CHEUNG YUK CHUN v. YEUNG WO FAI

HCA 6191/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6191 OF 1998

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J U D G M E N T

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1.  I have before me an ex parte application for Mareva Injunction.  The action concerns a sale and purchase agreement and as far as the substantive claims in the action concerned, it was concluded on 12 June 1998 by a final and interlocutory judgment entered in favour of the plaintiff.  The final judgment is in respect of a liquidated sum and then, on top of it, there is an interlocutory judgment for damages to be assessed. 

2.  By way of enforcement of the final judgment, the plaintiff obtained a charging order in 1999 on certain shares.  The order nisi was made on 7 June 1999 and the order absolute was made on 14 July 1999.  Apart from that, the plaintiff did not proceed with the enforcement of the judgment, nor did the plaintiff proceed with the assessment of damages pursuant to the interlocutory judgment until a couple of years later. 

3.  The property was resold by the plaintiff in November 2004 at a considerable shortfall as compared with the contract price, that is, the price stipulated in the agreement between the plaintiff and defendant which was the subject matter of this action.  Let me say at this stage I do not agree that because of the fact that the property had not been resold prior to November 2004 the plaintiff could not proceed with the assessment of damages pursuant to the interlocutory judgment.  Damages can still be assessed even if the property had not been resold.   But the plaintiff has taken no steps to proceed with the assessment of damages pursuant to the interlocutory judgment in the meantime. 

4.  In February 2005 there were correspondence between solicitors.  The first move, according to the materials placed before me, was a letter by solicitors for the defendant on 18 February 2005.  By that letter, the defendant indicated that he wished to apply for a discharge of the charging order and proposed to make payment of sums pursuant to the final judgment in order to secure the discharge of the charging order.  I note that this letter was written at a time when there was no suggestion from the plaintiff to the defendant that the plaintiff would reactivate the process with regard to assessment of damages pursuant to the interlocutory judgment.  There was no immediate response by the plaintiff to that letter and the defendant’s solicitors sent a reminder on 23 February.

5.  It was only on 28 February 2005 that the plaintiff’s solicitor wrote back and informed the defendant that the property had been resold at a considerable loss and it is said in the last paragraph of that letter as follows:

“If your client is seeking to discharge the charging order absolute on shares, our client will be seeking to recover the above...”

referring to the loss suffered on resale

“...damages and interest to be calculated at judgment rate to the date of payment and we will be asking for an appointment before the master to assess damages based on the above calculation unless your client has a sensible offer to settle the damages suffered by our client.” 

6.  Pausing here, it seems to me that, at that stage solicitors for the plaintiff seem to have some misconception about the effect of the charging order.  The charging order was granted pursuant to the final judgment and the final judgment is, of course, confined to the sum which had been ordered in favour of the plaintiff in the final judgment.  Hence, the charging order can only be security as far as the amount set out in the final judgment is concerned.  It has nothing to do with the interlocutory judgment.  Until the damages have been assessed, there is no ascertained sum to be included in the judgment against the defendant in respect of the claim under the interlocutory judgment.  The plaintiff’s solicitor seems to be suggesting that until the amounts for the claim with regard to the interlocutory judgment is settled, there should not be a discharge of the charging order. 

7.  On 10 March 2005, solicitors for the defendant responded.  Paragraph 3 of that letter pinpoints the fallacy that I have highlighted.  It is said as follows:

“Further, we do not agree that the charging order absolute was obtained by your client based on the final interlocutory judgment.  It is a condition prerequisite to the right of charging order that there must be a final judgment or order under which a judgment debtor is required to pay a sum of money to the judgment creditor.” 

Reference was made the to Hong Kong White Book. 

“We say, therefore, that the charging order absolute was obtained by your client on the strength of the part of judgment that is final only as opposed to interlocutory.”

8.  The plaintiff’s solicitors wrote back on 15 March 2005.  Perhaps by that stage, the plaintiff’s solicitors realised the fallacy in their argument that the charging order can be a security for the final as well as the interlocutory judgment.  Hence, it is said in the second paragraph:

“Your client is under an obligation to satisfy the entire judgment debt owed to our client pursuant to the judgment dated 12 June 1998.  Unless your client has fully settled the judgment, interlocutory or otherwise, your client shall not be entitled to discharge the charging order absolute imposed on the shares in Sit O Hong Kong Handbag Factory Limited with a view to disposing of the shares.  If your client applies to discharge the charging order, our client will oppose and will apply for an injunction against your client restraining any disposal.”

9.  Therefore, the defendant had been alerted to the possibility of an application for an injunction with regard to the disposal of the shares as early as 15 March 2005. 

10.  The response of the solicitors for the defendant was in a letter dated 18 March 2005.  In that letter, the defendant informed, through solicitors, the plaintiff that the defendant did not have any present intention of disposing of his interest in the shares in any way and the defendant also informed the plaintiff that there was no agreement or negotiation going on between the defendant and any party in respect of the disposal of the shares.  The plaintiff’s solicitors wrote back on 22 March 2005 reiterating that the defendant was obliged to settle the whole of the judgment, whether it is interlocutory or otherwise.  He asked for confirmation from the defendant that the defendant would not transfer or dispose of any of the shares within the next six months and, should there be any change of intention, the defendant agreed to give a one-month written notice to the plaintiff prior to any transfer or disposal. 

11.  After that, things seem to have become dormant.  The next things that happened seems to be two applications.  One is an application by the plaintiff to proceed with the assessment of damages; the other is the application by the defendant for the discharge of the charging order.  The application to discharge was made by a summons taken out on 10 April 2006 and it was heard on 10 July 2006 before Master Jack Wong.  At that hearing, the master ordered that the charging order be discharged within two clear days after payment of the amount specified.  The defendant made the payment on 19 July, that is, yesterday.  In other words, pursuant to the order of the master, the charging order will be discharged in two days’ time from 19 July. 

12.  With regard to the assessment of damages, it has been fixed to be heard on 27 October 2006.  In the meantime, the defendant took out a summons to dismiss that assessment on the basis of want of prosecution and/or abuse of process.  Summons was taken out on 30 May 2006 and it is due to be heard on 2 August 2006. 

13.  There are some other correspondence between the solicitors which are relevant for present purposes.  On 20 April 2006, the plaintiff’s solicitors wrote to the defendant’s solicitors with regard to the summons for the discharge of the charging order.  The plaintiff’s solicitor reiterated that the defendant was under an obligation to satisfy the final as well as interlocutory judgment.  The following request was made in that letter:

“Apart from payment of the judgment sums pursuant to the final judgment, the plaintiff’s solicitors request the defendant to give an undertaking to the court that he shall not transfer, deal with and/or dispose of the shares until the final determination of the assessment of damages and that the defendant shall apply any money raised on the shares to satisfy the remaining judgment debt owed to the plaintiff.” 

14.  The plaintiff’s solicitors indicated that if the defendant turned down that request, they would oppose the summons for the discharge of the charging order.  In the application for the discharge of the charging order, the supporting affirmation is an affirmation made by the solicitors for the defendant.  Paragraph 6 of that affirmation sets out the reasons and background to the application for discharge.  It is said that in or about early 2005, defendant approached the defendant’s solicitors and sought advice on how to discharge a charging order which completely stultified the shares in the hands of the defendant.  The defendant’s complaint was that he could not raise money upon the shares in any way and that he could not receive dividends arising therefrom. 

15.  Coming back to the correspondence in April 2006, the defendant’s solicitors replied on 20 April 2006 and refused to comply with the conditions set by the plaintiff’s solicitors.  It is against this background that the plaintiff made the ex parte application this morning.  Miss Tong who appears for the plaintiff, justified the application on an ex parte basis on two grounds.  First, she said this is an application for a Mareva injunction and, second, she said there is a risk of dissipation of assets.  She also submitted that because of the time constraint, bearing in mind payment having been made yesterday, as a consequence the charging order will be discharged on 22 July.  There is an element of urgency in the matter. 

16.  I have discussed the relevant consideration for ex parte applications in my judgment in the case of Slik Hong Kong Company Limited v Evans HCA1424 of 2005 in my judgment dated 25 July 2005.  I do not need to repeat what I have said there.  It is also important to bear in mind it is not the purpose of a Mareva injunction to alter the law with regard to insolvency.  With regard to the interlocutory judgment and the claims of the plaintiff that has yet to be assessed pursuant to the assessment of damages, the plaintiff is not a secured creditor and it is not the aim of Mareva injunction to elevate the plaintiff into a position of secured creditor.  A Mareva injunction is to prevent a defendant from disposing of his asset with a view to defeat the plaintiff’s claim, i.e. putting his assets out of the reach of the plaintiff in order to stultify the enforcement of a judgment. 

17.  Another fundamental principle one must bear in mind is that it is not the purpose of a charging order to give the plaintiff security over the interlocutory judgment.  As the solicitors for the defendant correctly pointed out in correspondence, a charging order is only a security with regard to the final judgment. 

18.  Having considered all the arguments of Miss Tong - and counsel has certainly said all she could have said on behalf of the plaintiff - I am of the view that this is not a proper case for ex parte application.  Even though most Mareva injunctions proceed by way of ex parte application, the principles I have set out in Slik Hong Kong Company Limited are still applicable with regard to Mareva injunction.  Certainly there could be cases where it would be more appropriate to proceed by way of inter parte application rather than ex parte application even though the plaintiff is seeking, in essence, Mareva type of relief. 

19.  In the unusual circumstances of the present case, I am of the view that the plaintiff should have proceeded on an inter parte basis.  There is no question of secrecy in terms of the application because, as I have said, the defendant has been alerted way back in 2005 in correspondence between solicitors that the plaintiff might go for an injunction with regard to the shares. 

20.  As far as urgency is concerned, it can be seen from the chronology that I have recited earlier that the intention on the part of the defendant to secure a discharge of the charging order had been made known to the plaintiff in February 2005.  The discharge summons was issued in April 2006.  The plaintiff’s concern about the disposal of the shares, as far as I understand from the argument of Miss Tong, arose from the discharge of the charging order.  If that is the real concern, the plaintiff could have taken out an inter parte application to prevent or restrain the defendant from disposing of the shares even though the charging order is yet to be discharged upon payment.  Pending the determination of the assessment of damages, I see no reason why this could not have been done after the discharge summons has been taken out by the defendant.

21.  So as far as urgency is concerned, to an extent it is self-induced on the part of the plaintiff.  Moreover, there is still time for the plaintiff to take out inter partes summons if necessary with time abridged to have the matter properly canvassed on an inter parte basis.  Even though payment was made yesterday, there is no reason why the plaintiff could not take out an inter parte application returnable, say, this Friday.  Litigation lawyers in Hong Kong should be familiar with the practice of this court having a summons day every week.  These sorts of summonses can be dealt with on an inter parte basis before the summons judge.  On these grounds alone, I do not think it is appropriate to deal with the present application on an ex parte basis. 

22.  Moreover, I have some reservations about the plaintiff’s case as to risk of dissipation.  The defendant has indicated his intention to procure a discharge of the charging order on 18 February 2005 even before he was informed by the plaintiff of the intention of restoring the assessment of damages and the loss that the plaintiff has allegedly suffered upon resale of the property.  The reasons given in the affirmation in support of the application for discharge is perfectly legitimate.  The defendant is concerned about not being able to get payment of dividends and perhaps to use the shares to raise funds.  There could be many reasons why the defendant could legitimately have wanted to use the shares to raise funds for his purposes.  I have some doubt whether the mere fact that the defendant procured a discharge of the charging order can be construed as evidence of dissipation of assets with a view to defeat the plaintiff’s claim in these circumstances. 

23.  Miss Tong placed emphasis on the refusal of the defendant to give undertakings pursuant to the request of the plaintiff’s solicitors.  To start with, I do not think the plaintiff’s solicitors have any proper basis to demand the giving of such undertaking as a condition for the discharge of the charging order.  If the plaintiff has concerns about the execution of the judgment that might be finalised upon assessment of damages, the plaintiff should have shown a case of risk of dissipation of assets without any reference to the discharge of the charging order.  If the plaintiff can show risk of dissipation, courts may consider granting Mareva-type of relief.  If the plaintiff cannot show any risk of dissipation in the sense that the dissipation would be for the purpose of frustrating the execution of judgment by the plaintiff, there is no reason why, pending judgment being finalised or enforced, the defendant should be debarred from using his own funds or shares for whatever legitimate purposes he might have.  Otherwise we will be rewriting the law with regard to insolvency and security. 

24.  In any event, as I have said, I do not think this is a matter that should have been proceeded on an ex parte basis and this question of risk of dissipation may well be argued on an inter partes basis on another occasion.  As far as I am concerned, I will dismiss the ex parte application for the reasons given.