TAMCO ELECTRICAL & ELECTRONICS (HONG KONG) LTD. v. STEPHEN NG CHUN FAI AND OTHERS

IN THE COURT OF APPEAL

1993, No 132
(Civil)

________________

________________

J U D G M E N T

________________

Mortimer, J.A.:

1. At the hearing this appeal was allowed in part. We now give reasons.

The 1st defendant appeals against a decision of Kaplan J. in which he dismissed an application to discharge a Mareva injunction but allowed a variation.

The History

2. The 1st defendant was the plaintiff's manager in Hong Kong. He was dismissed for misconduct of the plaintiff's affairs on 27th August 1992. On 9th October 1992 Ryan J. granted the plaintiff an ex parte Mareva injunction for an unlimited sum and an Anton Pillar order. On the return day, the 20th October 1992, Saied J. continued the Mareva injunction without variation.

3. Initially, the 1st defendant appealed against the Anton Pillar Order only. On 30th April 1993 another division of this Court allowed the appeal and discharged the order saying that it never should have been granted. The 1st defendant then applied to discharge or vary the Mareva injunction before Kaplan J. on 20th July, who varied the order to restrict the unlimited amount to $2m but dismissed the application for its discharge. His order is now challenged in this appeal.

The Plaintiff's Claim

4. The plaintiff's claim can be summarised under four main headings:

(1) For stock loss through negligence;

(2) For loss of interest in the granting of unauthorised and concealed credit to three companies alleged to be connected with the defendant;

(3) For loss of profit for selling goods to those connected companies at less than market price (and in some cases repurchasing for a higher price);

(4) For making a payment to one of the connected companies for $300,000 on a forged invoice for work not done (the Ryoden claim).

5. There is a further claim for false accounting for $32,000 which is not seriously disputed at this stage

Kaplan J's Decision

6. As was incumbent upon him the judge considered in each claim whether the plaintiff had established a good arguable case and secondly, whether the evidence disclosed a real risk of dissipation of assets which could leave the plaintiff with a fruitless judgment.

7. The first claim for stock loss - now amounting to $589,000 - was not taken into account by the judge. This is unchallenged and not in issue here.

8. Mr Chain for the 1st defendant accepted both then and now that there is a good arguable case on the Ryoden claim for $300,000 and for $32,000 on a false accounting claim.

9. Following argument the judge found a good arguable case on the loss of interest claim ($677,676) and also on the loss of margin claim (over $1m).

10. On the evidence 'in the round' he found a real risk of dissipation.

The Issues

11. The following issues are for our determination:

(1) Whether the judge was plainly wrong in finding a good arguable case on

(a) the loss of interest claim, and

(b) the loss of margin claim;

(2) Whether he was plainly wrong in finding a real risk of dissipation.

The Claim for Loss of Interest

12. The plaintiff's terms of trade provided for 60 days credit. The evidence is that the 1st defendant granted extended credit to the other defendants, alleged to be related to him so that he was acting not in his employer's interest but in his own, causing loss quantified as loss of interest on the money.

13. The 1st defendant was running the business and the way in which credit was extended was to accept cheques but delay paying them into the bank account. This was concealed from head-office in Singapore. Although the person in charge of the accounts has been unwilling to make an affidavit he said, during an investigation, that the 1st defendant dealt with the other defendants personally and was responsible for the way in which the cheques were dealt with and accounted for.

14. An arguable case that the 1st defendant had the relationship with the other defendants is made out on evidence which can be summarised as follows:

(a) Gainway is the tradename of Ada Cheung.

(b) Ada Cheung and Billy Lam (D1's brother-in-law) are both directors and shareholders of Gainway Electrical Supplies Ltd.

(c) Billy Lam is a director and shareholder of Fook Tai.

(d) Fook Tai and Ming Wai are contactable by the 1st defendant but otherwise not available at the address given on their invoices.

(e) Hung Lik (the warehousing firm charged by the 1st defendant with storing and controlling the plaintiff's stock) operates from premises owned by Ada Cheung.

(f) Gainway, Fook Tai and Ming Wai are all customers of the same (small) bank.

(g) During the plaintiff's investigation, the 1st defendant offered to settle the debts of Gainway, Fook Tai and Ming Wai to the plaintiff if they defaulted.

(h) When asked during the investigation whether he was involved in the running of Gainway, Fook Tai or Ming Wai he made no reply.

(I) In the Ryoden transaction the 1st defendant procured the plaintiff to give Ming Wai a credit of $300,000 for work Ming Wai had not done supported by a forged invoice.

15. This coupled with evidence of the normal terms of trade and the way in which credit was extended to the related parties and dealt with in the accounts was clear evidence upon which it was open to the judge to find - as he did - that there is an arguable case on this claim for $677,676. His decision was plainly right and cannot be disturbed.

The Loss of Margin Claim

16. The plaintiff's allegation is that the 1st defendant sold goods to the other defendants (related companies) at considerably less than the market price. The claim is for the difference between the market price and the actual price. Mr Chain submits that there was no evidence upon which the judge could find that there was a good arguable case and that there is no such evidence before this Court either.

17. There is no evidence of the market price at the relevant times. Mr Scott for the plaintiffs relies upon exhibited invoices which demonstrate in some instances a marked difference between the prices charged to the related companies compared with those charged to others at about the same time. From these few transactions appearing in the documents without further explanation he invites the Court to accept that it was open to the judge to infer a good arguable case. However, Mr Chain submits - rightly in our view - that without evidence of the ruling market price the examples are too few and too inconclusive to form a basis for the judge's decision. Further, he rightly points out that one of these transactions is reflected in the claim for $32,000 already accepted as arguable by the 1st defendant and taken into account elsewhere.

18. There was no evidence before the judge to support his decision that there was an arguable case on this claim amounting to just over $1m. The judge's decision is plainly flawed in this respect.

Risk of Dissipation

19. The Mareva injunction allowed the 1st defendant $8,000 a week for living expense in spite of which he followed a lavish lifestyle and the maintenance of a number of race horses in Macau. This, he explained, he was able to do because of his success in gambling. He put his bank passbooks into evidence showing substantial sums coming in and going out from the Jockey Club. As can be seen, these sums came into that account and went out again within a very short time. They include one of $1.5m. The judge looked at the evidence "in the round" including the gambling and other transactions complained of and came to the conclusion that there was a real risk of dissipation.

20. Mr Chain submits that the judge was wrong to rely upon the gambling. He says that the plaintiff must take the defendant as he finds him and if a defendant has enjoyed a lavish lifestyle before as well as after the beginning of proceedings, or has been a heavy gambler before and after, these are not matters which establish a risk of dissipation. With respect we disagree. The speed with which these large sums have been credited to and then removed from the account produced is evidence of a risk of dissipation to be put into the scales. Bearing this in mind, together with all the other evidence of the 1st defendant's dealings when running the plaintiff's business, a real risk of dissipation was demonstrated. There was abundant evidence upon which it was open to the judge to reach this conclusion following, as he did, the approach of this Court in Hansaico Trading Ltd v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235.

Conclusion

21. The original Mareva injunction was unlimited in amount. Whereas the Court has power to make such an order it will only be made in wholly exceptional circumstances. There were never such circumstances in this case. The judge rightly varied the order to specify the amount. On his findings he thought $2m was appropriate. But as we have indicated there was no evidence upon which it was open to him to find a good arguable case on the $1m claim for loss of margin (profit). In other respects the judge's decision was flawless.

22. We therefore allowed the appeal against the judge's findings on part of the claim. We gave effect to this by varying the injunction so that the relevant part of para.1 should read:

"so as not to reduce such assets below the figure of $1m".

We order nisi that there shall be no order for costs on this appeal.