CHAIN LANE INTERNATIONAL GROUP LTD. v. CHEN WEN WEI AND ANOTHER

HCMP6345/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.6345 OF 2001

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

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

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

J U D G M E N T

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

1. This is an application by the defendants for the discharge of the ex parte order granted by Hartmann J during the night of 30 November 2001. The circumstances of the granting of the ex parte order by the learned judge is relevant because it is somewhat unusual in that the plaintiff, went ex parte to the judge without an affidavit, attended by counsel and the judge was informed of various matters and on the basis that the substance of the information given was, according to the undertaking given to the judge at that time, to be set out in an affidavit to be filed by the plaintiff, the learned judge granted an ex parte order. The Order is in really three parts and it is, firstly, under paragraph 1 of the Order that there would be preservation of what I may generally call the financial documents of the 2nd defendant company. The Order reads : "All books of account, management accounts, working papers, bank statements, cheque stubs, contracts, instruments of transfer, statutory records, company documents, and all documentation held by the Intended 2nd Defendant company."

2. Paragraph 2 of the Order is that the defendants are restrained from causing or permitting any of those documents to be damaged or destroyed or removed from the custody of the company at the registered office.

3. The third part of the Order under paragraph 3, which is what I would call an Anton Piller Order, is giving the plaintiff, its solicitors and accountants the right to enter, re-enter, attend at and remain at the registered office during ordinary business hours and may inspect the documents and take such copies of any of them as they should wish including the taking of computer forensic image of the electronic media for the purposes of obtaining a completely and evidentially valid copy of the entire original electronic media, and may remove the copies taken, provided the originals of the documents remain in the custody of the company.

4. That was the drastic Order made during that night of 30 November in favour of the plaintiff. The plaintiff and the 1st defendant are equal shareholders of the 2nd defendant company and they have respective responsibilities for running the company. I will not go into details of the underlying circumstances. The main purpose of the originating summons, as well as the ex parte application resulting in the ex parte order, is to enable the plaintiff to have copies of all the financial records. The main case presented to the judge as reflected in the affidavit of Chang Shen Hsun filed on 3 December 2001, affirmed on the same day, which is obviously the material relied upon by the plaintiff in support of the ex parte application is really to three effects that :

(1) There had been material financial irregularities resulting in the alleged unaccountability of $20 million (see the last sentence of paragraph 8).

(2) Access to the financial records of the company had been denied to the plaintiff.

(3) On the night of the application, there was an incident whereby there was some alleged shredding of documents which led to the urgent application to the judge.

5. The application now before me is for the discharge of the ex parte order on the basis of material non-disclosure. With a little bit of cajoling from the bench, Mr Li for the 1st defendant confined his alleged misrepresentations to two : the first being the alleged misrepresentation in the last sentence of paragraph 8 that more than $20 million in the company has been unaccounted for. He says, in relation to that, that it is untrue and that it is material. In relation to the second misrepresentation, that is denial of access to the company's financial records, Mr Li says that it is untrue and material.

6. Mr Lau, counsel for the plaintiff, has manfully tried to defend those misrepresentations. If one looks at the relevant affidavits and having regard to his submissions, I think he was very gracious in conceding that there was no substance now to support the allegation of the $20 million having disappeared and unaccounted for under the first misrepresentation. The allegation contained in paragraphs 9, 10 and 12 that the financial records, in particular, the profit and loss account, balance sheet, etc., were denied to the plaintiff, in particular prior to January 2001, also appeared not to be supportable. I have no doubt, having regard to the material put before me that there were material non-disclosures and that the first and second representations were not true and I have also no doubt that they were material misrepresentations. They were the foundations of the making of the Order by the judge. The alleged shredding only provided the urgency and so, therefore, these two misrepresentations were causative. The making of the first and second misrepresentations were causative in the making of the order and I take the view that they were causative in the making of all three paragrpahs in the Order not just in the making of paragraph 3. I think paragraphs 1, 2 and 3 really come as a package. I cannot see that the judge was really led to the making of paragraphs 1 and 2 by the alleged shredding alone.

7. The final point made by Mr Lau in his valiant attempt to defend the Order is that the court has a residual discretion not to set aside. Some reference was made to an judgment of Bokhary J sitting at First Instance (as he then did) in the case of Comtrad Industries Ltd v. R.J.P. International Ltd. I do not see that case as providing any assistance to me. It was a case where the judge did set aside the Order and not where he refused to set aside the Order and in so refusing laid down special principles and then applied that principle. I think the general rule is that irrespective of the sinfulness or the deliberateness of the misrepresentation unless it is trivial, otherwise it generally leads to the setting aside of the ex parte order. That is a price which a plaintiff has to pay for making an ex parte application in the absence of the other side. The court demands a high standard of full material disclosure and so long as they are material disclosures, they do not even have to be causative in the making of the Order. Our case, in fact, is a little bit more. In my view, they are highly causative. So, I think everything points to this Order being made wrongly and I am sure that if the judge had the full material before him, in particular, that for example, there were audited qualified accounts of the company which showed no disappearance of $20 million and that the altered accounts had been signed by the plaintiff's director, then he would have formed a very different view of the nature of relief he would have granted. I therefore conclude that the Order that made by Hartmann J must be set aside.