XCHRX MODERN FILMS DISTRIBUTION COMPANY LIMITED v. WONG SHU HUNG

1996, No.A1409

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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1. There are four applications before me. Two of them are not opposed. The first is the plaintiff's summons to amend the judgment obtained against the defendant in default of a notice of intention to defend by correcting the various sums stated therein. The second is the defendant's summons to amend its previous summons which was issued seeking an order to set aside the default judgment. I have granted these two applications, save and except the relief for costs. There are two substantive applications. The plaintiff applies to continue the Mareva injunction granted in its favour on 2nd February 1996 and varied by another order dated 19th February 1996. The defendant applies to set aside the default judgment and the charging order nisi obtained by the plaintiff in execution of that judgment. The parties agree that I should hear these two applications together.

The issues

2. At the outset, Counsel for the defendant accepts that the plaintiff has a good arguable case but seeks to argue that the defendant has a good defence and counterclaim and that there is no risk of dissipation of assets. It transpires that the parties had ventilated the latter issue before another judge on a previous occasion. On the materials placed before her, the learned judge decided in favour of the plaintiff and held that there was a risk of dissipation of property. She therefore continued the Mareva injunction with a variation. It is accepted that there is no new material on this issue before me. It is not seriously disputed that the defendant is estopped from arguing this issue again. Counsel does not seek to argue otherwise. He now applies to set aside the default judgment and to discharge the Mareva injunction on the ground that there is a good defence and counterclaim and that the injunction was obtained as a result of a material non-disclosure.

3. The issues which I have to decide are :

(1) with regard to setting aside the default judgment, whether there is any explanation given by the defendant for the default in filing a notice of intention to defend and whether the defendant can show that his defence has a real prospect of success or carries some degree of conviction; and

(2) with regard to the discharge of the injunction, whether the defendant has a good defence and counterclaim and whether there is a material non-disclosure on the part of the plaintiff in obtaining the injunction, the defendant having accepted that the plaintiff has a good arguable case and a judge having previously ruled that there is a risk of dissipation of assets.

Explanation for default

4. The defendant alleges that the default in filing a notice of intention to defend was due to the inadvertence of his former solicitors. An affirmation was filed by such firm admitting that while they were engaged in an attempt to discharge the Mareva injunction, one of the clerks had inadvertently failed to file the necessary notice. I do not think this can be a sufficient explanation for the default. Time and time again, it has been said that such an oversight on the part of professional people will not be accepted as an excuse. The affirmation also alleged that the plaintiff's solicitors did not give prior notice to the defendant or his solicitors that the plaintiff intended to apply for default judgment. This, in my view, does not render the judgment irregular, O.19 R.8A not applying to the failure to file a notice of intention to defend.

5. In any event, I shall consider the defendant's case to see whether there is any merit before I decide on the main issues in these applications.

Background of the case

6. The plaintiff was a company incorporated in February 1994 and carried on business as a distributor of films to cinemas for screening and a designer and producer of artwork for advertising and promotion materials for these films. The 3 shareholders were : a company owned by Mr Tang Shing-bor having 70% shareholdings; Mr Wu Cheuk-kwan 15% and Million Shine Development Limited the remaining 15%. Million Shine was controlled by the defendant. Mr Tang and his assistants did not have any experience in this field of business while the defendant had been involved in this trade for over 20 years. The directors were Mr Tang, Mr Wu, the defendant, Mr Chu Kar-ning who was the Personal Assistant of Mr Tang and Mr Tang's two sons. The administration and management was in the hands of the defendant and Mr Chu. The defendant was one of the signatories of the company's cheques while Mr Chu and Mr Wu and the others were also signatories.

7. The plaintiff alleges that the defendant had been in breach of his fiduciary duties as a director and shareholder of the company and had made secret profits using the company's assets and facilities such that it had suffered loss and damage. The defendant left the company on 22nd June 1995. He was asked to hand over the business to the other directors. However, he never did although he had promised to do so. On 17th August 1995, the board resolved that he be removed.

8. As part of the background, it is alleged that the shareholders had agreed to contribute to the operating capital of the company and that this was financed by way of loans from the shareholders in the proportions in which the shares were held. Mr Tang had procured a loan from a bank for the sum of $39,000,000 and this was backed by his personal guarantee. The plaintiff alleges that the defendant had agreed but failed to raise $4.5 million which represented the 15% share capital held by Million Shine. The defendant alleges that it was agreed that he need not make any contribution to the operating capital and that Mr Tang never asked him to make any contribution. The defendant argues that there was a restriction on the sale or mortgage of the property at Greenwood Terrace, being part of the Home Ownership Scheme and that this supported his allegation that he was not required to make any contribution. However, there are documents and correspondence exhibited before me showing that there was a written proposal prepared by the defendant regarding contribution to the company; that at one stage arrangement was made to prepare a mortgage loan on the security of the property at Greenwood Terrace; that there was a valuation of the property in April 1994; that there was a resolution of Million Shine approving a loan to the defendant and that a firm of solicitors had obtained the title deeds relating to the property for the purpose of preparing the mortgage in favour of another company instead of a bank since the property was within the Home Ownership Scheme.

9. I do not think I need to go into details of the contribution which were agreed by the defendant and the other shareholders towards the operating capital of the plaintiff or make a finding on whether the plaintiff or defendant was telling the truth on this aspect. This is not an issue before me. Counsel for the plaintiff, however, invites me to take into consideration that the defendant's allegation is inconsistent with the documents and therefore not really credible and the court should regard his evidence with great caution. Having considered the documentary evidence, it does appear to me that the defendant's allegation that there was an agreement that he need not make contribution to the company is not consistent with the documentary evidence.

10. There are five heads of claim made by the plaintiff. I shall deal with them one by one.

The 1st claim - money payable for "The Woman behind"

11. The plaintiff's case is that it had obtained the right of distributorship of the movie "The Woman Behind" which was supposed to be produced by a company called World Perfect Productions Limited ("World Perfect"). World Perfect was solely responsible for all the costs of the production including the costs for filming and production of copies of the movie. The plaintiff had advanced a sum of $700,000 to World Perfect to enable it to meet part of the costs of production. The plaintiff complains that without informing the directors and shareholders of the company, the defendant was involved in the production of that film as either co-producer or in some other capacity and his name was shown as such in the advertisements relating to the film. What is more, the plaintiff received a demand for $639,158.70 from a company called Union Film Laboratory Limited as charges for developing and printing copies of this film. There was a copy of an agreement which was purported to have been made by the defendant on behalf of the plaintiff with Union Film for the developing and printing of the film copies. The defendant's signature appeared on the contract. The plaintiff says that it was not the business of the plaintiff as a distributor to undertake to pay such charges. The defendant had not consulted the other directors. Union Film had issued proceedings against the plaintiff for this amount and the plaintiff had joined World Perfect as a third party.

12. The defendant's case in relation to this head was that he was not interested in any way with the production of this movie film. He said that he was told by a Mr Wong of World Perfect that World Perfect was short of finance in the production of the film and wanted the plaintiff to lend further money to it, but the plaintiff refused to do so. Hence, Mr Wong asked the defendant for assistance. According to the defendant, through his own companies, he lent money by making advances to Mr Wong and/or by settling bills owed by World Perfect or Mr Wong to other parties in respect of the production of film. He said that he had made a total loan of $130,000 to Mr Wong and also paid on behalf of World Perfect and/or Mr Wong a sum of $314,148. He said that because of his financial assistance to Mr Wong and World Perfect, the latter felt grateful to him to the extent that his name was put there as one of the co-producers.

13. The defendant admitted that he signed on behalf of the plaintiff on the contract with Union Film. But he explained that in fact by signing the contract with Union Film for the development and printing of copies on behalf of World Perfect, this would be to the advantage of plaintiff because the plaintiff would then have control over the developing and printing of the film and copies to be released. He also said that it was a trade practice that the plaintiff or indeed any film distribution companies which signed on such contracts would not be liable to pay and that it would be for the file producers to foot the bill. He further said that before he signed that contract, Mr Chu and Mr Wu were aware of this and its implication.

14. It is also argued on behalf of the defendant that the plaintiff had so far suffered no loss because the action against Union Film is still pending and that World Perfect was joined as third party. Mr Wong of the World Perfect had signed a statement dated 8th February 1996 to effect that World Perfect was willing to pay for the charges of developing and printing copies of the movie "The Woman Behind".

15. It is not the defendant case that he had actual authority from the plaintiff to enter into such contract with Union Film on its behalf. It is also clear that the defendant as a director of the plaintiff would have apparent authority to sign contracts on behalf of the plaintiff. The so-called trade practice is clearly inconsistent with the terms of the agreement in question. In any event, I do not think that is a reasonable trade practice. Furthermore, there is no evidence apart from the defendant's own allegation on the existence of such trade practice. The fact that Union Film is now claiming against the plaintiff is clear evidence which contradicts the so-called trade practice.

16. I do not think the defendant's explanation as to why his name appeared in an advertisement put up by the film producer is acceptable. In fact, the witness statement prepared by Mr Wong purportedly in support of the defendant's case somehow stated that the defendant was interested in the movie. This obviously contradicts the defendant himself.

17. The defendant's allegation that he had given financial assistance to World Perfect and/or Mr Wong is inconsistent with the documents. Most of the invoices and receipts exhibited by defendant to support this allegation were not in the name of his companies or in his name but in name of the plaintiff. The defendant sought to explain this by saying that this was because the film was distributed by the plaintiff and the services from the third parties had been arranged for by a Mr Bobby Lam of the plaintiff for Mr Wong and/or World Perfect. But it was he and his companies who provided financial assistance to World Perfect. This explanation is not convincing at all. If it had been his personal assistance to World Perfect, I see absolutely no reason why the receipts and invoices were or would be issued in the name of the plaintiff.

18. With regard to Mr Wong's statement that World Perfect was and still is willing to pay all the charges to Union Film, I note that that statement was prepared on 8th February 1996 by Mr Wong. Up to now, it appears that Mr Wong had not honoured his promise. At the moment, the action between Union Film and the plaintiff is still pending. However, as Counsel for the plaintiff submits, I see very little chance of the plaintiff successfully defending the action. The plaintiff had joined World Perfect as a third party. The defendant submits that since the plaintiff is now pursuing against the World Perfect, it should not go after him for this amount. I do not agree. The cause of action against World Perfect is clearly different from that against the defendant. The plaintiff's cause of action against the defendant in respect of this amount is breach of fiduciary duty of a director of shareholder in that without any authority, the defendant simply could not and should not incur liabilities on behalf of the plaintiff. It is of course trite that the plaintiff cannot have a double recovery. But there is nothing to stop the plaintiff from pursuing different persons based on different causes of action. If World Perfect had already paid the plaintiff, the plaintiff of course cannot recover again from the defendant save and except possibly the costs of pursuing the same.

19. One other point raised by the defendant was that Mr Chu and Mr Wu who were also involved in the management of the plaintiff were made aware of this contract with Union Film. Apart from a mere allegation to that effect, the defendant has failed to give any further particulars of his allegation. There is no other evidence to show Mr Chu or Mr Wu were aware of the implication of such contract. The defendant also said that Mr Tang and his assistants were not conversant with the business.

20. In the light of the evidence put before me, I do not think that the defendant has discharged the burden of showing that he has a real prospect of success in defending this head of claim.

The 2nd claim - film rental for "Crazy America"

21. The plaintiff's second head of claim is in the sum of $123,842.65. It arose in the following circumstances. The plaintiff had distributed various movies to a company called Mandarin Films Distribution Company Limited ("Mandarin Films"). For these movies, Mandarin Films would pay rentals to the plaintiff. By August 1995, a total of $1,816,217.03 in respect of rentals was outstanding and payable by Mandarin Films to the plaintiff. However, Mandarin Films disputed that it was liable to the plaintiff to this amount and said that there was a sum of $123,842.65 which was film rental payable to Mandarin Films in respect of the movie "Crazy America" and that it had been agreed that this amount should be deducted from whatever Mandarin Films owed to the plaintiff. In support of the allegation, Mandarin Films sent a copy of the letter they had written on 21st October 1994 and addressed to the plaintiff for the attention of the defendant. In that letter (page 39 to 41 of the documents bundle), it reads :

"During the meetings with you, you have promised to settle the payment of film rental of the film 'Crazy America' which was distributed by us and exhibited in the theatres arranged by you. ..."

There was some reference in that letter to certain guarantees and other transactions. However, on the second page of that letter, a list of the items and amounts was set out. One of the items was described as "Film rental of the film 'Crazy America' due from you (D9403001)" with the figure of $123,842.65 stated against that description. At the end of the letter, it said :

"Please let me know immediately if you have any question in relation to the above calculation, otherwise we will assume you have no objection on this arrangement and a cheque in the amount of HK$436,341.52 (Hong Kong Dollars Four Hundred Thirty Six Thousand Three Hundred Forty One and Cents Fifty Two only) will be issued to you within next week. Your prompt attention to this matter would be highly appreciated."

22. It is the plaintiff's case that it was never involved with the film of "Crazy America". It was a film which was screened by Mandarin Films and distributed by the defendant for Golden Mark Film Distribution Company Limited. That company was owned and controlled by the defendant since Million Shine was at all material times a director and shareholder of that company and the defendant was a director and shareholder of Million Shine.

23. It is not disputed that the film "Crazy America" was distributed by Golden Mark. It is also not disputed that the defendant was a director and shareholder of Million Shine which in turn was a director and shareholder of Golden Mark. The defendant accepts that this $123,842.65 was an amount payable by Golden Mark to Mandarin Films and not an amount which was due by the plaintiff to Mandarin Films. He said that when he was pressing on behalf of the plaintiff for payment of money due by Mandarin Films to the plaintiff, Mandarin Films suddenly raised the matter about the dispute it had with Golden Mark and wanted to have a set off from the money it owed to the plaintiff. He alleged that Mandarin Films had no right to do so. He said that he had never agreed with Mandarin Films on such deduction. He had raised objection with Ms Jenny Wong of Mandarin Films, but was ignored. He said that he was not sure whether he had written any letter to Mandarin Films. He was told by a Mr Edward Chan who was the Accounting Manger of the plaintiff that Mandarin Films had insisted on having a deduction and paying the plaintiff a smaller amount. The defendant also said that he was informed by the Accounting Manager that after he had received the cheque he rang up a Mr Watt of Mandarin Films and made a complaint. However, that was not considered. It was said that Mr Edward Chan was dismissed to the plaintiff and that the plaintiff still regarded that amount of $123,842.65 as outstanding for Mandarin Films. There is also an affirmation from Mr Edward Chan touching on this point.

24. I think it is unlikely that Mandarin Films would have put down in its letter dated 21st October 1994 that there had been meetings in which the defendant had promised to deduct the amount regarding the film "Crazy America" from the money owed to the plaintiff, if there had not been such meetings. What is more, if the defendant had indeed raised objection with Mandarin Films, I would think that there would be more than a verbal objection. According to the defendant, Mandarin Films had already taken such attitude before writing the letter dated 21st October 1994. In that letter, Mandarin Films did give the plaintiff an opportunity to raise objection. One would expect the defendant to write a reply or do something upon receipt of such letter when it was known that Mandarin Films was not merely threatening to do so, but had actually done so. If the defendant had indeed raised objection with Mandarin Films, the whole thing would have been taken up beyond the verbal objection during the following months. I doubt whether there would be such silence for such a long time.

25. In the light of Mandarin Films' letter and the absence of written objection for such a long time, the defendant's mere denial that he had agreed with Mandarin Films to the deduction seems to be insufficient to discharge the burden in a setting aside application.

26. The defendant further alleges that the plaintiff should not have acceded to Mandarin Films' demand and that it was unreasonable to abandon the objection. It would seem that if the plaintiff wanted to pursue the matter, it would have to take legal action against Mandarin Film for this amount in say the District Court. It would have to call the defendant to give evidence and this would involve a great risk of losing the case and costs.

The 3rd claim - rental for Intercontinental

27. Under this head of claim, the plaintiff's claim against the defendant is now, after an amendment to the judgment, $676,917.50. This had arisen as follows.

28. The plaintiff had entered into various written agreements with a company called Intercontinental Film Distributors (Hong Kong) Limited ("Intercontinental") in May and July 1995 whereby the plaintiff obtained the right to distribute the movie "Die Hard With A Vengeance" to Tuen Mun Theatre and Cathay Theatre and the movie "Pocahontas" to Tuen Mun Theatre for screening. The film "Die Hard With A Vengeance" was released for screening at both theatres, on 8th June 1995. For the screening of these two movies, the operators of the theatres, Success Wealth Development Limited and King's Film Company had to pay the plaintiff rentals representing a certain percentage of the total takings for screening and the plaintiff would in turn pay Intercontinental a smaller percentage thus making its profit out of the difference.

29. In about October 1995, Intercontinental sent a statement of account to the plaintiff. In that statement, Intercontinental gave notice that the plaintiff had not paid for some of the rentals arising out of the two movies. The plaintiff made enquiries from Success Wealth and King's Film since they were the companies which had obtained the permission to show these films. In a reply from Success Wealth, it was stated that the defendant had represented to a Mr Mak Chuen of Success Wealth that the plaintiff had been restructured and demanded that the rentals for the two films should be made payable to a company called Modern Amusement Company Limited. In the reply from King's Film, it was alleged that King's Film did not make any agreement with the plaintiff relating to the film "Die Hard With A Vengeance" but had been approached by the defendant representing Modern Amusement Company Limited. That was a company which was incorporated only on 8th June 1995 and the defendant was a director since this incorporation.

30. According to the plaintiff, and this is supported by letters from Success Wealth and King's Film Company, the following payments were made by these two companies to the defendant's Modern Amusement :

(1) Success Wealth (in connection with the film "Die Hard With A Vengeance") $460,000;

(2) Success Wealth (in connection with the film "Pocahontas") $150,000; and

(3) King's Film (in connection with the film "Die Hard With A Vengeance") $655,924.50.

31. The plaintiff said that therefore the defendant through his company Modern Amusement had received from these two companies a total sum of $1,245,924.50 in connection with the two films. However, the plaintiff accepted that the defendant through Modern Amusement had made payment in the sum of $569,007 to Intercontinental. The net loss suffered by the plaintiff is therefore $676,917.50 which is now being claimed.

32. In his affirmations, the defendant did not deny that it was the plaintiff which released the movie "Die Hard with a Vengeance" to the two theatres. He alleged that on 22nd June 1995, Mr Chu of the plaintiff announced that the plaintiff would cease all its business operation as from 30th June 1995. He said that Mr Chu told Mr Choi to inform all cinemas which had business dealings with the plaintiff to arrange for their own source of films for screening as from 1st July 1995. These cinemas included Tuen Mun Theatre and Cathay Theatre. He said that even if the plaintiff would cease business, he had his own reputation to maintain in the film industry and therefore he felt obliged to help these cinemas. He then made use of Modern Amusement a company in which he had 40% beneficial interest to distribute films to those cinemas affected by the plaintiff's cessation of business. He decided to take over to distribute both films as from 1st July 1995. He said that these cinemas agreed to pay the takings to Modern Amusement rather than the plaintiff because they feared that even if they paid the plaintiff, the latter would not pay Intercontinental. He never asked them to do so. Hence, he said that he made arrangements with Intercontinental. In late July 1995, he met a Ms Nan Wong of Intercontinental who agreed that Modern Amusement would continue to deal with the distribution matters of the two films and that Modern Amusement would be responsible for paying Intercontinental. The defendant also admitted that he had told Intercontinental not to go after the plaintiff.

33. I find the defendant's case extremely dubious. First, the defendant's company Modern Amusement was only incorporated on 8th June, the very first day when the two films were screened by the two theatres. It is therefore unlikely that that company would have agreed with Intercontinental to acquire the distribution rights and then licensed them to the two theatres for screening from 8th to 30th June 1995.

34. Second, the defendant's allegations are contradicted by the affirmation of Ms Wong of Intercontinental. While it is not appropriate to resolve differences on affirmations, the documents exhibited by Ms Wong are contrary to the defendant's case. In a letter dated 14 August 1995 from Intercontinental to the defendant it was said that as per the defendant's request, the name of the company in the invoices had been changed to the defendant's company, Modern Amusement. Some of the invoices showed that they related to the film "Die Hard with a Vengeance" for a period in June 1995. But according to the defendant's case, his company only took over on 1 July 1995. There was no reason why he would request Intercontinental to issue (or change) the invoices to his company for the period for which the plaintiff should be the proper party.

35. Third, that company was called Modern Amusement which was similar to the plaintiff's English name, both using the word "Modern". But the Chinese name "Sun Yat Doi" meaning "New Generation" used by the defendant's company Modern Amusement was exactly the same as that used by the plaintiff. It is not difficult to draw the inference that that company was deliberately incorporated to confuse outsiders that it was connected with the plaintiff.

36. Fourth, there was the statement of accounts from Intercontinental to the plaintiff. This document which was dated 18th October 1995 was still addressed to the plaintiff instead of the defendant's new company. This is contrary to what the defendant said about Intercontinental having agreed to deal with the defendant's company. It is not disputed that Intercontinental is now suing the plaintiff for the balance of any distribution charges.

37. Fifth, the defendant's case is also contradicted by the documents and letters from Success Wealth. They showed that on 10th November 1995, Success Wealth clearly stated that in respect of the two films which were screened in Tuen Mun Theatre, two sums i.e. $460,000 and $150,000 had been paid to Modern Amusement. Contrary to the allegation made by the defendant, the letter also said that in about June and July 1995 :

"at the request of your company's Film Distribution General Manager Wong Shu Hung and Deputy Distributor Choi Wah Cheung, our company paid two film takings of the (2) and (3) above by cheques not to be drawn in favour of the original company "Modern Films Distribution Company Limited" but to be drawn in favour of "Modern Amusement Company Limited". The reason given was that company has been restructured."

38. There were debit notes issued in July from the defendant's Modern Amusement to Success Wealth. On page 93 of the bundle, it shows that the gross takings and rentals payable in connection with the film "Die Hard With A Vengeance" were for the period from 8th June 1995 to 30th June 1995. In other words, the defendant's Modern Amusement had received the rentals prior to what he said was the date on which he took over from the plaintiff. Even on the defendant's case, those rentals should have been receivable by the plaintiff and not Modern Amusement. The amount was $480,309.75 which was the amount Success Wealth said was due and payable to the plaintiff. In the statement issued by Modern Amusement in connection with the film "Pocahontas", the dates regarding the rentals however was for the month of July and part of August in 1995.

39. One other document which betrayed the defendant's case was a letter dated 1st August 1995 written by the defendant on behalf of Modern Amusement to Intercontinental. It said :

"We wish to draw your attention that 'Modern Films Distribution Company Limited' 'Modern Amusement Company Limited' are not the same company and has neither relationship nor interest in each other.

The distribution of your film 'Die Hard With A Vengeance' was handled by us Modern Amusement Company Limited. It did not settle the box office takings of the above mention film with you because it billed to still Modern Films Distribution Company Limited but not us. However, we do admit the responsibility to pay you. The outstanding sum pertaining to the above mention film kindly made out an invoice suggested to us and we will settle the account accordingly."

40. This letter shows that even in July and early August, 1995, Intercontinental still looked to the plaintiff as the distributor and not Modern Amusement and that was why the defendant found it necessary to write such a letter. If it was really true that the defendant had agreed with Ms Wong of Intercontinental to take over the distribution of the two films from 1st July 1995, there should not be such confusion. By this letter, the defendant wanted Intercontinental to regard the distribution agreements to have been made between Intercontinental and Modern Amusement. The defendant did not adduce any written document to show that there was any distribution agreement between Intercontinental and Modern Amusement as from 1st July. There is nothing to show that the defendant's new company had the distribution rights from Intercontinental.

41. In the light of the evidence and inherent discrepancies between the defendant's allegations and the documents coming from third parties, I do not think the defendant has discharged the burden of showing that his defence in connection with this head of claim has any real prospect of success.

The 4th claim - charges for design work

42. The plaintiff's claim under this head is for the sum of $171,100. Its case against the defendant is as follows. Between May 1994 and April 1995, the plaintiff had designed and produced advertising and promoting materials for his customers in connection with certain films. Such work was done by the plaintiff's employees, particularly one Mr Lam Sek Kin and one Mr Lau Chi Keung, Martin. Such services would be paid for by the plaintiff's customers. However, the defendant had caused the plaintiff's Accounts Manager to issue cheques for the total sum $201,851.55 payable to a company called Rapid Gain Development Limited. That was a company in which the defendant was a director. The plaintiff alleges that the defendant was in breach of fiduciary duty in causing the plaintiff to pay Rapid Gain such amount. It is alleged that there was no consideration for this amount and that the defendant had converted this amount to his own use or to the use of Rapid Gain, his own company. The plaintiff however gave credit to Rapid Gain for a sum of $30,751.55 for services rendered by a freelance artist engaged by the plaintiff. This part of the work was sub-contracted out. There were in the possession of the plaintiff eight debit notes which were issued in the name of Rapid Gain to the plaintiff's customers.

43. The defendant does not dispute that Rapid Gain was a company in which he was a director. He also does not dispute that Rapid Gain had received a sum of $201,851.55 from the plaintiff. However his case is this. The plaintiff had from time to time agreed to provide designing and advertising work for its customers. But it had to contract out and ask other artists to do the work. The defendant alleged that because the plaintiff was a new company, artists and sub-contractors were unwilling to give the plaintiff credit for the work done. However, his own company Rapid Gain had been in the business for a long time and hence had the necessary credit among these artists and sub-contractors. The defendant said that the arrangement was that Rapid Gain would ask the artists and sub-contractors to do the work. When Rapid Gain had to pay them, it would ask the plaintiff to pay it first so that it would in turn pay those artists and sub-contractors. Hence it was necessary for the plaintiff's employees such as Mr Lam and Mr Lau to provide information to Rapid Gain. He explained that the information obtained was to be put into invoices to be prepared in the name of Rapid Gain in order to assist the plaintiff to identify the work for which the plaintiff had paid Rapid Gain and for which Rapid Gain had in turn paid the artists and sub-contractors. He said that that was the reason why information was obtained from the plaintiff and why the debit notes were prepared in the name of Rapid Gain but were addressed to the plaintiff's customers. These debit notes were there for identification purpose.

44. I must say I do not find the defendant's evidence to be very convincing. First, his allegation that the plaintiff needed credit from the artists and sub-contractors is unlikely to be true. The debit notes exhibited at CKN-19 were issued in the name of Rapid Gain and addressed to various companies which were admittedly the plaintiff's customers. These debit notes were for amounts ranging from $8,000 to $25,000, mostly under $20,000. I doubt if the plaintiff would need credits for such small amounts from time to time. I do not think that for these smaller amounts, the plaintiff would need Rapid Gain to get credit from these artists and sub-contractors.

45. Second, what the defendant's case amounted to would be this. Rapid Gain would pay the artists and sub-contractors. It would issue debit notes to the plaintiff for the amount which Rapid Gain would pay to the artists and sub-contractors plus an amount representing its profit as a middleman and for rendering assistance to the plaintiff in getting credit from artists and sub-contractors. If that allegation was correct, there would be a debit note issued by Rapid Gain to the plaintiff for taking over the work and sub-contracted it to other artists and sub-contractors. There should be a record of the payment received by Rapid Gain from the plaintiff. Then after Rapid Gain had received payment from the plaintiff, there should be a record of payment by Rapid Gain to the artists and sub-contractors for smaller amounts. There would also be receipts issued by these artists or sub-contractors to Rapid Gain. There is however none of these. I accept that this is the case between the plaintiff and the defendant and strictly speaking does not involve Rapid Gain. However that is a defence put up by the defendant to the plaintiff's claim. And it would not be difficult to have some evidence of any of the above.

46. The only other point is that the cheque payable to Rapid Gain was also countersigned by Mr Chu or Mr Woo of the plaintiff. In my view, that is neither here nor there. It is not disputed that the defendant had signed on those cheques and the amount was indeed paid to his own company. The question is was there any consideration for such payment.

47. This is a case by the plaintiff against the defendant for breach of fiduciary duty in causing plaintiff to pay Rapid Gain the amount of $201,851.55. That the plaintiff had paid this amount to Rapid Gain is not in dispute. It is also not seriously disputed that it was the defendant who had caused such payment to the Rapid Gain. The plaintiff alleges that the payment was made to Rapid Gain without any consideration. In the light of the evidence and for the reasons set out above, I find it difficult to accept the defendant's case. In any event, I do not think that he has shown that he has a real prospect of success.

The 5th claim - the Yiu Long transaction

48. In respect of this last head of claim, the plaintiff's claim is for $450,000. In February 1995, the plaintiff had entered into an agreement granting certain distribution rights to Yiu Long to screen the movie "World of Treasure" in Taiwan. The plaintiff obtained the distribution rights from a company called Modern Regal Film Ltd. Under the sub-distribution agreement, Yiu Long was to pay $1 m to the plaintiff. Half of it had already been paid to the plaintiff. Yiu Long then drew two cheques to the plaintiff; the first one dated 26th May 1995 in the sum of $200,000 and the second dated 10th June 1995 for the sum of $250,000.

49. In respect of the first cheque of $200,000 this figure was arrived at like this. In respect of the sub-distribution agreement, Yiu Long was to pay the plaintiff the balance of $500,000. However, the plaintiff had to pay to Yiu Long a sum of $300,000 in connection with a film called "Separating under the rain" which did not come true. Hence the plaintiff had to make a refund to the Yiu Long. As a result, a balance of $200,000 was to be payable by Yiu Long to the plaintiff. Hence this first cheque. In explaining how the $300,000 came to be deducted, the plaintiff had also produced 3 cheques which Yiu Long had issued payable to the plaintiff but the name of the payee on each cheque was altered to the defendant's company at the request of the defendant. These 3 cheques are not directly relevant to the issues in this case. I do not attach any weigh to them.

50. In respect of the second cheque it was the final payment for the film "The Woman Behind" in the sum of $250,000. The evidence quite clearly shows that these two cheques were initially drawn in favour of the plaintiff. However, the defendant requested Yiu Long to cancel these two cheques and issued two new cheques for $450,000 payable to the defendant's company called Modern Film and Entertainment Production.

51. The defendant's case is this. The plaintiff was not a member of the Hong Kong and Kowloon Cinema and Theatrical Entertainment Free G.E.N. Association and therefore could not distribute films to Taiwan. However, the defendant himself and his company Modern Film and Entertainment Production were members. The defendant said that it would be troublesome for the plaintiff to become a member of the association. He said that his company Modern Film & Entertainment Production was appointed as agent and a middleman Fung Che Kap had been engaged and that 5% of the film rental had to be paid to Mr Fung. He further alleged that since Modern Film and Entertainment Production was to be the distributor and had incurred expenses, it had the right to deduct $65,000 and to retain all payments made by Yiu Long until the box office takings had been ascertained and Fung's 5% entitlement paid. He also said that with regard to the second amount of $250,000, the plaintiff was liable to pay to World Perfect (the producer of this film) this amount for the film "The Woman Behind". But World Perfect was indebted to the defendant and therefore had agreed that this sum be paid to Modern Film & Entertainment Production in partial settlement of the debt.

52. In other words, the defendant is saying that in respect of the first sum of $200,000, there was a deduction of $65,000 and the final box office taking had not be ascertained and therefore the plaintiff was not entitled to it as yet and in respect of the second sum of $250,000 there was a privately arranged set-off between him and World Perfect.

53. As counsel for the plaintiff submitted, I do not find the defendant's allegations to be acceptable. The defendant was a director of the plaintiff and if he had been a member of the association, it would have been easy for him to make arrangements for the plaintiff to become a member of the association in order to get distribution of a film in Taiwan. Mr Tang, the principal shareholder of the plaintiff had a son who had already made an application to become a member of that association. Therefore there was no need for any intervention by the defendant's other company or by Mr Fung.

54. Even if the defendant was correct in saying that a middleman Mr Fung had been engaged, the amount due would be only 5%. The plaintiff was guaranteed $1 m by way of rental. In other words, the plaintiff was entitled to more but not less than $1 m. 5% of the amount of $1 m would be $50,000. There was therefore no reason for the defendant to retain the entire sum due from the plaintiff. With regard to the payment of $250,000 being the amount paid by Yiu Long to the plaintiff for the film "The Woman Behind", World Perfect was indebted to the plaintiff and there was no reason why the defendant should choose to have such a set off.

55. In the circumstances, I do not think the defendant's defence under this head would carry any degree of conviction.

56. Having looked at the plaintiff's claims under the five heads and the defendant's defence respectively, I am not satisfied that the defendant had discharged the burden of showing that his defence has a real prospect of success. I do not think therefore that the default judgment should be set aside.

Defendant's counterclaim

57. The defendant alleges that there is a counterclaim against the plaintiff in the sum of $491,552.10. These are made up of six items. They are as follows:

(1) Salary for June 1995 :	$33,870.97
(2) One month's notice :	$50,000.00
(3) Pro rata bonus :	$27,671.23
(4) Annual leave pay :	$25,000.00
(5) Entertainment expenses :	$5,009.90
(6) Loan made to the plaintiff :	$350,000.00

58. The plaintiff admits liability for the salary for June and annual leave pay (Items (1) and (4)). These two amounts add up to $58,870.97. The other items are disputed. The salary in lieu of one month notice (item (2)) is disputed because the plaintiff said there was a good cause to dismiss the defendant summarily. So is the pro rata bonus (item (3)) on the same ground. As far as the loan of $350,000 (item (6)) is concerned, there is no evidence in support of this claim apart from the assertion made by the defendant.

Material non-disclosure

59. The defendant submits that there had been serious and material disclosure because the plaintiff had failed in its ex-parte application to draw the court's attention to the defendant's counterclaim and the fact that the plaintiff had been given notice to cinema operation about the termination of its business.

60. I do not think the defendant's counterclaim would have made very much difference to the much larger claims made by the plaintiff. In any event, the plaintiff has now obtained judgment against the defendant and the defendant's application to set the default judgment aside fails. With regard to the notice given by the plaintiff about its operation, I do not think that the notice could be construed to mean that the plaintiff's business was about to be terminated.

61. In the circumstances of the case, having regard to the strength of the plaintiff's case against the defendant, the defendant's alleged defence, and the fact that the default judgment is to stand, even if there had been a material non-disclosure, I do not think I should exercise my discretion and discharge the Mareva injunction.

Conclusion

62. The results of the applications are :

(1) the defendant's application to set aside the default judgment is refused; and

(2) the plaintiff's application to continue the Mareva injunction is upheld and such injunction is continued subject to the variation imposed by Mrs Justice Le Pichon.

63. It would follow that the defendant ought to pay the costs of the two applications to the plaintiff. I would make an order nisi that the costs of these applications be to the plaintiff. As to the two applications which are not opposed, I would make no order as to costs.