China Metal Recycling (Holdings) Ltd (Provisional Liquidators Appointed) v. Chun Chi Wai and Others

HCA 1412/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1412 OF 2013

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D E C I S I O N

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1.This is an application for an unless order of disclosure of assets in aid of a Mareva injunction. The Mareva injunction was granted on 30 July 2013 with a limit of HK$1,682,198,420 against all 12 defendants in the action. The 13th defendant, a BVI company, was added later. It is and was wholly owned and controlled by the 1st defendant. The Mareva injunction contains a disclosure order requiring all defendants to disclose, within 48 hours, their assets of individual value of HK$50,000 or more.

2.The 1st plaintiff was a listed company and the 1st defendant its chairman and CEO.  The trading of the 1st plaintiff’s shares was suspended on 28 January 2013.  On that date, the market capitalisation of the 1st plaintiff was at some HK$11 billion.  The 1st plaintiff was wound up by the petition of the Securities and Futures Commission (“SFC”) presented on 26 January 2013.  The petition was the result of a lengthy investigation by the SFC on the affairs of the 1st plaintiff.

3.The 2nd plaintiff is the 1st plaintiff’s associate company in Macau.  The 1st and 13th defendants (“the defendants”) had received a total of cash dividends from the 1st plaintiff at about 147.2 million between 2010 and 2012.  The 13th defendant received HK$636 million cash on 27 April 2011 for the disposal of 60 million shares of the 1st plaintiff. The 1st defendant also received HK$39,720,416 cash for salaries, allowances and bonuses from the end of 2009 to 30 June 2013.  The total sum received by the defendants is about HK$822,900,000.

4.Pursuant to the disclosure order in the Mareva injunction, the 1st defendant made, for himself and the 13th defendant, a total of five statements of assets.  He disclosed that he himself had assets totalling $17,814,201.94 with HK$6 million in cash, HK$7,097,017 in shares and options of the 1st plaintiff, and HK$4,717,184 in listed shares of other companies, insurance policy and MPF.  He also disclosed that the 13th defendant had assets totalling HK$651,854,831 with HK$562,686,149 as the value of the 1st plaintiff’s shares, HK$84,253,352 the value of other listed shares, and HK$4,915,330 cash.  Putting aside the value of the 1st plaintiff’s shares and options which the 1st and 3rd defendants have been holding since the IPO of the 1st plaintiff, the total assets of individual value of HK$50,000 or more of the defendants is at about HK$99,886,000.

5.The 1st defendant explained that the proceeds or dividends received by the defendants that are not represented by the assets disclosed in the five statements of assets have been “used, spent or disposed of” and the defendants no longer have any interest in them. 

6.In the light of the HK$822,900,000 received by the defendants since the end of 2009, this disclosure of assets at HK$99,886,000 is incredible.  That means the defendants had “used, spent or disposed of” about HK$200 million per year, or over half a million a day, every day, since the end of 2009 to July 2013, but without acquiring anything valued at HK$50,000 or more.  There is also not a word by the defendants on how such moneys were “used, spent or disposed of”.

7.Despite repeated demands by the plaintiffs, the defendants maintained their stance and made no more disclosure.  Hence the plaintiffs seek this further order of disclosure and ask for it to be an unless order with the sanction of striking-out of the defence and entering of judgment. 

8.I will also mention that recently the defendants applied for variation of the Mareva injunction for them to spend legal and living expenses.  Mr Recorder Houghton, SC decided the application on 28 February 2014 against them.  The learned recorder said, at paragraph 42 of the reasons for decision, that the 1st defendant was required to satisfy the court that he had no alternative source of funds for his living and legal expenses if he wished the court to vary the injunction order, but he had signally failed to do so. 

9.The defendants oppose this application.  The first ground is that I should not rely on the decision of Recorder Houghton as that was for a different application requiring different considerations.  This is obviously correct. 

10.The second ground of opposition is that this court has no jurisdiction to order further disclosure in order to police the defendants’ existing disclosure, hoping to find out whether the defendants had dissipated or concealed their assets. 

11.Mr Cheuk, counsel for the defendants, relied on Bekhor & Co. Ltd. v Bilton [1981] 12B 923, where the English Court of Appeal, by a majority, held that the High Court had no jurisdiction to make a disclosure order to establish if the defendant had dissipated or concealed his assets, or in other words, to police the Mareva injunction.  Mr Cheuk further relied on RACP Pharmaceutical Holdings Limited v Li Xiaobo, CACV 139/2007, where the Hong Kong Court of Appeal approved of Bekhor v Bilton.

12.However, the facts of the RACP case are very much different.  The plaintiff there sued the defendant for damages for deceit or, alternatively, for breach of a stock purchase agreement.  The plaintiff bought the shares of a mainland company from the defendant but afterwards claimed that the defendant had overstated the receivables of the company.  The claim was not for rescission of the stock purchase agreement or restitution of the share purchase price.  There was also no proprietary claim or trading remedy.

13.The plaintiff obtained a Mareva injunction followed by a disclosure of assets order some three weeks later.  The disclosure order was complied with by the defendant.  The plaintiff, through an earlier ex parte order, inspected some of the defendant’s bank statements in Hong Kong and learned that the defendant had transferred US$5 million of the sale proceeds to a bank account in Canada and another US$5 million of such proceeds to another bank account in the mainland shortly after the sale of the shares of the company to the plaintiff. 

14.The plaintiff then, in the guise of a breach of the Mareva injunction by the defendant (when in fact there was none), sought an order requiring the defendant to disclose the details of payments made by the defendant from the two recipient bank accounts abovementioned.  The purpose of the order was, as stated in a supporting affirmation of the plaintiff, to understand how the defendant had dissipated or concealed his assets and for tracing the sale proceeds paid by the plaintiff to the defendant.  It was against those facts that the Court of Appeal said that a disclosure order was not for use in finding out whether the defendant had dissipated or concealed his assets, or to police the Mareva injunction.

15.However, Ms Sit, counsel for the plaintiffs, has made it clear that the plaintiffs are not seeking a tracing order but to seek disclosure of the whereabouts of the defendant’s assets since 30 July 2013, when the Mareva injunction coupled with the disclosure of assets order was granted, until now.  Miss Sit referred to JSC BTA Bank v Mukhtar Ablyazov & 6 others [2012] EWHC 455(Comm), where Teare J, when dealing with the plaintiff’s application for a further disclosure of assets order in aid of a freezing order, said in paragraphs 26 and 32 to 34 of his judgment as follows:

“26. I shall next deal with the disclosure order. There is no dispute that the court has jurisdiction to make the disclosure order. Disclosure of assets is a necessary adjunct of a freezing order to make such order effective. The dispute is whether such an order should be made when an order for disclosure for assets has already been made.

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32. When sentencing Mr Ablyazov for contempt I observed, based upon my findings in my judgment on the contempt application, that he had determined not to disclose all of his assets, to lie about his ownership of assets and to deal with his assets in breach of the freezing order. As Mr Smith has observed, the history of this litigation has revealed grounds to believe that Mr Ablyazov owns companies which he has not disclosed. …

33. These matters in combination seem to me to provide ample justification for ordering Mr Ablyazov again to file an affidavit of his assets.

34.  It is true that Mr Ablyazov can himself choose to purge his contempt and amplify the list of assets he has already disclosed.  However, in the particular circumstances of this case, summarised in the last paragraph, it remains appropriate to order Mr Ablyazov to swear a further affidavit of his assets, rather than let him do so only if he chooses to do so.”

16.This judgment was affirmed by the English Court of Appeal.  The English Court of Appeal also discussed about Bekhor v Bilton at paragraphs 125 to 128 of its judgment, reported at [2012] EWCA Civ 1411 as follows:

“125. A J Bekhor & Co Ltd v. Bilton [1981] 1 QB 923 (CA) brings us into the (early) era of the Mareva injunction. That was the authority which cemented the power to make disclosure orders in support of a Mareva injunction, pursuant to what is now section 37 of the 1981 Act. …

126. However, the court split on whether the power had been properly exercised in that case, where the judge had gone beyond the order of an affidavit of assets, and had ordered discovery of documents and interrogatories pursuant to the Rules of the Supreme Court. The majority (Stephenson and Ackner LJJ) held that the power had not been properly exercised: for the particular orders made seemed designed more to reveal the extent of breaches of the Mareva order committed in the past than to protect the function of that order for the future; moreover, the difficulties which had been experienced could have been addressed in other ways, such as by an application to cross-examine the defendant, or by removing the permission that had been granted to remove £1,250 per month out of the jurisdiction for living expenses (at 944G-955D, per Ackner LJ). …

127. Mr Béar relied on this authority in support of his submissions. However, the dissent of Griffiths LJ reveals, particularly as time has gone on, how narrow the area of disagreement perhaps was; or alternatively, how the development of this jurisprudence would suggest that the decision reflects a somewhat sceptical, but now outdated, attitude to the newly discovered power of the Mareva injunction. Griffiths LJ said (at 950):

‘The judge was clearly dealing with a very evasive litigant… The judge was, in my opinion, fully justified in taking the view that the defendant's affidavits were so unsatisfactory that he was entitled to refuse to accept their contents at their face value and to order the defendant to make a full disclosure of his financial position… It is true that the judge might have used other measures to put pressure on the defendant to induce him to reveal the true state of his finances…

I agree that the power to order discovery in support of a Mareva injunction should be sparingly exercised and if too readily resorted to could easily become a most oppressive procedure.

I am sure that the judges in the commercial court have this well in mind. There should be no question of an order for discovery becoming a usual part of the Mareva relief…".

128.  However, as will appear below, orders for the disclosure of assets at any rate by way of affidavit have become a standard feature of the freezing order.  …”

17.I agree with the approach of Teare J.  I think a further disclosure order on the facts of this case is amply justified, subject to amending paragraph 1(b) of the order to the disclosure of what has become of the proceeds of assets of individual value at HK$50,000 or more but which had been disposed of, encumbered or otherwise dealt with since 30 July 2013, when the Mareva injunction was granted.  Without the amendment, this part of the order may appear to be a tracing order.

18.Both Ms Sit and Mr Cheuk have submitted on whether I have the jurisdiction and if it is right for me to sanction this disclosure order by an unless order.  However, bearing in mind that the present order has a new and specific requirement of disclosure in relation to the dividends and sale of share proceeds received by the defendants and an unless order has serious consequences (with the claim against the defendants at HK$357.4 million plus damages to be assessed), I am inclined to give the defendants one more opportunity before considering whether an unless order is appropriate.

19.I therefore make an order in terms of paragraph 1 of the summons with paragraph 1(b) amended as above-mentioned,

(Submission on costs)

20.Costs of the application be to the plaintiffs.

Ms Eva Sit, instructed by Hogan Lovells, for the plaintiffs

Mr Calvin Cheuk, instructed by Hastings & Co, for the 1st and 13th defendants