XCHRX HBZ FINANCE LTD. v. GLORY PRODUCTS CO. LTD. AND OTHERS

HCA5893/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.5893 OF 2000

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J U D G M E N T

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1. This is an appeal by the plaintiff against the decision of Acting Registrar Chan, given on 14 August 2000, discharging two Prohibition Orders against the 2nd and 3rd defendants herein.

2. The plaintiff issued the Writ herein against all three defendants on 13 June 2000. The 1st defendant is a limited company and the 2nd and 3rd defendants are directors of the 1st defendant. The plaintiff's claim against all three defendants is based on a Deed of Settlement dated 30 September 1999 ("the Deed of Settlement") in which the 1st defendant admitted being liable to the plaintiff for some HK$8 million, and the 2nd and 3rd defendants guaranteed such amount to the plaintiff. It was also agreed between the parties in the Deed of Settlement that the 1st defendant would make monthly instalment payment of HK$400,000 to the plaintiff. Despite such agreement contained in the Deed of Settlement, the 1st defendant had failed to make the instalment payment which fell due on 31 January 2000. Under the terms of the Deed of Settlement, the plaintiff now claims repayment of the full indebtedness against the 1st defendant and against the 2nd and 3rd defendants as the guarantors of that amount.

3. On the same day that the plaintiff issued the Writ of Summons, namely 13 June 2000, the plaintiff applied ex parte and obtained Prohibition Orders against the 2nd and 3rd defendants, prohibiting them from leaving Hong Kong. The Prohibition Orders, being valid for one month, were renewed by a further order of the master on 12 July 2000. Upon the application by the 2nd and 3rd defendants to discharge the Prohibition Orders against them, that application was heard by Acting Registrar Chan on 11 August 2000. Acting Registrar Chan, after the hearing, gave his decision on 14 August 2000, whereby he discharged both Prohibition Orders against the 2nd and 3rd defendants. It is this order that the plaintiff now appeals against. In the Notice of Appeal, the plaintiff asked that the order discharging the two Prohibition Orders be set aside and that the Prohibition Orders be made or renewed against the 2nd and 3rd defendants.

4. The Prohibition Orders sought by the plaintiff are provided for under s.21B of the High Court Ordinance, Cap.4. Since there is as yet no judgment given in this matter, the Prohibition Orders sought are orders pursuant to s.21B(1)(c). Under subsection (3) of that section, it is provided that such an order shall not be made unless the court is satisfied that there is probable cause for believing that :-

(a) there is a good cause of action;

(b) the person against whom the order is sought, incurred the liability in Hong Kong, carries on business in Hong Kong or is ordinarily resident in Hong Kong;

(c) that person is about to leave Hong Kong; and

(d) by reason of his leaving Hong Kong, any judgment that may be given against him is likely to be obstructed or delayed.

It is common ground in the present case that conditions (a) and (b) above are satisfied. The dispute between the parties related only to conditions (c) and (d) above.

Evidence of intention of the 2nd and 3rd defendants to leave Hong Kong

5. The plaintiff relies on the following matters to show that the 2nd and 3rd defendants are about to leave Hong Kong :-

(a) the 3rd defendant resigned as a director of the 1st defendant on 17 April 2000 and another director, a person of Indian origin with no address in Hong Kong, being appointed to take the place of the 3rd defendant on 12 April 2000;

(b) on 3 August 2000, HSBC had set-off a deposit of HK$5 million placed by the 1st defendant with it as a result of the 1st defendant's liability to HSBC;

(c) the 1st defendant's registered office had since 1 July 2000 been changed from 23/F, Bupa Centre, 141 Connaught Road West, Hong Kong to the office of an accountant firm, Messrs Philip Hau & Co., at 22/F, Fung Sang Trading Building, 54 Bonham Road West; and

(d) the 2nd defendant had changed his residential address.

6. Pausing here for the time being, each and every one of the four items above are not direct evidence of the intention of the 2nd and 3rd defendants to leave Hong Kong. They are merely matters from which the plaintiff invited this court to draw that inference. Whether or not such an inference ought to be drawn depends on the above matters being looked at in all the circumstances of this case.

7. The next and probably more important part of this aspect of the plaintiff's case is the affidavit evidence of Mr Amin Suleman, the chief manager of the plaintiff, and also the affidavit evidence of Mr Shahid Afzal, the chief executive of the plaintiff. Both of them have stated in their affidavits that the 2nd and 3rd defendants had, in about March or April 2000, made threats in front of both Mr Suleman and Mr Afzal that the 2nd and 3rd defendants would leave Hong Kong permanently for India if they were pressed by the plaintiff for payment of the $400,000 monthly instalment under the Deed of Settlement. This evidence of what the 2nd and 3rd defendants said to Mr Suleman and Mr Afzal merits close scrutiny and it comes about in this way.

8. In Mr Suleman's 1st Affirmation which was dated 13 June 2000, he deposed therein that he was instructed by the plaintiff and verily believed that they (the 2nd and 3rd defendants) might return to India and the business of the 1st defendant might soon come to a halt. He further deposed that given the 2nd and 3rd defendants are Indian and have substantial connection with relatives and friends in India that he was instructed by the plaintiff and verily believed that both of them may and/or are about to leave for India soon.

9. The 2nd Affirmation of Mr Suleman, filed on 10 July 2000, brings this matter no further, and paragraph 11 thereof is premised on the basis "As the 2nd and 3rd Defendants are about to leave Hong Kong, ....".

10. The 1st Affirmation of Mr Afzal, dated 12 July 2000, states in paragraph 3 that he verily believed that they (the 2nd and 3rd defendants) would return to India permanently because their relatives and businesses were in India. It then goes on to state "The basis of my belief was that the 2nd Ddefendant has told me such things before the present legal proceedings".

11. In the 3rd Affirmation of Mr Suleman dated 12 July 2000, it states in paragraph 4 thereof that the 2nd defendant had spoken to him and Mr Afzal on various occasions immediately before legal proceedings that all the defendants had difficulty in complying with payment obligations under the Deed of Settlement, and that the 1st defendant's business might soon come to a halt. In paragraph 5 of the same affirmation, Mr Suleman states that he verily believed himself that they (the 2nd and 3rd defendants) may return to India permanently if no Prohibition Order is in place as the business of the 1st defendant will soon come to a halt. It should be noted that there is no mention there of either the 2nd or 3rd defendant saying or threatening to leave Hong Kong permanently for India.

12. It was only stated in Mr Suleman's 5th Affirmation, dated 31 July 2000 in paragraph 9 thereof, that between March and April 2000, the 2nd defendant had threatened if the plaintiff pressed for the HK$400,000 instalment under the Deed of Settlement, they would prefer declaring insolvency of the 1st defendant and themselves individually. The defendants further requested for reduction of the instalment from HK$400,000 to HK$225,000, and further threatened to leave Hong Kong permanently. It was also stated that the 2nd defendant said that the 1st defendant had offices in Taiwan, Bangkok, Korea, Bombay, South Africa, Chili, Dubai and Las Palmas, and that it would not be difficult for them to leave Hong Kong to avoid payment and to start anew elsewhere. Further, that the plaintiff would encounter an uphill, if not impossible, task in laying its hands on the defendants' assets elsewhere in the world. (The above matters stated in paragraph 9 of the 5th Affirmation of Mr Suleman were repeated in full in the 2nd Affirmation of Mr Afzal dated 31 July 2000.)

13. In paragraph 12 of the 5th Affirmation of Mr Suleman, he further states that he learned from the circles of Indians in about May 2000 that the 2nd and 3rd defendants were contemplating leaving Hong Kong for India to escape payment obligations to their banks, including the plaintiff.

14. In paragraph 13 of the same affirmation, Mr Suleman further states that a number of named Indian clients of the plaintiff had defaulted payment and left Hong Kong without a trace. Those named clients had also claimed to have roots in Hong Kong and had resided in Hong Kong for a long time.

Defence contention

15. Firstly, the defence readily admits that the 1st defendant's business is not doing well, and the 1st defendant has difficulty in meeting its financial obligations to HSBC and also to another bank to which it has mortgaged its office premises at Bupa Centre.

16. Insofar as the plaintiff's claim is concerned, the defence contends that it has a defence to the plaintiff's claim under the Deed of Settlement. In gist, their defence is that the Deed of Settlement was signed by all three defendants on the understanding and/or agreement that the plaintiff would return to the 1st defendant the bills of lading being the title documents to the goods, the subject matter of the claim, which had been shipped by the 1st defendant to Panama. The plaintiff had, despite such understanding or agreement, failed to return to the 1st defendant the bills of lading and is thereby in breach either of the Deed of Settlement or of a collateral agreement thereto. As for this defence put up by the defendants, it is not necessary for me to express my views thereon for present purposes. Indeed, it would be undesirable for me to do so at this stage because the plaintiff has taken out Order 14 proceedings in this matter which is scheduled to be heard before a master on 30 August 2000. It suffice for me, for present purposes, only to say that the plaintiff has a good cause of action without expressing any views as to the defence raised.

17. Thirdly, both the 2nd and 3rd defendants have deposed to, in their affidavits, the facts that although the 1st defendant is in some financial difficulties, nevertheless, the 1st defendant is still continuing business in Hong Kong. Both the 2nd and 3rd defendants denied that the 1st defendant is about to cease its business. They have also deposed to the fact that neither of them intended to leave Hong Kong permanently or to return to India. The 2nd defendant is the father of the 3rd defendant. The 3rd defendant has deposed to the fact that his wife and his children are living in Hong Kong, and his children are attending schools here. Both the 2nd and 3rd defendants, as well as their families, have lived in Hong Kong since the 1970's and both hold permanent Hong Kong identity cards. Moreover, the 2nd defendant does not deny that he has changed his residential address but says that his new residential address has been given in all his affidavits filed herein.

Decision

18. The crux of the matter, in my view, appears to be whether the plaintiff has adduced sufficient evidence to persuade me that the 2nd and 3rd defendants are about to leave Hong Kong. There has been argument whether leaving Hong Kong has to be on a permanent basis or not. In my view, the laws seems to be quite clearly set out in s.21B of the High Court Ordinance. It requires the plaintiff to show that the 2nd and/or 3rd defendant in this case are about to leave Hong Kong and, by reason of that, any judgment that may be given against them is likely to be obstructed or delayed. Therefore, it is not a question of whether their leaving Hong Kong is permanent or not, but whether their leaving Hong Kong is likely to obstruct or delay any judgment that may be given against them. In this respect, it should be noted that it is common grounds that the 2nd defendant did leave Hong Kong for a short business trip to China, almost immediately after the discharge of the two Prohibition Orders by the Acting Registrar, but has since returned to Hong Kong and was present in court at the hearing of this appeal.

19. Coming then to the evidence relied on by the plaintiff in this respect, my first observation in all the circumstances of this case is that I see nothing sinister in the 3rd defendant's resigning as a director of the 1st defendant in April 2000, nor in HSBC's setting off the 1st defendant's deposit of HK$5 million placed with HSBC, nor even in the change of the 1st defendant's registered office since July 2000. These matters can all be explained by the fact that the 1st defendant has not been having good business in the past couple of years and, as a result, are owing to banks and other creditors debts and other financial obligations. In an appropriate case, this may be a factor from which the inference that a defendant is about to leave Hong Kong in order to defeat or to obstruct a judgment that may be given against him may be drawn. In the present case, I am not prepared to draw such an inference on this evidence alone.

20. As for the further evidence adduced by the plaintiff that the 2nd and 3rd defendants have threatened to quit Hong Kong and to set up anew in India or elsewhere, I have great difficulty in accepting that evidence from Mr Suleman and Mr Afzal, not the least because of the way that evidence has unfurled in their various affidavits. If what is stated in the 5th Affirmation of Mr Suleman and confirmed by Mr Afzal in his 2nd Affirmation is true, no good reason has been given why those matters were not set out fully in Mr Suleman's 1st Affirmation.

21. Looking at all the affidavits, it seems to me that the plaintiff had initially a rather weak case in so far as evidence showing that the 2nd and 3rd defendants were about to leave Hong Kong. At the outset, it was based on nothing more than a mere suspicion that the 2nd and 3rd defendants might do so because of the financial position of their business. Then, as the matter progressed, more and more evidence found its way into the affidavits, in an attempt to prop up what started out as a weak case.

22. Moreover, I am fortified in this view by the plaintiff seeking reliance on rumours heard in the "Indian circle" of the 2nd and 3rd defendants leaving Hong Kong. It would be wrong to attach any weight to this evidence because the source has not even been identified, apart from a vague and general reference to the "Indian circle".

23. Furthermore, the reference in paragraph 13 of Mr Suleman's 5th Affirmation to other named Indian clients of the plaintiff having absconded, I need only say that this is totally irrelevant, as a piece of evidence, to the intentions of the 2nd and 3rd defendants.

24. Looked at totally, I get the impression that the plaintiff realise the weakness of its evidence in relation to this aspect of its case and has, in a desperate attempt to propping up this aspect of its case, relegated itself to clutching at straws.

25. A further point made by Mr Smith on behalf of the 2nd and 3rd defendants is that if in March or April 2000, Mr Suleman, being the chief manager of the plaintiff, knew of such threats by the 2nd and 3rd defendants to quit Hong Kong and to set up elsewhere, it seems that no action had been taken by the plaintiff to apply for such a Prohibition Order until the Writ was issued on 13 June 2000. The reason given by the plaintiff for this is that there was a 60-day grace period specified in the Deed of Settlement and, therefore, the plaintiff had no alternative but to wait until 13 June 2000 before they could issue the Writ of Summons. That explanation, in my view, does not hold water because the plaintiff's claim is based on the 1st defendant's failure to pay the monthly instalment of HK$400,000 due on 31 January 2000. Granted that there was a 60-day grace period specified in the Deed of Settlement, that 60-day grace period would have expired by the end of March 2000, at which time the plaintiff would have been well entitled to issue the Writ in the present proceedings. The point here is that there has been a delay of at least two months before the plaintiff saw fit to apply for the Prohibition Order only in June 2000 when the Writ was issued. This cannot be right. For in the words of Godfrey J (as he then was) in the case of So Po Tong v. Richard Patterson, HCA6993/1987 (unreported), he said, after refusing the application for a Prohibition Order, the following :-

".... I am particularly concerned that it should have been thought right to make this application weeks after it must have become apparent to the intended plaintiff (if ever it did become apparent to him) that there was a risk of the intended defendant's absconding from Hong Kong. This is an abuse of the procedure laid down by the rules for obtaining prohibition orders, ...."

26. Finally, the plaintiff, at the hearing before me, sought to rely on three cases in support of its arguments, namely :-

(a) Murjani v. Bank of India [1989] 2 HKC 30;

(b) Tam Hing Yee v. Wu Tai Wai, Civil Appeal No.118 of 1991; and

(c) Standard London (Asia) Ltd v. Ho Wai Kin Robert [1998] 4 HKC 595.

27. Prohibition Orders were granted in all the three above cases. However, in Marjani's case, it was accepted that the appellant there was about to leave Hong Kong and thus the requirement under s.21B(3)(c) was satisfied. In Standard London (Asia) Ltd, it was common ground that the respondent who held an Australian passport wanted to leave the jurisdiction. The learned judge there (Seagroatt J) found that there was good reason to fear his failure to return. In Tam Hing Yee's case, it was a fact that the respondent (a judgment debtor) had left the address placed on record without leaving any forwarding address, but the appeal in that case turned on the question of the District Judge wrongly holding that s.52E(1)(a) of the District Court Ordinance (which provides for Prohibition Order in the District Court) was inconsistent with the Bill of Rights Ordinance, in particular Article 8(2).

28. In my view, none of the cases relied on by the plaintiff is of any assistance to the plaintiff in the present case which turns on the question whether the plaintiff has sufficiently established, on the facts, that the 2nd and 3rd defendants are about to leave Hong Kong and by reason whereof any judgment that may be given against them is likely to be obstructed or delayed.

29. For the above reasons, the plaintiff's appeal from the order of Acting Registrar Chan is dismissed.

30. There is also an appeal by the 2nd and 3rd defendants against the costs order made by Acting Registrar Chan when he ordered that the two Prohibition Orders be dismissed. Acting Registrar Chan, after discharging the two Prohibition Orders, awarded costs to the 2nd and 3rd defendants but refused to grant a Certificate for Counsel. The 2nd and 3rd defendants now seek to appeal against his refusal to grant a Certificate for Counsel. At the hearing before the Acting Registrar, the plaintiff was represented by a solicitor only. The 2nd and 3rd defendants were represented by counsel, Mr Smith, who also appears before me on this appeal. This is not such a complicated matter that I must inevitably conclude that the Acting Registrar had erred in principle when he refused to grant a Certificate for Counsel. It is a matter of discretion for the Acting Registrar in making the costs order as he did. Since I cannot say that that was a wrongful exercise of his discretion in making the costs order that he did, the appeal by the 2nd and 3rd defendants against the refusal of the Acting Registrar to grant a Certificate for Counsel at the hearing below is also dismissed.

Costs order

31. Having dismissed the plaintiff's appeal in this matter, I would make a costs order nisi that the costs of the plaintiff's appeal is to be paid by the plaintiff to the 2nd and 3rd defendants in any event, to be taxed if not agreed. I would also make a costs order nisi that the 2nd and 3rd defendants' appeal from the costs order of the Acting Registrar be to the plaintiff in any event, again, to be taxed if not agreed.

32. For the benefit of the Taxing Master, I would state for the record that the entire appeal took almost three hours, and of that time, about 15 minutes were utilized for the argument as to costs in respect of the appeal by the 2nd and 3rd defendants.