Affirming the Threshold of Success of a Good Arguable Case for Interim Injunctions in Target Insurance Co. Ltd v. Ng Yu & Others
Introduction
In Target Insurance Company Limited v. Ng Yu & Others (2025) HKCA 150, Target Insurance Company Limited (the Plaintiff), once being Hong Kong's largest taxi and motor insurer, is bringing civil proceedings against 6 defendants who / which have perpetrated an elaborate scheme of massive fraud against the Plaintiff, resulting in misappropriation of significant funds in the amount of approximately USD154 million.
In 2022, the Honourable Mr. Justice ST Poon granted the Plaintiff's application for (i) an ex parte proprietary injunction against D2 to D5 (the Proprietary Injunction) and (ii) a Mareva injunction against D1 and D6 (the “Mareva Injunction”, collectively the “Injunctions” with the Proprietary Injunction). The Injunctions had been continued by subsequent court orders until the Mareva Injunction was discharged against D1 only by Deputy High Court Judge Burns SC (the Deputy Judge) in early 2023. Consequently, the Plaintiff appealed to the Court of Appeal (the Court) to challenge the discharge of the Mareva Injunction against D1.
In granting the Plaintiff's appeal and reinstating the Mareva Injunction against D1, the Court of Appeal has taken the opportunity to provide clarity on the threshold of success for a good arguable case which a Plaintiff has to satisfy in order to sustain an interim injunction order.
Background
The Plaintiff is an authorised insurer in Hong Kong and a wholly owned subsidiary of the Hong Kong-listed Target Insurance (Holdings) Ltd (TIHL). Prior to the Plaintiff's insolvency (which was caused by the fraud perpetrated against it), the Plaintiff had been a leading figure in the Hong Kong taxi insurance market.
In early 2020, D1 (Mr. Ng Yu) became a substantial shareholder of TIHL, holding 22.19% of its issued shares. He also periodically served as the Chairman and Executive Director of TIHL between late 2020 to 2022. At all material times, D2 to D5 were corporate entities wholly owned by D1, who also served as a director of the D3 to D5.
In gist, the fraud involved the Plaintiff being procured to transfer massive amounts of monies (totaling 90% of its cash) to a managed account maintained by the Plaintiff with Nerico Brothers Limited (NBL), a brokerage firm in Hong Kong. The defrauded sums were then allegedly transferred to D2 and further dissipated to various bank accounts held in the names of D2, D3, D4 and D5.
D6 (Mr. Lee Cheuk Fung Jerff) was an employee and later a director of NBL, amongst other things. There is also evidence of D6's business relationship with D1 and/or corporate entities owned and controlled by him, as D6 was found to have held the position of Chief Financial Officer and licensed representative of D5 to facilitate D1's intended acquisition of NBL. It is the Plaintiff's case that D6 was involved in perpetuating the fraud against the Plaintiff by inter alia utilising NBL as the first layer recipient of the defrauded sums.
In considering the Plaintiff's application to continue the Injunctions as well as the application of the 1st, 3rd and 4th Defendants to discharge the same, the Deputy Judge decided to continue the Injunctions against D2 to D6, holding inter alia that (i) there is a serious issue to be tried that D2 to D5 had received the defrauded sums pursuant to a fraudulent scheme, (ii) D6 was either the “architect” of the fraudulent scheme or had dishonestly assisted in it, or he was part of a conspiracy to misappropriate the sums; (iii) given the fraud involved, there was a risk of dissipation of assets on the part of these defendants.
On the other hand, the Deputy Judge decided to discharge the Mareva Injunction against D1, citing insufficient evidence to link D1 to the fraudulent scheme and noting D1's lack of control or influence over NBL. The Deputy Judge reasoned that, among other things, it would be inconceivable for D1 to have used entities (i.e. D2 to D5) which were easily traceable to himself to perpetrate any fraud. The Deputy Judge was also not satisfied that there is a real risk that D1 might dissipate his assets without the Mareva Injunction.
Decision of the Court of Appeal
In this appeal, the Plaintiff contended that the Deputy Judge erred in finding that the Plaintiff had not demonstrated a good arguable case against D1 (Appeal Ground 1) and in holding that there was no risk of dissipation by D1 (Appeal Ground 2). The Plaintiff has succeeded on all grounds of appeal.
Appeal Ground 1: Good Arguable Case
The Court of Appeal found that the Deputy Judge had singularly failed to consider the undisputed evidence of D1's role as the sole shareholder and/or director of D2 to D5, and the business relationship between D1 and D6. These are relevant factors in determining whether the Plaintiff has shown a good arguable case, especially when it is “against commercial and common sense” that for whoever in control of D2 to D5 to have acted on a frolic of their own without involving D1, who ultimately stands to benefit from the whole fraudulent scheme.
While the Court acknowledged the force of some of D1's submissions in rebuttal of Appeal Ground 1, it emphasised that the Court only needs to be satisfied that there is a good arguable case, meaning a case that is “more than barely capable of serious argument” but not necessarily one with a better than 50% chance of success. The Plaintiff does not need to show a “much better” case than D1 as the presence of a good arguable defence does not negate a good arguable case. On available evidence, the issue of whether D1 (as the ultimate sole owner of D2 to D5) is the mastermind behind the alleged fraudulent scheme is plainly triable.
Appeal Ground 2: Risk of Dissipation
Upon determining that the Plaintiff has established a good arguable case against D1, the Court found it relatively more straightforward to reach its decision on Appeal Ground 2. The Court referred to its prior ruling in Convoy Collateral Ltd v Cho Kwai Chee & Ors (2020) 6 HKC 81:
“That question is to be answered by examining the evidence holistically. Evidence of dishonest and fraudulent conducts or other serious wrongdoings which form the basis of the claims, and which reflect adversely on the integrity of the defendant could point powerfully towards an inference of such risk.”
In other words, once it has been accepted that there is a good arguable case against D1 for orchestrating an elaborate fraudulent scheme through D2 to D6 to misappropriate the Plaintiff's funds, it is self-explanatory and logically follows from the fraud itself that there is a clear risk of dissipation in respect of D1.
Key Takeaways
As emphasised by the Court of Appeal, the Court's decision to refuse an injunction involves the exercise of judicial discretion, and the appellant court will not lightly interfere with such exercise of discretion unless it is an error in law or a misapplication of the law.
In fraud cases, given the serious risk of fraudsters dissipating proceeds and rendering themselves judgment proof pending trial, it is often important for victims of fraud to secure and maintain effective interim injunctive relief against the perpetuators of fraud in the course of the proceedings. Failure to do so could cast a shadow over the victim's prospects of recovering defrauded monies even if the trial is ultimately won. The ease and cost-effectiveness of any enforcement proceedings could also be adversely affected. The Court of Appeal's clarification of the threshold for showing “a good arguable case” in injunction cases is welcomed as it ensures that victims of fraud are not faced with an unreasonably high hurdle at the interlocutory stage. It is not fatal to an interim injunction that the defendants are able to raise some reasonable arguments or countervailing factors against the continuation of an injunction order.
Furthermore, the Court of Appeal has demonstrated that it adopts a holistic approach in evaluating the whether the Plaintiff has shown a good arguable case and whether there is risk of dissipation, considering inter alia the overall context of the case, the evidence of dishonest and fraudulent conduct of the defendants, all information on the relationships between the co-defendants, as well as commercial and common sense. This highlights the essential ingredients for successful application and maintenance of interim injunctions: robust investigation and preparation work by victims of fraud in respect of all defendants including their interconnections, as well as comprehensive and clear presentation of the relevant factual findings to the Court by the legal team.
