CARMON REESTRUTURA-ENGENHARIA E SERVICOS TÉCNICOS ESPECIAIS(SU) LIMITADA v. CARMON RESTRUTURA LTD AND ANOTHER

HCA 1812/2022

[2024] HKCFI 715

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1812 OF 2022

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R E A S O N S  F O R  D E C I S I O N

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Introduction

1.  This was the application by summons dated 8 June 2023 (“the Summons”) taken out by Carmon Restrutura Limited (“D1”) and Antonio Joao Catete Lopes Cuenda (“D2”) (collectively “the Defendants”) against Carmon Reestrutura-Engenharia E Servicos Técnicos Especiais (Su) Limitada (“the Plaintiff”)

(1) to discharge the injunction orders made by Au-Yeung J on 16 March 2023 (the “Injunction Orders”) against the Defendants;

(2) to dispute the jurisdiction of this Court in favour of the Court of Luanda, Angola (the “Angolan Court”); and

(3) that time for compliance with §2 of the order dated 11 May 2023 of Master Phoebe Man (“the May Order”) for the Defendants to file their defence and counterclaim be extended to 28 days after the final disposal of the Summons.

2.  On 20 February 2024, two days prior to the hearing of the Summons, the Defendants took out a summons (“the 2^nd Summons”) to extend time for the Defendants to comply with §1 of the order this Court made on 29 January 2024 (“the January Order”). They sought 21 days from the date of the order herein for compliance notwithstanding the time to do so has expired.

3.  At the conclusion of the hearing, this Court made the following orders:

(A) The Summons:

(1)  the Summons be dismissed; and

(2)  unless the Defendants do file and serve their defence and counterclaim within 28 days from the date hereof, the Defendants be debarred from so doing;

(3)  the costs of and occasioned by the Summons, including all costs reserved, be to the Plaintiff with certificate for 2 counsel, such costs to be summarily assessed and payable forthwith.

(B) The 2^nd summons

(1)  unless the 2^nd Defendant do file and serve an affidavit/affirmation in compliance with paragraph 1 of the Order of Deputy High Court Judge Le Pichon dated 29 January 2024 (“the Order”) within 7 days from the date hereof, the 1^st and 2^nd Defendants may face contempt proceedings;

(2)  unless the 2^nd Defendant do produce copies of the documents in compliance with paragraph 2 of the Order within 7 days from the date hereof, the 1^st and 2^nd Defendants may face contempt proceedings; and

(3)  the costs of the 2^nd Summons be paid by the 1^st and 2^nd Defendants to the Plaintiff with certificate for 2 counsel, such costs to be summarily assessed and payable forthwith.

Background

4.  The Injunction Orders granted a proprietary injunction prohibiting D2 from disposing of or diminishing the value of the funds up to the value of approximately USD 23.6 million held in an account in the name of D1 with DBS Bank (Hong Kong) Limited (the “D1 DBS Account”) or traceable proceeds thereof. The prohibition extended to funds transferred from the D1 DBS Account into various accounts specified the Injunction Orders until final judgment or until further order of the Court.

5.  The Plaintiff is an Angolan company carrying on business in construction, civil engineering and public works in Angola.

6.  Until sometime in August 2022, D2 was at all material times a “Director General” and “director” of the Plaintiff.

7.  Sometime in 2016, the Plaintiff’s engineering director came to be introduced to a Chinese company known as CR20. D2 (in his capacity as a director/employee of the Plaintiff) then engaged in discussions with CR20 alongside the engineering director. This culminated in the Plaintiff and CR20 entering into 2 memoranda of cooperation (“MOCs”) respectively dated 11 February 2016 and 17 October 2016 for cooperation in public tender for construction projects relating to access to a new airport in Luanda.

8.  During subsequent negotiations for the subcontract arrangements with CR20, the Plaintiff was informed that the majority of payments by CR20 would be in USD. Given the difficulties with international remittances outwards from Angola, the Plaintiff decided to set up a branch/subsidiary in Hong Kong to maintain an offshore account in USD and receive relevant project fees from CR20.

9.  According to the Plaintiff, given D2’s role at the time as a trusted employee, the Plaintiff further decided that as a matter of convenience and efficiency D2 should set up the branch/subsidiary as its registered sole shareholder and director. The Plaintiff also instructed D2 to cause D1 to open the D1 DBS Account.

10.  D2 maintains that he is the sole owner of D1. D2 denies that he held D1 on trust for the Plaintiff and further denies that the monies in D1 DBS Account were held on trust for the Plaintiff. D2 maintains that he has always been the ultimate owner of D1 which he set up on his own volition and pursuant to the business arrangement that D2 had made with CR20.

11.  D1 was incorporated in Hong Kong on 1 December 2016. D2 is the sole director and shareholder of D1.

12.  Given the Plaintiff’s need to settle expenses/costs incurred in rendering the relevant construction services vis-a-vis CR20, and D1’s role as designated payee, on 30 January 2017, the Plaintiff and D1 entered into a consortium agreement which defined and delineated their respective roles. It contained an exclusive jurisdiction clause (“EJC”) in favour of the Angolan court.

13.  For example, D1 was authorised (a) to make payments of the Plaintiff’s invoices on the latter’s behalf; and also pay directly the salaries, remunerations and bonuses of the Plaintiff’s employees (§§1.4 and 1.6); (b) to assume obligations for and on behalf of the Plaintiff by delegation (§1.5). Certain other provisions are considered in §§21, 23 and 29 below.

14.  According to the Plaintiff, in May 2022, in order to maintain control over D1 held in D2’s name by setting up a bank account with Compagnie d’Investissements et de Gestion Privée (“CIGP”) in Switzerland, the Plaintiff was asked to justify the transfer of funds[1] from D1 to the Plaintiff. As a result, to crystallise the arrangement amongst the Plaintiff, and the Defendants, the Nominee Services Agreement (“NSA”) was executed in or around May 2022 (and backdated to 16 November 2016). It contains an EJC and provided that the place of performance of the NSA, exclusive place of jurisdiction for lawsuits and any other kind of legal proceedings shall be Hong Kong SAR.

15.  D2 challenges the authenticity of the NSA and denies that he ever signed or agreed to its terms in any way.

16.  From June 2022 onwards, the relationship between the Plaintiff and D2 began to sour. D2 resigned as both an employee and director on 9 August 2022. However, despite the Plaintiff’s requests, D2 failed to transfer back to the Plaintiff the shareholding in D1. Then in early November 2022, D2 also failed to facilitate transfers from the D1 DBS Account as he had done previously.

17.  On or about 7 December 2022, the Plaintiff’s Director of Accounting and Finance, Adelina Marisa Dos Anjos Faria Martins (“Ms Martins”) discovered that she was unable to access the D1 DBS Account at all.

18.  It transpired that D2 had changed the online banking log-in details and then caused transfers totalling USD 22,549,975 from the D1 DBS Account to various of his personal accounts on various dates from 19 to 30 December 2022.

19.  The Plaintiff filed a writ against the Defendants on 21 December 2022. It then obtained the Injunction Orders as well as a banker’s order against DBS Bank.

20.  The claims made in the statement of claim (“SOC”) filed on 10 March 2023 are:

(1)  against D1, breach of trust by effecting transfers of approximately USD 22.6 million to D2’s various accounts

(2)  against D2, (a) breach of the NSA and/or director’s duties; (b) breach of trust by failing to transfer the shareholding in D1 to the Plaintiff: (c) knowing receipt and/or dishonest receipt of the monies transferred out of D1 DBS Account into his various personal accounts; and (e) unjust enrichment.

Jurisdiction

21.  Mr Alan CL To, counsel for the Defendants, submitted that only the Angolan court has jurisdiction to decide the Plaintiff’s claims because of the EJC in the consortium agreement.

22.  The Defendants submitted that as the consortium agreement governs the relationship of D1 and the Plaintiff, whether or not a trust exists between the Plaintiff and Defendants is related to issues arising from the consortium agreement.

23.  For that proposition, Mr To relied on one of the recitals and §§ 1.1 and 1.1 (a) which are in the following terms:

“WHEREAS, the companies [the Plaintiff and D1] (hereinafter referred to individually as a “Party” and jointly as “the Parties”), although having their own legal personality and its own assets, maintain among themselves an economic relationship, since they are under the control of the same Direction, having a convergence of interests, which leads them to act in a regime of financial and commercial cooperation;

1. Subject of the Contract

1.1 The Parties wish to promote an integration of their capacities and experiences for the purpose of incorporate the present Consortium Agreement, under the terms of Article 12 of Law no 19/03 of the 12 August (hereinafter simply “CONSORTIUM”), as follows:

a) To establish the bases and principles according to which the Parties, under the integration of their capacities and experiences; the establishment of strategic alliances; the sharing of obligations and benefits in common projects, specially projects and works in which [the Plaintiff] is performing at the Republic of Angola, to execute the contracted services with quality.”

24.  He emphasized the fact that the consortium agreement delineated the respective roles of the Plaintiff and D1, that D1 was “not a simple subsidiary[2]”, and that it was incorporated at the time the consortium agreement was created. The Defendants’ position is that the interpretation of the consortium agreement supports D2’s case that he set up D1 as an independent company which he owns.

25.  The Plaintiff and CR20 are parties to the MOCs and not D2. §15 of D2’s 2^nd affirmation dated 16 August 2023 (“D2 2^nd”) set out what D2 described is the business strategy and arrangements he had made with CR20 (“the Arrangement”)[3]. One feature of the Arrangement involved D2 setting up an independent company vehicle (which according to D2 later became D1) to maintain business relations and negotiations with CR20.

26.  D2 did not adduce any evidence (other than his bald assertions) to substantiate the existence of the Arrangement.

27.  Mr Norman Hui and Ms Natalie So, counsel for the Plaintiff, referred to §14 of the 1^st affidavit of Ms Martins dated 15 February 2023 (“Martins 1^st”) which explained how the expenses incurred for setting up D1 were settled. Ms Martins also exhibited a letter from CR20 to the Plaintiff dated 30 January 2018 together with D1’s incorporation documents. They show that CR20 (and not D2) had arranged for the incorporation of D1 and settled the expenses incurred for setting up D1.

28.  The matters set out in the preceding paragraph contradict and undermine a key element of the Arrangement. Further, D2 remained the Plaintiff’s employee until sometime in August 2022. It is, to say the least, far from clear how his duties and obligations as an employee can be reconciled with his being party to the Arrangement.

29.  As regards the consortium agreement (to which D2 is also not a party), the Plaintiff invited attention to §§1.7, 3.2[4] and 5.4 which provide as follows:

“1.7 [The Plaintiff] is identified as the leader of this CONSORTIUM.

3.2 All technical and commercial decisions of the CONSORTIUM AGREEMENT shall be taken by [the Plaintiff].

5.4 The payments that must be provided by [D1] shall have previous approval of the shareholders of [the Plaintiff], under the presentation of a formal budget that might list all the transfers and payments requested by the Chief of the Consortium.”

30.  The consortium agreement was made between the Plaintiff and D1 approximately 2 months after D1’s incorporation. It is clear from the provisions set out in the preceding paragraph that the Plaintiff had the ultimate say in all matters concerning the consortium and whose prior approval is required for payments to be made by D1. That arrangement shows that D1 had to abide by the Plaintiff’s decisions. That does not support D2’s claim to be the sole owner of D1.

31.  As regards the Plaintiff’s execution of projects for CR20 based on the consortium agreement, Ms Martins explained[5] the invoicing mechanism between D1 and CR20 and between the Plaintiff and D1 that resulted in the 90/10 split between the Plaintiff and D1 of sums received from CR20. Experience showed that 90% of the sum received from CR20 in D1 DBS Account would be roughly sufficient to satisfy the daily cash flow need of the Plaintiff. The remaining 10% in the D1 DBS Account was for satisfying the Plaintiff’s ongoing obligations arising from the CR20 subcontracting agreements.

32.  One of the factors D2 relied to show his control over D1 is the operation of the D1 DBS Account. D2 exhibited messages exchanged[6] between the Ms Martins, the Plaintiff’s CFO and D2. Completion of each transaction required a code, that being the modus operandi for the account. For each transaction, D2 provided the code and Ms Martins carried out the transaction.

33.  The Plaintiff submitted that what the exchanges actually show is that D2 was merely a conduit for payments to service providers, wages etc.

34.  The messages themselves are ambiguous and could support either reading. That D2 as director of D1 was in control of the code is hardly surprising since he was the authorised signatory of that account. That fact of itself is not determinative: it has to be evaluated against the backdrop of the provisions in the consortium agreement set out in §29 above. Against that backdrop the Plaintiff’s reading is the more probable.

35.  Turning to the NSA, it is the Plaintiff’s case that it was executed sometime in May 2022 and backdated to 16 November 2016. The parties to it are D2 as “Nominee” and the Plaintiff as “Real Owner”. As noted in §14 above, it has an EJC giving exclusive jurisdiction to the Hong Kong court.

36.  The Defendants accept that parties are free to backdate a contract such that it takes effect retrospectively: Achieve Goal Holdings Limited v Zhong Xin Ore-Material Holding Company Limited [2018] HKCFI 2718 at §267.

37.  They question the authenticity and existence of the NSA. Martins 1^st (at §13(1)[7]) stated that D2 and the Plaintiff signed the NSA on 16 November 2016, prior to D1’s incorporation. However, SOC §13[8] stated that it was entered into sometime in May 2022 but was backdated to 16 November 2016.

38.  As noted in §14 above, the need for the NSA was in relation to the establishment of an account at CIGP[9]. Exhibited to Martins 2^nd is CIGP’s letter dated 23 May 2022[10] referring to the opening of the Plaintiff’s account as well as 3 sets of messages exchanged between

(1)  Ms Martins and Christopher Hartung (“Mr Hartung”) of CIGP[11];

(2)  Ms Martins and D2[12]; and

(3)  Mr Hartung and Mayra Isungi Campos Costa (“Ms Costa”)[13], the owner of the Plaintiff.

39.  The first two sets of exchanges took place on 13 May 2022 and the third on 20 June 2022.

40.  The Defendants’ written submissions stated that D2 confirmed that he never agreed to the NSA nor signed it and that the NSA is a forged document[14]. In light of the matters set out in §§38 and 39 above, the Defendants’ claims do not appear to be well-founded. As far as forgery is alleged, it remains pure conjecture as D2 has not adduced any evidence in support.

41.  As regards the EJC in the NSA, Mr To went so far as to submit that there are “strong reasons to effectively ignore” that EJC. Apart from the matters raised in §37 above, he relied on other matters in relation to forum non conveniens considered in §§46-52 below.

42.  The EJC in the consortium agreement is not engaged unless there are “issues arising out of [the consortium agreement]”.

43.  The issues the SOC[15] raises concern the ownership of shares in a Hong Kong company. The claims made against the Defendants relate to Hong Kong trust law. The question whether or not D1 is the Plaintiff’s nominee is a question of trust law not an issue that arises out of the consortium agreement.

44.  As D2 is not even a party to the consortium agreement, it is difficult to see on what basis he could invoke the EJC. Although the Defendants sought to suggest that D2’s ‘interest’ in D1 would somehow enable D2 to invoke the EJC, having considered the matters relied on in support[16] they do not advance the Defendants’ case at all.

45.  Be that as it may, I turn to consider the other issue raised.

Forum non conveniens (“FNC”)

46.  The Defendants made much out of the fact that the resolution of the issues in the present case involves Angolan law and thus evidence from Angolan law experts.

47.  The manner in which Angolan law reared its head in the present case is ‘unconventional’ to say the least. The Plaintiff invited attention to the fact that it first arose in D2 2^nd. At §66, after stating: “… I have been advised by my Angolan lawyers that …” D2 proceeded to set out 3 propositions representing D2’s understanding of the legal advice he received. This was followed by more statements on Angolan law in §§68, 69 and 79.

48.  Instead of addressing an Angolan legal expert report, the Plaintiff’s Angolan law expert Silvino Domingos (“Mr Domingos”) had to deal with a layman’s allegations on Angolan law.

49.  Mr Domingos’s affidavit dated 28 September 2023 addressed

(1)  the “trust” issue[17] from the perspective of Angolan law of “mandate without representation” regulated by the Angolan Civil Code[18]; and

(2)  the issue raised in §§67-69 of D2 2^nd that Luanda is the proper forum also from the perspective of Angolan law[19].

50.  Contrary to what the Defendants submitted, the Plaintiff’s expert addressed those issues under Angolan law and not Portuguese law as the Defendants’ written submissions sought to suggest. Mr Hui submitted that the Defendants’ assertion of the Plaintiff’s expert using only Portuguese law is entirely fallacious. I agree.

51.  The primary documents and witnesses necessary for the determination of the claims raised in the SOC are as follows:

(1)  documents identified in the SOC

(a)  in Angolan: D2’s employment agreement, the consortium agreement and Angolan Companies Law (SOC §§3, 16 and 40)

(b)  in English: a DBS account document, the NSA, and the DBS bank balance document of 31 October 22 (SOC §§11, 13 and 29)

(c)  in Angolan and English: MOCs (§§4, 5 & 14)

(d)  in English and Chinese: Sub-contract agreements (SOC §15)

(2)  witnesses include Ms Martins, Ms Costa, Mr Hartung, the DBS manager Kenneth Sit (“Mr Sit”) and Chen Lei (“Mr Chen”) of CR20.

52.  None of the documents is in Portuguese. The affidavits of Ms Costa and Ms Martins do not have a translation clause. This means that they are conversant with English. The messages Mr Hartung exchanged with Ms Costa are in English. The emails passing between Mr Sit and Ms Martins are in English. Mr Chen’s language is Chinese. It is unclear whether he is conversant with English.

Conclusion on jurisdiction

53.  None of the factors considered points to Angola rather than Hong Kong as the appropriate forum. The causes of action arising in these proceedings and the determination of the issue of beneficial ownership of shares of D1, a Hong Kong company, all point to Hong Kong as the most appropriate forum. Further, there is no valid reason for not giving effect to the EJC in the NSA.

54.  In my view, the Defendants have failed to show any proper basis for granting a stay of these proceedings.

Discharge application

55.  It is common ground that the relevant principles concerning material non-disclosure were summarised (without reference to previous authority) by Coleman J in Hwang Joon Sang v Golden Electronics Inc [2021] HKCFI 2425 at §37[20]:

“(1) An applicant making an ex parte application must act fairly in all material aspects when preparing and presenting the application.

(2) This includes the duty to disclose to the Court all matters which are material, meaning those matters material to the court’s assessment and decision whether or not to grant the relief without notice, and if so on what terms.

(3) The test as to materiality is an objective one, and ultimately a question for the court. Hence, it is no excuse for an applicant subsequently to say that he was generally unaware, or did not believe, that the facts were relevant or important.

(4) Non-disclosure may be material even if its effect is just to give a seriously different ‘flavour’ to the case.

(5) The duty of full and frank disclosure is a stringent one, designed to protect the absent party.

(6) Therefore, if material non-disclosure has occurred at the ex parte application, the order obtained at such an application would likely be set aside automatically without going into the merits.

(7) Nevertheless, there is a discretion to re-grant the same order. That jurisdiction should be only sparingly exercised, taking into account the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.

(8) Hence, an assessment will be made as to the degree and extent of the culpability with regards to the non-disclosure. The more serious or culpable the non-disclosure, the more likely the court is to set its order aside and not renew it, however prejudicial the consequences.

(9) It is therefore relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge. Nor is there a general rule that a deliberate breach will attract that sanction.

(10) The application of principles which seek to uphold the integrity of the judicial process should not be carried to such lengths as will allow them to become the instrument of injustice.

(11) Because of the penal nature of the jurisdiction, the court should have regard to the proportionality between the punishment and offence.

(12) When exercising the discretion whether to re-grant the order, the court should take into account all relevant circumstances.”

56.  The Defendants submitted that the injunction should be discharged for material nondisclosure of (a) the annex to the consortium agreement; (b) the draft assignment given to D2 on 2 August 2022; and (c) the backdating of the NSA.

(a) the annex

57.  The complaint relates to the Plaintiff’s failure to produce the annex referred to in §4.1 of the consortium agreement which specified the share ratio of the Plaintiff and D1 of 90:10. The Plaintiff’s position is that the annex was not part of the consortium agreement but was an internal document produced to explain the fund flow[21] of payments received from CR20.

58.  Irrespective of the above, the Plaintiff submitted that the omission of the annex was not material to the Court’s assessment and the decision at the ex parte stage in granting the injunctions. The injunction application was predicated upon serious issues to be tried as to the proprietary interest in the D1 DBS Account. The share ratio between the Plaintiff and D1 within the consortium agreement does not impinge on the Plaintiff’s breach of trust claim.

59.  Further, Martins 1^st at §18 filed in support of the injunction application disclosed that for the purpose of §6.2 of the consortium agreement, the Plaintiff’s “percentage of participation” was 90%. That necessarily reflected a 10% stake for D1.

(b) the draft assignment

60.  This was raised in §§29 and 32 of D2’s 4^th affidavit dated 20 December 2023 filed in reply to the Plaintiff’s affidavits without any opportunity for the Plaintiff to respond.

61.  As submitted by the Plaintiff, the draft as such has no evidential value. D2’s counterparty in the draft assignment is an entity known as “SST Participacoes SA” which is not Plaintiff.

62.  Further, the contemplated transfer of D2’s shares in D1 was HK$10,000, an amount that in all likelihood reflects the par value of those shares. It does not assist D2’s case of absolute ownership of a valuable company.

(c) backdating of the NSA

63.  As earlier considered (in §35-40 above), backdating has no bearing on the validity of the NSA, a document that gives expression to the parties agreement that it should take effect as of 16 November 2016, prior to the incorporation of D1. What is stated in Martins 1^st at §13 (1) aligns with the legal effect and reality of the agreement.

64.  In any event, on 10 March 2023, prior to the Injunction Orders in question, the Plaintiff filed its SOC and pleaded in detail the backdating of the NSA. In those circumstances, when the Injunction Orders were granted, the judge would have been aware of this fact.

Conclusion on the discharge application

65.  Applying the relevant principles to those matters, I consider that the Defendants have failed to make out a case of material nondisclosure that would warrant the discharge of the Injunction Orders.