RE AIM INVESTMENTS (HOLDINGS) LTD

HCCW 64/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 64 OF 2004

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J U D G M E N T

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1. This is an application by AIM Investments (Holdings) Limited ("the Company") for first, an extension of time within which to file evidence in opposition to the application by Mr Ronald Tsang, the Petitioner in these proceedings, for a Mareva injunction and for the appointment of provisional liquidators. There is also an application for permission for the Company to use a further sum of HK$400,000.00, in addition to an initial sum of HK$250,000.00 permitted to be used under the ex parte order granted by Chu J, in the defence of the legal proceedings which have been brought against it.

2. Briefly, the background to these proceedings is that Mr Tsang says that he is a creditor of the Company in the some amount of approximately HK$70 million, of which some HK$30 million was lent to the Company to be used only for the specific purpose of meeting a buffer margin requirement for certain trades which Mr Tsang was to execute through the Company in respect of Hong Kong Stock Exchange Index Futures contracts and as a means of securing an overdraft to be used for that same purpose. As I understand it, the Company disputes that it was agreed that the loan was to be used only for that specific purpose and claims that even if it was originally so agreed, the purpose was varied subsequent to the making of the loans.

3. It appears that at the beginning of this year, Mr Tsang sought repayment of his loans and was told by the Company that it was not in a position to make such repayment. Mr Tsang subsequently brought a petition against the Company seeking its winding-up on the grounds that it owed him money and was unable to pay its debts. At the same time, Mr Tsang made an application for a worldwide Mareva injunction against the Company on the ground that it had been dissipating its assets and also sought the appointment of provisional liquidators in respect of the Company. That application came on for hearing before Chu J on 20 January 2004, when she granted the worldwide Mareva injunction, but declined to appoint provisional liquidators at that stage. A return date has now been fixed for the hearing of an application for the continuation of the Mareva injunction, at which time the application for the appointment of provisional liquidators will also be heard. That hearing is to take place on 18 February 2004.

4. The matter came before Deputy Judge To last Monday, 26 January 2004, when the Company was given seven days within which to file its evidence in opposition to the applications which are to be dealt with at the return date. So far as the application for an extension of time is concerned, the return date now having been fixed for a relatively early date, Mr Scott, appearing for the Petitioner, informed me that there was no objection to the Company having the short extension of time that it seeks. Accordingly, I make an order in terms of paragraph 1 of the Company's summons, so that it will have until this Saturday to file further evidence in opposition to the Petitioner's applications for the worldwide Mareva injunction and for the appointment of the provisional liquidators which are to be heard on 18 February 2004.

5. So far as the question of additional funds is concerned, the order made by Chu J, as is not uncommon, provided for a certain amount to be made available to the Company from its assets to be expended on its defence of the legal proceedings which had been brought against it. That amount was set at the ex parte stage at HK$250,000.00.

6. It appears from the evidence before me that that amount is unlikely to be sufficient to meet the Company's expenses up to the stage of the return day and inter partes hearing. The reasons for this have been explained in an affirmation made by Mr Keith Ho, the partner of the solicitors' firm acting for the Company, in which he explains the considerable work that has been done to date by himself and another member of his firm and junior counsel instructed up to this point, which discloses that the bulk of that HK$250,000.00 has now been spent. It is said that in order for the matter to be dealt with properly and for the Company to properly defend itself at the return date hearing, it will be necessary for it to have access to a further HK$400,000.00. Reference was made to the fact that the Petitioner has seen fit to instruct leading counsel and senior junior counsel in the prosecution of its claim so far, and the Company wishes to have a similar level of representation given the seriousness of the allegations which have been made against it.

7. It seems to me that there is no real suggestion that the amount that is sought is in itself unreasonable.

8. Mr Scott did not, either in his skeleton or in his submissions, suggest that that amount was unreasonable. Nor, as Mr Bartlett who appears for the Company points out, has there been any indication of the level of legal expenditure that the Petitioner has incurred in these proceedings.

9. In the circumstances, it seems to me that the amount of some HK$400,000.00 by way of further expenditure for what may be a heavily contested inter partes hearing, particularly given the tight time frame under which preparations will have to be undertaken, is not in itself unreasonable.

10. Mr Scott suggests, however, that it is unsatisfactory and inappropriate for the Court in this case to exercise its discretion to vary the exception to the injunction so as to permit the Company to have access to further funds of HK$400,000.00 from its own assets.

11. As I understand it, he does so first on the basis that the nature of the claim that his client asserts against the Company is that the loans, or at least the substantial part of the loans, that were made to it by the Petitioner are impressed with a Quistclose trust, so that, in allowing the Company to expend what are apparently its own assets on this litigation, the Court will in effect be permitting the Company to expend the Petitioner's own money on the Company's defence of the proceedings brought against it by the Petitioner.

12. In this regard, it seems to me that at this stage it is simply not possible for me to form any meaningful view on the merits of the respective parties' claims. Although, on the face of it, the petitioner's claim does appear to have some foundation and merits, it is not possible at this stage to say that it is bound to succeed or that the Company has no prospect of successfully defeating that claim. The Company's position is that there is in fact no Quistclose trust, and evidence to this effect has been put forward by its main director Mr Hui. At this stage, it seems to me neither possible nor appropriate to form any concluded view as to this, and it seems to me that it would be inappropriate to shut the Company out from defending the claim simply because the petitioner asserts that it has a Quistclose trust in its favour in respect of the money which had been lent by it to the Company.

13. I am supported, I think, in this conclusion by the decision of Lloyd J in PCW (Underwriting Agencies) Ltd v. Dixon [1983] 2 All ER 158. In that case, Lloyd J made it clear that even where a plaintiff was laying claim to a trust fund, even if all of the defendant's assets could be said to be subject to such a trust, injunctions such as Mareva injunctions are discretionary remedies and the Court would be unlikely to exercise its discretion to prevent a defendant from being able to use some part of the funds under his control for his own defence because it would ordinarily be unjust to do so.

14. It seems to me that in this case, it would be unjust to deprive the Company from the opportunity of spending the additional sum of HK$400,000.00, which it seems to me in the overall context is a relatively modest sum, in order to enable it to defend itself in these proceedings in which, at this stage, the Petitioner's claim has not been established. It seems to me that it would be appropriate for the Company to be given the opportunity to defend itself against these claims. If, as appears to be the case based on the disclosure which has so far been made, the Defendant does not have any other assets available to it with which to meet such defence other than the assets which are the subject of the injunction, it would be appropriate for the Court in the exercise of its discretion, and in the interests of justice, to permit the Company to have recourse to those assets to a reasonable amount in order to defend itself against the claims which are brought against it.

15. Mr Scott also suggested that the disclosure made by the Defendant today has been less than satisfactory. In this regard, it seems to me that his criticisms are directed to the use, in a broad sense, by the Company of the money which had been advanced to it.

16. Strictly speaking, it seems to me that the disclosure order required only disclosure of the assets of the Company which to a large extent, appears to have been provided, although perhaps not completely, given the relatively tight timeframe which has obtained so far. There has also been a criticism as to the failure to explain what had happened to the monies which were advanced by the Plaintiff.

17. As I understand it, those monies were in fact placed on deposit with the Hang Seng Bank to secure an overdraft facility granted by that Bank, and the terms of Chu J's order require disclosure of what has happened to that deposit. An explanation for that has been provided in that it is said that the proceeds of that deposit have been appropriated by the Bank by way of set off to satisfy its claim in respect of an overdraft on a different account. Mr Scott's criticism, I think, relates more to the manner in which that overdraft was built up, but it seems to me that that is not strictly covered by the order of Chu J. In any case, even if it were a matter that was covered by Chu J's order, as I understand it, the company's intention is to provide an explanation of the manner in which the Company has built up its losses and used its funds over the past two years with a view to answering the charges of dissipation that have been made against it.

18. Given that I have granted an extension of time for that explanation to be put forward, it seems to me that it would not be right at this stage to assume that no satisfactory explanation could be provided as to the manner in which the Company's funds, other than those in the account mentioned in Chu J's order have been utilised over the past two years.

19. Mr Scott also makes the point that the Company appears to be insolvent. While that may appear on the face of it to be so, it seems to me that it would be unfair not to permit the Company to properly defend or to have the opportunity to make a proper response to the pending applications.

20. In all the circumstances, it seems to me that the requirements of justice in this case are such that the Company should be allowed to expend a limited amount of further funds in respect of those applications, and I therefore propose to make an order in terms of paragraph 3 of the summons.

21. There is also an application for a validation order in respect of the HK$250,000 that has already been expended, and it seems to me, in the circumstances of this case, that it would be appropriate for me to make that order. I therefore propose to make an order substantially in the terms of paragraphs 1, 2 and 3 of the Company's summons dated 30 January 2004. I shall now hear the parties as to the costs of this application.