LG INTERNATIONAL CORPORATION v. J&J CHEMTRADING CO LTD

HCA 2557/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2557 OF 2008

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

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

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

J U D G M E N T

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

1.  By an agreement in writing dated 19 September 2008 between the plaintiff and the defendant, the plaintiff agreed to sell and the defendant agreed to buy 2,000 metric tonnes of styrene monomer (“the goods”) at US$1,350 per metric tonne FOB Korea with delivery to take place in November 2008.

2.  The defendant failed to open an irrevocable letter of credit under the terms of the agreement in time or at all.  By November 2008 the price of the goods had fallen considerably.  

3.  By a letter dated 19 November 2008 from the plaintiff to the defendant, the plaintiff accepted the defendant’s repudiation of the agreement.

4.  To mitigate its loss the plaintiff resold the goods to a third party and by doing so sustained a substantial loss.

5.  The plaintiff’s claim against the defendant is for damages for breach of contract, being the sum of US$1,586,000 which is the difference between the contract price and the market price on termination of the contract.

6.  There is no dispute that the plaintiff has a good arguable case against the defendant although the defendant disputes the plaintiff’s substantive claim for damages. 

7.  On 9 December 2008 Burrell J granted an ex parte Mareva injunction against the defendant to the extent of US$1,586,000, the damages claimed. 

8.  The order was sought on the basis that the defendant had recently entered into a sale and purchase agreement of its office premises, which is also its registered office, at Room 2502, Tower 1, Lippo Centre (“the property”).  This was put forward to the Court as the reason why the plaintiff feared a risk of dissipation of the defendant’s assets which would render the plaintiff’s judgment to be of no effect.

9.  This is the substantive hearing of the plaintiff’s application by inter partes summons dated 9 December 2008 to continue the ex parte Mareva injunction until judgment or further order. 

10.  On the evidence before the Court at the ex parte stage I can well understand why the Court granted the ex parte order.  However, at this stage, being the substantive hearing of the inter partes application, I now have much more evidence placed before me than what the judge at the ex parte stage had. 

11.  Mr Beresford, for the plaintiff, relies on 4 factors to show a real risk of dissipation of assets :

(1)  The sale of the property by the defendant.  It was submitted that this was a transaction which is distinct from the defendant’s usual or ordinary course of business and that the selling of the property in a falling market is a dissipation of assets. 

(2)  That on the evidence of Mr Yeo Woon Bum of the defendant at paragraph 28(b) of his affirmation, the defendant has said that it intends to utilise all assets and resources to prevent its business from collapsing.  It was submitted that there is a further risk of a fire sale of the defendant’s assets. 

(3)  That the plaintiff’s claim is a strong claim and the defence raised is implausible. 

(4)  That the defendant has not put forward evidence of its financial position. 

12.  As to the factor (1) relied on, at the ex parte stage the plaintiff relied on the affirmation of Kyu Dong Kim affirmed on 9 December 2008.  The plaintiff relied on, inter alia, a sale transaction which appeared on the Midland Realty website showing a similar property having been sold on 29 November 2008 at about $14,000 per square foot.  The defendant’s sale of the property was at about $8,000 per square foot.  Hence the Court was asked to infer that the sale by the defendant was at an undervalue or was a fire sale.

13.  The evidence before me shows that there was no such sale of a similar property on 29 November 2008 as had previously appeared on the Midland Realty website.  The plaintiff accepts for the purpose of this application that there was no such sale.

14.  In fact, as Mr Clayton SC, for the defendant, has submitted, on the evidence before the Court there is evidence of a sale of another unit on the same floor as the property on 5 December 2008 for slightly below the price per square foot for which the defendant sold the property.

15.  It is clear on the evidence before me that when the defendant entered into a provisional sale and purchase agreement with Sun Shing Industrial Co. Ltd, the purchaser of the property, on 24 November 2008 it was not a sale at an undervalue nor was it a fire sale.  It was a genuine arm’s length sale to an unrelated third party for full value in a falling property market.

16.  The defendant on the evidence has also entered into a provisional tenancy agreement to rent alternative and cheaper office accommodation to carry on its business in Hong Kong.  The defendant has produced the provisional tenancy agreement as Exhibit DY7 to the affirmation of Yeo Woon Bum of the defendant.

17.  According to the affirmations filed and served on behalf of the defendant, the purpose of the sale of the property was to improve the defendant’s cash flow and in anticipation of a further fall of the property market in Hong Kong. 

18.  Yeo Woon Bum has affirmed that the net proceeds of the sale after deduction of outstanding mortgage payments and interest to HSBC would primarily be used to improve the defendant’s cash flow and pay off some of the trade debts of the defendant that fall or will soon fall due.  At paragraph 28(b) of his affirmation he says this :

“Our primary concern at the moment is to utilize all assets and resources presently available to us to prevent the Defendant’s business from collapsing altogether (especially following the Mareva Injunction).  Up and until this point in time, we have been able to re-allocate our assets and resources in a way which has allowed us both to pay off our trade debts and to meet our minimal operationing expenses and continue our business.”

19.  The plaintiff is not in a position to seriously challenge these assertions of the defendant. 

20.  I do not regard the sale of property by a defendant to improve its cash flow position and to use the money for its business operations by paying off its trade debts when due as sufficient evidence showing a real risk of dissipation of assets which would render the plaintiff’s judgment of no effect. 

21.  As regards the factor (2) relied on by the plaintiff, as there was no fire sale of the property I fail to see why the Court should infer that there is a further risk of fire sales of assets of the defendant.  No satisfactory evidence of this has been adduced by the plaintiff. 

22.  As regards the factor (3) i.e. that the defendant has raised a shadowy defence to the plaintiff’s claim and that the plaintiff has a strong claim, I am prepared to accept that the plaintiff has a strong claim against the defendant for damages for breach of contract even though the amount claimed may be disputed and even though there is a dispute about the conversation that Mr Kyu Dong Kim had with Yeo Woon Bum in mid-November 2008 in Hong Kong as set out in the evidence where it is alleged that Mr Kyu Dong Kim said that the plaintiff in fact suffered no loss.  The fact that the plaintiff has a strong claim is a factor to consider but even though it may have a strong claim against the defendant, the plaintiff still has to satisfy the Court that there is a real risk of dissipation of assets on the part of the defendant. 

23.  As regards the factor (4) that the defendant has not provided evidence of its financial position, there is nothing in the point.  As Mr Clayton submitted, on the undisputed evidence there has been a satisfactory and amicable business relationship between the plaintiff and the defendant from about early 2004, as the defendant says, or from about October 2005, as the plaintiff says.  It is only recently due to the recent financial global crisis that the defendant finds itself in difficulties. 

24.  It must be remembered that a Mareva injunction is highly intrusive and a draconian order.  It has been described as one of the law’s two nuclear weapons, the other being the Anton Pillar order.  To obtain such an order the plaintiff must satisfy the Court by solid evidence that there is a real risk of dissipation of assets on the part of the defendant which would render the plaintiff’s judgment to be of no effect.

25.  In the light of all the evidence before me I am not satisfied that there is such a real risk of dissipation of assets by the defendant.  I refuse to continue the ex parte Mareva injunction.  The ex parte order of Burrell J as subsequently continued and varied is hereby discharged.