PACIFIC BULK SUPRAMAX CO LTD v. BINTAN MINING CORPORATION

HCMP 1190/2020

[2020] HKCFI 2684

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1190 OF 2020

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J U D G M E N T

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1.  There is before the court is a summons of 5 October 2020. This is a renewed application made by the plaintiff to obtain a worldwide Mareva injunction against the defendant together with ancillary disclosure orders. Because of the urgency of the matter, I have decided to give my reasons orally at the conclusion of the hearing.

2.  The matter arises in this way.  On 10 August 2020, DHCJ Dawes SC granted an ex parte domestic Mareva injunction in the sum of approximately US$5.6 million in aid of Hong Kong arbitration proceedings under section 45 of the Arbitration Ordinance.  Those arbitrations were commenced on 10 July 2020 and the injunction was continued by the same judge on 14 August 2020. 

3.  On 20 August 2020, the defendant gave disclosure of its assets in Hong Kong which showed that its only assets in Hong Kong were sums in its Hong Kong bank account.  The total amount was less than HK$400,000, and needless to say, this was far less than the sum covered by the domestic Mareva injunction. 

4.  In view of this information, on 1 September 2020, the plaintiff applied to vary the domestic Mareva to essentially convert it into a worldwide Mareva.  The plaintiff relied on the fact that the assets within the jurisdiction as shown by the disclosure were insufficient to satisfy its claims in the arbitration proceedings. 

5.  The matter was first heard before me on 4 September 2020.  At that time, the defendant had limited time to prepare its evidence.  But it did refer to the fact that it had a wholly-owned subsidiary incorporated in the Solomon Islands, Bintan Mining SI Limited (BMSI).  It was said that the defendant’s shareholding in BMSI was valuable and that BMSI was carrying on a substantial business and that it was not a fly-by-night company. These matters were raised by Mr Brown on behalf of the defendant to negate the suggestion there was a risk of dissipation of assets. 

6.  At that time, there was a valuation provided which showed that the fair value of the 100 per cent equity interest in operating the mine for 25 years was US$108 million but the valuation was dated 13 November 2018.  At that time, I did not know whether these shares were encumbered nor did I know the current asset position of the subsidiary because the valuation was provided was outdated.

7.  At the hearing on 4 September, the defendant gave undertakings, inter alia, not to dispose or deal with its shareholding in BMSI.  In view of that undertaking and appreciating that the defendant had limited time to prepare its evidence, in lieu of granting the plaintiff’s injunction, I ordered the defendant to provide a valuation of BMSI within 21 days on a net tangible asset basis and to confirm whether its shareholding was encumbered.

8.  The reason I made the disclosure order was that I considered it would provide a practical and effective way to evaluate the current asset position of BMSI.  I considered that disclosure done in this way could potentially address any concerns about a real risk of dissipation of assets and would provide a clearer picture of the financial position of BMSI, bearing in mind that the defendant only had limited time to prepare their evidence for 4 September.  It would also allow the defendant sufficient time to put their evidence in a proper manner. 

9.  I granted the parties liberty to apply in the event that anything arose from the disclosure which would require the court’s attention.  I was not informed at the hearing that it was anticipated there would be any difficulties in complying with the disclosure order.

10.  On 25 September 2020, the defendant filed an affirmation which did not comply with the order.  Unusually, there was a valuation provided but it provided a valuation of the defendant and not BMSI.  The valuation was also not done on the requested basis.  It was done on a cash‑flow basis.  This provided a valuation of the defendant at US$91 million at June 2020. 

11.  I do not accept that the explanation for non-compliance with the court order provided is satisfactory.  It is unsatisfactory because if the question was simply one of timing, the defendant could make an application for an extension of time.  If there were good reasons to require more time, these could have been canvassed in a time application.  In addition, there was no reference to any of the underlying financial statements of either the defendant or its subsidiary, BMSI. 

12.  On 14 October 2020, the defendant has produced evidence of a certificate of tangible asset value in relation to BMSI.  This is prepared by a qualified professional in the Solomon Islands which states that on a physical verification that the company’s tangible assets amount to approximately 187 million Solomon dollars or approximately US$23 million.  It is stated that the company could operate as a going concern and that there was insignificant debt in its financial position and all funding of the company was by internal sources.  There was, however, no statement of the exact liabilities of the company because they did not conduct a full audit. 

13.  Before me today, Mr Chain has argued that there was a real risk of dissipation.  He relied on the two instances of dishonest conduct which featured prominently in the ex parte application.  He also argued and relied on the non-compliance with the court order and even on the most recent information provided to the court that there was nothing concrete about the liabilities of BMSI, and in those circumstances, bearing in mind that there was insufficient assets in Hong Kong, that the case warranted an imposition of a worldwide Mareva. 

14.  For the defendant, Mr Brown opposed the application.  He argued there was no urgency in granting the worldwide Mareva and pointed out to the fact that there was an existing undertaking in place in relation to the shares in BMSI.  He argues that although there was non-compliance with the disclosure order, the defendant is still a valuable and substantial company.  He says that the questions as to good arguable case and real risk of dissipation are disputed and these issues will be addressed at the substantive hearing.  In relation to the risk of dissipation, he argues that the matters now disclosed show that the subsidiary is a company of substance and it would be very difficult for the assets to be disposed of in the ordinary course of events. 

15.  There is no dispute about the principles which govern the grant of worldwide Mareva relief in support of arbitration proceedings.  They are:

(a)  a good arguable case;

(b)  insufficient assets in Hong Kong to satisfy the plaintiff’s claim;

(c)  there are assets outside of Hong Kong; and

(d)  there is a real risk of dissipation of assets.

16.  Insofar as good arguable case is concerned, for present purposes, I am satisfied there is a good arguable case on the merits.  The primary aspect of the claims are for freight and demurrage under 15 charterparties from September 2018 to May 2020.  The ex parte judge was satisfied with this requirement, and I note that the claim is also supported by an expert opinion of UK law which concludes there is a good arguable case on the merits. 

17.  I am also satisfied that the assets within the jurisdiction are insufficient to meet the plaintiff’s claim in arbitration.  As mentioned, the defendant has only less than $400,000 currently sitting in its Hong Kong bank accounts. There are also clearly assets outside of the jurisdiction held by the defendant, including the defendant’s shareholding in BMSI which is incorporated in the Solomon Islands. 

18.  The key issue, as I see it in this case, is in relation to the risk of dissipation.  The test for the real risk of dissipation has been set out by the Court of Appeal in the case of Convoy Collateral Limited v Cho Kwai Chee [2020] HKCA 537.  The essence is whether there is a solid basis for concluding that there is a real risk of dissipation -- a real risk of unjustified dissipation of assets by a defendant. 

19.  Evidence of dishonest and fraudulent conduct, which reflects adversely on the integrity of the defendant, could point powerfully towards such an inference being made. At the same time, what needs to be demonstrated is a risk of an unjustified dissipation, and the purpose of a worldwide Mareva is not to provide security.  It is to restrain a defendant from evading justice or concealing its assets otherwise in the ordinary course of business.

20.  The main ground relied on by the plaintiff is in relation to the two instances referred to in the evidence where the defendant attempted to deceive the plaintiff into releasing cargo.  In one case, this was unsuccessful and in the other case, it was.  There is evidence that the defendant made representations to the plaintiff with a view to inducing the latter to release cargo on the strength of its promise that once sold, those proceeds would be used to pay the plaintiff.  The defendant has only had a brief explanation in response and has said that the proceeds of sale were used to discharge other business expenses.

21.  I am of the view that the defendant’s explanation avoids the real issue about whether the plaintiff was deceived through dishonest means in not enforcing its legal rights.  I agree with the plaintiff that on the evidence at this stage, it is one factor which may tend to support the fact that there is a real risk of dissipation on the part of the defendant and that this was not merely sharp commercial practice.  At the same time, I also take the view that it is important, as the Court of Appeal in Convoy has emphasised, to view the evidence holistically.  There is also the fact that since the ex parte injunction was granted, the defendant has produced some evidence in relation to the assets of itself and of the subsidiary, BMSI. 

22.  This is a case where there has been non-compliance with a court order.  I take the view that one must be careful in assessing whether a non-compliance with a court order can properly justify a risk of dissipation of assets. 

23.  In looking at the evidence before the court today, it is of significance that the defendant has put forward a certificate of tangible asset value.  The bulk of the value of the subsidiary lies in fixed assets in the form of machinery, equipment, building and infrastructure which comprises approximately 136 million Solomon dollars out of the 187 tangible assets. 

24.  I am of the view that these assets would be difficult to dispose in the ordinary course of events.  There is also evidence from Ting & Co which says that they were satisfied that the company could operate as a going concern.  There is also confirmation that the company had insignificant external debt in its financial position and was not obligated by any financing bank. 

25.  It is true that the information provided to this court in relation to the assets and liabilities, in particular the liabilities, is incomplete.  However, the emphasis or the focus of the court at this stage is to see whether or not there is a risk of unjustified dissipation of assets otherwise in the ordinary course of business.  It is not to have a 100 per cent accurate accounting view of the valuation of the subsidiary. 

26.  At this stage, bearing in mind this information now available was not before the ex parte judge, it is incumbent upon me to balance the two conflicting points that are raised, namely the instances of alleged dishonest conduct and the instance of the new information in relation to the subsidiary provided by the court. 

27.  In my view, the evidence now provided before the court does negate the risk of dissipation which the plaintiff relies on.  It would be difficult, in my view, for this mining company which does, on the face of the documents, appear to be substantial, to suddenly dissipate its assets with a view to avoiding judgment on the plaintiff’s claim.  I also bear in mind that the mining rights in relation to the subsidiary are matters of considerable value. 

28.  I have also taken into account that there is an undertaking provided to the court in relation to the BMSI shares.  That, I expect, will continue.  I have also been informed that there is an additional undertaking that will be provided in relation to the receipt of trade receivables that will be placed in the defendant’s bank account in ICBC in Hong Kong. 

29.  On the basis of those undertakings and on the basis of the present information before the court, I am not satisfied that there is a real risk of dissipation of the defendant’s assets, and for those reasons, I would dismiss the application of 5 October. 

30.  In relation to costs, I will hear the parties but provisionally, I am of the view that there should be some account taken of the fact that there is a clear non‑compliance with the court’s order in the costs order to be made.