DEIULEMAR SHIPPING S.P.A.AND ANOTHER v. TRANSFIELD E.R. FUTURES LTD

CACV 219/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 219 OF 2010

(ON APPEAL FROM HCMP 1490 OF 2010)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Stone J:

This appeal

1.  By Notice of Appeal dated 11 October 2010 the plaintiffs appealed from an Order of the Hon Mr Justice Rogers VP (sitting as an additional judge of the Court of First Instance) whereby the learned judge below:

(1)    refused the plaintiff’s second ex parte application of 12 August 2010 for a worldwide Mareva injunction in aid of English proceedings; and

(2)    ordered the plaintiffs’ solicitors to inform the solicitors for the defendant in the English proceedings of the dismissals by Rogers VP of the plaintiffs’ first ex parte application of 5 August 2010 for worldwide Mareva relief in aid of English proceedings, and of the written judgment of the learned judge dismissing the plaintiffs’ second ex parte application.

2.  At the conclusion of the argument mounted on behalf of the plaintiffs/appellants by Mr Clifford Smith SC, this court dismissed the substantive appeal against the refusal of the learned judge to grant such Mareva relief (including a request for significant ancillary asset disclosure), allowed the appeal in part against the subsidiary order of the judge whereby the solicitors for the plaintiff were to transmit to the solicitors to the defendant the relevant information regarding the ex parte applications for Mareva relief, together with a copy of the written decision of Rogers VP, dated 13 August 2010 and delivered upon the plaintiffs’ renewed application for such relief.

3.  We now give our reasons for so deciding.

The factual background

4.  The background to this appeal is unusual and somewhat tangled procedurally.

5.  The relevant factual matrix has been described in detail in the Decision of Rogers VP dated 5 August 2010 (‘the first Mareva application’), in his second Decision of 13 August 2010 (‘the second Mareva application’), and also in the affidavit evidence leading these applications repectively sworn by Mr Geoffrey Shaw, the plaintiffs’ Hong Kong solicitor, and by Mr David Graham Hughes of the plaintiffs’ London solicitors, Messrs Berwin Leighton Paisner LLP.

6.  As the learned judge expressed the position in his Decision upon the first Mareva application, the dispute between the parties is in respect of a debt allegedly due by the defendant to the plaintiffs as the result of what are called “forward freight swap agreements” or “FFA’s”; as the judge remarked (at paragraph 1 of his first Decision), these instruments are little more than futures contracts which are not intended to result in the moving of freight per se, but, dependent upon the outcome of the particular contract, are intended to result in the payment of monetary differences between one party and another.

7.  Rogers VP recorded also that currently these parties “are locked in litigation” in the London Commercial Court, litigation which commenced in mid-June 2010, wherein, under Particulars of Claim signed by counsel, the 1^st plaintiff alleges that the defendant is liable to it in the sum of US$10.385 million, and the 2^nd plaintiff says that the defendant is liable to it in the sum of US$5.788 million.

8.  These London proceedings ‑ Claim No 2010 Folio 712 ‑ are being hotly contested, a Defence and Counterclaim (in the sum of US$26.7 million odd being counterclaimed against the 1^st claimant, Deiulemar Shipping Spa, and in the sum of US$15.181 million against the 2^nd claimant, Deiulemar Compagnia Di Navigazione SpA), the essence of this pleading, as signed by leading and junior counsel, being that the grounds upon which the plaintiffs were claiming the return of their monies do not and did not exist, because no ‘event of default’ as alleged had occurred; to the contrary, it is therein alleged that the defendant is owed some US$26 million by the 1^st plaintiff and some US$15 million by the 2^nd plaintiff.

9.  A certain amount of “interlocutory skirmishing”, as the judge drily expressed it, earlier also has taken place, Rogers VP noting that an arrest at the defendant’s behest of two of the plaintiffs’ vessels on the Mainland initially was successful, only for the Chinese court to release these vessels, apparently on the ground that there was no legitimate ground to arrest these vessels on the basis of these contracts.

10.  However, notwithstanding that the ‘centre of gravity’ of this litigation undoubtedly lies in the Commercial Court in London, no attempt had been made to obtain worldwide Mareva relief in London from the Commercial Judge in charge of the case in that jurisdiction, a matter which also weighed heavy in the balance with Rogers VP, who observed (at paragraph 5 of his first Decision of 5 August 2010) that whilst indeed there now existed jurisdiction in the Hong Kong court to grant Mareva relief in aid of the English claim, such an application could have been framed in the English Commercial Court, and that in the circumstances as revealed on the evidence before him he did not see that it was right for the Hong Kong court to grant an injunction given the obviously large degree of factual dispute existing between these parties as currently the subject of active litigation in the English High Court.

11.  In fact, after reviewing the papers before him the learned judge essayed the preliminary view that he “did not see that the defendant has got a bad case at all”, and thereafter proceeded to analyse the three propositions he divined within the plaintiffs’ claim prior to concluding that the plaintiffs’ case was not “necessarily that strong” in order for him to exercise his jurisdiction to grant the relief as then sought, which in substance was an application to freeze monies of the defendant up to the sum of HK$150.5 million odd which was thought to be in the defendant’s account at the Hong Kong and Shanghai Banking Corporation (‘HSBC’) within Account No 808-449854-274.

12.  Accordingly, his formal Order dated 5 August 2010 was that the plaintiffs’ application be refused, and further and specifically that “there be no search, inspection or publication of today’s written decision without the leave of the court”.

13.  That first (and unsuccessful) Mareva application had been founded upon an Originating Summons dated and filed on 5 August 2010, and backed by an affidavit, sworn upon information and belief, of Mr Geoffrey Shaw of Messrs Deacons.

14.  Having failed upon the first occasion, a renewed Mareva application was mounted by the plaintiffs, on this occasion backed by an affidavit of the plaintiffs’ English solicitor, Mr David Hughes, sworn on 11 August 2010, together with an additional affidavit sworn by Mr Shaw on 12 August 2010.

15.  In his affidavit, Mr Hughes sought to explain in particular why no Mareva application had been brought in England, and why the application had not been made sooner; he commented also on points arising from the Defence as had been filed by the defendant in the English Commercial Court proceedings.

16.  In his second Decision on this second Mareva application, dated 13 August 2010, Rogers VP, again sitting as an additional judge of the Court of First Instance, observed at the outset that the matter first had come before him on 5 August 2010, and that on that occasion, in response to a request made on behalf of the plaintiff applicant, he had ordered that there should be “no search, inspection or publication” of the Decision he had earlier rendered for a period of one month or so “in order to enable consideration to be given to making an application in England”.

17.  The judge further recorded that, prior to returning to his court, the previous night the plaintiff had made its second application before the Duty Judge of the week, and he observed “in the very strongest terms”, that upon refusal by a judge of an ex parte application the choices open to the unsuccessful applicant either are to appeal such refusal, or to renew the application (presumably on the basis of additional evidence) before the same judge “unless he [that judge] is positively unavailable”.

18.  For our part we endorse those observations without reservation; we do not know the particular circumstances which had prompted this second approach to the Duty Judge ‑ in this instance Au J ‑ but we are minded to say that in principle interlocutory ‘forum shopping’ is not acceptable, and in the event that the original judge who had been seized with a significant interlocutory application (as a Mareva undoubtedly is) truly is unavailable to hear any renewed application, any substitute judge faced with such renewed application clearly must have the entire background explained to him at the outset.

19.  Be that as it may. 

20.  In the event, and for reasons to which we are not privy, this renewed application indeed did find its way back to Rogers VP on the following day, 13 August 2010, the proposed draft order as then sought, in addition to containing the request for substantive Mareva relief in like terms to that of the first application (that is, restraining dissipation within or without Hong Kong up to the value of HK$150.525 million) further contained a wide-ranging demand for discovery of all assets in or out of Hong Kong to an individual value of HK$10,000 or more, and a request for an order for inspection of banker’s records.

21.  Rogers VP once more rejected this renewed (and expanded) second Mareva application in what the objective observer might characterize as fairly trenchant terms.

22.  The judge observed that he did not see any provisions in the draft order relating to the proceedings currently underway in England, and nor did he see any provision relating to the ability of the defendant to make payments in the ordinary course of business or otherwise.  He stressed his earlier view that it would have been appropriate to make application for Mareva relief in the English proceedings, observing:

“A worldwide Mareva injunction could have been claimed [in the English proceedings]. It could have been framed and certainly the Bank, which has been named, in my view would have adhered to it, but the injunction could have been framed in terms that a further application could have been made here”.

23.  He dismissed as wholly irrelevant the suggestion by Mr Hughes in his affidavit that the same solicitor acting for other clients had made other applications in Hong Kong for Mareva injunctions in respect of different transactions and different parties, and noted that in contradistinction the present case was one which is being actively defended in England, pursuant to what seemed to the judge to be “at least a viable argument”.

24.  Rogers VP further stressed that the plaintiffs still appeared not to have grasped that an English application, if granted, could immediately have been followed by a further application in Hong Kong:

“In these days of instant communication, it would have been entirely easy for an application to be made in London on the basis that a corresponding application would be made in Hong Kong. That would have been on the basis that either the Hong Kong judge was standing by, or the application could have been made last thing one day in London and the corresponding application made early the next day in Hong Kong. If the London judge had been made fully aware of what was intended, he could have decided whether or not that was an appropriate course. In my view this is the correct procedure in a case like this…”

25.  It is clear from the terms of this second Decision that Rogers VP viewed this application not as in aid of proceedings in the Commercial Court in London, but, to the contrary, “as a total interference in the proceedings which are well underway in the [English] Commercial Court.”  He continued thus:

“The terms of the injunction which I have read out would interfere with the course which the defendant could take in London. It would be likely to interfere with even his payment of legal costs in London let alone put the defendant in real jeopardy of not being able to honour any obligation which may likely arise in the immediate future given the nature of its business. How is the Hong Kong court going to control the proper payment of those costs? It cannot do so. That is a matter for the Commercial Court in London to do, not a matter for the Hong Kong court…

I raise all these points before I even get to the crucial point because, although the plaintiff has attempted to patch up the points which I considered presented considerable difficulties in the grant of a Mareva injunction, I regret to say that they have not done so…”

26.  In the event Rogers VP ordered first, that the Mareva application be refused, and thereafter that:

“2. The solicitors for the plaintiffs send to the solicitors for the defendant in the proceedings pending in England

(a) The court’s decision dated 5 August 2010 refusing the plaintiffs’ ex parte application of 5 August 2010 for a worldwide Mareva injunction against the defendant; and

(b) The Court’s written decision of today.

3. The application for a stay of paragraph 2 of this Order be refused.”

27.  That which procedurally followed was that on 14 August 2010 the Chief Judge, Ma CJHC, issued an order for a stay of the disclosure order as made by Rogers VP “until the determination of the Plaintiffs’ application for leave to appeal by the Court of First Instance or until further Order”, and on 19 August 2010 the matter reverted to Rogers VP upon an application for leave to appeal to the Court of Appeal against his second Decision.

28.  This application for leave to appeal was roundly rejected by the judge ‑ “I have no doubt that leave should be refused” ‑ and in his written Reasons for such refusal the judge observed that at the conclusion of his first Decision a request had been made to him that the decision not be published, pending an application to the Commercial Court in London, in accordance with his suggestion that that court should be requested to grant a worldwide Mareva injunction, on the basis that a corresponding application would then be made in Hong Kong either immediately or very soon thereafter, and that he had acceded to that confidentiality request only on the basis that such an application was to be made; he continued:

“However, no such application was made to the Commercial Court…The suggestion I made was ignored and Mr Hughes, the London solicitor acting for the plaintiffs, has sought to divert attention from that suggestion by asserting that any injunction granted in England would not affect the bank in Hong Kong…”

29.  The judge further rehearsed his view of the case and why he had rejected the application, noting the significance of and potential damage that Mareva injunctions can do, stressing that the grant of such an application was discretionary, and said that if it be correct, as Mr Hughes had maintained on affidavit, that the primary reason for the delay in making this application had been to “wait and see” the nature of the defence in the Commercial Court, it thus seemed to him that “the attitude of the Commercial Court to that defence is particularly relevant”.

30.  Accordingly, on the application before him, by Order dated 19 August 2010 Rogers VP refused to grant leave to appeal ‑ “In my view there has been nothing which has shown that the exercise of the discretion which I have made, which I consider is clearly competent for this court to make, has been wrongly exercised…”, against which rejection of the grant of leave the plaintiffs then appealed to the Court of Appeal.

31.  Thereafter, by a Judgment dated 8 October 2010 the Court of Appeal (Hon Tang VP, Ag CJHC and Yuen JA), after reviewing the history of this litigation and after hearing argument mounted by the plaintiffs’ Hong Kong solicitor, Mr Shaw, ultimately took the view that leave to appeal should be granted, Madam Yuen JA also noting (at paragraph 7) that in the circumstances leave to appeal should be given, and specifically further ordering “that no search, inspection or publication of this written decision may be made without leave of the court”.

32.  The status quo thus temporarily having been preserved, this appeal now was mounted against the Decision of Rogers VP dismissing the second Mareva application, and ordering disclosure of the written ex parte decisions/associated materiel to be sent to the plaintiffs’ London solicitors.

The argument

33.  On behalf of the plaintiffs/appellants, Mr Clifford Smith SC introduced the appeal by asking that the courtroom be closed to the public; this request was denied.

34.  Mr Smith supplied the court with an extensive skeleton argument, and no disrespect is intended if I do not herein set out the entirety of his submissions; suffice to say that he sought to identify errors of principle in the judgments of Rogers JA in his first and second Decisions, maintaining that such errors of principle were sufficient to permit this court to set aside the Order refusing Mareva relief, and thus in turn to exercise its own discretion in order to grant the relief sought.

35.  Mr Smith also had a second string to his bow.

36.  He submitted that even if this court were not to grant the Mareva relief as continued to be sought by his clients, in any event the consequential ‘disclosure order’ as made by Rogers VP should be set aside.

37.  In fact he went further, submitting that if and in so far as the court were not to grant the Mareva relief, but was minded to set aside the disclosure order as made by Rogers VP, that in any event this court should order that the ex parte applications and associated affidavits should be what colloquially might be termed ‘brown bagged’ in the High Court Registry, so that the files (including the written Decisions) could not be inspected in normal course, and thus the defendant would be precluded from learning about the proceedings which had transpired in Hong Kong.

38.  In the course of his submission Mr Smith emphasized that there was nothing in section 21M of the High Court Ordinance, which is the statutory amendment enabling the Hong Kong court to provide interim relief in respect of proceedings in another jurisdiction, or in any other rules of court requiring an application to be made to the overseas court [in this instance the English Commercial Court] seized with the substantive proceedings prior to applying in Hong Kong for interim relief under that section, that the learned judge below had accorded too much weight to the fact that no application had been mounted in England, particularly given that it is appropriate that Mareva relief be granted by those courts best able to make their orders effective (vide Credit Suisse Trust v Cuoghi [1998] QB 818, at 827), and that in this instance an order of the Hong Kong court undoubtedly would be effective to freeze an asset of the defendant in Hong Kong once notice has been given to the entity holding the asset, in this case HSBC Hong Kong, which was incorporated in Hong Kong and would not be bound or affected by an order of the English court; accordingly, he said that any injunction granted by the English court would be ineffective, and that there could be no good reason for incurring the expense of mounting an application in England as a prelude to making an application in Hong Kong.

39.  Mr Smith further submitted that Rogers VP had been in error in the view he had taken as to the overall relative merits of the dispute as was ongoing between these parties in London, and that the plaintiff’s case clearly satisfied the established test of a ‘good arguable case’.

40.  Counsel said that the substance of the dispute between the plaintiffs, Italian ship-owning and chartering companies, and the defendant, a BVI company trading in ‘FFA’s’, focused on the repayment of some US$16 million paid out by mistake under these instruments after the occurrence of a subsequently-discovered ‘event of default’ consisting of the defendant’s failure to pay some US$8.1 million demanded of it by a third party, one Pioneer Freight Futures (‘Pioneer’), with which the defendant had been a counterparty under certain FFA’s; hence the “crucial issue” was whether the plaintiffs are entitled to rely on such inability to pay as an ‘event of default’, which turned on whether the defendant was unable to pay its debts as they became due as at the time that the plaintiffs had made the payment of US$16 million in the normal course of the commercial relationship between these parties, and when notice had been served on behalf of the defendant on 10 June 2010 demanding that the plaintiffs resume payment for the period after they had ceased to make their payments, that is, as from May 2010. 

41.  Hence, said Mr Smith, not only was there a ‘good arguable case’, but as to the risk of dissipation of assets, such necessarily would be on the basis that the defendant had defaulted on its obligation to pay Pioneer the sum allegedly due; plus the fact, he continued, that there was evidence that the defendant had failed to pay its broker, that it was easy to move money around, and that the defendant was a BVI company with no link to Hong Kong save for its bank account with HSBC, nor was the defendant registered under Part XI of the Companies Ordinance, Cap 32, and “the absence of any real presence anywhere” thus heightened the risk of the defendant taking steps to place assets out of the plaintiff’s reach should the plaintiffs ultimately obtain judgment in their favour.

42.  As to the disclosure order, Mr Smith described this as “unusual and unprecedented”, and submitted that, contrary to the Order made below, and which presently was the subject of a stay, there were “compelling reasons” why the fact of a failed ex parte application for a Mareva injunction should not be communicated to the party against whom it had been sought.

43.  Moreover, he said, Article 10 of the Bill of Rights Ordinance, Cap 383, did not require that a decision handed down by a judge when refusing an ex parte Mareva application should be made public, and that there was a difference between a decision to refuse an ex parte application and a judgment following a hearing inter partes which affected the rights and obligations of the parties to suit; in fact, the mere fact of the refusal of an ex parte application did not prejudice any other party.

Reasons for Judgment

44.  In effect, therefore, there were two parts to this appeal against the Order of Rogers VP.

(a) Dismissal of application for substantive relief

45.  As to the substantive refusal to grant Mareva relief, this court had little hesitation in dismissing the plaintiff’s appeal.

46.  For my part, I could identify no error of principle or juristic approach of the learned judge to the two ex parte Mareva applications ultimately mounted before him, and in my view no question arose in terms of interfering with the exercise of his unfettered discretion in the matter.

47.  After reviewing the accumulated papers I tend to agree with the instinct of the learned judge (at paragraph 15 of his Decision on the second Mareva application) that this whole exercise was “no more than a plaintiff trying to steal a march on the defendant”.

48.  Nor have the plaintiffs adequately explained why this form of worldwide Mareva application was not initially mounted before the forum which is seized with the substantive dispute between these parties, namely a judge of the English Commercial Court, who is likely to have an excellent ‘feel’ for the case, given that it has been pleaded out in that Court.

49.  In my view it is no sufficient reason to say, as did Mr Hughes on affidavit (at paragraph 20), that even if an English court had seen fit to grant a worldwide Mareva, the plaintiffs still would have needed to apply to the Hong Kong court for an order to freeze the Hong Kong bank account, since the order of the English court would not be binding on the Hong Kong bank in Hong Kong.  Like the judge below, I very much doubt that a scenario would have occurred when, had an English Commercial Court Mareva been granted involving an HSBC account in Hong Kong, that HSBC would have taken a territorial point; to the contrary, service on/notice to the London Head Office doubtless would have resulted in the appropriate instruction being rendered to ensure compliance.

50.  In any event, in the most unlikely event that the contrary were to have been the case, there is no good reason why there could not have been ‘back to back’ injunctive relief, as the judge below pointed out on several occasions; this is a commercial dispute with which the English commercial court is intimately involved, and had it seen fit to grant such relief I very much doubt if, in such circumstance, there would have been any reluctance whatever on the part of the Hong Kong court to grant complementary relief in aid of such primary decision.  As Rogers VP expressed the position (at paragraphs 15-18 of his Decision dated 19 August 2010 refusing leave to appeal):

“On each occasion that the matter has come before me, I have indicated that I consider that in the circumstances of this case, and taking into account all relevant matters, this court may be more disposed to grant a Mareva injunction in aid of the proceedings in the Commercial Court, if the Commercial Court considered that that was an appropriate course, given all the other circumstances that are likely to happen.

I was not purporting to lay down a matter of principle, nor a matter of procedure that should be followed in every case. I just indicated that that seemed the appropriate course in this case. It may be observed that the first reason given for delaying the application in Hong Kong until 5 August was, in Mr Hughes’ own words:

“The first is that the plaintiffs agreed to wait to see if the defendant intended to defend the English proceedings and if so on what basis: hence it was agreed we would wait for receipt of the defence in the English proceedings.”

It is certainly not clear with whom that agreement was made, nor is it clear as to why it took another two and a half weeks to apply in Hong Kong other than what already has been said. Mr Hughes chose to ignore the suggestion of a founding application in the court of litigation and, whilst he filed an affidavit, he sought to divert attention from my suggestion of simultaneous or complementary applications and simply argue that an injunction would not bind HSBC in Hong Kong…

If, given the existence of proceedings in the Commercial Court in London, this court was to impose a Mareva injunction that would very likely interfere with the London proceedings.  If it was right, as Mr Hughes said it was, that the primary reason for the delay was to wait and see the nature of the defence in the Commercial Court, it seems to me that the attitude of the Commercial Court to that defence is particularly relevant…”

51.  In addition to the matters relied on by the judge below, the other matter of significance which strikes me is the paucity of any cogent evidence relating to a real risk of dissipation, always a cardinal element within the grant of any ex parte Mareva application.

52.  It is simply not enough to say, as Mr Smith effectively came close to submitting to this court, that the case brought against the defendant obviously was strong, and that the defendant’s status as a BVI company speaks for itself, and thus is sufficient to get him home. 

53.  The ineluctable fact remains that, until the advent of this dispute ‑ which now is being fully played out in the London Commercial Court ‑ the plaintiffs appeared content to enter into an ongoing commercial relationship of an essentially speculative nature with the defendant, and in my view the fact that a dispute now has broken out, with the plaintiffs accusing the defendant of an ‘event of default’, and with the defendant vigorously counterclaiming even larger sums, and alleging breach of the Swap Agreements by the claimants and early termination and loss (vide paragraph 26 et seq of the Defence and Counterclaim in the English proceedings), does not strike me as constituting an adequate factual matrix upon which to mount a founding Mareva application in Hong Kong, whilst pointedly not making any such application in the place of primary jurisdiction before (if it truly was felt necessary) moving for like (and complementary) relief in Hong Kong.

54.  The Mareva form of interlocutory relief has become so much a part of the common law procedural machinery since the eponymous 1975 case [Mareva Compania Naviera SA v International Bulkcarriers SA [1975] 2 Lloyd’s Rep 509] and is so frequently resorted to, that in my view there is a danger ‑ both on the part of litigants and of the courts ‑ of taking this relief for granted.

55.  Various clichés are used to describe this type of ex parte relief, and whether it be regarded as a “nuclear weapon” (the traditional epithet) or a “forensic depth charge”, it is incontrovertible that obtaining such relief virtually always puts the other party to litigation at a very real disadvantage ‑ indeed the party against whom it is granted immediately is placed on the forensic back foot, a position from which it may never adequately recover, after scrabbling either to assemble evidence to discharge the injunction, or to vary its terms to enable it to continue to function even at a far reduced level, in addition to attempt to meet the substantive case as mounted against it, and all this against a background wherein notice of the grant of such ex parte relief frequently causes banks to become agitated and jittery and to move to withdraw vital credit lines, to say nothing of the intangible damage to the commercial reputation/profile of the particular defendant within its particular industry.

56.  Hence in my view it remains essential that the courts - which as a matter of practical politics more often than not means at the date of application the particular Duty Judge of the day, who often may not be a judge with a commercial background ‑ must not allow superficial judicial familiarity with the form of application to obscure the vital necessity of carefully and critically scrutinizing the material placed before it by the applicant in arriving at a decision as to whether to grant such significant interim relief, and in ensuring, so far as is possible, that full disclosure has been made by the applicant as to all factual circumstances relevant to the making of any decision to grant the ex parte injunction.

57.  In the present instance it is clear from the Decisions rendered in this case that the highly experienced judge below, who as a matter of happenstance was sitting as an additional judge of the Court of First Instance, subjected this application (or, to be exact, these two applications) to precisely the type of scrutiny that was required; in fact, in the course of the three Decisions as were rendered, namely those consequent upon the first and second Mareva applications, and latterly upon the application for leave to appeal against the refusal to grant this relief, Rogers VP evidently had uppermost in his mind the potentially devastating effect of the grant of Mareva relief, expressly referring (at paragraphs 9-12 of his third Decision dated 19 August 2010) to the “damage to [the defendant’s] financial reputation which the grant of a Mareva injunction would inevitably endanger” and commented that given the nature of the defendant’s business it meant that:

“…there is a real and substantial danger that the grant of a Mareva injunction would precipitate the collapse of the defendant’s business and possibly force the defendant into liquidation. As was explained when the applications were made, large sums of money have to change hands every month as contracts of the nature with which the defendant deals mature and have to be squared off. One can assume that the defendant has dealings with a number of other parties other than the plaintiffs. Mr Hughes gave, as a reason for delaying the application for an injunction in Hong Kong, the fact that the defendant would have counter-parties. He estimated that payments would be made to the defendant’s account. But equally, it seems to me, that depends very much on whether the defendant was astute and successful and would gain from the contracts or would have to pay money out.

The grant of a Mareva injunction would thus prevent the defendant from making payments in the ordinary course of its business. These were not payments simply of utility bills, nor were they limited to its payment of rent or otherwise, or staff wages. If the defendant could not make a payment in respect of one of the FFA contracts – and on the case that has been presented, one approaches the matter on the basis that there are other contracts – then that, in itself, would trigger an event of default and then it would be entirely within the realms of possibility, if not likelihood, that the whole of the defendant’s business would come to an immediate halt, with, quite probably, permanent consequences.

In saying this, I note that Mr Hughes gave as one of the reasons for delaying the application to the court in Hong Kong until 5 August, the fact that the plaintiff considered it likely that it would gain maximum advantage from the likely timing of payments.  No doubt, also, the reverse is true.  The grant of the injunction on the day before payments are due is quite likely to cause the maximum disruption and damage to the defendant…”

58.  It is for the foregoing reasons, therefore, that the appeal against the refusal to grant the two applications for Mareva relief was dismissed.

(b)  The consequential disclosure order

59.  As earlier noted, the second part of the plaintiffs’ appeal against the Order below related solely to that part of the Order made by the judge whereby he ordered that the plaintiffs’ solicitors be informed of the dismissals of the two Mareva applications, and of the written Decisions accompanying such dismissals.

60.  It was this aspect of the case which, if I may say so, Mr Smith attacked with the greater enthusiasm.

61.  His contention was that such an order was “unprecedented”, arguing that once communicated to the defendant, this would either precipitate the dissipation of assets if indeed the defendant was desirous of acting in this manner and in putting its assets out of reach of a potential judgment creditor, or that it would effectively prevent a subsequent Mareva application ‑ “even when stronger grounds for granting such an injunction might have become available” ‑ because the plaintiffs would contend that, if the defendant indeed was minded to dissipate, then this effectively would become a certainty upon learning of the earlier failed application(s).

62.  The very reason, he continued, why ‘Marevas’ invariably are applied for on an ex parte basis is that the giving of notice to the defendant may well be fatal to the application, and thus that the effect of ordering disclosure of a prior failed application is, for all practical purposes, to confine a plaintiff to one attempt only at obtaining Mareva relief.

63.  Mr Smith argued that Article 10 of the Bill of Rights Ordinance, Cap 383, which deals with equality before the courts and the right to a fair and public hearing, in itself did not cut across the principle of making an ex parte application for Mareva relief, and stressed that the refusal of an ex parte application did not prejudice any other party; if the law allows the application to be made without the other party being made aware of it, which it does, then, Mr Smith submitted, there was no reason for the decision to be notified to the other party unless it impacted on his rights, which clearly would be the case if an injunction had been granted (and wherein the defendant would be served in normal course), and which equally clearly was not the case if (as here) it had been refused.

64.  Counsel distinguished the case of Dragon Capital Partners LP v Merrill Lynch Capital Services Inc, HCA 10161 of 1994, a decision of Keith J (as he then was) dated 14 November 1996, which had been referred to by the learned judge below, as being confined to its particular facts, in that that case was concerned only to ensure that the taking out of urgent interlocutory relief prior to the issue of originating process did not lead to two sets of proceedings coming into being in relation to the same action.

65.  For my part I respectfully consider that to order the plaintiff’s solicitors proactively to communicate the fact of failed Mareva applications in another jurisdiction represents a procedural step too far, although I have sympathy with the sense of indignation ventured by the learned judge below (at paragraph 19 of the Decision dated 19 August 2010) that if indeed these failed applications were to be kept confidential, this would be the equivalent of “a plaintiff being willing to wound but afraid to fight or afraid to stand by its conduct”.

66.  Nevertheless, I naturally agree with the sentiment strongly expressed by the court below that it is a fundamental rule that justice in Hong Kong be administered openly, and that ex parte orders are an acknowledged infringement of one of the cardinal rules of natural justice, namely that the court must hear the other party before making a decision.

67.  However, whilst accepting all the relevant underlying principles, at bottom I disagree with the view that what has happened in Hong Kong in this litigation now must be communicated by the plaintiffs’ solicitors to the defendant’s solicitors in London.

68.  But ‑ and it is a significant ‘but’ ‑ such ‘proactivity’ element, if I may term it thus, is the only difference that I have with the view expressed below by Rogers VP.

69.  As the learned judge stressed, “a fundamental rule is that justice in Hong Kong is administered openly”, and it is precisely for this reason that this court declined to permit this hearing to take place in court closed to the public (as Mr Smith had requested when he opened this appeal), and again it is precisely for this reason that this court further declined to accede to Mr Smith’s additional request, namely, not only to set aside that part of the order below requiring the plaintiffs to inform the defendant’s solicitors of these proceedings and of the Decisions emanating therefrom, but further to order that the court file in relation to this action be sealed in order to prevent access thereto and knowledge being gained as to what had happened in this jurisdiction in this case.

70.  I appreciate, of course, that in giving leave to appeal the Court of Appeal, differently constituted, expressly had ordered (at paragraph 7 of the judgment dated 8 October 2010) that prior to the substantive appeal “no search, inspection or publication of this written decision may be made without leave of the court”.  However, that was then, and this is now.

71.  For the avoidance of doubt, I have no inclination whatever to countenance any sealing within the Court Registry of the files relating to this case, and to the Mareva applications as made, or in any way to prevent publication in normal course of the Decisions and Judgments consequential upon and arising out of these proceedings; to hold otherwise, it seems to me, would be anathema to the fundamental principle of transparent justice which the Hong Kong courts hold dear.

72.  Hence, this appeal succeeded in minor part solely relating to proactive communication of the fact and content of these proceedings to the defendant’s solicitors.  In every other respect, in my judgment this appeal wholly failed, and deservedly so.

Hon Tang VP, Ag CJHC:

73.  I asked Mr Smith at the beginning of his submissions to address us on real risk of dissipation.  I told him that unless he could demonstrate a real risk of dissipation the appeal in respect of the Mareva injunction must be dismissed and it was unnecessary to hear him on the other issues.  At the end of his submissions, the court was not satisfied that he was able to show a real risk of dissipation and that part of the appeal was dismissed.

74.  The defendant was the plaintiffs’ counterparty to substantial forward freight swap agreements (FFAs).  As I understand it, depending on the movement of Baltic Exchange Index, either the plaintiffs or the defendant would have to make payments to the other party on the relevant Settlement Date. 

75.  According to the plaintiffs, the defendant is and was at all material times a BVI company and that other than betting on the outcome of the FFAs, they did not believe the defendant had any other business interests or activity. 

76.  It is clear from the nature of FFAs that the credit, integrity and reputation of parties engaged in such business are of utmost importance.  The defendant must have been accepted by the plaintiffs as a worthy counterparty when they entered into FFAs with it.

77.  Mr David Hughes, a solicitor involved with the proceedings in the Commercial Court in London, has said in paragraph 23 of his affidavit of 11 August 2010, that a reason for not making an application for a Mareva injunction:

“until 5 August 2010 is that payment under FFAs are required to be made within 5 London business days of the Contract month: accordingly, payment by counterparties who owe moneys to the defendant for the Contract Month of July 2010 should make payment by 6 August 2010. The plaintiffs were therefore intending to freeze any moneys entering the defendant’s account on 6 August 2010. If the application was made earlier, the defendant could request payments to be made to another account outside Hong Kong to defeat the object of the Hong Kong Court’s order.”

78.  I gather from the foregoing that the defendant has continued to carry on its business.

79.  I believe if there is any real doubt about the solvency or integrity of the defendant in the FFAs market, it is inconceivable that they could continue in business.  The fact they could continue to do so is inconsistent with any perception that there is a real risk of dissipation.  Also, I agree with Rogers VP’s view that great harm would be done to the defendant if a Mareva injunction is granted.  In the circumstances, I could see no justification for interfering with Rogers VP’s exercise of discretion.

80.  However, we have set aside that part of the order whereby Rogers VP ordered that the plaintiffs’ solicitors be informed of the dismissals of the two Mareva applications, and of the written reasons accompanying such dismissals.

81.  I agree with Rogers VP that it is important that justice be administered openly but I do not believe a proactive order is appropriate.  Both the originating summons and the various decisions relating to the application for Mareva injunction (if Rogers VP so permits) as well as this decision will be available to the public. 

82.  It is not the practice to order an unsuccessful applicant for an ex parte Mareva injunction subsequently to inform the object of his application.  Indeed, sometimes the writ would not be served and that effectively would be the end of the proceedings.  If the documents ordered to be served are relevant to the proceedings in London, no doubt discovery would be made of them.  If they are not relevant, I see no reason why the parties should be made to incur the costs of serving or receiving those documents.