HONSAICO TRADING LTD. v. HONG YIAH SENG CO. LTD.

1989, No. CL-116

HEADNOTE

   Mareva Injunction - circumstances when it may be appropriate to order that it is extended to world-wide assets of a defendant. Also a consideration of the extent to which it is suitable to make orders for discovery in aid of Mareva Injunctions.

1989, No. CL-116

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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J U D G M E N T

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1. Three summonses lie before me for consideration. There is the defendant's summons filed on the 3rd January 1992 to set aside the ex-parte order made by Bewley J. on the 16th December 1991 extending the original Mareva injunction from an order relating to Hong Kong assets to include world-wide assets and there is a summons taken out by the plaintiff dated the 20th January 1992 seeking an order to require the defendants to provide requisite information concerning their world-wide assets.

2. The 3rd summons was issued by the Liu Chong Hing Bank who had been served with Bewley J.'s order. I make observation upon the issues raised in this summons at the conclusion of my judgment.

3. Mr. Mok who was representing the defendants made an able submission in which he outlined the situations when it may be appropriate for a court to issue a ilareva injunction freezing assets on a world wide basis.

4. One of his main contentions was that is was incumbent upon a plaintiff to establish that there was a real risk that assets would be dissipated if the relief were not to be granted.

5. In the present case, Nazareth J. (as he then was) granted an ex-parte Mareva injunction on the 19th October 1989. This was continued by Godfrey J. on the 31st October 1989 and by further orders made by Godfrey J. and myself, the terms of the injunction were varied.

6. The trial of the action took place before me between the 4th and the 14th November 1991 and I delivered judgment in favour of the plaintiffs in the sum of US$1,931,920.00 on the 27th November, 1991.

7. The said order of Godfrey J. continuing the ex-parte injunction was the subject of an appeal and the Court of Appeal made various observations concerning Mr. Prachai, the alter ego of the defendant and the assets of the company.

  So far as these summonses are concerned reference was made to the fact that Mr. Prachai should not be regarded as a person of probity. Also reference was made to the fact that the defendant had very substantial assets in Thailand and that there were no provisions relating to the reciprocal enforcement of judgments between Hong Kong and Thailand. Indeed it appeared to be accepted that the only way in which the plaintiffs could seek recourse in respect of these assets would be to commence proceedings de novo in Thailand for the recovery of the moneys they claimed were due and owing to them. It was accepted that such proceedings would take between 6 and 9 years.

8. Mr. Mok contended that in such circumstances world-wide Mareva relief was misconceived. Mareva relief was designed for the preservation of assets not as a means of executing a judgment. There was no prospect of the judgment being executed upon in the foreseeable future and it was wrong that an injunction should remain outstanding indefinitely.

9. A further and greater objection was that on the facts as known there was no real risk that any assets would be dissipated. As had been accepted by the Court of Appeal formidable difficulties would be encountered by the plaintiffs in attaching any of the assets which were known to exist in Thailand. In such circumstances it was unlikely that the defendants would attempt to remove assets from Thailand as they would be safe from any attack by the plaintiffs.

10. Mr. Clifford Smith for the plaintiffs accepted the validity of this contention. Indeed he conceded that even if I were minded to make a world-wide Mareva order assets in Thailand should be excluded from its operation for the reasons outlined by Mr. Mok. At this juncture, I would mention that after I rose from the hearing Mr. Mok requested me to make an ex-parte order to the effeect that pending the delivery of this judgment I should order that such an exclusion should be made based upon Mr. Clifford Smith's concession. Mr. Mok had invited Mr. Clifford Smith to remain behind while he made this application to me but Mr. Clifford Smith had declined the invitation. I take this to mean that the ex-parte application was made on notice and I made the order sought varying Bewley J.'s order in this way pending the delivery of my judgment.

11. Returning to the issues raised in the summonses Mr. Clifford Smith still maintained that the world-wide Mareva should be continued subject as aforesaid. His basis for this was to place reliance upon the affidavit evidence of Mr. Prachai when he was resisting the Mareva injunction granted by Nazareth J.

12. At paragraphs 4 and 5 of his affidavit of the 31st October 1989 he said:

"4. Further to the Affidavit of Miss Mimmie Chan, I would like to add that the Defendants are frequent shippers of rice and other commodities throughout the world including South East Asia. In the unlikely event that the Plaintiffs succeed in this action, in addition to seeking to enforce such judgment in Thailand, the Plaintiffs can arrest the Defendants' cargo in Singapore or other parts of the world.

5. I would also add that because of the nature of the Defendants' business as traders and dealers of rice and commodities, with business dealings throughout the world, it is extremely important for the Defendants to maintain their reputation in the business and in particular, as against the Defendants' bankers. The existence of the Mareva injunction made by this Honourable court on the Plaintiffs' application has serious and adverse effects on the Defendants, and is causing irreparable damage to the Defendants' reputation.

13. He submitted that it was clear from this that the defendants had assets other than those referred to in Thailand and Hong Kong which would almost certainly include bank accounts and that these assets should be made the subject of Mareva relief.

14. This argument was reinforced by the fact that judgment had now been obtained against the Defendants. This could be seen from a passage in "Mareva Injunction and Anton Filler Relief", 2nd Edition by S. Gee, Longman at P.18:

"However, once the plaintiff has obtained judgment the position is different. He may then be in a position to make an individual defendant bankrupt or have a corporate defendant wound up. Furthermore, he will he in a position to enforce the judgment by executing it on assets of the defendant. In these circumstances the injunction is granted or continued in aid of execution or, as may be the case, bankruptcy or winding-up proceedings. It will not be a good answer to execution for a defendant to say that he wishes to use the asset in question to pay another creditor. Nor in principle should it be a good reason for a judgment debtor to seek variation to a Mareva injunction which has been granted in aid of execution Thus, in Deutsche Schachtbau-und Tiefbohrgesellschaft GmbH v. Ras Al Khaimah National Oil Company (No. 1) [1987] 3 WLR 1023 (CA); [1988] 3 WLR 230 (HL), the court of Appeal upheld Mareva relief granted in aid of enforcement of an arbitration award against a foreign company. Judgment had been obtained but was not yet enforceable under the rules of court, and it was contemplated that garnishee proceedings would be taken in relation to the relevant asset which was a debt due or accruing due from a third party. In these circumstances Sir John Donaldson MR, with whom the other members of the court agreed, observed that the injunction was not strictly speaking an injunction which fell into the Mareva category, but was an injunction granted as protection for a judgment creditor, under a jurisdiction recognised before the emergence of theMareva jurisdiction. 'The purpose of the injunction was...to maintain the status quo during the period covered by the stay of execution and not to preserve assets against the probability that DST might at some later date be able to establish its claim - the ordinary Mareva situation'. In the House of Lords the appeal against the injunction was dealt with at the same time as the appeal against the garnishee order, which was set aside on the grounds that if upheld it would place the garnishee at the risk of having to pay the same debttwice, and thus would be inequitable. In those circumstances the injunction could not be justified on precisely the same ground, namely that it would be inequitable to the 'third party debtor."

15. I consider that it is necessary to go back to the basic principles upon which Mareva injunctions are granted on a world-wide basis.

16. The first point to be made is that such orders should not be regarded as the norm. Nicholls L.J. had this to say on p.62 of Derby & Co. Ltd. v. Weldon (No. 1) 1990 1 Ch. 48:

"In my view each case must depend on its own facts. An order restraining a defendant from dealing with any of his assets overseas, and requiring him to disclose details of all his assets wherever located, is a draconian order. The risk of prejudice to which, in the absence of such an order, the plaintiff will be subject is that of the dissipation or secretion of assets abroad. This risk must, on the facts, be appropriately grave before it will be just and convenient for such a draconian order to be made. It goes without saying that before such an order is made the court will scrutinise the facts with particular care. In the instant case there are present the special factors to which May and Parker L.JJ. have referred. I do not think that it is correct that, if an order is made in the present case regarding overseas assets, such an order will become, or should become, the norm in cases where a restraint order is made regarding assets within the jurisdiction.''

17. The position which has been taken by the Court of Appeal here seems to be similar to the English position.

18. This can be seen from the judgment of Kempster J.A. in Bank of India v. Murjani 1989 2 HKLR 318 at 319:

"That the relief operates in personam as regards a defendant but, in effect, ad rem as against third parties and does not amount to a pre-trial attachment of assets was common ground. In our opinion a Mareva injunction affectg: assets outside the jurisdiction may be granted when there is a good arguable case that the plaintiff recover judgment, reason to think both that the defendant, properly before the court, has such assets available to satisfy it but insufficient assets within the jurisdiction for the purpose and the Court is satisfied that there is a real risk that the defendant may take steps designed to dispose of or conceal such foreign assets as to render the judgment nugatory by the time that it is given. Further, the defendant may be ordered to make discovery as to his assets in a proper case and the jurisdiction in that regard is not limited to tracing actions. Thus, subject to provisos and undertakings apt to allow the defendant to carry on his business and private life in the ordinary way and to limit the effect of the order on third parties outside the jurisdiction, the principles. applicable to the grant of an injunction inhibitingthe disposition of assets within the jurisdiction are, as Barnett, J. held, equally applicable to the grant of such an injunction directed to assets outside it. We so conclude in the light of the several persuasive authorities decidedbetween June and December 1988 during which the practice in the English Court of Appeal was developed and clarified and, in particular; of Derby & Co. Ltd. v. Weldon (Nos. 3 & 4) [1989] 2 WLR 412."

19. It is however evident that this is a developing area of the law and that in appropriate cases the courts will be prepared to make orders to protect overseas assets. One of the latest statements on the current position in England is contained in the judgments of the members of the Court of Appeal in Derby v. Weldon (Nos. 3 & 4) 1989 2 WLR 812. Perhaps the best summary of the position is Butler Sloss L.J. s analysis at p. 437:

"Butler-Sloss L.J. I agree with the judgments of Lord Donaldson of Lymington M. R. and Neil L.J.

I would venture to summarise the present position. The jurisdiction to grant Mareva injunctions is now to be found in section 37(1) of the Supreme Court Act 1981. The practice has considerably developed since Roskill L.J. said in Mareva Compania Naviera S.A. v. International Bulkcarriers S.A.[1975] 2 Lloyd's Rep. 509, 511:

'Indeed it is right to say that, as far as my own experience in the Commercial Court is concerned, an injunction in this form has in the past from time to time been applied for but has been consistently refused.'

It is adapting to meet changing circumstances and the increased mobility of assets and interchangeability of international companies. The developing practice was referred to by Kerr L.J. in Babanaft International Co. S.A. v. Bassatne [1989] 2 W.L.R. 232, 242 and by Nicholls L.J. in Derby v. Weldon (No. 1) [1989] 2 W.L.R. 276 Neill L.J. in the Babanaft Case [1989] 2 W.L.R. 232, 251 said:

"We are concerned in this appeal with a branch of the law which is in a stage of development and where the court will be asked to exercise its discretion to grant injunctive relief in many differing sets of circumstances. It seems to me therefore that any guidelines which are laid down by this court should be expressed in general terms.'

The Nareva injunction is an equitable remedy which operates in personam, in circumstances in which the plaintiffs show a good arguable case and that it I likely that the defendants will dissipate their assets so as not to be available to satisfy a judgment against them. It may be granted either pre-judgment or post-judgment. If there are insufficient or no assets within the jurisdiction the relief may be granted against assets held outside the jurisdiction, either within the convention countries or worldwide. It has been granted to support an action brought in another Convention country: Republic of Haiti v. Duvalier [1989] 2 W.L.R. 261. In analogous proceedings for an injunction under the provisions of section 37(2)(a) of the Matrimonial Causes Act 1973 relief has been granted to restrain a husband from disposing of real property owned by him in Spain: Hamlin v. Hamlin [1986] Fam. 11.

It is a matter of discretion for the judge as to whether in the circumstances it appears to be just and convenient to grant the relief sought. The court may be more willing to restrain a defendant from dealing with his assets after than before judgment has been given against him. It is only in an unusual case that the court will make a worldwide, pre-judgment Mareva order. Factors such as the impossibility of compliance with or enforcement of the equitable remedy are relevant considerations in the exercise of discretion.

To assist the effectiveness of the pre-judgment Mareva an order for disclosure of assets may within the ambit of the injunction be grunted. An order for a receiver may either be made independently under section 37(1) or in support of the Mareva.

The grant of such remedies against defendants must not be oppressive in its outcome. Specific terms or undertakings should therefore generally be part of any worldwide, pre-judgment Mareva. The conditions imposed in the wording of the order must balance on the one side the need to freeze the assets in question and gain the information required against restrictions to protect the defendants, inter alia, from unjustified results in other jurisdictions, a misuse of the information gained or an unwarranted invasion of privacy and to hermit them to have funds to continue business and to meet reasonable living expenses. They should also contain qualifications to safeguard the position of third parties under the English order, leaving it open for orders to be sought in the courts of the country asked to enforce the English order. I would therefore respectfully enforce the form of order set out in the judgment of Lord Donaldson M.R.''

20. There are a number of factors which need to be borne in mind in the present case. The first is the fact that the plaintiffs already have a judgment against the defendants. The existence of this judgment substantially reduces the risk of a grave injustice being occasioned to the defendants

21. It is also important to bear in mind the conduct of Mr. Prachai. In the judgment I delivered in the action I made reference to the fact that he had fabricated evidence and I came to the conclusion that he was not a man of probity. The plaintiff has in my opinion good grounds for fearing that the defendant would dissipate assets in an endeavour to aviod satisfying the judgment which has been obtained by the plaintiffs. Their fears are reinforced by the fact that if ovverseas assets other than those in Thailand are not made the subject of a Mareva injunction there is every reason to suppose that Mr. Prachai will transfer them to Thailand where they will not be available to satisfy the judgment.

22. I am also satisfied that there are likely to be such assets having regard to what Mr. Prachai himself has said in this repsect. I have accordingly come to the conclusion that if I follow the principles which have been adopted by the courts in England and followed by the Court of Appeal here I should order that Bewley J. order should be continued. The order will however exclude the Thai assets which have been referred to. It will, however, be necessary to give further thought to adequate safeguards being built into any order that is made including provision for an appropriate form of undertaking by the plaintiff to protect the defendnats in the usual manner. On this subject I will hear submissions from the parties.

23. That then leads to the next question of the extent of disclosure or discovery which should be ordered.

24. The application which has been made by the plaintiffs in this connection is couched in wide terms. They seek an order that the defendants be required, within 7 days to make and file with the court, and serve a copy upon the plaintiff's solicitors, Holman, Fenwick & Willan of 702 Tower One, Admiralty Centre, 18 Harcourt Road, Hong Kong, an affidavit stating precisely what assets it has within or without the jurisdiction and their whereabouts, and whether the same are in its name alone and if not how and in whose names that the same are held. In the case of any bank, building society, or similar account the defendant is to include in the affidavit in respect of each account:

(a) The names in which it is held;

(b) The name of the bank, building society or other entity;

(c) The address of the branch at which the account is held;

(d) The number of the account;

(e) The balance in the account at the date of the swearing of the affidavit. If there is any change in the balance prior to service of the affidavit, this is to be notified to the plaintiff on service of the affidavit.

25. Mr. Mok accepted in principle that an order for discovery can be made in aid of a Mareva injunction. However he argued that it should only require that particulars should be given of assets presently in the possession of the party. It should not be framed in such a manner as to enable the plaintiff to embark upon a tracing exercise. To permit this would distort the valid purposes of a Mareva injunction. It was incumbent upon. a plaintiff to establish the existence of assets before an application is made to the court for the relief.

26. In this connection he submitted that there was no merit in the plaintiff's contention that they were placed at a disadvantage by virtue of the fact that no officer of the defendant company was situate in Hong Kong and that this being the case they here unable to seek an order from the court that an officer of the defendant be required to attend and be examined in pursuance of the provisions contained in order 48 of the rules.

27. He argued that this difficulty was brought about as a consequence of the plaintiffs' decision to proceed with the litigation in Hong Kong rather than commencing the action in Thailand.

28. I do not think that this has much bearing on the issues which lie before me for determination.

29. I am satisfied that what I must do is to decide the limits of any order for discovery which may be appropriate.

30. In this connection, I am assisted by a passage on p. 142 of ''The Mareva injunction and related orders'' by Mark Hoyle, 2nd Edition, Lloyd's of London Press Ltd. 1989:

The pursuit of further information -

In the type of case where a Mareva is appropriate the defendant and his colleagues or advisers will usually have information vital to the plaintiff, whether to aid his case generally or to enable the Mareva order to be effective.

In the ordinary way a party can seek an order for discovery relating to any matter-in question in the cause,between the parties. However, this can only apply to cases where writs have been issued, and where the discovery is to do with the issues in dispute. If the discovery is to establish what assets the defendant holds, an application under the Rules is not the correct course, but the court.nevertheless has power under its inherent jurisdiction to make an order in support of a Mareva, for example that a defendant discloses on affidavit his assets. The reason is that without such an order the Mareva itself might be ineffective because it does not bite on sufficient assets as these have been skilfully hidden from the plaintiff. Also, the plaintiff may be deterred from seeking or continuing a Mareva if he does not know how much the defendant has in case his undertaking as to damages is called upon if the order has the effect of freezing all assets in the absence of disclosure, over and above the sum necessary. This could occur, for example, if the defendant has ¢l million equally in five banks, but the individual sums are not known to the plaintiff. If the Mareva sum is ¢300,000 and each bank is served withthe order, the defendant's total sum of ¢1 million will be frozen because each bank will fear being in breach as to its ¢200,000. An order to disclose this information ill enable release of the balance of ¢700,000 for the defendant's use. Similar problems can occur with other assets, and this order for discovery is frequently granted.

It should be noted that such an order is not to be used to police the Mareva to see if there has been a breach. Its purpose is to make effective the order by establishing the defendant's assets. Ackner LJ in AJ Bekbor & Co Ltd v. Bilton said:

...the power to order discovery to ensure that the Mareva jurisdiction is properly exercised and thereby to secure its objective of preventing the defendant removing his assets from the jurisdiction and so stultifying any judgment given by the court in the action, cannot be found in the Rules...

It It may be arguable therefore whether this power is one ancillary to the Eareva or based on a "separate" inherent jurisdiction. In any event, it is accepted as exercisable, albeit with caution because it extends the court's interference with a party who has not yet been judged to be in breach of any legal duty.''

31. I accept that this is an.accurate commentary on the law. It is though clear to me that the discovery must be limited to present assets and should not extend to an examination of what may have transpired in the past relating to assets which have been held by a party.

32. Huggins J.A. referred tothis on p. 540 of Advance Finance Ltd. v. Pang Sze Mui 1986 HKLR 523:

''If a mareva injunction had been. justified, I would have upheld the order for discovery in aid of it - save for limiting it to property within the jurisdiction. The latter part of the order for discovery which was in fact made was not in aid of the Mareva injunction but a tracing exercise toascertain whether any moneys which had been misapplied had gone to the defendants and, if so, what had become of them tnereafter. It was argued that no specific fund was in question, that this was a fishing expedition to ascertain whether the defendants had benefited generally from the misconduct alleged and that it was not necessary to have such discovery at the present stage. I think there is merit in those contentions.

In the event I would allow the appeal and set aside the relief granted."

33. I do not think that the summons which was issued by the plaintiff is framed too widely to bring it within these criteria.

34. I must, however, refer again to the summons which has been issued by the Liu Chong Hing Bank and the affidavit evidence which was subsequently filed. I accept that all that the bank as required to do was to provide particulars of any accounts they may hold in the defendants' name and the amounts of money which there may be in the accounts. The plaintiff has no right to inspect the bank's records or take copies thereof.

35. It is common ground that the action was not a tracing action and this being the case the plaintiff is not entitled to inspect the banks records with a view to ascertain where any moneys which may have been held by them may have been remitted in the past.

36. I think that this covers all of the issues which were raised on these summonses. The order of Bewley J. is extended in the manner I have described and discovery is ordered as I have indicated.

37. I will hear the parties on costs.