LEIBISH ASIA LTD v. R.M.S. GLOBAL GROUP LTD AND OTHERS

HCA 402/2018

[2018] HKCFI 970

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 402 OF 2018

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REASONS FOR DECISION

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THE APPLICATION

1.  By an inter partes summons of 14 February 2018, the plaintiff applied for an order requiring the defendants to preserve and not deal with, dispose of or part with possession of five diamonds (“the Diamonds”) or the proceeds of sale thereof.

2.  At the hearing on 30 April 2018, I granted the order sought.  I now set out my reasons for doing so.

THE BACKGROUND

3.  The plaintiff is a company incorporated in Hong Kong which carries on the business of trading in diamonds and precious stones.  It has a sister company, Leibish & Co, incorporated in Israel (“Leibish”).

4.  The 1^st and 2^nd defendants are limited companies incorporated in Hong Kong.  The 3^rd defendant is an individual who purported to be a director of the 1^st and 2^nd defendants.

THE CONSIGNMENTS OF THE DIAMONDS

5.  The following background is taken from the plaintiff’s statement of claim of 14 February 2018 and the affidavit of Jacob Joseph Polnauer, the plaintiff’s Chief Executive Officer, dated 6 February 2018.

6.  The plaintiff conducts business on behalf of Leibish in the AsiaPacific region.  Most of the merchandise sold by the plaintiff is the property of Leibish.  Sales invoices for the merchandise were usually issued by Leibish, whereas consignment memos were issued by the plaintiff.

7.  The 3^rd defendant represented to the plaintiff that she was a director of the 1^st and 2^nd defendants, with connections to high-end diamond clientele and diamond trading companies, and would develop a long term business relationship with the plaintiff.

8.  On 21 April 2016, the 3^rd defendant purchased a diamond of 7.01 carats at a price of US$46,266 at the plaintiff’s showroom, settling the amount due in cash.

9.  On 19 April 2016, the 3^rd defendant showed interest in entering into a consignment agreement in relation to two diamonds of the plaintiff, one of 11.04 carats and one of 17.66 carats.  The plaintiff entered into a consignment agreement with the 3^rd defendant as the purported director of the 2^nd defendant for the two diamonds.  The memo evidencing the consignment stated:

“ The goods described and valued as above are delivered to you for Examination and Inspection only, and are the property of Leibish Asia Ltd. This merchandise is subject to their order and shall be returned to them on demand. Such merchandise, until returned to them and actually received are at your risk from all hazards. NO RIGHT OR POWER IS GIVEN TO YOU TO SELL, PLEDGE, HYPOTHECATE OR DISPOSE OF THIS MERCHANDISE regardless of prior transactions.”

10.  The plaintiff delivered the two diamonds to the 3^rd defendant.

11.  The 3^rd defendant subsequently purchased the 11.04 carat diamond at a price of US$146,450 from Leibish, settling the amount due by cheques dated 22 June 2016 and 8 August 2016.  The 17.66 carat diamond remained on consignment.

12.  In August and September 2016, a further four diamonds were consigned by the plaintiff to either the 1^st or 2^nd defendant, through the 3^rddefendant purportedly acting as their director. They were also delivered to the 3^rd defendant.

13.  The five Diamonds are the subject of these proceedings.  They were consigned by the plaintiff as follows:

Size and description	Date of consignment memo	Consignee	Value of diamond stated in memo
17.66 carats, Fancy Intense Yellow Colour, VS1	19 April 2016	2nd defendant	US$ 459,160
10.22 carats, Fancy Yellow, Pear Shape, VS1	26 August 2016	2nd defendant	US$ 224,840
13.39 carats, Fancy Intense Yellow colour, Cushion Shape, Internally Flawless	9 September 2016	1st defendant	US$ 334,750
7.54 carats, Fancy Intense Yellow colour, Radiant shape, Very Slightly Included 1			US$ 135,720
8.40 carats, Fancy Yellow colour, Cushion shape, Very Very Slightly Included 2			US$ 117,600

14.  The plaintiff’s memos pursuant to which the consignment of the latter four diamonds was made stated as follows:

“ In spite of delivery having been made, title to the goods described and valued in this invoice shall at all times remain in Leibish Asia Ltd. and the goods shall remain the property of Leibish Asia Ltd. until the customer in this invoice has made full payment to Leibish Asia Ltd. for all goods in this invoice. The customer shall promptly deliver to Leibish Asia Ltd. any of the goods as Leibish Asia Ltd. may request at any time before the property of such goods passes to the customer.”

15.  The 3^rd defendant had indicated that she wanted to purchase the 17.66 carat diamond, and Leibish issued an invoice on 29 July 2016 for US$459,160 to the 2^nd and 3^rd defendants.  The 3^rd defendant had also indicated that she wanted to purchase the 10.22 carat diamond, and Leibish issued an invoice on 8 September 2016 to the 2^nd and 3^rd defendants for the agreed price of US$183,000.

16.  On 9 September 2016, the 3^rd defendant gave the plaintiff a cheque postdated to 19 September 2018 in the sum of HK$3,561,840, in payment of the invoice of 29 July 2016 for the 17.66 carat diamond.  She later requested the plaintiff not to deposit the cheque as she said that there would be insufficient funds to settle it.

17.  On 28 October 2016, the 3^rd defendant gave the plaintiff a cash cheque for HK$500,000 and a cheque postdated to 14 November 2016, in payment of both invoices of 29 July 2016 and 8 September 2016.  Leibish successfully deposited the cash cheque.  The 3^rd defendant later requested the plaintiff not to deposit the postdated cheque as she said that there would be insufficient funds to settle it.  The cheque was deposited on 20 February 2017 and returned unpaid due to insufficient funds being in the relevant account.

18.  Despite further requests from officers of the plaintiff and Leibish for payment for, or return of, the Diamonds, the 3^rd defendant has failed to do so.  As for the 1^st and 2^nd defendants, it transpires that the 3^rddefendant is not a director of the two companies, but it is unclear whether there is some other relationship between the parties.

19.  On 14 February 2018, the plaintiff issued a writ, claiming (inter alia) against the defendants for conversion of the Diamonds, and that the defendants hold the Diamonds on trust for the plaintiff.

THE DEFENDANTS’ POSITION

20.  The defendants have not acknowledged service, and did not appear at the hearing.  I am satisfied that they have been properly served with the writ, the plaintiff’s summons of 14 February 2018, and the notice of this hearing.

THE APPLICABLE PRINCIPLES

21.  The relevant principles to be considered on this application are: 

(1) whether there is a serious issue to be tried;

(2) whether, if the plaintiff were to succeed at trial, he would be adequately compensated by damages for any loss caused by the refusal to grant an interlocutory injunction;

(3) if not, whether if the injunction were granted, the defendant would be adequately compensated under the plaintiff’s undertaking as to damages; and

(4) if there is doubt as to the adequacy of the respective remedies in damages, where the balance of convenience lies.

Whether serious issue to be tried

22.  On the facts, there is clearly a serious issue to be tried.  There is no basis to suggest that the defendants have any entitlement to retain the Diamonds.

23.  It could be said that the plaintiff can only maintain a claim against the 3^rd defendant, since it has transpired that the 3^rd defendant is not, in fact, a director of either the 1^st and 2^nd defendants, so that the 1^st and 2^nd defendants could disavow that she ever acted on their behalf.  However, the 1^st and 2^nd defendants have not made an appearance to say that this is the case.  It cannot be said at this stage that the 1^st and 2^nd defendants have had no involvement with the Diamonds.

Whether damages would be adequate remedy for the plaintiff

24.  I accept that damages would not be an adequate remedy for the plaintiff.  Whilst the Diamonds were ascribed with a monetary value at the time of consignment, they are rare items and could not simply be purchased again on the market.

25.  Furthermore, there is no indication that the defendants would be able to pay damages.  Each of the 1^st and 2^nd defendants have only $1 paid up capital.  There is nothing to suggest that the 3^rd defendant is a person of means.

Whether damages would be adequate remedy for defendants

26.  There is presently no basis to say that damages would not be an adequate remedy for the defendants should it be found that the injunction has been wrongly granted.

Balance of convenience

27.  If it were necessary to go on to consider the balance of convenience, this must also come down in the plaintiff’s favour.  There has been no defence put forward to the plaintiff’s claim and, prima facie, there has been fraudulent conduct at least on the part of the 3^rd defendant.  There has been no appearance from the defendants on the plaintiff’s summons.

ORDER

28.  I therefore granted an order in terms of the draft as amended.