CHASE BANK INTERNATIONAL v. CARLOS SHALON SULTAN ABADI

A2985/86

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HEADNOTE

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                On granting applications to discharge a Prohibition Order and a Mareva injunction held:-

1986, No. A2985

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is a summons taken out by the defendant who is a Venezuelan gentleman, temporarily resident in Hong Kong, to set aside two orders; one is an order of Master Woolley of 21st May which was, in fact, a Prohibition Order; and the second an order of Hopkinson J. of 22nd May, whereby he granted a Mareva Injunction.

2. The first application raises questions of some significance and importance. But for the fact that this gentleman is being detained in Hong Kong, so that I have to give an instant ruling, I would have much preferred to have taken a little time to gather my thoughts together. So notwithstanding the fact that it is now late on a Friday afternoon, I shall endeavour to give my reasons as best as I can.

3. The first question which arises is the true construction of section 21(B) of the Supreme Court Ordinance (Cap. 4). This was added in 1984 following criticisms of the full impact of the jurisdiction of the Hong Kong courts to arrest debtors and potential debtors. This impact was revealed most clearly by the decision of the Court of Appeal in Kirpalani v. Days International 1982 HKLR 534. The jurisdiction to arrest in support of judgments, and in particular the jurisdiction to arrest and detain in Hong Kong in support of civil claims had given rise to considerable differences of opinion in the past. Those differences were resolved by the decision in Kirpalani, in favour of those who urged that this jurisdiction was unlimited, and could be applied to any visitor here, although he may have, otherwise little or no connection with Hong Kong. I think it was thought that this could have adverse consequences for Hong Kong, and so there was a statutory re-definition of the court's jurisdiction in section 21(A) and 21(B) of the Ordinance.

4. It is not insignificant that 21(A) starts by saying in effect that only under section 21(B) can anyone be arrested in support of a civil claim, or other than consequent to the granting of a judgment for a sum of money. Section 21(B) provides : (1) "The Court shall have jurisdiction to make an order prohibiting a person from leaving Hong Kong (a Prohibition Order) to facilitate the enforcement, securing or pursuance of ....... (c) a civil claim (other than a judgment) (i) for the payment of money. (2) "The court" can make a Prohibition Order, after judgment, if "there is probable course for believing that ....... satisfaction of the judgment or order is likely to be obstructed or delayed". (3) "The Court" can make a Prohibition Order in relation to a civil claim, if "it is satisfied that there is probable cause for believing" (four things) :-

(a)    there is a good cause of action;

 

(b)    that the person against whom the order is sought

 

5. It is noticeable that those words are different, and I minded to think broader than the words used in relation to judgments. It would seem to me that they probably cover the situation before judgment i.e. "any judgment that may be given ..... is likely to be delayed"; as well as the situation post-judgment i.e. "any judgment that may be given .... is likely to be obstructed".

6. What the legislature did was expressly to define the categories of people more narrowly who could be the subject of Prohibition Orders before judgment. The first category, I am talking about ss. 3(b)(i), is the person, the visitor, who incurs liability here. The obvious case is the person who starts leaving rubber cheques behind him in Hong Kong. He is a natural and perhaps understandable target for a Prohibition Order, if having done that, he attempts to leave the jurisdiction. The other two categories "carries on business" or "ordinarily resident", suggest, to my mind, that the person must have a substantial connection with Hong Kong.

7. The first issue which' arises in this case is whether this defendant is a person who carries on business in Hong Kong. On the facts here the position seems to me fairly simple and fairly clear. He is vice-president of a company known as Abraham Sultan and Cie S.A. which is incorporated in Venezuela. That company is 100% owned by his father Abraham Sultan, and he is now vice-president. That company apparently carries on business importing and selling in Venezuela articles of clothing. In 1981 the company wanted to increase its borrowing. It was apparently unable to get satisfaction in Venezuela itself, with the result it approached the plaintiff bank in Miami, Florida. This was successful, so that the documentation which is sued upon in this case, came into existence. There was a loan agreement between the bank and the company. That agreement was supported by two guarantees executed by this defendant personally in support of the company's borrowing. The guarantees, and indeed all the documents are expressly made subject to the laws of Florida. Upon the evidence the borrowing seems to have been effected and made, in fact, in Florida. So that you have here borrowing by a Venezuelan company from a United States Bank, in that bank's home state for the purposes of overseas borrowing, with the whole transaction subject to Florida law. That was the position in America.

8. The company also had a family owned subsidiary in Hong Kong called Alice Export Co. Ltd. That is a Hong Kong company. The shareholding in that company is owned as to 99.99%, by the father, and the balance of 300 shares was formerly owned by this defendant. The company is operated here by its only resident director, a Miss Alice Tsang.  The other three directors are father, the defendant and the defendant's younger brother. The Hong Kong company, Alice, buys goods in this vicinity for onward sale both to the Venezuelan company and to at least two other wellknown companies in the United States.

9. So there is no doubt that this defendant is vice-president of the company in Venezuela. He is a director and was a shareholder of Alice, the company in Hong Kong. I say was because he, in fact, transferred his 300 shares in Alice to his sister on 11th December last without any named consideration in the transfer.

10. In the original evidence before the Master there was an affirmation by a gentleman, from Fact Finders, in which it is asserted that upon inquiry by one of their investigators on 5th May the intended defendant told her that he shared with Alice the Silver-Cord office which is the address of Alice Export in Hong Kong, and that he looked after exports to South America. That is something which the Master may have relied upon. I know not. But no reliance has sought to be placed upon it before me.

11. What has been suggested here by the plaintiff is that this man is, in fact, carrying on business in Hong Kong by reason of the work that he has been doing here for one or other of these limited companies, and that that is sufficient to bring him, within the words I have read, in section 21(B)(3)(b)(ii). In argument the issue really narrowed itself down initially to one between two Victorian cases in England, both of which are referred to in a much more recent decision of the Court of Appeal there in "re Brauch (1978) 1 Ch.  316". The two cases concerned are Ex Parte Breull (1880) 16 Ch. D. 484 and Lewis V. Graham (1888) 20 Q.B.D. 780. They both concerned the construction of the phrase "carry on business" in Bankruptcy legislation.

12. In the first case in 1880 the Court of Appeal was able to come to the conclusion that in the context of that statute the phrase "carry on business" could be given an extended meaning. So a man who was, in fact employed in a bank in the city of London, could be properly said to have been carrying on business in the city of London. The suggestion that he was simply pursuing his occupation as a bank clerk, and was not carrying on business at all, did not find favour with that Court, somewhat surprisingly, it seems to me, from this distance in point of time. In fairness to that Court they were not concerned with giving jurisdiction to any a particular court.  They were concerned with a very much narrower question whether which of two divisions of the Bankruptcy Court had jurisdiction in that case, either the city of London or that division applicable to his residence in Beckentam. It seems to me the issue was whether the Bankruptcy Court, north or south of Thames, was the natural forum for his bankruptcy. In short, in that case the Court said that looking at "the object and intent of the Act", they were entitled to give it this extended meaning. This seems to me to amount to reading the phrase not so much as "carrying on business" but as meaning having been "in business" or "connected with a business".

13. Eight years later in Lewis v. Graham a five-member Court of Appeal came to, what seems to me, the diametrically opposite opinion. They all emphasised that carrying on business imported questions of control by the person who was carrying on that business and excluded persons like clerks or servants who were in a subservient capacity. Lord Esher, M.R. had this to say at pages 4 and 5 of the Report :-

After referring to Ex Parte Breull "....... there is nothing to oblige us to say that the words, 'carry on business within the city of London', should have any other than the primary and ordinary business sense which would be accepted in the city. I think that those words mean to describe a person managing or conducting his own, and not somebody else's business. He must either manage or conduct a business of his own, or the business which is managed or conducted for him must be his own".

In other words the Court said the only person who is carrying on business, is the man who is the master and not the servant.

14. The Court of Appeal in the case of Brauch, in a judgment delivered by Robert Goff, L.J. as he then was, emphasised that the test was "the object and intent of the particular Act". It pointed out that in the first of those cases the Court was able to give those words a very special meaning in a very particular context. It plainly preferred to the 2nd meaning for itself. It added this because both cases had been decided before Salomon v. Salomon & Co. Ltd. 1897 Ac 22. I quote from Robert Goff L.J. P. 328 :-

"In my judgment, it would be wrong to hold that "the section in question" applies to a man who is running his company's business even though he be the sole beneficial shareholder and in complete control".

The first question which seems to me to arise under this section is whether the phrase "carries on business" means carries on his business, or is involved in or connected with business in the sense that that phrase was construed in the first of those cases? I have no doubt myself that it means carries on his business. Secondly, is it sufficient that the business is the business of a company, with which he is closely concerned, be it by way of shareholder or director or both, or must it be his personal business? Again I have no doubt in my own mind that the second is the answer. I cannot believe that the Hong Kong legislature was not aware of the fundamental distinction between a corporate personality and the personality of the individual corporators, the shareholders and directors. It has been fundamental in our law certainly since the decision in Salomon, I do not believe it suffices that someone is in business in Hong Kong, or is connected with a business in Hong Kong, or is a shareholder or director in a business in Hong Kong. I think it must be shown that he himself is carrying on something which can be called his business within the jurisdiction, and that it is only those persons who are amenable to Prohibition Orders.

15. In those circumstance, on the facts that have been put before me, there is no doubt whatever, that this gentleman was not carrying on his personal business within the jurisdiction. He was only here in his corporate capacity as director of both companies, and originally a shareholder in the one. In my judgment, this simply does not suffice to give the court jurisdiction over him to make a Prohibition Order. On that short ground, in my view, this Prohibition Order was wrongly made and must therefore be discharged.

16. Underneath this, there lies a further, I think more difficult problem. As I have already indicated the claim against this defendant is made upon a Florida Guarantee taken out in support of a Florida Loan to a Venezuelan company. The case has no connection whatever with Hong Kong. There is only one possible basis upon which proceedings in Hong Kong can be justified and that is upon the basis of section 21(B) of the Supreme Court Ordinance and Order 44(A). It is, I think, pretty apparent in this case that it is only the existence of this provision which tempted or persuaded the bank to sue this gentleman in this jurisdiction.

17. Now the general law in this context has changed considerably in recent years as a result of four decisions of the House of Lords in England: Atlantic Star (1974) Ac 436, MacShannon v. Rockware Glass (1978) Ac 795, Amin Rasheed Shipping corporation v. Kuwait Insurance Co. (1984) Ac 50 and The Abidin Daver (1984) 1 Ac 395. By a series of steps their Lordships in substance have held that there is now no longer any difference between English and Scots law in relation to the concept of forum non conveniens, with the result that the Court is now much readier to grant a stay of proceedings than it used to be. The circumstances in which it would grant such a stay were stated by Lord Diplock in MacShannon at p. 812 and repeated by Lord Brandon in The Abidin Daver at p. 419 as being: "that two conditions must be satisfied one positive and the other negative. (a) the defendant must satisfy the Court that there is another forum to whose jurisdiction he is amenable in which justice can be done between the parties at substantially less inconvenience or expense; and (b) the stay must not deprive the plaintiff of a legitimate personal or juridical advantage which would be available to him if he invoked the jurisdiction of the English Court. "

18. It is perfectly apparent here that there is another forum to whose jurisdiction this defendant is amenable, and before which this matter can be determined at substantially greater convenience and less expense. That is the Court of Florida. That is the Court which the bank itself has expressly choosen as being appropriate in all its documents. I am reminded that in MacShannon's case in the Court of Appeal, 1977 2 All ER 449 Lord Denning dissented, and made some forthright observations about picking and choosing local law : p. 453

"He has lived under Scots law all his life. He should take its legal system, like his wife, for better or for worse. He cannot take it or leave it as it suits him best. "

There seems to be a good deal of force in these observations in the context of this case when the plaintiff has deliberately chosen, and no doubt for very good reason, its local law in all the documents. So that the first of these conditions seems to me plainly to be satisfied. The Court in Florida is more convenient.

19. I should add that the issue, which arises as a potential defence to this claim under the guarantee, is an issue which has been canvassed by Florida lawyers on some of the documentation before me. It involves some rather complicated fringe points of Florida law, engrafted upon some disputed points of Venezuelan law. Those matters, which turned directly on Florida law, can obviously be dealt with more cheaply and conveniently in a Court conversant with that law, and not before a Hong Kong judge who has to deal with the matter as one of the fact and choose between competing and disputing lawyers.

20. The real issue that arises is whether section 21(B) and Order 44A give the plaintiffs a "legitimate juridical advantage" which they can take in the Hong Kong Court, and which justifies their forum shopping in this jurisdiction. Is this something which the Hong Kong Courts should encourage? Should they encourage foreign creditors to sue and arrest foreign debtors here to enable them to take advantage of the coercive effects of section 21(B). This is a question which does not directly arise before me having regard to the conclusion I have reached about the business which this gentleman carries on. But if I am wrong about that, and if in some way this gentleman can be said to be carrying on business in Hong Kong, I think I would still have been minded to discharge this order in the exercise of my discretion. I do not, from my part, wish to extend a jurisdiction which developed in Hong Kong by reason of Hong Kong's particular local circumstances as a small trading community from which defaulting debtors could so easily, I think the phrase was "catch the night boat to canton". With a jurisdiction which was developed in those very special circumstances, I do not think that we should be encouraging others to come in from outside, who have no connection with Hong Kong at all, whose dealings have no connection with Hong Kong, to enable them to take advantage of this particular feature of Hong Kong law. So to those who are tempted to repeat this performance in other circumstances, I would simply say: "Please do not expect to be welcomed with open arms by the Hong Kong Courts".

21. There remains the question of the Mareva Injunction. I cannot help thinking that having regard to my ruling upon the Prohibition Order the rest of this matter becomes academic. I have little doubt that this litigation will all come to a very abrupt conclusion if the first part of my ruling stands scrutiny in another Court. But I will deal with the Mareva Injunction application as well. This is put upon a rather different basis. What is here said is that the plaintiffs did not put before the Court a full and frank statement of the facts when they invited the Court to make both this Prohibition Order and to grant the Mareva Injunction. These words I have drawn from the decision in Bank Mellat v. Nikpour (1982) reported in (1985) FSR 87. There Donaldson J. talks in terms of the "fullest and frankest disclosure" as being an obligation of an applicant in these circumstances. In that case the application was for an Anton Piller Order. In this case an applicant for both a Prohibition Order and a Mareva Injunction is under no lower duty in my view. In the same case Slade L.J. cites with approval from an Australian decision of Isaacs J. concluding with the words about the applicant having, "a most serious responsibility" Thomas A. Edison v. Bullock (15) CLR 679, 681. The Lord Justice goes on, "The applicant should recognise his responsibility to present his case fully and fairly to the Court", p. 92.

22. What is objected to here is that Mr Grundy, the principal deponent on behalf of the plaintiff, who is a vice-president of the bank giving an address in New York, but who makes two affirmation on a visit to Hong Kong, put before the Court in paragraphs 14, 15 and 16 of his first affirmation a picture of this defendant which, he, in his reply, has dubbed "a gross distortion", and which he said was really quite unfair and simply not justified on the facts. What the affirmation says is :

Those words, I think, plainly suggest, and can only be intended to suggest that the plaintiff was having great difficulty in bringing the borrower and this defendant into any discussions and to discover their whereabouts In other words, they were being elusive and had in effect gone to ground. They could not be traced. Then that same paragraph goes on to exhibit a rather curious telex from the plaintiff's legal advisers in Caracas to Hong Kong which obliquely suggests a dissipation of assets.

The affirmation goes on :-

 

Now what this deponent seems to me to be saying is this. These people have been elusive in the past. We cannot bring them to any discussion. We cannot discover their whereabouts. This envinces an intention by this defendant to defeat the ends of justice. This man is in substance running away from us. We have now caught up with him in Hong Kong. Do not let him get away again. I think that is what those words were intended to convey. But all I can say is that there is practically nothing in the evidence which justifies them.

23. There were discussions going on in a number of meetings on a number of the problems arising out of the difficulties of the corporation in Venezuela, arising particularly from the devaluation of the Bolivar. At the time that the company borrowed some US$8M or US$10M the conversion rate was four bolivars to the U.S. dollar. The rate now is 20 to the dollar. So the company has got to earn 5 times what it originally had to earn in order to discharge this indebtness. That I would have thought plainly spells TROUBLE. It is perfectly obvious that there have been some very difficult and protracted discussions going on in Caracas, arising out of these very formidable difficulties. But there has been no breath of evidence or suggestion of any evasion by anybody; any requests to this gentleman in particular to attend any meeting; any refusal by him to attend any meeting; any suggestion that he was not, in fact, resident during this time in Carcas; any suggestion that he was not available, either at his own residence in Caracas or in the company's office in Caracas. So the suggestion that he was here as a part of an evasion of his responsibility and not in fact for an ordinary business trip, is simply nowhere justified at all.

24. It is not insignificant that he was here first on 5th May. If there were any problems about evading service, he could readily have been served. What happened on that occasion was tantamount to a trap call made upon him for the purpose of trying to get evidence that he was carrying on business in Hong Kong, in order to pick him up, and serve him on the next occasion when he came back, with this Prohibition Order. I really do not think that it is good enough to put this sort of material before a Court on a Mareva Injunction, which is, on the totality of the evidence, simply not justified.

25. No explanation has been offered by the same deponent to explain why this has happened; that this was his understanding; and that he now cannot give particulars of it but he believed it to be true at the time, if that were relevant, I think the issue here is not whether the gentleman believed it, but whether in fact it was true.  Certainly there has been no explanation and nothing to support the very nastly sting behind those paragraphs which has been repudiated with some indignation by this defendant. He had said in terms; "no demand has been made to me; I have not been asked or refused to attend any meeting; and in particular they have made no attempt to try and sue me in Venezuela or in Florida or anywhere". Perhaps the second point goes to what I have just been saying about forum shopping. The absence of any attempt to sue elsewhere certainly discourages me from doing anything to give my approval to the sort of proceedings which have taken place in this case.

26. In those circumstances it seems to me that a full and fair picture was not put before this Court and in particular, Hopkinson J., when he granted the Mareva Injunction and therefore, that should likewise be discharged.