劉歡AND OTHERS v. WONG CHUN KWONG

HCA 1812/2018

[2019] HKCFI 907

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1812 OF 2018

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R E A S O N S   F O R   D E C I S I O N

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1.  On 3 August 2018, the plaintiffs (collectively “Ps”, and the 108^thP as “Chen”) sought and obtained on an ex parte basis a Mareva injunction (the “Injunction”) against the defendant (“D”). The related inter partes summons (the “Summons”) was taken out on that same day. On 17 August 2018, the Summons came before Deputy Judge Leung who, having given directions on the filing of evidence, adjourned the same for substantive hearing. In the meantime, the Injunction was extended until determination of the Summons.

2.  The hearing of the Summons took place before me on 2 April 2019.  The main issue was whether Ps were guilty of material non-disclosure during the ex parte application for the Injunction.

3.  At the conclusion of the hearing, I dismissed the Summons.  I said that I would hand down my reasons for so ruling.  I now do.

Ps’ legal representation

4.  Ps had all along been represented by Messrs Nixon Peabody CWL (“NPC”).  On 27 March 2019, NPC wrote to my clerk.  They said that they had made an application for leave to come off the record as Ps’ solicitors.  They said that the application was scheduled to be heard on 4 April 2019.  They enquired whether I would be minded to adjourn the hearing of the Summons.

5.  D’s assets had been restrained by the Injunction.  The effects of a Mareva injunction on a litigant, and in particular a businessman, are enormous.  I saw no basis to even suggest that the hearing of the Summons should be put off due to issues between Ps and their legal representatives.  D’s interest ought not to be prejudiced thereby.  Having considered that letter, I in reply directed that “The [hearing of the Summons] shall proceed as scheduled.  [NPC] are expected to continue to discharge their duties as appropriate until coming off the record.”

6.  During the hearing of the Summons on 2 April 2019, Ms Au of NPC appeared.  No other persons who claimed to be, or claimed to represent, any of Ps attended.  Ms Au informed me that whilst NPC was still on the record acting for Ps, it no longer had any instructions to act for them in the entire proceedings.  She had no submission to make in respect of the Summons. 

Order 32, rule 5

7.  Ps were effectively absent during the hearing.  Mr Tsui, counsel for D, invited me to proceed with the hearing of the Summons despite that.  I have considered Order 32, rule 5.  It was a Mareva Injunction that Ps were seeking continuation of.  Ps had all along been legally represented, and there was no question of they not knowing about the hearing. They chose not to give any instructions to NPC.  In all the circumstances, I deemed it expedient to proceed with the hearing of the Summons.

Ps’ case as presented during the ex parte application

8.  Ps’ ex parte application for the Injunction was supported by Chen’s 1^staffirmation filed on 3 August 2018 (“Chen 1^st”).  Ps’ case as presented therein was a straightforward one of theft of 120 vehicles committed by D:

(a)  Chen said that he was a businessman living in Shenzhen.He was the president of a company called 深圳圖治財務顧問公司.  It provided accounting services to its clients.  A lot of its clients had offices both in Shenzhen and Hong Kong.  They would buy vehicles in both places;

(b)  D was a Hong Kong businessman experienced in dealing with used vehicles.D was introduced to Chen sometime towards the end of 2017.  Afterwards, they started to co-operate.  D would source used cars for him and apply for cross-border licences;

(c)  To facility D’s work, a company called Tuzhi Automotive Services Limited (“HK Tuzhi”) was formed in Hong Kong.  Chen and D were respectively 60% and 40% shareholders.  D was the sole director, and responsible for all of its operations.  D was paid HK$36,000 a month as his salary;

(d)  In about February 2018, D found a piece of land of about 40,000 square feet to park the vehicles to be purchased (the “Parking Lot”).  Chen said he had paid through D several months of rental for the Parking Lot;

(e)  Chan said D sourced used vehicles at his request.  He said that between February and March, he (Chen) had through such arrangements bought 120 used cars.  73 of those 120 were purchased through his agents.  He asked D to purchase through agents the balance of 47.  All 120 cars were paid by Chen;

(f)  The 120 cars were parked at the Parking Lot.  D had control of the Parking Lot, and had access to the car keys;

(g)  Chen said that on 24 June 2018, a car agent was suddenly asked by D to remove all the cars from the Parking Lot.  Chen said that he was shocked by that.  He caused the matter to be checked and found out on 25 June 2018 that the cars were still there.  He asked the Parking Lot to be checked more often;

(h)  On 3 July 2018, it was reported to Chen that all the cars were missing from the Parking Lot.  On 4 July 2018, a report was made to the police.

9.  Chen’s claim has another limb.  He claimed that he had given D 10 cross-border licences and 9 provisional licences for sale in about February or March 2018, but that D had refused to account to him for their proceeds.

10.  Chen’s claim as presented in Chen 1^st was hence primarily one of theft of 120 used cars which he had paid for, and that the theft was committed by his agent (ie D) who controlled the Parking Lot and had access to the car keys.

D’s case

11.  D has filed an affirmation in opposition (“D 2^nd”).  His case was that there had been no theft, but a case of a business venture which had turned sour as a result of a change of policy in the Mainland:

(a)  He explained that his business relationship with Chen started sometime in the end of 2017.  The business was the trading of Hong Kong–Zhuhai–Macau cross-border vehicles licences (“HZM Licences”);

(b)  HK Tuzhi was set up as the vehicle for that purpose.  The percentage shareholder reflected the percentage in which profits were to be shared between him and Chen;

(c)  He explained the procedure for the applications of HZM Licences.  Cars would have to be purchased first before the applications could be proceeded with.  He stated that in about March and April 2018, HK Tuzhi purchased 47 cars.  He paid for them.  Chen also purchased 58 cars, which he paid for.  The payments were treated as their respective capital injection into HK Tuzhi.  Those cars were parked at the Parking Lot rented for that purpose;

(d)  In April 2018, the Mainland authorities announced a policy change and suspended the acceptance and processing of applications for HZM Licences.  The business of HK Tuzhi was seriously affected.  Cars became stranded in the Parking Lot;

(e)  D said, and as summarized by Mr Tsui in his written submissions, that given the lack of money to continue the business operation, Chen’s unwillingness to inject further capital into the company, and the imminent need to deliver vacant possession of the Parking Lot as a result of the landlord’s legal action, D decided to sell the vehicles and used the proceeds to finance the further operation of HK Tuzhi.

12.  There are three aspects of D’s evidence which are in my view important:

(a)  The trading of HZM Licences by HK Tuzhi:

(i)  I have summarized above D’s evidence on HK Tuzhi’s trading in HZM Licences, the need for the purchase of those cars as a result, and the change of policy by the Mainland authorities in that regard, which led to the stranding of those purchased cars in the Parking Lot.  They are very important matters which put the subsequent removals of the cars from the Parking Lot in their proper context;

(ii)  Chen failed to mention those matters at all;

(b)  The payment of the 47 vehicles:

(i)  Chen in Chen 1^st said that he paid for all 120 cars;

(ii)  In D 2^nd, D said that he paid for 47 cars.  He produced some accounting documents in support;

(iii)  In his affirmation filed in reply (“Chen 2^nd”), Chen did not dispute that the purchase prices of those 47 carswere met by D, but claimed that D did so to offset some prior debts D allegedly owed to him (Chen).  None of these were revealed in Chen 1^st;

(c)  The WeChat messages between D and Chen:

(i)  D in D 2^nd exhibited some WeChat messages he had had with Chen.  They went as follows:

D  : 「回深圳了？你是怎安排？业主要我们交租或把车拿走清場给他们

Chen  :  一切后果你来承担，还有成本，我一切都接触不到情况谢谢

D  :  你说来交收车场又不来又不給租金，业主一定封场。」

(ii)  Amongst those messages, there was also an image clip of an advertisement placed by D on a local newspaper, askingthe owners of the cars inside the Parking Lot to contact HK Tuzhi by 25 June 2018, else the company would close the Parking Lot and get rid of the cars;

(iii)  Chen had failed to deal with these messages in Chen 1^st at all.

Material non-closure on Ps’ part

13.  I have summarized above Ps’ case for the Injunction which Chen presented in Chen 1^st.  He painted therein against D an outright case of theft by his agent.  He failed to reveal the trading of HZM Licences by HK Tuzhi, or the payment of the 47 cars by D, or the important WeChatmessages between him and D.  All those matters are material in that they could have been regarded as being inconsistent with the case of theft which Chen alleged, but consistent with a director of HK Tuzhi (ie D) trying to sell off the cars stranded in theParking lot in the face of changed Mainland policies and legal proceedings by the landlord for vacant possession.   

14.  I am not here to try at this stage whether Chen or D was telling the truth.  That is for the trial, if there is to be one.  Suffice for me at this stage to express my view that those matters I have set out above at paragraph 12 are clearly important and material to Ps’ ex parte application for the Injunction.

15.  I have considered the authorities cited to me by Mr Tsui on theapplicable principles concerning material non-disclosure.  I see no need to recite them, except to say that I have considered them.  In my view, Ps failed to fulfill their duties to effect full and frank disclosure when seeking the Injunction.  Material non-disclosure has been established.  Further, given the nature of the facts concealed and the obvious relevance thereof, I find further that the non-disclosure was deliberate.

16.  By reason of the above, I discharge the Injunction.

Re-grant?

17.  There was no application for a re-grant before me.  The question of a re-grant therefore did not arise.  I note further Ps’ conduct in failing to properly prosecute their Summons.  I have found that the non-disclosure was deliberate.  In the interest of justice, even if there were before me an application for a re-grant, I would not have granted it.

Conclusion

18.  For the reasons set out above, I dismissed the Summons.

Costs

19.  Mr Tsui sought costs on an indemnity basis.  I have consideredparagraph 29/1/55 of Hong Kong Civil Procedure 2019.  I have found that the non-disclosure was deliberate.  I am of the view that this would have been an appropriate case for me to order costs on an indemnity basis if taxation were necessary.  In the end, Mr Tsui handed in a statement of costs on which the hourly rate of the fee earner was charged on an indemnity basis.  I allow summary assessment of the costs concerned.  The stated total amount of HK$279,231 is in my view a reasonable one.  I make a costs order that Ps should bear the costs of and occasioned by the Summons, which I summarily assessed at HK$279,231, to be paid by Ps within 28 days from the date hereof.