CONVOY COLLATERAL LTD v. CHO KWAI CHEE (also known as CHO KWAI CHEE ROY) AND OTHERS

bjbj 399/2018 [2024] HKCFI 1510 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 399 OF 2018 BETWEEN CONVOY COLLATERAL LIMITED Plaintiff and CHO KWAI CHEE (also known as 1st Defendant CHO KWAI CHEE ROY) TAN YE KAI BYRON 2nd Defendant CHAN LAI YEE CHRISTIE 3rd Defendant NG YAO KWOK 4th Defendant NG MEN KIT (also known as 5th Defendant NG MEN KIT BILLY) HON SIU HONG 6th Defendant CHAN WANG FAI ANDY 7th Defendant CHENG WAN HUNG GILBERT 8th Defendant LAM CHI YUNG PAUL 9th Defendant CHECKMATE FINANCE HONG KONG 10th Defendant LIMITED CHINA GREEN (HOLDINGS) LIMITED 11th Defendant ATHENA POWER LIMITED 12th Defendant ZHANG XIONGFENG 13th Defendant ________________ BEST GRADE LIMITED 1st Applicant EARLY LIGHT INDUSTRIAL LIMITED 2nd Applicant and CONVOY COLLATERAL LIMITED 1st Respondent CHO KWAI CHEE 2nd Respondent (also known as CHO KWAI CHEE ROY) ________________ Before: Hon Coleman J in Chambers (Open to Public) Date of Hearing: 3 June 2024 Date of Decision: 4 June 2024 _____________ D E C I S I O N _____________ A. Introduction The Plaintiff company ( ) obtained a Mareva or freezing injunction ( Injunction Order ) against the 1st Defendant ( Dr Cho ). The Injunction Order was granted by the Court of Appeal by its decision dated 16 June 2020: see [2020] HKCA 537 a decision subsequently frequently quoted as authority for the correct approach to the assessment of risk of dissipation of assets in the context of an application for such an injunction. The ceiling figure in the Injunction Order is a little under HK$770 million. By summons dated 25 April 2024 ( Discharge Summons ), Dr Cho has applied to discharge the Injunction Order. He has done so on the main basis that there has been a failure and delay of CCL to prosecute this claim against Dr Cho. There are other grounds in support of alternative relief of variation of the Injunction Order and fortification of CCL s cross-undertaking as to damages, which damages are also intended to be pursued. As it happens, Dr Cho also promised to make a discharge application or an application to vary the terms of the Injunction Order, in agreements dated 27 September 2023 made with Best Grade Ltd and Early Light Industrial Ltd ( Applicants ) in the context of the Applicants pursuit of Dr Cho for repayment of the principal and interest due to them under a loan agreement dated 1 August 2016, the terms of which Dr Cho had failed to honour. As a result of Dr Cho s failure to make repayment, the Applicants first commenced Hong Kong proceedings HCA 532/2018 against him on 8 March 2018. In the absence of any notice of intention to defend that claim, judgment was entered against Dr Cho on 21 December 2018 for the sum of HK$309 million plus interest ( HK Judgment ). Subsequently, on 21 August 2023, the Applicants commenced proceedings in the British Virgin Islands ( ), which Dr Cho also chose not to defend. Judgment was entered against him on 24 November 2023 for the US dollar equivalent of the HK Judgment ( BVI Judgment ). The BVI Judgment was pursued and obtained because Dr Cho s assets include a substantial (50.1%) direct shareholding in Broad Idea International Ltd (a BVI incorporated company) ( Broad Idea ). It is to be noted that that shareholding in Broad Idea is an asset expressly identified as a particular asset on which the prohibition imposed by the Injunction Order bites. In a Framework Deed and another Deed dated 27 September 2023 made between himself and Choi Chee Ming as owner of the Applicants, Dr Cho amongst other things (1) unequivocally and irrevocably confirmed that he still owed debts, including the debt giving rise to the Judgments, (2) confirmed that he does not have any legal grounds to contest the relevant recovery and enforcement procedures relating to the underlying debt and the HK Judgment, and (3) undertook to use his best endeavours to apply for the discharge of the Injunction Order in order to let Mr Choi lawfully obtain or sell the Broad Idea shares for repayment of the debts. By their summons filed in these proceedings on 23 April 2024 ( Variation Summons ), the Applicants seek to vary the Injunction Order for the purpose of allowing them to enforce the HK Judgment and the BVI Judgment (together Judgments ). The terms of the variation sought are in the addition of the proposed following paragraph (using the definitions and abbreviations as adopted in this Decision): The [Injunction Order] made herein against [Dr Cho] does not in any way prohibit or prevent [the Applicants] (being [Dr Cho s] judgment creditors) from taking such actions or steps against [Dr Cho] and/or his assets (whether in Hong Kong or otherwise) as may be necessary (whether by way of legal proceedings or otherwise, and whether in Hong Kong or otherwise) to enforce the [Judgments] and/or to recover the judgment debts covered by the [Judgments]. Prior to issuing the Variation Summons, the Applicants had obtained CCL s consent to the proposed variation. However, the Variation Summons was issued because of Dr Cho s stated opposition to the making of the proposed variation. The return date of the Variation Summons was for a hearing at 9:30am on 3 June 2024, with a time estimate of 30 minutes. Without consultation of other parties, Dr Cho then issued the Discharge Summons and made it returnable at the same time, also with a time estimate of 30 minutes. However, CCL and Dr Cho subsequently entered into agreed terms for the further conduct of the Discharge Summons with a timetable for the filing of evidence and for a substantive hearing to be fixed later made an Order of Court by consent. As a result, the hearing of the Discharge Summons fixed for 3 June 2024 was vacated, and (with my consent) CCL neither appeared nor was represented at the hearing which took place to deal with the Variation Summons. Indeed, CCL had confirmed its consent to the making of the proposed variation, and had expressed its neutrality on any issue relating to the procedural conduct of the Variation Summons. At that hearing, the Applicants were represented by Mr Rimsky Yuen SC leading Mr Val Chow of Counsel, and Dr Cho was represented by Mr CY Li SC leading Mr Jonathan Tai and Mr Kenny Kwok of Counsel (the former of whom had signed the skeleton submissions, but was otherwise unable to attend the hearing as a result of official duties). At the end of the hearing, I reserved my decision, to be handed down the following day. This is my Decision. B. Variation Summons Battleground In short: Mr Yuen submitted that the application made by the Variation Summons is unanswerable, and the application should be allowed; whereas Mr Li submitted that the application made by the Variation Summons is misconceived and unnecessary, and so the application should be dismissed, or alternatively it should be adjourned to be dealt with after the substantive hearing of the Discharge Summons (though perhaps on the same day fixed for that hearing). Perhaps unusually, that battle between the parties is fought over almost entirely common ground. Both from the written submissions filed, and from the further oral submissions made, it is clear that it is actually agreed between Mr Yuen and Mr Li that: The question to be determined on the Discharge Summons is different from, and wholly unconnected to, the question to be determined on the Variation Summons. A Mareva injunction is an order in personam restraining the party to whom it is directed from disposing of assets. The purpose of such an order is to prevent the risk that a defendant would render himself judgment proof against a plaintiff. Such an order does not deprive the restrained party of title to nor possession of the property to which the prohibition of the order extends. Nor does it create any security interest, priority or in any sense rewrite insolvency law. The administration of the property the subject of the prohibition is not placed in the hands of a receiver, trustee or other officer of the court, nor assumed by the court itself. A Mareva injunction does not prohibit a creditor of the party subject to the restraint from exercising its creditor s rights, including by execution, where no dealing by the restrained party is required to effect it. Allowing a defendant to meet a genuine and bona fide commitment such as a loan is not contrary to the policy underlying a Mareva injunction. Courts readily vary the terms of injunctions to permit a third party bona fide creditor to recover a debt owed by a defendant whose assets are restrained (even if that would leave insufficient assets to satisfy the plaintiff s claim). Enforcement actions by a judgment creditor would not normally involve any breach of a Mareva injunction as such by the person restraint, because it is not the defendant doing anything to produce diminution in the value of his assets. However, enforcement action by a judgment creditor may face accusations of collusion, abuse of process or contempt of court on the ground that the enforcement constitutes a deliberate attempt to frustrate the purpose of the Mareva injunction. Apparently with a view to protect themselves, non-parties not infrequently make variation applications to the courts seeking permission to dispose of charged or mortgaged properties caught by the terms of Mareva injunctions. Therefore, there may be some circumstances where it is reasonable, sensible or advisable for a third party to act cautiously and/or to seek a variation of a Mareva injunction. A distinction can be drawn between (a) an application seeking liberty to proceed with enforcement steps, and (b) the potential future taking of enforcement steps. The Variation Summons is the former. Hence, the interests of any other actual or potential creditors of the party restrained by the Mareva injunction (i.e. Dr Cho) do not fall for consideration at present and might only fall to be considered in the context of future enforcement proceedings. Even upon enforcement steps such as seeking a garnishee order, the starting point is that a judgment creditor is entitled to enforce the judgment he has secured against the judgment debtor, usually without considering the interests of non-parties except in circumstances such as where the judgment debtor was in the process of being wound up or where liquidation or some form of scheme of arrangement was imminent. The Applicants have no legal interest in the matters in dispute in these proceedings (or in the Injunction Order), nor is there any question or issue to be determined as between the Applicants on the one hand, and CCL or Dr Cho on the other hand. Dr Cho has never applied for, or obtained, the stay of execution of the HK Judgment or the BVI Judgment. Rather, Dr Cho has never disputed the underlying debt or the HK Judgment or BVI Judgment. Indeed, Dr Cho has in fact fairly recently acknowledged liability for the underlying debt and the HK Judgment (on which the BVI Judgment is based). The debt owed under the underlying loan agreement and the HK Judgment and hence the Applicants adjudged entitlement to repayment pre-dated the making of the Injunction Order. In this case, CCL also does not deny the existence of the underlying debt, and has consented to the proposed variation of the Injunction Order. I do not think it necessary to traverse the various authorities referred to by the parties in support of some of the legal propositions above, which seem to me to be sufficiently straightforward (as well as common ground) as not to require reference to authority. For completeness, I note that Dr Cho has filed additional evidence to identify that he has total debts which cannot be covered by the value of his assets, so that he is unable to repay his debts and is clearly insolvent . He has stated that there is a serious risk that he may be declared bankrupt by the bankruptcy court in near future if any of the other creditors file a bankruptcy petition against him. However, in light of the agreement as to the relevant principles, I think Mr Li was correct not to push this point too far. At one time, a further point seemed to arise as to whether the Applicants needed to have sought to intervene as parties to this action, before they might apply for variation of the Injunction Order. However, as the argument developed and clarified, this point fell away. It became common ground that the Applicants could apply for variation of the Injunction Order under the liberty to apply provision contained within it. Mr Li s point was actually more subtle: he merely identified that if there was no proper basis for the Applicants to make their application because it was simply unnecessary there was no other basis upon which they might have any stance in the proceedings under the provisions of RHC Order 15. That is obviously a red herring. Lastly, for the purposes of making the necessary decision on the Variation Summons, I do not think I need to delve into the correspondence between the parties whether to resolve the question as to whether Dr Cho had given any reason or identified any legal basis for declining to give consent to the application when invited to do so, or for any other purpose. C. Conclusion Despite the extensive common ground, the difference between the parties as noted above is stark. For his part, Mr Li has essentially put forward what might be described as a principled stance, namely that if there is no impediment to the Applicants in seeking to enforce the Judgments, caused by the Injunction Order, there is neither need nor proper legal basis to grant the variations sought by the Variation Summons. But Mr Li also emphasised in submission that Dr Cho had a real concern that if he were to consent to the variation, that might give rise to the perception that he was in some way permitting, facilitating or intending to prefer one creditor over his other creditors which he has identified. Mr Li even submitted that it was inappropriate to have made the application to seek to force consent to it from Dr Cho. For his part, Mr Yuen has submitted that the picture is clear. There is no dispute over the Judgments, nor any stay of execution, and there is no basis to resist enforcement. Therefore, where CCL has consented to the Variation Summons, Dr Cho s resistance to it and his alternate attempt to adjourn the hearing of it appears plainly to be a tactical attempt to delay enforcement, which the Court should view with suspicion. In the overall circumstances, Mr Yuen submitted, it was perfectly reasonable, prudent and appropriate for the Variation Summons to be made, and the variations sought to be granted. Ultimately, I accept that it is appropriate in the particular circumstances of this case for the variation sought by the Variation Summons to be granted. I give particular weight to the following matters: There is no common question arising on the Discharge Summons and the Variation Summons, so that there is no logical basis upon which to delay dealing with the Variation Summons until after dealing with the Discharge Summons. Dr Cho s debt leading to, and underpinning, the Judgments and the HK Judgment itself has not been disputed and pre-dated the making of the Injunction Order. The time taken between the HK Judgment and the issuing of the Variation Summons is largely explained by the intervening attempts to persuade Dr Cho to meet his debt obligations, culminating in the two Deeds entered into in September 2023. The target for the proposed enforcement steps is, or includes, a shareholding expressly identified in the Injunction Order as being subject to the prohibition imposed by it. Where Dr Cho has undertaken to use his best endeavours to apply for the discharge of the Injunction Order in order to let Mr Choi lawfully obtain or sell the Broad Idea shares for repayment of the debts, there can be little inherent basis for opposing a variation to permit the same aim not least where the merits of the Discharge Summons are at present far from clear, and will not likely be determined until many months from now. The position or interests of other or other potential creditors of Dr Cho are not relevant in the context of deciding whether or not to grant the variation sought though they may become relevant on any actual enforcement steps subsequently taken. CCL has consented to the order sought by the Variation Summons. Part of Dr Cho s opposition to the Variation Summons arises in part from a stated concern that if he were to consent to it, that might give the perception to his other creditors that he is seeking to prefer the Applicants over those other creditors. If there is any uncertainty as to whether the Applicants can commence enforcement steps notwithstanding the existence of the Injunction Order (and perhaps the fact that the enforcement target is expressly identified in it), the sooner that uncertainty is removed the better. Better still if that uncertainty can be removed in the form of a clear expression by the Court. Therefore, granting the Variation Summons is the clearest way of signalling the correct position. It is also a way to afford some protection to Dr Cho against the stated concern that he might be perceived to have facilitated or intended preference amongst his creditors. I acknowledge that the fall-back position adopted by Mr Yuen, and not resisted by Mr Li, was that the Court if it did not grant the Variation Summons might make plain in this Decision that the refusal to grant the variation sought was simply because such a variation is unnecessary, and that would thereby avoid unnecessary controversies in future. However, on balance, it seems to me that my discretion should be exercised by the grant of variation sought by the Variation Summons. On the common ground as to the applicable principles and factual matters which I have canvassed above, I think the decision on the Variation Summons was somewhat finely balanced. Further, my decision is intended to reflect and to deal in part with expressions of concern expressed by both sides, in what I think is the best and clearest way to do so. Therefore, as to costs, it seems to me that it is appropriate to make no order as to costs. However, I make that order in the first instance on a nisi basis, to become absolute if neither party applies for variation within 14 days. Any such variation application (if made) should be made by paper application, and will be dealt with on the papers. (Russell Coleman) Judge of the Court of First Instance High Court The plaintiff and 1st respondent was excused from court attendance Mr C. Y. 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