XCHRX KONG MOU HOLDINGS LTD. v. GOLDCONE PROPERTIES LTD.

1997, No. A14171

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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JUDGMENT

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The Application

1. On 17 April 1998, I granted a Mareva injunction against the defendant on the application of the plaintiff. The plaintiff now applies for additional protection under that order.

The Background

2. My order of 17 April 1998 was made ex parte but on notice to the defendant who was represented at the hearing by Mr Side. At all stages, Mr Side made it quite clear that the defendant did not object to the making of an order in the "usual" form, by which he meant an order in the form provided by the practice direction. This form provides that "the order does not prohibit the defendant from dealing with or disposing of its assets in the ordinary and proper course of business". After argument, I ruled that the order should contain this exception.

3. My order of 17 April 1998 also contained the order that the defendant disclose "all his assets of an individual and unencumbered value of $15.36 million or more in Hong Kong" and confirm this by affidavit served within 10 days. Mr Yip Ka Yeung, a director of the defendant, filed such an affirmation on 27 April 1998.

The Additional Protection

4. This affirmation was examined very carefully by the plaintiff's solicitors. According to the plaintiff, far from providing any comfort, the affirmation alarmed the plaintiff. This, and the fact that the directors of the defendant, apart from Mr Yip, appeared to be evading service of the documents, motivated the plaintiff into making this application.

5. The additional orders that the plaintiff seeks are -

i. substituted service on the other directors;

ii. $8.3 million to be placed with the defendant's solicitors;

iii. the defendant's records from 1995 to 1998 to be placed in the safe custody of the defendant's solicitors;

iv. the deletion of the exception relating to the disposal of assets in the ordinary course of business;

v. the extension of the Mareva to cover world-wide assets; and

vi. disclosure of world-wide assets.

6. The defendant does not object to orders being made to cover the matters mentioned in paragraphs i., v. and vi. It does resist orders to cover the other three matters.

The Grounds for Additional Protection

7. Mr Side admits very frankly that it does seem that the other directors are avoiding service, but, he says, that is nothing to do with the defendant, and nothing to do with Mr Yip, who has accepted service and has made an affirmation. He says that the conduct of the other directors cannot provide a ground for increasing the burden of the order against the defendant. I agree. It does not seem to me that because the other directors are unwilling to expose themselves to the penalties of the order means that the plaintiff needs additional protection. Mr Yip is vulnerable, and he would be a fool to allow the other directors to do anything that would expose him to severe penalties. He could obtain immediate relief from the court if the other directors attempted any such thing.

8. The plaintiff complains that the affirmation by Mr Yip raises a number of queries. The plaintiff has asked for particulars and evidence to answer these queries, but the defendant has failed to supply these.

9. There are some unsatisfactory features about the disclosure in the sense that, if one were to regard it as an attempt to covey the total financial situation of the defendant, it does not do so. But the defendant was not ordered to present such a picture. What my order did was to require the defendant to disclose "all of his assets of an individual and unencumbered value of HK$15.36 million or more in Hong Kong . . . giving the value, the location and details of all such assets". In fact, Mr Yip went beyond the defendant's obligation by disclosing all assets, whatever their value, including an asset outside Hong Kong and the liabilities of the defendant.

10. Some of the plaintiff's queries about the disclosure relate to the defendant's liabilities and expenditure. The plaintiff is not entitled to explore that avenue under my order. Another query relates to the sum of RMB10 million paid in respect of a piece of land in mainland China. The defendant was not obliged to disclose this under my order. It may be that, under an order requiring the defendant to disclose assets outside Hong Kong, the defendant will be obliged to reveal more about this transaction.

11. The only query that could possibly be said to relate to assets in Hong Kong is one relating to the whereabouts of $14.7 million received as deposits in respect of properties sold between 24 February 1998 and 16 March 1998. The defendant does not reveal where this money is situated. It does disclose openly that the money has been paid. I do not know where the money is, but it is probable that this money is being held in trust pending the completion of the transactions. The money, at this time, is not an asset of the defendant.

12. It is possible that the plaintiff might have been entitled to an order requiring the defendant to disclose documents or provide further information regarding these deposits, but the plaintiff does not ask for this, and this possibility has not been examined. I have little doubt that, if such an order were made, we would be told that the deposits are being held by various solicitors in trust pending completion.

13. It seems to me that the plaintiff has not made out a case for additional protection.

14. And even if the plaintiff had made out some kind of case for additional relief, I do not accept that the orders proposed by the plaintiff, and opposed by the defendant, are appropriate in the circumstances of this case. I deal with them in turn.

Payment of $8.3 Million

15. This money is said to be the net proceeds of the sale of properties which were due for completion on 30 April 1998, 29 May 1998 and 1 June 1998. What would be the purpose of such an order? It would be to prevent the defendant from disposing of that money. Is it to reasonably supposed that, having disclosed that this money will be received by the defendant, that Mr Yip would permit it to be dissipated, and thus expose himself to the heavy penalties of contempt? That would be utter madness on his part, and I cannot accept that it is remotely likely.

Safe-Keeping of Documents

16. The plaintiff says that this order is necessary to ensure that the defendant does not tamper with the documents to "cover trails of dissipation". The short answer to this is that, if the defendant intended to do this, it would do so before handing over the documents. In any event, what is Mr Side to do if the defendant asks for access to the documents to enable it to complete the property transactions? Refuse such access? Or supervise it? And what is to happen when the transactions are completed? Is the purchaser not to have the documents to which he would be entitled? Or is the defendant to seek the indulgence of the plaintiff or this court every time it wants relief from the terms of the order? This order would not be practical, and is not necessary.

Deletion of the Exception

17. If this exception were to be deleted, the defendant would be unable to complete the transactions to which it is committed. That would be in no one's interests. Of course the defendant must be allowed to complete the transactions. The proceeds will be subject to the Mareva order, and Mr Yip well knows this.

The Result

18. In the result, I find that the plaintiff has not made out a case for any additional relief, and has not made out a case for the particular opposed relief sought. There will be an order in the terms not opposed by the defendant; that is, in terms of paragraphs 1 and 5 of the summons dated 12 May 1998.

The Costs

19. There seems to be no obvious reason why costs should not follow the event. I make an order nisi that the plaintiff pay the defendant's costs of this application.