LAM CHOR HANG v. LAU MING GU AND ANOTHER

HCPI 694/2017
[2018] HKCFI 533

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO.694 OF 2017

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DECISION

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Introduction

1.  Mr Lam applies to this court for a Mareva injunction against Mr Ho formerly trading as Ho Cheong Matal Recycle Company, the 2^nd defendant herein specifically for the sale proceeds of his property located at Laguna City, Kowloon (“the Property”).

2.  This application was first made on an ex parte basis on 30 June 2017. The completion date of the sale of the Property fell on 3 July 2017. On that occasion, this court was not satisfied that there was sufficient secrecy to justify the application being proceeded with in the absence of Mr Ho. Thus, this court adjourned the hearing of the application to 3 July 2017 for the attendance of Mr Ho. Mr Ho turned up at the adjourned hearing and he was represented by counsel, Mr Hariman. Mr Hariman indicated to this court that Mr Ho wished to contest the application and could give an undertaking not to deal with the sale proceeds of the Property up to the amount of HK$1,500,000 pending the determination of this application. Accordingly, this court gave directions for the parties to file evidence so that this application could be a properly argued on an inter partes basis.

3.  Unsatisfactorily, this matter has taken a long time to be able to get back to this court for resolution. One of the reasons is that the parties needed further time to file their evidence. As explained below, there have been significant developments in these proceedings during the adjournment.

4.  Mr Lam’s claim is for damages for the personal injuries sustained by him when he delivered scrap metal to the premises of Mr Ho at Yau Tong, Kowloon (“the Premises”) for the purpose of his recycling business in the morning of 24 May 2015.  While he was talking to one of the employees of Mr Ho, a forklift truck driven by Mr Lau who is the 1^stdefendant herein without any license rolled over the left ankle of Mr Lam. As a result, his left ankle was fractured. 

5.  The pleaded case of Mr Lam is that the accident was solely caused by the negligence and/or breach of common law duty of care and/or breach of statutory duty by Mr Lau and/or Mr Ho or by the employee, servant or agent for which Mr Ho is vicariously liable.

Development in the interim

6.  Mr Lam filed the Writ herein with a Statement of Claim and a Statement of Damage on 30 June 2017.

7.  Mr Lau has not filed any notice of intention to defend. On 11 September 2017, Mr Lam entered interlocutory judgment against him and Mr Lau is adjudged that he should pay Mr Lam damages to be assessed with costs.

8.  Mr Ho, on the other hand, filed his Acknowledge of Service indicating that he does not intend to contest the proceedings without any admission to Mr Lam’s claim for damages. Mr Lam claims is for the total amount of HK$5,056,967.54.

9.  Interlocutory judgment was entered against Mr Ho on 9 October 2017 and likewise he is adjudged that he should pay Mr Lam damages to be assessed with costs.

This application and its grounds

10.  In light of the interlocutory judgment entered against Mr Ho, this application is effectively for a post-judgment Mareva injunction. There is no room for any debate about whether Mr Lam has a good arguable case against Mr Ho. The live issues are whether there is a real risk of dissipation of Mr Lam’s assets likely to render the judgment to be of no effect and the adequate quantum of monies to be frozen if there is such a risk.

11.  Mr Hariman at the hearing points out that if this court is of the view that a Mareva injunction is justified, Mr Ho hopes to have the amount to be frozen pursuant to the undertaking be reduced to HK$750,000.

12.  Put briefly, Mr Ko, for Mr Lam, relies on the following matters to suggest that there is a real risk of dissipation of assets by Mr Ho so that Mr Lam may not be able to recover anything despite the interlocutory judgment.

13.  First, after the accident, Mr Ho avoids seeing him whenever he is present in the Premises.

14.  Mr Ho, two months after the accident, incorporated a limited company, namely, Ho Cheong Metal Recycle Co Limited (“the Company”) on 30 July 2015 to take over his sole proprietorship business, which was commenced on 1 September 2010. In the beginning, Mr Ho held 60% shares and Mr Xu, the person-in-charge of the Site at the material time and related to Mr Ho, held the remaining 40% shares. On 17 December 2015, Mr Xu transferred all his shares to Mr Ho. Henceforth, Mr Ho has become the sole shareholder of the Company.

15.  In late 2015, Mr Xu told Mr Lam that if his claim against Mr Ho exceeded HK$1 million, Mr Ho would close down his business.

16.  Mr Ho purchased the Property on 6 May 2013 at the price of HK$5,080,000. It was his only substantial fixed asset.  By a provisional agreement for sale and purchase dated 8 May 2017, Mr Ho contracted to sell the Property at the price of HK$6,680,000.

17.  Mr Ho’s evidence is that his business had been thriving and he incorporated the Company for this reason. He has never thought about ceasing his business with a daily revenue exceeding HK$100,000 involving 20-30 tonnes of scrap metal and waste material each day.

18.  Mr Ho denies having told Mr Xu to tell Mr Lam that he would close down the business to avoid any liabilities or anything to that effect.

19.  He further explains that he put the Property on the market for about a year before entering into the provisional agreement for sale and purchase. He maintains that it was a commercial decision to increase cash flow for his business.

Analysis

Risk of dissipation

20.  The applicable principles relating to an application for Mareva relief are well-established and I need not set them out here. I fully agree to the following dictum of Mimmie Chan J in Chan Fai Cheung v Ho Chi Wing trading as Hanson Engineering Co and Anor., unreported, HCPI 354/2016, 23 February 2018, [2018] HKCFI 399 at §§5-6:

“5. The test of dissipation of assets is objective. The Court is concerned with the effect of the defendant’s conduct as opposed to the motives underlying the conduct. So it is not necessary to show that a defendant would remove his assets out of reach of the plaintiff for the purpose of defeating any judgment that the plaintiff might obtain against him. However, the mere fact that the conduct of a defendant is likely to deplete his assets available for judgment is not sufficient. A defendant is entitled to incur expenses in going about his ordinary life or business, repay his genuine debts as they fall due, and to spend money in defending himself against the plaintiff’s claim. It has never been the purpose of a Mareva injunction to give to a plaintiff security over a defendant’s assets in priority to other creditors. Something more than a real risk that the judgment will go unsatisfied is required. (See TTMI Ltd of England v ASM Shipping Ltd of India [2006] 1 Llyod’s Rep 401.) Despite the tendency to refer to a defendant’s alleged “unacceptably low standard of commercial morality” as the basis for seeking a Mareva injunction, the courts have warned against too readily drawing inferences of a real risk of dissipation from the conduct of a defendant.

6. In this case, even if the 1^st Defendant’s sale of his property may have the effect that the property or its proceeds would be out of the Plaintiff’s reach in the eventual execution of any judgment in his favour, it cannot be established that such sale would have the effect of depleting the 1^st Defendant’s assets which would otherwise be available for execution of the judgment: since the sale and the use of the proceeds of sale are shown to be for legitimate purposes: of discharging the 1^st Defendant’s obligations under the various court orders are made against him, including his liability to the Plaintiff, and for legitimate expenses in and consequential to the sale.  There is no sound basis to draw the inferences which the Plaintiff has asked the court to draw against the 1^st Defendant’s series of conduct outlined, including his petition for divorce.

21.  I bear in mind that the burden is on Mr Lam to prove the alleged risk of dissipation. I am unable to accept that the alleged assertion of Mr Xu could be relied on to infer any intention to evade liability on the part of Mr Ho even though hearsay evidence is admissible in this application. I do not agree that any adverse inference should be drawn against Mr Ho by reason of his failure to procure Mr Xu to make an affirmation to deny having told Mr Lam so.

22.  Forming a limited company to take over a sole proprietorship or partnership business is a common occurrence in the commercial world. However, Mr Ho’s sudden transfer of his purportedly profitable business does cause reasonable concern. I do not find his explanation to be convincing at all. He has failed to produce any documentary evidence to show the respective financial condition of the sole proprietorship business and the Company to substantiate his allegations. I am of the view that there was no legitimate reason why the Company was incorporated to take over the sole proprietorship business at the material time.

23.  There is no evidence as to whether the Company has paid Mr Ho any consideration for the transfer the assets of the sole proprietorship business to the Company. The transfer has, prima facie, depleted the personal assets of Mr Ho.

24.  I have not lost sight of the vehicle currently registered in the name of Mr Ho. The evidence of Mr Lam is that the vehicle was observed to be in an obsolete condition and had been discarded in the Premises. There is no contrary evidence. I do not accept that the vehicle can be included as a valuable asset of Mr Ho.

25.  Now I turn to the triggering event, i.e., the sale of the Property. There is no denial that the Property is the only substantial asset of Mr Ho apart from the vehicle. The explanation proffered by Mr Ho for the sale lacks cogency again. On the one hand, he claims that the business of the Company is doing very well generating substantial daily revenue. On the other hand, he finds it necessary to sell his only landed property to increased cash flow. If his business had been so lucrative, I see no reason why he had to dispose of his only landed property to fund the business of the Company.

26.  I am deeply troubled by the fact that Mr Ho is unable to produce any documentary evidence to support his allegations. At the very least, he should be able to show by way of documentary evidence that the initial deposit in the sum of HK$200,000 and the further deposit in the sum of HK$468,000 paid to him in accordance with the provisional agreement for sale and purchase were actually utilised by the Company for its business purposes. Not a single accounting document of the Company is produced to support his case and this causes me serious doubt about the genuineness of the purported use of the sale proceeds.

27.  I am then driven to the conclusion that the sale of the Property is not intended for any proper and ordinary purposes.

28.  All in all, I am satisfied that Mr Lam has shown, on the evidence, that there is a real risk of dissipation of assets which would make Mr Ho judgment proof. I am inclined to grant Mr Lam the Mareva relief sought.

Quantum

29.  This issue can be resolved very briefly. Mr Hariman showing his expertise in personal injuries claims takes this court through the pleaded case of Mr Lam including the Statement of Damages and the medical evidence of Mr Lam and makes a forceful submission that as the matter now stands, the quantum of damages that Mr Lam could recover cannot exceed HK$750,000. He then suggests that this court should accept the present undertaking of Mr Ho to be continued pending trial instead of imposing a Mareva injunction on Mr Ho.

30.  I have taken into account all the challenges mounted by Mr Hariman. I am reluctant to form any view as to whether any head of damages would be allowed in the end. I do not think any deficiency in the pleading at the present stage would debar Mr Lam from recovering any particular damages which he would otherwise be entitled to. I refuse to carry out a mini-assessment of damages at this very early stage.

31.  I note that Mr Lam is claiming a sum exceeding HK$5 million. Mr Ko highlights the fact that he is not asking for the whole sum to be frozen and the relevant amount is HK$1.5 million only. I also note that there is no evidence of any hardship suffered by Mr Ho if the sum of HK$1.5 million continued to be frozen.

32.  Given the injuries of Mr Lam sustained and his medical history, I opine that it is not unreasonable to suggest that there is a real prospect that the ultimate award of damages would exceed HK$1.5 million.

33.  In the circumstances, I reject the submission of Mr Hariman that the appropriate amount to be frozen, either by way of an undertaking or a Mareva injunction, should be HK$75,000.

Conclusion and orders

34.  For the reasons given, I accede to the application of Mr Lam and grant Mr Lam the Mareva injunction sought up to the amount of HK$1.5 million.

35.  As regards costs, I make an order nisi that the costs of this application be borne by Mr Ho, to be taxed if not agreed save the costs of the hearing of 30 June 2017. I am of the view that the application should not have been made on an ex parte basis and Mr Ho could not possibly have dissipated the sale proceeds of the Property even if he had been prior notice of the hearing. Thus, I make no order as to costs in regard to that hearing.

36.  I further allow Mr Lam legal aid taxation of his own costs in accordance with the Legal Aid Regulations. 

37.  Lastly, I thank both Mr Ko and Mr Hariman for the assistance rendered to this court.