Frozen – or let it go?
This is a common scenario:
You’ve been wronged and are gearing up to make a claim.
Still, you’re worried the defendant may be transferring their assets before you can obtain a judgment, or even if the claim succeeds, the defendant may not have sufficient assets to satisfy any judgment.
What can you do?
Research the defendant
It’s usually advisable to do some research into the status of the defendant before commencing a claim.
In particular, you should check whether the defendant has an established presence or substantial assets in the jurisdiction.
A number of investigative agencies in Hong Kong offer asset search services, but there is a limit to which records are accessible by the general public.
Property transaction search is the most common; litigation search, private company directorship/shareholding search, and listed company substantial shareholding search may also reveal useful information.
Asset-freezing injunction
If you manage to find assets belonging to the defendant, the next question is how you can make sure those assets do not become depleted as litigation proceeds.
The Hong Kong Court has the power to grant an injunction order to freeze the assets of a defendant at any stage during the proceedings, either before or after judgment. This is commonly referred to as “Mareva Injunction”.
However, an asset-freezing injunction will not be granted lightly by the Court.
It has been held that the purpose of an asset-freezing injunction is not to provide the claimant with security; it is to restrain a defendant from evading justice by disposing of or concealing assets otherwise than in the normal course of business in a way which will have the effect of making it judgment proof.
The merits of the claim are only one of the factors taken into account by the Court when deciding whether to grant an injunction.
Another key factor, is whether it can be shown there is a real risk the defendant will dissipate their assets, or remove assets from the jurisdiction, which would render any judgment ineffective.
There are a few matters to bear in mind when assessing if there is sufficient risk of dissipation[1]:
- The burden is on the claimant to objectively show a solid basis for concluding there is a real risk of unjustified dissipation of assets by the defendant.
- The evidential burden to establish risk of dissipation can be satisfied by drawing proper inferences from a holistic consideration of all the circumstantial materials that are indicative of risk, including matters which point against such risk. Matters like the nature of assets held by the defendant, the nature and financial standing of the defendant, past or existing credit history, and the defendant’s behaviour in respect of the claim can be indicative of the risk of dissipation.
- Evidence of dishonest and fraudulent conduct or other serious wrongdoing which form the basis of the claims and which reflect adversely on the integrity of the defendant could be a powerful pointer towards an inference of such risk. However, it is necessary to scrutinise the evidence before drawing such an inference.
- The simple fact a defendant is not forthcoming about their financial position is not enough to support a case for dissipation. Evidence of a defendant just making excuses to get out of a bargain, or a contract without solid evidence pointing to dishonesty or an attempt to conceal inventory or proceeds, or the existence of coercion or duress, has been held not necessarily relevant to a risk of dissipation.
- Whether there is any delay in making the application is also relevant. In particular, the fact a defendant gained knowledge of a plaintiff’s claim can militate against the risk of dissipation, as the defendant would already have the opportunity to dispose of assets should they were inclined to do so.
Where a sufficient risk of dissipation can be shown, the claimant may apply for an asset-freezing injunction on an “ex-parte” basis to militate against the risk, meaning the application is only made by the claimant in Court without informing the defendant. In these circumstances, the claimant has a duty of full and frank disclosure and must fully and accurately disclose all relevant facts and circumstances to the Court, even if such disclosure may not be favourable to the claimant.
What if I cannot freeze the defendant’s assets?
If you are unable to obtain an asset-freezing injunction, it does not mean there is nothing you can do.
If you know the defendant has assets in Hong Kong, you can conduct regular checks and monitor the status of those assets.
Any significant or unusual change might justify taking action.
For example, if the defendant owns landed property, you can conduct regular searches of the Land Register to see if any sell agreement has been registered there.
Separately, if the case involves fraud or any other criminal element, you should consider filing a report with the Hong Kong Police.
In appropriate cases, especially where the Police take the view the defendant’s assets, for example, a bank account, potentially represent the proceeds of crime, they can take steps to freeze those assets independent of any civil claim.
Disclaimer: This article is provided for information purposes only and does not constitute legal advice. Specialist advice should be sought about your specific circumstances.
[1] Convoy Collateral Ltd v Cho Kwai Chee [2020] 6 HKC 81; China Medical Technologies Inc (in liquidation) v Wu Xiaodong [2022] HKCA 41
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