DINGWAY INVESTMENT LTD (Provisional Liquidators Appointed) v. CHINA CITY CONSTRUCTION & DEVELOPMENT CO. (HONG KONG) LTD AND OTHERS

HCA 309/2022

[2024] HKCFI 192

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 309 OF 2022

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HCCW 30/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 30 OF 2022

________________________

________________________

____________________

(Heard Together)

_________________

DECISION

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1.  I was surprised to learn about this application by Dingway and CCCI seeking an order for summary assessment of the costs ordered by this Court pursuant to its Decision dated 29 July 2022 ([2022] HKCFI 2314)[1]. I am unable to agree with this application.

2.  First, as per §165 of the Decision, all costs orders were made on nisi basis.  No application was made within 14 days to vary the orders pursuant to O 42, r 5B to allow for summary assessment.  I therefore agree with Mr Fan, who appears for CCCDHK and Sze, that this Court is now functus and the costs orders are to be taxed in accordance with normal practice.

3.  Second, I also agree with Mr Fan that the complexity of the costs orders militates against summary assessment.  There were multiple applications before the Court and the costs of which had to be apportioned to reflect the results.  It is undisputed that the costs incurred had overlapped between applications.  A summary assessment, whilst efficient, may not do justice to the case.

4.  I therefore dismiss this application, and I shall hear the parties on costs.

Mr CY Au of Tanner De Witt, for the Plaintiff in HCA 309/2022 and Petitioner in HCCW 30/2022

Mr Alex Fan, instructed by Jun He Law Offices, for the 1^st and 3^rd Defendants in HCA 309/2022 and for China City Construction & Development Co., (Hong Kong) Limited and Sze Wai Suen in HCCW 30/2022

Au-Yeung, Chan & Ho for the 2^nd Defendant in HCA 309/2022 and Zeng Yuqi in HCCW 30/2022, absent

Tung, Ng, Tse & Lam for the 6^th Defendant in HCA 309/2022, absent

Adrian Yeung & Cheng for the 7^th and 9^th Defendants in HCA 309/2022, absent

HCA 309/2022 & HCA 356/2022
(Heard together)

[2023] HKCFI 1649

HCA 309/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 309 OF 2022

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______________

AND

HCA 356/2022

ACTION NO. 356 OF 2022

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(Heard together)

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D E C I S I O N

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A.  INTRODUCTION

1.  Before me there are four summonses relating to two actions, HCA 309/2022 (“HCA 309”) and HCA 356/2022 (“HCA 356”).

1.1  HCA 309 is a claim brought by the Plaintiff therein (“P”) against a number of defendants, relating to a transfer from P of the entire shareholding (“the Subject Shares”) in CCCC Holdings LLC (“CCCC Holdings”). CCCC Holdings indirectly held a piece of land in Miami (“the Miami Land”). P says that the Subject Shares were wrongfully transferred away from it to D1, then wrongfully sold to D4, and that the Miami Land was ultimately wrongfully sold with the sale proceeds dissipated to various of the defendants.[1]

1.2  HCA 356 is a claim brought by D1 against China City Construction (International) Co., Limited (“CCCI”), the former sole owner of P. D1 alleges that the shares in P, which were held by and registered in the name of CCCI, were held on trust by CCCI on behalf of D1 (“the Trust Arrangement”).

2.  The four summonses are as follows:

2.1  a summons of 11^th November 2022 by CCCI and P in both actions, seeking to stay HCA 356 pending the resolution of HCA 309; alternatively that the two actions be tried together;

2.2  a summons of 28^th November 2022 by D1 and D3 who held various positions in D1 in HCA 309, seeking to stay HCA 309 pending the resolution of HCA 356;

2.3  a summons of 28^th November 2022 by D4, D5, D7 and D9 (collectively, “the Rega Ds”) in HCA 309, seeking to stay HCA 309 pending resolution between P and D1 of a question termed “the Title Issue”, namely “As of October 2019, was [P], or was [D1], the beneficial owner of the [Subject Shares] and/or [the Miami Land]?”;

2.4  a summons of 3^rd January 2023 by D6 (“D6”) in HCA 309, seeking the same relief as the Rega Ds.

3.  By the time of the hearing before me, D1 and D3 no longer sought to pursue their summons. Instead, they took the position that the two actions should be tried together, but that there should first be a trial of a preliminary issue between P, D1 and CCCI, with the other defendants in HCA 309 (“the HCA 309 Ds”) being agreeable to be bound by its result. The preliminary issue was termed as “the Title/Trust Issue” and was identical to the Title Issue, save for an addition (shown in underlining as follows): “As of October 2019, was [P], or was [D1], the beneficial owner of the [Subject Shares] and/or [the Miami Land] and/or was [D1], or was [CCCI], the beneficial owner of the entire shareholding in [P]?”.

B.  THE BACKGROUND

4.  For present purposes, it is not necessary to delve extensively into the factual background. It suffices to mention the following.

B1.  The transfers of the Subject Shares in October and November 2019 and the sale of the Miami Land

5.  P (a BVI company), originally held 100% of the shares in CCCC Holdings (a Delaware company), that is, the Subject Shares. Through this holding and further Delaware subsidiaries, P indirectly held the Miami Land (which was registered in the name of D5). However, on 15^th October 2019, D2 caused P to transfer away the Subject Shares to D1, for no consideration. The transfer agreement was signed by D2 on behalf of P, and D3 on behalf of D1.

6.  Shortly thereafter, on 8^th November 2019, D4 purchased the Subject Shares from D1 for US$70m.

7.  On 4^th March 2021, D4 caused D5 to sell its interest in the Miami Land to a company named Mast Capital for US$103m (“the Sale Proceeds”). Various portions of the Sale Proceeds ended up with, inter alia, D1, D5, D6, D7, and D8.

8.  It is P’s case that the transfer of the Subject Shares to D1 and then to D4, and the subsequent disposal of the Miami Land and distribution of the Sale Proceeds, was part of a conspiracy by the HCA 309 Ds to deprive P of the Miami Land and its economic value. P says that the sale to D4 was not a genuine transaction, with D4 interposed as a purported purchaser, but the Sale Proceeds then being routed back to entities connected with D1.

9.  P pleads that the HCA 309 Ds are liable to P as follows.

9.1  D2, as P’s director, was in breach of fiduciary duties owed to P by procuring P to transfer the Subject Shares to D1 for no consideration and without justification.

9.2  D1 (who received the Subject Shares) and D3 (who signed the transfer document on D1’s behalf) dishonestly assisted D2’s breach of duty.

9.3  D1 is liable as a knowing recipient of the Subject Shares, which were transferred in breach of D2’s fiduciary duties.

9.4  D1 then further dishonestly executed the transfer of the Subject Shares to D4 in breach of its duties as constructive trustee.

9.5  D4 received the Subject Shares dishonestly, held the Subject Shares as constructive trustee for P, and is liable as a knowing recipient of the Subject Shares. D4 then dishonestly caused D5 to execute the sale to Mast Capital and to dissipate the Sale Proceeds.

9.6  D5, D6, D7 and D9 are liable for dishonestly assisting in the breaches of duty by D1, D2, and D4.

9.7  D4 to D9 are liable for conspiracy to injure P.

10.  P also pleads that D4, D5, D6, D7 and D9 acted as the vehicles, conduits or proxies of D1 in depriving it of its interest in the Miami Land, based on the connections between these defendants and D1:

10.1  D6, which received US$45-odd million of the Sale Proceeds, was the sole shareholder of D1 from 23^rd August 2021 to 20^th July 2016, as the nominee of China City Development Academy Co., Limited (“CCDA”).

10.2  Sunny Ea, who was at all material times the sole shareholder and director of D6 and who also held positions in D8, had earlier been nominated by CCDA to hold shares in D1 for it from 8^th January 2006 to 22^nd August 2012.

10.3  D8, which received US$33-odd million of the Sale Proceeds, shared a business address with D4. D2, D3 and D9 held positions in D8. It was also connected with D1 as referred to above.

10.4  D7, which received US$13-odd million out of the Sale Proceeds, was, together with D9, a member / manager of D4 in around October 2021. It also held a bank account at the same branch as D1.

10.5  US$200,000 out of the Sale proceeds was remitted to CCCC US International Corp, which shared a business address with D4 and D8. D2 and D9 held positions in CCCC US International Corp.

10.6  D9, who received US$33m of the Sale Proceeds, was the authorised person and Manager / President of D8 in 2020, 2021 and 2022 and was its registered agent in 2022. D2 and D3 held positions in D8 during overlapping times (D2 being the authorised person and registered agent of D8 in 2018, and D3 being the authorised person and registered agent of D8 in 2020 and 2021). She was also the Manager of D4 in around October 2021 and the “sole manager” of D5 as at 7^th December 2021. She is the sole shareholder and director of D7.

B2.  D1’s Trust Claim

11.  The shares in P were originally owned by CCCI. On 2^nd October 2015, CCCI sold 45% of the shares in P to Champ Prestige International Limited (“Champ Prestige”).

12.  It is D1’s case that the shares in P, whilst registered in the name of CCCI, were in fact held on trust for it, so that (1) CCCI’s sale of 45% of the shares in P to Champ Prestige, and (2) CCCI’s agreement with Champ Prestige to agree on a mechanism for the sale of P’s shares, were a breach of trust. On 5^th October 2018, D1 commenced HCA 2343/2018 against CCCI, asserting the Trust Claim. D1 filed a Notice of Discontinuance in HCA 2343/2018 on 17^th December 2019.

13.  On 5^th March 2020, D1 acquired Champ Prestige, thereby acquiring an indirect 45% shareholding in P.

B3.  HCA 309

14.  D1 and D3 rely on the Trust Claim for their defence in HCA 309. They say that CCCI executed a written declaration of trust of its shares in P (“the Shares in P”), declaring that they were held on trust for D1. It is said that:

14.1  D1, as the sole beneficial owner of the Shares in P, was lawfully entitled to dispose of any property owned by P, including the Subject Shares; and

14.2  the transfer of the Subject Shares on 15^th October 2019 to D1 was duly authorised and/or in any event ratified by the person solely beneficially entitled to the Shares In P.

15.  As for D2, he pleads that he was not in breach of fiduciary duty as the transfer of the Subject Shares on 15^th October 2019 to D1 was approved and/or ratified by P’s shareholders, being the liquidators of CCCI and Champ Prestige. It has been pointed out that this allegation was made but withdrawn by D1 and D3 at the hearing for the continuation of various injunctions against the defendants in June 2022 before A Chan J.

16.  The Rega Ds say that they were not involved in the transfer of the Subject Shares on 15^th October 2019, and that the sale of the Subject Shares to D4 on 8^th November 2019 and the sale of the Miami Land in 2021 were genuine commercial transactions.

17.  P sought various injunctions against the HCA 309 Ds. By a decision of 29^th July 2022 (“the Injunction Decision”), A Chan J continued the proprietary injunction against D1 in respect of the US$70m it received from D4 for the Subject Shares. The proprietary injunctions against D6, D7 and D9 regarding the Sale Proceeds were discharged, but Mareva injunctions against them (and D1 to D3) up to US$103m, (the value of the Subject Shares), were continued. The court declined to strike out P’s pleading against D6 and D7 in respect of the claims in conspiracy and dishonest assistance.

18.  On 29^th March 2023, the Court of Appeal refused leave to D6 and D7 to appeal against the refusal to strike out the entirety of P’s Statement of Claim against them.

19.  Pleadings have, or have almost, closed in HCA 309.

B4.  HCA 356

20.  It should be noted that D1 had previously commenced proceedings in HCA 2343/2018 against CCCI, asserting the Trust Claim. The liquidators of CCCI and Champ Prestige had filed defences denying the Trust Claim. D1 then filed a Notice of Discontinuance on 17^th December 2019. P says that by this time, D1 presumably no longer found it necessary to pursue the Trust Claim, given that the Subject Shares had been transferred to D1 on 15^th October 2019 and then sold on to D4 on 8^th November 2019 to D4.

21.  Yet the Trust Claim was revived in HCA 356, commenced on 12^th April 2022, shortly after the writ in HCA 309 against D1 to D8 was filed on 1 April 2022.

22.  It is not denied by D1 that the Trust Claim in HCA 356 mirrors the defence advanced by D1 and D3 in HCA 309, namely, that CCCI held the Shares in P on trust for D1, so that D1 was lawfully entitled to dispose of P’s property.

23.  Only the Statement of Claim has been filed in HCA 356, with the time for CCCI to file and serve its Defence and Counterclaim being extended pending the final determination of the current summonses.

C.  THE APPLICABLE PRINCIPLES

24.  There is no dispute as to the applicable principles.

C1.  Ordering a stay of proceedings

25.  By virtue of s.16 of the High Court Ordinance (Cap.4) and RHC O.1B r.1(2)(e), the court has power to stay the whole or part of any proceedings either generally or until a specified date or event. The court has a general and wide power to stay proceedings before it, in the exercise of its case management and statutory powers, and its inherent jurisdiction to control and regulate the conduct of proceedings before the court: Xiamen Xinjingdi Ltd v Eton Properties Ltd & others[2018] HKCFI 910 at [23].

26.  Where two or more causes or matters are pending, the court may order any of them to be stayed until the determination of any other of them, where some common question of law or fact arises in both, where the rights to relief claimed therein are in respect of or arise out of the same transaction(s), or where for some other reason it is desirable to make an order under the rule: O.4 r.9(1).

27.  In Eastman Chemical Ltd v Heyro Chemical Co Ltd [2012] 2 HKLRD 135 at [29], DHCJ Lisa Wong SC (as she then was) set out the following relevant principles, in the context of an application by a defendant to stay proceedings brought against him.

27.1  The court must consider what would serve the ends of justice between the parties to the litigation and the administration of justice generally.

27.2  The stay should not cause an injustice to the plaintiff.

27.3  The applicant for the stay must satisfy the court that continuing the proceedings would be unjust.

27.4  Where a plaintiff commences proceedings as of right, he should not be deprived of the right to continue those proceedings in the absence of very good reasons to the contrary.

C2.  Ordering actions to be tried together

28.  Under O.4 r.9(1), where two or more causes of matters are pending and they satisfy the requirements set out above, the court may also order them to be tried at the same time: O.4 r.9(1).

29.  The court has a wide discretion under this rule. The court will take a practical and common sense approach to meet the justice of the situation, taking into account considerations such as saving costs and time, furthering the underlying objectives under O.1A, and always recognising that the primary aim is to secure the just resolution of disputes in accordance with the substantive rights of the parties. Cf. Hong Kong Civil Procedure 2023 at note 4/9/2.

C3.  Ordering the trial of a preliminary issue

30.  Under O.33 rr.3 and 4(2), the court has power to order that any question or issue, whether of fact or law or both, and whether raised by the pleadings or otherwise, to be tried as a preliminary issue.

31.  The principles as to whether to order the trial of a preliminary issue were set out by A Chan J in Asia-Pac Infrastructure Development Ltd (in liq) & ors v Shearman & Sterling (a firm) & ors [2020] 1 HKC 13 at [8] to [9].

31.1  The general rule is that all issues are to be tried at the same time. The burden is on the applicant to demonstrate that it is just and convenient to depart from the general rule.

31.2  The exercise for the court is not one of balancing the advantages against the detriment or prejudice to the opposing party.

31.3  Instead, a trial of a preliminary issue should only be ordered in exceptional circumstances or on special grounds.

31.4  The court should be mindful that a trial of a preliminary issue may add to difficulties for appellate courts and tends to increase the costs and time of legal proceedings.

31.5  The factors to be considered in determining whether to order the trial of a preliminary issue include:

31.5.1  whether the determination of the preliminary issue would dispose of the whole case or at least one aspect of the case;

31.5.2  whether the determination of the preliminary issue would significantly cut down the costs and the time involved in pre-trial preparation or in connection with the trial itself;

31.5.3  where the preliminary issue is an issue of law, the amount of effort involved in identifying the relevant facts or the extent to which it could be determined on agreed facts;

31.5.4  where the facts are not agreed, the extent to which that impinges on the value of a preliminary issue;

31.5.5  whether the determination of the preliminary issue would unreasonably fetter the parties all the court in achieving a just result;

31.5.6  the risk that ordering a preliminary issue would increase the costs or delay the trial, and (conversely) the prospects that such an order may assist in settling the dispute;

31.5.7  the extent to which the determination of the preliminary issue may be irrelevant. The more likely it is that the issue will have to be determined by the court, the more appropriate it can be said to have it tried as a preliminary issue;

31.5.8  the risk that the determination may lose its effect by triggering an application to amend the pleadings.

32.  It is rare, and highly undesirable, to order preliminary issues of disputed facts: Mai Gou v Mak Chik Lun [2001] 3 HKLRD 248 at 252E (Le Pichon JA).

D.  THE VARIOUS COURSES UNDER CONSIDERATION

33.  It is common ground that there is a risk of inconsistent findings on the Trust Claim if HCA 309 and HCA 356 are heard separately. The question is therefore which of the following courses should be adopted:

33.1  Option 1: stay HCA 356, pending resolution of HCA 309 (P’s primary position);

33.2  Option 2: hear HCA 309 and 356 together (P’s secondary position);

33.3  Option 3: hear HCA 309 and 356 together, but with there first being a trial of a preliminary issue between P, D1 and CCCI in terms of the Title/Trust Issue (D1’s position);

33.4  Option 4: stay HCA 309, pending the trial of a preliminary issue between P and D1 in terms of the Title Issue (the Rega Ds’ and D6’s position).

34.  Options 3 and 4 are, in substance, largely the same, as both would require the trial and determination of the Title/Trust Issue before trial of any other issues arising in HCA 309. The Title Issue, whilst on its face referring only to the level of the Subject Shares (in CCCC Holdings) by P, of course also involves the Trust Issue, in that whether or not the transfer of the Subject Shares to D1 on 15^th October 2019 was wrongful depends on whether D1 was indeed in a position to direct the disposition of P’s property, including the Subject Shares.

35.  I agree with Ms Esther Mak, counsel for P, that no exceptional circumstances or special grounds have been shown to justify ordering a trial of the Title/Trust Issue as a preliminary issue between P (and CCCI) and D1 (as required by Options 3 and 4), leaving out the other HCA 309 Ds.

35.1  Even if the Trust Issue were to be determined in favour of the HCA 309 Ds, it is not at all clear that this would determinatively resolve the issue of whether the transfer of the Subject Shares to D1 on 15^th October 2019 was wrongful.

35.1.1  Ms Mak submits that even if the Shares in P were held on trust for D1, this would not have conferred the right on D1 to direct P what to do with the Subject Shares. In particular, under s.175 of the Business Companies Act of the BVI, any disposition of more than 50% of a company’s assets, if not made in the usual course of business, is subject to various procedural requirements, and it is not suggested that these were complied with in the present case. However, leading counsel for D1 and D3, Mr Douglas Lam SC (appearing with Mr Alex Fan), says that any non-compliance was addressed by ratification.

35.1.2  P’s response is that in the case of misappropriation of company assets, it is no defence for the shareholders to say that they sanctioned or ratified the transaction. See Mortimore, Company Directors (3^rd ed.,) paragraph 20.58; Tradepower (Holdings) Ltd v Tradepower (HK) Ltd (2009) 12 HKCFAR 417 at [123] to [127]. Mr Lam acknowledges such authorities, but says that there are judicial observations, albeit obiter, that the rule that certain breaches are unratifiable is unsatisfactory, citing Wang Pengying v Ng Wing Fai and ors [2021] 1 HKLRD 997 at [82.2] and Re Styland Holdings Ltd (No.2) [2012] 2 HKLRD 325 at [121].

35.1.3  Moreover (P says), D1 cannot rely on the Duomatic principle where the impugned transaction is one that renders the company insolvent, citing Ball v Hughes [2018] BCLC 58 at [148]. None of the HCA 309 Ds take issue with this principle. Ms Mak submits that P was wound up in the BVI in March 2022, as the transfer of the Subject Shares in October 2019 meant that it had no means to repay its debts.[2] However, Mr Lam submits that there is a factual dispute as to whether P was indeed rendered insolvent as a result of the transfer of the Subject Shares.

35.1.4  It is not of course for me to determine the respective merits of these arguments at this stage. However, at best, the arguments of the HCA 309 Ds[3] are that it is arguable that the transfer of the Subject Shares to D1 in October 2019 could have been ratified by D1, and was therefore not wrongful. It is, at the very least, arguable that the transfer could not have been ratified. The Title/Trust Issue cannot therefore said to be dispositive of the legitimacy of the transfer of the Subject Shares to D1 in October 2019.[4] This does not amount to showing exceptional circumstances or special grounds for trying the Title/Trust Issue as a preliminary issue.

35.2  Counsel for the Rega Ds, Ms Frances Lok, says that they were not involved in the transfer of the Subject Shares on 15^th October 2019, and that they came onto the scene only afterwards when the Subject Shares were sold to D4 on 8^th November 2019. They say that they should therefore not be dragged into the trial of the Title/Trust Issue, and the issue of whether D1 was the beneficial owner of the Subject Shares should first be determined: if the transfer of the Subject Shares to D1 was not wrongful as alleged by P, then the claim for accessory liability against the Rega Ds will collapse. However, if the question of whether the transfer of the Subject Shares to D1 was wrongful cannot be determined solely by determining the Title/Trust Issue, it will be necessary to determine the factual allegations raised by P as to why the transfer of the Subject Shares to D1 was wrongful. P’s pleaded case is that D2 wrongly procured P to make the transfer to D1 and that D3 dishonestly assisted D2’s breach of duty, and that D4 to D9 acted as the vehicles, conduits or proxies of D1 in conspiring to deprive P of its interest in the Miami Land. Merely determining the Title/Trust Issue first would not, it seems to me, necessarily dispose of any significant or discrete aspect of the parties’ dispute. On the contrary, it risks increasing the costs and time involved in resolving the parties’ disputes, and complicating such resolution by segregating the consideration of what P says was an interconnected series of events into separate trials.

35.3  The Title/Trust Issue turns on disputed facts, including the authenticity of the shareholding trust agreement of 28^th November 2014, and the declaration of trust dated 20^th January 2015, relied on by D1 and D3 for the Trust Claim. Given the allegations of conspiracy against the HCA 309 Ds, it would be unsatisfactory for only a limited portion of the factual disputes to be considered, and in the absence of most of the HCA 309 Ds.

35.4  The declaration of trust which D1 seeks in HCA 356 (and which it implicitly seeks as part of the Title/Trust Issue) is subsidiary to the real dispute between the parties, and is not in itself of particular significance, since P currently has no assets to distribute to its shareholders, whether de jure or beneficial. As Ms Mak points out, this could well be why D1 did not pursue the Trust Claim in HCA 2343/2018 once the Subject Shares had been transferred away from P. Mr Lam disputes this, pointing to the fact that in addition, in HCA 356, D1 claims damages of US$44-odd million, being the amount which D1 had to pay in March 2020 to acquire Champ Prestige and regain control over P. However, there is no explanation as to why this was not pursued until the commencement of HCA 356 in April 2022, two years later, and only after HCA 309 had been commenced.

35.5  Determining the Title/Trust Issue before determining HCA 309 would unnecessarily delay the resolution of the latter. If D1 should be unsuccessful in the Title/Trust Issue and seek to appeal against any determination of the issue, this would give rise to further delay. This is not a remote possibility, given the conduct of the parties so far.[5]

36.  I consider that staying HCA 356 (Option 1) is preferable to having it heard together with HCA 309 (Option 2).

36.1  D1 and D3 have already raised the Trust Claim in HCA 309. It can be determined without the need for the duplication which having HCA 356 as a separate action would involve. Staying HCA 356 would save time and costs. There is no need for parallel sets of pleadings and witness statements and rounds of discovery to be carried out.[6]

36.2  Mr Lam submitted that CCCI is not party to HCA 309. However, no reason has been given as to why CCCI could not have been (or could not now be) joined as a party to HCA 309 by counterclaim if it was (or is) thought necessary. In any event, the application by P and CCCI to stay HCA 356 is put on the basis that the joint and several liquidators of CCCI agree on behalf of CCCI to abide by any decision in HCA 309 as regards the Trust Claim, so that CCCI would be bound as if it were a party.

36.3  Mr Lam submitted that an undertaking from CCCI was “unworkable”, because if CCCI is not a party to HCA 309, then it will not participate in the action, giving discovery and evidence, and it will not explain why it disputes the Trust Claim. D1 and D3 would be forced to issue third party notices to join CCCI to HCA 309 to enable the Trust Claim to be resolved. It is not clear to me why this is an insurmountable problem, since Mr Lam has proposed what D1 and D3 (at any rate) consider to be an appropriate solution, viz. the issuance of third party notices.

E.  DISPOSITION

37.  I therefore make an order in terms of paragraph 1 of P’s summons of 11^th November 2022, staying HCA 356 pending resolution of HCA 309, upon the giving of CCCI’s undertaking. I dismiss the other three summonses.

38.  I further make a costs order nisi that (1) the costs of and occasioned by P’s summons be paid by the HCA 309 Ds to P in any event, to be taxed if not agreed, and (2) the costs of and occasioned by (a) D1 and D3’s summons, (b) the Rega Ds’ summons, and (c) D6’s summons, be paid by the respective HCA 309 defendant(s) issuing the summons to P in any event, to be taxed if not agreed.

Ms Esther Mak, instructed by Tanner De Witt, for the Plaintiff in HCA 309/2022 and for the Defendant in HCA 356/2022

Mr Douglas Lam SC leading Mr Alex Fan, instructed by Jun He Law Offices, for the Plaintiff in HCA 356/2022 and for the 1^st and 3^rd Defendants in HCA 309/2022

Mr Taylor L.K. Li, instructed by Au-Yeung, Chan & Ho, for the 2^nd Defendant in HCA 309/2022

Ms Frances Lok, instructed by Adrian Yeung & Cheng, for the 4^th, 5^th, 7^th and 9^th Defendants in HCA 309/2022

Mr Lai Chun Ho, instructed by Tung, Ng, Tse & Lam, for the 6^th Defendant in HCA 309/2022

The 8^th Defendant in HCA 309/2022 was not represented and did not appear

HCA 309/2022

[2023] HKCFI 1649

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 309 OF 2022

________________________

________________________

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DECISION

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1.  This is the contested hearing of an application by the Plaintiff (“Dingway”) for a disclosure order against the 1^st Defendant (“D1”) under paragraph 1 of its summons issued on 28 September 2022, the other discovery sought under paragraph 2 having been disposed of earlier by consent.

2.  Dingway is represented by Ms Mak and D1 by Mr Fan, both of counsel.

3.  Having sorted out a number of matters with D1 at the hearing, the determination of this matter turns out to be rather straight forward. The background though would need a bit of explaining.

4.  The disclosure of information and documents sought relates to (a) the receipt by D1 of the proceeds of US$70 million (“the Proceeds”) under a purported sale by D1 of the membership interest in one CCCC Holdings LLC to the 4^th Defendant pursuant to an agreement dated 8 November 2019, (“the Shares”, “D4” and “Transfer (2)” respectively), (b) the current whereabouts of the Proceeds and (c) their disposal by D1.

5.  The facts of this case are rather complex. These facts and the procedural history herein and in a number of other proceedings have been very succinctly and clearly summarized by Anthony Chan J in §§4 to 34 of his Decision herein dated 29 July 2022 (“the July 2022 Decision”).

6.  For the purpose of understanding this application, it is not necessary to go into them at great length. It would suffice for me to refer to the following. In so doing and for ease of reference, I gratefully use as abbreviations in this decision the monikers designated by the learned Judge in the July 2022 Decision (to the extent the subject matters have been so designated).

7.  The central dispute in this action concerns two transfers of the Shares and the sale of a valuable piece of land in Miami, USA in December 2021.

8.  The two transfers of the Shares happened one shortly after the other. The first one (“Transfer (1)”) occurred on about 15 October 2019 when D2 (then a director of CCCI and Dingway, and a former director of D1) on behalf of Dingway transferred the Shares from Dingway to D1 for no consideration. The second one was Transfer (2). As mentioned, it occurred in November 2019 when D1 transferred the Shares to D4 for a stated consideration of US$70 million, namely the Proceeds.

9.  On 24 January 2022, in HCCW 30/2022 CCCI (through its liquidators) by an ex-parte application obtained a proprietary injunction against D1 enjoining it from disposing of the Proceeds whether the same were located inside or outside Hong Kong (“Injunction (1)”).

10.  A number of applications, among them the continuation of Injunction (1), were heard and then decided by the learned Judge in the July 2022 Decision.

11.  The causes of action Dingway pleaded as against D1 were summarized by the learned Judge in §38 of the July 2022 Decision, and I gratefully quote the part relevant to this decision:

“Dingway’s causes of action

38. Dingway’s case can be found in its Statement of Claim …, can be summarised as follows:

(1) In breach of his fiduciary duties to Dingway, which also constituted breach of trust, D2 caused Transfer (1) to be made;

(2) D1, who received the Shares (trust property), and D3, who signed the transfer document on D1’s behalf, dishonestly assisted D2’s breach of duties;

(3) D1 knowingly received the trust property transferred in breach of D2’s duties;

(4) Transfer (2) was not a genuine sale. D4 was a nominee or corporate vehicle of D1 (or those controlling it). If D1 had received US$70 million from D4 under the Transfer, such proceeds are the traceable substitute of the Shares and recoverable by Dingway;”

12.  In §87 of the July 2022 Decision, the learned Judge observed:

“87. Of course, Dingway had proprietary interest in the Shares and there is no dispute that it was (and is) entitled to trace such interest/asset into the US$70 million received by D1 from D4 under Transfer (1) if it was a genuine sale.”

13.  In the July 2022 Decision, Injunction (1) was continued albeit being “transferred” from HCCW 30/2022 by discharging it there and continuing it in this action.

Dingway’s application and the applicable principles

14.  Dingway seeks the disclosure for the purpose of identifying, preserving and tracing its assets, namely the Shares, which it has been deprived of through a breach of trust and which was received by D1 knowingly and then purportedly disposed of by it by Transfer (2), making the Proceeds the traceable substitute of the Shares. The disclosure would also aid Injunction (1) which is a proprietary injunction.

15.  Ms Mak cited The Public Institution for Social Security v Al Rajaan [2020] EWHC 1498 (Comm) in which Jacobs J cited with approval at §18 a passage by Popplewell J in Angola v Perfectbit Ltd [2018] 3 WLUK 76 at §8:

“… The importance of disclosure is reinforced where a claimant has a proprietary claim and is seeking to recover specific sums or their traceable proceeds. Again, an order freezing such sums will be ineffective if the claimant cannot know what has happened to them. It is essential to the protection of the claimant’s rights to pursue its proprietary claim that full disclosure is given of what has happened to the money so that the claimant may take steps to freeze the proceeds and then to establish its right to recover those traceable proceeds. That is all part of the substantive claim which has to be adjudicated on the proceedings. …”

Grounds of opposition by D1

16.  Initially in its written submissions, D1

a.  drew this court’s attention to the fact that “a standard disclosure order in respect of assets of an individual value of HK$50,000” as against D1 (among others) has been made under paragraph 2 of the same summons. D1 then cited a passage in RACP Pharmaceutical Holdings Ltd v Li Xiaobo (CACV 139/2007, unrep., 19 September 2007) :

“Absent evidence that the defendant had failed to comply with the Mareva injunction, there is no basis for further discovery. Discovery directed at finding out whether the defendant had ‘dissipated’ or ‘concealed’ the purchase monies, in other words, ‘policing’, is not a legitimate purpose for making a disclosure order” (per Le Pichon JA§15)

b.  then submitted that the disclosure now sought was beyond “the standard form” of disclosure order in aid of Mareva injunctions and that it was “oppressive, unnecessary and unjustifiably wide”.

17.  Ms Mak submitted that RACP Pharmaceutical Holdings Ltd and the so-called “standard form disclosure” both concerned a Mareva injunction; and that very different principles and considerations applied to disclosure in aid of a proprietary injunction and for locating and tracing the trust property. I have no hesitation in accepting as correct the submission.

18.  Indeed, in Pacific King Shipping Holdings PTE Ltd (in compulsory liquidation) v Huang Ziqiang [2015] 1 HKLRD 830, the Court of Appeal considered the reasoning of the first instance judge in granting the disclosure, which was based on his view that the plaintiff’s claim against the defendant was proprietary in nature. The CA then opined that the judge erred in that the plaintiff’s claim was not proprietary in nature and then held that “[t]hat error is fundamental because as we will explain in a moment, it materially affects how the court exercises its discretion in granting disclosure”[1]. The CA then exercised the discretion afresh under the principles applicable to the granting of a disclosure order in aid of a Mareva injunction as opposed to the principles applicable to disclosure under a proprietary claim.

19.  In the course of the hearing, Mr Fan accepted that there was such a material distinction in principles and further accepted that the submissions (and the case cited) set out in paragraph 16 above were only relevant in a Mareva injunction context and he indicated he no longer pursued them. He further indicated that the principle alluded to in paragraph 15 above was not disputed by D1.

20.  Mr Fan then pursued on behalf of D1 as its main and only remaining ground of opposition - that there was inordinate delay.

21.  He emphasized that when Injunction (1) was applied for and granted on 25 January 2022, Dingway ought to have known about its entitlement to seek the present disclosure, but it did not do so then or in any of the subsequent hearings (and there were several) until only in August 2022 that Dingway sought this disclosure by correspondence, and then in 28 September 2022 issued this summons. Therefore, there had been multiple opportunities in which Dingway could and should have made an application for this disclosure. Mr Fan emphasized that I should evaluate the matter against the context that the disclosure was sought as part of an interim injunctive relief such that it was encumbent upon Dingway to act expeditiously.

22.  Mr Fan contended that the difficulties the liquidators had in obtaining litigation funding as said in affirmation, and as accepted by Anthony Chan J in the July 2022 Decision, only concerned the situation before February 2022 (the time the relevant affirmation evidence was filed) and there was no evidence about such thereafter. He also contended that the explanation by the liquidators that they did not seek this disclosure at the time because they had been so advised by leading counsel was not a good explanation.

23.  Mr Fan contended that the delay prejudiced D1 in that D1 was dragged into such piece-meal approach of applications causing it to have to expend additional time and costs. Mr Fan confirmed that there was no other prejudice or unfairness or difficulty that was occasioned to D1 by the delay.

24.  Ms Mak, while not exactly accepting what D1 was contending in terms of the delay, did not seek to engage D1 in disputes over these matters, and instead referred the court to the principle or approach concerning delay in the context of a disclosure sought under a proprietary claim. She drew attention to the approach accepted and applied by Deputy High Court Judge Douglas Lam SC in Liao Chen Toh v Loyal International Enterprises Co. Ltd. & Others[2021] HKCFI 164, in which a disclosure order was sought in relation to a proprietary claim, at §35:

“35. I accept that in applications for equitable relief, delay is always a factor in the exercise of the Court’s discretion, whether this is to enforce existing orders or to obtain further related orders. However, as Eichelbaum J observed in Monsanto Co v Stauffer Chemical Co [1984] FSR 559 at 571:

“Further, and without wishing to detract from the proposition that equitable relief needs to be sought promptly, it is not sufficient for a defendant to show that the applicant has delayed unreasonably. It must be shown that because of that delay, it would be unreasonable to grant the remedy; that it has become practically unjust to do so. As Megarry J said in Legg v Inner London Education Authority [1972] 1 W.L.R. 1245:

“What seems to me important is not so much the length of the delay per se, but whether the delay has in some ways made it unjust to grant the injunction claimed.” (pp. 1259-1260).”

And see Lindsay Petroleum Co. v. Hurd (1874) L.R. 5 P.C. 221, 240 and Spry, Equitable Remedies, 2^nd Ed., pp. 405, 454-455.”

25.  Mr Fan did not dispute this as the correct approach.

26.  The test therefore is whether “because of the delay, it would be unreasonable to grant [the disclosure]; that it has become practically unjust to do so”.

27.  Even taking D1’s present complaint of prejudice at its highest, it is just a matter of expending some extra costs and time which otherwise could have been saved.

28.  Therefore and applying the test, I am unable to accept Mr Fan’s contention that it would be unreasonable or practically unjust to grant the disclosure. Instead, I have no hesitation in accepting Ms Mak’s submission that (a) the prejudice now complained of by D1 is relatively so minor in the context of the subject matters of this action and further that (b) even if there were indeed any unnecessary costs thereby expended by D1 as complained, such should and would be properly dealt with as a costs matter, rather than one that affects the substantive merits of the disclosure order.

29.  I thus conclude that the delay complained of is not a ground for refusing the disclosure.

Disposal

30.  In the premises, I will grant the disclosure order.

31.  In the course of the hearing, Dingway orally applied to amend (a) paragraph 1 of the summons by adding the words “and when” in line 5 after the word “how”, adding the words “and how and when such payment(s) was/were made” in line 11 after the words “of the payment(s),” and (b) paragraph 3 of the summons by adding the words “of an officer of the 1^st Defendant” after the words “affirmation or affidavit” in line 2. These were not objected to by D1 and I allowed the amendment. D1 asked it be given 28 days to comply with paragraph 1 and paragraph 3 of the summons if an order were to be made. This was also not objected to by Dingway.

32.  Thus, I make an order in terms of paragraph 1 and paragraph 3 of Dingway’s said summons as amended above and with 28 days given to D1 under both paragraphs.

33.  I order on nisi basis that the costs of Dingway’s application be paid by D1 with certificate for counsel to be taxed summarily if not agreed. This order nisi will become absolute within 14 days unless any party applies by summons for variation within that period. If no application to vary is made within time, Dingway is to lodge and serve its Statement of Costs within 7 days thereafter, D1 its List of Objections within the next 7 days and Dingway its Reply, if any, within 5 days next for summary assessment on paper.

34.  I thank Ms Mak and Mr Fan for their assistance.

Ms Esther Mak, instructed by Tanner De Witt, for the Plaintiff

Mr Alex Fan, instructed by Jun He Law Offices, for the 1^st Defendant

Attendance of Adrian Yeung & Cheng, for the 5^th and 7^th Defendants and Tung, Ng, Tse & Lam for the 6^th Defendants was excused

HCA 309/2022

[2022] HKCFI 3422

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 309 OF 2022

____________________

____________________

HCCW 30/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 30 OF 2022

________________

________________

____________________

(Heard Together)

________________

DECISION

________________

1.  There are 2 applications for leave to appeal against the Decision of this court dated 29 July 2022 ([2022] HKCFI 2314)[1]. One by D6 and the other by D7 and D9. There is also an application by Dingway for an extension of time to apply for leave to cross-appeal against the Decision.

2.  With respect, I am unable to agree that there is reasonable prospect of success in either of the proposed appeal of the Defendants. 

3.  In respect of D6’s proposed appeal, it is based, firstly, on the same complaints over the defects of Dingway’s pleaded case, which had been dealt with in the Decision.  Secondly, it is contended that the Mareva injunction against D6 should have been discharged on the ground of MND.

4.  The pleading complaints should be considered against the backdrop that this court had found that there was clearly a good arguable case that (a) Transfer (2) was not a genuine sale but a device to keep the Shares from the reach of Dingway; and (b) D1 to D3, D6, D7 and D9 were acting in concert to deprive Dingway of the Shares and its indirect interest in the Land[2]. 

5.  Whilst there were defects in Dingway’s pleading, this court took into consideration that the trial of this action was not going to take place in the near future, and it was a case where particulars could be sought by D6 in respect of the deficiencies.  It was not a plain and obvious case of strike out[3].

6.  Further, I believe that the following dicta of K Yeung J in Delco Participation BV v HWH Holdings Ltd[2019] HKCFI 2923, [41(f)], is particularly apposite in a case, like the present, based on circumstantial evidence and inferences[4] :

“Beyond the seriousness of the charge, there is in fact nothing magical in the word “fraud”. Every set of pleadings will have to be looked at on a case by case basis with the notions of fairness, justice and sufficiency in mind so as to decide whether F&BPs should be ordered, or whether the accuser has sufficiently pleaded a “general case of fraud” so as to be permitted to flesh out the details later on;”

7.  As regards the alleged MND, I agree with Mr Man, who appears for Dingway, that it is artificial to the extreme.  It is apparent from the evidence referred to by Mr Lai, who appears for D6, that Dingway had laid out before the ex parte Judge the evidence available to it on the issue whether there was any legitimate reason for D6 to have received part of the Sale Proceeds.

8.  Moreover, D6’s case on the Loan was rejected by this court[5].  It is very difficult to understand why the Mareva injunction against D6 should have been discharged based upon a rejected case.

9.  Turning to the application of D7 and D9, it is also based on pleading deficiencies and the discharge of the Mareva injunction against them as a consequence of the unsustainable pleading. 

10.  Firstly, there is an argument not raised at the previous hearing[6], namely, Dingway’s loss had materialized in October 2019 when Transfer (1) took place and the pleaded overt acts of D7 and D9, which related to the Sale which took place in 2021, did not cause that loss.  The argument is misconceived because it ignores the fact that the Sale was part of the Wrongful Scheme pleaded against, inter alia, D7 and D9, and it was through that Sale that the fruit of the wrong was obtained.

11.  In respect of the pleading complaints raised at the last hearing (only by D7 and not D9), they were dealt with in the Decision, [106] to [110], and paras 4 to 6 above apply mutatis mutandis.

12.  Given the lack of a reasonably arguable appeal in respect of the pleading issues, there is no basis to discharge the Mareva injunction against D7 and D9.

13.  For these reasons, I dismiss both applications.

14.  In respect of Dingway’s extension of time application, Mr Man informed the court that the intended cross-appeal concerns only the proprietary injunction.  In my view, the law is quite clear on that issue and I am unable to see any merit in the proposed cross-appeal, nor any basis to exercise the court’s discretion in favour of Dingway.

15.  Further, there is clearly force in Ms Lok’s objection that Dingway should not be given an extension of time without identifying in its Summons the parameters of the cross-appeal, otherwise the extension of time will result in a general permission to Dingway to apply for leave to cross-appeal.

16.  In the premises, I also dismiss the extension of time application.

17.  I shall hear the parties on costs.

HCA 309/2022

[2022] HKCFI 2314

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 309 OF 2022

____________________

____________________

HCCW 30/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 30 OF 2022

____________________

____________________

____________________

(Heard Together)

________________

D E C I S I O N

________________

1.  There are 8 Summonses before the court. They arose from 3 ex parte Injunction Orders granted in HCCW 30/2022 (“HCCW”) and HCA 309/2022 (“HCA”). These Summonses were heard together.

2.  The facts of this case are complex. Many corporate entities with similar names are involved. For ease of understanding, it is important to adopt simple monikers for them.

3.  The central dispute here concerns the transfers of the shares in a corporate vehicle and the sale of a valuable piece of land in Miami, USA, which was held by this vehicle via 3 layers of subsidiaries. I shall firstly set out the undisputed or indisputable facts (unless stated otherwise) succinctly whilst endeavouring to do justice to the complexity of the facts.

Background

4.  The Plaintiff (a BVI company) in HCA (“Dingway”) was (until 15 October 2019) the holding company, through 3 Delaware subsidiaries (“Company A to C”), of a piece of land in Miami (“Land”). Company C was the titleholder of the Land. On 15 October 2019, Dingway was itself owned by the Petitioner in HCCW (“CCCI”) (55%) and the 1^st Respondent (“Champ Prestige”) (45%). Dingway is the 2^nd Respondent in HCCW.

5.  Dingway only served as the holding company for the Land. It had no other valuable asset save for the Land, which was acquired in December 2014 at US$86.7 million. The purchase price was accounted for as a shareholder’s loan from CCCI to Dingway. CCCI was at that time the sole owner of Dingway.

6.  In about February 2016, CCCI sold 45% of the shareholding in Dingway as well as 45% of its shareholder’s loan to Champ Prestige for US$40.5 million. In 2017 and 2018, actions were brought by Champ Prestige against CCCI for alleged breach of agreement in respect of the development of the Land.

7.  Up until 22 April 2016, CCCI and the 1^st Defendant in HCA (“D1”) (the rest of the Defendants in HCA are referred to in similar manner) were both indirectly wholly-owned subsidiaries of China City Development Academy Co Ltd (“CCDA”).

8.  Beginning from 2016, CCCI was in financial difficulties. It defaulted on bonds issued by it with a face value of RMB 2.5 billion. In June 2018, a creditor’s winding up petition was presented against it.

9.  On 5 October 2018, D1 commenced HCA 2343/2018 against CCCI, asserting that CCCI had been holding the shares in Dingway on trust for it since the incorporation of Dingway (“Trust Arrangement”). Accordingly, D1 claimed that CCCI’s 55% shareholding in Dingway and the consideration received by CCCI from Champ Prestige for 45% of Dingway should be held on trust by CCCI for its benefit.

10.  In January 2019, CCCI went into voluntary liquidation, and liquidators were appointed (“Liquidators (C)”).

11.  Both Champ Prestige and CCCI (through its Liquidators) filed Defence in respectively 30 May and 11 July 2019 in HCA 2343/2018 denying the Trust Arrangement.

12.  On 18 June 2019, Champ Prestige started an action in Miami (“Miami Action”), seeking an order that CCCI be dissolved and the Land be sold, with payment of HK$148 million out of the sale proceeds to be paid first to Champ Prestige[1].

13.  On 15 October 2019, D2 (then a director of CCCI and Dingway, and a former director of D1) on behalf of Dingway transferred its entire shareholding in Company A (“Shares”) to D1 for no consideration (“Transfer (1)”). The transfer agreement was signed by D2 on behalf of Dingway and by D3 on behalf of D1.

14.  Within weeks (in November 2019), D1 transferred the Shares to a Californian company, D4, for a stated consideration of US$70 million (“Transfer (2)”). The genuineness of this Transfer or sale is under dispute.

15.  On 17 December 2019, Liquidators (C) learned about Transfer (2). This part of the evidence is disputed. The case of D1 and D3 is that one of the Liquidators, Ms Tiffany Wong of KPMG, and Mr Gilbert Ho of KPMG knew about the Transfer (in the case of Ms Wong the intention to do so) in respectively February and November 2019.

16.  On 17 December 2019, Liquidators (C) took steps to remove the 3 (out of a total of 5) directors of Dingway originally nominated by CCCI (including D1), and appointed themselves and their colleague as the CCCI-nominated directors.

17.  Upon discovery of Transfer (2), on 19 December 2019, Champ Prestige filed an Emergency Motion in the Miami Action. On 26 December 2019, Champ Prestige obtained temporary injunctive relief against D4. The injunction order was also sent to CCCI as party to the Miami Action.

18.  As part of the Miami Action, subpoenas were issued by which D4 was required to deliver up certain documents.

19.  HCA 2343/2018 (see para 9 above) was discontinued by D1 on 17 December 2019. At that time, the Shares had been transferred from Dingway.

20.  According to Liquidators (C), they only came to know of Transfer (1) on about 8 February 2020 (which is in dispute). The knowledge came from the documents disclosed by D4 in the Miami Action.

21.  With knowledge of Transfer (1), Champ Prestige took action in Hong Kong against D1 in February 2020. On 13 February 2020, it obtained an ex parte Mareva injunction from DHCJ Liu against D1 to D3 up to the value of US$54 million. The parties were unable to assist the court as to the monetary limit of that injunction.

22.  On 5 March 2020, one day before the return day for the Mareva injunction, Asia Allied Infrastructure Holdings Ltd (the former sole shareholder of Champ Prestige) announced that it had sold its entire interest in Champ Prestige to D1 for US$44 million. Thereafter, Champ Prestige ceased all its legal actions in Hong Kong and the US with respect to Transfer (1) and Transfer (2).

23.  On 2 April 2020, Champ Prestige (under D1’s control) appointed 2 new individuals to be the Champ Prestige-nominated directors of Dingway.

24.  In March 2021, Company C (the titleholder of the Land), whose name had been changed to that of D5, sold the Land to Mast Capital (a local developer) for US$103 million. The sale was completed on or around 22 December 2021 (“Sale”).

25.  Liquidators (C) found out about the Sale on 30 December 2021. A financing arrangement which enabled them to take legal action was put in place in December 2021 after prolonged negotiations.

26.  HCCW was brought by CCCI (through Liquidators (C)) on 24 January 2022 to wind up Dingway (in March 2022, Dingway was wound up by the BVI court). The complaints by CCCI in those proceedings concerned Transfer (1), Transfer (2) and the Sale. CCCI sought to have Dingway wound up on (a) insolvency ground and (b) just and equitable ground. On ground (a), based on the wrongful Transfer (1), Dingway had no means to repay the shareholder’s loan of HK$403 million owed to CCCI. The details of ground (b) are not important for the present purpose.

27.  On 25 January 2022, upon the ex parte application of CCCI in HCCW, Ng J granted an interim order (“Injunction (1)”) under the court’s Chabra jurisdiction as follows :

(1)  A worldwide proprietary injunction against D1 in respect of the sum of US$70 million (the proceeds of Transfer (2)) and the traceable substitutes thereof, topped up by a worldwide Mareva injunction up to US$103 million;

(2)  A worldwide Mareva injunction against both D2 and D3 up to US$103 million; and

(3)  The appointment of provisional liquidators to Dingway.

28.  The application for appointment of provisional liquidators was made with the intention that the injunction granted would enable such liquidators to conduct the necessary investigation for commencement of appropriate legal proceedings in the name of Dingway. HCA was the result of such investigation.

29.  After their appointment in early 2022, the provisional liquidators of Dingway (“Liquidators (D)”) (they were subsequently appointed by the BVI court as Liquidators of Dingway) issued subpoenas in the US for information and documents. These steps led them to discover that a substantial portion of the proceeds of sale of the Land (“Sale Proceeds”) were transferred from D5 to various entities which Dingway had reasons to believe were conduits or nominees of D1 (or those controlling D1). The known transfers were as follows :

(1)  On 22 December 2021, US$1,300,000 was transferred to D1 purportedly as reimbursement of its payment to American Da Tang (“ADT”) which was involved in arranging the Sale;

(2)  On 27 December 2021, US$33,213,698.63 was transferred to D8 (“D8 Receipt”);

(3)  On 30 December 2021, US$45,076,164.38 was transferred to a Bank of China account in Hong Kong held by D6 (which account was subsequently closed);

(4)  On 30 December, US$13,340,000 was transferred to a Bank of Communication account in Hong Kong held by D7;

(5)  Between 18 January 2022 and 26 January 2022, a total sum of US$200,000 was remitted to CCCC US International Corp (“CCCC US International”), a company involved in the original purchase of the Land;

(6)  On 10 February 2022, D9 received into her personal bank account in Hong Kong US$33,000,000, being almost the entire amount of the D8 Receipt;

(7)  On 11 April 2022, Mr Sunny Ea (“Ea”), who was at all material times the sole shareholder and director of D6, transferred US$27,000,000 to D8.

30.  It should be noted that there is no direct evidence linking transfer (7) with the Sale Proceeds.

31.  Upon discovery of the transfers of Sale Proceeds, on 31 March 2022 Dingway made an ex parte application against D6 and D7. Worldwide proprietary and Mareva injunctions were granted against them by Cheng J up to US$103 million (“Injunction (2)”), which was subsequently continued by this court pending the substantive determination of the continuation summons.

32.  HCA was issued on 1 April 2022. It was emphasised by D7 and D9 that in this action Dingway does not claim rescission of any of Transfer (1), Transfer (2) or the Sale. Mast Capital is not sued. Dingway’s claim is for damages and equitable compensation.

33.  Further information received by Liquidators (D) on 26 April 2022 revealed that D9 also received a substantial portion of the Sale Proceeds. On 28 April 2022, upon the ex parte application of Dingway, this court granted local proprietary injunction (for US$33 million) and top up Mareva injunction (up to US$103 million) against D9 (“Injunction (3)”). On the return date, only the Mareva injunction was continued, pending substantive determination of the continuation summons.

34.  Dingway also made applications for Norwich Pharmacal/Bankers Trust relief for disclosure of records held by Bank of China and Bank of Communications in respect of the accounts of D1, D6 and D7. By a Decision dated 6 May 2022 (“Disclosure Decision”), DHCJ Paul Lam SC refused the application. By a Summons dated 20 May 2022, Dingway had applied for leave to appeal against the Disclosure Decision.

Applications

35.  The following Summonses are before this court :

(1)  Continuation Summons for Injunction (1) filed on 25 January 2022;

(2)  Continuation Summons for Injunction (2) re-filed after amendment on 13 April 2022;

(3)  Summons filed on 19 April 2022 by D7 for striking out the Writ of Summons;

(4)  Continuation Summons for Injunction (3) filed on 29 April 2022;

(5)  Summons filed on 3 May 2022 by D9 for the discharge of Injunction (3) (“D9 Discharge Summons”);

(6)  Summons filed on 6 June 2022 by D6 to strike out the Writ of Summons against it. There is a Summons filed on 8 June 2022 to amend the strike out to include the Statement of Claim[2]; and

(7)  Summonses filed on 8 and 9 June 2022 by respectively Dingway and CCCI to “transfer” Injunction (1) to the HCA in which Dingway is the plaintiff (“Transfer Application”).

Representations

36.  CCCI and Dingway were represented by Mr Yuen SC and Ms Mak. D1 and D3 were represented by Mr W Wong SC and Ms Cheung. D2 by Mr Chiu. D6 by Mr A Wong SC, Mr Lai and Ms Li. D7 and D9 by Ms Lok.

37.  Champ Prestige (the 1^st Respondent in HCCW) did not appear, neither did the rest of the Defendants in HCA.

Dingway’s causes of action

38.  Dingway’s case can be found in its Statement of Claim filed in HCA (“SOC”). For the present purpose, Dingway’s case, focusing primarily on the Defendants who appeared at the hearing, can be summarised as follows :

(1)  In breach of his fiduciary duties to Dingway, which also constituted breach of trust, D2 caused Transfer (1) to be made;

(2)  D1, who received the Shares (trust property), and D3, who signed the transfer document on D1’s behalf, dishonestly assisted D2’s breach of duties;

(3)  D1 knowingly received the trust property transferred in breach of D2’s duties;

(4)  Transfer (2) was not a genuine sale. D4 was a nominee or corporate vehicle of D1 (or those controlling it). If D1 had received US$70 million from D4 under the Transfer, such proceeds are the traceable substitute of the Shares and recoverable by Dingway;

(5)  D1 to D3 and other Defendants combined together to wrongfully deprive Dingway of its interest in the Land and dissipate the Sale Proceeds through a series of unlawful conduct;

(6)  D4, D6, D7 and D9 were mere vehicles or proxies of D1 (or those controlling D1) for stripping away Dingway’s interest in the Land;

(7)  Against D6, D7 and D9, Dingway has:

(a)  A proprietary claim for the Share Proceeds which they had received, respectively, US$45 million, US$13.3 million and US$33 million;

(b)  A claim for dishonest assistance, based on their assistance in D4’s breach of duty as constructive trustee holding the Shares for Dingway, by dissipating the economic value of the Shares;

(c)  A claim in knowing receipt for the Sale Proceeds received;

(d)  A claim in conspiracy based on their combination with other Defendants to wrongfully deprive Dingway of its interest in the Land;

(e)  A claim in unjust enrichment based on their receipt of Sale Proceeds, which represented the value of the Shares, at the expense of Dingway.

Evidence

39.  On behalf of CCCI and Dingway, a substantial body of evidence had been assembled before the court. On the other hand, only D1/D3 and D6 had filed evidence in support of their cases.

40.  For D1/D3, evidence had been adduced in respect of the Trust Arrangement, including a Trust Agreement dated 28 November 2014 and a Declaration of Trust dated 20 January 2015. Further, they said that Transfer (1) was agreed by Liquidators (C).

41.  Without filing any evidence of his own, D2 sought to rely upon the evidence of D1/D3. Mr Yuen took exception with such reliance. This disagreement is only relevant in the event that the evidence of D1/D3 is accepted for the present purpose.

42.  In its evidence, D6 said that there was a genuine commercial reason for it to receive part of the Sale Proceeds, namely, on 6 November 2019 it entered into a written Loan Agreement with D4 by which a US$40 million loan (“Loan”) was extended to D4 to finance the purchase of the Land. The loan was advanced in 3 tranches and bank advices had been produced in support. The Sale Proceeds received by D6 was in repayment of the loan with interest at 6% p.a.

Issues

43.  It is fair to say every conceivable argument had been advanced by D1/D3, D2, D6 and D7/D9 to resist the continuation of the Injunctions. The strike out applications (of D6 and D7) are based on arguments concerning Dingway’s causes of action. The Transfer Application is resisted by D1/D3.

44.  At the beginning of the hearing, with the encouragement of the court, a list of issues was agreed by the parties as follows :

(1)  The Trust Arrangement;

(2)  Whether Liquidators (C) had agreed to Transfer (1);

(3)  Whether various Defendants were acting in concert (under this head D6 also raised the issue as to the required intention and knowledge on its part);

(4)  The Loan;

(5)  Dingway’s proprietary claim;

(6)  Scope of tracing – whether with a proprietary claim over the Shares, Dingway is entitled to trace into the Sale Proceeds (of the Land);

(7)  Whether there was/is a good arguable case for Mareva relief in light of the Trust Arrangement, Liquidators (C)’s agreement to Transfer (1) and the Loan;

(8)  Whether there was delay in the applications for injunctive relief, which may impact upon 3 sub-issues: (a) proceeding ex parte; (b) discretion of the court; and (c) risk of dissipation;

(9)  Material non-disclosure (“MND”) (the points taken were listed out in para 95 of CCCI/Dingway’s skeleton arguments and will be addressed below);

(10)  In respect of HCCW, (a) whether CCCI was the proper applicant for injunctive relief and (b) the 2^nd limb of Chabra jurisdiction;

(11)  The monetary limits of the Injunction Orders;

(12)  The Transfer Application;

(13)  Whether the causes of action against D6 and D7 are defective.

Factual issues (Issues (1)-(4) and (7))

Trust Arrangement

45.  First, the issue is only assessed under the test of good arguable case (for Mareva relief) or serious issue to be tried (proprietary relief). The court does not try any factual issue on affidavit evidence.

46.  Second, there is no independent proof of the provenance of either the Trust Agreement or the Declaration of Trust adduced by D1/D3. There is no contemporaneous document in support of the Trust Arrangement. The same can be said in respect of documents relied upon by D1/D3 (and D2) for the allegation that D1 had paid for various expenses in relation to the Land. Those documents did not record any particular payment of expenses by D1, and some of the payments were made by, on the face of the documents, unrelated entities.

47.  Hence, this issue is depended upon the acceptance by the court of the affirmation evidence of D3 upon which the Trust Arrangement is based. Aside from the fact that even the higher threshold of good arguable case is not a particularly onerous one for Dingway to meet, I am far from convinced on the evidence before the court that the Trust Arrangement is one which the court can rely upon.

48.  There is ample contemporaneous evidence which undermines the existence of a Trust Arrangement. Before I give examples of such evidence, the Trust Arrangement must be assessed against the factual backdrop that CCCI was in deep financial trouble and it appears that the Land was one of its most valuable assets. It is quite conceivable for D1 (or the people behind it) to have engineered a scheme to try to remove the Land from the reaches of CCCI’s creditors.

49.  I need only give 3 examples of the documentary evidence before the court. Firstly, CCCI’s audited Financial Statements in 2015 and 2016 showed that the Land was an asset of CCCI (both before and after April 2016 by which time CCCI and D1 ceased to be under common ownership). Mr Yuen was right to point out that D1 had failed to adduce its own audited Financial Statements to demonstrate any genuine interest in the Land, which would have been reflected in such Statements.

50.  There were Public Announcements made by Asia Allied in relation to Champ Prestige’s interest in Dingway and the project to develop the Land, to which D1 had made no complaint and took no action until 2018.

51.  The Business Review conducted by Liquidators (C) dated 11 December 2018, which was supported by a letter of factual accuracy signed by a director of CCCI, Mr Yuan Qing, gave no indication that the Trust Arrangement existed.

52.  In the premises, I do not believe that evidence of the Trust Arrangement impacts on the veracity of the Dingway’s case.

Whether Liquidators (C) had agreed to Transfer (1)

53.  This issue had been conceded by Mr W Wong at the hearing. It is therefore unnecessary to consider it. However, I have to say that the concession was rightly made because there is a wealth of evidence, including contemporaneous documents, which contradicted the suggestion of consent.

The Loan

54.  To understand D6’s case, I should first set out Dingway’s case (supported by evidence before the court and the inference to be drawn therefrom) on the interconnection between various Defendants and CCCC US International.

55.  D6, which received US$45,076,164.38 out of the Sale Proceeds on 30 December 2021, was closely connected with D1 and D8 :

(1)  D6 was the sole shareholder of D1 from 23 August 2012 to 20 July 2016, being the nominee of CCDA;

(2)  It had the same registered office address as D1;

(3)  From the Customer Advice slips dated 15 November 2019, 20 November 2019 and 4 December 2019, which were relied upon to prove the Loan, it could be seen that an aggregate payment of US$40,096,640 was made by D6 to D4. In those documents, D6’s telephone number was identical to that of D1 shown on its Customer Advice slip dated 20 January 2020;

(4)  Ea, who was at all material times the sole shareholder and director of D6, was nominated by CCDA to hold the shares of D1 on its behalf from 3 January 2006 to 22 August 2012. Whilst Ea claimed to have sold his shares in D6 to one “Mr Yang” in or around February 2022, the investigation carried out by Liquidators (D) gave them good reasons to believe that “Mr Yang” was connected with the subject matter of this dispute. Those reasons had been set out in Mr Crumpler’s 2^nd Affidavit, §§18-20;

(5)  Ea held positions in D8. Further, on 11 November 2022, he transferred US$27,000,000 to D8, and “Mr Yang” was apparently involved in such transfer;

(6)  Apart from the Loan (the veracity of which will be considered below), no good reason can be found in the evidence as to why D6 would receive a substantial part of the Sale Proceeds.

56.  D1’s connection with D4 as well as the sale of the Land can be seen from D1’s payment of US$1.3 million to ADT, which was involved in arranging the sale of the Land to Mast Capital. D1 was reimbursed by the titleholder, D5, from the Sale Proceeds. In its evidence, D1 advanced an explanation for its payment. However, for the present purpose I am of the view that Dingway had made out a good arguable case here.

57.  D7, which received US$13,340,000 out of the Sale Proceeds, was a member or manager of D4 (together with D9 and Mr Sen Wang (“Wang”)) in around October 2021.

58.  D8, which received US$33,213,698.63 out of the Sale Proceeds, was connected with D1 (through Ea, as explained above), D4 (with which it shared the same business address), as well as with D2, D3 and D9 (who held positions in it).

59.  CCCC US International, which received US$200,000 out of the Sale Proceeds was connected with D4 and D8 (with which it shared the same business address) and with D2 and D9 (who held positions in it).

60.  D9, which played a role in the sale of the Land, eg, by signing the Sale and Purchase Agreement and executing Deeds of Warranty, had received US$33,000,000 in her personal account on 10 February 2022. It is highly likely that the funds came from the D8 Receipt. D9 was indirectly connected with D1:

(1)  She was the authorised person and Manager/President of D8 in 2020, 2021 and 2022 as well as its registered agent in 2022. On the other hand, D2 was the authorised person and registered agent of D8 in 2018; D3 was the authorised person of D8 in 2019 and its registered agent in 2020 and 2021. D2 was formerly a director of D1 (from October 2017 to September 2018), and D3 was at all material times been a director of D1;

(2)  D9 was the manager of D4 in around October 2021 and the “sole Manager” of D5 as at 7 December 2021;

(3)  D9 was previously a real estate agent. She was employed by Centaline Property Agency Ltd in around October 2015. On the evidence (none had been filed by her), her receipt of a huge sum of US$33,000,000 is difficult to explain unless she was acting as a nominee.

61.  Turing to D6’s evidence on the Loan :

(1)  Prior to 21 July 2016, D6 and Ea were holding the shares in D1 as nominees of CCDA;

(2)  Thereafter, Ea departed from the China City Group, and D6 was no longer linked with D1. However, Ea remained trusted by his former colleagues;

(3)  In early 2019, Ea promised D3 that he could help to facilitate the sale of the Land. He paid a visit to the Land together with Wang of D4 (see para 57 above);

(4)  In about October 2019, Wang told Ea that he was interested in acquiring the Land, but he would need time to raise finance. Ea proposed to Wang that D6 might extend a loan to D4 with interest at 6% p.a. A loan agreement was subsequently entered between D4 and D6 on 6 November 2019 for a principal sum of US$40 million with interest of 6% p.a. and repayable in 30 months;

(5)  On 30 December 2021, D6 received from D5 the sum of US$45,076,164.38 being the repayment of the principal and interest due under the Loan.

62.  Apart from the connections between various Defendants which should be borne in mind, the analysis of the Loan should begin with the circumstances of Transfer (2). Dingway says that those circumstances are highly suspicious :

(1)  Wang, who signed the transfer documents for Transfer (2), stated in his US deposition that the acquisition of the Land by D4 was substantially funded by a Chinese individual (referred to as “Mr X”) whose identity he refused to reveal on the ground of confidentiality. Mr X also funded D4’s payment of real estate taxes. At all material times prior to October 2019, the bank account of D4 only had a couple hundred dollars;

(2)  It appears from Wang’s deposition that D4 was a corporate vehicle wholly owned by him (and he was its manager) until October or November 2019. At that time, Wang was looking for a funder. The inference is that Mr X became Wang’s partner in D4. That coincided with the timing of Transfer (2);

(3)  Wang described how he purchased the Land at US$70 million. In short, he received a call from a “contact” (who was Chinese but he refused to disclose his identity) in mid-October 2019 out of the blue enquiring about his interest to purchase the Land. The “contact” then put the vendor (D1)’s lawyer in touch with Wang. Wang had never bought any property in Miami before in 2019;

(4)  Wang purchased the Shares with barely any due diligence. With his experience as an estate agent, Wang was familiar with due diligence for land transaction. He said that he relied on his Californian lawyer to carry out any due diligence. He did not instruct any Miamian lawyer for the transaction. No formal valuation was obtained for the Land. There was no negotiation over the sale price. No litigation search was conducted in respect of the Land. As a result, Wang was not aware of any pending lawsuits affecting the Land (the Miami Action was underway at the time).

63.  Dingway says that the irresistible inference from the above circumstances is that the sale by D1 to D4 was not a bona fide or genuine transaction, and that D4 was merely put up as a purported purchaser to fend off any claim to recover the interest in the Land. After selling the Land, the Sale Proceeds were then routed back to entities connected with D1, including D6 to D9 and CCCC US International.

64.  I next examine the documents heavily relied upon by D6 on the Loan. The 3 Customer Advice slips which evidenced the transfer of funds from D6 to D4 (see para 55(3) above) did not show where D6’s funds came from. That could easily be proved by bank documents, and there is no explanation why such proof was not forthcoming.

65.  The Loan Agreement between D6 and D4 dated 6 November 2019 was a surprisingly simple 1-page document bearing in mind the size of the Loan. The English name of D6, which appears to have come from a chop, was incorrectly stated with word “Co.,” missing.

66.  Under Clause 5 of the Agreement, the funds should reach D4’s bank account by 26 November 2019. In fact, the 3^rd tranche of the funds was paid on 4 December 2019. The Agreement was silent on when interest should be payable.

67.  Although Clause 4 provided that D4 agreed to pledge the Land in favour of D6 as security for the Loan, public records showed that it was on 14 December 2021 (2 years after the Agreement) that D4 charged its 100% interest in D5 in favour of D6. No explanation had been offered for this delay.

68.  It is not clear why a total sum in excess of US$40 million was transferred to D4 under the Agreement. Moreover, it was an odd sum.

69.  Further, the Sale Proceeds received by D6 did not telly with the sum due for repayment of the Loan (principal plus interest) under the terms of the Agreement. According to the calculation proffered by Mr A Wong, the repayment was calculated with a principal sum of US$40 million and interest thereon running from 15 November 2019. That calculation did not sit with the fact that the sum lent exceeded US$40 million by US$96,640 and on 15 November 2019 only the 1^st tranche of the loan (US$26.5 million) was transferred to D4.

70.  In short, I find the evidence concerning the Loan lacking. The circumstances of it are shrouded in mystery. The Loan Agreement was at best amateurish, and quite inconsistent with a transaction of US$40 million. The absence of security over the Loan until 2 years later seriously undermines its genuineness. These deficiencies must be viewed in light of the equally mysterious circumstances of Transfer (2) (see para 62 above) and the connection between the parties.

71.  For the present purpose, I have little hesitation in rejecting the evidence of D1/D3 and D6 on Issues (1), (2) and (4).

Acting in concert

72.  This Issue concerns Dingway’s causes of action set out in para 38(5), (6) and (7)(d) above.

73.  In light of the foregoing analysis on the factual evidence, there is clearly a good arguable case that Transfer (2) was not a genuine sale but a device to keep the Shares from the reach of Dingway.

74.  Bearing in mind in particular the evidence of connection between various Defendants and the dissipation of the Sale Proceeds, there is clearly also a good arguable case that D1 to D3, D6, D7 and D9 were acting in concert to deprive Dingway of the Shares and its indirect interest in the Land, Dingway’s only valuable asset.

75.  I shall deal with the more technical arguments concerning Dingway’s pleaded causes of action when I deal with the strike out applications below.

Issue (7)

76.  Issue (7) is covered by the above analysis. The rejection of the Trust Arrangement, Liquidators (C)’s consent to Transfer (1) and the Loan means that these allegations have no impact on whether Dingway has a good arguable case on the facts. I am of the view that Dingway clearly has such a case.

Proprietary Claim (Issues (5) and (6))

77.  All the Defendants who appeared at the hearing took issue with Dingway’s proprietary claim to the Sale Proceeds, which was the basis for the proprietary relief in all 3 Injunctions.

78.  The Defendants say that the Land was never Dingway’s property. It was the property of a sub-sub-subsidiary, D5, and Dingway never had any proprietary right in the Land from which the Sale Proceeds were derived.

79.  Dingway’s case on proprietary claim is, according to Mr Yuen, as follows. For proper understanding of its tracing claim, a proprietary base in the original asset should first be identified. Then, the new assets which value is causally and transactionally linked to the value inherent in the original asset would have to be identified :

(1)  In this case, the original asset was the Shares. It is undisputed that Dingway had a proprietary claim in respect of the same. This formed the proprietary base entitling it to trace into the value inherent in the asset;

(2)  When the Shares were transferred to D1, the value inherent in it was traceable to and represented by the value of the Shares held by D1, which was in turn assessed by reference to the value of the Land;

(3)  When the Shares were purportedly sold to D4, the value of the Shares was again assessed by reference to the value of the Land;

(4)  Following the Sale, the value of the Shares was reflected in the value of the Sale Proceeds;

(5)  Tracing was the process by which Dingway identified each of the “substitutes” that was regarded as representing its property. Dingway was required to have title to the original asset, the Shares, from which it traced into the value inherent in such asset. It is incorrect to ask whether Dingway had any property right in the new asset (or substitutes);

(6)  The correct analysis is that equity imposed a constructive trust on recipients of property which represented the value of Dingway’s original proprietary interest in the Shares.

80.  In answer to the Defendants’ submission that the Sale Proceeds were not substitutes of the Shares because the Shares remained (and remain) with D4 since Transfer (2) and were never substituted by any new asset, Dingway said that there was no need to show a physical transfer of the original asset, because the substitution could be a substitution in value and not a physical substitution.

81.  Mr Yuen relies on the example in Lewin on Trusts, 20^th edn, [44-098(2)], where the claimant held one issued share (“Original Share”) and 99 shares were subsequently issued which diluted the value of the Original Share, the claimant was able to trace into the new shares which represented the value in the Original Share prior to dilution notwithstanding that the claimant continued to hold the Original Share and it had never been substituted by any other physical asset.

82.  In relation to the Defendants’ submission that “tracing is available when the claimant’s property is substituted by a new asset, thereby value transferred”, Mr Yuen submitted that the law does not require a physical substitution in the sense of the original asset having “gone away”. This was the crux of Lord Millett’s discussion in Foskett v McKeown [2001] 1 AC102 at 128A-C, which highlighted that there was no money passing from bank to bank in a wire transfer. As such, tracing was concerned with identifying the new asset which was acquired from the value inherent in the original asset.

83.  There is a related argument. The Defendants say that Dingway has no claim for the value inherent in the Shares because it was barred by the rule against reflective loss.

84.  To resolve these arguments, I start with the law on tracing. There are 2 fundamental propositions which must be borne in mind. Firstly, tracing is neither a claim nor a remedy. “It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.” (see Foskett, supra, 128D).

85.  Secondly, and it is inherent in the 1^st proposition, the tracing process has no relevance unless the claimant has a proprietary right in the original asset. In other words, the tracing process cannot be used to turn a property which did not belong to the claimant into one of his.

86.  The same arguments on tracing were ventilated before DHCJ Paul Lam SC (see para 34 above). By the Disclosure Decision, Dingway’s arguments were rejected by the court. Foskett was explained in the Decision. I accept that the Decision does not bind this court. On the other hand, I respectfully share the same view as that of the learned Judge. His reasons were summarised on para 18 of the Decision :

“It is clear that tracing is premised on the existence of some proprietary interest in the original property in question on the part of the claimant. He may only claim the same interest in the substituted property. It follows that if he did not have any proprietary interest in the original property, he cannot possibly claim any proprietary interest in the substituted property. Returning to the facts of this case, as P had no proprietary interest whatsoever in the Land, it cannot claim any proprietary interest in the sale proceeds of the Land (or what have become of those proceeds). For these reasons, properly understood, Lord Millet's said judgment in Foskett v McKeown does not support P's case.”

87.  Of course, Dingway had proprietary interest in the Shares and there is no dispute that it was (and is) entitled to trace such interest/asset into the US$70 million received by D1 from D4 under Transfer (1) if it was a genuine sale.

88.  With respect, there is a fundamental conflation in Dingway’s arguments. It cannot rely on tracing principles, such as “where one asset is exchanged for another, the claimant may elect to treat the substituted asset as representing the value contained in the original asset” (Snell’s Equity, 34^th edn, [30-051]), as giving rise to proprietary interest in the original asset. Without proprietary interest in the Land, there was (and is) no basis for any tracing process.

89.  For completeness, I do not believe that the “2^nd Basis” and “3^rd Basis” for proprietary claim set out in Dingway’s skeleton arguments, §53-54, assist Dingway when it had no right over the Land. I agree with the analysis in Ms Lok’s skeleton arguments, §§35-38, on the authorities relied upon by Dingway for the “2^nd and 3^rd Bases”.

90.  For these reasons, I do not believe that Dinpgway has a viable proprietary claim on the Sale Proceeds.

91.  In the circumstances, the reflective loss arguments are not relevant. However, out of deference to the submissions advanced by counsel, I shall deal with the no reflective loss principles succinctly.

92.  Relying on Nectrus Ltd v UCP Plc [2021] EWCA Civ 57, at §§44-55, Mr Yuen submitted that the principle of reflective loss was not engaged in the circumstances of this case. Dingway had lost its legal title to the Shares as a result of the Transfers, and was (and is) no longer a shareholder (whether directly or indirectly) of D5 or Company A. In Nectrus, it was held that the rule against reflective loss is inapplicable to claims by ex-shareholders.

93.  Nectrus is an important authority which analysed the latest Supreme Court decision on the rule against reflective loss: Marex Financial Ltd v Sevilleja [2020] 3 WLR 255.

94.  In Nectrus, the claimant sued for the loss it suffered in the reduction of sale price for the 100% shareholding in a company (“Company X”) which it owned. Such loss was caused by the negligence advice of the defendant rendered to Company X in breach of a tripartite contract between the claimant, Company X and the defendant. The defendant argued that the losses claimed were irrecoverable because they were reflective loss suffered by Company X. It was said that after the sale of Company X at discount price, Company X could nonetheless have sued the defendant under contract for the same amounts as the claimant was seeking to recover from it. I shall endeavour to set out the guidance which may be derived from Nectrus (see §§8-12 and 41-55) as follows :

(1)  The no reflective loss principle does not apply to a claim made by a party who was an ex-shareholder in the company at the time of claim;

(2)  The claim by the claimant as ex-shareholder was a separate and distinct claim from that of Company X;

(3)  In Marex, Lord Reed (with whom Lady Black and Lord Lloyd-Jones agreed) held that the rule against reflective loss was limited to cases of shareholders within the original rule as formulated by the Court of Appeal in Prudential Assurance Co Ltd v Newman Industries (No 2) [1982] Ch 204;

(4)  Prudential established a “highly specific exception to the general rule” – a shareholder cannot bring a claim in respect of a diminution in the value of his shareholding, or a reduction in the distributions which he receives by virtue of his shareholding, which is merely the result of a loss suffered by the company in consequence of a wrong done to it by the defendant, even if the defendant’s conduct also involved the commission of a wrong against the shareholder, and even if no proceedings have been brought by the company;

(5)  Prudential established a rule of company law, applying specifically to companies and their shareholders in the particular circumstances described, and having no wider ambit;

(6)  Lord Hodge, who delivered a concurring judgment, further explained that where a company suffers a loss as a result of wrongdoing and that loss is reflected to some extent in a fall in the value of its shares or in its distributions, the shareholder’s economic loss is not a loss which the law recognises as being separate and distinct from the loss sustained by the company;

(7)  The minority judgment of Lord Sales (with whom Lady Hale and Lord Kitchin agreed) concurred with the result of the appeal but would have effectively abolished the reflective loss principle in so far as it applied to shareholder claimants;

(8)  For the application of the reflective loss principle, it is important to understand the nature of the claim in question. In Nectrus, upon completion of the share sale at a discount, the claimant’s loss crystallised. The claimant was able to bring a free-standing claim for breach of contract against the defendant for the loss it suffered not in the capacity of a shareholder but through ceasing to be a shareholder;

(9)  As a matter of principle, the applicability of the rule against reflective loss should be assessed when the claim is made, at a time when the loss claimed has crystallised;

(10)  The rationale of the rule is based on the shareholder’s right of participation in the company. There is a unity of economic interest of the shareholder and the company. The shareholder’s loss is not recognised in law as having an existence distinct from the company’s loss, and a claim by the shareholder is barred by the principle of company law known as the rule in Foss v Harbottle (1843) 2 Hare 461: the only person who can seek relief for an injury done to a company, where the company has a cause of action, is the company itself;

(11)  Avoidance of double recovery is not in itself a satisfactory explanation of the rule in Prudential. In respect of the risk of double recovery, the court can and always will avoid putting a defendant in double jeopardy with the use of procedural tools at its disposal.

95.  I agree with Mr Yuen’s submission on reflective loss.

Strike out (Issue 13)

D6

96.  D6 contends that Dingway has no reasonable cause of action for any proprietary claim (whether based on constructive trust, knowing receipt and/or unjust enrichment) against it. Further, Dingway also has no reasonable cause of action for unlawful means conspiracy and/or dishonest assistance.

97.  In respect of the complaints arising from Dingway’s proprietary claim over the Sale Proceeds, I have held that such claim is not viable. Accordingly, any tainted pleas should be struck out.

98.  As regards unlawful means conspiracy and dishonest assistance, in summary the complaint is that Dingway has failed to plead and provide sufficient particulars to support a case that D6, being a corporate defendant, had the requisite state of mind and knowledge of the agreement and the intention to injure (for unlawful means conspiracy) or had the dishonest state of mind (for dishonest assistance).

99.  It is necessary for a party who asserts a conspiracy claim against a corporate defendant to plead his case as to whose state of mind and knowledge should be attributed to that corporate defendant. Such attribution of knowledge must be specifically pleaded: Kwong Yi Ling v Lau Kwun Leung[2021] HKCFI 2303, §28(1), per Linda Chan J.

100.  In the Statement of Claim, apart from identifying Ea as the sole director and shareholder of D6, Dingway had failed to plead anything about Ea’s knowledge or state of mind. Further, there is no plea that Ea had any knowledge of the breaches of duties on the part of D2, D1 and D4 which is the foundation of Dingway’s claims.

101.  In light of the court’s acceptance that Dingway has a good arguable case on the facts, I propose to deal with this strike out application (and the one made by D7) succinctly. Firstly, there are merits in the complaints over the deficiencies in the pleading requirements for both unlawful means conspiracy and dishonest assistance.

102.  On the other hand, it is abundantly clear that Dingway’s case is based on circumstantial evidence and inferences, eg, the receipt by D6 of a very substantial portion of the Sale Proceeds can speak volumes.

103.  The following dicta was cited with approval in Ubiquiti Networks International Ltd v Chan Kim Chuen, unrep, HCA 1606/2016, 26 May 201, §81, per B Chu J: “… fraud and/or conspiracy by their very nature are clandestine and difficult to uncover, so quite often proof is not readily obtained. Hence, the averments of fraud and/or conspiracy cannot be too precise. In an application to strike out a fraud and/or conspiracy claim, the court will look upon such application with care to the above considerations, but at the same time will bear in mind that loose allegations that are not properly particularised will be oppressive as regards the defendants when the action goes to trial. The broad question for the court is whether from the facts as pleaded it can be argued that [the defendants] sufficiently know [the plaintiff]’s case on the conspiratorial combination(s) or agreement(s) that they have to meet.”

104.  Further, the principles on strike out are well-established: see Hong Kong Civil Procedure 2022, Vol 1, [18/19/4]. The court will only strike out a pleading when the applicant has shown that it is plain and obvious that the other party’s claim is bound to fail. Where the complaint is about lack of particulars, the proper procedure is to apply for particulars and not an order for strike out: HKCP 2022, Vol 1, [18/19/5].

105.  In light of the above principles, I do not believe that this is a plain and obvious case for striking out Dingway’s pleading against D6 on conspiracy or dishonest assistance. The trial of HCA is not going to take place in the near future. The identified deficiencies certainly justify a Request for Further and Better Particulars of the Statement of Claim.

D7

106.  Firstly, like the case against D6, Dingway’s causes of action based on a proprietary claim over the Sale Proceeds received by D7 should be struck out given the absence of a viable proprietary claim over the Sale Proceeds.

107.  D7’s complaints here are similar to those of D6 based on the failure to meet various pleading requirements, eg, for dishonest assistance, there is no adequate plea on who was the principal fiduciary, when and how did he breach what fiduciary duties owed to Dingway and how was this principal fiduciary assisted by D7 in that breach.

108.  The above analysis concerning D6’s complaints can be applied here also. On the evidence, there is clearly a good arguable case that D1 (or the persons in control of it) had executed a plot to strip the Land (an indirectly held asset) from Dingway and thus CCCI’s creditors. The receipt of US$13.34 million by D7 from the Sale Proceeds can be a powerful indication that it was a party to and/or had assisted in the plot, unless there is evidence that the money was received for a legitimate purpose (there is none).

109.  There are certainly areas of fragility in the Statement of Claim in terms of meeting the strict requirements of various pleas based on fraud. On the other hand, the absence of a precise plea is inherent in a case built on circumstantial evidence and inferences.

110.  I do not believe that this is a plain and obvious case of strike out but a Request for Further and Better Particulars of the Statement of Claim is justified.

Chabra jurisdiction (Issue 10)

111.  This issue concerns Injunction (1). Hence, it was raised by D1/3 whose submissions were adopted by D2.

112.  The substantive claim which CCCI relied on in HCCW was its shareholder’s loan to Dingway (“CCCI Loan”). There is no dispute that any direct claim by CCCI (as shareholder of Dingway) against D1-3 in respect of Transfer (1) would be barred by the rule against reflective loss, as the proper plaintiff should be Dingway. Further, CCCI did not seek to procure Dingway to take action in its capacity as 55% shareholder of Dingway and through its control of the majority on Dingway’s board of directors, or pursue a derivative action in the BVI. Instead, CCCI applied to appoint provisional liquidators (“PL”) to Dingway, and to obtain injunctions by invoking the court’s Chabra jurisdiction.

113.  Under the Chabra jurisdiction, the court may grant freezing orders against third parties not only where the third party is holding or in control of assets beneficially owned by the defendant (1^st limb), but also where some process, ultimately enforceable by the court, is or may be available to the claimant as a consequence of a judgment against that defendant, pursuant to which the third party may be obliged to contribute to the funds or property of the defendant to help satisfy the claimant’s judgment against the defendant (2^nd limb): see XY, LLC v Jesse Zhu [2017] 5 HKC 479, CA, §25.

114.  The “process” under the 2^nd limb includes the appointment of liquidator, trustee in bankruptcy and receiver. Accordingly, the court has jurisdiction to grant freezing orders against third parties pending the appointment of a liquidator of the company.

115.  The application for Injunction (1) was based on the factual case that CCCI was the claimant against Dingway as the defendant, and D1-3 were the third parties. If CCCI obtained judgment against Dingway on its claim, D1-3 might be obliged to contribute to the funds or property of Dingway through the appointment of PL in respect of Dingway. Accordingly, the court had jurisdiction to grant freezing orders against them under the 2^nd limb of Chabra.

116.  D1-3 argued that the Chabra jurisdiction is confined to Mareva or in personam relief and not proprietary. Even if Dingway had a proprietary claim against D1 (the proprietary component of Injunction (1) only concerned D1), this only meant that CCCI might apply for an in personam Mareva injunction. Mr W Wong relies on the following authorities :

(1)  Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, §55, p 405 (which was cited by the Court of Appeal in XY, §25):

“… The availability of a proprietary remedy [as between the defendant and third party] may, in our opinion, in some cases be sufficient to a constitute a substantive right in aid of which Mareva relief in personam might go”

[emphasis added]

(2)  Gee on Commercial Injunctions, 7^th edn, [3-006], pp 113-114:

“The court has jurisdiction to grant Mareva relief pending presentation of a winding-up petition or bankruptcy proceedings. …”

[emphasis added]

(3)  In China Medical Technologies Inc (in liquidation) v Wu Xiaodong[2019] HKCFI 1488 (the Decision was upheld on appeal [2022] HKCA 41), the plaintiff disowned a direct proprietary claim and relied on the Chabra jurisdiction as justifying an injunction against a third-party, Chui (Decision, §32).

The plaintiff argued that there was no need to show a real risk of dissipation of assets by Chui if there was good reason to suppose that the assets in her name were in truth the assets of the defendant, held by Chui as nominee or trustee of the defendant as the ultimate beneficial owner. Hence, the defendant had a proprietary claim to those assets.

The court held that under the Chabra jurisdiction, real risk of dissipation of the assets on the part of Chui must be shown (Decision, §§35-43).

117.  In respect of China Medical Technologies, Mr W Wong’s submission was that the requirement to show risk of dissipation demonstrated that the Chabra injunction granted was one in personam because a proprietary injunction had no such requirement.

118.  Mr W Wong further emphasised that since CCCI’s claim against Dingway, ie, the CCCI Loan was itself a personal claim only. The Chabra relief could not give CCCI more right than it had against Dingway pursuant to its claim.

119.  In answer, Mr Yuen submitted, firstly, that the legal basis for Injunction (1) was firmly grounded on Revenue and Customs Commissioners v Egleton [2007] Bus LR 44, §§26, 29, 41-43. That authority is not disputed by D1-D3, save for highlighting the cautionary observation of the Court that the jurisdiction under the 2^ndChabra limb is “potentially of extremely wide application” (§29).

120.  Secondly, the facts of the present case were exceptional. It was virtually impossible or impracticable for a provisional liquidator of Dingway to act in time to obtain an effective injunction. There was a real risk that, by the time that CCCI took control of Dingway and would be in a position to sue D1-3, the assets of those Defendants might have long been dissipated.

121.  Thirdly, there is no hard and fast rule of law that an applicant can never obtain a proprietary injunction under the Chabra jurisdiction. The test for the exercise of the jurisdiction is whether there is good reason to suppose that the assets of the third party would be amenable to execution of a judgment obtained against the defendant: XY, §24. If there is a proprietary claim against the third party available to the defendant, it may, in an appropriate case, be “just and convenient” that a proprietary injunction be granted against the third party in favour of the plaintiff, such that the assets of the third party can be applied to effectively satisfy the plaintiff’s interests.

122.  Finally, the observation that there was a need to show a real risk of dissipation in China Medical Technologies was made in the context of an application for a Mareva injunction under the Chabra jurisdiction. Nothing was said with respect to the position where the plaintiff seeks a proprietary injunction.

123.  I am inclined to the view that under the Chabra jurisdiction, the court should only grant a Mareva as opposed to a proprietary relief even where the defendant has a proprietary claim against the third party for the following reasons :

(1)  There appears to be no direct authority on the point;

(2)  However, the discussions in the authorities on the ambit of the Chabra jurisdiction clearly covered a propriety claim by the defendant against the third party. The 1^st limb embraces cases where the third party holds assets of the defendant. The jurisdiction under the 2^nd limb may be exercised where the third party may be obliged to disgorge property belonging to the defendant after the appointment of, eg, a liquidator: see XY, §25;

(3)  Although it may be argued that the precise point now before this court was not argued in the authorities, it cannot be said that there is no indirect support for the argument of D1-3;

(4)  The difference between a Mareva relief and a proprietary injunction is that in the case of the latter (a) there is a lower application threshold, eg, demonstrating a serious issue to be tried as opposed to a good arguable case; and (b) the absence of some of the mitigating provisions in favour of the affected party, eg, the payment of legal expenses with the frozen assets;

(5)  Given the extraordinary nature of the Chabra jurisdiction, the court should act with all appropriate caution and not extend it beyond what is essential for the safeguard of the claimant’s interest. I see no reason why a Mareva relief would not normally be sufficient for the protection of a claimant;

(6)  Fundamentally, the claimant has no cause of action against the third party. There is a conceptual difficulty in granting the claimant a relief which he would not be entitled against the defendant. Put another way, it is difficult to see why it is just and convenient to grant the claimant a relief against the third party which he would not be entitled against the defendant.

124.  The arguments concerning CCCI’s locus to apply for Chabra relief (Issue 10(a)) were based on the proposition that its shareholding in Dingway and its shareholder’s loan were held on trust for D1. With the rejection of the Trust Arrangement, these arguments fall away.

Delay (Issue 8)

125.  D1-3 complain about the delay by CCCI in obtaining Injunction (1) and say that the application should never have been made ex parte.

126.  D1-3 submitted that based on the documentary evidence, by December 2019, CCCI knew of Transfer (2) and had written to D1 to complain about the same. By January 2020, CCCI’s had been actively taking steps to obtain evidence about Transfer (1) and/or Transfer (2). Even on CCCI’s case, both Transfers had been discovered by February 2020.

127.  The important events can be seen from paras 15 to 28 above. It should be pointed out that for the present purpose, I accept that Liquidators (C) only found out about Transfer (2) on 17 December 2019. With the rejection of Issue (2) in favour of Liquidators (C), I also accept that they came to know about Transfer (1) on about 8 February 2020.

128.  The evidence clearly showed that Liquidators (C) did not accept either one of the Transfers as legitimate. Indeed, Champ Prestige was taking legal actions in respect of them until it was bought out by D1.

129.  The evidence of CCCI/Dingway is that due to the lack of funding, CCCI was at the time unable to pursue legal action against the wrongdoers to recover its indirect interest in the Land (or monetary compensation due to the loss of such interest). Further, there were issues with the renegotiation over the funding arrangement. Such difficulties should be understood against the backdrop that Champ Prestige was cooperating with CCCI at the time, and that the COVID-19 pandemic had severely impacted upon commercial activities worldwide. The conclusion of a renegotiated funding arrangement for CCCI was only put in place in December 2021.

130.  On the evidence before the court, I accept Mr Yuen’s submission that the Sale (completed in December 2021 and discovered by Liquidators (C) on 30 December 2021) gave rise to increased urgency for injunctive relief, and reinforced the need for the application to be heard on an ex parte basis.

131.  It is incorrect to suggest that the Sale did not add anything to what Liquidators (C) knew so far as D1-3 were concerned. The documents effecting the Sale showed that D4 and D1 were connected and that D4 might not have been a genuine purchaser of the Land. Thus, the discoveries relating to the Sale exposed a greater part of the “Wrongful Scheme” (alleged by CCCI/Dingway), which necessitated steps to be taken to recover Dingway’s only valuable asset that had been stripped from it. These discoveries also revealed the important fact that the Land had been turned into cash, which were liquid assets that could be easily dissipated or removed.

132.  I was referred by Mr W Wong to C v D1 and D2[2021] HKCFI 228, per Linda Chan J, §§28-29 and this court’s Decision in Canton Plus Enterprise Ltd v Tong Zhenjun[2021] HKCFI 124, §§9, 12 and 15 on lack of urgency and need for secrecy.

133.  The facts of the present case were (and are) rather different to those cases. The lack of funding clearly inhibited the action open to Liquidators (C). They are not to be blamed for not acting earlier.

134.  In my view, the discovery of the Sale called strongly for action to be taken and Liquidators (C) did. I am unable to agree with Mr W Wong that the existence of injunctive relief previously obtained by Champ Prestige militated against an ex parte application because there was no secrecy to be preserved. I agree with Mr Yuen that the Sale would not have been possible until Camp Prestige’s legal actions had been resolved, which took place after 5 March 2020 (see para 22 above).

135.  Further, it appears that Transfer (2) was put in place to ward off any claim to the Shares or the interest in the Land. The Sale took place about 1 year after Champ Prestige’s actions were resolved. The alleged conspirators might well be in a state of complacency and might not have anticipated an action by Liquidators (C) who had been making complaints for some time without action.

136.  For these reasons, I disagree with the complaint on delay and that Injunction (1) should not have been applied by way of an ex parte application.

Risk of Dissipation

137.  This is an issue taken by all the Defendants who appeared at the hearing. The cases of Convoy Collateral Ltd v Cho Kwai Chee[2020] HKCA 537, §§35-54 and this court’s Decision in Crete Maritime Corp v Emirates Shipping Line DMCEST [2017] 5 HKLRD 345, §§21-24 were referred to.

138.  In light of the acceptance by this court of CCCI/Dingway’s factual case, I am unable to see any real fragility in their case on this issue. It bears emphasis that the Defendants were parties to an unlawful scheme to deprive Dingway of its indirect interest in the Land. In my view, it was likely to have been triggered by CCCI’s financial problems and the desire to keep Land from CCCI’s creditors and retain it for the people or entities behind D1.

139.  I also reject the Defendants’ arguments on this issue.

Discretion/balance of convenience

140.  This issue is only taken by D1-3 based on their arguments on Chabra jurisdiction and delay. The court was referred to its Decision in Dorshare Ltd v Shun Pong Ltd, unrep, HCA 1823/2012, 4 January 2013, §§13-16 on the effect of delay.

141.  These arguments have been sufficiently dealt with above. I am unable to agree with D1-3 on this issue.

MND

142.  All the appearing Defendants take issue with alleged MND in obtaining the Injunctions. In my view, the only complaint of substance concerns Dingway’s alleged proprietary claim.

143.  As regards the complaints based on the Trust Arrangement, Liquidators (C)’s agreement to Transfer (1), the Loan and delay, the issues have been dealt with above and I reject those complaints (see para 95(1), (2), (5) and (6) of CCCI/Dingway’s skeleton arguments).

144.  In the context of this case, D3’s ownership of a small landed property in Hong Kong (in respect of which Liquidators (C) had no knowledge) had little significance, and the complaint is also rejected (para 95(4)).

145.  In respect of Injunction (1), D1-3 say that CCCI ought to have informed the court that the injunctive relief it sought against them under the Chabra jurisdiction could only have been in the nature of personal (not proprietary) claims, with a ceiling in the amount of Dingway’s liability to CCCI.

146.  Although this court has rejected Dingway’s case on proprietary claim over the Land or the Sale Proceeds, Dingway clearly had a proprietary claim on the stated consideration of US$70 million purportedly received by D1 under Transfer (2) (the sale proceeds of the Shares).

147.  On the other hand, for the reasons stated above, under the Chabra jurisdiction the court should only grant a Mareva injunction. However, there was no direct authority on the point (see para 123(1) above) and the view reached by this court was based on analysis carried out with the benefit of searching arguments presented by both side. I see no ground to hold that there was MND on this issue. Nevertheless, the proprietary element of Injunction (1) should be discharged (see also para 158 below).

148.  Apart from being a creditor of Dingway, CCCI was (and is) also a 55% shareholder of Dingway and additional dividends might be paid to it in such capacity. Winding up is a class remedy for the benefit of the creditors as a whole. I agree with Mr Yuen that there was in principle nothing wrong for CCCI to seek a Chabra injunction in the context of a winding up petition for an amount exceeding the CCCI Loan.

149.  I turn to the MND in respect of Dingway’s alleged proprietary claim over the Sale Proceeds. It affected both Injunction (2) and Injunction (3).

150.  The principles on MND are trite, amongst which it was held in East Asia Satellite Television (Holdings) Ltd v New Cotai LLC [2011] 3 HKLRD 734, CA, §82 that the duty of disclosure in an ex parte application extends to significant legal and procedural aspects of the case. The court had also been reminded of the principles set out in Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642, CA, §56 on the discretion to re-grant injunctions.

151.  In my view, there was a failure by Dingway to fully inform or explain to the court in its ex parte applications on why it had a proprietary claim over the Sale Proceeds. Given the highly complex nature of the case, it was essential for Dingway to explain the basis of that claim. It should have been made clear to the court why, notwithstanding the lack of any interest over the Land, Dingway nevertheless had a proprietary claim to the Sale Proceeds. Had it been done, the court might have considered whether Dingway’s heavy reliance on tracing principles was misplaced (see para 88 above).

152.  It follows that the complaint of MND in this regard is made out. However, I believe that the non-disclosure was innocent based on a misguided application of the legal principles. Nevertheless, in light of the fundamental nature of the MND, the proprietary part of Injunction (2) should be discharged (for the reasons stated above, there is in any event no basis for Dingway’s proprietary claim). That part of Injunction (3) was not continued at the inter parte hearing in light of the Disclosure Decision.

153.  I see no reason to discharge any of the Mareva component in any of the 3 Injunctions.

Transfer Application (Issue (12))

154.  I agree with Mr Yuen that the Transfer application should not have come as a surprise to D1-3. The legal basis and the short-term nature of Injunction (1) had been explained from inception. CCCI had made clear its intention for proceedings to be commenced in the name of Dingway once Liquidators (D) were appointed.

155.  After Liquidators (D) assumed office, they acted expeditiously to familiarise themselves with the underlying matters of these proceedings and promptly commenced HCA for relief against the Defendants, including obtaining Injunctions (2) and (3). The Transfer Application is part of a “transition process”, seeking the discharge of Injunction (1) and substituting in its place an order to like effect in HCA. Such steps will be in line with the guidance by Briggs J in Egleton, §§52-53.

156.  The objection to the Transfer Application is premised upon technical arguments which, in my view, are of little merits. There is no suggestion of any real prejudice which may arise from the Transfer.

157.  I therefore accede to the Transfer Application.

Monetary limits of the Injunction Orders (Issue (11))

158.  Although I have discharged the proprietary components of all 3 Injunctions, I have no hesitation to continue the Mareva relief, and in the case of Injunction (1), it should be substituted as indicated above. In its own right (without relying on the Chabra jurisdiction), Dingway is entitled to a proprietary injunction in respect of the US$70 million, and I grant an order accordingly.

159.  I see is no valid reason why the appropriate limit for the Mareva relief should be anything other than US$103 million, which on the evidence represented the value of the Shares. Indeed, apart from D1-3, there was no argument advanced to the contrary. D1-3’s argument was dealt with in para 148 above.

160.  I repeat the observation made to counsel for Dingway at the ex parte hearing for Injunction (3). If there is any reason for Dingway to believe that the effect of the Injunction Orders is that assets in excess of the value of US$103 million have been frozen, it has a duty to apply to the court for variation or directions.

Disposition

161.  I accede to the continuation of the Mareva components of Injunctions (2) and (3). I discharge Injunction (1) and re-grant a similar Injunction in its place in HCA. The costs of the Transfer Application be to CCCI and Dingway, with a certificate for 2 counsel.

162.  D9 Discharge Summons is dismissed, save that the time for compliance with paras 4 and 5 of the Amended Order re-filed on 10 May 2022 be extended to 14 days from the date of this Decision. The costs of that Summons up to and including the hearing on 6 May 2022 be to D9 for the reason that the proprietary component was not continued at the hearing on that day. The rest of the costs be to CCCI and Dingway, with a certificate for 2 counsel.

163.  As for the strike out Summonses, save that Dingway’s proprietary claims to the Sale Proceeds are struck out, I make no order on the Summonses. D6 and D7 are to have 50% of the costs of their respective Summons. I grant a certificate for 2 counsel in favour of D6.

164.  In respect of the costs of the 3 Continuation Summonses, CCCI and Dingway should have 2/3 of their costs, with a certificate for 2 counsel. The reduction reflects the fact that they have lost on the proprietary claim issue which had taken up a substantial part of the hearing.

165.  All costs orders are made on nisi basis.

166.  In light of the multiplicity of Summonses and complexity, a draft order should be agreed by the parties for the approval of the court. Any disagreement should be addressed in a succinct joint letter to the court. Unreasonable conduct may be met with costs sanction.

167.  I grant liberty to apply.

168.  Last but not least, I am grateful to counsel for their assistance.

Mr Rimsky Yuen SC and Ms Esther Mak, instructed by Tanner De Witt, for the Plaintiff in HCA 309/2022 and Petitioner in HCCW 30/2022

Mr William Wong SC and Ms Jasmin Cheung, instructed by Jun He Law Offices, for the 1^st and 3^rd Defendants in HCA 309/2022, China City Construction & Development Co., (Hong Kong) Limited and Sze Wai Suen in HCCW 30/2022

Mr Jason CH Chiu, instructed by Au Yeung, Chan & Ho, for the 2^nd Defendant in HCA 309/2022 and Zeng Yuqi in HCCW 30/2022

Mr Anson Wong SC, Mr Lai Chun Ho and Ms Nicole YT Li, instructed by Tung, Ng, Tse & Lam, for the 6^th Defendant

Ms Frances Lok, instructed by Adrian Yeung & Cheng, for the 7^th and 9^th Defendants

The Official Receiver was not represented and did not appear

HCA 309/2022

[2022] HKCFI 1893

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 309 OF 2022

________________________

________________________

____________________

DECISION

____________________

A.  INTRODUCTION

1.  This is P’s application for leave to appeal against the order that I made on 6 May 2022 whereby I dismissed P’s summons dated 14 April 2022 (“the Order”) (see [2022] HKCFI 1312 (“the Decision”)).

2.  There is no dispute that under s.14AA(4) of the High Court Ordinance (Cap. 4), leave would not be granted unless the intended appeal has a reasonable prospect of success; or it is, for some other reasons, in the interest of justice to be heard by the Court of Appeal.

3.  I turn to consider the proposed grounds of appeal set out in the draft Notice of Appeal attached to P’s present summons.

B.  GROUND 1: FAILING TO DEAL WITH THE BASES OF P’s DISCLOSURE SUMMONS OTHER THAN THE TRACING CLAIM

4.  Under Ground 1, P contends that a tracing claim is not a necessary requirement for the court to exercise its jurisdiction under the Norwich Pharmacal principles or s.21 of the Evidence Ordinance (Cap. 8). P argues that, in dismissing P’s summons on the ground that there is no reasonably arguable tracing claim, I have ignored that the court may grant third party disclosure orders to police compliance with the mareva injunctions granted against the defendants and to ensure that the injunctions are effective (Yaron Brown and others v Lexinta Ltd and others[2018] HKCFI 2302, §16(1)). P now contends that, at the very least, P should be provided with information on the current balance of the accounts of D1, D6 and D7 maintained with BoC and BoComm.

5.  While I agree with the general legal principles cited by P, the problem is that this was not how the matter was argued before me. As I stated in §6 of the Decision, P’s application was made expressly to give effect to the freezing injunctions and facilitate P’s tracing and following claims to recover the sale proceeds of the Land.

6.  Furthermore, D1 is not subject to any mareva injunction. As to D6 & D7, it is well established that where a case does not involve proprietary claims, “Absent any evidence of abuse such as non-compliance with the Mareva injunction, the court will normally refuse to order further disclosure in addition to the standard disclosure” (Pacific King Shipping Holdings Pte Ltd v Huang Ziquang [2015] 1 HKLRD 830, §§31-32).  There was no allegation of any such abuse on the part of D6 & D7. I disagree with P’s submission that the said principle does not apply to thirty party disclosure orders. In §28 of the judgment in Pacific King Shipping Holdings Ptd Ltd, Poon J (as he then was) held that “What concerns this appeal specifically are those principles which govern disclosure against a third-party bank in the context of a domestic mareva injunction in aid of some foreign proceedings…” (emphasis added) (see also §30 of the judgment where the learned judge referred again to “disclosure against a third- party bank”).

7.  For these reasons, I do not find the proposed Ground 1 reasonably arguable.

C.  GROUND 2: ERRED IN HOLDING THAT P DOES NOT HAVE A REASONABLY ARGUABLE CASE OF TRACING CLAIM

8.  Under ground 2(a), P argues that there is no legal basis to justify the “reasonably arguable test” used by me in §9 of the Decision. Indeed, in §21 of the Decision, I concluded that “I am not satisfied that it is reasonably arguable that P can trace the sale proceeds of the Land.” P submits that it should be sufficient to show that there is “a serious issue to be tried”.

9.  First, there does not appear to be any direct authority which shows that I have adopted the wrong test. Second, I am unable to discern any material difference between the two tests in the present context, or how it would have made any difference to my conclusion. A serious question to be tried requires a real prospect of success (see Hong Kong Civil Procedure 2022, vol. 1, §29/1/10 at pp. 791-792). If a claim is not reasonably arguable, I fail to see how it will have any “real” prospect of success.

10.  Under ground 2(b), P is, in effect, trying to repeat the same arguments which I have rejected. In particular, P contends that I did not identify the “original property” correctly in considering the tracing claim. It is correct that, in §18 of the Decision, I identified the “original property” to be the Land. P argues that the original property over which P asserts a proprietary claim is the 100% shareholdings in CCCC Holdings LLC (“the Shares”). For reasons I explained in detail in the Decision, this is exactly where P has gone wrong. In short, the sale proceeds came from the Land; not the Shares. P refers to Lewin on Trusts (20^th ed.), vol. 2, §44-098(2) where the authors state “Since tracing is concerned with the identification of the value inherent in one asset in another asset, identification of that value in the other asset does not necessarily depend upon a transfer of the asset or an interest or share of the original asset. And so where a trustee in breach of trust procures that a company, with only one issued share which is owned by the trust, issues 99 new shares in the company to the trustee or a third party without any consideration being paid for the new shares, so that 99 per cent of the value of the original share is transferred into the new shares, the new shares are the traceable product of the original share owned by the trust.” This passage is concerned with an entirely different legal issue i.e. there is no need for any “transfer” properly-so-called between the original property and the new/substitute property; another good example is tracing monies which have gone through different bank accounts when in fact there is no actual “transfer” of any money at all. The fallacy in P’s argument is that, putting aside the commercial reality, in law, one cannot “trace” the Land back to the Shares because the Shares did not give any proprietary interests in the Land to P at all in the first place.

11.  P argues, in the alternative, that even if the sale proceeds of the Land are not to be regarded as the fruit of the Shares, they are plainly the fruit of D4’s constructive trusteeship and hence are themselves trust property. This is because it was only by virtue of D4’s control of the Shares (arising from its constructive trusteeship) that the Land was sold by D5, giving rise to the sale proceeds now received in the hands of D1/6/7. I assume for the present purpose that D4 held the Shares on constructive trust for P; but D4 still would not have any proprietary interest in the Land or the sale proceeds thereof. The fact that D4’s legal ownership of the Shares enabled it to dispose of the Land is neither here or there for the purpose of considering the viability of the tracing claim. By procuring the disposal of the Land wrongfully, it may be argued that D4 had also wrongfully depleted the value of the Shares, which it held on constructive trust for P. But it does not follow that P has the right to go after the sale proceeds. In this respect, P cites Swain v The Law Society [1982] 1 WLR 17 at 36E-F which referred to the rule that “a trustee must not put himself in a position in which his own interests and those of his beneficiary conflict, and sometimes as merely an application of the principle that that which is the fruit of trust property or of the trusteeship is itself trust property”. It is clear that the facts of that precedent were materially from those in the present case. That precedent stands for the proposition that, if a person in a fiduciary position commits a breach of duty by putting himself in a conflict position, the property that he has obtained as a result of such breach will be subject to a trust. It is wrong to take the phrase “fruit of trust property or of the trusteeship is itself trust property” out of context.

12.  Under the proposed Ground 2(b), P contends that its proprietary claim can also be supported on the ground of unjust enrichment. P accepts that this was not a ground argued before me. In principle, it will be wrong to grant leave on a ground which has not been advanced.

13.  I do not find it necessary to deal with the other authorities cited by P, which do not take the matter any further. For these reasons, I am not satisfied that the proposed Ground 2 is reasonably arguable.

D.  LEAVE SHOULD BE GRANTED FOR “SOME OTHER REASONS”

14.  In P’s Skeleton Argument, P submits that leave should be granted for “some other reasons” because it is extremely common that a company is incorporated for the single purpose of holding a landed property, and also very often that a trust is created over the shares of such a company; and if the trustee of the shares procure the sale of the landed property and dissipates the sale proceeds, it is a question of general and public importance as to whether the beneficial owner of the shares can directly assert a proprietary claim over the sale proceeds.

15.  Leave to appeal should only be granted “for some other reasons” if there are truly exceptional circumstances in the interest of justice to do so. What P describes may well be a common scenario. But the fundamental principles of company law that I relied on in the Decision must apply equally irrespective of whether the company is a single purpose company holding landed property or not.

E.  CONCLUSION AND ORDERS

16.  For all the above reasons, I dismiss P’s application for leave to appeal against the Order.

17.  Having considered the statements of costs of D1, D6 and D7, and P’s submissions in response thereto at the hearing, I assess summarily the costs that P shall pay to them as follows:

(a)  D1: $180,000;

(b)  D6: $100,000;

(c)  D7: $130,000.

HCA 309/2022

[2022] HKCFI 1783

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 309 OF 2022

________________________

BETWEEN

________________________

________________________

DECISION ON COSTS

________________________

1.  In §21 of my Decision dated 6 May 2022, I ordered that P’s application be dismissed with costs to D1, D6 & D7 to be summarily assessed.

	Amount claimed (HK$)	P’s offer (HK$)
D1	367,308.00	164,423
D6	314,014.00	177,600
D7	333,155.00	190,800

2.  Pursuant to my directions, D1, D6 & D7 have filed their respective statement of costs, and P has submitted its lists of objections thereto. The parties’ stance may be summarized as follows:

3.  Having considered the said documents submitted by the parties and bearing in mind that the court shall adopt a broad brush approach in a summary assessment on costs, I assess the sums to be paid by P summarily as follows:

(a) to D1: HK$270,000;

(b) to D6: HK$220,000;

(c) to D7: HK$240,000.

Tanner De Witt, Solicitors for the Plaintiff

Jun He Law Offices, Solicitors for the 1st Defendant

Tung, Ng, Tse & Lam, Solicitors for the 6th Defendant

Adrian Yeung & Cheng, Solicitors for the 7th Defendant

HCA 309/2022

[2022] HKCFI 1312

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 309 OF 2022

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D E C I S I O N

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A.  INTRODUCTION

1.  By summons dated 14 April 2022, the Plaintiff (“P”) applied for disclosure of bank documents against the Bank for China (Hong Kong) Limited (“BoC”) and the Bank of Communication (“BoComm”) relating to:

(a)  the sum of US$45,076,164.38 transferred to account no. 012-737-20183676 held by the 6^th Defendant (“D6”) with BoC (“D6’s Account”);

(b)  the sum of US$13,340,000 transferred to account no. 382-573-101753301 held by the 7^th Defendant (“D7”) with BoComm (“D7’s Account”); and

(c)  the sum of US$1,300,000 transferred to account no. 382-573-9-317167-8 held by the 1^st Defendant (“D1”) with BoComm (“D1’s Account”).

2.  The three said sums (“the 3 Sums”) were parts of the sale proceeds in the total sum of US$103,000,000 of a piece of land in Miami, the USA (“the Land”). The 3 Sums are now subject to mareva injunctions granted by Cheng J on 31 March 2022 (and continued by A Chan J on 22 April 2022).

3.  BoC agrees to P’s application concerning D6’s Account (which has already been closed) subject to some minor comments on the terms of the proposed order. BoComm takes a neutral position to P’s application concerning D1 & D7’s Accounts. However, D1, D6 and D7 oppose P’s application. As a fall-back position, D7 took out a summons on 26 April 2022 applying for a stay of P’s summons pending the determination of its striking out summons dated 19 April 2022.

B.  THE BASIS OF P’S APPLICATION

4.  The factual basis of P’s application is as follows:

(a)  Before 15 October 2019, P held 100% shareholding of CCCC Holdings LLC (“the Shares”); CCCC Holdings LLC held 100% shareholding in CCCH (Delaware); CCCH (Delaware) held 100% shareholding in CCCC USA Holdings Corp (Delaware); and CCCC USA Holdings Corp (Delaware) held 100% shareholding in D5. In short, D5 was an indirect wholly owned subsidiary company of P.

(b)  D5 was the owner of the Land.

(c)  By two successive wrongful transfers in October and November 2019, the Shares were first transferred to D1 at nil consideration and without any proper justification, and then to D4 (which appears to be a nominee of D1) for a purported consideration of US$70 million.

(d)  In December 2021, D5 sold the Land to a US developer for US$103,000,000. The sale proceeds were transferred to various persons; among other things, the 3 Sums were transferred to D1, D6 & D7.

5.  As to the legal basis of the application:

(a)  First, P relies on the Norwich Pharmacal relief under the common law. In A Co v B Co [2002] 3 HKLRD 111 at §11, Ma J (as he then was) held that:

“The jurisdiction is a wide one. It is not restricted, as was at one time thought, to the disclosure of the names of wrongdoers only. In particular, where a plaintiff wishes to investigate the passage of monies in and out of bank accounts in aid of a tracing claim, discovery can be ordered of a bank’s books and documents…”

(b)  Second, P relies on s.21 of the Evidence Ordinance (Cap. 8) (“the EO”) to inspect and take copies of any entries in a banker’s record for the purposes of any proceedings. In CTO (HK) Ltd v Li Man Chiu [2002] 2 HKLRD 875 at §§12-13, Deputy Judge Poon (as he then was) held that:

“Though the court would not lightly use its power to order disclosure of full information touching the confidential relationship of banker and customer, such an order is justified even at the early interlocutory stages of an action where the plaintiff sought to trace funds which, in equity, belonged to it and of which there was strong evidence that it had been fraudulently deprived and delay might result in the dissipation of the funds before trial…”

“…First, the plaintiff must demonstrate a real prospect that the information may lead to the location or preservation of assets to which he is making a proprietary claim. For the jurisdiction rests upon the proposition that unless the assets in question can be located and secured, the ultimate determination of ownership of those assets may be frustrated by their removal or dissipation and there will be no point in calling on the third party at the trial to produce the required documents or give the requested information…”

6.  In the affidavit supporting P’s summons, it was stated, inter alia, that:

(a)  the application is to assist P’s claim to identify the current whereabouts of the 3 Sums and what have become of them;

(b)  P’s claim is of proprietary nature in respect of the interest in the Land;

(c)  to give effect to the mareva injunctions and facilitate P’s tracing and following claim to recover the sale proceeds of the Land and/or any traceable substitutes arising from the same, the information sought in the application is necessary.

7.  It is, therefore, clear that the purpose of P’s summons is to assist in tracing the sale proceeds of the Land. P alleges that it is entitled to:

(a)  trace the reduction in value of the Shares into the dissipated sale proceeds, and assert a proprietary claim over such proceeds; and/or,

(b)  claim the dissipated sale proceeds as its property on the basis that they were fruits of a fraudulent scheme perpetuated on P.

C.  THE GROUND OF OPPOISITOIN RAISED BY D1, D6 & D7

8.  D1, D6 and D7 oppose P’s summons on the main and simple ground that P’s tracing claim is unarguable because it did not have any proprietary interest in the Land, and hence, cannot have any tracing claim against the sales proceeds of the Land.

D.  ANALYSIS

9.  In A Co v B Co [2002] 3 HKLRD 111 at §12, Ma J (as he then was) emphasised the extraordinary nature of the Norwich Pharmacal relief: it is not a usual order and is not one that a court would lightly grant in the absence of powerful factors. Likewise, as mentioned, in CTO (HK) Ltd v Li Man Chiu, Deputy Judge Poon (as he then was) held that the power under s.21 of EO would not be lightly used. I take the view that P needs to show that, at least, it is reasonably arguable that P is entitled to trace the sale proceeds of the Land.

10.  P contends that the point raised by D1, D6 and D7 are those to be dealt with in D7’s summons to strike out P’s claim (which has been adjourned for argument); likewise, the mareva injunctions have been continued pending substantive arguments. Be that as it may, I need to consider the issue now for the purpose of P’s application. P also claims that Cheng J, who granted the mareva injunctions, accepted that P’s argument in this respect is arguable. The injunctions were granted on an ex parte basis. It is unclear whether Cheng J had in fact considered this particular issue, and if so, what her views were. In any event, I am obliged to consider this issue independently for the present purpose.

11.  Tracing is not a matter of discretion but a means of determining of property rights (ReMontagu’s Settlement Trust [1987] Ch 264 at 285B-C, per MegarryJ). Lord Millet held in Foskett v McKeown [2001] 1 AC 102 at 127F that “Property rights are determined by fixed rules and settled principles. They are not discretionary. They do not depend upon ideas of what is “fair, just and reasonable” .

12.  Tracing is neither a cause of action nor a remedy. Lord Millet explained the concept of tracing in Foskett v McKeown at p. 127B-C:

“The process of ascertaining what happened to the plaintiffs’ money involves both tracing and following. These are both exercises in locating assets which are or may be taken to represent an asset belonging to the plaintiffs and to which they assert ownership. The process of following and tracing are, however, distinct. Following is the process of following the same asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old. Where one asset is exchanged for another, a claimant can elect whether to follow the original asset into the hands of the new owner or to trace its value into the new asset in the hands of the same owner. In practice his choice is often dictated by the circumstances.” (emphasis added)

13.  The sale proceeds in question were derived from the sale of the Land. However, the Land never belonged to P; it was owned by D5. The fact that D5 was an indirect wholly owned subsidiary company of D1 did not give D1 any legal or equitable interest in the Land. In Luo Xing Juan Angela v The Estate of Hui Shui See, Willy Deceased and others (2009) 12 HKCFAR 1, §34, the Court of Final Appeal cited Macaura v Northern Assurance Co Ltd [1925] AC 619, and reaffirmed the fundamental principles that “a shareholder has no legal or equitable interest in the company’s property (as opposed to a right to share in the profits of its business and to a distribution of any surplus on liquidation)”. In Prest v Petrodel Ltd and Others [2013] UKSC 34, Lord Sumption summarised the position as follows at §8:

“Subject to very limited exceptions, most of which are statutory, a company is a legal entity distinct from its shareholders. It has rights and liabilities of its own which are distinct from those of its shareholders. Its property is its own, and not that of its shareholders. In Salomon v A Salomon & Co Ltd [1897] AC 22, [1895–9] All ER Rep 33, the House of Lords held that these principles applied as much to a company that was wholly owned and controlled by one man as to any other company. In Macaurav Northern Assurance Co Ltd [1925] AC 619, [1925] All ER Rep 51, the House of Lords held that the sole owner and controller of a company did not even have an insurable interest in property of the company, although economically he was liable to suffer by its destruction. Lord Buckmaster said ([1925] AC 619 at 626–627, [1925] All ER Rep 51 at 54):

‘no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up.’

In Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 the House of Lords held that documents of a subsidiary were not in the ‘power’ of its parent company for the purposes of disclosure in litigation, simply by virtue of the latter’s ownership and control of the group. These principles are the starting point for the elaborate restrictions imposed by English law on a wide range of transactions which have the direct or indirect effect of distributing capital to shareholders. The separate personality and property of a company is sometimes described as a fiction, and in a sense it is. But the fiction is the whole foundation of English company and insolvency law. As Robert Goff LJ once observed, in this domain ‘we are concerned not with economics but with law. The distinction between the two is, in law, fundamental’: Bank of Tokyo Ltd v Karoon [1986] 3 All ER 468 at 486, [1987] AC 45n at 64. He could justly have added that it is not just legally but economically fundamental, since limited companies have been the principal unit of commercial life for more than a century. Their separate personality and property are the basis on which third parties are entitled to deal with them and commonly do deal with them.”

More recently, in Hurstwood Properties (A) Ltd and others v Rossendale Borough Council and another [2021] UKSC 16, at §64, the UKSC held that:

“…The separate personality of a company refers - as Lord Sumption had already noted at para 8 - to the doctrine that a company is treated in law as a person in its own right, capable of owning property and having rights and liabilities of its own which are distinct from those of its shareholders. In Salomon v ASalomon & Co Ltd [1897] AC 22 the House of Lords confirmed that this doctrine applies as much to a company that is wholly owned and controlled by one individual as to any other company; so too does the rule of limited liability, which limits the liability of a shareholder for debts of the company to the amount invested by the shareholder in the company.”

14.  It follows from the above fundamental principles of company law that D5, not P, was the legal and beneficial owner of the Land; and after its sale, the sale proceeds of the Land. In these circumstances, on what basis can P trace the sale proceeds when apparently, it did and does not have any proprietary interest in them?

15.  P contends that, firstly, it is entitled to trace the reduction in value of the Shares into the sale proceeds of the Land because tracing is about the “value inherent in a trust asset (but not the physical asset itself)”, and there is a sufficient transactional links between (a) the reduction in value of the Shares and (b) the disposal of the sale proceeds of the Land. It relies on Lord Millet’s following judgment in Foskett v McKeown at p. 128A-B:

“We speak of money at the bank, and of money passing into and out of a bank account. But of course the account holder has no money at the bank. Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder. The bank gives value for it, and it is accordingly not usually possible to make the money itself the subject of an adverse claim. Instead a claimant normally sues the account holder rather than the bank and lays claim to the proceeds of the money in his hands. These consist of the debt or part of the debt due to him from the bank. We speak of tracing money into and out of the account, but there is no money in the account. There is merely a single debt of an amount equal to the final balance standing to the credit of the account holder. No money passes from paying bank to receiving bank or through the clearing system (where the money flows may be in the opposite direction). There is simply a series of debits and credits which are causally and transactionally linked. We also speak of tracing one asset into another, but this too is inaccurate. The original asset still exists in the hands of the new owner, or it may have become untraceable. The claimant claims the new asset because it was acquired in whole or in part with the original asset. What he traces, therefore, is not the physical asset itself but the value inherent in it.” (emphasis added)

16.  It is vital not to take the sentences highlighted above (which are apparently those P relies on in particular) in the said judgment of Lord Millet out of context. Lord Millet was explaining mainly what tracing of money in a bank account really means. Insofar as money in a bank account is concerned, it is merely a debt or chose in action owed by the bank to the account holder; and, hence, when money is transferred from one account to another, there is in fact no movement of any money, rather a chosen in action is extinguished and replaced or exchanged by a new one, these choses in action are in this sense causally and transactionally linked. As far as property other than money is concerned, tracing is not concerned with tracking the original property; rather, it concerns a claim over the new asset which has been acquired wholly or partly by the original asset. Hence, Lord Millet concluded by saying that what the claimant traces is not “the physical asset” but “the value inherent in it”. The value inherent in the physical asset, i.e. the original asset, would be reflected or represented by the new or substituted asset (though their values may be different). When Lord Millet referred to “causally and transactionally linked”, he was saying that, in terms of causation, there must be a sufficient transactional link or nexus between the old asset and the new or substitute asset.

17.  Moreover, it is important to read the next paragraph of Lord Millet’s judgment at p. 128D-G:

“Tracing is thus neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property. Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimant's property. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim.But it does not affect or establish his claim. That will depend on a number of factors including the nature of his interest in the original asset. He will normally be able to maintain the same claim to the substituted asset as he could have maintained to the original asset. If he held only a security interest in the original asset, he cannot claim more than a security interest in its proceeds. But his claim may also be exposed to potential defences as a result of intervening transactions. Even if the plaintiffs could demonstrate what the bank had done with their money, for example, and could thus identify its traceable proceeds in the hands of the bank, any claim by them to assert ownership of those proceeds would be defeated by the bona fide purchaser defence. The successful completion of a tracing exercise may be preliminary to a personal claim (as in El Ajou v. Dollar Land Holdings [1993] 3 All E.R. 717) or a proprietary one, to the enforcement of a legal right (as in Trustees of the Property of F.C. Jones & Sons v. Jones [1997] Ch. 159) or an equitable one.” (emphasis added)

18.  It is clear that tracing is premised on the existence of some proprietary interest in the original property in question on the part of the claimant. He may only claim the same interest in the substituted property. It follows that if he did not have any proprietary interest in the original property, he cannot possibly claim any proprietary interest in the substituted property. Returning to the facts of this case, as P had no proprietary interest whatsoever in the Land, it cannot claim any proprietary interest in the sale proceeds of the Land (or what have become of those proceeds). For these reasons, properly understood, Lord Millet’s said judgment in Foskett v McKeown does not support P’s case.

19.  P also argues that, if money has come into the wrong hands as where it represents the fruits of a fraud, equity imposes a constructive trust on the fraudulent recipient and the money is recoverable and traceable in equity, citing Angove’s Pty Ltd v Bailey [2016] 1 WLR 3179, §30. In Angove’s Pty Ltd v Bailey [2016] 1 WLR 3179, §30, Lord Sumption referred to circumstances in which a restitutionary proprietary claim may exist; he held that “where money is paid with the intention of transferring the entire beneficial interest to the payee, at least that must be shown in order to establish a constructive trust is… (ii) that irrespective of the intention of the payer, in the eyes of the equity the money has come into the wrong hands, as where it represents the fruits of a fraud, theft or breach of trust or fiduciary duty against a third party.” (emphasis added) In those circumstances, the payer of the money, who was the legal and beneficial owner thereof before making the payment, is entitled to have a restitutionary proprietary claim based on constructive trust (Lewin on Trust (12^th ed.), §§8-024). But the vital point is that the payer used to be the legal and beneficial owner of the money in question. Lord Sumption’s said judgment cannot assist P because P was never the legal or beneficial owner of the Land; and hence, the sale proceeds of the Land.

20.  In effect, P is seeking to lift or pierce the corporate veils. However, there is no suggestion that there are exceptional circumstances which can justify doing so in this case.

E.  CONCLUSION

21.  For the above reasons, I am not satisfied that it is reasonably arguable that P can trace the sale proceeds of the Land. On this ground, P’s application is dismissed with costs to D1, D6 & D7 to be summarily assessed. D1, D6 & D7 shall submit their statements of costs within 14 days hereof; and P shall submit a list of objections to each of those statements within 14 days thereafter. I shall then assess the costs on paper. It is unnecessary for me to make any order in respect of D7’s summons.