APPAR KARTAR MAKER AND ANOTHER v. WHITFORD HOLDINGS LTD. AND OTHERS

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JUDGMENT

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Penlington, J.A.:

1. This is the judgment of the Court.

2. At the conclusion of the hearing of this matter we allowed the appeal, set aside the order of Jones, J. herein granting the plaintiffs a Mareva injunction. We said we would give our reasons in writing for doing so and this we now do.

3. This is an appeal from an order of Jones, J. in the form of a Mareva injunction that he first granted ex parte on 9th June, 1989 and which was ordered to be continued until the trial of this action by an order of 16th August, 1989, following an inter partes hearing. Jones, J. delivered a judgment also dated l6th August giving the reasons for continuing the order.

4. The order is against all the defendants and is in wide terms. The 2nd and 3rd defendants are injuncted from selling, charging, disposing or dealing with the shares or assets of the 1st defendant and all the defendants doing any act in relation to or in connection with the assets or business of the 1st defendant or of two other subsidiary companies. The order is to remain in force until the trial of this matter or further order.

5. The background of this claim is that the 1st plaintiff is the head of an extremely successful group of companies (the Maker group) originating in India and now having many interests in construction and real estate not only in that continent but also in the Middle East, the United Kingdom and the U.S.A. The total assets of the group are in the region of £100 million. The 2nd plaintiff is his wife and has played no real part in the business. The 3rd defendant is one of the 1st plaintiff's daughters and the 2nd defendant is her husband. The 1st defendant is a company, incorporated in Hong Kong in 1981, with a share capital of $10,000. The 1st defendant holds all the issued share capital of Whitford Investments N.V. (Whitford), a company registered in the Netherlands Antilles which in turn holds 100% of the share capital of Hasket Investments B.V. (Hasket), a company registered in the Netherlands. Hasket has provided funds to various companies in the U.S.A., part of the Maker group, which funds are secured by promissory notes maturing in 1990-92.

6. Unfortunately a bitter family dispute has now arisen as to the beneficial ownership of the 1st defendant, and is the subject of these proceedings. There is however another action which has been commenced in London wherein the defendants here are the plaintiffs and the plaintiffs here are defendants together with Dr. R.A. Maker, a son of the 1st plaintiff and brother of the 2nd defendant. These proceedings involve a wider dispute concerning the entire worldwide assets of the Maker group. They are very complex, the statement of claim and the defence and counterclaim running to some 140 pages. There have been interlocutory proceedings in which the defendants here obtained an ex parte injunction preventing the plaintiffs from dealing with certain Maker group assets in Europe. This injunction was discharged by Peter Gibson, J., a decision from which the defendants unsuccessfully appealed. However so far as the claim itself is concerned clearly it has a long way to go before trial.

7. When the lst defendant was incorporated, the 2nd and 3rd defendants were the sole directors and shareholders. While the shareholding of the 1st defendant has not changed since its incorporation, in July 1983 the 3rd defendant resigned as a director and was replaced by Mrs. C. Klemmstein, also a daughter of the plaintiffs, and her husband, Mr. E. Klemmstein. In November 1983 the plaintiffs also became directors of the 1st defendant. However on 4th July, 1988 the 2nd and 3rd defendants held an extraordinary general meeting of the 1st defendant in Guernsey and a special resolution was passed removing the plaintiffs and Mr. and Mrs. Klerrmrstein as directors of the company and, by an ordinary resolution, the 3rd defendant was re-appointed as a director. Allegations had been made by the plaintiffs regarding the service of notice of this meeting, denying that they received any such notice and the form of notice has also been challenged. The holding of this meeting in Guernsey, the lack of detail in the notice as to the exact location, and the doubt as to service of that notice on the plaintiffs are matters which will no doubt be aired at the trial but the 2nd and 3rd defendants are the sole shareholders of the 1st defendant and could remove and appoint directors as they saw fit.

8. As regards the shareholding of the 1st defendant, it is the plaintiffs' case that there was an agreement between themselves, the 2nd and 3rd defendants and Mr. and Mrs. Klemmstein in 1983, whereby some of those shares would be transferred from the 3rd defendant. If these transfers had taken place, the 1st and 2nd plaintiffs would have each held 50 shares, the 2nd defendant 25 shares and the 3rd defendant 100 shares. It is not in dispute in that the 3rd defendant in fact executed two forms of transfer and two bought and sold notes for a nominal consideration of $250 for each parcel of 50 shares. These transfers, however, while received by the 1st defendant's secretary, were never registered, the reasons for which are also in dispute. These share transfer documents were destroyed by the 3rd defendant in July 1988 as she says that by then there was no question of them being implemented.

9. The 1st plaintiff relies heavily on these share transfers and the bought and sold notes as does Jones, J. in his reasons for granting the injunction. He said that there was uncontradicted evidence of the 3rd defendant's intention to transfer 100 shares and that alone gave the plaintiffs a good arguable case. While there was clearly an intention in 1983 to transfer the shares, however, the 3rd defendant in  her affidavit says that this was in no way an acknowledgment of the 1st plaintiff having a beneficial interest in the 1st defendant. It was done, she says, for tax reasons consequent on she and the 2nd defendant taking up residence in the United Kingdom and she intended the plaintiffs to be her and the 2nd defendant's nominees. This finds some support in that Mr. J.T. Fulton, a partner of the accounting firm which is the 1st defendant's secretary, says he was instructed to forward a deed of trust with the share transfer forms, and he exhibits a copy of this deed, which was however never signed for reasons which are not clear. Mr. Fulton says that the share transfers were not registered as stamp duty was payable on them based on the actual value of the shares as against their nominal value, and was not given that necessary information.

10. There were two further matters upon which the plaintiffs rely as showing the fraudulent intent of the defendants. One is that in July 1988 the managing director of whitford, a company called Curacao Corporation, at the direction of the defendants revoked a power of attorney made in favour of a Mr. Harshad Shah, a representative of the plaintiffs, and had it replaced with a power of attorney in their own favour. On 1st July, 1988 the defendants had removed Mr. Shah as the joint managing director of Hasket which left another company called Trust International Management B.V. as the sole managing director. This company then gave a power of attorney in favour of the defendants which enabled them to become signatories of bank accounts of whitford which had deposits in excess of US$2.5 million.

11. The other matter complained about is that in August 1988 the defendants caused a further 9,800 shares to be issued by the 1st defendant which were allocated in proportion to the existing shareholding. The plaintiffs say that they were not consulted regarding the issue of these additional shares.

12. It is the plaintiffs' case for obtaining the Mareva injunction that in view of the defendants' conduct in gaining control of the 1st defendant, there is a grave risk that they will dissipate the assets of the 1st defendant to the prejudice of the claims of the plaintiffs and in particular the 1st plaintiff's claim to be the sole beneficial owner of the 1st defendant and that this may nullify any judgment which the plaintiffs subsequently obtain.

13. The defendants deny that the 1st plaintiff is the beneficial owner of the 1st defendant and evidence has been produced by them indicating that the funds which are under the control of the 1st defendant, through whitford and Hasket, were provided by the 2nd defendant. While this allegation is in turn denied by the plaintiffs, it would seem that it is not in dispute that at any rate the funds were channelled through the 2nd defendant. It is, of course, disputed as to where those funds originated and that will no doubt be a crucial issue at the trial.

14. Following the issue of this writ in Hong Kong in June 1989 a summons to stay the proceedings was issued by the plaintiffs in October. This was on the basis that the same issues to be tried in this action would be also aired in the London proceedings, the basis of which was a claim that the whole of the Maker group assets were those of a parthership, including the 1st defenuant. That, it was submitted, was the central issue and that these proceedings could not be properly heard until that had been decided. This application for a stay was granted by Master Beeson on 25th January, 1990 and an appeal against that decision was refused by Jones, J. on 27th March. His reasons for doing so was that all the withesses were either in England or had easy access to London, that a great deal of discovery had already taken place in the English proceedings, and that it would have to be decided in those proceedings what was the proper law as regards the alleged overall partnership. That same proper law would also apply to any dispute involving whitford. Jones, J. considered that while the English Judgment would not be binding on the Hong Kong courts, it would be highly persuasive. He concluded that the dispute here could not be dealt with on its own and it was more appropriate for it to await the conclusion of the proceedings in England. The defendants have filed notice of appeal against that decision but leading counsel. Mr. Litton, undertook before us that if the injunction was lifted the defendants would not proceed with that appeal.

15. This results in the extremely unusual situation that the plaintiffs, having commenced their proceedings in Hong Kong and having obtained the wide Mareva injunction against the defendants which prohibits them from carrying out any functions in connection with the management of the 1st defendant, have now stayed the proceedings while retaining the injunction. This prevents the defendants exercising any powers in relation to the 1st defendant, of which they are the registered sole shareholders and directors. It is the case for the defendants that this is a totally unjust situation so far as they are concerned and creates greater problems as regards the management of the 1st defendant even though it is only a holding company.

16. The appeal against the order of Jones, J. continuing the injunction is on three grounds. The first is material non-disclosure, the second that on the affidavits there is no good arguable case for the plaintiffs and thirdly that there is no real risk of the dissipation of assets. In view of the conclusions that we have come to, we do not intend to deal with the first ground but only with the second two.

17. So far as there being a good arguable case presented by the plaintiff is concerned, it seems to us that the one central issue will be the question of where did the funds come from which were channelled through the 1st defendant to whitford and thence to Hasket. There have been many affidavits filed, some of which are voluminous, with a great bulk of documents exhibited. However, when it comes to this vital question we find the affidavits filed by the plaintiffs lacking in what we would have expected in support of the 1st plaintiff's claim that the funds came from him.

18. The ex parte application was not supported by an affidavit from the 1st plaintiff himself but from his New York attorney, Mr. Robert Bell. Mr. Bell said that he had been the 1st plaintiff's legal adviser for a period of over five years, which would go back into 1984. However in his affidavit he states that at all material times since its incorporation the 1st plaintiff has been the beneficial owner of the issued share capital of the 1st defendant, which was incorporated in September 1981. There are however no documents exhibited in support of that sweeping statement. Later in his affidavit he again says:

Despite this reference to "bank accounts in the name of the 1st plaintiff", no such bank accounts have been exhibited and there is nothing in Mr. Bell's affidavit to suggest that copies of these accounts are being sought. It does, however, appear to be conceded by Mr. Bell, and there is evidence exhibited to an affidavit filed by the 2nd defendant, that the funds were, at any rate on the face of it, provided by him.

19. An affidavit was subsequently sworn by the 1st plaintiff and filed on 10th July, 1989. He said he had seen copies of the affidavits of Mr. Bell and also of Mr. Booker, his Hong Kong solicitor, and he confirmed their truth. In his affidavit the 1st plaintiff also repeats the allegation regarding the source of funds:

Again, however, there are no documents such as bank statements or other records exhibited to this affidavit in support of that contention. The 1st defendant goes on to make the following statment which we think reflects very clearly his attitude to this action and to the Maker group:

He goes on later to say:

These are sweeping statements reflecting, we feel, the 1st plaintiff's whole attitude to this matter which is that, as the head of the Maker family business, it is not for any of his children to query his total control and that he is not required to support these statements with documentary evidence which would otherwise be expected. There is uncontradicted evidence from the 3rd defendant that she and her brother have since 1969 been fully and very actively engaged in the running of the Maker group and she gave up a professional career as a doctor in order to do so. Clearly that does not, in the view of the 1st plaintiff, entitle her to any share of the group assets.

20. So far as the question of dissipation of assets is concerned, it seems clear that these comprise mainly some US$10 million in promissory notes due in 1990/1992 and these promissory notes emanate from companies which are themselves part of the Maker group. The notes are held by a Mr. Harshad Shah who is the representative of the plaintiffs. The other assets are some $2.5 million in bank accounts in New York. However it was conceded ab initio that of this $2 million was never available and there is now no real risk in respect of the balance. This then leaves the question of the promissory notes. It was suggested by Mr. Bell that the assets in the form of these promissory notes could be dissipated by the defendants by various schemes. He suggests, for instance, that the 2nd and 3rd defendants could transfer their shares in the 1st derendant to nominee companies which would make it impossible for the plaintiffs or the court to protect the interests of the plaintiffs. He said there would also be nothing to prevent the 2nd and 3rd defendants transferring the shares in the 1st defendant to a bona fide purchaser for value "if such could be found". We are at a loss to see how this could be done so as to obtain the money which these promissory notes represent and prevent its recovery. We certainly did not consider there is any real risk of the sale of the 1st defendant to a bona fide purchaser for value considering the nature of its assets and the enquiries that any such purchaser would undoubtedly make as to the background of the 1st defendant company. Any transfer of shares or assets by the 2nd and 3rd defendants to nominees so as to attempt to defeat a judgment would be pointless as such transfers could be traced. If the plaintiffs succeed in their action it would mean that the 2nd and 3rd defendants were holding their shares in the 1st defendant as trustees for the plaintiffs.

21. In his judgment Jones, J. relied heavily for his finding that there was a good arguable case for the plaintiffs on firstly the share transfer forms which had been signed by the defendants but subsequently destroyed and never registered and that the defendants, in the London proceedings, claim there was a worldwide partnership in the Marker group assets and that therefore the plaintiffs must have some beneficial share in the 1st defendant. This does not, it seems to us, take into account the affidavit of Mr. Fulton, where he says that although the transfer and bought and sold notes were prepared by his firm, which is the secretary of the 1st defendant, there was at the same time a declaration of trust prepared to be signed by the plaintiffs in favour of the 2nd defendant. This is referred to in the affidavits of Mr. Fulton and of the 3rd defendant and that statement has not been challenged. It would also seem to be extraordinary that if the shares were to be transferred so as to indicate beneficial ownership by the plaintiffs but due to the wrongful default of the 2nd and 3rd defendants the transfer was not registered, no complaint of any sort was made by the plaintiffs for five years thereafter. So far as the claim by the defendants in the London proceedings as to a partnership existing in the worldwide assets they specifically have excluded the 1st defendant from such a claim and it is very much their case that the 1st defendant is not part of the Maker group worldwide assets.

22. We are satisfied that on the affidavits filed herein the plaintiffs have not produced what we would regard as a good arguable case such as would justify the granting of the extraordinary remedy of a Mareva injunction the effect of which is that they, as sole shareholders and directors of the 1st defendant, are prevented from carrying out any of their functions as such shareholders and directors until at least the conclusion of the very complex London proceedings which will not necessarily be conclusive as to this action. We are furthermore by no means satisfied that there is any real risk of dissipation of the assets of the 1st defendant by the 2nd and 3rd defendants.

23. The principles upon a court should act in deciding whether the plaintiffs have shown a good arguable case such as to justify the granting of an injuction are now well established as are the proper grounds for the unusual remedy of a Mareva injunction. We do not consider the plaintiffs here have satisfied either set of conditions.

24. The defendants are to have their costs here and below in respect of all proceedings in relation to injunction.