LAU WING YAN AND OTHER v. CHU KONG AND OTHERS

HCA 2562/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2562 OF 2014

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DECISION

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Introduction

1.  Mr Chu has made two applications arising from an ex-parte injunction dated 17 December 2014[1] (“the Injunction”). First, by his summons dated 11 February 2015 (“the Discharge Summons”), he seeks to discharge the Injunction. Parties have already filed affirmations in respect of the Discharge Summons. By another summons dated 16 February 2016 (“the X-Exam Summons”), Mr Chu seeks to cross-examine two of the deponents of such affirmations on their contents for the purpose of the determination of the Discharge Summons.

2.  Mr Chu says that the cross-examination of one Mr Yan and Ms Sun, the 2^nd plaintiff herein, on their affirmations made on 29 January 2016, is necessary to establish material non-disclosure.  

3.  Mr McCoy SC (together with Mr Brown) for Mr Chu indicates that he would proceed with the X-Exam Summons only, leaving the Discharge Summons to be determined at a later date prior to the trial of this action. Mr Wong SC (together with Mr Kwong) for the plaintiffs, whilst opposing both applications, no longer insists that this court should forthwith dismiss the Discharge Summons. Instead, he asks this court to adjourn the Discharge Summons to be heard at the trial of this action without any order for cross-examination of the deponents of the affirmations on their contents.

4.  It is logical in my view to first determine when and then how (with or without cross-examination) the Discharge Summons is to be resolved.

Background facts

5.  The facts of this action are quite complicated but for present purposes, it suffices for me to give the following summary of the relevant background facts leading to the grant of the Injunction. I shall also give an account of the subsequent development thereafter.

6.  The subject matter of the Injunction is the cargoes of 60,000 metric tons of US soybeans (“the Cargoes”) on board of a vessel named “MV Grain Pearl” (“the Vessel”). Joint Silver Limited (“JSL”) and was incorporated in Hong Kong for the specific purpose of being used as a corporate vehicle to hold the Vessel on behalf of all the individual parties to this action.

7.  JSL is wholly owned by Central Shipping Company Limited (“CSCL”). CSCL is a BVI company and is jointly owned by two BVI companies, namely, Prime Asia Global Limited (“PAGL”) and Fortune Bright Global Limited (“FBGL”).

8.  All the individual parties to these proceedings are the shareholders of either PAGL or FBGL. Mr Lau and Mr Chu are the equal shareholders of PAGL. Ms Sun, Mr Chang, Mr Lu and Mr Hu are the equal shareholders of FBGL. By reason of their shareholdings in PAGL and FBGL, all of the individual parties have ultimate interests in JSL and hence the Vessel. They are collectively referred to as “the Ultimate Shareholders” in this Decision.

9.  Pacific Bulk Shipping (Cayman) Limited (“Pacific Bulk”) is a limited company incorporated in the Caymans Islands and both Mr Lau and Mr Chu are its equal beneficial owners. Pacific Bulk is engaged in the shipping voyage and time charter businesses involving the Vessel.

10.  In or about November 2014, GP was carrying from US ports to PRC ports the Cargoes placed by Orient Sunshine Shipping (Hong Kong) Co., Ltd (“Orient Sunshine”) on a voyage at a freight charge of US$2,454,375 (“the Freight”) pursuant to a charterparty by way of a fixture note/re-cap which Pacific Bulk entered into as the commercial manager of the Vessel.

11.  Pacific Bulk entered into another back-to-back fixture note/recap with JSL on identical terms except the rate to the effect that Pacific Bulk would earn 1.25% of the Freight as management fee.

12.  The triggering event took place on 5 December 2014 when JSL issued a lien notice (“the Lien Notice”) to the shipper of the Cargoes on board the Vessel CHS Inc. for freight due under the material charterparty in a bid to prevent the Cargoes from being delivered to the consignee.

13.  The plaintiffs say that the Lien Notice was wrongfully issued for three reasons. First, Pacific Bulk had already received the Freight on behalf of JSL as commercial manager of the Vessel. Second, the plaintiffs rely on an agreement allegedly made orally among all the Ultimate Shareholders except Mr Chang and JSL in or about March 2013 (“the 1^st Agreement”) whereby it was among other matters agreed that majority vote is required in the management and operation of the Vessel, the use or disposal of the proceeds arising from the commercial operation of the Vessel and the directorship and management of JSL. The plaintiffs complain that in breach of the 1^st Agreement, JSL issued the Lien Notice in the absence of a majority vote.

14.  Lastly, the plaintiffs rely on another oral agreement made round about the same time among the same parties (“the 2^nd Agreement”) whereby it was, among other matters, agreed that Pacific Bulk would act as the commercial manager of the Vessel until all the indebtedness of JSL under a facility agreement granted by Credit Suisse AG secured by a guarantee granted by Pacific Bulk had been fully repaid and Pacific Bulk had been fully discharged from all liabilities under the said facility agreement.

15.  It was further agreed that Pacific Bulk as the commercial manager would be entitled to a management fee at the rate of 1.25% of the freights or hires received on the Vessel. It would also be entitled to collect, retain and utilize all or any sums relating to the commercial operation of the Vessel to defray all outgoings and expenses incidental to its operation, settle the management fees payable and make full payment to Credit Suisse AG under the said facility agreement.

16.  While the indebtedness of JSL under the said facility agreement had not been repaid and hence the liability of Pacific Bulk under the guarantee had not been discharged, the plaintiffs complain that in breach of the 2^nd Agreement, by issuing the JSL interfered with the management of the Vessel and its right to deal with the proceeds arising from its commercial operation including the material charterparty.

17.  Prior to the ex-parte application, Pacific Bulk proposed twice to Mr Chu and JSL that pending the resolution of the disputes among the parties, on condition that JSL withdrew the Lien Notice, Pacific Bulk would cause the entire Freight be paid into an escrow account or the court. No response was given to this proposal. This prompted the plaintiffs to make the ex-parte application.  

18.  Upon the undertaking of Pacific Bulk to pay into the court the entire Freight, the Injunction was granted. In simple terms, by the Injunction, Mr Chu and JSL must withdraw or cause to be withdrawn the Lien Notice and must not claim or caused to claim a lien over the Cargoes. They must not in any way hinder the delivery and release of the Cargoes to the consignee.

19.  With the Injunction, the plaintiffs were able to ensure that the Cargoes were duly delivered and discharged to the consignee in late December 2014 and early January 2015.

20.  At present, both JSL and CSCL are in liquidation. The Vessel has been liquidated. Mr Tollan for their liquidators indicates to this court that they would take a neutral stance in these applications at this stage and reserve their rights pending further investigation of the affairs of JSL and CSCL.

21.  Mr Chu’s pleaded case in respect of the 2^nd Agreement mainly consists of bare denials. His only positive averments are that Pacific Bulk as arranged by him acted as the commercial agent/in-house broker of the Vessel and he accepts that Pacific Bulk would be remunerated for its service as commercial agent/in-house broker at a rate of 1.25% of the freights received by the Vessel as address commissions and not management fees. And that this would be charged by way of a sub-charter arrangement whereby Pacific Bulk would become owner of the Vessel for each voyage and would enter into separate charterparties with third parties in the market. Mr Chu further avers that Pacific Bulk was required to account to JSL for all sums collected into the account of JSL with HSBC, save that Pacific Bulk was entitled to deduct the address commission before doing so.

22.  I pause to note that there are other allegations in the Amended Statement of Claim. The subject matter of the Injunction is only however confined to the Lien Notice purportedly issued against the Cargoes for the allegedly wrongful dealing with Freight on the part of Pacific Bulk.  

23.  In light of the complete disposal of the Cargoes, which were the subject matter of the Injunction, Mr Wong submits that the Injunction now has no practical value and has become spent. I agree. However, it does not follow that this court should sweep any impropriety of the Injunction under the carpet. The allegations of material non-disclosure still raise a live issue.  

24.  Mr Chu takes grave exception to the Injunction. His discharge application is mainly based on the simple ground that Mr Yan who is General Manager of Pacific Bulk Chartering Limited, an agent of Pacific Bulk, doctored certain emails exhibited to the 1^st Affirmation of Sun Man filed on 17 December 2014 (“Dubious Emails”) in support of the ex-parte application. These Dubious Emails were found to be different from their original copy found in the server materially. Thus, the complaint is that the plaintiffs obtained the ex-parte injunction and hence the Injunction by false evidence and must be discharged as soon as possible.

25.  This is particularly the case when the central question identified by the defence is that whether Pacific Bulk was the commercial manager of the Vessel entitling to a commercial management fee or just the commercial agent of the Vessel entitling to an address commission. The defence says that a commercial agent has far more limited powers to charter the Vessel and to collect income including freights on behalf of JSL. The Dubious Emails therefore deceptively lent support to the plaintiffs’ case before the ex parte judge.  

Dubious Emails

26.  There are altogether three emails under complaint in the 1^st Affirmation of Chu Kong filed on 11 February 2015 in support of the Discharge Summons. The first one was purportedly issued on 14 January 2014 by Ms Susan Ye of Pacific Bulk. It related to the terms of the charterparty of the Vessel between Pacific Bulk and JSL. Such terms included the following references:

address commission: 5% to CHTRS

management fee: 1.25% to CHTRS

27.  The corresponding terms in the original email however made reference to address commission only.

28.  The 2^nd email was purportedly issued again by Ms Susan Ye dated 3 July 2013. It related to the terms of another charterparty of the Vessel including the following term:

1.25% ADDCOMM + 1..25% Management Fee

29.  Mr Chu produced the original copy of the 2^nd email and the relevant term was without any reference to management fee. It merely set out the ADDCOMM to be 2.5%. The parties agree that ADDCOMM stands for address commission.

30.  The 3^rd email was issued by Ms Susan Ye dated 17 October 2013. Again it related to a charterparty of the Vessel and it expressly provided for a management fee of 1.25% in addition to a like amount of ADDCOMM. The original of the 3^rd email produced by Mr Chu however provided for ADDCOMM only.

31.  The explanation of these differences was only given for the first time in the Affirmation of Mr Yan and the 3^rd Affirmation of Ms Sun both on 29 January 2016, the subject matters of the X-Exam Summons.

Discharge Summons

32.  Mr Wong makes detailed submissions on the merits of the Discharge Summons. He submits that Mr Chu is now merely making a mountain out of a molehill in respect of the Dubious Emails. He points out that there was no dispute that Pacific Bulk had been the commercial manager of the Vessel prior to late November 2014 and there is no evidence that the plaintiffs were aware of the fact that the Dubious Emails were produced by alterations. Hence he submits that the plaintiffs could not be guilty of material non-disclosures or having misled the court at the ex parte hearing.

33.  I shall not go any further into his comprehensive submissions given the fact that this court is not asked to deal with the Discharge Summons substantively. The only matters calling for my decision are whether it should be dealt with separately prior to the trial of this action and whether cross-examination should be ordered.

34.  Concerning the first matter, Mr Wong principally relies on the following dictum of Sir Browne-Wilkinson VC in Dormeuil Freres SA v Nicolian Ltd. [1988] WLR 1362 at 1368H:

“To discover whether an ex parte order has been improperly obtained, the court first has to consider the evidence as it was at the time of the application for the ex parte order and then a mass of evidence designed to demonstrate that that evidence was misleading or failed to make disclosure. The real question at the time of the inter partes hearing should not be what has happened in the past but what should happen in the future. On the hearing of the inter partes motion it is impossible to make any concluded finding of fact, yet the court is being asked to reach a conclusion on the issue of non-disclosure without full knowledge of the circumstances. This attempt involves a minute examination of detailed allegations and counter-allegations, the exact materiality of which may not be clear to the judge in the interlocutory hearing, in circumstances when that is not necessary for the future conduct of the case.” (Emphasis supplied)

35.  Sir Browne-Wilkinson VC went on to say this at p.1369H,

“In my judgment, save in exceptional cases, it is not the correct procedure to apply to discharge an ex parte injunction on the grounds of lack of full disclosure at the interlocutory stage of the proceedings. The purpose of interlocutory proceedings is to regulate the future of the case until trial. Where an Anton Piller order has been made ex parte, in the vast majority of cases the order has been executed before the inter partes hearing. Setting aside the Anton Piller order cannot undo what has already been done. As to the injunction contained in the ordinary Anton Piller order, that is directed to last only until the inter partes hearing of the motion. The correct course, as the Court of Appeal decisions show, is to regulate the matter for the future on the basis of the evidence before the judge on the inter partes hearing. The sole relevance of the question “Should the ex parte order be set aside?” is, so far as I can see, to determine the question whether the plaintiff is liable on cross-undertaking in damages given on the ex parte hearing. That is not an urgent matter. It is normally much better dealt with at the trial by the trial judge who knows all the circumstances of the case and is able, after cross-examination, to test the veracity of the witnesses.”

36.  I also find the following passage in Gee on Commercial Injunctions (5^th Edition 2004) at §9.027, cited to me by Mr McCoy, apposite: 

“Accordingly, it is considered that while it may be appropriate to adjourn an application to discharge fully executed Anton Piller relief on the grounds of non-disclosure until the trial, this is not a general rule of practice, and whether or not it is done must depend on the circumstances of the particular case. The relevant factors to be taken into account will include the following:

(1) Whether the defendant is likely to suffer continuing prejudice to his reputation or commercial standing by reason of the Anton Piller order, or there is some other good reason to deal with the application promptly,

(2) Whether the issue involves questions of the credibility of witnesses or otherwise is likely to require cross-examination of witnesses so that it should be dealt with at the trial,

(3) Whether the issue will involve a detailed review of voluminous evidence,

(4) Whether the issue can conveniently be dealt with at an interlocutory hearing and will not be likely to lead to unnecessary costs,

(5) Whether the issue arises in connection with another application before the court, such as an application to set aside leave granted to serve a defendant with proceedings out of jurisdiction or an application to discharge injunctive relief.”

37.  I am aware that the foregoing passage concerns a fully executed Anton Piller order and we are not dealing one here. Nevertheless, I am of the view that given the disposal of the Cargoes, the Injunction has long ceased to have any restrictive effect on any of the defendants, we are in a similar situation here and the considerations set out above are of relevance.

38.  Applying the legal principles set out above to the particular circumstances of this matter, for the following reasons, I am of the view that the Discharge Summons should be dealt with at the trial.

39.  First, as pointed out by Mr Wong, whether the Dubious Emails are fabricated and false evidence and whether the plaintiffs had any knowledge of such fabrication are a fact-finding exercise involving not just the evidence of Ms Sun and Mr Yan. Mr Chu’s evidence is of key importance too. Mr Yan alleges that Ms Suan Ye had throughout been instructed by Mr Chu not to make any references to management fee for internal accounting purposes in spite of the actual payment of such management fees to Pacific Bulk. Thus when Ms Sun asked him for a copy of the fixtures between Pacific Bulk and JSL for litigation purposes, Mr Yan prepared the Dubious Emails by alteration of the three emails and including management fees to reflect the genuine position without telling Ms Sun. Whether or not Mr Chu caused deliberate omissions of references to management fees paid to Pacific Bulk in the three emails sent by Ms Susan Ye is obviously one of the relevant issues.

40.  Ms Sun and Mr Chu are parties to this action and they are expected to testify at the trial. A separate hearing with only the cross-examination of Ms Sun and Mr Yan does not really assist in the fact-finding exercise.

41.  Hence, I am not convinced that the issues in the Discharge Summons can be conveniently dealt with at an interlocutory hearing despite Mr McCoy’s reassurance that a short hearing will suffice.

42.  I agree with Mr Wong that the issue of the identity of Pacific Bulk at the material time, being the core issue of this action, will be fully canvassed at the trial. All documents relating to this issue including the Dubious Emails will be scrutinized closely. So will the circumstances under which the Dubious Emails were created. Duplicity of proceedings to deal with the same issue should best be avoided. It not only will incur unnecessary costs and cause delay but also may possibly bring about inconsistent judgments: Skillsoft Asia Pacific Pty Ltd v Ambow Education Holding Ltd (unreported, HCCL19/2013, 12.1.2016) per Anthony Chan J at §9.

43.  I also opine that there is no urgency to dispose of the Discharge Summons in light of the present state of affairs. The Vessel has been sold and JSL is in liquidation. The Freight is now with the court. The Injunction is spent. There can be no continuing prejudice to the reputation or commercial standing by reason of the Injunction. I do not accept that Mr Chu is really troubled by any stigma associated with being an injuncted party under the Injunction.  

44.  In the event that the Injunction is set aside, an inquiry as to damages should not be allowed unless the defence can adduce credible evidence that they have suffered loss as the result of the grant of the Injunction: Koman Patel and Ors v Chris Au and Ors (unreported, HCA 183/2014, 4.8.2014) per Zervos J at §23. Mr Wong is right to point out that up till now Mr Chu has failed to meet the threshold and Mr McCoy accepts that there is no evidence of loss suffered by Mr Chu personally. This further convinces me that there is no urgency to dispose of the Discharge Summons prior to the trial.

45.  Mr McCoy’s best argument is that the interests of justice demand that an ex parte order procured by false evidence should be discharged without further ado. To my mind, this is not such an open and shut case that the court should discharge the Injunction without hesitation. Full investigation of all the circumstances is required and this should be undertaken at the trial. There has already been a delay of over a year after the issue of the Discharge Summons and the parties should proceed with the main action as soon as possible so that the differences between them including the propriety of the Injunction can be resolved as soon as possible.

46.  Mr McCoy also draws my attention to Kras Asia Limited v Rishi Kumar Bhatnagar (unreported, HCA783/1988, 26.5.1988). There, Jones J observed that Dormeuil Freres S.A. had no “no relevance where there had been a failure to disclose material facts within the knowledge where there had been a failure to disclose material facts within the knowledge of the plaintiff upon the ex-party when the order should not have been made.” Jones J went on to point out that in Dormeuil Freres S.A. the parties had agreed that some form of injunction was necessary despite the material non-disclosure.

47.  I do not think Dormeuil Freres S.A. laid down any hard and fast rule. Whether or not a discharge application should be disposed of immediately when there is an allegation of material non-disclosure depends very much on the particular circumstances of each individual case. The relevant considerations are set out in the foregoing passage of Gee on Commercial Injunctions. Suffice it to say, the facts of Kras Asia Limited are markedly different from the present case in that the knowledge of the plaintiffs about the alterations of the emails resulting in the Dubious Emails is a hotly contested issue.

48.  I then come to the conclusion that the Discharge Summons should be dealt with at the trial.

The X-Exam Summons

49.  The X-Exam Summons has to be considered in light of my conclusion on the Discharge Summons though Mr Chu took out the same on the basis that the latter would be dealt with at an interlocutory hearing. The Discharge Summons will be dealt with together with the trial of the main action. An interlocutory order will be made in respect of the Discharge Summons and a final order will be made after the trial of the main action. The affirmations of Mr Yan and Ms Sun are relevant to the disposition of not only the Discharge Summons but also the main action.

50.  Therefore, the X-Exam Summons has to be considered in the context of a trial and merely an interlocutory hearing. Ms Sun is a party to the action and Mr Yan may be a witness of the plaintiffs. They may or may not produce their witness statements and testify on behalf of the plaintiffs at the trial. If they are not called to give evidence, their witness statements should normally be excluded from consideration. There is no reason why their evidence by way of their previous affirmations should be admitted if they do not go to the witness box at the trial.

51.  I would agree that for the purpose of the Discharge Summons, if the substantive hearing of the same were to take place at an interlocutory hearing where normally affidavit evidence would suffice, Ms Sun and Mr Yan should be cross-examined on their affirmations concerning the purportedly innocuous reasons for alterations of the three emails and the alleged lack of knowledge of such alterations on the part of Ms Sun. Without cross-examination, this court would be unable to resolve the factual disputes on affidavit evidence alone.

52.  I however do not think that it would be right form me to order that Ms Sun and Mr Yan be compelled to attend the trial and be cross-examined for the purpose of the Discharge Summons. In view of the controversial nature of their evidence, if either of them does not turn up, the proper sanction is that his/her relevant affirmations should be excluded from consideration and the plaintiffs should take the consequences if their absence could not be satisfactorily explained.  

Conclusion and Orders

53.  In the circumstances, I cannot accede to Mr Chu’s application by the X-Exam Summons. I should instead order that unless the trial judge otherwise directs, the Affirmation of Mr Yan and the 3^rd Affirmation of Ms Sun dated 29 January 2016 be excluded from consideration if the deponents of such affirmations do not testify at the trial. I add the caveat because I can envisage that there are circumstances that may justify an application to adduce such affirmations as hearsay evidence. 

54.  In conclusion, I adjourn the substantive hearing of the Discharge Summons to be dealt with together with the main action at the trial.

55.  With regard to the X-Exam Summons, for the reasons given above, it falls to be dismissed.

56.  I resolve the X-Exam Summons in favour of the plaintiffs and they should be entitled to their costs applying the general rule of costs following the event. However, I take into account the fact that when the X-Exam Summons was taken out, there was no direction given in respect of the Discharge Summons as to when it should be heard. This hearing in other words is in any event necessary for the future conduct of the Discharge Summons. I seized the opportunity to give directions relating to the substantive hearing of the Discharge Summons and turn down Mr Chu’s request for cross-examination by his X-Exam Summons.

57.  In the circumstances, it appears to me that an appropriate costs order is that costs of the X-Exam Summons be in the cause of the Discharge Summons with a certificate for two counsel. I thus make a costs order nisi in this term.

58.  It remains for me to thank counsel on both sides for their helpful submissions.