XCHRX RICH BUSINESS LTD. v. YUEN YUET HING and Another

HEADNOTE

[Mareva injunction - discharge. A person who sells property in order to pay off his creditor cannot be said to be dissipating his assets.]

No. A1268 of 1998

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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1. This is an application by the Plaintiff to continue a Mareva injunction granted by Yam J. on 17th June 1998. The 1st Defendant is the wife and the 2nd Defendant is the husband. The Defendants have also applied for the said order to be discharged by their summons dated 26th June 1998.

2. The Plaintiff's claim against the Defendants is for damages for breach of a Sale and Purchase Agreement. The Plaintiff was the vendor and the Defendants were the purchasers of a house at Hong Lok Yuen, Tai Po, New Territories, Hong Kong. Completion of the Sale and Purchase Agreement did not take place. The Plaintiff alleges that the Defendants were in breach in failing to complete. There is a Defence and Counterclaim where the Defendants allege that completion did not take place because of the fault of the Plaintiff. And there is a Counterclaim for, inter alia, the return of the deposit paid in the sum of $1,500,000.00 under the Sale and Purchase Agreement. The Plaintiff has taken out Order 14 proceedings for summary judgment which has yet to be heard. The hearing has been fixed for 4th August 1998.

3. The Plaintiff applied for an ex parte Mareva injunction before Yam J. on 17th June 1998 which was granted. This was made on the ground that there was a real risk of the Defendants dissipating their assets. The Plaintiff relied on the 2nd affirmation of Josephine Yeung Kam Lin filed on 17th June 1998 in support of the Mareva injunction.

4. The Plaintiff relied on the fact that the Defendants owned three other properties, namely:

i) another property in Hong Lok Yuen namely subsection 416 of Section D, Lot 1945 in Demarcation District 7, Hong Lok Yuen, Tai Po, New Territories, Hong Kong ("the 1st property")

ii) Unit G, 23rd Floor, Block 7, Richland Gardens, Kowloon ("the 2nd property"), and

iii) Workshop No. 2, 6/F., Metro Centre, Kowloon Bay, Hong Kong ("the 3rd property").

It was alleged that the Defendants had recently sold the 2nd property by a Sale and Purchase Agreement made on the 15th May 1998. This fact was discovered by the Plaintiff on 2nd June 1998. The Plaintiff had already discovered that the 1st property had been sold by the Defendants by a Sale and Purchase Agreement entered into before the Plaintiff and the Defendants entered into the Sale and Purchase Agreement in respect of the property, the subject matter of this action. However, completion of the agreement for the 1st property was scheduled for 15th June 1998. It was also alleged that the Defendants had taken steps to sell the 3rd property and this fact was discovered by the Plaintiff on 12th June 1998. The Plaintiff also received information that completion of the 1st property would go ahead as scheduled for 15th June 1998 and it was expected that the proceeds of sale would become available by 17th June 1998.

5. Because of the sale by the Defendants of their properties it was said that there was a risk of dissipation of assets. It was on that basis that the Mareva injunction was applied for and was granted. This is clear from the evidence in support of the ex parte application and also from the Plaintiff's skeleton submission presented to the court at the ex parte hearing.

6. The affidavit of the Defendants filed on 25th June 1998 explained that because of the Asian economic crisis in late 1997 and the first half of 1998, they had encountered serious financial problems. Indeed, the Defendants are not alone in this respect. The 1st, 2nd and 3rd properties were all mortgaged to the Bank of Communications. Because of the fall in property values and the fact that mortgage payments were in arrears, the Bank requested the Defendants to sell the properties so that funds could be realised to pay off the mortgages. That was the reason why the 1st and 2nd properties were sold and why efforts were made to sell the 3rd property. Also, the transaction statements in respect of the 1st and 2nd properties were produced in evidence showing that there was no surplus from the transactions but instead a total sum of $449,150.00 had still to be made up to the Bank by the Defendants.

7. In my judgment, on the basis of that evidence it cannot be said that the Defendants were dissipating their assets. The Defendants sold the 1st and 2nd properties and were attempting to sell the 3rd property so that they could pay off their creditor, the Bank. A person who sells property in order to pay off his creditor cannot, in my judgment, be said to be dissipating his assets. It must be remembered that a Mareva injunction does not give and was never intended to give a Plaintiff a pre-trial attachment on the Defendant's assets. On that evidence, therefore, there is no basis for the Mareva injunction to continue.

8. Mr. Chan, S.C. for the Plaintiff submitted that on the evidence which is now before the court there is a real risk of the Defendants dissipating their assets. He submitted that the Mareva injunction should continue. In effect, he relies on the affidavits filed by the Defendants and submits that on that evidence there is a probability that the Defendants have other source of funds which have not been disclosed.

9. The Defendants have in compliance with the order of Yam J. disclosed their assets in their affidavit filed on 25th June 1998. They state categorically that they have no other assets over $50,000.00 other than what had been disclosed. The bank accounts disclosed do not show substantial balances in their favour or in the favour of the business of Great China International Trading Company which is a sole proprietorship of the 2nd Defendant, or in favour of T.K. Chan Ltd. which is a company owned by both Defendants. The Defendants also say that they had been borrowing money from relatives and have no other source of funds. And the Defendants say that they have duly complied with the order for discovery given by Yam J.

10. I would observe that the Defendants were required by the order of Yam J. to disclose all their assets of an individual value of $50,000.00 or more in Hong Kong giving the value, location and details of all such assets. They were not obliged to give any further discovery. They were not, in my judgment, obliged to give discovery or make disclosure of sales of other properties in the past and how proceeds of such sale had been applied. And it cannot be said on the evidence before me that the Defendants have failed to comply with Yam J.'s order. Indeed, Mr. Chan, S.C. for the Plaintiff, of course, cannot point to any direct evidence to show the court that the Defendants are concealing assets.

11. Mr. Chan submitted that the cash flow analysis which is produced in evidence shows that the Defendants were not short of funds yet they allowed mortgage payments to fall into arrears.

12. I accept Mr. Chain's submission that in respect of the sale of the properties mentioned in evidence before me the correct analysis of the position shows that the Defendants have a shortfall of about $900,000.00 and not, as Mr. Chan submitted, a surplus of $740,927.90.

13. I must bear in mind that the Defendants are husband and wife. And as set out in one of their affidavits, they say that they used to rely on the incomes from their business to support their living and as no third parties were involved, they have not kept distinct accounts for moneys from their business and companies, their properties and their private spending. That is not an unusual state of affairs where you have a small family business. That being so, I am not convinced that the Defendants have hidden away their assets so as to keep it out of reach of any judgment that the Plaintiff may obtain in this case. I also do not see why the fact that mortgage payments were in arrears justifies an inference that the Defendants are dissipating assets.

14. It was further submitted that the Defendants applied to strike off T.K. Chan Ltd. from the register for no apparent good reason when it was still in a healthy financial state. I observe that whatever assets were in T.K. Chan Ltd. are, on the evidence, still there and there is no suggestion that the assets in T.K. Chan Ltd. have been removed. Furthermore, the fact that an application has been made to strike off T.K. Chan Ltd. from the register does not mean it will be successful. Again, I do not see how this can assist the Plaintiff in asking a court to infer that assets of the Defendants are being dissipated.

15. As I have said earlier, there has already been a satisfactory explanation as to why the Defendants sold the Richland Gardens property and put up the Metro Centre property for sale. That was to pay off the creditor. That being the reason, it cannot be said that is dissipation of assets.

16. A complaint is made also about the closing of the Hongkong Bank account for no apparent reason and it is suggested that the reason it was closed was to prevent further discovery being made in respect of this account. I do not regard this as a significant matter. The amount involved in the account is only a few hundred dollars and the Defendants' evidence is that this account was closed before they had notice of the Mareva injunction.

17. I would also observe that on the evidence the Mareva injunction has not only caused loss to the Defendants but has also disrupted their business. There is some evidence that some of the customers of Great China International Trading Company in China have withdrawn trading with the Defendants because of the Mareva injunction and that credit cards have been cancelled after the Mareva injunction was granted. It is, therefore, not just and convenient in my judgment for the Mareva injunction to continue because even though the Plaintiff has given an undertaking in damages, it may be difficult to quantify the exact loss that the Defendants have suffered because of such an injunction in place.

18. Therefore, on the evidence before me the Plaintiff has not satisfied me that there is a real risk of dissipation of assets by the Defendants so that any judgment given against them in this action will go unsatisfied. I, therefore, refuse to continue the injunction and discharge the order of Yam J.