HUNG MAU REALTY AND CONSTRUCTION LTD. v. ZHONG QUAN CHEUK KEI ENGINEERING CO. LTD.

HCCT91/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO.91 OF 2002

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D E C I S I O N

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1) On 12 May 2002 the plaintiff applied for and was granted an ex parte Mareva injunction which, in short, restrained the defendant from disposing of assets in Hong Kong up to the value of $16,148,217.75. The plaintiff now seeks an order continuing the injunction and varying it upwards to an amount of $47,000,000. The defendant seeks an order discharging it.

2) The defendant was the plaintiff's sub-contractor. The plaintiff had sub-contracted the whole of the works in question to the defendant for a 4% "management fee". The events which form the basis of the plaintiff's primary case against the defendant occurred in early May 2002 when the seventh interim payment was due.

3) There is no dispute that the developer paid the plaintiff $16,148,217.75 as the seventh interim payment on 7 May 2002. It was then liable to pay the defendant a like sum less 4% within seven days, namely $15,502,290.

4) What actually happened was that the plaintiff on 8 May paid $16,000,581.75 to the defendant. The defendant then issued two cheques to the shareholders of the two partners of the joint venture company which formed the defendant. The plaintiff's case is that in effect, the money was used, not to pay sub-sub-contractors but to return capital to the shareholders prior to withdrawing from the contract. The contract was terminated on 14 May 2002. The plaintiff has affirmed that the money was only paid to the defendant after "considerable chasing" by the defendant and after assurances that the money would be used for the payment of sub-contractors and suppliers etc. The defendant disputes this and further disputes that their motive was to regain capital prior to repudiating the contract.

5) By its writ of summons dated 13 May 2002 the plaintiff claims, inter alia, a declaration that the sum in question is being held by the defendant on trust for the purpose of paying suppliers etc. It claims the defendant is liable as a constructive trustee and seeks an order that the trust money be returned. There is an additional claim for damages which Mr Charles Manzoni, who appears for the plaintiff, submits is a $47,000,000 claim. Hence, he seeks a variation in the terms of the injunction to that amount. The real thrust of his case however concerns the $16,000,581.75 payment. The whole matter has now been referred to arbitration.

6) The plaintiff's case depends on the $16,000,581.75 payment being construed as a payment not made pursuant to the contract. Mr Manzoni submits that it was not an interim payment but was a payment made in advance of the due date for the seventh interim payment and for a slightly different amount. To succeed the plaintiff must prove a trust was created and that it was not a contractual payment.

7) Mr Geoffrey Shaw for the defendant submits that such an argument is untenable. He points to the fact that deponents on both sides refer to the money as "the seventh payment" or "the seventh interim payment". Also, even though it was paid one day after the plaintiff had received the certified amount from the developer, the sub-contract provided for payment to the defendant "within seven days" not "seven days thereafter". The payment was therefore within the contractual period and plainly an "interim payment". He submits the argument that a trust had been created is bound to fail. If it was a valid contractual payment the plaintiff must lose.

THE LAW

8) For a domestic Mareva injunction the plaintiff must show :

(a) that he has a good arguable case;

(b) that there are assets within the jurisdiction;

(c) that the balance of convenience is a favour of grant;

(d) that there is a real risk of dissipation of assets, or removal of assets from the jurisdiction which would render the plaintiff's judgment of no effect;

(e) the plaintiff must comply with a strict duty of full and frank disclosure.

(a) "Good arguable case"?

9) The plaintiff relies heavily on evidence concerning what was said a meeting between the parties (two from each side were present) on 11 May 2002. The defendant keenly contests the plaintiff's version. The plaintiff will have to satisfy the tribunal that the defendant's motive in asking for the payment was dishonest. Fraud is alleged in the arbitration pleadings. If this is proved the plaintiff must then satisfy the tribunal that the payment created a constructive trust and was not a contractual payment.

10) I make no observations as to whether this is a good case or not. It is plainly arguable. However Mr Shaw submits, and I agree, that it is a novel argument. He suggests it is not consistent with common sense or the usual familiar arguments over interim payments. In answer to the question - has the plaintiff reached the threshold of demonstrating a good arguable case, I propose to say no more than I regard it to be a novel borderline case. I weigh this in the balance when considering the remaining factors which the plaintiff has to show.

(b) "Assets within the jurisdiction"?

11) It is not in dispute that this requirement is satisfied.

(c) "Balance of convenience"?

12) I accept Mr Manzoni's submission that the balance of convenience is in favour of continuing the injunction. The defendant company only exists for the purpose of this contract. The defendant complains that it is being sued by other companies and, because of the injunction, it cannot pay them. I consider this to be a somewhat hollow cry. The debts are comparatively small and the defendant has deposed to having assets within the jurisdiction worth over $40,000,000.

(d) "Real risk of dissipation"?

13) I find myself unable to be satisfied that the plaintiff has adequately demonstrated this requirement.

14) The defendant company is a joint venture between equal partners, one in Hong Kong, one on the Mainland. The only dissipation relied on by the plaintiff is the very allegation at the core of the case, namely the use to which the $16,000,581.75 was put. There is no further evidence of further dissipation (or even a risk of it) since the ex parte injunction. There are assets which could have been moved without breaching the injunction.

15) Whether or not the $16,000,581.75 was in fact "dissipated" or not is a central issue between the parties. It is too early for this court to determine that it was "a dissipation". It remains therefore a moot point. A contested past dissipation, without more, is a tenuous basis for arguing that there is a real risk of future dissipation. I find that the plaintiff has failed to discharge the burden upon it, in this regard.

16) I therefore discharge the injunction with a costs order nisi in the defendant's favour.