LEE BOON CHEAN v. ALFRED KAO AND OTHES

___________

HEADNOTE

___________

                On adjourned hearing of applicant's application for stay, L. having answered interrogatories and given discovery held: -

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

________

__________

DECISION

__________

1. At the first hearing of this matter on 30th April I ordered the plaintiff to give discovery and gave leave to the applicants to administer interrogatories. He has now given discovery and answered the interrogatories.

2. What the discovery shows is this. In July 1983 he had a deposit account with the Hang Seng Bank which was the subject matter of considerable activity over two days in July, the 25th and 26th. On 25th July, three payments in were made totalling over Hk$1.3 million. Then on 25th, there was one payment out of $0.5 million in cash, followed by two other withdrawals on the 26th which in total dealt with the whole fund that had been paid in on the 25th July. Of the two withdrawals on 26th, that debited to the account in the sum of Hk$504,420 is shown by other banking documents produced to have been used to purchase US$70,000. That is the position as revealed in the banking documents.

3. In answer to the interrogatories the plaintiff says this. First out of the $0.5 million in cash which he withdrew on 25th July, he purchased US dollars notes up to a value he cannot now specify, but he says it was at least $30,000. Secondly he withdrew from the bank as the documents show US$70,000 on 26th. Thirdly he says he paid this sum in cash to Mr. Kao at Mr. Kao's offices. He does not say whether he paid this sum on the 25th or the 26th or on both days, or whether it was paid in one sum or in two tranches of $70,000 and $30,000. If as must have happened. $70,000 at least was paid on the 26th, he does not offer any explanation as to why the I.O.U. is dated 25th July. In further answers to interrogatories he says the reason for the loan was that Mr. Kao told him that he needed it for the purposes of a joint venture he was about to enter into, which involved the importation of herbal medicines into Taiwan. He was prepared to make him this loan for a maximum period of a year, and without interest, out of friendship and because Mr. Kao told him that he would be the sole agent for the sale of this substances in Taiwan. Apparently nothing at all came of this venture. He was never appointed sole agent. That was the reason why he was starting to ask for repayment in 1984. This is the explanation he gives for not asking for any interest initially, and inferentially for not asking for any interest after the year expired or indeed at any time. The venture as disclosed by Mr. Kao to Mr. Lee, and the use in fact made of these funds (if we are talking about the same fund), are of course, somewhat different.

4. Now this position has given rise to an argument which I have found very interesting and difficult, and one upon which my mind has fluctuated a good deal.

5. On the previous occasion I accepted as providing guidelines for myself in this situation, the observations particularly of Robert Goff J. and Parker J. in two Mareva injunction cases decided in England. In both, it was said that an applicant for a modification of a Mareva injunction had an onus put upon him. Really the argument before me has turned upon the nature of this onus.

6. Mr. Chan for the plaintiff, Mr. Lee, says that the position now is quite different to what it was on 30th April. Then I had no explanation. Now I have, what he says is a complete explanation. One in particular which shows that the plaintiff had ample means at his disposal to make the loan in question. Mr. Chan submits that by putting this evidence before the court Mr. Lee has discharged such onus (I think Mr. Chan would describe it as an initial onus), as may be put upon him. In colloquial terms the ball is now in the applicant's court. They are the interveners. They are the persons alleging collusion. They are the persons who are trying to stop his execution on a prima facie valid judgment. The legal burden of proving the collusion they allege is upon them. They have produced no positive evidence in support of it in any shape or form. Ergo I should accept that Mr. Lee has discharged this initial burden upon him, and in the absence of any effective challenge from the applicants I should make the Garnishee Order Absolute.

7. Alternatively, he says that if I am not satisfied about that, and I am considering ordering an issue, then the issue should be whether the judgment obtained was obtained by collusion with the intention of dissipating assets and circumventing the Mareva injunction. In such issue the applicants should be the plaintiffs, and Mr. Lee and Mr. Kao should be the defendants. There should be pleadings. The plaintiffs should plead their case against Lee and Kao and be prepared to prove it when the issue comes for hearing.

8. That is one view on the onus of proof in these circumstances. The other is advanced by Mr. Clifford-Smith for the applicants. He say that the only initial onus put upon the applicants was discharged on the previous occasion. It was to show that a case for inquiry existed. Once that position is established, and once he proved his Mareva injunction, the onus is put upon the plaintiffs or the applicants for the modification of the junction. That onus is described in the Mareva cases as leading evidence "to satisfy the court". In the words in Goff J. in A v. C "if the defendant satisfies the court". "Be fully acquainted with the position and satisfied by evidence," were the words of Parker J. He invites me to apply that test and say I am not satisfied.

9. He draws attention to the problems of date between 25th and 26th July. He points to the problems of relating that transaction to the receipt of the monies from the proceeds of sale of the ship. He stresses the need to see Mr. Kao's banking documents, and the source of the monies which were eventually deposited in this US dollar deposit account. He is critical of the lack of any claim for interest at any time which he asserts to be incredible. He points to the difference between the use that Mr. Kao in fact made of this fund (if one fund it bet and the intended use as apparently described by Mr. Kao and Mr. Lee. Therefore he says, I should say that I am not satisfied and order an issue.

10. When he comes to formulating his issue it is the converse. He says that the issue should not be whether there was collusion, but into the real underlying question, namely, did Mr. Lee lend Mr. Kao US$100,000 on 25th July 1983; and whether the account of that transaction now put forward by Mr. Lee is true. In that issue, he says Mr. Lee and Mr. Kao should be the plaintiffs and his clients should be their defendants. In substance, he says that the position is now no different to what it would be if this was an application to vary the Mareva injunction made by Mr. Lee in the main action. Mr. Lee, having put some affirmation before the court, he then asks to cross examine Mr. Lee upon that affirmation.

11. Now the trouble in deciding between these two approaches is that both, looked at from their individual points of view, appear to be very convincing. This is a novel problem which has not yet been fully worked out by the courts. I notice, that writing as recently as 1983 in his book on the Practice and Procedure of the Commercial Court, Mr. Anthony Colman Q.C. has this to say at page 84: "The courts have yet to work out what standard of evidence they will require before being satisfied that a Mareva injunction should be varied to enable a payment to be made." In the two cases I cited on the previous occasion, both judges talked about evidence sufficient "to satisfy the court". I am satisfied in my own mind that they were then describing an evidential burden rather that a legal burden. It is the evidential burden which they said was proper to be placed upon an applicant who was asking the court to modify its existing order. The burden was unnaturally put upon the applicant in such circumstances because the defendant in the action and the third party were the people who knew the facts, and they were the only persons who knew the fact. It may have been an echo conscious, or unconscious, of some words used by Lord Loreburn L.C. in General Accident, Fire and Life Assurance Corporation v. Robertson (1909) A.C. 404 at page 413 where he says this, in relation to the defendants in that case: "It is a matter peculiarly and solely within their knowledge and the burden is on them to prove this if they can." I feel constrained to add that I hope the case is authority for no more than that, because it arose out of the accidental death in a road accident of a Mr. Hunter.

12. Since the last hearing I have been put before me the full transcript (courtesy of Lexis and the applicants) of the judgment of Lloyd L.J., with which Sir George Waller agreed, in the Court of Appeal in FCF Finance Company Limited v. Masri given on 2nd April 1985. This shows that the real issue in that case was whether the court should inquire into the third party's assertion that she was the owner of funds which had been caught by a Mareva injunction. The intervener in that case took the preliminary legal point, both before the trial judge and the Court of Appeal, that if the lady asserted ownership of the fund, the court should act upon it and could not investigate the correctness of the assertion. The Court of Appeal rejected this proposition. Lloyd L.J. says this: "If the Courts were so obliged (i.e. to accept the mere say so of the third party) then the Mareva injunction would be in danger of being nullified at the whim of the unscrupulous ......... Every consideration of policy and convenience points in my view against the principle" that was being urged.

13. At the end of his judgment Lloyd L.J. summarises the position which arises when either a defendant or an intervener asserts some interest in some fund in this way:

14. I think it is important to see the context in which he is apeaking. He is assuming that an assertion is being made, and in the ordinary cause of events that assertion would be made on oath or affirmation. He is really saying this: The Court can accept that without further inquiry. Equally it can make further inquiry, which must by definition be into the truth and substance of that assertion.

15. He goes on:

16. So the court has all options open to it. The judge does not in any way attempt to define the standard of proof. Indeed it may well be impossible and undesirable to attempt to do so, beyond what had already been said by Goff and Parker JJ. i.e. the court must be satisfied. Because that would be a question of fact and degree in every case, turning upon the nature of the evidence, upon the nature of the documentation, and in a case like that before me, upon the nature of the inquiry which led to judgment. If for example, here, the money had been simply transferred from Mr. Lee's bank to Mr. Kao's bank, and there was some telex transfer or some such thing in existence I would not be here now. It would be perfectly obvious that the money had been so provided in this way.

17. It seems to me that these authorities are directly applicable to the circumstances before me, for the reasons I sought to express on the last occasion.  It follows that the question that I had put to myself first of all is this: Am I satisfied upon the evidence which has been put before me that this loan was in fact made on or about the 25th July? My answer to that is: "No; I think that the loan certainly could have been made but I am not sure that it was."   If this evidence was put before me upon an application to vary the Mareva injunction in the main action, and it was met by the plaintiff in that action asking to cross examine the deponent to this affirmation, I would have given leave for that cross examination to take place.

18. It seems to me necessarily to follow that I should be ordering an issue in this case, and that the issue which I should be ordering is an issue as to the truth of the facts and matters alleged by the plaintiff in his Statement of Claim, and in his affirmation in which he answers the interrogatories, which is the affirmation made on 14th May and filed on 15th May. I emphasise that that issue is an evidential issue. It follows again that in that issue the plaintiffs should be Mr. Lee and Mr. Kao, and the defendants should be the applicants. It seems to me that pleadings are quite unnecessary. The issue itself is defined by the facts and matters alleged in the Statement of Claim and in the affirmation. There should, I think, be mutual discovery by both parties. It should be on affirmation, and the discovery should relate to the facts and matters alleged in those two documents.

19. The next question is whether I should make that order conditional upon the applicants giving an undertaking in damages. I think the answer to that is "Yes". The position now is very different to what it was on 30th April. The period of obstruction, from the plaintiff's point of view, is now very much longer and more uncertain. I think the fact that he has taken risks in the past, and that those risks have not enured to his detriment, is neither here nor there. He is now being asked against his will to have that risk extended into the future. If the applicants finally fail then it will be plain that Mr. Lee should have got his order absolute today. If during the delay bankruptcy intervenes, there is a risk that the steps which I outlined on the last occasion of putting the funds into a separate bank account in the names of the two solicitors, may be regarded as an incomplete execution. I think the risk of a contrived bankruptcy is slight, because it seems to me that the chances of the court finding a contrived bankruptcy and not a contrived judgment are very slight. It also seems to me that this is very much mart of the Mareva practice, which I am applying, and that is expressly pointed out by Lloyd L.J. in his judgment in the SCF Finance case.

20. The remaining question is whether there should be any fortification of that undertaking. The position here is that one of the companies is out of the jurisdiction and the other company is controlled from outside the jurisdiction. I have no evidence whatever as to their position financially, but if, as I suspect, they are companies of substance, they will have no difficulty in persuading a Hong Kong banker to put up some appropriate guarantee. I do not think that the fortification should go to 100% of the Claim. This is a matter of dividend. If bankruptcy intruded this asset may fall into the fund and Mr. Lee may only be limited to a dividend cannot possibly guess at what the precise dividend might be. I think I must make an allowance, and I think the appropriate fortification here is as to 50% of the Claim, which is as to US$50,000.

21. So that the order which I have in mind to make (but I am very happy to hear the parties on the details and the time table) will go something like this: Conditional upon the applicants by their solicitors filing an affirmation offering to the court an undertaking in damages within 14 days, and upon such undertaking being fortified to the satisfaction of the Registrar in the sum of US$50,000 within a further 28 days: I order the trial of an issue: as to whether the facts and matters alleged by the plaintiff in his Statement of Claim and in his affirmation dated the 14th May and filed on the 15th May are true. The plaintiffs in that issue are to be Mr. Lee and Mr. Kao, the defendants in that issue are to be the applicants. I give no directions for pleading but I direct that both parties to the issue that is Mr. Lee and Mr. Kao on the one hand and the applicants on the other are to give mutual discovery by affirmation within 28 days in relation to the above facts and matters. I adjourn this matter to a date to be fixed. One We will have to add some estimate of the time (my tentative one at the moment is two days) and I reserve all questions of costs.