PETER HO PUI TSUN v. CHAIN LIAISON INVESTMENT LTD AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an application by the 1st, 2nd and 3rd named Defendants for an order that an ex parte injunction made by Sears J. on 19th July 1995 be set aside or varied. It is submitted on behalf of the Defendants that the Plaintiff in applying ex parte for the injunction failed in his duty to make full and frank disclosure to the Court. Indeed it is the Defendant's case that the Plaintiff not only failed to disclose material facts but also made material misrepresentations of fact. It is, of course, the duty of a person applying ex parte for an injunction to make full and frank disclosure of material facts.

2. At the ex parte stage, the Plaintiff's case was that on or about beginning of July 1989, he and the 2nd Defendant agreed that they would jointly purchase the beneficial interest in certain real property, the legal title in that property to be held by a limited company owned by the 1st Defendant.

3. The Plaintiff said in his founding affidavit that he gave to the 2nd Defendant a cheque for the sum of around $200,000.00 in contemplation of the intended purchase. It is common ground that the purchase of the property did, in due course, take place, the legal title being transferred to the 1st Defendant, the company controlled by the 2nd Defendant. The 3rd Defendant is the wife of the 2nd Defendant.

4. According to the Plaintiff, there was a resulting trust in his favour for half the beneficial interest in the property since his money had been applied in the purchase. He said in his affidavit that he had requested his banker to trace a copy of the cheque in question and it was expected that the copy could be produced in due course.

5. It now turns out that the statement that he had given a cheque for about $200,000.00 to the 2nd Defendant was untrue. There never was such a cheque. Nor by 19th July, the date of the founding affirmation, had the Plaintiff asked his banker to trace a copy cheque. In an affirmation made on 31st October 1995, the Plaintiff admits that at the time when he made his first affirmation, he was mistaken in thinking that a cheque of $200,000.00 could have been issued to the 2nd Defendant. He goes on to say that he orally requested the Manager of City Bank, his bank, to provide him with copies of his 1989 bank statements in about the end of July or the beginning of August 1995. It would appear, therefore, that not only had he not asked the bank for a copy cheque as he said in his affirmation of the 19th July but also he had not even asked for bank statements until about the end of July which must be after the grant of the injunction.

6. When making the ex parte application, the Plaintiff said of the 2nd Defendant,

7. It would now appear as a result of subsequent affirmations that the Plaintiff and the 2nd Defendant had known each other well for a number of years and that the 1st Defendant is a company which carries on the main business of the 2nd Defendant. It is in a substantial way of business and has substantial assets according to material now before the Court which is apparently not disputed by the Plaintiff. Yet in his ex parte application, the Plaintiff failed to give the judge any indication of the financial status of the 1st Defendant and indeed when one reads that first affidavit, one is inclined to get the impression that the Plaintiff was suggesting that the judge should regard the 1st Defendant as a mere shell used for the purposes of the proposed conveyancing transaction.

8. There was no provision in the draft order placed before the judge for the 1st Defendant to have access to any funds to pay wages or to pay trading debts, or to pay its legal costs arising out of the injunction. There was no provision in the draft order placed before the judge for the 2nd or 3rd Defendant to have access to any funds for normal living expenses, or for legal costs.

9. The question as to the facts upon which the Plaintiff founded his case is of fundamental importance. His case at that stage was that money given by him to the 2nd Defendant had been applied to the purchase of property so that there was a resulting trust in his favour. After the injunction was granted, the solicitors acting for the Defendants pressed hard for a copy of the cheque since they denied that it had ever existed. But for a long time, though failing to provide a copy of it, the Plaintiff maintained his position and at a subsequent hearing, he produced a copy of part of a bank statement showing that there had been a debit to his account in the sum of $200,000.00, suggesting that it might represent the cheque in question. But as a result of inquiries made on his behalf of the firm of solicitors who were the payees of that cheque, the Plaintiff was informed by those solicitors that the cheque had been paid to them in connection with a transaction wholly unrelated to the matters in question in these proceedings.

10. I note that the Plaintiff exhibited part of the bank statement, part of it being obliterated. It has been suggested on the part of the defence, and I think that they are probably right, that had the whole page been exhibited, it would be have been apparent that a few days later the debit of $200,000.00 was matched by a credit of $200,000.00, for the solicitors to whom the cheque had been paid had informed the Plaintiff that they had refunded the money to him. It is, in my view, highly suspicious that the second part of the statement was obliterated.

11. As a result of the grant of the injunction, the 1st Defendant found itself unable to pay its trading debts or wages due to employees, and the 2nd and 3rd Defendants had no access to funds for their living expenses and none of the Defendants had any access to funds out of which they could pay their legal expenses. These difficulties were in due course resolved by amendments subsequently made to the injunction but the Defendants say that the conduct of the Plaintiff throughout has been oppressive.

12. Realizing that he could no longer maintain his story that he had provided funds by way of a cheque prior to the conveyancing transaction, the Plaintiff has now changed his ground very substantially and has filed evidence that the story of the cheque was all a mistake and that he had forgotten the true facts which were that pursuant to an agreement to enter into a joint venture to purchase the property, there had been a number of complicated and curious transactions whereby certain debts owed by the Defendant were set off against the moneys which the Plaintiff had agreed to put into the venture.

13. The Plaintiff maintains that the misrepresentation concerning the cheque was innocent and that the Mareva Injunction should, therefore, not be discharged, arguing that he has in any event a good arguable case and that there is a risk of dissipation. So far as the risk of dissipation is concerned, it appears that the proceeds of sale were applied quite properly in the discharge of debts owed by the 1st Defendant to its bank. The Plaintiff's story is hotly denied by the Defendants who say that although there was some discussion about the prospect of a joint venture, the Plaintiff never pursued it.

14. In his initial affidavit, the Plaintiff said that he had heard from a third party that the 2nd and 3rd Defendants were contemplating emigration to Australia but there is now before the Court an affirmation from that third party in which he denied saying any such thing.

15. There is now evidence before the Court that the 1st Defendant is a man in a substantial way of business. He has never applied to emigrate to Australia: nor has his wife. There is absolutely no basis for saying that he is contemplating leaving the jurisdiction.

16. So far as dissipation of assets is concerned, as a result of evidence filed as to the nature of the 2nd Defendant's business affairs, it is clear that he is a man of substance and apart from the bare suggestion on the part of the Plaintiff that he might dissipate his assets in order to defeat any judgment against him, there is no evidence to support such a conclusion.

17. I am bound to say that, foolish though it was deliberately to say something which could be disproved, I am not at all sure that the misrepresentations were innocent. It does appear to me that the conduct of the Plaintiff was oppressive in all the circumstances. It is difficult to see why there was such a hurry to apply for the Mareva Injunction when the property had been sold long before the application was made and it would not have taken long had a cheque existed to find it. When there was finally a request to the bank for the cheque, it only took about seven days to obtain it.

18. Furthermore, following the granting of the injunction, the Plaintiff, through his solicitors, wrote letters to the bank which drew to the bank's attention the risk it would be taking if it permitted payment which it was not satisfied were just business debts, there having been an amendment to permit that at a later stage. There was pressure on the defence to disclose particulars of the Defendant's means at a time when the Plaintiff was failing to disclose to the defence any particulars of the cheque which was a fundamental part of the Plaintiff's case.

19. I have taken note of the complaint made on behalf of the Defendants that in his founding affirmation, the Plaintiff chose to give no particulars of his own financial circumstances or any indication of his ability to meet the undertaking which he offered as to damages. Also, he chose not to give his residential address but rather his office address.

20. I note also that at the hearing before Sears J., the judge was deprived of the advantage of a skeleton argument which should have been produced on behalf of the Plaintiff. The solicitor appearing before the judge did offer an explanation which was that there had been insufficient time to prepare one. In the light of the facts which are now known, it seems to me that, that was an inadequate explanation. The lack of time to prepare a skeleton argument stems from the indecent haste with which the application was mounted having regard, as I have said, to the factual background of the application which was that the transaction complained of had taken place some considerable time beforehand and moreover, as has been pointed out on behalf of the Defendants, the Plaintiff has been able to produce no evidence that before making the application, the question of the Plaintiff's claim was ever formally raised with the Defendants. There is not a single copy of any letter written either by the Plaintiff personally or by solicitors or anyone else acting on his behalf, asking the Defendants what was going on, notwithstanding the fact that according to his affirmations, he was troubled about the absence of any formal arrangements for a very long time before the actual sale of the property.

21. The matters of omission and commission which I have mentioned were important matters which must have influenced the decision of the judge when he considered the granting of the Mareva Injunction. In the circumstances, the Plaintiff should no longer be permitted to enjoy the advantage of that injunction and it must be discharged.

22. The question arises whether in the exercise of my discretion, I ought to grant a fresh injunction in the same or similar terms. Having regard to all the circumstances of this case, I do not think it would be right to grant a fresh injunction.

23. In the first place, if on the face of it the Plaintiff had a good arguable case on 19th July, the situation has now changed dramatically. It has been pointed out by Leading Counsel for the Defendants that the Plaintiff now has a problem because if he cannot show that he paid money which was applied in the purchase of the property, he is faced with the difficulties posed by the Conveyancing and Property Ordinance, for he needs to prove an agreement between himself and the 2nd Defendant for the acquisition of an interest in land and he has not produced any agreement which satisfies the requirements of the Ordinance.

24. Furthermore, having regard to the complete absence of any independent evidence to support the contention that the 2nd and 3rd Defendants intend to emigrate, having regard to their evidence that they have no intention whatever of emigrating and that they have made no arrangements with any countries so to do; and having regard to the substantial financial standing of the 1st Defendant and the 2nd Defendant, it would seem to me that the Plaintiff has not come anywhere near showing that there is a real danger of dissipation of assets to defeat any judgment the Plaintiff may obtain.

25. I would add that so far as the 3rd Defendant is concerned, the Plaintiff is in great difficulties with regard to his claim against her because in order to succeed, he would be required to show that she had knowledge of the alleged arrangements and of a resulting trust and there is no evidence whatsoever that she had any such knowledge. The highest the Plaintiff can put it is that she may have had such knowledge because she is the wife of the 2nd Defendant.

26. I have had drawn to my attention a number of authorities including the Ninemia,i.e. the Niedersachsen [1984] 1 All ER 398, Ali and Fahd Shobokshi Group Ltd. v. Moneim [1989] 1 WLR 710, Behbehani v. Salem [1989] 1 WLR 723, and Brink's Mat Ltd. v. Elcome [1988] 1 WLR 1350. In particular, the principle in the Ninemia has been emphasized that to the extent that the grant of a Mareva would inflict hardship on the Defendant, his legitimateinterest must prevail over those of the Plaintiff. The fact that the 1st Defendant and 2nd Defendant have a legitimate ongoing business which must necessarily be adversely affected by the injunction must always be an important consideration for the Court, both in connection with the question of dissipation and also in connection with the wider question whether it is just and convenient to grant the injunction.

27. There is some suspicion in my mind that the Plaintiff has been setting out to cause maximum embarrassment to the Defendants, possibly with a view to putting pressure on the Defendants to make some concession. I make no finding as to that; it must await the trial. Likewise, I will say nothing about the credibility of the story which the Plaintiff now puts forward in support of his claim.

28. The Mareva Injunction will be discharged and I decline in the exercise in my discretion to grant a further injunction.

29. For completeness, I should say that the Mareva Injunction is but a part of the order made by Sears J. and there is also an order restraining dealings with the proceeds of sale of the property. It is common ground between the parties that that order must go because the evidence shows that the proceeds were used to reduce the overdraft of the 1st Defendant, and therefore, the whole of the order as amended will be discharged.