XCHRX ARMCO INC. AND OTHERS v. NPV LTD. AND ANOTHER

High Court Action No. 13168 of 1998

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HEADNOTE

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Mareva Injunction - ex parte injunction - Inspection order - Discharge - Duty of Disclosure - Material Non-Disclosure

The Plaintiffs issued proceedings in the United States, Singapore, England and Jersey alleging fraud by their former senior executives in a management buy-out. The allegations were in the main based on information supplied by one of the conspirators. The revelations were reduced into writing and secretly tape-recorded. In Singapore, the Plaintiffs applied ex parte for and obtained a worldwide ex parte Mareva injunction and discovery order against one of the defendants. That defendant voluntarily disclosed in the Singapore proceedings that he had control of banking accounts in Hong Kong. Immediately, the Plaintiffs applied ex parte in Hong Kong for and obtained a second worldwide ex parte Mareva injunction and inspection of bankers books order. The Singapore order was then discharged for reasons not yet known. The Defendant applied for discharge of the Hong Kong ex parte order on the ground that there was non-disclosure of (1) inter alia, that the informer had for over a year refused to sign and had still not yet signed the statement relied upon by the Plaintiffs in the ex parte applications; (2) the Plaintiffs had not revealed to the Hong Kong court the answers given by the Defendant in an affidavit filed with the Singapore court. The Plaintiffs contended that the matters not disclosed were immaterial and would have made no difference if disclosed, and that the non-disclosure was the result of innocent mistake. The Plaintiffs issued summons for grant of new injunctions in same terms in case ex parte injunction not continued.

Held: (1) Despite dicta in numerous English and Hong Kong authorities indicating a fluid approach to material non-disclosure, all the authorities considered in fact bear down to one result: the ex parte injunction is discharged upon proof of material non-disclosure irrespective of whether the materials if disclosed would have made a difference and irrespective of whether the non-disclosure was deliberate or innocent. (2) All the authorities considered also demonstrate that upon the merits of the case, a fresh injunction is granted after discharge of a preceding ex parte injunction for material non-disclosure, irrespective of whether the materials if disclosed would have made a difference and irrespective of whether the non-disclosure was deliberate or innocent. (3) Both for safe measure and for the fact that there were known assets in Hong Kong, the Plaintiffs were entitled to a worldwide Mareva injunction from a Hong Kong court even though the High Court of Singapore had already granted one to similar effect. (4) An applicant for ex parte Mareva injunction for multi-jurisdiction policing purpose has a duty to make enquiries and disclose to the court the whereabouts of the assets of the defendant so that the court may consider whether to grant or to continue the injunction. Accordingly, the Plaintiffs were entitled to an inspection of bankers books order even at the ex parte stage to enable the Plaintiffs to fulfil its duty. (5) On the facts the case, there had been material non-disclosure for which, without further consideration of other factors, the ex parte injunction must be discharged as a matter of course. (6) On the merits of the case, a fresh injunction was granted without regard to the circumstances surrounding the discharge of the ex parte injunction.

HCA 13168 of 1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13168 OF 1998

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J U D G M E N T

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1. The Plaintiffs ("ARMCO") are a conglomerate based in the United States with worldwide business interests. The First Defendant ("NPV") was a corporation registered in Nevis believed to be partly controlled by the Second Defendant. The Second Defendant ("Mr. Donohue") is a former executive of certain subsidiaries of ARMCO.

2. At the end of the hearing on 23rd September 1998 ("the consolidated hearing"), I discharged an ex parte Mareva injunction order ("the Hong Kong ex parte order") made by me on 27th August 1998 against Mr. Donohue but granted a fresh injunction against him in terms agreed by the parties with consequential orders. Here are my reasons.

The Ex Parte Order

3. Although I did not think it necessary at the time, it is now opportune to state my reasons for making the ex parte Mareva injunction.

4. The ARMCO action in Hong Kong is one of a series of proceedings issued in several jurisdictions against Mr. Donohue and others for, inter alia, fraud, forgery and breach of trust. The application to join Mr. Donohue as the Second Defendant in the action herein and for urgent injunction against him was prompted by his own disclosure in proceedings before the High Court of Singapore that he had banking assets in Hong Kong. The application for urgent injunction was supported by an affidavit of Mr. Hughes of Freshfields, ARMCO solicitors in Hong Kong, sworn on 27th September, 1998 which referred to an affidavit ("the supporting affidavit") by Mr. Cooper, London in-house counsel for ARMCO, sworn on 5th August, 1998. The principal source of information railed against Mr. Donohue and others was identified as one Mr. Atkins who had made a statement which was exhibited to the supporting affidavit.

5. According to the supporting affidavit, Mr. Donohue was the chairman of a subsidiary group of insurance companies within ARMCO ("the insurance subsidiaries"). Some time in late 1990 or early 1991, because the insurance subsidiaries had been running losses for years, ARMCO offered to sell its interests therein to Mr. Donohue and Mr. Atkins who was a director of the insurance subsidiaries. Two staff of ARMCO, one Mr. Rossi and one Mr. Stinson, were authorized to negotiate on behalf of ARMCO with Mr. Donohue and Mr. Atkins on the terms of the management buy-out ("the MBO"). Although final decisions for ARMCO regarding the MBO were made by its main board and top executives, ARMCO says that Mr. Rossi and Mr. Stinson were instrumental in forging the MBO. The MBO was a complicated affair. An array of corporate vehicles, escrow account and trust funds was used by the parties for shares, commission, consultancy fees etc. to change hands.

6. After completion of the MBO, ARMCO became suspicious. In early 1997, Mr. Cooper investigating for ARMCO met Mr. Atkins several times and learned from him that Mr. Donohue, Mr. Atkins, Mr. Rossi and Mr. Stinson ("the four alleged conspirators") had at some time prior to conclusion of the MBO contract entered into a secret agreement among themselves whereby the four alleged conspirators would have a stake in the assets and undertakings to be acquired by Mr. Donohue and Mr. Atkins through and consequent upon the MBO. The MBO involved transfer of the shares of the holding company of the insurance subsidiaries together with cash and securities worth just over US$ 42 million to a shell company called Wingfield Limited. Mr. Donohue and Mr. Atkins were the only registered shareholders but in fact the four alleged conspirators had equal beneficial interests in Wingfield Limited. Details were given by Mr. Atkins of how the four alleged conspirators shared monies provided by ARMCO and their involvement as directors or executives in the undertakings transferred by ARMCO under the MBO. Details were also given as to funds, provided by ARMCO on various accounts under the MBO, taken or diverted by the four alleged conspirators. A chart showing how funds were funneled to the four alleged conspirators was attached to counsel's skeleton argument for the ex parte hearing. Mr. Cooper added that ARMCO was misled on the sum needed as trust funds to meet contingency liabilities of the insurance group. In gross terms, ARMCO claims loss of US$42 million.

7. At the hearing on 27th August 1998 ("the ex parte hearing"), Mr. Shieh, counsel for ARMCO, informed the court in addition that: (1) the statement [in fact the second statement] by Mr. Atkins had not yet been signed but his meetings with Mr. Cooper had been secretly recorded on tape; (2) Mr. Atkins was regarded as a habitual liar; and (3) an ex parte Mareva injunction granted by the High Court of Singapore had been varied.

8. Obviously, the affidavit evidence taken at face value supported a clear case of mammoth commercial fraud. Although the credibility of Mr. Atkins was tainted and he could retract his "co-operation" with ARMCO because he had not yet signed his statement, I felt assured by the knowledge that the revelations by Mr. Atkins had been secretly tape-recorded by Mr. Cooper with the sanction of the Law Society of England and Wales. Moreover, it was reasonable to assume that the involvement of the four alleged conspirators as directors and executives in the undertakings acquired through the MBO would be documented in public records and that there were paper trails of at least some dubious payments to the four alleged conspirators. In the premises, I found that ARMCO had a good arguable case which would probably come up to proof should the case goes to trial.

9. The world wide Mareva injunction by the High Court of Singapore might obviate the need for a similar order in Hong Kong. But Mr. Donohue had banking assets in Hong Kong. A Hong Kong order limited to local assets was justified to police the Singapore Mareva injunction. Moreover, it was conceivable that for reasons which might not apply in Hong Kong, the High Court of Singapore could at some stage discharge its ex parte order as it in fact later did. It was not unreasonable for ARMCO to seek from a court having parallel jurisdiction a duplicate world wide Mareva injunction as fail safe protection which, after all, could easily be discharged or varied in the light of developments in Singapore and other jurisdictions.

10. The risk of dissipation of assets was self-evident once the affidavit evidence pointing to dishonest diversion of funds was accepted. Besides, the fact that NPV and Mr. Donohue maintained banking accounts in Hong Kong where neither had personal or business connections was indicative of earlier efforts to hide ill-gotten gains from detection. However, considering the time between the completion of the MBO or the discovery of the machinations of the four alleged conspirators and the issue of proceedings in Hong Kong, one might have reached the situation as in Bank Mellat v. Nikpour [1985] FSR 87 and Dubai Bank Ltd. v. Galadari & Ors. [1990] 1 Lloyd's Rep. 120 where because assets could have been secreted out of jurisdiction already Mareva injunction was no longer justified. Nonetheless, one should not presume that the four alleged conspirators, who must be deemed rather sophisticated businessmen, would squander their exploits instead of stashing or investing for later enjoyment. It remains quite probable that Hong Kong is being used by Mr. Donohue to cache at least some of his fortunes. Taking all factors and circumstances into consideration, I decided that, on balance, ex parte Mareva injunction against Mr. Donohue was justified.

11. The inspection part of the Hong Kong ex parte order was allowed after due consideration. I was informed of the variation of the Singapore ex parte Mareva injunction order to discovery by affidavit in confidence to the court in sealed envelop. However, what ARMCO sought at the ex parte hearing was not a confession on oath from Mr. Donohue as to assets he might be hoarding in Hong Kong, but inspection of books kept by bankers in Hong Kong. There was no question of compelling Mr. Donohue to incriminate himself. An order for inspection or discovery which does not expose the person subjected to the order to criminal prosecution within the jurisdiction may be granted ex parte: Sociedale Nacional de Combustiveis de Angloa U.E.E. & Ors. v. Lundqvist [1991] 2 Q.B. 310 and Tate Access Floors Inc. & Anr. v. Boswell [1991] Ch. 512.

12. The object of the ARMCO action in Hong Kong being primarily to trace assets and to police the Mareva, consideration for protection of privacy and inhibition against breaking banker/customer confidence may be cast aside by the demands of public interest peculiar to this type of cases. In Dubai Bank Ltd. v. Galadari & Ors. [1990] 1 Lloyd's Rep. 120, one of the cross-appeals concerned an ex parte order which in effect required disclosure of bankers books relating to an account believed to have held funds being traced. The order was continued at an inter partes hearing despite objections. It was argued on appeal that the order should not have been made until the plaintiff had established through trial its title to the funds, not before the time came for discovery in the normal course of the action any way. The Court of Appeal unanimously upheld that order. At p. 136, Staughton LJ gave one of the reasons for this part of the decision as that "the disclosure might well assist in determining where the moneys had gone."

13. Moreover, in Mareva Injunctions and Anton Pillar Relief by Steven Gee, the learned author noted that:-

"If assets of a defendant have already been frozen in a foreign jurisdiction, this is relevant to an application for Mareva relief because it is material to consideration of whether the applicant should have further relief and the limit in any injunction granted. In the case of an application in England under s. 25(1) of the Civil Jurisdiction and Judgments Act 1982, it is necessary to consider disclosing matters which could be relevant to whether it is "inexpedient" for the court to grant interim relief in aid of a foreign court." (Fourth Edition, p. 134)

I considered it a duty upon ARMCO to make enquiries and to disclose to the court information relating to assets under the name of Mr. Donohue. The duty is necessary for the benefit of courts here and elsewhere called upon to police the Mareva. If ARMCO's claim is already securely covered by assets frozen in Singapore or another jurisdiction, a Hong Kong court should be slow to grant or continue a Mareva injunction for that would be oppression against Mr. Donohue. On the other hand, no matter how strong the ARMCO case, where Mr. Donohue has little worthy assets within its jurisdiction, it serves no purpose for a court to make a Mareva type order against him except in aid of devious tactics to waste ARMCO and judicial resources on a global wild goose chase. By refusing inspection of bankers books, the court would be denying itself and other jurisdictions of material information for the exercise of judicial discretion.

14. Almost immediately after the ex parte Mareva injunction was granted by me, Mr. Donohue applied for its discharge.

The Issues

15. Mr. Burns, counsel for Mr. Donohue, quite properly confined the case for discharging the Hong Kong ex parte order to the ground of non-disclosure relating to: (1) the provenance of statements by Mr. Atkins relied upon by ARMCO; (2) the Donohue Answers; and (3) representation as to the locus of the main action against Mr. Donohue which was inconsistent with reality. According to counsel, since the non-disclosure complained of gave the court at the ex parte hearing a distorted and incomplete picture, the Hong Kong ex parte order ought to be discharged and no fresh injunction should be granted. On the other hand, Mr. Aiken for ARMCO suggested that any non-disclosure made out was immaterial and excusable; the court in exercise of its discretion should continue the Hong Kong ex parte order or, if that order be discharged, the court should grant an inter partes injunction on the merits.

16. Before I deal with the issues under separate headings, since some of the issues that emerged at the consolidated hearing turn on the sequence of certain events, a chronology of the significant events is set out below: -

15th April, 1997	Mr. Atkins signed statement ("the first statement") revealing alleged wrong doings by Mr. Donohue et. al.
24th June, 1997	Mr. Atkins began to sit on a draft second statement ("the second statement") containing more details of alleged wrong doings by Mr. Donohue et. al.
6th August, 1998	ARMCO issued writ in Hong Kong against NPV.
	Deputy Judge Chung granted an ex parte Mareva injunction against NPV.
	ARMCO filed complaint against Mr. Donohue et. al. in United States Bankruptcy Court under the Racketeer Influence and Corrupt Organizations Act.
	ARMCO issued proceedings in the High Court of Singapore, England, etc. against Mr. Donohue et. al. as essentially policing actions.
7th August, 1998	ARMCO obtained from the Singapore High Court an ex parte Mareva injunction with order for discovery of assets on oath by Mr. Donohue.
14th August, 1998	Deputy Judge Muttrie extended the Hong Kong ex parte Mareva injunction against NPV.
21st August, 1998	Deputy Judge Li extended the ex parte injunction against NPV.
26th August, 1998	Mr. Donohue filed with Singapore High Court an affidavit ("the Donohue Answers") and applied for variation of the Singapore ex parte order.
27th August, 1998	The Singapore ex parte Mareva injunction was varied to discovery in confidence to the court and allowing withdrawal from frozen Hong Kong bank accounts upto US$150,000 for Mr. Donohue to pay litigation expenses in various jurisdictions.
	ARMCO obtained leave from Deputy Judge Li to add Mr. Donohue as the Second Defendant.
	The Hong Kong ex parte order with facility for inspection of bankers' books relating to Mr. Donohue made by Deputy Judge Li. Provision was made in the order to give effect to any order by courts of other jurisdictions for withdrawal of funds by Mr. Donohue from frozen accounts.
4th September,1998	The High Court of Singapore discharged its ex parte order granted on 7th August, 1998.
	By consent, the Hong Kong ex parte order was extended by Yeung J but facility for inspection of bankers books suspended.
7th September,1998	ARMCO and Mr. Atkins reached settlement for proceedings in England.
	Mr. Atkins signed the second statement he had sat on for over a year.
	Mr. Donohue applied to Deputy Judge Chung for discharge of the Hong Kong ex parte order. The matter was adjourned to 21st September 1998 to be heard together with the inter partes summons issued by ARMCO for continuation of the Hong Kong ex parte order.
14th September,1998	Affidavit by Mr. Cooper ("The Cooper Reply") to debunk the Donohue Answers sworn.
15th September,1998	By consent Deputy Judge Li varied the Hong Kong ex parte order by providing for withdrawal of an additional US$50,000 for Mr. Donohue's litigation expenses in various jurisdictions.
18th September,1998	ARMCO issued a further inter partes summons for grant of a fresh injunction should the Hong Kong ex parte order be discharged.
21th September,1998	Consolidated hearing before Deputy Judge Li for all three summonses to discharge, to continue or to re-grant Mareva injunction.

17. It should be noted that NPV has not entered appearance in Hong Kong. Searches at the Companies Registry of Nevis and another jurisdiction which had record of a company named NPV Limited revealed that the company had been dissolved. As at conclusion of the consolidated hearing, the parties were still waiting for the reasons of the Singapore High Court for discharging its ex parte Mareva injunction against Mr. Donohue.

The Duty of Disclosure

18. It is common ground that an applicant for ex parte Mareva injunction must act in the utmost good faith and disclose to the court all matters which are material to be taken into account by the court in deciding whether or not to grant the relief and if so on what terms. The duty on the applicant has been most commonly expressed as one to make "full and frank disclosure" - see per Lord Denning, MR in Bank Mellat v. Nikpour [1985] FSR 87 at 89, per Dillon LJ in Lloyds Bowmaker Ltd. v. Britannia Arrow plc [1988] 1 W.L.R. 1337 at 1348 and per Fuad JA in Citibank, N.A. v. Express Ship Management Services Ltd. & Anr. [1987] HKLR 1184 at 1190; occasionally as the duty to make "full and fair disclosure" - per Scrutton LJ in Rex v. Kensington Income Tax Commissioners [1917] 1 K.B. 486 at 514 and per Slade LJ in Bank Mellat v. Nikpour [1985] FSR 87 at 92; or according to Robert Goff J as reported by Lord Denning, MR in Bank Mellat v. Nikpour [1985] FSR 87 at 88 and the then Bingham, J in Siporex Trade S.A. v. Comdel Commodities Ltd. [1986] 2 Lloyd's Rep. 428 at 438 as the duty to make "full and proper disclosure". Probably, the three expressions have been regarded by many as inter-changeable. But one may be forgiven to think that "full" and "frank" are tautology, "fair" demands consideration for the opposing party and "proper" embraces fairness and a duty to the court.

19. In practical terms, the duty entails disclosing "all material facts for the judge to consider and weigh for deciding whether to grant or refuse ex parte relief. Such disclosure includes undoubtedly all the points in favour of the respondent who has not the opportunity of being heard and all the points that are to the disadvantage of the applicant himself. The duty to disclose cannot simply be fulfilled by exhibiting voluminous documents covering the points to the supporting affidavit but without making any distinct reference to the points in the body of the affidavit itself or when addressing the judge at the often short hearing." : per Woo J in Standard Chartered Securities v. Lai Arthur & Ors. [1993] HKC 375 at 388. It has been held in Behbehani v. Salem [1989] 1 W.L.R. 723 and Dubai Bank Ltd. v. Galadari & Ors. [1990] 1 Lloyd's Rep. 120 that the duty includes making reasonable enquiries for relevant information.

20. Obviously, if the undisclosed materials are irrelevant to the weighing operation the court has to perform at the ex parte stage, the complaint of non-disclosure does not assist the party enjoined by injunction. See Citibank, N.A. v. Express Ship Management Services Ltd. & Anr. [1987] HKLR 1184 and Tate Access Floors Inc. & Anr. v. Boswell & Ors. [1991] Ch. 512. Early at the consolidated hearing, counsel submitted that even if there were material non-disclosure, I would have to conclude that the material non-disclosure was material before I could exercise my discretion to discharge the Hong Kong ex parte order. I suspect counsel were guided by the head-note in Standard Chartered Securities v. Lai Arthur & Ors. [1993] HKC 375 at 375 which says that "[an] ex parte order might be discharged even though the material non-disclosure was not material." Such contradiction in terms can hardly promote clarity of thought. Happily, counsel later spared me arduous mental gymnastics by addressing first the materiality of non-disclosure and then the quality of non-disclosure instead of the materiality of material non-disclosure.

Materiality of Non-Disclosure

21. Mr. Burns took the view that the provenance of the [second] statement by Mr. Atkins should be disclosed. By provenance, he included the existence of the first statement signed by Mr. Atkins, the fact that Mr. Atkins had been known to be a habitual liar, and that Mr. Atkins had refused to sign the second statement for over one year. These were factors the court should take into account in the weighing operation.

22. As already mentioned, Mr. Shieh for ARMCO at the ex parte hearing did inform the court that Mr. Atkins had been dishonest. But the complaint relating to non-disclosure of the statements signed or attributed to Mr. Atkins still required proper examination. The supporting affidavit by Mr. Cooper was largely based on the second statement not yet signed by Mr. Atkins. The supporting affidavit introduced that statement in this manner:-

"48. As part of the investigation, between 10th March 1997 and 26th June 1997, I [Mr. Cooper] met with Atkins on several occasions to discuss matters厖..厖..厖.....

"49. My conversations with Atkins are summarized in the form of a draft witness statement from him. A copy of this statement is exhibited as exhibit "BC-3" hereto."

Due to such concise introduction, I was under the impression during the ex parte hearing that the information given by Mr. Atkins had been reduced into writing only recently and that Mr. Atkins was expected to sign the statement very shortly.

23. Mr. Aiken said that the so-called provenance of the Atkins statements was irrelevant. The second statement incorporated and superseded the first statement. The first statement and earlier versions of the second statement by Mr. Atkins were scratch papers like drafts of unsworn affidavits. They would not assist the court in the weighing operation at the ex parte stage. The fact that Mr. Atkins had not signed the second statement was unimportant because there were tape records and confirmation of correctness by another witness. In any event, the real reason for Mr. Atkins not signing the second statement immediately was that he needed time to reflect on the tax implications of his statement.

24. With respect, the test of materiality is an objective one for the court. It is no excuse for an applicant for ex parte relief or legal advisers to say they thought that the missing information irrelevant or unimportant: Bank Mellat v. Nikpour [1985] FSR 87; Siporex Trade S.A. v. Comdel Commodities Ltd. [1986] 2 Lloyd's Rep. 428; Brink's Mat Ltd. v. Elcombe [1988] 1 W.L.R. 1350 and Standard Chartered Securities v. Lai Arthur & Ors. [1993] HKC 375. The fact that after well over a year Mr. Atkins had not yet signed the second statement beg questions for the weighing operation by the court. The reason for not signing the second statement - the concern for tax implications might highlight the details in the statement about illicit gains as being true; but it might also cause anxieties in that the ARMCO case could evaporate if Mr. Atkins claimed privilege against self-incrimination of tax evasion. Moreover, it was only proper that the first statement be produced for the defence to verify, and for the court to judge, any remarkable difference between the first and second statements.

25. In the analysis, the non-disclosure of the first statement signed by Mr. Atkins and the failure to alert the court that Mr. Atkins had declined to sign the second statement for over a year must be regarded as material.

26. Mr. Aiken quite properly conceded that there was non-disclosure at the ex parte hearing of the contents of the Donohue Answers, but he disputed that the non-disclosure would make any material difference. Given disclosure, the court would still have granted the Hong Kong ex parte order because had the need to disclose the contents of the Donohue Answers been realized, the Cooper Reply would have also found its way to court for the ex parte hearing.

27. Again, with all respects to counsel, any defence or explanation must be regarded as matter for the weighing scales. As Staughton LJ in Dubai Bank Ltd. v. Galadari & Ors. [1990] 1 Lloyd's Rep. 120 at 133 put it, there can scarcely be any more important topic for disclosure than that. In Lloyds Bowmaker Ltd. v. Britannia Arrow plc [1988] 1 W.L.R. 1337, the defendant who applied for ex parte injunction against a third party failed to disclose that the third party had given explanations in answer to allegations. Although the their lordships were apparently unimpressed by the explanations given by the third party, the Court of Appeal held that there was material non-disclosure. Presently, it must be a foregone conclusion that the non-disclosure of the Donohue Answers was material.

28. The last head of alleged non-disclosure could be and was put to rest almost instantly. In his skeleton argument for the ex parte hearing, Mr. Shieh suggested, with authorities, that the court should grant injunctive relief even though ARMCO was mounting its main action against the named defendants in some other jurisdiction. As the ex parte judge, I had no illusion that the application for injunctive relief was anything but part of a multi-jurisdiction policing effort to prevent dissipation of assets. In any event, Mr. Aiken must be right in saying that ARMCO was entitled to review and change its decision on the decisive battleground.

The Quality of Non-Disclosure

29. For reasons that will become clear, I did not think what counsel for the parties called the quality of non-disclosure had any significant impact on the outcome of the summonses before me. Nonetheless, in case I am wrong and in deference to submissions by counsel, I should make findings on those matters counsel attached importance. Specifically, counsel submitted that the cause and effect of non-disclosure are important factors for the court to take into account in deciding whether to discharge the Hong Kong ex parte order or to grant a fresh one in its place.

30. In his affidavit sworn on 14th September 1998, Mr. Hughes explained that he received a copy of the Donohue Answers by fax from Singapore on 26th August, 1998. The last page of that document arrived at Freshfield's Hong Kong office at 7:13 p.m. that day. Mr. Hughes read the document that evening but "given the focus at the time [of Mr. Donohue's application] the following day to vary the Singapore Mareva injunction and the discovery that Mr. Donohue had a bank account in Hong Kong], the urgency with which the application [for ex parte Mareva injunction in Hong Kong the following day] was prepared and in the heat of the moment, it simply did not positively come to mind that the contents and existence of [the Donohue Answers] should be expressly mentioned and addressed [for the court]." He apologized to the court for the oversight. Nonetheless, Mr. Burns likened the explanation with that by another solicitor of the same name in Behbehani v. Salem [1989] 1 W.L.R. 723 and, quoting from Woolf LJ, said that such explanation was "not understandable". I hasten to add, however, that during the three days hearing before me Mr. Burns re-iterated more than once that he did not charge anyone with bad faith or deliberate concealment.

31. Mr. Aiken drew attention to the Singapore summons which mentioned the Donohue Answers. A copy of that summons for variation was exhibited to the affidavit by Mr. Hughes filed for the ex parte hearing before me. That copy summons would not have been exhibited had it been intended to conceal the Donohue Answers. Moreover, there was no need for concealment. Neither ARMCO nor Mr. Hughes had reason to worry about the impact of disclosure of the Donohue Answers. Had the desirability to disclose been realized, there was still many hours of time for ARMCO lawyers to put together a reply like the Cooper Reply and place it before the court for the ex parte hearing on the 27th August, 1998.

32. In view of the explanations from Mr. Hughes and Mr. Aiken, I believed there was no attempt to deliberately mislead the court by non-disclosure of the Donohue Answers. And I did not think the blame for innocent mistake should be laid on Mr. Hughes alone. To say the least, the whole Hong Kong legal team acting for ARMCO at that time failed to see the need to disclose the Donohue Answers.

33. As to non-disclosure of the provenance of the Atkins statements, Mr. Burns did not make any comment on culpability. Mr. Aiken naturally did not dwell on this aspect, leaving it on the basis that there was genuine belief on the part of lawyers for ARMCO that the facts not disclosed were irrelevant. For whatever it is worth, I accepted that there was innocent non-disclosure in this respect too.

34. Not content with a finding of material non-disclosure, whether innocent or deliberate, Mr. Burns tried to press home that the undisclosed materials undermined the case for ARMCO and the non-disclosure was of such quality as to render the Hong Kong ex parte order unsustainable.

35. In regard to the provenance of the Atkins statements, having compared the first and second statements by Mr. Atkins, I was persuaded by Mr. Aiken that the second statement merely added further and better particulars to the first statement which on its own supported a basic good arguable case against Mr. Donohue. As to the refusal by Mr. Atkins to sign the second statement for over a year, since Mr. Atkins did give reason for the refusal, I would have taken the delay as time needed by Mr. Atkins to sort out his tax affairs and that very probably he would in due course put his signature to the second statement as he in fact did in September 1998. In other words, although the provenance of the Atkins statements would have gone on the scales, it would not have made a difference.

36. Both Mr. Aiken and Mr. Burn referred to some details in the Donohue Answers for the substance of Mr. Donohue's defence. For reasons already given, ARMCO had a good arguable case consisting of numerous instances of fraud, misrepresentation, forgery and breach of trust. At the interlocutory stage, I did not think it was the correct approach to analyze the strength of the defence point by point vis-a-vis the claim. Unless the defence strikes at the heart of the claim by a few plausible broad brushes, an ex parte injunction granted on a good arguable claim should be left undisturbed pending trial: see A.M.D. Pack Rack Ltd. & Ors. v. The Barrons Group Ltd. & Ors. [1992] 2 HKLR 50, per Bokhary J at p. 53. In any event, although Mr. Donohue gave a plausible explanation on the extraordinary high rate of commission paid to him, the bulk of the ARMCO case against Mr. Donohue stood substantially unchallenged even after taking into account the Donohue Answers.

37. Accordingly, in response to submissions by counsel, I would hold that the quality of the non-disclosure was not such as would compel the court to exercise its discretion against ARMCO.

Consequence of Non-disclosure

38. I am indebted to both Mr. Aiken and Mr. Burns for studiously taking me through copious authorities on the proper approach to deal with material non-disclosure. The authorities are, however, not easy to reconcile. This is demonstrated in the analysis by Mervyn-Davies J in Ali and Fahd Shobokshi Group Ltd. v. Moneim [1989] 1 W.L.R. 710 at pp. 718-720. On the one hand, the Court of Appeal in Bank Mellat v. Nikpour [1985] FSR 87 upheld Robert Goff J who discharged the ex partes injunction and refused to grant a new one. Donaldson J, as he then was, observed that,

"This principle that no injunction obtained ex parte shall stand if it has been obtained in circumstances in which there was a breach of the duty to make the fullest and frankest disclosure is of great antiquity. Indeed, it is so well enshrined in the law that it is difficult to find authority for the proposition; we all know it; it is trite law."

Mervyn-Davies J thought that the effect of that Court of Appeal decision was to deprive an applicant of all Mareva relief sought inter partes in consequence of non-disclosure. The learned judge then examined Lloyds Bowmaker Ltd. v. Britannia Arrow plc. [1988] 1 W.L.R. 1337, Brink's Mat Ltd. v. Elcombe [1988] 1 W.L.R. 1350 and Behbehani v. Salem [1989] 1 W.L.R. 723. He deduced at p. 720 op. cit. that a court must consider (a) whether the non-disclosure complained of was innocent and (b) whether an injunction could properly have been granted if full disclosure had been made. If (a) and (b) are answered in the affirmative, the court has a discretion to either continue the injunction or to grant a fresh injunction.

39. Subsequently, in Tate Access Floors Inc. & Anr. v. Boswell & Ors. [1991] Ch. 512, Browne-Wilkinson V-C said at pp. 532-533 that,

"No rule is better established, and few more important, than the rule, 'the golden rule', that a plaintiff applying for ex parte relief must disclose to the court all matters relevant to the exercise of the court's discretion whether or not to grant relief before giving the defendant an opportunity to be heard. If that duty is not observed by the plaintiffs, the court will discharge the ex parte order and may, to mark its displeasure, refuse the plaintiff under inter partes relief even though the circumstances would otherwise justify the grant of such relief: see Brink's Mat Ltd. v. Elcombe [1988] 1 W.L.R. 1350 and Behbehani v. Salem (Note) [1989] 1 W.L.R. 723."

Thus far, it would appear that the learned Vice Chancellor was still latched on to dicta in Bank Mellat v. Nikpour [1985] FSR 87 that an ex parte injunction must be discharged once there has been material non-disclosure. But he went on to say, at p. 533 that,

".. ..in deciding whether to grant such further relief the court has to consider all the circumstances of the failure to make proper disclosure and whether such failure was innocent or deliberate and has to weigh the public interest in maintaining the golden rule as against the requirements of justice in deciding whether or not to grant the plaintiff inter partes relief to which he would otherwise be entitled."

In other words, there should be no automatic bar to extending injunctive relief even if the court is displeased by material non-disclosure. Rather than the double-barreled test by Mervyn-Davies J, the learned Vice Chancellor left a tapestry of the general "consider all the circumstances" and "weigh the public interest" with the specific "whether such failure was innocent".

40. The struggle for an acid test for this sort of cases and those involving Anton Pillar orders stems from the underlying problem that has caused the courts anxiety in numerous cases. The problem, in the words of Straughton LJ in Dubai Bank Ltd. v. Galadari & Ors. [1990] 1 Lloyd's Rep. 120 at 134 is that:-

"Once serious and culpable non-disclosure was established, the judge had a balancing task to perform. On the one hand if justice required that a fresh injunction be granted, it might be thought unjust to refuse one on the grounds of non-disclosure. On the other hand the Courts must uphold and enforce the duty of disclosure, as a deterrent to others, if they are not to be deceived on ex parte applications. The conflict between those principles is well illustrated in a passage from the judgment of Lord Justice Woolf in the Behbehani case (at p.734)"

41. In my view, it is necessary to study the results arrived at by the courts in England and Hong Kong when dealing with Mareva injunctions:-

Bank Mellat v. Nikpour [1985] FSR 87.

The bank applied for ex parte Mareva injunction alleging that funds belonging to the bank had been credited to the defendant three years before. No attempt was made before the application to discover why the funds had been credited to the defendant. It was accepted that there might be a slip or innocent mistake for the non-disclosure. However, Lord Denning observed that although there might be an arguable case for the plaintiff bank on the merits, equally, on the material which has been put before the Court of Appeal, there might a good arguable defence. So much so that it was not a case in which a Mareva injunction should be granted. Hence the inter partes judge was right to discharge the ex parte order and refuse to grant a fresh one.

Siporex Trade S.A. v. Comdel Commodities Ltd. [1986] 2 Lloyd's Rep. 428.

There was material non-disclosure relating to the latest position of arbitration proceedings between the parties. Bingham J felt sure that there had been no intention to mislead the court. Although he found that there was a good arguable case and real risk of dissipation of assets, the learned judge discharged the ex parte injunction.

Eastglen International Corp. v. Monpare SA (1987) NLJ 56.

Ex parte Mareva injunction was obtained on the basis of what Donaldson MR described as gross non-disclosure by solicitor. After the injunction had lapsed, a second ex parte injunction was obtained through another solicitor with full disclosure. This second Mareva injunction was discharged upon complaint of non-disclosure at the first ex parte application. The Court of Appeal took the view that the plaintiff was always entitled to a Mareva injunction had there been disclosure. The second ex parte injunction was restored.

Lloyds Bowmaker Ltd. v. Britannia Arrow plc [1988] 1 W.L.R. 1337.

The defendant in an action for amount due obtained an ex parte Mareva injunction against a telecommunications expert for fraud. Two years later, the expert applied for discharge of the injunction on the ground that the defendant had failed to disclose (1) that the expert was an employee of a company which the defendant engaged by contract for specialist advice and (2) that in answer to allegations by the defendant the expert had given explanations. Discharge was refused. The Court of Appeal held that the ex parte injunction should be discharged for non-disclosure, although both judges on appeal were not impressed by the explanations. Both appellate judges also agreed that they should not exercise their discretion to grant a fresh injunction.

Brink's Mat Ltd. v. Elcombe [1988] 1 W.L.R. 1350.

The defendants complained of non-disclosure and applied twice to have the ex parte Mareva injunction granted by Roch J discharged. Judge White on the first occasion found that the non-disclosure was not material and continued the injunction. Alliot J dealing with the second application discharged the injunction on the ground that there had been material non-disclosure before Roch J and himself. The Court of Appeal held that the non-disclosure which Judge White had to consider was material but that the further non-disclosure when the matter went before Alliot was immaterial. The Mareva injunction was restored on appeal.

Citibank, N.A. v. Express Ship Management Services Ltd. & Anr. [1987] HKLR 1184.

The plaintiff did not disclose its unrealistic efforts to recover from third parties. The Court of Appeal held that the non-disclosed fact was not material and so the ex parte injunction was continued.

Behbehani v. Salem [1989] 1 W.L.R. 723.

There was deliberate non-disclosure by the solicitor for the plaintiff about proceedings between the parties in Spain. The inter partes judge discharged the ex parte injunction for that reason and then immediately re-granted substantially the same injunction. On appeal, Nourse LJ thought that the solicitor was guilty of an innocent lack of due care in a material and important respect in not making the inquiries which he could have made. However, Lord Justice Woolf was satisfied that there was strong prima facie case of fraud against two of the defendants. Both judges decided to discharge the Mareva injunction but only after Woolf LJ had extracted an undertaking from the defendants not to dispose of assets without giving 28 days' advance notice.

Shenzhen Universal Enterprises Industry and Trade Company Supplies and Anr. v. Wei Bun Trading Co. Ltd. & Ors. [1989] 1 HKLR 470.

The Court of Appeal reversed the assessment by the inter partes judge as to the materiality of the matters not disclosed at the ex parte stage. In discharging the ex parte order, none of the three appellate judges found it necessary to rule whether the non-disclosure was deliberate. However, a fresh injunction was immediately granted on an application filed to cover the eventuality of discharge for non-disclosure.

Ali and Fahd Shobokshi Group Ltd. v. Moneim [1989] 1 W.L.R. 710.

Mevyn-Davies J held that since the non-disclosure in that case could not be regarded as innocent and the ex parte order could not properly have been granted if full disclosure had been made, the court had no power to exercise its discretion and was obliged to discharge the injunction and to refuse to hear an application for its immediate re-imposition.

Dubai Bank Ltd. v. Galadari & Ors. [1990] 1 Lloyd's Rep. 120.

Morritt J as the inter partes judge discharged the ex parte injunction. He found that the non-disclosure at the ex parte stage was material and serious. But he would not hold that it was deliberate. He also came to the conclusion that assets would have been dissipated long before the application for ex parte injunction was made. All three judges of the Court of Appeal held that the inter partes judge could not be faulted and it was not open for the Court of Appeal to interfere with the lower court's exercise of discretion.

Tate Access Floors Inc. & Anr. v. Boswell & Ors. [1991] Ch. 512.

Browne-Wilkinson V-C held that the non-disclosure at the ex parte stage complained of was immaterial but that there had been serious misconduct in making certain misrepresentation to a foreign court. However, the misrepresentation was not such as to require discharge of the ex parte Mareva injunction.

Standard Chartered Securities v. Lai Arthur & Ors. [1993] HKC 375.

On an application to discharge an ex parte Mareva injunction against several defendants including the third defendant, it was conceded that the plaintiff had a good arguable case against the third defendant for breaches of fiduciary duty trust. On the ground that there had been non-disclosure which was material but not deliberate, Woo J discharged the ex parte order. A fresh injunction in the same terms was granted against the defendants on the basis that the third defendant was of questionable integrity posing a real risk of dissipation of assets.

42. It is clear that all the authorities considered, with three exceptions, support discharge of ex parte Mareva injunction obtained with non-disclosure of material fact. This is so even where revealing the undisclosed facts would have made no difference to the decision of the ex parte judge and even though the non-disclosure is innocent.

43. Of the "exceptions", the Eastglen case should not be taken as authority for continuation despite non-disclosure because what the Court of Appeal upheld was a second Mareva injunction obtained after full disclosure. The Brink's Mat case does not fit into any category easily. By the time the second application for discharge came before Alliot J, the material facts which were not disclosed earlier had become fully known to the learned judge. Since the Court of Appeal held that it was not open to the learned judge to review the conclusions reached at the first application for discharge as to whether there had been material non-disclosure but that the learned judge was bound to take into account the [previously] undisclosed facts, the application before Alliot J may be viewed as, in effect, application by the plaintiff inter partes for fresh Mareva injunction. Moreover, as the judges on appeal found, the plaintiff was on the merits entitled to injunctive relief despite the non-disclosure. It follows that in allowing the appeal against the decision of the lower court, the Court of Appeal practically upheld a fresh Mareva injunction independent of earlier material non-disclosure. In the Tate Access Floors case, the only significant misconduct was misrepresentation to a foreign court which, of course, is not the same as non-disclosure having a bearing on ex parte application to a court at home.

44. In the premises, it should no longer be necessary to examine whether a material non-disclosure is innocent or differential. The golden rule - full and proper disclosure - must be enforced by discharge of any ex parte injunction obtained with material non-disclosure.

45. As a corollary, all the authorities indicate a compelling trend in favour of granting a fresh injunction following discharge of an ex parte one tainted by material non-disclosure, whenever the merits warrants it. This is because the relevant question at an inter partes stage when the continuation or renewal of injunctions is in issue is not what happened in the past but what should happen in the future: Shenzhen Universal Enterprises Industry and Trade Company Supplies and Anr. v. Wei Bun Trading Co. Ltd. & Ors. [1989] 1 HKLR 470 per Kempster JA at p. 475. Of the four cases in which fresh injunction was refused notwithstanding good arguable case for the applicant, each had its own peculiar circumstances. In the Siporex case, Bingham J considered it unacceptable that the ex parte injunction remained in force for over two months after grant without any originating process to sustain it. Due to absence of originating process, grant of a fresh injunction was out of the question. In the Lloyds Bowmaker case, fresh injunction was refused on the ground of failure to prosecute the main action with diligence two years after the injunction. In the Behbehani case, an undertaking which was as good as a Mareva injunction was extracted from the defendant so there was no need to tie the defendant with a fresh order. In the Dubai Bank case, fresh injunction was refused simply because there might not be assets remaining within the jurisdiction.

46. It should not escape any one's notice that, although dicta flowed in abundance suggesting a more fluid approach may be taken, the courts have in reality consistently discharged every ex parte injunction tainted by material non-disclosure and granted a fresh one on the merits thereby both upholding the golden rule for disclosure and doing justice to deserving parties.

47. In the present case, in view of the non-disclosure which I found to be material, the Hong Kong ex parte order must be discharged.

48. On the application for a fresh injunction, having studied the affidavit evidence and all the relevant circumstances, I had no difficulty in reaching the conclusion that ARMCO had more than a good arguable case against Mr. Donohue. In fact, during the course of arguments before me, Mr. Burns for Mr. Donohue conceded that, for the purposes of the summons for grant of a fresh injunction and only if the ex parte injunction was discharged, ARMCO did have a good arguable case. This concession, it must be emphasized, does not extend to any other proceedings in this or other jurisdiction.

Risk of Dissipation

49. At the ex parte hearing, ARMCO relied on two factors to show risks of dissipation of assets: - (1) general dishonesty on the part of Mr. Donohue as manifested by the conspiracy against ARMCO in connection with the MBO and (2) Mr. Donohue's experience in debt collection making him a potent dodger.

50. At the consolidated hearing, Mr. Burns contended that ARMCO had not made out a sufficient and adequate case of real risk of dissipation to justify a Mareva injunction. Moreover, according to the Donohue Answers, Mr. Donohue had worked and settled in Singapore for over 15 years and is a permanent resident there. His wife and two of his children are Singaporeans and reside with him. He is the vice commodore of the Changi Sailing Club by appointment of the Singapore Sports Council. He had no connection outside Singapore. There was, arguably, no reason to suspect that he would evade responsibility.

51. ARMCO, on the other hand, produced affidavits by process servers who were employees of solicitors in Singapore acting for ARMCO to the effect that Mr. Donohue had attempted to evade service of process. This, according to Mr. Aiken, strengthened the case for risks of dissipation.

52. Not to be out done, Mr. Donohue filed a further affidavit to contradict the statements of the process servers on oath. He added that had he intended to evade responsibility, he would not be seeking permission from the courts in Singapore and Hong Kong to withdraw funds from frozen accounts to contest proceedings here and there.

53. In my view, even if one disregards the reports of attempts to evade service, the ARMCO case for risks of dissipation of assets was as strong as ever. By the time of the consolidated hearing, Mr. Atkins had signed the second statement which shows clearly how funds were siphoned off and spirited away to defraud ARMCO. What better evidence was needed to prove risk of dissipation of assets? In Standard Chartered Securities v. Lai Arthur & Ors. [1993] HKC 375, it has been held that an unacceptably low standard of commercial morality giving the court a feeling of uneasiness would drive the court to the conclusion that there was a real risk of dissipation of assets.

54. I was not impressed by the fact that Mr. Donohue has achieved some social standing and has settled in Singapore. Quite probably, the four alleged conspirators were highly regarded and trusted by ARMCO before the MBO. It would usually take people, four in this case, in highly responsible position to pull off a colossal fraud. Moreover, although Mr. Donohue's stature may be an important factor for Singapore where he can be personally restrained and compelled by judicial processes, for Hong Kong the only stake is the assets that may be frozen by injunction. The balance of inconvenience must be tilted in favour of injunction to prevent secretion of assets from this jurisdiction.

55. The fact that Mr. Donohue has been active in these proceedings does not sway anything. The court could not determine at the interlocutory stage whether Mr. Donohue was fending for his own hard earned fortunes or using money which should belong to ARMCO to resist recovery.

Fortification of Undertakings

56. On behalf of Mr. Donohue, Mr. Burns sought security from ARMCO to the tune of HK$250,000 to fortify undertakings as to damages for the fresh Mareva injunction. It was pointed out from data in the Form 10-Q filed by the First Plaintiff with the United States Securities and Exchange Commission that, for the year 1997, the Plaintiff had liabilities in excess of assets. Mr. Aiken, on the other hand, drew attention to the fact that for the first half of 1998 so far, shareholders equity of the First Plaintiff had improved from a deficit of US$152.5 million for 1997 to US$130.0 million net.

57. I could not imagine ARMCO with assets worth over US$1,800 million would be unable to satisfy judgment for damages in this matter. In any event, the amount of cover sought at HK$250,000 had no rational basis. I believed that, if security by way of written guarantee is ordered, a window of time from discharge of the Hong Kong ex parte order to tender of security required to bring into effect the fresh injunction against Mr. Donohue would be wide open for assets to be moved out of this jurisdiction. This would defeat the purpose of the fresh injunction which was justified on the merits. For these reasons, the request for fortification of undertakings was refused.

Terms of New Order

58. Since the parties agreed through counsel the terms of the fresh Mareva injunction, I made a new order in terms with the usual undertakings.

Costs

59. Mr. Burns applied for costs against ARMCO to follow the event, on indemnity basis and to be paid immediately. He argued that serious material non-disclosure attracted costs on indemnity basis. He insisted on immediate payment of costs because the action in Hong Kong against NPV and Mr. Donohue might not proceed beyond the present stage to trial.

60. Mr. Aiken pointed out that it had not been the usual practice to order costs on indemnity basis for non-disclosure. He drew my attention to the case of Standard Chartered Securities v. Lai Arthur & Ors. [1993] HKC 375 wherein an ex parte Mareva injunction was discharged for non-disclosure but a fresh injunction was immediately granted on the merits. Woo J held that in those circumstances both parties should be deemed to have won and so he ordered costs in the cause. Counsel urged me to follow that course. In any case, Mr. Aiken suggested that an order for costs in any event would be more appropriate.

61. Mr. Burns must be right in saying that the grant of a fresh injunction order was necessitated by the discharge of the Hong Kong ex parte order. It would not be correct to regard ARMCO as having won on the superficial basis of its obtaining relief under the summons for a fresh injunction. Hence, ARMCO should bear Mr. Donohue's costs of and occasioned by the inter partes summons for continuation and the summons for discharge. On the other hand, since the non-disclosure was innocent and there were sufficient merits to justify the grant of a fresh injunction, costs on indemnity basis would be too high a penalty on ARMCO. On such analysis, Mr. Aiken conceded that there should be no order as to costs on the summons for fresh injunction.

62. As to payment of costs forthwith, indeed the action in Hong Kong might not proceed to trial and thus an order for costs payable after trial would be a hollow one. More importantly, Mr. Donohue more than once had had to seek variation of injunctions orders to withdraw monies for his litigation expenses. If he could not obtain immediate payment of costs due to him, he would be entitled to further order for release of funds from his frozen assets. It would be false economy to order "costs in any event".

63. Accordingly, I ordered that the Plaintiffs do pay the costs of and occasioned by the Second Defendant for the summons for discharge and the inter partes summons for continuation, such costs to be taxed forthwith on party and party basis if not agreed. And I made no order as to costs on the summons for grant of a fresh injunction order.