Article on SHK Judgment

In the recent cases of 匯力(天津)股權投資基金管理有限公司 (“Huili”) & 北京海欣方舟房地產開發有限公司 (“Haixin”) v Sunfund Investment & Management Co Ltd (“SIM”) & Sunfund (Hong Kong) Company Limited (“SHK”) (HCMP 1700/2019) and上海聚羋投資管理中心 (“Jumi”) & Haixin v SIM & SHK (HCMP 2096/2019) which were heard together, the Court of First Instance discharged two injunctions granted in favour of the Plaintiffs in aid of the Plaintiffs’ debt recovery proceedings instituted by them in mainland China against SIM, a PRC company.

The decision provided a welcome analysis of the factors which the Court will take into account when deciding whether an injunction should be continued.


On 8 October 2018, Huili and Haixin obtained an ex parte Mareva injunction against SHK, ie the Hong Kong subsidiary of SIM, to the tune of RMB 98 million on Chabra basis pursuant to s. 21M of the High Court Ordinance (Cap. 4).

On 23 November 2018, Jumi and Haixin obtained another ex parte Mareva injunction against SHK also on Chabra basis and pursuant to s. 21M, with the practical effect of increasing the quantum under the first injunction to the tune of RMB 132 million for the benefit of all the Plaintiffs.

In essence, the Plaintiffs obtained the injunctions on the following bases:

a. The Plaintiffs had good arguable cases for obtaining judgments in the proceedings in mainland China which would be enforceable in Hong Kong.
b. There was good reason to suppose SHK was a debtor of SIM, so that the assets held in the name of SHK would be enforceable by the courts and made available to satisfy a judgment against SIM. In particular, the Plaintiffs relied on payment records which showed myriad transfers made by SIM to SHK which were stated to be “long-term share capital investments”, totaling RMB 117.7 million (the “Transfers”), evidenced by the “constant stream” of the Transfers which had been made from SIM to SHK from December 2015 to November 2017.
c. There was a risk of dissipation. The Plaintiffs alleged that Mr Yuan, the beneficial owner and shareholder of SIM, was a man of low commercial morality, and there had been “an ominous and coordinated scheme” on his part to take control of SHK and its subsidiaries in order to dispose of their assets, such as allotment of shares in SHK to his companies and appointment of these companies to the board of SHK. In particular, in order to bolster their claim of Mr Yuan being a man of low commercial morality, the Plaintiffs highlighted the fact they had recently discovered that Mr Yuan had been put on the Mainland register of fugitives (the “Purported Register”) available for download from the Beijing Public Security Bureau’s official website.

On 31 July 2019 and 1 August 2019, the Plaintiffs sought to continue the injunctions, whilst Boase Cohen & Collins acted for SHK to oppose the continuation of the injunctions and seek their discharge, and alternatively, fortification of the Plaintiffs’ cross-undertaking as to damages if the injunctions should be continued.


Chan J has helpfully summarised the principles for the grant of injunctions under the Chabra jurisdiction in paragraphs 7-8 of the decision:

7. “The principles for the grant of injunctions under the Chabra jurisdiction are not disputed (XY, LLC v Jesse Zhu [2017] 5 HKC 479 adopting PJSC Vsekrainskyi Atsionernyl Bank v Maksimov [2013] EW HC 422 (Comm)). As summarised and emphasised by the Court in Company A v Company D [2019] HKCFI 367 at paragraph 68, the jurisdiction is exceptional and should be exercised with caution, taking care that it should not operate oppressively to innocent third parties who are not substantive defendants and have not acted to frustrate the administration of justice.
8. In addition to showing that there is good reason to suppose that the relevant defendant against whom the plaintiff asserts no cause of action…holds or has exercised a power of disposition over or is otherwise in possession of the assets of the defendant who the plaintiff asserts to be liable on his substantive claim…or that the assets held in the name of the [defendant] would be available to satisfy an award against the [plaintiff], the plaintiff must also establish a real risk of dissipation of the assets, and that it is just and convenient to grant the injunction sought (XY, LLC).”

Grounds for Discharge

No proper basis for Chabra jurisdiction

SHK argued that the Plaintiffs’ case on Chabra basis before the ex parte judges was plainly wrong. On the evidence, the payments made by the Transfers on which the Plaintiffs relied were not shareholder’s loans from SIM to SHK, but subscription price paid by SIM to SHK for allotment of new shares to SIM.

The Plaintiffs accepted SHK’s argument and instead asked the Court to exercise its Chabra jurisdiction in reliance of the draft audit report for the year ended 31 March 2018 adduced by SHK, which shows that there were “current liabilities” of HK$206.3 million owed to SIM as SHK’s ultimate holding company, making SIM a creditor of SHK. Such reliance was only raised and disclosed at the eleventh hour, ie a few days before the hearing.

SHK argued that the Plaintiffs should not be allowed to rely upon another basis that was not advanced at the ex parte stage, referring to the strict approach adopted by Ribeiro PJ in Kayden Ltd v SFC (2010) 13 HKCFAR 696 at paragraphs 35-36 in the analogous context of an ex parte application for leave to serve out of jurisdiction under Order 11.

Chan J accepted SHK’s argument and held that it would be unfair and unjust to entertain the new basis the Plaintiffs sought to rely upon. Her Ladyship ruled that the same strict approach in Kayden should be adopted, noting the extraordinary nature of the long-arm jurisdiction asserted under both s. 21M and Order 11 and the fact that the Court acts on the face of the plaintiff’s representations at the ex parte hearing.

No risk of dissipation

Further, SHK argued that the Plaintiffs had failed to show any risk of dissipation.

SHK first submitted that the allegedly “ominous and coordinated scheme” implemented by Mr Yuan was a defensive scheme to thwart the attempts of the Plaintiffs to seize control of SHK and to preserve his control over and his interests in SHK against the threats from the Plaintiffs and the former directors of SHK.

The most salient feature of this scheme, as SHK explained, was that it was done in broad daylight. All relevant public filings were duly made, and a clear and comprehensive explanation had been given, through solicitors, to the SFC. It was far cry from a scheme to dissipate assets to avoid judgment (when there was not even a claim against SHK).

SHK then submitted that Mr Yuan had no knowledge that he was a wanted fugitive and gave examples of instances inconsistent with any intention or act of absconding.

In reliance of its expert opinion, SHK further submitted that the Purported Register could not be a printed copy of the record from the Bureau’s website as alleged, as information on fugitives and persons under arrest were not public information but confidential information to which only the Bureau had access. This cast doubt on the authenticity and reliability of the Purported Register.

It was then the Plaintiffs clarified that they had not obtained the Purported Register from the Bureau’s official website, but from an unidentified officer of the Bureau from the Bureau’s portal.

Chan J found that the Plaintiffs’ initial statement that the Purported Register was a printed copy of the record from the Bureau’s website would have misled the ex parte judges, as such statement suggested that the document was a matter of public information.

Further, Chan J referred to The Export-Import Bank of China v Liu Qingping [2018] HKCFI 1840, noting that the description of a person as being of an “unacceptably low standard of commercial morality” or “questionable integrity” was a very serious allegation, for which the Court would expect nothing less than cogent proof.

Having scrutinised the Purported Register in greater detail, her Ladyship disagreed that the document was cogent evidence of dishonest propensity or low commercial morality on the part of Mr Yuan.

Material non-disclosure

In addition, SHK argued that there were egregious material non-disclosures, particularly in respect of risk of dissipation, before the ex parte judges.

Chan J accepted SHK’s submission. In particular, Her Ladyship found that the Plaintiffs had failed to make full and honest disclosure of when they first found out about Mr Yuan’s alleged abscondence and how they obtained the Purported Register. This also went to the issue of whether there was a delay in the Plaintiffs’ application for the injunctions. Her Ladyship also found that the Plaintiffs had failed to disclose the ongoing corporate wrangling between Mr Yuan on the one hand and the Plaintiffs and the former directors of SHK on the other which prompted Mr Yuan to implement what the Plaintiffs called “an ominous and coordinated scheme”. Such material non-disclosure led to an unfair presentation of the existence of a risk of dissipation.


In light of the above, Chan J discharged the injunctions on the grounds of lack of proper basis for the Court to invoke its Chabra jurisdiction, lack of evidence of risk of dissipation, and material non-disclosure of the circumstances of obtaining the Purported Register which Her Ladyship considered deliberate with no acceptable excuse given.

The Court’s decision serves as an important reminder that the Court acts on the face of the plaintiff’s representations made to it when granting ex parte injunctions. In the circumstances, it is all the more important for a plaintiff to comply with its ongoing duty to make full and frank disclosure to the Court of all material matters within its knowledge that will have an impact on the Court’s decision, including the basis upon which the exceptional jurisdiction of the Court to grant a Chabra injunction is invoked and circumstances in respect of the risk of dissipation.


Partner, Lewis Silkin Hong Kong

Associate, Lewis Silkin Hong Kong