NICHOLAS V.A. SCHEBEK-FUERSTENBERG v. YIP WAI SANG AND ANOTHER

HCA 221/2017

[2020] HKCFI 3004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 221 OF 2017

________________________

________________________

_______________________________

D E C I S I O N
(On Variation of Costs Order Nisi)

________________________________

Introduction

1.  This Court handed down a judgment on 28 July 2020 dismissing P’s claims against D1 and D2 for return of money on the basis of unjust enrichment and/or money had and received by the defendants and held on constructive and/or resulting trusts by the defendants respectively for the plaintiff (“Judgment”). I made an order nisi that there be no order as to costs as between P and D1 and also no order as to costs as between P and D2 (“Order Nisi”).

2.  D1 issued a summons to apply for variation of the Order Nisi and his summons is supported by his 4^th affirmation.  D1 is seeking an order that (1) P to pay D1’s costs of this action on a party to party basis; or alternatively, (2) P to pay D1’s costs incurred in this action since 15 July 2019 on a party to party basis.

3.  I directed that the application be dealt with on paper.  In this decision, I shall continue to adopt the abbreviations in the Judgment unless otherwise indicated.

Grounds for D1’s variation

4.  It was submitted on D1’s behalf that there was no legitimate reason from the Court to depart from the general rule that costs should follow the event and further:

(1) It was P who instituted this action against D1, claiming he was a victim of fraud committed by Zenia and after trial, it was found that P’s claim was not supported by sufficient evidence that there was fraud on the part of Zenia.  With or without the defence of bona fide purchaser or recipient for value without notice raised by D1, P’s case would have been dismissed and that D1 was the successful party;

(2) D has been dragged into this action since 2017, with his bank account frozen for 3 years and 7 months, incurring substantial costs in defending P’s unjustified claim which failed because P had failed to prove his case.  D1 should not be deprived of his costs only because he failed to establish the bona fide purchaser defence.  By this Court penalizing D1 for costs on the ground of the usurious loan is particularly unfair because P had admitted at trial that he had also engaged in lending with excessive interest to Zenia in breach of the MLO;

(3) It was not unreasonable at all for D1 to rely on the bona fide purchaser point which was his only defence.  D1 could not be expected to defend his case only by subjecting P to strict proof of the allegations of fraud.  The fact that D1’s bona fide purchaser defence was raised and survived the two injunction applications by P showed that the defence was not an unreasonable one to raise. 

(4) Alternatively, D1 relies on his former’s solicitors’ without prejudice letter dated 15 July 2019 in which he proposed a drop-hands solution to this action with no order as to costs.  P rejected this sensible approach and the outcome is practically the same proposed in the letter dated 15 July 2019.

Discussion

5.  The starting position is that costs follow the event.  As pointed out by Mr Brown and as seen in paragraph 273 of the Judgment, this Court did start from the position of costs to follow the event, but stated that even though P had not succeeded in his claim against D1, D1 was not able to satisfy this Court that he was a bona fide purchaser/recipient for value without notice, and further this Court found he was involved in an illegal transaction.

6.  There was no suggestion that P was at fault in the proceedings taking 3 years and 7 months to come to trial.  Further, in relation to the injunction applications, which resulted in D1’s bank account being frozen, costs had been awarded in D1’s favour.  As seen in her 1^st decision on P’s injunction application, Lisa Wong J said she was inclined to think that P had passed the threshold test of a good arguable case, and that D1’s defence was fact sensitive.  She declined to continue the ex-parte injunction essentially as there was no sufficient evidence of risk of dissipation.  Similarly, for her 2^nd decision on P’s injunction application, she ordered the P’s application be dismissed essentially on lack of sufficient evidence of risk of dissipation.  Insofar this Court can see, all Lisa Wong J said of D1’s defence was that it was fact sensitive.

7.  The fact was that D1’s failed defence did take up a substantial part of the trial.  Unlike D1, P accepted that the interests on his loans to Zenia were in breach of the MLO and P did not try to cloak the illegality of his loans in sham transactions even though this Court did find his evidence not credible on other matters.  On the other hand, D1 maintained all along that those investment agreements/guarantees he had with Zenia were in relation to investments for the sale and purchase of Culture Raft/s including in particular the Guarantee in question.  As a result of this Court’s findings against him, those alleged investments were thus sham transactions.  I do not think it reasonable for D1 to continue to maintain a defence that the Guarantee was a genuine investment.  In fact, the defence of bona fide purchaser without notice was not his only defence, and D1 could have raised a change of position defence which he did not pleaded properly.

8.  As for the “without prejudice” letter, as pointed out by Mr Brown, it was not a “without prejudice save as to costs” letter, and was not a written offer which this Court has to take into account under Order 62 rule 5 of RHC, nor was it a sanctioned offer as it did not comply with the requirements of Order 22 rule 5 of RHC.  In any event, D1’s without prejudice letter was brief with no other offers or concessions save on costs.  There was no reason given as to why suddenly D1 would think P would agree to discontinue the proceedings.

Conclusion 

9.  Costs are in the discretion of the Court.  Having considered the parties’ respective submissions and the circumstances of this case, I see no reason as to why the Order Nisi should be varied.  I dismiss D1’s summons issued on 13 August 2020 and order D1 to pay P’s costs of the summons, to be summarily assessed on party and party basis.

10.  P has submitted a statement of costs totalling HKD 63,050 for summary assessment.  Mr Cheung complained that the solicitors’ costs were excessive and unreasonable.  Having considered that D1’s 4^th affirmation is only about 3 pages, and that Counsel was instructed to prepare submissions, I agree that the solicitors’ costs were on the high side.  I am only prepared to allow HKD 10,000 in total for solicitors’ costs.  I thus allow HKD 1,400 for Section B, HKD 10,000 for Sections C and D, HKD 25,000 for Section E (Counsel Fees) and HKD 100 for Section F (other disbursements).  The total amount summarily assessed on party and party is HKD 36,500, which I order D1 to pay within 14 days hereof.   

Mr Toby Brown, instructed by Payne Clermont Velasco, for the plaintiff

Mr Lawrence Cheung, instructed by Leung Tam & Wong, for the 1^st  defendant

HCA 221/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 221 OF 2017

______________________________

_____________________________

_______________

D E C I S I O N

_______________

Application

1. Before the court is the plaintiff’s application for the continuation, until trial or further order, of the Mareva injunction granted against the defendants by Deputy High Court Judge Hunsworth on 26 January 2017 (“Injunction Order”) and extended by Mr Justice Chung and Deputy High Court Judge Lee on 3 February 2017 and 10 March 2017 respectively pending the hearing and determination of the plaintiff’s inter partes summons dated 27 January 2017.

Relevant background

2. The plaintiff’s claims and Mareva injunction application against the defendants arises out of a payment of $2.8 million made by the plaintiff to an account No.640-***594-838 with The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) on 9 May 2013 with a view to participating in a joint development of four agricultural lots in Siu Hang Hau, Clear Water Bay, Sai Kung (“Lots”) for residential use (“Development”) with one Great Birch Limited (“Great Birch”), as contained in or evidenced by a document entitled “Memorandum of Joint Residential Development Scheme Agreement” (“Memorandum”) signed on 8 May 2013 by the plaintiff and one Li Wai Ying Zenia (“Li”) as owner of Great Birch and as guarantor for Great Birch’s obligation to repay the plaintiff the said sum of $2.8 million if the Development did not materialise within 4 years.

3. According to the plaintiff, he was induced into signing the Memorandum and parting with $2.8 million as a result of the representations made to him by Li (who was a well known social and business figure in the Sai Kung area and who was then a close friend of the plaintiff and his wife) that Great Birch was the owner of the Lots and that Li was the owner of Great Birch.  Indeed, Great Birch and Li were so described in the Memorandum.

4. There was no tangible progress in the Development and the plaintiff’s investment therein between May 2013 and December 2015, during which the plaintiff kept asking Li for updates and Li kept giving the plaintiff various excuses and promises.  The plaintiff found it increasingly difficult to contact Li after March 2015.  The last time the plaintiff saw Li in person was in December 2015, and the last time he was able to speak with her on the telephone was in March 2016.

5. A search of Great Birch on the Companies Registry’s website in March 2016 revealed that the sole director and shareholder of Great Birch was not Li as she had claimed (and as was falsely stated in the Memorandum) but one Li Kin Chui Derek, Li’s brother.

6. The plaintiff engaged solicitors in March 2016 and thereafter ascertained, amongst other things, that the owner of the Lots was not Great Birch, but one Lo Lo Louisa who is unknown to the plaintiff.

7. Demand letters sent by the plaintiff’s solicitors to Li and Great Birch in April 2016 were unanswered.

8. Following a successful application in HCMP 1407/2016 pursuant to the court’s Norwich Pharmacal jurisdiction, in June and August 2016, the plaintiff obtained from HSBC documents which show that:

(1) The owner of the said HSBC account No.640-***594-838-838 (“DFT Account”), into which the plaintiff paid the said sum of $2.8 million, is not Great Birch, but one Digital Financial Technologies Limited (“DFT”), a Hong Kong company of which Li and her 80 year old mother, Ms Law Fung Sing (“Ms Law”), are directors and Ms Law the sole shareholder.

(2) On the same afternoon that the said sum of $2.8 million was paid into the DFT Account:

(a) a sum of $1.7 million was withdrawn from the DFT Account and transferred to another account No.432-***050-888 with HSBC; and

(b) another sum of $500,000 was withdrawn from the DFT Account and transferred to yet another account No.055-***100-833 with HSBC.

9. Through another Norwich Pharmacal application made in HCMP 1407/2016, in December 2016, the plaintiff obtained from HSBC further documents which show that:

(1)   The 1^st defendant is the holder of the said HSBC account No.432-***050-888 (“D1 Account”).

(2)   Prior to the $1.7 m transfer from the DFT Account, the D1 Account had a credit balance of over $3 million (including the value of securities).

(3)   The sum of $1.7 million transferred from the DFT Account to the D1 Account on 9 May 2013 was described simply as “Credit as Advised”.

(4)   Sums totalling $1,625,000 were then withdrawn from the D1 Account as follows:

Date of Withdrawal	Amount Withdrawn
9 May 2013	$833,333
13 May 2013	$416,667
21 May 2013	$375,000

(5)   The 2^nd defendant is the holder of the said HSBC account No. 055-***100-833 (“D2 Account”).

(6)   Prior to the $500,000 transfer from the DFT Account, the D2 Account had a credit balance of about $500,000.

(7)   The sum of $500,000 transferred from the DFT Account to the D2 Account on 9 May 2013 was also described simply as “Credit as Advised”.

(8)   In the same afternoon, i.e. on 9 May 2013, the 2^nd defendant withdrew $490,000 from the D2 Account in two separate transactions of $480,000 and $10,000.

10. Against the aforesaid background, the plaintiff issued the writ of summons herein on 27 January 2017 to recover from the 1^st and 2^nd defendants the respective sums of $1.7 million and $500,000.

11. In the meantime, the plaintiff had on 26 January 2017 applied for and obtained the Injunction Order to prohibit the 1^st and 2^nd defendants from disposing of or dealing with their assets to the respective extents of $1.7 million and $500,000.  Paragraphs 1(1)(b) and (3)(b) of the Injunction Order specifically target the D1 Account and the D2 Account respectively.  As at the date of the Injunction Order, the D1 Account had a total credit balance of over $10 million (including the value of securities) while the D2 Account had a credit balance of over $500,000 (comprising largely of the 2^nd defendant’s mandatory provident fund).

Plaintiff’s causes of action against the defendants

12. The plaintiff seeks to recover from the 1^st and 2^nd defendants the respective sums of $1.7 million and $500,000 paid into the D1 Account and the D2 Account on 9 May 2013 on two alternative bases:

(1)   firstly, by way of an action for money had and received in that the retention of the monies by the defendants would result in their unjust enrichment at the expense of the plaintiff; or

(2)   under a constructive or resulting trust that the law would impose upon property obtained by fraud.

First defendant’s defence

13. In defence, the 1^st defendant claims to be “a bona fide recipient/purchaser for value and without notice, of the subject sum of $1,700,000”.  According to the 1^st defendant’s defence and affirmation, both filed on 7 March 2017:

(1)   In about the end of March 2013, Li (whom he had known since March 2007 and with whom he had invested jointly in some “fishing rafts projects”) presented to him a “short-term, risk-free and profitable” investment in the sale and purchase of marine fish culture rafts at the Kai Lung Wan Fish Culture Zone in Sai Kung.  It was “short-term, risk-free and profitable” because Li would personally guarantee the return of the entire investment of $1.5 million plus a profit of $166,667 in less than a month’s time.  Delay in return would be compensated by daily penalty of $7,250 until full settlement.

(2)   The 1^st defendant invited two friends, a Miss Yeung Shuk Man (“Miss Yeung”) and a Mr Stephen Waldo Ho (“Mr Ho”), to jointly put up $1.5 million (with Li supposedly investing another $1.5 million herself) in the following shares:

Investor	Amount Invested
1st defendant	$375,000
Miss Yeung	$375,000
Mr Ho	$750,000

(3)   The said sum of $1.5 million was paid on 9 April 2013 by the 1^st defendant, Miss Yeung and Mr Ho (“Investors” collectively) as directed by Li as follows:

(a) $500,000 by deposit into Li’s current account No.409-0-***624-5 (“Li’s SCB Account”) with Standard Chartered Bank (“SCB”) at 9:45 am;

(b) $50,000 by deposit into SCB account No.409-2-***736-0 (the holder of which is unknown) at 9:48 am;

(c) $50,000 by deposit into Li’s SCB Account at 9:52 am;

(d) $50,000 by deposit into said SCB account No.409-2-***736-0 at 9:54 am;

(e) $50,000 by deposit into Li’s SCB Account at 9:56 am;

(f) $300,000 by deposit into Li’s SCB Account at 10:04 am;

(g) $250,000 and $75,000 by transfer at 3:47 pm to, and $50,000 by deposit at 3:49 pm into, a HSBC account No.585-0-***912 in the name of “Gourdeas N**”; and

(h) $125,000 identified as coming from Miss Yeung but paid in cash by the 1^st defendant to Li at 4:30 pm.

(4)   By a written guarantee dated 9 April 2013 (“Guarantee”) and signed by Li in the presence of the Investors, Li guaranteed the return of $1,666,667 to the Investors on or before 2 May 2013.

(5)   To secure the performance of such obligation, Li issued 3 cheques (“Li’s Cheques”) all post-dated 2 May 2013 and drawn on her SCB Account as follows:

Cheque Number	Payee	Amount
177451	1st defendant	$416,667
177452	Miss Yeung	$416,667
177453	Mr Ho	$833,333
	Total:	$1,666,667

(6)   In addition, the Guarantee mentioned / stipulated:

(a) that Li had provided a copy subscription agreement in respect of the property identified as 2/F including the Roof, Lot No.1969 in Demarcation District No.221 (“Lot 1969”) and signed an irrevocable power of attorney on 8 April 2013 in relation to such subscription agreement; and

(b) that the 1^st defendant was holding original Licence to Culture Marine Fish No.4341 of Serial No.031323 (“Licence”) provided by Li’s brother, Lee Kin Hon Eric, who had also signed an irrevocable power of attorney on 8 April 2013 in relation to such licence;

(c) that the 1^st defendant should release and cancel both these irrevocable powers of attorney upon clearance of the said sum of $1,666,667 into the Investors’ designated accounts;

(d) that should Li fail to make payment of the full amount of $1,666,667 on or before 2 May 2013, the 1^st defendant should be entitled in his absolute discretion to transfer Lot 1969 and the Licence into his name and to sell them to recover the said sum of $1,666,667 with the use of the said irrevocable powers of attorney.

(7)   Li’s Cheques were all dishonoured upon presentation for payment after 2 May 2013.

(8)   The Investors confronted Li who assured them that she was suffering just a temporary cashflow problem and that she would pay the entire sum of $1,666,667 within a week or so.

(9)   On 9 May 2013, Li called the 1^st defendant to inform him that a sum of $1.7 million would be deposited into the D1 Account by DFT which was her company and that the sum of $1.7 million was a rounded up figure to make up for the delay for several days.

(10)  The promised deposit was duly made.  On the same day, the 1^st defendant paid Mr Ho his share of $833,333 out of the $1.7 million received from Li.  On 13 May 2013, the 1^st defendant paid Miss Yeung her share of $416,667.

14. In support of such defence and in opposition to the continuation of the Injunction Order against him, the 1^st defendant has produced copies of:

(1)   the Guarantee;

(2)   the deposit slips and transactions advice evidencing the said payments totalling $1,375,000 million by the Investors on 9 April 2013 with Li’s acknowledgment of receipts endorsed against them;

(3)   Li’s acknowledgment of receipt of cash in the sum of $125,000;

(4)   Li’s Cheques; and

(5)   HSBC’s inward returned cheque debit voucher date 3 May 2013 in respect of the Li’s Cheque in favour of the 1^st defendant with the remark “Refer to Drawer”.

15. The 1^st defendant has not made any express assertion of a “change of position” defence.

16. In consequence of the D1 Account being made subject to the Injunction Order and his bank’s resultant inability to execute autopay instructions, the 1^st defendant has incurred penalties and late charges on his credit cards and his credit rating has suffered.

Second defendant’s defence

17. The 2^nd defendant similarly claims that he was “a decent and honest recipient” of the sum of $500,000.  According to the 2^nd defendant’s affirmation filed on 1 March 2017 and defence filed on 20 March 2017:

(1)   On 8 April 2013, Li borrowed from one Lam Wai Man (“Lam”) a sum of $2,230,000 (“Loan”) through the 2^nd defendant, to be repaid on or before 8 May 2013 and secured by Lot 1969 and Licences to Culture Marine Fish Nos.4442 and 4359.

(2)   The fund by which the Loan was advanced was paid first by Lam to the 2^nd defendant from 3 different sources:

(a) $230,000 which was originally to be paid by Lam’s cheque No.958121 drawn on his account No.024-249-***510-001 with Hang Seng Bank Limited but which was later paid in cash by Lam to the 2^nd defendant;

(b) $1.5 million by one Superior Motors Company Limited’s cheque No.845921 dated 8 April 2013; and

(c) $500,000 by transfer by Lam’s relative, one Wong Sim Luen, to the 2^nd defendant’s deposit account No.045-513-1-***780-5 with Bank of China (Hong Kong) Limited.

(3)   The 2^nd defendant in turn advanced the Loan on behalf of Lam to Li as follows:

(a) $230,000 in cash;

(b) $2,000,000 by cashier order(s) deposited by the 2^nd defendant into bank account(s) nominated by Li.

(4)   Upon receipt of the Loan, Li issued a cheque No.995578 post-dated 8 May 2013 in favour of Lam in the sum of $2,230,000, which was handed over to Lam.

(5)   On 9 May 2013, Li informed the 2^nd defendant that she wished to repay $500,000 first. As she did not know Lam directly, she asked to make the payment to the 2^nd defendant’s account (i.e. the D2 Account).  The 2^nd defendant did not know that the payment was made through DFT.

(6)   Upon receipt of the said sum of $500,000, the 2^nd defendant:

(a) issued a cheque No.978645 drawn upon the D2 Account in favour of the said Wong Sim Luen in the sum of $480,000;

(b) with Lam’s consent, retained $20,000 as he had also lent $100,000 odd to Li which was still outstanding.

 (7)  As far as the 2^nd defendant knows, Li has not made any further repayment to Lam and has repeatedly requested Lam not to present her said cheque No.995578 for payment.  Lam is still been keeping such cheque.

18. In support of such defence and in opposition to the continuation of the Injunction Order against him, the 2^nd defendant has produced copies of:

(1)   an IOU dated 8 April 2013 signed by Li in his presence by which Li also acknowledged receipt of cash and cheque(s) (though without particulars);

(2)   Lam’s said cheque for $230,000 and Superior Motors Company Limited’s said cheque for $1.5 million, both in favour of the 2^nd defendant, on which copy Li had countersigned;

(3)   the bank’s customer’s advice in respect of the $500,000 transfer by the said Wong Sim Luen to the 2^nd defendant on which copy Li had also countersigned;

(4)   a written confirmation dated 8 April 2013 signed by Li, confirming receipt of the Loan and authorising the 2^nd defendant to effect transfer(s) of $2 million of the Loan on her behalf;

(5)   Li’s cheque dated 8 May 2013 in Lam’s favour for the amount of $2,230,000; and

(6)   the front and reverse sides of the 2^nd defendant’s cheque dated 9 May 2013 for $480,000 payable to the said Wong Sim Luen.

19. The 2^nd defendant has not made any express assertion of a “change of position” defence.

20. The 2^nd defendant claims that the freezing of the D2 Account has affected his daily life as this is the account supporting his usual household expenses.

Requirements for grant of Mareva injunction

21. As summarised in the Hong Kong Civil Procedure 2017, volume 1, paragraph 29/1/65, to obtain domestic Mareva relief, the plaintiff must demonstrate:

(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; and

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

22. The 2^nd defendant, acting in person, has understandably not made submissions according to these requirements and has simply reiterated that he received the sum of $500,000 innocently.

23. There can be no dispute that each of the defendants does have substantial assets within the jurisdiction.

24. Mr Lawrence Cheung, for the 1^st defendant, has not dealt with the “balance of convenience” independently and is contended to say that it does not favour the continuation of the Injunction Order for the reasons that he has advanced on the issues of “good arguable case” and “risk of dissipation of assets”. 

Good arguable case issue

25. The question as to whether or not the plaintiff has a good arguable case against the defendants has taken up much of the submissions made by Mr Sebastian Hughes for the plaintiff and Mr Cheung for the 1^st defendant, with Mr Hughes going to great lengths to pick holes, both factual and legal, in the defendants’ accounts of how they came to receive the said sums of $1.7 million and $500,000 from DFT and their defence of bona fide purchase for value without notice and with Mr Cheung doing the same with respect to the plaintiff’s case and impressing upon me how credible the 1^st defendant’s case, supported by contemporaneous documentary evidence, is. 

26. In view of my conclusion against the plaintiff on the issue of risk of dissipation of assets, it is unnecessary, and it is probably also not appropriate at this interlocutory stage, for me to go into an analysis of the strengths and weaknesses of the competing arguments on the merits save to observe and note the following:

(1)   I am inclined to think that the plaintiff has passed the threshold.

(2)   On one hand, the plaintiff’s action for money had and received or, alternatively, claim under a constructive or resulting trust and the defendants’ defence of bona fide purchase for value without notice are all fact sensitive.  Many of the points raised by Mr Hughes and Mr Cheung will have to be tested in cross-examination at trial.  I certainly would not characterise the defendants’ explanations for the payments of $1.7 million and $500,000 by Li / DFT to them and their disbursements of the same as “hopeless”, as Mr Hughes does.

(3)   On the other hand, to show a good arguable case, the plaintiff need not go so far as persuading the court that he is likely to win.  What he must show is that his case is one that is “more than barely capable of serious argument, and yet not necessarily one which the Judge believes to have a better than 50 per cent chance of success”.  See, e.g. Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH Und Co KG (The Niedersachsen) [1983] 2 Lloyd’s Rep 600 at 605.

27. On these notes, I turn to the “risk of dissipation of assets” question.

Risk of dissipation of assets issue

28. The test for and approach to the assessment of a risk of dissipation of assets has been set out by Madam Justice Mimmie Chan in Great Wall Pan Asia International Investment Co Ltd v Cervera Holdings Limited, HCCT 13/2016, unreported, 1 June 2016 at [18]-[21], which I gratefully adopt:

“18. The principles applicable to the determination of whether there is a risk of dissipation of assets is objective. In Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft GmBh (The Niedersachsen) [1983] 1 WLR 1412 at 1422, the applicable test was formulated as:

“ ...  whether, on the assumption that the plaintiffs have shown ‘a good arguable case’, the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favor of the plaintiffs would remain unsatisfied.”

19. It is now clear that there is no requirement for an applicant for Mareva relief to show that the defendant intends to deal with his assets with the purpose of ensuring that any judgment will not be met. The court is concerned with the effect of the defendant’s conduct, as opposed to the motives underlying it (Ulfar International AS v Miles, Court of Appeal (Civ Div), unreported, 29 August 1991). It is not necessary to show a “nefarious intent” on the part of the defendant.

20. Further, it is well established that evidence of behavior in the past of a defendant disclosing an “unacceptably low standard of commercial morality” entitles the court to infer and conclude that there is a sufficient risk to justify the grant of a Mareva injunction (Honsaico Trading Co v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235). However, the court should scrutinize the evidence with care and should not too readily infer a real risk of dissipation from a defendant’s conduct or commercial reality (Hornor Resources (International) Co Ltd v Savvy Resources Ltd [2010] 4 HKC 50, 57).

21. In TTMI Ltd of England v ASM Shipping Ltd of India [2006] 1 Lloyd’s Rep 401, the following principles are also made clear:

“The purpose of the Mareva jurisdiction is sometimes referred to as the prevention of the ‘dissipation of assets’. Without explanation that phrase is, itself, obscure... The underlying purpose of the jurisdiction is not to provide a claimant with security for its claim but to restrain a defendant from evading justice by disposing of assets otherwise than in the ordinary course of business so as to make itself judgment proof with the result that any judgment or award in favor of the claimant goes unsatisfied. The purpose is not to provide security for the claimant in respect of his claim. It is well established that it is not necessary to establish that the defendant is likely to act with the object of putting his assets beyond reach. What has to be shown is that there is, absent an injunction, ‘a real risk that a judgment or award in favor of the plaintiffs would go unsatisfied’... That formulation cannot, however, be regarded as a complete statement of the law. A defendant may be likely to make perfectly normal dispositions, such as the payment of ordinary trading debts, the effect of which may be that, when any award is made, it is, in whole or in part unsatisfied when, absent those payments, it might have been satisfied or satisfied to a greater extent. Something more than a real risk that the judgment will go unsatisfied is required.

Thus in a case in the Court of Appeal of Ontario - Chitel v Robart [1982] 3 OR (2d) 513 at 532-533, the court said:

“The applicant must persuade the court by his material that the defendant is removing or there is a real risk that he is about to remove his assets from the jurisdiction to avoid the possibility of judgment, or that the defendant is otherwise dissipating or disposingof its assets, in a manner clearly distinct from his usual or ordinary course of business or living, so as to render the possibility of future tracing of the assets remote, if not impossible in fact or in law.”

29. Mr Hughes has also drawn my attention to Stone J’s judgment in Akai Holdings Ltd v Ho Wing On Christopher, HCCL 37/2005, unreported, 9 February 2005, where his Lordship said at [53], followingCAC Brake Co LtdZhuhai v Bene Manufacturing Co Ltd, CACV 94/1998, unreported(30 April 1998), that the court may be more willing to infer a real risk of dissipation where a good arguable case is established on a claim for fraud or dishonesty.  However, the plaintiff here has no evidence, and is not suggesting, that either of the defendants was in any way privy to or involved in the fraud perpetrated by Li on the plaintiff.

30. The plaintiff has not pointed to any actual transactions by which the defendants has dissipated or removed assets. The disbursements made shortly after 9 May 2013 out of the monies transferred to the D1 Account and the D2 Account that are the subject-matters of this action have been explained.  Whether or not the defendants’ explanations would ground the defence of bona fide purchase for value without notice, I cannot agree with Mr Hughes that there is anything inherently implausible about such explanations, seeing that they are supported by documents the authenticity of which the plaintiff cannot at this stage credibly challenge.

31. The plaintiff is essentially inviting the court to infer a risk of dissipation of assets from evidence that the defendants are persons of an “unacceptably low standard of commercial morality” (Honsaico Trading Co v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235 at 240H) or “questionable integrity” (Standard Chartered Securities v Lai [1993] 1 HKC 375 at 394B).

32. The problem that I have with such submission is in identifying the evidence that shows or tends to show either defendants to be a person of an “unacceptably low standard of commercial morality” or “questionable integrity”.  In short, I can see none. 

33. The description of a person as being of an “unacceptably low standard of commercial morality” or “questionable integrity” is a very serious allegation for which the court would expect nothing less than cogent proof.  I certainly do not regard the following, whether taken individually or cumulatively, as evidence in proof of such a harsh allegation:

(1)   as against the 1^st defendant:

(a) the fact that he had a relatively modest salary of $41,263.00 at the relevant time in 2013;

(b) the substantial value of the D1 Account despite his apparently modest income; and

(c) the history of payments in and out of the D1 Account, with deposits and withdrawals on the same day or within a short time, as shown in a schedule compiled by the plaintiff which I attach as schedule 1 to this Decision (with a number of large deposits subsequently reversed with the annotation “cheque returned unpaid”);

(2)   as against the 2^nd defendant:

(a) the fact that the 2^nd defendant was apparently unemployed at the time when he opened the D2 Account back in November 2007;[1] and

(b) the history of payments in and out of the D2 Account, with deposits and withdrawals on the same day or within a short time, as shown in another schedule compiled by the plaintiff which I attach as schedule 2 to this Decision.

34. According to Mr Hughes, receiving and paying out such large sums within short intervals are not at all indicative of usual or ordinary business transactions or living expenses.  Such transactions are far from normal transactions for individuals to engage in and strongly suggest impropriety on the part of the defendants.  Mr Hughes has gone so far as suggesting that the defendants had been allowing their bank accounts to be used for highly suspicious transactions, which inference he says is strengthened by the defendants’ refusal to explain the deposits and withdrawals on the ground that they are irrelevant to the plaintiff’s claims against them.

35. With respect, counsel is speculating without any or any rational basis.  And the court acts on evidence, not speculation.

36. For these reasons, I am of the view that the Injunction Order should not be continued.  Nevertheless, I recognise that the plaintiff has the right to disagree with me and may wish to take this matter further.  In view of the nature of the assets subject to the Injunction Order, in order not to prejudice the plaintiff’s position in the event that I be wrong in my conclusion on the lack of evidence of a risk of dissipation, I would allow the Injunction Order to continue until the expiry of 14 days from the date of this decision, leaving the plaintiff the usual period to consider what, if any, applications he may wish to make arising from this decision.  

37. I also make an order nisi that the plaintiff should pay the defendants the costs occasioned to them by the application, to be taxed if not agreed, with a certificate for counsel for the 1^st defendant.