UNIVERSAL EXPORTS GROUP LTD v. ZECHIN TECHNOLOGY CO LTD

HCA 2613/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2613 OF 2016

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REASONS FOR DECISION

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Introduction

1.  On 7 October 2016, the plaintiff issued the writ against the defendant.

2.  On the same date, the plaintiff applied ex parte and obtained a Mareva injunction against the defendant.

3.  On 11 October 2016, the plaintiff issued an inter parte summons for the continuation of the Mareva injunction until trial or further order.

4.  The plaintiff’s inter parte summons came before me on 14 October 2016.  I made the following orders:

(1)   The injunction order dated 7 October 2016 be discharged.

(2)   The summons dated 11 October 2016 be dismissed.

(3)   Costs of ex parte application and inter parte application be borne by the plaintiff.

5.  My reasons are as follows.

The plaintiff’s affidavit evidence on “good financial condition”

6.  Mr Andrew Leigh Sack, the sole director of the plaintiff, deposed in §17 his affidavit sworn on 7 October 2016 as follows:

“17. In particular, the Plaintiff agrees to give undertakings as to damages to the Defendant should it transpire that any ex-parte injunction should not have been granted. I submit that the plaintiff has a good financial condition. A copy of its draft Income Statement made up to 31 August 2015 and a copy of extracted pages from its draft accounts which has been reviewed by the auditor but has not yet been signed are produced and shown to me at the Exhibit Bundle ‘ALS‒2’ [EB/24–29]. As can be seen, as at 31 August 2016, the Plaintiff was making a profit of USD 1,166,166.45. For the year ended 31 August 2015, the profit made by the Plaintiff was HK$10,661,530.”

7.  That was the only affidavit evidence on the plaintiff’s financial condition.

The plaintiff’s skeleton submissions

8.  The “Skeleton Submissions for the Plaintiff (For the ex‑parte hearing on 7.10.2016)” was completely silent on the plaintiff’s financial condition.

9.  The “Skeleton Submissions of the Plaintiff” for the inter parte hearing was also completely silent on the plaintiff’s financial condition.

Plaintiff’s evidence on financial condition for inter parte hearing

10.  The plaintiff did not file any evidence on its financial condition for the inter parte hearing.  More importantly, there was no explanation for the half‑truths (see below) quoted in §6 above.

Full and frank disclosure

11.  A party making an ex parte application has the duty to make full and frank disclosure on all material matters.  The primary duty is to disclose on affidavit evidence.  The duty is not discharged by making partial disclosure on oath or deposing to half truths.  When an applicant makes a statement on oath, the court should be entitled to assume:

(1)   the statement is borne out by the documents exhibited in support; and

(2)   more importantly, the statement is not contradicted by documents exhibited.

12.  In other words, the court is entitled to assume that the applicant acts with utmost good faith, failing which the position of the ex parte judge would be extremely difficult, if not impossible.

13.  In Standard Charter Securities Limited (formerly known as ChinTung Limited) v Arthur Lai and others, HCA 2757/1993, 28 April 1993, Woo J (as he then was) referred to Gee on Mareva Injunctions and Anton Piller Relief, 2^nd Ed, where at p 81, the learned author stated:

“It may not be a sufficient answer to an allegation of non‑disclosure for a plaintiff to say that the relevant information giving rise to the defence was contained in an exhibit, though not referred to in the body of the plaintiff’s affidavit in the context of a possible defence. Exhibits to such affidavits are often voluminous, and since ex parte applications for Mareva or Anton Piller relief are often dealt with comparatively shortly and the judge may not have had the opportunity of considering the papers in detail before the hearing, the applicant has the responsibility of ensuring that all relevant points are presented clearly and distinctly. Thus in Siporex Trade SA v. Comdel Commodities Ltd [1986] 2 Lloyds’ Rep 428 at p.437, Bingham J said that the applicant must ‘identify the crucial points for and against the application, and not rely on the mere exhibiting of numerous documents.’ Any contractual provision (e.g. an exclusion clause) which is relevant to the court’s consideration of the application should be referred to and preferably set out in the body of the affidavit. It will not usually be sufficient simply to exhibit the entire contract.

Accordingly, it is of the utmost importance that the plaintiff carefully considers the nature of the cause of action and the facts on which it is based before formulating the application.  A thorough check should be made to ensure that all defences actually raised by the defendant are identified and fairly summarised in the affidavit.”

The unaudited and unsigned financial statements

14.  Returning now to §17 of Mr Andrew Leigh Sack’s affidavit, while the unsigned “Income Statement for the year ended 31 August 2015” did show “Profit / (Loss) for the year” of HK$10,661,530, it also showed “Accumulated losses brought forward” of (HK$16,494,637) and “Accumulated losses carried forward” of (HK$5,833,107).  The “General and administrative expenses” dropped from HK$23,264,253 for the preceding year to HK$12,841,938.

15.  The unsigned “Balance Sheet as at 31 August 2015 showed “Net current liabilities”, “Net liabilities” and a “Shareholder’s deficit” of (HK$5,823,107).  Plainly as at 31 August 2015, the plaintiff was insolvent and unable to pay its debts.  Of the “Current assets” of HK$92,210,853, HK$8,938,003 was “Amount due from a director” and HK$1,297,380 was“Amount due from related companies”.  ‌In view of the director’s indebtedness to the plaintiff of HK$8,938,003, it was questionable whether the director had the financial ability to keep the plaintiff as a going concern.  If the director should sink, the plaintiff might sink with it.

16.  There was no evidence that the auditors gave an unqualified audit opinion.

17.  No person in his right mind would say that “the plaintiff has a good financial condition” as at 31 August 2015.

18.  There is a one‑page “Profit and Loss Report (Year end [sic] August 31 2016)” showing “Profit / (Loss)” of “US$1,166,166.45 ”.  The figures in the financial statements for year ended 31 August 2014 and year ended 31 August 2015 were all in HK$. The figures in the one‑page“Profit and Loss Report (Year end [sic] August 31 2016)” were all in US$.  The “Profit and Loss Report” was also in a completely different format from the “Income Statement” for the preceding two years.

Conclusion

19.  There is no evidence on the net asset value or the shareholder’s deficit of the plaintiff as at 31 August 2016.

20.  Given the terrible financial condition as at 31 August 2015, the plaintiff should have produced cogent evidence on its net worth as at 31 August 2016 or time of the ex parte application. What was placed before the ex parte judge was the half‑truths which were highly misleading.

21.  I am driven to the conclusion that the plaintiff has failed in its duty to make full and frank disclosure before the ex parte judge.  The plaintiff took no step to redeem itself at the inter parte stage.

22.  I was firmly of the opinion that the ex parte injunction should be discharged and that no fresh injunction should be granted.  That was why I made the orders referred to in §4 above.