made absolute the nisi order or to discharge it upon further consideration: see Order 50 rule 3.

F2.    Resolving claims from third parties

58.Both types of proceedings anticipate that there may be other parties having an interest in the assets sought to be attached by the charging order or the garnishee order.

59.In the case of a garnishee order, there is express provision governing third party claims.  Order 49 rule 6 provides:

(1)  If in garnishee proceedings it is brought to the notice of the Court that some other person than the judgment debtor is or claims to be entitled to the debt sought to be attached or has or claims to have a charge or lien upon it, the Court may order that person to attend before the Court and state the nature of his claim with particulars thereof.

(2)  After hearing any person who attends before the Court in compliance with an order under paragraph (1), the Court may summarily determine the questions at issue between the claimants or make such other order as it thinks just, including an order that any question or issue necessary for determining the validity of the claim of such other person as is mentioned in paragraph (1) be tried in such manner as is mentioned in rule 5 [which provides for a trial before a master].

60.Mr Chong submitted that the Court has not yet even called upon the Plaintiffs to attend the Court and state the nature of their claim as required by Order 49 rule 6(1).  But I agree with Mr Ho that it is disingenuous for the Plaintiffs to claim that they have not yet been called upon to state the nature of their claim, when they have already filed two rounds of submissions to the Court and already proposed two different ways as to how the COs Nisi, GOs Nisi and the Variation Summons could be dealt with.  I also agree with Mr Ho that Order 49 rule 6(1) only gives the Court power to order the third party to attend Court, but it does not impose a duty on the Court to do so: see Goodpoint Holdings Ltd v Seabrook [1997] 2 HKC 541, at 545 to 546.

61.The fact is the Plaintiffs were given ample opportunity to make submissions, and they did make submissions for the purpose of the hearing originally fixed on 14 March 2022 for the GOs Nisi (and the COs Nisi and the Variation Summons). It is now for the Court to determine if it should summarily determine the dispute, direct a trial under Order 49 rule 6(2), or perhaps give some other directions.

62.For a charging order, Order 50 rule 3(1) provides that after the granting of the order nisi, the Court shall either make the order absolute, with or without modification, or discharge it.  Whilst the text of Order 50 rule 3(1) does not expressly provide other options other than the two stated, the Court has held that if there is dispute on whether the judgment debtor has held any beneficial interest in the property sought to be charged, the Court can also direct the issue to be tried: see Po Kwong (China) Stone Ltd v Cheung Wai Wah (unreported, CACV 157/2004), also cited in HKCP 2022 Note §50/3/1.

63.Mr Chong relied on the commentary from HKCP 2022 Note §50/3/1 and submitted that unless the Plaintiffs’ argument is “clearly unarguable”, the Court shall order a trial to resolve the dispute. The commentary was taken from the Po Kwong (supra) case.  There, Cheung JA stated at §§11-12:

11.  Although Rule 3 seems to suggest that the only choice that is available to the court on the further consideration of the case is to impose the charging order absolute or to discharge the charging order nisi, the English courts have interpreted the provisions in such a way as to allow the court to direct an issue to be tried on whether the judgment debtor in fact holds any beneficial interest in the property sought to be charged.  In Rosseel N. V. v. Oriental Commercial and Shipping (UK) Ltd. and others (Hearing date 8 October 1991 Lexis Nexis Transcript) Parker LJ of the English Court of Appeal stated that

‘Where there is a real dispute, it is, as it seems to me, necessary in order to do justice that an issue should be tried and the court can in the exercise of his power to regulate its own procedure direct such issue.’

In that case a dispute arose on the beneficial ownership of the charged property.

12.  We will respectfully adopt the same approach as well.  In an usual case, unless the matter is clearly unarguable, the question as to whether a registered owner of a piece of land is holding the beneficial interest on trust for someone who provided the purchase price can only be resolved by a trial.  We do not see why there should be any difference in approach when the judgment creditor is applying for a charging order.  In our view the defendant has provided sufficient evidence for the issue to be tried.  She has produced sufficient evidence to show the mother paid for the deposits and for a substantial period, the mother paid for the mortgage repayment.  This is not a case that can be determined on affidavit evidence alone.  What the defendant and her mother said on affidavit must be tested in cross examination.

64.Clearly, the third party has to show sufficient evidence to assert his proprietary claim in the assets sought to be charged before the Court directs the dispute to be tried.

65.A similar sentiment could also be seen in the case of garnishee proceedings.  In Fubon Bank (Hong Kong) Ltd v First Prime Group Ltd [2009] 4 HKLRD 283 at §49, Saunders J ruled that a garnishee order nisi should not have been made absolute but a trial should be directed to resolve the claim from a third party who had shown a “sufficient claim”.

F3.    Have the Plaintiffs shown a sufficient claim?

66.As already noted, the Plaintiffs do not have a positive case they can assert.  Still less is there any evidence to substantiate a case.  The Plaintiffs ask for a trial, but not for the purpose of proving that they have a proprietary interest in any identified assets. They are not ready or able to commit to a firm position.  Rather, they seek to assert a claim based upon an assertion that they might have a proprietary claim.

67.In our adversarial system, there can be no trial when the supposed claimant itself cannot put forward a positive case of what the truth is.  To put it in a different way, any pleading along the lines of the Plaintiff’s current position – that they may have an unidentified proprietary interest in some unspecified assets arising from or by some unknown tracing route or exercise – would not lead to a trial, but likely to that pleading being struck out.

68.The Plaintiffs have so far failed to show a sufficient claim to order a trial under Order 50 or Order 49.  This is despite the fact that the Plaintiffs have had the opportunity and time to investigate and to gather sufficient evidence for a positive case to be asserted.  The fact that they have not yet done so seems to be due to their own insufficient action, or inaction, as will be further explained below.

G.    Delay and the Plaintiffs’ overall conduct

69.The Plaintiffs were made aware of the Interveners’ intention to apply for the Variation Summons as early as 10 September 2021.

70.They were aware that their claim in the Cheque Money (of which they have proven only a triable issue) could only be traced at best to the Jiayuan Shares.  By 7 September 2021, they had already known that the Jiayuan Shares were no longer in State Frontier’s possession.  Indeed, by 30 July 2021, they were already aware of State Frontier’s position that most of the Jiayuan Shares were “liquidated” in January 2019 to meet the margin call.

71.Clearly, the Plaintiffs knew all along that they would have to obtain evidence to establish the proprietary link from the Jiayuan Shares to any assets over which they were minded to make a proprietary claim.  Yet, nothing has been done.  No discovery application has been taken out even as of the date of this judgment.

72.The Plaintiffs’ conduct in these proceedings are also far from satisfactory:

(1)  In September 2021, they only informed the Interveners that they had a proprietary claim in the money in the Industrial Bank Account, without providing evidence to the Interveners to show how the Cheque Money identified in the Order could be traced to the Industrial Bank Account.  Despite the Interveners’ chasing for particulars and evidence, no evidence at all was provided to the Interveners until 25 March 2022 in DV 3^rd.

(2)  The Plaintiffs only claimed to have a proprietary interest (on an unknown basis) in the shares now subject to the COs Nisi for the first time in the 16 March 2022 letter.

(3)  The Plaintiffs’ claim only extended to cover the moneys now subject to the GOs Nisi for the first time in Mr Chong’s submissions filed on 25 March 2022.

(4)  The lack of clarity and belated disclosure of the Plaintiffs’ position have caused some wasted efforts on the Interveners’ side and were not conducive to the settlement of disputes in an economical and expeditious manner.

73.The Plaintiffs have sought to excuse their delay.  But I do not accept there is any great weight in the excuses advanced on their behalf:

(1)  The Plaintiffs complained that they had sought the underlying documents in 391 as early as October 2021 but the documents were only provided to them on 7 March 2022.  Whilst it might have been preferable for the Interveners to have provided the 391 documents to the Plaintiffs earlier, the 391 documents are plainly not really relevant to whether the Plaintiffs could establish their own proprietary claim.

(2)  The Plaintiffs said their case had always been a proprietary claim since September 2021.  However, a claim to the money held in the Industrial Bank Account and a claim in other assets subject to the COs Nisi and GOs Nisi are different claims.

(3)  The Plaintiffs said they were busy preparing for the injunction hearing heard before me on 16 December 2021.  This is not a powerful excuse.

(4)  The Plaintiffs only knew that the Order would be continued when the judgment for the injunction hearing was released on 17 February 2022.  That may strictly be so.  But this seems to mean that the Plaintiffs could only determine if the COs Nisi and the GOs Nisi are worth contesting from a commercial perspective after they have learned whether the Injunction Order would be continued.  I am sure that the Plaintiffs would have their own reasons for choosing not to act until now.  But this does not mean the Interveners, who obviously had decided that the Judgment Debt was worth pursuing and had pursued it with reasonable efforts, should be jeopardized.

(5)  The Plaintiffs point out that the Interveners’ underlying claim in 391 arose as early as April 2020 and yet they had only instituted proceedings in March 2021.  The Plaintiffs said the Interveners delayed for one year.  But for the Order, the Plaintiffs would probably have the GOs Nisi and COs Nisi made absolute and the Judgment enforced within two years after Haitong Products’ claim arose.  But I do not think that could be criticized as unduly slow.

(6)  The Plaintiffs point out that apparently no application for service out was made by Haitong Products, despite State Frontier being an overseas company.  They said they have decided not to take issue on the merits and will leave it to the Interveners to address the Court. It is not clear to me how this is relevant to the Plaintiff’s own proprietary claim.  In any event, I take note that (1) the Court in 391 must have been satisfied of due service of the writ before it entered default judgment in favour of Haitong Products, and (2) State Frontier has been represented by Fangda Partners who wrote to the Court by letter dated 9 March 2022 to indicate a neutral stance in the Variation Summons.

H.    Further Considerations

74.In light of the facts that (1) the judgment debtor, State Frontier, has adopted a neutral stance, (2) the garnishee has either made no appearance or is one of the interveners, (3) the Plaintiffs have no positive case as it now stands, and (4) as to the Plaintiffs’ delay and overall conduct in the matter, I certainly could exercise my discretion to order that the COs Nisi and the GOs Nisi be made absolute and the Variation Summons be granted.

75.But to do so, would in the overall circumstances of these two sets of proceedings, leave me with some sense of disquiet.  Though Mr Chong has focused on the phrase “not clearly unarguable” to describe the Plaintiffs’ position, it might better be described by saying that it is certainly not inconceivable that some of the assets held by State Frontier (whether in the form of listed shares or cash) is the traceable product of the Cheque Money, the original target of the Proprietary Injunction.

76.To put it another way, it has been possible to trace the Cheque Money into the Jiyuan Shares, and it seems that those shares have been disposed of – presumably for some monetary or other economic return. At the same time, the particular sources of the assets now held by State Frontier – and subject to the Mareva Injunction – are unclear (where State Frontier itself may have little incentive to provide any particular clarity). Further, where it has been properly accepted that any proprietary claim which the Plaintiffs might have would take priority over Haitong Products’ Judgment and the COs Nisi and GOs Nisi, there is a possibility of injustice if it were later to be identified that the plaintiffs’ suggested proprietary claim is good.

77.One suggestion put forward by the Plaintiffs was that they would not oppose the current applications, in return for an undertaking that, should they succeed in establishing a proprietary claim over assets received by Haitong Products as a result of the applications, those assets would be returned.  I have considered whether I could make an order to similar effect, but I do not think that that would be appropriate.

78.I have also already pointed out, when giving directions, that some sort of general adjournment is not an attractive case management option.  To be blunt, unless the Plaintiffs can put forward a realistic prospect of a properly identified and non-demurrable proprietary claim which can be adjudicated, and can do so within a rather short period, I see no reason to keep Haitong Products out of the fruits of the Judgment.

79.But, overall, I think it only fair and appropriate for the Plaintiffs to be given a last opportunity to take – if they wish to – the relevant steps as might enable them to formulate a proper proprietary claim for adjudication.

I.    Result

80.Therefore, I make the following orders:

(1)  Unless by 5pm on 29 April 2022 the Plaintiffs in HCA 196/2021 issue and serve, and notify to the Plaintiff in HCA 391/2021 and to this Court, an application seeking relevant discovery for the purposes of tracing the proceeds of the sale of the Jiyuan Shares:

(1)  the COs Nisi and the GOs Nisi shall be made absolute; and

(2)  an order shall be made in terms of the Variation Summons.

(2)  For the avoidance of doubt, if the Plaintiffs in HCA 196/2021 failed to comply with the ‘unless’ step set out in paragraph 1 above, the consequential orders will be made without the need for further order of the Court.

(3)  If the Plaintiffs in HCA 196/2021 comply with the ‘unless’ step set out in paragraph 1 above, the applications for the COs Nisi and the GOs Nisi to be made absolute and the Variation Summons shall be adjourned to a mention hearing at 9.30am on 14 July 2022 (with 30 minutes reserved).

(4)   The only parties expected to attend the mention hearing will be the Plaintiffs in both actions HCA 196/2021 and HCA 391/2021 and the Interveners, and all other parties’ attendance will be excused.

81.I further specifically reserve the right to make whatever orders seem to me to be appropriate in the circumstances prevailing at the time of the mention hearing.

82.In circumstances where, but for a final grant to the Plaintiffs of the indulgence of time, I would have made the orders sought by the Interveners – and where the operation of the unless order made may yet lead to the consequential orders – it seems to me that the proper costs order to make in the exercise of my discretion is that the costs of these applications (to date) be to the Interveners, payable by the Plaintiffs in HCA 196/2021, to be taxed if not agreed.  However, I shall in the first instance make that costs order on a nisi basis, to be made absolute if no variation application is made within 14 days. Any variation application will be dealt with on paper.

Mr Patrick Chong, instructed by Au & Vrijmoed, for the plaintiffs in HCA 196/2021

Mr Justin Ho, instructed by DLA Piper, for the interveners in HCA 196/2021 and the plaintiff in HCA 391/2021