CHAU WANG FAT EDDIE v. CHIM CHUN CHOY also known as CHIM CHUN CHOI

HCA 485/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 485 OF 2012

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D E C I S I O N

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1.  I am not satisfied that the plaintiff has shown a good arguable case of the defendant’s alleged misappropriation of partnership assets, to justify a Mareva injunction to be granted to the extent of $20 million.

2.  I believe I raised from the outstart when the matter first came before me that this is a partnership dispute, whereby one partner is claiming that the other partner is liable to him for certain sums, or for damages.  It is clear that whenever money allegedly belonging to or owing to the firm is sought to be recovered from a partner, an action for an account is required and in such action, it will be open to the defendant partner to show that the money is his, or that a larger sum is actually due to him from the partnership.  In this case, it appears from the defendant’s evidence that he is suggesting that upon a proper account being taken, nothing is due to the plaintiff.

3.  In an appropriate case, an injunction can be granted to safeguard money which is due to the firm, or to safeguard an asset in a partner’s hands.  But the underlying claim must be independent of the taking of an account between the partners, or it will have to be shown that upon an account, a net sum is likely to be due.

4.  On 18 October 2012, the court already made an order, appointing receivers for the Partnership Business, to collect the debts due to and assets belonging to the partnership and to preserve the same.  The parties were ordered to deliver to the Receivers within 14 days all property, books and papers of the partnership and to disclose information as the Receivers require regarding the assets and liabilities of the Partnership Business.  The assets of the Partnership are adequately safeguarded in the Receivers’ hands and control.  

5.  It is true that it was not until 11 December 2013 that the defendant filed his 4^th affirmation to disclose his dealings on his HSBC AC. There is no dispute that income from the Partnership Business had been deposited into this AC during the relevant period.  I agree with the defendant that on the materials available at this stage, this must have been done with the knowledge and consent of the plaintiff. What is disputed is whether the defendant had utilized some of these funds for his own personal use, and whether the defendant had given a full account of the funds he withdrew from the AC, the use he had made of these funds, and the whereabouts of these funds if they were not used for the purposes of the Partnership.

6.  The court is not in a position to judge, from the affidavits filed, where the truth of the disputed matters lie, and whether the defendant’s assertions as to his use of the funds in the AC for the expenses of the Partnership, are to be believed. Nor is it appropriate for the court to embark on such an exercise at this stage.  Without a full account being taken, and/or cross examination of the deponents, it cannot be clearly seen that there is a case of the defendant’s misappropriation of the Partnership funds, or that a sum approaching $20 million is due and payable by the defendant to the plaintiff.

7.  At most, since the defendant claims that during the Period in question, such of the cash deposits that had been paid into his personal income as derived from renting out his own landed properties is $805,000, and according to the Receivers, the defendant had paid $1,427,334.86 from the AC for his own mortgage payments which are obviously unrelated to the Partnership Business, there is a balance of at least $600,000 used by the defendant and not accountable to his alleged personal income paid into the AC.

8.  In addition, on the defendant’s own case, by his accounting and explanation given in his 4^th affirmation, the “Retained Amount” of the Partnership income in the AC is $495,462.72, around $500,000.  I pay heed to what counsel for the defendant has said, that this is all based on the exercise that he has been able to carry out to date, with the information and documents as are available to him.

9.  Even so, the plaintiff has not able to establish that upon a proper taking of accounts of the Partnership, there is a sum due to the plaintiff. There is simply no evidence before me of this, or even along these lines. The action against the defendant for sums due is in my view simple premature.

10.  Significantly, the Defence has highlighted that even on the plaintiff’s own case, he had known about the deposit of the cash sales income into the AC at the latest, by February 2012.  These proceedings were commenced in March 2012. The application for appointment of Receivers for the Partnership was made in August 2012.  The plaintiff found out about the defendant’s sale of the Fa Yuen Street property (said to be the trigger of the plaintiff’s application for a Mareva Injunction) in April 2013.  The application for injunction was made in May 2013, whereby the plaintiff sought to injunction the defendant from disposing of his own assets in HK up to the value of $20 million, in addition to restricting him from disposing of the Partnership funds and property.

11.  The application was adjourned for the filing of evidence and for argument in August 2013, upon the defendant undertaking not to sell 2 landed properties and upon the plaintiff providing fortification of his undertaking as to damages. 

12.  A party who has applied for and obtained a Mareva Injunction has a duty to proceed with the underlying action with diligence.  A party who applies for a Mareva injunction should not delay either the disposal of the application, or the underlying action itself.  Any inordinate and inexcusable delay may amount to an abuse of process (para 29/1/55 HK Civil Procedure).

13.  Delay may also constitute evidence that there is no justification for the interim injunction sought, that there is no risk of dissipation, and no urgency for the relief sought by the plaintiff and hence no injustice if the relief is refused.

14.  The plaintiff had known about the alleged misappropriation by the defendant by February 2012 (on his case).  If there was any risk of the defendant’s dissipation of assets to defeat the plaintiff’s Judgment, such dissipation would have happened long before 2013, especially since he knew that the plaintiff had applied for a Mareva injunction in April 2012 (which failed). There is no justification for the grant of an injunction now, particularly since Receivers have now been appointed in respect of the preservation of the Partnership assets.

15.  On the facts of this case, bearing in mind the timing and explanations given by the defendant for his sale of the Tung Choi Street Property in March 2012 (before the commencement of these proceedings) and the Fa Yuen Street Property in March 2013, I am not satisfied that they constitute dissipation of assets which would otherwise be available for execution of any judgment that may be obtained in favour of the plaintiff.   

16.  The plaintiff has failed to proceed diligently with this action after its commencement in March 2012.  Witness statements have yet to be filed.  An order for inquiry or accounts is appropriate and necessary, but the plaintiff has failed to pursue this. 

17.  In all the circumstances of this case, on a balance of injustice that may be caused to the parties by the grant or refusal of an injunction, the just course would be to order an account to be taken under O 43 pursuant to the defendant’s application, and to give liberty to the parties to apply for further directions for the account, if such directions cannot be agreed.

18.  The application for injunction is dismissed, with costs to the defendant, with certificate for counsel.