Case Detail

HCCT 48/2017

[2020] HKCFI 359

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 48 OF 2017

______________

BETWEEN

	章晶历	Applicant
and
	吴联模	1st Respondent
	KAI DE INTERNATIONAL HOLDING LIMITED	2nd Respondent

______________

Before:

Hon Mimmie Chan J in Court

Dates of Hearing:	3 to 5 June 2019 & 2 August 2019
Date of Judgment:	4 March 2020

_______________

J U D G M E N T

________________

1. This is the trial of the Applicant’s claim that the First Respondent (“W”) held the beneficial interest in 612,340,000 ordinary shares (“Shares”) in Future Bright Mining Holdings Limited (“FB”), which Shares were registered in the name of the Second Respondent (“KD”), or whether the beneficial interest in the Shares vested in KD instead.

2. The history of the matter is that on 16 June 2016, the Applicant obtained an arbitration award against W from the Beijing Arbitration Commission, for W’s payment to the Applicant of a sum of RMB 65,323,091 plus interest (“Award”). On 29 September 2017, the Applicant obtained leave of the Hong Kong Court to enforce the Award in Hong Kong. On 11 December 2017, the Applicant obtained from the Court a charging order nisi (“Order”) in respect of: (1) the Shares which were registered in the name of KD, a BVI company of which W was the registered shareholder; and (2) 155,900,000 shares in FB which were registered in W’s name. The Order was sealed on 5 January 2018 and served on W and KD on 8 January 2018.

3. On 26 January 2018, a charging order absolute was made in respect of the shares in FB which were held by W in his personal name. KD however opposed the order absolute for the Shares on the basis that the Shares were registered in its name and it was a separate legal entity from W. Directions were made for a trial on the beneficial ownership of the Shares and pleadings were directed to be filed for the trial on such issue (Order of 16 July 2018). KD was also joined as the Second Respondent in the action which was originally commenced by the Applicant against W only.

4. According to the Points of Claim, FB is a company listed on the main board of the Hong Kong Stock Exchange. As at the date of the Points of Claim, the value of the Shares held in the name of KD was approximately HK $132,265,440. At the date of the Order, W held all the shares of KD. According to the Applicant, KD had no business other than to hold the Shares and on the Applicant’s case, KD was W’s nominee of which he had full control and through which he carried out his personal investment in the Shares, the full benefit of which was vested in W at all material times.

5. The Applicant claims that after the Order had been served on W and KD on 8 January 2018, W disclosed to the Stock Exchange on 10 January 2018 that he had transferred ownership of all the shares in KD to Madam Yang Xiao Qiu (“Yang”) on 5 January 2018 (“Transfer”). The Applicant claims that the Transfer was not supported by any valid consideration, and that W retained his beneficial ownership of KD. The Applicant further claims that both W and Yang had knowledge of the Order, that the Transfer and the claim of KD being a separate legal entity were merely attempts to evade liability under the Order and the Award, that Yang was not a bona fide purchaser, such that she should be bound by the Order, which should be made absolute.

6. By way of Defence, W denies that he held the shares of KD as at the date of the Order on 11 December 2017. He claims that he had transferred his entire legal and beneficial interest in the shares of KD to Yang on 7 December 2017. W further denies that the beneficial interest of the Shares was vested in him, claiming that he had borrowed RMB 81 million from Yang (“Loan”) under a Loan Agreement made with Yang on 18 November 2016, whereby the Loan was agreed to be repayable on 17 November 2017. Under the Loan Agreement, W further agreed to transfer the shares in KD to Yang if KD should fail to repay the Loan by 17 November 2017.

7. According to W, the Loan was utilized to purchase the Shares. On 7 December 2017, a Repayment Agreement was made between W and Yang, whereby W agreed to transfer the shares in KD to Yang to discharge the Loan and interest accrued thereon. On the same day, W and Yang signed the documents for the transfer of W’s shares in KD to Yang.

8. In KD’s Defence, it is claimed that the Shares had been purchased with the Loan from Yang, which Loan was guaranteed by W. KD claims that its shares had been transferred to Yang in early January 2018, pursuant to W’s guarantee under the Loan Agreement and the Repayment Agreement, for valid and good consideration. KD claims that the beneficial interest in the FB Shares belongs to it, and not to W.

The beneficial ownership of KD

9. W and KD rely on the distinction between KD and its shareholder W, and their separate legal entities. The FB Shares were at the material time of the Order registered in the name of KD, although it has never been disputed that some FB shares were registered in W’s personal name (over which a charging order absolute has been made). KD emphasized that the Applicant’s case is that W had provided the money for the purchase of the Shares, such that he should be regarded as the beneficial owner thereof and in respect of which the order absolute should be made. In this respect, Counsel argued that in the corporate context, both the legal and beneficial interest of the Shares should be regarded as being vested in KD, relying on Lo Man Yau v Chiu Sung Fai [2018] 6 HKC 221 and Good Profit Development Limited v Leung Hoi [1992] 2 HKC 539, where the Court stated at 545A:

“The normal rule is that a company does not hold property as an agent or trustee for its members and a fortiori it does not hold property as agent or trustee for the directors.”

10. In Lo Man Yau, the Court of Appeal referred to the part of the judgment in Re Fortune King Trading Ltd (HCCW 432/2012, unreported, 19 May 2017), as follows:

“(1) It is axiomatic that a company is in its own right a legal person having a separate and distinct identity from its shareholders. Therefore, as a general rule, a company does not hold property as an agent or trustee for its shareholder. Put differently, as a general rule, a shareholder has no legal or equitable interest in the company’s property, as opposed to a right to share in the profits of its business and to a distribution of any surplus on liquidation...
(2) It follows that when the purchase of a property is made in the name of a company, the starting point is that the purchase was intended to invest both the legal and beneficial interest in the company. This is true even if the funds for the purchase are provided by a shareholder.
(3) Both (1) and (2) are general propositions. Combined together, they give rise to a normal, but rebuttable, inference that the beneficial interest of the property acquired in the name of the company with funds provided by its shareholder was intended to pass to the company. When the shareholder claims that by providing the funds, the equitable interest in the property was intended to be vested in him personally by way of a resulting trust, he bears the burden to rebut the inference by proving that the legal interest in the equitable interest of the property were so vested in the company and him separately.
(4) The time to take stock of the respective interest taken by the company and the shareholder in the property is the time of its acquisition. The focus is on the parties’ intention at the time of purchase: whether the parties intended to vest the beneficial interest of the property in the shareholder as the provider of the funds, having regard to all the circumstances.” (emphases added)

11. The essential question is whether, at the time of the purchase of the Shares, W had the intention to vest the beneficial interest of the Shares in KD, or in himself.

12. On this question, I consider that the telling evidence is W’s own affirmation made at the earliest opportunity afforded to him to clarify his interest in the Shares, namely W1 made by him on 16 November 2017. This was W’s evidence filed in opposition to the application for an injunction to restrain W’s disposal of assets. In W1, W explained his dealings in the Shares, in an attempt to show that his purchases and sales of shares in FB were his regular investment activities, and that there was no risk of dissipation of assets to justify the grant of a Mareva injunction.

13. In paragraph 3 of W1, W claims that he owned under his name 59,500,000 shares in FB, and was also in total control of KD which as at 30 June 2017 held 612,340,000 shares in FB. W went on to state that since October 2016, he had been investing his money in FB shares by buying and selling these shares in the market for the purpose of making profit. At paragraph 5, W states:

“Between 16 December 2016 and 8 September 2017, I bought and sold ordinary shares of FB in the market at various prices, either under my own name or through KD. During that period, I made 9 times of acquisition and 1 time of sale of FB’s ordinary shares in the market. As a result, through such transactions, my shareholding in FB under my own name and through KD, increased from 10.01% to 20.1% of FB’s total issued shares.” (emphases added)

14. W further states in paragraph 6 of W1 that as at 11 October 2017, he owned 768,240,000 FB shares in his name “and through KD”, which accounted for 19.85% of FB’s total issued shares. Similarly, W referred to other transactions and in summary, states that as at the date of W1, he owned under his name “and through KD” about 19.8% of FB’s total issued shares. Bearing in mind that W1 was made in opposition to the application for a Mareva injunction to be made against W, to restrict him from dealing in the FB shares, it would have been natural for W to simply state, if it was true, that the Shares in KD’s name were not his to dispose of or deal with. Yet, nowhere in W1 did W claim that he did not have any beneficial interest in the Shares which were in the name of KD. To the contrary, W claimed in W1 that he owned 19.8% of FB’s total issued shares on 16 November 2017 (which included KD’s interests).

15. It is clear from W1 that the whole tenor of the affirmation was that W regarded the shares registered in KD’s name as his own, paid for by him, as his own personal investment, and subject to his control and at his disposal. He only sought to argue that his sale and purchase of the FB shares were “his usual and regular investment activities”, conducted consistently throughout a considerate period of time, and were not dissipation of assets to justify the grant of a Mareva injunction. From W1, it can be inferred that at the time when W bought the FB shares, including the Shares in KD’s name, his intention was that he was to have the beneficial interest of all these shares as his personal investment. If he had at that time been asked whether the Shares were his, for him to retain or dispose of as he deemed fit, his answer at that time would naturally have been “Yes”.

16. The fact that KD had no other business, and served only to hold the Shares and investment of W, supports the fact that KD was a mere nominee and vehicle through which W conducted his personal investments. This, as Counsel for W sought to emphasize, in reliance on the judgment in Re Hansby Co Ltd, HCMP 4610/2003, unreported, 12 May 2004, may not be sufficient by itself to suggest that the company held all the properties it owned on trust for its shareholders, but it is one of the factors which the Court may consider in all the circumstances of the case.

17. I agree with Counsel for the Applicant that the statements made in W1 constitute admissions against his interest, and should be given due and considerable weight by the Court (Wong Tak Yue v Kung Kwong Wai (No 2) (1997-98) 1 HKCFAR 55, at 69D-E), as compared with what may be seen as self-serving statements made in the later course of the proceedings.

18. It may be argued that distinction should be made that as at 16 November 2017 when W1 was made, W was still the beneficial owner of all the shares in KD, which were only (on W’s case) transferred to Yang on 7 December 2017. However, as Counsel for the Applicant pointed out, W admitted in cross-examination that he knew that the Loan was repayable on 17 November 2017, such that this should also have been in the forefront of his mind when he deposed to the fact in W1 that the Shares had been acquired with his own money and were owned by him, through KD. No mention was made of the Loan Agreement and the Repayment Agreement in W1 filed to oppose the grant of an order which may have the effect of restricting transfers of the shares in KD which were subject to be transferred to Yang under the Loan Agreement if the Loan was not repaid by 17 November 2017 (the day following the making of W1), and/or affect the Shares themselves.

19. So far as the issue of W’s intention at the time of the purchase of the Shares is concerned, the reality is that this is ultimately a question of the credibility of W’s evidence and of the supporting evidence of Yang, and whether the Court accepts their evidence as to the circumstances of the making of the Loan Agreement and the Repayment Agreement and the Transfer. In this respect, I regret to conclude from all the evidence that neither W nor Yang can be accepted as reliable witnesses. Their evidence is also unsupported or contradicted by the independent contemporaneous documents as are available.

20. First, W and Yang have not been forthcoming about the extent of their relationship. The witness statement of W only referred to Yang as a friend, whom he approached for the Loan. The evidence of W and Yang suggested that the Loan, the Loan Agreement and the Repayment Agreement comprised a mere commercial transaction between 2 independent parties, Yang claiming in her evidence that she was interested in investing in FB shares in November 2016 because she knew the majority shareholder Liu (in an attempt to distance herself from W). However, as pointed out by Counsel, the evidence indicates that Liu was not in fact the majority shareholder of KD in November 2016, as he only became the majority shareholder in late April 2017. Yang’s evidence, in cross-examination, as to her reasons for being content to receive the Shares in the event of KD’s default or inability to repay the Loan, and her purported disinterest in making a profit from the Shares as opposed to only seeking payment of interest on the Loan, are improbable to be believable (as will be elaborated upon below). It was only in the course of cross-examination, and in response to questions raised by the Court, that W admitted that he in fact had an intimate relationship with Yang. Before such admission, W’s testimony had shifted from Yang having a “close business relationship” with him, to their being “good friends” who had come from the same hometown, to his having an intimate personal relationship with her only after April or May 2018, to cohabiting with her occasionally. Their intimate relationship may have been a reason for Yang to have been evasive in her evidence as to her residential address during her stays in Hong Kong, and to which “friend” had arranged for her accommodation in Hong Kong.

21. The evidence given by W and Yang as to the terms allegedly agreed between them for W’s purchase and sale of shares in FB after the date of the Loan Agreement was also inconsistent and unbelievable.

22. It was a term of the Loan Agreement that the money advanced was to be used to purchase FB shares. However, there was no probable and good reason for W and Yang to have agreed, as they alleged in cross-examination, as part of the Loan Agreement, that the FB shares purchased by W in the interim of the 12 months prior to repayment of the Loan could not be sold by him at a loss. W’s evidence was that in this interim of 12 months, he was free to buy but not to sell the FB shares at a loss. His explanation was that if he should sell the shares at a low price, he would be making a loss and this meant that Yang would also be making a loss. On Yang’s part, her evidence was that she was afraid that if there should be a loss sustained as a result of the shares being sold at a low price, there would be no repayment of the Loan to her.

23. Under the Loan Agreement, KD and W as guarantor agreed that if the Loan was not repaid on its due date, W will transfer to Yang the shares he held in KD and further pay any shortfall in the outstanding Loan. Any loss incurred as a result of the sale of the FB shares at a price lower than the acquisition cost would have to be made up by W to Yang. As Mr Wong pointed out on behalf of the Applicant, it was commercially unreasonable and improbable that W (a seasoned trader in shares) would have agreed not to be able to cut any losses incurred in the drop of the price of the FB shares, by selling them in the 12 months before the due date for repayment of the Loan.

24. On Yang’s part, her testimony on the conditions imposed regarding W’s sale of the FB shares at a loss contradicts her own evidence, that her prime interest in agreeing to make the Loan was the interest payable on the Loan at 18%, and her purported disinterest in making a profit from the Shares. There was also no reason for her to be concerned to impose restrictions on the sale of the FB shares, when the shortfall would have to be paid by W to her under the express terms of the Loan Agreement.

25. Yang’s evidence, in cross-examination, as to her reasons for agreeing in November 2016 to take the Shares as security for the Loan, and why she was content to receive the Shares in the event of KD’s default or inability to repay the Loan are full of inconsistencies, and improbable to be believable. As Mr Wong sought to emphasize, there was no commercial reason for Yang to have agreed to take the shares in KD, and in effect the FB shares, as security for repayment of the Loan, when she had no control on how W/KD would acquire and dispose of the FB shares (apart from the only condition they claim, of not selling at a loss), and no guarantee that KD would still be holding any FB shares purchased when the Loan fell due on 17 November 2017. KD had no business or assets other than holding W’s investments. Mr Wong further pointed out that it was also improbable that Yang would have agreed to restrict the sale of the FB shares purchased, if she was merely looking to W for repayment of the Loan or the shortfall between the outstanding Loan and the value of the FB shares purchased in KD’s name. If the FB shares held by KD were of value, it would have been reasonable to expect that they would be sold by W/KD for repayment of the Loan to Yang. If KD was unable to repay the Loan, it is improbable that she would have agreed to take KD as the FB shares it held were likely to be worthless and, irrespective of the value of such shares, she had little knowledge of KD, its business and assets in 2016 (as is apparent from Yang’s evidence). The security taken by Yang under the Loan Agreement appeared to be worthless and would not appear to be something which a reasonable businessman would have agreed to.

26. As Mr Wong also argued, if the evidence of Yang and W were to be believed as to the nature of the Loan and the intention to provide security to Yang, it would have made more sense for the parties to have agreed to transfer the FB Shares directly from KD to Yang, as opposed to the Transfer involving the KD shares from W to Yang.

27. On the whole, the evidence of W and Yang as to the making of the Loan Agreement and Repayment Agreement is contrived, for the purpose only to explain the Transfer of KD from W to Yang on 7 December 2017, conveniently, just before the Order was made against the Shares held by KD on 11 December 2017. In her testimony in court, Yang was hesitant and evasive in giving details in her answers to questions put to her. Essentially, she could only echo W’s evidence and repeated her script that the purpose of the Loan Agreement and Repayment Agreement was to give her security for the Loan she had made, and that the shares in KD were transferred to her pursuant to such security. As for W, he could not even be direct and truthful on his address given in the Notice to Act and in his affirmations.

28. Significantly in this case, the evidence of the Loan allegedly made by Yang to W is not clear and free from doubt.

29. In his witness statement, W claimed that Yang had arranged for the transfer of the Loan to KD’s account in Hong Kong via currency exchange providers and third parties. In support, W produced in evidence a receipt signed by him on behalf of KD, to the effect that KD had received a sum of RMB 81 million from one Mr Zhang (“Zhang”) acting on Yang’s behalf, which sum was paid into a bank account designated by W in Shenzhen and as stated in the Loan Agreement. In his testimony in court, W claimed instead that the sum was first paid into an account of his/KD in Shenzhen, and then to KD’s account in Hong Kong. According to W, a receipt was issued on the same day and given to Yang.

30. In her witness statement, Yang did not give any details as to how the Loan was paid to KD. This is so, notwithstanding the fact that the Transfer and the beneficial interest in the FB Shares had been the issue in dispute between the Applicant, KD, and W from the start, and Yang’s Loan to KD was the consideration relied upon by KD to justify KD’s claim to the Shares, and the defence asserted that that KD and Yang had, at all material times, acted in good faith, reasonably and honestly (para 13.2.5 of KD’s Defence). Nor was Yang able, in her testimony in Court, to give a detailed account of the transfer of the Loan to KD. She initially adopted the account given by W in his witness statement, which W had actually amended in cross-examination. Yang then claimed that she had not made the transfer of the money herself, but that someone else had made the arrangements, as she did not know much about transferring money to Hong Kong, and also that she did not want to take the risk of transferring a large amount of money from the Mainland to Hong Kong. Finally, Yang claimed that she had asked Zhang to transfer the Loan because she had money with Zhang - a fact which had never been raised before and, if true, was simple enough as an explanation and could easily have been mentioned in her evidence.

31. On behalf of the Applicant, it was also highlighted that neither Yang nor Zhang on behalf of KD had disclosed or produced the receipt of the Loan in their evidence, and that only W had produced a copy of the receipt. W’s evidence is that he had issued a receipt to Yang on the day the funds were received by KD. According to Yang, she had passed the receipt to Zhang instead, as it was he who had arranged the transfer and paid on her behalf, so it was a matter to be settled between Zhang and herself. Despite the fact that the Loan from Yang to KD is at the heart of the dispute as to whether Yang had furnished good consideration for the Transfer, Mr Wong pointed out that not only has Yang failed to disclose or produce the receipt, but there has been no other independent documents from either Yang or KD to evidence the transfer of the Loan from Yang to KD.

32. In summary, the Loan was alleged in the Defence of W and KD to be a loan made by Yang to KD, under the Loan Agreement. When it came to the actual evidence to establish this, what could be produced was only a payment and transfer of the sum from someone totally different, ie Zhang. To connect Zhang to Yang, W conveniently produced a receipt signed by him, to say that Zhang’s payment was made on behalf of Yang. However, the receipt was only forthcoming from W, but not from Zhang or Yang. This is totally suspicious and incredulous.

33. Coupled with the overall unsatisfactory and unreliable evidence from W and Yang, the Applicant submitted that the Court should find that the Loan and consideration for the Transfer has not been established by KD, the party which bears the burden of showing cause why a charging order nisi should not be made absolute (Rosseel NV v Oriental Commercial and Shipping (UK) Limited [1991] 10 WLUK 97).

34. In the assessment of evidence, a crucial consideration for the Court, besides the demeanour and credibility of the witnesses and the inherent probability of their assertions, is whether the parties’ assertions are consistent with their conduct and the contemporaneous documents.

35. It is material that the contemporaneous and independent documents in this case do not support the contentions made by W and KD, that W’s beneficial interest in the shares in KD had been divested and transferred by him to Yang (according to para 13(5)(b) of W’s Defence, on 7 December 2017). According to the Annual Report of FB for 2017, W was still recorded and stated as a substantial shareholder and W made disclosure of his interests in the Shares as at 10 January 2018. The Annual Report recorded Yang as a director appointed to the board of FB on 8 February 2018, but there was no declaration as to Yang’s interests in the Shares. Counsel for KD sought to explain this by the fact that the Transfer was only completed in January 2018 and the Certificate of Incumbency was only issued on 8 January 2018 in respect of the Transfer into Yang’s name. There is no evidence as to the completion of the Transfer only taking place in January 2018. As pleaded in paragraph 13 (5) (b) of W’s Defence, W regarded the beneficial interest in the KD shares to have been transferred to Yang on 7 December 2017. As for Yang, she also regarded and accepted in her cross-examination that the shares in KD had been transferred to her by 7 December 2017.

36. The Report of the Directors contained in FB’s Annual Report for 2017 clearly and unreservedly states that as at 31 December 2017, W was the beneficial owner of 765,840,000 shares in FB, which included the Shares which were indirectly held by W through KD, and further, that KD was wholly owned by W. There is nothing in the Annual Report or the Directors Report which is consistent with the fact that there had been a transfer of W’s beneficial interest in KD on 7 December 2017 (under and pursuant to the Transfer), and that Yang had any beneficial interest in any shares in FB.

37. None of the excuses and explanations made by or for Yang, that she did not play any role in the preparation of the Annual Report or the Report of the Directors of FB, or that she could not read English, are acceptable or believable, bearing in mind that she was an executive director of the listed company, FB, at the time of its Annual Report for 2017, and must bear responsibility for the contents of these Reports.

38. After the Transfer, it is also clear from the contemporaneous bank documents that W was still using KD’s bank accounts for payments in and out of substantial amounts of money relating to W’s own personal transactions. Yang’s evidence was that she had agreed to this and had given standing instructions to the finance staff to allow the transfers of money from KD’s account to W’s account. As Counsel for the Applicant pointed out, this was highly unusual and improbable, when on Yang’s own evidence, W was still indebted to her for approximately HK$34 million.

39. I have borne in mind the general principles and authorities relied upon by KD and W, as to the distinction between KD and its shareholder W, and the fact that there is a strong presumption that parties intend to be bound by the provisions of the agreements they made, such that it requires cogent evidence before the Court finds or infers that a transaction is a sham, notwithstanding any commercial imprudence of the transaction. Yet, the overall evidence adduced by W and Yang as to the Loan Agreement and the Repayment Agreement as the justification for the Transfer is so improbable and unreliable, that this Court must reject their evidence and conclude that the beneficial interest in the KD shares, and in the FB Shares registered in the name of KD, remained vested in W at the time of the service of the Order on KD.

Disposition and orders made

40. My conclusions on the issues framed are:

(1) The beneficial interest of the Shares rests with W.
(2) The purported Loan Agreement between W, KD and Yang and the subsequent Transfer were not genuine transactions.
(3) W had not divested his beneficial interest in the Shares on 7 December 2017, and the Repayment Agreement is not a genuine transaction.

41. The Applicant does not seek any finding on lifting of the corporate veil, in light of the foregoing findings.

42. The Charging Order Nisi in respect of the Shares is made absolute, with costs of the charging order applications to the Applicant, including the costs of the trial of the beneficial interests.

	(Mimmie Chan)
	Judge of the Court of First Instance
	High Court

Mr Alexsander Wong, instructed by Chong & Partners LLP, for the applicant

Mr Jun Lee, instructed by Tam Pun & Yipp, for the 1^st respondent

Mr. Man Hon Chiu, instructed by Peter Cheung & Co, for the 2^nd respondent

HCCT 48/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO 48 OF 2017

____________

BETWEEN
	章晶历	Applicant
and
	吴联模	Respondent

____________

Before: Hon Chow J in Chambers (Open to Public)

Date of Hearing: 27 October 2017

Date of Decision: 27 October 2017

___________________

D E C I S I O N

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1. The issue for decision is whether the court should grant an interim injunction pending the substantive determination of the applicant’s inter partes summons dated 18 October 2017 seeking a Mareva injunction against the respondent.

2. The applicant is the award creditor of an arbitration award dated 16 June 2016 (“the Award”) made by the Beijing Arbitration Commission of the People’s Republic of China against (i) a PRC company called 第五季國際投資控股有限公司 (“DNK”) and (ii) the respondent, being the guarantor of the obligations of DNK. According to the applicant, the respondent is also the controlling shareholder of DNK. The Award is for the principal total sum of CNY65,000,000, arbitration fees of CNY323,091, and interest thereon.

3. On 29 September 2017, the applicant obtained an order (“the Enforcement Order”) from Madam Justice Mimmie Chan permitting him to enforce the Award in the same manner as a judgment or order of this court pursuant to sections 84 and 92 of the Arbitration Ordinance (Cap 609) against the respondent.

4. On 12 October 2017, the applicant made an ex parte application to this court seeking a Mareva injunction against (i) the respondent to freeze and/or preserve the sum of HK$77,502,581.30 (being the amount of the Award in Hong Kong dollars), and (ii) the respondent and a company called Kai De International Holdings Ltd (“Kai De”) to restrain the disposition of certain shares held by them in a listed company called Bright Future Mining Holdings Limited (“Bright Future”) in aid of the Enforcement Order. According to the applicant, Kai De was a company wholly owned by the respondent. The ex parte application was supported by the applicant’s 2^nd affirmation made on 12 October 2017. In that affirmation, it was stated that the respondent and Kai De held around 15 million and 612 million shares in Bright Future (as at 3 October 2017).

5. As can be seen from paragraph 3 of the skeleton submissions of Mr Wong on behalf of the applicant dated 12 October 2017, the need for an urgent injunction was put on the basis that the respondent disclosed on 9 October 2017 that he had disposed of 150,035,000 shares in Bright Future on 3 October 2018, which disposition the applicant said he came to know only on 11 October 2017.

6. In support of the ex parte application, Mr Wong argued that there was a real risk of dissipation of assets by the respondent on the basis of the following matters:-

(1) DNK was un-cooperative when the applicant sought to enforce the Award against it in the PRC court. I pause to observe that at that time, only scanty particulars were given of the alleged un-cooperation on the part of DNK.
(2) As earlier mentioned, the respondent disposed of 150,035,000 shares in Bright Future on 3 October 2017.
(3) The respondent also disposed of 148,000,000 shares in another listed company called China Financial Leasing Group Limited (representing some 16.63% of the shareholding of that company) on 21 September 2017.

7. The ex parte application was dismissed by me because I was not satisfied that the applicant had produced sufficient evidence of a real risk of dissipation of assets.

(1) In respect of the alleged un-cooperation of DNK, I took the view that the fact that an award or judgment debtor did not cooperate in the execution of the award or judgment against him was hardly surprising and could not be regarded as evidence of a risk of dissipation of assets.
(2) In respect of the disposals of the shares in the two listed companies, I was informed that at the time of the ex parte application, the applicant had not yet served the Enforcement Order on the respondent. It could not therefore be said that the alleged disposals were prompted by the making of the Enforcement Order. Neither could it be said that the disposals were prompted by the Award, which was made nearly 16 months previously in June 2016.

8. In addition, I was not satisfied that there was sufficient evidence to show that the shares in Bright Future held in the name of Kai De belonged beneficially to the respondent such as to justify the exercise of the so called Chabra jurisdiction to grant a Mareva injunction over assets held in the name of a third party. I took the view that the fact that under the relevant listing rules, the respondent was treated as being interested, or deemed to be interested, in the shares held by Kai De could not be regarded as evidence that the respondent was the beneficial owner of those shares.

9. On 18 October 2017, the applicant took out the present inter‑partes summons seeking substantially the same Mareva injunction against the respondent. As confirmed by Mr Wong this morning, the applicant no longer seeks any injunction against Kai De to restrain it from disposing of its shares in Bright Future. The application is supported by the applicant’s 3^rd affirmation made on 18 October 2017.

10. In relation to the issue of risk of dissipation of assets, the applicant no longer relies on the alleged disposals of shares by the respondent referred to in paragraph 6(2) and (3) above. Instead, the applicant now relies solely on the un-cooperation of the respondent and DNK in relation to the applicant’s attempted enforcement of the Award in the PRC court, referring in particular to a report issued by 浙江省杭州市中级人民法院 (Zhejiang Hangzhou Intermediate People’s Court) dated 13 October 2017 (“the Report”). I shall come back to the contents of this report later in this decision.

11. There was no mention at all in the applicant’s 3^rd affirmation, or in Mr Wong’s skeleton submissions dated 23 October 2017 filed in support of the present inter-partes application, of the fact that the court had dismissed the previous ex parte application on 12 October 2017 or the court’s reasons for dismissing that application. In this regard, it may be noted that the present inter-partes application was originally fixed for hearing before another judge, and counsel’s skeleton submissions were submitted to that judge. The failure to refer to the aforesaid matters in the papers for the present application is, to say the least, unsatisfactory because the evidence, the submissions and the court’s reasons for dismissing the ex parte application could be relevant to the respondent’s submissions on, and the court’s consideration of, whether an interim injunction should be granted.

12. For this reason, I granted a short adjournment of the hearing so that Mr Man, who appeared for the respondent this morning, could read the applicant’s 2^nd affirmation. I also informed Mr Man of a part of my reasons for dismissing the ex parte application which I considered to be relevant to the submissions that he made to the court.

13. On behalf of the respondent, Mr Man seeks directions from the court for the filing of evidence in opposition to the application. Mr Wong does not object to the respondent’s application for directions regarding the filing of evidence (save in relation to the actual timetable), but seeks an interim injunction pending the substantive hearing of the application.

14. The main issue for consideration is whether there is before the court sufficient evidence of a risk of dissipation of assets by the respondent. As earlier mentioned, the applicant now relies solely on the un-cooperation of the respondent and DNK in relation to the applicant’s attempted enforcement of the Award in the PRC court, in particular the following matters stated in the Report:-

“本院于2016年7月22日依照仲裁书中的地址向二被执行人发出执行通知书及报告财产令，责令被执行人7日内自动履行，但本院以特快专递方式送达的法律文书均无人签收被退回，现被执行人至今未履行生效法律文书确定的义务。执行中，本院于2016年8月已将二被执行人列入最高人民法院失信被执行人名单。… 至今未执行到任何财产。根据你们的申请，本院于2017年3月31日将被执行人吴联模以拒不执行判决、裁定罪移送上城区分安分局，该局以未提供第五季实业有限公司的评估材料等为由，至今未立案审查。”

15. Mr Man submits that the mere fact that the respondent and his company DNK failed to cooperate in the execution process is not evidence of a risk of dissipation of assets. Mr Man also submits that before the court may grant a Mareva injunction, there must be “solid evidence” of a risk of dissipation of assets, and the standard of proof of the risk of dissipation is “relatively high”. This submission is supported by the judgment of DHCJ Winner Tam SC in Eastman Chemical Ltd v Heyro Chemical Co Ltd (No 2) [2012] 3 HKLRD 307, at paragraph 26 (quoted with approval by Au-Yeung J in Arrow ECS Norway AS v Xin Cheng Holdings (International) Company Limited, HCA 239/2016 (12 May 2016), at paragraph 47):

“(1) Mareva injunctions put the recipient party in a seriously disadvantaged position right from the start, from which it may never recover. It is therefore essential for the Court to carefully and critically scrutinise the materials placed before it before making such an order.
(2) When considering whether there was unacceptably low commercial morality to infer a risk of dissipation of assets, the Court should scrutinise the evidence with care and should not too readily infer a real risk of dissipation from the defendant’s conduct or commercial morality: Hornor Resources (International) Co Ltd v Savvy Resources Ltd [2010] 4 HKC 50, 57.
(3) There must be “solid evidence” of the risk of dissipation of assets. The order, being a very serious infringement of rights and liberties of the defendant, can only be justified on appropriately clear and strong facts and risks. The standard of proof of the risk of dissipation is relatively high.
…
(5) The plaintiff cannot beforehand prevent the defendant from disposing of his assets merely because he fears that there will be nothing against which to enforce his judgment nor can he be given a secured position against other creditors. The dissipation of assets must be shown to be with an intention or for the purpose of defeating the plaintiff’s claim, or otherwise “improper”.
(6) The plaintiff is required to show that at least objectively, the effect of the defendant's conduct would be to frustrate the enforcement of any judgment. The conduct in question must be unjustifiable. There must be a risk that the asset will be used otherwise than for normal and proper commercial purposes.”

16. In paragraph 48 of her judgment in Arrow ECS, ante, Au‑Yeung J also referred to the following passage in the judgment of the Court of Appeal of Ontario in Chitel v Robart [1982] 39 OR (2d) 513 at 532-533:-

“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 disposing of 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.”

17. In my reasons for dismissing the ex parte application on 12 October 2017, I expressed the view that the fact that an award or judgment debtor did not cooperate in the execution of the award or judgment against him could not be regarded as evidence of a risk of dissipation of assets. What is stated in the Report is, essentially, clearer or more detailed evidence that the respondent and DNK failed to cooperate in the execution process against them, but the nature of the allegation against the respondent remains the same. It seems clear that the respondent and DNK are not willing to voluntarily pay the sums which they have been ordered to pay to the applicant under the Award, but I do not consider that to be “solid evidence” of a risk of dissipation of assets for the purpose of granting a Mareva injunction.

18. For the above reasons, I am not prepared to grant the interim injunction sought by the applicant.

19. I give the following directions for the further conduct of the applicant’s summons dated 18 October 2017:-

(1) leave to the respondent to file and serve evidence within 21 days of the date hereof;
(2) leave to the applicant to file and serve evidence in reply within 21 days thereafter;
(3) no further evidence be filed without leave of the court;
(4) the summons be adjourned to a date to be fixed for substantive argument, with 3 hours reserved; and
(5) costs of today be reserved.

	(Anderson Chow)
	Judge of the Court of First Instance High Court

Mr Alexsander Wong, instructed by Chong & Partners LLP, for the applicant

Mr Man Hon Chiu, instructed by Peter Cheung & Co, for the respondent

章晶历 v. 吴联模 AND ANOTHER

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