GARSON REAL PROPERTY AGENCIES (H.K.) LTD (in liquidation) v. HO PUI FONG

HCA 1648/2017

[2018] HKCFI 911

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1648 OF 2017

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JUDGMENT

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Introduction

1.  Ho Pui Fong Winnie (“D”) was the sole shareholder and director of Garson Real Estate (HK) Limited (“P”).  P went into liquidation on 25 March 2015, and now acts by its liquidators.

2.  On 11 July 2017, Madam Justice Toh granted an injunction against D on the ex parte application of P (“the Injunction”).  The Injunction restrained D from dealing with the sale proceeds, totaling HK$6,180,000, of an identified property and car parking space.

3.  P issued an inter partes summons on 12 July 2017 for the continuation of the Injunction (“the Injunction Summons”).  On the return date of 14 July 2017 (where P appeared by counsel and D appeared in person), the Injunction Summons was adjourned with directions, and an order for minoramendment of the Injunction (which amendment was effective on 18 July 2017).

4.  On 8 September 2017, upon D’s summons dated 25 August 2017, Madam Justice Lisa Wong made a further order which (inter alia) gave directions for the filing of evidence.  The order was not perfected until 22 December 2017; and evidence was only filed thereafter.

5.  P’s Injunction Summons now comes before me for substantive argument.

6.  The evidence filed in respect of the Injunction Summons is:

   (a) For P in support:

•   the 1^st affidavit of Mr Wong dated 11 July 2017 (“Wong 1”),

•   the 2^nd affidavit of Mr Wong dated 12 July 2017 (“Wong 2”),

•   the 3^rd affidavit of Mr Wong dated 17 July 2017 (“Wong 3”);

   (b) For D in opposition:

•   the 2^nd affirmation of D dated 25 August 2017 (“Ho 2”),

•   the 4^th affirmation of D dated 12 December 2017 (“Ho 4”);

   (c) For P in reply:

•   the 5^th affidavit of Mr Wong dated 21 February 2018 (“Wong 5”). 

7.  At the hearing, counsel for D, Mr Jeremy Cheung, informed me that he would also seek to rely on the evidence of Ms Zhang filed in proceedings HCCW 342/2014 in the Companies Court, and on evidence filed by P and D in respect of a specific discovery summons in this action.

   (a) I ruled that I would not admit evidence of Ms Zhang in another matter, not properly adduced into evidence on this summons, produced at the door of the Court.  I asked Mr Cheung if he wished to seek an adjournment to adduce the evidence properly, but he did not.

   (b) As to the evidence from the specific discovery summons, Mr Maurellet SC acting for P told me that P had not agreed that this go into the hearing bundles because it was not relevant to the Injunction, although no objection was taken to me looking at it.

Background

8.  P is a company which, prior to its liquidation, engaged in the business of property agency.  D was its sole shareholder and sole director.

9.  On 6 February 2014, P issued a cheque in favour of a Ms Zhang Huixiong, an employee, which cheque was countermanded.  Ms Zhang commenced proceedings against P in respect of the cheque on 4 March 2014, and obtained summary judgment in the amount of HK$602,410 on 18 June 2014.  

10.  On 29 July 2014, D procured a resolution that P go into creditors’voluntary liquidation, with D claiming to be the largest creditor.

11.  On 18 November 2014, Ms Zhang petitioned for the compulsory winding up of P.  On 25 March 2015, a winding up order was made.

12.  On 9 June 2015, Ms Zhang issued a summons to challenge the Official Receiver (“OR”)’s admission of D’s proof of debt of in the region of HK$3.5 million, and seeking to replace the liquidators.

13.  On 11 May 2017:

   (a) Mr Justice Harris ruled in favour of Ms Zhang’s summons, reversing the OR’s decision.  A reasoned decision was given.

   (b) Mr Justice Harris appointed Ms Tsui and Mr Wong joint and several liquidators of P.

14.  On 11 July 2017, P, acting by its new liquidators Mr Wong and Ms Tsui, sought and obtained the Injunction.  The application was supported by Wong 1. By way of overview, the affidavit states the following:

   (a) the background leading to the liquidators’ appointment;

   (b) a draft writ with general endorsement of claim had been preparedby which P claimed against D in misfeasance, breach of trust, and in particular, breaches of the fiduciary duties to (i) act in good faith in the interests of P and (ii) to avoid conflict of interests.

   (c) Harris J’s decision had made key findings as follows:

   (i) that Ms Zhang had given unchallenged evidence that P wassubject to IRD investigations for tax evasion in 2014 which might have been a reason for D putting P into liquidation;

   (ii) that any arrangement to pay D a bonus of HK$3 million would be of questionable propriety if declared at a time when P had already distributed a significant portion of its assets to D and had not retained sufficient to pay its employees including Ms Zhang.

   (d) There were 6 categories of suspicious and questionable transactions which formed the basis of P’s claim totaling HK$19,566,355, as pleaded in the draft Writ:

   (i) payment of D’s personal tax liability;

   (ii) excess payment of directors’ remuneration;

   (iii) exorbitant rental payments for motor vehicles;

   (iv) exorbitant personal entertainment expenses;

   (v) transactions at an undervalue relating to the disposal of P’s fixed assets to another company with an almost identical name to P, of which D was also sole shareholder and director; and

   (vi) exorbitant staff salary to D.

   (e) Mr Wong also deposed to D having submitted false tax returns to the IRD, which put P at risk of substantial liability to the IRD, and he was “presently in communication with the IRD to ascertain the latest position (including potential liability) in this regard.”

   (f) Mr Wong gave evidence of previous dissipation of assets by D shortly after P’s winding up order; and deposed to the risk of further dissipation of her assets by virtue of D having entered into a sale and purchase agreement in respect of a property and car parking space shortly after the decision of Harris J.

15.  On 12 July 2017, P filed Wong 2 which exhibited land searches for the property and car park space which are the subject of the Injunction.

16.  On 17 July 2017, P filed Wong 3 which corrected the contents of an exhibit to Wong 1.

17.  On 25 August 2017, D filed Ho 2 deposing to her intention to pay a sum into court in lieu of the Injunction, whilst expressly reserving her rights to apply to discharge, vary or modify the Injunction on its merits.

18.  On 25 October 2017, P filed its Statement of Claim:

   (a) P pursues 6 categories of claim: 5 are as indicated in Wong 1; P no longer pursues a claim in respect of exorbitant staff salary to D, but does now pursue a claim in respect of exorbitant and excess interest payment on D’s director’s current account.

   (b) The total amount claimed is now HK$15,804,579.73.

19.  D filed her Defence on 22 November 2017.  Two points are of note:

   (a) D pleads in respect of many of the payments made by P to her, or for her benefit, that she believed the payments to have been informally approved by the shareholder and therefore they were valid and effective.

   (b) D pleads that payments of remuneration and bonus to D, as the sole shareholder of P, enabled D to pay the lower personal rate of tax of 15% rather than P being subject to the corporate tax rate of 16.5% on undistributed profits.

20.  P filed its Reply dated 9 January 2018.  Points of note are:

   (a) P pleads the inability of shareholders to informally approve payments where the company is insolvent; and

   (b) P reserved its right to make a further claim against D in respect of the admitted tax evasion.

21.  I note that on 17 November 2017, D took out an (ultimately unsuccessful) summons for specific discovery by P of correspondence exchanged with the IRD. D filed Ho 3 dated 16 November 2017 in support; P filed Wong 4 dated 18 December 2017 in opposition; D filed Ho 5 dated 9 January 2018 in reply. D points to, and I note:

   (a) Ho 3 para 4(c) in which D states that to the best of her knowledgeP was not subject to any investigation in 2014 or at any other time for tax evasion or at all.

   (b) Ho 3 complains about statements in Wong 1 relating to P’s tax affairs, and seeks to see the correspondence with the IRD.

   (c) Wong 4 para 22 (dated 18 December 2017, therefore post-dating Mr Wong being aware that there had been no 2014 IRD investigation[1])in which Mr Wong sets out a long extract from Harris J’s May 2017 judgment including the reference to Ms Zhang’s unchallenged evidence of a 2014 IRD investigation into P for tax evasion.  I consider that it is clear from the following para 23 that Mr Wong set that out only in order to explain why he had raised the issue of tax evasion in Wong 1 dated 11 July 2017, andnot to persuade the Court on the specific discovery summons that there had been a 2014 tax investigation.

22.  On 12 December 2017, D filed Ho 4 in opposition to the Injunction.  It is to be noted that this evidence was filed some 5 months after the first return date attended by D.  In this affirmation, D states:

   (a) D was not served with Ms Zhang’s summons challenging D’s proof of debt, and did not attend the hearing before Harris J.

   (b) The IRD were not investigating P in 2014 or any time thereafter for tax evasion.

   (c) Mr Wong has not provided any evidence to corroborate Ms Zhang’s allegation of such IRD investigation.

   (d) The allegation of submission of false tax returns by D had not been pleaded in the Statement of Claim and was totally unfounded.

   (e) The Statement of Claim had dropped the claim of exorbitant staff salary in the amount of HK$7 million without explanation, although such a claim had been relied on at the ex parte hearing, and this may indicate that Mr Wong had not intended to pursue the ex parte application in good faith[2].

   (f) As stated in her Defence, the monies D received from P by way of remuneration and bonus were paid so that D could pay the lower personal tax rate of 15% thereon instead of P paying the higher corporation tax rate of 16.5% thereon.

   (g) The payments by P to D listed in the Schedule to the Endorsement of Claim of 12 July 2017 were consented to informally by D as sole shareholder.

23.  On 21 February 2018, P filed Wong 5:

   (a) He reiterates what was stated in Wong 1 about P having a potential tax claim, but confirms that no claim was made by P against D in respect of such tax claim whether at the time of Wong 1 or now.

   (b) He reiterates that he relied on Harris J’s reference to Ms Zhang’s evidence in respect of a 2014 tax evasion claim.

   (c) He updates this evidence by stating he discovered in about November 2017 that Ms Zhang’s evidence before Harris J was not entirely accurate as he was informed by the IRD that P had not been the subject of an investigation in 2013 or 2014 but a case hadbeen opened into P in 2017 after the IRD learned of the Injunction.

   (d) He updates the evidence in respect of the inconsistency between the directors’ remuneration stated in the audited accounts and that reported to the IRD in the employer’s return for the 2012/2013 period.  He states his belief that D had submitted incorrect information to the IRD, either by understating her remuneration in the employer’s return, or overstating directors’ remuneration as a deductible expense in P’s profits tax return.

   (e) He points out that if, as claimed in the Statement of Claim, any of P’s expenses or payments were excessive or private in nature, then they would be disallowed as deductible expenses of P for tax purposes.

   (f) He points out that D’s admitted manipulation of P’s payments so that a lower tax rate was paid was an impermissible transaction to confer tax benefits on P and/or D.

   (g) He points out the insolvency or likely insolvency of P at the material time, by reference to P’s accounts.

   (h) Documents are exhibited to further substantiate the claims as made in Wong 1 and substantiate the new claim of exorbitant interest payment on D’s current account (ie the claims pursued in the Statement of Claim).

   (i) Further evidence is provided in respect of dissipation of assets.  This includes evidence that shortly after Ms Zhang made her claim against P, D terminated the employment of P’s staff and re-employed them through another company under her control with a similar name (the same company that is claimed to have been the beneficiary of transactions at an undervalue).

Issues

24.  D, represented by Mr Jeremy Cheung, seeks discharge of the Injunction on the following grounds:

   (a) material non-disclosure by P at the ex parte hearing (“MND”);

   (b) material misstatement of facts in the evidence before the ex parte judge Toh J, and thereafter before Lisa Wong J;

   (c) P failed to discharge its continuing duty to inform the Court of errors or omissions made in the evidence on the ex parte application once they were discovered; and

   (d) the existence of an injunction in the Family Court.

(a)   D’s 1^st ground

25.  As to MND at the ex parte hearing, D complains that Mr Wong failed to investigate Ms Zhang’s allegation of a 2014 IRD investigation of tax evasion; and that Mr Wong has failed to explain the inaccuracy of Ms Zhang’s allegation.

26.  As to the alleged failure to investigate, I have had regard to UES International (HK) Ltd v Maritima Maruba SA (unreported) HCA 632/2011, 19 November 2013, Anthony Chan J, at para 51 in particular sub-para 14; and Behbehani v Salem [1989] 1 WLR 723 at 737E–H.  In particular, I note:

   (a) the ex parte applicant must make proper inquiries before making the application;

   (b) the duty of full and frank disclosure applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries;

   (c) the extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all of the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant; and (c) the degree of legitimate urgency and the time available for the making of inquiries.

27.  I first consider the nature of the case.  P’s claims at the time of the ex parte hearing were as stated at para 14(d) above.  P clearly stated that whilst certain investigations were ongoing, there was no claim (yet) being made in respect of tax evasion.

28.  That brings me to consider the relevance of the factual matter in question.  The alleged fact of a 2014 IRD investigation did not form part of the claims as made by P at the time of the ex parte application, nor by the timeof the Statement of Claim.  Rather, this area of evidence seems to me to have been by way of background only to the ex parte application.

29.  I also consider the way the evidence was deployed:

   (a) Mr Wong made it clear that he relied on the allegation of Ms Zhang before Harris J, which had been unchallenged before Harris J according to the judgment of Harris J, as evidence of a 2014 IRD investigation of tax evasion.  Mr Wong’s evidence clearly shows that he was not appointed liquidator at the time of the Harris J decision and he was not giving evidence of any personal knowledge.  He also makes clear that he was communicating with the IRD in respect of D’s submissions of false tax returns, but does not suggest he had any communications regarding a 2014 IRD investigation.

   (b) I do not consider that the ex parte judge was in any way misled as to the quality of the evidence before the Court.

30.  I have no doubt that the Injunction would have significant impact on D, although I do not know the full extent. 

31.  As to urgency, there was evidence of a risk of dissipation of assets.

32.  In my view, inquiries would have been necessary only to check those matters affecting the grant of an injunction ie whether there were arguable claims against D and whether there was a risk of dissipation of assets, and where the balance of convenience lay.  I do not consider it realistic for D to complain that a newly-appointed liquidator should personally investigate the accuracy of all evidencebefore taking steps to protect the property of P, which is a liquidator’s foremost duty.  On the basis of Harris J’s acceptance of Ms Zhang’s unchallenged evidence, Mr Wong had reasonable evidence of a 2014 IRD investigation.  I do not consider an investigation into the accuracy of Ms Zhang’s information to be a “proper inquiry” before launching the Injunction application, especially when it was background material rather than central to the claims made.

33.  To the extent that the evidence has turned out to be inaccurate, there is no basis for D to suggest that Mr Wong’s reliance thereon was anything other than innocent, a matter which Mr Cheung appeared to accept during the hearing.

34.  In any event, I consider the Injunction to have been clearly appropriate on the evidence without any regard to the alleged fact of the 2014 IRD investigation.

(b)   D’s 2^nd ground

35.  D’s complaint about misstatement of facts also relates to the Zhang allegation of a 2014 IRD investigation.  As far as I can understand it to be a separate ground of complaint, D complains that the evidence in Wong 5 that the IRD did not open a case into P until 2017 after learning of the Injunction must mean (1) that the IRD was not conducting any investigation into P before 11 July 2017, and (2) that Wong 1 lied insofar as it stated that Wong was in communication with the IRD as at 11 July 2017 (ie before the Injunction).

36.  I find D’s allegation to be unjustified.  It seems to me perfectly possible that Mr Wong as liquidator was communicating with the IRD in respect of inconsistencies in P’s records and tax reporting before the IRD decided to open an investigation or case.

(c)   D’s 3^rd ground

37.  D complains that Mr Wong failed to inform the Court of the inaccuracy of the Zhang allegation as soon as he became aware of it.  At the hearing, Mr Cheung for D accepted that this was in November 2017.  Wong 5 filed on 21 February 2018 corrects the evidence in respect of the alleged 2014 investigation.  The evidence was corrected during the inter partes process before the Injunction Summons returned to Court.  D’s complaint is that P was in breach of its duty by failing to return to Court immediately. 

38.  There is no issue that an ex parte applicant is under a continuing duty to inform the Court of material facts relating to the application, even after an ex parte order is made.  It is not disputed that P would not have to return to Court in respect of correcting an immaterial fact.

39.  Nor is it in dispute that, if, whilst the Injunction application remained ex parte, Mr Wong had discovered that his ex parte evidence was wrong in a material way, he should have taken the initiative to return to Court to clarify P’s entitlement to the Injunction.

40.  What is disputed is whether the information that Zhang’s allegation of a 2014 IRD investigation into P was untrue was a material matter on the ex parte application which P ought to have brought to the Court’s attention immediately after it was discovered in November 2017.

41.  Accordingly, the sub-issues are:

   (i) What was the extent of the ex parte applicant’s continuing duty once the process was inter partes (by which I mean the defendant was fully apprised of the ex parte material).

   (ii) Whether the factual matter in this case was material for the purposes of the applicant’s continuing duty.

(i) Extent of duty of disclosure once the application becomes inter partes

42.  Mr Cheung sought to argue that P remained under a duty to inform the Court of a material factual error in the ex parte evidence even after the summons became inter partes, and even where the factual error was a matter known to D.

43.  He referred me to a number of authorities.

44.  In UES, Anthony Chan J agreed with the dicta of Chung J in Tiong King Sing v Sam Boon Peng Yee [2011] 5 HKLRD 651.  So far as relevant, Chung J stated that the requirement of good faith on an ex parte application had many facets, including:

“ (c) an applicant has a continuing duty to inform the court as soon as he becomes aware that the court has been misinformed or given incomplete information earlier;

(d) there is also a duty to disclose any material change of circumstances while the proceeding remains ex parte …”

45.  Gee on Commercial Injunctions (6^th ed) at paras 9-026 to 9-027, byreference to the decision of Saville J in Commercial Bank of the Near East plc v A [1989] 2 Lloyds Rep 319, makes plain that whilst the proceedings remain ex parte, the applicant must inform the court as soon as possible if it comes to light that any evidence on the ex parte application was false, misleading or incomplete, or there have been any subsequent material changes in the situation, ie any new or altered facts or matters which had they existed at the time of the ex parte application should have been disclosed to the court.

46.  That much is clear.  But what if the error is not material (albeit that is an assessment for the court not the parties, so that disclosure would be required if it might be material)?  And what if the matter is inter partes and the factual matter is known to the other party/parties?

47.  On the facts of Commercial Bank of the Near East, Saville J considered that the new facts were not material.  Gee at 9-027 observes that in that case, the circumstances in question were also known to the defendants, so that once the defendants had been fully apprised of what had happened on the ex parte application, they would themselves have been in a position to apply to the court to discharge or vary the order.  Gee does not expressly say that the plaintiff’s duty to inform the court comes to an end, although that seems implicit. 

48.  Gee at 9-027 also points to the potential situation where, after the defendant is fully apprised of the ex parte proceedings, new information becomes available to the applicant only.  Gee does not state the answer to this situation in that paragraph.  However, at 9-028, Gee states that:

“ Irrespective of whether the proceedings remain on an ex parte basis, there is a duty to return to the court if the basis on which it has granted relief no longer applies [citing Todaysure Matthews Ltd, Matthews International Corp v Marketing Ways Services Ltd [2015] EWHC 64 (Comm) at [18]; Speedier Logistics v Aardvark Digital [2012] EWHC 2776 (Comm) at [32]]. This applies regardless of how long previously the relief was granted.”

49.  I have not been shown either of those two authorities or received submissions on them.

50.  Mr Cheung also referred to Chu Hung Ching v Chan Kam Ming & ors (unreported) CACV 46/2001, 9 February 2001.  There, the plaintiff’s ex parte application had omitted fundamental material facts.  Le Pichon JA (at p 8) stated that the material change in circumstances (demonstrating the factual inaccuracy underlying the ex parte application) occurred 2 days before the inter partes hearing.  She held that there was no question but that the plaintiff’s continuing duty required him to make full disclosure immediately, before the inter partes hearing.

51.  Mr Maurellet SC accepts that if the error or change in circumstances was such that it affected the applicant’s entitlement to the injunction, then the applicant was under a duty to come back to court.  However, he stated that he had been unable to find an answer in the authorities as to whether the applicant had to return to court without that type of material error, nor on how material the error had to be before the applicant must return to court. He submitted that the applicant should probably inform the other side.

52.  The legal issue arises as to the nature of P’s duty to inform the court of material inaccuracies in the ex parte evidence where this becomes known only after the proceedings have become inter partes and the error is equally known to the defendant.  I do not feel confident that I have seen all relevant authorities or heard full argument on the issue and therefore I do not express a concluded view.  In light of my views on the 2^nd issue of materiality (addressed from para 55 below), it is not strictly necessary.

53.  However, for present purposes, it seems to me that the applicant’s duty to the court would be best served as follows:

   (a) If the applicant becomes aware of a material inaccuracy in the ex parte application whilst the proceedings remain ex parte, he must of course inform the court.

   (b) If the applicant becomes aware, after the proceedings become inter partes, of an inaccuracy in the ex parte application, he should raise this with the defendant and propose a way forward:

   (i) If the applicant has obtained his relief on the basis of a material factual inaccuracy, he should inform the court himself.

   (ii) If the applicant considers the factual inaccuracy to be immaterial in the circumstances, then he should make this plain to the defendant, so that the defendant may consider an application to the court if he takes a different view on materiality.

   (iii) Ideally, such an approach would ensure both parties are aware of the same facts, and the Court would be made aware of material inaccuracies and not need to be disturbed by a discussion of what all parties agree to be immaterial inaccuracies.

54.  In this case, it was D who informed P of the factual inaccuracy.  If D genuinely considered the existence of a 2014 IRD investigation to be a material matter, I would have expected D to bring it to the Court’s attention earlier. I do not accept Mr Cheung’s explanations to the contrary:

   (a) His first submission was that it would be pointless for D to inform the Court of the factual error as D would not be believed. (However, Mr Cheung accepted that Mr Wong appeared to have investigated the factual issue as soon as D raised the point in her affidavit in November 2017).

   (b) Secondly, that D was initially acting in person, but raised the pointonce lawyers were acting.  In fact, I note that D was represented by lawyers at the latest by 18 August 2017 when a summons was taken out on her behalf, although the factual error was not pointed out by D until 16 November 2017 in Ho 3.

   (c) Thirdly, she was under pressure to comply with the ex parte order.  This does not explain why a challenge to the order would not be made if considered appropriate.

(ii) Materiality

55.  The real issue is whether the inaccuracy was sufficiently material to warrant a return to Court.

56.  Mr Cheung referred to a decision of the Grand Court of the Cayman Islands: C Corp v P [1994–1995] CILR 189.  This in turn referred to The Nordglimt [1988] QB 183 and an analysis of materiality in the context of the facts of that case.  There, the inaccuracy was in respect of facts centralto the description of the cause of action ie the date and quantity of cargo loaded.  However, the inaccurate facts did not enable the plaintiff to obtain any relief which they would not have obtained if they had stated the correct facts.  On the basis that the inaccuracy did not affect the merits and the plaintiff had not obtained any advantage by misleading the court, the order would not be set aside. 

57.  Mr Maurellet referred to two authorities in respect of materiality:

   (a) In Behbehani at 726D – 727D, Woolf LJ (as he then was) referred to Brinks Mat v Elcombe, in particular:

“ (2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisors”.

   (b) Sino Wood Investment Ltd v Wong Kam Yin (unreported) HCA 307/2002, 23 December 2002, DHCJ A Cheung (as he then was) at paras 28, 29, 30, 32, 33, for the proposition that the duty to give full and frank disclosure of material facts should be seen, adopting common sense, in the context of the ex parte judge’s task of performing a “weighing operation”.

58.  Mr Maurellet points out that the fact of the 2014 IRD investigation was not contained in the ex parte skeleton.  That is an indication that it was at least not considered material by P, nor considered a point to rely on in making the application.

59.  I refer to the view I have expressed at para 28 above that the reference to the 2014 IRD investigation in Wong 1 was part of the backgroundand not any part of the foundation for the claims being made against D.  Whilstthere may be an element of prejudicial value in referring to an allegation of aninvestigation of tax evasion, that is in my view a drop in the ocean compared to the other allegations against D of misuse of P’s assets at the expense of P’s employees and creditors.

60.  In other words, I regard the evidence relating to a 2014 IRD investigation as not sufficiently material to justify a return to Court.

61.  Further, I would be most reluctant to find P guilty of non-disclosure of a factual matter where P discovered the matter after D and D had not herself brought the matter to the Court’s attention, although she was aware of it for several months before P.

(d)   D’s 4^th ground: Other injunction proceedings

62.  D submits that there is no risk of dissipation of the sale proceeds which are the subject of the Injunction because they are the subject of a proprietary injunction in the Family Court by order dated 18 July 2017.

63.  I cannot accept that submission.  The other injunction is subject to variation or discharge as the Family Court sees fit.  That injunction does not assist P.

Good arguable case

64.  On this application, D has not (in anything other than a sweeping perfunctory way, subject to one point) challenged the merits of P’s claims under the 6 pleaded categories in the Statement of Claim.  To be clear, D does seek to defend herself against these claims in her Defence.  However, no substantive submissions are made on this summons as to a lack of a good arguable case.

65.  The exception I refer to is that D has sought to challenge, in a general manner, the allegation of improper payments to D by claiming that the transfer of monies from P to D was intended to achieve payment of a lower rate of tax (ie the personal rate rather than the corporate rate).  This appears to be an admission of tax evasion by D.  This only serves to confirm rather than negate the impropriety of the payments.

Alternatively

66.  Insofar as I am wrong as to the materiality of the allegation of a 2014 IRD investigation, such that it is a matter which should have been notified to the Court immediately rather than in the course of the inter partes evidence, then I would, in all the circumstances of the case, have been amenable to an application for re-grant on the basis of the principles in Excel Courage v Wong Sin Lai [2014] 3 HKLRD 642 at para 56.

67.  In particular, I would have regard to the following:

   (a) the fact that the factual error was made by innocent mistake;

   (b) it is far from clear that in the circumstances P would be under a duty to return to Court to advise it of a factual error where D had known of the ex parte material for several months previously and not seen fit to raise the matter with the Court;

   (c) the lack of challenge to P having a good arguable case on the several claims made against D; and

   (d) the established risk of dissipation of assets.

D’s application to vary the Injunction

68.  D claims that the Injunction should be varied to reflect the fact that P’s creditors’ claims total about HK$2.8 million, that the liquidators’ remuneration should not be taken into account, and that the injunction should not exceed the amount of about HK$2.8 million.

69.  P’s claim is valued at about HK$15.8 million.  It is the liquidators’ duty to realise P’s assets and thereafter to distribute such assets according to the statutory procedure.  Liquidation expenses are paid as a priority along with other priority creditors, and unsecured creditors are paid after that. Creditors can continue to prove in the liquidation as long as the liquidation is open.  Only when all debts are discharged is there a return to shareholders.  Even the distribution to shareholders is part of the liquidators’ duties.

70.  The task of this Court is simply to consider how to ensure that P’s claim will not be rendered useless if judgment is achieved.  At present, the Court will work on the basis of seeking to ensure the recovery of a judgment in full.  If P is content to accept lower protection, so be it.  I will not contemplate a variation of the amount of the Injunction on the basis of crystal ball gazing as to how much is required to discharge creditors.

Conclusion

71.  Accordingly, I order that the Injunction, as amended on 18 July 2017, be continued until further order of the Court.

72.  I make a costs order nisi that:

   (a) D do pay P the costs necessitated by D’s opposition to the Injunction Summons (including the costs reserved on 14 July 2017 and 8 September 2017), to be taxed if not agreed;

   (b) the costs of the ex parte application and the balance of the costs of the Injunction Summons to be costs in the cause. 

73.  Any challenge to the costs order nisi should be made by written submissions to be lodged and served within 3 days; if such challenge is made, the other party may lodge and serve written submissions in response within 3 days.