HCA 2321/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2321 OF 2009

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BETWEEN

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J U D G M E N T

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1.  This is essentially a dispute between the two sides regarding the true ownership of the 7th defendant, a company on the Mainland.

2.  The plaintiff says that he is the beneficial owner of the 7th defendant, whereas the present position of the 1st to 3rd defendants, as well as of the 6th defendant, is that the 7th defendant is wholly owned by the 4th defendant.

3.  Certainly the Court cannot decide the factual dispute on paper. On the materials filed, there are many factual disputes.

4.  The plaintiff seeks interlocutory relief against the four defendants; that is to say the 1st to 3rd defendants and the 6th defendant. The plaintiff also seeks a Mareva injunction against the 1st defendant.

5.  Mr James Tze, for the four defendants, fairly realistically accepts and concedes that the plaintiff is entitled to the interlocutory relief sought in paragraphs 1 and 2 of the amended summons against the four defendants. Indeed they have previously given undertakings to similar effect, and Mr Tze, on behalf of them, has offered to have those undertakings continued until after judgment or further order of the court. He only opposes the interlocutory injunction sought in paragraph 2A of the amended summons against the 3rd defendant. He argues that there is no arguable case against the 3rd defendant. He points out that the pleaded causes of action against the 3rd defendant are that of constructive trusteeship based on dishonest assistance and of conspiracy.

6.  I reject Mr Tze’s argument. At this interlocutory stage, the plaintiff may apply for interlocutory relief that is just and convenient to grant at this stage. The interlocutory relief need not be founded upon any substantive relief claimed against the 3rd defendant at trial. This cannot possibly be a surprising proposition because, for instance, a Mareva injunction is not required to be founded on a permanent freezing order to be sought at trial.

7.  In the present case, the plaintiff certainly has an arguable case that he is the owner of the 7th defendant. This is plainly evident from the many emails that have been exhibited in which he was addressed as “the boss”. This is also evident from the very substantive role he has played in the running of the business of the 7th defendant, including the recruitment of staff and the secondment of employees from his own company to the 7th defendant.

8.  Indeed, Mr Tze has conceded on behalf of the four defendants that the plaintiff is entitled to the interlocutory injunctive relief sought in paragraphs 1 and 2 of the amended summons, thereby conceding that the plaintiff has an arguable case regarding his ownership of the 7th defendant.

9.  That being the case, certainly the plaintiff may approach the Court pending the final resolution of the substantive disputes for injunctive relief regarding who should and who should not be involved in the running of the business and affairs of the 7th defendant. Whether the Court should grant him relief would depend on a consideration of the balance of convenience.

10.  The 3rd defendant was one of the seconded employees from the plaintiff’s company to the 7th defendant. Such secondment has been terminated. Indeed, according to the 3rd defendant, his employment by the plaintiff’s company has come to an end. On the other hand, Mr Tze has informed the Court that it is not the case of the 3rd defendant that he is now employed by the 7th defendant. Neither the 4th defendant nor the 7th defendant has stepped in to suggest that they require the continued service of the 3rd defendant in the 7th defendant’s business.

11.  That being the case, and bearing in mind that the plaintiff has an arguable case that he is the true beneficial owner of the 7th defendant, the balance of convenience certainly lies in favour of granting to the plaintiff the injunction he seeks, to prevent the 3rd defendant from further taking part in the management of the 7th defendant and from remaining in the premises of the 7th defendant.

12.  Mr Tze argues that there is a distinction between the plaintiff and the 7th defendant. Taken to the highest, the plaintiff is the beneficial owner of the 7th defendant. The two of them are separate entities. Mr Tze fairly accepts that this is a highly technical distinction. The reality of the matter is that if the plaintiff is indeed the beneficial owner of the 7th defendant, he is quite entitled to manage and control the affairs of the 7th defendant. According to the plaintiff, this was indeed the position in the past.

13.  For these reasons, I reject Mr Tze’s arguments and I have come to the conclusion that the plaintiff is entitled to the interlocutory injunction sought in paragraph 2A of the amended summons.

14.  I turn to the other contested matter at today’s hearing, namely the Mareva injunction sought against the 1st defendant.

15.  Mr Tze argues that whilst the plaintiff has an arguable case against the 1st defendant for denying his beneficial ownership of the 7th defendant for which allegedly he is a trustee, the plaintiff does not have a good arguable case against the 1st defendant.

16.  There is certainly a distinction between an arguable case and a good arguable case for the purposes of granting a Mareva. However, on the evidence presented before the Court, nothing arises from that distinction.

17.  I have mentioned that there are many materials in support of the plaintiff’s claim that he is the beneficial owner of the 7th defendant. That said, I am not suggesting for a moment that the plaintiff’s case is watertight, but that is not the test for, nor the definition of, a good arguable case. There certainly are oddities in the plaintiff’s case. The fact that there were no contemporaneous documents such as a declaration of trust to evidence the alleged “consensus” amongst the parties regarding the plaintiff’s beneficial ownership in the 7th defendant and the 1st defendant’s and the others’ trusteeships of the plaintiff’s beneficial ownership and interest in the 7th defendant is certainly one of those oddities. That the plaintiff would have allowed the 1st and 2nd defendants to exert more and more control over the running of the business and affairs of the 7th defendant in the name of “corporate governance and internal control” would certainly raise some eyebrows given his alleged complete beneficial ownership of the 7th defendant. The fact that he was prepared to buy off, as it were, the defendants’ camp’s interest, whatever it might be, in the 7th defendant for almost 1 million is another oddity, at least on the face of the materials presented before the Court.

18.  However, the Court is not here to try the disputes on the papers, nor does all this mean that the plaintiff does not have a good arguable case.

19.  As I said, having considered the evidence as a whole, I have no doubt that the plaintiff has a good arguable case. Whether he will eventually succeed at trial is quite another matter. But for the purposes of his application for a Mareva, as I said, on the evidence, I have come to the view that he has shown a good arguable case.

20.  The next question is a real risk of dissipation of assets. Based on the plaintiff’s own case (and, as I said, he has shown a good arguable case), the 1st defendant has exhibited a relatively low standard of commercial morality in the whole matter. His alleged denial of the plaintiff’s beneficial ownership of the 7th defendant does not inspire confidence on others as to his possible future conduct regarding his own assets in the light of the claim made by the plaintiff against him. If authority is required, the first instance judgment of Godfrey J, as he then was, in Honsaico Trading Limited v Hong Yiah Seng Company Limited [1991] HKLR 235, which has been followed in many subsequent cases in appropriate circumstances, is sufficient for the purpose.

21.  In my view, based on the plaintiff’s case, there is certainly a real risk of dissipation of assets on the part of the 1st defendant.

22.  That leaves the question of the amount to be frozen, as it were, under the Mareva injunction, and the question of fortification. I approach the two matters together. I bear in mind that the plaintiff obviously has difficulty in accurately estimating the real worth of the 7th defendant, which will, despite the interlocutory injunction that I am granting and the undertakings that Mr Tze has offered, remain in the hands of the defendants’ camp for the time being. Various figures have been suggested by the plaintiff ranging between RMB5 million and RMB9 million. On the other hand, the 1st defendant has suggested a much lower figure of RMB2 million.

23.  I accept Mr Lee’s argument for the plaintiff that the plaintiff has difficulties in accessing the financial papers of the 7th defendant. However, the plaintiff bears the burden of proof. On the other hand, the defendants’ side is expected to stand in a better position regarding access to financial papers, but Mr Tze says that his client, the 1st defendant, does not own the 7th defendant and his relationship with the alleged owner of the 7th Defendant, ie the 4th Defendant, has deteriorated. That is why the 1st defendant’s estimate is not backed by any financial documents either.

24.  I have looked at the matter in the round. I have considered the fortification to the tune of HK1 million offered by the plaintiff. I have also borne in mind that even if one could accurately estimate the real worth of the 7th defendant, it does not follow that the Court must grant a Mareva to the extent of the full value of the 7th defendant as estimated.

25.  The basis of the Mareva is that the defendants’ side might well dissipate the assets of the 7th defendant in the meantime so that even if the plaintiff were to be successful at trial, what he would get back from the defendants’ side would be a company already stripped of its assets. That is no doubt a possibility, but there is no certainty that that would happen, and even if that were to happen, it does not follow that there would be no remedy against the individual defendants, whether in Hong Kong or on the Mainland. Moreover, the 1st defendant is a Hong Kong resident with several properties in Hong Kong, including a matrimonial home, the net value of which, according to Mr Tze, is more than $2.5 million.

26.  I have borne everything in mind. Doing the best I can, I am prepared to grant a Mareva for the sum of HK$4 million, subject to fortification by the plaintiff of his cross-undertaking in the sum of HK$1 million either by cash or by an unconditional and irrevocable bank guarantee.

27.  As for the 1st defendant, if he can, by appropriate means such as a bank confirmation, satisfy either the court or the plaintiff that one or more of his properties are and will remain of a net value of more than $4 million, then he can, hopefully by consent, but if not, by an application to the court, have the terms of the Mareva varied so as to have the other properties defreezed. But I would leave it to the 1st defendant and to the plaintiff.

28.  For all those reasons, upon the continuation of the undertakings already given by the 1st, 2nd, 3rd and 6th defendants until after judgment or further order, I make no order as regards paragraphs 1 and 2 of the amended summons.

29.  In relation to paragraph 2A of the amended summons, which is a further interlocutory injunction against the 3rd defendant, I make an order in terms of the paragraph, except that I would change “until trial” to “until after judgment”.

30.  In relation to paragraph 3 of the amended summons, which is the Mareva injunction against the 1st defendant, I will make an order in terms of paragraph 3 of the amended summons, except that I would change the ceiling from RMB9 million to RMB4 million, and I would only be prepared to grant the Mareva upon the fortification by the plaintiff of his cross‑undertaking as to damages in the sum of HK$1 million by cash or by bank guarantee. In other words, the Mareva injunction would only become effective upon the fortification. I will also change the words “until trial” to “until after judgment”.

31.  I have thus far not dealt with the disclosure in aid of Mareva prayed for in paragraph 4. For the reasons advanced by Mr Lee in his written submissions, I am with the plaintiff. A suitable provision should be inserted in the order to the effect that any disclosure ordered to be made by the 1st defendant shall not prejudice the 1st defendant’s claim of privilege against self-incrimination. He can make his claim in the affirmation or affidavit of disclosure. But subject to that, I am prepared to grant an order in terms of paragraph 4 of the amended summons.

32.  Of course, paragraph 2A against the 3rd defendant is granted upon the plaintiff’s usual undertaking as to damages, but for that undertaking I require no fortification. The fortification required is in relation to the undertaking as to damages in respect of paragraphs 3 and 4, so it includes the disclosure order.

33.  I give the parties liberty to apply for further or other orders.

[Submissions on costs]

34.  Plaintiff’s costs in the cause. Costs of the application to amend the summons be to the 1st, 2nd, 3rd and 6th defendants.