UNITED RELIANCE CORPORATION LIMITED v. METALIMEX (HONG KONG) LIMTED

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is the hearing on a returnable date of a court order arising from an exparte application by Plaintiff for an interlocutory Mareva Injunction and Anton Piller Order.

2. It is pertinent at the outset to outline the chain of events up to the present stage to provide a clear picture of the case.

3. At the end of a trial on 12/11/85 Deputy Judge O'Dea gave judgment to Plaintiff on its claim against Defendant in the sum of US$330,000 with interest and also dismissed Defendant's counterclaim. Thereupon Defendant applied r a stay of execution pending appeal against that decision but that application was refused by the trial judge.

4. On 14/11/85 Plaintiff's solicitors wrote to Defendant's solicitors demanding payment of the judgment debt and were told in reply that Defendant, while awaiting the outcome of the appeal relating to the stay of execution, would not pay the adjudged amount.

5. In the face of Defendant's said stance Plaintiff took out a Writ of Possession and Fieri Facias on 23/11/85. However, when the bailiff tried to execute that document he found that Defendant had, on 9/12/85, moved its address from South Sea Centre in Mody Road, Kowloon to a small rented office in Beverley Commercial Centre in Chatham Road, Kowloon.

6. The bailiff's abortive attempt to levy execution gave rise to Plaintiff's issue on 11/12/85 of a Garnishee Order to show cause against the Indian Overseas Bank. In that connection Plaintiff was told that Defendant's current account with that bank had been overdrawn to the extent of over HK$5.8 million and Plaintiff therefore released that order.

7. Meanwhile Defendant's appeal concerning the stay of execution was heard but dismissed by the Court of Appeal on 27/12/85. As this dismissal was not followed with payment of the judgment debt by Defendant, Plaintiff made an exparte application and obtained (a) a Mareva Injunction restraining Defendant by itself, its directors, officers, agents or servants or otherwise from, inter alia, removing, disposing or dealing with any of its assets and property or any monies or beneficial interest thereof belonging to Defendant or Lau Chuck-yee or Lau Chor-sum or any director or officer of Defendant or being in any account of Indian Overseas Bank in Hong Kong, save insofar as they exceeded an unencumbered value of US$330,000 and interest of US$85,366; (b) an Anton Piller Order directing Defendant by its directors, officers, agents or servants to place into custody of Plaintiff's solicitors Defendant's files, books, accounts and audited balance sheets from the date of Defendant's incorporation in 1981.

8. At the appearance before me on the return date Plaintiff sought a continuation of the Mareva Injunction and due compliance with the Anton Piller Order. As far as the law applicable to the matters at issue is concerned, it was agreed by the parties' legal representives, and rightly so, that the court had power to grant the reliefs sought in aid of execution. The relevant and recent authorities can be found in "Orwell Steel (Erection & Fabrication) Ltd. v. Asphalt & Tarmac (H.K. ) Ltd." (1985) QBD 747 and "Distributori Automatici Italia Spa v. Holford General Trading Co& another" (1985) QBD 750.

9. Defence counsel did net in principle oppose Plaintiff's application and merely asked the court's approval of these proposed modifications:

10. It is common ground that Defendant has already handed those records to PlaintiffS.

11. Looking at counsel's arguments it can be said that they devolve upon these salient points:

12. 1) Mr. R. Tang, for Plaintiff, claimed that since Defendant's security for the overdraft of HK$4.7 million at 27/2/86 consisted of a fixed deposit in the name of Lau Chuck-yee, Defendant's director, of US$550,000 or approximately equivalent to HK$4,3 million, it would be unlikely that Defendant could continue to overdraw much beyond HK$4.7 million, so that the partial relaxation of the Mareva Injunction, even if granted, would serve little, if any, unseful purpose. For his part, Mr. A. Wong, defence counsel contended that the relaxing of the terms of the injunction would be of assistance to Defendant's survival because, being a trading company, Defendant would require the opening of Letters of Credit in its business. However, Defendant had not adduced evidence that it had foregone the issue of Letters of Credit on account of the loss of use of its current account. As regards monthly expenditure Mr. Wong referred to the affirmation of Lau Chor-sum, Defendant's director and representative who clarified that Defendant had sent its three senior executives to China to help running a taxi company of which Defendant had. invested HK$4 million or 30% of that company's capital and therefore would need funds to pay their salary, in addition to wages of two local employees and overhead expenses. On this aspect Lau Chor-sum qualified that if the terms of the injunction were not varied, Defendant would be unlikely to pay those staff members.

13. It is not in dispute that there is no documentary proof of this investment of HK$4 million which, from Defendant's accounts, appears to have been made at some time after April 1985. Although Lau Chor-sum maintained that that investment would end up with a profit, he stated in the same breath that such profit could not be remitted to Hong Kong.

14. 2) Mr. R. Tang doubted that the stock of HK$1.4 million, shown as asset in the unaudited Balance Sheet of Defendant as at 12/2/86 was being realizable. The answer thereto came from Lau Chor-sum to the effect that that stock, consisting of communication equipment, was the rejected goods of a contract between Defendant and China National Light Industrial I Products Import & Export Corporation (CNLIPIEC) of Guangzhou arid was awaiting sale by CNLIPIEC. Here again the prospects of remittance of the proceeds of sale to Hong Kong appear to be remote in view of the current stringent exchange control in China.

15. Coming back to the said unaudited Balance Sheet as at 12/2/86 which seems to be unconventional in its presentation, one cannot help wonder about the unusual treatment of certain items therein, such as unpaid capital being regarded as asset and the absence of information leading to the net loss of HK$2.8 million for the 10 months from 1/4/85.

16. 3) Mr. Johnny Leung Ka-kui, Defendant's solicitors deposed in his affidavits of 12/11/85 and 29/11/85 that Defendant was able and ready to make payment into court of the said judgment debt together with interest thereon within 7 days. However, no payment was ever so made and Lau Chor-sum explained in his third affirmation of 7/3/86 that Lau Chuck-yee, another director of Defendant, offered to make that payment only for a stay of execution but since that stay was not forthcoming that offer lapsed.

17. Having considered documents produced and counsel's views I find that Defendant's unorthodox Balance Sheet as at 12/2/86 lacking in particularity in many items contained therein. In this connection I adept the remark of Robert Goff, J. in "A. & another v. C. & another" (1981) 1 QB 961at p.962:

"but no evidence whatsoever was placed before the Court concerning any other assets of the defendant's making the application; it was not therefore possible for the Court to assess whether any other assets of these defendants were available to pay the costs or if they were so available, why the defendants were seeking to make use of the assets which were subject to the mareva injunction for this purpose".

18. In my view what Defendant has really submitted is that it has overdrawn to the tune of HK$4.7 million on security worth HK$4.3 million and would like to increase that overdraft in order to continue in business, because its investment and stock are locked up in China and according to Lau Chcr-sum "profits Defendant has secured in its joint enterprise with PRC cannot be freely remitted back to Hong Kong and converted into Hong Kong currency". Upon considering Defendant's situation I am inclined to reject its suggestion that the terms of the Mareva Injunction are oppressive. Nor I can detect any effort on Defendant's part concerning payment of the judgment debt since Lau Chor-sum vaguely stated that such payment would be made once Defendant was in funds.  In the light of my said findings Defendant's suggested amendment to para.1 of Plaintiff's draft order, i.e., to have the terms of the Mareva Injunction partially lifted, is refused.

19. On the Anton Piller Order I am not clear how the Trade Debtors of HK$5.02 million and the Amount due from Directors o HK$1.2 million in the Balance Sheet as at 31/3/85 came about. Consequently I see a justification for Plaintiff to obtain further information on Defendant's trading activities but only for the years 1983/84 and 1984/ through files, books and accounts. Lastly I would add that a pending appeal on the judgment Deputy Judge O'Dea has no effect on this application.

20. To sum up, Plaintiff's application for the continuation and compliance of the court order of 7/2/86 is granted and Plaintiff's relevant draft order is approved subject to these amendments:

21. Costs of this application are to Plaintiff against Defendant.