TARGET INSURANCE CO LTD v. NG YU AND OTHERS

HCA 305/2022

[2023] HKCFI 565

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 305 OF 2022

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BETWEEN

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DECISION

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INTRODUCTION

1.  Before this Court is a summons issued by P (through the Managers appointed under section 35(2)(b) of the Insurance Ordinance, Cap 41), for leave to appeal against the order of DHCJ Burns SC to discharge a Mareva injunction against D1 and for stay of execution of that order.

2.  The decision was handed down by DHCJ Burns SC (“Deputy Judge”) on 3 January 2023, the last day of his sitting (“Decision”). I will follow the abbreviations and nomenclature in the Decision, save where otherwise indicated herein.

3.  After the Decision was handed down by the Deputy Judge, P issued an urgent ex parte summons for stay with notice to D1, which was heard by this Court the same day. Upon P undertaking to issue on or before the following day a summons for leave to appeal together with an application for stay pending the determination of the leave application, I granted P an interim stay pending the determination of the summons, and further directed that the matters to be dealt with on papers unless otherwise directed by the assigned judge. P issued a summons on 4 January 2023 for both leave to appeal (“Leave Application”) and for stay (“Stay Application”) and the summons has now come before this Court.

THE PARTIES AND BRIEF BACKGROUND

4.  P is and was at all material times an authorized insurer in Hong Kong and a wholly owned subsidiary of TIHL, a company listed on the HKEX (stock code:6161).

5.  Since 13 January 2020, D1 has been a substantial shareholder of TIHL[1]. D1 held the position as Chairman and Executive Director of TIHL from 23 December 2020 until his resignation on 27 May 2022, and held the position as Executive Director of P from 17 July 2021 to 19 January 2022.

6.  According to information provided by D1 to the Insurance Authority (“IA”) in the Form A dated 8 September 2021, (i) D2 is a Cayman company, the management share of which are wholly owned by D1; (ii) D3 is a BVI company of which D1 is the sole director and its 100% shareholder; (iii). D4 is a Singaporean company of which D1 is a director and its 100% shareholder; and (iv), D5 is a Hong Kong company of which D1 is a director and 100% shareholder.

7.  D6 was an employee of NBL, a brokerage firm in Hong Kong, between 8 September 2014 to 31 August 2018 and a director of NBL between 1 August 2020 to 3 May 2022[2]. D6 was the CFO of D5 and a licensed representative of D5 between 3 October 2018 and 13 February 2020. According to D6, the sole purpose of his joining D5 in October 2018 was to facilitate the intended acquisition of NBL by D1 and that his role was to oversee the acquisition of NBL and after D1 gave up the intended acquisition, D6 discharged his SFC licence in D5 in early 2020 and formally left D5 in August 2020, and according to D6, he had never worked for D1 at all[3].

8.  Prior to becoming a substantial shareholder of TIHL, D1 has also since 23 December 2019 been the Chairman and an Executive Director of another company listed on HKEX, namely Amber Hill Financial Holdings (stock code:0033) (“Amber Hill Financial”). D1 is a 72.75% shareholder of Amber Hill Financial through D3.

9.  In or around June 2020, P opened a managed account with a brokerage firm NBL, and it was provided under the Institutional Services Client Agreement (“Agreement”) that NBL shall open, maintain and operate the account in accordance with P’s instructions. At all material times, D6 was P’s main point of contact at NBL.

10.  From what this Court can gather, the chronology of D1’s involvement in P, NBL, Amber Hill Financial, TIHL, and P’s investments with NBL, appears to be briefly as follows[4]:-

(1) Between 2017 and 2019, D1 had intended to acquire NBL, which did not complete[5]

(2) According to D6, he met Dr Haywood Cheung (former single largest shareholder of TIHL and Executive Director and Co-Chairman of the Board) at end of 2017 and in late 2019. D6 began to have more contact with Dr Haywood Cheung[6]

(3) On 23 December 2019, D1 became Chairman and Executive Director of Amber Hill Financial[7]

(4) On 13 January 2020, D1 became a substantial shareholder of TIHL through Smart Neo[8]

(5) On around 15 April 2020, the Board of P and TIHL approved the opening of an account with NBL[9]

(6) In June 2020, P transferred about USD 25.8m to NBL[10]

(7) On 17 July 2020, NBL acted as sole placing agent of Amber Hill Financial[11]

(8) Between 29 July 2020 and 3 August 2020, P transferred about USD 13.1m to NBL[12]

(9) On 20 August 2020, P transferred USD 15m to NBL[13]

(10) On 30 November 2020, P transferred USD 12.89m to NBL[14]

(11) On 7 December 2020, P transferred USD 10.3m to NBL[15]

(12) On 15 December 2020, the Investment Committee of P resolved to further increase P’s investments with NBL[16]

(13) On 23 December 2020, D1 became Chairman and Executive Director of TIHL[17]

(14) On 7 January 2021, P transferred USD6.5m to NBL[18]

(15) On 26 January 2021, Smart Neo subscribed for convertible bonds in aggregate amount of HKD 400m for new shares of TIHL[19]

(16) On 26 May 2021, P’s Board of Directors discussed and reviewed the above investments with NBL and Amber Hill Financial[20]

(17) On 7 July 2021, the Investment Committee of P recommended to the Board of Directors to further invest HKD 660m by two phases in foreign currency trading through NBL[21]

(18) On 7 July 2021, P transferred USD 42.6m to NBL[22]

(19) On 15 July 2021, D1 became Executive Director of P[23]

(20) On 13 August 2021, P transferred USD 25.44m to NBL[24]

(21) On 27 August 2021 it was resolved that (a) HKD330m from proceeds of convertible bonds issuance of TIHL be injected into P as capital; and (b) D1 be appointed as an additional member of the Investment Committee of P[25]

(22) On 24 September 2021, P transferred USD 2.5m to NBL[26]

(23) On 30 September 2021, NBL acted as sole offer agent of Smart Neo in its pre-conditional mandatory unconditional cash offer to acquire all the issued shares of TIHL[27]

(24) By around October 2021, P had transferred over HKD 1.4 billion, representing approximately 90% of its cash, ie P’s Funds, to NBL[28]

(25) Throughout late October 2021, IA made repeated inquiries into P’s cash position held with NBL[29]

(26) As at 29 October 2021, P’s investments in NBL were around USD 186,000,000[30]

(27) On 1 and 16 November 2021, 2 sums of USD 2.3m and USD 29.5m were returned to P by NBL totalling USD 31.8m, leaving the balance of USD 154,000,000, ie the Sum unpaid[31].

(28) On 25 January 2022, about USD 7,000 was returned to P[32]

(29) On 24 February 2022, Smart Neo granted a revolving facility up to USD 750m to TIHL[33]

11.  On 4 January 2022, the IA notified P that SFC discovered that P’s Funds held with NBL were in fact transferred to and held with the Amber Hill ES Currency Arbitrage Fund AP (“Amber Hill ES Fund”), one of a number of segregated portfolios owned by D2. This was denied by NBL.

12.  On 7 January 2022, the IA appointed the Managers (of Deloitte) to carry out investigations into P’s affairs including the whereabouts of P’s Funds. Despite repeated request made by the Managers, NBL had failed to return the Sum to P.

13.  The Managers then procured P to present a petition for the winding up of NBL, which was resisted with an affirmation from D6. In short, D6’s evidence was that the Sum was used to purchase what were called LP Units in a Cayman Fund referred to as Four Dimensions, and that NBL was unable to withdraw the Sum from Four Dimensions because of Cayman regulatory requirements and that the Sum had all along been with Four Dimensions. The evidence of D6 was found to be unbelievable, and the submissions made on behalf of NBL were rejected by DHCJ Bernard Man SC who appointed the Managers as provisional liquidators over NBL on 17 February 2022. NBL was subsequently ordered to be wound up on 19 May 2022 by L Chan J.

14.  Deloitte’s investigations revealed that (1) the Sum was transferred from NBL to a DBS account of Amber Hill ES Fund; (2) from the DBS account to D2’s account at Malayan Banking Berhad, Singapore; and then (3) to accounts of D3, D4, and D5.

THE PRESENT ACTION

15.  P alleges that it is the victim of a “massive fraud” perpetuated by D1 and D6 utilising various corporate entities including NBL as 1^st layer recipient, D2 as 2^nd layer recipient, and D3, D4 and D5 as 3^rd layer recipients, resulting in the misappropriation of the Sum.

16.  On 25 March 2022, P issued an ex parte application to seek proprietary/mareva injunctions. ST Poon J made an order granting P amongst other things (a) a proprietary injunction as against D2, D3, D4 and D5 to preserve assets over which P has asserted a proprietary claim; (b) Mareva Injunction as against D1 and D6 for an amount equivalent to the Sum; (c) ancillary disclosure orders against D1 and D6.

17.  P issued an inter partes summons on 28 March 2022 to seek continuation of the ex parte injunctions (“Continuation Summons”). D1, D3, D4 issued a summons on 21 April 2022 seeking discharge of the Ex Parte Order as against them (“Discharge Summons”), and pending determination of the Discharge Summons, D1 sought a variation and/or stay of the ancillary disclosure order as against him (“Disclosure Order”). On the return day on 29 April 2022 before DHCJ Paul Lam SC, the ex parte injunctions were continued by agreement until determination of the summonses and in relation to the application for variation and/or stay of the Disclosure Order, DHCJ Paul Lam SC handed down his decision on 13 May 2022, varying the individual value of assets which D1 should disclose from HKD 10,000 to HKD 200,000 and further granted a stay of the amended Disclosure Order pending the determination of the Continuation Summons and the Discharge Summons, subject to certain conditions in relation to the “4 Assets” which had been disclosed by D1 in his affirmation of 26 April 2022.

18.  The Continuation Summons and the Discharge Summons were heard by the Deputy Judge on 5 and 6 December 2022. D2, D5 & D6 were unrepresented and did not attend the hearing. As said, the Decision was then handed down on 3 January 2023.

19.  In the Decision, the Deputy Judge, amongst other things, continued the proprietary injunctions against D2, D3, D4 and D5. As for the Mareva injunctions against D1 and D6, the Deputy Judge continued the sane against D6, but discharged the Mareva injunction against D1. This led to the present application of D1.

THE REASONS FOR DISCHARGE AGAINST D1

20.  The Deputy Judge discharged the Mareva injunction against D1 mainly because he was not satisfied that P had shown a good arguable case against D1. He set out his reasons in paragraphs 64 to 66 of the Decision for him not preparing to draw the inferences as to the alleged involvement of D1 in the alleged fraudulent scheme, namely that he found there was little, if anything of substance, to link D1 with either NBL or with D6 and that the absence of any evidence of a firm link between D1 on one hand and either NBL, or D6, on the other, let alone evidence that NBL was in any way controlled by D1 or D1 had any influence on decisions or acts of NBL was in his view a crucial missing link in P’s case that D1 was the mastermind in the alleged fraudulent scheme.

21.  The Deputy Judge also found that there was nothing to contradict D1’s evidence that he was not involved in the management of the Amber Hill entities, and he was not himself aware of how the Sum was disbursed by NBL or thereafter by D2, and that D1 had no knowledge of the acquisition of the LP Units.

22.  Further, having considered to those points summarised by him in paragraph 41 of the Decision, the Deputy Judge was not satisfied that P had shown that, without the Mareva injunction, there would be a real risk that D1 might dissipate his assets.

THE LEAVE APPLICATION – P’S INTENDED GROUNDS OF APPEAL

23.  There are 4 grounds of appeal, the first 3 are against the Deputy Judge’s findings that P has not shown a good arguable case against D1.

Whether good arguable case against D1

24.  As set out in paragraph 45 of the Decision, the Deputy Judge was satisfied that even if the initial transfer of funds from P to NBL was unimpeachable, the issue as to whether the transactions whereby the Sum was transferred into the account of Amber Hill ES Fund and then into the accounts of D3, D4 and D5 was pursuant to a fraudulent scheme is a serious issue to be tried, and that the surrounding circumstances summarized by him ( in particular the discredited evidence of D6) suggest that the transfer of the Sum to D3, D4, and D5 was as a result of a dishonest or fraudulent scheme.

25.  In paragraph 46, the Deputy Judge also said despite investigations by Deloitte, the LP Units had not been identified or found and there must be real doubt as to whether they existed or whether the Sum was in fact used to purchase any such units, and that the question as to whether the purchase of LP Units fell within NBL’s mandate as per the Agreement is another serious issue to be tried.

26.  As set out in paragraph 64 of the Decision, the Deputy Judge had considered the following:

(1) The alleged “relations” between D1 and NBL going back to 2019 are unparticularized save a proposed acquisition by D1 of NBL which did not come to fruition;

(2) There was some doubt as to whether a company AH Holdings International Limited (of which D1 stated in Form A to be a sole director and 100% shareholder) was formerly known as Nerico Brother;

27.  The Deputy Judge had also considered that in July 2020 NBL acted as sole placing agent of Amber Hill Financial in its placing of new shares and in September 2021 NBL acted as sole offer agent of Smart Neo in its offer to acquire all the issued shares in TIHL (which did not proceed), but came to the view that all above did not form a firm link between D1 and NBL (or D6).

28.  However, having considered the chronology of events and the cumulative effect of the evidence, in particular that the Sum ended up in the account of firstly D2 and then to accounts of D3, D4 and D5, I agree with those submissions made on behalf of P that there is a reasonable prospect of success in P arguing that the Deputy Judge overlooked that D2 to D5 (“4 Companies”) are companies of which the management shares and/or 100% shares are wholly owned by D1 and D1 is also the sole director of D3, and whilst D1 disowns management of the 4 Companies, it seems against commercial and common sense that for whoever in control of the 4 Companies and D6 to have acted on a frolic of their own without involving D1, who is the one who ultimately stands to benefit from the scheme. As set out in the 2^nd ground, the real and crucial question which the Deputy Judge would seem to have overlooked is why the 4 Companies had committed the fraudulent acts to induce the transfer of the Sum to the 4 Companies and to put forward a false story to cover up the true whereabouts of the Sum, if not for the benefit of D1, who appeared to be the one who ultimately stood to benefit the alleged fraudulent scheme.

29.  Having considered the above, I am of the view that there is a reasonable and realistic prospect of success in P in arguing that the Deputy Judge has erred in rejecting that there is a good arguable case against D1 that D1 is the mastermind of the fraudulent scheme perpetrated against P. As for risk of dissipation, there is a reasonable prospect of success in P arguing that such risk is self-evident and flows from the fraud itself.

STAY APPLICATION

30.  In the circumstances, I am prepared to grant P’s Leave Application. I am also prepared to grant a stay pending final determination of the appeal, but I accept, to prevent any delay in the appeal and prejudice to D1, and given P’s acceptance that there is public interest involved in this litigation, and in light of P’s willingness to undertake to expedite the appeal, such stay will be granted on P’s undertaking to serve the Notice of Appeal upon D1 and to set down the appeal within 7 days from the date of this order.

COSTS

31.  Costs of P’s summons will be costs in the cause of the intended appeal.

HCA 305/2022

[2023] HKCFI 7

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 305 OF 2022

________________________

________________________

________________________

DECISION

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INTRODUCTION

1.  On 25 March 2022, on the ex parte application of the Plaintiff (“P”), S.T. Poon J made an order granting P (a)  a proprietary injunction as against the 2^nd Defendant (“D2”), the 3^rd Defendant (“D3”), the 4^th Defendant (“D4”)  and the 5^th Defendant (“D5”)  to preserve assets over which P has asserted a proprietary claim; (b)  as against the 1^st Defendant (“D1”)  and the 6^th Defendant (“D6”), a Mareva injunction; (c)  ancillary relief and (d)  leave to serve the writ on D2, D3 & D4 out of the jurisdiction (“the Ex Parte Order”).

2.  By inter partes summons issued by P on 28 March 2022, an order is sought for the continuation of the ex parte injunctions.

3.  By summons issued by D1, D3 & D4 on 21 April 2022, an order is sought for the discharge of the Ex Parte Order as against those Defendants.

4.  On the hearing of the inter partes summonses before me on 5 & 6 December 2022, whilst P on the one hand and D1, D3 & D4 on the other were represented by leading and junior counsel, D2, D5 & D6 were unrepresented and did not attend.

THE PARTIES

5.  P is an authorized insurer in Hong Kong and is a wholly owned subsidiary of Target Insurance (Holdings)  Ltd (“TIHL”), a company listed on the Main Board of the Hong Kong Stock Exchange.

6.  D1 has, since 13 January 2020, been a substantial shareholder of TIHL, holding 22.19% of the issued shares; he held the position as Chairman and Executive Director of TIHL from 23 December 2020 until his resignation on 27 May 2022 and held the position as Executive Director of P from 17 July 2021 to 19 January 2022.

7.  According to information provided by D1 to the Insurance Authority (“the IA”)  by Notice dated 8 September 2021 as proposed “Controller” of P, served pursuant to section 13B(2)(a)  of the Insurance Ordinance, cap 41 (“Form A”):

a.  D2 is a Cayman company, the management shares of which are wholly owned by D1.

b.  D3 is a BVI company of which D1 is the sole director and its 100% shareholder.

c.  D4 is a Singaporean company of which D1 is a director and its 100% shareholder

d.  D5 is a Hong Kong company of which D1 is a director and its 100% shareholder

8.  D6 was at the times material to these proceedings a director of Nerico Brothers Limited (“NBL”), a brokerage firm with which P maintained a managed account.

THE FACTS

9.  The basic facts can be stated shortly.

10.  In or around June 2020, P opened a managed account with NBL, for the trading of securities and spot foreign currency exchange (“Spot Forex”). At the material time, P’s point of contact at NBL was D6.

11.  By October 2021, P had transferred approximately 90% of its cash (“P’s Funds”)  to NBL. This caused concern to the IA, largely by reason of the apparent concentration of a large part of P’s available cash on a single type of investment and with a single service provider. As a consequence, the IA requested P to call for the return of these funds (or a substantial part thereof)  to P pending a full review. However, apart from 2 sums of US$2.3 million and US$29.5 million, returned on 1 November 2021 and on 16 November 2021 respectively, no other funds were returned by NBL to P and inconsistent explanations were given by NBL as to the whereabouts of the funds.

12.  On 4 January 2022, the IA wrote to P stating that it had discovered that P’s Funds had been transferred to and were held by Amber Hill ES Currency Arbitrage Fund SP (“Amber Hill ES Fund”), a segregated portfolio owned by D2.

13.  In these circumstances, on 7 January 2022, the IA exercised its powers under the Insurance Ordinance and appointed Derek Lai and Forrest Kam, both of Deloitte Touche Tohmatsu (“Deloitte”)  as the joint and several managers of P (“the Managers”)  to carry out investigations into P’s affairs including as to the whereabouts of P’s Funds.

14.  Despite repeated requests made by the Managers, NBL continued to fail to return the amount standing to the credit of P’s account with NBL which left the amount of approximately US$154,000,000 still standing to the credit of the account (“the Sum”).

15.  Deloitte’s investigations revealed that:

a.  The Sum was transferred from NBL to a DBS account of Amber Hill ES Fund;

b.  The purported purpose of the transfers of the Sum from NBL to Amber Hill ES Fund was to subscribe for various products offered by D2, and

c.  The Sum was subsequently transferred from the DBS account of Amber Hill ES Fund to an account of D2 at Malayan Banking Berhad, Singapore and to accounts of D3, D4 & D5.

16.  Solely for the purposes of the hearing of these applications, D1, D3 & D4 accepted that the Sum was transferred as Deloitte’s investigations indicated it was, ending with D2, D3, D4 & D5.

17.  However, in January, 2022, TIHL and Amber Hill Financial Holdings Limited issued announcements stating:

a.  The funds placed by P with NBL had been “maintained in cash form solely for conducting spot foreign currency trading”, and

b.  As purportedly confirmed by NBL, none of such funds had been deposited into the Amber Hill ES Fund.

18.  After the Managers were appointed, they procured P to present a petition for the winding up of NBL and to apply for the appointment of provisional liquidators. In resisting the application for the appointment of provisional liquidators, D6 made an affirmation deposing that:

a.  The Sum was used to purchase liquidity provider units (“LP Units”)  in a Cayman Fund named Four Dimensions Global Strategy Fund (“Four Dimensions”)  from Amber Hill ES Fund;

b.  The purported reason why NBL purchased LP Units from Amber Hill ES Fund rather than in the open market was that Four Dimensions is allegedly a closed end hedge fund in which public subscription is not possible;

c.  NBL allegedly held an account with Four Dimensions in respect of which the closing position as at 18 November 2021 was US$202,170,171 (of which the Sum was said to form part);

d.  NBL was unable to withdraw the Sum from Four Seasons because of Cayman regulatory requirements;

e.  The Sum has all along been with Four Seasons (not with Amber Hill ES Fund)  and was used to purchase shares held by Amber Hill ES Fund (as seller)  in Four Dimensions.

19.  6 “Share Unit Transfer Forms” were exhibited to D6’s Affirmation. The first 5 of these forms (dated between 7 January 2021 and 27 August 2021)  were purportedly concerned with the transfer by Amber Hill ES Fund to NBL of units in Four Dimensions whilst the 6^th form (dated 16 November 2021)  was purportedly concerned with the transfer by NBL to Amber Hill ES Fund of US$29,500,000 worth of units in Four Dimensions (i.e. the same amount as that which was returned to P on 16 November 2021 – see paragraph 11 above).

20.  At the hearing of the application for the appointment of provisional liquidators over NBL, counsel for NBL informed the court that units in Four Dimensions had been subscribed for by NBL for the purpose of hedging its own risk of carrying out forex transactions for P.

21.  The deputy judge hearing P’s application for the appointment of provisional liquidators over NBL found the evidence of D6 unbelievable, rejected the submissions made on behalf of NBL and made an order that provisional liquidators be appointed.

22.  On the basis of investigations conducted by Deloitte, it would appear that D6’s suggestion that the Sum has all along been with Four Dimensions does not withstand scrutiny and that the authenticity of a number of the documents he produced, purportedly evidencing transactions between NBL and the Amber Hill ES Fund, is doubtful. In particular:

a.  The forensic examination of some of the documents produced by D6 show that they were created long after the purported dates of the transactions to which they relate;

b.  a power point presentation purportedly given by “Hermann” of Four Dimensions to introduce Four Dimensions to NBL was in fact authored by D6 himself;

c.  Emails purporting to be from D6, “Maria” (supposedly, the introducer of Four Dimensions to D6)  and “Hermann” contain similar grammatical mistakes, suggesting that they were all authored by the same person;

d.  According to the former fund administrator of Four Dimensions, NBL was never on its investor list;

e.  The document provided by D6 purporting to be Four Dimensions’ Private Placement Memorandum makes no mention of LP Units or forex trading investments (which D6 claimed were acquired to provide risk hedging for NBL). On the contrary, it expressly stipulates that Four Dimensions should not invest in foreign exchange;

f.  Legal advice concerning the regulatory regime in Cayman has shown that the protestation that Cayman regulations are responsible for the hold up of any transfer of funds from Four Dimensions is likely to be false;

g.  The responses from Four Dimensions to Deloitte’s enquiries and questions raised have been evasive.

23.  In TIHL’s appeal to the Insurance Appeals Tribunal against the IA’s appointment of Managers over P, D1 made several statements which bear on the issues which arise in these proceedings. In D1’s 4^th statement dated 18 March 2022:

a.  D1 referred, inter alia, to (i)  a statement provided by D6, giving an account of how P did business with NBL and the various transactions carried out by NBL with its counterparts which D1 said were not known to P and (ii)  a statement provided by Mr. Lin Feng of TIHL explaining P’s “stance’ that the “NBL money” was held by Four Dimensions and was pending return subject to regulatory issues.

b.  D1 stated that he had no knowledge of the acquisition by P of LP units and referred to D6’s explanation that “…NBL in fact had bought from Amber Hill Arbitrage Fund the [LP Units] offered by Four Dimensions. Amber Hill Arbitrage Fund was holding Four Dimensions LP units but to the best of my knowledge Amber Hill Arbitrage Fund had never issued its own liquidity provider units.”

c.  D1 stated that the subscription forms which D6 exhibited to his affirmation filed in P’s application for the appointment of provisional liquidators of NBL (see paragraph 18 above), were “……not accurate on their face because, as confirmed by [D6], the actual liquidity provider units are from Four Dimension (sic)  and not Amber Hill [ES Fund]. I have made enquires with Ms Maria-Theresa Stelzig (“Maria”), a director of the Amber Hill [ES Fund] who provided those forms to NBL, and understand that those forms served as instructions for the Amber Hill [ES] Fund’s administrator to accept incoming monies from NBL”.

P’S CASE

24.  P alleges that it is the victim of a “massive fraud” perpetrated by D1 and D6, utilising various corporate entities including NBL (as first layer recipient), D2 (as second layer recipient)  and D3, D4 & D5 (as third layer recipients), resulting in the misappropriation of the Sum.

25.  P’s case which was advanced during the hearing of these applications was that P never authorized NBL to invest any part of its funds in the Amber Hill ES Fund and had never authorized subscriptions in LP Units.

26.  In circumstances where there is a good arguable case that all the corporate entities (including NBL and D2, D3, D4 & D5)  are corporate vehicles of D1 (and D1 is the common denominator in all the entities)  the compelling inference is that NBL was controlled and used by D1 and D6 to perpetrate the fraud by misappropriating the Sum from P.

27.  In support of the proposition that D1 controlled and used NBL to perpetrate the alleged fraud, the following were relied upon:

a.  D1 had “relations” with NBL going back to late 2019 as indicated by an announcement by Amber Hill Financial (a company in which D1 is a 72.75% shareholder through D3)  to the effect that D1 had “acquired” NBL sometime between 2017 and 2019 (albeit that the Managers’ understanding is that the transaction did not complete);

b.  D1’s Form ‘A’ signed by D1 suggests that D1 is sole director and 100% shareholder of a company by the name of “AH Holdings international Limited (formerly known as Nerico Brother)”, and

c.  NBL previously acted for entities controlled by D1.

28.  In trying to obstruct P’s recovery of the Sum and conceal its true whereabouts, D6 put forward a false story (endorsed by D1), to the effect that the Sum had been deposited with Four Dimensions.

29.  In the premises the monies which P paid to NBL were impressed with a constructive trust in favour of P (see Westdeutsche Landesbank Girozentrale v. Islington London Borough Council[1] at 716C-D)  as well as being the subject of an express trust by virtue of the fact that the Client Agreement between P and NBL refers to NBL as being P’s agent and trustee.

30.  The various purported contractual documents were used as a legal façade and are vitiated by the alleged fraud since “fraud unravels all”: China Agri-Products Exchange Ltd v Wang Xiu Qun[2]; HIH Casualty and General Insurance Ltd v Chase Manhattan Bank[3], at [15] & [16].

31.  By reason of the alleged unlawful conspiracy between D1, D6 and the various corporate entities (including NBL and D2, D3, D4 & D5), they are all jointly and severally liable for the entirety of the sum allegedly defrauded: South American International Bank Curacao NV v Ying Xin Trading  Co Ltd[4], at [24].

32.  Consequently, P is entitled to both proprietary and personal remedies against the alleged wrongdoers: FHR European Ventures LLP v Cedar Capital Partners LLC[5], at [7]; Wismettac Asian Food Inc v United Top Properties Ltd[6], at [15].

THE MAIN DEFENCES OF D1, D3 AND D4

33.  The main defences advanced on behalf of D1, D3 and D4 are as follows:

a.  P’s case is nor made out as a matter of law, in particular, P has no proprietary interest in the Sum and/or its “traceable proceeds”. Hence there could not have been any misappropriation by D1 of the same and, in any case, the Managers have elected not to rescind the contracts for the purchase of LP units and cannot therefore assert any proprietary claim over the Sum.

b.  D1’s alleged involvement in the alleged fraud is at best speculative.

c.  The funds transferred by D2 to D3 and D4 were legitimate transactions and consequently D3 and D4 are bona fide purchasers for value without notice.

THE 1^ST DEFENCE – P’S CASE IS NOT MADE OUT AS A MATTER OF LAW

34.  Notwithstanding the case advanced on behalf of P on the hearing of these applications to the effect that NBL was the 1^st layer recipient in the alleged fraud, it is submitted on behalf of D1, D3 and D4 that the validity of the transfers of the Sum by P to NBL for investment had never previously been challenged and indeed that there was no basis on which they could properly be challenged or impugned.

35.  D1, D3 & D4 say they had no knowledge of how NBL invested the Sum on P’s behalf. However, on the assumption that LP Units were acquired pursuant to the Subscription Agreements, it is argued on their behalf that such investment was permissible pursuant to the mandate given by P to NBL under the client agreement which governed the managed account opened by P with NBL, namely that NBL was entitled “at its discretion effect [Foreign Currency Exchange] and leveraged [Foreign Currency Exchange] transactions through its affiliate or third party.”.

36.  If therefore subscriptions had been made by NBL under the Subscription Agreements in return for LP Units it is submitted that the Sum would have been paid to D2 as consideration therefor and NBL would now be holding such units on behalf of or on trust for P.

37.  D1, D3 & D4 contend that the Managers have never suggested that the LP Units which were the subject of the Subscription Agreements do not exist or are not owned by P and point to passages in the 1^st Affirmation of Derek Lai in support of P’s ex parte application as at least impliedly acknowledging that they do. They add that there is no suggestion or evidence that the LP Units are worthless.

38.  It is also submitted on behalf of D1, D3 & D4 that the Managers have made an election not to rescind the Subscription Agreements and cannot therefore assert any proprietary interest in the Sum which was the price paid by NBL on behalf of P in return for the LP Units.

39.  It is further argued that, in the application for the appointment of provisional liquidators and in the appeal before the Insurance Appeal Tribunal, the characterization by the Managers of the Sum as being NBL’s asset is inconsistent with the case advanced on the present application and that it constitutes an election from which P/the Managers cannot resile.

2^ND DEFENCE – NO PROPER INFERENCE CAN BE DRAWN AGAINST D1 THAT HE WAS INVOLVED IN THE ALLEGED FRAUD

40.  It is submitted on behalf of D1 that an inference of fraud should not be drawn unless it is compelling: Nina Kung v. Wan Din Shin[7] and, in particular that D1’s alleged connections with D2, D5, D6 and NBL cannot provide the proper basis for any such inference.

41.  D1 contends that no proper inference can be drawn against him that he was involved in the alleged fraudulent scheme by reason of the following:

a.  D1 has been open about his connections with D2 to D5 (eg. the filing of Form A). It is therefore inconceivable that he would have used entities which are easily traceable to himself to perpetrate any fraud;

b.  there is no evidence that D1 ever had any control or influence over NBL’s investment decisions or was ever in a position to give directions to NBL as to the disbursement of the Sum;

c.  the 1^st 2 Subscription Agreements (dated 7 January 2021 and 7 July 2021)  were entered into before D1 became a director of P at a time when Dr. Haywood Cheung was chairman and executive director of P;

d.  there are no grounds to contradict D1’s statement that he was not entitled to and did not exercise any influence over the operations of either D2 or D3 and no grounds to infer that he did;

e.  D1 made consistent and responsible efforts to facilitate the recovery of the Sum from NBL, and

f.  The notion that D1 misappropriated P’s funds is improbable bearing in mind that, in early 2021, he injected HK$400m into P and on 24 February 2022 one of D1’s wholly owned companies granted a revolving facility of US$750 million to TIHL.

3^RD DEFENCE – D3 & D4 AS BONA FIDE PURCHASER WITHOUT NOTICE

42.  The case of D3 and D4 is that they were bona fide purchasers for value without notice in respect of the funds transferred to them in that:

a.  the transfers to D3 on 10 August and 15 October 2020 were attributable to the redemption of “Amber Hill ES Currency Arbitrage Fund SP – Class c Shares – Series 10”, and

b.  the transfers to D4 on 12 January, 21 January, 21 July and 15 September 2021 were attributable to deposits allegedly made by D2 which were subsequently withdrawn by D2.

PRINCIPLES FOR THE GRANT OF A PROPRIETARY INJUNCTION

43.  The principles applicable to the grant of a proprietary injunction are well established. These are as follows:

a.  It must be shown that there is property which is bona fide the subject matter of the cause or matter;

b.  the court must be satisfied that something ought to be done for the security of the property which may involve showing that damages may not be an adequate remedy;

c.  there is however no need to show risk of dissipation;

d.  even if there is delay in making the application which would justify the refusal of a freezing injunction, a proprietary injunction may nevertheless be granted;

e.  an enquiry into the relative merits of rival claims is not necessary;

f.  in respect of the merits of the claim, the party seeing the preservation order need only show that there is a serious issue to be tried on the merits.

See: Pacific Bulk Investment Ltd v. Chu Kong & Ors[8], at [41] – [42]

44.  The usual American Cyanamid principles apply to an application for a proprietary injunction, i.e. whether there is a serious issue to be tried; whether damages are an adequate remedy and the question as to where the balance of convenience lies. As regards the 1^st of these (whether there is a serious issue to be tried), “If the opposing party seeks to show that there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out.” See Toyota Boshuku Europe NV v Hong Kong Longshenyuan International Trade Ltd[9] at [19] – [20].

P’S APPLICATION FOR CONTINUATION OF THE PROPRIETARY INJUNCTION

45.  I am satisfied that, even if the initial transfer of funds from P to NBL is unimpeachable, the issue as to whether the transactions whereby the Sum was transferred into the account of Amber Hill ES Fund and then into the accounts of D3, D4 & D5 was pursuant to a fraudulent scheme is a serious issue to be tried. Certainly, in my view the surrounding circumstances which I have summarized above (in particular the discredited evidence of D6)  suggest that the transfer of the Sum to those defendants was as a result of a dishonest or fraudulent scheme. The documentation relied on by the defendants purportedly to justify the transactions in question will obviously have to be scrutinized and tested by cross examination at the trial of this action.

46.  Moreover, notwithstanding passages in the 1^st affirmation of Mr Lai which could be interpreted as an acknowledgment that the LP units exist, the fact is that, despite investigations conducted by Deloitte, they have not been identified or found and there must be real doubt as to whether they do indeed exist or whether the Sum was in fact used to purchase any such units. The question as to whether the purchase of LP Units fell within NBL’s mandate as per the agreement between P and NBL governing P’s managed account and in particular whether LP Units fall within the description “leveraged forex transactions” is in my view another serious issue to be tried.

47.  At this stage of the proceedings therefore it would not be right to come to any firm conclusion as to whether the Sum was in fact paid for LP Units or whether LP units were in fact acquired, whether pursuant to the Subscription Agreements or otherwise. Even if the genuineness of the Subscription Agreements were to be accepted, I do not accept the argument that P has lost any proprietary claim over the Sum by not rescinding those agreements. Quite apart from anything else, P was not, on the face of those agreements, a party thereto. Further, I do not accept the argument that the proprietary claim now advanced by P is inconsistent with the characterization for the purposes of the application for the appointment of provisional liquidators of the Sum being an NBL asset - it is perfectly possible for the legal title in the Sum being vested in NBL whilst the beneficial ownership of it rested with P. After all, the agreement between P and NBL in respect of P’s managed account referred to NBL as being P’s trustee.

48.  It is well established that where property is obtained by fraud, equity imposes a constructive trust on that property.

49.  Even if it could be said that the recipient of property obtained by fraud was not a party to the fraud the defrauded claimant has a tracing remedy if the recipient’s state of knowledge is such as to make it unconscionable to retain the money. In this respect knowledge does not have to be acquired at the time of receipt; it can be acquired subsequently while the money is still in the recipient’s hands: Guarantee Bank and Trust Co v ZZZIK Inc Ltd[10], at [28] – [34].

50.  Unless and until D2, D3, D4 or D5 can show that they changed their position in good faith or that they were bona fide purchasers for value without notice, each of those defendants would hold the respective traceable proceeds of the Sum that it had received on trust for P. Such explanations as have been given by D1 as to the circumstances in which D2, D3, D4 and D5 received the funds in question and the rationale for such receipt will need to be tested at trial after cross examination.

51.  I am satisfied that damages would not be an adequate remedy against the corporate defendants. This being a case of fraud, there is in my view a risk that their assets may well be depleted or dissipated away and the consequent risk of P ending up with an empty judgment.

52.  I have also concluded that the balance of convenience is in favour of continuing the proprietary injunctions as against D2, D3, D4 and D5 which will have the effect of maintaining the status quo pending trial and it is therefore right to continue those injunctions against them. In this respect I have considered the submissions made on behalf of D3 and D4 concerning the prejudice they claim they will suffer by reason of the continuation of the injunctions against them but in my view this is outweighed by the potential prejudice which may be suffered by P should the injunctions be discharged.

53.  It is submitted on behalf of D3 and D4 that the injunctions should be discharged on the grounds that there was no justification for making an ex parte application (no urgency and no case for secrecy)  and on the grounds of material non disclosure. I am not persuaded by these submissions.

54.  I do not consider that there was inordinate delay; the Managers were only appointed in January 2022. Time was needed to conduct investigations in this matter. The Managers presented a winding up petition against NBL and applied for the appointment of provisional liquidators in February 2022. The ex parte application in March 2022. Plainly complex questions of fact and law were involved in all of these tasks which were time consuming. In any case, I do not regard delay by itself as a bar to proprietary relief: see China Medical Technologies, at [55].

55.  The duties which fall upon an applicant for an ex parte injunction of disclosing facts material to the application and the court’s weighing operation are well established. I will not repeat the them or the relevant principles here. As regards D3 & D4, complaint is made that P/the Managers did not draw the Court’s attention to the fact that the Subscription Agreements had not been rescinded by the Managers or that there was an argument that P had no proprietary interest in the Sum. I have addressed these issues above. In view of the fact that P was not a party to the Subscription Agreements I do not consider that the issue would have been relevant to the weighing operation which the court was called upon to make in deciding whether or not to grant the order sought and it was not therefore unreasonable for P not to have drawn attention to this point on the ex parte application.

56.  In all the circumstances I have concluded that the Proprietary Injunctions granted ex parte should continue.

PRINCIPLES FOR THE GRANT OF MAREVA RELIEF

57.  In order to invoke the jurisdiction of the court to grant a Mareva Injunction, a plaintiff has to satisfy the court that:

a.  There is a good arguable case;

b.  There is a real risk of dissipation or removal of assets so as to render any judgment nugatory;

c.  The balance of convenience lies in favour of granting a Mareva Injunction, and

d.  There are assets within the jurisdiction.

See Hong Kong Civil Procedure 2023, Volume 1, §29/1/65

58.  A “good arguable case” is shown if the case is more than barely capable of serious argument yet not necessarily one having a higher than 50% chance of success: Nimemia Maritime Corporation v Trave Schiffahrtsgesellschaft GmbH[11]

THE APPLICATION FOR THE CONTINUATION OF THE MAREVA INJUNCTION AS AGAINST

59.  I have no hesitation in concluding that there exists as against D6 a good arguable case for the proposition that either he was the architect of a dishonest scheme for the misappropriation of the Sum or that he dishonestly assisted in it or that he was part of a conspiracy to misappropriate the Sum. In my view his discredited evidence to which I have referred above negatives any cogency that might otherwise have attached to his defence.

60.  As is now well established, the requirement of showing a risk of dissipation is very often discharged by means of “inferential evidence” including evidence of “low commercial morality” on the part of a defendant which is often inferred where a good arguable case is shown for a claim in fraud or dishonesty: see Pacific Concepts (HK)  Ltd v Michel Brennion[12], at [24] – [25]; Link Fish Import & Export SL v Multiply Import & Export HK Ltd[13] and China Medical Technologies Inc v Samson Tsang Tak Yung[14], at [38] & [48]. I am satisfied that D6’s discredited evidence does suggest low commercial morality on his part and that that is sufficient to give rise to a risk of dissipation of assets.

61.  It follows from all of the above, that in my view the balance of convenience lies in favour of continuing the Mareva injunction as against D6.

62.  In Mr Lai’s first affirmation in support of the ex parte application, Mr Lai deposed to the fact that D1 maintained at least one Hong Kong bank account, namely an account at HSBC which he identified. On this basis I am satisfied that the requirement of showing that D6 has assets in the jurisdiction has been met.

63.  For all the above reasons I have concluded that the Mareva Injunction as against D6 should continue until the trial of this action or until further order.

THE APPLICATION FOR THE CONTINUATION OF THE MAREVA INJUNCTION AS AGAINST D1

64.  I am not prepared to draw the inferences P has invited me to draw as to the alleged involvement of D1 in the alleged fraudulent scheme. In the first place, there is little, if anything of substance to link D1 with either NBL or with D6:

a.  P relies on “relations” between D1 and NBL going back to 2019 which are unparticularized save as to a proposed acquisition by D1 of NBL which did not come to fruition;

b.  P also relies on D1’s Form ‘A’, signed by D1, which suggests that D1 is sole director and 100% shareholder of a company by the name of AH Holdings International Limited (“AH Holdings”)  which, according to Form ‘A’ was formerly known as Nerico Brother. However, there must be some doubt as to whether AH Holdings was ever formerly known by any such name (it was submitted on behalf of D1 that it never was and that the suggestion in Form ‘A; that it was an error).  In this respect, there were produced at the hearing (a)  copies of certificates of change of name, showing that Nerico Brothers Limited was formerly named Glory Sky Global Markets and that Glory Sky Global Markets was, previous to that, named Glory Sky Futures Limited and (b)  a certificate of incorporation showing the incorporation of Glory Sky Futures limited on 4 September 2000, and

c.  Lastly P relies on the fact that in July 2020 NBL acted as sole placing agent of Amber Hill Financial in its placing of new shares and the fact that in September 2021 it acted as sole offer agent of Smart Neo (a company controlled by D1)  in its offer to acquire all the issued shares in TIHL (which, in the event, did not proceed).

65.  The absence of any evidence of a firm link between D1 on the one hand and either NBL or D6 on the other, let alone evidence that NBL is in any way controlled by D1 or that D1 has any influence on decisions or acts of NBL is in my view a crucial missing link in P’s case that D1 was the mastermind in the alleged fraudulent scheme.

66.  Furthermore, (a)  although the announcements made by Amber Hill Financial Holdings in January 2022 (see paragraph 17 above)  were, at best, misleading, and (b)  in his evidence to the Insurance Appeal Tribunal (see paragraph 23 above], he referred to the Four Dimensions story advanced by D6 without demur, there is nothing to contradict D1’s evidence that he was not involved in the management of the Amber Hill entities; was not himself aware of how the Sum was disbursed by NBL or thereafter by D2 and had no knowledge of the acquisition of LP Units.

67.  In all the circumstances I am not satisfied that P has shown there to be a good arguable case against D1.

68.  On any basis, I am not satisfied that P has shown that, without a Mareva Injunction, there would be a real risk that D1 might dissipate his assets. In this respect I consider that there is some force in the points made on D1’s behalf which I have endeavoured to summarise in paragraph 41 above.

69.  For these reasons I decline to grant an order for the continuation of the Mareva injunction as against D1 and have concluded that the injunction which has been granted against him be discharged.

ORDER FOR SERVICE OUT OF THE JURISDICTION ON D3 & D4

70.  The gateways on which P relied in seeking leave to serve the writ on D3 & D4 out of the jurisdiction were Order 11 rr 1(1)(b), (f)  and (p).

71.  As regards gateway (b)  in respect of the seeking of injunctive relief. However no injunctive relief is expressly claimed in either the Writ or Statement of Claim and it is therefore questionable as to whether gateway (b)  was properly available.

72.  I am however satisfied that gateway (f), which is concerned with a claim founded on tort for damages sustained in Hong Kong or resulting from an act committed in Hong Kong, was properly invoked. Both the alleged fraud and the allegedly fraudulent transfers took place in Hong Kong. In AA v Persons Unknown[15], at [68] it was held that the equivalent tort gateway in England was available in respect of a proprietary claim by a victim of a hacking fraud resulting in monies being misappropriated.

73.  I am also satisfied that gateway (p), which is concerned with a claim against a defendant as constructive trustee in respect of acts committed within the jurisdiction. In my view, this gateway is fully engaged. In short, as I have found there is a good arguable case for the proposition that P is entitled to assert a proprietary claim and pursue its claims against D3 & D4 as constructive trustees.

74.  In the premises, I decline to set aside or discharge the order made for leave to serve the writ out of the jurisdiction on D3 & D4.

CONCLUSION

75.  I therefore order that the Injunction Orders granted by the Honourable Mr. Justice S.T. Poon dated 25 March 2022 be continued as against D2, D3, D4, D5 & D6 but discharged as against D1.

76.  I will make the following costs order nisi:

a.  D1’s costs of and occasioned by the applications made by P’s summons and by the summons issued by D1, D3 & D4 to be D1’s costs in the cause;

b.  P’s costs of and occasioned by the application made by P’s summons (as regards the orders sought as against D2, D3, D4, D5 & D6)  to be P’s costs in the cause, and

c.  P’s costs of the application by D3 & D4 to set aside the order for service out of the jurisdiction be P’s in any event.

Mr Jonathan Chang SC and Mr Martin Ho, instructed by DLA Piper Hong Kong, for the Plaintiff

Mr Robert Whitehead SC and Mr Jeff Yau, instructed by Lawrence Chan & Co., for the 1^st, 3^rd and 4^th Defendants

The 2^nd, 5^th and 6^th Defendants were not represented and did not appear

HCA 305/2022

[2022] HKCFI1362

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 305 OF 2022

________________________

________________________

________________________

DECISION

________________________

A.  INTRODUCTION

1.  At the first return day hearing of the ex parte injunction order granted by S T Poon J on 25 March 2022 (“the Order”), the parties agreed to the continuation of the Order, as well as further directions for the substantive argument of the Plaintiff (“P”)’s summons dated 28 March 2022 for continuation of the Order (“P’s Continuation Summons”), and §1 of the summons taken out by the 1^st Defendant (“D1”), the 3^rd Defendant (“D3”)  and the 4^th Defendant (“D4”)  on 21 April 2022 to discharge the Order (“Ds’ Discharge Summons”). What I have to determine is §§2-3 of Ds’ said summons whereby D1 applies for a stay, or alternatively, variation of the ancillary disclosure order made under §§7-8 of the Order.

2.  In a nutshell, P’s case is as follows. P is an authorised insurer and one of the largest players in the taxi insurance market in Hong Kong. Managers over P were appointed by the Insurance Authority on 7 January 2022 to carry out investigations into P’s affairs, including the whereabouts of its funds which were deposited with a securities brokerage, Nerico Brothers Ltd (NBL), for forex trading. Investigations revealed that P’s funds up to at least US$154,170,171 (“the Sum”)  were purportedly used to subscribe for different products under D2 rather than used for forex trading. They were first transferred to a DBS bank account of a Cayman fund known as the Amber Hill ES Fund and then further dissipated to various corporate vehicles owned by D1 (including D3 and D5)  and other accounts of D2, leaving a nil balance in the DBS account. The Sum now appears to end up being used to subscribe for LP (liquidity provider)  units issued by Amber Hill ES Fund. P claims that it had fallen victim to a massive fraud perpetuated by D1 and D6, and was defrauded the Sum; and D2 to D5 are the recipients of the traceable proceeds of the Sum. D1 is allegedly the central figure in the fraudulent scheme; he is the common denominator of all the relevant entities, and the majority of the traceable proceeds of the Sum had ended up in corporate vehicles of or under the control of D1.

3.  The Order freezes D1’s assets up to the amount of the Sum. §§7-8 of the Order read as follows:

“7. Each of the 1^st and 6^th Defendants must inform the Plaintiff in writing within 7 calendar days after this Order has been served on him of all his assets of an individual value of HK$10,000 or more in Hong Kong, whether in his own name or not and whether solely or jointly owned, giving the value, location and details of all such assets. The Defendant may be entitled to refuse to provide some or all of this information on the ground that it may incriminate him.

8.  This information must be confirmed in an affidavit or affirmation which must be served on the Plaintiff’s solicitors within 14 calendar days after this Order has been served on the Defendant.”

4.  D1 applies for an order that §§7-8 of the Order shall be stayed pending the determination of P’s Continuation Summons and D’s Discharge Summons; or alternatively, the individual value of assets to be disclosed shall be changed to HK$500,000.

B.   THE APPLICABLE LEGAL PRINCIPLES

5.  The mere fact that there is a pending challenge by D1 against the Order is not a ground for suspending the operation of the disclosure order in the interim (Malofeev v VTB Capital plc [2011] EWCA Civ 1252 at §39). Hong Kong Civil Procedure 2022, vol. 1, §29/1/74 at p. 818 states:

“The defendant has no general entitlement to a stay of a disclosure obligation ancillary to a Mareva order pending the determination of the defendant’s application to discharge that order… While in the ordinary course, the application for a stay should be refused, the Court ultimately needs to strike a balance between depriving a plaintiff of the “teeth” of an injunction, and the potential prejudice to the defendant in making the disclosure…”

6.  As the Court of Appeal held in Chen Wenjun v Liu Luyuan and another, CACV168/2014 (1 September 2014, unreported), §21, whether an ancillary disclosure order should be stayed in the interim period must be decided as a matter of discretion on a broader balancing exercise having regard to the problem as identified by the English authorities as follows:

“The problem in cases where an order for disclosure has been made at the same time as, and in order to give teeth to, a freezing order made without notice to the defendant is that the freezing order may be set aside after hearing full argument on both sides. If so, it will then be seen that there was no proper basis for the disclosure order. But, by that time, the defendant may have been irremediably prejudiced by the disclosure of assets which he should not have been required to disclose. On the other hand, if it is held after full argument that the freezing order should stand, then the claimant may be irremediably prejudiced if the order has not been capable of being policed in the meantime. The court is faced with the position … that whichever course it takes on an application which has to be decided without full argument may lead to irremediable prejudice to one side or the other. There is a balance to be struck.”

7.  In Chen Wenjun v Liu Luyuan and another, §28, the Court of Appeal also held that:

“In our judgment, the immediate need for disclosure in respect of a proprietary claim is quite different from that in respect of a non-proprietary claim. In the former case, very often the disclosure serves at least two purposes: (a)  for policing the compliance with the injunctive relief; and (b)  to facilitate further steps being taken to recover assets which belongs to the claimant. In the latter, in most cases, only (a)  is applicable. This distinction is material to the Raja balancing exercise.”

8.  In this case, P’s claim against D1 is non-proprietary. Hence, the purpose of the ancillary disclosure order is for policing the compliance with the interim injunctive relief against D1.

C.   ANALYSIS

9.  The ground of D1’s application is that he has already disclosed in his affirmation dated 26 April 2022 his assets in Hong Kong of a value exceeding the Sum as follows:

(a)  390,821,084 shares in Amber Hill Financial Holdings Limited under the name of D3 (“Amber Hill Financial Shares”)  which are valued at about HK$673,775,548.80 (equivalent to about US$86,381,480.61)  with the average price of HK$1.724 between 23 March and 21 April 2022;

(b)  Bank deposits of HK$94,188,438.09 with HSBC under the name of D3 (“HSBC Deposits”)  (equivalent to about US$12,075, 440.78);

(c)  Investments of US$69,216,479 with Bank Julius Baer & Co Ltd (“Julis Bär”)  under the name of D3 (“Julis Bär Investments”);

(d)  138,822,000 shares in Target Insurance Holdings Ltd under the name of Smart Neo (“TIHL Shares”)  which are of the value of about HK$124,898,153.40 (equivalent to about US$16,012,583.76)  with average price of HK$0.8997 between 23 April 2021 and 4 January 2022;

(e)  Shareholdings in two private companies, namely, D3 and Smart Neo, which are both under his name. The equity of Smart Neo is about HK$280 million according to Smart Neo’s audited financial statement for the period of 9 January 2020 to 30 June 2021.

He states that the combined total estimated value of these assets come to well over US$183 million, not counting the value of his shares in the two private companies. He confirms that the said assets under the name of D3 and Smart Neo are wholly and ultimately owned by him beneficially; the HSBC Deposits and Julis Bär Investments remained of the same value as at the date of his affirmation; and those assets, in particular, the Amber Hill Financial Shares, the TIHL Shares and D3 Shares, are all not encumbered by any charge or mortgage to third parties/banks. He claims to have serious concerns about the issue of privacy and the prejudice that he will surely suffer if he is required to disclose assets which it is later held he should not have been required to do in the first place.

10.  On the other hand, P highlights the fact that serious allegations of fraud are being made against D1, and the amount involved is huge. It is important to police compliance with the interim injunction against D1 (which has been continued by agreement)  effectively in order not to deprive it of its “teeth”. P contends that, save and except the shares in the two private companies, D1 is not the legal owner of the other assets which are held by D3 or Smart Neo; they are not assets which are readily available for enforcement of judgment. In addition, the value of those assets may fluctuate.

11.  For the present purpose, it is sufficient for me to focus on the four assets disclosed by D1 which are held under the name of D3 and Smart Neo.

12.  A certificate of incumbency dated 12 April 2022 shows that D1 is the sole shareholder of D3. It is common ground that D1 is the beneficial owner of Smart Neo. D1 has admitted and confirmed on oath that the said assets held under the name of D3 and Smart Neo are wholly and ultimately owned by him beneficially. It will not be open to him to contend otherwise in due course. Further, there is no evidence suggesting that what he said is untrue. For the present purpose, I am prepared to accept that they are indeed D1’s assets. I appreciate that, assuming that P succeeds in its claim against D1, as compared to assets held directly under D1’s name, it may be more inconvenient to enforce judgment against those assets held under the name of D3 and Smart Neo. However, having regard to the admission made by D1, they are assets which are amenable to execution of a judgement against him.

13.  I turn to the estimated value of those assets given by D1:

(a)  The Amber Hill Financial Shares are listed on the Hong Kong Stock Exchange (“HKSE”). The value estimated by D1 is supported by the data provided by the HKSE.

(b)  The value of the HSBC Deposits is supported by a statement dated 31 March 2022 issued by HSBC. It appears that they are all foreign currency deposits.

(c)  The value of the Julis Bär Investments is supported by an asset statement as of 31 March 2022 issued by Julis Bär, which describes the Investments as “AMBER HILL ES FUND SPC SHS-C-SERIES 1 CURRENCY ARBITRAGE FUND SEGREGATED PORTFOLIO”.

(d)  The TIHL Shares are listed on the HKSE. The value estimated by D1 is supported by the data provided by the HKSE. It should, however, be noted that trading of TIHL shares has been suspended since 5 January 2022.

14.  P has not suggested that there is anything wrong about the value or estimated value of those assets provided by D1. I have some doubts about the estimated market value of the TIHL shares because trading thereof has been suspended for a few months. But even if one puts aside the TIHL Shares, the estimated value of the three other asserts considered above already exceeds US$167 million, which is more than the Sum.

15.  As to P’s concern that the value of the said assets may fluctuate, my observations are as follows:

(a)  The value of the Amber Hill Financial Shares can be easily ascertained from information available in the public domain.

(b)  The value of the HSBC Deposits, due to their nature as foreign currency deposits, is unlikely to change substantially though there might be some fluctuations due to any change in the exchange rates between the foreign currencies in question and HK$/US$. In any event, any fluctuation in the value of the Deposits may be confirmed by updated information provided by HSBC.

(c)  The value of the Julis Bär Investments may fluctuate, but any such fluctuation may be confirmed by updated information provided by Julis Bär.

(d)  As to the TIHL shares, there is no way to ascertain their market value accurately since trading thereof has been suspended.

16.  In respect of these assets, D1 is restrained from disposing of them in any manner under the Order. It seems that reasonable and practicable steps may be taken to ensure that D1 will comply with the Order in this respect:

(a)  As the shares in Amber Hill Financial Holdings Limited and TIHL are listed on the HKSE, and D3 and Smart Neo are subject to disclosure requirements under section 313(1)  of the Securities and Futures Ordinance (Cap. 571), it seems rather unlikely and difficult for D1 to deal with them in breach of the Order without notice. The fact that trading of the shares of TIHL has been suspended makes it even more unlikely that D1 can dispose of them in the meantime.

(b)  As to the HSBC Deposits and the Julis Bär Investments, P may give notice of the Order to HSBC and Julis Bär. One may reasonably assume that they will not assist D1 in breaching the Order. In order to dispose of the HSBC Deposits and the Julis Bär Investments, it would appear that D1, through D3, will need to give instructions to HSBC and Julis Bär. Without the co-operation of HSBC and Julis Bär, it is improbable that D1 can dispose of those assets.

17.  For the above reasons, I take the view that the interim injunctive order against D1 will not lose its teeth, at least not entirely, even if the disclosure order is stayed in the meantime. In addition, the stay will only operate for a short period of time pending the substantive hearing of P’s Continuation Summons and Ds’ Discharge Summons. According to the timetable for the hearing of the said summonses, the hearing shall take place in a few months’ time.

18.  That said, I take the view that there ought to be proper measures to address P’s concerns about ownership of the assets and the potential fluctuation in the value thereof. And, in case D1 fails in his discharge application, there should not be any further delay in complying with the disclosure order. Further, if there is any material change of circumstances, P should be entitled to apply to lift the stay. Hence, in my view, an interim stay of the disclosure order should be granted on conditions which I shall set out below.

19.  Although D1’s application to vary the individual value of assets which he is required to disclose is made in the alternative to his application for an interim stay of the disclosure order, on reflection, I take the view that this is a matter that I should consider in any event.  D1 contends that, given the value of the assets already disclosed and having regard to the magnitude of the Sum, no meaningful purpose for policing his compliance of the Order made against him would be served by requiring him to disclose assets of individual value of HK$10,000, and that the appropriate figure should be HK$500,000. P, on the other hand, indicates that it is prepared to adjust the value to HK$100,000. There is no hard and fast rule on this matter. The Court should apply a practical and common sense approach, and strike a fair and proper balance between the interests of the parties. It may take into account factors like the size of the claim, value of assets already disclosed by the defendant or known to the plaintiff, the personal background of the defendant, and the practical inconvenience of requiring a defendant to disclose assets of relatively small value. In this particular case, I believe the figure should be adjusted to $200,000.

D.  CONCLUSION AND ORDER

20.  Having considered all relevant circumstances, to strike a fair and proper balance between the interests of the parties, I shall make the following orders. First, I shall vary §7 of the Order by changing the individual value of assets which D1 shall disclose from HK$10,000 to HK$200,000. Second, I shall grant a stay of §7 of the Order (as amended)  and also §8 thereof pending the determination of P’s Continuation Summons and Ds’ Discharge Summons on the following conditions:

(a)  Within 7 days hereof and, after that, once every 4 weeks until the hearing of P’s Continuation Summons and Ds’ Discharge Summons, D1 shall file and serve an affirmation on P’s solicitors to:

(i)  confirm that he remains to be the sole beneficial owner of the Amber Hill Financial Shares, the HSBC Deposits, the Julis Bär Investments and the TIHL Shares (“the 4 Assets”), and that the 4 Assets remain unencumbered;

(ii)  provide an updated value or estimated value of the 4 Assets (with the support of documents insofar as available and necessary).

(b)  Within 14 days hereof, D1 shall lodge an affirmation to the Court giving disclosure as required by §7 of the Order (as amended)  in a sealed envelope; the said affirmation shall not be inspected without leave of the court, and shall be dealt with by further directions to be given by the judge hearing P’s Continuation summons and Ds’ Discharge Summons, or the judge hearing any application made by P for a lift of the stay pursuant to paragraph (c)  below.

(c)  Liberty to apply be granted to P to lift the stay at any time.

21.  As to costs, I order that the costs of and incidental to the disposal of §§2 & 3 of Ds’ Summons shall be in the cause of P’s continuation Summons and Ds’ Discharge Summons.

Mr Jonathan Chang SC leading Mr Martin Ho, for the Plaintiff

Mr Robert Pang Y H SC leading Mr Jeff Yan TF, for the 1^st, 3^rd and 4^th Defendants

Mr Stony Chan for the 6^th Defendant

The 2^nd Defendant and 5^th Defendant did not appear