Freezing Assets of a Non-Defendant – Chabra Injunctions in the Hong Kong Court of Appeal

A court may make an order freezing a person’s assets even if that person is not a defendant to proceedings and even if the plaintiff has no cause of action against that person.  Such an injunction is called a “Chabra” Injunction, after the seminal case of TSB Private Bank International SA v Chabra [1992] 1 WLR 231. A Chabra Injunction is granted where there has been a freezing injunction (otherwise known as a Mareva Injunction) made in respect of the assets of a defendant to the substantive action, and it appears that the assets of the non-defendant are ultimately beneficially owned in fact by the defendant. The Hong Kong Court of Appeal reaffirmed the test for a Chabra Injunction in XY, LLC v Jesse Zhu [2017] 5 HKC 479.

The test for a Chabra Injunction is whether there is a good arguable case that the non‑defendant’s assets are in fact the assets of a substantive defendant. The court can make such an order where there is ‘good reason’ to suppose that these assets would ultimately be available to satisfy a judgment against the defendant to the plaintiff’s substantive claim.

In XY, LLC v Jesse Zhu, a freezing injunction was obtained against the first defendant, Jesse Zhu, and a Chabra Injunction was obtained against a non-defendant company registered in the BVI, Grand Network Technology Limited (GNT). The plaintiff had obtained a monetary judgment against the defendants to the substantive claim, which included Mr Zhu. However, the plaintiff believed that GNT had assets in a Hong Kong bank account, which were in fact assets beneficially owned by Mr Zhu (even though Mr Zhu had never been a shareholder or director of GNT).  The plaintiff then obtained a freezing injunction against Mr Zhu and a Chabra injunction against GNT (amongst others). An application by GNT to discharge the Chabra injunction was refused, and GNT appealed that decision.

On appeal, Kwan JA in the Court of Appeal applied a decision in the High Court of Australia, Paul Cardile v LED Building Proprietary Ltd (1999) 198 CLR 380, which stated that a Chabra Injunction may be ordered where “the third party holds, is using, or has exercised or is exercising a power of disposition over, or is otherwise in possession of, assets, including “claims and expectancies”, of the judgment debtor or potential judgment debtor”.

The Court of Appeal found that there was sufficient evidence that the assets in Mr Zhu’s Hong Kong bank account belonged beneficially to Mr Zhu based on the following evidence:

1. It was “highly significant” that Mr Zhu was in control of GNT’s Hong Kong bank account, was operating it and was free to use the monies in it as he wished [44].
2. There was an email showing that the assets of Mr Zhu were to be transferred to GNT in order to avoid the execution of Mr Zhu’s judgment debts, which was significant, even though the plaintiff could not show the assets being actually transferred [45].
3. GNT were unable to provide any information as to when and in what amounts the assets in the Hong Kong bank account came to be deposited and the Court of Appeal commented that they would have expected to see a paper trail evidencing transfers [46].

Leave to appeal was refused by the Court of Appeal on 29 March 2017 (XY, LLC v Jesse Zhu [2017] HKCA 132). The Court of Appeal reiterated that the test for a Chabra Injunction is “a good arguable case” that the assets of the non-defendant are in fact those of the defendant and where that is established, logically there will be good reason to suppose that those assets would be amenable to some enforcement process.  Leave to appeal was also refused by the Court of Final Appeal on 15 August 2017 (Grand Network Technology Ltd v XY, LLC [2017] HKCFA 45).