Injunctions – extended Mareva injunction based on “Chabra” jurisdiction – defendant’s substantive control over assets held by third party not sufficient to invoke “Chabra” jurisdiction – ultimate test was whether good reason to suppose that assets held by third party would be amenable to execution of judgment obtained against defendant
P1 was the holding company of a group of subsidiaries (including P2) and was now in compulsory liquidation. In 2009, it was discovered that D1, the former Chairman and CEO of P1, misappropriated more than HKD5 billion from Ps by means of fictitious transactions over the years with the assistance of D2–13. D13 was a corporate vehicle of D1. In 2013, Mareva injunctions were obtained against D1–13. In June 2014, the Mareva injunctions were extended to 13 companies in which D1 allegedly held substantial assets through his relatives and close associates. Among those companies was C, a company owned by R1–3 (D1’s daughters studying in universities in London), all of whom purportedly received a loan of USD82 million from D13. In August 2016, the injunctions were extended to Rs as third parties on the basis of the Chabra jurisdiction so that they were not allowed to dispose of or deal with the assets belonging to D1/D13 or assets acquired through the use of funds provided by D1/D13 or assets which D1/D13 had the power to direct, dispose or deal with or assets held in accordance with their instructions; in particular R1 was restrained from dealing with a property in London (the “Property”) or its proceeds (the “Freezing Order”). Ps applied for the continuation of the Freezing Order against Rs. Rs applied for its discharge or alternatively variation, contending that the Freezing Order was too wide in scope.
Held, allowing Ps’ application subject to certain deletions in the Freezing Order, allowing Rs’ application for variation of the Freezing Order to that limited extent, that:
- While “substantial control” by a defendant of the asset of a third party might well be a factor, or even a strong factor, in favour of the inference that the asset in fact belonged to the defendant in a suitable factual situation, “substantive control” was not itself sufficient to invoke the jurisdiction. The ultimate test was whether there was good reason to suppose that the assets held by the third party would be amenable to execution of a judgment obtained against the defendant.
- While assets acquired through the use of funds provided by D1/D13 were capable of giving rise to the inference that the assets under consideration in fact belonged to D1/D13, a distinction should be drawn between a piece of evidence adduced for proving a certain matter and the matter itself. In respect of assets which D1/D13 had the power to dispose of or deal with as his own asset and assets held in accordance with the instructions of D1/D13, they were different ways of saying that the asset concerned was subject to the “substantial control” of D1/D13. As assets in each of these categories was not necessarily amenable to execution of a judgment obtained against D1/D13, their presence in the Freezing Order went beyond what was permitted pursuant to the jurisdiction and should be struck out.
- The remainder of the Freezing Order against Rs was not defective. Rs were young and did not have business or financial resources of their own. The inferences were that nearly all they had was given to them by their close relatives and that they should know where their assets came from. Since there was nothing to suggest that Rs had received any substantial assets from anyone other than their parents and their grandmother, the possible sources of Rs’ assets were very limited. The task for Rs to ascertain the source of their assets was not impossible. The alleged “secret gift” of shares in C by D1 to Rs, coupled with the fact that Rs were D1’s daughters, gave rise to at least good reasons to suppose that D1 would have used them to hold assets for him.