XCHRX DE BEER LAKFABRIEKEN BV v. DE BEER LAKFABRIEKEN BV and Others

1997, No. A379

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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This Hearing

1. This matter relates to a Mareva injunction obtained ex parte. The inter-partes summons by the plaintiff was issued on 7 March 1997 and is now before me. On 12 March 1997, the second to fifth defendants issued a summons asking that the Mareva order by Rogers J. of 6 March 1997 be discharged, and that there be an inquiry as to damages. This summons is also before me. Because the summons by the second to fifth defendants went to the root of the matter, I heard this before the plaintiff's summons. I adjourned the plaintiff's inter partes summons until I decided the summons of 12 March 1997. There is also before me a summons issued by Power Link (China) Limited (Power Link) on 12 February 1997 seeking a variation of the order by deleting the references to the Rainbow Villas House and the shares in Power Link. Mr Side concedes that those items should be deleted.

The Background

2. On 14 January 1997, the plaintiff obtained an order ex parte from Cheung J. in the form of a Mareva injunction. This order was obtained in proceedings against the first defendant, which was then the only defendant. Broadly, the order restrained the first defendant, until after the disposal of an inter-partes summons or further order, from dealing with specified property, including the interest of the first defendant in a house at Rainbow Villas, Sai Kung and the shares owned by the first defendant in Power Link or the interest of the first defendant in those shares, up to the value of $8,564,784.32. The plaintiff's claim against the first defendant was for the price of goods sold and delivered in the sum of the equivalent of $8,564,784.32.

3. The inter-partes summons was heard on 17 January 1997, and, after hearing the solicitors for the plaintiff, the injunction was continued until judgment or futher order, but with fortification as to the plaintiff's undertaking to pay damages.

4. Upon reading an affidavit by Mr Mark Side, and hearing the solicitors for the plaintiff ex parte, on 6 March 1997, Rogers J. granted an order joining the second to fifth defendants in the action, a Mareva injunction against the second to fifth defendants relating particularly to the shares in Power Link and the Rainbow Villas house, and gave leave to issue and serve amended writs, including service upon the fourth and fifth defendants out of the jurisdiction. The figure of $8,564,784.32 in the original order was amended to $6,500,000. The plaintiff's fortified undertaking as to damages was extended to the second to fifth defendants.

The Amendments to the Writ

5. The amendments to the writ made various amendments to the claim against the first defendant that are of no importance to the matter before me, including reducing the claim against that defendant to the equivalent of $5,499,105.61.

6. The amendments also joined the second to fifth defendants, and sought damages against them on the basis of the following allegations -

7. Further the Plaintiff claims against the Fourth and Fifth Defendants a declaration that they hold the shares in Power Link (China) Ltd on trust for the First Defendant or that the disposition of the shares is liable to be set aside as having been made in fraud of creditors and/or as having been made by the directors of the First Defendant in fraud on the First Defendant or otherwise in breach of fiduciary duty owed by the directors of the First Defendant to the First Defendant and/or under sections 266 and 266A of the Companies Ordinance Cap. 32.8. Further the Plaintiff claims against the Second, Third, Fourth and Fifth Defendants damages for conspiracy to defraud the Plaintiff and/or wrongful interference with contractual relations in facilitating the transfer of the shares in Power Link (China) Ltd from the First Defendant to themselves for the purpose of ensuring that the Plaintiff and other creditors of the First Defendant went unpaid.

The Evidence

7. The basis upon which Rogers J. made his order was an affidavit by Mr Mark Side, the plaintiff's solicitor, dated 5 March 1997. This document bears no case number and the heading relates to an action between the plaintiff and the first defendant, as first defendant, the fourth defendant, as second defendant, and the fifth defendant, as third defendant. The affidavit says that it is in support of the plaintiff's application for an injunction to prevent the dissipation of the assets of Power Link.

8. Mr Side speaks about the first defendant's indebtedness to its creditors. He says, under the heading "The reasons why De Beer has brought this action to secure the assets of Power Link China", that he was concerned to learn that the first defendant's shares in Power Link had been transferred to the fourth and fifth defendants. He says that he believes this transaction was undertaken to ensure that an asset of the first defendant was not available to satisfy any judgment obtained against the first defendant. He says he believes that Power Link owns the Rainbow Villas house. He then talks about the first defendant dissipating its assets and his suspicions regarding the sale of the shares in Power Link. He gives the basis for his suspicion that sale was not a "genuine arm's-length" transaction. What Mr Side says might lead one to believe that the defendants acted together to transfer the shares from the first defendant to the fourth and fifth defendants. Mr Side concentrates on seeking to show that this was a scheme to dissipate a major asset of the first defendant. He really makes no effort to show that what happened gave rise to a cause of action by the plaintiff against the second to fifth defendants.

9. Mr Side concludes his affidavit by saying that the fourth and fifth defendants are foreign companies, He says "I believe that the claims made by De Beer in the writ of summons disclose a good cause of action and are within the terms of Order 11 rule 1(c) and/or 1(d) and/or rule 1(f) and/or rule 1(h), For these reasons I seek leave to serve the writ in this action on Huxley and Dougal out of the jurisdiction and an order that they acknowledge service within 31 days." Mr Side makes no serious attempt to comply with Order 11, rule 4(1)(d).

The Order

10. The order by Rogers J. has three main components -

1. The amendments to the writ, including the joinder of the second to fifth defendants, and the allegations to support the claim for damages mentioned above;

2. the Mareva injunction against the second to fifth defendants relating particularly to the shares in Power Link and the Rainbow Villas house; and

3. the leave to serve the amended writ on the fourth and fifth defendants out of the jurisdiction.

In respect of each of these components, whether or not the plaintiff has a cause of action against the second to fifth defendants is, at least, of some relevance.

The Causes of Action Alleged

11. It is clear that the plaintiff has no proprietary or equitable claim to any of the property of the first defendant or Power Link; at least none has been alleged. The transaction under which the first defendant is alleged to have disposed of its property cannot give rise to a cause of action vested in the plaintiff. Even if it were clear beyond any doubt that the second to fifth defendants had stolen an asset of the first defendant, a creditor of the first defendant cannot claim against those defendants on that basis. Yet this is what the plaintiff is attempting to do by paragraph 7 of the amended writ. There is no viable cause of action against the second to fifth defendants alleged in paragraph 7; certainly none that has any support from what Mr Side has to say. It is equally so that, even if the second to fifth defendants conspired together to defraud the first defendant so that the shares were unlawfully removed from the ownership of the first defendant, this cannot found a cause of action vested in the plaintiff. There is nothing at all in Mr Side's affidavit that could possibly support an allegation that the second to fifth defendants conspired to defraud the plaintiff. A conspiracy to defraud the plaintiff in this context must start from some kind scheme by the second to fifth defendants to make a representation to the plaintiff. There is no evidence whatsoever that anything of this kind happened. Particularly with an allegation of fraud, the evidence put forward to show that there is a cause of action should be specific. Mr Side makes no attempt to give any facts that would support an allegation of a conspiracy to defraud the plaintiff. I must confess that I cannot understand at all the allegation of wrongful interference with contractual relations. Certainly, there is nothing in Mr Side's affidavit that could possibly support such an allegation. The truth is, I believe, that the plaintiff has no basis at all for a claim for substantive relief against the second to fifth defendants, and, I suspect, its legal advisers known this well. In his affidavit, Mr Side does not try to set up a serious cause of action against the second to fifth defendants. In argument, he put very little effort into persuading me that the causes of action in paragraphs 7 and 8 of the amended writ were good. He made no attempt to analyse those paragraphs to show what he said in his affidavit supported them. Instead, he concentrated on attempting to show that it was appropriate to grant Mareva relief against the second to fifth defendants although the plaintiff had no good arguable substantive cause of action against them.

12. Accordingly, I hold that the plaintiff has not satisfied me that it has any cause of action for substantive relief against the second to fifth defendants; certainly not one that could be described as a good arguable case.

Is a Cause of Action Necessary?

13. In seeking to show that, in some circumstances, it was proper to grant Mareva relief although the plaintiff had no substantive cause of action against the person against whom that relief was sought, Mr Side relied on an unreported decision in 1985 of the Court of Appeal of New South Wales and the case of T.S.B. Private Bank International S.A. v Chabra [1991] 1 W.L.R. 231.

14. In the T.S.B. case, Mummery J. held that the court had power to grant a Mareva injunction against a co-defendant, a local company, if that claim for an injunction was ancillary and incidental to the plaintiff's cause of action against the other defendant. No question of leave to serve out of the jurisdiction arose in that case. Mummery J. held that the relief sought was ancillary and incidental because the assets of the company might be the beneficial property of the primary defendant.

15. That decision was followed by Hirst J. in Aiglon v Gau Shan [1993] 1 Lloyd's Reports 164. In that case, the subsidiary defendant was a foreign company.

16. I am not sure that those decisions can be good authority in the light of the statements of principle in Siskina (Cargo Owners) v Distos SA [1979] AC 210, and the decisions, including decisions of the House of Lords, which followed it. And, as far as foreign defendants are concerned where leave to serve out of the jurisdiction is sought, Aiglon cannot be reconciled Siskina or Mercedes Benz A.G. V Leiduck [1995] 3 W.L.R. 718, a decision of the Privy Council on appeal from Hong Kong.

Conclusion

17. It seems to be, therefore, that the Mareva cannot stand against the fourth and fifth defendants, nor can the grant of leave to serve out of the jurisdiction.

18. As against the second and third defendants, there is also no good arguable cause of action. Even if one assumes that the T.S.B. case is correctly decided, the evidence is that these defendants no longer hold what is alleged, in reality, to be the property of the first defendant. The property is with the fourth and fifth defendants. Accordingly, an injunction against the second and third defendants serves no purpose. In fact, there is no evidence that the second defendant ever held any of the shares in Power Link.

19. The leave to join the fourth and fifth defendants serves no purpose if they cannot be served. In any event, I do not believe that the plaintiff has made out a case for service out of the jurisdiction. It follows that leave to amend by adding paragraph 7 serves no purpose. The leave to join the second and third defendants to claim damages based on paragraph 8 is to stand. I do not think, on the evidence, that the plaintiff has a case against them, but it is not necessary to put up a case against them on evidence at this stage. It is not clear on the face of these amendments, particularly the allegation of conspiracy to defraud, that they are useless, immaterial or inconsistent.

The Result

20. In the result, the order of Rogers J. of 6 March 1997 is set aside in so far as it relates to the joinder of the fourth and fifth defendants, the amendment of the writ by adding paragraph 7 and to the Mareva injunction. Consequently, the order sought by the summons of the second to fifth defendants dated 12 March 1997 is granted to that extent. There will be an inquiry into any damages suffered by those defendants.

21. It follows that the plaintiff's summons of 7 March 1997 is dismissed to the effect I have indicated. This summons does not, in fact, seek continuation of the relief granted by Rogers J. on 6 March 1997 other than, in effect, in relation to the injunction. The parties should consider the effect of this.

Costs

22. On the face of it, there does not seem any reason why the plaintiff should not pay the defendants' costs. I make an order nisi accordingly.