Freezing Orders and Injunctions under the Hong Kong Civil Justice Reform

 We regularly receive inquiries from lawyers and clients worldwide asking whether it is possible to freeze bank accounts or seize assets in Hong Kong in aid of foreign proceedings. In most cases, the defendant is not a resident in Hong Kong but may have bank accounts or other assets in the territory. Until recently, the usual advice was that if the substantive proceedings or the defendant itself had no connection to Hong Kong, it was unlikely that the Hong Kong Courts would exercise jurisdiction to grant a pre-judgment injunction/freezing order in aid of foreign proceedings. That position has now changed, however, and changed quite radically.

Hong Kong is undergoing a process of Civil Justice Reform. This came into effect on April 2, 2009. The Hong Kong Courts now have clear statutory power to grant interim injunctions against a foreign defendant who has assets located within Hong Kong, regardless of whether or not the substantive dispute has a nexus with Hong Kong or the defendant is domiciled or present. A claimant can therefore now apply to the Hong Kong Courts for a “Mareva”/freezing order style injunction to restrain a defendant from dealing with or disposing wholly of its assets, whether they are monies on account, goods, or real properties, etc. Any third party that holds, possesses, or has control of such assets are also subject to the injunction proceedings.

Civil Justice Reform (“CJR”)

The issue as to whether the Hong Kong Courts should have power to grant interim relief—including an interim injunction in aid of foreign proceedings—was reviewed prior to the enactment of CJR. The general view in the legal community was in support of such reform.

In order to accomplish this, amendments were made to the High Court Ordinance and Arbitration Ordinance so that the Hong Kong Courts now have the power to grant interim relief in the absence of substantive proceedings—including an interim injunction—against the defendant, restraining it from dealing with its assets within the Hong Kong High Court jurisdiction. This effectively reverses the House of Lords’ decision in Siskina in which Lord Diplock stated that an interim injunction was not a cause of action by itself and could not stand on its own, but was ancillary and incidental to a pre-existing cause of action. Although this decision did not go without attracting criticism, it had been generally followed by the Hong Kong Courts. No more.

Current Position

Nowadays, monies can be transferred electronically and goods can move across borders very quickly. The Hong Kong “view” now appears to be that it is a commercial necessity for Courts of different jurisdictions to cooperate and assist each other to prevent foreign defendants from defeating a judgment by transferring or moving assets out of the jurisdiction.

The following examples are circumstances where it now may technically be possible to apply in Hong Kong for an injunction:

• A Panamanian shipowner enters into a charterparty with a Bangladesh charterer for the chartering of a vessel. The charterer defaults by failing to pay hire. The charterparty is governed by English law, with any disputes to be referred to arbitration in London. The charterer has no assets, save for monies in a bank account in Hong Kong. The shipowner can now apply to the Hong Kong Court for an injunction/freezing order to restrain the charterer from dealing with the monies in the bank account.

• A Chinese shipping company charters vessels from various German shipowners. The shipping company defaults by failing to pay hire relating to various vessels. The shipowner discovers that the shipping company has set up BVI companies to hold real property in Hong Kong. The shipowner can apply for an injunction/freezing order prohibiting the shipping company and the BVI companies from selling the real property and also removing any rental monies from Hong Kong bank accounts.

• The plaintiff is incorporated in California. The defendant is a BVI registered investment company. The plaintiff alleges that it was persuaded to enter into a fraudulent scheme to invest in a deal to purchase a hospital in Los Angeles. The plaintiff commences civil action in California. Through discovery proceedings, the plaintiff manages to obtain information that his investment monies were remitted to the defendant’s bank account in Hong Kong. The plaintiff can apply to the Hong Kong Court for an injunction/freezing order against the defendant to restrain the defendant from dealing with, or disposing of, the funds in the Hong Kong bank account.

• The Plaintiff is a Singaporean investment company and the defendant was an employee of the same. The plaintiff received client complaints that the defendant carried out unauthorized shares transactions that resulted in substantial losses to the clients. The defendant disappeared and the plaintiff was unable to contact him. The plaintiff commenced legal proceedings in Singapore seeking damages from the defendant. After a series of asset tracing exercises, it is found that a substantial sum of monies was transferred from the defendant’s bank account in Australia to his wife’s father’s bank account in Hong Kong. The plaintiff can commence legal proceedings in Hong Kong to apply for an injunction/freezing order against the defendant and his father-in-law from removing the monies out of the bank account.

Prior to the enactment of CJR, it would have been difficult to have successfully pursued and frozen assets in the examples set out above.

While the enactment of CJR may not result in Hong Kong becoming a “hot spot” like New York (with regard to the use of Rule B actions), it is thought that the number of applications for injunctions/freezing orders to the Hong Kong Courts may well increase.

A comparison between the two jurisdictions is set out in the table below.