In the recent case of China Merchants Bank Co Ltd, Taiyuan Branch v Cai Sui Xin (HCMP 2911/2016), the Hong Kong Court of First Instance (CFI) has confirmed that a security holder is entitled to exercise its power of sale over a defendant’s assets after the grant of a Mareva injunction and is, strictly speaking, not required to make any application to vary the injunction order although the court agreed that it would nevertheless be sensible to do so.


The Defendant directly and indirectly holds shares in General Nice Development (GND). In support of the Defendant’s commercial projects, charged assets were granted as security by GND to Prosper Talent Limited (Prosper Talent).

GND defaulted under the security. Prosper Talent subsequently exercised its powers of sale pursuant to the security agreement. As a result, part of the charged assets were sold in the open market.

However, the sale was effected notwithstanding that the Plaintiff had, prior to that, obtained a Mareva injunction against the Defendant, restraining him from disposing his assets up to RMB 150 million.

Prosper Talent, as a third party affected by the Mareva injunction, applied to the court to vary the Mareva injunction order so as to allow itself to exercise its rights to sell certain charged assets.


The key issue in this case was whether the CFI should refuse to entertain the variation application because Prosper Talent had already disposed of some of the charged assets after the granting of the Mareva injunction.

The Plaintiff contended that Prosper Talent should have sought the approval of the court before exercising its security rights and disposing the charged assets. As Prosper Talent had not done so, it was guilty of contempt. Until Prosper Talent purged its contempt, the court should not entertain its variation application.

Prosper Talent argued that it is under no duty to obtain the court’s permission to exercise its powers of sale. In particular, a power of sale exercised by a third party to dispose of the property is to be distinguished from a disposal by the defendant, which is caught by the Mareva injunction.

The defendant adopted a neutral stance in these proceedings but denied any allegations of collusion with Prosper Talent in disposing of the charged assets.


The CFI upheld Prosper Talent’s variation application and dismissed the Plaintiff’s arguments.

The judge considered that Prosper Talent has all along enjoyed an unchallenged security right over the charged assets which would take priority over any judgment debt owed by the Defendant to the Plaintiff. There was also no basis of collusion between the Defendant and Prosper Talent in the disposal of the charged assets. As such, Prosper Talent was not under a duty to make the variation application before disposing of the charged assets.

Practical considerations

Strictly speaking, a security holder is entitled to exercise its powers of sale even after the grant of a Mareva injunction, without the need to seek permission from the court. The court, however, reminded all third parties in a similar situation (as Prosper Talent in this case) that there is some good sense for making a variation application. Such an application will help protect a security holder from potential challenges to its security interests over a property. It also defeats, at the outset, any allegation of collusion between the defendant and the security holder.

Given a contempt of court allegation carries serious consequences, it is advisable for a security holder to obtain permission and an approval from the court to vary the injunction order well before exercising its powers of sale.

For more information, please contact Dominic Geiser, Jojo Fan or your usual Herbert Smith Freehills contact.


Dominic Geiser
Dominic Geiser
Partner, Hong Kong
+852 2101 4629
Jojo Fan
Jojo Fan
Senior Associate, Hong Kong
+852 2101 4254