Minmetals Inc v. Dragon Boom Ltd and Another

HCMP 1702/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1702 OF 2013

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D E C I S I O N

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1.The plaintiff (“Minmetals”) obtained an exparte mareva injunction against the 1^st defendant (“Dragon Boom”) and the 2^nd defendant (“Gary”). Minmetals seeks to continue the injunction, whereas Dragon Boom seeks discharge or alternatively variation of the same. By consent and on terms, Minmetals’ application against Gary was adjourned. Hence, the present hearing between Minmetals and Dragon Boom only.

BACKGROUND

2.Minmetals is a New Jersey corporation in the business of sale of the mineral known as rare earth (regarded as precious, if not strategic, commodity) in North America.  Minmetals is wholly owned by its parent company in China, where majority of the world’s rare earth supply comes from.  In late 2010, the Mainland government announced the plan to reduce the rare earth export quota. This caused the rare earth market price to rise.

3.Minmetals’ case is that sale and export of rare earth from the Mainland are regulated.  The company implements stringent procedure and policy in respect of sale and export of rare earth.  However, in February 2011, it was discovered that the then head of its rare earth department, Li Zheng (“Li”), had caused the company to enter into a series of unusual transactions with a number of companies including Dragon Boom and Gary in Hong Kong.

4.As far as Gary is concerned, Minmetals referred to an agreement that Li entered into at the end of November 2010 for Minmetals to sell 100MT of rare earth to Gary. As far as Dragon Boom is concerned, Li entered into 2 agreements in early January 2011 for Minmetals to sell to Dragon Boom 2 types of rare earth minerals totalling 45MT.  Pursuant to those agreements, Dragon Boom had paid a sum of US$2,478,000 to Minmetals.

5.Minmetals’ investigation revealed that the transactions with these companies were suspect in the following manner:

(1) All were sales substantially below the prevailing market prices.

(2) Contrary to Minmetals’s policy, these companies, including Dragon Boom and Gray, to which the rare earth was sold were neither known customers of the company nor end-users of rare earth.

(3) The transactions were carried out without compliance with Minmetals’ regulatory procedures.  Nor were they included in the reports of Li to the senior management of Minmetals.

(4) A Dang Min (“Dang”), acting with his wife, was involved in that Dang was director, shareholder and/or registered agent of these companies.  Dang was a former employee of Minmetals and a personal friend of Li.

(5) Dang used to be the shareholder and director of Dragon Boom.  He was still in control of or close connection with Dragon Boom, including Dragon Boom’s bank account in Hong Kong now subject to the Injunction.

6.Upon further investigation, Minmetals concluded that Li was in fraudulent breach of trust in his position in Minmetals.  With the assistance of Li, those companies controlled by or closely associated with Dang were used as corporate shells to enter into these unauthorised transactions with Minmetals; and succeeded in obtaining rare earth, which would not have been possible in the normal course of Minmetals’ business, and at an undervalue compared with the prevailing market price.  The fraudulent enterprise has gained profits as a result.

7.Upon the stoppage of delivery of the rare earth under those contracts with Dragon Boom, and prior to his removal from Minmetals (in February 2011), Li entered into another agreement in January 2011 with Dragon Boom, whereby Minmetals was caused to agree to cancel the contracts.  On the face of the agreement, the reason was said to be change in the internal management of Minmetals (which Minmetals denies).  By the agreement, Minmentals was obliged to refund the amount paid by Dragon Boom (“the Cancellation Agreement”).

8.The refund was withheld.  This caused Dragon Boom to take action to recover the amount paid.  Pursuant to the Cancellation Agreement, Dragon Boom took the dispute to CIETAC arbitration.  On 21 March 2012, the arbitration panel found for Dragon Boom; and awarded it the refund of the sum of US$2,478,000 with interest and costs (“the CIETAC Award”).

9.In May 2012, Dragon Boom obtained an order from the Beijing court to enforce the CIETAC Award.

10.In the same month, Minmetals commenced proceedings in the New Jersey court, USA in anticipation of Dragon Boom’s enforcement of the CIETAC Award against it as an US corporation.

11.In September 2012, Minmetals applied to the Beijing court to effectively set aside the CIETAC Award.  While that application was pending, Minmetals amended the complaint in the New Jersey proceedings on 15 October 2012 (“the Amended Complaint”).

12.By the Amended Complaint, Minmetals claims against those companies involved, including Dragon Boom and Gary, as well as Li, Dang and his wife.  10 counts (and causes of action) were contended, including fraud, aiding and abetting breach of fiduciary duties and violation of the New Jersey Racketeer Influenced Corrupt Organisations Act (“RICO Act”).  The named defendants were said to have colluded with each other; and each of the corporate defendants was said to have been acting as the alter egos of one another so that they constituted an enterprise which shared and allocated income, expense, and other financial and legal responsibility.

13.On this basis, 8 of the 10 counts in Minmetals’ claim in the New Jersey proceedings were directed against all the defendants; and for which they were held to be jointly and severally liable.  Projected loss and thus compensation was claimed in the sum of US$5,250,000.  The damages are said to be tripled by the operation of the RICO Act, thus the sum of US$15,750,000.

14.Subsequently, 5 of the defendants named in the New Jersey proceedings moved the New Jersey court to dismiss the Amended Complaint or alternatively to compel the dispute to be arbitrated.  The motion was denied by the New Jersey court with reasons on 2 January 2013.

15.This was followed by the Beijing court’s dismissal of Minmetals’ application to set aside the CIETAC Award (above) later in the same month.

16.As far as the situation in the Mainland was concerned, the CIETAC Award remained intact after the Beijing court has rejected Minmetals’ attempt to impeach it.  Eventually, in July 2013, Minmetals entered into an agreement for execution with Dragon Boom whereby the former agreed to pay the latter the amount of the CIETAC Award. This Minmetals did by transmitting the amount to Dragon Boom’s bank account with HSBC in Hong Kong (“Dragon Boom’s Account”), which is now subject to the Injunction.  The deadline for payment was 7 days from the date of the agreement, 5 July 2013.  This prompted Minmetals to seek a mareva injunction in respect of the money to be paid into the Dragon Boom Account in Hong Kong.

17.On 12 July 2013, Minmetals applied ex parte for a mareva injunction against the defendants.  This was heard before DHCJ B Chu, and the injunction was granted prohibiting the disposal of their assets within Hong Kong up to US$15,750,000 (ie the amount claimed in the New Jersey proceedings); and requiring disclosure of assets by the defendants and their respective bankers as named.  The injunction has since been varied and continued until the determination of the application now before me.  At the moment, the Injunction is supported by Minmetal’s undertaking as to damages, which is fortified by payment into court of HK$500,000 in respect of each defendant (“the Injunction”).

18.Now before me are the following summonses:

(1)   Minmetals’ summons dated 15 July 2013 for continuation of the Injunction until further order of the court;

(2)   Dragon Boom’s summons dated 27 August 2013 for variation of the Injunction; and

(3)   Dragon Boom’s summons dated 2 September 2013 for setting aside of the Injunction.

19.As far as Minmetals’ application against Gary is concerned, these 2 parties applied by consent on 10 September 2013 for the hearing of such part of the summons to be adjourned sine dine; and that the Injunction, so far as it relates to Gary, to continue until the hearing of that part of Minmetals’ summons.  This prompted concern about the potential of inconsistent findings in respect of the 2 defendants under the same summons.  Hence my requisitions to the parties.

20.Eventually, I acceded to the request upon the undertaking by Minmetals and Gary, for the purpose of the application between them, that both should be bound by any finding of facts common to Dragon Boom and Gray as well as any decision on principles of law to be made by this court at the present hearing of Minmetal’s summons against Dragon Boom.

21.The consideration of the continuation (ie Minmentals’ application) and the discharge (Dragon Boom’s application) is inextricable.  Only if the Injunction is continued would the question of variation become necessary.

CONTINUATION OR DISCHARGE OF THE INJUNCTION

22.Minmetals accepts that for the purpose of mareva relief, it it necessary to establish a good arguable case in its claim.  In the context of section 21M of the High Court Ordinance, Cap 4, the question is whether Minmetals has a good arguable case in the New Jersey proceedings.

Good arguable case

23.Section 21M of the High Court Ordinance, Cap 4 provides that:

“(1) Without prejudice to section 21L(1), the Court of First Instance may by order …… grant other interim relief in relation to proceedings which –

(a) have been or are to be commenced in a place outside Hong Kong; and

(b) are capable of giving rise to a judgment which may be enforced in Hong Kong under any Ordinance or at common law.

(2) An order under subsection (1) may be made either unconditionally or on such terms and conditions as the Court of First Instance thinks just.

……

(4) The Court of First Instance may refuse an application for …… interim relief under subsection (1) if, in the opinion of the Court, the fact that the Court has no jurisdiction apart from this section in relation to the subject matter of the proceedings concerned makes it unjust or inconvenient for the Court to grant the application.”

24.Dragon Boom takes issue as to whether Minmetals’ claim in the New Jersey proceedings is capable of giving rise to a judgment which may be enforced in Hong Kong. Specifically it questions whether the claim for triple amount of damages pursuant to the RICO Act would be considered as penal in nature and thus unenforceable by the Hong Kong court.  Reliance is placed on Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679 (at §§87-92, per Kwan JA).

25.In Hung Fung, the judgment of the Mainland court for double interest was held to be unenforceable in Hong Kong.  It was penalty because it was made not as compensation or referable to the damage but solely to penalise for the event of non-satisfaction of the judgment (with interest already ordered) within time: see §§90-92.  As to the RICO Act[1], the recovery of triple damages is expressly provided as the statutory civil remedy for the breach as stipulated in the Act.  The situations in Hung Fung and here are distinguishable.

26.According to its written reasons, in dismissing the motion by the defendants (not including Dragon Boom) to dismiss Minmetals’ claim, the New Jersey court took the view that the pleading suggests a cognisable cause of action under the RICO Act.  It will therefore be a matter for the New Jersey court to decide whether Minmetals is indeed entitled to such claim pursuant to the Act.

27.For the present purpose, I would not conclude that this part of the judgment in the New Jersey proceedings, if obtained, will be unenforceable in Hong Kong and thus falling out of section 21M(1)(b).

28.Dragon Boom then argues that Minmetals’ claim lacks a good arguable case as to the existence of fraud and Dragon Boom’s involvement as a perpetrator.  Emphasis is placed on the findings of the CIETAC panel and the Beijing court in refusing Minmetals’ application to set aside the CIETAC Award.

29.This court could have its own view about the merits of the claim.  The Beijing court, in refusing Minmetals’ application to set aside the CIETAC Award, took the view that there was insufficient evidence of fraud tainting the transactions between Minmetals and Dragon Boom in question.  Yet for the present purpose, the question is whether there is a good arguable case in the New Jersey proceedings.  As far as whether the claim is liable to be dismissed, the New Jersey court has spoken.

30.Much is said about the issue of estoppel, which is also one of Dragon Boom’s defences in the New Jersey proceedings.  Dragon Boom argues that Minmetals is estopped from pursuing the same complaint already decided by the CIETAC panel and the Beijing court.  Distinction is struck between the other defendants in the New Jersey proceedings moving to dismiss the claim on the basis of collateral estoppel and Dragon Boom raising the defence of estoppel as the party to the CIETAC Award.

31.As I read it, the New Jersey court’s decision to dismiss the motion was not merely based on privity of the CIETAC arbitration and standing of the moving defendants in contending collateral estoppel.  The New Jersey court considered that the CIETAC Award should not be given preclusive effect in any event.  The reasons were that the claim in the New Jersey proceedings involved contentions, parties and issues beyond the subject matter of the CIETAC arbitration; and the arbitration itself did not provide an adequate opportunity to Minmetals to obtain a full and fair adjudication between Minmetals and Dragon Boom on the issue of fraud.

32.Dragon Boom refers to the principle of issue estoppel in the broad sense: Henderson v Henderson [1843] 3 Hare 100 (at 115) and Yat Tung Investment Company Ltd v Dao Heng Bank Ltd [1975] AC 581 (at 590A-B).  It is submitted that Minmetals has failed to demonstrate that the New Jersey court would have come to a decision different from that according to the above principles and allowed Minmetals to advance the case of fraud between it and Dragon Boom as well as the other defendants notwithstanding the findings of the CIETAC panel.  In view of what the New Jersey court has said (as mentioned), albeit for the purpose of deciding the other defendants’ motion to dismiss, I do not agree with Dragon Boom.

33.As to the other features of the case, I have considered the evidence highlighted by counsel in the submissions.  These included evidence obtained by Minmetals subsequent to the grant of the Injunction ex parte and the evidence given on behalf of Dragon Boom and Gary in the New Jersey proceedings and the proceedings herein.  The evidence is capable of implicating Dragon Boom, Gary and the other corporate defendants as parts of an enterprise under the control of Dang with the assistance of Li in obtaining rare earth from Minmetals for resale for gain.  For the present purpose, I accept that the claim in the New Jersey proceedings is seriously arguable.

34.Dragon Boom argues that the discretion under section 21M(4) should nevertheless be exercised against continuing the Injunction.  By acceding to the application, this court is said to be effectively aiding the New Jersey proceedings at the expense of the arbitration and court proceedings already taken place in the Mainland.  Reference is made to the risk of disharmony or confusion or conflicting decisions of different jurisdictions discussed in Motorola Credit Corpn v Uzan & Ors (No 2) [2004] 1 WLR 113 (at §115).

35.Associated with this argument is the defence of Dragon Boom that Minmetals initiated the New Jersey proceedings without clean hands.  Essentially it is argued that the New Jersey proceedings aim at circumventing the CIETAC Award, which has been confirmed by the Beijing court.

36.The argument would have been understandable if Minmetals’ claim in respect of the amount so paid to Dragon Boom’s bank account in Hong Kong were one of tracing the money back.  But it is not.  Minmetals’ claim in the New Jersey proceedings is based on a scheme of fraud and conspiracy, of which the transactions with Dragon Boom, were merely parts.  For the various causes of action against the parties, Minmetals claims monetary damages for which the named defendants, including Dragon Boom, are held jointly and severally liable.  Even without invoking the RICO Act, Minmetals is holding Dragon Boom liable (jointly and severally with the other defendants) for damages exceeding the amount of its payment to Dragon Boom under the CIETAC Award.  It was actually pleaded in the New Jersey proceedings that Minmetals would seek to set off such amount paid to Dragon Boom.  Section 21M was invoked on this basis.

37.In the circumstances, whilst the Injunction would keep Dragon Boom from enjoying the fruit of the CIETAC Award (which was confirmed by the Beijing court), it actually serves the purpose as mareva in preventing any judgment in the New Jersey proceedings (with or without upsetting Dragon Boom’s entitlement to the amount paid by Minmetals as a result of the CIETAC Award) from being unsatisfied. This does not necessarily entail the disharmony between jurisdictions projected by Dragon Boom.

Risk of dissipation

38.Dragon Boom argues that there is no credible evidence showing that it would be unable to meet any award of damages against it in the New Jersey proceedings.  But the associated, and probably more significant concern, is whether there is a real risk of dissipation.  There is no dispute that the court may draw inference from alleged conduct of low commercial morality.  Here the basis for such inference is the alleged fraudulent practices of the enterprise consisting of the defendants named in the New Jersey proceedings.  Dragon Boom argues that the case for fraud against Dragon Boom is thin.  As to the merits, I need not repeat the above discussion.

39.I have also considered the various factors highlighted by counsel, including that Dragon Boom has been a shell company without real business operation of its own; that the Dragon Boom Account was the only bank account and its contents the only asset of Dragon Boom known; that the authorised signatory of the account was Dang, who was heavily implicated in the alleged fraud in the New Jersey proceedings; and the assessment of evidence adduced by Dragon Boom and Dang both in the New Jersey proceedings and those herein.

40.All considered, the evidence suffices for the inference of a real risk that the only asset of Dragon Boom, currently known to be money in the Dragon Boom Account, could be easily disposed of, and thus resulting in uncertainty of prospect of satisfaction of any monetary judgment against Dragon Boom in the New Jersey proceedings that could be enforceable in Hong Kong.

Material non-disclosure

41.Mr Chan for Dragon Boom provided the following helpful summary of the principles in this respect, which I adopt:

(1)   The applicant has the duty to make full and frank disclosure of all the material facts.  These include what the ex parte judge reasonably could or would take into account in deciding whether to grant the injunction.

(2)   Information will obviously be material where the court would not have granted the injunction had it known of it.  However, it is no answer to the complaint of material non-disclosure that the decision would have been the same, had the relevant matter been placed the court.

(3)   It is generally inadequate to merely attach the relevant information by way of exhibiting documents.  Nor is general mention to the ex parte judge.  The applicant has the duty to draw the court’s attention to specific facts and defences reasonably expected from the opponent.

(4)   The duty on the applicant to make full and frank disclosure is stringent.

42.Dragon Boom complains about the non-disclosure by Minmetals of the following matters when obtaining the Injunction ex parte:

(1)   the true position as regards the extent to which the allegations of fraud against Dragon Boom were already entertained in the CIETAC arbitration;

(2)   its application to the Mainland court to set aside the CIETAC Award which was dismissed;

(3)   the fact that Dragon Boom was not among those defendants in the New Jersey proceedings moving to dismiss the claim, and is thus at liberty to advance the estoppel as well as the clean-hands argument;

(4)   specific defences and counterclaim of Dragon Boom; and

(5)   the fact that there was never delivery of the goods by Minmentals to Dragon Boom under their transactions in question.

43.Dragon Boom argues that it was wrong for Minmetals to suggest that it was shut out from raising the arguments in respect of fraud in the CIETAC arbitration.  Minmetals indeed argues that the arbitration panel refused to entertain such arguments.  But that was also how the New Jersey court, in its reasons for dismissing the defendants’ motion to dismiss the claim, described as what happened at the arbitration.  The documents however show that the arbitration panel apparently addressed the fraud allegations but only rejected them for lack of evidence.

44.When asked by the ex parte judge specifically (i) what Minmetals had done about the CIETAC Award and (ii) whether it was going to set it aside, the solicitor appearing for Minmetals replied in the negative and informed the court of her instructions that the award was not going to be revisited. She added that that explained the commencement of the New Jersey proceedings on the ground of fraud, which the arbitration panel has refused to hear.

45.Following from that, the ex parte judge referred to the defendants’ unsuccessful attempt to dismiss the claim in the New Jersey proceedings on the basis of the CIETAC Award.  The solicitor for Minmetals acknowledged that, but without pointing out that Dragon Boom was not among the defendants who moved such dismissal of the claim in the New Jersey proceedings.  The likely misunderstanding was compounded, when the court expressed her understanding that the New Jersey court did not allow “the defendant, or rather Dragon Boom” to dismiss the claim on the basis of the CIETAC Award.  The solicitor for Minmetals still confirmed that understanding.

46.At the end, the ex parte judge said this:

“……I am satisfied that there is a serious issue to be tried, and reading those reasons given by the US court for denying the defendants’ application to dismiss the plaintiff’s claim, there is a good arguable case on the part of the plaintiff in its substantive claims against the defendants, and the claim is based on fraud and dishonesty and conspiracy, and I am satisfied that there is a real risk of dissipation of assets which would render the plaintiff’s judgment of no effect.”

47.On the one hand, there was the likelihood that the ex parte judge mistook that Dragon Boom was amongst the defendants that moved to dismiss the claim in the New Jersey proceedings.  On the other hand, she indicated that she has read the reasons of the New Jersey court in dismissing that motion, which should have revealed that fact.

48.As far as material non-disclosure in this respect is concerned, there is indeed room for argument.  Any such ambiguity, in my view, only exists against Minmetals which had the duty of full and frank disclosure.  This is especially true as the ex parte judge made clear from the outset that she had no time to read the papers properly and expected to be guided through them by the solicitor appearing for Minmetals.  The duty of full and frank disclosure is a stringent one, which, in my view, was not discharged properly.

49.Dragon Boom complains that by generalising its defence as one of denial, Minmetals failed its duty to draw the ex parte judge’s attention to the specific defences and counterclaims.  Considering the pleading of Dragon Boom, I do not share the criticism that real unfairness was done as far as the ex parte judge’s grasp of the defence is concerned.  As to the counterclaim, 2 of the 3 counts go hand in hand with the success of the defence.  The remaining count consists of a claim for anti-competition practice of Minmetals; but the extent to which such claim will be entertained independently of the rest of the contentions is unclear.

50.As to whether the goods under the contracts between Minmetals and Dragon Boom were supplied, the ex parte judge specifically asked and the solicitors appearing for Minmetals unequivocally confirmed that the goods were supplied. This was indisputably untrue.  This might well have had effect on the ex parte judge because what prompted her question was the solicitor’s submission that the basic effect of the Cancellation Agreement was to “make” Minmetals liable to refund for the sale of goods that should never have sold in the first place.    Again, this must be held against Minmetals as the applicant having the stringent duty of full and frank disclosure.

51.Mr McLeish for Minmetals in his submission conveyed what was described as his instruction from those instructing him in explanation of the above non-disclosure.  Suffice it to say that such explanation was not given in the form of affidavit by the responsible solicitor appearing before the ex parte judge (though she did make more than one affidavit for the purpose of the applications); and, as a matter of substance, not accepted in any event.

Whether the Injunction should be discharged and re-granted

52.Following from the above discussion, fairness requires the Injunction to be discharged.

53.In appropriate case, the court may consider re-granting the injunction after discharge for material non-disclosure. Mr Chan submitted that discretion to re-grant should be sparingly exercised though.  He referred to Global Faith Investments Limited v EYI International Limited, CACV 248/2000 (14 December 2000) and the recent case of Joel Kai Thomas v Tao Hsiao Shan Alice, HCMP 209/2011 (10 March 2013; 11 June 2013).

54.The principle the court would not lightly re-grant an injunction once discharged for material non-disclosure is accepted.  However, in exercising the discretion to re-grant in the cases cited above by counsel, the court indeed took into account all the circumstances of the case instead of the mere fact of material non-disclosure.

55.Considering all the circumstances discussed above, including those with reference to the evidence obtained by Minmetals subsequent to the grant of the Injunction ex parte, I still find it just and convenient to re-grant the Injunction inter partes.

VARIATION

56.With the variations made up to today[2], counsel confirm that what remain is Dragon Boom’s application for release of (i) a sum of US$364,124 for the legal fees and expenses due and payable to Dragon Boom’s legal advisers in respect of the CIETAC arbitration; and (ii) a sum of US$52,500 per month for future legal expenses in respect of the New Jersey proceedings.  Dragon Boom also asks for increase in fortification of Minmetals’ undertaking as to damages.

Legal expenses

57.Considering the evidence, I am satisfied that variation of the Injunction to enable the payment of the sum of US$364,124 for the legal fees and expenses due and payable to Dragon Boom’s legal advisers in respect of the CIETAC arbitration from Dragon Boom’s Account should be allowed.

58.On 30 August 2013, the Injunction was varied to enable the release of a sum of US$50,000 from the Dragon Boom Account for the legal expenses in respect of the New Jersey proceedings.  Now Dragon Boom seeks release of a monthly sum from the account for its future legal expenses in respect of those proceedings. Evidence of the projection of such legal expenses from Dragon Boom’s attorney in the US was produced in August 2013.  120 to 150 billable hours (at hourly rate of US$350) are expected every month and thus the monthly expenses of US$52,500.  This is admittedly a sharp increase from the sum of about US$11,000 spent for the 2 preceding months.  Minmetals provided its attorney’s counter opinion.

59.Minmetals argue that it should be Dang who should shoulder up the legal expenses of Dragon Boom in the New Jersey proceedings, on the basis that he was behind all the corporate vehicles in the fraudulent enterprise.  Alternatively, it objects to the amount projected by Dragon Boom.

60.I do not think the argument that the variation should be refused because Dang should personally fund Dragon Boom’s legal expenses helps.  But I should be sceptical about the projected legal expenses.  Taking into account the sum of US$50,000 already released and the legal expenses incurred plus making room for possible increase in the legal work, I would allow variation to enable the release of a monthly sum of US$25,000 for future legal expenses in respect of the New Jersey proceedings.

61.I accept Minmetals’ request that there should be the rider that unless otherwise agreed between the parties, Dragon Boom shall provide to Minmetals’ solicitors evidence of the legal expenses incurred in the New Jersey proceedings (subject to redaction of privileged information) within say 5 days of the end of each calendar month, failing which further release of the monthly sum shall suspend.  The parties have liberty to apply if circumstances require.

Fortification of undertaking

62.At the moment, undertaking as to damages to Dragon Boom and Gary are fortified by payment in court in the sum of HK$500,000 in respect of each of them or a total of HK$ 1 million.

63.By its summons, Dragon Boom asks for an additional sum of US$3,000,000 as fortification of Minmetals’ undertaking as to damages to it alone.  Dragon Boom seeks to justify by arguing that the established yardstick in this regard is for fortification to at least match the quantum of the funds frozen, relying on Horizon Bank v Global Network Investments Ltd, HCA 1838/2009 (20 October 2009) (at §30).

64.As I read, what the learned judge said in that paragraph of the judgment cited could not be taken to mean the established yardstick in this regard as suggested.  It is for the party seeking fortification to establish by evidence the risk of significant loss as a result of the freezing of his assets.  According to the evidence, and as discussed, there is real doubt as to whether Dragon Boom was actively operating business as such.  In any event, the Injunction does not prevent normal business expenses.  Therefore the crippling effect of the Injunction on Dragon Boom’s business operation or its reputation does not weigh much in my consideration in this respect.

65.Having said that, I accept that even in the absence of these considerations, the fact that a party subject to a mareva injunction would at least be deprived of the opportunity to invest the money so frozen is always acknowledged.  That entails another way to measure damages payable if the mareva injunction is eventually proved to have been wrongly granted.  On this basis, Dragon Boom asks for increase of the fortification amount by reference to the current best lending rate (5% per annum), an approach advanced in Narian Samtami v Chanderson Tikamdas Samatas [2012] 4 HKLRD 872 (at §95).  As its fallback, Dragon Boom asks for additional fortification of HK$2,000,000.

66.Considering all the circumstances, including that Minmetals is a foreign plaintiff, its ability to pay damages, the potential duration of the Injunction (which is in dispute) and the fact that the money frozen has been depleting as a result of the variations of the Injunction, I am prepared to increase the fortification but only by another HK$500,000 to a total sum of HK$1,000,000 in respect of Dragon Boom.  The additional fortification shall be paid into court within 14 days from the date of this order and notice of payment shall be served as soon as practicable.

ORDER

67.The Injunction is discharged but re-granted until further order of the court in terms as they have been varied since grant up to today and subject to the above further variations in the preceding paragraphs.

68.Unless otherwise agreed, the parties shall lodge and serve succinct written submissions on costs within 14 days of this order; and reply submissions, if any, within 7 days of the receipt of each other’s submissions.  Unless directed otherwise, costs shall be ruled on paper.

Mr Robin MCLEISH, instructed by Gall for the plaintiff

Mr Abraham CHAN, instructed by W K To & Co for the 1^st defendant