JAU-HWA STEWART v. E. EXCEL LTD. AND OTHERS

HCA2493/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2493 OF 2001

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J U D G M E N T

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The present applications

1. The applications with which this particular judgment is concerned represent the concluding element within a case which was heard, as a matter of urgency, in late August of this year.

2. The earlier judgment of this court, dated 30 August 2001, speaks for itself. Suffice to say that, as the result of this judgment, this court ordered a stay of these proceedings to the Fourth Judicial District Court of Utah County, Utah, USA, and further ordered that a worldwide Mareva injunction granted ex parte by Hon. Waung J on 3 June 2001 be discharged. Absent any appeal (and there has been none) these Orders took effect as from 5:00 p.m. on Wednesday, 5 September 2001.

3. Against this background, there are now before the court two consequential matters. Both focus upon the undertaking in damages which was given to the court by the plaintiff herein on 3 June 2001 upon her application to obtain Mareva relief. The undertaking is in the following 'modern' form as now generally used, paragraph 19 of the Order of that date reciting thus :

"If the Court later finds that this Order has caused loss to the Defendants or any other party and decides that the Defendants or that other party should be compensated for that loss, the Plaintiff will comply with any Order the Court may make."

4. The defendants now seek to obtain an order against the plaintiff to enforce this undertaking and to secure a direction that there be an inquiry into the damages suffered by the defendants consequent upon the grant of the injunction. This is the first of the applications with which it is necessary to deal, and represents an adjournment of the application originally made by the defendants' senior counsel, Mr Yu SC, on 30 August 2001 at the conclusion of the delivery of the main judgment. At this stage, senior counsel for the plaintiff, Mr Kotewall SC, asked that this particular issue be stood over for argument.

5. The second application is related. By summons dated 12 September 2001, two further entities, Extra Excel (Malaysia) Sdn Bhd and Extra Excel International Limited, have applied to intervene in the present action pursuant to the provisions of RHC Order 15, rule 6. These entities, which are also represented by Mr Yu SC, are territorial distributors in Malaysia and Hong Kong, each of whom assert damage to their interests to have been caused as the result of the ex parte grant of the worldwide Mareva relief.

6. Separate resistance does not arise in terms of the intervention applications in themselves, Mr Lam (who had appeared in the main hearing with Mr Kotewall SC) for the plaintiff choosing to base his opposition to these applications upon the common basis that immediate enforcement of the plaintiff's undertaking is premature, and should be ordered to await the outcome of proceedings before the Utah court.

Applicable principles

7. Whilst there is spirited contention as to their application in the circumstances of this case, there is no serious debate about the broad principles relating to the enforcement of the undertaking. Two cases in particular assist in terms of guidance as to these principles : see Cheltenham & Gloucester Building Society v. Ricketts, [1993] 1 WLR 1545, at 1551-1552, per Neill L.J.; and Yukong Line v. Rendsburg, [2001] 2 Lloyds Rep. 113, at 119-120, per Potter L.J.

8. In both of these authorities the English Court of Appeal took the opportunity to set out the position as it has developed in this area. It is clear, inter alia, that the question whether the undertaking should be enforced is a separate question from whether the injunction should be discharged, and that the order for an inquiry as to damages is discretionary, such discretion being exercised in all the circumstances of the particular case. It is clear, also, that since the undertaking given to the court is intended to provide a method of compensating the party enjoined if it subsequently appears that the injunction has been wrongly granted, prima facie the undertaking ought to be given effect and the plaintiff ought to bear the loss save in "special circumstances". I bear these principles in mind in the present case.

The respective contentions

9. The argument of Mr Yu SC, on behalf both of the defendants and the interveners, is unexceptional. He says that the effect of the judgment of the court on 30 August 2001 is that the plaintiff should not have commenced proceedings in Hong Kong, nor invoked the court's jurisdiction to obtain a Mareva injunction. The proceedings in Hong Kong now are at an end, save and except that the plaintiff, Madam Jau Hwa, should be required to pay the price she promised to pay when invoking this court's jurisdiction - this latter point echoing the words of Neill L.J. in Cheltenham & Gloucester, op.cit., at 1551, who stated :

" (1) Save in special cases an undertaking as to damages is the price which the person asking for an interlocutory injunction has to pay for its grant. The court cannot compel an applicant to give an undertaking but it can refuse to grant an injunction unless he does. (2) The undertaking, though described as an undertaking as to damages, does not found any cause of action. It does, however, enable the party enjoined to apply to the court for compensation if it is subsequently established that the interlocutory injunction should not have been granted. ...."

10. Nor, said Mr Yu, did there exist in this case any "special circumstances" sufficient for the court to refuse or to defer the defendants' application to enforce the undertaking when (as has happened here) the Mareva relief has been discharged.

11. To the contrary, Mr Lam, in an attractive and well-modulated address, submitted that, in accordance with established practice, this court should not be persuaded to order an inquiry as to damages immediately consequent upon the stay of proceedings and the discharge of the Mareva injunction, but instead should wait until the outcome of the Utah proceedings, at which point the court "would exercise its discretion in light of the findings of the Utah court". It would not be possible, said Mr Lam, until the trial of these proceedings to determine the rights and wrongs of the allegation and counter-allegation presently to be found in the affidavit evidence, involving as they did assertions of breach of fiduciary duty and possible forgery and perjury, and although the injunction admittedly now had been discharged, this fact was not determinative of whether it had been wrongly granted. Accordingly, the appropriate course for this court to adopt was to exercise caution and to wait and see, rather than moving to enforce the undertaking at this stage, and thereby finally to determine the rights of the parties in this regard.

12. It seems to me that two points necessarily arise from this broad submission. First, I do not accept that in instances of Mareva injunctions it is the practice in Hong Kong to delay enforcement of the undertaking until the outcome of the trial. To the contrary. What may usually occur in the normal run of interlocutory injunctions does not necessarily apply in Mareva cases. In fact, in my experience the established practice in such instances is quite the opposite, and that in Mareva cases the court generally is not minded to delay enforcement of the undertaking in the manner suggested by Mr Lam. In this context, I am in agreement with the observations of Potter L.J. in Yukong Line, op.cit., at 119-120, wherein he stated :

"Inquiry as to damages

32. Whereas the usual practice in respect of interlocutory injunctions is not to order an inquiry into damages on the cross-undertaking until the merits of the action have been finally decided at trial, in cases where a Mareva injunction is involved, a defendant or other party bound in respect of whom the injunction is discharged at any stage may seek, and be granted, an inquiry into damages on the basis that, regardless of the ultimate merits of the action, the injunction was 'wrongly granted'. That term is in my view preferable to 'improperly obtained', because impropriety seems to me to carry connotations of improper conduct by the applicant, such as non-disclosure of material facts, whereas the term 'wrongly granted' covers the far wider circumstances in which the injunction may be discharged and an inquiry ordered. In respect of those wider circumstances it is necessary, for the purposes of the argument in this case, to distinguish between the position where the order is attacked on the grounds that the Court lacked jurisdiction to make it and the position where the Court makes an order within its jurisdiction but which is subsequently demonstrated or conceded to have been too wide in its scope or unjustified or inappropriate on the facts.

33. Upon discharge of a Mareva injunction, the Court has a discretion whether or not to enforce the undertaking in damages. It may enforce it by a summary award of damages: see Practice Direction (Mareva and Anton Piller Orders: New Forms) [1994] 4 All E.R. 52 at p. 54, par. (4) of which requires consideration of such a remedy when the injunction is discharged on its return date. More usually, the Court, having exercised its discretion to enforce the undertaking, may order an inquiry as to damages. In appropriate cases it may adjourn the application to the trial or further order, as in Cheltenham & Gloucester Building Society v. Ricketts, [1993] 1 W.L.R. 1545. It may decide that the undertaking is not to be enforced. However, if it is established that the injunction was wrongly granted, albeit without fault on the plaintiff's part, the Court will ordinarily order an inquiry as to damages in any case where it appears that loss may have been caused as a result."

13. The second difficulty which I perceive arising from Mr Lam's submission is the germ of the idea that the decision of the Utah court after trial ultimately may serve to establish that the injunction in fact was not wrongly granted, notwithstanding its discharge by order of this court, and that such decision in Utah then should weigh upon this court in deciding whether to order an inquiry. I do not understand why this should be said to be the case. Whatever may or may not be determined in Utah with respect to these stayed proceedings, it is unclear why such determination can or should impact upon the view as taken by this court as to the grant of this Mareva injunction.

14. The short point is that absent a successful appeal against the decision of 30 August 2001 of this court - and no appeal has been filed - it now has been decided conclusively between these parties to this action that the Mareva injunction indeed was wrongly granted, this court having held (at paragraph 75 of the Judgment) that in the circumstances the plaintiff failed both to establish a good arguable case and also to convince the court that it was 'just and convenient' for the injunction to continue. In fact, it is clear on the face of the judgment that a firm view was taken as to the necessity for such discharge.

15. Viewed in this light, therefore, I am unable to discern the relevance of what may or may not henceforth occur in the Utah, albeit in so saying naturally I mean no disrespect to the Utah courts. The case in Utah may or may not proceed in its current form, issues as currently framed may or may not finally be decided, and in any event it may well be that in Utah such matters will be decided by a jury, which provides no reasons for its verdict. Such practical considerations, however, should not be permitted to obscure what I perceive as the cardinal point (a fortiori in the case of stayed proceedings), which is that future developments in the litigation need have no effect upon the present decision. This appears to be that which Neill L.J. had in mind in Cheltenham & Gloucester Building Society, op.cit., at 1551-1552, in quoting the approach of Scott J. in Columbia Pictures Inc. v. Robinson, [1987] Ch. 38, an Anton Piller case, to the effect that "evidence at the trial could not be relied on to justify ex post facto the making of an ex parte order if, at the time the order was made, it ought not to have been made".

16. In the context of the present argument it appears to have been overlooked, also, that so far as the 2nd to 5th defendants are concerned, the writ and service thereof in these proceedings were set aside (paragraphs 41-44 of the Judgment refer), given that the jurisdictional requirements of Order 11 had not been satisfied, in terms both of a good arguable case and also in terms of the further Order 11 requirement that it be demonstrated that Hong Kong constituted the forum conveniens - which in this instance patently was not the position, given the decision to stay these proceedings in favour of Utah precisely upon the forum conveniens basis. So that, absent such primary jurisdiction, there could in any event be no question but that, in terms of the 2nd to 5th defendants, an inquiry naturally must follow immediately. As Potter L.J. observed in Yukong Line, op.cit., at 120, if the reason for the discharge of the injunction is that the Court lacked jurisdiction to make it in the first place, "it is difficult to envisage any circumstances" wherein an inquiry would be refused.

17. It follows from the foregoing, therefore, that I reject Mr Lam's submissions. Accordingly, given that which Mr Yu submits is the defendants' prima facie right to enforce the undertaking, the only remaining question is whether the plaintiff can demonstrate that there are "special circumstances" which would make it inequitable to allow the defendants so to do, and which would justify the court in refusing to order enforcement of the undertaking. As Lord Diplock noted in F. Hoffmann- La Roche & Co. A.G. and Others v. Secretary of State for Trade and Industry, [1995] AC 295, at 361D :

"....(The court) retains a discretion not to enforce the undertaking if it considers that the conduct of the defendant in relation to the obtaining or continuing of the injunction or the enforcement of the undertaking makes it inequitable to do so, ...."

18. I am unable to divine the existence of any such "special circumstances" in this case which would justify refusal of the defendants' application. Unsurprisingly in the particular circumstances, it has not been suggested that there can have been no damage occasioned by the grant of this worldwide Mareva injunction, and I agree with the contention that the mere existence of factual disputes requiring resolution at the trial cannot amount to "special circumstances" justifying deferral of the application to enforce the undertaking upon discharge of the injunction. So far as enforcement is concerned, the 'trigger' for such in my view lies not in the plaintiff's ultimate success or otherwise in the action, but in the fact that the court is of the opinion that the injunction should not have been granted (which is reflective of the terminology of the 'old' form of undertaking), so that opposition to enforcement upon the basis that the plaintiff ultimately may win at trial is tantamount to asking that the obligations within the undertaking be recast.

19. At the end of the day, the matter is one for the court's discretion. I have reflected again upon the circumstances of this case (which I note are very different from those in Cheltenham, op.cit.), together with the arguments of counsel, and I have concluded that no appropriate basis exists to adjourn the present application until trial or further order.

20. For the foregoing reasons, therefore, the Orders of this court on the applications presently before it are as follows :

(i) Leave be granted to the 1st and 2nd Interveners herein, namely, Extra Excel (Malaysia) Sdn Bhd and Extra Excel International Limited, to intervene in the action herein for the purpose of participation in the inquiry as to damages specified in subparagraph (ii) below;

(ii) Pursuant to the plaintiff's undertaking as to damages as contained in paragraph 14 and Schedule 2, paragraphs 19 and 24 of the Injunction Prohibiting Disposal of the 1st, 2nd, 3rd, 4th and 5th Defendants of Assets Worldwide granted by Hon. Waung J on 3 June 2001, an inquiry be directed as to the amount of damages suffered by the 1st to 5th defendants and the 1st and 2nd Interveners herein;

(iii) That such inquiry as aforesaid be conducted before a Master, who shall make all necessary directions for the conduct of such inquiry;

(iv) There be an order nisi that the costs of the application to intervene dated 12 September 2001 be reserved to the Master seized with conduct of the inquiry;

(v) There be an order nisi that the costs of the adjourned hearing of the defendants' application to enforce the undertaking in damages on 17 September 2001 be to the defendants herein, to be taxed if not agreed; and

(vi) There be liberty to apply.

21. Should any difficulty arise as to the form of these Orders, naturally I will hear the parties upon an early date to be fixed. I would add, finally, and for the benefit of the Taxing Master, that I decline Mr Chua's application for a Certificate for Two Counsel for the hearing of this matter on 17 September. This court is always assisted by senior counsel, but it seems to me that on this occasion, and in light of the calibre of junior counsel on each side, that a certificate is not justified.