XCHRX BANK OF CREDIT AND COMMERCE HONG KONG LTD. (IN LIQUIDATION) v. ADRIAN ZECHA

1993 No. A11729

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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Introduction

1. On 28th May, I gave the Defendant leave to defend this action on condition that he paid the sum of $23m. into court by 23rd July. There was no evidence before me that the Defendant would be unable to comply with that condition. However, in case the Defendant wished to allege that he could not comply with it, I gave him liberty to apply to vary the order I had made. It transpired that the Defendant does indeed contend that he is unable to pay the sum of $23m. into court, and accordingly he now applies for the order to be varied.

The relevant principles

2. The relevant principles are not in doubt. They were established in M. V. Yorke Motors v. Edwards [1982] 1 WLR 444, and they have been applied by the Court of Appeal in Hong Kong in Hwang Yiou Kwa Victor v. Morgan Guaranty Trust Co. of New York [1985] 1 HKC 294 and Wu Cho Mei v. Wang Siau Yu [1994] 1 HKC 188. It would be a wrongful exercise of discretion to order the payment into court of a sum which the defendant would never be able to pay as a condition of granting leave to defend, because that would be tantamount to giving judgment for the plaintiff, notwithstanding the court's opinion that there are issues or questions in dispute which ought to be tried. However, the defendant cannot complain on the ground that a financial condition is difficult for him to fulfil. He can only complain if a financial condition is imposed which it is impossible for him to fulfil, and if that impossibility was known (or should have been known) to the court by reason of the evidence placed before it. The onus is on the defendant to put sufficient and proper evidence before the court, and he should make full and frank disclosure of his assets. The fact that the defendant has no capital of his own does not mean that he cannot raise any capital; he may have business associates, friends or relatives who may be prepared to help.

The original evidence

3. The Defendant originally filed a considerable amount of evidence as to his assets. There were a few differences between (a) his evidence as to his current assets and (b) his assets as at 30th September 1992 according to a report on his financial affairs dated 8th February 1993 prepared by Coopers and Lybrand for the Defendant's largest creditor, the Hong Kong Bank ("the Bank"). However, given the length of time which had elapsed since that report, it was not surprising that the Defendant's assets and liabilities had changed, and when the differences were pointed out by the Plaintiff in the evidence which it filed in reply, the Defendant filed further evidence giving detailed explanations for those differences. There was at that stage nothing to suggest that the Defendant had not been candid about his financial affairs, or that he had made anything other than a frank and full disclosure of his assets.

4. Apart from referring to Coopers and Lybrand's report, the Plaintiff did not initially challenge the evidence filed by the Defendant. That evidence showed that he had assets in the region of US$12.71m. However, the bulk of those assets was represented by his shares in Silverlink Holdings Ltd. They had an estimated value of US$7.18m. Those shares had been charged to the Bank as security for his indebtedness to the Bank which had recently been as much as US$19.81m. The majority of his other assets, which took the form of shares in other companies, were the subject of "custodian agreements" in favour of the Bank. Coopers and Lybrand regarded them as amounting to pledges to the Bank, and the Bank has today described them as charges. Either way, they are not available for his other creditors. On the other hand, the evidence was that the Defendant had liabilities in the region of US$28.59m. His net worth was, therefore, an estimated deficit of US$15.88m.

5. That was the state of the evidence when the Defendant's application to vary the order of 28th May came before me on 22nd July. However, at that hearing, Mr. Daniel Wan for the Plaintiff pointed to a number of features in the evidence which he claimed showed that the Defendant had been less than frank about his available assets. Those features had not been mentioned in correspondence prior to the hearing, and there was therefore no evidence from the Defendant to rebut the allegations. I did not think that I could decide whether the Defendant's disclosure of his assets had been less than candid and comprehensive without hearing what the Defendant had to say on the topics raised by Mr. Wan. In the circumstances, the hearing was adjourned to enable the Defendant to file further evidence if he wished, limited to those topics. The Defendant has now done so.

The new evidence

6. Today, Mr. Wan has made a number of further points about the evidence as it now is. He claims that there are features about the Defendant's financial affairs which remain unexplained. However, it has to be remembered that the Defendant has in his time been a very rich man, and his financial affairs are complex. It is inevitable in those circumstances that in proceedings of this kind there are going to be a few areas which remain unexplored. Although there are, therefore, still one or two gaps in the evidence, I remain of the view that there is no reason to suppose that the Defendant has not been sufficiently candid about his financial affairs, or that he has made anything less than such a frank and full disclosure of his available assets, as the circumstances warrant. I have no reason to doubt his assertion that the bulk of his assets are simply not available for paying the sum of $23m. into court. And with such a large sum involved, this is not a case in which I can say that the Defendant has business associates, friends and relatives who are able to help in any meaningful way. That may well be why some of the Defendant's other creditors have not brought proceedings against him.

7. It is common ground, however, that the Defendant has a number of unencumbered assets. Mr. Wan has argued that, on a fair analysis of the evidence, those assets amount to about US$2.1m. The Defendant's case is that they amount to about US$1.1m. But whatever the unencumbered assets are worth, I see no reason why they should not stand in place of the $23m. which the Defendant has been ordered to pay into court as a condition of defending the action. Indeed, the Defendant is prepared to undertake that he will not dispose of or pledge a flat in Courchevel, France, and is also prepared to lodge in court the share certificates of his unencumbered shares and the title deeds to his other unencumbered assets. There is, it is true, a question as to whether some of the Defendant's assets are indeed unencumbered, namely his shareholding in North Curtis Island Pty. Ltd. and PT Nusa Pacific International. Mr. Wan points out that the Defendant's case that they are encumbered is based on assertion only. However, I have no reason to doubt that assertion. Again, it may be that the court cannot order the sale of shares in a private company, but what the court can do is to make a charging order in respect of them.

8. The Defendant is also prepared to undertake that he will not dispose of his personal effects, household goods and antiques until the trial of the action. It is true that there is a dispute as to what the value of those assets are. But the fact remains that the Defendant is prepared to give an undertaking which has the effect of ensuring that they will be available for execution against in the event of the Plaintiff obtaining judgment in the action.

Conclusion

9. In all these circumstances, the course which I propose to take is to vary the condition on which I granted the Defendant leave to defend the action. The Defendant's leave to defend the action will no longer be subject to the payment of the sum of $23m. into court. Instead, it will be subject to two conditions. They are that the Defendant (a) lodges in court, by such date as counsel will address me on, the title deeds and share certificates of the assets referred to in para.14(b)(ii) of his affirmation of 15th August 1998, and (b) does not, save with the leave of the court, dispose of or pledge the flat in Courchevel or any of those personal effects, household goods and antiques in which the Defendant has a beneficial or legal interest until the trial of the action or further order.