XCHRX AIG ASIA DIRECT INVESTMENT FUND LTD AND OTHERS v. NGAI WAI LUN, WILLIAM AND ANOTHER

HCCL31/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.31 OF 1998

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D E C I S I O N

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The Mareva injunction and its maximum sum

1. In this case, the Plaintiffs claim that the Defendants had, in breach of agreement, failed to buy back from them shares in a company called Joyce Link Holdings Limited ("Joyce Link"). Joyce Link holds about 10% of the share capital ("the shares") of a company called Infocom Communication Network Inc ("Infocom").

2. Damages is one of the remedies sought by the Plaintiffs. The Plaintiffs obtained a Mareva injunction ("the Order") against the Defendants for the maximum sum of US$6.5 million. The Plaintiffs had asked for US$7.2 million but Yeung J. only ordered US$6.5 million.

The calculation

3. According to Mr Carolan, Counsel for the Plaintiffs, the US$7.2 million is calculated as follows :

The price of the buy back shares :	US$14,358,000
Estimated costs of action :	US$100,000
	US$14,458,000
Less market value of the shares in Infocom :	US$8,500,000
	US$5,958,000
Interest :	US$1,200,000	(approximate)
Total amount :	US$7,200,000	(approximate)
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Variation

4. The Defendants now apply to vary the Order in relation to the amount only. In gist, the Defendants claim that the value of the shares in Infocom was valued too low. The Plaintiffs valued the shares at US$8.5 million. This indicated that the value of Infocom as a whole to be US$85 million since the shares in question only form about 10% of its total share capital.

5. The Defendants said that the total value of Infocom should be at least US$122 million, hence the shares should be worth US$12.2 million.

The Defendants rely on three valuation reports. Taking into account all the business activities of Infocom, the range of values of Infocom are as follows :

1. US$132.6 million.

2. US$130-$158 million.

3. US$106-$191 million.

Expert evidence

6. Expert evidence were filed by both parties on how the methods of valuation should be conducted. The Plaintiffs contend that the Defendants' valuations failed to deduct the debts of about US$44 million of Infocom for the purpose of valuation. This is disputed by the Defendants. The Defendants criticised that the Plaintiffs have failed to date to prepare a proper valuation of the shares.

Exercise of discretion

7. Mr Chain, Counsel for the Defendants, asked me to look at the evidence afresh in deciding what maximum sum should be ordered. Mr Carolan, on the other hand, submitted that the discretion on the maximum sum had already been exercised by Yeung J. and unless there is change of circumstances, I should not disturb the order that had already been made, see Gee on Mareva Injunction p.48.

The proper approach

8. It should be pointed out that the valuations of the Defendants are not prepared for the purpose of valuating the shares in question. Irrespective of the jurisdictional approach on how the maximum sum is to be adopted, I do not think it is appropriate to conduct, in an interlocutory application, a detailed analysis of the different methods of valuation and come to a concluded view on the value of the shares. This is an issue that has to be addressed at the trial of this action.

9. There are other issues raised in the argument such as the Asian financial crises and the fluctuation of the exchange rate of the Peso (Infocom being a company in the Philippines).

10. At this stage, I am only concerned with the question whether there is evidence to support the Plaintiffs' contention that the shares in Infocom were valued at US$8.5 million. I think there clearly is such evidence. Ms Betty Woo's 1st affirmation referred to the recent market transactions of Infocom shares in 1998. For the sake of simplicity, I adopt the term "transactions" although the transactions referred by Ms Woo included both offers and actual purchase of the shares in Infocom. Without going into the technical details, the transactions showed the value of Infocom at the following sums :

1. US$85 million.

2. US$61 million

3. US$54 million.

4. US$50-$60 million.

See para.9 of Ms Woo's affirmation.

11. At this stage of the proceedings, these are clearly figures upon which the maximum sum for the purpose of the injunction can be worked out. Even if one has to consider the discretion afresh, the sum of US$6.5 million is clearly an appropriate figure. In any event, the amount ordered by Yeung J. is clearly right by reference to these figures. While some of these valuations are in fact lower, it is not appropriate at this stage to increase the maximum sum because these figures remain to be notional or estimated values only. The Plaintiffs are not asking for the sum to be increased.

Discovery

12. I now turn to the order for discovery sought by the Plaintiffs. The Defendants oppose the order for discovery on the ground that the Plaintiffs are fishing for evidence which they are not entitled to and the discovery is oppressive. In A v. C [1981] 1 QB 957, Goff J. (as he then was) stated at p.960F-G that :

"I am not suggesting that it would be right to make general use of this power to enable the plaintiff to discover whether the defendant has assets here. In order to establish his right to relief at all, the plaintiff has at least to give grounds for believing that the defendant has assets here; but, having established that, it may be necessary for the proper exercise of the jurisdiction that the defendant should be required to give discovery, or provide information, about a particular asset - though, obviously, if the asset is worth more than the plaintiff's claim, he need do no more than establish that fact."

13. The order for discovery is in aid of the Mareva injunction. The evidence shows that the Defendants have different assets in different jurisdictions. Although the Plaintiffs are not in position to disclose the bank accounts of the Defendants, it is a matter of common sense that the Defendants must have bank accounts. The discovery is not for all the assets of the Defendants but only assets up to US$6.5 million. In my view, the discovery is necessary for the effective operation of the order. I would grant the order for discovery. The disclosure is to be by way of affidavit within 14 days.

Undertaking

14. The Defendants have also offered to provide shares held by a company called Jatcom Inc. in Infocom as security for the Plaintiffs' claim. The offer is rejected by the Plaintiffs. There are practical problems concerning how secure this undertaking is in terms of the value of the shares to the Plaintiffs who are foreign companies and potential litigation regarding their ownership. I am not prepared at this stage to vary the order to take into account the undertaking now offered by the Defendants.