MANDARIN RESOURCES CORPORATION LTD AND ANOTHER v. GRAND CHINA LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

1988, Number A5096.

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JUDGMENT

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Preliminary

1. The question before me is whether Mareva injunctions granted in these two matters should be continued or discharged. There was also an application in case A839 (the "second action") for an order that a counterclaim by the second defendant ("Mr Stone") be struck out, but by consent, that application was, subject to a decision on costs, withdrawn.

2. In case A5096 (the "first action"), the plaintiff ("Mandarin") obtained on 18 May 1989, on an ex parte application, a Mareva injunction to restrain the defendant ("Grand China") from removing from the jurisdiction, or disposing of, its assets, save in so far as they exceeded $700,000, in respect of costs obtained on a summary judgment which is the subject of an appeal.

3. In accordance with the ex parte order, Mandarin took out an inter partes summons on 19 May 1989, returnable on 23 May 1989, seeking the same relief. This return day was adjourned from time to time until heard by me. In the meantime, on 10 June, Grand China issued a summons for the hearing of an application to discharge the ex parte order.

4. In case A839 (the "second action"), Mr Stone, who is the chairman and joint managing director of Mandarin, obtained a similar Mareva injunction on 18 May 1989 in respect of his counterclaim for C$250,290.86 against the plaintiff in that action ("Grand China Resources"), which is the parent company of Grand China. The return day of the inter partes summons was also adjourned until the hearing before me. In this action, Grand China Resources also issued a summons to discharge the ex parte order.

The right to begin

5. At the commencement of the hearing before me, there was an argument as to who was entitled to begin. Mr Whitehead, for Grand China and Grand China Resources, claimed this right on the basis that what I was hearing was the summonses to discharge the ex parte orders. He recognised that I was also hearing applications by Mandarin and Mr Stone to continue the injunctions. He submitted that it was a matter of discretion as to which party I should allow to begin.

6. It seemed to me that the primary application before me was the return day of the inter partes summonses issued by Mandarin and Mr Stone. There was no need for Grand China and Grand China Resources to issue summonses to discharge the ex parte orders, which would fall in any event if I refused relief on the inter partes summonses by Mandarin and Mr Stone. A simple, but effective, test of the duty and right to begin is that rests on him who would fail if nobody said anything at a hearing. Here, if Mr Barlow, for Mandarin and Mr Stone, did not move me to make a further order, the ex parte orders would fall and Mandarin and Mr Stone would be without relief. Therefore, I ordered that Mr Barlow should begin. It is for his clients to satisfy me that the relief should be granted.

Jurisdiction

7. The jurisdiction of the Court to grant an injunction is in respect of "… all cases in which it appears to the court just and convenient to do so." On the authority of Ninemia v. Trave Schiffahrtsgesellschaft m b H [1983] W. L. R. 1412, at 1417 -

" It follows that the evidence, including the evidence on the second question [the risk that a judgment would remain unsatisfied] .. must be looked at as a whole. A "good arguable case" is no doubt the minimum which the plaintiff must show in order to cross what the judge rightly described as the "threshold" for the exercise of the jurisdiction. But at the end of the day the court must consider the evidence as a whole in deciding whether or not to exercise this statutory jurisdiction."

8. As to the "second question", Kerr L. J., in the Niriemia case at page 1422, after some discussion on the relevance of the intention of a defendant, said -

"In our view the test is whether, on the assumption that the plaintiff's have shown at least "a good arguable case," the court concludes, on the whole of the evidence before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied."

9. On this issue, as on the matter of whether or not there is a "good arguable case" and, overall, whether it is just and convenient the injunctions should be continued, it is for the applicants, Mandarin and Mr Stone, to satisfy me that the relief should be granted.

The "real risk" question

10. Mandarin having a judgment for costs in the first action, it is only in the second action that the issue of whether or not there is a good arguable case arises. However, it is convenient to deal with "real risk" question first, because this question is common to both actions, and because the primary affidavits are filed in the first action. It was also in the first action that a decision by Deputy Judge Cruden was given, which, according to a submission by Mr Barlow, effectively decides the "real risk" question in the matters before me.

11. The proceedings before Deputy Judge Cruden were concerned with a Mareva injunction obtained ex parte in respect of Mandarin's claim against Grand China on which Mandarin has now obtained summary judgment. Grand China was asking the judge to discharge the injunction. He refused to do this. He found that Mandarin had a good arguable case. He also found that Mandarin had good reason to believe that Grand china "will dissipate its assets if not restrained by the Court".

12. Deputy Judge Cruden found for Mandarin on the second question on the following grounds -

i    The financial position of Grand China was poor and it would be in some difficulty in obtaining financial support from the parent company.

ii. Grand China had sold an asset that produced 75% of its income (the "Shenzhen asset").

iii Grand China failed to make full disclosure to the Court of its financial position. The judge seemed to accept Mandarin's submission that Grand China had consistently shown a lack of candour to the Court.

13. Mr Barlow cites another case in Which Mandarin was involved as authority for the proposition that I should take Deputy Judge Cruden's decision as final on the second question. This is Mandarin Resources Corporation Ltd. v David Cheng Heng Soon and others (CA 1987, No. 146 (Civil)) in which it was held that the question of whether there was a serious issue to be tried on whether Mandarin had a proprietary interest in certain shares, and whether another company had knowledge of a fraud, had already been decided, and no appeal had been brought from that decision. The Court of Appeal refused to hear further argument on this question in proceedings within the same action for the appointment of a receiver where the decision on the same questions would decide the matter of jurisdiction.

14. I do not think this easy way out is open to me, tempting as it may be. I can understand that an earlier decision that a party had a good arguable case would dispose of that question in respect of subsequent interlocutory proceedings in the same case in which that question might otherwise arise again. That is essentially what the Court of Appeal decided in the other Mandarin case. But that is a static situation; a party either has or has not a good arguable case. Where, however, the court is concerned with the second question - whether or not there is a real risk that a judgment may remain unsatisfied - the situation may change from time to time. Where, at one time, there may be no such risk, at another, the risk may be high. One may test that by asking what the situation would be if Deputy Judge Cruden had found no risk, but, later, Mandarin had come into possession of damning and overwhelming evidence of a deliberate scheme to frustrate the judgment of the court. I do not believe the court would refuse to hear a fresh application based on that evidence, and decide, if the evidence justified it, that, in spite of the earlier decision, there was then ample grounds for finding that there was a real risk.

15. It is my view that I am able to look at the matter anew, but I take the matter from where it was left by Deputy Judge Cruden. I should, I believe, accept that, as the judge found, there was, at the time of his decision, good reason to believe that there was a risk that Grand China would dissipate its assets, which I take to be equivalent to a decision that there was a real risk then that a judgment would remain unsatisfied. I must consider the evidence adduced before me to decide if this real risk still subsists on the same, or other, grounds. This, I believe, only applies to the first action. I do not think that the parent company in the second action can be at all affected by the judge's decision at an earlier stage of the first action to which it was not a party.

Mr Stone's concern

16. In his affidavit filed in the first action, Mr Stone states his concern regarding the financial position of Grand China, its subsidiaries and its parent, and his belief that Grand China intends to dissipate its assets. He says that he believes that certain real property owned by a subsidiary of Grand China ("the Kwun Tong property") is about to be sold. He points to Deputy Judge Cruden's finding to support the legitimacy of his anxiety. He also exhibits the audited consolidated balance sheet for Grand China Resources as at 30 June 1988, which reveals a net loss for the year of C$267,879 and an accumulated deficit of C$3,081,997. It mentions assets of C$1,109,256 as accounts receivable and inventories, C$3,197,287 as investments - which relates to the sold Shenz - hen asset - and C$1,117,096 as fixed assets, which seems to be the Kwun Tung property, and liabilities totalling C$4,046,478. In its notes to the financial statements, the auditors comment -

"…the company incurred a net loss of $267,879 during the year ended 30 June 1988 and, as of that date, the company's current liabilities exceed its current assets by $1,666,842. These factors, among others, indicate that the company may be unable to continue as a going concern.... The company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing and to attain profitable operations."

17. The consolidation is said to include the financial statements of Grand China and its subsidiaries. For the period after this to 31 December 1988, according to an unaudited financial statement, there was a loss of C$462,390, before taking into account an extraordinary item of C$845,696, which was from the sale of the Shenzhen asset.

18. A statement was filed in the proceedings on behalf of Grand China showing the assets and liabilities of all the companies of the Grand China group. Although the affirmation exhibiting this statement does not say so, I am told that the statement relates only to assets and liabilities in Hong Kong. This statement says that all the subsidiaries of Grand China are either dormant or not in operation (whatever the difference may be).

19. Grand China Resources is stated to have assets of $181,923 (including a fixed deposit of $180,000 over which a bank has security) and liabilities of $285,693.

20. Grand China has a deposit in court of $6.843m, which may go to Mandarin if it holds its summary judgment on appeal, investments in and advances to subsidiaries of $6.52m, what-ever they might be worth, an amount due from Grand China Resources of $971,490, accounts receivable, petty cash and cash at bank of $602,756, and physical assets at a book value of $270,157. Against this, it has liabilities of $5,180,372.

21. The financial situations of Grand China's subsidiaries are said to be as follow.

22. Goodyear Printing Press is said to have assets of $2.2m and liabilities of $1.4m. This company owns the Kwun Tung property (valued at about $6.5m.) which Mr Stone says he fears is about to be sold.

23. Goodyear Packaging has assets of $646,878 (including $631,565 due from Grand China Resources) and liabilities of $219,999.

24. Printrite Press has assets of $507,309, against liabilities of nearly $6m, of which about $4.7m is due to Grand China.

25. Goodyear Printing Products has assets of $887,793, almost all of which is due from Grand China.

26. Grand Scanning has assets of about $60,000, all of which but for $804 is due from Grand China.

27. Mr Stone says that, now that the Shenzhen asset has been sold, he believes that Grand China Resources and Grand China have no assets in Hong Kong, other than interests in the subsidiaries.

28. On the face of it, these facts and figures do not present a very reassuring picture, and any reasonable person might feel anxious if he learned that the only major, non-incestuous, substantially unencumbered asset (the Kwun Tung property) was about to be sold.

Grand China's answer

29. Mr Ronald Ng, a director of Grand China, made affirmations in reply to that of Mr Stone. He confirms that the premises of Goodyear Printing Press have closed. He says its plant and machinery were sold in January this year for about $2.8m. He does not say what was done with these proceeds. He confirms that the Kwun Tung property is up for sale, and that is valued at about $6.5m. Again he does not say what is to happen to the proceeds of any sale. It is mortgaged to the tune of $1,250,000, and the only other liability of Goodyear Printing Press is $191,315. He confirms the truth of Mr Stone's state-ment that, after the sale of the Shenzhen asset, Grand China and Grand China Resources owned no other assets in Hong Kong, other than its interests in its subsidiaries.

30. Mr Ng says that Grand China Resources is maintaining an office in Hong Kong "to take advantage of future business opportunities in Hong Kong in particular the property market". He also says that "whatever the financial position of the Defendant was … in October 1988, the present financial position ... is that once [the Kwun Tung property] is sold all liabilities of Goodyear will be discharged leaving a residual value of approximately $5 million in addition to the present fixed cash deposit of $1.1 million and net account receivables of approximately $450,000." Again Mr Ng does not say what plans there are for this residue.

31. In view of the facts that the group is Canadian based, that Grand China and Grand China Resources (which are the companies with which Mandarin and Mr Stone are directly concerned) have admittedly no assets in Hong Kong, other than Grand China's interests in its subsidiaries, that Mr Stone has expressly stated his concern regarding the sale of the Kwun Tung property concerned and that Deputy Judge Cruden has already found good reason to believe in a risk of dissipation, this failure to mention what plans there are for dealing with the funds available is surprising and worrying. On the other hand, perhaps the omission is understandable, if not reassuring, in the light of Mr Ng's statement that "the Defendant in the past has and presently intends to liquidate its unprofitable printing assets with a view to raising cash for the purpose of investment both in and out of Hong Kong when such opportunity arises. " It may be that Mr Ng does not want to commit the group to keeping assets in Hong Kong.

32. In a further affidavit, Mr Stone pointed out that Mr Ng had not explained what happened to the proceeds of the Shenzhen asset, other than the money paid into court. In his reply to this, Mr Ng says that, from the $30m odd received, $6.84m was paid into court, $14.3m was paid to creditors, $7.24m was used to purchase shares in Tongkah Harbour Limited, a Thai company, $970,000 was used to pay Shenzhen expenses and $650,000 was remitted to Canada. So, whatever was available was invested in external assets or sent out of the jurisdiction. There is nothing in this information to comfort Mandarin or Mr Stone.

33. Having had his attention specifically drawn to the matter of explaining the disposal of proceeds of assets sold, it is worrying that Mr Ng has not seen fit to state what has happened to the $2.8m. received from the sale of the printing equipment of Goodyear Printing Press, and what plans there were for the disposal of the residue of the proceeds from the sale of the Kwun Tung property.

34. In his affidavit filed in the second action, Mr Stone deposes as follows -

"The ultimate holding company of the Grand China Group which includes Grand China and Goodyear Printing is the Plaintiff [Grand China Resources] which is in turn controlled by its President, Ronald Ng Wai Choi. The Plaintiff is in the course of selling off the component parts of the Group: I believe Goodyear Printing will comply with and implement instructions from the Plaintiff, its ultimate parent company to sell off the Kwun Tong property and printing press equipment to which I refer in my other affidavit. For the same reasons as are set out in that affidavit I fear that unless the Plaintiff is restrained from causing the sale of this property and equipment there will be no assets left of any value within the jurisdiction against which I will be able to execute the judgment which I expect to obtain on my counterclaim in these proceedings."

35. In view of the history of this matter, this spells out a very real and understandable concern. Unbeknown to Mr Stone, the printing press equipment had already been sold. Mr Ng tells Mr Stone this in his replying affirmation, but makes no attempt to say what has happened to the proceeds. He also confirms that Mr Stone is right to think that the real property may be sold, but again says nothing about the intention as to the disposal of the proceeds, other than to justify Mr Stone's fears by saying, by implication, that they may be invested outside Hong Kong.

36. Mr Sang, the financial controller of Grand China Resources, made an affirmation in the second action and produced a consolidated balance sheet as at 31 March 1989 prepared by him. This account is unaudited, and no attempt is made to reconcile the financial situation at this date with that at the 30 June 1988 and 31 December 1988. This claims assets of $3,676,724, liabilities of $1,920,798 and a reduced deficit of $2,859,816 over shareholders equity. Presumably, these figures are in Canadian dollars.

37. Mr Sang says that Grand China Resources has purchased 270,000 shares in Tongkah Harbour Limited, the Thai company. "Besides internal funding," he says, presumably referring to the $7.24m from the Shenzhen, asset "this was financed by a loan of HK$ 5.1 million and the issue of 12,766,666 shares in GCRL [. GCRL] bought these shares at 295 baht each. These shares are trading today [27 May 1989] at approximately 400 baht each (ex rights issue)." He does not say when these shares were acquired; presumably after the ex parte injunctions were granted, and after 23 May 1989, when Mr Sang affirmed to a list of the assets of Grand China Resources, which did not include the shares, or, it may be, Mr Sang was, in that list, speaking of only relevant assets within the jurisdiction.

38. Mr Ng says that these 12,766,666 shares were issued to a company called Paron, with which I will deal later. Mr Sang also says that Grand China Resources is entitled, in June 1989 to take up another 90,000 shares at 150 baht a share - an approximate cost of $4.185m.

39. Assuming that this investment has been as successful as is suggested, these shares are assets in Thailand. This investment seems to be consistent with a policy of investing the assets of the group outside of Hong Kong, and, if a sale of the Kowloon property is achieved, the proceeds could be used to take up the rights issue, or otherwise invested elsewhere.

40. We end up with the position that, admittedly, Grand China Resources and Grand China have no assets in Hong Kong, other than its interests in its subsidiaries, that the Grand China group is following a policy of selling local assets and investing the proceeds outside Hong Kong. Yet no deponent on behalf of Grand China Resources or Grand China says one word to comfort to Mr Stone in response to his stated and natural fear that, when and if he is able to enforce a judgment, there will be no assets in Hong Kong with which to satisfy it.

41. In my view, it is not necessary for Mandarin and Mr Stone to establish that Grand China and Grand China Resources, may "take steps designed to ensure that these [assets] are no longer available or traceable when judgment is given" (Z Ltd. v. A-Z and AA-LL (1982) Q.B. 558, at 585F) in the sense that they must show some nefarious intent. In the Ninemia case, at page 1422, Kerr L. J. said –

"However this interpretation of the emphasised words [designed to] goes much further than the tenor of the authorities ... . We also consider that the distinction mentioned by the judge in the present case, between "object" and "effect" is not the right basis for providing the appropriate test."

42. I find that there is a real risk that a judgment in favour of Mandarin and Mr Stone would remain unsatisfied if steps are not taken to ensure that sufficient assets remain in Hong Kong to satisfy it.

Financial position of Mandarin

43. Allegations have been made about the financial instability of Mandarin. Mr Barlow protests that, in the absence of an application for fortification, this matter is irrelevant. However, I believe it is a factor to be taken into account in deciding whether it is just and convenient that the injunctions be continued.

44. Mr Ng says that Mandarin is or appears to be insolvent. He says this because Mr Meocre Li, a certified public accountant, says that "if the proceeds receivable on sale of [Mandarin's] wholly-owned subsidiary of approximately HK$ 24.7 million were not recoverable, then the current assets or [Mandarin] would only be HK$ 6.8 million, far from sufficient to discharge the current liabilities of approximately HK$ 15.6 million, not taking into account the contingent liabilities of HK31 million." This may be so, but, if the proceeds are recoverable and the contingent liabilities do not become certain, the position is different, and I am not able to drawn any conclusions from this information.

45. Mr Stone, as one might expect, denies that Mandarin is insolvent. He says that, if it were, its own auditors, having access to all the material, would have said so, and they have not.

46. Mr Ng also says that Mandarin has executed a floating charge over its assets in favour of its solicitors. He also says that Mandarin was suspended from trading in November 1986. Presumably, he means that trading in the shares of Mandarin was suspended. Further, he says that, on or about 9 June 1989, the Financial Secretary appointed inspectors under section 143(1)(c) of the Companies ordinance to investigate the affairs of Mandarin.

47. I do not believe that, on this evidence, I can make any useful finding on the financial position of Mandarin. To do so would be to assume that Mandarin is probably guilty because it has been charged.

48. In any event, I am concerned, in the main, with a counter claim by Mr Stone personally, and there is no evidence at all that he is financially embarrassed. The claim by Mandarin is only in respect of the costs awarded to it by this court.

A good arguable case?

49. Mr Stone's counterclaim in the second action claims repayment of loans to Grand China Resources of C$232,144.86 between June and December 1985 and C$45,000 between June and August 1986, less the sum of C$26,854 repaid, leaving a balance of C$250290.86. He says, in his affidavit that "I verily believe that there is no defence to my counterclaim."

50. Mr Stone alleges that Mr Ng acknowledged Grand China Resources' indebtedness in a letter dated 27 August 1986, a copy of which he produces.

51. This letter starts as follows -

"As discussed, this letter sets out the matters which we have agreed will be put on the agenda of the first board meeting held after the board of Grand China Resources Limited has been expanded following the acquisition of 2,000,000 shares in GCR by an invest-ment holding company which you are putting together." Later, it recites -

"GCR recognises that Malcolm Stone has advanced personal funds totalling approximately C$45,000 in the past three months to enable expenses of the company's Canadian office to be paid. It is agreed that this sum, and any further sums which he may advance to GCR from this day, shall be repaid to him by GCR immediately upon GCR extending its financing, or completing financing arrangements.

GCR is also indebted to Malcolm Stone in the sum of C$232,144. It has been agreed that this sum shall be repaid to Mr Stone in 36 instalments of not less than C$5,000 each commencing January 1, 1987."

52. The letter then goes on to deal with a right of set-off and interest.

53. As to this, Mr Ng says that, when he signed the letter, he was not a director of Grand China Resources and not able to bind it. He relied solely on what Mr Stone, who, at the time, he trusted, told him in relation to the alleged debt. He says he had no independent way in which to determine whether the money was in fact owed to Mr Stone. In an affirmation filed later, he seems to suggest the further argument that he did not acknowledge the debt at all; all he did was agree to the matter being put on the agenda.

54. This is not very impressive. I am asked to believe it to be probable that an experienced businessman like Mr Ng, who is, so the letter says, putting together an investment company to acquire the shares in Grand China Resources, agreed, without checking the truth of the matter, that Grand China Resources owed a large amount of money to Mr Stone. Or, apparently in the alternative, if I am not taken by that approach, I am asked to accept that this clear acknowledgement by Mr Ng is not what it appears to be, but merely an item to be put on an agenda for discussion.

55. Mr Stone says that Mr Ng conducted a detailed investigation into the affairs of Grand China Resources, which is probable and what one would expect from any prudent businessman. Clearly, the existence or otherwise of this debt would make a significant difference to the value of the shares being purchased, and, therefore, the price to be paid for them. That the existence of the debt was taken into account in fixing the price of the shares is clearly revealed by the agreement entered into on 29 August 1986 by Chulan Enterprises Company Limited, the company "put together" by Mr Ng, in which the alleged debt of C$232,144 due to Mr Stone is mentioned in the financial statement annexed thereto without comment.

56. It may well be that Mr Ng had no formal authority to bind Grand China Resources when he signed the acknowledgement, but, being an acknowledgement by a person who was "putting together" the investment company to buy the shares in Grand Mandarin Resources, and who is, whatever his control over Grand China Resources, its spokesman in these proceedings and a person of some prominence in its management, it must be powerful evidence of the existence of the debt.

57. Mr Ng says that Mr Stone has asserted that there is no defence to the counterclaim - this is not quite what he says - and that he cannot possibly have made this assertion in good faith, because -

i    Mr Stone has taken no steps until now to enforce the debt.

ii. Mr Stone has failed to disclose in detail how he alleges the loans were made, pointing out that, in certain correspondence, Mr Stone's solicitors disclosed that he paid the money to a Mr Sirianni for work done in promoting Grand China Resources, and did not make a direct loan.

iii    The Board of Grand China Resources rejected his claim at a meeting on 3 April 1987. I will recite the terms of the relevant minutes later.

iv. Mr Stone did not disclose his claim in a Statement of Material Facts signed by him on 23 April 1986, Mr Ng suggesting that this was because "no such "loan" for promotional expenses was ever made …".

v.    There is an adverse finding as to the claim by the Vancouver Stock Exchange. I will deal with the terms of this finding later.

vi.    Mr Stone has not produced a company resolution permitting the advance.

58. As to paragraph i., Mr Stone explains his delay in taking action by saying that he was advised that the claim was one he would normally be required to pursue in Canada and he would probably not be permitted to serve out of the jurisdiction. It may be that he, as a foreign resident, would also be required to provide security in Canada. There appears to be some substance in this. This is not a case in which a claim has come out of the blue some years after it is said to have arisen. It is clear, on what I have before me, that, from time to time, Mr Stone has asserted his claim.

59. Regarding paragraph ii., it is true that the counterclaim is sparse as to detail, but the correspondence of the parties solicitors with the Vancouver Stock Exchange makes the back ground to the matter perfectly clear, and, if it was thought right that it should appear on the pleadings, this background could have been obtained by requests for further particulars. Plainly, Grand China Resources knew the background; it has been debated thoroughly.

60. A minute of the meeting of the Board Executive Committee of Grand China Resources of 3 April 1987, mentioned in paragranh iii. Above, reads -

"The Board Committee regretfully rejected the claim of Malcolm Stone on the basis that although it recognised that certain expenditure had been incurred by Stone in connection with the requotation of [Grand China Resources], it had been categorically attested to by the then Board of Directors that [Grand China Resources] did not and would not be paying any further fees in respect of the underwriting other than those fees already disclosed in the Statement of Material Facts. Under such circumstances, the present Board of [Grand China Resources] felt constrained from approving such expenses."

61. Without seeking to analyze closely what this is meant to say, it certainly does not disclose any defence to Mr Stone's claim. In fact, it recognises that Mr Stone incurred expenditure about Grand China Resources' business in the way he suggests, but says that it will not reimburse this expenditure, without saying why.

62. This minute goes on to say -

"Noted that [Grand China Resources] was indebted to Stone in the amount of around C$45,000 for advances provided by Stone between August and November 1986. Agreed that C$25000 would be paid as soon as possible, with the remainder as soon as the group cash flow could manage this."

63. As to paragraph iv. of Mr Ng's complaints, it is so that the alleged debt due to Mr Stone was not mentioned in the Statement of Material Facts. As to this, Mr Stone says the Statement only mentions underwriting fees and not promotional expenses. There is room for argument on this issue. The Statement does say that there are no payments being made or to be made to any person in connection with the offering of the shares to the public. The effective date of the Statement is 14 May 1986. I am not sure that a loan due to a director in respect of advances to promote the company made some time before this is a payment to be made in connection with the offering of shares to the public. Accepting, however, that the alleged liability should have been disclosed in the Statement, I do not think that I can draw the only relevant inference from this omission; that is, that Mr Stone did not believe he had a valid claim, because, not long after the effective date, in the unaudited accounts for the year ended 30 June 1986, it is stated that he "has claimed against the company $232,144" and, in the unaudited accounts for the same year annexed to the agreement of 29 August, 1986 between Mandarin and Chulan Enterprises, the debt appears as a non-contingent liability.

64. The alleged adverse finding by the Vancouver Stock Exchange referred to in paragraph v. above is contained in a letter dated 6 March 1989 and is in the following terms -

"2. The authorization of the payment of $232,000 to Mr Eugene Sirianni, or companies controlled by him, for promotional services. Financial records filed with the Exchange confirmed that most of these services were provided during a period when the Company's shares were suspended. Notwithstanding this timing fact, the volume of promotional services is totally out of line relative to the Company's business activities."

65. This means, as I read it, that the services for which Mr Stone paid on behalf of Grand China Resources were rendered, but the Exchange did not think they were justified. This, if anything, supports the fact that Mr Stone has a good arguable case. The view of the Exchange that the services were not justified may prove to be right, but, at this stage, it does not bind me and does not bind Mr, Stone. As Mr Stone points out, if the payments were for the purpose of promoting and reactivating a dormant company, it is not surprising that they might appear out of line with the company's business activities. I do not even know if this is the line of defence that Grand China Resources will take it does not, in terms, say that it will.

66. Mr Ng also produces a note by Mr Stone dated 26 November 1986 in which it is stated that, to avoid disputes and to get the accounts out on time, they should be adjusted regarding the shareholder's loan of $232,144, and a note should be added to the accounts stating the fact of the claim in this sum and the details. This, in my view, carries the matter nowhere, other than to show that Mr Stone was asserting his claim and that, for some unstated reason, the company was not accepting it.

67. A quarterly report of Grand China Resources dated 23 January 1987 is also produced by Mr Ng. This report notes Mr Stone's claim as a liability, but marks it as a contingency, and notes that "The Company's liability is not determinable at this time." A similar position applies to the accounts for the year ended 30 June 1986. These documents show no more nor less than that Mr Stone was persistent in maintaining his claim and that Grand China Resources was unwilling to pay, without stating why.

68. Ng points out that Mr Stone has produced no receipt or invoice in respect of the money allegedly paid by him. This is so, and, if he has no such receipt or invoice, this might weaken the strength of his evidence as to the alleged debt. It is a factor, but I find that it does not, against the other factors destroy his good arguable case.

69. Mr Stone has produced an extract from his trust account with his Canadian lawyers. This records a payment to Eugene Sirianni of C$99,972.43 on 17 September 1985 and one to "Siriani" Trust in the sum of C$132,172.43 on 14 February 1986. Mr Ng says that allegation of a payment on 14 February 1986 is not consistent with the allegation in the counterclaim of loans made between June and December 1985. Mr Stone has not explained this, but it was raised late in the day. There was already a welter of allegations and counter-allegations in the voluminous papers filed in this matter, and I did not encourage the filing of any further affidavits. The explanation may be in the difference between a loan and an advance under a loan, but, in any event, I do not think the factor weighs heavily enough to affect an otherwise good arguable case.

70. Mr Ng says that Grand China Resources has a complete defence to Mr Stone's claim. If so, I would have liked Mr Ng to tell me what it is. Most of Mr Ng's energy seems to have been devoted to seeking to demonstrate the imperfections of Mr Stone's case, and very little to telling me what defence Grand China Resources has to the claim. He says Grand China Resources does not accept it. He hints that, in spite of the indications to the contrary, perhaps the money was not advanced at all. He suggests that perhaps the expenditure was not justified. He also implies that it may be that the advances by Mr Stone were not authorised by Grand China Resources. I have no clear picture of what is being said by Mr Ng, and I should not be left to guess what defence will be advanced.

71. With regard to the debt of approximately C$45,000 acknowledged by Mr Ng, he now says that the amount was, in fact, C$39,000, which, Mr Whitehead submits, is approximately C$45,000. I do not think it is, but that is by the way. In any event, Mr Ng says that what was due has been paid, and more.

72. Mr Stone denies this. There is strong evidence of this part of the claim which must support a good arguable case.

73. Accordingly, I find that Mr Stone has a, good arguable case.

Control of Grand China Resources

74. There was a great deal of paper and time occupied in these proceedings over the matter of who controls Grand China Resources. It is not immediately apparent what relevance this issue has to the matters I have to decide, but it does have some bearing on who is to be trusted, and the justification or otherwise for Mr Stone's fear that the judgments, if finally obtained, may remain unsatisfied, so I will deal with it.

75. Mr Stone says that Mr Ng controls Grand China Resources. Mr Ng denies this. Mr Ng says, essentially, that his shareholding in a company called Paron, through which, on the face of it, complete control may exercised over Grand China Resources, is very small.

76. Mr Ng concedes that it might appear from its shareholding that Paron controls Grand China Resources, but, he says, there is an agreement between a group of companies called Yue Xiu and Paron that their respective shareholdings and control of Grand China Resources shall be maintained at an equal proportion and level. However, the only document produced by Mr Ng shows merely that, in one transaction in 1986, Yue Xiu would subscribe for half the equity being acquired at that time.

77. Mr Ng says that 99.5% of the shares in Paron are owned by his sister, a senior clerk in Malaysia, and she has entrusted the day-to-day management and decision-making to him under an undated power of attorney. He produces a copy of the annual return of Paron dated 31 December 1988 showing that his sister owns 1,990,000 of the 2,000,000 shares.

78. Mr Stone produces an information circular issued by Grand China Resources dated 30 April 1989. This circular says that "To the best of the knowledge of the directors and senior officials of the Company, as at the date hereof, no persons beneficially own, directly or indirectly, or exercise control or direction over shares carrying more than 10% of the voting rights attached to all the outstanding shares of the company except" Paron Company Ltd, which is said to own 56% of the shares and a Mr Cheng, who is said to own 11%. The circular goes on to say that Mr Ng is a director and officer of Paron and presently controls all of its issued and outstanding shares. If, as Mr Ng alleges, his sister beneficially owned 99.5% of the shares of Paron at this time, there is no avoiding the fact that this circular is untruthful or misleading.

79. Mr Ng says that this circular is correct, but suggests that it is consistent with him having only day-to-day control under the undated power of attorney from his sister. I do not accept this. Clearly, the purpose of the circular is to inform the reader of where the real ownership and ultimate control of the company is to be found. If Mr Ng's sister is beneficial owner of 99.5% of the shares in Paron, it does not do so.

80. Mr Stone also says that he believes Mr Ng signed an undertaking in November 1986 to the Vancouver Stock Exchange in which he said that Paron was wholly owned by him. Mr Stone also produces a letter dated 25 November 1986 by Paron to Grand China Resources in which it is stated that Mr Ng was the registered holder of 9,999 shares, all but one of the issued shares of Paron.

81. Mr Ng accepts that this was the position at the time, but he says matters have moved on since then. By 30 November 1987, he says, his sister held 1,990,000 shares in Paron. The fresh issue of shares was necessary to raise the investment level in Paron so that a loan could be granted to Grand China Resources to save it from insolvency. This may be the case, but I would have expected, in view of the allegations made, additional information to show that the finance for the raising of the investment level came from his sister.

82. Further, Mr Stone states that a company called Chulan acquired two million shares in Grand China Resources under an acquisition agreement. This, he says, was the "investment holding company" referred to in the document signed by Mr Ng on 27 August 1986, upon which Mr Stone relies in submitting that he has a good arguable case. Mr Stone produces an undated document signed by Mr Ng on behalf of Chulan acknowledging that the two million shares would give it a control position in Grand China Resources.

83. Mr Ng says that "the "control position" mentioned in Mr Stone's affidavit" - these words were, of course, Mr Ng's, not Mr Stone's - does not mean actual or managerial control, because the shares held by Chulan amounted to only 45.3% of the entire issued share capital. According to the table of issued shares produced by Mr Ng, the issued share capital at the time concerned was 4,407,720, and, apart from 1,000,000 shares taken up by the public and 750,000 shares held in escrow, the next possible largest block of shares appears to be 242,000. I would have thought that Mr Ng was right to say that the two million shares gave Chulan a control position in reality, and it is wrong to quibble that the two million shares were not enough to out-vote all the other shareholders combining together.

84. I cannot make any firm findings in relation to the control issue, but I am left feeling suspicious and uneasy about Mr Ng's protestations that he is a very small fish in this pond. I am certainly not able to say that it appears to me that those in control of Grand China Resources are such as to make it unreasonable for Mr Stone to have like feelings of suspicion and unease.

Lien over shares

85. One of the other matters that was argued in these proceedings was Mr Stone's claim to exercise a lien over certain shares of Grand China Resources in another action by Grand China Resources against him.

86. It is said that, if Mr Stone has the security of this lien, why does he need the further security of a Mareva injunction?

87. Mr Barlow suggested there was evidence that these shares had been cancelled. I proceed on the basis that this is not so.

88. I do not see the existence of the lien as an argument against the continuation of the injunctions. I do not know what these shares are worth now; I do not know what they will be worth in the future, when any judgment is granted; I do not know if they will be realisable or if they will be in existence; I do not know if Mr Stone's claim to the lien will be upheld. In my judgment, these imponderables make it unreasonable to expect Mr Stone to rest content on the shares over which he says he has a lien as assets against which he could seek to levy execution to satisfy any judgment in his favour.

Failure to disclose

89. Mr Whitehead argued that I should refuse to continue the injunctions because Mr Stone failed to make complete disclosure in the ex parte applications.

90. He relies a great deal on Bank Mellat v. Nikpour [1985] F. S. R. 87: Lord Denning, at page 89 -

"When an ex parte application is made for a Mareva injunction, it is of the first importance that the plaintiff should make full and frank disclosure of all material facts. He ought to state the nature of the case and his cause of action. Equally, in fairness to the defendant, the plaintiff ought to disclose, so far as he is able, any defence which the defendant has indicated in correspondence or elsewhere."

91. No one, of course, would challenge this, but where does it take me in this case?

92. I have now examined all the aspects of the matter that, it is said, should have been disclosed by Mr Stone at the ex parte stage. I have found that Mr Stone's apprehension that there is real risk that a judgment might go unsatisfied is justified. The material adduced in opposition was largely unknown to Mr Stone, and, I have found, it does, if anything, increase the justification for a belief that there is a real risk.

93. I have also found that Mr Stone has a good arguable case. In my view, if Mr Stone had adduced the material that I have examined, his case would have been made stronger, not weaker, and it would not have shown any consistent good arguable defence. Having found that, am I to say that Mr Stone should not have his relief because he did not disclose material that, at least on balance, is in his favour?

94. The rule requiring full disclosure in ex parte applications is, common-sense dictates, to ensure that the judge considering that matter has before him the information that may tell against granting the relief claimed. An obligation to disclose material facts is an obligation to disclose facts that may tell against the validity of claim or favour a good defence. Here, in my judgment, the additional material would, by and large, have supported the grant of the injunctions. It would certainly not have told the judge that Grand China Resources had a good arguable defence. Nowhere in the material that, it is said, should have been disclosed, have I found a clear, unequivocal statement of what defence Grand China Resources has to Mr Stone's claim. What is more, nowhere in the many pages of affirmations filed by Grand China Resources in the inter partes proceedings before me is there a simple, understandable statement of the grounds upon which Grand China Resources would defend the claim. Of course, there are indications of a line of possible defences; it may be that the loans were not authorised; it may be that the money was not actually paid; it may be that the work was not done; it may be that the work was not justified, but, I believe, I am entitled to be told what the defence actually is, not what it might be in different situations, and Mr Stone is not to be blamed for failing to disclose an absence of a specific, recognisable defence.

95. If Mr Stone had produced all the mass of material I have considered for perusal by the judge hearing the ex parte application, in my judgment, it would have amounted to the judge knowing that Mr Stone had maintained his claim, but Grand China Resources had refused to pay, without saying clearly why not.

96. I do not believe that litigants should be encouraged to clutter up applications for ex parte relief with a great deal of material, which, at the end of the day, does not produce anything of great significance relevant to a basis on which the relief should be refused.

97. In any event, to discharge an order for non-disclosure would be an exercise of discretion, to mark, I take it, the court's displeasure of the conduct of the applicant for the ex parte order. In this case, I decline to exercise my discretion in this way.

Result

98. For the reasons I have given, I find it, in the light of all the factors I have taken into account, just and convenient that the injunctions should be continued, and I so order. I dismiss the applications for the discharge of the injunctions. On the face of it, I can see no reason why Grand China should not pay the costs of the application in the first action and Grand China Resources the costs of the application in the second action, and I make orders nisi to that effect accordingly.

99. There remains the matter of the costs of the application to strike out Mr Stone's counterclaim in the second action. If this aspect cannot be settled, it will be necessary to hear argument.

ADDENDUM

    After I had prepared and signed this judgment, but before it was handed down, Mr Whitehead asked that I hear further argument to be based on a decision not referred to me during the hearing. I declined that request. I have already heard argument over four days; that, I thought, was quite enough. I did, however, say that I was prepared to read the case concerned, and another case that Mr Barlow wished me to see.

    The decision referred to me by Mr Whitehead is that of Nazareth J. In Tung Yu Lien Margaret.-v Shee Kok Chong (Case No 1989, A545) I have now read the Judgment in that case. The facts not disclosed in that case were, Nazareth J. found, "material, in terms of substance, to the issues…in particular to whether the Plaintiff had a good arguable case.". Indeed, on my reading of the case, the facts not disclosed went to the very root of the plaintiff's case, and certainly demonstrated that the defendant had a good arguable defence.

    In the case before me, I have found that the facts not disclosed were not of substance, and do not show any articulated defence at all.

    Accordingly, that case has been on little assistance to me, and gives me no cause to change my mind

    The case drawn to my attention by Mr Barlow is an unreported decision of the English Court of Appeal in the matter of Mahmoud v. MonpareS A (17 September. 1986). The only relevance of this case it seems, is that on its peculiar facts, the court exercised some indulgence on the matter of non-disclosure where the necessary affidavits were prepared and sworn by the solicitor, and the non-disclosures were entirely and completely his fault. I do not accept it as authority, in the usual case, for indulgence to be granted where the solicitor decides what should included, and what should be omitted, from the papers when making an ex parte application. This is, of course, what usually happens in these matters.

    All in all, I have found that the two cases do not add much to the weight of the arguments on either side.