TRANSAMERICA LEASING INC. v. CHINA FOREIGN TRADE DEVELOPMENT COMPANIES INC.

IN THE COURT OF APPEAL

1997, No. 81
(Civil)

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J U D G M E N T

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Mortimer, J.A.:

1. This is an appeal against a decision of Findlay J handed on 2 April 1997 in which he refused to continue a Mareva injunction against the defendant.

The background

2. On 23 December 1996 the plaintiff obtained judgment against the defendant for US$2,529,607.33. That was in the District Court in the Southern District of New York. The judgment was obtained in default of the defendant complying with an order to file a proper defence. The action related to an agreement to lease containers. The plaintiff's case was that a Mr Tang, who was said to be a vice general manager of the defendant, had signed the lease agreement.

3. Thereafter, the defendant, which is a company incorporated in mainland China, did nothing. The company has no assets in the United States. However, the plaintiff - wanting to enforce the judgment - then took proceedings in Hong Kong. The proceedings were taken to enforce that judgment and, of course, it was necessary in those circumstances to issue a writ. The writ was issued and on the same day, i.e. 18 February 1997, there was an application ex parte for a Mareva injunction which was granted. It was on the return day for the inter partes hearing that Findlay J made his decision to discharge the Mareva against which the plaintiff now appeals.

The judge's decision

4. Findlay J in what can only be described as a careful judgment found the matter difficult. It was clear that he found in the defendant's favour on matters which he considered to be in balance. His decision was expressed in this way:

"After considering all the circumstances, although I have some unhappiness with the defendant's case, on balance, I am left unsatisfied that there was, or is, a real risk that the defendant might dissipate its assets in order to frustrate the execution of any judgment obtained by the plaintiff. I do not think there are any concrete facts from which a prudent, sensible commercial man could properly infer a danger of default. Nor can I find, in spite of some uneasiness, that the plaintiff has established that there is any solid basis for a belief that the defendant has behaved badly in its commercial dealings with the plaintiff so that I am able to say that the defendant is not to be trusted."

That followed that the judge's careful review of the history of the proceedings - both in the United States and in Hong Kong - and the affidavits that have been put forward on both sides.

The appellant's case

5. Mr Faulkner SC, who appears for the plaintiff on the appeal, submits that the judge's exercise of his discretion was initially flawed because of this passage which appears early in his judgment when he was considering the manner in which the Mareva injunction had originally been obtained. The judge said:

"It is, of course, relevant to consider the domicile of a defendant in Mareva proceedings, but, in this case, any weight that might otherwise be given to the fact that the defendant is a foreigner is set to naught by the fact that the defendant is a foreigner with the backing of a foreign state."

Mr Faulkner submits that the judge in taking account of his view that the defendant was a foreigner with the backing of a foreign state was simply wrong. Indeed, it is clear in that submission, Mr Faulkner is right. It is accepted that the defendant and its subsidiaries are independent commercial entities. So, this is not a case where the defendant has behind it the backing of a sovereign state.

6. But that is not the nub of the submission. Because of the judge's error, he then left out of account in considering whether there was a real risk of dissipation, the fact that the defendant is domiciled out of the jurisdiction. That is nearly always an important factor. If a defendant is domiciled out of the jurisdiction, it is not possible to go against the defendant but only against the defendant's assets which may be within the jurisdiction. So it is in this particular case.

Conclusion

7. The assets which are known to the plaintiff against which execution might lie, if these proceedings in Hong Kong succeed, are the shares in two local companies. The consequence of the judge not taking into account this important factor in this evenly balanced matter is that the judge's discretion was flawed. It falls for this Court to exercise its own discretion in the matter and decide whether the plaintiff has demonstrated a real risk that the defendant will seek to dissipate those assets which are in the jurisdiction by transferring them to put them beyond the reach of execution.

Fresh exercise of discretion

8. The background is of importance. The defendant has taken little interest in the United States proceedings. The judgment was signed in default. In September 1996 the defendant was informed by the plaintiff's legal representatives that the judge would be prepared to entertain a motion for default unless the defendant took steps. It took none. When the judgment was signed in December 1996, it took no steps to have the default judgment set aside. That is in spite of the fact that the defendant says - since proceedings to enforce the United States' judgment have been brought here in Hong Kong - that it is the wrong defendant. Notwithstanding that Mr Tang - described as vice general manager of the defendant - signed an agreement on which the action in the States is based, and, he had produced a name card showing that was his position in the defendant's company. Thus the matter has remained in the States until recently.

9. Today Mr Graham, who appears for the defendant on this appeal, has given an undertaking on behalf of the defendant that proceedings will be taken in the States to seek to set aside that judgment and re-open proceedings. But what will happen is a matter of pure speculation. This Court must concentrate on the proceedings here. The same defence is put forward in these proceedings but is unlikely to avail the defendant here in Hong Kong. The judgment is likely to be enforced here in Hong Kong unless the defendant can show that it was obtained by fraud. Although there is a hint in the affidavits to that effect, it is not a matter, I believe, we can take serious note of in these proceedings. It is highly likely that the judgment will be enforced here in Hong Kong. Be that as it may, I now turn to consider what the defendant has done here.

10. The defendant says that it will take proceedings in the States but has not yet done so. It says that the judge's decision was correct. But looking at the whole of the appeal the following are the important matters. The defendant has no intention of satisfying the US judgment. It has taken no steps to set it aside. The judgment here is one that the plaintiff is likely to enforce because it cannot be said that it was obtained by fraud. The defendant is a commercial enterprise domiciled outside the jurisdiction. The assets are shares in two companies which are easily transferred or disposed of. The behaviour of the defendant in omitting to do anything about the US proceedings until there was an application to enforce the judgment in Hong Kong where it has assets , seems to me to be significant. For these reasons, I would hold that the plaintiff has made out a real risk of dissipation.

11. There is some further support for that in the evidence. Recently, the defendant had cash flow problems although it now says that it is a wealthy company pointing to assets out of the jurisdiction. But - as is agreed by all parties - those assets are not ones which are easily proceeded against.

Result

12. For those reasons I would allow the appeal, and would exercise discretion in the plaintiff's favour, having decided that the discretion exercised by the judge was flawed because he failed to take into account the fact that the defendant is domiciled outside the jurisdiction.

Barnett, J.:

An unfortunate error of fact by the judge eliminated a matter which it was important for him to consider in the exercise of his discretion. That error has allowed us to look at this matter afresh. For the reasons which have been given by Mortimer J.A., I agree that a real risk of dissipation has been shown and that the appeal should be allowed.

13. I would like, however, to add this. I would disagree with the criticism of the judge that, after he had detailed and commented on a number of other factors militating against the Defendant, he did not go on expressly to consider various inferences that might be drawn from those factors.

14. It is clear, however, from his judgment that the judge had all these factors in mind. He was very seriously troubled by them but, in the end, he was not sufficiently troubled so as to find that a real risk had been established by the Plaintiff. I do not consider that the judge in those circumstances could be expected to go further. Had matter rested there, I would not have been disposed to allow the appeal.

Nazareth, V.-P.:

I also agree with Mortimer JA and would add specifically that I do not see how the reference to "the backing of a foreign state" can be regarded as other than a material misdirection. Plainly, it is used to neutralise a potentially important factor in the granting of Mareva orders. In my view, that is sufficient to vitiate the exercise of the judge's discretion, which thus falls to be exercised by this Court.

15. Having regard to the factors mentioned by Mortimer JA, in particular that the defendant has not taken action to set aside the judgment obtained in the United States where significantly it has no assets, but has taken action in this jurisdiction since the plaintiff began to take steps against its assets here, these, it seems to me to point to a real risk that the assets may be dissipated.

16. Accordingly, the appeal is allowed. We will hear counsel as to the precise orders that should be made.