GUANGZHOU STEEL TRADING CO LTD v. GGA TRADING LTD

HCA 2584/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2584 OF 2014

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REASONS FOR DECISION

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Introduction

1.  This was the plaintiff’s application for the continuation of an ex parte Mareva injunction dated 18 December 2014 (“the said injunction”).  At the end of the inter partes hearing (where the defendant opposed the application):

(a)  the said injunction was discharged;

(b)  a Mareva injunction substantially the same as the said injunction was re-granted in the plaintiff’s favour (“the re-granted injunction”).

Below are the reasons for the above decision.

Background

2.  In short, this action originated from the sale and purchase of the shares of the plaintiff.  It is the plaintiff’s case that, subsequent to its acquisition by those who now own (or are in control of) it, an unauthorized transfer of its fund in the sum of RMB16 million has been effected.  That sum has been found to have been deposited into (and now retained in) the defendant’s bank account with HSBC (“the subject sum”).  The subject sum is the subject-matter of this action (and was the said injunction and the re-granted injunction).

3.  The defendant admits the subject sum has been transferred to its bank account.  But it contends that the same represented the payment for 300,000 kg of steel spring which it sold to the plaintiff earlier.

Good arguable case

4.  The way in which the defendant’s affirmation evidence was presented was, to put it as mildly as can be, unusual.

5.  The defendant’s evidence was made by way of the affirmation of a Mr Gao (“Gao”), who gave a post-office box address in the Seychelles in his affirmation.  He has not deposed to his position in the defendant (if any) and there was no other evidence to show the nature of his connection to the defendant (if any).  He has not deposed that he was privy (or was otherwise connected) to the alleged steel sale transaction contended for by the defendant.  No home (or work) address has been given by Gao, and defence counsel fairly accepted there was no information about this.

6.  Moreover, Gao deposed that a Mr Li (who the plaintiff alleged was the wrongdoer responsible for the loss of the subject sum) (“Li”) was the beneficial owner of the defendant.  Li was put forth by the defence to be privy to the alleged steel sale transaction.  No valid reason has been given for Li’s failure to make an affirmation (and why he rather provided Gao with the information to do so instead).

7.  The defendant does not appear to have any physical existence either.  Gao admitted that the defendant does not have a Hong Kong registered office.  The address given to HSBC for opening the defendant’s bank account was said to be the address of its agent.  According to the plaintiff’s affirmation evidence, the alleged agent’s address was already vacant (with notices indicating that rents have been overdue).  Another of the defendant’s address was shown by the plaintiff to be non-existent.

8.  Further, when asked during the hearing about the nature of the defendant’s operation (besides the transaction which was relied upon to justify the receipt of the subject sum), defence counsel again accepted that nothing much was known.

9.  In addition, of the documents which the defendant relied on to show the alleged steel sale, the plaintiff complained during the hearing that the originals were sought from, but was never shown by, the defence.  No explanation was given for the failure to do so.

10.  In these circumstances, it is entirely proper to give either no weight, or at most very little weight, to the affirmation evidence adduced by the defendant: see Hong Kong Civil Procedure 2015, Vol 1, para 41/1/5, 41/5/1 and 41/5/3.

11.  On the other hand, the defendant criticized the affirmation of the plaintiff to be untruthful.

12.  One, the plaintiff was alleged to have been untruthful about the reason for the transfer of the subject sum.  Having decided to place little or no weight on the defence affirmation, there is no evidential basis for disbelieving the plaintiff’s case that it has not entered into any sale and purchase agreement with the defendant (or that there was no other valid basis for the defendant to receive the subject sum).

13.  Two, the two deponents for the plaintiff, a Mr Nashun (“Nashun”) and a Ms Lu (“Lu”) were not recorded as the plaintiff’s shareholders (a Mr He instead) as they claimed to be.  But even though the official records do not show Nashun or Lu to be the plaintiff’s shareholders, their shareholding has been acknowledged by the plaintiff’s registered legal representative, one Mr He (“Mr He”) (Mr He was also the plaintiff’s managing director and shareholder).  In such circumstance, I do not consider the lack of proper registration to materially affect the admissibility of, or the weight to be given to, the affirmations of Nashun and Lu.

14.  Three, the defendant argued that, even if the plaintiff had been defrauded, the fraud was an affair internal to the plaintiff.  This argument overlooks the fact that Li was the defendant’s owner.  It can be inferred that Li was also the defendant’s controlling mind. That there was an unsatisfactory absence of evidence from Li is a further reason for drawing an adverse inference against the defendant in this regard.

15.  Taking into account all of the above, I found that the plaintiff had established a good arguable case based on the pleaded causes of action, variously labeled as unjust enrichment, money had and received and constructive trust.

Material non-disclosure

16.  The defendant complained that the plaintiff had been guilty of material non-disclosure.  In particular, the plaintiff ought have informed the court at the ex parte hearing:

(1)  there was a change of its legal representative;

(2)  the steel sale document bore the signature of its former legal representative;

(3)  there was a dispute between its internal members in the Mainland.

17.  The contents of the first affirmation of Nashun consisted of 4 pages.  That affirmation was so brief Nashun has to file another one to supplement the information sought by, and given to, the court at the ex parte hearing.  But even the second affirmation did not contain any of the matters summarized in para 16 above.

18.  The duty on the plaintiff’s part to make full and frank disclosure is trite: Hong Kong Civil Procedure 2015, Vol 1, para 29/1/51.  It is also settled law whether a matter is material for such purpose is to be decided by the court and not an applicant’s assessment.

19.  I consider the matters set out in para 16 above to be material, and ought to have been disclosed.  No reason has been put forth as to why they were not disclosed.  In these circumstances, the discretion should be exercised to discharge the said injunction.

Risk of dissipation

20.  The circumstances set out in para 2 to 3 and 5 to 14 above justify a finding that there was (and is) a real risk of dissipation of the defendant’s assets in Hong Kong if no injunction was granted.

Conclusion

21.  Having exercised the discretion to discharge the said injunction, it was necessary to consider whether to re-grant substantially the same injunction.  Factors which fell for consideration include:

(a)  whether the non-disclosure was innocent or deliberate;

(b)  the reason for the non-disclosure;

(c)  had the undisclosed matters been disclosed at the ex parte hearing, whether the said injunction could properly have been granted;

(d)  whether the guilty party was deserving of a locus poenitentiae.

22.  As stated above, no reason has been put forth for the non-disclosure.  On the other hand, I consider that, even if the matters set out in para 16 above had been disclosed, the said injunction could properly have been granted (see para 2 to 3 and 5 to 14 above).

23.  For the above reason, it was appropriate to make an order for the re-granted injunction.

Other matters

24.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the reasons for decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order

25.  The parties have lodged with court their respective skeleton submissions on costs after the inter partes hearing.

26.  The costs involved can be divided into two broad categories: those relating to the said injunction, and those relating to the re-granted injunction.

27.  Insofar as the costs relating to the re-granted injunction are concerned, the parties are in general agreement: those costs be the plaintiff’s costs in the cause (the plaintiff mentioned “costs in the cause” in its skeleton submission on costs, but I understand that to mean “the plaintiff’s costs in the cause”; both parties herein referred to, and relied on, the decision in Minmetals Inc v Dragon Boom Ltd and Another HCMP 1702/2013 (24 July 2014)).

28.  Insofar as the costs relating to the said injunction are concerned, the defendant seeks those costs to be paid forthwith while the plaintiff asks for them to be taxed and paid in any event (which means that they should be taxed and paid at the end of this action).

29.  For three main reasons, I agree with the plaintiff as regards the costs of the said injunction:

(1)  the precise whereabouts of the defendant and/or Li are unknown (it can be inferred their financial viability is doubtful);

(2)  financial impecuniosity of the defendant was the reason for making a similar costs order in Liu Xian Feng Sam and Another v Liu Bo and Others HCA 5474/2001 (1 August 2005);

(3)  there is a risk that the defendant and/or Li may later be found to be unable to pay any costs which have been (or may be) ordered against them.

30.  The taxation of the above costs is of course a matter for the taxing master (if any of the costs should require taxation). However, to assist those involved in the taxation of costs, it should be noted:

(a)  material non-disclosure was only raised in the skeleton submissions of the defendant, and so only the costs of preparing the skeleton submissions should be the relevant costs of preparation;

(b)  about one-third of the hearing time on 25 June 2015 was spent on the issue of material non-disclosure.