XCHRX SECURITIES AND FUTURES COMMISSION v. MANDARIN RESOURCES CORPORATION LTD. AND ANOTHER

HCCW348/96

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP NO.348 OF 1996

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INJUNCTION DECISION

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1. On 19 November 1999, the court granted an ex parte Mareva injunction on the petitioner's application against the 2nd respondent following a judgment in the petitioner's favour in contested and lengthy winding-up proceedings.

2. The petitioner now seeks a continuation and variation of the injunction and the 2nd respondent seeks its discharge or alternatively its amendment. Thus far, the judgment in the winding-up proceedings is a judgment on liability only. The issue of quantum remains to be heard. At present, it is listed for a hearing at the end of February 2000 and the decision will be handed down in March. The anticipated duration of this injunction, should it be continued, is therefore likely to be less than two months.

3. The petitioner has made it plain from the outset that their purpose in seeking this injunctive relief is not because the 2nd respondent has already or is in the process of dissipating his assets in Hong Kong or abroad but because they perceive a real risk that he may do so in order to defeat the petitioner's claim for a compensation order on behalf of the minority shareholders. The words of Godfrey J (as he then was) in Honsaico Trading Ltd. v. Hong Yiah Seng Co. Ltd. [1990] 1 HKLR 235 at page 240 are apposite :-

"... if I come to the view that its conduct, in relation to this transaction, leaves me so uneasy that I am driven to the conclusion that there is a real risk that a judgment in favour of the plaintiff might remain unsatisfied, then I conceive it to be my duty to grant the injunction. ...

I have come to the conclusion that the defendant has exhibited an unacceptably low standard of commercial morality in its dealings with the plaintiff; and this drives me to conclude that there is a danger that if the defendant thought it was in its best interests to do it, it would not shrink from attempting to defeat the interests of the plaintiff under any judgment the plaintiff might obtain here."

4. The petitioner relies on many extracts from the judgment on liability which they say indicate an "unacceptably low standard of commercial morality". These findings, which it is unnecessary to set out herein, are consistent with the petitioner's fear that the 2nd respondent will dissipate or conceal his assets should he have the opportunity to do so. In addition, the evidence in the winding-up proceedings shows that the 2nd respondent is a sophisticated and experienced businessman who is on familiar ground when dealing with very large sums of money and complex and intricate webs of companies and inter-related company transactions. There is no doubt that he is well capable of making the petitioner's task of pursuing their claim to execution of final judgment very difficult if not impossible if he chose to do so. In these circumstances therefore he should not have the opportunity to do so.

5. The petitioner's concerns are further fuelled by the 2nd respondent's conduct in the proceedings thus far. The petitioner contends, with considerable force, that the 2nd respondent's consistent failure to respond promptly or at all to the court's orders and directions indicate an unco-operative and at times obstructive attitude. There is a risk that a party who has demonstrated such an attitude will dissipate or conceal assets.

6. I am satisfied also that the balance of convenience lies in favour of continuing the injunction. The party seeking the injunction is a public body acting on behalf of the minority shareholders who will be the ultimate beneficiaries of the money judgment. If an injunction is not granted they will be vulnerable. If an injunction is granted there will be little or no hardship or prejudice to the 2nd respondent. He has produced no evidence of prejudice or hardship he merely regards the injunction as an "insult". It should be further noted here that his grounds for resisting the injunction generally were misconceived. From the outset the petitioner had made it clear both to the 2nd respondent and the court that it was not alleging that the 2nd respondent had actually dissipated any of his assets. It was nonetheless the 2nd respondent's consistent contention that the petitioner was not entitled to an injunction because they had provided no evidence that he had, in fact, tried to move or conceal assets.

7. A further misunderstanding by the 2nd respondent was in relation to costs. He argued that the figure frozen by the injunction should not include any amount to protect an order for costs against him in the main action because the judgment so far had not decided the question of who shall pay the costs. The figure frozen clearly should take account of a future award of costs because there plainly will be such an order and costs will be very high. What has not yet been decided (because the parties will have an opportunity of addressing the court on the matter) is the exact form and amount of the costs order against the 2nd respondent and its formal announcement in the final judgment.

8. As for the terms of the injunction, both parties ask for variations. Firstly, in relation to the total sum frozen, $184 million, the petitioner asks for an increase to $232 million and the 2nd respondent a decrease to $108 million. The first figure is based on a recalculation of the present value of one share. The first calculation was $30 per share. Now it is said to be over $40. The 2nd respondent's lower figure is based on what he considers to be a reasonable price, $20 per share. As there is no agreement as to either the value of the shares or the proper method of calculation and as the court has heard no evidence on the matter yet, I propose to make no variation to the sum frozen either way.

9. Secondly, the 2nd respondent claims that the requirement to list all his assets valued at over $10,000 is too onerous and the figure should be increased to $100,000. By way of example he informed the court that his shoes cost $13,000 and asked if he had to include them on the list. The order does not envisage items of personal property. I agree that the figure may be slightly on the low side. However, if I increased it to, say $20,000, the only effect would be to exclude those items between $10,000 and $20,000. This would be a pointless and cosmetic exercise. I therefore make no variation.

10. No submissions were made on any of the other terms.

11. I turn finally to the question of the progress being made by the 2nd respondent in complying with the directions as to disclosure. I am told by the petitioner, and accept, that as a result of their persistence some progress has been made and some co-operation has been slowly and reluctantly forthcoming. However, the progress is limited and they therefore seek an order that the 2nd respondent attend for cross-examination either before or during the quantum hearing. There is no doubt that it is within the court's power to so order in these injunction proceedings.

12. It is the court's duty to manage the proceedings, within the rules, so as to be in the best possible position to do justice to both sides. I am satisfied that an order as requested is necessary and appropriate to this end. The court has already directed that Mr Grimsdick attend the forthcoming hearing to be both examined and cross-examined on his final report. The purpose of this direction was both to assist the court and the 2nd respondent. By the same reasoning the 2nd respondent will also attend to give evidence. The hearing is presently listed for 25 February 2000 for three days. It is not possible to bring it forward. However arrangements are in hand to make more than three consecutive days available which will be necessary to hear evidence from both Mr Grimsdick and Mr Chim and submissions.

13. The injunction in terms as sought, shall run until the handing down of the quantum hearing in the winding-up proceedings.