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Nonghyup Bank (As Trustee Of Pacificbridge Gold Income Fund 1) v Universe Income Builder Fund Vi Llc And Others

Judgment Cited authorities 5 Cited in 1 Precedent Map Related
Vincent
Judgment Date11 January 2021
Neutral Citation[2021] HKCFI 107
Year2021
Judgement NumberHCA2089/2020
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA2089/2020 NONGHYUP BANK (AS TRUSTEE OF PACIFICBRIDGE GOLD INCOME FUND 1) v. UNIVERSE INCOME BUILDER FUND VI LLC AND OTHERS

HCA 2089/2020

[2021] HKCFI 107

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2089 OF 2020

________________________

BETWEEN

NONGHYUP BANK (AS TRUSTEE OF PACIFICBRIDGE GOLD INCOME FUND 1) Plaintiff
And
UNIVERSE INCOME BUILDER FUND VI LLC 1st Defendant
KH UAM GOLD TRADING (HONG KONG) LTD 2nd Defendant
UNIVERSE ASIA MANAGEMENT LTD 3rd Defendant
JACK P CHANG 4th Defendant
HO DICK SUN ERIC 5th Defendant
JUNG JOO HO 6th Defendant
LEGACY TRUST COMPANY LIMITED 7th Defendant

________________________

Before: Deputy High Court Judge William Wong SC in Chambers
Date of Hearing: 31 December 2020
Date of Decision: 11 January 2021

_______________

D E C I S I O N

_______________

APPLICATION

1. By a summons dated 22 December 2020 (the “Discharge Summons”), the 7th Defendant seeks, inter alia, the following order from this Court:

“1. The Order made by Deputy High Court Judge MK Liu on 11 December 2020 (“the Injunction Order”) and continued on 18 December 2020 (“the Continuation Order”) be discharged as against the 7th Defendant upon the 7th Defendant’s undertaking not to, whether individually, acting by its employee or agents or otherwise howsoever, remove from Hong Kong or in any way dispose of, deal with or diminish the value of the sum of US$4,880,024.01 held in the USD currency sub-account of the 7th Defendant’s ICBC Account that is, the 7th Defendant’s bank account maintained with Industrial and Commercial Bank of China (Asia) Limited (bank account no. 701-530-03411-7).”

SALIENT FACTS

2. The Plaintiff asserts that it has fallen victim to a fraudulent or dishonest scheme perpetrated by a number of defendants in the present action.

3. On 11 December 2020, it obtained an ex parte injunction, both Mareva and proprietary, against the 1st to 6th Defendants up to the amount of US$32,850,351.97 which is the amount of a senior note the Plaintiff subscribed and remains unpaid. It also obtained an ex parte proprietary injunction against the 7th Defendant, Legacy Trust Company Limited, up to the full amount of its claim, namely, US$32,850,351.97.

4. The 7th Defendant, however, is not a party to the alleged fraudulent scheme and is an innocent party which was fixed up with the alleged wrongdoings. It is not disputed that the 7th Defendant only has US$4,880,024 in its account which can be said to be traceable back to the Plaintiff’s investments through the alleged fraudulent scheme. Nonetheless, the Plaintiff obtained and insists to have a proprietary injunction against the 7th Defendant up to the sum of US$32,850,351.97 on the basis that “the plaintiff would not be protected if and in so far as the defendants received any sums in future which are traceable substitutes of the original sum received.”

5. However, I note that in §77(5) of the Affirmation of Lee Sang Hoon, it is stated that:

“As regards Legacy Trust, I have previously filed an affirmation in support of the Originating Summons for the Norwich Pharmacal order deposing to my belief that Legacy Trust is an innocent third party which was mixed up in the wrongdoing of the Chang Camp. I wish to point out that NB’s naming of Legacy Trust as the 7th Defendant in the intended action does not undermine or contradict that belief. As the draft Writ of Summons and Statement of Claim shows, NB’s claim against Legacy Trust is merely as a constructive trustee of the balance of the Senior Note Amount. No wrongdoing is alleged against Legacy Trust. Legacy Trust must know by now that NB is claiming against UIBF VI and KH UAM for, inter alia, dishonest assistance and knowing receipt. Legacy Trust, as the custodian of UIBF VI and KH UAM, has no beneficial interest in the remaining balance of the Senior Note Amount. Such knowledge renders it unconscionable for Legacy Trust to retain the remaining balance of the Senior Note Amount whether for UIBF VI and KH UAM or at all. It should transfer, or be ordered by the Court to transfer, the remaining balance of the Senior Note Amount to NB. That is the only substantive relief which NB is seeking against Legacy Trust, and the proprietary injunction against Legacy Trust is to secure the funds pending resolution of the intended action.” (Emphasis added.)

6. As pointed out above, surprisingly, an ex parte proprietary injunction was granted against the 7th Defendant in the following terms:

“The 7th Defendant, whether individually, acting by its employees or agents or otherwise howsoever, must not remove from Hong Kong or in any way dispose of, deal with, or diminish the value of the sum of USD32,850,351.97 received in the 7th Defendant’s ICBC Account on 26 March 2020 or in the account no. 0100011623668 (whether maintained with ICBC, the Australia and New Zealand Banking Group Limited or any other bank), and/or any proceeds, fruits, benefits, interests or assets derived from any part of such total sum (the “D7 Trust Assets”)”

7. The said ex parte proprietary injunction against the 7th Defendant is continued by the Order of Deputy High Court Judge MK Liu dated 18 December 2020.

8. This Court notes from the written submissions for the 7th Defendant (see §5(e)(ii)) that it was argued on behalf of the 7th Defendant at the hearing on 18 December 2020 that:

“despite it is already apparent from P’s own evidence at [71-73] that the remaining balance held by D7 via D7’s ICBC Account in favour of other Ds were US$4,880,024 [sic] (Cf. §§5(d)(ii) and (iv) above), §4 of the Ex-parte Order [48] still states the subject value of D7’s proprietary injunction be the full sum of US$32,850,351.97. Where the assets forming the subject matter of the proprietary claim has been dissipated, a proprietary injunction cannot ordinarily be granted in respect of that dissipated amount: Zhang Yan & Ors v ASA Bullion Ltd [2019] HKCFI 179 at §11.”

9. It is relatively clear to me that the Plaintiff should never have applied for a sum exceeding the remaining balance of the Senior Note Amount against the 7th Defendant, an innocent party.

10. Although Deputy High Court Judge MK Liu has already adjourned the inter partes summons (the “Continuation Summons”) as against the 1st Defendant, the 6th Defendant and the 7th Defendant with directions for evidence to be filed and the matter to be disposed on paper, it comes as no surprise to this Court that the 7th Defendant took out the Discharge Summons on 22 December 2020 for this matter to be dealt with urgently.

11. I was inclined to grant an order in terms of the Discharge Summons forthwith on 31 December 2020. However, in view of Mr Phang’s submission that the Court needs to consider the relevant legal principles carefully, I allowed the parties to file further written submissions. Having considered the further legal submissions, I am of the view that the Discharge Summons must be granted and, in fact, it should have been granted much earlier.

ANALYSIS

12. First, the legal principles in relation to proprietary injunction are well established and recently helpfully summarised by Recorder Eugene Fung SC in Zhang Yan & Ors v ASA Bullion Limited, HCA1555 of 2018, unreported, 23 January 2019. At §11, the learned Recorder said:

“11. The relevant legal principles regarding a proprietary injunction are as follows:

(1) Where a plaintiff asserts title to property or seeks to trace property which belongs to him, the Court has jurisdiction to grant a proprietary injunction restraining the disposal of that property: see A v C [1981] 1 QB 956 at 958D – 959D (Robert Goff J).

(2) For the grant of a proprietary injunction, there are three elements which the plaintiff has to demonstrate, following the American Cyanamid approach: (a) that there is a serious issue to be tried on the merits; (b) that the balance of convenience is in favour of granting an injunction and (c) that it is just and convenient to grant the injunction. It is not necessary to show any risk of dissipation of assets. See eg Madoff Securities International Ltd v Raven [2012] 2 All ER (Comm) 634 at §§127 – 128 (Flaux J).

(3) A proprietary injunction must relate to a specific asset held by or under the control of the defendant, or its traceable proceeds, in respect of which a proprietary claim is raised by the plaintiff: see任俊國 v Chin Choi Ming (unreported, HCA 2017/2017, 6 November 2017) §20 (Chow J).

(4) In order to justify the grant of a proprietary injunction, the plaintiff should ordinarily adduce some reasonable evidence of the existence of the specific asset (or its traceable proceeds) and that the same is...

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