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HCA000346/1985
Anton Piller order - material non-disclosure of facts which might have influenced Judge when making ex parte order - order should be discharged without going into merits - dicta Thermax Ltd. v. Schott Industrial Glass Ltd. followed.
| IN THE HIGH COURT OF JUSTICE |
NO. 346 OF 1985
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BETWEEN:-
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PIONEER INTERNATIONAL BUYING AGENCIES (H. K.) LIMITED |
1st Plaintiff |
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DEVINE SERVICES LIMITED |
2nd Plaintiff |
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AND
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TUNG CHIEN-KWOK |
1st Defendant |
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HO BING-YUE, HEDY |
2nd Defendant |
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WONG CHI-HUNG, BERNARD |
3rd Defendant |
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ASIOTRADES LIMITED |
4th Defendant |
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Coram: The Honourable Mr. Justice Penlington in Chambers
Dates of hearing: 24 & 25 January 1985
Date of delivery of judgment: 25 January 1985
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JUDGMENT
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Background
1. The 1st plaintiff ("Pioneer") herein is part of a group of companies known as "The PIBA Group". Its business is basically that of acting as a buying agent for United States retailers of textiles produced in Taiwan and Hong Kong. It has been in business since 1971 and has been very successful. The 2nd plaintiff ("Devine") is wholly owned by the same shareholders as the 1st plaintiff and is part of the PIBA Group. It acted as an intermediary between Pioneer and either the retail buyer or an American company called Landmark which is also in the group. The day-to-day running of Pioneer and Devine was largely in the hands of the 1st defendant, who is the largest shareholder. The 2nd defendant is the chief accountant and financial controller of Pioneer and of the PIBA Group. The 3rd defendant is the shipping manager of Pioneer and Devine. The 4th defendant is a company formed in December 1984 and it is its formation and taking over as intermediary company in place of Devine for a period in 1954 which has resulted in these proceedings being brought.
2. The 1st and 2nd defendants instructed Sohney Chung, a solicitor, to form this company which she duly did, the two directors being Asiopearl Limited and Asiocapital Limited. Sohney Chung was one nominee director of these latter two companies and the other one was Brenda Ho, a Sister of the 2nd defendant. Asiocpital Limited and Asiopearl Limited in turn hold their shares in the 4th defendant in trust for the 1st defendant (60%), the 2nd defendant (10%), and other shareholders, none of whom, however, are shareholders of Pioneer or Devine.
3. On the 12th January 1985 three of the shareholders of Pioneer and Devine Mr. Ng Ock, Mr. Chen Sheo Kie and Mr. Loh Chi sin, went to Pioneer's office and held a directors meeting. The directors who were absent from this meeting were the 1st defendant and a Mr. Yu Se Koang who does not seem to have played any part in the matters which are now before the court. Messrs. Ng, Chen and Loh proceeded to pass a resolution whereby the 1st and 2nd defendants were suspended from their duties and they instructed the 2nd defendant and other members of the staff to hand over to them immediately all accounting records of Pioneer and Devine. Also present at this meeting was Mr. Wilkin Fon, a management consultant who says he has acted as such for Pioneer and Devine since that date. Mr. Fon, having examined the records so obtained concluded that further records, and in particular bank statements relating to the 4th defendant, may be in existence and could be in the homes of the 1st, 2nd or 3rd defendants. He was also of the view that there was a danger that the 1st defendant might remove from Hong Kong assets belonging to Pioneer, and Devine and the 4th defendant which he held on their behalf. Accordingly on the 17th January 1985 an ex parte application was made to Hooper J. on behalf of Pioneer and Devine for Anton Piller and Mareva orders and for consequential injunctions, in the usual terms. This application was supported by an affirmation from Mr. Wilkin Fon. On the basis of the information supplied by Mr. Fon the orders and injunctions were duly granted. The return date was the 24th January but before that the defendants applied before Deputy Judge Nazareth for an order that the orders and in injunctions be discharged. That application was adjourned to the return date when it came before me.
The present situation
4. The orders granted by Hooper J. were in wide terms. The plaintiffs were authorised to search the homes of the 1st, 2nd and 3rd defendants and that was done in respect of the 2nd and 3rd defendants but not in respect of the 1st defendant. Counsel for Pioneer informs me that it is not the attention to how do so. It was further ordered that the defendants surrender any relevant documents relating to the activities of the 4th defendant which are in their possession and this has apparently been done. Finally it was ordered that any funds standing to the credit of the let, 2nd and 4th defendants in various banks in Hong Kong should not be transferred out of the jurisdiction.
Grounds for discharging the orders and injunctions
5. It is the case for the defendants that there has been material non-disclosure by the plaintiffs and that in accordance with the principles set out wellknown case of R. v The Tax Commissioners for the Districts of Kensingon, [1917] 1 K. B. 486, the orders and injunctions should be discharged without the court going into the merits of the matter.
6. The grounds upon which the defendants relies are contained mainly in an affidavit of the 2nd defendant and are as follows: -
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(a) |
The plaintiffs have alleged that the defendants have conspired together to siphon off assets in excess of $5 million from the plaintiffs by substituting the 4th defendant, Asiotrades Limited, in place of the 2nd plaintiff. There has been no such siphoning off and in fact the 4th defedant has paid all commission received to Pioneer, a sum in excess of $5 million.
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(b) |
That the plaintiffs failed to inform the court that an approach was made to the 3rd defendant by representatives of the plaintiffs, who have thereby warned the 3rd defendant that legal action was likely to follow and he therefore had ample warning and opportunity to dispose of any evidence which he thought incriminating. There was therefore no need for the application to the court to be made ex parte.
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(c) |
That the allegation made by the plaintiffs that the 1st defendant had acted in an authoritarian manner was unfounded because the other shareholders had voluntarily played a very minor role in the running of Pioneer.
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(d) |
That there was failure to disclose that Mr. Ng Ock was himself in great financial difficulty owing to the perilous state of his own company, Gateway Limited.
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(e) |
That it was not correct that the existence of the 4th defendant had been kept secret from Messrs. Ng, Chen and Loh because Mr. Loh had access to telexes received at Pioneer's office addressed to the 4th defendant and he must have been aware that the 4th defendant was buying goods from Pioneer in place of Devine. It was also alleged that the court had been misinformed that when goods were sold from Pioneer to Devine there was no profit made by Devine when the goods were in turn sold either to Landmark or to American retailers whereas when this was done through the 4th defendant substantial commission was charged. That was not so and Devine in fact did normally make a profit but that such profit was held by Devine on behalf of Pioneer. She said that precisely the same arrangement existed as regards to the 4th defendant. |
Principles upon which an Anton Piller orders should be discharged
7. In addition to the dicta in R. v. The Kensington Commissioners the defendants relied on the other wellknown ease of Thermax Limited v. Schott Industrial Glass Limited [1981] Fleet Street Reports 289. There Browne-Wilkinson J. not only set out the previous dicta saying that the Anton Piller type of order should only be made in exceptional circumstances and where there was a grave danger that evidence would be concealed or destroyed, but also said that if there had been a failure to disclose material evidence even if that non-disclosure was perfectly innocent it was that to a continuation of the orders. He said at page 298: -
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"I therefore reach the conclusion that material facts known to the plaintiff company were not disclosed to Wolf J. This was an error of judgment only but in my judgment an important one. As time goes on and the granting of Anton Piller orders becomes more and more frequent, there is a tendency to forget how serious an intervention they are in the privacy and rights of defendants. One is also inclined to forget the stringency of the requirements as laid down by the Court of Appeal. In my judgment, the rule of full disclosure to the court is almost more important in Anton Piller cases than in other ex parte applications. Since Anton Piller orders give compulsory rights of inspection, once those inspections have taken place the information procured from it is in the hands of the other side and the situation is irreversible. I therefore think it is very important indeed that in making applications it should be to the forefront of everybody's mind that the court must be fully informed of all facts that are relevant to the weighing operation which the court has to make in deciding whether or not to grant the order.". |
8. The plaintiffs rely on a case reported in the same volume Gallery Cosmetics Ltd. v. Number 1 [1981] Fleet Street Reports 556. There Nourse J. considered the Thermax case and while accepting it as authority and indeed wholly agreeing with the above passage said that the material facts which were not brought to the attention of the judge at the ex parte hearing were not such as would have played any part in the weighing operation.
9. It is therefore in each case a question of deciding, firstly whether there was material non-disclosure whether or not it was deliberate or inadvertent and secondly whether that non-disclosure might have affected the decision made by the court on the ex parte application. This undoubtedly throws a substantial burden on plaintiffs seeking an ex parte Anton Piller order but in my view, rightly so for the reasons given in the Thermax decision.
10. Here the applicants were already in possession of a very substantial amount of documentary evidence which had to be shifted. This is a process which counsel for the plaintiffs informs me will probably take several months. It is also no doubt easy to look in hindsight after the dust has to some extent settled and say that ther has been non-disclosure. Nevertheless I am satisfied that material was available to the applicant and would have played a part in the weighing process the court must undertake.
Has there been material non-disclosure
11. I am satisfied that on two aspects at any rate there has been material non-disclosure by the plaintiffs in obtaining the ex parte orders and injunctions.
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(a) |
In his affidavit Mr. Fon said:
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"There is clear indication that the 1st, 2nd and 3rd defendants have conspired or operated in siphoning off profits which should have been the plaintiffs into another company, namely the 4th Defendant, which is not an associate company of the Plaintiff within the PIBA Group or otherwise. The gross profit made by the 4th Defendant in the amount of HK $5 ,267,650.44 for the period from lst February to 31st October 1984 as shown in "FWKW-5" clearly indicates that the damage that has been occasioned to the plaintiff by reason of the 1st, 2nd and 3rd Defendants aforesaid breach of their fiduciary duties towards the Plaintiffs is very serious and that the amounts which the Defendants ought to account for or compensate the Plaintiffs for should be at least HK$ 5, 267,650.44.". At this time, Mr. Fon had two cheque books in his possession in the name of the 4th defendant: one account, No. 0122728, with the First National Bank of Boston, Hong Kong, and the other, No. 211425/81/403216/00/1, with the Continental Illinois Bank Limited, Hong Kong. Mr. Fon exhibited one of the cheques found which was drawn in favour of Pioneer by the 4th defendant for $300,000. He did so because he wished to draw the court's attention to the fact that the cheque had been signed on behalf of the 4th defendant by the lst and 2nd defendants. The same cheque books, however, also showed that over the period from February to October 1984 the 4th defendant had in fact paid a sum in excess of $5 million to Pioneer. In a subsequent affidavit Mr. Fon says:-
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"Subsequent to 12th January 1985, despite the fact that I received certain cheque book counterfoils in respect of two of the 4th Defendant's accounts, I was heavily engaged in trying to disentangle the affairs of the 1st Plaintiff. Without a full insight into the bank accounts and vouchers of the 4th Defendant it was impossible to determine what payments have been made by the 4th Defendant to the lst Plaintiff. The 4th Defendant's accounts show that altogether at least $30,000,000 should have been paid to the Plaintiff in respect of goods. Without having the 4th Defendant's documents it was impossible to know whether the sums represented by the cheques constituted the balance of the letters of credit received by the 4th Defendant. Indeed the 4th Defendant's documents which I had, in particular the accounts, indicated that such sums had not paid to the 1st Plaintiff but had been dissipated. Further, the figure given by the 2nd Defendant as money having been paid to the 1st Plaintiff is in excess of the 4th Defendant's gross profits as I understand them.".
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Counsel for the plaintiffs has emphasized that the documents which have been obtained will require a great deal of study before a clear picture emerges. He emphasized that the amounts apparently paid by the 4th defendant to the 1st plaintiff is in excess of its apparent profits and therefore some, at any rate, of that money must be not commission, but payment for goods supplied. The cheque stubs contain no information apart from the name of the payee. There is no indication as to whether it is payment for commission or for goods, other than the fact that each payment is in round numbers. I am however, satisfied that in the light of the allegation made by Mr. Fon in his supporting affidavit that some $5¼ million appears to be owed by the 4th defendant to the plaintiffs he should have disclosed in his affidavit the existence of these cheque stubs which apparently indicate that a very similar amount had in fact been paid by the 4th defendant between February and October 1984. He could also of course add that it was not clear what those payments represented. This was a material fact which might have influenced the judge in making his decision as to whether to grant the application.
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(b) |
In his affidavit, Mr. Fon exhibited certain invoices to show that whereas when goods were resold by Pioneer through Devine there was no commission payable and that the goods were invoiced at the same prices both going to Devine and going from it. This was contrasted with other invoices which showed when the 4th defendant was acting as intermediary, it received substantial payments by way of commission. There was the clear implication that this was improper and had not happened in the past when Devine had been used. This was not correct. Mr. Fon says that there were many documents and that he took the ones which were exhibited as showing a typical mode of operation of the 1st and 2nd plaintiffs. He said in his second affidavit: -
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"I did not specifically consult Mr. Ng Ock or any other directors to confirm this point as at the time I believed that the position seemed apparent from the documents I had perused.".
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| It was somewhat unusual that the affidavit in support of the applications was not sworn by one of the officers of the company. It was sworn by a management consultant employed by the dissatisfied directors. If, as they say, these directors did in fact have considerable knowledge of the company's affairs it seems to me that this error would not have occurred if they had been consulted. Again, this must be considered as a material factor. Again, it is a matter which might have affected the judge in the weighing up process that he had to make. I do not suggest that this was a deliberate error, but nevertheless more care could have prevented it occurring. If the dissatisfied directors had read Mr. Fon 's affidavit the error would have been obvious. |
12. I do not consider the other matters which have been raised by the defendants were such as should be sufficient to constitute material non-disclosure. It is true that there is evidence that Mr. Ng Ock and his group of companies are in considerable financial difficulty. That does not however appear to be evidence that he has in any way misused his position as a director of Pioneer or Devine in order to assist his own enterprises. I do not think that the approach made to the 3rd defendant and the statement that he supplied is a material factor which would have influenced the judge. Mr. Loh in his affidavit in reply has denied that he ever actually saw any of the telexes which would have revealed the existence of the 4th defendant. This is clearly a matter in dispute and I do not think that this could constitute a material factor which should have been placed before the judge.
Conclusion
13. I am satisfied that there has been a failure to disclose material facts in relation to the payments by the 4th defendant to Pioneer and the manner in which Pioneer and Devine conducted their business activities inter se. I certainly do not hold that these were deliberate non-disclosures and I am satisfied that on the papers before me the directors of Pioneer and Devine had every reason for grave suspicion as to the motives of the 1st, 2nd and 3rd defendants in relation to the activities of the 4th defendant. I am, however, satisfied that by reason of these material non-disclosures, the orders and injunctions which were made should be discharged.
Further application
14. Counsel for the plaintiffs argues that on the authority of R. v. The Kensington Commissioners, even if there has been material non-disclosure this does not prevent an innocent plaintiff coming back to the court to seek another order, in this case the disclosure of further information as to the 4th defendant. That may be so, but it seems to me that at this stage, a writ having been issued, on the facts of this particular case the normal process of discovery should be followed.
Decision
15. The ex parte orders and injunctions made by Hooper J. on the 17th January are discharged.
16. The defendants are to have the costs of this application in any event. The costs of the ex parte application to be costs in the cause.
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(R. G. Penlington)
Judge of the High Court
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Representation:
Anthony Rogers, Q. C. & Miss Selina Lau (Cheung, Tong & Rosa) for the Plaintiff/Applicant.
Miss Audrey Eu (Baker & McKenzie) for the Respondents/ Defendants.
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