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

1989 No. A2971

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The plaintiffs seek an order to continue a Mareva injunction that I granted ex parts on the 9th June 1989 or in the alternative, a new injunction in the same terms if I should decide to discharge the injunction upon the defendants' application that there was material non-disclosure.

2. The 1st plaintiff has been described, although this has been denied as misleading by the defendants, as the patriarch of a large Indian family who has conducted a very successful business in the development of real estate in several countries. The 2nd plaintiff is his wife. The 3rd defendant is one of the plaintiff's daughters and the 2nd defendant is her husband.

3. The proceedings in this action arise from a family dispute which concerns the ownership of the 1st defendant, but in other proceedings instituted in England by the 2nd and 3rd defendants the entitlement to the worldwide assets as a whole is in issue. In the English action the 2nd and 3rd defendants are the plaintiffs whilst the 1st plaintiff is sued as the 3rd defendant, and the plaintiffs son, Dr. R.A. Maker and another daughter, Dr. N.R. Gupta are sued as the 1st and 2nd defendants.

4. The 1st defendant was incorporated in Hong Kong in 1981 with an authorised share capital of HK$10,000. The 2nd and 3rd defendants were appointed to be the directors and only shareholders, 25 shares being allotted to the 2nd defendant and 175 shares to the 3rd defendant. However, the 1st plaintiff claims that he is the sole beneficial owner of the entire issued share capital of the 1st defendant and that the 2nd and 3rd defendants were his nominees and trustees. In July 1983 the 3rd defendant resigned as a director and was replaced by Mrs C. Klemmstein, another daughter of the plaintiffs and her husband Mr E. Klemmstein. The plaintiffs became directors of the 1st defendant in November 1983. The 1st defendant holds 100% of the issued share capital of Whitford Investments N.V. (Whitford N.V.), a company registered in the Netherlands Antilles which in turn holds 100% of the issued share capital of Hasket Investments B.V. (Hasket), a company registered in the Netherlands. It is not in dispute that the 1st defendant was formed for the purpose of channelling funds to Whitford N.V. and in turn to Hasket before being transferred to companies owned by the 1st plaintiff in the United States. It is alleged by the plaintiffs that Whitford N.V. and Hasket hold investments exceeding US$12,000,000 in the United States.

5. The 1st plaintiff asserts that he and the 2nd plaintiff wished to become directors and shareholders of the 1st defendant towards the end of 1983. This resulted in the appointment of the plaintiffs as directors in November 1983 to which I have referred whilst there was an oral agreement between the plaintiffs, the 2nd and 3rd defendants, and Mr and Mrs Klemmstein for the 3rd defendant to transfer 100 out of her 175 shares to the plaintiffs. After the transfer the 1st and 2nd plaintiffs would each hold 50 shares, the 2nd defendant 25 shares and the 3rd defendant 100 shares. Pursuant to this agreement the 3rd defendant executed two forms of transfer and two bought and sold notes and there was a consideration of HK$250 for each parcel of 50 shares. However, the transfers were never registered in the names of the plaintiffs because the accounts of the company were not available for stamp duty purposes. A resolution approving the share transfer was passed on the 23rd November 1983 by the directors of the 1st defendant. The plaintiffs say that they were never notified of the non-registration of the shares. The documents relating to the share transfers were later destroyed by the 3rd defendant in July 1988.

6. Despite the agreement to transfer the shares in 1983, the 1st plaintiff still maintains that he is entitled to 100% of the issued share capital, but in the alternative by the present action claims, that the plaintiffs are entitled to a 50% beneficial interest consequent upon the agreement for the transfer of the 100 shares by the 3rd defendant.

7. On the 4th July 1988 the 2nd and 3rd defendants purportedly held an extraordinary general meeting of the 1st defendant in Guernsey when a special resolution was purported to be passed removing the plaintiffs and Mr and Mrs Klemmstein as directors of the company, and by an ordinary resolution appointing the 3rd defendant as a director. Various allegations have been made by the plaintiffs that by virtue of this meeting there have been breaches of the Companies ordinance and the Articles of Association so that the special resolution and ordinary resolution were nullities and of no effect.

8. On the 6th July 1988 the plaintiffs allege that the 2nd and 3rd defendants approached Curacao Corporation Company N.V., the resident corporate managing director of Whitford N.V. purporting to be the owners and sole directors of the 1st defendant and arranged for the rescission of a power of attorney of the 7th June 1983 made in favour of Mr Harshad Shah, the representative of the plaintiffs and had it replaced with a joint and general power of attorney in their own favour. On the 1st July 1988, the 2nd and 3rd defendants purported to remove Mr Harshad Shah as the joint managing director of Hasket which left Trust International Management B.V. as the sole managing director which company then gave a general power of attorney in favour of the 2nd and 3rd defendants. Having obtained the power of attorney the 2nd and 3rd defendants became signatories of the bank accounts of Whitford N.V. in the place of Mr Harshad Shah. Those accounts have deposits in excess of US$2.5 million.

9. Subsequently on the 15th August 1988, the 2nd and 3rd defendants caused a further 9,800 shares to be issued by the 1st defendant, 1,225 being allotted to the 2nd defendant and 8,575 to the 3rd defendant. This was done without consultation with the plaintiffs.

10. The plaintiffs contend that by their actions in obtaining control of the assets of the three companies the 2nd and 3rd defendants have acted fradulently and/or in breach of trust in purporting to remove the plaintiffs as directors of the 1st defendant and in purporting to allot additional shares.

11. Proceedings were instituted by the 2nd and 3rd defendants in London on the 22nd May 1989 in which it is alleged that a form of partnership existed between them, the 1st plaintiff, Dr. Maker and Dr Gupa. By this action they seek, inter alia, damages, an account and the appointment of a receiver. The 1st plaintiff denies that any form of partnership existed, but the contention of the 2nd and 3rd defendants by itself concedes that, the 1st plaintiff is entitled to a share in the assets in any event.

12. Three submissions have been advanced by Mr Litton, counsel for the defendants, in support of the application to discharge the ex parte order. First, the plaintiffs do not have an arguable case; second, there was material non-disclosure; and third, there is no likelihood of dissipation of the assets. With regard to the first submission, criticism was levelled at the plaintiffs' case on the grounds that the alternative claims put forward are totally inconsistent. However, this is not a matter that can be resolved at the hearing of this interlocutory application on the affidavit evidence. The uncontradicted evidence reveals that the 3rd defendant, by virtue of the transfers executed in 1983 revealed an intention to transfer 100 shares at that time although the shares were not registered. There is, therefore, a good arguable case by virtue of that admission alone.

13. The substance of the second submission was that there was a misrepresentation by Mr Bell, the plaintiffs' American lawyer, upon whose affidavit the application for ex parte relief was grounded. In his affidavit of the 5th June 1989, Mr Bell stated that Whitford N.V. had two accounts with the Bank of Credit and Commerce International in New York, consisting of a cash deposit of US$530,000 and another deposit of US$2,000,000. He conceded that there was no risk with regard to the US $2,000,000, but there was a risk that the 2nd and 3rd defendants might call upon the bank to release the deposit of US$530,000. However, the 3rd defendant, by her affirmation of the 16th June 1989, responded by saying that Mr Bell was aware of a written request made by the 1st plaintiff to freeze that and that the 1st plaintiff had later agreed at a meeting in London in May 1989 to withdraw any objection to the release of the funds to the 2nd and 3rd defendants. In a second affidavit, Mr Bell does not specificially refer to this matter although he makes a general statement that matters in the 3rd defendant's affirmation are not accepted as being correct. Mr Litton, however, contended that as the allegation by the 3rd defendant was uncontradicted, it therefore necessarily means that it is true. However, I do not accept this submission.

14. The second matter with regard to misrepresentation of assets relates to the alleged failure to disclose and exhibit promissory notes amounting to over US$10,000,000 which are in the control of the plaintiffs. The promissory notes relate to loans that do not mature until 1990/92. It is therefore maintained by the defendants that they cannot be called until then, and that they are not properly referred to as accounts receivable as contended by Mr Bell. I did not gain the impression as was put forward on behalf of the defendants that there was anything improper in referring to the promissory notes as accounts receivable nor that Mr Bell had, in any way, misrepresented the position so far as the assets are concerned.

15. A further complaint that the plaintiffs had failed to exhibit documents referred to as memoranda of understanding dated the 19th May 1987 and the 28th November 1987 is wholly without merit. From the evidence it appears that negotiations between the parties have been conducted for a very long period of time which has resulted in certain agreements including the memoranda in question being reached, but which were never concluded. It is alleged by the 3rd defendant that by those memoranda, the 1st plaintiff, Dr-Maker and Dr. Gupta had agreed that the 3rd defendant would be entitled to receive 25% of the worldwide assets of the partnership. However, by the English action, it is contended that the agreements are not binding so that they should be declared to have been terminated or are void. The relevance of those documents under these circumstances was perhaps understandably not explained. The contention that there was material non-disclosure therefore fails.

16. Negotiations for a settlement between the parties continued until towards the end of May 1989 at which point the English proceedings were instituted by the 2nd and 3rd defendants. Having regard to the breakdown in the negotiations, the plaintiffs were quite justified in fearing that the assets of the 1st defendant, Whitford N.V. and Hasket might be in jeopardy having regard to the actions taken by the defendants to obtain control of those companies. Not only were the plaintiffs concerned with the assets of the 1st defendant but also those of the other two companies.

17. A number of other matters were raised during the arguments presented to me which are of no relevance such as from where the funding emanated, the professional conduct of Mr Bell and criticisms of certain comments made by Mr Booker, the plaintiffs' solicitor, in his second affidavit in which he exhibited copies of some articles published in the Indian press. I admitted the second affidavit, of Mr Booker de been esse, but I have placed no reliance upon the contents or the articles for the purposes of this judgment nor upon the other matters to which I have referred.

18. The question of the balance of convenience was not argued but it is quite clear upon the evidence upon which I am not entitled to make a determination at this stage that it clearly lies in favour of the plaintiffs.

19. This is another case which can be placed in the category to which Slade L.J. was referring in Brink's Mat Ltd., v.. Elcombe & others [1988]1 W.L.R. 1350 where at 1359, he had this to say :-

"By their very nature, ex paste applications usually necessitate the giving and taking of instructions and the preparation of the requisite drafts in some haste. Particularly, in heavy commercial cases, the borderline between material facts and non-material facts may be a somewhat uncertain one. While in no way discounting the heavy duty of candour and care which falls on persons making ex parte applications, I do not think the application of the principle should be carried to extreme lengths. In one or two other recent cases coming before this court, I have suspected signs of a growing tendency on the part of some litigants against whom ex paste injunctions have been granted, or of their legal advisers to rush to the Rex v. Kensington Income Tax Commissioners [1917]1 K.B. 486 principle as a tabula in naufragio, alleging material non-disclosure on sometimes rather slender grounds, as representing substantially the only hope of obtaining the discharge of injunctions in cases where there is little hope of doing so on the substantial merits of the case or on the balance of convenience."

20. The words of Macdougall, J., as he then was, in Citibank N.A. v. Express Ship Management Services Ltd. and Another (1987) H.K.L.R. 1184 are also apposite when he said at pp. 1191 and 1192:-

"........... it would be unfortunate if it were to be thought that in laying down the very sensible and necessary principles concerning disclosure of all material facts, the courts have intended to give active encouragement to undeserving defendants to search ingeniously for facts which a plaintiff might innocently have failed to disclose, in the hope that a judge may consider them to be material and so discharge the injunction. Commonsense must prevail. The heavy burden cast on a plaintiff must not be allowed to become so onerous as to be intolerable."

21. Accordingly, there will be an order for the injunction to be continued whilst the defendant's application to discharge will be dismissed.