XCHRX YAU CHIU WAH v. GOLD CHIEF INVESTMENT LTD. AND ANOTHER

HCA807/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 807 OF 2001

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J U D G M E N T

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THE APPLICATIONS BEFORE THE COURT

1. By a Writ dated 20 February 2001, the plaintiff claims against the 1st defendant the sum of $4.95 million, this being the outstanding balance of a loan made by the plaintiff to the 1st defendant under a loan agreement dated 6 November 2000 ("the Loan Agreement"). The plaintiff also claims that sum by reason of the dishonour of a cheque in the amount of $5.75 million drawn in favour of the plaintiff by the 1st defendant (in respect of which the plaintiff gives credit for $800,000). The endorsement of claim was subsequently amended on 26 March 2001 to include a claim for rectification. The relevance of this will become apparent later in this judgment.

2. On 19 February 2001 (the day before the Writ was issued), the plaintiff obtained against the 1st defendant an ex parte Mareva injunction, which was granted by Waung J. The terms of this injunction were more or less in standard form and was limited to a ceiling of $4.95 million.

3. By a summons dated 20 February 2001, the plaintiff applied for a continuation of the injunction. By a summons dated 22 February 2001, the 1st defendant applied to set aside Waung J's order and discharge the Mareva injunction. The matter then went before Yeung J on 23 February 2001 on a normal summons' day, when the learned judge made an order discharging the injunction but only upon undertakings given by the 1st defendant effectively allowing the prohibitory aspects of the Mareva injunction to remain in place. Directions were also given for the service of affidavit evidence. Both summonses were adjourned to a date to be fixed.

4. At the start of proceedings, Mr C.Y. Li, for the plaintiff, submitted that the original injunction having been discharged by Yeung J, the 1st defendant's summons might somehow be redundant. The relevance of this was that as the 1st defendant was now running arguments based on material non-disclosure, a technical objection could be taken as to whether the court should entertain such arguments at all. However, Mr Li fairly said that he would not be taking this line and that he was prepared to argue the material non-disclosure point on its merits. Equally, it could be said of the plaintiff's summons that it was technically inaccurate to apply for a continuation of the original injunction when there was now nothing to continue. Mr Wither, for the 1st defendant, however takes no technical points either. Both parties' approach is with respect sensible.

5. In case, however, there is any doubt, I would only say this. The original injunction is in practical terms still in place in that, instead of an actual prohibition by order of the court, there is an order made by Yeung J expressly on the basis of undertakings proffered by the 1st defendant to which I have already referred. Furthermore, both summonses were expressly adjourned by Yeung J. In my view, they are alive and properly before me.

THE PLAINTIFF'S CLAIM

6. As pleaded in the Statement of Claim, the plaintiff alleges that in or about early November 2000, an oral agreement ("the Oral Agreement") was made between one Daisy Yeung ("Daisy Yeung") and Jenny Tam ("Jenny Tam") acting on behalf of the plaintiff, and one Tang Yau Sing, Gareth ("Gareth Tang") and Chiu Chiu Wing ("Chiu") acting for the 1st defendant, whereby the plaintiff was to lend $5 million to the 1st defendant for a term of three months, with interest payable at the end of that period at the agreed sum of $750,000. One of the securities for the loan was that the 1st defendant would charge 5 million shares ("the 5 million shares") which it held in a Hong Kong listed company called Prosper eVisions Limited ("PeV"). Another security was that the 2nd defendant would provide a guarantee.

7. The Oral Agreement was intended to have been formalised and put into writing by the following documents which were executed :-

(a) the Loan Agreement;

(b) a Guarantee dated 6 November 2000 executed by the 2nd defendant in favour of the plaintiff ("the Guarantee"); and

(c) an undated Charge of Listed Shares executed by the 1st defendant ("the Charge") in relation to the 5 million shares.

8. The Loan Agreement contained the following clauses dealing with the aspect of the security for the loan :-

"4.2 Security

In consideration of the Lender [the plaintiff], at the request of the Borrower [the 1st defendant], agreeing to advance to the Borrower the Loan, the Borrower shall deliver to the Lender the following as continuing security ('Security') for the due and punctual repayment of the Loan by the Borrower: -

(a) Listed Shares [the 5 million shares]; and

(b) An executed and undated Deed of Charge of Listed Shares;

(c) An executed and undated blank Instrument of Transfer in respect of the Listed Shares delivered by the Borrower to the Lender; and

(d) Corporate Guarantee of China Broadband Corporation Limited.

4.3 Release and discharge

The Lender shall return to the Borrower the Listed Shares; undated Deed of Charge of Listed Shares; undated blank Instrument of Transfer and Corporate Guarantee of China Broadband Corporation Limited delivered by the Borrower to the Lender as security as referred to in Clause 4.2 above immediately following full and valid repayment of the Loan.

....

6. DEFAULT INTEREST AND INDEMNITY

6.1 In the event of any failure by the Borrower to pay any amount at the time and in the manner specified herein or in the event of any breach or default of this Agreement then without prejudice to the other provisions and remedies of this Agreement, the Lender shall be entitled to cause the undated Instrument of Transfer delivered by the Borrower to the Lender as Security to be completed and cause the Listed Shares delivered by the Borrower to the Lender as Security to be redeemed. The Lender shall be entitled to use the sum of money received out of such redemption ('Redemption Money')) of the Listed Shares to set off the outstanding amount of the Loan otherwise repayable by the Borrower. The Lender shall refund to the Borrower all remaining balance of the Redemption Money immediately following such set-off. Such set-off shall be deemed to be full and valid repayment by the Borrower."

As stated above, the Guarantee was duly provided by the 2nd defendant.

9. As far as the Charge is concerned, the Statement of Claim pleads the following provisions :-

"1.1 In the Charge including the Recitals and Schedule:

'Shares' means the listed shares particulars of which are set out in the Schedule hereto and the certificate of which is to be deposited with the Lender, together with the dividend, rights and securities, etc. referred to in Clause 2.3 hereof.

.....

2.1 In consideration of the Lender making available the Loan to the Borrower, the Chargor, as beneficial owner, charges all the Shares and the proceeds of any sales of the Shares as a continuing security to the Lender for the repayment and satisfaction on demand of all Indebtedness. The Chargor undertakes to procure that immediately after the execution of this Charge instruments of transfer and sold notes excited in blank in respect of the Shares is delivered to the Lender or to its order.

.....

2.5 The Charge hereby created shall:

a. be a continuing security;

b. not be discharged or affected by any failure of, or defect in, any agreement given by or on behalf of the Chargor or any other oppressor who has entered into guarantee, or has given security in respect of any Indebtedness, or by any legal limitation, or lack of any borrowing powers of the Chargor, lack of authority of any person appearing to be acting for the Chargor in any matter in respect of any Indebtedness or by any other facts or circumstances (whether known or not known to the Lender) as a result of which any Indebtedness may be rendered illegal, void or unenforceable by the Lender;

c. remain binding on the Chargor notwithstanding any amalgamation, reconstruction, re-organisation, merger, sale or transfer by or involving the Chargor or the Lender or the assets of the Lender and for this purpose this Charges and all rights conferred on the Lender hereunder may be assigned or transferred by the Lender accordingly; and

d. be additional and without prejudice to any other security which the Lender may hold from time to time.

.....

5. Remedies on default

5.1 If the Chargor fails to pay or satisfy any of the Indebtedness on the due date or the Chargor is in breach of any terms of this Charge, the Lender shall have the option to elect to purchase the Shares at any amount and in exercise of the option, may, without further notice, procure the transfer of all the Shares to the Lender or its nominee, and the Lender or its nominee (as the case may be) may complete the blank transfer form referred to in Clause 2.1 above in its favour, whereupon the Indebtedness shall be deemed to be fully repaid."

10. Of the provisions in the Charge, I highlight the following :-

(a) Clause 2.5(d) in which the Charge on the 5 million PeV shares was to be "additional and without prejudice to any other security which the Lender may hold from time to time";

(b) Clause 5.1 which states that if the plaintiff lender exercised the option to purchase the 5 million shares at any amount and, in the exercise of this option, completed the blank transfer form referred to in Clause 2.1, the indebtedness of the 1st defendant to the plaintiff would be "deemed to be fully repaid"; and

(c) although not pleaded, Clauses 5.2 and 5.3 are also relevant :-

"5.2 The Lender shall also have the right to sell or dispose of all or any part of the Shares in such manner and for such consideration (whether payable or deliverable immediately or by instalments) as the Lender may, in its absolute discretion, think fit.

5.3 Upon the disposal of the whole or any part of the Shares which the Lender shall make or purport to make under Clause 5.2 hereof, the Lender may apply the proceeds of sale in or towards discharge of the costs so incurred and of the Indebtedness and no residue shall be paid to the Chargor. The Lender may give a good discharge for any moneys received in exercise of such power of sale or disposal and for any dividend, rights, moneys or property receivable in respect of the Shares."

These clauses bear on the issues I must decide.

11. I should add, in relation to the security which the plaintiff obtained for the loan, that a blank Form of Transfer was provided to the plaintiff for the 5 million shares. A postdated cheque in the sum of $5.75 million drawn in favour of the plaintiff by the 1st defendant was also provided as security for the loan. This cheque was signed by Gareth Tang and was eventually dishonoured.

12. The 1st defendant's defence relies heavily on Clause 5.1. In the present case, it is common ground that the Form of Transfer was filled in by or on behalf of the plaintiff. Thus, it is asserted by the 1st defendant that the plaintiff having exercised the option to purchase the 5 million shares, the indebtedness is accordingly extinguished.

13. In anticipation of this defence, although not contained in the original endorsement of claim on the Writ but only in the amended endorsement of the claim, the plaintiff claims an order for the rectification of the Charge. From the Statement of Claim, the plaintiff makes two points :-

(1) First, clause 5.1 of the Charge, in seeking to extinguish the whole of the 1st defendant's indebtedness upon the plaintiff purchasing the 5 million shares and transferring them to herself or her nominees, did not reflect the true agreement between the parties. The true agreement, it is said, was that the Charge on the shares was to represent but only one part of the security for the loan. The plaintiffs seeks therefore an order rectifying Clause 5.1 to read as follows :-

"If the Chargor fails to pay or satisfy any of the Indebtedness on the due date or the Chargor is in breach of any terms of this Charge, the Lender shall have the right to sell the Shares at any amount and may without further notice to the Chargor procure the transfer of all the Shares to the Lender or its nominee, and the Lender or its nominee (as the case may be) may complete the blank transfer form referred to in clause 2.1 above in its favour."

In support of the rectification plea, the plaintiff also relies on an affidavit of Gareth Tang, in which he states that Clause 5.1 did not reflect the Oral Agreement. It was his belief that the Charge on the 5 million shares represented only one of the securities for the 1st defendant's indebtedness. He says, in paragraph 11 of his Affirmation :-

" I have been told by [Daisy] Yeung that GC [the 1st defendant] is now relying on the said clause to contest Yau's claim for repayment of the balance of the loan and interest. Without delving into the dispute between GC ad Yau now, I would say the followings on the said clause. I confirm that insofar as the said clause means that Yau could not chase after GC and/or CB [the 2nd defendant] for the balance of the loan of HK$5,000,000 and interest thereon after having realized the PeV shares pledged as collateral for the loan, the said clause has never been part of the agreement made between me acting on behalf of GC and Yeung and/or Tam acting on behalf of Yau. The agreement, as already said above, was that Yau could realize the security of the 5 million shares of PeV as deposited with Kingston by GC once GC failed to repay the loan and interest and there was no agreement that Yau could not then claim against GC and CB for the balance in case the sale proceeds of the 5 million PeV shares was insufficient to cover the loan and the interest. In fact, the aforesaid meaning of the said clause did not make any commercial sense. It would be senseless for Yau to be contented with just realizing the securities over the 5 million PeV shares as at the time she did so, she would know the sale proceeds of the said 5 million PeV shares would not be sufficient to cover the loan and interest."

(2) Secondly, in any event, the plaintiff argues that even on its own terms, Clause 5.1 does not apply. This is because the definition of "Shares" in Clause 1.1 of the Charge (referred to above) refers to shares "to be deposited with [the plaintiff]". In the present case, share certificates for the 5 million shares were not deposited with the plaintiff. Instead, the shares were placed with the 1st defendant's account at Kingston Securities Limited ("Kingston"). Furthermore, it is argued that the plaintiff did not "purchase" the 5 million shares. All that the plaintiff did was to have the shares transferred to her name so that she could on-sell them to third parties and thereby enforce one of the securities for the indebtedness.

14. I now turn to the issues I have to decide in the summonses before me.

ISSUES

15. The 1st defendant contends that :-

(1) the plaintiff has not shown that she has a good arguable case on the merits;

(2) there is no risk of dissipation of assets;

(3) the balance of convenience is against the granting of a Mareva injunction; and

(4) in any event, there has been material non-disclosure in relation to the injunction granted by Waung J.

I deal with these points in turn.

GOOD ARGUABLE CASE

16. In my judgment, I am satisfied the plaintiff has demonstrated that a good arguable case exists on her claim. I bear in mind that it is undesirable for a court at this stage to go into any great detail about the merits of the case, but, nevertheless, it is necessary to say a few words about why I am so satisfied on good arguable case. In doing so, I stress that I do not make any comment on the strengths or weaknesses of the parties' respective cases. This is a matter for the trial judge.

17. There is little or no dispute (at this stage anyway) that $5 million was lent to the 1st defendant and that it has not been repaid. It is also accepted that the cheque was dishonoured. The key issue identified by the 1st defendant is Clause 5.1 of the Charge.

18. Here, I am satisfied that the plaintiff does establish a good arguable case on both its arguments referred to above :-

(1) There is evidence by affirmation from Daisy Yeung, Jenny Tam and Gareth Tang as to the Oral Agreement that was made regarding the loan.

19. On rectification, I have already referred to Gareth Tang's affirmation in which he states that Clause 5.1 was never part of the Oral Agreement made between the parties. He also deposes to the fact that the Charge and the other loan documents (such as the Loan Agreement) were prepared by him. He says in his affirmation :-

".... I did not apply my mind as to whether any term in the aforesaid documents differed from the actual agreement I had on behalf of [the 1st defendant] already made with Yeung acting on behalf of Yau [the plaintiff]. ...."

Specifically, in relation to Clause 5.1, he says this in paragraph 13 of the affirmation :-

"I could not recall why the said Clause [5.1] appears in the Charge as it is now. Perhaps I had done thing in a hurry and the said clause was a result of some wrong editing on my part."

20. I am very much influenced by this affirmation in my views on good arguable case. I am also influenced by the argument that if Clause 5.1 meant what the 1st defendant says it means, it would be inconsistent with the other documents and even with clauses within the Charge itself, which all seem to indicate that the Charge was only intended to be but one of the securities for the 1st defendant's indebtedness. One such clause is Clause 5.3 of the Charge.

21. In stark contrast to the affirmation evidence in support of the plaintiff's case, the defendant has not adduced any evidence going to this issue. The affirmations of Dennis Yu do not touch upon the actual Oral Agreement made between the parties nor upon the rectification issue. In the circumstances, Gareth Tang's affirmation is, at this stage, not contradicted.

(2) I also hold that the plaintiff has established a good arguable case on its alternative argument that in any event, Clause 5.1 does not, on its own terms, apply.

22. Certificates for the 5 million shares were not "deposited" with the plaintiff. Furthermore, there is some doubt as to whether it could be said that the plaintiff was exercising an option to "purchase" the shares within the meaning of Clause 5.1. She argues that all she was doing was merely realizing one of the securities for the indebtedness under Clauses 5.2 and 5.3 of the Charge. This is not to say that the 1st defendant does not have sound arguments in support of its case. For example, the 1st defendant relies on a letter dated 13 February from Messrs J. Chan, Yip, So & Partners to the 1st defendant ("the 13 February 2001 letter") in which it is stated :-

" We are further instructed to inform you that in pursuance of Clause 5.1 of the Charge, our client has exercised her right to transfer Shares to her or her nominee."

23. The 1st defendant says that this represents a clear reliance on Clause 5.1 and constitutes a binding election on the plaintiff's part to rely on that clause. This point may eventually be held to have some substance but I am not satisfied, at this stage, that it is enough to undermine the plaintiff's case to such an extent that it can be said that no good arguable case exists. It seems to me it is at least arguable that the plaintiff's position was really that as reflected in the last paragraph of the 13 February 2001 letter :-

" In the meantime all rights of our client, including her rights to sell or dispose the Shares or any part thereof in pursuance of Clause 5.2 and Clause 5.3 of the Charge and apply the proceeds of the same 'in or towards discharge of the costs so incurred and of the Indebtedness' are hereby expressly reserved."

24. I note in relation to election the basic principles as stated in Halsbury's Laws of England (4th edition), Vol.16 at para.957 :-

"Thus a plaintiff, having two inconsistent claims, who elects to abandon one and pursue the other may not, in general, afterwards choose to return to the former claim and sue on it; but this rule of election does not apply where the two claims are not inconsistent and the circumstances do not show an intention to abandon one of them."

I cannot say, at this stage, that the plaintiff's conduct has been unequivocally to adopt what the 1st defendant says is the effect of Clause 5.1, that is, the extinguishment of the indebtedness. It seems to me there is a good arguable case that the plaintiff's conduct was consistent with her wishing merely to enforce one of the securities at her disposal. Some of the terms of the Loan Agreement and the Charge, to which I have referred to above, lend support to this.

RISK OF DISSIPATION

25. Here, again, I am satisfied that the plaintiff has discharged the burden of showing a real risk of dissipation. I bear in mind the principles summarized in Steven Gee QC : Mareva Injunctions And Anton Piller Relief (4th Ed.), at pages 189-199 and in para.29/1/73 of Hong Kong Civil Procedure 2001. I set out the various factors that I regard as relevant :-

(1) The 1st defendant is a BVI company whose parent is the 2nd defendant, a Bermuda company listed in Australia.

(2) In paragraph 14 of Daisy Yeung's 1st Affirmation, she makes the point that the 1st defendant has not registered itself as an oversea company under section 333 of the Companies Ordinance. That section applies only to oversea companies which have established a place of business in Hong Kong. In the present case, the 1st defendant, despite what is said in Daisy Yeung's 1st Affirmation, has not vouchsafed any details of its business nor as to why it has not registered itself under section 333 of the Companies Ordinance. There is, on the other hand, prima facie evidence that the 1st defendant does have a place of business in Hong Kong. Its officers appear to be based exclusively in Hong Kong : the persons who made the Loan Agreement with the plaintiff were Gareth Tang and Chiu; and Dennis Yu, who is the only person who has made affirmations on behalf of the 1st defendant in the proceedings before me, is based in Hong Kong. Moreover, the 1st defendant made a loan arrangement with the plaintiff, a Hong Kong person. It also has offices in Hong Kong, the address being 20th floor, Wheelock House, Pedder Street.

26. In my view, the evidence at this stage points to the British Virgin Islands being merely a domicile of convenience rather than substance.

(3) As the 1st defendant is a BVI company, there may be enforcement problems on any judgment obtained against it. I refer here to an oft-quoted passage contained in the judgment of Lord Denning in Third Chandris Shipping Corporation v. Unimarine S.A. [1979] QB 645 at 669A-D :-

"The mere fact that a defendant is abroad is not by itself sufficient. No one would wish any reputable foreign company to be plagued with a Mareva injunction simply because it has agreed to London arbitration. But there are some foreign companies whose structure invites comment. We often see in this court a corporation which is registered in a country where the company law is so loose that nothing is known about it - where it does no work and has no officers and no assets. Nothing can be found out about the membership, or its control, or its assets, or the charges on them. Judgment cannot be enforced against it. There is no reciprocal enforcement of judgments. It is nothing more than a name grasped from the air, as elusive as the Cheshire Cat. In such cases the very fact of incorporation there gives some ground for believing there is a risk that, if judgment is obtained, it may go unsatisfied. Such registration of such companies may carry many advantages to the individuals who control them, but they may suffer the disadvantage of having a Mareva injunction granted against them. The giving of security for a debt is a small price to pay for the inconvenience of such a registration."

(4) The 1st defendant's conduct in relation to the dishonour of the cheque is, in my view, significant. This conduct leaves much to be desired from a commercial morality point of view especially when no real justification for it is attempted. It is not disputed by the 1st defendant that there was a dishonour of the cheque upon presentation on 7 February 2001. Mr Dennis Yu, in his affirmation, seeks to provide an explanation in the following way :-

"As Gareth Tang was removed as an authorised signatory to the 1st Defendant's account with The Hongkong and Shanghai Banking Corporation Limited on 13 December 2000, the 1st Defendant countermanded the cheque which appears as Exhibit DY-3 of Ms. Yeung's Affirmation."

27. Mr Wither, for the 1st defendant, did not seek to justify that excuse and rightly so in my judgment : it is a poor excuse. At the time the cheque was given to the plaintiff, Gareth Tang was properly authorised. I say no more about that at this stage for it may be a matter that will feature at the trial. I recognise that the 1st defendant's position now is to rely on Clause 5.1 of the Charge and that this would also constitute a defence to the dishonour. However, this was not the explanation given by Mr Yu for the dishonour. Another explanation was given, which as I have said, constituted a poor excuse.

(5) Given the factors referred to above, the fact that the 1st defendant's assets are liquid become significant. In Mr Dennis Yu's second affirmation (served in compliance with the order for discovery made under the injunction granted by Waung J), he refers to the fact that the 1st defendant has 244,169,585 shares in PeV, of which 3 million are held at Sun Hung Kai Securities Investment Services Limited, with the share certificates for the balance being kept in Beijing. By a letter dated 11 April 2001 from the plaintiff's solicitors to the 1st defendant's solicitors, enquiries were made as to whether these shares were encumbered. I also asked this question of Mr Wither to which there was no answer. In my view, this is not satisfactory.

(6) Furthermore, there is evidence before me that the 1st defendant has been disposing of its shares. Following a dramatic fall in the price of PeV shares on 28 December 2000 from $2.60 per share to $0.43 per share, the 1st defendant disposed of some 63,764,000 shares on a forced sale, thereby reducing its holding from 42.6% to 33.78%. This took place on 29 December 2000. On 31 January 2001, the 1st defendant disposed of another 610,000 shares in the company, thereby reducing its holding further down to 28.84%.

(7) I have been referred to many passages contained in Daisy Yeung's 1st Affirmation alleging evasive behaviour on the part of the 1st defendant and its officers. Mr Dennis Yu, in his affirmations, has denied these allegations although there is no attempt to deal in specific terms with the allegations. However, I have given the 1st defendant the benefit of the doubt here and have not regarded this evidence as significant in view of the disputed nature of them.

28. Nevertheless, overall, I am satisfied that there is a real risk of dissipation.

BALANCE OF CONVENIENCE

29. Given my views on good arguable case and risk of dissipation, the balance of convenience is clearly in favour of the granting of a Mareva injunction, subject to a consideration of the aspect of material non-disclosure.

MATERIAL NON-DISCLOSURE

30. The 1st defendant submits that even if I am satisfied that there exists a good arguable case and a real risk of dissipation, nevertheless, in my discretion, I ought not to continue Mareva injunction granted nor grant a fresh injunction, on the basis that the plaintiff has been guilty of material non-disclosure. Essentially, the plaintiff complains that four material facts were not placed before Waung J at the ex parte stage, namely :-

a) the oral agreement with regard to the loan arrangements made between the 1st defendant and the plaintiff;

b) Clause 5.1 of the Charge and its effects;

c) the 13 February 2001 letter in which the plaintiff's solicitors made specific reference to Clause 5.1; and

d) the need for rectification of Clause 5.1 of the Charge.

31. The 1st defendant submits that had these matters been disclosed to the learned judge, they would at least have weighed in the scales in the exercise of his discretion whether or not to grant a Mareva injunction. As a matter of law, this is all that is necessary to be demonstrated : see Citibank NA v. Express Ship Management Services Limited [1987] HKLR 1184 at 1190C-E. It is not necessary to demonstrate that had the alleged material facts been disclosed to the court, the court would necessarily or likely have arrived at a different decision (although if this can be shown, it would be an important consideration going to the discretion whether or not to set aside the order or grant a fresh order : see Behbehani v. Salem [1989] 1 WLR 723 at 729).

32. I approach the question of material non-disclosure by dealing with the following questions :-

1. Were the facts alleged not to be disclosed, material?

2. Was there non-disclosure?

3. If there was non-disclosure, was it innocent?

4. If there was material non-disclosure, should the court nevertheless exercise its discretion not to discharge the injunction or grant a new one?

1. Were the facts alleged not to be disclosed, material?

33. The aspect of the oral agreement can be disposed of shortly. This was indeed a material fact but one that was in my view disclosed : see paragraphs 4-6 of the first affirmation of Daisy Yeung dated 19 February 2001. In these paragraphs, reference is made to what is in effect the oral agreement pleaded in the Statement of Claim. Although this could have been more explicitly stated, I do not think that it can be said to have been in any way misleading.

34. Equally, the Clause 5.1 point is material. As mentioned above, this clause goes to the heart of the 1st defendant's defence and if correct, would provide a complete answer to the plaintiff's claim. Mr Li submits that neither Clause 5.1 nor the 13 February 2001 letter was a material fact for the following reasons :-

a) By reason of the definition of "shares" in the Charge and the fact that the plaintiff did not exercise any option to purchase, Clause 5.1 has no application and is therefore irrelevant.

b) Furthermore, as far as the 13 February 2001 letter was concerned, it had been overtaken by events and was somehow therefore irrelevant.

As for (a), I have already referred to the plaintiff's arguments in this regard. As for (b), Mr Li referred to the fact that, on 13 February 2001, the plaintiff had tried to have 3,000,000 of the 5 million shares transferred to her. However, she was prevented from achieving this (in Mr Li's submission, most probably by the 1st defendant). Thus, it is submitted, even if the reference to Clause 5.1 in the letter was correct (he said it must have been a mistake on his solicitors' part), there could not have been any purported or actual exercise of rights under Clause 5.1, or of any election to do so, by reason of the fact that the plaintiff did not actually successfully transfer the shares either to herself or to her nominees. The effect of the 1st defendant's alleged action in blocking the transfer was that the reference in Clause 5.1 in that letter was therefore irrelevant, or that the 1st defendant, by its conduct, is somehow estopped from running the point.

35. In my judgment, the Clause 5.1 point is clearly arguable and cannot simply be dismissed out of hand at this stage as being irrelevant. Afterall, Messrs J. Chan, Yip, So & Partners in the 13 February 2001 letter themselves specifically referred to it in relation to a transfer of 2,000,000 of the shares to the plaintiff (albeit as events turn out, this did not take place). Nevertheless, eventually, all the 5 million shares were transferred to the plaintiff's name and on sold to third parties in circumstances which the 1st defendant would argue not to be dissimilar from what was intended to be the position as stated in the 13 February 2001 letter. It was clearly material for the judge to know that, at one stage, the plaintiff was of the view that Clause 5.1 was applicable in relation to such a transfer to the plaintiff. In my view, by not referring to Clause 5.1, the plaintiff gave a somewhat misleading impression of the strength of her case.

2. Was there non-disclosure?

36. Mr Wither submits that nowhere in the affirmations or in the skeleton arguments of the plaintiff before Waung J, is there a reference either to Clause 5.1 or to the 13 February 2001 letter. This is accepted by Mr Li. However, Mr Li submits that though not specifically referred to, the Charge (containing Clause 5.1) and the 13 February 2001 letter were exhibited in the affirmations before Waung J. This is not sufficient disclosure. It is not for the court on an ex parte application (particularly when such applications are by nature made in urgent and pressing circumstances) to search through the papers to discover for itself the material facts. This has been stated time and time again in the authorities and is sometimes referred to for convenience as the "needle in a haystack" point. It is up to the plaintiff to state all material facts either in his affirmation or in his skeleton submissions.

37. Next, Mr Li submits that, in fact, the Clause 5.1 point was expressly referred to in the affirmation of Daisy Yeung dated 19 February 2001. This was the main affidavit in support of the Mareva injunction. In that affirmation, Daisy Yeung, after dealing with the oral agreement referred to earlier in this judgment, then refers to the loan documentation which was generated as a result thereof. She refers specifically to the Charge and says this at paragraph 10 of her affirmation :-

"10. On the Charge and the 5M shares, I want to explain the followings :-

(a) I had not read the Charge in details in the past. I have now been told by Yau's legal advisers the provisions of the Charge and there were areas where the provisions of the Charge and its actual performance differed.

(b) The provision of the Charge seemed to suggest that GC had delivered the shares certificates of the 5M shares together with instrument of transfer and sold notes to Yau upon the exception of the Charge. In actual fact, upon the execution of the Charge, GC had only delivered to me and I had in turned given it to Tam a Form of transfer. ('The Form (sic) of Transfer'). There is now produced and shown to me marked 'DY-5' a copy of the Form of Transfer. The form of Transfer had already been executed by Tang on behalf of GC when it was delivered to me and Tam. I did not find any problem with the arrangement as it sufficed to have the Form of Transfer for effecting the transfer of the 5M shares without any sold notes. I also want to point out that the Form of transfer as produced here was subsequently filled up when Yau tried to enforce the security as deposed below.

(c) As to the shares certificates, the position was simply that it was understood amongst Tang acting on behalf of GC, I and Tam acting on behalf of Yau that the 5M shares were those as kept by GC in its account with Kingston. The reason was that GC had indeed kept 20 million shares of PeV in its account with Kingston. After making the loan agreement on $15M loan with Chu, 15 million of those shares were kept by Kingston as securities for the loan ('the 15M shares'). Instead of taking the 5M shares out of its account, the same was simply kept with Kingston and earmarked as security for the $5M loan.

(d) At the time of making the Loan Agreement, the market value of PeV was about HK$2.5 per shares. As such, Tam and I indeed thought there was sufficient collateral to secure the $5M loan."

38. Mr Li submits by reference to this paragraph 10, in particular to sub-paragraphs (a) and (b), that sufficient hint was given of the problems which might exist in relation to Clause 5.1. Indeed, he says paragraphs 10(a) and (b) would make little sense unless Clause 5.1 was borne in mind.

39. In my judgment, this is yet another example of the "needle in a haystack" point. In the same way that a court cannot be expected to search through exhibits in order to discover material facts, so the court is equally not to be expected to have to sift through intricate legal arguments or facts in order to achieve this end. Quite simply, it is for a party seeking ex parte relief to state all material facts and points fairly (fair that is to the absentee party against whom he is seeking ex parte relief), clearly and fully, either in his affidavit evidence or skeleton submissions. If not contained in either of these documents, such material facts or points must be submitted orally to the judge hearing the ex parte application. I would add that even after an ex parte order has been obtained, there is a continuing duty of disclosure so long as the matter remains on an ex parte basis : see Commercial Bank of the Near East Plc. v. A and Others [1989] 2 Lloyd's Rep 319.

40. In the present case, I am of the view that there has been non-disclosure of material facts.

3. If there was non-disclosure, was it innocent?

41. Mr Li submits that any material non-disclosure in the present case was innocent. Mr Wither does not submit otherwise although he makes the point that there is no affidavit explaining the non-disclosure. Mr Li says that the reason why Clause 5.1 was not specifically drawn to Waung J's attention was that, basically, the plaintiff's legal advisers took the view it was a bad point. I have earlier set out the arguments in this regard. Furthermore, the reference to Clause 5.1 in the 13 February 2001 letter was, Mr Li submits, simply a mistake.

42. In the circumstances, particularly given the fair way in which Mr Wither has approached the matter, I accept that the material non-disclosure was innocent. I can see why the plaintiff's legal advisers took the view that Clause 5.1 was not applicable since no certificates for the shares had been deposited with the plaintiff and the plaintiff did not, in any event, exercise an option to purchase the shares as such. Although it is for the court to decide what matters are material rather than the party applying for ex parte relief, I find in the present case that although the non-disclosure was inexcusable, it was nevertheless innocent.

4. If there was material non-disclosure, should the court nevertheless exercise its discretion not to discharge the injunction or grant a new one?

43. Material non-disclosure is rightly regarded as a serious matter and in certain cases would not only justify the setting aside of an existing order but may also constitute the determining factor in the refusal of a fresh grant. However, it is important for a court, when considering whether or not to set aside an existing order or to grant a new injunction, to consider all the circumstances of the case to arrive at what is the justice of the situation. There is of course no doubt that the court does have the residual discretion not to set aside or to grant a fresh order even in circumstances where material non-disclosure has been shown.

44. Of the relevant factors that a court would consider in the exercise of its discretion, they would include the following :-

1. Whether the non-disclosure was innocent or deliberate.

2. The excuse or reason for such material non-disclosure.

3. Whether the non-disclosure would in fact have resulted in the original order not having been made in the first place or whether, conversely, even if the material fact or facts have been disclosed, this would have made no difference. Here, the court is required to look at the merits and justice of the grant of a Mareva injunction.

4. Whether the party guilty of the non-disclosure is deserving of a locus poenitentiae.

45. Of the cases I have considered in this regard are Bank Mellat v. Nikpour [1985] FSR 87, Lloyd's Bowmakers Ltd v. Britannia Arrow Holdings Plc. [1988] 1 WLR 1337, Brink's Mat Ltd v. Elcombe [1989] 1 WLR 1350, Ali and Fahd Shobokshi v. Moneim [1989] 1 WLR 710, Shenzhen Universal Enterprises Industry and Trade Company Supplies and Another v. Wei Bun Trading Co. Ltd and Others [1989] 1 HKLR 470, AMD Pack Rack Ltd and Others v. The Barrons Group Ltd and Others [1992] 2 HKLR 50, Arab Business Consortium International v. Banque Franco-Tunisienne [1996] 1 Lloyd's Rep 485.

46. Normally, a court would expect affidavit evidence in relation to these factors. It is in my view important, given the stringency by which the court regards ex parte applications, that at all stages, the court is given the full picture. The cautionary warnings given by the courts over the years are not simply mantras to be recited. They are to be taken seriously. No one needs reminding that ex parte applications are very much against the normal way in which courts operate. The vigilance that needs to be displayed both by the court and the applicant seeking ex parte relief is multiplied many times over precisely because the party against whom an order is to be made is not present.

47. In the present case, given my finding that there has been material non-disclosure, I would discharge the ex parte Mareva injunction granted by Waung J. However, in the exercise of my discretion, I would nevertheless be prepared to grant a fresh injunction in favour of the plaintiff. The following factors have influenced me in this regard :-

a. The material non-disclosure was innocent.

b. As I have said, I accept the belief of the plaintiff's legal advisers that they thought the Clause 5.1 point was a bad one. Indeed, this is in some way reinforced by the evidence and arguments in support of the good arguable case which I have referred to above. However, I would reiterate that I make no comments on the merits or the strengths or weaknesses of the parties' cases in this regard, save to say again that I am satisfied a good arguable case exists.

c. I have considered that the risk of dissipation to be a very real one. The 1st defendant's evidence here has left much to be desired.

In my judgment, justice requires that a Mareva injunction be granted.

CONCLUSION

48. Given my findings on material non-disclosure, I set aside the original ex parte injunction but hold that the balance of convenience is clearly in favour of the grant of a fresh order. At the conclusion of the hearing, I asked the parties to agree a draft order in the event that I was in favour either of retaining the present injunction or granting a fresh one. So far there has been no agreement between the parties in this regard.

49. I will therefore hear the parties on the form of order that I should grant and on the question of costs, unless this can be agreed between the parties.