TRANSAMERICA LEASING INC. v. CHINA FOREIGN TRADE DVELOPMENT COMPANIES INCORPORATED

1997, No A1708

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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Background

1. On 23 December 1996, the plaintiff obtained judgment against defendant for the sum of US$2,529,607.33 in the United States District Court Southern District of New York. The judgment was obtained on the basis of a lease agreement relating to containers. It was alleged that Mr Tang Hua Yan, who was said to be the vice general manager of the defendant, signed the master lease agreement.

2. On 18 February 1997, the plaintiff issued a writ in this court based on that judgment. On the same day, the plaintiff obtained a Mareva injunction against defendant on an ex parte application. I now have before me a summons by the plaintiff for the continuation of the injunction. The defendant opposes that continuation.

3. Before me, there was no dispute that the plaintiff has made out a good arguable case for the injunction. This is not surprising. The plaintiff has an apparently enforceable judgment of a foreign court. Mr Graham, for the defendant, contented himself with arguing that the plaintiff had not established that there is any real risk of dissipation of the defendant's assets.

How the Injunction was Obtained

4. The evidence in support of the plaintiff's ex parte application was that contained in an affidavit by Mr William Giles, the plaintiff's solicitor. I also have before me the written skeleton argument presented to the ex parte judge. There is a great deal in the affidavit and the skeleton argument aimed at showing that the plaintiff had a good arguable case. There is no need to examine this aspect of the matter here.

5. As far as it is relevant to the issue of dissipation of assets, the affidavit by Mr Giles contained the following allegations.

6. The defendant is a corporation under the laws of the People's Republic of China. It is state owned enterprise operating under the Ministry of Foreign Trade and Economic Co-operation.

7. It is, of course, relevant to consider the domicile of a defendant in Mareva proceedings, but, in this case, any weight that might otherwise be given to the fact that the defendant is a foreigner is set to naught by the fact that the defendant is a foreigner with the backing of a foreign state.

8. The defendant failed to comply with an order of the United States judge dated 4 September 1996.

9. I do not know why the matter is put in this way. The order was not peremptory; it was procedural. The order was that the defendant's defence be struck out. This was because a licensed attorney had not signed it. The defendant's failure to comply with the order is not such a failure that would justify the inference that the defendant treated the US court proceedings in a cavalier manner.

10. Mr Giles explained that the defendant's defence in the US proceedings was that Mr Tung had no authority to sign the agreements on behalf of the defendant.

11. The affidavit relates that the only assets in Hong Kong known to the plaintiff are shares in two local companies.

12. In his affidavit, Mr Giles goes on to say - ". . . there is a real risk of removal of assets out of the jurisdiction or dissipation of assets within the jurisdiction so as to defeat any future judgement which may be entered by this Honourable Court in favour of the plaintiff against the defendant. In all the circumstances the defendant could easily defeat the plaintiff's ability to enforce the judgment by transferring its shares and such a transfer would not come to the attention of the plaintiff until it was too late to take steps to protect it interest. Dividends can even more readily be disposed of. The defendant is likely to deal with them to defeat any judgement."

13. These are bare assertions without any basis being advanced for the views held by Mr Giles.

14. Mr Giles further says - "The defendant is likely to deal with [its assets in Hong Kong] to defeat any judgment."

15. Again, Mr Giles does not condescend to give any basis for his assertion.

16. The affidavit further says - "Mr Harold B. Aspis [who is assistant general counsel of the plaintiff] told me that the plaintiff made many attempts to collect from the defendant but it deflected those attempts. . . The defendant chose not to participate in the New York proceedings after submitting its 'defense'. . . In the light of the defendant's repeated denial of its responsibility and decision not to comply with the New York court order the defendant is likely to continue to avoid the plaintiff's attempts to recover the sums due. There is a real and substantial risk that this would include dealing with its Hong Kong assets such that they were beyond the reach of Hong Kong enforcement proceedings."

17. The fact that a defendant has denied responsibility for a debt does not, without more, provide a ground for a Mareva injunction.

18. That is the totality of the evidence advanced by the plaintiff to establish that there was a real risk that any judgment would remain unsatisfied.

19. In his written skeleton argument put before the ex parte judge, Mr Giles said, on this issue - "As far as risk of dissipation is concerned, as is usual in this type of case the Court is invited to draw the inference that were the defendant aware the plaintiff was seeking to enforce the judgment against the defendant's assets, and in particular the shares, this defendant is likely to dispose of its known assets or at least transfer the shares such that the defendant is no longer seen to be a member of the two named companies. The dividends can readily be disposed of. In all the circumstances it is plain that the defendant refuses to make payment or satisfy the judgment and is likely to take further steps to avoid it. The defendant has clearly displayed a complete lack of commercial probity in its dealing with the plaintiff. Bearing in mind the strength of the plaintiff's claim it is respectfully submitted that it is just and convenient for the court to grant a Mareva injunction".

20. This argument adds nothing to the evidence, or lack of it.

Assessment of the Evidence advanced in the Ex Parte Application

21. The evidence thus far advanced does not, in my view, justify a Mareva injunction. I do not, on the other hand, agreed with Mr Graham that the case for the plaintiff was presented in a misleading way. One could legitimately criticise some of the assertions by Mr Giles, but I believe the plaintiff's factual case was presented in its embarrassing nakedness for all to see.

22. In fact, the plaintiff's case was stronger than as presented at the ex parte stage.

The Other Evidence

23. On behalf of the defendant, Mr Jian Nan, a Vice President of the defendant, has made an affirmation in opposition to the continuance of the injunction.

24. He says that Mr Tang was never a vice general manager of the defendant. During the material time, Mr Tang was "merely" the vice general manager of the defendant's subsidiary, China Trade Development Shenzhen Warehousing and Transportation Company (CTD), and was continuously on CTD's payroll. Although CTD is a subsidiary of the defendant, it is a separate company and separate legal entity.

25. He denies that the defendant ever had possession, let alone use, of the containers concerned. He also denies that the defendant ever acquiesced in the hiring of the containers. He further denies that the defendant displayed any lack of commercial property in its dealing with the plaintiff. He says that the defendant's attitude to the plaintiff's claim was fully justified.

26. Mr Jian Nan's explanation for the defendant's failure to contest the US proceedings is not satisfactory.

27. Mr Jian does not explain, as I would have expected him to do, who had possession and use of the containers.

28. There is no evidence from Mr Tang himself. However, I have before me a translation of a statement made by him to a Hong Kong solicitor. There is no explanation for the fact that Mr Tang's version is not presented to me in the form of evidence.

29. Mr Tang says that he was the vice general manager of CTD. He says that he has never been the vice general manager of the defendant, and has never been authorised by the defendant to represent it or to sign any contract or document on its behalf. He says that he does not understand English, and he did not know that the agreements were in the name of the defendant. His story regarding the use of the containers is not clear. He says that the plaintiff failed to and continued to fail to deliver the containers to CTD, and that is why the plaintiff's charges were not paid. He says that he repeatedly contacted the plaintiff requiring the plaintiff to resolve also matters regarding the delivery of containers and "the company actually using the containers". He does not say which company was actually using the containers. He says that, in May 1994, the plaintiff "unreasonably requested that if the charges or any part thereof was not paid by CTD [or another company], they would refused to take some unused containers. In order to avoid further loss of the parties and to maintain the good relationship of all three parties, [CTD] therefore, upon discussion with [an associated company] decided to borrow from them USD60,000 so as to pick of some of the charges. Until now, my company did not know the whereabouts of most of the containers."

30. Mr Tang also referred to some documents, but these were not annexed. These were produced at the hearing before me, and I give leave for this evidence to be adduced. The most significant of these documents is a fax by CTD to the plaintiff dated 2 May 1993. This says - "Concerning the hiring of 500x20' and 300x40' containers. Please draft up the agreement and come to Shenzhen for execution. With regard to the 3-year lease agreement, can the hiring charges be lowered a little bit?"

31. In an affirmation made on 24 March 1997, Mr Charlie Wong, on behalf of the plaintiff, produced a business card that he said was given to him by Mr Tang in 1993. This card describes Mr Tang as a vice general manager of the defendant. Mr Wong also produced two letters to the defendant, marked for the attention of Mr Tang, amongst others, in which the defendant is looked to for payment.

32. The defendant did not file any evidence in answer to this. Mr Graham produced a letter from the plaintiff's solicitors dated 25 March 1997 in which it was said that the court order did not provide for any further evidence to be filed after the plaintiff's affidavit in reply. It said that the plaintiff objected to any further evidence being filed without the leave of the court. The letter said that, if necessary, "we will obviously require further time to consider any further affirmation and will request the court to continue the injunction in the interim."

33. This letter is not an explanation for the defendant's failure to seek the leave of the court to file further evidence. In particular, I would like to have heard an explanation from the defendant for the fact that Mr Tang's business card described him as a vice general manager of the defendant. The plaintiff had advanced new evidence. I do not accept that the defendant believed the court would refuse to allow it to deal with this new evidence.

Assessment of the Plaintiff's Case as a Whole

34. There is, of course, no direct evidence at all that there is a real risk that defendant might dissipate its assets in order to defeat any judgement obtained by the plaintiff. The plaintiff argues that the defendant's conduct shows a lack of commercial probity so that one might infer that there is a real risk of dissipation. This lack of commercial probity is said to lie in the defendant's failure to recognise and perform its obligations to the plaintiff.

35. In my view, it is not enough for the plaintiff to show that the defendant was liable to the plaintiff, and refused to face up to its obligations. To get off the ground in using this basis for a Mareva injunction, the plaintiff has to show that the defendant knew that it was liable to the plaintiff, but deliberately put forward a false story in an attempt to avoid liability. A genuinely held belief that a defendant has a good defence to a plaintiff's claim, however misconceived, cannot be said to demonstrate that the defendant should not be trusted by the plaintiff or the court.

36. Undoubtedly, there are the unsatisfactory features of the defendant's case to which I have already drawn attention. It is improbable that Mr Tang would carry and distribute a business card showing that he was a vice general manager of the defendant if that were not the case. The defendant has advanced no explanation for this. And there are the documents written by the plaintiff to the defendant in which the plaintiff plainly says - "I am looking to you for payment." There is also the failure by the defendant to explain its case clearly regarding who it says had possession and use of the containers. On the other hand, there is also the fax of 2 May 1993 by CTD, which emanates from CTD and supports the contention that the lease of the containers was intended to be with CTD, not the defendant.

37. Overall, I do not think that, at this stage, I am able to say that the plaintiff has established that the defendant did not believe that it had a good defence to the plaintiff's claim, but put up a knowingly false defence, and is, therefore, not to be trusted.

38. Against the plaintiff, there is the argument that the defendant knew about the plaintiff's claim, and the judgment against it in the US courts, well before the plaintiff's action in this court, so it could, if it were so minded, have removed its local assets beyond the reach of execution. So, Mr Graham argues, if the defendant was inclined to dissipate its assets, it had plenty of opportunity to do so.

39. On the other hand, Miss Cruden suggests that the defendant had adopted the attitude that it was safe from any pursuit under the US judgement. She argues that the defendant did not believe that the plaintiff could pursue it in the Hong Kong courts, and, therefore, it did not see a need, until the plaintiff commenced action here, to safeguard its assets. This suggestion, in my view, is little more than speculation. There is nothing in the evidence to support it. Miss Cruden says that it is supported by the probabilities, and points to the fact that the defendant did not press its defence in the US proceedings. It did not do this, she suggests, because the defendant thought that the plaintiff would not be able to take the matter any further. In my judgment, this is unlikely. The plaintiff's own case is that the defendant is a state owned corporation engaging in international trade, and has its own in-house lawyers. It is improbable that such a corporation would believe that foreign judgments cannot be enforced outside the jurisdiction in which they were pronounced.

Conclusion

40. After considering all the circumstances, although I have some unhappiness with the defendant's case, on balance, I am left unsatisfied that there was, or is, a real risk that the defendant might dissipate its assets in order to frustrate the execution of any judgment obtained by the plaintiff. I do not think there are any concrete facts from which a prudent, sensible commercial man could properly infer a danger of default. Nor can I find, in spite of some uneasiness, that the plaintiff has established that there is any solid basis for a belief that the defendant has behaved badly in its commercial dealings with the plaintiff so that I am able to say that the defendant is not to be trusted.

41. Accordingly, the injunction must be discharged.

Disclosure

42. I have another summons before me under which the plaintiff seeks disclosure of the defendant's assets within the jurisdiction. If there is no injunction, there can be no disclosure. Accordingly, this summons is dismissed.

Costs

43. Mr Graham suggests, in his written skeleton argument, that there should be a penal order for costs against the plaintiff. I have already held that I do not believe that the ex parte order was obtained by any material non-disclosure or misrepresentation. The situation is that the plaintiff could have presented a stronger case to the ex parte judge. It seems to me that the order for costs should be simply that the plaintiff pay the defendant's costs in any event, including the costs of the summons for discovery, and I make an order nisi accordingly.