Cosimo Borrelli As Trustee of the Sfc Litigation Trust v. Allen Tak Yuen Chan

HCMP 2174/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2174 OF 2014

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D E C I S I O N

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1.I have before me an application by the plaintiff by summons dated 5 January 2015 to vary a Mareva injunction order granted by Mr Justice Anthony Chan on 29 August 2014 (as subsequently continued and amended) by extending it to cover all properties and assets belonging to three third parties, namely, the defendant’s two daughters and a person described as the defendant’s companion (“Ms Hu”), up to the monetary limit of US$2.6 million in the case of each of the two daughters and US$1.3 million in the case of Ms Hu. They will collectively be referred to as the “Third Parties” hereinafter, and the three sums, ie US$2.6 million, US$2.6 million and US$1.3 million, will hereinafter collectively be referred to as the “Monies”.

2.For the purpose of today, I am concerned only with the question of whether I ought to grant an interim injunction pending the substantive hearing of the plaintiff’s summons. 

3.The basis of the application is, and there is no dispute about this, that the defendant’s company, Win Fair Holdings Group Ltd (“Win Fair”), transferred from its account at Standard Chartered Bank (“SCB”) the sum of US$2.6 million to each of his two daughters and the sum of US$1.3 million to Ms Hu on 9 June 2011.  The transfers were made to their respective accounts at SCB, and took place shortly after the publication of what is referred to as the Muddy Waters Report on 2 June 2011 which apparently sparked off a series of investigations and ultimately led to the collapse of Sino Forest Corporation, a public company listed on the Toronto Stock Exchange formerly under the control of the defendant.  Those investigations also revealed large scale frauds relating to many transactions entered or purportedly entered into by Sino Forest Corporation’s BVI subsidiaries in which the defendant is implicated.  I understand that the defendant disputes the allegations against him.  Obviously those allegations cannot be resolved in the current interlocutory application. 

4.On 28 August 2014, the Canadian court granted a worldwide Mareva injunction against the defendant without any monetary limit and, as earlier mentioned, a parallel Mareva injunction was granted by the Hong Kong court on 29 August 2014 under s.21M of the High Court Ordinance against the defendant subject to the monetary cap of HK$2.25 billion. 

5.The current application is, I am told, based on information provided by the defendant pursuant to disclosure orders made against him in the Canadian proceedings.  The aforesaid transfers to the Third Parties came to light as a result of the disclosure made by the defendant in October 2014.  It is the plaintiff’s case that the payments were an attempt by the defendant to put his assets out of the reach of his creditors, when he realized that his fraudulent dealings were about to be revealed.  

6.On the other hand, it is the case of the defendant, as well as that of the Third Parties, that the payments were gifts.  In view of the fact that the present summons was only taken out on 5 January 2015, none of them has so far filed any affidavit or affirmation regarding the circumstances of the gifts.  On the basis of the existing materials, I have little difficulty in coming to the view, for the purpose of today’s hearing, that there are good reasons to suppose that the defendant had substantial control over the Monies transferred to the Third Parties on 9 June 2011.

7.Mr Chain (for the defendant) submits that no interim injunction should be granted because the plaintiff has failed to demonstrate any real risk of dissipation of assets by the defendant.  The basis of this submission is that the plaintiff had knowledge of the transfers in October 2014, and furthermore had given notice of his intention to seek injunctive relief to restrain the Third Parties from dealing with the Monies as far back as October 2014. Hence, it is argued, if there is any real risk of dissipation by the defendant of the Monies held by or in the names of the Third Parties, he would have taken steps to dissipate them a long time ago.  Mr Chain relies on the judgment of Mr Justice Ng in Re Chau Cham Wong Patrick, a Bankrupt, HCB 549/2012 (20 June 2014), in particular his Lordship’s observation at paragraph 34 of that judgment: “Equity does not act in vain – a court does not usually grant injunctions where significant time has elapsed and an injunction would in effect be locking the stable door after the horse has bolted”. 

8.It should be noted, however, that if the Monies were indeed held by the Third Parties as nominees for the defendant (which is certainly a possible inference to be drawn on the existing evidence) and assuming that the Monies are currently still held by them, the existing Mareva injunction order of Mr Justice Anthony Chan would be wide enough to restrain the defendant from dealing with or dissipating the Monies.  I do not think the court should proceed on the basis that the defendant has acted in breach of the Mareva injunction order. 

9.The plaintiff’s difficulty, as I see it, is that the transfers were made more than 3 years ago, on 9 June 2011. There is no evidence that any part of the Monies are still held by the Third Parties, or what has become of the Monies.  On the other hand, the extended injunction sought by the plaintiff would cover all “properties and assets” of the Third Parties and not just the Monies or assets acquired by or derived from the use of the Monies.  While I accept that the court does have jurisdiction to make a wide order in the terms sought, as Mr Justice Ng remarked at paragraph 30 of his judgment in Re Chau Cham Wong Patrick, a Bankrupt: “A Mareva injunction should not be granted lightly.  The consequences of granting the injunction are such as to put the defendant at a very real disadvantage and in a position from which it may never adequately recover”.

10.In the absence of any evidence that the Monies are currently still held by the Third Parties or have been turned into some identifiable assets, it seems to me that the order sought would be far too draconian and cannot be justified. 

11.I would be prepared, however, to grant a more limited form of Mareva injunction, limited to the 3 identified accounts at SCB into which the Monies were transferred. 

12.I do not consider it appropriate to order any trial of preliminary issue, but I would hear the parties on the further directions to be given for the disposal of the plaintiff’s summons, and also on the question of whether any ancillary disclosure order should be made against the Third Parties regarding the current whereabouts of the Monies. 

Ms Eva Sit, instructed by Lipman Karas, for the plaintiff 

Mr Christopher Chain, instructed by Messrs CY Tsang & Co., for the defendant

(Mr Tsang Chun Yu, of Messrs CY Tsang & Co., for the defendant (pm ONLY))

Ms Mabel Y S Tsui, instructed by Messrs Kwok Ng & Chan for the Interested Party