XCHRX LUK PIK YAN v. LUK JOH WING AND OTHERS

HCA2484/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2484 OF 2001

---------------------------

---------------------------

----------------------

J U D G M E N T

----------------------

1. This is an application by the 1st defendant to discharge the Mareva injunction obtained by the plaintiff against all the defendants on 1 June 2001, restraining them from disposing of their assets within Hong Kong up to the value of HK$3 million.

2. The underlying action is a derivative action commenced by the plaintiff against the defendants. The plaintiff is one of the two shareholders of the 4th defendant, the company known as Hanco Development Limited. The 1st defendant is the other shareholder. He is also the father of the plaintiff. The 2nd and 3rd defendants are said to be an agent of the 4th defendant in conducting business on its behalf.

3. The plaintiff's case, in brief, is that there was an agreement prior to the incorporation of the company as to how the company should be operated. The company was to engage in the business of selling petroleum oil on sea. It is also the plaintiff's case that the 1st defendant, being a director of the company, owed a fiduciary duty to the company and was a trustee in respect of the company's properties.

4. The plaintiff alleges that in breach of the pre-incorporation agreement, the 1st to 3rd defendants had conducted the business in a way contrary to operation as agreed, thereby causing loss and damage to the company. The wrongdoings of the 1st to 3rd defendants include wrongful payments to other parties, credit sales to persons, including smugglers. The plaintiff further alleges that the 1st defendant has acted in breach of its fiduciary duty as trustee of the company by using the company's money for his own purpose to discharge mortgage instalments for his flat.

5. This application to discharge is based on a number of grounds : firstly, material non-disclosure, secondly, the plaintiff does not have a good arguable case and, thirdly, there is no real risk of dissipation - the 1st defendant having no assets to dissipate at all and, fourthly, there is inconvenience caused to the 1st defendant as a result of the Mareva injunction.

6. The facts are hotly in dispute. The plaintiff, the 1st defendant and the 4th defendant are all involved in a winding-up proceedings commenced in October last year.

7. As to the allegations of wrongdoings, the defence raised by the 1st defendant, in essence, is this. Although there was wrongful payment, that had been rectified. Credit sale was permitted or agreed by the parties before the incorporation of the agreement. He was entitled to use the company's funds to pay off his mortgage debt, the parties having agreed on that before the incorporation of the company.

8. I will deal with the grounds in turn. Firstly, material non-disclosure. A number of points have been raised. They are, in my view, mere repetition of the allegations raised by the 1st defendant in his defence. On the evidence before me, I am not satisfied there is any material non-disclosure as alleged.

9. The second ground is that there is no arguable case. It is trite that the court should not be drawn into the dispute on evidence and should not embark on a mini trial on affidavit. I, of course, have in mind all the points raised in the affirmations and submissions as well. Having considered the matter in the round, I am satisfied that the plaintiff has shown a good arguable case on the claims against the 1st defendant.

10. Turning to the third ground, I am also satisfied that the plaintiff has shown a real risk of dissipation. I take into account the nature of the dispute, and the allegation of breach of fiduciary duties against the 1st defendant. I also take into account the fact that the 1st defendant is a Canadian immigrant. Apparently he has a connection with Canada; his younger daughter is now studying there. I also take into account his recent sale of his only real property in Hong Kong. I think all these are good enough to show that there is a real risk of dissipation.

11. Further, there is a complaint about non-compliance of the disclosure order. I am not sure if that has been made out. There is also a complaint about the abandonment of the management of the company and the vessel, the intended purported sale of the company's property and so forth. Again, these are all in dispute. I do not think I have to rely on them in coming to my conclusion that there is a real risk of dissipation of assets.

12. The last ground concerns inconvenience caused to the 1st defendant. In my view that point alone is not sufficient to support an application to discharge.

13. For these reasons I will dismiss the application.

[Submission on costs]

14. The plaintiff will have the costs of this application, to be taxed if not agreed.