XCHRX MEI YU LAU v. SHIU KI LAU and Others

HCA1063/95

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.A1063 OF 1995

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R E A S O N S

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1. A number of outstanding summonses in this matter came on for hearing including an application by the 2nd Defendant to vary the mareva injunction granted by Ryan J on 8 February 1995 and continued by the order of Deputy Judge Burrell (as he then was) dated 15 February 1995 and varied by the order of Findlay J by allowing the 2nd Defendant to expend a further sum of $100,000 on legal advice and representation. The amount originally sought by the variation was the release of a further $500,000 for legal expenses but as a result of the court directing that the preliminary issue be heard on 9 July 1998, the amount was reduced to $100,000. I dismissed the application at the conclusion of the hearing. The reasons appear below.

Background

2. The Plaintiff is the former wife of the 1st Defendant who was adjudicated a bankrupt in September 1996, one and a half years after the commencement of this action. The Plaintiff filed for divorce in New Jersey in 1991 and by a judgment of the New Jersey Court in 1994, the 1st Defendant was ordered to pay a total of US$4.168 million to the Plaintiff by way of ancillary relief. The Plaintiff seeks to enforce the New Jersey judgment against the 1st Defendant. Judgement was entered against him in September 1995 and the appeal against the order was dismissed by the Court of Appeal.

3. The 2nd Defendant was set up in 1981 by the 1st Defendant and a business associate by the name of Steven Shapiro. They each held 50% of the issued shares. In 1983, Mr Shapiro transferred all the shares except one to the 1st Defendant and the one share was transferred to the 1st Defendant's father Lau Joy Kwong who is not a defendant to these proceedings. Mr Lau replaced Mr Shapiro as a director and the 1st Defendant remained a shareholder until 12 July 1991 when he transferred all his shares to a BVI company Longsail Enterprises Limited. This was some five months after he left the matrimonial home. He remained a director of the 2nd Defendant until 2 November 1991 when he was replaced by his sister, the 4th Defendant.

4. The 1st Defendant's estate has virtually no assets. It is the Plaintiff's case that the 2nd Defendant was and still is no more than the alter ego of the 1st Defendant so that all assets held in its name belong to the 1st Defendant. The 3rd Defendant is the mother of the 1st Defendant and the 4th and 5th Defendants are his younger sisters. The Plaintiff's case against the 3rd and 4th Defendants is that they hold a property in Hong Kong and money in an account as trustees and nominees for the 1st Defendant. Mareva injunctions were also obtained against these Defendants.

5. The evidence shows that the 2nd Defendant has assets equivalent to $1.8 million as well as commercial office premises valued at $4.47 million. The current value of the Prince Edward Road property is not known but it was purchased in 1991 for $2 million. The total value of the identified assets subject to the injunctions do not go anywhere near meeting the judgment awarded to the Plaintiff which comes to approximately $30 million.

The application to vary

6. Essentially the 2nd Defendant's application is that without the variation, it is not able to defend the proceedings. The current directors of the 2nd Defendant are the 4th Defendant and Mr Lau. All the issued shares save for one in Mr Lau's name is registered in the name of the BVI company. The same firm of solicitors represents the 2nd, 3rd, 4th and 5th Defendants. Prior to the present firm taking over the Defence, the limit for legal expenses which had been increased once had already been exhausted. It is said that the shortfall has been funded by Mr Lau, the 1st Defendant's father. It is further said that as between the Defendants, it has been agreed that the 2nd Defendant should bear 50% of the costs and each of the 3rd and 4th Defendant 25%. But this arrangement between the Defendants inter se is not binding on anyone other than themselves.

7. The Defendants have hitherto had no difficulty in funding the many interlocutory applications they have taken against the Plaintiff. It is to be noted that the preliminary issue is one which very recently replaced the Defendants' application to strike out the Statement of Claim. That application was made somewhat late in the day having regard to the numerous interlocutory applications by one or more of the Defendants at different stages to stymie the Plaintiff's claim.

8. There is no evidence to show that the 2nd Defendant will not be able to defend its claim without the variation. Moreover, the preliminary issue is an issue that not only the 2nd Defendant but the 3rd, 4th and 5th Defendants wish to have determined. The judgment of the Court of Appeal rendered on 7 February 1996 provides the relevant details of the dispute between the parties. Having regard to the history of the proceedings to date, in substance, the objective of this application is to enable the preliminary issue to be litigated at the expense of the Plaintiff in any event. I say this because even if the Plaintiff were ultimately to be successful in the action, she would still lose out because the monies if released and expended on this litigation would be irretrievably lost as far as the Plaintiff is concerned since the assets subject to the mareva will not in any event be sufficient to satisfy more than a small proportion of the judgment. So if the order is varied, they would be further depleted.

9. No prejudice would be caused to the 2nd Defendant if the variation is refused because if after the trial, the issues are decided against the Plaintiff and the injunctions are discharged, the 2nd Defendant will be free to use its assets to repay the legal costs which the family has meanwhile been funding. There is another relevant factor. The 2nd Defendant is not restrained by the injunction from carrying on business. Yet very clearly, since the date of the injunction, what had been a very profitable business ceased to be so and its trading activities have greatly reduced. There is no apparent reason for this.

10. Counsel for the 2nd Defendant urged that the court should not lose sight of the fact that the 2nd Defendant is a separate entity at law. That of course is the correct legal analysis but in an appropriate case (which this is), the court is entitled to lift and look behind the corporate veil without piercing it : Atlas Maritime Co. SA v. Avalon Maritime Ltd. [1991] 1 WLR 917.

11. In all the circumstances, I am not persuaded that I should exercise my discretion to vary the order. Costs are to follow the event. The Plaintiff's costs are to be taxed in accordance with the Legal Aid Regulations.