One of the litigation tools to secure the assets of a defendant to avoid a paper judgment is to obtain a freezing order, also known as a mareva injunction, against the intended defendant at the earliest possible stage of the case. A mareva injunction could be applied for and obtained within a very short period of time and even without notice of the defendant. An important factor for a successful mareva injunction application is proof of a real risk that the defendant would dissipate his assets to frustrate the plaintiff’s judgment.
Under the Hong Kong legal regime, there are ways for a foreign plaintiff to obtain a mareva injunction in Hong Kong as a stand-alone application in aid of his foreign proceedings.
In order to make the mareva injunction order effective and to ensure that the judicial processes are not defeated, a usual and useful ancillary order attached to the mareva injunction is a disclosure order requiring the defendant to disclose his assets inside and/or outside of the jurisdiction. This disclosure order is aimed to identify the existence, nature and location of asset(s) that the mareva injunction attaches.
In the recent Court of Appeal decision Pacific King Shipping Holding Pte Ltd v Huang Ziqiang [2015] 1 HKLRD 830, the Court examined the scope of such ancillary order for disclosure of assets in aid of a mareva injunction. In this case, the Defendant who was an ex-CEO and ex-chairman of board of directors of a wound up company (being the Plaintiff in this action) was alleged to have controlled the Plaintiff in such a manner that breached his fiduciary duties. The Defendant had wrongfully caused the Plaintiff to make substantial dividend payments, purchases, and reimbursements from the Plaintiff’s account to the Defendant when the Plaintiff was insolvent. The liquidator of the Plaintiff first commenced proceedings in Singapore where it was incorporated and obtained a worldwide mareva injunction against the Defendant. The liquidator then successfully sought the assistance of the Hong Kong Court for a mareva injunction order freezing the Defendant’s assets in Hong Kong in aid of the Singapore injunction.
The Hong Kong mareva injunction was accompanied by a disclosure order requiring the Defendant to disclose all his assets of an individual value of HK$50,000 or more in Hong Kong. The Defendant complied with the disclosure order revealing that he was liquidating 4 of his real estate properties in Hong Kong with completions soon to take place. Further, from the Defendant’s disclosed bank accounts, the liquidator believes that the Defendant should have more assets elsewhere.
Consequently, the Plaintiff applied and successfully obtained a further disclosure order requiring the Defendant’s banks to disclose details of all the bank accounts of the Defendant whether within or outside Hong Kong. The further disclosure order exceeded the scope of Hong Kong mareva injunction which only freezes the Defendant’s assets in Hong Kong.
The issue before the Court of Appeal was whether the lower court has erred in making the further disclosure order.
The Court of Appeal overturned the lower court’s decision and ruled that it erred in making the further disclosure order. The lower court’s decision was based on its determination that the Plaintiff’s claim was one of proprietary in nature rather than a mere monetary claim. Although the Plaintiff’s claim was based on alleged breaches of fiduciary duties, misappropriation of funds and property belonging to the Plaintiff, the affirmation of the liquidator for the Plaintiff stated that its claim was a monetary claim.
Had the Plaintiff’s claim been proprietary in nature, the further disclosure order might be justifiable. Proprietary claim is one by which a plaintiff seeks the return of its specific property, such as chattels or land. If a plaintiff’s property has been converted into some other form of property, the question of tracing arises and might justify the further disclosure order depending on the facts of the case.
Although the Plaintiff’s claim is a monetary claim, the Court of Appeal recognises that there might be special circumstances which might bring the case to a most unusual category justifying a disclosure order going beyond the scope of the mareva injunction. Examples of such special circumstances are fraud, evidence showing that the Defendant tries to frustrate or defeat the purpose of the mareva injunction. There was no evidence of such special circumstances before the Court in this case and there was no evidence showing the Defendant failed to comply with the first disclosure order.
It is apparent from the Court’s decision that in order to secure a more effective disclosure order when applying for a mareva injunction in Hong Kong, more consideration is required in formulating the claim; it is also necessary to consider whether a worldwide mareva injunction should be applied for instead of just a mareva injunction that only covers the jurisdiction. If the Plaintiff in this case can subsequently show that it has a proprietary claim against the Defendant, then it may try to re-apply for a broader scope disclosure order. From a defendant’s perspective, this case provides a guide as to the appropriate scope of disclosure he should be subjected to pursuant to a mareva injunction, and if such scope appears to be too broad, a defendant could apply for a stay of the disclosure order pending review by a higher court.
Angela Wang, Partner, Angela Wang & Co
