XY, LLC v. JESSE ZHU AND ANOTHER

HCMP 869/2014

[2018] HKCFI 1485

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 869 OF 2014

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D E C I S I O N

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A. Introduction

1.  By summons issued by the 2^nd defendant (“GNT”) dated 29 January 2018 (“GNT’s Summons”), GNT appliesfor variation of the Mareva injunction granted by L Chan J on 7 April 2014 (“the HK Mareva”) such that a sum of HK$1,458,996 is to be released from GNT’s bank account maintained with HSBC (“the HK Account”) directly to Messrs W K To & Co (“WKT”), GNT’s solicitors, for the payment of GNT’s legal costs.

2.  The plaintiff (“XY”)’s position on GNT’s Summons in summary is that there are reasonable grounds for believing that GNT can obtain funding for its legal costs elsewhere.

B.   Relevant Background

3.  The background to this matter is set out in part in paragraphs 4 to 21 of the Judgment of Au-Yeung J dated 13 November 2015 in which the learned judge, inter alia, dismissed GNT’s application to discharge the HK Mareva.  That description of the background is reproduced in paragraph 4 of the Judgment of the Court of Appeal dated 5 December 2016 dismissing GNT’s appeal against that decision of Au-Yeung J (the “Appeal Judgment”).

4.  Adopting herein the same terminology in those judgments, the key background facts include the following.

5.  The HK Mareva is “back to back” with the Canadian Mareva granted by Fitzpatrick J of the Supreme Court of British Columbia on 27 March 2014 in the Recovery Action.

6.  The Recovery Action was brought by XY to enforce XY’s Monetary Judgment in the sum of CAD 8,507,891 (over HK$50 million), plus interest and special costs, against Jesse Zhu (and others) on findings in the Original Action of liability for, inter alia, deceit and conspiracy relating (as Au-Yeung J described it) to “a widespread fraud of epic proportions”.

7.  The trial judge in the Original Action, Kelleher J, subsequently found Jesse Zhu in contempt for non-payment of the judgment debt and committed him to prison for 6 months.  Jesse Zhu did not answer to his committal for contempt, preferring to absent himself from the jurisdiction.  His appeals against his conviction and sentence were dismissed by the Court of Appeal of British Columbia for failure to appear.

8.  The funds in the HK Account (HK$38,214,589.45 as of 17 April 2014) are specifically identified for freezing in the Canadian Mareva and, consequently, in the back to back HK Mareva.

9.  GNT (incorporated in the BVI), and other companies that are (on XY’s case) beneficially owned and controlled by Jesse Zhu, were not defendants in the Original Action (or the subsequent related Topsires Action).  They were included as defendants in the Recovery Action in order to enforce the Monetary Judgment against their assets.

10.  On 3 September 2015, ie after the HK Mareva was obtained, XY obtained the Canadian Final Judgment against GNT in the Recovery Action, in default of GNT’s appearance, whereby it was ordered and declared, inter alia, that: GNT holds its assets, including any funds, in trust for Jesse Zhu; XY shall recover the Monetary Award (and interest) from GNT; and the Canadian Mareva shall continue in force until satisfaction of the judgments in the Recovery Action and Original Action.

11.  On 5 October 2015, a firm of lawyers in British Columbia, Canada, filed a pro forma notice to appeal the Canadian Final Judgment with no grounds engaging its merits on behalf of GNT (and others).  On 4 December 2015, GNT filed a notice of intention to act in person.  No further steps were taken by GNT in its appeal, which was first placed on the “inactive list” of the British Columbia Court of Appeal and then dismissed for non-prosecution on 4 April 2017.

12.  In dismissing GNT’s appeal against Au-Yeung J’s decision not to discharge the HK Mareva, the Court of Appeal found that a “good arguable case had been made out for an appropriate inference to be drawn that the funds in the HK Account are held beneficially for Jesse Zhu”.

13.  In dismissing GNT’s application for leave to appeal against the Appeal Judgment, the Appeal Committee of the Court of Final Appeal observed that the finding of a good arguable case on this point was made on “impeccable reasons”.

C.   The HK Enforcement Action

14.  The Writ in the HK Enforcement Action was issued on 21 November 2016.  It is specially endorsed with a full Statement of Claim.  GNT’s four-page Defence was eventually filed on 5 February 2018. 

15.  As against Jesse Zhu, the position in the HK Enforcement Action is straightforward: the Monetary Judgment obtained against him in British Columbia (in respect of which all avenues of appeal by him have been exhausted) is enforceable in Hong Kong at common law.  In any event, Mr Zhu failed to acknowledge service of the Writ in the HK Enforcement Action and an application for default judgment against him is pending.

16.  With respect to GNT, the position is more complicated because one of the requirements for enforcement of the Canadian Final Judgment obtained against GNT under the common law regime for the enforcement of foreign judgments is not met, as was noted in the Appeal Judgment.

17.  Specifically, because GNT chose not to appear in the relevant first instance proceedings in Canada and did not engage the merits of the Canadian Final Judgment in its appeal against it, the requirement under the common law regime for the foreign court to have exercised ad personam jurisdiction is not met.  As a result, XY is obliged to litigate with GNT in Hong Kong from scratch its claim that Jesse Zhu is the sole beneficial owner of the funds in the HK Account, thereby entitling XY to execute against them in respect of the Monetary Judgment obtained against him (and others).

D.   Relevant Legal Principles

18.  As laid down in Derby & Co Ltd v Weldon (Nos 3 and 4) [1990] Ch 65 (at 76-77) and quoted in Atlas Maritime SA v Avalon Ltd (No 3) [1991] 1 WLR 917 (CA) (at 920H to 921A):

(1)  The “fundamental principle underlying this [Mareva] jurisdiction is that, within the limits of its powers, no court should permit a defendant to take action designed to ensure that subsequent orders of the court are rendered less effective than would otherwise be the case”, as would occur here if the application under GNT’s Summons were to succeed because the funds available to satisfy judgment in the Hong Kong Enforcement Action would be yet further diminished.

(2)  That principle is, however, subject to the proviso that “it is not its [the Mareva jurisdiction’s] purpose to prevent a defendant carrying on business in the ordinary way … nor to impede him in defending himself against the claim.” (the “Proviso”).

19.  The first limb of the Proviso is not relevant to this case because the evidence is that GNT is simply a corporate vehicle used (by Jesse Zhu on XY’s case) to hold funds and/or shares.  It is the evidence on behalf of GNT that the funds in the HK Account are its only assets.

20.  The second limb of the Proviso is further explained by Lord Donaldson MR in Atlas Maritime SA v Avalon Ltd (No 3), ibid, thus:

(1)  (at 926C-D):

“… the fact that the variation of the injunction to enable legal costs to be paid would be likely to render any award in favour of [the plaintiff] less effective is not of itself a fatal objection because of the proviso built into what I have described as the fundamental principle. But this proviso only applies in cases in which the operation of the injunction would impede the person enjoined from defending himself against the claim.”

(2)  (at 927B):

“In exercising the equitable Mareva jurisdiction, the court should …not limit its consideration to funds to which the party concerned has a legal right, if there are reasonable grounds for believing that it can obtain money otherwise.” [emphasis supplied]

21.  In Wharf Ltd v Lau Yuen How [2010] 1 HKLRD 783, Au J at paragraph 14 stated this:

“14. In the case of an ‘ordinary’ Mareva injunction, where there is no proprietary claim asserted against the enjoined assets, in the exercise of the court’s discretion faced with an application to release the funds, the court should consider whether the defendant has shown by sufficient evidence that (a) he does not have other assets to meet the payment; and (b) the purpose of the application is not an attempt to dissipate the assets (which prima facie are the defendant’s) to frustrate the enforcement of judgment by the plaintiff.” [emphasis supplied]

22.  Drawing the threads together, two points thus emerge.  First, in an application of this nature, the burden is on the defendant to show “by sufficient evidence”.  Secondly, that the defendant “does not have other assets to meet the payment” should be read together with the analysis postulated by Lord Donaldson MR, so that the court should not “limit its consideration to funds to which the party concerned has a legal right, if there are reasonable grounds for believing that it can obtain money otherwise”.

E.   Reasonable grounds for believing GNT can obtain money elsewhere

23.  XY submits it is to be inferred from the circumstances of this case that GNT can obtain money elsewhere in order to pay the legal costs of defending the HK Enforcement Action.  That being the case, the “fundamental principle” underlying the Mareva jurisdiction, that it is there to prevent a defendant from making the court’s orders less effective, prevails over the Proviso and GNT’s Summons stands to be dismissed.

24.  The circumstances that XY relies upon for the foregoing inference include the following.

25.  The fact that GNT has plainly been funding its legal costs in the Recovery Action and these proceedings from sources other than the withdrawals that have been permitted to date from the funds in the HK Account (which are the only funds in its name on its evidence) with no satisfactory explanation of how it has been able to do so.

26.  GNT’s legal costs that have been met from other sources include:

(1)  the costs of instructing the firm of lawyers in British Columbia in GNT’s appeal against the Canadian Final Judgment until GNT filed notice to act in person, since that firm made no application for funds to be withdrawn from the HK Account to pay for their services;

(2)  the costs of funding GNT’s participation in the initial stages of these proceedings, including instructing Messrs Stephenson Harwood and counsel in respect of the hearing on 26 May 2014, up to the first variation of the HK Mareva on 21 August 2015 that released HK$700,000 for legal costs from the HK Account (save apparently for the allowance of CAD19,000 originally provided for this purpose in the HK Mareva itself); and

(3)  the costs of conducting these proceedings from the time of the Court of Appeal hearing on 25 November 2016, including the leave applications made to the Court of Appeal and Court of Final Appeal against the decision in the Appeal Judgment, which for the part involving the Court of Appeal alone GNT’s solicitors estimated the costs would come to HK$320,000.

27.  When challenged on how GNT was able to fund the costs of conducting these proceedings in the initial stages, including instructing solicitors and counsel for the hearing on 26 May 2014, the response from GNT’s solicitors was that the “legal costs so far incurred were paid by our client’s shareholder for and on behalf of our client as loan to the company and our client’s shareholder is unable to fund these proceedings any further.”: letter from GNT’s solicitors to XY’s former solicitors dated 28 April 2015.

28.  According to the register of members of GNT, it has two shareholders: Ms Wang Zhaoyan (“Ms Wang”), holder of 500 share transferred to her on 30 September 2014 and Ms Zhu Qian, holder of 500 shares transferred to her on 16 April 2009.

29.  The aforementioned letter from GNT’s solicitors omits to say which of these two shareholders it is claimed had been funding GNT but was unable to do so any longer.  Presumably, however, it will be claimed it was Ms Wang since nothing at all has been heard from Ms Zhu Qian, which is unsurprising given that she is Jesse Zhu’s cousin.

30.  It is worth noting in this context that in her judgment in the Topsires Action, Fitzpatrick J (the judge that granted the Canadian Mareva) found that Jesse Zhu had a modus operandi of using companies with so-called “independent” ownership or control as a “mere guise to conceal [his] true ownership and control of such entities.”

31.  The alleged position as to the source of funding after the Court of Appeal hearing on 25 November 2016 is clearer in that the shareholder that has allegedly done so is at least identified.  It is Ms Wang, as affirmed by her in paragraph 17 of her 6^th Affirmation where she says she settled outstanding legal costs and paid costs on account by remittances on 18 April 2017 and 21 April 2017 “out of my own pocket”.

32.  Copies of the claimed remittance advices and WKT’s receipts have been produced.  However, all the amounts are redacted from these copies upon a claim of “privilege and confidentiality”.  I agree with XY that there is no proper basis for claiming privilege in relation to such gross amounts.

33.  For all one can tell from the redacted remittance advices and receipts, the amounts concerned could in total greatly exceed the costs subsequently incurred by GNT in these proceedings leaving a healthy balance on account available to fund GNT’s defence in the HK Enforcement Proceedings.  In short, GNT has not put forward “sufficient evidence”, when the burden of proof was on it, to show that it does not have other assets to meet the payment of legal costs.

34.  Further and in any event, assuming that Ms Wang was the shareholder who allegedly funded GNT in these proceedings in the initial stages until funds were released to it from the HK Account, there is no explanation as to how it is that she was able to recommence the funding in April 2017, having been unable to continue to do so from April 2015 according to GNT’s solicitors.

35.  In fact, no evidence has been adduced by GNT at all that Ms Wang had or has independent means that would account for her alleged ability to step in and fund GNT either before April 2015 or again in April 2017.  This aspect was put firmly in issue by XY in highlighting Ms Wang’s vague assertion in paragraph 29 of her 6^th Affirmation that she is “running out of personal funds”.  Nothing is said in her 7^th Affirmation in reply to clear up the mystery of the source of her alleged independent means or to explain why they were allegedly “running out”.

36.  In the absence of such evidence, this court is entitled to infer that Ms Wang did not actually have the necessary independent means to provide the funding concerned.  That begs the question of the source of that funding.  The obvious answer to that question is Jesse Zhu.

37.  Once it is inferred that Jesse Zhu has all along been the source of the funds to pay GNT’s legal costs when GNT did not have or ran out of funds to do so from the HK Account, there are reasonable grounds for concluding it can fund its legal costs in the HK Enforcement Action from the same source.

38.  As already noted, the consequence of the foregoing is that GNT’s Summons stands to be dismissed because the “fundamental principle” underlying the Mareva jurisdiction (that it is there to prevent a defendant from making the court’s orders less effective) prevails over the Proviso that permits frozen funds to be drawn on by a defendant to meet legal costs.  Put simply, the operation of the injunction would not impede GNT from defending itself against the plaintiff’s claim.

F.   Conclusion

39.  For the reasons set out above, GNT’s Summons is dismissed.

40.  Further, I order that the costs of GNT’s Summons be paid by the 2^nd defendant to the plaintiff, such costs are to be taxed if not agreed.

41.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

42.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.

HCMP 869/2014

MISCELLANEOUS PROCEEDINGS NO 869 OF 2014

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D E C I S I O N
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1.  By my decision dated 13 November 2015 (“the Decision”), I dismissed the applications of the 2^nd defendant (“GNT”) for, amongst others, (a) discharge of a Mareva injunction (“the Discharge Summons”) and (b) fortification of the plaintiff’s undertaking as to damages (“the Fortification Summons”). There are now 2 applications by GNT for (i) leave to amend the draft grounds of appeal attached to the summons; and (ii) leave to appeal to the Court of Appeal against the Decision. I shall adopt the abbreviations used in the Decision.

LEAVE TO AMEND THE DRAFT GROUNDS OF APPEAL

2.  There is no objection from the plaintiff.  In fact, the parties’ arguments on whether or not leave to appeal should be granted were premises on the amended draft grounds of appeal.  I give leave to amend. 

LEAVE TO APPEAL

Legal principles for grant of leave to appeal

3.  Leave for an interlocutory appeal will only be granted if the court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.  “Reasonable prospects of success” requires something more than an appeal which is “arguable”, ie more than fanciful without having to be probable; and is akin to the test for setting aside a default judgment.  SMSE v KL [2009] 4 HKLRD 125, at §17; Ho Yuen Ki Winnie & anor v Ho Hung Sun Stanley & anor, HCMP 1009/2009, 24 August 2009, at §§16.

4.  GNT accepts that the Decision involves an exercise of discretion and the Court of Appeal will intervene only in limited circumstances, where the judge has misdirected himself in the relevant law or evidence, took into account irrelevant matters or failed to take into account relevant matters, or that his exercise of discretion was so plainly wrong that it was outside the generous amibt within which there can be a reasonable disagreement: Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642, §§54-55, Kwan JA.

Leave to appeal against the Discharge Summons

5.  Two grounds of appeal have been advanced in respect of the Discharge Summons:

(1) That this court has erred, when deciding whether a good arguable case has been established for applying for a HK Mareva, in failing to examine the plaintiff’s claim against GNT independently (Ground 1);

(2) That this court has erred in holding that the facts relied on (even assuming them to be true) provided sufficient grounds to grant a Chabra-type injunction against GNT (Ground 2).

Ground 1

6.  It is said that this court has erred in finding the Canadian Final Judgment as decisive (or at least, a very weighty consideration) and deferred the decision of whether there was a good arguable case to the Canadian Court. It is said that this was contrary to the principle that the Hong Kong court must examine the plaintiff’s claim against GNT independently.  It is submitted that in assessing whether the plaintiff had a good arguable case against GNT independently, the Canadian Final Judgment (and the Canadian Mareva) was of no assistance because no reasoned judgment had been given by the Canadian court and hence no suggestion by this court that the Canadian Final Judgment gave rise to any issue estoppel.

7.  There is no dispute that the court has to independently assess the evidence of the plaintiff.  However, if the foreign court has a reasoned judgment at an interlocutory stage, the Hong Kong court can take that as a starting point in relation to the question of good arguable case: Motorola Credit Corporation v Uzan & ors (No.2) [2004] 1 WLR 113, at pp 143-144:

“102. … Mr Leggatt argues that, in the context of proceedings under s.25 of the CJJA, where (as here) the foreign court in interlocutory proceedings has itself determined that a good arguable case exists against the defendants, that is, or falls to be treated as, a final decision upon that issue for the purposes of the s.25 jurisdiction of this court. We do not think that is correct. The requirement that the claimant must establish that Mareva-type relief would be granted if the substantive proceedings were brought in England requires a decision of the judge based on English procedures and the approach of the English court to the nature and sufficiency of the evidence in a situation where the claimant has come to England to obtain a remedy unavailable to him in the substantive foreign proceedings. It is frequently, indeed usually, the position that s.25 proceedings are brought following issue and service of the foreign proceedings but before there has been any decision of the foreign court which examines the strength or arguability of the claimant's substantive case. However, whether or not that is the position, in our view the English court is required, once issue is joined in the s.25 proceedings, to make a separate exercise of judgment rather than a simple acceptance of the decision of the foreign court in interlocutory proceedings decided on the principles applicable, the evidence then available, and the levels of proof required in that jurisdiction. (emphasis added)

103. Furthermore we do not think that it should be regarded as per se abusive of the English court's process that points are raised and arguments advanced in the English court which were not deployed before the foreign court. There may be a variety of reasons why that is so, whether because of deliberate omission, accidental oversight, non-availability of evidence, legal advice or tactical decision, none of which in itself involves abuse of this court's process.

104. …

105. … Where there is available to the judge on an application under s.25 a reasoned judgment of a foreign court at an interlocutory stage upon the merits or arguability of the defendant's claim, that judgment will inevitably form the judge's starting-point in relation to the question of 'good arguable case' and, depending upon the apparent cogency of the reasoning and the force of any arguments raised by the defendant, is likely to prove conclusive. …”  (emphasis added)

8.  In assessing a good arguable case against GNT, this court has examined the evidence independently: §§25-31 of the Decision, in particular §28.  The evidence was also reviewed in considering whether there was material non-disclosure: §§45-64.

9.  At the time the Discharge Summons was heard in October 2015 (“the October hearing”), the Canadian Final Judgment had been entered, unlike the situation referred to in Motorola Credit.  It was not less final because it was not accompanied by a reasoned judgment or was entered in default: Dicey, Morris and Collins on the Conflict of Laws, 15 ed, §14-023.  Unless and until set aside, these judgments can be enforced at common law by action in Hong Kong. 

10.  At the October hearing, despite the plaintiff’s reference to the Canadian Final Judgment, no argument was then taken by Mr Liang, then counsel for GNT as to the lack of finality of that judgment and that this court should not place weight on it.

11.  The reference to the Canadian Final Judgment merely reinforced the court’s view that there was a good arguable case.  GNT’s likely success in seeking to set aside the Canadian Final Judgment had been considered by this court as part its assessment of the good arguable case.

12.  Ground 1 is an attempt to raise new arguments to attack the exercise of discretion as opposed to point out an error of law.  I am not satisfied that Ground 1 has reasonable prospects of success.

Ground 2

13.  It is submitted that the findings in the Decision that Jesse Zhu was the sole beneficial owner of GNT and hence had control over its assets (even assuming to be true) did not provide sufficient grounds to grant a Chabra-type injunction against GNT; and that this court has blurred the distinction between control of the company’s assets and ownership thereof.

14.  Mr Lam SC submits that  that it is not legitimate, in the context of the Chabra-type injunctions, to disregard the separate corporate personality of individual companies in a group (sometimes referred to as “piercing corporate veil”), merely because the ultimate, or intermediate, holding company may have the practical ability to require a subsidiary to act in a particular way, or because it is necessary to achieve justice, even in circumstances where one or more of the companies in question may have been involved in some sort of impropriety.  To do so would offend the well-established principles of separate corporate personality.  See Parbulk II AS v PT Humpuss  Intermoda Transportasi TBK and others [2011] EWHC 3143 (Comm), §42, Gloster J.

15.  The mere fact that the judgment debtor has substantial control over the assets held by party against whom no cause of action is alleged is not enough. Rather, the proper question is whether there is good reason to suppose that the assets of that party (in this case, GNT, in particular the HK Account), are amenable or susceptible to execution of the judgment against the judgment debtor (Jesse Zhu): Parbulk, §58; JSC BTA Bank v Ablyazov (No 10) [2014] 1 WLR 1414 at §35; Lakatamia Shipping Co Ltd v Su& ors [2015] 1 WLR 291 at §32, Tomlinson LJ.

16.  These authorities have not been referred to in the October hearing. There are reasonable prospect of success in relation to Ground 2. On this basis, I grant leave to appeal on the Discharge Summons.

LEAVE TO APPEAL AGAINST THE FORTIFICATION SUMMONS

17.  GNT’s complaint is twofold.  Firstly, it is said that this court has gone too far to say that GNT’s liability to pay the plaintiff CAD9.98 million was a “certainty” as there was no basis to hold that the application to set aside the Canadian Final Judgment had no chance of success.

18.  With respect, this is a misreading of the Decision.  This court was balancing the situation whereby GNT had tendered no evidence of loss of investment opportunities with a situation where there was already a final judgment entered against GNT.  The certainty was describing the validity of the judgment until it was set aside.  This complaint has no merits.

19.  Secondly, it is contended that the absence of evidence of any concrete investment opportunities was inconclusive and there was a real (not fanciful) likelihood of loss in view of the large amount sitting idle in the bank account.  Reliance was placed on Samtaniv Samtani [2012] 4 HKLRD 872 at 894-895, §§91-97.

20.  Samtani has its own special features.  The plaintiff himself agreed to provide fortification in the face of a partnership claim that had lots of difficulties.

21.  It is pointless to compare the facts in one case to another when exercising the discretion on whether or not to order fortification.  GNT’s complaint is at best a criticism on how this court exercised its discretion against GNT.  There is no attack on the legal principles applied by this court.  There is no prospect of success on this aspect of the intended appeal.

CONCLUSION

22.  I order as follows:

(1) There be leave to amend the draft notice of appeal;

(2) On a nisi basis, costs of and occasioned by the amendment should be to the plaintiff;

(3) There be leave to appeal in relation to the Discharge Summons;

(4) The application for leave to appeal in respect of the Fortification Summons is dismissed;

(5) In respect of paragraphs (3) and (4), there be an order nisi that

(i) 50% of the costs of the summons be to the plaintiff, and

(ii) 50% shall be costs in the cause of the appeal;

(6) Costs of the plaintiff under paragraphs (2) and (5)(i) are summarily assessed and allowed in the sum of $120,000.

23.  I thank counsel for their assistance.

HCMP 869/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 869 OF 2014

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D E C I S I O N

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A. INTRODUCTION

1.  On 7 April 2014, L Chan J granted, ex parte, a Mareva injunction under section 21M, 21N of the High Court Ordinance, Cap 4 and Order 29 RHC (“the HK Mareva”), which was continued on 17 April 2014 by DHCJ Wilson Chan.

2.  There are 3 summonses before the Court:

A. The application of the 2^nd defendant (“GNT”) to discharge the HK Mareva on the ground of lack of a good arguable case and material non-disclosure (“the Discharge Summons”);

B. GNT’s application for release of frozen funds for the payment of legal fees and for the plaintiff to give fortification of its undertaking as to damages (“the Release and Fortification Summons”); and

C. The plaintiff’s application for disclosure orders ancillary to the HK Mareva made ex parte by L Chan J (“the Disclosure Summons”).

3.  The 1^st defendant, Jesse Zhu (“Jesse Zhu”), has chosen not to appear in these proceedings, despite being served with all the papers. 

B.  BACKGROUND

4.  On 20 March 2008, the plaintiff commenced action in Canada against Jesse Zhu and others including one Ms Zhou claiming damages for conspiracy, deceit, breach of confidence, breach of contract, and inducing breach of contract.  Thereafter, 2 actions of the plaintiff were consolidated and heard together (“Original Action”).

5.  On 2 March 2012, following a 30 day trial of the Original Action, Kelleher J gave judgment for the plaintiff and found Jesse Zhu, Ms Zhou and others liable to the plaintiff in, amongst others, damages in the sum of CAD8,507,891, together with interest and special costs (“the Monetary Judgment”).  Jesse Zhu and others had appealed to the Court of Appeal but were unsuccessful.  On 20 February 2014, their application for leave to appeal to the Supreme Court was dismissed. 

6.  Meanwhile, on 30 March 2012, the plaintiff commenced the “Topsires Action” against Jesse Zhu and others upon discovering that Jesse Zhu had set up a new company to make use of the plaintiff’s property and equipment.

7.  On 28 February 2014, following the Supreme Court’s dismissal of the application for leave to appeal, the plaintiff and Ms Zhou entered into a Settlement Agreement to limit the liability of Ms Zhou in return for her assistance to the plaintiff in pursuing against Jesse Zhu.

8.  Based on information from Ms Zhou, on 25 March 2014, the plaintiff, as judgment creditor, (i) commenced the “Recovery Action” with a view to enforcing the Monetary Judgment against the assets of Jesse Zhu, including GNT; and (ii) made an application in Vancouver for Mareva injunctions on an ex parte basis in the Original Action, the Topsires Action and the Recovery Action.

9.  On 27 March 2014, Fitzpatrick J of the Supreme Court of British Columbia granted the Canadian Mareva against, amongst others, Jesse Zhu and GNT restraining them from:

(a) removing from British Columbia or in any way disposing of or diminishing the value of any assets in British Columbia whether in its name or not and whether owned solely or jointly; and

(b) removing or in any way disposing of or diminishing the value of any worldwide assets whether in their own name or not and whether owned solely or jointly.

10.  The Canadian Mareva specifically covered an account at HSBC no. 808-735229-838 registered in the name of GNT in Hong Kong (“the HK Account”).

11.  It was specifically provided in the Canadian Mareva that:-

(a) it would remain in force up to and including 25 April 2014 unless it was varied or discharged by a further order of the Court before then; and

(b) the Canadian Mareva did not affect any person or legal entity outside the jurisdiction of the Canadian Court until it was declared enforceable or was enforced by a court in the relevant jurisdiction;

12.  Clearly, the Canadian Court envisaged that the Hong Kong Court would have to give an order with regard to assets in Hong Kong.  In fact, during the application for injunction in Canada, the Supreme Court of British Columbia was told that the plaintiff intended to mount an enforcement action in Hong Kong. The Canadian Court thus sealed up all the materials relating to the Canadian Mareva and the other two orders until 14 April 2014 to maintain secrecy pending the application in Hong Kong.  The Canadian Mareva was only served after the plaintiff obtained the HK Mareva. 

13.  On 7 April 2014, the plaintiff issued the present originating summons and obtained the HK Mareva in aid of the enforcement of the Monetary Judgment.  It prohibited Jesse Zhu and GNT from disposing of or diminishing the value of their assets in Hong Kong, whether in their own name or not, and in particular, the HK Account.

14.  The HK Mareva was extended until further order on the return date of 17 April 2014, by DHCJ Wilson Chan.  That hearing was uncontested despite Jesse Zhu and GNT being served properly. 

15.  After the HK Mareva was granted, an inter partes hearing took place before the Canadian Court on 22 to 25 April 2014.  Some of the defendants (including Jesse Zhu) were legally represented, but not GNT. Following argument, Fitzpatrick J. ordered on 25 April 2014 that, amongst others, (i) the Canadian Mareva would remain in force until further order of the Court; and (ii) Jesse Zhu, GNT and third party banks shall make disclosure in the Recovery Action (“the Canadian Disclosure Order”). 

16.  On 12 February 2015, the plaintiff issued the present Disclosure Summons.

17.  On 26 May 2015, an order in terms of the Originating Summons in these proceedings was made against Jesse Zhu, who did not appear despite having been served.  GNT entered an appearance by solicitors and counsel but did not “oppose” the application.  The Court ordered that there be a further directions hearing of the Originating Summons but, in the meantime, the HK Mareva against GNT be continued until further order.

18.  On 6 July 2015, GNT issued the Discharge Summons, and the Release and Fortification Summons. 

19.  On 28 August 2015, after a contested hearing, Kelleher J of the British Columbia Supreme Court handed down a judgment (“the Contempt Judgment”) finding Jesse Zhu to be in contempt of court orders.

20.  On 3 September 2015, the plaintiff obtained, in default, final judgment on liability from McEwan J in the Recovery Action against, amongst others, GNT (“the Canadian Final Judgment”).  The material parts provide that:

(1) GNT holds its assets including any funds in trust for Jesse Zhu;

(2) The Plaintiff shall recover judgment from, amongst others, GNT in the amount of CAD$9,980,650;

(3) The Canadian Mareva shall remain in full force and effect until such time as the judgments in the Recovery Action and Original Action have been satisfied.

21.  On 5 October 2015 GNT applied in Canada to set aside the Canadian Final Judgment.

C.  BASES OF THE HK MAREVA

C1.  Legal principles

22.  The Court of Appeal in Hong Kong has held that in exercising the power under s. 21M, the court has to abide by the general principles governing interim relief: Pacific King Shipping Holdings Pte Ltd v Huang Ziqiang[2015] 1 HKLRD 830 at §27. 

23.  More recently, the Court of Appeal held in Beyonics Technology Limited & anr v Goh Chan Peng & ors, unrep., CACV 244/2014, 12 August 2015 at §§23 & 25 that:

“23. The Hong Kong Court’s jurisdiction under section 21M is ancillary in nature and the purpose is to facilitate the foreign court that has primary jurisdiction over the matter. The approach of a section 21M application is to consider first whether the facts warrant the relief sought if the substantive proceedings were brought in Hong Kong; and second whether it is unjust or inconvenient to grant the interim relief sought …

25. On the second question, Potter LJ said in Motorola Credit Corp v Uzan & Ors (No. 2) [2004] 1 WLR 113 at §115 that:

‘As the authorities show, there are five particular considerations which the court should bear in mind, when considering the question whether it is inexpedient to make an order. First, whether the making of the order will interfere with the management of the case in the primary court e.g. where the order is inconsistent with an order in the primary court or overlaps with it. That consideration does not arise in the present case. Second, whether it is the policy of the primary jurisdiction not itself to make worldwide freezing/ disclosure orders. Third, whether there is a danger that the orders made will give rise to disharmony or confusion and/or risk of conflicting inconsistent or overlapping orders in other jurisdictions, in particular the courts of the state where the person enjoined resides or where the assets affected are located. If so, then respect for the territorial jurisdiction of that state should discourage the English court from using its unusually wide powers against a foreign defendant. Fourth, whether at the time the order is sought there is likely to be a potential conflict as to jurisdiction rendering it inappropriate and inexpedient to make a worldwide order. Fifth, whether, in a case where jurisdiction is resisted and disobedience to be expected, the court will be making an order which it cannot enforce.’ ” (emphasis added)

24.  Where a Mareva injunction is sought under s. 21M, the usual principles apply: that the plaintiff has to show a good arguable case, that there are assets within the jurisdiction, that there is a real risk of dissipation of assets and that the defendant has assets within the jurisdiction: Hong Kong Civil Procedure 2016, Vol 1, §29/1/83.

C2.  Application to the facts

25.  There was ample evidence before L Chan J and DHCJ Wilson Chan to justify the granting of the HK Mareva in aid of the Canadian proceedings.  The Monetary Judgment was capable of being recognized/enforced in Hong Kong under common law.  That Monetary Judgment was made by a court of competent jurisdiction over Jesse Zhu, a Canadian citizen present in British Columbia, who submitted to jurisdiction and actively participated in the trial of the Original Action.  It was a final and conclusive judgment in that all avenues of appeal have been exhausted.  Apart from CAD$150,000 received from Ms Zhou pursuant to the Settlement Agreement, the rest of the Monetary Judgment remained unsatisfied.

26.  The plaintiff and Jesse Zhu are the same parties in the application for the HK Mareva.  Jesse Zhu’s liability to the plaintiff under the Original action was the same issue that was sought to be enforced in Hong Kong.  The Monetary Judgment was not impeachable by any rules on conflict of laws.  It was not procured by fraud or improper conduct or practice.  Nor did it offend any rules of substantive or natural justice. It was not against public policy of Hong Kong.  

27.  The requirements for enforcing a foreign judgment at common law are met: Graeme Johnston, The Conflict of Laws in Hong Kong, 2^nd ed, §9.015.

28.  There were assets of Jesse Zhu within the jurisdiction of Hong Kong.  There was also evidence before L Chan J (Lam-1^st [1], §§39‑51.) that GNT was held by nominees for Jesse Zhu.  So GNT was joined under the Chabra jurisdiction of the court (TSB Private Bank International SA v Chabra & anr [1992] 1 WLR 231).

29.  The trial judge made adverse findings against Jesse Zhu as a litigant and witness.  Jesse Zhu was found liable in fraud, conspiracy and breach of confidence relating to a widespread fraud of epic proportions in the Original Action.

30.  It was not only a case of inference of dissipation of assets based on low commercial morality of Jesse Zhu but actual written evidence from Jesse Zhu showing his intention to spirit away his assets and instructing his subordinates (such as Ms Zhou) to do so, thereby rendering himself judgment proof.  (See Lam-1^st, §§52-58.)

31.  There was a good arguable case that the Monetary Judgment can be enforced in Hong Kong and, specifically, against GNT as an asset of Jesse Zhu. The HK Mareva mirrored the Canadian Mareva. 

D.  DISCHARGE SUMMONS

32.  There are two main planks of argument advanced by GNT in support of its Discharge Summons:-

(i) That the plaintiff does not have a good arguable case.

(ii) That GNT was guilty of material non-disclosure at the ex parte stage.

D1.  Lack of good arguable case

33.  I repeat the matters in paragraphs 25-31 above.  For the purpose of this hearing, further evidence has been filed. There was evidence from Ms Zhou, James Yang and Kevin Xu (“the ex-employees”) who gave affirmations as to entities (including GNT) controlled/owned by Jesse Zhu.  Their sworn evidence together with the emails between them and Jesse Zhu did not just show Jesse Zhu to be actively involved in the business of GNT because of its investment relationship with the IND group.  There was evidence in the form of, for example, an email from Jesse Zhu to Ms Zhou to set up a bank account at the HSBC in order to receive substantial funds for GNT.  The evidence reinforces a good arguable case that although Jesse Zhu has never been a director or shareholder of GNT, he controlled or owned GNT.

34.  In addition, Mr Dawes, SC draws to my attention that the 1^st page of the bank statement of the HK Account was not given to the plaintiff until specific request made by the plaintiff’s solicitor.  It was discovered that that 1^st page showed the address at Foster’s Way, being the address of Jesse Zhu and other entities like Jin Tang, Peter Wang, Fraser Biomedical Ltd, Newtech and Embryontech.  Such evidence adds weight to the fact that there are other entities owned/controlled by Jesse Zhu, which he wants to hide.

35.  With the making of the Canadian Final Judgment against GNT, it can hardly be said that the plaintiff did/does not have a good arguable case in applying for the HK Mareva.  Now that GNT has applied to set aside the Canadian Final Judgment, there is all the more reason for the HK Mareva to continue.  Any attack on what constituted the good arguable case is an attempt to disturb the findings of the Canadian court and should be made there rather than in the Hong Kong court.

36.  Furthermore, whilst there is a mechanism to set aside or vary a default judgment in Canada, it is only available in circumstances where the defendant can establish, amongst others, that the failure to file a response or defence was not wilful or deliberate.  It is doubtful whether GNT can fall within that mechanism as it is GNT’s own case (having received legal advice from Canadian lawyers) that it deliberately did not take any steps to contest the Canadian legal proceedings as it did not want to face “burdensome obligations … including filing of pleadings, discovery of documents and preparation of witness statements etc” or to incur “unnecessary legal costs”. 

37.  The 1^st ground for discharge is totally unmeritorious.

D2.  Legal principles on material non-disclosure

38.  As succinctly summarized by Ralph Gibson LJ in Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350, 1356G-1357B (references omitted):-

“(1) The duty of the applicant is to make ‘a full and fair disclosure of all the material facts’.

(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers.

(3) The applicant must make proper inquiries before making the application. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such enquiries.

(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant; and (c) the degree of legitimate urgency and the time available for the making of inquiries”.

39.  This entails identifying defences which would have been taken by the defendant had he been present at the application, provided that the defence (a) is one which can reasonably be expected to be raised in due course by him; or (b) is not one which can be dismissed as without substance or importance: New Asia Energy Ltd v Concord Oil (Hong Kong) Ltd, CACV 347/1998, 3 November 1999, at §9.

40.  It is not a sufficient answer to an allegation of non-disclosure for an applicant to say that the relevant information was contained in an exhibit, though not referred to in the body of the affidavit: Velatel Global Communications Inc & anr v Chinacomm Limited &ors, HCA 1978/2011, 26 October 2012, at §32.

41.  It is not necessary to demonstrate that had the alleged material facts been disclosed to the court, the court would necessarily or likely have arrived at a different decision: Behbehani & ors v Salem & ors [1989] 1 WLR 723, 729 E-F.

42.  Where the non-disclosure was the result of a suppression of material facts, the practice of the courts is to discharge the order without further going into the merits: Velatel Global Communications Inc, at §§25-27.

43.   The Court may however, quite exceptionally, exercise its discretion to continue or re-grant the order, although such power should be exercised sparingly: Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642, at §56, CA.

D3.  GNT’s case on material non-disclosure

44.  GNT’s case on material non-disclosure can be classified into 4 aspects.

45.  Firstly, GNT claims that the ex parte judge was not informed that the source of funds in GNT’s frozen account was legitimate payment in consideration of GNT’s sale of shares in IND DairyTech (“the Take Private Transaction”).

46.  On Ms Zhou’s evidence it is alleged that in around late 2012 or early 2013, Jesse Zhu had asked her to transfer money out of IND LifeTech Group Ltd to GNT’s account to “avoid execution by XY”.  GNT claims that that was untrue because the money had in fact been transferred into GNT’s account as a legitimate payment made in accordance with the Take Private Transaction on 30 June 2011.  This was supported by the contemporaneous documents of IND DairyTech.

47.  GNT claims that Ms Zhou knew it to be untrue having been heavily involved in this transaction. She professed to have “organized the corporate affairs of Jesse Zhu’s offshore companies under his instructions” and that she “handled the corporate affairs of GNT … personally”. (Zhou 1^st) At the time of the Take Private Transaction, Ms Zhou was IND DairyTech’s Vice President (Operation) and Secretary.  She was also “the accounting manager tasked with structuring the affairs of Mr Zhu … and was in the best position to know how those affairs were structured, including the companies they owned and control”(Yang 1^st).

48.  Mr Liang submits that Ms Zhou made no mention of the Take Private Transaction in any of her evidence in support of the HK Mareva.

49.  The source of payment into GNT’s account was irrelevant, in my view. What was relevant was Jesse Zhu’s power of disposal over it.

50.  Secondly, GNT claims that there had been no transfer of Jesse Zhu’s assets to GNT despite the existence of an email showing that Jesse Zhu had instructed Ms Zhou to do so.

51.  It was said that on 3 March 2012, Jesse Zhu had instructed Ms Zhou via email to immediately transfer his assets to other companies including GNT.  GNT pointed out that the sender of the email was not identified. The plaintiff had not disclosed to the court that there had in fact been no transfer of Jesse Zhu’s assets to GNT pursuant to those instructions.   

52.  Whether or not there had been actual transfer of Jesse Zhu’s assets to GNT was irrelevant and was not relied on by the plaintiff.  What was relevant was the fact of Jesse Zhu giving the instructions in that email, evidencing his control/ownership over the assets and GNT.

53.  GNT’s challenge to that email was a red-herring.  Ms Zhou has explained that it was due to technical reason that the sender’s name did not appear on the translator’s English translation.  She did not notice that the sender was missing on that printout when she swore her affirmation.  However, she confirmed that the electronic original sent to the translator was sent by Jesse Zhu to her. 

54.  This explanation shows that the fact that the sender’s name was missing was not a deliberate act of non-disclosure for which I would hold the plaintiff responsible. 

55.  Further, this email was but one document amongst the voluminous evidence relied upon by the plaintiff. Any non-disclosure in relation to it would not warrant a discharge of the HK Mareva.

56.  Thirdly, Mr Liang submits that very little was said in respect of the possible defences that could be raised by GNT.

57.  With respect, paragraph 48 of the skeleton submission of the plaintiff’s counsel at the ex parte stage has already anticipated, with some bases given (from the Canadian proceedings themselves) (see Lam-1^st §§ 61-66), that Jesse Zhu would try to argue that he has no beneficial interest in GNT. This is exactly the defence that GNT is now raising.  I do not think the law requires a plaintiff to set out in detail every piece of evidence on which a defendant may rely to support the anticipated defence.

58.  Fourthly, GNT claims that the significance of the Settlement Agreement and the implications on the credibility of the evidence of the ex-employees (all being defendants in Canadian proceedings) have not been drawn to the ex parte judge’s attention.

59.  Under the Settlement Agreement, Ms Zhou’s liability to the plaintiff was limited to CAD$500,000. She had to pay CAD$150,000 by 28 March 2014, and the balance would have to be paid within 18 months after the signing of the Settlement Agreement, less any amount that the plaintiff actually realized based on the information given by Ms Zhou.  All that the plaintiff had received was CAD$150,000 from Ms Zhou and none from Jesse Zhu.

60.  GNT alleges that Ms Zhou had a strong motive to implicate GNT in order to reduce her own liability to the plaintiff.  Her evidence should be viewed with suspicion.  GNT suggests that this matter was not sufficiently highlighted to the ex parte judge. Although the Settlement Agreement was exhibited in full in Ms Zhou’s affidavit in the Canadian proceedings, it was only given a fleeting mention in the plaintiff’s supporting affirmations.

61.  Mr Liang submits that these defences could reasonably have been raised and could not be dismissed as without substance.  They should have been disclosed to L Chan J for weighing in the scales. In fact, these matters would also be relied on by GNT in its application to set aside the Canadian Final Judgment.

62.  As pointed out by Mr Dawes, SC, §22 of Lam-1^st in support of the ex parte application and §16 of the skeleton of the plaintiff’s counsel at the ex parte stage had set out the matters in paragraph 59 above.

63.  GNT is now seeking to re-run the arguments of Jesse Zhu in the Canadian proceedings which gave rise to the Contempt Judgment.  At that hearing before Kelleher J for contempt, Jesse Zhu suggested that the testimony of the ex-employees was not objective and that since it was given in return for compensation, must be considered inaccurate and misleading: Contempt Judgment §[57].Kelleher J rejected such contentions outright, holding to the contrary:

“58. I disagree. The settlement agreements [including the Settlement Agreement with Ms. Zhou and Mr Yang] require “full and frank disclosure” and only “honest and accurate information”. As the plaintiff argues, these former employees have a strong incentive to be honest. Otherwise they risk breaching the settlement agreement. They have considerable motivation to tell the truth.

59. I also note that [Jesse Zhu] chose not to cross-examine them.  The respondent had the opportunity to seek to cross-examine these witnesses.  The respondent chose as well not to put any contrary evidence before the Court.  In these circumstances it is hardly open to the respondent to attack the credibility of these witnesses.”  

64.  The ex-employees were sued in the Canadian proceedings and were clearly co-conspirators of Jesse Zhu.  Judgment was entered against them.  It would have been clear to L Chan J that their credibility was an issue even without the Settlement Agreement.

65.  Mr Liang submits that the Court must ask itself whether the facts of the case warrant the grant of interim relief if substantive proceedings were brought in Hong Kong.  This requires the judge hearing the application to examine the strength and arguability of an applicant's claim in the context of Hong Kong law rather than simply accepting a decision of the foreign court: Compania Sud Americana De Vapores SA v Hin-Pro International Logistics Limited [2015] 2 HKLRD 458 at §32, CA.

66.  Applying this principle, I repeat paragraphs 25-37 above.  Further, unlike the Canadian courts which tried the case leading to the Monetary Judgment and Contempt Judgment, this court does not have the benefit of hearing the witnesses.  There is no basis for this court to form a view different to the Canadian court’s. 

67.  In any case, GNT’s submission along these lines is an attack on the quality of the plaintiff’s evidence.  In the context of interim relief, it cannot undermine the good arguable case that the plaintiff has put forth.   

68.  The 2^nd ground for discharge of the HK Mareva is unmeritorious.  I dismiss the Discharge Summons.

E.  RELEASE AND FORTIFICATION SUMMONS

E1.  The release application

69.  The scope of permissible legal fees under the HK Mareva reflected the sums permitted by the British Columbia Court, namely CAD$19,000.  The plaintiff had reasonably consented to GNT using CAD$19,000 plus another HK$700,000 in fees. 

70.  I agree with the plaintiff that should GNT have any further applications in respect of withdrawal of legal fees from frozen accounts, it should make the necessary application for variation in the court of primary jurisdiction and not in Hong Kong. 

71.  In any case, there is a valid Canadian Final Judgment against GNT.  The sum in the HK Account can only settle about 30% of the judgment sum.  There is no good reason for GNT to have the money released for its own purpose than to make partial payment of the sum due.  I would have exercised my discretion to disallow the release anyway.

E2.  The fortification application

72.  In Hui Chi Ming v Koon Wing Yee [2011] 1 HKLRD 260 at §34, DHCJ Coleman SC, it is established that there are 2 issues that the Court will consider in an application for fortification:

(a) Whether there is a likelihood of a significant loss arising as a result of the injunction granted; and

(b) Whether there is a basis for the belief that the plaintiff would be unable to make good the loss.

73.  Being deprived of the opportunity to invest money frozen is a fact that is “always acknowledged” by the court: Minmentals Inc v Dragon Boom Limited & anr, HCMP 1702/2013, 12 May 2014, at §65.

74.  In determining the amount of the fortification, the Court will take a broad view without resolving all arguments that have been raised regarding quantum: Hong Kong Civil Procedure 2016, Vol 1, 29/1/24.

75.  GNT seeks payment into Court of HK$1,000,000 within 7 days.  Mr Liang relies on 3 matters:

(a) It has been more than a year since the HK Mareva was ordered.  Undoubtedly, GNT has been deprived of its opportunity to invest the money frozen by the order.

(b) There can be no “set-off” between the Canadian Final Judgment and the loss which GNT will suffer as a result of the HK Mareva.

(c) The plaintiff is a foreign plaintiff with no presence or assets in the jurisdiction. In the absence of reciprocal enforcement of judgments between Hong Kong and Canada under the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap 319, GNT would need to institute proceedings in Canada to enforce a Hong Kong judgment or order on costs. As such, it is just in these circumstances to require the plaintiff to fortify its undertaking as to damages.  See Mark Clinton Sharp v Wong Chi Lik Steven & anr, HCA 2215/2009, 23 October 2009, §58 (a case on security for costs).

76.  Whilst items (b) and (c) may be true, in my view, item (a) is unfounded.  Despite the direct challenge in Lam-5^th, there is no evidence to substantiate GNT’s suggestion that it is an “investment corporate vehicle and is looking for investment opportunities from time to time” and what investment opportunities it has lost.   

77.  These investment opportunities were a mere possibility, but GNT’s liability to pay the plaintiff CAD$9.98 million is a certainty.  It lies ill in the mouth of GNT to say that it lost the opportunity to invest in money that should have been paid to a judgment creditor.  The fact that GNT has now applied to set aside the Canadian Final Judgment does not afford a good ground for fortification, given its tenuous basis (paragraph 36 above).

78.  I dismiss the fortification application as well. 

F.  DISCLOSURE SUMMONS

F1.  Legal principles

79.  The Court has jurisdiction under sections 21M and 21N of High Court Ordinance to grant incidental orders or directions:Hong Kong Civil Procedure 2016, Vol 1 §29/1/74.  This includes the power to order disclosure in support of a Marevainjunction.  GNT does not dispute this.

80.  In Pacific King Shipping Holdings Pte Ltd v Huang Ziqiang [2015] 1 HKLRD 830 at §§27-32 (and as referred to in Beyonics Technology §§53-57), the Court of Appeal has held that there is a difference in third party disclosure applications depending on whether or not the case involves a proprietary claim.  Poon J (as he then was) held that:

“29. If the case involves a proprietary claim where the plaintiff seeks to trace property which in equity belongs to him, the court not only has jurisdiction to grant an injunction restraining the disposal of that property, it may in addition make orders designed to ascertain the whereabouts of that property. In particular, it may order a third party bank to give discovery of documents in relation to the bank account of a defendant who is alleged to have defrauded the plaintiff of his assets …

31. If, however, the case does not involve a proprietary claim, the position is different. As noted by the learned editors in Gee on Commercial Injunctions, (5th ed., 2004), at para.22.039:

(i) Case (1): purposes for which the information may be needed

In cases not based on a proprietary claim it is unusual for the claimant to seek information from third parties for the purpose of the court proceedings concerning the granting or continuation of Mareva relief. However, such situations can occur; eg there may be an issue as to whether certain assets belong beneficially to the defendant, and therefore should be subject to a Mareva injunction, or information may be needed to enable the court to formulate injunctions against several defendants in appropriate terms, as in A v C, or to make a Mareva injunction fully effective (eg by enabling the court to specify particular assets in the order which can then be notified to non-parties holding the defendant's assets). It may be that information is needed because the defendant cannot be relied upon to obey the court order and it is necessary to take steps to preserve the assets in the hands of non-parties. (emphasis added)

32. The main underlying consideration for ordering disclosure is to prevent abuse by the defendant to frustrate or defeat the very purpose of the Mareva injunction: see A v C (No 1) [1981] QB 956 , per Goff J (as he then was) at p.959E-F. Absent any evidence of abuse such as non-compliance with the Mareva injunction, the court will normally refuse to order further disclosure in addition to the standard disclosure. Thus in RACP Pharmaceutical Holdings Ltd v Li Xiaobo (unrep., CACV 139/2007, [2007] HKEC 1713) (19 September 2007), at [15], citing AJ Bekhor & Co Ltd v Bilton [1981] QB 923, Le Pichon JA said:-

‘… Discovery directed at finding out whether the defendant had 'dissipated' or 'concealed' [the monies which the plaintiff paid the defendant]. In other words, 'policing', is not a legitimate purpose for making a disclosure order.’ ”(emphasis added)

F2.  Application to the facts

81.  The Disclosure Summons is in 2 parts.

(1) Paragraphs 1-2 seek an order for GNT to disclose the full value of its assets by way of an affidavit (“the 1^st disclosure application”);

(2) Paragraphs 3-4 seek banker’s books under section 21 of the Evidence Ordinance, Cap 8 (“the 2^nd disclosure application”).

F3.  The 1^st disclosure application

82.  The 1^st disclosure application seeks an order to mirror the Canadian Disclosure Order,  the latter Order being in these terms:

“Disclosure

Asset Lists

3. On or before Friday, May 9, 2014, [Jesse Zhu], [GNT] … shall each provide the plaintiff’s solicitor with a list (the “Asset List”) verified by affidavit, setting out all of his or its assets and any assets of the other corporate defendants known to them as of April 7, 2014 whether in or outside British Columbia and whether in his, her or its own name or not and whether solely or jointly owned, and details of all such assets, including the nature of each asset, all identifying numbers and other identifying information, its exact location as of April 7, 2014 and present location, if moved since April 7, 2014) and whether the asset is held in the defendant’s name or jointly held with another person, or by another on his, her or its behalf.

4. If [Jesse Zhu], [GNT] … hold any assets over which he or it has no beneficial interest, that asset shall be included in their respective Asset Lists, along with an indication of the person for whom the asset is held in trust.  If [Jesse Zhu], [GNT] … have a beneficial interest in any asset held by another on his, or its behalf, that asset shall be included in their respective Asset Lists, along with an indication as to the name of the person in which the asset is held in trust.”

83.  Jesse Zhu has made some disclosure in Canada, although it was inadequate and that is being pursued in Canada. 

84.  As for GNT, despite due service of the Canadian Disclosure Order on it, GNT has blatantly ignored the Canadian Mareva and the Canadian Disclosure Order, and, in breach of the same, failed to provide any disclosure as ordered.  There is justification in imposing a Hong Kong disclosure order to aid the Canadian court.  Although there may be overlap in terms in both orders in requiring GNT to disclose assets outside Hong Kong, there is no disharmony, confusion or risk of conflicting orders.

85.  The request in respect of the 1^st disclosure application is for:

“the full value of any and all of [GNT’s] assets, whether in or outside Hong Kong, whether in its own name of not, and whether solely or jointly owned, giving the value, location and details of all such assets.”

86.  By the 1^st affirmation of Wang Zhaoyan filed on 3 July 2015, §32, GNT has deposed to the fact that “other than the balance in the HSBC account, GNT does not have any other assets in Hong Kong”  Quite apart from the fact that that affirmation has not stated if there are assets outside Hong Kong, it has not stated whether it holds assets solely or jointly with others in Hong Kong.  Given the evasive attitude of Jesse Zhu and his use of corporate entities to hide his assets, it is important for the affirmation to be filed by GNT to follow the exact requirements of the order to be made.

F4.  The 2^nd disclosure application

87.  This is an application for bankers’ books under s. 21 of the Evidence Ordinance. The jurisdiction to grant interim relief under section 21M can include the making of a disclosure order against a third party: Beyonics Technology at §56 per Chu JA,

88.  The plaintiff asks for an order as follows:

“Pursuant to section 21 of the Evidence Ordinance (Cap. 8) the Plaintiff may be at liberty by its officers and servants and/or its legal advisers and/or its forensic accountants to inspect and take copies of all entries in all of the banker’s records of [HSBC] including in relation to bank account(s) held in the name of the 2^nd Defendant (whether solely or jointly) including but not limited to the [HK Bank Account].”

(a) [The records] are to include (i) bank statements; (ii) records showing and/or containing instructions to HSBC in relation to remittances and withdrawals from [GNT’s] account(s) and (iii) records showing and/or containing the identities of the recipients of monies withdrawn from the account(s) referred to in (ii).

(b) Records relating to the opening of the account(s);

(c) Records showing the identities of those persons or entities authorized to operate the account(s).

89.  Compare this to the Canadian Disclosure Order which provides:

“6. With respect to the individuals and companies listed in paragraphs 1 and 3 of the Mareva Order [including Jesse Zhu and GNT], the financial institutions holding accounts in the name of such individuals and companies, whether solely or jointly, and whether legally or beneficially, shall provide to the plaintiff’s solicitor the bank statements of such accounts from January 1, 2014 to April 30, 2014.”

90.  It can be seen that the 2^nd disclosure application differs from the Canadian Disclosure Order in that the plaintiff’s request extends to “all entries in all of the banker’s record” and is not limited in time.

91.  GNT opposes the application on the following grounds:

(a) That the Court should not order disclosure of assets or information beyond the scope of what is claimed in the Canadian proceedings (“ground A”);

(b) That the case does not involve a proprietary claim and the plaintiff is not entitled to ask for disclosure against GNT (“ground B”); 

(c) Such information is private and confidential to GNT (“ground C”).

92.  With regard to ground A, I do not agree that the orders granted in the secondary jurisdiction have to be “identical” with those in the primary jurisdiction as long as the spirit and intent of the orders are to achieve the same purpose and there is no “disharmony or confusion and/or risk of conflicting, inconsistent or overlapping orders in other jurisdictions”: Beyonics Technology, §25.

93.  The Canadian Disclosure Order was made over 1½ years ago.  Subsequently, the Canadian Final Judgment was made.  An order for disclosure aimed at finding out the assets (including bank accounts) of GNT will aid in recovery.

94.  With regard to ground B, I disagree with Mr Dawes SC that the plaintiff’s claim against GNT is proprietary in nature.  On a proper interpretation of the Canadian Final Judgment, it is Jesse Zhu, not the plaintiff, who has a proprietary right over GNT.  The Canadian Judgment merely facilitated enforcement so that the plaintiff would be left in no doubt that it can seize the assets of GNT to satisfy a monetary judgment.  There can be no justification for the plaintiff to use the disclosure order to conduct a tracing exercise when a proprietary injunction was never sought.  The proprietary limb of Pacific King (§29 of the decision) is simply not engaged in this case.

95.  With regard to the non-proprietary limb of Pacific King (§31-32 of the decision), the disclosure sought does not assist in deciding whether the injunction should extend to assets suspected to be beneficially owned by Jesse Zhu as the Canadian Final Judgment has already decided that the HK Account and GNT belong to Jesse Zhu. 

96.  There was no suggestion that any bank account holds information needed to enable the court to formulate injunctions against several defendants or to specify particular assets in the order which can be notified to non-parties holding the defendant’s assets. 

97.  The disclosure sought pre-empts the procedure for eg, the examination of judgment debtor.  The potential involvement of “forensic-accountants” for inspection of the bankers’ records is way beyond what is reasonable or necessary at this stage.

98.  However, GNT (owned by Jesse Zhu) cannot be relied upon to obey the Canadian Disclosure Order (§31 of Pacific King).  It ignored the Canadian Disclosure Order. It denies being owned by Jesse Zhu, re-running arguments rejected by the Canadian court.  A bankers’ books order will assist the Canadian court. 

99.  The next question is the scope of the disclosure.  In my view, HSBC should be asked to disclose whether there are other accounts held in the name of GNT, whether solely or jointly.  This will assist the Canadian court in identifying assets of GNT.  Although the Canadian Disclosure Order did not specify that GNT should specify the value of its assets, I see no disharmony, confusion and/or risk of conflicting inconsistency or overlap between a HK court order that requires disclosure of the balance in an account and the Canadian Disclosure Order.  After all, the plaintiff should not seek to freeze GNT’s assets or enforce more than the value of its judgment debt. 

100.  Apart from that, HSBC should provide to the plaintiff’s solicitor the bank statements of such accounts from 1 January 2014 to 30 April 2014 (to mirror the Canadian Disclosure Order) and the updated bank statement for the month immediately preceding and including the date of this order.  These orders against HSBC will ensure the effectiveness of both the Canadian Mareva and Disclosure Order.

101.  With regard to ground C, I agree with Mr Dawes SC that GNT misses the point, namely, if the plaintiff makes out a case for disclosure, it matters not whether the information is private and confidential.

G.  CONCLUSION

102.  I dismiss the Discharge Summons, and the Release and Fortification Summons.  Costs, on a nisi basis, shall be borne by GNT.

103.  With regard the Disclosure Summons, I order as follows:

(1) GNT must inform the plaintiff in writing of the full value of any and all of its assets, whether in or outside Hong Kong, whether in its own name or not, and whether solely or jointly owned, giving the value, location and details of all such assets.  GNT may be entitled to refuse to provide some or all of this information on the grounds that it may incriminate GNT;

(2) this information must be confirmed in an affidavit which must be served on the plaintiff’s solicitors within 14 days after this Order has been served on GNT;

(3) pursuant to s 21 of the Banker’s Books Ordinance, HSBC shall:

(a) disclose, within 14 days, whether there are accounts held in the name of GNT, whether solely or jointly;

(b) provide to the plaintiff’s solicitor the bank statements of each of such accounts from 1 January 2014 to 30 April 2014 and the updated bank statements of each of such accounts for the month immediately preceding and including the date of this order;

(4) the plaintiff does have leave to use the information and documents obtained as a result of the Order to be made herein for the purpose of proceedings against the 1^st defendant and/or GNT in Hong Kong and elsewhere; and

(5) There be liberty to apply.

104.  The plaintiff substantially succeeded in the Disclosure Summons.  I make an order, on a nisi basis, that costs should be borne by GNT.

105.  I summarily assess costs under all 3 summonses and allow, nisi, a sum of $500,000 to be paid to the plaintiff.

106.  I thank counsel for their thorough preparation and assistance to the court.