HCCT 58/2021
[2022] HKCFI 829
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
CONSTRUCTION AND ARBITRATION PROCEEDINGS
NO 58 OF 2021
____________________
| | IN THE MATTER of Section 92(1) of the Arbitration Ordinance (Cap 609) |
| | and |
| | IN THE MATTER of the recognition and enforcement of an arbitral award |
____________________
| BETWEEN | | |
| | G | Applicant |
and |
| | X | 1st Respondent |
| | GMCI | 2nd Respondent |
| | GMCC | 3rd Respondent |
____________________
Before: Hon Mimmie Chan J in Chambers
Date of Hearing: 21 December 2021
Date of Decision: 22 March 2022
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D E C I S I O N
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Background
1. This case has an extensive background history of interlocutory applications in a short span of 4 months.
2. On 5 July 2021, the Plaintiff (“G”) applied ex parte to the court, firstly, for leave to enforce an arbitral award made on 20 April 2021 in favour of G (“Award”) in a CIETAC arbitration which had been commenced by G against the 1st Respondent (“X”) and others (“Arbitration”). Under the Award, X was ordered to pay to G a sum of RMB 660,752,667 as damages, double interest in default of due payment, and arbitration fees of RMB 6,004,000. Secondly, G sought from the Court a Mareva injunction to restrain X from disposing of his Hong Kong and worldwide assets, up to the amount of the Award (“Mareva Injunction”), and for disclosure of his assets whether situated in Hong Kong or elsewhere, and whether in his own name or not (“Disclosure Order”).
3. The ex parte application for the Mareva Injunction and Disclosure Order against X was granted by the Court. The Court also granted the injunction and disclosure orders against the 2nd and 3rd Respondents under the Chabra jurisdiction. However, the Court directed that the application for recognition and enforcement of the Award should be proceeded on inter‑partes basis, and no order was made on 5 July 2021.
4. On 6 July 2021, G issued an originating summons to pursue the application for enforcement of the Award, and further, for the Mareva Injunction and Disclosure Order to be continued against the Respondents (“Continuation Application”).
5. On the return date of 9 July 2021, the Court continued the Mareva Injunction on an interim basis until substantive argument, ordered X to comply with the Disclosure Order within 28 days, stayed the disclosure order against the 2nd and 3rd Respondents, and gave leave to the Respondents to file evidence in opposition to the Continuation Application.
6. After the handing down of the Award, X had applied to the Beijing Intermediate Court on 20 May 2021 to set aside the Award (“Mainland Setting Aside Application”). In turn, on 18 June 2021, G applied to the Beijing Court for enforcement of the Award (“Mainland Enforcement Application”). On 21 July 2021, the Beijing Court made an order to stay G’s Mainland Enforcement Application pending the determination of X’s Mainland Setting Aside Application. The Mainland Setting Aside Application was heard before the Beijing Court on 23 July 2021 and 15 September 2021, and judgment is pending.
7. After an agreed extension of time for X to comply with the Disclosure Order, there was dispute as to the interpretation of the Disclosure Order as to calculation of the time for compliance. G issued a summons, returnable on 20 August 2021, to clarify and/or vary the time limit for compliance with the Disclosure Order, and for a deadline of 25 August 2021 to be imposed (“Clarification Summons”).
8. On 16 August 2021, the Respondents proposed in correspondence that the Mareva Injunction and the Disclosure Order made by the Court should be discharged pending the substantive hearing of the Continuation Application, but that X would not dispose of, deal with or diminish the value of the assets in his bank account with Citibank NA Singapore (“Singapore Account”) which had a cash balance of US $104,872,747. This was not accepted by G, and the Respondents issued a summons on 19 August 2021, seeking to vary the Mareva Injunction to limit the scope thereof to the Singapore Account (“Variation Summons”). The Variation Summons was scheduled to be heard on 27 August 2021.
9. On 20 August 2021, at the hearing of the Clarification Summons for clarification or variation of the time for compliance with the Disclosure Order, Wilson Chan J held that X had taken an opportunistic interpretation of the order of the court, and was in breach of the deadline for compliance with the Disclosure Order, of 6 August 2021. He ordered, inter alia, that X should make disclosure in accordance with the Disclosure Order by 25 August 2021, and that he should pay indemnity costs in respect of the Clarification Summons.
10. On 23August 2021, before the time for disclosure specified in the Order of Wilson Chan J of 20 August 2021, the Respondents made yet another application for extension of time (“EOT Summons”), on the basis of the disclosure made and the offer relating to the Singapore Account. In response, G issued a summons on 24 August 2021 (“24/8 Summons”) to strike out the EOT Summons, to vary the ceiling of the Mareva Injunction, and for a Hadkinson Order that the Variation Summons should not be heard by the Court unless and until X makes disclosure as ordered by the Court. The 24/8 Summons was scheduled for hearing on 27 August 2021.
11. On 25August 2021, X made his 2nd affirmation in purported compliance with the Disclosure Order (“X2”).
12. On 26 August 2021, a day before the hearing of the 24/8 Summons, the Respondents sought to vary the Mareva Injunction to permit X to transfer the cash balance in the Singapore Account to X’s HSBC bank account in Hong Kong (“HK Account”), pending the resolution of G’s Variation Summons. The parties were able to agree on various terms in relation to the EOT Summons, the 24/8 Summons, and the Respondents’ Variation Summons. By consent, Wilson Chan J made orders, inter alia, to vary the Mareva Injunction to permit X to transfer the cash balance from the Singapore Account to the HK Account and to withdraw the EOT Summons, adjourned the Variation Summons and G’s application to vary the ceiling of the Mareva Injunction. No order was made on G’s application for the Hadkinson Order, nor on its strike out application, but all costs of these applications were awarded to G.
13. On 3 September 2021, G applied for further disclosure by X and for a Hadkinson Order that X’s Variation Summons should not be dealt with unless and until further disclosure has been made by X (“3/9 Summons”). The hearing of the 3/9 Summons was scheduled for 17 September 2021.
14. On 10 September 2021, after the transfer of the cash from the Singapore Account to the HK Account, the Respondents applied by summons to vary their Variation Summons, to allow X to make payment into court of RMB 696,747,492 or US$107,845,632 (“Sum”), for immediate discharge of the Mareva Injunction and the Disclosure Order, but without prejudice to the Respondents’ opposition to the Continuation Application.
15. On 15 September 2021, the parties made an application by consent, to allow X to make payment of the Sum into Court for discharge of the Mareva Injunction (on a without prejudice basis). No order was made on the 3/9 Summons. Payment into court of the Sum was made on 20 September 2021, and the Mareva Injunction was discharged as a result of the payment.
16. On 15 October 2021, the Respondents applied by summons for payment out of the Sum and for fortification in relation to the Sum paid into court. Evidence in support was filed together with the Respondents’ evidence in opposition to the Continuation Application.
17. Before this Court are: (1) the Respondents’ application for payment out of the Sum which they had made into court for the discharge or in lieu of the Mareva Injunction (“Payment Out Application”), and alternatively, fortification of G’s undertaking as to damages in respect of the Mareva Injunction (“Fortification Application”); and (2) G’s Continuation Application.
18. The Respondents’ Payment Out Application is made on the basis that the Mareva Injunction should never have been granted on ex parte basis, for lack of a good arguable case to support its grant, and should also be discharged for material non-disclosure. Alternatively, G should be ordered to provide fortification in view of his tenuous connection with Hong Kong and the absence of any of his assets here, such that G would not be able to make good the Respondents’ loss arising as a result of the Mareva Injunction.
Material non-disclosure of lack of urgency regarding X’s disposal of shares?
19. The first ground relied upon by X, in the context of G’s alleged material non-disclosure, is that G had created “an unwarranted sense of urgency” by relying on an investigation report issued by the Mintz Group on 29 June 2021 (“M Report”). On X’s case, the Award was issued on 20 April 2021, but the ex parte application for enforcement of the Award in Hong Kong and for the Mareva Injunction was only made in July 2021, which is inconsistent with any urgency alleged to form the basis of the ex parte applications. X highlighted the fact that at the hearing of the ex parte application before the learned Recorder, the Court had queried the lack of alacrity on the part of G, and that the Recorder was only persuaded by the submissions made on behalf of G at the hearing, that it was only when G received the M Report on 29 June 2021, and learned from the M Report of X’s disposal of his shareholding interests in the TME Shares in 2019 (“Disposal”), that G was alerted to the risk of X’s dissipation of assets, and that the Mareva Injunction was granted on that basis. The TME Shares had been the subject matter, and in any event at the heart of the dispute between G and X in the Arbitration. X argued that G had failed to disclose the full circumstances of when and how the M Report was instructed, claiming that G should have known of X’s disposal before June 2021.
20. On the limited evidence available, I consider that there is no basis for X’s assertion that G must have known, or should have known, of the Disposal before June 2021, and that such a claim remains to be sheer speculation on X’s part.
21. The Disposal has to be understood against the background of the proceedings between G and X. The subject matter of the Arbitration commenced in October 2018 is a series of agreements entered into by G, for his investments in various companies including one known as CMC which carried on an online music business on the Mainland. G claimed in the Arbitration that he had been induced by X’s fraud to sell his interests in CMC at an undervalue of RMB 158 million, and that such of his equity interests became beneficially owned by X through his nominee company (“GMHL”). The disputed interests were referred to as the 4% TME Shares, and G claimed in the Arbitration for rescission of the relevant agreements and for the return of the TME Shares, and/or for damages.
22. Whether or not the 4% TME Shares should be returned to G was accordingly a key issue in dispute in the Arbitration. Throughout the Arbitration, X never opposed G’s claim for the return of the TME Shares in the Arbitration on the basis that they had already been sold by him, whether in whole or in part. G claims that he and the tribunal had been under the belief at all material times throughout the Arbitration that X was still holding the TME Shares, as there was no inkling at any time that the shares had been sold in 2019. Although the tribunal did not order the return of the TME Shares in the Award, damages were awarded to G on the value of the shares.
23. According to G, when X failed and refused to pay the Award sum, he instructed an established investigation firm (M Group) to conduct a worldwide asset investigation on X and his wife. The M Report was issued on 29 June 2021, and this disclosed a range of assets owned by X and his wife in Hong Kong and elsewhere, but also disclosed that X had (through GMHL) sold at least a part of the TME Shares in June 2019, at the same time as X’s resignation as co-president and director of TME, and that the current and complete status of X’s shareholding in TME was uncertain. On G’s case, the M Report was the trigger for the application for the Mareva Injunction in July 2021, and that the interim of approximately 11 weeks between the Award and the application for the Mareva Injunction did not constitute delay.
24. X relies on the fact that, as evidenced by the content of the M Report, the instructions to the investigators had been issued in May 2021, and this was not revealed to the Court at the time of the ex parte application in July 2021. X further placed emphasis on the fact that the instructions to the investigators were for them to focus on “verifying whether X still holds shares in (TME)”. On behalf of X, it was argued that these constituted specific instructions from G to the investigators, which were stated as an objective, separate from the more general objective of ascertaining the assets of X, his wife and their business operations, and do not suggest that G had no knowledge of the Disposal until after the M Report was issued in June 2021. It was argued that “what is more likely to be the truth” is that rather than having been prompted by the M Report to apply for the ex parte Mareva Injunction, the M Report was in fact commissioned by G “for the purpose of creating a case of urgency which did not otherwise exist”, and that the Disposal in June 2019 must have been known to G by 10 May 2021 at the latest, when instructions were sent to the investigators.
25. The above assertion is contrived, with no factual or evidential basis. No evidence has been adduced which can suggest that when the instructions were sent to the investigators in May 2021, G had known of the Disposal which had taken place in June 2019. The evidence in fact suggests otherwise. After the Award, G’s lawyers still stated in their demand letter of 29 April 2021 G’s belief that X held more than 4% of the total shares of TME. They also wrote to TME on 29 April 2021, warning against assistance by TME to X’s disposal of his assets, including the 4% TME Shares.
26. At this stage, the Court is in no position to determine the truth or otherwise of either party’s bare assertions, including whether anything can be read from G’s statement that he had no “material” information concerning X’s shareholding, nor is it appropriate for the Court to engage in a mini-trial on the basis of the affidavits filed for the interlocutory applications. However, such of the evidence as is available does not support X’s claim.
27. The only straws grasped on by X in his case are the statements contained in the instructions to the investigators, of “verifying” whether X still held the TME Shares. I fail to see how the Court can draw any inference from such general instructions, that G must have known, or that it is more likely that he had known, that X no longer held the TME shares. The instructions to “verify” the ownership of the TME Shares are totally innocuous. First, the subject matter of the Arbitration, and the key dispute between the parties therein, had focused on the TME Shares, and the value of such shares which G claimed should have represented the value of his investments of which he had been defrauded. G’s primary claim in the Arbitration had been for the return of the TME Shares. Further, an Award had been issued in G’s favour, and he was seeking to enforce the Award against assets of X which can be identified and traced. It is hardly surprising, therefore, that when G issued instructions to the investigators in May 2021, the latter was asked to find out whether X still retained the TME Shares. This is irrespective of whether the Award was for the return of these shares to G, as damages were awarded to G under the Award. In issuing instructions to identify and ascertain the assets of any debtor, it would have been natural to include in the instructions whether the debtor still retained assets known to the creditor to have existed and which had been owned by the debtor, and in this case, these known assets were the TME Shares. I totally disagree that the “focus” or the statements relied upon by X in the instructions to the investigators can show that G knew that X no longer owned the TME Shares, and had disposed of them already. It is speculation and guesswork in the extreme.
Material non-disclosure of asset preservation relief?
28. The second ground relied upon by X to support its case of material non-disclosure, is that G had misled the Court as to the full extent of and the reason for his failure to apply for an asset preservation order on the Mainland (“APO”). At the ex parte stage, G had claimed that he had acted promptly after receipt of the Award, in applying for the Mareva Injunction in Hong Kong, and given reasons to explain why he had not applied for any APO in the past from the supervisory Court on the Mainland. These reasons were that, firstly, he was only made aware of the Disposal in June 2021 and had not been aware of any risk of dissipation before that; secondly, because X was not a Chinese national, and the TME Shares were shares of a foreign company, any application for APO on the Mainland was unlikely to be successful.
29. As important as the duty to make full and frank disclosure to the Court in an ex parte application, is the need for a party seeking to discharge the order to state clearly, in its application to discharge, the ground of material non-disclosure and the matters relied upon for the discharge. This is in view of the reminders issued by the Courts that applications to discharge for material non-disclosure should not be abused, to become a rambling and roving investigation of what should have been disclosed, but was not. Fairness and natural justice also require timely disclosure of the matters relied upon as alleged material non-disclosure, to give the other party the fair and necessary opportunity to respond to the allegations of breach of duty owed to the Court.
30. The application made by X on 15 October 2021 was for payment out of court of the Sum which had been paid in, and for fortification. According to the affirmation of X made in support on 15 October (“X4”), the application for payment out was on the basis that the Mareva Injunction and the Disclosure Order should not have been made, as it disclosed no arguable case, or on the ground of material non-disclosure. The grounds of material non‑disclosure were stated in X4 to have been the misleading presentation of the alleged urgency for the ex parte orders in Hong Kong in July 2021, when G had in fact instructed the investigators to commence investigations as early as on 10 May 2021, and the fact that no application for an APO had been made on the Mainland after the handing down of the Award. X also raised dispute as to the accuracy of the Mainland legal advice G had obtained, and which was disclosed to the Court at the ex parte hearing, that an APO could not have been obtained on the Mainland by virtue of the nature of G’s claims under the Award, X’s nationality and the TME Shares not being Mainland assets.
31. It was only in X’s affirmation made on 8 December 2021 (“X5”) that X mentioned, for the first time, his discovery in November 2021 that his assets on the Mainland, in the form of a property in Beijing and a bank account with the Bank of China, had suddenly been frozen by the Mainland court, in purported support of his claim that the Mareva Injunction should be set aside for material non-disclosure of such seizure or freezing of his assets on the Mainland.
32. In G’s latest 6th affirmation (“G6”), he deposed to the fact that neither he nor his Mainland lawyers were responsible for the freezing of X’s assets, that the freezing orders had been made by the Mainland Court on its own motion without notice to the parties, and that neither G nor his lawyers had been aware of the existence of the freezing orders or the reasons therefor, until sight of X5.
33. What had been disclosed by G, at the time of the application before the Recorder in July 2021, was that X had applied on 20 May 2021 to the Mainland Court to set aside the Award, that G had commenced enforcement proceedings on the Mainland on 18 June 2021, and that G had not applied for any APO on the Mainland for the reasons which he gave. The Mainland Enforcement Application was only stayed by the Mainland Court on 21 July 2021, which was after the ex parte application in Hong Kong. As Counsel for G pointed out, G’s enforcement proceedings on the Mainland were still on foot at the time of the ex parte hearing in July 2021, and in deciding on the necessity of the Mareva Injunction, and whether the balance of convenience required the ambit and scope of the Mareva Injunction sought by G, the Recorder had obviously taken into consideration the fact that the Award may be allowed enforcement on the Mainland, and that enforcement orders may thereafter be sought and made on the Mainland.
34. I am not persuaded that it was material to the ex parte judge, whether or not the Mainland Court would, or could in exercise of its own jurisdiction, grant an APO. The question of whether there was delay depended on the timing of the ex parte application, viewed in light of the fact that the Award had been made in April 2021, the action taken or lack of action by G in the interim, and the Court’s view of the presence of the imminent risk of dissipation even if there was delay. The learned Recorder was persuaded by the fact that G only obtained information of the Disposal upon his receipt of the M Report. Given that, and the evidence of the Disposal in circumstances when the TME Shares had been the subject matter of the Arbitration and of G’s claim for return of the shares, and the fact that X had made no suggestion throughout the course of the Arbitration that he had already sold the TME Shares such that the return should not be ordered, the Court was obviously satisfied that there was necessity for the Mareva Injunction in respect of the assets of X which were located in Hong Kong. The fact that there had been no APO applied for on the Mainland, for whatever reason, can hardly be material as to the necessity for the order to be made in Hong Kong, in the light of the real risk of dissipation revealed by the Disposal.
35. I accept that the freezing orders made on the Mainland were made by the Mainland Court on its own volition, without even the knowledge of G, as there is no evidence to suggest otherwise. If the freezing orders were not made on G’s application, I cannot agree that it is part of G’s duty of full and frank disclosure to refer to other powers which the Mainland Court has in its armory and which it may invoke, in the unforeseeable future, in respect of X’s assets on the Mainland, as part of the Mainland enforcement proceedings, or otherwise. As submitted by Counsel for G, I agree that X is only trying to capitalize on the freezing orders which the Mainland Court made on its own volition, 2 months after the conclusion of all hearings relating to the Mainland Setting Aside Application, and speculate from that, that G had withheld from the Court in Hong Kong some form of asset preservation application he had been secretly making on the Mainland at the time of the ex parte application to the Hong Kong Court. That has not been established.
36. On G’s part, it was argued that the Mainland Court’s decision to impose freezing orders against X’s assets on the Mainland, despite the stay of the Mainland Enforcement Proceedings and the existence of the Mainland Setting Aside Application, actually supports the decision of the Recorder to grant the Mareva Injunction.
37. To further support his allegation of G’s material non-disclosure, X argued that G has been afforded “double protection” in both Hong Kong and the Mainland, as a result of G’s withholding from the Hong Kong Court the fact that that the Mainland Court actually had the power on its own motion to identify and freeze X’s assets on the Mainland as part of the enforcement procedure.
38. There is no dispute, that by virtue of the implementation of the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong SAR (“Supplemental Arrangement”), the previous restriction against simultaneous enforcement of a Mainland award in Hong Kong and on the Mainland has been removed. There is nothing to prevent the relevant court from imposing preservation or mandatory measures for enforcement of arbitral awards and in accordance with the law of the place of enforcement, by virtue only of the fact that enforcement action is ongoing in the other jurisdiction of the Mainland or Hong Kong. A creditor is only prevented from seeking payment of any sum in excess of the full amount due under the award. The mere fact that the creditor had applied for enforcement, or even obtained orders by way of execution and enforcement of the arbitral award on the Mainland, is not material to the question of whether the award should be enforced in Hong Kong, or whether orders should be made by way of such enforcement, in the absence of specific facts which make the issue relevant in the particular circumstances of a case. By virtue of the Supplemental Arrangement, what is prohibited is double recovery as opposed to double protection.
39. I have already rejected X’s challenge of G’s lack of knowledge of the Disposal, and X’s claim that G must have known of the Disposal before 10 May 2021. It is not disputed by X, that an APO cannot be obtained from the Mainland Court after G had commenced enforcement proceedings on the Mainland. Before G was alerted in June 2021 to the risk of dissipation, he saw no reason or need to seek an APO in the course of the Arbitration. After the Award, G was entitled in my judgment to come to Hong Kong and apply for the Mareva Injunction against X’s assets in Hong Kong and worldwide, upon advice that this offered wider protection to him than seeking an APO on the Mainland. The choice of remedies is the creditor’s. G was entitled to choose whether to seek enforcement remedies on the Mainland, or in Hong Kong. Under the Supplemental Arrangement, he does not have to wait for completion of the enforcement proceedings on the Mainland before starting such proceedings in Hong Kong.
40. As Counsel for G pointed out, a Mareva injunction is an order inpersonam, and does not create any charge over any assets of the defendant. Unless X can show that G had obtained under any APO actual proceeds by recovery under the Award, in that the amount recovered should be deducted from the sum covered by the Mareva Injunction (and ultimately for payment into Court), the presence of any APO should not affect the right of G to apply for the Mareva Injunction in aid of enforcement of the Award. Currently, there is no evidence that G is sufficiently secured by virtue of any enforcement proceedings on the Mainland, or elsewhere, to warrant a discharge of the Mareva Injunction or a payment out of the Sum in court.
41. To conclude, I am not satisfied that the alleged non-disclosure of the availability of an APO on the Mainland was material, or a reason for the discharge of the ex parte relief granted in Hong Kong.
Material non-disclosure of G’s financial means?
42. The question of G’s financial status and means was raised in argument in the context of material non-disclosure, and is also relevant to the question of whether G should be ordered to provide fortification of his undertaking as to damages.
43. X claims that G had failed to make proper disclosure of his financial status and his ability to honour his undertaking as to damages, thus depriving the Recorder of the opportunity to properly assess the need for fortification.
44. First, I do not accept the assertion that G failed to disclose the fact that he had been added to the “List of Dishonest Judgment Debtors” on the Mainland (“List”) as a result of litigation in which he was involved on the Mainland. In G’s 2nd affirmation made in support of the ex parte application for the Mareva Injunction (“G2”), he had deposed to the fact of his having been included in the List, and had referred to litigation cases in which he had been involved on the Mainland. This subject was also covered in the skeleton submissions filed by his Counsel for the ex parte hearing.
45. X also criticized G for failing to disclose his financial means at the ex parte application, and G’s reliance on the fact that the burden was not on him as applicant for the Mareva Injunction to make disclosure of his financial circumstances.
46. It must be borne in mind in this case that the Mareva Injunction was granted in July 2021 on the basis of a final arbitral Award, after the tribunal had decided in a contested hearing on the merits of all the claims made in the Arbitration. The fact that there is an application made on the Mainland to set aside the Award does not render the Award less binding, or unenforceable, until and unless it has been set aside. It is indisputable that there is no basis for X to seek reliance on section 95 (2)(f)(ii) of the Arbitration Ordinance (“Ordinance”) to challenge the Award, as the Award has NOT been set aside or suspended by the Mainland Courts as at the date of any of X’s applications to the Hong Kong Court.
47. It is highly pertinent that the Mareva Injunction in this case was not made at the interlocutory stage, before the merits of the parties’ claims have been determined. In the usual case when an interlocutory injunction is sought before trial and judgment, a balance has to be made by the Court, weighing the justice of the grant of the injunction against the likelihood of the primary cause of action being dismissed and a defendant sustaining damage as a result of the initial injunction which had been granted to support the cause of action. The courts are in general more prepared to grant a Mareva injunction post-judgment (China CITIC Bank Corp Ltd (Quanzhou Branch) v Li Kwai Chun[2018] HKCFI 1800) and in aid of execution, both in terms of the assessment of whether there is a risk of dissipation of assets, and as to whether the defendant is likely to sustain damages as a result of the grant of the injunction, to warrant an order for fortification of the plaintiff creditor’s undertaking as to damages. As Counsel for G pointed out, the basis for a post-judgment Mareva injunction is to assist in the execution of a judgment (or award) which has already been obtained, rather than to prevent preemptive avoidance of a future judgment.
48. Counsel further pointed out that even in the context of a pre‑judgment Mareva injunction, where a defendant’s liability to pay the plaintiff has yet to be established, the burden of showing the need for fortification of the plaintiff’s undertaking as to damages, and the appropriate amount of fortification, would still fall on the defendant, and there is no obligation on the plaintiff to give full disclosure of his financial circumstances to oppose an order for fortification.
49. At the ex parte stage, I agree that G was entitled to submit to the Court, and the Court was entitled to accept, after G’s disclosure of the Mainland litigation in which he was involved and which resulted in his being put on the List, that the question of G’s financial means and ability to honour the cross-undertaking as to damages was properly to be left for the defendant to raise argument at the inter-partes stage, and for determination by the Court at that stage. G already has an Award in his favour for a substantial amount (with double interest on the Award sum), made after a final decision on the merits, and the issue of G’s means to meet an undertaking as to any damages which X may sustain as a result of the injunction paled in significance or materiality in the Court’s balancing exercise.
50. I am not satisfied in this case that there was material non‑disclosure with regard to G’s financial means and status. Nor do I agree that G had painted a misleading picture to the Court, of whether there was a need for fortification.
51. Although G has yet to obtain the leave of the Hong Kong Court to recognize and enforce the Award, which the Recorder had not been prepared to grant on ex parte basis in July 2021, the fact which cannot be avoided by X is that there is currently a final and binding Award against him, pursuant to and as a result of an arbitration in a dispute which he had agreed to refer to arbitration. The application for leave to enforce the Award in Hong Kong is yet to be heard, but the Court can only refuse enforcement on the grounds exhaustively set out in section 95 of the Ordinance. For the present application of X, it suffices for the Court to consider whether it has been shown that G has a good arguable case to enforce the Award as a judgment in Hong Kong.
52. It should also be borne in mind that even if the Award is ultimately set aside by the Mainland Court, X has no automatic right to resist enforcement of the Award merely by virtue of that fact. The Hong Kong Court as the court of enforcement has a residual discretion to permit enforcement, although such discretion has to be exercised on recognized legal principles (see Dana Shipping and Trading SA v Sino Channel Asia Ltd HCCT 47/2015, 28 July 2016).
Whether G had a good arguable case for the Mareva Injunction
53. Both in the context of whether G has a good arguable case to support the Mareva Injunction, and to the extent that the merits of the parties’ respective case are relevant to the consideration of whether fortification should be ordered of G’s cross-undertaking as to damages for the post-Award Mareva Injunction, I am satisfied that there are good merits in G’s application for leave to enforce the Award. The good arguable case required of G is that there is an Award which can be enforced by the Hong Kong Court as the court of enforcement. On my review of the grounds relied upon by X, I am not satisfied that his Mainland Setting Aside Application has such merits as to show that G has no good arguable case to seek enforcement of the Award as a judgment of the Hong Kong Court.
54. For the purpose of establishing a “good arguable case” to obtain Mareva relief, the criteria was explained in Arrow ECS Norway AS v Xin Cheng Holdings (International) Company Limited HCA 239/2016, unreported, 12 May 2016:
“10. In order to show a ‘good arguable case’, ‘the plaintiff need not go so far as to persuade the judge that he is likely to win’. He must show 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% chance of success”’ ...
11. ... Here the words ‘strong’ and ‘good’ do become material. It is not enough to show an arguable case, namely, one which a competent advocate can get on its feet. Something markedly better than that is required, even if it cannot be said with confidence that the plaintiff is more likely to be right than wrong. Gee on Commercial Injunctions,5th ed (2004), §12.024, citing Orri v Moundreas [1981] Com. LR 168, Mustill J.”
55. On behalf of G, Counsel has pointed out that X has “a significantly higher” threshold to meet, if the Court should adopt the test applied in Hebei Import & Export Corporation v Polytek Engineering Co Ltd [1996] 3 HKC 725. Mr Lam SC argued that X would have to produce prima facie evidence that the Mainland Setting Aside Application was made bona fide and not to delay payment under the Award; and that there are some reasonably arguable grounds that the Award was tainted by a defect which was likely to cause its setting aside, which grounds afforded “a reasonable prospect of success”.
56. X’s Mainland Setting Aside Application is made on the ground that the tribunal has dealt with, and the Award contained decisions on matters beyond the scope of the parties’ submission to arbitration, by dealing with disputes arising from 8 agreements with different contracting parties, in a single consolidated arbitration. X claims that the tribunal acted in excess of the terms of the submission in finding that G was the beneficial owner of the shares held in CMHL (which X claims was not a dispute arising from the 8 agreements), and in allowing G to bring claims in relation to the 8 agreements under his own name. It was highlighted that the shares in CMHL were in fact held in the names of X and two other individuals who were not parties to the Arbitration.
57. X had never raised before the tribunal any issue as to the validity of the arbitration agreement, and he had taken part in the Arbitration. I have not been taken to any evidence that X had at any time challenged the jurisdiction of the tribunal in the Arbitration. On that basis, there is more than a good arguable case that X would have been considered to have submitted to the Arbitration and to have waived any objection to the tribunal’s lack of jurisdiction to deal with the claims made in the Arbitration.
58. Provided that X himself was a party to the Arbitration, the tribunal clearly had the power and jurisdiction to make findings, binding on X as a party, as to G’s beneficial interests in the shares which were the subject matter of the dispute in the Arbitration. The tribunal’s finding on the ownership of shares was a finding made on one of the substantive issues between G and X in the Arbitration.
59. X further claims that there were defects in the Arbitration, as the tribunal had failed to request G to pay for additional arbitration fees after allowing his amendment of claims; had directed X to file supplemental documents in response to G’s amended claims within a very short period of time; had failed to provide the evidence it had collated and failed to invite the parties to make submissions on calculation of the amount of damages; and had adopted the wrong data in calculating the damages. These complaints related to either the tribunal’s exercise of its case management powers, or as to the correctness of the tribunal’s decision on damages. It came as no surprise that the Mainland Court indicated, in the course of the setting aside proceedings, that it was not concerned with the merits of the claims made in the Arbitration, nor with the review of the substantive matters which fell within the discretionary powers of the tribunal.
60. I am not satisfied that there are reasonable prospects of success in the Mainland Setting Aside Application. To use the illustration of the sliding-scale in cases decided on applications for security to be ordered against the debtor/defendant in the interim of the determination of an application to set aside made before the supervisory court (for the relevant test, see Soleh Boleh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208 and Dana Shipping and Trading SA v Sino Channel Asia Ltd HCCT 47/2015, 14 March 2016), X’s Mainland Setting Aside Application is on the low end of the scale on merits.
61. I am satisfied that G has a good arguable case that the Award should be recognized and enforced in Hong Kong.
Whether good arguable case for Chabra order
62. The legal principles applicable to the exercise of the Chabra jurisdiction of the court are as set out in the judgment of Lakatamia Shipping Co Ltd v Nobu Su [2015] 1 WLR 291, and in XY LLC v Jesse Chu [2017] 5 HKC 479. These cases have been referred to by the parties, and will not be repeated here. In claiming that G has no good arguable case to obtain the orders against the 2nd and 3rd Respondents (respectively “GMCI” and “GMCC”), Counsel for X argued that:
(1) G does not have any credible evidence to show that GMCI and GMCC were mixed up in an attempt to make X judgement-proof;
(2) the mere fact that X was a sole shareholder and sole director of GMCI and GMCC cannot be sufficient basis to invoke the drastic Chabra jurisdiction of the Court;
(3) it was a misuse of the Chabra jurisdiction to obtain an injunction against all the worldwide assets of GMCI and GMCC, without identification of the specific assets claimed to be controlled by X through GMCI and GMCC.
63. The reference made in the judgment of Pinpoint Multi-Strategy Master Fund v Gangtai Group Co Ltd Fund[2021] HKCFI 1011 to the non-cause of action defendants (“NCAD”), in this case GMCI and GMCC, being mixed up in an attempt to make the cause of action defendant (“CAD”) judgment-proof, was not suggested as a distinct matter which must be established, before the Court can exercise the Chabra jurisdiction. It is just one example of when there is good reason to suppose that the assets held in the name of the NCAD are in truth the assets of the CAD or assets of which the CAD has control, a right of access or some other right (as explained by DHCJ Le Pichon in China Baoli Technologies Holdings Ltd v Orient Equal International Group Ltd HCA 1399/2016, 12 June 2017), and/or that the assets of the NCAD would be available to the creditor under some legal process as a consequence of a judgment against the CAD. The circumstances in which the Chabra jurisdiction may be exercised by the court are those set out in the judgment of Popplewell J in PJSC Vseukrainskyi Aktsionernyi Bank v Maksimov [2013] EWHC 422 (Comm):
“The jurisdiction may be exercised where there is good reason to suppose that assets held in the name of a defendant against whom the claimant asserts no cause of action (the NCAD) would be amenable to some process, ultimately enforceable by the courts, by which the assets would be available to satisfy a judgment against a defendant whom the claimant asserts to be liable on his substantive claim (the CAD).”
64. Examples given by the courts, of assets in the name of the NCAD being in truth the assets of the CAD, assets held as nominees or trustees of the CAD, and substantial control by the CAD over the assets in the name of the NCAD, were all examples given as being relevant considerations by the Court in the application of the test.
65. What is required is there being “good reason to believe”, which is equated with a good arguable case, more than barely capable of argument, but not necessarily one which the judge believes to have a better than 50% chance of success. There should be good reason to believe that the assets of or held by the NCAD would be susceptible to a procedure which would result in the satisfaction of a judgment against the CAD, and when this can be established, the Court should be robust and ready to take drastic action so as not to allow its orders to be evaded by the manipulation of shadowy offshore trust and companies formed in jurisdictions where secrecy was highly prized and official regulation was at a low level (Akai Holdings Ltd v Ho Wing On Christopher [2009] HKCA 622, at paras 44-46).
66. GMCI is wholly owned and controlled by X, who is its sole shareholder and director, and GMCI wholly owns GMCC. Neither company has any business or operation save for holding share interests respectively in GMCC and in other Mainland companies. X has not denied that he has control over GMCI and (through GMCI) GMCC. He claims that the main business operation of these companies are investment and making financial arrangements for investment ventures. He further claims that there is nothing inherently nefarious about his extensive use of corporate and VIE structures, as the tribunal found.
67. On the evidence filed in these proceedings, it is patently clear that X is an experienced and sophisticated businessman, of legal training, and knowledgeable in the use of onshore and offshore companies to hold assets, who can “switch assets from one shadowy hand to another in such a way that is difficult to keep track of where they are” (Akai Holdings Ltd v Ho Wing On [2009] HKCA 623). As Counsel for G pointed out, and as the tribunal accepted, an elaborate and complex offshore structure had been used by X, with skill and expertise, to drive the Ocean Music project, and ultimately to induce G to divest his interests in CMC, and transfer same to entities to hold for X, in order to facilitate TME’s listing. A multi-layered corporate structure was also employed by X to hold his businesses on the Mainland and his interests in TME, which can facilitate dissipation of his assets concealed through such corporate structures. As G submitted, and I accept, there is reason to believe that the non-trading companies owned by X, including GMC - which X claimed (for the purpose of the Fortification Application, elaborated in paragraph 81 below) held investment accounts which were considered to be his “personal” investments - are in truth “no more than pockets or wallets” of X, and in which he would hold assets and cash. X’s limited compliance with the Disclosure Order is demonstrative of the extent to which he was prepared to go in terms of hiding between these investment structures, and the ease of his manipulating and controlling the entities set up for the purpose. The way in which X used his complex structures to hold his investments, evidenced by the events surrounding the divestment of G’s interests in CMC and the transfer of such interests to GMHL for the TME listing, and X’s own admission that his personal financial investments were held through GMC without making full disclosure of the assets and investments of GMC in accordance with the Disclosure Order, support the good arguable case that X has substantive and real control over GMCI and GMCC and their assets, from which inference can be made that the assets held by GMCI and GMCC are generally held by them as mere nominees or trustees of X as the ultimate beneficial owner.
68. Whilst X has maintained that he had no duty, in the course of the arbitration, to inform the tribunal and G of the Disposal, I consider that in the light of the claims made in the arbitration, his failure to disclose the fact of the Disposal was less than candid and had presented a misleading picture to the tribunal. I am prepared to infer from the evidence of X’s conduct as found in the Award, his concealment of the Disposal in the course of the Arbitration, and his conduct in these proceedings, that there is a real risk that X will remove assets out of the reach of his creditors where it suits his interests so to do.
69. There is good reason to suppose, on the evidence, that assets of GMCI and GMCC would be amenable to execution of a judgment obtained against X, by the appointment of a receiver of X’s shares in GMCI and in turn GMCI’s shares in GMCC, or by winding up these companies.
70. As I consider that there is evidence which leads me to doubt that X has been totally forthright in the disclosure made under the Disclosure Order, given the evidence in this case regarding X’s real and substantive control of GMCI and GMCC, and the manner in which X’s assets are generally held, it is not necessary to further identify the specific assets claimed to be controlled by X through GMCI and GMCC. In the case of Yukong Line v Rendsburg [2001] 2 Lloyd’s Rep 113 which is referred to in the judgment of Pinpoint, there was difficulty in ascertaining which assets of the NCAD were in fact assets of the CAD, but the Mareva order made was one which applied generally to the NCAD’s assets, after the court was satisfied on the control/beneficial interest part of the argument. There is evidence that GMCI and GMCC do respectively have assets, and a good arguable case that a process of enforcement is available by which such assets would become available to satisfy the Award which G has obtained. There is a good arguable case that without the freezing order sought, a real risk exists of dissipation of the assets held by GMCI and GMCC controlled by X, such that it would be just and convenient to extend the Mareva Injunction to prevent the disposal of assets by X, GMCI and GMCC. What has to be borne in mind is that the Award is for a significant amount, and the relief sought is in aid of enforcement of an existing and binding Award, as opposed to some prospective judgment or award which may, or may not, be made in the future. The fact that the Mareva Injunctions against GMCI and GMCC are limited to the amount of the Award should be an adequate safeguard, as GMCI and GMCC are at liberty to deal with any of their investments and assets over and above the ceiling of the Mareva Injunctions.
71. To conclude, it is just and equitable in the circumstances of this case to grant the order over the general assets of CMCI and CGCC, up to the amount of the Mareva Injunction.
Whether fortification should be ordered
72. X’s alternative case, in the event that the Court does not discharge the Mareva Injunction on the ground of absence of a good arguable case and material non-disclosure, is that G should be ordered to give fortification of his undertaking as to damages.
73. The first and preliminary point to be made in this context is that despite the numerous interlocutory applications which had been made by X, after being served with the Mareva Injunction, X did not ever raise the need for fortification from G, until 15 October 2021. In the interim between July 2021 and October 2021, X had applied (inter alia) for extensions of time to comply with the Disclosure Order; for variation of the limits of the Mareva Injunction; and to confine the scope of the Mareva Injunction to specific assets in Hong Kong, and to the Singapore Account. Even when X sought to restrict the Mareva Injunction to the money in the Singapore Account, and to transfer the money to the HK Account, X had not indicated that fortification would be required from G. In my view, the delay in the application for fortification demonstrates that there was no serious concern on X’s part as to either the likelihood of significant loss being sustained by him and arising as a result of the Mareva Injunction; or that G would be unable to make good such loss. If there had been any concerns, X would have immediately and as a matter of priority applied to the Court for fortification, instead of waiting for 3 months. He had no hesitation and no reservations at all about making other applications. X is entitled, despite this delay of 3 months, to make the application for fortification on good grounds, but the delay casts doubt on his case of likelihood of loss, and on his belief as to G’s inability to make good the loss.
74. The relevant principles governing the grant of fortification are settled. The Court has a general power to order fortification when it appears to be “just and proper” to protect the defendant by such an order. The merits of the parties’ case are not usually a necessary consideration, but if the plaintiff has a strong case, it may not appear just or proper to make the protection available to the defendant. The burden of showing the need for fortification and the appropriate quantum of fortification lies on the defendant seeking fortification, who must show the likelihood of a significant loss arising as a result of the injunction, and demonstrate why he believes the plaintiff will be unable to make good that loss. The Court will approach these issues by taking a broad view of the evidence, usually without the need of a detailed inquiry. There is no obligation on the plaintiff to give full and frank disclosure of his own financial means, but circumstances may arise where the absence of financial disclosure by a plaintiff might entitle an adverse inference to be drawn as to his ability to meet the cross-undertaking in damages. These principles were summarized and set out in the judgment of To J in Sun Yan v Superb Jade Limited HCA 813/2014, unreported, 23 October 2015.
75. X contends that since he has paid a substantial sum of US$107,845,632 into court in lieu of the Mareva Injunction, “it is likely to occasion significant loss to him”, in terms of the lost opportunities to invest the money with different professional financial institutions and to earn a higher rate of return which X calculates to be an average annualized return rate of 5.935%, 7.02%, 8.195% and 18.195% per annum (depending on the professional financial institution with which to make the investment), giving a simple average of 9.836% per annum (“Average Rate”). The Sum paid into court only earns an interest rate of 0.06% per annum, and X claims that the difference between the court interest rate and the Average Rate of 9.836% per annum produces a sum of US$15,814,483, on the assumption that the money in court would be frozen for about 1.5 years.
76. As for G’s inability to make good the loss which X claims he will sustain as a result of the Mareva Injunction (or the continued retention of the Sum in Court), X highlighted the fact that G has not given any evidence as to his assets in Hong Kong. X contends that the Court should draw an adverse inference against G and conclude that he is unable to honour the undertaking as to damages. X also relies on the fact that G has been included in the List and is subject to litigation on the Mainland and that there are records that there were no assets of G available on the Mainland for enforcement of the judgments obtained in those proceedings.
77. As I have explained in the earlier part of this Decision, I accept that G had no obligation to offer a full and frank account of his assets and financial circumstances. It was disclosed at the ex parte application that G is outside the jurisdiction of Hong Kong. It was further disclosed that he was on the List, with an account of the litigation in which G was involved which led to his inclusion on that List, and restrictions being imposed on his spending, etc.
78. The fact that the Mareva Injunction in this case was granted in aid of a final and binding Award remains a relevant factor, in the consideration of whether it would be just and proper to order fortification from G as a creditor under the Award. As the Court observed in XY LLC v Jesse Chu HCMP 869/2014, 13 November 2015, deprivation of the opportunity of investment is generally a fact which is acknowledged by the court (citing Minmetals Inc v Dragon Boom Limited HCMP 1702/2013, unreported, 12 May 2014). However, even in the case of XY LLC itself, the Court refused the application for fortification, making the important distinction that investment opportunities were mere possibilities, whereas the judgment debtor’s liability to pay the judgment sum was a certainty. At paragraph 77 of the judgment in XY LLC, Au-Yeung J remarked that it lies ill in the mouth of the judgment debtor to say that it had lost the opportunity to invest in money which should have properly been paid to a judgment creditor.
79. On behalf of G, Mr Lam SC highlighted the fact that XY LLC concerned a foreign judgment, which was also subject to an application to set aside made overseas. The facts are accordingly similar to the present case, and the reasoning of the Court in XY LLC should apply a fortiori here, since the Award is binding, conclusive and final, like the foreign judgment in XY LLC. Applying the reasoning of Au-Yeung J, the Court should conclude that it lies ill in X’s mouth to claim that he had lost, or might lose, the opportunity to invest the Sum, when such Sum should have been paid to G to satisfy the Award. I agree with Mr Lam and accept his submissions in this regard. I would emphasize that X has the existing liability to satisfy the Award made against him, irrespective of whether leave has been granted to enforce the Award in Hong Kong as a judgment here. He had agreed to refer disputes to arbitration, and had agreed that the award made in the arbitration would be final, conclusive, and binding on him. The Award has that effect, unless and until it has been set aside by a competent authority. Whether or not G can take advantage of the enforcement proceedings available to a creditor under a judgment in Hong Kong is a separate matter.
80. Mr Lam further pointed out that even if X had simply applied to defer the hearing of whether the Award should be enforced in Hong Kong until after the Mainland Setting Aside Application has been determined, the Hong Kong Court may (applying the test set out in Soleh Boleh International Ltd v The Republic of Uganda [1993] 2 Lloyd’s Rep 208 and adopted in Dana Shipping and Trading SA v Sino Channel Asia Ltd HCCT 47/2015, 14 March 2016) order X to provide security for the entirety or part of the Award. On G’s argument, it would not be just or proper to require G to make payment instead, just because X has chosen to pay the Sum into court instead of having the Court continue the Mareva Injunction against him, when the Mareva Injunction is a post-judgment/award order as opposed to the usual interlocutory order granted when the outcome of the plaintiff’s underlying cause of action is still uncertain. There is force in such argument when X’s application is considered in the overall context of the case.
81. In my judgment, material to the consideration of whether it would be just and proper to order fortification against G is that in support of X’s claim of lost investment opportunities, X sought to rely on the investment portfolio accounts held with various financial institutions and fund managers such as Credit Suisse AG, Goldman Sachs (Asia) LLC, Citibank NA and Coronation Generation Investment Limited, claiming that these investment portfolios produced various average annualized return rates. In X’s 4th affirmation (“X4”), he claimed that “most of (his) personal financial investments were in fact held through GMC, which company maintained the substantial investment accounts with the financial institutions he had named. However, none of the investment portfolios were disclosed in X2, or any other affirmations of X for compliance with the Disclosure Order made by the Court against him, in respect of his assets, whether in his own name or not, and whether solely or jointly owned. No explanation has been given as to why they were never mentioned. In X2, the disclosure made by X was in substance of assets which had been covered in the M Report.
82. It is obvious that whereas X had sought to make distinction between assets and investments held in his own personal name, and those held in the names of other companies (like GMC), for the purpose of making disclosure of his assets as ordered by the Court, he chose to ignore the distinction in the separate entities for the purpose of establishing his alleged loss in seeking fortification. The Court cannot condone such an approach, nor X’s evasion of his duty to make frank disclosure in full compliance with an order of the Court. The claims made by X in X4 in relation to “his” investment accounts and earnings are in stark contrast to the limited disclosure made in X2, in relation to his bank accounts and the value of his shareholding.
83. In any event, without proper and full disclosure of the investment portfolios of X and GMC, the Court cannot accept that there is a good arguable case that X would profit from the portfolios.
84. In short, I am not satisfied that X has discharged his burden of proving that there is a likelihood of a significant loss sustained by him, and arising as a result of the Mareva Injunction.
85. Not being so satisfied, it is not necessary for me to go further to consider the second limb of the test for fortification, the basis of X’s belief that G would be unable to make good the loss. I nevertheless do so simply to deal briefly with the substantive arguments made by the parties.
86. X bases his belief as to G’s inability to make good his alleged loss on the fact that there were proceedings on the Mainland in which G was involved (“Mainland Litigation”), where it was found that there were no available assets for enforcement of the judgments obtained, and that G had been put on the List as a result.
87. Whilst X highlights the matter of G having been put on the List of “Dishonest Persons” by virtue of the Mainland Litigation, and invites the Court to draw adverse inferences against G from that fact, it is ironic, and the Court is entitled to take into consideration the fact that X himself has been found by the tribunal to have been guilty of fraud, misrepresentations and material non-disclosure, to have induced G to enter into the subject agreements and to dispose of his interests in CMC at an undervalue. G has also invited the Court to take into account X’s unacceptably low standard of morality as evident from the findings made by the tribunal in the Arbitration, in the context of drawing inferences of the real risk of X’s dissipation of assets within his control, and also in the context of G’s financial situation and his being deprived of the fruits of the Award, as a result of the dishonest conduct and fraud perpetrated against him by X.
88. Do the Mainland Litigation affect G’s ability to make good any loss which X may sustain in this case – and this arises if the Award should be set aside by the Mainland Court, and enforcement of the Award is also refused by this Court in the exercise of its discretion under section 95 of the Ordinance?
89. In X4, X claims that G had failed to make full disclosure of the Mainland Litigation, and referred to 4 cases to suggest that they illustrated G’s lack of financial resources to honour his undertaking as to damages. In reply, G explained that the Mainland Litigation which resulted in his inclusion on the List involved a company in Henan known as GTHR, which was a company holding real estate on the Mainland.
90. For the Hubin case, G was not a party to the proceedings and was not subject to any order or relief, to be regarded as a judgment debtor. He was subjected to an order restraining high consumption only because he was a legal representative of GTHR which was the party subject to enforcement action. The judgment creditor was a secured creditor in respect of GTHR’s property which was mortgaged under the relevant loan agreement, and according to G, the value of the mortgaged property was sufficient to discharge the adjudicated liability of GTHR.
91. I am not persuaded that restrictions imposed on G’s high consumption spending are indicative of his lack of financial means to make payment under or to honour an undertaking to the Court. In any event, the restriction on high consumption against G (as the legal representative of GTHR) would be cancelled after completion of the enforcement against GTHR.
92. For the Sanmenxia case, G was involved as a party to the proceedings, and the amount involved was RMB 130 million. On G’s evidence, the enforcement proceedings in question had already been terminated after the sale of the real properties of GTHR for full repayment of the judgment sum. The ruling that assets of the judgment debtors including G were not available for enforcement “because of existing securities and priority issues” cannot be taken as indication that G did not have assets available for enforcement by the creditor in question.
93. Similarly, for the Xiayi case, enforcement proceedings had already been terminated upon transfer of GTHR’s real properties to the judgment creditor in full discharge of the repayment obligations of GTHR.
94. The court cannot infer from these cases that G’s financial standing or ability to honour his cross-undertaking as to damages has been adversely affected, or that G would not be able to make payment under the undertaking.
95. In the Dongyang case, G has a liability of RMB 9 million as a guarantor, the borrower being GTHR. G claims that GTHR would be able to discharge its payment obligations to the creditor, since it had already made payment of larger sums in other cases. According to G, in September 2021 (after the Mareva Injunction application), a settlement agreement had been concluded between the judgment creditor and GTHR, and the creditor had already agreed to suspend enforcement proceedings and to release G from his guarantee for payment.
96. I am not prepared to infer, from the observation made by the Mainland Court in the Dongyang case, that G was found not to have any enforceable assets in that case, that G did not have financial means or assets elsewhere, and would not be able to honour his cross undertaking as to damages. It is not clear what information had been provided to the relevant court, which led to the result of no assets of G being found for enforcement in the Dongyang case.
97. It was suggested that G only had flimsy connections with Hong Kong, and that this is a factor which should properly lead to an order for fortification to be made against him. Again, whilst I have borne in mind that G had applied for a Mareva injunction in respect of which the undertaking was given, G was seeking primarily to enforce the Award against X in a jurisdiction where X is known or believed to have assets. It is the common and natural practice for a party who has obtained an arbitral award to seek to enforce it against assets of the debtor where they can be traced. The creditor may not have connections or assets there, and the enforcement court should take into consideration the fact that it would be harsh to require the creditor to give security or to provide fortification when enforcement proceedings are brought on the strength of a valid and enforceable award.
98. In all the circumstances of this case, particularly the amount of the Award (RMB 660 million and double interest of approximately RMB 64 million), the fact that the Mareva Injunction was issued after the tribunal had made a final and conclusive determination on the contested claims in the Arbitration, and that it was granted in aid of the enforcement of the Award which remains valid and binding on X, I am not satisfied that it would be just or proper in this case to order fortification from G for the protection of a debtor who refuses to honour the Award. As explained above, I am not satisfied that it is likely that X would sustain damage as a result of the Mareva Injunction, in the manner claimed by X.
Disposition
99. By reason of my findings, I dismiss the Payment Out Application and the Fortification Application. But for the payment into court, the Continuation Application would have been allowed, and the Sum should remain in court.
100. As sought by G, the costs of the Continuation Application will be in the cause of the Originating Summons in respect of the leave for enforcement (“OS”).
101. There is no necessity or good reason for the costs of the Payment Out Application and of the Fortification Application to be determined after the hearing of the OS. After the Civil Justice Reform, the court is more astute to the impact of costs on legal proceedings and to make orders for immediate payment of costs as a discipline against unmeritorious interlocutory applications. It is not necessary for costs to be decided only when the merits of the underlying claims have been decided in the action, if the interlocutory application is self-contained and severable from the rest of the action, the amount at stake is sufficient to justify the expense of a separate taxation, and there is a possibility that there might be no trial of the main action.
102. The Payment Out Application and Fortification Application are self-contained. It is obvious that substantial legal costs have been incurred for these applications.
103. Having failed in the applications, the order nisi I make is that the costs of and occasioned by the Payment Out Application and the Fortification Application are to be paid by X to G, with Certificate for 2 Counsel, to be taxed forthwith if not agreed. The order nisi shall become absolute unless application for variation is made within 14 days.
104. Having considered the nature and outcome of the relevant applications, I further order that the costs of and occasioned by X’s Variation Summons, X’s summons to amend of 10 September 2021, G’s application to vary the ceiling of the Mareva Injunction under the 24/8 Summons, G’s 3/9 Summons and the consent application to make payment into court, are all to be paid by X to G, with certificate for 2 Counsel, to be taxed if not agreed.
| | (Mimmie Chan) |
| | Judge of the Court of First Instance |
| | High Court |
Mr Douglas Lam SC and Ms Jacqueline Law, instructed by Reed Smith Richards Butler (name having been changed to Reed Smith Richards Butler LLP since 21 January 2022), for the applicant
Mr Paul Shieh SC and Ms Astina Au, instructed by King & Wood Mallesons, for the 1st to 3rd respondents