XCHRX BALSAM LIMITED AND ANOTHER v. PHILIP O KAI SING AND OTHERS

1999, No. A12839

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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1. On 9 August 1999, I granted an ex parte application by the plaintiffs for a Mareva injunction against the first to fourth defendants. On 13 August 1999, I ordered that the fifth defendant be joined in the action, and I amended the injunction to include the fifth defendant.

2. I now have before me a summons by the plaintiffs seeking the continuation of the injunction. The first to fourth defendants resist this.

3. The evidence upon which the ex parte order was made is contained in an affidavit by Mr Chan Toh Pew (Mr TP Chan), the managing director of both plaintiffs. The relevant facts that emerge from this evidence, as read with his statements to the Independent Commission against Corruption, which he impliedly says contain the truth, are -

1. The plaintiffs both engage in the business of the distribution of fish.

2. The second plaintiff is a wholly owned subsidiary of the first plaintiff.

3. The first defendant was employed by the second plaintiff as manager. His duties involved the purchase of fish, and distribution to purchasers in Hong Kong. There is some confusion here. Later in his affidavit, Mr TP Chan says that the first defendant was employed by the first plaintiff.

4. The second defendant was the first defendant's secretary.

5. The third defendant was the stores supervisor "at Balsam and Hong Kong Group Trading".

6. The fourth defendant was "in charge of logistics at Hong Kong Group Trading", and had been customer service manager.

7. About 11 July 1999, the first plaintiff's company secretary received a letter addressed to the first defendant "which showed him to be an officer of" the fifth defendant. This letter is not produced. It appears from a search of public records that the first defendant is not an officer of the fifth defendant.

8. The fifth defendant has two directors who were also the two shareholders. Neither of these is the first defendant, although one of these lived at the same address as the first defendant, and the other was the wife of the third defendant.

9. Investigation revealed records that showed that the fifth defendant supplied both plaintiffs with fish.

10. The first defendant claimed expenses from "Balsam/Hong Kong Group Trading" for delivering fish, but the plaintiffs paid others for delivering fish to customers. The total of claims by the first defendant for transport was $960,000, some of which is fraudulent. In this context, Mr TP Chan refers to the first defendant as being employed by the first plaintiff.

11. The plaintiffs delivered fish to customers valued at about $25,000 a month, but there is no evidence of payment by customers. Mr TP Chan says that the total loss under this head is about $600,000.

12. The first defendant instructed the third defendant and others to replace fish for delivery to customers with fish of a lower weight so that customers received less fish than sold. The plaintiffs face possible claims in this regard of $600,000.

13. The first defendant then arranged for the fifth defendant to send invoices to either the first or second plaintiffs pretending that fish to the value and weight of that removed were delivered to them. Unlike invoices from genuine suppliers, these were signed by the second defendant, and there were no delivery notes. In the case of genuine supplies, there were delivery orders signed by the storekeeper of the second plaintiff. The total value of the false invoices is $600,000.

14. The plaintiffs reported the matter to the Independent Commission against Corruption. An investigation is continuing.

15. The third defendant and the fourth defendant have joint bank accounts with the National Commercial Bank.

16. Mr TP Chan says - "Because of my belief that the defendants have been involved in a fraud at the expense of Balsam/Hong Kong Group Trading, I am concerned that the defendants are likely to dissipate and to attempt to put beyond the reach of the court the money they have illegally obtained."

17. The usual undertaking is given by both plaintiffs. The first plaintiff has a paid-up capital of $50 million. For the period ending 31 December 1998, the second plaintiff made a profit of $2 million.

4. The first defendant has filed evidence in which he denies the plaintiffs' allegations of dishonest behaviour, and challenges the accuracy of some of the peripheral evidence. He says he was not employed by the first defendant, but the second defendant.

5. The second defendant has filed disclosure evidence only. In court, she told me that she was "just an employee of the company, performing her duties to her employer."

6. The third defendant has also filed evidence. On the merits, he adopts the evidence of the first defendant.

7. The fourth defendant says, in his affirmation, that he only evidence against him is the existence of the joint accounts with the third defendant. He explains the purpose of these accounts. They were, it is said, conducting a small business hiring a vehicle to the second defendant.

8. Initially, both Mr Egan and Mr Ng sought to argue that there had been material non-disclosure by the plaintiffs in seeking the ex parte order, but the grounds for these allegations melted away under the light of fresh evidence produced by the plaintiffs at the hearing. I am satisfied that there was no material non-disclosure. At the end of day, both Mr Egan and Mr Ng concentrated their efforts on the arguments that there was no case advanced by the plaintiffs that would justify a continuation of the injunction.

9. The first leg of this argument is that it is the second plaintiff that is the real victim, and that plaintiff does not have the means to support the undertaking in damages. They argue that the first plaintiff was only joined to gloss over the impecuniosity of the second plaintiff.

10. It must be said that the plaintiffs make no real attempt to distinguish between the plaintiffs as to the alleged acts committed against them, and the harm suffered by each of them. In this context, Mr TP Chan refers to the two plaintiffs together as "Balsam or Hong Kong Group Trading" or "Balsam/Hong Kong Group Trading". He also seems unsure as to whether the first defendant was employed by the first or the second plaintiff. It does not matter, of course, who was the employer of the defendants if they committed tortious acts against an identified plaintiff alleged with sufficient particularity. The cause of action is not based on some breach of a contract between the defendants and their employer. But it does matter, for the purposes of considering whether or not the plaintiffs have established a sufficiently good case, to identify just what it is that each defendant is said to have done in relation which plaintiff. It is not a good cause of action against each defendant to say, as in essence the plaintiffs do, that one or other of the defendants committed acts against the property of either the first plaintiff or the property of the second plaintiff, or, possibly, the property of both plaintiffs.

11. I suppose it is possible that the real situation is that the plaintiffs trade together in partnership, that there is only one business operated by them together, but this is not said, and is contradicted by occasional references by Mr TP Chan to the plaintiffs, in connection with their businesses, as "Balsam or Hong Kong Group Trading".

12. I take it as axiomatic that what is alleged by a plaintiff cannot be a good cause of action if judgment cannot be granted upon it. Plaintiffs cannot allege legitimately - "Defendant A or defendant B committed this tort against plaintiff A or plaintiff B", because a judgment in terms of that allegation could not be entered.

13. Looking at the various complaints made, Mr TP Chan says that the "total value of false invoices located to date which were sent to and paid by Balsam/Hong Kong Group Trading to [the fifth defendant] is HK$600,000." Assuming that the plaintiffs were to prove this allegation, in whose favour could a judgment in the sum of $600,000 be entered? And against which defendant? This cannot possibly form the basis for a good cause of action, even against the first defendant, let alone the other defendants. There is no allegation at all, in this respect, against the third, fourth and fifth defendants, and, as regards the second defendant, the only allegation is that the invoices "were all signed by" her. That cannot be a good cause of action against her based solely on that allegation.

14. The false expenses claims are said to have been paid each month "by Balsam/Hong Kong Group Trading". This is not a satisfactory allegation on which to base a cause of action, but, in any event, the only evidence that there is something wrong here is a belief expressed by Mr TP Chan, without any hard facts to back up that belief. Even Mr TP Chan himself does not suggest that he is able to sort out legitimate claims from any false ones. So, here there is no good cause of action against the first defendant, and certainly not against the other defendants, who are not even mentioned in this respect.

15. The allegation of unpaid deliveries at approximately $25,000 a month is based on a review "of the accounting records of Balsam/Hong Kong Group Trading", and the absence of evidence of payment. Mr TP Chan expresses his belief that the first defendant "and all the other defendants have simply received payment and have not paid the money" to the plaintiffs. He says this, but produces no evidence at all to back this belief. There is not even, as one might expect, evidence that those to whom deliveries were made have been contacted, and say that they paid the defendants. So, quite apart from the difficulty of not identifying the injured plaintiff, this cause of action is not viable on this basis.

16. The allegation of the filching of fish from boxes is said to involve only the first and third defendants. There is nothing said in this connection against the other defendants. Even as against the first and third defendants, the allegations speak of "Balsam and Hong Kong Group Trading", without any attempt to distinguish which of the plaintiffs suffered what loss in this regard. Further, the real victims here are the customers, and they are not identified in any kind of particularisation.

17. I have to say that I am left with the impression that there was something unsavoury going on in the business of the plaintiffs, and that the first defendant was involved in this, but I cannot say that the plaintiffs have set out a clear cause of action against even him that would justify the extraordinary remedy of a Mareva injunction. More certainly, the cause of action alleged against the other defendants, especially the fourth defendant, who barely gets a mention in the evidence of Mr TP Chan, is nowhere near sufficient.

18. All these unsatisfactory aspects of this matter were, of course, apparent from the papers before me at the time I heard and granted the ex parte application. I failed to spot them. It has taken the argument before me on 27 August to concentrate my mind, and reveal the shortcomings in the plaintiffs' case. That is unfortunate, but I must now put things right. This hearing has satisfied me that the plaintiffs have not put up a sufficiently good case to justify the remedy granted, and I must now order that the plaintiffs' application for the continuation of the injunction be refused. The injunctions are discharged with immediate effect. It follows that the plaintiffs must also honour their undertaking as to damages. There will be an inquiry into any damages suffered by the defendants.

19. As to costs, there seems no obvious reason why they should not follow the event. I make an order nisi that the plaintiffs pay the costs of the defendants in connection with this application.