UNA TRADING FZE v. HONG KONG NUMISMATIC PROMOTION CO. LTD AND OTHERS

HCA 1048/2018

[2019] HKCFI 1509

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1048 OF 2018

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D E C I S I O N

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INTRODUCTION

1.  By a summons filed on 7 March 2019 (“the summons”), the 1^st defendant applies for an order to discharge the Mareva injunction granted against the 1^st defendant by Anthony Chan J on 7 May 2018 and continued by Lok J on 11 May 2018 (“the D1 Injunction”) for HK$16,777,016.99 (“the HK$16.7 million”).  The 1^st defendant also seeks costs of the summons.

2.  As explained below, the real dispute between the plaintiff and the 1^st defendant now is not whether the D1 Injunction should be discharged, but who should bear the costs of the summons.

THE FACTS

3.  On 27 April 2018, the plaintiff obtained a Mareva injunction in HCA 966/2018 against 4 companies, one of which is Mega Wealth Chance Limited (“Mega Wealth”).  The plaintiff claimed that it had been fraudulently misled to transfer money to the 4 companies.  The plaintiff also found out that Mega Wealth had transferred, out of the sum mistakenly remitted by the plaintiff, HK$17,353,441.34 to the 1^st defendant herein.

4.  The plaintiff then commenced these proceedings against the 1^st defendant[1].  On 7 May 2018, the plaintiff obtained the D1 Injunction in an ex parte application heard by Anthony Chan J.  On 11 May 2018, the D1 Injunction was continued by Lok J in an inter partes hearing.  The 1^st defendant was not present in these hearings.

5.  On 15 May 2018, the 1^st defendant’s solicitors (“ITC”) wrote to the solicitors then acting for the plaintiff and offered an explanation.  The 1^st defendant claimed that it was designated as the recipient of the price of expensive watches sold by the 3^rd defendant to Mega Wealth.  The 3^rd defendant owned a watch and jewellery business known as Happy Wise Watch & Jewellery Company (“Happy Wise”).  Its sole shareholder was the 2^nd defendant.  The 2^nd defendant was also the shareholder and director of the 1^st defendant.

6.  After the transferred sum came into the 1^st defendant’s possession, the 2^nd defendant transferred sums totalling HK$13,200,000 to the 3^rd defendant and withdrew cash of HK$4,000,000.  It is claimed that the transfers and the cash withdrawal are for the business purpose of Happy Wise.

7.  On 27 July 2018, the plaintiff brought the 2^nd and the 3^rd defendants (who are also represented by ITC in these proceedings) into this action.  On 3 August 2018, the plaintiff obtained an injunction from Lisa Wong J freezing the 2^nd and the 3^rd defendants’ respective assets in the said sums of HK$4,000,000 and HK$13,200,000 (“the D2 and D3 Injunction”).  On 7 August 2018, the 2^nd and the 3^rd defendants paid HK$17,200,000 into court (“the Payment”) and the D2 and D3 Injunction was discharged.

8.  On 29 January 2019, ITC wrote to the plaintiff’s solicitors (“Haldanes”) and invited the plaintiff to consent to the discharge of the D1 Injunction.  In that letter, ITC said[2]:

“This letter concerns the injunction obtained against the 1^st Defendant which was granted ex parte by Anthony Chan J and continued by Lok J (‘the Injunction’).

Under the Injunction, the 1^st Defendant’s assets were frozen up to the value of HK$16,777,016.99. (We note however that the value which your client sought to restrain before Anthony Chan J, on the face of the ex parte summons, was HK$17,353,441.34.) The Injunction provides for cessation of its effect if the 1^st Defendant paid the restrained sum into court or made provision for security in that sum.

The 2^nd and 3^rd Defendants have subsequently, when facing another injunction granted by Lisa Wong J, paid into Court a sum of HK$17.2M, so as to bring about the cessation of effect of that injunction.

The 2^nd Defendant practically owns the 3^rd Defendant and he is willing to use the said payment into Court to secure the Plaintiff’s interest in the Injunction vis-à-vis the 1^st Defendant.

In this action, your client’s claim against all 3 Defendants only amounts to HK$17,353,441.34. It cannot possibly obtain judgment more than that sum in total against any or any combination of the Defendants.

We write to ask your client’s consent for formal discharge of the Injunction so that a substantive application to Court and the associated costs can be avoided.

We look forward to hearing from you before the close of business this Friday. If your client is not minded to give consent, please let us know why the Injunction only served to freeze assets up to HK$16,777,016.99.

Our clients’ rights are reserved.”

9.  On 1 February 2019, Haldanes replied and said that they were taking instructions and would give a substantive reply within 14 days.

10.  On 13 February 2019, Haldanes replied and said[3]:

“We refer to your letter of 29^th January 2019.

We refer to the reliefs claimed by our client in the Statement of Claim as amended on 27^th July 2018. Our client claims against the Defendants, inter alia, for an order for the return of HK$17,353,441.34, HK$4,000,000 and HK$13,200,000 by the 1^st, 2^nd and 3^rd Defendants respectively.

We acknowledge that the 1^st Defendant is subject to an injunction order granted by Anthony Chan J on 7^th May 2018 which was subsequently continued by Lok J. We also acknowledge that the 2^nd and 3^rd Defendants were subject to an injunction order granted by Lisa Wong J dated 3^rd August 2018 which was discharged by the 2^nd and 3^rd Defendants upon payment into Court of HK$17.2M.

In paragraph 4 of your letter, you state that ‘the 2^nd Defendant practically owns the 3^rd Defendant and he is willing to use the said payment into Court [of HK$17.2M] to secure the Plaintiff’s interest in the Injunction vis-à-vis the 1^st Defendant.’

We fail to see how the use of the HK$17.2M (as paid into Curt by the 2^nd and 3^rd Defendants) in the manner proposed would secure our client’s interest against the 1^st Defendant without compromising our client’s interest against the 2^nd and 3^rd Defendants at the same time. We would welcome some clarification on this issue prior to considering your proposal.

In the meantime, all our client’s rights are expressly reserved.”

11.  On 18 February 2019, ITC wrote back and said that the 1^st defendant would take the necessary steps to protect its own rights.

12.  On 7 March 2019, the 1^st defendant filed the summons and an affirmation in support of the summons[4].

13.  On 12 March 2019, Haldanes wrote to ITC and said that the affirmation in support of the summons had not addressed how the payment would secure the plaintiff’s interest against the 1^st defendant.  Haldanes further said that the plaintiff was opposing the summons.

14.  No affirmation in opposition has ever been filed by the plaintiff.

15.  On 3 June 2019 (just 7 days before this hearing), Haldanes wrote to ITC and said[5]:

“We wish to put on record that, in our letter to you dated 13 February 2019 in response to your letter dated 29 January 2019, we asked for ‘some clarification’ prior to considering your proposal for a discharge of the Order. But in your letter in reply to us dated 18 February 2019, not only did you not attempt to proffer any clarification whatsoever but proceeded to take out the Summons without further notice. It is therefore inaccurate and frankly disingenuous of your client, the 2^nd Defendant, to have deposed at § 7 of his Affirmation dated 6 March 2019 that we ‘opposed’ your proposal and had acted unreasonably by doing so.

Be that as it may, we believed and continue to believe that your proposal would not secure our client’s interest against the 1^st Defendant without compromising our client’s interest against the 2^nd and 3^rd Defendants at the same time. However, in light of the 2^nd and 3^rd Defendants having made payment into court of HK$17,200,000 on 7 August 2018 and purely for the sake of saving time and costs, we are not in principle opposed to the idea of varying the Order subject to the 2^nd and the 3^rd Defendants, who are also your clients, giving an undertaking in the following terms:

“This Order shall cease to have effect with respect to the 1^st Defendant upon the undertaking of the 2^nd and 3^rd Defendants that the amount of HK$17,200,000 (paid into Court by 2^nd and 3^rd Defendants on 7 August 2018) stand as security for the Plaintiff’s claim against the 1^st, 2^nd and / or 3^rd Defendants jointly and / or severally until trial or further order.”

Please let us have your response to our above proposal by close of business on 5^th June 2019 so that the parties may make a joint application for an order by consent that the Order be varied in terms.

In the meantime, all our client’s rights are expressly reserved.”

16.  On 4 June 2019, ITC replied and said[6]:

“Our client, the 1^st Defendant, has done what it has to do as a reasonable litigant before issuing the summons due for substantive hearing next Monday. We also note that up to last Friday, your client was still chasing for the draft index to the hearing bundle. Our counsel has to prepare the submissions for the hearing. All this means that your client’s offer to dispose of the summons comes very very late indeed to avoid the costs of the substantive hearing. That said, we are prepared to withhold the brief to counsel until the close of business today if your client agrees to an order in terms of paragraph 1 of the summons with costs of and occasioned by the summons to our client down to today.

We note your client’s request for an undertaking from the 2^nd and 3^rd Defendants (which are stated in italics in your letter). They have indicated before that they have no problem giving it. In any event the payment into Court made by them would cover the 1^st Defendant’s position vis-à-vis your client given the nature of the defence of these 3 Defendants. On their behalf, we agree to such undertaking, though it should not be viewed that any of the Defendants are obliged to give it to your client.

If we do not hear from your client before 4:30 pm today, we will take that the hearing of the summons cannot be avoided.”

17.  Subsequently, Haldanes proposed that costs of the summons be costs in the cause as a compromise.  The proposal was not accepted by ITC.

18.  As revealed in the correspondence, the real dispute between the plaintiff and the 1^st defendant now is the costs of the summons.

DISCUSSION

19.  Mr Albert Yau, counsel for the 1^st defendant, has made a short and succinct submission.  I agree with Mr Yau.  In my view, this is a simple and straightforward matter.  The plaintiff has no valid reason not to accept the offer made by ITC in their letter dated 29 January 2019.

(1)  The plaintiff is claiming HK$17,353,441.34, HK$4,000,000 and HK$13,200,000 against the 1^st, the 2^nd and the 3^rd defendants respectively.  However, according to the plaintiff’s case, all the sums received by the 2^nd and the 3^rd defendants are from the sum wrongfully received by the 1^st defendant from the plaintiff.  That being the case, even if the plaintiff entirely succeeds in the trial, the total of the principal sums which can be ordered against all the 3 defendants would not be more than HK$17,353,441.34.

(2)  The amount frozen by the D1 Injunction is the HK$16.7 million, which is slightly less than the amount claimed by the plaintiff against the 1^st defendant.  As to why the court set this amount in the D1 Injunction, the 1^st defendant does not know since it was not present in the hearing before Anthony Chan J and in the hearing before Lok J.  ITC has asked for the answer on this question in their letter dated 29 January 2019, but no answer has been given by Haldanes.  Be that as it may, it is clear that the court has taken the view that the amount being frozen by D1 Injunction should be the HK$16.7 million, no more and no less.  The plaintiff’s interest in the D1 Injunction is the HK$16.7 million.

(3)  In ITC’s letter dated 29 January 2019, it has been conveyed to the plaintiff that the 2^nd defendant and the 3^rd defendant are willing to use the Payment to secure the plaintiff’s interest in the D1 Injunction.

(4)  The Payment is greater than the sum frozen by the D1 Injunction.  In these circumstances, the plaintiff’s interest under the D1 Injunction is fully protected.

20.  Mr Thomas Lee (together with Mr Justin Ismail) submits that the 1^st defendant has acted unreasonably by reason of the following:

(1)  The 1^st defendant did not provide clarification on how its proposal would secure the plaintiff’s interest against the 1^st defendant without comprising the plaintiff’s interest against the 2^nd and the 3^rd defendants at the same time.

(2)  The 1^st defendant did not act reasonably in the negotiation.

(3)  The 1^st defendant’s overall conduct in the run-up to this application is confrontational and uncompromising.

With respect, I am unable to accept these submissions.

21.  The plaintiff’s case is that all the funds received by the 2^nd defendant and the 3^rd defendant are from the sum wrongfully received by the 1^st defendant from the plaintiff.  That being the case, if the plaintiff can successfully recover HK$17,200,000 from the 2^nd and the 3^rd defendants, the plaintiff would have no ground to demand the 1^st defendant to pay the HK$16.7 million secured by the D1 Injunction to the plaintiff.  Conversely, if the plaintiff fails in its claim against the 2^nd and the 3^rd defendants but succeeds in its claim against the 1^st defendant, the plaintiff would be entitled to realize the interest secured by the D1 Injunction, which is the HK$16.7 million.  In my view, that interest is sufficiently protected by the offer made by the 2^nd and the 3^rd defendant in ITC’s letter dated 29 January 2019.  In that letter, ITC has on behalf on the 2^nd and the 3^rd defendants unambiguously said that these 2 defendants are willing to use the Payment to secure the plaintiff’s interest in the D1 Injunction.  There is no need for Haldanes to seek any clarification.

22.  Having carefully considered the correspondence passing between ITC and Haldanes, I am of the view that there can be no valid criticism against the 1^st defendant’s conduct in the negotiation.  With respect, no legitimate concern has been raised in Haldanes’ letters.  As said before, the meaning of ITC’s letter dated 29 January 2019 is clear and unambiguous.  There is no need for Haldanes to seek any clarification.  The proposal therein is a reasonable proposal.  If Haldanes merely want the 2^nd and the 3^rd defendants to express their offer made in ITC’s letter dated 29 January 2019 in the form of an undertaking, Haldanes can certainly put forward their suggestion and the parties can have further discussion on this.   Unfortunately, Haldanes only raised the undertaking issue in their letter dated 3 June 2019, just 7 days before the substantive hearing of the summons.  ITC immediately replied on the next day that the 2^nd and the 3^rd defendants had no problem in giving the undertaking requested.

23.  I take the view that this application is occasioned by the unreasonable attitude of Haldanes.  Costs of the summons should be borne by the plaintiff.  Since the 1^st defendant is asking for costs in any event in the summons, I would so order.

DISPOSITION

24.  Upon the undertaking given by the 2^nd and the 3^rd defendants that the Payment stands as security for the plaintiff’s claim against the 1^st, the 2^nd and/or the 3^rd defendants jointly and/or severally until trial or further order, I order that the D1 Injunction be discharged.  I order that costs of and occasioned by the summons be paid by the plaintiff to the 1^st defendant in any event.

25.  I thank counsel for the assistance provided to the court.