ASIA-PAC INFRASTRUCTURE DEVELOPMENT LTD. v. ING YIM LEUNG, ALEXANDER AND OTHERS

HCA 16778/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 16778 OF 1999

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J U D G M E N T

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1. This is an application by the plaintiff to continue the Mareva injunction granted on 24 October 1999 against the 7th defendant and the 7th defendant's application to discharge that injunction.

2. The plaintiff was established in 1996 by David Ho to find and negotiate joint venture projects in the People's Republic of China (PRC) either as a vehicle for personal investment and/or with a view to packaging the assets for third-party investment. The 1st to 4th defendants (hereinafter called "the personal defendants") were employed directly or seconded to work for the plaintiff and they worked as a team. In October 1999, being suspicious of the activities of the 1st and 2nd defendants, the plaintiff caused a search of their offices. This search and the execution of the Anton Pillar order disclosed a mass of documentation that showed the 1st and 2nd defendants' involvement in other companies inconsistent with their duty owed to the plaintiff. These other companies are the 5th to 9th defendants (hereinafter called "the corporate defendants"). By consent, the Mareva injunction is to be continued against the personal defendants and to be discontinued against all the corporate defendants, excepting the 7th defendant, upon certain undertakings.

3. The 1st defendant began working for the plaintiff in May 1996 as its Senior Vice President, while the 2nd defendant was recruited by the 1st defendant to work for the plaintiff since July 1997 as a Project Development Manager. Both appointments were very senior appointments. In addition, the 1st defendant was also a director of the plaintiff.

4. The 1st defendant and his family members are the beneficial owners of the 5th defendant (hereinafter called "Fantastique"), which is a company registered in the British Virgin Island (hereinafter called "BVI"). Fantastique and its associated companies, including the 6th, 8th, 9th and the intended 10th defendants, operated businesses competing with the plaintiff. The 7th defendant is not among the Fantastique group of companies and is separately represented in these proceedings.

5. Mr Bleach SC, has helpfully referred me to numerous incidents disclosed in the affirmations of David Ho and contrasted them with those of the 1st and 2nd defendants and the uncontroverted documentary exhibits. He has demonstrated convincingly that what the 1st and 2nd defendants say in their affirmations is incredible and that they, in particular the 1st defendant, have prima facie diverted businesses or business opportunities which should have been acquired by them for the plaintiff. These opportunities include investing in LPG gas, power and energy industries, telecommunication, and purchase and sale of aircraft parts and an entire fleet of aircraft as pleaded in the statement of claim. In addition to their personal capacities and as directors of these corporate defendants, the 1st and 2nd defendants are also directors of the 7th defendant represented by Mr Chaine. Mr Chaine, very rightly, does not seek to contest what Mr Bleach SC has clearly demonstrated, but submits that even if these defendants were in breach of their fiduciary duties owed to the plaintiff, that is irrelevant as regards the case against the 7th defendant. For the purpose of the proceedings against the 7th defendant, I find that the 1st and 2nd defendants are incredible and I treat their affirmations with the greatest caution.

6. In May 1999, the 1st and 2nd defendants came to know Yao who is the Director and General Manager of Guangzhou Thinker Communications Technology Co. Ltd (hereinafter called "Guangzhou Thinker"), a company in information technology in the PRC. Guangzhou Thinker has developed an electronic on-line payment system, but needed foreign investors to provide them the funds to develop and market the system nation wide.

7. The 7th defendant company was then incorporated or more probably it was a shelf company acquired by the 1st defendant who then changed its name to "eSecurePay.com Corporation" to fit with the nature of its intended business. On 30 July, 1999, the 1st defendant wrote to his solicitors instructing them to prepare share subscription forms and share certificates for allotting 490,000, 430,000 and 80,000 shares to Pac-Asia, Yao and Liu respectively. The letter further instructed the solicitors to prepare consents for the 2nd defendant, Yao and two members of the PRC party to act as directors of the 7th defendant. The significance to be drawn from this letter is that the 1st defendant was a director of the 7th defendant prior to 30 July before the other four directors were appointed and before the shares mentioned in that letter were allotted. It was the 1st defendant who structured the 7th defendant company by appointing the other directors and allotting its shares. Thus at that time, he was the person in the driving seat of the 7th defendant.

8. On 26 August 1999, the 7th defendant and Guanzhou Thinker entered into a joint venture agreement to develop the new electronic on-line payment system. Under this joint venture agreement, the 7th defendant holds 80% of the share of a new joint venture company called Guanzhou Thinker e-Commerce Co. Ltd (hereinafter called "Thinker e-Commerce"). The remaining 20% are held by Guanzhou Thinker. On 27 August, the shares in the 7th defendant were formally allotted to Pac-Asia, Yao and Liu in accordance with the 1st defendant's instruction of 30 July. It can be readily inferred that the 7th defendant was incorporated or acquired as a corporate vehicle for investing in the electronic on-line payment system developed by Guanzhou Thinker, pursuant to the joint design of the 1st defendant and Yao.

9. Pac-Asia is another BVI company in which the 1st defendant and his wife respectively holds 13.88% and 81,63% of its shares, while the remaining 4.49% is held by another BVI company, which probably represents the interest of Olivia Lee, another Hong Kong director of the 7th defendant. Mr Chaine submits that the 1st defendant's shareholding in Pac-Asia is insignificant. I do not agree. He is a strong businessman with proven track record. He is the mastermind in structuring the 7th defendant company. In the circumstances, a realistic view is that despite his wife's major shareholding, he is the person in control of Pac-Asia and, through it, the 7th defendant.

10. The 1st defendant was a director of the plaintiff. He and the 2nd defendant were senior employees of the plaintiff. Their duty was to look for investment opportunities for the plaintiff. They have identified this electronic on-line payment system developed by Guanzhou Thinkers as a viable investment. The documents they prepared in soliciting private placements for the 7th defendant show that the company is projected to worth US$106,622,406.00 by 2001. The 1st defendant decided to pocket the investment opportunity to the exclusion of the plaintiff by allotting the 7th defendant's shares to Pac-Asia instead of to the plaintiff. For the purpose of the proceedings as between the plaintiff and the 7th defendant, I find that in so allotting the shares, the 1st defendant was in breach of fiduciary duty owed to the plaintiff.

11. These shares were allotted between 30 July and 27 August 1999 when the 1st defendant personally or through his driving seat in Pac-Asia was the sole person in the driving seat or representing the controlling mind of the 7th defendant company. Technically, all these could not be done by the 1st defendant in his personal capacity because appointment of directors and allotment of shares could only be done by the company, i.e. the 7th defendant. Thus the allotment was made by the 7th defendant under the controlling mind of the 1st defendant. The 1st defendant's personal knowledge then becomes the imputed knowledge of the 7th defendant. The entirety of the knowledge of his breach of fiduciary duty is therefore wholly imputed to the 7th defendant before the allotment of shares. By making the allotment, the 7th defendant knowingly assisted in the breach.

12. Mr Chaine submits that according to Yao's affirmation, the 1st defendant is not the controlling mind of the 7th defendant. I cannot agree. According to a document entitled "Confidential Information Memorandum of eSecurePay.com Corporation", the 1st defendant is described as the Chairman and CEO (Chief Executive Officer) of both the 7th defendant and Thinker e-Commerce. Both the 1st and 2nd defendants are identified as members of the Senior Management of Thinker e-Commerce and as key management of the 7th defendant. In addition, the 1st defendant is the legal representative of Thinker e-Commerce.

13. The documents show the 1st defendant's active involvement in the administration and management of the 7th defendant. On 29 July 1999, he wrote to Koji Kashiwaya, the Chief Executive Officer of AIDEC Management Company Pte Ltd seeking private placement of shares of the 7th defendant. He met Kashiwaya in Singapore with expenses for the trip fully paid by the plaintiff and purportedly on the plaintiff's business. The negotiations with AIDEC continued to September as far as the available documents show. On another front, the 2nd defendant offered the investment opportunity to the Guoco Group between September and November 1999. According to the document entitled "eSecurePay.com Corporation Confidential Presentation dated 13 September 1999", the 7th defendant has its operation headquarters in Hong Kong. Thus there can be no truth in Yao's affirmation that the 1st and 2nd defendants are not in the driving seat of the 7th defendant. Quite on the contrary, the PRC party, not being in Hong Kong, where the operation headquarters of the 7th defendant are, cannot be in effective control of the company.

14. Mr Chaine submits that the 1st defendant was not the alter ego of the 7th defendant and is only a minority shareholder. Even if the 1st and 2nd defendants were in breach of their fiduciary duty, that does not affect the 7th defendant which is a separate company owing no fiduciary duty to the plaintiff. He submits the appropriate remedy for the plaintiff is to look to the 1st defendant's interest in Pac-Asia or to ask for an account from the 1st defendant. In my opinion, though the 7th defendant does not owe any fiduciary duty to the plaintiff, it is equally liable to the plaintiff as having knowingly rendered assistance to the breach by making the allotment to Pac-Asia. The 51% shareholding by the PRC party is of little significance as compared to the 1st and 2nd defendants' position in the driving seat of the company, which has its operation headquarters in Hong Kong and not in the PRC. In any event, the 1st defendant through Pac-Asia which holds 49% of the shares in the 7th defendant is the single largest shareholder. While the plaintiff may recover damages against or seek an account from the 1st defendant or Pac-Asia, that does not prevent it from seeking a remedy also against the 7th defendant, who with full knowledge assisted in the breach.

15. Mr Chaine submits that the electronic on-line system belonged to the PRC party and is not a confidential information belonging to the plaintiff. This is readily accepted by Mr Bleach SC. However, Mr Bleach SC submits that the system now belongs to Thinker e-Commerce and the case of the plaintiff in the present application against the 7th defendant is not based on confidential information in the electronic on-line payment system but on the wrongful diversion of business opportunity to the 7th defendant.

16. Mr Chaine submits that there is no evidence of risk of dissipation of the 7th defendant's assets as to justify the continuation of the injunction. The 1st and 2nd defendants are still in the driving seat of the 7th defendant company and are actively involved in its business. They are two of the three directors in the operation headquarters in Hong Kong. In the circumstances, I agree with Mr Bleach SC that and in view of their dishonesty, risk of dissipation could readily be presumed. Further, the real asset of the 7th defendant is its shareholding in Thinker e-Commerce, which is reflected in the value of the shares of 7th defendant. The 1st and 2nd defendants are actively soliciting private placement of the shares of the 7th defendant. These new shares should have been offered to the plaintiff. If the new shares are issued, the plaintiff's interest in the 7th defendant will be diluted. If the 7th defendant's interest in Thinker e-Commerce is disposed of, the value of the shares in the 7th defendant will diminish. In view of the dishonesty of the 1st and 2nd defendants and the position they hold in the 7th defendant, I consider there are real risks of dissipation of the 7th defendant's asset.

17. Mr Chaine submits that the amount of $43 million which the plaintiff sought to restrain against the 7th defendant is based on the salaries of the personal defendants during the three year period and is unreasonable as regards the 7th defendant which only came into existence a few months before the proceedings. On the basis of the 2nd defendant's projection, the 7th defendant will be worth US$106,622,406.00 by 2001. Until discovery, it is difficult to put a tag to the damage suffered by the plaintiff. The figure of $43 million as adopted by the plaintiff is convenient and realistic and is not unreasonable against the projected worth of the 7th defendant. I do not see any reason for not continuing the injunction on similar terms. Accordingly, I order that the Mareva injunction granted by the Honourable Mr Justice Yam on 24 October 1999 be continued until further order and the 7th defendant's application to discharge the injunction be dismissed and that costs be reserved.