SIME WINNER HOLDINGS LTD AND ANOTHER v. TAN WAN HONG AND ANOTHER

HCA 793/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 793 OF 2005

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D E C I S I O N

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1.  I am against CM2 and Tan on the applications before me.  I briefly set out my reasoning below.

2.  I do not agree that there has been material non-disclosure.

3.  Mr. Bleach SC (appearing for Tan and CM2) argues that there has been material non-disclosure in 2 principal ways.

4.  First, in relation to CM2 and Tan, Mr. Bleach says that there was a failure to draw the Court’s attention to documents showing the purpose of forming CM2.  CM2 (Mr. Bleach submits) was established to distance the Sime Darby Group from engaging in practices which were contrary to Mainland law.

5.  In essence, Mr. Bleach’s argument runs as follows:

(1)	Before CM2 came on the scene, the Plaintiffs directly invoiced Mainland buyers for cars at prices which were lower than their actual price.  This resulted in payment of lower Mainland customs duty.  But the difference between the invoiced and actual prices of the cars so imported into the Mainland, would be invoiced by the Plaintiffs to their Mainland buyers as service fees.
(2)	At the suggestion of Sime Darby’s auditors, CM2 was introduced to distance the Sime Darby Group from the questionable practice of under-declaring the value of cars being imported into the Mainland.  For this purpose, it was necessary that CM2 should have no apparent connection with the Sime Darby Group.
(3)	Under the new system, the Plaintiffs sold cars at their actual prices to CM2.  CM2 in turn sold the cars to Mainland buyers at below their actual value.  CM2 would then recover the difference between the under-declared and actual values of the cars by charging service fees to Mainland buyers.
(4)	The scheme (or "scam" as Mr. Bleach called it) would only work if CM2 was independent from the Sime Darby Group (including the Plaintiffs).  But that would mean that there was no agency relation between the Plaintiffs and CM2.  CM2 would simply be a purchaser in its own right and the legal and equitable title in any cars sold by the Plaintiffs would pass to CM2.
(5)	By failing to inform the ex parte judge of the real reason for the interposition of CM2 and by failing to draw the judge’s attention to documents evidencing the rationale for CM2, the Plaintiffs misled the Court.

6.  Second, in relation to CM2, Mr. Bleach says that it was not disclosed that the $106 million claimed by the Plaintiffs against CM2 formed part of the $111 million accounts receivable agreed between CM2 and the Plaintiffs.

7.  The uncontroverted evidence of Nelson Wheeler (Mr. Bleach says) is to the effect that such of the $111 million as has been received by CM2 from TJZYG has been paid over to the Plaintiffs. If that is the case, nothing (Mr. Bleach says) stands to be paid to the Plaintiffs at the present time.  There would be nothing in CM2’s hands to enjoin at this time.

8.  In respect of Mr. Bleach’s 1^st criticism, the logical conclusion to be drawn from his premise of alleged customs evasion is that, however much CM2 was made to seem as an independent party from the Plaintiffs, in actuality CM2 was intimately connected with the Plaintiffs. In those circumstances, it must be at least arguable that at law CM2 was the Plaintiffs’ agent and had a fiduciary duty to account to the Plaintiffs for monies received by it.  The agency may have been "camouflaged" (to use Mr. Bleach’s word) by making it appear that CM2 was an independent entity, but that cannot affect the reality at law. 

9.  Accordingly, I do not think that the alleged non-disclosure could have had any material bearing on the ex parte judge’s decision.  Had Mr. Bleach’s premises been drawn to the judge’s attention, he in all likelihood would have been even more convinced that there was a case for CM2 and Tan to answer as to agency.

10.  In this connection, I note that (if anything) the charge over the Hastings account probably strengthens the Plaintiff’s agency case.  If there had been no agency prior to the charge, why would CM2 subsequently be agreeing to the charge’s terms?

11.  In respect of Mr. Bleach’s 2nd criticism, the undisputed fact is that US$1.9 million was paid into CM2’s No.1 account and part of that money (at least) was ultimately transferred through CM2’s No.2 account to Glarner.  Whatever Nelson Wheeler may or may not have later agreed with the Sime Darby Group as to outstanding sums in 2005, cannot materially affect the Plaintiffs’ contention that there is a case for Tan to answer in relation to the US$1.9 million.  That sum was paid to CM2 and (as I have said) it must at least be arguable that CM2 was set up to act exclusively as the Plaintiffs’ agent or Mainland front.  In that premise, monies received by the agent would have to be accounted for.

12.  As for the $106 million, given CM2’s failure (on the Plaintiffs’ case) to account for the US$1.9 million transferred in February  2002, the agreement on US$111 million should not prevent the Plaintiffs from enjoining the unauthorised use of such of the US$106 million as may be in CM2’s hands (whether in its No.1 or No.2 accounts or any other account). The US$106 million is, after all, monies to which the Plaintiffs would be entitled to under the US$111 million agreement.

13.  It follows from what I have said that, in my judgment, there is an arguable case on agency in the strict legal sense.  For example, under the Plaintiffs’ authority, CM2 would arguably be collecting (and giving a good discharge for) service and other fees due in reality to the Plaintiffs from Mainland buyers.

14.  I therefore do not think the interlocutory injunctions granted against CM2 and Tan should be discharged.

15.  I add that, to my mind, Mr. Anthony’s evidence in his 5^th  Affirmation regarding an apparent remittance of RMB16 million from BJHAP to CM2 is at least arguable.  I am not persuaded by Mr. Bleach’s submission that the Plaintiffs have already withdrawn their share of non-repatriated funds for the purpose of Mainland CKD operations.

16.  Finally, I think that the additional discovery and disclosure sought by the Plaintiffs in aid of the interlocutory injunction should be granted.  There is arguably a case of substantial diversion of the Plaintiffs’ assets.  I believe that it is appropriate to make the ancillary orders sought, so as to assist in the investigation of what is potentially a serious fraud.