HUANG KOCK CHEN AND ANOTHER v. CHAN KWAN AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

Case No: A5629 of 1989

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JUDGMENT

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The Order Sought.

1. I am asked to continue Mareva injunctions granted on 30 September 1989. These injunctions restrain the Defendants from dealing with amounts payable under two letters of credit and from dealing for themselves under the name of a partnership.

The Plaintiffs' Affirmations.

2. In support of the ex parte order, the main affirmation was made by the First Plaintiff and the contents of this were confirmed by the Second Plaintiff.

3. The First Defendant's affirmation tells of the setting up, in September 1987, of a trading partnership by the parties to this matter under the name of Feder Trading Co.. It is said that, under the agreement, there was no authority given for the partners to do any individual business under the partnership name.

4. As part of the partnership business, a contract for the supply of machinery and some raw material was entered into on 29 September 1989 through the China National Machinery Import and Export Corporation in China. The First Plaintiff and the Second Defendant were told by the factory supervisor of the end user of this machinery - the Xin Hui Master Batch Factory - that more machinery would be wanted, but, at that time, no money was available. Further contracts would, however, be forthcoming.

5. Since about March 1989, the Defendants were asking for "a split" of the partnership. The First Plaintiff says, "Conferences were held by the partners but with no definite agreement reached until the end of May 1989."

6. Shortly before 30 May 1989, the First Plaintiff discovered that the Defendants had made unauthorised use of the partnership name for their own business.

7. On 30 May 1989, the parties had a meeting, with the First Defendant representing the Second Defendant. An agreement was reached and this is exhibited. This agreement deals with aspects of the partnership business. It reveals clearly that the Plaintiffs were aware that the Defendants had been using the Freder name for their own business.

8. Between mid June 1989 and 31 August 1989, the First Plaintiff made certain inquiries and discovered that the Defendants had entered into another contract for their own account for the supply of more machinery to the Master Batch Factory. She says that the agreement of 30 May was not intended to deal with this contract.

9. This is the contract in dispute; the Plaintiffs saying that the profits arising from it should be for the account of the partnership.

10. Nothing is said expressly that would provide a foundation for any belief that there is a risk that a judgment obtained would remain unsatisfied.

The Defendants' Affirmations.

11. The main affirmation for the Defendants is that of the First Defendant. The Second Defendant confirms the contents of this affirmation. The Second Defendant says that the partnership still owes him $313,822.44 of advances by him and that he has free assets of about $2.3 million.

12. The First Defendant says that the parties orally agreed in early January 1989 to dissolve the partnership and exhibits a formal dissolution agreement entered into by the parties on 14 March 1989.

13. The Defendants formed a new partnership under the Freder name and told the Second Plaintiff of this. The Second Plaintiff indicted some unhappiness with this arrangement, and, after further discussions, entered into the agreement of 30 May 1989. This agreement makes specific reference to the Defendants using the Freder name.

14. The contract in dispute was secured by the First Defendant after the dissolution agreement and is one of the contracts referred to in the agreement of 30 May 1989. Unfortunately, this reference is not sufficiently specific to identify the contracts.

15. The First Defendant says that, under the two dissolution agreements, he was entitled to secure the contract in dispute outside the old partnership.

16. He says that he is settled in Hong Kong and has free assets of about $675,000.

The Second Plaintiff's Reply.

17. The Second Plaintiff denies that the partnership was orally dissolved in January 1989.

18. For the first time, she deals with the dissolution agreement of 14 March 1989. She says that this agreement did not deal with reserving the line of business with the Master Batch factory to the partnership because the First Defendant told them that to forget about it because the factory could not obtain the necessary finance.

19. She points out that clause 9 of the agreement of 14 March 1989 provides that a party who accepts a personal order has to sign a guarantee and give it to the other parties.

20. The Second Plaintiff gives an extraordinary explanation for not disclosing the existence of the dissolution agreement of 14 March 1989 in the ex parte proceedings. She says, "Neither the 1st Plaintiff nor myself was then able to locate the dissolution agreement dated 14th March 1989. Without such document before us, we were not in a position to give specific instructions as to its content. That is the reason why such dissolution agreement had not been disclosed." Quite apart from the inherent improbability of this statement, there is the point that the Plaintiffs were not content just not to disclose this very important document, but alleged that no definite agreement was reached on the dissolution until the end of May 1989; that is, they specifically asserted that no agreement of this nature existed.

Non-disclosure.

21. The Plaintiffs have disentitled themselves to relief on this ground alone. It is difficult to imagine a more blatant example of non-disclosure. In fact, the Plaintiffs' conduct amounts to more than simple non-disclosure; they positively mislead the judge hearing the ex parte application by telling him in unequivocal terms that there was no agreement before the end of May 1989.

22. That agreement recites a number of lines of business reserved for the profit of the old partnership and the contract in dispute is not listed there. This agreement specifically says that "all other new orders from new and old clients alike will be personally handled by individual shareholders".

23. Clause 9 of that agreement says this:

"9. As the various share-holders are entitled to accept other personal orders when assisting to handle the above seven orders, it is unanimously agreed that during the transitional period, temporarily set to be two months, if a share-holder is handling his own order, he has to undertake all his own expenses. The share-holder concerned has to sign a guarantee and give it to the other share-holders when he has got an L/C from a client, assuring them that the gain or loss of the order concerned has nothing to do with the other share-holders; and he will bear all the responsibility. This particular share-holder is also entitled to all the profit obtained from the order, and other share-holders cannot delay giving him the profit. The L/C obtained and the L/C given should be kept on file in the company."

24. The importance of this clause is obvious. It makes sense only if one assumes that the individual "share-holders" are entitled to conduct business for their own account under the umbrella of the partnership name and business; otherwise, there would be need for the clause at all.

25. The Plaintiffs could not have been unaware of the prejudicial impact this agreement, and clause 9 in particular, would have on the merits of their case at the ex parts stage, and I believe that they deliberately suppressed it so that their came would appear stronger than it was.

26. My findings on this point are enough to dispose of the matter, but I believe that the Plaintiffs' case founders on the merits as well.

The Merits.

27. The jurisdiction of the Court to grant an injunction is in respect of "... all cases in which it appears to the court just and convenient to do so."

28. On the authority of Ninemia v. Trave Schiffahrtsgesellschaft m.b.H. [1983] W.L.R. 1412, at 1417 -

"It follows that the evidence, including the evidence on the second question [the risk that a judgment would remain unsatisfied] ... must be looked at as a whole. A "good arguable case" is no doubt the minimum which the plaintiff must show in order to cross what the judge rightly described as the "threshold" for the exercise of the jurisdiction. But at the end of the day the court must consider the evidence as a whole in deciding whether or not to exercise this statutory jurisdiction."

29. As to the "second question", Kerr L.J., in the Ninemia case at page 1422, after some discussion on the relevance of the intention of a defendant, said -

"In our view the test is whether, on the assumption that the plaintiff's have shown at least "a good arguable case," the court concludes, on the whole of the evidence before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied."

30. On this issue, as on the matter of whether or not there is a "good arguable case" and, overall, whether it is just and convenient the injunctions should be continued, it is for the Plaintiffs to satisfy me that the relief should be granted.

31. On all counts, the Plaintiffs fail dismally. They may have some kind of case, but the probabilities arising from the dissolution agreements are over-whelmingly in favour of the Defendants' case. The Plaintiff have nothing approaching a good arguable case. The Plaintiffs have made no serious attempt to show that there is any risk that a judgment in their favour would remain unsatisfied. Indeed, they do not seem to have even directed their minds to it in the first instance, dealing with the point in a half-hearted manner only after the Defendants pointed out that they were local people of substance. And over-all, it cannot be said, in the circumstances of this case, that any sensible person would conclude that it would be just and convenient for the injunctions should be continued.

Result.

32. In the result, the injunctions are discharged.

Costs.

33. I do not think there is any reason why costs should not follow the event. Accordingly, I make an order nisi that the Plaintiffs pay the Defendants' costs.