WILLWIN DEVELOPMENT (ASIA) CO LTD v. WEI XING AND OTHERS

HCA 797/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 797 OF 2012

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BETWEEN

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D E C I S I O N

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1.  The plaintiff’s summons for a Mareva Injunction was issued on 20 September 2012, returnable on 21 September. At the hearing, the defendants had not had time to file any evidence in opposition, and I adjourned the hearing to 15 October but granted an interim injunction until the substantive hearing. I agree with Chu J (as she then was) in Chu Shu Ho David and Mission Hills Golf Club Ltd v Lam Hon Lit Harry HCA 3525/2002 and HCA 3618/2002, handed down on 30 October 2002, that the test to be applied in determining whether a hearing is inter partes or ex parte is whether the party opposing the application for injunction had been given due notice of the application and been afforded a reasonable opportunity to argue against the application. Given the short notice given to the defendants in this case of the application for the Mareva Injunction, and the fact that the court only had the evidence adduced by the plaintiff when the application was heard on 21 September, I consider that the interim injunction on 21 September was granted on an ex parte basis, and that plaintiff in seeking such an interim injunction was subject to the duty to make full and frank disclosure.

2.  When the Mareva Injunction was sought, it was on the basis that the plaintiff had discovered that defendants had misappropriated the plaintiff’s funds, to the order of HK$10 million.  The plaintiff relied on bank withdrawal slips, and the claim against the defendants was that they had withdrawn money belonging to the plaintiff from the plaintiff’s bank account, and that the money had been unaccounted for, such that it was a claim of money had and received.

3.  However, the evidence filed by the defendants now show that in relation to the 1^st defendant, of the sum of HK$1,816,000 said to have been thus misappropriated, save for HK$116,000, the rest had been withdrawn from the plaintiff’s bank not by the 1^st defendant, but by Wei Wen of the plaintiff who had made the affirmation in support of all the plaintiff’s ex parte applications, including the application for Mareva Injunction. 

4.  In relation to the 3^rd defendant, of the sums of HK$6,290,000 and US$347,460, HK$4,660,000 and US$265,600 were withdrawn on the written instructions of Wei Wen.  These were acknowledged by Wei Wen in the draft summaries of withdrawals sent to the 1^st and 3^rd defendants in April and May 2011.  In relation to the withdrawal instructions, some were even stated for the specific purposes of or uses by the plaintiff.

5.  The plaintiff now says that its complaint is not that the money was withdrawn without Wei Wen’s authority or knowledge or instructions, but that the money was not properly accounted for after withdrawal, or that the money was misused.

6.  The authorities are clear on the test for materiality for the purposes of the duty of full and frank disclosure on an ex parte application.  A fact is material if it should be put on the weighing scales by the ex parte judge.  The material facts to be disclosed are all matters which are material for the judge to know and which are necessary to enable the judge to exercise its discretion properly.  I do not agree that a fact does not have to be disclosed just because the defendants knew what the plaintiff’s case is, or that the fact has been covered in the Statement of Claim.

7.  In this case, it is obviously relevant to the weighing exercise, and hence material, that the withdrawals of money complained of by the plaintiff and claimed by it to be misappropriation of its funds were actually made by Wei Wen, or authorized by Wei Wen.  If the withdrawals were instructed and authorized by Wei Wen and effectively by all the directors and shareholders, then the case of alleged misappropriation diminishes.  If it is alleged by the plaintiff that the withdrawals were made and authorized under pretexts and misrepresentations made by the 1^st defendant and/or the 3^rd defendant, then the plaintiff should have explained and clarified to the court what the pretexts or alleged uses or purposes of the funds were.  Wei Wen for the plaintiff was completely silent on this when the Mareva Injunction was applied for.  On the contrary, heavy reliance was placed on the mere existence of the bank withdrawal slips as evidence of the misappropriation by the defendants.  This was totally misleading, to put it at the lowest. 

8.  At the hearing before me on 21 September, the plaintiff was justifying the Mareva Injunction on alleged misappropriation and money had and received by defendants, but Wei Wen’s emails of 2011 attaching the summaries of withdrawals show a case of shareholders’ disputing how moneys invested in the company had been spent.

9.  I consider that the summaries are material in that they should have been put in the weighing scales, for the court to decide whether the plaintiff’s claim was indeed a case of “misappropriation of funds” as alleged, or a shareholders’ dispute on their investment, and whether the money had been well spent.

10.  Wei Wen’s emails to the 1^st defendant attaching the summaries of withdrawals, which were not disclosed by the plaintiff, are also relevant in showing that since 21 April and 15 May 2011, Wei Wen had been aware of the withdrawals of funds now complained of, but that the plaintiff has chosen not to take any action until the filing of the Statement of Claim in July 2012.  This is relevant to the alleged urgency of the application for the Mareva Injunction and generally for relief against the defendants.

11.  For the above reasons, the injunction granted on 21 September 2012 should be discharged for material non-disclosure, with costs. 

12.  Even today, the plaintiff has not in any way particularized or substantiated the assertion now made, let alone adduced evidence in support, that the moneys were withdrawn from the plaintiff’s account, with Wei Wen’s approval, on the basis of pretexts made by the 1^st defendant and the 3^rd defendant, but were not in fact put to the uses claimed by them.  As the defendants rightly pointed out, Wei Wen had the plaintiff’s bank statements all along, and had approved the audited financial accounts of the plaintiff, without any query until (on the defendants’ evidence at least) April or May 2011.

13.  Having considered all the evidence, I am not satisfied that the non-disclosure of material facts had been innocent.  Nor am I satisfied that Wei Wen’s assertions are reliable on the issue of misappropriation, and I will not exercise my discretion to issue an injunction to restrain the defendants’ disposal of property.