XCHRX CHOU YI FENG v. CHOU YI CHEN AND OTHERS

HCA 4393/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4393 OF 2001

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J U D G M E N T

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1. In this application, the plaintiff Chou Yi Feng by 2 summonses dated 9 and 10 October 2001 as amended, seeks the continuation and the granting of the orders to the following effect:

(1) to retrain D1, Chou Yi Chen and D2 Chou Su Mei Hui from removing her as one of the authorized signatories of the accounts of Super Asia Enterprises Ltd. (Super Asia) with China Trust Commercial Bank Ltd. (China Trust) and from dealing with the accounts of Super Asia with Shanghai Commercial Bank Ltd. (Shanghai Commercial) without her consent in writing;

(2) to forthwith take all reasonable steps to reinstate the plaintiff as President of Golden Power Machine (Shenzhen) Ltd. (Golden Power);

(3) to restrain D2 from dealing with 4,000 shares of Super Asia originally registered in the plaintiff's name;

(4) to restrain D1 from disposing her assets up to US$560,000; and

(5) to order the bankers of Super Asia and D1, D2 and D3 as well as Super Asia itself to make discovery of bank records and other relevant documents as part of the discovery exercise pursuant to the principle set out in Bankers Trust Co v Shapiro [1980] 3 All ER 535.

2. The plaintiff and D1 are sisters and D2 is their mother.

3. At the material times, the issued capital of Super Asia was $10,000 divided into 10,000 shares of $1 each. 6,000 shares were registered in the name of D1 and 4,000 shares were registered in the name of the plaintiff. They were also the only directors of Super Asia. There is no dispute that if the plaintiff and D1 are in dispute and if such dispute cannot be resolved, Super Asia would be in a deadlock situation.

4. There are other family companies, namely Chuan Shun Bicycle Parts (Shenzhen) Company Ltd. (Chuan Shun) and Golden Power of which the plaintiff, D1, D2 and two other sisters have beneficial interests. The plaintiff at one time held responsible position in both Chuan Shun and Golden Power.

5. The accounts of Super Asia with China Trust were operated by the plaintiff and D1 jointly whereas the accounts of Super Asia with Shanghai Commercial were operated by D1 alone.

6. It is the plaintiff's case that without her knowledge and consent, her 4,000 shares in Super Asia were transferred to D2 by means of forged signatures. She was removed as a director of Super Asia and a co-signatory of its accounts with China Trust. She was also removed from her posts with Chuan Shun and Golden Power and has been denied access to the factory and the books and accounts.

7. It is also the plaintiff's case that D1 had transferred funds belonging to Super Asia into her personal accounts with Standard Chartered Bank (Standard Chartered).

8. The Defence does not dispute that the plaintiff's signatures on the relevant documents are forgeries. The suggestion is that it was done at the plaintiff's request. There is, however, no attempt on the part of D1 to explain the transfer of funds from Super Asia's account to her personal accounts although she denies any dishonesty.

9. Mr Fung, on behalf of the defendants agrees that there are serious questions to be tried. He however makes a number of points to support the contention that the plaintiff's application should be rejected.

10. Mr Fung suggests that Super Asia and Chuan Shun are separate legal entities and hence the plaintiff cannot treat the assets of Super Asia as her own. In so far as the plaintiff's action is a derivative action brought on behalf of Super Asia, the suggestion is that it is not brought for the benefit of Super Asia.

11. Mr Fung also suggests that the plaintiff had not made full disclosure of the following material facts:

(1) The plaintiff had in the past obtained 2,000 shares of Super Asia from her eldest sister by forged signatures and had withdrawn funds belonging to Super Asia without justification when those very matters are the subject matter of her complaint against D1 and D2;

(2) The plaintiff is fully aware of her replacement by D2 as a Director of Super Asia;

(3) The plaintiff had entered into a settlement agreement on 11 October 2001; and

(4) The plaintiff has started a new company Gold Power Industrial Holding Ltd. (Gold Power) and has diverted customers of Chuan Shun to remit payments intended for Super Asia to Gold Power.

12. The plaintiff suggests that monies transferred from Super Asia's account to hers were used for the business purposes of Super Asia and therefore there was no misappropriation. Those disputes are disputes as to facts and it is not for me at this stage to resolve such disputes.

13. But I take the view that even if the plaintiff had indeed misappropriated funds of Super Asia, it is no excuse, let alone justification for D1 to do the same. Two wrongs do not make one right. If the Defence is right in its allegation against the plaintiff, it can take such step as may be necessary to rectify the situation. Similarly for the allegation that the plaintiff had obtained 2,000 shares from her eldest sister by forging her signature, if the eldest sister feels aggrieved by such alleged misconduct, it is open to her to take such reasonable steps as may be necessary to protect her interest. Those matters are not material to issues before this court.

14. It appears not in dispute that the plaintiff, D1, D2 and another sister Zhou Yi Qun did sign a document on 11 October 2001 to the effect that the plaintiff would discontinue the present action and that the accounts of Chuan Shun and Golden Power would be attended to in the manner agreed by the parties so that their businesses could continue. The plaintiff however suggests that the agreement is not effective as it does not contain all the terms agreed between the parties and that D1 also fails to keep her promise by reinstating her as a director of Super Asia and a co-signatory of its bank accounts.

15. The effect of the settlement agreement and the extent to which it binds the parties may well be another serious question to be tried. The parties have not properly framed the issues pertaining to such settlement agreement and it is also not for this court to sort out such matters.

16. The plaintiff could not have disclosed this matter when she first present her case to the court on 6 October 2001 as the settlement agreement was only signed on 11 October 2001. The plaintiff should have disclosed the matter at the inter parte hearing on 19 October 2001. Perhaps the affirmation in support of her application should have been served earlier. But I am not persuaded that the failure to do so is fatal when the hearing on 19 October 2001 was an inter parte hearing. The defence have brought the matter to the attention of the court be it orally as there was not enough time to prepare a written affirmation.

17. I have considered the facts of the case and counsel's submission carefully. I am somewhat skeptical about the plaintiff's assertion that she was not aware that D2 had been made a director of Super Asia in 2000 and that the transfer to money from the accounts of Super Asia to the personal accounts of D1 came as a total surprise to her. In fact the undisputed evidence indicates that the plaintiff herself did exactly the same thing.

18. I am not persuaded that the plaintiff has made out a case for a Mareva Injunction against D1 to restrain her from disposing her assets up to US$560,000. The plaintiff has not demonstrated clearly how the figure of US$560,000 was arrived at. The entire background of the case does not support any suggested risks of dissipation of assets. The Plaintiff's application was probably prompted by the parties' failure to compromise.

19. On the other hand, I am persuaded that the balance of convenience lies in favour of the plaintiff on the issue of the 4,000 shares and I am persuaded that D2 should be restrained from dealing with the 4,000 shares of Super Asia originally registered in the plaintiff's name.

20. I agree that the assets of Super Asia need to be protected. On the other hand, I am also of the view that its business should be allowed to continue in the meantime. I also bear in mind the allegation by the defence that the plaintiff had started a scheme to divert payments by Chuan Shun's customers to her own company, Gold Power and she is therefore to some extent a business competitor of Super Asia and is in a position of conflict of interest.

21. I am of the view that D1 and D2 should be allowed to continue to operate the accounts of Super Asia with Shanghai Commercial Bank as long as the operation is in connection with the normal and usual business of Super Asia. As a safeguard, I order that D1and/or D2 must provide copies of the bank statements of the said accounts to the plaintiff not later than 3 days after receipt of such statements and I grant the parties liberty to apply should D1 and/or D2 fail to comply with order or the situation is such that the plaintiff finds it necessary to take further action with regard to those accounts.

22. Subject to the aforesaid modification, I order that paragraphs 1, 2, 3, 4, and 5 of the order of Sakhrani J given on 16 November are to continue. I also make an order in terms of paragraph 8(b), (c), (d), (e), (f) and (g) of the summons dated 9 October 2001. On the summons dated 10 October 2001, I also make an order in terms with the modification as indicated which I think will be necessary for the convenience and protection of the banks.