UNITED TECHNOLOGY PRODUCTS CO LTD v. ATARI INTERNATIONAL (HK) LTD AND ANOTHER

1984, C.L.No.84

Headnote

            Leave to administer interrogatories in aid of a Mareva Injunction will not be granted where the plaintiff's real purpose is to find out whether the defendant is worth suing rather than to take steps to ensure that the subject matter of the Mareva is not dissipated or sent out of the jurisdiction.

1984, C.L. No. 84

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

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JUDGMENT

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1. This is an application to administer interrogatories in aid of a Mareva injunction.

2. The Plaintiff, which I will call "the Saudi Importer", is a company incorporated under the laws of Saudi Arabia. The two Defendants are part of the Atari group of companies which is well-known throughout the world as a leader in the computer games business. The 1st Defendant ("Hong Kong Atari") which is incorporated in Hong Kong is the subsidiary of the 2nd Defendant.("American Atari") which is incorporated in Delaware in the United States.

3. For the purposes of the present application only, I have assumed that all the allegations made by the Saudi Importer in its Points of Claim and in the affidavit material filed on its behalf are correct.

4. According to the Saudi Importer, the following state of affairs has arisen.

5. In November 1983, the Saudi Importer agreed to purchase 22,000 Atari Video Computer Games known as the "2600 PAL Version" from either Hong Kong Atari or American Atari at a price of U.S.$1,721, 840. The Saudi Importer is not sure which of the two Defendant companies was the actual seller. While business relations were going normally, the Saudi Importer does not appear to have attached any particular significance to whether it was dealing with American Atari or Hong Kong Atari. It is only now difficulties have arisen as the result of the sales contract that it has become important for the Saudi Importer to differentiate as to whether it was dealing with either Hong Kong Atari or American Atari at any given moment. Because of this difficulty of distinguishing which corporate entity it was dealing with, the Saudi Importer has brought the present action in the alternative.

6. For ease of exposition, this narrative will continue as if the Saudi Importer's claim were against Hong Kong Atari alone, but I certainly have not overlooked the claim in the alternative against American Atari.

7. At the time the Saudi Importer placed its order for the 22,000 consoles, Hong Kong Atari still had manufacturing facilities in Hong Kong. The contract provided that the goods were to be dispatched from Hong Kong to Jeddah in Saudi Arabia, and payment was to be made by way of a letter of credit opened in Hong Kong Atari's favour.

8. The goods were duly shipped from Hong Kong, arriving in Jeddah in early January 1984. On the 11th January 1984, they arrived in the Saudi Importer's warehouse. Within a few days, the Saudi Importer conducted an inspection of the goods. This revealed that the consoles had a failure rate in the region of 32% which made them unmerchantable. The Saudi Arabian Importer rejected the goods and Hong Kong Atari accepted that rejection. That all occurred before the end of January 1984.

9. At the time of shipping the goods, Hong Kong Atari availed itself of the facilities under the letter of credit by obtaining an acceptance draft in the sum of US$1, 692,600.28 which was due to mature on the 6th April 1984. The difference between that figure and the sale price $1,721,840 is explicable on the basis of a credit due from Hong Kong Atari in respect of an entirely separate transaction.

10. At the end of January 1984, the position was, therefore, that the Saudi Importer found itself in possession of these defective goods which it had rejected, but meanwhile the acceptance draft was moving towards maturity.

11. Despite what in effect amounted to a total failure of consideration, the Saudi Importer took no steps to prevent Hong Kong Atari from being paid under the letter of credit.

12. From the moment the Saudi Importer rejected the goods, the parties entered into negotiations for a solution which would result in the Saudi Importer getting replacement goods. On its side, the Saudi Importer still wanted 22,000 consoles of the same type, while Hong Kong Atari still wanted to sell such goods to the Saudi Importer.

13. There were negotiations between the parties which stretched from January 1984 through till March 1984. The upshot of the negotiations was that the parties agreed the 22,000 consoles should be shipped from Jeddah back to Hong Kong for repair on the understanding that, once repaired, the goods would then be sold to the Saudi Importer again. Various suggestion were made between the parties as to the terms of payment for the new sale, but nothing was concluded on this aspect.

14. Hong Kong Atari took re-possession of the goods from the Saudi Importer in Jeddah, and they were put aboard a ship which was due to arrive in Hong Kong on or about the 8th March 1984.

15. The 6th April 1984 came and went without Hong Kong Atari repairing the goods or making any substitute goods available to the Saudi Importer. Nonetheless, Hong Kong Atari took advantage of the maturing of the acceptance draft on the 6th April 1984 by negotiating it. Therefore, as at that date, Hong Kong Atari had the Saudi Importer's money, but the Saudi Importer did not have any goods.

16. By mid July 1984, the Saudi Importer had still not been supplied with any goods. At about that time, it became public knowledge that the Atari group of companies was in deep financial trouble. There were articles in the magazines "Newsweek" and "Time" to the effect that the group was in debt to the tune of about US$1, 000 million At about the same time, the Saudi Importer learnt that Hong Kong Atari would no longer undertake manufacturing in Hong Kong. As far as the Saudi Importer was able to make out, the consoles sent from Jeddah had still not yet been repaired at this stage.

17. On the 2nd August 1984, the Saudi Importer sent Hong Kong Atari a letter repudiating the contract for the purchase of the repaired consoles, it being the contention of the Saudi Importer that it was an implied term of the contract that the repairs should be carried out within a reasonable time, and more than a reasonable time had already elapsed.

18. Next, the Saudi Importer issued the writ in the present proceedings against Hong Kong Atari and American Atari. That writ was dated the 6th August 1984. It claimed repayment of the money received under the letter of credit and also sought an injunction to restrain the Defendants from removing their assets out of the jurisdiction or otherwise disposing of them.

19. Two days later, i.e. on 8th August 1984, the Saudi Importer filed a summons against Hong Kong Atari alone, seeking a Mareva injunction to restrain Hong Kong Atari from sending out of the jurisdiction or otherwise disposing within the jurisdiction of the 22,000 consoles which had been shipped back to Hong Kong from Jeddah.

20. It was contended on behalf of the Saudi Importer in the affidavit accompanying that summons that the Saudi Importer feared Hong Kong Atari might send those goods out of the jurisdiction for repair in some other Atari owned facility elsewhere, such as the one in Taiwan.

21. Almost invariably, Mareva injunctions are sought ex parte. Such an order is only necessary against the type of Defendant who is likely to commit the abuse of sending his assets out of the jurisdiction or dissipating them within the jurisdiction so as to defeat any judgment obtained against him. Unless the Plaintiff moves with stealth, his fear of removal of the assets is likely to be realised.

22. In the present case, though, the Saudi Importer made his Mareva application inter partes. That summons for a Mareva injunction was duly served on Hong Kong Atari on the 8th August 1984, the return date for the summons being the 13th August 1984. No appearance being made on Hong Kong Atari's behalf when the summons came before the court on the 13th August 1984, the court granted the Mareva injunction sought by the Saudi Importer.

23. Armed with its Mareva injunction, the Saudi Importer, through its Hong Kong representative, asked the representative of Hong Kong Atari on the 14th August 1984 the present whereabouts of the goods which had been shipped from Jeddah  to Hong Kong in March 1984. Hong Kong Atari's representative refused to give any information.

24. The next relevant move did not occur till 3rd November 1984 when the Saudi Importer's solicitor in Hong Kong wrote to the solicitor for Hong Kong Atari, asking whether the goods were still under Hong Kong Atari's custody or control.

25. Atari Hong Kong's solicitor having failed to give that information, the Saudi Importer caused the present summons for leave to administer interrogatories to be filed on the 12th November 1984. The questions posed by the interrogatories the Saudi Importer wants to have administered can be summarised by saying they ask whether Hong Kong Atari ever received the goods from Jeddah and if so when; and where are the goods now. If the answer is that the goods are no longer in the possession custody or control of Hong Kong Atari then the Saudi Importer wants to know when this was lost.

26. Certainly, there is no objection in principle to allowing interrogatories in aid of a Mareva injunction, but the court will only exercise its discretion to allow them in a proper case. The policy of the courts is only to allow ancillary orders such as discovery and interrogatories in aid of Mareva injunctions where they are necessary to make the Mareva injunction effective. Ancillary orders can be granted with a view to preventing a plaintiff from being cheated through assets disappearing from or within the jurisdiction, but a plaintiff cannot expect the court to confer advantages on him beyond that. A Plaintiff cannot for example, ask for a Mareva injunction as a means of exerting pressure on a defendant to settle (See PCW (Underwriting Agencies) Ltd. v. Dixon [1983] 2 All E.R. 158, C.A.); nor, in my opinion, can he ask for ancillary orders simply for the purpose of ascertaining whether his opponent is worth suing .

27. Why the Saudi Importer suddenly needs to know where the goods are stored is far from clear. The Saudi Importer managed to get by without this knowledge from the 13th August 1984 until its solicitor's letter of the 3rd November 1984, and I fail to see how this knowledge has become important to the Saudi Importer for any purpose connected with administering the Mareva injunction more effectively.

28. If the Saudi Importer merely wants to ascertain whether Hong Kong Atari is in breach of the court's order, that is not a legitimate head of enquiry to be pursued through the ancillary orders of discovery or interrogatories. The case of (A.J. Bekhor & Co. Ltd. v. Bilton [1981] Q.B. 923, p.573) is authority for the proposition that these ancillary orders are not to be used for the purpose of policing Mareva injunctions.

29. Purported justifications advanced by the Saudi Importer for pursuing its interrogatories are to find out whether any repair work has been carried out on the goods and whether they are stored under proper conditions. Neither of those two matters has anything to do with whether the goods are likely to be sent out of the jurisdiction or dissipated within the jurisdiction. In a case where there is no Mareva injunction, the Plaintiff would not normally be permitted to ask his opponent questions of that nature, and I fail to see how the existence of a Mareva injunction changes the position here.

30. The overall impression I gain is that the Saudi Importer's real concern now is not whether Hong Kong Atari might send the goods out of the jurisdiction or dissipate them within the jurisdiction but rather whether Hong Kong Atari is worth suing. Knowledge that the goods were no longer in Hong Kong or that they had still not been repaired could obviously have a considerable bearing on whether the Saudi Importer regards it as worthwhile to proceed with this action against Hong Kong Atari. I do not see the existence of a Mareva injunction as a sufficient justification for putting the Saudi Importer in possession of this knowledge.

31. On reflection, I cannot help wondering whether the Saudi Importer ever really needed the protection of a Mareva injunction in the first place, bearing in mind the fact that the Saudi Importer was willing to put Hong Kong Atari on notice in relation to the order sought. Nothing Hong Kong Atari has done since leads me to the view that further orders are necessary from the court for the purpose of making the Mareva injunction more effective.

32. On the merits, the Saudi Importer's application for leave to administer the interrogatories will, therefore, be refused.

33. A somewhat more technical objection was also taken on Hong Kong Atari's behalf. The Saudi Importer entered judgment by default against American Atari on the 30th August 1984. A summons to set aside that judgment for want of service presently stands adjourned sine die. It is now urged on behalf of Hong Kong Atari that as the Saudi Importer's claim was in the alternative, the entering of judgment against American Atari means that the Saudi Importer has made an election which has the effect of releasing Hong Kong Atari from liability. It is therefore pointless to administer interrogatories to Hong Kong Atari, according to this argument.

34. By its Points of Defence filed on 4th October 1984, Hong Kong Atari had previously raised the issue that the Saudi Importer was barred from proceeding against Hong Kong Atari by virtue of electing to enter judgment against American Atari. That defence of election has given rise to a summons dated the 19th November 1984 to have this treated as a preliminary point of law. That summons of the 19th November 1984 was adjourned sine die on the 28th November 1984. On that occasion, there was the opportunity for Hong Kong Atari to have the summons for the preliminary issue of law about election to be consolidated with the present application for leave to administer interrogatories, but it was not taken.

35. It plainly came as a surprise to counsel for the Saudi Importer when, on the present application about interrogatories, counsel for Hong Kong Atari wanted to make a collateral attack on the ground of election. Counsel for the Saudi Importer contended it was unfair to allow Hong Kong Atari to take the election point on the summons for interrogatories, and I think that he is correct on this. Either Hong Kong Atari's legal representatives should have put the Saudi Importer's legal representatives on notice that the election point would be raised, or else they should have applied to have the summons for the preliminary point of law consolidated with the interrogatories summons. However, as I am refusing leave to administer interrogatories on the merits, counsel's objection to my dealing with the election point at this stage becomes academic. I accordingly make no ruling on whether the Saudi Importer is in any way barred from proceeding against Hong Kong Atari by virtue of any election, but leave that to be fully argued if and when the summons on the preliminary point of law comes before the court.

36. In view of the foregoing, the Saudi Importer's present summons for leave to administer interrogatories stands dismissed.