ACBEL POLYTECH INC. v. SEC (HONG KONG) CO LTD

HCA 492/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 492 OF 2013

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BETWEEN

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REASONS FOR DECISION

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1.  On 22 March 2013, Mrs Justice Bokhary granted a Mareva injunction on an ex parte basis freezing the Defendant’s assets in Hong Kong up to US$2,955,743.90. One bank account of the Defendant was identified in the Injunction Order: account no. F15-239070 with Mizuho Corporate Bank, Kowloon branch. The usual exceptions for payment of ordinary and proper business expenses and legal costs were included in the Injunction Order.

2.  On 5 April 2013, the Mareva injunction was continued by Madam Justice Mimmie Chan. Under that Order,

(a) The Defendant was allowed to spend up to HK$500,000 per month towards its ordinary and proper business expenses, and up to HK$480,000 for legal advice and representation.

(b) The Order also contained the usual exception that “This Order does not prohibit the Defendant from dealing with or disposing of any of its assets in the ordinary and proper course of business” and the usual notice to Banks that “No bank needs inquire as to the application or proposed application of any money withdrawn by the Defendant if the withdrawal appears to be permitted by this Order.”

3.  There are two applications before this Court today.

4.  First in time is the Defendant’s application by summons dated 12 April 2013 for

“1. The Mizuho Corporate Bank be authorised to release money from the Defendant’s bank account no. F15-239070 to effect payments of the Defendant’s necessary business operation expenses and expenditures in the ordinary course of the business as permitted in the Injunction Order dated 5^th April 2013, as described in the letter from Messrs. Robertsons dated 9^th April 2013 to the Plaintiff’s solicitors attached hereto, within 2 days from the date of the Order to be made herein;

2. For all or any further payments for the Defendant’s necessary business operation expenses and expenditures in the ordinary course of the business, the Defendant’s solicitors shall notify the Plaintiff’s solicitors in writing thereof for the Plaintiff’s solicitors to confirm authorisation to Mizuho Corporate Bank to release money from the Defendant’s bank account no.F15-239070 (or any other bank account(s) of the Defendant, if any) for such payments as permitted in the Injunction Order dated 5^th April 2013, within 2 days upon receipt of the request from the Defendant’s solicitors;…

3. Liberty to apply....”

5.  Second in time is the Plaintiff’s application by summons dated 15 April 2013 for

“The Injunction Order made by the Honourable Mrs. [sic] Justice Mimmie Chan dated 5^th April 2013 (“Injunction Order”) be varied to the following effect:-

(i) the Defendant must inform the Plaintiff in writing at once of all its assets of an individual value of US$1,000 or more in Hong Kong, whether in its own name or not, and whether solely or jointly owned, giving the value, location and details of all such assets provided that the Defendant may be entitled to refuse to provide some or all of this information on the ground that it/they may incriminate itself;

(ii) the Defendant must inform the Plaintiff in writing the amounts received from Canon for settlement of the purchase price of the goods supplied by the Plaintiff for the period from 1 January 2013 up to the date of the Order;

(iii) this information must be confirmed in an affidavit…”

6.  Put it simply, the factual background is this.

(a) The Plaintiff is claiming US$2.955 million from the Defendant as the price of goods sold and delivered.

(b) Canon, a well-known Japanese electronics company, used to be the customer of the Defendant and the sub-purchaser of the goods.

(c) There was a contractual arrangement between the Plaintiff and the Defendant whereby the payments made by Canon would be deposited directly into an Escrow Account.

(d) For that purpose, the Plaintiff and the Defendant had executed an Escrow Agreement with HSBC, Taipei branch in 2011. The Escrow Account could only be operated jointly by the Plaintiff and the Defendant.

(e) The Plaintiff claims the Defendant has been in breach of contract for instructing Canon not to make payment of purchase price into the Escrow Account, but to its own account in Hong Kong with Mizuho Bank.

7.  I shall deal with the Plaintiff’s application first.

8.  Although the Plaintiff calls it an application to vary, in substance, it is a first application for disclosure of assets. It is trite law that for the purpose of rendering a Mareva injunction effective, the court may make orders requiring a defendant to disclose its assets.

9.  In his skeleton, the Plaintiff’s Counsel identified three reasons for the application:

(a) First, the Defendant is attempting to spend in excess of the amount of HK$500,000 allowed by Madam Justice Mimmie Chan.

(b) Secondly, the Defendant is trying to prefer other suppliers over the Plaintiff.

(c) Thirdly, it is important for the court and the Plaintiff to know if Canon has paid the Defendant or not, where and how. When this piece of information is provided, the court can be assured that the Defendant is not dissipating funds that should have been placed in the Escrow Account.

10.  In my view, none of the three reasons show that an order for disclosure of the Defendant’s assets now is required to render the Mareva injunction effective or otherwise justify the Plaintiff’s application.

11.  It is well settled that a Mareva injunction is not granted in order to provide the plaintiff with security for its claim. It is for that reason that the standard form of order permits the defendant to spend monies on legal expenses and on ordinary and proper business expenses. Further, the court will always be concerned to ensure that a Mareva injunction does not operate oppressively and that a defendant will not be hampered in his ordinary business dealings any more than is absolutely necessary to protect the plaintiff from the risk of improper dissipation of assets. Where, as in the present case, a plaintiff is not in the position of a secured creditor, and has no proprietary claim to the assets subject to the injunction, there can be no objection in principle to a defendant’s dealing in the ordinary way with his business and with his other creditors, even if the effect of such dealings is to render the injunction of no practical value: See Halifax Plc v Chandler [2001] EWCA Civ 1750 at [16] and [19].

12.  If the Defendant is trying to pay its bona fide suppliers in the ordinary course of business, that cannot be regarded as improper dissipation. Since the Plaintiff is not a secured creditor or making a proprietary claim over the money in the Mizuho bank account, whether the money in the Mizuho bank account is money that should have been placed in the Escrow Account is irrelevant for the present purpose. There is no suggestion that the money in the Mizuho bank account is trust money.

13.  For these reasons, the Plaintiff’s application is dismissed.

14.  I now turn to the Defendant’s application. What prompted the application is this.

15.  Notwithstanding the usual exceptions and the usual notice to banks in the 5 April 2013 Injunction Order, the Defendant continued to experience difficulties in operating the Mizuho Bank account. The Defendant’s solicitors therefore wrote to the Plaintiff’s solicitors to seek their confirmation of authorisation of expenses in the hope that the Bank would release monies to the Defendant accordingly. In this regard, on 9 April 2013, the Defendant’s solicitors wrote to the Plaintiff’s solicitors asking them to write to Mizuho Corporate Bank to confirm authorisation of the Defendant’s payments for the following:-

(1) The Accounts Payable for March 2013 in the sum of US$118,717.45 as shown in Exhibit “SY-6” of an affirmation of Sato Yakio dated 4 April 2013 for the Defendant.

(2) The outstanding dishonoured cheques exhibited in “SY-7” for paying March 2013 business operation expenses at items 31 to 44 in Exhibit “SY-2” (including legal expenses of HK$50,000), both exhibited to Mr Sato’s said affirmation, save that 4 of these have been paid by cash so that the outstanding amount is HK$187,617.11; and

(3) The monthly business operation expenses for April 2013 in the sum of HK$13,108.

16.  On 11 April 2013, in reply to the aforesaid request, the Plaintiff’s solicitors wrote to the Defendant’s solicitors informing them, inter alia, that:-

(1) The Accounts Payable for March 2013 were not included in the Defendant’s monthly expenses for March 2013 in Exhibit “SY-2” and did not fall within the scope of ordinary and proper business expenses so they refused to confirm authorisation.

(2) As for the business operation expenses for March 2013, they only confirmed authorisation for HK$763.50 and legal expenses for HK$50,000; and

(3) As for the business operation expenses for April 2013, they confirmed authorisation in full.

17.  On 11 April 2013, the Plaintiff’s solicitors wrote to Mizuho Corporate Bank confirming authorisation of payment for business operation expenses in the sum of HK$13,871.50, i.e. HK$763.50 for March and HK$13,108 for April, and HK$50,000 for legal expenses. Thereafter, Mizuho Corporate Bank informed Mr Sato that they could only release HK$63,871.50 pursuant to the said letter from the Plaintiff’s solicitors and that the release of money could only be done by cash withdrawal via the US or HK saving accounts but not by any checking account. Thus, the Defendant has still not been able to honour its cheques to pay for its business expenses.

18.  This court has considerable sympathy for the Defendant’s predicament. As I said, if the Defendant is trying to pay its suppliers in the ordinary course of business, that cannot be regarded as improper dissipation. It is trite law that the court has power to make what is usually known as an Angel Bell order to enable a Defendant to make payment of bona fide business debts or expenses.

19.  There is no suggestion that the Account Payables which the Defendant seeks to pay are not genuine trade debts. The Plaintiff’s complaint is that the Defendant is unjustly preferring those trade creditors over the Plaintiff. If the Plaintiff’s complaint is eventually found to be justified, it will be able to pursue that complaint through other legal avenues.

20.  I will therefore make an order under paragraph 1 of the summons to permit, not authorize, the Mizuho Corporate Bank to release money from the Defendant’s bank account no. F15-239070 to effect payments of the Defendant’s necessary business operation expenses and expenditure in the ordinary course of the business as described in the letter from Messrs. Robertsons dated 9 April 2013 to the Plaintiff’s solicitors, within 2 days from the date of the Order made herein. This Order is however limited to the Account Payables for March 2013 in the sum of US$118,717.45. If and in so far as this involves a variation of the Order of Madam Justice Mimmie Chan, so be it.

21.  I will not make any order in relation to the March business expenses of HK$187,617.11 because Madam Justice Mimmie Chan has already made an Order allowing the Defendant to spend up to HK$500,000 per month in that regard. If the Bank does not understand what that Order means, there is no point for this court to make another Order to similar effect. If the Bank understands the Order but decides for whatever reason not to allow the Defendant to operate its own bank account, the Defendant has to follow that up with the Bank. Mizuho Corporate Bank is not a party to these proceedings and I will not in this application make an Order to compel it to do anything.

22.  As for paragraph 2 of the summons, the Defendant does not need a court order before it notifies the Plaintiff of its future business expenses and this court will not force the Plaintiff to rubber stamp the Defendant’s business operation expenses from time to time. As I see it, no useful purpose can be served in making an order in terms of paragraph 2, and I will not do so.

23.  I will give liberty to apply.

[After hearing submissions on costs].

24.  As for costs, regarding the Plaintiff’s summons, costs are to the Defendant. Regarding the Defendant’s summons, my order is that the Defendant is to have 50% of its costs. All costs to be taxed if not agreed.