We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
03 March 2020
In Re Sunfund Investment,(1) the Court of First Instance discharged ex parte (without notice) injunctions restraining the second defendant from disposing of or dealing with its assets in Hong Kong. The injunctions were granted in aid only of the plaintiffs' claims against the first defendant which were being pursued in parallel proceedings in mainland China. This was on the basis that the second defendant's assets should be available to satisfy the plaintiffs' eventual judgment against the first defendant. This is the court's so-called 'Chabra' jurisdiction. The case is another reminder (if one were needed) of the need for full and frank disclosure on ex parte applications – also, that plaintiffs cannot pursue and obtain relief at the ex parte stage on one factual basis and then expect to be able to find and rely on another basis when the foundation for the original application is challenged.
The Chabra jurisdiction to freeze assets held by third parties is available where there is good reason to suppose that those assets should be available to satisfy a judgment obtained by a plaintiff against a defendant and there is a risk that those assets may be dissipated prior to execution.(2)
In Sunfund, the plaintiffs obtained ex parte injunctions in October and November 2018 freezing the assets of the second defendant, a subsidiary of the first defendant. They were granted in aid of the plaintiffs' proceedings against the first defendant in mainland China. The assets were said to include shares in a related company. The plaintiffs also alleged that the second defendant was a debtor of the first defendant.
The plaintiffs obtained the ex parte injunctions primarily based on evidence:
The second defendant argued that the injunctions should not have been granted. Following a court hearing in July 2019, the court agreed, discharged the orders and recently gave written reasons.(3)
The court accepted that there was no proper basis to invoke the court's Chabra jurisdiction. The payments made by the first defendant to the second defendant were not shareholder loans but genuine subscriptions for shares.
The court disagreed with the plaintiffs' efforts, based on the second defendant's draft audit report, to recast the payments as 'current liabilities' due from the second defendant. This evidence was not raised until a few days before the July 2019 hearing. Drawing a parallel with ex parte applications for permission to serve proceedings outside Hong Kong, the court concluded that it was simply not just to entertain a new basis on which to maintain an injunction granted under the Chabra jurisdiction.(4)
A risk of dissipation of assets had also not been shown. While exercising caution, a court was entitled to infer such a risk from evidence of low commercial morality. The online record was not, however, cogent evidence of the dishonesty of the individual concerned, and the inferences sought to be drawn against him were not supported by any facts stated in the online record. Nor did any facts stated in the online record support the assertion that the individual was a fugitive trying to avoid arrest. The court summarised the state of the evidence before it as follows:
The entirety of the evidence presented shows a bigger dispute between members of the board of [the second defendant], and represents an ongoing fight between the Plaintiffs and the Defendants for control of the Mainland subsidiaries of [the second defendant], rather than the picture painted for the ex parte application, of unilateral or surreptitious action on the part of YXL to control [the second defendant] and its subsidiaries, in order to dispose of their assets and frustrate any judgment that may be obtained in favour of the Plaintiffs.(5)
Finally, the plaintiffs had failed to give full and frank disclosure at the ex parte stage as to how they had obtained the online record. If this had been properly addressed before the judge (on granting the ex parte orders), its provenance and authenticity could have been considered.
The inadequate evidence of a risk of dissipation, and the plaintiffs' failure to discharge their duty to be full and frank, were, ultimately, related issues.
Besides being a useful reminder to practitioners and parties alike of the court's Chabra jurisdiction to grant freezing injunctions, the case is a pointed reminder of a plaintiff's responsibility to discharge the duty to be full and frank when making ex parte applications.
Of particular interest is the way in which the court dealt with the online record purportedly kept by the Beijing Public Security Bureau. Such records (or similar) are often used in civil proceedings in Hong Kong but unless the evidence is cogent, the courts understandably tend to lean towards scepticism. Issues of relevance, authenticity and dishonesty (or the like) are best left to the trial.
For further information on this topic please contact Charles Allen or Warren Ganesh at RPC by telephone (+852 2216 7000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.