Ngai Leung, Tommy v. Sung Ngai Yeung and Another

HCA 35/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 35 OF 2015

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DECISION

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1.This is an application of Ngai Leung, Tommy (“Ngai”) by his Amended Summons dated 27 January 2015 (“the Amended Summons”) for, in the main, a Mareva injunction that Sung Ngai Yeung (“Sung”) be restrained from procuring Wide View Development Limited (廣視發展有限公司) (“Wide View”) to deal with or dispose of the balance of the proceeds of sale of Flat A, 7/F, Federal Centre, 77 Sheung On Street, Chaiwan, Hong Kong (“the Property”). Completion of the sale of the Property by Wide View will take place on the next business day, viz, 2 March 2015.

2.Before I go further into the background, I should at the outset set out the brief history of this application. This application was originally made on an ex-parte basis before Chung J on 30 January 2015. Chung J was not convinced that this application should be made in the absence of Sung and so Ngai was directed to take out an inter-partes summons returnable on 6 February 2015 before the Summons Judge. Ngai then took out an inter-partes summons dated 5 February 2015 and the summons was first heard by DHCJ Marlene Ng on 6 February 2015. The deputy judge gave Ngai and Sung directions for filing evidence and allowed Ngai to amend his summons by adding the following paragraph (as paragraph (1)(c)) to the draft order attaching to the summons:

“where the balance of proceeds of sale of the Property falls short of RMB¥5,917,500 (being the sum claimed by the Plaintiff as of 1^st February 2015, namely: RMB¥4,500,000 + RMB¥4,500,000 x 4.5% x 7 months) or its Hong Kong dollars equivalence, by himself, his agents, servant or nominees or otherwise howsoever deal with or dispose of or diminish the value of any of his assets, which are within Hong Kong, whether in his own name or not, and whether solely or jointly owned up to the value of the shortfall of the balance of proceeds.”

3.This application does not concern Tunderly Limited and it came before me as the Summons Judge this morning for substantive arguments after both parties have filed their evidence. Submissions were concluded at noon and given the urgency of this matter, I now give my ruling with brief reasons.  

Background Facts

4.The following background facts are evidenced by documents and are not disputed by the parties.  

5.Wide View is the registered owner of the Property and on 10 November 2014 it entered into a sale and purchase agreement as vendor with another company as purchaser to sell the Property at the price of HK$6,450,000.

6.Sung holds 70% shares in Wide View and his wife Madam Lam holds the remaining 30%. Sung is the sole director.

7.Sung signed three Chinese documents on which Ngai relies to establish liability. First, there is an undated document entitled 債權確認書 (Liability Acknowledgement Document) signed by both Sung as debtor and one Wang Mou Fa (“Wong”) as creditor. In this document, Sung acknowledged that he owed Wong a total sum of RMB¥18,510,000.00 (interest inclusive).

8.Sung signed another document entitled債權確認書 (Liability and Loan Confirmation) dated 15 June 2014. In this document, all Ngai, Wong and Sung appended their signatures and it was agreed that Wong assigned the debt in the sum of RMB¥4,500,000 owed by Sung to Ngai to discharge all his indebtedness to Ngai. Sung expressly agreed to pay Ngai the said sum of RMB¥4,500,000.

9.The last document is an IOU in favour of Ngai dated 14 June 2014 (“the IOU”) whereby Sung acknowledged that he owed Ngai a sum of RMB¥4,500,000. In the IOU, Sung accepted that interest on the said loaned amount started to accrue on 1 July 2014 at a rate to be negotiated. The IOU also stated that Tunderly Limited undertook the concomitant liability in respect of the loan. The IOU was stamped with the company chop of Tunderly Limited. 

10.It is common ground that the purported loan was actually not extended to Sung by Ngai directly as apparently stated in the IOU. Ngai first loaned to his cousin Wong a sum of RMB¥ 5.5 million in April and May 2013, as evidenced by the banking documents of Industrial and Commercial Bank of China.  The purported loan only represents part of the indebtedness of Sung to Wong that has been assigned to Ngai.

11.There is another important Chinese document written by Sung by hand. It is entitled還款承諾書 (Repayment Promise Document) dated 6 July 2014 (“the Repayment Document”). By this document, Sung set out his proposal as to how to repay RMB¥4,500,000 to Ngai. Basically, Sung offered to transfer to Ngai his interest in a property known as Room 2407, Three Ho Soho Mansion, Shenyang, China (“the Shenyang Property”). Moreover, Sung offered to sell the Property and the proceeds of sale after payment of all the bank charges would be paid to Ngai. Lastly Sung promised to act promptly and if the progress of the intended sale was slow Sung agreed to pay RMB¥1 million to Ngai in end of September.

12.Upon discovery of the pending sale of the Property through land search of the Property in December 2014, Messrs Ivan Tang & Co, Solicitors for Ngai, sent a letter dated 16 December 2014 to Sung and ask for a written undertaking to pay the balance of the sale proceeds of the Property to Ngai. Ngai did not reply to the said letter and so Ngai commenced these proceedings on 6 January 2015.

General Principles

13.The parties have no dispute about the applicable general principles. The relevant guidelines can be conveniently found in Hong Kong Civil Procedure 2015 Vol.1 at §29/1/65:

“… the plaintiff must show:

1. that he has a good arguable case on a substantive claim over which the court has jurisdiction;

2. that there are assets within the jurisdiction;

3. that the balance of convenience is in favour of grant;

4. that there is a real risk of dissipation of assets, or removal assets from the jurisdiction, which would render the plaintiff’s judgment of no effect.”

14.About the threshold of a good arguable case, I bear in mind the dictum of Mustill J in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398 at 402c to 404e.   The plaintiff must do more than a bare assertion of facts which would give the court of jurisdiction and the question whether the plaintiff has shown a prima facie case is not an appropriate test at least where the respondent has adduced evidence in opposition. The court cannot and should not attempt to, try the issues at the interlocutory stage. The plaintiff has to do substantially more than to show that the case is merely arguable. That said, the plaintiff need not go as far as to persuade the judge that he is likely to win.

15.The English Court of Appeal (Eveleigh, Kerr and Dillon LJJ) upholding the judgment of Mustill J agreed with the foregoing guiding principles. In addition they added that the court must at the end of the day consider the evidence as a whole in deciding whether or not to exercise the statutory jurisdiction.

16.Lastly, it is now well-settled that it is not necessary for the plaintiff to show subjective intent on the part of the defendant to dissipate the assets or remove his assets from the jurisdiction for the purpose of defeating any judgment. There is, in other words, no requirement to prove nefarious intent, see Gee, Commercial Injunctions, 5^th ed., §12.032.  

Parties’ respective contentions

17.Ngai mainly relies on the uncontroversial matters set out above and in particular the said three Chinese documents including the IOU to prove the indebtedness of Sung in this action. To make out his case for a Mareva Injunction, his evidence is that Sung did not respond to his repeated demands for sale of the Property to repay the indebtedness at all. Instead, without prior notice, World View entered into the sale agreement in the absence of his knowledge and it occurred to him that Sung was trying to dispose of the Property of World View but not for the repayment of the debt pursuant to his offer in the Repayment Document.

18.The major defence put forth by Sung in both his Defence and his affirmation is that he entered into an oral settlement agreement with Ngai represented by Ngai’s father (“the Father”) (“the Settlement Agreement”) whereby it was agreed that the indebtedness of RMB¥4,500,000 was to be settled by the transfer of the Shenyang Property to Ngai and Sung’s participation in a property trading project in Hainan proposed by the Father (“the Hainan Project”).

19.Sung claims that the Shenyang Property was worth about RMB¥2 million (the estimated value in the Repayment Document) whilst the consideration of his participation in the Hainan Project would be treated as a repayment of RMB¥3 million.

20.Sung claims that the Settlement Agreement was actually performed. First, on 22 July 2014, the Father, one Madam Wang and Sung entered into a written agreement relating to the Hainan Project entitled 合作協議書 (“Co-operation Agreement”). In the Co-operation Agreement, Sung agreed to inject into the Hainan Project his interest in a piece of Hainan Land and a property in Haikou allegedly worth RMB¥3 million. There is no mention about his debt owed to Ngai.

21.Secondly, to transfer the Shenyang Property pursuant to the Settlement Agreement, Sung handed over the title documents to Ngai and further executed a power of attorney together with Madam Lam in favour of Ngai in Xiamen Notary Public Office (“the POA”). The POA was dated 10 September 2014 and it entitled Ngai to sell the Property on behalf of both Sung and Madam Lam.

22.In a nutshell, Sung contends that his indebtedness to Ngai has been extinguished by the Settlement Agreement. Alternatively, Ngai relies on the doctrine of promissory estoppel arising from the Settlement Agreement.

23.Both Ngai and the Father filed evidence to deny the Settlement Agreement. Ngai says the Repayment Document is a kind of delaying tactics and the POA turned out to be insufficient to effect a sale of the Shenyang Property without further assistance of both Sung and Madam Lam. Also its authenticity was doubted by the authority in Shenyang. He has asked Sung for his help but Sung repeatedly turned him down. As a result, there has been no transfer of legal ownership of the Shenyang Property and it remains with Sung and Madam Lam. This fact is not contradicted by any evidence.

24.As regards the Co-operation Agreement, the Father says that he was the business partner of Sung and it was just another business on which he wanted to carry with Sung. They however had never embarked on the Hainan Project. The entitlement of Sung to the piece of land in Hainan Land was in doubt. He was wary of investing on the Hainan Project and hence decided to terminate the Co-operation Agreement at the end of August 2014.

25.In any event, the Co-operation Agreement was entered into by him in his personal capacity and had nothing to do with the indebtedness of Sung to his son. He denies that the Co-operation Agreement in any way arose from the Settlement Agreement and that he has ever entered into the Settlement Agreement on behalf of Ngai.

Good Arguable Case

26.Despite the allegation of the Settlement Agreement, the claim of Ngai remains to be a good arguable one in my view. The indebtedness of RMB¥4.5 million is actually proved by documentary evidence and in fact not in dispute whereas the terms of the Settlement Agreement are not in any way evidenced by any contemporaneous documents.

27.The clear fact is that there has not been any transfer of the legal title of the Shenyang Property and the two PRC properties of Sung have not been used as part of the Hainan Project. There is no evidence of any actual implementation of the Hainan Project.

28.More importantly, I feel the cogency of the evidence of the Father that the Co-operation Agreement was merely reflective of his commercial relationship with Sung and had nothing to do with his son and his entitlement to recover the indebtedness from Sung.

29.In the circumstances, I am of the view that Ngai has a good arguable case that the undisputed indebtedness evidenced by the Liability and Loan Document and the IOU remains in existence and has not been extinguished by the Settlement Agreement. I have grave doubt about the existence of the Settlement Agreement and hence I am not persuaded that the doctrine of promissory estoppel may assist Sung.

30.Mr Wong, counsel for Sung, argues that Ngai failed to mention the existence of the Shenyang Property, the POA and the Co-operation Agreement at the ex-parte stage and was in breach of his duty of full and frank disclosure. On this basis, though no ex-parte order was obtained as a result of this breach, it is a matter that this court of equity should consider in the exercise of my discretion.  

31.Mr Sit, counsel for Ngai, explains that Ngai omitted to mention those matters due to his conclusion that they were irrelevant. In Ngai’s view, the Shenyang Property was never transferred to him pursuant to the offer in the Repayment Document and the Co-operation Agreement had nothing to do with Sung’s indebtedness at all. The Settlement Agreement was a fiction recently created. The allegation of Sung was beyond Ngai’s expectation.

32.Whilst in my view, Ngai should, out of abundance of caution, have brought to the attention of the court at the ex-parte stage the Shenyang Property and the POA at least, I accept Mr Sit’s explanation. I am unable to conclude that it was a bad case of material non-disclosure. I reject the contention that Ngai came to this court with unclean hands so as to disentitle him to any equitable remedies altogether.

Assets Within The Jurisdiction

33.This issue has been hotly contested. World View is the registered owner of the Property. The unchallenged evidence of Sung and Madam Lam is that World View carries on its printing business in the Property as its registered office. The Property was purchased with its own monies and Wing View is its sole beneficial owner.

34.For inclusion of the assets of a non-party in a Mareva injunction, both Mr Sit and Mr Wong refer to me the established threshold that the plaintiff must show “good reason to suppose” as against the non-party that assets of or held by the non-party would be susceptible to a procedure which would lead to satisfaction of a judgment.

35.Further guidance relating to the threshold can be found in the following authorities.

36.In Gee, Commercial Injunctions, at §13.007 (p.373), it is stated:

“it is sufficient to show that (3) although the defendant to the substantive claim has no legal or equitable right to the assets in question, the defendant has some right in respect of, control over, or other right of access to the assets. If a defendant has set up a network of trusts and companies to hold assets over which he has control, and he has apparently done this to make himself judgment-proof, this would be an relevant non-party. If the defendant is a shareholder in a private company and were left free to deprive the company of assets to which it may be entitled, this could affect the value of his shareholding and so an injunction can be granted against non-parties to preserve those assets.” (emphasis added)

37.In Hui Chi Ming v Koon Wing Yee [2010] 4 HKC 86, Fok J (as the Permanent Judge of the CFA then was) adopted the same threshold and added this at §31:

“Whether that ultimately proves to be the case, for example on the basis that a trust is to be disregarded as a sham, or by reason of a lifting of the corporate veil, or as a bare trust for the benefit of the defendant, is a separate issue to be determined at a later stage, either on a preliminary issue or at trial or in the process of execution.”

38.In Akai Holdings Ltd v Ho Wing On Christopher & Accolade Inc. (Interverner), unreported, HCMP 1718, 1720, 1722/2009, 24.9.2009, Tang VP (as the Permanent Judge of the CFA then was) had this to say at §48:

“It is true that there is as yet no claim made against Accolade, although one cannot rule out the possibility of a claim against Accolade on the basis that if Accolade was indeed the beneficial owner of the Ho Family Trust, Mr Ho acted as its servants or agent in the alleged fraud. However, for the present purpose, it is sufficient if there is good reason to suppose that Mr Ho has substantive control over the Ho Family Trust Assets. The nature and degree of control may have to be investigated in due course. (Mr Kosmin suggested as a possibility, in execution of judgment.) It is sufficient for the present purpose that for all intents and purposes, Mr Ho has represented to the whole world that he was the beneficial owner of the trust. Also notwithstanding the assertion that Accolade and its directors actually managed and controlled the trust, there has been no explanation how it was that the trust was silent all these years about Mr Ho’s representation that he was the beneficial owner of the trust. These may have to be properly investigated in due course.” (emphasis added)

39.With these principles in mind, on the evidence I am persuaded that at this stage I can conclude that Ngai has met the threshold for the following reasons.

40.First, as rightly pointed out by Mr Sit, in the Repayment Document, Sung stated in unequivocal terms that he held the Property and he could apply the proceeds of sale of the Property to discharge his indebtedness to Ngai. In doing so, Sung represented to the whole world that he was the beneficial owner of the Property and could use the proceeds of sale of the Property.

41.Sung filed no evidence to explain why he made this representation in the Repayment Document if it were not the fact. Nor did Madam Lam. She is a shareholder of World View but she did not say a word about the representation of Sung in the Repayment Document.

42.I am satisfied that the effect of the disposal of the Property of Wing View would also be indirectly to reduce the value of the 70% shareholding of Sung, a beneficial asset of Sung being available in Hong Kong to meet Ngai’s judgment.

43.On this basis, I am convinced that the proceeds of sale of the Property could be the subject matter of a Mareva injunction against Sung.

Dissipation and Balance of Convenience

44.The defence case is that the recent business of World View has been poor and it needs to repay its creditors including two other banks by the sale of the Property. If World View does not repay such debts, it would be wound up and this would be disastrous. A 3-year repayment schedule issued by Hang Seng Bank dated 18 December 2012 was produced to show that World View has to make monthly repayment to Hang Seng for the original loan in the amount of HK$612,000.00.

45.Another facility letter dated 12 August 2014 issued by China Construction Bank (Asia) Corporation Limited was produced to show that World View is still indebted to this bank in the sum of HK$1.7 million as at 12 February 2015.

46.However, on the other hand, the evidence of Sung is that World View has an annual turnover of about USD 3 million and it owns two factories on the Mainland, one in Shanghai and one in Xiamen.

47.Therefore, there is no question that, if not restrained, World View will dissipate the proceeds of sale of the Property upon completion on 2 March 2015.

48.Nevertheless, I am far from convinced that the full picture of the financial condition of World View has been given to this court. I have no idea of the actual extent of the assets of World View though Sung as its sole director is in a position to tell. I am not satisfied that if the proceeds of sale of the Property are kept away from the business use of World View, World View has no other source of funding and would suffer serious hardship.

49.I am also agreeable to Mr Sit’s suggestion to allow the monthly payments to be made to the said two banks by the use of the sale proceeds. This can be effected by a clause to be inserted to the exception section in the draft order. On the other hand, since there is no allegation that Sung relies on the sale proceeds for his personal daily use, I do not find the first paragraph in the exception section in the draft to be appropriate.

Disclosure Order

50.Ngai also asks for usual disclosure orders ancillary to the Mareva injunction sought. I have heard no argument about the same and I too find it reasonable to make such disclosure orders.

Fortification

51.Mr Wong asks for fortification of Ngai’s undertaking as to damages in the event that this court is minded to grant the injunctions. He suggests HK$2 million.

52.Sung bears the burden to show the need for fortification and the appropriate quantum and there is no obligation on Ngai to give a full and frank disclosure of his financial circumstances to oppose an order for fortification (or to argue for a lesser amount): Hui Chi Ming v Koon Wing Yee & Ors [2011] 2 HKC 185 at §§44-45.

53.On the evidence, for the reasons given above, I am not satisfied that Sung has discharged his burden to show a genuine need for fortification. In coming to this conclusion, I have further taken into account Ngai’s recent acquisition of a flat in Tsuen Wan at the costs of over HK$11 million.

Conclusion and Orders

54.In light of the foregoing analysis, I am convinced that I should accede to Ngai’s application by the Amended Summons. The draft order attached thereto should be amended in accordance with my observations in paragraph 48 hereof. The injunctions granted should last until further order or the conclusion of the trial of this action. Ngai should lodge his draft order for my approval as soon as practicable.

55.I am of the view that the opposition raised by Sung cannot be said to be unreasonable. I order that costs of this application be in the cause.

Ms Bache Sit, instructed by Ivan Tang & Co. for the plaintiff

Mr Simon Wong, instructed by Francis Kong & Co. for the 1^st defendant

The 2^nd defendant acted in person and did not appear