SANWA DEVELOPMENT LTD. v. CHAN KAR KEUNG AND ANOTHER

CACV 310/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 310 OF 1998

(ON APPEAL FROM HCA NO. 7002 OF 1994)

-------------------

----------------------

J U D G M E N T

----------------------

Liu, JA:

1. This case involves three parties in a company, the Sanwa Development Limited (Sanwa). The plaintiff (Mr Lau) commenced an action against his co-directors and shareholders in Sanwa as the 1st and the 2nd defendants. Sanwa was joined as the 3rd defendant. It is common ground that the action was a derivative action. A Defence was filed; so was a Reply. The Writ of Summons was taken out in July 1994. Mr Lau's claim in the derivative action was then primarily based on breaches of fiduciary duty by both the 1st and the 2nd defendants. In the course of the proceedings, evidence of alleged frauds came to light and on the allegations of these frauds, the plaintiff obtained an ex parte Mareva against the 1st and the 2nd defendants on 13 June 1995. The ex parte application was returned three days thereafter on 16 June 1995 before the Chief Judge, Chan, J., as he now is, who continued the Mareva and granted both defendants leave to file evidence in opposition. Pleadings were amended, but soon in July 1995, a petition was presented to wind-up Sanwa. On 13 September 1995, a Winding-up Order of Sanwa was made.

2. The 1st and the 2nd defendants were known to air their objection to the continuation of the derivative action as Sanwa was no longer in existence to support the derivative action taken advantage of by Mr Lau. Mr Lau negotiated with the Official Receiver with a view to having the action taken over by the Official Receiver in the name of Sanwa in liquidation. In fact, these defendants applied to strike out the amended Statement of Claim and to have the Mareva discharged on the basis that Sanwa had been wound up. Nothing came out of that application of the 1st and the 2nd defendants. On 18 December 1995, the Official Receiver agreed to seek sanction of the court for proceeding with the action commenced by the plaintiff on an indemnity as to costs and expenses to be provided by Mr Lau. On 31 October 1996, Mr Lau caused to be procured a Bank Guarantee for the purpose and that was ten months after the Official Receiver had agreed to apply for court sanction to take over the action commenced by Mr Lau. Five months later, on 22 April 1997, a summons was issued for substituting Sanwa (in liquidation) as the plaintiff. The Chief Judge, as he now is, granted an Order of Substitution on 5 June 1997. A day later, the Writ of Summons and the Statement of Claim were both re-amended, and a month later, on 5 July 1997, the 1st and the 2nd defendants applied to re-amend their defence.

3. It is not necessary to refer to the Notices of Intention to proceed in the interim. On 1 December 1998, the 1st and the 2nd defendants applied to discharge the Mareva and on 4 December 1998, the Mareva was discharged by Sakhrani, J. Mr Lau, the original plaintiff and the substituted plaintiff, feel aggrieved by the order of Sakhrani, J and from that Order of Discharge, Sanwa (in liquidation) now appeals.

4. There are three aspects material to this appeal: (1) whether the delay caused was excusable; (2) whether in his consideration the judge gave undue weight to the delay; and (3) whether the failure of the 1st and the 2nd defendants to file affirmation evidence in reply to Mr Lau's allegations of fraud made against them was tantamount to an admission or at least grave suspicion of guilt.

5. It is trite law that proceedings in which a Mareva has been obtained must be diligently prosecuted and that delay, if any, is only a factor for considering whether the Marvea obtained should be discharged.

6. Mr Li, counsel for Sanwa (in liquidation), is quite candid that more could have been done by Mr Lau but counsel is emphatic that Mr Lau was not wholly idle. It is submitted that sufficient explanations were proffered for the consideration of the judge in terms of: (1) delay inherent to the winding-up proceedings and the subsequent negotiation with the Official Receiver for assuming the role of Mr Lau in his derivative action; (2) inevitable delay in attempting to procure certified translation of Chinese documents; and (3) delay in securing documents and witnesses' statements, caused by a third party, accountants retained by a lender of Sanwa.

7. But what really stands out in this case is the inordinate delay. There were nearly 411/2 months from the granting of the ex parte Mareva on 13 June 1995 to the application for its discharge on 1 December 1998. From the order enabling the Official Receiver to carry on with the derivative action made on 14 February 1996 to the defendant's application to discharge the Mareva on 1 December 1998, there was a lapse of nearly 331/2 months. From the time when Sanwa (in liquidation) was ordered to substitute for Mr Lau as plaintiff in the derivative action on 5 June 1997, again to the date of the application to discharge the Mareva on 1 December 1998, there was a period of nearly 18 months to be satisfactorily accounted for by Mr Lau. These periods of delay clearly illustrate an inordinate dilatoriness on the part of Mr Lau. It is not difficult to appreciate that no amount of explanations, in the circumstances, could have appeared very persuasive to Sakhrani, J. The judge discharged the Mareva on account of inordinate delay. The discretion he exercised in lifting the Mareva injunction can, in no way, be said to be plainly wrong.

8. It is further complained by Mr Li, counsel for Sanwa (in liquidation), that the 1st and the 2nd defendants have not availed themselves of the opportunity of trying to, at least, join issue with Mr Lau's allegations of fraud against them. The Chief Judge, in continuing the Mareva on 16 June 1995, granted these defendants leave to file affirmation evidence. Neither of these defendants has done so, but a great variety of reasons could have led to the defendants' preference for prosecuting their defence by filing pleadings rather than contesting the continued ex parte Mareva by filing affirmation evidence.

9. Counsel further argues that the judge failed to weigh the overall justice of the case in which serious and unanswered allegations of fraud were raised, particularly, so counsel says, when both defendants are no longer Hong Kong based. However, the emigration movement of these defendants has not been shown to be closely linked to any real prejudice. Counsel voices Mr Lau's concern as to liability to pay damages. Damages, if payable for a discharge of a Mareva not on the merits but for delay, are only to be expected. Mr Lau's concern can take the matter no further.

10. In conclusion, this is not a case in which the discretion exercised by the judge could legitimately be interfered with. There is ample evidence of inordinate delay for the judge to come to the conclusion he did. For all these reasons, I would dismiss the appeal.

Leong, J.A.:

11. For the reasons given by my Lord, Liu, J.A., I, too, would dismiss the appeal.

Nazareth V-P:

12. I also agree. I would add the following.

13. The judge ordered the Mareva injunction to be discharged because, in his view, the plaintiff was guilty of inordinate and inexcusable delay in prosecuting the action.

14. The plaintiff's main ground of appeal before us in effect is that the judge's reason is wrong because the plaintiff was busy during the relevant 18 month period of time, i.e. between June 1997 and December 1998, in having to cope with the implications of the petition to wind up Sanwa. He would have lost his locus if the Office Receiver's cooperation was not obtained. This, it is said, involved much correspondence, negotiation and even an indemnity. I have no reason to doubt that that might have been so. But this can be seen to be the only apparent ground which could possibly undermine a conclusion that the plaintiff was indeed guilty of inexcusable and inordinate delay. Incredibly it was not put before the judge. In effect, Mr Li, for the plaintiff, says that it can be inferred from an affirmation put before the judge, or in any case, could have been ascertained by the judge from the court records for which the judge apparently sent and obtained. I reject that submission. There was only a reference that pointed in an oblique way to the necessity for or actual activity by the plaintiff in regard to the winding-up petition. In any case it is not for a judge to root through court records of past applications to find material to support applications before him. Moreover, this is an appeal against the judge's order discharging the Mareva order. It proceeds upon the basis that the judge was wrong in doing so upon the evidence before him. That is, in any case, the basis upon which it should proceed. Upon that evidence I cannot see how the judge's conclusion that there was inordinate and inexcusable delay can be faulted. The notable gap in activity by the plaintiff from June 1997 to December 1998 alone seems to me to warrant his finding in the circumstances. I cannot see that the justice of the case would nevertheless have required the judge to have to come to a different conclusion or would warrant this Court's interference with that conclusion. What we have to address here, is an application in effect is to reverse the judge's decision and not the granting of a new Mareva injunction upon new evidence, circumstances and considerations, which would be a very different matter.

15. The appeal is accordingly dismissed.