GRANDVIEW INDUSTRIES CO LTD v. LEUNG YIU KEI t/a AGFA MANUFACTURING CO

HCA 1617/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1617 OF 2011

-------------------------------

BETWEEN

---------------------------------------------------------

REASONS FOR DECISION

---------------------------------------------------------

1.  On 30 August 2012, I granted a Mareva injunction applied for by the plaintiff. The following are my reasons.

2.  The plaintiff’s application was originally made by summons dated 21 June 2012 (“the Summons”). Under paragraph 1 of the Summons, the plaintiff sought an injunction to restrain the defendant from disposing of his 50% entitlement of the proceeds of the sale of the property known as Unit A, 15^th Floor, Yee Wah Industrial Building, 18 San On Street, Tuen Mun, New Territories, Hong Kong (“the Property”).  The Property is owned by the defendant and his younger brother in equal shares as tenants in common.

3.  On the first return date of the summons on 29 June 2012, Deputy High Court Judge Au‑Yeung adjourned the hearing of the summons to a date to be fixed for argument and gave directions for filing of evidence upon the defendant’s undertaking to place half share of the net proceeds of the sale of the Property into an interest-bearing account of the defendant’s solicitors, which shall not be released without the Order of the Court.

4.  The original application under the Summons was triggered by the plaintiff’s discovery that the defendant and his brother had entered into a preliminary sale and purchase agreement dated 1 June 2012 to dispose of the Property at a price of HK$3,400,000. However, on 20 August 2012, the defendant caused to be filed a 2^nd Affirmation of Lam Chi Kwong which showed that the proposed sale of the Property had fallen through.  Accordingly, by summons dated 21 August 2012, the plaintiff applied to amend paragraph 1 of the Summons (which sets out the terms of the injunction sought) by the addition of the words “(if and when such sale materialises)” at the end of the paragraph.   At the hearing on 30 August 2012, Mr Ronald Tang (“Mr Tang”), who appeared on behalf of the defendant, indicated that he did not oppose the application to amend.  I duly gave leave to the plaintiff to amend the Summons in the manner proposed.

Relevant principles relating to the grant of Mareva injunctions

5.  It is well-established that to obtain a Mareva injunction a plaintiff has to show:

(a)  that he has a good arguable case on a substantive claim over which the court has jurisdiction;

(b)  that there are assets within the jurisdiction;

(c)  that the balance of convenience is in favour of grant; and

(d)  that there is a real risk of dissipation of assets or removal of assets from the jurisdiction which would render the plaintiff’s judgment of no effect.

6.  With regard to the requirement to show a real risk of dissipation of assets, it is now well established that it is not necessary for the plaintiff to show subjective intent on the part of the defendant to dissipate the assets for the purposes of defeating any judgment.   Instead, the applicable test is that formulated by the English Court of Appeal in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschoft GmbH (The Niedersachen) [1983] 1 WLR 1412 at 1422 as follows:

“…. whether, on the assumption that the plaintiffs have shown ‘a good arguable case’, the Court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied.”

The test is accordingly an objective one of assessment of the risk that a judgment may not be satisfied.  There is no requirement to prove nefarious intent: see Lam Sik Ying, administrator for the Estate of Lam Tim alias Stan Lam Tim, deceased v Lam Sik Shi & Another, HCA 4713/2001, unreported, Mr Recorder Benjamin Yu, SC, 14 January 2011 at para.11 and Gee, Commercial Injunctions, 5^th Edn, 2004, para.12.032-12.033.

7.  Although Mr Tang had cited and relied upon the statement of principles set out in the judgment of Deputy High Court Judge Winnie Tam, SC in Eastman Chemical Ltd v Heyro Chemical Company Ltd (No 2) [2012] 3 HKLRD 307 at para.26 in which the learned judge had stated that one of the applicable principles was that “The dissipation of assets must be shown to be with an intention or for the purpose of defeating the plaintiff’s claim, or otherwise “improper.”, he very fairly accepted that the proper test is the objective test as set out in the previous paragraph.  With the greatest respect to the learned judge, I am of the view that on the present state of the authorities, it is not the law that in order to succeed on an application for a Mareva injunction, the plaintiff needs to show dissipation of assets with an intention or for the purpose of defeating the plaintiff’s claim.

Good arguable case

8.  The plaintiff’s claim against the defendant is for the sum of HK$4,498,000 being the liquidated damages suffered by the plaintiff as a result of the defendant’s breach of an agreement between the plaintiff and the defendant to return moulds which the plaintiff had caused to be provided to the defendant for the purposes of manufacturing certain products for the plaintiff.  In his affirmation made in support of the present application, Mr Yuen Kai Lun (“Mr Yuen”), a director of the plaintiff, referred to the plaintiff’s Statement of Claim and confirmed that the contents thereof are true and accurate.

9.  Mr Tang argued that the plaintiff had not, in its Statement of Claim, provided particulars of the types, quantities, cost of manufacture or value of the moulds allegedly detained by the defendant, nor how the limited amount of damages of HK$4,498,000 was arrived at, or why such damages were said to be “liquidated”. He further pointed out that the defendant had, in his Defence and Counterclaim, pleaded that the claim for HK$4,498,000 is not reasonable and also that he has a counterclaim of over HK$13,000,000.

10.  However, as pointed out by Mr Billy N P Ma (“Mr Ma”), who appears for the plaintiff, despite having caused to be filed 3 affirmations in opposition to the plaintiff’s application, the defendant has not in the affirmation evidence filed on his behalf refuted or challenged the merits of the plaintiff’s claim against him nor indeed has he verified or put forward any evidence in support of his alleged counterclaim.

11.  In the circumstances, I am of the view that the plaintiff has shown that it has a good arguable claim against the defendant.

Risk of dissipation

12.  It is not in dispute between the parties that by a preliminary or provisional sale and purchase agreement dated 1 June 2012, the defendant and his brother had agreed to sell the Property to the existing tenant of part of the Property for the sum of HK$3,400,000.  It is also not in dispute between the parties that the completion of the sale and purchase was to take place on 20 July 2012.  Further, it is also common ground between the parties that the plaintiff had learned about the proposed sale of the Property from a Ms Yip who was employed by both the plaintiff and the defendant.

13.  There is substantial dispute between the parties as to what Ms Yip may or may not have said to the plaintiff in telling the plaintiff about the proposed sale of the Property. However, whatever Ms Yip may or may not have said, on the defendant’s own evidence as set out in the affirmation of the defendant’s brother, Mr Liang Yaoqiang:

(a) The defendant and Mr Liang Yaoqiang had instructed the solicitors handling the proposed sale to release the entirety of the proceeds of the sale of the Property to, and in the sole name of, Mr Liang Yaoqiang.

(b) The defendant’s half share of the proceeds of the sale would be lent to Mr Liang Yaoqiang as Mr Liang Yaoqiang and his family allegedly really needed money and Mr Liang Yaoqiang wanted to start a business of his own.

(c) Mr Liang Yaoqiang is a mainland Chinese citizen and resides in mainland China.

14.  Further, in the 1^st Affirmation of Mr Yuen filed in support of the plaintiff’s application, Mr Yuen has stated that to the best of his knowledge, the defendant does not have any other valuable assets in Hong Kong other than his 50% interest in the Property.  The defendant has not disputed this in any of the affirmations filed in opposition to the plaintiff’s application.  Nor has he provided any evidence that he has any other assets in Hong Kong other than his share of the Property.  Indeed, the defendant has not himself made any affirmation at all.

15.  Mr Ma has also pointed to various facts and evidence which he submits support an inference that the defendant was deliberately taking steps to dissipate his assets in a secret manner.  These include various features of the manner in which the proposed sale of the Property was and was to be effected which Mr Ma submits were unusual.  Mr Tang disputes this.  I am of the view that it is not necessary for me to resolve this dispute.

16.  As noted above, there is no requirement for an applicant for a Mareva injunction to show that the defendant intends to deal with his assets with the purpose of ensuring that any judgment will not be met.  The test is an objective one of assessment of the risk that a judgment may not be satisfied.  Of course, if there is evidence showing that the defendant does have the intention to dispose of or dissipate his assets for the purpose of ensuring that any judgment will not met, this will go a long way towards establishing that there is a risk that any judgment may not be satisfied.

17.  In the present case, I am satisfied, on the facts and matters set out in paragraphs 13 and 14 above, that refusal of the Mareva injunction sought by the plaintiff would involve a real risk that a judgment in favour of the plaintiff would remain unsatisfied.  It appears to me that if the defendant’s share of the proceeds of any sale of the Property are paid over to his brother who will then make use of such funds to meet his own needs as well as those of his family and to start a business of his own in mainland China where he is a citizen and where he resides, and as there is no evidence that the defendant has any other assets in Hong Kong, there clearly would be a very real risk a judgment in favour of the plaintiff would remain unsatisfied.  There is therefore no necessity for me to express a view on whether the evidence shows that the defendant had a subjective intention to deal with his assets with the purpose of ensuring that any judgment will not be met.

18.  In forming the view that refusal of the injunction sought by the plaintiff would involve a real risk that the judgment in favour of the plaintiff would remain unsatisfied, I have also taken into account and borne in mind the following matters:

(a) What the plaintiff seeks by the injunction sought to restrain the defendant from disposing of are the proceeds of any sale of the Property.  As demonstrated by the manner in which the defendant and his brother proposed to deal with the proceeds of the aborted sale of the Property (involving direct payment to the defendant’s brother of the entirety of the proceeds), such proceeds can easily be disposed of or dissipated without ever passing through the defendant’s hands.

(b) Mr Tang submitted, relying on a passage from Gee, Commercial Injunctions (Para.12.039), that I should take into account various factors.  First, he submitted that there is no suggestion that the defendant is a man of straw.  He submitted that the defendant carries on a major and successful business in China.  However, the only evidence which he was able to point to in support of this submission was a paragraph in the affirmation of the defendant’s brother to the effect that the defendant is an extremely busy man who is preoccupied with his business and that the defendant’s company has a big factory in mainland China which manufactures toys and plastic goods.  It does not appear to me that such evidence shows that the defendant carries on a successful business in China. It does not follow from the fact that a factory is big that its business is successful.  Indeed, a large business may be under financial difficulties.  In this regard, I bear in mind that the defendant has seen fit not to put any evidence before this court as to his financial standing or that of his business.

(c) Absent any evidence of the defendant’s financial worth, Mr Tang submitted that the defendant is worth many millions of dollars because he is claiming a sum in excess of HK$13,900,000 from the plaintiff by way of counterclaim.  I am unable to accept this submission.  As submitted by Mr Ma, the defendant has not even verified by way of affirmation that he has a good claim for the said sum let alone provided any evidence, details or particulars of such claim.  Further, as I have noted above, the defendant has not challenged the plaintiff’s assertion that his only asset in Hong Kong is his share in the Property.

(d) Mr Tang submitted that I should also take into account the defendant’s past or existing credit record.   He submitted that this ties in with the defendant’s commercial morality which he submitted (referring to a passage in Gee, Commercial Injunctions, Para.12.040) is the litmus test in considering whether or not there is any risk that a judgment or award in favour of the plaintiff would remain unsatisfied.  I am unable to accept Mr Tang’s submission.  First, it is clear from the passage relied upon by Mr Tang in Gee, Commercial Injunctions (Para.12.040) that the learned authors are not of the view that the defendant’s commercial morality is the litmus test.  On the contrary, they only state that good grounds for alleging that the defendant has been dishonest is relevant.  However, they go on to stress that proof of dishonesty is not essential to the exercise of the jurisdiction and there is no need to show an intention to dissipate assets.  Furthermore, there is no evidence before me showing either that the defendant has a good past or existing credit record or that he has a bad one.

19.  Relying on Gee, Commercial Injunction, Para.12.037 where the learned authors expressed the view that it is not every risk of a judgment being unsatisfied which can justify Mareva relief and that in assessing the risk of dissipation the court is concerned with the risk of dissipation which, if it were to take place, would be unjustifiable, Mr Tang also submitted that the lending by the defendant to his brother of his half share of the proceeds of the proposed sale of the Property is a normal transaction in life.  He submitted that the fact that a party is in litigation does not stop life from going on.  He therefore submitted that what the defendant proposed to do with his half share of the proceeds was in no sense unjustifiable.  As Mr Tang was unable to cite any authority in which the court had held that it would be considered a justifiable disposal of assets for a defendant to lend money to his brother in the manner proposed by the defendant, he contended that the instances in which the courts have held that certain disposals by a defendant of his assets are justifiable (as summarised in Gee, Commercial Injunctions, Para.12.037) are not exhaustive.  He further submitted that it is open to me to form a view and to rule on whether the proposed loan by the defendant to his brother could be considered to be justifiable.

20.  Whilst I agree with Mr Tang that the instances in which the courts have held that certain disposals by a defendant of his assets are justifiable as summarised in Gee, Commercial Injunctions, Para.12.037, are not exhaustive, I am of the view that the common thread which runs through the instances of disposals of assets which the courts have held to be justifiable is that such disposals of assets are for the purposes of meeting a defendant’s normal and ordinary needs, expenses and requirements (for example, ordinarily business or living expenses) or a defendant’s pre-existing legal or moral obligations to a third party which it is appropriate for him to satisfy (for example, repayment of a loan).  I am therefore of the view that it would not be a justifiable disposal of assets for the defendant to lend his half share of the proceeds of the sale of the Property to his brother in circumstances where this would result in a real risk that a judgment in favour of the plaintiff would remain unsatisfied.

21.  In so concluding, I also bear in mind that the assertions of the defendant’s brother that he needs to make use of his own half share of the proceeds of the proposed sale to pay off a debt owed by him to his partner and that he needs to borrow the defendant’s share of the proceeds as he and his family need money and he wants to start a business of his own are bare assertions unsupported by any objective evidence.  I also note the evidence of the defendant’s brother that the defendant agreed to the proposed sale of the Property partly due to the fact that the defendant’s brother had been generous to the defendant over the years in allowing the defendant to use the Property for the defendant’s business without charge and in not asking the defendant to pay him half of the rent which he received from renting out part of the Property. It appears to me that in such circumstances there is a real possibility that the defendant may reciprocate his brother’s generosity in not demanding repayment of the loan to be made using the defendant’s half share of the proceeds.

Balance of convenience

22.  Turning to the balance of convenience, I am of the view that it is just and convenient (see section 21L of the High Court Ordinance) to grant the injunction sought for the following reasons:

(a)  I have found that the plaintiff has a good arguable case and that there is a real risk that a judgment in favour of the plaintiff would remain unsatisfied.

(b)  There is no evidence that the defendant would himself suffer any damage or inconvenience by the grant of the injunction sought.  On the contrary, on his own evidence, the defendant does not appear to have any immediate need for his half share of the proceeds of the proposed sale as he was quite happy for this to be paid over to his brother had the proposed sale gone ahead.

(c)  The plaintiff has filed evidence clearly demonstrating that it would have the means to honour its cross-undertaking in damages in the event that it is later found that the injunction should not have been granted and the defendant has suffered any loss by reason of its grant.

23.  In forming the view that it is just and convenient to grant the injunction sought, I have borne in mind Mr Tang’s submissions that the present action as well as 2 other actions against the defendant in the District Court having been instituted, the present action has gone to sleep except for a request for further and better particulars of the defendant’s counterclaim and the actions in the District Court have also gone to sleep.

24.  Mr Ma, however, submitted that it was unfair to say that the plaintiff had done nothing to progress the actions.  He explained that the Reply and Defence to Counterclaim having been filed on 31 January 2012, after the intervening Chinese New Year holidays, the plaintiff sought further and better particulars of the defendant’s Defence and Counterclaim.  As these were not forthcoming, the plaintiff issued a summons seeking such further and better particulars on 15 March 2012 and the hearing of the application has now been fixed to take place on 18 September 2012.  He submitted that in the light of the unsatisfactory state of the defendant’s pleading, there is a need for such further and better particulars before the plaintiff proceeds further.  Having perused and considered the defendant’s Defence and Counterclaim (which appears to have been drafted by the defendant himself), I have some sympathy for the view taken by the plaintiff.  Mr Ma further explained that since about April or May of this year, the parties had been discussing consolidation of the actions in the District Court with the present action.

25.  In the light of Mr Ma’s explanations, I am not persuaded by Mr Tang’s submissions that the plaintiff has allowed the present action as well as the proceedings in the District Court to go to sleep.  However, to alleviate any concerns of the defendant in this regard, I indicated to the parties that I would give the parties express liberty to apply.  The defendant will therefore be able to apply to discharge or vary the injunction which I have granted in the event that the plaintiff does delay in prosecuting this action.