XCHRX ETABLISSEMENT AMRA v. YIU YAU PING

1995, No. A374

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Costs of the Order 14 Application

1. On 27 April 1995, I handed down judgment in respect of an application by the plaintiff for judgment under Order 14. I gave unconditional leave to defend, and I made an order nisi that costs be costs in the cause. The defendant now applies to vary the order nisi, saying that the defendant should have the costs, paid forthwith. This application is made on the basis that, when the plaintiff launched the Order 14 proceedings, it knew that the defendant was contending that he had a defence; the defence that I found to be an arguable defence, and on which I gave unconditional leave to defend.

2. I found that the defendant had a defence on the basis that it was certainly arguable that the plaintiff was a money-lender and had no licence. This defence was clearly raised in the defendant's affirmation filed on 4 February 1995 in relation to the plaintiff's application for a Mareva injunction. The plaintiff issued his Order 14 summons on 16 February 1995.

Rule 7(1) of Order 14 says -

". . . if it appears to the Court that the plaintiff knew that the defendant relied on a contention which would entitle him to unconditional leave to defend, then, without prejudice to Order 62 [which is the general provision regarding costs] and in particular to rule 4(1) thereof [which allows the Court to deal with costs at any stage and to order payment forthwith], the Court may dismiss the application with costs and may require the costs to be paid by him forthwith."

3. The Order 14 summons was supported by an affirmation by the plaintiff's solicitor. This said that the deponent believed that there was no defence to the claim. This should not have been said - could not have been properly said - in the light of what the solicitor must have known about the defendant's contention that the plaintiff was an unlicensed money-lender. I had no difficulty finding that this defence was arguable, and, in my view, no legal adviser applying his mind to the matter could have thought otherwise. On this basis alone, the application under Order 14 was hopeless from the start. It should not have been brought.

4. Mr Li contends that the plaintiff honestly believed that there was no defence. The plaintiff may have genuinely believed that there was no good defence, but I do not accept that the plaintiff's advisers thought there was no defence or no arguable defence.

5. I did not dismiss the application; I simply gave the defendant unconditional leave to defend. I would have dismissed the application with costs if I had applied my mind to the fact that the defence had been disclosed by the defendant before the Order 14 summons was issued. Futile Order 14 applications should be discouraged. It may be that I cannot act strictly within Order 14(7), but I have, of course, ample discretion to deal with the costs as envisaged by that rule.

6. In the circumstances, I order that the plaintiff pay the defendant's costs of the Order 14 application. I do not order that they be paid forthwith. On the view I take of the whole proceedings, I believe that the just order is that they be paid in any event.

The Mareva Injunction

7. I also have before me applications, by the plaintiff, to continue an ex parte Mareva injunction, and to add a discovery order, and, by the defendant, to discharge the injunction.

8. The plaintiff's first hurdle is easily overcome; that of establishing that it has a good arguable case. Indeed, Mr Yuen told me that he was not saying that the plaintiff had not established a good arguable case; he was arguing that the defendant had established a good defence. That the defendant has an arguable defence is clear; I have found so already in the Order 14 proceedings. But this is not a ground, in itself, for discharging the injunction. In the Order 14 proceedings, I found that the only defence which justified unconditional leave to defend was the one under the Money-Lenders Ordinance (Cap 163). Even if this defence is accepted, it seems probable to that a trial court will find that it is inequitable that the plaintiff should not recover a substantial amount.

Material Non-disclosure

9. The defendant contends that the plaintiff was guilty of material non-disclosure at the ex parte stage, and, on this ground alone, I should discharge the injunction.

10. There are four areas in respect of which the defendant argues that the plaintiff failed to disclose material facts -

Licensed Money-lender

11. The defendant says that the plaintiff should have disclosed to the judge at the ex parte hearing that he was not licensed to be a money-lender. It is true that he did not do so. I would have been very surprised if he had. The plaintiff's case is that he is not a money-lender as defined by the Ordinance, and it is quite open to it to maintain that position at the trial. If, of course, it is not a money-lender, the question of a licence does not arise.

12. The facts on which I found that one could draw the inference that the plaintiff was carrying on a business as a money-lender were fully disclosed in the ex parte application. I do not think it is reasonable to expect the plaintiff to say, beyond this, that these facts might lead to the conclusion that he did carry on business as a money-lender and that he was not licensed as such.

The Power of Attorney

13. The defendant says that the plaintiff misled the judge at the ex parte hearing regarding a power of attorney authorising the defendant to collect money from Neworld Estate Limited (Neworld). In July 1993, the plaintiff had lent $5 million to Neworld. The fact is that, on 4 July 1994, Mr Naville of the plaintiff gave a form of power of attorney to the defendant authorising him to collect this loan. Mr Yuen points out that, in his affirmation in support of the ex parte application, Mr Naville said that money had been received from Neworld by defendant "without the intended plaintiff's knowledge". He went on to say that - "The intended plaintiff immediately demanded the intended defendant to repay" the money to the plaintiff. The defendant said he was unable to repay. The skeleton submission used at the ex parte hearing said that "unknown to the intended plaintiff . . . and without the consent of the intended plaintiff" Neworld paid money to the defendant for payment to the plaintiff. The plaintiff then demanded the money from the defendant. No mention was made in the submission that the defendant was authorised to collect this money.

14. Mr Naville said somewhat more than Mr Yuen suggests. In his affirmation, Mr Naville says that Neworld failed to repay the loan. He says - "I pressed the intended defendant to seek repayment of the loan. By the end of September 1994, he told me he received repayment of [$1.25. million]." Mr Naville says that, in November 1994, he received information that Neworld "on top of the [$1.25 million] paid another [$3.57 million] to the intended defendant who without the intended plaintiff's knowledge received the repayment purportedly on behalf of the intended plaintiff. The intended plaintiff immediately demanded the intended defendant to repay to the intended plaintiff such sum. He said he was unable to pay . . ."

15. The defendant says that he collected $3.57 million from Neworld. $2.5 million was paid in July 1994 and a further $1.07 in October 1994. He denies collecting a further $1.25 million, but he does not specifically deny that he told Mr Naville that he received this sum. He does not deny, and implicitly admits, that he did not tell the plaintiff that he had collected the $3.57 million until November 1994.

16. It is true that Mr Naville did not specifically say that the defendant was authorised to collect the Neworld loan, but he does say that he "pressed the intended defendant to seek repayment of the loan." This must imply that he had given some authority to the defendant to do this. The skeleton submission does give the impression that the payment to the defendant was not authorised by the plaintiff, but Mr Naville makes it perfectly clear that the plaintiff's complaint is, not that Neworld paid the money to the defendant without authority, but that the defendant did not tell him promptly about his receipt of the money and account to the plaintiff for it. That complaint is amply justified, and is not really denied by the defendant. The judge at the ex parte stage, reading what Mr Naville had to say, could have been under no misapprehension about this. He would not have read the skeleton submission for the purpose of ascertaining the facts; that is the purpose of the evidence.

17. I do not accept that there was any non-disclosure of material facts in this respect.

The Fax of 3 January 1995

18. Mr Yuen has drawn my attention to a statement by Mr Naville in his affirmation - "In fact the intended defendant moved his office address without informing the intended plaintiff. The intended plaintiff only got the new address from [the defendant's solicitor]".

19. The defendant does not suggest that he told the plaintiff about the change of office premises, but Mr Yuen points to a fax dated 3 January 1995 in which the defendant said - "As told u before, in Christmas I am forced to move my office due to lots and lots of problems happened lately. I need full energy to solve all instant problem." Mr Yuen says that the plaintiff should have produced this fax at the ex parte hearing. This fax did not give an address; only a telephone number and a fax number. The defendant does not deny that the plaintiff obtained his new address from the defendant's solicitor.

20. Mr Yuen says that Mr Naville's remark about the defendant not informing him of his change of address was to support the alleged risk of dissipation of assets. On the other hand, production of the fax would have advanced that case even further. Mr Yuen concedes that the statement in the fax that the defendant was forced to move office "due to lots and lots of problems" raises the inference that the defendant "moved office due to financial constraint and difficulties". It raises the inference that the defendant was seeking to avoid being bothered by creditors so that he could concentrate on his problems. The fax also provides further justification for the plaintiff's anxiety about recovering its money. It says - "My past facilities is HK$35 millions but now they need me to cut down to HK$12 millions with 15 millions deposit. My whole plan has been totally jeopardise. For this moment, I have to sell whatever I have and loan money from everywhere just to cool down the fire from Swiss Bank."

21. In the result, I do not think that the failure to produce the fax could have influenced the weighing process against the defendant. If anything, if the judge has seen the fax, it would, in my view, have tipped the scales further in favour of the plaintiff.

The Sale of Village Garden

22. Lastly, in this area, Mr Yuen complains that the plaintiff, at the ex parte stage, said - "In 1994 he sold his residence at Village Garden, Fa Po Street. His wife and three children had moved to Australia and residing there for some years. The intended defendant is holding an Australian passport."

23. The defendant says that this property was sold "in around 1991 and not in 1994.", although he does not suggest that Mr Naville would have known this.

24. Mr Naville replies that, when he met the defendant in Hong Kong on 9 January 1995, he asked whether he had sold his flats in Hong Kong, and the defendant replied that they were sold already. From this, Mr Naville assumed the defendant meant that he had sold them in 1994.

25. The defendant says he sold the property as early as 22 March 1991, and Mr Yuen argues that the plaintiff could have ascertained this by a search of the land register, under its duty to make proper inquiries. In fact, this is not so. No agreement of sale was registered. A search after July 1994 would have revealed only that the property was assigned by the defendant by instrument dated 21 July 1993 registered on 4 September 1993 and subsequently re-assigned by instrument dated 15 June 1994 registered on 19 July 1994. So, if the plaintiff had searched, it would have said, at the ex parte stage, that the property was assigned by the defendant in 1993, not that he sold it in 1994. I do not think this is material, or would have had any influence in the weighing process.

26. In conclusion on the allegations of material non-disclosure, I find that they are groundless, or, if there was any materiality in any non-disclosure, it was of such little significance as to have no influence in the weighing process.

Risk of Dissipation of Assets

27. Mr Yuen argues that the plaintiff has failed to show any real risk of dissipation of assets.

28. Mr Naville alleged, in his affirmations, that the plaintiff had been in business with the defendant "and a group of companies controlled by him" for over 20 years. He names the companies and says that a companies search shows that that the defendant holds 60% of the issued share capital in them. He says that he also learnt from the defendant "he was in control and management" of these companies. The defendant agrees that he holds 60% of the shares in five of the six companies mentioned by Mr Naville. These five companies I will refer to as "the Tact Shing companies". The other 40%, he says, are owned by other shareholders in their own right. The sixth company, the defendant, says, is his uncle's business. This is Clever Luck Investment Company Limited. When the defendant speaks of the Tact Shing companies, he refers to them as "my" companies, and, when he speaks of his business affairs, he does not distinguish between himself and the companies. He regards his affairs and those of the companies, quite correctly in my view, as bound up together.

29. Although the defendant and each of the Tact Shing companies is a separate legal entity, the assets of these companies may, for the purpose of this exercise, be regarded, to a large extent, as the assets of the defendant. This because, if the plaintiff is successful in this action, the shares of the defendant in these companies will be available to satisfy the debt; to the extent of liquidating the companies and realising their assets, if necessary. It follows that, if the assets of these companies are being dissipated, this diminishes the value of what is available to satisfy any judgment debt against the defendant himself. Equally, just as the financial position of the defendant is relevant for the purposes of this inquiry, so is that of each of the Tact Shing companies. This is so because, just as there is a greater risk of dissipation of assets by a defendant who is in financial difficulties compared to one who is not, there is also a greater risk that a company, in which a defendant has a majority of shares and control, that is in such difficulties dissipating its assets compared to a company that is in a health financial state.

30. It is clear, on the evidence, that Tact Shing Trading Company Limited (Tact Shing Trading), one of the Tact Shing companies featuring most in this matter, has serious financial problems. The defendant put it most graphically in his fax of 3 January 1995 referred to earlier. I repeat what I recorded then. He said that his bank was tightening his credit. "My past facilities is HK$35 millions but now they need me to cut down to HK$12 millions with 15 millions deposit. My whole plan has been totally jeopardise. For this moment, I have to sell whatever I have and loan money from everywhere just to cool down the fire from Swiss Bank." This is one of the instances in which the defendant equates himself with his companies. The borrowers under the Swiss Bank credit facilities letter of 15 February 1994 were all the Tact Shing companies. Under the facilities letter dated 20 January 1995, by which the facilities were reduced, Tact Shing Trading Company Limited, Tact Shing Export Company Limited and Karman Development Limited were the borrowers. The defendant told Mr Naville in January 1995 that "my group of companies" was experiencing financial difficulties. "To support what I said, I showed Mr Naville a letter from the Hongkong and Shanghai Banking Corporation concerning the dishonouring of various cheques issued by [Tact Shing] or other companies under my control".

31. As I have found earlier, the defendant probably moved his office to avoid creditors.

32. Tact Shing Trading received the sum of $400,000 from a creditor of the plaintiff, but has failed to pay this over. There is no explanation from the defendant as to what has happened to this money. He says that Tact Shing Trading "is now in the process of arranging the same to be repaid to the plaintiff". He said this on 3 February 1995. The money has still not been paid over to the plaintiff.

33. The defendant collected, on his own evidence, $3.57 million on behalf of the plaintiff. Mr Naville deposed that the defendant told him that he was unable to pay over this money. The defendant does not specifically deny this. He says - "having received the said $3.57 million from Neworld Estate Limited, I discussed the matter with Mr Naville and asked him if the Plaintiff was willing to advance the same" to Tact Shing. I have not been told what happened to this money after the defendant received it.

34. The defendant, he says, sold a property at Mongkok Plaza on 9 December 1994, although, unusually, the sale was not registered. The defendant says that this was done "with a view to raise money for my group of companies as they had cash flow problems". I have not been told how, specifically this money was used.

35. The defendant lives at a property in La Salle Road, Kowloon. He has used this property by way of mortgage to raise $4 million to repay credit facilities extended by the Swiss Bank.

36. The defendant holds an Australian passport and his family is resident in Australia.

37. The defendant offered to sell Tact Shing's pleasure boat and its textile quota to the plaintiff. How Tact Shing was to continue in the textile business without its quota is not explained by the defendant.

38. What the plaintiff has to show is that there is a real risk of dissipation; not a proved intention to dissipate, or even a probability of an intention to dissipate. The factors I have mentioned, taken together, lead me to the firm conclusion that the defendant's dealings, or attempted dealings, with his assets and those of the Tact Shing companies, and his somewhat cavalier attitude to large amounts of money received by him as agent for the plaintiff, raise a real risk that any judgment in favour of the plaintiff might remain unsatisfied. In my view, the plaintiff's fear about this is amply justified.

Undertaking as to Damages

39. The defendant says that there is insufficient evidence to show that the plaintiff is good for its undertaking as to damages. Mr Yuen argues that the injunction should be discharged on this ground, or that the plaintiff should be required to fortify its undertaking.

40. Mr Naville said, at the outset of these proceedings, that the plaintiff's current estimated net worth was about $12 million. At no stage has this evidence been challenged, nor has the plaintiff been asked to produce accounts or other evidence to back up this statement. In these circumstances, such corroborative evidence should not be required. The court bundle in this case runs to nearly 600 pages. This is quite big enough; parties to these matters should not be encouraged to produce more documents relating to matters that are not, apparently, challenged. The fact that the plaintiff was able to advance cash loans in the millions supports the view that the plaintiff would be able to meet any damages awarded.

Discovery Order

41. The plaintiff asks for an order for discovery in order to make the injunction effective. The draft order seeks disclosure of the defendant's assets within the jurisdiction, including bank accounts, shares, real property and valuables.

42. The plaintiff does not have a proprietary claim here; it cannot claim discovery in order to trace assets that belong to it in equity. There is some authority to the effect that, in the absence of a proprietary claim, discovery orders should be confined to particular assets. I do not understand why this should be so, and I do not understand how a plaintiff can be expected to confine his discovery order to particular assets if he does not know about them. And, if he does know, why does he need a discovery order? It seems to me that where there is a Mareva injunction restricting a defendant from dealing with his assets within the jurisdiction, such an order cannot be effective unless one knows to what specific assets it refers. In other words, how is it possible to know that a defendant has breached an order by disposing of an asset, or sending it out of the jurisdiction, unless one knows of the existence of that asset? When execution is levied, one cannot know what is missing unless one knew what was supposed to there in the first place.

43. Accordingly, I find that the discovery order is necessary to render the injunction effective. The injunction shall continue until further order, and I make an order in terms of the draft, save that the defendant is to comply with it within 14 days, not 7 days.

Security for Costs

44. The defendant asks that I order the plaintiff to supply security for the defendant's costs on the ground that the plaintiff is resident outside the jurisdiction.

45. This is a matter of discretion, and what I should strive for is a just order. I have found that the defendant has an arguable defence on the basis of the Money Lenders Ordinance. I was not impressed by the other defences. I think it is probable that the plaintiff will recover a significant sum from the defendant, even supposing he establishes the defence under the Ordinance. The defendant, or the companies of which he is the major shareholder and in respect of which he has control, has admittedly received a large sums of money from the plaintiff, and I do not know what has happened to them. In these circumstances, would any reasonable person regard it as just that I should order the plaintiff to put up more money in order to pursue its claim? I think not. In the circumstances of this case, I think it would be an affront to anyone's sense of justice to require the plaintiff to advance money to give the defendant security against the event that he might win this case. Accordingly, this application is dismissed.

Conclusion

46. In the result, apart from in respect of the costs of the Order 14 proceedings, the plaintiff succeeds.

Costs

47. It seems to me that the plaintiff should pay the costs in respect of the argument over the costs of the Order 14 proceedings in any event. The defendant should pay the costs in any event in respect of the other matters argued. I make an order nisi accordingly.