JONATHAN PETER WARNETT v. CORPORATION LINK LTD AND OTHERS

HCA2698/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2698 OF 2008

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BETWEEN

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J U D G M E N T

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1.  This judgment deals with two summons, both issued by the 3^rd defendant herein.

2.  By the first summons (dated 10 March 2009) the 3^rd defendant sought to set aside the default judgment obtained by the plaintiff against it.

3.  The second summons (dated 14 April 2009) sought to discharge the Mareva Injunction obtained by the plaintiff, alternatively to vary the terms of that Injunction in the manner stipulated therein.

Background

4.  The plaintiff is a UK resident.

5.  In August 2008, the plaintiff received a bogus letter purportedly from Dah Sing Bank by e-mail advising him that he was the successful beneficiary of the estate of one Alfred Warnett (whom the plaintiff thought was a distant relative) in the amount of US$8.35 million.

6.  The plaintiff was referred to a solicitor’s firm in Hong Kong to help him process his inheritance claim, and was asked to deposit various sums of money into bank accounts in Hong Kong.

7.  As a result, the plaintiff deposited :

(a) US$217,500 into a bank account held in the name of the 1^st defendant with the DBS Bank (Hong Kong) Limited;

(b) US$15,750 into a bank account in the 2^nd defendant’s name with Citic Ka Wah Bank Limited; and

(c) US$83,500 into a bank account in the name of the 3^rd defendant with the Bank of China (Hong Kong) Limited.

8.  It turned out that the purported inheritance claim and the Hong Kong solicitor’s firm including the handling solicitor who had been contacting the plaintiff all along were all bogus.

9.  The plaintiff reported the matter to the Hong Kong police in November 2008.

10.  On 19 December the plaintiff applied ex parte and was granted a Mareva Injunction against all three defendants.

11.  On 21 January 2009, default judgment was entered against all three defendants.

Setting aside default judgment against the 3^rd defendant

12.  The 3^rd defendant’s application to set aside the default judgment obtained against the 3^rd defendant was on the ground that it was an irregular judgment in that the Writ was not properly served on the registered office of the 3^rd defendant, but purportedly served on the 3^rd defendant by service on that branch of the Bank of China at which the 3^rd defendant held the account into which the plaintiff had paid the US$83,500.

13.  That came about due to a number of reasons.

14.  Firstly, the plaintiff was advised by those perpetrating the fraud on him to pay money into the bank account in the name of “Dexin MKTG Co. Ltd” with the Bank of China.

15.  Secondly, although a company search was carried out on 16 December 2008 by the plaintiff’s solicitors, the result of that search revealed that a company with the name of “Dexin Marketing Co. Ltd” in Hong Kong had an authorised capital of $1 million with four directors and was actually carrying on business trading in tiles and marble.

16.  It was thought at the time by those acting for the plaintiff that this company, the subject of the search, was unlikely to be involved with the fraud practised on the plaintiff or with the 1^st and 2^nd defendants, both of which were specifically incorporated for the purpose of the fraud.

17.  It was further thought by the solicitors for the plaintiff that the proper party to sue must be the account holder of the account in the Bank of China into which the US$83,500 had been paid and that the best way to ensure that was to serve the intended 3^rd defendant by effecting service at that branch of the Bank of China. This explains the name of the 3^rd defendant on the Writ.

18.  As matters turned out, “Dexin MKTG Co. Ltd” is one and the same as “Dexin Marketing Co. Ltd” and is in fact the holder of that bank account with the Bank of China into which the plaintiff had paid the US$83,500.

19.  In the circumstances, the plaintiff now concedes that the default judgment against the 3^rd defendant must be set aside.

20.  However, that does not dispose entirely of the first summons since the plaintiff asks for conditions to be imposed upon setting aside the default judgment but which is opposed by the 3^rd defendant.

Whether conditions should be imposed in setting aside default judgment

21.  The plaintiff accepts that the default judgment must be set aside due to the improper service of the Writ upon the 3^rd defendant.

22.  However, the plaintiff does not resile from its position that the 3^rd defendant or that someone in the 3^rd defendant having control over its bank account with the Bank of China is connected with the fraud on the plaintiff.

23.  The plaintiff asks that condition be imposed by the court in setting aside the default judgment by requiring the 3^rd defendant to pay into court the revised amount claimed of US$256,670 or alternatively US$173,170 if judgment is entered against the 3^rd defendant for US$83,500 on the 3^rd defendant’s admission that it had received that sum from the plaintiff. (A further summons taken out by the plaintiff for judgment on admission in respect of the US$83,500 paid into the 3^rd defendant’s bank account has been adjourned for argument.)

24.  The imposition of condition is opposed by the 3^rd defendant on the basis that the default judgment was set aside due to it being an irregular judgment and not due to any conduct on the part of the 3^rd defendant such as trying to evade service.

25.  In asking for conditions to be imposed for setting aside the default judgment, the plaintiff relies on the judgment in Po Kwong Marble Factory Ltd v Wah Yee Decoration Co. Ltd [1996] 4 HKC 157 that the court has a residual discretion to impose terms when setting aside an irregular judgment.

26.  However, in the Po Kwong Marble Factory case, although that case also concerned an irregular judgment due to improper service, the court found that the problem with the service in that case “were due primarily to the method of virtually disguising the registered office of [the defendant] company” and which led the process server to serve the Writ at the wrong address instead of the registered office of the defendant.

27.  In the present case, the problem with the service came about not because of any conduct on the part of the 3^rd defendant but due to the “over cautiousness” of the plaintiff’s solicitors. No blame for that can be placed at the door of the 3^rd defendant.

28.  In the circumstances, the 3^rd defendant is entitled to set aside the irregular judgment ‘ex debito justitiae’.

29.  Accordingly, I am not persuaded that I should impose any condition for the setting aside of the default judgment against the 3^rd defendant in this case.

Discharge of Mareva Injunction

30.  The main thrust of the 3^rd defendant for discharge of the Mareva Injunction is the non-disclosure of material facts by the plaintiff at the ex parte application.

31.  It is said that the plaintiff had failed to bring to the attention of the deputy judge hearing the ex parte application the following material facts:

(a) the basis for the 3^rd defendant to be jointly and severally liable for the whole sum claimed by the plaintiff as opposed to only the US$83,500 deposited into the 3^rd defendant’s account with the Bank of China including the fact that nothing suggested that the 3^rd defendant was connected to the 1^st and 2^nd defendants which had Malaysian connections;

(b) the basis for a world wide Mareva Injunction against the 3^rd defendant;

(c) the failure to include in the body of the Injunction Order sought any provision for ordinary and proper business expenses or legal expenses of the 3^rd defendant;

(d) any real risk of dissipation, including the lack of connection between the 3^rd defendant and the other two defendants; and

(e) fortification of the plaintiff’s cross-undertaking in damages

32.  After hearing submissions from the parties, I have come to the conclusion that there was no material non-disclosure by the plaintiff of any material facts for the following reasons.

33.  Firstly, the 3^rd defendant’s complaint in items (a), (b) and (d) above is explained by the fact that the plaintiff takes the stance, and rightly so on the evidence, that the whole scheme is one conspiracy in which the plaintiff has been defrauded of his money although the money defrauded was paid into three separate accounts held by the three defendants with various banks.

34.  As for item (c) above, the plaintiff’s legal team readily concedes that it was due to a “mechanical technicality” when drawing up the draft order that they had omitted to include provisions for the ordinary business expenses and legal expenses of the 3^rd defendant.

35.  As for item (f) I do not see any obligation on the plaintiff to have offered fortification to the judge dealing with the ex parte application in respect of his undertaking as to damages. The plaintiff had already made clear to the judge that he was an individual resident in the UK. Moreover, it had been put to the judge that the plaintiff had been ruined financially by the acts of the conspirator to this fraud perpetrated against the plaintiff. Given those matters, had the judge required fortification from the plaintiff, that was a matter which the judge could raise with counsel before making the order sought.

36.  The 3^rd defendant may well take the view that it is wholly unconnected with the 1^st and 2^nd defendants in this case, but that is not a view shared by the plaintiff.

37.  The plaintiff’s stance is that the defendants are all in on this fraud upon the plaintiff. Borrowing the words of Mr Alder who appeared for the plaintiff, conspirators to a fraudulent scheme do not for no good reason request a victim to make payment, when defrauding such victim, into the account of someone not involved in that conspiracy to defraud.

38.  That difference in view is what divides the plaintiff from the 3^rd defendant in this case, and is a matter which can only be resolved after trial and when findings of fact can be made after hearing all the evidence.

39.  At this stage, it must be accepted that such difference exists between the parties. The fact that the plaintiff put forward its case on the stance that it takes in the interlocutory stage, and where the plaintiff’s stance does not meet with the stance taken by the defendant does not make that a non-disclosure of material fact on the part of the plaintiff.

40.  Moreover, in relation to the complaints made by the 3^rd defendant as set out above in items (a) to (e), the only matter which can properly be said to be a fact, and which was not put before the judge dealing with the ex parte application is the search result in relation to Dexin Marketing Co. Ltd, now known to be the 3^rd defendant. That search was done on 16 December 2008, some three days before the ex parte application.

41.  The reason for that not having been put before the ex parte judge was that the plaintiff (and/or his legal advisors) did not at that time believe that the search which was in respect of Dexin Marketing Co. Ltd to be the same company as Dexin MKTG Co. Ltd. That the plaintiff did not believe the intended 3^rd defendant at that time to be Dexin Marketing Co. Ltd is clearly borne out by the name on the Writ and the fact that the plaintiff chose to serve that Writ on the intended 3^rd defendant at the branch office of the Bank of China where the account was kept rather than on the registered office address of the company shown in the search.

42.  However the lack of belief by the plaintiff as to the company, the subject of the search, to be the same company that the plaintiff was suing, is neither here nor there in so far as material non-disclosure is concerned if indeed there was material non-disclosure. What is required is for the fact which was not disclosed to be a material fact.

43.  In Citibank N.A. v Express Ship Management Services Ltd [1987] HKLR 1184, the Court of Appeal in Hong Kong held that non-disclosure of non-material or innocent facts would not vitiate injunctions obtained ex parte. Material facts are those which would go to the weighing operation at the ex parte hearing.

44.  In the present case, the ex parte application was put on the footing by the plaintiff that he had been defrauded in the manner already set out above and that one of the parties to that fraud was the intended 3^rd defendant being the holder of the account with Bank of China into which the plaintiff had been deceived into paying US$83,500.

45.  In my view, even if the judge dealing with the ex parte application had been told that the intended 3^rd defendant carries on business trading in tiles and marbles and has an authorized capital of HK$1 million with four directors, I cannot see that would have weighed very much with the judge since the crux of the plaintiff’s case must be that as a result of the bogus inheritance claim, the plaintiff had been duped into paying (inter alia) US$83,500 into the account of the intended 3^rd defendant. That in my view would have outweighed all the rest of the details in relation to the 3^rd defendant which could be gathered from the search.

46.  For these reasons, I do not accept that there was any material non-disclosure on the part of the plaintiff in the way alleged by the 3^rd defendant when it made the ex parte application.

Variation of the terms of the Mareva Injunction

47.  By way of variation of the Mareva Injunction order, the 3^rd defendant asks for (a) the cap amount of the Mareva Injunction order to be reduced to US$83,500; and (b) to provide for reasonable business and legal expenses of the 3^rd defendant.

48.  In so far as the business expenses and legal expenses are concerned, the 3^rd defendant asks that it be allowed business spending of $30,000 per week and for legal expenses, a further $30,000 per week.

49.  When the Mareva Injunction was granted (and even when it was continued) Part D of the Order under the heading of “Exception to This Order”, only provided generally to the effect that “Subject to Paragraphs 1, 2, 3, 4, 5 and 6 above, this Order does not prohibit the Defendants from dealing with or disposing of any of its assets in the ordinary and proper course of business” without specifying any amount for business spending and being totally silent as to legal expenses.

50.  Dealing with the first of the two variations sought by the 3^rd defendant, namely, to reduce the cap amount of the Mareva Injunction from US$316,750 to US$83,500.

51.  The basis of this application is that only US$83,500 was paid into the bank account of the 3^rd defendant with the Bank of China.

52.  On the other hand, the plaintiff’s case is put on the footing that the 3^rd defendant was “in it with the others” in the perpetration of this one single fraud upon the plaintiff. By that fraud, the plaintiff had parted with totally US$316,750 therefore it is entitled to a Mareva Injunction in the total amount of its claim against each of the three defendants.

53.  The case is really summed up by the rhetorical question which Mr Alder posed in his submission : namely, if the 3^rd defendant was not involved in this fraudulent scheme along with the other conspirators, why would the conspirator (who contacted the plaintiff and who called Tei Fu Chen) have asked the plaintiff to pay into the account of the 3^rd defendant US$83,500 as part of the fraud upon the plaintiff.

54.  Given those circumstances, I am not persuaded that I should accede to the 3^rd defendant’s request to reduce the cap amount of the Mareva Injunction granted against the 3^rd defendant to US$83,500.

55.  However, having said that, the situation has changed since the Mareva Injunction was first obtained by the plaintiff on 19 December 2008.

56.  In the 2^nd Affidavit of the plaintiff sworn on 21 May 2009, the plaintiff has confirmed that he had been able to recoup back HK$468,656.48 by way of enforcement proceedings against the 1^st defendant.

57.  This no doubt is the basis for Mr Alder to submit that the plaintiff’s revised claim against all the defendants is now US$256,670 and no longer the initial claimed amount of US$317,750.

58.  Therefore to that extent the Mareva Injunction ought to be varied in so far as the cap amount is concerned.

59.  Coming now to deal with the variation sought by the 3^rd defendant as to the business expenses it is allowed to spend and also the legal expenses.

60.  The only piece of evidence furnished by the 3^rd defendant in support is a one-page Profit and Loss Account said to be prepared by Alcott Liu CPA Limited for the year ended 31 March 2008 and exhibited in the 2^nd Affirmation of Lee Chak Kin as exhibit “LCK-14”.

61.  That Profit and Loss Account showed that for the year 2008, the 3^rd defendant’s turnover to be $1,523,592 giving a gross profit of $412,297.

62.  However it also showed the “selling expenses” and “administrative expenses” to amount to totally just short of $800,000.

63.  The gross profit, together with some commission income and other revenue therefore resulted in a net loss for the year of $70,071.

64.  The principles upon which a Court will vary the terms of a Mareva Injunction is succinctly stated in Gee, Commercial Injunctions (5^th edition)where it is stated in paragraph 20.044 :

“Where a party seeks a variation to the injunction to enable a payment to be made, he has the burden of persuading the court that the proposed payment from the proposed source would not be in conflict with the principle underlying the Mareva jurisdiction.”

65.  In the case of M. Corp v B. Inc and another [1986] HKLR 657 it was held by Power J that the evidence required to vary the terms of a Mareva Injunction was evidence which would enable a court to determine whether the defendant had other assets available to meet the intended expenditure or pay amounts due, and if available, why the defendant is seeking to make use of the assets which are subject to the Mareva.

66.  In the present case, the evidence adduced by the 3^rd defendant fall far short of what is required.

67.  The Profit and Loss Account relates to the period ended 31 March 2008, eight and a half months before the time of the Mareva Injunction.

68.  There is no evidence as to the amount of the business spending of the 3^rd defendant at or about December 2008 when the MarevaInjunction was obtained, or even thereafter when the application for variation was made.

69.  There is no evidence as to whether the 3^rd defendant has other assets (apart from the bank account with Bank of China) from which it could meet such business spending.

70.  Having said the above, and although the 3^rd defendant has not discharged the burden to the extent that it should if it is to fully succeed to the extent that it requested for variation, it must be accepted that the evidence do show that the 3^rd defendant is carrying on some form of business.

71.  If, indeed, the plaintiff’s solicitors had believed or thought that the intended 3^rd defendant, at the time when the Mareva Injunction was applied for, was the company carrying on the tiling and marble business as shown by the company search which they carried out, no doubt they would have made some provisions for the business and legal expenses of the 3^rd defendant under the part entitled ‘Exceptions to This Order’.

72.  In the circumstances, and given the scarcity of the evidence produced by the 3^rd defendant, I am only prepared to accede to permitting the 3^rd defendant up to $15,000 per week for its business expenses.

73.  Moreover, in view of the fact that the 3^rd defendant has instructed lawyers to act for it in this matter, I am also prepared to allow a lump sum of $200,000 for its legal expenses.

74.  Accordingly, to Part D of the Mareva Injunction Order under the title of “Exceptions to This Order” will be added the following terms:

(i) this Order does not prohibit the 3^rd defendant from spending HK$15,000 per week towards its ordinary and proper business expenses and a lump sum of HK$200,000 on legal advice and representation;

(ii) the 3^rd defendant may agree with the plaintiff’s solicitors that the above spending limits should be increased or that this Order should be varied in any other respect, but any such agreement must be in writing; and

(iii) this Order shall cease to have effect if the 3^rd defendant provides security by paying the sum of US$256,670 into court or makes provision for security in that sum by some other method agreed with the plaintiff’s solicitors or approved by the court.

75.  To the extent as stated above in this judgment, the terms of the Mareva Injunction obtained by the plaintiff is varied.

Costs

76.  In so far as costs of these two summons are concerned, the parties are to lodge written submissions on costs with my clerk within 14 days of the date of handing down of this judgment.

77.  Upon receipt of such written submissions, I shall determine the issue of costs in a separate written Ruling.