XCHRX MAK KA HING v. PANG MING CHUNG

HCA12653/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.12653 OF 1999

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R U L I N G

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1. There are before me three summonses, firstly the defendant's summons dated 9 October to set aside the default judgment obtained by the plaintiff on 1 September 1999. Secondly, the plaintiff's summons dated 23 October 1999 for a Mareva injunction on the defendant's assets in Hong Kong, in particular, monies held in the name of the defendant in accounts with the Honghong and Shanghai Banking Corporation and the Hang Seng Bank. And thirdly, the plaintiff's summons dated 23 June 2000 for disclosure by the defendant of his assets within Hong Kong.

2. The writ in this matter was issued by the plaintiff on 6 August 1999 in which the plaintiff claims for the repayment of a loan of $14.9 million made to the defendant by three cheques on 19, 20 and 21 September 1993. The plaintiff also claims interest in the amount of $29,750,089.12 upon that loan on the basis that the interest was agreed at 1% per month and that the loan and interest would be repayable by 30 September 1997.

3. The plaintiff's case is that all the terms of the loan agreement were made orally between the plaintiff and the defendant and nothing was reduced into writing. No Notice of Intention to Defend having been filed by the defendant, default judgment was entered on 1 September 1999. Subsequent to such default judgment, garnishee orders to show cause were issued against four banks in Hong Kong in September 1999. The replies from these four banks reveal that in two of the four banks, namely the Hongkong and Shanghai Bank Corporation and the Hang Seng Bank Limited, there are totally some $9.2 million held in accounts in the name of the defendant. The defendant then issued a summons on 9 October 1999 to set aside the default judgment on the grounds that the default judgment was irregular since the defendant was not in Hong Kong at the time the writ was served by being sent to his address in Hong Kong. That application to set aside is supported by the defendant's travel documents showing that he was out of Hong Kong at the material time, and the plaintiff does not now oppose that application to set aside. However the plaintiff issued his summons of 23 October 1999 for a Mareva injunction in relation to the defendant's assets in Hong Kong, in particular, the $9.2 million held in the two banks.

4. This matter came before Mr Recorder Chan on 3 March 2000. By that time, it was apparent from the affidavit evidence that there was no dispute by the defendant that he did receive the $14.9 million from the plaintiff in September 1993, but that the defence case was that the $14.9 million was not a loan from the plaintiff but was money paid to the defendant and his wife, Kwai Oi Chun ("Kwai") by the plaintiff as consultancy or agency fee for the advice and services rendered by them in respect of the joint venture project in Shanghai known as the Shanghai Plaza. The hearing before Mr Recorder Chan concluded when the parties entered into an agreement with a view to disposing of those applications, which agreement I will come back to deal with in more detail later.

5. In order to fully understand the matters in dispute between the parties, it calls for some background knowledge of the joint venture project. The original partners to the joint venture project were firstly, the State Properties Limited, a Hong Kong company owning 35% of the joint venture; secondly Shanghai Just Hua Hai Metal Products Co. Ltd ("Just Hua Hai"), a Mainland company controlled by Kwai, owning 25% of the joint venture. And thirdly, two Mainland joint venture partners, being Mainland State-owned companies, holding totally 40% of the joint venture. For the joint venture project of developing Shanghai Plaza, Shanghai Hua Tian Property Development Company Limited ("Hua Tian") was set up to invest and to manage the joint venture project.

6. In 1992, the plaintiff met Kwai through the introduction of Yeung Hoi Kam ("Yeung"). In March 1993, the plaintiff and Yeung became partners in the joint venture by acquiring all the shares of State Properties Limited. It was planned to have Hua Tian listed by June 1997 when Shanghai Plaza was developed. In December 1993, the two Mainland joint venture partners sold off their 40% of the joint venture, 20% going to Just Hua Hai and 20% going to another Hong Kong company called Bright Time Company Limited. The plaintiff and Yeung Hoi Kam fell out with Kwai in 1998, amidst allegations that Kwai had siphoned off funds from Hua Tian. The matter was reported to the Public Security Bureau in Shanghai which, after investigation, brought charges involving fraud of dishonesty against Kwai. Kwai stood trial in respect of these charges in January 2000 and is still awaiting the outcome of that trial.

7. It is trite law that in order to succeed in obtaining a Mareva injunction, the plaintiff must establish firstly, a good arguable case; secondly, show that the defendant has assets in the jurisdiction; and thirdly, that there is a real risk that such assets would be dissipated or removed. In the present case, there is no dispute that the defendant has $9.2 million in accounts in his name with the Hongkong and Shanghai Bank and the Hang Seng Bank.

8. I turn now to deal with whether a good arguable case has been shown. As already indicated, while the plaintiff's case was that $14.9 million was a loan by him to the defendant. The defence case is that this money was paid to him and his wife as a consultancy or agency fee for firstly, introducing the land ultimately used to develop Shanghai Plaza; secondly, the acquisition of State Properties Limited and thirdly, the transfer of shares by the Mainland joint venture partners to Bright Time Company Limited. This allegation of the defendant is undoubtedly disputed by the plaintiff, the plaintiff has adduced evidence from Yeung Hoi Kam, a director of shareholder of State Properties Limited and Bright Time Company Limited, the Hongkong joint venture partners to the effect that he had not heard of such consultancy fee, such consultancy fee was neither discussed at nor agreed to by the Board of Directors of State Properties Limited, Bright Time Company Limited or Hua Tian and there are no records of such consultancy fees entered in any of the books of these companies. Moreover, the defendant was never involved in any negotiations relating to the project or to Hua Tian.

9. The defendant has also sought to rely on a fax memorandum Exh. PMC-8, purportedly faxed by Yeung Hoi Kam in Hong Kong to Kwai in Shanghai on 23 September 1993 in which express mention is made of the $14.9 million as a consultancy fee. Yeung Hoi Kam, on the other hand, has denied all knowledge of such a document and has exhibited a telephone bill for that fax line of the same number which shows there was no long distance call made from that fax line on 23 September 1993 to Shanghai.

10. Furthermore, the telephone number shown on Exh. PMC-8 when compared with the telephone number on another fax document Exh. PMC-18, which the defendant says was also faxed to him by Yeung Hoi Kam from Hong Kong, gives rise to at least a suspicion that both PMC-8 and PMC-18 could have been forged documents. These matters can only be determined and resolved after full evidence and cross-examination at the trial. It is not for me to decide these disputed facts here on affidavit. The plaintiff has also put before me evidence that the land for the Shanghai Plaza project was acquired by the four original joint venture partners before the plaintiff became involved in that contract by acquiring the shares in State Properties Limited. Therefore, it should not be for the plaintiff to pay consultancy or agency fees for introduction of the land for the Shanghai Plaza project.

11. Dealing with the acquisition of the State Properties Limited, the defendant alleges that one of the reason for the $14.9 million paid to him was in recognition of the contribution of the defendant and Kwai introducing the owners of State Properties Limited to the plaintiff and Yeung Hoi Kam, thus enabling them to purchase the shares of State Properties Limited. This is refuted by Yeung Hoi Kam whose evidence was that State Properties Limited was owned by one Daniel Chiu Tak Chung, a Hong Kong businessman and resident, and that the acquisition of State Properties Limited was negotiated and concluded by Yeung Hoi Kam directly with one Mr K.L. Ho, the solicitor representing Daniel Chiu's interest, and that neither Kwai nor the defendant was involved in such negotiations.

12. Turning now to deal with the transfer of shares by the Mainland joint venture partners to Bright Time Company Limited, the defendant alleges that he and Kwai had contributed by persuading the Mainland joint venture partners to sell their shares in the joint venture to Bright Time Company Limited and that was another reason for the payment of the $14.9 million to him by the plaintiff. On the other hand, the plaintiff has adduced evidence from Yeung Hoi Kam that the sale of the shares in the joint venture by the Mainland joint venture partners was necessitated by austerity measures put in place by the Central Government and not because the plaintiff or Yeung Hoi Kam had desired to acquire those shares. Yeung was approached in this respect in December 1993 by one Fung Bin Kwan of Changnin Municipal Construction and Yeung negotiated and concluded this deal directly with Fung. 40% of the shares in the joint venture held by the Mainland joint venture partners was split up into two equal halves, with 20% being acquired by Bright Time Company Limited and the other 20% acquired by Just Hua Hai. The $14.9 million was paid to the defendant in September 1993 which time is not disputed by the defendant, whereas the acquisition of the shares from the Mainland joint venture partners took place in December 1993, three months after the alleged consultancy fee was paid.

13. Apart from the disputed facts to which I have referred, Mr Whitehead who appears for the defendant, has urged me to look only at the plaintiff's case, at the lack of particularity in the plaintiff's case and the paucity of the evidence from the plaintiff relating to this alleged loan to say that the plaintiff has not made out a good arguable case.

14. In this regard, I am unable to agree with what Mr Whitehead had submitted - that I should only look at the plaintiff's allegations on its own to determine whether or not a good arguable case has been made out. Surely, it is by looking at what is alleged to be in issue between the parties that one decides whether a good arguable case has been made out as to those matters in dispute.

15. Another point taken by Mr Whitehead concerns the Money Lender's Ordinance, Cap.163. He contends that since there is nothing coming from the plaintiff to suggest that the plaintiff was not lending this sum of $14.9 million as a business, relying on the definition of "Money Lender" in that Ordinance, then I should proceed on the basis that that Ordinance applies, and that the requirements of that Ordinance has not been met by the plaintiff in this case.

16. It is clear from the evidence before me that the rate of interest claimed by the plaintiff is neither "excessive" nor "exorbitant" as defined by the Money Lender's Ordinance. The basis upon which the plaintiff says the loan was made to the defendant was that the defendant, an acquaintance of the plaintiff since 1992, had asked him for such a loan. This would suggest, prima facie at least, that the loan was made on a personal basis. If the defence case is otherwise, then I would expect some evidence from the defendant to show otherwise. In the absence of any such evidence, I cannot accept what has been contended for by Mr Whitehead. As already stated these disputed matters of facts are not for me to determine or resolve here. That would be for the trial judge after hearing all the evidence in the case. From what is in dispute and from the evidence which the plaintiff is able to put forward in respect of these disputed facts, I am satisfied that the plaintiff had made out a good arguable case.

17. Turning now to deal with the question whether or not the plaintiff has established a real risk of dissipation of assets. It is for the plaintiff to satisfy me that there is a real risk that the defendant will remove from the jurisdiction, or dissipate within the jurisdiction, his assets which is in the jurisdiction, or render them unavailable for the satisfaction of the judgment which the plaintiff may obtain at the end of the day. It is for the plaintiff to show solid evidence of the risk of dissipation. Much of the matters deposed to on affidavit by the plaintiff and of his witness allude to the fact that Kwai, the defendant's wife, has been involved in dishonest dealings in respect of the joint venture project. These matters have culminated in Kwai being investigated and being charged and tried for offences of fraud or dishonesty in Shanghai. This is not disputed by the defendant. It should, however, be made clear at the outset that the dishonesty on the part of Kwai cannot, and does not, rub off on the defendant in respect of this action. I therefore do not propose to go into any great detail of those matters.

18. The only matter which I will concern myself with relating to the dissipation of assets by the defendant concerns Flat B2, 18/F, Block B, Nicholson Tower, No.8, Wong Lai Chung Gap Road, Hong Kong ("the Nicholson Tower flat"). In his third affirmation, the defendant stated that he had acquired the Nicholson Tower flat in early 1995 at $15 million, free from encumbrance and was held by him under a company called Hi-Max Development Ltd ("Hi-Max").

19. In the hearing before Mr Recorder Chan, the parties came to an agreement with a view to dispose of the application before Mr Recorder Chan. That agreement provided firstly, the parties would agree to an adjournment of the applications generally with liberty to restore; secondly, the garnishee orders to remain in force until the disposal of these applications; thirdly, the defendant shall provide proof that he is the sole beneficial owner of Hi-Max and of the Nicholson Tower flat and that the Nicholson Tower flat is free from encumbrances other than what is shown in the land search records; fourthly, for the purpose of satisfying any judgment, the defendant shall procure Hi-Max to provide security by way of guarantee or charge on the Nicholson Tower flat in favour of the plaintiff for the sums claimed in this action and to procure the necessary consent of any shareholders and/or directors, and the execution of all documents necessary for the creation of such security; fifthly, that after satisfactory proof of the defendant's beneficial ownership in Hi-Max and of the Nicholson Tower flat and the creation of the security aforesaid, a part of the monies in the bank accounts, such part to be agreed between the plaintiff and the defendant, be released to the defendant for his use on a one-off basis and in that event, a consent order in a form to be agreed between them be entered into to dispose of all the summonses; sixthly, failing agreement, the parties be at liberty to restore the hearing of the summonses.

20. From 10 March 2000 onwards, the plaintiff's solicitors had written to the defendant's solicitors asking to be furnished with the information as agreed. On 29 March 2000, the defendant's solicitors replied stating that if the plaintiff agreed to the release of the $9.2 million in the bank accounts to the defendant, the defendant will arrange to provide the information and to procure the due execution of the charge and guarantee.

21. On 31 March 2000, the plaintiff's solicitors replied that the release of the entire $9.2 million was unacceptable since the agreement only referred to "a part of the monies" and reiterated their request for proof of ownership. On 7 April 2000, the defendant's solicitors wrote saying that the plaintiff's rejection of the release of the $9.2 million was unreasonable and agreed that the summonses should be restored for hearing. On 17 April 2000, the summonses were restored for hearing with the court. On 3 May 2000, the plaintiff's solicitors wrote to the defendant's solicitors in a further attempt to compromise saying that the plaintiff was prepared to release $3 million to the defendant pursuant to the agreement.

22. On 26 May 2000, Hi-Max sold the Nicholson Tower flat to the defendant's brother-in-law for $13 million, the sale was completed on the same day by an assignment. Thereafter, the defendant's solicitors replied the plaintiff's solicitors saying the defendant would be prepared to subject to the injunction if $4 million was released, but there would be no charge on the Nicholson Tower flat since the plaintiff had earlier rejected the defendant's offer for a charge. The defendant's solicitors also indicated that there would be no purpose in supplying the information concerning the Nicholson Tower flat. However, no mention was made of the sale and/or the assignment of the Nicholson Tower flat.

23. On 14 June 2000, the sale and purchase agreement and the assignment in respect of the Nicholson Tower flat was registered in Land Office. The evidence from the defendant now shows that apart from $500,000 retained by the defendant from the sale of the Nicholson Tower flat, the rest of the $12.5 million has been used to pay off either the defendant's debt or the debts of Hi-Max. The course that the events have taken leading up to and after the sale of the Nicholson Tower flat, in particular, the haste with which the assignment was put through and the sale being to the defendant's brother-in-law, paints a very different picture to what was stated by the defendant in his third affirmation, namely that through Hi-Max, he held the Nicholson Tower flat free from encumbrances and which was his residence in Hong Kong, that he intends to reside in Hong Kong and to become a permanent resident here and that he had no intention of disposing of his assets and was willing to undertake not to dispose of the Nicholson Tower flat until the trial of this action.

24. In all the circumstances, I am satisfied that the plaintiff has shown that there is a real risk of the defendant removing or dissipating his assets which are presently within the jurisdiction. I am also satisfied, from all the material placed before me, that the plaintiff is good for the undertaking he has given to this court through his counsel. I can see no other reason for not exercising my discretion to grant the Mareva injunction sought by the plaintiff. In the circumstances, I would exercise my discretion and grant that Mareva injunction sought, I shall now hear from counsel as to the form of the order.