CHAN CHI FAI v. HIP WO ENGINEERING TRANSPORTATION LTD

DCCJ 1461/2023

[2024] HKDC 1931

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

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REASONS FOR DECISION

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1.  This is the substantive hearing of the plaintiff’s summons dated 27 November 2023 for continuation of an ex-parte Mareva injunction granted by HH Judge Yip on 24 November 2023.

2.  At the end of the hearing, I allowed the application but for the injunction to be varied according to a draft order produced by the plaintiff (“the Draft Order”) as amended by the court.

3.  I have read out the variations and amendments in court but in summary, the varied order now contained:

a.  A ceiling of assets not to be disposed of HK$664,000 (paragraphs 1 and 2 of the Draft Order);

b.  An order for disclosure of information (paragraphs 3 and 4 of the Draft Order);

c.  A provision for providing security for discharge of the Injunction (paragraph 6 of the Draft Order); and

d.  Provisions for exceptions to provide reasonable business expenses and legal advice and representation (the latter of which was amended to allow HK$5,000 per week).

4.  In essence, this perfected the orders of the previous order, bringing it in line with the format stipulated in PD11.2.

5.  I have informed the parties that I will reserve my Reasons for Decisions to be handed down. These are as follows.

Background

6.  At the relevant time, the plaintiff was and is a truck driver and a contractor in the field of transportation and the defendant was and is a company incorporated in Hong Kong carrying on the business of transportation.

7.  According to the plaintiff, he and the defendant entered into a contract titled “合作經營協議書” on 2 October 2018 (“2018 Contract”, Hearing Bundle p.115) concerning the co-operation in operating a heavy goods vehicle with registration number UB8208 (“UB8208”).

8.  The contract stipulated (in summary and as I translate):

a.  50% share of net profit in operation between the plaintiff and the defendant;

b.  The period of contract as between 1 October 2018 to 30 June 2022; but if during this period, the defendant were to “cancel” the cooperation, he would be deemed to have “abandoned” the contract and the plaintiff would not pay any compensation; and

c.  Upon on completion of contract and with agreement of both parties to sell UB8208; the vehicle would be sold; the sale proceeds, after deduction of the deposit of HK$110,000 paid by the defendant, should be split 50% between the plaintiff and the defendant.

9.  According to the plaintiff, this contract was similar to a 2017 contract (“2017 Contract”) with a company called Pegasus Engineering Transport Company Ltd (“Pegasus”) (except that the 2017 Contract was signed by the plaintiff’s wife instead of the plaintiff himself). The sole director and shareholder of the defendant, Cheng Chun Wai (“Cheng”) is also a shareholder of Pegasus.

10.  The 2017 Contract concerned a different vehicle (registration TY8208) but Pegasus proposed to terminate after only about 1 year. The plaintiff objected and so Cheng proposed the 2018 Contract with the defendant regarding another vehicle (i.e. UB8208). The plaintiff accepted.

11.  However, from October 2018 up to May 2020, the plaintiff only received 30% of the net profit of the operation of UB8208 from the defendant, and subsequently this decreased to 28% until June 2021.

12.  In June 2021, there was a breakdown of relationship and the plaintiff did not have access to UB8208 nor receive further payments from the defendant.

13.  According to the WhatsApp records between the plaintiff and Cheng dated 4 July 2021 (exhibited by the plaintiff as “CCF-16”, Hearing Bundle p. 178-179), the plaintiff wrote to Cheng complaining that Cheng was preventing him to work and asked whether Cheng wished to cancel the 2018 Contract etc.. In rely, Cheng stated that, inter alia, that there was no longer room for “cooperation” between them (“跟你沒合作的空間”) and claimed that the 2018 Contract had no legal effect anyway (“那份文件沒法律效力”).

14.  As for the defendant’s case, it denied that the plaintiff was a contractor at all. Instead, he was only employed as a “foreman driver” firstly by Pegasus and then by the defendant.

15.  The defendant explained that the reduction of “salary” from 30% to 28% of the net profit was because the plaintiff was demoted from a “foreman driver” (with extra duties) to merely a “driver” (paragraph 2 of the Defence, Hearing Bundle p. 14 - 16).

History of the action

16.  The solicitors acting for the plaintiff, Messrs. Edwin So & Co. issued a letter before action to the defendant on 13 September 2022.

17.  The plaintiff commenced the current action on 1 April 2023. The defendant filed its Defence on 1 June 2023 with the plaintiff’s Reply filed on 6 July 2023.

18.  As stated above, the plaintiff took out and obtain an ex-parte Mareva injunction 24 November 2023. This is the substantive hearing of the plaintiff’s application for continuation of the injunction.

Legal arguments

19.  Mr. Ng, counsel for the defendant, has raised various legal arguments.

20.  Mr. Ng firstly argued was that there was an abuse of the ex-parte process because there was non-compliance to the Practice Direction; that the content of the injunction was defective; and that there was material non-disclosure.

21.  There is no dispute that, in the ex-parte hearing, the solicitors for the plaintiff did not file or lodge any skeleton submissions. Nevertheless, the ex-parte judge did grant the injunction.

22.  Whilst I am of the view that skeleton submissions is “very important for the purpose for assisting the court” (JTM324 Strategic Advisors, Inc. v Permex Co Ltd [2023] 1HKLRD 1437), the ex-parte judge might not have required such assistance because he was prepared to grant the injunction without such.

23.  Mr. Ng claimed that the lack of a skeleton submissions is “highly prejudicial” to the defendant. However, he was unable to inform the court as to how his client was prejudiced.

24.  I agree that the plaintiff has failed to follow PD11.1 in failing to lodge skeleton submissions, but I am of the view that this should not be instantly and invariably fatal to the current application.

25.  Whilst failure to follow practice direction is a consideration relevant to the court’s exercise of discretion (see Honour Resources (International) Co Ltd v Savvy Resources Ltd [2010] 4 HKC per Chu J at paragraph 17), the court will still need to consider all the circumstances of the case and consider what is just and fair.

26.  The court is in the position to consider such in this substantive hearing: there has been ample time for each party to file and serve affirmations as well as to lodge skeleton submissions. Here, the court is only considering evidence and submissions presented at this hearing. The court will not speculate as to what might or might not be orally submitted during the ex-parte hearing as no such evidence is presented.

27.  Mr. Ng also argued that the plaintiff has failed to draw the attention of the ex-parte Judge to that there was an inordinate delay in making the application: the plaintiff has claimed that he discovered that UB8208 was sold and this information “came to light in August 2023” (paragraph 13 of the Plaintiff’s Affirmation, Hearing Bundle p.65). Yet he only took out the ex-parte application in November 2023, some 3 months later.

28.  I think any delay in application must be considered under the circumstances of each case.

29.  In this case, there is no dispute that UB8208 was sold to Travis Engineering Limited on 26 June 2023. The plaintiff claimed that he only discovered this in August 2023.

30.  As such, this was not a case where an urgent application could stop the sale of the subject asset: UB8208 has already been disposed of by the time the information came to the plaintiff’s knowledge.

31.  Paragraphs 13 to 19 of the Plaintiff’s Affirmation clearly documented the plaintiff’s subsequent investigation process. The plaintiff has tried to identify various companies involved in such transactions as well as their relationships and activities. Further, the plaintiff was trying to locate the assets of the defendant.

32.  The plaintiff mentioned conducting company searches on various companies and vehicle searches on various vehicles. The plaintiff has also perused documents like Annual Returns, Notice of Change of Registered Office and “work orders” etc..

33.  Clearly, the purpose for such investigations was to allow the plaintiff to build a case that “the defendant already and is on the point of disposing their assets to related / connected companies to keep them out of reach of the Plaintiff” (paragraph 19 of the Affirmation of the Plaintiff, Hearing Bundle p. 68).

34.  Further, in order to obtain a Mareva Injunction, one needs to show that the defendant has assets within the jurisdiction. By conducting a vehicle search on 18 October 2023, the plaintiff can show the court that a vehicle, UR8208, remained the asset of the defendant.

35.  I cannot see how there was any non-disclosure given that the whole process (including various dates when such investigations were conducted) were clearly stated in the Plaintiff’s Affirmation which was placed before the ex-parte judge.

36.  In any case, even now, Mr. Ng has not advanced any argument that the “delay” of 3 months has caused any prejudice to the defendant or make it unjust for an injunction to be granted:

“It is not sufficient for a defendant to show that the applicant has delayed unreasonably. It must be shown that because of that delay, it would be unreasonable to grant the remedy; that it has become practically unjust to do so.” (Legg v Inner London Education Authority [1972] 1 WLR 1245)

37.  Given the above considerations, I cannot agree that there was inordinate delay in taking out the ex-parte application, and any alleged delay was clearly not “material” in the consideration of granting the injunction.

38.  Mr. Ng also argued that the format of the original Mareva order did not follow the required format of PD 11.2 and the scope was an “overkill and totally unreasonable”.  

39.  In particular, Mr. Ng submitted that there was unlimited quantum to the order and that “the injunction effectively put the business activities and / or transactions that defendant has to a halt” and “clearly causes significant loss to the defendant”. (paragraphs 26 and 33 of the defendant’s skeleton submission)

40.  I agree that the original Mareva order does not follow the required format and this is the reason why I have ordered for it to be varied.

41.  Again, I do not consider that failure to follow a practice direction would make an application invariably fatal without the need to consider all the circumstances including the merit of the application itself.

42.  I also note that the defendant did not submit any evidence as to how its business was affected by the injunction. Therefore, Mr. Ng’s submission that “the injunction effectively put the business activities and / or transactions that defendant has to a halt” and “clearly causes significant loss” was no more than evidence advanced from the bench.

43.  Indeed, despite the original injunction allowing for variation or discharge of the order by “applying to the court at any time” (Hearing Bundle p. 44), no such application was taken out by the defendant at any stage including at the call-over hearing of this application. There was clearly no basis nor logic for Mr. Ng to now argue that any attempt to vary the order was “too little too late” because “the damage has been done”.

44.  As such, I disagree that there is any grounds for alleging an abuse of process at the ex-parte application.

45.  Finally, Mr. Ng also argued that the plaintiff was legally aided so there would be doubt whether he could offer a credible undertaking.

46.  It is trite that:

“…the court will not deny a legally aided plaintiff an interlocutory injunction to which he would otherwise be entitled simply on the ground that his undertaking in damages would be of limited value, since questions of financial stability ought not affect the position in regard to what is the essential justice of the case….It does not mean that such fact is irrelevant but, quite the contrary, that such a fact would always be a matter to be taken into account.” Hong Kong Civil Procedures 2024 paragraph 29/1/22)

47.  As such, this would be one consideration under the “balance of convenience” between the parties.

Legal principles of Mareva Injunction

48.  This is trite: in order to obtain a Mareva Injunction, the plaintiff must show that (a) he has a good arguable case on his substantive claims; (b) the defendant has asset(s) within the jurisdiction; (c) the balance of convenience is in favour of granting the injunction; and (d) there is a real risk of dissipation of assets which would render the plaintiff’s judgment of no effect: Hong Kong Civil procedure 2024 paragraph 29/1/65.

Good arguable case

49.  There is no doubt that the plaintiff has a good arguable case.

50.  For example:

a.  The defendant does not dispute the authenticity of the 2018 Contract produced by the plaintiff and indeed admits (paragraph 8(x) of the Defence, Hearing Bundle p. 18) the payment terms stipulated in the same (summarised in paragraph 8(a) and (c) above).

b.  Similarly, the defendant does not dispute the authenticity of the Tax Returns it filed for the years 2018/2019 and 2020/2021 (exhibited as CCF-3, Hearing Bundle p. 119 and 120) which described the plaintiff as “contractor” and (as I translate) “outside contractor for transportation” respectively.

c.  Further, the defendant pleaded that it was the plaintiff who “resigned and left the employment” and this would be treated as “having given up all his rights” under clause 2 (see paragraph 8(b) above) of the 2018 Contract. On the face of it, the WhatsApp records (see paragraph 13 above) contradicts such a position. The defendant, again, does not dispute the authenticity of such records.

d.  The defendant has only attempted to explain the non-payment of net profit (see paragraph 8(b) above) by claiming that there was “no net-profit” without providing any documentary evidence in support.

51.  There are other examples and, although the court is not conducting a mini-trial by affidavit here, there are more than sufficient grounds to show that the plaintiff’s case is “more than barely capable of serious argument” and “not yet necessarily one which the judge believes to have better than 50% chance of success” (Jiu Rong Holdings Ltd v Siu Chi Ming [2024] HKCFI 1674) and thus a good arguable case.

52.  The damages claimed by the plaintiff was based on the calculation of loss by the plaintiff caused by the breach of the 2018 Contract by the defendant. This was an estimation based on available evidence (e.g. likely sale price of UB8208) and forms the “ceiling” of the injunction.

53.  Indeed, Mr. Ng did not submit any objection on this ground nor the sum sought as the “ceiling” in the order.

Assets within the jurisdiction

54.  There is no dispute: the defendant, at the very least, still owns asset in form of a vehicle with registration UR8208.

Real risk of dissipation

55.  There is no dispute that the defendant used to own at least 3 vehicles, namely UB8208 (subject of 2018 Contract), RV8208 and UR8208.

56.  However, RV8208 and UB8208 were transferred without consideration to a company called Well Link Transportation Limited (“Well Link”) on 5 May and 22 June 2022 respectively.

57.  Well Link was another company held by Cheng as sole director and shareholder.

58.  Subsequently, Well Link sold UB8208 to a company called Travis Engineering Limited (“Travis”) for an unknown consideration on 6 June 2023.

59.  Well Link also sold RV8208 to a company called Yan Yiu Engineering Company Limited (“Yan Yiu”) on 28 November 2023 for an unknown consideration.

60.  One director and shareholder of Yan Yiu is Yau Kwok Yin (“Yau”). However, Yau also happens to be a director and shareholder of Pegasus.

61.  Mr. Lam, counsel for the plaintiff, made an observation that the sale of RV8208 happened just one day after the plaintiff took out the current application. He also submitted that Cheng failed to reveal how much these vehicles were sold for, nor provide any documentary evidence of such transfers and sales between some apparently closely related companies. He submitted that these activities inferred that the defendant was engaging in a scheme to dissipate assets.

62.  The defendant argued that there was no such risk.

63.  Cheng explained that UB8208 was transferred on 22 June 2022 and therefore “long before the defendant had known that the plaintiff would be making a claim against it" (paragraph 26 of Affirmation of Cheng, Hearing Bundle p. 107).

64.  I do not agree.

65.  The defendant wrote a letter (signed by Cheng) on 16 September 2021 in reply to a letter dated 26 August 2021 from the Director of Legal Aid (Hearing Bundle p.172).

66.  In this reply letter, the defendant has enclosed a copy of the 2018 Contract and claimed, inter alia, that the 2018 Contract “did not have legal effect” etc..

67.  Thus, Cheng and the defendant must know by August or September 2021 that, at the very least, there was a risk that the plaintiff would be making a claim against the defendant. There would have been enough incentive to start dissipating assets. The transfer of RV8208 and UB8208 to Well Link was in May and June 2022, some 9 to 10 months afterwards.

68.  Further, Cheng gave two reasons for the transfer and sales of the vehicles.

69.  Firstly, Cheng claimed that, as I paraphrased, it was a practice within the trade to sell heavy goods vehicles after 5 years due to maintenance costs and residue values etc. (paragraph 29 of the Affirmation of Cheng, Hearing Bundle p. 108)

70.  This is a bare assertion: Cheng has not produced any documents to support such a practice both within his own companies or in the wider trade. I would imagine that if many companies were selling their vehicles at 5 years, it would not be difficult to provide trade advertisements to show a numerical clustering of 5-year-old second-hand vehicles for sale.

71.  Secondly, Cheng claimed that the transfer of UB8208 and RV8208 to Well Link was for saving insurance premium (paragraphs 31-33 of the Affirmation of Cheng, Hearing Bundle p. 108-109).

72.  However, as pointed out by Mr. Lam, the documents Cheng exhibited purporting to support such an argument were of poor quality: some information were hand-written (Hearing bundle p. 301) and one document seems to be missing the Insured Name and Contact Person (Hearing Bundle p. 304). Thus, there is no way knowing whether this was issued to the defendant or Well Link. Indeed, the dates on some documents do not appear to match the dates stated by Cheng,

73.  Further, if these documents were supposed to show a difference of insurance premium quoted to the defendant compared to Well Link, the most obvious question one might raise is that this is not comparing like-to-like: the “insurance estimated value”, “loading” and “NCB” are all of different values in respect to the purported Renewal Notice for RV8208 (Hearing bundle p. 303 and 304).

74.  One would reasonably expect that these variations alone, and not (just) the company which owned the vehicle, might account for the difference in premium.

75.  Indeed, such documents raised more questions than answers.

76.  In my assessment, given the timing of the transfers and sales between some apparently related companies, the lack of documents for such transfers and the unsatisfactory evidence regarding insurance quotation,  I am not convinced that these (and others arguments raised by Cheng) support that there is no real risk of dissipation of assets.

Balance of convenience

77.  Having found that there is a good arguable case and that there is a real risk of dissipation of assets, I also need to consider the submissions raised by the defendant.

78.  As I stated above, despite Mr. Ng’s contention, I am not convinced that the (original) Mareva Injunction has “effectively put the business activities and / or transactions that defendant has to a halt” and “clearly causes significant loss”. There is no evidence of such at all from Cheng.

79.  Indeed, the total absence of such evidence may rather support the plaintiff’s alleged findings that business of the defendant “was diverted to Well Link” since late August 2023 and that Well Link has since became the “recipient of income so generated and pays salaries of the concerned drivers” (paragraph 15 of the Plaintiff’s Affirmation, Hearing Bundle p. 67).

80.  In view of this, I do not think that the concern with the plaintiff being impecunious and unable to give a credible cross-undertaking would be fatal to the Mareva Injunction being granted.

81.  I note that Mr. Ng has reserved the right of the defendant to seek fortification of undertaking. I expect that any application for fortification would need to be supported by convincing evidence.

82.  Further, as stated above, I am of the view that any non-compliance of the practice direction can be amended by the variation of the order.

83.  In conclusion, having considered all the relevant circumstances of this case, I am of the view that the balance of convenience clearly lies with continuing the Mareva injunction but on varied terms as amended in the Draft Order in the manner I read out in court.

Disclosure order

84.  Finally, Mr. Ng also objected to the Disclosure order (paragraphs 3 and 4 of the Draft Order) but I agree with Mr. Lam that this is the usual order found in a Merava Injunction in order to help the plaintiff trace and police the defendant’s assets. I see no reason to deviate from the norm.

Clarification of the order and costs order

85.  For the sake of clarification, although I did not mention this in court, I would also allow paragraph 4 of the plaintiff’s summons, that is, that a penal notice and a power of arrest be attached to the order.

86.  As for costs, there be an order nisi for the costs of the application be to the plaintiff with certificate for counsel.

87.  If there is no application to vary the cost order and no agreement on costs is reached within 28 days of this Reasons for Decision, the plaintiff shall within 28 days thereafter lodge and serve a summary bill of costs. The defendant shall within 28 days thereafter lodge and serve a summary list of objections. The costs will then be dealt with by summary assessment on paper.