YIN CHIN v. WENG TZU TING

HCA 1435/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1435 OF 2010

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J U D G M E N T

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Introduction

1.  This is the contested inter partes hearing of the Plaintiff’s application for a Mareva injunction against the Defendant.  Both of these ladies are Taiwanese and resident there.  On 22 September this year, Mr Recorder Shieh SC gave the Plaintiff an ex parte injunction which prevented the Defendant from removing and/or dealing with assets in Hong Kong up to the value of US$1.75 million.  On 8 October, which was the return date, Poon J continued the ex parte order pending this hearing, during which I have heard the argument in full on behalf of the Plaintiff to continue the ex parte order and to enlarge it by granting a world-wide Mareva injunction for the increased amount of US$3,640,203.92, and on behalf of the Defendant to discharge the injunction for material non-disclosure at the ex parte hearing, in place of which the Defendant is willing to give an undertaking in terms of the ex parte order subject to being awarded costs up to and including this hearing.

2.  The background to this matter can be briefly stated.  The Plaintiff, who is now in her mid-forties, is a divorced mother of two young teenage children.  She is a successful business woman, her principal enterprise being the manufacture of bridal wear which is sold world-wide.  Her personal worth is said to be US$20 million.  The Defendant, in her early thirties, is a professional tennis player.  She has in the past had a world-ranking from the WTA and has represented Taiwan.  She admits to being a lesbian which has become an important feature in this case.

3.  The parties met in July 2004 when the Defendant was engaged by the Plaintiff to coach her children at tennis.  The Plaintiff’s case is that they became close and trusted friends so much that the Defendant was someone in whom she confided.  The Defendant says they became lovers which the Plaintiff had failed to disclose, amongst other things, to the Recorder at the ex parte hearing — this non-disclosure now being strongly relied on for the discharge of the current injunction.

The Substance of the Case

4.  The Plaintiff’s case is that during the course of their close friendship, she transferred substantial sums of money to the Defendant to be held on trust for her and for her two children.  Mr Chua SC, who appears for the Plaintiff, has summarised these transactions in his skeleton submission which, in providing the background, I gratefully adopt.

5.  In 2005, the Defendant had suggested to the Plaintiff that she wanted to establish tennis clubs in Taiwan and asked the Plaintiff to go into partnership with her.  Having considered the prospects of success, the Plaintiff agreed to invest US$1 million into the project as seed money.  In order to do so the Plaintiff introduced the Defendant to her personal wealth advisor, at her bankers Merrill Lynch, Miss Lilian Tan after which the Plaintiff opened an account there [Acc. No. 137-381470] (“ML1”). Between August and December 2005, the Plaintiff paid US$908,000 into this account.  Despite these payments the tennis club project never got off the ground.

6.  In 2006, the Plaintiff was divorced from her husband, an event which she found extremely stressful and which took its toll on her health.  In those circumstances, the Plaintiff says that she decided to make provision for her children in the event of her dying unexpectedly early. She obtained probate advice from Taiwan lawyers.  The advice appears to have been that she should establish a trust under which the children were the sole beneficiaries on her death.  Given their close and trusting relationship, the Defendant agreed to become the trustee for the Plaintiff and the children. Between February 2006 and May 2008, a further US$978,859.92 was paid into ML1 which was to be used for the purposes of this trust and was now to include the US$908,000 which had previously been earmarked for the defunct tennis project.

7.  In 2009, the Plaintiff set up a formal trust in writing with the assistance of Merrill Lynch.  The sole beneficiaries were her two children.  The establishment of this trust involved the incorporation of a company, Jade Pagoda Limited, and the opening of a further Merrill Lynch bank account 137-38224 (“ML2”).  The Plaintiff paid in a total of US$1,753,344 into this account by a series of payments.  The total of the amounts paid into both Merrill Lynch accounts is US$3,640,203.92 which is the amount that is now sought to be injuncted by means of a world-wide Mareva injunction.

8.  In about April 2010 the parties relationship which had previously been so warm and trusting, soured.  The Plaintiff, who had paid all these amounts into the Defendant’s name in these two accounts tried to persuade the Defendant to return the money to her voluntarily and in a non-confrontational way, which was only partly successful.

9.  There was a flare-up leading to the issue of these proceedings on 21 September 2010.  Miss Tan, the Plaintiff’s personal banker, told her that the Defendant was going to travel to Hong Kong with her Taiwanese lawyer to close ML2 and transfer the proceeds of that account elsewhere.  It is this which impelled the Plaintiff to apply for the ex parte injunction from the Recorder, which she did on the following day.  As is so often the case, the papers in support of the application had to be prepared in great haste.  The 23rd September was a public holiday in Hong Kong and the Defendant would have been able to clear out the account on the 24th, hence the urgency.

10.  This, in its broadest outline, is the Plaintiff’s version of events leading to the grant of the ex parte injunction.  The essential elements in support of the continuation of the injunction and for its increase and world-wide application are the following:  Firstly, it is said that the Plaintiff has a good arguable case for breach of trust.  The assets that the Plaintiff seeks to enjoin are in the Defendant’s name in Hong Kong impressed with the trust contended for by the Plaintiff.  Secondly, there is a real risk of dissipation, the Defendant having admitted that she attended Merrill Lynch to liquidate accounts ML1 and ML2 and that she had already removed HK$7,484,859.01 from ML1 which has gone into her HSBC account. Further, she has revoked a power of attorney in the Plaintiff’s favour over the ML accounts without telling the Plaintiff.  Next, the Plaintiff denies that there has been material non-disclosure by her when obtaining the ex parte injunction which is a very substantial issue before me on this occasion.  Fourthly, the balance of convenience favours the continuation of the injunction and its increase.  This Mr Chua discusses under three headings.  Firstly, that the funds in the ML accounts had been there for several years.  They are not active accounts.  Secondly, there would be no prejudice to the Defendant if the funds remained there subject to the injunction.  No prejudice is advanced by the Defendant who says that she is independently wealthy and has no need for these funds for business or living expenses.  Thirdly, if the injunction went, the chances are that the money in the account would be removed to the prejudice of the Plaintiff.

11.  In support of a world-wide Mareva, Mr Chua points to the fact that the Defendant has insufficient assets within this jurisdiction to cover the Plaintiff’s legitimate claim which therefore gives rise to the need for a world-wide order.

12.  From this broad introduction, I now need to consider the principles which are to be applied before a world-wide order can be made.

World-wide Mareva

13.  Three matters need to be addressed.  Firstly, a good arguable case needs to be shown.  Secondly, an insufficiency of assets held by the Defendant within the jurisdiction and lastly, a real risk of dissipation of assets so that any judgment or award would go unsatisfied. Authority for this is to be found in Hong Kong Civil Procedure, para. 29/1/76 and more particularly in the judgment of Kempster JA inBank of India v Murjani &Ors [1989] 2 HKLR 318 (CA):

“In our opinion a Mareva injunction affecting assets outside the jurisdiction may be granted where [1] there is a good arguable case that the plaintiff will recover judgment, reason to think both that the defendant … has such assets available to satisfy it [2] but insufficient assets within the jurisdiction … and the Court is satisfied that there is [3] a real risk that the defendant may take steps designed so to dispose of or conceal its assets as to render the judgment nugatory by the time it is given. (emphasis added)”

14.  A good arguable case has been defined as one which is more than barely capable of serious argument and yet need not be one which the judge believes to have more than a 50% chance of success.  See Mustill J, page 605 in Nimea Corporation v Trave Gmbh [1983] 2 Lloyd’s Rep.600, as upheld on appeal by the Court of Appeal.

15.  The next issue is that relating to the risk of dissipation.  The test as adumbrated by Kempster JA in Bank of India v Murjani & Ors supra. is whether there is a real risk that the Defendant might dispose of its assets prior to judgment.  The factors which bear on this have been discussed in Gee’s Commercial Injunctions, 5th edition, pages 353-355.  It is sufficient to briefly summarise these.  They include the nature of the assets and the ease (or difficulty) with which they could be dissipated.  The nature or financial standing of the Defendant and his or her domicile or residence.  Any intention expressed by the Defendant about future dealings with the assets and finally, the Defendant’s behaviour in response to the Plaintiff’s claims: a pattern of evasiveness may be factors which assist the Plaintiff.

16.  Non-disclosure is the next issue which has loomed large in the argument before me.  Mr Hung, on the Defendant’s behalf, has submitted that there are serious instances of non-disclosure which require me to discharge the injunction.

Non-disclosure

17.  At this stage all I propose to consider are the legal principles which govern this aspect.  Firstly, what level of disclosure is required and secondly how is the court to address instances of non-disclosure.  In due course I will have to consider the allegations of non-disclosure in this case and apply the facts to the applicable principles.

18.  The general principle has been stated by Slade LJ in Electric Furnace Co. v Selas Corporation of America [1987] RPC 23(CA) at 28(43) – 29(14), that there is no duty on an ex parte applicant to raise all arguments and points which may be raised against his case, unless they are of such weight that their omission may mislead the court in exercising its discretion to grant the relief sought.  Slade LJ said that:

“… it would be unreasonable to expect a plaintiff, preparing his evidence in support of an application … to anticipate all the arguments, or all the points, which might be raised against his case.”

19.  Mr Chua has also placed reliance on what McDougall J (as he then was) said in Citibank NA v Express Ship Management Services Ltd [1987] HKLR 1184(CA) at 1191I-1192A.  The burden of his comments were that the principle of non-disclosure should not be carried to extreme lengths.  The court should consider the practical realities of the case and not allow the principle to be used as a refuge of last resort for litigants when the substantial merits of the case and the balance of convenience strongly favour maintaining the relief granted and the likely consequences of setting aside the order could be very severe for the Plaintiff.  This approach has been largely echoed in the English Court of Appeal decision of Memory Corporation Plc v Sidhu (No. 2) [2000] 1 WLR 1443.  In the case where there has been non-disclosure, the court should consider all the relevant circumstances, which Robert Walker LJ (as he then was) set out at 1455E-G and 1458H-1459B.  Mr Chua has summarised them in the following way:

“(1) Whether the error affected the form of the order, or the decision whether to grant relief at all;

(2) the gravity of the breach;

(3) Whether to discharge the order may unduly prejudice a Plaintiff, and any prejudice to a respondent;

(4) The remediability of the breach;

(5) Bearing in mind the overriding objective, and the need for proportionality, a balance had to be drawn between applying the rule that requires remedies obtained through non-disclosure to be withheld, and allowing the victim of a fraud to go unprotected;

(6) The judge-made rule that a without notice order would be discharged if it was obtained without full disclosure should not be permitted to become an instrument of injustice.”

20.  In this regard, Mr Chua has drawn attention to the case of Wo Fung Paper Making Factory Ltd v Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346, where one of the points in controversy was whether there had been on-disclosure.  Hunter JA at 357H to 358G sought to put the question of material non-disclosure into its proper perspective.  It is useful to recite here his remarks in full:

“I turn now to the two principles I conceive to be relevant, in relation to non-disclosure. First the court's power to discharge any order obtained ex parte for material non-disclosure is salutary and necessary. As one of the earlier cases shows, ex parte Polignac, it is there for the court's own protection. It is necessary to prevent its processes being abused. Secondly, there is another equally significant principle in this jurisdiction. This is to make sure that the court does not get itself in a position of what might be called ‘counter-abuse’: where this sort of point is regarded by litigants as ‘a very present help in trouble’; and where problems arise on the substance to resort to attack as the best method of defence. The point was put in words upon which I will not attempt to improve by this court in Citibank v Express Ship Management Service; first in the judgment my Lord the Vice-President. He starts by citing, from the judgment of Browne-Wilkinson J. in Thermax Limited v Schott Industrial Glass Limited that what are material are:

‘all facts that are relevant to the weighing operation which the court has to make, in deciding the point before it.

My Lord went on in these terms:

‘While the courts must be vigilant, and insist that full and frank disclosure be made in grounding affidavits for ex parte applications for injunctions, Anton Piller orders etc, it is essential to bear in mind the true principle upon which this rule is based. Unless the courts use the sanction which the principle gives only where the non-disclosure is of facts which are relevant to the ex parte judges ‘weighing operation’, an impossible burden would be placed upon applicants and their advisers, and affidavits ex abundanti will tend to contain all sorts of facts and exhibits which are not really necessary for the proper exercise of the court’s discretion when ex parte relief is sought’.

Likewise Iam happy to adopt the observations of MacDougall J. who on p 1191 says

‘It would be unfortunate if it were to be thought that in laying down the very sensible and necessary principles concerning disclosure of all material facts, the court have intended to give active encouragement to undeserving defendants to search ingeniously for facts which a plaintiff may innocently have failed to disclose, in the hope that a judge may consider them to be material and so discharge [the original order]’

I fear that there has been a failure in this case, in the court below, to concentrate upon the material facts and to appreciate that disputed issues of facts simply go to the need for trial, and are of very very little value indeed in deciding whether a good arguable case has been made but.  Furthermore, it seems to me that the point has to be tested by looking at the substance.  That is why I am proposing to start with the question whether a good arguable case was shown at the inter partes stage. That is where I think you should start; not where judge started, and with respect where the argument started here, on the question of non-disclosure.”

It is to the closing two sentences of this part of Hunter JA’s judgment that Mr Chua places particular emphasis.

21.  I do not understand Mr Hung as being in disagreement with any of this; what he says is that when one considers the Plaintiff’s case at the ex parte stage and contrasts it to what has now emerged, she had seriously misled the Recorder as to the nature of her relationship with the Defendant, she had not revealed her delay in seeking relief and generally as to the strength of her case.

22.  I now turn to the evidence as it relates to the individual elements that need to be established for the grant of a world-wide Mareva injunction.

A Good Arguable Case

23.  The Defendant is sued for breach of trust and of her fiduciary duties which are characterised as a constructive and common intention resulting trust.  The basis of the Plaintiff’s case is that the very substantial amounts put into ML1 and ML2 in the Defendant’s name were for the benefit of her children for which the Defendant had agreed to stand as trustee.  There is no doubt that transfers of funds for the benefit of one’s children are subject to a presumption of advancement.  No such presumption can stand as between friends.

24.  The evidence bears the hallmarks of a trust, the burden of which was accepted by the Defendant.  When one is looking to see if a good arguable case exists the formal entering into of the written Trust Arrangement by the Defendant on the advice of Merrill Lynch speaks very loudly indeed.  At this stage, the Defendant’s protest that she cannot read English and did not understand what she had signed is very much something for the trial itself rather than a matter to be weighed at this interlocutory stage.  She signed the document and its contents were interpreted to her in Mandarin which will also, no doubt, be carefully investigated by the trial judge.  There is also the existence of the Power of Attorney over the ML accounts in the Plaintiff’s favour which militates against any notion that these monies were for the Defendant to do as she liked.  Also consistent with the existence of a trust was the fact that the Defendant was asked to be the executor of the Plaintiff’s will, under which the Defendant was not a beneficiary, which left the Plaintiff’s estate to her two children.  It is also significant that on her own case, the Defendant does not assert that the amounts in the ML accounts were outright gifts to her; her case being that she could use what was in ML2 in her lifetime and that on her death what was left would be for the Plaintiff’s children.  Something akin to a life interest, albeit to both capital and interest.

25.  There is in my judgment very persuasive evidence that the defendant was a trustee of the monies for the Plaintiff’s children. As such she had fiduciary obligations in respect of the trust assets and the beneficiaries.

26.  Mr Chua submits that by trying to liquidate the ML2 account without informing the Plaintiff, after the Plaintiff had amicably attempted to get her to return the funds, provide the strongest evidence of a breach of trust.  She now asserts ownership of these funds.

27.  Subject to issues of non-disclosure and delay, which I am about to turn to, it seems to me that this is a case where the current position should be held until trial.  Mr Chua has unquestionably shown a good arguable case for breach of trust by the Defendant.  The risk of dissipation is plain to see.  But for the obtaining of the ex parte order, the accounts would have been liquidated and the Defendant has already transferred nearly HK$7.5 million into her own HSBC account.  Her revocation of the Plaintiff’s Power of Attorney in June 2010 without telling the Plaintiff also lends force to this aspect of the application.

28.  As to the balance of convenience, where the Plaintiff has demonstrated both a good arguable case and a real risk of dissipation, the balance of convenience must, almost as a matter of course, favour the grant of the injunction.  Neither has the Defendant suggested that she needs access to these funds for living and business expenses, which might have been something to put into the scales on this issue.

29.  Mr Hung’s real objection to the grant of the injunction is based on non-disclosure. Firstly, of the true relationship between the parties and of what is said to be a serious delay by the Plaintiff in doing anything about the Defendant’s conduct which is said to amount to breach of trust.  By succeeding in showing serious material non-disclosure, Mr Hung hopes to persuade me to set aside the ex parte order and obtain an order for costs up to and including this hearing.  With that achieved he has instructions to say that the Defendant is willing to give an undertaking in terms of the present ex parte order.  Objection is also taken to any world-wide injunction and to an increase in the amount of the injunction.

Non-disclosure

30.  The real issue here concerns the nature of the relationship between these two ladies.  The Defendant says that for a number of years they had been lesbian lovers and had the Recorder been told of this it would have coloured his view of the evidence.  He would have been less likely to accept the notion that these monies were impressed with a trust rather than an outright gift as the Defendant contends.  The Plaintiff did tell the Recorder in her affirmation that the Defendant was a close friend.  She denies any sexual relationship between them.  Mr Hung has, by detailed consideration of email messages and cards passing between them, submitted that I am, even at this stage on affirmation evidence only, able to conclude that the two women were lovers, the Defendant having said that she is a lesbian.  I did not propose to set out any of this material here.  It is there to be read if need be.  What I can say is that the nature and tone of the exchanges does reveal a certain intimate bond between the two women.  I am asked to infer a sexual relationship which I am not, on this evidence, prepared to do.  This will no doubt be a feature in the trial if the Defendant wishes to persist in her case that there was a sexual lesbian relationship.

31.  What I can say is that the Plaintiff’s description of the relationship as “close” may not have done it complete justice.  Of course, she would not have been expected to produce any of these exchanged messages but, if anything, there is evidence that she may have understated the intensity and closeness between them.  This said and taken in a general way, she did enough in my view by disclosing that she and the Defendant were close friends and confidantes.  And so, I am not prepared to say that the Plaintiff has fallen foul of proper disclosure of their relationship.

32.  The other limb of this is delay since April 2010 which was when Miss Tan told the Plaintiff that the Defendant had liquidated assets from the first account and transferred funds into her own HSBC account. Additionally, in circumstances where the matter had been presented to the learned Recorder on 22 September as something of an isolated and serious breach of trust, the Plaintiff had failed to provide a balanced picture of what had gone on from April to September during which time the Defendant had returned control of the greater part of the Plaintiff’s assets, said to be worth about US$20 million, which she did on 24 May and 4 June 2010.  Had the Recorder been told of this it might have affected his view on the risk of dissipation and of the character of the Defendant.  As it was she had been portrayed as somebody underhand who was coming to Hong Kong on a secret mission to liquidate the account and make off with the proceeds.

33.  In this regard, there is force in Mr Hung’s submission.  The Recorder had been left with an incomplete account of what had passed between these two women from April until 22 September. 

34.  The question that now arises is whether this failure to present the complete picture is so egregious or, at all events, sufficiently misleading that I should set aside the ex parte order.  It is in this regard that Mr Chua has placed such emphasis on Hunter JA’s judgment in Wo Fung Paper supra, to which I have made reference.  He submits that if I were to look at the substance of the matter and start by asking myself the question of whether there is a good arguable case rather than go to the issue of non-disclosure first, I will arrive at the correct outcome.

35.  The fact is that on my finding, the evidence undoubtedly discloses a good arguable case, a risk of dissipation and that the balance of convenience favours the grant of an injunction.  This being so, whilst an incomplete picture was presented to the Recorder, I am satisfied that even with the more complete account he would have granted the injunction ex parte. On an overall appraisal of the matter and approaching it as Hunter JA had I consider that the correct decision is to grant the injunction.  As a minimum, I will continue the order as made by the Recorder in its amended form as put in by Mr Chua in the draft order.  What I now need to consider is whether a world-wide Mareva should be granted for the enhanced amount that is asked for.

World-wide Mareva

36.  Mr Hung submits that this is quite unnecessary where interim seizure orders have already been obtained against the Defendant in Taiwan.  To go “world-wide” would amount to a grant of double relief which is more than the Plaintiff is entitled to.

37.  Mr Chua says that the seizure orders relate to quite separate debts owed by the Defendant to the Plaintiff.  This application is for distinct amounts that are unrelated to what has been ordered in Taiwan. More importantly, he submits that all the ingredients for the making of a world-wide order are present here.  I have already set them out and do not propose to repeat them again.

38.  I am satisfied that everything that needs to be demonstrated for the grant of such an order is present in this case.  It is the insufficiency of amounts within Hong Kong to satisfy any judgment which has caused Mr Chua to make this application where he has shown the presence of a good arguable case and all the other necessary elements for the grant of a domestic Mareva, I will give the Plaintiff the world-wide injunction that she seeks up to the sum of US$3,640,203.92 which is the amount that she is looking to recover by this action.  The order will therefore go in the form of the draft order lodged with the court.

Fortification

39.  Given the fact that the Plaintiff is not a Hong Kong resident and without assets in the jurisdiction other than the contested amounts now frozen by this injunction, I believe that it would be correct to require her to fortify her undertaking in damages.  This would be in addition to any application for security for costs that the Defendant may choose to make.  At this stage, where the Defendant has not made any firm submissions as to amount, I propose to make what I regard to be a conservative order in a substantial case such as this one.  I require the Plaintiff to fortify her undertaking by either paying into court US$250,000 or alternatively, an irrevocable bank guarantee in this amount must be provided.  In either case this must be done within 14 days of today.  This amount can in future be reconsidered either way (up or down) with cause and supported by admissible evidence.

Costs

40.  I propose to make an order nisi that costs should be in the cause, with certificate for two counsel.