OTB INTERNATIONAL CREDIT CARD LTD v. THE RESORT EXCHANGE LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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REASONS FOR DECISION

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1. On the 23rd August 1985, the Plaintiff obtained a "Mareva"' injunction against the Defendant on an ex parte application. That injunction was continued at the hearing of an inter partes summons on the 29th August 1985. By a summons dated the 3rd September 1985 the Defendant sought, inter alia, the discharge of the injunction. I dismissed that application, after hearing counsel and reading affidavits sworn by Mr H. C. Spruit on the 23rd August and 7th September 1985, and by Mr J. M. Kelly, sworn on the 3rd September 1985.

2. By an agreement (exhibit "HCSI") dated the 3rd May 1985 the Plaintiff agreed to pay to the Defendant the amounts of goods or services rendered to holders of VISA cards, subject to a 3% discount, on receipt of sales drafts issued by the Defendant in accordance with the terms of that agreement. Owing to the looseness of the language employed in that document.  the full extent of the Defendant's contractual obligations may be obscure.   However, it is in my view abundantly clear that the Defendant was only entitled to receive payment from the Plaintiff so long as the transactions in question had been authorised by the individual cardholders. Furthermore, in the event of any breach in respect of sales drafts, the amounts paid by the Plaintiff became recoverable forthwith (clause 13).

3. On behalf of the Defendant, Mr Bell contended that the injunction should be discharged because the Plaintiff had failed to comply with three of the guidelines set out in the judgment of Lord Denning M. R. in Third Chandris Shipping Corpn v. Unimarine SA [1979] 1 QB 645 at 668-9, and had thereby put before the court a positively misleading case by failing to disclose material facts concerning the nature of the Defendant's business, and by failing to particularise the grounds of its claim. He criticised Mr Spruit's first affidavit for its brevity and contrasted the length and detail of Mr Kelly's affidavit, much of which was due to an alleged failure by the Plaintiff to disclose or specify the breaches on which it was relying. It is certainly arguable that in respect of sales drafts, the agreement imposed on the Defendant a number of different obligations (see clauses 8 and 9). It may be that performance of some of these, such as ensuring that documents were signed by cardholders, and that they had received the goods or services, were preconditions to being entitled to payment by the Plaintiff. Nevertheless, it is, in my view, quite clear from paragraph 4 of Mr Spruit's first affidavit that the only breach relied on by the Plaintiff consisted of the submission of claims for sums which had not been authorised by cardholders. It was not relying on any other breaches to support the injunction. In this respect, accordingly, I am satisfied that neither the court nor the Defendant was misled as to the nature of the alleged breach.

4. It was contended that the application was misleading in another respect, namely, that the Plaintiff never explained to the court that its alleged claim to an award in excess of HK 2 million was only supported to the extent of some HK$ 11,000, in the form of letters of complaint from cardholders (exhibit "HCS-3"). At the hearing before me, it was submitted that additional evidence of this kind {exhibit "HCS-7") suggested that the Plaintiff's provable claim would not exceed HK$ 55,000. With respect, there is really nothing in this point. The difference between the amount of the Plaintiff's claim and the amounts covered by letters from cardholders is, and always has been, obvious and apparent to anyone who reads Mr Spruit's affidavits. It is clear from paragraph 4 of his first affidavit and the telex from Visa International, Tokyo (exhibit "HCS-4") that the more direct evidence then available was, or might be, no more, than the tip of the proverbial iceberg. There is a prima facie case for saying that the cardholders' complaints stem from the activities of Resort Exchange USA. This entity, according to paragraph 6 of Mr Kelly's affidavit, did not have its own "merchant account" for clearing credit card transactions, and has been obtaining payments by utilising the facilities made available to the Defendant by the Plaintiff, an arrangement or method described as "factoring". Whether the enormous losses referred to in the final paragraph result from this "factoring" alone or from the Defendant's own activities or from some arrangement between Resort Exchange USA and other persons is, of course, not clear. But, there is nothing in the evidence before me to refute the suggestion in that telex that substantial losses emanating from the Defendant's operation of its agreement with the Plaintiff have been incurred as a result of unauthorised billings.

5. The third ground advanced in support of the application to discharge the injunction is non-disclosure of material facts, namely that the Defendant was factoring transactions on behalf of Mr Brandon (inter alia, the controller of Resort Exchange USA) and others, and that transactions would originate in the United States and be billed in U.S. dollars. In his affidavit, Mr Kelly asserts that this was known to and approved by officers of the Plaintiff, particularly Mr George Leow, the General Manager. (paragraphs 9-11). In his second affidavit Mr spruit set out the grounds for his belief that such matters were not known to the Plaintiff. That conflict cannot be resolved at this stage or on the material now before me. But, assuming that the Plaintiff was aware of all these facts, and knew that the transactions would be generated by the sales technique and procedure known as "telemarketing", I do not consider that they are, or were, material to the grant or refusal of the injunction in the present case. The Plaintiff was not complaining about the fact that the sales drafts or related documents were not signed by the cardholders, which may or may not be a necessary feature of 'telemarketing". It was complaining that it had paid money to the Defendant in respect of transactions which the cardholders never authorised. As I have indicated earlier, that was the only ground or basis on which the injunction was orginally sought and obtained. I can find nothing in the evidence before me to suggest that the Plaintiff has ever waived or consented to that alleged breach.

6. I appreciate that Mr Kelly, in his affidavit, has gone to considerable length to emphasise or demonstrate that many cardholders, approached through the "telemarketing" method, only become "problematic" customers after they have agreed to purchase the "package" offered to them, through later loss of enthusiasm or dissatisfaction with the "package",  its late delivery or its non-delivery. But, all, or virtually all, of the letters of complaint are from persons who never gave authority over the telephone to being charged for membership of Resort Exchange USA, or indicated that they would wait until receipt of the "package" before making up their minds whether to become members. Merely to establish that the "package" has been delivered to the home of the cardholder does not, in my view, indicate that the cardholder has given authority to his account with VISA being debited, having regard to the nature and circumstances of the "telemarketing" method.

7. Mr Bell also contended that there was no evidence that the Defendant was removing assets from the jurisdiction, because the transfers relied upon by the Plaintiff are really no more than normal transactions for carrying on the Defendant's business of remitting to, inter alia, Resort Exchange USA, sums which it holds in trust for, or is contractually bound to pay or account for to such beneficiaries. The initial attractivness of this submission, however, lost its appeal after a careful consideration of the contents of Mr Kelly's affidavit. The latter tells me virtually nothing about the extent of the business or financial position of the Defendant. Instead, it attempts to explain at considerable length the business activities of "a gentleman called'' Lawrence (known as Larry) Brandon" and how he came to be involved with the Defendant. Apart from the highly suspicious circumstance of their relationship being created without the express authority of the Defendant (see para. 4 of Mr Kelly's affidavit), there are really no facts upon which the court can test the assertion that Resort Exchange USA is a "totally separate entity and is in no way connected with the Defendnt " (para. 5 of MT Kelly's affidavit). The so-called "Independent Contactor Agreement" (Exh. "JMK-1") is put forward as evidence of total separateness despite the similarity of names. But, it appears that no business has been done under that agreement, since the activities of Mr Brandon have not yet reached the stage of marketing the Defendant's HOLIDAY CHECKS. Indeed, despite the Defendant's promotional material (Exh. "JMK-2") there is absolutely no evidence that the Defendant has sold a single HOLIDAY CHECK to a purchaser in Hong Kong or elsewhere in the world!

8. Having regard to the somewhat unusual circumstances in which the relationship between Mr Brandon and the Defendant apparently began and continued, it is strange that Mr Kelly cannot indicate the legal status of Resort Exchange USA, or the persons or bodies beneficially interested therein, or the manner in which it is "controlled" by Mr Brandon. Whether Mr Brandon or any of the other businesses have any interest in the Defendant is unknown, because no search at the Companies Registry has been placed before the court. In my view, there is a strong arguable case for treating the Defendant and Resort Exchange USA as one and the same business enterprise. All the evidence now before the court points heavily, if not solely, in the direction of the contrary of Mr Kelly's bald assertion of separate entities. Between the letters of john Sydnor and Raymond Pion in Exhibit "HCS-7", there is what appears to be a standard form of letter, signed by Scott Summers as regional director for three organisations, bearing almost identical names and located in Texas, Hong Kong and California. That document states:

"Since the Resort Exchange USA is an international organisation all the credit card vouchers go through our head office in Hong Kong."(emphasis supplied)

In my view, "head office in Hong Kong" has wholly failed to give a satisfactory explanation of its relationship with the beneficiaries of its transfers of assets (Exh. "HCS-6") or its dealings with persons or associations outside Hong Kong, or even within Hong Kong.

9. It may be argued that the Plaintiff obtained the injunction on the basis of inadequate material, but not on the basis of non-disclosure of material facts. Speaking for myself, I do not think that is the situation. But, even assuming that the Plaintiff, in the present case, has failed to place before the court certain facts, which might have influenced the court at a previous hearing, I consider that the Defendant has failed to show that the order should be discharged.

10. It seems to me that in order to discharge a "Mareva" injunction, the other party must, at least, show that it has the means to satisfy the claim or that the claimant's fears that there will be default are groundless. That must be done by reliable evidence. I would respectfully adopt and apply to the present case the words of Lawton L J. in Third Chandris Shipping Corpn v. Unimarine S. A., supra at p.672:

"In my judgment [the defendants] have presented an image of themselves made up of Words, not of facts."