HCMP 1937/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1937 OF 2010

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BETWEEN

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REASONS FOR DECISION

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1.  On 9 September 2010, Capital Globe Limited (“Company”) was served with a statutory demand on behalf of the Respondent. The demand was for payment of US$12 million payable pursuant to the terms of a series of time charter agreement and A$40 million payable pursuant to an Australian Property related agreement. The time for compliance with the statutory demand was, at least the Company understood, extended until 7 October 2010.

2.  At 7:30 p.m. on 7October, I heard at my home an ex parte application for an injunction to restrain the Respondent from presenting a winding-up petition.  The application was supported by an affirmation of Brian Lee Choon Hung.  I granted an injunction and pursuant to the Company’s undertaking an inter parte summons was issued for its continuation returnable at 10:00 a.m. on 15 October 2010.

3.  At the hearing of the inter parte summonsthe Respondent was represented by Mr Paul Carolan.  He sought to argue that the order should not be extended and should be set aside on the grounds of material non-disclosure.  Mr Carolan argued that the matters of which the Respondent’s complain constitute material non-disclosure and also demonstrate that the order should never have been granted in the first place.

4.  It is not in dispute that is in order for the Company to justify an order restraining the Respondent from presenting the petition it is necessary for it to demonstrate that it has a bona fide defence to the claim on substantial grounds.  The American Cyanamid principles are not directly applicable in this kind of application.

5.  In paragraph 31 of his affirmation, Mr Lee explains the Company’s defence to Essa’s claims as follows:

“By way of summary, they are:

(a) Essa has all along, despite repeated requests and demands, failed to provide any evidence that the transactions were genuine and that he had really made the alleged investments thereunder;

(b) The only self serving Schedule provided by Essa and the particulars therein are in fact inconsistent with his own claims;

(c) The alleged Time Charter Contracts and the Australian Property Agreement are by themselves full of defects.  The enforceability of which will therefore be subject to very substantial disputes by CG in any enforcement proceedings to be instituted by Essa.”

6.  The thrust of the Company’s case and the tenor of Mr Lee’s evidence is that the Respondent’s case is suspicious and possibly fraudulent.  He goes so far as to suggest in paragraph 47 of his affirmation that he has doubt about authenticity of the signature of his fellow director, Mr Shaquil Haque, on some of the time charter contracts.

7.  On the afternoon of 14 October, the Respondent served an affirmation of his solicitor Mr Watkins exhibiting a draft affirmation of the Respondent himself, who is resident in Pakistan, which has not yet been executed.  I am told Mr Essa has confirmed the accuracy of its contents and is ready to formally affirm the affirmation upon receipt of the original.  The affirmation serves three principle purposes.  It demonstrates that he or a company controlled by him has made payments pursuant to the time charter contracts and the Australian Property agreement, provides some further information principally by exhibiting the Company’s website and makes various forensic points.  From this foundation, Mr Carolan undertook a forensic analysis of Mr Lee’s affirmation and exhibits.  What in my view he successfully demonstrated was that at the time Mr Lee made his affirmation he had been provided with sufficient information by the Respondent, and had had sufficient opportunity to carry out his own investigation of the Company’s affairs, that he should have appreciated that the factual elements of the Respondent’s claim were likely to be true.

8.  In particular Mr Lee should have appreciated that Mr Haque did sign the various contracts and there was no reason to think that his signature had been forged, the Respondent had paid or caused to be paid the various sums required to be paid by him under the various contracts and that at least in seven instances, he had made payments to either the Company or other companies within its group.  In particular, Mr Carolan pointed out that despite exhibiting a schedule prepared by the Respondent and sent to the Company listing the various payments the Respondent says he made pursuant to the contracts Mr Lee failed to point out that three of these payments totalling US$5,250,000 had been made to a company called Offshore Global which is part of the Company’s group.  Mr Lee’s evidence suggests the Offshore Global had nothing to do with the Company’s group.

9.  I am satisfied that Mr Lee should have known at the time his affirmation was made that the case summarised in paragraph 31 of his affirmation was misleading in the sense that it presented not only a partial view of the facts but one which could not be justified on the basis of the information he either had or should have been capable of obtaining.  It seems to me quite clear that at the time the application was made ex parte before me the highest that Mr Lee could properly put his case was that he had certain concerns about the details of the Respondent’s claim.  At the time he made the affirmation he had no reason to doubt that the majority of what the Respondent was alleging was correct.   The most obvious example of this being the three payments to Offshore Global.

10.  In my view, there has been material non-disclosure which justifies setting the original order aside. 

11.  I made the point to Mr Carolan during argument that it seemed to me that probably the principal issue concerns whether or not Mr Haque had had authority to enter into the various contracts.  Mr Carolan however, pointed out that Mr Lee’s affirmation did not raise this as a defence.  His defence involves trying to call into question the truth and accuracy of the Respondent’s factual allegations.  I accept this. 

12.  I think the analysis that Mr Carolan undertook demonstrated that there is insufficient evidence before the court to demonstrate a bona fide dispute on substantial grounds or even a strong possibility of such a dispute existing. 

13.  At the hearing, the Company was represented by Mr William Hui.  The Company had been represented by Mr Bruce Lau at the ex parte application before me on 7 October 2010.  It became clear during argument that Mr Hui was not in a position to argue for a continuation of the injunction and deal with Mr Carolan’s submissions.  He appears to have attended on the assumption that the injunction would automatically be continued and only directions made.  Indeed when I asked what he said was the Company’s defence now he had heard Mr Carolan’s submission he was unable to give me any answer at all.  He was able to say little more than that his instructions were that the Company disputed that Offshore Global was part of the group despite the fact that it is clearly stated on the Company’s website, at least up until May of this year, that Offshore Global is an active constituent of the group.

14.  The Respondent is entitled to present a winding-up petition unless it is demonstrated that the Company has a bona fide defence on substantial grounds.  The Applicant is unable to do so.

15.  I will therefore set aside the existing order and order the costs of the inter parte summons are paid by the Applicant to the Respondent on an indemnity basis to be taxed if not agreed and paid forthwith.