KA WAH INTERNATIONAL MERCHANT FINANCE LTD v. ASEAN RESOURCES LTD

HEADNOTE

Injunction - S.19(1) and (3) Supreme Court Ordinance - Mareva injunction over foreign assets - Jurisdiction and practice of the Court - Appointment of Receivers to control foreign assets.

IN THE HIGH COURT OF JUSTICE

HONG KONG

Action No. 386 of 1987

___________

BETWEEN

_______________

__________

JUDGMENT

__________

1. In view of the importance of this decision, I give it in open Court. On January 21st Mr. Justice Nazareth granted ex-parte an injunction to the Plaintiffs restraining them from, inter alia, disposing of shares in a company called Ocean Front Ltd. in Singapore and on the next day he granted, also ex-parte, an order appointing Receivers with powers of management over those shares to exercise the rights of shareholders insofar as those shares were concerned. (The orders can be found in the documents.)

2. On February, 21st Mr. Justice O'Connor granted to the Defendants temporary relief from the Receivers' powers. On February, 23rd the Defendants issued two summonses seeking to discharge the orders of Mr. Justice Nazareth on the ground that the Court had no jurisdiction to make the orders, as the assets were foreign assets, being shares in a Singapore company. Let me say, at this stage, there is no dispute at all that these shares are foreign assets, because the register of the shares is kept in Singapore and the transfer must occur there and it is accepted by the plaintiffs that these are indeed foreign assets.

3. I have listened to five-days of submissions; I have considered some 35 authorities, numerous textbooks, long affidavits and exhibits of some 600 pages. In view of that and the fact that I am told that the Court of Appeal will, no doubt, consider this matter, I am tempted to reserve my judgment. I am not do that. First because of the urgency of this matter to both parties and secondly because I have come to clear conclusions on the issues raised before me.

4. I apologize in advance, however, if this oral judgment is not as grammatically perfect as it should be, nor sets out all the points and counterpoints which have been made. I am indebted to Counsel for their powerful sub-missions and trust they will not consider me discourteous if I do not deal with all of them.

5. The essential point of issue before me is whether I have the power to control, by a Mareva injunction, foreign assets and to appoint Hong Kong Receivers to administer them. This point does not appear to have been decided before in Hong Kong. Mr. Swaine submits that it has recently been decided be the Court of Appeal in England. Mr. Ribeiro says that the matter was only touched upon, but there has been no real decision on this essential matter.

6. The Plaintiffs are a subsidiary of the Ka Wah Bank. Because of the discovery of massive deficiencies, the Hong Kong Government last year together with the China International Trust and Investment Corporation took over the Ka Wah Bank group. A new team was installed and they have sought to recover outstanding debts.

7. In November, 1983 the Defendants were granted by the Ka Wah Bank overdraft facilities of $110 millions. This was linked to the Defendants' investment in a development known as Bay Shore Park in Singapore which features prominently in this case, because that is the development on which Ocean Front is currently engaged. This loan was re-financed with the Plaintiffs and in August, 1984 a similar loan of $110 millions was granted by the Plaintiffs on an unsecured basis. In October 1985 this credit facility was reduced to $96 millions.

8. A few months before, i.e. in July, 1985, a gentleman by the name of Dato Yap Sing-hok was appointed a director and chairman of the Defendants. He, Yung Tak-on, his nominee and a Michael Chua were also appointed directors and they controlled the Defendants.

9. On March, 7th, 1986 the Defendants asked for time to pay the interest due on March 1st of some $4.8 millions. This was not given and on March 25th the Plaintiffs demanded repayment of the whole of the loan together with interest.

10. The new team in the summer of 1986 sought to negotiate with Dato Yap for the repayment of the loan and later they asked the Financial Secretary, Mr. Piers Jacobs, to appoint an inspector to investigate the affairs of the Defendant company. This order was made on December, 3rd by the Financial Secretary and Mr. Johnston of Peak Marwick was directed to make an interim report as soon as possible and I refer to pages 268 and 269 of the exhibit bundle of Mr. Phoon.

11. On December 16th (at p. 225) this interim report was made. It showed, amongst other things, that the Defendants appeared to have an excess of liabilities over assets of some $63 millions, that Dato Yap or Michael Chua were in a position to initiate and complete material transactions without the Defendants' knowledge. I do not refer to the full report but, as I have said, it is found between pages 225 and 266. It is a long report detailing a number of important factors with regard to the running of the Defendant company.

12. On January, 3rd, 1987 (at p. 281) the final report was made. The estimate of excess of liabilities over assets was reduced to $38 millions and the inspector concluded that the company should be regarded at 30th November, 1986 as not being able to pay its debts within the meaning of Section 178 of the Companies Ordinance. The inspector found also that a number of statutory offences appeared to have been committed and that the Executive Directors were in breach of their general duties of care.This long report does make illuminating reading.

13. On January, 21st, the Plaintiffs issued a writ for $96 millions and $12 millions interest- that is, the repayment of the capital loan $96 millions and interest then outstanding at $12 millions. No defence has been filed to that and an Order 14 summons has been issued by the Plaintiffs.

14. Dealings in the shares of the Defendant company have been suspended. The only clean asset, the only unencumbered asset of the Defendants, is its shareholding in this Singapore company, Ocean Front. The share certificates representing those shares were deposited by the Defendants with the well-known firm of solicitors, Johnson Stokes.

15. When this case opened, Mr. Swaine, on behalf of the Defendants, said that he was limiting his submissions to a point of jurisdiction and this was a question of law alone. I ventured to suggest that this could not be right, as the Court had to inquire into the factual position to see whether or not a Mareva injunction and the sweeping powers of the appointment of these Receivers could be justified, as well as the Court considering whether or not it had jurisdiction to make such an order. Mr. Swaine accepted that he was also submitting that even if in law I did have jurisdiction, nevertheless the settled practice was that I should not grant a Mareva injunction over these shares as they were foreign assets. I have considered both the law and the relevant facts and ultimately whether I should exercise my discretion to grant these orders.

16. I then turn to the law. The history of the making of Mareva injunctions appears to be well-known now, although it is right to point out that this form of relief has dramatically changed from the date when judges thought it applied only where the Defendant was abroad and the assets were within the jurisdiction; consequently there was a risk of removal, see for example, Rasu Maritime v. Pertamina (1978) 1 B 644 at p. 659, and The Agrabele (1979) 2 Lloyds Reports 117.

17. From the time of the decision in Siskina v. Distos (1979) AC 210 (See particularly p. 261 D - 262 A.) Courts began to enjoin Defendants within the jurisdiction; the removal of another restriction was made in 980 when Lord Denning suggested in Rahman v. Abu-Taha (1980) 1WLR 1268 that there need be no removal from the jurisdiction, but only a disposal within the jurisdiction.

18. In January 1982, Section 37(3) of the Supreme Court Act 1981 came into force in England. Lord Denning said this was the declaration of the law which had been developed up to that time - see z Ltd. v. A-z and AA-LL (1982) 1QB 558 at p. 571. It was not until August, 1985 that Section 37(3) was enacted as Section 19(2) (a) of the Supreme Court Ordinance. This provision, in my judgment, is not a restrictive one. It does not prevent me from granting injunction over foreign assets. My general power is in Section 19(1).

19. I have to satisfy myself before so doing that it is just or convenient to grant an injunction, or appoint a Receiver. I have no doubt that I do have jurisdiction to grant an injunction over a Defendant who is within my jurisdiction restraining him from dealing with or disposing of foreign assets. Take a simple example, if a Defendant in Hong Kong is found in possession of the share certificate of a well-known public company in England and these are assets where there is a risk of dissipation, I can see no reason why I cannot grant a Mareva injunction over him disposing of those shares.

20. The practice, however, appears in England to be different. There are a number of instances where learned judges appear to be restricting the control to national assets. The case of Re a company (1985) BCCC 333 could be explained by the Court "piercing the corporate veil" and identifying the foreign assets still as national assets.

21. Mr. Swaine relies heavily on a recent decision of the Court of Appeal in England Ashtiani v. Kashi (1986) 3 WLR 647 and Mr. Ribeiro relies also on this decision. I consider that the judgments are important and obviously they should be examined in detail. I do not do so here, but I have examined them carefully. At p. 657 Lord Justice Dillon says:

"The limited territorial approach to the grant of Mareva injunctions as a matter of practice is confirmed by Section 37 of the Supreme Court Act...... It may be that the wide wording of Section 37(1) could cover, as a matter of jurisdiction, the grant of an injunction of a Mareva nature in respect of assets which are not within the jurisdiction of the Court and obviously it can cover an injunction in respect of foreign-assets where the title to those assets is in question. But subsection 3 clearly indicates the scope of the practice of the Court in exercising the Mareva injunction."

 

22. That, if I may say so, recognises that I do have jurisdiction over foreign assets; it appears to indicate that the practice is that it is not to be granted. I confess I do not understand the learned judge when he says that. If I have jurisdiction over foreign assets there must be instances where that jurisdiction will be exercised. Otherwise, the jurisdiction of the Court is rendered completely powerless.

23. At letter G, the learned Judge points out reasons why in practice Mareva injunctions should be limited. At p. 659, however, he says, if in a future case, disclosure of foreign assets is in a proper case ordered on special grounds......" The judge appears to be saying that as the assets were not removed to avoid the claim then it would be inappropriate to "freeze or seize" the assets. With the greatest respect, such an injunction does not "seize" the assets, but this passage and the next paragraph recognise that there can be appropriate cases where such relief can be granted over foreign assets. I therefore do not find this recent decision as supportive of the Defendants' submissions.

24. These shares are, as I have said before, foreign assets. The share certificates are in Hong Kong, but this factor does not, in this case, influence me, because the Plaintiffs do not want to restrain a mere disposal of the shares, as in the example I postulated earlier about the discovery of a share certificate in a public company. What they really want to do is to preserve the value of these shares and therefore, as I have just said, the fact that the share certificates are here is not necessarily a factor which I take into account in deciding whether or not to grant an injunction.

25. I would venture to suggest with some diffidence, as those more learned than I perhaps will deal with this, certain instances where this type of injunction can be granted over foreign assets.

                1.    If those assets have been deliberately removed from the jurisdiction to frustrate control by the Court. Mr. Swaine accepted that proposition (he called it 'jumping the gun').

                2.    When assets are disguised as foreign assets, but are, in reality, national assets, for an example see Re A Company.

                3.    Where a document of title representing a foreign asset is within the jurisdiction. (Although I have said that in this instance case I do not base my decision on that factor, in my judgment, an injunction can be granted for that type of situation.)

                4.    Where the foreign asset is held by a Hong Kong company, i.e. within the jurisdiction, and can be specifically identified.

26. I do not say that that list is, by any means, exhaustive. The history of the development of Mareva injunctions shows how careful one must be at seeking to put any limits on this power. What is important, in my judgment, is that the law is not stagnant and must adapt to the circumstances then prevailing. Hong Kong is a commercial centre and Hong Kong Courts should, in appropriate cases, be sufficiently flexible to allow foreign assets to be subject to the same control as national assets. The problems set out by Lord Justice Dillon at p. 657 may not apply.

27. In my judgment, I am lawfully able to grant such an injunction and in practice I should do so where it is shown that the material considerations for the grant of such an order apply, see the well-known case of Ninemia (1983) 1 WLR 1412. Two questions therefore arise for me to decide. First, have the Plaintiffs shown a good arguable case? Secondly, is there a real risk of dissipation of the Defendants assets?

28. As far as the first matter is concerned, it is not disputed that they have shown such a good arguable case. The second matter is really the key issue which I have to decide. Although originally Mr. Swaine was not intending to address the Court on this aspect, he has sought to diminish the force of the Plaintiffs' evidence by suggesting that certain sinister inferences which Mr. Ribeiro sought to draw were unjustified and he submitted an affidavit by his solicitor exhibiting certain correspondence and other matters.

29. As I have said before, the only unencumbered assets of the Defendants are these shares they hold in Ocean Front. It was this investment which was the subject matter of the original loan by the Ka Wah Bank to the Defendants. The Plaintiffs seek not only to control the disposal of these shares, but also, to preserve their value.

30. In order to gauge the risk of dissipation, it is necessary to examine the role of the gentleman Dato Yap and the role of a group of Malaysians called the Lows. From 1974 the Lows controlled the Ka Wah Bank until about 1986. It was the Lows who lent Date Yap, Michael Chua and Yung Tak-on the money to acquire a controlling interest in the Defendants. During the first eleven months of 1986, the Defendants received in payment some HK$54.7 millions. From the inspector's report, it can be seen that $35 millions (approximately 63%) have been improperly removed by Dato Yap in the acquisition of a company called Solid Gold Ltd., a more inappropriate and hypocritical name, one could not think of, as it was a thoroughly worthless company. It would appear that most of that money went into either Dato Yap's pocket or his brothers', or even the Lows because they were involved, as they lent through the Ka Wah Bank to Dato Yap, a few days after he took over Solid Gold, some $57 millions to buy another Malaysian company called Muda Holdings, the following year valued at $28 millions. The Intricacies of this Solid Gold affair are found at pages 52 to 55 of Mr. Phoon's affidavit and I do not set out all of those matters.

31. Two other transactions are of importance

32. In my judgment, there is cogent and compelling evidence before me that Dato Yap together with the Lows have plundered the Defendant Company.

33. It is startling that Dato Yap, who: I am told is in Hong Kong, has not sworn any affidavit in answer to all the detailed accusations made against him. His silence could be described as deafening.

34. I turn then to Ocean Front. This Singapore company has shareholders as follows: Dato Yap has 42%, Lake Park, a company controlled by the Lows 47%, and gentlemen by the name of Jo Fuk-tak and Tong Kwok-chau. Part of the negotiations between the Ka Wah Bank and the Defendants in 1986 envisaged the shareholding of Jo and Tong being registered by the Bank. This would give the Defendants and the Bank 50.03% of the shares in Ocean Front; in other words a controlling interest, and this would eliminate any danger that was likely to come from the Lows.

35. On September, 19th, 1986 an injunction had been granted to the Defendants in Singapore against the Lows preventing dealings with Ocean Front assets. Dato Yap swore an affidavit in those proceedings attacking the Lows for potential dissipation of the Ocean Front assets; I do not set it out, but that affidavit also makes very illuminating reading in this case.

36. In January, 1987 the Plaintiffs discovered that Dato Yap had become a director of Ocean Front on 4th November, 1986, that the injunction which the Defendants had obtained in Singapore against the Lows had been discharged, that on 24th November a resolution had been proposed to hold an extraordinary general meeting on December 1st to change the articles in Ocean Front by removing the control which the Urban Renewal Authority in Singapore had over the dealings of Ocean Front, to increase the share capital from 58 to 100 million Singapore dollar and to authorise Ocean Front's directors to issue new shares.

37. Now this, in my judgment, is an important factor to look at, because what is now being proposed was that new shares were going to be issued - inter alia, 2.1 million shares, to a company called Eastern Lagoon Ltd. Who are they? What do they do? Nobody appears to know - and 1.4 million to Trasumi. Mr. Swaine said this is a standard matter that all that is happening here is that the outstanding loans had been capitalised by the issue of new shares. In my judgment, that is not right. What lies behind may well be sinister developments. There was a resolution to ratify a transfer of nearly 1½million shares by Tong Kwok-chau to a lady by the name of Madam Tang Swin Neon and to approve all the transfers as well as that of Lake Park into a new company called Gloryshine Development. Why was that? Again one can only speculate.

38. Also there was a re-financing of the Ocean Front loans which had been with the Bank of America, these were going to be re-financed with the United Overseas Finance Ltd. which is a Singapore financial institution and I have seen the agreement which is set out at AC6, an affidavit of the Defendants' instructing solicitor (Exh. 6) clause 2(C) which permits the loans to be re-paid. There are steps to limit the shareholding under 50%; the injunction which Dato Yap had obtained has been removed. Why? Mr. Swaine puts before me a letter from the solicitors in Singapore which says that it is not necessary now to have this injunction and all is peace and quiet in Singapore. In my judgment, this demonstrates better than anything that the Lows and Dato Yap are back together.

39. They have obviously made it up and now they are together in control of the Ocean Front Company. The development of the Bay Shore site is proceeding a pace and it is clear, as Mr. Ribeiro dramatically described, that "the cream is coming in" - I would only add that not only is the cream coming in, but now there is a likelihood of it being skimmed off. This whole situation, in my judgment, in Singapore reeks of potential fraud and the opportunity to wrongfully dissipate the value in Ocean Front. In my judgment there is here clearly a serious risk to the Defendant's investment in Ocean Front and that, as I have said before, is the only clean asset. In order to control these shares and preserve their value it is necessary for Receivers to be appointed in the manner proposed. It is pointless for the Court merely to grant an injunction in the Mareva form restraining the Defendants from disposing of these shares. What is important is to control the operations of Dato Yap and the Lows in Singapore. Now, I accept that this appears, at first blush, to be a radical step in that a Hong Kong Court is seeking to control a company which is operating in a foreign jurisdiction, but what I am doing is to appoint Receivers who are officers of this Court and answerable to this Court, to take such steps as are considered right so that the value of these hares is preserved. For example, they can go to the Singapore Court armed with the orders of this Court and make applications as though they were the Defendants. Indeed, one application has already been lodged with regard to the sight of a minute book, and I would anticipate that much more serious steps can be taken by the Receivers of Hong Kong in a Singapore Court to prevent the threatened dissipation of monies in this company.

40. Mr. Swaine urges me not to appoint Receivers, he says it would cause commercial embarrassment. It undoubtedly will cause embarrassment for the Lows and Dato Yap, because they will not then be in a position to influence any material factors in the possible removal of assets out of that Singapore company. It will hinder them in carrying out any fraudulent enterprise, and, in my judgment, that is precisely the position which a Court should seek to achieve by the appointment of Receivers. What I hope it will achieve it that is will prevent the Lows and Dato Yap from plundering the Singapore company in the same way as they have plundered the Defendant company. I trust the Singapore Courts will give every assistance to Receivers appointed by Hong Kong judges. There is reciprocity of registration, for example, of judgments between Singapore and Hong Kong and I can see no reason why commercial centres such as Singapore and Hong Kong should not also give reciprocity in assistance to orders made by judges in the respective jurisdictions which have an effect upon the other jurisdiction. My conclusion on this matter is simply this. The law is that debtors can be prevented from dissipating their assets so as to deprive the creditor of the fruits of his judgment. This extends, in appropriate circumstances, over foreign assets. I must have regard ultimately to the provisions of the Ordinance which give me power to grant these orders, that is Section 19(1). I have to consider whether or not it is just or convenient to make these orders. I have no doubt that it is. These applications are dismissed.