Chan Wai Lung v. Lee Shu Yen and Another

HCA 736/2022

[2024] HKCFI 2664

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 736 OF 2022

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REASONS FOR DECISION

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1.By a summons dated 22 December 2023 (“the Discharge Summons”), Lee Shu Yen, the 1^st Defendant (“D1”) and Novo Digital Company Limited, the 2^nd Defendant (“D2”) (collectively, “the Defendants”) seek to discharge the undertaking they gave on 24 June 2022 (“the Undertaking”). The Undertaking provides that until trial or further order the Defendants shall not remove from Hong Kong, or in any way dispose of, deal with, or diminish the value of assets up to HK$6,765,933.60 (“the Frozen Sum”).

2.At the conclusion of the adjourned hearing, the Court ordered the Defendants to pay the Frozen Sum into Court within 14 days and that the Undertaking be discharged upon such payment, with liberty to apply. The Court also ordered that costs of the Discharge Summons be to the Plaintiff with certificate for counsel, such costs to be awarded on an indemnity basis to be summarily assessed and payable forthwith.

Procedural background

3.These proceedings commenced on 20 June 2022 when Chan Wai Lung (“the Plaintiff”) filed, inter alia, his writ of summons and an inter partes summons for proprietary and Mareva injunctions (“the Injunction Summons”) over the Defendants’ assets of approximately USD 1,855,288.

4.On 21 June 2022, the Plaintiff filed his skeleton (“P’s 1^st Skeleton”) and on 23 June 2022, D1 filed the Defendants’ skeleton (“Ds’ 1^st Skeleton[1]”) for the call over hearing scheduled for 24 June 2022.

5.On 24 June 2022, Ng J ordered that the Plaintiff be granted leave to withdraw the Injunction Summons; there be liberty to apply to vary or discharge the undertakings in Schedule 1 and costs be in the cause upon the Defendants giving the Undertaking set out in Schedule 1 thereto (“the 2022 Order”).

6.The Undertaking concerns: (1)(a) D1’s bank accounts with HSBC and Citibank, (1)(b) those of D1’s wife (“Li”) with Standard Chartered Bank (“SCB”); and (2) D2’s account with DBS Bank; and in respect of which accounts the Hong Kong Police had issued Letters of No Consent (“LNC”). D1 undertook that upon lifting of the LNC in respect of Li’s accounts, D1 would procure Li to transfer the monies in her SCB accounts to D1’s HSBC account. The Defendants undertook that until trial or further order of the Court, they would not remove or in any way dispose of or deal with or diminish the value of those assets up to the Frozen Sum.

7.In §8 of the Defendants’ Skeleton dated 10 September 2024 filed in support of the Discharge Summons, the Defendants stated that

“the parties’ understanding was that the Undertaking was made as a temporary measure, instead of an interim interim injunction, pending the parties’ filing of affirmation evidence to enable a substantive hearing to be fixed.”

8.As the Discharge Summons was premised on that understanding, the Defendants’ Skeleton only addressed the question whether or not the interim injunction sought by the Plaintiff’s Injunction Summons should be granted.

9.Ms Euchine Ng, counsel for the Plaintiff disputes that interpretation and submitted that the 2022 Order is the culmination of the parties’ negotiations based on the settlement they reached on that question.

10.In the circumstances, which of the conflicting versions is correct must first be resolved.

Events leading to the 2022 Order

11.The Plaintiff submitted that §8 of the Defendants’ Skeleton is plainly wrong as a matter of fact based on the following matters:

(i)    The Injunction Summons issued on 20 June 2022 sought a proprietary and Mareva injunction over the Defendants’ assets in excess of USD 1.8 million.

(ii)   Ds’ 1^st Skeleton filed on 23 June 2022 set out (at §6) the Defendants’ proposed directions to be made at the return hearing the following day as follows:

“(1) Leave be granted to the Defendants to file further evidence in opposition to the Injunction Summons within 28 days;

(2) Leave be granted to the Plaintiff to file evidence in reply within 28 days thereafter;

(3) No further evidence be filed without the leave of the Court;

(4) The Summons be adjourned for substantive arguments with one-day reserved on an early date to be fixed in consultation with not by reference to counsel’s diaries;

(5) Costs of and occasioned by today’s hearing be to the Defendants.”

(iii)  After Ds’ 1^st Skeleton was filed on 23 June 2022, the Defendants’ former counsel[2] reached out to the Plaintiff’s counsel[3] by a WhatsApp message proposing the following settlement terms for the Defendants:

(a) the Plaintiff withdraws the injunction application including no further need to file any affirmation and fixing the date for the substantive hearing; and

(b) the Defendants undertake to maintain the value of assets of around HK$6 million (precise terms to be negotiated and confirmed with Plaintiff’s lawyers) until the end of the trial for the present case, and in the meantime, both parties reserve the right to apply to the Court to vary the order.

(iv)  The parties then proceeded to negotiate based on the above proposal and reached a settlement on the terms of the draft order. At the hearing on 24 June 2022, Ng J made an order in terms.

12.The Plaintiff submitted that in those circumstances, the 2022 Order represents the compromise the parties reached to settle the Injunction Summons. In exchange for the Undertaking, the Plaintiff agreed to limit the freeze on the Defendants’ assets to the Frozen Sum only, which is less than half of what the Plaintiff sought to freeze.

13.The parties have since proceeded with the main action in the usual manner. It has progressed to a mature stage, with the parties exchanging witness statements in April 2024. The Discharge Summons came unexpectedly one and a half years after the 2022 Order.

14.The Defendants’ settlement terms set out in §11(iii) above when juxtaposed against the backdrop of the proposed directions set out in §6 of Ds 1^st Skeleton are entirely consistent with and support the Plaintiff’s case that the parties reached a compromise to settle the Injunction Summons on the terms of the 2022 Order.

15.Moreover, if §8 of Ds Skeleton were true, the Defendants would not have ‘abandoned’ their proposed directions set out in §6 of Ds 1^st Skeleton by agreeing to the terms of the 2022 Order.

16.The Court’s record of the hearing on 24 June 2022 confirms that the 2022 Order was an order made by consent. The Court’s note of the hearing shows that at the outset of the hearing, counsel for the Plaintiff informed the Court that the parties had reached an agreement for the injunction and handed up a draft order. Both D1’s counsel and D2 (represented by D1 its sole director) informed the Court of their agreement. The draft submitted to the Court became the 2022 Order.

17.In those circumstances, the Defendants’ application cannot be approached on the basis that the 2022 Order was a temporary measure to give the Defendants an adequate opportunity to file evidence and for the Plaintiff to reply for a substantive hearing of the Injunction Summons.

18.At the hearing, Mr Kevin Hon, counsel for the Defendants, sensibly accepted that, indeed, the parties did reach a settlement on the Injunction Summons, the terms of which were embodied in the 2022 Order.

19.It follows that the well-settled legal principles for the discharge of an undertaking apply to the Defendants’ application.

The applicable legal principles

20.There are well-established legal principles that apply where a party seeks to be released from an undertaking. As Lord Wilson JSC explained in Birch v Birch [2017] 1 WLR 2959 at §5:

“An undertaking is a solemn promise which a litigant volunteers to the court. A court has no power to impose any variation of the terms of a voluntary promise. A litigant who wishes to cease to be bound by her undertaking should apply for “release” from (or “discharge” of it); and often she will accompany her application for release with an offer of a further undertaking in different terms … In either event the court’s power is only to grant or refuse the application for release; and, although exercise of its power may result in something which looks like a variation of undertaking, it is the product of a different process of reasoning.”

21.In L v C, FCMC 5952/2012, unrep., 3 July 2015 at §22, DDCJ Grace Chan distilled the following principles from the authorities[4]:

“…

(3) In general, a party who has given an undertaking to the court may seek to uplift or release himself from an undertaking in any of the following situations:

(a) when there has been a material change of circumstances since the undertakings were given which are not foreseeable at the time and which make compliance not feasible;

(b) when the subject matter to which the undertakings relate no longer exists which renders compliance impossible;

(c) the party to whom the undertaking was given releases the undertaker from complying with the undertaking;

(d) when the undertaking was obtained through fraud, misrepresentation or mistake (See: TLS nee J v RCS (supra));

(4) Whether an undertaking given to the court should be discharged is a matter of judicial discretion to be exercised if it is “just” to do so: Kensington Housing Trust (supra) at 613.

(5) However, in cases where an undertaking to the court is given in lieu of a final injunction, that it is “just” to discharge the undertaking is not sufficient, “material change of circumstances” must be shown: Mid Suffolk District Council (supra) at §§52-56.”) (emphasis added).

22.Au-Yeung J in Wang Linping v Huang Keqin [2020] HKCFI 256 at §101 adopted the principles summarized in L v C which were cited with approval by the Court of Appeal in LCFM v LSF [2024] HKCA 852 at §24. In Wang Linping, Au-Yeung J summarised their effect, holding that the Court cannot vary an undertaking but can discharge it “if it is shown that there are material changes of circumstances or that the undertaking was given due to vitiating factors”. 

23.In this regard, the decision of the English Court of Appeal in Chanel Ltd v FW Woolworth Co Ltd [1981] 1 WLR 485[5] is relevant. After holding that the Court would only generally consider varying or discharging an interim injunction or any undertaking on good grounds being shown (at 492D)[6], Buckley LJ went on to consider what might constitute “vitiating factors”. He held that in interlocutory matters a party cannot fight over again a battle which has already been fought unless there has been some significant change of circumstances or the party has become aware of facts which he could not reasonably have known, or found out, in time for the first encounter (at 492H-493A): see also Keep Bright Limited v Super Auto Investments Ltd, HCCT 16/2010, unrep., 12 January 2012 at §45(2).

The Discharge Summons

24.At the hearing, Mr Hon made it clear that the Defendants do not rely on any change of circumstances since the 2022 Order. They also accept that the fact that there was ‘liberty to apply’ does not grant an unfettered right to apply to discharge the Undertaking.

25.The Defendants referred to the citation from L v C set out in §21 above (which followed the Mid Suffolk case[7]) and to the CA’s approval of the same in FCLM v LSF (at §24). They then referred to the further observations made (at §26) that the judge should not be confining himself to a consideration of the 4 situations listed[8] — one or more of those 4 situations are only what is generally required.

26.Mr Hon stressed the use of the word ‘generally’ and suggested that there was scope for a situation outside the 4 contemplated situations to be taken into account. In other words, the contemplated situations should not be taken to be exhaustive.

27.When pressed for particulars of what the Defendants are relying on for the release in the present case, Mr Hon could not point to any evidence. He submitted that the ultimate principle is whether it is ‘just’ to do so.

28.Lord Wilson in Birch (at §11) summarised the requirements set out in the Mid Suffolk case as being that,

“unless there has been a significant change of circumstances since the undertaking was given, grounds for release from it seem hard to conceive”.

29.Since the Defendants are not relying on any of the 4 contemplated situations nor are they relying on any ‘new’ situation or circumstance, they must be inviting the Court to exercise its judicial discretion if it is ‘just’ do so without there being good grounds or vitiating factors. That approach overlooks (5) of the citation from L v C. Also, it directly contradicts the Chanel principle as well as the annotation in §29/1/36 of HKCP 2024 referred to in §23 and footnote 6 above.

30.The Plaintiff’s additional objection to the Defendants’ attempt to re-argue the matter afresh was on the basis that had the Defendants contemplated to revisit the matter, they should have done so within a reasonable time, citing the Brenda Chau case[9] at §72. The Defendants response was that the Plaintiff suffered no prejudice. Nevertheless, they accepted that a lengthy and inexplicable delay is a relevant factor to be taken into consideration.

31.Mr Hon then made submissions relating to the Plaintiff’s proprietary claim. He submitted that unless rescission was open to the Plaintiff on the facts, there could be no proprietary claim, citing China Cruise Line Limited & Others v Star Yield Corporation Limited & Ano [2021] HKCFI 2970 in support.

32.As the Defendants acknowledged in their skeleton that there is a serious issue to be tried on the question of a proprietary claim, that is clearly a matter for trial and it is unnecessary to consider the submissions made in that regard at this juncture. In any event, the Undertaking was given in lieu of the Plaintiff’s claims for proprietary as well as Mareva injunctions.

33.In my view, it is clear beyond peradventure that the Defendants have not made out a case for the exercise of the Court’s discretion to discharge the Undertaking.

The Undertaking

34.The Police lifted the LNCs on 11 July 2022. In the Undertaking, D1 undertook to procure Li to and Li would as soon as practicable transfer all of her monies in her SCB accounts to D1’s HSBC account.

35.By letter dated 19 July 2022, the Plaintiff’s solicitors wrote to the Defendants’ solicitors concerning their understanding of the lifting of the LNCs and sought confirmation that Li’s monies in her SCB accounts had been transferred to D1’s HSBC account. They also requested the Defendant’s solicitors to provide documentary evidence of the same. The Defendants never gave a response.

36.It was not until the filing of D1’s 2^nd affirmation on 16 July 2024 (“D1 2^nd”) that D1 disclosed for the very first time that HSBC advised him some 2 years earlier, on 22 July 2022, that his HSBC account would be closed with effect from the Account Closure Date as stated in the Appendix attached to that letter.

37.The HSBC letter also referred to an Account Balance Disposal Form. However, in D1 2^nd, D1 only exhibited the first page of HSBC’s letter that was multi-paged. D1 did not attach the Appendix. The upshot of this is that D1 withheld from the Plaintiff not only the Account Closure Date but also the destination of the account balance which D1 had to communicate to HSBC.

38.D1 2^nd also exhibited a letter from SCB to Li in the same month. The SCB letter is undated and advised the account holder that the account would be closed one month from the date of the Designated Date, being one month after the date of issuance of the SCB letter. If relevant arrangements are not made before the Designated Date, the account would be closed and any credit balance be returned by cashier order or may be collected in person.

39.In D1 2^nd, D1 stated that because of the closure of the HSBC and SCB accounts, it has been “impracticable” to transfer monies from the SCB accounts to his HSBC account. However, that fact did not absolve D1 from his obligation to advise the Plaintiff and the Court of the new circumstances. Instead, D1 wilfully withheld that information for approximately 2 years.

40.D1 further stated that the values of the HSBC account and the SCB accounts at the time of the respective closures of those accounts differ from the values as at 24 June 2022 for factors beyond the Defendants’ control. Nevertheless, D1 confirmed that the balance of the HSBC account released to him and the balance of the SCB accounts released to Li “have been preserved”.

41.At the hearing, when the Court enquired on several occasions as to the present whereabouts of the monies released from the HSBC and SCB accounts, the Defendants’ counsel informed the Court that he did not have any instructions in that regard.

42.The Court made it abundantly clear that, prima facie, a breach of the Undertaking has occurred. D1 was duty-bound to have advised the Plaintiff and the Court of the closure of the HSBC and SCB accounts over 2 years ago in July/August 2022 and replaced the Undertaking with an alternative undertaking.

43.The Court then granted an adjournment to afford the parties an opportunity to agree to an acceptable solution and to enable instructions to be taken.

44.When the hearing resumed, Mr Hon informed the Court that D1 was out of the jurisdiction but that those instructing him were able to contact him and obtained instructions: the Defendants would agree to pay into Court the sum of $5,441,115.77, being the total amount in the HSBC and SCB accounts covered by the Undertaking (“the Sum”) by the end of November 2024 on the usual basis of Mareva injunctions i.e. with liberty to apply for reasonable living and legal expenses without first exhausting D1’s means. When the Court queried the long delay, the period was then shortened to 35 days.

45.The Plaintiff objected to the proposal (both as to the length of time as well as to applications for living and legal expenses) and counteroffered that the Sum be paid into court within 14 days with liberty to apply.

46.As Mr Hon indicated that he had no instructions to agree to those terms, the Court intimated that a possible outcome is an order for the payment of the Sum into Court within 14 days. While the Defendants do not challenge the Court has jurisdiction to make such an order, they sought an opportunity to seek instructions from D1 and make submissions as to whether the Court should make such an order. The hearing was therefore adjourned to 2:30 pm on Thursday, 26 September 2024.

The adjourned hearing

47.The Defendants lodged a single-paged ‘skeleton’ comprising 2 paragraphs. It described the matter to be decided in the following terms:

”whether the Court should grant an order, in view of the Undertakings to the effect that the sum of HK$5.1M be paid into court within 14 days pending final determination of the Action.”

48.Mr Hon made no submissions in that regard but merely requested that a period longer than 14 days be granted to enable full compliance.

49.Ms Ng submitted that the Defendants should be ordered to pay the Sum into Court within 14 days. She drew attention to the reference in §1 of the Defendants’ skeleton to “HK$5.1M” which amount has not featured in the present case and it may well be a typographical error for the Frozen Sum of HK$5,441,112.77.

50.In her supplemental submissions, she summarised the applicable legal principles as follows:

(a)   The court has inherent power to regulate and protect its own procedures and processes and/or to prevent abuse of its processes which may be invoked to ensure the fairness, integrity and efficiency of its process: Choy Bing Wing v Hong Kong Institute of Engineers, HCA 309/2015, unrep., 10 September 2015 at §28.

(b)   Freezing orders are for preservation of assets to enable and facilitate the enforcement of the prospective money judgment. Ancillary orders to take positive steps may be appropriate where it is just and convenient to be granted:  JSC Commercial Bank Privatbank v Kolomoisky [2022] EWHC 1445 (Ch) at §§38-39.

(c)   In circumstances where the defendant should not be left in control of assets subject to an injunction, the Court may grant a mandatory order for funds to be paid into court to safeguard the same. Such an order may be justifiable provided that a specific fund can be clearly identified: Gee on Commercial Injunctions 7^th edn at §23-050; United Northwest Cooperatives Limited v Johnstone unrep., Court of Appeal (Civ Div) Transcript No. 1482 of 1994, 6 December 1994 at p.11 per Neill LJ; p. 12 per Evans LJ.

51.Applying those principles, it is clear that the Court has jurisdiction to order the Defendants to pay the Sum into Court.

52.As regards the length of time for making such payment, the Defendants have not explained why 14 days (which was canvassed at the hearing on 24^th September) are not sufficient for payment to be made. In those circumstances, I see no basis for granting a longer period for performance.

53.The Plaintiff sought an order that (1) the Discharge Summons be dismissed; (2) the Defendants pay into Court the Sum within 14 days; and (3) costs be awarded on an indemnity basis.

54.Mr Hon submitted that if the Defendants are ordered to pay the Sum into Court, they should be released from the Undertaking.

55.As earlier noted, the accounts covered by the Undertaking include those held at Citibank and DBS Bank. The funds held in those accounts do not form part of the Sum. If the Defendants wish to be released from the Undertaking, they will need to pay the Frozen Sum (which is a greater amount than the Sum) into Court.

56.On the issue of costs, the Defendants should have known that the Discharge Summons was entirely unmeritorious and hopeless from inception. D1’s conduct in concealing the closure of the HSBC and SCB accounts for 2 years is inexcusable and in contumelious disregard of his obligations under the Undertaking. His repeated refusal to disclose the whereabouts of the monies from those accounts without offering any explanation is unacceptable conduct on the part of a litigant.

57.In the circumstances, I have no doubt that indemnity costs are warranted as a mark of the Court’s disapproval.

Order

58.At the conclusion of the adjourned hearing, the parties were ordered to provide an agreed draft order for approval.

59.As the Plaintiff is in a position to provide his statement of costs to the Defendants today, the Defendants are directed to lodge their list of objections (if any) within 7 days, limited to 3 pages.

Ms Euchine Ng, instructed by NWK Lawyers, for the Plaintiff

Mr Kevin Hon, instructed by CPH Legal, for the 1^st and 2^nd Defendants