TRANSOCEAN MARTIME GROUP HOLDINGS (HK) CO., LTD AND OTHERS v. TRANSOCEAN MARTIME GROUP HOLDINGS (HK) CO., LTD AND OTHERS

HCA 2169/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2169 OF 2011

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BETWEEN

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REASONS FOR DECISIONS

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1.  I made 2 decisions in this case relating to the order for disclosure of assets in aid of a Mareva injunction. On 8 February 2012, I refused the plaintiffs’ application for an unless order for the filing of affirmations for disclosure of assets but I re-granted a fresh order for the filing of such affirmations. On 28 February 2012, I allowed the defendants’ application for an order that, pending the hearing of the applications both for the continuation and the discharge of the Mareva injunction on 15 May 2012, the defendants have, in the meantime, fulfilled their duties of disclosure of assets. I also adjourn the plaintiffs’ application for the defendants to disclose further information about the flow of funds in the defendants’ bank accounts to the hearing on 15 May 2012. I now give my reasons for these decisions.

BACKGROUND

2.  The present dispute arises out of a transfer of shares agreement.

3.  Prior to 22 March 2011, the 1^st plaintiff (a BVI company) owned 90% of the shares of the 2^nd plaintiff (a BVI company), which in turn wholly owned a company in Shanghai known as “考麥科船舶技術 (上海) 有限公司” (“the Shanghai Company”).  The shareholders and directors of the 1^st plaintiff were the 3^rd plaintiff and the 3^rd and 4^th defendants.  The directors of the 2^nd plaintiff were the 3^rd plaintiff and the 3^rd to 6^th defendants.  The 3^rd defendant was the legal representative of the Shanghai Company.

4.  On or about 21 March 2011, the 3^rd defendant agreed to sell and the 3^rd plaintiff to purchase the 3^rd defendant’s shareholding in the 1^st plaintiff (“the Transfer Agreement”).  On the same day, RMB¥3,000,000 was paid and the Instrument of Transfer was signed.

5.  On 22 March 2011, the transfer was approved by the 1^st plaintiff at the directors’ meeting.  The 3^rd defendant resigned as director of the 1^st and 2^nd plaintiffs and new directors were appointed.

6.  On the same day, the transfer of shares was entered into the 1^st plaintiff’s register.

7.  On 23 March 2011, the 2^nd plaintiff removed the 3^rd defendant as the executive director and authorised legal representative of the Shanghai Company and appointed the 3^rd plaintiff in her place.

8.  According to the plaintiffs’ case, the 4^th defendant was unhappy about the transfer claiming, inter alia, that he had the pre-emptive right to purchase the shares.  The 3^rd defendant was then pressured by the 4^th defendant to renege from the completed transfer.  The plaintiffs claim that a fraudulent scheme was therefore perpetrated out to frustrate the 3^rd plaintiff’s ownership and to rip the companies of all their assets, and the following acts were done by the 3^rd to 6^th defendants in April to November 2011 behind the 3^rd plaintiff’s back, including:

(i)  replacing the 3^rd plaintiff by the 3^rd defendant as the chairman of the board of the 2^nd plaintiff;

(ii)  replacing the 3^rd plaintiff by the 4^th defendant as the legal representative of the Shanghai Company;

(iii)  removing the 3^rd plaintiff as a signatory of the 2^nd plaintiff’s bank account;

(iv)  revoking the authority of the 3^rd plaintiff to access or operate the bank accounts of the 1^st and 2^nd plaintiffs;

(v)  setting up 2 companies, the 1^st and 2^nd defendants, with very similar names to the 1^st and 2^nd plaintiffs;

(vi)  selling the shares of the Shanghai Company by the 2^nd plaintiff to the 2^nd defendant; and

(vii)  siphoning away all the funds in the 1^st and 2^nd plaintiffs’ HSBC accounts to the 1^st, 3^rd and 4^th defendants.

9.  On 21 December 2011, the plaintiffs obtained an ex parte Mareva injunction from Carlson DHCJ against all the defendants restricting the disposal of the defendants’ assets up to the amount of HK$17,400,00 and for disclosure of information relating to their assets and against the 2^nd defendant restricting the disposal of shares in the Shanghai Company.

10.  On 6 January 2012, the defendants took out a summons to, inter alia, discharge the Mareva injunction.  On the return day on 6 January 2012, Sakhrani J granted an order for the continuation of the Mareva injunction pending the substantive hearing of both the applications for the continuance and the discharge of the injunction, the hearing date of which is now fixed on 15 May 2012 before Chung J.

THE PLAINTIFFS’ SUMMONS DATED 2^ND FEBRUARY 2012 AND THE HEARING ON 8 FEBRUARY 2012

11.  2 affirmations were filed respectively by the 1^st and 2^nd defendants on 31 January 2012 in purported compliance with the disclosure order.  On 2 February 2012, the plaintiffs took out an application: (i) to strike out the said 2 affirmations on the ground they were defective in form; and (ii) to apply for an unless order for the defendants to file the affirmations for disclosure failing which judgment would be entered against them.

12.  The application came before me on 8 February 2012.  In that hearing, Mr Pow SC, counsel for the defendants, agreed that the said 2 affirmations were defective in form.  However, as there had been no valid order for the filing of affirmations for disclosure of assets, he argued that the court should not entertain the plaintiffs’ application for unless order.

13.  I agree with Mr Pow’s observation.  The disclosure order was originally contained in paragraph 2 of the ex parte order made by Carlson DHCJ on 21 December 2011.  It required the defendants to notify the plaintiffs immediately upon the service of the order of any assets with an individual value of more than $50,000, and to file affidavits within 7 days of the service of the order confirming the information about their assets. Since the ex parte order was served on the defendants at subsequent times, it seemed that the 7 days’ period for the filing of the disclosure affirmations had yet expired on the return day on 6 January 2012.  In the return day hearing, Sakhrani J only ordered paragraphs 1 and 3 of the ex parte order to continue.  Since there had been no continuation of the order requiring the filing of disclosure affirmations, technically the defendants were not required to file such affirmations.  Hence, I refused the plaintiffs’ application for unless order.

14.  However, the odd thing was that the 1^st and 2^nd defendants did file the disclosure affirmations, though defective in form, on 31 January 2012.  Obviously, they were under the impression that they were obliged to do so.  Ms Yang, counsel for the plaintiffs, therefore asked the court to re-grant the disclosure order.

15.  Mr Pow initially opposed such application.  Since the defendants had by that time taken out an application for the discharge of the Mareva injunction, Mr Pow submitted that the court should take into account the merits of the discharge application in considering whether to re-grant the disclosure order.  There was then dispute between the parties as to what were actually said in the return day hearing before Sakhrani J, and they requested to listen to the audio recording of the hearing.

16.  After listening to the recording, it was clear that all the parties in that hearing readily accepted and proceeded on the basis that the defendants had to file the disclosure affirmations pursuant to paragraph 2 of the ex parte order.  That was the common understanding of the parties in that hearing.  Although such common understanding was not truly reflected in the order itself and the defendants technically were not obliged to file the disclosure affirmations, it was very difficult for the defendants to argue against the re-grant of the order under such circumstances.  Consequentially, Mr Pow did not press the objection any further and I re-granted the disclosure order in the hearing on 8 February 2012.

THE DEFENDANTS’ SUMMONS DATED 24 FEBRUARY 2012 AND THE HEARING ON 28 FEBRUARY 2012

17.  In purported compliance with the re-granted disclosure order, the 5^th defendant made 2 affirmations dated 10 February 2012 and the 3^rd defendant made 1 affirmation dated 24 February 2012.  Based on the contents of these affirmations, the 3^rd to 6^th defendants took out a summons on 24 February 2012 for an order that, upon certain undertakings made by the 3^rd and 4^th defendants, the disclosure in the said affirmations be deemed sufficient disclosures by the 3^rd to 6^th defendants in the circumstances pending the final resolution of the defendants’ application to discharge the Mareva injunction.  On 27 February 2012, the plaintiffs took out an application for the defendants to make further disclosure about the movement of certain funds withdrawn from the bank accounts of the 1^st and 2^nd plaintiffs.  These 2 applications came before me on 28 February 2012.

(i)  The applicable principles

18.  Both applications relate to the order for disclosure of assets.  It is trite law that such kind of disclosure order is in aid of a Mareva injunction.  It is ancillary to the injunction order and should be no wider than the injunction to which it is ancillary.  At the pre-judgment stage, such an order carries with it the risk of oppression to the defendant (see: Hong Kong Civil Procedure 2012, §29/1/78).

19.  In A J Bechor & Co v Bilton [1981] QB 923, Stephenson LJ said the following at p 951C of the judgment:

“But a court of law can only do what it has power or jurisdiction to do. It is as important that it should not exceed its powers to interfere in the lives of private citizens and to compel them to make public what they may wish to keep private, as that it should use them to the full to protect and enforce private and public rights and restrain their destruction or infringement. Injustice comes from abuse of power, judicial, power included, as well as from failure to exercise it.”

20.  It therefore follows that if the value of some particular assets that the defendant undertakes to the court to be preserved is more than enough to satisfy the claim of the plaintiff should judgment be entered for the plaintiff, any extra order to the defendant for disclosure of assets will involve an invasion of privacy.

21.  In determining whether further disclosure should be ordered in the present case, the court, therefore, needs to consider the following matters: (i) the existing assets frozen by the Mareva injunction and the undertakings offered by the defendants; and (ii) the likely quantum of the plaintiffs’ claim should judgment be entered for the plaintiffs.

(ii)  The existing assets frozen by the Mareva injunction and the defendants’ undertakings

22.  According to the disclosure affirmations made by the defendants after the hearing on 8 February 2012, the following assets of the defendants, approximately in the total value of HK$14,000,000, have already been frozen by the Mareva injunction:

(i)  approximately HK$100,000 cash in the HSBC accounts of the 1^st and 2^nd defendants;

(ii)  the shareholdings of the 1^st and 2^nd defendants, directly and indirectly, in the Shanghai Company valued at, according to the defendants, approximately HK$6,607,556.12;

(iii)  approximately HK$3,043,880.87 cash in the HSBC bank account of the 3^rd defendant;

(iv)  approximately HK$532,524.88 cash in the HSBC bank account of the 4^th defendant; and

(v)  approximately HK$3,693,216.79, being the sum equivalent to RMB¥3,000,000, returned by the 3^rd defendant to the 3^rd plaintiff for the purported cancellation of the Transfer Agreement.

23.  Apart from the said assets already frozen by the injunction, the 3^rd and 4^th defendants undertake to provide 2 real properties in Shanghai as additional security for the plaintiffs’ claim.

24.  The first property is in Xingzhong Road in Shanghai which is co-owned by the 3^rd defendant and 2 other persons. The 3^rd defendant claims that the market value of this property is about RMB¥12,000,000 and it is free of mortgage or encumbrances.  The 3^rd defendant undertakes to the court that, pending the disposal of the hearing on 15 May 2012, she would not dispose her interest in or cause any encumbrances or reduction in value of this property without the leave of the court.  She has also obtained the consent of the other 2 co-owners to facilitate the provision of the said undertaking.  The title documents of the property would be deposited with the defendants’ solicitors who would provide undertaking to court that they would not release the said documents to the owners without the leave of the court.

25.  The second property is in Qingshan Road in Shanghai which is co-owned by the 4^th defendant and his wife.  The 4^th defendant claims that the market value of this property is about RMB¥3,000,000.  The property is subject to mortgage and the existing net value of the property is about RMB¥2,100,000.  The 4^th defendant has already obtained the consent from his wife to facilitate the provision of the proposed undertaking.

(iii)    Quantum of the plaintiffs’ claim

26.  I then turn to the likely quantum of the plaintiffs’ claim should judgment be entered for the plaintiffs.  The limit of the Mareva injunction order granted by Carlson DHCJ was HK17,400,000. The basis of the sum was said to have adding up the following 2 sums of money:

(i)  the amount of about HK$3,000,000 alleged to have been wrongfully siphoned off by the defendants from the HSBC bank accounts of the 1^st and 2^nd plaintiffs (the precise figure provided in the Amended Statement of Claim is HK$3,477,264.85); and

(ii)  the alleged theft of the entire Shanghai Company valued at about RMB¥12,000,000 (the net value of the Shanghai Company suggested by the plaintiffs in the Amended Statement of Claim is RMB¥10,079,800.98). 

(iv)  Whether the disclosure and the undertakings are sufficient?

27.  In my judgment, the assets frozen by the injunction and the undertakings offered by defendants and their solicitors are sufficient for the protection of the plaintiffs’ interests in the meantime pending the disposal of the hearing on 15 May 2012.

28.  Firstly, the amount of cash frozen in the bank accounts of the defendants in Hong Kong is sufficient to satisfy the plaintiffs’ claim relating to the money allegedly siphoned off from the 1^st and 2^nd plaintiffs’ bank accounts.

29.  That leaves the plaintiffs’ claim for damages resulting from the alleged theft of the Shanghai Company.  In the latest pleading, the plaintiffs suggest that the net value of the Shanghai Company should be in the region of RMB¥10,079,800.98.

30.  There is a dispute between the parties about the existing value of the Shanghai Company.  According to the balance sheet as of 28 February 2011 of the Shanghai Company produced by the defendants, the value of the Shanghai Company was only about RMB¥5,607,973.39.  At this stage, it is very difficult for the court to form any provisional view about the valuation of the Company.  However, it is quite unnecessary for me to decide on this particular issue for the purpose of the present application.

31.  In my judgment, what is most important is that the Shanghai Company is intact at the present moment.  The 2^nd defendant, through the 5^th defendant, confirms on oath that it is still the owner of the Shanghai Company.  The 2^nd defendant is a Hong Kong company which is bound by the injunction not to dispose of the shares in the Shanghai Company to any other persons.  Further, there is also no evidence that the defendants had siphoned off the assets of the Shanghai Company.  In fact, prior to the commencement of the present action, the 3^rd defendant and the Shanghai Company had issued legal proceedings in the BVI and the Mainland relating to the control and management of the Shanghai Company and its holding companies.  To a certain extent, this indicates that the defendants intended to resolve their differences through legal process rather than siphoning off the assets of the Shanghai Company.  To me, so long as the Shanghai Company remains owned by the 2^nd defendant and it is still intact at the moment, the existing arrangement will offer reasonable, if not complete, protection to the plaintiffs’ claim.

32.  I would also like to add 3 more observations in this regard.  Firstly, the 3^rd plaintiff had obtained the sum of RMB¥3,000,000 from the 3^rd defendant for the purported cancellation of the Transfer Agreement.  Assuming that the plaintiffs eventually succeed in their claim, it is arguable that the damages recoverable by the 3^rd plaintiff will have to be discounted by the said sum of RMB¥3,000,000 as he had to pay for the transfer of shares in any event.

33.  Secondly, in considering the question of disclosure of assets at the pre-judgment stage, the court has to balance factors such as protection of the plaintiffs’ interests against invasion of privacy on the part of the defendants.  There is also a possibility that the plaintiffs may not succeed in their claim or the quantum of damages recoverable by the plaintiffs would be much less than the sum originally claimed by them. Hence, the court should always approach the issue of further disclosure with some degree of caution.

34.  Thirdly, I am not particularly impressed by the additional security offered by the 3^rd and 4^th defendants.  These properties are not wholly owned by the said defendants, and there may be a lot of problems if the plaintiffs have to enforce the judgment against these properties.  However, I accept the submission of Mr Pow, who also appeared for the defendants in the hearing on 28 February 2012, that the existing frozen assets are reasonably sufficient to protect the plaintiffs’ interests and the additional security is only a “bonus” to them.  In fact, all but the 2^nd defendants are either overseas company or Mainland residents.  As the plaintiffs chose to sue these defendants in Hong Kong, the plaintiffs will have to accept the risk associated with the enforcement of judgment in jurisdictions outside Hong Kong.  In such circumstances, I refuse to exercise the discretion to order the defendants to make further disclosure of assets pending the disposal of the hearing on 15 May 2012.

35.  For the same reasons given above, I would not, at this stage, order the defendants to disclose further information about the movement of funds in the defendants’ bank accounts.  However, since the defendants are only asking for interim measure and the judge in the hearing on 15 May 2012 may revisit the issue about disclosure of assets, I would simply adjourn the plaintiffs’ summons dated 27 February 2012 to be heard together with the defendants’ application for the discharge of the injunction returnable on 15 May 2012.

36.  These are the reasons for the decisions I made in the hearings on 8 and 28 February 2012.