WU WEI v. LIU YI PING

CACV 47/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 47 OF 2005

(ON APPEAL FROM HCA NO. 1452 OF 2004)

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Reasons for Judgment
and
Decision on Costs

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Hon Cheung JA (giving reasons for judgment and decision on costs of the court) :

Reasons for Judgment and Decision On Costs

Reasons for Judgment

1. We dismissed the defendant’s appeal against the judgment of Deputy High Court Judge Gill at the conclusion of the appeal.  We now give our reasons.

Husband and wife

2. The parties are husband and wife.  They lived in the Mainland but had carried on business in Hong Kong as partners.  Divorce proceedings was commenced by the defendant wife in the Mainland but no order for divorce has been obtained yet.  The plaintiff husband commenced the present action against the defendant on 17 June 2004. 

3. On 24 January 2005, the plaintiff obtained an injunction from Judge Gill restraining the defendant from ‘parting with, selling, charging, transferring or in any other way disposing of or dealing with’ the money standing in a joint account (‘the Joint Account’) of the parties in the Hong Kong and Shanghai Banking Corporation Limited (‘HSBC’). 

4. The application for injunction was made pursuant to an inter partes summons dated 31 December 2004 and returnable before Judge Gill on 19 January 2005.  Judgment was given on 24 January 2005. 

The plaintiff’s case

5. It is the plaintiff’s case that

1)	the money in the Joint Account originally came from the bank account of a company named Knight Advertising Services Ltd. (‘KAS’).  The parties are directors and shareholders of KAS with the plaintiff holding 90% of its shares while the defendant holds the remaining 10%.  After KAS ceased its business operation, it closed its bank account and transferred the money in that account of about $3,200,234 to the Joint Account.
2)	It was an agreement of the parties that the balance of the money in the KAS account should be distributed in accordance with the respective shareholdings of the parties.
3)	Accordingly the money in the Joint Account which was transferred from KAS was held upon trust by the parties for themselves in the proportion of 90% for the plaintiff and 10% for the defendant.
4)	Due to investment returns, the amount in the Joint Account was increased to about $4,135,350 as of 19 March 2004.
5)	The defendant without the consent and knowledge of the plaintiff withdrew money from the Joint Account on 29 March 2004 and 3 April 2004 in the total sum of about $3,539,176 leaving a balance of about $468,597.63.
6)	The defendant accordingly was in breach of trust and had misappropriated money belonging to the plaintiff.  The plaintiff asked judgment for, among other things, $3,721,815 which was 90% of $4,135,350 and an injunction to restrain the defendant from dealing with the money in the Joint Account.
7)	The plaintiff further asked for a declaration that a Divorce Agreement signed by the parties is invalid because he was ‘induced or coerced’ to sign the agreement under duress.  Under the Divorce Agreement, it was agreed by the parties that in respect of the money maintained with HSBC the defendant was entitled to about $2,862,000 while the plaintiff was entitled to about $1,202,000.

6. The plaintiff’s case is pleaded in the Re-Amended Statement of Claim.  Leave to amend was granted by Master Wong on 4 January 2005.  It was an order made by consent.

Overview

7. Before examining the individual challenges raised by the defendant in this appeal, if one takes for one moment an overall view of the matter, it can hardly be said that the plaintiff had not raised serious issues to be tried on the breach by the defendant as trustee of the money belonging to the plaintiff and the validity of the Divorce Agreement.  Even if the Divorce Agreement is a valid one, on its terms the defendant was only entitled to about $2,862,000 and not $3,539,176 which she had removed from the Joint Account.

The defendant’s complaint

8. The gravamen of the defendant’s complaint is that the plaintiff had been guilty of misconduct and had taken advantage of his own misconduct in obtaining the injunction.  Mr. Anson Wong, counsel for the defendant, summarised his attack on two limbs :

1)	there was an erroneous exercise of discretion by the judge when he failed to take into account the following matters, namely, material non-disclosure by the plaintiff, the plaintiff did not come with clean hands and the inexcusable delay by the plaintiff.  The absence of a serious issue to be tried on the question of trust and delay was also relied upon.
2)	The principle of res judicata or issue estoppel and abuse of process by the plaintiff precludes the granting of the present injunction.

Non-disclosure

9. The facts which formed the basis of Mr. Wong’s complaint are as follow.  The plaintiff had previously obtained a Mareva injunction on an ex parte basis from Pang J on 14 December 2004 to restrain the defendant from disposing the assets in the Joint Account.  

10. The plaintiff then issued an inter partes summons for the ‘continuation’ of the Mareva injunction.  The hearing came before Chu J on 24 December 2004.  Chu J dismissed the summons because she held that the plaintiff had been guilty of material non-disclosure before Pang J.  

11. The history of the proceedings is this.  The writ was served on the defendant, who was residing outside Hong Kong, on the registered address of KAS in Hong Kong (KAS by then had ceased business) and not on the defendant’s last known address in the Mainland.  The writ was returned undelivered to the plaintiff’s solicitors, Christine M. Koo & Ip (‘Koo & Ip’).  However, Koo & Ip, proceeded to obtain default judgment against the defendant and also obtained a garnishee order nisi against her based on the judgment.  The garnishee order nisi was directed towards the money in the Joint Account.

12. Upon discovery of the default judgment, the defendant on 21 September 2004 applied to set aside the default judgment and on 5 November 2004, the defendant’s solicitor informed Koo & Ip that the writ was in fact returned undelivered to Koo & Ip.

13. On 10 November 2004 Koo & Ip informed the Court by letter that it would consent to set aside the default judgment.  It explained that the returned writ was not found in its file and the handling solicitor was not aware of the returned writ.  It explained that it had employed a new receptionist who took up the job shortly after the writ was said to be returned.  The former receptionist claimed that she had no recollection of the matter.  Koo & Ip was of the view that the former receptionist had misplaced the document.

14. The Court directed that the hearing of the setting aside application and the garnishee to show cause application would be heard on 15 December 2004.  On 14 December 2004 which was one day before that hearing the plaintiff applied and obtained the Mareva injunction.  The default judgment and the garnishee order nisi were discharged the next day.  The plaintiff was ordered to pay the defendant indemnity costs assessed at $60,000.00.

Chu J’s view

15. According to the transcript of the hearing before Chu J, she was of the view that if the default judgment was to be set aside the garnishee order must be discharged as well because the garnishee order was granted on the strength of the default judgment.  This must be right.  But Chu J further held that,

‘ This state of affairs was not analysed and pointed out to the ex parte judge. It may all have been inadvertent, but the net result of all this is that the ex parte judge’s mind was not directed to the fact that the Mareva injunction was driven by the plaintiff’s desire to continue a state of affairs which he has in the first place no entitlement.  This is because without the garnishee order, the plaintiff would not have seen fit to a need to attachment of the assets of the defendant in the jurisdiction.’

On that basis she held that there was a material non-disclosure.

The distinction

16. The Court attached utmost importance to full and frank disclosure in ex parte applications.  While the plaintiff should be criticised for the wrongful act of obtaining the default judgment and also for not expressing an intention to abandon the garnishee order like he did with the default judgment, we think in the present case a distinction ought to be drawn, on the one hand, on the wrongful act of entering the default judgment which would render all subsequent enforcement proceedings to be invalid (and for which the plaintiff had been appropriately punished) and on the other hand, the question of material non-disclosure before Pang J.  

17. It is clear that the plaintiff had disclosed in his supporting affirmation for the Mareva injunction the background leading to the default judgment, its consent to set it aside and the pending garnishee to show cause application.  The application for injunction proceeded on the basis that the money in the Joint Account would be dissipated if the default judgment and garnishee order were to be set aside.  Paragraph 22 of the plaintiff’s affirmation of 13 December 2004 expressly stated that,

‘ In light of the Defendant’s previous conduct which I shall detail hereinbelow, I am advised and I verily believe that unless a “mareva injunction” is imposed on the Defendant prior to the setting aside of the Default Judgment and the discharge of the garnishee order, there is a substantial and real risk that the subject money in dispute will be dissipated and/or transferred out of jurisdiction by the Defendant and that a successful claim against the Defendant will be rendered nugatory.  For these reasons I make this urgent ex parte application.’

18. When the plaintiff spoke of maintaining the status quo, obviously he was not referring to the one as maintained by the garnishee order but the status quo of keeping the balance of money in the Joint Account.  We have strong reservations on whether this is straightly a case of material non-disclosure and that Pang J was not aware that the garnishee order depended on the subsistence of the judgment.

Sakhrani J’s order

19. Since Chu J refused to continue with the Mareva injunction, one would have thought that whatever was the position of the plaintiff in respect of the Mareva injunction, it had no bearing to the application before Judge Gill.  We do not consider that the ‘non-disclosure’ on the basis as described by Chu J would be of such a weight as to preclude the granting of a fresh injunction.  

20. However, Mr. Wong argued that the misconduct of the plaintiff (by virtue of the non-disclosure in the previous application) continued and hence he did not come with clean hands before Judge Gill and the steps taken by the plaintiff in obtaining the new injunction amounted to an abuse of process.

21. It is necessary to go into the background of this argument.  On 30 December 2004 the plaintiff obtained an order from Sakhrani J staying Chu J’s order and continuing with Pang J’s order.  It was an inter partes application before Sakhrani J.  It is apparent from the submission of the plaintiff’s counsel before Sakhrani J that he wished to apply for a fresh injunction based on new causes of action as set out in the Re-Amended Statement of Claim (i.e. the trust and setting aside of the Divorce Agreement causes of action).  However, as the draft of the proposed amendment was only given to the defendant’s solicitor on the morning of the hearing, Sakhrani J held that the defendant’s solicitor must be given an opportunity to respond to it and he would not hear the application for the fresh injunction.  He was only prepared (which he did) to grant a stay of Chu J’s order pending the plaintiff’s application to the Court of Appeal for a further stay of Chu J’s order.  A stay of Chu J’s order pending appeal was the fall back position of the plaintiff’s counsel in the event the court did not grant the new injunction based on the proposed amendment. 

22. We have difficulties in accepting the submission that it was a wrongful act to apply to stay Chu J’s order and that it tainted the next stage of the proceedings.  The plaintiff did not make any representation to Sakhrani J that he only wished to appeal against the order of Chu J and then later changed tack and applied for a fresh injunction.  The position was to the contrary.  Sakhrani J was not prepared to hear the plaintiff’s application for a fresh injunction immediately but he was of the view that ‘there ought to be some protection given to the plaintiff’.  And on that basis he ordered the stay. 

23. Sakhrani J was clearly aware of the risk of dissipation if no interim relief was to be given to the plaintiff before the new application could be considered.  Instead of granting an interim injunction afresh, he allowed the injunction granted by Pang J to continue.  In our view in such circumstances it would be wrong to describe the plaintiff as coming with unclean hands and had abused the court process when he shortly afterwards made the application before Judge Gill.

24. In any event we really do not see why the plaintiff should not be allowed to pursue this alternative remedy if he considered that there were merits in the appeal and that the order of Chu J should be stayed at the meantime.  The fact that he had also made a fresh injunction application does not necessarily show that he knew he had no justifiable grounds of appeal.  If the fresh injunction was granted, it would achieve the same objective of the appeal, namely, to preserve the money in the Joint Account.

Abandoning the appeal

25. Mr. Wong then criticised the plaintiff for not abandoning at the hearing before Judge Gill the appeal against Chu J’s order which by then had been lodged and that the plaintiff’s counsel only informed the judge that the appeal would be abandoned if the fresh injunction was granted.  The appeal was indeed later withdrawn after the fresh injunction was granted.

26. In practical terms one may ask how would an immediate abandonment of the appeal affect the position?  Judge Gill was then seized of the new injunction application, although he took time to consider the application and delivered judgment a few days after the hearing, is it likely in the circumstances that he would not have granted interim relief to the plaintiff pending the outcome of his decision when there is a real risk of dissipation of the trust money out of jurisdiction?

Unbroken chain argument

27. Mr. Wong relied on the case of Eastglen International Corporation and others v. Monpare SA and others (137 NLJ 1087) (lexis transcript) where the plaintiff obtained ex parte a Mareva injunction against the defendant.  The injunction was obtained with material non-disclosure and the defendant applied to discharge it.  Before the hearing, the plaintiff’s new lawyers discontinued the pending action and issued a new action.  An affidavit explaining the non-disclosure was made and a fresh Mareva injunction was applied for.  The plaintiff obtained the new injunction and the discontinuance of the old action took place on the same day. 

28. The defendant then applied to discharge the second injunction.  Gatehouse J discharged the second injunction.  He was of the view that ‘by the device used here the plaintiffs have retained the very considerable advantage of the continuance of a Mareva injunction which they concede was improperly obtained in the first place’.  He referred to the ‘extraordinary advantage that has been improperly obtained and improperly continued without break by means of the affidavit made by the plaintiff’s former lawyer and used in obtaining the first injunction’.

29. On appeal by the plaintiff, the English Court of Appeal allowed the appeal on the ground that the non-disclosure was made by the plaintiff’s former lawyer of which the plaintiffs should not be held responsible.

30. Mr. Wong had further drawn our attention to Memory Corporation PLC and Another v. Sidhu & Another (No. 2) [2000] 1 W.L.R. 1443 in which the English Court of Appeal held that where the advocate’s individual duty to the court on a without notice application overlapped with the collective duty to the court of the applicant and his lawyers, the court need not insist on one categorisation of duty applying to the exclusion of another; that in deciding on the consequences of any breach of either duty the court should consider all relevant circumstances, including the gravity and remediability of the breach, any excuse or explanation offered by the applicant or his lawyers and any prejudice to the respondent, bearing in mind the overriding objective and the need for proportionality; that the judge-made rule that a without notice order would be discharged if it was obtained without full disclosure could not be permitted to become an instrument of injustice; and that the relative culpability of the applicant and of his lawyers, though relevant, would seldom if ever be determinative of the consequences of any breach.

31. In the present case, the non-disclosure relied by Chu J was that counsel who appeared before Pang J had not analysed the situation relating to the garnishee order.  If that was the case then in our view the plaintiff should not be held responsible for the non-disclosure.  Further, unlike the proceeding before Gatehouse J, the plaintiff in the present case had not conceded on non-disclosure.  While he had later abandoned the appeal it does not necessarily mean a concession on non-disclosure had been made considering he had already obtained the fresh injunction from Judge Gill.

Merits of the injunction

32. As pointed out earlier there were obviously serious questions to be tried on the issues of trust, Divorce Agreement and removal of assets by the defendant. 

33. Mr. Wong who had advanced his client’s case with detail and clarity, relied on Re Bishop,Decd [1964] 1 Ch. 450 which held that

‘ Where a husband and wife open a joint account at a bank on terms that cheques may be drawn on the account by either of them then, in my judgment, in the absence of facts or circumstances which indicate that the account was intended, or was kept, for some specific or limited purpose, each spouse can draw upon it not only for the benefit of both spouses but for his or her own benefit.’

34. That may well be the situation in an ordinary joint account of a husband and wife, but the situation here is different : the Joint Account in HSBC is said to be imprinted with a trust.

35. It is further said that the allegation of the trust agreement is lacking in particulars, but the defendant had never sought particulars from the plaintiff.

36. Considering the fact that the defendant had already removed substantial sums of money from the Joint Account, the plaintiff’s concern that she would remove the balance of the fund is a real one.  The principle that the court will use its power to protect trust assets at the interlocutory stage is well established : see Gee on Commercial Injunctions 5th Ed Paras 7.014-7.017.  The parties had hardly argued on the issue of balance of convenience. 

Delay

37. The defendant complained of delay by the plaintiff in applying for an injunction.  Delay was not featured in the defendant’s opposition to the application before Judge Gill.  The plaintiff had set out in his affirmation the history of the steps he had taken since discovering the removal of the assets in April 2004.  This material was before Judge Gill who obviously had considered it.  Looking at the matter in the round, we are not convinced that there had been inordinate delays on the part of the plaintiff which would preclude him obtaining an injunctive relief.  The defendant had not suggested that she was in any way prejudiced by the delay.

Res judicata/Abuse of process

38. Mr. Wong relied on the principle in Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd. [1975] 1 A.C. 581 that it was an abuse of process for the plaintiff to rely on a subsequent proceeding matters which could and should have been raised in the earlier proceeding.  He argued that this principle applies equally to interlocutory proceedings and relied on statements in Pocklington Foods Inc v. R. in right of Alberta (1995) 123 DLR (4th) 141 and Tang Man Kou & Another v. Chime Corporation Ltd. HCMP 4146/2001.

39. The circumstances in which an interlocutory ruling which involves exercise of discretion can give rise to issue of estoppel has been described as problematic : see Mullen v. Conoco Ltd. [1998] Q.B. 382.

40. In any event this Court has already accepted the applicable guidelines on this topic in Chu Hung Ching v. Chan Kam Ming and others (t/a) Ming Lee (International) Trading Co. [2001] HKC 396 as follows :

‘ .... the raison d'etre of the principle of res judicata or issue estoppel lies in what is just and reasonable. Applying that notion to an assertion that a ruling on an interlocutory application is res judicata when the same issue is raised in a subsequent interlocutory application in the same action, it will not be unjust or unreasonable to allow the second application to be heard, for what is involved is not relitigation of an identical issue of law or fact :
(a)	if the ruling on the first application was not based on the merits of the issue but on a technical objection ...
(b)	if upon the first application the applicant had failed to prove essential facts from mistake or inadvertence ...
(c)	if there is new evidence that seriously justifies reconsideration of the issue;
(d)	if there is a material change of circumstances of a non-evidentiary nature.’

41. In the present case it is abundantly clear that Chu J did not dismiss the first application on the merits.  She recognized that there were serious issues to be tried.  The dismissal of the plaintiff’s application was clearly based on the sole reason of material non-disclosure.  This comes within the first limb of the guidelines, namely the first ruling was based on ‘technical objection’, which we understand as meaning an objection not touching on the merits. 

42. Further the principle is clearly that when an ex parte injunction is discharged because of material non-disclosure, the court still has a discretion to grant the injunction inter partes : see Cheung Kam Wah v. Cheung Hon Wah [2005] 1 HKC 136 at 156.  

43. The new injunction is in the nature of a proprietary injunction based on new causes of action (see a discussion of the difference between a Mareva injunction and proprietary injunction in Polly Peck International PLC v. Nadir and Others (No. 2) [1992] 4 All ER 769).  This further satisfies the fourth limb of the guidelines, namely, there had been material change of circumstances of a non-evidentiary nature. 

44. In our view the plaintiff was entitled to apply for the second injunction.

Conclusion

45. Ultimately this is an appeal against an exercise of discretion.  We are satisfied that the discretion was properly exercised by Judge Gill and the appeal was accordingly dismissed.

 Decisionon Costs

46. Costs should follow the event and the plaintiff is entitled to have the costs of the appeal.