L.J. SMITH, INC. v. CHANCELLOR PRECIOUS METALS (VU) LTD AND ANOTHER

HCA 1767/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1767 OF 2014

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1.  There are two companies with the identical name Chancellor Precious Metals (VU) Limited. One is incorporated in Hong Kong with company number 1996084 and the other was incorporated in Vanuatu in the South Pacific with company number 37689 on 14 December 2011. The identical naming has the potential for confusion whether done deliberately or not.

2.  The first, the Hong Kong company was the 1^st defendant in an action brought by the plaintiff, L.J.Smith, Inc.  The plaintiff obtained an ex parte injunction against the then 1^st defendant. The 2^nd defendant is the sole director and a shareholder of the 1^st defendant. 

3.  The basis for the Mareva injunction granted on 15 September 2014 and continued inter partes on 19 September 2014, was the fraudulent use of a false e‑mail account to cause the plaintiff to remit sums totalling US$280,199.80 in August 2014 to an HSBC account believed to be in the name of the then 1^st defendant, the Hong Kong company.  This company was deregistered on 30 May 2014 over two months before the payments were made.

4.  The injunction granted included the said HSBC account no 499‑746626‑838.  At the time of the transfer of the sums to this account, effected by the fraudulent devices, the 1^st defendant was believed to have an address in Hong Kong at 20, Queen’s Road, Central.  The company search confirmed the name of the defendant company in Hong Kong.  The plaintiff’s proceedings were therefore on the face of it properly constituted.

5.  In an affirmation dated 19 September 2014 the 2^nd defendant (being the director and shareholder of the original 1^st defendant, the Hong Kong company) confirmed that the Vanuatu company of the same name is in fact also his vehicle.

6.  In paragraph 4 of that affirmation he states, on oath that he deregistered the Hong Kong company as a “business decision” and had incorporated the company of the same name in Vanuatu.  Moreover he says that the money in the HSBC account “stays there” and he “has no direct interest in it”.  It is difficult to know what he means by that last clause unless it be an acknowledgement that neither he nor his company (ie the current 1^st defendant) has any claim upon it.

7.  He went on to say that “the 1^st Defendant is not the right party to be sued since it is [no longer] the holder at the HSBC of that account” and has no account at the HSBC.

8.  On the basis of this information the plaintiff applied to substitute the new 1^st defendant (the Vanuatu company) for the Hong Kong company.  Such a decision and the procedure instituted to achieve that, was appropriate and straightforward. 

9.  On 24 October 2014, Master Hui made an order in accordance with the plaintiff’s summons which was issued on 13 October 2014.  That was an entirely proper decision under Order 15, rule 6.  At that hearing the 2^nd defendant, no doubt as director of the proposed new 1^st defendant, opposed the application.  It is difficult to discern any logic in that.  The 2^nd defendant provided the information which made that course necessary.  Common sense dictated that the plaintiff’s application ought to have been unopposed.  It was an example of wasted costs and time, not the first example in this litigation, Louis Chan J having had to penalise the defendants earlier this month (7 November 2014).

10.  The new 1^st defendant and the 2^nd defendant now appeal against Master Hui’s decision.  In a long written skeleton argument, counsel for the defendants has set out much material which is not directly relevant to this appeal.

11.  The basis of the learned master’s decision is unarguably correct.  The new 1^st defendant (the Vanuatu company) took over the HSBC account formerly held by the original 1^st defendant or has always held that account.  That is the account subject to the injunction granted originally by Le Pichon J on 10 September 2014.

12.  The 2^nd defendant has on several occasions stated that he controlled the original 1^st defendant, the Hong Kong company, deregistered that company, formed the new 1^st defendant company, a Vanuatu company, with identical title, and controls that as director and shareholder.  That company, through him, opened the HSBC account.  That is the end of the matter on the question of the substitution of the defendant.

13.  He further stated on oath as I have set out earlier that the money in the HSBC account stays there and he has no direct interest in it.  He was however the sole signatory on that account when it was operated either by the Hong Kong company or the Vanuatu company and remains so while the new (Vanuatu) defendant operates it.

14.  In the affirmation sworn on 19 September 2014 he said, “I am willing and able to pay or transfer the sum into Court or to dispose of the same in such manner as the Court may direct.”He has not done so.

15.  In his 3^rd Affirmation sworn on 12 November 2014 he said, “It is true that I have control of the 1^st defendant and Vanutatu (sic) company.”

16.  The other contention on its behalf is that there was no application under Order 11, rule 1 for leave to serve the substituted defendant (the Vanuatu company) out of the jurisdiction.

17.  This too is misconceived.  Although a foreign company incorporated outside Hong Kong, it has an address within Hong Kong at which service can properly be effected.  The current 1^st defendant (the Vanuatu company) has as its business and correspondence address on the Certificate of Incumbency, Room 2104, 21^st Floor, Infinitus Plaza, 199, Des Voeux Road Central, Hong Kong.  That is dated 5 April 2013.  The 2^nd defendant is identified as the only director.

18.  The HSBC Business Integrated Account Opening Form for the Vanuatu company (37689) records the Head Office as being in Hong Kong and the Business Address as 2104, 21^st Floor, Infinitus Plaza, 199, Des Voeux Road, Central, Hong Kong, ie as on the Certificate of Incumbency.  The authorised user of the account is the 2^nd defendant. He is the only signatory.  The number of the account is 499‑746626‑838.  This is the account into which the money, the subject of this action was, through fraud, paid.

19.  The Vanuatu company (the new 1^st defendant) has not been registered in Hong Kong.  But as set out above it has established a place of business in Hong Kong.  Its head office is stated by the 2^nd defendant who operates its HSBC bank account in Hong Kong, as being in Hong Kong.  Section 803(5)(a) of the Companies Ordinance provides that any process or notice to be served on a non‑Hong Kong company which has a place of business in Hong Kong is sufficiently served if left at, or sent by post to the place of business. That has been done.  It would not be appropriate or necessary to seek leave under Order 11, rule 1.

20.  Mr George Chu has sought to argue that reliance cannot be placed upon the Certificate of Incumbency or the HSBC account opening form in relation to the business address/head office disclosed on them.  There is no evidence that these documents have been updated.  Although he sought leave to file a further affirmation I declined to allow this.  It is far too late and I am extremely sceptical about the 2^nd defendant’s credibility.  There is no substance in this additional point.

21.  As a matter of practical good sense the solicitors for the 2^nd defendant could and should have accepted service on behalf of the new 1^st defendant. By not doing so, time and cost have been wasted again.  This appeal is dismissed with costs.  I was asked to make a summary assessment of these costs and Mr Chu for the defendants raised points of objection in relation to certain aspects.  I took all these into account in assessing them at HK$125,000.  I adopted the indemnity basis.  These costs were to be paid forthwith.

22.  After I had concluded this exercise Mr Chu said in effect, he opposed summary assessment and wanted an order for formal taxation.  Under Order 62, rule 9A(1) and (2), a party can always raise objections in respect of a summary assessment on final taxation of the action which, if successful, can be reflected in an adjustment to the final figure.  Accordingly my summary assessment stands.

23.  Although I dismissed the appeal I thought it appropriate to look again at Master Hui’s order as to costs of the defendants’ application and hearing before him, as the appeal is in effect a rehearing.  I decided that I would vary the costs order he made in favour of the defendants to one of no order as to costs.  I have done this because I consider that such a variation reflected the merits of the case which have been ventilated in great detail before me and I have had the benefit of seeing the broader picture.  I have also had more time to consider the papers together with material which has appeared since the master’s decision.  It is in no way to be seen as a correction of the learned master’s approach.

24.  Mr Chu for the defendants objected to my approach on the basis that the plaintiff had not filed a cross‑appeal notice.  However Mr Kim, in his skeleton argument had given due notice that he would raise this point and that is sufficient in any event, quite apart from the court’s powers on a rehearing.