XCHRX GOLDEN HOPE (ASIA) LTD. v. YAP CHING LEONG and Others

1997 , No. A12127

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

___________

JUDGMENT

___________

1. On 12 November 1997, the plaintiff obtained a Mareva injunction against the first defendant, who was then the only defendant. This was obtained on the basis that the first defendant misappropriated the sum of US$3 million of the plaintiff's money. The order restrained the first defendant from dealing with the sum of US$3.1 million in his bank account. This order was served on the first defendant on 17 November 1997. On 15 November 1997, the plaintiff obtained a Mareva injunction against the second defendant restraining her from dealing with the sum of $1.6 million transferred to the second defendant by the first defendant. This order was obtained on the basis of evidence that the first defendant had already closed his bank account and disposed of the money. One way in which he disposed of the money was by transferring US$1.6 million from his bank account to the account of the second defendant. The affirmation filed in support of this application said that the plaintiff claimed repayment of this US$1.6 million as "its money", and went on to say that to "the extent that [the second defendant is] holding the money or any part of it on behalf of [the first defendant] then they should be prevented by injunction" from dealing with it. The plaintiff asked for an injunction "to ensure that the money does not move pending the court having the opportunity to decide to whom the money in fact belongs - that question in part depends I suspect on the reasons for and the circumstances in which the money came to be transferred into [the second defendant's] account in the first place." The plaintiff issued an amended writ. This amended writ claimed the money as money "had and received" by the second defendant, and also alleged that the money was subject to "a constructive and/or resulting trust" in favour of the plaintiff. The plaintiff's statement of claim alleges that the second defendant received the money "to the use of the plaintiff" and, in the alternative, that the second defendant knew, actually or constructively, that the money was trust property.

2. On 31 December 1997, the second defendant issued a summons seeking an order that the injunction be discharged. On 2 January 1998, she made an affirmation in support of this application. This affirmation is remarkably short, and raises more questions than it answers. This is what she says -

"By an agreement in writing dated 13 October 1997, the first defendant agreed to lend me a sum of US$1,500,000.00 and in return I agree to repay the loan by subscribing for 4,800,000 ordinary shares of RM1 each in Natural Acres Sdn Bhd, such shares to be held by me and 2 other persons nominated by the first defendant in trust for the first defendant. It is now shown to me and produced [a copy of the agreement].

The sum of RM4.8 million was arrived at by adopting an exchange rate of 3.2 agreed between me and the first defendant.

Pursuant to the said agreement, I came to Hong Kong on 14 October 1997. On 15 October 1997, I attended the Mongkok Branch of the Hong Kong & Shanghai Banking Corporation Ltd. and opened an Asset Vantage account no. 613-013671-888. I personally deposited cash of US$100,000.00, at the same time, the first defendant caused to be deposited into my said account the sum of US$1,500,000.00 It is now shown to me and produced [copies of a counter deposit form and 3 time deposits of US$500,000.00].

I returned to Malaysia on 16 October 1997. Between 20 October 1997 and 17 November 1997, I subscribed for 4,800,000 ordinary shares in the company. It is now shown to me and produced [copies of deposit slips showing payment to the company and copies of share certificates issued by the company].

I confirm that I am now holding the shares/share certificates out of the 4,800,000 shares in the company in trust for the first defendant and I am willing to hold the same to abide by the Order of this Honourable Court."

3. In an affidavit made on 8 January 1998, the plaintiff's solicitor says that Natural Acres Sdn Bhd (Natural Acres) is a dormant company; it has only US$10.52 in its bank account. He says that the money allegedly paid by the second defendant is not in the bank account, and the company would appear to be worth virtually nothing. In response to this, the second defendant's solicitor made an affirmation on 9 January 1998. This says only that the second defendant, who is director of Natural Acres, told him that the company "is currently holding over 100 acres of land in Malaysia in prime location".

4. Counsel are agreed that the second defendant must show that she acted in good faith and gave full consideration for the money received by her from the first defendant. When one examines what she says in order to show this, a whole host of questions arise. Why did she borrow the money from the first defendant when, patently, she did not need it? She received the money on 15 October 1997, and it was still in her account after 15 November 1997. Between 20 October and 17 November 1997, she says she paid the agreed equivalent of US$1.5 million, essentially, on behalf of the first defendant to acquire shares to be held in trust for him. So, it seems, before the second defendant made any use of the money said to be lent to her, she was expending money on behalf of the first defendant; in essence, she was repaying the loan before she had used it. That makes no sense at all. And why did the first defendant want to acquire shares in this dormant company, apparently secretly? Why did he not subscribe for the shares himself in his own name? What was the purpose of this strange transaction? Why borrow money with one hand, and give back the equivalent sum at about the same time with the other? What has happened to the money paid to Natural Acres? It has, apparently, disappeared from the company accounts. Why did the second defendant deposit US$100,000 into her new account in cash when another $1.5 million was being deposited by the first defendant at the same time? That sum of money is a very large sum to be carrying about in cash. What was its source? The plaintiff 's evidence is that the sum of US$1.6 million was transferred from the first defendant's account to the second defendant's account. The second defendant does not deal directly with this allegation, although, by implication, denying it. Why did the second defendant come to Hong Kong for one day to open an account to receive the loan from the first defendant? Why was this necessary? If it is indeed so that the second defendant was borrowing money from the first defendant, there was no obvious need for this trip.

5. None of these questions is answered. They scream out for explanation. And they are not questions that have arisen since the second defendant made her affirmation. They are such that they jump out of the page as one reads what the second defendant has to say. The second defendant knew that the plaintiff was inviting the court to inquire into "the reasons for and the circumstances in which the money came to be transferred into [the second defendant's] account in the first place." Any reasonable person must have realised, in the circumstances of this case, that these questions needed answering. On any view of the alleged transaction, the second defendant must have been aware that it did not have the appearance of normality; that it needed to be explained in much more detail to show that it was honest and innocent. The second defendant had plenty of time to deal with the problems that arose from her story, so there was no question here of the second defendant having to file a brief affirmation because of lack of time. Her affirmation gives the impression of having been drafted with a view to conceal rather than reveal.

6. In the result, the second defendant has not satisfied me that this transaction was a genuine one, entered into by the second defendant with the first defendant in good faith and for valuable consideration. The alleged transaction has all the appearances of a laundering operation; a device designed deliberately to frustrate the plaintiff's claim by inventing a basis on which it could be said that the second defendant had acquired good title to the plaintiff's money.

7. Accordingly, the second defendant's application is dismissed with costs to the plaintiff.