DINGWAY INVESTMENT LTD (In compulsory Liquidation) v. CHINA CITY CONSTRUCTION & DEVELOPMENT CO (HONG KONG) LTD AND OTHERS

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 BETWEEN DINGWAY INVESTMENT LIMITED Plaintiff (In compulsory Liquidation) and CHINA CITY CONSTRUCTION & 1st Defendant DEVELOPMENT CO. (HONG KONG) LIMITED (中國城市建設開發 (香港) 有限公司) ZENG YUQI (曾玉琪) 2nd Defendant SZE WAI SUEN (施慰萱) 3rd Defendant REGA CENTER LLC 4th Defendant REGA CENTER MIAMI HOLDINGS LLC 5th Defendant (formerly known as CCCC INTERNATIONAL USA LLC) GOLDEN GATE INTERNATIONAL 6th Defendant INVESTMENT CO. LIMITED (金門國際投資有限公司) REGA HOLDINGS LIMITED 7th Defendant CCCC MIAMI BEACH LLC 8th Defendant MEI LI (also known as LI MEI) 9th Defendant Before: Deputy High Court Judge KC Chan in Chambers (Open to Public) Date of Hearing: 20 June 2023 Date of Decision: 29 June 2023 Date of Handing Down of the Decision: 29 June 2023 _______________ DECISION _______________ This is the contested hearing of an application by the Plaintiff (“Dingway”) for a disclosure order against the 1st 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. Dingway is represented by Ms Mak and D1 by Mr Fan, both of counsel. 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. 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 4th 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. 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”). 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). 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. 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. 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)”). 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. 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;” 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.” 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 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. 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 Initially in its written submissions, D1 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) 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”. 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. 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”. 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. 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. Mr Fan then pursued on behalf of D1 as its main and only remaining ground of opposition - that there was inordinate delay. 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. 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. 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. 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, 2nd Ed., pp. 405, 454-455.” Mr Fan did not dispute this as the correct approach. 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”. 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. 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. I thus conclude that the delay complained of is not a ground for refusing the disclosure. Disposal In the premises, I will grant the disclosure order. 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 1st 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. 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. 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. I thank Ms Mak and Mr Fan for their assistance. ( KC Chan ) Deputy High Court Judge Ms Esther Mak, instructed by Tanner De Witt, for the Plaintiff Mr Alex Fan, instructed by Jun He Law Offices, for the 1st Defendant Attendance of Adrian Yeung & Cheng, for the 5th and 7th Defendants and Tung, Ng, Tse & Lam for the 6th Defendants was excused