A-ONE INVESTMENTS LTD (PROVISIONAL LIQUIDATORS APPOINTED) v. A-1 BUSINESS LTD AND OTHERS

HCA1868/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1868 OF 2008

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J U D G M E N T

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1. This is an inter partes summons for an order that the ex parte Mareva injunction granted by Kwan J be continued until further order.

2. By Kwan J’s order the defendants were restrained from removing or dealing in any way with assets up to the value of CHF20 million.

3. Miss Linda Chan for the plaintiff informed me at the commencement of the hearing that she was only seeking to continue the injunction against Mr Chau, the 2^nd defendant.

4. By the Indorsement of Claim upon which the injunction was granted the plaintiff, who are the Provisional Liquidators of the 1^st defendant, was making a derivative claim in accordance with the principles laid down in Foss v. Harbottle.

5. In the claim the plaintiff is claiming that the 2^nd defendant who, with the 3^rd defendant, was a director of the 1^st defendant was in breach of his fiduciary duties as a director, misappropriated CHF19,999,993.

6. This sum represented the proceeds of sale under what has been referred to as the SFT Agreement which were paid to the 1^st defendant.

7. The 2^nd and 3^rd defendants paid these moneys to the 2^nd defendant’s personal account with DBS Bank for the stated purpose of repaying a loan the 2^nd defendant owed to the DBS Bank.

8. There was a further complication here.  The 2^nd defendant did not transfer these funds directly to his account at the DBS Bank.

9. The payment was made to the plaintiff’s account with DBS Bank.  On the same day, the moneys were transferred to the 2^nd defendant’s account at the DBS Bank.

10. The rationale of the decision to pursue the 1^st defendant’s claim by way of a derivative action was that the 2^nd and 3^rd defendants were the sole directors of the company.

11. In view of the allegations contained in the claims which were being made, it could hardly be expected that the directors would proceed with a claim against themselves.

12. At the hearing before me, Mr William Wong for the 2^nd defendant submitted that the action taken by the plaintiff in proceeding by way of a derivative action was misconceived.

13. In support of this contention he referred to Waddington Ltd v. Chan Chun Hoo Thomas & Others, unreported, being FACV15/2007.

14. The main argument advanced by Mr Wong was that the interests which the Provisional Liquidators were representing were not a minority interest and that having regard to their appointment as Provisional Liquidators, they could sue in that capacity themselves.

15. Mr Wong submitted that I should strike out the Indorsement of Claim and consequently discharge the injunction.

16. Miss Chan decided that it would be preferable to proceed by way of the Provisional Liquidators obtaining authority from the 1^st defendant to take over the action with retrospective effect and amend all the court documentation to reflect this reality.

17. In order to achieve this she sought an adjournment for two days.  I granted this and in the interim the three Provisional Liquidators were able to convene a board meeting of the 1^st defendant at short notice and pass the necessary resolutions.

18. The application for adjournment was opposed by Mr Wong.  It was his contention as previously stated that the Statement of Claim which had, at the commencement of the hearing, been lodged by Miss Chan should be struck out.

19. Indeed Mr Wong made an application by way of summons during the adjournment to strike out the Statement of Claim.

20. I dismissed this application.

21. My reason for doing so was that I regarded the status of the plaintiff to be a procedural matter rather than a matter of substance and that while it was possible to proceed with the amendments in a convenient way, the interests of justice required that the present action should be proceeded with rather than requiring the plaintiff to start all over again.

22. At the resumed hearing, Mr Wong did not oppose in principle the amendments which Miss Chan proposed to reconstitute the action in the manner earlier indicated.

23. I allowed the amendments and the 1^st defendant was then the plaintiff and the 2^nd defendant became the 1^st defendant.  For the sake of clarity I will refer to him as “Mr Chau”.

24. So far as the substantive hearing was concerned, Miss Chan submitted that the claim that the now plaintiff was making was in respect of the misappropriation by Mr Chau of the moneys the company had received from the SFT sale to his own account.

25. Mr Wong opposed this. 

26. He contended that the documents clearly demonstrated that what had happened was that Mr Chau, as a director of the plaintiff, had remitted the moneys to A-One Investments Ltd.  Mr Wong accepted that thereafter a transfer had been made to Mr Chau’s personal account at the DBS Bank.

27. This transfer had however been made to repay moneys which had been owing to him by A-One Investments Ltd.

28. The consequence of this, according to Mr Wong, was that the plaintiff was clearly suing the wrong party.  They should be suing A-One Investments.

29. Miss Chan suggested that the payment of the moneys to A-One Investments was akin to a money laundering exercise and undertaken by Mr Chau as a subterfuge.

30. She also suggested that the minutes and correspondence which had lately been produced by Mr Chau of a board meeting when the transfer of A-One Investments had been authorised were recent fabrications.

31. Her justification for this was the affidavit evidence adduced by Ms Walsh, one of the Provisional Liquidators, of a meeting which had taken place with Mr Chau and Mr Leung when she had pressed them for explanations concerning the transfer and no satisfactory explanations had been forthcoming.

32. Over and above this there was no evidence that A-One Investments had ever owed moneys to Mr Chau and that it was unlikely that such a debt would have existed as the company had not been trading.  It was simply a holding company.

33. I had no doubt that the presently constituted plaintiff, A-1 Business, does have an arguable case which is more than sufficient to justify the granting of the injunction ordered by Kwan J.

34. Mr Wong made other objections to the continuation of the injunction.

35. He argued that it should be discharged on account of the failure of the plaintiff to fortify the undertaking it gave him in respect of costs and expenses which may be incurred if it is subsequently found that the injunction had been wrongly imposed. 

36. I do not accept the validity of this contention.  The claims being made by the plaintiff are proprietorial claims and in such circumstances fortification is not required.

37. Mr Wong also submitted that the plaintiff had been guilty of material non-disclosure.  I did not find this to be well founded.

38. It was for these reasons that I held that the injunction should be continued until further order.

39. I also ordered that costs should be in the course, save that the costs incurred as a consequence of the procedural modifications undertaken by Miss Chan should be to Mr Chau.  I estimated that the time lost was approximately half a day.