BHP BILLITON MARKETING AG, BAAR SWITZERLAND v. TRANSFIELD SHIPPING INC, PANAMA

HCA 2124/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2124 OF 2011

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DECISION

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1. There are 2 matters before me:

(i)  an appeal lodged by the intervener, Transfield ER Maritime Ltd, against the decision of Master de Souza on 18 September 2012, granting the plaintiff’s application requiring HSBC to disclose the bank statements of an account held in the name of the intervener (“the Account”) and the flow of funds in the Account between 16 May 2011 and 15 December 2011; and

(ii)  a summons taken out by the plaintiff dated 6 November 2012 (“the plaintiff’s Summons”), asking the court to consider whether any further order should be made in these proceedings by reason of the fact that the Mareva injunction was obtained in circumstances where certain undertakings given by the plaintiff in the related English proceedings were not brought to the attention to the judge granting the Mareva injunction in Hong Kong.

Background

2. On 26 February 2010, the plaintiff commenced an action in England against the defendant known as Transfield Shipping Inc, Panama, which is a Panama company, for breach of a Freight Forward Swap Agreement (“the Swap Agreement”).  The Swap Agreement was contained in or evidenced by a written confirmation dated 14 February 2008 (“the Confirmation”).

3. The Confirmation provided that legal proceedings may be validly served on defendant at an address at Harbour Road, Wanchai, Hong Kong (“the Harbour Road Address”).  The Confirmation also provided the Account as the defendant’s account for the purpose of the transaction under the Swap Agreement.

4. In the English proceedings, the court granted leave to the plaintiff to serve the proceedings out of jurisdiction at the defendant’s registered address in Panama and the Harbour Road Address.  The Harbour Road Address was later found to be occupied by Transfield Resources Limited, which is another company associated with the defendant.

5. The defendant did not respond to the English proceedings.  On 15 July 2010, default judgment in the sum of US$2,194,964.41 was entered against the defendant in the English court (“the UK Judgment”).

6. The plaintiff proceeded to effect service of the UK Judgment on the defendant.  It was then discovered that the Harbour Road Address was empty.  According to the record of the Companies Registry in Hong Kong, the registered office of Transfield Recourses Limited was changed to another address at Lockhart Road, Wanchai, Hong Kong (“the Lockhart Road Address”).  With the leave of the English court, the UK Judgment was served on the defendant at the Lockhart Road Address.

7. In the end of 2010, the plaintiff discovered that the defendant was involved in another legal proceedings with a company called RTI Limited (“RTI”) in the English court.  The legal proceedings were subsequently settled, and RTI paid a sum of US$14,000,000 to the defendant by means of a telegraphic transfer to the Account on about 16 May 2011.

8. Such information was obtained as a result of the plaintiff obtaining a disclosure order in the English proceedings against RTI’s solicitors.  The disclosure order required RTI’s solicitors to provide information in relation to any sums which were due and owing to the defendant from RTI pursuant to the settlement agreement made between them, whether such monies had been paid and if so when, how much, into what account, etc.

9. The payment of such sum of money prompted the plaintiff to apply for a Mareva injunction against the defendant.  On 2 June 2011, a worldwide Mareva injunction was obtained by the plaintiff against the defendant in the English court up to the value of US$2,650,000 (“the UK Injunction”).

10. Undertakings Nos 6 and 7 of the UK Injunction order read as follows:

“The Claimant will not without the permission of the Court use any information obtained as a result of this order for the purposes of any civil or criminal proceedings, either in England and Wales or in any jurisdiction, other than this claim.”

“The Claimant will not without the permission of the Court seek to enforce this order in any country outside England and Wales or seek an order of a similar nature including orders conferring a charge or other security against the Defendant or the Defendant’s assets.”

11. The plaintiff also made various attempts to serve the UK Injunction order on the defendant but without any success.  In December 2011, it was discovered that Transfield Resources Limited had changed its registered address to another address at Lockhart Road.

12. On 15 December 2011, the plaintiff obtained a Mareva injunction in Hong Kong (“the HK Injunction”) before Carlson DHCJ in aid of the English proceedings up to the value of US$2,650,000. By the order of Yam J on 28 December 2011, the HK Injunction was ordered to be continued until further order of the court.  Both the UK injunction order and the HK Injunction order directed that the defendant must not withdraw money from the Account.

13. The defendant has at no stage taken part in any aspect of the English or the Hong Kong Proceedings.

14. Obviously, the plaintiff wants to find out what happened to the defendant’s money paid into the Account on 16 May 2011.  The plaintiff took out a summons on 15 February 2012 pursuant to s 21 of the Evidence Ordinance, Cap 8 (“the Discovery Summons”) requesting HSBC to disclose, inter alia, the bank statements of the Account and the flow of funds in the Account in the period from 16 May 2011 to 15 December 2011 (“the Relevant Period”).

15. HSBC, by its letter dated 16 February 2012, indicated that it did not contest the plaintiff’s Discovery Summons.

16. The intervener opposed the Discovery Summons and applied for leave to intervene.

17. On 18 September 2012, Master de Souza granted leave to the intervener to be joined for the purpose of the Discovery Summons.  The learned Master also allowed the plaintiff’s application and made the discovery order against HSBC (“the Discovery Order”).

18. Shortly before the hearing on 14 September 2012, the intervener’s solicitors wrote to the plaintiff’s solicitors enquiring whether the plaintiff had complied with Undertaking Nos 6 and 7 before lodging the application for the HK Injunction.  By the letter dated 17 September 2012, the plaintiff’s solicitors replied that the intervener did not have the requisite locus to seek confirmation in relation to the said queries.

19. Upon realising its failure to comply with Undertaking No 7, the plaintiff made an application for retrospective leave to commence the Hong Kong proceedings in the English court on 8 October 2012.  It is the plaintiff’s case that there was an inadvertent breach of Undertaking No 7 and such breach was not noticed until it was brought to the plaintiff’s attention by the letter of the intervener’s solicitors dated 14 September 2012. On 11 November 2012, Smith J made an order in the English proceedings granting permission to the plaintiff to have issued the Hong Kong proceedings and to continue such proceedings for the enforcement of the UK Judgment and the UK Injunction.  According to the transcript of the proceedings before Smith J, it seems that the learned judge accepted that there was no breach of Undertaking No 6.  Again, the defendant did not appear in the hearing.

20. On 26 February 2013, the plaintiff obtained default judgment against the defendant in the Hong Kong proceedings herein in the sum of US$2,194,964.41 with interest thereon (“the HK Judgment”).

Merits of the appeal

21. The intervener now appeals against the Discovery Order.  The intervener opposes the Discovery Order on the following grounds:

(i)  the plaintiff’s claim is not a proprietary claim, and so there is no justification for the court to make the Discovery Order which has the effect to “trace” into the Account;

(ii)  the scope of the disclosure sought is wider than the terms of the HK Injunction order;

(iii)  the plaintiff has failed to establish that the Account belongs to the defendant, whether in form or in substance;

(iv)  HSBC should not be ordered to disclose the information by reason of confidentiality and privacy; and

(v)  by not informing Carlson DHCJ, Yam J and Master de Souza of the fact the HK Injunction was obtained without the leave of the English court, the plaintiff was in contempt of court and had failed in its duty to make full and frank disclosure.

22. Despite the able submission of Mr Sussex, SC, counsel for the intervener, I see no merit in these arguments.

23. It is well established that one purpose for which information relating to a party’s assets may be needed is to aid a Mareva injunction, in the sense of assisting the working of the injunction and making the injunction effective.  In A v C [1981] QB 956, Goff J said, at 960C, that “the court should, where necessary, exercise its powers to order discovery or interrogatories in order to ensure that the Mareva jurisdiction is properly exercised and thereby to secure the objective which is … … the prevention of abuse.”

24. In A v C, Goff J distinguished the scope of the disclosure order which the court will be prepared to make in cases where: (i) the plaintiff has a proprietary claim and is seeking to trace property belonging to him; and (ii) the plaintiff is the beneficiary of a Mareva injunction, whose purpose is the prevention of the abuse constituted by the defendant of disposing of his own assets in order to avoid the risk of having to satisfy any judgment which may be entered against him.

25. In the former case of a proprietary claim, the court can make orders designed to ascertain the whereabouts of the defendant’s property (see 959D).  In the latter case where the plaintiff has the benefit of a Mareva injunction, the court would not make use of a general power to enable the plaintiff to discover whether the defendant has assets in the jurisdiction, but disclosure orders may be made about particular assets of the defendant which the plaintiff has identified and, if the asset is a bank balance in respect of which the plaintiff is entitled to discovery, the court may exercise the power under s 7 of the Bankers Books Evidence Act 1879 which is equivalent to s 21 of our Evidence Ordinance.

26. The plaintiff confirms that its claim is not a proprietary claim and the plaintiff is not seeking to trace its money into the Account.  The plaintiff is just saying that it is the beneficiary of a Mareva injunction and is seeking to prevent the defendant from disposing of its own assets in order to avoid the risk of having to satisfy an adverse judgment.

27. Mr Sussex has confirmed that there is no application to discharge the UK or the HK Injunction order.  By the making of such injunction orders, the courts have prima facie accepted that the fund paid by RTI into the Account is the defendant’s asset, and so the defendant should be asked to give information about the whereabouts of such asset. If the fund transferred into the Account by RTI had been transferred out to other bank accounts of the defendant or the defendant’s associated companies, the plaintiff should be entitled to take action to prevent the dissipation of such asset on the part of the defendant.

28. As the defendant had failed to appear in both the English and the Hong Kong proceedings, the only way to give effect to the disclosure obligation on the part of the defendant is to require HSBC to disclose information about the flow of funds in the Account after the making of the telegraphic transfer by RTI.  To achieve the object of the Mareva injunction in trying to prevent the defendant from dissipating its assets, the Discovery Order is, therefore, a necessary measure.

29. Further, as the plaintiff has since the hearing before the Master become a judgment creditor of the defendant in the present Hong Kong proceedings, there is much stronger reason for the court to make the Discovery Order against HSBC at this stage.

30. I agree with Mr Strachan, counsel for the plaintiff, that the following propositions can be derived from the judgment of Kerr LJ in Babanaft International Co SA v Bassatne [1990] 1 Ch 13 at 42G-43C and that of Colman J in Gidrxslme Shipping Co Ltd v Tantomar-Transportes Maritimos Lda [1995] 1 WLR 299 at 309F-312F (see also: Chinachem Charitable Foundation v Chan Chun Cheun & Anr, HCAP 8 of 2007 (decision on 27 February 2012) at §§37-39):

(i)  unlike the position before judgment, after judgment a plaintiff is able to attach assets of the defendant against whom he has obtained judgment;

(ii)  after judgment has been obtained, there is no objection in principle to the judgment debtor being required to give disclosure of his assets worldwide under examination of debtor, injunction or appointment of receiver proceedings;

(iii)  the object of ordering such disclosure is to render the judgment effective;

(iv)  in a post-judgment situation, the jurisdiction to make a disclosure order arises both as a power ancillary to and in support of a Mareva injunction and independently of the injunction as a power in support of the execution of the judgment; and

(v)  it is just and convenient for a judgment creditor to have all the information he needs to execute the judgment or award anywhere in the world.

31. Hence, the plaintiff is entitled to the information under the Discovery Order both as a beneficiary of the Mareva injunction and as a judgement creditor to facilitate the execution of the Injunction orders and the judgments obtained in the English and the Hong Kong courts.  Further, the defendant has all along ignored the English and the Hong Kong proceedings, and so the most practical if not the only way to find out information about the defendant’s assets is through the Discovery Order.

32. Mr Sussex submits that the Account cannot be subject to the Discovery Order because the Account is held in the name of the intervener and not the defendant.

33. I disagree.  It has long been established by the English cases that such kind of discovery order may be made where the evidence shows that the defendant has been using for his own purpose a bank account which is in the name of a third party.  In South Staffordshire Tramways Company v Ebbsmith [1895] 2 QB 669 at 675, Lord Esher MR said the following:

“ … … if the Court were satisfied that in truth the account which purported to be that of a third person was the account of the party to the action against whom the order was applied for, or that, though not his account, it was one with which he was so much concerned that items in it would be evidence against him at the trial … …. then they might order the inspection … … … I think that the party asking for the inspection ought to be able to show the Court very strong grounds for suspicion, almost amounting to certainty, that there are items in the account which would be material evidence against the defendant upon the matters in issue.”

34. Such test had been applied in the subsequent decisions of Ironmonger & Co v Dyne (1928) 44 TLR 579 and D B Deniz Nakliyati Tas v Yugopetrol [1992] 1 WLR 437.  In D B Deniz, the English Court of Appeal said (at 443E) that such test was applicable to orders made both in pre-trial and post-judgment cases.

35. In the present case, there is ample evidence to show, quite certainly, that the “items” in the Account were the defendant’s assets and the defendant had been using the Account as its own account.  Firstly, the defendant provided the Account as its operative account in the Swap Agreement.  Secondly, the sum of US$14,000,000 remitted by RTI into the Account belonged to the defendant.  It is because of these reasons that the UK and HK Injunctions orders have expressly identified the monies in the Account as one of the assets which the defendant is restrained from disposing of or dealing with.  With the UK and the HK Injunction orders remain intact the effect of which is to freeze the Account, the court is perfectly justified to make the Discovery Order against the Account though, in form, it is held in the name of the intervener.

36. I also do not accept that confidentiality and privacy are reasons to deny the making of the Discovery Order.  As mentioned in Commercial Injunctions by Gee, 5 ed at §22.006 to 22.008, confidentiality may be overridden if the disclosure is needed to make the Mareva relief effective.  Here, the English and Hong Kong courts saw it fit to impose a Mareva injunction over the Account of the intervener.  By so doing, the courts accepted that the defendant had been using the Account for its own purpose and disclosure was therefore needed to make the Mareva relief effective. Further, the defendant had tried to adopt a “catch-me-if-you-can” tactic and ignored both the English and the Hong Kong proceedings.  Without the Discovery Order, there is simply no way for the plaintiff to locate the assets of the defendant.  In such circumstances, confidentiality should give way to the doing of justice between the parties, and the making of the Discovery Order is necessary to give effect to the object of the Mareva injunction and to enable the plaintiff to identify the assets of the defendant for the purpose of the execution of the UK and the HK Judgments.

37. The intervener complains that the information sought in the Discovery Order will prejudice its interests as both the plaintiff and the intervener are in the shipping industry.  However, the information sought should not reveal commercially sensitive materials such as the commercial terms relating to the business undertaken between the Transfield ER Group and its customers, and so I can see how the revelation of such information would prejudice its commercial interests.  In any event, the intervener had allowed the defendant to use the Account as its operative account, and so the court should not allow the defendant to hide the whereabouts of his assets by using the bank account of another associated company in the same group.  Furthermore, the plaintiff will be subject to an implied undertaking that the information obtained will be used only for the purposes of this action.  In such circumstances, there is minimal risk for the misuse of the information obtained.

38. I also do not accept that the scope of the Discovery Order is too wide.  The disclosure sought relates to the period between 16 May 2011 (the date of the transfer of the fund into the Account by RTI) and 15 December 2011 (the date when the HK Injunction order was made), which is a period of 7 months prior to the making of the HK Injunction order. As such injunction order is intended to restrain the defendant from disposing its assets in Hong Kong, the information requested would be necessary to know what has become of the identified asset, including any remission of the asset prior to the date of the HK Injunction order.

39. In addition to the bank statements, the Master has also ordered HSBC to disclose information on the following matters:

(i)  instructions received by it in relation to remittances to the Account and the identity of the remitters of the funds to the Account during the Relevant Period; and

(ii)  records showing the identities of those persons and/or entities authorised to operate the Account.

40. Taking into account that the jurisdiction of the court to order discovery arises both as a power ancillary to and in support of a Mareva injunction and as a power in support of the execution of the judgement, one cannot complain that the scope of the discovery is too wide.  As the court cannot expect any co-operation from the defendant in providing information about its assets, the plaintiff, being a judgment creditor now, should be entitled to such information with a view to identify the assets of the defendant and to ascertain whether the assets in the Account belong to the defendant or the intervener.  The Discovery Order is therefore necessary to facilitate the execution of the UK and the HK Judgments.

41. Finally, I do not agree with Mr Sussex that the Discovery Order should be set aside because of the breach of the undertakings contained in the UK Injunction order.

42. Firstly, such breach may be a ground for the discharge of the ex parte HK Injunction order.  But since there is no such discharge application before the court, there is nothing to prevent the court from making the Discovery Order which is only ancillary to the Mareva injunction itself and as a measure to facilitate the execution of the HK Judgment.  Secondly, although it was a serious matter that the plaintiff had not obtained the leave of the English court before instituting the Hong Kong proceedings, the English court has granted retrospective leave to the plaintiff to have instituted and to continue the Hong Kong proceedings.  The absence of leave, at most, only affords a ground to the defendant or the intervener to discharge the ex parte Mareva injunction, but in my judgment, the propriety of the Mareva injunction continued after the granting of the retrospective leave cannot be challenged.  Hence, there is no reason for me to disturb the Discovery Order granted by the learned Master and I dismiss the defendant’s appeal accordingly.  The stay of execution of the Discovery Order is also set aside.

The plaintiff’s Summons

43. That leaves only the plaintiff’s Summons.  In the hearing, I have expressed doubt as to whether the court should make any order in these proceedings by reason of the fact the HK Injunction was obtained in circumstances where Undertakings Nos 6 and 7 of the UK Injunction order were not brought to the attention of the judge granting the HK Injunction.  My preliminary view is that the HK Injunction order is a valid court order unless and until the same is discharged by the court.  If the absence of any discharge application, it is not necessary for the court to make any kind of “validation” order at this stage.

44. After second thought, I agree with Mr Strachan that the court should make an order to reflect that the plaintiff has now brought the attention of the court to the breach of Undertaking No 7 when it made the application for the HK Injunction.

45. It is trite law that an applicant has a duty to inform the court as soon as he becomes aware that the court has been misinformed or given incomplete information at the time of the ex parte application (see: Hong Kong Civil Procedure 2013, vol 1, at §29/1/51).  Now that the plaintiff has brought the attention of the court to such material fact, the court should make an order to reflect that the plaintiff has discharged such duty.

46. As I have mentioned above, as the English court has granted retrospective leave to the plaintiff to have instituted and to continue the Hong Kong proceedings and there is no application to discharge the HK Injunction, such Injunction should be continued until further order of the court.  I therefore make an order that the HK Injunction as granted by Carlson DHCJ on 15 December 2011 (and continued by the order of Yam J on 28 December 2011) be continued until further order of the court notwithstanding the fact the HK Injunction was obtained in circumstances where Undertakings Nos 6 and 7 of the UK Injunction order were not brought to the attention of the judge granting the HK Injunction.

47. Despite the making of such order, Mr Strachan agrees that there is nothing to prevent the defendant or the intervener to make an application later to the court to discharge the ex parte HK Injunction order on the ground that the Hong Kong proceedings were taken out without the leave of the English court.

48. That disposes of all the matters before me.  I also make the following order nisi on costs:

(i)  the intervener do pay to the plaintiff the costs of the appeal with certificate for 2 counsel; and

(ii)  there be no order as to costs of the plaintiff’s Summons.

The order nisi shall be made absolute 14 days after the date of the handing down of this Decision.